Finsbury Growth Regulatory News (FGT)

Finsbury Growth & Income Trust Plc - Half-year Report

PR Newswire

London, May 12

Legal Entity Identifier: 213800NN42KX2LG1GQ40

12 May 2020

LONDON STOCK EXCHANGE ANNOUNCEMENT

Finsbury Growth & Income Trust PLC

Unaudited Half Year Results For The Six Months Ended31 March 2020

This Announcement is not the Company’s Half Year Report & Accounts. It is an abridged version of the Company’s full Half Year Report & Accounts for the six months ended 31 March 2020. The full Half Year Report & Accounts, together with a copy of this announcement, will shortly be available on the Company’s website at www.finsburygt.com where up to date information on the Company, including daily NAV, share prices and fact sheets, can also be found.

The Company's Half Year Report & Accounts for the six months ended 31 March 2020 has been submitted to the UK Listing Authority, and will shortly be available for inspection on the National Storage Mechanism (NSM): https://data.fca.org.uk/#/nsm/nationalstoragemechanism

For further information please contact: Victoria Hale, Frostrow Capital LLP 020 3170 8732

FINANCIAL HIGHLIGHTS

1 See glossary

2 Source – Morningstar

3 Source – FTSE International Limited (“FTSE”) © FTSE 2020*

^ Alternative Performance Measures (“APMs”)

The disclosures of performance above are considered to represent the Company’s APMs. Definitions of these APMs together with how these measures have been calculated can be found in the Glossary.

This report contains terminology that may be unfamiliar to some readers. The Glossary gives definitions for frequently used terms.

CHAIRMAN’S STATEMENT

Dear Shareholder,

PERFORMANCE

Though the Company outperformed its benchmark during the first half of the current financial year, it is disappointing for the first time in some years to have to report a negative absolute return for the period. Given the extreme stock market volatility recently and unprecedented times for us all personally this is hardly surprising. The Company’s net asset value per share^ fell by 18.7% which compares to a fall of 22.0% in the Company’s benchmark, the FTSE All Share Index, demonstrating the resilience of the companies in our portfolio. The negative return over the period as a whole reflects growing uncertainty in the market about the impact of the COVID-19 global health crisis and the unfinished Brexit negotiations.

COVID-19

As we write, it appears that the centre of the onslaught has moved away from Asia to Europe and the US, with consequent impact on asset prices globally. It is far too early to assess the long-term economic impact on the Company’s investment portfolio; but shareholders should be aware that we have no direct exposure to the oil and gas sector and that we own strong consumer brands that are competitively positioned businesses with sustainable returns. We expect this to provide some defensive quality to the portfolio. Whilst the Company’s overall level of income has not been materially impacted thus far, we will continue to monitor carefully announcements from our portfolio companies in relation to their proposed dividend payments. The Portfolio Manager has considered the potential impact of the crisis on our portfolio holdings in detail in his report.

AMENDMENT TO THE COMPANY’S INVESTMENT POLICY

The Board has considered the method by which our overseas investments are classified, in particular by reference to their inclusion or otherwise in the 20% limit of the portfolio permitted to be invested in ‘non UK’ companies. To date the location of the investee company’s share listing has been the determining factor. However after careful consideration the Board has decided that, as permitted by FCA guidance, the domicile and place of business of the company concerned is a better and more realistic basis for considering where an investment should sit in the portfolio.

Accordingly, the Board has resolved that the Company’s investment policy be modified as follows:

“The Company’s investment policy is to invest principally in the securities of UK listed companies either listed in the UK or otherwise incorporated, domiciled or having significant business operations within the UK, whilst up to a maximum of 20% of the Company’s portfolio, at the time of acquisition, can be invested in companies not meeting this criteria. Can be invested in quoted companies outside the UK.

This amendment is not considered to be material and will give greater flexibility in the management of the investment portfolio, but it does affect the classification of Manchester United, a Company whose listing is on the New York stock exchange, but whose domicile and place of business is within the UK. This investment makes up 1.7% of the portfolio.

SHARE CAPITAL

Consistent demand for the Company’s shares has led to the issue of a total of 10,334,591 new shares in this half year, raising £87.3 million. As at 31 March 2020 the Company had 211,146,303 shares of 25p each in issue (31 March 2019:188,126,712). In addition, the Company also bought back 505,409 shares into Treasury during the six month period (2019: nil). These shares were subsequently reissued by the end of the period to satisfy on going demand.

