TIDMPLI
PERPETUAL INCOME AND GROWTH INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
FOR THE YEARED 31 MARCH 2020
.
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
Total return(1)(2) (all with dividends reinvested)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Net asset value (NAV) - debt at market value -29.9% -33.8% -27.5% 52.6%
Share price -35.5% -39.8% -39.1% 33.3%
FTSE All-Share Index(3) -18.5% -12.2% 2.9% 53.6%
YEARED YEARED
31 MARCH 31 MARCH
2020 2019
Shareholders' funds
Net assets (GBP'000) 544,972 881,546
NAV per ordinary share - debt at market value 246.7p 363.2p
Share price and discount
Share price(1)(2) 198.6p 323.5p
Discount(1) to NAV - debt at market value (19.5)% (10.9)%
Gearing (debt at market value)(1)
Gross gearing 19.5% 17.3%
Net gearing 19.5% 17.3%
Return per ordinary share
Revenue 15.95p 14.60p
Capital (115.68)p (15.79)p
Total (99.73)p (1.19)p
Dividend per ordinary share
First interim 3.40p 3.25p
Second interim 3.40p 3.25p
Third interim 3.40p 3.25p
Fourth interim 4.80p 4.75p
Total dividends 15.00p 14.50p
Increase in total dividends +3.4% +4.3%(4)
Ongoing charges ratio(1) 0.73% 0.72%
Note:
(1) See Glossary of Terms and Alternative Performance Measures (APM) on pages
69 to 71 of the financial report for full details of the explanation and
calculation of APMs.
(2) Source: Refinitiv.
(3) The benchmark index of the Company.
(4) No special dividends have been declared for the current or previous year.
However, a special dividend was paid in respect of the year ended 31 March 2018
to pass on special dividends received. The increase in total dividends shown
for 2019 does not take that special dividend into account. Taking the 2018
special dividend into account, there was a reduction in aggregate dividends of
1.4% in 2019.
.
CHAIRMAN'S STATEMENT
The Company's net asset value (NAV) total return for the year ended 31 March
2020 was -29.9%, compared with the benchmark FTSE All-Share Index's total
return for the year of -18.5%. The discount of the share price to the
underlying NAV also widened further during the year, from 10.9% at the start of
the year to 19.0% on 31 March 2020. Since then the discount has narrowed and
currently stands at 16.3%. This widening of the discount contributed to the
share price total return being -35.5%. These figures have been significantly
amplified by the extreme market turmoil in March caused by the Covid-19
pandemic, but the continued underperformance of the portfolio was evident
before this. In particular, the value-based investment strategy employed by the
Manager suggested that the portfolio should benefit significantly from a
'Brexit bounce'. However, early indications that this might transpire proved to
be short-lived. More detail is provided in the Manager's report, starting on
page 8.
Shareholders will understandably be extremely concerned and disappointed by
these poor results, which follow on from previous years' underperformance. The
Company's Board of Directors, almost all of whom are shareholders themselves,
share these concerns. Our patience ran out and on 6 April 2020 the Company
served Invesco Fund Managers Limited with protective notice of termination of
the investment management contract, following this extended period of
underperformance of the Company's benchmark. This decision was not taken
lightly, particularly given the current market environment, but the Board had
previously made it clear that it was concerned with the Company's poor
performance and this continued for the most recent financial year, which ended
on 31 March 2020.
We have started the search for a new investment manager with the credentials
and capacity to deliver capital growth and real growth in dividends over the
medium to longer term from mainly UK equities. The Board has engaged
Winterflood Securities Limited, the Company's broker and financial adviser, to
coordinate the search process alongside Mercer, a leading global consultancy
firm. The process is well underway and, although it is somewhat hampered by the
current restrictions, we nevertheless expect to announce the new investment
manager during the summer months. Meanwhile there has been a change in the
investment team at Invesco and the Board has set specific controls around the
portfolio over the interim period.
Discount and Share Buybacks
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 considerately wider
than its historical range. The Board remains of the view that the discount is
principally a product of the Company's relative performance against the wider
market. However, shareholders will recall that, given that share buy backs at a
discount enhance net asset value per share for remaining holders, we instituted
a share buy back programme last year to signal the Board's concern and realise
the discount on the shares bought back. Buybacks continued during the year
under review and to date almost 11% of the shares in issue have been bought
back since the programme was initiated, realising an average discount of 12% on
those shares. We continue to monitor the discount level closely and remain of
the belief that it is primarily performance that will drive demand for the
shares and narrow the discount.
Dividend
Notwithstanding the disappointing NAV performance, the income stream remained
strong during the year. For the year ended 31 March 2020, three interim
dividends of 3.4p each were paid to shareholders in September and December
2019, and March 2020. The Board has declared a fourth interim dividend of 4.8p
per share for the year, to be paid on 30 June 2020 to shareholders on the
register on 5 June 2020. This gives a total dividend for the year of 15.0p per
share, representing an increase of 3.4% on the previous year. This extends
again the Company's record of year-on-year ordinary dividend increases since
1999 and its continued status as an AIC "Dividend Hero".
Forecasting dividend receipts for the current financial year is challenging as
the underlying investee companies adapt to the consequences on their businesses
following Covid-19. In addition, once appointed, the new investment manager is
likely to make a number of portfolio changes. Therefore the Board is not in a
position to set a target for dividends to be paid by the Company in the next
financial year. The Board is mindful, however, that the Company has significant
accumulated reserves and would be prepared to pay dividends from those reserves
if it felt it appropriate to do so.
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. In accordance with the succession plan in place last
year, Bob Yerbury was due to retire from the Board at the conclusion of the
forthcoming AGM. However, given his deep experience in fund management, I have
asked him, with the Board's consent, to remain on the Board during the process
of finding a new manager, which he has agreed to do. The current intention is
that he will then retire on 31 December 2020. The Board intends to appoint
another Director in due course, to bring the number of Board members back to
six.
Annual General Meeting (AGM)
Summary information on all resolutions to be put to a shareholder vote at the
AGM can be found in the Directors' Report on page 32. The Directors have
carefully considered all the resolutions proposed in the Notice of the AGM (as
set out on pages 63 to 66) 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.
In expectation that Covid-19 related restrictions will continue to be in place
on 21 July 2020, when the AGM is due to be held, it will be a closed meeting in
accordance with current practice and official guidance. Accordingly,
shareholders, their proxies or their corporate representatives will not be able
to attend. It is recommended that shareholders exercise their votes by means of
registering them with the Company's Registrars ahead of the meeting, online or
by completing paper proxy forms, and appoint the Chairman of the meeting as
their proxy. If you have questions, on the business of the meeting or
otherwise, please address them to the Company Secretary, by email to
investmenttrusts@invesco.com or, in hard copy, to 43-45 Portman Square, London
W1H 6LY.
The Board will communicate with shareholders when a new investment manager is
appointed and in due course provide an opportunity for the new manager to
present to shareholders.
Richard Laing
Chairman
1 June 2020
.
STRATEGIC REPORT
FOR THE YEARED 31 MARCH 2020
PORTFOLIO MANAGER'S REPORT
Market Review
It has been a volatile twelve months for the UK equity market, dominated by
concerns affecting the outlook for global economic growth, the protracted
Brexit negotiations and a General Election, but then overwhelmed in the final
two months of the financial year by the impact of the Covid-19 pandemic.
US-China trade relations, Brexit, and domestic politics were known
uncertainties in 2019, but 2020 so far has delivered the market shock that no
one could have foreseen. The UK equity market fell by over 25% in the quarter
to 31 March 2020, posting its biggest quarterly drop for more than three
decades as the global economic costs of the Covid-19 pandemic continued to
mount. Between 23 January 2020, the date that the World Health Organisation
first met in Geneva to discuss the gathering crisis, and the low point on 23
March, the FTSE All-Share Index fell by 34.1%. Extreme levels of volatility
were witnessed with large swings in prices on an intraday basis.
