Perpetual Income and Growth Investment Trust plc
Half-Yearly Financial Report for the Six Months to 30 September 2017
KEY FACTS
Perpetual Income and Growth Investment Trust plc (the 'Company') is an investment trust company listed on The London Stock Exchange.
Investment Objective of the Company
The Company's investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to long term from a portfolio of securities listed mainly in the UK equity market.
Performance Statistics
The Benchmark index of the Company is the FTSE All-Share Index.
| SIX MONTHS ENDED 30 SEPTEMBER 2017 | |
| Total return(1)(2) (all income reinvested): | |
| Net asset value (NAV) | |
| - debt at market value | 2.0% |
| Share price | 3.5% |
| FTSE All-Share Index | 3.6% |
| AT 30 SEPTEMBER 2017 | AT 31 MARCH 2017 | % CHANGE | |
| Shareholders' funds | |||
| Net assets (£'000) | 1,011,214 | 1,012,965 | -0.2 |
| NAV per share | |||
| - debt at market value | 416.3p | 416.2p | +0.0 |
| Share price and discount | |||
| Share price | 381.0p | 375.8p | +1.4 |
| Discount to NAV | |||
| - debt at market value | 8.5% | 9.7% | |
| Capital return - Benchmark(1) | +1.5 | ||
| Gearing: | |||
| - gross gearing(3) | 12.6% | 15.5% | |
| - net gearing(4) | 12.6% | 15.5% |
(1) Source: Thomson Reuters Datastream.
(2) The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Any dividends received by a shareholder are assumed to have been reinvested in either additional shares (i.e. share price total return) or in the Company's assets (i.e. NAV total return).
(3) Gross gearing: borrowings ÷ shareholders' funds.
(4) Net gearing: borrowing less cash and UK government bond holdings ÷ shareholders' funds.
| SIX MONTHS ENDED | ||||
| 30 SEPTEMBER 2017 | 30 SEPTEMBER 2016 | % CHANGE | ||
| Revenue | ||||
| Basic revenue return per share | ||||
| - including special dividends | 8.70p | 7.61p | +14.3 | |
| - excluding special dividends | 8.08p | 7.61p | +6.2 | |
| Dividends - first interim | 3.15p | 3.00p | ||
| Dividends - second interim | 3.15p | 3.00p | ||
| Dividends - total | 6.30p | 6.00p | +5.0 | |
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INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Chairman's Statement
Performance
I am pleased to report in my first statement since becoming Chairman of the Company in July that the share price total return for the six months ended 30 September 2017 of 3.5%, with dividends reinvested, was broadly in line with our benchmark FTSE All-Share Index's return of 3.6%. However, the underlying net asset value (NAV) lagged, with total return performance of 2.0% for the period. The more favourable share price return reflects a narrowing of the discount at which the shares trade relative to the NAV, from 9.7% to 8.5% over the six months. Your portfolio manager, Mark Barnett, provides further detail on the performance of the portfolio in the period and his outlook in his Portfolio Manager's Report.
The longer term performance continues to exceed our benchmark, with five and ten year total returns on net assets of 80.3% and 121.8%, respectively, compared with 61.2% and 75.2% for the FTSE All-Share Index (source: Invesco, Thomson Reuters Datastream).
Dividend
The Directors are pleased to declare a second interim dividend of 3.15p per ordinary share in respect of the three months to 30 September 2017. This dividend will be paid on 29 December 2017 to shareholders on the register on 8 December 2017. The shares will be marked ex-dividend on 7 December 2017.
Your Board continues to recognise the importance of dividends to shareholders, particularly in the present low interest environment, and is determined to maintain its policy of real dividend growth over the medium to longer term.
