Half-year Report
HENDERSON INVESTMENT FUNDS LIMITED
HENDERSON DIVERSIFIED INCOME TRUST PLC
LEGAL ENTITY IDENTIFIER: 213800RV2228EO1JEN02
14 DECEMBER 2021
HENDERSON DIVERSIFIED INCOME TRUST PLC
Unaudited Results for the Half-Year Ended 31 October 2021
This announcement contains regulated information
PERFORMANCE HIGHLIGHTS
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Half-year ended 31 October 2021 |
Half-year ended 31 October 2020 |
Year-ended 30 April 2021 |
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Net Asset Value (NAV) per ordinary share |
91.42p |
89.83p |
91.87p |
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Share Price1 |
83.50p |
88.90p |
88.00p |
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Dividend Per Share2 |
4.40p |
4.40p |
4.40p |
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Dividend Yield2 |
5.27% |
4.95% |
5.00% |
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Ongoing Charge3 |
0.91% |
0.93% |
0.93% |
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Financial Gearing |
14.5% |
13.8% |
15.0% |
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Number of portfolio investments held |
132 |
114 |
129 |
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Discount |
-8.7% |
-1.0% |
-4.2% |
1 Share price total return using mid-market closing price
2 Based on dividends paid in respect of the previous 12 months
3 Based on the estimated year-end ongoing charge
TOTAL RETURN PERFORMANCE OVER TEN YEARS TO 31 OCTOBER 4
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6 months % |
1 year % |
3 years % |
5 years % |
7 years % |
10 years % |
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NAV1 |
1.94 |
6.77 |
25.97 |
31.52 |
49.01 |
102.47 |
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Benchmark2 |
1.27 |
7.02 |
17.66 |
24.06 |
35.62 |
75.65 |
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Share Price3 |
-2.68 |
-1.29 |
17.99 |
16.95 |
31.83 |
87.00 |
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1 Net asset value total return including dividends reinvested and excluding transaction costs
2 60% Global High Yield Credit (ICE BofA Global High Yield Constrained Index), 25% Global Investment Grade Corporate Credit (ICE BofA Global BBB Corporate Bond Index) and 15% European Loans (Credit Suisse Western European Leveraged Loan Index). Prior to 16 September 2021 the benchmark was three-month sterling LIBOR + 2%
3 Share price total return using mid-market closing price with dividends reinvested
4 Performance prior to 27 April 2017 reflects the performance of the predecessor company, Henderson Diversified Income Limited, that was launched on 18 July 2007
Sources: Janus Henderson, Refinitiv DataStream, Morningstar Direct and BNP IRP Service
INTERIM MANAGEMENT REPORT
CHAIRMAN'S STATEMENT
Your Board has been undertaking a review of the Company over the course of the last year. We have concluded that while the Company offers investors an interesting and different investment exposure, we would like to emphasise the policies and measures in place to reflect the Company's underlying objectives and investment style.
This process commenced with the introduction of a new benchmark at the Annual General Meeting earlier this year. It will continue with a number of additional proposed changes to the investment objective and policy which I will be writing to you about shortly in a separate shareholder Circular which will be sent to shareholders with the abbreviated half year update for the period ended 31 October 2021 (abbreviated update). The full text of the Company's current investment objective and policy and proposed new investment objective and policy are set out in the 'Investment Objective and Policy' section below.
None of these changes will make a material difference to the way the investment portfolio is currently managed. The Board believes that the purpose of the Company is to be a fundamental, active investor in companies with the objective of preserving shareholders capital and providing a high level of income, through the economic cycle.
This involves investing in assets which provide a relatively higher return than the risks involved. The new benchmark was introduced because the Board felt that the existing benchmark did not reflect the risks inherent in pursuing this strategy.
Performance
On the basis of the performance in the first half of the financial year, I am pleased to report this objective is being achieved. During the period under review the Company delivered a NAV total return of 1.94%, outperforming the new benchmark which returned 1.27%.
I would highlight that given the diversified nature of the potential investable asset classes, the Fund Managers investment style is such that performance is likely to deviate from that of the benchmark.
Proposed Changes to the Investment Objective and Policy
The Company's current investment objective is to seek a sustainable level of annual income and capital gains consistent with seeking to reduce the risk of capital losses.
The Board believes that the potential for capital gains with interest rates as low as they are is limited. Instead, we would propose that, with your approval, the Company's investment objective should be providing shareholders with a high level of income and preservation of capital, through the economic cycle.
This change has the effect of moving to a realistic target which is still a challenge. As the Fund Managers note in their report, we may be at the start of a rising interest rate cycle. This may cause a fall in bond prices which the Fund Managers will need to navigate adroitly to achieve the new investment objective.
Environmental, Social and Governance (ESG)
The Fund Managers have always invested in companies which they believe have a sustainable future and a reason to exist. They naturally favour the new economy over the old.
There has been much recent discussion about ESG investment and finance being a catalyst for positive change. On review, I am pleased to report that your Company's investment portfolio carbon metrics and climate scenario alignment already compare extremely favourably to the benchmark index.