The challenges faced in financial markets in recent weeks are like nothing that
any of us have ever seen before. Whilst one can try running playbooks learned
from previous recessions and from previous market collapses, nothing comes
close. Looking at the final 27 trading days to 31 March 2020, against
statistical data covering more than 35 years, there were 7 separate days where
volatility was greater than 4 standard deviations (for reference: a 4 standard
deviation event is normally only expected once in 43 years).
Prior to the pandemic, there had been clear grounds for greater optimism
signalled by a marked shift in 'soft' economic data. The Lloyds Business
Barometer and the Deloitte UK CFO Survey, for example, both showed a rapid rise
in business confidence. The uncertainty that had lingered over the UK since the
2016 EU referendum looked to be lifting. There were encouraging signs about the
direction of the UK economy and strong grounds for optimism. Employment growth
in the UK looked set to remain firm, real wages were set to increase further,
growth in government spending had picked up and investment spending was likely
to strengthen. On this basis, overall rates of economic growth were expected to
accelerate throughout the year.
As the scale of the pandemic unfolded, however, governments around the world
restricted movement of people, which brought immediate severe disruption to
economic activity. In order to mitigate the effects of the short-term
disruption on the longer-term outlook, governments launched unprecedented
stimulus measures, while central banks cut interest rates to support economic
activity in the coming months.
The strength and depth of the measures announced in the UK by the Chancellor
and the Bank of England should provide material support to employment, income
and bank lending to the real economy, that will be of great benefit in enabling
many businesses to navigate through to the recovery phase. In the shorter term,
however, there is considerable uncertainty, which has been reflected in equity
markets.
Portfolio Review
The first half of the year under review saw the portfolio's investment style
severely tested against a challenging backdrop. The portfolio's holdings were
tilted towards domestic stocks and Brexit uncertainty continued to weigh on UK
domestic equity valuations. The political uncertainty had been especially
damaging and had resulted in a wide degree of polarisation within the market.
Companies with substantial overseas revenues benefitted from the depreciation
of sterling and, by contrast, UK domestic-facing stocks generally performed
poorly and remained undervalued relative to the broader market. As a result,
the portfolio underperformed against the FTSE All-Share Index in the six month
period to 30 September 2019.
However, there was a significant uptick in sentiment from October through to
January driven by an improving and more stable political outlook in the UK and
supported by a clear inflection in soft economic indicators. Sterling rose
sharply mid-October on news that Prime Minister Boris Johnson had negotiated a
revised Withdrawal Agreement with the European Union. The equity market took
comfort from the decreased likelihood of a no-deal exit on 31 October before
rallying sharply on news of a Conservative majority government mid-December,
which boosted the prospect of an end to the political impasse and a period of
stability. Sterling remained relatively robust over this period, reflected in
the stocks which supported positive returns. Share price strength came from
stocks within the portfolio's UK Domestic Value theme, such as Legal & General,
Next, Countryside, and Derwent London, balanced by International Growth
Opportunities (easyJet, International Consolidated Airlines (IAG), Roche and
HomeServe). There was a significant improvement in overall portfolio returns
compared to the first half of the year, and in the period from 1 October 2019
to 31 January 2020 the portfolio was ahead of the FTSE All-Share Index,
recovering a substantial portion of the performance lost in the first half.
However, portfolio returns in February and March were overwhelmed as Covid-19
panic led shares lower on fears that the virus could pose a serious challenge
to economic growth. The market sell off was widespread but there was a
disproportionate impact on UK domestic stocks consistent with the value of
sterling falling materially. As such, companies within the UK Domestic Value
theme, which are more heavily exposed to sterling weakness, tended to
underperform. IAG and easyJet also saw significant share price falls. The
spread of Covid-19 and the measures to contain it have had a significant impact
on the share price of fashion retailers and the tourism and leisure industry
(which includes air travel).
We are greatly saddened that unprecedented market conditions in the final two
months of the year had such a negative effect on absolute and relative
performance, that was amplified by portfolio gearing. As a result, instead of
being able to report at least an improving trend in performance in a more
stabilised and growing domestic UK economy, we report a year in which the
portfolio has lagged the wider stock market at a time of fear. We remain,
however, firmly of the view that it is at such a time of unprecedented
uncertainty and volatility, that the consistently applied investment philosophy
that is at the very core of our approach, which emphasises cash flows and
long-term fundamental value, is likely to be increasingly relevant.
Outlook
In more recent weeks, it has become increasingly apparent that Covid-19 will
have a significant and widespread impact on global as well as UK economic
growth. The scale of disruption and the duration remain subject to great
uncertainty. The restrictions put in place in recent weeks to limit the spread
of Covid-19 will naturally have a large impact on a wide range of economic
indicators. With around half of UK private sector output currently subject to
severe disruption, and the exit path out of lockdown yet to be determined, the
range of possible outcomes for economic activity over the balance of 2020 is
much wider than normal.
As part of its ongoing efforts to mitigate against the impact of the Covid-19
outbreak, the UK government has announced substantial measures to support
corporate and household cash flow in the coming months. Separately, the Bank of
England lowered interest rates further, to 0.1%, and announced large scale
asset purchases. The strength and depth of the UK's economic policy response
offers us some reassurance.
Company earnings estimates have been revised down significantly in recent
weeks, but have yet to fully reflect the impact of the weakening in economic
activity that is likely to materialise in the second quarter. As the effects of
the virus start to fade, the measures implemented by the Government and the
Bank of England will, in our view, encourage the stabilisation of economic
activity in the second half of 2020 and the resumption of economic growth in
2021.
We are disappointed with the outcome of the Board's decision in respect of our
role as portfolio manager. We understand the performance pressures that exist
in today's market, but since the half year results we have embraced the Board's
views on performance with improved results in the latter part of 2019,
consistent with the principled valuation-based approach we have always taken.
We are disappointed that we were unable to build on this, given the recent
extreme volatility in financial markets.
These are extraordinary times as we are all aware, and in our opinion requires
the experience and expertise of portfolio managers who have weathered severe
cyclical shocks.
Martin Walker
Portfolio Manager
1 June 2020
.
BUSINESS REVIEW
Purpose, Business Model and Strategy
Perpetual Income and Growth Investment Trust plc is an investment trust company
and its investment objective is set out below. The Company's purpose is to
provide a tax efficient pooling of capital allowing investors a diversified
exposure to equities. The strategy the Board follows to achieve the investment
objective is to set investment policy and risk guidelines, together with
investment limits, and to monitor how they are applied. These have been
approved by shareholders and are set out below.
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. The Board has oversight of the Company's service
providers, and monitors them on a formal and regular basis. The Board has a
collegiate culture and pursues its fiduciary responsibilities with
independence, integrity and diligence, taking advice and outside views as
appropriate and constructively challenging and interacting with service
providers, including the Manager.
The principal service provider at present is Invesco Fund Managers Limited
('IFML' or the 'Manager'). Invesco Asset Management Limited, an associate
company of IFML, currently 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. However, shareholders should note that the Board
announced on 6 April 2020 that it had served protective notice of termination
of the management agreement and is currently engaged in a search for a
replacement investment manager.
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 was the portfolio manager responsible for the
day-to-day management of the portfolio during the course of the year under
review and for the previous nineteen years. Mark left Invesco on 15 May 2020.
Martin Walker, who was Mark's appointed deputy for this portfolio, has taken
over day-to-day management until the transition to a new investment manager.
The Manager has delegated portfolio valuation, fund accounting and
administrative services to The Bank of New York Mellon, London Branch.
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.
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;
- not more than 4% of gross assets in unquoted 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. Since the year end, the
Board has deemed that in the current circumstances it would not be appropriate
for such exposure to exceed 15%.
