Final Results

RNS Number : 6611F

Henderson Diversified Income Ltd

15 January 2010

 



15 January 2010

This announcement contains regulated information.

HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

	31 October 2009		31 October 2008
	£'000	per share	£'000	per share
Net asset value	62,236	74.4p	50,700	60.6p
Market price	-	69.5p	-	68.0p
	Year ended 31 October 2009		Period 5 June 2007 to 31 October 2008
	£'000	per share	£'000	per share
Revenue earnings	4,525	5.41p	5,248	9.59p
(based on weighted average number of shares)
Dividends (paid and payable)	4,476	5.35p	5,202	9.65p

MANAGEMENT REPORT

Extracts from the Chairman's Statement 

Market conditions have remained challenging throughout the year under review although the second half of the year has witnessed a strong recovery in prices as government intervention began to settle markets and some normality returned. At the start of the year, we took the opportunity to increase the portfolio weightings to investment grade and high yield bonds thereby locking in yields well above our income target of 1.25% over LIBOR and also creating capital gains as acquisitions were made at distressed prices. I am pleased, therefore, to report that the net asset value total return of your company increased by 38.19% during the year, and the dividends paid comfortably exceeded our income target.

Performance

The net asset value per share rose to 74.4p at the year end; up from 52.4p at the half year and 60.6p at 31 October 2008. The revenue return for the year was £4.525 million compared to £5.248 million in the period from June 2007 to October 2008, reflecting the fall in LIBOR as well as the shorter period.

Dividends and Dividend Policy

The Company paid four interim dividends for the year totalling 5.35p, each of which was significantly ahead of our income target of LIBOR plus 1.25%, which equated to 1.84% at the year end. The fluctuation level of the interim dividends reflects the actual amount of income earned each quarter as it is the Board's policy to distribute substantially all of the net income earned in the quarter and the amount of that net income earned is impacted by the level of LIBOR. However, with LIBOR at such an exceptionally low level, it is likely that it, and therefore the level of income earned, will rise over the coming year.

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HENDERSON DIVERSIFIED LIMITED 

Annual Financial Report for the year ended 31 October 2009

MANAGEMENT REPORT (continued)

Extracts from the Chairman's Statement (continued)

Gearing

Your Board has recently renewed a loan facility which allows it to borrow up to £15.5 million for periods of one, two, three or six months. At the year end actual borrowings were £10.1 million meaning that your Company was 16.2% geared, compared to 15.3% a year earlier. These borrowings have been invested in bonds with coupons well above the cost of borrowing. In addition, the portfolio was further geared by exposure to credit default swaps totalling £10.7 million. Your Board keeps the level of gearing under constant review.

Outlook

The last six months have been very encouraging for credit markets and whilst we believe that this improved environment will persist there remains a risk that government bond markets will start to price in the costs of government action to date. There is no room for complacency and over the coming year our portfolio managers will be continuing to sustain their focus on maintaining the quality of the revenue stream and continuing the recovery in the net asset value of the shares back to the initial offer level of 100p per share.

Annual General Meeting

Our AGM will be held on Wednesday 24 February at 11.00am at Liberté House, 19-23 La Motte Street, St Helier, Jersey, JE2 4SY. In addition, shareholders are welcome to attend a presentation to be held at Henderson's offices at 201 Bishopsgate, London EC2M 3AE on Monday 1 March at 3.00pm, when the Portfolio Managers will make a presentation and they and I will be happy to answer questions. 

Paul Manduca

Chairman

15 January 2010

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

MANAGEMENT REPORT (continued)

Principal Risks and Uncertainties

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions appropriate to the Company's investment objective and policy, in order to mitigate risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

• Investment and Strategy

An inappropriate investment strategy, for example, in terms of asset allocation or level of gearing, may result in under performance against the companies in the peer group, and also in the Company's shares trading on a wider discount. The Board manages these risks by ensuring a diversification of investments and a regular review of the extent of borrowings. The Manager operates in accordance with an investment limits and restrictions policy determined by the Board, which includes limits on the extent to which borrowings may be employed. The Board reviews the limits and restrictions on a regular basis and the Manager confirms adherence to them every month. The Manager provides the Board with management information, including performance data and reports and shareholder analyses. The Directors monitor the implementation and results of the investment process with the Portfolio Managers at each Board meeting and monitor risk factors in respect of the portfolio. Investment strategy is reviewed at each meeting.

