Final Results

RNS Number : 1544O

Henderson Opportunities Trust PLC

04 February 2016

 

HENDERSON OPPORTUNITIES TRUST PLC

Annual Report for the year ended 31 October 2015

This announcement contains regulated information

Chairman's Comment

"The NAV total return was 13.5% in the year. Our benchmark, the FTSE All-Share returned 2.9%. Over the long term the NAV total return and share price performance continue to be excellent. The proposed final dividend is 13.0p giving a total for the year of 18.0p, an increase of 44%.

In the currently volatile market conditions, we will continue to focus on a diverse portfolio of strong companies whose valuations do not reflect their potential, an approach that has served us well over many years."

George Burnett, Chairman

Total Return Performance (including dividends reinvested)

	1 year %	3 years %	5 years %
Share Price 1	6.3	98.6	129.1
Net asset value per ordinary share 2	13.5	72.7	102.8
AIC UK All Companies Sector (Peer Group) Average - net asset value 3	15.4	58.9	82.6
FTSE All-Share Index	2.9	27.4	40.9

¹ Source: Morningstar for the AIC

² Source: Morningstar for the AIC using cum income fair Value NAV

³ Size weighted average (shareholders' funds)

Performance Highlights

	Year ended 31 October 2015	Year ended 31 October 2014
Share price total return1	6.3%	9.3%
NAV per share at year end	1,012.5p	903.7p
Dividend for the year2	18.0p	12.5p
Net gearing at year end	18.3%	14.3%
Share price at year end	910.3p	869.5p
Total return per share	122.6p	30.2p
Dividend yield3	2.0%	1.4%
Discount at year end4	10.1%	3.8%

1 Share price total return using mid-market closing price

2 2015 total dividend is subject to approval of the final dividend at the AGM

3 Based on the share price at the year end

4 Calculated using published daily NAVs including current year revenue

Sources: Morningstar for the AIC, Henderson, Datastream

 

Chairman's Statement

Review of Performance

The Net Asset Value ('NAV') total return for the year ended 31 October 2015 was 13.5%, while the FTSE All-Share, our benchmark, returned 2.9%. As in the previous year, the Company had a stronger first half than second, as a result of market volatility. In both six month periods the Company outperformed the benchmark. The share price total return in the year under review was 6.3%, which, while comfortably ahead of our benchmark, lagged the NAV total return as discounts widened across the sector, reflecting general investor uncertainty. Over the longer term, the NAV and share price total return performance has continued to be excellent, as shown in the table below:

	3 years	5 years
FTSE All-Share (total return)	27.4%	40.9%
NAV (total return)	72.7%	102.8%
Share price (total return)	98.6%	129.1%

Earnings & Dividends

The revenue return was 22.51p compared with 15.17p last year. The final dividend, subject to shareholder approval, of 13.0p will be payable on 24 March 2016 to Shareholders on the Register of Members on 12 February 2016. The shares will be marked ex-dividend on 11 February 2016. The total dividend for the year is 18.0p an increase of 44% on the previous year. Dividends received have been increasing as a result of the improved profits and strong balance sheets of the companies in the portfolio and it is expected that this good dividend growth will continue. In consequence, the Board is optimistic that our progressive dividend policy seen in recent years can be maintained.

Fees & Expenses

The ongoing charge excluding the performance fee for the year is 1.02% of the daily average net assets over the year. This is the same as in 2014. The ongoing charge including the performance fee is 1.96%, compared with 1.22% in 2014. The performance fee payable to Henderson is £765,000 which equates to 0.94% of average net assets, reflecting performance that was comfortably ahead of the benchmark. This is the maximum allowed under the current agreement.

Following a review, the Board and Henderson have agreed a revised, and reduced, fee basis effective from 1 November 2015. The base management fee will now be charged at a rate of 0.55% of net assets per annum (previously 0.60% per annum on the first £100 million of net chargeable assets - effectively gross assets - and 0.50% per annum thereafter). The existing performance fee arrangements have been retained. The cap on total fees that can be earned in any financial year is now 1.5% of the average net assets over the year (previously capped at 1.65%).  Although this is a related party transaction, under the Listing Rules (11.1.10) it is not necessary to seek shareholder approval for the change in fees, given the nature of the transaction. Full details of the fee arrangements can be found on page 6 of the Annual Report.

Continuation Vote

On 29 April 2014 the continuation vote was passed by a large majority. The next one will be in 2017 in line with our three year cycle.

Buy-Backs and Share Issuance

There were no buy-backs carried out during the year nor were any shares issued.

AGM

Our Annual General Meeting will be held at 2.30pm on 17 March 2016 at the registered office, 201 Bishopsgate, London EC2M 3AE. The Notice of Meeting is set out in the separate circular to shareholders that accompanies this Annual Report. The Directors will vote their own shareholdings in favour of all the resolutions to be put to the AGM and the Directors recommend that shareholders support all the resolutions. In addition to the formal business of the meeting, the Fund Managers, James Henderson and Colin Hughes, will give a presentation following which afternoon tea will be served.

Investment Strategy

The objective of our Fund Managers is to find and hold stocks that are good businesses with attractive valuations, diverse customer bases and sound prospects, capable of delivering substantial growth over time. These companies will be found across the market capitalisation range but there will usually be a focus on smaller companies, many of which are overlooked or under researched and therefore offer greater potential for performance in the longer term. Your Board believes that a major contributor to the strong performance over the last five years has been the effectiveness of the Fund Managers' stock picking and the fact that they spend a great deal of time researching and meeting with investee companies, which includes 400-500 face to face meetings each year.

