| PERFORMANCE HIGHLIGHTS | ||
| Total return performance to 31 December | One year % | Five years % |
| Benchmark1 | 8.1 | 31.0 |
| NAV2 | 9.8 | 43.6 |
| Share price3 | 0.9 | 33.6 |
| FINANCIAL HIGHLIGHTS | 2023 | 2022 |
| NAV per share4 | 169.58p | 164.24p |
| Mid-market price per share | 156.50p | 165.25p |
| Revenue return per share | 10.39p | 10.37p |
| Net assets | £222.3m | £214.3m |
| Dividend for the year | 10.35p | 10.15p |
| Dividend yield5 | 6.6% | 6.1% |
| Ongoing charge for the year6 | 0.86% | 0.84% |
| Gearing | 21.4% | 21.4% |
| 1 | The benchmark is a composite of 80% of the FTSE All-Share Index (total return) and 20% of the ICE BofA Sterling Non-Gilts Index (total return) rebalanced annually |
| 2 | Net asset value with debt at fair value per ordinary share total return (including dividends reinvested and excluding transaction costs) |
| 3 | Includes dividends reinvested |
| 4 | Net asset value with debt at fair value as published by the Association of Investment Companies (AIC) |
| 5 | Based on the dividends paid or announced for the year and the share price at the year-end |
| 6 | Calculated using the methodology prescribed by the AIC |
| Sources: Morningstar Direct, Janus Henderson Investors. All data is either as at 31 December 2023 or for the year-ended 31 December 2023. |
| CHAIRMAN’S STATEMENT Performance 2023 was generally a positive year for investment returns. The Company’s Net Asset Value (NAV) Total Return was +9.8% compared with the benchmark return of +8.1%, an outperformance of +1.7%. The Company’s share price total return was less impressive at +0.9%, with the share price ending the year at a discount to NAV of 7.7% (having started 2023 at a small premium of +0.6%), compared with the average discount for the UK equity income sector of 5.7% at the end of 2023. The year was characterised by considerable volatility within financial markets. Centre stage were elevated inflation levels and correspondingly higher interest rates as policy makers around the globe focused on trying to tame pricing pressure and strong wage settlements. As the year unfolded it became clear that inflation may have peaked and investors began to focus on the likelihood that interest rates could start to fall during 2024. The backdrop of rising geopolitical tensions also contributed to the volatility in markets, not least due to the impact of continuing energy price pressure and firmer global shipping costs. However as 2023 progressed energy prices started to fall significantly which helped inflation forecasts to soften. Against this volatile backdrop, returns from equities were generally superior to fixed interest investments as company profits and dividend payouts remained robust and investors were focused more on the ability of equities to provide greater protection against the impact of inflation. The Company’s outperformance during the year of +1.7% versus the benchmark (80% FTSE All-Share Index, 20% ICE BofA Sterling Non-Gilts Index) was mainly due to good equity stock selection and a positive contribution from gearing. Dividends The Company’s investment objective is to provide investors with a high dividend income stream while also maintaining the prospect of capital growth. As highlighted in my statement in 2022, a period of higher inflation makes this objective even more important for shareholders. The relatively resilient performance of UK companies, which continue to represent the large majority of the Company’s investments, in 2023 and their ability to pay out healthy dividends ensured that the Company was able to provide a high level of income to shareholders during the year whilst also enabling a small amount to be added to reserves. At the end of 2023, the Company held approximately £8.9 million in revenue reserves which equates to 6 months of cover over the full year dividend on the enlarged shareholder base (following the combination with Henderson Diversified Income Trust plc, the details of which are below). During 2023 the Board recommended the payment of dividends totalling 10.35 pence per share, an increase of 2.0% over the payment in 2022. This increase represented the 11th consecutive year of dividend growth from the Company. The Board spends a considerable amount of time throughout the year focusing on the prospects for future income levels and the impact on dividends, based on detailed forecasts which the Company’s Fund Manager regularly updates. The Board remains confident that the Company can continue to deliver a high level of income to shareholders. Gearing The Company’s policy on gearing is provided in the Annual Report. With the cost of borrowing increasing sharply in 2023, the Board regularly reviewed the level of gearing with the Fund Manager during the course of the year to evaluate whether it remained appropriate and at a level commensurate with achieving targeted income levels. During 2023 overall borrowings and gearing remained consistent with 2022. As a percentage of net assets, gearing finished the year at 21.4%, in line with the level at the start of the year. Overall asset allocation changed little during the year with the Company continuing to favour equities over fixed interest investments. Compared with its benchmark of 80% equities/20% bonds, the Company had a weighting of around 89% in equities and 11% in bonds at the year end. In December 2023 the Company renewed its bank borrowings, agreeing a committed