Henderson International Income Trust Annual Financial Report 2021

26 October 2021

 

HENDERSON INTERNATIONAL INCOME TRUST PLC

 

Annual Financial Report for the year ended 31 August 2021

 

This announcement contains regulated information

 

PERFORMANCE AT 31 AUGUST

Total return performance for year to 31 August	2021 %	2020  %
NAV1 (debt at par)	22.7	(3.0)
NAV1 (debt at fair value)	23.5	(3.3)
Share price2	18.5	(5.2)
Benchmark3	26.9	8.1
AIC Global Equity Income sector	26.1	(0.8)

 

 

Performance at 31 August	2021	2020
NAV per share at year end (debt at par)	181.7p	153.5p
Discount (debt at par)	(8.7)%	(5.2)%
NAV per share at year end (debt at fair value)	179.4p	150.5p
Discount (debt at fair value)	(7.5)%	(3.3)%
Share price at year end	166.0p	145.5p
Net assets	£356.2m	£300.9m
Dividend in respect of year4	6.30p	6.00p
Dividend yield at the year end5	3.8%	4.1%
Ongoing charge for year6	0.83%	0.85%
Gearing at year end	4.5%	11.4%

 

 

Dividend growth since launch to 31 August 2021
	20117	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021
Total dividend	1.40p	4.00p	4.05p	4.25p	4.50p	4.65p	4.90p	5.30p	5.70p	6.00p	6.30p

 

 

Dividend yields at 31 August	2021	2020
Company	3.8	4.1
Benchmark8	1.6	1.9
AIC Global Equity Income sector	3.2	4.1

 

1 Net asset value (“NAV”) total return per share (including dividends per share reinvested)

2 The Company's share price total return (assuming the reinvestment of all dividends excluding dealing expenses)

3 MSCI World (ex UK) Index (sterling adjusted)

4 Includes the fourth interim dividend in respect of the year ended 31 August 2021 declared on 26 October 2021 to be paid to shareholders on 30 November 2021

5 Calculated based on the closing share price at 31 August 2021

6 Calculated using the methodology prescribed by the Association of Investment Companies (“AIC”)

7 Four-month period from launch on 28 April 2011 to 31 August 2011

8 MSCI World (ex UK) Index in US$

Source: Morningstar Direct, Funddata, Janus Henderson, Refinitiv Datastream

 

INVESTMENT OBJECTIVE

• The Company's investment objective is to provide shareholders with a growing total annual dividend, as well as capital appreciation.

 

INVESTMENT POLICY

• The Company will invest in a focused and internationally diversified portfolio of 50-80 companies that are either listed in, registered in, or whose principal business is in countries that are outside the UK and will be made up of shares (equity securities) and fixed interest asset classes that are diversified by factors such as geography, industry and investment size. A maximum of 25% of gross assets may be invested in fixed interest securities. The Company does not hold investments in unlisted companies unless it is through subsequent delisting of a listed security.
• Investment in any single company (including any derivative instruments) will not, in gross terms, exceed 5% of net assets at the time of investment and no more than 15% of gross assets may be invested in other listed investment companies (including investment trusts) or collective investment schemes. No more than 10% of gross assets may be invested in companies that themselves invest more than 15% of their gross assets in UK listed investment companies or collective investment schemes.
• The Company may use financial instruments known as derivatives for the purpose of efficient portfolio management, for investment purposes or to generate additional income while maintaining a level of risk consistent with the risk profile of the Company. The Company may hedge exposure to foreign currencies up to a maximum of 20% of gross assets and may generate up to a maximum of 20% of gross income through investment in traded options.
• The Company can borrow to make additional investments with the aim of achieving a return that is greater than the cost of borrowing. The Company's articles of association allow borrowings up to 100% of net asset value. In normal circumstances, the manager may only utilise gearing up to 25% of net assets at the time of drawdown or investment (as appropriate) in accordance with the board's policy and for these purposes 'gearing' includes implied gearing through the use of derivatives.

