MURRAY INCOME TRUST PLC

LEGAL ENTITY IDENTIFIER (LEI): 549300IRNFGVQIQHUI

Half-Yearly Report for the six months ended 31 December 2021

The Directors of Murray Income Trust PLC report the unaudited results for the six months ended 31 December 2021.

PERFORMANCE HIGHLIGHTS

FINANCIAL CALENDAR AND DIVIDENDS

Financial Calendar

Dividends

CHAIRMAN'S STATEMENT

"The really interesting story is one of dividend recovery."  Neil Rogan, Chairman

Performance was ahead of the FTSE All-Share Index (the Company's "Benchmark"), over the six months ended 31 December 2021. Shareholders continue to benefit from the enlarged scale of the Company following the merger with Perpetual Income & Growth Investment Trust (the "Merger") with net assets now £1.15bn, a lower blended annualised management fee rate of 0.33%, a lower forecast ongoing charges ratio of 0.48% (based on the Company's net asset value ("NAV") as at 31 December 2021) plus additional liquidity and lower bid-offer spreads when trading.

This is all good news. However, the really interesting story is one of dividend recovery.

The UK Equity Income sector was already out of favour when Covid-19 hit and caused many companies to slash or suspend their dividends. There have been net redemptions of over £2bn from the open-ended funds in the sector in each of the last two years, partly in response to Covid-19 but also due to a preference for growth and technology stocks elsewhere, particularly in the United States, although this has started to reverse in early 2022.

Link reports that calendar year 2020 dividends for the UK market as a whole fell 44% on 2019 levels while 2021 dividends (on an underlying basis) were up 22% on 2020. Link forecast dividends to fall 7% in 2022, which would leave them still 21% below 2019 levels. The Company's focus on quality companies has produced a very different experience and outlook: our Manager reported a 13% reduction in our portfolio income in 2020, followed by an 11% recovery in 2021, and now projects portfolio income levels to reach new highs later in 2022. This is not necessarily repeatable, but places us well ahead of our original forecasts.

We are not allowed to give dividend forecasts but it does look as if later this year the Board will be once again in the fortunate position of having to decide how much of this year's income to pay out as a higher dividend and how much to put into revenue reserves for future rainy days. That is from a starting point whereby our full year dividend per share of 34.50p for the year to 30 June 2021 represented a yield of 3.8% on the 31 December 2021 share price of 918.0p. By comparison the Benchmark's dividend yield at the same date was 3.2%.

Performance

Over the six months ended 31 December 2021, the Company's NAV per share rose 7.2% in total return terms, ahead of 6.5% for the Benchmark. The share price total return was 7.5% with the discount closing the period at 6.7%, almost the same level at which it started. For the full calendar year 2021, the NAV total return was 18.4%, the Benchmark returned 18.3% and the share price total return was 14.1%.

Looking over longer periods to the end of 31 December 2021, performance is also significantly ahead of the Benchmark over three, five and ten years. At the same time, we continue to grow our dividend with an increase chalked up in every one of the past 48 years. This puts us into the top ten on the AIC's list of 'Dividend Heroes' (the investment trusts with the longest records of consecutive annual dividend growth) as measured by the number of years of dividend growth.

{A} Considered to be an Alternative Performance Measure

Source: abrdn, Morningstar & Lipper

Investment Objective

The Company aims for a high and growing income combined with capital growth through investment in a portfolio principally of UK equities. Plain vanilla if you like, it is a diversified portfolio of quality companies.

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 portfolio manager since 2006. His deputy is Iain Pyle and they are members of the now seven-strong UK Equity Income pod which itself is part of the fourteen-strong UK Equity Team headed by Andrew Millington.

Annual General Meeting ("AGM")

We were delighted to have held our AGM on 2 November 2021 as normal in London and to have had so many shareholders attend, ask questions and stay for lunch afterwards. This year's AGM will be on 1 November 2022, also in London, before we have our centenary AGM in 2023 in Glasgow, where the Company was founded.

Dividend Policy

With the Merger complete, the Company has reverted to its normal practice of announcing in October each year, the first three interim dividends for the financial year. On 4 November 2021 we announced first, second and third interim dividends, each of 8.25p per share, to be paid on 22 December 2021, 17 March 2022 and 16 June 2022, respectively. The aggregate of the three interim dividends is 24.75p per share which is the same as that paid for the three interim dividends in respect of the previous year ended 30 June 2021. The Board expects that the fourth interim dividend per share, to be announced in August 2022 with payment due in September 2022, will be at least 10.00p per share as compared to 9.75p per share in the previous year.

