Final Results

RNS Number : 6482Q

Henderson Far East Income Limited

29 October 2021

 

LEGAL ENTITY IDENTIFIER:  2138008DIQRE00380596 HENDERSON FAR EAST INCOME LIMITED Financial results for the year ended 31 August 2021 This announcement contains regulated information Investment Objective The Company seeks to provide shareholders with a growing total annual dividend per share, as well as capital appreciation, from a diversified portfolio of investments from the Asia Pacific region. Highlights · Total dividend of 23.40p (2020:  23.00p) for the year, up 1.7% on the prior year · Dividend yield at 31 August 2021 of 7.8% (2020:  7.4%)

Total return performance to 31 August 2021 (including dividends reinvested)
	1 year %	3 years %	5 years %	10 years %
NAV1	7.2	2.8	22.9	93.0
Share price2	4.3	3.5	20.7	87.3
Sector average3	18.7	24.7	56.1	150.0
FTSE All-World Asia Pacific ex Japan Index4	17.3	28.7	63.0	142.7
MSCI AC Asia Pacific ex Japan High Dividend Yield Index4	16.7	10.2	33.8	100.2

Financial highlights	At 31 August 2021	At 31 August 2020
Shareholders' funds
Net assets (£'000)	452,644	425,927
NAV per ordinary share	299.58p	301.02p
Share price	301.50p	311.00p
Year ended 31 August 2021			Year ended 31 August 2020
Profit/(loss) for year
Net revenue profit (£'000) Net capital loss (£'000)	33,773	32,587
	(4,096)	(81,406)
	------------	------------
Net total profit/(loss)	29,677	(48,819)
	=======	=======
Total earnings/(loss) per ordinary share
Revenue	23.22p	23.71p
Capital	(2.82p)	(59.23p)
		-------------
Total earnings/(losses) per ordinary share	20.40p	(35.52p)
		=======
Ongoing charge 5	1.09%	1.08%