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 Company currently has three sources for borrowing, being GBP60
million nominal of 4.37% Senior Secured Notes 2029 (Notes) with an interest
rate of 4.37% and two facilities provided by The Bank of New York Mellon, being
a GBP40 million uncommitted revolving credit facility and an GBP60 million
uncommitted overdraft facility. These latter two facilities were both reduced
to these levels with effect from 16 March 2020, from GBP60 million and GBP80
million, respectively. The reduction was at the instigation of the Board and
the Manager in light of market turmoil in reaction to the Covid-19 pandemic and
the applicable covenants were reduced commensurately. These now require that
total assets not fall below GBP460 million.
Performance
The Board reviews performance by reference to Key Performance Indicators
(KPIs). The five main KPIs are as follows:
Asset Performance
The Company's year end net asset values (with debt at market value) and share
prices for the last ten years are shown on page 3.
On a total return basis, the Company's one, three, five and ten year record for
its NAV and share price performance compared to the benchmark index is shown on
page 2. For the year to 31 March 2020, the Company's NAV underperformed the
benchmark index by 11.4%.
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.
Peer Group Performance
There were 23 investment trusts in the UK Equity Income sector at 31 March
2020. 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 2020, of those companies in the UK Equity Income sector, the
Company was ranked 19th over one year, 21st over three years and 22nd 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
shareholders with real growth in ordinary dividends over the medium to longer
term. In the event of there being a material amount of income that is
non-recurring or special in nature additional special dividends may be
declared, at the discretion of the Directors. 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 this, shareholders were given the opportunity
to vote on an advisory resolution to approve the dividend policy at the 2019
AGM, which was passed. The policy has not changed since last year, but an
advisory resolution is again included in the Notice of Meeting for this year's
AGM on page 63.
For the year ended 31 March 2020, three interim dividends of 3.4p each per
share were paid on 30 September 2019, 30 December 2019 and 30 March 2020
respectively. A fourth interim dividend of 4.8p per share has been declared for
payment on 30 June 2020 to shareholders on the register on 5 June 2020,
bringing total dividends for the year to 15.0p. This represents an increase of
3.4% from the prior year's total of 14.5p and compares with an increase in the
Retail Price Index for the same period of 2.6%.
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, up to mid-March 2020, before the severe market disruption from Covid-19,
the shares traded in the discount range of 9% to 15%. During the latter part of
March the discount widened to over 20% and ended the year at a 19.5% discount.
This is shown in the adjacent graph which plots the discount over the year. As
at 31 March 2020, the weighted average discount of the 23 investment trusts in
the UK Equity Income sector was 3.0% (2019: 3.5%) (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. During the year to 31 March 2020, 24,614,463
shares were bought back at an average price of 310.71p. No shares have been
bought back since the year end. No shares were issued.
The shares bought back are being held in treasury. The Board intends to sell
the shares held as treasury shares in due course, 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 0.73% (2019: 0.72%).
Financial Position and Borrowings
The Company's balance sheet on page 46 shows the assets and liabilities at the
year end. Details of the GBP60 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
Chairman's Statement and the Portfolio Manager's Report in this Strategic
Report. Chief amongst these are the uncertainties arising from the impact of
the Covid-19 pandemic and the Board's decision to change investment manager. As
explained in the Portfolio Manager's Report, Covid-19 will have a significant
and widespread impact on global as well as UK economic growth. Whilst the
support promised from government and the Bank of England should help to
mitigate the impact on equity values, it is apparent that income will be
severely affected, for the coming year at least. The prospective change of
investment manager brings further uncertainty as to the way in which the
portfolio will be managed, but the Board is seeking an outcome that will be
positive for shareholders. 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, including emerging risks. 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. The extreme volatility experienced in March 2020 from the
market reaction to the Covid-19 virus exemplifies this risk, which has had a
marked effect on both the valuation of the Company's portfolio of investments
and the discount to net asset value at which the Company's shares trade.
Investment Risk
There can be no guarantee that the Company will meet its investment objectives.
As set out in the Investment Policy on page 10 the Manager's style may result
in the portfolio being significantly overweight or underweight positions in
individual stocks or sectors compared to the Company's benchmark index.
Consequently, the Company's performance may deviate significantly, possibly for
extended periods, from that of the benchmark. In a similar way, the Manager
manages other portfolios which, as a consequence of the high conviction style
of investment management, may include many of the same stocks as the Company.
This could significantly increase risks to the liquidity and price of certain
stocks under certain scenarios and market conditions, although in the last year
initiatives have been taken to reduce this risk.
The Board has established guidelines through which, amongst other things, it
seeks to ensure that the portfolio of investments is appropriately diversified
to mitigate poor performance of individual investments. The Board also
challenges the Manager on strategy and monitors performance on behalf of
shareholders.
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 56 to 60.
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. The
Board and Manager also monitor borrowing covenants on the Notes and bank
facilities.
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 pages 24 and 25. The depositary also monitors the
Company's stock, cash, borrowings and investment restrictions throughout the
year and issues an annual report to the Directors.
As the spread of Covid-19 continues, the Directors are monitoring the situation
closely, together with the Manager and third-party service providers. A range
of actions have been implemented to ensure that the Company and its service
providers are able to continue to operate as normal, even in the event of
prolonged disruption. The Manager's business continuity plans are reviewed on
an ongoing basis and the Directors are satisfied that the Manager has in place
robust plans and infrastructure to minimise the impact on its operations so
that the Company can continue to trade, meet regulatory obligations, report and
meet shareholder requirements.
The Manager has mandated work from home arrangements and implemented split team
working for those whose work is deemed necessary to be carried out on business
premises. Any meetings are being held virtually or via conference calls.
The Company's other service providers have similar working arrangements in
place.
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.
Viability Statement
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 and the current investment manager has also had a
long term horizon in the management of the portfolio. The Board has served
protective notice of termination on the current investment manager and is
currently engaged in a search for a replacement. In its announcement of this
action the Board said it was searching for a potential new manager with the
credentials and capacity to deliver capital growth and real growth in dividends
over the medium to longer term from UK equities, consistent with the Company's
objective.
In concluding on an appropriate period of assessment for the Company's future
viability it was also necessary to consider the outstanding term of the
Company's Notes, which will require repayment in 2029, and that the Company is
required by its Articles to have a continuation vote every five years, the next
instance being in 2021.
In view of all of the foregoing, although subject to shareholders voting in
favour of continuation in 2021, 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 13 and 14, together
with mitigating factors. Their assessment also considered the following: the
Company's investment objective and strategy, together with the business model
of the Company - these have been stress tested over the years through various
difficult market cycles, and especially so during the Covid-19 disruption this
year; the current outlook for the UK economy and equity markets - the economic
outlook in the wake of Covid-19 is not good, with economic growth likely to be
significantly affected, but the promised support from government and the Bank
of England should be supportive for equities; demand for the Company's shares
and the discount at which they trade, both of which are principally dependent
on performance; the Company's borrowing structure; the liquidity of the
portfolio; and the Company's future income and annual operating costs. In the
short term it appears that the availability of income will be sorely tested,
with a large number of companies suspending or substantially reducing
dividends. However, the Company's operating costs are modest. Consideration of
the borrowing structure included the amount the NAV could fall without
triggering the repayment of the Notes and/or breaching the covenants of the
bank overdraft and credit facility, and the amount of debt cover. The Company
was able to renegotiate the bank overdraft and credit facility to insure
against potential pressure on those covenants. The low point in the Company's
net asset value during the worst of the Covid-19 market disruption was on 23
March 2020 and at that point there was some GBP110 million of headroom above the
Notes' minimum net asset value covenant of GBP350 million. At the year end the
aggregate of all drawn borrowings was covered more than six times by the
Company's net assets.
As at the date of this report it is not possible to predict whether an outcome
of the search for a new investment manager might be a corporate event, such as
a merger, or whether shareholders will support the newly appointed investment
manager and vote for continuation in 2021, except to the extent that, in
seeking to act in the best interests of shareholders, the Board aims to select
an investment manager that will merit such support. Although not a material
concern, the Board also notes that the custody service and borrowing facilities
from The Bank of New York Mellon are contingent on their approval of the
investment manager appointed. In the unlikely event that this was not given,
there is a high likelihood that any new investment manager appointed will have
a comparable relationship with another provider or that it will otherwise be
possible to make alternative arrangements.
