HENDERSON EUROPEAN FOCUS TRUST PLC

Annual Financial Report for the year ended 30 September 2021

This announcement constitutes regulated information.

Investment Objective

The Company seeks to maximise total return (a combination of income and capital growth) from a portfolio of stocks listed in Europe.

Performance

·   Net asset value¹ per share total return was 22.6% (2020: 5.9%), ahead of the benchmark² figure of 22.0%  (2020:0.4%)

·     Share price total return³ was 28.8% (2020: 3.7%)

·    Total dividend increase of 5.8% from prior year: proposed final dividend of 23.50p per share (2020: 21.7p), making a total dividend of 33.10p per share (2020: 31.30p)

·     NAV and share price outperformance of the benchmark index over 1, 3, 5, 7 and 10 years

·    The shares were trading at a discount to NAV of 8.3% (2020: 12.6%) as at 30 September 2021

Financial highlights

1.     Net asset value ("NAV") per ordinary share (including dividends reinvested and excluding costs of reinvestment)

2.     FTSE World Europe ex UK index in sterling terms

3.     Share price using mid-market closing prices

4.     Simple average NAV for the AIC Europe sector which comprised eight investment trusts during the year

5.     Investment Association Europe ex UK sector

Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

CHAIR'S STATEMENT

European equities have performed surprisingly well over the last year and the FTSE Europe ex UK Index is now considerably higher than before the pandemic struck. I'm delighted to report that once again your Company's returns have exceeded that figure: the shares have risen by nearly 29%, portfolio income has risen substantially and your Board proposes a rise of 8.3% in the Company's final dividend.

I say 'surprising' since this recovery in share prices belies the fact that for much of this year investors have tussled with an increasingly thorny question regarding the trajectory of inflation and whether it is 'transient' or 'structural'. Whilst the strength in consumer spending has been buoyant, fuelling a recovery in economic growth and companies' profits, we now see supply shortages in industries ranging from semiconductor chips to scaffolding to Christmas toys. Combined with labour shortages, rising energy prices and soaring freight rates, it is inevitable that price increases of goods and services will be passed on to end customers. The questions are how much inflationary pressure will result, how long it will last and how central bankers will react - both in terms of setting interest rates as well as curtailing their support for bond markets.

One implicit question for stock market participants amongst these macro deliberations is whether we are finally nearing the end of the long bull run for 'growth' style investing. Higher inflation expectations would normally see central bankers increase interest rates but, with the jury out as to its sustainability and the risk of higher rates damaging an increasingly fragile economic recovery, they have kept the market guessing as to the timing of any future rise. Happily, our Fund Managers are not closet indexers nor style managers: their strength is stock picking. With that in mind, the current uncertainty provides opportunities, as the Fund Managers explain in their report.

Performance¹

In the financial year to 30 September 2021, the Company's net asset value ("NAV") total return per share rose by 22.6% (2020: 5.9%), just ahead of the Company's benchmark index, the FTSE World Europe ex UK Index, which provided a total return of 22.0% (2020: 0.4%). The share price total return was higher still, rising by 28.8%, with the share price moving from 1,260p at the end of September 2020 to 1,590p (2020: 3.7%) as the discount at which the shares traded relative to NAV narrowed.

Once again the Board is pleased to report that these returns compare creditably with competitor funds, be they in the investment trust or the OEIC (open-ended companies) sectors. It is also noteworthy that over all longer time periods both the NAV and share price total return remain ahead of this benchmark index on three, five, seven and ten-year periods to 30 September 2021.

Indeed, over a ten-year period, the share price total return from the Company has produced an annualised return of 15.4%, a very healthy result by any standard and one which confounds the popular belief that Europe is a perennial disappointer!

Dividends

The Board is pleased to recommend an increased final dividend of 23.5p per share (2020: 21.7p) which, subject to shareholder approval at the Annual General Meeting ("AGM"), will be paid on 4 February 2022 to shareholders on the register at 7 January 2022. When added to the interim payment of 9.6p (2020: 9.6p) this brings the full year dividend to 33.1p per share, a 5.8% increase from the 2020 full year distribution of 31.3p per share. With the year end share price at 1,590p this represents a yield of 2.1%.

