Half Yearly Report

RNS Number : 2006Q

Henderson High Income Trust PLC

29 July 2010

 



29 July 2010

HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

Interim Management Report

CHAIRMAN'S STATEMENT

Performance

It has been a very eventful and challenging start to the year in many different ways, but particularly for stock markets, which have remained volatile, with the UK market ending the half year significantly lower than it began, although still higher than a year ago. The UK market has had to contend with mixed economic news both at home and abroad: a hung parliament and the emergence of a coalition government intent on dealing with the UK's huge public debt levels, worries over a default by Greece and wider European contagion and encouraging UK company results sadly offset by the catastrophic collapse in the BP share price following its disaster in the Gulf of Mexico.  Our Manager will comment on these and their impact on our portfolio in his report, but as I write this statement I am struck by just how fast this year appears to have gone and just how much has happened. This does not make it easy for our Manager, or indeed others doing similar jobs, so it is of some comfort to be able to report that, despite the falls in our NAV total return of 1.4% and share price total return of 0.6%, we are ahead of our benchmark index, which fell 3.2% over the period, and the share price has moved to a small premium.

Dividends

We are declaring a second unchanged interim dividend of 2.075p per share to be paid on 29 October 2010. This is in line with our previously stated aim of maintaining the current level of distributions and utilising our revenue reserve as necessary, although the suspension of the BP dividend will prolong the dependence on our revenue reserve.  The use of reserves will continue to be kept under review as the year unfurls and in light of our actual experience and the investment conditions at the time.

Related party transactions

Details of related party transactions are contained in the annual report. There have been no material transactions with our related parties affecting the financial position or performance of the Company during the six months to 30 June 2010.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

Interim Management Report (continued)

CHAIRMAN'S STATEMENT (continued)

Outlook

As I write this statement the recent headlines have been flashing warnings of a double dip recession and there is much speculation over the impact of the forthcoming spending review by the government. Nevertheless, there are pockets of more hopeful news such as the strength of much of the corporate sector and the increasing levels of savings.  Ironically, both of these are also cited by some as reasons for fearing a double dip recession, as, in their opinion, the accumulated cash should be being spent, rather than saved. Whilst this all suggests that we will continue to see volatile markets, the relatively undemanding valuations that most shares are trading on, combined with the very low level of interest rates, suggests that, barring unforeseen events, the market should find support at the lower levels. Alert to the dangers, we must also be careful not to allow them to obscure our view of the opportunities. Mindful of this, the Board will continue to support our Manager as he steers our portfolio through these difficult times, and we take comfort from his experience and successful stewardship of our assets over the last thirteen, often turbulent, years.

Hugh Twiss

Chairman

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

Interim Management Report (continued)

INVESTMENT MANAGER'S REVIEW

Markets and performance

Although the UK stock market ended the first six months of this year down around 8%, much of this fall occurred in the last month. During the year there have been encouraging signs that corporate results have continued their recovery. In the main, companies have been paying down debt, rebuilding margins and keeping a tight rein on costs. However, for the good of the wider economy, we now need company executives to feel more confident about the outlook and begin to increase capital investment and start hiring more employees. So far, there is little sign of these actions occurring and the continued worries about a disintegrating euro and a return to declining growth are stopping a more bullish attitude.

Overall, markets have coped well to withstand some fairly difficult events, starting with the promised bail-out of Greece by other EU member states. The inevitable hunt started for the next country likely to get into trouble, with other Mediterranean countries, Ireland and even the UK mentioned. The problems in Greece hurt prospects for the euro and are a wake-up call for heavily indebted nations. Despite the high budget deficit in the UK, total debt remains manageable and the depreciation of sterling over the last twelve months, combined with the relatively long maturity of outstanding UK gilts, will allow our economy to be more flexible in dealing with the financial legacy of the recent downturn.

The result of the election in the UK took many by surprise but the outcome so far is encouraging, in terms of the policies addressing the budget deficit and more independent economic forecasting. The difficult stage comes next in terms of prioritising spending cuts while not jeopardising growth. The export side of the economy is showing very positive signs of recovery, and inward investment has picked up but interest rates will need to remain low to ensure recovery and stability.

