Completion of Strategic Revie

RNS Number : 4299W

Glasgow Income Trust PLC

29 July 2009

 



Glasgow Income Trust plc (the "Company")
Completion of strategic review and sale of management contract by Aberdeen
29 July 2009

Key highlights:

• The Board has now completed the strategic review intimated in the annual report and accounts for the year ended 30 September 2008.

• Following completion of the strategic review, Aberdeen Asset Managers Limited ("Aberdeen") has sold the Company's management agreement to Troy Asset Management Ltd ("Troy") for an undisclosed sum. Troy is the manager of the Trojan Fund and Trojan Income Fund OEICs, each of which is a leading fund in its IMA sector. Troy was also recently appointed as Investment Adviser to Personal Assets Trust plc. The Board has approved this sale. Aberdeen is to continue as company secretary.

• Francis Brooke, manager of the Trojan Income Fund, will be the Company's lead manager.

• Investment policy to reflect a UK equity income and growth mandate with a focus on sustainable long term income growth and an emphasis on capital preservation and below average volatility.

• Zero coupon financing to be repaid.  Company will continue to use gearing but in a tactical and flexible manner to enhance returns. The Company will no longer have structural gearing.

• Dividends to be reduced to a level that reflects a sustainable yield from a high quality portfolio predominantly comprising UK equities with the potential to generate consistent income growth over time. Target initial annual dividend from 1 October 2009, based on current market valuations, is expected to be 5% on the net asset value, in the absence of unforeseen circumstances and assuming further equity can be raised.

• A tighter discount control mechanism will be introduced.

• A fundraising exercise to enlarge the size of the Company will take place prior to the end of 2009.

• At the annual general meeting to be held following completion of the fundraising, a special resolution to change the name of the Company to "Troy Income & Growth Trust plc" will be put to shareholders. 

Introduction and background

The Directors stated in advance of the continuation vote at the 2008 annual general meeting that they would reconsider the future of the Company once the wider economic situation became clearer and the market volatility had eased. They also stated that they would continue to consult with advisers with the objective of developing a suitable and sustainable strategy for the longer term.  

In connection with this review, Aberdeen has sold its management agreement with the Company to Troy for an undisclosed sum. Troy will become the Company's investment manager, as more fully described below. Aberdeen will continue to act as the Company's secretary.  

Also as a result of the review, the Board has reached the conclusion that the Company's high levels of structural gearing and high income yield are not sustainable. The Board believes that a more sustainable income yield based on a portfolio of predominantly UK equities is now more attractive to its shareholders.

Appointment of Troy Asset Management

With effect from 1 August 2009, Troy will be appointed as the Company's investment manager.  Francis Brooke will be the Company's lead manager. Troy's appointment will be for a rolling six month period with an initial fixed term of 12 months.  Troy's appointment will also be terminable on the occurrence of certain standard events, including on a winding up of the Company.

Troy will be entitled to an annual management fee equal to 0.75% of the Company's net assets, the same as the current management fee. Troy has agreed to contribute an amount of £85,000 to the costs of the continuation vote and change in investment policy, which will be satisfied by a waiver of its fees for a period of approximately three months.  However, the Company has agreed to repay the amount of Troy's contribution to such costs in the event that the continuation of the Company is not approved at or prior to the next annual general meeting and a Troy managed vehicle is not offered to shareholders as the rollover option on a winding up of the Company following the continuation vote.

The Company will incur no additional payments to Aberdeen in respect of the sale of the management agreement to Troy.  Aberdeen will be appointed as the Company's secretary for an annual fee of £100,000 (plus VAT) with a rolling one month notice period subject to an initial fixed term of six months.

Further information on Troy is set out below.

• Troy is an independent fund manager specialising in generating absolute returns for investors. Troy seeks to preserve and build investors' wealth by constructing conservative portfolios for the long term which demonstrate lower than average volatility. 

• Troy was established by the late Lord Weinstock in 2000 and is named after his 1979 Epsom Derby winner.  

• Troy's funds are managed by Sebastian Lyon and Francis Brooke. The Chairman is Simon de Zoete and there are three non-executive directors, Michael Lester, David Newlands and Jan Pethick. 

• Troy manages approximately £862m (30 June 2009) of assets, including three public Open Ended Investment Companies: the Trojan Fund, the Trojan Income Fund and the Trojan Capital Fund. Since March, Troy has managed an investment trust, Personal Assets Trust plc. Investors include private individuals, charities, pension funds, trusts and endowments.

• The Trojan Income Fund, which has a similar investment objective to the Company's proposed new objective, has been managed since launch in September 2004 by Francis Brooke. It is the top performing fund in the IMA UK Equity Income & Growth Sector over the past one, two and three years. Over the three years to 30 June 2009 the total return for the Trojan Income Fund of -1% compares with -18.2% for the FTSE All Share Index and -16.9% for the median fund in the IMA UK Equity Income & Growth Sector. It is the least volatile fund in the sector as demonstrated by the standard deviation of monthly returns since launch (source: Lipper). 

