Janus Henderson Group plc (JHG) Earnings Call Transcript & Summary

Thank you. Good afternoon, everybody, and a very warm welcome to our pre-AGM webinar for the Henderson Smaller Companies Investment Trust. Thank you very much for joining us today. I'm Penny Freer, I'm the Chair of the Board, and it's my pleasure to host this session. I joined the Board at the Henderson Smaller Companies Investment Trust in 2018 and have since been privileged to help guide our strategic direction and the stewardship of shareholder value. Today's gathering is particularly important, as I invite all of you, our shareholders, to vote in our upcoming Annual General Meeting, which is scheduled for 11:30 on Tuesday, the 7th of October at 201 Bishops Gate. There will also be a zoom connection for anyone who can't travel. The company has a continued this year and a strong 1 vote in favor and welcome to our preening and forms and details are all available. Thank you very much for joining us and outline our agenda for today. First of all, the chairs welcome, which I'm delivering to you right now. And then next, you'll hear our Fund Manager, Indriatti van Hien presentation, in which he'll discuss the investment portfolio, recent developments and outlook. Indriatti's presentation will be followed by a Q&A session moderated by Janus Henderson's Head of Investment Trust, Dan Howe, which is your opportunity to ask questions. But before I welcome Andre also to give her presentation, let me give you a brief overview. And looking back on the year to 31st of May 25, the year-end of your afternoon, the market environment proved challenging, marked in the U.K. by the new labor government with a new political and fiscal agenda. Against this backdrop, our net asset value declined by 5.1% on a total return basis, and our share price fell by 2.3%. The company did underperform its benchmark, the [ Deutsche Numis ] Smaller Companies Index by 10.1%. Despite some headwinds and a challenging economic environment, we enter the coming year with cautious optimism and are happy to declare a final dividend of 20.5 pence and bringing the full year dividend to 28p, which represents a commendable 3.7% year-on-year growth. I'd also like to take a moment to acknowledge and to thank [ Neil Herman ] who will retire as portfolio manager at the end of this month after 22 years of service. On behalf of the Board and all our shareholders, I extend our gratitude to Neil for his contribution and wish him every success and happiness in his retirement. With that, it's my pleasure to hand over to our portfolio manager, Indriatti, who will take us through the portfolio's journey, our strategic positioning and the path forward. Thank you again, everyone, for tuning in, and I hope you find this session helpful.

Thank you, Penny, and good afternoon, everyone. I'm Indriatti van Hien, the co-manager of this trust. I want to use today as an opportunity to introduce myself to you to look back on the financial year just gone, but more importantly, to look ahead at the new team, how we invest, what we've been doing and to finally touch on some of the great opportunities we're seeing in the U.K. smaller companies space. So let's recap on the financial year to the 31st of May 2025, which was both a disappointing year for fund performance and a disappointing year for the U.K. small-cap asset class, which continued to underperform large caps. As for the highlights or perhaps more appropriate to call them low lights last year. In the year to the end of May, the NAV total return fell by 5.1% and underperformed the benchmark by 10.1%. But because our discount narrowed over the year, helped by our active buyback program, which I hope you've all noticed, the fall in the share price total return was slightly less disappointing at a negative 2%. On a more positive note, the strong cash generation in our underlying portfolio holdings meant we were able to increase our dividend by nearly 4%. This represents the 22nd consecutive year of dividend growth at the company. But an all-round difficult year for the trust after what has already been a few difficult years for performance. Lastly, this year, Neil Herman, as Penny mentioned, the Fund Manager of the Trust for over 22 years decided to retire. He officially leaves the building in September, after which I will take over as sole Fund Manager of the trust. Diving into the detail around performance, the macro backdrop and interest rates staying half or longer was a headwind, and the autumn statement brought the term stagflation back into Investors' lexicon all this hurt the interest rate sensitive part of our portfolio. But as ever, it's the stocks that drive performance in this portfolio. And whilst we benefited from performance of our long-standing holdings in Alpha Beauty, an international construction company, which is seeing strong order book growth, margin expansion and continues to be on free cash flow and the likes of events operator Essential, which was bid for by [ Informa ] last year. Some of our larger positions hurt us. Market Services and Data Communications Company, [ Next15 ], profit warned after the loss of a large Saudi contract and weak demand in tech spending. The company has undergone management change and as we appreciate how difficult it can be to turn around people heavy businesses. It has a strong balance sheet and a Board which seems motivated to unlock shareholder value through disposals of parts of its business. So we're sticking with it. Impact Asset Management continued to see outflows and lost an outsized mandate at the end of last year, which put pressure on earnings and caused them to cut their dividend. This is a position we have exited this year. After a strong run for the shares in 2024 and evidence of green shoots in the U.S. advertising market, specialist media company Future hurt us as Trump's Liberation Day announcements caused the hiatus in advertising spending in March However, the trading has steadily improved, and we continue to see excellent value in these shares and continue to retain a position. Not owning Georgian Bank TBC hurt us as did not owning Telco turnaround [ Zegona ] Communications Overall, a challenging year, and I want to talk a little bit later about some of the changes we're making to provide performance. But before I do this, we need to say an important farewell and thank you to Neil Herman, the man who has managed this trust for the last 22 years. Notwithstanding a very difficult last 4 years, Neil has been a fantastic custodian of this trust and his long-term track record is testament to that. If you had invested GBP 1,000 on the day Neil took over in 2002, you'd be sitting on GBP 16,000 at the end of May, far exceeding benchmark returns. And I want to put my personal record on thanks to Neil as both the shareholder and the colleague. He has been a fabulous mental, and I've learned a lot from him over the last 13 years, we have worked together. Not all of it about football. We wish him a long and happy retirement. He remains a top shareholder and has already been pestering me about growing the dividend. But that's enough about looking back, it's now time to look forward. Here is the new team taking on this well-established trust. I say you, I've actually been involved in this trust for the last 13 years and have been deputy manager for the last 9. In the summer of 2024, the Board made the decision to promote me to co-manager, which was formally enacted at our interims in January. As for my background before joining what was then Henderson in 2011, I did what my father would term a proper job where I worked at PwC and got my accounting qualifications. An important skill to have when looking at small-caps, where cash generation and funding requirements are so crucial to an analysis when you have lots of smart people wearing great suits carrying shiny slide decks buying for your capital. And that's an important point where all portfolio managers, but we are also analysts. We do our own stock picking. You'll also see [ Shiv ] here. He's worked on the desk for the past 8 years and is a dedicated U.K. small-cap resource. He is also an accountant. Now this blacked out silhouette is our new hire. The silhouette has long hair, and an [ Ametus slot ] or JK reaming would probably correctly identify her as a woman. agenda is not what is important. What is important is that she comes with an excellent track record in U.K. smaller companies, and we expect her to be joining our team in November. She is not an accountant, which will offer some light relief at team drinks, but has gained banking experience in the U.K. small cap space in her early career. So she knows how the sausage is made, and like all good fund managers knows to read prospectus starting from the back. She is, however, a Liverpool supporter, which is odd because she is a genuine scoucer. This also means that all the useless Liverpool knowledge, Neil imparted upon me will not be entirely wasted. We're thrilled she is joining us. She was our top choice of candidate in a competitive field. She's a bottom-up stock picker whose existing investment process is very much aligned with our own. Whilst we are the 3 who are directly responsible for the strategy, there are many others that indirectly feed into us. None of them were good looking enough to have their pictures featured on this page, but they're all very important into feeding into the wider market debate. There's a strong culture of collaboration at Janus Henderson, which means we all have access to each other's meetings. We have weekly cross desk equity meetings and there's compulsory net sharing. I wanted to give a special shout out to our incredibly capable ESG team who support us so well in assessing many of the nonfinancial risks and opportunities our companies face. So that is the new lineup. Now on to U.K. small caps. Why are we here? Or why should you want to be here? Well, it's because the U.K. small cap effect is real, whether over 70 years or over 25 years, small caps have outperformed large caps most of the time. There are many drivers behind the small cap effect, including the fact that it's easier for smaller companies to grow faster