Annual Financial Report
Source: RNS
TROY INCOME & GROWTH TRUST PLC
LEI: 213800HLNMQ1R6VBLU75
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2020
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 2020 shows a Net Asset Value ('NAV') per share total return of -9.1%and a share price total return of -11.6%. The wider than usual gap between these returns is explained by the fact that at the start of the period the Company's share price was standing at a premium to NAV of +1.1% while a year later the share price had moved to a -0.8% discount. The FTSE All-Share Index total return of -16.6% for the period reflects the very difficult environment for UK equities, which have suffered from both protracted uncertainty surrounding the Brexit negotiations and the impact of the COVID-19 crisis since February of this year.
The Board remains predominantly interested in longer-term performance. Over the three-year period to 30 September 2020 the NAV per share total return of +4.0% compares favourably with the -9.3% total return of the FTSE All-Share Index and over five years the NAV per share total return of +26.4% has outstripped the +18.6% total return for the FTSE All-Share Index.
A fourth quarterly dividend payment of 0.695p was announced at the end of the period, as forecast in the Interim Report. The full dividend for the year totalled 2.78p and represented a 1.1% increase over the previous year.
Economic and Stock Market Background
The level of economic uncertainty engendered by the global pandemic is on a scale unmatched in peacetime. The sheer cost in human and economic terms is staggering, and governments around the world have struggled to keep pace with the impact on healthcare systems and businesses. Financial support on a vast scale has been extended in an attempt to contain the inevitable rise of unemployment and widespread business failure caused by economic lockdown. Extremely low interest rates have enabled these spiralling costs to be funded by borrowing but the longer-term impact of rising debt/GDP ratios for many countries has yet to be felt.
Inevitably some sectors, such as retail, hospitality and travel related sectors have been disproportionately hit by the crisis whereas others like healthcare, technology and consumer goods have seen less direct impact on demand for their goods and services. However, beyond these immediate effects, the crisis has also served to accelerate a number of structural changes within the global economy. There is no doubt that this will pose significant challenges to investors, as many companies will struggle to survive. The Company's Managers have taken advantage of recent outperformance and market dislocation to adjust the portfolio in response to this period of accelerated creative destruction. They have sought to exit a number of holdings trading on high yields but where dividend growth has stagnated and reinvest where better growth prospects can underpin the prospect of progressive dividends and a more balanced split between income and capital return. Further explanation of these portfolio changes is laid out in the Managers' Review.
Discount Control Mechanism, Costs and Corporate Development
The Discount Control Mechanism ('DCM'), which has been in place since January 2010, continues to operate successfully by ensuring that investors can continue to purchase and sell the Company's shares at a time of their choosing and at a price very close to net asset value. During the year, the Company issued 53.6m shares and bought-in 0.9m shares, for a net total issuance of 52.7m shares, representing a growth in the number of shares in issue of 17.9%. Approximately 26% of the net shares issued arose from the merger of Cameron Investors in November 2019. The DCM continues to enhance NAV per share by consistently issuing shares at a small premium and buying-in shares at a small discount. This is a key differentiating feature of the Company and the Board continues to believe that it enables the Company to grow by issuing new shares and protects investors from the negative effects of excessive discount volatility.
During the year, the net assets of the Company increased by 2.5%, from £245.5m to £251.7m. The Ongoing Charges Figure ('OCF') of 0.89% has come down from 0.91% over the past year and continues a long downward trend in the Company's OCF.
The Board hopes that the performance track record of the Company and minimal discount volatility provided by the DCM will continue to interest other investment trust boards looking to merge or offer rollover options for whatever reason.
Gearing
The Company has a £20m revolving credit facility with ING. The Managers continue to see the opportunity to gear on a tactical basis as an important tool to be deployed should compelling equity valuations become available.
Dividends
The fourth interim dividend of 0.695p was the same as the equivalent dividend paid last year. As announced in the Interim Report, the Board decided to utilise distributable reserves in order to maintain the dividends in the financial year to September 2020 and the third interim dividend was paid from the Company's distributable capital reserve. This has enabled the Company to bridge the revenue deficit caused by the cancellation or deferral of dividends by many UK companies due to the impact of the COVID-19 crisis. The full year dividend totalled 2.78p and represented a 1.1% increase over the previous year.
As previously flagged, the Board intends to set a new and reduced dividend rate for the year to September 2021. In the absence of unforeseen circumstances, a quarterly rate of 0.49p is planned, which implies 1.96p for the year to 30 September 2021. This reduction when compared to the year to September 2020 recognises both the structural impact of the pandemic on the UK equity dividend landscape and the portfolio changes made by the Managers - changes aimed at ensuring the continued balance of income and capital return from the underlying portfolio. The Board believes that in order to maximise the total returns to the Company's investors the income component of that return needs be both sustainable and able to grow, albeit from a lower level. The Board's overall attitude to dividend cover will remain as it has in the past, that being to seek to ensure that the Company's earnings exceed dividends distributed. There may be short periods when that is not the case due to peculiar circumstances such as significant share issuances or market dislocations, and the strength of the Company's distributable reserves will remain available to cover such circumstances.
The Management Team
Shortly after the period end, the Board was delighted to be able to announce that Blake Hutchins has formally joined Hugo Ure and Francis Brooke as a third co-manager of the Company. Blake is a Senior Fund Manager within Troy's UK Equity Income Team and has been co-manager of the Trojan Income Fund with Francis and Hugo since October 2019.
Annual General Meeting ('AGM')
As at previous AGMs, the Board will again ask Shareholders to approve resolutions it believes are vital to the effective management of the DCM. Specifically, the Board is seeking permission to allow the Company to issue shares on a non pre-emptive basis equivalent to 20% of its equity and to buy-in up to 14.99%. There are two separate resolutions concerning the issue of shares. The first resolution seeks permission to issue 10%, and the second (extra) resolution seeks permission to issue up to a further 10% solely in connection with the DCM; for an aggregate of 20%.
At the Company's AGM in January 2020 a significant number of votes were cast against the second resolution for the further 10% authority, though the resolution was still carried. The Board has sought the views of the Shareholders who voted against and understands that this was due to the aggregate authority sought being higher than that recommended by corporate governance guidelines. While the Board appreciates some Shareholders' reticence about non pre-emption authorities, it strongly believes that in the circumstances of the NAV enhancing impact of the DCM's operations, the overall 20% authority sought is in the best interests of Shareholders, and so is continuing to seek such authority at the upcoming AGM.
Outlook
Rarely has there been so much macroeconomic uncertainty as there is today. The enormous cost of supporting the economy through the pandemic will be felt for generations with the UK national debt now over £2trn and representing over 100% of GDP for the first time in sixty years. Funding debt on this scale is clearly only possible at the current ultra-low level of interest rates and makes the UK and many other countries vulnerable to a turn in the interest rate cycle. Although unlikely in the immediate future, there is an increasing probability of inflationary consequences further down the line. This would mark a significant change in the investment environment.
Against this backdrop, the Managers continue to ensure that the portfolio is geographically diversified by virtue of the underlying investments' countries of operation and can withstand macroeconomic turbulence. The portfolio's defensive positioning has benefited Shareholders thus far. At the same time, the Managers' medium-term objective is to hold individual companies whose business models are robust enough to generate long-term cash flow growth that will drive total returns from both capital appreciation and income growth. The Board believes that despite the current headwinds for UK equities, the investment process and strategy being pursued by the Managers should deliver consistent and competitive returns in the future.
David Warnock
Chairman
23 November 2020
2. MANAGERS' REVIEW
COVID-19
The emergence of the COVID-19 virus in January and the ensuing global pandemic have undoubtedly affected lives and livelihoods in ways not seen for a generation. The almost total lockdown of the global economy has simultaneously created the largest dislocation in financial markets since the global financial crisis and elicited extraordinary levels of fiscal and monetary stimulus. Paradoxically, it has both unified people behind a single sense of purpose and at the same time physically distancing individuals from each other. This has been reflected in how Troy has responded to the virus. Whilst being confined to our homes for much of the latter part of the reporting period, the team has come together almost seamlessly to ensure that the business has continued to deliver on behalf of its investors. Adjustments to our IT systems, dealing processes and internal communications were all made quickly and effectively. We also remain acutely aware of the increased importance of ongoing communication with our investors through this challenging period. While we ran our Investment Trust seminar remotely and have continued to make every effort to convey our thinking to investors, we are also aware that there is a great deal to communicate. We hope this slightly extended Managers' Review achieves that aim.
