Annual Financial Report
TROY INCOME & GROWTH TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2019
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 Net Asset Value ('NAV') per share total return for the year to 30 September 2019 was +9.7% which compares very favourably with the FTSE All-Share Index total return of +2.7%. The year was impacted by the weakness of many equity markets in the final calendar quarter of 2018; a period during which the NAV fell by significantly less than the UK equity market as a whole.
While the year was a good one for the Company in both absolute and relative terms, the Board remains predominantly interested in longer-term performance. For example, over the five-year period to 30 September 2019 the NAV per share total return was +54.8% which again compares very favourably with the FTSE All-Share Index total return of +38.9%. These five years have included a wide variety of market conditions demonstrating the robustness of the Managers' investment philosophy.
The aggregate dividends for the year totalled 2.75p, representing an increase of 3.2% over the previous year. Inflation, as represented by the Consumer Price Index, was 1.7% for same period.
Economic and Stock Market Background
2019 marks both the ten-year anniversary of the post global financial crisis lows and of Troy's appointment to manage the Company's assets. During the intervening period asset prices have soared as investors have sought yield in a world where interest rates have been held at near zero levels in most developed economies. The last 12 months have seen attempts to normalise monetary policy falter, most notably by the US Federal Reserve. Economic growth has proved fragile in the face of waning globalisation. The sharp stock market declines of late 2018 and subsequent recovery that has dominated much of the calendar year to date have been the direct result of the monetary policy environment.
Discount Control Mechanism, Costs and Corporate Development
The Discount Control Mechanism ('DCM'), which has been in place since January 2010, continues to operate successfully by ensuring that Shareholders can purchase and sell the Company's shares at a time of their choosing and at a price very close to net asset value. During the year, the Company issued 11.68m shares and bought-in 1.19m shares, for a net issuance total of 10.49m shares, representing a growth in the number of shares in issue of 3.7%. The Board has been delighted to demonstrate its willingness to buy-in shares, as well as to issue shares. Since January 2010 the value of the net enhancement of NAV after all associated costs is over £973,000. During the year, the net assets of the Company rose to £245.5m and, partly as a result, the ongoing charges have decreased to 0.91% from 0.96%. Another contributing factor was the reduction in Troy's annual management fee announced in January 2019 to a flat rate of 0.65%, from the previous tiered rate of 0.75% of net assets up to £175m and 0.65% thereafter. The Board is committed to ensuring the Company's ongoing charges are competitive.
Soon after the Company's year-end, the Board issued a Prospectus partly in respect of a merger with Cameron Investors Trust plc. This transaction has now been completed and led to the issuance of 13.65m new shares, increasing the size of the Company by about 4.5%. The Board welcomes the Cameron shareholders.
Cameron is the third investment trust to merge into the Company, following Grampian and Albany, both in 2012. The Board hopes that the Company's performance track record and the DCM's provision of liquidity with minimal discount volatility, will continue to attract other investment trusts looking to merge (for whatever reason) or looking to offer rollover options in the event of wind-ups. Such events should also offer both parties the opportunity to reduce ongoing charges. The Board continues to be keen to grow the Company's assets both organically and also as a result of participation in consolidation within the investment trust sector.
Gearing
The Company renewed the £20m revolving credit facility in April 2019 for a further two years. The Company has not utilised the facility during the year but the Board and Managers continue to see the opportunity to gear on a tactical basis as an important tool to be deployed should compelling equity valuations become available.
Dividends
During the year the Company declared three interim dividends of 0.685p followed by a fourth of 0.695p, producing total dividends of 2.75p representing an increase of 3.2% over the previous year. Inflation, as represented by the Consumer Price Index, was 1.7% for same period. The Board intends, barring unforeseen circumstances, to pay a dividend of at least 0.695p per quarter in the current financial year and remains committed to a progressive dividend policy. The dividends for the year were not quite matched by earnings, meaning a small amount of revenue reserves were used. The Board considers the continuation of the progressive dividend policy to be an appropriate use of the Company's substantial revenue reserve which (when calculated assuming payment of the fourth interim dividend) represents about 50% of the annual cost of the dividend. Sales of higher yield, but low-growth, investments from the portfolio resulted in a headwind to income growth within the year but will serve to underpin the long-term dividend growth potential of the portfolio in future years. As this transition in the portfolio is liable to continue, at least during the current year, it is again likely this year's dividends will exceed earnings, but be easily managed from revenue reserves. The presence of such revenue reserves is a strength of the Company that the Board believes should be used cautiously and to Shareholders' longer-term advantage.
Annual General Meeting ('AGM')
In addition to the resolutions Shareholders' might expect at this year's AGM, the Board asks Shareholders to approve resolutions it believes are vital to the effective management of the DCM. Specifically, the Board is seeking permission to allow the Company to issue shares on a non pre-emptive basis equivalent to 20% of its equity and to buy-in up to 14.99%. There are two separate resolutions concerning the issue of shares. The first resolution seeks permission to issue 10%, and the second (extra) resolution seeks permission to issue up to a further 10% solely in connection with the DCM; for an aggregate of 20%. The Board believes this approach to seeking non pre-emption authorities is shareholder friendly. It gives any Shareholder who may be unhappy that the aggregate authority sought is higher than that recommended by corporate governance guidelines the ability to express their concern via the second resolution, whilst still allowing their approval for the first and more conventional resolution dealing with 10% issuance. While the Board understands some Shareholders' reticence about non pre-emption authorities, it strongly believes that in the circumstances of the DCM's operation, the 20% overall authority sought is in the best interests of Shareholders.
Outlook
Despite the general election being only a few weeks away, the outcome remains highly uncertain. The result may have a significant impact on not only the path of Brexit but also on the long-term performance of the UK economy and the value of sterling. As such it seems foolhardy to make predictions relating to much that is UK centric at the moment. The Managers' focus, as ever, is on ensuring the portfolio comprises high-quality companies rather than betting on political or economic binary outcomes. Changing economic conditions do, however, create opportunities and the Board and Managers remain optimistic about the Managers' ability to maintain a portfolio of quality companies to Shareholders' long-term benefit.