We are proposing that the Company formalises this by integrating ESG into the investment process. We are advised by the Fund Managers that it is not anticipated that there will be any change to how the portfolio is currently managed as a consequence of adopting these changes.
It is a source of some satisfaction that the portfolio has always been managed consistent with ESG standards only now being adopted as standard by many market practitioners.
The charts included in the Chairman's Statement within the abbreviated update have not been included in this announcement. The abbreviated update will be available on the Company's website shortly. In the meantime, you can contact the Company Secretary (itsecretariat@janushenderson.com) to obtain a copy of the charts.
Buying Back Shares
Disappointingly, the share price total return for shareholders during the period under review was -2.68%, reflecting the widening of the discount on the shares. The Board are of the view that the Fund Managers should buy back stock in the market where the opportunity exists to enhance the total return to shareholders by a greater amount than investing in the market. This has the added benefit of providing additional liquidity to shareholders.
During the period under review 2,502,730 ordinary shares were bought back. At 31 October 2021 there were 188,764,303 ordinary shares of 1p nominal value in issue.
Between 1 November 2021 and 14 December 2021, 980,000 ordinary shares have been bought back. The issued share capital at 14 December 2021 was therefore 187,784,303.
The Company has no shares held in Treasury.
Appointment of New Co-Fund Manager
I am pleased to report that the Board has appointed Nicholas Ware to co-manage the portfolio alongside the Fund Managers John Pattullo and Jenna Barnard. His appointment will take effect from 1 January 2022. Nicholas is a long-standing member of the Janus Henderson Strategic Fixed Income team and has detailed knowledge about the Company, having supported John and Jenna in running the Company's portfolio for many years.
General Meeting
The General Meeting to formalise the changes proposed above will be held at Janus Henderson's offices, 201 Bishopsgate, London EC2M 3AE on 25 February 2022 at 9.30am. Full details of the business to be conducted at the meeting are set out in the shareholder Circular which will be sent to shareholders with the abbreviated update.
Dividends
A fourth interim dividend for the year ended 30 April 2021 of 1.10p (2020: 1.10p) per ordinary share was paid to shareholders on 30 June 2021 to shareholders on the register at close of business on 4 June 2021.
A first interim dividend for the year ended 30 April 2022 of 1.10p (2021: 1.10p) per ordinary share was paid to shareholders on 30 September 2021 to shareholders on the register at close of business on 3 September 2021.
On 25 November 2021 the Board announced a second interim dividend for the year ended 30 April 2022 of 1.10p (2021: 1.10p) per ordinary share that will be paid on 31 December 2021 to shareholders on the register at close of business on 3 December 2021. The shares were quoted ex-dividend on 2 December 2021.
Outlook
As the Fund Managers comment, this has been an unusually calm period for credit markets. The possibility of inflation and a rising interest rate cycle does offer challenges, but as ever will depend on how much inflation we experience and what the impact on policy and market rates is.
In the meantime, shareholders should take some comfort from the Fund Managers' confidence in their ability to maintain the current dividend, although there remain plenty of other potential challenges to these apparently benign markets.
Angus Macpherson
Chairman
14 December 2021
FUND MANAGERS' REPORT
Performance
The Company's NAV total return rose by 1.94% over the six months to 31 October 2021, outperforming the benchmark which returned 1.27%. The share price total return was -2.68% which reflected a widening of the discount. The dividend remains on track. We will continue to buy back shares opportunistically if accretive for shareholders.
Macro Background
The period under review was remarkably benign. We described the period a year ago as idyllic and it continues to be so. Credit is not the villain here and continues to be remarkably well behaved. The period was broadly about "clipping the coupon" and being neither heroic nor greedy. As we discussed in the last annual review, credit spreads were quick to re-price to the post COVID world. Credit spreads are again reassuringly expensive, reflecting suppressed volatility and exceptionally low default rates. Thus, there was limited opportunity for capital appreciation. The market feels late cycle and credit has lagged the strength of equity markets. We expect this benign environment to evolve given the economic recovery. This will of course present different challenges for bond investors. The period we are entering is understandably a tougher regime - we have very tight credit spreads, and we are at the beginning of a rising interest rate cycle. Bond returns are often lumpy, and this cycle feels no different.
This inevitable and encouraging changing of the guard reflects the post COVID outlook. Inflation is the major focus of central banks today. Inflation had previously slumped into the demand shock of lockdown and was always going to surge back into a re-opening supply shock. This was further compounded by numerous bottleneck problems from semiconductors and containers, to HGV drivers. Although we are broadly understanding of the base effects and bottleneck supply side arguments for cyclical inflation, we have been surprised by the forecasting error regarding inflation by most commentators. We feel it is reasonable to expect the goods, services, and commodity markets to sort themselves out with time. Unless there is a persistent and sustained uptick in the demand for credit, we do not believe consumers are permanently going to be buying more "stuff". Many consumers have excess savings and time will tell whether is it the roaring twenties or perhaps an environment of a more precautionary approach to savings and consumption? We are sympathetic to the idea that people have re-appraised lifestyles and working practices. Indeed, given the rapid digitalisation of many industries we would broadly suggest a more dis-inflationary economy longer term. We have spoken at length about how COVID has simply accelerated existing structural trends which were already apparent to see. We have also favoured structural digital winners over cyclical analogue losers - for example, favouring data centres over shopping centres and similarly Netflix over cinema chains!