Gearing

The net gearing has been in the range from 13%-20% of net assets during the year. At the year end, the net gearing was 18.3%. The intention is to retain a reasonable level of gearing while there are good investment opportunities and valuations are undemanding. Although the bias of the portfolio is to smaller and medium sized companies, we monitor the relative liquidity of the portfolio to ensure that gearing levels can be quickly adjusted whether for opportunistic or defensive reasons.

The Board

As part of our succession planning, we welcomed Frances Daley to the Board in June 2015. Frances comes with a wealth of knowledge gained in the financial and commercial sectors, as well as current investment trust experience. I have indicated to the Board my intention to stand down as Chairman with effect from the conclusion of the upcoming AGM. I am pleased to report that my colleagues have chosen Peter Jones to succeed me as Chairman and I wish Peter every success in his new role. On my departure the Board will revert to having five Directors.

I should like to place on record my appreciation of my Board colleagues for their diligence, their independence of thought and their consistent focus on the best interests of the Company. It has been a pleasure to work with them.

Outlook

The macroeconomic picture is being fiercely debated by investors. Some see the first signs of inflation picking up and the need for interest rates to rise, while others hold the opposite view that over capacity will ensure inflation remains subdued and corporate profit margins will fall. Our Fund Managers do not think they can add value by debating economics and believe their time is better spent focussing on individual strong companies with excellent technology, products and services which will be navigated through any economic turbulence by their good management. We believe that companies with these attributes are well represented in the portfolio and their valuations do not reflect their potential.

This approach will mean that the portfolio is never immune from bouts of relative weakness as a combination of disappointing performance by a handful of companies in our relatively long list and macro-economic worries make investors risk averse. We have since the year end experienced such a period with the NAV falling 10.3% from 31 October 2015 to 1 February, while the FTSE All-Share has fallen 4.1%. However, it is an approach that has served shareholders well over many years and we believe will continue to do so as good corporate results in aggregate come through.

I commend to you our Fund Managers James and Colin, whose enthusiasm and dedication to the Company's interests, combined with their excellent, often contrarian, stock picking skills have produced such strong long term performance.

In conclusion, I should like to thank you, our shareholders, for your support, and I wish you and the Company well.

George Burnett

Chairman

4 February 2016

Fund Managers' Report

Investment Background

The UK economy is growing at around 2.5% per annum yet many major UK companies are having a difficult time with a diverse range of the major UK companies having cut or at risk of cutting their dividends. From the FTSE 100, there have been cuts from 8 stocks in 2015 including Tesco, Glencore and Rolls Royce. These are very different businesses; all three were considered very successful a few years ago but all three have seen their share price fall by more than 50% in recent years. The reason for this in a period of reasonable economic growth lies in the rapid nature of change. The life cycle of companies is getting shorter and the need for them to reinvent themselves to meet changing demand patterns requires a fast moving, flexible culture. The seeds for future decline often lie in the reasons for their current successes. In corporate life, it is difficult to abandon an approach that has worked well and face up to change before the approach becomes outdated.

The global economy is expanding at a slower pace than previously expected, especially in China where the economy has been important in fuelling output growth in recent years. Financial markets have rapidly discounted these concerns as investors may be over reacting as the Chinese growth drivers in the medium term remain in place.

Performance

The Company has had another good year with the Net Asset Value ('NAV') returning 13.5% and the share price rising by 6.3% while, our benchmark index, the FTSE All-Share Index returned 2.9%. As in 2014, the two halves of our financial year have produced very different returns, owing to volatile markets. In the six months to 30 April 2015, the NAV rose by 17.6%, the share price by 7.5% and the benchmark by 9.2%. In the second half-year, as market sentiment cooled towards some of the higher risk holdings, our strong positioning in that segment of the market saw the NAV fall by 4.1% and the share price by a more modest 1.1%. Our benchmark index fell by 5.7% as large consumer staples like the tobacco companies performed well whereas cyclicals like global miners performed poorly.

For the five years from 31 October 2010 the NAV has risen by 102.8%, the share price by 129.1% and our benchmark by 40.9%.

Investment Approach

As long term investors, we spend a considerable amount of time researching and meeting companies in whom we may or may not invest on your behalf. This long term approach is reflected in a holding period of typically between three and five years; however, we do remain open to shorter term opportunities. These are more likely to arise when investors' confidence levels are high. Our typical holding period not only reflects our approach but also an appreciation that the cycle for any business to grow and mature is not necessarily easily reconciled with the volatility of a stock market which can be subject to external macro shocks in combination with its own cycle of fads and fashions.

The portfolio is a mixture of large, medium and small companies. We employ a number of valuation techniques but are not slavishly reliant upon any one methodology in arriving at our portfolio selections. We enjoy building relationships with the senior executive teams of our portfolio companies and will meet with them a number of times during the course of a typical year. This will include formal results presentations as well as informal discussions and site visits where appropriate. Over the course of the last three years, we have had in excess of 1,250 face to face meetings and company visits.

The number of holdings increased marginally over the year from 89 to 92, including one unlisted investment which we describe later. In 2011, it was 82 but, fell slightly the following year to 77 before rising to 86 in 2013. We believe that this range is about right for a portfolio of this value, providing enough diversification to mitigate risk while providing enough concentration to make the winners pay. Having moved up the market capitalisation scale over the last few years we eased back in both 2014 and 2015 finishing the year with 29.6% in FTSE 100 and FTSE 250 stocks. Nevertheless, we have maintained exposure to stocks with over £1 billion in market capitalisation at 26.8%. Therefore, the most liquid part of the portfolio comfortably exceeds our typical gearing levels (13%-20% over the last year) should we need to reduce borrowings of the company quickly. This provides us with the flexibility to react promptly to changing market conditions.

