Annual Financial Report

RNS Number : 2228Q
Troy Income & Growth Trust Plc
28 November 2016
 

 

TROY INCOME & GROWTH TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2016

 

1. CHAIRMAN'S STATEMENT

 

The objective of the Company is to provide an attractive income yield and the prospect of income and capital growth through investing in a portfolio of predominantly UK equities.

 

Performance

The performance for the year to 30 September 2016 shows a Net Asset Value ('NAV') total return per share of +14.7% and a share price total return of +14.8%. The minimal discount volatility implied by these numbers was relatively unusual in your Company's peer group where many discounts moved around materially. The FTSE All-Share Index return of +16.8% for the period proved hard to exceed and only three trusts in the UK Equity Income Sector produced a superior NAV total return.

 

The Board is predominantly interested in longer-term performance and over the three year period to 30 September 2016 the NAV total return per share of +40.6% compares very favourably to the +21.1% total return of the FTSE All-Share Index. The five year comparison is equally favourable with returns of + 82.6% and + 68.9% respectively.

 

Discount Control Mechanism and Costs

The Discount Control Mechanism ('DCM'), which has been in place since January 2010, continues to operate successfully. The share price traded at a small premium to NAV throughout the period and 23.145m shares were issued to meet natural demand, increasing the issued share capital by just under 9%. Since January 2010 the net enhancement to NAV from the operation of the DCM, after all associated costs, is over £800,000.

 

During the year the net assets of the Company have grown from £178m to £215m and the benefit of the lower marginal management fee of 0.65% on net assets over £175m has contributed to lowering ongoing charges, which will continue to fall as net assets grow and the proportion of assets subject to the lower fee increases.  

 

Falling ongoing charges, combined with minimal discount volatility provided by the DCM, should make the Company attractive to other investment trust boards looking to merge or offer rollover options in the event of wind ups. Your Board is keen to grow the Company's assets both "organically" and also as a result of participation in further consolidation within the investment trust sector.

 

Economic Background

The decision taken by the UK electorate in the referendum held on 23 June to leave the European Union has dominated UK markets in recent months. It was always most likely that currency markets would be the most affected by a 'Leave' vote and so it has proved. Between 23 June and 30 September sterling depreciated versus the Euro and the US Dollar by 11% and 12% respectively.  The portfolio is insulated to some degree by the international bias of many of the companies held within it and this will also provide support for the Revenue account.

 

Gearing

The Company has not utilised its gearing facility during the period but the Managers and Board continue to see the opportunity to gear on a tactical basis as a significant benefit and will have no hesitation in doing so at compelling equity valuation levels.

 

Dividends

The fourth interim dividend of 0.625p represented a 4.2% increase on the dividend of 0.6p paid each of the first three quarters of the financial year. The full year dividend totalled 2.425p and represented a 4.3% increase over the previous year. The Board intends, barring unforeseen circumstances, to pay a dividend of at least 0.625p per quarter in the current financial year and remains committed to a progressive dividend policy. The full year dividend was comfortably covered and a substantial revenue reserve is in place which should provide investors with additional comfort.

 

The Board has been conscious for some time that because the 4th interim dividend (the 'final' dividend) for each financial year is declared in September and paid in October, shareholders do not get the opportunity to vote on this at the AGM (held in January).  Rather than deferring the dividend to allow this, the Board has chosen what we think is an innovative, and hope is an acceptable, solution which is to invite shareholders to vote on the Company's dividend policy as detailed in the Directors' Report.

 

Board Changes

At the AGM in January the Board was pleased to announce the appointment of David Garman as a Non-Executive Director. David has had a distinguished career as a senior executive in industry and has served on the boards of a number of listed companies. He brings valuable experience and wise counsel to the Board.

 

Outlook

Since the period end, the outcome of the US Presidential election has taken most commentators by surprise. Added to this, the looming Brexit negotiations have raised the level of uncertainty in the UK economy and this is likely to be reflected in further volatility in markets. The Board considers that the Managers' emphasis on quality companies and their conservative approach to gearing remains appropriate in these uncertain times.

 

 

David Warnock

Chairman

25 November 2016

 

 

2. MANAGERS' REVIEW

 

Background

The UK FTSE All-Share total return index has risen +16.8% over the twelve months under review with more than half of this return having been delivered in the months since the Brexit referendum.

 

The period through mid-February 2016 saw market observers and investors alike fret over the growth prospects of the global economy, a severe downturn in commodity prices, a benign inflationary environment and the impact of the Federal Reserve's decision to raise interest rates for the first time in nearly a decade. Given this backdrop, the S&P 500 recorded its worst start to a calendar year on record, falling 6% in the first week of 2016; the MSCI Emerging Markets Index fell 7% while the FTSE 100 kicked off 2016 with its worst first-week since 2000. The oil price bottomed at $26 in February as commodity indices plumbed new depths. For income managers a worrying feature of this malaise was a slew of dividend cuts ending in BHP Billiton's 75% reduction in its pay-out and Rio Tinto's announcement in February that it would be scrapping its progressive dividend policy.

 

Markets rebounded from their February lows on the back of better-than-expected corporate earnings and further European monetary stimulus although the serenity quickly evaporated during the month of June when markets were left wrong-footed by the decision of UK voters to leave the European Union. $3 trillion was temporarily erased from stock values as global markets buckled. In the days that followed, sterling plummeted to a 30-year low against the US dollar and a rush for safety saw investors seek haven in global government bonds, driving yields on 10-year Gilts to fresh lows. By the end of the month, ratings agency Standard & Poor's had stripped the UK of its AAA rating. This domestic doom and gloom however, did not stop the FTSE 100 rallying 8.7% in the last days of June, as investors rotated into companies that had a high proportion of overseas earnings and/or paid dividends in overseas currencies. The post-EU referendum equity rally continued into the Company's year end.  Investors' continued risk-on sentiment was fuelled by the prospect of global central banks keeping interest rates lower for (even) longer. The Bank of England's Monetary Policy Committee obliged and lowered the Bank Rate to 0.25% in August as well as introducing a new package of measures to support the economy.