  

CHAIRMAN'S STATEMENT

 

Performance and markets

• Over the year, the net asset value (“NAV”) total return per ordinary share has risen by 22.7% (debt at par) and by 23.5% (debt at fair value). The total return on the ordinary share price was 18.5%, this figure includes total dividends of 6.30p per ordinary share, an increase of 5.0% on the previous year. This year marks the tenth anniversary of the Company and the tenth increase in annualised dividend growth. These returns compare to a total return of 26.9% for the MSCI World (ex UK) Index (sterling adjusted) (“MSCI World Index” or “benchmark”).
• During the financial year the Covid pandemic has continued to disrupt the functioning of society. It has been a period of immense uncertainty and, in many places, human tragedy. A combination of government support and human ingenuity has kept economies functioning, and the advent of vaccines to reduce the transmission and impact of the virus has given the world hope it can start to return to normality.
• Equity markets generally look forward rather than dwelling on past events, and have performed strongly since the first vaccines were created in autumn 2020. The double-digit returns generated over the period reflect the low starting point; in reality, the actual economic recovery has been uneven and punctuated by recurring lockdowns around the world.
• The portfolio has benefited from the economic recovery, generating considerable capital appreciation plus revenue growth year-on-year. The recovery has been led by a combination of highly cyclical companies rallying on a strengthening economic recovery and high growth companies. More defensive equities have appreciated but have lagged the market. In some regions, there was a large number of dividend cuts during 2020. In the UK, for example, almost half of FTSE 100 companies cut their dividends, reinforcing the importance for investors of diversifying their income streams globally in a portfolio such as HINT's. This year, the news globally has been much more encouraging, and many companies have reinstated their dividends, indicating that dividends as a form of shareholder return will still form an important part of investors' returns.
• Despite the reinstatement of dividends, higher dividend yield indices have underperformed the broader market again this year. As a result of the Company's income objective, portfolio composition can differ significantly from the MSCI World Index which can lead to significant variations in performance between the two. The yield on the Company's benchmark is not in line with Company's income objective. The board is reviewing the options to ascertain whether there is a more appropriate index by which to measure the Company's performance that is more aligned with its objectives, and will update shareholders on its findings in due course.  Information about the portfolio's performance over the period can be found in the fund manager's report. The Company has delivered dividend growth to shareholders again this year, however the value and income bias of the portfolio has meant that performance against some of the other KPIs has been more difficult in the short term. The key performance indicators (“KPIs”) are detailed in the full annual report.

 

Strategy, growth and corporate activity

• Since your Company's original listing, the board's strategy has been to provide a high and rising level of dividends as well as long-term capital appreciation, whilst building a revenue reserve.
• The board has reviewed your Company's dividend policy and the preferences of current and prospective investors, and concluded that investors would prefer to receive a greater proportion of HINT's total return by way of an enhanced dividend. Accordingly, your board is increasing the fourth interim dividend by 20% to 1.80p per share for the quarter ended 31 August 2021 and will continue its commitment to an attractive, progressive dividend going forward. Dividends from the portfolio will remain an important contribution to the Company's distributions, but to the extent that, in any year, dividends are not fully covered by underlying revenue, your board will utilise realised capital gains. This will give shareholders confidence around future distributions and the investment team flexibility to invest in the most attractive opportunities. The board believes that the investment strategy and approach followed by our manager will deliver the best total return over the medium to long term in a combination of income and capital growth.
• We remain willing to issue further shares at appropriate times. This is to provide greater liquidity in our shares and to lower our fixed costs per share. Since inception, management fee reductions combined with the increase in the size of the Company have been the two principal factors that have led to a fall in the ongoing charge from 1.38% (as at 31 August 2012) to 0.83% this year.

