Annual Financial Report
TROY INCOME & GROWTH TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2018
1. CHAIRMAN'S STATEMENT
The objective of the Company is to provide an attractive income yield and the prospect of income and capital growth through investing in a portfolio of predominantly UK Equities.
Performance
The performance for the year to 30 September 2018 shows a Net Asset Value ('NAV') per share total return of +4.3% and a share price total return of +4.5% during a period that proved challenging for defensively orientated investors. The FTSE All-Share Index returned +5.9% for the period.
The Board remains predominantly interested in longer-term performance. Over the three-year period to 30 September 2018 the NAV per share total return of +26.8% equates to a robust absolute return but has lagged the +38.4% total return of the FTSE All-Share Index. Over five years the NAV per share total return of +55.5% compares favourably to a +43.5% total return for the FTSE All-Share Index.
In the weeks following the Company's year-end global equities have again experienced a period of volatility. Although at the time of writing the evolution of this market pull-back is far from certain, it is encouraging to note that the Company's assets experienced about half the fall of the FTSE All-Share Index during October.
The aggregate dividends for the year totalled 2.665p and represented a 4.1% increase over the previous year.
Economic and Stock Market Background
As we approach the tenth anniversary of the equity market lows post the global financial crisis, it is noticeable that asset price volatility has returned once again. As US economic data, and unemployment in particular, have remained positive, the US Federal Reserve has been taking more material steps towards tighter monetary policy and the reversal of quantitative easing. This removal of liquidity represents a fundamental change to the investment backdrop. As markets adjust to a normalisation of the discount rate, investors should not be surprised that asset classes are experiencing higher levels of volatility.
Discount Control Mechanism and Costs
The Discount Control Mechanism ('DCM'), which has been in place since January 2010, continues to operate successfully by ensuring that investors can continue to purchase and sell the Company's shares at very close to net asset value. During the year, the Company repurchased a net total of 2.5% of the shares in issue at the beginning of the year. Since January 2010 the net enhancement of NAV after all associated costs is over £913,000.
During the year, the net assets of the Company have contracted modestly from £229m to £224m. The Ongoing Charges Figure ('OCF') of 0.96% has increased very modestly (from 0.95%) as a result.
The Board anticipates that the opportunity to reduce the OCF and the minimal discount volatility provided by the DCM will continue to be attractions for other investment trust boards looking to merge or offer rollover options in the event of wind ups. We continue to be keen to grow the Company's assets both organically and also as a result of participation in further consolidation within the investment trust sector.
Gearing
The Company has not utilised the £20m revolving credit facility during the period. However, the Managers continue to see the opportunity to gear on a tactical basis as an important tool to be deployed should more compelling equity valuations become available.
Dividends
The fourth interim dividend of 0.685p represented a 3.8% increase on the 0.66p equivalent dividend paid last year, and at the end of each of the first three quarters of the financial year. The full year dividend totalled 2.665p and represented a 4.1% increase over the previous year. The Board intends, barring unforeseen circumstances, to pay a dividend of at least 0.685p per quarter in the current financial year and remains committed to a progressive dividend policy. The full-year dividend was comfortably covered by earnings and investors can take additional comfort from the Company's substantial revenue reserve which (when calculated assuming payment of the fourth interim dividend) represents 52% of the annual dividend.
The Packaged Retail and Insurance-based Investment Products Regulation ('PRIIPs')
All investment trusts were impacted by the PRIIPs regulation that came into force on 1 January 2018. It introduced a new disclosure document known as a Key Information Document ('KID') that must be prepared and made available to retail investors before they invest. The purpose of the KID is to enable retail investors to compare different products across a common standard. The regulation sets down rules on the format and content of the KID and its provision to retail investors. There has been widely reported concern about these KIDs, not least that expressed by The Association of Investment Companies in their publication of September entitled 'Burn before reading'. The Board hopes the relevant regulators will heed the industry's concerns but meantime, will continue to ensure the Company's KID complies with the PRIIPs regulation.
Continuation Vote
Pursuant to the Company's Articles of Association, and as is the case every five years, an ordinary resolution proposing the continuation of the Company will be proposed at the AGM. The Directors recommend that Shareholders vote in favour of continuation, as they intend to do in respect of their own shareholdings.
Outlook
Despite the sharp market correction in October we still believe that risk remains elevated. Rising US interest rates and the ensuing dollar strength continues to create stresses, particularly in emerging markets. Closer to home, Brexit negotiations appear to have reached an impasse and, until such a time as some resolution is delivered, the valuation of sterling and of domestic equities remain uncertain. In such an environment the Board continues to consider that the Managers' emphasis on the preservation of capital, and their conservative approach to gearing, remain appropriate.
David Warnock
Chairman
23 November 2018
2. MANAGERS' REVIEW
Background
Following a largely benign year in 2017 the early months of 2018 marked the return of volatility to global markets. However, by May global equities had recovered much of their poise, driven higher by a largely benign backdrop of robust earnings, bolstered by the Republican Party's fiscal reforms of 2017. UK economic data were mixed but bright spots included record-low unemployment and welcome sales boosts from the Royal Wedding, World Cup and prolonged summer weather. However, concerns around the pace and quantum of monetary tightening, that had unsettled the markets in January, and the deteriorating state of global trade continued to lurk just below the surface. The July publication of the Government's Chequers plan was initially greeted positively by markets but was quickly followed by the dual resignations of David Davis and Boris Johnson. The departures raised fears of a leadership challenge and led markets and sterling to retreat from their early summer highs.
While Brexit headlines have become somewhat long in the tooth, with the newly fixed 'hard deadline' of November fast approaching they have also reached something of a crescendo. In August, sterling was driven sharply lower as Mark Carney added fuel to so-called 'Project Fear' by commenting that the possibility of a no-deal Brexit was "uncomfortably high". A reprieve only came with Michel Barnier's comments that the EU was prepared to offer the UK an unprecedented deal. August was also tough for UK equity markets, with Trump's unyielding bellicose rhetoric continuing to stoke trade tensions, causing investors to speculate on the potential impacts on sectors such as mining which fell nearly 13% in the period (as measured by the FTSE All-Share Mining Index). Conversely, US equities continued their seemingly inexorable rise, with the S&P 500 recording yet another all-time high in late summer and breaking the record for the longest bull-run in the index's history.
In August, the Bank of England's Monetary Policy Committee finally voted to raise interest rates to 0.75%. This heavily anticipated move was predominantly intended to offer the MPC some flexibility to reduce rates, if necessary, following the final Brexit negotiations.
While the global stage continues to be dominated by emerging market volatility, created by a strengthening dollar, and the intensifying US-China trade war, UK markets in September remained focused on more parochial matters as negotiations with the EU marched ever onwards. While the pound rose for much of month, buoyed by the supportive comments from the EU at the end of August and a more benign set of headlines, much of the gain was given back as fears of a 'hard' Brexit loomed following the EU's rejection of Theresa May's Chequers plan. The weakness was subsequently exacerbated by a warning from the head of the International Monetary Fund on the consequences of a 'no-deal'.
