Half Yearly Report

RNS Number : 2656I

Henderson Diversified Income Ltd

10 June 2011

 



10 June 2011

This announcement contains regulated information.                                                                                                             

HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Highlights	As at 30 April 2011
Total net assets	£71,519,000
Net asset value per ordinary share	85.5p
Market price per ordinary share	86.3p
Dividends - first interim (paid 31 March 2011)	1.15p
- second interim (payable 30 June 2011)	1.20p
Performance	Six months to 30 April 2011
Net Asset Value Total Return	+5.91%
Share Price Total Return	+11.99%

Interim Management Report

CHAIRMAN'S STATEMENT

During the six months to 30 April 2011 bond and loan markets showed considerable resilience in the face of global crises, indicating their increasing maturity and confidence in their ability to adapt to changing situations. Over the period European peripheral sovereign risks remained at the forefront of investors' minds although confidence increased as we entered 2011 with signs of a continued strong economic recovery and evidence that European politicians were finally attempting to formulate a comprehensive solution to their fiscal crisis. The loan market was particularly positive with low default rates, continued re-financings into the bond market and investor demand for the asset class. The income target of 1.25% over LIBOR continues to be exceeded and as and when interest rates are finally raised in the UK the distributable income will increase, albeit with a lag.

Performance

The net asset value total return per ordinary share for the six month period under review was 5.91% whilst the share price total return per ordinary share was 11.99 %. The discount narrowed considerably and at the period end the shares were trading on a small premium to net asset value. At 30 April 2011 the yield on the Company's shares was 5.33%.

Dividends and Dividend Policy

In December 2010 the Company paid a fourth interim dividend of 1.15p per share in respect of the year ended 31 October 2010. For the current financial year, your Board paid a first interim dividend of 1.15p per share on 31 March 2011, and has declared a slightly increased second interim of 1.20p per share which will be paid on 30 June 2011 to shareholders on the register on 10 June 2011.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

INTERIM MANAGEMENT REPORT (continued)

Chairman's Statement (continued)

Related Party Transactions

Details of related party transactions are contained in the annual report. There have been no material transactions with our related parties during the six month period under review.

Outlook, Risks and Uncertainties

A low and declining default rate is supportive for our secured loan and corporate bond holdings whilst anything with high interest rate sensitivity continues to be shunned as rising interest rates will likely lead to a loss of capital in these asset classes. The small allocation to high yielding ordinary shares that was made in the summer of 2010, to take advantage of the yield arbitrage opportunities available in certain high yielding equities compared to their underlying corporate bond yields, has been maintained over the period securing an attractive capital uplift. These equities are not a permanent asset allocation but are likely to be sold down in the coming months reflecting a strong performance since purchase. Your Company remains positioned for a reflationary economic outlook with a substantial proportion of its assets in floating rate securities.

Paul Manduca

Chairman

10 June 2011

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge:

(a)        the set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

(b)        the Interim Management Report includes a fair review of the information required by Disclosure 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)        the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

Paul Manduca

Chairman

10 June 2011

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Portfolio Managers' Report

The first half of the Company's year proved to be a period of relative stability with modest appreciation in net asset value and a continued focus on generating above-target income for shareholders. Credit markets proved remarkably robust during the period, underpinned by low default rates and continued takeover activity. Indeed, the underlying strength of corporate bond and loan markets was most evident during the Japanese earthquake/tsunami and nuclear crisis in March 2011, at the time of high financial market volatility credit markets barely sold-off and the primary market remained open for business. This compares to periods as recent as May 2010 when a European sovereign bond crisis shut the credit market for a number of weeks and resulted in extremely illiquid conditions and a sharp sell-off in prices.  This is perhaps a sign that the markets in which the Company invests are maturing as the remarkable recovery from the depths of the crisis continues apace.

Given the stability of credit markets over the period, perhaps the most newsworthy events actually came from the interest rate markets. The first surprise was that the European Central Bank began to hike rates with a 25bp move in April 2011. Given the continued strains in peripheral European government bond markets this came as a surprise to many economists when the move was first signalled by Mr Trichet. Further rate hikes are to be expected this year and these will help income generation on the Euro denominated loans that the Company owns. In contrast, the Monetary Policy Committee in the UK continues to downplay persistent and extremely large overshoots to its own inflation target. As a result the market actually backtracked from its expectations of a number of rate hikes in the UK during 2011 such that even with CPI at well over 4% interest rates may only be moved modestly higher, if at all, during the remainder of 2011. This has repercussions for the income target of the Company which is floating rate and which is set at 3 month sterling LIBOR +125bp. We remain confident that we can continue to substantially beat this target given current rate expectations but higher interest rates in the UK would obviously have helped us raise the dividend at a faster rate given the floating rate coupons on the loan portfolio.