Portfolio Activity

During the year, we have been active in 76 companies, starting new positions in 22 and selling out completely in 20. Our new investments included 10 Initial Public Offerings (IPOs) of which we continued to hold 7 at the year end. Our top ten holdings represented 29.1% of the portfolio compared with 26.6% the year before. There have been two new entrants to our top ten list, both of which we have held for a number of years. IP was a top ten holding in previous years and enjoyed a robust year with good momentum in its portfolio and Assura enjoyed a good year and raised new equity for expansion from shareholders, an issue in which we participated. We have generally maintained our key sector exposures to industrials and technology, with some profit taking where appropriate. We have also defined a category of investment which is not readily apparent from a glance at a traditional sector distribution as it crosses traditional sector categories. We describe it as 'early stage development companies' which encompass emerging technologies or services, including healthcare, that are not yet sustainably cash generative but have robust and highly differentiated intellectual property. This category amounted to 16.3% (2014: 13.1%) of the portfolio at year end of which 7.1% were pre-revenue.

The largest of our disposals was Advanced Computer Software ('ACS'), the software and services group focussed on healthcare and business services which was acquired by a US based private equity group looking to act as a sector consolidator on an international basis. This type of buyer had become an active competitor to the likes of ACS in M&A with an ability to deploy levels of gearing public traded companies would find hard to justify to shareholders. ACS in our view sensibly recommended the takeover when they received the inevitable knock on the door.

Betfair, the online sports betting company which pioneered the betting exchange in 2000, entered the portfolio in 2010 after a failed bid and management changes. Since that time, the business has gone from strength to strength and profit forecasts have seen consistent upgrades. In the summer of 2015 the group agreed a merger with Paddy Power, a highly successful Irish betting company, and the enlarged group will be an immediate candidate for the FTSE100. So why did we sell? Both companies are now highly rated but our view is that, although the new group will be headed by Betfair's CEO who previously worked for Paddy Power, it is unlikely that the enlarged group can sustain their organic growth rates in the future, and despite a close cultural fit, mergers of such highly individualistic companies rarely run smoothly.

Our third largest disposal remains our largest investment and was the best contributor to NAV growth in the year. 4D Pharma, which focuses on the development of live bio-therapeutics, enjoyed another exceptional year in share price performance as it continued developing its product pipeline ahead of the competition. We took profits in order to manage the risk exposure and crystallised cash profits in excess of our acquisition costs. During the year, a competitor company listed on NASDAQ at a significant premium to 4D's market capitalisation despite being at an earlier stage in its development pipeline and with fewer targets.

Last year, we held onto our position in Latchways, the safety equipment developer, despite a difficult period of delayed contracts and missed profit forecasts. We did so as we were confident in their market position and sound finances. This year, we were vindicated in taking a longer term view as MSA Safety, a USA company made a recommended bid for the company at a significant premium. Whilst we are always sorry to see innovative UK companies lose their independence to overseas buyers, the premium offered was a reasonable price for the medium term prospects for the company as a standalone business.

Finally, we became increasingly concerned about the ability of Aviva, the FTSE100 listed international insurance group, to maintain adequate regulatory capital for the insurance operations while delivering returns for shareholders. So we decided to sell out. We were partially vindicated by their subsequent acquisition of Friends Life which was seen as a mechanism to address capital adequacy fears.

Our two largest purchases were in companies that have been adversely affected by slowing or falling Chinese consumption of imported commodity metals. We invested in both Glencore, a commodity trader and miner headquartered in Switzerland, and UK based Rio Tinto, both FTSE100 constituents. We have taken the view that whilst the demand backdrop is currently poor it is likely that the sheer weight by number of the world's largest population aspiring to live a better urbanised life will lead to a revival in time. The collapse in the price of iron ore is very important for Rio Tinto, but so is the fact that Rio is among the lowest cost producers in the world and so it should be a long term winner. Glencore, on the other hand, is part trader and part producer. The trading arm has suffered in the downturn with fewer trades at lower value as has the copper biased mining operation. Glencore, has been financially geared so recently had to raise $2.5bn from new shares with Directors and management contributing around $550m, which is encouraging. Both share prices have been volatile in a sharply downwards trend and our purchases have not contributed to NAV growth yet. In fact they have been negative. However, we remain of the view that the multi-year bear market in commodities and the share prices of producers will bottom out.

Our next largest purchase was HSBC, the global bank, headquartered in the UK but with a major presence in the Far East as well as a successful UK operation. HSBC has been under a cloud as it has been re-organising itself after the financial crisis, which it weathered well with no Government assistance. It is seeking a higher return on its capital and simultaneously trying to shrink its operating network. Add to this the current state of confusion over the bank's future domicile and it is easy to see why the shares have been lacklustre performers in the year but it offers an attractive valuation for those willing to be patient.

We have added a direct investment in Ilika to the indirect one we own via IP. This company is an innovator in advanced materials for the electronics and energy industries and has developed world leading processes in solid state battery technology, working with Toyota since 2008. In 2014, the company announced a world first in producing a multi layered stacked lithium battery, suitable for the consumer electronics market, which would allow rapid re-charge, extended life and reduced size. This is, a very attractive proposition for the mobile phone industry. Ilika and 4D Pharma are among our Early Stage Development Companies.

We added to our position in Royal Dutch Shell, the global integrated oil major. The energy sector has been in a major downturn for the last year with the oil price falling from over $100 to under $40 per barrel. Royal Dutch Shell has the financial resources not only to weather this storm but also to prosper by deploying capital into well targeted acquisitions. In that context, the company is proposing to acquire BG Group which, if completed, will represent the largest M&A deal this year. Elsewhere, costs are falling quickly and efficiency is rising which will allow a return to prior profit levels even without a full recovery in the price of oil.

