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Murray Inc Trust PLC (MUT)

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Wednesday 10 September, 2014

Murray Inc Trust PLC

Annual Financial Report

RNS Number : 3543R
Murray Income Trust PLC
10 September 2014
 



MURRAY INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2014

 

 

STRATEGIC REPORT - COMPANY SUMMARY, FINANCIAL HIGHLIGHTS AND FINANCIAL CALENDAR

 

The Company

The Company is an investment trust company and its Ordinary shares are listed on the premium segment of the London Stock Exchange.

 

What is an Investment Trust?

An investment trust is a closed end fund which allows its shareholders to make a single investment which gives them access to a much larger portfolio of shares. A type of collective investment, they let shareholders spread their risk and benefit from investment opportunities which shareholders may not be able to identify on their own.

 

Investment Objective

The achievement of a high and growing income combined with capital growth through investment in a portfolio principally of UK equities.

 

Company Benchmark

FTSE All-Share Index

 

Alternative Investment Fund Manager*

The Company is managed by Aberdeen Fund Managers Limited ("AFML" or the "Manager").

(* appointed as required by EU Directive 2011/61/EU).

 

Investment Manager

The Company's investment assets are managed by Aberdeen Asset Management Ltd ("AAML" or the "Investment Manager").

 

Website

Up-to-date information can be found on the Company's website - www.murray-income.co.uk

 

Pre-investment Disclosure Document

The Alternative Investment Fund Manager Directive ("AIFMD") requires Aberdeen Fund Managers Limited, as the alternative investment fund manager of Murray Income Trust PLC, to make available to investors certain information prior to such investors' investment in the Company.

 

The AIFMD is intended to offer increased protection to investors in investment products that do not fall under the existing European Union regime for regulation of investment products known as the UCITS regime.

 

The Company's Pre-Investment Disclosure Document is available for viewing at - http://www.invtrusts.co.uk/doc.nsf/Lit/PressReleaseUKClosedmincalternativeinvestmentfundmanagersdirectivepidd

 

Financial Highlights


2014

2013

Net asset value per Ordinary share total return

+14.0%

+18.8%

Share price total return

+9.4%

+21.5%

Benchmark total return

+13.1%

+17.9%

Earnings per share (revenue)

30.5p

31.1p

Dividend per share{A}

31.25p

30.75p

{A} Final dividend of 10.25p per Ordinary share is subject to shareholder approval at the Annual General Meeting.

 

Financial Calendar

26 September 2014

Record date of proposed final dividend for 2014

29 October 2014

Annual General Meeting, Glasgow Royal Concert Hall

31 October 2014

Payment date of proposed final dividend for 2014

19 December 2014, 6 March and 5 June 2015

Record dates of interim dividends for year to 30 June 2015

16 January, 2 April and 3 July 2015

Payment dates of interim dividends for year to 30 June 2015

February 2015

Half-Yearly results announcement for 6 months to 31 December 2014

September 2015

Final results announcement for year to 30 June 2015

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Introduction

The purpose of this Strategic Report is to provide shareholders with details of the Company's investment strategy and business model as well as identifying the principal risks and uncertainties faced by the Company.

 

Investment Strategy

In pursuit of the Company's investment objective, the Company's investment strategy is to invest in the shares of companies that have potential for real earnings and dividend growth, while at the same time providing an above-average portfolio yield. The emphasis is on the management of risk and on the absolute return from the portfolio, which is achieved by ensuring an appropriate diversification of stocks and sectors, with a high proportion of its assets in strong, well-known companies. The Company makes use of low-cost, flexible borrowing facilities to enhance shareholder returns when appropriate.

 

Investment Policy

The Company maintains a highly-diversified portfolio of investments, typically comprising between 30 and 70 holdings (but without restricting the Company from holding a more or less concentrated portfolio from time to time). The Company is unconstrained as to the market sectors in which it may invest.

 

The Company may invest up to 100% of its gross assets in UK-listed equities and other securities and is permitted to invest up to 20% of its gross assets in other overseas listed equities and securities. The Company invests primarily in the equity securities of large, well-known UK and overseas companies with an emphasis on investing in quality companies with good management, strong cash flow and a sound balance sheet, and which are generating a reliable earnings stream.

 

The Company may use derivatives for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy. The Company complies with the investment policy test in Section 1158 of the Corporation Tax Act 2010.

 

It is the Company's policy to invest no more than 15 per cent of its gross assets in other listed investment companies (including investment trusts).

 

Business Model

The Board are responsible for determining the investment objective and investment policy of the Company while day-to-day management of the Company has been delegated to Aberdeen Fund Managers Limited ("AFML" or "the Manager"). AFML has appointed Aberdeen Asset Managers Limited (the "Investment Manager") to manage the Company's assets. The Investment Manager invests in a diversified range of UK and overseas companies, following a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value, concentrating on quality first, then price. Top-down investment factors are secondary in the Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. The Investment Manager is authorised to invest up to 15% of the Company's gross assets in any single stock. Currently, the top five holdings may not exceed 40% of the total value of the portfolio, and the top three sectors represented in the portfolio may not exceed 50%. The Investment Manager is permitted to invest in options and in structured products, provided that any structured product issued in the form of a note or bond has a minimum credit rating of "A".

 

The Board is responsible for setting the gearing policy of the Company and for the limits on gearing. The Manager is responsible for gearing within the limits set by the Board. The Board has set its gearing limit at a maximum of 25% of Net Asset Value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate. Particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy. Significant changes to gearing levels will be communicated to shareholders.

 

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties which it has identified together with the delegated controls it has established to manage the risks and address the uncertainties:

 

(i)       Investment strategy risk

The Company's investment strategy requires investment in equity stockmarkets, which may lead to loss of capital. Separately, inappropriate asset allocation or level of gearing, as part of the investment strategy adopted by the Company, may result in underperformance against either the Company's benchmark index and/or its peer group, leading to a widening of the discount at which the Company's shares trade.

 

The Board seeks to manage these risks by diversifying its investments, as set out in the investment restrictions and guidelines agreed with the Manager, and on which the Company receives regular monitoring reports from the Manager. At each Board meeting, the Directors review the investment process with the Manager by assessing relevant management information including revenue forecasts, absolute/relative performance data, attribution analysis, liquidity and risk reports. The Board holds a separate, annual meeting devoted to investment strategy, the most recent being in February 2014.

 

(ii)      Income and dividend risk

There is a risk that the Company fails to generate sufficient income from its investment portfolio, particularly in periods of weak equity markets, to meet its operational expenses and which results in it drawing upon, rather than replenishing, its revenue reserves. This might hamper the Board's capacity to maintain dividends to shareholders. The Board monitors this risk through the review of income forecasts, provided by the Manager, at each Board meeting.

 

(iii)     Discount volatility

Investment trust shares tend to trade at discounts to their underlying net asset values, although they can also trade at premia. Discounts and premia can fluctuate considerably. In order to seek to minimise the impact of such fluctuations, where the shares are trading at a significant discount, the Company has operated a share buy-back programme for a number of years. If the shares trade at a premium, the Company has the authority to issue new shares or re-issue shares from treasury. Whilst these measures seek to minimise volatility, it cannot be guaranteed that they will do so.

 

(iv)     Foreign currency risk

A proportion of the Company's investment portfolio is invested in overseas securities and the value of the Company's investments and the income derived from them can, therefore, be affected by movements in foreign exchange rates. In addition, the earnings of the Company's other investments may also be affected by currency movements which, indirectly, could have an impact on the Company's performance. The Company does not currently hedge its foreign currency exposure.

 

(v)      Operational risk

In common with most other investment trusts, the Company has no employees. The Company therefore relies on services provided by third parties, including the Manager in particular, to whom responsibility for the management of the Company has been delegated under a management agreement (the "Agreement"). The terms of the Agreement cover the necessary duties and responsibilities expected of the Manager. The Board reviews the overall performance of the Manager on a regular basis and their compliance with the Agreement formally on an annual basis.

 

Contracts with other third party providers, including share registrar and depositary services, are entered into after appropriate due diligence. Thereafter, each contract, and the performance of the provider, is subject to formal annual review. The security of the Company's assets was the responsibility of the custodian, JPMorgan Chase until 16 July 2014, and thereafter, the responsibility of BNP Paribas Securities Services, London Branch as depositary. The effectiveness of the internal controls at both the custodian and depositary is subject to review and regular reporting to the Audit Committee.

 

(vi)     Regulatory risk

The Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains tax on the sale of its investments. Serious breach of other regulations, such as the UKLA Listing Rules, the Companies Act or Accounting Standards, could lead to suspension from the London Stock Exchange and reputational damage. The Board receives monthly compliance reports from the Manager to monitor compliance with regulations.

 

An explanation of other risks relating to the Company's investment activities, specifically market price, interest rate, liquidity and credit risk, and a note of how these risks are managed, are contained in note 17 to the Financial Statements.

 

Alternative Investment Fund Managers Directive ("AIFMD")

The AIFMD, proposed by the EU to enhance shareholder protection, was fully implemented in the UK on 22 July 2014 and required the Company to appoint an authorised Alternative Investment Fund Manager and a depositary, the latter overlaying the pre-existing custody arrangements.

 

The Company appointed Aberdeen Fund Managers Limited ("AFML"), following its authorisation by the FCA, to act as the Company's Alternative Investment Fund Manager, entering a new management agreement with AFML on 16 July 2014. Under this agreement AFML delegates portfolio management services to Aberdeen Asset Managers Limited, which continues to act as the Company's Investment Manager. There is no change in the commercial arrangements from the previous investment management agreement which was in place throughout the Company's year ended 30 June 2014.

 

In addition, the Company entered into a depositary agreement with AFML and BNP Paribas Securities Services London Branch on 16 July 2014. The appointment of a depositary is a new requirement under the Directive resulting in increased costs compared with the previous custody arrangements.

 

Referendum on Scottish Independence

As a Scottish-registered Company, the Board is mindful that there is uncertainty arising in relation to the referendum on Scottish independence due on 18 September 2014. The Board considers that a 'Yes' vote in favour of independence will prolong this uncertainty until the implications for the Company of an independent Scotland are understood and quantified in relation to the economic, legislative and regulatory environment in which the Company operates. However, the Company's Ordinary shares will continue to be listed on the London Stock Exchange and its dividends will be paid in Sterling.