Richard Laing
Chairman 24 November 2017
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Portfolio Manager's Report
Market Review
The period was notable for the combination of two distinct forces - the turbulent political environment and the improving global economy. Buoyed by the latter, the FTSE 100 Index reached a record high in early June, led by a rally in the oil and mining sectors, and sterling fell in response to the surprise outcome of the UK general election. However, into the second half of the period, growing tensions between the United States of America and North Korea led to nervousness in global equity markets. Renewed strength in sterling, as Brexit negotiations saw a two-year transitional deal suggested by the Prime Minister and the Bank of England hinted that it would raise interest rates in November (subsequently realised), further dampened the progress of the UK equity market. The impact of the opposing forces also saw increased polarisation of sector performance in the UK stock market.
Portfolio Review
The Company's net asset value, including reinvested dividends, delivered a return of 2.0% during the period under review, compared with one of 3.6% (total return) by the FTSE All-Share Index.
The portfolio's holding in Provident Financial had a major negative impact on performance, with its share price falling by 72.4% between the Company's last financial year end and 30 September 2017. It issued a profit warning in August, downgrading earnings forecasts for its Consumer Credit Division from a profit of £115 million to a loss of between £80 million and £120 million for the year to 31 December 2017. Additionally, it announced that its Vanquis Bank subsidiary was co-operating with an FCA investigation into its Repayment Option Plan ancillary product and that its formerly well-regarded chief executive had resigned.
We have been in regular contact with the company, including a visit to its head office in Bradford. This has provided reassurance that, while the home-collected credit business has been damaged, this is not irretrievable and there is a long term future for that business. There is no certainty on the timing or outcome of the FCA review of Vanquis, but it is noteworthy here that, in providing the Vanquis credit card, Provident Financial provides a valuable service to the under-served sub-prime segment of the population.
The pharmaceutical sector was on the wrong side of the sector polarisation noted above and also saw sentiment impacted by some high profile drug test failures. This is a broad sector, encompassing a whole range of businesses from the very largest global, multinational pharmaceutical companies to much more niche specialty pharma or biotechnology businesses, and the portfolio is invested in a diverse range of these. Holdings in pharma majors AstraZeneca, Novartis and Roche weighed on performance, while Vectura annnounced that there was 'low likelihood' that it would gain regulatory approval for a generic asthma treatment. However, there were some notably strong performances from other small and mid cap portfolio holdings, including Silence Therapeutics, BTG, PureTech Health, Horizon Discovery and Motif Bio. We continue to believe that the backdrop for the sector is positive, given the ageing population and the demand for western-style medicines in the emerging world. There are good grounds to believe that the new areas of drug discovery are likely to deliver better outcomes and that is not currently reflected in share prices.
The portfolio's long standing holdings in the tobacco sector - British American Tobacco (BAT), Imperial Brands and Reynolds American - have delivered strongly positive performance over a very long period. However, they detracted over the past six months, despite the successful conclusion by BAT of the acquisition of Reynolds American in a part shares, part cash deal. The combined entity is well positioned to exploit next generation products, particulary in the key US market. The stock market focused on plans announced by the US FDA to launch a consultation on lowering nicotine levels in cigarettes, but regulation may take some time to come to fruition. This is an industry accustomed to dealing with such headwinds. In the meantime, the companies' combined focus on pricing power, cash conversion and product innovation should continue to provide a reliable source of income.
Companies particularly exposed to the fall in sterling and perceived challenges to the UK economy had performed poorly in the previous year in the aftermath of the Brexit referendum and US election. Amongst these, holdings in Next, easyJet, Legal & General, Thomas Cook and BCA Marketplace all delivered strongly positive performances over the most recent period, on the back of a minor improvement in the prevailing stock market sentiment. Next commented on a 'somewhat less challenging' outlook for the business, with growth of its on-line Directory business picking up pace. EasyJet surprised the stock market with a better-than-expected trading statement, while Thomas Cook indicated growth across multiple regions, with a notable rise in customer demand for Turkey following the 2016 terrorist attacks. BCA Marketplace confirmed that its core auction-related vehicle remarketing division had traded well, with its vehicle buying division, led by the WeBuyAnyCar.com brand, delivering 'sustained double digit volume growth'.
