Annual Financial Report

RNS Number : 4080X

Troy Income & Growth Trust Plc

27 November 2017

 

TROY INCOME & GROWTH TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2017

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 2017 shows a Net Asset Value ('NAV') total return per share of +5.9% and a share price total return of +4.0% during a period that proved challenging for the Managers' investment style and, generally, for defensively orientated investors. The FTSE All-Share Index returned +11.9% for the period.

The Board is predominantly interested in longer-term performance and over the three year period to 30 September 2017 the NAV total return per share of +35.3% compares favourably to the +27.8% total return of the FTSE All-Share Index.  Over five years, the NAV total return of +66.4% compares to a +61.2% total return for the FTSE All-Share Index.

The aggregate dividends for the year totalled 2.56p and represented an increase of 5.6% over the previous year.

Economic and Stock Market Background

Although unemployment continues to fall across developed markets, sustained wage growth and the associated economic reflation continues to elude central bankers and policy makers.  With growth remaining fragile and deflation a persistent concern, monetary policy has remained extraordinarily accommodative.  In this environment equity markets have been able to shrug off renewed bouts of geopolitical risk and the FTSE All-Share Index has made new highs in three out of the last four quarters whilst exposing investors to abnormally low levels of volatility.

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 for all but a few days within the period and a net 8.8m shares were issued to meet natural demand, increasing the issued share capital by 3.1%. Since January 2010 the net enhancement of NAV, after all associated costs, is over £862,000.

During the year, the net assets of the Company have grown from £215m to £229m and this growth, partly due to the DCM, continues to help drive down effective costs with Ongoing Charges less than 1%.

The Board hopes that lower Ongoing Charges and minimal discount volatility (provided by the DCM), will be attractions for other investment trust boards and shareholders looking to merge or offer rollover options in the event of reconstructions or wind ups. The Board continues to be keen to grow the Company's assets both "organically" and as a result of participation in consolidation within the investment trust sector.

Gearing

During the year the Company put in place a £20m revolving credit facility though has yet to utilise it.  However, the Managers and Board continue to see the opportunity to gear on a tactical basis as an important tool to be deployed when compelling equity valuations are presented.

Dividends

The fourth interim dividend of 0.66p represented an increase of 5.6% on the 0.625p dividend paid at the end of each of the first two quarters of the financial year.  Unusually, the Board took the step of increasing the third interim dividend (to 0.65p) which reflected the stronger than expected dividend income that resulted from weaker sterling.  The full year dividends declared totalled 2.56p and represented an increase of 5.6% over the previous year. The Board intends, barring unforeseen circumstances, to pay a dividend of at least 0.66p per quarter in the current financial year and remains committed to a progressive dividend policy. The full year dividends were comfortably covered by earnings and Shareholders may take additional comfort from the Company's substantial revenue reserve which (when calculated assuming payment of the fourth interim dividend) represents 51% of the annual dividends.

Outlook

Political uncertainty remains at elevated levels on both sides of the Atlantic.  The direction of European integration, the shape of Brexit and its impact, the threat of Catalonian secession, and an unusual and unpredictable US presidency, are amongst a long list of uncertainties which, when combined with a potential change in central bank policy (not least the recent increase in interest rates by the Bank of England) and a maturing bull market in equities, create considerable risk.  The Board has carefully considered with the Managers the appropriate investment approach in such an environment, and we remain of the view that their emphasis on the preservation of capital and durability of income, and their conservative approach to gearing, remain appropriate.

David Warnock

Chairman

24 November 2017

2. MANAGERS' REVIEW

Background

Although we are predominantly equity investors the temperature of the market is often best taken by looking at the currency and bond markets.  It is here that the vying influences of political and monetary policy are most quickly reflected in asset prices.

In the first few days of October 2016 the threat of a hard Brexit precipitated a further fall in sterling to lows against the dollar not seen since mid-1985.  Since then the commencement of the negotiations with the EU has allowed sterling to first stabilise and then to strengthen modestly ahead of Theresa May's Florence speech.  Also contributing to this complex equation has been the influence of central bankers and their desire to make the first tentative steps towards withdrawing from the extraordinary easy monetary policy that has dominated the last 9 years. The US central bank communicated its intention to begin normalising its $4.5 trillion balance sheet in October. In the UK, the Bank of England has reversed the 25 basis point cut implemented following the 2016 EU referendum but Governor Mark Carney continues to steer the market away from pricing in a series of further hikes. Both bond and currency markets have moved to price in these changes in expectations.