Equity prices rallied through the results season, responding to further upgrades to profit expectations, improving credit markets and even an occasional uplift in revenues. The bond markets have found further strength from investors chasing income, and corporate bond yields have fallen, allowing larger companies to refinance debt at favourable rates. The price of banks' debt securities responded well to offers to redeem certain tranches of debt; our assets in this area have continued to experience a healthy recovery in value. Later in the period, the focus returned to questions about the uneven pace of recovery. This did not surprise us, as we never expected the earlier speed of recovery to last while the banking sector was short of capital to fund private sector growth.

The final piece of unwelcome news was the explosion and subsequent failure to cap a leak from the BP well in the Gulf of Mexico. As BP is both the largest stock by capitalisation and the biggest dividend payer in the UK market, the financial impact from the leak has had a pronounced effect on the UK stock market and funds such as us that rely on its dividend. The suspension of the BP dividend is considerable and cancels out much of the overall market growth this year from other companies.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

Interim Management Report (continued)

INVESTMENT MANAGER'S REPORT (continued)

Prospects for dividend growth elsewhere have steadily improved this year along with profits, and many of our investments have raised dividends or returned to payment (such as J.D. Wetherspoon).  BP has indicated that, by the middle of next year, it intends to review whether to resume dividend payments and we intend to bridge the gap by a continued focus on investment into companies with higher payments, combined with good prospects for growth. Our BP position had been cut back in early May before the majority of the fall in value and we continue to evaluate progress of its cleanup process and the likely costs.

Our preference for companies with defensive and reliable earnings has begun to gain traction and over the period our equity portfolio outperformed the FTSE All-Share Index by 3.9%. The underweight position in the oil and mining sectors aided equity performance, combined with a good recovery in the price of utilities, tobacco and non-life insurance holdings. The broadening of the market, in terms of performance by sector, bodes well for continued improvement, provided some modicum of economic growth can be sustained in the future. The bond portfolio did not suffer the same setback as the equity markets, producing a total return of 6.5%, just ahead of our gilt index.

Transactions

The gearing over recent years has largely been deployed into fixed interest holdings, taking advantage of the difference between cheap borrowing costs and the higher yield from bonds. Over the last six months we have gradually transferred a portion of the bond holdings into higher yielding equities, particularly larger unloved defensive companies such as Scottish & Southern, AstraZeneca and Roche. Overall, the gearing has risen because we feel that equities have weathered considerable selling pressure and, as the profit cycle very gently recovers, that expectations and valuations are low: a combination that should reward patient investors.

We have maintained an exposure to major defensive holdings in Europe, such as KPN and CRH, while adding new holdings such as Terna, the Italian electricity transmission business. Cash has been raised over the period from selling BP shares in early May and the wind-up of the holding in Prodesse: both top 10 holdings a year ago. Further sales included GKN and British Airways, both cyclical companies that recovered well from lower levels and offered limited upside. Also we have reduced holdings in the insurance sector, such as Prudential, Catlin and Zurich Financial. This sector has been one of our favoured areas but generally has struggled to deliver performance, with concerns about new solvency tests.

Utilities remain a preferred area of the market, where dividend yields are high and forecast to grow in line with inflation. The water regulatory review has now given more certainty over future returns and additional capital projects should increase the regulatory asset base. We have added to positions in United Utilities and Severn Trent over the period.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

Interim Management Report (continued)

INVESTMENT MANAGER'S REPORT (continued)

Outlook

Economies that are in the early stage of recovery tend to exhibit periods of rapid improvement, followed by slowing economic growth prompting questions about sustainability. We suspect that this recovery will be difficult, given it is not helped by a banking system so obviously short of capital and afraid to lend. With the money supply showing little sign of recovering, there may well be another phase of targeted quantitative easing in the short term and there appears to be little risk of interest rates rising. Limited new investment capital should make existing franchises increasingly valuable and it is no coincidence that takeovers have picked up, also taking advantage of the low value of sterling. Equities can prosper in a low growth environment but the businesses need to be well-invested and high quality.

Early in my investment career, I was taught that investing in an asset class at a time when it was unloved and under-owned produced the best returns. Equities today exhibit both these characteristics and unusually the lowest valuations are being placed on the well-established companies with the most reliable earnings profiles. Investing in these times feels uncertain but good dividend yields currently underpin a patient investor and will attract increasing attention as times goes on.