1.  Net asset value total return including dividends reinvested

2.  Share price total return including dividends reinvested and using mid-market prices

3.  AIC sector is the Asia Pacific Income sector

4.  Total return performance is sterling adjusted (including dividends reinvested)

5.  Calculated using the methodology prescribed by the Association of Investment Companies

Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

Chairman's Statement Introduction The success of Covid-19 vaccine roll outs in most advanced economies has heralded a semblance of normality and the prospect of improving commercial activity.  The view for emerging and developing economies is not so clear with many regions, even those where infection rates are currently very low, facing resurgent infections and rising Covid-19 death tolls.  For the Asia Pacific region, this has produced a marked difference in performance between south and north Asia.  The Fund Managers' report provides an interesting insight into their thinking in this respect, as well as their approach to China, and what this means for the positioning of the portfolio in the near term. Dividends The Company has paid a total dividend of 23.40p in the year ended 31 August 2021, continuing our track record of increasing dividends each year for the past 15 years.  We declared a 4th interim dividend for the year ended 31 August 2021 on 19 October 2021 of 5.90p per ordinary share. Performance Capital performance over the year was poor with yield, as an investment style, continuing to struggle in the current 'growth at any price' frenzy. NAV total return was 7.2%, lagging the FTSE All-World Asia Pacific ex Japan and the MSCI AC Asia Pacific ex Japan High Dividend Yield indices at 17.3% and 16.7% respectively.  The Fund Managers elaborate more fully on this in their report. However, the yield from the dividend reached 7.8%, notably outstripping the yield of the Company's competitors in the AIC sector as well as the 12-month inflation rate1 of 3.2% at 31 August 2021. Company objectives and performance During the year the Board undertook a review of our investment strategy and process to discover if we were meeting shareholder expectations and living up to our mandate. Our name, Henderson Far East Income Limited, defines who we are and what we want to achieve for our shareholders - an income producing fund. We believe that low interest rates, an ageing population requiring income in retirement and the impact of the recent increase in dividend tax in the UK, together support our strategy of placing income as the top priority. This has been our strategy for the past 14 years. We have increased the dividend progressively from 8.25p in 2007 to 23.40p today. Our investment process has allowed us to grow the dividend and build the revenue reserve enabling us to draw on this to maintain the dividend increase in less favourable market conditions.  Following payment of the 4th interim dividend for the year ended 31 August 2021, the revenue reserve will stand at approximately a half years' worth of dividends. Our investment process has been tried and tested in times of acute financial stress - the global financial meltdown in 2009 and more recently in the Covid-19 crisis. Our quarterly dividends continued to increase despite chaos elsewhere.  Our final dividend for the year amounting to 23.40p per ordinary share. In recent years, however, while this policy has provided a high dividend yield, currently 7% plus, when combined with the capital performance has resulted in an overall outcome that has lagged our competitors whose yields are substantially lower. Our current process locks us into the value sector of the market that is not popular at present as most investors have preferred growth to income. The debate about value versus growth has been going on for a very long time. Sometimes value is preferred, sometimes growth. Rotation between these two styles will continue. When value returns to favour, our capital performance should improve. Our Fund Managers will do all they can to improve our capital performance, but the Board has directed them not to lose sight of our dividend growth preference. So far, income investors have embraced this policy. Demand for new shares has been elevated. In the last two years we have issued 20.4m new shares and the share price has been consistently above our NAV. This outcome has given the Board confidence that the policy is meeting investor needs, but we will continue to monitor the situation as these do change over time and it is always the Board's intention to respond to our shareholder preferences. Succession planning Last year we paused the implementation of our succession planning as companies and countries navigated their way through the Covid-19 pandemic.  I am now pleased to report to you that the Board recommenced the recruitment process for my successor during the course of 2021.  The process was led by the Nominations Committee, chaired by David Mashiter, and resulted, subject to no objection from the Jersey Financial Services Commission, in the appointment of Ronald Gould as a non-executive director and Chairman designate on 28 October 2021. Ronald has a long career in investment management and banking, coupled with extensive work in the UK and Asia.  I believe that I will be leaving the reins of your Company in very good hands when I retire after a period of handover. Management fees I am pleased to report that we have negotiated a change in the management fee.  With effect from 1 September 2021, the start of the current financial year, we have moved to a flat rate of 0.75% of net assets per annum.  This replaces the tiered structure formally in place of 0.9% of net assets up to £400m and 0.75% of net assets thereafter. Annual General Meeting The Company's 15th Annual General Meeting is due to be held on Thursday, 20 January 2022 and, Covid-19 restrictions permitting, we look forward to being able to report to our shareholders in person. The meeting will be held at the offices of our investment manager, Janus Henderson Investors, at 201 Bishopsgate, London, EC2M 3AE with proceedings commencing at 11.00 am. As is our usual practice, voting will take place on a show of hands for those physically present at the meeting. A copy of the Company's Notice of Meeting has been included with this annual report. For any shareholders unable to attend, we will be offering you the opportunity to join using the video conferencing software, Zoom. Due to technological restrictions, we are unable to offer voting to those attending via Zoom and therefore encourage all shareholders, particularly those who will not be present in person, to submit their votes by proxy ahead of the deadline to ensure their vote is taken into account. Outlook The world can be a puzzling place and a challenge for investors at the best of times. Events over the last few years have been particularly trying, with increased volatility, and uncertainty sometimes leading investors to push the panic button. What then is the outlook for the Asia Pacific region? The post-industrial world will be driven by innovation, technology and entrepreneurship. Success in this new paradigm requires three preconditions. Firstly, a successful economy must have entrepreneurial drive and best in class technology. Secondly, it must have a population ready and willing to take up new ideas and products and, finally, it must have a strong domestic consumer base. China is well positioned on all three counts. While some of its technology may have initially been acquired by dubious means, over the past twenty years it has been mostly homegrown. The speed of technology take up is high as visitors to China soon discover. China's consumer base is already enormous and still growing with the urbanisation process continuing. A recent report from Morgan Stanley forecasts that Chinese consumption will double to US$12.7 trillion per annum by 2030 which is the same as the US today. There are risks to this apparent nirvana. The decoupling of the global technology supply chain (in particular with the US centred around Huawei) will negatively impact China's development at least in the short run. Property prices are unaffordable for many and developers are over leveraged; some face the prospect of financial failure. With the fertility rate at 1.3, China is facing an ageing population and a rising dependency ratio. This poses risks to economic growth and the government's often stated objective of achieving European standards of living by 2049. Some fear that wealth disparity might lead to social instability. This is reinforced by the astronomical cost of rearing children when measured against middle class income levels. These problems have been well flagged to investors. The Chinese government has decided now is the time to introduce a more interventionist stance to tackle these problems. This has alarmed investors. However, the private sector will survive and continue to be the main engine of growth, but businesses will have to factor in government policy and work towards its aims rather than against them.  This can provide significant opportunities as well as risk because of the clarity of the policy direction and the capacity of the Chinese state to implement its strategies. China will continue to face pushback from the West particularly from the US due to concerns over its increasing assertiveness, rapidly rising military spending, disregard for the special status of Hong Kong and the stated intention of reunification with Taiwan. Thus, the geopolitical environment will remain tense for the foreseeable future. From an investor's perspective, the outlook for China and the Asia Pacific remains attractive. The Henderson Far East Income Limited Asia Pacific Dividend Index 2021, which we published in June this year, highlighted the outlook for the two key investment components - profits and dividends - by noting that: 'Since 2010 pre-tax earnings (in Asia Pacific ex Japan) have risen 80% compared to just 2% for the rest of the world driving a significant increase in the region's share of the global profit pie.' On dividends the report had this to say: 'Looking at income, dividend growth in the region has also been significantly faster than the global average, up 139% over the last 10 years compared to 109% for the rest of the world.' China, South Korea and Taiwan have weathered the Covid-19 crisis well whilst south and south east Asia have suffered. But even there the outlook for growth is encouraging. Vietnam, Indonesia, Thailand and the Philippines are benefiting from supply chain adjustments as companies relocate to avoid western sanctions on China. The strong dividend growth coming from Asia Pacific is well supported by the fundamentals of robust profit growth, cash flow and low net debt. Currently dividend cover is 2.4x compared with 1.6x in the rest of the world. Asia is where the growth is and will continue to be. As an example of the disparity in growth rates, in 2010 the UK produced 5% of global pre-tax profits while China produced 9%. By 2020 the contribution from the UK declined to just 1% while China contributed 20%. It is understandable that anxiety about the impact of climate change is widespread and growing. The results of fossil fuel emissions are clear for all to see. What is not clear is the path to the target of 'net zero by 2050', which we are told is necessary in order to limit temperature gains to 1.5 degrees centigrade or near to it. Hopefully, the next UN Climate Change Conference, COP26, to be held in Glasgow in November 2021 will find practical ways forward. The need for global cooperation on climate change is clear. The US, EU, China and India will have to work together by sharing information and technology and developing solutions that work for all. Different countries are in different stages of development with different energy mixes. China and India combined account for 65% of global thermal coal use while the Asia Pacific region, as a whole, accounts for approximately 80%. The idea that abundant clean energy is available to all at the flick of a switch is unfortunately a fantasy. While a great deal of progress has been made in reducing the cost of alternatives, particularly solar and wind, the roll out takes time. As we can already see from signs in China and India, without sufficient energy the global economy will stall. Economic growth is critical to climate change solutions. It is growth that will supply the trillions of dollars needed to install the necessary infrastructure and undertake experiments with all the other energy alternatives. The right balance needs to be found so it is difficult to understand why some banks, insurance companies and investor groups are using their power to limit coal production. This has just resulted in pushing up the coal price to a new high, increasing costs for all businesses in countries where coal is a large part of the energy mix and lowering economic growth. There is a similar story with oil and gas. We need properly thought-out solutions, when it is clear that the energy created by fossil fuels is vital to short term stability and will play a significant part in creating the wealth to fund the climate change solution. And we need better leadership on this issue from these institutions. I believe we have every reason to expect that Asia Pacific will continue to provide ample opportunities for income generating investment allowing us to fulfil our mandate and justify a place in any diversified portfolio. John Russell Chairman 28 October 2021 1 Consumer Price Index at 31 August 2021

