Final Results

RNS Number : 3992X

Henderson Diversified Income Ltd

07 February 2013

 



7 February 2013

This announcement contains regulated information.

HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

	31 October 2012		31 October 2011
	£'000	per share	£'000	per share
Net asset value	69,647	83.3p	65,446	78.2p
Market price	-	80.2p	-	76.8p
	Year ended             31 October 2012		Year ended           31 October 2011
	£'000	per share	£'000	per share
Revenue earnings	4,529	5.41p	4,319	5.16p
(based on weighted average number of shares)
Dividends (paid and payable)	4,183	5.00p	4,016	4.80p

MANAGEMENT REPORT

Extracts from the Chairman's Statement

I am pleased to report that your Company's net asset value total return for the year was 13.5% and the share price total return was 11.4%. In addition the total annual dividend rose 4.2% to 5.0p despite the fall in interest rates over the year. Global economic data continues to be disappointing and it now seems clear that low interest rates will persist for some time. Governments, banks, corporates, and individuals are all continuing to de-leverage irrespective of the low cost of borrowing. That said, volatility in credit markets has reduced as investors have taken a more realistic view on defaults and this has led to some capital improvement over the year.

Performance

Your Company's net asset value increased from 78.2p to 83.3p over the year and the share price increased from 76.8p to 80.2p over the same period. Revenue earnings per share rose 4.8% to 5.41p per ordinary share as the net return from increased gearing exceeded the revenue effect of lower levels of LIBOR and Euribor. For the year under review a performance fee of £606,000 is payable as a consequence of the Company's net asset value total return exceeding the benchmark target of LIBOR plus 1.25%. This takes account of all prior year underperformance and is the first year in which the fee has been paid.

Dividends and Dividend Policy

Over the year under review, three month sterling LIBOR fell from 0.99% to 0.53% and three month Euribor fell from 1.59% to 0.20%. Our income target is 1.25% over sterling three month LIBOR, equating to 1.78% at 31 October 2012. For the year under review four dividends each of 1.25p per share have been paid, making a total of 5.0p, which equates to a yield of 6.2% at the year end share price of 80.2p; beating the income target comfortably. At the year end the revenue reserve represented 1.0p per share.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

MANAGEMENT REPORT (continued)

Extracts from the Chairman's Statement (continued)

Gearing

At the year end borrowings were £7.8m, up from £6.9m at the previous year end meaning your Company was 11.2% geared compared to 10.5% at the prior year end. In addition, your portfolio was geared by a further 13.5% due to exposure to credit default swaps. Your Board reviews regularly the level of gearing, the conditions for which are currently very favourable.

Distributions from capital profits

Following a recent relaxation to UK rules many onshore investment trusts and companies are seeking authority to amend their Articles of Association to permit a distribution of capital profits. Your Company's Articles do not prohibit the making of such distributions, but your Board has never exercised this right. Your Board now intends to use this right for two principal reasons: to provide additional flexibility in relation to dividend payments, though there is no present intention to do so; and to facilitate share issuance on an ad hoc basis. If the Company were to issue shares without some capital distribution it would risk diluting the Company's revenue reserves. By paying dividends out of capital profits this is no longer a concern because the premium to NAV at which new shares are issued can be used to benefit the revenue account and appropriately compensate existing shareholders. The advantage of issuing shares is that it provides liquidity to the market, should help regulate a premium rating and lead to a larger company, which will spread fixed costs.

Outlook

Having enjoyed good returns from our corporate bond portfolio over the last few years, falling bond yields mean that corporate bonds are becoming less attractive than both secured loans and, in some cases, equities. Consequently, our allocation to secured loans and equities will be increased at the expense of bonds as opportunities arise. The equity portfolio will be subject to an absolute limit of 10% of the portfolio and will be focussed on quality blue chip stocks that offer the right combination of yield and capital growth opportunity. Your Board believes that the ability to make these asset allocation shifts is a key attraction of your company.  

