Henderson European Focus Trust : Half Year Update 2023

Henderson European Focus Trust plc

Update for the half-year ended 31 March 2023

Objective

The Company seeks to maximise total return (a combination of income and capital growth) from

a portfolio of stocks listed in Europe.

This update contains material extracted from the unaudited half-year results of the Company for the six months ended 31 March 2023. The unabridged results for the half-year are available on the Company's website:

www.hendersoneuropeanfocus.com

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Performance

Total return performance for the six months to 31 March 2023

NAV1	Benchmark2	Share price3	Interim dividend
22.8%	21.7%	28.3%	1.30p

NAV per ordinary share		Share price
31 Mar 2023 177.5p	31 Mar 2023 159.0p
30 Sep 2022 147.7p	30 Sep 2022 127.0p
Net assets
31 Mar 2023	£377.6m	30 Sep 2022	£314.4m
Total return performance to 31 March 2023
		6 months		1 year	3 years	5 years	10 years
		%	%	%	%	%
NAV1		22.8	10.8	64.0	55.2	173.9
Benchmark index 2		21.7	8.7	56.2	47.4	137.4
AIC Europe sector NAV 4		22.3	7.1	54.7	51.3	159.0
Share price 3		28.3	11.0	73.3	42.2	170.2
AIC Europe sector share price 4	25.7	5.3	56.2	45.6	155.3
IA OEIC Europe sector5		21.7	6.6	55.2	39.2	125.0

1. Net asset value ("NAV") total return per ordinary share (with dividends reinvested)
2. FTSE World Europe ex UK Index on a total return basis in sterling terms
3. Share price total return (with dividends reinvested) using mid-market closing price
4. Average for Association of Investment Companies ("AIC") Europe sector of seven companies
5. Investment Association ("IA") open-ended investment company ("OEIC") Europe ex UK Equity sector average NAV, comprising 149 OEICs at 31 March 2023

Sources: Morningstar Direct, Refinitiv Datastream and Janus Henderson

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Chair's Statement

We are living through an era in which each half-yearly update seemingly warrants a dedicated volume in the economic history books. The Company's financial year end of 30 September 2022 coincided with a trough in European equity markets. Since then, as our Fund Managers suggested (or hoped) would be the case, European share prices have recovered. Why? Because they simply became too cheap, judging by historical precedents and economies have proven more robust than expected. Whilst the ongoing war in Ukraine continued to have a major impact on supply shortages, higher food and energy prices, the mild weather over the winter proved a blessing. For many companies and households - more so for those on the Continent than here in the UK - the outcome in terms of pressure on revenues and margins or general 'cost of living' has been less pronounced than feared.

Moreover, the unthinkable has happened, at least in the eyes of the professional investors who allocate assets across global equity markets: Europe has outperformed the US and by some margin. On a common currency basis, the European index has seen a good 20% outperformance compared with the S&P500, Dow Jones and the technology-heavy Nasdaq. That is not to say the trend - if we dare to tempt fate by labelling it such - has not been tested. The US Federal Reserve had to act quickly to avert contagion from a very specific banking crisis at Silicon Valley Bank in California, but not before banks globally came under the spotlight. Unfortunately it highlighted the ongoing travails at Credit Suisse in Switzerland, requiring the Swiss National Bank to find a domestic solution in the guise of UBS and prompting a flight to quality in European banking shares. Somewhat surprisingly, however, equity markets shrugged it off relatively quickly to recoup these short-term losses, ending the period with healthy double-digit increases.

Performance

In the six months to 31 March 2023, the Company's NAV total return per ordinary share rose by 22.8%, outperforming the Company's benchmark, the FTSE World Europe ex UK index by 1.1%. Our NAV performance was just above both the average of our closed-ended peers in the AIC Europe sector (+ 22.3%) and also above that of the IA Europe ex UK OEIC sector average (+21.7%).

The Company's share price total return saw a greater rise of 28.3%, mostly due to a narrowing of the discount at which the shares trade relative to the underlying NAV from 14.0% as at 30 September 2022 to 10.4% at 31 March 2023.

The existence of such a level of discount to NAV, given the strength of our performance track record, is rather confounding but seems to be a trait of our high-performing Europe sector where the average discount was 10.9% at the end of March 2023. It is a source of frustration and discussion for the Board. Buybacks have been - and will be - used judiciously to manage liquidity, but we would much rather encourage new shareholders onto the register now that European markets may be coming into vogue, than shrink the assets of the Company.

Dividend

I am pleased to announce that the Company will pay an increased interim dividend of 1.30p per ordinary share on 27 June 2023 to shareholders on the register on 2 June 2023; this compares to 1.20p for the six months ending 31 March 2022. Note that as for last year, this reflects an element of rebalancing between the interim and final dividend payments and should not be taken as a proxy for the full-year dividend increase. The shares will be quoted ex-dividend on 1 June 2023.

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Chair's Statement (continued)

Loan notes and gearing

Net gearing was at 6.8% at 31 March 2023 (vs 1.9% at 30 September 2022) having approached 11% during the period with our Fund Managers holding some cash on a short-term tactical basis if they anticipate better buying opportunities ahead. Use of leverage made a small positive contribution to NAV performance in this six-month period. Net gearing is 7.0% at 18 May 2023, and as you will see from the Fund Managers' Report, is expected to be further deployed in a considered manner over time.

Board changes

As indicated in the 2022 Annual Report, Eliza Dungworth will retire from the Board with effect from 31 May 2023. I would like to thank Eliza for her many years of service and wise counsel on the Company's affairs, and particularly for her skilful and incisive chairmanship of the Audit and Risk Committee. In line with our long-term succession planning, the Board is currently engaged in a recruitment exercise. Meanwhile, I am pleased to announce that Robin Archibald will be assuming the role of Chair of the Audit and Risk Committee, in addition to his current role as Senior Independent Director, from 1 June 2023.

Outlook

The swift recovery has not been without its nuances. At the time of writing, the market is in the throes of a 'defensives vs cyclicals' tug of war, as markets struggle to contend with a potential recession. We are cognisant of the near-term risks to our 'quality cyclicals', but we must not take our eye off the long-term opportunities for those with the luxury of long-term capital to deploy - 'global champions' that live in Europe. This includes companies which are highly competent in providing tangible goods and services which have taken on renewed strategic importance in an increasingly multi-polar world: clean-energy generation, onshore digital automated factories, smart infrastructure, and their myriad components and raw materials. These are companies and investment opportunities which, critically, in the eyes of our valuation-conscious Fund Managers, come at reasonable valuations. As they elucidate in their commentary, if the last decade was about owning 'asset-light', the next will be 'asset- heavy'. Mean reversion is alive and well.

Vicky Hastings

Chair of the Board

22 May 2023

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