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Perpetual Inc&Growth (PLI)

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Tuesday 24 November, 2015

Perpetual Inc&Growth

Half-yearly Report

Perpetual Income and Growth Investment Trust plc

Half-Yearly Financial Report for the Six Months to 30 September 2015

KEY FACTS

Perpetual Income and Growth Investment Trust plc (the ‘Company’) is an investment trust company listed on The London Stock Exchange.

Investment Objective of the Company

The Company’s investment objective is to provide shareholders with capital growth and real growth in dividends over the medium to longer term from a portfolio of securities listed mainly in the UK equity and fixed interest markets.

Full details of the Company’s Investment Policy and Investment Limits can be found on pages 10 and 11 of the Company’s 2015 annual financial report.

Performance Statistics

The Benchmark index of the Company is the FTSE All-Share Index.

SIX MONTHS
ENDED
30 SEPTEMBER
2015
Total return(1)(2) (all income reinvested):
Net asset value
– debt at market value –0.2%
– debt at par –0.4%
Share price +2.4%
Benchmark –7.2%
AT AT
30 SEPTEMBER 31 MARCH %
2015 2015  CHANGE
Shareholders’
funds (£’000) 964,123 978,427 –1.5
Net asset value per ordinary share 402.5p 413.1p –2.6
Share price 402.0p 400.9p +0.3
Discount to NAV 0.1% 3.0%
Capital return – Benchmark(1) –8.9
Gearing:
  – gross gearing(3) 17.9% 15.3%
  – net gearing(4) 17.9% 15.3%
(1) Source: Thomson Reuters Datastream.
(2) The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Any dividends received by a shareholder are assumed to have been reinvested in either additional shares (i.e. share price total return) or in the Company’s assets (i.e. NAV total return).
(3) Gross gearing: borrowings ÷ shareholders’ funds.
(4) Net gearing: borrowing less cash and UK government bond holdings ÷ shareholders’ funds.


                         SIX MONTHS ENDED
30 SEPTEMBER 30 SEPTEMBER %
2015 2014 CHANGE
Revenue
Basic revenue return per share 8.06p 7.26p +11.0
Dividends – first interim 2.90p 2.80p
Dividends – second interim 2.90p 2.80p
Dividends – total 5.80p 5.60p +3.6

.


INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S STATEMENT

CHAIRMAN’S STATEMENT

Performance

I am pleased to report to shareholders that your Portfolio Manager, Mark Barnett, has continued to generate performance ahead of the benchmark from the Company’s portfolio during the six-month period to 30 September 2015. Over this period your Company’s total return was –0.2%, outperforming the FTSE All-Share Index which returned –7.2%. The share price per ordinary share increased by 0.3%, rising from 400.9p to 402.0p per share, with the discount to NAV per ordinary share narrowing from 3.0% to 0.1% over the same period.

As you will read in Mark Barnett’s report which follows, markets were particularly volatile during the period. However, whilst he believes the prospects for the UK stock market to be subdued in the short term, this is an environment that favours active portfolio management rather than closet index-tracking in order to ensure that the all-important objective of dividend growth is not achieved at the expense of capital growth; being invested in the right sectors and stocks remains as critical as ever.

Dividend

The Directors are pleased to declare a second interim dividend of 2.9p per ordinary share in respect of the three months to 30 September 2015. This dividend will be paid on 23 December 2015 to shareholders on the register on 4 December 2015. The shares will go ex-dividend on 3 December 2015.

Your Board continues to recognise the importance of dividends to shareholders, particularly in the present low interest environment, and is determined to maintain its policy of real dividend growth over the medium to longer term.

Auditor Rotation

Deloitte UK LLP, in its various forms, has been the Company’s statutory auditor since the Company’s inception. Having due regard for the new audit regulations and evolving best practice on auditor rotation, the Audit Committee undertook an audit tender process. This resulted in the Board inviting Ernst & Young LLP to become the Company’s auditor for the year ending 31 March 2016. I would like to take this opportunity to thank Deloitte for their services to the Company over many years and for their expertise and advice.