It seems almost inevitable that interest rates will remain substantially unchanged over the coming year. That said, your Board is confident that the level of distributable income can be at least maintained and possibly grown over the year.

Annual General Meeting

Our sixth Annual General Meeting will be held on Friday 15 March 2013 at 11.00 a.m. at our registered office in Jersey. As in previous years an open presentation to shareholders, including the opportunity to meet the Portfolio Managers, will be held on Tuesday 19 March 2013 at 10.30 a.m. at Henderson's offices in London.

Paul Manduca

Chairman

7 February 2013

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

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 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 Manager 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 is regulated by the Jersey Financial Services Commission and complies with the regulatory requirements in Jersey. 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 this report.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in Note 14 in the Annual Report.  Disclosures are provided in accordance with IFRS 7, Financial Instruments: Disclosures.

Related Party Transactions

Other than the fees payable in the ordinary course of business, there have been no material transactions with a related party 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 2012

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 applicable international financial reporting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

(b)    the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Helen Green

Director

7 February 2013

Managers' Report:

In concluding our report last year we noted that the scale of sovereign market turmoil was such that "markets are demanding a major policy response from the European Central Bank" ('ECB'). At the time it felt as though only the ECB could act with sufficient size and credibility to prevent a serious downward spiral amongst the region's peripheral sovereigns and their financial institutions. The ECB did not disappoint. In December of 2011 it announced unlimited money in the form of three year LTROs (long term refinancing operations) to support bank funding and prevent serious liquidity issues amongst the continent's banks. This provided the fuel for risk assets to rally during the first quarter of 2012 only to fall again once fundamental concerns about the underlying solvency of Spanish banks and the results of an indecisive first Greek election came into focus in the second quarter of 2012. This in turn prompted an even more significant shift from the ECB when it fleshed out in September the OMT (Outright Monetary Transactions) policy. The OMT allows for potentially unlimited purchases of short-dated peripheral government bonds in order to fix a broken monetary transmission mechanism. This was a technical justification for the ECB to potentially do something which it had previously considered an anathema for central bankers - buying government bonds in significant quantity.

From the above it can be seen that the year under review was yet another characterised by bouts of panic followed by periods of calm. Volatility and uncertainty were its hallmarks. Nevertheless, looking back there is no doubt that significant progress in crisis response has been made by the ECB which did eventually act with pragmatism rather than monetary dogma. This has been critical in providing a backstop against a disorderly meltdown in markets. The progress of sovereigns enacting structural reform to economies and implementing harsh austerity plans will inevitably be much more difficult and take significant amounts of time as well as political capital. Clearly this is not a problem exclusive to the Eurozone with the UK also subject to notable fiscal disappointment during the year.

Indeed as the period under review came to a close, the market's attention had turned to the potential "fiscal cliff" in the USA and it's government's ability to craft a deficit reduction strategy. Fears related to this event yet again caused risk assets to falter and placed further pressure on already struggling economic recoveries around the world.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

MANAGEMENT REPORT (continued)

Managers' Report (continued)

With this backdrop we are pleased to report that the Company's net asset value exhibited a sustained upward progression from the end of November 2011 through to the year end date of 31 October 2012. Indeed the Company's assets which are invested in various credit markets did not possess the high volatility that they had during previous equity market downturns in the last few years. This did not reflect an asset allocation shift within the company but rather a growing recognition amongst market participants that default risk really had subsided and the European banking system was not on the verge of collapse as a result of the ECB's actions. Credit markets are extremely sensitive to systemic risk and so reacted particularly positively to these actions. At the end of the Company's report last year we noted that "credit markets are pricing in…severe assumption about defaults and so risk taking is being rewarded at current yield levels". In retrospect it is clear that the bout of volatility had resulted in credit markets becoming deeply oversold and fundamentally cheap. The fundamental backdrop of slow but not disastrous economic growth and a focus on corporate balance sheet repair continue to provide a supportive environment for bond investing. Traditionally bond investors worry about interest rate rises or corporations taking on too much debt (both of which can cause falls in the value of their bonds) but in the current environment this has not been a concern.