Exceptionally, we also invested in a unique unlisted business, Oxford Sciences Innovation. This company has an initial 15 year agreement with Oxford University as its preferred intellectual property partner for all science departments and will have a significant stake in every spin out company. IP Group is a co-investor. The company has committed to an IPO within eight years.

Portfolio Attribution Analysis

The table on page 11 of the Annual Report lays out the top five and bottom five contributors to the Company's absolute performance in growth in NAV and their contribution relative to benchmark.

Our largest individual contributor to NAV growth was 4D Pharma which both started and ended the year as our largest holding even though we took significant profits during the year. The shares rose over 130% during the year peaking at just over £10 before closing the year at £7.60. This was largely driven by investor appreciation of the potential scale of the prize the company is working towards and confirmation through the NASDAQ listing of a near competitor of just how valuable the company could be. Of course, the valuation demands that the company continues to make progress towards that goal. 4D recently announced that it had received regulatory approval to begin a phase 1 trial in Paediatric Crohn's Disease with its lead product Thetanix. This has orphan drug status, and trials have commenced, somewhat earlier than planned.

Our next major contributor was Redde, previously known as Helphire, which provides car hire and repair services in 'not at fault' motoring accidents. This company has turned the corner from an adversarial relationship with major insurance groups, which had a significant negative effect on working capital, to one of near partnership with those same insurers where the common goal of cost reduction throughout the claims management process has led to significantly improved cash flow and rising profits. Combined with an attractive dividend policy, this led to the shares returning over 140% in the year. The company has recently made an earnings enhancing acquisition extending its reach in the corporate car repair market.

Johnson Service is a long term favourite of ours which has gone about its business of linen rental and laundry services in aquietly efficient manner and made well thought out earningsenhancing acquisitions to add to organic growth. We have takensome profit here as the share rating now more adequately reflects group prospects.

Betfair, as previously mentioned, was sold, havingbeen our best individual share in the year rising some 170% and, enjoying multiple profit upgrades. e2v is a company that we had always believed had great products such as imaging sensors for space missions but had failed to generate consistent profitability. Having gained the benefits of the renewed management team's focus to drive core profits harder, we sold.

As ever, not everything worked so well. Velocys, the developer of gas to liquids technology, our fifth largest holding last year, suffered from the sharp fall in oil price which resulted in a much slower sign up of new contracts. It also suffered from the inevitable disruption resulting from an internal dispute with its CEO who has now left. The company has a robust, cash-rich balance sheet and can withstand short-term pressures. We are hopeful of a more settled period going forward. The technology is still very relevant and world leading but it will require a stable oil price environment to really prosper. The shares fell by more than 60% in the period. The drop in the oil price also hit Premier Oil hard with the shares falling over 70% in the year. The company has continued to develop new production assets in the North Sea, namely Solan and Catcher. A final decision on the Falkland Islands development is still awaited and material cost savings are being made but falling revenues from the low oil price means the company is proceeding with caution and looking for additional partners for that asset. The company is one of the most geared plays to a recovery in the oil price. Self-inflicted problems were the major reason behind Tribal's share price fall. As a software company, albeit in education, it still has a business model which relies on new licence sales. These did not materialise as hoped and the company warned on profits more than once. In addition the CEO stepped down and the management team under a new chairman will undergo further restructuring to put the company back on a growth path. Oxford Instruments, a fallen star of the FTSE250 now in the small cap index, had a horrible year as demand from emerging markets in Russia and China evaporated. The market place for research instruments and tools has been difficult for all competitors over the last year but most recently Oxford announced an uptick in its order book and we are hopeful that the company's fortunes are on the turn. WANdisco, a big data software supplier, is transitioning its product from initial trial licences in a test environment to a live production environment. This has delayed take up as customers are rightly cautious when new elements are introduced into core business infrastructure. Sign up momentum has improved in recent quarters.

The Board

We would like to thank George Burnett for his enormous contribution to the Company over the last 20 years he has been on the Board, during which he has been Chairman for 11 years. During difficult periods and good times, he has been a steady source of good sense. As Fund Managers, we have learnt a great deal from him.

Outlook

The UK economy is performing well with strong job growth and inflation nearly absent. Consumers have finally seen some benefits from the recovery with disposable incomes rising in real terms. Nevertheless, many areas of the economy are still subject to intense competition and finding companies with highly differentiated products and services that can rise above the norm is difficult. Europe is slowly recovering while China and other emerging markets are sluggish at best, as strength in the US dollar in anticipation of rising interest rates has drained these markets of important flows of finance. Recent conflicts in multiple geographies will add another layer of caution. In these circumstances we will remain focussed on the fundamentals we look for in our companies; strong business franchises, whether gained through innovative products or superior cost profiles, strong balance sheets and the potential for strong growth delivered organically, and enhanced by acquisitions, where appropriate, over multiple years.

James Henderson and Colin Hughes

Fund Managers

4 February 2016

Attribution Analysis

The table below shows the top five active contributors to and the bottom five detractors from the Company's performance.

Top five contributors to relative performance	Share price return %	Relative contribution %	Top five detractors from relative performance	Share price return %	Relative contribution %
4D Pharma	131.8	4.8	WANdisco	-68.1	-0.5
Redde	141.6	1.2	Oxford Instruments	-50.9	-0.6
Johnson Service	51.7	1.1	Tribal	-47.1	-0.6
Betfair	167.8	1.0	Premier Oil	-73.4	-0.7
e2v technologies	49.5	1.0	Velocys	-64.5	-1.4

