HENDERSON INTERNATIONAL INCOME TRUST PLC
Annual Financial Report for the year ended 31 August 2024
This announcement contains regulated information
INVESTMENT OBJECTIVE
The Company’s investment objective is to provide shareholders with a growing total annual dividend, as well as capital appreciation.
HIGHLIGHTS FOR THE YEAR TO 31 AUGUST 2024
| • | Dividends for the year increased by 3.2% to 7.71p per share. Your Company has been recognised as a “next generation dividend hero” by the AIC. |
| • | The portfolio has delivered attractive absolute growth this year: NAV total return of 10.4% (debt at par) and 9.8% (debt at fair value). |
| • | Equity markets have performed well over the period. The global economy has generally weathered higher interest rates better than expected and all regions of the portfolio generated positive returns. |
PERFORMANCE TO/AT 31 AUGUST
| 2024 | 2023 | |
| Dividend in respect of the year | 7.71p1 | 7.47p |
| Dividend yield at the year end2 | 4.7% | 4.6% |
| Dividend growth year-on-year | 3.2% | 3.0% |
| 10-year compound dividend growth | 5.5% | 5.8% |
| Dividend growth since launch to 31 August 2024 | |||
| Total dividend(pence per share) | |||
| 20113 | 1.40 | ||
| 2012 | 4.00 | ||
| 2013 | 4.05 | ||
| 2014 | 4.25 | ||
| 2015 | 4.50 | ||
| 2016 | 4.65 | ||
| 2017 | 4.90 | ||
| 2018 | 5.30 | ||
| 2019 | 5.70 | ||
| 2020 | 6.00 | ||
| 2021 | 6.30 | ||
| 2022 | 7.25 | ||
| 2023 | 7.47 | ||
| 2024 | 7.71 | ||
Your Company has been recognised by the Association of Investment Companies as a “next generation dividend hero”, reflecting its record of having consistently grown its dividend for at least 10 consecutive years.
| Dividend yields at 31 August | 2024% | 2023% |
| Ordinary shares2 | 4.7 | 4.6 |
| Benchmark4 | 3.6 | 3.9 |
| AIC Global Equity Income sector5 | 3.4 | 3.6 |
| Total return performance for year to 31 August | 2024% | 2023 % |
| NAV6 (debt at par) | 10.4 | 0.8 |
| NAV6 (debt at fair value) | 9.8 | 1.4 |
| Share price7 | 6.5 | (1.9) |
| Benchmark4 | 14.2 | 2.3 |
| AIC Global Equity Income sector (NAV)5 | 14.0 | 5.7 |
| Performance to/at 31 August | 2024 | 2023 |
| NAV per share at year end (debt at par) | 185.8p | 175.7p |
| Discount at year end (debt at par)8 | (11.7)% | (8.1)% |
| NAV per share at year end (debt at fair value)8 | 188.0p | 178.6p |
| Discount at year end (debt at fair value)8 | (12.8)% | (9.6)% |
| Share price at year end | 164.0p | 161.5p |
| NAV total return (debt at fair value)6,8 | 9.8% | 1.4% |
| Ongoing charge for year8,9 | 0.77% | 0.72% |
| Gearing at year end8 | 4.7% | 3.9% |
1 Includes the fourth interim dividend in respect of the year ended 31 August 2024 to be paid to shareholders on 29 November 2024
2 Calculated based on the closing share price at 31 August
3 Four-month period from launch on 28 April 2011 to 31 August 2011
4 MSCI ACWI (ex UK) High Dividend Yield Index (sterling adjusted)
5 Excludes British & American Investment Trust plc
6 Net asset value (“NAV”) total return (including dividends reinvested, net of fees)
7 The Company’s share price total return (assuming the reinvestment of all dividends excluding dealing expenses). Since inception share price return – launch price including discount (97.25p)
8 Alternative performance measure
9 Calculated using the methodology prescribed by the Association of Investment Companies (“AIC”)
Source: Morningstar Direct, Janus Henderson
CHAIRMAN’S STATEMENT
After a few volatile years for global equity markets, I am happy to be able to report that equity markets appreciated over the year and delivered steady dividend growth. This gain has occurred despite ongoing conflicts in some parts of the world, numerous elections, and against a backdrop of high interest rates and inflation, although both are now on a declining trend.
It has been another year where there has been a significant variation between the performance of different regions and sectors which will be covered more fully in the fund manager’s report. The USA has continued to lead the way in the developed world but there may be a degree of rotation now occurring following the decision of the Chinese Government to reflate its economy. Depending on the success of this change of policy, emerging markets may benefit too.