In the year ended 30 June 2021 the Company was able to increase our full year dividend per share from 34.25p to 34.50p which represents a yield of 3.8% on the 31 December 2021 share price of 918.0p. We accomplished this by paying out 33.70p from last year's revenue earnings, supplemented by 0.80p from the Company's revenue reserves. This resulted in revenue reserves per share of 12.9p available to support future dividends, equivalent to over 37% of the last year's dividend of 34.50p.

Discount

Although the discount was almost the same at the start and end of the six months under review, this masked some volatility during the period. As a result, the Company bought back 340,015 shares during the six months ended 31 December 2021, representing 0.3% of the shares in issue (excluding treasury shares) as at 30 June 2021. These were the first shares bought back by the Company since 2018. The Board continues to monitor the discount regularly and will take appropriate action, where warranted, to reduce discount volatility.

As at 31 December 2021, and the date of approval of this Report, there were 116,705,472 Ordinary 25p shares in issue with voting rights and an additional 2,824,060 shares held in treasury.

Gearing

The Company's long-term borrowings of £100m comprise of £40m 2.51% Senior Loan Notes 2027 and £60m 4.37% Senior Loan Notes 2029, resulting in a blended borrowing cost of 3.6% per annum. Together with £30m increase to the Company's £50m multicurrency bank loan facility in October 2021, this provides for potential total borrowings of £150m, which is equivalent to 13.1% of net assets at 31 December 2021. With the beta of the investment portfolio currently running at 0.91 (meaning that, in statistical terms, the portfolio is expected to capture 91% of any market movement) the Board presently believes that the appropriate neutral gearing rate is 10%. At 31 December 2021 the actual amount of total borrowings was £119.3m, equivalent to 10.4% of net assets. The annualised cost of the Company's current borrowings is 0.20% of NAV.

Board

Shareholders will be aware that we operate normally as a Board of six Directors but, temporarily, moved to a higher number as a result of the Merger. Jean Park and Donald Cameron retired from the Board at the end of our AGM after each completing nine years of service. We thank them both for their hard work on behalf of shareholders and wish them well for the future.

As explained in my Chairman's Statement within the 30 June 2021 Annual Report, we appointed Trust Associates to help identify a new director to return us to a Board of six members. The Company announced the appointment of Nandita Sahgal Tully on 3 November 2021. I, and my fellow Directors, are delighted to welcome Nandita to the Board, bringing more than 25 years' experience in financial services including UK and Emerging markets, ESG and impact investing.

Environmental, Social and Governance ("ESG")

One of the outcomes of the global climate summit, COP-26, held in November 2021 in our home city of Glasgow was a renewed focus on net zero in the Glasgow Climate Pact: where countries and companies are signing up to time commitments as to when their operations will become net zero in terms of carbon emissions and on what basis they will be measured. We can apply this focus to the Company also: 80% of the portfolio by value, by number 45 out of 61 companies held in the portfolio on 31 December 2021 have set out a net zero target date. The breakdown is shown in the following table:

Our Manager continues to engage with those companies that have not yet set a timeframe as well as holding to account or pressing further those that have committed. From the numbers we can infer an average net zero date for the Company's portfolio of 2039. That number is a snapshot, it could move up or down if the portfolio changes and the outcomes are not in any case within our control. But it will be a useful number for comparison over time, while remembering that net zero is just one of the environmental factors within ESG.

ESG considerations are deeply embedded into the company analysis carried out by our Manager who is able to draw on the expertise of more than 30 in-house ESG specialists.  This aims to mitigate risk and enhance returns, 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 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 our 2021 Annual Report (pages 88 to 90) and to our website (www.murray-income.co.uk).

Update

From 31 December 2021 to 22 February 2022, the latest practicable date, the NAV per share total return and share price total return were -6.9% and -6.5%, respectively, while the discount had narrowed from 6.7% to 6.5%. The FTSE All-Share Index total return was -0.7%.

Outlook

The wall of worry is still very high. There is bad news everywhere you look and we are repeatedly told that the only way to fix it is to change the people in charge. Yet having a more popular leader does not seem to have made much of a difference to the sum of the United States' problems. Indeed, President Biden no longer seems to be more popular. It is not clear how much the UK experience would change under a new Prime Minister, even a Labour one.

We will most likely have to look elsewhere for solutions but, fascinatingly, potential solutions are often initially identified as new problems. It has always been thus: it is simply very difficult to agree what leads us out of a crisis except with hindsight. There are several emerging possibilities right now that are worth tracking:

-    One way for pandemics to end is for variants to emerge that are ever more transmissible and less lethal. As they sweep through the population they eventually reach what used to be called "herd immunity" - until that became a contentious phrase two years ago. Contentious or not, it might have already happened in the UK thanks to the vaccine programme.