• Market

Market risk arises from uncertainty about the future prices of the Company's investments. This is commented on in the Annual Report.

• Accounting, legal and regulatory

The Company must comply with the provisions of the Companies (Jersey) Law 1991 and since its shares are listed on the London Stock Exchange, the UKLA's Listing and Disclosure Rules. A breach of company law could result in the Company and/or the Directors being fined or the subject of criminal proceedings and financial and reputational damage. A breach of the UKLA Rules could result in the suspension of the Company's shares. The Board relies on its Company Secretary and advisers to ensure adherence to company law and UKLA Rules.

• Operational

Disruption to, or the failure of, the Manager's or the Administrator's accounting, dealing, or payment systems or the Custodian's records could prevent the accurate reporting or monitoring of the Company's financial position. The Administrator, BNP Paribas Securities Services Fund Administration Limited sub-contracts some of the operational functions (principally relating to trade processing, investment administration and accounting) to BNP Paribas Securities Services. Details of how the Board monitors the services provided by the Manager and other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of the Corporate Governance Statement in the Annual Report.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liability risk and credit risk. Further details are disclosed in the Annual Report. Disclosures are provided in accordance with IFRS 7, Financial Instruments: Disclosures.

Related Party Transactions 

The contracts with Henderson and BNP Paribas are the only related party transactions currently in place. Other than the fees payable in the ordinary course of business, there have been no material transactions with these related parties which have affected the financial position or performance of the Company in the financial year.

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

MANAGEMENT REPORT (Continued)

Statement under Disclosure and Transparency Rules

The Directors, who are listed in the Annual Report, each confirm to the best of their knowledge that: 

 

(a)     the financial statements, prepared in accordance with IFRS and applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

(b)    the Report of the Directors in the Annual Report includes a fair review of the development and performance of the business and the position of the Group

For and on behalf of the Board

Helen Green

Director

15 January 2010

Summary of Portfolio

	%
Secured Loans	52.29
Investment Grade Bonds	30.90
High Yield Bonds	16.81
	--------
	100.00

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

Twenty Largest Holdings

These twenty investments total £27,036 million (2008: £23,364 million) representing 38.88% (2008: 40.06%) by value of the total investments. 

Name of Investment	Category	Value  £'000
Kabel BW	Secured Loan	1,692
Bausch & Lomb	Secured Loan	1,642
Mölnlycke	Secured Loan	1,626
XSYS Flint	Secured Loan	1,518
Infonxx	Secured Loan	1,497
Aviva	Investment Grade Bond	1,485
BNP Paribas	Investment Grade Bond	1,483
AZ Electronics	Secured Loan	1,428
Kabel Deutschland	High Yield Bond	1,415
Imperial Tobacco	Investment Grade Bond	1,409
Weetabix	Secured Loan	1,399
Barclays	Investment Grade Bond	1,330
Linde	Investment Grade Bond	1,254
TNT Logistics	Secured Loan	1,244
Pages Jaunes	Secured Loan	1,187
Springer	Secured Loan	1,098
Standard Chartered Bank	Investment Grade Bond	1,090
Doncaster	Secured Loan	1,086
Lloyds Banking Group	High Yield Bond	1,081
Avio	Secured Loan	1,078

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

Consolidated Income Statement 

for the year ended 31 October 2009

	Year ended  31 October 2009			Period 5 June 2007  to 31 October 2008
	Revenue  return	Capital  return	Total	Revenue  return	Capital  return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments designated as fair value through profit or loss	-	16,661	16,661	-	(22,083)	(22,083)
Losses on foreign exchange transactions	-	(4,226)	(4,226)	-	(6,091)	(6,091)
Investment income (note 2)	5,381	-	5,381	5,027	-	5,027
Other income (note 3)	26	-	26	1,252	-	1,252
	---------	-----------	-----------	---------	---------	---------
Total income/(loss)	5,407	12,435	17,842	6,279	(28,174)	(21,895)
	---------	-----------	-----------	---------	---------	---------
Expenses
Management fee	(215)	(216)	(431)	(236)	(236)	(472)
Other expenses	(560)	-	(560)	(652)	-	(652)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) before finance costs and taxation	4,632	12,219	16,851	5,391	(28,410)	(23,019)
Finance costs	(107)	(106)	(213)	(117)	(117)	(234)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) before taxation	4,525	12,113	16,638	5,274	(28,527)	(23,253)
Taxation	-	-	-	(26)	-	(26)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) for the period	4,525	12,113	16,638	5,248	(28,527)	(23,279)
	=====	======	=======	=====	=====	=====
Earnings/(loss) per ordinary share (note4)	5.41p	14.48p	19.89p	9.59p	(52.15)p	(42.56)p
	=====	======	======	=====	=====	=====

The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Henderson Diversified Income Limited. There are no minority interests.

