17 Nov 2022 07:00
TROY INCOME & GROWTH TRUST PLC
LEI: 213800HLNMQ1R6VBLU75
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2022
1. CHAIRMAN'S STATEMENT
The objective of the Company is to provide an attractive income yield and the prospect of income and capital growth through investing in a portfolio of predominantly UK equities.
Performance
The Company delivered a Net Asset Value ('NAV') total return of -9.9% and share price total return of -10.2% for the year ended 30 September 2022. Over the same period, the FTSE All-Share Index produced a total return of -4.0%.
In a period of sharply rising inflation and interest rates, the values of many assets have contracted, against which the FTSE All-Share has been comparatively stable. However, the UK equity market has been significantly helped by a handful of companies that have benefited from current circumstances - the combined forces of war and inflation have remained highly supportive of oil & gas and mining companies that are directly benefitting from extreme price rises. The large weightings of these sectors in the UK stock market have contributed to the FTSE All-Share comfortably outperforming other indices. Over the past 12 months, the FTSE All-Share (GBP) has fallen by -4.0% versus the S&P 500 (USD) -15.5% and MSCI World (USD) -19.2%.
Economic and Stock Market Background
It has once again been a year of extraordinary global events. Upheaval to world economies stemming from the COVID-19 pandemic has continued to pervade, with inflation dominating the narrative over the past year. In the face of many warning signs last year, central banks had initially proved complacent to the risk of stubbornly higher inflation resulting from years of loose monetary policy (quantitive easing), COVID-19 driven supply/demand disruptions, and the energy shocks caused by Russia's invasion of Ukraine. With increasingly high inflation numbers reported over the course of 2022, we have witnessed policymakers' attempts to rapidly make up for lost time. The Bank of England has raised their base rate seven times this year, marking a swift end to the ultra-low interest rate era that has persisted since the Global Financial Crisis. Related and concurrent to this, geopolitics has raised its head in the ugly form of the Russia-Ukraine war, creating a humanitarian tragedy and economic stresses that are rippling across Europe and further afield. These are fuelling unprecedented spikes in energy costs and second-order pressures on many other goods and services. The landscape is unsettled and measures of market volatility such as the VIX Index remain elevated. There have been few places to hide in either bond or equity markets - the popular '60/40' portfolio of US stocks and bonds is on track for its second worst calendar year in history after 1931, down -21% in the nine months to the end of September.
The Managers provide further context and discussion on the Company's performance in their review, as well as detailing the portfolio changes. Their process and objectives remain unchanged. While in aggregate the past 12 months have been challenging for the strategy, the risks of weaker corporate earnings and a recession from here are growing and the Board would expect these to be supportive of the Managers' longstanding strategy and preference for resilient and predictable businesses.
Dividends
A fourth quarterly dividend payment of 0.50p was announced in September. The dividend for the year totalled 1.97p, representing a yield of 2.9% on the year-end share price.
As noted in the Interim Report, the Managers had anticipated robust growth in dividends from the underlying portfolio companies this year, and it is pleasing to have seen this materialise despite difficult economic conditions. Also noted in the Interim Report was the Board's intention to begin increasing the Company's dividend while also rebuilding dividend cover. The quarterly dividend was increased to 0.50p per share in September of this year, representing a 2.0% rise in the quarterly rate. It is the Board's intention, barring unforeseen circumstances, to at least maintain the quarterly dividend rate of 0.50p per share for the year to 30 September 2023.
The Board decided to pay the third interim dividend from the Company's distributable capital reserves this year, as it has done for the previous two years, enabling the Company to continue to bridge its revenue deficit while the impact of the pandemic recedes and dividend growth in the portfolio continues to recover and even accelerate.
Gearing
The Company secured a three-year revolving loan facility of £15 million with The Royal Bank of Scotland International Limited on 15 June 2022.
The Company has not had a gearing facility since April 2021. Having reviewed the situation, the Board and Managers concluded that a new facility should be instituted. The intention is for gearing to be used at a fairly low level on an ongoing basis, and from time to time more materially (up to around 10%) on a tactical basis. The Managers have a proven, conservative, investment style and it is the Board's view that adding modest gearing to the Company is appropriate, enabling efficient management of the Company's balance sheet and the enhancement of total returns over time. At the period end the Company had drawn down £5 million under the facility.
Under the terms of the facility, the Company has the option to increase the level of the commitment from £15 million to £20 million at any time, subject to the bank's credit approval, thus avoiding the expense of undrawn commitment fees on this additional £5 million.
Discount Control Mechanism
The Discount Control Mechanism ('DCM'), which has been in place since January 2010, seeks to ensure that investors can purchase and sell the Company's shares at a time of their choosing and at a price very close to NAV. The DCM continues to enhance the NAV per share by consistently buying-in shares at a small discount and issuing shares at a small premium. This is a key differentiating feature of the Company, providing liquidity for both buyers and sellers of the Company's shares and protecting investors from the negative effects of excessive discount volatility.
The DCM was active during the year with the Company buying-in 37.6m shares at a cost of £27.9m. The shares bought-in are now held in treasury. The Board is resolute in its operation of the DCM.
Reduction in Management Fee
In January the Board was pleased to announce a reduction in the annual management fee payable to the Company's Investment Managers. With effect from 1 January 2022, the Company moved to a tiered annual management fee of 0.55% of net assets (i.e., excluding any gearing facility) up to £250 million and 0.50% of net assets above £250 million. This compares to the previous fee of 0.65% and so the new fee represents a reduction of 15% up to £250 million of net assets (£250,000 per annum cost saving) and a reduction of 23% on net assets greater than £250 million. This fee reduction reflects the commitment of both the Board and the Managers to creating value for Shareholders and to ensuring the Company's ongoing charges are competitive.
Annual General Meeting
As at previous AGMs, the Board will again ask Shareholders to approve resolutions it believes are vital to the effective management of the DCM. Specifically, the Board is seeking permission to allow the Company to issue shares on a non pre-emptive basis equivalent to 20% of its equity and to buy-in up to 14.99%. There are two separate resolutions concerning the issue of shares. The first resolution seeks permission to issue 10%, and the second (extra) resolution seeks permission to issue up to a further 10% solely in connection with the DCM; for an aggregate of 20%. The Board believes this approach to seeking non pre-emption authorities is Shareholder friendly. It gives any Shareholder who may be unhappy that the aggregate authority sought is higher than that recommended by corporate governance guidelines the ability to express their concern via the second resolution, whilst still allowing their approval for the first and more conventional resolution dealing with 10% issuance. While the Board appreciates some Shareholders' reticence about non pre-emption authorities, it strongly believes that in the circumstances of the NAV enhancing impact of the DCM's operations, the overall 20% authority sought is in the best interests of Shareholders, and so is continuing to seek such authority at the upcoming AGM.
