REG - F&C Investment Trust - Half-year Report
25/07/2022 07:00
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RNS Number : 5138T F&C Investment Trust PLC 25 July 2022
F&C INVESTMENT TRUST PLC
Unaudited Results for the half-year ended 30 June 2022
Legal Entity Identifier: 213800W6B18ZHTNG7371
Information disclosed in accordance with Disclosure Guidance and Transparency
Rule 4.2.2
25 July 2022
F&C Investment Trust PLC ('FCIT' /the 'Company') today announces its
results for the six months ended 30 June 2022.
· The Net Asset Value ('NAV') total return was -9.6%; ahead of the
-10.7% return from the benchmark, the FTSE All-World Index.
· The share price total return was -11.8%, in part due to a widening of
the discount during the period.
· Our private equity exposure, which is a strong differentiator for
FCIT, posted a gain of 4.7%; ahead of the returns from listed markets.
· Adjustments to the fair value of the Company's debt added 2.5% to the
performance from the investment portfolio, whilst gearing detracted 1.0%.
Gearing was 6.5% at the end of the period.
· Making use of our investment trust structure and the ability to
borrow to enhance returns, we have taken advantage again of low interest rates
to draw £140m of borrowings through long-term private placement loans.
· Over one year's worth of dividends is held in the revenue reserve and
the Board aims to increase the total dividend again this year. The first
interim dividend of 3.2 pence for 2022 will be paid on 1 August.
The Chairman, Beatrice Hollond, said:
"We continue to focus on long term capital and income growth for our
shareholders. Our diversified portfolio, investment trust structure, modest
gearing, strong cash position and careful management of risk position the
Company well against an extraordinarily demanding market backdrop.
The Board intends to increase dividends in real terms for shareholders over
the long-term and our current aim is to raise our dividend again this year. If
we do so, this will be the 52nd consecutive rise.
While we expect that the immediate outlook will continue to present a
challenge, our portfolio is sufficiently diversified to provide protection
from over-exposure to any one theme that is driving markets."
Commenting on the markets, Paul Niven, Fund Manager of FCIT, said:
"The current backdrop is challenging for the global economy and for financial
markets. Investors are increasingly concerned that recession will hit major
developed economies later this year and into 2023 as central bankers increase
interest rates and rein in excess liquidity. In addition, inflation is proving
more problematic than many had originally envisaged, raising questions over
the level that interest rates will reach and how deep the growth downturn will
be.
Nonetheless, and despite a period which is likely to continue to see further
volatility in returns, opportunities are emerging. Valuations have corrected
and are more attractive for long-term
investors. While margins are at risk, equities will provide some hedge to
inflation as corporates pass on price rises to consumers. With a relatively
high holding of cash and diversified exposure across a range of different
equity strategies we believe that the Company is appropriately positioned for
the difficult market conditions that we expect. Given our longer-term
perspective, we expect to be in a strong position to take advantage of
investment opportunities as they emerge and to benefit from a recovery in
equity markets in due course."
The full results statement is attached.
Past performance should not be seen as an indication of future performance.
The value of investments and income derived from them can go down as well as
up as a result of market or currency movements and investors may not get back
the original amount invested.
Contacts
Paul Niven - Fund Manager
0207 011 4385
Campbell Hood
campbell.hood@columbiathreadneedle.com
(mailto:campbell.hood@columbiathreadneedle.com)
Tel: +44 (0)20 7011 4243
FTI Consulting
columbiathreadneedleuk@fticonsulting.com
(mailto:columbiathreadneedleuk@fticonsulting.com)
Tel: +44 (0) 20 3727 1888
About FCIT:
· Founded in 1868 - the oldest collective investment trust
· A diversified portfolio provides exposure to most of the world's
stock markets, with exposure to over 400 individual companies across the globe
· Its aim is to generate long-term growth in capital and income by
investing primarily in an international portfolio of listed equities
Chairman's Statement
Markets and performance
A substantial rise in inflation, caused by sharply rising energy prices after
Russia's invasion of Ukraine, coupled with post-Covid supply chain issues led
to expectations for a tightening of monetary policy by central banks globally,
a consequent decrease in risk appetite and sharp falls in equity markets
worldwide. Rising commodity prices more generally added impetus to the surge
in inflation which, contrary to the consensus, has not been transitory and has
remained at stubbornly high levels. With equities declining into a 'bear
market', defined as a fall from the peak of over 20%, the Company delivered a
Net Asset Value ('NAV') total return of -9.6%, whilst our benchmark, the FTSE
All-World Index, fell by 10.7%. However, a widening in the Company's discount
from 7.3% to 9.6%, meant that the shareholder total return was -11.8%.
The NAV per share closed at 892.8 pence compared with 998.7 pence at the end
of 2021. The return from our underlying investment portfolio was marginally
behind the return of the benchmark. Despite holding a geared position, which
detracted 1.0% from returns, a rise in longer-dated market interest rates
reduced the fair value of our debt, and this added 2.5% to our NAV return.
