Half-year Report

RNS Number : 0033X

Troy Income & Growth Trust Plc

25 April 2019

 

TROY INCOME & GROWTH TRUST PLC

LEI: 213800HLNMQ1R6VBLU75

INTERIM RESULTS FOR THE SIX MONTHS TO 31 MARCH 2019

The investment objective of Troy Income & Growth Trust is to provide shareholders with an attractive income yield and the prospect of income and capital growth through investing in a portfolio of predominantly UK equities.

Financial Highlights
	31 March 2019	30 September 2018	Change
Equity shareholders' funds	£223,731,000	£224,058,000	-0.1%
Net asset value per share	78.51p	79.04p	-0.7%
Share price (mid-market)	79.00p	78.30p	+0.9%
Premium/(discount) to net asset value	0.6%	(0.9)%

Total Return* (for the periods to 31 March 2019)
	Six Months	One Year	Three Years	Five Years	From 31 July 2009**
Share price	+2.8%	+9.5%	+20.2%	+46.2%	+207.5%
Net asset value per share	+1.6%	+10.3%	+21.3%	+47.4%	+185.0%
FTSE All-Share Index	-1.8%	+6.4%	+31.3%	+34.5%	+138.4%
* Total return includes reinvesting the net dividend in the month that the share price goes ex-dividend. ** Appointment of Troy Asset Management Limited as Manager.

INTERIM BOARD REPORT AS AT 31 MARCH 2019

Performance

The Company delivered a Net Asset Value (NAV) total return of +1.6% over the six months to 31 March 2019 while over the same period the share price total return was +2.8%. The difference between the two reflects the movement from a discount of 0.9% at the end of September to a premium of 0.6% at the end of March. Over the same period the FTSE All-Share Index produced a total return of -1.8%. Over the twelve months to 31 March 2019 the NAV total return of +10.3% and share price total return of +9.5% were also ahead of the FTSE All-Share Index which returned +6.4%.

The Board remains predominantly interested in long-term performance and, although over the three years to 31 March 2019 the NAV total return of +21.3% compares less favourably with +31.3% for the FTSE All-Share Index, over five years the Company's NAV total return of +47.4% compares very favourably to +34.5% for the FTSE All-Share Index.

The final quarter of 2018 saw sharp equity market declines, with the FTSE All-Share Index falling -10.2%. This was followed by a rapid recovery in the first three months of 2019, during which the UK equity market rose +9.4%. The outperformance of the broader market and its peer group by the Company during the six month period came as the portfolio participated less (70%) in the market decline than it did in the subsequent rally (97%). The Managers have consistently sought to deliver such a return profile, and it has been a feature of their performance since their appointment nearly ten years ago.

The Company increased the aggregate of the first and second interim dividends by +3.8% to 1.37p (a quarterly rate of 0.685p) when compared to the equivalent dividends in the previous year.

Background

The weakness suffered across many European and Asian equity markets over the summer became more entrenched during the fourth quarter. Quantitative Tightening (the unwinding of Quantitative Easing), a deteriorating global trade environment and weakening economic data applied downward pressure on an already faltering UK equity market. The fourth quarter also saw the hitherto unaffected S&P 500 Index finally capitulate and fall some -14.3% on a total return basis. At the same time, the Chicago Board Options Exchange Volatility Index, or VIX, which measures volatility, rose to levels last seen in the early 2018 correction.

While it seemed in the closing months of 2018 as if investors may be facing a more prolonged downturn, this view did not persist into the New Year, as it became apparent that the Federal Reserve would again choose to bail out investors. Dovish statements by members of the Federal Reserve's monetary policy board signified a significant change in stance; rolling back on two presumed rate rises for 2019 to zero. Speculation abounded that they may even be forced to announce a cut. Persistently robust corporate earnings and a change in the mood music relating to US-China trade further fuelled the sharp first-quarter rebound during which the S&P 500 Index climbed +13.7%.

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 particularly strongly and sterling also hit a nine-month high of 1.33 to the dollar as the prospect of a 'no deal' appeared to ebb. With a number of failed votes on Theresa May's deal and some alternative paths, the Chancellor's spring statement provided the welcome news that the UK economy has been 'remarkably robust'. In response the Bank of England voted unanimously at the March meeting to maintain UK interest rates at 0.75%, stating that "the economic outlook [for the UK] will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond."