 

Post-Brexit economic data releases have proved relatively reassuring. Within this picture it is interesting to note that, although the August  consumer price inflation data remained steady at +0.6%, input prices further accelerated from July's +4.3% number to +7.6% - a level not seen since Q1 2012. This input cost inflation is likely to be reinforced by OPEC's late September decision to curb crude production and support the oil price.  Further devaluation of sterling will almost certainly further exacerbate this trend. Cost push inflation is moving to the fore.

 

Performance & Investment Strategy

Your Company delivered a Net Asset Value (NAV) total return of +14.7% and a share price total return of +14.8% over the year.  This compares with the FTSE All-Share return of +16.8%.  In its 20-strong peer group, TIGT is positioned 5th over the 12 months. The full year dividend of 2.425p represents a +4.3% increase on the previous annual dividend.

 

The Company's exposure to consumer staples averaged around 21% during the year and again made the largest contribution to the positive absolute return generated over the period.  With the exception of a modest holding in Dairy Crest which returned +10.6%, all our investments in this sector delivered returns in excess of +20% with Unilever and British American Tobacco returning +40.4% and +40.3% respectively.  As the oil price rallied so did the companies relatively modest oil and gas investments.  Royal Dutch Shell and BP both rose in excess of +35% making a strong absolute contribution.  However, when compared to the performance of the FTSE All-Share the Company suffered on a relative basis from having a lower exposure to oil and gas and no investments in the mining sector.

 

The only sector to detract on an absolute basis from performance was the financials sector.  Here our investments in property and banks bore the brunt of the market's post Brexit concerns.  Despite this we remain confident in the long term value represented by these businesses.

 

One of the most significant drivers of performance within the Company was currency.  The sterling value of our US and Swiss listed stocks rose and made a strong contribution to returns despite the US dollar exposure being partially hedged.  The impact of the devaluation of sterling also had an impact on the performance of those stocks that have global revenue bases and report in sterling; 36% of the Company's dividend income is determined in a foreign currency and here the sterling weakness was also a significant positive.

 

Portfolio Changes

It is always a bittersweet event when a stock within the portfolio is taken over.  A strong investment franchise is lost but short-term performance is obviously enhanced.  In this period both Amlin and BG Group, two of our longest standing investments, were acquired.  The proceeds from the sale of Amlin were largely reinvested in Hiscox, another Lloyd's insurer with an excellent track record, and we took shares in Royal Dutch Shell in exchange for our BG shares, providing a significant yield uplift.

 

A new holding was initiated in the infrastructure fund International Public Partnerships in November, followed in January by the addition of NewRiver Retail, an investment trust that specialises in owning and managing retail properties in the UK. As concerns over the dividend escalated, we decided to sell the Company's holding in HSBC in March and purchased in its place a holding in Wells Fargo, a leading US commercial bank.  The recent disclosures concerning Wells Fargo have been a disappointment but we do not believe the franchise is structurally damaged.

 

During the spring, we made three new additions to the portfolio. The first of these was Next, the UK retailer. Next has consistently grown sales and expanded margins since the turn of the millennium but two successive downbeat trading updates in March and May of this year saw the shares de-rate from c.17.0x earnings to c.11.5x, creating an opportunity for the Company to initiate a holding.  Shares in the British luxury goods company Burberry were also bought. We initiated a holding in the shares at an average price of £10.74, 43% below the all-time high reached in 2015. The dividend yield at the time of purchase was 3.4%. The third addition to the portfolio came in the form of Equiniti, a specialist in technology, finance and administrative services in complex or regulated markets. Equiniti traded on an 8% free cash flow yield at the time of purchase which is expected to support 2017 dividends equating to a 3% yield. The very low valuation on which the shares were bought (10x current year earnings) gives us confidence that the risks are skewed to the upside.

 

The volatility brought about by the EU referendum result allowed us to add to our holdings of both Next and Land Securities at prices almost 20% below pre-referendum levels. We also opportunistically added to our holdings in Lloyds Banking Group and Inmarsat.

 

Put options written at times of heightened volatility in Diageo, Burberry, Lloyds and Centrica expired unexercised allowing us to realise an attractive yield on cash that would have otherwise earnt 0%. To date put options have been written over no more than 1.5% of the Company's assets.

 

Discount Control Mechanism

As highlighted in the Chairman's Statement the Discount Control Mechanism continues to ensure the Company's shares trade at only a small premium or discount relative to Net Asset Value.  The overall enhancement to your Company's NAV by repurchasing shares at a discount and issuing at a premium has been over £800,000 net of costs which equates to well over 1% of the NAV in 2009 when Troy became manager of the Company.   The Company's commitment to this process of issuing and buying back shares to meet fluctuations in demand means the Company's shares enjoy much greater liquidity than other closed ended vehicles of a similar size.  The number of shares in issue has risen by some 132% to 282 million since the discount control mechanism was activated in January 2010 giving a further boost to liquidity and reducing on-going charges from over 1.5% of NAV to 0.99% at the end of September.  The chart on page 7 of the Annual Report shows the movement in shares in issue since the activation of the DCM.

 

Investment Outlook

Data emerging on the health of the UK and Eurozone economies following Britain's decision to leave the EU will continue to provide the backdrop against which policy debates are framed. Some areas of the market have already shown signs of strain; a number of open-ended UK property funds were forced to suspend redemptions in early July and as at the end of September sterling languished 12% lower than its pre-referendum level. Over the same period, the yield on the ten-year gilt has declined by 63 basis points to sit at 0.75%, contributing to concerns over yawning funding gaps in UK companies' defined benefit pension schemes. The new Chancellor, Philip Hammond, has already signalled that a relaxation of austerity is likely in the Autumn Statement, a departure from his predecessor's economic policies and the Bank of England Deputy Governor, Ben Broadbent, has indicated he would support cutting interest rates again this year. An uncertain road lies ahead for the UK as it embarks on the process of disentangling a forty year relationship with the EU.

