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Perpetual Income & Growth Investment Trust Plc - Annual Financial Report

PR Newswire

London, May 29

PERPETUAL INCOME AND GROWTH INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENTFOR THE YEAR ENDED 31 MARCH 2018

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FINANCIAL INFORMATION AND PERFORMANCE STATISTICS

Total return(1) (all income reinvested)

Source: Thomson Reuters.

Note: (1) Defined in the Glossary of Terms on page 65. NAV with debt at market value is widely used by the investment company sector for the reporting of performance, premium or discount, gearing and ongoing charges.

(2) The benchmark index of the Company.

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CHAIRMAN’S STATEMENT

Performance

The Company’s net asset value (NAV) total return for the year ended 31 March 2018 was –5.6%. This was a disappointing result in a difficult year in which the FTSE All-Share Index, the Company’s benchmark, posted a return of just +1.2%. The discount of the share price to the underlying net asset value narrowed marginally during the year, from 9.7% to 9.5%, and the share price total return at –4.9% was consequently slightly better than that on a NAV basis.

This was the second year in succession that the Company has underperformed its benchmark and that has impacted longer term performance. The five year total return on net assets, which last year was well ahead of the benchmark, is now 37.3%, a fraction behind the benchmark return of 37.6%. I am pleased to say that the ten year return at 136.1% is still well ahead of the benchmark return of 90.6%.

The year’s return shortfall relative to the FTSE All-Share Index derived mainly from not holding mining stocks, a setback in tobacco stocks and issues affecting certain individual holdings, particularly Provident Financial and Capita. Your portfolio manager, Mark Barnett, provides further detail on the performance of the portfolio during the year and sets out his strategy and outlook for the coming year in his report on pages 7 to 9.

Notwithstanding the short term results, your Board continues to support Mark’s long term conviction approach, which has historically stood the Company in good stead. His approach means the portfolio is not closely aligned to the benchmark and can result in somewhat uncorrelated outcomes from time to time.

Discount

The Board monitors the price at which the Company’s shares trade relative to their underlying net asset value. During the period under review the Company’s shares have continued to trade at a discount level that is wider than its historical range and the Board has consulted extensively with the Manager and the Company’s corporate broker about it. Our view is that the discount is principally a product of the Company’s relative performance against the wider market and performance will drive demand for the shares and narrow the discount in due course. Nevertheless, we continue to monitor its level closely and are prepared to take action if we believe it to be in the shareholders’ long term interests. We are therefore again seeking shareholder authority to buy back and issue shares, which could potentially assist market liquidity and discount volatility.

Dividend

For the year ended 31 March 2018, three interim dividends of 3.15p each were paid to shareholders in September and December 2017, and March 2018. The Board has declared a fourth interim dividend of 4.45p per share for the year, to be paid on 29 June 2018 to shareholders on the register on 8 June 2018. This gives a total dividend (excluding specials) for the year of 13.90p per share, representing an increase of 4.1% on the previous year and, notwithstanding the disappointing NAV annual performance, extends again the Company’s record of year-on-year ordinary dividend increases since 1999.

Continuing the policy of recent years to pass on to shareholders special dividends received, the Board has also declared a special dividend of 0.80p per share, also to be paid on 29 June 2018 to shareholders on the register on 8 June 2018. This reflects the level of special dividends received, which was a little more than last year. However, special dividends are, by their nature, non-recurring so continuation of the flow seen in recent years should not be relied upon.

The Board

The Board has a formal succession plan in place and regularly reviews its composition to ensure its balance of skills, knowledge, experience, diversity and independence continues to be appropriate and conducive to the effective direction of the Company.

Vivian Bazalgette, who has served as a member of the Board since May 2007 will not be seeking re-election at the forthcoming AGM and will retire from the Board at its conclusion. I would like to take this opportunity to thank him on behalf of the Board for his invaluable contributions to the Board during his tenure.

Following a search assisted by the Miles Partnership, an independent consultancy, the Board announced on 11 December 2017 the appointment of Mike Balfour as a Director, with effect from 2 January 2018. Mr Balfour has a wealth of experience as an investment management professional and as a director of investment trusts. The Board unanimously recommends that shareholders support his election at the forthcoming AGM. A biographical summary is included on page 17.

Regulatory

There has been a considerable amount of regulatory change that has impinged on the Company of late, including the Criminal Finances Act 2017, which introduced a new corporate crime of failure to prevent tax evasion, implementation of the updated Markets in Financial Instruments Directive (MiFID II), the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) and, since the year end, the General Data Protection Regulation (GDPR). PRIIPs requires all investment companies to produce a Key Information Document. Ours is published on the Company’s section of the Manager’s website at www.invescoperpetual.co.uk/pigit. In relation to GDPR, all personal information held on shareholders is used solely for business purposes, such as distribution of the annual and half year reports, payment of dividends and to generate statistical reports for the Board and the Manager. Details of people who have requested to be included on mailing lists for receipt of the annual and half year reports are not used for other purposes, such as marketing.

Annual General Meeting (AGM)

Information on all resolutions to be put to shareholder vote at the AGM can be found in the Directors’ Report on pages 29 and 30. Most of these are the same as last year, but shareholders’ attention is drawn to resolution 7, to approve the Directors’ remuneration policy. This was last approved by shareholders in 2015 and is included in the meeting business this year because it must be put to shareholders at least every three years. The policy has not changed since it was last put to shareholders. The Directors have carefully considered all the resolutions proposed in the Notice of the AGM (as set out on pages 59 to 62) and, in their opinion, consider them all to be in the interests of shareholders as a whole. The Directors therefore recommend that shareholders vote in favour of each resolution.

Following a favourable response from attendees last year, the Company’s AGM this year will again be held at Invesco’s West End office, 1st Floor, 43-45 Portman Square, London W1H 6LY, at 11.00am on 17 July 2018. The Directors and the portfolio manager, Mark Barnett, will be available at the meeting to answer shareholders’ questions.

Richard LaingChairman

30 May 2018

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STRATEGIC REPORTFOR THE YEAR ENDED 31 MARCH 2018

PORTFOLIO MANAGER’S REPORT

Market Review

A flat performance by the UK stock market over the Company’s financial year masked some price volatility, as the FTSE All-Share Index reached an all-time high at the end of 2017. This strength proved to be temporary as the market weakened in the early months of the new year. The period was dominated by the opposing forces of better global economic growth, with associated increases in anticipated interest rates, and ongoing political concerns, especially domestically focused around the Brexit negotiations. The combination of these two factors, alongside significant foreign exchange movements, led to increased polarisation of sector performance in the UK stock market.

