Finsbury Growth & Income Trust PLC
(the “Company”)
This announcement contains regulated information
Annual Financial Report for the year ended 30 September 2023
COMPANY SUMMARY
Finsbury Growth & Income Trust PLC is a listed investment company and a constituent of the FTSE 250. The Company is a member of the Association of Investment Companies (“AIC”).
OBJECTIVES AND PERFORMANCE MEASUREMENT
The Company aims to achieve capital and income growth and to provide shareholders with a total return in excess of that of the FTSE All-Share Index (the Company’s benchmark).
The Company’s net assets as at 30 September 2023 were £1,822.7 million (2022: £1,830.4 million) and the market capitalisation was £1,742.5 million (2022: £1,725.9 million).
The net asset value per share increased by 7.2% during the financial year to 30 September 2023 on a total return basis (2022: -5.8%).
DIVIDENDS
A first interim dividend of 8.5p per share was paid on 19 May 2023 to shareholders registered at close of business on 11 April 2023. The associated ex-dividend date was 6 April 2023.
A second interim dividend of 10.5p per share was paid on 10 November 2023 to shareholders registered at close of business on 6 October 2023. The associated ex-dividend date was 5 October 2023.
The total dividend declared for the year was therefore 19.0p per share (2022: 18.1p per share), an increase of 5.0%.
KEY FACTS
891.2p
Net asset value per share
2022: 848.4p (change: +5.0%)
852.0p
Share price
2022: 800.0p (change: +6.5%)
4.4%
Discount of share price to net asset value per share^
2022: 5.7%
61.4p
Return/(loss) per share†
2022: (53.4)p
85.3%
Active Share*^
2022: 84.8%
19.0p
Total dividends per share for the year†
2022: 18.1p (change: +5.0%)
FIVE YEAR PERFORMANCE SUMMARY
| AS AT 30 SEPTEMBER | 2019 | 2020 | 2021 | 2022 | 2023 |
| Share price | 942.0p | 840.0p | 876.0p | 800.0p | 852.0p |
| Net asset value per share | 935.6p | 846.2p | 917.7p | 848.4p | 891.2p |
| Premium/(discount) of Share price to net asset value per share | 0.7% | (0.7)% | (4.5)% | (5.7)% | (4.4)% |
| YEAR ENDED 30 SEPTEMBER | 2019 | 2020 | 2021 | 2022 | 2023 |
| Share price total return* ^ | +17.4% | (9.0)% | +6.3% | (5.6)% | +7.5% |
| Net asset value per share total return* ^ | +17.4% | (7.7)% | +10.6% | (5.8)% | +7.2% |
| FTSE All-Share Index total return** # | +2.7% | (16.6)% | +27.9% | (4.0)% | +13.8% |
| Total return/(loss) per share† | 143.8p | (67.1)p | 88.0p | (53.4)p | 61.4p |
| Dividends per share† | 16.6p | 16.6p | 17.1p | 18.1p | 19.0p |
* Source: Morningstar
** Source: FTSE International Limited (“FTSE”) © FTSE, 2023
# See glossary of terms and alternative performance measures)
^ Alternative Performance Measure (“APM”) (see glossary)
† UK GAAP Measure
| 7.2%Net asset value per share total return*, ^2022: -5.8% | 7.5%Share price total return*, ^2022: -5.6% |
| £1.823bnShareholders’ funds†2022: £1.830bn (change: -0.4%) | 204,519,434(excluding 20,471,869 shares held in Treasury)Number of shares in issue2022: 215,737,992 (Treasury shares 2022: 9,253,311)(change: -5.2%) |
| 0.61%Ongoing charges^2022: 0.60% | 0.8%Gearing^2022: 1.2% |
* Source – Morningstar
^ Alternative Performance Measure
† UK GAAP Measure
The Company was incorporated in Scotland on 15 January 1926. Lindsell Train Limited (“Lindsell Train”) was appointed as Portfolio Manager in December 2000. The total return of the Company’s share price over the ten years to 30 September 2023 has been 118.9%, equivalent to a compound annual return of 8.2%. This compares with a total return of 71.8%* from the Company’s benchmark, equivalent to a compound annual return of 5.6%*.
* Source: Morningstar, FTSE International Limited (“FTSE”) © FTSE2023
KEY PERFORMANCE INDICATORS (“KPIs”)
The Board uses certain financial and non-financial KPIs to monitor and assess the performance of the Company in achieving its strategic aims.
The Board reviews the performance of the portfolio in detail and hears the views of the Portfolio Manager at each meeting.
Information on the Company’s performance is provided in the Chairman’s Statement and the Portfolio Manager’s Review.
This performance is assessed against the following KPIs which are unchanged from last year.