However, the forces of deflation have never been far away and, despite US unemployment falling to 4.3% in September, a broad reflation of the US economy, and wage inflation in particular, have remained elusive.  In the UK, although inflation has been fuelled by a weakening currency it has not been underpinned by a higher rate of economic growth or a rise in real wages.   The result has been vacillation from central bankers and only the first tentative steps toward tighter policy.

This persistence of loose monetary policy has allowed equity markets to rise steadily despite the continued deterioration of the geopolitical backdrop.  The rise of populism, an unpredictable US president, the aforementioned Brexit negotiations and an increasing number of foreign policy challenges have all been brushed aside as the FTSE All-Share Index has risen to generate a series of new highs with remarkably low volatility.

Performance & Investment Strategy

Your Company delivered a Net Asset Value ('NAV') total return of +5.9% and a share price total return of +4.0% over the year.  This compares with the FTSE All-Share Index return of +11.9%.  In its 20-strong peer group, your Company is positioned 18th over the 12 months, reflecting that this has been a challenging year for defensively positioned investors.

The steady progress of the market over the 12 month period belies significant swings in market leadership.  The Company's emphasis on defensive quality can mean that, although it has preserved capital well in periods of weakness, performance has sometimes lagged in particularly ebullient phases of market behaviour.  We found ourselves in such a phase during the final quarter of 2016 and the first weeks of 2017.  As investors bought into the reflationary rhetoric that surrounded the election of President Trump, cyclical and value stocks, underrepresented in Troy's portfolios, performed notably well.

In mid-February this trend was interrupted by two events: the short-lived but highly publicised 3G bid approach for Unilever and a realisation that the rift between the President and many members of his own party would make radical US tax reform and fiscal stimulus harder to deliver than expected.  Investors were once again reminded of the attractions of owning quality franchises and many of the portfolios core holdings saw a period of strong performance.

Unusually, performance during the final quarter of the Company's year was dominated by stock specific news flows rather than investment style.  A significant failure by Provident Financial in the execution of the restructuring of its home collected credit business, regulatory intervention in the tobacco sector and disappointing news flow from Reckitt Benckiser all detracted meaningfully from performance.  There were several significant bright spots with Next and Equiniti in particular rising to offset the weaker performers and allowing the Company to deliver a near flat return over the final three months to 30 September 2017.

The stream of income generated by the portfolio continued to be robust, aided by weaker sterling and a number of special dividends from cash generative companies such as Next, Compass and Lancashire Group.  This allowed the Company to pay a full year dividend of 2.56p with an increase announced at the time of both the 3rd and the 4th quarter dividend.  The full year dividend represents a +5.6% increase on the previous annual dividend.

Portfolio Changes

The opportunity to invest at attractive valuations can arise as the result of a sector or market wide derating or due to a stock specific correction.  Market wide value has not been on offer for some years, however, in the fourth quarter of 2016 the rotation out of defensive quality and into cyclical value did offer us a short-lived opportunity to add to some of our core holdings including Unilever (at a 3.2% dividend yield) and Reckitt Benckiser (at a 2.2% dividend yield).

Since December however markets have risen steadily with remarkably little volatility and as such opportunities have been stock specific in nature.  A new holding in IG Group, the online contract-for-difference ('CFD') and spread betting platform, was started in January following a FCA consultation paper looking to limit irresponsible levels of leverage and curtail sometimes unscrupulous marketing practices.  IG Group is well positioned to weather such a storm and ultimately to take market share but the share price weakness that followed the announcement provided an opportunity to invest in an excellent business at a dividend yield of over 6%.  A new holding in Domino's Pizza Group PLC, the holder of the UK and Irish master franchises, was also added.  We have followed the stock since 2014 and used the share price weakness created by the market's short-sighted focus on like-for-like sales as an opportunity to buy a holding in this high-return, low-CapEx and relatively unindebted business on a yield of 3.1%.

Company specific opportunities also arose in stocks that were already owned by the Company.  Following meetings with both UK oil majors we were also able to add to the portfolio's position in Royal Dutch Shell.  With the oil price trading between $44 and $54 the companies remain highly focused on capital allocation but are generating enough cash for us to be more positive on their dividend streams.  We also continued to add to our positions in Next which suffered continued weakness following its January trading statement.  We remain confident in the management team and the strength of the underlying franchise.

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 equates to well over 1.8% of the NAV when Troy became manager of the Company in 2009.  The number of shares in issue has continued to increase, rising by some 140% to 291 million since the discount control mechanism was activated in January 2010.  The issuance of new shares and the associated increase in the size of the Company has not only boosted liquidity beyond that experienced by many investment trusts of a similar size, but has reduced on-going charges from over 1.5% of NAV to 0.95% at the end of September.

