Annual Financial Report

RNS Number : 7024A

Dunedin Income Growth Inv Tst PLC

25 March 2013

DUNEDIN INCOME GROWTH INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2013

The objective of Dunedin Income Growth Investment Trust PLC is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom.

Highlights

· Net asset value per share up by 18.8% in total return terms outperforming the Company's benchmark, the FTSE All-Share Index which increased by 16.3% in total return terms.

· The Board is recommending a final dividend of 3.25p, which will make for a total of 10.75p for the full year (2012 - 10.65p).

For further information, please contact:-

Jeremy Whitley

Aberdeen Asset Managers Limited 0131 528 4000

Andrew Leigh

Aberdeen Asset Managers Limited 0207 463 6312

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.

1. CHAIRMAN'S STATEMENT

In this first annual report since I became Chairman it is pleasing to note that your Company has continued to make solid progress, delivering a very positive return and outperforming the FTSE All-Share on a total return basis. At the same time we have continued to enhance the diversity, quality and long-term income growth potential of the portfolio. As a result, the Board is pleased to propose a modest increase in the level of total dividend payment to shareholders.

Overall, despite the strong equity market rally since the middle of 2012, perhaps the most striking feature is that so little has really changed fundamentally. Policy interventions would appear to have averted, so far, the three major investor fears of the past year: the so called "hard landing" in China, the "fiscal cliff" in the United States and the fracturing of the Euro currency bloc. However, across the globe economic growth remains at a premium and real solutions to the deep rooted economic problems of too much debt and too little competitiveness remain elusive, being managed instead by repeated prescriptions of the economic morphine of cheap money.

Investors have become increasingly more adventurous and expectations of future returns have risen. This change in risk appetite has led to a rise in equity markets driven by an increase in the valuation multiples ascribed to companies as well as some growth in aggregate earnings.

To accompany the rebound in equity markets there also now seems to be an increasingly strongly held belief in an economic recovery across Europe in the second half of 2013. However, the current economic data remains woeful with recent fourth quarter GDP statistics for 2012 showing almost every economy on the continent in contraction and with the UK hovering on the edge of a so-called "triple dip" recession. Meanwhile indications of a sustainable uplift in growth seem to be wanting, additional stimulus measures absent and commitment to structural reforms wavering. The current malaise seems to owe more to a fundamental realignment of global economic power and a consequent shift in living standards and relative wealth than to the evolution of a traditional economic cycle. In the developed world only in the United States do economic prospects seem to be genuinely improving, aided by a broader based economy, more aggressive policymaking and a pragmatic approach to regulation of the financial services industry. Even so, the government there will at some point soon need to consider how it addresses the huge budget deficits they have been running in recent years.

After the period end it was announced that the rating agency Moody's had downgraded the UK from its long held AAA status. This is symptomatic of the challenges facing the UK economy, rather than anything more dramatic, a combination of low or no growth and elevated levels of inflation that seems likely to be the framework in which we will operate for the foreseeable future. However, at the current time sterling seems particularly vulnerable as the UK's challenges become clearer and the issues afflicting other currency blocks stabilise. It is important though to remember that one of your Company's great strengths is the international diversity of its portfolio. DIGIT pays a sterling dividend but collects around 40% of its income from foreign currency denominated distributions and has over 70% of the revenues of its investee companies coming from outside the UK.

Our general sense of caution though is not predicated on the expectation of dire future events - we expect that the most extreme possible outcomes will be averted through political compromise and large doses of monetary expansion - but on what feels an unpromising combination of a difficult environment for companies to grow their earnings and increasingly full valuations. It is not all doom and gloom though. Your Company is conservatively positioned and we continue to believe that the companies in which we invest remain in good financial shape and should be well capable of weathering any downturn. During 2012/13 they have shown an appetite and a capacity both to return surplus capital to shareholders and to continue to grow their underlying dividend distributions. We expect this to continue as we move through the year at more or less a similar pace. Tough economic conditions also present opportunities to those companies with strong positions and ample financial fire-power to invest more cheaply, consolidate weaker competitors and gain market share, laying the groundwork for future growth. We believe that the large majority of the businesses will come through this difficult period stronger and in even better financial shape.

Gearing

The Company continues to believe that sensible use of modest financial gearing, whilst amplifying market movements in the short-term, will enhance returns of both capital and income to shareholders over the long-term. To this end we employ two sources of financial leverage, a core long-term fixed rate debenture (repayable in 2019) with a nominal value of £28.6 million and a variable rate bank loan facility of £20 million of which £5 million was drawn. This has remained unchanged over the course of the year.

With debt valued at par potential gearing has decreased from 9.8% at the end of the last financial year to 8.7% as a result of the increase in value of the Company's asset base. On a pure equity basis, netting out our cash position, gearing has declined from 8.7% to 7.9%.

With the renewal of the variable rate bank loan facility coming up in July the Board is currently considering a potential expansion, of fairly modest scope, in the banking facilities available to the Company. This does not indicate an intention or desire to increase leverage ratios at the current time but reflects both the larger size of the Company's assets and recognition of the need to have flexibility given that most of the current undrawn portion of the bank facility provides liquidity support to our option writing programme.

Corporate Governance and Regulation

The Board fully endorses the UK Corporate Governance Code and takes action to ensure that we comply with all aspects relevant to Investment Companies by complying with the AIC's Code of Corporate Governance. Each Director (all of us being non-executive) is independent of the Company and, of course, of the Manager and any other significant service provider. Notwithstanding the fact that the Code provision relating to external evaluation of the Directors does not apply to the Company, we have decided we will implement this aspect.

In each of our regular Board meetings we review any issues raised by shareholders and seek to ensure that these have been satisfactorily dealt with through the Company's administrative procedures. I believe we have an effective system for resolving any problems but if any shareholder does have further concerns, administrative or otherwise, both I and John Carson, the Senior Independent Director, can be contacted through the Manager.

One of the Board's most important duties is to consider whether the Manager is appropriate in terms of experience, breadth and depth of resources and consistency of investment process and to ensure that its services are provided to the Company on a competitive basis. We review an extensive range of absolute and relative performance statistics (as well as the reasoning behind the Manager's decisions on the period's day-to-day transactions) and look at these indicators over a range of time periods to ensure that the Company adopts a long-term rather than short-term view.

A significant proportion of the Company's costs are represented by the fees paid to the Manager. We consider that our overall costs are very reasonable compared with the Company's peer group and that, within the total, the Manager's services (which cover not only portfolio management but also administrative and company secretarial matters) are currently provided at a competitive rate. We do not consider that we should seek to amend the fee basis to include a performance related element as this would introduce complexity and the evidence indicates that such arrangements tend, in general, to operate against shareholder interests.

We also make sure that at appropriate intervals we make time to consider strategic issues, for example the appropriateness of the Company's performance benchmark, Board guidelines on diversification of investments, diversification of income, gearing and other issues relating to the way the portfolio is managed and risks controlled.