 

Performance and Outlook

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.  The Board also considers the Investment Manager's Investment Trust Initiative and promotion of the Company, including effective communications with shareholders. The future strategic direction and development of the Company is regularly discussed as part of Board meeting agendas.

 

A review of the Company's activities and performance during the year ended 30 June 2014, including future developments, is detailed in the Chairman's Statement and the Investment Manager's Report. This covers market background, investment activity, portfolio strategy, dividend and gearing policy and investment outlook.

 

Key Performance Indicators (KPIs)

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.  Below are the main KPIs which have been identified by the Board for determining the progress of the Company:

 

  - Net asset value (total return) relative to the Company's benchmark;

  - Share price (total return);

  - Discount/premium to net asset value;

  - Performance attribution;

  - Earnings and dividends per share; and

  - Ongoing charges.

 

A record of these measures is disclosed in the Investment Manager's Report and in Results.

 

Environmental, Social and Human Rights Issues

The Company has no employees, as Aberdeen Fund Managers Limited has been appointed Manager, and there are therefore no disclosures to be made in respect of employees.

 

Board Diversity

The Board recognises the importance of having a range of skilled and experienced individuals with the right knowledge in order to allow the Board to fulfill its obligations.  At 30 June 2014, there were 5 male Directors and 1 female Director.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Duration

The Company does not have a fixed life.

 

P A F Gifford

Chairman

 

10 September 2014

 

 

STRATEGIC REPORT - CHAIRMAN'S STATEMENT

 

Highlights

-      Net Asset Value Total Return +14.0%

-      Share Price Total Return +9.4%

-      Total Dividends per share increased by 1.6% to 31.25p

 

Performance

The last year saw a continuation of the long-running bull market which started in March 2009 once the investing world realised that the apocalypse had been averted and there were no more sellers. Since that date the total return on the FTSE-All Share Index has been 118.1% and Murray Income's Net Asset Value has produced a comparable return of 150.9% and the share price one of 152.9% as the discount narrowed. In the last year the Net Asset Value total return was 14.0% compared with a return on the FTSE All-Share Index of 13.1%. This represented good relative performance but also a significantly positive real return in a generally low yield world. The key element in these returns has been the contribution of government financial policy. Governments worldwide, almost without exception, have run very easy monetary policies and tight fiscal policies, even if in some cases the latter has been more of an aspiration than a fact. This has been very supportive of asset prices even if it has operated with very long lags in its stimulation of economic growth.

 

This supportive macro-economic environment has withstood a dull environment for corporate profits and a worsening international political backdrop, whether in Ukraine, Iraq or Gaza. Corporate profits fell marginally by 1% with the balance of the return coming from the initial earnings yield on the portfolio and a re-rating upwards of the market. Support has come from the dividend yield of the market, which continues to compare well with that available on fixed income assets and bank deposits and from the revival of animal spirits seen in a more buoyant IPO market and increased mergers and acquisition activity.

 

Aberdeen's investment process has been well suited to the rather risk-averse yet positive equity markets that we have seen, producing the cumulative outperformance detailed above. There have been pockets of performance driven by growth, most notably in the US market, but they have almost invariably been associated with very low or non-existent dividend yields which make them impracticable investments for Murray Income, even if our managers had great skill at timing very volatile investments. Instead we have been the holders of much less volatile companies, generally with strong business franchises which are well protected in an uncertain world.

 

Scottish Referendum

I am very conscious that I am writing this statement before the referendum on Scottish Independence although the printed Annual Report will only be published after the result is known. We have conducted a review of the implications of a vote for independence and recognise that there are considerable uncertainties, especially in the areas of taxation and currency. We do have to be conscious of our shareholders' needs but currently believe that the potential transition period is long enough to enable us to take any necessary action to protect shareholders' interests.

 

Dividend

Net income per share fell slightly compared with last year. In each of the last two years it has been possible to increase the dividend which has remained covered by net income. This year the Board has decided to pay a final dividend of 10.25p per share (2013: 9.75p) representing an increase of 1.6% in total dividends for the year to 31.25p per share (2013: 30.75p), which will, however, not be fully covered by earnings. Nonetheless, as can be seen in the Investment Manager's report we are relatively optimistic about dividend growth and expect to be able to maintain this level of payout. If the proposed final dividend is approved by shareholders at the Annual General Meeting, the total dividends for the year ended 30 June 2014 will mark the 40th consecutive year of annual dividend increases.

 

Board Changes

After nearly fifteen years as a Director, including ten years as Chairman, I will be retiring from the Board at the Annual General Meeting. I have been honoured to be a steward of the shareholders' interests over this period, which has seen many changes in the investment markets and the economies that they are based on. It is proposed that Neil Honebon will take over from me and I commend him to you as a member of the Board who has always contributed to our discussions and has a great deal of knowledge of investment markets.

 

Annual General Meeting

The Annual General Meeting will be held at 12.30 pm on Wednesday 29 October 2014 in the Strathclyde Suite, Glasgow Royal Concert Hall, 2 Sauchiehall Street, Glasgow, G2 3NY. It is the Board's intention to hold the 2015 Annual General Meeting in Glasgow.

 

AIFMD

The Alternative Investment Fund Managers Directive (the "Directive"), proposed by the EU to enhance shareholder protection, was fully implemented in the UK on 22 July 2014. This Directive required the Company to appoint an authorised Alternative Investment Fund Manager ("AIFM") and a depositary, the latter overlaying the pre-existing custody arrangements. In July 2014, Aberdeen Fund Managers Limited ("AFML"), were appointed AIFM while BNP Paribas Securities Services, London Branch, were appointed depositary.

 

Outlook

Equity markets need growth in profits to make significant near term gains. It may be possible for the rating of markets to continue to improve but this is clearly a process with only limited scope. Faster profits growth has proved elusive in the UK over the last few years. There are some signs that the underlying picture is improving. For example surveys of the dominant service sector are optimistic about activity. However, there are some immediate problems which will need to be overcome for sustained growth. At the highest macro-economic level the lags associated with monetary policy make it very difficult to judge when growth might accelerate beyond the moderate recovery so far achieved. It is possible also that globalisation is having the perverse effect of raising labour costs for companies in developing economies to which activities have moved while depressing profitability. At the same time real wages in advanced economies have been falling because of the same process with effects on consumer confidence and demand. At a more mundane level the recent strength of sterling has been cited by many companies as a reason for disappointing profits. This is a more cyclical influence and can be expected to stabilise fairly soon given the level it has reached.

 

The international political scene looks bleak. It is very difficult to know how far possible future outcomes have already been discounted and there is clearly scope for shocks. The most vulnerable point for markets is probably the price of oil which has been very stable helped by US shale oil production and quite weak OECD demand. The fact that both Russia and Iraq are major producers is disturbing although it doesn't seem to have had any effect so far.

 

We continue to believe that the most sensible policy is to continue to do what has been successful for the Company in the past and so our portfolio is composed of a diversified group of companies with strong franchises and good free cash flow. Despite the concerns set out above their valuation doesn't appear excessive and we continue to expect positive returns.         

 

P A F Gifford

Chairman

 

10 September 2014

 

 

STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT

 

Background

The UK equity market performed very well during the year to the end of June 2014 echoing the strong performance of the prior year.  The FTSE All-Share Index increased by 13.1% on a total return basis with the majority of gains occurring in the first half of the year.   The performance of the market reflected improvements in the domestic economy.  The picture was generally similar in the United States, which continued its gentle economic recovery, albeit affected by the unusually cold winter, and in the Eurozone where activity ceased falling.  Emerging markets demonstrated greater volatility as investors struggled with the implications for capital flows in light of the US beginning to taper its programme of quantitative easing.  As ever, geopolitical issues played their part in increasing uncertainty at times but in general investor confidence continued to improve.  This improvement in confidence was manifested in the equity market by greater risk appetite, low volatility and an increase in IPO activity, and in the bond market, by a narrowing of spreads for a number of peripheral Eurozone countries relative to German government bond yields. 

 

In the United Kingdom, domestic economic data bore evidence of the strong recovery in the economy.  UK GDP increased by 3.1% over the Company's financial year and has recovered all of the output lost since the peak achieved during the first quarter of 2008. This strong performance was reflected in the strengthening of sterling over the period.  However, it is worth noting that the recovery has been led by services (driven by a recovery in the housing market) as construction and manufacturing remain below their pre-crisis levels.  Although the labour market has been strong with unemployment falling to 6.8% at the end of the period, productivity has deteriorated given the additional input required to produce a similar level of pre-crisis output.  Inflation has been tame and remained below the government's target level of 2% for the second half of the Company's financial year.  These relatively benign conditions allowed the Monetary Policy Committee to leave interest rates unchanged through the period although the signalling intended by the introduction of 'forward guidance' has been less than coherent.  Although partly dependent on the trajectory of demand growth overseas, expectations for UK GDP growth in calendar 2015 remain robust with the IMF, for example, forecasting 2.7%.  Probably within the next six months, as slack in the economy reduces and wage growth returns, the normalisation of monetary conditions will begin with a gradual increase in interest rates - we will be watching closely to see how this affects consumer behaviour.

 

Globally, there were mixed messages from the major economies.  In the United States, the path of recovery was interrupted by a very weak first quarter of 2014, mostly explained by the unusually cold weather.  More recent data has suggested that growth has subsequently recovered with the Federal Reserve continuing to reduce the quantum of additional stimulus to the economy.  In Europe, anaemic growth coupled with concerns over the potential for deflation prompted the European Central Bank to take action to spur lending to companies and households towards the end of the period which should bolster activity.  Emerging market economies, particularly those with large current account deficits, were unsettled by the start of tapering in the United States at the turn of the calendar year but have subsequently established a firmer footing.  Growth in China has continued to slow with the country's shadow banking system a particular risk for the Chinese economy.  However, it should be remembered that growth rates in emerging markets are still stronger than the developed world and many developing countries have attractive long term characteristics.

