Results for the half-year ended 28 February 2019

Legal Entity Identifier: 2138008DIQREOD38O596 26 April 2019 HENDERSON FAR EAST INCOME LIMITED Unaudited results for the half-year ended 28 February 2019 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. Performance highlights for the six months to 28 February 2019 o Net Asset Value ('NAV') per share total return was -3.5% compared to a total return of the FTSE All-World Asia Pacific ex Japan (sterling adjusted) of -3.7% o Share price total return was -0.8% o Shares trading at a premium of 2.1% at the period end o Share issuance in the financial year to date totalling 3,125,000 shares raising ?10.6m o Two quarterly dividends paid during the period amount to 11.00p, a 3.8% increase on the same period in the prior year Financial Highlights As at 28 February 2019 As at 31 August 2018 NAV per ordinary share 335.79p 359.26p Share price 343.00p 357.00p Net assets ?422,690,000 ?441,004,000 Premium/(discount) 2.1% (0.6%) Total return performance (including dividends reinvested and excluding transaction costs) 6 months % 1 year % 3 years % 5 years % Net asset value total return1 -3.5 -3.3 43.5 54.0 FTSE All-World Asia Pacific ex Japan Index (total return)2 -3.7 -3.8 57.6 65.1 FTSE All-World Asia Pacific Index (total return)3 -5.6 -5.1 50.1 66.6 Share price total return4 -0.8 -1.2 49.5 54.7 The Company does not have a formal benchmark. It uses the FTSE All-World Asia Pacific ex Japan Index (sterling adjusted) for reference purposes only. 1 Net Asset Value (NAV) total return (including dividends reinvested and excluding transaction costs) 2 FTSE All-World Asia Pacific ex Japan Index (sterling adjusted), for comparison purposes (including dividends reinvested) 3 FTSE All-World Asia Pacific (sterling adjusted), for comparison purposes (including dividends reinvested) 4 Share price total return (including dividends reinvested) Sources: Morningstar for the AIC, Datastream INTERIM MANAGEMENT REPORT CHAIRMAN'S STATEMENT Performance Asian equities produced a bumpier ride in 2018 in comparison to the prior year, with higher levels of volatility driven by rising trade tensions and the stronger US dollar and yields, along with fears of a slowing Chinese economy. However, the cut to the banks' reserve requirement ratios by the Peoples Bank of China coupled with the government's indication of higher public spending provided a degree of stimulus in the latter part of 2018, as did the temporary truce due to de-escalating trade tensions which was secured following a working dinner between Presidents Trump and Xi at the G20 Summit in early December. Despite the near-term headwinds, it is worth noting that quality Asian companies continue to produce solid growth and valuations are attractive. For the six months to 28 February 2019, the net asset value per share total return was -3.5%, marginally ahead of the FTSE All-World Asia Pacific ex Japan Index (sterling adjusted) at -3.7 %. The share price total return for the period was -0.8% and the Company has continued to trade at a premium in contrast to much of the AIC Asia Pacific ex Japan sector. Dividends In keeping with its approach of paying four quarterly interim dividends, the Board is pleased to declare the second interim dividend for the year ending 31 August 2019 in the amount of 5.50p per ordinary share. This brings the total for the dividends paid in the financial year to date to 11.00p, reflecting an increase of 3.8% over the same period in the prior year. The second interim dividend will be paid on 31 May 2019 to shareholders on the register on 3 May 2019. Share issues The first half of the year saw strong demand for the Company's shares with 3,125,000 shares issued since the start of the current financial year, raising a total of ?10,628,000. For the benefit of shareholders, shares are only issued at a premium to net asset value to ensure that these do not have a dilutive effect. Outlook Global risks and uncertainties abound and, while well flagged, present difficult choices for investors. In our region however, the Asia Pacific, there are clear trends which are encouraging and provide opportunities for investors taking a medium to long term view. The US/China trade dispute is unlikely to diminish in the near term but the impact on China is likely to lessen over the next few years as the 10 Nations of ASEAN, home to 700 million people, reap the rewards of structural change, infrastructure spending and regional integration. Looking back this integration process started five decades ago with the rise of Japan, followed by the Asian tigers, Singapore, South Korea and Taiwan, then China. Now we are witnessing the rise of South and South East Asia, principally India, Indonesia and Vietnam. ASEAN is now China's third largest trading partner and overall more than 60% of ASEAN trade is within the region. This intra-Asia trade is bound to continue to grow as economic development drives up living standards and consumption. Western export markets will become less important to the region over time. China's transition away from low cost manufacturing exports to a service driven economy continues. Exports are now less than 20% of GDP, while services, the fastest growing sector, now accounts for more than 50%. This transition has driven up labour costs in China presenting opportunities for ASEAN countries. Manufacturers looking for a lower cost environment are moving south, particularly to Indonesia