Investment Background
Looking at the impact of COVID-19 through the lens of financial markets, it is clear that many of the most significant effects of the pandemic have been the result of a rapid acceleration of pre-established trends. At a macroeconomic level, renewed monetary stimulus in the form of lower bank rates ensured that government bond yields continued their decades long progression to new lows. The UK 10-year gilt yield fell to within a whisker of becoming negative, while in many other geographies negative yields only became more entrenched. Tentative pre-pandemic calls for governments to embrace greater fiscal stimulus rapidly became reality as governments attempted to stave off the economic damage associated with lockdown responses. At the time of writing, the US House of Representatives is debating the relative merits of a $1.8trn presidential bailout proposal and the $2.2trn democrat support package. Both would have been unimaginable even a year ago.
The disproportionate effects of monetary stimulus on asset prices has become increasingly well understood over the last decade. It is striking that, despite rising unemployment and the worst shock to global GDP since WWII, US equity indices were posting new highs in the weeks leading up to the Company's September year-end. However, below the index-level performance numbers, individual equities have varied greatly in their performances this year, with the pandemic catalysing pre-existing market dynamics and consumer behaviours. Companies aligned with the accelerating digitisation of the global economy, including remote working, e-commerce, digital payments and the monetisation of big data, have thrived. Conversely, those companies that have struggled to adapt their business models to this new economy have faltered. This is perhaps most apparent amongst 'bricks and mortar' focused retailers where corporate failures continue apace. This polarisation is not new but has become increasingly stark during 2020. For many companies in this latter group, the additional pressure created by the pandemic forced a dramatic reappraisal of dividend policies, as exemplified by the dividend cuts from the oil majors.
Although the integrated oil and gas companies represent a very significant portion of UK market income, dividend omissions and cuts were much more widespread. As lockdowns were implemented and revenues plummeted across the economy, just under half of all FTSE 100 companies either chose, or were mandated, to retain cash within the business rather than distribute it as dividends. Sectors such as consumer services, banks and insurers saw almost universal dividend cuts.
Whilst the pandemic was undoubtedly the most significant driver of change during the period, uncertainty around the UK future relationship with Europe, the US presidential election and trade tensions with China continued to contribute to uncertainty.
Performance and Investment Strategy
Against this backdrop, the Company delivered a Net Asset Value (NAV) total return of -9.1% and a share price total return of -11.6% over the year. This compares with the FTSE All-Share return of -16.6%. The difference between the share price and NAV performances generated by the Company represents a move from a +1.1% premium to a -0.8% discount. This performance places the Company 5th out of its 20-strong AIC UK equity income peer group when ranked by NAV performance and 7th by share price.
Performance in the first half of the year was dominated by the sharp equity market decline of February and March that followed the global spread of COVID-19 and the ensuing lockdown. During this period, the more defensive characteristics of the portfolio and the absence of gearing meant it fell less than the broad market. Investments in sectors such as utilities, infrastructure and the portfolio's primary healthcare REITs held up well, as did companies that offered products or services that experienced elevated demand during the period. Included in this latter category were Reckitt Benckiser, the manufacturer of Dettol brand, IG Group, whose online spread betting platform saw customer numbers rise, AstraZeneca, which is developing one of the most promising looking COVID-19 vaccines and Domino's, who were able to respond quickly to changing dining habits.
This latter group of stocks saw strong performance persist into the second half of the reporting period. As the markets rebounded from the late March lows, companies that were able to prove themselves more resilient than anticipated by the market saw their shares rise sharply. Some of the biggest contributions to returns came from stocks such as Experian, Next, Paychex and LondonMetric.
Conversely, the biggest detractors to the portfolio's performance experienced persistent weakness both during the market fall and the subsequent recovery. Stocks whose business models were fundamentally challenged by the pandemic and its secondary impacts fell hard during the market weakness and then struggled to recover as uncertainty spilled into the second half of the reporting period. The portfolio's holdings in oil majors and banks were amongst those hardest hit, as were consumer service stocks such as Compass Group and WH Smith. In addition, both Hiscox, the non-life insurer, and Equiniti, the share registration business, suffered material stock-specific weakness related to the virus.
Portfolio Changes
The strong performance of the Company and the volatility seen during the reporting period combined to provide a once-in-a-decade opportunity to position the portfolio for the coming years. In trying to fulfil this aim, we have sought to exit stocks where growth has stagnated and therefore dividends have become unsustainable. We have reinvested that capital where we believe free cash flow growth can underpin long-term income and capital returns to investors. Although portfolio turnover has been higher than usual during the period (at 20%), these changes represent a sharpened focus on quality and sustainability of returns rather than a change in strategy. The portfolio's transactions can broadly be grouped into a few different categories.
Focussing on capital-light financials
The first group highlights a desire to move towards more capital-light financials that are less subject to government and regulatory intervention. Wells Fargo and Lloyds Bank were sold from the portfolio in April as it became increasingly apparent that ultra-low interest rates and state intervention were likely to prevent either bank from generating returns commensurate with the risk investors face. Similarly, the capital intensity of Land Securities and the illiquidity of its underlying portfolio became increasingly unattractive as the trends towards home working and e-commerce put downwards pressure on returns. The capital was redeployed in investment platform businesses, including new holdings in Hargreaves Lansdown and IntegraFin, and additions to the existing holding in AJ Bell. Each of these companies has their own unique characteristics, but are all united in their asset-light business models, exposure to structural growth in savings and digitisation, and strong market positions.
From oil majors to high-quality industrial/chemical stocks
Although in recent years the integrated oil companies have demonstrated some success in driving increased cash flow, the combination of weaker oil demand and mounting pressure to decarbonise saw both BP and Royal Dutch Shell's share prices decline sharply in March and continue to sell off over the summer. Holdings in the oil majors were reduced from January onwards, with the positions completely exited by the Company's year-end. Simultaneously, shares in several high-quality industrial/chemical stocks were added to the portfolio. In March, we initiated a new holding in Intertek as part of this transition. The company holds a strong market position as one of three diversified, global, publically listed testing, inspection, and certification companies that dominate this otherwise fragmented industry. Intertek boasts attractive economics underpinned by well-established trends in outsourcing, regulation, globalisation and more latterly social and environmental assurance. It has a long history of value creation in the form of growing free cash flow, and we believe its role in the global economy has only been enhanced by events this year. In April, we also purchased Croda International, a speciality chemicals business producing ingredients derived from natural oils. Their formulations are used in everything from sunscreen and deodorant through to vaccines and natural crop protections, with their role often being critical to the product's function. Croda's emphasis on vital products and proprietary know-how lead to a financial profile that is far superior to commodity chemicals businesses. This has enabled the company to have long paid a sensible, growing dividend, while still leaving ample cash to reinvest in the business for future growth.
Enhancing the quality and growth profile of overseas equity exposure
During the year we also sought to enhance the return profile from the portfolio's exposure to overseas equites (of which the Company can have a maximum of 20%). A number of new international holdings were initiated in the period, the first being Paychex, a US company specialising in software and services in the areas of payroll, HR and employee benefits. Paychex continues to ride the structural wave towards outsourcing in the US, and provides the portfolio with exposure to a capital-light, high return, technology business. Whilst the holding was initiated in February, the position was added to at various points over the period at what were deemed attractive prices. The second new overseas holding was Medtronic. The medical device/technology sector is an attractive one that benefits from growing end markets and strong barriers to entry in the form of high switching costs, stringent regulation, patents and R&D expertise. Medtronic are a dominant player in the sector and boast a progressive dividend record that stands at 49 years and counting. Finally, in August a holding in Visa was initiated. Visa offers the portfolio exposure to the attractive, fast-growing global payments industry and earns a fee on every transaction anywhere in the world that bears their logo. The ongoing structural shift from cash to card, from physical to online and from 'chip and pin' to contactless are all serving to expand Visa's addressable market. The current COVID-19 disruption is having the short-term effect of hurting Visa's cross-border volumes, but, more significantly, it is accelerating the displacement of cash. We expect Visa to be one of the faster growing companies within the portfolio over the medium term. This purchase was funded by the sale of Coca-Cola. Although this global carbonated soft drinks business has been a long-standing and successful holding in the portfolio, growth is waning and we have concerns about the sustainability of the dividend, which is currently barely covered by free cash flow.
