Final Results

RNS Number : 2116A

Henderson Diversified Income Ltd

27 January 2011

 

27 January 2011

This announcement contains regulated information.

HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

	31 October 2010		31 October 2009
	£'000	per share	£'000	per share
Net asset value	69,483	83.1p	62,236	74.4p
Market price	-	79.3p	-	69.5p
	Year ended 31 October 2010		Year ended 31 October 2009
	£'000	per share	£'000	per share
Revenue earnings	3,906	4.67p	4,525	5.41p
(based on weighted average number of shares)
Dividends (paid and payable)	3,848	4.60p	4,476	5.35p

MANAGEMENT REPORT

Extracts from the Chairman's Statement

I am pleased to report that your Company's net asset value total return for the year was 16.9% and the share price total return was 19.4% reflecting a narrowing of the discount to 4.6% at the year end. Concern over sovereign debt in a number of countries, notably in the Eurozone, and the delay in introducing bailout packages has caused credit markets to be remarkably volatile. We rotated assets to rebuild par value from investment grade corporate bonds to high yield bonds and loans. In June, we took advantage of an unusual anomaly in the market, by investing in a small parcel of ordinary shares of large blue chip companies which were yielding more than their equivalent bonds. This has produced positive income and capital returns for us.

Performance

Your Company's net asset value increased from 74.4p to 83.1p over the year, having stood at 82.9p at 30 April 2010, reflecting a more testing second half to the year. The share price increased over the year from 69.5p to 79.3p. Group net revenue for the year fell from £4.525 million to £3.906 million indicating the lower level of LIBOR compared to the previous year.

Dividends and Dividend Policy

LIBOR rates have remained low throughout the year, rising only modestly from 0.59% in October 2009 to 0.74% a year later. Our income target remains at 1.25% over sterling three month LIBOR, equating to 1.99% at 31 October 2010. For the year under review four dividends each of 1.15p per share have been paid, making a total of 4.60p, which equates to a yield of 5.8% at the year end share price of 79.3p; comfortably beating the income target.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

MANAGEMENT REPORT (continued)

Extracts from the Chairman's Statement (continued)

Gearing

At the year end borrowings were £6.2 million, down from £10.1 million at the previous year end meaning your Company was 8.9% geared compared to 16.2% at the prior year end. In addition, your portfolio was geared by a further 6.5% due to exposure to credit derivatives. Your Board reviews regularly the level of gearing.

Outlook

The outlook for markets remains uncertain but there is room for optimism. The mid cycle slow down is consistent with normal historical recovery cycles in equity markets and there are no indicators for a double dip in the economy. The default rate on the high yield bond market stands at a low and the outlook for loans is positive. Confidence is returning to the market with margins in new deals currently at around LIBOR plus 450/500bps. We remain convinced that LIBOR has bottomed and your Company is well placed to grow its dividend as and when LIBOR rises.

Annual General Meeting

Our fourth Annual General Meeting will be held on Tuesday 8 March 2011 at 11.00am at our registered office, Liberté House, 19-23 La Motte Street, St Helier, Jersey, JE2 4SY. As in previous years an open presentation to shareholders, including the opportunity to meet the Portfolio Managers, will be held on Thursday 10 March 2011 at 2.30pm at Henderson's offices in London.

Paul Manduca

Chairman

27 January 2011

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

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 and Strategy

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

• Market

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

• Accounting, legal and regulatory

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

• Operational

Disruption to, or the failure of, the Manager's or the Administrator's accounting, dealing, or payment systems or the Custodian's records could prevent the accurate reporting or monitoring of the Company's financial position. The Administrator, BNP Paribas Securities Services Fund Administration Limited sub-contracts some of the operational functions (principally relating to trade processing, investment administration and accounting) to BNP Paribas Securities Services. Details of how the Board monitors the services provided by the Manager and other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of 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 Annual Report. Disclosures are provided in accordance with IFRS 7, Financial Instruments: Disclosures.

Related Party Transaction

The contract with Henderson is the only related party transaction currently in place. Other than the fees payable in the ordinary course of business, there have been no material transactions with the related party which have affected the financial position or performance of the Company in the financial year.