Investment Outlook

Despite a rise in consumer price inflation for the month of October to 3.1% it is only a matter of time before the impact of the initial drop in the value of the pound following the Brexit vote falls out of the annualised figures entirely. Market participants will only then be able to clearly observe whether Britain's decision to leave the European Union has resulted in a transient or more permanent increase in the rate of inflation. The Bank of England, attempting to strike a delicate balance between preserving growth and containing inflation, will continue to sound a cautious note in its guidance on the path of future interest rates and we would anticipate a meaningful gap before any further increases are announced.

Movements in the foreign exchange rate notwithstanding, we remain optimistic that the portfolio's underlying holdings will continue to generate attractive income growth in what remains a low interest rate environment in the UK. UK-listed multinationals should remain relatively resilient regardless of the political climate and companies that command pricing power stand to be beneficiaries of the return of modest inflation in the developed world. In addition, companies such as Unilever, which is seeking to achieve €6 billion of efficiency savings across its business, demonstrate that even against a low-growth backdrop, opportunities remain to streamline operations, improve margins and pass through some of the incremental cash flow to shareholders.

Troy Asset Management Ltd

24 November 2017

3. RESULTS & DIVIDENDS

Financial Highlights
	2017	2016
Net asset value total return	+5.9%	+14.7%
Share price total return	+4.0%	+14.8%
FTSE All-Share Index total return	+11.9%	+16.8%
Increase in dividends per share	+5.6%	+4.3%
Dividend yield*	3.3%	3.1%
Dividends per share+	2.56p	2.425p
Ongoing Charges	0.95%	0.99%
* 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 2017)
	One Year	Three Years	Five Years	Seven Years
Share price	+4.0%	+33.3%	+63.0%	+107.2%
Net asset value per share	+5.9%	+35.3%	+66.4%	+108.8%
FTSE All-Share Index	+11.9%	+27.8%	+61.2%	+80.8%

Distribution of Assets and Liabilities
	Valuation at					Valuation at
	30 September				Appreciation/	30 September
	2016		Purchases	Sales	(depreciation)	2017
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	206,641	95.9	21,553	(18,566)	6,437	216,065	94.5
	______	_____	________	_______	________	______	_____
Current assets	10,024	4.7				13,141	5.7
Current liabilities	(1,202)	(0.6)				(514)	(0.2)
	______	_____				______	_____
Net assets	215,463	100.0				228,692	100.0
	______	_____				______	_____
Net asset value per share	76.41p					78.64p
	______					______

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 15 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 2017.

• 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 15 and the viability statement below.

Results, Dividends and Future Development

The financial statements for the year ended 30 September 2017 appear below. Dividends in respect of the year amounted to 2.56p per share (2016 - 2.425p). The fourth interim dividend of 0.66p per share announced on 21 September 2017 (2016 - fourth interim 0.625p) will be accounted for in the financial year ending on 30 September 2018. 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 25 January 2017, 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 £10,740,111 (being equal to approximately 14.99% of the Ordinary shares in issue as at 25 January 2017). It is proposed that this authority will be renewed at the Company's forthcoming AGM. During the year ended 30 September 2017 there were 120,000 Ordinary shares of 25p each purchased (being 0.04% of the issued share capital) and 120,000 Ordinary shares of 25p each re-issued. The issued share capital at 30 September 2017 consisted of 290,794,045 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 289,044,045 Ordinary shares of 25p each and there were 1,750,000 Ordinary shares 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 £115,426 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.

Borrowings

During the year the Company entered into a two year unsecured floating rate revolving credit facility for £20 million with ING Luxembourg S.A. The facility is for the acquisition of investments and for general corporate purposes. Further details are set out in Note 5 below.

Independent Auditors

Following a tender process in 2015, PricewaterhouseCoopers LLP were appointed the Company's Auditors in 2016.

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 2016 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 2021.

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 2017 AGM, the Company, at 30 September 2017, had the remaining authority to buy-back 42,840,447 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

24 November 2017

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;