Alex Crooke

Portfolio Manager

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties associated with the Company's business can be divided into the following main areas:

• Investment activity and performance risk

• Financial risk

• Regulatory risk

• Operational risk

Information on these risks and how they are managed is given in the annual report. 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.

DIRECTORS' RESPONSIBILITY STATEMENT

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

a)       the condensed 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 first six months 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).

For and on behalf of the Board

Hugh Twiss

Chairman

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

INCOME STATEMENT

for the half year ended 30 June 2010

	(Unaudited) Half year ended  30 June 2010			(Unaudited) Half year ended  30 June 2009			(Audited) Year ended 31 December 2009
	Revenue return	Capital return	Total	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(5,574)	(5,574)	-	(4,664)	(4,664)	-	13,382	13,382
Income from investments held at fair value through profit or loss	4,116	-	4,116	4,204	-	4,204	7,355	-	7,355
Other interest receivable and similar income	15	-	15	217	-	217	372	-	372
	----------	----------	----------	----------	----------	----------	----------	----------	----------
Gross revenue and capital (losses)/gains	4,131	(5,574)	(1,443)	4,421	(4,664)	(243)	7,727	13,382	21,109
Management fees	(111)	(166)	(277)	(135)	(203)	(338)	(270)	(405)	(675)
Write-back of prior years' VAT	-	-	-	62	83	145	62	83	145
Other administrative expenses	(153)	-	(153)	(157)	-	(157)	(275)	-	(275)
	----------	----------	----------	----------	----------	----------	----------	----------	----------
Net return/(loss) before finance costs and taxation	3,867	(5,740)	(1,873)	4,191	(4,784)	(593)	7,244	13,060	20,304
Finance costs	(78)	(233)	(311)	(52)	(157)	(209)	(87)	(262)	(349)
	----------	----------	----------	----------	----------	----------	----------	----------	----------
Net return/(loss) on ordinary activities before taxation	3,789	(5,973)	(2,184)	4,139	(4,941)	(802)	7,157	12,798	19,955
Taxation on net return on ordinary activities	(196)	128	(68)	(323)	315	(8)	(732)	718	(14)
	----------	----------	----------	----------	----------	----------	----------	----------	----------
Net return/(loss) on ordinary activities after taxation	3,593	(5,845)	(2,252)	3,816	(4,626)	(810)	6,425	13,516	19,941
	======	======	======	======	======	======	======	======	======
Return/(loss) per share (note 2)	4.20p	(6.83)p	(2.63)p	4.46p	(5.41)p	(0.95)p	7.51p	15.81p	23.32p
	======	======	======	======	======	======	======	======	======

The columns of this statement headed "Total" represent the Company's Income Statement, prepared in accordance with UK GAAP. The revenue and capital columns are supplementary to this and are published under guidance from the Association of Investment Companies.                          

The Company has no recognised gains or losses other than those disclosed in the Income Statement and Reconciliation of Movements in Shareholders' Funds.

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.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the half year ended 30 June 2010

Half year ended 30 June 2010 (unaudited)	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 31 December 2009	4,291	56,877	26,302	9,281	4,012	100,763
Net (loss)/return on ordinary activities after taxation	-	-	-	(5,845)	3,593	(2,252)
Third interim dividend (2.075p per share) for the year ended 31 December 2009 paid 29 January 2010	-	-	-	-	(1,776)	(1,776)
Fourth interim dividend (2.075p per share) for the year ended 31 December 2009 paid 30 April 2010	-	-	-	-	(1,776)	(1,776)
Refund of unclaimed dividends	-	-	-	-	30	30
	-------	-------	-------	-------	-------	---------
At 30 June 2010	4,291	56,877	26,302	3,436	4,083	94,989
	=====	=====	=====	=====	=====	======
Half year ended 30 June 2009 (unaudited)
At 31 December 2008	4,291	56,877	26,302	(4,387)	4,681	87,764
Net (loss)/return on ordinary activities after taxation	-	-	-	(4,626)	3,816	(810)
Third interim dividend (2.075p per share) for the year ended 31 December 2008 paid 30 January 2009	-	-	-	-	(1,773)	(1,773)
Fourth interim dividend (2.075p per share) for the year ended 31 December 2008 paid 30 April 2009	-	-	-	-	(1,773)	(1,773)
Refund of unclaimed dividends	-	-	-	-	4	4
	-------	--------	-------	-------	-------	---------
At 30 June 2009	4,291	56,877	26,302	(9,013)	4,955	83,412
	====	=====	=====	=====	=====	======
Year ended 31 December 2009 (audited)
At 31 December 2008	4,291	56,877	26,302	(4,387)	4,681	87,764
Net return on ordinary activities after taxation	-	-	-	13,516	6,425	19,941
Sale of shares held in treasury	-	-	-	152	-	152
Third interim dividend (2.075p per share) for the year ended 31 December 2008 paid 30 January 2009	-	-	-	-	(1,773)	(1,773)
Fourth interim dividend (2.075p per share) for the year ended 31 December 2008 paid 30 April 2009	-	-	-	-	(1,773)	(1,773)
First interim dividend (2.075p per share) for year ended 31 December 2009 paid 31 July 2009	-	-	-	-	(1,776)	(1,776)
Second interim dividend (2.075p per share) for  the year ended 31 December 2009 paid 30 October 2009	-	-	-	-	(1,776)	(1,776)
Refund of unclaimed dividends	-	-	-	-	4	4
	-------	-------	-------	-------	-------	---------
At 31 December 2009	4,291	56,877	26,302	9,281	4,012	100,763
	=====	=====	=====	=====	=====	======