Turning to activity on the Company's bond holdings, the clearest theme that we have noted in corporate bond markets has been a deterioration in the quality of primary (or new) issues coming to market. This is a natural feature of a market which has performed strongly as investor discipline begins to deteriorate. As a result we are seeing some highly leveraged deals coming to market and pricing generally becoming less generous in terms of coupons on offer. This has naturally made us much more selective in the companies we do lend to but as yet we have not seen anything to suggest that the market is sowing the seeds for a rapid rise in future default rates. Nevertheless there are signs that the 2011 vintage of high yield bonds will not be as stellar as those of the previous two years and we will continue to watch cautiously for any further signs of this trend accelerating. Despite rejecting many, we have however participated in a number of new issues where we see decent value. Examples include Kabel BW (a German cable TV company), LabCo (a French laboratory testing company), Nalco (chemicals), Anglian Water, Phones4U, Wind Telecoms (a refinancing) and a Dangas hybrid bond.

Secondary markets for bonds have also provided good value opportunities during the period. We have continued to add to the Company's substantial holdings of subordinated financial bonds. Purchases focused on the insurance sector and include: Legal & General, BUPA, Friends' Provident, RBS senior bonds, Co-op Financial and the new Credit Suisse contingent capital bond that was issued in early 2011. In contrast we substantially sold down our French banking exposure leaving only some BNP Paribas bonds by the end of the period. In general however, the bondholder positive re-regulation of the sector continues apace with significant equity capital raisings in the Italian and German banking sectors being the theme over the period.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Conditions in the primary loan market have continued to improve.  Issuance levels have been relatively modest in Europe and all transactions were well supported by the market.  We continue to view the primary market as offering attractive returns with average pricing being in the LIBOR + 4-5% range.  In the main these new transactions continue to be relatively conservatively structured having lower leverage and large equity contributions.  Examples of new issues added to the portfolio include Vue Cinemas (UK cinemas) and Towergate (UK insurance). 

We have seen a steady stream of loans being refinanced either by the High Yield Bond market or new loan issuance as borrowers look to manage forthcoming maturities and diversify funding sources.  As a result loan prices continue to rise with investors enjoying attractive returns with some discounted loans being repaid at par.  Over the period the CS Western European Lev Loan Index produced a 6.8% return, with capital appreciation contributing to a significant element of this return.  Examples of loans which are being repaid via bond issuance include Kion (a German industial), Pages Jaunes (French directories) and Kabel BW (German cable).  The return on the Kion position from this type of activity was particularly noteworthy as it was trading at around 87 at the end of 2010 but post the bond issue was priced at 98. Close to 20% of the outstanding debt was repaid from the proceeds of the bond issue.  

The outlook for credit markets and thus the capital value of the Company remains supported by expectations of below average default rates over the next couple of years. Prospects for dividend growth however remain heavily dependent upon the speed at which Central Banks decide to raise interest rates. It has become clear over recent months that the European Central Bank has a very different reaction function and sensitivity to rising inflation than does the Bank of England.

John Pattullo and Jenna Barnard

Portfolio Managers

10 June 2011

Summary of Portfolio

At 30 April 2011	%
Secured Loans (SL)	56
High Yield Bonds (HY)	21
Investment Grade Bonds (IGB) Equities	19 4
	--------
	100