The Board

Two members of your Board retired during the period under review. Sir Martyn Arbib and Antony Hardy had both served on the Board since its inception in 1996. During this time, their experience and in-depth knowledge of the investment industry have been integral to the long-term success of the Company and shareholders have always been uppermost in their minds. On behalf of the Board, I would like to place on record my sincere appreciation of their stewardship of the Company over their long period of diligent service and of their significant contribution to its success. We wish them both well in the future.

Following a thorough search and selection process undertaken over several months, the Board has appointed two new directors: Victoria Cochrane brings with her a wealth of relevant financial sector experience and risk management expertise and Alan Giles has extensive commercial and retail experience. I take this opportunity to welcome them both. These new appointments further strengthen the Board, ensuring that it maintains an appropriate balance of skills, knowledge, broad expertise and, importantly for an investment trust, independence.

Bill Alexander

Chairman

24 November 2015

.
 

PORTFOLIO MANAGER’S REPORT

Market Review

After a strong start to 2015, the UK equity market became increasingly volatile over the six month period under review. Fears of a Greek exit from the euro, a slowing Chinese economy and the prospect of monetary tightening in the US dented market sentiment, overshadowing the unexpected outright Conservative victory in the UK General Election. Falling oil and commodity prices and concerns over the impact of the Chinese slowdown on other emerging markets offset broadly positive news on the UK economy and the FTSE All-Share Index delivered a return of –7.2% over the period. However, this return masked significant disparity of performance at the individual stock level. Small and medium sized companies performed substantially better in aggregate than large caps – due to a higher proportion of domestically focused companies in the former and the significant weighting towards resource industries in the latter. This was exemplified in the returns from the FTSE Small Cap (ex Investment Companies) and FTSE 250 indices which returned +3.7% and –0.8% respectively, versus the FTSE 100 Index, which fell by 8.7% (all on a total return basis).

Portfolio Strategy & Review

The Company’s net asset value, including reinvested dividends, fell by 0.2% (debt at market value), and by 0.4% (debt at par) during the period under review, compared with a fall of 7.2% (total return) from the FTSE All-Share Index.

The key contributors to the Company’s outperformance were tobacco companies, in particular the holdings in Reynolds American and Imperial Tobacco. Over the six months to 30 September 2015, Reynolds American saw its share price rise by over 25% (sterling; total return) after the company’s proposed acquisition of US tobacco company Lorillard met with final approval from the US Federal Trade Commission. This saw Reynolds acquire Newport, a dominant menthol cigarette brand in the US, which strengthened its market position there. Meanwhile, Imperial Tobacco, as part of the deal, acquired some US brands from Reynolds (including premium brand Winston) as well as Lorillard’s US based salesforce. Dividend growth and profit margins remain healthy across the tobacco majors, in spite of the continuing volume decline in global cigarette sales, as product innovation, tobacco quality improvements and cost rationalisation have helped enhance pricing power in many territories.

Also contributing strongly to performance were some of the portfolio’s investments in the financial services sector, including Provident Financial. A long-term holding in the portfolio, Provident Financial specialises in the non-standard lending market and has two main lending divisions – Vanquis, a non-standard credit card business, and CCD, its consumer credit division, primarily made up of the home collected credit business. The latter has improved profitability in recent years by being more stringent on credit quality and through technology-derived efficiency gains. The company has expanded into complementary areas of credit, both organically through the creation of Satsuma Loans, its online short-term loan business, and by acquisition, with the purchase of Moneybarn, a company specialising in car finance. Provident Financial has been quick to adapt its business model to advances in technology and changes in customer borrowing habits. Profit margins are high and stable, while default rates remain low and within the management team’s expected range.