 

As at September end, the FTSE 100 sat within 3% of its all-time high recorded in April 2015. This can be partly explained by the upward earnings revisions that have occurred on the back of a weaker sterling, the expectation of both fiscal and monetary stimulus and a possibility that a weaker currency might lead to higher demand for the UK's exports. However, one could argue that markets have become overly sanguine about the risk of protracted negotiations with the EU and the knock-on impact this would have on corporate decision making and business confidence. There is also a risk that inflation accelerates in the UK as sterling's drop boosts import costs. Investor complacency coupled with elevated equity valuations make for a dangerous cocktail.

 

Troy Asset Management Limited

25 November 2016

 

 

 

 

 

3. RESULTS & DIVIDENDS

 

Financial Highlights


2016

2015

Net asset value total return

+14.7%

+11.2%

Share price total return

+14.8%

+11.7%

FTSE All-Share Index total return

+16.8%

-2.3%

Increase in dividends per share

+4.3%

+4.5%

Dividend yield*

3.1%

3.4%

Dividends per share+

2.425p

2.325p

Ongoing Charges

0.99%

1.03%

 

* Dividends per share as a percentage of share price at 30 September

+Dividends per share reflect the years in which they were earned

 

 

 

Performance - total return (for the periods to 30 September 2016)


 

 One Year

 

Three Years

 

Five Years

 

Seven Years

Share price

+14.8%

+41.0%

+84.9%

+137.6%

Net asset value per share

+14.7%

+40.6%

+82.6%

+125.9%

FTSE All-Share Index

+16.8%

+21.1%

+68.9%

+81.6%

 

 

                                           

Distribution of Assets and Liabilities



Valuation at




Valuation at


30 September



Appreciation/

30 September


2015

Purchases

Sales

(depreciation)

2016


£'000

%

£'000

£'000

£'000

£'000

%

Listed

investments








Ordinary shares

171,474

96.2

34,596

(20,817)

21,388

206,641

95.9


______

_____

________

_______

________

______

_____

Current assets

7,212

4.0




10,024

4.7

Current liabilities

(439)

(0.2)




(1,202)

(0.6)


______

_____




______

_____

Net assets

178,247

100.0




215,463

100.0


______

_____




______

_____

Net asset value per share

68.87p





76.41p



______





______


 

 

4.  STRATEGIC & DIRECTORS' REPORT EXTRACTS

 

Performance and Future Development

A review of the business performance, market background, investment activity and portfolio during the year under review, together with the investment outlook, is provided in the Chairman's Statement and the Managers' Review.

 

Risk Management

The Directors are responsible for supervising the overall management of the Company, whilst the day-to-day management of the Company's assets has been delegated to the Manager. Portfolio exposure has been limited by the guidelines which are detailed within the Investment Strategy section of the annual report.

 

The principal risks facing the Company relate to the Company's investment activities and these risks include the following:

• performance risk

• market risk

• resource and operational risk.

 

An explanation of these principal risks and how they are managed is set out below, with disclosures of financial risk set out in note 14 to the financial statements.

 

The Board can confirm that the principal risks of the Company, including those which would threaten its business model, future performance, solvency or liquidity have been robustly assessed for the year ended 30 September 2016.

 

• Performance risk - The Board is responsible for deciding the investment strategy to fulfil the Company's objective and monitoring the performance of the Manager. An inappropriate strategy or poor execution of strategy might lead to underperformance against the appropriate benchmark and its peer group. To manage this risk the Manager provides an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio. The Board also receives and reviews regular reports showing an analysis of the Company's performance against the FTSE All-Share Index (total return) and its peer group.

 

• Market risk - Market risk arises from uncertainty about the future prices of the Company's investments. The Board monitors and maintains an adequate spread of investments in order to minimise the risks or factors specific to a particular investment or sectors, based on the diversification requirements inherent in the Company's investment policy. The guidelines which limit the portfolio exposure are set out in the Investment Strategy on page 15 of the Annual Report.

 

 •          Resource and operational risk - Like most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties and their control systems. These service providers include, in particular, the Alternative Investment Fund Manager ("AIFM") and the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement and an investment management delegation agreement (the "Agreements") (further details of which are set out in Management Arrangements, below). The terms of these Agreements cover the necessary duties and conditions expected of the AIFM and Manager. The Board reviews the performance of the AIFM and Manager on a regular basis and their compliance with the Agreements on an annual basis.

 

Other risks faced by the Company include the following:

• breach of regulatory rules which could lead to the suspension of the Company's London Stock Exchange listing, financial penalties or a qualified audit report.

• breach of Section 1159 of the Corporation Tax Act 2010 which could lead to the Company being subject to tax on capital gains.

 

The Board have considered the Company's solvency and liquidity risk and full disclosure of this is made in Note 14 and the viability statement below.

 

Results, Dividends and Future Development

The financial statements for the year ended 30 September 2016 appear below. Dividends in respect of the year amounted to 2.425p per share (2015 - 2.325p). The fourth interim dividend of 0.625p per share announced on 22 September 2016 (2015 - fourth interim 0.6p) will be accounted for in the financial year ending on 30 September 2017. Information on the future development of the Company is contained in the Chairman's Statement and in the Managers' Review above.

 

Share Capital

At the Annual General Meeting ("AGM") held on 19 January 2016, shareholders approved the renewal of the authority permitting the Company to make market purchases of its own Ordinary shares. This authority (which, unless renewed, will expire at the conclusion of the Company's forthcoming AGM) is limited to Ordinary shares with a maximum aggregate nominal value of £9,759,391 (being equal to approximately 14.99% of the Ordinary shares in issue as at 19 January 2016). It is proposed that this authority will be renewed at the Company's forthcoming AGM. During the year ended 30 September 2016 no Ordinary shares were purchased. The issued share capital at 30 September 2016 consisted of 281,969,045 Ordinary shares of 25p each and there were no Ordinary shares held in treasury. As at the date of this report the issued share capital consisted of 284,694,045 Ordinary shares of 25p each and no shares were held in treasury. Each holder of Ordinary shares, excluding treasury shares, is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary share held.

Management Arrangements

In order to comply with the Alternative Investment Fund Managers Directive ("AIFMD"), the Company appointed PATAC Ltd ("PATAC"), as its Alternative Investment Fund Manager ("AIFM") with effect from 22 July 2014. The Company entered into a new AIFMD compliant management agreement with the AIFM. With effect from 22 July 2014, the AIFM delegated the portfolio management activities relating to the Company back to Troy Asset Management Ltd ("Troy") pursuant to a delegation agreement and Troy continues to provide portfolio management services to the Company. These arrangements are fully compliant with the AIFMD.

