INVESCO INCOME GROWTH TR-ORD
Invesco Income Growth Trust plc
Half-Yearly Financial Report for the Six Months to 30 September 2015
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 11 of the Company's 2015 annual
financial report.
Performance Statistics
%
SIX MONTHS TO 30 SEPTEMBER 2015 2014 CHANGE
Total Return
(includes net dividends reinvested)
Net asset value per ordinary share -3.5% +0.7%
FTSE All-Share Index -7.2% +1.2%
Share price -5.0% +0.5%
Source: Invesco, Thomson Reuters
Datastream
Revenue and Dividends
Net revenue after tax (£'000) 4,047 4,116 -1.7
Revenue return per ordinary share 6.91p 7.03p -1.7
Dividends - first interim 2.15p 2.10p
- second interim 2.15p 2.10p
%
AT PERIOD END 30 SEPTEMBER 2015 31 MARCH 2015 CHANGE
Assets
Net asset value per ordinary share:
- per Balance Sheet 294.9p 309.2p -4.6
- after deducting proposed 292.7p 305.5p -4.2
dividends
FTSE All-Share Index 3,336.9 3,664.6 -8.9
Share price 274.6p 292.8p -6.2
Discount per ordinary share 6.9% 5.3%
Gearing
Gross gearing(1) - excluding the 9.9% 8.3%
effect of cash
Net gearing(2) - including the 9.9% 8.3%
effect of cash
Notes:
1. Gross gearing: borrowing divided by shareholders' funds.
2. Net gearing: borrowing less cash and cash equivalents divided by
shareholders' funds.
.
CHAIRMAN'S STATEMENT
Performance
I said in my last annual report statement that I suspected the current year
would be challenging and this has proved to be the case in the first half of
this financial year. Like last year the period started on a positive note, but
this reversed in the middle of the period and we have ended the six months with
a negative return. Over the six months to 30 September 2015, the NAV total
return (comprising the movement in the net asset value plus dividends) of the
Company was -3.5%, which compares to a -7.2% total return by the FTSE All-Share
Index. Looked at from the perspective of the share price, rather than the NAV,
the return was -5.0% as the discount to NAV widened slightly.
In his Portfolio Manager's Report that follows, Ciaran Mallon provides
commentary on the background to this recent performance, which should be seen
in the context of the positive returns which we have enjoyed in recent years
and the excellent longer term performance.
Revenue and Dividends
The net revenue return for the six months to 30 September 2015 was £4,047,000,
just short of the £4,116,000 earned in the six months to 30 September 2014. The
difference between the two periods is accounted for by the higher level of
one-off special dividends allocated to revenue in the first half of last year
(£193,000 compared with £95,000 this year).
The Board is pleased to declare a second interim dividend of 2.15p per share in
respect of the year ending 31 March 2016. This dividend will be paid on 31
December 2015 to shareholders registered on 4 December 2015. Together with the
first interim dividend, this makes a total of 4.3p for the first half of the
current financial year compared with 4.2p last year and is consistent with our
objective of growing the dividend at above the rate of inflation.
Outlook
I see no immediate prospect that Ciaran is going to find his job any less
challenging in the months ahead. Markets are likely to continue to be volatile
as uncertainties remain about China, the world economy, interest rates and
geopolitical threats. Although some dividend levels are also coming under
pressure with a number of large high yielding companies having limited dividend
cover, I remain confident in the abilities of Ciaran to find attractive
opportunities for our portfolio, particularly with his focus on investing in
companies with strong fundamentals that pay good levels of dividend and where
these dividends look safer than the broader market, so helping him to meet our
longer term investment objectives. Although in the shorter term, positive
returns may continue to be harder to achieve, there is reason to believe that
returns over the longer term will remain positive.
Hugh Twiss MBE
Chairman
26 November 2015
.