The market’s rise in 2017 was led by a rally in the oil and mining sectors, on the back of an improving outlook for global growth, while sterling fell in response to the surprise outcome of the UK general election. However, in the final quarter of the period, rising geopolitical uncertainty, including the possible impact of trade wars, and strength in sterling on the back of better news on Brexit negotiations, resulted in a more difficult backdrop for the market. The reality of rising interest rates and bond yields in the US had a further negative impact.

Sentiment towards UK domestic sectors remained negative throughout the period. This may be attributed to the combination of a pessimistic attitude towards the Brexit negotiations and the weak government elected last June alongside an improvement in the global backdrop. The result has been a collapse in valuations for domestically focused companies, leaving them at multi-year lows, relative to the valuation of the UK equity market as a whole.

Portfolio Review

The Company’s net asset value, including reinvested dividends, delivered a total return of –5.6% over the year under review, compared with one of +1.2% (total return) by the FTSE All-Share Index.

The portfolio’s performance over the period was negatively impacted by a few significant positions, which outweighed and overshadowed strong performances from elsewhere in the portfolio.

Notable amongst the former was the holding in Provident Financial, which delivered negative returns over the period as a whole, despite rallying sharply in the final quarter. The company issued a profit warning last August, downgrading forecasts for its Consumer Credit Division from a profit of £115 million to a loss of between £80 and £120 million for the year. Additionally, the business announced that its Vanquis Bank subsidiary was subject to, and co-operating with, an FCA investigation into its Repayment Option Plan ancillary product, along with the resignation of its chief executive and the cancellation of its dividend.

In February of this year, earlier than anticipated by the market, Provident Financial announced that it had reached resolution in respect of the FCA investigation and was raising a total of £300 million of new capital to strengthen the balance sheet – maintaining its investment grade status – and that it will return to paying dividends this year before resuming a “progressive” dividend policy in 2019.

Capita also endured a challenging year. Following the news of the bankruptcy of Carillion (which is not held in the portfolio), Capita’s board revised its view of an appropriate balance sheet structure for the business. As a result, the company announced the cancellation of its dividend and the outline of a fund raising, without providing details. The market responded very negatively to the initial lack of clarity from management, prompting a sharp fall in the company’s share price. The company also announced a major re-structuring, which should create a leaner, more focused, financially stronger and more efficient business. Subsequent to the period end, Capita has announced a 3 for 2 rights issue to raise £701 million, which has been well received by the stock market.

The portfolio’s holdings in the tobacco sector – British American Tobacco (BAT), Imperial Brands and Reynolds American (now merged with BAT) – have delivered exceptional returns for shareholders over the long term. However, over the past year the sector was impacted by headwinds which resulted in a negative performance. In 2017, the stock market focused on plans announced by the US Food and Drug Administration to launch a consultation on lowering nicotine levels in cigarettes (regulation of which may be expected to take some time to come to fruition). Subsequent underperformance resulted from the weakness of the US dollar and the profit impact on translation into sterling, as well as the shift in market sentiment towards more economically sensitive sectors in a period of rising bond yields.

This negative performance came despite the successful conclusion last year by BAT of the acquisition of Reynolds American, creating an entity which is well positioned to exploit both traditional cigarettes and next generation products, particularly in the key US market. Subsequent results from BAT confirmed headwinds for headline earnings from adverse foreign exchange moves, overshadowing news of underlying growth across the business and a 15% increase in the dividend.

The tobacco companies’ focus on pricing power, cash conversion and product innovation should continue to provide a reliable source of income, underpinning longer term returns to shareholders, while the next generation products have the potential to deliver a significant new revenue stream. Furthermore, the steep decline in the valuations given to this sector over recent months leaves the shares looking increasingly attractive long term investments. A new investment in Altria, a major US tobacco company incorporating the Marlboro brand, was made in the period.

By contrast, there were some noteworthy positive contributions from some of the portfolio’s “Brexit hit” stocks. The easyJet share price rose by more than 50% over the period, as the company reported rising sales and revenues on the back of market share gains. The bankruptcies of Monarch, Air Berlin and Alitalia provided further opportunities for the company in a highly competitive market. Thomas Cook continued its share price recovery from its post Brexit low, as the company confirmed strong growth in its UK and German markets, with demand shifting back to the terrorist impacted markets of the Eastern Mediterranean and North Africa.

Sentiment towards the real estate sector – notably companies exposed to the London office market – was also negatively impacted in the aftermath of the 2016 referendum. Derwent London’s share price recovered some lost ground later in the period, as the company confirmed strong growth in earnings on the back of a record lettings year in 2017. Tenant demand for Derwent’s differentiated buildings in near prime locations remains robust, with Brexit having “no impact so far”. Derwent further pleased investors with a special dividend of 75p a share announced in February. 

The challenges facing the UK retail sector extend well beyond Brexit concerns. However, Next confirmed that its multi channel offering allows it to see the growth of on-line shopping as an opportunity not a threat, while it can flex its leasehold property base to take best advantage of future trends in apparel retailing. Meanwhile, its focus on shareholder returns – through special dividends and further share buy backs – underpinned earnings growth despite both the testing retail back drop and increased investment in logistics to improve the efficiency of its online business.

The pharmaceutical sector encompasses a range of businesses, from the largest global, multinational pharmaceutical companies to much more niche specialty pharma or biotechnology businesses and the portfolio is invested in a diverse number of these. While the holdings in Roche and Vectura weighed on performance, there were some notably strong performances from other small and mid cap portfolio holdings including BTG, Horizon Discovery, Motif Bio, PureTech Health and Silence Therapeutics. The backdrop for the sector is positive, given the ageing population and the demand for western-style medicines in the emerging world. Innovation in drug discovery is strong and R&D productivity is improving, whereas that is not currently reflected in share prices.

In terms of portfolio activity during the year, as mentioned above the holding in Reynolds was disposed of on its takeover by BAT, with a new investment made in Altria. New investments were also made in A J Bell, British Land, Eddie Stobart Logistics, McBride, Royal Dutch Shell ‘A’ and Secure Income REIT. The holdings in N. Brown, Centrica, Compass, London Stock Exchange, Shaftesbury, SSE and Touchstone Innovations were sold.

Outlook

The performance of the UK stock market will remain heavily influenced in the near term by the combination of two key variables: the movements in sterling relative to the US dollar, being a reflection of the Brexit negotiations in Brussels; and the continued vacillations in sentiment to both the domestic economy and the fragile political scene.

The UK stock market is not expensively valued on an historical basis as demonstrated by a price earnings multiple of circa 14 times for the current year. This represents a discount to other major stock markets and is clearly indicative of the Brexit discount applied indiscriminately to UK quoted companies. The most significant area of opportunity is within the sectors that offer direct exposure to the UK economy, notably financials, consumer cyclicals and real estate.