 

The AIFM services are provided to the Company by PATAC for £60,000 per annum but Troy have reduced their investment management fee by an equal amount so that there is no overall change to the basis of the management fee incurred by the Company.

 

The other terms of the AIFM's appointment are similar to those applying to Troy under the investment management delegation agreement detailed below.

 

Investment Management Delegation Agreement

With effect from 1 August 2009, investment management services have been provided to the Company by Troy. From 1 October 2012 the fee is at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million.

 

Company Secretary

On 1 July 2010 PATAC was appointed to provide Company Secretarial, accounting and administrative services, for an annual fee of £95,000 payable quarterly in advance. The appointment is terminable on three months' notice. This fee is adjusted annually by the higher of the increase in the Retail Price Index or the Consumer Price index and is currently £111,523 per annum. 

 

Depositary

The AIFMD requires the AIFM to appoint a depositary for each Authorised Investment Fund it manages and J P Morgan Europe Ltd were appointed depositary for the Company with effect from 22 July 2014. The Depositary's responsibilities include cash monitoring, safe keeping of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements. The Depositary has delegated the custody function to J.P. Morgan Chase Bank N.A.

 

Independent Auditors

Following a tender process in 2015, PricewaterhouseCoopers LLP were appointed the Company's Auditors during the year.

 

Going Concern

The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities which are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. In reaching this view, the Directors reviewed the level of expenditure of the Company against the cash and asset liquidity within the portfolio.

 

Viability Statement

In accordance with provision C.2.2 of the 2014 UK Corporate Governance Code, the Directors have assessed the viability of the Company over a three year period from the date that the Annual Report is due to be approved by shareholders.

 

The Directors have identified the following factors as potential contributors to ongoing viability:

· The principal risks documented in the strategic report as set out above

· The ongoing relevance of the Company's investment objective in the current environment

· The level of current and historic ongoing charges incurred by the Company as disclosed above

· The utilisation quantum of the discount control mechanism

· The level of income generated by the Company

· The liquidity of the Company's portfolio

· The continuation vote to be held at the AGM following the year ending 30 September 2018.

 

The Company is fully invested in liquid assets, either in listed securities or cash. The nature of these mean that even in a severe market downturn the Company would be able to convert, in a relatively short period of time, the portfolio into cash sufficient to meet the Company's operating costs which run at approximately 1% of net assets. This includes both fixed and variable costs, the largest single element of which is the variable management fee. In addition the Company currently has no gearing. Based on these facts the Board have concluded that even in exceptionally stressed operating conditions, the Company would easily be able to meets its ongoing operating costs as they fall due.

 

The Directors have determined that a three year period is an appropriate period over which to provide its viability statement notwithstanding the Company's next continuation vote, as stated above, as they have no reason to presume that such a vote would not be passed by shareholders. They also consider that it is a reasonable time horizon to consider the continuing viability of the Company and a suitable period over which to measure the performance of the Company.

 

Based on the foregoing, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to the AGM in 2020.

 

Discount Policy

The Company's discount policy is to ensure that the Ordinary shares trade at close to net asset value through a combination of share buy-backs and the issue of new Ordinary shares at a premium to net asset value where demand exceeds supply.

 

This discount control mechanism is operated for a fee of £33,000 per annum (excluding VAT) and this has been charged to the share premium account.

The Directors will continue to seek the renewal of the Company's authority to buy back Ordinary shares annually and at other times should this prove necessary. From the authority granted at the January 2016 AGM, the Company, at 30 September 2016, had the remaining authority to buy-back 39,529,236 Ordinary 25p shares. Any buy-back of Ordinary shares will be made subject to the Companies Act 2006 and within guidelines established from time to time by the Board and the making and timing of any buy-backs will be at the absolute discretion of the Board. The Directors will be authorised to cancel any Ordinary shares purchased under such authority or to hold them in treasury. Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing net asset value of the Ordinary shares. Such purchases will also be made only in accordance with the rules of the UK Listing Authority which provide that the price to be paid must not be less than the nominal value of an Ordinary share nor more than the higher of (a) 5% above the average of the middle market quotations for the Ordinary shares for the five business days before the purchase is made and (b) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out.

It is the intention of the Directors that the share buy-back authority is used to purchase Ordinary shares if the middle market price for a Share is below the net asset value per Ordinary share of the Company (taking into account any rights to which the Ordinary shares are trading "ex"). However, nothing in this discount policy will require the Directors to take any steps that would require the Company to make a tender offer for its shares or to publish a prospectus. Notwithstanding this discount policy, there is no guarantee that the Ordinary shares will trade at close to the net asset value per Ordinary share. Shareholders should note that this discount policy could lead to a reduction in the size of the Company over time.

By Order of the Board

Steven Cowie C.A.
Secretary

25 November 2016

 

5. STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing this Annual Financial Report, the Annual Report & Financial Statements and the Directors Remuneration Report, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year and these have been prepared in accordance with IFRSs as adopted by the EU.

 

Under Company law, the Directors must not approve the financial statements unless they are satisfied they present fairly the financial position, financial performance and cash flows for that period.

 

In preparing the financial statements, the Directors are required to:

-    select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

-    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-    provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the EU is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the company's financial position and performance;

-    make judgements and estimates that are reasonable and prudent; and

-    state whether they have been prepared in accordance with IFRSs as adopted by the EU subject to any material departures disclosed and explained in the Notes to the Financial Statements.

 

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy. In reaching this conclusion the Directors have assumed that the reader of the Annual Report and Financial Statements would have a reasonable level of knowledge of the investment industry and of investment trusts in particular.