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

	Top Twenty Investments as at  30 April 2011 Market Value £'000 Type Currency Country Industry ISS  11%, 8.875% and second lien 2,268 HY/SL € Denmark Business services Lloyds Group* 1,954 HY £ UK Diversified Banking Alliance Boots 05/07/2015 1,930 SL £ UK Retail House of Fraser 1,918 SL £ UK Retail Gala (B,C) 1,827 SL £ UK Leisure Xerium 1,753 SL $ USA Paper and Packaging Ineos (B1,C1) 1,736 SL € UK Chemicals, plastics and rubber Bausch & Lomb (B) 1,723 SL € USA Healthcare XSYS Flint (B) 1,717 SL € Germany Chemicals, plastics & rubber RBS Worldpay (B1,Loan A) 1,697 SL £ UK Card Services Nycomed (B,B1,C,C1) 1,672 SL € Denmark Pharmaceuticals Infonxx(B) 1,654 SL € USA Business services Lavena (B1,C1) 1,635 SL € Germany Broadcasting Aviva 1,501 IGB £/€ UK Insurance Towergate (B) 1,474 SL £ UK Insurance Amadeus (B,C) 1,424 SL € Spain Business services Weetabix (B) 1,417 SL £ UK Beverages, food & tobacco Barclays 1,254 IGB £ UK Diversified Banking Vivarte (B,C) 1,236 SL € France Retail Firth Rixon (A) 1,206 SL £ UK Engineering Legal & General 1,182 IGB £ UK Insurance These investments total £34,178,000 or 43.4% of the  portfolio * Lloyds Group is made up of the following stocks : Lloyds 11.04% & 7.869%; Bank of Scotland 7.281%, 7.286% and Capital Funding 8.117%; and HBOS Capital Funding 6.461% and Sterling Finance 7.881%
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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Consolidated Statement of Comprehensive Income

      for the half year ended 30 April 2011

	(Unaudited) Half year ended 30 April 2011			(Unaudited) Half year ended 30 April 2010			(Audited) Year ended 31 October 2010
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Gains on investments designated as fair value through profit or  loss	-	3,230	3,230	-	6,904	6,904	-	6,840	6,840
(Losses)/gains on foreign exchange transactions	-	(1,137)	(1,137)	-	447	447	-	793	793
Investment income	2,535	-	2,535	2,420	-	2,420	4,854	-	4,854
Other income	7 _______	- _______	7 ______	1 _______	- _______	1 ______	4 _______	- _______	4 _______
Total income	2,542 _______	2,093 _______	4,635 ______	2,421 _______	7,351 _______	9,772 ______	4,858 _______	7,633 _______	12,491 _______
Expenses
Management  & performance fee	(148)	(217)	(365)	(141)	(141)	(282)	(281)	(281)	(562)
Other expenses	(216) _______	- _______	(216) ______	(279) _______	- _______	(279) ______	(562) _______	- _______	(562) _______
Profit before finance costs and taxation	2,178	1,876	4,054	2,001	7,210	9,211	4,015	7,352	11,367
Finance costs	(47) _______	(47) _______	(94) ______	(54) _______	(54) _______	(108) ______	(109) _______	(109) _______	(218) _______
Profit before taxation	2,131	1,829	3,960	1,947	7,156	9,103	3,906	7,243	11,149
Taxation	- _______	- _______	- ______	- _______	- _______	- ______	- _______	- _______	- _______
Profit for the period	2,131 _______	1,829 _______	3,960 ______	1,947 _______	7,156 _______	9,103 ______	3,906 _______	7,243 _______	11,149 _______
Earnings per ordinary share (note 3)	2.55p _______	2.18p _______	4.73p ______	2.33p _______	8.55p _______	10.88p ______	4.67p _______	8.66p _______	13.33p _______

The total column of this statement represents the Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS.  The revenue and capital 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.

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

The net profit of the Company for the period was £3,960,000 (half year ended 30 April 2010: £ 9,103,000; year ended 31 October 2010: £11,149,000)

The notes on pages 10 and 11 form an integral part of this condensed interim financial information.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Consolidated Statement of Changes in Equity

for the half year ended 30 April 2011

	(Unaudited) Half year ended 30 April 2011
	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2010	37,677	39,862	(9,171)	1,115	69,483
Total comprehensive income:
Profit for the period	-	-	1,829	2,131	3,960
Transactions with owners recorded directly to equity:
Dividends paid  (note 5)	-	-	-	(1,924)	(1,924)
	----------	----------	----------	----------	----------
At 30 April 2011	37,677	39,862	(7,342)	1,322	71,519
	======	======	======	======	======

	(Unaudited) Half year ended 30 April 2010
	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2009	37,677	39,832	(16,414)	1,141	62,236
Total comprehensive income:
Profit for the period	-	-	7,156	1,947	9,103
Transactions with owners recorded directly to equity:
Dividends paid (note 5)	-	-	-	(2,008)	(2,008)
	----------	----------	----------	----------	----------
At 30 April 2010	37,677	39,832	(9,258)	1,080	69,331
	======	======	======	======	======