In addition to the three broad themes outlined above, a handful of further transactions were made with the broad aim of replacing stocks facing fading growth prospects with more attractive opportunities that can underpin the growth of both capital and income over the coming years. Vodafone, Rathbones and Sage were sold whilst Diageo and Fever-Tree were purchased. After huge success selling premium tonic water in the UK and other select geographies, Fever-Tree is expanding into new territories, such as the important US market, and into new mixer categories. We believe the company is far from a single product company, and has a uniquely advantaged position to continue benefitting from the rise of 'premiumisation' in the world of spirits, something Diageo has likewise found highly advantageous. We were happy to start a holding in Fever-Tree following share price volatility this year, leading to a valuation that we deemed attractive given the double-digit per annum free cash flow growth we think is possible from here. Finally, holdings in InterContinental Hotels and Halma were also transferred into the portfolio following the merger with Cameron Investors in November. Both are currently modest in size but are likely to become more substantial.
Income
The impact of the pandemic and the associated changes to the portfolio have meant the revenue return for the year was down 22%, to 2.11p per share. Pressure on the portfolio's income in 2020 has come from two areas. Firstly, from those companies that have had to take action on their dividend in order to preserve cash in the exceptionally difficult trading environment that resulted from lockdown. Forty-seven companies out of the FTSE 100 have felt it necessary to cut or suspend their dividend since the start of the pandemic and total dividend income from the FTSE All-Share was down 37% compared the proceeding 12 month period. Much of this impact was concentrated on the second half of the year, which saw dividend income down 53%. Although the portfolio suffered fewer cuts than the wider market, it was not immune and slightly less than a third of the current portfolio holdings, including stocks such as Compass Group, Hiscox and Next, experienced some level of dividend reduction. We have continued to hold companies where we think these cuts will ultimately prove temporary but have exited stocks where we believe the ability to generate income has been more permanently impaired.
Pressure on the income account has also arisen as a consequence of trading activity. We have sold out of a half a dozen higher yielding companies that in our view have a limited ability to grow and are at risk of becoming less valuable longer term. We have instead been taking advantage of shorter-term volatility to allocate capital to companies with superior quality and growth characteristics that trade on tighter yields.
It is increasingly clear that the COVID-19 pandemic has had a permanent impact on the UK equity market's aggregate dividend. Although many stocks will see their dividends rebound over the coming months, a significant portion of high yield stocks will not. As Managers of this Company, we have taken the opportunity provided by the market dislocation and the portfolio's relative outperformance to shift proactively the balance between income and capital return to reflect this change in investment opportunity. It is this desire to generate a growing and sustainable stream of equity income from the portfolio that underpins the rationale behind the re-assessment of the Company's own dividend.
Discount Control Mechanism
The Discount Control Mechanism continues to ensure the Company's shares trade at only a small premium or discount relative to Net Asset Value. The overall enhancement to the Company's NAV by repurchasing shares at a discount and issuing at a premium equates to over 2.5% of the NAV at the time Troy became Manager of the Company in 2009. In the final quarter of the reporting year, the Company's shares moved to a modest discount and a modest number of share buy-ins meant that at the year-end 859,000 shares were held in treasury. However, over the full year the number of shares in issue has seen a net increase of 17.9%, this represents a 185% increase since the Discount Control Mechanism was implemented in January 2010. The issuance of new shares and the associated increase in the size of the Company has not only boosted liquidity beyond that experienced by many trusts of a similar size but has reduced ongoing charges from over 1.5% of NAV in 2009 to 0.89% at the end of September.
Investment Outlook
Short-term challenges undoubtedly remain. However, we think it is reasonable to assume that the companies held in the portfolio are now incrementally better prepared to navigate through further disruption, whether that be from Brexit, COVID-19 or uneven economic growth. Longer term, issues such as technological disruption, changing consumer habits and climate change are important fundamental trends that companies need to confront. This year to date has served to emphasise the necessity for businesses to invest in order to tackle such shifts. Ensuring that the portfolio is aligned with companies that can survive and grow through these changes, and beyond, will be important in delivering total return.
Importantly, the final quarter of the reporting period saw a select few UK companies resume dividend payments, reflecting the marginally more stable trading backdrop for many businesses. Although we are encouraged by this development, there remains significant uncertainty as to the length of disruption from COVID-19 and the lasting impact of the crisis. Understandably, most companies are maintaining a cautious approach to dividend setting. Despite this, we continue to believe that the overall level of market dividends will be structurally lower going forward. However, we believe that a better balance between paying out dividends and retaining cash for reinvestment or de-gearing will be in the longer-term interests of UK shareholders.
Comfort should also be taken from the fact that the portfolio continues to recover from Q1 lows. As the Company's Managers, we continue to plan for a gradual recovery with inevitable bouts of market volatility. Meanwhile, we remain committed to investing in businesses that can grow equity value in a predictable way, by compounding resilient, growing free cash flow over time. It is this compounding cash flow that will fuel dividend growth and long-term total return for investors.
Troy Asset Management Limited
23 November 2020
3. RESULTS & DIVIDENDS
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Financial Highlights |
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|
|
2020 |
|
Net asset value total return |
|
-9.1% |
|
Share price total return |
|
-11.6% |
|
FTSE All-Share Index total return |
|
-16.6% |
|
Increase in dividends per share |
|
+1.1% |
|
Dividend yield* |
|
3.9% |
|
Dividends per share+ |
|
2.78p |
|
Ongoing Charges |
|
0.89% |
|
* Dividends per share as a percentage of share price at 30 September 2020 +Dividends per share reflect the years in which they were earned
|
||
|
Performance - total return (for the periods to 30 September 2020) |
||||
|
|
One Year |
Three Years |
Five Years |
Ten Years |
|
Share price |
-11.6% |
+3.3% |
+23.2% |
+114.0% |
|
Net asset value per share |
-9.1% |
+4.0% |
+26.4% |
+117.1% |
|
FTSE All-Share Index |
-16.6% |
-9.3% |
+18.6% |
+63.9% |
|
Distribution of Assets and Liabilities |
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|
|||||||
|
|
Valuation at |
|
|
|
Valuation at |
||
|
|
30 September |
|
|
Appreciation/ |
30 September |
||
|
|
2019 |
Purchases |
Sales |
(depreciation) |
2020 |
||
|
|
£'000 |
% |
£'000 |
£'000 |
£'000 |
£'000 |
% |
|
Listed investments |
|
|
|
|
|
|
|
|
Ordinary shares |
241,001 |
98.2 |
87,855 |
(54,330) |
(32,210) |
242,316 |
96.3 |
|
|
______ |
_____ |
________ |
_______ |
________ |
______ |
_____ |
|
Current assets |
4,994 |
2.0 |
|
|
|
9,891 |
3.9 |
|
Current liabilities |
(534) |
(0.2) |
|
|
|
(521) |
(0.2) |
|
|
______ |
_____ |
|
|
|
______ |
_____ |
|
Net assets |
245,461 |
100.0 |
|
|
|
251,686 |
100.0 |
|
|
______ |
_____ |
|
|
|
______ |
_____ |
|
Net asset value per share |
83.50p |
|
|
|
|
72.60p |
|
|
|
______ |
|
|
|
|
______ |
|
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 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 2020.
• Pandemic risk - The COVID-19 pandemic has brought unprecedented challenges to the world and its rapid development has delivered an abrupt shock to the global economy. Since the start of 2020, the pandemic has moved quickly from being an emerging risk of the Company to the principal risk. The Company is exposed to volatile and falling markets brought about by the pandemic, as well as the risks surrounding the companies in the portfolio, such as reduced demand, reduced turnover and supply chain breakdown. Troy continues to carefully review the composition of the Company's portfolio and to discuss this with the Board on a regular basis. Operationally, COVID-19 is also affecting the suppliers of services to the Company, including Troy and other key third parties. This represents a risk to the Company and the Board is reviewing regularly the mitigation measures which have been put in place to maintain operational resilience. Working from home arrangements have been implemented where appropriate and government guidance is being followed. To date services have continued to be supplied as normal and the Board continues to monitor arrangements.
In additional to the pandemic risk referred to above, the principal risks faced by the Company, which have not changed during the course of the year, are as follows:
• 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. The underlying risks and potential increased volatility associated with Brexit and other global political situations are considered within market risk.
• Resource and operational risk - Like most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties and their control systems. These service providers include, in particular, the Alternative Investment Fund Manager ("AIFM") and the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement and an investment management delegation agreement respectively (the "Agreements") (further details of which are set out in Management Arrangements below). The terms of these Agreements cover the necessary duties and conditions expected of the AIFM and Manager. The Board reviews the performance of the AIFM and Manager on a regular basis and their compliance with the Agreements on an annual basis.
Other risks faced by the Company include the following:
• Breach of regulatory rules which could lead to the suspension of the Company's London Stock Exchange listing, financial penalties or a qualified audit report.
• Breach of Section 1159 of the Corporation Tax Act 2010 which could lead to the Company being subject to tax on capital gains.
The Board have considered the Company's solvency and liquidity risk and full disclosure of this is made in note 15 and the viability statement below.