and how they naturally give exposure to new product services and technologies in nascent growing industries. But the -- one of the main drivers of this effect is the fact that there is more alpha-generating opportunities in this part of the market. Less analysts cover more stocks, which results in higher stock dispersion, making it fertile hunting ground for alpha generation, great for stock pickers like us. It's for the same reason that it's worth noting to you that you can't really invest in small caps through passive exposure. There isn't liquidity in that part of the market and one of the main reasons an active approach is key. As the chart below shows, it's been somewhat of a lost decade for U.K. small caps, but we see opportunity -- we see opportunity in that, and I will come to that later. So where are we? And how do we fit into all of this? The Henderson Smaller Companies is an investment trust. We love this structure for investing in small caps as it is a long-term vehicle giving investors access to unique features, which we fully take advantage of. The trust is one of the largest and most liquid trusts in the space with around GBP 700 million of gross assets and GBP 600 million of net assets, and you can buy this trust at an attractive 8% to 9% discount to NAV. We take advantage of gearing, which using our attractively priced long-term debt, we have long-term private placements priced at around 3%, very attractive when you consider where bond yields are trading now. Over the long term, this has successfully enhanced return for investors. We have a long track record of dividend growth. We're not an income fund, but have achieved this as a happy byproduct of our long-standing investment process centered around investing in cash-generative growth companies. And as a result, this trust has AIC Dividend Hero status. And finally, the fee structure on the trust. This is both competitive and keeps us aligned with our investors. At 35 bps, we have a low base fee, but we do have the opportunity to earn a performance fee, but only in years where we both outperformed the market and make you money. That is to say that the share price at the end of the year has to be higher than when it started the year. The base fee and performance fee together are capped at 90 bps. So how do we create value? The first thing to say is that we are long-term investors and our portfolio is constructed from the bottom up, where stock pickers and our philosophy is centered around stocks that give us exposure to quality growth at the right price. In industry jargon, you would call us [ GARP ] investors. We're looking for companies which are growing. That could be structural growth, that could be cyclical growth. It could be a turnaround situation. And we want these companies trading on multiples which we don't think fully reflect the fundamentals and growth of that business. That is to say that we're looking for re-rating potential in companies. In simple terms, we want to find this growth before everybody else does. That rerating can come from something straightforward as a company being better covered by sell-side analysts or a company which is trading at a discount to comparable transactions or with peers with similar fundamentals. We believe it is that potent mix of earnings growth and reratings that drive superior returns over the long term. To conceptualize this a little bit more, I put this diagramatic here. No matter how good the growth story, the starting valuation has to be right. For this reason, we like to invest in the top left corner, high growth but low valuation. Let's take JTC, for instance. It is an outsourced provider of fund administration services to private clients and alternative asset managers. It's got 90% recurring revenue in a structurally growing space and has seen over 10% organic growth over the past few years. We bought this when it was trading on a multiple of 16x, a substantial discount to the 23x its direct competitor son was taken private at in 2021. We started our position in 2022 at GBP 6.50 and have been adding to it over time, meaningfully so this year. The stock price today is GBP 13.5. Happily, last Friday, we learned that the company had robust 2 takeover offers from Private Equity House Premier and [ WarborPingus ] is now looking at making a competing offer, which should mean more upside in the shares for us. The same can be said of [ Chemring ], a defense company supplying energetic sensors and cybersecurity services, which are seeing high single-digit top line revenue growth. Even at 27x earnings, by the way, we bought it on 11, it trades at half the multiple of German-listed [ Rimeto ]. I could go on, but we want to buy these growing companies where their valuations are not properly reflecting their fundamentals. It is often the case that our stocks end up in the top right quadrant. In fact, we hope this happens. And that is when we decide whether or not to divest or hold on to compounders like [ Softcat ] which has seen its strongly rating, but we can still justify the holdings through its earnings growth and dividend