The challenge for the Company has come from a different source - the very low levels of interest rates across the developed world. This has clearly been the monetary policy response to the stagnant growth environment. Low interest rates have meant low LIBOR (London Interbank Offered Rate) from which the Company's income target is derived (Sterling LIBOR + 125bp). Thus the income target has fallen to the very low level of 1.78% as of the year end. Happily we can report that the actual dividend distributions have significantly exceeded this target with 5.0p per share having been paid out in the four quarterly distributions. In addition the Company has built up a revenue reserve of 1.0p per share. The significant outperformance in respect of income reflects the considerable weighting in fixed rate bonds which have offered attractive yields relative to the floating rate income provided by the allocation to loans which have fallen with LIBOR.

Secured Loan Portfolio

The European Secured Loan market showed remarkable resilience over the year, despite the wider volatility seen across financial markets. The low point for the year proved to be November 2011, when the average loan price had dipped to 84.3, but since then the market rallied with the average price rising to 88.3 by year end.  Overall the loan market as measured by the Credit Suisse Western European Leveraged Loan Index returned 8.4% over the year.

A key driver of returns over the period has been the level of refinancing activity undertaken, which has resulted in a number of discounted loans being repaid at par. Within the portfolio, loans issued by Deutsch Connectors (France, engineering) and Stork (Netherlands, engineering) were repaid in full as a result of corporate finance activity, with Deutsche Connectors being sold and Stork being refinanced through a combination of the loan and high yield markets.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

MANAGEMENT REPORT (continued)

Managers' Report (continued)

In view of our broader concerns about the economic outlook for Europe, we have looked to reduce exposure to cyclical industries and therefore exited positions in Materis (France, building materials) and Kion (Germany, engineering). These positions have been replaced by loans to borrowers in more stable sectors including RAC (UK, roadside assistance).

Primary issuance in the loan market has been somewhat muted, but new transactions continue to be attractively priced, typically offering a coupon of around LIBOR+5%. We also continue to see attractive opportunities to add loans to the portfolio that are priced at a modest discount to par and which have the potential to generate capital appreciation given we would expect to see these position repaid at par ahead of scheduled maturity. Positions added during the period at a discount include TDF (France, infrastructure) and Jack Wolfskin (Germany, retail).

It is clear that the outlook for certain sectors remains difficult and we have seen a modest decline in corporate profitability in recent months reflecting weak demand and low consumer confidence across Europe. Overall, we would expect default rates in the European Loan Market to remain at relatively low levels given the majority of businesses have been able to address any short term refinancing needs.

The portfolio is positioned towards non-cyclical sectors and we will continue to focus on fundamental credit analysis and maintain our quality bias. We believe at current levels loans continue to offer an attractive risk reward even in the face of economic uncertainty as they blend a high coupon with downside protection through being senior to claims of other creditors, secured on assets and protected by performance based covenants.

Bond Portfolio

The bond weighting has also delivered strong capital performance for the company. Stand out performers during the year were the holdings in financial bonds (both insurers and UK banks) as well as the high yield corporate bonds. Both benefited from a general improvement in risk appetite but the financials also performed well due to the re-regulation of the sector which is making these bonds less appealing to the institutions. As a result there has been a trend to repurchase existing bonds at a premium to the market price, shrinking the available number of these bonds in which to invest and driving other prices higher.

Outlook

As we look across your Company's available asset classes, we are seeing a shift in the potential return outlook which for the first time in over three years encourages us to make a significant asset allocation shift. This is because yields in the corporate bond market have been dragged down by government bond yields which have fallen to very low levels as a consequence of central banks pursuing unconventional monetary policies. As a result, room for any further capital appreciation in the bond market, in which your Company has over 50% of its assets invested, looks limited from here. Although there are still pockets of opportunity within the corporate bond market (banking and insurance bonds for example), as a general observation we are beginning to see higher yields on offer in the senior secured loan market than we do in the subordinated bond market. This is an unusual situation and one which in a low default environment justifies a greater allocation to loans than we have run in the past three years when bonds offered higher yields.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