 

Performance

The Company generated a positive net asset value per share total return of 14.0% in the year to 30 June 2014, compared to a rise in the FTSE All-Share Index of 13.1%.  The outperformance of 0.9% represented the fifth year in a row of positive relative performance. On a total return basis, the Company's share price increased by 9.4%, which reflected the move from a premium to a discount to Net Asset Value at which the shares traded compared to the previous year end. 

 

On a gross assets basis, the equity portfolio outperformed the benchmark by 0.8%.  On this same basis, the equity portfolio has now outperformed the FTSE All-Share Index in nine of the last ten years whilst delivering a yield premium. 

 

Gearing benefited net asset returns by 1.1%.   Towards the start of the period we extended our flexible borrowing facilities with Scotiabank for a period of two years on a reduced margin of Libor plus 85 points. We also marginally increased the amount drawn down by £5m to £45m with the actual level of gearing maintained in a narrow range between 5%-8% during the year.

 

Within the market both the food retail and bank sectors generated negative returns over the year.  For the listed supermarket companies, trading has been very tough: a function of intense competition from discount chains, changing customer behaviour and weak real income growth.  Banks suffered under the burden of weak capital market revenues, cost pressures and increased regulation.  Conversely, the pharmaceutical sector performed particularly strongly mainly as a result of corporate activity amongst some of the sector's largest constituents.  It is worth noting that in general, in a similar manner to the prior year, much of the positive performance overall was due to a re-rating of valuations on which companies traded rather than positive changes in earnings growth.

 

From a size perspective, the FTSE 100 Index again lagged both the Mid 250 and Small Cap indices, a function of its more defensive constituents and lower domestic exposure as those companies exposed to the improving UK economy performed strongly.  Reflecting the increase in risk appetite, the pace of initial public offerings has picked up considerably.  Under normal circumstances, we would stand back from these given that the information advantage rests heavily with the seller, but given the poor quality and dubious prospects of a number of the companies that have floated over the year, it has been even more important to approach these companies with great caution. It is also interesting that the level of corporate activity has increased reflecting a number of different factors which have included the availability of cheap financing, tax differentials, the difficulty of delivering earnings growth and the benefits of being more focused. It was noticeable that towards the end of the period, growth and momentum styles, which had performed well throughout the year, started to underperform.

 

The Company benefited significantly, in both stock selection and asset allocation terms, from its positioning in financials and particularly banks where the underweight position comprised of holdings that outperformed the sector. From an asset allocation perspective, the overweight position in food producers within the consumer goods sector proved to be beneficial.   Although the higher than average exposure to the healthcare sector aided performance, stock selection detracted (in particular not holding Shire Pharmaceuticals which was bid for).  Within consumer services, the holdings in the media sector and overweight position in food retailers disadvantaged relative performance.

 

From a stock specific standpoint, many of the holdings performed well but a number with share prices that increased by more than 30% are worthy of specific mention.  Associated British Foods was helped by a reappraisal of the potential for Primark which led to a re-rating.  Provident Financial's significant share price increase was caused by the continued success of its Vanquis credit card operation and the potential for Satsuma, the company's nascent online instalment loan business.  The strong returns from smaller companies were reflected in the performance of Aberforth Smaller Companies Investment Trust which also benefited from a narrowing of its discount.  Finally, AstraZeneca also performed very strongly following progress with the company's pipeline coupled with an approach from Pfizer.

 

On the other hand, there were a number of holdings that detracted from performance.  Centrica performed poorly in the main due to political interference in its domestic household retail supply business. Unfortunately, the pattern of poor performance from Tesco continued with the company suffering from increased competition, structural challenges and poor demand.  These same factors affected the share price performance of William Morrison.  Finally, Standard Chartered also performed poorly, its profitability affected by problems in its Korean business and a poor trading backdrop in its financial markets unit.

 

Performance Attribution for the year ended 30 June 2014


2014


%

Net Asset Value total return for year per Ordinary share

14.0

FTSE All Share Index total return

13.1


_______

Relative return

0.9


_______



Relative return

%

Stock selection (equities)


Oil & Gas

0.1

Basic Materials

-0.2

Industrials

0.4

Consumer Goods

0.4

Health Care

-1.1

Consumer Services

-0.3

Telecommunications

0.2

Utilities

-0.4

Technology

0.2

Financials

1.4


_______

Total stock selection (equities)

0.7


_______

Asset allocation (equities)


Oil & Gas

-0.2

Basic Materials

-0.2

Industrials

-0.1

Consumer Goods

0.5

Health Care

0.5

Consumer Services

-0.6

Telecommunications

-0.3

Utilities

-0.1

Technology

-0.1

Financials

0.7


_______

Total asset allocation (equities)

0.1


_______

Cash & options

-0.1

Gearing

1.1

Administrative expenses

-0.2

Management fees

-0.6

Tax charge

-0.1

 

Total

0.9


Sources : Aberdeen Asset Management, Mellon & Lipper

Notes: Stock Selection - measures the effect of equity selection relative to the benchmark. Asset Allocation - measures the impact of over or underweighting each industry basket in the equity portfolio, relative to the benchmark weights. Gearing effect - measures the impact on relative returns of net borrowings. Management fees & other expenses - these reduce total assets and therefore reduce performance. The effect is calculated by dividing expenses incurred during the year by average total assets less current liabilities. Residual effect - this arises as a result of the different methodologies for calculating performance between the NAV total return, the benchmark provider Lipper and the performance attribution system.

 

Portfolio Activity and Structure

In keeping with our patient, buy and hold approach, turnover was characteristically modest during the period.  However, we introduced four new companies, two of which are listed overseas, to take the weighting in companies listed overseas to 18.3% at the end of the period.  We also sold two holdings. 

 

The first new holding purchased was Inmarsat, the global satellite communications company which offers exposure to the growing demand for high speed data services.  The company benefits from global coverage, a technological edge and very high barriers to entry coupled with a healthy dividend yield.  The second company introduced was Ultra Electronics, a defence electronics business, with an impressive long term track record.  The backdrop of muted defence spending created the opportunity to purchase the shares on a lowly rating. The third new company was the US-listed Microsoft which provides attractive technology exposure coupled with a reasonable dividend yield - a combination not readily available through an investment in the UK equity market.  Finally, we received a holding in Verizon Communications, which is also listed in the United States, as part of the disposal of Vodafone's stake in Verizon Wireless.  The valuation is attractive and the company's wireless operations benefit from a benign regulatory environment and a strong competitive position with good scope for future growth.

 

The companies sold were Amec and William Morrison.  Amec was sold due to concerns over the acquisition of Foster Wheeler which weakened the company's balance sheet and increased its cyclicality together with some scepticism about the attractions of Foster Wheeler's underlying domain expertise.  With hindsight, we gave William Morrison the benefit of the doubt for too long but decided to sell the holding given the challenging sector backdrop coupled with the company's limited exposure to online and convenience store sales which represent the only two areas of industry growth.

 

In addition to the changes above we added to and reduced holdings as part of the normal cut and thrust of portfolio management.   We added to a number of holdings that appeared oversold given concerns about their emerging markets exposure including Unilever, HSBC, British American Tobacco, Standard Chartered and BHP Billiton.  We increased our exposure to Nordea following a series of meetings with the company that highlighted the management team's conservative approach, scope for further efficiencies and prospects for future dividend growth.  We added to Weir following a period of relative weakness caused by concerns over a weak demand profile for mining sector capital expenditure.  Finally, we increased our holding in Cobham through a placing that provided part-funding for the acquisition of Aeroflex, a provider of measurement equipment and microelectronic solutions that should fit in well with Cobham's own product set. 

 

In contrast, we took profits in a number of companies that had performed well and looked increasingly expensive including Associated British Foods, National Grid and Provident Financial.

 

We continued to write options gently to increase and diversify the income available to the Company.  The income from writing options accounted for 5.7% of total income compared to 6.5% of total income during the prior year.  We continue to feel that the option writing strategy has been of benefit to the Company by increasing the level of income generated and providing a good discipline for optimising our exposure to individual holdings.

 

Our aspiration in terms of portfolio construction has not changed, our aim is to build a sensibly diversified portfolio that is not dependent on any one particular economic scenario but provides broad exposure to the market as a whole while generating an above average dividend yield. Equally, we are keen to ensure that each investment can make a difference, hence the relatively low number of 45 individual holdings.

 

Given the low turnover over the period, changes to the sector positioning of the Company compared to the prior year have been modest.  However, the weighting in the consumer services sector has reduced slightly due to the sale of William Morrison.  The lower exposure to financials is a result of reductions to Provident Financial and the poor performance of Standard Chartered and HSBC.  The weight in the technology sector has increased due to the introduction of Microsoft.

 

Income

For the financial year ended 30 June 2014, the Company witnessed a small increase in the overall level of income generated but a reduction in the revenue return per share which fell from 31.1p to 30.5p, or by 1.9% compared to the prior year. This reduction was partly due to the weighted average number of Ordinary shares in issue increasing by 2.7% over the year as result of share issuance by the Company.

 

Income from investments increased by 2.4% aided by the recognition of two special dividends (from Hiscox and Svenska Handelsbanken) as revenue items.  This recognition is appropriate given that the return of cash was from a build-up of profits generated by ongoing operations rather than a sale of assets. As noted above, the income derived from writing options decreased compared to the previous year. The increase in income was offset by a small rise in administrative expenses, management fees and taxation.

 

Reflective of the market as a whole, the lack of earnings growth caused in part by the strength of sterling has made dividend growth more difficult and constrained income generation over the year.  At present, just under 50% of the Company's dividend income is denominated in currencies other than sterling (predominantly US dollars and euros). While this is an indication of the growth opportunities and diversification of earnings available to the Company from its holdings that operate on a global basis, it also has the effect of reducing the income available to the Company during times of sterling strength relative to other currencies. Given the strong dividend culture of the UK equity market, companies have increased their dividends at a greater rate than underlying earnings which has led to a reduction in dividend cover.  Unless these factors improve, the outlook for income generation is likely to remain more challenging.  It is worth noting that market dividends in aggregate are expected to increase by 3.2% and 8.7% per annum in the calendar years 2014 and 2015 respectively.  Although this is likely to be too optimistic for 2015, we would still expect reasonable dividend progression from the underlying holdings in the Company. Furthermore, the income from option writing provides a useful fillip and our revenue reserves remain very strong.