Performance & Investment Strategy
Your Company delivered a Net Asset Value ('NAV') total return of +4.3% and a share price total return of +4.5% over the year. This compares with the FTSE All-Share return of +5.9%. In its 20-strong peer group, TIGT is positioned 11th on an NAV basis and 10th on a price basis over the past 12 months. This reflects a challenging beginning of the year, but strong relative performance more recently in a period of market dislocation, with the Company ranking 1st and 2nd in the peer group on an NAV and price basis respectively in the last three months of the Company's year.
Performance in the first half of the year was covered in detail in the interim report, but was characterised by a continued bias by investors away from the quality, defensive companies favoured by Troy Asset Management.
The strong market rally in April led to positive returns from the portfolio, although it lagged the market slightly. Q2 upside was dominated by the energy sector, with the oil majors Shell and BP posting total returns >20%, as crude oil prices climbed on the back of continued supply discipline, solid demand, and the US's withdrawal from the Iran nuclear accord. All but one sector for the portfolio posted positive returns in the quarter, with notable strengths in the American financials Wells Fargo and American Express, and the fashion retailers Burberry and Next. The latter two have been rare positives amidst a rout on the UK high street this year, with a number of household names coming under severe pressure, including Debenhams, House of Fraser, John Lewis, HomeBase, Mothercare, New Look, and Maplin, none of which investors in the Company have direct exposure to.
Information Technology was the one detracting sector in the quarter as the accounting software business Sage did not participate in the rally. Our long-term holding in Sage has had a very poor 2018, with slowing organic growth and margin pressure knocking the share price. The position was exacerbated at the end of August with the surprise announcement that CEO Stephen Kelly, who has held the role since 2014, was resigning. Kelly has been a driving force behind Sage's focus on specific and arguably demanding growth targets. We hope his departure allows the business to ease off what has latterly appeared to be a 'growth at all costs' culture.
In the Company's final quarter, the portfolio posted a pleasing positive return in a down market. The biggest relative and absolute contributors were in the Financials and Consumer Staples sectors. The top stock was Jardine Lloyd Thompson, buoyed by the news in September that the insurance broker had accepted a bid from their giant US competitor Marsh & McLennan. The acquisition of a long-term, high-quality holding is often bittersweet; while we are sorry to see JLT go, the 34% premium in the purchase price represents a welcome final boost to shares we have been well rewarded to hold since 2011 (originally purchased at £6.19). It was also pleasing to see our stolid consumer staples holdings return to form in a weak market, with Reckitt Benckiser and Nestlé in particular posting strong returns.
The stream of income generated by the portfolio continued to be robust, aided by two special dividends from Next and one from 3i Infrastructure. This allowed the Company to pay a full-year dividend of 2.665p, with an increase announced at the time of the 4th quarter dividend. The full-year dividend represents a +4.1% increase on the previous annual dividend.
Portfolio Changes
In recent years our reports have often bemoaned the lack of market-wide value, and in particular in the high-quality, cash-generative franchises that we favour. The FTSE All-Share price return of only 1.9% over the past year belies the underlying volatility, which has, to our eyes, opened pockets of opportunity to add to some of our core holdings. Consumer staples have long been one of our favoured sectors, with the sale of recurring everyday items offering substantial free cash flow generation and steady compounding. Consumer giants such as Reckitt Benckiser offer such diversity and scale that inevitably they suffer the occasional issue. Following a year of unconnected setbacks combined with market weakness, we increased the portfolio holding at a depressed share price and have since witnessed a rebound from a strong set of results, particularly from last year's acquisition, the baby formula giant Mead Johnson. Market (and sector-specific) weakness in February and March allowed us to top up two other longstanding holdings in world-class global consumer goods companies; Nestlé and Unilever. We also initiated a position in the American consumer giant, Procter & Gamble, in November.
The portfolio also contains several companies that could be described as 'corporate staples' - companies vital to the day-to-day functioning of other businesses. RELX falls into this category; it provides software tools and services to institutions across the world, serving >90% of the Fortune 500, including the 100 top global banks, top 250 global law firms, and probably most of the universities in the world. We started a position in RELX in the year and took advantage of share price weakness in February due to negative sentiment surrounding its renewal of academic journal subscriptions with a German library consortium. Sell-side pessimism proved unfounded, with the company reporting a traditionally robust set of earnings; indeed, underlying growth in the academic journal segment (STM), was +3% YoY for H1, an increase over the 1-2% of recent years. Such events are a reminder that it is often important to fade out market noise and focus on the fundamental qualities of the businesses we invest in.
The market volatility we have seen this year has been a reminder (some time in the making) that we have been in one of (if not the) the longest bull runs in history. Consequently, many of the changes in the period were intended to increase the quality and defensive characteristics of the portfolio. As part of the drive to insulate the portfolio against future volatility we have reduced exposure to relatively less liquid holdings, especially where valuations have become more acute, exemplified by the sale of the portfolio's holding in Burberry as the shares reached 10-year P/E highs. Holdings in IG Group, Next, Dairy Crest and Rathbones, amongst others, were also reduced.
Another facet of this evolution has involved de-emphasising our utilities and infrastructure holdings that, in a world of rising bond yields combined with increased regulatory and political (nationalisation) risk, no longer offer the same prospects for capital preservation. Pennon, 3i Infrastructure and INPP were all reduced. We also exited the non-core holding in NewRiver REIT in the first half of the year due to its exposure to UK retail.
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 NAV. The overall enhancement to your Company's NAV by repurchasing shares at a discount and issuing at a premium equates to over 1.9% of the NAV when Troy became manager of the Company in 2009. Over the year, the number of shares in issue has decreased from 291 million to 283 million, although this still represents a 133% increase since the discount control mechanism was activated in January 2010. The issuance of new shares and the associated increase in the size of the Company has not only boosted liquidity beyond that experienced by many trusts of a similar size but has reduced on-going charges from over 1.5% of NAV to 0.96% at the end of September.
Investment Outlook
As we look towards the final quarter of the calendar year, 'Brexit' continues to resound through the collective British conscience. While a deal is now on the table, the initial cautious optimism and signs of support from business leaders proved to be short-lived. We find ourselves with a government divided on (i) the deal itself, (ii) leadership of the Tory party, and (iii) even the elementary question of whether Brexit should happen at all. Such uncertainty rightly breeds concern over the UK economy, but may also create investment opportunities for the Company. US tariffs likewise have the potential to cast uncertainty wherever President Trump decides to focus his attention. There is as yet no obvious resolution to the ongoing US-China trade war, with Trump's additional $200bn of tariffs on Chinese imports sparking retaliation of $60bn in tariffs on US imports to China. The continuing crisis in Turkey, catalysed partially by US sanctions, is a sharp reminder that complacency borne of the preceding years of calm should not go unchecked. And Turkey is not the only economy witnessing dislocation; in August the Argentine peso depreciated sharply following President Macri's request that the IMF try to expedite its $50bn bailout, while Indian markets witnessed a sell-off in September due to a confluence of factors including inflation fears, widening trade deficit and a liquidity squeeze in the non-banking financials sector. Rising rates signal what was inevitable; that central banks cannot indefinitely pour money into markets to stabilise economies. This is not likely to be the end of instability in global markets.
