TIDMIVI
Invesco Income Growth Trust plc
Half-Yearly Financial Report for the Six Months to 30 September 2019
Key Facts
Invesco Income Growth Trust plc is an investment trust company listed on the
London Stock Exchange.
Investment Objective
The Company's investment objective is to produce income and capital growth
superior to that of the UK stock market and dividends paid quarterly that, over
time, grow above the rate of inflation.
Principal Investment Aims
The Company aims to:
* have a portfolio yielding more than the FTSE All-Share Index in
order to generate sufficient income;
* provide shareholders with dividend growth in excess of inflation
over the longer term;
* achieve capital growth in excess of the FTSE All-Share Index over
the longer term;
* reduce risk by diversifying investments across a wide range of
companies and sectors; and
* enhance returns by utilising borrowings, when appropriate.
The Company invests principally in quoted UK equities and equity-related
securities of UK companies selected from any market sector.
Full details of the Company's Investment Policy (incorporating the Company's
investment objective) can be found on page 12 of the Company's 2019 annual
financial report.
.
Performance Statistics
Six months to Six months to
30 September 30 September %
2019 2018 Change
Total Return (dividends reinvested)(1)(2)(3)
Net asset value (NAV) per ordinary share +6.4% +8.2%
FTSE All-Share Index(4) +4.6% +8.3%
Share price +6.0% +3.3%
Revenue and Dividends
Net revenue after tax (GBP'000) 4,416 3,960 +11.5
Revenue return per ordinary share 7.54p 6.76p +11.5
Dividends - first 2.50p 2.40p +4.2
interim
- second 2.50p 2.40p +4.2
interim
At Period End At Year End
30 September 31 March
2019 2019
NAV per ordinary share 326.8p 311.2p +5.0
FTSE All-Share Index(1)(4) 4,061.7 3,978.3 +2.1
Share price(1) 271.0p 262.0p +3.4
Discount per ordinary share(5) (16.4)% (15.8)%
Gearing
Gross gearing(6) - excluding the
effect of cash 1.5% 3.9%
Net gearing(7) - including the
effect of cash 1.5% 3.9%
(1) Source: Refinitiv.
(2) See Glossary of Terms and Alternative Performance Measures (APM) on
pages 70 to 72 of the 2019 annual financial report for full details of the
explanation and reconciliation of APMs.
(3) Key Performance Indicator.
(4) The benchmark index of the Company.
(5) The discount to NAV as at 30 September 2019 above has been calculated
based on the NAV per share after deducting the proposed first interim dividend
of 2.5p and not the NAV per share as disclosed on the Company's balance sheet.
This is due to accounting standards requiring that dividends be reflected in
the accounts only when they become a legally binding liability, which in
practise translates into being the date interim dividends are paid to
shareholders. Accordingly, as the first interim dividend for 2019 was marked
ex dividend ('ex div') on 19 September 2019 and is reflected in the Company's
share price as at 30 September 2019, any share rating based on this ex div
price also needs to be calculated using a 324.3p ex div NAV.
(6) Gross gearing: borrowing divided by shareholders' funds.
(7) Net gearing: borrowing less cash and cash equivalents divided by
shareholders' funds.
.
Chairman's Statement
Performance
It is pleasing to be able to report not only a further positive total return on
our net asset value (NAV) over the half year to 30 September 2019 of 6.4%, but
also an outperformance of our benchmark, the FTSE All-Share Index, which
returned 4.6%. This was, however, not quite matched by the share price total
return which was 6.0%, as the discount to NAV at which the shares traded
remained stubbornly wide at 16.4% at the period end. This is disappointing
given the strength of the performance delivered by the portfolio and the
increased marketing effort that Invesco have been undertaking, but UK value
orientated portfolios like ours have remained out of favour with investors. In
his Portfolio Manager's Report that follows, Ciaran Mallon provides commentary
on the background to the portfolio's performance over the period.
Revenue and Dividends
It is encouraging that the portfolio's income generation has continued to grow
strongly in the period, helped by some special dividends, with net revenue of GBP
4,416,000 for the six months to 30 September 2019, which on a per share basis
was 7.54p, compared with 6.76p per share for the same period last year.