Fund mANAGERS' REPORT Region In last year's report we commented on the incredible period we had just endured. We would have hoped that one year on things would be clearer, but sadly this year the same considerations still apply. The pandemic is now not something that can be defeated, but something that we have to live with while the stop/start nature of a return to normal is causing uncertainty and increased volatility. Despite the uncertainty, asset prices continue to push higher. The S&P 500 was up almost 30% in US dollar terms over the twelve months to the end of August 2021 while property prices in the US, UK, Australia and elsewhere remain very well sustained. Record low interest rates and accommodating government and central bank policies have kept liquidity abundant and while equity and property markets do not have much valuation support at current levels, they have more appeal than cash and bonds. Equities have also been supported by strong earnings growth forecasts from a low base in 2020. With earnings forecast to grow by 30% it becomes much easier to justify high earnings multiples, although clearly this will be a much more difficult task in 2022. By comparison, Asia Pacific markets have struggled to keep pace. The region's success in dealing with the initial phase of the pandemic has been its biggest headwind in the recovery phase. With regional GDP proving much more resilient than elsewhere, the monetary and fiscal response has been more muted than western counterparts, while a disappointing vaccination rollout program and a 'zero tolerance to Covid-19' strategy has ironically put the region behind western economies in the race to normality. This has been particularly true for South Asia where, in some cases, less than 20% of the population has been vaccinated. Thailand, Indonesia, the Philippines and Vietnam fall into the same category and this has been reflected in economic and market performance. On the whole, the best performing markets were in North Asia with Korea and Taiwan both benefiting from the strong work-from-home demand for electronic products. The exception in South Asia was India where, despite some pressure from a Covid-19 escalation earlier in the year, the market rose by over 50% in sterling terms as the pandemic was brought swiftly under control and vaccination levels accelerated. Despite the weakness of the Chinese internet companies, the technology sector still outperformed the regional average driven by hardware and semiconductors while the strength of iron ore and copper helped the materials sector post gains of over 40%. Consumer discretionary was the only sector to post negative returns as ongoing regional lockdowns dampened activity. China The major headwind for the region has been the poor performance of China, which was the only major market to fall in sterling terms over the period. After a solid 2020 when GDP growth and earnings rose while most of the rest of the world fell, the Chinese economy was the first to enter a tightening phase in the first quarter of 2021, which unsettled investors who had been used to a one-way street of supportive monetary and fiscal policy. The market was not helped by the regulatory clampdown on the internet sector which started with the cancellation of the Ant Group initial public offering in November 2020, but subsequently expanded to other areas as regulators challenged monopolistic practices and data protection. From their peak in the middle of February 2021 to the end of August 2021, Alibaba and Tencent, the two largest stocks in the MSCI China index, fell by 38% and 36% respectively, accounting for the majority of the index decline. Alongside the clampdown on the internet sector, there has been a greater focus on the alleviation of wealth inequality. Under the banner of 'common prosperity', measures have been put in place to reduce the cost of living for low and middle-income households while encouraging greater social responsibility from corporates and the more well off. In particular, the focus has been on the key living costs associated with health care, education and property, so it is no surprise that stocks exposed to these areas have performed poorly as profit models are re-assessed. These policies introduced to rein in the power of the internet companies, the protection of data and the attempts to tackle the problems of inequality, are admirable and will serve China well in the future if successful. However, the handling and timing of these announcements leave something to be desired and have caused uncertainty to the point where some investors are classing the country as un-investible. We don't share this view and realise now, more than ever, the importance of investing alongside government objectives rather than against them. Performance Although it is always pleasing to report on a positive NAV total return, we think it is fair to say that the capital performance of your Company has been disappointing compared to regional indices and peers. The NAV total return was 7.2% over the period compared to 17.3% for the FTSE All-World Asia Pacific ex Japan Index and 16.7% for the MSCI AC Asia Pacific ex Japan High Dividend Yield Index. Our process focuses on a portfolio combining high and sustainable yield alongside companies with dividend growth which will be the high yielders of the future. The capital upside for this strategy comes from identifying undervalued yield stocks and companies that will surprise the market with dividends above expectations. Over the last eighteen months, yield as a style has been out of favour while dividend growth in Asia has been ignored with investors choosing to focus on structural themes. The underperformance of the strategy compared to regional indices reflects these style differences. The returns relative to the high yield index are harder to explain, but reflect the portfolio's greater focus on yield. Some of the best performers in the high yield index were the Singaporean and Australian banks which cut their dividends during the pandemic. At current levels, the Company has a dividend yield of 7.8% and could not incorporate these lower yielding companies into the portfolio without impacting the Company's revenue generation. It is fair to say that the focus on yield has held back capital appreciation over the last twelve months, but we continue to believe that this is a process and strategy that can deliver attractive total returns when economic conditions allow. With record low interest rates likely to remain in place for some time and ageing populations requiring a dependable income stream, we believe that the performance of yield stocks will improve in the months and years ahead. This process has proved successful in the past and we believe it will be again in the future. At the stock level there were positive contributions from technology component companies Samsung Electronics, Taiwan Semiconductor and Yageo, which all rose over 40% during the period while software company Chinasoft, rose 62%. There was success with Australian investment bank, Macquarie and Korean telecom company, SK Telecom, which both gained more than 20% while our position in closed end investment company Vietnam Opportunities Fund rose over 40%, reflecting Vietnam's successful navigation through the pandemic. On the negative side, our positions in Chinese materials, consumer staples, property and construction detracted from performance. China Resources Cement fell 35%, China Railway Construction 24%, China Overseas Land 21% and Hengan International 18%. ESG Environmental, social and governance ('ESG') concerns are a core part of our investment approach, but we believe in a pragmatic stance that looks to engage rather than avoid. We believe that the transition from where we are to where we want to be is the most important part of this process and consider it unhelpful to impose developed market ideologies on countries that are at a different stage of development. What this means in practice is that we don't exclude any sector, with the exception of munitions, from our investment universe, but look to invest in the best, cleanest and socially aware companies in their respective sectors and work with them to set and achieve targets for improvement. Our belief is that the best companies will take market share away from the worst over time, improving the environment and working conditions for all. As a responsible investor, it is our duty to help this transition rather than to divest and hand that responsibility to someone else. We regularly engage with the companies we invest in to ensure that the targets set are viable and that there is a clear and coherent strategy on how to achieve them. Revenue Although the Company's capital performance has been disappointing the income generation has been resilient. Dividend income from the invested portfolio increased 5.4% compared to the prior year and total income by 4.1%. The income from option writing declined 9% due to lower volatility compared to 2020. On a per share basis total revenue was down 2.1% as a result of 9.6m new shares being issued over the period - a 6.8% increase on the issued share capital at the start of the financial year. For the first time since the Company launched in 2007 the dividend distributed has not been covered by the revenue generated. The shortfall has resulted in a small drawdown of the reserves which will stand at just under a half years' worth of dividends following payment of the 4th interim dividend for the year. Although we aim to cover the dividend over the longer term there may be periods where reserves are utilised to ensure that revenue generation is smoothed through a cycle. The growth in income in 2021 compared to last year is testament to the strong underlying growth of dividends in Asia Pacific although on a per share basis this was diluted by share issuance. There was also a negative impact on revenue from the 2.5% increase in sterling compared to Asian currencies over the period while some significant dividends were received just after the period end which will bolster next year's figures. Strategy We continue to focus on attractively valued companies with a sustainable yield and those able to grow their dividends over time. Although many markets are close to all time highs, the extreme discrepancy between highly valued thematic plays and cheap real economy sectors leave plenty of opportunities for the value orientated investor. The portfolio characteristics of 12x forward price to earnings with 15% earnings growth forecast and forward dividend yield of 5.5%, make it difficult to be negative on the stocks we own in the portfolio. The perfect stock for our process combines growth, value and income, and we are predominantly finding these characteristics in two sectors. Firstly financials, primarily banks, which are benefiting from rising interest rates, lower provisioning and a more generous dividend policy, especially in Korea, Taiwan and Hong Kong. The second sector is materials and energy. The lack of supply and new demand from electric vehicles, electronics and alternative energy will continue to support the price of industrial metals such as copper well beyond the normal economic cycle. It is a similar story for energy and, in particular, natural gas pricing which is seen by many as the transition fuel from the highly polluting fossil fuels like coal and oil, to the future based on solar, hydro and wind. We own BHP Group Limited, Rio Tinto Limited, OZ Minerals and Woodside Petroleum, which play to these themes. Outside of these core areas, we continue to prefer the enablers of trends rather than the front-line players. In the tech space we like software and semiconductors, while we also like logistics in the property sector as a play on the increase in e-commerce. At the country level, we have become more defensive on China as we see some weakness in economic numbers into 2022 as the Evergrande debt issue is unwound and power cuts impact manufacturing and economic activity. Although we expect a more accommodative policy stance going forward, the pressure on power generation and raw material pricing makes the traditional model of increased investment spending more troublesome than in previous cycles. We are focusing on software, financial services, consumption and building materials. Outlook Although we are positive on the medium to long term outlook for the Asia Pacific region, we are a little nervous on the outlook for equity markets in general for 2022. The earnings momentum, which has been so strong off a low base in 2021, will be difficult to improve upon in 2022 while inflationary pressures, from rising input prices, and the potential for economic support measures to be withdrawn, doesn't bode well for equity markets trading at relatively rich multiples. Although Asian valuations are more attractive, a reduction in global liquidity has not historically been supportive for the region, although regional economies are in far better shape than their western peers with many more levers to pull to offset any potential downturn. The case is the same for dividends where strong balance sheets, high cash flow generation and low payout ratios make the dividend story for the region one of the most compelling. We expect that yield stocks will perform relatively well in this environment of higher volatility and we remain focused on adding the most attractive stocks that fit our process as and when opportunities arise. Mike Kerley and Sat Duhra Fund Managers 28 October 2021