yield alone. Here is a very quick reminder of our investment process. I have included this slide solely for the purposes of flagging that our investment process is not changing. It is the same slide that was in existence when I joined. Neil has left, but the investment process remains. We will still be analyzing companies through the lens of our well-established forums process, those forms being the business model, money, management and earnings momentum, and we'll still be undertaking those over 300 management meetings a year. The one thing that will change under me will be the stock count. I want to focus on our highest conviction positions. So you can expect to see the tail of the portfolio continue to get cut. Cutting the tail will test conviction and force us to be more proactive with how we recycle our capital. We still want to provide you, our investors with well-diversified exposure in the U.K. small cap space, but we think this can be done with 80 or even a 70 stock list. To give an example, when I took over, the bottom 20 stocks in our portfolio only made up 7% of the fund. Monitoring these positions takes up just as much time as monitoring a 3% position in our top 10. And sometimes they can often be more challenging and take up more time. And I think that there are more effective ways for us to be using our resources. Here is a little case study I want to talk about on [ Serco ], which I hope will bring our investment process to life. Serco is a provider of outsourced services to governments globally. It provides defense services, runs prisons and provide immigration services among other things. It's a fascinating company operating under 600-plus contracts and employs over 50,000 people worldwide. We initiated a position on New Year's Eve in 2020, not because I'm a particularly sad person, although I would flag, we are in deep COVID, and there was really nothing better to do that evening. But really, it was linked a little bit to COVID in that I'd just come back from visiting my mother in Indonesia, and that long cotton swab being inserted into my nose by the track and trace people got me thinking about Serco, the business that ran those track and trace centers for the government. It's a business I've been following for a while. It had a troubled history but under new management then Rupert Sans and Angus Coburn, Loss-making contracts have been cleared out. provisions will no longer being used. The accounts were cleaner and most importantly, the business was generating cash. The shares have derated. They were trading on 14x earnings when they used to trade on 20x. Our view at the time was that demand for outsourced services were only going to increase as governments became more fiscally constrained after the pandemic. That was a big opportunity for [ Circa ]. We liked the strong balance sheet and low credit risk as their customers are governments, they tend to always pay. The stock looked too cheap for the strong returns that it was delivering. We thought it was being punished for the fact that the high margins it was earning for running those track and trace programs would not persist and would instead be a headwind to future headline earnings growth. We knew that these were one-offs and shouldn't have a high multiple put on them. But we also took the view that the cash it was earning from these revenues was real and fueling balance sheet opportunity. That provided us with the opportunity to buy the shares. In the 4 years we've owned the stock, it has doubled and delivered persistent earnings upgrades and announced 5 share buybacks and bought 3 businesses. The one thing it hasn't done is rerating. It actually trades on 13x now. This is exciting for me as we've generated those earnings -- those returns through earnings alone. The rerating is still to come. Where do I think this could come from? Well, organic growth should step up from 2026 as large contracts such as the prison tagging and Armed Forces recruitment, contracts start to mobilize and its defense business has grown to become nearly 40% of its overall revenues. In this market, even bad defense businesses trade on 6x and good ones on over 20x. We suspect that the Capital Markets Day in H1 next year might see the margin targets lifted and help drive that re-rating. So there we have it, that is got in action. We are buying shares seeing earnings growth, which have re-ratings potential. Now it's time to see our research in action. Here, we can see the earnings growth chart for Serco. These lines show how earnings forecasts have evolved over time in any given year. We've posted these lines from 2020. This is what we want to see, earnings forecast moving upwards over time. That is the earnings momentum part of our investment process. Good momentum usually speaks to good management team who has strong enough visibility usually because of a good business model who are able to consistently underpromise and overdeliver. Now as many of you know, going out and meeting management is a core part of our investment process. Indeed, with Serco, we've not only had countless meetings