Annual Results

Troy Income & Growth Trust Plc

24 January 2024

 

TROY INCOME & GROWTH TRUST PLC

LEI: 213800HLNMQ1R6VBLU75

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2023

1. CHAIRMAN'S STATEMENT

Introduction

I am pleased to present the annual report for Troy Income & Growth Trust plc (the 'Company') following my appointment as a non-executive Director and Chairman in January 2023.

Company Aims

In March 2023, the Board held a Strategy meeting to set clear targets which were agreed with the Managers ('Troy Asset Management Limited') and are set out below. These clear targets have been closely monitored at each Board meeting along with their associated Key Performance Indicators.

• Dividend growth of 4% per annum for Shareholders

The Board announced in September that the Company would pay a fourth and final dividend for the financial year of 0.529p per share (2022 - 0.50p). This results in a 4% increase in the total dividends paid in FY23 - in-line with the Board's aim.

• Share price total return (capital and income) above the FTSE All-Share Index over a 5-year period

Performance over the latest five-year period has fallen short of this target, with the portfolio lagging the

FTSE All-Share Index. Higher interest rates have been a headwind for the Managers' approach of investing

only in companies with a record of good long term dividend growth. Over the last five years, this approach has underperformed other peer group Trusts' more value orientated styles. Sectors typically eschewed by the Managers for their cyclicality and capital intensity, particularly Energy and large Banks, performed strongly. The Managers see a more balanced market today, with a more challenging environment ahead for corporate profits. Such an environment is likely to better suit the Managers' approach to the market.

• Share price volatility lower than the FTSE All-Share Index

The Managers emphasise high-quality, resilient, dividend-paying businesses that should drive consistent returns, avoiding the worst of market sell offs. In particular, they believe a portfolio suffering fewer and less destructive drawdowns will be in a better position to compound returns over the long run. The Company has consistently fared better than the FTSE All-Share Index during market sell offs and has continued to provide a return with lower share price volatility.

• To maintain the Company's Discount Control Mechanism

The discount control mechanism ('DCM') has played an important role in reducing share price volatility over the long term, ensuring the Company's share price remains closely aligned with net asset value. It has also allowed Shareholders to choose the time best suited to them to redeem any shares, knowing that it will be at a price close to net asset value.

On 2 November 2023, the Company announced the suspension of the DCM and the buyback of its shares. Recent buyback activity had resulted in the Company getting very close to (i) fully utilising its existing authority to repurchase shares; and (ii) depleting its distributable reserves, which are required to effect buybacks under the DCM. At that point, the Board was reviewing possible options for a combination with another investment trust and, in light of all of these considerations, the DCM was suspended pending a further announcement on the outcome of the review.

Proposed Merger with STS Global Income & Growth Trust plc

As well as setting the targets detailed above, the Board has been considering the best future for the Company, given recent and current market challenges and the impact of the ongoing share buybacks throughout the year on the size of the Company.

Following a review of a number of strategic options, on 28 November 2023 the Board announced that it had reached an agreement with the Board of STS Global Income & Growth Trust plc ('STS') for a proposed merger. Subject to shareholder approval, the merger will be implemented through a scheme of reconstruction pursuant to section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of the Company and the rollover of its assets into STS in exchange for the issue of new shares in STS. Shareholders will also be offered the option of up to 100% cash exit.

The enlarged STS will continue to be managed, on the same basis as currently, by Troy Asset Management, with James Harries continuing as the lead portfolio manager, supported by Tomasz Boniek and the wider Troy investment team.

The proposals are subject to the approval of both the Company's shareholders and STS shareholders, and also to regulatory and tax approvals.

In reaching this decision, the Board noted a number of attractions to a combination with STS, including continued exposure to Troy's investment ethos and process, commonality of UK investments with the addition of global income growth equities, a continuing discount control mechanism, reduced overall costs for continuing shareholders and increased liquidity. Troy has also agreed to make a significant cost contribution in the form of an eighteen-month fee waiver on the assets transferred from the Company to STS.

It is intended that the documentation in connection with the proposal will be posted to shareholders in February 2024, with a view to completing the transaction by the end of March 2024.

Performance

The Company delivered a net asset value ('NAV') per share total return of +6.6% and a share price total return of +6.3% over the year to 30 September 2023. Over the same period, the FTSE All-Share Index produced a total return of +13.8%. The average NAV total return for the AIC UK Equity Income sector was +12.6% for the same period. The two most significant drags on performance were some of the Company's holdings in large, low cyclicality Consumer Staples companies and the two holdings in the Materials sector. Sterling's strong appreciation against the dollar was also a headwind, impacting the Company's small number of US-listed holdings as well as the predominantly overseas earnings of the portfolio as a whole.

In the volatile, macro-driven markets of the past year, it was pleasing that a number of the Company's core holdings in large, stable businesses contributed strongly to returns. RELX was the largest positive driver, while GSK, AstraZeneca, Compass, and Unilever were also in the top 10 contributors. The other notable area of strength came from Consumer Discretionary stocks. In particular, UK domestically focused businesses such as Domino's Pizza and Next were fuelled by a combination of economic recovery and strong earnings performance. Elsewhere, post-COVID rebounds in global travel drove the share price of InterContinental Hotels Group, while shares in niche industrial company Diploma rose on a year of very strong growth. Across the broader UK index, positive contributions came from large financial companies such as banks and life insurers, some large cyclical industrial companies, and from energy majors - all areas in which the Company tends to have minimal exposure.

The Managers provide further commentary on portfolio performance within their report.