Notwithstanding the Company's continuing viability from a financial
perspective, there is material uncertainty over the outcome of the prospective
change of investment manager and whether the continuation vote in 2021 will be
passed, which may cast significant doubt on the likelihood of the Company
continuing as a going concern. Despite this material uncertainty the financial
statements have been prepared on a going concern basis and, subject to that
uncertainty, 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's Duty to Promote the Success of the Company
The Directors have a fiduciary duty to act, in good faith, for the benefit of
shareholders taken as a whole. Section 172 of the Companies Act 2006 codifies
this duty and also widens the responsibility to incorporate the consideration
of wider relationships that are necessary for the Company's sustainability.
Using the terminology of the Act, the Directors have a duty to promote the
success of the Company, whilst also having regard to certain broader matters,
including the need to engage with employees, suppliers, customers and others,
and to have regard to their interests. The summary of the Board's
responsibilities on pages 26 and 27 reflects these requirements.
In fulfilling these duties, and in accordance with the Company's nature as an
investment company with no employees and no customers in the traditional sense,
the Board's principal concern has been, and continues to be, the interests of
the Company's shareholders taken as a whole. Notwithstanding this, the Board
has a responsible governance culture and also has due regard for broader
matters so far as they apply. In particular, the Board engages with the Manager
at every Board meeting, reviews the Company's relationships with the other
service providers, such as the registrar, depositary and custodian, at least
annually and monitors compliance with the Company's obligations to debt
holders. As announced on 6 April 2020, and set out in the assessment of the
Manager on page 30, the Board has taken the decision that, following poor
investment performance in recent years, it would be in the best interest of
shareholders if the Board sought a different investment manager. The Board
continues to be content with the services provided by the other service
providers.
Environment, Social and Governance considerations are dealt with in a separate
section of this Strategic Report on page 16.
Shareholder relations are given a high priority by the Board. The prime medium
by which the Company communicates with shareholders is through the annual and
half-yearly financial reports, which aim to provide shareholders with a full
understanding of the Company's activities and its results. This information is
supplemented by the publication of monthly factsheets and the NAV of the
Company's ordinary shares, which is published daily via the London Stock
Exchange and on the Company's section of the current Manager's website at
www.invesco.co.uk/pigit.
Shareholders normally have the opportunity to communicate directly with the
Directors at the AGM, although it may not be possible this year because of the
Covid-19 virus situation.
It is the intention of the Board that the annual financial report and the
notice of the AGM be issued to shareholders so as to provide twenty working
days' notice of the AGM. Shareholders wishing to lodge questions in advance of
the AGM are invited to do so, either on the reverse of the proxy card, via the
current Manager's website (www.invesco.co.uk/pigit) or in writing to the
Company Secretary at the address given on page 68. At other times the Company
responds to queries from shareholders on a range of issues.
There is a clear channel of communication between the Board and the Company's
shareholders via the Company Secretary. The Company Secretary has no express
authority to respond to enquiries addressed to the Board and all such
communication, other than junk mail, is redirected to the Chairman or Senior
Independent Director as appropriate.
There is a regular dialogue with individual major shareholders to discuss
aspects of investment performance, governance and strategy and to listen to
shareholder views in order to develop a balanced understanding of their issues
and concerns. The Chairman has held meetings with a number of the largest
shareholders in the past year.
Shareholders can visit the Company's section of the current Manager's website
(www.invesco.co.uk/pigit) in order to access copies of annual and half-yearly
financial reports, pre-investment information, key information document (KID),
shareholder circulars, factsheets, Stock Exchange announcements, schedule of
matters reserved for the Board, terms of reference of Board Committees,
Directors' letters of appointment, the Company's share price and proxy voting
results.
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. Although the Board had not set
a specific target or quota in respect of this policy, it had aspired to meet
the Hampton-Alexander review target of 33% female board representation and
currently does so. The Board comprises six non-executive directors, two of whom
are women, which constitutes 33.3% female Board representation. Summary
biographical details of the Directors are set out on pages 19 and 20. The
Company has no employees.
Environment, Social and Governance (ESG) Matters
As an investment company with no employees, property or activities outside
investment, environmental policy has limited application. A greenhouse gas
emissions statement is included in the Directors' Report on page 31. In
relation to the portfolio, the Company has, for the time being, delegated the
management of the Company's investments to the current Manager, who has an ESG
Guiding Framework which sets out a number of principles that are intended to be
considered in the context of its responsibility to manage investments in the
financial interests of shareholders.
The Manager is committed to being a responsible investor and applies, and is a
signatory to, the United Nations Principles for Responsible Investment, which
demonstrates its extensive efforts in terms of ESG integration, active
ownership, investor collaboration and transparency. The Manager is also a
signatory to the FRC Stewardship Code 2012, which seeks to improve the quality
of engagement between institutional investors and companies to help improve
long-term returns to shareholders and the efficient exercise of governance
responsibilities.
The Henley investment team incorporates ESG considerations in its investment
process as part of the evaluation of new opportunities, with identified ESG
concerns feeding into the final investment decision and assessment of relative
value. The portfolio managers make their own conclusions about the ESG
characteristics of each investment held and about the overall ESG
characteristics of the portfolio, although third party ESG ratings may inform
their view. Additionally, the Manager's ESG team provides formalised ESG
portfolio monitoring. This is a rigorous semi-annual process where the
portfolio is reviewed from an ESG perspective.
Regarding stewardship, the Board considers that the Company has a
responsibility as a shareholder towards ensuring that high standards of
corporate governance are maintained in the companies in which it invests. To
achieve this, the Board does not seek to intervene in daily management
decisions, but aims to support high standards of governance and, where
necessary, will take the initiative to ensure those standards are met. The
principal means of putting shareholder responsibility into practice is through
the exercise of voting rights. The Company's voting rights are exercised on an
informed and independent basis.
The Company's stewardship functions have been delegated to the Manager. The
current Manager has adopted a clear and considered policy towards its
responsibility as a shareholder on behalf of the Company. As part of this
policy, the Manager takes steps to satisfy itself about the extent to which the
companies in which it invests look after shareholders' value and comply with
local recommendations and practices, such as the UK Corporate Governance Code.
A copy of the current Manager's Stewardship Policy, which is updated annually,
can be found at www.invesco.co.uk.
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 1 June 2020.
Invesco Asset Management Limited
Company Secretary
.