 

Earnings and dividends

• We are pleased to announce a total dividend increase from 6.00p to 6.30p per ordinary share for the year to 31 August 2021. The year consisted of a first, second and third interim dividend of 1.50p per ordinary share, and the fourth interim dividend of 1.80p, which will be paid on 30 November 2021.
• The revenue returns increased year-on-year by 10% to £11,733,000. Whilst most of the portfolio's holdings have paid dividends, there are still a few that have delayed until after the year end.  As a result, it has been necessary to use a relatively moderate amount of revenue reserves to support dividends this year (£27,000 of the £7,164,000 at the start of the year). We continue to recognise the importance of regular dividend income to our shareholders and will continue to use reserves to complement the income generated by the portfolio.

 

Gearing

• Well-judged gearing enhances returns to shareholders. The board's current policy is to permit the fund manager to gear up to 25% of net assets at the time of drawdown or investment, as appropriate. Borrowing limits for this purpose include implied gearing through the use of derivatives. The gearing at the period end was 4.5% (31 August 2020: 11.4%).

 

Liquidity and discount management

• The board continues to monitor the premium/discount to NAV and will consider appropriate action if the relationship between the NAV and share price moves and remains out of line with the Company's peer group. Nonetheless, there is a distinct limit to the board's ability to influence the premium or discount to NAV. We consider that it is not in shareholders' interests to have a specific issuance or buy-back policy. However, to retain flexibility, we reserve the ability to implement share issues or buy-backs, where appropriate, and subject to market conditions.

 

Ongoing charge

• The ongoing charge for the year to 31 August 2021, as calculated in accordance with the Association of Investment Companies (“AIC”) methodology was 0.83% (2020: 0.85%).

 

Annual general meeting

• The eleventh annual general meeting (“AGM”) of the Company will be held, subject to any Covid restrictions, on Tuesday, 7 December 2021 at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE. The notice of meeting and details of the resolutions to be proposed are set out in a separate document which accompanies the annual report. Ben Lofthouse, the fund manager, will give a presentation at the meeting.
• For any shareholders unable to travel, I invite you to join by Zoom webinar, and details of how to register are set out in the notice of meeting. As is our normal practice, there will be live voting for those physically present at the AGM. However, due to technical restrictions, we cannot offer live voting by Zoom, and we therefore request all shareholders, and particularly those who cannot attend physically, to submit their votes by proxy to ensure that their vote counts at the meeting.

 

Board composition

• Following the retirement of Bill Eason and Kasia Robinski at last year's AGM, Jo Parfrey was appointed as a director and the new chair of the audit committee on 1 January 2021. Jo is a chartered accountant and brings to the board strong investment and financial, analytical and risk management skills.
• As previously reported, I will be standing down as chairman of the board and a director of the Company at the conclusion of the 2022 AGM. This will conclude five years' service as chairman of the board, following six years' service as audit committee chairman. It is anticipated that the nominations and remuneration committee will start looking for my replacement in early 2022.

 

Outlook

• The Company was launched with a flexible mandate with which to achieve the aim of offering investors income and capital growth, with the protection of diversification by sector and geography. The last few years have tested that adaptability; the US has entered a new phase regarding its relationship with China, the UK has left the European Union, and a pandemic has brought the world to a standstill. Whilst asset values have experienced volatility over the period, investors have seen their income and capital grow. The nature of an investment company gives it some advantages over other investment vehicles, including a fixed pool of assets so sales are not forced at the wrong time, the ability to maintain distributions through the cycle, and the ability to utilise gearing to enhance returns. Hopefully the world is through the worst of the pandemic, and investors can look forward to a smoother ride. Change is inevitable though, and the board believes that the revised dividend policy will add to the advantages the Company has to serve investors' needs in coming years.
• The board and investment team remain focused on delivering the Company's objectives and, where possible, taking advantage of opportunities as they arise. Interest rates remain at record lows, and against this backdrop the Company's objective of delivering an appealing income from a diversified portfolio of holdings remains highly relevant. The Company will continue with its existing strategy of identifying companies that are attractively valued, pay a sustainable dividend and have the capacity to grow their earnings and dividends over the medium to long term.

 

 

Simon Jeffreys

Chairman