-     Alarm bells are ringing about rising wage growth and its effects on inflation. Headlines tell us we have a cost of living crisis. But if the wage growth is largely confined to low and middle incomes, this becomes the mechanism that delivers lower inequality. And if wages outstrip inflation then the resultant real wage growth is likely to be positive for living standards and consumer spending. In 2021, wage growth was in line with rising inflation in the UK.  Real wage growth in the next 12 months would be a significant positive surprise.

-    Inflation out of control would be a serious problem but if a country starts from a position of very high net debt, then a sustained period of moderate inflation could actually be a solution: The nominal value of the debt does not change but the tax raised on rising incomes, spending and profits would grow. It is like having a mortgage and a pay rise every year to help pay it off. Inflation above the Bank of England's target of 2% for a few years could be beneficial.

-   Monetary tightening, that is raising interest rates or reducing money supply growth, is commonly seen as negative for financial markets. Yet it should really depend on the starting point. As we have been through a long period of near-zero interest rates and rapid monetary expansion, if the economy starts to grow again it would be absolutely normal for interest rates to rise and money supply growth to reduce. Even if the pendulum swings too far, it will take a few years to reach there.

-    In stock markets, there has been a big style rotation out of growth and momentum stocks, particularly in the technology and internet sectors. This has actually been happening for about 15 months but has become particularly noticeable so far in 2022. Cue headlines about bubbles bursting or the end of an era. Growth and momentum stocks do look expensive in an era of rising interest rates and recovering economic growth. But does it mean a new bear market? It is interesting that value and quality stocks still look reasonably attractive in absolute terms. The Company's quality portfolio stands on a 2022 price to earnings multiple of 16x times, clearly not a bubble rating. Maybe it's just a big rotation.

There are still so many fast moving influential variables that it remains very difficult to forecast the residual outcome with any true confidence. Known unknowns and unknown unknowns will undoubtedly cause setbacks. War in Ukraine is the most obvious source of volatility.

But the news is not all bad and there are some interesting potential solutions out there. While you wait, Murray Income Trust PLC allows you to own a diversified portfolio of quality companies, overseen by an active and engaged fund manager, with a dividend yield of 3.8% and a track record of 48 years of consecutive dividend growth.

Neil Rogan,

Chairman
24 February 2022

INVESTMENT MANAGER'S REPORT

The portfolio outperformed the FTSE All-Share Index (the "Benchmark") during the six months ended 31 December 2021 with the NAV per Ordinary share rising by 7.2% compared to an increase in the Benchmark of 6.5% (both figures calculated on a total return basis).

The portfolio's overweight positions in the electricity and real estate sectors benefited performance. In contrast, the underweight position in oil and gas, and the overweight exposure to the medical equipment and services sector detracted from relative performance. The holdings in Safestore, VAT and Croda were the most beneficial to relative returns while the three non-holdings of Royal Dutch Shell, Glencore and Experian detracted the greatest, relatively.

Five new holdings were purchased for the portfolio during the six months. The first purchase was Watkin Jones, a developer with a market-leading position which provides exposure to the attractive build to rent and purpose built student accommodation markets (see the Case Studies for further information).  The second new entrant was Drax, the renewable energy company which uses waste wood products, where we see upside potential from BECCS (bioenergy with carbon capture and storage) which now has robust political backing, support from higher UK power prices and an attractive dividend yield. The third purchase was Nordea which we view as a higher returning bank operating in the Nordic region with an attractive dividend yield. The fourth new entrant was insurer Hiscox (please see Case studies for further information) where we believe the strength of the retail business is underappreciated and the company should benefit from a stronger rate environment. Finally, we participated in the IPO of private equity firm Bridgepoint, which we believe has an experienced management team and good client relationships which sets the company up well to continue its strong track record.

We increased exposure to a number of our existing holdings which we believe have high quality characteristics with attractive growth prospects including: Marshalls, OSB, Unite and Moonpig.

We sold five holdings during the period. Firstly, LondonMetric, as we believed that after a period of strong performance, the valuation and dividend yield of the company was no longer compelling.  Secondly, the small holding in Telecom Plus was exited given the uncertain industry backdrop. Thirdly, the very small holding in Jackson Financial shares that were received when the business was demerged from Prudential were sold. Finally, both John Laing and Sanne were sold at a pleasing profit following bids.

Profits were taken in a number of holdings that had performed strongly and where the valuation had started to look less attractive such as Dechra Pharmaceuticals, Croda, Nestle and VAT.