Results and Dividends
The financial statements for the year ended 30 September 2020 appear below. Dividends in respect of the year amounted to 2.78p per share (2019 - 2.75p). The fourth interim dividend of 0.695p per share announced on 30 September 2020 (2019 - fourth interim 0.695p) will be accounted for in the financial year ending on 30 September 2021.
The Company issued a prospectus on 22 October 2019, partly in respect of a merger with Cameron Investors Trust plc ('CIT'). The merger was effected on 18 November 2019 by way of a scheme of reconstruction of CIT under section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of CIT and CIT shareholders rolling over their interest in CIT into the Company (the 'Scheme'). At 30 September 2019, the Company had an investment in CIT of £2,652,000.
The Scheme was effected on a NAV for NAV basis and so did not result in any NAV dilution for existing Shareholders of the Company. On 18 November 2019, the Company issued 13,647,942 new Ordinary shares in relation to the Scheme and received assets of £13,956,000. Following the cancellation of the Company's own investment in CIT of £2,652,000, the resulting increase in the Company's net assets was £11,304,000.
Share Capital
The issued share capital at 30 September 2020 consisted of 346,652,987 Ordinary shares of 25p each and there were 859,000 Ordinary shares held in treasury. As at the date of this report the issued share capital consisted of 347,252,987 Ordinary shares of 25p each and there were 259,000 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
The Company appointed PATAC Ltd ("PATAC"), as its alternative investment fund manager ("AIFM") with effect from 22 July 2014. The Company entered into an AIFMD compliant management agreement with the AIFM. With effect from 22 July 2014, the AIFM delegated the portfolio management activities relating to the Company back to Troy Asset Management Ltd ("Troy" or the "Manager") pursuant to a delegation agreement and Troy continues to provide portfolio management services to the Company. These arrangements are fully compliant with the AIFMD.
The AIFM services are provided to the Company by PATAC for a fee of 0.015% of the Company's net assets per annum, subject to a minimum fee of £60,000 per annum. Troy reduce their investment management fee by an equal amount so that there is no overall change to the basis of the management fee incurred by the Company.
The other terms of the AIFM's appointment are similar to those applying to Troy under the investment management delegation agreement detailed below.
Investment Management Delegation Agreement
With effect from 1 August 2009, investment management services have been provided to the Company by Troy. From 1 October 2012 to 31 December 2018 the fee was at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million. From 1 January 2019, the fee is at an annual rate of 0.65% of the Company's net assets.
Company Secretary
On 1 July 2010 PATAC was appointed to provide company secretarial, accounting and administration services to the Company. From 1 July 2010 to 30 September 2019, PATAC received an annual fee for these services of £95,000, adjusted annually by the higher of the increase in the Retail Price Index or the Consumer Price Index. From 1 October 2019, PATAC receives a fee for these services of £100,000 per annum plus an amount equal to 0.1%. of the Company's net assets between £50 million and £100 million, 0.03% of the Company's net assets between £100 million up to and including £250 million and 0.02% of the Company's net assets between £250 million up to and including £1,000 million. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index.
Depositary
J.P. Morgan Europe Ltd was appointed depositary for the Company with effect from 22 July 2014. The Depositary's responsibilities include cash monitoring, safe keeping of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements. The Depositary has delegated the custody function to J.P. Morgan Chase Bank N.A.
Borrowings
On 24 April 2019 the Company renewed its £20 million unsecured floating rate revolving credit facility with ING Luxembourg S.A for a further two years. The facility is for the acquisition of investments and for general corporate purposes. Further details are set out in note 5 to the financial statements.
Independent Auditors
Following a tender process in 2015, PricewaterhouseCoopers LLP were appointed the Company's Auditors in 2016.
Going Concern
The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. This review included consideration of the Company's investment objective, its principal risks, in particular those relating to COVID-19, the nature and liquidity of the portfolio, current liabilities and expenditure forecasts.
The Company's investments consist mainly of readily realisable securities which can be sold to maintain adequate cash balances to meet expected cash flows. In assessing the Company's ability to meet its liabilities as they fall due, the Directors took into account the uncertain economic outlook caused by COVID-19 and reviewed sensitivities around this. The Directors also considered ongoing investor interest in the continuation of the Company, looking specifically at feedback from meetings and conversations with Shareholders by the Company's advisers, and the operation of the DCM, which the Directors believe enhances the Company's appeal to investors.
Based on their assessment and considerations, the Directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements and the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operation for at least twelve months from the date of this report.
Viability Statement
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 and uncertainties detailed above and the mitigating controls in place, including the ongoing impact of COVID-19 and the Company's operational resilience.
· The principal risks documented in the strategic report as set out above.
· The ongoing relevance of the Company's investment objective in the current environment.
· The level of current and historic ongoing charges incurred by the Company.
· The utilisation quantum of the discount control mechanism.
· The level of income generated by the Company.
· The liquidity of the Company's portfolio.
The Company is fully invested in liquid assets, either in listed securities or cash. The nature of these mean that even in a severe market downturn the Company would be able to convert, in a relatively short period of time, the portfolio into cash sufficient to meet the Company's operating costs which run at approximately 1% 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. In addition the Company currently has no gearing. Based on these facts the Board have concluded that even in exceptionally stressed operating conditions, the Company would easily be able to meets its ongoing operating costs as they fall due.
The Directors have determined that a three year period is an appropriate period over which to provide its viability statement. They consider that three years is a reasonable time horizon to assess the continuing viability of the Company and a suitable period over which to measure the performance of the Company. This three year period remains 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 2024.
Discount Policy
The Company's discount policy is to ensure that the Ordinary shares trade at close to net asset value through a combination of share buy-backs and the issue of new Ordinary shares at a premium to net asset value where demand exceeds supply.
This discount control mechanism is operated by PATAC. Up to 30 September 2019, the fee for this service was £33,000 per annum. From 1 October 2019, the fee for this service is £30,000 per annum plus the lower of (i) a charge of £250 per transaction; and (ii) a commission of 0.1% of the aggregate proceeds of any transaction undertaken in accordance with the discount control mechanism. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index. The fee is charged to the share premium account.
The Directors will continue to seek the renewal of the Company's authority to buy-back Ordinary shares annually and at other times should this prove necessary. From the authority granted at the January 2020 AGM, the Company, at 30 September 2020, had the remaining authority to buy-back 47,863,294 Ordinary shares. Any buy-back of Ordinary shares will be made subject to the Companies Act 2006 and within guidelines established from time to time by the Board and the making and timing of any buy-backs will be at the absolute discretion of the Board. The Directors will be authorised to cancel any Ordinary shares purchased under such authority or to hold them in treasury. Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing net asset value of the Ordinary shares. Such purchases will also be made only in accordance with the rules of the Financial Conduct Authority which provide that the price to be paid must not be less than the nominal value of an Ordinary share nor more than the higher of (a) 5% above the average of the middle market quotations for the Ordinary shares for the five business days before the purchase is made and (b) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out.
It is the intention of the Directors that the share buy-back authority is used to purchase Ordinary shares if the middle market price for an Ordinary share is below the net asset value per Ordinary share of the Company (taking into account any rights to which the Ordinary shares are trading ''ex''). However, nothing in this discount policy will require the Directors to take any steps that would require the Company to make a tender offer for its shares or to publish a prospectus. Notwithstanding this discount policy, there is no guarantee that the Ordinary shares will trade at close to the net asset value per Ordinary share. Shareholders should note that this discount policy could lead to a reduction in the size of the Company over time.