INVESTMENTS IN ORDER OF VALUATION
at 31 March 2020
Ordinary shares listed in the UK unless stated otherwise
MARKET
VALUE % OF
ISSUER______________________________ SECTOR___________________________ GBP'000 PORTFOLIO
American Tobacco Tobacco 41,962 6.6
BP Oil & Gas Producers 32,247 5.1
Roche - Swiss Listed Pharmaceuticals & Biotechnology 26,530 4.2
Tesco Food & Drug Retailers 25,357 4.0
Legal & General Life Insurance 22,805 3.6
Novartis - Swiss Listed Pharmaceuticals & Biotechnology 21,512 3.4
Derwent London Real Estate Investment Trusts 20,808 3.3
BAE Systems Aerospace & Defence 19,410 3.1
Next General Retailers 18,104 2.9
Randall & QuilterAIM Non-life Insurance 16,084 2.5
Top Ten Holdings 244,819 38.7
HomeServe General Retailers 15,543 2.5
Novo-Nordisk - B Shares Pharmaceuticals & Biotechnology 15,344 2.4
Royal Dutch Shell Oil & Gas Producers
- B shares 11,085 2.4
- A shares 4,106
PureTech Health Pharmaceuticals & Biotechnology 14,983 2.4
Altria - US Listed Tobacco 14,355 2.3
Cranswick Food Producers 13,115 2.1
Aviva Life Insurance 12,948 2.0
AJ Bell Financial Services 12,614 2.0
Total - French Listed Oil & Gas Producers 12,410 2.0
Lancashire Non-life Insurance 11,637 1.8
Top Twenty Holdings 382,959 60.6
Harworth Real Estate Investment & Services 11,433 1.8
British Land Real Estate Investment Trusts 10,498 1.7
BT Fixed Line Telecommunications 10,391 1.6
SSE Electricity 10,159 1.6
Whitbread Travel & Leisure 10,016 1.6
Chesnara Life Insurance 9,668 1.5
Babcock International Aerospace & Defence 9,403 1.5
Beazley Non-life Insurance 9,274 1.5
Hiscox Non-life Insurance 9,226 1.5
Pollen Street Secured Lending Equity Investment Instruments 9,217 1.4
Top Thirty Holdings 482,244 76.3
CLS Real Estate Investment & Services 9,122 1.4
easyJet Travel & Leisure 7,797 1.2
Burford CapitalAIM Financial Services 7,696 1.2
Vectura Pharmaceuticals & Biotechnology 7,661 1.2
Royal Bank of Scotland Banks 7,465 1.2
Secure Trust Bank Banks 7,179 1.1
Drax Electricity 7,023 1.1
G4S Support Services 6,989 1.1
Provident Financial Financial Services 6,852 1.1
Draper EspritAIM Financial Services 6,571 1.1
Top Forty Holdings 556,599 88.0
Countryside Household Goods & Home 6,482 1.0
Construction
IAG Travel & Leisure 6,173 1.0
Secure Income REITAIM Real Estate Investment Trusts 6,170 1.0
Real Estate InvestorsAIM Real Estate Investment Trusts 6,039 0.9
Oxford Sciences InnovationUQ Financial Services 5,664 0.9
Aquis ExchangeAIM Financial Services 5,632 0.9
IP Group Financial Services 5,268 0.8
NewRiver REIT Real Estate Investment Trusts 4,778 0.8
Urban ExposureAIM Financial Services 4,343 0.7
Capita Support Services 4,185 0.7
Top Fifty Holdings 611,333 96.7
Land Securities Real Estate Investment Trusts 3,796 0.6
HWSI Realisation (formerly Equity Investment Instruments 3,337 0.5
'Hadrian's Wall Secured
Investments')
McBride Household Goods & Home 3,311 0.5
Construction
Marwyn Value Investors Equity Investment Instruments 3,242 0.5
National Grid Gas, Water & Multiutilities 2,470 0.4
Doric Nimrod Air Three - preference Equity Investment Instruments 1,511 0.3
shares
Doric Nimrod Air Two - preference Equity Investment Instruments 1,290 0.2
shares
Eddie Stobart LogisticsAIM Industrial Transportation 1,104 0.2
infirst HealthcareUQ Pharmaceuticals & Biotechnology
- US Preferred shares 439
- UK D shares -
- UK D1 shares - 0.1
FlarinUQ - B shares Pharmaceuticals & Biotechnology 142 -
Top Sixty Holdings 631,975 100.0
SciFluor Life SciencesUQ - US Series Pharmaceuticals & Biotechnology 94 -
A convertible preferred
EurovestechUQ Financial Services 38 -
Lombard Medical - US Listed Health Care Equipment & Services 3 -
Jaguar HealthUQ Pharmaceuticals & Biotechnology
- US indemnity shares 1
- US convertible preferred A -
shares
- US convertible preferred B - -
shares
Total Holdings 64 (2019: 76) 632,111 100.0
AIM: Investments quoted on AIM
(8.5%)
UQ: Unquoted (1.0%)
.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in 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 or loss 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 Laing
Chairman
1 June 2020
.
INCOME STATEMENT
FOR THE YEARED 31 MARCH
2020 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments held 9 - (256,418) (256,418) - (31,748) (31,748)
at fair value
Losses on foreign exchange - (110) (110) - (2) (2)
Income 2 40,465 888 41,353 39,222 577 39,799
Investment management fee 3 (1,562) (3,645) (5,207) (1,803) (4,206) (6,009)
Other expenses 4 (613) (3) (616) (629) (1) (630)
Net return before finance 38,290 (259,288) (220,998) 36,790 (35,380) 1,410
costs and taxation
Finance costs 5 (1,103) (2,572) (3,675) (1,067) (2,489) (3,556)
Return on ordinary 37,187 (261,860) (224,673) 35,723 (37,869) (2,146)
activities before taxation
Tax on ordinary activities 6 (1,072) - (1,072) (697) - (697)
Return on ordinary 36,115 (261,860) (225,745) 35,026 (37,869) (2,843)
activities after taxation
for the financial year
Return per ordinary share:
Basic 7 15.95p (115.68)p (99.73)p 14.60p (15.79)p (1.19)p
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 additional statement of other 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.
.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH
SHARE SHARE CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2018 24,043 265,233 602,836 31,817 923,929
Return on ordinary activities - - (37,869) 35,026 (2,843)
Dividends paid - note 8 - - - (35,968) (35,968)
Shares bought back and held in treasury - - - (3,572) - (3,572)
note 13
At 31 March 2019 24,043 265,233 561,395 30,875 881,546
Return on ordinary activities - - (261,860) 36,115 (225,745)
Dividends paid - note 8 - - - (33,815) (33,815)
Shares bought back and held in treasury - - - (77,014) - (77,014)
note 13
At 31 March 2020 24,043 265,233 222,521 33,175 544,972
The accompanying accounting policies and notes are an integral part of these
financial statements.
.
BALANCE SHEET
AS AT 31 MARCH
2020 2019
NOTES GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss 9 632,111 1,017,184
Current assets
Debtors 10 12,273 5,296
12,273 5,296
Creditors: amounts falling due within one year
Other payables 11 (11,397) (2,661)
Bank overdraft 11 (20,903) (33,704)
Bank loan 11 (7,500) (45,000)
(39,800) (81,365)
Net current liabilities (27,527) (76,069)
Total assets less current liabilities 604,584 941,115
Creditors: amounts falling due after more than one year 12 (59,612) (59,569)
Net assets 544,972 881,546
Capital and reserves
Share capital 13 24,043 24,043
Share premium 14 265,233 265,233
Capital reserve 14 222,521 561,395
Revenue reserve 14 33,175 30,875
Shareholders' funds 544,972 881,546
Net asset value per ordinary share - basic
- debt at par 15 253.7p 368.2p
- debt at market value 15 246.7p 363.2p
These financial statements were approved and authorised for issue by the Board
of Directors on 1 June 2020.
Richard Laing
Chairman
Signed on behalf of the Board of Directors
The accompanying accounting policies and notes are an integral part of these
financial statements.
.
CASH FLOW STATEMENT
FOR THE YEARED 31 MARCH
2020 2019
NOTES GBP'000 GBP'000
Cash flow from operating activities
Net return before finance costs and taxation (220,998) 1,410
Tax on overseas income 6 (1,072) (697)
Adjustments for:
Purchase of investments (147,522) (187,646)
Sale of investments 278,472 187,872
130,950 226
Scrip dividends (207) (274)
Gains on investments held at fair value 256,418 31,748
Decrease/(increase) in debtors 173 (1,161)
Decrease in creditors (495) (41)
Net cash inflow from operating activities 164,769 31,211
Cash flow from financing activities
Net (repayment)/drawdown of bank loan and bank overdraft (50,301) 11,848)
Interest paid on overdraft (415) (190)
Interest paid on bank loan (602) (707)
Interest paid on senior loan notes (2,622) (2,622)
Shares bought back and held in treasury (77,014) (3,572)
Dividends paid 8 (33,815) (35,968)
Net cash outflow from financing activities (164,769) (31,211)
Net increase/(decrease) in cash and cash equivalents - -
Cash and cash equivalents at start of the year - -
Cash and cash equivalents at the end of the year - -
Cash flow from operating activities includes:
Dividends received 40,133 37,483
Interest received 1 -
SENIOR
BANK LOAN
OVERDRAFT LOAN NOTES
Changes in liabilities arising from financing activities:
Opening balance as at 31 March 2019 33,704 45,000 59,569
(Decrease)/increase in the liabilities in the year (12,801) (37,500) 43
Closing balance as at 31 March 2020 20,903 7,500 59,612
.