Meanwhile, bureaucrats and politicians in Europe, continue to impose ever more regulation without, it seems to me, paying proper regard to the balance of costs and benefits of so doing. Despite its long and relatively untroubled history and intensive lobbying by our industry association, the UK Investment Trust sector will shortly be subject to the Alternative Investment Fund Managers Directive (you might well ask in exactly what sense are we an "Alternative Investment Fund"!). This will begin to be implemented from July and will increase compliance and regulatory costs. The Directive is subject to further guidance and may not be fully implemented in the UK until July 2014 - in the meantime the Board will continue to monitor its progress and implications with a view to making the necessary changes on the most efficient basis possible.

Discount

Over the past year the price relative to the Net Asset Value at which the shares of your Company trades moved from a discount of 4.5% to a premium of 1.5%.

In recent months the Company has traded consistently at a very tight discount to its Net Asset Value and occasionally, just as it finished the financial year, at a premium. If the Company continues to trade at levels that represent a suitable premium to net asset value then the Board will look to utilise its power to issue new shares. This should have the impact of both controlling any premium whilst at the same time helping to spread central fixed costs over a larger number of shares.

In contrast we did not undertake any share re-purchases during the year, but we are once again seeking shareholders' permission to do so. Whilst it seems unlikely at the current moment, we are prepared to use this measure in the light of both DIGIT's absolute level of discount and relative to those of our peer group.

Dividend

Much of the work undertaken by your Manager since the 2008 financial crisis has been about repairing, then stabilising and finally looking to grow the revenue generating capability of the Company. We believe we are now reaching the later stages of this process and shortly, we expect the income growth of the Company will be aligned with the dividend growth of its underlying investments. In 2012/13 we have continued the process of looking to enhance the diversity of our income streams and to increase its long-term growth potential. This though has come at a cost to near-term earnings as we have reduced positions in higher yielding companies with elevated dividend risk and lower growth to reinvest in businesses which we perceive to have lower risk to their dividends and to increase their long-term growth potential. As a result we have seen more modest progression in underlying earnings in 2012/13 than we might otherwise have done. Looking forward to 2013/14, assuming no major change in financial market conditions, we expect to see a continuation of a similar theme with slightly faster revenue per share development, before we start to see the full benefit of the portfolio reorganisation in 2014/15 and a consequently higher overall level of growth.

When it comes to setting dividend distributions, as a Board we make a long-term assessment of the income generating capability of the portfolio which we have broadly outlined above. However, in these uncertain times it seems prudent to us to continue to pay a dividend that is not only covered by future expectations but also by the reality of the revenues earned during the financial year. As a result we have proposed a final dividend of 3.25p which will make for a total of 10.75p for the full year, an increase of 0.9%. The Board continues to aspire to a dividend that can grow in real terms, while taking a prudent view on the cyclicality of earnings, and being underpinned by a sensibly diversified and high quality portfolio of investments.

Outlook

The outlook remains challenging, despite the recent improvements in investor sentiment and stock markets. We will be very surprised if we see a significant and sustained upswing in economic growth in the developed world as we move through 2013. While our portfolio remains in good shape, earnings expectations for the year ahead seem unrealistic and valuations are increasingly lofty. Our investment strategy of concentrating our capital into a sensibly diversified portfolio of good quality companies while retaining a keen eye on valuation remains particularly appropriate and should leave us well placed both to preserve capital value and to grow our dividend over the longer term. If we continue to see markets rally very strongly then, notwithstanding our gearing, we would expect that our lower exposure to some of the more volatile sectors would result in underperformance against the wider index. This remains a time where losing sight of quality amidst the siren call of potential recovery could be an expensive mistake. Your Manager will need to be extremely vigilant in the year ahead as the potential risks to your capital feel more elevated than for some considerable time.

Annual General Meeting

The Company's Annual General Meeting takes place in Edinburgh, on 23 May 2013, and I look forward to seeing as many of you there as possible.

Rory Macnamara

Chairman

22 March 2013

2. MANAGER'S REVIEW

In reviewing the financial year just completed we find ourselves doubly surprised. Surprised that equity markets delivered as strong a return as they did, surprised too that the Company has managed, more or less, to keep pace with such developments. Given our focus on investing in good quality companies, a year in which both the MSCI World and the FTSE All-Share rose over 16% is not our natural hunting ground. But 2012/13 was very much a year of contrasts with the first part seeing volatile conditions, in which we were able to relatively prosper, followed by a significant market rally once the President of the ECB, Mario Draghi, promised to do "whatever it takes" to save the Euro. From the low point at the beginning of June the FTSE All-Share rallied over 20%, while European indices such as the DAX increased by over 30% and in the countries exhibiting the most stress the main bourses in Italy and Spain advanced upwards of 40%. During these kinds of markets, where generally speaking the more distressed and lower quality companies see the biggest increases in their share prices, our approach to investing has little chance of outperforming. Therefore we are pleased that in aggregate we have managed to outperform our benchmark indices for the fourth successive year.

We thought that this year, to mark the seventh year of the financial crisis, we would spare the reader a blow-by-blow account of the macro economic travails of the previous twelve months and instead focus our efforts on what has been going on within the portfolio. In passing we note that if the events of the last few weeks are anything to go by, with US politicians making teachers work four days a week because they cannot agree on budget reforms, the Conservative party trailing UKIP in the Eastleigh by-election, an Italian comic getting 26% of the national vote and Silvio Berlusconi getting another 29%, then investors would be wise to expect more of the same in the months ahead.

Performance

We highlighted at the interim results that the rate of revenue development was likely to be lower in the second half as we suffered the effect of lower option income, a lack of a recurrence of Vodafone's special dividend and a deliberate decision to continue to diversify the portfolio's income streams and to invest in some lower yielding but faster growing companies.

In the end total income declined by 1.6% year on year driven by a 12% decline in the amount of option premium raised, affected by the substantial reduction in market volatility, and a slight decline in income from equity investments due to a lack of the aforementioned special dividend from Vodafone. Excluding one-offs, income from equities actually rose 2.3%. We estimate that the weighted average dividend per share growth for our holdings was around 6.5% the difference being driven by changes to the portfolio as we reduced exposure to a number of higher yielding businesses where we believed there to be lower growth prospects. Encouragingly from a diversification perspective over 20% of our income from investments came from our overseas holdings. At the bottom line earnings per share reduced 2.1% to 10.77p: excluding the effect of Vodafone we achieved a 0.5% increase, aided by a reduction in both finance and administrative costs.

Total return performance on a net asset basis over the year saw the portfolio outperform the market delivering 18.8% against the FTSE All-Share's total return of 16.3%. Given such strong markets relative to our expectations and our quality focussed investment approach we are surprised to have managed to outperform the benchmark over the year. One of the standout features of the portfolio during the course of the year though was a lack of major problems at the company level. Normally, simply on the law of averages in a portfolio of 30-40 holdings, several of our businesses will encounter difficulties in trading for one reason or another over the year. In 2012/13 we were lucky and while the going certainly was not easy only GDF Suez saw its earnings prospects, and by extension its share price, deteriorate markedly over the period.