David Warnock
Chairman
22 November 2019
2. MANAGERS' REVIEW
Background
The 12 months to 30 September 2019 had an inauspicious start with volatility elevated and equities experiencing steep declines globally. The unwinding of Quantitative Easing, a deteriorating global trade environment and weakening economic data applied downward pressure on most developed equity markets. Despite widespread concerns of a prolonged period of weakness, it would appear that central bankers remain preoccupied with mitigating the deflationary impact of falling asset prices. Statements from the Federal Reserve indicated a sharp reversal of policy stance with rate hikes that had previously been in market forecasts for 2019 rapidly being unwound. Robust corporate earnings and what appeared to be a period of détente in the US-China trade disputes fuelled a sharp first calendar quarter rebound.
Equity markets continued to make steady gains through the second calendar quarter but by August the equity market rally had faltered. Bond yields also plunged in response to new salvos in the US-China trade war, with both parties announcing new tariffs from September 2019. Investor concerns led to the US and UK yield curves inverting(1) in the month, a phenomenon last seen in the UK in 2008 and often deemed to presage a recession. In the weeks that followed, the US Federal Reserve announced a 25bp rate cut but crucially failed to guide towards further monetary easing in 2019. This stance prompted a short but sharp rotation into 'value' investments and out of 'quality', which limited the portfolio's participation in what was a strong final month for markets.
Despite the predominance of international companies amongst its constituents, the returns from the FTSE All-Share Index remain inextricably linked to the performance of the UK economy, its currency, and by extension, the progress of Brexit negotiations. During the early months of 2019, the UK equity market moved increasingly to price in a relatively benign Brexit outcome. Domestically focussed equities, including many UK banks and retailers, rose strongly and sterling hit a nine-month high of 1.33 to the dollar. However, following the failure by Mrs May to gain approval for her deal and the subsequent appointment of Mr Johnson as Prime Minister, the probability of a harder Brexit was again resurgent and during July the pound slid to 1.21 against the US dollar, levels not seen since early 2017. Meanwhile, the Bank of England Monetary Policy Committee voted unanimously to hold the base rate at 0.75%, maintaining the potential for a future interest rate cut if the UK leaves the EU without a deal.
Performance & Investment Strategy
The Company delivered a Net Asset Value (NAV) total return of +9.7% and a share price total return of +11.7% over the year. This compares with the FTSE All-Share Index return of +2.7%. The difference between the share price and NAV performances generated by the Company represents a move from a -0.9% discount to a +1.1% premium. In its 20-strong peer group, the Company was positioned 2nd on an NAV basis and 3rd on a price basis over the 12 months to 30 September 2019.
Performance in the first half of the financial year was covered in detail in the interim report, but was largely driven by the portfolio's lower participation in the falling markets of the final quarter of 2018 (70%) than in the sharply rising markets of early 2019 (97%).
In the second half of the Company's year a more dovish monetary stance by the US Federal Reserve, combined with the weakness of sterling, meant consumer staples, and in particular, our overseas holdings in that sector, were again the largest contributors to returns. Nestlé, P&G and Coca-Cola all returned in excess of +20% in sterling terms whilst Unilever, the portfolio's largest holding, also delivered a robust return (+13.0%). The portfolio's investments in RELX and Experian rose +20.6% and +26.4% respectively, adding conviction to our view that the structuring and analysis of the vast pools of data that our economy generates is a service that is in ever-greater demand. Technological change has also enabled a revolution in the non-bank financial sector and companies such as AJ Bell, the investment platform, American Express and IG Group, the spread betting firm, all saw their ability to harness that change reflected in strong share price moves over the six month period.
Energy was the only sector that failed to make a positive contribution to portfolio returns over the second half of the Company's year. Although the sector saw a period of stronger share price returns in the first months of the calendar year, a largely stagnant oil price since has meant that share prices drifted over the summer. The portfolio's tobacco holdings, which we have significantly reduced over recent years, declined in the face of an uncertain US regulatory environment. We will continue to review our exposure to this industry but remain mindful that the sector's robust free cash flow generation looks undervalued at the current levels. Individual detractors from the portfolio's performance also included a cohort of stocks with a greater level of exposure to the domestic UK economy. The performance of these stocks, including Lloyds Banking Group and Land Securities, has been highly correlated with the strength of sterling and the evolution of Brexit negotiations. Although at times they have been weak, they act as a balancing factor within a portfolio which has a significant level of overseas exposure. In the short periods during the last twelve months when sterling has been strong, these stocks have performed well, a trait that will become more important if Brexit shows signs of progression.
Portfolio Changes
Our long-term investment approach means that portfolio turnover has historically been low and in the reporting year was less than 10%. Despite this relatively modest rate of change, there are some common themes that are worth drawing out. Firstly, a renewed period of sterling weakness, starting in early 2018, precipitated a spate of acquisition of UK companies by overseas purchasers. Late in the previous reporting year Jardine Lloyd Thompson received a bid from Marsh McLennan and exited the portfolio in March. A bid by Canadian dairy giant Saputo for Dairy Crest in February was followed by a $3.4bn approach for Inmarsat, the satellite communications company, by a private equity consortium led by Apax. Although at the time of writing this Inmarsat deal had yet to complete, we felt the post-bid share price fully reflected both the future risks and returns faced by investors and decided to exit the holding.
Holdings in Centrica, Pennon and Royal Mail were sold in the period. As political and regulatory pressure has persisted, our confidence in the defensive characteristics of utility-like stocks has continued to decline. While these stocks may trade on seemingly attractive yields (all in excess of 5.5% at the time of sale) the extent to which these dividends are covered by cash flow, and their potential to grow over time, is much less obvious.
Conversely, many of the holdings we have added to the portfolio over the last twelve months trade on lower yields but have much more attractive dividend growth profiles and benefit from higher levels of dividend cover. Moneysupermarket.com, which is one of the UK's leading price comparison websites, is a good case in point. It is an asset-light internet business and thus benefits from wide margins, high returns, low capital requirements and has no debt. On top of that, it serves a powerful social purpose by delivering better consumer price transparency. Today the business is focussed on improving the retention of its customers by increasing personalisation, breadth of offering and service levels; a strategy which we expect to drive meaningful market share gains and can be expected to underpin continued robust dividend growth. Our investment in AJ Bell, which was unusually made at its initial public offering (IPO), is another example. The CEO and Founder has built a rapidly growing investment platform for both financial advisors and retail customers with c.£46bn under administration. Again, we see a powerful and structural growth story that can underpin significant growth in free cash flow over the coming years. Other new additions to the portfolio over the year include Associated British Foods, a stock that had materially de-rated since we sold our investment in 2014, Sabre Insurance, a returns-focused provider of non-standard motor cover, and Victrex, a speciality chemicals business which has been on our watch list since we were appointed managers of the Company in 2009.