Investment portfolio as at 31 August 2021

Rank 2021	Rank 2020	Company	Country of incorporation	Sector	Valuation 2021 £'000	% of portfolio
1	4	BHP Group Limited	Australia	Basic Materials	20,414	4.42
2	-	ASE Technology	Taiwan	Technology	17,438	3.77
3	7	Macquarie Korea Infrastructure Fund	South Korea	Financials	16,289	3.53
4	6	Rio Tinto Limited	Australia	Basic Materials	16,072	3.48
5	1	Taiwan Semiconductor Manufacturing1	Taiwan	Technology	14,593	3.16
6	25	VinaCapital Vietnam Opportunity Fund	Vietnam	Financials	14,478	3.13
7	19	SK Telekom1	South Korea	Telecommunications	13,515	2.92
8	2	Samsung Electronics2	South Korea	Technology	13,477	2.92
9	-	Hindustan Petroleum	India	Energy	13,163	2.85
10	11	Macquarie Group	Australia	Financials	12,263	2.65
		Top ten investments			151,702	32.83
11	-	OZ Minerals	Australia	Basic Materials	12,207	2.64
12	31	CTBC Financials Holdings	Taiwan	Financials	12,046	2.61
13	9	AIA Group	Hong Kong	Financials	11,935	2.58
14	-	LG Corp	South Korea	Industrials	11,820	2.56
15	3	Taiwan Cement	Taiwan	Industrials	11,669	2.53
16	-	Chinasoft	China	Technology	11,667	2.52
17	16	Sun Hung Kai Properties	Hong Kong	Real Estate	11,581	2.51
18	-	KB Financial	South Korea	Financials	11,554	2.50
19	8	HKT Trust & HKT	Hong Kong	Telecommunications	11,480	2.48
20	-	Australia & New Zealand Banking Corp	Australia	Financials	11,432	2.47
		Top twenty investments			269,093	58.23
21	27	Telekom Indonesia Persero	Indonesia	Telecommunications	11,407	2.47
22	21	Yageo	Taiwan	Technology	11,303	2.45
23	-	Swire Pacific	Hong Kong	Industrials	10,234	2.21
24	-	China Yongda Automobiles	China	Consumer Discretionary	10,204	2.21
25	18	Ascendas REIT	Singapore	Real Estate	10,180	2.20
26	36	Dexus	Australia	Real Estate	10,119	2.19
27	23	Quanta Computers	Taiwan	Technology	9,593	2.08
28	5	CITIC Securities	China	Financials	9,459	2.05
29	17	China Construction Bank	China	Financials	9,434	2.04
30	-	BOC Hong Kong	Hong Kong	Financials	9,423	2.04
		Top thirty investments			370,449	80.17
31	-	Yuanta Financial	Taiwan	Financials	9,275	2.01
32	22	Digital Telecommunications Infrastructure Fund	Thailand	Telecommunications	9,215	1.99
33	-	Topsports	China	Consumer Discretionary	9,101	1.97
34	10	Spark New Zealand	New Zealand	Telecommunications	9,049	1.96
35	-	Stockland	Australia	Real Estate	8,853	1.92
36	-	NetEase	China	Consumer Discretionary	8,826	1.91
37	-	Singapore Telecommunications	Singapore	Telecommunications	8,806	1.91
38	-	China Shenhua Energy	China	Basic Materials	8,523	1.81
39	-	Mapletree Logistics	Singapore	Real Estate	8,299	1.80
40	-	Woodside Petroleum	Australia	Energy	7,734	1.67
		Top forty investments			458,130	99.15
41	-	Venustech	China	Technology	4,395	0.95
42	40	China Forestry Holdings	China	Basic Materials	-	-
43	-	Chinasoft International Call 13.5 (expiry 16/9/21)	China	Technology	(139)	(0.03)
44	-	NetEase Put 131 (expiry 25/11/21)	China	Consumer Discretionary	(301)	(0.07)
		Total investments			462,085	100.00