Since the end of the half-year, to the date of this report, a further 4,135,000 new shares have been issued raising £31.5 million. As at 11 May 2020, the Company had 215,281,303 shares in issue.

DIVIDEND

Despite volatile markets the Board declared an unchanged first interim dividend of 8.0p per share with respect to the year ending 30 September 2020. That dividend will be paid on Thursday, 15 May 2020 to shareholders who were on the register on Friday, 3 April 2020. The associated ex-dividend date was Thursday, 2 April 2020.

The Board expects to declare the second dividend for the year ending 30 September 2020 in late September 2020 and for it to be paid to shareholders in November 2020. The Board highlights that in setting the level of the second interim dividend, it will take into account the Company’s retained revenue reserves as well as the actual dividend income received for the full financial year.

GEARING^

As at the half year end the Company had a three-year secured fixed term revolving credit facility (the “Facility”) of £50 million (with an additional £50 million facility available if required) with Scotiabank Europe PLC. The amount currently drawn under the Facility of £36.7 million represents gearing of 1.1%. The facility’s term expires in October 2022.

BOARD COMPOSITION

You will recall that in last year’s Annual Report I advised that three members of the Board, I being one of them, had served on the Board for more than nine years and that in accordance with the requirements of the revised Corporate Governance Codes we were required to implement a Board refreshment programme. It would have clearly been unnecessarily disruptive for all three of us to have departed at the same time, so we adopted a rolling programme of retirement.

Neil Collins retired from the Board at the conclusion of the February 2020 Annual General Meeting. David Hunt will be the next to retire and will do so following the release of these half year accounts. David has made a huge contribution during his time on the Board and as Chairman of the Audit Committee and he will be greatly missed by his fellow Directors. We thank him for his invaluable and wise counsel over many years and we wish him well for the future.

David will hand over his responsibilities as Chairman of the Audit Committee to Sandra Kelly, who joined the Board in October 2019. I will then retire at our 2021 Annual General Meeting, when Simon Hayes will succeed me as Chairman of the Board.

OUTLOOK

As we look forward in these troubled and uncertain times, our Portfolio Manager continues to remain cautiously optimistic about the outlook and opportunities for the companies in our portfolio. Your Board continues to believe that his strategy of investing for the long-term in durable, cash generative franchises capable of sustained dividend growth will continue to deliver sustainable investment returns to shareholders, albeit that we may have to endure turbulence for some time yet.

Anthony TownsendChairman12 May 2020

^ Alternative Performance Measure (see glossary)

PORTFOLIO MANAGER’S REVIEW

The six months on which I report have been amongst the most turbulent and certainly the most distressing of my career – 39 years, for what that is worth. And in fact those 39 years of experience are not worth much I fear. Younger colleagues have looked to Mike Lindsell and me for guidance and reassurance during the first quarter of 2020. But we have had to shrug our shoulders and say – we have never seen anything like it. This certainty of being in uncharted territory makes us reluctant to engage in speculation about the duration of the crisis or in grandiose theorising about trends in the global economy that will emerge in its aftermath. We know enough to know that we don’t know. Instead, at this stage, we are focussed on the day-to-day demands of guarding shareholders’ capital and, in particular, we are focussed on the financial health of the companies we have invested your capital into.

Your Company remains fully invested, but with very modest gearing, currently less than 1.5%. We have no appetite to take extra risk with the balance sheet. But being fully invested means the portfolio will participate in any eventual rally and recovery. A lesson from previous episodes of stock market panic is that it is impossible to identify the bottom and almost as difficult to get money invested after the market has turned – because prices rally so quickly.

We note the relative resilience of the NAV performance through to the end of March 2020. I can assure you we take little pleasure from this and are in no way complacent about likely future challenges for the companies that make up your portfolio. There will be unexpected challenges for sure. One of our stock brokers entitled a research note I read in February 2020 – “Robust But Not Impervious”. And robust but not impervious sums up how I see your portfolio.

Lindsell Train Limited’s investment approach is based on the identification of excellent companies. That approach has certainly helped our relative performance through these first weeks of the crisis. And, in truth, we are hopeful that the portfolio in aggregate really does comprise the sorts of company that will get through to the other side of all this. We have always thought that other investors underestimate the value of “survivability” in a company. For us it is the start point in our investment process. Is this business still going to be around in 10 years’ time? A surprising number won’t be – even in “normal” economic conditions.