Background

It has been a positive year for UK equities - perhaps a surprising outcome given the various macroeconomic factors conspiring to test global economies and markets; volatile inflation, higher interest rates, the aftereffects of the pandemic, and geopolitical clashes. Nevertheless, UK markets benefited from regaining some political stability following the short-lived Truss government, as well as more resilience than expected from the UK economy and consumer.

Both the magnitude and speed of the current interest rate cycle remain notable. However, after 14 consecutive rate rises beginning in December 2021, the Bank of England finally paused for breath in September of 2023, leaving the UK base rate flat at 5.25%. At the time of writing, core inflation is currently still above 5% in the UK, but is well past its peak of over 7%. Meanwhile, overall UK CPI (consumer price index) inflation has moderated materially from over 11% to under 4%. The narrative from central banks indicates we are probably at peak interest rates for this cycle, and markets have now turned to speculating on the likely path of rate cuts. These will depend on the strength of economies in the coming months. US economic growth in particular has remained robust and markets are talking of a possible 'soft landing', in which the US economy manages to curtail inflation and absorb the impacts of this sharp interest rate cycle without entering recession. Such a scenario is uncommon but not without precedent. As the Managers discuss in their review, they remain mindful that the full extent of impacts from higher rates are likely still to be felt.

Portfolio

Large, high-quality, low cyclicality businesses continue to make up the core of the portfolio. Some of the Company's largest allocations include a c.30% weighting to Consumer Staples (e.g. Unilever, Diageo and Reckitt), c.20% to non-discretionary B2B-focused businesses (e.g. Compass Group, RELX and Bunzl) and c.10% to the relatively non-cyclical Healthcare sector (e.g. AstraZeneca and GSK).

Volatile markets have enabled the Managers to make six new investments over the course of the year - Roche, London Stock Exchange Group, Sage, Smiths Group, Imperial Brands and Howden Joinery. These are all resilient, leading companies in their respective industries and have strong balance sheets and well-covered, growing dividends. The Managers have known and followed each of these companies for multiple years and believe market weakness has allowed them to purchase at attractive prices and dividend yields.

Three positions were exited, all in the first six months of the year: Haleon, Halma and AVEVA. AVEVA was subject to a bid by its majority shareholder, following which the position was sold. Haleon and Halma were sold on valuation and dividend yield grounds.

Dividends

The Board announced in September that the Company would pay a fourth and final dividend for the financial year of 0.529p per share (2022 - 0.50p). The total dividends for FY23 totalled 2.05p, representing a 4% increase on the prior year. Over the year this was above the peer group rate of dividend growth.

Discount Control Mechanism

The DCM is one way in which the Company has set itself apart from other trusts in the sector. The DCM materially improves the liquidity of the Company's shares and ensures Shareholders can purchase and sell shares in the Company at a price that closely reflects the NAV. This is particularly important in dampening volatility for Shareholders during times of market stress, where it is not uncommon for other trusts to trade at a material discount to their NAVs.

As noted above, the DCM was suspended on 2 November 2023. In the event that the proposed merger does not go ahead, then appropriate steps will be taken to allow the DCM to recommence in due course.

Outlook

In the coming year, the UK market is likely to continue focusing on the path of interest rates, inflation, and the related impacts on corporate and consumer health. The Managers expect continued pressure on earnings, which resulted in a decline in aggregate UK dividends in 2023. In this environment, the Board sees clear virtues in an emphasis on quality, low cyclicality business models that can fund growing, comfortably covered dividends and we remain optimistic about this investment style for the future.

Bridget Guerin

Chairman

23 January 2024

2. MANAGERS' REVIEW

Investment Background

The investment backdrop during the past 12 months can be well summarised as 'unsettled'. Inflation, interest rates, geopolitics, and the aftershocks of COVID-related disruption have dominated the narrative, driving volatility and uncertainty. Global and US markets have risen strongly for much of the past year, with the MSCI World and S&P 500 indices up +22% (total return USD) and +23% (total return USD) respectively in the year ending 30 September 2023. However, the positive drivers have been extremely narrow with the majority of gains stemming from the so-called 'Magnificent Seven' technology giants (Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla) which have risen on a wave of enthusiasm surrounding 'AI'.

The year as a whole was positive for UK equities with the FTSE All-Share Index rising +13.8% (total return GBP). It was also positive for the Company, albeit with a rise that lagged the market - NAV and share price total returns were +6.6% and +6.3% respectively. We discuss performance in more detail later in this report.

The favourable return from the UK market came primarily in the initial months of the period. The swift resolution to the Truss/Kwarteng mini-budget episode set the FTSE All-Share Index on a sharp rise through the first quarter of the Company's year. This enthusiasm was extended by the post-COVID 'China reopening' as we entered calendar year 2023 which supported the UK commodity and consumer companies exposed to the geography. It seemed that some stability and even renewed growth would provide support for earnings and markets. However, February marked the high point for the UK index. The US banking stress in March caused a sharp sell-off in financial stocks globally and served as a sharp reminder that higher interest rates are likely to have acute and unpredictable impacts.

Peaking rates?

Thankfully, there proved minimal contagion from the March sell-off but it is clear there is increased volatility in markets after 12 years of extraordinarily low interest rates. Central banks have continued to raise rates aggressively throughout much of the year in the battle against inflation. Although economic data has been varied, in general US and UK economies have proven robust, spurring central bankers' efforts to act forcefully. Nevertheless, it does appear we may be at or close to the peak of this historically fast rate cycle; in September, the Bank of England held their base interest rate steady at 5.25%, ending a 14-month run of consecutive hikes.