The bias of the investment activity for the portfolio has remained focused on additional opportunities within these sectors. As a continuation of the trend in recent quarters, there has been plenty of negative commentary about the UK economy, in particular regarding the spike in headline inflation post the EU referendum and the impact on real wage growth. This trend has started to reverse and, given the tightness in the labour market, should result in an acceleration of real wages over the coming quarters. However, the market still expects to hear disappointing news about the domestic economy. This mood of pessimism has already had the effect of reducing domestic share prices. We expect that an acceleration in real wages will therefore come as a significant positive surprise to the market, and that domestic share prices will improve as a result.

It is noteworthy on that front that there has been a pick-up in corporate activity and take over proposals to UK companies. For example, the widening discounts of the real estate sector have prompted approaches, including a recently unsuccessful bid proposal to Hammerson by French competitor Klepierre. Activist investors have taken advantage of depressed share prices to take stakes in large cap companies to encourage changes in corporate strategy.

Recent market swings have favoured momentum style investing, with an ever-increasing disparity between valuation and fundamentals becoming clear. It is frustrating that in periods of extreme momentum – as we have experienced over the past year – portfolio performance will predictably struggle to keep pace. The current environment is supporting premium valuations for growth or disruptively innovative companies.

Within this context, attractive opportunities continue to appear in areas which would traditionally be seen as uncorrelated to the wider market and economy. When assessing these opportunities, it is important to understand the risk associated with the relative attractiveness of the returns. These opportunities encompass a wide range of sectors including Lloyd’s insurers and alternative lending businesses. Whilst these opportunities may lag the broader stock market when momentum seems to outweigh valuation, as the first quarter of 2018 has demonstrated, these investments can continue to deliver returns irrespective of the performance of the market.

The outlook and positioning has changed very little over the past few months. In a changing global environment the interests of investors are best served by employing a well-tested investment process, which is based on fundamental company analysis and a prudent approach to valuation. I continue to evaluate and re-evaluate the holdings in the portfolio and to seek the best opportunities to generate the real growth in dividend income required to achieve the Company’s investment objective. In times of extreme momentum and somewhat irrational market pricing it is vital to remain rooted in this fundamental investment thesis, which has served the Company well historically and should continue to do so.

Mark BarnettPortfolio Manager

30 May 2018

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BUSINESS REVIEW

Perpetual Income and Growth Investment Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.

The business model the Company has adopted to achieve its investment objective has been to contract investment management and administration to appropriate external service providers, which are overseen by the Board. The principal service provider is Invesco Fund Managers Limited (‘IFML’ or the ‘Manager’). Invesco Asset Management Limited, an associate company of IFML, manages the Company’s investments and acts as company secretary under delegated authority from IFML. References to the Manager in this annual financial report should consequently be considered to include both entities.

The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board’s strategy. Mark Barnett is the portfolio manager responsible for the day-to-day management of the portfolio. His associate Martin Walker deputises in the event of Mr Barnett’s absence.

In addition to the management and administrative functions of the Manager, the Company has contractual arrangements with Link Asset Services to act as registrar and The Bank of New York Mellon (International) Limited (BNYMIL) as depositary and custodian. BNYMIL became the depositary following novation of the depositary agreement with BNY Mellon Trust & Depositary (UK) Limited on 1 December 2017. The transfer has had no substantive effect on the services received by the Company.

Investment Objective

The Company’s investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to longer term from a portfolio of securities listed mainly in the UK equity market.

Investment Policy

The Company invests mainly in UK equities and equity-related securities of UK-listed companies. The Manager seeks to identify and invest mainly in companies that offer a combination of good capital growth prospects with the ability to increase dividends over time. Market exposure may also be gained through the limited use of derivatives, the purpose of which would be to achieve changes to the portfolio’s economic exposure. However, the Company will not enter into derivative transactions for speculative purposes.

The Manager manages the portfolio to reflect its convictions and best ideas. The Manager does not set out to manage the risk characteristics of the portfolio relative to the FTSE All-Share Index (‘benchmark index’) and the investment process may result in potentially very significant over or underweight positions in individual sectors versus the benchmark index. If a security is not considered to be a good investment, then the Company will not own it, irrespective of its weight in the benchmark index.

The Manager controls the stock-specific risk of individual securities by ensuring that the portfolio is always appropriately diversified. In-depth and continual analysis of the fundamentals of investee companies allows the Manager to assess the financial risks associated with any particular security.

The Directors believe that the use of borrowings can enhance returns to shareholders and the Company will use borrowings in pursuing its investment objective.

The Company may hedge exposure to changes in foreign currency rates in respect of its overseas investments, at the Manager’s discretion.

Investment Limits

The Board has prescribed investment limits forming part of the Investment Policy, the most significant of which follow:

– not more than 12% of gross assets in any single investment;

– not more than 15% of gross assets in other listed investment companies;

– not more than 20% of gross assets in non-UK listed securities;

– not more than 10% of gross assets in fixed interest securities;

– derivatives (including warrants) may be used for investment purposes to increase the Company’s market exposure by up to 5% of gross assets. Derivatives may also be used to hedge the portfolio’s market exposure; and

– borrowings may be used to raise exposure to securities up to a maximum of 25% of net assets where it is considered appropriate.

Each limit is measured at the time of investment or borrowing.

Borrowing

Borrowing policy is under the control of the Board. The Board has set a maximum borrowing limit of 25% of total net assets (measured at the time new borrowings are drawn). The use of borrowing for investment is not an expression of confidence in the performance of the overall UK stock market, but rather an endorsement of the potential for the securities selected for the portfolio. The Company currently has three sources for borrowing, being £60 million par value of fixed rate 15 year senior secured notes (Notes) with an interest rate of 4.37% and two facilities provided by The Bank of New York Mellon, being a £60 million uncommitted revolving credit facility and an £80 million uncommitted overdraft facility. Both the Board and the Manager are content that these arrangements offer a sufficiently flexible means of gearing. Further details are contained in notes 11 and 12 on page 51.

Performance

The Board reviews performance by reference to Key Performance Indicators (KPIs). The five main KPIs are as follows:

Asset Performance

On a total return basis, the Company’s one, three, five and ten year record for its NAV and share price compared to the benchmark index is shown on page 2. For the year to 31 March 2018, the Company’s NAV underperformed the benchmark index by 6.8%.