Twenty Largest Holdings at 31 October 2015

Rank (2015)	Rank (2014)	Company	Valuation 2014 £'000	Purchases £'000	Sales £'000	Appreciation/ (depreciation) £'000	Valuation 2015 £'000
1	(1)	4D Pharma	3,494	-	(1,293)	4,184	6,385
2	(4)	Ricardo	2,178	-	-	809	2,987
3	(3)	HSBC	2,238	1,208	-	(654)	2,792
4	(8)	e2v technologies	1,853	-	-	851	2,704
5	(2)	hVIVO	2,586	-	-	55	2,641
6	(16)	Assura	1,246	881	(121)	281	2,287
7	(10)	Vertu Motors	1,757	-	-	527	2,284
8	(7)	Johnson Service	1,978	-	(772)	966	2,172
9	(12)	IP	1,722	-	-	257	1,979
10	#	Redde	824	-	-	1,034	1,858
11	#	Oxford Pharmascience	600	713	-	517	1,830
12	(9)	XP Power	1,774	-	-	38	1,812
13	#	NAHL	825	217	-	746	1,788
14	#	Rio Tinto	743	1,371	-	(345)	1,769
15	(6)	Senior	2,006	-	-	(305)	1,701
16	#	Royal Dutch Shell 'B' shares	1,156	1,052	-	(508)	1,700
17	(11)	St Modwen Properties	1,722	-	(437)	365	1,650
18	#	Ebiquity	1,087	240	-	318	1,645
19	#	Conviviality Retail	443	821	-	319	1,583
20	(20)	Tracsis	1,180	-	-	314	1,494
			----------	-----------	--------	---------	----------
Total			31,412	6,503	(2,623)	9,769	45,061
			======	======	=====	======	======

At 31 October 2015 these investments totalled £45,061,000 or 46.6% of the portfolio.

^{# Not in the top 20 largest holdings last year}

Portfolio by Sector

	31 October 2015 %	31 October 2014 %
Financials	15.3	16.0
Consumer Services	20.2	21.5
Industrials	25.1	25.9
Technology	7.9	10.2
Health Care	14.1	10.3
Oil & Gas	5.9	4.4
Basic Materials	6.8	7.3
Consumer Goods	4.2	4.4
Telecommunications	0.5	-
	-------	-------
	100.0	100.0
	=====	=====

Portfolio by Index

	31 October 2015 %	31 October 2014 %
FTSE 100	16.3	18.8
FTSE 250	13.3	19.7
FTSE Fledgling	2.4	1.5
FTSE SmallCap	17.8	18.6
FTSE AIM	39.0	34.5
Other1	11.2	6.9
	-------	-------
	100.0	100.0
	=====	=====

^{1 Other also includes AIM investments outside the FTSE AIM Index}

^{Source:  Henderson}

Market capitalisation of the portfolio at 31 October 2015

	FTSE All-Share Index %	Portfolio %
Greater than £2bn	87.2	19.3
£1bn - £2bn	5.6	7.5
£500m - £1bn	3.9	9.2
£200m - £500m	2.3	20.7
£100m - £200m	0.7	23.0
£50m - £100m	0.1	10.0
Less than £50m	0.0	6.2
	--------	--------
	100.0	100.0
	======	======

 

Principal Risks and Uncertainties and Viability Statement

The Board, with the assistance of Henderson, has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency and liquidity. The principal risks and uncertainties facing the Company relate to investing in the shares of companies that are listed in the United Kingdom, including small companies. Although the Company invests almost entirely in securities that are listed on recognised markets, share prices may move rapidly, whether upwards or downwards, and it may not be possible to realise an investment at Henderson's assessment of its value. Falls in the value of the Company's investments can be caused by unexpected external events. The companies in which investments are made may operate unsuccessfully, or fail entirely, such that shareholder value is lost. The Company is also exposed to the operational risk that one or more of its contractors or sub-contractors may not provide the required level of service.

The Board considers regularly the principal risks facing the Company in order to mitigate them as far as practicable. The Board has drawn up a risk map which identifies the cardinal risks to which the Company is exposed. These principal risks fall broadly under the following categories:

Risk	Controls and Mitigation
Investment activity and strategy	Henderson provides the Directors with management information including performance data reports and shareholder analyses on a monthly basis. The Board monitors the implementation and results of the investment process with the Fund Managers, who attend all Board meetings, and reviews regularly data that monitors risk factors in respect of the portfolio. Henderson operates in accordance with investment limits and restrictions determined by the Board; these include limits on the extent to which borrowings may be used. The Board reviews its investment limits and restrictions regularly and Henderson confirms its compliance with them each month. The Board reviews investment strategy at each Board meeting. An inappropriate investment strategy (for example, in terms of asset allocation, stock selection, failure to anticipate external shocks or the level of gearing) may lead to a reduction in NAV, underperformance against the Company's benchmark index and the Company's peer group; it may also result in the Company's shares trading on a wider discount to NAV. The Board seeks to manage these risks by ensuring a diversification of investments through regular meetings with the Fund Managers with measurement against performance indicators and by reviewing the extent of borrowings.
Financial instruments and the management of risk	By its nature as an investment trust, the Company is exposed in varying degrees to market risk, interest rate risk, liquidity risk, currency risk and credit and counterparty risk. Market risk arises from uncertainty about the future prices of the Company's investments. An analysis of these financial risks and the Company's policies for managing them are set out in the Annual Report.
Operational	Disruption to, or failure of, Henderson's accounting, dealing or payment systems or the Custodian or the Depositary's records could prevent the accurate reporting and monitoring of the Company's financial position. Henderson has contracted some of its operational functions, principally those relating to trade processing, investment administration and accounting, to BNP Paribas Securities Services. Details of how the Board monitors the services provided by Henderson and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal control section of the Corporate Governance Statement the Annual Report.
Accounting, legal and regulatory	In order to qualify as an investment trust the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'), to which reference is made in the Annual Report. A breach of Section 1158 could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The Section 1158 criteria are monitored by Henderson and the results are reported to the Directors at each Board meeting. The Company must comply with the provisions of the Companies Act 2006 ('the Act') and, as the Company's shares are listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure Rules ('UKLA Rules'). A breach of the Act could result in the Company and/or the Directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of Section 1158. The Board relies on Henderson Secretarial Services Limited, its corporate company secretary and its professional advisers to ensure compliance with the Act and the UKLA Rules.
Liquidity	In line with the Company's investment strategy the Fund Manager can invest in a concentrated portfolio of shares on an unconstrained basis across the whole range of market capitalisations. This includes investing in smaller, early stage development companies. The market for these shares is less liquid than for those stocks which have a larger market capitalisation. The Board monitors the Company's exposure to these smaller companies on a monthly basis and reviews this in detail at Board meetings. The liquidity of the whole portfolio is also considered at Board meetings.
Net Gearing	The ability to borrow money for investment purposes is a key advantage of the investment trust structure. A failure to maintain a bank facility would prevent the Company from gearing. A breach of the Company's borrowing covenants or the gearing range determined by the Board could lead to the Company becoming a forced seller of shares with possible losses for shareholders. The Board reviews the level of net gearing at each Board meeting in light of the liquidity of the portfolio.
Failure of Henderson	A failure of Henderson's business, whether or not as a result of regulatory failure, cyber risk or other failure would result in Henderson being unable to meet their obligations and their duty of care to the Company. The Board meets regularly with representatives of Henderson's Investment Management, Risk and Assurance, Compliance and Investment Trust teams and reviews internal control reports from Henderson on a quarterly basis. The failure of Henderson might not necessarily lead to a loss of the Company's assets, however, this risk is mitigated by the Company's ability to change its investment manager if necessary, subject to the terms of its investment management agreement.