Markets are now wrestling with whether rates stay 'higher for longer' or could start to come down. Inflation (CPI growth) in the UK seems likely to have peaked in October 2022 at 11.1% and by September had slowed to 6.7%. However, it still remains well above the Bank of England's target level and key inputs such as wage inflation have remained robust, potentially supporting higher rates. Conversely, there are signs that the shift in rates is starting to have an impact; in the latter half of the year there have been growing signs of earnings and economic conditions weakening in several sectors. Additionally, the initial hope of a sharp China rebound has turned to concern amidst weak consumer spending and trouble in key sectors such as Real Estate. As a result of the mixed backdrop, the UK market as a whole was largely unchanged over the latter half of the year.

Cyclical risks

Our view is that the impact of higher rates will inevitably bite consumers and corporates, but with a lag. We remain cautious on corporate earnings and are determined to avoid companies with excessive leverage. A recession at home and abroad certainly cannot be ruled out. The portfolio continues to be defensively positioned as a result, with exposure to resilient, quality companies. The Company has significant weightings to consumer staples, healthcare, subscription data and consumer non-discretionary stocks. These businesses have a proven ability to navigate difficult economic environments. On the other hand, the portfolio has no exposure to banks, energy or mining companies which make up a significant proportion of the UK market, but whose earnings and share prices often prove highly cyclical.

Compelling UK Valuations

Despite our caution on near-term earnings, as long-term UK investors, we are excited about valuations across the market. UK equities have been out of favour ever since 2016's Brexit vote, which appears in hindsight to have triggered the start of significant outflows from UK equities. This has in turn caused a severe de-rating of our stock market. Valuations in the UK are today at a meaningful discount to the US-dominated global equity market.

Prospective equity returns are a function of two things; starting valuations and future growth. The portfolio in aggregate trades with an earnings yield of over 6% (equivalent to a Price-to-Earnings ('PE') ratio of c.16x). This is a level we deem to be attractive given the quality of the companies held and the resilient mid to high single digit earnings growth we expect the portfolio to achieve over time.

We are often asked what the catalyst might be for a reversal of fortunes for UK equity valuations. We do not claim to have a good answer to this. That being said, and heading into a UK election year in 2024, we are hopeful that better long-term political thinking and prioritisation towards our home equity market will emerge. The UK stock market has three significant attractions as we see it. 1) It is the most international of all stock markets with c.80% of aggregate revenues coming from abroad. 2) Valuations are attractive. 3) We have a uniquely strong dividend culture, especially when compared to the US market's preference for share buybacks, which means the UK is a great market for income investors. We are optimistic that stable politics, combined with compelling starting valuations might be enough to turn the tide in favour of UK equities. In the meantime, we are happy to benefit from world-class companies trading at compelling prices, offering dividend yields and dividend growth that should generate strong returns.

Growing Income

One of the core aims of the Company is to deliver year-on-year income growth to investors. Having re-based the Company's dividend in 2021 to a sustainable level from which it can grow, it is pleasing that the Company has grown its dividend in each of the past two years. The Company currently aims to increase its dividend by 4% per annum. The portfolio is producing healthy dividend growth and we remain cautiously optimistic that mid-single digit per annum dividend growth ought to be achieved over the long term. We continue to expect the portfolio to produce a more resilient income stream than the wider market.

Performance

Whilst we are pleased the Company delivered a positive return in an uncertain environment, we are unsatisfied with relative returns. The Company delivered a NAV total return of +6.6% and a share price total return of +6.3% over the year. This compares with the FTSE All-Share Index total return of +13.8% and places the Company 12^th out of its 16-strong AIC UK equity income peer group when ranked by NAV performance and 13th by share price. Underperformance was a result of specific stock price movements, but it was also because our quality-orientated investment style faced headwinds compared to more value-orientated styles. The latter factor relates to the impact that higher bond yields have had in the short term on valuations for certain parts of the equity market. For example, Consumer Staples companies, to which the portfolio is heavily exposed, have generally fallen in value, whereas certain sectors in which the Company does not invest, such as banks and energy companies, have risen materially. We will stick to our investment process which prioritises more stable businesses that compound dividend growth over the long-term.

Contributors

Consumer Discretionary was the largest positive contributor to returns, with Domino's Pizza gaining +74% over the year on the back of solid results and the hiring of a well-regarded CEO. Within the same sector, InterContinental Hotels Group and Next also performed well rising +42% and +57% respectively. Holdings classified within the industrials sector also contributed strongly with large portfolio holding RELX gaining +29% and value-added distributor Diploma gaining +32%. Defensive Healthcare holdings also performed well with GSK gaining +19% and AstraZeneca rising +14%. Finally, insurer Admiral performed well, rising +30%, as it recovered from a particularly pronounced UK motor insurance cycle to post solid results.

Detractors

Consumer Staples holdings detracted most from returns with Diageo falling -18% and British American Tobacco -13%. Diageo's sales growth is normalising following a very strong period whilst British American Tobacco shares gave back gains made in the previous year. Materials holdings were also weak, with Croda falling -22% and Victrex falling -13%. Both of these speciality chemicals companies are suffering cyclical destocking issues as the economy slows. We expect these issues to prove temporary and have added to both holdings. Finally, Financials holding St. James's Place fell -15% as the company suffered weaker flows into the business and reduced charges to clients which hurt short term profits. The mixture of stock-specific and industry-wide cyclical pressures have reduced the valuation multiples of St. James's Place considerably and we continue to hold the shares.