 

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 its financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

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

Statement under Disclosure Guidance and Transparency Rules

Each of the Directors confirms that to the best of his or her knowledge:

-    the financial statements, prepared in accordance with IFRSs, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

-    the Strategic Report and the Directors' Report (incorporating the other sections which are referred to in them) include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of Troy Income & Growth Trust plc

Jann Brown

Chair of the Audit Committee

25 November 2016

 

 

 

 

 

 

TROY INCOME & GROWTH TRUST PLC

STATEMENT OF COMPREHENSIVE INCOME

 


Year ended

30 September 2016

Year ended

30 September 2015



Revenue

Capital


Revenue

Capital



Note

return

return

Total

return

return

Total



£'000

£'000

£'000

£'000

£'000

£'000

Profits on investments held at fair value

8

-

20,740

20,740

-

12,144

12,144

Currency (losses)/gains


-

(13)

(13)

-

11

11

Revenue

2







Income from listed investments


7,890

-

7,890

6,996

-

6,996

Other income


118

-

118

17

-

17



______

_______

______

______

_______

______



8,008

20,727

28,735

7,013

12,155

19,168



______

_______

______

______

_______

______

Expenses








Investment management fees

3

(508)

(943)

(1,451)

(453)

(842)

(1,295)

Other administrative expenses

4

(437)

-

(437)

(442)

-

(442)



______

_______

______

______

_______

______

Profit before taxation


7,063

19,784

26,847

6,118

11,313

17,431

Taxation

5

(101)

-

(101)

(79)

-

(79)



______

_______

______

______

_______

______

Profit for the year


6,962

19,784

26,746

6,039

11,313

17,352



______

_______

______

______

_______

______

Earnings per Ordinary share (pence)

7

2.59

7.37

9.96

2.42

4.52

6.94



______

_______

______

______

_______

______

 

The "Profit for the Year" is also the Total Comprehensive Income for the year as defined in IAS 1 (revised).

The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS, as adopted by the European Union. The supplementary revenue return and capital return columns are both prepared as explained in the accounting policies. All items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the year.

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment in predominantly UK equities.

The accompanying notes are an integral part of these financial statements.

 

 

TROY INCOME & GROWTH TRUST PLC

 

STATEMENT OF FINANCIAL POSITION

 





As at

As at

 





30 September

30 September

 





2016

2015

 


Notes



£'000

£'000

 

Non-current assets






 

Ordinary shares




206,641

171,474

 





______

______

 

Investments held at fair value through profit or loss

8



206,641

171,474

 





______

______

 

Current assets






 

Accrued income and prepayments




517

582

 

Cash and cash equivalents




9,507

6,630

 





______

______

 

Total current assets




10,024

7,212

 





______

______

 

Total assets




216,665

178,686

 

Current liabilities






 

Trade and other payables




(1,069)

(420)

 

Traded Option Contracts




-

(19)

 

Fair value of forward currency contract




 

(133)

 

-

 





______

______

 

Total current liabilities




(1,202)

(439)

 





______

______

 

Net assets




215,463

178,247

 





______

______

 

Issued capital and reserves attributable to equity holders

 

 

 

 

Issued capital and reserves attributable to equity holders

Called-up share capital

9



70,492

64,706

 

Share premium account

10



18,600

7,525

 

Special reserves

11



63,504

63,504

 

Capital reserve

12



58,283

38,499

 

Revenue reserve

13



4,584

4,013

 





______

______

 

Total equity shareholders' funds




215,463

178,247

 





______

______

 

Net asset value per

Ordinary share (pence)

7



76.41

68.87

 





______

______

 

 

 

TROY INCOME & GROWTH TRUST PLC

 

STATEMENT OF CHANGES IN EQUITY

 

For year ended 30 September 2016













Total equity


Called-up

share

Share

premium

 

Special

 

Capital

 

Revenue

shareholders


capital

account

reserves

reserve

reserve

funds


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 October 2015

64,706

7,525

63,504

38,499

4,013

178,247

Profit and total comprehensive income for the year

-

-

-

19,784

6,962

20,746

Equity dividends (note 6)

-

-

-

-

(6,391)

(6,391)

Discount control costs

-

(33)

-

-

-

(33)

New shares issued

5,786

11,108

-

-

-

16,894


______

______

______

______

______

______

Balance at 30 September 2016

70,492

18,600

63,504

58,283

4,584

215,463


______

______

______

______

______

______

For year ended 30 September 2015







Balance at 1 October 2014

60,514

86

61,924

27,186

3,681

153,391

Total comprehensive income for the year

-

-

-

11,313

6,039

17,352

Equity dividends (note 6)

-

-

-

-

(5,707)

(5,707)

Costs of cancellation of share premium account

-

-

(4)

-

-

(4)

Discount control costs

-

(33)

-

-

-

(33)

Shares issued from treasury

-

36

1,584

-

-

1,620

New shares issued

4,192

7,436

-

-

-

11,628


______

______

______

______

______

______

Balance at 30 September 2015

64,706

7,525

63,504

38,499

4,013

178,247


______

______

______

______

______

______

 

 

TROY INCOME & GROWTH TRUST PLC

 

CASH FLOW STATEMENT

 

Year ended

Year ended


30 September 2016

30 September 2015


£'000

£'000

£'000

£'000

Cash flows from operating activities





Investment income received

8,097


7,103


Administrative expenses paid

(1,849)


(1,696)



________


________


Cash generated from operations (note 18 (a))


6,248


5,407

Taxation


(122)


(76)



________


________

Net cash inflows from operating activities


6,126


5,331






Cash flows from investing activities





Purchases of investments

(33,987)


(20,628)


Sales of investments

20,796


11,656


Realised loss on forward currency contracts

 

(515)


 

-



________


________


Net cash outflow from investing activities


(13,706)


(8,972)



________


________

Net cash outflow before financing


(7,580)


(3,641)

Financing activities





Proceeds of issue of shares

16,894


13,248


Dividends paid

(6,391)


(5,707)


Costs incurred on cancellation of share premium account and on issue of new shares

 

 

(33)


 

 

(36)



________


________


Net cash inflow from financing activities


10,470


7,505



________


________

Net increase in cash and short term deposits (note 18(b))


2,890


3,864

Cash and cash equivalents at the start of the year


6,630


2,755

Effect of foreign exchange rate changes


(13)


11



________


________

Cash and cash equivalents at the end of the year


9,507


6,630



________


________

 

 

 

 

TROY INCOME & GROWTH TRUST PLC

YEAR ENDED 30 SEPTEMBER 2016

 

1.