However, against this background two important themes remain; firstly, how central banks react over the larger and less transitory inflation surge, and secondly, the bizarre tightness of the labour market. We are very focused on these two issues and cannot get too tied up in the team transitory versus permanence of inflation debate. The swing factor may be the tightness or otherwise of the labour market. Normally, unemployment is a significant issue coming out of a recession. The furlough scheme has preserved millions of jobs around the world at a considerable cost. But now many western economies have too few workers! America has approximately 5m fewer workers than pre COVID; the UK has 900,000 fewer. The great resignation or the great re-set describes the fall off in people participating in employment. Many older, wealthier people have prospered during COVID and have retired early; many students have extended their studies whilst others have simply re-appraised their work/life balance. These issues have been compounded by restricted migration and in the UK's case, an exodus of EU nationals. This is all crucially important because "normal" participation levels would suggest US unemployment levels of 8%+, whilst new participation levels would suggest levels nearer 4% and heading lower. These numbers include both cyclical and structural elements evolving over time.
How the unemployment numbers pan out will have a significant bearing on how central banks change monetary policy to fulfil their mandate objectives. A rise in interest rates has already caused yield curves to flatten which, by design, makes risk taking less compelling. This will induce, in time, greater volatility and risk aversion.
Equity markets feel euphoric to us. There are some excesses going on in markets but none of these seem to be of systemic importance. One notable area is the leveraged buyout activity of predominately US private equity purchasing cheap UK businesses. Again, we are by design not exposed to many UK businesses, but we are understandably wary of this trend. The private equity community is awash with cash and seems to be running their slide rule over many cheap European businesses. Elsewhere there are only pockets of excess. We remain vigilant and picky in this late cycle environment.
Asset Allocation and Stock Selection
We have kept our asset allocation broadly similar throughout the period under review although we have added some more loans during the period where risk/reward made sense. We kept gearing at a level to maintain the dividend through a combination of financial gearing (borrowing money and investing at a better yield than the cost of debt) and synthetic gearing (the use of credit derivatives). The focus on providing a relatively consistent and attractive income stream to investors means that the portfolio is naturally skewed to lower rated and riskier corporate bonds. Credit spreads were compressed but that was supported by robust fundamentals and low default volumes which led to a carry environment for credit.
New loans we bought in primarily included McAfee Enterprises (a provider of enterprise software security provider), UDG (UK based healthcare consultancy business) and Duravant (provider of automated machinery for food processing and packaging). Valuations on loans were expensive which meant there were no significant other opportunities to add. In high yield bonds significant additions to the portfolio included Medline (US manufacturer and distributor of medical products), Diversey (producer of cleaning and hygiene solutions) and we also invested in ING subordinated financial bond (Benelux bank). We also spent time trimming names where we felt the risk/reward given the inflationary backdrop meant that they would struggle to pass through all the price increases to customers. Given relatively tight valuations these switches were into credits without relinquishing yield or spread.
Environmental, Social and Governance (ESG)
It is proposed that, subject to shareholder approval, the Company's investment objective be amended to that of providing shareholders with a high level of income and preservation of capital, through the economic cycle. The Board also proposes to include additional formal restrictions related to ESG considerations in the Company's investment policy; these reflect restrictions already applied by the Investment Manager in constructing the Company's portfolio. For the avoidance of doubt, the current investment approach already takes these into account and there will therefore be no material change to the Company's investment process or strategy as a result of the proposed amendments.
A shareholder Circular containing further details of the proposed changes will be sent to shareholders with the abbreviated update in December 2021. The full text of the Company's current investment objective and policy and proposed new investment objective and policy are set out in the 'Investment Objective and Policy' section below.
Outlook
Credit spreads are tight and bond yields are fairly low. Given where we are in the economic cycle, we do expect an uptick in volatility from the current very low levels. We are very focused on central banks' reaction functions to both their inflation and employment mandates. We remain confident in maintaining the current level of income in the foreseeable future for our shareholders which remains our primary focus.
John Pattullo, Jenna Barnard and Nicholas Ware
Fund Managers
14 December 2021
INVESTMENT OBJECTIVE AND POLICY
The full text of the Company's current investment objective and policy and proposed new investment objective and policy are set out below:
Current Investment Objective | Proposed Investment Objective |
The Company's investment objective is to seek a sustainable level of annual income and capital gains consistent with seeking to reduce the risk of capital losses, by investing in a diversified portfolio of global fixed income and floating rate asset classes. | The Company's investment objective is to provide shareholders with a high level of income and preservation of capital, through the economic cycle.