and Vietnam. This trend has been supported by confidence that the lessons of the Asian financial crisis in 1997/8 have been well learned and policies put in place to prevent a recurrence. Prior to the crisis many Asian countries tied their currency to the US$, poorly regulated banks borrowed heavily abroad often to fund the purchase of non-performing assets. Weakening exports started the rout and as the stock and property markets began to collapse money flowed out and local currencies fell sharply causing a severe foreign debt repayment problem. The economic and social damage across the region was devastating and not to be forgotten. Today all ASEAN currencies are floating and manufactured exports much more competitive. Lessons learned was the main reason Asia weathered the 2008 global crisis so well. The continued growth and development of this vast and highly populated region, where people are highly motivated to work together to improve their lives and economic wellbeing, continues to provide ample opportunities for investors. John Russell Chairman 25 April 2019 FUND MANAGER'S REPORT Review Asia Pacific ex Japan markets had a roller coaster ride over the six months to the end of February 2019. The period started poorly as the trade dispute between the US and China ramped up while the fear of rising interest rates in the US caused further uncertainty culminating in the worst fourth quarter performance for global equities in many years. Markets rallied at the beginning of 2019 as trade worries eased and weakness in the US economy reduced the expectations of interest rate rises. By the end of the period markets had regained most of their losses with the FTSE All-World Asia Pacific ex Japan index down only 1.3% in local currency terms and 3.7% in sterling. While equity markets have ridden out the volatility the pressure has certainly been felt in corporate earnings. Results across the region have generally been disappointing with the countries and sectors most exposed to trade and the global cycle most impacted. Earnings growth forecasts for 2019 are now firmly in single digit, down from mid-teens less than twelve months ago, while the recent rally in stock markets has stretched valuations beyond longer term averages. It is fair to say that at this point in the cycle markets are being driven by political and macro forces rather than company specific fundamentals. Within this malaise there have been pockets of strength. The collapse of Vale's tailings dam in January 2019 and the subsequent closure of similar capacity on safety and environmental concerns have kept iron ore prices elevated. Supply side reform in China has also curtailed production in steel, cement, aluminium and coal and as a result the materials sector has performed much better than the economic numbers would suggest. Defensive sectors also performed well most notably telecommunications and real estate which were less volatile in the downturn but also participated in the new-year rally as the expectation of higher rates waned making their dividend yields more attractive relative to bonds. At the country level Indonesia was the standout performer, rising 7% in sterling terms. The momentum in the economy is improving supported by resilient coal prices and falling inflation which has left room for the central bank to cut interest rates later in the year. High real interest rates have been supportive of the rupiah while the elections in April 2019 appear to favour incumbent President Joko Widodo whose popularity has remained high and who is beginning to see the benefits of Indonesia's much needed spending on infrastructure. Despite the obvious impact from the trade dispute with the US, which has negatively impacted export volumes, China and Hong Kong were the only other two markets that posted positive returns in local currency terms. Recent data suggests that the Chinese economy is beginning to show some positive trends following the targeted measures implemented by the government in late 2018. The latest purchasing managers indices indicate a return to growth while property sales and consumer activity is proving resilient. The increased weighting of mainland 'A' shares in the MSCI regional indices has also proved supportive as foreigners continue to add to their China allocation. The worst performing market was India, which fell 11.7% in sterling terms. The reason for the decline can be attributed to uncertainty around whether Modi will be re-elected in the April/May elections, high equity market valuations relative to the rest of the region and an earnings trajectory which refuses to deviate from its downward path. More importantly the confidence of the domestic investor has been dented and the flows into mutual funds, which have driven the market over the last few years, has slowed considerably. The export orientated markets of Korea and Taiwan were also weak over the period. Unsurprisingly the impact from the trade war was not unexpected but the weakness in the demand for products such as smartphones and PC's had a significant impact on the profitability of these technology centric markets. Performance Over the period the Company's net asset value per share total return was -3.5% in sterling terms, marginally outperforming the 3.7% fall in the FTSE All World Asia Pacific ex Japan Index. Surprisingly, the portfolio performed better on a relative basis in the rally of 2019 than it did in the sell off at the end