We continued our measured option-writing programme which is based on our fundamental analysis of holdings in the portfolio.  We believe that the option-writing strategy, which we have now employed for over 10 years, is of benefit to the Company by diversifying and increasing the level of income generated, providing headroom to invest in companies with lower starting yields but better dividend and capital growth prospects.

Environmental, Social and Governance ("ESG")

ESG engagement issues are often addressed as part of our regular meetings with management.  However, we also engage on a variety of specific issues outside our regular meetings cycle. It should be noted that given the quality threshold inherent in the portfolio, these meetings are rarely about issues for which we hold significant concerns. To provide a couple of examples of our engagement during the period. Firstly, we held a meeting with the Chair and Head of Sustainability of Marshalls around the reduction of emissions and work with the Carbon Trust to update carbon labelling together with governance issues for which we were reassured that the company remains engaged and receptive to our suggestions. Secondly, we conducted a meeting with Novo Nordisk's Vice President for Sustainability to discuss the company's strategic environmental aspirations. The company has a strong track record of integrating sustainability but we suggested more disclosure around Scope 3 emissions.

Market and Economic Background

The UK equity market rose by 6.5% on a total return basis over the six month period. Sentiment was influenced by concerns around the virus (in particular the delta variant in July and the omicron variant in November) together with the prospects for inflation and higher interest rates. Despite these concerns the market made good progress aided by robust earnings delivery and supportive oil prices.

Performance at a sector level was mixed. Beverages and oil and gas companies performed well but travel and leisure companies struggled. The FTSE100 Index and the Mid Cap Index performed in line with each other.

Domestic economic data published across the period reflected the circuitous return to more normal economic conditions. After surprising investors in November by maintaining rates at the all-time low of 0.1%, The Bank of England ("BoE") raised interest rates to 0.25% at its December meeting, the first rate hike in over three years (subsequently increased to 0.5% in February 2022).

The BoE acted to control inflation, which hit a near two decade high of 5.4% (year on year) in December. Energy prices, as well as clothing, food and second-hand car prices, were major factors, compounded by ongoing global supply chain problems. This calendar year we are expecting three 0.25% rate increases from the BoE, which would see rates reach 1% by the end of 2022. We then expect a further two increases in 2023, taking rates to 1.5%. In October, updated forecasts from the UK's Office for Budget Responsibility reduced the permanent scarring estimate, due to Covid, from a 3% hit to GDP to 2%.  In November, GDP breached the pre-pandemic level for the first time. The latest estimate from the International Monetary Fund is for GDP growth in the UK of 4.7% in 2022 and although this represents a 0.3% reduction from their previous forecast it is still stronger growth than any other G7 country.  The OECD also recognises the UK as the fastest growing G7 economy this year.

Overseas, recent data has suggested that the global economy continues its recovery but the progression of the omicron variant has diminished the pace of the upturn to varying degrees with supply bottlenecks also weighing on activity. In the Eurozone the most recent Purchasing Managers' Index data suggested slowing growth with the pace of expansion hitting a near 12 month low given virus restrictions. In the United States, upside surprises in inflation and mounting evidence of labour market tightness exacerbated by omicron heralds the start of a period of rate hikes likely from March of perhaps 100bps this year. In China, economic activity is on a generally firm footing but a continued downturn in the property sector and uncertainty around omicron has tempered growth rates more recently.

Outlook

Catalysed by hawkish signals from the Fed given concerns around the inflation outlook, real bond yields have risen since the start of the calendar year. This has resulted in a sharp style rotation within the equity market favouring value at the expense of quality and growth companies which tend to have a longer duration of earnings while 'concept' stocks (mostly in the technology sector) with little or no cashflows have been particularly affected.  Macro influences can have a salient impact on share prices in the short term but we are reminded of the saying attributed to the famous investor Benjamin Graham that 'in the short run the market is a voting machine, but in the long run it is a weighing machine' or in other words long term share price performance will reflect the fundamentals of the businesses that we invest in and that is certainly borne out empirically.

At the time of writing, the Russian invasion of Ukraine has just commenced for which the outcome and consequences are currently unknown. However, for now, our baseline forecasts are for global growth to remain above trend in 2022, helped by a rebound from the Omicron headwind. For the UK, in particular, the backdrop is generally supportive with pent-up demand and a fast booster rollout, albeit the prospect of higher utility bills weighing on consumer disposable income and other less benign inflationary pressures are increasingly areas of concern.