Board Changes
I will be retiring at the AGM in January after twelve years as a Director and eight years as Chairman. The Board is delighted to announce that Bridget Guerin will be proposed for election as a Director of the Company with effect from 17 January 2023. Subject to Shareholder's approval of her election, Bridget will take over from me as Chair following my retirement at the AGM. As can be seen from her biography in the Annual Report, Bridget has extensive experience in the asset management industry, including longstanding involvement with investment trusts as both a Non-Executive Director and Chair. The Board is very much looking forward to working with Bridget and benefiting from her experience and leadership.
I would like to take this opportunity to express my gratitude to my fellow Directors for their support and valued contribution during my eight years as Chairman.
Outlook
If we needed any further reminder of the deeply unsettled environment, the UK market over the final month of the reporting period has proved a remarkable case in point. September saw sterling sink to the lowest levels in modern history against the dollar and the yield on the benchmark 10-year UK government bond more than doubled in just over a month, necessitating Bank of England intervention to stabilise markets. Global economies are variously continuing to navigate the forces of COVID-19, inflation, rising interest rates, and geopolitical unrest. Against this backdrop, the Managers are emphasising more than ever the importance of businesses with defensive earnings and reasonable valuations. The Board agrees with the observation that the coming months will prove highly challenging for corporate profits - this is likely a time for resilience and reliability. The Managers of the Company have always emphasised the virtues of low cyclicality and capital-light business models, focusing on dependable and diverse companies such as global consumer staples franchises. The Board continues to support this approach and sees the virtues of such a strategy, particularly in challenging markets.
David Warnock
Chairman
16 November 2022
2. MANAGERS' REVIEW
Investment Background
Difficult markets
It has been an eventful year in global markets. Investors have faced a challenging backdrop on multiple fronts, but perhaps most especially from pronounced shifts in fiscal and monetary policy. COVID-19 continued to impact economies, with countries emerging from the pandemic at differing speeds, and global supply chain disruptions driving elevated inflation. Interest rates in the US and UK have risen from rock-bottom levels at a rapid pace and there are deep humanitarian, economic and geopolitical impacts stemming from Russia's deplorable war on Ukraine.
A little over a year ago, inflation and interest rates were still widely forecast to remain low. However, as at the end of September 2022, the most recent CPI (consumer price index) inflation points in the UK and US were +9.9% and +8.3% year-on-year respectively. Central banks have responded by raising rates and government bond yields have moved sharply upwards. 2-year UK and US bond yields ended the period at 4.2% and 4.3% respectively - up from 0.4% and 0.3% 12 months ago. The impact of inflation on bond returns has been dramatic; as yields rise, prices fall, leaving many owners of developed market bonds sitting on significant paper losses.
The rise in interest rates also has a considerable negative impact on equity markets; driving discount rates higher and valuations lower. The re-emergence of inflation is leading to the real erosion of consumers' purchasing power and investors' wealth.
US dollar and commodity strength
A prominent feature of markets for UK investors over the past year has been US dollar strength and sterling weakness. With the Federal Reserve leading the fight against inflation, investors have flocked to the dollar. Additionally, its status as a relative safe-haven has once again come to the fore amid market volatility and geopolitical unrest in Europe. Sterling was driven lower in the final month of the period by concerns over UK fiscal policy - falling as low as 1.04 to the dollar, a historical low. This weakness has been to the benefit of global businesses listed in the UK that translate overseas earnings into sterling but to the detriment of domestic businesses and consumers.
Commodity-producing companies such as mining companies and the oil majors, in which we do not invest on account of their low and volatile returns on capital, have also performed very well. Over the past year, investors have turned to hard commodities as a hedge against rising inflation.
The distinctive macro backdrop has led to very clear trends within the UK equity market over the past year. Large-cap companies have materially outperformed mid-caps. High growth and technology companies have lagged more mature businesses. Companies with significant US dollar earnings have beaten UK domestic companies. And commodity-producing sectors have outperformed all others. In that context, the FTSE 350 Energy Index has risen +37.4% over the last 12-months, comfortably beating the total returns of all other sectors.
A skewed UK-index
We have often written about the unusual make-up of the FTSE-All Share, which is dominated in market cap terms by a few, extremely large companies. Many of these, such as the banks, oils and miners, are highly cyclical, and areas in which we do not invest. The performance of these companies tends to heavily skew the total return of the FTSE All-Share Index, sometimes for better (such as this past year), but often, in our experience, for worse.
Valuations
With the benefit of hindsight, equity markets were 'expensive' this time last year. Interest rate and inflation expectations were low and investors were looking forward to a strong recovery in earnings and dividends as we emerged from the worst of the pandemic. Subsequent sticky inflation and rising interest rates have resulted in a sharp re-pricing of equities. Looking at the valuations across the portfolio in terms of Price-to-Earnings ratios, we currently find our companies to be valued roughly in the middle of their 15-year ranges. The portfolio trades with a forward earnings yield of around 5.5% which supports a portfolio dividend yield of around 3.4%. This strikes us as attractive on a medium-term view, given the quality of the businesses the Company holds. Valuations could of course go lower before stabilising, but we are of the view that the most dramatic rises in interest rates (and consequent repricing of assets) are now behind us. We believe that the bigger risk to equities from here may come from the potential for corporate earnings to be hurt by a recession. Given our strong preference for relatively non-cyclical, high-quality, dividend growth businesses, such a scenario ought to favour the Company on a relative basis.
The importance of dividends
Dividends have arguably been somewhat out of favour in recent years, with much of the market narrative focused on the revaluation of high growth stocks and less on sustainable compounding of dividend growth. This could be set to change. Dividends serve as a truly tangible component of return; they can be spent as income, or reinvested for compound growth. In uncertain and volatile markets, the dividend component of return can become even more important for investors. Additionally, if dividends are reinvested through soft markets, an investor is naturally buying back into the market at prices that are lower and at prospective returns that are higher. In a world in which interest rates are positive once more, we would not be surprised if investing for dividend growth returns to popularity once more.
