REG-Finsbury Growth & Income Trust Plc: Final Results
07/12/2023 07:15
7 December 2023
Finsbury Growth & Income Trust PLC
(the “Company”)
This announcement contains regulated information
Annual Financial Report for the year ended 30 September 2023
COMPANY SUMMARY
Finsbury Growth & Income Trust PLC is a listed investment company and a
constituent of the FTSE 250. The Company is a member of the Association of
Investment Companies (“AIC”).
OBJECTIVES AND PERFORMANCE MEASUREMENT
The Company aims to achieve capital and income growth and to provide
shareholders with a total return in excess of that of the FTSE All-Share Index
(the Company’s benchmark).
The Company’s net assets as at 30 September 2023 were £1,822.7 million
(2022: £1,830.4 million) and the market capitalisation was £1,742.5 million
(2022: £1,725.9 million).
The net asset value per share increased by 7.2% during the financial year to
30 September 2023 on a total return basis (2022: -5.8%).
DIVIDENDS
A first interim dividend of 8.5p per share was paid on 19 May 2023 to
shareholders registered at close of business on 11 April 2023. The associated
ex-dividend date was 6 April 2023.
A second interim dividend of 10.5p per share was paid on 10 November 2023 to
shareholders registered at close of business on 6 October 2023. The associated
ex-dividend date was 5 October 2023.
The total dividend declared for the year was therefore 19.0p per share (2022:
18.1p per share), an increase of 5.0%.
KEY FACTS
891.2p
Net asset value per share
2022: 848.4p (change: +5.0%)
852.0p
Share price
2022: 800.0p (change: +6.5%)
4.4%
Discount of share price to net asset value per share^
2022: 5.7%
61.4p
Return/(loss) per share†
2022: (53.4)p
85.3%
Active Share*^
2022: 84.8%
19.0p
Total dividends per share for the year†
2022: 18.1p (change: +5.0%)
FIVE YEAR PERFORMANCE SUMMARY
AS AT 30 SEPTEMBER 2019 2020 2021 2022 2023
Share price 942.0p 840.0p 876.0p 800.0p 852.0p
Net asset value per share 935.6p 846.2p 917.7p 848.4p 891.2p
Premium/(discount) of Share price to net asset value per share 0.7% (0.7)% (4.5)% (5.7)% (4.4)%
YEAR ENDED 30 SEPTEMBER 2019 2020 2021 2022 2023
Share price total return * ^ +17.4% (9.0)% +6.3% (5.6)% +7.5%
Net asset value per share total return * ^ +17.4% (7.7)% +10.6% (5.8)% +7.2%
FTSE All-Share Index total return ** # +2.7% (16.6)% +27.9% (4.0)% +13.8%
Total return/(loss) per share † 143.8p (67.1)p 88.0p (53.4)p 61.4p
Dividends per share † 16.6p 16.6p 17.1p 18.1p 19.0p
* Source: Morningstar
** Source: FTSE International Limited (“FTSE”) © FTSE, 2023
# See glossary of terms and alternative performance measures)
^ Alternative Performance Measure (“APM”) (see glossary)
† UK GAAP Measure
7.2% Net asset value per share total return* , ^ 2022: -5.8% 7.5% Share price total return* , ^ 2022: -5.6%
£1.823bn Shareholders’ funds † 2022: £1.830bn (change: -0.4%) 204,519,434 (excluding 20,471,869 shares held in Treasury) Number of shares in issue 2022: 215,737,992 (Treasury shares 2022: 9,253,311) (change: -5.2%)
0.61% Ongoing charges ^ 2022: 0.60% 0.8% Gearing ^ 2022: 1.2%
* Source – Morningstar
^ Alternative Performance Measure
† UK GAAP Measure
The Company was incorporated in Scotland on 15 January 1926. Lindsell Train
Limited (“Lindsell Train”) was appointed as Portfolio Manager in December
2000. The total return of the Company’s share price over the ten years to 30
September 2023 has been 118.9%, equivalent to a compound annual return of
8.2%. This compares with a total return of 71.8%* from the Company’s
benchmark, equivalent to a compound annual return of 5.6%*.
* Source: Morningstar, FTSE International Limited (“FTSE”) © FTSE2023
KEY PERFORMANCE INDICATORS (“KPIs”)
The Board uses certain financial and non-financial KPIs to monitor and assess
the performance of the Company in achieving its strategic aims.
The Board reviews the performance of the portfolio in detail and hears the
views of the Portfolio Manager at each meeting.
Information on the Company’s performance is provided in the Chairman’s
Statement and the Portfolio Manager’s Review.
This performance is assessed against the following KPIs which are unchanged
from last year.
Alternative Performance Measures (“APM”)
The Board believes that each of the APMs, which are typically used within the
investment company sector, provides additional useful information to
Shareholders in order to assess the Company’s performance between reporting
periods and against its peer group. The APMs used for the year under review
are unchanged from last year. Further information on each of the APMs can be
found in the glossary.
7.2%
NET ASSET VALUE TOTAL RETURN^*
This reflects the change in the Company’s net asset value including the
impact of reinvested dividends.
During the year under review the Company’s net asset value per share total
return was 7.2% (2022: -5.8%).
19.0p
DIVIDENDS PER SHARE†
The total dividend declared for the year was 19.0 pence per share (2022: 18.1
pence per share), an increase of 5.0%.
61.4p
RETURN/(LOSS) PER SHARE†
The total return per share for the year was 61.4 pence per share (2022: loss
of 53.4 pence per share).
Over five years, the Company earned a total of 172.7 pence per share.
7.5%
SHARE PRICE TOTAL RETURN^*
This reflects the change in the value of the Company’s share price including
the impact of reinvested dividends.
During the year under review the Company’s share price total return was 7.5%
(2022: -5.6%).
(6.3)%
RELATIVE PERFORMANCE TO BENCHMARK AND PEER GROUP
The Company’s benchmark is the FTSE All-Share Index (total return) which
delivered a return of 13.8% (2022: -4.0%) over the year. This compares with
the Company’s share price total return of 7.5% (2022: -5.6%) resulting in a
6.3% underperformance against the benchmark.
The Board also monitors the Company’s share price return* against its AIC
peer group^. As at 30 September 2023 the Company’s ranking against its peer
group of UK Equity income sector was:
Rank out of 23
Period 2023 2022
1 yr 14 5
3 yr 22 20
5 yr 9 4
10 yr 2 2
(4.4)%
SHARE PRICE DISCOUNT/PREMIUM TO NET ASSET VALUE PER SHARE^
The Board reviews the level of discount/ premium to net asset value per share
at every Board meeting and consideration is given to ways in which the share
price performance may be enhanced, including the effectiveness of marketing,
share issuance and buy-backs, where appropriate. Details of how the
Company’s share buy-back and issuance policy works can be found in the
Statutory Documentation section on the Company’s website.
No shares were issued by the Company during the year (2022: Nil). At 30
September 2023 the Company’s share price stood at a 4.4% discount to the
Company’s net asset value per share (2022: 5.7% discount).
During the year, the Company bought back 11,218,558 shares into Treasury
(2022: 9,253,311) at an average price of 870.6 pence and an average discount
of 4.8%.
Since the year end to 5 December 2023 the Company has purchased a further
5,045,317 shares to be held in Treasury.
^ Alternative Performance Measure (see glossary)
* Source: Morningstar
CHAIRMAN’S STATEMENT
PERFORMANCE
It is disappointing to report that while the Company’s net asset value per
share has showed a positive return, this is the third consecutive year of
underperformance relative to its benchmark, the FTSE All-Share Index.
This marks the longest such period for the Company since Lindsell Train was
appointed as the Company’s Portfolio Manager in December 2000. It means that
while shareholders have benefited from a strong long-term performance record,
this is not the case for more recent investors, who will have experienced weak
relative returns.
The Company’s net asset value per share returned 7.2% (2022: -5.8%) over the
course of the year, compared with its benchmark which over the period
generated a return of 13.8% (2022: -4.0%). The share price total return over
the same period was 7.5% (2022: -5.6%).
As the primary purpose of any investment company must be to produce attractive
returns for investors, the recent track record is concerning and has been the
focus of your Board’s attention. Our role on behalf of shareholders is to
hold the Portfolio Manager to account and to challenge constructively, a
process which Nick Train fully embraces, I am pleased to say.
The Board will continue to monitor performance closely. While investors’
attention is inevitably drawn to shorter-term macroeconomic and geopolitical
news, we encourage the Portfolio Manager to continue to focus on delivery over
the long term.
We remain supportive of Lindsell Train’s investment approach, namely running
a highly concentrated portfolio of high quality businesses with high returns
on equity, and believe that ultimately this will be reflected in the share
prices of the companies we own and hence in the performance of the Company.
Importantly, there has been a consistency in the stated investment philosophy
and that is reflected in the portfolio’s constituents. At the same time,
there is room for some portfolio evolution, as Nick Train points out in his
report, with an increasing role within the portfolio for data, analytics and
software companies.
As it is always important to point out, a highly concentrated portfolio means
higher risk, particularly in the short-term. At 30 September 2023, the
Company’s Active Share – a measure of how much it varies from the FTSE
All-Share Index benchmark - was 85.3% (2022: 84.8%). Such an uncorrelated
portfolio will inevitably perform very differently from the wider market,
whether positively or negatively.
I urge you to read Nick Train’s very helpful review where he discusses
candidly the reasons for the relative underperformance and describes in detail
the portfolio’s composition and why he believes it offers the possibility of
better future returns.