Viability Statement

The Company is a long term investor; the Directors believe it is appropriate to assess the Company's viability over a five year period.

The assessment considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular Investment and Strategy, Market, Liquidity, Gearing and Financial risks, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

The Directors took into account the liquidity of the portfolio and the gearing in place when considering the viability of the Company over the next five years and its ability to meet liabilities as they fall due. This included consideration of the duration of the Company's loan facilities and how a breach of the loan facility covenants could impact on the Company's net asset value and share price.

The Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment. The Directors conducted this review for a period of five years because they consider this to be an appropriate period over which they do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Related Party Transactions

The Company's transactions with related parties in the year were with the Directors, and Henderson. There have been no material transactions between the Company and its Directors during the year other than the amounts paid to them which were in respect of expenses and remuneration. There were no outstanding amounts payable at the year end. Directors' shareholdings are disclosed in the Annual Report. In relation to the provision of services by Henderson, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services there have been no material transactions with Henderson affecting the financial position of the Company during the year under review.

Statement of Directors' Responsibilities (under DTR 4.1.12)

Each of the Directors confirms that, to the best of their knowledge:

• the Company's financial statements, which have been prepared in accordance with UK Accounting Standards on a going concern basis, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• the Strategic Report and financial statements include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

George Burnett

Chairman

4 February 2016

Income Statement

		Year ended 31 October 2015			Year ended 31 October 2014
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Notes
2	Gains from investments held at fair value through profit or loss	-	9,340	9,340	-	1,869	1,869
3	Income from investments held at fair value through profit or loss	2,302	-	2,302	1,697	-	1,697
4	Other interest receivable and other income	14	-	14	18	-	18
		---------	----------	----------	---------	----------	----------
	Gross revenue and capital gains	2,316	9,340	11,656	1,715	1,869	3,584
5	Management fee and performance fee	(173)	(1,168)	(1,341)	(151)	(502)	(653)
	Other administrative expenses	(272)	-	(272)	(282)	-	(282)
		-----------	----------	----------	-----------	----------	----------
	Net return on ordinary activities before finance charges and taxation	1,871	8,172	10,043	1,282	1,367	2,649
	Finance charges	(70)	(164)	(234)	(71)	(166)	(237)
		-----------	----------	----------	-----------	----------	----------
	Net return on ordinary activities before taxation	1,801	8,008	9,809	1,211	1,201	2,412
	Taxation	-	-	-	-	-	-
		-----------	----------	----------	-----------	----------	----------
	Net return on ordinary activities after taxation	1,801	8,008	9,809	1,211	1,201	2,412
		----------	----------	----------	----------	----------	----------
6	Return per ordinary share -
	basic and  diluted	22.51p	100.09p	122.60p	15.17p	15.04p	30.21p
		======	=======	======	======	=======	======

The total columns of this statement represent the Profit and Loss Account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. No operations were acquired or discontinued during the year. The Company had no recognised gains or losses other than those disclosed in the Income Statement. There is no material difference between the return on ordinary activities before taxation and the return for the financial year stated above and their historical cost equivalents.

Reconciliation of Movements in Shareholders' Funds

Year ended 31 October 2015	Called up share capital £'000	Share premium account* £'000	Capital redemption reserve* £'000	Other capital reserves* £'000	Revenue Reserve* £'000	Total £'000
At 1 November  2014	2,000	14,838	2,431	51,290	1,743	72,302
Dividends paid on the ordinary shares (note 9)	-	-	-	-	(1,104)	(1,104)
Net return on ordinary activities after taxation	-	-	-	8,008	1,801	9,809
	--------	----------	----------	----------	-----------	---------
At 31 October 2015	2,000	14,838	2,431	59,298	2,440	81,007
	=====	======	======	======	======	=====

Year ended 31 October 2014	Called up share capital £'000	Share premium account1 £'000	Capital redemption reserve1 £'000	Other capital reserves1 £'000	Revenue Reserve1 £'000	Total £'000
At 1 November  2013	2,007	14,522	2,415	50,089	1,401	70,434
Dividends paid on the ordinary shares (note 9)	-	-	-	-	(869)	(869)
Net return on ordinary activities after taxation	-	-	-	1,201	1,211	2,412
Issue of ordinary shares following conversion of subscription shares	9	325	-	-	-	334
Costs in respect of shares issued	-	(9)	-	-	-	(9)
Expiry of subscription shares	(16)	-	16	-	-	-
	--------	----------	----------	----------	-----------	---------
At 31 October 2014	2,000	14,838	2,431	51,290	1,743	72,302
	======	======	======	======	=====	=====

¹Distributions can be made from the 'revenue reserve' and from realised gains in 'other capital reserves'. Distributions cannot be made from the 'share premium account' or the 'capital redemption reserve'.  