Management Fee

In January the Board announced a reduction in the annual management fee payable to Troy Asset Management, the Company's investment manager. With effect from 1 January 2019, the Company moved to a flat annual management fee of 0.65% of net assets. This compares to the previous tiered fee of 0.75% of net assets up to £175 million and 0.65% of net assets above £175 million. The Board remains committed to ensuring the Company's ongoing charges are competitive.

Discount Control Mechanism

The DCM was active for both buyers and sellers during the period with the Company issuing a net total of 1,500,000 shares from treasury. 2,550,000 shares were issued at a small premium to Net Asset Value and 1,050,000 shares were repurchased at a small discount. All transactions are NAV enhancing and provide additional liquidity to Shareholders. The DCM also reduces discount volatility which remains much lower than for the peer group as a whole.  

Gearing

The £20 million gearing facility with ING was renewed on 24 April 2019 for a further two years. The facility was not utilised during the period but remains available if appropriate investment opportunities arise.

Dividends

The current quarterly dividend rate is 0.685p and the second quarterly dividend will be paid on 26 April 2019. As in previous years the Board will consider an uplift to the final quarterly dividend before the year end on 30 September.

Outlook

Over the past six months, Sino-US trade talks, the Fed's rate decisions and the thoroughly time-worn subject of Brexit have featured heavily on market sentiment. As the Company passes its half-year, uncertainty still abounds in regards to at least two of these issues. Meanwhile, increasingly frequent pieces of weak economic data remind investors that we are likely in the latter stages of a mature bull market. As a result, the Managers remain cautiously positioned as we look to the rest of the year.

In the case of Brexit, it is important to note that the Company is not positioned to be on one side of a binary outcome. Parts of the portfolio stand to benefit from a continuing upswing in sentiment towards the UK. However, at the same time, the portfolio retains substantial holdings in core global defensive businesses, reflecting concerns of further market instability. A balance between exposure to the UK domestic economy and resilient dollar earnings continues to seem prudent.

Underpinning the Company's core of quality defensive investments are yields and valuations which, despite reservations about the broad market rating, are considerably more attractive than those experienced two years ago. Consequently, the Board and Managers are relatively more optimistic about some of the long-term returns available to the Company's Shareholders and the underlying portfolio's ability to preserve the value of their capital.

David Warnock

Chairman

24 April 2019

Principal Risks and Uncertainties

The principal risks facing the Company relate to the Company's investment activities and include performance and market risk, resource risk and operational risk. The underlying risks and potential increased volatility associated with Brexit and other global political situations are considered within market risk. Other risks faced by the Company include breach of regulatory rules which could lead to suspension of the Company's Stock Exchange Listing, financial penalties, or a qualified audit report. Breach of Section 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

An explanation of these principal risks and how they are managed is contained in the Strategic Report within the Annual Report and Accounts for the year ended 30 September 2018.

The Company's principal risks and uncertainties have not changed since the date of the Annual Report and are not expected to change for the remaining six months of the Company's financial year.

Going Concern

Having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, the Directors believe that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibility Statement

The Directors are responsible for preparing the half yearly financial report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-    the condensed set of interim financial statements contained within the half yearly financial report have been prepared in accordance with International Accounting Standard 34; and

-    the Interim Board Report includes a fair review of the information required by 4.2.7R (indication of important events during the first six months of the financial year and description of principal risks and uncertainties for the remaining six months of the year) and 4.2.8R (disclosure of related party transactions and changes therein) of the FCA's Disclosure Guidance and Transparency Rules.

The half yearly financial report for the six months to 31 March 2019 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board