PORTFOLIO MANAGER'S REPORT
Portfolio Strategy and Review
After a strong start to 2015, the UK equity market became increasingly volatile
over the six month period under review. Fears of a Greek exit from the euro, a
slowing Chinese economy and the prospect of monetary tightening in the US
dented market sentiment, overshadowing the unexpected outright Conservative
victory in the UK General Election. Falling oil and commodity prices and
concerns over the impact of the Chinese slowdown on other emerging markets
offset broadly positive news on the UK economy and the FTSE All-Share Index
delivered a return of -7.2% over the period.
The Company's net asset value, including reinvested dividends, delivered a
return of -3.5% during the period under review, outperforming its benchmark
FTSE All-Share Index.
There were positive performances from a range of the portfolio's holdings.
Veterinary services company CVS continues to expand rapidly and profitably
through acquiring businesses in the highly fragmented and fast growing
veterinary market. The increased prevalence of pet insurance, which drives
demand for higher cost services, as well as the company's online animal
pharmacy, labs and crematoria businesses, should further underpin high levels
of growth in the medium term.
Soft drinks business Nichols has benefited from focusing on its core Vimto
brand, which offers growth potential both in the UK and in targeted overseas
markets. Young & Co's Brewery has delivered impressive like for like sales
growth in a declining beer market as it benefits from the sale of its London
brewery and its focus on the acquisition and roll out of premium pubs.
The defensive nature of the tobacco sector has stood it in good stead in a low
growth environment. Imperial Tobacco benefited particularly during the period
from the acquisition of certain US brands and production facilities from the
merged Lorillard and Reynolds American tobacco businesses - a deal which will
be strongly earnings enhancing for Imperial and underpin its dividend growth
potential.
The portfolio's performance benefited from its zero weighting in the mining
sector, which was negatively impacted by the fall in commodities prices.
The oil & gas sector also performed poorly over the period, impacted by an oil
price falling to under $50 a barrel. The portfolio is underweight in this major
sector relative to its benchmark index, but does have holdings in BP and Royal
Dutch Shell, which saw their share prices decline over the period. Both
companies are undergoing major cost cutting and cut backs in production, in an
industry where costs had risen along with oil prices. These two companies
benefit from strong balance sheets and have a shareholder focused dividend
policy.
The holding in G4S fell over the period, despite good results and management
delivering on their turnaround plans. We believe the valuation looks attractive
and have added to the portfolio's holding.
The holding in Drax continued to underperform. Falling power prices have
impacted negatively on the company's profitability, but more significant were
the cuts announced in the July budget to the climate change exemption tax. This
represents disappointing news for Drax, but we feel share price reaction has
been unduly negative for a company which provides over 7% of the UK's
electricity requirements.
In terms of portfolio activity, Friends Life was taken over by Aviva in an all
share offer and the holding in Aviva has been retained. The holding in Ultra
Electronics was sold after a poor trading update which led to a reassessment of
the company's prospects.
Outlook
Notwithstanding its recent volatility, the UK stock market has risen strongly
over the last six years. There remain headwinds to withstand, including the
risk that China's slowdown worsens and spreads further to other emerging
markets, while it remains to be seen how stock markets react when the long
awaited rise in US interest rate finally occurs, but valuations suggest that
the long term outlook for returns from investing in the stock market are still
attractive. I believe it is sensible to remain conservative in my investment
approach and seek to invest in companies whose prospects are not dependent on
an improving economic outlook. In particular, I remain confident in the long
term return potential of the holdings in my portfolio.
Ciaran Mallon
Investment Manager
.
Related Parties Transactions
Under United Kingdom 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 during the
period. 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 principal risk factors 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 13 to 15 of the 2015 annual financial report, which is available on
the Company's section of the Manager's website at: www.invescoperpetual.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 the 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 FRS104
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 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
26 November 2015
.