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Current Investment Policy | Proposed Investment Policy |
The Company uses a dynamic approach to portfolio allocation across asset classes and is permitted to invest in a single asset class if required. The Company seeks a sensible spread of risk at all times. It can invest in assets of any size, sector, currency or issued from any country. | The Company invests in a diversified portfolio of global fixed income and floating rate asset classes. The Company uses a dynamic approach to portfolio allocation across asset classes and is permitted to invest in a single asset class if required. The Company seeks a sensible spread of risk at all times. It can invest in assets of any size, sector, currency or issued from any country.
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| Asset Allocation |
The Company has adopted the following allocation limits for each asset class: | The Company has adopted the following allocation limits for each asset class: |
· secured loans 0 to 100% of gross assets | · secured loans 0 to 100% of gross assets |
· government bonds 0 to 100% of gross assets | · government bonds 0 to 100% of gross assets |
· investment grade bonds 0 to 100% of gross assets | · investment grade bonds 0 to 100% of gross assets |
· high yield (sub investment grade) corporate bonds 0 to 100% of gross assets | · high yield (sub-investment grade) corporate bonds 0 to 100% of gross assets |
· unrated corporate bonds 0 to 10% of gross assets | · unrated corporate bonds 0 to 10% of gross assets |
· asset backed securities 0 to 40% of gross assets | · asset backed securities 0 to 40% of gross assets |
· high yielding equities 0 to 10% of gross assets | · high yielding equities 0 to 10% of gross assets |
As a matter of policy, the Company will not invest more than 10% in aggregate of its net assets in a single corporate issue or issuer.
The Company may use financial instruments known as derivatives to enhance returns. They may also be used to reduce risk or to manage the Company's assets more efficiently. The use of derivatives may include credit derivatives (including credit default swaps) in addition to interest rate futures, interest rate swaps and forward currency contracts. The credit derivatives, interest rate futures and swaps are used to take a synthetic exposure to, or to hedge, an investment position where the derivative contract is more efficient or cost effective than a position in the underlying physical asset. The Company's exposure to derivatives is capped at a maximum net long or net short position of 40% of net assets. The Company may also employ financial gearing for efficient portfolio management purposes and to enhance investment returns but total gearing (both financial gearing and synthetic gearing combined) may not exceed 40% of net assets. Forward currency contracts are used to hedge other currencies back to sterling.
Any material change to the investment policy of the Company will only be made with the approval of shareholders. | As a matter of policy, the Company will not invest more than 10% in aggregate of its net assets in a single corporate issue or issuer.
The Company has adopted the following investment restrictions: · The Company will not make any direct investments in corporate issuers who derive more than 10 per cent. of their revenue from oil and gas generation and production, oil sands extraction, shale energy extraction, thermal coal extraction and power generation, and Arctic oil and gas extraction. · The Company will not make any direct investments in corporate issuers that the Board, as advised by the Investment Manager, deems to have failed to comply with the United Nations Global Compact principles. · The Company will not directly invest in sovereign bond issuers that have been sanctioned by the European Union or United Nations and/or that do not score 'free' by the Freedom House Index (or other such similar index as determined by the Board as advised by the Investment Manager) that promotes political rights and civil liberties. · The Company will not make any direct investments in issuers who derive any of their revenue from the production or distribution of fur or from the production or distribution of controversial weapons.
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| Derivatives |
| The Company may use financial instruments known as derivatives to enhance returns. They may also be used to reduce risk or to manage the Company's assets more efficiently. The use of derivatives may include credit derivatives (including credit default swaps) in addition to interest rate futures, interest rate swaps and forward currency contracts. The credit derivatives, interest rate futures and swaps are used to take a synthetic exposure to, or to hedge, an investment position where the derivative contract is more efficient or cost effective than a position in the underlying physical asset. The Company's exposure to derivatives is capped at a maximum net long or net short position of 40% of net assets.
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| Gearing |
| The Company may also employ financial gearing for efficient portfolio management purposes and to enhance investment returns, but total gearing (both financial gearing and synthetic gearing combined) may not exceed 40% of net assets. Forward currency contracts are used to hedge other currencies back to sterling. |
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Any material change to the investment policy of the Company will only be made with the approval of shareholders |
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties associated with the Company's business can be divided into the following main areas:
· General market risks associated with the Company's investments, including interest rate, credit and currency risks.
· Operational risks, including:
o Continued interest and commitment of the Fund Managers and Investment Manager.
o Janus Henderson's effective operation of systems of internal control and management reporting.
o Credit standing and quality of service of the Depositary.
o Reliance on service providers.
Information on these risks and uncertainties and how they are managed are given in the annual report for the year-ended 30 April 2021.
In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors confirm that, to the best of their knowledge:
(a) the condensed set of financial statements for the half-year ended 31 October 2021 have been prepared in accordance with UK adopted international accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
(b) this report and condensed set of financial statements include a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the six month period and description of principal risks and uncertainties for the remaining six months of the year); and
(c) this report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).