Performance
As managers, we seek to invest for the long term in high-quality companies capable of resilient dividend growth. Typically, we favour highly cash-generative, growing companies, with high and stable returns on capital. As such, the portfolio has investments in consumer staples companies, software companies, high-quality industrials, non-bank financials and some consumer discretionary companies, particularly those with franchise-like models. Some such businesses have been out of favour over the past year, whilst many of the businesses we tend not to invest in, such as oil companies, miners and banks, have performed very well.
The Company delivered a NAV total return of -9.9% and a share price total return of -10.2% over the year. This compares with the FTSE All-Share Index total return of -4.0%. The difference between the share price and NAV performances generated by the Company is partially explained by a move from a 1.4% discount to a 2.2% discount. This performance places the Company 11th out of its 18-strong AIC UK equity income peer group when ranked by NAV performance and 13th by share price.
Contributors to returns
Information Technology was the largest positive contributor to returns, with the share price of Paychex, the US HR & Payroll software company, performing especially well at +24% in sterling terms. Paychex is one of the Company's few overseas holdings and several of these have benefitted meaningfully from US dollar strength. Consumer staples companies also contributed positively to returns, with Diageo, Nestlé, British American Tobacco, Unilever and Procter & Gamble all rising over the year. The Company's sole holding in the utilities sector, National Grid, also performed well, up +10.3%. Elsewhere, holdings in global catering company Compass Group and pharmaceutical giant AstraZeneca contributed strongly, rising +20.0% and +13.7% over the year.
Detractors from returns
Non-bank financials holdings detracted most from returns, with IntegraFin and St. James's Place the most notable. IntegraFin, the financial advisor investment platform provider, was particularly weak, declining -56.6%. This fall was largely due to their linkage to financial markets, but also due to rising costs as they seek to hire new software developers in a competitive and inflationary labour market. St. James's Place fell -28.1%, having risen strongly in the prior year. Given the emerging cost of living crisis, Consumer Discretionary holdings also detracted from returns, due to weakness in relatively modest holdings in Domino's Pizza and Next. Real Estate was also a negative contributor as rising interest rates placed pressure on property values across the sector.
Portfolio changes over the year
Selective changes were made to holdings over the course of the year, with the aim of further improving the quality, resilience and valuation of the portfolio.
In the year, a new holding was started in the distributor business, Bunzl. Bunzl is the clear global leader in the distribution of essential 'not-for-resale' items to thousands of businesses in more than 30 countries, such as food packaging and cleaning products to the food service industry, gloves, gowns, and bandages to healthcare operators, and hard hats, boots, and ear and eye protection to the industrial and construction markets. Bunzl's products are vital for their customers to operate yet are a very small part of their costs, leading to very resilient revenues. Through years of steady organic growth and by carrying out small acquisitions, the business has been able to compound free cash flow and dividend per share in a metronomic fashion, including through recessions. This is evidenced by a 29-year track record of uninterrupted dividend growth.
We added to several core holdings over the year, in particular, to our Consumer Staples companies. We have long been attracted to the reliable and defensive dividend growth these companies have been able to produce, and believe these attributes will prove valuable in today's tough backdrop. Consumer Staples is the largest sector exposure across the portfolio and at varying points in the year we topped up Unilever, British American Tobacco, Reckitt Benckiser and Diageo. We also added to pharmaceutical company GSK. After many years of planning, they finally spun out their consumer health business, Haleon. We believe this will free them up to reinvest in their core pharma and vaccine franchises and generate better growth and returns from here. We also added to overseas holding CME Group. CME is one of the world's largest derivatives and commodities exchanges, and benefits from interest rate volatility, offering differentiated exposure to our other holdings. It is also a rare US company that prioritises dividends over share buy-backs.
There were a handful of outright sales in the period. We sold two low-yielding, overseas holdings in American Express and Visa. Whilst both are fine companies, their respective dividend yields of 1.2% and 0.7% were the lowest in the portfolio. Both companies are also not without risk; American Express issues credit as a core part of its business, whilst Visa is a play on global commerce. With both having proven defensive (in sterling) over the past year, we felt it was prudent to sell and reinvest in better value elsewhere.
We also exited MoneySupermarket and Sabre Insurance. Both companies earn the majority of their profits from the UK motor insurance industry. Sabre has suffered heavily from inflation and we are concerned about the path to recovery and sustainable growth. MoneySupermarket in our view has an increasingly challenging long-term growth outlook and we are concerned that the well-regarded CFO has decided to leave the company - the latest in a raft of management changes. Rather than continue to hold these companies, we have focused our capital on Admiral, a business we believe has a powerful competitive advantage and far better growth prospects. Elsewhere, towards the end of 2021, we also sold the portfolio's relatively small holding in Hargreaves Lansdown. Whilst we continue to like the structural growth on offer from the UK savings industry, we had become incrementally more cautious about competition in the UK platform market and reduced exposure to the sub-sector accordingly. Finally, having seen its valuation more than fully recover after the pandemic we exited the Company's holding in WH Smith in favour of larger companies with more attractive valuations.
Overall, we would characterise the portfolio changes in the period as enhancing the defensive qualities of portfolio, with additions to those companies we believe will generate resilient profits and dividends in what could continue to be a challenging earnings environment.
Growing income
We are pleased to see the Company's dividend begin to grow once more. This is a reflection of the dynamics of the underlying portfolio, where dividends are well covered by earnings and are growing at a healthy rate. The portfolio is built around large, resilient, growing businesses that pay sustainable dividends. We anticipate that portfolio companies should be able to consistently grow their dividends into the medium term and that as dividend cover is fully rebuilt, the Company's dividend growth should trend towards the dividend growth rate of the overall portfolio.
Responsible Investment
We at TAML have always prioritised the avoidance of permanent capital loss, investing for the long-term and emphasising quality within our investment process. It has become increasingly clear to us that companies that do not prioritise a strong corporate governance culture and which are not proactively managing their social impact and environmental footprint, will suffer from greater regulation combined with declining support from customers and shareholders. We have seen nothing in the more volatile times since the Russian invasion of Ukraine to suggest that, for long-term investors, this is no longer the case.