SHARE BUY-BACKS
The Board keeps the Company’s discount under close review and is committed
to buying back its own shares at or near the 5% level, in accordance with its
policy.
While share buy-backs will not necessarily prevent the discount from widening
further, particularly in times of market volatility, they may, to a limited
extent, mitigate a widening trend. In addition, buy-backs enhance the net
asset value per share for remaining shareholders, provide some additional
liquidity and help to dampen discount volatility which can damage shareholder
returns.
Discounts are affected by many factors outside the Company’s control but
where it is in Shareholders’ interests (taking account of market
conditions), the Company remains committed to buying back shares at a discount
to NAV, as demonstrated over the past year.
As at 30 September 2023 the discount was 4.4% compared with a closing discount
at the last year end of 5.7%. During the year under review the Company bought
back a total of 11,218,558 shares (5.5% of the shares in issue) into Treasury
at a cost of approximately £97.7 million and at an average discount of 4.8%.
Over the course of the year the Company’s discount averaged 4.5%.
As at the close of the UK market on 5 December 2023, the discount was 6.4%.
Since the year end, a further 5,045,317 shares were bought back into Treasury
at a cost of £41.5 million. As at 5 December 2023, the Company had
199,474,117 shares in issue (excluding 25,517,186 shares held in Treasury).
RETURN AND DIVIDEND
The Income Statement shows a total return of 61.4p per share (2022: loss of
53.4p) consisting of a revenue return per share of 20.0p (2022: 20.6p) and a
capital return per share of 41.4p (2022: loss of 74.0p).
Your Board has declared two interim dividends for the year totalling 19.0p per
share (2022: 18.1p), an increase of 5%. In order to facilitate dividend
payments on a timely and cost-effective basis, your Board continues to elect
to distribute the Company’s income to Shareholders by means of two interim
dividends rather than wait several months to secure shareholder approval to
pay a final dividend at the Annual General Meeting. This dividend policy will
again be proposed for approval at the forthcoming Annual General Meeting
(AGM).
LOAN FACILITY
As at 30 September 2023 a total of £36.7 million (2022: £36.7 million) was
drawn down under our £60 million facility.
Further details can be found within the Report of the Directors and note 12 to
the Financial Statements.
INCREASE TO DIRECTORS’ FEES CAP
The Board of Directors is proposing to increase the maximum aggregate amount
potentially payable to Directors by way of fees for their services as
Directors under Article 122 from £200,000 to £300,000 in any financial year.
This proposed limit increase is not due to any unusual rises in Directors’
fees, which are expected to be approximately £192,000 in the current
financial year.
An ordinary resolution will be put to Shareholders at the AGM to increase this
limit to £300,000. Further details can be found in the Report of the
Directors and in the Directors’ Remuneration Report.
CANCELLATION OF SHARE PREMIUM ACCOUNT
The Company has built up a substantial share premium account owing to historic
high levels of share issuance. A special resolution will be put to
Shareholders at the AGM to cancel the amount standing to the credit of the
Company’s share premium account, following which an application will be made
to the Scottish Court of Session to obtain its approval to the cancellation
and the creation of an equivalent distributable reserve.
AUDIT TENDER
The Audit Committee is in the process of conducting an audit tender which is
due to be completed in early 2024. Accordingly, the Board has not proposed the
re-election of the current auditor, PricewaterhouseCoopers LLP, at the
forthcoming AGM. The Board will appoint the successful audit firm to carry out
the audit for the year ending 30 September 2024 and will recommend their
appointment (or re-appointment) to Shareholders at the AGM held in 2025.
ANNUAL GENERAL MEETING
The AGM of the Company this year will again be held at Guildhall, City of
London EC2V 7HH (please use the Basinghall Street Entrance) on Tuesday, 23
January 2024 at 12 noon, and we hope as many Shareholders as possible will
attend. This will be an opportunity to meet the Board and to receive a
presentation from our Portfolio Manager.
The Board strongly encourages all Shareholders to exercise their votes in
respect of the meeting in advance. Details of how Shareholders can vote,
whether holding their shares directly or on retail platforms, is set out in
the Notice of Meeting. Any Shareholder who requires a hard copy form of proxy
may request one from the Registrar, Link Group.
OUTLOOK
Your Board continues to support fully the Portfolio Manager’s disciplined
strategy of investing in high quality companies that own both durable and cash
generative franchises. It has delivered attractive returns over the longer
term and we firmly believe that this will continue to deliver strong
investment returns to shareholders in the future.
Our belief is clearly shared with our Portfolio Manager who has continued to
buy shares in the Company. From 1 October 2022 to the date of this Report,
Nick Train has acquired 659,604 shares and currently speaks for 2.6% of the
equity of the Company (December 2022: 2.2%).
Simon Hayes
Chairman
6 December 2023
INVESTMENT PORTFOLIO
PORTFOLIO SECTOR WEIGHTINGS+
2023 2022
Consumer Staples (“CS”) 38.0% 43.4%
Consumer Discretionary (“CD”) 23.4% 22.1%
Financials (“F”) 22.3% 22.2%
Technology (“T”) 8.4% 6.2%
Industrials (“I”) 7.9% 6.1%
Source: Frostrow Capital LLP
+ FTSE Industrial Classification Benchmark (“ICB”) sectors.
GEOGRAPHICAL ALLOCATION†
2023 2022
United Kingdom 84.2% 80.8%
United States of America 7.3% 8.2%
Netherlands 4.8% 5.2%
France 3.7% 5.8%
Source: Frostrow Capital LLP
† The Company’s investment policy attributes geographical location based
on where companies are listed or otherwise incorporated, domiciled or having
significant business operations.
INVESTMENTS AS AT 30 SEPTEMBER 2023
SECTOR INVESTMENTS FAIR VALUE 1 OCTOBER 2022 £’000 NET INVEST-MENTS £’000 CAPITAL APPRE-CIATION/ (DEPRE-CIATION) £’000 FAIR VALUE 30 SEPT-EMBER 2023 £’000 % OF INVEST-MENTS TOTAL RETURN £’000 CONTRI-BUTION PER SHARE (PENCE)
CD RELX 221,773 (47,831) 53,886 227,828 12.4 59,085 28.2
F London Stock Exchange Group 197,375 (109) 15,696 212,962 11.6 18,576 8.9
CS Diageo 229,472 (1,089) (45,888) 182,495 9.9 (41,075) (19.6)
CS Unilever 171,560 (12,108) 4,247 163,699 8.9 10,550 5.0
T Sage 114,658 (7,098) 46,506 154,066 8.4 49,531 23.6
CD Burberry 147,049 (10,205) 10,301 147,145 8.0 15,117 7.2
I Experian 112,265 32,413 125 144,803 7.9 2,146 1.0
CS Mondelez International # 152,381 (40,477) 22,052 133,956 7.3 24,717 11.8
F Schroders 108,821 (14,182) 6,674 101,313 5.5 12,288 5.9
CS Heineken † 96,516 (8,262) 315 88,569 4.8 2,576 1.2
Top 10 Investments 1,556,836 84.7
CS Remy Cointreau^ 107,384 (4,940) (34,276) 68,168 3.7 (32,892) (15.6)
F Hargreaves Lansdown 67,279 (1,691) (7,254) 58,334 3.2 (6,275) (3.0)
CS Fever-Tree 26,713 2,231 11,964 40,908 2.2 12,521 6.0
CD Manchester United # 27,243 176 9,915 37,334 2.0 9,915 4.7
F Rathbone Brothers 22,989 (1,138) 1,447 23,298 1.3 3,096 1.5
CS A.G. Barr 20,145 (36) 1,593 21,702 1.2 2,173 1.0
F The Lindsell Train Investment Trust plc 9,720 – (960) 8,760 0.5 (445) (0.2)
CD Young & Co’s Brewery (non-voting) 6,191 (509) 1,426 7,108 0.4 1,636 0.8
CD Rightmove 4,823 (2) 4,821 0.3 27 0.0
CD Celtic* 3,754 – 577 4,331 0.2 584 0.3
F Frostrow Capital LLP∆** 4,725 – (1,000) 3,725 0.2 (557) (0.3)
CD Fuller Smith & Turner 2,565 (1,773) 464 1,256 0.1 514 0.2
CD Cazoo # 1,500 – (1,421) 79 0.0 (1,421) (0.7)
Total Investments 1,852,078 (111,805) 96,387 1,836,660 100.0
Bank interest and miscellaneous income 205 0.0
Total Contributions to Total Return 142,592 67.9
Expenses, Currency Translations and Finance Charges (13,734) (6.5)
Return on Ordinary Activities after Taxation 128,858 61.4
# Listed in the United States
† Listed in Netherlands
^ Listed in France
∆ Unquoted
* Includes Frostrow Capital LLP AIFM Investment, fair value £125,000 (2022:
£125,000)
** Includes Celtic 6% cumulative convertible preference shares, fair value
£267,000 (2022: £242,000)
PORTFOLIO MANAGER’S REVIEW
PERFORMANCE
Three years is a meaningful period to review the performance of a portfolio
manager, particularly one like Lindsell Train Limited (“Lindsell Train”)
which takes greater investment risk than the typical manager and therefore
should generate superior returns. It is, therefore, disappointing for me to
report on the Company’s performance over the last three years, to 30
September 2023. This shows a net asset value (“NAV”) per share total
return of 11.8% that is well adrift of the Company’s benchmark (the FTSE
All-Share’s) gain of 39.8%. There have been three consecutive financial
years of underperformance, with the most recent 12 months showing a NAV per
share total return of 7.2%, compared with the benchmark 13.8%.