with our management team and Chairman to discuss things like strategy and management transitions, we also have such a strong relationship that in 2023, I was invited to present to their finance leadership team about how financial reporting and presentation could be improved in the business to make it easier to analyze and more important and easier for the market to value. We are long-term investors, and we think this collaboration is really important. And whilst meeting management is important, it's often far more interesting to meet the next few layers down. Here, this picture on the right shows me driving a defense-grade tug boat on the [ Solent ] out learning about one of Serco's largest contracts. Here, they provide board services to the Navy, think tank refueling and towboat services to big war ships and aircraft carriers. In this picture, Captain Bob is instructing me to avoid crashing into all the high-value yachts in that marina. I learned a lot that day about the dominant position the company has as a single-source supplier in that space and the high margins it can make from such contracts. I also learned how to keep an incredibly straight face while asking Bob, the captain, all tug related questions. What was the hardest tug he'd ever experienced. What was the going rate for a tug-in Portsmouth? It was a total tugfest and all around excellent day out. And I hope this gives you a sense of what we're looking for in investments undervalued growth. Here, I just wanted to show you our top 10, it makes up about 30% of the portfolio. It's made up of a mixture of U.K. housebuilders, defense businesses, domestic pub companies, challenger banks, an aggregates business and should give you a sense of the diversified exposure that we have. To follow on from this, here's a top-down view of our fund. We construct the portfolio from the bottom up. So this is really an outcome rather than an objective. But what you'll see here is that 40% of the revenues in the portfolio come from overseas. And we also are exposed to a diverse range of sectors. As you would expect from a fund focus on growth, we have large weightings in industrials and tech sectors, while we run smaller weightings in sectors such as consumer staples. You can also see our GARP style and [ 4M's ] investment process shine through in our portfolio characteristics. This table, which you can peruse in your own time, you will see that historic sales growth and [indiscernible] the business is generating higher returns and more prudently capitalized on the benchmark, trading on a similar multiple to the benchmark. So we're getting all those characteristics for -- all those better characteristics for a similar multiple. Finally, on to dividends. People don't usually associate more cap investments with dividend growth, but this chart should really make you think again. The chart shows you 2 important things. Firstly, even though the overall dividend you would have been paid as an investor would have been low compared to an equal investment in the [indiscernible] oil share in 2005. Our forms process, which seeks out growth companies with strong cash generation means that our companies often pay growing dividends and that over time, the running yields on an equal investment in 2005 in our trust versus the ore share is over 2x higher than the ore share. And secondly, it highlights one of the unsung benefits of Investment Trust, which is that they can smooth dividend payments. For Henderson Smaller Companies, this has meant that when many companies were cutting their dividends in the wake of the pandemic, our trust was able to grow it at its own whilst the oil share saw a 25% overall cut. Now this is a really important slide, and I want to talk to you about what we've been up to this year. And it's important because essentially, what we buy and sell is what drives the performance of the trust. Now I alluded to the difficult performance we've seen in recent years, and we've done the analysis on this. And we concluded that, number one, we were not alone suffering from underperformance. Our peers have seen similar too. And we also knew that our growth style, which has deeply underformed value in this time has been a factor, but stock picking has been partly to play. Our conclusions were that what we had been adding to the portfolio was performing. So we had not lost our ability to pick good stocks. It was the stocks that we failed to sell or held on for too long, which hurt performance. which is why there's been a renewed focus on the desk on going back to basics, reassessing our investment thesis and employing a stronger sales discipline, where the outlook has changed or there's been thesis drift. On top of regular capital recycling under the new team, we're undertaking a series of refinements to the investment process. So what exactly are they? Firstly, cutting the tail, we talked about that. Not only is this a more effective use of time that are running a shorter list will again force that tougher conversation around capital recycling. Secondly, we're trying to increase the earnings momentum