Our preference for less capital-intensive businesses means the portfolio's carbon intensity is about 12% of that of the benchmark. While we believe this is an encouraging starting point, we are committed to the continued reduction of emissions by our portfolio companies in line with the goals of the Paris Agreement. We will continue our engagement with portfolio companies on physical and transitional climate risks.
We exercise voting rights and use engagement to ensure companies act in the best long-term interests of their shareholders. Our interactions with Unilever in early 2022 following the leaked Haleon bid are a good example of this. Our analysis showed us that the proposal to acquire GSK's consumer health business was ill-conceived and that Unilever were overpaying for an asset of which they were unlikely to be the best owners. We engaged with management both bilaterally and, after initiating a collaborative engagement, through Investor Forum. While we were pleased to see management walk away from the transaction, we also opted to vote against the remuneration structures, which we felt partially incentivised such acquisitions. We continue to communicate with Unilever on a regular basis and their responsiveness has given us increased conviction in our investment.
Further details of our approach to Responsible Investment & Stewardship can be found in the Annual Report.
Investment Outlook
In today's challenging investment environment, we are prioritising resilient cash flows, reasonable valuations, and sustainable dividend growth more than ever.
Corporate earnings have remained broadly resilient to date, but it seems likely to us that there will be a wave of profit warnings over the coming months. Companies will be battling slowing growth and significantly higher interest payments against a shaky geopolitical environment and myriad inflationary pressures. For each of the Company's holdings, we have refreshed our analysis and are comforted by the operational and cash flow resilience we find across the portfolio.
At TAML, we try to invest in high-quality businesses, with relatively low levels of cyclicality that we can hold for many years - possibly even decades. Equally importantly, we strive to avoid companies whose profits and cash flows might be highly volatile. This enables us to have a long-term perspective and remain patient equity investors, as we know that if we stick to quality, we can recover from short-term market declines through the steady accumulation of earnings and dividends.
The flip side to a weaker equity market is much improved valuations. With sterling weak and current political uncertainty high, UK equities are trading at increasingly attractive valuations. Whilst we prioritise defensive earnings, and have particularly done so in recent months, we are convinced that over the course of the next year considerable valuation opportunities will emerge. As long-term equity investors, we are excited about the prospect of being able to purchase great companies at discounted prices. We know the companies we would love to own at the right price; we have a clearly defined universe of well-researched stocks and will stay alert for opportunities to further improve the quality, growth and valuation of the portfolio.
Troy Asset Management Limited
16 November 2022
3. RESULTS & DIVIDENDS
Financial Highlights | ||
| 2022 | |
Net asset value total return | -9.9% | |
Share price total return | -10.2% | |
FTSE All-Share Index total return | -4.0% | |
Increase in dividends per share | +0.5% | |
Dividend yield* | 2.9% | |
Dividends per share+ |
| 1.97p |
Ongoing Charges |
| 0.89% |
* Dividends per share as a percentage of share price at 30 September 2022 +Dividends per share reflect the years in which they were earned | ||
Performance - total return (for the periods to 30 September 2022) | ||||
|
One Year |
Three Years |
Five Years |
Ten Years |
Share price | -10.2% | -13.0% | +1.6% | +65.5% |
Net asset value per share | -9.9% | -10.6% | +2.2% | +70.1% |
FTSE All-Share Index | -4.0% | +2.4% | +11.3% | +79.5% |
Distribution of Assets and Liabilities | |||||||
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| Valuation at |
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| Valuation at | ||
| 30 September |
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| Increase/ | 30 September | ||
| 2021 | Purchases | Sales | (decrease) | 2022 | ||
| £'000 | % | £'000 | £'000 | £'000 | £'000 | % |
Listed investments | |||||||
Ordinary shares | 244,514 | 98.4 | 53,108 | (77,172) | (26,002) | 194,448 | 100.6 |
| ______ | _____ | ________ | _______ | ________ | ______ | _____ |
Current assets | 5,081 | 2.0 | 9,265 | 4.8 | |||
Current liabilities | (974) | (0.4) | (10,398) | (5.4) | |||
| ______ | _____ |
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| ______ | _____ |
Net assets | 248,621 | 100.0 |
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| 193,315 | 100.0 |
| ______ | _____ |
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| ______ | _____ |
Net asset value per share | 77.72p |
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| 68.48p |
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| ______ |
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| ______ |
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4. STRATEGIC & DIRECTORS' REPORT EXTRACTS
Performance and Future Development
A review of the business performance, market background, investment activity and portfolio during the year under review, together with the investment outlook, is provided in the Chairman's Statement and the Managers' Review.
Risk Management
The Directors are responsible for supervising the overall management of the Company, whilst the day-to-day management of the Company's assets has been delegated to the Manager. Portfolio exposure has been limited by the guidelines which are detailed within the Investment Strategy section of the Annual Report.
The Board can confirm that the principal risks of the Company, including those which would threaten its business model, future performance, solvency or liquidity, have been robustly assessed for the year ended 30 September 2022. A description of the principal risks and how they are managed is set out below. Due to the high level of share buybacks over the course of the year, the Board has decided to add Shareholder risk to the principal risks. The Board has also assessed the emerging risks of geopolitical events, climate change and rising inflation under performance and market risks.
Risk | Mitigation |
Performance risk: The Board is responsible for deciding the investment strategy to fulfil the Company's objective and monitoring the performance of the Manager. An inappropriate strategy or poor execution of strategy might lead to long-term underperformance against the comparator index and the Company's peer group.
| To manage this risk the Manager provides an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio, including responsible investment considerations. The Board also receives and reviews regular reports showing an analysis of the Company's performance against the FTSE All-Share Index (total return) and its peer group. The impact on the investment strategy of the Russia/Ukraine conflict and rising inflation has been kept under regular review by the Board.
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Market risk: Market risk arises from uncertainty about the future prices of the Company's investments. | The Board monitors and maintains an adequate spread of investments in order to minimise the risks or factors specific to a particular investment or sector, based on the diversification requirements inherent in the Company's investment policy. The Board also monitors the implementation of gearing strategy and responsible investment strategy. The underlying risks and potential increased volatility associated with the Russia/Ukraine conflict, and inflation rate rises, are considered within market risk.