 

Outlook

Over the past couple of years the FTSE All-Share Index has appreciated by around 30% on a total return basis, yet corporate earnings have remained essentially flat.  It seems improbable that the market will be able to make further progress unless earnings growth resumes.  Although an improvement in economic growth is likely to be a helpful underlying dynamic, profit growth is likely to remain hard won with debt funding costs unlikely to reduce further, taxation benefits more difficult to obtain and the prospects of rising domestic interest rates likely to provide a further headwind.  An additional concern may be the complacency and elevated animal spirits evidenced by recent IPO activity that has resulted in a number of companies with weak business models coming to the market at premium valuations.  It seems unlikely, therefore, that the market will be able to deliver similar levels of returns to those of the past couple of years. 

 

Unsurprisingly, given the share price movements we have witnessed, it is becoming more difficult to find attractively valued investment opportunities.  It may well be the case that larger companies, on the basis of their more attractive valuations and increasing desire to crystallise value through becoming more focused, outperform their smaller peers.  Although the short term outlook for equity returns may be more difficult, we remain sanguine about the medium to long term opportunities for the companies in the portfolio.  We believe that globally competitive businesses with strong balance sheets will prosper over the long term and ultimately offer the best earnings and dividend growth prospects.

 

 

Charles Luke

Aberdeen Asset Managers Limited

Investment Manager

 

10 September 2014

 

 

DIRECTORS' REPORT

 

Status

The Company, which was incorporated in 1923, is registered as a public limited company in Scotland under number SC012725 and is an investment company within the meaning of Section 833 of the Companies Act 2006.

 

The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 July 2012.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 June 2014 so as to enable it to comply with the ongoing requirements for investment trust status.

 

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

 

Capital Structure

At 30 June 2014, the Company had 68,017,458 fully paid Ordinary shares of 25p each (2013 - 67,092,458 Ordinary shares) with voting rights in issue and an additional 451,000 (2013 - 451,000) shares in treasury. There have been no changes in the Company's issued share capital subsequent to the year end and up to the date of this Report.

 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends.  On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

 

There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may be applied from time to time by law (for example, insider trading law).

 

Results and Dividends

The financial statements for the year ended 30 June 2014 indicate a total return attributable to equity shareholders for the year of £68,356,000 (2013 - £77,615,000).

 

The final dividend for the year ended 30 June 2013, of 9.75p per Ordinary share, was paid to shareholders on 29 October 2013.

 

The first, second and third interim dividends, each of 7.0p per Ordinary share, for the year ended 30 June 2014, were paid to shareholders on 17 January 2014, 4 April 2014 and 4 July 2014, respectively.

 

The Directors now recommend a final dividend for the year ended 30 June 2014, of 10.25p per Ordinary share, payable to shareholders on 31 October 2014, making a total distribution to Ordinary shareholders of £21,255,000 (2013 - £20,528,000) relating to the year ended 30 June 2014, as shown in note 6. The ex-dividend date is 24 September 2014 and the record date is 26 September 2014. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

 

Dividends are paid by means of three interim dividends, normally in January, April, July, and a final dividend in October, after the Annual General Meeting. Further information on dividends is contained in the Chairman's Statement.

 

Directors

Patrick Gifford, Neil Honebon, Jean Park, David Woods and Donald Cameron held office as Directors throughout the year. Humphrey van der Klugt retired as a Director on 25 October 2013. With the exception of Patrick Gifford, who is retiring from the Board at the Annual General Meeting ("AGM") and Neil Rogan, who was appointed a Director on 26 November 2013, and is standing for election at the AGM, all of the other current Directors retire and are standing for re-election at the AGM. The Board supports the candidature of the Directors for election and re-election for the reasons described in the Statement of Corporate Governance in the Annual Report.

 

There were no contracts during, or at the end of the year, in which any Director was materially interested. No Director had a material interest in any investment in which the Company itself had a material interest.

 

Directors' and Officers' Liability Insurance

The Directors have been granted a qualifying third party indemnity provision during the year ended 30 June 2014, which remains in force. The Company maintains insurance in respect of Directors' and officers' liabilities in relation to their acts on behalf of the Company.

 

Going Concern

In accordance with the Financial Reporting Council's guidance on Going Concern and Liquidity Risk issued in October 2009 the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.  The Company's assets consist of a diverse portfolio of listed equity shares which in most circumstances are realisable within a very short timescale.

 

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants. On 26 September 2013, the Company entered into a two-year multi-currency revolving loan facility ("the Facility") with Scotiabank (Ireland) Limited for up to £80m. As at 30 June 2014, £45m had been drawn down under the Facility.

 

The Directors are mindful of the principal risks and uncertainties disclosed in the Overview of Strategy and have reviewed forecasts detailing revenue and liabilities and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least 12 months from the date of this Annual Report. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

 

Substantial Interests

At 10 September 2014, the following interests over 3% in the issued Ordinary share capital of the Company have been disclosed in accordance with the requirements of the UK Listing Authority's Disclosure and Transparency Rules:

 

Shareholder

Number of shares held

% held

Aberdeen Asset Managers Limited Retail Plans

12,183,620

17.9

Speirs & Jeffrey

5,212,844

7.7

Rathbone Brothers

4,296,006

6.3

Alliance Trust Savings

3,164,438

4.7

Brewin Dolphin

3,127,400

4.6

Hargreaves Lansdown

2,266,320

3.3

 

As at the date of approval of this Report, no changes to the above interests had been notified to the Company.

 

Manager and Company Secretary

The Company's investment management arrangements with the Aberdeen Asset Management Group have been reorganised and the Company has appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager ("AIFM" or "Manager") with effect from 16 July 2014. In order to facilitate this appointment, the Company terminated its existing investment management agreement with Aberdeen Asset Managers Limited ("AAML"), which was effective throughout the Company's year ended 30 June 2014, and entered into a new management agreement with AFML. The new management agreement with AFML is made on the same commercial terms as the previous agreement with AAML and is also compliant with the new regulatory regime under the AIFMD. Under the new arrangements, the Company's portfolio will continue to be managed by AAML by way of a group delegation agreement in place between AFML and AAML.

 

Company secretarial, accounting and administrative services are provided by Aberdeen Asset Management PLC.

 

For the year ended 30 June 2014, and up to 15 July 2014, the management, secretarial and marketing fees payable by the Company to Aberdeen Group companies were calculated and charged on the following basis, which, in relation to management and secretarial fees, is unchanged under the new management agreement entered into with AFML from 16 July 2014 onwards:

 

A monthly fee is payable to AAML at the rate of one-twelfth of 0.55% on the first £400 million of net assets, 0.45% on the next £150 million of net assets and 0.25% on the excess over £550 million. The value of any investments in unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the Aberdeen Asset Management Group is the operator, manager or investment adviser, is deducted from net assets when calculating the fee. The investment management fee is chargeable 50% to revenue and 50% to capital. There is no performance fee. A secretarial fee of £75,000 per annum (plus applicable VAT) is payable to Aberdeen Asset Management PLC, which is chargeable 100% to revenue.  An annual marketing fee equivalent to 0.075% of gross assets (calculated at 30 September each year) is paid to AAML to cover marketing activities undertaken on behalf of the Company. The management, secretarial and marketing fees paid to Aberdeen Group companies during the year ended 30 June 2014 are shown in note 3.

 

The management contract may be terminated by either the Company or the Manager on the expiry of three months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due to that date.

 

In monitoring the performance of the Manager, the Board considers the investment record of the Company over the short term and longer term, taking into account both its performance against the benchmark index and peer group investment trusts. The Board also reviews the management processes, risk control mechanisms and marketing activities of the Manager. As a result of these reviews, the Board considers the continuing appointment of the Manager to be in the interests of shareholders because the Aberdeen Asset Management Group has the investment management, marketing and associated secretarial and administrative skills required for the effective operation of the Company. The Board continues to keep this matter under review.

 

Corporate Governance

The Statement of Corporate Governance is set out in the Annual Report.

 

Auditor

The Directors confirm that, so far as each of the Directors is aware, there is no relevant audit information of which the Company's independent auditor is unaware and that the Directors have taken all steps that they reasonably could be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's independent auditor is aware of that information.

 

The Directors have reviewed the level of non-audit services provided by the independent auditor during the year, together with the independent auditor's procedures in connection with the provision of such services, and remain satisfied that the auditor's objectivity and independence is being safeguarded.

 

Annual General Meeting

Among the resolutions being put at the Annual General Meeting of the Company to be held on 29 October 2014, the following resolutions will be proposed:

 

Authority to allot shares and disapply pre-emption rights

Ordinary Resolution No. 12 in the Notice of Annual General Meeting will renew the authority to allot the unissued share capital up to an aggregate nominal amount of £850,218 (equivalent to approximately 3.4m Ordinary shares, or 5 per cent of the Company's existing issued share capital on the date of approval of this Report (excluding treasury shares)). Such authority will expire on the date of the next Annual General Meeting or on 31 December 2015, whichever is earlier. This means that the authority will have to be renewed at the next Annual General Meeting.

 

When shares are to be allotted for cash, Section 561 of the Companies Act 2006 (the "Act") provides that existing shareholders have pre-emption rights and that the new shares or shares to be issued from treasury must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares or sell from treasury otherwise than by a pro rata issue to existing shareholders. Special Resolution No. 13 will, if passed, give the Directors power to allot for cash or sell from treasury equity securities up to an aggregate nominal amount of £1,700,436 (equivalent to approximately 6.8m Ordinary shares, or 10 per cent of the Company's existing issued share capital on the date of approval of this Report, as if Section 561 of the Act does not apply). This authority will also expire on the date of the next Annual General Meeting or on 31 December 2015, whichever is earlier. This authority will not be used in connection with a rights issue by the Company.

 

The Directors intend to use the authority given by Resolutions 12 and 13 to allot shares or sell shares from treasury and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in general meeting. It is the intention of the Board that any issue of shares or any re-sale of treasury shares would only take place at a price not less than 0.5% above the net asset value per share prevailing at the date of sale. It is also the intention of the Board that sales from treasury would only take place when the Board believes that to do so would assist in the provision of liquidity to the market. The Directors recommend that shareholders vote in favour of Resolutions 12 and 13.

