Highlights

• We are celebrating both Murray Income’s centenary and our record of 50 consecutive years of dividend growth
• Our objective is to achieve a high and growing income combined with capital growth from a portfolio principally of UK equities
• The dividend yield is 4.5%, based on the year end share price of 837p
• Total dividends per share increased by 4.2% to 37.5p, the 50th consecutive year of dividend growth
• NAV per share total return ^AB was +8.8%, ahead of the FTSE All-Share Index at +7.9% but the share price total return was +4.9% as the discount widened

^A  Total return

^B  With debt at fair value

Introduction

Welcome to the 100th annual report of Murray Income Trust. In my last year as Chair, it is a pleasure to be able to report that the Company is in good health and has had a good year. In this report we will review the year just ended, look back over our 100-year history, look forward to our centenary events and assess the long-term outlook.

First, the headline numbers for the year to 30 June 2023. Helped by a strong second half, NAV (net asset value per share, with debt at fair value) total return was 8.8% over the year, outperforming the FTSE All-Share Index total return of 7.9%. Your share price total return at 4.9% lagged the NAV as the discount (based on NAV with debt at fair value) widened from 4.5% to 8.2% over the year. We announced on 2 August 2023 a fourth interim dividend of 12.75p which takes the full year dividend up 4.2% to 37.5p per share, marking the 50^th consecutive year of dividend increases, and representing a dividend yield of 4.5% at the 30 June 2023 share price.

Centenary and History

Your Company was founded in Glasgow on 8 June 1923 as The Second Scottish Western Investment Company, Limited with an initial share capital of £500,000. The Company’s NAV at 30 June 2023 was nearly £1bn. That’s quite some appreciation over 100 years although we don’t know the exact figures for shares issued and cancelled over the early years so we cannot calculate a reliable annual return. Back in 1923, the Company’s objective was to invest in shares, stocks, debentures, bonds, mortgages, obligations and securities of any kind, issued or generated by any company, corporation or undertaking of whatever nature, constituted or carrying on business in the United Kingdom or in any colony or dependency or province thereof, or in the United States of America or in any other foreign country. That investment remit was exceptionally broad and similar to many other generalist investment trusts of the era. The portfolio was mainly invested into bonds and preference shares. The move into equities or ordinary shares appears to have started in the 1930s, probably prompted by rising defaults on bond holdings during the 1930s depression.

The Company changed its name to The Caledonian Trust Company Limited in 1960 and was administered by Brown, Fleming and Murray, Glasgow chartered accountants, until the formation of Murray Johnstone in 1968. In 1979 the Company added its Manager’s name to become Murray Caledonian Investment Trust Limited but remained a generalist equity trust. With discounts wide and reflecting a shareholder desire for investment trusts to specialise, in 1984 it changed to its current name of Murray Income Trust PLC and to its remit of investing for a high and growing income from a portfolio predominantly of UK equities. Murray Johnstone was taken over by Aberdeen Asset Management in 2000 and Murray Income has been part of the abrdn stable ever since. Most of the older records were destroyed by a serious flood in Murray Johnstone’s offices in the late 1970s. Facsimile records at Companies’ House are in many cases illegible so, sadly, it is not possible to construct any long term performance records with a sufficient level of confidence.

One thing that we can confirm is the now fifty-year record of consecutive dividend increases. It was the autumn of 1973 when your Company last did not raise its dividend; the year of the miners’ strike and three-day week, the Arab-Israeli war and the oil price shock. The Company’s dividend per share has grown from 0.47p then to 37.5p in 2023, representing a compound annual growth rate of 9.2%. A more realistic comparison is the 6.0% compound annual growth rate since the change to a UK equity income remit in 1984.

The Association of Investment Companies (the “AIC”) accords Dividend Hero status to investment trusts which have raised their annual dividend consecutively for twenty years or more. Maintaining that Dividend Hero status and with a starting dividend yield level of over 4% is both a source of pride for the Board and a priority for the future.

Dividend

As outlined above, the Board announced on 2 August 2023 its 50^th consecutive increase in the annual dividend to 37.5p. Revenue per share for the year was 38.7p, down 4.4% from the previous year’s 40.5p. However, the 37.5p dividend was 103% covered by net income earned during the year and the Company was able to transfer the excess to bolster its revenue reserves, taking them from 17.5p per share to 20.2p, equivalent to 54% (2022: 48%) of the current annual dividend of 37.5p (2022: 36.0p). The Board gave extensive consideration to how much to grow the dividend and how much to add to reserves. Two factors influenced us in our decision. First is that we prefer revenue reserves per share to be in the range of one-half to a full year’s dividend per share. Second is that although our Manager projects that revenue per share may fall for another year, dividend cover for UK companies has already recovered to a very healthy 2.0x for calendar 2023 from 1.5x in calendar 2021.

Investment Performance

Over the twelve months ended 30 June 2023, the Company’s NAV per share (with debt at fair value) rose 8.8% in total return terms, as compared to the FTSE All-Share Index (the “Benchmark”) return of 7.9%. The share price total return was 4.9% reflecting the discount widening from 4.5% to 8.2% (measured based on NAV with debt at fair value).