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Resource and operation risk: Like most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties and their control systems. Disruption to, or failure of, systems and controls, including cyber-attacks, at the Company's service providers could result in financial and reputational damage to the Company.
| The Board reviews the performance of its service providers, their internal controls and their compliance with agreements on a regular basis. |
Shareholder risk: Shareholder risk arises from ongoing share buybacks reducing the size of the Company threatening its viability. | The Board reviews the performance of the Company at each Board meeting along with the business development and marketing strategy in order to keep the Company an attractive investment. The Board along with the Managers have also developed a marketing strategy that reflects the shift of investors to platforms which can make direct engagement more difficult. The Board constantly monitors the implementation of the discount and premium control policy with the help of Juniper Partners.
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Regulatory risk: Breach of regulatory rules could lead to the suspension of the Company's London Stock Exchange listing, financial penalties or a qualified audit report. Breach of sections 1158 and 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.
| The Company Secretary monitors the Company's compliance with all relevant regulations and compliance with the principal rules is reviewed by the Directors at each Board meeting. |
The Board have considered the Company's solvency and liquidity risk and full disclosure of this is made in note 15 of the Annual Report and the viability statement below.
Results and Dividends
The financial statements for the year ended 30 September 2022 appear below. Dividends in respect of the year amounted to 1.97p per share (2021 - 1.96p). The fourth interim dividend of 0.50p per share announced on 15 September 2022 (2021 - fourth interim 0.49p) will be accounted for in the financial year ending on 30 September 2023.
Share Capital
The issued share capital at 30 September 2022 consisted of 282,284,487 Ordinary shares of 25p each and there were 65,227,500 Ordinary shares held in treasury. As at the latest practicable date of 15 November 2022 the issued share capital consisted of 278,184,487 Ordinary shares of 25p each and there were 69,327,500 Ordinary shares held in treasury. Each holder of Ordinary shares, excluding treasury shares, is entitled to one vote on a show of hands and, on a poll, to one vote for every Ordinary share held.
Directors
As noted in the Chairman's statement, Bridget Guerin will be appointed as a non-executive Director of the Company with effect from 17 January 2023, subject to her election by Shareholders at the Annual General Meeting. Bridget has had over 30 years of experience in the financial services industry. She has had longstanding experience of sitting on the boards of investment/wealth management companies and funds, including London listed investment trusts. Bridget has extensive knowledge of the distribution of investment products to the institutional and retail markets. She is a Non-Executive Director of Mobeus Income & Growth VCT plc and Invesco Perpetual UK Smaller Companies Investment Trust plc, and, when she joins the Board of the Company, will previously have held the position of Chair on the Board of Schroder Income Growth Fund plc.
Management Arrangements
The Company appointed Juniper Partners, as its alternative investment fund manager ('AIFM') on 22 July 2014. With effect from that date, the AIFM delegated the portfolio management activities relating to the Company back to Troy Asset Management Limited ('TAML' or the 'Manager') pursuant to a delegation agreement and TAML continues to provide portfolio management services to the Company. These arrangements are fully compliant with the AIFMD.
The AIFM services are provided to the Company by Juniper Partners for a fee of 0.015% of the Company's net assets per annum, subject to a minimum fee of £62,000 per annum. TAML reduce their investment management fee by an equal amount so that there is no overall change to the basis of the management fee incurred by the Company.
The other terms of the AIFM's appointment are similar to those applying to TAML under the investment management delegation agreement detailed below.
Investment Management Delegation Agreement
Investment management services have been provided to the Company by Troy since 1 August 2009. With effect from 1 January 2022, the annual management fee was reduced from 0.65% of the Company's net assets to a tiered annual management fee of 0.55% of net assets up to £250 million and 0.50% of net assets above £250 million.
Company Secretary
Juniper Partners Limited provides company secretarial, accounting and administration services to the Company. Juniper Partners receives a fee for these services of £103,600 per annum plus an amount equal to 0.1% of the Company's net assets between £50 million and £100 million, 0.03% of the Company's net assets between £100 million and £250 million and 0.02% of the Company's net assets between £250 million up to and including £1,000 million. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index.
Depositary
J.P. Morgan Europe Ltd is the Company's Depositary, with responsibilities including cash monitoring, safe keeping of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements. The Depositary has delegated the custody function to J.P. Morgan Chase Bank N.A.
Borrowings
In June 2022, the Company instituted a three-year revolving loan facility of £15 million with The Royal Bank
of Scotland International Limited. Under the terms of the facility, the Company has the option to increase the level of the commitment from £15 million to £20 million at any time, subject to the bank's credit approval, thus avoiding the expense of undrawn commitment fees on this additional £5 million. As at 30 September 2022, £5 million had been drawn down from this facility.
Independent Auditors
Following a tender process in 2015, PricewaterhouseCoopers LLP were appointed the Company's Auditors in 2016.
Going Concern
The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. This review included consideration of the Company's investment objective, its principal risks, the nature and liquidity of the portfolio, current liabilities and expenditure forecasts.
The Company's investments consist mainly of readily realisable securities which can be sold to maintain adequate cash balances to meet expected cash flows. In assessing the Company's ability to meet its liabilities as they fall due, the Directors took into account the uncertain economic outlook caused by the ongoing Russia/Ukraine conflict and the rising interest rates, and reviewed sensitivities around this. The Directors also considered ongoing investor interest in the continuation of the Company, looking specifically at feedback from meetings and conversations with Shareholders by the Company's advisers, and the operation of the DCM, which the Directors believe enhances the Company's appeal to investors.
Based on their assessment and considerations, the Directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements and the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operation for at least twelve months from the date of this report.
Viability Statement
The Directors have assessed the viability of the Company over a three-year period from the date that the Annual Report is due to be approved by Shareholders.
The Directors have identified the following factors as potential contributors to ongoing viability:
· The principal risks and uncertainties detailed above and the mitigating controls in place, including the ongoing impact of the Russia/Ukraine conflict and the Company's operational resilience;
· The ongoing relevance of the Company's investment objective in the current environment;
· The level of current and historic ongoing charges incurred by the Company;
· The utilisation quantum of the discount control mechanism;
· The level of income generated by the Company;
· The liquidity of the Company's portfolio;
· The challenges posed by climate change, including any impact this may have on investee companies.
