INTERIM MANAGEMENT REPORT

CHAIRMAN'S STATEMENT

Markets/Performance

The first half of 2025 has seen financial markets deliver positive returns. A global backdrop of easing inflation and lower interest rates, combined with robust corporate results has enabled equity markets to move higher with UK equities also benefitting from a historically low relative valuation.

Against this backdrop the Company has also achieved a positive relative performance versus its benchmark (80% of the FTSE All-Share Index and 20% of the ICE BofA Sterling Non-Gilts Index) with a net asset value total return of 11.9% versus the benchmark return of 8.0%, outperformance of 3.9%. The Company's share price total return was higher still at 14.4% as the discount the share price has traded at relative to the Company's net asset value reduced during the period.

Gearing/Asset Allocation

The Company's asset allocation did not change significantly during the first half of the year with a clear bias towards equities at the expense of fixed interest investments versus the benchmark. During the period the Company had approximately 90% of its assets invested in equities and 10% in bonds. Gearing reduced a little in the period with the Company ending the first half with a gearing level of approximately 18% (versus approximately 21% at the start of 2025).

Dividends

The first interim dividend of 2.675 pence per share was paid on 25 April 2025 and the second interim dividend for the same amount was paid on 25 July 2025. A third interim dividend, to be paid from the Company's revenue account, of 2.775 pence per share was announced on 7 July 2025 and this dividend will be paid on 24 October 2025 to shareholders registered at the close of business on 12 September 2025 (with the shares being quoted ex-dividend on 11 September 2025).

Dividend payouts from UK companies have continued to be positive with overall levels of corporate profitability remaining healthy. In particular the UK banking sector has exhibited very solid dividend growth whilst the UK miners have seen payout levels more constrained.

The Board continues to regularly review prospective income levels from the Company's portfolio and it remains confident in the Company's ability to provide shareholders with a high income return.

Outlook

Whilst markets have made good progress in the first half of the year investors remain focused on the impact of ongoing tariff negotiations between the US and its trading partners and the impact that this may have on economic activity. With global inflationary pressures having eased a little there is some scope for monetary policy to become a little less restrictive although the US Federal Reserve appears reluctant to reduce rates for the moment. In the UK, although inflation has picked up a little, the Bank of England has lowered the UK interest rate to 4 percent due to signs that the labour market is cooling off and evidence that pay settlements at least in the private sector have begun to reduce.

The UK equity market has made good progress in the early part of the year, aided by strong company results and significant share buyback activity. There is a clear divergence between the apparent health of the corporate sector and government finances which remain under significant pressure due to public spending commitments. It is important to remember that a significant proportion of UK company profitability is derived from activities outside the UK and the UK market continues to trade at an attractive valuation relative to other global markets.

As usual, the Company's Fund Manager will continue to focus on delivering the high level of income which our shareholders expect while also mindful of the requirement to target longer term capital growth.

Jeremy Rigg

Chairman

9 September 2025

Fund Manager's Report

Markets

The UK equity market made strong returns during the first half of the year with the FTSE All-Share Index up 9.1% on a total return basis. Optimism over looser monetary policy, plans by European countries to boost defence spending and better than expected UK economic growth helped drive the equity markets higher during the first quarter. Global markets, however, experienced a sharp sell-off in early April 2025 after US President Trump announced new tariffs on imports, before quickly recovering after the US administration suspended their imposition for 90 days. The trade uncertainty also caused increased volatility in other asset classes, with the US dollar weakening against sterling, falling 9.4% over the period, and the oil price sinking 9.2% to $66 per barrel as at the end of June 2025.

The Bank of England announced two 25-basis-point (bps) interest rate cuts, reducing its benchmark rate to 4.25%. Annual inflation, however, remained stubbornly above its 2% target, as it accelerated to 3.4% in May from 3.0% in January 2025. The UK 10-year gilt yield ended June at 4.5%, down from 4.6% as at the end of last year, although this masked significant volatility in the period given the tariff uncertainties along with fears over the UK's fiscal deficit position.

Larger cap companies outperformed mid- and small-cap companies with the FTSE 100 Index rising 9.5% versus the FTSE 250 and FTSE Small Cap indices gaining 6.9% and 7.1% respectively. Sectors such as aerospace & defence, life insurance, banks and tobacco outperformed, while beverages, mining and general industrials lagged.

Performance

The Company's NAV (with debt at fair value) rose by 11.9% during the period, outperforming the Company's benchmark return of 8.0%. Within the equity portfolio, holdings in life insurance companies Phoenix and M&G were positive for performance. Phoenix reported good results with cash generation better than expected while M&G announced a long-term strategic partnership with Japanese Insurer Dai-Ichi Life, which is expected to deliver new business flows for M&G while Dai-Ichi will also acquire a 15% stake in the company. Some of the overseas equity holdings also aided performance with Nordic telecommunications company Tele2 and French utility Engie performing strongly. Tele2 released good results with early evidence that their cost transformation plan was leading to higher profits and cash flow. Engie shares reacted positively to its upgraded profit guidance on better trading and increased capital investment plans in energy infrastructure. 

Elsewhere, not holding Rolls Royce was a negative to relative performance given its strong share price performance and large weighting in the benchmark. Rolls Royce's full year results significantly beat expectations while the shares were further supported by the proposal by the new German government to materially increase its defence spending. This also led to strong outperformance from holdings in defence contractors BAE and Chemring which helped offset some of the relative performance headwind.

Portfolio Activity

Given geopolitical and economic uncertainties and the strength of equity markets, gearing was modestly reduced during the first half of the year and finished the period at 18.2%.