In reviewing the performance of the assets of the Company, the Board monitors the NAV performance in relation to the FTSE All-Share Index. However, the Manager’s aim is to achieve absolute return through a genuinely active investment management approach. It is not the investment management team’s philosophy to regard the FTSE All-Share Index as a benchmark for portfolio construction for the Company. This approach can therefore result in a portfolio that is from time to time substantially different from the FTSE All-Share Index but, the last two years’ results notwithstanding, has historically achieved significant outperformance of that index.

Peer Group Performance

There were 23 investment trusts in the UK Equity Income sector at 31 March 2018. This sector, however, is quite diverse in its investment policies and structures. The Board monitors the performance of the Company in relation to both this sector as a whole and to those companies within it which the Board consider to be its peer group.

As at 31 March 2018, of those companies ranked within the UK Equity Income sector, the Company was ranked 22nd over one and three years, and 18th over five years by NAV performance (source: JP Morgan Cazenove).

Dividends and Dividend Policy

The Company’s dividend policy is that the Directors shall seek to provide ordinary shareholders with real growth in dividends over the medium to longer term. In so doing the Directors aim to distribute, by way of dividend, substantially all of the Company’s net income after expenses and taxation whilst also retaining a prudent level of reserves. Dividends are paid on a regular quarterly basis in September, December, March and June in respect of each accounting year. The timing of these regular quarterly payments means that shareholders do not have an opportunity to vote on a final dividend. Recognising the importance of shareholder engagement, and although not required by any regulation, shareholders were given an opportunity to vote on this policy at the last AGM. Of the votes registered 99.9% were in favour. It is not considered necessary to repeat the exercise this year because the policy has not changed.

The Board has declared ordinary dividends of 13.9p per share in respect of the year under review, compared with 13.35p per share in respect of the prior year, an increase of 4.1%. A special dividend of 0.8p per share has also been declared (2017: 0.7p). The Retail Price Index increased 3.3% in the year. The individual dividends declared for the year are shown on the next page, on page 2 and in note 8 to the financial statements.

The Manager aims to maximise total return from the portfolio. The Manager subscribes to the benefits of strong earnings growth and the importance of dividends to total return. However, whilst income is an important consideration, dividend yields do not constrain investment decisions.

Discount

The Board monitors the discount at which the Company’s ordinary shares trade and how this compares to other investment trusts in the peer group. During the year the shares traded in the discount range of 6.7% to 10.5% and ended the year at a 9.5% discount. This is shown in the adjacent graph which plots the discount over the year. As at 31 March 2018, the weighted average discount of the 23 investment trusts in the UK Equity Income sector was 3.4% (2017: 4.8%) (source: JPMorgan Cazenove).

The Board and the Manager closely monitor movements in the Company’s share price and dealings in the Company’s shares. In order to address any significant imbalance in the market, the Board asks shareholders to approve resolutions each year which allow for the repurchase of ordinary shares (for cancellation or to be held as treasury shares) and also their issuance. This may also assist in the management of the discount. No shares were issued or bought back in the past year.

The Company has not previously held any shares in treasury. However, should the Board consider it to be in shareholders’ interests to do so, then it is the Board’s policy to sell shares held as treasury shares on terms that are in the best interests of shareholders as a whole.

Ongoing Charges

The expenses of managing the Company are reviewed by the Board at every meeting. The Board aims to minimise the ongoing charges figure which provides a guide to the effect on performance of all annual operating costs of the Company. The ongoing charges figure for the year was 0.70% (2017: 0.65%) based on management fees and other expenses of £7,010,000 (2017: £6,267,000). The change from last year is principally due to the new management fee arrangements described in last year’s annual financial report (see also Directors’ Report page 27).

Results and Dividends

On 31 March 2018, the share price and the net asset value (debt at market value) per ordinary share were 344.0p and 380.1p respectively. The respective comparable figures at 31 March 2017 were 375.8p and 416.2p.

For the year ended 31 March 2018, three interim dividends of 3.15p each per share were paid on 29 September 2017, 29 December 2017 and 30 March 2018 respectively. A fourth interim dividend of 4.45p per share has been declared for payment on 29 June 2018 to shareholders on the register on 8 June, giving total interim dividends for the year of 13.9p (2017: 13.35p). As discussed in the Chairman’s Statement, a special dividend of 0.8p per share has also been declared and will be paid at the same time as the fourth interim dividend. The aggregate dividend paid for the year is 14.7p (2017: 14.05p).

Financial Position and Borrowings

The Company’s balance sheet on page 42 shows the assets and liabilities at the year end. Details of the £60 million senior secured notes are shown in note 12, and details of the Company’s overdraft and revolving credit facilities are shown in note 11.

Outlook, including the Future of the Company

The main trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Portfolio Manager’s Report in this Strategic Report. Further details of the principal risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.

Principal Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates and has carried out a robust assessment of the principal risks facing the Company. The following sets out a description of those risks and how they are being managed or mitigated.

Economic Risk

Economic risk arises from uncertainty about the future prices of the Company’s investments. The majority of the Company’s investments are listed on regulated stock exchanges and will be subject to market fluctuations, both upward and downward, arising from external factors including general economic conditions and government policies. Such factors are outside the control of the Board and the Manager and may give rise to high levels of volatility in the prices of the investments held.

Investment Risk

There can be no guarantee that the Company will meet its investment objective and therefore there is also a risk of underperformance against the Company’s benchmark index. The Manager provides the Board with management information, including performance data, and shareholder analysis.

The overall effect on the Company of poor performance of individual investments is mitigated through the guidelines the Board has established, which amongst other things ensure that the portfolio of investments is appropriately diversified. Any proposed divergence from these guidelines is referred to the Board and the guidelines themselves are reviewed at every Board meeting. The day-to-day management of the portfolio is the responsibility of the portfolio manager who, with his team, undertakes continual analysis of the fundamentals of all holdings. The performance of the portfolio manager is carefully monitored by the Board culminating in the annual review of the management contract.

A fuller discussion of the economic and market conditions facing the Company and the current and future performance of the portfolio are included in the Portfolio Manager’s Report on pages 7 and 9. Past performance of the Company is not necessarily indicative of future performance.

Financial Risk

The financial risks faced by the Company include market price risk (including currency risk, interest rate risk and other price risk), liquidity risk and credit risk, which includes counterparty and custodial risk. Details of these risks and how they are managed are disclosed in note 16 to the financial statements on pages 52 to 56.

Gearing Risk

Whilst the use of borrowings by the Company should enhance total shareholder return when the return on the Company’s underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect when the underlying return is falling. Whilst the portfolio manager has discretion on when and how he should use borrowings to gear returns, the Board reviews regularly the level of gearing and the extent of available borrowings.