For and on behalf of the Board
Angus Macpherson
Chairman
14 December 2021
SUMMARY OF PORTFOLIO AS AT 31 OCTOBER1
| 2021 % | 2020 % |
High yield bonds | 65.3 | 62.7 |
Investment grade bonds | 24.9 | 28.8 |
Secured loans | 5.1 | 4.9 |
Equities | 4.1 | 2.7 |
Asset backed securities | 0.6 | 0.9 |
Total | 100.0 | 100.0 |
CURRENCY DENOMINATION OF PORTFOLIO AS AT 31 OCTOBER1, 2
| 2021 % | 2020 % |
Sterling | 23.7 | 22.3 |
Euro | 12.9 | 9.1 |
US dollar | 62.4 | 67.5 |
Australian dollar | 1.0 | 1.1 |
Total | 100.0 | 100.0 |
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1 Excluding credit default swaps
2 The Company hedges its foreign currency exposure back to sterling. There was therefore no material currency exposure at 31 October 2021 (2020: same)
TWENTY LARGEST INVESTMENTS AS AT 31 OCTOBER 2021
Company | Industry | Currency | Geographical area | Market value £'000 | % of portfolio |
Nationwide Building Society VAR Perpetual | Financials | £ | UK | 4,966 | 2.51 |
Verizon Communications | Communications | $/AUD | US | 4,383 | 2.22 |
Virgin Media | Communications | £/$ | UK | 4,336 | 2.19 |
Co-Operative Group | Consumer non-cyclical | £ | UK | 4,192 | 2.12 |
Phoenix | Financials | £ | UK | 4,166 | 2.11 |
Crown Castle | Industrials | $ | US | 4,053 | 2.05 |
IMS | Technology | $ | US | 3,973 | 2.01 |
Lloyds Group | Financials | £/$ | UK | 3,950 | 2.00 |
BUPA | Financials | £ | UK | 3,744 | 1.89 |
Barclays | Financials | £/$ | UK | 3,667 | 1.86 |
Ardagh | Industrials | Euro/$ | Ireland | 3,513 | 1.78 |
Direct Line Insurance | Financials | £ | UK | 3,472 | 1.76 |
Royal Bank of Scotland | Financials | £/$ | UK | 3,430 | 1.74 |
Restaurant Brands International | Consumer cyclical | $ | US | 3,374 | 1.71 |
Service Corp | Consumer non-cyclical | $ | US | 3,330 | 1.69 |
Altice | Communications | $ | US | 3,209 | 1.62 |
Rabobank | Financials | Euro | UK | 3,108 | 1.57 |
McAfee Enterprises | Technology | Euro/$ | US | 3,102 | 1.57 |
Center Parcs | Consumer cyclical | £ | UK | 2,884 | 1.46 |
Sirius | Communications | $ | US | 2,835 | 1.43 |
These investments total £73,687,000 or 37.29% of the portfolio
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
| (Unaudited) Half-year ended 31 October 2021 | (Unaudited) Half-year ended 31 October 2020 | (Audited) Year-ended 30 April 2021 | ||||||
| Revenue return | Capital return | Total return | Revenue return | Capital return | Total return | Revenue return | Capital return | Total return |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
(Losses)/gains on investments held at fair value through profit or loss | - | (2,329) | (2,329) | - | 10,611 | 10,611 | - | 13,530 | 13,530 |
Gains/(losses) on foreign exchange transactions at fair value through profit or loss | - | 1,549 | 1,549 | - | (1,282) | (1,282) | - | (58) | (58) |
Investment income | 4,907 | - | 4,907 | 5,121 | - | 5,121 | 10,035 | - | 10,035 |
Other operating income | 8 | - | 8 | 4 | - | 4 | 10 | - | 10 |
| ---------- | ---------- | --------- | --------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Total income | 4,915 | (780) | 4,135 | 5,125 | 9,329 | 14,454 | 10,045 | 13,472 | 23,517 |
Expenses |
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Management fee | (283) | (283) | (566) | (278) | (278) | (556) | (566) | (565) | (1,131) |
Other expenses | (232) | - | (232) | (258) | - | (258) | (476) | - | (476) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Profit/(loss) before finance costs and taxation | 4,400 | (1,063) | 3,337 | 4,589 | 9,051 | 13,640 | 9,003 | 12,907 | 21,910 |
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Finance costs | (79) | (79) | (158) | (88) | (88) | (176) | (166) | (166) | (332) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Profit/(loss) before taxation | 4,321 | (1,142) | 3,179 | 4,501 | 8,963 | 13,464 |
8,837 | 12,741 | 21,578 |
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Taxation | (7) | - | (7) | (10) | - | (10) | (22) | - | (22) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Profit/(loss) for the period | 4,314 | (1,142) | 3,172 | 4,491 | 8,963 | 13,454 |
8,815 |
12,741 |
21,556 |
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Return per ordinary share (note 2) | 2.27p | (0.60p) | 1.67p | 2.35p | 4.68p | 7.03p |
4.61p |
6.66p |
11.27p |
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The total columns of this statement represent the Statement of Comprehensive Income of the Company, prepared in accordance with UK adopted international accounting standards. The revenue return and capital columns are supplementary to this and are published under guidance from the Association of Investment Companies. The Company had no other comprehensive income. The profit/(loss) for the period is also the total comprehensive income for the period.
All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.