We started the year with a gearing level of 9.4% and ended the first half with
6.5% gearing. During the period
we drew £140m of additional long dated borrowings through long-term private
placement loans.
Valuations in the private equity part of the portfolio have so far held up
well and delivered a return of 4.7% over the first six months, however we are
expecting downwards revisions here as the year progresses to reflect what has
happened in the public markets. We have continued to make selective
investments in this area and agreed a new programme of exposure in leading
growth and venture managers which will be managed by Pantheon. These
commitments are long-term in nature and our experience in terms of unlisted
private equity exposure has, historically, been positive.
Income and Dividends
We paid a third interim dividend of 3.0 pence per share for the year ended 31
December 2021 in February 2022 and a final dividend of 3.8 pence in May. We
drew down 1.7 pence per share from our revenue reserve to help fund the full
year dividend of 12.8 pence. This represented an increase of 5.8% on the
previous year, ahead of the 5.4% rise in inflation for the year to 31 December
2021.
We continued to see good progress in our net revenue return over the first six
months of the year, which rose by 27.6% to 7.48p in comparison to 5.86p over
the same period last year. The decline in sterling had a positive impact,
increasing returns by £1.1m (in the 2021 half year there was a negative
impact of £2.2m). Special dividends totalled £1.0m, up slightly from £0.6m
in the first half of 2021. We have declared a first interim dividend for the
current year of 3.2 pence per share payable on 1 August 2022.
Despite a strong recovery from the pandemic, there remains significant
uncertainty with respect to our full year income but, at this point, it is
unlikely that our earnings will cover the full year dividend payment to
shareholders. Therefore, as was the case in 2021, we expect to fund a
proportion of the annual payment from our Revenue Reserve, which continues to
represent over one year's worth of annual dividends. The Board intends to
increase dividends in real terms for shareholders over the long-term and our
current aim is to raise our dividend again this year. If we do so, this will
be the 52nd consecutive rise.
The Board
Jeff Hewitt retired from the Board at the conclusion of the AGM in May this
year, after 11 years' service as a Director and 10 years as Chairman of our
Audit Committee. I am delighted that Julie Tankard will replace Jeff and she
joins the Board with effect from 1 August 2022. Julie is the Chief Financial
Officer and a Board member of the Port of London, where she is also
responsible for risk. She is a fellow of the Chartered Institute of Management
Accountants. Julie sits on the Industrial Development Advisory Board and
previously chaired the audit committee of an NHS Foundation Trust, prior to
which she held various senior positions at BT plc.
Outlook
The rise in inflation seen thus far and fears that we may be entering a period
where price pressures will remain elevated is causing substantial concern for
both individuals and market participants. Interest rate expectations have
risen and valuations in equity markets have fallen as investors grow
increasingly nervous that a recession may be imminent.
The balance of risks suggests that investors are right to position for a
fundamentally different, and potentially more challenging, backdrop. Markets
have, however, already reflected changed expectations and much of the
speculative froth has been removed from market pricing. A more reasonable
valuation backdrop presents opportunities for investors with a longer time
horizon and a patient approach to investing. While we expect that the
immediate outlook will continue to present a challenge, our portfolio is
sufficiently diversified to provide protection from over-exposure to any one
theme that is driving markets. As noted earlier, our gearing levels have been
reduced and our Manager has tilted the portfolio towards areas more likely to
benefit from a change in the investment landscape.
Beatrice Hollond
Chairman
22 July 2022
Fund Manager's Review
It has been a difficult period for financial markets so far in 2022 with a
substantial rise in market interest rates, reflecting concerns over the
outlook for inflation, a widening in credit spreads, due to concerns over an
economic slowdown and increased risk of corporate defaults, and sharp falls in
equity markets.
Inflation and growth concerns, exacerbated by the conflict in Ukraine, were
key themes over the first half of the year. Inflation continued to accelerate
across many different regions, reaching the highest levels seen in the US for
40 years. With the exception of Japan, most major developed market central
banks have now begun increasing interest rates or indicated their intention to
do so. This pivot from central banks has led to a marked rotation away from
highly rated growth stocks towards the value segments of the market. Despite
the steps taken so far, pressure remains to curb persistent inflation. Indeed,
inflation has proven less transient than many initially thought, as markets
continue to price in further monetary tightening and are now increasingly
contemplating a recession in the US and other developed market economies.
Currency markets also saw significant volatility. Sterling fell sharply
against the US dollar, from 1.35 to 1.22, while the yen declined to a greater
than twenty-year low against the US dollar, driven by ongoing loose monetary
policy against a backdrop of rising global interest rates.