The income-generating ability of our investments has proved stronger than might have been anticipated some eighteen months ago, with the resumption of dividends, the odd special dividend and a recovery to pre-pandemic levels and beyond for others, enabling our declared dividend to be fully covered. This increase is consistent with our policy whereby, over time, we will endeavour to pay a progressive dividend: holding dividends in tougher times and utilising the Company's ample revenue reserve where appropriate.

Discount

The discount narrowed from 12.6% to 8.3% over the year under review, which is not materially out of line with our sector peers, but is wider than your Board would like. We would be much happier to see the shares trading closer to parity with net assets or at a premium and to be able to issue shares and grow assets, with the commensurate benefits of improved liquidity and a reduction in our operating cost ratio. The pricing of investment trust shares by market makers is an art and not a science, and your Board is aware that stimulating an increased level of retail demand is likely to be the best way to narrow the discount over time permanently. Accordingly, your Board, in partnership with Janus Henderson, will be looking to step up the level of retail marketing in the year ahead to stimulate that demand.

Share split

One action we can take which we feel would benefit investors looking to invest smaller amounts would be to split the shares, which will have the effect of reducing the price of the shares from their high absolute level, 1,590p per share at the year end, and increasing the number of shares in issue. The Company's share price has trebled over the last 10 years and we believe a lower absolute share price would allow smaller sums to be invested or reinvested more efficiently - whether as part of monthly savings schemes or as part of dividend reinvestment programmes. Hence at the forthcoming AGM shareholders will be asked to approve a sub-division of each ordinary share of 50p nominal value into 10 new ordinary shares of 5p each.

We believe that the sub-division should improve the liquidity in, and marketability of, the Company's shares, which would benefit all shareholders. Further details of the proposed sub-division can be found in the Annual Report, in the Notice convening this year's AGM which accompanies this report and on the Company's website.

Board changes

As anticipated in our 2020 Annual Report, we have now returned to a Board of four with the recruitment of Stephen Macklow-Smith who joined on 9 July 2021 as a non-executive director of the Company. Mr Macklow-Smith brings a deep understanding of both European equity markets and investment companies, having recently worked in an executive capacity at JP Morgan Asset Management as a senior investor and strategist of the European Equity team, and latterly of the International Equity Group. Even more importantly, he is a huge advocate for the capabilities of corporate Europe and believes that investing in Europe is not the same as investing in their politicians or even their economies, and as such we are confident he will add greatly to our debates.

Fund Managers

Tom O'Hara was appointed Co-Fund Manager of your Company nearly two years ago, and he and John Bennett, our longstanding Fund Manager, have worked together very effectively. As the longer tenured and higher profile Fund Manager, John Bennett has had to shoulder much of the burden of managing the investment relationship with the Board and in promoting the Company to shareholders and prospective investors. However, Janus Henderson has advised us that, whilst they have no intention of changing the fund management arrangements, now is an appropriate time for Tom to take the lead in this regard. He and John will both continue to benefit from the strength of the full European team in supporting their investment activities. This evolution of roles has been anticipated by the Board and is part of an orderly transition by the management group which the Board fully supports, noting that there will be no change to the way in which the portfolio is managed.

Governance, shareholder engagement and Annual General Meeting

We are very pleased to invite shareholders to attend the AGM in person at our registered office on Thursday, 27 January 2022 at 2.30 pm. We encourage shareholders to attend for the opportunity to meet the Board, see a presentation from your Fund Managers reviewing the year and looking forward to the year ahead, and to ask questions and debate with the Fund Managers and the Board.

For any shareholders unable to travel, we will also be welcoming you once again to join by conferencing software Zoom. As you may recall, the January 2021 AGM was held via open Zoom webinar so that shareholders could attend the Fund Managers' presentation and debate 'in real time' directly with the Board and Fund Managers. As a reminder, whilst there will be live voting for those physically present at the AGM, due to technical restrictions we cannot offer live voting for those attending by Zoom, and we therefore request all shareholders, and particularly those who may not be able to attend physically, to submit their votes by proxy, ahead of the deadline of 25 January 2022, to ensure that their vote counts at the AGM.