of 2018 which is unusual for an income focused process. This was down to a series of factors which have more to do with themes and macro indicators than they have to do with corporate performance. From September 2018 the market was worried about Chinese growth, the trade war and the potential for rising US interest rates. With the portfolio's focus on China and in particular Chinese consumption and yield stocks (which are sensitive to rising interest rates) the usual defensiveness of the portfolio was negated. When the markets rallied the catalyst was improving relations between the US and China and a signal from the Federal Reserve that interest rates had peaked - a complete reverse from earlier in the period. At the stock level there was strong performance from the mining sector with BHP and Rio Tinto in the top ten contributors while the bounce in Chinese consumption data proved beneficial for Anta Sports, high end liquor company Kweichow Moutai and also property developer China Vanke. The contribution of income stocks to capital return is borne out by the appearance of telco's China Mobile, HKT Trust and REITs Macquarie Korea Infrastructure, Mapletree North Asia Commercial Trust and Mapletree Commercial Trust in the top ten contributors to performance over the period. Outside of bulk commodities the performance of other materials companies fared less well. The weakness of the oil price impacted China Petroleum & Chemical as well as down-stream refining - Star Petroleum and chemicals - Far East New Century. Also in the bottom ten detractors was Lend Lease which had served us well in previous periods but an unexpected provision related to its engineering arm resulted in a material sell off. Revenue and Dividends The portfolio's dividend stream was very strong over the period with income from the stocks held rising 16.4% over the same period last year. This elevated performance was partly due to an increase in the number of special dividends received and is reflective of the amount of excess cash which is held on company balance sheets. Although these one off distributions may not be maintained at such a high level going forward this is a phenomenon which is likely to be repeated as companies reflect their strong capital positions and ongoing cash flow generation in their distributions to shareholders. The revenue derived from option activity was broadly flat compared to last year. Volatility in markets has remained relatively low but individual stock price moves have allowed opportunities to write put and call options to supplement the Company's revenue. Option premia accounted for 11.0% of the Company's revenue received in the first half of this financial year. Activity Although the country allocation has remained broadly unchanged, the volatility in markets has allowed us to take the opportunity to own some stocks in the consumer space which have previously not passed our valuation test. Examples of this would be Treasury Wine in Australia and high end liquor producer Kweichow Moutai in China. Both of these stocks are beneficiaries of the upgrading trend in China which is fuelled by rising disposable incomes. We have also added Sands China to the portfolio in the belief that this increased wealth will lead to higher tourism spend and greater visitation to Macau. Following a number of visits and some detailed analysis we have initiated a position in Vietnam, which we feel is one of the most exciting stories in Asia. Apart from the short term benefit of an increased level of outsourcing from China as manufacturers diversify their production facilities, this is a country with a young population, improving infrastructure where the opening up of capital markets in the months and years ahead could unlock some real value. As a result of the constraints on liquidity and the premium which applies to some stocks we have chosen to enter the market through a London listed investment trust. The Vietnam Opportunity Fund provides us with liquidity across a broad range of companies, included unlisted while trading at a 17% discount to NAV. To enable us to make these additions, we have sold a number of positions in the Company's portfolio; following some strong performance through most of 2018 we took some profit in Baosteel and also exited our position in Star Petroleum, we also sold Lend Lease in Australia following the previously mentioned provision and Hon Hai in Taiwan as the demand for Apple's smartphone products suffered owing to an overly aggressive pricing strategy. Outlook We remain positive on the outlook for Asian equities in the medium to long term but realise that politics and macro uncertainty will dictate market direction in the short term. The recent stock market rally at the start of 2019 and the decline in earnings expectations have combined to push valuations, to levels above the long term average, which has removed the compelling value that was on offer. For the market moves to be sustained earnings need to improve and encouragingly we are seeing tentative signs of this emerging. The measures put in place by China in 2018 are beginning to gain some traction and we expect that momentum to continue throughout the rest of 2019, which will have a positive knock on effect for the rest of the region. Our focus will continue to be on consumer related areas while we feel China still offers the best combination of value and growth in the region, despite the recent rally. Although