The objective of your Company is to provide shareholders with a growing total annual dividend, as well as capital appreciation through a diversified portfolio of global stocks outside of the UK. The Company has continued to deliver a growing annual dividend as highlighted below with a total net asset value (“NAV”) return of 10.4% (with debt at par). Whilst attractive in absolute terms, this has lagged the Company’s benchmark total return. In light of this, and given the prevailing discount at which the Company’s shares have traded, the board has spent some time this year reviewing investment strategy and how this can be enhanced to provide a better balance between income and capital generation. The details of this review and its outcome are discussed later in this statement, in addition to the customary analysis of the earnings, dividends and performance of the Company.
Earnings and dividends
We are pleased to announce a total dividend increase from 7.47p to 7.71p per ordinary share for the year to 31 August 2024, a rise of 3.2%. The total dividend for the year consists of a first, second and third interim dividend of 1.92p per ordinary share, and a fourth interim dividend of 1.95p which will be paid on 29 November 2024 to shareholders on the register at 8 November 2024.
The Company’s revenue returns were 7.5% lower year-on-year at £13.2m. This was due to a combination of lower special dividends, the appreciation of sterling over the period and a slightly lower dividend yield from the portfolio. This has resulted in £1.9m being drawn from revenue reserves to cover the dividend.
We continue to recognise the importance of progressive dividend income to our shareholders and we will employ the flexibility of the investment trust structure to utilise both our strong revenue and capital reserves to support dividend growth when necessary. The distributable reserves of the Company are £97.6m at the year end. This provides a significant cushion to support the continued growth of the dividend.
In line with our long-term objective to provide shareholders with a growing total annual dividend, we have increased the dividend each year since launch and we are very pleased this achievement has now been recognised by the Association of Investment Companies (“AIC”), naming us as a “next generation dividend hero”. This positive growth trend is demonstrated in the graph in the table above.
Capital performance and markets
Our second objective is to provide long-term capital appreciation. The portfolio has delivered attractive absolute growth this year; the NAV total return per ordinary share rose by 10.4% (debt at par) and by 9.8% (debt at fair value). However, this underperformed the Company’s performance comparator, the MSCI ACWI (ex UK) High Dividend Yield Index (sterling adjusted), which generated a 14.2% total return over the same period.
The total return on the ordinary share price was 6.5%, this figure includes total paid dividends of 7.68p per ordinary share, an increase of 3.7% on the previous year.
A more detailed analysis of performance, portfolio and positioning is provided in the fund manager’s report.
Investment strategy
Over the past few years, while the Company has consistently achieved its income objective, the total annual return has slowed when compared to earlier years, and has lagged the performance comparator and the wider global equity market. In recent years, there have been times when non-dividend paying stocks have significantly outperformed high dividend paying stocks. This outperformance is exemplified in the US market in general versus global markets in 2021 and 2023.
During the year the board carried out a review of the Company’s investment strategy, in particular in its ability to meet its objectives and taking into consideration the desire of shareholders for both income and growth of capital. It concluded, after considerable consultation with shareholders, to make an enhancement to the Company’s investment strategy. Dividends from the portfolio will remain the primary contributor to the Company’s distributions, but when there are compelling opportunities in stocks, regions or sectors that would otherwise be excluded due to their yield, the board is willing to utilise distributable reserves to supplement dividends paid to investors. This will expand the potential universe of stocks in which the investment team can invest. It will also allow the manager to be more opportunistic and flexible through the cycle to deliver on the objectives of your Company.
Your Company benefits from an experienced investment team. The board is delighted to confirm the appointment of Faizan Baig, who has worked closely with Ben Lofthouse, as deputy fund manager.
Shareholders will see from the annual report that the fund manager has been managing the portfolio in line with the enhancements noted above. Further detail can be found in the fund manager’s report.
Gearing
Well-judged gearing can enhance returns to shareholders. The board’s current policy permits the fund manager to gear up to 25% of net assets at the time of drawdown. The fund manager has maintained total gearing well within this limit, with gearing at the year end of 4.7% (31 August 2023: 3.9%). Borrowing limits for this purpose include implied gearing using derivatives. The Company’s senior unsecured notes (€30m at 2.43% due 2044) provide low-cost debt financing and have helped to insulate shareholders from rising interest rates over the period.
Liquidity and discount management
The Company’s share price has traded at a discount to NAV of between 6% to 14% over the period and was 11.7% (with debt at par) at 31 August 2024. The board continues to monitor the Company’s premium/discount to NAV and will consider appropriate action if this moves and remains out of line with the Company’s peer group.