If you have questions for either the Board or the Fund Management team in advance - or at any time of the year - please do get in touch (contact details can be found in the Annual Report). Also, do use the sign-up function at www.janushenderson.com/en-gb/investor/subscriptions/ to receive regular information. I hope you are encouraged by what you read.

Due to the coronavirus pandemic, it may be necessary to change the venue and/or the date of the AGM, subject to the advice of public health authorities and the UK government closer to the time. Any changes as to the venue and/or date and time of the AGM would be made available at www.hendersoneuropeanfocus.com and additionally an announcement would be released to the London Stock Exchange.

Outlook

In my opening paragraphs I highlight the difficult questions that investors in equity markets are having to contend with at the moment - these are not restricted to Europe and will likely be quite familiar to the reader. It is easy to get gloomy, not least with the emergence of new Covid variants, but I encourage you to read on… The corporate reporting season for our companies is proving at least as good as we might have hoped and there seems to be no shortage of ideas that meet our criteria for investing: namely good business prospects, cash generative operations and solid, if not outright strong, balance sheets. Our focused portfolio averaging 45 investments consists of businesses which are not reliant simply on high share prices to fund their future activities while also trading at valuations that are within acceptable range. Whilst we are unlikely to see European indices rise by another 20% in the forthcoming year, for the longer-term investor, who can withstand some bumps along the way, there are plenty of interesting companies in our portfolio which we expect to deliver very creditable returns over the next few years.

Vicky Hastings

Chair of the Board

8 December 2021

¹ The performance figures referenced in this section are net of fees, with dividends reinvested and in sterling.

FUND MANAGERS' REPORT

Glancing back at last year's report, one theme we highlighted was the post-pandemic shape of economic recovery. Investors in the Company will know that our analysis in the late spring of 2020, when the first waves of Covid-19 reached the western world, led us to conclude that the ingredients were in place for a 'V-shaped' recovery. We were as sure as we could be that this would be led by the industrial sphere. And so it came to pass, benefitting, as remarked in last year's report, the performance of the Company.

As the year progressed our conviction grew that V-shape 1 would give way to V-shape 2. The latter, we concluded, would be led, not by industrial businesses, but by the consumer sector. The quite literal shot in the arm for this came, of course, via the highly successful and game changing vaccines. While politicians do what politicians do - from bumbling to grandstanding to claiming ownership of success - we can be grateful for the one pattern, the one constant that has stood throughout history: science and technology via human ingenuity ensures that we prevail.

Thus, our thesis was that millions to billions of shots in the arm, coupled with generous government safety nets, meant that a 'cashed up' consumer was set to emerge from the pandemic. Our conviction was that, released from the horrors of confinement, the armed army was set to do what consumers do: travel, spend, live life. We therefore tilted the Company's portfolio to a carefully selected list of consumer-facing names. By the end of the financial year, the Consumer Discretionary sector was comfortably the Company's largest exposure, standing at 19.4% of the portfolio. Helping to fund this was a reduction in exposure to Industrials, from 32.6% to 19.1% over the course of the Company's financial year.

It is noteworthy that we say 'carefully selected'. It is necessary that we eschew a 'cover the water' approach in what we do. This is all the more so given that the Company is a genuinely active, focused portfolio, whose very DNA is to offer our shareholders differentiation from a broad equity index. The reference to DNA is deliberate. It is something that we spent considerable time explaining in last year's report. In that report, we highlighted that one of our six 'key strands' was to believe in change. Three stocks within our consumer selections epitomise this. Not for broad consumer facing exposure did we choose to invest in Hugo Boss, Danone and Pandora. Yes, an inoculated and liberated consumer provides a most welcome tailwind, but it is the change within that has attracted us.

It is fair to say that we have spent most of our investing careers avoiding these three stocks. As such, they embody that pragmatism that we highlighted in last year's report: the willingness to believe in change. Indeed, we are passionate in our ongoing search for management teams who identify the need for change and who go on to implement it. When new management grasps the reins of an underperforming franchise, the effects can be powerful. In a nutshell, this is what we see in each of these businesses. Whether it be upping the growth speed of Boss, fixing the issues in China and the USA for Pandora or the wholesale management change opportunity at Danone, we are excited by all three. Perhaps it is Danone that could be the most profound. Historically a company which was French to its core (recall the 'yogurt is in the national interest' days), Danone has recently installed a new CEO. We are encouraged not only by his track record at Swiss-based Barry Callebaut but by what we envisage as being a more outward looking company. The point is that Danone, by its very nature and global presence, needed 'internationalising': its own DNA had to change. Recovery won't be swift: the turnaround will take time, but we are optimistic that this serial under-achiever can float, like cream perhaps, to nearer the top of the class.