I assure you that at Lindsell Train we are not complacent about
underperformance and have continued to think hard about all the holdings
within the portfolio and to consider whether our previously successful
investment approach remains relevant in the third decade of the 21st Century.
Below, I review reasons for the underperformance and then discuss aspects of
the portfolio’s construction and composition that offer the possibility of
better future returns.
UNDERPERFORMANCE
There are three main factors that combined explain the poor relative
performance.
First, in the financial year ending 30 September 2020, not holding oils,
metals and banks during the Covid-19 crisis had been a boost to relative
performance; one that reinforced my longstanding aversion to investing in
those sectors. Since then, however, it has been the economically sensitive,
more cyclical sectors that have rallied most in the UK stock market. For
example, the share price of the Company’s big holding in “defensive”
Unilever is little changed over the last three years. Meanwhile on a total
return basis Shell has risen by 203%, BP +173%, Glencore +255%, Rio Tinto +48%
and HSBC +145%. These are all major FTSE All-Share constituents and it has
hurt the Company not to own them. Indeed, we calculate that not owning those
five companies has contributed to over two thirds of my underperformance over
the past three years.
I am not saying I wish I had purchased a basket of commodity and bank shares
in late 2020, because that would have run counter to Lindsell Train’s, I
hope, clearly stated investment approach. But I do wish the portfolio had
benefited more from the end-of-Covid-19 bounce.
Next, I must acknowledge that some of my highest conviction and longstanding
holdings performed poorly over the period, exacerbating the impact of not
participating in the cyclical upswing. London Stock Exchange Group
(“LSEG”), Hargreaves Lansdown (“HL”) and even the more recently
purchased Fever-Tree are examples.
Finally, and in my view even more significant than the above, at least for
future performance, I underestimated the significance of technology change.
There has been, obviously, a huge bull market in companies that are
beneficiaries of technology change, and it is clear Covid-19 acted as an
accelerant for industry, consumer and stock market trends that had already
been gathering momentum in the second decade of the 21st Century. Finding
UK-listed data, analytics and software companies that are beneficiaries of
technology change has been and remains a priority for me and in RELX and Sage,
for instance, there has been some success. In hindsight, at the start of the
recent three-year period, I wish I had even more exposure to digital winners.
In my detailed discussion of portfolio holdings below I hope it will be
apparent how I have responded to these challenges.
INVESTMENT APPROACH
Shareholders will not be surprised to read that I reaffirm the tenets of
Lindsell Train’s investment approach, as being the best way, for us at
least, to deliver on my aspiration to deliver exceptional investment returns.
Lindsell Train runs concentrated portfolios of what we believe to be excellent
businesses. We hope and expect the value being created inside these companies,
as measured by their sustainable Returns on Equity (“RoE”), will create
wealth for our investors over time. The average weighted RoE for the
Company’s portfolio as at 30 September 2023 was 26%. We know what the
effects can be of owning fine businesses in size over long periods, because we
have already done so for the Company since Lindsell Train’s appointment.
Over 20 years Diageo’s share price total return is up over sevenfold, LSEG
thirty fivefold, RELX ninefold and even Unilever is up sixfold. Concentration
can cut both ways, as the Company’s shareholders have experienced over the
last three years, but if we can continue to hold and find new positions that
can do for us what these have done over the next 20 years, then the Company
certainly offers a differentiated and potentially rewarding portfolio and
investment approach.
The Company’s portfolio is indeed concentrated, with only 16 major holdings
above 1% of NAV. I exclude holdings of below 1%, because they are
insignificant in the affairs of the Company and are either being gradually
disposed of or accumulated (combined holdings less than 1% of NAV, amount to
1.4% of the portfolio). The top ten holdings account for circa 85% of the
total and the top 5 for circa 51%.
Confirmation that the portfolio is invested in profitable and growing
businesses can be found in the fact that 91% of the portfolio holdings above
1.0% of NAV have increased their dividend this year (the exceptions are
Manchester United and Schroders). Meanwhile more than 75% of the portfolio by
value is either buying back shares or has paid a special dividend in 2023.
In the Annual Report you can see a chart showing the progress of the
Company’s dividend payments since Lindsell Train’s appointment as
Portfolio Manager and, alongside it, the dividend growth of individual
portfolio holdings above 1% of NAV over that same period. As you can see, the
dividend growth varies from the pedestrian – A.G. Barr (its dividend was
suspended during Covid-19) – to the spectacular London Stock Exchange Group
(“LSEG”). Generally, though, I think shareholders should be encouraged by
the dividend histories of our big holdings. If their dividend growth
continues, their share prices will follow.
Portfolio dividend increases 2001 - 2023
A.G. Barr 3.7x
Burberry 20.3x
Diageo 3.7x
Experian 3.2x
Fever-Tree 15.2x
Hargreaves Lansdown 7.6x
Heineken 6.0x
London Stock Exchange Group 36.5x
Manchester United not paying a dividend
Mondelez 2.8x
Rathbones Group 3.4x
RELX 5.6x
Remy Cointreau 3.3x
Sage 46.7x
Schroders 6.8x
Unilever 5.1x
Note: The following holdings only started paying a dividend in the years as
indicated.
Experian from 2007; Fever-Tree from 2015; Hargreaves Lansdown from 2008; and,
Burberry from 2002. Data provided for Mondelez from 2002 (first full year of
distributions).
PORTFOLIO CONSTRUCTION AND CONSTITUENTS
The best way to convey our investment approach and my optimism for the
Company’s prospects is to discuss the investment case for each of our
holdings and show how its presence in the portfolio is consistent with our
strategic outlook. Therefore, I propose to do so in this report.
First, I will make a broad statement about that strategic outlook. We expect
there will be an acceleration in technology innovation in coming decades. The
result will be great new investment value created by companies that can take
advantage of the new technologies. In addition, technology change can be
expected to generate productivity-driven wealth for the world’s population,
albeit unequally distributed.
Given that outlook, a question is begged. Can a portfolio whose performance is
measured against the FTSE All-Share Index, like the Company’s, and that
invests very predominantly in UK companies, be expected to deliver attractive
investment returns? In my opinion the answer to that question is yes. Although
that may surprise some, I hope shareholders will agree after reading this
report that the Company’s portfolio is comprised of companies that are well
placed to participate in global growth.
The best way to review the Company’s portfolio is to consider the four
industry categories it is built around. These are, in order of size, as this
report is written:
Data, Analytics and Software 44%
Luxury and Premium Consumer Brands 31%
Mass Market Consumer Brands 18%
UK Fund Management 7%
Source: Lindsell Train Limited.
DATA, ANALYTICS AND SOFTWARE
This is the biggest category in the Company’s portfolio, deliberately so,
and it continues to grow as the constituent shares go up and because we have
added new holdings here over the last three years. All the companies in this
segment provide services, often to global customers, that are critical to
their customers’ ability to conduct their business or personal affairs. It
is, in our opinion, also important to note that all these companies already
use Artificial Intelligence (“AI”)-enhanced tools to improve the value of
their services. Indeed, we believe it is possible to argue that these
UK-listed companies are as well positioned to take advantage of AI as most to
be found quoted on other stock markets. If that proposition is correct, there
could be significant scope for share price gains, because their valuations are
often lower than for global peers. I discuss in order of position size.
RELX
The Company’s biggest holding has recently hit an all-time high and is one
of the best performers in the portfolio in 2023. It is the 11th biggest
company in the FTSE 100 and its success and size is based on the importance of
the data services it provides to professionals in the global scientific, legal
and insurance industries. CEO, Erik Engstrom, has been in that role since 2009
(RELX shares are up nearly sevenfold since his appointment), but, meeting him
again recently, it is clear that the company’s strategic advantages and its
growth opportunities are better than ever.
The chart in the Annual Report shows RELX’s total share price return since
the start of the current century, compared with that of the US NASDAQ
Composite, expressed in Sterling. Even now, some of our clients are surprised
to see how well RELX has done, even compared with the “home” of
technology, the NASDAQ. We believe there are other UK-listed data and software
companies that can perform as well in the future as we hope RELX will continue
to do.
“Our ability to identify and leverage (AI Technology) ahead of others is a
competitive advantage…this is the main driver in our growth rate and
increasing value-add.”
NICK LUFF, FD, RELX
LSEG
London Stock Exchange Group (“LSEG”) is the Company’s second largest
holding, in part because in 2023 its shares have, at last, shown a
double-digit gain. Nonetheless, LSEG’s shares are still below levels reached
in 2021 and, as a result, have been a detractor to the Company’s performance
since then. After the acquisition of data company, Refinitiv, LSEG is now the
world’s leading provider of real-time financial data. The shares have had to
contend with investor scepticism about the success of this acquisition and
with a sizeable overhang of LSEG shares that the vendors of Refinitiv have
signalled they intend to sell. To date, trading updates from the combined
group have been encouraging and two thirds of the stock overhang has been
placed. More important, in our opinion, is the joint venture that LSEG entered
into with Microsoft, announced in December 2022. This joint venture, which
involved Microsoft becoming a top ten shareholder in LSEG, is designed to
accelerate LSEG’s growth as a leading provider of data services to global
financial institutions. Microsoft’s CEO specifically cited the opportunity
to use Microsoft’s cloud-computing and AI capabilities to enhance LSEG’s
comprehensive data services.