We remain confident that our sharpened focus on high-quality, cash-generative businesses, trading at more attractive valuations, provides resilience in such times. It has been encouraging to see these changes contribute positively to the Company's performance recently.
Troy Asset Management Ltd
23 November 2018
3. RESULTS & DIVIDENDS
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Financial Highlights |
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2018 |
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Net asset value total return |
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+4.3% |
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Share price total return |
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+4.5% |
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FTSE All-Share Index total return |
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+5.9% |
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Increase in dividends per share |
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+4.1% |
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Dividend yield* |
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3.4% |
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Dividends per share+ |
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2.665p |
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Ongoing Charges |
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0.96% |
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* Dividends per share as a percentage of share price at 30 September +Dividends per share reflect the years in which they were earned
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Performance - total return (for the periods to 30 September 2018) |
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One Year |
Three Years |
Five Years |
Seven Years |
Nine Years |
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|
|
|
||||
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Share price |
+4.5% |
+24.7% |
+53.2% |
+100.9% |
+158.1% |
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|
|
|
||||
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Net asset value per share |
+4.3% |
+26.8% |
+55.5% |
+101.9% |
+149.8% |
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FTSE All-Share Index |
+5.9% |
+38.4% |
+43.5% |
+100.0% |
+115.3% |
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Distribution of Assets and Liabilities |
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Valuation at |
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Valuation at |
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30 September |
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Appreciation/ |
30 September |
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2017 |
Purchases |
Sales |
(depreciation) |
2018 |
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|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
% |
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Listed investments |
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|
|
|
|
|
|
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Ordinary shares |
216,065 |
94.5 |
34,061 |
(38,295) |
1,912 |
213,743 |
95.4 |
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|
______ |
_____ |
________ |
_______ |
________ |
______ |
_____ |
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Current assets |
13,141 |
5.7 |
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|
|
10,985 |
4.9 |
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Current liabilities |
(514) |
(0.2) |
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(670) |
(0.3) |
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______ |
_____ |
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______ |
_____ |
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Net assets |
228,692 |
100.0 |
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|
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224,058 |
100.0 |
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|
______ |
_____ |
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______ |
_____ |
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Net asset value per share |
78.64p |
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|
|
|
79.04p |
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|
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______ |
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______ |
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4. STRATEGIC & DIRECTORS' REPORT EXTRACTS
Performance and Future Development
A review of the business performance, market background, investment activity and portfolio during the year under review, together with the investment outlook, is provided in the Chairman's Statement and the Managers' Review.
Risk Management
The Directors are responsible for supervising the overall management of the Company, whilst the day-to-day management of the Company's assets has been delegated to the Manager. Portfolio exposure has been limited by the guidelines which are detailed within the Investment Strategy section of the Annual Report.
The principal risks facing the Company relate to the Company's investment activities and these risks include the following:
• performance risk
• market risk
• resource and operational risk.
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 2018.
• 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, Dividends and Future Development
The financial statements for the year ended 30 September 2018 appear below. Dividends in respect of the year amounted to 2.665p per share (2017 - 2.56p). The fourth interim dividend of 0.685p per share announced on 3 October 2018 (2017 - fourth interim 0.66p) will be accounted for in the financial year ending on 30 September 2019. Information on the future development of the Company is contained in the Chairman's Statement and in the Managers' Review above.
Share Capital
At the Annual General Meeting ("AGM") held on 24 January 2018, shareholders approved the renewal of the authority permitting the Company to make market purchases of its own Ordinary shares. This authority (which, unless renewed, will expire at the conclusion of the Company's forthcoming AGM) is limited to Ordinary shares with a maximum aggregate nominal value of £10,821,619 (being equal to approximately 14.99% of the Ordinary shares in issue as at 24 January 2018). It is proposed that this authority will be renewed at the Company's forthcoming AGM. During the year ended 30 September 2018 there were 9,630,000 Ordinary shares of 25p each purchased (being 3.4% of the issued share capital at the start of the year) and 2,325,000 Ordinary shares of 25p each re-issued. The issued share capital at 30 September 2018 consisted of 283,489,045 Ordinary shares of 25p each and there were 7,305,000 Ordinary shares held in treasury. As at the date of this report the issued share capital consisted of 282,439,045 Ordinary shares of 25p each and there were 8,355,000 Ordinary shares held in treasury. Each holder of Ordinary shares, excluding treasury shares, is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary share held.
Management Arrangements
In order to comply with the Alternative Investment Fund Managers Directive ("AIFMD"), the Company appointed PATAC Ltd ("PATAC"), as its Alternative Investment Fund Manager ("AIFM") with effect from 22 July 2014. The Company entered into 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 £60,000 per annum but Troy have reduced their investment management fee by an equal amount so that there is no overall change to the basis of the management fee incurred by the Company.
The other terms of the AIFM's appointment are similar to those applying to Troy under the investment management delegation agreement detailed below.
Investment Management Delegation Agreement
With effect from 1 August 2009, investment management services have been provided to the Company by Troy. From 1 October 2012 the fee is at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million.
Company Secretary
On 1 July 2010 PATAC was appointed to provide company secretarial, accounting and administrative services, for an annual fee of £95,000 payable quarterly in advance. The appointment is terminable on three months' notice. This fee is adjusted annually by the higher of the increase in the Retail Price Index or the Consumer Price Index and is currently £119,350 per annum.
Depositary
The AIFMD requires the AIFM to appoint a depositary for each Authorised Investment Fund it manages and J P Morgan Europe Ltd were appointed depositary for the Company with effect from 22 July 2014. The Depositary's responsibilities include cash monitoring, safe keeping of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements. The Depositary has delegated the custody function to J.P. Morgan Chase Bank N.A.
Borrowings
On 12 April 2017 the Company entered into a two year unsecured floating rate revolving credit facility for £20 million with ING Luxembourg S.A. The facility is for the acquisition of investments and for general corporate purposes. Further details are set out in Note 5 below.
Independent Auditors
Following a tender process in 2015, PricewaterhouseCoopers LLP were appointed the Company's Auditors in 2016.
Going Concern
The Company's Articles of Association require that at every fifth AGM of the Company an ordinary resolution be put to shareholders asking them to approve the continuation of the Company. Such a resolution was passed at the AGM on 23 January 2014 and the next resolution will require to be proposed at the upcoming AGM on 23 January 2019.