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

MANAGEMENT REPORT (Continued)

Statement under Disclosure and Transparency Rules

The Directors, who are listed in the Annual Report, each confirm to the best of their knowledge that:

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

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

For and on behalf of the Board

Helen Green

Director

27 January 2011

Summary of Portfolio

	%
Secured Loans	54.27
High Yield Corporate Bonds	21.47
Investment Grade Corporate Bonds	20.08
Equities	4.18
	--------
	100.00

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

Twenty Largest Holdings

These twenty investments total £29.091 million (2009: £27.042 million) representing 38.17% (2009: 38.88%) by value of the total investments.

Name of Investment	Category	Value £'000
Gala Clubs	Secured Loan	1,842
Kabel BW	Secured Loan	1,710
Bausch & Lomb	Secured Loan	1,641
ISS	Secured Loan	1,636
BNP Paribas	Investment Grade Corporate Bond	1,629
Infonxx	Secured Loan	1,625
XSYS Flint	Secured Loan	1,588
ProSieben	Secured Loan	1,575
Nycomed	Secured Loan	1,535
Aviva	Investment Grade Corporate Bond	1,511
AZ Electronics	Secured Loan	1,421
Weetabix	Secured Loan	1,397
TNT Logistics	Secured Loan	1,367
Amadeus	Secured Loan	1,366
Barclays	Investment Grade Corporate Bond	1,306
Stork	Secured Loan	1,245
Kabel Deutschland	High Yield Corporate Bond	1,232
Xerium	Secured Loan	1,189
Firth Rixon	Secured Loan	1,163
Ziggo	High Yield Corporate Bond	1,113

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

Consolidated Statement of Comprehensive Income

for the year ended 31 October 2010

	Year ended 31 October 2010			Year ended 31 October 2009
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments at fair value through profit or loss	-	6,840	6,840	-	16,661	16,661
Gains/(losses) on foreign exchange transactions at fair value through profit or loss	-	793	793	-	(4,226)	(4,226)
Investment income (note 2)	4,854	-	4,854	5,381	-	5,381
Other income (note 3)	4	-	4	26	-	26
	---------	-----------	-----------	---------	---------	---------
Total income	4,858	7,633	12,491	5,407	12,435	17,842
	---------	-----------	-----------	---------	---------	---------
Expenses
Management fee	(281)	(281)	(562)	(215)	(216)	(431)
Other expenses	(562)	-	(562)	(560)	-	(560)
	---------	-----------	-----------	---------	---------	---------
Profit before finance costs and taxation	4,015	7,352	11,367	4,632	12,219	16,851
Finance costs	(109)	(109)	(218)	(107)	(106)	(213)
	---------	-----------	-----------	---------	---------	---------
Profit before taxation	3,906	7,243	11,149	4,525	12,113	16,638
Taxation	-	-	-	-	-	-
	---------	-----------	-----------	---------	---------	---------
Profit for the year	3,906	7,243	11,149	4,525	12,113	16,638
	=====	======	=======	=====	=====	=====
Earnings per ordinary share (note 4)	4.67p	8.66p	13.33p	5.41p	14.48p	19.89p
	=====	======	======	=====	=====	=====

The total column of this statement represents the Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The revenue return 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 year and therefore the 'profit for the year' is also the 'total comprehensive income for the year'.

The net profit of the Company for the year was £11,149,000 (2009: £16,638,000).

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

Consolidated Statement of Changes in Equity

for the year ended 31 October 2010

	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2010	£'000	£'000	£'000	£'000	£'000
Total equity 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:
Dividends paid (note 5)	-	-	-	(3,932)	(3,932)
Write back of issue costs	-	30	-	-	30
	---------	---------	---------	---------	---------
Total equity at 31 October 2010	37,677	39,862	(9,171)	1,115	69,483
	=====	=====	=====	=====	=====
	Stated capital	Distributable reserve	Other capital reserves	Revenue reserve	Total
Consolidated year ended 31 October 2009	£'000	£'000	£'000	£'000	£'000
Total equity at 31 October 2008	37,677	39,832	(28,527)	1,718	50,700
Total comprehensive income:
Profit for the year	-	-	12,113	4,525	16,638
Transactions with owners, recorded directly to equity:
Dividends paid (note 5)	-	-	-	(5,102)	(5,102)
	--------	--------	----------	----------	--------
Total equity at 31 October 2009	37,677	39,832	(16,414)	1,141	62,236
	=====	=====	======	======	=====