Experian
This is a relatively new holding for the Company, initiated in 2020,
specifically because I wanted to increase portfolio exposure to globally
significant data and analytics companies. The shares are effectively unchanged
since we began to buy and I have taken advantage of this period of
underperformance to grow the position into one of the biggest in the
Company’s portfolio – 7.9%, as I write this report. Experian is the
world’s biggest credit bureau by revenues and, as a result, has more
information about consumers and businesses than its peers and can offer a
wider range of data products and software services too. If, as people argue,
“Data is the new Oil”, Experian owns and can access deep wells of the
stuff, that others can’t. The business has grown steadily since it listed in
2007, with earnings up nearly fourfold since then. Tools to extract value from
data are becoming more powerful and we believe this will result in
Experian’s services becoming more valuable too.
Sage
Another strong share price performer for the Company in 2023, Sage shares are
being rerated, as investors come to recognise the business success the company
is enjoying after a period of necessary investment in its core accounting
software services. At its recent Innovation & Product webinar, Sage’s Chief
Technology Officer announced the development of an AI-powered accounting
assistant, a product created in partnership with Microsoft and soon to be
tested with customers. While I have no particular insight into how important
“Sage Assistant” could turn out to be, I am sure that five years ago most
investors would have doubted Sage had the expertise or even ambition to
develop such a tool. Sage is another UK-listed software/data company with a
global business (the US is its biggest market and forecast to grow at 16% this
year) that is not, or only recently, recognised by global investors.
Hargreaves Lansdown
I include HL in this category, because it is best analysed as a technology
platform business, an exceptionally profitable one – a 50% RoE for instance
– with the leading share in its market (Direct to Consumer platforms) and
that itself a market with multi-year growth ahead of it. Perhaps the clearest
corroboration of this perspective on the company is the fact that its new CEO,
appointed in August 2023, is the former Chief Technology Officer of Elsevier
(RELX’s scientific publishing division). Dan Olley has been appointed to
accelerate growth at HL and it is clear the board believes one way to do this
will be to take advantage of the data HL generates, by dint of having more
customers and more customer interactions than any of its peers. We wish the
new CEO well, because, I must admit, HL has been the biggest detractor from
the Company’s performance over the last three years. Cautious investors
believe competition will dent HL’s profitability and reduce its market
share. With profits and client numbers at record highs in 2023 the
pessimists’ case is not yet proven.
Rightmove
This is the Company’s newest recent holding, started in September 2023. It
is still a small commitment, well below 1%, but one we expect to grow. It is
another FTSE 100 company, as are all the others in this section of the
Company’s portfolio, with an opportunity to take advantage of its
proprietary data and create more value for its customers.
LUXURY & PREMIUM CONSUMER BRANDS
This is another area of the Company’s portfolio that I have deliberately
expanded in recent years, by directing cash flows to existing holdings and, in
one case, adding a new name, albeit back in 2020. We expect investing in the
shares of the owners of unique, premium brands will deliver proxy
participation in the wealth being created by technology innovation.
Diageo
The Company’s third biggest holding, Diageo, is the 6th largest company in
the FTSE 100 and the #1 alcoholic beverage business in the world. A clear
majority of its revenues derive from its premium brands. Back in 2019/2020
Diageo CEO Sir Ivan Menezes, very sadly no longer with us, told us he had set
a stretch goal for the company, of taking its share of the global total
beverage alcohol (“TBA”) market from 4% in 2020 to 6% in 2030. That would
be a 50% increase in share in a growing industry and struck us as a
worthwhile, if ambitious, target. Particularly if it could be achieved without
impairing Diageo’s existing high rates of return (RoE 48%). We were
impressed, therefore, to hear recently from his successor, Debra Crew, that by
the close of its fiscal year 2022/2023, as announced in its annual results in
August, its share of global TBA had increased from 4% to 4.7%; well on the way
to achieving the 2030 objective.
The fascinating graph below, showing the price of a pint of Guinness (one of
Diageo’s biggest brands) compared with the gold price is an important
reminder of how a great brand can protect its owners against the malign
effects of inflation over time.
I still think that the answer to the hypothetical question – What is the one
share you would own if you had to invest all your savings into it and
couldn’t sell for 20 years? – is Diageo. And it gives me a warm feeling to
see that Berkshire Hathaway, Warren Buffett’s company of course, has become
a top ten shareholder in Diageo.
Frustratingly, Diageo has had a weak share price in 2023, as it negotiates a
slowdown in the consumption of premium spirits in the Americas. But this means
the shares now trade on a valuation of under 20 times earnings, or an earnings
yield of over 5%. On these terms, we have been adding to the holding whenever
we can.
Burberry
This is the UK’s only substantive luxury brand and a FTSE 100 constituent.
When the shares listed, back in 2002, revenues were circa £500m. This year
they have hit a record of £3bn, thereby sextupling over 20 years. Over the
same period its shares have done even better and are up eight-fold. The
company has outlined plans to take revenues to £5bn per annum in the longer
term and, if achieved, this would almost certainly drive the share price
higher. Currently investors are fretting about elevated interest rates and
Burberry’s exposure to Asian consumers, but we are happy that its iconic
trench coat remains such a successful brand in that dynamic region. Interest
rates will stabilise in due course and consumer confidence revive. In
addition, as you can see in the accompanying image, Burberry is a luxury brand
that has protected its owners against the effects of inflation over the past
century.
Remy Cointreau & Heineken
Diageo is a nearly perfect alcoholic beverage company, but it does not own a
premium cognac, nor a premium light beer brand. We have chosen to rectify
those minor blemishes by holding Remy Cointreau and Heineken in the
Company’s portfolio. As at 31 December 1999 their respective share prices
were €20 and €30. As at 30 September 2023, they traded at €115 and
€84. That is indicative of the kind of steady returns that can be made by
investing long term in beverage brands as durable and aspirational as Remy
Martin and Heineken, as we have.
Fever-Tree
We started this holding in 2020, in hindsight prematurely. A difficult period
for Fever-Tree’s profitability has hit its shares but through it we have
been able to build a substantial stake in the company. The investment
proposition remains unchanged. Fever-Tree has effectively created a new
consumer category – premium mixers. It dominates its domestic market;
indeed, its share of the entire UK mixer category hit an all-time high over
the last six months, 45%. But the crux of the case is whether that domestic
success can be exported. Can Fever-Tree become a global brand? If it can,
then, in our opinion, the current market capitalisation of the company is far
too low. We were encouraged, therefore, by its recent half year results, which
showed Fever-Tree’s US revenues grew 32% and, in the process, the US became
its biggest market. There ought to be much more to go for in the US and the
rest of the world.
Manchester United
I must admit I did not expect to be commenting on this holding in December
2023, the asset having been put up for sale over 12 months ago. However, as I
am sure you are aware, the process has been protracted and the resolution
still unclear. All one can say for sure is that Manchester United is confirmed
to be one of the most prestigious “trophy assets” in the world, as
evidenced by the interest in it of a pair of seriously wealthy individuals.
MASS-MARKET CONSUMER BRANDS
We have three long-term holdings in this category. They have been successful
over time, and we expect to retain our holdings and perhaps to add to them.
Although their brands may not have the allure or exclusivity of, a Burberry
or, say, Johnnie Walker Blue, they are often beloved by their consumers, or at
least purchased regularly because of their value for money and reliability.
The combination of the affection consumers feel for the brands and their
regular replenishment makes them valuable for investors. It is wise, or we
think so, to have a part of your portfolio invested in companies that produce
predictable cash flows, as do these three holdings.
Unilever
It is noteworthy that Unilever has a new Chair, CEO and CFO. And perhaps
investors should welcome a fresh set of perspectives on the business. It is
not contentious to claim Unilever owns a collection of beloved and/or
ubiquitous household brands – Dove, Hellmann’s, Knorr, Magnum, Dirt is
Good. But like many investors and, we are sure, officers of the company, we
are disappointed that recent business growth has turned out to be so
pedestrian. Earnings for 2023 are forecast to be little more than 10% higher
than those from five years ago. We know the new CEO sees opportunities to
reignite growth across the brand portfolio and we hope he can capitalise on
them. People have been writing off Unilever as “too boring” for as long as
I can remember. But it should not be overlooked that this “boring”
business has delivered a near quadrupling of its share price since the start
of this century.
Mondelez
Chocolate, snacks and confectionery have been great consumer categories for
decades and with, for instance, Cadbury, Oreos and Halls, Mondelez owns some
great brands within those categories. And these brands have driven steady
earnings growth – forecast to be up over 35% over the last five years.
Mondelez shares are up 2.4 times since it demerged from Kraft in October 2012.
Look again in another 11 years, we’d expect them to be usefully higher
still.
A.G. Barr
In 2004 Mr Roger White was appointed CEO of A.G. Barr, the Irn-Bru company.
That year the company had annual revenues of £125m and earnings of £0.09 a
share. He has recently announced he will step down some time over the next 12
months. For 2023, A.G. Barr is forecast to generate revenues of circa £585m
and to earn £0.32. The company has net cash on its balance sheet of nearly
£50m – indicative of the canny conservatism with which it has been run. No
one should expect to get rich quick owning a business like A.G. Barr, but
since Roger’s appointment the share price is up from just over £1.00 to
just under £5.00 today. Shareholders are grateful for his stewardship and
look forward to the next phase of the company’s history.