The accompanying notes are an integral part of the condensed financial statements.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

BALANCE SHEET

as at 30 June 2010

	(Unaudited) 30 June 2010 £'000	(Unaudited) 30 June 2009 £'000	(Audited) 31 December 2009 £'000
Investments held at fair value through profit or loss	121,147	101,893	122,881
	----------	----------	-----------
Current assets
Debtors	1,775	1,745	1,509
Cash at bank	5,018	1,073	1,345
	----------	----------	-----------
	6,793	2,818	2,854
Creditors: amounts falling due within one year	(32,951)	(21,299)	(24,972)
	----------	----------	-----------
Net current liabilities	(26,158)	(18,481)	(22,118)
	----------	----------	-----------
Total net assets	94,989	83,412	100,763
	======	======	======
Capital and reserves
Called up share capital	4,291	4,291	4,291
Share premium account	56,877	56,877	56,877
Capital redemption reserve	26,302	26,302	26,302
Other capital reserves	3,436	(9,013)	9,281
Revenue reserve	4,083	4,955	4,012
	----------	----------	----------
Equity shareholders' funds	94,989	83,412	100,763
	======	======	======
Net asset value per share (note 3)	110.99p	97.46p	117.73p
	======	======	======

The accompanying notes are an integral part of the condensed financial statements.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

CASH FLOW STATEMENT

for the half year ended 30 June 2010

	(Unaudited) Half year ended 30 June 2010 £'000	(Unaudited) Half year ended 30 June 2009 £'000	(Audited) Year ended 31 December 2009 £'000
Net cash inflow from operating activities	3,677	5,060	8,381
Net cash outflow from servicing of finance	(316)	(75)	(371)
Net tax recovered	-	4	12
Net cash outflow from financial investment	(4,637)	(660)	(385)
Equity dividends paid	(3,552)	(3,546)	(7,098)
Refund of unclaimed dividends	30	4	4
	---------	---------	---------
Net cash (outflow)/inflow before financing	(4,798)	787	543
Net cash inflow/(outflow) from financing	8,636	(2,920)	(2,404)
	----------	----------	---------
Increase/(decrease) in cash	3,838	(2,133)	(1,861)
	======	======	======
Notes to the Cash Flow Statement
Reconciliation of operating revenue to net cash inflow from operating activities
Net (loss)/gain before finance costs and taxation	(1,873)	(593)	20,304
Add/(less) capital loss/(gain) before finance costs and taxation	5,740	4,784	(13,060)
	--------	--------	---------
Net return before finance costs and taxation	3,867	4,191	7,244
Decrease in revenue debtors and accrued income	171	1,161	1,563
Decrease in creditors	(82)	(81)	(58)
Tax deducted at source	(113)	(8)	(46)
Management and administrative fees charged to capital	(166)	(203)	(322)
	--------	--------	---------
Net cash inflow from operating activities	3,677	5,060	8,381
	=====	=====	=====
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash	3,838	(2,133)	(1,861)
Net (drawdown)/repayment of loans	(8,636)	3,072	2,556
Exchange movements	(165)	8	8
	---------	---------	----------
Movement in net debt in the period	(4,963)	947	703
Net debt at the beginning of the period	(20,184)	(20,887)	(20,887)
	----------	----------	----------
Net debt at the end of the period	(25,147)	(19,940)	(20,184)
	======	======	======
Represented by:
Cash at bank and short-term deposits	5,018	1,073	1,345
Debt falling due within one year	(30,165)	(21,013)	(21,529)
	-----------	-----------	-----------
Total	(25,147)	(19,940)	(20,184)
	======	======	======