Performance

The total return NAV rise of 22.6% over the past year was but a smidgen above the 22.0% produced by the benchmark index. Nevertheless, it does build on the track record of outperformance and means that the Company has beaten its benchmark over the last 1, 3, 5, 7 and 10 years.

Reflective of the bottom-up nature of our investment process, our winners and losers of the year represent an eclectic bunch. Indeed, our top five 'alpha' contributors were Nordea Bank (banking), Signify (lights manufacturer), Interpump (diversified industrial products), ASML (semiconductor equipment) and Lundin Energy (oil exploration and production). Perhaps only ASML would be seen gracing the portfolios of most 'growth' strategies, the other four names most likely to be seen as 'value' counters. Indeed, if we stretch our analysis to look at the next five contributors, we find two autos stocks, one from food retail, one from building products and an insurer. Thus, only one name from our top ten 'winners' could be considered a 'growth darling': the redoubtable ASML.

At the other end of the table, one of our bigger disappointments was our holding in Holcim. While our biggest individual contributor, Nordea Bank, added 75 basis points ("bps") to 'alpha', Holcim subtracted 58 bps. Representing 6.2% of the portfolio at the year end, this has undoubtedly been one of the most contrarian calls we have made in recent years. The contrarianism is all the more pointed - and all the more lonely - given that this is a cement company. As such, Holcim is an easily avoided stock if one employs the 'scorecard' approach to ESG investing. As investors in the Company will know from our commentary in last year's Annual Report, we prefer a different approach. Indeed we are passionate about it. Our approach to ESG favours change. We don't want to cancel; we want to embrace, challenge and hold to account, admittedly an approach not currently finding favour in many an educational establishment.

We ask ourselves not where a company has come from but where it is going. Holcim embodies this thought process: formerly a sprawling cement empire, it is in the hands of a highly talented, proven management team, determined to push through an ambitious transformation programme. The end game is a profile which can be described as 'less cement, more downstream building products and solutions'. Successfully executed, this would, in our opinion, deliver a much less carbon intensive, higher returns-focused group. Meanwhile, Holcim is already a world leader in the decarbonisation of cement, a product which is not going away any time soon.

Our thesis is that the metamorphosis should be rewarded by a substantial rerating of the company's shares. Having spoken regularly with Holcim's management, we believe that the languishing stock price, notwithstanding the near flawless strategy execution thus far, will prompt an acceleration in the transformation. Indeed, we see 2022 as a pivotal year.

It is one thing having a thesis: it is another seeing it realised. The concern with Holcim has to be that today's fashion for ESG scorecard investing runs longer than our patience can hold out. Never far away from our thoughts are our six 'strands' of Investment DNA. As outlined in last year's Annual Report, the penultimate of those was stated as "Give yourself time (clients willing)". Well, it has been some four years since we started building this position in Holcim. Whether it is we or our clients who lose patience first, all senses point to us having to make a decision whether to stick or fold in Holcim in the coming year: the final DNA strand - "be ready to be wrong".

Growth versus value

There is probably not enough space in the Annual Report to exhaust this perennial debate. Yet, we feel compelled to add our tuppence worth - if that doesn't sound too value…

Number one in our Investment DNA list of six from last year's report was "Follow the cash". We like cash. We like to measure the cash flow return on capital employed by a business. We like businesses who can fund their own growth. This has presented some challenges in recent times. As one broker recently remarked to us: "for so many of the darling stocks, constant capital calls are their cash flow". He is right. And yet, some such cash consumptive, land grabbing, and often non-profitable businesses have been rewarded with outstanding stock price performance, often leaving those of sound balance sheet and sound cash flow for dust. We think of examples in sectors such as electric vehicles and food delivery: a disruptors' paradise, it appears.