Our investment portfolio delivered a return of -10.8% compared to the market
benchmark return of -10.7%. In terms of exposure, all listed equity regions
lost value, with our North American equity holdings, our largest regional
allocation, falling 12.1%. 'Growth' stocks had a torrid time and substantially
underperformed cheaper 'value' exposure. As investors priced in the prospect
of higher inflation and interest rates and grew concerned over large scale
withdrawal of liquidity by central banks, the valuation premium on more
expensive segments of the market, including disruptive technology stocks,
diminished. More speculative equity investments, trading on high valuations
and with little or no profits, were hit particularly hard and investors sought
safety in more lowly valued stocks with greater visibility in near term
earnings.
Contributors to total returns in first half of 2022
%
Portfolio return (10.8)
Management fees (0.2)
Interest and other expenses (0.2)
Buybacks 0.1
Change in value of debt 2.5
Gearing/other (1.0)
Net asset value total return* (9.6)
Change in rating (2.2)
Share price total return (11.8)
FTSE All-World total return (10.7)
*Debt at market value
Source: Columbia Threadneedle/State Street
We have made substantial reductions in terms of our exposure to more expensive
parts of the equity market, predominantly through the sale of US large cap
growth stocks, starting in the second half of 2020 and through the course of
2021. During the first half of this year we made further sales in expectation
of underperformance in this area. In addition, we made the decision to divest
entirely from our exposure to Global Small Cap stocks, having initially
reduced our holdings last year. In our view, small cap stocks are less likely
to perform well in an environment of rising inflation and we decided to focus
our exposure on the large cap space. Small cap holdings modestly
underperformed over the first half.
We increased our allocation to higher yielding stocks, expecting better
performance to be driven by relative valuations from this area but the primary
destination for the proceeds of our sales was cash. Indeed, we raised cash
levels by almost £300m, from £53m at the start of the year to £352m at the
end of June. Some of this increase reflects the funding of our £140m private
placement notes and we will use some of the proceeds to pay down a seven-year
euro denominated loan of €72m in July. Nonetheless, the effect of our
allocation changes was to reduce our net gearing levels to 6.5% with debt at
par and 4.3% when we adjust for the fair value of our debt.
As well as reducing our gearing levels and making further re-allocations away
from US large cap growth stocks, we reduced the outstanding value of our
sterling hedge from around £200m to under £30m, with a view to benefitting
from sterling weakness. While rates rose in the UK and inflation here reached
the highest amongst G7 nations, we saw limited upside potential for the
domestic currency.
Within our US holdings it was our value manager Barrow Hanley (-0.6% return)
which provided the best returns, while the strategy managed by our US growth
manager T Rowe Price posted a loss of -25.8%. Energy and commodity related
stocks such as Hess (+60.8%), Pioneer Natural Resources (+42.7%) and Phillips
66 (+28.9%) were amongst the top performers in the US while a number of our
large holdings, such as Meta (-46%) and Amazon (-28.9%), detracted from
returns.
Within our Global Strategies (-11.9% return) there was a wide dispersion of
peformance. Strongest returns came from our Quality Income strategy (-1.4%)
where Woodside Petroleum (+61.4%) and Computershare (+31.3%) helped relative
returns. Despite delivering a loss of 6.1%, our higher yielding Global Income
strategy, where we invest in companies which have attractive yield
characteristics and which tend to trade at a valuation discount, produced
strong relative returns against a weak overall market backdrop. Elsewhere, our
exposure to Sustainable Opportunities performed poorly, delivering a return of
-19.6%. As was the case elsewhere, the weighting in energy and commodity
related stocks, along with more defensive areas of the market such as consumer
staples and utilities, played a role in relative returns. Indeed, oil and gas
stocks were the strongest performing area over the six months, delivering a
gain of 28.0% as, in response to the war in Ukraine and concerns over
disruption to global supply as well as an improved demand picture, crude oil
gained up to $45 a barrel, having started the year at around $75 a barrel.
In Europe inc. UK (-13.8%) our biggest positive contribution came from
pharmaceuticals where an overweight stance to AstraZeneca (+26.6%),
GlaxoSmithKline (+12.4%) and Novo Nordisk (+10.9%) benefited returns. Each
produced good results and confident outlooks at a time when investors are
increasingly concerned about weakening profitability. An underweight stance on
oil and gas stocks and poor returns from both Delivery Hero (-62.6%) and
JustEat (-68.3%), however, detracted from returns. Holdings in lowcost
airlines, including Wizz Air (-58.1%), also impacted negatively despite clear
evidence of rising fares, as fuel costs continued to rise (though airports
have cancelled many flights).
Japanese holdings underperformed both the local benchmark and the global
index. The strategy suffered headwinds, with quality growth stocks on
relatively high multiples underperforming materially relative to value stocks,
as expectations for higher global interest rates picked up. Lockdown thematic
winners like Keyence (-39.2%) and Hoya (-35.7%) underperformed and, as was the
case with some of our other managers, lack of exposure to energy and utility
stocks was detrimental to returns.