We probably dwell a little too much on the so called "problem children" of the portfolio but we spend a relatively large amount of time trying to avoid the pitfalls and our experience tells us that if we concentrate on where we have difficulties the stronger companies operating in more favourable conditions tend to take care of themselves. The most challenging situations will always generate the hardest, but also often the most rewarding decisions that we have to make.

With regards to GDF Suez, the French listed multi-national energy company, we retain a watching brief. Trading has been tough for them over the past few years, mainly due to battles with various regulators, low gas prices and narrow margins for their European power generation fleet. While there will be no quick turnaround we believe that the company is operating in conditions that are at or close to trough and we will need to be patient in order to extract best value. In the meantime the company has a reasonable balance sheet and is committed, for the time being at least, to maintaining what is currently a very generous dividend distribution.

Other companies that negatively impacted performance did so in a more modest fashion. Morrisons' continues to face a challenging UK grocery market. Finding its northern heartlands a more difficult place to do business than its competitors find much of the south of England, while their reluctance to expand into convenience formats and online ordering have excluded them from two of the fastest growing parts of the market. We continue to weigh what is a simple and well run business with a very modest valuation and reasonable dividend yield against the thought that there might be more rewarding places to invest, especially given our investment in Tesco which faces similar challenges.

Pearson was another company that found 2012 reasonably tough as it faced a difficult North American education market and suffered from cuts to a number of government training programmes in the UK. Nonetheless, in a far from easy year, underlying operating profit was more or less flat which puts some context to the scale of its challenges. The company has undertaken major restructuring over recent times, exiting non-core businesses at very good prices and seeking more ambitious solutions such as merging their Penguin publishing unit with Random House allowing it to focus more on their core competence of education provision. We believe it to be extremely well placed competitively for the long-term, in a market that should exhibit good levels of relatively acyclical growth, backed by a strong balance sheet and robust cash flows. The valuation also looks particularly reasonable for such a business and we suspect that looking forward five years it may well be one of our better performers.

Not everything of course proved as challenging and there were a number of companies which performed very well over the year. Ironically, five of our six top performing investments over the period had all faced substantial investor criticism and concern for various reasons over the past few years. This again proves the adage that taking a long-term approach and focussing on the fundamentals often provides the best opportunities. Prudential, heavily criticised for its attempt to buy its biggest competitor in its fastest growing markets just three years ago, again delivered a very robust operational performance as it continues to combine fast growth in Asia and M&G, with profit and cash flow from its US and British operations. Close Brothers and Provident Financial both showed over the year that it is possible to make good money in UK banking if you stick to your niches, focus on good quality underwriting and possess robust capital and funding positions. It was also pleasing to see decent operational and share price performances from Swiss pharmaceutical company Roche and French real estate owner Unibail-Rodamco helping to justify in a small way the capital allocation we have made away from the UK equity market.

Portfolio Activity

This was a modest year for portfolio activity in keeping with our philosophy of taking a long-term approach to investment. We added two new names to the portfolio over the period Casino Guichard Perrachon and BG Group. Both are good examples of the progress that the Company has made in recent years; the investment in the French-listed Casino, a business we have followed for many years, represents a further attempt to continue to take advantage of our capacity to invest overseas to enhance the quality of our holdings. Meanwhile, the investment in BG, also a company we know very well, demonstrates that we are now able to consider more fully capital and income growth and not just focus on high headline dividend yields.

While Casino's notional description as a French supermarket may seem rather unappealing its real strengths lie in the fact that it now derives a substantial majority of its sales and profits from its fast growing operations in South America and Asia. We believe that it has the potential both to grow its dividend pay out at good rates and to deliver substantial capital gains over the medium term.

When BG Group announced a significant delay to their oil and gas production schedule we used the subsequent sharp fall in the share price to build an initial stake. We believed that their update, while taken very badly by the stock market, had little implication for the longer-term value of the business. The significant growth potential of their production assets in Australia and Brazil remains, project costs and timescales now seem under control and the financing of their rapid expansion over the next few years is largely in place. While today it is not a payer of high dividends, it should have the potential to elevate its pay-out as its cash flows begin to build as production comes on-line over the next few years.

As ever we are very supportive of our businesses when they look to make sensible strategic investments and we willingly subscribed to fresh equity offerings from both GKN and Linde over the year. GKN's acquisition of Volvo's aerospace business was a particularly significant move for the company and one that caused us fundamentally to increase our enthusiasm for the business as they increased their exposure to a segment that has more attractive long-term prospects than much of their existing business.

A number of holdings were also added to where we were able to take advantage of relative share price weakness and consequent attractive valuations as a result of what we deemed to be temporary problems. This included buying more of the aforementioned Pearson, adding to Cobham on concerns over their exposure to US defence spending, Sage on weaker trading in southern Europe and Weir Group on worries over sales of pumping equipment to the oil & gas market in North America. All of these businesses possess the robust quality attributes that we look for and while facing near term issues were trading at valuations that in our opinion more than adequately reflected the challenges. We do not try to time the bottom in such situations, instead we simply look to add more to holdings we like at prices we think make sense with a long-term view.

One example that took this to an extreme was when Standard Chartered was accused by US authorities of money laundering Iranian funds and threatened with the removal of their New York banking licence. This precipitated a dramatic collapse in the share price that at one point wiped over $17bn off the market value of the company in just a few hours. While not knowing for sure of the outcome we trusted the relationship we had built in many meetings with management over the last decade across the Aberdeen group and believed strongly that they would not have knowingly sanctioned such illegal activity. We also knew of the bank's extremely strong financial footing and their very attractive market prospects. As a result we decided to add to our holding which fortunately was proven to be the correct course of action when they settled with the New York Department of Financial Services a few days later for a fine that proved to be a fraction of the impact on the share price.

Over the year we also added to positions in Compass and Berendsen as a result of increased confidence driven by consistent operating performance in challenging markets. Neither of these companies could ever be described as exciting; Compass is the world's leading contract catering company while Berendsen (formerly Davis Services) rents linen, workwear, floor mats and sells washroom consumables. They perform the kind of everyday functions that many of us take for granted. But they possess real strengths in that their products are essential and require high service levels, yet they represent very small costs to their customer. They protect their competitive position through both a local network that provides that high service level and through scale in driving buying power and competitive pricing. Both companies possess very strong cash generating capabilities, good balance sheets and have excellent management teams.