The outperformance by the growth style versus value is not a recent phenomenon. It is often linked to, indeed rationalised by, the decline in long-term interest rates, itself one of the most profound macroeconomic phenomena of our times. Repeating a sentence from the concluding paragraph of last year's report: "the team doesn't seek to make dramatic macroeconomic calls". The problem in so doing is that it risks severe damage to the last of our six DNA strands: "be ready to be wrong". All too often, making a dramatic macroeconomic call can lead to a portfolio set up which needs that call to be right.

This report is being written in the midst of a major macroeconomic debate, itself intertwined with interest rates: inflation - transitory or durable?

The Company's investors will be aware that, as Fund Managers, we have empathised with the durable side of the argument. Indeed, when the pandemic first hit we called out inflation as one of the possible medium-term consequences. Our sense of that came not from supply side problems, which we also flagged as early as April 2020. Rather, it is in the combined global policy reflexes of monetary and fiscal largesse and a worrying return to big government where we see the more likely causes of durable inflation. And yet, while our instincts have, for 18 months, been that inflation will be 'transitory for longer' we have not bet the ranch. In other words, we have not crafted a portfolio built on a thesis which has to be right. We will not contravene DNA strand number six. This is why we have not loaded the Company with a lop-sided portfolio of value stocks. To do so would be to make a call on a reversal of the investment zeitgeist of the last 10 and more years: low interest rates and flat bond yield curves.

And yet, and yet… developments over the summer of 2021 have made us challenge even this view. Here we refer not to macroeconomic developments but to the shape of equity markets. On both sides of the Atlantic, summer 2021 has seen a further leg up in the outperformance by growth versus value. Indeed such has been the extent of this that we spy opportunity.

That opportunity is to take the other side. This does not mean a sudden and severe lurch to value stocks and a jettisoning of all things growth: when it comes to style, we continue to be a blend strategy. Nevertheless, we see compelling opportunity in what we would term 'the left behind'. It has to be said at this juncture that we believe that the phenomenon of ESG investing has contributed to this opportunity among 'the left behind'.

"It is a fool's errand to describe yourself as sustainably investing when you divest from all inappropriate stocks and simply invest in tech, for instance". Guy Opperman, UK Pensions and Financial Inclusion Minister, June 2021

Among the classic value sectors can be said to reside autos and energy. It is here that, in recent weeks, we have spied opportunity. This is not because we hope or pray for a change in interest rates or a steepening in yield curves. It is because we believe that the rush to growth, turbo-charged by the ESG boom, has created a polarisation. When we look at the valuations of European auto stocks such as Daimler and Stellantis, we conclude that the market has priced them for 'run-off'. It is our view that these businesses have the cash flow, the balance sheets, the knowledge and the infrastructure to compete in the new world of electric vehicles. The world will not belong to Tesla: brands such as Mercedes, BMW, Jeep and more will compete. If we are right, the valuations are wrong.

In energy too we have spotted opportunity. One of the issues with the ESG Klondike-style bonanza is that it is polarising, not just in societal terms but in investment too. Mindful of the difference between looking good and doing good, it is possible simultaneously to invest in a hydrocarbons business and do good. Take the largest of our two oil company investments: Lundin Energy. Lundin's decarbonisation strategy is one of the clearest and most convincing we have encountered. It sets a target for carbon neutrality from 2023 across its operations. The boundary of its neutrality target is Scope 1 and 2 emissions and Scope 3 emissions related to its supply chain (vessels, logistics and business travel). Further, the company has set an absolute emissions reduction target for net Scope 1 and 2 emissions of 50% by 2023, from 2020 levels. This puts Lundin on track to meet the targets of the Paris Agreement much earlier than required.

Lundin is a perfect example of what we mean when we describe our approach and our commitment to ESG investment: it is ESG by impact not by exclusion. It is an approach we feel passionate about. It is all too easy to make a portfolio 'look good' from an ESG scorecard perspective. We would contend that it requires more thought, more work and more authenticity to have an inclusive approach: to invest in less obvious ESG beneficiaries and less obvious solutions to the challenge. Oil companies, cement companies, steel companies - with the help of active, engaged investors, they can become part of the solution. Indeed, as we see from the dysfunction in energy markets, a too-eager transition, a too-evangelical approach to ESG brings with it unintended consequences, for society at large and for investors. The fact that the scorecard, exclusionist approach has left such assets trading at highly attractive valuations only adds to the investment case.