The Company’s holding in Amlin, a Lloyds insurance market investment vehicle, received a takeover approach from Japanese company Mitsui towards the period end, resulting in a significant uplift to its share price. We were fully supportive of this acquisition proposal as the price paid reflected a full valuation for the business. The share prices of Beazley and Hiscox, also in the non-life insurance sector, both rose during the period on the back of positive half-year results and amid growing takeover speculation.

The portfolio continues to have no exposure to banks or mining companies, due mainly to uncertainty on the future direction of dividends as a result of regulatory restrictions in the case of banks, and uncertainty over future commodity prices in the case of mining companies. The absence of holdings in these sectors helped drive the fund’s outperformance of its benchmark over the period.

Weighing on performance were the holdings in Rolls-Royce, BP and Thomas Cook. Rolls-Royce continued to disappoint in share price performance terms. The appointment of Warren East as chief executive in July saw him make a further downward revision of the expected full-year pre-tax profits and cancel the share buyback. Headwinds for its marine business, a slowing production line for the Airbus A330 and lower than expected demand for engines to power business jets have depressed short term profit expectations. However, Mr East was keen to emphasise his belief in the long term prospects for the business as a whole, citing “exceptional technology and outstanding long-term prospects”.

A decline in global energy prices was in part responsible for a fall in the share price of BP. The company has stated its intention to maintain its dividend at current oil prices and with its latest quarterly results has given further details around the substantial cost reduction and capital efficiency agenda. The planning assumption, as enunciated by chief executive, Bob Dudley, is that oil prices will stay ‘lower for longer’.

Thomas Cook saw sales revenue impacted and sentiment dented by the terrorist attack in Tunisia. Profits were also affected by foreign exchange headwinds. However, more recently the company has reported improving demand for holidays in Northern Europe and the UK, with conditions in Continental Europe remaining ‘challenging’. Thomas Cook continues to develop its strategic partnership with Chinese operator Fosun, where it has made progress on a number of new initiatives.

In terms of portfolio activity during the period, the holding in GlaxoSmithKline was sold while exposure to Rolls-Royce was reduced. New investments were made in easyJet, BCA Marketplace, Silence Therapeutics, Motif Bio and VPC Speciality Lending Investments. In addition, the portfolio’s exposure to unquoted investments increased over the period following the investment in three new companies, namely SciFluor Life Sciences, infirst Healthcare and Oxford Sciences Innovation. Scifluor is a co-investment with Allied Minds, focused around a fluorine based drug discovery and development platform, with two lead compounds targeting epilepsy and age related macular degeneration. infirst Healthcare is a consumer health commercialisation company, with interests in paediatric cough and reformulated ibuprofen. Oxford Sciences Innovation is a new co-investment partner with a 15 year deal across all scientific departments at Oxford University to invest in and commercialise intellectual property.

Outlook

The near term outlook for the UK stock market appears subdued. A number of important external factors have converged over the last few months to mean that it is unlikely that we will witness a repeat of the benign conditions in the equity market seen over the last few years.

The market outlook is challenged by a number of factors. First, the last five years’ return of the FTSE All Share Index has been very positive set against a longer term context. Second, the valuation of the market no longer represents a cheap asset class – the strong re-rating of equities in recent years has run its course. Third, the underlying level of aggregate earnings growth in the market remains too weak to justify further increases in the level of the Index. Fourth, the declining growth rate of the Chinese economy has revealed the full extent of the forces of disinflation and how widespread their impact is felt around the world. This will clearly have an effect on the ability of companies to increase prices, the willingness of companies to invest in new capacity, and ultimately the capacity for economies to grow sustainably into the future.

These factors have combined to make the UK stock market a more volatile place to invest. However this is also an environment which favours active portfolio management. In the near term the outlook may indeed be more challenging as profit warnings and dividend cuts become a recurring feature of the landscape. The successful manager will need to tread carefully in this environment in order to avoid these pitfalls. This is a time to be highly selective in portfolio construction – the onus rests even more on prudence and capital preservation. Overall, returns from the markets are likely to be more modest in the foreseeable future, and income is likely to comprise a higher proportion of total return than in the recent past. The portfolio is well positioned for this environment.