MANAGEMENT REPORT (continued)

Managers' Report (continued)

In addition, having a higher percentage of the Company in floating rate loans will also benefit the Company as and when interest rates begin to rise, as the income from this asset class will rise at the same time. Selective high yielding equity shares are also looking good value relative to the bond market in both income and capital terms and we shall continue to use our flexible mandate to opportunistically add modest exposure to this area of the market up to a maximum of 10% of the portfolio. Being able to asset allocate in this way is the great strength of your Company's diversified income policy as it allows the Company to focus on sustaining, and where possible increasing, the dividend by pursuing the best return opportunities wherever they may present themselves within markets.

John Pattullo and Jenna Barnard

Portfolio Managers

7 February 2013

Summary of Portfolio

	%
Secured Loans	50.70
High Yield Bonds	29.65
Investment Grade Bonds	17.91
Equities	1.74
	--------
	100.00

Twenty Largest Holdings

These twenty investments total £29.926 million (2011: £27.643 million) representing 38.50% (2011: 39.53%) by value of the total investments.

Name of Investment	Category	Value £'000
Alliance Boots	Secured Loan	1,937
Convatec Healthcare	High Yield Bond	1,787
Heathrow	Investment Grade Bond	1,678
Vue	Secured Loan	1,640
Smurfit Kappa	High Yield Bond	1,634
RBS Worldpay	Secured Loan	1,617
ISS	Secured Loan	1,544
William Hill	High Yield Bond	1,505
Lavena	Secured Loan	1,502
Weetabix	Secured Loan	1,489
Unity Media	High Yield Bond	1,447
Towergate	Secured Loan	1,443
Standard Life	Investment Grade Bond	1,438
Polyconcept	Secured Loan	1,429
RAC	Secured Loan	1,395
Ziggo	High Yield Bond	1,323
Gala Clubs	Secured Loan	1,309
Springer	Secured Loan	1,283
Flint	Secured Loan	1,275
Barclays	Investment Grade Bond	1,251

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

Consolidated Statement of Comprehensive Income

for the year ended 31 October 2012

	Year ended 31 October 2012			Year ended 31 October 2011
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments at fair value through profit or loss	-	1,651	1,651	-	(4,490)	(4,490)
Gains on foreign exchange transactions at fair value through profit or loss	-	3,168	3,168	-	428	428
Investment income (note 2)	5,394	-	5,394	5,186	-	5,186
Other income (note 3)	3	-	3	12	-	12
	---------	-----------	-----------	---------	---------	---------
Total income	5,397	4,819	10,216	5,198	(4,062)	1,136
	---------	-----------	-----------	---------	---------	---------
Expenses
Management and performance fee	(273)	(879)	(1,152)	(279)	(279)	(558)
Other expenses	(463)	-	(463)	(488)	-	(488)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) before finance costs and taxation	4,661	3,940	8,601	4,431	(4,341)	90
Finance costs	(86)	(85)	(171)	(83)	(83)	(166)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) before taxation	4,575	3,855	8,430	4,348	(4,424)	(76)
Taxation	(46)	-	(46)	(29)	-	(29)
	---------	-----------	-----------	---------	---------	---------
Profit/(loss) for the year	4,529	3,855	8,384	4,319	(4,424)	(105)
	=====	======	=======	=====	======	======
Earnings/(loss) per ordinary share (note 4)	5.41p	4.61p	10.02p	5.16p	(5.29)p	(0.13)p
	=====	======	======	=====	=====	=====

The total column of this statement represents the Consolidated Statement of Comprehensive Income, 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 non-controlling interests.

The Group does not have any income or expense that is not included in the profit for the year and therefore the 'profit for the year' is also the 'total comprehensive income for the year'.

The net profit of the Group for the year was £8,384,000 (2011: loss of £105,000).