The Directors are committed to the continuation of the Company in its current form, and through a series of conversations with key investors, led by the Company's brokers, they have a reasonable expectation that the continuation resolution will be approved.
The assets of the Company consist mainly of securities which are readily realisable and accordingly the Company has adequate financial resources to continue in operational existence for the foreseeable future. In reaching this view, the Directors reviewed the level of expenditure of the Company against the cash and asset liquidity within the portfolio.
For these reasons the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
The ongoing validity of the going concern basis depends on the outcome of the continuation vote, on which the Board is recommending that shareholders vote in favour. In particular, no provision has been made for the costs of winding-up the Company or liquidating its investments in the event that the resolution is not passed.
Viability Statement
In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the viability of the Company over a three year period from the date that the Annual Report is due to be approved by shareholders.
The Directors have identified the following factors as potential contributors to ongoing viability:
· The principal risks documented in the strategic report as set out above
· The ongoing relevance of the Company's investment objective in the current environment
· The level of current and historic ongoing charges incurred by the Company as disclosed above
· The utilisation quantum of the discount control mechanism
· The level of income generated by the Company
· The liquidity of the Company's portfolio
· The continuation vote to be held at the AGM on 23 January 2019.
The Company is fully invested in liquid assets, either in listed securities or cash. The nature of these mean that even in a severe market downturn the Company would be able to convert, in a relatively short period of time, the portfolio into cash sufficient to meet the Company's operating costs which run at approximately 1% of net assets. This includes both fixed and variable costs, the largest single element of which is the variable management fee. In addition the Company currently has no gearing. Based on these facts the Board have concluded that even in exceptionally stressed operating conditions, the Company would easily be able to meets its ongoing operating costs as they fall due.
The Directors have determined that a three year period is an appropriate period over which to provide its viability statement notwithstanding the Company's upcoming continuation vote, as stated above, as they have no reason to presume that such a vote would not be passed by shareholders. They also consider that it is a reasonable time horizon to consider the continuing viability of the Company and a suitable period over which to measure the performance of the Company. 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 2022.
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 for a fee of £33,000 per annum (excluding VAT) and this has been charged to the share premium account.
The Directors will continue to seek the renewal of the Company's authority to buy-back Ordinary shares annually and at other times should this prove necessary. From the authority granted at the January 2018 AGM, the Company, at 30 September 2018, had the remaining authority to buy-back 36,131,479 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 UK Listing Authority which provide that the price to be paid must not be less than the nominal value of an Ordinary share nor more than the higher of (a) 5% above the average of the middle market quotations for the Ordinary shares for the five business days before the purchase is made and (b) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out.
It is the intention of the Directors that the share buy-back authority is used to purchase Ordinary shares if the middle market price for 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
Steven Cowie C.A.
Secretary
23 November 2018
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
23 November 2018
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 30 September 2018 |
Year ended 30 September 2017 |
||||
|
|
|
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 |
- |
1,927 |
1,927 |
- |
6,433 |
6,433 |
|
Currency (losses)/gains |
|
- |
(6) |
(6) |
- |
48 |
48 |
|
Revenue |
2 |
|
|
|
|
|
|
|
Income from listed investments |
|
9,038 |
- |
9,038 |
9,490 |
- |
9,490 |
|
Other income |
|
2 |
- |
2 |
- |
- |
- |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
|
|
9,040 |
1,921 |
10,961 |
9,490 |
6,481 |
15,971 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fees |
3 |
(569) |
(1,057) |
(1,626) |
(568) |
(1,055) |
(1,623) |
|
Other administrative expenses |
4 |
(476) |
- |
(476) |
(460) |
- |
(460) |
|
Finance costs of borrowing |
5 |
(17) |
(33) |
(50) |
(21) |
(39) |
(60) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Profit before taxation |
|
7,978 |
831 |
8,809 |
8,441 |
5,387 |
13,828 |
|
Taxation |
6 |
(127) |
- |
(127) |
(116) |
- |
(116) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Profit for the year |
|
7,851 |
831 |
8,682 |
8,325 |
5,387 |
13,712 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Earnings per Ordinary share (pence) |
8 |
2.73 |
0.29 |
3.02 |
2.90 |
1.87 |
4.77 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
The "Profit for the Year" is also the Total Comprehensive Income for the year as defined in IAS 1 (revised).
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS, as adopted by the European Union. The supplementary revenue return and capital return columns are both prepared as explained in the accounting policies. All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment in predominantly UK equities.
The accompanying notes are an integral part of these financial statements.
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF FINANCIAL POSITION
|
|
|
|||||
|
|
|
|
|
As at |
As at |
|
|
|
|
|
|
30 September |
30 September |
|
|
|
|
|
|
2018 |
2017 |
|
|
|
Note |
|
|
£'000 |
£'000 |
|
|
Non-current assets |
|
|
|
|
|
|
|
Investments in ordinary shares |
|
|
|
213,743 |
216,065 |
|
|
|
|
|
|
______ |
______ |
|
|
Investments held at fair value through profit or loss |
9 |
|
|
213,743 |
216,065 |
|
|
|
|
|
|
______ |
______ |
|
|
Current assets |
|
|
|
|
|
|
|
Accrued income and prepayments |
|
|
|
642 |
646 |
|
|
Trade and other receivables |
|
|
|
- |
273 |
|
|
Fair value of forward currency contract |
|
|
|
- |
134 |
|
|
Cash and cash equivalents |
|
|
|
10,343 |
12,088 |
|
|
|
|
|
|
______ |
______ |
|
|
Total current assets |
|
|
|
10,985 |
13,141 |
|
|
|
|
|
|
______ |
______ |
|
|
Total assets |
|
|
|
224,748 |
229,206 |
|
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
(670) |
(514) |
|
|
|
|
|
|
______ |
______ |
|
|
Total current liabilities |
|
|
|
(670) |
(514) |
|
|
|
|
|
|
______ |
______ |
|
|
Net assets |
|
|
|
224,058 |
228,692 |
|
|
|
|
|
|
______ |
______ |
|
|
Issued capital and reserves attributable to equity holders |
||||||
|
Called-up share capital |
10 |
|
|
72,699 |
72,699 |
|
|
Share premium account |
11 |
|
|
23,124 |
23,149 |
|
|
Special reserves |
12 |
|
|
57,831 |
63,504 |
|
|
Capital reserve |
13 |
|
|
64,501 |
63,670 |
|
|
Revenue reserve |
14 |
|
|
5,903 |
5,670 |
|
|
|
|
|
|
______ |
______ |
|
|
Total equity |