UK FUND MANAGEMENT
Schroders & Rathbones
It has been my contention that UK fund management companies, particularly
those engaged in the provision of private wealth investment services, operate
in a growth industry, where scale and trusted brands confer lasting
advantages. In addition, if one is bullish about global stock markets, as I
always am, you might think fund management companies would do well. I must
acknowledge that the share prices of the two longstanding holdings we have
built to capture this idea – Rathbones and Schroders – say that I am
wrong. Rathbones shares peaked as long ago as 2017, at around £28.00, and
were priced at little more than £17.00 as at 30 September 2023. Schroders’
shares hit a high of circa £6.40 in 2021 but have subsided to circa £4.00
today. We support the strategies of both companies and congratulate Rathbones
for successfully closing its biggest ever merger in September 2023. It may
well require an improvement in UK investor confidence and an earnestly to be
hoped for bull market in UK equities before these businesses and share prices
perform again.
BORROWINGS, OVERSEAS EXPOSURE AND SKIN IN THE GAME
The Company has relatively modest amounts of borrowing – circa £37m, to
give a net gearing of 0.8% on its net assets. We would borrow more if we saw a
specific opportunity that merited the risk of taking on more debt. Debt is
always risky.
But that reluctance to run higher levels of gearing should not be construed as
caution on my part about the portfolio or the UK stock market. We are more
than fully invested and believe the highly concentrated structure of the
portfolio offers plenty of upside, assuming the companies we have chosen to
commit to prosper over time. As I have argued above – we own some big
positions in some outstanding companies, by global, not just domestic UK,
standards.
The Company has the power to invest a proportion of its assets outside its
benchmark index, the UK FTSE All-Share Index and we have taken advantage of
that flexibility. I should signal, though, that the long underperformance of
the UK stock market has resulted in what seems to us anomalously low
valuations for some of the world class companies that are still listed on the
London market. Diageo is the world #1 alcoholic beverage business, Experian is
the world’s #1 credit bureau, LSEG is the world #1 provider of real-time
financial data. Our most recent new holdings are from the UK and our team is
working on other apparently highly attractive ideas in the UK market. In
short, I think it likely that the Company’s UK exposure will go up over the
next financial year.
It is a privilege for me to be responsible for the Company’s investment
portfolio, comprised of the precious savings of so many investors. As
co-founder of what has been a successful fund management company, I am also
in the privileged and lucky position of being able to afford to continue to
add to my own holding in the Company, as is evidenced in this Annual Report
and Financial Statements. For this reason, the Company’s disappointing share
price performance frustrates me both professionally and personally. Skin in
the game is no guarantee of superior investment performance, as the
Company’s recent record displays. But I assure fellow shareholders, what
happens next for the Company’s share price really matters to me and my
family.
Nick Train
Director, Lindsell Train Limited
Portfolio Manager
6 December 2023
BUSINESS REVIEW
The Strategic Report provides a review of the Company’s policies and
business model, together with an analysis of its performance during the
financial year and its future developments.
The Strategic Report has been prepared for Shareholders to assess how the
Directors have performed their duty to promote the success of the Company. It
also considers the principal risks and uncertainties facing the Company.
Information on how the Directors have discharged their duty under Section 172
of the Companies Act 2006 can be found within the Strategic Report.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
As an externally managed investment company there are no executive directors,
employees or internal operations. The Company delegates its day-to-day
management to third parties. The principal service providers to the Company
are Frostrow Capital LLP (“Frostrow”) which acts as AIFM, company
secretary and administrator; and Lindsell Train Limited (“Lindsell Train”)
which acts as Portfolio Manager. The Bank of New York Mellon (International)
Limited is the Company’s Depositary.
The Board is responsible for all aspects of the Company’s affairs, including
the setting of parameters for and the monitoring of the investment strategy as
well as the review of investment performance and policy. It also has
responsibility for all strategic issues, the dividend policy, the share
issuance and buy-back policy, gearing, share price and discount/ premium
monitoring as well as corporate governance matters.
STRATEGY FOR THE YEAR ENDED 30 SEPTEMBER 2023
Throughout the year under review, the Company continued to operate as an
approved investment company, following its investment objective to achieve
capital and income growth and to provide shareholders with a total return in
excess of that of the FTSE All-Share Index. The Company’s performance is
discussed in the Chairman’s Statement and the Portfolio Manager’s Review.
During the year, the Board, AIFM and the Portfolio Manager undertook all ESG,
strategic and administrative activities.
The Board is aware of the continued emphasis on ESG matters in recent years.
The Portfolio Manager engages with all the companies in the portfolio to
understand their ESG approach and has developed its own methodology to assess
the carbon impact of the portfolio. Lindsell Train became a signatory of the
Net Zero Asset Managers initiative (“NZAM”) in December 2021. This
reflects Lindsell Train’s enhanced efforts as a firm to support the goal of
net zero greenhouse gas emissions by 2050.
PORTFOLIO STRUCTURE
84.2% 15.8% 91.9%
INVESTED IN UK DOMICILED COMPANIES INVESTED GLOBALLY FTSE 100 COMPANIES (AND COMPARABLE OVERSEAS COMPANIES)
84.7% 0.8%^ 85.3%^
TOP TEN HOLDINGS GEARING ACTIVE SHARE
^ Please see Glossary of Terms and Alternative Performance Measures.
INVESTMENT POLICY
The Company’s investment policy is to invest principally in the securities
of companies either listed in the UK or otherwise incorporated, domiciled or
having significant business operations within the UK. Up to a maximum of 20%
of the Company’s portfolio, at the time of acquisition, can be invested in
companies not meeting these criteria.
The portfolio will normally comprise up to 30 investments. This level of
concentration is likely to lead to an investment return which is materially
different from the Company’s benchmark index and is likely to be more
volatile and carry more risk.
Unless driven by market movements, securities in FTSE 100 companies and
comparable companies listed on an overseas stock exchange will normally
represent between 50% and 100% of the portfolio; securities in FTSE 350
companies and comparable companies listed on overseas stock exchanges will
normally represent at least 70% of the portfolio.
The Company will not invest more than 15% of the Company’s net assets, at
the time of acquisition, in the securities of any single issuer. For the
purposes of this limit only, net assets shall exclude the value of the
Company’s investment in Frostrow Capital LLP.
The Company does not and will not invest more than 15%, in aggregate, of the
value of the gross assets of the Company in other listed closed ended
investment companies. Further, the Company does not and will not invest more
than 10%, in aggregate, of the value of its gross assets in other listed
closed ended investment companies except where the investment companies
themselves have stated investment policies to invest no more than 15% of their
gross assets in other listed closed ended investment companies.
The Company has the ability to invest up to 25% of its gross assets in
preference shares, bonds and other debt instruments, although no more than 10%
of any one issue may be held.
In addition, a maximum of 10% of the Company’s gross assets can be held in
cash, where the Portfolio Manager believes market or economic conditions make
equity investment unattractive or while seeking appropriate investment
opportunities or to maintain liquidity.
The Company’s gearing policy is that gearing will not exceed 25% of the
Company’s net assets.
No investment will be made in any fund or investment company managed by
Lindsell Train Limited without the prior approval of the Board.
In accordance with the Listing Rules of the Financial Conduct Authority
(“FCA”), the Company can only make a material change to its investment
policies with the approval of its Shareholders.
DIVIDEND POLICY
The Company’s aim is to increase or at least maintain the total dividend
each year. A first interim dividend is typically paid in May and a second
interim in November in lieu of a final dividend.
The level of dividend growth is dependent upon the growth and performance of
the companies within the investment portfolio. The decision as to the level of
dividend paid takes into account the income forecasts maintained by the
Company’s AIFM and Portfolio Manager as well as the level of revenue
reserves. These forecasts consider dividends earned from the portfolio
together with predicted future earnings and are regularly reviewed by the
Board.
All dividends have been distributed from current year income and revenue
reserves.
PERFORMANCE
Whilst the Board is disappointed that the Company has underperformed in the
short term, the Portfolio Manager’s report explains why he believes that the
Company’s portfolio remains appropriate. The Board fully supports the
Portfolio Manager’s view. Please refer to the Chairman’s Statement for
further information.
Whilst performance is measured against the FTSE All-Share Index, the
Company’s portfolio is constructed and managed without reference to a stock
market index with the Portfolio Manager selecting investments based on their
assessment of their long-term value.
NAV PER SHARE RECONCILIATION
The chart in the Annual Report shows the contribution (in pence per share)
attributable to the various components of investment performance and costs,
which together demonstrate the increase from the starting NAV for the year of
848.4 pence to the year-end NAV of 891.2 pence, after the payment of dividends
to Shareholders.
PROSPECTS
The Board continues to fully support the Portfolio Manager’s strategy of
investing in high quality companies that own both durable and cash generative
brands. The Board firmly believes that this strategy will continue to deliver
strong investment returns over the long term.
This is supported by the Company’s performance over the last ten years with
a net asset value per share total return^ of 130.0% compared with a total
return from the Company’s benchmark index of 71.8%.
^ Alternative Performance Measure (see glossary)
PRINCIPAL RISKS, EMERGING RISKS AND RISK MANAGEMENT
The Board is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established procedures to
manage risk, to review the Company’s internal control framework and to
establish the level and nature of the principal risks the Company is prepared
to accept in order to achieve its long-term strategic objective. At least once
a year the Audit Committee carries out a robust detailed assessment of the
principal and emerging risks.
A risk management process has been established to identify and assess risks,
their likelihood and the possible severity of impact. Further information is
provided in the Audit Committee Report.
These principal risks and the ways they are managed or mitigated are set out
as follows.
For each risk identified, during the year the Audit Committee considers both
the likelihood and impact of the risk and then assigns an inherent risk score.