Outlook

We are sure that the Company's investors share our wry smile when we read investment commentaries which conclude 'the outlook is uncertain'. We've never known it to be anything else.

Aside from the macro debate surrounding inflation and associated interest rates, the near-term outlook is likely to be shaped by the many and varied supply side constraints to doing business. Thus, we should not be surprised to see a margin squeeze across a wide range of companies and industries. In turn, of course, this means that a year from now we should be lapping such input cost pressure. This is a key point: markets are a discounting mechanism. In other words, very soon, if not already, share prices will have discounted the 'warnings' and will be anticipating normalisation.

It is in this context that the team managing the Company's portfolio will continue to stick to its knitting: valuation- conscious stock picking.

Tom O'Hara and John Bennett

Fund Managers

8 December 2021

Note: The Fund Managers' combined holding in the Company at the year end comprised 394,704 shares.

MANAGING OUR RISKS

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks facing the Company, including those which would threaten its business model, future performance, solvency,  liquidity in its shares and reputation. The assessment includes consideration of economic and political risks, most of which are outside the Board's direct control. The Board has drawn up a detailed matrix of risks facing the Company, together with a strategic heat map charting the top ten risks, which it has distilled into six categories of principal risks, as shown in the Annual Report. To assist in mitigating the decision-taking risks as far as practicable, it has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, which it reviews at each board meeting.

The Board considers closely changes to the risk profile of the Company, arising from both internal and external triggers, and examines emerging risks as part of its regular review of the Company's risk profile. The Board defines emerging risks as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of occurrence probability and possible effects on the Company. Once the emerging risks become sufficiently clear, they may be treated as specific risks and enter the Company's matrix of risks.

The Board receives regular and detailed reporting on specific and emerging risks from the Manager and other service providers. In addition, the Board receives reports on specialist topics from professional advisors, including lawyers and tax agents. These reports, as well as the directors' own experience, enable effective monitoring of the risk landscape and changes to it. The Board encourages a culture of anticipating and scanning for direct and indirect market events and constructive challenge to identify and manage risk, where it can, including external risks which need a rapid response. The Board does not consider the principal risks to have changed during the course of the reporting period and up to the date of the report.

Throughout the year the Board has considered the impact of Covid-19 on the Company and concluded that the portfolio and investment approach are resilient. The Manager takes into account the impact of the pandemic, but the investment process remains unchanged and the operational requirements of the Company have, to date, proven resilient. The Board has also considered emerging risks, with specific reference to inflationary and supply pressures, as referred to in the Chair's Statement, and the increasing impact of ESG issues, including climate control.

Principal risks

The Company's principal risks and mitigating steps are as follows:

·      Market

The Company's absolute performance in terms of net asset value, total return and share price total return is dependent on the performance of the companies and markets in which it invests and is also impacted by currency and interest rate movements, as well as by political and economic events.

Investment risk is spread by holding a diversified portfolio of companies, typically with strong balance sheets and good growth prospects. The Company does not currently embark on any currency or market movement hedging strategies, though it has the ability to do so.

The Company's investment strategy is reviewed formally by the Board at least annually, and takes into account shareholder views, developments in the marketplace and how the structure of the Company is positioned to meet them.

·      Investment performance

The relative performance of the Company against its benchmark and European open and closed-ended peers depends principally on asset allocation and stock selection, which, in turn, require investment skills. In exercising these skills, the Manager is responsible for adhering to the investment policy and investment guideline restrictions set by the Board and amended from time to time.

The Board is responsible for ensuring that the investment policy is met. The day-to-day management of the Company's assets is delegated to the Manager under investment guidelines, with close monitoring of the guidelines.

The Board meets the Manager on a regular basis and keeps investment performance, in terms of both capital and income returns, under close review, and the Management Engagement Committee reviews the Manager's performance annually. The Board has received frequent updates from the Fund Managers since the Covid-19 pandemic emerged, enabling the directors to monitor and manage risks related to the pandemic. Although the Company is not invested against any income criteria, the net income of the Company and the revenue reserves are monitored against dividend pay-outs and anticipated future net income.