|
|
|
224,058 |
228,692 |
|
|
|
|
|
|
______ |
______ |
|
|
Net asset value per Ordinary share (pence) |
8 |
|
|
79.04 |
78.64 |
|
|
|
|
|
|
______ |
______ |
|
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF CHANGES IN EQUITY
|
|
||||||
|
For year ended 30 September 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
For year ended 30 September 2017 |
|
|
|
|
|
|
|
Balance at 1 October 2016 |
70,492 |
18,600 |
63,504 |
58,283 |
4,584 |
215,463 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
5,387 |
8,325 |
13,712 |
|
Equity dividends (note 7) |
- |
- |
- |
- |
(7,239) |
(7,239) |
|
Shares bought back into treasury |
- |
- |
(94) |
- |
- |
(94) |
|
Shares issued from treasury |
- |
1 |
94 |
- |
- |
95 |
|
Discount control costs |
- |
(33) |
- |
- |
- |
(33) |
|
New shares issued |
2,207 |
4,581 |
- |
- |
- |
6,788 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Balance at 30 September 2017 |
72,699 |
23,149 |
63,504 |
63,670 |
5,670 |
228,692 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TROY INCOME & GROWTH TRUST PLC
CASH FLOW STATEMENT
|
|
Year ended |
Year ended |
||
|
|
30 September 2018 |
30 September 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Investment income received |
9,047 |
|
9,384 |
|
|
Administrative expenses paid |
(2,083) |
|
(2,031) |
|
|
|
________ |
|
________ |
|
|
Cash generated from operations (note 19 (a)) |
|
6,964 |
|
7,353 |
|
Finance costs paid |
|
(50) |
|
(60) |
|
Taxation |
|
(127) |
|
(140) |
|
|
|
________ |
|
________ |
|
Net cash inflows from operating activities |
|
6,787 |
|
7,153 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of investments |
(34,061) |
|
(22,161) |
|
|
Sales of investments |
38,568 |
|
18,295 |
|
|
Realised gain/(loss) on forward currency contracts |
149 |
|
(271) |
|
|
|
________ |
|
________ |
|
|
Net cash inflow/(outflow) from investing activities |
|
4,656 |
|
(4,137) |
|
|
|
________ |
|
________ |
|
Net cash inflow before financing |
|
11,443 |
|
3,016 |
|
Financing activities |
|
|
|
|
|
Proceeds of issue of shares |
1,228 |
|
6,883 |
|
|
Cost of share buy backs |
(6,759) |
|
(94) |
|
|
Dividends paid |
(7,618) |
|
(7,239) |
|
|
Costs incurred on issue of shares |
(33) |
|
(33) |
|
|
|
________ |
|
________ |
|
|
Net cash outflow from financing activities |
|
(13,182) |
|
(483) |
|
|
|
________ |
|
________ |
|
Net (decrease)/increase in cash and short term deposits (note 19(b)) |
|
(1,739) |
|
2,533 |
|
Cash and cash equivalents at the start of the year |
|
12,088 |
|
9,507 |
|
Effect of foreign exchange rate changes |
|
(6) |
|
48 |
|
|
|
________ |
|
________ |
|
Cash and cash equivalents at the end of the year |
|
10,343 |
|
12,088 |
|
|
|
________ |
|
________ |
TROY INCOME & GROWTH TRUST PLC
YEAR ENDED 30 SEPTEMBER 2018
|
1. |
Accounting Policies |
||
|
|
(a) |
Basis of accounting |
|
|
|
|
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union. |
|
|
|
|
The financial statements have also been prepared in accordance with the Companies Act 2006, as applicable to companies adopting IFRS. |
|
|
|
|
The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities held at fair value through profit and loss. |
|
|
|
|
The financial statements are presented in Sterling which is regarded as the functional currency and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. |
|
|
|
|
The principal accounting policies adopted are set out below. These policies have been applied consistently throughout the current and prior year. Where presentational guidance set out in the Statement of Recommended Practice ("SORP") 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. |
|
|
|
|
In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010. |
|
|
|
|
At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective: |
|
|
|
|
- |
Amendments to IAS 40 - Investment Property - Transfers to, or from investment property (effective for annual periods beginning on or after 1 January 2018). |
|
|
|
- |
IFRS 9 - Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2018). |
|
|
|
- |
IFRS 15 - Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018). |
|
|
|
- |
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 9 - Financial Instruments - Prepayment features with negative compensation and modification of financial liabilities (effective for annual periods 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. |
|
|
|
(b) |
Investments - Securities held at Fair Value |
|
|
|
|
Investments are recognised or derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value. |
|
|
|
|
As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, listed equities and fixed interest securities are designated as fair value through profit or loss on initial recognition. All investments designated upon initial recognition as held at fair value through profit or loss are measured at subsequent reporting dates at their fair value, which is the bid price as at close of business on the Balance Sheet date. |
|
|
|
|
Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Expenses which are incidental to the acquisition and disposal of investments are treated as capital costs. |
|
|
|
(c) |
Income |
|
|
|
|
Dividend income from equity investments including preference shares which have a discretionary dividend is recognised when the shareholders' rights to receive payment has been established, normally the ex-dividend date. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Underwriting commission is taken to revenue on a receipts basis. |
|
|
|
(d) |
Expenses |
|
|
|
|
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the investment management fee and finance costs have been allocated 35% to revenue and 65% to capital. |
|
|
|
(e) |
Bank borrowings |
|
|
|
|
Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. After initial recognition, all interest bearing loans and overdrafts are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any arrangement costs and any discount or premium on settlement. |
|
|
|
(f) |
Taxation |
|
|
|
|
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. |
|
|
|
|
The allocation method used to calculate tax relief on expenses presented against capital returns is the 'marginal basis'. Under this basis if taxable income is not capable of being offset entirely by expenses presented in revenue then unutilised expenses arising in capital will be set against income with an amount based on current tax rates charged against income and credited to capital. |
|
|
|
|
Deferred tax is provided in full on temporary differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. |
|
|
|
(g) |
Foreign currency |
|
|
|
|
Transactions denominated in foreign currencies are recorded at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at fair value by using the rate of exchange prevailing at the year end. The currencies to which the Company was exposed were Swiss Francs and US Dollars. |
|
|
|
|
Forward currency contracts are classified as investments held at fair value through profit or loss and are reported at fair value at the year end by using the forward rate of exchange prevailing at the year end. |
|
|
|
|
Any gain or loss arising from a movement in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement as a revenue or capital item depending on the nature of the gain or loss. |
|
|
|
(h) |
Cash and cash equivalents |
|
|
|
|
Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments 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.
