Preliminary Announcement of Results
NEWS RELEASE
For immediate release - 14 December 2010
Finsbury Growth & Income Trust PLC
Audited Results for the Year Ended 30 September 2010
Finsbury Growth & Income Trust PLC today announces its preliminary results for
the year ended 30 September 2010.
30 September 30 September %
2010 2009 Change
Share price 297.8p 231.0p +28.9
Net asset value per share (including income) 301.4p 249.0p +21.0
Net asset value per share (excluding income) 297.0p 243.9p +21.8
FTSE All-Share Index (total return) (company
benchmark)
3,829.4 3,404.4 +12.5
Dividends per share 8.8p 9.5p -7.4
Gearing (borrowings as a percentage of
shareholders' funds)
6.7% 10.6%
Share price total return* +33.1% +22.9%
Net asset value per share total return* +25.6% +24.0%
FTSE All-Share Index (total return) +12.5% +10.8%
5 Year Performance Summary 30/9/ 30/9/ 30/9/ 30/9/ 30/9/
2006 2007 2008 2009 2010
Share Price 300.3p 307.5p 202.0p 231.0p 297.8p
Share price total return* +19.6% +5.3% -33.1% +22.9% +33.1%
Net asset value per share (including income)
302.6p 315.4p 215.5p 249.0p 301.4p
Net asset value per share (excluding income)
298.4p 310.6p 215.5p 243.9p 297.0p
Net asset value per share (total return)*
+21.2% +6.9% -31.4% +24.0% +25.6%
FTSE All-Share Index (total return)
+14.7% +12.2% -22.3% +10.8% +12.5%
Premium/(discount) of share price to net
asset value per share (excluding income)
0.6% (1.0)% (6.3)% (5.3)% 0.3%
Revenue return per share 12.4p 9.4p 10.1p 9.1p 8.5p
Ordinary dividends per share 8.4p 9.0p 9.5p 9.5p 8.8p
Special dividends per share 2.3p - - - -
Total expense ratio+ 1.0% 1.1% 1.0% 0.9% 1.0%
*Source: Morningstar.
+TER is calculated based on the average net asset value during the year ended
30 September.
This Announcement is not the Company's annual report. It is an abridged version
of the Company's full annual report for the year ended 30 September 2010, which
has been approved by the Board. The full annual report will be sent to
shareholders on 21 December 2010. The full annual report, together with a copy
of this announcement, will also be available on the Company's website:
www.finsburygt.com
The following are attached:
Chairman's Statement
Investment Manager's Review
Income Statement
Reconciliation of Movements in Shareholders' Funds
Balance Sheet
Cash Flow Statement
Notes
For further information please contact:
Mark Pope, Frostrow Capital LLP 020 3 008 4913
Anthony Townsend, Chairman 020 3 008 4910
Nick Train, Lindsell Train Limited 020 7 227 8200
Chairman's Statement
Performance
I am pleased that the strong performance reported at the interim stage
continued during the second half of the Company's financial year. The Company's
net asset value total return for the year was 25.6% and the share price total
return 33.1% compared to the total return from our benchmark index, the FTSE
All-Share index of 12.5%.
The Company's performance when compared to the benchmark index is particularly
pleasing. The principal contributions to net asset value performance came from
our major holdings in A.G. Barr, Pearson, Fidessa, Burberry Group and Diageo.
The discount of the Company's share price to the net asset value per share
began the year at 5.3% and moved to a premium of 0.3% at the year-end.
I am delighted to report that the Company was a joint winner of the UK Income
Category at the 2010 Investment Week, Investment Trust of the Year Awards.
Share Capital
During the year the Company has continued to be active in reissuing shares from
treasury at a discount of less than 5.0% and buying back shares for treasury
where they were offered at a discount greater than 5.0% to the net asset value
per share. A total of 2,457,261 shares were repurchased for treasury during the
year in accordance with the Company's stated policy and all 3,983,011 shares
held in treasury were reissued during the year at a price representing a
narrower discount to net asset value per share than that at which they had been
bought into treasury. In addition 150,000 new shares were issued at a 0.5%
premium to the estimated cum income net asset value per share at the time of
issue. Since the year-end no new shares have been issued and none have been
repurchased into treasury.