· The continuation vote to be held at the AGM following the year ending 30 September 2023.
The Company is fully invested in liquid assets, either in listed securities or cash. The nature of these mean that even in a severe market downturn the Company would be able to convert, in a relatively short period of time, the portfolio into cash sufficient to meet the Company's operating costs which run at approximately 1% per annum of net assets. This includes both fixed and variable costs, the largest single element of which is the variable management fee which is based on the net asset value of the Company. In addition, the Company currently has no gearing. Based on these facts the Board have concluded that even in exceptionally stressed operating conditions, the Company would easily be able to meet its ongoing operating costs as they fall due.
The Directors have determined that a three-year period is an appropriate period over which to provide its viability statement. They consider that three years is a reasonable time horizon to assess the continuing viability of the Company and a suitable period over which to measure the performance of the Company. This three-year period remains consistent with the planning horizon used by the Company in managing its activities.
Based on the foregoing, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to the AGM in 2026.
Discount Policy
The Company's discount policy is to ensure that the Ordinary shares trade at close to net asset value through a combination of share buy-backs and the issue of new Ordinary shares at a premium to net asset value where demand exceeds supply.
This discount control mechanism is operated by Juniper Partners. The fee for this service is £31,000 per annum plus the lower of (i) a charge of £250 per transaction; and (ii) a commission of 0.1% of the aggregate proceeds of any transaction undertaken in accordance with the discount control mechanism. The fixed fee element of the fee is adjusted annually by the increase in the Consumer Price Index. The fee is charged to the share premium account.
The Directors will continue to seek the renewal of the Company's authority to buy-back Ordinary shares annually and at other times should this prove necessary. From the authority granted at the January 2022 AGM, the Company, at 30 September 2022, had the remaining authority to buy-back 15,907,788 Ordinary shares. Any buy-back of Ordinary shares will be made subject to the Companies Act 2006 and within guidelines established from time to time by the Board and the making and timing of any buy-backs will be at the absolute discretion of the Board. The Directors will be authorised to cancel any Ordinary shares purchased under such authority or to hold them in treasury. Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing net asset value of the Ordinary shares. Such purchases will also be made only in accordance with the rules of the Financial Conduct Authority which provide that the price to be paid must not be less than the nominal value of an Ordinary share nor more than the higher of (a) 5% above the average of the middle market quotations for the Ordinary shares for the five business days before the purchase is made and (b) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out.
It is the intention of the Directors that the share buy-back authority is used to purchase Ordinary shares if the middle market price for an Ordinary share is below the net asset value per Ordinary share of the Company (taking into account any rights to which the Ordinary shares are trading ''ex''). However, nothing in this discount policy will require the Directors to take any steps that would require the Company to make a tender offer for its shares or to publish a prospectus. Notwithstanding this discount policy, there is no guarantee that the Ordinary shares will trade at close to the net asset value per Ordinary share. Shareholders should note that this discount policy could lead to a reduction in the size of the Company over time.
By Order of the Board
Juniper Partners Limited Secretary
16 November 2022
5. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with UK-adopted international accounting standards.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for Shareholders to assess the Company's position and performance, business model and strategy. In reaching this conclusion the Directors have assumed that the reader of the Annual Report and Financial Statements would have a reasonable level of knowledge of the investment industry and of investment trusts in particular.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors' Report, a Corporate Governance Statement and a Directors' Remuneration Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
Each of the Directors confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
• the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of Troy Income & Growth Trust plc
Brigid Sutcliffe
Chair of the Audit Committee
16 November 2022
STATEMENT OF COMPREHENSIVE INCOME
| Year ended 30 September 2022 | Year ended 30 September 2021 | |||||
| Revenue | Capital |
| Revenue | Capital | ||
Note | return | return | Total | return | return | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Capital | |||||||
(Losses)/gains on investments held at fair value | - | (25,889) | (25,889) | - | 19,651 | 19,651 | |
Net foreign currency gains/(losses) | - | 52 | 52 | - | (11) | (11) | |
Revenue | |||||||
Income from listed investments | 2 | 6,666 | - | 6,666 | 6,969 | - | 6,969 |
6,666 | (25,837) | (19,171) | 6,969 | 19,640 | 26,609 | ||
Expenses | |||||||
Investment management fees | (465) | (864) | (1,329) | (564) | (1,047) | (1,611) | |
Other administrative expenses | (686) | - | (686) | (649) | - | (649) | |
Finance costs of borrowing | (19) | (35) | (54) | (10) | (18) | (28) | |
Profit/(loss) before taxation | 5,496 | (26,736) | (21,240) | 5,746 | 18,575 | 24,321 | |
Taxation | 3 | (109) | - | (109) | (114) | - | (114) |
|
|
|
|
| |||
Total comprehensive income/(expense) |
| 5,387 | (26,736) | (21,349) | 5,632 | 18,575 | 24,207 |
|
|
|
|
| |||
Earnings per Ordinary share (pence) | 5 | 1.77 | (8.80) | (7.03) | 1.68 | 5.54 | 7.22 |
|
|
|
|
| |||
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with UK-adopted international accounting standards. The supplementary revenue return and capital return columns are both prepared as explained in the accounting policies. All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment in predominantly UK equities.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF FINANCIAL POSITION
| As at | As at | |
| 30 September | 30 September | |
| 2022 | 2021 | |
Note | £'000 | £'000 | |
Non-current assets | |||