The accompanying notes are an integral part of the condensed financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Half-year ended 31 October 2021 (unaudited) | Called up share capital £'000 |
Capital redemption reserve £'000 |
Share premium £'000 | Distributable reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 |
Total equity at 1 May 2021 | 1,912 | 1 | 1,576 | 165,533 | 3,957 | 2,741 | 175,720 |
Total comprehensive income: |
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Profit after taxation | - | - | - | - | (1,142) | 4,314 | 3,172 |
Transactions with owners, recorded directly to equity: |
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Cost of buy-back of shares | (25) | 25 | - | - | (2,142) | - | (2,142) |
Dividends paid | - | - | - | - | - | (4,189) | (4,189) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Total equity at 31 October 2021 | 1,887 |
26 | 1,576 | 165,533 | 673 | 2,866 | 172,561 |
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Half-year ended 31 October 2020 (unaudited) | Called up share capital £'000 | Capital redemption reserve £'000 |
Share premium £'000 | Distributable reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 |
Total equity at 1 May 2020 | 1,913 | - | 1,576 | 165,533 | (8,742) | 2,344 | 162,624 |
Total comprehensive income: |
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Profit after taxation | - | - | - | - | 8,963 | 4,491 | 13,454 |
Dividends paid | - | - | - | - | - | (4,209) | (4,209) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Total equity at 31 October 2020 | 1,913 | - | 1,576 | 165,533 | 221 | 2,626 | 171,869 |
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Year-ended 30 April 2021 (audited) |
Called up share capital £'000 | Capital redemption reserve £'000 | Share premium £'000 | Distributable reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 |
Total equity at 1 May 2020 | 1,913 | - | 1,576 | 165,533 | (8,742) | 2,344 | 162,624 |
Total comprehensive income: Profit after taxation | - |
- | - | - | 12,741 | 8,815 | 21,556 |
Transactions with owners, recorded directly to equity: |
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Cost of buy-back of shares | (1) | 1 | - | - | (42) | - | (42) |
Dividends paid | - | - | - | - | - | (8,418) | (8,418) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Total equity at 30 April 2021 | 1,912 | 1 | 1,576 | 165,533 | 3,957 | 2,741 | 175,720 |
| ====== | ====== | ====== | ====== | ====== | ====== | ====== |
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The accompanying notes are an integral part of the condensed financial statements
CONDENSED STATEMENT OF FINANCIAL POSITION
| (Unaudited) 31 October 2021 £'000 | (Unaudited) 31 October 2020 £'000 | (Audited) 30 April 2021 £'000 |
Non-current assets |
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Investments held at fair value through profit or loss | 197,582 | 195,525 | 202,152 |
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Current assets |
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Other receivables | 6,857 | 4,952 | 5,464 |
Cash and cash equivalents | 1,513 | 3,020 | 4,197 |
| ---------- | ---------- | ---------- |
Total assets | 205,952 | 203,497 | 211,813 |
| ---------- | ---------- | ---------- |
Current liabilities |
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Other payables | (5,372) | (4,107) | (10,031) |
Bank loan | (28,019) | (27,521) | (26,062) |
| ---------- | ---------- | ---------- |
Total assets less current liabilities | 172,561 | 171,869 | 175,720 |
| ---------- | ---------- | ---------- |
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Net assets | 172,561 | 171,869 | 175,720 |
| ====== | ====== | ====== |
Equity attributable to equity shareholders |
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Called-up share capital | 1,888 | 1,913 | 1,912 |
Capital redemption reserve | 25 | - | 1 |
Share premium | 1,576 | 1,576 | 1,576 |
Distributable reserve | 165,533 | 165,533 | 165,533 |
Capital reserve | 673 | 221 | 3,957 |
Revenue reserve | 2,866 | 2,626 | 2,741 |
| ---------- | ---------- | ---------- |
Total equity | 172,561 | 171,869 | 175,720 |
| ====== | ====== | ====== |
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Net asset value per ordinary share (note 3) | 91.42p | 89.83p | 91.87p |
| ====== | ====== | ====== |
The accompanying notes are an integral part of the condensed financial statements
CONDENSED CASH FLOW STATEMENT
| (Unaudited) Half-year ended 31 October 2021 £'000 | (Unaudited) Half-year ended 31 October 2020 £'000 | (Audited) Year-ended 30 April 2021 £'000 |
Operating activities |
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Net profit before taxation | 3,179 | 13,464 | 21,578 |
Interest payable | 158 | 176 | 332 |
Losses/(gains) on investments held at fair value through profit or loss | 2,329 | (10,611) | (13,530) |
(Gains)/losses on foreign exchange transactions at fair value through profit or loss | (1,549) | 1,282 | 58 |
Net (payments)/receipts on settlement of forward exchange contracts | (978) | 2,578 |
13,965 |
Net receipts/(payments) on credit default swaps | - | 198 | (46) |
Increase in prepayments and accrued income | (73) | (171) | (9) |
Decrease/(increase) in other creditors | 321 | 290 | (7) |
Purchase of investments | (37,789) | (60,273) | (92,980) |
Sale of investments | 36,099 | 60,564 | 85,747 |
| ---------- | ---------- | ---------- |
Net cash inflow from operating activities before finance costs1 | 1,697 | 7,497 | 15,108 |
| ---------- | ---------- | ---------- |
Interest paid | (139) | (200) | (343) |
Taxation on investment income | (8) | (10) | (22) |
| ---------- | ---------- | ---------- |
Net cash inflow from operating activities | 1,550 | 7,287 | 14,743 |
| ---------- | ---------- | ---------- |
Financing activities |