The accompanying notes are an integral part of the condensed financial statements.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

NOTES:

1.	Accounting policies - Basis of accounting
	The condensed set of financial statements has been prepared using the same accounting policies as are set out in the Company's Report and Financial Statements for the year ended 31 December 2009.  The condensed set of financial statements has been neither audited or reviewed by the Company's auditors.
2.	(Loss)/Return per share
		(Unaudited) Half year ended 30 June 2010 £'000		(Unaudited) Half year ended 30 June 2009 £'000		(Audited) Year ended 31 December 2009 £'000
	The (loss)/return  per ordinary share is based on  the following figures:
	Revenue return	3,593		3,816		6,425
	Capital (loss)/return	(5,845)		(4,626)		13,516
		----------		----------		----------
	Total	(2,252)		(810)		19,941
		======		======		======
	Weighted average number of ordinary shares in issue for each period	85,585,744		85,453,148		85,519,991
	Revenue return per ordinary share	4.20p		4.46p		7.51p
	Capital (loss)/return per ordinary share	(6.83)p		(5.41)p		15.81p
		----------		----------		----------
	Total	(2.63)p		(0.95)p		23.32p
		======		======		======
	The Company does not have any dilutive securities.
3.	Net asset value per share
	The net asset value per share is based on the net assets attributable to the shares of £94,989,000 (30 June 2009: £83,412,000; 31 December 2009: £100,763,000) and on the 85,585,744 shares in issue (excluding shares held in treasury) (30 June 2009: 85,585,744; 31 December 2009: 85,585,744).
4.	Share capital
	There was no change to the share capital during the half year ended 30 June 2010 (half year ended 30 June 2009 and year ended 31 December 2009: 150,000 ordinary shares were sold out of treasury at a price of 101.5p per share).  At 30 June 2010 there were 250,000 shares still being held in treasury.
5.	Dividends
	Interim dividends are recognised in the period in which they are paid.
	In respect of the year ended 31 December 2009, a third interim dividend of 2.075p per share (2008: 2.075p) was paid on 29 January 2010 to shareholders on the register at close of business on 8 January 2010. A fourth interim dividend of 2.075p per share (2008: 2.075p) was paid on 30 April 2010 to shareholders on the register at close of business on 9 April 2010.  These two dividends are reflected in these half year accounts.

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HENDERSON HIGH INCOME TRUST PLC

Unaudited Results for the Half Year ended 30 June 2010

NOTES (continued)

	Dividends (continued)
	In respect of the year ending 31 December 2010, a first interim dividend of 2.075p per share (2009: 2.075p) will be paid on 30 July 2010 to shareholders on the register on 2 July 2010.  The aggregate cost of this dividend will be £1,776,000. A second interim dividend of 2.075p per share (2009: 2.075p) will be paid on 29 October 2010 to shareholders on the register on 24 September 2010.  The shares will go ex-dividend on 22 September 2010.   In accordance with FRS 21, the first and second interim dividends have not been accrued for in the half year accounts as they are paid after the period end.
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.	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 figures and financial information for the year ended 31 December 2009 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.

8.	Half year report
	A report containing the Company's results for the half year ended 30 June 2010 will be posted to shareholders in August 2010 and will be available on our website (www.hendersonhighincome.com) from 20 August 2010.  Copies can also be requested thereafter from the Secretary at the Registered Office, 201 Bishopsgate, London EC2M 3AE.

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For further information please contact:

Alex Crooke Portfolio Manager                     Henderson High Income Trust plc Telephone: [phone]

Sarah Gibbons-Cook Investor Relations & PR Manager Henderson Global Investors Telephone: [phone]

 

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