The decision was also taken to sell our holdings in both Daily Mail & General Trust and United Utilities. With Daily Mail we were increasingly concerned over the performance of their regional newspaper division and the longer-term prospects for their national titles, combined with a levered balance sheet. Recent signs have been encouraging for the company's transition to the digital world but we prefer the better balance and less dependence on cyclical advertising of businesses like Pearson. The decision to sell United Utilities was simply motivated by valuation, with low interest rates making the index-linked bond-like revenues increasingly attractive to investors in the ongoing hunt for yield. We were also conscious of our significant holding in National Grid, a similar business in which we held a much larger position and which traded on a more attractive valuation. We also continued the process of reducing our exposure to a number of higher yielding names including Astra Zeneca, Aviva and British American Tobacco. This reflected our desire to continue diversifying our revenue base and to look to recycle capital in companies with faster long-term growth prospects. We also took some profits in the very strongly performing and increasingly lower yielding Rolls Royce and Unilever. Both are exceptional businesses but had reached levels of valuation where we felt we could allocate capital to other areas for better medium term returns.

A series of options were also written over the year. This process has evolved from raising small premiums from a large number of options into a more strategic approach, though as ever investment fundamentals drive the decisions as we weigh the potential capital or opportunity cost against the prospective income. This will not only allow us to get paid additional premiums for choices we would otherwise have been happy to take, but to do it on a larger and more significant scale. Going forward we do not anticipate the quantum of revenues raised to increase much if at all but we do expect it to manifest itself in a smaller number of more significant positions and to remain a valuable weapon in our armoury to maximise income from lower yielding positions, to force our hand to make decisions and to generate helpful additional income.

From here we will continue to keep a close eye on valuation. While we have emphasised a desire to invest behind quality companies with faster dividend growth prospects the prices being asked for such businesses do look increasingly demanding. What value that remains in the market and is accompanied by the requisite quality seems increasingly to sit among the larger company end of the spectrum. We have an extensive watch list of potential investments for the portfolio and will continue to monitor and carry out prospective due diligence in anticipation of any potential relapse in price that could bring some of our targets within range. We will also continue to manage the diversity of the portfolio and to make sure our exposure to companies and economic drivers are well balanced.

Outlook

Our planning assumption is for continued tough economic times ahead. Even from our stock-picking perspective there seem very few investment avenues that lead to particularly attractive future returns. Over the course of the last year there were potential value opportunities available but these did come with fairly self-evident difficulties attached (the likes of Tesco, Cobham and GKN), the key was assessing whether or not these were transient problems and whether you were being adequately compensated for taking them on. However, today, while there are plenty of struggling companies to invest in, there are even fewer of those types of positions available where we perceive the combination of a good quality business, temporary problems and an attractive price to be present.

In general valuation terms we are of course far from dot.com euphoria, but when we look for companies offering us the prospective returns we aspire to we find it hard to make investment cases add up without increasingly optimistic growth assumptions that appear to be more and more unrealistic in an economic environment that offers very little help. We expect that companies with strong business models and exposure to the faster growing parts of the world will continue to prosper but in general their valuations increasingly reflect these well-known qualities as investors chase the same thematics.

Nonetheless your Company's portfolio is fundamentally in good shape and well positioned to cope with what may be volatile times ahead. Looking forward we will need to be ever more vigilant and disciplined when applying the twin pillars of our investment process of quality and value. We learnt to our cost in 2008 the perils of compromising on quality in the search for value. Likewise it will be important not to compromise on valuation for quality's sake especially when the temptation to overpay, given the apparent disparity in future growth prospects within the market, is so strong. It is likely that we will have to accept that if equity markets continue to move ahead at a rapid pace then there is little chance that we will be able to keep up. But there remains important work to do in continuing to tend the revenue account, enhancing the quality of the portfolio and driving for a better balance between income today and tomorrow's growth, all in all making sure that should more challenging times emerge again that the Company is even better placed to weather them.

Jeremy Whitley and Ben Ritchie

Aberdeen Asset Managers Limited

22 March 2013

3. BUSINESS REVIEW

The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006. A review of the Company's activities is given in the Chairman's Statement and the Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business and recommended dividend. The Board has adopted a matrix of the key risks that affect its business. The major risks associated with the Company are detailed in note 19 to the Financial Statements. Other risks include:

· Performance risk: A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The NAV performance relative to the FTSE All-Share Index ("the Index") and the underlying stock weightings in the portfolio against the Index weightings are monitored closely by the Board.

· Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company operates a share buyback programme which is reviewed on a continuing basis.

· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 Statutory Instrument 2011/2999, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. Below are the main key performance indicators ("KPIs") which have been identified by the Board for determining the progress of the Company:

- Net Asset Value

- Revenue Return per Ordinary share

- Share Price

- Discount

- FTSE All-Share Index

- Ongoing Charges

In addition the Directors also consider net asset value total return, share price total return and dividend levels when reviewing KPIs.

The Company makes no political donations or expenditures or donations for charitable purposes and, in common with most investment trusts, has no employees.

Dividends

The first, second and third interim dividends for the year ended 31 January 2013 of 2.5p per Ordinary share each were paid on 31 August 2012, 30 November 2012 and 28 February 2013 respectively. These were the first quarterly dividends to be paid by the Company following the change in frequency of dividends from half yearly to quarterly since the start of the 2013 financial year.

The Directors now recommend a final dividend of 3.25p per Ordinary share payable on 31 May 2013 to holders of Ordinary shares on the register on 3 May 2013. The relevant ex-dividend date is 1 May 2013. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

Status

The Company is an investment company, within the terms of Section 833 of the Companies Act 2006 and carries on business as an investment trust. The Company is registered as a public limited company and the Company's registration number is SC000881.

The Company carries on business as an investment trust for the purpose of Section 1158 of the Corporation Tax Act 2010 and has been approved as such by HM Revenue & Customs for the period ended 31 January 2012 although approval for that year would be subject to review were there to be any enquiry under the Corporation Tax Self Assessment regime. The Company has subsequently conducted its affairs so as to enable it to continue to seek such approval.

The revised investment trust company tax regime under Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 applies for the year ended 31 January 2013. The Company applied for approval under the new regime post the 2012 year end and has been approved as an investment trust company for accounting periods commencing on or after 1 February 2012.

Going Concern

The Company's assets consist mainly of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and derivative contract positions and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The current bank loan expires in July 2013 and negotiations for renewing the loan have already commenced. The Company's Directors believe that the Company has adequate resources to continue its operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

4. STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and the financial statements, in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standardsand applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

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

· the Directors' Report includes 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 the Company faces.