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Equity dividends paid | (4,189) | (4,209) | (8,418) |
Buy-back of ordinary shares | (2,142) | - | (42) |
Drawdown of bank overdraft | 51 | 1,223 | 548 |
Drawdown/(repayment) of loans | 1,957 | (5,114) | (6,573) |
| ---------- | ---------- | ---------- |
Net cash outflow from financing activities | (4,323) | (8,100) | (14,485) |
| ---------- | ---------- | ---------- |
Net (decrease)/increase in cash and cash equivalents | (2,773) | (813) | 258 |
Cash and cash equivalents at start of period | 4,197 | 3,735 |
3,735 |
Exchange movements | 89 | 98 | 204 |
| ---------- | ---------- | ---------- |
Cash and cash equivalents at the end of the period | 1,513 | 3,020 | 4,197 |
| ====== | ====== | ====== |
Comprising: Cash at bank | 1,513 | 3,020 | 4,197 |
| ---------- | ---------- | ---------- |
| 1,513 | 3,020 | 4,197 |
| ====== | ====== | ====== |
1 Cash inflow from interest income was £4,084,000 (31 October 2020: £4,361,000; 30 April 2021: £8,888,000) and cash inflow from dividends was £132,000 (31 October 2020: £132,000; 30 April 2021: £264,000)
The accompanying notes are an integral part of the condensed financial statements
NOTES TO THE INTERIM FINANCIAL INFORMATION
1. Accounting policies - basis of accounting
The Company is a registered investment company as defined by Section 833 of the Companies Act 2006 and operates as an investment company in accordance with Section 1158 of the Corporation Tax Act 2010.
These condensed financial statements comprise the unaudited results of the Company for the half-year ended 31 October 2021. They have been prepared on a going concern basis and in accordance with UK adopted international accounting standards and with the Statement of Recommended Practice for Investment Trusts (SORP) issued by the Association of Investment Companies dated November 2014, and updated in October 2019, where the SORP is consistent with the requirements UK adopted international accounting standards .
For the period under review the Company's accounting policies have not varied from those described in the annual report for the year-ended 30 April 2021. The condensed set of financial statements has been neither audited nor reviewed by the Company's auditors.
2. Return per ordinary share
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(Unaudited) Half-year ended 31 October 2021 £'000 |
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(Unaudited) Half-year ended 31 October 2020 £'000 |
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(Audited) Year-ended 30 April 2021 £'000 |
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Net revenue return |
4,314 |
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4,491 |
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8,815 |
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Net capital return |
(1,142) |
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8,963 |
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12,741 |
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Net total return |
3,172 |
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13,454 |
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21,556 |
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Weighted average number of ordinary shares |
190,102,392 |
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191,318,240 |
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191,312,174 |
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Revenue return per ordinary share |
2.27p |
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2.35p |
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4.61p |
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Capital return per ordinary share |
(0.60p) |
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4.68p |
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6.66p |
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---------- |
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--------- |
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Total return per ordinary share |
1.67p |
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7.03p |
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11.27p |
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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.
3. 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 31 October 2021 of £172,561,000 (31 October 2020: £171,869,000; 30 April 2021: £175,720,000) and on 188,764,303 ordinary shares, being the number of ordinary shares in issue at 31 October 2021 (31 October 2020: 191,318,240; 30 April 2021: 191,267,033).
4. Share capital
During the half-year ended 31 October 2021, 2,502,730 ordinary shares were bought back. At 31 October 2021 there were 188,764,303 ordinary shares of 1p nominal value in issue.
Between 1 November 2021 and 14 December 2021, 980,000 shares have been bought back. The Company has no shares held in Treasury.
5. Dividends
The following dividends have been paid during the period, or will be paid, as interest distributions for UK tax purposes from the Company's revenue account.
A fourth interim dividend for the year-ended 30 April 2021 of 1.10p (2020: 1.10p) per ordinary share was paid to shareholders on 30 June 2021 to shareholders on the register at close of business on 4 June 2021.
A first interim dividend for the year-ended 30 April 2022 of 1.10p (2021: 1.10p) per ordinary share was paid to shareholders on 30 September 2021toshareholders on the register at close of business on 3 September 2021.
On 25 November 2021 the Board announced a second interim dividend for the year-ended 30 April 2022 of 1.10p (2021: 1.10p) per ordinary share that will be paid on 31 December 2021 to shareholders on the register at close of business on 3 December 2021. The shares were quoted ex-dividend on 2 December 2021.