We take comfort that the valuations of UK-listed companies remain attractive on a relative basis and as such we think a fair proportion of the portfolio may be vulnerable to corporate activity. Moreover, the dividend yield of the UK market remains at an appealing premium to other regional equity markets let alone other asset classes. Furthermore, international investors remain underweight the UK providing a further underpin. Therefore, we feel very comfortable maintaining our long term focus on investments in high quality companies capable of sustainable earnings and dividend growth.

Charles Luke and Iain Pyle,

Aberdeen Asset Managers Limited

Investment Manager

24 February 2022

INVESTMENT CASE STUDIES

Watkins Jones

Watkin Jones, with a market capitalisation of approximately £700m and listed on the AIM market, is a developer of build to rent and student accommodation. These operations both have significant long term growth potential as institutions increase their exposure to these assets. The company has a capital-light business model allowing it to make very attractive returns on capital as their projects are largely forward-funded by institutional investors. The company is a leading player in this segment with an extensive pipeline of developments (which includes expansion into the affordable homes segment) and significant barriers to entry which revolve around planning expertise, sourcing land, client relationships and a strong track record. The company also has a property management business which is a positive differentiating factor. We think that the earnings growth, very strong net cash balance sheet and quality characteristics are conspicuously under-appreciated by the market given the company's modest price to earnings valuation ratio and attractive dividend yield.

Hiscox

Hiscox (with a market capitalisation of approximately £3bn) is a diversified international insurance group with a strong long-term culture. We started a new holding in the company during the six months having previously owned shares which were sold at the end of 2019. At that time we decided to sell the holding given concerns around pricing and social inflation in the company's retail business, coupled with rising catastrophe losses.  We now believe that these issues have ameliorated or have been dealt with through efforts at reinsurance (in the case of claims inflation), repricing or exiting parts of the business. In addition, catastrophe losses seem better priced in as the market has hardened. The growth attractions of the retail business (which represents around 75% of earnings), particularly in the United States with its strong brand resonance serving micro SMEs, do not seem to be reflected in the valuation, nor is the strength of the capital base, which is in very good shape.

TEN LARGEST INVESTMENTS

INVESTMENT PORTFOLIO - AS AT 31 DECEMBER 2021

INTERIM BOARD REPORT

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. These are considered to be unchanged as at 31 December 2021, as compared to 30 June 2021, other than in relation to the Board's perception of heightened interest rate risk and geopolitical uncertainty, noting the potential volatility associated with the conflict in Ukraine, which the Board anticipates will persist over the six months to 30 June 2022. The principal risks and uncertainties are set out in detail on pages 18 to 21 of the Company's Annual Report for the year ended 30 June 2021 ("Annual Report 2021") which is available on the Company's website. The Annual Report 2021 also contains, in note 17 to the Financial Statements, an explanation of other risks relating to the Company's investment activities, specifically market risk, liquidity risk and credit risk, and a note of how these risks are managed.

Related Party Transactions

Under 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. There have been no related party transactions that have had a material effect on the financial position of the Company.

Going Concern

The factors which have an impact on the Company's status as a going concern are set out in the Going Concern section of the Directors' Report on page 42 of the Annual Report 2021. As at 31 December 2021, there had been no significant changes to these factors.

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with covenants associated with the Senior Loan Notes and bank facilities. As at 31 December 2021, in addition to the £40m 10 year Senior Loan Notes 2027 and £60m 10 year Senior Loan Notes 2029, £6.3m of the Company's three-year £50m multi-currency revolving bank credit facility (the "Facility") was drawn down. On the expiry of the Facility in October 2024, the Company would expect to continue to access a credit facility.  However, should acceptable terms for a new credit facility not be forthcoming at that time, any outstanding borrowing will be repaid through the proceeds of equity sales.

The Directors are mindful of the principal risks and uncertainties disclosed above and, having reviewed forecasts detailing revenue and liabilities, they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis of accounting in preparing the Financial Statements.

US Executive Order No. 14032

The Board confirms that the Company has not and does not intend to invest in any of the companies designated as "Chinese Military-Industrial Complex Companies" by the US Executive Order No. 14032.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-     the condensed set of Financial Statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

-   the Half-Yearly Board Report includes a fair review of the information required by rule 4.2.7R of the Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

-   the Half-Yearly Board Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half-Yearly Financial Report for the six months ended 31 December 2021 comprises the Half-Yearly Board Report, the Directors' Responsibility Statement and the condensed set of Financial Statements.

For and on behalf of the Board

Neil Rogan,

Chairman
24 February 2022

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited) (Cont'd)

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF FINANCIAL POSITION (unaudited)

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF CHANGES IN EQUITY (unaudited)

MURRAY INCOME TRUST PLC

CONDENSED STATEMENT OF CASH FLOWS (unaudited)

Notes to the Financial Statements

END