-    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; and

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

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

24 November 2017

TROY INCOME & GROWTH TRUST PLC

STATEMENT OF COMPREHENSIVE INCOME

		Year ended 30 September 2017			Year ended 30 September 2016
		Revenue	Capital		Revenue	Capital
	Note	return	return	Total	return	return	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Profits on investments held at fair value	9	-	6,433	6,433	-	20,740	20,740
Currency gains/(losses)		-	48	48	-	(13)	(13)
Revenue	2
Income from listed investments		9,490	-	9,490	7,890	-	7,890
Other income		-	-	-	118	-	118
		______	_______	______	______	_______	______
		9,490	6,481	15,971	8,008	20,727	28,735
		______	_______	______	______	_______	______
Expenses
Investment management fees	3	(568)	(1,055)	(1,623)	(508)	(943)	(1,451)
Other administrative expenses	4	(460)	-	(460)	(437)	-	(437)
Finance costs of borrowing	5	(21)	(39)	(60)	-	-	-
		______	_______	______	______	_______	______
Profit before taxation		8,441	5,387	13,828	7,063	19,784	26,847
Taxation	6	(116)	-	(116)	(101)	-	(101)
		______	_______	______	______	_______	______
Profit for the year		8,325	5,387	13,712	6,962	19,784	26,746
		______	_______	______	______	_______	______
Earnings per Ordinary share (pence)	8	2.90	1.87	4.77	2.59	7.37	9.96
		______	_______	______	______	_______	______

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
				2017	2016
	Note			£'000	£'000
Non-current assets
Ordinary shares				216,065	206,641
				______	______
Investments held at fair value through profit or loss	9			216,065	206,641
				______	______
Current assets
Accrued income and prepayments				646	517
Trade and other receivables				273	-
Fair value of forward currency contract				134	-
Cash and cash equivalents				12,088	9,507
				______	______
Total current assets				13,141	10,024
				______	______
Total assets				229,206	216,665
Current liabilities
Trade and other payables				(514)	(1,069)
Fair value of forward currency contract				-	(133)
				______	______
Total current liabilities				(514)	(1,202)
				______	______
Net assets				228,692	215,463
				______	______
Issued capital and reserves attributable to equity holders
Called-up share capital	10			72,699	70,492
Share premium account	11			23,149	18,600
Special reserves	12			63,504	63,504
Capital reserve	13			63,670	58,283
Revenue reserve	14			5,670	4,584
				______	______
Total equity				228,692	215,463
				______	______
Net asset value per Ordinary share (pence)	8			78.64	76.41
				______	______

TROY INCOME & GROWTH TRUST PLC

STATEMENT OF CHANGES IN EQUITY

For year ended 30 September 2017
	Called-up share	Share premium	Special	Capital	Revenue	Total
	capital	account	reserves	reserve	reserve	equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2016	70,492	18,600	63,504	58,283	4,584	215,463
Profit and total comprehensive income for the year	-	-	-	5,387	8,325	13,712
Equity dividends (note 7)	-	-	-	-	(7,239)	(7,239)
Shares bought back into treasury	-	-	(94)	-	-	(94)
Shares issued from treasury	-	1	94	-	-	95
Discount control costs	-	(33)	-	-	-	(33)
New shares issued	2,207	4,581	-	-	-	6,788
	______	______	______	______	______	______
Balance at 30 September 2017	72,699	23,149	63,504	63,670	5,670	228,692
	______	______	______	______	______	______
For year ended 30 September 2016
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	26,746
Equity dividends (note 7)	-	-	-	-	(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
	______	______	______	______	______	______

TROY INCOME & GROWTH TRUST PLC

CASH FLOW STATEMENT

	Year ended		Year ended
	30 September 2017		30 September 2016
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	9,384		8,097
Administrative expenses paid	(2,031)		(1,849)
	________		________
Cash generated from operations (note 19 (a))		7,353		6,248
Finance costs paid		(60)		-
Taxation		(140)		(122)
		________		________
Net cash inflows from operating activities		7,153		6,126
Cash flows from investing activities
Purchases of investments	(22,161)		(33,987)
Sales of investments	18,295		20,796
Realised loss on forward currency contracts	(271)		(515)
	________		________
Net cash outflow from investing activities		(4,137)		(13,706)
		________		________
Net cash inflow/(outflow) before financing		3,016		(7,580)
Financing activities
Proceeds of issue of shares	6,883		16,894
Cost of share buy backs	(94)		-
Dividends paid	(7,239)		(6,391)
Costs incurred on issue of new shares	(33)		(33)
	________		________
Net cash (outflow)/inflow from financing activities		(483)		10,470
		________		________
Net increase in cash and short term deposits (note 19(b))		2,533		2,890
Cash and cash equivalents at the start of the year		9,507		6,630
Effect of foreign exchange rate changes		48		(13)
		________		________
Cash and cash equivalents at the end of the year		12,088		9,507
		________		________