Other holdings to perform well during the recent period included those which have been more consistent long term performers. HomeServe confirmed it was successfully expanding its home emergency and repair services business from its core UK market into the high growth potential of the US. London Stock Exchange shrugged off a brief share price fall on the feared impact of Brexit and the failure of its proposed merger with Deutsche Borse and delivered strong organic growth, benefiting from inflows into passive products and rising demand for benchmarking, data and analytics. Compass' dominant global position in contract catering saw it growing fast in the still relatively untapped US market. Rentokil Initial's shares continued to rise as the company focuses on the structural growth opportunites in its highly profitable pest control division.
In terms of portfolio activity during the period, as previously mentioned, the holding in Reynolds American was taken over by British American Tobacco, for a mix of shares and cash. New investments were made in Altria, Eddie Stobart Logistics and Royal Dutch Shell 'A'. The holdings in Game Digital, N Brown and SSE were sold.
Outlook
The performance of the UK stock market continues to be dominated by the countervailing forces of better than expected global economic growth and ongoing UK domestic political concerns. A sense of complacency may now exist over the global growth outlook, which has led to narrow but rising market levels, low volumes of shares traded and little volatility in share prices. This positive backdrop has also led to a renewed belief in a so called 'goldilocks' environment, where the key economic variables of growth, inflation and interest rates are set up to sustain a perfect environment for rising stock markets. This may prove to be the case over the near-term, and is certainly illustrated by the further fall in market volatility, but this kind of stock market status quo does not tend to last too long. It is also worth remembering that a combination of high valuations in certain sectors, shifting monetary policy and a volatile geopolitical environment may still provide a catalyst which alters this bullish global outlook.
By contrast, the market seems unwilling to look beyond the uncertainty of the Brexit negotiations when it comes to valuing sterling assets which, by historic standards, are now heavily discounted. Again, this seems unlikely to persist for long.
The best performing sectors this year have been those most exposed to this bullish global scenario, which has created opportunties to invest within the more domestically exposed sectors that have performed poorly and which look undervalued. The focus of the portfolio has been steered towards these sectors over recent months. As previously mentioned, there is an apparent strong consensus pessimism about the outlook for the UK economy, despite recent data points indicating a continuation of current growth trends. Although a materially improved domestic outlook may be unlikely, there should be some respite from the pressure on real incomes as elevated inflation levels decline next year and wages continue to grow. This gives us confidence that an excessively bearish view is already reflected in domestic share prices.
If we proceed cautiously through employing a well-tested investment process based on fundamental company analysis and a prudent approach to valuation, there are opportunities for profitable investment in this market which provide a rising flow of dividend income and should protect capital in the event of more volatile market conditions.
Mark Barnett
Portfolio Manager 24 November 2017
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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.
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Principal Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties identified in this review are summarised below:
• Economic Risk - Economic risk arises from uncertainty about the future prices of the Company's investments. Market fluctuations, both upward and downward, may arise from external factors which are outside the control of the Board and the Manager.
• Investment Risk - This is the stock specific risk that the stock selection process may not achieve the Company's published objectives. Poor performance of individual portfolio investments is mitigated by diversification and ongoing monitoring of investment guidelines.
• 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.
• Gearing Risk - The use of borrowings will amplify the effect on shareholders' funds of portfolio gains and losses.
• Share Discount Risk - The Company's shares may, at times, trade at a wide discount. The Board has put in place both share repurchase and issuance facilities to help the management of this risk.
• Operational Risk - A failure of the systems of financial and non-financial internal controls operated by the Company, the Manager and other external service providers could result in loss of assets and reputational damage as a result of fraud or material misstatement.
• Regulatory Risk - 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 regulatory rules could lead to suspension from the Official List, a fine or qualified audit report and reputational problems.
• Other Risks - The risk that the portfolio manager, Mark Barnett, may become incapacitated or otherwise be unavailable is mitigated by support available from his designated deputy for this portfolio, Martin Walker, and the wider Invesco Perpetual UK Equities team.
A detailed explanation of these principal risks and uncertainties can be found on pages 12 and 13 of the 2017 annual financial report, which is available on the Company's section of the Manager's website at: www.invescoperpetual.co.uk/pigit. 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.