For Dunedin Income Growth Investment Trust PLC

John Carson

Audit Committee Chairman

22 March 2013

INCOME STATEMENT

		Year ended 31 January 2013			Year ended 31 January 2012
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments	9	-	48,196	48,196	-	(4,394)	(4,394)
Currency gains/(losses)		-	115	115	-	(84)	(84)
Income	2	18,866	-	18,866	19,173	-	19,173
Investment management fee	3	(565)	(848)	(1,413)	(560)	(840)	(1,400)
Administrative expenses	4	(757)	-	(757)	(788)	-	(788)
		______	______	______	______	______	______
Net return before finance costs and taxation		17,544	47,463	65,007	17,825	(5,318)	12,507

Finance costs	5	(969)	(1,450)	(2,419)	(980)	(1,470)	(2,450)
		______	______	______	______	______	______
Return on ordinary activities before taxation		16,575	46,013	62,588	16,845	(6,788)	10,057

Taxation	6	(341)	-	(341)	(264)	-	(264)
		______	______	______	______	______	______
Return on ordinary activities after taxation		16,234	46,013	62,247	16,581	(6,788)	9,793
		______	______	______	______	______	______

Return per Ordinary share (pence)	8	10.77	30.53	41.30	11.00	(4.50)	6.50
		______	______	______	______	______	______

The column of this statement headed "Total" represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

BALANCE SHEET

		As at	As at
		31 January 2013	31 January 2012
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	9	416,868	370,711
		_________	_________

Current assets
Loans and receivables	10	866	2,887
Cash and short term deposits	17	3,102	3,890
		_________	_________
		3,968	6,777
		_________	_________

Creditors: amounts falling due within one year
Bank loan	11	(5,000)	(5,000)
Other creditors	11	(1,712)	(2,702)
		_________	_________
		(6,712)	(7,702)
		_________	_________
Net current liabilities		(2,744)	(925)
		_________	_________
Total assets less current liabilities		414,124	369,786

Creditors: amounts falling due after more than one year	12	(28,519)	(28,506)
		_________	_________
Net assets		385,605	341,280
		_________	_________

Capital and reserves
Called-up share capital	13	38,419	38,419
Share premium account		4,543	4,543
Capital redemption reserve		1,606	1,606
Capital reserve	14	321,142	275,129
Revenue reserve		19,895	21,583
		_________	_________
Equity shareholders' funds		385,605	341,280
		_________	_________

Adjusted net asset value per Ordinary share (pence)	18	255.82	226.39
		_________	_________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 January 2013
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2012		38,419	4,543	1,606	275,129	21,583	341,280
Return on ordinary activities after taxation		-	-	-	46,013	16,234	62,247
Dividends paid	7	-	-	-	-	(17,922)	(17,922)
		______	______	______	______	______	______
Balance at 31 January 2013		38,419	4,543	1,606	321,142	19,895	385,605
		______	______	______	______	______	______

For the year ended 31 January 2012
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2011		38,419	4,543	1,606	281,917	20,442	346,927
Return on ordinary activities after taxation		-	-	-	(6,788)	16,581	9,793
Dividends paid	7	-	-	-	-	(15,440)	(15,440)
		______	______	______	______	______	______
Balance at 31 January 2012		38,419	4,543	1,606	275,129	21,583	341,280
		______	______	______	______	______	______

The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.

CASH FLOW STATEMENT

		Year ended		Year ended
		31 January 2013		31 January 2012
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		17,654		17,969

Servicing of finance
Interest paid			(2,373)		(2,442)

Taxation
Overseas withholding tax paid			(341)		(264)

Financial investment
Purchases of investments		(44,388)		(67,638)
Sales of investments		46,467		54,357
		_______		_______
Net cash inflow/(outflow) from financial investment			2,079		(13,281)

Equity dividends paid	7		(17,922)		(15,440)
			_______		_______
Net cash outflow before use of liquid resources and financing			(903)		(13,458)

Net cash inflow from management of liquid resources			-		13,866
			_______		_______
Net cash (outflow)/inflow before financing			(903)		408

Net cash inflow from financing			-		-
			_______		_______
(Decrease)/increase in cash			(903)		408
			_______		_______

Reconciliation of net cash flow to movements in net debt
(Decrease)/increase in cash as above			(903)		408
Net change in liquid resources			-		(13,866)
Exchange movements			115		(84)
Non-cash movements			(13)		(13)
			_______		_______
Movement in net debt in the period			(801)		(13,555)
Opening net debt			(29,616)		(16,061)
			_______		_______
Closing net debt			(30,417)		(29,616)
			_______		_______

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 JANUARY 2013

1.	Accounting policies
	(a)	Basis of preparation and going concern
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and traded options, and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

		The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report.

		The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

	(b)	Revenue, expenses and interest payable
		Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on AAA rated money market funds and short term deposits and expenses are accounted for on an accruals basis. Income from underwriting commission is recognised as earned. Interest payable is calculated on an effective yield basis.

		Expenses are charged to capital when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs including the amortisation of expenses and premium related to the debenture issue are allocated between revenue and capital in line with the Board's expectation of returns from the Company's investments over the long-term in the form of revenue and capital respectively (see note 3).

		Stock lending income is recognised on an accruals basis.

	(c)	Investments
		Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement.

	(d)	Dividends payable
		Interim and final dividends are recognised in the period in which they are paid.

	(e)	Capital reserves
		Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve.

		The Ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve.

	(f)	Taxation
		The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

		Owing to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

	(g)	Foreign currency
		The Company receives a proportion of its investment income in foreign currency. These amounts are translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date.

	(h)	Traded options
		The Company may enter into certain derivatives (e.g. options). Option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value. The initial fair value is based on the initial premium, which is recognised upfront. The premium received and fair value changes in the open position which occur due to the movement in underlying securites are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Income Statement.

		In addition, the Company may enter into derivative contracts to manage market risk and gains or losses arising on such contracts are recorded in the capital column of the Income Statement.

	(i)	Borrowings
		Immediately after issue, debt is stated at the fair value of the consideration received on the issue of the capital instrument after deduction of issue costs. The finance cost of the debt is allocated to periods over the term of the debt at a constant rate on the carrying amount.

		2013	2012
2.	Income	£'000	£'000
	Income from investments
	UK listed - franked	12,708	13,693
	UK listed - unfranked	-	144
	Overseas listed	3,641	3,048
	Bond interest listed	-	273
	Stock dividends	966	195
		_______	_______
		17,315	17,353
		_______	_______
	Other income
	Interest from AAA rated money market funds	-	14
	Deposit interest	1	2
	Interest on VAT recovered	-	17
	Income on derivatives	1,508	1,723
	Income from stock lending	42	64
		_______	_______
		1,551	1,820
		_______	_______
	Total income	18,866	19,173
		_______	_______

	During the year, the Company was entitled to premiums totalling £1,508,000 (2012 - £1,723,000) in exchange for entering into derivative transactions. This figure includes a mark to market on derivative contracts open at each year end. Derivatives utilised were based on individual FTSE 100 stocks and FT 500 World's largest companies. At the year end there were 20 open positions, valued at a liability of £810,000 (2012 - liability of £442,000) as disclosed in note 11. Losses realised on the exercise of derivative transactions are disclosed in note 9.

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	565	848	1,413	560	840	1,400
		_______	_______	_______	_______	_______	_______

	The management fee paid to Aberdeen Asset Managers Limited (the "Manager") for the year ended 31 January 2013 is calculated, on a monthly basis, at 0.45% on the first £225 million, 0.35% on the next £200 million and 0.25% on amounts over £425 million per annum of the net assets of the Company, with debt at par and excluding commonly managed funds. The management fee is chargeable 40% to revenue and 60% to capital. There were no commonly managed funds held in the portfolio during the year to 31 January 2013 (2012 - none).