 

Purchase of the Company's own Ordinary Shares

At the Annual General Meeting held on 25 October 2013, shareholders approved the renewal of the authority permitting the Company to repurchase its Ordinary shares.

 

The Directors wish to renew the authority given by shareholders at the previous Annual General Meeting. A share buy-back facility enhances shareholder value by acquiring shares at a discount to net asset value, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to net asset value per share, should result in an increase in the net asset value per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the net asset value per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the Annual General Meeting.

 

Under the current Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of (i) 105% of the average of the middle market quotations for the shares over the five business days immediately preceding the date of purchase and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p per share. Shares which are purchased under this authority will either be cancelled or held as treasury shares. Special Resolution No. 14 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum of 14.99% of shares in issue at the date of signing this Report (amounting to 10,195,816 Ordinary shares). Such authority will expire on the date of the next Annual General Meeting, or on 31 December 2015, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General Meeting, or earlier, if the authority has been exhausted. The Directors recommend that shareholders vote in favour of Resolution No. 14. No dividends may be paid on any shares held in treasury and no voting rights will attach to such shares. The benefit of the ability to hold treasury shares is that such shares may be resold. This should give the Company greater flexibility in managing its share capital, and improve liquidity in its shares.

 

Recommendation

The Directors believe that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole, and recommend that shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial shareholdings totalling 77,938 Ordinary shares, representing 0.1% of the issued Ordinary share capital of the Company.

 

By Order of the Board

 

P A F Gifford

Chairman

 

10 September 2014

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under the law they have elected to prepare the financial statements in accordance with UK Accounting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

 

In preparing these financial statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgments and estimates that are reasonable and prudent; and

-      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that to the best of our knowledge:

 

-      the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

-      that in the opinion of the Directors, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

-      the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

 

For and on behalf of the Board of Murray Income Trust PLC

 

 

P A F Gifford

Chairman

 

10 September 2014

 

 

STRATEGIC REPORT - RESULTS

 

Financial Highlights


30 June 2014

30 June 2013

% change

Total assets (£'000)

592,652

532,878

+11.2

Equity shareholders' funds (£'000)

547,652

492,878

+11.1

Net asset value per Ordinary share

805.2p

734.6p

+9.6

Market capitalisation (£'000)

529,856

497,155

+6.6

Share price of Ordinary share (mid-market)

779.0p

741.0p

+5.1

Premium/(discount) to net asset value on Ordinary shares

(3.2%)

0.9%


Gearing (ratio of borrowing to shareholders' funds)




Net gearing {A}

5.9%

5.6%


Dividends and earnings




Revenue return per share

30.5p

31.1p

-1.9

Dividends per share {B}

31.25p

30.75p

+1.6

Dividend cover

0.98 times

1.01 times


Revenue reserves (£'000) {C}

27,008

27,031


Operating costs




Ongoing charges ratio {D}

0.73%

0.76%



{A}    Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".

 

{B}    The figures for dividends per share reflect the years in which they were earned (see note 6).

 

{C}    The revenue reserve figure does not take account of the proposed third interim and final dividends amounting to £4,761,000 and £6,972,000 respectively (2013 - third interim and final dividends amounting to £4,676,000 and £6,590,000 respectively).

 

{D}    Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.

 

 

Performance (total return)


 1 year return

3 year return

5 year return


%

%

%

Share price

+9.4

+35.2

+122.6

Net asset value per Ordinary share

+14.0

+37.3

+122.3

Source: Aberdeen Asset Managers/Morningstar




 

 

Dividends


Rate

xd date

Record date

Payment date

1st interim 2014

7.00p

18 December 2013

20 December 2013

17 January 2014

2nd interim 2014

7.00p

5 March 2014

7 March 2014

4 April 2014

3rd interim 2014

7.00p

4 June 2014

6 June 2014

4 July 2014

Proposed final 2014

10.25p

24 September 2014

26 September 2014

31 October 2014

Total dividends 2014

31.25p




 

 

Ten Year Financial Record

Year end 30 June

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Revenue (£'000)

16,533

17,237

19,251

22,390

19,790

18,257

21,844

22,688

23,566

23,926

Per Ordinary share (p)











Net revenue return

20.0

21.8

24.7

29.3

28.1

25.4

30.9

30.6

31.1

30.5

Dividends

19.15

21.60

24.25

27.00

27.75

28.00

28.75

29.75

30.75

31.25

Net asset value

603.3

699.7

802.3

619.9

455.4

547.9

671.5

649.6

734.6

805.2


______

______

______

______

______

______

______

______

______

______

Shareholders' funds (£'000)

404,601

456,714

522,617

400,536

294,570

354,425

434,406

425,458

492,878

547,652


______

______

______

______

______

______

______

______

______

______












The Net Asset Value figure for 2005 has been restated to reflect the changes in accounting policies (FRS 26 - 'Financial Instruments: Recognition and Measurement'; FRS 21 - 'Events after the Balance Sheet Date').

The figures for dividends reflect the dividends for the years in which they were earned.

Please note that past performance is not a guide to future performance.

 



MURRAY INCOME TRUST PLC

 

Income Statement

 



Year ended 30 June 2014

Year ended 30 June 2013



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments

9

-

49,520

49,520

-

58,679

58,679

Currency losses


-

(105)

(105)

-

(45)

(45)

Income

2

23,926

-

23,926

23,566

-

23,566

Investment management fees

3

(1,386)

(1,386)

(2,772)

(1,238)

(1,238)

(2,476)

Administrative expenses

4

(1,079)

-

(1,079)

(1,030)

-

(1,030)



_______

_______

_______

_______

_______

_______

Net return before finance costs and taxation


21,461

48,029

69,490

21,298

57,396

78,694









Finance costs of borrowing

5

(362)

(362)

(724)

(363)

(363)

(726)



_______

_______

_______

_______

_______

_______

Net return on ordinary activities before taxation


21,099

47,667

68,766

20,935

57,033

77,968









Taxation on ordinary activities

7

(410)

-

(410)

(353)

-

(353)



_______

_______

_______

_______

_______

_______

Net return on ordinary activities after taxation


20,689

47,667

68,356

20,582

57,033

77,615



_______

_______

_______

_______

_______

_______









Return per Ordinary share (pence)

8

30.5

70.2

100.7

31.1

86.3

117.4



_______

_______

_______

_______

_______

_______









The total column of this statement represents the profit and loss account of the Company.

The Company had no recognised gains or losses other than those recognised in the Income Statement.

No operations were acquired or discontinued in the year.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.




£'000

£'000

£'000

£'000

£'000

£'000

Ordinary dividends on equity shares

6

20,712

-

20,712

21,543

-

21,543



_______

_______

_______

_______

_______

_______


The above dividend information does not form part of the Income Statement.

 

 



MURRAY INCOME TRUST PLC

 

Balance Sheet

 



As at

As at



30 June 2014

30 June 2013


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

9

578,506

517,619



___________

___________

Current assets




Other debtors and receivables

10

2,414

3,445

Cash and short term deposits


12,643

12,539



___________

___________



15,057

15,984



___________

___________





Creditors: amounts falling due within one year




Other payables

11

(911)

(725)

Bank loans

11

(45,000)

(40,000)



___________

___________

Net current liabilities


(30,854)

(24,741)



___________

___________

Net assets


547,652

492,878



___________

___________





Share capital and reserves




Called-up share capital

12

17,117

16,886

Share premium account


23,101

16,202

Capital redemption reserve


4,997

4,997

Capital reserve

13

475,429

427,762

Revenue reserve

13

27,008

27,031



___________

___________

Total equity shareholders' funds


547,652

492,878



___________

___________





Net asset value per Ordinary share (pence)

14

805.2

734.6



___________

___________

 

 



MURRAY INCOME TRUST PLC

 

Reconciliation of Movements in Shareholders' funds

 

 

For the year ended 30 June 2014











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 July 2013


16,886

16,202

4,997

427,762

27,031

492,878

Return on ordinary activities after taxation


-

-

-

47,667

20,689

68,356

Issue of Ordinary shares


231

6,899

-

-

-

7,130

Dividends paid

6

-

-

-

-

(20,712)

(20,712)



_______

_______

_______

_______

_______

_______

Balance at 30 June 2014


17,117

23,101

4,997

475,429

27,008

547,652



_______

_______

_______

_______

_______

_______









For the year ended 30 June 2013











Share

Capital






Share

premium

redemption

Capital

Revenue




capital

account

reserve

reserve

reserve

Total



£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 July 2012


16,604

8,103

4,997

367,762

27,992

425,458

Return on ordinary activities after taxation


-

-

-

57,033

20,582

77,615

Issue of Ordinary shares


282

8,099

-

2,967

-

11,348

Dividends paid

6

-

-

-

-

(21,543)

(21,543)



_______

_______

_______

_______

_______

_______

Balance at 30 June 2013


16,886

16,202

4,997

427,762

27,031

492,878



_______

_______

_______

_______

_______

_______

 

 


MURRAY INCOME TRUST PLC

 

Cash Flow Statement

 


Year ended

Year ended


30 June 2014

30 June 2013

Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

15


18,334


18,541






Servicing of finance






Interest paid



(722)


(725)







Taxation






Net tax paid



(416)


(314)






Financial investment






Purchases of investments


(39,256)


(44,450)


Sales of investments


30,485


30,224




_______


_______


Net cash outflow from financial investment



(8,771)


(14,226)






Equity dividends paid

6


(20,712)


(21,543)




_______


_______

Net cash outflow before financing



(12,287)


(18,267)






Financing






Issue of Ordinary shares

12

7,496


10,984


Drawdown of loan


5,000


-




_______


_______


Net cash inflow from financing



12,496


10,984




_______


_______

Increase/(decrease) in cash   

16


209


(7,283)




_______


_______



MURRAY INCOME TRUST PLC

 

Notes to the Financial Statements

Year Ended 30 June 2014

 

1.

Accounting policies

 


(a)

Basis of preparation

 



The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'.