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HENDERSON DIVERSIFIED INCOME LIMITED

 Annual Financial Report for the year ended 31 October 2010

Consolidated Balance Sheet

at 31 October 2010

	Consolidated 2010 £'000	Consolidated 2009 £'000
Non current assets
Investments designated as fair value through profit or loss	76,210	69,537
	----------	----------
Current assets
Other receivables	4,329	4,489
Cash and cash equivalents	806	492
	----------	----------
	5,135	4,981
	----------	----------
Total assets	81,345	74,518
	----------	----------
Current liabilities
Other payables	(11,862)	(12,282)
	----------	----------
Net assets	69,483	62,236
	======	======
Equity attributable to equity shareholders
Stated capital (note 6)	37,677	37,677
Distributable reserve	39,862	39,832
Retained earnings:
Other capital reserves	(9,171)	(16,414)
Revenue reserve	1,115	1,141
	----------	----------
Total equity	69,483	62,236
	======	======
Net asset value per ordinary share (note 6)	83.1p	74.4p
	======	======

The financial statements were approved by the Board of Directors and authorised for issue on 27 January 2011 and were signed on its behalf by:

Helen Foster Green                                                                                              Nigel Robert Parker

Director                                                                                                                  Director

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

Consolidated Cash Flow Statement

for the year ended 31 October 2010

	2010 £'000	2009 £'000
Net profit before taxation	11,149	16,638
Add back interest paid	218	213
Less: gains on investments designated as fair value through profit or loss	(7,633)	(12,435)
Less: exchange movements on forward exchange contracts taken to revenue	-	(12)
Decrease/(increase) in prepayments and accrued income	84	(61)
Decrease in other receivables	1	143
Increase/(decrease) in other payables	263	(167)
Net sales of investments	867	4,468
(Increase)/decrease in sales settlement debtor	(699)	946
Increase/(decrease) in purchase settlement creditor	3,209	(770)
	----------	----------
Net cash inflow from operating activities before finance costs	7,459	8,963
Interest paid	(218)	(213)
Taxation on investment income	(28)	(12)
	----------	----------
Net cash inflow from operating activities	7,213	8,738
	----------	----------
Financing activities
Equity dividends paid	(3,932)	(5,102)
(Repayment)/drawdown of loan	(3,852)	2,322
	----------	----------
Net cash outflow from financing	(7,784)	(2,780)
	----------	----------
(Decrease)/increase in cash and cash equivalents	(571)	5,958
Cash and cash equivalents at the start of the year	492	947
Exchange movements	885	(6,413)
	----------	----------
Cash and cash equivalents at the year end	806	492
	======	======

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HENDERSON DIVERSIFIED INCOME LIMITED

Annual Financial Report for the year ended 31 October 2010

Notes:

1.	Accounting Policies
	Basis of preparation
	This consolidated financial information for the year ended 31 October 2010 has been prepared in accordance with International Financial Reporting Standards ('IFRS'). These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union ('EU'). The financial statements have been prepared on a going concern basis and on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out in the Annual Report. Where consistent with IFRS the financial statements have also been prepared in accordance with the guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('AIC') as revised in January 2009.
	Derivative financial instruments
	The Group's activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Group may enter into include forward foreign exchange contracts (the purpose of which is to manage currency risk arising from the Group's investing activities) and interest rate futures and swaps (the purpose of which is to take a position in relation to government bond yields). The Group may also use credit derivatives, for example buying or selling credit default swaps in order to mange credit risk. The use of financial derivatives is governed by the Group's policies as approved by the Board, which has set written principles for the use of financial derivatives. Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Changes in the fair value of derivative financial instruments are recognised in the Consolidated Statement of Comprehensive Income as they arise. If capital in nature, the associated change in value is presented as a capital item in the Consolidated Statement of Comprehensive Income.
2.	Investment income
				2010					2009
				£'000					£'000
	Income from investments:
	UK dividend income			22					-
	Bond and loan interest			4,470					5,193
	Premiums on credit default swaps			362					188
				---------					---------
				4,854					5,381
				======					======
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3.	Other income
							2010				2009
							£'000				£'000
	Bank and other interest						4				14
	Interest income from forward exchange contracts						-				12
							-------				-------
							4				26
							======				======
4.	Earnings per ordinary share
	The earnings per ordinary share figure is based on the net profit for the year after taxation of £11.149 million (year ended 31 October 2009: £16.638 million) and on 83,640,877 (2009: 83,640,877) being the weighted average number of ordinary shares in issue during the year. 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.
					2010					2009
					£'000					£'000
	Net revenue earnings				3,906					4,525
	Net capital earnings				7,243					12,113
					-------					-------
	Net total earnings				11,149					16,638
					======					======
	Weighted average number of ordinary shares in issue during the period				83,640,877					83,640,877
					2010					2009
	Revenue earnings per ordinary share				4.67p					5.41p
	Capital earnings per ordinary share				8.66p					14.48p
					-------					-------
	Total earnings per ordinary share				13.33p					19.89p
					======					======
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5.	Dividends
								2010			2009
		Record date	Pay date					£'000			£'000
	Fifth interim dividend - 2.00p	12 December 2008	31 December 2008					-			1,672
	First interim dividend - 1.75p	13 March 2009	31 March 2009					-			1,464
	Second interim dividend - 1.25p	12 June 2009	30 June 2009					-			1,046
	Third interim dividend - 1.10p	11 September 2009	30 September 2009					-			920
	Fourth interim dividend - 1.25p	11 December 2009	31 December 2009					1,046			-
	First interim dividend - 1.15p	12 March 2010	31 March 2010					962			-
	Second interim dividend - 1.15p	11 June 2010	30 June 2010					962			-
	Third interim dividend - 1.15p	10 September 2010	30 September 2010					962			-
								-------			-------
								3,932			5,102
								======			======
	The fourth interim dividend has not been included as a liability in these financial statements as it was announced and paid after 31 October 2010.
	The table below sets out the total dividends paid and to be paid in respect of the financial year. The revenue available for distribution by way of dividend for the period is £3.906 million (2009: £4.525 million).
											2010
											£'000
	First interim dividend for 2010 - 1.15p										962
	Second interim dividend for 2010 - 1.15p										962
	Third interim dividend for 2010 - 1.15p										962
	Fourth interim dividend for 2010 - 1.15p										962
	(paid 31 December 2010)										--------
											3,848
											======
6.	Stated capital					Stated Capital £'000					Number of fully paid shares issued
	As at 31 October 2009 and 2010					37,677					83,640,877
						======					=========
7.	Net asset value per ordinary share
	The net asset value per ordinary share is based on the net asset value attributable to ordinary shareholders at the year end of £69.483 million (2009: £62.236 million) and on 83,640,877 (2009: 83,640,877) ordinary shares, being the number of ordinary shares in issue at the period end.
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8.	Going concern statement
	The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities which are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. In reviewing the position as at the date of this statement, the Board has considered the guidance issued by the Financial Reporting Council in October 2009.
9.	2010 Financial information
	The figures and financial information for the year ended 31 October 2010 are compiled from an extract of the latest financial statements and do not constitute statutory accounts. These accounts included the report of the auditors which was unqualified.
10.	2009 Financial information
	The figures and financial information for the period ended 31 October 2009 are compiled from an extract of the latest published accounts and do not constitute the statutory accounts for that period.
11.	Annual Report
	The Annual Report and Accounts will be posted to shareholders on 4 February 2011 and copies will be available on the Company's website (www.hendersondiversifiedincome.com) or in hard copy format from the Company's registered office, Liberté House, 19-23 La Motte Street, St Helier, Jersey, JE2 4SY.
	For further information please contact:
	John Pattullo and Jenna Barnard
	Portfolio Manager, Henderson Diversified Income Limited
	Telephone: [phone]
	James de Sausmarez
	Head of Investment Trusts, Henderson Global Investors
	Telephone: [phone]
	Sarah Gibbons-Cook
	Investor Relations and PR Manager, Henderson Global Investors
	Telephone: [phone]
	Jeremy Hamon
	BNP Paribas Securities Services Fund Administration Limited, Company Secretary
	Telephone: [phone]
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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