We have declared a second interim dividend of 2.5p per share in respect of the
year ending 31 March 2020. This dividend will be paid on 27 December 2019 to
shareholders on the register on 6 December 2019. Together with the first
interim dividend, this makes a total of 5.0p for the first half of the current
financial year compared with 4.8p last year, an increase of 4.2%. This is
consistent with our objective of growing the dividend at above the rate of
inflation, as well as our previously stated move to rebalance the distribution
of our dividend payments over the course of the year and so the percentage
increase of 4.2% should not be taken as an indication of the rate of increase
for the full year.
Outlook
As I write this we are in the midst of an election, the outcome of which is
likely to have a very significant effect on the future of the UK and its
economy. So the prospect that, whatever the outcome, it is likely to be
followed by a period of considerable political uncertainty in the UK, will
continue to weigh on the UK stock market. Although by many measures much of the
UK stock market is not overvalued, the continued uncertainty, together with
various geopolitical and economic uncertainties in the rest of the world, means
that I must continue to run the risk of being accused of being repetitive, as I
again say that it is going to be challenging for our Manager. However, I take
some comfort from the fact that history suggests that in such an environment,
the benefits of value investing and also the attractions of the income growth
sector and companies like ours should be recognised. I am sure that Ciaran's
investment approach will win through and that we will continue to meet our
investment objectives of growing the income and capital in real terms over the
longer term.
Hugh Twiss MBE
Chairman
3 December 2019
Portfolio Manager's Report
Market Review
The UK equity market provided a positive return in the six-month period to
30 September 2019. However, this headline return masks periods of underlying
volatility. Global markets were driven by persistent concerns of a slowdown in
economic growth and the fluctuation of US-Sino trade tensions.
Domestic political uncertainty continued. The Conservative leadership election,
ongoing negotiations for the UK's exit from the EU and parliamentary procedure
dominated the domestic agenda. The value of sterling against international
currencies remained weak, continuing to serve as the bellwether for the
perceived likelihood of a "no-deal" exit. The prorogation of parliament pushed
the pound to just US$1.20 in August.
Amid this protracted uncertainty the Bank of England's Monetary Policy
Committee voted unanimously to hold the UK base interest rate at 0.75%.
Data released during the period showed weaker business investment and slowing
economic growth. However, robust employment data belied signs of a slowdown.
Portfolio Review
The Company's net asset value, including reinvested dividends, delivered a
return of 6.4% during the period under review, outperforming the benchmark the
FTSE All-Share Index which delivered a total return of 4.6%.
A large number of the portfolio's holdings delivered a positive return over the
period. Most notable was Experian, which traded strongly over the period. Solid
full-year results and an encouraging trading update supported positive
momentum. The holding in Ferguson also performed well. In September, the
company announced plans to demerge its small UK business and examine
potentially relisting the remaining company is the US, which was well received
by the market.
Elsewhere in the portfolio healthcare stocks, Smith & Nephew and
GlaxoSmithKline (GSK), also supported returns. Smith & Nephew benefited from
better-than-expected revenue from its sports medicine division. GSK released
solid results for the second quarter in July, raising its earnings forecasts
for the full year following better-than-expected sales of vaccines.
Other notable contributors included RELX. The company traded well in the first
half of the period, supported by a positive trading update and management
confidence in the full-year guidance. Meanwhile Informa released strong
half-year results and CVS re-rated strongly on increased acquisition activity
in the veterinary services sector. The share price had been weaker in 2018,
leading some commentators to view CVS as a possible takeover candidate.
The portfolio remains well invested in the utilities sector. This exposure has
supported returns in a volatile market, both in absolute and relative terms.
I continue to favour the sector which variously offers an attractive
combination of asset backing and, in the majority, index-linked dividend
growth. Within the sector holdings in Pennon, Severn Trent and SSE
outperformed.
The portfolio also benefited from the low exposure to the basic materials and
oil & gas sectors as mining stocks (excluding gold) and oil producers proved
volatile.
