Final Results

RNS Number : 9385L

Henderson Diversified Income Ltd

20 January 2009

 

 HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the period ended 31 October 2008

20 January 2009

This announcement contains regulated information.

	31 October 2008
	£'000	per ordinary share
Net asset value	50,700	60.6p
Market price	-	68.0p
Revenue earnings	5,248	9.59p
(based on weighted average number of shares)
Dividends (paid and payable)	5,202	9.65p

MANAGEMENT REPORT

Extracts from the Chairman's Statement 

This is the first annual report for your Company and covers the period from incorporation in June 2007 to 31 October 2008. At the time of the launch in July 2007 we could not have predicted how challenging this first period would be, with unprecedented turbulence in the financial markets and major capital issues dominating the banking sector which has led to significant state intervention across the world. Against this background, I am pleased to report that we have exceeded our income target of 1.25% over three-month LIBOR. Whilst capital performance has suffered, we believe this will begin to recover once the markets recognise that the perceived level of loan defaults is unrealistically pessimistic.

Performance

The net asset value per share fell to 60.6p at the period end in part as a consequence of the widening of the bid to offer spreads on our investments, particularly the secured loans, but principally due to falls in global markets. This means that the actual total return was less than the hurdle total return and therefore no performance fee is payable to our Manager.

The revenue return was, however, strong with net revenue after taxation for the period of £5.248 million or 9.59p per share. This has enabled the Company to distribute dividends for the period totalling £5.202 million or 9.65p per share.

Dividends and Dividend Policy

A fifth interim dividend of 2.0p per share for the period to 31 October 2008 was paid on 31 December 2008. This means that in the fifteen month period under review, the Company has paid interim dividends totalling 9.65p per share, which is 0.9p per share over the projected dividend target of 8.75p for this first financial period, and 0.5p per share over the amount I indicated in my interim report for the six months to 30 April 2008.

Your Board has achieved, and remains committed to its objective of distributing income of not less than 1.25% over three-month LIBOR. In that context, it is important to remember that LIBOR does go down as well as up and consequently your dividends amounts will go down as well as up. Since the end of the financial period on 31 October 2008, LIBOR has fallen from 5.84% to marginally over 2%, so the dividends are likely to fall this year.

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MANAGEMENT REPORT (continued)

Extracts from the Chairman's Statement (continued)

Issue of New Shares

In May 2008 the Company was successful in raising an additional £38.4 million of capital and almost doubling its size. This has enabled the fixed costs of running the Company to be spread across a larger asset base and has improved the liquidity of the shares. In addition, it provided an opportunity to increase the proportion of assets held in fixed rate investment grade bonds and to reduce the gearing for a while.

Gearing

Your Board has in place facilities to allow it to borrow up to £15.5 million for periods of one, three or six months. £7.7 million was drawn down at the period end and this level of gearing has been broadly maintained throughout the period. Your Board keeps the level of gearing under constant review but has no current plans to increase it any further.

Annual General Meeting

The Annual General Meeting will be held at 11.00am on 24 February 2009 in Jersey. In addition, shareholders are welcome to attend an open presentation to be held at Henderson's new offices at 201, Bishopsgate, London EC2M 3AE at 3.00pm on 2 March 2009, at which the Portfolio Managers will make a presentation and they and I will be happy to answer questions. If you would like to attend the London event then please return the yellow card which is enclosed with this report.

Outlook

We are currently living through the worst crises in the credit and financial markets since 1929 and it is likely to have a way to go yet. That said markets such as these provide investors with opportunities and there can be no doubt that attractive returns can be achieved for those investors prepared to be patient. Given the fall in LIBOR since the period end and our belief that it and interest rates will fall yet further, we shall continue our efforts to lock in yield by switching from floating rate assets to fixed rate assets. The fall in LIBOR will reduce our income flow as our income target is directly linked to it. Consequently, shareholders should be prepared for a fall in dividends next year to reflect that reduction. On a positive note, I am hopeful that we shall see increased stability in financial markets over the coming year and that will help capital values to appreciate.

Paul Manduca

Chairman

19 January 2009

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MANAGEMENT REPORT (continued)

Principal Risks and Uncertainties

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

• Investment Strategy

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

• Market

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

• Accounting, legal and regulatory

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

• Corporate governance and shareholder relations

Details of the Company's compliance with corporate governance best practice, including information on shareholder relations, are set out in the Corporate Governance Statement in the Annual Report.

• Operational

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

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liability risk and credit risk. Further details are disclosed in the notes to the Annual Report. Additional disclosures are provided this year for the first time in accordance with IFRS 7: Financial Instruments: Disclosures.

Related Party Transactions 

The contracts with Henderson and BNP Paribas are the only related party transactions currently in place. There have been no material transactions with these related parties which have affected the financial position or performance of the Company in the financial period.

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MANAGEMENT REPORT (Continued)

Statement under Disclosure and Transparency Rules

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

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

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

For and on behalf of the Board

Helen Green

Director

19 January 2009

Twenty Largest Holdings 

These twenty investments total £23.364 million representing 40.06 % by value of the total investments. 