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 October 2019 (SORP).
The financial statements have been prepared on a going concern basis. As at the
date of this report and following protective notice of termination being given
to the Manager on 6 April 2020, it is not possible to predict whether the
outcome of the search for a new investment manager might be a corporate event,
such as a merger, or whether shareholders will support the newly appointed
investment manager and vote for continuation in 2021. There is therefore a
material uncertainty over the outcome of the prospective change of investment
manager and whether the continuation vote in 2021 will be passed. The Directors
recognise that this may cast significant doubt on the likelihood of the Company
continuing as a going concern. Despite this material uncertainty 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 on the
grounds that the Company's investment portfolio (including cash) is
sufficiently liquid and significantly exceeds all balance sheet liabilities and
there are no unrecorded commitments or contingencies. As such, the Directors
believe the Company has sufficient liquidity to meet its liabilities for the
next twelve months and that the preparation of the financial statements on a
going concern basis remains appropriate as the Company expects to be able to
meet its obligations as and when they fall due for the foreseeable future.
Further information is given in the Viability Statement on pages 14 and 15 and
the Going Concern Statement on page 30.
The revised SORP issued in October 2019 is applicable for accounting periods
beginning on or after 1 January 2019. As a result, the presentation of gains
and losses arising from disposals of investments and gains and losses on
revaluation of investments have now been combined, as shown in note 9 with no
impact to the net asset value or profit/(loss) reported for both the current or
prior year. No other accounting policies or disclosures have changed as a
result of the revised SORP.
The Company has opted to include a Cash Flow Statement for the current and
prior year to make the financial statements more relevant to the users.
(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 FRS 102
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 were valued by the Directors at fair value taking into
consideration the recommendations from Invesco's Unquoted Pricing Committee
(UPC), which in turn is guided by the International Private Equity and Venture
Capital Association Guidelines. The UPC approve the recommendation of
independent pricing team responsible for valuation of the unquoted equity
instruments. Unquoted equity investments are stratified according to their risk
profile and valuations may be performed internally or outsourced to third party
valuation experts. Where a third party valuation expert is used, the Company,
through its Manager, uses Duff & Phelps as its third-party valuation provider.
Valuations reports from Duff & Phelps are reviewed and included as an input in
the final determination of valuation assessment. The unlisted investment
valuations were reviewed on a quarterly basis and at specific trigger events.
These are evaluated using valuation techniques such as earnings multiples, 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. No forward currency
contracts were entered into during the year (2019: none).
(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.
(h) Expenses and Finance Costs
Expenses are recognised on an accruals basis and finance costs are recognised
using the effective interest method on financial liabilities 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. All other expenses are recognised in revenue.
(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 and shown in the Statement of
Changes in Equity.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2020 2019
GBP'000 GBP'000
Income from investments
UK dividends 28,350 29,619
UK special dividends 320 576
UK unfranked investment income 911 1,038
Overseas dividends 10,254 7,568
Overseas special dividends 284 -
Scrip dividends 207 274
40,326 39,075
Other income
Deposit interest 1 -
Other 138 147
139 147
Total income 40,465 39,222
Special dividends of GBP888,000 were recognised in capital during the year (2019:
GBP577,000).
3. Investment Management Fees
This note shows the fees due to the Manager which are calculated and paid
quarterly.
2020 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 1,562 3,645 5,207 1,803 4,206 6,009
Details of the Investment Management Agreement can be found on page 29.
At 31 March 2020, GBP950,000 (2019: GBP1,470,000) was accrued 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.
2020 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' remuneration (i) 176 - 176 157 - 157
Auditors' fees (ii):
- for audit of the Company's annual 40 - 40 28 - 28
financial statements
Other expenses (iii) 397 3 400 444 1 445
613 3 616 629 1 630
(i) The Directors' Remuneration Report provides further information on
Directors' fees.
(ii) Auditor's fees includes expenses but excludes VAT. The VAT is
included in other expenses.
(iii) Other expenses include:
* GBP16,000 (2019: GBP15,000) of employer's National Insurance payable on
Directors' remuneration. As at 31 March 2020, the amounts outstanding on
Directors' remuneration and employer's National Insurance was GBP17,000
(2019: GBP22,000); and
* custodian transaction charges of GBP3,000 (2019: GBP1,000). These are charged
to capital.
5. Finance costs
Finance costs arise on any borrowing the Company has, being in this case the GBP
60 million notes, overdraft and loan facility.
2020 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest payable on borrowings
repayable not by instalment:
Within 1 year:
Interest on loan facility 179 417 596 211 491 702
Overdraft interest 125 290 415 57 133 190
More than 1 year:
Notes 799 1,865 2,664 799 1,865 2,664
1,103 2,572 3,675 1,067 2,489 3,556
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
2020 2019
GBP'000 GBP'000
Overseas taxation 1,072 697
(b) Reconciliation of Tax Charge
2020 2019
GBP'000 GBP'000
Return on ordinary activities before taxation (224,673) (2,146)
?Theoretical tax at the current UK Corporation Tax rate of 19% (42,688) (408)
(2019: 19%)
Effects of:
- Non-taxable UK dividends (4,617) (4,940)
- Non-taxable UK special dividends (230) (219)
- Non taxable scrip dividends (39) (52)
- Non-taxable overseas dividends (1,926) (1,334)
- Non-taxable overseas special dividends (54) -
- Non-taxable loss on investments 48,720 6,032
- Non-taxable gains on foreign exchange (1) -
- Excess of allowable expenses over taxable income 835 1,024
- Accrued income taxable on receipt - (103)
- Overseas taxation 1,072 697
Tax charge for the year 1,072 697
(c) Factors that may affect future tax changes
The Company has cumulative excess management expenses of GBP183,123,000 (2019: GBP
183,572,000) that are available to offset future taxable revenue.
A deferred tax asset of GBP34,793,000 (2019: GBP31,207,000) at 19% (2019: 17%) has
not been recognised in respect of these expenses since tax is recoverable only
to the extent that the Company has sufficient future taxable revenue. On 11
March 2020 it was announced (and substantively enacted on 17 March 2020) that
the UK corporation tax rate would remain at 19% and not reduce to 17% (the
previously enacted rate) from 1 April 2020.
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.
2020 2019
PENCE GBP'000 PENCE GBP'000
Returns after taxation:
- revenue 15.95 36,115 14.60 35,026
- capital (115.68) (261,860) (15.79) (37,869)
- total (99.73) (225,745) (1.19) (2,843)
number number
Weighted average number of ordinary shares 226,364,671 239,909,364
in issue during the year:
8. Dividends on Ordinary Shares
Dividends represent the return of income to shareholders. The Company pays four
interim dividends a year.