Return and Dividend
The Income Statement shows a total return per share of 62.5p consisting of a
revenue return per share of 8.5p and a capital return per share of 54.0p.
The Company's net revenue return during the year was less than in previous
years and your Board has declared two interim dividends for the year totalling
8.8p per share (year ended 30 September 2009: 9.5p). In paying this total
dividend of 8.8p per share the Company has used £170k of brought forward
revenue reserves. At this year's level of distribution the yield on the
Company's shares is approximately 3.0%, in line with that of the Company's
benchmark index. As mentioned at the interim stage, it is regrettable that the
dividend for the full year to 30 September 2010 is lower than the prior year by
some 7%. The principal reason behind the fall in the Company's income during
the year is the significant reduction in the level of income from our Lloyds
preference shares. I reiterate, however, that the lower level of dividend for
the financial year does not alter the Board's long term objective of a
progressive dividend policy.
Borrowings
Subsequent to the year end the Company renewed its secured fixed term committed
revolving credit facility with Scotiabank Europe PLC at an increased limit of £
20m; the facility is subject to a variable interest rate. A total of £12.3m is
currently drawn down from this facility.
Developments in the Investment Trust Sector
In June of this year a review of the current rules for taxation of investment
trusts was announced with the intention of modernising the tax treatment which
has remained unchanged for over 40 years. Based on comments made by our trade
association, the Association of Investment Companies (AIC), your Board does not
expect that the new rules will have a material effect on the Company.
The text of the Alternative Investment Fund Managers (AIFM) Directive,
legislation which will regulate 'alternative investment funds' including
investment trusts, was ratified recently by the European Parliament. This draws
to a close the first stage of the finalising the Directive. The AIC continues
to be fully engaged in the implementation of the Directive which is expected to
become part of UK law by early 2013.
Outlook
Although it is expected that the UK economy will avoid a double-dip recession,
the outlook remains uncertain with a recovery being dependent on exports and
the ability of the private sector to create domestic jobs.
Despite this uncertain outlook, your Board continues its full support of our
Investment Manager's strategy of investing in companies with exposure to
foreign, and in particular emerging, markets with sustainable dividend growth
rates and which are held for the long term. We firmly believe that this
strategy will continue to deliver strong investment returns to shareholders
over the longer term.
Further information concerning the portfolio, including dividend prospects, can
be found in our Investment Manager's Review below.
Anthony Townsend
Chairman
14 December 2010
Investment Manager's Review
December of this year, calendar 2010, marks the 10th anniversary of Lindsell
Train Limited's (LT) appointment as Investment Manager to your Company. It may
sound trite, but it is nonetheless true that we feel privileged to have been
associated for so many years with this long-established and well-respected
investment trust - and very much hope that we will remain so for another
decade, or longer. There is self-interest in that aspiration of course, but,
in an era when investment managers swap funds almost as often as football
managers swap clubs, we take great satisfaction from building a really long
term performance record and hope that shareholders recognise the benefits of
it.
Nonetheless, we know we must earn and re-earn this privilege to manage your
capital. We are pleased, then, that the last two calendar years have proven
relatively successful for the Company's investment strategy. In passing, it is
here relevant to acknowledge how grateful we are to your Board for its support
of LT through the two years preceding these, particularly 2007, when our
relative performance was far from satisfactory. Board support over that period
encouraged us to stick to our principles and positions - justifiably so, we
believe.
Taking a longer perspective, over the just short of ten years up to the end of
Q3 calendar 2010 since its appointment, LT's performance for the Company
amounts to 6.2% pa (NAV total return, net dividends reinvested). This compares
to the FTSE All-Share's total return over the same period of 3.1%pa. The
Company's return is after allowance for all fees, of perhaps 1% pa - fees that
the benchmark does not pay, implying that our investment approach has delivered
an underlying performance some 4% pa above the market average. Such
outperformance adds up over time - multiply our annual return and that of the
All Share by 10 to get some sense of the gap that has opened up between the
two.