Australia is the second highest allocation in the portfolio it is not an economy we feel that positive about. The elections in May this year could result in a left wing government which has already identified the dividend franking system as a target for change which could reduce the attractiveness of this country for an income investor. Although most of the stocks we own in Australia are not that exposed to the Australian economy it is something we will be paying close attention to as the year progresses. Although the earnings momentum in the region has deteriorated the outlook for dividends remains robust. Companies continue to be prudent with capital expenditure allowing excess cash to be routed towards dividends. With dividend pay-out ratios low relative to other more developed markets this is a trend we expect to continue for many years to come. Mike Kerley Fund Manager 25 April 2019 PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties associated with the Company's business can be divided into the following main areas: o Investment and strategy o Accounting, legal and regulatory o Operational o Financial Information on these risks and how they are managed is given in the Annual Report for the year ended 31 August 2018. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review. RELATED PARTY TRANSACTIONS The Company's current related parties are its Directors and Janus Henderson. There have been no material transactions between the Company and its Directors during the period and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable at the period end. In relation to the provision of services by Janus Henderson, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services, there have been no material transactions with Janus Henderson affecting the financial position of the Company during the period under review. DIRECTORS' RESPONSIBILITY STATEMENT The Directors confirm that, to the best of their knowledge: o the unaudited condensed set of financial statements has been prepared in accordance with IAS 34 - Interim Financial Reporting ("IAS 34") and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by Disclosure Guidance and Transparency Rule ('DTR') 4.2.4R; o the interim management report includes a fair review of the information required: ? by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months of the financial year, and their impact on the unaudited condensed set of financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and ? by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Company during the period; and any changes in related party transactions described in the 2018 Annual Report that could have an impact in the first six months of the current financial year). Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors shall remain responsible for establishing and controlling the process for doing so, and for ensuring that the financial statements are complete and unaltered in any way. For and on behalf of the Board John Russell, Chairman 25 April 2019 Investment Portfolio as at 28 February 2019 Company Country of incorporation Sector Valuation ?'000 % of Portfolio 1 HKT Trust & HKT Hong Kong Telecommunications 13,615 3.12 2 China Construction Bank China Financials 13,388 3.07 3 Macquarie Korea Infrastructure Fund South Korea Financials 12,993 2.98 4 Industrial & Commercial Bank of China China Financials 12,709 2.92 5 BHP Group Ltd Australia Basic Materials 12,107 2.78 6 China Yangtze Power China Utilities 11,605 2.66 7 China Mobile China Telecommunications 11,558 2.65 8 Kweichow Moutai China Consumer Goods 11,065 2.54 9 Taiwan Semiconductor Manufacturing1 Taiwan Technology 11,011 2.53 10 Digital Telecommunications Thailand Telecommunications 10,930 2.51 Top Ten Investments 120,981 27.76 11 China Vanke China Property 10,824 2.49 12 Macquarie Group Australia Financials 10,648 2.44 13 Wesfarmers Australia Consumer Services 10,291 2.36 14 Spark Infrastructure Australia Utilities 10,018 2.30 15 China Petroleum & Chemical China Oil & Gas 9,927 2.28 16 Rio Tinto Ltd Australia Basic Materials 9,799 2.25 17 Anhui Conch Cement China Industrials 9,661 2.22 18 Mapletree North Asia Hong Kong Property 9,579 2.20 19 Mapletree Commercial Trust Singapore Property 9,469 2.17 20 Ascendas REIT Singapore Property 9,469 2.17 Top Twenty Investments 220,666 50.64 21 Scentre Group Australia Property 9,448 2.17 22 E.Sun Financial Taiwan Financials 9,439 2.17 23 SK Telekom1 South Korea Telecommunications 9,347 2.15 24 Spark New Zealand New Zealand Telecommunications 9,253 2.12 25 DBS Group Singapore Financials 9,213 2.11 26 Amcor Australia Industrials 8,864 2.03 27 Orange Life Insurance South Korea Financials 8,828 2.03 28 Taiwan Cement Taiwan Industrials 8,827 2.03 29 Sands China China Consumer Services 8,648 1.98 30 SK Innovation South Korea Basic Materials 8,431 1.93 Top Thirty Investments 310,964 71.36 31 United Overseas Bank Singapore Financials 8,317 1.91 32 Far Eastern New Century Taiwan Basic Materials 8,191 1.88 33 Samsung Electronics2 South Korea Technology 8,146 1.87 34 PTT Thailand Oil & Gas 8,083 1.85 35 Indorama Ventures Thailand Basic Materials 7,935 1.82 36 Intouch Holdings Thailand Telecommunications 7,869 1.80 37 Chow Tai Fook Jewellery Hong Kong Consumer Goods 7,801 1.79 38 Treasury Wine Estates Australia Consumer Goods 7,754 1.78 39 Telekomunikasi Indonesia Indonesia Telecommunications 7,698 1.77 40 Anta Sports Products China Consumer Goods 7,570 