Lastly, we have added to several of the portfolio's more UK-centric holdings at times when we believed the outlook for Brexit negotiations was unduly pessimistic. Additions to Next, WH Smith, Land Securities and Lloyds Bank have meant that when sporadic periods of optimism around the UKs future relationship with the EU have emerged the portfolio has been able to deliver more balanced returns, as referenced above.
Income
The Company has paid a full-year dividend of 2.75p. This dividend was not quite fully covered by earnings per share of 2.70p. The modest 0.05p gap between earnings and the dividend was largely attributable to trades made within the portfolio that detracted from the portfolio's running yield. The replacement of stocks that are paying high but potentially unsustainable yields, such as Royal Mail, with stocks such as Victrex and Moneysupermarket.com, both of which we can expect to grow their dividends well in excess of inflation, represents an enhancement of the long-term prospects for growth in both capital and income. We have always emphasised the importance of total returns and eschewed the idea of generating income at the expense of capital. If we identify further opportunities to improve the future income and capital growth profile of the portfolio we may make additional changes that mean this short-term headwind persists into the coming year. As outlined in the Chairman's Statement, the Board have felt that it is appropriate to use the Company's revenue reserve to ensure the continued real growth of the dividend to Shareholders during this modest transition.
It is important to frame these changes in the wider context of the market. The FTSE All-Share Index yield at the Company's year end was 4.2%(2), a figure that is highly skewed by the pay-outs of the top ten dividend stocks which represent 54%(3) of the total market income. Amongst these top ten, only five have grown their dividends(4) over the last 12 months and, although the oil majors have announced their intention to return to dividend growth, it seems increasingly likely that some of these companies may need to moderate their pay-out ratios. If this is indeed the case then the headline market yield, and its premium to the yield on the portfolio, may be short-lived.
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 over 2.0% of the NAV when Troy became manager of the Company in 2009. Over the year, the number of shares in issue has seen a net increase of 3.7%, and a 142% increase since the discount control mechanism was implemented 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 trusts of a similar size but has reduced on-going charges from over 1.5% of NAV in 2009 to 0.91% at the end of September.
Investment Outlook
A year ago we lamented in this report a lack of resolution or a clear path forward on both Brexit and US-China relations. Both topics continue to dominate headlines and move markets. UK confusion is now compounded by the decision to hold a pre-Christmas election. While PM Boris Johnson hopes this could lead to Tory success and an end to the parliamentary deadlock, a resounding result is far from certain. In the US, the tone on negotiations with China currently points to positive signals, however, we are cognisant we have been here before.
Over a longer time scale, much discussion continues around the 'unconventional' monetary policy of the past decade. The US has attempted 'normalisation' by raising interest rates in recent years. However, three rate cuts in 2019 serve as admission that supposed normality is not yet achievable. With the ECB and the US both restarting their bond-buying programmes in recent weeks, so-called quantitative easing no longer seems so unusual! The US claims their new programme is 'in no way' the same as post-crisis QE, citing the extraordinary continuing strength of the US economy. The S&P 500 is reaching new highs as we write this report, despite lingering concerns of weak global economic data points and a mature bull market. Confusion on what the year ahead holds is not just for investors - Mario Draghi went against the ECB's monetary committee in restarting their purchase programme, demonstrating central banks themselves are at odds with how to read the global outlook.
As ever, we emphasise our examination of stock-specific investment cases over 'macro' positioning but recognise that changing economic conditions have historically provided some of the best opportunities to make long-term investments in high-quality businesses. We look forward to continue uncovering these opportunities on Shareholders' behalf.
Troy Asset Management Ltd
22 November 2019
1 - An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality.
2 - Financial Times data archive 28 September 2019.
3 - AJ Bell Q3 2019 Dividend Dashboard.
4 - Growth determined in the company's own reporting currency.
3. RESULTS & DIVIDENDS
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Financial Highlights |
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|
|
2019 |
|
Net asset value total return |
|
+9.7% |
|
Share price total return |
|
+11.7% |
|
FTSE All-Share Index total return |
|
+2.7% |
|
Increase in dividends per share |
|
+3.2% |
|
Dividend yield* |
|
3.3% |
|
Dividends per share+ |
|
2.75p |
|
Ongoing Charges |
|
0.91% |
|
* 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 2019) |
||||
|
|
One Year |
Three Years |
Five Years |
Ten Years |
|
Share price |
+11.7% |
+21.4% |
+55.6% |
+188.4% |
|
Net asset value per share |
+9.7% |
+21.1% |
+54.8% |
+174.1% |
|
FTSE All-Share Index |
+2.7% |
+21.7% |
+38.9% |
+121.1% |
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Distribution of Assets and Liabilities |
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Valuation at |
|
|
|
Valuation at |
||
|
|
30 September |
|
|
Appreciation/ |
30 September |
||
|
|
2018 |
Purchases |
Sales |
(depreciation) |
2019 |
||
|
|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
% |
|
Listed investments |
|
|
|
|
|
|
|
|
Ordinary shares |
213,743 |
95.4 |
37,439 |
(24,281) |
14,100 |
241,001 |
98.2 |
|
|
______ |
_____ |
________ |
_______ |
________ |
______ |
_____ |
|
Current assets |
10,985 |
4.9 |
|
|
|
4,994 |
2.0 |
|
Current liabilities |
(670) |
(0.3) |
|
|
|
(534) |
(0.2) |
|
|
______ |
_____ |
|
|
|
______ |
_____ |
|
Net assets |
224,058 |
100.0 |
|
|
|
245,461 |
100.0 |
|
|
______ |
_____ |
|
|
|
______ |
_____ |
|
Net asset value per share |
79.04p |
|
|
|
|
83.50p |
|
|
|
______ |
|
|
|
|
______ |
|
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; and
• resource and operational risk.
The underlying risks and potential for increased volatility associated with Brexit and other global political situations are considered within market 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 2019.
• 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 respectively (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 and Dividends
The financial statements for the year ended 30 September 2019 appear below. Dividends in respect of the year amounted to 2.75p per share (2018 - 2.665p). The fourth interim dividend of 0.695p per share announced on 3 October 2019 (2018 - fourth interim 0.685p) will be accounted for in the financial year ending on 30 September 2020.