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

Consolidated and Parent Company Statement of Changes in Equity

for the year ended 31 October 2009

	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
Consolidated year ended  31 October 2009	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2008	37,677	39,832	(28,527)	1,718	50,700
Net profit from ordinary activities after taxation	-	-	12,113	4,525	16,638
Ordinary dividends paid (note 5)	-	-	-	(5,102)	(5,102)
	---------	---------	---------	---------	---------
At 31 October 2009	37,677	39,832	(16,414)	1,141	62,236
	=====	=====	=====	=====	=====
	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
Company year ended 31 October 2009	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2008	37,677	39,832	(24,792)	(2,017)	50,700
Net profit from ordinary activities after taxation	-	-	14,691	1,947	16,638
Ordinary dividends paid (note 5)	-	-	-	(5,102)	(5,102)
	--------	--------	----------	----------	--------
At 31 October 2009	37,677	39,832	(10,101)	(5,172)	62,236
	=====	=====	======	======	=====

Consolidated period 5 June 2007 to 31 October	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
2008	£'000	£'000	£'000	£'000	£'000
Opening balance	-	-	-	-	-
Issue of shares	78,917	-	-	-	78,917
Share issue costs	(1,408)	-	-	-	(1,408)
Transfer to distributable reserve	(39,832)	39,832	-	-	-
Net (loss)/profit from ordinary activities after taxation	-	-	(28,527)	5,248	(23,279)
Ordinary dividends paid (note 5)	-	-	-	(3,530)	(3,530)
	---------	---------	---------	---------	---------
At 31 October 2008	37,677	39,832	(28,527)	1,718	50,700
	=====	=====	=====	=====	=====
	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
Company period 5 June 2007 to 31 October 2008	£'000	£'000	£'000	£'000	£'000
Opening balance	-	-	-	-	-
Issue of shares	78,917	-	-	-	78,917
Share issue costs	(1,408)	-	-	-	(1,408)
Transfer to distributable reserve	(39,832)	39,832	-	-	-
Net (loss)/profit from ordinary activities after taxation	-	-	(24,792)	1,513	(23,279)
Ordinary dividends paid (note 5)	-	-	-	(3,530)	(3,530)
	--------	--------	----------	----------	--------
At 31 October 2008	37,677	39,832	(24,792)	(2,017)	50,700
	=====	=====	======	======	=====

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HENDERSON DIVERSIFIED INCOME LIMITED 

 Annual Financial Report for the year ended 31 October 2009

Consolidated and Parent Company Balance Sheet

at 31 October 2009

	Consolidated 2009 £'000	Company 2009 £'000	Consolidated 2008 £'000	Company 2008 £'000
Non current assets
Investments designated as fair value through profit or loss	69,537	33,174	58,305	18,257
	----------	----------	----------	----------
Current assets
Other receivables	4,489	39,322	4,097	40,701
Cash and cash equivalents	492	215	947	546
	----------	----------	----------	----------
	4,981	39,537	5,044	41,247
	----------	----------	----------	----------
Total assets	74,518	72,711	63,349	59,504
	----------	----------	----------	----------
Current liabilities
Other payables	(12,282)	(10,475)	(12,649)	(8,804)
	----------	----------	----------	----------
Net assets	62,236	62,236	50,700	50,700
	======	======	======	======
Equity attributable to equity shareholders
Stated capital	37,677	37,677	37,677	37,677
Distributable reserve	39,832	39,832	39,832	39,832
Retained earnings:
Capital reserves	(16,414)	(10,101)	(28,527)	(24,792)
Revenue reserve	1,141	(5,172)	1,718	(2,017)
	----------	----------	----------	----------
Total equity	62,236	62,236	50,700	50,700
	======	======	======	======
Net asset value per ordinary share (note 6)	74.4p	74.4p	60.6p	60.6p
	======	======	======	======