 




 



The financial statements have been prepared on a going concern basis. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

 





(b)

Income



Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Where the Company has elected to receive dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as revenue and any residual amount is recognised as capital. Provision is made for any dividends not expected to be received. Special dividends are credited to capital or revenue, according to the circumstances. Dividend revenue is presented gross of any non-recoverable withholding taxes, which are disclosed separately within the Income Statement.






The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares.






Interest receivable from cash and short-term deposits and interest payable is accrued to the end of the year.





(c)

Expenses



All expenses are accounted for on an accruals basis. All expenses are charged through the revenue column of the Income Statement except as follows:



-         transaction costs on the acquisition or disposal of investments are recognised as a capital item in the Income Statement.



-         expenses are charged as a capital item in the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the investment management fee has been allocated 50% to revenue and 50% to capital to reflect the Company's investment policy and prospective income and capital growth.





(d)

Taxation



The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The tax effect of different items of income/gain and expenditure/loss is allocated between the capital and revenue accounts on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year.






Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Balance Sheet date.






Due to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 





(e)

Valuation of investments



Investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value.  Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included in the net return for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.





(f)

Cash and cash equivalents



Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of change in value.





(g)

Borrowings



Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. Subsequently, they continue to be valued at fair value, which is determined by aggregating the expected future cash flows for that loan or overdraft at a rate comprising the borrower's margin plus an average of market rates applicable to loans or overdrafts of a similar period of time and currency. Finance charges are accounted for on an accruals basis using the effective interest rate method and are charged 50% to revenue and 50% to capital to reflect the Company's investment policy and prospective income and capital growth.





(h)

Traded options



The Company may enter into certain derivative contracts (eg options) to gain exposure to the market. The option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value ie market value. The premium received on the open position is recognised in the revenue column of the Income Statement. Where the option is written for the maintenance or enhancement of the Company's investments then the change in fair value is recognised in the capital column of the Income Statement.





(i)

Segmental reporting



The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided.





(j)

Treasury shares



When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve.





(k)

Dividends payable



Dividends are recognised in the financial statements in the period in which they are paid.

 



2014

2013

2.

Income

£'000

£'000


Income from investments




UK dividends (all listed)

14,855

16,231


Overseas dividends (all listed)

5,078

4,405


Stock dividends

2,596

1,359



___________

___________



22,529

21,995



___________

___________






Other income




Deposit interest

29

23


Traded option premiums

1,368

1,548



___________

___________



1,397

1,571



___________

___________


Total income

23,926

23,566



___________

___________






During the year, the Company received premiums totalling £1,368,000 (2013 - £1,548,000) in exchange for entering into derivative transactions. At the year end there were 9 open positions (2013 - 1), valued at a liability position of £156,000 (2013 - £51,000) and securities held by the Company with a value of £3,198,000 (2013 - £2,549,000) were pledged as collateral against this.

 



 2014

 2013



Revenue

Capital

Total

Revenue

Capital

Total

3.

Investment management fees

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees

1,386

1,386

2,772

1,238

1,238

2,476



_______

_______

________

_______

________

________




Details of the fee basis are contained in the Directors' Report. There was £478,000 (2013 - £446,000) due to Aberdeen Asset Managers Limited in respect of these investment management services at the year end.

 



2014

2013

4.

Administrative expenses

£'000

£'000


Shareholders' services{A}

557

523


Directors' remuneration

146

137


Secretarial fees{B}

90

91


Auditor's remuneration




fees payable to the Company's auditor for the audit of the Company's annual accounts

21

20


fees payable to the Company's auditor and its associates for iXBRL tagging services

2

2


Other expenses

263

257



___________

___________



1,079

1,030



___________

___________






{A}    Includes registration, savings scheme and other wrapper administration and promotion expenses, of which £479,000 (2013 - £434,000) was paid to Aberdeen Asset Managers Limited (AAM) to cover marketing activities during the year. There was £125,000 (2013 - £106,000) due to AAM in respect of these marketing activities at the year end.


{B}    Payable to AAM, balance outstanding £15,000 (2013 - £7,500) at the year end.




All of the expenses above, with the exception of Auditor's remuneration, include irrecoverable VAT where applicable. For the Auditor's remuneration this amounted to £5,000 (2013 - £4,000).

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

5.

 Finance costs of borrowing

£'000

£'000

£'000

£'000

£'000

£'000


 Bank loans and overdrafts

362

362

724

363

363

726



______

______

______

______

______

_____

 



2014

2013

6.

Ordinary dividends on equity shares

£'000

£'000


Third interim 2013 of 7.00p (2012 - 5.50p)

4,676

3,602


Final 2013 of 9.75p (2012 -13.25p)

6,590

8,679


First interim 2014 of 7.00p (2013 - 7.00p)

4,761

4,624


Second interim 2014 of 7.00p (2013 - 7.00p)

4,761

4,638


Return of unclaimed dividends

(76)

-



___________

___________



20,712

21,543



___________

___________






The third interim and proposed final dividends for 2014 have not been included as a liability in these financial statements as they were not payable until after the Balance Sheet date. The proposed final dividend for 2014 is subject to approval by shareholders at the Annual General Meeting.




We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £20,689,000 (2013 - £20,582,000).







2014

2013



£'000

£'000


Three interim dividends of 7.00p each (2013 - 7.00p)

14,283

13,938


Proposed final dividend of 10.25p (2013 - 9.75p)

6,972

6,590



___________

___________



21,255

20,528



___________

___________






The amount reflected above for the cost of the proposed final dividend for 2014 is based on 68,017,458 Ordinary shares, being the number of Ordinary shares in issue at the date of this Report.

 



2014

2013



Revenue

Capital

Total

Revenue

Capital

Total

7.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Overseas tax suffered

610

-

610

541

-

541



Overseas tax reclaimable

(200)

-

(200)

(188)

-

(188)




_______

______

____

_______

______

________



Current tax charge for the year

410

-

410

353

-

353




_______

______

____

_______

______

________





(b)

Factors affecting the tax charge for the year



The tax assessed for the year is lower than the standard rate of corporation tax rate of 22.5% (2013 - 23.75%).  The differences are explained as follows:







2014

2013




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Net profit on ordinary activities before taxation

21,099

47,667

68,766

20,935

57,033

77,968












Return on ordinary activities multiplied by the standard rate of corporation tax of 22.5% (2013 - 23.75%)

4,747

10,725

15,472

4,972

13,545

18,517



Effects of:









Non-taxable UK dividends

(3,342)

-

(3,342)

(3,855)

-

(3,855)



Non-taxable stock dividends

(584)

-

(584)

(323)

-

(323)



Non-taxable overseas dividends

(1,084)

-

(1,084)

(985)

-

(985)



Movement in income accruals taxable on receipt

-

-

-

-

-

-



Movement in unutilised loan relationships

157

81

238

167

86

253



Movement in unutilised management expenses

106

312

418

24

295

319



Other capital returns

-

(11,118)

(11,118)

-

(13,926)

(13,926)



Overseas tax irrecoverable

410

-

410

353

-

353




_______

_______

_____

________

_______

_____



Current tax charge

410

-

410

353

-

353




_______

_______

_____

________

_______

_____











(c)

Factors that may affect future tax charges



No provision for deferred tax has been made in the current or prior accounting period.






The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.






At the year end, the Company has, for taxation purposes only, accumulated unrelieved management expenses and loan relationship deficits of £53,831,000 (2013 - £50,914,000). A deferred tax asset in respect of this has not been recognised and these expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is considered too uncertain that the Company will generate such profits and therefore no deferred tax asset has been recognised.

 



2014

2013

8.

Return per Ordinary share

£'000

p

£'000

p


Returns are based on the following figures:






Revenue return

20,689

30.5

20,582

31.1


Capital return

47,667

70.2

57,033

86.3



_______

_______

_____

________


Total return

68,356

100.7

77,615

117.4



_______

_______

_____

________








Weighted average number of Ordinary shares in issue


67,868,896


66,081,926




_________


_________

 



 2014

 2013

9.

Investments

 £'000

 £'000


Held at fair value through profit or loss:




Opening valuation

517,619

443,355


Opening investment holdings gains

(132,716)

(83,546)



_______

_______


Opening book cost

384,903

359,809


Movements during the year:




Purchases at cost

41,852

45,809


Sales - proceeds

(30,485)

(30,224)


Sales - gains

11,534

9,509



_______

_______


Closing book cost

407,804

384,903


Closing investment holdings gains

170,702

132,716



_______

_______


Closing valuation

578,506

517,619



_______

_______







2014

2013


The portfolio valuation:

£'000

£'000


UK equities

469,936

438,444


Overseas equities

108,570

79,175



_______

_______


Total

578,506

517,619



_______

_______







2014

2013


Gains on investments

£'000

£'000


Gains based on book cost

11,534

9,509


Net movement in investment holdings gains

37,986

49,170



_______

_______



49,520

58,679



_______

_______






As at 30 June 2014, the Company had pledged collateral greater than the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £3,198,000 (2013 - £2,549,000), all in the form of securities. The collateral position is monitored on a daily basis, which then determines if further assets are required to be pledged over and above those already pledged.




Transaction costs


During the year expenses were incurred in acquiring or disposing of investments classified at fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:







2014

2013



£'000

£'000


Purchases

155

148


Sales

40

31



_______

_______



195

179



_______

_______

 



2014

2013

10.

Other debtors and receivables

£'000

£'000


Prepayments and accrued income

2,414

3,445



_______

_______

 



2014

2013

11.

Creditors: amounts falling due within one year

£'000

£'000


Accruals

755

674


Amounts due on derivative contracts

156

51


Bank loans

45,000

40,000



_______

_______



45,911

40,725



_______

_______






Accruals include 9 (2013 - 1) open option positions having a value of £156,000 (2013 - £51,000).




At 30 June 2014 the Company had drawn down £45,000,000 (30 June 2013 - £40,000,000) of a £80,000,000 unsecured revolving bank credit facility with Scotiabank (Ireland) Limited. Under the terms of the agreement, advances from the facility may be made for periods of up to six months or for such longer periods agreed by the lender. Interest is charged at a variable rate based on LIBOR plus a margin of 0.85% for the relevant period of the advance. As at 30 June 2014 this rate was 1.34469% (30 June 2013 - 1.64313%) and the loan rolled over on 28 July 2014 and on 28 August 2014.