Post Balance Sheet Event
On 22 October 2019, the Board announced that they had reached agreement, in principle, on the terms of a merger with Cameron Investors Trust plc ('CIT') to be effected by way of a scheme of reconstruction of CIT under section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of CIT and CIT shareholders rolling over their interest in CIT into the Company (the 'Scheme'). At 30 September 2019 the Company had an investment in CIT of £2,652,000.
The Scheme was approved by the CIT shareholders on 8 November 2019 and became effective on 18 November 2019. The Scheme was effected on a NAV for NAV basis and so did not result in any NAV dilution for existing shareholders of the Company. On 18 November 2019, the Company issued 13,647,942 new Ordinary shares in relation to the Scheme and received assets of £13,956,000. Following the cancellation of the Company's own investment in CIT of £2,652,000, the resulting increase in the Company's net assets was £11,304,000.
Share Capital
The issued share capital at 30 September 2019 consisted of 293,979,045 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 317,856,987 Ordinary shares of 25p each and there were no 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 an 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" or the "Manager") 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 a fee of 0.015% of the Company's net assets per annum, subject to a minimum fee of £60,000 per annum. Troy reduce 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 to 31 December 2018 the fee was 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. From 1 January 2019, the fee is at an annual rate of 0.65% of the Company's net assets.
Company Secretary
On 1 July 2010 PATAC was appointed to provide company secretarial, accounting and administration services to the Company. From 1 July 2010 to 30 September 2019, PATAC received an annual fee for these services of £95,000, adjusted annually by the higher of the increase in the Retail Price Index or the Consumer Price Index. From 1 October 2019, PATAC receives a fee for these services of £100,000 per annum plus an amount equal to 0.1%. of the Company's net assets between £50 million and £100 million, 0.03% of the Company's net assets between £100 million up to and including £250 million and 0.02% of the Company's net assets between £250 million up to and including £1,000 million. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index.
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
On 24 April 2019 the Company renewed its £20 million unsecured floating rate revolving credit facility with ING Luxembourg S.A for a further two years. 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
In assessing the Company's ability to continue as a going concern, the Directors have considered the Company's investment objective, the nature and liquidity of the portfolio, current liabilities, expenditure forecasts and the principle risks of the Company documented in the strategic report. Based on their assessment, and as the assets of the Company consist mainly of securities which are readily realisable, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements and the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future.
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
· The utilisation quantum of the discount control mechanism
· The level of income generated by the Company
· The liquidity of the Company's portfolio
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. They consider that three years is a reasonable time horizon to assess the continuing viability of the Company and a suitable period over which to measure the performance of the Company. This three year period is consistent with the planning horizon used by the Company in managing its activities.
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 2023.
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 by PATAC. Up to 30 September 2019, the fee for this service was £33,000 per annum. From 1 October 2019, the fee for this service is £30,000 per annum plus the lower of (i) a charge of £250 per transaction; and (ii) a commission of 0.1%. of the aggregate proceeds of any transaction undertaken in accordance with the discount control mechanism. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index. The fee is 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 2019 AGM, the Company, at 30 September 2019, had the remaining authority to buy-back 43,317,532 Ordinary 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 Financial Conduct 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 an Ordinary 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
PATAC Limited
Secretary
22 November 2019
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
22 November 2019
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 30 September 2019 |
Year ended 30 September 2018 |
||||
|
|
|
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 |
- |
14,100 |
14,100 |
- |
1,927 |
1,927 |
|
Currency losses |
|
- |
(2) |
(2) |
- |
(6) |
(6) |
|
Revenue |
2 |
|
|
|
|
|
|
|
Income from listed investments |
|
8,944 |
- |
8,944 |
9,038 |
- |
9,038 |
|
Other income |
|
4 |
- |
4 |
2 |
- |
2 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
|
|
8,948 |
14,098 |
23,046 |
9,040 |
1,921 |
10,961 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fees |
3 |
(526) |
(977) |
(1,503) |
(569) |
(1,057) |
(1,626) |
|
Other administrative expenses |
4 |
(500) |
- |
(500) |
(476) |
- |
(476) |
|
Finance costs of borrowing |
5 |
(26) |
(47) |
(73) |
(17) |
(33) |
(50) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Profit before taxation |
|
7,896 |
13,074 |
20,970 |
7,978 |
831 |
8,809 |
|
Taxation |
6 |
(149) |
- |
(149) |
(127) |
- |
(127) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Total comprehensive income |
|
7,747 |
13,074 |
20,821 |
7,851 |
831 |
8,682 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Earnings per Ordinary share (pence) |
8 |
2.70 |
4.56 |
7.26 |
2.73 |
0.29 |
3.02 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
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 |
|
|
|
|
|
|
2019 |
2018 |
|
|
|
Note |
|
|
£'000 |
£'000 |
|
|
Non-current assets |
|
|
|
|
|
|
|