The scoring of the risk is then reconsidered once the respective key
mitigations are applied and a residual risk score is assigned.
The Board’s policy on risk management has not materially changed during the
course of the reporting period and up to the year end.
During the year, the Audit Committee conducted an exercise to identify and
assess any new or emerging risks affecting the Company and to take any
necessary actions to mitigate their impact. Further information can be found
in the report of the Audit Committee within the Annual Report.
THE COMPANY'S APPROACH TO RISK MANAGEMENT
Change in inherent risk assessment over the last financial year: No change,
Decreased, Increased, New risk included during the year
Change Principal Risks and Uncertainties Key Mitigations
Corporate Strategy The Company’s investment objective becomes unattractive to Shareholders. At each meeting the Board reviews movements in the Company’s shareholder register. There are regular interactions and engagement with Shareholders (including at the AGM).
Regular feedback from Shareholders is received from the Company’s broker. Frostrow meets regularly with major Shareholders on the Company’s behalf. In addition, the
Chairman and the Senior Independent Director meet with key Shareholders to ascertain views. The Company publishes its Active Share score in its monthly fact sheet for
investors and in both the annual and half-yearly reports to highlight how different the portfolio is from the Company’s benchmark index.
The Company’s share price total return may differ materially from the NAV per share total return. The Board operates a share buy-back policy which is intended to offer some protection against the share price widening beyond a 5% discount to NAV per share. There is
also a share issuance programme which acts as a premium control mechanism. Further details of the Company’s share buy-back policy and premium control mechanism can be
found on the Company’s website.
Investment Strategy and Activity The departure of a key individual at the Portfolio Manager may affect the Company’s performance. The Board keeps the portfolio management arrangements under continual review. In turn, the Portfolio Manager reports on developments at Lindsell Train, including
succession and business continuity plans. The Board meets regularly with other members of the wider team employed by the Portfolio Manager.
Prolonged underperformance against the Benchmark. The Board discusses with the Portfolio Manager the structure of the portfolio, including asset allocation and portfolio concentration. The Board reviews the performance
of the portfolio against the benchmark and the Company’s peer group at every meeting. The Company publishes various measures and statistics in the monthly fact sheet and
in both the annual and half-yearly reports, to highlight to investors the effects of the investment approach and to show how different the portfolio is from the Company’s
benchmark index. These measures include number of holdings, Active Share and portfolio turnover.
A major geopolitical or natural event such as war, terrorism, natural disaster or pandemic, and the financial, monetary and/or political responses to such events may have an adverse impact on the revenues and operations of portfolio companies to the extent that they may no longer promise returns sufficient to meet the Company’s investment objective. Portfolio companies experience a reduction in share price and dividends. The Board reviews the performance of the portfolio against the benchmark and the Company’s peer group at every meeting. The Board holds monthly portfolio update meetings
with the Portfolio Manager. The Portfolio Manager regularly engages with the portfolio companies to discuss any matters of concern that may effect operational activities.
The investment approach is not aligned with shareholder expectations in relation to ESG matters. The Board conducts an annual review of the Portfolio Manager’s ESG policy to ensure that it is consistent with that expected by the Board. In addition the Board reviews
the ESG activities of Lindsell Train to ensure progress is being made by portfolio companies. The Board also conducts an annual review of other service providers’
policies in relation to internal controls and governance matters notably modern slavery, GDPR, cyber security and whistleblowing policies. The Portfolio Manager has
developed a propriety system to assess the inherent and emerging ESG risks for the investment portfolio which the Portfolio Manager uses when engaging with the portfolio
companies. This informs the decision to invest, retain or divest any portfolio investment.
The adverse impact of climate change on the portfolio companies’ operational performance. The Board receives quarterly ESG updates, which include an update on any climate change related engagement, from the Portfolio Manager together with monthly portfolio
updates. The Board challenges the Portfolio Manager on ESG matters to ensure that the portfolio companies are acting in accordance with the Board’s ESG approach. The
Portfolio Manager is a signatory to the UK Stewardship Code and actively engages with portfolio companies on ESG matters including climate change. Lindsell Train
developed its own methodology to assess the carbon impact of the portfolio. Lindsell Train became a signatory of the NZAM initiative in December 2021. This reflects
Lindsell Train’s enhanced efforts as a firm to support the goal of net zero greenhouse gas emissions by 2050. Details of the Company’s and Portfolio Manager’s ESG
policies together with the weighted average carbon intensity of the portfolio companies are set out within the Strategic Report.
Operational Service providers to the Company deliver poor performance or fail to meet their contractual obligations to the Company, include errors or irregularities in information published on behalf of the Company. (This risk is included as a result of the consolidation of several operational risks as part of the Audit Committee’s review of principal risks to better reflect the current outlook. The Board reviews all information supplied to Shareholders and the AIFM’s marketing activity at each meeting. The AIFM’s daily controls ensure accurate publication of
information. The Board receives regular updates from the AIFM of press references to the Company and its major service providers, the Board receives regular news on
sector developments from the Company’s broker and from the AIC. The Board has the ability to replace any service provider which may be the source of reputational
concerns. The Audit Committee receives assurance from all service providers that they have adequate business continuity plans and internal controls in place. These
controls are reviewed by the AIFM who also meets with the Company’s principal service providers during the year.
Financial Fraud (including unauthorised payments and cyber crime) occurs leading to a loss. The AIFM and Portfolio Manager have in place robust compliance monitoring programmes. The Board receives monthly compliance reviews and a quarterly expenses analysis. An
annual statement is obtained by the Audit Committee from all service providers giving representations that there have been no instances of fraud or bribery.
The Company is exposed to market price risk (i.e. performance of investee companies’ shares). The Directors acknowledge that market risk is inherent in the investment process. The Portfolio Manager maintains a diversified portfolio which is concentrated in a few
key sectors. The Board has imposed guidelines within its investment policy to limit exposure to individual holdings and limits the level of gearing. The AIFM reports to
the Board with respect to compliance with investment guidelines on a monthly basis. The Portfolio Manager provides the Board with regular updates on market movements. No
investment is made in derivative instruments and no currency hedging is undertaken. Further information on financial instruments and risk can be found in note 17 to the
Financial Statements.
Accounting, Legal and Regulatory The Company and/or the Directors fail(s) to comply with their legal requirements in relation to FCA dealing rules/handbook procedures, the AIFMD, the Listing Rules, the Companies Act 2006, relevant accounting standards, the Bribery Act 2010, the Criminal Finances Act 2017, GDPR, tax regulations or any other applicable regulations. The Board monitors regulatory change with the assistance of its AIFM, Portfolio Manager and external professional advisers to ensure compliance with applicable laws and
regulations. The Board reviews compliance reports and internal control reports provided by its service providers, as well as the Company’s Financial Statements and
revenue forecasts. The Depositary reports twice yearly to the Audit Committee, confirming that the Company, acting through the AIFM, has been managed in accordance with
the AIFMD, the FUND sourcebook, the Articles (in relation to the calculation of the NAV per share) and with investment restrictions and leverage limits. The Depositary
Report can be found in the Shareholder information section of the Company’s website. The AIFM presents a quarterly report on changes in the regulatory environment,
including AIC updates, and how changes have been addressed.
The regulatory environment in which the Company operates changes materially, affecting the Company’s modus operandi. The Board monitors regulatory change with the assistance of the Company’s AIFM, Portfolio Manager and external professional advisers to ensure that the Board is aware of
any likely changes in the regulatory environment and will be able to adapt as required. The Directors attend AIC Roundtables and conferences to keep up to date on
regulatory changes and receive industry updates from the AIFM.
Poor adherence to corporate governance best practice or errors or irregularities in published information could lead to censure and/or result in reputational damage to the Company. The Board reviews all information supplied to Shareholders and the AIFM’s marketing activity at each meeting. Details of the Company’s compliance with corporate
governance best practice, including information on relationships with Shareholders, are set out in the Corporate Governance Report within the Annual Report.
EMERGING RISKS
During the year, the Audit Committee conducted an exercise to identify and
assess any new or emerging risks affecting the Company and to take any
necessary actions to mitigate their impact.
The Audit Committee regularly reviews the risk register. Mitigations, the
scoring of each risk and any emerging risks are discussed in detail as part of
this process to ensure that emerging as well as known risks are identified
and, so far as practicable, mitigated.
The experience and knowledge of the Directors is useful in these discussions,
as are update papers and advice received from the Board’s key service
providers such as the Portfolio Manager, the AIFM and the Company’s broker.
In addition, the Company is a member of the AIC, which provides regular
technical updates as well as drawing members’ attention to forthcoming
industry and/or regulatory issues and advising on compliance obligations.
During the year, the Board identified technological breakthroughs, such as AI
as an emerging risk. As well as offering investment opportunities, the
development and exploitation of technological breakthroughs, such as AI, may
challenge and damage the addressable market, revenue and operations of
portfolio companies to the extent that they no longer offer the promise of
returns consistent with the Company’s Investment Objective.
To mitigate this risk the Board holds monthly portfolio update meetings with
the Portfolio Manager, who continues to monitor the situation closely.
The Committee will continue to review newly emerging risks that arise from
time to time to ensure that the implications for the Company are properly
assessed and mitigating controls introduced where necessary.
FUTURE DEVELOPMENTS
The Board’s primary focus is on the Portfolio Manager’s investment
approach and performance. The subject is thoroughly discussed at every Board
meeting.
In addition, the AIFM updates the Board on Company communications, promotions
and investor feedback, as well as wider investment company issues.