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

Consolidated Statement of Changes in Equity

for the year ended 31 October 2012

	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2012	£'000	£'000	£'000	£'000	£'000
Total equity at 31 October 2011	37,677	39,862	(13,595)	1,502	65,446
Total comprehensive income:
Profit for the year	-	-	3,855	4,529	8,384
Transactions with owners, recorded directly to equity:
Dividends paid (note 5)	-	-	-	(4,183)	(4,183)
	---------	---------	---------	---------	---------
Total equity at 31 October 2012	37,677	39,862	(9,740)	1,848	69,647
	=====	=====	=====	=====	=====
	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2011	£'000	£'000	£'000	£'000	£'000
Total equity at 31 October 2010	37,677	39,862	(9,171)	1,115	69,483
Total comprehensive income:
(Loss)/profit for the year	-	-	(4,424)	4,319	(105)
Transactions with owners, recorded directly to equity:
Dividends paid (note 5)	-	-	-	(3,932)	(3,932)
	--------	--------	----------	----------	--------
Total equity at 31 October 2011	37,677	39,862	(13,595)	1,502	65,446
	=====	=====	======	======	=====

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HENDERSON DIVERSIFIED INCOME LIMITED

 Annual Financial Report for the year ended 31 October 2012

Consolidated Balance Sheet

at 31 October 2012

	2012 £'000	2011 £'000
Non current assets
Investments designated as fair value through profit or loss	77,723	69,928
	----------	----------
Current assets
Other receivables	2,373	4,444
Cash and cash equivalents	372	732
	----------	----------
	2,745	5,176
	----------	----------
Total assets	80,468	75,104
	----------	----------
Current liabilities
Other payables	(10,821)	(9,658)
	----------	----------
Net assets	69,647	65,446
	======	======
Equity attributable to equity shareholders
Stated capital	37,677	37,677
Distributable reserve	39,862	39,862
Retained earnings:
Other capital reserves	(9,740)	(13,595)
Revenue reserve	1,848	1,502
	----------	----------
Total equity	69,647	65,446
	======	======
Net asset value per ordinary share (note 7)	83.3p	78.2p
	======	======

The financial statements were approved by the Board of Directors and authorised for issue on 7 February 2013 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 2012

Consolidated Cash Flow Statement

for the year ended 31 October 2012

	2012 £'000	2011 £'000
Net profit/(loss) before taxation	8,430	(76)
Add back interest paid	171	166
(Less)/add: (gains)/losses on investments designated as fair value through profit or loss	(1,651)	4,490
Less: gains on foreign exchange transactions at fair value through profit or loss	(3,168)	(428)
Increase in prepayments and accrued income	(113)	(106)
Increase/(decrease) in other payables	413	(199)
Net (purchases)/sales of investments	(6,269)	2,209
Decrease/(increase) in sales settlement debtor	2,237	(584)
Decrease in purchase settlement creditor	(127)	(2,633)
	----------	----------
Net cash (outflow)/inflow from operating activities before finance costs	(77)	2,839
Interest paid	(171)	(166)
Taxation on investment income	(142)	(32)
	----------	----------
Net cash (outflow)/inflow from operating activities	(390)	2,641
	----------	----------
Financing activities
Equity dividends paid	(4,183)	(3,932)
Loan expenses paid	(22)	(109)
Drawdown of loan	890	704
	----------	----------
Net cash outflow from financing	(3,315)	(3,337)
	----------	----------
Decrease in cash and cash equivalents	(3,705)	(696)
Cash and cash equivalents at the start of the year	732	806
Exchange movements	3,287	618
Amortisation of loan expenses	58	4
	----------	----------
Cash and cash equivalents at the year end	372	732
	======	======

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2012

Notes:

1.

Accounting Policies

Basis of preparation

This consolidated financial information for the year ended 31 October 2012 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 financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. 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 Group may enter into include forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Group'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 Group may also use credit derivatives, for example buying or selling protection on credit default swaps in order to manage 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 Statement of Comprehensive Income as they arise. If capital in nature, the associated change in value is presented as a capital item in the Consolidated Statement of Comprehensive Income.

2.