Investments in ordinary shares |
|
|
|
241,001 |
213,743 |
|
|
|
|
|
|
______ |
______ |
|
|
Investments held at fair value through profit or loss |
9 |
|
|
241,001 |
213,743 |
|
|
|
|
|
|
______ |
______ |
|
|
Current assets |
|
|
|
|
|
|
|
Accrued income and prepayments |
|
|
|
810 |
642 |
|
|
Cash and cash equivalents |
|
|
|
4,184 |
10,343 |
|
|
|
|
|
|
______ |
______ |
|
|
Total current assets |
|
|
|
4,994 |
10,985 |
|
|
|
|
|
|
______ |
______ |
|
|
Total assets |
|
|
|
245,995 |
224,728 |
|
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
(534) |
(670) |
|
|
|
|
|
|
______ |
______ |
|
|
Total current liabilities |
|
|
|
(534) |
(670) |
|
|
|
|
|
|
______ |
______ |
|
|
Net assets |
|
|
|
245,461 |
224,058 |
|
|
|
|
|
|
______ |
______ |
|
|
Issued capital and reserves attributable to equity holders |
||||||
|
Called-up share capital |
10 |
|
|
73,495 |
72,699 |
|
|
Share premium account |
11 |
|
|
25,166 |
23,124 |
|
|
Special reserves |
12 |
|
|
63,397 |
57,831 |
|
|
Capital reserve |
13 |
|
|
77,575 |
64,501 |
|
|
Revenue reserve |
14 |
|
|
5,828 |
5,903 |
|
|
|
|
|
|
______ |
______ |
|
|
Total equity |
|
|
|
245,461 |
224,058 |
|
|
|
|
|
|
______ |
______ |
|
|
Net asset value per Ordinary share (pence) |
8 |
|
|
83.50 |
79.04 |
|
|
|
|
|
|
______ |
______ |
|
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF CHANGES IN EQUITY
|
|
||||||
|
For year ended 30 September 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2018 |
72,699 |
23,124 |
57,831 |
64,501 |
5,903 |
224,058 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
13,074 |
7,747 |
20,821 |
|
Equity dividends (note 7) |
- |
- |
- |
- |
(7,822) |
(7,822) |
|
Shares bought back into treasury |
- |
- |
(893) |
- |
- |
(893) |
|
Shares issued from treasury |
- |
240 |
6,459 |
- |
- |
6,699 |
|
New shares issued |
796 |
1,835 |
- |
- |
- |
2,631 |
|
Discount control costs |
- |
(33) |
- |
- |
- |
(33) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 30 September 2019 |
73,495 |
25,166 |
63,397 |
77,575 |
5,828 |
245,461 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
For year ended 30 September 2018 |
|
|
|
|
|
|
|
Balance at 1 October 2017 |
72,699 |
23,149 |
63,504 |
63,670 |
5,670 |
228,692 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
831 |
7,851 |
8,682 |
|
Equity dividends (note 7) |
- |
- |
- |
- |
(7,618) |
(7,618) |
|
Shares bought back into treasury |
- |
- |
(6,893) |
- |
- |
(6,893) |
|
Shares issued from treasury |
- |
8 |
1,220 |
- |
- |
1,228 |
|
Discount control costs |
- |
(33) |
- |
- |
- |
(33) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 30 September 2018 |
72,699 |
23,124 |
57,831 |
64,501 |
5,903 |
224,058 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TROY INCOME & GROWTH TRUST PLC
CASH FLOW STATEMENT
|
|
Year ended |
Year ended |
||
|
|
30 September 2019 |
30 September 2018 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Investment income received |
8,764 |
|
9,047 |
|
|
Administrative expenses paid |
(1,989) |
|
(2,083) |
|
|
|
________ |
|
________ |
|
|
Cash generated from operations (note 20 (a)) |
|
6,775 |
|
6,964 |
|
Finance costs paid |
|
(73) |
|
(50) |
|
Taxation |
|
(149) |
|
(127) |
|
|
|
________ |
|
________ |
|
Net cash inflows from operating activities |
|
6,553 |
|
6,787 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of investments |
(37,439) |
|
(34,061) |
|
|
Sales of investments |
24,281 |
|
38,568 |
|
|
Realised gain on forward currency contracts |
- |
|
149 |
|
|
|
________ |
|
________ |
|
|
Net cash (outflow)/inflow from investing activities |
|
(13,158) |
|
4,656 |
|
|
|
________ |
|
________ |
|
Net cash (outflow)/inflow before financing |
|
(6,605) |
|
11,443 |
|
Financing activities |
|
|
|
|
|
Proceeds of issue of shares |
9,331 |
|
1,228 |
|
|
Cost of share buy backs |
(1,028) |
|
(6,759) |
|
|
Dividends paid |
(7,822) |
|
(7,618) |
|
|
Costs incurred on issue of shares |
(33) |
|
(33) |
|
|
|
________ |
|
________ |
|
|
Net cash inflow/(outflow) from financing activities |
|
448 |
|
(13,182) |
|
|
|
________ |
|
________ |
|
Net decrease in cash and short term deposits (note 20(b)) |
|
(6,157) |
|
(1,739) |
|
Cash and cash equivalents at the start of the year |
|
10,343 |
|
12,088 |
|
Effect of foreign exchange rate changes |
|
(2) |
|
(6) |
|
|
|
________ |
|
________ |
|
Cash and cash equivalents at the end of the year |
|
4,184 |
|
10,343 |
|
|
|
________ |
|
________ |
TROY INCOME & GROWTH TRUST PLC
YEAR ENDED 30 SEPTEMBER 2019
|
1. |
Accounting Policies |
||
|
|
(a) |
Basis of accounting |
|
|
|
|
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ('IFRS') and interpretations issued by the International Reporting Standards Interpretation Committee, 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 and updated in January 2018) 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 Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. 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 12 - Income Taxes - Income tax consequences of dividends (effective for annual periods beginning on or after 1 January 2019). |
|
|
|
- |
Amendments to IFRS 7 - Financial Instruments: Disclosures - Pre-replacement issues in the context of the IBOR reform (effective for annual accounting periods beginning on or after 1 January 2020). |
|
|
|
- |
Amendments to IFRS 9 - Financial Instruments - Prepayment features with negative compensation and modification of financial liabilities (effective for annual periods beginning on or after 1 January 2019). |
|
|
|
- |
Amendments to IFRS 9 - Financial Instruments - Pre-replacement issues in the context of the IBOR reform (effective for annual accounting periods beginning on or after 1 January 2020). |
|
|
|
- |
IFRS 16 - Leasing (effective for annual accounting period beginning on or after 1 January 2019). |
|
|
|
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. |
|
|
|
|
The Company's adoption of IFRS 9 'Financial Instruments' did not result in any change to classification or measurement in either the current or the prior year. The Company's investments remain classified at fair value through profit or loss. The adoption of IFRS 15 'Revenue from Contracts with Customers' did not result in any amendment to the Company's current revenue recognition policy.