Our private equity holdings had a strong first half, posting overall gains of
4.7%. Our recent commitments, where we hold 8.3% of the portfolio assets,
posted strong returns of 7.9%, as did our older holdings overseen by Pantheon
and HarbourVest which delivered a gain of 6.6%. Both returns were
substantially ahead of listed markets. Elsewhere, we saw good progress on our
Pantheon Future Growth allocation, which became fully committed and which
invests into leading growth and venture managers. We have made a further $180m
commitment to a new and similar programme also managed by Pantheon. These, and
other private equity holdings, are long-term in nature and, historically, we
have enjoyed good returns against public market equivalents from such
positions. More disappointing returns were delivered from our holdings in life
sciences investor Syncona (-3.8%), and the Baillie Gifford managed
Schiehallion fund (-43.4%) which fell from a premium to a discount over the
period.
A substantial rise in market interest rates led to a reduction in the fair
value of our debt over the period. Indeed, with ten-year gilt yields rising
from less than 1% at the start of the year to over 2.2% by the end of June,
this shift in pricing added 2.5% to our NAV return over the six months. The
impact of gearing in a declining market was -1.0%.
Current Market Perspective
The current backdrop is challenging for the global economy and for financial
markets. Investors are increasingly concerned that recession will hit major
developed economies later this year and into 2023 as central bankers increase
interest rates and rein in excess liquidity. In addition, inflation is proving
more problematic than many had originally envisaged, raising questions over
the level that interest rates will reach and how deep the growth downturn will
be.
Having seen a substantial reduction in valuations in equities, led by more
expensive parts of the market, and a significant change in expectations over
interest rates, there is likely to be greater investor focus on margins,
cashflows and overall corporate earnings in the coming months. Here, consensus
still seems reasonably optimistic. This presents some further near-term risk
to equity markets. Nonetheless, and despite a period which is likely to
continue to see further volatility in returns, opportunities are emerging.
Valuations have corrected and are more attractive for long-term investors.
While margins are at risk, equities will provide some hedge to inflation as
corporates pass on price rises to consumers. With a relatively high holding of
cash and diversified exposure across a range of different equity strategies we
believe that the Company is appropriately positioned for the difficult market
conditions that we expect. Given our longer-term perspective, we expect to be
in a strong position to take advantage of investment opportunities as they
emerge and to benefit from a recovery in equity markets in due course.
Paul Niven
Fund Manager
22 July 2022
Weightings, stock selection and performance in each investment portfolio
strategy and underlying geographic exposure versus index as at 30 June 2022
Investment portfolio strategy Our portfolio strategy weighting Underlying geographic exposure* Benchmark weighting Our strategy performance in sterling Index performance in sterling
% % % % %
39.6 57.1 61.8 (12.1) (11.6)
North America
10.8 23.8 16.0 (13.8) (12.2)
Europe inc UK
4.6 6.9 6.3 (16.8) (10.2)
Japan
7.2 8.4 11.0 (12.5) (8.1)
Emerging Markets
- 3.8 4.9 - (6.1)
Developed Pacific
24.8 - - (11.9) (10.7)
Global Strategies
13.0 - - 4.7 -
Private Equity
Source: Columbia Threadneedle/State Street
*Represents the geographic exposure of the portfolio, including underlying
exposures in private equity and fund holdings
UNAUDITED CONDENSED INCOME STATEMENT
6 months to 30 June 2022 6 months to 30 June 2021
Notes Revenue Capital Total Revenue Capital Total
£'000s £'000s £'000s £'000s £'000s £'000s
(Losses)/gains on investments and derivatives - (649,585) (649,585) - 487,969 487,969
Exchange gains/(losses) 335 (7,158) (6,823) (216) 7,922 7,706
3 Income 50,833 - 50,833 40,396 - 40,396
4 Fees and other expenses (4,848) (6,784) (11,632) (3,975) (7,206) (11,181)
Net return before finance costs and taxation 46,320 (663,527) (617,207) 36,205 488,685 524,890
4 Interest payable and similar charges (1,751) (5,255) (7,006) (1,221) (3,663) (4,884)
Net return on ordinary activities before taxation 44,569 (668,782) (624,213) 34,984 485,022 520,006
5 Taxation on ordinary activities (5,373) (551) (5,924) (3,630) (138) (3,768)
6 Net return attributable to shareholders 39,196 (669,333) (630,137) 31,354 484,884 516,238
6 Net return per share - basic (pence) 7.48 (127.67) (120.19) 5.86 90.69 96.55
The total column is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY
Capital Total
Share redemption Capital Revenue shareholders'