 

Balance Sheet

	31 October 2015 £'000	31 October 2014 £'000
Investments held at fair value through profit or loss
Listed at market value	50,984	49,740
Listed on AIM at market value	45,327	32,579
Unlisted at market value	333	-
	------------	------------
	98,644	82,319
	------------	------------
Current assets
Investment held at fair value through profit or loss	2	2
Debtors	265	806
Cash at bank and in hand	508	1,490
	------------	------------
	775	2,298
Creditors: amounts falling due within one year	(16,412)	(12,315)
	-----------	-----------
Net current liabilities	(15,637)	(10,017)
	-----------	-----------
Net assets	81,007	72,302
	=======	=======
Capital and reserves
Called up share capital	2,000	2,000
Share premium account	14,838	14,838
Capital redemption reserve	2,431	2,431
Other capital reserves	59,298	51,290
Revenue reserve	2,440	1,743
	------------	------------
Total shareholders' funds	81,007	72,302
	=======	=======
Net asset value per ordinary share (basic and diluted)	1,012.5p	903.7p
	=======	=======

 

Cash Flow Statement

	Year ended 31 October 2015		Year ended 31 October 2014
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		1,254		908
Servicing of finance
Interest paid	(225)		(237)
	-----------		-----------
Net cash outflow from servicing of finance		(225)		(237)
Financial investment
Purchases of investments	(25,616)		(23,815)
Sales of investments	21,184		21,951
	-----------		-----------
Net cash outflow from financial investment		(4,432)		(1,864)
Equity dividends paid		(1,104)		(869)
		------------		------------
Net cash outflow before management of liquid resources and financing		(4,507)		(2,062)
Financing
Proceeds from issue of ordinary shares	-		334
Expenses paid in respect of ordinary share issue	-		(4)
Net drawdown of loans	3,525		2,990
	-----------		-----------
Net cash inflow from financing		3,525		3,320
		-----------		-----------
Increase/(decrease) in cash		(982)		1,258
		======		======
Reconciliation of net cash flow to movement in net debt
	Year ended 31 October 2015		Year ended 31 October 2014
(Decrease)/increase in cash as above		(982)		1,258
Net cash inflow from increase in loans		(3,525)		(2,990)
		----------		----------
Movement in net debt		(4,507)		(1,732)
Net debt at the start of the year		(10,345)		(8,613)
		----------		----------
Net debt at the end of the year		(14,852)		(10,345)
		======		======

Notes to the Financial Statements

1.	Accounting policies
	(a) Basis of accounting The financial statements have been prepared on a going concern basis and under the historical cost basis of accounting, modified to include the revaluation of investments at fair value through profit or loss. The financial statements have been prepared in accordance with applicable accounting standards in the United Kingdom and with those parts of the Companies Act 2006 applicable to companies reporting under the standards and with the Statement of Recommended Practice ('SORP') for investment trusts issued by the Association of Investment Companies ('the AIC') in January 2009. The Company's accounting policies are consistent with the prior year.
	(b) Going concern The Company's Articles of Association require that at the Annual General Meeting of the Company held in 2008, and every third year thereafter, an ordinary resolution be put to approve the continuation of the Company. The resolutions put to the Annual General Meetings in 2011 and in 2014 were duly passed. The next triennial continuation resolution will be put to the Annual General Meeting in 2017. The assets of the Company consist almost entirely of securities that are listed (or listed on AIM) and, accordingly, the Directors believe that the Company has adequate resources to continue in existence for the foreseeable future. The Board has also assessed the principal risks other matters in connection with the Viability Statement. For these reasons, the Board has decided that it is appropriate for the financial statements to be prepared on a going concern basis.
	(c) Investments held at fair value through profit or loss Listed investments and investments listed on AIM have been designated by the Board as held at fair value through profit or loss. Investments are recognised at fair value on acquisition and are measured thereafter at fair value. Fair value is deemed to be the bid price or the last trade price, depending on the convention of the exchange on which the investment is listed. Unlisted investments have also been designated as held at fair value through profit or loss and are valued by the Directors using primary valuational techniques such as recent transactions and net assets. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as 'gains or losses from investments held at fair value though profit or loss'. Transaction costs incurred on the purchase and disposal of investments are included within the cost or deducted from the proceeds of the investments. All purchases and sales are accounted for on a trade date basis.