An outline of performance, investment activity and strategy, and market
background during the year, as well as the outlook, is provided in the
Chairman’s Statement and the Portfolio Manager’s Review.
It is expected that the Company’s strategy will remain unchanged in the
coming year.
LONG-TERM VIABILITY STATEMENT
The Directors have carefully assessed the Company’s financial position and
prospects as well as the principal risks facing the Company and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The Board has chosen a five year horizon in view of the long-term outlook
adopted by the Portfolio Manager when making investment decisions.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company’s financial position and its ability to liquidate
its portfolio and meet its liabilities as they fall due and notes the
following:
* The portfolio is principally comprised of investments traded on major
international stock exchanges. Based on current trading volumes, 97.5% of the
current portfolio could be liquidated within 30 trading days, with 60.4% in
seven days, and there is no expectation that the nature of the investments
held within the portfolio will be materially different in future;
* With an ongoing charges ratio of 0.61%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no capital
commitments foreseen which would alter that position;
* Expenses of the Company are covered more than four times by investment
income;
* The closed-ended nature of the Company means that, unlike an open-ended
fund, it does not need to realise investments when Shareholders wish to sell
their shares;
* The founder directors of Lindsell Train Limited, have given their verbal
assurance that they remain committed to Lindsell Train Limited for at least
seven years on a rolling basis; and
* The Company has no employees, only its Non-Executive Directors. Consequently
it does not have redundancy or other employment-related liabilities or
responsibilities.
The Audit Committee has considered the potential impact of its principal risks
and various severe but plausible downside scenarios as well as stress testing
and reverse stress testing. It has also made the following assumptions in
considering the Company’s longer-term viability:
* There will continue to be demand for investment companies;
* The Board and the Portfolio Manager will continue to adopt a long-term view
when making investments, and anticipated holding periods will be at least five
years;
* The Company invests principally in the securities of UK listed companies to
which investors will continue to wish to have exposure;
* The Company will maintain its bank loan facility;
* Regulation will not increase to a level that makes running the Company
uneconomical; and
* The performance of the Company will be satisfactory.
The Board’s long-term view of viability will, of course, be updated each
year in the Company’s Annual Report.
ENGAGING WITH THE COMPANY'S STAKEHOLDERS
The following ‘Section 172’ disclosure, required by the Companies Act 2006
and the AIC Code describes how the Directors have had regard to the views of
the Company’s stakeholders in their decision-making.
STAKEHOLDER GROUP THE BENEFITS OF ENGAGEMENT WITH THE COMPANY’S STAKEHOLDERS HOW THE BOARD, THE AIFM AND THE PORTFOLIO MANAGER HAVE ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Investors Clear communication of the Company’s strategy and the performance against the Company's objective can help the share price trade closer to its NAV per share which benefits Shareholders. New shares may be issued to meet demand without net asset value per share dilution to existing Shareholders. Increasing the size of the Company can benefit liquidity as well as spread costs. Under the share buy-back policy, the Company will normally buy in shares being offered on the stock market whenever the discount approaches a level of 5% and then either hold those shares in “Treasury” or cancel them. Any shares held in Treasury can later be sold back to the market if conditions permit. The AIFM and the Portfolio Manager, on behalf of the Board, complete a programme of investor relations throughout the year. An analysis of the Company’s shareholder
register is provided to the Directors at each Board meeting along with marketing reports from Frostrow. The Board reviews and considers the marketing plans on a regular
basis. Reports from the Company’s broker are submitted to the Board on investor sentiment and industry issues. Key mechanisms of engagement include: * The Annual General
Meeting
* The Chairman and the Senior Independent Director make themselves available to engage with Shareholders
* The Chairman writes to major Shareholders each year offering them the opportunity to meet with himself and the Senior Independent Director
* The Company’s website hosts reports, video interviews with the Portfolio Manager and monthly fact sheets
* One-on-one investor meetings facilitated by Frostrow who actively engage with professional investors, typically discretionary wealth managers, some institutions and a
range of execution-only platforms. Regular engagement helps to attract new investors and retain existing Shareholders, and over time results in a stable share register
made up of diverse, long-term holders
* The Board will explain in its announcement of the results of the AGM the actions it intends to take to consult Shareholders in order to understand the reasons behind
any significant votes against resolutions. Following the consultation, an update will be published no later than six months after the AGM and the Annual Report will
detail the impact the Shareholder feedback has had on any decisions the Board has taken and any actions or resolutions proposed
At each meeting the Board reviews movements in the Company’s shareholder register. There are regular interactions and engagement with Shareholders (including at the
AGM). Regular feedback from Shareholders is received from the Company’s broker.
Portfolio Manager Engagement with the Company's Portfolio Manager is necessary to: * evaluate their performance against the Company's stated strategy and to understand any risks or opportunities this may present. The Board met regularly with representatives of the Portfolio Manager throughout the year, with quarterly presentations and also monthly performance and compliance
* better understand the internal controls in place at Lindsell Train. reporting. This provides the opportunity for both the Board and Portfolio Manager to explore and understand how the portfolio has performed and what may be expected in
The Board ensures that the Portfolio Manager's ESG approach meets standards set by the Board. the future. The Board receives regular updates from the Portfolio Manager concerning engagement on ESG matters with the companies within the portfolio. The Audit
Committee, also met with members of the risk management and investment compliance teams to better understand the Portfolio Manager’s internal controls. The Audit
Committee reviews Lindsell Train’s AAF01/20 control reports annually. During the year the Board discussed its approach to ESG matters with the Lindsell Train team
providing more detail of their specific approach to responsible ownership. The Board considers its approach to ESG as well as that of the companies in which the Company
invests, and has developed its own policy. The Board encourages the Company’s Portfolio Manager to engage with companies and in doing so expects ESG issues to be a key
consideration. The Board receives an update on Lindsell Train’s engagement activities within a dedicated quarterly ESG report. A member of Lindsell Train’s investment
team attends each Board meeting to provide an update on ESG issues and engagement activities since the last Board meeting.
Service Providers The Company contracts with third parties for other services including: depositary, investment accounting & administration as well as company secretarial and registrars. The Company ensures that the third parties to whom the services have been outsourced complete their roles in line with their service level agreements and are able to continue to provide these services, thereby supporting the Company in its success and ensuring compliance with its obligations. The Board and Frostrow engage regularly with other service providers both in one-to-one meetings and via regular written reporting. This regular interaction provides an
environment where topics, issues and business development needs can be dealt with efficiently and collegiately. The Audit Committee reviews Frostrow’s controls report
annually.
The Company’s Lender Investment companies have the ability to borrow with a view to enhancing long-term returns to Shareholders. Engagement with the Company’s lender ensures that it fully understands the nature of the Company’s business, the strategy adopted by the Portfolio Manager and the extent to which the Company complies with its loan covenants. Regular reporting to the lender with respect to adherence with loan covenants and ad hoc meetings with the AIFM.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
Investors The impact of market volatility caused by certain geopolitical events on the portfolio. Shareholders are provided with performance updates via the Company’s website as well as the annual and half-year financial reports and monthly factsheets.
Ongoing dialogue with Shareholders concerning the strategy of the Company, performance and the portfolio. The Portfolio Manager and Frostrow meet regularly with Shareholders and potential investors to discuss the Company’s strategy, performance and portfolio. Both the Portfolio Manager and Frostrow also engage with the Press on the Company’s behalf. Information on how to vote your investment company shares on a selection of major platforms can be found in the Notice of Meeting. The Chairman and Senior Independent Director, accompanied by members of the Frostrow team, met with representatives from major Shareholders to discuss, amongst other things, shareholder engagement, particularly with Shareholders who hold their shares via these platforms.
Share price performance The Board reviews the Company’s share price discount/premium on a daily basis and has a share buy-back policy, which during the year resulted in 11,218,558 shares being bought back. Details of the Company’s share issuance and buy-back policy can be found on the Company’s website.
Portfolio Manager Portfolio composition, performance, ESG matters, outlook, and business updates. The Portfolio Manager has set ESG targets and engages regularly with investee companies’ executive management and the Board receives quarterly ESG updates from the Portfolio Manager, enabling the conclusion that the risk of material misstatement due to climate risk remains low.
The impact of market volatility upon their business and how some companies in the portfolio have sought to take advantage of the pandemic, in particular through increased digitalisation. The Board has received regular updates from the Portfolio Manager throughout the recent period of market volatility, including its impact on investment decision making.
The integration of ESG into the Portfolio Manager’s investment processes. The Portfolio Manager reports regularly any ESG issues in the portfolio companies to the Board.
Climate Change During the year the Audit Committee considered the Portfolio Manager’s assessment of the risks associated with climate change on the portfolio and how the transition to a low-carbon economy will affect all businesses, irrespective of their size, sector or geographic location.
Other service providers As an externally managed investment company, the Company does not have employees. Its main stakeholders therefore comprise its Shareholders and a small number of service providers. The Board has delegated a wide range of activities The Board met regularly with Frostrow (the AIFM), representatives of which attend every Board meeting to provide updates on risk management, accounting, administration and corporate governance matters. Reviews of the Company’s service providers have been positive and the Directors believe their continued appointment is in the best interests of the Company. The Company has invested in Frostrow and Lindsell Train. Further details can be found on the Company’s website. The Audit Committee met with PricewaterhouseCoopers LLP (“PwC”) to review the audit plan for the year, agree their remuneration, review the outcome of the annual audit and to assess the quality and effectiveness of the audit process. Please refer to the Audit Committee Report within the Annual Report.
to external agents, in addition to the Portfolio Manager. These services include AIFM, investment administration, management and financial accounting, Company Secretarial and certain other administrative requirements and registration services. Each of
these contracts was entered into after full and proper consideration by the Board of the quality and cost of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Directors have
frequent engagement with the Company’s other service providers through the annual cycle of reporting and due diligence meetings or site visits by Frostrow. This engagement is completed with the aim of maintaining an effective working relationship and
oversight of the services provided.