capital reserve reserves reserve funds
Notes Half-year ended 30 June 2022 £'000s £'000s £'000s £'000s £'000s
Balance brought forward 140,455 122,307 4,924,320 93,852 5,280,934
31 December 2021
Movements during the half-year ended 30 June 2022
11 Shares repurchased by the Company and held in treasury
- - (54,352) - (54,352)
7 Dividends paid - - - (52,382) (52,382)
Return attributable to shareholders - - (669,333) 39,196 (630,137)
Balance carried forward 140,455 122,307 4,200,635 80,666 4,544,063
30 June 2022
Capital Total
Share redemption Capital Revenue shareholders'
capital reserve reserves reserve funds
Notes Half-year ended 30 June 2021 £'000s £'000s £'000s £'000s £'000s
Balance brought forward
31 December 2020 140,455 122,307 4,147,868 100,930 4,511,560
Movements during the half-year ended 30 June 2021
Shares repurchased by the Company and held in treasury
- - (34,059) - (34,059)
7 Dividends paid - - - (33,709) (33,709)
Return attributable to shareholders - - 484,884 31,354 516,238
Balance carried forward 140,455 122,307 4,598,693 98,575 4,960,030
30 June 2021
Capital redemption reserve £'000s Total shareholders' funds
Share capital Capital reserves Revenue reserve £'000s
£'000s £'000s £'000s
Notes Year ended 31 December 2021
Balance brought forward
31 December 2020 140,455 122,307 4,147,868 100,930 4,511,560
Movements during the year ended 31 December 2021
Shares repurchased by the Company and held in treasury - - (84,326) - (84,326)
7 Dividends paid - - - (65,578) (65,578)
Return attributable to shareholders - - 860,778 58,500 919,278
Balance carried forward 140,455 122,307 4,924,320 93,852 5,280,934
31 December 2021
UNAUDITED CONDENSED BALANCE SHEET
31 December 2021
Notes 30 June 2022 30 June 2021 £'000s
£'000s £'000s
Fixed assets
8 Investments 4,850,660 5,397,368 5,779,123
Current assets
Debtors 15,589 55,875 8,267
14 Cash and cash equivalents 352,290 54,903 53,111
Total current assets 367,879 110,778 61,378
Creditors: amounts falling due within one year
9, 14 Loans (61,981) - (110,452)
10 Other (31,765) (45,678) (9,277)
Total current liabilities (93,746) (45,678) (119,729)
Net current assets/(liabilities) 274,133 65,100 (58,351)
Total assets less current liabilities 5,124,793 5,462,468 5,720,772
Creditors: amounts falling due after more than one year
9, 14 Loans (580,155) (501,863) (439,263)
9, 14 Debenture (575) (575) (575)
(580,730) (502,438) (439,838)
Net assets 4,544,063 4,960,030 5,280,934
Capital and reserves
11 Share capital 140,455 140,455 140,455
Capital redemption reserve 122,307 122,307 122,307
Capital reserves 4,200,635 4,598,693 4,924,320
Revenue reserve 80,666 98,575 93,852
12 Total shareholders' funds 4,544,063 4,960,030 5,280,934
12 Net asset value per ordinary share 873.36 931.59 1,002.49
- prior charges at nominal value (pence)
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
Half-year ended Half-year ended
30 June 30 June Year ended
2022 2021 31 December
2021
Notes £'000s £'000s £'000s
13 Cash flows from operating activities before dividends received and interest (18,723) (11,756) (27,576)
paid
Dividends received 49,033 39,477 77,652
Interest paid (6,108) (4,843) (11,037)
Cash flows from operating activities 24,202 22,878 39,039
Investing activities
Purchases of Investments (1,236,993) (1,322,861) (2,527,995)
Sales of Investments 1,519,188 1,259,446 2,483,392
Other capital charges and credits (24) (26) (56)
Cash flows from investing activities 282,171 (63,441) (44,659)
Cash flows before financing activities 306,373 (40,563) (5,620)
Financing activities
Equity dividends paid (35,733) (33,709) (65,578)
14 Repayment of loans (50,000) (100,000) (120,000)
14 Drawdown of loans 140,000 200,000 270,000
Cash flows from share buybacks for treasury shares (53,812) (31,273) (83,961)
Cash flows from financing activities 455 35,018 461
14 Net increase/(decrease) in cash and cash equivalents 306,828 (5,545) (5,159)
Cash and cash equivalents at the beginning of the period 53,111 46,654 46,654
14 Effect of movement in foreign exchange (7,649) 13,794 11,616
Cash and cash equivalents at the end of the 352,290 54,903 53,111
period
Represented by:
Cash at bank 219,657 24,711 27,798
Short term deposits 132,633 30,192 25,313
Cash and cash equivalents at the end of the 352,290 54,903 53,111
period
UNAUDITED NOTES ON THE CONDENSED ACCOUNTS
1 Results
The results for the six months to 30 June 2022 and 30 June 2021 constitute
non-statutory accounts within the meaning of Section 434 of the Companies Act
2006. The latest published accounts which have been delivered to the Registrar
of Companies are for the year ended 31 December 2021; the report of the
Auditors thereon was unqualified and did not contain a statement under Section
498 of the Companies Act 2006. The condensed financial statements shown for
the year ended 31 December 2021 are an extract from those accounts.