1.74 Top Forty Investments 390,328 89.57 41 Suncorp Australia Financials 7,566 1.74 42 Dexus Australia Property 7,504 1.72 43 Venture Singapore Technology 7,086 1.63 44 Dali Foods China Consumer Goods 6,870 1.58 45 Powertech Technology Taiwan Technology 6,370 1.46 46 KB Financial Group South Korea Financials 5,847 1.34 47 VinaCapital Vietnam Vietnam Financials 4,840 1.11 48 China Forestry Holdings China Basic Materials - - 49 China Resources Land Apr 19 Put (Expiry 15/04/19) China Property (312) (0.07) 50 Anhui Conch Cement May 19 Call (Expiry 27/05/19) China Industrials (339) (0.08) Top Fifty Investments 435,760 100.00 Total Investments 435,760 100.00 (1) American Depositary Receipts (2) Preferred Shares Sector and Geographic exposure Sector Exposure Portfolio as at 28 February 2019 % Portfolio as at 31 August 2018 % Geographic Exposure Portfolio as at 28 February 2019 % Portfolio as at 31 August 2018 % Financials 23.8 28.4 Australia 21.5 17.1 Telecommunications 16.1 14.7 China 26.0 25.9 Property 12.9 10.4 Hong Kong 7.1 6.1 Basic Materials 10.7 10.5 Indonesia 1.8 1.5 Consumer Goods 9.4 7.4 Malaysia - 2.1 Technology 7.5 10.7 New Zealand 2.1 2.1 Industrials 6.2 7.0 Singapore 10.0 9.8 Utilities 5.0 4.4 South Korea 12.3 12.1 Consumer Services 4.3 - Taiwan 10.1 15.2 Oil & Gas 4.1 6.5 Thailand 8.0 8.1 Vietnam 1.1 - Total 100.0 100.0 Total 100.0 100.0 CONDENSED STATEMENT OF COMPREHENSIVE INCOME Half-year ended 28 February 2019 (Unaudited) Half-year ended 28 February 2018 (Unaudited) Year ended 31 August 2018 (Audited) Revenue return ?'000 Capital return ?'000 Total return ?'000 Revenue return ?'000 Capital return ?'000 Total return ?'000 Revenue return ?'000 Capital return ?'000 Total return ?'000 Investment income 9,194 - 9,194 7,897 - 7,897 29,914 - 29,914 Other income 1,160 - 1,160 1,108 - 1,108 2,665 - 2,665 Losses on investments held at fair value through profit or loss - (22,252) (22,252) - (256) (256) - (17,574) (17,574) Net foreign exchange (loss)/gain excluding (losses)/gains on investments - (168) (168) - 905 905 - (63) (63) -------- ----------- ----------- -------- -------- -------- --------- ----------- --------- Total income 10,354 (22,420) (12,066) 9,005 649 9,654 32,579 (17,637) 14,942 -------- ----------- ----------- ------- -------- -------- --------- ----------- --------- Expenses Management fees (934) (934) (1,868) (973) (973) (1,946) (1,935) (1,935) (3,870) Other expenses (236) (236) (472) (247) (247) (494) (498) (497) (995) -------- -------- --------- ------- -------- ------- -------- -------- --------- Profit/(loss) before finance costs and taxation 9,184 (23,590) (14,406) 7,785 (571) 7,214 30,146 (20,069) 10,077 Finance costs (121) (121) (242) (105) (105) (210) (236) (236) (472) -------- ----------- ----------- ------- -------- ------- -------- ----------- --------- Profit/(loss) before taxation 9,063 (23,711) (14,648) 7,680 (676) 7,004 29,910 (20,305) 9,605 Taxation (897) 245 (652) (639) - (639) (3,010) - (3,010) -------- ----------- ----------- ------- -------- ------- -------- ---------- --------- Profit/(loss) for the period and total comprehensive income 8,166 (23,466) (15,300) 7,041 (676) 6,365 26,900 (20,305) 6,595 -------- ----------- ----------- ------- -------- ------- -------- ----------- --------- Earnings per ordinary share basic and diluted (note 2) 6.59p (18.94p) (12.35p) 5.88p (0.57p) 5.31p 22.21p (16.77p) 5.44p ===== ======= ======= ===== ===== ===== ====== ====== ===== The total column of this statement represents the Condensed Statement of Comprehensive Income of the Company, prepared in accordance with IAS 34. 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 shareholders of the Company. There are no minority interests. CONDENSED STATEMENT OF CHANGES IN EQUITY Half-year ended 28 February 2019 (Unaudited) Stated capital ?'000 Distributable reserve ?'000 Capital reserves ?'000 Revenue reserve ?'000 Total ?'000 Total equity at 31 August 2018 139,698 180,471 97,255 23,580 441,004 Total comprehensive income: (Loss)/profit for the period - - (23,466) 8,166 (15,300) Transaction with owners, recorded directly to equity: Dividends paid - - - (13,642) (13,642) Shares issued 10,660 - - - 10,660 Share issue costs (32) - - - (32) ------------- ------------- ------------- ------------- ------------- Total equity at 28 February 2019 150,326 180,471 73,789 18,104 422,690 ======= ======= ======= ======= ======= Half-year ended 28 February 2018 (Unaudited) Stated capital ?'000 Distributable reserve ?'000 Capital reserves ?'000 Revenue reserve ?'000 Total ?'000 Total equity at 31 August 2017 121,784 180,471 117,560 22,667 442,482 Total comprehensive income: (Loss)/profit for the period - - (676) 7,041 6,365 Transaction with owners, recorded directly to equity: Dividends paid - - - (12,736) (12,736) Shares issued 13,138 - - - 13,138 Share issue costs (53) - - - (53) ------------- ------------- ------------- ------------- ------------- Total equity at 28 February 2018 134,869 180,471 116,884 16,972 449,196 ======= ======= ======= ======= ======= Year ended 31 August 2018 (Audited) Stated capital ?'000 Distributable reserve ?'000 Capital reserves ?'000 Revenue reserve ?'000 Total ?'000 Total equity at 31 August 2017 121,784 180,471 117,560 22,667 442,482 Total comprehensive income: (Loss)/profit for the year - - (20,305) 26,900 6,595 Transaction with owners, recorded directly to equity: Dividends paid (25,987) (25,987) Shares issued 17,983 - - - 17,983 