in the fund. You can see that in the purchase of platform -- funds platform provider, AJ Bell and financial software provider Alpha Financial Services, which are both seeing unique tailwinds to earnings growth. We're also looking to further diversify our sector exposure. When I looked at the fund earlier in the year, I was very conscious that I didn't want the fund to look like a one-way bet on improving industrial activity or a turnaround in U.K. house building and construction. Even though there are some very compelling opportunities in that space, my view was that we potentially had too much of that same exposure. I've tempered that and added to new exciting positions such as Genus, Pinewood Technologies and Baltic Classifieds, which give us still good growth but differentiated end market exposure, whether that's [ porcine and bovine ] genetics and Genus or exposure to online classifieds in the Baltic regions. Finally, I wanted to reduce exposure to companies with high financial leverage on top of high operating leverage. There's a point in the cycle where you want to open these companies, and we don't think now is that time, which explains our disposals of companies such as [indiscernible]. I am pleased to say that in aggregate, these buy and sell decisions have been accretive to our performance, and our new portfolio should give investors more diversified growth exposure going forward. You might be sitting here and listening, thinking, "Gosh, he's done a lot this year", but I really wanted to reassure and say no. We have not ripped the heart out of this fund. Turnover in the last 6 months to June was only 15%. Annualized, that's 30%, still low in the context. Our fund has an average 4- to 5-year holding period, which equates to turnover of 20% to 25%. So only slightly elevated versus our long-term average and really not elevated at all given how low turnover has been in the last few years. Now on to the asset class. As I mentioned previously, it really has been a lost decade for U.K. small caps, starting with concerns around the e-referendum, the political chaos that ensued the energy crisis and runaway inflation and a rate tightening cycle, which has done no favors for the U.K. economy, which is one of the most rate-sensitive developed economies in the world. From the end of 2021 and essentially the start of the rate tightening cycle, U.K. smaller companies have not only delivered poultry returns, but have underperformed the FTSE 100 by over 36%. We so why stick with us and why stick with U.K. equities? Well, we all know that the U.K. equity market is cheap. That is very well documented. The market trades at a big, so over 30% discount to developed markets, even on a sector adjusted basis. But the more domestic FTSE 250 and small caps are the cheapest and sitting well below their historic averages. We know why this is the case, inflation is still high. And whilst growth is fine, need I remind you that we are the fastest-growing economy in the G7. It is slowing, and the market believes that we don't have the fiscal headroom in this country to stimulate that. So we understand the push factors. And I will acknowledge that we are in for another autumn of speculation into the budget, which has been set for the 26th of November. But we think the pool factors are coming into view. The labor government have been clumsy, but what they have done -- but they've done 3 really important things. Firstly, they've reset our trading relationship with our largest trading partner, Europe. Secondly, they have moved to deregulate the financial services sector, supporting domestic growth through lending in this country. And finally, they have committed to reforming the planning system. All this should stimulate domestic and foreign investment into the U.K., including the stock market. We think that at a time when U.S. exceptionism is being questioned, U.K. exceptionalism is abating and that there's money to be made from this. So what will get the markets moving. Firstly, it's confidence. Both corporates and consumers in this country are sitting in a lot of cash. They just need to be confident enough to spend it. The budget could be a clearing event from that. We think, and we know it was a disaster last year, but we think expectations are coming from a different starting point. Last year, investors and businesses were optimistic about a new government, but the government had a vested interest in talking down the economy to lay the ground work for black holes. This year, according to some surveys, business confidence is at rock bottom and labor need to talk up the economy. We must never forget that no one self-flagilates the British, but we must also never forget that we have seen the U.K. market try to rally at various points in the last 6 years and the investors are open to reentering this market. What else would help? Well, falling bond yields. Power looks to be pivoting and we'll hear more on that later today -- later this evening. So will the Bank of England follow. The U.K. is one of the most rate-sensitive economies. And if interest rates fall, the