2 Accounting policies
(a) Basis of preparation
These condensed financial statements have been prepared on a going concern
basis in accordance with the Companies Act 2006, Interim Financial Reporting
(FRS 104) and the revised Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (SORP),
issued by the AIC in April 2021.
The accounting policies applied for the condensed set of financial statements
are set out in the Company's annual report for the year ended 31 December
2021.
(b) Use of judgements, estimates and assumptions
The presentation of the financial statements in accordance with accounting
standards requires the Board to make judgements, estimates and assumptions
that affect the accounting policies and reported amounts of assets,
liabilities, income and expenses. Estimates and judgements are continually
evaluated and are based on perceived risks, historical experience,
expectations of plausible future events and other factors. Actual results may
differ from these estimates.
The area requiring the most significant judgement and estimation in the
preparation of the financial statements is accounting for the value of
unquoted investments.
The policy for valuation of unquoted securities is set out in note 8 of the
accounts and further information on Board procedures is contained in the
Report of the Audit Committee and note 26(d) of the Report and Accounts as at
31 December 2021. The choice to only apply cash flows in the roll forward is a
judgment made each year for the indirect investments. Material judgements were
applied to the valuation of the Company's direct investment, Inflexion
Strategic Partners. This investment was valued using the earnings method
multipled by a comparable quoted company multiple (where the judgement of
which comparable companies to select and what discounts to apply are
subjective). The fair value of unquoted (Level 3) investments, as disclosed in
note 8, represented 12.2% of total investments at 30 June 2022. Under
foreseeable market conditions the collective value of such investments may
rise or fall in the short term by more than 25%, in the opinion of the
Directors. A fall of 25% in the value of the unlisted (Level 3) portfolio at
the half-year would equate to £148m or 3.3% of net assets and a similar
percentage rise should be construed accordingly.
3 Income
Half-year ended Half-year ended
30 June 2022 30 June 2021
£'000s £'000s
Income comprises:
UK dividends 4,649 4,135
Overseas dividends 45,988 36,119
Interest on short-term deposits and other income 196 142
Income 50,833 40,396
Included within income is £1.0m (30 June 2021: £0.6m; 31 December 2021:
£1.4m) of special dividends classified as revenue in nature.
The value of special dividends treated as capital in nature is £0.1m (30 June
2021: £0.0m; 31 December 2021: £1.5m).
4 Fees and other expenses and interest payable and similar charges
Half-year ended Half-year ended
30 June 2022 30 June 2021
£'000s £'000s
Fees and other expenses 11,632 11,181
Interest payable and similar charges 7,006 4,884
Total 18,638 16,065
Fees and other expenses comprise:
Allocated to Revenue Account
- Management fees payable directly to the Manager* 2,252 2,391
- Other expenses 2,596 1,584
4,848 3,975
Allocated to Capital Account
- Management fees payable directly to the Manager* 6,755 7,172
- Other expenses 29 34
6,784 7,206
Interest payable and similar charges comprise:
Allocated to Revenue Account 1,751 1,221
Allocated to Capital Account 5,255 3,663
* Including reimbursement in respect of services provided by sub-managers
The Manager's remuneration is based on a fee of 0.325% (0.35% up to 31
December 2021) per annum of the market capitalisation of the Company up to
£3.0 billion, 0.30% between £3.0 and £4.0 billion, and 0.25% above £4.0
billion calculated at each month end date on a pro-rata basis. The fee is
adjusted for fees earned by the Manager in respect of investment holdings
managed or advised by the Manager. Variable fees payable in respect of third
party sub-managers are also reimbursed. The services provided by the Manager
remain unchanged from those disclosed within the accounts for the year ended
31 December 2021. The level of variable fees payable in respect of third party
sub-managers and private equity managers remain unchanged since the year end.
5 Taxation
The taxation charge of £5,924,000 (30 June 2021: £3,768,000) relates to
irrecoverable overseas taxation and Indian tax on capital gains.
6 Net return per share
Net return per ordinary share attributable to ordinary shareholders reflects
the overall performance of the Company in the period. Net revenue recognised
in the first six months is not indicative of the total likely to be received
in the full accounting year.