In seeking to convey to shareholders how we have been able to deliver this
outperformance - through a period, let us remind ourselves, that contained two
very disagreeable bear markets - we find that a single word suffices. This one
word, which more or less accounts for what success we've enjoyed over the
period, this one word is: Baggers.
"Baggers" is a term devised by Peter Lynch, the legendary US investor who
managed the biggest mutual fund in the world, Fidelity Magellan, for 13 years
in the 1970s and 1980s. A bagger is a share that goes up a lot. Indeed, to
qualify as one a share needs to at least double on its book cost since
investment. Any share that doubles is always good news, but three-baggers or
four-baggers - treblers or quadruplers are even more welcome. So far as Peter
Lynch is concerned, the Holy Grail for investors is the mystical ten-bagger -
that share which rises 1,000% from its purchase price. For most of us mortals
ten-baggers are discouragingly rare, although, amazingly, Lynch enjoyed over
100 of them during his tenure at Magellan.
Baggers are relevant for LT and hence for your Company because of the nature of
our investment philosophy. As shareholders may recall, our approach calls for
us to make long term commitments to a limited number (limited due to their
scarcity) of exceptional companies - companies that own wonderful brands or
business franchises. Now, it is all very well owning such shares for the
proverbial long term, but this strategy is only vindicated if, over time, those
shares go up and go up a lot. In short, LT needs baggers to succeed.
Happily, over the last ten years we have unearthed a fair few of them. Indeed
in the portfolio today there are eight-baggers - listed below, with their
multiple of gain - A.G. Barr (5.0x), Burberry (3.0x), Dr Pepper (effectively
infinite, as a free share), Fullers (3.0x), Fidessa (3.0x), Lindsell Train
Investment Trust (2.0x), Thomson Reuters (3.5x) and Youngs (3.5x). In total
these represent over 30% of the portfolio by number of holdings and 31.5% by
value. Their importance in driving long term returns is manifest.
The wonderful thing about baggers, as Peter Lynch demonstrated, is that there
is no reason why they should cease to work for you, even after the first
doubling or trebling. Good companies often carry right on being good companies
- generating higher earnings over time, as a result of both business growth
and, not to be underestimated, their ability to protect investors against the
effects of inflation. We see no reason why, say, Burberry's rapidly expanding
business on mainland China or Fidessa's lock on the dealing platforms of most
leading global investment banks shouldn't go on becoming ever more valuable
over time.
What really intrigues us, though, is what will be the Company's next baggers -
its future winners. To become a bagger, a share must offer both undervaluation
and a long term growth opportunity. We find several holdings with precisely
these dual characteristics in your portfolio today. For instance, during 2010
we have been steadily building an investment in Daily Mail & General Trust
(DMGT) - owner of the Daily Mail, of course, as well as other fine media
properties. We analyse the shares to be cheap for two reasons. First, DMGT
has a sizeable domestic UK business - and the general consensus is that the UK
economy is palsied at best. Next, investors fret that the Internet will
disintermediate newspapers, sending them toward the same oblivion as the town
crier. We demur, on both counts. Pessimism about the UK is indeed intense
amongst British investors, but if the Coalition's stated policies of holding
long term interest rates at multi-year lows and cutting corporation tax are
delivered upon, then there seems every prospect that the economy will do rather
better than expected. Even if the UK just muddles through, many domestic UK
companies are already undervalued - including not just DMGT, but the regional
brewers in the portfolio, Fullers, Marston's and Youngs. Next, we watch DMGT's
success in developing its own Internet business, notably the heavy traffic that
visits Mail Online every day. It seems to us that far from being a threat, the
Internet is the engine that will drive DMGT's profits for years to come. Any
shift in investors' perceptions of DMGT, from vulnerable "cyclical", as
currently, to cash-generative "growth" company will offer serious bagging
potential. The same analysis is pertinent for other technology and media
positions in the portfolio and, to us, Pearson, Reed and Sage look pregnant.