Portfolio Changes

Selective changes were made to holdings over the year as we found opportunities to further improve the quality, resilience and valuation of the portfolio.

Three holdings were sold over the period. The Company's holding in UK industrial software company AVEVA was exited following a bid for the company by majority shareholder Schneider Electric. Proceeds of the sale were used to start a new holding in high-quality data company the London Stock Exchange Group at a valuation of c.20x PE. We also sold the small holdings in Haleon and Halma on the basis of their valuations and dividend yields.

A new holding in Swiss company Roche was also initiated. Roche is one of the world's leading pharmaceutical and medical diagnostics companies with an enviable track record of new drug innovation. Roche shares have been weak in recent years and are inexpensive, trading at around c.13x PE and with a dividend yield of c.3.7%.

We also built a position in Sage Group ('Sage'). Sage is one of the few software companies in the FTSE 350 and is a leading provider of accounting solutions to small and medium-sized businesses ('SMEs') in more than 23 countries. Due to the critical nature of the subscription software it provides, Sage enjoys highly recurring revenues which makes the business very defensive and capable of strong dividend growth.

Elsewhere, we started a small holding in Howden Joinery. Howden is the UK's leading supplier of kitchens to the trade. Whilst demand for kitchens may well be subdued in these harder economic times, we think this is largely reflected in the stock's low valuation and c.3% dividend yield. Howden is an outstanding business with a net cash balance sheet and is well placed to take market share through more challenging times.

Finally, a new holding was started in Smiths Group, a leading multinational engineering business that has been listed on the London Stock Exchange for over 100 years. The quality and reliability of Smiths' business has supported continuous dividend payments for over 70 years. Smiths provides differentiated exposure for the portfolio and the shares trade inexpensively at c.16x earnings and with a c.3% dividend yield.

In terms of additions and part sales, we significantly reduced the Company's holding in Domino's Pizza following a more than +50% rise in share price between July and August. We also trimmed InterContinental Hotels and Next, both of which have risen strongly in the year. Finally, we added to Diageo, Croda and Victrex, all of which have suffered short term weakness in their share prices and trade at attractive prices.

Investment Outlook

Markets continue to be impacted by inflation and interest rate expectations. It is encouraging therefore to see inflation peaking in the US and UK after an unprecedently steep rise in rates. We are highly conscious however that the lagged impact of meaningfully higher rates will continue to be felt by consumers and corporates. This will dampen growth and economic activity and we are intentionally defensively positioned as a result. Investors should be reassured by the portfolio's significant exposure to relatively economically insensitive businesses that have strong balance sheets and a track record of growing dividends through the cycle. This includes Consumer Staples companies such Diageo, Healthcare companies such as GSK and subscription software and data businesses like RELX.

Despite our caution on near-term earnings, we believe that UK equity valuations are compelling. The UK is home to various world-class businesses and over the past year we have found exciting valuation opportunities on offer. These have been across a range of sectors and has resulted in six new holdings. We believe the Company has a strong portfolio and a high-quality list of potential stocks - we are well placed to take advantage as further opportunities arise.

Finally, despite the uncertain environment, we are reassured that the great majority of portfolio companies continue to demonstrate strong operational performance and the potential for long-term dividend growth.

Troy Asset Management Limited

23 January 2024

3. RESULTS & DIVIDENDS

Financial Highlights
		2023	2022
Net asset value total return		6.6%	-9.9%
Share price total return		6.3%	-10.2%
FTSE All-Share Index total return		13.8%	-4.0%
Increase in dividends per share		4.0%	0.5%
Dividend yield*		3.0%	2.9%
Dividends per share+		2.049p	1.97p
Ongoing Charges		0.95%	0.89%
* Dividends per share as a percentage of share price at 30 September + Dividends per share reflect the years in which they were earned

Performance - Total Return (for the periods to 30 September 2023)
	One Year	Three Years	Five Years	Ten Years
Share price	6.3%	4.6%	3.3%	58.3%
Net asset value per share	6.6%	4.8%	4.6%	62.6%
FTSE All-Share Index	13.8%	39.8%	19.7%	71.8%

Distribution of Assets and Liabilities
	Valuation at					Valuation at
	30 September					30 September
	2022		Purchases	Sales	Increase	2023
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	194,448	100.6	30,692	(63,865)	6,708	167,983	100.7
	______	_____	________	_______	________	______	_____
Current assets	9,265	4.8				3,328	2.0
Current liabilities	(10,398)	(5.4)				(4,483)	(2.7)
	______	_____				______	_____
Net assets	193,315	100.0				166,828	100.0
	______	_____				______	_____
Net asset value per share	68.48p					70.42p
	______					______

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 Managers. Portfolio exposure has been limited by the guidelines which are detailed within the Investment Guidelines section of the Annual Report.

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 2023. A description of the principal risks and how they are managed is set out below. The Board has also assessed the emerging risks of geopolitical events, climate change and rising inflation under performance and market risks.