	(Audited) Year ended 31 October 2010
	Stated capital	Distributable reserve	Capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2009	37,677	39,832	(16,414)	1,141	62,236
Total comprehensive income:    Profit for the year	-	-	7,243	3,906	11,149
Transactions with owners recorded directly to equity:
Write back of issue costs Dividends paid (note 5)	-	30	-	- (3,932)	30 (3,932)
	----------	----------	----------	----------	----------
At 31 October 2010	37,677	39,862	(9,171)	1,115	69,483
	======	======	======	======	======

The notes on pages 10 and 11 form an integral part of this condensed interim financial information.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Consolidated Balance Sheet

as at 30 April 2011

	(Unaudited) 30 April	(Unaudited) 30 April	(Audited) 31 October
	2011	2010	2010
	£'000	£'000	£'000
Non current assets
Investments designated as fair value through profit or loss	78,711	77,851	76,210
	---------	---------	---------
Current assets
Other receivables	4,686	2,491	4,329
Cash and cash equivalents	1,458	1,995	806
	---------	---------	-----------
	6,144	4,486	5,135
	---------	---------	-----------
Total assets	84,855	82,337	81,345
	---------	---------	-----------
Current liabilities
Other payables	(13,336)	(13,006)	(11,862)
	---------	---------	-----------
Net assets	71,519	69,331	69,483
	======	======	======
Capital and reserves
Stated capital	37,677	37,677	37,677
Distributable reserve	39,862	39,832	39,862
Retained earnings:
Capital reserves	(7,342)	(9,258)	(9,171)
Revenue reserve	1,322	1,080	1,115
	---------	---------	-----------
Total equity	71,519	69,331	69,483
	======	======	======
Net asset value per ordinary share (note 4)	85.5p	82.9p	83.1p
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The notes on pages 10 and 11 form an integral part of this condensed interim financial information.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Consolidated Cash Flow Statement

for the half year ended 30 April 2011

	(Unaudited) Half year ended 30 April 2011	(Unaudited) Half year ended 30 April 2010	(Audited) Year ended 31 October  2010
	£'000	£'000	£'000
Net profit before taxation	3,960	9,103	11,149
Add back interest paid	94	108	218
Less: gains on investments held at fair value through profit or loss	(2,093)	(7,351)	(7,633)
(Increase)/decrease in prepayments and accrued income	(150)	(155)	84
Decrease in other receivables	-	-	1
(Decrease)/increase in other payables	(275)	244	263
Net sales/(purchases) of investments	559	(476)	867
(Increase)/decrease in sales settlement debtor	(623)	852	(699)
(Decrease)/increase in purchase settlement creditor	(1,887)	(848)	3,209
	---------	---------	---------
Net cash (outflow)/inflow from operating activities before finance costs	(415)	1,477	7,459
Interest paid	(94)	(108)	(218)
Taxation on investment income	-	(11)	(28)
	---------	---------	---------
Net cash (outflow)/inflow from operating activities	(509)	1,358	7,213
	---------	---------	---------
Financing activities
Equity dividends paid	(1,924)	(2,008)	(3,932)
Drawdown/(repayment) of loan	3,219	1,013	(3,852)
	---------	---------	---------
Net cash inflow/(outflow) from financing	1,295	(995)	(7,784)
	---------	---------	---------
Increase/(decrease) in cash and cash equivalents	786	363	(571)
Exchange movements	(134)	1,140	885
	---------	---------	---------
Movement in cash and cash equivalents during the period	652	1,503	314
Cash and cash equivalents at the start of the period	806	492	492
	---------	---------	---------
Cash and cash equivalents at the end of the period	1,458	1,995	806
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The notes on pages 10 and 11 form an integral part of this condensed interim financial information.

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Notes to the Consolidated Interim Financial Information:

1.	General Information
	The entity is a closed-ended company, registered as a no par value company under the Companies (Jersey) Law 1991, with its shares listed on the London Stock Exchange.  The Company was incorporated on 5 June 2007.
2.	Accounting Policies: Basis of Preparation
	This condensed interim financial information has been prepared using the same accounting policies as set out in the Company's Financial Statements for the year ended 31 October 2010 and in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting. The consolidated financial information comprises the financial information of Henderson Diversified Income Limited ('the Company') and its subsidiary undertaking Henderson Diversified Income (Luxembourg) S.à.r.l. ('the Group').
	The condensed interim financial information has not been audited or reviewed by the Company's auditors.