1 American Depositary Receipts

2 Preferred Shares

Sector exposure at 31 August 2021 (% of portfolio excluding cash)
	2021 %	2020 %
Financials	27.6	21.3
Technology	17.8	16.9
Telecommunications	13.7	17.1
Basic Materials	12.5	8.3
Real Estate	10.6	14.3
Industrials	7.3	7.6
Consumer Discretionary	6.0	3.7
Energy	4.5	1.4
Utilities	-	4.0
Consumer Staples	-	5.4
	100.0	100.0

Geographic exposure at 31 August 2021 (% of portfolio excluding cash)
	2021 %	2020 %
Australia	21.4	16.8
China	15.4	25.5
Hong Kong	11.8	11.0
India	2.9	0.0
Indonesia	2.5	2.3
New Zealand	2.0	2.8
Singapore	5.9	5.4
South Korea	14.4	10.0
Taiwan	18.6	18.2
Thailand	2.0	5.6
Vietnam	3.1	2.4
	100.0	100.0

MANAGING RISKS Investing, by its nature, carries inherent risk. A matrix of these risks, and the steps taken to mitigate them, is maintained and kept under regular review by the Board. This includes having in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy. The Board, with the assistance of the Manager, regularly carries out an assessment of the principal and emerging risks and uncertainties facing the Company which could threaten the business model and future performance, solvency and liquidity of the portfolio. The assessment includes consideration of the possibility of severe market disruption, which, for the second consecutive year, focused on the changing impact of the Covid-19 pandemic on global markets. The principal risks which have been identified and the steps we have taken to mitigate these are set out in the table below. We do not consider these risks to have changed during the period. · Investment and strategy An inappropriate investment strategy, for example, in terms of asset allocation or level of gearing, may result in underperformance against the companies in the peer group, and in the Company's shares trading on a wider discount.  Investments in Asian markets may be impacted by political, market and financial events resulting in changes to the market value of the Company's portfolio. We manage these risks by ensuring a diversification of investments and a regular review of the extent of borrowings. The Manager operates in accordance with investment limits and restrictions determined by the Board, which include limits on the extent to which borrowings may be employed. We review compliance with limits and monitor performance at each Board meeting. · Accounting, legal and regulatory The Company is regulated by the Jersey Financial Services Commission and is required to comply with the Companies (Jersey) Law 1991, the Financial Conduct Authority's Listing Rules, Transparency Guidance and Disclosure Rules and Prospectus Rules and the Listing Rules of the New Zealand Stock Exchange. To retain investment trust status, the Company must comply with the provisions of s.1158 of the Corporation Tax Act 2010. A breach of company law could result in the Company being subject to criminal proceedings or financial and reputational damage. A breach of the listing rules could result in the suspension of the Company's shares. A breach of s.1158 could result in capital gains realised within the portfolio being subject to corporation tax. The Manager provides investment, company secretarial, administration and accounting services through qualified professionals. The Board receives quarterly internal control reports from the Manager which demonstrate compliance with legal and regulatory requirements and assess the effectiveness of the internal control environment in operation at the Manager and our key third-party service providers at least annually. We have once again sought assurances from the Manager of their ability to continue to function effectively as staff continue to work from home.   · Operational Disruption to, or the failure of, the Manager 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 Company may be exposed to cyber risk vulnerabilities through one or more of its service providers. The administrator, BNP Paribas Securities Services S.C.A., Jersey Branch, sub-contracts some of the operational functions (principally relating to trade processing, investment administration and accounting) to BNP Paribas Securities Services. The Board engages reputable third-party service providers and formally evaluates their performance, and terms of appointment, at least annually. The Audit Committee assesses the effectiveness of internal controls in place at the Company's key third-party services providers through review of their ISAE 3402 reports, quarterly internal control reports from the Manager and monthly reporting on compliance with the investment limits and restrictions established by the Board. · Financial The financial risks faced by the Company include market (comprising market price, currency risk and interest rate risk), liquidity risk and credit risk. We determine the investment parameters and monitor compliance with these at each meeting. We review the portfolio liquidity at each meeting and periodically consider the appropriateness of hedging the portfolio against currency risk. The Board reviews the portfolio valuation at each meeting. Investment transactions are carried out by a large number of approved brokers whose credit standard is periodically reviewed and limits are set on the amount that may be due from any one broker, cash is only held with the depositary/custodian or reputable banks. We review the broad structure of the Company's capital including the need to buy back or allot ordinary shares and the extent to which revenue in excess of that which is required to be distributed, should be retained. Further detail on how we mitigate these risks are set out in note 13 in the annual report. VIABILITY STATEMENT In keeping with provisions of the Code of Corporate Governance issued by the Association of Investment Companies (the 'AIC Code'), the hawse have assessed the prospects of the Company over a period longer than the 12 months required by the going concern provision. We consider the Company's viability over a five-year period as it believes this is a reasonable timeframe reflecting the longer-term investment horizon for the portfolio, but which acknowledges the inherent shorter term uncertainties in equity markets. As part of the assessment, we have considered the Company's financial position, as well as its ability to liquidate the portfolio and meet expenses as they fall due. The following aspects formed part of our assessment: · the Company's purpose and approach which means we remain a medium to long term investor; · consideration of the principal risks and uncertainties facing the Company and determination that no materially adverse issues had been identified; · the nature of the portfolio which remained diverse comprising a wide range of stocks which were traded on major international exchanges meaning that, in normal market conditions, three quarters of the portfolio could be liquidated in ten days; · the closed end nature of the Company which does not need to account for redemptions; · the level of the Company's revenue reserves and banking facility; and · the expenses incurred by the Company, which are predictable and modest in comparison with the assets and the fact that there are no capital commitments currently foreseen which would alter that position. Based on the results of the viability assessment, we have a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for our assessment period of five years. We will revisit this assessment annually and provide shareholders with an update on our view. RELATED PARTY TRANSACTIONS The Company's current related parties are its directors and the Manager. There have been no material transactions between the Company and the directors during the year, with the only amounts paid to them being in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end. In relation to the provision of services by the Manager, other than fees payable by the Company in the ordinary course of business and the provision of marketing services, there have been no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in note 19 in the annual report. Directors' responsibility STATEMENTS Each of the directors confirms that, to the best of his or her knowledge: • the Company's financial statements, which have been prepared in accordance with IFRS as adopted by the European Union on a going concern basis, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and • the annual report and financial statements include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. For and on behalf of the Board John Russell Chairman 28 October 2021