Alternative Performance Measures (“APM”)
The Board believes that each of the APMs, which are typically used within the investment company sector, provides additional useful information to Shareholders in order to assess the Company’s performance between reporting periods and against its peer group. The APMs used for the year under review are unchanged from last year. Further information on each of the APMs can be found in the glossary.
7.2%
NET ASSET VALUE TOTAL RETURN^*
This reflects the change in the Company’s net asset value including the impact of reinvested dividends.
During the year under review the Company’s net asset value per share total return was 7.2% (2022: -5.8%).
19.0p
DIVIDENDS PER SHARE†
The total dividend declared for the year was 19.0 pence per share (2022: 18.1 pence per share), an increase of 5.0%.
61.4p
RETURN/(LOSS) PER SHARE†
The total return per share for the year was 61.4 pence per share (2022: loss of 53.4 pence per share).
Over five years, the Company earned a total of 172.7 pence per share.
7.5%
SHARE PRICE TOTAL RETURN^*
This reflects the change in the value of the Company’s share price including the impact of reinvested dividends.
During the year under review the Company’s share price total return was 7.5% (2022: -5.6%).
(6.3)%
RELATIVE PERFORMANCE TO BENCHMARK AND PEER GROUP
The Company’s benchmark is the FTSE All-Share Index (total return) which delivered a return of 13.8% (2022: -4.0%) over the year. This compares with the Company’s share price total return of 7.5% (2022: -5.6%) resulting in a 6.3% underperformance against the benchmark.
The Board also monitors the Company’s share price return* against its AIC peer group^. As at 30 September 2023 the Company’s ranking against its peer group of UK Equity income sector was:
| Rank out of 23 | ||
| Period | 2023 | 2022 |
| 1 yr | 14 | 5 |
| 3 yr | 22 | 20 |
| 5 yr | 9 | 4 |
| 10 yr | 2 | 2 |
(4.4)%
SHARE PRICE DISCOUNT/PREMIUM TO NET ASSET VALUE PER SHARE^
The Board reviews the level of discount/ premium to net asset value per share at every Board meeting and consideration is given to ways in which the share price performance may be enhanced, including the effectiveness of marketing, share issuance and buy-backs, where appropriate. Details of how the Company’s share buy-back and issuance policy works can be found in the Statutory Documentation section on the Company’s website.
No shares were issued by the Company during the year (2022: Nil). At 30 September 2023 the Company’s share price stood at a 4.4% discount to the Company’s net asset value per share (2022: 5.7% discount).
During the year, the Company bought back 11,218,558 shares into Treasury (2022: 9,253,311) at an average price of 870.6 pence and an average discount of 4.8%.
Since the year end to 5 December 2023 the Company has purchased a further 5,045,317 shares to be held in Treasury.
^ Alternative Performance Measure (see glossary)
* Source: Morningstar
CHAIRMAN’S STATEMENT
PERFORMANCE
It is disappointing to report that while the Company’s net asset value per share has showed a positive return, this is the third consecutive year of underperformance relative to its benchmark, the FTSE All-Share Index.
This marks the longest such period for the Company since Lindsell Train was appointed as the Company’s Portfolio Manager in December 2000. It means that while shareholders have benefited from a strong long-term performance record, this is not the case for more recent investors, who will have experienced weak relative returns.
The Company’s net asset value per share returned 7.2% (2022: -5.8%) over the course of the year, compared with its benchmark which over the period generated a return of 13.8% (2022: -4.0%). The share price total return over the same period was 7.5% (2022: -5.6%).
As the primary purpose of any investment company must be to produce attractive returns for investors, the recent track record is concerning and has been the focus of your Board’s attention. Our role on behalf of shareholders is to hold the Portfolio Manager to account and to challenge constructively, a process which Nick Train fully embraces, I am pleased to say.
The Board will continue to monitor performance closely. While investors’ attention is inevitably drawn to shorter-term macroeconomic and geopolitical news, we encourage the Portfolio Manager to continue to focus on delivery over the long term.
We remain supportive of Lindsell Train’s investment approach, namely running a highly concentrated portfolio of high quality businesses with high returns on equity, and believe that ultimately this will be reflected in the share prices of the companies we own and hence in the performance of the Company.
Importantly, there has been a consistency in the stated investment philosophy and that is reflected in the portfolio’s constituents. At the same time, there is room for some portfolio evolution, as Nick Train points out in his report, with an increasing role within the portfolio for data, analytics and software companies.
As it is always important to point out, a highly concentrated portfolio means higher risk, particularly in the short-term. At 30 September 2023, the Company’s Active Share – a measure of how much it varies from the FTSE All-Share Index benchmark – was 85.3% (2022: 84.8%). Such an uncorrelated portfolio will inevitably perform very differently from the wider market, whether positively or negatively.