TROY INCOME & GROWTH TRUST PLC

YEAR ENDED 30 SEPTEMBER 2017

1.	Accounting Policies
	(a)	Basis of accounting
		The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union.
		The financial statements have also been prepared in accordance with the Companies Act 2006, as applicable to companies adopting IFRS.
		The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities held at fair value through profit and loss.
		The financial statements are presented in Sterling which is regarded as the functional currency and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.
		The principal accounting policies adopted are set out below. These policies have been applied consistently throughout the current and prior year.  Where presentational guidance set out in the Statement of Recommended Practice ("SORP") 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
		In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
		At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:
		-	Amendments to IAS 40 - Investment Property - Transfers to, or from investment property (effective for annual periods beginning on or after 1 January 2018).
		-	IFRS 9 - Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2018).
		-	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 2017 was 1.34139.
		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 year.
	(j)	Issue and repurchase of ordinary shares and associated costs
		The proceeds from the issue of new Ordinary shares (including those relating to the sale of shares out of treasury) and the aggregate cost of repurchasing Ordinary shares (including those to be held in treasury) are taken directly to equity and dealt with in the Statement of Changes in Equity. Issue costs incurred in respect of shares sold out of treasury are offset against the proceeds received and dealt with in the special reserves. Share issues and repurchase transactions are accounted for on a trade date basis.

		2017	2016
2.	Revenue	£'000	£'000
	Income from listed investments
	UK dividend income	8,714	7,227
	Income from overseas investments	776	663
		________	________
		9,490	7,890
		________	________
	Other income from investment activity
	Underwriting income	-	5
	Traded option premiums	-	113
		________	________
	Total income	9,490	8,008
		________	________

3.		Investment management fees
		On 31 July 2009, Troy Asset Management Ltd ("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.
			2017			2016
			Revenue	Capital		Revenue	Capital
			return	return	Total	return	return	Total
			£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees paid to Troy		547	1,016	1,563	487	904	1,391
	AIFM fee paid to PATAC		21	39	60	21	39	60
			_______	______	______	_______	______	______
	Total Investment management fee		568	1,055	1,623	508	943	1,451
			_______	______	______	_______	______	______

		2017	2016
4.	Other administrative expenses	£'000	£'000
	Directors' remuneration - fees as Directors	85	84
	Secretarial fees	112	110
	Fees payable to auditors
	- fees payable to the Company's auditors for the audit of the annual financial statements {a}	23	23
	Other management expenses	240	220
		_______	_______
		460	437
		_______	_______
	{a} Includes irrecoverable VAT of £4,000 (2016 - £4,000).
	The Company had no employees during the year (2016 - nil). No pension contributions were paid for Directors (2016 - £nil).

			2017			2016
			Revenue	Capital		Revenue		Capital
			return	return	Total	return		return	Total
5.	Finance costs of borrowing		£'000	£'000	£'000	£'000		£'000	£'000
	Bank revolving credit facility		21	39	60	-		-	-
			_______	______	______	_______		______	______
	On 12 April 2017 the Company arranged a £20 million two year revolving facility with ING Luxembourg S.A. which will expire in April 2019. Under the terms of the facility, the Company can draw down up to £20 million at an interest rate of LIBOR as quoted in the market for the relevant loan period, plus a margin of 0.9%. The facility is unsecured and is subject to covenants which are customary for a credit agreement of this nature. At the year end the Company had not drawn down on the facility.
			2017			2016
			Revenue	Capital		Revenue		Capital
			return	return	Total	return		return	Total
6.	Taxation		£'000	£'000	£'000	£'000		£'000	£'000
	Irrecoverable overseas tax		116	-	116	101		-	101
			_______	______	______	_______		______	______
	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 19.5% (2016 - 20.0%):
			2017			2016
			Revenue	Capital		Revenue		Capital
			return	return	Total	return		return	Total
			£'000	£'000	£'000	£'000		£'000	£'000
	Profit on ordinary activities before taxation		8,441	5,387	13,828	7,063		19,784	26,847
			_______	______	______	_______		______	______
	Taxation of return on ordinary activities at the standard rate of corporation tax		1,646	1,050	2,696	1,413		3,957	5,370
	Effects of:
	UK dividend income not liable to further tax		(1,063)	-	(1,063)	(1,351)		-	(1,351)
	Overseas dividend income not liable to further tax		(151)	-	(151)	(133)		-	(133)
	Capital profits not taxable		-	(1,263)	(1,263)	-		(4,146)	(4,146)
	Movement in unutilised management expenses		108	213	321	71		189	260
	Overseas withholding tax suffered		116	-	116	101		-	101
			_______	______	______	_______		______	______
	Total taxation charge for the year		116	-	116	101		-	101
			_______	______	______	_______		______	______
	At 30 September 2017, the Company had surplus management expenses of £9,008,000 (2016 - £7,291,000) with a tax value of £1,531,000 (2016 - £1,312,000) to carry forward. No deferred tax asset has been recognised in the current or prior year 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.
							2017		2016
7.		Dividends on equity shares					£'000		£'000
		Amounts recognised as distributions to equity shareholders in the year:
		Fourth interim dividend for the year ended 30 September 2015 of 0.6p per share					-		1,555
		Fourth interim dividend for the year ended 30 September 2016 of 0.625p per share					1,769		-
		Three interim dividends for the year ended 30 September 2017 totalling 1.9p (2016 - three interims totalling 1.8p) per share					5,470		4,836
							________		________
							7,239		6,391
							________		________
		The fourth interim dividend of 0.66p per share, declared on 21 September 2017 and paid on 27 October 2017, 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.
							2017		2016
							£'000		£'000
		Three interim dividends for the year ended 30 September 2017 totalling 1.9p (2016 - three interim dividends totalling 1.8p) per share					5,470		4,836
		Fourth interim dividend for the year ended 30 September 2017 of 0.66p (2016 - fourth interim dividend 0.625p) per share					1,919		1,769
							________		________
							7,389		6,605
							________		________