Accounting Policies


(a)

Basis of accounting











At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:



-

Amendments to IAS 1 - Presentation of Financial Statements -Disclosure Initiative (effective for accounting periods beginning on or after 1 January 2017).



-

Amendment to IAS 7- Statement of Cash Flows - Disclosure Initiative (effective for annual periods beginning on or after 1 January 2016).



-

Amendments to IAS 12- Income Taxes - Deferred Tax Assets (effective for annual periods beginning on or after 1 January 2017).



-

Amendments to IAS 27- Separate Financial Statements (2011) (effective for annual periods beginning on or after 1 January 2016).



-

Amendments to IAS 34- Interim Financial Reporting (effective for annual periods beginning on or after 1 January 2016).



-

Amendment to IFRS 7 - Financial Instruments Disclosure (effective for annual periods beginning on or after 1 January 2016).



-

IFRS 9 - Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2018).



-

Amendments to IFRS 10 - Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2016).



-

Amendments to IFRS 12 - Disclosures of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2016).



-

IFRS 15 - Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018).



The Directors do not anticipate that the adoption of these Standards and Interpretations in future periods will materially impact the financial results in the period of initial application. The Company intends to adopt the standards in the reporting period when they become effective.


(b) 

Investments - Securities held at Fair Value



Investments are recognised or derecognised on the 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 initially measured at fair value.



As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, listed equities and fixed interest securities are designated as fair value through profit or loss on initial recognition.

All investments designated upon initial recognition as held at fair value through profit or loss are measured at subsequent reporting dates at their fair value, which is the bid price as at close of business on the Balance Sheet date.



Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Expenses which are incidental to the acquisition and disposal of investments are treated as capital costs.


(c)

Income



Dividend income from equity investments including preference shares which have a discretionary dividend is recognised when the shareholders' rights to receive payment has been established, normally the ex-dividend date. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Underwriting commission is taken to revenue on a receipts basis.


(d)

Expenses



All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the investment management fee and finance costs have been allocated 35% to revenue and 65% to capital.


(e)

Bank borrowings



Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. After initial recognition, all interest bearing loans and overdrafts are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any arrangement costs and any discount or premium on settlement.


(f)

Taxation



The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.



The allocation method used to calculate tax relief on expenses presented against capital returns is the 'marginal basis'. Under this basis if taxable income is not capable of being offset entirely by expenses presented in revenue then unutilised expenses arising in capital will be set against income with an amount based on current tax rates charged against income and credited to capital.



Deferred tax is provided in full on temporary differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.


(g)

Foreign currency



Transactions denominated in foreign currencies are recorded at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at fair value by using the rate of exchange prevailing at the year end. The currencies to which the Company was exposed were Swiss Francs and US Dollars.



Forward currency contracts are classified as investments held at fair value through profit or loss and are reported at fair value at the year end by using the forward rate of exchange prevailing at the year end. The forward rate of exchange of US Dollars to Sterling at 30 September 2016 was 1.29768.



Any gain or loss arising from a movement in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the income statement as a revenue or capital item depending on the nature of the gain or loss.


(h)

Cash and cash equivalents



Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.


(i)

Use of estimates



The preparation of financial statements require the Company to make estimates and assumptions that affect items reported in the Balance Sheet and Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on the Directors' best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates. There were no material accounting estimates in the current period.

 


2016

2015

2.

Revenue

£'000

£'000


Income from listed investments




UK dividend income

7,227

6,468


Income from overseas investments

663

528



________

________



7,890

6,996



________

________


Other income from investment activity




Underwriting income

5

-


Traded option premiums

113

17



________

________


Total income

8,008

7,013



________

________

 

3.

Investment management fees


On 31 July 2009, Troy Asset Management Limited ("Troy") became the Investment Manager. From 1 October 2012 the investment management fee has been paid at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million. The fee is calculated monthly and paid quarterly. PATAC were appointed to act as the Company's AIFM with effect from 22 July 2014 for a fee of £60,000 per annum. From the same date the portfolio management activities were delegated to Troy. The commercial terms of the delegation agreement are the same as the previous investment management agreement except that the investment management fee paid to Troy is reduced by the fees of £60,000 incurred for the services of the AIFM. The fee is allocated 35% to revenue and 65% to capital.

 


2016

2015



Revenue

Capital


Revenue

Capital




return

return

Total

return

return

Total



£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees paid to Troy

 

487

 

904

 

1,391

 

432

 

803

 

1,235


AIFM fee paid to PATAC

21

39

60

21

39

60



_______

______

______

_______

______

______


Total Investment management fee

508

943

1,451

453

842

1,295



_______

______

______

_______

______

______



 

 




2016

2015

4.

Other administrative expenses

£'000

£'000


Directors' remuneration - fees as Directors

84

83


Secretarial fees


Fees payable to auditors


- 


- 


Other management expenses


_______

_______



437

442


_______

_______


{a} Includes irrecoverable VAT of £3,900 (2015 - £3,700).


 

. 







 

2016

2015

 


Capital


Revenue

Capital


 

return

Total

return

return

Total

 

5.

Taxation

£'000

£'000

£'000

£'000

£'000

 


Irrecoverable overseas tax

101

-

101

79

-

79

 



_______

______

______

_______

______

______

 


The following table is a reconciliation of the total taxation charge to the charges or credits which would arise if all ordinary activities were taxed at the standard UK corporation tax rate of 20.0% (2015 - 20.5%):

 



2016

2015

 



Revenue

Capital


Revenue

Capital


 



return

return

Total

return

return

Total

 



£'000

£'000

£'000

£'000

£'000

£'000

 


Profit on ordinary activities before taxation

7,063

19,784

26,847

6,118

11,313

17,431

 


_______

______

______

_______

______

______

 


Taxation of return on ordinary activities at the standard rate of corporation tax

1,413

3,957

5,370

1,254

2,319

3,573

 


Effects of:







 


UK dividend income not liable to further tax

(1,351)

-

(1,351)

(1,253)

-

(1,253)

 


Overseas dividend income not liable to further tax

(133)

-

(133)

(108)

-

(108)

 


Capital profits not taxable

-

(4,146)

(4,146)

-

(2,492)

(2,492)

 


Movement in unutilised management expenses

71

189

260

107

173

280

 


Overseas withholding tax suffered

101

-

101

79

-

79

 



_______

______

______

_______

______

______

 


Total taxation charge for the year

101

-

101

79

-

79

 



_______

______

______

_______

______

______

 


At 30 September 2016, the Company had surplus management expenses of £7,291,000 (2015 - £6,062,000) with a tax value of £1,312,000 (2015 - £1,213,000) to carry forward. No deferred tax asset has been recognised in the current or prior period because it is considered too uncertain that there will be suitable taxable profits from which the future reversal of the deferred tax asset could be deducted.