Share Discount Risk

The Company’s shares may trade at a wide discount to their underlying net asset value. The Board and the Manager maintain an active dialogue on the market rating of the Company’s shares and the Board has taken the powers, which it seeks to renew each year, for both share repurchase and issuance, which can help in its management.

Operational Risk

The Board regularly reviews the system of financial and non-financial internal controls operated by the Company, the Manager and other external service providers. These include controls designed to safeguard the Company’s assets and to ensure that proper accounting records are maintained. Details of how the Board monitors the services provided by the Manager and other suppliers are explained further in the internal controls and risk management section in the audit committee report on page 21. The depositary also monitors the Company’s stock, cash, borrowings and investment restrictions throughout the year and issues an annual report to the Directors.

Regulatory Risk

The Company is subject to various laws and regulations by virtue of its status as a public limited company registered under Section 833 of the Companies Act 2006, its status as an investment trust, and its listing on the Official List of the UK Listing Authority.

Loss of investment trust status for tax purposes could lead to the Company being subject to tax on the realised capital profits on the sale of its investments. A serious breach of other regulatory rules could lead to suspension from the Official List, a fine or qualified audit report. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. The Manager reviews compliance with tax and other financial regulatory requirements on a daily basis and reports to the Board on a regular basis on all regulatory aspects.

Other Risks

The risk that the portfolio manager, Mark Barnett, may become incapacitated or otherwise be unavailable is mitigated by support available from his designated deputy for this portfolio, Martin Walker, and the wider Invesco Perpetual UK Equities team.

Viability Statement

The Directors’ view of the Company’s viability has not changed since last year. The Company, as an investment trust, is a collective investment vehicle designed and managed for the long term. The Company’s investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to longer term. The Directors take a long term view in their stewardship of the Company, as does the portfolio manager in his management of the portfolio. The Company is required by its Articles to have a continuation vote every five years, the next instance being in 2021. The Directors have no reason to believe that shareholders will not vote, again, for the continuation of the Company at that time. The Company typically holds shares for at least five years, and this period is substantially less than the outstanding term of the Company’s Notes, which will require repayment in 2029. Consequently, the Directors consider that the appropriate term for the purpose of this viability statement is five years.

In their assessment of the Company’s viability, the Directors considered the principal risks to which it is exposed, as set out on pages 12 and 13, together with mitigating factors. Their assessment also considered the following: the Company’s investment objective and strategy; the investment capabilities of the portfolio manager; the business model of the Company, which has effectively been stress tested over the years through various difficult market cycles; the current outlook for the UK economy and equity markets; demand for the Company’s shares and the discount at which they trade; the Company’s borrowing structure; the liquidity of the portfolio; and the Company’s future income and annual operating costs. Consideration of the borrowing structure included the amount the NAV could fall without triggering the repayment of the Notes and /or the bank overdraft and credit facility and the amount of debt cover – which at the year end was more than eight times the aggregate of these liabilities.

The Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of assessment.

Board Diversity

The Board’s policy on diversity is that the Board seeks to ensure that its structure, size and composition, including the balance of skills, knowledge, diversity (including gender) and experience of Directors, is sufficient for the effective direction and control of the Company. The Board has not set any measurable targets or quotas in respect of this policy. The Board comprises six non-executive directors, one of whom is a woman. This constitutes 16.6% female Board representation. Summary biographical details of the Directors are set out on page 17. The Company has no employees.

Social and Environmental Matters

As an investment company with no employees, property or activities outside investment, environmental policy has limited application. The Manager considers various factors when evaluating potential investments. While a company’s policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Manager does not necessarily decide to make or not to make an investment on environmental and social grounds. The Manager applies the United Nations Principles for Responsible Investment.

As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not within the scope of the Modern Slavery Act 2015.

This Strategic Report was approved by the Board of Directors on 30 May 2018

Invesco Asset Management LimitedCompany Secretary

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INVESTMENTS IN ORDER OF VALUATIONAT 31 MARCH 2018

Ordinary shares listed in the UK unless stated otherwise

Notes: (1) UQ is unquoted investment.

(2) American Depositary Receipt.

(3) NR is non-rated (by both Moody and S&P).

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STATEMENT OF DIRECTORS’ RESPONSIBILITIESin respect of the preparation of the Annual Financial Report

The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with UK Accounting Standards, including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.

Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors 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 which enable them to ensure that the 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, Directors’ Report, a Directors’ Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors of the Company each confirm to the best of their knowledge, that:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company taken as a whole; and

• this annual financial report includes 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.

The Directors consider that the annual financial report taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Signed on behalf of the Board of Directors

Richard LaingChairman

30 May 2018

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INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH

The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no statement of comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

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RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDSFOR THE YEAR ENDED 31 MARCH

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BALANCE SHEETAS AT 31 MARCH

These financial statements were approved and authorised for issue by the Board of Directors on 30 May 2018.

Richard LaingChairmanSigned on behalf of the Board of Directors

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NOTES TO THE FINANCIAL STATEMENTS

1. Principal Accounting Policies

Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the year and the preceding year, unless otherwise stated.

(a) Basis of Preparation

Accounting Standards applied

The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014, and updated in January 2017. The financial statements are issued on a going concern basis.

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in equity (in these financial statements it is called the Reconciliation of Movements in Shareholders’ Funds) is provided.

(b) Foreign Currency and Segmental Reporting

(i) Functional and presentational currency

The financial statements are presented in sterling, which is the Company’s functional and presentational currency and the currency in which the Company’s share capital and expenses, as well as the majority of its assets and liabilities, are denominated.

(ii) Transactions and balances

Transactions in foreign currencies, whether of a revenue or capital nature, are translated to sterling at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. Any gains or losses, whether realised or unrealised, are taken to the capital reserve or to the revenue reserve, depending on whether the gain or loss is of a capital or revenue nature. All gains and losses are recognised in the income statement.

(iii) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business of investing in equity and debt securities, issued by companies quoted mainly on the UK or other regulated stock exchanges.

(c) Amounts recognised in Capital Reserves

The following are included in the income statement and recognised in capital: realised gains or losses on sales of investments; realised gains or losses on foreign currency and any forward currency contracts; management fees and finance costs allocated to capital; any other capital charges; and unrealised increases or decreases in the valuation of investments at the year end (including the related foreign exchange gains and losses).

(d) Financial Instruments

The Company has chosen to apply the provisions of Section 11 and 12 of FRS102 in full in respect of the financial instruments.

(i) Recognition of financial assets and financial liabilities

The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company will offset financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(ii) Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.

(iii) Derecognition of financial liabilities

The Company derecognises financial liabilities when its obligations are discharged, cancelled or expired.

(iv) Trade date accounting

Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.

(v) Classification and measurement of financial assets and financial liabilities

Financial assets

The Company’s investments are classified as held at fair value through profit or loss.

Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the income statement, and are subsequently valued at fair value.

Fair value for investments that are actively traded in organised financial markets is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling. Where there is no active market, unlisted/illiquid investments are valued by the Directors at fair value based on recommendations from Invesco’s Pricing Committee, which in turn is guided by the International Private Equity and Venture Capital Association Guidelines. The unlisted investment valuations are reviewed on a quarterly basis or at specific trigger events. These are evaluated using valuation techniques such as earnings multiples, recent arm’s length transactions, net assets and milestones attained.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.

(e) Cash and Cash Equivalents

Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds. Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.

(f) Derivatives

Forward currency contracts may be entered into for hedging purposes and are valued at the appropriate forward exchange rate ruling at the balance sheet date. Profits or losses on the closure or revaluation of positions are recognised in the income statement and included in capital.

(g) Income

Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’. Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treated as income or capital in the income statement.

Deposit interest and underwriting commission receivable are taken into account on an accruals basis.

Interest income arising from fixed income securities is recognised in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

(h) Expenses and Finance Costs

Expenses are recognised on an accruals basis and finance costs are recognised using the effective interest method and held at amortised cost. Investment management fees and finance costs are recognised on an accruals basis and are charged 70% to capital and 30% to revenue. This is in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

(i) Taxation

The liability for corporation tax is based on net revenue for the year excluding non-taxable dividends. The tax charge is allocated between the revenue and capital account on the marginal basis whereby revenue expenses are matched first against taxable income in the revenue account.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have occurred. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements. Deferred taxation assets are recognised where, in the opinion of the Directors, it is more likely than not that these amounts will be realised in future periods.

A deferred tax asset has not been recognised in respect of surplus management expenses and losses on loan relationships, as the Company is unlikely to have sufficient future taxable revenue to offset against these.

(j) Dividends

Dividends are not recognised in the financial statements unless there is an obligation to pay at the balance sheet date. Dividends are recognised in the year in which they are paid to shareholders.

2. Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

Special dividends of £14,126,000 have been recognised in capital (2017: £318,000).

3. Investment Management Fees

This note shows the fees due to the Manager which are calculated and paid quarterly.

Details of the Investment Management Agreement can be found on page 27. At 31 March 2018 £1,500,000 (2017: £1,420,000) was due for payment in respect of the investment management fee.

4. Other expenses

The other expenses of the Company are presented below; those paid to the Directors and the auditor are separately identified.

(i) Further information on Directors’ remuneration is provided in the Director’s Remuneration Report.

(ii) Fees payable to the Company auditor are shown excluding VAT which is included in other expenses.

(iii) Included within other expenses is £15,000 (2017: £13,000) of employer’s National Insurance paid on Directors’ remuneration. As at 31 March 2018, the amounts outstanding on Directors’ remuneration and employer’s National Insurance was £22,000 (2017: £15,000). Other expenses charged to capital arise from custodian transaction charges.

5. Finance costs

Finance costs arise on any borrowing the Company has, being in this case the £60 million notes, overdraft and loan facility.

Loan notes are amortised on an effective interest basis.

6. Tax on ordinary activities

As an investment trust the Company pays no tax on capital gains. The Company also suffers no tax on income arising on UK and certain overseas dividends, mainly EU ones. As a result, the Company’s tax charge arises solely from irrecoverable tax on overseas dividends. Lastly, this note clarifies the basis for the Company having no deferred tax asset or liability.

(a) Tax Charge

(b) Reconciliation of Tax Charge

(c) Factors That May Affect Future Tax Changes

The Company has excess management expenses and loan relationship deficits of £178,726,000 (2017: £172,042,000) that are available to offset future taxable revenue. A deferred tax asset, measured at the prospective rate of corporation tax of 17% of £30,383,000 (2017: 17%, £29,247,000) has not been recognised in respect of these expenses since they are recoverable only to the extent that the Company has sufficient future taxable revenue.

7. Return per Ordinary Share

Return per share is the amount of gain (or loss) generated for the financial year divided by the weighted average number of ordinary shares in issue.

8. Dividends on Ordinary Shares

Dividends represent the return of income to shareholders. The Company pays four interim dividends a year.

Dividends on equity shares paid in the year:

Dividends on equity shares payable in respect of the year:

9. Investments at Fair Value

The portfolio comprises investments which are listed, i.e. traded on a recognised stock exchange, and some unlisted investments.

Gains and losses are either:

• realised, usually arising when investments are sold; or

• unrealised, being the difference from cost on those investments still held at the year end.

(a) Investments

(b) Transaction Costs

The transaction costs included in gains on investments consisted of £757,000 (2017: £633,000) on purchases and £204,000 (2017: £238,000) on sales.

(c) Significant holdings

At 31 March 2018 the Company had holdings of 3% or more of the number in issue of the following investments:

UQ: unquoted investment.

10. Debtors

Debtors are amounts which are due to the Company, such as monies due from brokers for investments sold and income which has been earned (accrued) but not yet received.

11. Creditors: amounts falling due within one year

Creditors are amounts which must be paid by the Company and are split between those due within 12 months of the balance sheet date (as shown in this note) and those due after that time (as shown in the next note).

With effect from 01 December 2017, the Company has an uncommitted bank overdraft facility of £80 million (2017: £140 million) and an uncommitted bank loan facility of £60 million (2017:nil) based in aggregate on the lower of 25% of net asset value of the Company and £140 million. Both are repayable on demand.

Interest is payable on both facilities at 0.7% over LIBOR. The covenant under both facilities require total assets to not fall below £620 million (2017: £620 million).

12. Creditors: amounts falling due after more than one year

The senior secured notes (Notes) of £60 million were issued on 8 May 2014 and are secured by a floating charge over all the Company's assets and are redeemable at par on 8 May 2029.

The Notes have a fixed rate of 4.37% per annum payable biannually on 8 May and 8 November. Issue costs are amortised over the life of the Notes using the effective interest method.

The Notes are secured by a first floating charge over the Company’s assets. Under the Notes Purchase Agreement, the net asset value (NAV) of the Company must not fall below £350 million and the Company must ensure that the ratio of gross borrowings (measured at par) to the NAV must not, at any time, exceed 50%.

13. Share Capital

Share capital represents the total number of shares in issue, on which dividends accrue.

During the year the Company did not issue or repurchase any ordinary shares (2017:nil).

No shares have been issued or brought back subsequent to the year end.

The Directors’ Report on page 29 sets out the share capital structure, restrictions and voting rights.

14. Reserves

This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.

The share premium comprises the net proceeds received by the Company following the issue of shares, after deduction of the nominal amount of 10 pence and any applicable costs. The share premium is non-distributable.