|
|
|
|
|
2018 |
2017 |
|
2. |
Revenue |
£'000 |
£'000 |
|
|
Income from listed investments |
|
|
|
|
UK dividend income |
8,405 |
8,714 |
|
|
Income from overseas investments |
633 |
776 |
|
|
|
________ |
________ |
|
|
|
9,038 |
9,490 |
|
|
|
________ |
________ |
|
|
Other income from investment activity |
|
|
|
|
Deposit Interest |
1 |
- |
|
|
Underwriting income |
1 |
- |
|
|
|
________ |
________ |
|
|
Total income |
9,040 |
9,490 |
|
|
|
________ |
________ |
|
3. |
Investment management fees |
|||||||
|
|
On 31 July 2009, Troy Asset Management Ltd ("Troy") became the Investment Manager. From 1 October 2012 the investment management fee has been paid at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million. The fee is calculated monthly and paid quarterly. PATAC were appointed to act as the Company's AIFM with effect from 22 July 2014 for a fee of £60,000 per annum. From the same date the portfolio management activities were delegated to Troy. The commercial terms of the delegation agreement are the same as the previous investment management agreement except that the investment management fee paid to Troy is reduced by the fees of £60,000 incurred for the services of the AIFM. The fee is allocated 35% to revenue and 65% to capital. |
|||||||
|
|
|
2018 |
2017 |
|||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
|
|
|
|
return |
return |
Total |
return |
return |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Investment management fees paid to Troy |
548 |
1,018 |
1,566 |
547 |
1,016 |
1,563 |
|
|
|
AIFM fee paid to PATAC |
21 |
39 |
60 |
21 |
39 |
60 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
Total Investment management fee |
569 |
1,057 |
1,626 |
568 |
1,055 |
1,623 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
|||||||
|
|
|
||
|
|
|
2018 |
2017 |
|
4. |
Other administrative expenses |
£'000 |
£'000 |
|
|
Directors' remuneration - fees as Directors |
88 |
85 |
|
|
Secretarial fees |
116 |
112 |
|
|
Fees payable to auditors |
|
|
|
|
- fees payable to the Company's auditors for the audit of the annual financial statements {a} |
24 |
23 |
|
|
Other management expenses |
248 |
240 |
|
|
|
_______ |
_______ |
|
|
|
476 |
460 |
|
|
|
_______ |
_______ |
|
|
{a} Includes irrecoverable VAT of £4,000 (2017 - £4,000). |
||
|
|
The Company had no employees during the year (2017 - nil). No pension contributions were paid for Directors (2017 - £nil). |
||
|
|
|
2018 |
2017 |
||||||
|
|
|
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 |
17 |
33 |
50 |
21 |
39 |
60 |
||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
On 12 April 2017 the Company arranged a £20 million two year revolving facility with ING Luxembourg S.A. which will expire in April 2019. Under the terms of the facility, the Company can draw down up to £20 million at an interest rate of LIBOR as quoted in the market for the relevant loan period, plus a margin of 0.9%. The facility is unsecured and is subject to covenants which are customary for a credit agreement of this nature. At the year end the Company had not drawn down on the facility. |
||||||||
|
|
|
|
|
|
|
|
|
||
|
|
|
2018 |
2017 |
||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
||
|
|
|
return |
return |
Total |
return |
return |
Total |
||
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
Irrecoverable overseas tax |
127 |
- |
127 |
116 |
- |
116 |
||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
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% (2017 - 19.5%):
|
||||||||
|
|
|
2018 |
2017 |
||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
||
|
|
|
return |
return |
Total |
return |
return |
Total |
||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
Profit on ordinary activities before taxation |
7,978 |
831 |
8,809 |
8,441 |
5,387 |
13,828 |
||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
Taxation of return on ordinary activities at the standard rate of corporation tax |
1,516 |
158 |
1,674 |
1,646 |
1,050 |
2,696 |
||
|
|
Effects of: |
|
|
|
|
|
|
||
|
|
UK dividend income not liable to further tax |
(1,485) |
- |
(1,485) |
(1,603) |
- |
(1,603) |
||
|
|
Overseas dividend income not liable to further tax |
(120) |
- |
(120) |
(151) |
- |
(151) |
||
|
|
Capital profits not taxable |
- |
(365) |
(365) |
- |
(1,263) |
(1,263) |
||
|
|
Movement in unutilised management expenses |
89 |
207 |
296 |
108 |
213 |
321 |
||
|
|
Overseas withholding tax suffered |
127 |
- |
127 |
116 |
- |
116 |
||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
Total taxation charge for the year |
127 |
- |
127 |
116 |
- |
116 |
||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||
|
|
At 30 September 2018, the Company had surplus management expenses of £10,440,000 (2017 - £9,008,000) with a tax value of £1,775,000 (2017 - £1,531,000) 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. |
||||||||
|
|
|
|
|
||||||
|
|
|
2018 |
2017 |
||||||
|
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 2016 of 0.625p per share |
- |
1,769 |
||||||
|
|
Fourth interim dividend for the year ended 30 September 2017 of 0.66p per share |
1,919 |
- |
||||||
|
|
Three interim dividends for the year ended 30 September 2018 totalling 1.98p (2017 - three interims totalling 1.9p) per share |
5,699 |
5,470 |
||||||
|
|
|
________ |
________ |
||||||
|
|
|
7,618 |
7,239 |
||||||
|
|
|
________ |
________ |
||||||
|
|
The fourth interim dividend of 0.685p per share, declared on 3 October 2018 and paid on 26 October 2018, 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.
