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
(£’000) |
4,416 |
3,960 |
+11.5 |
Revenue return per
ordinary share |
7.54p |
6.76p |
+11.5 |
Dividends |
– first interim |
2.50p |
2.40p |
+4.2 |
|
– second interim |
2.50p |
2.40p |
+4.2 |
|
|
|
|
|
|
|
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 £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
otherwise stated |
|
Market |
|
|
|
Value |
% Of |
Company |
Sector |
£’000 |
Portfolio |
Experian |
Support Services |
9,280 |
4.8 |
GlaxoSmithKline |
Pharmaceuticals &
Biotechnology |
8,622 |
4.5 |
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
& Services |
6,203 |
3.2 |
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
30 September 2019 |
Six
Months To
30 September 2018 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Gains on investments held at fair
value |
– |
7,342 |
7,342 |
– |
10,623 |
10,623 |
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
taxation |
4,437 |
7,178 |
11,615 |
3,964 |
10,787 |
14,751 |
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
during the period |
|
|
58,551,530 |
|
|
58,551,530 |
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 |
|
£’000 |
£’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 |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’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 |
|
£’000 |
£’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 £76,000 were recognised in capital during
the period (2018: £429,000).
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
£150 million and 0.55% thereafter. From 1
October 2018, the fee was reduced to 0.60% for the first
£150 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 |
£’000 |
Pence |
£’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 2019 |
31 Mar 2019 |
|
£’000 |
£’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