Capital investment gains and losses are shown in note 9(a) and form part of the capital reserve. The revenue reserve shows the net revenue retained after payment of any dividends. The capital and revenue reserves are distributable by way of dividend.

15. Net Asset Value

The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.

The following shows the shareholders’ funds and net asset value (NAV) in pence per share, together with a reconciliation of the NAV with debt at par to NAV with debt at market value.

The difference in the NAV s arises solely from the valuation of the 4.37% senior secured loan notes 2029 (Notes).

The number of shares in issue at the year end is shown in note 13.

Only the basic NAV is shown. There is no dilution in this or the previous year.

16. Risk Management and Financial Instruments

Financial instruments comprise the Company’s investment portfolio, derivative financial instruments (if the Company had any), as well as any cash, borrowings, other receivables and other payables. This note sets out risks arising from these in terms of the Company’s exposure and sensitivity, and any mitigation that the Manager or Board can take.

The Company’s strategy for managing investment risk is determined with regard to the Company’s Investment Policy, as shown on page 10. The management of market risk is part of the investment management process. The Company’s portfolio is managed in accordance with the internal controls and risk management systems as described in the sections thereon in the Corporate Governance Statement (page 19) and in the Audit Committee Report (page 20). The overall disposition of the Company’s assets is reviewed by the Board on a regular basis.

The Company’s financial instruments comprise its investment portfolio (as shown on pages 15 and 16) cash, borrowings (including loan, overdraft and notes), debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. For the purpose of this note ‘cash’ should be taken to comprise cash and cash equivalents. The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured.

The principal risks that an investment company faces in its portfolio management activities are set out below:

Market risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk:

Currency risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in foreign exchange rates;

Interest rate risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market interest rates; and

Other price risk – arising from fluctuations in the fair value or future cash flows of a financial instrument for reasons other than changes in foreign exchange rates or market interest rates.

Liquidity risk – arising from any difficulty in meeting obligations associated with financial liabilities.

Credit risk – arising from financial loss for a company where the other party to a financial instrument fails to discharge an obligation.

Risk Management Policies and Procedures

The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Business Review.

As an investment trust the Company invests in equities and other investments for the long term so as to meet its investment objective and policies. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends. The risks applicable to the Company and the policies the Company used to manage these risks for the two years under review follow.

16.1 Market Risk

The Company’s Manager assesses the Company’s direct exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance. No other derivative or hedging instruments are utilised to manage market risk. Gearing is used to enhance returns, but this also increases the Company’s exposure to market risk and volatility.

16.1.1 Currency risk

The majority of the Company’s assets, liabilities and income are denominated in sterling. There is some exposure to Euros, Swiss francs and US dollars.

Management of the currency risk

The Manager monitors the Company’s direct exposure to foreign currencies on a daily basis and reports to the board on a regular basis.

Forward currency contracts can be used to reduce the Company’s exposure to anticipated future changes in exchange rates which are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objective and policies. All contracts are limited to currencies and amounts commensurate with the asset denominated in those currencies. During the year, no forward currency contracts were used by the Company (2017: none).

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.

Currency exposure

The fair values of the Company’s monetary items that have currency exposure at 31 March are shown below. Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency, they have been included separately in the analysis so as to show the overall level of exposure.

The above may not be representative of the exposure to risk during the year, because the levels of foreign currency exposure may change significantly throughout the year.

Currency sensitivity

The following table illustrates the sensitivity of the return after taxation for the year using exchange rates for sterling to Euros, Swiss francs and US dollars. It is based on the Company’s monetary foreign currency financial instruments held at each balance sheet date and takes account of any forward foreign exchange contracts, if used, that offset the effects of changes in currency exchange rates.

The possible change in exchange rates of ±2.0% (2017: n/a) for Euros, ±2.6% (2017: ±5.1%) for Swiss francs and ±3.4% (2017: ±6.3%) for US dollars has been determined based on market volatility in the year, using the standard deviation of sterling’s fluctuation to the applicable foreign currency against the mean.

If sterling had strengthened, this would have had the following effect:

If sterling had weakened against the currencies above, the effect would have been the exact opposite.

In the opinion of the Directors, the above sensitivity analysis is not representative of the year as a whole, since the level of exposure may change frequently as part of the currency risk management process of the Company.

16.1.2 Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings. When the Company has cash balances, they are held on variable rate bank accounts yielding rates of interest dependent on the base rate of the custodian. At the year end the Company had bank borrowings and senior secured loan notes, details of which are shown in notes 11 and 12. The Company uses the facilities when required at levels approved and monitored by the Board.

At the maximum overdraft and loan of £140 million, the effect of a ±1% in the interest rate would result in a decrease/increase to the Company’s income statement of £1.4 million (2017: £1.4 million).

At the previous and current year ends the Company had no investment in, and thus exposure to, any debt securities.

16.1.3 Other price risk

Other price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the equity investments, but it is the business of the Manager to manage the portfolio to achieve the best return for an acceptable level of risk.

Management of other price risk

The Directors manage the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis the Manager’s compliance with the Company’s stated objectives and policies and to review investment performance.

The Company’s portfolio is the result of the Manager’s investment process and as a result is not correlated with the Company’s benchmark or the market in which the Company invests. The value of the portfolio will not move in line with the market but will move as a result of the performance of the company shares within the portfolio.

If the value of the portfolio rose or fell by 10% at the balance sheet date, the return after tax for the year would increase or decrease by £104.8 million (2017: £116.5 million) respectively.

16.2 Liquidity risk

Liquidity risk is minimised as the majority of the Company’s investments are readily realisable securities which can be sold to meet funding commitments as necessary. In addition, the £140 million bank overdraft and loan facility provides for additional funding flexibility.

16.3 Credit risk

Encompasses the failure by counterparties to deliver securities which the Company has paid for, or to pay for securities which the Company has delivered. This risk is minimised by using only approved counterparties. The Company’s ability to operate in the short-term may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. However, with the support of the depositary’s restitution obligation the risk of outright credit loss on the investment portfolio is remote. The Board reviews the custodian’s annual controls report and the Manager’s management of the relationship with the custodian. Cash balances are limited to a maximum of 1% of net assets with any one deposit taker, with only approved deposit takers being used. This limit is at the discretion of the Board and is reviewed on a regular basis.

The maximum credit risk exposure arises from the debtors of £8,486,000 (2017: £7,939,000) shown in note 10.

17. Fair Value

The values of the financial assets and financial liabilities are carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (amounts due from brokers, dividends receivable, accrued income, amounts due to brokers, accruals, cash and any drawings on the bank facilities) or at amortised cost (Notes).