|
||||||||
|
|
|
2018 |
2017 |
||||||
|
|
|
£'000 |
£'000 |
||||||
|
|
Three interim dividends for the year ended 30 September 2018 totalling 1.98p (2017 - three interim dividends totalling 1.9p) per share |
5,699 |
5,470 |
||||||
|
|
Fourth interim dividend for the year ended 30 September 2018 of 0.685p (2017 - fourth interim dividend 0.66p) per share |
1,940 |
1,919 |
||||||
|
|
|
________ |
________ |
||||||
|
|
|
7,639 |
7,389 |
||||||
|
|
|
________ |
________ |
||||||
|
|
|
|
|
|
|
|
2018 |
2017 |
|
8. |
Return and net asset value per share |
£'000 |
£'000 |
|
|
The returns per share are based on the following figures: |
|
|
|
|
Revenue return |
7,851 |
8,325 |
|
|
Capital return |
831 |
5,387 |
|
|
|
________ |
________ |
|
|
Total |
8,682 |
13,712 |
|
|
|
________ |
________ |
|
|
Weighted average number of Ordinary shares |
287,811,840 |
287,501,607 |
|
|
|
__________ |
__________ |
|
|
The net asset value per share is based on net assets attributable to shareholders of £224,058,000 (2017 - £228,692,000) and on 283,489,045 (2017 - 290,794,045) Ordinary shares in issue at the year end. |
||
|
|
|
|
|
|
|
|
2018 |
2017 |
|
9. |
Investments held at fair value through profit or loss |
£'000 |
£'000 |
|
|
Listed on recognised stock exchanges: |
|
|
|
|
United Kingdom |
189,975 |
198,552 |
|
|
Overseas |
23,768 |
17,513 |
|
|
|
________ |
________ |
|
|
Total investments |
213,743 |
216,065 |
|
|
|
________ |
________ |
|
|
|
2018 |
2017 |
|
|
|
£'000 |
£'000 |
|
|
Opening book cost |
160,026 |
151,924 |
|
|
Opening fair value gains on investments held |
56,039 |
54,717 |
|
|
|
________ |
________ |
|
|
Opening fair value |
216,065 |
206,641 |
|
|
Purchases for cash |
34,061 |
21,553 |
|
|
Sales - proceeds |
(38,295) |
(18,566) |
|
|
Sales - net gains on sales |
8,457 |
5,115 |
|
|
Movement in fair value during the year |
(6,545) |
1,322 |
|
|
|
________ |
________ |
|
|
Closing fair value |
213,743 |
216,065 |
|
|
|
________ |
________ |
|
|
Closing book cost |
164,249 |
160,026 |
|
|
Closing fair value gains on investments held |
49,494 |
56,039 |
|
|
|
________ |
________ |
|
|
Closing fair value |
213,743 |
216,065 |
|
|
|
________ |
________ |
|
|
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 £138,000 (2017 - £115,000) and on sales £25,000 (2017 - £20,000). |
||
|
|
|
|
|
|
|
|
2018 |
2017 |
|
|
Gains on investments held at fair value |
£'000 |
£'000 |
|
|
Net gains on sales |
8,457 |
5,115 |
|
|
Movement in fair value in investment holdings |
(6,545) |
1,322 |
|
|
Realised gain/(loss) on forward currency contracts |
149 |
(271) |
|
|
Movement in (loss)/gain on forward currency contracts |
(134) |
267 |
|
|
|
________ |
________ |
|
|
|
1,927 |
6,433 |
|
|
|
________ |
________ |
|
|
|
Ordinary shares of 25p each |
|
|
10. |
Called-up share capital |
Number |
£'000 |
|
|
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 |
|
|
|
__________ |
__________ |
|
|
Allotted, called up and fully paid |
|
|
|
|
At 30 September 2017 |
290,794,045 |
72,699 |
|
|
Held in treasury |
- |
- |
|
|
|
__________ |
__________ |
|
|
|
290,794,045 |
72,699 |
|
|
|
__________ |
__________ |
|
|
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 2017 there were 120,000 Ordinary shares of 25p each repurchased by the Company (being 0.04% of the Company's issued share capital), at a total cost of £94,000 and placed in treasury.
During the year to 30 September 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 2017 the Company re-issued 120,000 Ordinary shares of 25p each from treasury for proceeds totalling £95,000.
During the year to 30 September 2018 there were no new Ordinary shares issued by the Company.
During the year to 30 September 2017 there were 8,825,000 new Ordinary shares of 25p each issued by the Company for cash proceeds totalling £6,788,000.
No shares were purchased for cancellation during the year (2017 - nil) and at the year end 7,305,000 shares were held in treasury (2017 - nil).
The costs of the operation of the discount control mechanism of £33,000 have been charged against the premium on shares issued.
|
||
|
|
|
|
|
|
|
|
2018 |
2017 |
|
11. |
Share premium account |
£'000 |
£'000 |
|
|
At 1 October |
23,149 |
18,600 |
|
|
Premium on issue of shares |
8 |
4,607 |
|
|
Costs incurred on issue of new shares |
- |
(25) |
|
|
Discount control costs (note 10) |
(33) |
(33) |
|
|
|
________ |
________ |
|
|
At 30 September |
23,124 |
23,149 |
|
|
|
________ |
________ |
|
|
|
||
|
12. |
Special reserves |
Distributable |
|
Total |
Total |
|
|
|
Capital |
Special |
Special |
Special |
|
|
|
Reserve |
Reserve |
Reserves |
Reserves |
|
|
|
2018 |
2018 |
2018 |
2017 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 1 October |
5,343 |
58,161 |
63,504 |
63,504 |
|
|
Shares bought back during the year into treasury |
- |
(6,893) |
(6,893) |
(94) |
|
|
Shares issued during the year from treasury |
- |
1,220 |
1,220 |
94 |
|
|
|
________ |
________ |
________ |
________ |
|
|
At 30 September |
5,343 |
52,488 |
57,831 |
63,504 |
|
|
|
________ |
________ |
________ |
________ |
|
|
On 29 August 2014, the Court of Session in Scotland approved the cancellation of the Share Premium Account and the creation of a Distributable Capital Reserve from the balance of the Share Premium Account. The Special Reserve was created on 1 October 2010 by a similar court process. The purpose of the Distributable Capital Reserve and the Special Reserve are to fund market purchases by the Company of its own shares, to make bonus issues of shares and to make distributions in accordance with the Companies Act. |
||||
|
|
|
|
|
|
|
|
2018 |
2017 |
|
13. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 October |
7,497 |
3,699 |
|
|
Net gains on sales of investments during the year |
8,457 |
5,115 |
|
|
Investment management fee |
(1,057) |
(1,055) |
|
|
Currency (losses)/gains |
(6) |
48 |
|
|
Finance costs of borrowing |
(33) |
(39) |
|
|
Realised gains/(losses) on forward currency contracts |
149 |
(271) |
|
|
|
________ |
________ |
|
|
At 30 September |
15,007 |
7,497 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Investment holdings gains |
|
|
|
|
At 1 October |
56,173 |
54,584 |
|
|
Investment (losses)/gains |
(6,545) |
1,322 |
|
|
(Loss)/gains on forward currency contracts |
(134) |
267 |
|
|
|
________ |
________ |
|
|
|
49,494 |
56,173 |
|
|
|
________ |
________ |
|
|
Total capital reserve |
64,501 |
63,670 |
|
|
|
________ |
________ |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
2017 |
|
14. |
Revenue reserve |
|
|
£'000 |
£'000 |
|
|
At 1 October |
|
|
5,670 |
4,584 |
|
|
Transfer to revenue account net of dividends |
|
|
233 |
1,086 |
|
|
|
|
|
______ |
______ |
|
|
At 30 September |
|
|
5,903 |
5,670 |
|
|
|
|
|
______ |
______ |
|
15. |
Risk management, financial assets and liabilities |
|||||||||||||||||||||
|
|
Risk management |
|||||||||||||||||||||
|
|
The Company's objective is to provide shareholders with an attractive income yield and the prospect of income and capital growth through investing in a portfolio of predominately UK equities. |
|||||||||||||||||||||
|
|
In pursuit of the Company's objective, the Company's investment policy is to invest in a portfolio of predominately UK equities. Equities are selected for their inclusion within the portfolio solely on the basis of the strength of the investment case with the focus being on long term income growth along with capital preservation. |
|||||||||||||||||||||
|
|