Mark Barnett

Portfolio Manager      

24 November 2015

.
 

Related Parties Transactions

Under United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), the Company has identified the Directors as related parties. No other related parties have been identified during the period. No transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Principal Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties identified in this review are summarised below:

•        Economic Risk – Economic risk arises from uncertainty about the future prices of the Company’s investments. Market fluctuations, both upward and downward, may arise from external factors which are outside the control of the Board and the Manager.

•        Investment Risk – This is the stock specific risk that the stock selection process may not achieve the Company’s published objectives. Poor performance of individual portfolio investments is mitigated by diversification and ongoing monitoring of investment guidelines.

•        Financial Risk – The financial risks faced by the Company include market price risk (including currency risk, interest rate risk and other price risk), liquidity risk and credit risk, which includes counterparty and custodial risk.

•        Gearing Risk – The use of borrowings will amplify the effect of shareholders’ funds of portfolio gains and losses.

•        Investment Objective – There can be no guarantee that the Company will meet its investment objective.

•        Share Discount Risk – The Company’s shares may, at times, trade at a wide discount. The Board has put in place both share repurchase and issuance facilities to help the management of this risk.

•        Operational Risk – A failure of the systems of financial and non-financial internal controls operated by the Company, the Manager and other external service providers could result in loss of assets and reputational damage as a result of fraud or material misstatement.

•        Regulatory Risk – Loss of investment trust status for tax purposes could lead to the Company being subject to tax on the realised capital profits on the sale of its investments. A serious breach of regulatory rules could lead to suspension from the Official List, a fine or qualified audit report and reputational problems.

A detailed explanation of these principal risks and uncertainties can be found on pages 12 to 14 of the 2015 annual financial report, which is available on the Company’s section of the Manager’s website at: www.invescoperpetual.co.uk/pigit. In the view of the Board these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

Going Concern

The condensed financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months after the approval of this half-yearly financial report. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet funding commitments, and the ability of the Company to meet all of its liabilities and ongoing expenses from its assets. The Directors also considered the revenue forecasts for the year and future dividend payments.

.

DIRECTORS’ RESPONSIBILITY STATEMENT

in respect of the preparation of the half-yearly financial report

The Directors are responsible for preparing the half-yearly financial report using accounting policies consistent with applicable law and UK Accounting Standards.

The Directors confirm that to the best of their knowledge:

–       the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with the FRC’s FRS 104 Interim Financial Reporting;

–       the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the FCA’s Disclosure and Transparency Rules; and

–       the interim management report includes a fair review of the information required on related party transactions.

The half-yearly financial report has not been audited or reviewed by the Company’s auditor.

Signed on behalf of the Board of Directors.

Bill Alexander

Chairman

24 November 2015

.