• The alignment of interests between investors and shareholders is a core element of Troy's philosophy. Both Francis Brooke and Sebastian Lyon are major shareholders in Troy and significant investors in the Trojan Investment Funds. In the event that shareholders approve the continuation of the Company, Francis Brooke intends to make a significant personal investment in the Company.

Revised investment, dividend and gearing policies

Investment policy

Subject to shareholder approval, it is proposed that the Company's investment policy will be changed.

Subject to the change in investment policy being approved by shareholders, the Company will invest predominantly in UK equities and seek to produce a stream of income which will at least maintain its value in real terms. It is intended that the initial yield will be at a premium to the prevailing yield of the FTSE All Share Index and the Board will adopt a progressive dividend policy.

The portfolio emphasis will be on quality companies which are capable of generating sustained dividend growth. In common with other Troy mandates, low volatility compared to peers and an emphasis on capital preservation will be key characteristics of the trust.

Gearing policy

On 27 July 2009, a further £16.8 million of zero coupon financing was repaid. It is the Board's intention that the remaining amount of approximately £22 million of zero coupon financing will be repaid in an orderly manner prior to the financial year end.

It is proposed that the Company will utilise gearing in a tactical and flexible manner to enhance returns to shareholders. It is anticipated that gearing in the Company, when used, will be up to 10% to 15% of the Company's net assets, with a maximum level of gearing at any time of 25% of net assets. This gearing may be in the form of bank borrowings or through derivative instruments that provide a geared exposure to equity markets.

It is intended that the Company will generally remain fully invested but from time to time the Company will retain the ability to hold cash or cash equivalents. Troy's commitment to capital preservation means that the level of cash held in portfolios has always been an active investment decision. The Trojan Income Fund has held up to 20% in cash or near cash at certain times and this has helped the Fund to preserve capital and moderate the impact of stock market volatility.   

Dividend policy

The Board believes that the Company's high levels of structural gearing and consequent high income yield are not sustainable in the current market environment. The Board further believes that a more transparent income yield based on a portfolio of predominantly UK equities is now more attractive to its shareholders.

The Board and Troy expect that the proposed investment policy of the Company can generate an income yield that is higher than the dividend yield on the FTSE All Share Index, which is currently 4.23%, and also be able to grow the dividend over time.  At a time when the yield on cash and gilts is so low, the attraction of real income growth from a portfolio of quality equities is becoming increasingly apparent to the market.  The Board therefore intends to target a dividend in respect of the next financial year, based on current market valuations, of 5% on the net asset value, in the absence of unforeseen circumstances and assuming further equity can be raised.

The Board intends to maintain its policy of charging 50% of the management fees and 100% of the other operating expenses to income. As noted below, it is the Board's intention to seek to increase the size of the Company prior to the end of 2009.

The Board declared a third interim dividend of 0.75p per share, which will be paid on 31 July 2009, and, in the absence of unforeseen circumstances, the Board still expects to pay a fourth interim dividend of 0.75p per share in respect of the financial year ending 30 September 2009.

Approval of revised investment policy

The proposed changes to the Company's investment policy, including the gearing policy, are subject to shareholder approval. The Board intends to convene an extraordinary general meeting of the Company to be held in September to approve the change in investment policy.

Continuation vote and fundraising

As stated in the annual reports and accounts for the year ended 30 September 2008, the Directors committed to proposing a further continuation vote at or prior to the next annual general meeting. The current proposals, including the change of investment policy as noted above, will be subject to shareholder approval at the extraordinary general meeting of the Company to be held in September. It is the Board's opinion that following the appointment of Troy and the change in the investment policy it is in the best interests of the shareholders that the size of the Company should be enlarged. Accordingly, the Board intends to issue further shares to increase materially the size of the Company. Any capital raising will be undertaken at prices which are not less than the prevailing net asset value per share.  

In the event that the Board is not able to increase materially the size of the Company by the end of 2009 then the Board intends to propose a further continuation vote at the next annual general meeting.

Change of name

The Board intends to propose a special resolution at the next annual general meeting to change the name of the Company to "Troy Income & Growth Trust plc". This will reflect the new investment policy and management arrangements.

Costs of the proposals

It is estimated that the aggregate costs of the proposals incurred by the Company (including in respect of the strategic review but excluding any costs in connection with the proposed fundraising and the annual general meeting), net of the contribution to be made by Troy through the management fee waiver, will be nil.

Discount policy 

It is the Board's intention that a tighter discount control mechanism will be introduced once the proposals, including the continuation vote and fund raising, have been fully implemented.

Timetable

The Board expects to post a circular to shareholders convening an extraordinary general meeting to approve the revised investment policy in August for the meeting to be held in early September.

Enquiries:

Francis Brooke	Troy Asset Management Ltd	020 7290 7841
Douglas Armstrong	Dickson Minto W.S.	020 7628 4455
Nigel Russell/Graeme Caton/ Graham Reaves	G&N Collective Funds Services	0131 226 4411
William Hemmings/ Charlie Macrae	Aberdeen Asset Managers	020 7463 6072

 

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