|
|
|
|
(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 Statement of Comprehensive Income, 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. |
|
|
|
|
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 Statement of Comprehensive Income 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 within three months of maturity that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
|
|
|
|
(i) |
Use of judgements and estimates |
|
|
|
|
The preparation of financial statements require the Company to make judgements, 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 judgements and 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 judgements or 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. |
|
|
|
|
2019 |
2018 |
|
2. |
Revenue |
£'000 |
£'000 |
|
|
Income from listed investments |
|
|
|
|
UK dividend income |
8,189 |
8,405 |
|
|
Income from overseas investments |
755 |
633 |
|
|
|
________ |
________ |
|
|
|
8,944 |
9,038 |
|
|
|
________ |
________ |
|
|
Other income from investment activity |
|
|
|
|
Deposit Interest |
4 |
1 |
|
|
Underwriting income |
- |
1 |
|
|
|
________ |
________ |
|
|
Total income |
8,948 |
9,040 |
|
|
|
________ |
________ |
|
3. |
Investment management fees |
|||||||
|
|
On 31 July 2009, Troy Asset Management Limited (''Troy'') became the Manager. From 1 October 2012 to 31 December 2018 the investment management fee was 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. Since 1 January 2019, the investment management fee has been paid at an annual rate of 0.65% of the Company's net assets. 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. |
|||||||
|
|
|
2019 |
2018 |
|||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
|
|
|
|
return |
return |
Total |
return |
return |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Investment management fees paid to Troy |
505 |
938 |
1,443 |
548 |
1,018 |
1,566 |
|
|
|
AIFM fee paid to PATAC |
21 |
39 |
60 |
21 |
39 |
60 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
Total investment management fee |
526 |
977 |
1,503 |
569 |
1,057 |
1,626 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
2019 |
2018 |
|
4. |
Other administrative expenses |
£'000 |
£'000 |
|
|
Directors' remuneration - fees as Directors |
100 |
88 |
|
|
Secretarial fees |
120 |
116 |
|
|
Fees payable to auditors |
|
|
|
|
- fees payable to the Company's auditors for the audit of the annual financial statements {a} |
25 |
24 |
|
|
Other management expenses |
255 |
248 |
|
|
|
_______ |
_______ |
|
|
|
500 |
476 |
|
|
|
_______ |
_______ |
|
|
{a} Includes irrecoverable VAT of £4,000 (2018 - £4,000). |
||
|
|
The Company had no employees during the year (2018 - nil). No pension contributions were paid for Directors (2018 - £nil). |
||
|
|
|
2019 |
2018 |
|||||||
|
|
|
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 |
26 |
47 |
73 |
17 |
33 |
50 |
|||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|||
|
|
On 12 April 2017 the Company arranged a £20 million two year revolving facility with ING Luxembourg S.A. which expired in April 2019. On 24 April 2019, the Company renewed the facility for a further two years. 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. |
|||||||||
|
|
|
|
|
|
|
|
|
|||
|
|
|
2019 |
2018 |
|||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
|||
|
|
|
return |
return |
Total |
return |
return |
Total |
|||
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||
|
|
Irrecoverable overseas tax |
149 |
- |
149 |
127 |
- |
127 |
|||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|||
|
|
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 19.0% (2018 - 19.0%):
|
|||||||||
|
|
|
2019 |
2018 |
|||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
|||
|
|
|
return |
return |
Total |
return |
return |
Total |
|||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||
|
|
Profit on ordinary activities before taxation |
7,896 |
13,074 |
20,970 |
7,978 |
831 |
8,809 |
|||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|||
|
|
Taxation of return on ordinary activities at the standard rate of corporation tax |
1,500 |
2,484 |
3,984 |
1,516 |
158 |
1,674 |
|||
|
|
Effects of: |
|
|
|
|
|
|
|||
|
|
UK dividend income not liable to further tax |
(1,444) |
- |
(1,444) |
(1,485) |
- |
(1,485) |
|||
|
|
Overseas dividend income not liable to further tax |
(143) |
- |
(143) |
(120) |
- |
(120) |
|||
|
|
Capital profits not taxable |
- |
(2,679) |
(2,679) |
- |
(365) |
(365) |
|||
|
|
Excess management expenses and loan relationships |
87 |
195 |
282 |
89 |
207 |
296 |
|||
|
|
Overseas withholding tax suffered |
149 |
- |
149 |
127 |
- |
127 |
|||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|||
|
|
Total taxation charge for the year |
149 |
- |
149 |
127 |
- |
127 |
|||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|||
|
|
At 30 September 2019, the Company had surplus management expenses and unutilised non-trade relationship deficits of £12,052,000 (2018 - £10,440,000) with a tax value of £2,049,000 (2018 - £1,775,000) 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. |
|||||||||
|
|
|
|
|
|
||||||
|
|
|
2019 |
2018 |
|
||||||
|
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 2017 of 0.66p per share |
- |
1,919 |
|
||||||
|
|
Fourth interim dividend for the year ended 30 September 2018 of 0.685p per share |
1,940 |
- |
|
||||||
|
|
Three interim dividends for the year ended 30 September 2019 totalling 2.055p (2018 - three interims totalling 1.98p) per share |
5,882 |
5,699 |
|
||||||
|
|
|
________ |
________ |
|
||||||
|
|
|
7,822 |
7,618 |
|
||||||
|
|
|
________ |
________ |
|
||||||
|
|
The fourth interim dividend of 0.695p per share, declared on 1 October 2019 and paid on 25 October 2019, 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. |
|
||||||||
|
|
|
2019 |
2018 |
|
||||||
|
|
|
£'000 |
£'000 |
|
||||||
|
|
Three interim dividends for the year ended 30 September 2019 totalling 2.055p (2018 - three interim dividends totalling 1.98p) per share |
5,882 |
5,699 |
|
||||||
|
|
Fourth interim dividend for the year ended 30 September 2019 of 0.695p (2018 - fourth interim dividend 0.685p) per share |
2,065 |
1,940 |
|
||||||
|
|
|
________ |
________ |
|
||||||
|
|
|
7,947 |
7,639 |
|
||||||
|
|
|
________ |
________ |
|
||||||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
8. |
Return and net asset value per share |
£'000 |
£'000 |
|
|
The returns per share are based on the following figures: |
|
|
|
|
Revenue return |
7,747 |
7,851 |
|
|
Capital return |
13,074 |
831 |
|