Dividends paid and recognised in the year: 2020 2019
PENCE GBP'000 PENCE GBP'000
Fourth interim in respect of previous year 4.75 11,305 4.45 10,698
First interim paid 3.40 7,752 3.25 7,804
Second interim paid 3.40 7,452 3.25 7,784
Third interim paid 3.40 7,306 3.25 7,781
14.95 33,815 14.20 34,067
Special dividend paid in respect of previous - - 0.80 1,924
year
14.95 33,815 15.00 35,991
Return of unclaimed dividends from previous - - - (23)
years
14.95 33,815 15.00 35,968
Dividends payable in respect of the year: 2020 2019
PENCE GBP'000 PENCE GBP'000
First interim paid September 3.40 7,752 3.25 7,804
Second interim paid December 3.40 7,452 3.25 7,784
Third interim paid March 3.40 7,306 3.25 7,781
Fourth interim payable June 4.80 10,310 4.75 11,305
15.00 32,820 14.50 34,674
9. Investments Held at Fair Value Through Profit and Loss
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
2020 2019
GBP'000 GBP'000
Investments listed on a recognised investment exchange 625,733 1,000,337
Unlisted or not regularly traded investments at Directors' 6,378 16,847
valuation
632,111 1,017,184
Opening book cost 1,034,215 968,328
Opening investment holding gains (17,031) 79,883
Opening valuation 1,017,184 1,048,211
Movements in year:
Purchases at cost 156,967 184,242
Sales - proceeds (285,622) (183,521)
Losses on investments in the year (256,418) (31,748)*
Closing valuation 632,111 1,017,184
Closing book cost 881,977 1,034,215
Closing investment holding losses (249,866) (17,031)
Closing valuation 632,111 1,017,184
The Company received GBP285,622,000 (2019: GBP183,521,000) from investments sold in
the year. The book cost of these investments when they were purchased was GBP
309,204,000 (2019: GBP118,355,000) realising a loss of GBP23,582,000 (2019: profit
of GBP65,166,000). These investments have been revalued over time and until they
were sold any unrealised profits/losses were included in the fair value of the
investments.
* In accordance with the revised SORP issued in October 2019 (see Note 1
(a)). The loss on investments figure of GBP31,748,000 for the year ended 31 March
2019 is as follows:
2019
GBP'000
Net realised profit on sales 65,166
Investment holding loss in the year (96,914)
Loss on investments (31,748)
(b) Transaction Costs
The transaction costs included in losses on investments amount to
GBP530,000 (2019: GBP489,000) on purchases and GBP177,000 (2019: GBP252,000) for sales.
(c) Significant holdings
At 31 March 2019 the Company had holdings of 3% or more of the
number of shares in issue of the following investments:
NAME OF UNDERTAKING COUNTRY OF INCORPORATION INSTRUMENT % HELD
Jaguar HealthUQ United States 'B' convertible 21.6%
preferred
infirst HealthcareUQ England and Wales US preferred shares 16.9%
FlarinUQ England and Wales 'B' shares 13.0%
Jaguar HealthUQ United States 'A' convertible 10.1%
preferred
SciFluor Life SciencesUQ United States 'A' convertible 9.3%
preferred shares
Real Estate InvestorsAIM England and Wales Ordinary shares 9.0%
Urban ExposureAIM England and Wales Ordinary shares 8.1%
infirst HealthcareUQ England and Wales 'D' shares 7.5%
Marwyn Value Investors Cayman Islands Ordinary shares 7.3%
Lombard Medical Cayman Islands US common stock 6.8%
Aquis ExchangeAIM England and Wales Ordinary shares 6.7%
Randall & QuilterAIM Bermuda Ordinary shares 5.3%
HWSI Realisation (formerly Guernsey Ordinary shares 5.2%
'Hadrian's Wall Secured
Investments')
EurovestechUQ England and Wales Ordinary shares 4.5%
Secure Trust Bank England and Wales Ordinary shares 4.3%
Jaguar HealthUQ United States Indemnity shares 4.2%
Harworth England and Wales Ordinary shares 3.5%
McBride England and Wales Ordinary shares 3.3%
UQ: unquoted investment.
AIM: investments quoted on
AIM.
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.
2020 2019
GBP'000 GBP'000
Amounts due from brokers 8,324 1,174
Overseas withholding tax recoverable 2,189 1,550
Prepayments and accrued income 1,760 2,572
12,273 5,296
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 twelve months of the balance sheet date (as shown in this
note) and those due after that time (as shown in the next note).
2020 2019
GBP'000 GBP'000
Amounts due to brokers 9,238 -
Accruals 2,159 2,661
Other payables 11,397 2,661
Bank overdraft 20,903 33,704
Bank loan 7,500 45,000
39,800 81,365
The Company has an uncommitted bank overdraft facility of GBP60 million (2019: GBP
80 million) and an uncommitted bank loan facility of GBP40 million (2019: GBP60
million) renewable on 27 November 2020, limited in aggregate to the lower of
25% of net asset value of the Company or GBP100 million. Both are repayable on
demand.
Interest is payable on both facilities at a margin over the Bank of England
base rate. The covenants under both facilities require total assets to not fall
below GBP460 million (2019: GBP620 million).
12. Creditors: amounts falling due after more than one year
2020 2019
GBP'000 GBP'000
Debenture Stock:
4.37% senior secured notes 2029 60,000 60,000
Unamortised issue costs (388) (431)
59,612 59,569
The senior secured notes (Notes) of GBP60m 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 GBP350 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, including
treasury shares.
AT AT
31 MARCH 31 MARCH
2020 2019
Share capital:
Ordinary shares of 10p each (GBP'000) 21,480 23,941
Treasury shares of 10p each (GBP'000) 2,563 102
24,043 24,043
Number of ordinary shares in issue, excluding shares held in
treasury:
Brought forward 239,412,350 240,432,350
Shares bought back and held in treasury (24,614,463) (1,020,000)
Carried forward 214,797,887 239,412,350
During the year the Company bought back, into treasury, 24,614,463 (2019:
1,020,000) ordinary shares at an average price of 310.7p (2019: 347.7p). No
shares have been bought back since the year end.
The Directors' Report on page 31 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 table 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 NAVs 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.
2020 2019
SHAREHOLDERS NAV SHAREHOLDERS NAV
FUNDS PER SHARE FUNDS PER SHARE
GBP'000 PENCE GBP'000 PENCE
NAV - debt at par 544,972 253.7 881,546 368.2
Add back: debt at par, after 59,612 27.8 59,569 24.9
amortised costs (note 12)
Deduct: debt at market value (74,706) (34.8) (71,472) (29.9)
(note 17)
NAV - debt at market value 529,878 246.7 869,643 363.2
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 22) and in the Audit Committee Report (page 23). 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 17 and 18) 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 Danish krona, 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 (2019: 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.
DANISH KRONA EURO SWISS FRANC US DOLLAR
31 MARCH 2020 GBP'000 GBP'000 GBP'000 GBP'000
Foreign currency exposure on 171 565 1,839 742
net monetary items
Investments at fair value 15,344 12,410 48,042 14,453
through profit or loss
Total net foreign currency 15,515 12,975 49,881 15,195
DANISH KRONA EURO SWISS FRANC US DOLLAR
31 MARCH 2019 GBP'000 GBP'000 GBP'000 GBP'000
Foreign currency exposure on - 145 1,405 814
net monetary items
Investments at fair value - - 53,877 28,460
through profit or loss
Total net foreign currency - 145 55,282 29,274
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 Danish krona, 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 ±2.8% (2019: N/A) for Danish krona, ±
2.7% (2019: ±1.4%) for Euros, ±3.3% (2019: ±2.5%) for Swiss francs and ±2.8%
(2019: ±2.8%) 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:
DANISH KRONA EURO SWISS FRANC US DOLLAR
2020 GBP'000 GBP'000 GBP'000 GBP'000
Income statement profit/(loss)
after taxation
Revenue return (5) (84) (50) (51)
Capital return (434) (335) (1,585) (411)
Total Return after taxation (439) (419) (1,635) (462)
for the year
DANISH KRONA EURO SWISS FRANC US DOLLAR
2019 GBP'000 GBP'000 GBP'000 GBP'000
Income statement profit/(loss)
after taxation
Revenue return - (7) (35) (48)
Capital return - - (1,347) (797)
Total Return after taxation - (7) (1,382) (845)
for the year
If sterling had weakened to the same extent as 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 uncommitted bank facilities 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 GBP100 million (2019: GBP140 million), the
effect of a ±1% in the interest rate would result in a decrease/increase to the
Company's income statement of GBP1.0 million (2019: GBP1.4 million).