The financial statements were approved by the Board of Directors and authorised for issue on 15 January 2010 and were signed on its behalf by:

Helen Foster Green        Nigel Robert Parker

Director        Director

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

Consolidated and Parent Company Cash Flow Statement

for the year ended 31 October 2009

	Consolidated year ended  31 October 2009 £'000	Company  year ended  31 October 2009 £'000	Consolidated  Period 5 June 2007  to 31 October 2008 £'000	Company  Period 5 June 2007 to 31 October 2008 £'000
Net gain/(loss) before taxation	16,638	16,638	(23,253)	(23,279)
Add back interest paid	213	212	234	228
(Less)/add: (gains)/losses on investments designated as fair value through profit or loss	(12,435)	(15,013)	28,174	24,442
Less: exchange movements on forward exchange contracts taken to revenue	(12)	(2)	(435)	(127)
Increase in prepayments and accrued income	(61)	(424)	(1,092)	(607)
Decrease/(increase) in other receivables	143	143	(144)	(144)
(Decrease)/increase in other payables	(167)	(246)	455	383
Net sales/(purchases) of investments	4,468	(6,698)	(80,699)	(24,930)
Decrease/(increase) in sales settlement debtor	946	-	(2,285)	-
(Decrease)/increase in purchase settlement creditor	(770)	253	2,665	12
	----------	----------	----------	----------
Net cash inflow/(outflow) from operating activities before finance costs	8,963	(5,137)	(76,380)	(24,022)
Interest paid	(213)	(212)	(234)	(228)
Taxation on investment income	(12)	-	(50)	-
	----------	----------	----------	----------
Net cash inflow/(outflow) from operating activities	8,738	(5,349)	(76,664)	(24,250)
	----------	----------	----------	----------
Financing activies
Equity dividends paid	(5,102)	(5,102)	(3,530)	(3,530)
Issue of ordinary shares	-	-	78,917	78,917
Issue expenses paid	-	-	(1,408)	(1,408)
Drawdown of loan	2,322	2,322	7,810	7,810
Amounts paid from/(to) subsidiary undertaking	-	9,251	-	(55,813)
	----------	----------	----------	----------
Net cash (outflow)/inflow from financing	(2,780)	6,471	81,789	25,976
	----------	----------	----------	----------
Increase in cash and cash equivalents	5,958	1,122	5,125	1,726
Cash and cash equivalents at the start of the period	947	546	-	-
Exchange movements	(6,413)	(1,453)	(4,178)	(1,180)
	----------	----------	----------	----------
Cash and cash equivalents at the period end	492	215	947	546
	======	======	======	======

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HENDERSON DIVERSIFIED INCOME LIMITED 

Annual Financial Report for the year ended 31 October 2009

Notes:

1.	Accounting Policies
	Basis of preparation
	This consolidated financial information for the year ended 31 October 2009 has been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union ('EU'). The principal accounting policies adopted are set out in the Annual Report. Where consistent with IFRS the financial statements have also been prepared in accordance with the guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('AIC') as revised in January 2009.
	Derivative financial instruments
	The Group's activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Company may enter into include forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Company's investing activities) and interest rate futures and swaps (the purpose of which is to take a position in relation to government bond yields). The Company may also use credit derivatives, for example buying or selling credit default swaps in order to mange credit risk. The use of financial derivatives is governed by the Group's policies as approved by the Board, which has set written principles for the use of financial derivatives. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Changes in the fair value of derivative financial instruments are recognised in the Consolidated Income Statement as they arise. If capital in nature, the associated change in value is presented as a capital item in the Consolidated Income Statement.
2.	Investment income
				Year ended 31 October 2009				Period 5 June 2007 to 31 October 2008
				£'000				£'000
	Income from investments:
	Bond and loan interest			5,193				4,949
	Premiums on credit default swaps			188				78
				---------				---------
				5,381				5,027
				======				======
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3.	Other income
						Year ended 31 October 2009				Period 5 June 2007 to 31 October 2008
						£'000				£'000
	Bank and other interest					14				817
	Interest income from forward exchange contracts					12				435
						-------				-------
						26				1,252
						======				======
4.	Earnings/(loss) per ordinary share
	The earnings/(loss) per ordinary share figure is based on the net profit for the year after taxation of £16.638 million (period ended 31 October 2008: loss of £23.279 million) and on 83,640,877 (2008: 54,697,104) being the weighted average number of ordinary shares in issue during the period. The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.
					Year ended  31 October 2009				Period 5 June 2007  to 31 October 2008
					£'000				£'000
	Net revenue earnings				4,525				5,248
	Net capital earnings/(loss)				12,113				(28,527)
					-------				-------
	Net total earnings/(loss)				16,638				(23,279)
					======				======
	Weighted average number of ordinary shares in issue during the period				83,640,877				54,697,104
	Revenue earnings per ordinary share				5.41p				9.59p
	Capital earnings/(loss) per ordinary share				14.48p				(52.15)p
					-------				-------
	Total earnings/(loss) per ordinary share				19.89p				(42.56)p
					======				======
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5.	Dividends
							2009				2008
		Record date	Pay date				£'000				£'000
	First interim dividend - 1.50p	14 December 2007	31 December 2007				-				608
	Second interim dividend - 1.75p	14 March 2008	31 March 2008				-				709
	Third interim dividend - 3.40p	23 May 2008	20 June 2008				-				1,377
	Fourth interim dividend - 1.00p	12 September 2008	30 September 2008				-				836
	Fifth interim dividend - 2.00p	12 December 2008	31 December 2008				1,672
	First interim dividend - 1.75p	13 March 2009	31 March 2009				1,464				-
	Second interim dividend - 1.25p	12 June 2009	30 June 2009				1,046				-
	Third interim dividend - 1.10p	11 September 2009	30 September 2009				920				-
							-------				-------
							5,102				3,530
							======				======
	The fourth interim dividend has not been included as a liability in these financial statements as it was announced and paid after 31 October 2009.
	The table below sets out the total dividends paid and to be paid in respect of the financial year. The revenue available for distribution by way of dividend for the year is £4.525 million (2008: £5.248 million).
										2009
										£'000
	First interim dividend for 2009 - 1.75p									1,464
	Second interim dividend for 2009 - 1.25p									1,046
	Third interim dividend for 2009 - 1.10p									920
	Fourth interim dividend for 2009 - 1.25p									1,046
										--------
										4,476
										======
6.	Net asset value per share
	The net asset value per ordinary share is based on the net asset value attributable to ordinary shareholders at the year end of £62.236 million (2008: period end of £50.700 million) and on 83,640,877 (2008: 83,640,877) ordinary shares, being the number of ordinary shares in issue at the period end.
7.	Stated capital				Stated Capital £,000					Number of fully paid shares issued
	As at 31 October 2008 and 2009				37,677					83,640,877
					======					=========
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7.	Stated capital (continued)
	On 18 July 2007 the Company issued 40,500,000 Ordinary shares of no par value for consideration value of £40.5 million, incurring £0.668 million of issue expenses. On 5 October 2007, in accordance with Jersey Company Law, the Company successfully applied for a reduction in the stated capital account and the creation of a distributable reserve. On 23 May 2008 the Company issued a further 43,140,877 Ordinary shares in the Company for a consideration value of £38.417 million incurring £0.74 million of issue expenses.
8.	2009 Financial information
	The figures and financial information for the year ended 31 October 2009 are compiled from an extract of the latest financial statements and do not constitute statutory accounts. These accounts included the report of the auditors which was unqualified.
9.	2008 Financial information
	The figures and financial information for the period ended 31 October 2008 are compiled from an extract of the latest published accounts and do not constitute the statutory accounts for that period.
10.	Annual Report
	The Annual Report and Accounts will be posted to shareholders on 22 January 2010 and copies will be available on the Company's website (www.hendersondiversifiedincome.com) or in hard copy format from the Company's registered office, Liberté House, 19-23 La Motte Street, St Helier, Jersey, JE2 4SY.
	For further information please contact:
	John Pattullo and Jenna Barnard
	Portfolio Manager, Henderson Diversified Income Limited
	Telephone: [phone]
	James de Sausmarez
	Head of Investment Trusts, Henderson Global Investors
	Telephone: [phone]
	Sarah Gibbons-Cook
	Investor Relations and PR Manager, Henderson Global Investors
	Telephone: [phone]
	Jeremy Hamon
	BNP Paribas Securities Services Fund Administration, Company Secretary
	Telephone: [phone]

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