loan facility of £45 million with BNP Paribas, London Branch. This facility included the option to increase borrowings by a further £25 million, up to £70 million, of which an extra £15 million was utilised in January 2024 following the combination with Henderson Diversified Income Trust plc. The facility has a duration of 12 months and the terms on which the facility was agreed were competitive. Combination with Henderson Diversified Income Trust plc In October the Board announced that it had agreed terms with the Board of Henderson Diversified Income Trust plc (HDIV) in respect of a proposed combination of HDIV with the Company, which if approved by each company’s shareholders, would be effected by way of a Scheme of reconstruction and winding up of HDIV under Section 110 of the Insolvency Act 1986. I am very pleased to say that the combination was approved by both companies’ shareholders and as a result investors representing approximately 55% of HDIV’s shares became shareholders in the Company in January 2024. This meant that the Company was able to issue some £72 million of new shares which will improve the liquidity and marketability in the Company’s shares and also help to spread the Company’s fixed costs across a larger shareholder base which is in the interests of all our shareholders. On behalf of the Board, I would like to extend a warm welcome to new shareholders. Responsible Investment Responsible investing relates to how environmental, social and corporate governance (ESG) factors impact a company over the long term. Analysis of the resilience of a business and its profits has always been at the core of the Company’s investment strategy, and ESG factors are fully integrated into the investment processes employed by the Fund Manager.The Board believes that voting the Company’s shareholdings at general meetings is essential to good corporate stewardship and is an effective means of expressing its views on the policies and practices of its investee companies. Voting decisions reflect the provisions of Janus Henderson’s ESG Corporate Statement and ESG Investment Principles which are publicly available at www.janushenderson.com and records the high standards of corporate behaviour that are expected. Ultimately, however, our Fund Manager makes the final decision after consultation with the Board, as necessary.Janus Henderson will actively engage with those companies that fall below such expectations to encourage improvement over time. The final sanction is the divestment of those holdings that fail to make an acceptable transition and adapt sufficiently. The Board monitors the process by reviewing a report on the Company’s voting pattern on an annual basis. For an overview on how Janus Henderson engaged with companies in which the Company is invested, please refer to the ESG Section in the Annual Report. AGM We look forward to seeing as many of our shareholders as possible at our AGM which will be held at 12 noon on Tuesday, 14 May 2024 at the offices of Janus Henderson at 201 Bishopsgate, London EC2M 3AE. David Smith, the Company’s Fund Manager, will give a presentation on the Company’s portfolio and performance, and you will, as usual, have the opportunity to talk to the Board, David and other Janus Henderson representatives. We very much welcome your comments and questions at the AGM and we would encourage those of you who are unable to attend in person to use your proxy votes and to watch the AGM live by logging onto www.janushenderson.com/trustslive. Prospects and Outlook The key drivers for investment markets in 2024 will be the path of global interest rates in response to the level of inflation and the outlook for corporate profits as companies respond to rising costs. Generally, global economic activity remains relatively robust against the backdrop of higher borrowing costs, with overall levels of corporate profitability and consumer demand resilient, albeit China’s recovery from the pandemic continues to disappoint. Investors believe that inflation will soften appreciably by the middle part of the year, driven not least by lower energy costs, enabling policy makers to begin reducing interest rates and helping to achieve a relatively soft landing for global economies. Policy makers are, however, continuing to caution against a rapid reduction in interest rates as service sector inflation remains too high in the West, and increasing geopolitical tensions may lead to persistently higher shipping costs. In addition, there are upcoming electoral issues to be mindful of, particularly in the US and of course the UK. Your Company holds the large majority of its investments in UK companies. The relative valuation of the UK equity market continues to look attractive when set against other global equity markets and both international and domestic investors have by historic standards a very low exposure to UK assets with the scope for that weighting to increase. Within the portfolio, there is a good balance between larger companies with more international exposure and attractively valued smaller and medium sized UK companies which stand to benefit if the outlook for UK activity starts to improve. As ever the Board and the Fund Manager remain focused on the Company’s primary investment objective of continuing to deliver a high level of income for shareholders while also targeting longer term capital growth. Jeremy Rigg Chairman 27 March 2024 |