TWENTY FIVE LARGEST HOLDINGS AT 30 SEPTEMBER 2015
Ordinary shares unless stated otherwise
MARKET % OF
VALUE PORTFOLIO
COMPANY ACTIVITY BY SECTOR £'000
Imperial Tobacco Tobacco 9,735 5.1
British American Tobacco Tobacco 7,590 4.0
AstraZeneca Pharmaceuticals & 6,898 3.6
Biotechnology
National Grid Gas, Water & Multiutilities 6,668 3.5
Pennon Gas, Water & Multiutilities 6,107 3.2
Next General Retailers 6,032 3.2
Severn Trent Gas, Water & Multiutilities 5,727 3.0
Young & Co.'s Brewery - Travel & Leisure 5,390 2.8
Non-Voting
Legal & General Life Insurance 5,102 2.7
HSBC Banks 4,770 2.5
United Utilities Gas, Water & Multiutilities 4,720 2.5
RELX (formerly Reed Elsevier) Media 4,609 2.4
Croda International Chemicals 4,525 2.4
Wolseley Support Services 4,506 2.4
Aviva Life Insurance 4,502 2.4
Nichols Beverages 4,460 2.4
SSE Electricity 4,445 2.3
Jupiter Fund Management Financial Services 4,396 2.3
Pearson Media 4,393 2.3
Capita Support Services 4,384 2.3
Whitbread Travel & Leisure 4,353 2.3
BP Oil & Gas Producers 4,292 2.3
Bunzl Support Services 4,106 2.2
CVS General Retailers 4,029 2.1
Informa Media 3,980 2.1
129,719 68.3
Other investments 60,142 31.7
Total investments 189,861 100.0
.
CONDENSED INCOME STATEMENT
SIX MONTHS TO 30 SEPTEMBER 2015 SIX MONTHS TO 30 SEPTEMBER 2014
REVENUE £ CAPITAL £ TOTAL £ REVENUE £ CAPITAL £ TOTAL £
'000 '000 '000 '000 '000 '000
Losses on investments at - (9,909) (9,909) - (2,850) (2,850)
fair value
Income - note 2 4,538 - 4,538 4,614 241 4,855
4,538 (9,909) (5,371) 4,614 (2,609) 2,005
Investment management fee (270) (270) (540) (301) (301) (602)
- note 3
Other expenses (173) - (173) (151) - (151)
Net return before finance 4,095 (10,179) (6,084) 4,162 (2,910) 1,252
costs and taxation
Finance costs (48) (48) (96) (46) (46) (92)
Return on ordinary 4,047 (10,227) (6,180) 4,116 (2,956) 1,160
activity before and after
taxation for the
financial period
Return per ordinary share 6.91p (17.46)p (10.55)p 7.03p (5.05)p 1.98p
- Basic
Number of ordinary shares 58,551,530 58,551,530
in issue
The total column of this statement represents the Company's profit and loss
account. 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 and the Company has no other gains
or losses and therefore no statement of total recognised gains or losses is
presented. No operations were acquired or discontinued in the period.