more domestic 250 will rally much harder than the more international FTSE 100. And finally, flows, but we'll talk a little more on that later. We think that the U.K. smid-caps space is primed for re-rating. It's trading below historic averages in terms of valuations and and on earnings in a large sways of our universe sitting at cyclical lows. And if we don't notice that older well. I'm almost bored of showing this slide because it just tells you that M&A is persisting in the U.K. In our own portfolio, we saw bulk annuities provided -- just Group recently been bid for. And we know that [ NIO's ] advanced medical solutions and global data were in bit talks earlier this year. And as I mentioned, there is a bidding war for JTC. We see a lot of opportunity in the U.K. market. U.K. politics has become increasingly divisive, but the one thing that all parties agree on is that growth is what is needed to both calm the gilt markets and win the electric over and we have a lot of exposure that would benefit from this renewed focus. Labor have made some big mistakes, but could these early losses have really saved their growth mission. Here, I've just pulled some headlines from the papers this year. The government is pushing regulators to stop standing in the way of growth. They've undertaken planning reform, and we've seen them take steps towards making it easier for first-time buyers to get on the housing ladder. This should help not just our own house builders, but also the building materials companies that we own. We've also seen the government take tangible steps to deregulate financial markets, which should help our holdings and challenger banks such as Paragon and OSB. We've even heard [ Rachel Reeves ] talk about Trump-style boosterism. We have a diverse portfolio of stocks, giving you exposure to a variety of themes, unlocking U.K. business and consumer confidence would benefit a great many of our holdings. So has the market woken up to some of the subtle but meaningful steps this government has taken? This flow chart here suggests that they have. This chart shows flows trends in U.K. equity funds, which is a good indicator of interest in our market. We know that the U.K. small cap market performed very well in 2015, 2017 and 2021, the years where U.K. funds were an inflow. What we can see in this thick orange line here is that in 2025, outflows looked set to be abating or at least certainly backing the trend of the last few years. Whether that's people taking notice of U.K. government policy or Trump's Liberation announcements driving diversification in people's portfolios away from the U.S. There is more interest in U.K. equities and that is positive for our part of the market. U.K. equities make up less than 4% of the MSCI or World Index, just a 1% shift from U.S. equities into our market would be material for asset levels. Could this be the start of something? At the moment, this has started at the larger end of the market, but there is scope for it to broaden that and historically, small caps benefit from this. And given how oversold our part of the market is it really won't take much to get it moving again. So to finish, why us? We are an experienced team of small-cap investors. We have a long history of outperformance we construct our portfolio from the bottom up with a view to giving you diversified exposure to high-quality U.K. small-cap growth question -- growth stocks. And with that, I will hand it to Dan to moderate questions.

Indriatti, thanks very much for your presentation. So I'm Dan Howe, the Head of Investment Trust at Janus Henderson, and I'll be moderating today's Q&A session. [Operator Instructions] So Indriatti, we've got a question for you here. What sectors or themes have stood out as contributors to performance over the past year?

Well, over the past year, we can't ignore our large weighting to the defense sector, which has been a really strong contributor the persistent geopolitical instability and the inability for Europe and the U.K. to rely on the U.S. for security guarantees has really increased demand and the willingness for governments to spend on defense. And that's helped our holdings such as cohort, kinetic and camera in this time. . I guess other sectors -- sorry -- I guess other sectors that have benefited some of our construction names. Everything from aggregates on a Sigma Rock is set to benefit from German fiscal spending and Baufer Beauty, which I mentioned earlier, seeing strong demand in the U.K. And because demand is so strong for infrastructure, this has allowed some of these companies to be choosy and only bid for contracts with attractive risk profiles and therefore, higher margin structure. So really, it's putting them in a good space not just from a revenue growth perspective, but also from a margin perspective. .

Great. Thanks, Indriatti. Got another question is for you again, actually. How do you see the U.K. small-cap market evolving in the current economic climate? And what could help turn the sentiment more positive? You gave a few bits -- just give us a bit more color if you could.