In contrast, the portfolio's tobacco holdings have continued to be
disappointing. I had reduced the portfolio's holdings in British American
Tobacco and Imperial Brands some time ago, but this remains an overweight
exposure compared to the wider market. Revived fears around the regulation of
vaping technology impacted broad sentiment towards the sector. However,
Imperial Brands was the standout detractor following the release of
underwhelming sales data for next generation technology. Since the period end,
Imperial Brands has announced that the CEO plans to leave and inevitably this
will lead to a reappraisal of strategy by her replacement. Given this
uncertainty I have sold the holding.
Bunzl released a disappointing trading update in April, reporting a slowdown in
underlying revenue growth for the first quarter. The share price failed to
recover momentum as half-year results later confirmed lower-than-expected
margins in the firm's ex-US business. I am not surprised that the company,
which supplies products to a huge range of industries, is not immune to the
general slowdown in global growth. However, I believe that the company remains
a strong business with potential to continue its good long term track record of
growth.
In terms of portfolio activity over the period, equity holdings remained
constant. The Barclays 14% preference share was called by the company so is no
longer in the portfolio.
Strategy and Outlook
Market conditions have proven no less challenging than last year, despite the
overall upward movement in the market and the portfolio's outperformance.
Having slightly raised gearing towards the end of 2018, I have maintained this
modest level. This reflects the balance between my enthusiasm for the potential
of the companies in the portfolio against the somewhat uncertain and difficult
economic and political backdrop we continue to face.
We are still a long way off establishing what the United Kingdom's future
trading relationship with the European Union will look like, and at the time of
writing a general election campaign is the political focus. It is several
decades since the Conservatives and Labour had such different views of how the
UK economy should function, so political uncertainty will probably continue to
impact the UK stockmarket in the near-term. The US administration remains a
belligerent participant in global trade talks, which is also unsettling to
markets. China has been the engine of global growth for many years but seems
now to be steadily slowing. For these and other reasons global economic growth
is slowing. Because of these factors I think market conditions will remain
volatile.
Given this assessment I continue to believe that it is sensible to remain
conservative in my investment approach. I continue to seek to achieve both
capital and income growth from the portfolio, with a balance between the
current level of income and future income growth. It remains my goal to invest
in companies whose prospects are not wholly dependent on a particular economic
outcome, but are supported by self-help or industry specific dynamics. Overall,
while I am cautiously optimistic in my outlook for the UK market as a whole, I
remain confident in the long-term return potential of the holdings in the
portfolio. I continue to believe that the portfolio is well positioned to meet
its performance objectives, most notably in respect of delivering dividend
growth, which has grown for the past 22 years consecutively.
Ciaran Mallon
Investment Manager
3 December 2019
.
Related Parties Transactions
Under UK Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law), the Company has identified the Directors as related parties.
No other related parties have been identified. No transactions with related
parties have taken place which have materially affected the financial position
or the performance of the Company.
Principal Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the
Company operates, including consideration of emerging risks. The principal
risks and uncertainties relating to the Company can be summarised as:
* Investment objective - there can be no guarantee that the Company will
meet its investment objective;
* Market risk - market prices of securities are influenced by many
factors outside the control of the Board and Manager, such as general economic
conditions, politics and investor sentiment;
* Investment risk - there is a risk of poor performance of individual
investments. This is mitigated by diversification and monitoring of investment
guidelines;
* Shares - the market value of the shares in the Company may not reflect
their underlying net asset value;
* Gearing Arising from Borrowings - borrowing will amplify the effect on
shareholders' funds of portfolio gains and losses;
* Regulatory - whilst compliance with rules and regulations is closely
monitored, breaches could affect returns to shareholders; and
* Reliance on Third Party Service Providers - the Company has no
employees, so is reliant upon the performance of third party service providers,
particularly the Manager, for it to function.
A detailed explanation of these principal risks and uncertainties can be found
on pages 14 to 16 of the 2019 annual financial report, which is available on
the Company's section of the Manager's website at: www.invesco.co.uk/
incomegrowth.
In the view of the Board these principal risks and uncertainties are equally
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
This half-yearly financial report has been prepared on a going concern basis.