On 28 August 2014 the Company had drawn down £45,000,000 of the facility, at an all-in interest rate of 1.35281% until maturity on 29 September 2014. Borrowing facilities of £80 million are committed to the Company until 23 September 2015.




Financial covenants contained within the loan agreement provide, inter alia, that the net assets to borrowings must exceed 3.5 to 1 (30 June 2014 - 12.2; 30 June 2013 - 12.3) and that net assets must exceed £185 million (30 June 2014 - £547.7 million; 30 June 2013 - £492.9 million). All financial covenants were met during the year and also during the period from the year end to the date of this report.

 



2014

2013

12.

Called-up share capital

Shares

£'000

Shares

£'000


Allotted, called-up and fully-paid






Ordinary shares of 25p each: publicly held

68,017,458

17,004

67,092,458

16,773


Ordinary shares of 25p each: held in treasury

451,000

113

451,000

113



_________

_______

_________

________



68,468,458

17,117

67,543,458

16,886



_________

_______

_________

________








During the year there were no Ordinary shares repurchased (2013 - nil). No Ordinary shares were sold from the Treasury account (2013 - 466,000) and 925,000 (2013 - 1,127,000) new shares were allotted. All of these shares were sold at a premium to net asset value. The issue prices ranged from 749.0p to 809.0p and raised £7,130,000 (2013 - £11,348,000) net of expenses.

 



2014

2013

13.

Retained earnings

£'000

£'000


Capital reserve




At 1 July 2013

427,762

367,762


Movement in investment holding gains

37,986

49,170


Gains on realisation of investments at fair value

11,534

9,509


Currency losses

(105)

(45)


Finance costs of bank loan

(362)

(363)


Investment management fees

(1,386)

(1,238)


Issue of Ordinary shares

-

2,967



_______

_______


At 30 June 2014

475,429

427,762



_______

_______






Revenue reserve





2014

2013



£'000

£'000


At 1 July 2013

27,031

27,992


Revenue

20,689

20,582


Dividends paid

(20,712)

(21,543)



_______

_______


At 30 June 2014

27,008

27,031



_______

_______

 

14.

Net asset value per share


The net asset value per Ordinary share and the net asset value attributable to the Ordinary shares at the year end were as follows:







 2014

 2013


Net asset value attributable (£'000)

547,652

492,878


Number of Ordinary shares in issue (note 12)

68,017,458

67,092,458


Net asset value per share (p)

805.2

734.6

 

15.

Reconciliation of net return before finance costs and

 2014

 2013


taxation to net cash inflow from operating activities

 £'000

 £'000


Net return before finance costs and taxation

69,490

78,694


Adjustments for:




Gains on investments

(49,520)

(58,679)


Currency losses

105

45


Non cash stock dividend

(2,596)

(1,359)


Decrease/(increase) in accrued income

651

(81)


Decrease in other debtors

21

77


Increase/(decrease) in accruals

183

(156)



_______

_______


Net cash inflow from operating activities

18,334

18,541



_______

_______

 



 At



 At



 1 July 2013

 Cash flows

 Currency losses

 30 June 2014

16.

Analysis of changes in net debt

 £'000

 £'000

 £'000

 £'000


Net cash:






Cash

12,539

209

(105)

12,643


Debt:






Debt due within one year

(40,000)

(5,000)

-

(45,000)



_______

_______

_____

________


Net debt

(27,461)

(4,791)

(105)

(32,357)



_______

_______

_____

________

 

17.

Risk management policies and procedures


The Company's financial instruments, other than derivatives, comprise securities and other investments, cash balances, liquid resources, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, subject to Board approval, for the purpose of enhancing portfolio returns and for hedging purposes in a manner consistent with the Company's broader investment policy.




The following table shows the fair values of open positions in options at the year end, all recorded as liabilities in note 11, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative's underlying asset and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at the year end and are indicative of neither the market risk nor the credit risk.





2014



Liabilities

Gross



£'000

£'000


Associated British Foods (call)

26

1,616


AstraZeneca (call)

21

1,606


Close Brothers (call)

4

1,431


Inmarsat (put)

3

1,429


National Grid (call)

2

1,411


Nestle (call)

35

1,450


Standard Chartered (put)

55

1,325


Ultra Electronic (put)

-

3,133


Vodafone (put)

10

1,305



_______

_______



156

14,706



_______

_______






2013



Liabilities

Gross



£'000

£'000


GDF Suez (put)

51

1,290



_______

_______



51

1,290



_______

_______






The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other price risk), (ii) liquidity risk and (iii) credit risk.




In order to mitigate risk, the investment strategy is to select investments for their fundamental value. Stock selection is therefore based on disciplined accounting, market and sector analysis. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The Attribution Analysis, detailing the allocation of assets and the stock selection, is shown in the Investment Manager's Report. The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to consider investment strategy. Current strategy is detailed in the Chairman's Statement in the sections headed "Performance", "Dividend" and "Outlook" and in the Investment Manager's Report in the sections headed "Background", "Performance", "Portfolio Activity and Structure", "Income" and "Outlook".




The Board has agreed the parameters for gearing, which was 5.9% of net assets as at 30 June 2014 (2013 - 5.6%). The Manager's policies for managing these risks are summarised below and have been applied throughout the current and previous year. The numerical disclosures in the table listed below exclude short-term debtors and creditors.




Market risk


The Company's investment portfolio is exposed to market price fluctuations, which are monitored by the Manager in pursuance of the investment objective as set out in the Company Summary. Adherence to investment guidelines and to investment and borrowing powers set out in the management agreement mitigates the risk of exposure to any particular security or issuer. Further information on the investment portfolio is set out in the Investment Manager's Report.




Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions as a consequence of price movements. It is the Board's policy to hold equity investments in the portfolio in a broad spread of sectors in order to reduce the risk arising from factors specific to a particular sector. A summary of investment changes during the year under review is and an analysis of the equity portfolio by industrial classification may be found near the end of this Report. 




Interest rate risk


Interest rate movements may affect:


-         the level of income receivable on cash deposits;


-         interest payable on the Company's variable rate borrowings; and


-         the fair value of any investments in fixed interest rate securities.




The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.




The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates.




Financial assets


The interest rate risk of the portfolio of financial assets at the Balance Sheet date was as follows:









Floating rate

Non-interest bearing



2014

2013

2014

2013



£'000

£'000

£'000

£'000


Euro

75

142

49,221

41,809


Sterling

12,440

12,380

469,936

438,444


Swedish Krona

75

-

18,138

11,585


Swiss Francs

53

17

27,380

25,781


US Dollars

-

-

13,831

-



_______

_______

_____

________


Total

12,643

12,539

578,506

517,619



_______

_______

_____

________








The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.




The non-interest bearing assets represent the equity element of the portfolio.




Financial liabilities


The Company has borrowings by way of a loan facility, details of which are in note 11. The fair value of this loan has been calculated at £45,000,000 as at 30 June 2014 (2013 - £40,000,000). The fair value of the loan equates to the cost as the loans are rolled over on a regular basis.




All other financial assets and liabilities of the Company are included in the Balance Sheet at their book value which in the opinion of the Directors is not materially different from their fair value.




Maturity profile


The maturity profile of the Company's financial assets and liabilities at 30 June was as follows:





Within

Within



1 year

1 year



2014

2013


Assets

£'000

£'000


Floating rate




Cash

12,643

12,539



_______

_______







Within

Within



1 year

1 year



2014

2013


Liabilities

£'000

£'000


Floating rate




Revolving bank credit facility

45,000

40,000



_______

_______






All the other financial assets and liabilities do not have a maturity date.




Interest rate sensitivity


The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant in the case of instruments that have floating rates.




If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit before tax for the year ended 30 June 2014 and net assets would decrease/increase by £324,000 (2013 -  decrease/increase by £275,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances and borrowings.




Foreign currency risk


A proportion of the Company's investment portfolio is invested in overseas securities whose values are subject to fluctuation due to changes in foreign exchange rates. In addition, the impact of changes in foreign exchange rates upon the profits of investee companies can result, indirectly, in changes in their valuations. Consequently the Balance Sheet can be affected by movements in exchange rates.




The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. The Company does not hedge this currency risk.




Foreign currency risk exposure by currency of denomination excluding other debtors and receivables and other payables falling due within one year:





30 June 2014

30 June 2013




Net

Total


Net

Total




monetary

currency


monetary

currency



Investments

liabilities

exposure

Investments

liabilities

exposure



£'000

£'000

£'000

£'000

£'000

£'000


Euro

49,221

75

49,296

41,809

142

41,951


Sterling

469,936

(32,560)

437,376

438,444

(27,620)

410,824


Swedish Krona

18,138

75

18,213

11,585

-

11,585


Swiss Francs

27,380

53

27,433

25,781

17

25,798


US Dollars

13,831

-

13,831

-

-

-



_______

_______

_______

________

_______

_______


Total

578,506

(32,357)

546,149

517,619

(27,461)

490,158



_______

_______

_______

________

_______

_______










Foreign currency sensitivity


No sensitivity analysis has been included. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.




Other price risk


Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.




It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The allocation of assets to international markets and the stock selection process, as detailed under Investment Policy in the Overview of Strategy, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy.




Other price risk sensitivity


If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders and equity for the year ended 30 June 2014 would have increased/decreased by £57,851,000 (2013 - £51,761,000).




Liquidity risk


The Company's assets comprise readily realisable securities which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of committed loan and overdraft facilities.




As at 30 June 2014 the Company utilised £45,000,000 of a £80,000,000 (2013 - £40,000,000) revolving bank credit facility, which is committed until 23 September 2015. Interest is charged at a variable rate based on LIBOR plus a margin of 0.85% (2013 - margin 1.15%) for the relevant period of the advance. As at 30 June 2014 this rate was 1.34469% (2013 - 1.64313%) and the loan rolled over on 31 July 2014 (2013 - rolled on 31 July 2013). The aggregate of all future interest payments at the rate ruling at 30 June 2014 and the redemption of the loan amounted to £45,051,000 (2013 - £40,059,000).




Credit risk





None of the Company's financial assets are past due or impaired (2013 - £nil).




Capital management policies and procedures


The investment objective of the Company is to achieve a high and growing income combined with capital growth through investment in a portfolio of UK and overseas equities.