Sure. I guess in the short term, it really is the autumn statement. That's going to be a big hurdle for the U.K. small cap market to overcome. The market will want reassurance that firstly, the fiscal hold read has to fill to restore her headroom is not outsized. So the market is looking for a number between GBP 20 million and GBP 30 billion. We don't want it to be the GBP 50 billion number that's floating around. Then the market will want to get comfort that there will be both a mix. This hole will be filled with both a mix of tax rises and cost cutting. And that it's really the taxes that aren't going to have an inflationary impulse that are being raised. So last year, we saw the controversial increase in national insurance rate hurt employers and really force them to put prices up, which was inflationary, whereas if we get, say, taxes being raised through less generous pension tax deductions, that would not be inflationary. Like I alluded to before, corporates and consumers have really healthy balance sheet. We just need fiscal stability. They just want to understand the playing field that they're on to unlock some of these savings. On top of the autumn statement, any rate cuts will help. I've mentioned that before. And in the longer term, the government will need to sort of show that it can sustainably improve its growth trends through supply-side reform to make that gilt market volatility go away. And credit to the labor government, they are trying to do that. But it is good that all political parties know that it is growth that they need to target here.

Thank you. question for Indriatti again, actually. So given the headwinds in recent years, what makes you optimistic about the trust outlook from here?

Well, firstly, it's the valuations at a really attractive starting point. And secondly, it's that we are in a rate cutting cycle rather than a rate rising cycle, and base rates falling is good for stimulating growth and growth is good for small caps. So the setup is very different. When we're coming out of 2021, small cap valuations were elevated and rates were low and rising. Now small cap valuations are on the floor and rates are high and falling. So that should help us.

And could you just give us a bit more color. You talked about the team and the collaboration with the broader colleagues at Janus Henderson. Could you give us a bit more color sort of day in the life in terms of how you interact with them on a sort of daily weekly basis?

Sure. Well, usually, it's just swinging my chair around because I sit back to back with the U.K. Income Fund. And then I sit to my left next to the pan-European small gap team and to write the U.K. large cap hedge fund team. And it's brilliant because you just get different perspectives on the same stocks, which help you form your own view. If I don't want to be lazy, I can just get up and walk over and speak to our specialist property team that hold a great many of our own holdings in our portfolio, and we can compare notes and really draw on that specialism. So it is just 3 of us making the final investment decisions, but there are lots of voices that feed into that. On a weekly basis, on a Monday morning, we have a cross asset -- Well, we have an equities team meeting, but we have members of the fixed income team come and give their short view on the week ahead and some of their longer-term thoughts. And then we have a sort of tour around the globe, and we get to hear about the most interesting things or important points happening in their equity markets. And that's really important because even in the U.K. small cap space, over 50% of the benchmark derives its revenues from outside of the U.K. So we can't just be looking inwards here. So it's great to have that collaboration at my feet here.

Thanks, Indri. Question for Penny. Could you talk to us a bit about the discount on the investment trust and how that compares to peers and buybacks to date. You're on mute, Penny.

I'm sorry. Sorry, everybody. We've been very active in the market over the past year. And we bought in since October '24 AGM, so almost the last 12 months, we've bought in almost 11 million shares, which is just under 15% of the total share capital. And all those shares that we brought in are held in treasury. Our discount as a result of this has narrowed. The tightest discount was at just over 7%, 7.4% in mid-July this year. The discount yesterday was just over 9%, and that compares with our peer group average of over 10%. And what we've seen over the last few months is that we are consistently want to sometimes more than that percentage points within the pay group average. And we're pleased with that position. We increased our ability to buy back earlier in the summer in July and we have the ability to buy back in a further 15% of the shares. We've brought in just under 6% since the 1st of July. So we've got over 9% remaining. But I stress that we're -- we remain in the market. We want to defend that discount, but we're also very well aware that what we want to do is grow this trust. So I hope that gives you a little bit of a flavor about what we've been doing.

That's great, Penny. Thank you. Thank you very much. And ladies and gentlemen, that's all we have time for today. A big thank you to Penny and Indri for sharing their perspectives and to all of you for joining us ahead of the AGM. As a reminder, the AGM is being held at 11:30 on Tuesday, the 7th of October at Janus Henderson offices at 201 Bishops Gate in London. There will also be a Zoom connection for those who can't travel. For more details on how to vote your shares and attend the AGM, please visit the company's website. Thank you very much for joining us today.