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Going Concern
The condensed financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months after the approval of this half-yearly financial report. In considering this, 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 and ongoing expenses from its assets. The Directors also considered the revenue forecasts for the year and future dividend payments.
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INVESTMENT PORTFOLIO STATEMENT AT 30 SEPTEMBER 2017
Ordinary shares listed in the UK unless otherwise stated
ISSUER | SECTOR | MARKET VALUE £'000 | % OF PORTFOLIO |
| Equity investments | |||
| British American Tobacco | Tobacco | 80,990 | 7.1 |
| BP | Oil & Gas Producers | 48,490 | 4.3 |
| BAE Systems | Aerospace & Defence | 41,692 | 3.7 |
| AstraZeneca | Pharmaceuticals & Biotechnology | 38,269 | 3.4 |
| Imperial Brands | Tobacco | 35,952 | 3.2 |
| Legal & General | Life Insurance | 35,772 | 3.1 |
| Roche - Swiss common stock | Pharmaceuticals & Biotechnology | 29,700 | 2.6 |
| RELX | Media | 28,554 | 2.5 |
| BT | Fixed Line Telecommunications | 28,192 | 2.5 |
| Next | General Retailers | 27,390 | 2.4 |
| Top Ten Holdings | 395,001 | 34.8 | |
| Hiscox | Non-life Insurance | 26,280 | 2.3 |
| Aviva | Life Insurance | 25,858 | 2.3 |
| Rentokil Initial | Support Services | 25,296 | 2.2 |
| Novartis - Swiss common stock | Pharmaceuticals & Biotechnology | 24,592 | 2.2 |
| NewRiver REIT | Real Estate Investment Trusts | 24,455 | 2.1 |
| BTG | Pharmaceuticals & Biotechnology | 23,681 | 2.1 |
| Royal Dutch Shell - A shares | Oil & Gas Producers | 23,504 | 2.1 |
| Compass | Travel & Leisure | 23,087 | 2.0 |
| Beazley | Non-life Insurance | 22,799 | 2.0 |
| HomeServe | Support Services | 22,202 | 1.9 |
| Top Twenty Holdings | 636,755 | 56.0 | |
| G4S | Support Services | 21,523 | 1.9 |
| Babcock International | Support Services | 20,854 | 1.8 |
| Derwent London | Real Estate Investment Trusts | 20,452 | 1.8 |
| BCA Marketplace | Financial Services | 20,128 | 1.8 |
| Shaftesbury | Real Estate Investment Trusts | 19,817 | 1.7 |
| easyJet | Travel & Leisure | 19,433 | 1.7 |
| Thomas Cook | Travel & Leisure | 18,146 | 1.6 |
| Bunzl | Support Services | 18,091 | 1.6 |
| Capita | Support Services | 15,389 | 1.3 |
| Drax | Electricity | 14,718 | 1.3 |
| Top Thirty Holdings | 825,306 | 72.5 | |
| KCOM | Fixed Line Telecommunications | 14,467 | 1.3 |
| Horizon Discovery | Pharmaceuticals & Biotechnology | 14,387 | 1.3 |
| Motif Bio | Pharmaceuticals & Biotechnology | 9,056 | |
| - ADR | 4,508 | 1.3 | |
| - ADR warrants 9 Nov 2021 | 757 | ||
| London Stock Exchange | Financial Services | 14,289 | 1.2 |
| Oxford Sciences InnovationUQ | Financial Services | 13,875 | 1.2 |
| Provident Financial | Financial Services | 12,958 | 1.1 |
| Harworth | Real Estate Investment & Services | 12,407 | 1.1 |
| Altria - US common stock | Tobacco | 12,341 | 1.1 |
| Lancashire | Non-life Insurance | 11,786 | 1.0 |
| TalkTalk Telecom | Fixed Line Telecommunications | 11,467 | 1.0 |
| Top Forty Holdings | 957,604 | 84.1 | |
| P2P Global Investments | Equity Investment Instruments | 10,863 | 0.9 |
| Real Estate Investors | Real Estate Investment Trusts | 10,243 | 0.9 |
| Touchstone Innovations | Financial Services | 10,203 | 0.9 |
| IP Group | Financial Services | 10,018 | 0.9 |