The Chairman has mentioned earlier in this report the unwelcome decision his
Board took to reduce your dividend this year. The fault is all ours. Many
years ago we made, in hindsight, a poor allocation of your capital to what
turned into Lloyd's Bank preference shares. The two-year suspension of
dividends on these instruments - as dictated by the EU - put a hole in your
income account that we could not fill. If there is any consolation in this
sorry tale it is that the Lloyd's pref have performed well in capital terms in
2010, rising 40%, as investors' confidence in both the survival of the bank and
its ability to pay dividends recovers. After all, Lloyds too is an important
beneficiary of stability in the UK economy. Elsewhere we are encouraged by the
dividend performance of other portfolio constituents and expect this to drive
both dividend growth and further total return for your shares in the Company.
Nick Train, Lindsell Train Limited
Investment Manager
14 December 2010
Income Statement
for the year ended 30 September 2010
2010 2009
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000
£'000
Gains on
investments
designated at
fair value
through - 28,733 28,733 - 17,942 17,942
profit or
loss
Exchange - (3) (3) - 2 2
difference
Income 2 5,363 - 5,363 5,401 - 5,401
Investment
management,
management 3 (305) (619) (924) (226) (460) (686)
fees
Recovery of
VAT on
investment
management
fee 11 23 34 50 101 151
previously
paid
Other (492) (89) (581) (410) - (410)
expenses
Return on
ordinary
activities
before
finance 4,577 28,045 32,622 4,815 17,585 22,400
charges and
taxation
Finance (109) (221) (330) (176) (359) (535)
charges
Return on
ordinary
activities 4,468 27,824 32,292 4,639 17,226 21,865
before
taxation
Taxation on
ordinary
activities (84) - (84) - - -
Return on
ordinary
activities 4,384 27,824 32,208 4,639 17,226 21,865
after
taxation
Return per 4 8.5p 54.0p 62.5p 9.1p 34.0p 43.1p
share
The "Total" column of this statement represents the Company's Income Statement.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies (AIC).
All items in the above statement derive from continuing operations.
The Company had no recognised gains or losses other than those declared in the
Income Statement.
Reconciliation of Movements in Shareholders' Funds
For the year ended 30 September 2010
Share Capital
premium redemption
Share account reserve £ Special Capital Revenue
capital £'000 '000 reserve reserve reserve
£'000 £'000 £'000 £'000 Total £
'000
At 30 September 2009 13,199 35,914 3,453 12,424 57,890 4,779 127,659
Net return on ordinary
activities
- - - - 27,824 4,384 32,208
Second interim dividend
(5.1p per share) for the
year ended 30 September
2009
- - - - - (2,615) (2,615)
First interim dividend
(4.4p per share) for the
year ended 30 September
2010
- - - - - (2,224) (2,224)
Issue of shares 38 381 - - - - 419
Repurchase of shares
into treasury
- - - - (5,934) - (5,934)
Sale of shares from - 918 - - 9,159 - 10,077
treasury
Year ended 30 September
2010
13,237 37,213 3,453 12,424 88,939 4,324 159,590
At 30 September 2008 13,199 35,914 3,453 12,424 39,845 4,949 109,784
Net return on ordinary
activities
- - - - 17,226 4,639 21,865
Second interim dividend
(5.1p per share) for the
year ended 30 September
2008
- - - - - (2,598) (2,598)
First interim dividend
(4.4p per share) for the
year ended 30 September
2009
- - - - - (2,211) (2,211)
Repurchase of shares
into treasury
- - - - (1,856) - (1,856)
Sale of shares from - - - - 2,675 - 2,675
treasury
Year ended 30 September
2009
13,199 35,914 3,453 12,424 57,890 4,779 127,659
Balance Sheet
as at 30 September 2010
2010 2009
£'000 £'000
Fixed assets
Investments designated at fair value through profit 168,514 138,799
or loss
Current assets
Debtors 613 1,022
Cash at bank 1,387 1,531
2,000 2,553
Current Liabilities
Creditors (224) (193)
Bank loan (10,700) (13,500)
(10,924) (13,693)
Net current liabilities (8,924) (11,140)
Total net assets 159,590 127,659
Capital and reserves
Share capital 13,237 13,199
Share premium account 35,213 35,914
Capital redemption reserve 3,453 3,453
Special reserve 12,424 12,424
Capital reserve 88,939 57,890
Revenue reserve 4,324 4,779
Equity shareholders' funds 159,590 127,659
Net asset value per share (note 5) 301.4p 249.0p
Cash Flow Statement
for the year ended 30 September 2010
2010 2009
£'000 £'000
Net cash inflow from operating activities 4,244 4,573
Net cash outflow from servicing of finance (326) (487)
Financial investment
Purchase of investments (19,152) (7,017)
Sale of investments 18,170 7,746
Net cash (outflow)/inflow from financial investment (982) 729
Equity dividends paid (4,839) (4,809)