By Order of the Board
PATAC Limited
Secretary
23 November 2020
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 2020
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 30 September 2020 |
Year ended 30 September 2019 |
||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
|
|
Note |
return |
return |
Total |
return |
return |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
(Losses)/profits on investments held at fair value |
9 |
- |
(32,210) |
(32,210) |
- |
14,100 |
14,100 |
|
Currency gains/(losses) |
|
- |
10 |
10 |
- |
(2) |
(2) |
|
Revenue |
2 |
|
|
|
|
|
|
|
Income from listed investments |
|
8,212 |
- |
8,212 |
8,944 |
- |
8,944 |
|
Other income |
|
2 |
- |
2 |
4 |
- |
4 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
|
|
8,214 |
(32,200) |
(23,986) |
8,948 |
14,098 |
23,046 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fees |
3 |
(574) |
(1,066) |
(1,640) |
(526) |
(977) |
(1,503) |
|
Other administrative expenses |
4 |
(554) |
- |
(554) |
(500) |
- |
(500) |
|
Finance costs of borrowing |
5 |
(18) |
(32) |
(50) |
(26) |
(47) |
(73) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
(Loss)/profit before taxation |
|
7,068 |
(33,298) |
(26,230) |
7,896 |
13,074 |
20,970 |
|
Taxation |
6 |
(53) |
- |
(53) |
(149) |
- |
(149) |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Total comprehensive income |
|
7,015 |
(33,298) |
(26,283) |
7,747 |
13,074 |
20,821 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
|
Earnings per Ordinary share (pence) |
8 |
2.11 |
(10.04) |
(7.93) |
2.70 |
4.56 |
7.26 |
|
|
|
______ |
_______ |
______ |
______ |
_______ |
______ |
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 |
|
|
|
|
|
|
2020 |
2019 |
|
|
|
Note |
|
|
£'000 |
£'000 |
|
|
Non-current assets |
|
|
|
|
|
|
|
Investments in ordinary shares |
|
|
|
242,316 |
241,001 |
|
|
|
|
|
|
______ |
______ |
|
|
Investments held at fair value through profit or loss |
9 |
|
|
242,316 |
241,001 |
|
|
|
|
|
|
______ |
______ |
|
|
Current assets |
|
|
|
|
|
|
|
Accrued income and prepayments |
|
|
|
861 |
810 |
|
|
Trade and other receivables |
|
|
|
474 |
- |
|
|
Cash and cash equivalents |
|
|
|
8,556 |
4,184 |
|
|
|
|
|
|
______ |
______ |
|
|
Total current assets |
|
|
|
9,891 |
4,994 |
|
|
|
|
|
|
______ |
______ |
|
|
Total assets |
|
|
|
252,207 |
245,995 |
|
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
(521) |
(534) |
|
|
|
|
|
|
______ |
______ |
|
|
Total current liabilities |
|
|
|
(521) |
(534) |
|
|
|
|
|
|
______ |
______ |
|
|
Net assets |
|
|
|
251,686 |
245,461 |
|
|
|
|
|
|
______ |
______ |
|
|
Issued capital and reserves attributable to equity holders |
||||||
|
Called-up share capital |
10 |
|
|
86,878 |
73,495 |
|
|
Share premium account |
11 |
|
|
53,960 |
25,166 |
|
|
Special reserves |
12 |
|
|
60,366 |
63,397 |
|
|
Capital reserve - unrealised |
13 |
|
|
41,678 |
60,217 |
|
|
Capital reserve - realised |
13 |
|
|
2,599 |
17,358 |
|
|
Revenue reserve |
14 |
|
|
6,205 |
5,828 |
|
|
|
|
|
|
______ |
______ |
|
|
Total equity |
|
|
|
251,686 |
245,461 |
|
|
|
|
|
|
______ |
______ |
|
|
Net asset value per Ordinary share (pence) |
8 |
|
|
72.60 |
83.50 |
|
|
|
|
|
|
______ |
______ |
|
TROY INCOME & GROWTH TRUST PLC
STATEMENT OF CHANGES IN EQUITY
|
|
|
||||||||||||||
|
For year ended 30 September 2020 |
|
|
|
|
|
|
|||||||||
|
|
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 2019 |
73,495 |
25,166 |
63,397 |
60,217 |
17,358 |
5,828 |
245,461 |
|
|||||||
|
(Loss)/profit and total comprehensive income for the year |
- |
- |
- |
(18,539) |
(14,759) |
7,015 |
(26,283) |
|
|||||||
|
Equity dividends (note 7) |
- |
- |
(2,411) |
- |
- |
(6,638) |
(9,049) |
|
|||||||
|
Shares bought back into treasury |
- |
- |
(620) |
- |
- |
- |
(620) |
|
|||||||
|
Shares issued from treasury |
- |
- |
- |
- |
- |
- |
- |
|
|||||||
|
New shares issued |
13,383 |
28,854 |
- |
- |
- |
- |
42,237 |
|
|||||||
|
Discount control costs |
- |
(60) |
- |
- |
- |
- |
(60) |
|
|||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|||||||
|
Balance at 30 September 2020 |
86,878 |
53,960 |
60,366 |
41,678 |
2,599 |
6,205 |
251,686 |
|
|||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance at 1 October 2018 |
72,699 |
23,124 |
57,831 |
49,494 |
15,007 |
5,903 |
224,058 |
|
|||||||
|
Profit and total comprehensive income for the year |
- |
- |
- |
10,723 |
2,351 |
7,747 |
20,821 |
|
|||||||
|
Equity dividends (note 7) |
- |
- |
- |
- |
- |
(7,822) |
(7,822) |
|
|||||||
|
Shares bought back into treasury |
- |
- |
(893) |
- |
- |
- |
(893) |
|
|||||||
|
Shares issued from treasury |
- |
240 |
6,459 |
- |
- |
- |
6,699 |
|
|||||||
|
New shares issued |
796 |
1,835 |
- |
- |
- |
- |
2,631 |
|
|||||||
|
Discount control costs |
- |
(33) |
- |
- |
- |
- |
(33) |
|
|||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|||||||
|
Balance at 30 September 2019 |
73,495 |
25,166 |
63,397 |
60,217 |
17,358 |
5,828 |
245,461 |
|
|||||||
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|||||||
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).
TROY INCOME & GROWTH TRUST PLC
CASH FLOW STATEMENT
|
|
Year ended |
Year ended |
||
|
|
30 September 2020 |
30 September 2019 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Investment income received |
8,157 |
|
8,764 |
|
|
Administrative expenses paid |
(2,226) |
|
(1,989) |
|
|
|
________ |
|
________ |
|
|
Cash generated from operations (note 19 (a)) |
|
5,931 |
|
6,775 |
|
Finance costs paid |
|
(50) |
|
(73) |
|
Taxation |
|
(33) |
|
(149) |
|
|
|
________ |
|
________ |
|
Net cash inflows from operating activities |
|
5,848 |
|
6,553 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of investments |
(87,855) |
|
(37,439) |
|
|
Sales of investments |
53,856 |
|
24,281 |
|
|
|
________ |
|
________ |
|
|
Net cash outflow from investing activities |
|
(33,999) |
|
(13,158) |
|
|
|
________ |
|
________ |
|
Net cash outflow before financing |
|
(28,151) |
|
(6,605) |
|
Financing activities |
|
|
|
|
|
Proceeds of issue of shares |
42,339 |
|
9,331 |
|
|
Cost of share buy backs |
(617) |
|
(1,028) |
|
|
Dividends paid |
(9,049) |
|
(7,822) |
|
|
Costs incurred on issue of shares |
(160) |
|
(33) |
|
|
|
________ |
|
________ |
|
|
Net cash inflow from financing activities |
|
32,513 |
|
448 |
|
|
|
________ |
|
________ |
|
Net increase/(decrease) in cash and short term deposits (note 19(b)) |
|
4,362 |
|
(6,157) |
|
Cash and cash equivalents at the start of the year |
|
4,184 |
|
10,343 |
|
Effect of foreign exchange rate changes |
|
10 |
|
(2) |
|
|
|
________ |
|
________ |
|
Cash and cash equivalents at the end of the year |
|
8,556 |
|
4,184 |
|
|
|
________ |
|
________ |
TROY INCOME & GROWTH TRUST PLC
YEAR ENDED 30 SEPTEMBER 2020
|
1. |
Accounting Policies |
||
|
|
(a) |
Basis of accounting |
|
|
|
|
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ('IFRS') and interpretations issued by the IFRS Interpretations Committee, to the extent that they have been adopted by the European Union. The financial statements have also been prepared in accordance with the Companies Act 2006, as applicable to companies adopting IFRS. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities held at fair value through profit and loss. The financial statements are presented in Sterling which is regarded as the functional currency and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. The principal accounting policies adopted are set out below. These policies have been applied consistently throughout the current and prior year. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in October 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 1159 of the Corporation Tax Act 2010. The Directors confirm that none of the following newly effective standards have materially affected the Company's financial statements: |
|
|
|
|
Standard Amendments to IAS 2 - Income Taxes Amendments to IFRS 9 - Financial Instruments IFRS 16 - Leases |
Effective Date 1 January 2019 1 January 2019 1 January 2019 |
|
|
|
The Directors do not anticipate the adoption of the following standards will have a material impact on the Company's financial statements: |
|
|
|
|
Standard Amendments to References to the Conceptual Framework in IFRS Standards Amendments to IFRS 7, IFRS 9 and IAS 39 - Financial Instruments Amendments to IAS 1 and IAS 8, regarding the definition of materiality |
Effective Date 1 January 2020 1 January 2020 1 January 2020 |
|
|
|
The Company has early adopted the amendment to IFRS 3 - Business Combinations. The amendment adds an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. During the year ended 30 September 2020, the concentration test was applied to the merger with Cameron Investors Trust plc, which was deemed to be an asset acquisition rather than a business combination. |
|
|
|
(b) |
Investments - Securities held at Fair Value |
|
|
|
|
Investments are recognised or derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value. |
|
|
|
|