Investment income

2012

2011

£'000

£'000

Income from investments:

UK dividend income

73

149

Bond and loan interest

4,808

4,717

Premiums on credit default swaps

513

320

---------

---------

5,394

5,186

======

======

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-12 - HENDERSON DIVERSIFIED INCOME LIMITED Annual Financial Report for the year ended 31 October 2012

3.

Other income

2012

2011

£'000

£'000

Bank and other interest

3

12

======

======

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 £8.384 million (year ended 31 October 2011: loss of £0.105 million) and on 83,640,877 (2011: 83,640,877) being the weighted average number of ordinary shares in issue during the year. The earnings/(loss) 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/(loss) per ordinary share are the same.

2012

2011

£'000

£'000

Net revenue profit

4,529

4,319

Net capital profit/ (loss)

3,855

(4,424)

-------

-------

Net total profit/ (loss)

8,384

(105)

======

======

Weighted average number of ordinary shares in issue during the year

83,640,877

83,640,877

2012 pence

2011 pence

Revenue earnings per ordinary share

5.41

5.16

Capital earnings/(loss) per ordinary share

4.61

(5.29)

-------

-------

Total earnings/(loss) per ordinary share

10.02

(0.13)

======

======

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5.

Dividends

2012

2011

Record date

Pay date

£'000

£'000

Fourth interim dividend - 1.15p

10 December 2010

31 December 2010

-

962

First interim dividend - 1.15p

10 March 2011

31 March 2011

-

962

Second interim dividend - 1.20p

10 June 2011

30 June 2011

-

1,004

Third interim dividend - 1.20p

10 September 2011

30 September 2011

-

1,004

Fourth interim dividend - 1.25p

9 December 2011

30 December 2011

1,046

First interim dividend - 1.25p

9 March 2012

30 March 2012

1,045

Second interim dividend - 1.25p

8 June 2012

29 June 2012

1,046

Third interim dividend - 1.25p

7 September 2012

28 September 2012

1,046

-----------

-----------

4,183

3,932

======

======

The fourth interim dividend has not been included as a liability in these financial statements as it was announced and paid after 31 October 2012.

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 £4.529 million (2011: £4.319 million).

2012

£'000

First interim dividend for 2012 - 1.25p

1,045

Second interim dividend for 2012 - 1.25p

1,046

Third interim dividend for 2012 - 1.25p

1,046

Fourth interim dividend for 2012 - 1.25p

1,046

(paid 31 December 2012, with a record date of 07 December 2012)

--------

4,183

======

6.

Stated capital

Stated Capital £'000

Number of fully paid shares issued

As at 31 October 2011 and 2012

37,677

83,640,877

======

=========

7.

Net asset value per ordinary share

The net asset value per ordinary share is based on the net asset value attributable to ordinary shareholders at the year end of £69.647 million (2011: £65.446 million) and on 83,640,877 (2011: 83,640,877) ordinary shares, being the number of ordinary shares in issue at the year end.

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HENDERSON DIVERSIFIED INCOME LIMITED Annual Financial Report for the year ended 31 October 2012

8.

Statement of Going Concern

The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Group consist mainly of securities which are readily realisable and, accordingly, the Group has adequate financial resources to continue in operational existence for the foreseeable future. In reviewing the position as at the date of this report, the Board has considered the going concern and liquidity risk 'Guidance for Directors of UK Companies 2009' issued by the Financial Reporting Council in October 2009.

9.

2012 Financial information

The figures and financial information for the year ended 31 October 2012 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.

10.

2011 Financial information

The figures and financial information for the year 31 October 2011 are compiled from an extract of the latest published accounts and do not constitute the statutory accounts for that year. The accounts included the report of the auditors which was unqualified.

11.

Annual Report

The Annual Report and Accounts will be posted to shareholders on 14 February 2013 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 Limited, Company Secretary

Telephone: [phone]

Henderson Diversified Income Limited has its registered office at Liberté House, 19-23 La Motte Street, St Helier, Jersey JE2 4SY and it is regulated by the Jersey Financial Services Commission. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement. -END-

 

END

 

 

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