Net cash (outflow)/inflow before financing (1,903) 6
Financing
Shares issued net of issue expenses 419 -
Repurchase of shares into treasury (5,934) (1,856)
Sale of shares from treasury 10,077 2,675
(Repayment)/drawdown of loans (2,800) 500
Net cash inflow from financing 1,762 1,319
(Decrease)/increase in cash (141) 1,325
Reconciliation of net cash flow to movement in net debt
Decrease/(increase) in cash resulting from cashflows (141) 1,325
Decrease/(increase) in debt 2,800 (500)
Exchange movements (3) 2
2,656 827
Movement in net debt
Net debt at 1 October 2009 (11,969) (12,796)
Net debt at 30 September 2010 (9,313) (11,969)
Notes
1. Accounting Policies
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these financial statements are set
out below:
Basis of preparation
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments, and in
accordance with UK Generally Accepted Accounting Practice (GAAP) and the
Statement of Recommended Practice (SORP) for "Financial Statements of
Investment Trust Companies and Venture Capital Trusts" issued by the
Association of Investment Trust Companies dated January 2009.
Investments
As the entity's business is investing in financial assets with a view to
profiting from their total return in the form of dividends, interest or
increases in fair value, investments are designated at fair value through
profit or loss and are initially recognised at fair value. The entity manages
and evaluates the performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the investments
is provided internally on this basis to the Board. Fair value for quoted
investments is deemed to be bid market prices, or last traded price, depending
on the convention of the exchange on which they are quoted.
Unquoted investments are valued by the Directors using primary valuation
techniques in accordance with IPEVCA guidelines.
Changes in the fair value of investments held at fair value through profit or
loss, and gains and losses on disposal are recognised in the Income Statement
as "gains or losses on investments designated at fair value through profit or
loss".
All purchases and sales of investments are accounted for on the trade date
basis.
The Company's policy is to expense transaction costs on acquisition through the
capital column of the Income Statement. The total of such expenses, showing the
total amounts included in disposals and acquisitions are disclosed below, as
recommended by the SORP.
Transaction costs on the acquisition and sale of investments totalled £141,000
and £22,000 respectively (2009: £36,000 and £13,000) and are included in the
gains/(losses) on investments within the Income Statement.
Dividend Payments
Dividends paid by the Company on its shares are recognised in the financial
statements in the period in which they are paid and are shown in the
Reconciliation of Movements in Shareholders' Funds.
Investment Income
Dividends receivable on equity shares are recognised on the ex-dividend date.
Fixed returns on non-equity shares are recognised on a time apportionment
basis.
Special dividends: In deciding whether a dividend should be regarded as a
capital or revenue receipt, the Company reviews all relevant information as to
the reasons for and sources of the dividend on a case by case basis.
Notes (continued)
LLP profit share is recognised in the financial statements when the entitlement
to the income is established.
Expenditure and Finance Charges
All the expense and finance costs are accounted for on an accruals basis.
Expenses are charged through the revenue column of the Income Statement except
as follows:
expenses which are incidental to the acquisition or disposal of an investment
are treated as part of the cost or proceeds of that investment (as explained in
1(b) above);
expenses are taken to capital reserve realised via the capital column of the
Income Statement, where a connection with the maintenance or enhancement of the
value of the investments can be demonstrated. In line with the Board's expected
long term split of returns, in the form of capital gains and income, from the
Company's portfolio, 67% of the investment management fee and finance costs are
taken to the capital reserve;
performance fees are charged 100% to capital.
Taxation
The payment of taxation is deferred or accelerated because of timing
differences between the treatment of certain items for accounting and taxation
purposes. Full provision for deferred taxation is made under the liability
method, without discounting, on all timing differences that have arisen, but
not reversed by the balance sheet date, unless such provision is not permitted
by Financial Reporting Standard 19.