		2017	2016
8.	Return and net asset value per share	£'000	£'000
	The returns per share are based on the following figures:
	Revenue return	8,325	6,962
	Capital return	5,387	19,784
		________	________
	Total	13,712	26,746
		________	________
	Weighted average number of Ordinary shares	287,501,607	268,605,520
		__________	__________
	The net asset value per share is based on net assets attributable to shareholders of £228,692,000 (2016 - £215,463,000) and on 290,794,045 (2016 - 281,969,045) Ordinary shares in issue at the year end.

		2017	2016
9.	Investments held at fair value through profit or loss	£'000	£'000
	Listed on recognised stock exchanges:
	United Kingdom	198,552	184,052
	Overseas	17,513	22,589
		________	________
		216,065	206,641
		________	________
		2017	2016
		£'000	£'000
	Opening book cost	151,924	133,743
	Opening fair value gains on investments held	54,717	37,731
		________	________
	Opening fair value	206,641	171,474
	Purchases for cash	21,553	34,596
	Sales - proceeds	(18,566)	(20,817)
	Sales - net gains on sales	5,115	4,402
	Movement in fair value during the year	1,322	16,986
		________	________
	Closing fair value	216,065	206,641
		________	________
	Closing book cost	160,026	151,924
	Closing fair value gains on investments held	56,039	54,717
		________	________
	Closing fair value	216,065	206,641
		________	________
	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 £115,000 (2016 - £112,000) and on sales £20,000 (2016 - £28,000).
		2017	2016
	Gains on investments held at fair value	£'000	£'000
	Net gains on sales	5,115	4,402
	Movement in fair value in investment holdings	1,322	16,986
	Realised loss on forward currency contracts	(271)	(515)
	Movement in gain/(loss) on forward currency contracts	267	(133)
		________	________
		6,433	20,740
		________	________

		Ordinary shares of 25p each
10.	Called-up share capital	Number	£'000
	Allotted, called up and fully paid
	At 30 September 2017	290,794,045	72,699
		__________	________
	Allotted, called up and fully paid
	At 30 September 2016	281,969,045	70,492
		__________	________
	During the year to 30 September 2017 there were 120,000 Ordinary shares of 25p each repurchased by the Company (being 0.04% of the Company's issued share capital), at a total cost of £94,000 and placed in treasury. During the year to 30 September 2017 the Company re-issued 120,000 Ordinary shares of 25p each from treasury for proceeds totalling £95,000. There were no shares repurchased by the Company nor were there any shares re-issued from treasury during the year ended 30 September 2016. During the year to 30 September 2017 there were 8,825,000 new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £6,788,000.
	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.
	No shares were purchased for cancellation during the year (2016 - nil) and at the year end no shares were held in treasury (2016 - nil). The costs of the operation of the discount control mechanism of £33,000 have been charged against the premium on shares issued.

		2017	2016
11.	Share premium account	£'000	£'000
	At 1 October	18,600	7,525
	Premium on issue of shares	4,607	11,120
	Costs incurred on issue of new shares	(25)	(12)
	Discount control costs (note 10)	(33)	(33)
		________	________
	At 30 September	23,149	18,600
		________	________

12.	Special reserves	Distributable		Total	Total
		Capital	Special	Special	Special
		Reserve	Reserve	Reserves	Reserves
		2017	2017	2017	2016
		£'000	£'000	£'000	£'000
	At 1 October	5,343	58,161	63,504	63,504
	Shares bought back during the year into treasury	-	94	94	-
	Shares issued during the year from treasury	-	(94)	(94)	-
		________	________	________	________
	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.

.