Risk	Mitigation
Performance risk: The Board is responsible for deciding the investment strategy to fulfil the Company's objective and monitoring the performance of the Managers. An inappropriate strategy or poor execution of strategy might lead to long-term underperformance against the comparator index and the Company's peer group.	To manage this risk the Managers provide an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio, including responsible investment considerations. The Board also receives and reviews regular reports showing an analysis of the Company's performance, both in income and capital growth terms, against the FTSE All-Share Index (total return) and its peer group. The impact on the investment strategy of the Russia/Ukraine and Israel/Hamas conflicts and rising inflation has been kept under regular review by the Board.
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 sector, based on the diversification requirements inherent in the Company's investment policy. The Board also monitors the implementation of gearing strategy and responsible investment strategy. The underlying risks and potential increased volatility associated with the Russia/Ukraine and Israel/Hamas conflicts, and inflation rate rises, are considered within market risk.
Resource and operation 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. Disruption to, or failure of, systems and controls, including cyber-attacks, at the Company's service providers could result in financial and reputational damage to the Company.	The Board reviews the performance of its service providers, their internal controls and their compliance with agreements on a regular basis.
Shareholder risk: Shareholder risk arises from ongoing share buybacks reducing the size of the Company threatening its viability.	The Board reviews the performance of the Company at each Board meeting along with the business development and marketing strategy in order to make the Company an attractive investment. The Board along with the Managers have also developed a marketing strategy that reflects the shift of investors to platforms which can make direct engagement more difficult. The Board constantly monitors the implementation of the discount control mechanism with the help of Juniper Partners. As discussed in the Chairman's Statement the Board is now recommending a merger with STS Global Income & Growth Trust plc as they believe that a larger entity with a more global set of income stocks will be an attractive proposition for shareholders.
Regulatory risk: Breach of regulatory rules could lead to the suspension of the Company's London Stock Exchange listing, financial penalties or a qualified audit report. Breach of sections 1158 and 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to corporation tax on capital gains.	The Company Secretary monitors the Company's compliance with all relevant regulations and compliance with the principal rules is reviewed by the Directors at each Board meeting.

The Board have considered the Company's solvency and liquidity risk and full disclosure of this is made in note 15 of the Annual Report and the viability statement below.

Post Balance Sheet Events

On 2 November 2023 the Company announced it was suspending the discount control mechanism and the buyback of its shares. On 28 November 2023 the Board announced proposals for a combination with STS

Global Income & Growth Trust plc, through a scheme of reconstruction pursuant to section 110 of the Insolvency Act 1986. If approved by Shareholders this will result in the voluntary liquidation of the Company.

Results and Dividends

The financial statements for the year ended 30 September 2023 appear below. Dividends in respect of the year amounted to 2.049p per share (2022 - 1.97p). The fourth interim dividend of 0.529p per share announced on 14 September 2023 (2022 - fourth interim 0.50p) will be accounted for in the financial period commencing 1 October 2023.

Share Capital

The issued share capital at 30 September 2023 consisted of 236,890,487 Ordinary shares of 25p each and there were 110,621,500 Ordinary shares held in treasury. As at the latest practicable date of 23 January 2024 the issued share capital consisted of 232,475,487 Ordinary shares of 25p each and there were 115,036,500 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

The Company appointed Juniper Partners, as its alternative investment fund manager ('AIFM') on 22 July 2014. With effect from that date, the AIFM delegated the portfolio management activities relating to the Company back to Troy Asset Management Limited ('TAML' or the 'Managers') pursuant to a delegation agreement and TAML 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 Juniper Partners for a fee of 0.015% of the Company's net assets per annum, subject to a minimum fee of £68,000 per annum. TAML reduce their investment management fee by an equal amount so that there is no overall change to the basis of the management fee incurred by the Company.

The other terms of the AIFM's appointment are similar to those applying to TAML under the investment management delegation agreement detailed below.

Investment Management Delegation Agreement

Investment management services have been provided to the Company by TAML since 1 August 2009. With effect from 1 January 2022, the annual management fee was reduced from 0.65% of the Company's net assets to a tiered annual management fee of 0.55% of net assets up to £250 million and 0.50% of net assets above £250 million.

Company Secretary

Juniper Partners Limited provides company secretarial, accounting and administration services to the Company.

Depositary

J.P. Morgan Europe Ltd is the Company's Depositary, with responsibilities including 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

In June 2022, the Company instituted a three-year revolving loan facility of £15 million with The Royal Bank

of Scotland International Limited. Under the terms of the facility, the Company has the option to increase the level of the commitment from £15 million to £20 million at any time, subject to the bank's credit approval, thus avoiding the expense of undrawn commitment fees on this additional £5 million. As at 30 September 2023, £4 million had been drawn down from this facility at a rate of 1.2% plus SONIA.

Independent Auditors

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

Going Concern

The Board considered the appropriateness of continuing to prepare the financial statements on a going concern basis. Notwithstanding the material uncertainty in relation to going concern surrounding the implementation of the proposed scheme of reconstruction (the 'Scheme'), the Board concluded that it remained appropriate to continue to prepare the financial statements on a going concern basis. In reaching this conclusion the Board came to the view that, as the Scheme is contingent on Shareholder approval and the Company is considered solvent in all other regards, there is no irrevocable path to liquidation and thus going concern remained the most appropriate basis for preparation. In concluding that the adoption of the going concern basis of accounting is appropriate, the Directors, and specifically the Audit Committee members, have given due consideration to the risks associated with the implementation of the Scheme. The Directors monitor developments closely and are confident that the going concern basis remains appropriate.

Viability Statement

As Shareholders will be aware, the Board recently concluded a review of possible options for a combination

with another investment trust, to be effected by a scheme of reconstruction. The outcome of this review was a recommendation by the Board that the Company's assets be combined with those of STS Global Income & Growth Trust plc ('STS') by means of a section 110 scheme of reconstruction (the 'Scheme'). Upon completion of the combination of the assets and the allotment of STS shares to Shareholders, the implementation of the Scheme will, subject to Shareholder approval at general meetings, result in the voluntary liquidation of the Company. The outcome of the general meetings to place the Company into liquidation represents a material uncertainty in the context of the preparation of these financial statements.