| Centrica | Gas, Water & Multiutilities | 9,979 | 0.9 |
| Secure Trust Bank | Banks | 9,871 | 0.8 |
| CLS | Real Estate Investment & Services | 9,364 | 0.8 |
| Hadrian's Wall Secured Investments | Equity Investment Instruments | 7,350 | |
| - C shares | 1,531 | 0.8 | |
| SciFluor Life SciencesUQ | Pharmaceuticals & Biotechnology | ||
| - US Series A convertible preferred | 8,732 | 0.8 | |
| Chesnara | Life Insurance | 8,018 | 0.7 |
| Top Fifty Holdings | 1,053,776 | 92.5 | |
| Eddie Stobart Logistics | Industrial Transportation | 7,508 | 0.7 |
| Macau Property Opportunities Fund | Real Estate Investment & Services | 6,834 | 0.6 |
| Diurnal | Pharmaceuticals & Biotechnology | 6,812 | 0.6 |
| Marwyn Value Investors | Equity Investment Instruments | 6,762 | 0.6 |
| Silence Therapeutics | Pharmaceuticals & Biotechnology | 6,467 | 0.6 |
| PureTech Health | Pharmaceuticals & Biotechnology | 6,438 | 0.6 |
| Vectura | Pharmaceuticals & Biotechnology | 6,278 | 0.5 |
| infirst HealthcareUQ | Pharmaceuticals & Biotechnology | ||
| - D shares | 3,563 | ||
| - Mar- preferred | 1,091 | 0.4 | |
| - Jan- preferred | 253 | ||
| Doric Nimrod Air Three | Equity Investment Instruments | ||
| - preference shares | 4,885 | 0.4 | |
| Doric Nimrod Air Two | Equity Investment Instruments | ||
| - preference shares | 4,800 | 0.4 | |
| Top Sixty Holdings | 1,115,467 | 97.9 | |
| Sherborne Investors | Financial Services | ||
| Guernsey B - A shares | 4,521 | 0.4 | |
| Funding Circle SME | Equity Investment Instruments | 2,178 | |
| - C shares | 1,810 | 0.4 | |
| Circassia Pharmaceuticals | Pharmaceuticals & Biotechnology | 3,848 | 0.3 |
| VPC Specialty Lending Investments | Financial Services | 3,736 | 0.3 |
| MayAir | Industrial Engineering | 3,193 | 0.3 |
| Realm Therapeutics | Health Care Equipment & Services | 2,533 | 0.2 |
| McBride | Household Goods & Home Construction | 1,346 | 0.1 |
| Lombard Medical | Health Care Equipment & Services | ||
| - US common stock | 620 | 0.1 | |
| Damille Investments II | Equity Investment Instruments | 537 | - |
| Napo PharmaceuticalsUQ | Pharmaceuticals & Biotechnology | ||
| - US common stock | 471 | - | |
| Top Seventy Holdings | 1,140,260 | 100.0 | |
| HaloSource | Chemicals | 71 | - |
| Nimrod Sea AssetsUQ | Equity Investment Instruments | 48 | - |
| XTL Biopharmaceuticals - ADR | Pharmaceuticals & Biotechnology | 34 | - |
| Mirada | Media | 1 | - |
| Total Equity Investments (74) | 1,140,414 | 100.0 | |
| ISSUER AND ISSUE | Sector (moody/s&p rating) | ||
| Barclays Bank - | Electricity (Non-rated) | 3 | - |
| Nuclear Power Notes 28 Feb 2019 | |||
| Total Investments (75) | 1,140,417 | 100.0 |
UQ: Unquoted
ADR: American Depositary Receipt
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CONDENSED INCOME STATEMENT
| SIX MONTHS TO 30 SEPTEMBER 2017 | SIX MONTHS TO 30 SEPTEMBER 2016 | ||||||
| REVENUE £'000 | CAPITAL £'000 | TOTAL £'000 | REVENUE £'000 | CAPITAL £'000 | TOTAL £'000 | ||
| (Losses)/gains on investments at fair value | - | (10,859) | (10,859) | - | 31,746 | 31,746 £'000 | |
| Foreign exchange losses | - | (233) | (233) | - | (32) | (32) | |
| Income - note 2 | 22,886 | 11,577 | 34,463 | 20,217 | 338 | 20,555 | |
| 22,886 | 485 | 23,371 | 20,217 | 32,052 | 52,269 | ||
| Investment management fee - note 3 | (964) | (2,250) | (3,214) | (836) | (1,950) | (2,786) | |