Share issue costs (69) - - - (69) ------------- ------------- ------------- ------------- ------------- Total equity at 31 August 2018 139,698 180,471 97,255 23,580 441,004 ======= ======= ======= ======= ======= CONDENSED BALANCE SHEET 28 February 2019 (Unaudited) ?'000 28 February 2018 (Unaudited) ?'000 31 August 2018 (Audited) ?'000 Non-current assets Investments held at fair value through profit or loss (note 8) 436,411 463,716 462,638 ----------- ---------- ---------- Current assets Other receivables 7,871 12,730 3,253 Cash and cash equivalents 6,390 16,874 7,117 ----------- ---------- ----------- 14,261 29,604 10,370 ----------- ----------- ----------- Total assets 450,672 493,320 473,008 ----------- ----------- ----------- Current liabilities Investments held at fair value through profit or loss - written options (note 8) (651) (503) (461) Other payables (1,769) (10,961) (768) Bank loans and overdrafts (25,562) (32,660) (30,775) ----------- ----------- ----------- (27,982) (44,124) (32,004) ----------- ----------- ----------- Net assets 422,690 449,196 441,004 ====== ====== ====== Equity attributable to equity shareholders Stated share capital 150,326 134,869 139,698 Distributable reserve 180,471 180,471 180,471 Retained earnings: Capital reserves 73,789 116,884 97,255 Revenue reserve 18,104 16,972 23,580 ----------- ----------- ----------- Total equity 422,690 449,196 441,004 ====== ====== ====== Net asset value per ordinary share (note 3) 335.79p 369.93p 359.26p ======= ====== ====== CONDENSED STATEMENT OF CASH FLOWS Half-year ended 28 February 2019 (Unaudited) ?'000 Half-year ended 28 February 2018 (Unaudited) ?'000 Year ended 31 August 2018 (Audited) ?'000 Operating activities (Loss)/profit before tax (14,648) 7,004 9,605 Add back: Finance costs 242 210 472 Losses on investments held at fair value through profit or loss 22,252 256 17,574 Net foreign exchange losses/(gains) excluding foreign exchange losses/(gains) on investments 168 (905) 63 Sales of investments 128,984 160,052 407,666 Purchases of investments (125,134) (161,927) (425,248) Decrease in prepayments and accrued income 501 221 105 (Increase)/decrease in amounts due from brokers (4,793) (9,530) 62 Increase/(decrease) in other payables 1,009 978 (145) Increase in amounts due to brokers - 9,086 - Stock dividends included in investment income - - (574) -------------- ------------ ---------- Net cash inflow from operating activities before interest and taxation 8,581 5,445 9,580 -------------- ------------ ---------- Interest paid (251) (254) (500) Withholding tax on investment income (652) (639) (3,010) -------------- ------------ ---------- Net cash inflow from operating activities after interest and taxation 7,678 4,552 6,070 -------------- ------------ ---------- Financing activities Repayment of loan with CBA - - (31,833) Initial drawdown of loan with SMBC - - 32,282 Net loans repayment (5,216) 2,063 (985) Equity dividends paid (13,642) (12,736) (25,987) Share issue proceeds 10,660 13,138 17,983 Share issue costs (32) (53) (69) -------------- ------------ ---------- Net cash (outflow)/inflow from financing (8,230) 2,412 (8,609) -------------- ------------ ---------- (Decrease)/increase in cash and cash equivalents (552) 6,964 (2,539) Cash and cash equivalents at the start of the period / year 7,117 10,241 10,241 Exchange movements (175) (331) (585) -------------- ------------ ---------- Cash and cash equivalents at the end of the period / year 6,390 16,874 7,117 ======== ====== ====== Net debt Cash and cash equivalents 6,390 16,874 7,117 Bank loans & overdraft repayable within one year (25,562) (32,660) (30,775) ---------- ----------- ----------- Net debt (19,172) (15,786) (23,658) ====== ====== ====== NOTES 1. Accounting Policies: (a) Basis of preparation The condensed interim financial information has been prepared on a going concern basis, in accordance with IAS 34 and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority. The Annual Report and Financial Statements for the year ended 31 August 2018 were prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The unaudited results for the half-year ended 28 February 2019 have been prepared using the same accounting policies as those applied in the Company's financial statements for the year ended 31 August 2018 with the exception of the implementation of IFRS 9, 'Financial Instruments' and IFRS 15, 'Revenue from Contracts with Customers', which are standards applicable for this year, but have no impact on the financial statements. There has been no change to the segmental reporting assessment compared to the 31 August 2018 financial statements. These condensed financial statements do not include all information required for a full set of financial statements. The figures and financial information for the year ended 31 August 2018 are an extract based on the published financial statements and should be read in conjunction with them. The condensed financial information for the half-years ended 28 February 2019 and 28 February 2018 have not been audited. (b) Investments held at fair value through profit or loss All investments are designated upon initial recognition as held at fair value through profit or loss. These financial assets are designated on the basis that they are part of a group of financial assets which are managed and have their performance evaluated on a fair value basis. Financial assets are recognised/de-recognised at the trade date of the purchase/disposal. Proceeds will be measured at fair value, which will be regarded as the proceeds of sale less any transaction costs. The fair value of the equity instruments is based on their quoted bid price at the balance sheet date, without deduction of the estimated future selling costs. Participation notes are fair valued by reference to underlying stocks. The fair value of option contracts is determined by reference to the Black-Scholes model. The fair values of unquoted financial instruments within the portfolio are based on their last audited net asset values discounted where necessary to arrive at a fair value. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal, including exchange gains and losses, are recognised in the Statement of Comprehensive Income as 'Losses on investments held at fair value through profit or loss'. Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase. Significant accounting judgments and estimates The preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the amounts recognised in the financial statements; however, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in the future. As the majority of the Company's financial assets are quoted securities, in the opinion of the Directors, the amounts included as assets and liabilities in the financial statements are not subject to significant judgements, estimates or assumptions. The Company does not hold any Participation Notes at 28 February 2019 (28 February 2018: ?31.6 million, 31 August 2018: ?4.5 million). These are valued by reference to the underlying quoted stock. The obligations relating to the options valued at ?651,000 (liability) (28 February 2018: ?503,000 (liability), 31 August 2018: ?461,000 (liability)) are valued by reference to the Black-Scholes model. 2. Earnings per ordinary share The earnings per ordinary share figure is based on the net loss after taxation of ?15,300,000 (half-year ended 28 February 2018: profit ?6,365,000; year ended 31 August 2018: profit ?6,595,000) and on 123,919,862 ordinary shares (half-year ended 28 February 2018: 119,764,056; year ended 31 August 2018: 121,130,068) being the weighted average number of ordinary shares in issue during each of the periods. The earnings per ordinary share detailed above can be further analysed between revenue and capital, as below: Half-year ended 28 February 2019 (Unaudited) ?'000 Half-year ended 28 February 2018 (Unaudited) ?'000 Year ended 31 August 2018 (Audited) ?'000 Net revenue profit 8,166 7,041 26,900 Net capital loss (23,466) (676) (20,305) Net total (loss)/profit (15,300) 6,365 6,595 Weighted average number of ordinary shares in issue during the period / year 123,919,862 119,764,056 121,130,068 Pence Pence Pence Revenue earnings per ordinary share 6.59 5.88 22.21 Capital earnings per ordinary share (18.94) (0.57) (16.77) Total earnings per ordinary share (12.35) 5.31 5.44 The Company does not have any dilutive securities; therefore the basic and diluted returns per share are the same. 3. Net asset value per ordinary share The net asset value per ordinary share is based on a net asset value of ?422,690,000 (28 February 2018: ?449,196,000; 31 August 2018: ?441,004,000) and on 125,878,564 (28 February 2018: 121,428,564; 31 August 2018: 122,753,564) ordinary shares, being the number of ordinary shares in issue at each period end. 4. Transaction costs Purchase transaction costs for the half-year ended 28 February 2019 were ?94,000 (half-year ended 28 February 2018: ?189,000; year ended 31 August 2018: ?488,000). Sales transaction costs for the half-year ended 28 February 2019 were ?199,000 (half-year ended 28 February 2018: ?275,000; year ended 31 August 2018: ?846,000). Transaction costs for both purchases and sales principally consist of commission fees. 5. Share capital During the six months under review the Company issued a total of 3,125,000 shares (half-year ended 28 February 2018: 3,493,000; year ended 31 August 2018: 4,818,000) for net proceeds of ?10,628,000 (half-year ended 28 February 2018: ?13,085,000; year ended 31 August 2018: ?17,914,000) net of costs. Since the period end, a further 1,325,000 shares have been issued for net proceeds of ?4,663,000. 6. Dividends The Company pays dividends on a quarterly basis. On 30 November 2018, a fourth interim dividend of 5.50p per share was paid in respect of the year ended 31 August 2018. A first interim dividend, in respect of the year ended 31 August 2019, of 5.50p per share was paid on 28 February 2019. The second interim dividend of 5.50p per share will be paid on 31 May 2019 to shareholders on the register on 3 May 2019. The Company's shares will be quoted ex-dividend on 2 May 2019. Based on the number of shares in issue on 25 April 2019, the cost of this dividend will be ?6,996,000. 7. Management Fees Management fees are charged in accordance with the terms of the management agreement at a rate of 0.9% per annum of the first ?400,000,000 of net assets and 0.75% per annum of the balance of net assets greater than ?400,000,000. 