 







6.

Dividends on equity shares


Amounts recognised as distributions to equity shareholders in the year:




Fourth interim dividend for the year ended 30 September 2014 of 0.575p per share

-

1,380


Fourth interim dividend for the year ended 30 September 2015 of 0.6p per share

1,555

-


Three interim dividends for the year ended 30 September 2016 totalling 1.8p (2015 - three interims totalling 1.725p) per share

4,836

4,327



________

________



6,391

5,707



________

________


The fourth interim dividend of 0.625p per share, declared on 22 September 2016 and paid on 28 October 2016, has not been included as a liability in these financial statements.




We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.






Three interim dividends for the year ended 30 September 2016 totalling 1.8p (2015 - three interim dividends totaling1.725p) per share

4,836

4,327


Fourth interim dividend for the year ended 30 September 2016 of 0.625p (2015 - fourth interim dividend 0.6p) per share

1,769

1,555


________

________



6,605

5,882



________

________

 

 

 






7.

Return and net asset value per share


The returns per share are based on the following figures:




Revenue return

6,962

6,039


Capital return

19,784

11,313



________

________


Total

26,746

17,352



________

________


Weighted average number of Ordinary shares

268,605,520

249,946,644



__________

__________


The net asset value per share is based on net assets attributable to shareholders of £215,463,000 (2015 - £178,247,000) and on 281,969,045 (2015 - 258,824,045) Ordinary shares in issue at the year end.

 

  



8.

Investments held at fair value through profit or loss


Listed on recognised stock exchanges:




United Kingdom

184,052

154,497


Overseas

22,589

16,977



________

________



206,641

171,474


________

________






Opening book cost

133,743

122,736


Opening fair value gains on investments held

37,731

27,920


________

________


Opening fair value

171,474

150,656


Purchases for cash

34,596

19,585


Sales - proceeds

(20,817)

(10,911)


Sales - net gains on sales

4,402

2,334


Movement in fair value during the year

16,986

9,810


________

________


Closing fair value

206,641

171,474


________

________


Closing book cost

151,924

133,743


Closing fair value gains on investments held

54,717

37,731


________

________


Closing fair value

206,641

171,474



________

________


All investments are categorised as held at fair value through profit or loss, and were designated as such upon initial recognition.


The total transaction costs on purchases was £112,400 (2015 - £99,900) and on sales £27,900 (2015 - £16,100).


  




Gains on investments held at fair value


Net gains on sales

4,402

2,334


Movement in fair value in investment holdings

16,986

9,810


Realised loss on forward currency contracts

(515)

-


Unrealised loss on forward currency contracts

(133)

-


________

________



20,740

12,144


________

________

 

 


9.

Called-up share capital


Allotted, called up and fully paid


At 30 September 2016

281,969,045

70,492


__________

________


Allotted, called up and fully paid


At 30 September 2015

258,824,045

64,706



__________

________


During the year to 30 September 2016 there were 23,145,000 new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £16,894,000.


 

During the year to 30 September 2015 there were 16,766,600 new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £11,628,000.

 

During the year to 30 September 2016 there were no Ordinary shares re-issued by the Company from treasury.

 

During the year to 30 September 2015 the Company re-issued 2,569,000 Ordinary shares of 25p each from treasury for proceeds totalling £1,620,215.

 


No shares were purchased for cancellation during the year (2015 - nil) and at the year end no shares were held in treasury (2015 - nil).

 

The costs of the operation of the discount control mechanism of £33,000 have been charged against the premium on shares issued.

 






10.

Share premium account


At 1 October

7,525

86


Premium on issue of shares

11,120

7,491


Costs incurred on issue of new shares

(12)

(19)


Discount control costs (note 9)

(33)

(33)



________

________


At 30 September

18,600

7,525


________

________



 

 

11.

Special Reserves










At 1 October

5,343

58,161

63,504

61,924


Costs of cancellation of Share Premium

-

-

-

(4)


Shares issued during the year from treasury

 

-

 

-

 

-

 

1,584



________

________

________

________


At 30 September

5,343

58,161

63,504

63,504


________

________

________

________


On 29 August 2014, the Court of Session in Scotland approved the cancellation of the Share Premium Account and the creation of a Distributable Capital Reserve from the balance of the Share Premium Account.

The Special Reserve was created on 1 October 2010 by a similar court process.

The purpose of the Distributable Capital Reserve and the Special Reserve are to fund market purchases by the Company of its own shares, to make bonus issues of shares and to make distributions in accordance with the Companies Act.

.

  



12 

Capital reserve


At 1 October

768

(735)


Net gains on sales of investments during the year

4,402

2,334


Investment management fee

(943)

(842)


Currency (losses)/gains

(13)

11


Realised losses on forward currency contracts

(515)

-



________

________


At 30 September

3,699

768



________

________




Investment holdings gains


At 30 September

37,731

27,921


Investment gains 

16,986

9,810


Loss on forward currency contracts

(133)

-


________

________



54,584

37,731


________

________


Total capital reserve

58,283

38,499


________

________



 







2016

2015

13.




4,013

3,681




571

332




______

______




4,584

4,013




______

______

14.

Risk management, financial assets and liabilities


Risk management






Financial assets and liabilities


The Company's financial assets include investments, cash at bank and short-term debtors. Financial liabilities consist of short-term creditors, bank overdraft, open traded option positions and forward currency contracts.