So, it is not an accident that c27% of your portfolio by value comprises companies with net cash on their balance sheets, including all three asset management franchises – Hargreaves Lansdown, Rathbones and Schroders. We have always been attracted to companies with conservative balance sheets and even better those with positive cash balances.

We have big holdings in companies with regular, subscription-type revenues; including the asset managers. RELX, Sage and important parts of the LSE all benefit from being able to charge their customers at regular intervals for continuing services that by and large those customers need to stay in business. This is also true for parts of Daily Mail and Euromoney – and this pair also both have net cash balance sheets. Nearly 50% of the portfolio is today invested in companies of this type.

Contrast such business models with those whose sales have effectively been suspended in the current crisis - like shops on empty high streets or airlines. Your portfolio has little exposure to companies facing disruption of this magnitude. However, I must point to the holdings we have in two football clubs, tiny (0.2%) in Celtic, but a c1.7% holding in Manchester United. Of course competitions have been suspended. Who knows for how long? We also have two holdings in those London pub companies, Fullers and Youngs – comprising together just 0.8% of the portfolio. Their pubs are empty this evening.

Then the rest of your portfolio is made up of companies that own beloved or essential consumer brands. AG Barr (IRN-BRU), Burberry, Diageo, Fever-Tree, Heineken, Mondelez (Cadbury, Oreos), PZ Cussons (Carex), Remy Cointreau and Unilever. These amount to another 47.0% of the portfolio. Some of these proved to be very resilient share prices through to the end of March. And this is not surprising. Pubs and bars may be shut, but as the world hunkers down to isolation beer and gin offer solace (always only in moderation). And it is said that consumption of chocolate actually increases during economic downturns, as people turn to comfort treats. At the same time we feel it is important to maintain the size of the holdings in the luxury product companies, like Burberry or Remy, where current sales are declining and share prices have been weak. This is in part because we believe these companies have “survivability” – Burberry has net cash (if one excludes lease liabilities) and Remy low debt. More important, though, we expect a burst of hedonism on the other side of the virus, as the world and especially the young celebrate deliverance. That will be some party. I look forward to downing several bottles of Louis XIII with you all. And I might even buy myself a Burberry trench.

To repeat: there will be unexpected challenges for all the companies we have invested in. The boards of the companies facing these challenges must be encouraged and supported by shareholders to do the right thing. And that means promptly taking action to ensure the survival and future prosperity of the company. If the result is suspension of dividend payments, for instance, then so be it. Several portfolio companies have already announced such suspensions as I write this report – namely AG Barr, Euromoney, Fullers, Heineken and Youngs. They have done the right thing and I will be amazed if they are not joined by other holdings.

I will conclude by sharing a quotation that was forwarded to me in February. These are the words of 19th century philosopher John Stuart Mill:

“What has so often excited wonder is the great rapidity with which countries recover from a state of devastation, the disappearance in a short time of all traces of mischief done by earthquakes, floods, hurricanes and the ravages of war. An enemy lays waste to a country by fire and sword and destroys or carries away nearly all moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.”

Let us hope that Mill’s observation has universal application.

Nick TrainDirector

Lindsell Train LimitedPortfolio Manager

12 May 2020

INVESTMENT PORTFOLIOas at 31 March 2020

All of the above investments are equities listed in the UK, unless otherwise stated.

1 Listed in the United States.

2 Listed in the Netherlands.

3 Listed in France.

4 Unquoted.

* Includes Schroder (non-voting) shares, fair value £9,519,000.

Includes Celtic 6% cumulative convertible preference shares, fair value £242,000.

*** Includes Frostrow Capital AIFM Investment, fair value £700,000.

COMPARISON OF SECTOR WEIGHTINGS WITH THE FTSE ALL-SHARE INDEX as at 31 March 2020

* Source: FTSE International Limited (“FTSE”) © FTSE 2020

INCOME STATEMENTfor the six months ended 31 March 2020

The “Total” column of this statement represents the Company’s profit and loss account. The “Revenue” and “Capital” columns are supplementary to this and are prepared under guidance published by The Association of Investment Companies (“AIC”).