Positive contributors over the year included the Company’s long-term borrowings, sector allocation and individual holdings such as Aveva and Sage. The largest positive contributor was the favourable movement in the fair (or market) value of the Company’s long-term gearing: as interest rates rose, the market value of this liability fell. The main negative contributors over the year were stock-specific; Watkin Jones, Marshalls and Direct Line. Charles Luke and Iain Pyle discuss performance in more detail in the Investment Manager’s Report.

Looking over longer periods ended 30 June 2023, the annualised NAV (debt at fair value) performance is behind the Benchmark over three years but ahead over five and ten years.

Investment Process

Our Manager’s investment process is best summarised as a search for good quality companies at attractive valuations. The Manager defines a quality company as one capable of strong and predictable cash generation, sustainably high returns on capital and with attractive growth opportunities. These typically result from a sound business model, a robust balance sheet, good management and strong environmental, social and governance characteristics. These qualities helped avoid the worst of the dividend shocks during the pandemic.

Investment People

abrdn is our appointed investment management company. Charles Luke has been our lead portfolio manager since 2006 and works alongside Rhona Millar and Co-Manager Iain Pyle, as members of abrdn’s 43-strong Developed Markets Equities team.

Driving Environmental, Social and Governance (“ESG”) Change

ESG considerations are deeply embedded into the company analysis carried out by our Manager which is able to draw on the expertise of more than 60 in-house ESG specialists. The aim is to mitigate risk and enhance returns and this results in frequent dialogue with investee companies and helps to ensure that the companies in the portfolio are acting in the best long-term interests of their shareholders and society at large. The objective is to drive ESG change.

It is important to note that the policy pursued by our Manager on our behalf is dynamic rather than static. ESG conclusions change if the inputs change: For example, one might look at Russia’s invasion of Ukraine and conclude that the social factor of security and safety is more important now than previously considered. Similarly, one might consider energy security be given a higher weight relative to carbon dioxide emissions and come to a different conclusion on holding an oil or gas stock.

The Investment Manager’s Report contains further information on how ESG factors are incorporated into the Managers’ investment approach. For more detailed information we would refer you to the Sustainable Investment Report on our website at: murray-income.co.uk.

Share Buybacks and Discount

Discounts across the investment trust sector have widened in the past twelve months, including within the UK equity income sector. The Board has thus decided to make more extensive use of its buyback capability. Over the year, the discount widened from 4.5% to 8.2% while the average discount was 7.4% and the range was between 4.5% and 12.2% (all based on NAV with debt at fair value). The Company bought back 5.0m shares during the year, representing 4.3% of shares in issue at the start of the year. No shares were issued or sold from treasury.

The Board monitors the discount level closely and will again be requesting shareholders’ approval at the AGM to renew the Company’s buyback and issuance powers. As at 30 June 2023, there were 111,720,001 (2022: 116,690,472) Ordinary 25p shares in issue with voting rights and 7,809,531 (2022: 2,839,060) shares held in Treasury.

Ongoing Charges

Our largest cost is the investment management fee payable to abrdn which is calculated on a sliding scale with a marginal rate of 0.25% on assets over £450m. The effect of expanding the Company in 2020 and keeping tight control of costs generally has resulted in an overall ongoing charges rate of 0.50%, which the Board considers good value compared to past history and also to other funds in the closed- and open-ended industry.

Gearing

The Company has £100m of long-term borrowings with £40m due in 2027 and £60m due in 2029 at a blended cost of 3.6%. Together with a £50m short-term multicurrency facility with Bank of Nova Scotia Limited, the Company has up to £150m of borrowing facilities available representing 15.0% of net asset value. With the beta of the investment portfolio (its sensitivity to changes in the Benchmark) currently running at 0.9 (typical of the Investment Manager’s style), the Board believes that the appropriate neutral gearing rate is 10%. At the year end the actual gearing rate was 10.4% (2022: 9.4%). The annualised cost of the Company’s current borrowings was 0.26% of NAV (2022: 0.23%).

Board Composition

As previously announced and after completing nearly ten full years of service, I shall be retiring from the Board at the conclusion of the centenary Annual General Meeting (“AGM”). Peter Tait, currently Senior Independent Director, will take over as Chair. Alan Giles will replace Peter as Senior Independent Director. The other senior board position is Audit Committee Chair, a post held by Stephanie Eastment since 2018.

Merryn Somerset Webb has informed us that she does not wish to stand for re-election as a Director and so will retire from the Board at the end of the AGM. This is to allow her to be able to pursue conference hosting roles with interactive investor and others. We will miss her knowledge of private investors and marketing and markets in general. She leaves with our thanks and best wishes.

The remaining Board members have started a recruitment exercise. Sadly, I have to report that Jean Park passed away in May - Jean was a much loved colleague and a former Director of this Company until 2021.