David Warnock

Chairman

24 April 2019 

STATEMENT OF COMPREHENSIVE INCOME
		Six months ended 31 March 2019 (unaudited)			Six months ended 31 March 2018 (unaudited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Loss on investments held at fair value
		-	(194)	(194)	-	(12,510)	(12,510)
Currency losses		-	-	-	-	(3)	(3)
Income	2	3,694	-	3,694	4,180	-	4,180
Investment management
fees		(258)	(479)	(737)	(284)	(528)	(812)
Other administrative
expenses		(250)	-	(250)	(248)	-	(248)
Finance costs of borrowing		(9)	(16)	(25)	(9)	(16)	(25)
		_______	______	_______	_______	______	_______
Profit/(loss) before taxation		3,177	(689)	2,488	3,639	(13,057)	(9,418)
Taxation	3	(41)	-	(41)	(33)	-	(33)
		_______	______	_______	_______	______	_______
Profit/(loss) for the period		3,136	(689)	2,447	3,606	(13,057)	(9,451)
		_______	______	_______	_______	______	_______
Earnings per Ordinary
share (pence)	5	1.11	(0.24)	0.87	1.25	(4.52)	(3.27)
		_______	______	_______	_______	______	_______

The "Profit for the period" is also the Total Comprehensive Income for the period as defined in IAS1 (revised). The total columns of this statement represent the Statement of Comprehensive Income prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. No operations were acquired or discontinued during the period.

STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)		Year ended 30 September 2018 (audited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Profits on investments held at fair value		-	1,927	1,927
Currency losses		-	(6)	(6)
Income	2	9,040	-	9,040
Investment management fees		(569)	(1,057)	(1,626)
Other administrative expenses		(476)	-	(476)
Finance costs of borrowing		(17)	(33)	(50)
		______	_______	______
Profit before taxation		7,978	831	8,809
Taxation	3	(127)	-	(127)
		______	_______	______
Profit for the period		7,851	831	8,682
		______	_______	______
Earnings per Ordinary share (pence)	5	2.73	0.29	3.02
		______	_______	______

STATEMENT OF FINANCIAL POSITION
		As at 31 March 2019 (unaudited) £'000	As at 31 March 2018 (unaudited) £'000	As at 30 September 2018 (audited) £'000
	Notes
Non-current assets
Ordinary shares		216,596	206,183	213,743
		______	______	______
Investments held at fair value through profit or loss		216,596	206,183	213,743
		______	______	______
Current assets
Accrued income and prepayments		778	793	642
Cash and cash equivalents		8,570	7,356	10,343
		______	______	______
Total current assets		9,348	8,149	10,985
		______	______	______
Total assets		225,944	214,332	224,728
Current liabilities
Trade and other payables		(2,213)	(521)	(670)
		______	______	______
Total current liabilities		(2,213)	(521)	(670)
		______	______	______
Net assets		223,731	213,811	224,058
		______	______	______
Issued capital and reserves attributable to
equity holders
Called-up share capital	7	72,699	72,699	72,699
Share premium account		23,112	23,132	23,124
Special reserves		58,949	61,917	57,831
Capital reserve	8	63,812	50,613	64,501
Revenue reserve		5,159	5,450	5,903
		______	______	______
Equity shareholders' funds		223,731	213,811	224,058
		______	______	______
Net asset value per Ordinary share (pence)	5	78.51	74.04	79.04
		______	______	______

STATEMENT OF CHANGES IN EQUITY
Six months ended 31 March 2019 (unaudited)		Share
	Share	premium	Special	Capital	Revenue
	capital	account	reserves	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2018	72,699	23,124	57,831	64,501	5,903	224,058
(Loss)/profit and total comprehensive income for the period	-	-	-	(689)	3,136	2,447
Equity dividends	-	-	-	-	(3,880)	(3,880)
Shares bought back into treasury	-	-	(781)	-	-	(781)
Shares issued from treasury	-	5	1,899	-	-	1,904
Discount control costs	-	(17)	-	-	-	(17)
	______	_______	______	______	_______	______
Balance at 31 March 2019	72,699	23,112	58,949	63,812	5,159	223,731
	______	_______	______	______	_______	______
Six months ended 31 March 2018 (unaudited)		Share
	Share	premium	Special	Capital	Revenue
	capital	account	reserves	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2017	72,699	23,149	63,504	63,670	5,670	228,692
(Loss)/profit and total comprehensive income for the period	-	-	-	(13,057)	3,606	(9,451)
Equity dividends	-	-	-	-	(3,826)	(3,826)
Shares bought back into treasury	-	-	(2,500)	-	-	(2,500)
Shares issued from treasury	-	-	913	-	-	913
Discount control costs	-	(17)	-	-	-	(17)
	______	_______	______	______	_______	______
Balance at 31 March 2018	72,699	23,132	61,917	50,613	5,450	213,811
	______	_______	______	______	_______	______
Year ended 30 September 2018 (audited)		Share
	Share	premium	Special	Capital	Revenue
	capital	account	reserves	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
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	-	-	-	-	(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
	______	_______	______	______	_______	______