INVESTMENT PORTFOLIO STATEMENT AT 30 SEPTEMBER 2015

UK ordinary shares unless stated otherwise

UQ: Unquoted

MARKET
VALUE % OF
ISSUER SECTOR £’000 PORTFOLIO
Equity investments
Reynolds American – US common stock Tobacco 61,803 5.4
Imperial Tobacco Tobacco 50,728 4.4
British American Tobacco Tobacco 50,708 4.4
BT Group Fixed Line Telecommunications 40,868 3.6
AstraZeneca Pharmaceuticals & Biotechnology 40,785 3.5
Roche – Swiss common stock Pharmaceuticals & Biotechnology 34,177 3.0
BAE Systems Aerospace & Defence 34,063 3.0
Provident Financial Financial Services 32,102 2.8
BP Oil & Gas Producers 29,209 2.5
Capita Support Services 27,519 2.4
Top Ten Holdings 401,962 35.0
Amlin Non-life Insurance 26,375 2.3
Beazley Non-life Insurance 24,878 2.2
Legal & General Life Insurance 24,115 2.1
RELX (formerly Reed Elsevier) Media 23,729 2.1
Derwent London Real Estate Investment Trusts 23,221 2.0
London Stock Exchange Financial Services 22,597 2.0
Bunzl Support Services 21,371 1.9
BTG Pharmaceuticals & Biotechnology 21,072 1.8
Babcock International Support Services 20,833 1.8
NewRiver Retail Real Estate Investment Trusts 20,243 1.8
Top Twenty Holdings 630,396 55.0
Rentokil Initial Support Services 20,153 1.8
Shaftesbury Real Estate Investment Trusts 20,115 1.8
Hiscox Non-life Insurance 19,965 1.7
Compass Travel & Leisure 19,839 1.7
SSE Electricity 19,441 1.7
Thomas Cook Travel & Leisure 18,344 1.6
Centrica Gas, Water & Multiutilities 17,241 1.5
Novartis – Swiss common stock Pharmaceuticals & Biotechnology 16,743 1.5
Reckitt Benckiser Household Goods & Home Construction 16,114 1.4
G4S Support Services 15,144 1.3
Top Thirty Holdings 813,495 71.0
KCOM Fixed Line Telecommunications 14,643 1.3
TalkTalk Telecom Fixed Line Telecommunications 14,462 1.3
GAME Digital General Retailers 14,211 1.2
Imperial Innovations Financial Services 13,902 1.2
Rolls-Royce Aerospace & Defence 13,785 1.2
Circassia Pharmaceuticals Pharmaceuticals & Biotechnology 13,668 1.2
Lancashire Non-life Insurance 13,616 1.2
Harworth Real Estate Investment & Services 13,158 1.1
Workspace Real Estate Investment Trusts 13,057 1.1
easyJet Travel & Leisure 12,391 1.1
Top Forty Holdings 950,388 82.9

   

Smith & Nephew Health Care Equipment & Services 11,256 1.0
HomeServe Support Services 11,177 1.0
IP Group Financial Services 11,156 1.0
P2P Global Investments Equity Investment Instruments 10,739 0.9
Vectura Pharmaceuticals & Biotechnology 10,302 0.9
N Brown General Retailers 10,162 0.9
Oxford Sciences InnovationUQ Financial Services 10,000 0.9
Drax Electricity 9,578 0.8
CLS Real Estate Investment & Services 9,290 0.8
Sherborne Investors Guernsey B – Financial Services 8,533 0.7
  A Shares
Top Fifty Holdings 1,052,581 91.8
Motif Bio Pharmaceuticals & Biotechnology 8,475 0.7
infirst HealthcareUQ – D Shares Pharmaceuticals & Biotechnology 7,920 0.7
SciFluor Life SciencesUQ Pharmaceuticals & Biotechnology 7,741 0.7
  US Series A convertible preferred
Silence Therapeutics Pharmaceuticals & Biotechnology 7,617 0.7
BCA Marketplace Financial Services 7,536 0.6
Macau Property Opportunities Fund Real Estate Investment & Services 6,706 0.6
MayAir Industrial Engineering 5,322 0.5
Ladbrokes Travel & Leisure 5,304 0.5
Napo PharmaceuticalsUQ Pharmaceuticals & Biotechnology 5,141 0.4
   US common stock
Nimrod Sea Assets Equity Investment Instruments 5,116 0.4
Top Sixty Holdings 1,119,459 97.6
Doric Nimrod Air Three – Equity Investment Instruments 4,885 0.4
  Preference Shares
VPC Specialty Lending Investments – Financial Services 4,800 0.4
   C Shares
Doric Nimrod Air Two – Equity Investment Instruments 4,773 0.4
  Preference Shares
Horizon Discovery Pharmaceuticals & Biotechnology 4,619 0.4
Lombard Medical – Health Care Equipment & Services 4,450 0.4
  US common stock
Damille Investments II Equity Investment Instruments 2,889 0.2
PuriCore Health Care Equipment & Services 1,604 0.1
HaloSource Chemicals 920 0.1
XTL Biopharmaceuticals – ADR Pharmaceuticals & Biotechnology 93
Mirada Media 8
Total Equity Investments (70) 1,148,500 100.0
Other investments
ISSUER AND ISSUE SECTOR (MOODY/S&P RATING)
Barclays Bank – Nuclear Power Notes Electricity (Non-rated) 470
  28 Feb 2019
Total Investments (71) 1,148,970 100.0