Investments in ordinary shares | 194,448 | 244,514 | |
Investments held at fair value through profit or loss | 194,448 | 244,514 | |
Current assets | |||
Accrued income and prepayments | 890 | 968 | |
Trade and other receivables | 3,665 | 162 | |
Cash and cash equivalents | 4,710 | 3,951 | |
Total current assets | 9,265 | 5,081 | |
Total assets | 203,713 | 249,595 | |
Current liabilities | |||
Bank loan | (5,000) | - | |
Trade and other payables | (5,398) | (974) | |
Total current liabilities | (10,398) | (974) | |
|
|
|
|
Net assets |
| 193,315 | 248,621 |
|
|
|
|
Called-up share capital | 86,878 | 86,878 | |
Share premium account | 53,851 | 53,909 | |
Special reserves | 9,684 | 38,890 | |
Capital reserve - unrealised | 18,854 | 54,428 | |
Capital reserve - realised | 17,152 | 8,424 | |
Revenue reserve | 6,896 | 6,092 | |
|
|
|
|
Total equity |
| 193,315 | 248,621 |
|
|
|
|
Net asset value per Ordinary share (pence) | 5 | 68.48 | 77.72 |
|
|
|
|
STATEMENT OF CHANGES IN EQUITY
For year ended 30 September 2022 |
|
|
|
|
|
| |||||||
Called-up share |
Share premium |
Special |
Capital reserve- |
Capital reserve- |
Revenue |
Total | |||||||
capital | account | reserves | unrealised | realised | reserve | equity | |||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
Balance at 1 October 2021 | 86,878 | 53,909 | 38,890 | 54,428 | 8,424 | 6,092 | 248,621 | ||||||
(Loss)/profit and total comprehensive income/(expense) for the year | - | - | - | (35,574) | 8,838 | 5,387 | (21,349) | ||||||
Equity dividends (note 4) | - | - | (1,444) | - | - | (4,583) | (6,027) | ||||||
Shares bought back into treasury | - | - | (27,872) | - | - | - | (27,872) | ||||||
Discount control costs | - | (58) | - | - | - | - | (58) | ||||||
Transfer from capital reserves |
- |
- |
110 |
- |
(110) |
- |
- | ||||||
|
|
|
|
|
|
| |||||||
Balance at 30 September 2022 | 86,878 | 53,851 | 9,684 | 18,854 | 17,152 | 6,896 | 193,315 | ||||||
|
|
|
|
|
|
|
| ||||||
Balance at 1 October 2020 | 86,878 | 53,960 | 60,366 | 41,678 | 2,599 | 6,205 | 251,686 | ||||||
Profit and total comprehensive income for the year | - | - | - | 12,750 | 5,825 | 5,632 | 24,207 | ||||||
Equity dividends (note 4) | - | - | (1,598) | - | - | (5,745) | (7,343) | ||||||
Shares bought back into treasury | - | - | (20,315) | - | - | - | (20,315) | ||||||
Shares issued from treasury | - | - | 437 | - | - | - | 437 | ||||||
Discount control costs | - | (51) | - | - | - | - | (51) | ||||||
|
|
|
|
|
|
| |||||||
Balance at 30 September 2021 | 86,878 | 53,909 | 38,890 | 54,428 | 8,424 | 6,092 | 248,621 | ||||||
|
|
|
|
|
|
|
| ||||||
The revenue reserve, special reserves and capital reserve - realised are distributable. The full amount of each of these reserves is available for distribution.
The capital reserve has been split between realised and unrealised on the Statement of Financial Position and the Statement of Changes in Equity to distinguish between the element of the reserve that is distributable (realised) and the element of the reserve that is not distributable (unrealised).
CASH FLOW STATEMENT
Year ended | Year ended | |||
30 September 2022 | 30 September 2021 | |||
£'000 | £'000 | £'000 | £'000 | |
Cash flows from operating activities |
|
|
|
|
Investment income received | 6,876 | 6,858 | ||
Administrative expenses paid | (2,140) | (2,264) | ||
Cash generated from operations (note 9) | 4,736 | 4,594 | ||
Finance costs paid | (60) | (28) | ||
Taxation | (179) | (116) | ||
Net cash inflows from operating activities | 4,497 | 4,450 | ||
Cash flows from investing activities |
|
|
|
|
Purchases of investments | (51,123) | (31,177) | ||
Sales of investments | 73,668 | 48,995 | ||
Capital distributions received from investee companies | 113 | 43 | ||
Net cash inflows from investing activities | 22,658 | 17,861 | ||
Net cash inflows before financing | 27,155 | 22,311 | ||
Cash flows from financing activities |
|
|
|
|
Proceeds from loan | 5,000 | - | ||
Proceeds of issue of shares | - | 437 | ||
Cost of share buy backs | (25,365) | (19,948) | ||
Dividends paid | (6,027) | (7,343) | ||
Costs incurred on issuance and buyback of shares | (56) | (51) | ||
Net cash outflows from financing activities | (26,448) | (26,905) | ||
Net increase/(decrease) in cash and short term deposits | 707 | (4,594) | ||
Cash and cash equivalents at the start of the year | 3,951 | 8,556 | ||
Effect of foreign exchange rate changes | 52 | (11) | ||
Cash and cash equivalents at the end of the year | 4,710 | 3,951 | ||
Notes:
1. Basis of accounting
The financial statements of the Company have been prepared in accordance with UK-adopted international accounting standards. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities held at fair value through profit and loss. The financial statements are presented in Sterling which is regarded as the functional currency and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. The principal accounting policies adopted are set out below. These policies have been applied consistently throughout the current and prior year. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in July 2022) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in sections 1158 and 1159 of the Corporation Tax Act 2010. The Directors confirm that none of the following new standards or amendments to existing standards, effective for accounting periods beginning on or after 1 January 2021, have materially affected the Company's financial statements: |
|
Amendments to IAS 39, IFRS 4,IFRS 7,IFRS 9 and IFRS 16, regarding Interest Rate Benchmark Reform. Amendments to IFRS 4 regarding extension of IFRS 9 deferral. | |
The Directors do not anticipate the adoption of the following standards or amendments to existing standards, effective for accounting periods beginning on or after 1 January 2022 and thereafter, will have a material effect on the Company's financial statements: |
|
Amendments to IAS 1, regarding classification of liabilities and disclosure of accounting policies. Amendments to IAS 8, regarding definition of accounting estimates. Amendments to IAS 12, regarding deferred tax. Amendments to IAS 16, regarding property, plant and equipment. Amendments to IAS 37, regarding costs of fulfilling a contract. Amendments to IFRS 3 regarding reference to the Conceptual Framework. Amendments to IFRS 17, insurance contracts. | |
2. Revenue
| 2022 | 2021 |
| £'000 | £'000 |
Income from listed investments |
|
|
UK dividend income | 5,783 | 6,168 |
Overseas dividend income | 883 | 801 |
| 6,666 | 6,969 |
|
|
The Company received capital special dividends of £113,000 from Admiral Group in the year ended 30 September 2022 (2021 - £43,000).
3. Taxation
The taxation charge for the period represents withholding tax suffered on overseas dividend income.