						2015 £'000	2014 £'000
2.	Gains on investment held at fair value through profit or loss					8,397	9,374
	Gains on the sale of investments based on historical cost					(3,786)	(6,292)
	Revaluation gains recognised in previous years
	Gains on investments sold in the year based on carrying value at previous balance sheet date					4,611	3,082
	Revaluation gains/(losses) on investments held at 31 October					4,729	(1,213)
						9,340	1,869
3.	Income from investments held at fair value through profit or loss					2015 £'000	2014 £'000
	UK:
	Dividends from listed investments					1,617	1,173
	Dividends from AIM investments					471	321
						-------	-------
						2,088	1,494
	Non-UK:
	Dividends from listed investments					214	203
						-------	-------
						2,302	1,697
						====	====
						2015 £'000	2014 £'000
4.	Other interest receivable and other income
	Underwriting commission (allocated to revenue)1					14	18
						====	====
	1During the year the Company was not required to take up shares; no commission was taken to capital (2014: no shares taken up and commission taken to capital).
5.	Management and performance fee
	2015				2014
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
	Management fee	173	403	576	151	353	504
	Performance fee	-	765	765	-	149	149
		--------	----------	----------	--------	----------	----------
		173	1,168	1,341	151	502	653
		--------	----------	----------	--------	----------	----------

The 2015 management fee is net of £nil (2014: £4,500) paid by Henderson on behalf of the Company in respect of audit fees

6.	Return per ordinary share
	The total return per ordinary share is based on the total return attributable to the ordinary shares of £9,809,000 (2014: £2,412,000) and on 8,000,858 ordinary shares (2014: 7,983,365) being the weighted average number of shares in issue during the year.
	The total return can be futher analysed as follows:
			2015 £'000		2014 £'000
	Revenue return		1,801		1,211
	Capital  return		8,008		1,201
			----------		----------
	Total  return		9,809		2,412
			----------		----------
	Weighted average number of ordinary shares		8,000,858		7,983,365
			2015		2014
	Revenue return per ordinary share		22.51p		15.17p
	Capital  return per ordinary share		100.09p		15.04p
			-----------		-----------
	Total  return per ordinary share		122.60p		30.21p
			======		======
7.	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share at the year end was 1,012.5p (2014: 903.7p). The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £81,007,000 (2014: £72,302,000) and on the 8,000,858 ordinary shares in issue at 31 October 2015 (2014: 8,000,858). The movements during the year of the assets attributable to the ordinary shares were as follows:
		2015 £'000		2014 £'000
	Total net assets at 1 November	72,302		70,434
	Total net return	9,809		2,412
	Dividends paid in the year	(1,104)		(869)
	Shares issued (after costs)	-		325
		-----------		-----------
	Total net assets at 31 October	81,007		72,302
		======		======
8.	Called up share capital
		2015 £'000		2014 £'000
	Allotted, issued and fully paid:
	8,000,858 ordinary shares of 25p each (2014: 8,000,858)	2,000		2,000
		-----------		-----------
		2,000		2,000
		======		======
	There were 1,639,652 subscription shares of 1p each in issue at 31 October 2013. The subscription shares were issued, as a bonus issue to the ordinary shareholders, on 19 January 2007. During the year ended 31 October 2014, 35,670 of the Company's subscription shares were converted into ordinary shares. The remaining 1,603,982 subscription shares were subsequently cancelled.

9.	Dividends
		2015 £'000	2014 £'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for the year ended 31 October 2014 of 8.8p (2013: 7.2p)	704	573
	Interim dividend for the year ended 31 October 2015 of 5.0p (2014: 3.7p)	400	296
		-----------	-----------
		1,104	869
		======	======

	The final dividend of 8.8p per ordinary share in respect of the year ended 31 October 2014 was paid on 31 March 2015 to shareholders on the register of members at the close of business on 20 February 2015. The interim dividend of 5.0p per ordinary share in respect of the year ended 31 October 2015 was paid on 25 September 2015 to shareholders on the register of members at the close of business on 21 August 2015. Subject to approval at the Annual General Meeting, the proposed final dividend of 13.0p per ordinary share will be paid on 24 March 2016 to shareholders on the register of members at the close of business on 12 February 2016. The total dividends payable in respect of the financial year, which form the basis of the test under Section 1158 of the Corporation Tax Act 2010, are set out below:
		Year ended 31 October 2015	Year ended 31 October 2014
		£'000	£'000
	Revenue available for distribution by way of dividends for the year	1,801	1,211
	Interim dividend for the year ended 31 October 2015: 5.0p (2014: 3.7p)	(400)	(296)
	Proposed final dividend for the year ended 31 October 2015: 13.0p (based on the 8,000,858 ordinary shares in issue at 4 February 2016) (2014: 8.8p on 8,000,858 ordinary shares)	(1,040)	(704)
		-----------	-----------
	Undistributed revenue for section 1158 purposes1	361	211
		=======	=======
	Undistributed revenue comprises 14.2% of income from investments (2014: 11.8%)
10.	2015 Annual Report
	The figures and financial information for the year ended 31 October 2015 are extracted from the Company's Annual Report for that period and do not constitute statutory accounts. The Company's Annual Report for the year to 31 October 2015 have been audited but have not yet been delivered to the Registrar of Companies. The Auditors' Report on the 2015 Annual Report was unqualified, did not include a reference to any matter to which the Auditors drew attention without qualifying the report, and did not contain any statements under section 498 of the Companies Act 2006.
11.	2014 Report and Financial Statements           The figures and financial information for the year ended 31 October 2014 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts.  The Company's annual financial statements for the year to 31 October 2014 have been delivered to the Registrar of Companies. The Auditors' report on the 2014 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under section 498 of the Companies Act 2006.
12.	Annual Report The Annual Report for the year ended 31 October 2015 will be posted to shareholders in February 2016 and will be available on the Company's website (www.hendersonopportunitiestrust.com) or in hard copy format from the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE.
13.	Annual General Meeting The Annual General Meeting will be held on Thursday 17 March 2016 at 2.30pm at 201 Bishopsgate, London EC2M 3AE.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information, please contact:

George Burnett Chairman Henderson Opportunities Trust plc Telephone:  [phone]		James de Sausmarez Head of Investment Trusts Henderson Global Investors Telephone: [phone]
James Henderson Fund Manager Henderson Opportunities Trust plc Telephone: [phone]	or	Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Global Investors Telephone: [phone]

 

END

 

 

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