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 GBP63.2 million
(2019: GBP101.7 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 GBP100 million bank overdraft and loan facility
provides for additional funding flexibility.
2020 LESS THAN THREE TO
THREE TWELVE MORE THAN
MONTHS MONTHS ONE YEAR TOTAL
GBP'000 GBP'000 GBP'000 GBP'000
Bank overdraft 20,903 - - 20,903
Bank loan 7,500 - - 7,500
Notes - - 60,000 60,000
Interest on Notes 1,311 1,311 22,287 24,909
Amount due to brokers 9,238 - - 9,238
Accruals (excluding amount accrued on 1,125 - - 1,125
Notes)
40,077 1,311 82,287 123,675
2019 LESS THAN THREE TO
THREE TWELVE MORE THAN
MONTHS MONTHS ONE YEAR TOTAL
GBP'000 GBP'000 GBP'000 GBP'000
Bank overdraft 33,704 - - 33,704
Bank loan 45,000 - - 45,000
Notes - - 60,000 60,000
Interest on Notes 1,311 1,311 24,909 27,531
Accruals (excluding amount accrued on 1,627 - - 1,627
Notes)
81,642 1,311 84,909 167,862
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 and transactions
on a delivery versus payment basis. 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. No cash was
held at the year end (2019: GBPnil).
The maximum credit risk exposure arises from amounts due from brokers GBP
8,324,000 (2019: GBP1,174,000) 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
* 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 (i.e. developed using market data) for the asset or
liability, either directly or indirectly.
* Level 3 - Inputs are unobservable (i.e. 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.
The Directors have valued Oxford Sciences Innovation, the Company's largest
unquoted holding, on the basis of its latest available net asset value,
discounted for uncertainty as to the values of its underlying investments
because of Covid-19. All of the Company's other unquoted investments were
marked down by 60% on 31 March 2020 to reflect market conditions because of
Covid-19 and the announcement by Invesco that it was seeking to exit from
exposure to unquoted securities. Prior to the adjustment, the unquoted
portfolio was reviewed and valued in accordance with the valuation policy as
described in note 1(v).
The investments in Level 3 are those shown as unquoted investments in
the investment portfolio on pages 17 and 18 and are valued on the following
basis as described in note 1(v):
Valuation techniques used for Level 3 investments
2020 2019
GBP'000 GBP'000
Net assets 5,702 14,006
Milestones or expected returns 676 2,841
6,378 16,847
2020 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets designated at fair value through
profit or loss:
Quoted investments - Equities 625,733 - - 625,733
Unquoted investments - - 6,378 6,378
Total for financial assets 625,733 - 6,378 632,111
2019 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets designated at fair value
through profit or loss:
Quoted investments - Equities 1,000,337 - - 1,000,337
Unquoted investments - - 16,847 16,847
Total for financial assets 1,000,337 - 16,847 1,017,184
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 is as
follows:
2020 2019
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
GBP'000 GBP'000 GBP'000 GBP'000
4.37% senior secured loan notes 2029 60,000 74,706 60,000 71,472
Discount on issue of Notes (388) - (431) -
59,612 74,706 59,569 71,472
18. Capital Management
The Company's total capital employed at 31 March 2020 was GBP632,987,000 (2019: GBP
1,019,819,000) comprising borrowings of GBP88,015,000 (2019: GBP138,273,000) and
equity share capital and other reserves of GBP544,972,000 (2019: GBP881,546,000).
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, gross gearing was 19.6% (2019: 17.3%) and
equalled net gearing. 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 13 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 1158 Corporation Tax Act 2010 and by the Companies Act
2006, respectively, and with respect to the availability of the bank
facilities, by the terms imposed by the lender. The Board regularly monitors,
and has complied with, the externally imposed capital requirements. During the
year, the Company reduced the overdraft and loan facilities as detailed in note
11. There was no change to the 4.37% senior secured notes 2029 as detailed in
note 12. Current year borrowings comprise drawings on uncommitted bank
facilities and the principal outstanding on 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 and key management personnel
(i.e. the Directors).
Under UK GAAP, the Company has identified the Directors as related parties. The
Directors' remunerations and interests have been disclosed on pages 33 to 35
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 29 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.
The Board announced on 6 April 2020 that it had served Invesco Fund Managers
Limited with protective notice of termination. The ongoing process to appoint a
successor manager is causing the Directors to state that there is a material
uncertainty as to going concern in relation to the outcome, as stated in Note 1
(a). Further, the economic outlook following from Covid-19 and its impact on
the Company's investment portfolio continues to be uncertain. As at close of
business on 29 May 2020, the Company's NAV, share price and discount were
255.6p, 214.0p and 16.3% respectively. There are no other significant post
balance sheet events requiring disclosure. There are no other significant post
balance sheet events requiring disclosure.
.
NOTICE OF ANNUAL GENERAL MEETING
GIVEN that the Annual General Meeting (AGM) of Perpetual Income and Growth
Investment Trust plc will be held at 43-45 Portman Square, London W1H 6LY at
11am on 21 July 2020 for the following purposes.
Please note that access to this meeting will be restricted. Please refer to
Note 1 to this Notice of Annual General Meeting.
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
2020.
2. To re-elect Mike Balfour as a Director of the Company.
3. To re-elect Victoria Cochrane as a Director of the Company.
4. To re-elect Georgina Field as a Director of the Company.
5. To re-elect Alan Giles as a Director of the Company.
6. To re-elect Richard Laing as a Director of the Company.
7. To re-elect Bob Yerbury as a Director of the Company.
8. To approve the Company's dividend payment policy as set out on
pages 11 and 12 of this annual financial report.
9. To approve the Annual Statement and Report on Remuneration for the
year ended 31 March 2020.
10. To re-appoint Ernst & Young LLP as auditor.
11. To authorise the Audit Committee to determine the auditor's
remuneration.
Biographies of Directors seeking re-election are shown on pages 19 and 20 of
the annual financial report.
Special Business
To consider and, if thought fit, to pass the following resolutions of which
resolution 12 will be proposed as an Ordinary Resolution and resolutions 13, 14
and 15 will be proposed as Special Resolutions:
12. 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 GBP2,147,978, this being 10% of the Company's issued ordinary share
capital excluding shares held in treasury as at 31 May 2020, 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.
13. 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 2,147,978, this being
10% of the Company's issued ordinary share capital excluding shares held in
treasury as at 31 May 2020.
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.
14. 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 excluding shares held
in treasury on 21 July 2020, being the date of the AGM (equivalent to
32,198,203 shares at 31 May 2020);
(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; and (b) the
higher of the price of the last independent trade in the Shares and the highest
then current independent bid for the Shares on the London Stock Exchange;
(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.
15. 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 page 32.
Dated this 1st June 2020
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 financial year ended 31 March 2019 have been
delivered to the Registrar of Companies. The statutory accounts for the
financial year ended 31 March 2020 have been approved and audited but have not
yet been filed. The statutory accounts for the year ended 31 March 2020
received an audit report which was unqualified, but did reference material
uncertainties in respect of going concern because of the continuation vote due
to be held in 2021 and the uncertain outcome of the Board's search for a new
investment manager. The auditor drew attention to this 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 audited annual financial report will be available to shareholders shortly
and will be delivered to the Registrar of Companies as soon as practicable.
Copies can be requested from the Company Secretary, by email to
investmenttrusts@invesco.com or by letter to 43-45 Portman Square, London W1H
6LY, and will shortly be available to download from the Company's web page:
www.invesco.co.uk/pigit
END
(END) Dow Jones Newswires
June 02, 2020 02:00 ET (06:00 GMT)
Perpetual Income And Gro... (LSE:PLI)
Historical Stock Chart
From Jul 2024 to Aug 2024
Perpetual Income And Gro... (LSE:PLI)
Historical Stock Chart
From Aug 2023 to Aug 2024