		2013	2012
4.	Administrative expenses	£'000	£'000
	Directors' fees	119	119
	Auditor's remuneration (excluding irrecoverable VAT):
	Fees payable to the Company's auditor for the audit of the Company's annual accounts	16	16
	Fees payable to the Company's auditor for other services
	interim review	5	5
	other services	1	1
	Investor Relations/Marketing	313	328
	Registrar's fees	41	46
	Share plan fees	48	64
	Printing and postage	44	42
	Other expenses	170	167
		_______	_______
		757	788
		_______	_______

	A payment of £313,000 (2012 - £328,000) was made to the Manager in respect of marketing and promotion of the Company.

	All of the expenses above, with the exception of Auditor's remuneration, include irrecoverable VAT where applicable. The prior year expenses have been restated to take account of the reallocation of irrecoverable VAT.

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
5.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loan interest	61	91	152	74	111	185
	Debenture Stock - repayable after 5 years	901	1,351	2,252	901	1,351	2,252
	Amortised Debenture Stock premium and issue expenses	5	8	13	5	8	13
	Bank overdraft interest	2	-	2	-	-	-
		_______	_______	_______	_______	_______	_______
		969	1,450	2,419	980	1,470	2,450
		_______	_______	_______	_______	_______	_______

			2013			2012
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Overseas tax suffered	452	-	452	348	-	348
		Overseas tax reclaimable	(111)	-	(111)	(84)	-	(84)
			_______	_______	_______	_______	_______	_______
		Current tax charge for the year	341	-	341	264	-	264
			_______	_______	_______	_______	_______	_______

	(b)	Factors affecting the tax charge for the year
		The UK Corporation tax rate was 26% until 31 March 2012 and 24% from 1 April 2012, giving an effective rate for the year of 24.33% (2012 - effective rate of 26.33%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below:

			2013			2012
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Return on ordinary activities before taxation	16,575	46,013	62,588	16,845	(6,788)	10,057
			_______	_______	_______	_______	_______	_______
		Corporation tax at 24.33% (2012 - 26.33%)	4,033	11,195	15,228	4,435	(1,787)	2,648
		Effects of:
		Non-taxable UK dividends	(3,092)	-	(3,092)	(3,606)	-	(3,606)
		Non-taxable stock dividends	(235)	-	(235)	(51)	-	(51)
		Capital (gains)/losses on investments not taxable	-	(11,726)	(11,726)	-	1,157	1,157
		Overseas taxes	341	-	341	264	-	264
		Non-taxable overseas dividends	(760)	-	(760)	(803)	-	(803)
		Excess management expenses	54	559	613	25	608	633
		Capital (gain)/loss on exchange movements not allowable	-	(28)	(28)	-	22	22
			_______	_______	_______	_______	_______	_______
		Current tax charge	341	-	341	264	-	264
			_______	_______	_______	_______	_______	_______

	(c)	Factors that may affect future tax charges
		At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £107,987,000 (2012 - £105,464,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future.

		2013	2012
7.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Final dividend for the year ended 31 January 2012 - 6.90p (2011 - 6.50p) paid 25 May 2012	10,399	9,796
	First interim dividend for the year ended 31 January 2013 - 2.50p (2012 - 3.75p) paid 31 August 2012	3,768	5,651
	Second interim dividend for the year ended 31 January 2013 - 2.50p paid 30 November 2012	3,768	-
	Return of unclaimed dividends	(13)	(7)
		_______	_______
	Dividends paid in the period	17,922	15,440
		_______	_______

	A third interim dividend was declared on 15 January 2013 with an ex date of 6 February 2013. This dividend of 2.50p was payable on 28 February 2013 and has not been included as a liability in these financial statements.

	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £16,234,000 (2012 - £16,581,000).

		2013	2012
		£'000	£'000
	First interim dividend for the year ended 31 January 2013 - 2.50p (2012 - 3.75p)	3,768	5,651
	Second interim dividend for the year ended 31 January 2013 - 2.50p	3,768	-
	Third interim dividend for the year ended 31 January 2013 - 2.50p	3,768	-
	Proposed final dividend for the year ended 31 January 2013 - 3.25p (2012 - 6.90p)	4,898	10,399
		_______	_______
		16,202	16,050
		_______	_______

	There have been no shares bought back since the year end and the proposed final dividend for 2013 is based on the latest share capital of 150,706,187 Ordinary shares.

		2013		2012
8.	Return per Ordinary share	£'000	p	£'000	p
	Revenue return	16,234	10.77	16,581	11.00
	Capital return	46,013	30.53	(6,788)	(4.50)
		_______	_______	_______	_______
	Total return	62,247	41.30	9,793	6.50
		_______	_______	_______	_______
	Weighted average number of Ordinary shares in issue		150,706,187		150,706,187
			_________		_________

		Listed	Listed
		2013	2012
9.	Investments: listed at fair value through profit or loss	£'000	£'000
	Opening fair value	370,711	361,864
	Opening investment holding gains	(54,647)	(66,528)
		_______	_______
	Opening book cost	316,064	295,336
	Purchases at cost	42,843	69,183
	Sales - proceeds	(44,882)	(55,942)
	Sales - realised gains ª	6,406	7,487
		_______	_______
	Closing book cost	320,431	316,064
	Closing investment holdings gains	96,437	54,647
		_______	_______
	Closing fair value	416,868	370,711
		_______	_______

		2013	2012
	Gains/(losses) on investments	£'000	£'000
	Realised gains on sales ª	6,406	7,487
	Change in investment holdings gains	41,790	(11,881)
		_______	_______
		48,196	(4,394)
		_______	_______

	ª Includes losses realised on the exercise of traded options of £1,456,000 offset by premium received of £1,508,000 per note 2.

	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Income Statement. The total costs were as follows:

		2013	2012
		£'000	£'000
	Purchases	152	281
	Sales	49	54
		_______	_______
		201	335
		_______	_______

		2013	2012
	Stock lending	£'000	£'000
	Aggregate value of securities on loan at the year end	9,298	17,543
	Maximum aggregate value of securities on loan during the year	24,786	19,220
	Fee income from stock lending	42	64

	Stock lending is the temporary transfer of securities by a lender to a borrower, with an agreement by the borrower to return equivalent securities to the lender at an agreed date. Fee income is received for making the investments available to the borrower. The principal risks and rewards, namely the market movements in share prices and associated dividend income are retained by the Company. During the period in which the securities are on loan the Company is restricted from trading in the securities on loan. In all cases the securities lent continue to be recognised on the Balance Sheet.

	All stocks lent under these arrangements are fully secured against collateral. The value of the collateral held at 31 January 2013 was £9,771,000 (2012 - £19,625,000) which comprised government stocks.