CASH FLOW STATEMENT
	Six months ended 31 March 2019 (unaudited) £'000	Six months ended 31 March 2018 (unaudited) £'000		Year ended 30 September 2018 (audited) £'000
Cash flows from operating activities
Investment income received	3,552	4,025		9,047
Administrative expenses paid	(1,060)	(1,047)		(2,083)
	______	______		______
Cash generated from operations	2,492	2,978		6,964
Finance costs paid	(25)	(25)		(50)
Taxation	(41)	(33)		(127)
	______	______		______
Net cash inflows from operating activities	2,426	2,920		6,787
	______	______		______
Cash flows from investing activities
Purchases of investments	(11,106)	(24,285)		(34,061)
Sales of investments	9,815	21,916		38,568
Realised gain on forward currency contracts	-	149		149
	______	______		______
Net cash (outflow)/inflow from investing activities	(1,291)	(2,220)		4,656
	______	______		______
Net cash inflow before financing	1,135	700		11,443
	______	______		______
Financing activities
Proceeds of issue of shares	1,904	913		1,228
Cost of share buybacks	(915)	(2,500)		(6,759)
Dividends paid	(3,880)	(3,825)		(7,618)
Costs incurred on issue of new shares	(17)	(17)		(33)
	______	______		______
Net cash outflow from financing activities	(2,908)	(5,429)		(13,182)
	______	______		______
Net decrease in cash and short term deposits	(1,773)	(4,729)		(1,739)
Cash and short term deposits at the start of the period	10,343	12,088		12,088
Effect of foreign exchange rate changes	-	(3)		(6)
	______	______		______
Cash and short term deposits at the end of the period	8,570	7,356		10,343
	______	______		______
Reconciliation of operating profit to operating cash flows
Profit/(loss) before taxation	2,488	(9,418)		8,809
Add interest payable	25	25		50
Adjustments for:
Loss/(gains) on investments	194	12,510		(1,927)
Currency losses	-	3		6
(Increase)/decrease in accrued income and prepayments	(135)	(149)		4
(Decrease)/increase in trade and other payables	(80)	7		22
	______	______		______
Cash generated from operations	2,492	2,978		6,964
	______	______		______

Distribution of Assets and Liabilities
	Valuation at 30 September 2018					Valuation at 31 March 2019
			Purchases	Sales	Appreciation/ (depreciation)
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	213,743	95.4	12,862	(9,815)	(194)	216,596	96.8
Current assets	10,985	4.9				9,348	4.2
Current liabilities	(670)	(0.3)				(2,213)	(1.0)
	______	_____				______	_____
Net assets	224,058	100.0				223,731	100.0
	______	_____				______	_____
Net asset value per share	79.04p					78.51p
	______					______

NOTES TO THE ACCOUNTS
1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 30 September 2018 financial statements.
	(b)	Dividends payable
		Dividends are recognised on the ex-dividend date.

2.	Income	Six months ended 31 March 2019 £'000	Six months ended 31 March 2018 £'000	Year  ended 30 September 2018 £'000
	Income from listed investments
	UK dividend income	3,422	3,954	8,405
	Overseas dividend income	270	225	633
		______	______	______
		3,692	4,179	9,038
		______	______	______
	Other income from investment activity
	Deposit interest	2	-	1
	Underwriting income	-	1	1
		______	______	______
	Total income	3,694	4,180	9,040
		______	______	______

3.	Taxation
	The taxation charge for the period represents withholding tax suffered on overseas dividend income.

4.	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended 31 March 2019* £'000	Six months ended 31 March 2018+ £'000	Year  ended  30 September 2018++ £'000
	Revenue	3,136	3,606	7,851
	Dividends declared	(3,892)	(3,812)	(7,639)
		______	______	______
		(756)	(206)	212
		______	______	______
	* Dividends declared relate to the first two interim dividends (both 0.685p) declared in respect of the financial year 2018/2019.
	+ Dividends declared relate to the first two interim dividends (both 0.66p) declared in respect of the financial year 2017/2018.
	++ Dividends declared relate to the four interim dividends declared in respect of the financial year 2017/2018 totalling 2.665p.