Half-year ended Half-year ended Half-year ended Half-year ended
30 June 2022 30 June 2022 30 June 30 June
pence £'000s 2021 2021
pence £'000s
Revenue return 7.48 39,196 5.86 31,354
Capital return (127.67) (669,333) 90.69 484,884
Total return (120.19) (630,137) 96.55 516,238
Weighted average ordinary shares in issue excluding treasury shares (see note 524,268,795 534,639,847
11)
7 Dividends
Half-year ended 30 June 2022 Half-year ended 30 June 2021 Year ended 31 December 2021
£'000s £'000s £'000s
Dividends paid and payable on ordinary shares
Register date Payment date
2020 Third interim of 2.90p 3-Jan-2021 01-Feb-2021 - 15,563 15,563
2020 Final of 3.40p 16-Apr-2021 13-May-2021 - 18,146 18,146
2021 First interim of 3.00p 16-Jul-2021 2-Aug-2021 - - 15,967
2021 Second interim of 3.00p 8-Oct-2021 1-Nov-2021 - - 15,902
2021 Third interim of 3.00p 7-Jan-2022 1-Feb-2022 15,804 - -
2021 Final of 3.80p 8-Apr-2022 10-May-2022 19,929 - -
2022 First interim of 3.20p 1-Jul-2022 1-Aug-2022 16,649 - -
52,382 33,709 65,578
The Directors have declared a first interim dividend in respect of the year
ending 31 December 2022 of 3.20p per share, payable on 1 August 2022 to all
shareholders on the register at close of business on 1 July 2022. The amount
of this dividend will be £16,649,000 based on 520,294,833 shares in issue at
30 June 2022. This amount has been accrued in the results for the half-year
ended 30 June 2022 as the ex-dividend date was 30 June 2022.
8 Investments
Fair value hierarchy
The Company's Investments as disclosed in the balance sheet are valued at fair
value.
The fair value as at the reporting date has been estimated using the following
fair value hierarchy:
Level 1 includes investments and derivatives listed on any recognised stock
exchange or quoted on the AIM market in the UK and quoted open-ended funds.
Level 2 includes investments for which the quoted price has been suspended,
forward exchange contracts and other derivative instruments.
Level 3 includes investments in private companies or securities, whether
invested in directly or through pooled Private Equity vehicles, for which
observable market data is not specifically available.
The analysis of the valuation basis for financial instruments based on the
hierarchy is as follows:
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021
£'000s £'000s £'000s
Level 1 4,259,149 4,951,479 5,259,951
Level 3 591,511 445,889 519,172
Total valuation of investments 5,850,660 5,397,368
5,779,123
With respect specifically to investments in Private Equity, whether through
funds or partnerships, the Directors rely on the latest available unaudited
quarterly valuations of the underlying unlisted investments as supplied by the
investment advisers or managers of those funds or partnerships. The Directors
regularly review the principles applied by the managers to those valuations to
ensure they are in compliance with the principal accounting policies as stated
in the year end report and accounts.
No investments held at 30 June 2022, 30 June 2021 or 31 December 2021 were
valued in accordance with level 2.
Derivative instruments
Derivative instruments included forward exchange contracts with a net
unrealised capital loss of £1.6m as at 30 June 2022 (30 June 2021: unrealised
capital loss of £1.2m and 31 December 2021: unrealised capital loss of
£4.8m).
9 Loans and Debenture
31 December 2021
30 June 2022 30 June 2021 £'000s
£'000s £'000s
Loans falling due within one year 61,981 - 110,452
Loans falling due after more than one year 580,155 501,863 439,263
Debenture falling due after more than one year 575 575 575
Comprising: - - £50m
Sterling denominated loan, falling due within one year
Euro denominated loan, falling due within one year €72m - €72m
Sterling denominated loan, falling due after more one year £544m £404m £404m
Euro denominated loan, falling due after more than one year €42m €42m
€114m
4.25% perpetual debenture stock £0.575m £0.575m £0.575m
In March 2022 the Company issued fixed rate senior unsecured notes in tranches
of £50 million, £45 million and £45 million expiring in March 2037, March
2056 and March 2061 respectively. Interest rates applying to the notes are
commercially competitive and fixed until the expiry dates.
10 Other creditors falling due within one year
30 June 2022 30 June 2021 31 December 2021
£'000s £'000s £'000s
Cost of ordinary shares repurchased 1,325 3,205 784
Investment creditors 8,346 37,955 42
Management fee payable to the Manager 1,726 2,173 2,241
Foreign exchange contracts 1,559 1,205 4,806
Dividend payable 16,649 - -
Other accrued expenses 2,160 1,140 1,404
31,765 45,678 9,277
11 Share capital
Total shares in issue
Shares entitled to dividend nominal
Shares held in treasury Number Total shares in issue £'000s
Number Number
Equity share capital
Ordinary shares of 25p each
Balance at 31 December 2020 35,035,876 526,783,140 561,819,016 140,455
Shares repurchased by the Company and held in treasury 6,488,307 (6,488,307) - -
Balance at 30 June 2021 41,524,183 520,294,833 561,819,016 140,455
6,488,307 shares were repurchased during the period at a cost of £54,352,000.
Shares held in treasury have no voting rights and no right to dividend
distributions and are excluded from the calculations of earnings per share and
net asset value per share.