Investment performance is monitored over the short, medium and longer term against the Company's benchmark and against a wider peer group of open and closed-ended investment vehicles investing in listed European equities. The Board also reviews the performance attribution analysis against benchmark in detail, to understand the main drivers of performance in reporting periods.

The Fund Managers keep the global political and economic picture under review as part of the investment process. Climate risk is assessed within the individual stock selection process and is reported further within quarterly Fund Manager board reports.

·      Business strategy and market rating

A number of factors, including the setting of an appropriate investment proposition, changing investor demand or investment performance may lead to an increase or decrease in demand for and/or supply of the Company's shares and will impact how the shares are priced in relation to the Company's underlying net asset value per share.

The Board monitors the Company's ordinary share price relative to net asset value per share and reviews changes in shareholdings in the Company to try and understand short or longer-term trends in demand for and supply of the shares.

The Company is able, when appropriate, to issue or to buy back shares in order to help maintain an orderly secondary market in the Company's shares, but not against any prescribed discount or premium levels, other than avoiding dilution to existing shareholders' interests through share issuance at a discount. The Board also monitors the rating of the Company's shares against other closed-ended investment companies in the sector and continues to deploy tools at its disposal in shareholders' best interests.

The Company is 'evergreen' and does not have a liquidity event, such as periodic tenders or continuation votes. The liquidity of the portfolio is monitored and is considered sufficient for the purposes of a closed-ended fund, including instances whereby the Company buys back its own shares.

·      Gearing

The Fund Managers have authority to use gearing in line with the Company's investment policy. In the event of a significant or prolonged fall in equity markets any gearing in place would exacerbate the effect of the falling market on the Company's net asset value and, consequently, its share price. Gearing would have the opposite effect in the event of a significant or prolonged rise in equity markets in which the Company is invested.

The Company's investment policy sets a limit on gearing of 20% of net assets and the Board monitors the level of gearing at each meeting. In practice, gearing is of a flexible, short-term nature, and it tends to fluctuate between 0% and 10% of net assets depending on the Fund Managers' views of investment opportunities and views on the direction of European equity markets.

·      Operational

The Company is reliant on third-party service providers for all its operational activities, including reliance on Janus Henderson as investment manager, corporate secretary and administrator to the Company.

The Company depends on the diligence, skill and judgement of the Manager's investment team. Continuity of service of the team and individuals in the team could impact on the future success of the Company. Failure of third parties' operational or internal control systems could prevent the accurate reporting or monitoring of the Company's financial position. Janus Henderson sub-contracts some of the operational functions (principally those relating to trade processing, investment administration and accounting) to BNP Paribas.

Failure of controls could also impact the Company meeting its regulatory obligations.

The Management Engagement Committee reviews each service provider at least annually, and, in conjunction with the Audit and Risk Committee, considers reports on internal controls, including any reported breaches, throughout the year, from all the service providers. This reporting covers such matters as continuity planning and cyber security risk as well as matters that are subject to review as part of the annual audit of the Company.

Janus Henderson has a strong European Equities team, which supports the Fund Managers in the management of the Company's portfolio. Constructive challenge, succession and continuity planning are key elements of the management of the team and are reported on to the Board. The Board reviews the internal control structure and reporting for the Company from all its agents and meets with their representatives throughout the year to make enquiry on the systems and controls.

The risk of failure of the Manager to manage financial or administrative controls, due to the increased possibility of cyber attacks whilst many employees worked from home, was increased due to the Covid-19 pandemic. The directors report that there has been no change to the level of service provided by the Manager or the Company's other third-party suppliers and the pandemic has served to highlight the resilience and high quality of the services provided.

The Board considers climate risk in respect of operational capability in its review meetings with service providers.

·      Regulatory and reporting

The Company operates in a highly regulated environment which could inter alia affect the listing of the Company's shares and the Company's tax status, as well as how the Company conducts its affairs in the market more generally. The Company also has strict reporting requirements that need to be adhered to both internally and externally to the market.

The Board is apprised regularly of impending regulatory and reporting changes and monitors closely, through its various agents, the Company's adherence to existing requirements, including maintaining investment trust and listed company status.

The Board is also kept apprised of corporate governance guidance and, as far as practicable, adheres to corporate governance guidelines that are applicable to an investment company.