		Six months ended 31 March 2019	Six months ended 31 March 2018	Year  ended 30 September  2018
5.	Return and net asset value per share	p	p	p
	Revenue return	1.11	1.25	2.73
	Capital return	(0.24)	(4.52)	0.29
		______	______	______
	Total return	0.87	(3.27)	3.02
		______	______	______
	The figures above are based on the following:
		£'000	£'000	£'000
	Revenue return	3,136	3,606	7,851
	Capital return	(689)	(13,057)	831
		______	______	______
	Total return	2,447	(9,451)	8,682
		______	______	______
	Weighted average number of Ordinary shares in issue
		283,525,721	289,198,578	287,811,840
		__________	__________	__________
	The net asset value per share is based on net assets attributable to shareholders of £223,731,000 (31 March 2018 - £213,811,000; 30 September 2018 - £224,058,000) and on 284,989,045 (31 March 2018 - 288,769,045; 30 September 2018 - 283,489,045) Ordinary shares in issue at the period end.

6.	Financial instruments
		Level 1 £'000	Level 2 £'000	Level 3 £'000	2019 Total £'000
	Financial assets at fair value through profit or loss as at 31 March 2019
	Investments	216,596	-	-	216,596
		______	______	______	______

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 include only data from observable markets.
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 six months ended 31 March 2019.
The fair value of the Company's financial assets and liabilities as at 31 March 2019 was not materially different from the carrying value.

		As at 31 March 2019 (unaudited)	As at 31 March 2018 (unaudited)	As at 30 September 2018 (audited)
7.	Ordinary share capital
	Ordinary shares of 25p each	No. of shares	No. of    shares	No. of shares
	Allotted, called-up and fully paid	284,989,045	288,769,045	283,489,045
	Held in treasury	5,805,000	2,025,000	7,305,000
		____________	____________	___________
		290,794,045	290,794,045	290,794,045
		____________	____________	____________
	During the six months ended 31 March 2019 there were 1,050,000 Ordinary shares of 25p each repurchased by the Company at a total cost of £781,000 and placed in treasury. During the six months ended 31 March 2018 there were 3,225,000 Ordinary shares of 25p each repurchased by the Company at a total cost of £2,500,000 and placed in treasury. During the year ended 30 September 2018 there were 9,630,000 Ordinary shares of 25p each repurchased by the Company at a total cost of £6,893,000 and placed in treasury. During the six months ended 31 March 2019 there were 2,550,000 Ordinary shares re-issued from treasury for total proceeds of £1,904,000. During the six months ended 31 March 2018 there were 1,200,000 Ordinary shares re-issued from treasury for total proceeds of £913,000. During the six months ended 30 September 2018 there were 2,325,000 Ordinary shares re-issued from treasury for total proceeds of £1,228,000. During the six months to 31 March 2019, the six months to 31 March 2018 and the year to 30 September 2018 there were no new Ordinary shares issued by the Company and no Ordinary shares purchased for cancellation.

8.	Capital reserve
	The capital reserve shown in the Statement of Financial Position at 31 March 2019 includes gains of £47,628,000 (31 March 2018 - gains of £39,008,000; 30 September 2018 - gains of £49,494,000) which relate to the revaluation of investments held at the reporting date.

9.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as held at fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows:
				Six months ended 31 March 2019 £'000	Six months ended 31 March 2018 £'000		Year  ended 30 September 2018 £'000
	Purchases			63	100		138
	Sales			5	17		25
				______	______		______
				68	117		163
				______	______		______

10.	Publication of non-statutory accounts
	The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434-436 of the Companies Act 2006. The financial information for the six months ended 31 March 2019 and 31 March 2018 has not been audited.
	The information for the year ended 30 September 2018 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

11.	Approval
	This Half Yearly Financial Report was approved by the Board on 24 April 2019.

12.	This Half Yearly Financial Report will shortly be available for viewing on the Company's website (www.tigt.co.uk) and will be posted to shareholders in May 2019.

For Troy Income & Growth Trust plc PATAC Limited, Company Secretary 24 April 2019 Enquiries: 0131 538 1400

 

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