As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, listed equities and fixed interest securities are designated as fair value through profit or loss on initial recognition. All investments designated upon initial recognition as held at fair value through profit or loss are measured at subsequent reporting dates at their fair value, which is the bid price as at close of business on the Balance Sheet date. |
|
|
|
|
Gains and losses arising from the changes in fair value are included in net profit or loss for the period as a capital item. Expenses which are incidental to the acquisition and disposal of investments are treated as capital costs. |
|
|
|
(c) |
Income |
|
|
|
|
Dividend income from equity investments including preference shares which have a discretionary dividend is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Underwriting commission is taken to revenue on a receipts basis. |
|
|
|
(d) |
Expenses |
|
|
|
|
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the investment management fee and finance costs have been allocated 35% to revenue and 65% to capital. |
|
|
|
(e) |
Bank borrowings |
|
|
|
|
Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. After initial recognition, all interest bearing loans and overdrafts are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any arrangement costs and any discount or premium on settlement. |
|
|
|
(f) |
Taxation |
|
|
|
|
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. |
|
|
|
|
The allocation method used to calculate tax relief on expenses presented against capital returns is the 'marginal basis'. Under this basis if taxable income is not capable of being offset entirely by expenses presented in revenue then unutilised expenses arising in capital will be set against income with an amount based on current tax rates charged against income and credited to capital. |
|
|
|
|
Deferred tax is provided in full on temporary differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. |
|
|
|
(g) |
Foreign currency |
|
|
|
|
Transactions denominated in foreign currencies are recorded at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at fair value by using the rate of exchange prevailing at the year end. The currencies to which the Company was exposed were Swiss Francs and US Dollars. |
|
|
|
|
Forward currency contracts are classified as investments held at fair value through profit or loss and are reported at fair value at the year end by using the forward rate of exchange prevailing at the year end. |
|
|
|
|
Any gain or loss arising from a movement in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Statement of Comprehensive Income as a revenue or capital item depending on the nature of the gain or loss. |
|
|
|
(h) |
Cash and cash equivalents |
|
|
|
|
Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments within three months of maturity that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
|
|
|
|
(i) |
Use of judgements and estimates |
|
|
|
|
The preparation of financial statements require the Company to make judgements, estimates and assumptions that affect items reported in the Statement of Financial Position 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. |
|
|
|
|
2020 |
2019 |
|
2. |
Revenue |
£'000 |
£'000 |
|
|
Income from listed investments |
|
|
|
|
UK dividend income |
7,325 |
8,189 |
|
|
Income from overseas investments |
887 |
755 |
|
|
|
________ |
________ |
|
|
|
8,212 |
8,944 |
|
|
|
________ |
________ |
|
|
Other income from investment activity |
|
|
|
|
Deposit Interest |
2 |
4 |
|
|
|
________ |
________ |
|
|
Total income |
8,214 |
8,948 |
|
|
|
________ |
________ |
|
3. |
Investment management fees |
|||||||
|
|
On 31 July 2009, Troy Asset Management Limited (''Troy'') became the Manager. From 1 October 2012 to 31 December 2018 the investment management fee was paid at an annual rate of 0.75% of the Company's net assets up to £175 million and at an annual rate of 0.65% of the Company's net assets above £175 million. Since 1 January 2019, the investment management fee has been paid at an annual rate of 0.65% of the Company's net assets. The fee is calculated monthly and paid quarterly. PATAC Limited ('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. |
|||||||
|
|
|
2020 |
2019 |
|||||
|
|
|
Revenue |
Revenue |
Revenue |
Revenue |
Capital |
|
|
|
|
|
return |
return |
return |
return |
return |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
Investment management fees paid to Troy |
553 |
1,027 |
1,580 |
505 |
938 |
1,443 |
|
|
|
AIFM fee paid to PATAC |
21 |
39 |
60 |
21 |
39 |
60 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
Total investment management fee |
574 |
1,066 |
1,640 |
526 |
977 |
1,503 |
|
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
|
|
|
|
2020 |
2019 |
|
4. |
Other administrative expenses |
£'000 |
£'000 |
|
|
Directors' remuneration - fees as Directors |
112 |
100 |
|
|
Secretarial fees |
152 |
120 |
|
|
Fees payable to auditors |
|
|
|
|
- fees payable to the Company's auditors for the audit of the annual financial statements {a} |
35 |
25 |
|
|
Other management expenses |
255 |
255 |
|
|
|
_______ |
_______ |
|
|
|
554 |
500 |
|
|
|
_______ |
_______ |
|
|
{a} Includes irrecoverable VAT of £6,000 (2019 - £4,000). |
||
|
|
The Company had no employees during the year (2019 - nil). No pension contributions were paid for Directors (2019 - £nil). |
||
|
|
|
2020 |
2019 |
||||||||||
|
|
|
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 |
18 |
32 |
50 |
26 |
47 |
73 |
||||||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||||||
|
|
On 12 April 2017 the Company arranged a £20 million two year revolving facility with ING Luxembourg S.A. which expired in April 2019. On 24 April 2019, the Company renewed the facility for a further two years. Under the terms of the facility, the Company can draw down up to £20 million at an interest rate of LIBOR as quoted in the market for the relevant loan period, plus a margin of 0.9%. The facility is unsecured and is subject to covenants which are customary for a credit agreement of this nature. At the year end the Company had not drawn down on the facility. |
||||||||||||
|
|
|
|
|
|
|
|
|
||||||
|
|
|
2020 |
2019 |
||||||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
||||||
|
|
|
return |
return |
Total |
return |
return |
Total |
||||||
|
6. |
Taxation |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
Irrecoverable overseas tax |
53 |
- |
53 |
149 |
- |
149 |
||||||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||||||
|
|
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% (2019 - 19.0%):
|
||||||||||||
|
|
|
2020 |
2019 |
||||||||||
|
|
|
Revenue |
Capital |
|
Revenue |
Capital |
|
||||||
|
|
|
return |
return |
Total |
return |
return |
Total |
||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
(Loss)/profit on ordinary activities before taxation |
7,068 |
(33,298) |
(26,230) |
7,896 |
13,074 |
20,970 |
||||||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||||||
|
|
Taxation of return on ordinary activities at the standard rate of corporation tax |
1,343 |
(6,327) |
(4,984) |
1,500 |
2,484 |
3,984 |
||||||
|
|
Effects of: |
|
|
|
|
|
|
||||||
|
|
UK dividend income not liable to further tax |
(1,275) |
- |
(1,275) |
(1,444) |
- |
(1,444) |
||||||
|
|
Overseas dividend income not liable to further tax |
(168) |
- |
(168) |
(143) |
- |
(143) |
||||||
|
|
Capital losses/(profits) not taxable |
- |
6,118 |
6,118 |
- |
(2,679) |
(2,679) |
||||||
|
|
Excess management expenses and loan relationships |
100 |
209 |
309 |
87 |
195 |
282 |
||||||
|
|
Overseas withholding tax suffered |
53 |
- |
53 |
149 |
- |
149 |
||||||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||||||
|
|
Total taxation charge for the year |
53 |
- |
53 |
149 |
- |
149 |
||||||
|
|
|
_______ |
______ |
______ |
_______ |
______ |
______ |
||||||
|
|
At 30 September 2020, the Company had surplus management expenses and unutilised non-trade relationship deficits of £13,676,000 (2019 - £12,052,000) with a tax value of £2,598,000 (2019 - £2,049,000) 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. |
||||||||||||
|
|
|
|
|
|
|||||||||
|
|
|
2020 |
2019 |
|
|||||||||
|
7. |
Dividends on equity shares |
£'000 |
£'000 |
|
|||||||||
|
|
Paid from revenue: |
|
|
|
|||||||||
|
|
Fourth interim dividend for the year ended 30 September 2018 of 0.685p per share |
- |
1,940 |
|
|||||||||
|
|
Fourth interim dividend for the year ended 30 September 2019 of 0.695p per share |
2,065 |
- |
|
|||||||||
|
|
First and second interim dividends for the year ended 30 September 2020 totalling 1.39p (2018 - three interims totalling 2.055p) per share |
4,573 |
5,882 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
Total paid from revenue |
6,683 |
7,822 |
|
|||||||||
|
|
|
|
|
|
|||||||||
|
|
Paid from distributable capital reserves: |
|
|
|
|||||||||
|
|
Third interim dividend for year ended 30 September 2020 of 0.695p (2019 - nil) |
2,411 |
-
|
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
Total |
9,049 |
7,822 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
The fourth interim dividend of 0.695p per share, declared on 30 September 2020 and paid on 23 October 2020, 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.