CONDENSED BALANCE SHEET
Registered number 3141073
AT 30 SEPTEMBER 2015 AT 31 MARCH 2015
£'000 £'000
Fixed assets
Investments held at fair value 189,861 194,683
Current assets
Amounts due from brokers - 395
Prepayments and accrued income 490 1,085
490 1,480
Creditors: amounts falling due within one
year
Bank overdraft (17,152) (14,938)
Amounts due to brokers (385) -
Accruals (157) (192)
(17,694) (15,130)
Net current liabilities (17,204) (13,650)
Net assets 172,657 181,033
Capital and reserves
Share capital 14,638 14,638
Share premium 40,021 40,021
Capital redemption reserve 2,310 2,310
Capital reserve 108,515 118,742
Revenue reserve 7,173 5,322
Shareholders' funds 172,657 181,033
Net asset value per ordinary share - Basic 294.9p 309.2p
Number of 25p ordinary shares in issue at the 58,551,530 58,551,530
period end
CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
SHARE SHARE CAPITAL CAPITAL REVENUE TOTAL £
CAPITAL £ PREMIUM £ REDEMPTION RESERVE £ RESERVE £ '000
'000 '000 RESERVE £'000 '000 '000
For the six months
ended 30 September
2015
At 31 March 2015 14,638 40,021 2,310 118,742 5,322 181,033
Net return on - - - (10,227) 4,047 (6,180)
ordinary activities
Dividends paid - note - - - - (2,196) (2,196)
5
At 30 September 2015 14,638 40,021 2,310 108,515 7,173 172,657
For the six months
ended 30 September
2014
At 31 March 2014 14,638 40,021 2,310 107,798 4,763 169,530
Net return on - - - (2,956) 4,116 1,160
ordinary activities
Dividends paid - note - - - - (2,137) (2,137)
5
At 30 September 2014 14,638 40,021 2,310 104,842 6,742 168,553
Notes to Condensed Financial Statements
1. Accounting Policies
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice) and the Statement of Recommended Practice Financial
Statements of Investment Trust Companies and Venture Capital Trusts, issued by
the Association of Investment Companies in November 2014. Accordingly, FRS 102
The Financial Reporting Standard applicable in the UK and Republic of Ireland
applies for the year ending 31 March 2016 and these financial statements. In
addition, FRS 104 Interim Financial Reporting, issued by the Financial
Reporting Council in March 2015 has been applied for the first time. The
financial statements are issued on a going concern basis.
As a result of the first time adoption of FRS 102 and the revised SORP,
comparative disclosures have been revised where appropriate. The net return
attributable to ordinary shareholders and shareholders' funds remain unchanged.
As an investment fund the Company has the option, which it has taken, not to
present a cash flow statement. A cash flow statement is not required when an
investment fund meets all the following conditions: substantially all
investments are highly liquid and are carried at market value, and where a
statement of changes in equity is provided.
The accounting policies applied to these financial statements are consistent
with those applied in the financial statements for the year ended 31 March
2015, with the following revision:
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.
No other accounting policies have changed as a result of the application of FRS
102 and the revised SORP.
2. Income
SIX MONTHS TO 30 SEPT SIX MONTHS TO 30 SEPT
2015 2014
£'000 £'000
Income from listed investments:
UK dividends 4,313 4,175
UK unfranked investment income 130 216
Special dividends 95 193
4,538 4,584
Other income:
Underwriting commission - 30
4,538 4,614
Special dividends recognised in - 241
capital
3. Investment Management Fees and Finance Costs
The investment management fee was revised with effect from 1 April 2015 and is
calculated and payable monthly in arrear based on market capitalisation, at
0.65% up to £150 million and 0.55% thereafter. Previously the fee was
calculated on the value of funds under management before deducting borrowing
and with three tiers: 0.7% up to £100 million, 0.6% on the next £50 million and
0.55% thereafter. Investment management fees and finance costs are allocated
50% to capital and 50% to revenue.
4. Investment Trust Status and Tax
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
The first interim dividend of 2.15p was paid to shareholders on 30 October
2015. The second interim dividend of 2.15p for the year ending 31 March 2016
will be paid on 31 December 2015.
SIX MONTHS 30 SEPT 2015 TO SIX MONTHS TO 30 SEPT 2014
(pence) (pence)
Dividends paid
Final (previous year) 3.75 3.65
First interim (current 2.15 2.10
year)
Total 5.90 5.75
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 30 SEPT 2015 At 30 MAR 2015
£'000 £'000
Level A: Quoted prices for identical 188,191 191,476
instruments in active markets - quoted
equity investments
Level C: Valuation techniques using 1,670 3,207
non-observable market data - fixed income
investments
189,861 194,683
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 2015 and 30 September 2014 has not been audited. The figures and
financial information for the year ended 31 March 2015 are extracted and
abridged from the latest published accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and included 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
26 November 2015
INVESCO INCOME GROWTH : Half-yearly Report
November 26, 2015 at 10:56 am EST
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