|
|
________ |
________ |
|
|
Total |
20,821 |
8,682 |
|
|
|
________ |
________ |
|
|
Weighted average number of Ordinary shares |
286,744,223 |
287,811,840 |
|
|
|
__________ |
__________ |
|
|
The net asset value per share is based on net assets attributable to shareholders of £245,461,000 (2018 - £224,058,000) and on 293,979,045 (2018 - 283,489,045) Ordinary shares in issue at the year end. |
||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
9. |
Investments held at fair value through profit or loss |
£'000 |
£'000 |
|
|
Listed on recognised stock exchanges: |
|
|
|
|
United Kingdom |
209,645 |
189,975 |
|
|
Overseas |
31,356 |
23,768 |
|
|
|
________ |
________ |
|
|
Total investments |
241,001 |
213,743 |
|
|
|
________ |
________ |
|
|
|
2019 |
2018 |
|
|
|
£'000 |
£'000 |
|
|
Opening book cost |
164,249 |
160,026 |
|
|
Opening fair value gains on investments held |
49,494 |
56,039 |
|
|
|
________ |
________ |
|
|
Opening fair value |
213,743 |
216,065 |
|
|
Purchases for cash |
37,439 |
34,061 |
|
|
Sales - proceeds |
(24,281) |
(38,295) |
|
|
Sales - net gains on sales |
3,377 |
8,457 |
|
|
Movement in fair value during the year |
10,723 |
(6,545) |
|
|
|
________ |
________ |
|
|
Closing fair value |
241,001 |
213,743 |
|
|
|
________ |
________ |
|
|
Closing book cost |
180,784 |
164,249 |
|
|
Closing fair value gains on investments held |
60,217 |
49,494 |
|
|
|
________ |
________ |
|
|
Closing fair value |
241,001 |
213,743 |
|
|
|
________ |
________ |
|
|
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 £169,000 (2018 - £138,000) and on sales £8,000 (2018 - £25,000). |
||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
Gains on investments held at fair value |
£'000 |
£'000 |
|
|
Net gains on sales |
3,377 |
8,457 |
|
|
Movement in fair value in investment holdings |
10,723 |
(6,545) |
|
|
Realised gain on forward currency contracts |
- |
149 |
|
|
Movement in loss on forward currency contracts |
- |
(134) |
|
|
|
________ |
________ |
|
|
|
14,100 |
1,927 |
|
|
|
________ |
________ |
|
|
|
Ordinary shares of 25p each |
|
|
10. |
Called-up share capital |
Number |
£'000 |
|
|
Allotted, called up and fully paid |
|
|
|
|
At 30 September 2019 |
293,979,045 |
73,495 |
|
|
Held in treasury |
- |
- |
|
|
|
__________ |
__________ |
|
|
|
293,979,045 |
73,495 |
|
|
|
__________ |
__________ |
|
|
Allotted, called up and fully paid |
|
|
|
|
At 30 September 2018 |
283,489,045 |
70,873 |
|
|
Held in treasury |
7,305,000 |
1,826 |
|
|
|
__________ |
__________ |
|
|
|
290,794,045 |
72,699 |
|
|
|
__________ |
__________ |
|
|
During the year to 30 September 2019 there were 1,190,000 Ordinary shares of 25p each repurchased by the Company (being 0.4% of the Company's issued share capital at the start of the year), at a total cost of £893,000 and placed in treasury.
During the year to 30 September 2018 there were 9,630,000 Ordinary shares of 25p each repurchased by the Company (being 3.4% of the Company's issued share capital at the start of the year), at a total cost of £6,893,000 and placed in treasury.
During the year to 30 September 2019 the Company re-issued 8,495,000 Ordinary shares of 25p each from treasury for proceeds totalling £6,699,000.
During the year to 30 September 2018 the Company re-issued 2,325,000 Ordinary shares of 25p each from treasury for proceeds totalling £1,228,000.
During the year to 30 September 2019 the Company issued 3,185,000 new Ordinary shares of 25p each for proceeds of £2,631,000.
During the year to 30 September 2018 there were no new Ordinary shares issued by the Company.
No shares were purchased for cancellation during the year (2018 - nil) and at the year end no shares were held in treasury (2018 - 7,305,000 shares).
The costs of the operation of the discount control mechanism of £33,000 (2018: £33,000) have been charged against the premium on shares issued. |
||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
11. |
Share premium account |
£'000 |
£'000 |
|
|
At 1 October |
23,124 |
23,149 |
|
|
Premium on issue of shares |
2,075 |
8 |
|
|
Discount control costs (note 10) |
(33) |
(33) |
|
|
|
________ |
________ |
|
|
At 30 September |
25,166 |
23,124 |
|
|
|
________ |
________ |
|
|
|
||
|
12. |
Special reserves |
Distributable |
|
Total |
Total |
|
|
|
Capital |
Special |
Special |
Special |
|
|
|
Reserve |
Reserve |
Reserves |
Reserves |
|
|
|
2019 |
2019 |
2019 |
2018 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 1 October |
5,343 |
52,488 |
57,831 |
63,504 |
|
|
Shares bought back during the year into treasury |
- |
(893) |
(893) |
(6,893) |
|
|
Shares issued during the year from treasury |
- |
6,459 |
6,459 |
1,220 |
|
|
|
________ |
________ |
________ |
________ |
|
|
At 30 September |
5,343 |
58,054 |
63,397 |
57,831 |
|
|
|
________ |
________ |
________ |
________ |
|
|
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 2006.
|
||||
|
|
|
|
|
|
|
|
2019 |
2018 |
|
13. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 October |
15,007 |
7,497 |
|
|
Net gains on sales of investments during the year |
3,377 |
8,457 |
|
|
Investment management fee |
(977) |
(1,057) |
|
|
Currency losses |
(2) |
(6) |
|
|
Finance costs of borrowing |
(47) |
(33) |
|
|
Realised gains on forward currency contracts |
- |
149 |
|
|
|
________ |
________ |
|
|
At 30 September |
17,358 |
15,007 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Investment holdings gains |
|
|
|
|
At 1 October |
49,494 |
56,173 |
|
|
Investment gains/(losses) |
10,723 |
(6,545) |
|
|
Loss on forward currency contracts |
- |
(134) |
|
|
|
________ |
________ |
|
|
|
60,217 |
49,494 |
|
|
|
________ |
________ |
|
|
Total capital reserve |
77,575 |
64,501 |
|
|
|
________ |
________ |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
|
14. |
Revenue reserve |
|
|
£'000 |
£'000 |
|
|
At 1 October |
|
|
5,903 |
5,670 |
|
|
Transfer (from)/to revenue account net of dividends |
|
|
(75) |
233 |
|
|
|
|
|
______ |
______ |
|
|
At 30 September |
|
|
5,828 |
5,903 |
|
|
|
|
|
______ |
______ |
|
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 ended 30 September 2018 to manage the exchange risk of holding foreign investments. These matured during the year ended 30 September 2018 and the fair value at 30 September 2019 was £nil (2018: fair value of £nil). |
|||||||||||||||||||||
|
|
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 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; and |
|||||||||||||||||||
|
|
|
- |
interest payable on the Company's variable rate borrowings.