|
|
|||||||||||
|
|
|
2020 |
2019 |
|
|||||||||
|
|
|
£'000 |
£'000 |
|
|||||||||
|
|
Paid and payable from revenue: |
|
|
|
|||||||||
|
|
First and second interim dividend for the year ended 30 September 2020 totalling 1.39p (2019 - three interim dividends totalling 2.055p) per share |
4,573 |
5,882 |
|
|||||||||
|
|
Fourth interim dividend for the year ended 30 September 2020 of 0.695p (2019 - fourth interim dividend 0.695p) per share |
2,409 |
2,065 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
Total paid and payable from revenue |
6,982 |
7,947 |
|
|||||||||
|
|
|
|
|
|
|||||||||
|
|
Paid from distributable capital reserves: |
|
|
|
|||||||||
|
|
Third interim dividend for the year ended 30 September 2020 of 0.695p (2019 - nil) |
2,411 |
- |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
|
9,393 |
7,947 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
|
2020 |
2019 |
|
|||||||||
|
8. |
Return and net asset value per share |
£'000 |
£'000 |
|
|||||||||
|
|
The returns per share are based on the following figures: |
|
|
|
|||||||||
|
|
Revenue return |
7,015 |
7,747 |
|
|||||||||
|
|
Capital return |
(33,298) |
13,074 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
Total |
(26,283) |
20,821 |
|
|||||||||
|
|
|
________ |
________ |
|
|||||||||
|
|
Weighted average number of Ordinary shares |
331,616,651 |
286,744,223 |
|
|||||||||
|
|
|
__________ |
__________ |
|
|||||||||
|
|
The net asset value per share is based on net assets attributable to shareholders of £251,686,000 (2019 - £245,461,000) and on 346,652,987 (2019 - 293,979,045) Ordinary shares in issue at the year end. |
|
|||||||||||
|
|
|
|
|
|
|
|
2020 |
2019 |
|
9. |
Investments held at fair value through profit or loss |
£'000 |
£'000 |
|
|
Listed on recognised stock exchanges: |
|
|
|
|
United Kingdom |
206,598 |
209,645 |
|
|
Overseas |
35,718 |
31,356 |
|
|
|
________ |
________ |
|
|
Total investments |
242,316 |
241,001 |
|
|
|
________ |
________ |
|
|
|
2020 |
2019 |
|
|
|
£'000 |
£'000 |
|
|
Opening book cost |
180,784 |
164,249 |
|
|
Opening fair value gains on investments held |
60,217 |
49,494 |
|
|
|
________ |
________ |
|
|
Opening fair value |
241,001 |
213,743 |
|
|
Purchases |
87,855 |
37,439 |
|
|
Sales - proceeds |
(54,330) |
(24,281) |
|
|
Sales - net (losses)/gains on sales |
(13,671) |
3,377 |
|
|
Movement in fair value during the year |
(18,539) |
10,723 |
|
|
|
________ |
________ |
|
|
Closing fair value |
242,316 |
241,001 |
|
|
|
________ |
________ |
|
|
Closing book cost |
200,638 |
180,784 |
|
|
Closing fair value gains on investments held |
41,678 |
60,217 |
|
|
|
________ |
________ |
|
|
Closing fair value |
242,316 |
241,001 |
|
|
|
________ |
________ |
|
|
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 £266,000 (2019 - £169,000) and on sales £18,000 (2019 - £8,000). |
||
|
|
|
|
|
|
|
|
2020 |
2019 |
|
|
(Losses)/gains on investments held at fair value |
£'000 |
£'000 |
|
|
Net (losses)/ gains on sales |
(13,671) |
3,377 |
|
|
Movement in fair value in investment holdings |
(18,539) |
10,723 |
|
|
|
________ |
________ |
|
|
|
(32,210) |
14,100 |
|
|
|
________ |
________ |
|
|
|
Ordinary shares of 25p each |
|
|
10. |
Called-up share capital |
Number |
£'000 |
|
|
Allotted, called up and fully paid |
|
|
|
|
At 30 September 2020 |
346,652,987 |
86,663 |
|
|
Held in treasury |
859,000 |
215 |
|
|
|
__________ |
__________ |
|
|
|
347,511,987 |
86,878 |
|
|
|
__________ |
__________ |
|
|
Allotted, called up and fully paid |
|
|
|
|
At 30 September 2019 |
293,979,045 |
73,495 |
|
|
Held in treasury |
- |
- |
|
|
|
__________ |
__________ |
|
|
|
293,979,045 |
73,495 |
|
|
|
__________ |
__________ |
|
|
During the year to 30 September 2020 the Company issued 53,532,942 new Ordinary shares of 25p each for proceeds of £42,237,000. Included in this is 13,647,942 new Ordinary shares issued in respect of the merger with Cameron Investors Trust plc ('CIT'). On 18 November 2019, the effective date of the merger, the Company received assets of £13,956,000 from CIT and, following the cancellation of the Company's own investment in CIT, this resulted in an increase to the Company's net assets of £11,304,000.
During the year to 30 September 2019 the Company issued 3,185,000 new Ordinary shares of 25p each for proceeds of £2,631,000.
During the year to 30 September 2020 there were 859,000 Ordinary shares of 25p each repurchased by the Company (being 0.3% of the Company's issued share capital at the start of the year), at a total cost of £620,000 and placed in treasury.
During the year to 30 September 2019 there were 1,190,000 Ordinary shares of 25p each repurchased by the Company (being 0.4% of the Company's issued share capital at the start of the year), at a total cost of £893,000 and placed in treasury.
During the year to 30 September 2020 no shares were re-issued from treasury.
During the year to 30 September 2019 the Company re-issued 8,495,000 Ordinary shares of 25p each from treasury for proceeds totalling £6,699,000.
No shares were purchased for cancellation during the year (2019 - nil) and at the year end 859,000 shares were held in treasury (2019 - nil).
The costs of the operation of the discount control mechanism of £60,000 (2019: £33,000) have been charged against the premium on shares issued.
|
||
|
|
|
|
|
|
|
|
2020 |
2019 |
|
11. |
Share premium account |
£'000 |
£'000 |
|
|
At 1 October |
25,166 |
23,124 |
|
|
Premium on issue of shares |
28,854 |
2,075 |
|
|
Discount control costs (note 10) |
(60) |
(33) |
|
|
|
________ |
________ |
|
|
At 30 September |
53,960 |
25,166 |
|
|
|
________ |
________ |
|
|
|
||
|
12. |
Special reserves |
Distributable |
|
Total |
Total |
|
|
|
Capital |
Special |
Special |
Special |
|
|
|
Reserve |
Reserve |
Reserves |
Reserves |
|
|
|
2020 |
2020 |
2020 |
2019 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 1 October |
5,343 |
58,054 |
63,397 |
57,831 |
|
|
Shares bought back during the year into treasury |
- |
(620) |
(620) |
(893) |
|
|
Dividends |
(2,411) |
- |
(2,411) |
- |
|
|
Shares issued during the year from treasury |
- |
- |
- |
6,459 |
|
|
|
________ |
________ |
________ |
________ |
|
|
At 30 September |
2,932 |
57,434 |
60,366 |
63,397 |
|
|
|
________ |
________ |
________ |
________ |
|
|
On 29 August 2014, the Court of Session in Scotland approved the cancellation of the Share Premium Account and the creation of a Distributable Capital Reserve from the balance of the Share Premium Account. The Special Reserve was created on 1 October 2010 by a similar court process. The purpose of the Distributable Capital Reserve and the Special Reserve are to fund market purchases by the Company of its own shares, to make bonus issues of shares and to make distributions in accordance with the Companies Act 2006. |
||||
|
|
|
|
|
|
|
|
2020 |
2019 |
|
13. |
Capital reserve |
£'000 |
£'000 |
|
|
|
|
|
|
|
Capital reserve - realised |
|
|
|
|
At 1 October |
17,358 |
15,007 |
|
|
Net gains on sales of investments during the year |
(13,671) |
3,377 |
|
|
Investment management fee |
(1,066) |
(977) |
|
|
Currency losses |
10 |
(2) |
|
|
Finance costs of borrowing |
(32) |
(47) |
|
|
|
________ |
________ |
|
|
At 30 September |
2,599 |
17,358 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
Capital reserve - unrealised |
|
|
|
|
At 1 October |
60,217 |
49,494 |
|
|
Investment (losses)/gains |
(18,539) |
10,723 |
|
|
|
________ |
________ |
|
|
|
41,678 |
60,217 |
|
|
|
________ |
________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
2019 |
|
14. |
Revenue reserve |
|
|
£'000 |
£'000 |
|
|
At 1 October |
|
|
5,828 |
5,903 |
|
|
Transfer to/(from) revenue account net of dividends |
|
|
377 |
(75) |
|
|
|
|
|
______ |
______ |
|
|
At 30 September |
|
|
6,205 |
5,828 |
|
|
|
|
|
______ |
______ |
|
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 management of the portfolio is conducted according to investment guidelines, established by the Board after discussion with the Manager, which specify the limits within which the Manager is authorised to act. |
|||||||||||||||||||||
|
|
Financial assets and liabilities |
|||||||||||||||||||||
|
|
The Company's financial assets include investments, cash at bank and short-term debtors. Financial liabilities consist of short-term creditors, bank overdraft and forward currency contracts. |
|||||||||||||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, foreign currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. |
|||||||||||||||||||||
|
|
(i) |
Market risk |
|
|
|
|
|
|
||||||||||||||
|
|
|
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and other price risk. |
||||||||||||||||||||
|
|
|
Interest rate risk |
|
|
|
|
|
|
||||||||||||||
|
|
|
The Company is subject to interest rate risk because the value of fixed interest rate securities is linked to underlying bank rates or equivalents, and its short-term borrowings and cash resources carry interest at floating rates. The interest rate profile is managed as part of the overall investment strategy of the Company. |
||||||||||||||||||||
|
|
|
Interest rate movements may affect: |
||||||||||||||||||||
|
|
|
- |
the fair value of the investments in fixed interest rate securities; |
|||||||||||||||||||
|
|
|
- |
the level of income receivable on cash deposits; and |
|||||||||||||||||||
|
|
|
- |
interest payable on the Company's variable rate borrowings.