Statement of Comprehensive Income

	Year ended 31 August 2021			Year ended 31 August 2020
	Revenue return £'000	Capital return  £'000	Total return £'000	Revenue return £'000	Capital return  '000	Total return £'000
Investment income (note 3)	37,236	-	37,236	35,344	-	35,344
Other income (note 4)	3,103	-	3,103	3,410	-	3,410
Losses on investments held at fair value through profit or loss	-	(1,791)	(1,791)	-	(78,516)	(78,516)
Net foreign exchange loss excluding foreign exchange losses on investments	-	(216)	(216)	-	(836)	(836)
	---------	----------	-----------	---------	----------	-----------
Total income	40,339	(2,007)	38,332	38,754	(79,352)	(40,598)
Expenses
Management fees	(2,022)	(2,023)	(4,045)	(1,942)	(1,942)	(3,884)
Other expenses	(469)	(469)	(938)	(494)	(494)	(988)
	---------	----------	----------	---------	----------	----------
Profit/(loss) before finance costs and taxation	37,848	(4,499)	33,349	36,318	(81,788)	(45,470)
Finance costs	(87)	(87)	(174)	(101)	(100)	(201)
	---------	--------	---------	---------	--------	---------
Profit/(loss) before taxation	37,761	(4,586)	33,175	36,217	(81,888)	(45,671)
Taxation	(3,988)	490	(3,498)	(3,630)	482	(3,148)
	---------	---------	----------	---------	---------	----------
Profit/(loss) for the year and total comprehensive income	33,773	(4,096)	29,677	32,587	(81,406)	(48,819)
	======	======	======	======	======	======
Earnings/(losses) per ordinary share - basic and diluted (note 5)	23.22p	(2.82p)	20.40p	23.71p	(59.23p)	(35.52p)
	======	======	======	======	======	======
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

Statement of CHANGES IN EQUITY

	Year ended 31 August 2021
	Stated share capital £'000	Distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 31 August 2020	204,875	180,471	14,653	25,928	425,927
Total comprehensive income:
(Loss)/profit for the year	-	-	(4,096)	33,773	29,677
Transactions with owners, recorded directly to equity:
Dividends paid	-	-	-	(34,040)	(34,040)
Shares issued	31,188	-	-	-	31,188
Share issue costs	(108)	-	-	-	(108)
	----------	----------	----------	----------	----------
Total equity at 31 August 2021	235,955	180,471	10,557	25,661	452,644
	======	======	======	======	======
	Year ended 31 August 2020
	Stated share capital £'000	Distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 31 August 2019	167,599	180,471	96,059	24,992	469,121
Total comprehensive income:
(Loss)/profit for the year	-	-	(81,406)	32,587	(48,819)
Transactions with owners, recorded directly to equity:
Dividends paid	-	-	-	(31,651)	(31,651)
Shares issued	37,458	-	-	-	37,458
Share issue costs	(182)	-	-	-	(182)
	----------	----------	----------	----------	----------
Total equity at 31 August 2020	204,875	180,471	14,653	25,928	425,927
	======	======	======	======	======
The total column of this statement represents the Statement of Changes in Equity, prepared in accordance with IFRS as adopted by the European Union. The Statement of Changes in Equity is presented in a columnar basis to include separate disclosure of share capital and the various reserves under guidance published by the Association of Investment Companies.