Asset classes other than equities will be purchased from time to time, will vary as opportunities are identified and will include convertibles, preference shares, fixed income securities and corporate bonds. Such investments will be made when prospective returns appear to be superior to those from equity markets or are considered likely to exceed the Company's borrowing costs. However, non-equity securities will not constitute the majority of the portfolio. The Company may also use derivatives for the purpose of efficient portfolio management (including reducing, transferring or eliminating investment risk in its investments and protection against currency risk), to exploit an investment opportunity and to achieve capital growth. The Company entered into forward currency contracts during the year to manage the exchange risk of holding foreign investments. These matured during the year and the fair value at 30 September 2018 was £nil (2017: fair value £134,000). |
|||||||||||||||||||||
|
|
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; |
|||||||||||||||||||
|
|
|
- |
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 2018 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
10,343 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
10,343 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|||||||||||||||
|
|
|
|
|
|
average |
|
|
|||||||||||||||
|
|
|
|
|
|
interest |
Fixed |
Floating |
|||||||||||||||
|
|
|
|
|
|
rate |
rate |
rate |
|||||||||||||||
|
|
|
As at 30 September 2017 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
12,088 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
12,088 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 |
|||||||||||||||
|
|
|
|
|
|
|
2018 |
2017 |
|||||||||||||||
|
|
|
|
|
|
|
£'000 |
£'000 |
|||||||||||||||
|
|
|
Floating rate |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
|
10,343 |
12,088 |
|||||||||||||||
|
|
|
|
|
|
|
________ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 2018 and net assets would increase/decrease by £52,000 (2017 - increase/decrease by £60,000). 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 2018 |
30 September 2017 |
||||||||||||||||||
|
|
|
|
|
Net |
|
Net |
||||||||||||||||
|
|
|
|
Overseas |
monetary |
Overseas |
monetary |
||||||||||||||||
|
|
|
|
investments |
assets |
investments |
assets |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
US Dollar |
17,693 |
- |
13,450 |
103 |
||||||||||||||||
|
|
|
Swiss Franc |
6,075 |
- |
4,063 |
- |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
Total |
23,768 |
- |
17,513 |
103 |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
At 30 September 2017 the Sterling cost of a proportion of the US Dollar denominated assets was protected by a forward currency contract (US$6,000,000 forward against £4,607,000).
|
||||||||||||||||||||
|
|
|
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 2018 would have increased/decreased by £21,374,000 (2017 - increase/decrease of £21,606,000). 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: |
||||||||||||||||||||
|
|
|
|
2018 |
2017 |
||||||||||||||||||
|
|
|
|
Statement of |
|
Statement of |
|
||||||||||||||||
|
|
|
|
Financial Position |
Maximum exposure |
Financial Position |
Maximum exposure |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
Non-current assets |
|
|
|
|
||||||||||||||||
|
|
|
Securities at fair value through profit or loss |
- |
- |
- |
- |
||||||||||||||||
|
|
|
Current assets |
|
|
|
|
||||||||||||||||
|
|
|
Accrued income |
642 |
642 |
646 |
646 |
||||||||||||||||
|
|
|
Other debtors |
- |
- |
273 |
273 |
||||||||||||||||
|
|
|
Fair value of forward currency contract |
-
|
- |
134 |
134 |
||||||||||||||||
|
|
|
Cash and short term deposits |
10,343 |
10,343 |
12,088 |
12,088 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
|
10,985 |
10,985 |
13,141 |
13,141 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
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: |
||||
|
|
|
2018 |
2017 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Called-up share capital |
72,699 |
72,699 |
||
|
|
Retained earnings and other reserves |
151,359 |
155,993 |
||
|
|
|
________ |
________ |
||
|
|
|
224,058 |
228,692 |
||
|
|
|
________ |
________ |
||
|
|
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 (2017 - nil). |
||||
|
17. |
Commitments and contingencies |
|
|
At 30 September 2018 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (2017 - £nil). |
|
18. |
Financial instruments measured at Fair Value |
||||||||
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
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 |
213,743 |
- |
- |
213,743 |
216,065 |
- |
- |
216,065 |
|
|
Forward currency contracts |
- |
- |
- |
- |
- |
134 |
- |
134 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
|
213,743 |
- |
- |
213,743 |
216,065 |
134 |
- |
216,199 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
Financial liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
Total |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
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 2018 (2017 - none). |
||||||||
|
19. |
Notes to the Cash Flow Statement |
||||
|
|
(a) Reconciliation of operating profit to operating cash flows |
||||
|
|
|
2018 |
2017 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Profit before taxation |
8,809 |
13,828 |
||
|
|
Add interest payable |
50 |
60 |
||
|
|
Adjustments for: |
|
|
||
|
|
Gains on investments |
(1,927) |
(6,433) |
||
|
|
Currency losses/(gains) |
6 |
(48) |
||
|
|
Decrease/(increase) in accrued income and prepayments |
4 |
(106) |
||
|
|
Increase in trade and other payables |
22 |
52 |
||
|
|
|
________ |
________ |
||
|
|
|
6,964 |
7,353 |
||
|
|
|
________ |
________ |
||
|
|
|
|
|
||
|
|
(b) Analysis of changes in net funds |
||||
|
|
|
30 September |
Cash |
Exchange |
30 September |
|
|
|
2017 |
Flow |
Movements |
2018 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash at bank |
12,088 |
(1,739) |
(6) |
10,343 |
|
|
|
________ |
________ |
________ |
________ |
|
|
|
|
|
||
|
20. |
Related party transactions |
|
|
The following are considered to be related parties: |
|
|
- The Directors of the Company. |
|
|
All material related party transactions, as set out in International Accounting Standard 24, Related Party Disclosures, have been disclosed in the Strategic and Directors Report extracts and in Note 4 above. |
|
21. |
Alternative Investment Fund Managers Directive (AIFMD) |
||||
|
|
In accordance with the AIFMD, information in relation to the Company's leverage and the remuneration of the Company's AIFM, PATAC, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy and the numerical remuneration disclosures in respect of the AIFM's relevant reporting period (year ending 30 April 2018) are available from PATAC on request. |
||||
|
|
The Company's maximum and actual leverage levels at 30 September 2018 are as follows: |
||||
|
|
|
|
|
Gross |
Commitment |
|
|
|
|
|
Method |
Method |
|
|
Maximum limit |
|
|
200% |
200% |
|
|
Actual |
|
|
95.4% |
100.0% |
|
|
|
|
|
|
|
|
|
There have been minor amendments to the Company's investor disclosure document in the year to 30 September 2018. 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 2018. The statutory accounts for the year ended 30 September 2018 received an audit report which was unqualified.
The statutory accounts for the financial year ended 30 September 2018 were approved by the Directors on 23 November 2018 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 23 January 2019 at 16 Charlotte Square, Edinburgh, EH2 4DF.
The Annual Report will be posted to shareholders in December 2018 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 Steven Cowie, C.A., Secretary 23 November 2018 Enquiries: 0131 538 6610 |
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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