Online Shareholder Presentation

The Company will hold an online shareholder presentation for shareholders and other interested parties at 11.00am on 3 November 2023. This will feature your Chair and Investment Manager discussing the outlook for the Company and answering your questions live. Please submit questions in advance to murray.income@abrdn.com or on the day via the event page which is also where you may register:

https://www.workcast.com/register?cpak=6223673361069891

Centenary Annual General Meeting

The Company will hold its centenary AGM in the city of our incorporation, at 12.30pm on Tuesday 7  November 2023 in The Glasgow Royal Concert Hall. We hope to mark our centenary in style. One of the advantages of investing via investment trusts is that all shareholders have the opportunity to meet their Manager and the Directors at the AGM. This year’s meeting will commence with a presentation on the Company and market outlook from Charles Luke. There will then be the formal part of the AGM where shareholders get to ask questions about the AGM resolutions and thereafter cast their votes via a poll. After this will be a centenary lunch at which shareholders will be able to chat to the Manager and Directors. Shareholders may bring a guest with them to the meeting.

Action to be Taken

If you wish to attend and are unsure how to register, please send an email to: murray.income@abrdn.com.

Shareholders will find enclosed with this Annual Report an Invitation Card and Form of Proxy for use in relation to the AGM. Whether or not you propose to attend the AGM, you are encouraged to complete the Form of Proxy in accordance with the instructions printed on it and return it, with the Invitation Card if you wish, in the prepaid envelope as soon as possible but in any event so as to be received no later than 12.30pm on 3 November 2023. Completion of a Form of Proxy does not prevent you from attending and voting in person at the AGM if you wish to do so.

If you hold your shares in the Company via a share plan or a platform and would like to attend and/or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors who hold their shares in the Company via the abrdn Investments Plan for Children, the abrdn Share Plan and/or the abrdn Investments Trust ISA will find a Letter of Direction and Invitation Card enclosed. Shareholders are encouraged to complete and return both the Letter of Direction and Invitation Card in accordance with the instructions printed thereon.

Further details on how to attend and vote at company meetings for holders of shares via share plans and platforms can be found at: www.theaic.co.uk/aic/how-to-vote-your-shares

I always welcome questions from our shareholders at the AGM. Alternatively, shareholders may submit questions to the Board prior to the meeting by sending an email to: murray.income@abrdn.com.

Update

From 30 June 2023 to 15 September 2023, being the latest practicable date prior to approval of this Report, the NAV per share (with debt at fair value) returned 2.6% underperforming the FTSE All-Share Index which returned 3.3%, both figures on a total return basis.

A personal outlook

Over my term as a Director, I have invested around the same amount buying Murray Income shares as I have been paid in Directors’ remuneration. I intend to keep the shares for the long-term. Why? Firstly, the starting yield is important to me. My long-term financial planning targets an overall compound annual growth rate of 4%-5%. If I can achieve most of that from the starting yield of 4.5% then the rest of the decision-making becomes easier. If the dividend payments grow every year, that’s even better. How about inflation protection? If inflation remains high, the value of my future income will be eroded. That’s one reason I favour Murray Income over long-term bonds. Bonds, by definition, do not increase their dividend payments. Equities can, and abrdn’s quality bias means that I would expect Murray Income’s holdings to be more resilient in such a scenario. Not total protection, but enough to keep me from worrying.

What about the outlook for capital growth? Obviously, this is harder to predict given the number and scale of known and unknown scenarios. But as Charles and Iain argue in their Investment Manager’s Report, UK equity valuations currently look unusually cheap in absolute terms and relative to both their own history and to world markets. The factors that have depressed UK valuations (take your pick from politics, Covid, Brexit, productivity, austerity, banks, quantitative easing and inflation) are not necessarily permanent. The quality companies within the UK market are to some extent insulated from these factors and have, in certain cases, been going from strength to strength, helping explain why so many have been taken over by foreign companies. If these quality companies in the portfolio can keep on achieving revenue growth, the outlook for capital growth is much improved.

In closing I’ll just focus on the investment numbers: the Murray Income portfolio is presently trading on a price to earnings multiple of 13.9x current year earnings. Average dividend cover for those holdings is 2.0x. The current dividend yield for the Company is 4.5% with that dividend having increased every year for the past 50 years.  All this for an annual ongoing charges rate of around 0.50%.

May I thank you all for your support to me as Chair and for your loyalty to the Company. It has been a great pleasure and privilege to serve the Company. Murray Income will be in good hands under Peter’s leadership and I trust that you will share in its ongoing success.

Neil Rogan
Chair
19 September 2023

 

Discrete performance (%)

 

Five year dividend table (p)

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: abrdn Investments Limited, Lipper and Morningstar.

Important information

Risk factors you should consider prior to investing:

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• The Company may charge expenses to capital which may erode the capital value of the investment.
• Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• Certain trusts may seek to invest in higher yielding securities such as bonds, which are subject to credit risk, market price risk and interest rate risk. Unlike income from a single bond, the level of income from an investment trust is not fixed and may fluctuate.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.murray-income.co.uk or by registering for updates. You can also follow us on social media: Twitter and LinkedIn.