6. Financial instruments
The table below sets out the fair value measurements using the IFRS 13 fair value hierarchy. Categorisation within the hierarchy has been determined on the basis of the lowest level of input that is significant to the fair value measurement of the relevant assets as follows:
· Level 1: quoted (unadjusted) market prices in active markets for identical assets or liabilities;
· Level 2: valuation techniques for which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable; and
· Level 3: valuation techniques for which the lowest level of input that is significant to the fair value measurement is unobservable.
At the end of the period, the levels of each investment have been assessed in line with the criteria above. Any investment that did not meet the level 1 criteria has been classified as level 2. This will include any investments where there is insufficient liquidity in trading volumes at the period end.
The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
As at 31 October 2021 (unaudited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
Financial assets at fair value through profit or loss: |
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Investments | 182,542 | 15,040 | - | 197,582 |
Credit default swaps | - | 2,676 | - | 2,676 |
| ---------- | ---------- | ---------- | ---------- |
Total | 182,542 | 17,716 | - | 200,258 |
| ====== | ====== | ====== | ====== |
Financial liabilities at fair value through profit or loss: |
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Currency forward exchange contracts | - | 578 | - | 578 |
| ---------- | ---------- | ---------- | ---------- |
Total | - | 578 | - | 578 |
| ====== | ====== | ====== | ====== |
As at 31 October 2020 (unaudited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
Financial assets at fair value through profit or loss: |
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Investments | 185,976 | 9,549 | - | 195,525 |
Credit default swaps | - | 1,441 | - | 1,441 |
Currency forward exchange contracts | - | 750 | - | 750 |
| ---------- | ---------- | ---------- | ---------- |
Total | 185,976 | 11,740 | - | 197,716 |
| ====== | ====== | ====== | ====== |
Financial liabilities at fair value through profit or loss | - | - | - | - |
| ---------- | ---------- | ---------- | ---------- |
Total | - | - | - | - |
| ====== | ====== | ====== | ====== |
As at 30 April 2021 (audited) | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
Financial assets at fair value through profit or loss: |
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Investments | 184,055 | 18,097 | - | 202,152 |
Credit default swaps | - | 2,972 | - | 2,972 |
| ---------- | ---------- | ---------- | ---------- |
Total | 184,055 | 21,069 | - | 205,124 |
| ====== | ====== | ====== | ====== |
Financial liabilities at fair value through profit or loss: |
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Currency forward exchange contracts | - | 1,091 | - | 1,091 |
| ---------- | ---------- | ---------- | ---------- |
Total | - | 1,091 | - | 1,091 |
| ====== | ====== | ====== | ====== |
There have been no transfers between levels of fair value hierarchy during the period. Transfers between levels of fair value hierarchy are deemed to have occurred at the date of the event or change in circumstances that caused the transfer.
Valuation techniques used by the Company are explained in the accounting policies note in the Company's annual report for the year-ended 30 April 2021.
There were no transfers to or from level 3 during the period.
7. Related party transactions
The Company's transactions with related parties in the half-year were with its directors and Janus Henderson Investors (Manager). There have been no material transactions between the Company and its directors during the period. In relation to the provision of services by the Manager, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there have been no material transactions with the Manager affecting the financial position of the Company during the period under review.
8. Going concern
The directors have considered the impact of COVID-19, including cash flow forecasting, a review of covenant compliance including the headroom above the most restrictive covenants and an assessment of the liquidity of the portfolio. Thus, after making due enquiry, the directors believe that the Company has adequate financial resources to meet its financial obligations, including the repayment of any borrowings, and to continue in operational existence for at least twelve months from the date of approval of the financial statements. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements.
9. Comparative information
The financial information contained in this half-year report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half year periods ended 31 October 2021 and 31 October 2020 have not been audited or reviewed by the Company's auditors. The figures and financial information for the year-ended 30 April 2021 are extracted from the latest published accounts, and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors, which was unqualified and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006.
10. Half-year report
The half-year report will shortly be available on the Company's website (www.hendersondiversifiedincome.com). An abbreviated version of this half-year report (abbreviated update) will be circulated to shareholders in December 2021.
11. General information
Company status
The Company is a UK domiciled investment trust company which was incorporated on 23 February 2017. The Company number is 10635799. The Company is listed on the London Stock Exchange.
ISIN code: GB00BF03YC36
SEDOL number: BF03YC3
London Stock Exchange code: HDIV
Global Intermediary Identification Number (GIIN): QR3G93.99999.SL.826
Legal Entity Identifier (LEI) number: 213800RV2228EO1JEN02
Directors, secretary and registered office
The directors of the Company are Angus Macpherson (Chairman), Ian Wright (Audit Committee Chairman), Denise Hadgill, Win Robbins (Senior Independent Director) and Stewart Wood. The Corporate Secretary is Henderson Secretarial Services Limited. The registered office is 201 Bishopsgate, London, EC2M 3AE.
Website
Details of the Company's share price and net asset value, together with general information about the Company, monthly factsheets and data, copies of announcements, reports and details of general meetings can be found at www.hendersondiversifiedincome.com
For further information please contact:
James de Sausmarez Director & Head of Investment Trusts Janus Henderson Investors Telephone: 020 7818 3349 |
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