12 Net asset value per ordinary share 30 June 2021 30 June 2021 31 December 2021
Net asset value per share -pence 873.36 931,59 1,002.49
Net assets attributable at end of period - £'000s 4,544,063 4,960,030 5,280,934
Ordinary shares of 25p in issue at end of period excluding shares held in 520,294,833 532,428,251
treasury - number
526,783,140
Net asset value per share (with the debenture stock and long-term loans at
market value) at 30 June 2022 was 892.77p (30 June 2021: 927.41p and
31 December 2021: 998.72p). The market value of debenture stocks at 30 June
2022 was £429,000 (30 June 2021 and 31 December 2021: £429,000). The market
value of the long-term loans at 30 June 2022 was £479,338,000 (30 June 2021:
£524,243,000 and 31 December 2021: £458,896,000) based on the equivalent
benchmark gilts or relevant commercially available current debt.
13 Reconciliation of net return before taxation to cash flows from operating
activities
Half-year ended Half-year ended
30 June 2022 30 June 2021 Year ended
£'000s £'000s 31 December 2021
£'000s
Net return on ordinary activities before taxation (624,213) 520,006 927,156
Adjust for non-cash flow items, dividend income and interest expense:
Losses/(gains) on investments 649,585 (487,969) (879,862)
Exchange losses/(gains) 6,823 (7,706) (4,075)
Non-operating expense of a capital nature 29 34 57
(Increase)/decrease in other debtors (112) 24 60
Decrease in creditors (635) (341) (61)
Dividends receivable (50,637) (40,254) (77,618)
Interest payable 7,006 4,884 11,113
Tax on overseas income and Indian Capital Gains Tax (6,569) (434) (4,346)
605,490 (531,762) (954,732)
Cash flows from operating activities (before dividends received and interest
paid)
(18,723) (11,756) (27,576)
14 Analysis of changes in net debt
Long term loans £'000s
Short term loans £'000s Forward FX
Cash Debenture £'000s Total
£'000s £'000s £'000s
Opening net debt as at 31 December 2021 53,111 (575) (501,985)
(110,452) (439,263) (4,806)
Cash-flows:
Drawdown of loans - - (140,000) - - (140,000)
Repayment of bank loans - 50,000 - - - 50,000
Net movement in cash and cash equivalents
306,828 - - - - 306,828
Non-cash:
Effect of foreign exchange movements
(7,649) (1,529) (892) - 3,247 (6,823)
Closing net debt as at 30 June 2022 352,290 (61,981) (580,155) (575) (1,559) (291,980)
15 Going concern
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council. They have
also considered the Company's objective, strategy and policy; current cash
position; the availability of loan finance; compliance with all financial loan
and private placement covenants; and the operational resilience of the Company
and its service providers. It is recognised that the Company is mainly
invested in readily realisable, globally listed securities that can be sold,
if necessary, to repay indebtedness.
Based on this information and their knowledge and experience of the Company's
portfolio and stockmarkets, the Directors believe that the Company has the
ability to meet its financial obligations as they fall due for a period of at
least twelve months from the date of approval of these financial statements.
Accordingly, these financial statements have been prepared on a going concern
basis.
Statement of Principal and Emerging Risks and Uncertainties
The Company's principal risks and uncertainties are described in detail under
the heading 'Principal risks and future prospects' within the strategic report
in the Company's annual report for the year ended 31 December 2021. They
include: failure to access the targeted market or meet investor needs or
expectations; inappropriate asset allocation, sector and stock selection,
currency exposure and use of gearing and derivatives may lead to investment
underperformance; failure of the management company to continue to operate
effectively resulting from inadequate systems or resources or through loss of
key staff; COVID-19 and the implementation of hybrid working arrangements and
increased sophistication of cyber threats have heightened the risk of loss
through errors, fraud or control failures at service providers or loss of data
through business continuity failure.
In the view of the Board, there have not been any material changes to the
fundamental nature of these risks and they are applicable to the remainder of
the financial year.
Statement of Responsibilities in Respect of the Half-Yearly Financial Report
In accordance with Chapter 4 of the Disclosure Guidance and Transparency
Rules, the Directors confirm that to the best of their knowledge:
· the condensed set of financial statements has been prepared in
accordance with applicable UK Accounting Standards on a going concern basis
and gives a true and fair view of the assets, liabilities, financial position
and net return of the Company;
· the half-yearly report includes a fair review of the important
events that have occurred during the first six months of the financial year
and their impact on the financial statements;
· the Statement of Principal and Emerging Risks and Uncertainties
shown above is a fair review of the principal risks and uncertainties for the
remainder of the financial year; and
· the half-yearly report includes a fair review of the related
party transactions that have taken place in the first six months of the
financial year.
On behalf of the Board
Beatrice Hollond
Chairman
22 July 2022
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
Columbia Threadneedle Investment Business Limited,
Company Secretary
ENDS
A copy of the half report will shortly be submitted to the National Storage
Mechanism and will be available for inspection at www.fca.org.uk
The half-year report will be posted to shareholders and made available on the
internet at www.fandc.com (http://www.fandc.com) shortly. Copies may be
obtained during normal business hours from the Company's Registered Office,
Exchange House, Primrose Street, London EC2A 2NY.
Columbia Threadneedle Investment Business Limited
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