Notwithstanding this, the Directors have assessed the prospects of the Company for a period of three years

should the scheme not proceed. The Directors have determined that a three-year period is an appropriate

period over which to provide its viability statement. They consider that three years is a reasonable time horizon to assess the continuing viability of the Company and a suitable period over which to measure the performance of the Company. This three-year period remains consistent with the planning horizon used by the Company in managing its activities.

In making this assessment, the Directors have identified the following factors as potential contributors to ongoing viability:

· The principal risks and uncertainties detailed above and the mitigating controls in place, including the ongoing impact of the Russia/Ukraine and Israel/Hamas conflicts and the Company's operational resilience;

· The ongoing relevance of the Company's investment objective in the current environment;

· The level of current and historic ongoing charges incurred by the Company;

· The utilisation quantum of the discount control mechanism;

· The level of income generated by the Company;

· The liquidity of the Company's portfolio;

· The challenges posed by climate change, including any impact this may have on investee companies.

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% per annum of net assets. This includes both fixed and variable costs, the largest single element of which is the variable management fee which is based on the net asset value of the Company. Based on these facts the Board has concluded that even in exceptionally stressed operating conditions, the Company would easily be able to meet its ongoing operating costs as they fall due.

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 of this viability assessment.

Discount Control Mechanism

The Company's discount control mechanism 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 Juniper Partners. The fee is charged to the share premium account on shares issued and against special/capital reserves on shares repurchased.

Subsequent to the year end, on 2 November 2023, the Company suspended the operation of the discount control mechanism and any fees in relation to this to Juniper Partners were stopped. In the event that the proposed merger does not go ahead, then appropriate steps will be taken to allow the DCM to recommence in due course.

By Order of the Board

Juniper Partners Limited
Secretary

23 January 2024

5. STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with UK-adopted international accounting standards.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

•    select suitable accounting policies and then apply them consistently;

•    state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•    make judgements and accounting estimates that are reasonable and prudent; and

•    prepare the financial statements on the going concern basis unless it is inappropriate to presume that 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.

Directors' confirmations

Each of the Directors in office at 23 January 2024 confirm that, to the best of their knowledge:

•    the Company's financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•    the Strategic Report and the Directors' Report 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

Brigid Sutcliffe

Chair of the Audit Committee

23 January 2024

STATEMENT OF COMPREHENSIVE INCOME

			Year ended 30 September 2023			Year ended 30 September 2022
	Note		Revenue return	Capital return	Total	Revenue return	Capital return	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Capital
Gains/(losses) on investments held at fair value			-	6,708	6,708	-	(25,889)	(25,889)
Net foreign currency gains			-	17	17	-	52	52
Revenue	2
Income from listed investments			6,207	-	6,207	6,666	-	6,666
Other income			13	-	13	-	-	-
			6,220	6,725	12,945	6,666	(25,837)	(19,171)
Expenses
Investment management fees			(357)	(664)	(1,021)	(465)	(864)	(1,329)
Other administrative expenses			(687)	-	(687)	(686)	-	(686)
Finance costs of borrowing			(110)	(208)	(318)	(19)	(35)	(54)
Profit/(loss) before taxation			5,066	5,853	10,919	5,496	(26,736)	(21,240)
Taxation	3		(126)	-	(126)	(109)	-	(109)
Total comprehensive income/(expense)			4,940	5,853	10,793	5,387	(26,736)	(21,349)
Earnings per Ordinary share (pence)	5		1.89	2.24	4.13	1.77	(8.80)	(7.03)

The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with UK-adopted international accounting standards. 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.

STATEMENT OF FINANCIAL POSITION

			As at	As at
			30 September	30 September
			2023	2022
	Note		£'000	£'000
Non-current assets
Investments in ordinary shares			167,983	194,448
Investments held at fair value through profit or loss			167,983	194,448
Current assets
Accrued income and prepayments			963	890
Trade and other receivables			1,562	3,665
Cash and cash equivalents			803	4,710
Total current assets			3,328	9,265
Total assets			171,311	203,713
Current liabilities
Bank loan			(4,000)	(5,000)
Trade and other payables			(483)	(5,398)
Total current liabilities			(4,483)	(10,398)
Net assets			166,828	193,315
Issued capital and reserves attributable to equity holders
Called-up share capital			86,878	86,878
Share premium account			53,909	53,851
Special reserves			-	9,684
Capital reserve - unrealised			15,613	18,854
Capital reserve - realised			3,989	17,152
Revenue reserve			6,439	6,896
Total equity			166,828	193,315
Net asset value per Ordinary share (pence)	5		70.42	68.48