		2017	2016
13.	Capital reserve	£'000	£'000
	At 1 October	3,669	768
	Net gains on sales of investments during the year	5,115	4,402
	Investment management fee	(1,055)	(943)
	Currency gains/(losses)	48	(13)
	Finance costs of borrowing	(39)	-
	Realised losses on forward currency contracts	(271)	(515)
		________	________
	At 30 September	7,497	3,699
		________	________
	Investment holdings gains
	At 1 October	54,584	37,731
	Investment gains	1,322	16,986
	Gains/(loss) on forward currency contracts	267	(133)
		________	________
		56,173	54,584
		________	________
	Total capital reserve	63,670	58,283
		________	________

				2017	2016
14.	Revenue reserve			£'000	£'000
	At 1 October			4,584	4,013
	Transfer to revenue account net of dividends			1,086	571
				______	______
	At 30 September			5,670	4,584
				______	______

15.

Risk management, financial assets and liabilities

Risk management

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

In pursuit of the Company's objective, the Company's investment policy is to invest in a portfolio of predominately UK equities. Equities are selected for their inclusion within the portfolio solely on the basis of the strength of the investment case with the focus being on long term income growth along with capital preservation.

Asset classes other than equities will be purchased from time to time, will vary as opportunities are identified and will include convertibles, preference shares, fixed income securities and corporate bonds. Such investments will be made when prospective returns appear to be superior to those from equity markets or are considered likely to exceed the Company's borrowing costs. However, non-equity securities will not constitute the majority of the portfolio. The Company may also use derivatives for the purpose of efficient portfolio management (including reducing, transferring or eliminating investment risk in its investments and protection against currency risk), to exploit an investment opportunity and to achieve capital growth. The Company entered into forward currency contracts during the year to manage the exchange risk of holding foreign investments. The fair value of £134,000 at 30 September 2017 (2016: fair value of £(133,000)) on the US$6,000,000 (2016: US$13,000,000) sold forward against £4,607,000 (2016: £9,886,000) is included in current assets (2016: current liabilities) and was due to mature within two months (2016: one month). During the prior year the Company entered into five traded option contracts, generating income of £113,000. No losses were incurred on these contracts. There were no traded option contracts during the current year.

The management of the portfolio is conducted according to investment guidelines, established by the Board after discussion with the Manager, which specify the limits within which the Manager is authorised to act.

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.

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

(i)

Market risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and other price 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.

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 rate profile

The interest rate risk profile of the portfolio of financial assets at the date of the Statement of Financial Position was as follows (there were no interest bearing financial securities and liabilities at the dates of the Statement of Financial Position):

Weighted

average

interest

Fixed

Floating

rate

rate

rate

As at 30 September 2017

%

£'000

£'000

Assets

Cash

-

-

12,088

________

______

________

Total assets

-

-

12,088

________

______

________

Weighted

average

interest

Fixed

Floating

rate

rate

rate

As at 30 September 2016

%

£'000

£'000

Assets

Cash

-

-

9,507

________

______

________

Total assets

-

-

9,507

________

______

________

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The cash assets consist of cash deposits on call earning interest at prevailing market rates. Short-term debtors and creditors have been excluded from the above tables.

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:

Within

Within

3 Months or less

3 Months or less

2017

2016

£'000

£'000

Floating rate

Cash

12,088

9,507

________

________

Interest rate sensitivity

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

If interest rates had been 50 basis points higher or lower and all other variables were held constant, the Company's profit before tax for the year ended 30 September 2017 and net assets would increase/decrease by £60,000 (2016 - increase/decrease by £47,000).This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.

In the opinion of the Directors, the above sensitivity analyses are 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. The risk parameters used will also fluctuate depending on the current market perception.

Foreign currency risk

A proportion of the Company's investment portfolio is invested in overseas securities and the income and capital value can be affected by movements in exchange rates. Exchange gains or losses may arise as a result of the movement in the exchange rate between the date of the transaction denominated in a currency other than Sterling and its settlement.

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

30 September 2017

30 September 2016

Net

Net

Overseas

monetary

Overseas

monetary

investments

assets

investments

assets

£'000

£'000

£'000

£'000

US Dollar

13,450

103

18,641

118

Swiss Franc

4,063

-

3,948

-

_______

_______

_______

_______

Total

17,513

103

22,589

118

_______

_______

_______

_______

As noted in the Risk Management section above, at 30 September 2017 the Sterling cost of a proportion of the US Dollar denominated assets was protected by a forward currency contract (US$6,000,000 forward against £4,607,000) (2016: US$13,000,000 forward against £9,886,000).

Foreign currency sensitivity

There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments which 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 risk) may affect the value of the quoted investments.

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. The allocation of assets to specific sectors and the stock selection process both 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 all listed on recognised investment exchanges.