All items in the above statement derive from continuing operations. The Company had no recognised gains or losses other than those declared in the Income Statement.

There is no material difference between the net return/(loss) on ordinary activities before taxation and the net return/(loss) on ordinary activities after taxation stated above and their historical cost equivalents.

STATEMENT OF CHANGES IN EQUITYfor the six months ended 31 March 2020

* Dr Pepper Snapple paid a special dividend in July 2018. At that time it was treated as being capital in nature. During the six month period ended 31 March 2019, Dr Pepper Snapple clarified that 28.4% of this dividend should be regarded as revenue. Accordingly £2,499,000 of the special dividend was transferred from the Company’s capital reserve to the revenue reserve.

STATEMENT OF FINANCIAL POSITIONas at 31 March 2020

STATEMENT OF CASH FLOWSfor the six months ended 31 March 2020

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The condensed Financial Statements for the six months to 31 March 2020 have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with FRS 104 ‘Interim Financial Reporting’ and with the AIC’s Statement of Recommended Practice (“the SORP”) for Investment Trust Companies and Venture Capital Trusts dated October 2019 and the Companies Act 2006.

The accounting policies used for the year ended 30 September 2019 have been applied.

Fair Value

Under FRS 102 and FRS 104 investments have been classified using the following fair value hierarchy:

Level 1 – quoted prices in active markets

Level 2 – prices of recent transactions for identical instruments

Level 3 – valuation techniques using observable and unobservable market data.

The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:

2. INCOME

3. AIFM AND PORTFOLIO MANAGEMENT FEES

4. RETURN PER SHARE – BASIC AND DILUTED

The calculation of the total, revenue and capital returns per ordinary share is carried out in accordance with IAS 33, “Earnings per Share (as adopted in the EU)”.

During the period there were no dilutive instruments held, therefore the basic and diluted return per share are the same.

5. NET ASSET VALUE PER SHARE

6. TRANSACTION COSTS

Purchase transaction costs for the six months ended 31 March 2020 were £351,000 (six months ended 31 March 2019: £548,000). These comprise of stamp duty costs of £314,000 (31 March 2019: £498,000) and commission of £37,000 (31 March 2019: £50,000).

Sales transaction costs for the six months ended 31 March 2020 were £nil (six months ended 31 March 2019: £1,000). These comprise solely of commission.

These transaction costs are included within the gains and losses on investments within the Income Statement.

7. RECONCILIATION OF TOTAL RETURN/(LOSS) BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES

8. 2019 ACCOUNTS

The figures and financial information for the year to 30 September 2019 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for the year.

Those accounts have been delivered to the Registrar of Companies and included the Report of the Auditor which was unqualified and did not contain a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report, and did not contain a statement under section 498 of the Companies Act 2006.

INTERIM MANAGEMENT REPORT

GOING CONCERN

The Directors have carried a detailed review of the Company’s ability to meet its liabilities as they fall due, taking into account the current state of equity markets. They consider it is appropriate to adopt the going concern basis in preparing the financial statements as the Company has adequate resources to continue in operational existence for the foreseeable future. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council.

RELATED PARTY TRANSACTIONS

During the first six months of the current financial year no material transactions with related parties have taken place which have affected the financial position or the performance of the Company.

PRINCIPAL RISKS AND UNCERTAINTIES

Equity markets experienced substantial falls during the period associated with uncertainties linked to the COVID-19 pandemic and continue to be volatile. The Directors have considered the impact of the continued uncertainty on the Company’s financial position and, based on the information available to them at the date of this report, have concluded that no adjustments are required to the accounts as at 31 March 2020.

A review of the half year, including reference, in addition to the COVID-19 risk mentioned above, to the risks and uncertainties that existed during the period and the outlook for the Company can be found in the Chairman’s Statement and in the Portfolio Manager’s Review. The principal risks faced by the Company fall into the following broad categories: Corporate Strategy, Investment Strategy and Activity, Key Person Risk, Shareholder Relations and Corporate Governance, Operational, Financial and Accounting, Legal and Regulatory. Information on each of these areas is given in the Strategic Report/Business Review within the Annual Report and Accounts for the year ended 30 September 2019. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.

The Board is aware that the UK’s exit from the EU could introduce an element of political and economic uncertainty for the sector in which the company operates and developments continue to be monitored by the Board.