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CONDENSED INCOME STATEMENT

SIX MONTHS TO SIX MONTHS TO
30 SEPTEMBER 2015 30 SEPTEMBER 2014
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments at fair value (14,610) (14,610) 7,699 7,699
Foreign exchange gains 35 35 17 17
Income – note 2 21,137 21,137 18,797 18,797
21,137 (14,575) 6,562 18,797 7,716 26,513
Investment management fee – note 3 (833) (1,944) (2,777) (774) (1,805) (2,579)
Performance fee – note 3 (5,713) (5,713) (996) (996)
Other expenses (408) (1) (409) (327) (1) (328)
Net return before finance costs
  and taxation
19,896 (22,233) (2,337) 17,696 4,914 22,610
Finance costs – note 3 (595) (1,388) (1,983) (592) (1,381) (1,973)
Return on ordinary activities before
  taxation
19,301 (23,621) (4,320) 17,104 3,533 20,637
Tax on ordinary activities – note 4 (145) (145) (134) (134)
Return on ordinary activities after
  taxation for the financial period
19,156 (23,621) (4,465) 16,970 3,533 20,503
Return per ordinary share – Basic 8.06p (9.94p) (1.88p) 7.26p 1.51p 8.77p
Weighted average number of
  ordinary shares in issue
237,530,795 233,816,175

The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations and the Company has no other gains or losses, therefore no statement of total recognised gains or loss is presented. No operations were acquired or discontinued in the period.

.
 

CONDENSED BALANCE SHEET

Registered number 3156676

AT AT
30 SEPTEMBER 31 MARCH
2015 2015
£’000 £’000
Fixed assets
  Investments at fair value 1,148,970 1,128,511
Current assets
  Amount due from brokers 1 1,125
  Proceeds from issue of new shares 949
  Tax recoverable 465 1,130
  Prepayments and accrued income 1,381 5,161
2,796 7,416
Creditors: amounts falling due within one year
  Bank overdraft (113,256) (90,221)
  Amounts due to brokers (6,642)
  Accruals and deferred income (2,613) (2,599)
  Performance fee accrued – note 3 (5,282)
(122,511) (98,102)
Net current liabilities (119,715) (90,686)
Total assets less current liabilities 1,029,255 1,037,825
Creditors: amounts falling due after more than one year
  4.37% Loan notes 8 May 2029
(59,419) (59,398)
Provision for performance fee – note 3 (5,713)
Net assets 964,123 978,427
Capital and reserves
  Share capital – note 6 23,956 23,687
  Share premium 261,737 251,166
  Capital reserve 648,725 672,346
  Revenue reserve 29,705 31,228
Shareholders’ funds 964,123 978,427
Net asset value per ordinary share – Basic 402.5p 413.1p
Number of 10p ordinary shares in issue at the period end – note 6 239,559,217 236,874,251


 .

CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

SHARE SHARE CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE TOTAL
£’000 £’000 £’000 £’000 £’000
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
At 31 March 2015 23,687  251,166  672,346  31,228  978,427
Net return on ordinary activities (23,621) 19,156 (4,465)
Dividends paid – note 7 (20,679) (20,679)
Net proceeds from issue of new shares 269 10,571 10,840
At 30 September 2015 23,956 261,737 648,725 29,705 964,123
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014
At 31 March 2014 23,382  239,613  602,899  30,396  896,290
Net return on ordinary activities 3,533 16,970 20,503
Dividends paid – note 7 (19,641) (19,641)
At 30 September 2014 23,382 239,613 606,432 27,725 897,152


 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1.             Accounting Policies

The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014. Accordingly, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland applies for the year ending 31 March 2016 and these financial statements. In addition, FRS 104 Interim Financial Reporting, issued by the Financial Reporting Council in March 2015 has been applied for the first time. The financial statements are issued on a going concern basis.