|
|||||||||||||||||||
|
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
||||||||||||||||||||
|
|
|
Interest 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 2019 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
4,184 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
4,184 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|||||||||||||||
|
|
|
|
|
|
average |
|
|
|||||||||||||||
|
|
|
|
|
|
interest |
Fixed |
Floating |
|||||||||||||||
|
|
|
|
|
|
rate |
rate |
rate |
|||||||||||||||
|
|
|
As at 30 September 2018 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
10,343 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
10,343 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 |
|||||||||||||||
|
|
|
|
|
|
|
2019 |
2018 |
|||||||||||||||
|
|
|
|
|
|
|
£'000 |
£'000 |
|||||||||||||||
|
|
|
Floating rate |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
|
4,184 |
10,343 |
|||||||||||||||
|
|
|
|
|
|
|
________ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 2019 and net assets would increase/decrease by £21,000 (2018 - increase/decrease by £52,000). 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 2019 |
30 September 2018 |
||||||||||||||||||
|
|
|
|
|
Net |
|
Net |
||||||||||||||||
|
|
|
|
Overseas |
monetary |
Overseas |
monetary |
||||||||||||||||
|
|
|
|
investments |
assets |
investments |
assets |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
US Dollar |
23,413 |
- |
17,693 |
- |
||||||||||||||||
|
|
|
Swiss Franc |
7,944 |
- |
6,075 |
- |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
Total |
31,357 |
- |
23,768 |
- |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
||||||||||||||||||||
|
|
|
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 2019 would have increased/decreased by £24,100,000 (2018 - increase/decrease of £21,374,000). 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: |
||||||||||||||||||||
|
|
|
|
2019 |
2018 |
||||||||||||||||||
|
|
|
|
Statement of |
|
Statement of |
|
||||||||||||||||
|
|
|
|
Financial Position |
Maximum exposure |
Financial Position |
Maximum exposure |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
Current assets |
|
|
|
|
||||||||||||||||
|
|
|
Accrued income and prepayments |
810 |
810 |
642 |
642 |
||||||||||||||||
|
|
|
Cash and short term deposits |
4,184 |
4,184 |
10,343 |
10,343 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
|
4,994 |
4,994 |
10,985 |
10,985 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
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: |
||||
|
|
|
2019 |
2018 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Called-up share capital |
73,495 |
72,699 |
||
|
|
Retained earnings and other reserves |
171,966 |
151,359 |
||
|
|
|
________ |
________ |
||
|
|
|
245,461 |
224,058 |
||
|
|
|
________ |
________ |
||
|
|
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 (2018 - nil). |
||||
|
17. |
Commitments and contingencies |
|
|
At 30 September 2019 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (2018 - £nil). |
|
18. |
Post Balance Sheet Event |
|
|
On 22 October 2019, the Board announced that they had reached agreement, in principle, on the terms of a merger with Cameron Investors Trust plc ('CIT') to be effected by way of a scheme of reconstruction of CIT under section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of CIT and CIT shareholders rolling over their interest in CIT into the Company (the 'Scheme'). At 30 September 2019, the Company had an investment in CIT of £2,652,000. The Scheme was approved by the CIT shareholders on 8 November 2019 and became effective on 18 November 2019. The Scheme was effected on a NAV for NAV basis and so did not result in any NAV dilution for existing shareholders of the Company. On 18 November 2019, the Company issued 13,647,942 new Ordinary shares in relation to the Scheme and received assets of £13,956,000. Following the cancellation of the Company's own investment in CIT of £2,652,000, the resulting increase in the Company's net assets was £11,304,000. |
|
19. |
Financial instruments measured at Fair Value |
||||||||
|
|
|
|
|
|
2019 |
|
|
|
2018 |
|
|
|
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 |
241,001 |
- |
- |
241,001 |
213,743 |
- |
- |
213,743 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
|
241,001 |
- |
- |
241,001 |
213,743 |
- |
- |
213,743 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
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 2019 (2018 - none). |
||||||||
|
20. |
Notes to the Cash Flow Statement |
||||
|
|
(a) Reconciliation of operating profit to operating cash flows |
||||
|
|
|
2019 |
2018 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Profit before taxation |
20,970 |
8,809 |
||
|
|
Add interest payable |
73 |
50 |
||
|
|
Adjustments for: |
|
|
||
|
|
Gains on investments |
(14,100) |
(1,927) |
||
|
|
Currency losses |
2 |
6 |
||
|
|
(Increase)/decrease in accrued income and prepayments |
(168) |
4 |
||
|
|
(Decrease)/increase in trade and other payables |
(2) |
22 |
||
|
|
|
________ |
________ |
||
|
|
|
6,775 |
6,964 |
||
|
|
|
________ |
________ |
||
|
|
|
|
|
||
|
|
(b) Analysis of changes in net funds |
||||
|
|
|
30 September |
Cash |
Exchange |
30 September |
|
|
|
2018 |
Flow |
Movements |
2019 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash at bank |
10,343 |
(6,157) |
(2) |
4,184 |
|
|
|
________ |
________ |
________ |
________ |
|
|
|
|
|
||
|
21. |
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. |
|
22. |
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 2019) are available from PATAC on request. |
||||
|
|
The Company's maximum and actual leverage levels at 30 September 2019 are as follows: |
||||
|
|
|
|
|
Gross |
Commitment |
|
|
|
|
|
Method |
Method |
|
|
Maximum limit |
|
|
200% |
200% |
|
|
Actual |
|
|
98.2% |
100.0% |
|
|
|
|
|
|
|
|
|
The Company's investor disclosure document was updated in the year to 30 September 2019 to reflect the revised investment management fee arrangements. 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 2019. The statutory accounts for the year ended 30 September 2019 received an audit report which was unqualified.
The statutory accounts for the financial year ended 30 September 2019 were approved by the Directors on 22 November 2019 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 20 January 2020 at 16 Charlotte Square, Edinburgh, EH2 4DF.
The Annual Report will be posted to shareholders in December 2019 and will be available in due course by download from the Company's website (www.tigt.co.uk).
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 PATAC Limited 22 November 2019 Enquiries: 0131 558 1400 |
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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