ALTERNATIVE PERFORMANCE MEASURES

The Financial Statements set out the required statutory reporting measures of the Company’s financial performance. In addition, the Board assesses the Company’s performance against a range of criteria which are viewed as particularly relevant for investment trusts, further details of these are included within the latest Annual Report.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors confirm that these condensed interim financial statements have been prepared in accordance with Applicable Accounting Standards and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

(i) an indication of important events that have occurred during the first six months and their impact on the financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(ii) material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Half Year Report has not been audited or reviewed by the Company’s auditors.

The Half Year Report was approved by the Board on 12 May 2020 and the above responsibility statement was signed on its behalf by:

Anthony TownsendChairman

GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (‘APM’)

AIC

The Association of Investment Companies.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)

The Alternative Investment Fund Manager Directive (the “Directive”) is a European Union Directive that entered into force on 22 July 2013. The Directive regulates EU fund managers that manage alternative investment funds (this includes investment trusts).

ALTERNATIVE PERFORMANCE MEASURE (APM)

An APM is a numerical measure of the Company’s current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework. In selecting these Alternative Performance Measures, the Directors considered the key objectives and expectations of typical investors in an investment trust such as the Company.

BENCHMARK RETURN

Total return on the benchmark, on a closing -market-value to closing-market basis, assuming that all dividends received were re-invested, without transaction costs, into the shares of the underlying companies at the time the shares were quoted ex-dividend.

BREXIT

The advisory public referendum which was held on 23 June 2016 in the United Kingdom to indicate whether voters wanted to remain or withdraw from membership of the European Union (EU). The referendum vote was cast in favour of leaving the EU. The process of actually leaving is termed Brexit.

DISCOUNT OR PREMIUM (APM)

A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.

FTSE DISCLAIMER

“FTSE©” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/ or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distributions of FTSE Data is permitted without FTSE’s express written consent.

GEARING (APM)

Gearing represents prior charges, adjusted for net current assets expressed as a percentage of net assets. Prior charges includes all loans and bank overdrafts for investment purposes.

NET ASSET VALUE (NAV)

The value of the Company’s assets, principally investments made in other companies and cash being held, less any liabilities. The NAV is also described as ‘shareholders’ funds’ per share. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand and supply of the shares.

NET ASSET VALUE TOTAL RETURN (APM)

The total return on an investment over a specified period assuming dividends paid to shareholders were reinvested at net asset value per share at the time the shares were quoted ex-dividend. This is a way of measuring investment management performance of investment trusts which is not affected by movements in discounts or premiums.

* Total dividends paid during the period of 8.6p (8.1p paid during the 2019 financial year) were re-invested at the cum dividend NAV price during the period. Where the dividend is invested and NAV price falls, this will further reduce the return, if it rises, any increase would be greater. The source is Morningstar who have calculated the return on an industry comparative basis.

ONGOING CHARGES (APM)

Ongoing charges are calculated by taking the Company’s annualised operating expenses expressed as a proportion of the average daily net asset value of the Company over the year. The costs of buying and selling investments are excluded, as are interest costs, taxation, cost of buying back or issuing ordinary shares and other non-recurring costs.

* Estimated expenses for the year ending 30 September 2020, based on the asset size as at 31 March 2020.

REVENUE RETURN PER SHARE

The revenue return per share is calculated by taking the Return on ordinary activities after taxation and dividing by the weighted average number of shares in issue during the period/year.

SHARE PRICE TOTAL RETURN (APM)

The change in capital value of a company’s shares over a given period, plus dividends paid to shareholders, expressed as a percentage of the opening value. The assumption is that dividends paid to shareholders are re-invested in the shares at the time the shares are quoted ex dividend.

* Total dividends paid during the period of 8.6p (16.1p paid during the 2019 financial year) were re-invested at the cum dividend NAV/share price during the period. Where the dividend is invested and NAV/share price falls, this will further reduce the return, if it rises, any increase would be greater. The source is Morningstar who have calculated the return on an industry comparative basis.

TREASURY SHARES

Shares previously issued by a company that have been bought back from shareholders to be held by the company for potential sale or cancellation at a later date. Such shares are not capable of being voted and carry no rights to dividends.

- END-

Victoria HaleFrostrow Capital LLPCompany Secretary – 0203 170 8732

12 May 2019