STATEMENT OF CHANGES IN EQUITY

For year ended 30 September 2023
	Called-up share	Share premium		Special		Capital reserve-		Capital reserve-		Revenue		Total
	capital	account		reserves		unrealised		realised		reserve		equity
	£'000	£'000		£'000		£'000		£'000		£'000		£'000
Balance at 1 October 2022	86,878	53,851		9,684		18,854		17,152		6,896		193,315
(Loss)/profit and total comprehensive (expense)/income for the year	-	-		-		(3,241)		9,094		4,940		10,793
Equity dividends (note 4)	-	-		-		-		-		(5,397)		(5,397)
Shares bought back into treasury	-	-		(31,817)		-		-		-		(31,817)
Discount control costs (i)	-	58		(124)		-		-		-		(66)
Transfer from capital reserves	-	-		22,257		-		(22,257)		-		-
Balance at 30 September 2023	86,878	53,909		-		15,613		3,989		6,439		166,828
Balance at 1 October 2021	86,878	53,909		38,890		54,428		8,424		6,092		248,621
(Loss)/profit and total comprehensive (expense)/income for the year	-	-		-		(35,574)		8,838		5,387		(21,349)
Equity dividends (note 4)	-	-		(1,444)		-		-		(4,583)		(6,027)
Shares bought back into treasury	-	-		(27,872)		-		-		-		(27,872)
Discount control costs	-	(58)		-		-		-		-		(58)
Transfer from capital reserves	-	-		110		-		(110)		-		-
Balance at 30 September 2022	86,878	53,851		9,684		18,854		17,152		6,896		193,315

⁽ⁱ⁾ Discount control costs are charged against the premium on shares issued and against the special reserve on shares repurchased. This includes a reclassification of £58,000 between share premium and special reserve costs relating to previous share repurchases.

The revenue reserve, special reserves and capital reserve - realised are distributable. The full amount of each of these reserves is available for distribution.

The capital reserve has been split between realised and unrealised on the Statement of Financial Position and the Statement of Changes in Equity to distinguish between the element of the reserve that is distributable (realised) and the element of the reserve that is not distributable (unrealised).

CASH FLOW STATEMENT

	Year ended		Year ended
	30 September 2023		30 September 2022
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	6,200		6,876
Other income received	12		-
Administrative expenses paid	(1,697)		(2,140)
Cash generated from operations  (note 9)		4,515		4,736
Finance costs paid		(277)		(60)
Taxation		(203)		(179)
Net cash inflows from operating activities		4,035		4,497
Cash flows from investing activities
Purchases of investments	(32,774)		(51,123)
Sales of investments	65,968		73,668
Capital distributions received from investee companies	-		113
Net cash inflows from investing activities		33,194		22,658
Net cash inflows before financing		37,229		27,155
Cash flows from financing activities
Proceeds from loan	-		5,000
Repayment of loan	(1,000)		-
Cost of share buy backs	(34,689)		(25,365)
Dividends paid	(5,397)		(6,027)
Costs incurred on buyback of shares	(67)		(56)
Net cash outflows from financing activities		(41,153)		(26,448)
Net (decrease)/increase in cash and short-term deposits		(3,924)		707
Cash and cash equivalents at the start of the year		4,710		3,951
Effect of foreign exchange rate changes		17		52
Cash and cash equivalents at the end of the year		803		4,710

Notes:

1.    Basis of accounting

The financial statements of the Company have been prepared in accordance with UK-adopted international accounting standards. 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. On 28 November 2023, the Board announced that it had agreed heads of terms with STS Global Income & Growth Trust plc ('STS') for a combination of the assets of the Company with STS by means of a scheme of reconstruction pursuant to Section 110 of the Insolvency Act 1986 (the 'Scheme'). The liquidation of the Company is not imminent as the Scheme has not been approved by the shareholders of the Company and STS. However, if the shareholders approve the Scheme the Company will be liquidated after the assets have been transferred to STS, which will be the continuing entity. This represents a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern. If the shareholders do not approve the Scheme it is expected that the Company would continue as a going concern. The Financial Statements do not include the adjustments that would result if the Company was unable to continue as a going concern. In arriving at the decision on the basis of preparation, the Board has considered the financial position of the Company, its cashflow and liquidity position as well as the uncertainty surrounding the outcome of the Scheme. The Board concluded that, as the Scheme is contingent on shareholder approval and the Company is considered solvent in all other regards, there is no irrevocable path to liquidation and thus going concern remains the most appropriate basis for preparation. If it were not appropriate to prepare the Financial Statements on a going concern basis of accounting then adjustments would be required to write down assets to their realisable values, reclassify all assets as current, and a provision for further liabilities including liquidation costs would be made. In the Directors' opinion the impact of these adjustments on the Financial Statements is not expected to be significant. 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 July 2022) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in sections 1158 and 1159 of the Corporation Tax Act 2010. The Directors confirm that none of the following new standards or amendments to existing standards, effective for accounting periods beginning on or after 1 January 2022, have materially affected the Company's financial statements:
Amendments to IAS 37 (Onerous contracts - cost of fulfilling a contract). Amendments to IFRS 3 (Reference to the conceptual framework).
The Directors do not anticipate the adoption of the following standards or amendments to existing standards, effective for accounting periods beginning on or after 1 January 2023 and thereafter, will have a material effect on the Company's financial statements:
Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of accounting policies) Amendments to IFRS 17 (Initial application of IFRS 17 and IFRS 9 - comparative information). Amendments to IAS 8 (Definition of accounting estimates). Amendments to IAS 12 (Deferred tax related to assets and liabilities arising from a single transaction). Amendments to IAS 1 (Classification of liabilities as current or non-current). Amendments to IAS 1 (Non-current liabilities with covenants).

2.    Revenue

	2023	2022
	£'000	£'000
Income from listed investments
UK dividend income	5,252	5,783
Income from overseas investments	955	883
Other income	13	-
	6,220	6,666

The Company received capital special dividends of £nil in the year ended 30 September 2023 (2022 - £113,000 from Admiral Group).