As a result of the first time adoption of FRS 102 and the revised SORP, comparative figures and presentation have been revised where required. The net return attributable to ordinary shareholders and shareholders’ funds remain unchanged. As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in equity is provided.

The accounting policies applied to these financial statements are consistent with those applied in the financial statements for the year ended 31 March 2015, with the following revision:

Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds. Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.

No other accounting policies have changed as a result of the application of FRS 102 and the revised SORP.

2.             Income

SIX MONTHS TO SIX MONTHS TO
30 SEPT 2015 30 SEPT 2014
£’000 £’000
Income from investments
UK – dividends 15,790 15,547
UK – special dividends 2,251 1,119
Overseas – dividends 1,987 1,851
Overseas – special dividends
Unfranked investment income 235
Scrip dividends 826 280
21,089 18,797
Other income
Underwriting commission 48
21,137 18,797

3.             Investment Management Fees and Finance Costs

The base management fee and finance costs are allocated 70% to capital and 30% to revenue. The management fee arrangements were amended with effect from 1 April 2014, as reported in the 2015 annual financial report. The base fee is 0.6% pa on the first £500 million of assets under management and 0.4% thereafter.

A provision for a performance-related fee is recognised if the Company’s performance exceeds the FTSE All-Share Index and is wholly allocated to capital. A performance fee of £5,713,000 has been provided for the six months under review (30 September 2014: £996,000). A performance fee of £5,282,000 was accrued and later paid for the year ended 31 March 2015.

4.             Investment Trust Status and Tax

It is the intention of the Directors to conduct the affairs of the Company so that it satisfies the conditions for approval as an investment trust company. As such, no tax liability arises on capital gains. The tax charge represents withholding tax suffered on overseas income.

5.             Classification Under Fair Value Hierarchy

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

AT 30 SEPT 2015 AT 31 MAR 2015
£’000 £’000
Quoted prices for identical instruments in active markets 1,117,698 1,120,064
Valuation techniques using observable data – Barclays Nuclear Power Notes 470 537
Valuation techniques using non-observable data – unquoted securities 30,802 7,910
1,148,970 1,128,511


 

6.             Share Capital

Ordinary shares of 10p each

SIX MONTHS TO YEAR TO
30 SEPT 2015 31 MAR 2015
Number of ordinary shares:
Brought forward 236,874,251 233,816,175
Ordinary shares issued for cash 2,684,966 3,058,076
Carried forward 239,559,217 236,874,251

7.             Dividends per Ordinary Share

The first interim dividend of 2.9p was paid on 30 September 2015 to shareholders registered on 4 September 2015. The Directors have declared a second interim dividend of 2.9p payable on 23 December 2015 to shareholders registered on 4 December 2015.

SIX MONTHS TO SIX MONTHS TO
30 SEPT 2015 30 SEPT 2014
Interim dividends paid:
  Fourth (prior year) 3.9p 3.7p
  First (current year) 2.9p 2.8p
Total 6.8p 6.5p
Special dividend (prior year) 1.9p 1.9p
Total 8.7p 8.4p
£’000 equivalent (excluding special) 16,179 15,198
£’000 equivalent (including special) 20,679 19,641

8.             Status of Half-Yearly Financial Report

The financial information contained in this half-yearly report, which has not been audited or reviewed by the independent auditors, does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 September 2015 and 30 September 2014 has not been audited. The figures and financial information for the year ended 31 March 2015 are extracted and abridged from the latest published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditor, which was unqualified and did not include a statement under section 498 of the Companies Act 2006.

By order of the Board

Invesco Asset Management Limited

Company Secretary

24 November 2015


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