		2013	2012
10.	Debtors: amounts falling due within one year	£'000	£'000
	Amounts due from stockbrokers	-	1,585
	Net dividends and interest receivable	570	1,098
	Tax recoverable	263	180
	Other loans and receivables	33	24
		_______	_______
		866	2,887
		_______	_______

11.	Creditors: amounts falling due within one year
	(a)	Bank loan
		The Company has an agreement (which expires 25 July 2013) with Royal Bank of Scotland to provide a loan facility for up to £20,000,000 (2012 - £20,000,000). At 31 January 2013 £5,000,000 (2012 - £5,000,000) was drawn down at a rate of 1.5996%. On 28 February 2013 the loan was rolled over to 28 March 2013 at a rate of 1.5996%. The terms of the loan facility contain covenants that gross borrowings should not exceed 30% of adjusted assets and that the minimum net assets of the Company are £200,000,000.

			2013	2012
	(b)	Other creditors	£'000	£'000
		Amounts due to stockbrokers	-	1,545
		Debenture Stock and bank loan interest	602	569
		Traded option contracts	810	442
		Sundry creditors	300	146
			_______	_______
			1,712	2,702
			_______	_______

		2013	2012
12.	Creditors: amounts falling due after more than one year	£'000	£'000
	7⅞% Debenture Stock 2019 (issued in 1997)	28,600	28,600
	Unamortised Debenture Stock premium and issue expenses	(81)	(94)
		_______	_______
	Amortised cost of Debenture Stock	28,519	28,506
		_______	_______

	The 7⅞% Debenture Stock is due to be redeemed at par on 30 April 2019 and interest is payable in half-yearly instalments in April and October. The Debenture Stock is secured by a floating charge over the whole of the assets of the Company. The Company has complied with the Debenture Stock Trust Deed that total borrowings should not be greater than adjusted capital and reserves throughout the year and up to the date this report was signed.

	The market value of the Debenture Stock as at 31 January 2013 was £35,124,000 (2012 - £33,891,000), the value being calculated per the disclosure in note 19. The effect on the net asset value of deducting the Debenture Stock at market value rather than at par is disclosed in note 18.

		2013	2012
13.	Called-up share capital	£'000	£'000
	Allotted, called up and fully paid:
	150,706,187 (2012 - 150,706,187) Ordinary shares of 25p each - equity	37,676	37,676
	Treasury shares:
	2,971,748 (2012 - 2,971,748) Ordinary shares of 25p each - equity	743	743
		_______	_______
		38,419	38,419
		_______	_______

	During the year there were no Ordinary shares repurchased (2012 - nil), and no treasury shares cancelled (2012 - nil).

		2013	2012
14.	Capital reserve	£'000	£'000
	At 31 January 2012	275,129	281,917
	Net gains on sales of investments during the year	6,406	7,487
	Movement in investment holdings gains during the year	41,790	(11,881)
	Currency gains/(losses)	115	(84)
	Finance costs of borrowings (note 5)	(1,450)	(1,470)
	Investment management fee	(848)	(840)
		_______	_______
	At 31 January 2013	321,142	275,129
		_______	_______

	Included in the total above are investment holdings gains at the year end of £96,437,000 (2012 - £54,647,000).

15.	Reconciliation of net return before finance costs and	2013	2012
	taxation to net cash inflow from operating activities	£'000	£'000
	Net return on ordinary activities before finance costs and taxation	65,007	12,507
	Adjustment for:
	(Gains)/losses on investments	(48,196)	4,394
	Currency (gains)/losses	(115)	84
	Decrease/(increase) in accrued income	528	(352)
	(Increase)/decrease in other debtors	(92)	1,148
	Increase in other creditors	522	188
		_______	_______
		17,654	17,969
		_______	_______

		Equity		Equity
		share capital		share capital
		(including	Debenture	(including	Debenture
		premium)	stock	premium)	stock
		2013	2013	2012	2012
16.	Analysis of changes in financing during the year	£'000	£'000	£'000	£'000
	Opening balance at 31 January 2012	42,962	28,506	42,962	28,493
	Movement in unamortised Debenture Stock discount and issue expenses	-	13	-	13
		_______	_______	_______	_______
	Closing balance at 31 January 2013	42,962	28,519	42,962	28,506
		_______	_______	_______	_______

	The Ordinary share capital on the Balance Sheet relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, should a transfer be made to the capital redemption reserve.

				Amortisation
		At		of issue	At
		31 January		expenses	31 January
		2012	Cash flow	and premium	2013
17.	Analysis of changes in net debt	£'000	£'000	£'000	£'000
	Cash and short term deposits	3,890	(788)	-	3,102
	Debt due within one year	(5,000)	-	-	(5,000)
	Debt due after more than one year	(28,506)	-	(13)	(28,519)
		_______	_______	_______	_______
	Net debt	(29,616)	(788)	(13)	(30,417)
		_______	_______	_______	_______

18.	Net asset value per share
	Equity shareholders' funds have been calculated in accordance with the provisions of Financial Reporting Standard 4 'Capital Instruments'. The analysis of equity shareholders' funds on the face of the Balance Sheet does not reflect the rights under the Articles of Association of the Ordinary shareholders on a return of assets. These rights are reflected in the net asset value and the net asset value per share attributable to Ordinary shareholders at the year end, adjusted to reflect the deduction of the Debenture Stock at par. A reconciliation between the two sets of figures is as follows:

		2013		2012
	Equity shareholders' funds	£385,605,000		£341,280,000
	Adjusted net assets	£385,524,000		£341,186,000
	Number of equity shares in issue at year end ª	150,706,187		150,706,187

	Equity shareholders' funds per share	255.87p		226.45p
	Less: unamortised Debenture Stock premium and issue expenses	(0.05p)		(0.06p)
		_______		_______
	Adjusted net asset value per share	255.82p		226.39p
		_______		_______
	ª Excluding shares held in treasury

	The net asset value per share at 31 January 2013, adjusted to include the Debenture Stock at market value rather than at par is 251.48p (2012 - 222.88p).

	The movements during the year of the assets attributable to the Ordinary shares were as follows:

			2013		2012
			£'000		£'000
	Opening adjusted net assets		341,186		346,820
	Capital return for the year		46,013		(6,788)
	Revenue on ordinary activities after taxation		16,234		16,581
	Dividends appropriated in the year		(17,922)		(15,440)
	Movement in unamortised Debenture Stock premium and issue expenses		13		13
			_______		_______
	Closing adjusted net assets		385,524		341,186
			_______		_______

19.

Financial instruments

The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts and futures and options for the purpose of managing currency and market risks arising from the Company's activities.

During the year, the Company entered into certain derivative contracts. Positions closed during the year realised a loss of £1,456,000 (2012 - £769,000). As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £1,508,000 (2012 - £1,723,000). The largest position in derivative contracts held during the year at any given time was £1,426,000 (2012 - £829,000). The Company had 20 open positions in derivative contracts at 31 January 2013 valued at a liability of £810,000 (2012 - £442,000) as disclosed in note 11.