4. Dividends
| 2022 | 2021 |
| £'000 | £'000 |
Paid from revenue: | ||
Fourth interim dividend for the year ended 30 September 2020 of 0.695p per share | - | 2,409 |
Fourth interim dividend for the year ended 30 September 2021 of 0.49p per share | 1,564 | - |
First and second interim dividends for the year ended 30 September 2022 totalling 0.98p (2021 - 0.98p) per share | 3,019 | 3,336 |
|
| |
Total paid from revenue | 4,583 | 5,745 |
|
| |
Paid from distributable capital reserves: |
|
|
Third interim dividend for year ended 30 September 2022 of 0.49p (2021 - 0.49p) | 1,444 | 1,598 |
| ||
Total | 6,027 | 7,343 |
| ||
The fourth interim dividend of 0.50p per share, declared on 15 September 2022 and paid on 21 October 2022, has not been included as a liability in these financial statements. | ||
We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered.
| ||
2022 | 2021 | |
£'000 | £'000 | |
Paid and payable from revenue: |
|
|
First and second interim dividend for the year ended 30 September 2022 totalling 0.98p (2021 - 0.98p) per share | 3,019 | 3,336 |
Fourth interim dividends for the year ended 30 September 2022 of 0.50p (2021 - 0.49p) per share | 1,411 | 1,565 |
|
| |
Total paid and payable from revenue | 4,430 | 4,901 |
|
| |
Paid from distributable capital reserves: |
|
|
Third interim dividend for the year ended 30 September 2022 of 0.49p (2021 - 0.49p) | 1,444 | 1,598 |
|
| |
Total | 5,874 | 6,499 |
5. Return and net asset value per share
2022 | 2021 |
| |
| £'000 | £'000 |
|
The returns per share are based on the following figures: |
| ||
Revenue return | 5,387 | 5,632 |
|
Capital return | (26,736) | 18,575 |
|
|
|
| |
Total | (21,349) | 24,207 |
|
Weighted average number of Ordinary shares | 303,874,343 | 335,250,510 |
|
|
| ||
The net asset value per share is based on net assets attributable to shareholders of £193,315,000 (2021 - £248,621,000) and on 282,284,487 (2021 - 319,888,987) Ordinary shares in issue at the year end.
| |||
6. Financial instruments
The Company held the following categories of financial instruments as at 30 September 2022:
| Level 1 | Level 2 | Level 3 | Total |
£'000 | £'000 | £'000 | £'000 | |
Listed equities | 194,448 | - | - | 194,448 |
Total | 194,448 | - | - | 194,448 |
The Company held the following categories of financial instruments as at 30 September 2021:
Level 1 | Level 2 | Level 3 | Total | |
£'000 | £'000 | £'000 | £'000 | |
Listed equities | 244,514 | - | - | 244,514 |
Total | 244,514 | - | - | 244,514 |
The above table provides an analysis of financial assets and financial liabilities based on the fair value hierarchy described below. Short term balances are excluded from the table as their carrying value at the reporting date approximates to their fair value.
Fair Value Hierarchy
In accordance with International Financial Reporting Standards, investments are classified using the fair value hierarchy:
Level 1 - reflects financial instruments quoted in an active market.
Level 2 - reflects financial instruments the fair value of which is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets.
Level 3 - reflects financial instruments the fair value of which is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.
There were no transfers of investments between levels during the year ended 30 September 2022 (2021 - none).
7. Ordinary share capital
Ordinary shares of 25p each | ||
Called-up share capital | Number | £'000 |
Allotted, called up and fully paid |
|
|
At 30 September 2022 | 282,284,487 | 70,571 |
Held in treasury | 65,227,500 | 16,307 |
347,511,987 | 86,878 | |
|
| |
Allotted, called up and fully paid |
|
|
At 30 September 2021 | 319,888,987 | 79,972 |
Held in treasury | 27,623,000 | 6,906 |
347,511,987 | 86,878 | |
|
| |
During the years to 30 September 2022 and 30 September 2021, no new Ordinary shares of 25p each were issued. During the year to 30 September 2022 there were 37,604,500 Ordinary shares of 25p each repurchased by the Company (being 11.8% of the Company's issued share capital at the start of the year), at a total cost of £27,872,000 and placed in treasury. During the year to 30 September 2021 there were 27,364,000 Ordinary shares of 25p each repurchased by the Company (being 7.9% of the Company's issued share capital at the start of the year), at a total cost of £20,315,000 and placed in treasury. During the year to 30 September 2022 no shares were re-issued from treasury. During the year to 30 September 2021 600,000 shares were re-issued from treasury for proceeds of £437,000. No shares were purchased for cancellation during the year (2021 - nil) and at the year-end 65,227,500 shares were held in treasury (2021 - 27,623,000). The costs of the operation of the discount control mechanism of £58,000 (2021 - £51,000) have been charged against the premium on shares issued. | ||
8. Transaction costs
The total transaction costs on purchases was £243,000 (2021 - £132,000) and on sales £29,000 (2021 - £17,000).
9. Reconciliation of operating(loss)/profit to operating cash flows
| 2022 £'000 | 2021 £'000 |
(Loss)/profit before taxation | (21,240) | 24,321 |
Add interest payable | 54 | 28 |
Adjustments for: | ||
Losses/(gains) on investments | 25,889 | (19,651) |
Currency (gains)/losses | (52) | 11 |
Decrease/(increase) in accrued income & prepayments | 200 | (106) |
Decrease in trade and other payables | (115) | (9) |
4,736 | 4,594 |
10. The Company has a £15 million (2021: nil) revolving loan facility in place with The Royal Bank of Scotland International Limited which expires in June 2025. At 30 September 2022 £5 million had been drawn down at a rate of 1.2% plus SONIA until 18 January 2023 (2021: nil). The terms of the revolving loan, including interest rate, are agreed at each draw down. The facility can be cancelled at any time without cost to the Company.
11. This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 30 September 2022. The statutory accounts for the year ended 30 September 2021 received an audit report which was unqualified.
The statutory accounts for the financial year ended 30 September 2022 were approved by the Directors on 16 November 2022 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 4.30 pm on 17 January 2023 at 28 Walker Street, Edinburgh, EH3 7HR.
12. The Annual Report will be posted to Shareholders in November 2022 and will be available in due course by download from the Company's website (www.tigt.co.uk).