I urge you to read Nick Train’s very helpful review where he discusses candidly the reasons for the relative underperformance and describes in detail the portfolio’s composition and why he believes it offers the possibility of better future returns.
SHARE BUY-BACKS
The Board keeps the Company’s discount under close review and is committed to buying back its own shares at or near the 5% level, in accordance with its policy.
While share buy-backs will not necessarily prevent the discount from widening further, particularly in times of market volatility, they may, to a limited extent, mitigate a widening trend. In addition, buy-backs enhance the net asset value per share for remaining shareholders, provide some additional liquidity and help to dampen discount volatility which can damage shareholder returns.
Discounts are affected by many factors outside the Company’s control but where it is in Shareholders’ interests (taking account of market conditions), the Company remains committed to buying back shares at a discount to NAV, as demonstrated over the past year.
As at 30 September 2023 the discount was 4.4% compared with a closing discount at the last year end of 5.7%. During the year under review the Company bought back a total of 11,218,558 shares (5.5% of the shares in issue) into Treasury at a cost of approximately £97.7 million and at an average discount of 4.8%. Over the course of the year the Company’s discount averaged 4.5%.
As at the close of the UK market on 5 December 2023, the discount was 6.4%. Since the year end, a further 5,045,317 shares were bought back into Treasury at a cost of £41.5 million. As at 5 December 2023, the Company had 199,474,117 shares in issue (excluding 25,517,186 shares held in Treasury).
RETURN AND DIVIDEND
The Income Statement shows a total return of 61.4p per share (2022: loss of 53.4p) consisting of a revenue return per share of 20.0p (2022: 20.6p) and a capital return per share of 41.4p (2022: loss of 74.0p).
Your Board has declared two interim dividends for the year totalling 19.0p per share (2022: 18.1p), an increase of 5%. In order to facilitate dividend payments on a timely and cost-effective basis, your Board continues to elect to distribute the Company’s income to Shareholders by means of two interim dividends rather than wait several months to secure shareholder approval to pay a final dividend at the Annual General Meeting. This dividend policy will again be proposed for approval at the forthcoming Annual General Meeting (AGM).
LOAN FACILITY
As at 30 September 2023 a total of £36.7 million (2022: £36.7 million) was drawn down under our £60 million facility.
Further details can be found within the Report of the Directors and note 12 to the Financial Statements.
INCREASE TO DIRECTORS’ FEES CAP
The Board of Directors is proposing to increase the maximum aggregate amount potentially payable to Directors by way of fees for their services as Directors under Article 122 from £200,000 to £300,000 in any financial year.
This proposed limit increase is not due to any unusual rises in Directors’ fees, which are expected to be approximately £192,000 in the current financial year.
An ordinary resolution will be put to Shareholders at the AGM to increase this limit to £300,000. Further details can be found in the Report of the Directors and in the Directors’ Remuneration Report.
CANCELLATION OF SHARE PREMIUM ACCOUNT
The Company has built up a substantial share premium account owing to historic high levels of share issuance. A special resolution will be put to Shareholders at the AGM to cancel the amount standing to the credit of the Company’s share premium account, following which an application will be made to the Scottish Court of Session to obtain its approval to the cancellation and the creation of an equivalent distributable reserve.
AUDIT TENDER
The Audit Committee is in the process of conducting an audit tender which is due to be completed in early 2024. Accordingly, the Board has not proposed the re-election of the current auditor, PricewaterhouseCoopers LLP, at the forthcoming AGM. The Board will appoint the successful audit firm to carry out the audit for the year ending 30 September 2024 and will recommend their appointment (or re-appointment) to Shareholders at the AGM held in 2025.
ANNUAL GENERAL MEETING
The AGM of the Company this year will again be held at Guildhall, City of London EC2V 7HH (please use the Basinghall Street Entrance) on Tuesday, 23 January 2024 at 12 noon, and we hope as many Shareholders as possible will attend. This will be an opportunity to meet the Board and to receive a presentation from our Portfolio Manager.
The Board strongly encourages all Shareholders to exercise their votes in respect of the meeting in advance. Details of how Shareholders can vote, whether holding their shares directly or on retail platforms, is set out in the Notice of Meeting. Any Shareholder who requires a hard copy form of proxy may request one from the Registrar, Link Group.
OUTLOOK
Your Board continues to support fully the Portfolio Manager’s disciplined strategy of investing in high quality companies that own both durable and cash generative franchises. It has delivered attractive returns over the longer term and we firmly believe that this will continue to deliver strong investment returns to shareholders in the future.
Our belief is clearly shared with our Portfolio Manager who has continued to buy shares in the Company. From 1 October 2022 to the date of this Report, Nick Train has acquired 659,604 shares and currently speaks for 2.6% of the equity of the Company (December 2022: 2.2%).
Simon Hayes
Chairman
6 December 2023