Fair Value Hierarchy Disclosures

Nearly all of the Company’s portfolio of investments are in the Level 1 category as defined in FRS 102, as amended for fair value hierarchy disclosures (March 2016). The three levels set out in this follow.

• Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

• Level 3 – Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.

The valuation techniques used by the Company are explained in the accounting policies note.One investment is shown in Level 2 as a result of market inactivity: Barclays Bank – Nuclear Power Notes 29 February 2019. The investments in Level 3 are those shown as unquoted investments in the investment portfolio on pages 15 and 16 and are valued on the following basis as described in note 1(v):

The book cost and market value (fair value) of the senior secured loan notes based on a comparable quoted debt security at the balance sheet date follows:

18. Capital Management

The Company’s total capital employed at 31 March 2018 was £1,050,311,000 (2017: £1,170,057,000) comprising borrowings of £126,382,000 (2017: £157,092,000) and equity share capital and other reserves of £923,929,000 (2017: £1,012,965,000).

The Company’s total capital employed is managed to achieve the Company’s investment objective and policy as set out on page 10, including that borrowings may be used to raise equity exposure up to a maximum of 25% of net assets. At the balance sheet date, net gearing was 13.7% (2017: 15.5%). The Company’s policies and processes for managing capital are unchanged from the preceding year.

The main risks to the Company’s investments are shown in the Directors’ Report under the ‘Principal Risks and Uncertainties’ section on pages 12 to 14. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy back shares and it also determines dividend payments. The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by Section 1159 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility, by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year. Current year borrowings comprise a bank overdraft, bank loan and senior secured notes, details of which are given in notes 11 and 12.

19. Contingencies, Guarantees and Financial Commitments

Any liabilities the Company is committed to honour and which are dependent on future circumstances or events occurring would be disclosed in this note if any existed.

There were no other contingencies, guarantees or financial commitments outstanding at the balance sheet date.

20. Related Party Transactions and Transaction with the Manager

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.

Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remunerations and interests have been disclosed on pages 31 to 33 with additional disclosure in note 4. No other related parties have been identified.

Under UK GAAP, the Manager is not a related party. Details of the Manager’s services and fees are disclosed in the Directors' Report on page 27, and in note 3.

21. Post Balance Sheet Event

Any significant events that occurred after the balance sheet date but before the signing of the balance sheet will be shown here.

There are no significant post balance sheet events requiring disclosure.

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NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS GIVEN that the Annual General Meeting (AGM) of Perpetual Income and Growth Investment Trust plc will be held at 1st Floor, 43-45 Portman Square, London W1H 6LY at 11.00am on 17 July 2018 for the following purposes:

Ordinary Business

To consider and, if thought fit, to pass the following resolutions all of which will be proposed as ordinary resolutions:

1. To receive the Annual Financial Report for the year ended 31 March 2018.

2. To re-elect Victoria Cochrane a Director of the Company.

3. To re-elect Alan Giles a Director of the Company.

4. To re-elect Richard Laing a Director of the Company.

5. To re-elect Bob Yerbury a Director of the Company.

6. To elect Mike Balfour a Director of the Company.

7. To approve the Directors’ remuneration policy as set out on page 31 of the 2018 annual financial report.

8. To approve the Annual Statement and Report on Remuneration for the year ended 31 March 2018.

9. To re-appoint Ernst & Young LLP as auditor.

10. To authorise the Audit Committee to determine the auditor’s remuneration.

Biographies of Directors seeking re-election are shown on page 17 of the annual financial report.

Special Business

To consider and, if thought fit, to pass the following resolutions of which resolution 11 will be proposed an Ordinary Resolutions and resolutions 12, 13 and 14 will be proposed as Special Resolutions:

11. THAT:

the Directors be generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to exercise all powers of the Company to allot relevant securities (as defined in that section) up to an aggregate nominal amount (within the meaning of Sections 551(3) and (6) of the Act) of £2,404,323, this being 10% of the Company’s issued ordinary share capital as at 30 May 2018, such authority to expire at the conclusion of the next AGM of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry as if the authority conferred by this resolution had not expired.

12. THAT:

the Directors be and they are hereby empowered, in accordance with Sections 570 and 573 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to allot equity securities for cash, either pursuant to the authority given by resolution 12 set out above or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:

(a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise); and

(b) to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £2,404,323, this being 10% of the Company’s issued ordinary share capital as at 30 May 2018.

and this power shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, but so that this power shall allow the Company to make offers or agreements before the expiry as if the power conferred by this resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution.

13. THAT:

the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to make market purchases (within the meaning of Section 693(4) of the Act) of its issued ordinary shares of 10p each in the capital of the Company (‘Shares’)

PROVIDED ALWAYS THAT:

(i) the maximum number of Shares hereby authorised to be purchased shall be 14.99% of the Company’s issued ordinary shares on 17 July 2018, being the date of the AGM (equivalent to 36,040,809 shares at 30 May 2018);

(ii) the minimum price which may be paid for a Share shall be 10p;

(iii) the maximum price which may be paid for a Share must not be more than the higher of: (a) 5% above the average of the mid-market values of the Shares for the five business days before the purchase is made; or (b) that stipulated by the regulatory technical standards adopted by the EU pursuant to the Market Abuse Regulation from time to time;

(iv) any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors);

(v) the authority hereby conferred shall expire at the conclusion of the next AGM of the Company or, if earlier, on the expiry of 15 months from the passing of this resolution unless the authority is renewed at any other general meeting prior to such time;

(vi) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and

(vii) any shares so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of Sections 724 to 731 of the Act and any applicable regulations of the United Kingdom Listing Authority, be held (or otherwise dealt with in accordance with Section 727 or 729 of the Act) as treasury shares.

14. THAT:

the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 clear days’ notice.

The resolutions are explained further in the Directors’ Report on pages 29 and 30.

Dated this 30th May 2018 

By order of the Board

Invesco Asset Management Limited

Company Secretary

.

This Annual Financial Report announcement does not constitute the Company's statutory accounts.

The statutory accounts for the year ended 31 March 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2017 received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006.

The statutory accounts for the financial year ended 31 March 2018 have been approved and audited but have not yet been filed.

The audited annual financial report will be available to shareholders, and will be delivered to the Registrar of Companies, shortly. Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 6th Floor, 125 London Wall, London EC2Y 5AS, and via the Company’s web page: www.invescoperpetual.co.uk/pigit

The Annual General Meeting of the Company will be held at 1st Floor, 43-45 Portman Square, London W1H 6LY at 11.00am on 17 July 2018.

Invesco Asset Management LimitedCompany Secretary30 May 2018