| Other expenses | (350) | (1) | (351) | (341) | - | (341) | |
| Net return before finance costs and taxation | 21,572 | (1,766) | 19,806 | 19,040 | 30,102 | 49,142 | |
| Finance costs - note 3 | (511) | (1,192) | (1,703) | (576) | (1,344) | (1,920) | |
| Return on ordinary activities before taxation | 21,061 | (2,958) | 18,103 | 18,464 | 28,758 | 47,222 | |
| Tax on ordinary activities - note 4 | (139) | - | (139) | (167) | - | (167) | |
| Return on ordinary activities after taxation for the financial period | 20,922 | (2,958) | 17,964 | 18,297 | 28,758 | 47,055 | |
| Return per ordinary share - Basic | 8.70p | (1.23p) | 7.47p | 7.61p | 11.96p | 19.57p | |
| Weighted average number of ordinary shares in issue | 240,432,350 | 240,432,350 | |||||
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 statement of 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.
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CONDENSED BALANCE SHEET
Registered number 03156676
NOTES | AT 30 SEPTEMBER 2017 £'000 | AT 31 MARCH 2017 £'000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 7 | 1,140,417 | 1,164,903 |
| Current assets | |||
| Amount due from brokers | - | 4,460 | |
| Tax recoverable | 921 | 931 | |
| Prepayments and accrued income | 1,194 | 2,539 | |
| 2,115 | 7,930 | ||
| Creditors: amounts falling due within one year | |||
| Bank overdraft | (67,779) | (97,609) | |
| Amounts due to brokers | (1,269) | (189) | |
| Accruals and deferred income | (2,765) | (2,587) | |
| (71,813) | (100,385) | ||
| Net current liabilities | (69,698) | (92,455) | |
| Total assets less current liabilities | 1,070,719 | 1,072,448 | |
| Creditors: amounts falling due after more than one year | |||
| 4.37% Loan notes 8 May 2029 | (59,505) | (59,483) | |
| Net assets | 1,011,214 | 1,012,965 | |
| Capital and reserves | |||
| Share capital | 24,043 | 24,043 | |
| Share premium | 265,233 | 265,233 | |
| Capital reserve | 689,337 | 692,295 | |
| Revenue reserve | 32,601 | 31,394 | |
| Shareholders' funds | 1,011,214 | 1,012,965 | |
| Net asset value per ordinary share - basic | 5 | ||
| - debt at par | 420.6p | 421.3p | |
| - debt at market value | 416.3p | 416.2p | |
| Number of 10p ordinary shares in issue at the period end | 240,432,350 | 240,432,350 |
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CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
| SHARE CAPITAL £'000 | SHARE PREMIUM £'000 | CAPITAL RESERVE £'000 | REVENUE RESERVE £'000 | TOTAL £'000 | |
| FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017 | |||||
| At 31 March 2017 | 24,043 | 265,233 | 692,295 | 31,394 | 1,012,965 |
| Net return on ordinary activities | - | - | (2,958) | 20,922 | 17,964 |
| Dividends paid - note 6 | - | - | - | (19,715) | (19,715) |
| At 30 September 2017 | 24,043 | 265,233 | 689,337 | 32,601 | 1,011,214 |
| FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016 | |||||
| At 31 March 2016 | 24,043 | 265,233 | 638,346 | 32,728 | 960,350 |
| Net return on ordinary activities | - | - | 28,758 | 18,297 | 47,055 |
| Dividends paid - note 6 | - | - | - | (22,120) | (22,120) |
| At 30 September 2016 | 24,043 | 265,233 | 667,104 | 28,905 | 985,285 |
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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 November 2014, as amended in January 2017. 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 2017.