The Directors consider this is the appropriate basis as the Company has
adequate resources to continue in operational existence for the foreseeable
future, being 12 months after approval of these financial statements. In
reaching this conclusion, the Directors took into account the diversified
portfolio of readily realisable securities which can be used to meet funding
commitments, and the ability of the Company to meet all of its liabilities,
including bank overdraft and ongoing expenses, from its assets. The Directors
also considered the revenue forecasts for the forthcoming year and future
dividend payments in concluding that the going concern basis is appropriate.
Directors' Responsibility Statement
In respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the
half-yearly financial report have been prepared in accordance with the FRC's
FRS 104 Interim Financial Reporting;
- the interim management report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R of the FCA's Disclosure
Guidance and Transparency Rules; and
- the interim management report includes a fair review of the
information required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's auditor.
Signed on behalf of the Board of Directors.
Hugh Twiss MBE
Chairman
3 December 2019
.
Twenty Five Largest Holdings at 30 September 2019
UK?Listed ordinary shares unless Market
otherwise stated
Value % Of
Company Sector GBP'000 Portfolio
Experian Support Services 9,280 4.8
GlaxoSmithKline Pharmaceuticals & 8,622 4.5
Biotechnology
Ferguson Support Services 8,021 4.1
RELX Media 7,874 4.1
Informa Media 7,245 3.7
Young & Co's Brewery - Non-VotingAIM Travel & Leisure 6,895 3.6
BP Oil & Gas Producers 6,884 3.6
British American Tobacco Tobacco 6,876 3.5
Royal Dutch Shell - B Shares Oil & Gas Producers 6,592 3.4
Euromoney Institutional Investor Media 6,458 3.3
Smith & Nephew Health Care Equipment & 6,203 3.2
Services
Pennon Gas, Water & Multiutilities 6,070 3.1
Croda International Chemicals 6,019 3.1
HSBC Banks 5,974 3.1
Legal & General Life Insurance 5,821 3.0
Compass Travel & Leisure 5,781 3.0
Next General Retailers 5,069 2.6
Severn Trent Gas, Water & Multiutilities 4,935 2.5
Bunzl Support Services 4,928 2.5
InterContinental Hotels Travel & Leisure 4,903 2.5
Whitbread Travel & Leisure 4,895 2.5
National Grid Gas, Water & Multiutilities 4,691 2.4
Aviva Life Insurance 4,438 2.3
NicholsAIM Beverages 4,298 2.2
SSE Electricity 4,202 2.2
152,974 78.8
Other Investments (18) 41,119 21.2
Total Holdings (43) 194,093 100.0
AIM Investments quoted on AIM.
.
Condensed Income Statement
Six Months To Six Months To
30 September 2019 30 September 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments held at fair - 7,342 7,342 - 10,623 10,623
value
Losses on foreign exchange - (6) (6) - - -
Income - note 2 4,854 76 4,930 4,415 429 4,844
4,854 7,412 12,266 4,415 11,052 15,467
Investment management fee - note 3 (234) (234) (468) (265) (265) (530)
Other expenses (183) - (183) (186) - (186)
Net return before finance costs and 4,437 7,178 11,615 3,964 10,787 14,751
taxation
Finance costs - note 3 (21) (21) (42) (4) (4) (8)
Return before and after
taxation for the financial period 4,416 7,157 11,573 3,960 10,783 14,743
Return per ordinary share - basic 7.5p 12.3p 19.8p 6.8p 18.4p 25.2p
Number of ordinary shares in issue 58,551,530 58,551,530
during the period
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The return 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 period.
.
Condensed Balance Sheet
Registered number 3141073
At At
30 September 31 March
2019 2019
GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss 194,093 188,308
Current assets
Prepayments and accrued income 356 1,166
356 1,166
Creditors: amounts falling due within one year
Bank overdraft (2,950) (7,067)
Accruals (158) (179)
(3,108) (7,246)
Net current liabilities (2,752) (6,080)
Net assets 191,341 182,228
Capital and reserves
Share capital 14,638 14,638
Share premium 40,021 40,021
Capital redemption reserve 2,310 2,310
Capital reserve 124,978 117,821
Revenue reserve 9,394 7,438
Shareholders' funds 191,341 182,228
Net asset value per ordinary share - Basic 326.8p 311.2p
Number of 25p ordinary shares in issue at the period end 58,551,530 58,551,530
.