The Board is kept informed by the Manager and professional advisors of relevant regulatory and reporting changes arising as a result of the Covid-19 measures and other geopolitical events, including the ongoing trade negotiations following the UK's departure from the European Union.

Details of how the Board monitors the services provided by Janus Henderson and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the Annual Report. Note 14 in the Annual Report contains further details on the Company's exposure to market risk (including market price risk, currency risk and interest rate risk), liquidity risk, credit and counterparty risk and how they are managed.

THE COMPANY'S VIABILITY

The AIC Code of Corporate Governance includes a requirement for the Board to assess the future prospects for the Company, and to report on that assessment within the Annual Report. The Board considers that certain characteristics of the Company's business model and strategy are relevant to this assessment:

• the Board looks to ensure that the Company seeks to deliver long-term performance;
• the Company's investment objective, strategy and policy, which are subject to regular Board monitoring, mean that the Company is invested mainly in readily realisable, EU-listed securities and that the level of borrowings is restricted;
• the Company is a closed-ended investment company and therefore does not suffer from the liquidity issues arising from unexpected redemptions.

Also relevant were a number of aspects of the Company's operational agreements:

• the Company retains title to all assets held by the custodian under the terms of formal agreements with the custodian and depositary;
• revenue and expenditure forecasts are reviewed by the directors at each board meeting; and
• cash is held with approved banks.

In addition, the directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's business model, including future performance, liquidity and solvency, and considered emerging risks that could have a future impact on the Company. The Board takes into account the liquidity of the portfolio, the gearing and the income stream from the portfolio, and the Company's ability to meet its liabilities as they fall due. This includes consideration of how the forecast income stream, expenditure and levels of reserves could impact on the Company's ability to pay dividends to shareholders over that period. Detailed income and expense forecasts are made over a shorter time frame. However, the nature of the Company's business means that such forecasts are equally valid to be considered over the longer five-year period as a means of assessing whether the Company can continue in operation.

The directors assess viability over five-year rolling periods, taking account of foreseeable severe but plausible scenarios including the recent pandemic and its economic consequences. While they assess theoretical threats, the Board believes that empirically the recent experience of the technology crisis, the financial crisis, the Eurozone debt crisis, the Brexit vote and the Covid-19 pandemic have not affected the long-term viability of the Company in any way and will not have a long-term impact on the viability of the Company and its ability to continue in operation, notwithstanding any short-term uncertainty they have caused in the markets.

In common with investment companies generally, the viability statement does not take into account corporate events which might be initiated by the Company or to which the Company might be subject, and where the Company's circumstances might be dramatically changed. An investment company has relatively liquid assets, compared to industrial or commercial companies, and can, therefore, be subject to major and unexpected strategic change. No such event or change is known or currently in contemplation by the Company. The directors believe that a rolling five-year period best balances the Company's long-term objective, its financial flexibility and scope with the difficulty in forecasting economic conditions affecting the Company and its shareholders.

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out in the Annual Report, 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 five-year period to September 2026.

RELATED-PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with the directors and the Manager. There were no material transactions between the Company and its directors during the year other than amounts paid to them in respect of remuneration and expenses, for which there were no outstanding amounts payable at the year end. Directors' shareholdings in the Company are disclosed in the Annual Report. In respect of the provision of services by Janus Henderson, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there were no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in note 22 in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES UNDER DTR 4.1.12

Each director, as listed in the Annual Report, confirms that, to the best of his or her knowledge:

●  the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards comprising FRS 102 and applicable law) give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

●    the Strategic Report includes 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.

On behalf of the Board

Vicky Hastings

Chair of the Board

8 December 2021

PORTFOLIO INFORMATION

Top 10 investments at 30 September 2021

Income Statement

The total columns of this statement represent the Income Statement 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. All revenue and capital items in the above statement derive from continuing operations. The Company had no recognised gains or losses other than those disclosed in the Income Statement.

Statement of Changes in Equity

Statement of Financial Position

Cash flow statement

* Cash inflow from dividends was £8,182,000 (2020: £6,290,000) and cash inflow from interest was £nil (2020: £14,000).

NOTES TO THE FINANCIAL STATEMENTS

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