3.    Taxation

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

4.    Dividends

	2023	2022
	£'000	£'000
Paid from revenue:
Fourth interim dividend for the year ended 30 September 2021 of 0.49p	-	1,564
First and second interim dividends for the year ended 30 September 2022 totalling 0.98p	-	3,019
Fourth interim dividend for the year ended 30 September 2022 of 0.50p	1,411	-
First, second and third interim dividends for the year ended 30 September 2023 totalling 1.52p	3,986	-
Total paid from revenue	5,397	4,583
Paid from distributable capital reserves:
Third interim dividend for year ended 30 September 2022 of 0.49p	-	1,444
Total	5,397	6,027
The fourth interim dividend of 0.529p per share, declared on 14 September 2023 and paid on 31 October 2023, 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.
	2023	2022
	£'000	£'000
Paid and payable from revenue:
First, second and third interim dividends for the year ended 30 September 2023 totalling 1.52p	3,986	-
First and second interim dividends for the year ended 30 September 2022 totalling 0.98p	-	3,019
Fourth interim dividend payable for the year ended 30 September 2023 of 0.529p (2022 - 0.50p)	1,248	1,411
Total paid and payable from revenue	5,234	4,430
Paid from distributable capital reserves:
Third interim dividend for the year ended 30 September 2022 of 0.49p	-	1,444
Total	5,234	5,874

5.    Return and net asset value per share

	2023	2022
	£'000	£'000
The returns per share are based on the following figures:
Revenue return	4,940	5,387
Capital return	5,853	(26,736)
Total	10,793	(21,349)
Weighted average number of Ordinary shares	261,442,569	303,874,343
The net asset value per share is based on net assets attributable to Shareholders of £166,828,000 (2022 - £193,315,000) and on 236,890,487 (2022 - 282,284,487) Ordinary shares in issue at the year end.

6.    Financial instruments

The Company held the following categories of financial instruments as at 30 September 2023:

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments	167,983	-	-	167,983
Total	167,983	-	-	167,983

The Company held the following categories of financial instruments as at 30 September 2022:

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments	194,448	-	-	194,448
Total	194,448	-	-	194,448

The above table provides an analysis of financial assets and financial liabilities based on the fair value hierarchy described below. Short term balances are excluded from the table as their carrying value at the reporting date approximates to their fair value.

Fair Value Hierarchy

In accordance with International Financial Reporting Standards, investments are classified using the fair value hierarchy:

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.

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 2023 (2022 - none).

7.    Ordinary share capital

	Ordinary shares of 25p each
Called-up share capital	Number	£'000
Allotted, called up and fully paid
At 30 September 2023	236,890,487	59,223
Held in treasury	110,621,500	27,655
	347,511,987	86,878
Allotted, called up and fully paid
At 30 September 2022	282,284,487	70,571
Held in treasury	65,227,500	16,307
	347,511,987	86,878
During the years to 30 September 2023 and 30 September 2022, no new Ordinary shares of 25p each were issued, nor were any shares re-issued from treasury. During the year to 30 September 2023 there were 45,394,000 Ordinary shares of 25p each repurchased by the Company (being 16.1% of the Company's issued share capital at the start of the year), at a total cost of £31,817,000 and placed in treasury. During the year to 30 September 2022 there were 37,604,500 Ordinary shares of 25p each repurchased by the Company (being 11.8% of the Company's issued share capital at the start of the year), at a total cost of £27,872,000 and placed in treasury. No shares were purchased for cancellation during the year (2022 - nil) and at the year-end 110,621,500 shares were held in treasury (2022 - 65,227,500). The costs of the operation of the discount control mechanism of £66,000 (2022 - £58,000) have been charged against the premium on shares issued and against special reserves on shares repurchased. The £58,000 charged in the prior year has been credited against the share premium and reallocated against the special reserve in the current year as this related wholly to the repurchase of shares.

8.    Transaction costs

The total transaction costs on purchases was £134,000 (2022 - £243,000) and on sales £23,000 (2022 - £29,000).

9.    Reconciliation of operating profit/(loss) to operating cash flows

	2023 £'000	2022 £'000
Profit/(loss) before taxation	10,919	(21,240)
Add interest payable	318	54
Adjustments for:
(Gains)/losses on investments	(6,708)	25,889
Currency gains	(17)	(52)
(Increase)/decrease in accrued income & prepayments	(15)	200
Increase/(decrease) in trade and other payables	18	(115)
	4,515	4,736

10.  The Company has a £15 million (2022: £15 million) revolving loan facility in place with The Royal Bank of Scotland International Limited which expires in June 2025. At 30 September 2023 £4 million had been drawn down at a rate of 1.2% plus SONIA until 18 January 2024 (2022: £5 million drawn down at 1.2% plus SONIA). The terms of the revolving loan, including interest rate, are agreed at each draw down. The facility can be cancelled at any time without cost to the Company.

11.  Subsequent events

On 2 November 2023, the Company announced it was suspending the discount control mechanism and the buyback of its shares.

On 28 November 2023, the Board announced that it had agreed heads of terms with STS Global Income & Growth Trust plc ('STS') for a combination of the assets of the Company with STS by means of a scheme of reconstruction pursuant to Section 110 of the Insolvency Act 1986. The proposals are subject to the approval of the Shareholders of the Company and STS.

12.  This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 30 September 2023. The statutory accounts for the year ended 30 September 2022 received an audit report which was unqualified.

The statutory accounts for the financial year ended 30 September 2023 were approved by the Directors on 23 January 2024.

13.  The Annual Report will be posted to Shareholders in January 2024 and will be available in due course by download from the Company's website (www.tigt.co.uk).

 

END