Name of Investment	Category	Value  £'000
Almatis	Secured Loans	1,560
LWB	Secured Loans	1,523
Imperial Tobacco Finance	Investment Grade Bonds	1,492
Infonxx	Secured Loans	1,390
Bausch & Lomb	Secured Loans	1,327
AZ Electronics	Secured Loans	1,226
Iglo Birdseye	Secured Loans	1,203
Kabel BW	Secured Loans	1,163
Weetabix	Secured Loans	1,118
Orangina (Cadburys)	Secured Loans	1,106
Doncaster	Secured Loans	1,065
British Vita	Secured Loans	1,055
Mölnylcke	Secured Loans	1,052
BNP Paribas	Investment Grade Securities	1,037
ISS	Secured Loans	1,030
HBOS	Investment Grade Securities	1,029
Itron	Secured Loans	1,016
Lloyds TSB	Investment Grade Securities	1,002
Barclays	Investment Grade Securities	983
HCA	High Yield Bonds	987

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Consolidated Income Statement 

for the period 5 June 2007 to 31 October 2008

				Period 5 June 2007
				to 31 October 2008
				Revenue  return	Capital  return	Total
				£'000	£'000	£'000
Losses on investments held at fair value through profit or loss				-	(22,083)	(22,083)
Losses on foreign exchange transactions				-	(6,091)	(6,091)
Investment income (note 3)				5,027	-	5,027
Other income (note  3)				1,252	-	1,252
				--------	---------	---------
Total income				6,279	(28,174)	(21,895)
				--------	---------	---------
Expenses
Management fee				(236)	(236)	(472)
Other expenses				(652)	-	(652)
				--------	---------	---------
Profit/(loss) before finance costs and taxation				5,391	(28,410)	(23,019)
Finance costs				(117)	(117)	(234)
				--------	---------	---------
Profit/(loss) before taxation				5,274	(28,527)	(23,253)
Taxation				(26)	-	(26)
				--------	---------	---------
Profit/(loss) for the period				5,248	(28,527)	(23,279)
				=====	= =====	= =====
Earnings/ (loss) per ordinary share  (note 4)				9.59p	(52.15)p	(42.56)p
				=====	= =====	= =====

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

All items in the above statement derive from continuing operations.

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

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Consolidated and Parent Company Statement of Changes in Equity

for the period 5 June 2007 to 31 October 2008

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

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Consolidated and Parent Company Balance Sheet

at 31 October 2008

	Consolidated 2008 £'000	Company 2008 £'000
Non current assets
Investments held at fair value through profit or loss	58,305	18,257
	----------	----------
Current assets
Other receivables	4,097	40,701
Cash and cash equivalents	947	546
	----------	----------
	5,044	41,247
	----------	----------
Total assets	63,349	59,504
	======	======
Current liabilities
Other payables	(12,649)	(8,804)
	----------	----------
Net assets	50,700	50,700
	======	======
Equity attributable to equity shareholders
Stated capital	37,677	37,677
Distributable reserve	39,832	39,832
Retained earnings:
Capital reserves	(28,527)	(24,792)
Revenue reserve	1,718	(2,017)
	----------	----------
Total equity	50,700	50,700
	======	======
Net asset value per ordinary share (note 6)	60.6p	60.6p
	======	======

The financial statements were approved by the Board of Directors and authorised for issue on 19 January 2009 and were signed on its behalf by:

Helen Foster Green                                         Nigel Robert Parker

Director                                                             Director

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Consolidated and Parent Company Cash Flow Statement

for the period 5 June 2007 to 31 October 2008

			Consolidated Period 5 June 2007 to 31 October 2008 £'000	Company  Period 5 June 2007 to 31 October 2008 £'000
Net loss before tax			(23,253)	(23,279)
Add back interest paid			234	228
Add: losses on investments held at fair value through profit or loss			28,174	24,442
Less: exchange movements on forward exchange contracts taken to revenue			(435)	(127)
Increase in prepayments and accrued income			(1,092)	(607)
Increase in other receivables			(144)	(144)
Increase in other payables			455	383
Net purchases of investments			(80,699)	(24,930)
Increase in sales settlement debtor			(2,285)	-
Increase in purchase settlement creditor			2,665	12
			----------	----------
Net cash outflow from operating activities before finance costs			(76,380)	(24,022)
Interest paid			(234)	(228)
Taxation on investment income			(50)	-
			----------	----------
Net cash outflow from operating activities			(76,664)	(24,250)
			======	======
Financing activities
Equity dividends paid			(3,530)	(3,530)
Issue of ordinary shares			78,917	78,917
Issue expenses paid			(1,408)	(1,408)
Drawdown of loan			7,810	7,810
Amounts paid to subsidiary undertaking			-	(55,813)
			----------	----------
Net cash inflow from financing			81,789	25,976
			======	======
Increase in cash and cash equivalents			5,125	1,726
Exchange movements			(4,178)	(1,180)
			----------	----------
Cash and cash equivalents at the period end			947	546
			======	======

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Notes:

1.	Accounting Policies
	Basis of preparation
	This consolidated financial information for the period ended 31 October 2008 has been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union. The principal accounting policies adopted are as set out in the company's first interim report, which was issued in January 2008, in addition the accounting policy for Derivative Financial Instruments is set out below. Where consistent with IFRS the financial statements have also been prepared in accordance with the guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('AIC') as revised in December 2005. The Company has adopted the following new and revised accounting standards during the period: International Accounting Standard No. 1 (Revised): Presentation of financial statements International Financial Reporting Standard No. 7, Financial Instruments: Disclosures.
	k     Derivative financial instruments The Group's activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Company may enter into include forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Company's investing activities) and interest rate futures and swaps (the purpose of which is to take a position in relation to government bond yields).The Company may also use credit derivatives, for example buying or selling credit default swaps in order to manage credit risk. The use of financial derivatives is governed by the Group's policies as approved by the Board, which has set written principles for the use of financial derivatives. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Consolidated Income Statement as they arise. If capital in nature, the associated change in value is presented as a capital item in the Consolidated Income Statement.
2.	Investment Income
						Period 5 June 2007  to 31 October 2008
						£'000
	Income from investments:
	Bond and loan interest					4,949
	Premiums on credit default swaps					78
						---------
						5,027
						---------
3.	Other income
						Period 5 June 2007 to 31 October 2008
						£'000
	Bank and other interest					817
	Income from forward exchange contracts					435
						--------
						1,252
						======
4.	Earnings/(loss) per ordinary share
	The loss per ordinary share figure is based on the net loss for the period after taxation of £23.279 million and on 54,697,104 being the weighted average number of ordinary shares in issue during the period.
	The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below.
	The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.
						Period 5 June 2007 to 31 October 2008
						£'000
	Net revenue gain					5,248
	Net capital loss					(28,527)
						---------
	Net total loss					(23,279)
						======
	Weighted average number of ordinary shares in issue during the period					54,697,104
	Revenue earnings per ordinary share					9.59 p
	Capital loss per ordinary share					(52.15)p
						---------
	Total loss per ordinary share					(42.56)p
						======
5.	Dividends
						Period 5 June 2007 to 31 October 2008
						£'000
	The following dividends were paid in respect of the period  5 June 2007 to 31 October 2008
	First interim paid 2007 - 1.50p					608
	Second interim paid 2008 - 1.75p					709
	Third interim paid 2008 - 3.40p					1,377
	Fourth interim paid 2008 - 1.00p					836
						---------
						3,530
						======
5.	Dividends (continued)
	The fifth interim dividend has not been included as a liability in these financial statements as it was announced and paid after 31 October 2008.
	The table below sets out the total dividends paid and to be paid in respect of the financial period. The revenue available for distribution by way of dividend for the period is £5.248 million.
					Period 5 June 2007 to 31 October 2008
					£'000
	First interim dividend - 1.50p				608
	Second interim dividend - 1.75p				709
	Third interim dividend - 3.40p				1,377
	Fourth interim dividend - 1.00p				836
	Fifth interim dividend - 2.00p				1,672
					---------
					5,202
					======
6.	Net asset value per ordinary share
	The net asset value per ordinary share is based on the net asset value attributable to ordinary shareholders at the period end of £50.700 million and on 83,640,877 ordinary shares, being the number of ordinary shares in issue at the period end.
7.	Stated capital
		Stated Capital				Number of Fully paid
		£'000				Shares issued
	18 July 2007: Issue of shares	40,500				40,500,000
	Share issue costs	(668)				-
	Transfer to distributable reserves	(39,832)				-
	23 May 2008: Issue of Shares	38,417				43,140,877
	Share issue costs	(740)				-
		-------------				-------------
		37,677				83,640,877
		=========				=========
	On 18 July 2007 the company issued 40,500,000 Ordinary shares of no par value for consideration value of £40.5 million, incurring £0.668 million of issue expenses. On 5 October 2007, in accordance with Jersey Company Law, the Company successfully applied for a reduction in the stated capital account and the creation of a distributable reserve. On 23 May 2008 the Company issued a further 43,140,877 Ordinary shares in the Company for a consideration value of £38.417 million incurring £0.74 million of issue expenses.
8.	2008 Financial information
	The figures and financial information for the period ended 31 October 2008 are compiled from an extract of the latest accounts and do not constitute statutory accounts. These accounts include the report of the auditors which was unqualified.
9.	Annual Report
	The Annual Report and Accounts will be posted to shareholders on 23 January 2009 and copies will be available on the Company's website (www.itshenderson.com/hdiv) or in hard copy format from the Company's registered office, BNP House, Anley Street, St Helier, Jersey, JE2 3QE
	For further information please contact:
	John Pattullo and Jenna Barnard
	Portfolio Manager, Henderson Diversified Income Limited
	Telephone: [phone]
	James de Sausmarez
	Head of Investment Trusts, Henderson Global Investors
	Telephone: [phone]
	Sarah Gibbons-Cook
	Investor Relations and PR Manager, Henderson Global Investors
	Telephone: [phone]
	Jeremy Hamon
	BNP Paribas Fund Services Jersey Limited, Company Secretary
	Telephone: [phone]

 

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