8. Financial Instruments At the period end the carrying value of financial assets and financial liabilities approximates their fair value. Financial instruments carried at fair value Fair value hierarchy The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows: o Level 1: inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. o Level 2: inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. o Level 3: inputs are unobservable inputs for the asset or liability. Financial assets and financial liabilities at fair value through profit or loss at 28 February 2019 Level 1 ?'000 Level 2 ?'000 Level 3 ?'000 Total ?'000 Investments including derivatives: - Equity securities designated at fair value through profit or loss 436,411 - - 436,411 - Written options - (651) - (651) Total financial assets and liabilities carried at fair value 436,411 (651) - 435,760 Financial assets and financial liabilities at fair value through profit or loss at 28 February 2018 Level 1 ?'000 Level 2 ?'000 Level 3 ?'000 Total ?'000 Investments including derivatives: - Equity securities designated at fair value through profit or loss 432,129 31,587 - 463,716 - Written options - (503) - (503) Total financial assets and liabilities carried at fair value 432,129 31,084 - 463,213 Financial assets and financial liabilities at fair value through profit or loss at 31 August 2018 Level 1 ?'000 Level 2 ?'000 Level 3 ?'000 Total ?'000 Investments including derivatives: - Equity securities designated at fair value through profit or loss 458,113 4,525 - 462,638 - Written options - (461) - (461) Total financial assets and liabilities carried at fair value 458,113 4,064 - 462,177 Level 3 investments relate to one holding of China Forestry, transferred into Level 3 in 2012, written down to zero during the year ended 31 August 2014. There have been no transfers into/out of and no movements in Level 3 investments during the half-year ended 28 February 2019 and 28 February 2018 and the year ended 31 August 2018. The Company's holdings in options and Participation Notes are included within Level 2. No Participation Notes were held at 28 February 2019. The valuation techniques used by the Company are explained in the accounting policies note of the Annual Report and Financial Statements for the year ended 31 August 2018. Premiums from written options during the half-year ended 28 February 2019 were ?1,106,000 (half-year ended 28 February 2018: ?1,072,000, year ended 31 August 2018: ?2,591,000). The valuation techniques and inputs used for level 2 investments are as disclosed in note 1(b). 9. Going concern 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. Having assessed these factors and the principal risks, the Board has decided that it is appropriate for the financial statements to be prepared on a going concern basis. 10. Net debt reconciliation Bank loans and Cash and overdraft repayable cash equivalents within one year Total ?'000 ?'000 ?'000 Net debt as at 31 August 2018 7,117 (30,775) (23,658) Cash flows (552) 5,216 4,664 Exchange movements (175) (3) (178) Net debt as at 28 February 2019 6,390 (25,562) (19,172) 11. Half-Year Report The Half-Year Report will be available on the Company's website (www.hendersonfareastincome.com) or in hard copy format from the Company's registered office, IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP from late April 2019. Shareholders will be sent a copy of the abridged version of the half-year results in early May 2019. 12. General Information a) Company Status The Company is a Jersey domiciled closed-ended investment company, number 95064, which was incorporated in 2006 and which is listed on the London and New Zealand Stock Exchanges. The Company became UK tax resident with effect from 1 September 2018. SEDOL/ISIN number: JE00B1GXH751 London Stock Exchange (TIDM) code: HFEL Global Intermediary Identification Number (GIIN): NTTIYP.99999.SL.832 Legal Entity Identifier (LEI): 213800801QRE00380596 The Company is a Jersey fund which is regulated by the Jersey Financial Services Commission. b) Directors, Secretary and Registered Office The Directors of the Company are John Russell (Chairman), David Mashiter, Julia Chapman, Nicholas George and Tim Clissold. The Secretary is BNP Paribas Securities Services S.C.A. Jersey Branch and which is regulated by the Jersey Financial Services Commission. The registered office is IFC 1, The Esplanade, St Helier, Jersey, JE1 4BP. c) 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 for Henderson Far East Income Limited Telephone: 020 7818 5053 Laura Thomas Investment Trust PR Manager Janus Henderson Investors Telephone: 020 7818 2636 James de Sausmarez Director and Head of Investment Trusts Henderson Investment Funds Limited Telephone: 020 7818 3349 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. INDEPENDENT REVIEW REPORT TO HENDERSON FAR EAST INCOME LIMITED Conclusion We have been engaged by Henderson Far East Income Limited (the "Company") to review the condensed set of financial statements in the Company's half-yearly financial report for the six months ended 28 February 2019, which comprises the Condensed Balance Sheet as at 28 February 2019, the Condensed Statement of Comprehensive Income, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows for the six months period then ended and the related explanatory notes. Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. The purpose of our review work and to whom we owe our responsibilities This report is made solely to the Company in accordance with the terms of our engagement letter dated 26 March 2019 to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusion we have reached. Andrew P. Quinn For and on behalf of KPMG Channel Islands Limited Chartered Accountants 37 Esplanade, St. Helier, Jersey JE4 8WQ 25 April 2019 End CA:00333735 For:HFL Type:INTERIM Time:2019-04-29 08:30:40