|
|||||||||||||||||||
|
|
|
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. |
||||||||||||||||||||
|
|
|
Interest rate profile |
||||||||||||||||||||
|
|
|
The interest rate risk profile of the portfolio of financial assets at the date of the Statement of Financial Position was as follows (there were no interest bearing financial securities and liabilities at the dates of the Statement of Financial Position): |
||||||||||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|||||||||||||||
|
|
|
|
|
|
average |
|
|
|||||||||||||||
|
|
|
|
|
|
interest |
Fixed |
Floating |
|||||||||||||||
|
|
|
|
|
|
rate |
rate |
rate |
|||||||||||||||
|
|
|
As at 30 September 2020 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
8,556 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
8,556 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|||||||||||||||
|
|
|
|
|
|
average |
|
|
|||||||||||||||
|
|
|
|
|
|
interest |
Fixed |
Floating |
|||||||||||||||
|
|
|
|
|
|
rate |
rate |
Rate |
|||||||||||||||
|
|
|
As at 30 September 2019 |
|
|
% |
£'000 |
£'000 |
|||||||||||||||
|
|
|
Assets |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
- |
- |
4,184 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
Total assets |
|
|
- |
- |
4,184 |
|||||||||||||||
|
|
|
|
|
|
________ |
______ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 |
|||||||||||||||
|
|
|
|
|
|
|
2020 |
2019 |
|||||||||||||||
|
|
|
|
|
|
|
£'000 |
£'000 |
|||||||||||||||
|
|
|
Floating rate |
|
|
|
|
|
|||||||||||||||
|
|
|
Cash |
|
|
|
8,556 |
4,184 |
|||||||||||||||
|
|
|
|
|
|
|
________ |
________ |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
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 2020 and net assets would increase/decrease by £43,000 (2019 - increase/decrease by £21,000). 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 2020 |
30 September 2019 |
||||||||||||||||||
|
|
|
|
|
Net |
|
Net |
||||||||||||||||
|
|
|
|
Overseas |
monetary |
Overseas |
monetary |
||||||||||||||||
|
|
|
|
investments |
assets |
investments |
assets |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
US Dollar |
26,045 |
- |
23,413 |
- |
||||||||||||||||
|
|
|
Swiss Franc |
9,673 |
- |
7,944 |
- |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
Total |
35,718 |
- |
31,357 |
- |
||||||||||||||||
|
|
|
|
_______ |
_______ |
_______ |
_______ |
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
||||||||||||||||||||
|
|
|
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 2020 would have increased/decreased by £24,232,000 (2019 - increase/decrease of £24,100,000). 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 are 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:
|
||||||||||||||||||||
|
|
|
|
2020 |
2019 |
||||||||||||||||||
|
|
|
|
Statement of |
|
Statement of |
|
||||||||||||||||
|
|
|
|
Financial Position |
Maximum exposure |
Financial Position |
Maximum exposure |
||||||||||||||||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
Current assets |
|
|
|
|
||||||||||||||||
|
|
|
Accrued income and prepayments |
861 |
825 |
810 |
790 |
||||||||||||||||
|
|
|
Trade and other receivables |
474 |
474 |
- |
- |
||||||||||||||||
|
|
|
Cash and short term deposits |
8,556 |
8,556 |
4,184 |
4,184 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
|
9,891 |
9,855 |
4,994 |
4,974 |
||||||||||||||||
|
|
|
|
________ |
________ |
________ |
________ |
||||||||||||||||
|
|
|
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: |
||||
|
|
|
2020 |
2019 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Called-up share capital |
86,878 |
73,495 |
||
|
|
Retained earnings and other reserves |
164,808 |
171,966 |
||
|
|
|
________ |
________ |
||
|
|
|
251,686 |
245,461 |
||
|
|
|
________ |
________ |
||
|
|
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 (2019 - nil). |
||||
|
17. |
Commitments and contingencies |
|
|
At 30 September 2020 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (2019 - £nil). |
|
18. |
Financial instruments measured at Fair Value |
||||||||
|
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
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 |
242,316 |
- |
- |
242,316 |
241,001 |
- |
- |
241,001 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
|
242,316 |
- |
- |
242,316 |
241,001 |
- |
- |
241,001 |
|
|
|
______ |
_____ |
______ |
______ |
______ |
_____ |
______ |
______ |
|
|
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 2020 (2019 - none). |
||||||||
|
19. |
Notes to the Cash Flow Statement |
||||
|
|
(a) Reconciliation of operating profit to operating cash flows |
||||
|
|
|
2020 |
2019 |
||
|
|
|
£'000 |
£'000 |
||
|
|
(Loss)/profit before taxation |
(26,230) |
20,970 |
||
|
|
Add interest payable |
50 |
73 |
||
|
|
Adjustments for: |
|
|
||
|
|
Losses/(gains) on investments |
32,210 |
(14,100) |
||
|
|
Currency (gains)/losses |
(10) |
2 |
||
|
|
Increase in accrued income and prepayments |
(71) |
(168) |
||
|
|
Decrease in trade and other payables |
(18) |
(2) |
||
|
|
|
________ |
________ |
||
|
|
|
5,931 |
6,775 |
||
|
|
|
________ |
________ |
||
|
|
(b) Analysis of changes in net funds |
||||
|
|
|
30 September |
Cash |
Exchange |
30 September |
|
|
|
2019 |
Flow |
Movements |
2020 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cash at bank |
4,184 |
4,362 |
10 |
8,556 |
|
|
|
________ |
________ |
________ |
________ |
|
|
|
|
|
||
|
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 2020) are available from PATAC on request. |
||||
|
|
The Company's maximum and actual leverage levels at 30 September 2020 are as follows: |
||||
|
|
|
|
|
Gross |
Commitment |
|
|
|
|
|
Method |
Method |
|
|
Maximum limit |
|
|
200% |
200% |
|
|
Actual |
|
|
96% |
100% |
|
|
|
|
|
|
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The Company's investor disclosure document was updated in the year to 30 September 2020 to reflect PATAC's change of registered address and has been updated subsequent to the year end to reflect the Company's change of registered address. 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). |
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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 2020. The statutory accounts for the year ended 30 September 2019 received an audit report which was unqualified.
The statutory accounts for the financial year ended 30 September 2020 were approved by the Directors on 23 November 2020 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 12.30pm on 28 January 2021 at 28 Walker Street, Edinburgh, EH3 7HR.
The Annual Report will be posted to Shareholders in December 2020 and will be available in due course by download from the Company's website (www.tigt.co.uk).
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
For Troy Income & Growth Trust plc PATAC Limited 23 November 2020 Enquiries: 0131 378 0500 |
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