BALANCE SHEET

	31 August 2021 £'000	31 August 2020 £'000
Non current assets
Investments held at fair value through profit or loss	462,525	423,694
Current assets
Other receivables	5,351	14,384
Cash and cash equivalents	13,693	3,879
	----------	----------
	19,044	18,263
	----------	----------
Total assets	481,569	441,957
	----------	----------
Current liabilities
Investments held at fair value through profit or loss - written options	(440)	(1,090)
Deferred taxation	(78)	(64)
Other payables	(2,953)	(7,407)
Bank loans	(25,454)	(7,469)
	----------	----------
	(28,925)	(16,030)
	----------	----------
Net assets	452,644	425,927
	======	======
Equity attributable to equity shareholders
Stated share capital	235,955	204,875
Distributable reserve	180,471	180,471
Retained earnings:
Capital reserves	10,557	14,653
Revenue reserves	25,661	25,928
	----------	----------
Total equity	452,644	425,927
	======	======
Net asset value per ordinary share	299.58p	301.02p
	======	======

STATEMENT OF CASH FLOWS

	Year ended 31 August 2021 £'000	Year ended 31 August 2020 £'000
Operating activities
Profit/(loss) before taxation	33,175	(45,671)
Add back finance costs payable	174	201
Losses on investments held at fair value through profit or loss	1,791	78,516
Net foreign exchange loss excluding foreign exchange losses on investments	216	836
Sales of investments	478,991	524,714
Purchases of investments	(520,263)	(549,180)
Increase/(decrease) in prepayments and accrued income	(1,555)	795
Decrease/(increase) in amounts due from brokers	10,797	(10,318)
(Decrease)/increase in amounts due to brokers	(5,231)	5,231
Increase in other payables	943	41
Stock dividends included in investment income	-	(180)
	----------	----------
Net cash (outflow)/inflow from operating activities before interest and taxation	(962)	4,985
Interest paid	(175)	(200)
(Decrease)/increase in corporation tax payable	(210)	166
Withholding tax on investment income	(3,648)	(3,170)
	----------	----------
Net cash (outflow)/inflow from operating activities after interest and taxation	(4,995)	1,781
	----------	----------
Financing activities
Net loan repayment	17,265	(8,886)
Equity dividends paid	(34,040)	(31,651)
Share issue proceeds	31,188	37,458
Share issue costs	(108)	(182)
	----------	----------
Net cash inflow/(outflow) from financing	14,305	(3,261)
	----------	----------
Increase/(decrease) in cash and cash equivalents	9,310	(1,480)
Cash and cash equivalents at the start of the year	3,879	6,360
Exchange movements	504	(1,001)
	----------	----------
Cash and cash equivalents at the end of the year	13,693	3,879
	======	======

NOTES TO THE FINANCIAL STATEMENTS 1.  General information The entity is a closed end company, registered as a no par value company under the Companies (Jersey) Law 1991, with its shares listed on the London and New Zealand stock exchanges. The company was incorporated on 6 November 2006. 2.  Accounting policies The Company's financial statements for the year ended 31 August 2021 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('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 financial statements have been prepared on a going concern basis and on the historical cost basis, except for the revaluation of financial assets and liabilities designated as held at fair value through profit and loss. The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. 3. Investment income
	2021	2020
	£'000	£'000
Overseas investment income	37,236	35,164
Stock dividends	-	180
	----------	----------
	37,236 ======	35,344 ======
Analysis of investment income by geography:
Australia	6,294	7,513
China	12,437	12,761
Hong Kong	2,582	2,373
India	1,121	617
Indonesia	905	765
New Zealand	637	746
Singapore	868	1,421
South Korea	4,814	2,826
Taiwan	5,996	4,459
Thailand	1,311	1,620
Vietnam	271	243
	----------	----------
	37,236	35,344
	======	======

All of the above income is derived from equity related investments.

4. Other income

	2021	2020
	£'000	£'000
Bank and other interest	1	14
Option premium income	3,102	3,396
	--------	--------
	3,103 =====	3,410 =====

5. Earnings per ordinary share The earnings per ordinary share figure is based on the net profit for the year of £29,677,000 (2020: loss £48,819,000) and on the weighted average number of ordinary shares in issue during the year of 145,462,386 (2020: 137,436,515). The earnings per ordinary share figure can be further analysed between revenue and capital, as below:
			2021			2020
			£'000			£'000
Net revenue profit			33,773			32,587
Net capital loss			(4,096) ----------			(81,406) ----------
Net total profit/(loss)			29,677 ======			(48,819) ======
Weighted average number of ordinary shares in issue during the year			145,462,386			137,436,515
			2021 Pence			2020 Pence
Revenue earnings per ordinary share			23.22			23.71
Capital loss per ordinary share			(2.82) ---------			(59.23) ---------
Total earnings/(losses) per ordinary share			20.40 =====			(35.52) =====
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. 6. Dividends
				2021			2020
Dividend	Record date	Pay date		£'000			£'000
Fourth interim dividend 5.70p for the year ended 2019	1 November 2019	29 November 2019		-			7,627
First interim dividend 5.70p for the year ended 2020	31 January 2020	28 February 2020		-			7,822
Second interim dividend 5.70p for the year ended 2020	1 May 2020	29 May 2020		-			7,995
Third interim dividend 5.80p for the year ended 2020	31 July 2020	28 August 2020		-			8,207
Fourth interim dividend 5.80p for the year ended 2020	30 October 2020	27 November 2020		8,237			-
First interim dividend 5.80p for the year ended 2021	29 January 2021	26 February 2021		8,343			-
Second interim dividend 5.80p for the year ended 2021	30 April 2021	28 May 2021		8,563			-
Third interim dividend 5.90p for the year ended 2021	30 July 2021	27 August 2021		8,897 ---------			- ----------
				34,040 ======			31,651 ======
The fourth interim dividend for the year ended 31 August 2021 has not been included as a liability in these financial statements as it was announced and paid after the year end. The table which follows sets out the total dividends paid and to be paid in respect of the financial year and the previous year. The revenue available for distribution by way of dividend for the year is £33,773,000 (2020: £32,587,000).  The total dividends payable in respect of the financial year which form the basis of section 1158 of the Corporation Tax Act 2010 are set out below:
					2021 £'000			2020 £'000
Revenue available for distribution by way of dividend for the year					33,773			32,587
First interim dividend of 5.80p (2020: 5.70p) paid 26 February 2021 (28 February 2020)					(8,343)			(7,822)
Second interim dividend 5.80p (2020: 5.70p) paid 28 May 2021 (29 May 2020)					(8,563)			(7,995)
Third interim dividend 5.90p (2020: 5.80p) paid 27 August 2021 (28 August 2020)					(8,897)			(8,207)
Fourth interim dividend for the year ended 31 August 2021 of 5.90p (2020: 5.80p) (based on 151,093,564 shares in issue at 28 October 2021 and payable on 26 November 2021) (2020: 142,023,564)					(8,915) --------			(8,237) --------
Undistributed revenue for s.1158 purposes					(945) =====			326 =====