Within the equity portfolio new holdings were established in overseas companies BNP Paribas and AXA. BNP is a diversified and strongly capitalised bank and is well placed to benefit from any de-regulation of the EU banking sector and capital market reforms. This should help release capital, drive higher growth and improve returns which we believe is not currently discounted in the valuation. AXA is a well-diversified European multi-line insurer with a strong solvency position and attractive dividend. Sales for the period included SSE, Mobico and Sabre Insurance. UK utility SSE is due to make significant investments in renewable energy projects over the next few years, however, we are concerned over the level of returns given the material increase in construction costs in recent years. We exited Mobico at the beginning of the year on fears over the balance sheet and the company's ability to sell assets to reduce leverage. Finally, Sabre was sold after a recovery from its share price lows given margins had recovered back to more normalised levels.

David Smith

Fund Manager

9 September 2025

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Accounting policies: basis of accounting

The Company is a registered investment company as defined by Section 833 of the Companies Act 2006 and operates as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010.

The condensed set of financial statements has been prepared in accordance with FRS 104, Interim Financial Reporting, FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and the Statement of Recommended Practice for "Financial Statements of Investment Trust Companies and Venture Capital Trusts", which was updated by the Association of Investment Companies in July 2022.

For the period under review the Company's accounting policies have not varied from those described in the Annual Report for the year-ended 31 December 2024. The condensed set of financial statements has been neither audited nor reviewed by the Company's auditor.

2. Management fees

Management fees are charged in accordance with the terms of the management agreement which are set out in the Company's Annual Report for the year-ended 31 December 2024.

3. Revenue return per ordinary share

The revenue return per ordinary share is based on the following figures:

The Company does not have any dilutive securities therefore the basic and diluted returns per share are the same.

4. Fair values of financial assets and financial liabilities

The fair values of the financial assets and liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives), or the statement of financial position amount is a reasonable approximation of fair value (due from brokers, dividends, and interest receivable, due to brokers, accruals, cash at bank, bank overdrafts and amounts due under the multi-currency loan facility). The senior unsecured note is held in the Statement of Financial Position at amortised cost in line with the Company's accounting policies.

Categorisation within the fair value hierarchy for those assets and liabilities held at fair value in the Statement of Financial Position has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset:

·      Level 1: the unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

·      Level 2: valued by reference to valuation techniques using observable inputs other than quoted prices included in Level 1.

·      Level 3: valued by reference to valuation techniques using inputs that are not based on observable market data.

The Company's holdings in options are included within Level 2 and are included in creditors amounts falling due within one year in the Statement of Financial Position. 

Premiums from written options during the half-year ended 30 June 2025 were £160,000 (half-year ended 30 June 2024: £nil; year-ended 31 December 2024: £202,000).

At 30 June 2025 the fair value of the senior unsecured note has been estimated to be £18,066,000 (30 June 2024: £18,095,000; 31 December 2024: £17,722,000) and would be categorised as Level 3 in the fair value hierarchy.

The current estimated fair value of the senior unsecured note is calculated using a discount rate based on the redemption yield of the relevant existing reference UK Gilt plus a suitable estimated credit spread. The estimated credit spread is based on the spread between the yield of the ICE BofA 5-10 Year A Sterling Non-Gilt Index and the redemption yield of the ICE BofA 5-10 Year UK Gilt Index. The discount rate is calculated and updated at each month end and applied daily to determine the Company's published fair value NAVs.

5. Net asset value per ordinary share

The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £327,260,000 (half-year ended 30 June 2024: £304,238,000; year ended 31 December 2024: £303,207,000) and on the 170,705,636 ordinary shares in issue (excluding treasury shares) at 30 June 2025 (30 June 2024: 172,141,700; 31 December 2024: 172,141,700).

6. Share capital

7. Dividends

9. Going concern

The Directors have considered the risks associated with global interest rates that continue to remain at higher levels despite recent cuts and the continued impact on the broader financial system, as well as the risks arising from the wider ramifications of geopolitical conflicts, 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 repayment of the bank loan, as they fall due for a period of at least twelve months from the date of issuance. Having assessed these factors, the principal risks and other matters discussed in connection with the viability statement, the Board has determined that it is appropriate for the financial statements to be prepared on a going concern basis.

The Company's shareholders are asked every five years to vote for the continuation of the Company. An ordinary resolution to this effect was passed by the shareholders at the annual general meeting held on 13 May 2025.

10. 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 facilitation of marketing activities with third parties, there have been no material transactions with Janus Henderson affecting the financial position of the Company during the period under review.

11. Half Year Report

The half-year report is available at www.hendersonhighincome.com or in hard copy from the Corporate Secretary by emailing [email protected]. An abbreviated version of this half-year report, the 'Update', will be circulated to shareholders in September 2025.

12. General information

a) Company Status

The Company is a UK domiciled investment trust company with registered number 02422514.

SEDOL/ISIN number: 0958057

London Stock Exchange (TIDM) code: HHI

Global Intermediary Identification Number (GIIN): JBA08I.99999.SL.826

Legal Entity Identifier (LEI): 213800OEXAGFSF7Y6G11

b) Directors, Corporate Secretary and Registered Office

The Directors of the Company are Jeremy Rigg (Chairman), Jonathan Silver (Chairman of the Audit & Risk Committee), Francesca Ecsery (Senior Independent Director), Richard Cranfield and Preeti Rathi. The Corporate Secretary is Janus Henderson Secretarial Services UK Limited. The registered office is 201 Bishopsgate, London EC2M 3AE. 

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.hendersonhighincome.com