The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.




The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:


-        the planned level of gearing which takes into account the Investment Manager's views on the market;


-         the level of equity shares in issue;


-         the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.




At the year end financial covenants contained within the loan agreement provide, inter alia, that the net assets to bank borrowings ratio must exceed 3.5 to 1 and that the net assets must exceed £185 million. As noted in greater detail in note 11 all financial covenants were met during the year and also during the period from the year end to the date of this report.

 

18.

Fair value hierarchy


FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:




Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and


Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at the Balance Sheet date as follows:




For the year ended 30 June 2014




Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss




Quoted equities

a)

578,506

-

-

578,506









Financial liabilities at fair value through profit or loss




Derivatives

b)

(156)

-

-

(156)




_______

_______

______

________


Net fair value


578,350

-

-

578,350




_______

_______

______

________









For the year ended 30 June 2013







Level 1

Level 2

Level 3

Total



Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss




Quoted equities

a)

517,619

-

-

517,619









Financial liabilities at fair value through profit or loss




Derivatives

b)

(51)

-

-

(51)




_______

_______

______

________


Net fair value


517,568

-

-

517,568




_______

_______

______

________









a) Quoted equities






The fair value of the Company's investments in quoted equities have been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.




b) Derivatives


The fair value of the Company's investments in exchange traded options has been determined using quoted prices on an exchange traded basis and therefore have been classed as Level 1.




The fair value of the Company's investments in over-the-counter options has been determined using observable market inputs other than quoted prices and are therefore included within Level 2.

 

19.     Final dividend

If approved, the proposed final dividend of 10.25p per share will be paid on 31 October 2014 to holders of Ordinary shares on the register at the close of business on 26 September 2014. The relevant ex-dividend date is 24 September 2014.

 

20.     Annual General Meeting

The Annual General Meeting will be held on 29 October 2014 at 12.30 pm at The Glasgow Royal Concert Hall, Glasgow G2 3NY.

 

The figures and financial information for the year ended 30 June 2014 are compiled from an extract of the latest accounts of the Company and do not constitute the statutory accounts for that year. Those accounts included the report of the Auditor which was unqualified, did not contain a statement under either section 498(2) or (3) of the Companies Act 2006 and have not yet been delivered to the Registrar of Companies. The figures and financial information for the year ended 30 June 2013 are compiled from an extract of the latest published accounts of the Company 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 Auditor which was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006. The 30 June 2014 accounts will be filed with the Registrar of Companies in due course.

 

The annual results will be circulated to shareholders in the form of an Annual Report, copies of which will be available shortly from the Company's registered office, 7th Floor, 40 Princes Street, Edinburgh EH2 2BY and from the Company's website (www.murray-income.co.uk*) and which will be filed with the Registrar of Companies.

 

*Neither the Company's website nor the content of any website accessible from hyperlinks on that website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

 

 

By Order of the Board

 

ABERDEEN ASSET MANAGEMENT PLC

Secretaries

 

10 September 2014



MURRAY INCOME TRUST PLC

 

Summary of Investment Changes during the year

 


Valuation



Valuation


30 June 2013

Transactions

Gains/(losses)

30 June 2014


£'000

%

£'000

£'000

£'000

%

Equities







United Kingdom

438,444

82.3

(4,878)

36,370

469,936

79.3

France

22,639

4.3

(61)

4,922

27,500

4.7

Germany

5,646

1.0

-

84

5,730

0.9

Italy

13,524

2.5

-

2,467

15,991

2.7

Sweden

11,585

2.2

5,462

1,091

18,138

3.1

Switzerland

25,781

4.8

-

1,599

27,380

4.6

United States

-

-

10,844

2,987

13,831

2.3


_______

_______

_______

_______

_______

_______

Total investments

517,619

97.1

11,367

49,520

578,506

97.6


_______

_______

_______

_______

_______

_______

Other net assets

15,259

2.9

(1,113)

-

14,146

2.4


_______

_______

_______

_______

_______

_______

Total assets less current liabilities (excluding bank loan)

532,878

100.0

10,254

49,520

592,652

100.0


_______

_______

_______

_______

_______

_______

 

 

Summary of Net Assets

 


As at

As at


30 June 2014

30 June 2013


£'000

%

£'000

%

Equities

578,506

105.6

517,619

105.0

Other net assets

14,146

2.6

15,259

3.1

Borrowings

(45,000)

(8.2)

(40,000)

(8.1)


_______

_______

_______

_______

Equity shareholders' funds

547,652

100.0

492,878

100.0


_______

_______

_______

_______

 

 



MURRAY INCOME TRUST PLC

 

Twenty Largest Investments

As at 30 June 2014

 


Valuation

Total

Valuation


2014

assets

2013

Investment

£'000

%

£'000

1 (4) Royal Dutch Shell




Royal Dutch Shell is engaged in all phases of the petroleum industry, from exploration to processing and distribution. It has strong positions in oil products marketing and LNG, globally. The group operates in over 130 countries.

26,777

4.5

22,077

2 (1) GlaxoSmithKline




GlaxoSmithKline is a research-based pharmaceutical group that also develops, manufactures and markets vaccines, prescription and over-the-counter medicines, as well as health-related consumer products. The group specialises in treatments for respiratory, central nervous system, gastro-intestinal and genetic disorders.

26,432

4.4

27,851

3 (3) Unilever




Unilever is a global consumer goods company supplying food, home and personal care products. The company has a portfolio of strong brands including: Dove, Knorr, Axe and Persil. Over half of the company's sales are to developing and emerging markets.

24,707

4.2

22,707

4 (5) British American Tobacco




British American Tobacco manufactures and markets cigarettes and other tobacco products, including cigars and roll-your-own tobacco. The group sells over 200 brands in approximately 180 countries. Key brands include: Dunhill, Kent, Pall Mall and Lucky Strike. Strong cashflow is an attractive characteristic of the tobacco industry.

24,520

4.1

21,552

5 (9) AstraZeneca




AstraZeneca researches, develops, produces and markets pharmaceutical products. The company's operations are focused on six therapeutic areas: Cardiovascular, Oncology, Respiratory, Neuroscience, Inflammation and Infection. The company's product pipeline offers a number of interesting opportunities.

24,350

4.1

18,597

6 (11) BHP Billiton




BHP Billiton is the world's largest diversified resources group with a global portfolio of high quality assets. Core activities comprise the production and distribution of minerals, mineral products and petroleum.

23,694

4.0

17,308

7 (2) Centrica




Centrica provides gas, electricity and energy-related products and services to business and residential customers in the UK and USA. It also provides central heating and gas appliance installation and maintenance services. The company enjoys a strong competitive position in the UK market, which provides a solid platform from which to generate long-term value.

21,726

3.7

25,034

8 (7) Roche Holdings




Listed in Switzerland, Roche develops and manufactures pharmaceutical and diagnostic products with particular strengths in the areas of oncology, cardiovascular and respiratory diseases. The company benefits from a strong product pipeline and limited near-term patent exposure.

20,584

3.5

19,306

9 (10) HSBC Holdings




HSBC group is one of the world's largest banking and financial services institutions. Its international network comprises more than 5,000 offices in 80 countries worldwide. The diversity of HSBC's business and exposure to faster growing regions of the world should enable it to deliver superior long-term growth.

19,416

3.3

18,227

10 (8) Pearson




Pearson is one of the world's leading education companies. From pre-school to professional certification, the company's curriculum materials, multimedia learning tools and testing programmes help to educate more than 100m people worldwide. The company offers access to long-term structural growth.

18,337

3.1

18,607

 

Top ten investments

 

230,543

 

 

38.9


11 (15) Prudential




Prudential is an insurance company with substantial operations in the UK, USA and across Asia.  Early mover advantage in Asia has provided the company with a number of market leading positions giving the opportunity to capitalise on a fast growing market.

17,232

2.9

13,814

12 (17) Cobham




Cobham designs and manufactures a wide range of equipment and specialised systems for the defence and aerospace industries.  Cobham maintains leading positions in air to air refuelling, antennas and tactical communications systems, as a result of its strong intellectual property and long term customer relationships.

16,214

2.7

12,838

13 (16) ENI




Listed in Italy, ENI is an integrated energy company, committed to developing its activities in research, production, transport and marketing of oil and natural gas. The company operates in 79 countries employing 80,000 people. ENI offers a generous dividend yield.

15,991

2.7

13,524

14 (14) BP




BP is one of the world's largest petroleum and petrochemicals groups. Its main activities are: exploration and production of crude oil and natural gas; refining, marketing, supply and transportation of petroleum products.

15,831

2.7

13,835

15 (19) Aberforth Smaller Companies




Aberforth Smaller Companies is an investment trust with a diversified portfolio of small UK quoted companies. The trust has an above average sector yield and benefits from substantial revenue reserves.

14,958

2.5

11,604

16 (18) Compass Group




Compass is a leading contract catering and food service company.  The company benefits from underlying growth in outsourcing, together with the potential for further margin improvement and growth from its emerging markets operations.  The company demonstrates strong cashflow characteristics.

14,828

2.5

12,247

17 (13) National Grid




National Grid owns and operates electricity and gas networks throughout the UK and in the US. It will benefit from the requirement to increase energy infrastructure spend over the long term. The company offers a generous dividend yield.

14,641

2.5

14,375

18 (12) Tesco




Tesco is one of the world's largest food retailers, with operations around the world. Its international operations provide a platform for growth, coupled with non-food sales and financial services. The company benefits from significant property asset-backing.

12,991

2.2

15,148

19 (-) Close Brothers




Close Brothers is a specialist financial services group which makes loans, trades securities and provides advice and investment management solutions to a wide range of clients.

12,524

2.1

-

20 (-) Sage Group




Sage Group is a software publishing business which develops, publishes and distributes accounting and payroll software. It also maintains a registered user database which provides a market for their related products and services, including computer forms, software support contracts, program upgrades and training.

12,522

2.1

-

 

Top twenty investments

 

378,275

 

63.8



The value of the 20 largest investments represents 63.8% (2013 - 65.7%) of total assets.

The figures in brackets denote the position at the previous year end. (-) not previously in 20 largest investments.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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