7. Net asset value per share The basic net asset value per ordinary share and the net asset value attributable to ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:
	2021		2020
	Net asset value per share pence	Net asset value attributable £'000	Net asset value per share pence	Net asset value attributable £'000
Ordinary shares	299.58p	452,644	301.02p	425,927
	=======	======	======	======
The basic net asset value per ordinary share is based on 151,093,564 (2020: 141,493,564) ordinary shares, being the number of ordinary shares in issue. The movements during the year in net assets attributable to the ordinary shares were as follows:
				2021 £'000	2020 £'000
Net assets attributable to ordinary shares at beginning of year				425,927	469,121
Total net profit/(loss) after taxation				29,677	(48,819)
Dividends paid				(34,040)	(31,651)
Issue of ordinary shares net of issue costs				31,080 -----------	37,276 -----------
Net assets attributable to ordinary shares at 31 August				452,644 =======	425,927 =======

8. Stated share capital
		2021		2020
	Authorised	Issued and fully paid	£'000	Issued and fully paid	£'000
Opening balance at 1 September
Ordinary shares of no par value	Unlimited	141,493,564	204,875	130,678,564	167,599
Issued during the year		9,600,000	31,188	10,815,000	37,458
Share issue costs		-	(108)	-	(182)
Closing balance at 31 August		---------------- 151,093,564 =========	----------- 235,955 ======	----------------- 141,493,564 ==========	----------- 204,875 =======

The holders of ordinary shares are entitled to all the capital growth in the Company and all the income from the Company that is resolved by the directors to be distributed. Each shareholder present at a general meeting has one vote on a show of hands and on a poll every member present in person or by proxy has one vote for each share held. During the year, the Company issued 9,600,000 (2020: 10,815,000) shares for the proceeds of £31,080,000 (2020: £37,276,000) net of costs. 9. Subsequent events On 19 October 2021, the Company announced an interim dividend of 5.90p per ordinary share in respect of the year ended 31 August 2021 to shareholders on the register (the record date) at 29 October 2021.  The shares will be quoted ex-dividend on 28 October 2021. 10.  Going concern statement The assets of the Company consist almost entirely of securities that are listed and regularly traded and, accordingly, the directors believe that the Company has adequate financial resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. The directors have considered the impact of Covid-19, including cash flow forecasting, a review of covenant compliance including the headroom above the most restrictive covenants and an assessment of the liquidity of the portfolio. They have concluded that they are able to meet their financial obligations, including the repayments of the bank loan, as they fall due for at least twelve months from the date of this report. Despite the net current liability position at 31 August 2021, having assessed the above factors, the principal risks and other matters discussed in connection with the viability statement, the Board has decided that it is appropriate for the financial statements to be prepared on a going concern basis. 11. Appointment of director Ronald Gould has been appointed as a non-executive director and the Chairman designate with effect from 28 October 2021.  In accordance with paragraphs 9.6.13 (1) to (6) of the Listing Rules, there are no additional details to be disclosed in relation to his appointment. 12. Financial information for 2021 The figures and financial information for the year ended 31 August 2021 are compiled from an extract of the latest financial statements and do not constitute statutory accounts. These financial statements included the report of the auditors which was unqualified. 13. Financial information for 2020 The figures and financial information for the year ended 31 August 2020 are compiled from an extract of the published accounts and do not constitute the statutory accounts for that year. 14. Annual Report 2021 The annual report and financial statements will be posted to shareholders in November 2021 and copies will be available on the Company's website at: www.hendersonfareastincome.com. 15. Asia Pacific Dividend Index 2021 The latest edition of the Company's Asia Pacific Dividend Index was published in June 2021.  The Index tracks the trend in dividends paid by companies listed across this fast-growing part of the world.  To access a copy, visit the Documents section of the Company's website at:  www.hendersonfareastincome.com. 16. Annual General Meeting The 15th Annual General Meeting will be held at the offices of Janus Henderson Investors at 201 Bishopsgate, London EC2M 3AE at 11.00 am on Thursday, 20 January 2022. The Notice of the Meeting will be sent to shareholders with the Annual Report 2021. 17. General Information Company Status The Company is a Jersey domiciled closed end investment company, number 95064, which was incorporated in 2006 and is listed on the London and New Zealand stock exchanges. The Company became UK tax resident with effect from 1 September 2018. SEDOL/ISIN:  Ordinary Shares: B1GXH751/JE00B1GXH751 London Stock Exchange (TIDM) code:  HFEL New Zealand Stock Exchange code:  HFL Global Intermediary Identification Number (GIIN):  NTTIYP.99999.SL.832 Legal Entity Identifier (LEI):  213800801QRE00380596 Directors and Secretary The directors of the Company are John Russell (Chairman), Nicholas George (Chairman of the Audit Committee), Julia Chapman, Timothy Clissold, Ronald Gould and David Mashiter. The Corporate Secretary is Henderson Secretarial Services Limited. The registered office is IFC1, The Esplanade, St Helier, Jersey, JF1 4BP.  The Company's principal place of business is 201 Bishopsgate, London, EC2M 3AE. Website Details of the Company's share price and net asset value, together with general information about the Company, monthly factsheets and data, copies of announcements, reports and details of general meetings can be found at www.hendersonfareastincome.com   For further information please contact:

Mike Kerley Fund Manager Henderson Far East Income Limited Telephone: [phone]	Sat Duhra Fund Manager Henderson Far East Income Limited Telephone: [phone]
James de Sausmarez Director and Head of Investment Trusts Janus Henderson Investors Telephone: [phone]	Laura Thomas Investment Trust PR Manager Janus Henderson Investors 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.

 

END

 

 

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