3.	Earnings per ordinary share
	The earnings per ordinary share is based on the net profit after taxation of £3,960,000 (half year ended 30 April 2010: £9,103,000; year ended 31 October 2010: 11,149,000) and on 83,640,877 (83,640,877: half year ended 30 April 2010; 83,640,877: year ended 31 October 2010) ordinary shares, being the weighted average number of ordinary shares in issue during each of the periods.
	The earnings per ordinary share detailed above can be further analysed between revenue and capital, as below:

		(Unaudited)	(Unaudited)	(Audited)
		Half year ended 30 April 2011	Half year ended  30 April 2010	Year ended 31 October 2010
		£'000	£'000	£'000
	Net revenue profit	2,131	1,947	3,906
	Net capital profit	1,829	7,156	7,243
		---------	---------	---------
	Net total profit	3,960	9,103	11,149
		=====	=====	=====
	Weighted average number of ordinary shares in issue during the period	83,640,877	83,640,877	83,640,877
		Pence	Pence	Pence
	Revenue earnings per ordinary share	2.55	2.33	4.67
	Capital earnings per ordinary share	2.18	8.55	8.66
		---------	---------	---------
	Total earnings per ordinary share	4.73	10.88	13.33
		=====	=====	=====

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HENDERSON DIVERSIFIED INCOME LIMITED

Unaudited Results for the half year ended 30 April 2011

Notes to the Consolidated Interim Financial Information:

4.	Net Asset Value per ordinary share
	The basic net asset value per ordinary share is based on a net asset value of £71,519,000 (30 April 2010: £69,331,000; 31 October 2010: £69,483,000) and on 83,640,877 (30 April 2010: 83,640,877; 31 October 2010: 83,640,877) ordinary shares, being the number of ordinary shares in issue at each period end.
5.	Dividends paid
	The fourth interim dividend of 1.15p per share in respect of the year ended 31 October 2010 was paid on 31 December 2010. A first interim dividend of 1.15p per share was paid on 31 March 2011.  The second interim dividend of 1.20p per share was declared on 31 May 2011 and will be paid on 30 June 2011 to shareholders on the register on 10 June 2011.  The shares were quoted ex-dividend on 8 June 2011.  The cost of this dividend will be £1,004,000 based on the number of shares in issue at the ex-dividend date.
6.	Going Concern
	The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements. The assets of the Company consist mainly of securities that are readily realisable and, accordingly, the company has adequate financial resources to continue in operational existence for the foreseeable future.
7.	General Information a)   Company Objective To seek to provide shareholders with a high level of income, and capital growth over the longer term. The Company aims to deliver these outcomes by investing selectively across the full spectrum of fixed asset classes including secured loans, high yield corporate bonds and investment grade corporate bonds. The manager is incentivised to provide shareholders with ongoing total returns of at least three month sterling LIBOR plus 1.25%. b)    Company Status Henderson Diversified Income Limited is a Jersey fund with its registered office at Liberté House, 19-23 La Motte Street, St Helier, Jersey and is regulated by the Jersey Financial Services Commission. The Company is a Jersey domiciled closed-end investment company, number 97669, which was incorporated in 2007 and which is listed on the London Stock Exchange. The ISIN number is JE00B1Y1NS49. The London Stock Exchange code is HDIV. c)    Directors, Secretary and Registered Office The Directors of the Company are Paul Manduca (Chairman), Helen Green, Nigel Parker and David Smith. The Secretary is BNP Paribas Securities Services Limited, represented by Angela Davey. The registered office is Liberté House, 19-23 La Motte Street, St.Helier, Jersey, JE2 4SY. - MORE - - 12 - HENDERSON DIVERSIFIED INCOME LIMITED Unaudited Results for the half year ended 30 April 2011
7.	General Information (continued)
	d)    Website Details of the Company's share price and net asset value, together with general information about company, monthly factsheets and data, profiles of the Board, copies of announcements, reports and details of general meetings can be found at www.hendersondiversifiedincome.com
	8. Half Year Report
	The Half Year Report will be available in typed format on the Company's website (www.hendersondiversifiedincome.com) or from the Company's registered office, Liberté House, 19-23 la Motte Street, St Helier, Jersey, JE2 4SY. An abbreviated version, the 'Update', will be circulated to shareholders in late June.

For further information please contact:

John Pattullo and Jenna Barnard, Portfolio Managers, Henderson Global Investors

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]

Angela Davey

Company Secretary, BNP Paribas Securities Services Fund Administration Limited

Telephone: [phone]

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.

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