Any tax relief obtained in respect of management and investment management
fees, finance costs and other capital expenses charged or allocated to the
capital column of the Income Statement is reflected in the Capital Reserve -
realised and a corresponding amount is charged against the revenue column of
the Income Statement. The tax relief is the amount by which corporation tax
payable is reduced as a result of these capital expenses.
Capital Reserve
The following are charged to the capital column of the Income Statement and
transferred to this reserve:
Gains and losses on the disposal of investments;
Exchange differences of a capital nature;
Expenses, together with the related taxation effect, in accordance with the
above policies; and
Increase and decrease in the valuation of investments held at the year end.
(h) Cash at bank
Cash comprises cash in hand and demand deposits.
2. Income
2010 2009
£'000 £'000
Income from investments
Franked investment income
- dividends 4,807 5,326
Unfranked investment income
- Limited liability partnership profit-share 80 70
- overseas dividends 463 -
- money market dividend - 5
5,350 5,401
Other income
Interest from HMRC(re:VAT reclaim on management fees)
13 -
Total income 5,363 5,401
Notes (continued)
3. Investment Management and Management Fees
Revenue Capital Total Revenue Capital Total
2010 2010 2010 £ 2009 2009 2009
'000
£'000 £'000 £'000 £'000 £'000
Investment management 200 406 606 144 293 437
fee
Management fee 90 182 272 71 145 216
VAT on management fees 15 31 46 11 22 33
Total fees 305 619 924 226 460 686
4. Return per Share
Revenue Capital Total Revenue Capital Total
2010 2010 2010 2009 2009 2009
Return per Share 8.5p 54.0p 62.5p 9.1p 34.0p 43.1p
The total return per share is based on the total return
attributable to equity shareholders of £32,208,000 (2009: £21,865,000), and on
51,546,561 (2009: 50,737,975) shares, being the weighted average number of
shares in issue during the year.
Revenue return per share is based on the net revenue on ordinary
activities after taxation of £4,384,000 (2009: £4,639,000).
Capital return per share is based on net capital profit for the
year of £27,824,000 (2009: £17,226,000).
5. Net Asset Value per Share
Net asset value per share is based on net assets of £159,590,000
(2009:£127,659,000) and on 52,947,423 (2009:51,271,673) (excluding treasury
shares) shares in issue at the year end. As at 30 September 2010 the Company
held no shares in treasury (2009: 1,525,750).
6. Dividends
Ex div Date Register Payment 2010 2009
Date Date
£'000 £'000
First interim dividend of 4.4p 3 March 2010 5 March 1 April 2,224 2,211
per share 2010 2010
(2009: 4.4p)
Second interim dividend of 4.4p 29 September 1 October 1 2,330 2,615
per share 2010 2010
November
(2009: 5.1p) 2010
The second interim dividend of 4.4p (2009:5.1p) has not been
included as a liability in these financial statements as it is only recognised
in the financial year in which it is paid.
The total dividend payable in respect of the financial year which
forms the basis of Sections 1158 and 1159 of the Corporation Tax Act 2010 are
set out below:
2010
£000
Revenue available for distribution by way of dividend for the year 4,384
2010: First interim dividend of 4.4p per share paid on 1 April 2010 (2,224)
2010: Second interim dividend of 4.4p per share paid on 1 November 2010 (2,330)
Utilisation of brought forward revenue reserves (170)
7. Financial Information
This preliminary statement is not the Company's statutory accounts. The above
results for the year ended 30 September 2010 are an abridged version of the
Company's audited statutory accounts, which have not yet been filed with the
Registrar of Companies.
The statutory accounts for the year ended 30 September 2009 have been delivered
to the Registrar of Companies and those for 30 September 2010 will be
despatched to shareholders shortly. The statutory accounts for the years ended
30 September 2009 and 2010 both received an audit report which was unqualified,
did not include a reference to any matters to which the auditors drew attention
by way of emphasis without qualifying the report, and did not contain
statements under Section 498 of the Companies Act 2006.
Frostrow Capital LLP,
Company Secretary
14 December 2010
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