Other price sensitivity

If market prices at the year end date had been 10% higher or lower on a Sterling basis while all other variables remained constant, the return attributable to Ordinary shareholders and equity reserves for the year ended 30 September 2017 would have increased/decreased by £21,606,000 (2016 - increase/decrease of £20,664,000). This is based on the Company's equity portfolio held at each year end.

(ii)

Liquidity risk

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

Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of overdraft facilities. Liabilities at the date of the Statement of Financial Position are payable within three months.

(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 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;

-

cash is held only with reputable banks and financial institutions with high quality external credit ratings. None of the Company's financial assets is secured by collateral or other credit enhancements.

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:

2017

2016

Statement of

Statement of

Financial Position

Maximum exposure

Financial Position

Maximum exposure

£'000

£'000

£'000

£'000

Non-current assets

Securities at fair value through profit or loss

-

-

-

-

Current assets

Accrued income

646

646

517

517

Other debtors

273

273

-

-

Fair value of forward currency contract

134

134

-

-

Cash and short term deposits

12,088

12,088

9,507

9,507

________

________

________

________

13,141

13,141

10,024

10,024

________

________

________

________

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

Fair value of financial assets and liabilities

The book value of cash at bank included in these financial statements approximates to fair value because of the short-term maturity. The carrying value of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. For all other short-term debtors and creditors, their book values approximate to fair value because of their short-term maturity.

Gearing

The Company has in place arrangements which would enable it to augment finance by obtaining short term credit facilities.

The Company had no outstanding gearing at the year end. The profile of financing costs is managed as part of overall investment strategy. The employment of gearing magnifies the impact on net assets of both positive and negative changes in the value of the Company's portfolio of investments.

16.	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:
				2017	2016
				£'000	£'000
	Called-up share capital			72,699	70,492
	Retained earnings and other reserves			155,993	144,971
				________	________
				228,692	215,463
				________	________
	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 extent to which revenue in excess of that which is required to be distributed should be retained.
	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 (2016 - nil).

17.	Commitments and contingencies
	At 30 September 2017 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (2016 - £nil).

18.	Financial instruments measured at Fair Value
					2017				2016
		Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Investments	216,065	-	-	216,065	206,641	-	-	206,641
	Forward currency contracts	-	134	-	134	-	-	-	-
		______	_____	______	______	______	_____	______	______
		216,065	134	-	216,199	206,641	-	-	206,641
		______	_____	______	______	______	_____	______	______
	Financial liabilities at fair value through profit or loss
	Forward currency contracts	-	-	-	-	-	(133)	-	(133)
		______	_____	______	______	______	_____	______	______
	Total	-	-	-	-	-	(133)	-	(133)
		______	_____	______	______	______	_____	______	______
	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.
	Level 3 reflects financial instruments the fair value of which is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. There were no transfers of investments between levels during the year ended 30 September 2017 (2016 - none).

19.	Notes to the Cash Flow Statement
	(a)  Reconciliation of operating profit to operating cash flows
				2017	2016
				£'000	£'000
	Profit before taxation			13,828	26,847
	Add interest payable			60	-
	Adjustments for:
	Gains on investments			(6,433)	(20,740)
	Currency (gains)/losses			(48)	13
	(Increase)/decrease in accrued income and prepayments			(106)	87
	Increase in trade and other payables			52	41
				________	________
				7,353	6,248
				________	________
	(b)  Analysis of changes in net funds
		30 September	Cash	Exchange	30 September
		2016	Flow	Movements	2017
		£'000	£'000	£'000	£'000
	Cash at bank	9,507	2,533	48	12,088
		________	________	________	________

20.	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.

21.	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 relevant reporting period (year ending 30 April 2017) are available from PATAC on request.
	The Company's maximum and actual leverage levels at 30 September 2017 are as follows:
				Gross	Commitment
				Method	Method
	Maximum limit			200%	200%
	Actual			97%	102%
	There have been minor amendments to the Company's investor disclosure document in the year to 30 September 2017. The revised investor disclosure document and all additional periodic disclosures required in accordance with the requirements of the FCA Rules implementing the AIFMD in the UK are made available on the Company's website (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 2017. The statutory accounts for the year ended 30 September 2017 received an audit report which was unqualified. The statutory accounts for the financial year ended 30 September 2017 were approved by the Directors on 24 November 2017 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 24 January 2018 at 16 Charlotte Square, Edinburgh, EH2 4DF. The Annual Report will be posted to shareholders in December 2017 and available in due course by download from the Company's webpage (http://bit.ly/2ji7VIH) 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 24 November 2017 Enquiries: 0131 538 6610

 

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