(i)

Market risk











Interest rate risk









The Company is subject to interest rate risk because the value of fixed interest rate securities is linked to underlying bank rates or equivalents, and its short-term borrowings and cash resources carry interest at floating rates. The interest rate profile is managed as part of the overall investment strategy of the Company.



Interest rate movements may affect:



-

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



-

the level of income receivable on cash deposits;



-

interest payable on the Company's variable rate borrowings.








Interest rate profile





Weighted








average








interest

Fixed

Floating






rate

rate

rate



As at 30 September 2016



%

£'000

£'000








-

-

9,507



________

______

________



-

-

9,507



________

______

________



Weighted








average








interest

Fixed

Floating






rate

rate

rate



As at 30 September 2015



%

£'000

£'000








-

-

6,630



________

______

________



-

-

6,630



________

______

________













Maturity profile









The maturity profile of the Company's financial assets and liabilities at the date of the Statement of Financial Position was as follows:









3 Months or less

3 Months or less







2016

2015







£'000

£'000



Floating rate








Cash




9,507

6,630







________

________











Interest rate sensitivity



The sensitivity analysis below has been determined based on the exposure to interest rates at the date of the Statement of the Financial Position 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.







Foreign currency risk










An analysis of the Company's gross currency exposure is detailed below:


30 September 2016

30 September 2015


Net


Net

Overseas

 monetary

 Overseas

 monetary

 investments

 assets

 investments

 assets

 £'000

 £'000

 £'000

 £'000

18,641

118

13,741

121

3,948

-

3,236

-

_______

_______

_______

_______

22,589

118

16,977

121

_______

_______

_______

_______







As noted in the Risk Management section above, at 30 September 2016 the Sterling cost of a proportion of the US Dollar denominated assets was protected by a forward currency contract (US$13,000,000 forward against £9,886,000).

 



Foreign currency sensitivity





Other price risk



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

 





Other price sensitivity




(ii)

Liquidity risk






(iii)

Credit risk





The risk is not significant, and is 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. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;



-

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 monthly basis. In addition, the Administrator carries out a stock reconciliation to the Custodian's records on a monthly basis to ensure discrepancies are picked up on a timely basis;



-



Credit risk exposure



In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 30 September was as follows:

2016

2015

Statement of


 Statement of


Financial

Position

Maximum

exposure

 Financial

Position

Maximum

exposure

£'000

 £'000

 £'000

 £'000





-

-

-

-





517

517

582

582

-

-

-

-

9,507

9,507

6,630

6,630

________

________

________

________

10,024

10,024

7,212

7,212

________

________

________

________

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


Fair value of financial assets and liabilities

Gearing

 

15. 

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 income and capital return to its equity shareholders through an appropriate balance of equity capital and debt.


The Company's capital at 30 September comprised:






Called-up share capital

70,492

64,706


Retained earnings and other reserves

144,971

113,541


________

________



215,463

178,247


________

________


The Board, with the assistance of the Manager and the AIFM, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:


-

the planned level of gearing, which takes account of the Manager's views on the market;


-

the need to buy back equity shares for cancellation or to hold in treasury, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium);


-

the need for new issues of equity shares; and


-


The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

 


The Company had no gearing at the year end (2015 - nil).

 

16.

Commitments and contingencies


 

17.

Financial instruments measured at Fair Value





2016




2015


Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000


 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 


206,641

-

-

206,641

171,474

-

-

171,474


______

_____

______

______

______

_____

______

______











-

-

-

-

(19)

-

-

(19)


 

-

 

(133)

 

-

 

(133)

 

-

 

-

 

-

 

-


______

_____

______

______

______

_____

______

______


 

-

 

(133)

 

-

 

(133)

 

(19)

 

-

 

-

 

(19)


______

_____

______

______

______

_____

______

______


Level 1 reflects financial instruments quoted in an active market.


Level 2 reflects financial instruments the fair value of which is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets. The Company's forward currency contract has been included in this level as fair value is achieved using the foreign exchange spot rate and forward points which vary depending on the duration of the contract.


There were no transfers of investments between levels during the year ended 30 September 2016 (2015 - none).

 

 

18.

Notes to the Cash Flow Statement


(a)  Reconciliation of operating profit to operating cash flows






Profit before taxation

26,847

17,431


Adjustments for:




Gains on investments

(20,740)

(12,144)


Currency losses/(gains)

13

(11)


Decrease in accrued income and prepayments

87

89


Increase in trade and other payables

41

42



________

________



6,248

5,407



________

________






(b)  Analysis of changes in net funds



30 September

Cash

Exchange

30 September



2015

Flow

Movements

2016



£'000


Cash at bank

6,630

2,890

(13)

9,507



________

________

________

________





 

 

19.

Related party transactions


The following are considered to be related parties:


- The Directors of the Company


All material related party transactions, as set out in International Accounting Standard 24, Related Party Disclosures, have been disclosed in the Strategic and Directors Report extracts and in Note 4 above.

 

 

20.

Alternative Investment Fund Managers Directive (AIFMD)


In accordance with the AIFMD, information in relation to the Company's leverage and the remuneration of the Company's AIFM, PATAC, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ending 30 April 2016) are available from PATAC on request.


The Company's maximum and actual leverage levels at 30 September 2016 are as follows:




Gross

Commitment



200%

200%



101%

105%





www.tigt.co.uk

 

 

 

Additional Notes to the Annual Financial Report

 

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 30 September 2016. The statutory accounts for the year ended 30 September 2016 received an audit report which was unqualified.

 

The statutory accounts for the financial year ended 30 September 2016 were approved by the Directors on 25 November 2016 but will not be filed with the Registrar of Companies until after the company's Annual General Meeting which is to be held at 11.00am on 25 January 2017 at 16 Charlotte Square, Edinburgh, EH2 4DF.

 

The Annual Report will be posted to shareholders in December 2016 and available in due course by download from the Company's webpage (http://tigt.co.uk/secure/documents/annual/TIGTAnnual2016.pdf)

 

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.

 

For Troy Income & Growth Trust plc

Steven Cowie, C.A., Secretary

25 November 2016

Enquiries: 0131 538 6610

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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