2. Income
| SIX MONTHS TO 30 SEPT 2017 £'000 | SIX MONTHS TO 30 SEPT 2016 £'000 | |
| Income from investments | ||
| UK - dividends | 18,469 | 17,346 |
| UK - special dividends | 1,490 | - |
| Overseas - dividends | 2,370 | 2,354 |
| Unfranked investment income | 478 | 428 |
| 22,807 | 20,128 | |
| Other income | ||
| Other | 79 | 89 |
| Total income | 22,886 | 20,217 |
Special dividends of £11,577,000 have been recognised in capital (30 September 2016: £338,000).
3. Investment Management Fees and Finance Costs
The base management fee and finance costs are allocated 70% to capital and 30% to revenue. From 1 April 2017 the base fee is 0.6% on the first £900 million of assets under management and 0.4% thereafter. (Previously 0.6% on the first £500 million and 0.4% thereafter).
Until 31 March 2017, a performance-related fee was recognised if the Company's performance exceeded the FTSE All-Share Index and was wholly allocated to capital. No performance fee was provided for the six months to 30 September 2016 and no performance fee was earned for the year ended 31 March 2017.
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. The tax charge represents withholding tax suffered on overseas income.
5. Net Asset Value
The following shows a reconciliation of 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 at both period ends was unchanged at 240,432,350.
| AT 30 SEPT 2017 NAV PER SHARE PENCE | AT 31 MAR 2017 NAV PER SHARE PENCE | |
| NAV - debt at par | 420.6 | 421.3 |
| Notes | ||
| - debt at par, after amortised costs | 24.7 | 24.7 |
| - debt at market value | (29.0) | (29.8) |
| NAV - debt at market value | 416.3 | 416.2 |
The market value of the Notes used in the above reconciliation, which is based on a comparable quoted debt security, is:
| AT 30 SEPT 2017 £'000 | AT 31 MAR 2017 £'000 | |
| Notes - debt at market value | 69,712 | 71,675 |
6. Dividends per Ordinary Share
The first interim dividend of 3.15p was paid on 29 September 2017 to shareholders registered on 8 September 2017. The Directors have declared a second interim dividend of 3.15p payable on 29 December 2017 to shareholders registered on 8 December 2017.
| SIX MONTHS TO 30 SEPT 2017 | SIX MONTHS TO 30 SEPT 2016 | |
| Interim dividends paid: | ||
| Fourth (prior year) | 4.35p | 4.1p |
| First (current year) | 3.15p | 3.0p |
| Total interims paid | 7.50p | 7.1p |
| Special dividend (prior year) | 0.70p | 2.1p |
| Total | 8.20p | 9.2p |
| £'000 equivalent (excluding specials) | 18,032 | 17,071 |
| £'000 equivalent (including specials) | 19,715 | 22,120 |
7. Fair Value Hierarchy Disclosures
The fair value hierarchy analysis for investments held at fair value at the period end is as follows:
| AT 30 SEPT 2017 £'000 | AT 31 MAR 2017 £'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. | 1,112,381 | 1,136,178 |
| Level 2 - Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | 3 | 13 |
| Level 3 - Inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | 28,033 | 28,712 |
| Total | 1,140,417 | 1,164,903 |
The unquoted investment holdings of the portfolio make up the whole of Level 3.
8. Status of Half-Yearly Financial Report
The financial information contained within the financial statements in this half-yearly financial 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 2017 and 30 September 2016 has not been audited. The figures and financial information for the year ended 31 March 2017 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 Independent Auditor's report, 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 24 November 2017