The factors that usually influence the discount most are the performance of the Company and that of world stock markets. Both of these are covered fully, later on in the fund manager’s review, and as noted above the board has taken action to further enhance the investment strategy to improve performance.
Two other factors have also been at work, but these are more technical. There have been concerns over current legislation that show the costs of managing an investment trust to be much higher in theory than in reality and these concerns have led the average discount of the UK investment trust sector to rise markedly over the past 12 months. The government is addressing this matter with recently published legislation, so we hope it should become less of an issue in due course. Secondly, with higher interest rates than in the recent past, bonds have become a more attractive alternative to higher yielding investment trusts where prices have weakened in response. When interest rates, in due course, start to decline we would expect discounts to start to narrow too.
As I wrote in my last report to shareholders, there is a distinct limit to the board’s ability to influence and maintain the premium or discount of the Company’s share price to NAV over the short term. Further, your board continues to believe that it is not in shareholders’ interests to have a specific share buy-back or issuance policy, but that we should retain flexibility to consider share buy-backs and/or issuance where appropriate (and actively do so). We shall therefore continue with this policy but remain willing to take appropriate action subject to market conditions.
Ongoing charge
The ongoing charge for the year to 31 August 2024, as calculated in accordance with the AIC methodology, was 0.77% (2023: 0.72%). The slight rise in the ongoing charge largely reflects an increase in administration costs for the year. The spend on marketing and advertising was increased (see the annual report for details) and total directors’ fees were also higher as there was a period last year when there were only four directors on the board.
Environmental, Social and Governance
The board pays close attention to the importance of Environmental, Social and Governance (“ESG”) matters and, together with the investment team, is conscious that investors’ interest in ESG matters will continue to grow. The fund manager carefully considers ESG related risks and opportunities when investing and managing the portfolio.
Board composition
Lucy Walker has indicated that, due to the increasing demands of her other business commitments, she will be retiring at the 2024 AGM and will not be standing for re-appointment. I would like to take this opportunity to thank her for the contribution she has made during her time on the board. On the retirement of Mrs Walker, Mrs Parfrey will become the senior independent director.
Two directors, myself and Aidan Lisser, will reach nine years of service in 2025. In order to provide an orderly succession, it is proposed that Mr Lisser will retire following publication of the Company’s half year results. It is then my intention to retire at the conclusion of the 2025 AGM.
The board considers that a board of five directors remains the optimal number for the Company. The directors have commenced steps to recruit three new directors, with recruitment to be staggered over the next 12 to 18 months. This will allow the changing dynamics of the board to settle with each new appointment and provide time to consider the desired background and experience of the next director to ensure the board remains balanced, with an appropriate spread of skills and experience.
Annual general meeting
The thirteenth annual general meeting (“AGM”) of the Company will be held at 2.30pm on Tuesday, 10 December 2024 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, our fund manager, will give a presentation at the meeting.
As an alternative, I invite shareholders 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. We therefore request all shareholders, particularly those who cannot attend physically, to submit their votes by proxy to ensure that their votes are included.
In addition to the routine business to be considered at this year’s AGM, the Company is also proposing a resolution to shareholders to cancel the amount standing to the credit of the Company’s share premium account which, subject to the confirmation of the Court, will be credited to a special distributable reserve. Cancelling the amount standing to the credit of the share premium account (which is a non-distributable reserve) is a routine procedure that is undertaken by many investment trusts and was last carried out by the Company in February 2013. The cancellation of this reserve (as explained in more detail in the notice of meeting) in order to create a distributable reserve is an administrative matter which will provide the board with flexibility to use such distributable reserve, should it wish to do so, in the future.
Outlook
It seems rather trite to say that there is a good deal of uncertainty in the world. This is always the case, but perhaps all the more so than even a few years ago. Elections, and currently wars in particular, often have a knock-on effect on the price of crude oil. Higher oil prices dampen demand and lower growth in consuming nations, which in turn impacts global investment markets. If the war in the Middle East escalates further this could therefore lead to a recession in the West.
On the other hand, inflation and interest rates are falling globally and positive noises from the US Federal Reserve are encouraging. The Chinese authorities have decided to stimulate their domestic economy, which should in due course be reflected in a stronger global economy.
If the world can avoid a full-scale war in the Middle East, which is more driven by political than economic considerations, then there seems to be a good chance that falling interest rates will win the day and global stock markets will continue to move ahead.
The implementation of the review of the investment strategy, together with a lower interest rate environment, should benefit the Company. Your Company remains in a strong position to continue to grow the annual dividend and with a more flexible investment approach we expect to see better capital performance too.
Richard Hills
Chairman
30 October 2024