Risk management

The Manager has a dedicated investment management process, which ensures that the investment policy is followed. Stock selection procedures are in place based on active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.

The Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.

Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee.

The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.

The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures.

(i)

Market risk

Market risk comprises three elements - interest rate risk, currency risk and other price risk.

Interest rate risk

Interest rate movements may affect:

- the fair value of the investments in fixed interest rate securities;

- the level of income receivable on cash deposits; and

- interest payable on the Company's variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

Interest risk profile

The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:

Weighted

average

period for

Weighted

which

average

Fixed

Floating

rate is fixed

interest rate

rate

At 31 January 2013

Years

£'000

Assets

Sterling

3,103

_______

Total assets

3,103

_______

Liabilities

Bank loans

0.08

1.60

(5,000)

Debenture Stock

6.25

7.87

(28,519)

_______

Total liabilities

(33,519)

_______

Weighted

average

period for

Weighted

which

average

Fixed

Floating

rate is fixed

interest rate

rate

At 31 January 2012

Years

£'000

Assets

Sterling

3,890

_______

Total assets

3,890

_______

Liabilities

Bank loans

0.08

1.88

(5,000)

Debenture Stock

7.25

7.87

(28,506)

_______

Total liabilities

(33,506)

_______

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Company's borrowings are shown in notes 11 and 12 to the financial statements.

The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.

The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables. All financial liabilities are measured at amortised cost.

Interest rate sensitivity

The sensitivity analysis below has been determined based on the exposure to interest rates at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

If interest rates had been 50 basis points higher and all other variables were held constant, the Company's profit before tax for the year ended 31 January 2013 would increase by £15,000 (2012 - increase by £19,000) and had interest rates been 50 basis points lower the converse would apply. This is attributable to the Company's exposure to interest rates on its floating rate cash balances. The Company holds no financial instruments that will have an equity reserve impact.

In the opinion of the Directors, the sensitivity analysis is not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives.

Foreign currency risk

A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Balance Sheet can be affected by movements in exchange rates and it is the Company's policy not to hedge this risk.

The revenue account is subject to currency fluctuations arising on dividends received in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk.

Foreign currency risk exposure by currency of denomination:

31 January 2013

31 January 2012

Net

Total

Net

Total

monetary

currency

monetary

currency

Investments

assets

exposure

Investments

assets

exposure

£'000

Euro

48,550

334

48,884

40,221

303

40,524

Swiss Francs

26,725

26,823

19,667

384

20,051

US Dollar

Sterling

341,593

(31,697)

309,896

310,823

(30,118)

280,705

_______

Total

416,868

(31,263)

385,605

370,711

(29,431)

341,280

_______

The asset allocation between specific markets can vary from time to time based on the Manager's opinion of the attractiveness of the individual stocks in these markets.

Foreign currency sensitivity

There is no sensitivity analysis included as the Board believes the amount exposed to foreign currency denominated monetary assets to be immaterial. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

Other price risk

Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments and traded options.

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges in the UK and Europe.

Other price risk sensitivity

If market prices at the Balance Sheet date had been 10% higher while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 January 2013 would have increased by £41,686,000 (2012 - increase of £37,071,000) and equity reserves would have increased by the same amount. Had market prices been 10% lower the converse would apply.

(ii)

Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise Debenture Stock and a revolving facility. The Debenture Stock provides secure long-term funding while short term flexibility is achieved through the borrowing facility. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of less than 30% at all times. Details of borrowings at 31 January 2013 are shown in notes 11 and 12.

Liquidity risk is not considered to be significant as the Company's assets comprise mainly cash and listed securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.

Liquidity risk exposure

At 31 January 2013 and 31 January 2012 the amortised cost of the Company's Debenture Stock was £28,519,000 and £28,506,000 respectively. This is due to be redeemed at par on 30 April 2019. At both 31 January 2013 and 31 January 2012 the Company's bank loans amounted to £5,000,000. The facility is committed until 25 July 2013.

(iii)

Credit risk

This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.

The Company considers credit risk not to be significant as it is actively managed as follows:

- investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;

- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;

- the risk of counterparty exposure due to stock lending is mitigated by the review of collateral positions provided daily by the various counterparties involved;

- cash is held only with reputable banks whose credit ratings are monitored on a regular basis.

The Company participates in stock lending activities.

There are internal exposure limits to cash balances placed with counterparties. The credit worthiness of counterparties is also reviewed on a regular basis.

Under the terms of the stock lending agreement, all loans are backed by collateral (cash, near cash, government and public securities, certificates of deposit, letter of credit and UK equities) equal to or greater than 105% of the market value (as calculated daily on each business day) of the securities on loan.

With the exception of securities on loan referred to in note 9, none of the Company's financial assets are secured by collateral or other credit enhancements.

Credit risk exposure

In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 January was as follows:

2013

2012

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

Current assets

Debtors and prepayments

866

2,887

Cash and short term deposits

3,102

3,890

_______

3,968

6,777

_______

None of the Company's financial assets is past due or impaired.

Fair values of financial assets and financial liabilities

The fair value of borrowings has been calculated at £40,124,000 as at 31 January 2013 (2012 - £38,891,000) compared to an accounts value in the financial statements of £33,600,000 (2012 - £33,600,000) (notes 11 and 12). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. All other assets and liabilities of the Company are included in the Balance Sheet at fair value.

20.	Fair value hierarchy
	FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

	- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
	- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

	The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:

				Level 1	Level 2	Level 3	Total
	31 January 2013		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	416,868	-	-	416,868
				_______	_______	_______	_______

	Financial liabilities at fair value through profit or loss
	Derivatives		b)	(771)	(39)	-	(810)
				_______	_______	_______	_______
				416,097	(39)	-	416,058
				_______	_______	_______	_______

				Level 1	Level 2	Level 3	Total
	31 January 2012		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	370,711	-	-	370,711
				_______	_______	_______	_______
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	(212)	(230)	-	(442)
				_______	_______	_______	_______
				370,499	(230)	-	370,269
				_______	_______	_______	_______

	a)	Quoted equities
		The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

	b)	Derivatives
		The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and therefore has been classed as Level 1.

		The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices included within Level 1.

21.	Capital management policies and procedures
	The Company's capital management objectives are:
	- to ensure that the Company will be able to continue as a going concern; and
	- to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt.

	The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.

	The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements.

Additional Notes to Annual Financial Report

The Annual General Meeting will be held on 23 May 2013 at 12 noon at 40 Princes St, Edinburgh, EH2 2BY.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2013 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2012 and 2013 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies. The 2013 accounts will be filed with the Registrar of Companies in due course.

The Annual Report and Accounts will be posted to shareholders mid April 2013 and copies will be available from the registered office of the Manager and on the Company's website, www.dunedinincomegrowth.co.uk.*

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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Dunedin Income Growth Inv Trust (DIG)

Friday, 23rd August 2024

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