Condensed Statement of Changes in Equity
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the six months ended 30 September
2019
At 31 March 2019 14,638 40,021 2,310 117,821 7,438 182,228
Net return - - - 7,157 4,416 11,573
Net dividends paid - note 5 - - - - (2,460) (2,460)
At 30 September 2019 14,638 40,021 2,310 124,978 9,394 191,341
For the six months ended 30 September
2018
At 31 March 2018 14,638 40,021 2,310 114,721 7,016 178,706
Net return - - - 10,783 3,960 14,743
Net dividends paid - note 5 - - - - (2,330) (2,330)
At 30 September 2018 14,638 40,021 2,310 125,504 8,646 191,119
.
Notes to the Condensed Financial Statements
1. Accounting Policies
The condensed financial statements have been prepared in accordance with
applicable United Kingdom Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 102 The Financial Reporting
Standard applicable in the UK and Republic of Ireland, FRS 104 Interim
Financial Reporting and 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. The financial
statements are issued on a going concern basis.
The accounting policies applied to these condensed financial statements are
consistent with those applied in the financial statements for the year ended 31
March 2019.
2. Income
Six Months to Six Months to
30 Sept 2019 30 Sept 2018
GBP'000 GBP'000
Income from investments
UK dividends - ordinary 4,603 4,331
UK dividends - special 215 -
UK unfranked investment income 36 84
4,854 4,415
Special dividends of GBP76,000 were recognised in capital during the period
(2018: GBP429,000).
3. Management Fees and Finance Costs
Investment management fees and finance costs are allocated 50% to capital and
50% to revenue. The investment management fee is calculated and payable monthly
in arrears based on market capitalisation. Until 30 September 2018, this was
0.65% up to GBP150 million and 0.55% thereafter. From 1 October 2018, the fee was
reduced to 0.60% for the first GBP150 million of market capitalisation and 0.50%
thereafter with all other terms of the management agreement remaining
unchanged.
4. Taxation and Investment Trust Status
It is the intention of the Directors to conduct the affairs of the Company so
that it satisfies the conditions for approval as an investment trust company.
As such, no tax liability arises on capital gains. In addition, no taxable
profits arise as expenses exceed taxable income.
5. Dividends paid on Ordinary Shares
The first interim dividend for the year ending 31 March 2020 of 2.50p was paid
on 11 October 2019 to shareholders on the register on 20 September 2019. The
shares were marked ex dividend on 19 September 2019. The second interim
dividend of 2.50p for the year ending 31 March 2020 will be paid on 27 December
2019.
Six Months to Six Months to
30 Sept 2019 30 Sept 2018
Pence GBP'000 Pence GBP'000
Final paid (previous year) 4.20 2,460 4.10 2,401
Return of unclaimed dividends from
previous years - (71)
2,460 2,330
First interim payable (current
year) 2.50 1,464 2.40 1,405
In accordance with accounting standards, dividends payable after the period end
have not been recognised as a liability as at the period end.
6. Classification Under Fair Value Hierarchy
The fair value hierarchy analysis for investments held at fair value at the
period end is as follows:
At At
30 Sept 31 Mar 2019
2019
GBP'000 GBP'000
Level 1 - The unadjusted quoted
price in an active market for
identical assets or liabilities that
the entity can access at the
measurement date 194,093 186,977
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 - 1,331
194,093 188,308
As at 30 September 2019, all of the Company's portfolio was composed of quoted
(Level 1) investments. There were no Level 2 securities. The Level 2
investments held at 31 March 2019, comprising one fixed income holding, was
sold during the period.
7. Status of Half-Yearly Financial Report
The financial information contained in this half-yearly report does not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006. The financial information for the half years ended
30 September 2019 and 30 September 2018 has not been audited. The figures and
financial information for the year ended 31 March 2019 are extracted and
abridged from the latest audited accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and included in the Report of the Independent Auditor, which was
unqualified and did not include a statement under section 498 of the Companies
Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
3 December 2019
END
(END) Dow Jones Newswires
December 03, 2019 10:23 ET (15:23 GMT)
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