The Company’s Lender Continued compliance with covenants set out within the loan agreement between the Company and the lender. The Board ensures compliance with loan covenants throughout the year.
RESPONSIBLE INVESTMENT
Our Policy
The Board recognises that the most material way for the Company to have an
impact on Environmental, Social and Governance (“ESG”) issues is through
the responsible ownership of its investments.
It has delegated authority to its Portfolio Manager to engage actively with
the management of investee companies and encourage that high standards of ESG
practice are adopted.
The Company seeks to generate long-term, sustainable returns on capital. The
investee companies which consistently deliver superior returns over the long
term are typically established, well-run companies whose managers recognise
their impact on the world around them.
In its Responsible Engagement & Investment Policy, the Portfolio Manager
states that its evaluation of ESG factors is an inherent part of the
investment process.
The Board has delegated authority to the Portfolio Manager to vote the shares
owned by the Company that are held on its behalf by its Custodian. The Board
has instructed that the Portfolio Manager submit votes for such shares
wherever possible and practicable. The Portfolio Manager may refer to the
Board on any matters of a contentious nature.
The Portfolio Manager is a signatory of the 2021 UK Stewardship Code and
became a signatory of Net Zero Asset Managers initiative in December 2021.
LINDSELL TRAIN’S POLICY
ESG INTEGRATION
Seeking Sustainability
As a long-term investor, Lindsell Train aims to identify companies that can
generate long-term sustainable high returns on capital. Lindsell Train has
historically found that such companies tend to exhibit characteristics
associated with good corporate governance and responsible business practices.
Indeed, Lindsell Train believes that companies which observe such standards,
and that are serious in their intention of addressing environmental and social
factors, will not only become more durable but will likely prove to be
superior investments over time.
To that end Lindsell Train’s initial analysis and ongoing company engagement
strategy seeks to incorporate all sustainability factors that they believe
will affect the company’s ability to deliver long-term value to
shareholders. Such factors may include but are not limited to: environmental
(including climate change), social and employee matters (including turnover
and culture) and governance factors (including remuneration and capital
allocation), cyber resilience, responsible data utilisation, respect for human
rights, anticorruption and anti-bribery, and any other risks or issues facing
the business and its reputation. This work is catalogued in a proprietary
database of risk factors in order to centralise and codify the team’s views,
as well as to prioritise Lindsell Train’s ongoing research and engagement
work and is cross-referenced with the SASB Materiality Map ©.
If, as a result of this assessment, Lindsell Train believes that an ESG factor
is likely to materially impact a company’s long-term business prospects
(either positively or negatively) then this will be reflected in the long-term
growth rate that is applied in the investment team’s valuation of that
company, which alongside the team’s more qualitative research will influence
any final portfolio decisions (for example, whether Lindsell Train starts a
new position or sells out of an existing holding).
Positive/Negative Screening
As a product of Lindsell Train’s investment philosophy, it does not invest
in the following industries:
* capital intensive industries (energy, commodities or mining) or any
companies involved in the extraction and production of coal, oil or natural
gas; and
* industries that Lindsell Train judges to be sufficiently detrimental to
society that they may be exposed to burdensome regulation or litigation that
could impinge on financial returns (e.g. tobacco, gambling or arms
manufacturers).
Similarly, Lindsell Train’s investment approach has steered Nick Train and
the investment team to invest in a number of companies that play an important
positive social or environmental role, for example through providing access to
educational information (RELX), encouraging saving for the future (Schroders
and Hargreaves Lansdown) or encouraging environmental progress and developing
best practice (e.g., Diageo and Mondelez). Lindsell Train believes that such
positive benefits for society should be consistent with its aim to generate
competitive long-term returns, thus helping it meet its clients’ investment
objectives.
Climate Change
The risks associated with climate change represent the great issue of our era
and the transition to a low-carbon economy will affect all businesses,
irrespective of their size, sector or geographic location. Therefore, no
company’s revenues are immune and the assessment of such risks must be
considered within any effective investment approach, particularly one like
Lindsell Train’s that seeks to protect its clients’ capital for decades to
come.
As a relatively small company with a single office location and 26 employees,
Lindsell Train’s climate exposure comes predominantly from the investment
portfolios that it manages on behalf of its clients. Lindsell Train recognises
the systemic risk posed by climate change and the potential financial impacts
associated with a transition to a low-carbon economy.
To help address this, Lindsell Train became a signatory of the Net Zero Asset
Managers (“NZAM”) initiative in December 2021, which affirms its
commitment to support the goal of net zero greenhouse gas emissions by 2050 or
sooner. In line with this ambition, Lindsell Train published a 2030 interim
target in Q4 2022 which has since been approved by The Institutional Investors
Group on Climate Change (“IIGCC”). Lindsell Train felt it was most
appropriate to set a Portfolio Coverage Target, and has duly targeted 55% of
its asset-weighted committed1 assets to be considered aligned2 by 2030, as set
out by the Paris Aligned Investment Initiative (“PAII”) Net Zero
Investment Framework. This represents a circa 50% improvement from its
baseline of 36% of assets being Aligned as of 2022, consistent with a fair
share of the 50% global reduction in CO2 identified as a requirement in the
Intergovernmental Panel on Climate Change (“IPCC”) special report on
global warming of 1.5°C.
Lindsell Train also supports the recommendations of the Task Force on
Climate-Related Financial Disclosures (“TCFD”) and its efforts to
encourage companies to report their climate related disclosures and data in a
uniform and consistent way. Further information on Lindsell Train’s TCFD
related disclosures can be found in its 2023 TCFD Report, which can be found
on Lindsell Train’s website:
www.lindselltrain.com/responsibleinvesting/governance-strategy/.
Further, using Morningstar’s carbon metrics calculations, Lindsell Train is
pleased to note that the Company continues to have a significantly lower
weighted average carbon intensity than its comparable benchmark.
Due to availability of carbon intensity data, the Morningstar UK GBP index has
been used as a proxy for the FTSE All-Share index. The Morningstar UK index
measures the performance of the UK’s equity markets targeting the top 97% of
stocks by market capitalisation.
1 Committed assets are currently 94% of Lindsell Train’s total AUM. The
assets that were excluded relate to segregated clients that either declined to
have their assets included at this time or did not respond by the required
deadline. There is scope to increase the level of committed assets over time.
2 Aligned status, as set out by the PAII Net Zero Framework, has prescribed
requirements of the portfolio companies, including; 1) Setting short and
medium-term emission reduction targets, 2) Monitoring emission intensity
performance relative to those targets, and 3) Disclosure of scope 1, 2 and 3
emissions. For higher impact sectors, further criteria are required to be
categorised as Aligned.
Weighted Average Carbon Intensity
The Morningstar carbon intensity definition is as follows: The asset-weighted
average for the portfolio of the underlying holdings' Carbon Intensity Scope 1
and 2 (in USD terms). The average only includes holdings for which company
Carbon Intensity Scope 1 and 2 (in USD terms) is available. Carbon intensity
for a company represents the volume of carbon emissions per million dollars of
revenue, computed as follows: Total Emissions Scope 1 and 2 (metric tons of
Co2) / Revenue (Mil USD). For a portfolio, carbon intensity represents the
average carbon efficiency of its investments, in metric tons of Co2. A lower
value indicates lower intensity, and greater carbon efficiency.
Stewardship
Engagement
Engaging with and monitoring investee companies on matters relating to
stewardship has always been an essential element of Lindsell Train’s
investment strategy. Its long-term approach generally leads it to be
supportive of company management. However, where Lindsell Train disagrees with
a company’s actions, it will try to influence management on specific matters
or policies if Lindsell Train believe it is in the best interests of its
clients. Constructive dialogue has more often than not resulted in
satisfactory outcomes, thus limiting the need for escalation. However, where
this is not the case, Lindsell Train will consider escalating its engagement
and stewardship activities.
During the year, Lindsell Train engaged with five companies held within the
Company’s portfolio on a wide range of environmental, social and governance
issues together with case studies of two such engagements. Moreover, to ensure
that the 2030 net zero interim target remains achievable, Lindsell Train
continues to engage proactively with the management of companies it holds
across its portfolios, the aim being to understand each company’s individual
goals and, where appropriate, to provide the team’s thoughts on their road
maps, with the overall ambition of reaching an absolute reduction in global
carbon emissions. Using the data gathered to set the 2030 interim target,
Lindsell Train has been able to identify which portfolio companies should be
prioritised for engagement on their progress. Lindsell Train has engaged with
management at a number of companies in recent months and will continue to
engage with all portfolio companies to understand how they align with Lindsell
Train’s net zero goals. This includes encouraging them to commit to setting
targets that are measurable, actionable and based on the latest and most
accurate scientific data, as laid out by the Science Based Targets initiative*
(“SBTi”) where possible, to ensure that the targets are measurable,
actionable and based on the best available information. This initiative has
been led by Madeline Wright, Deputy Portfolio Manager and Head of Investment
ESG. The information gathered from this exercise is stored, assessed, and
monitored within Sentinel, Lindsell Train’s proprietary ESG database.
* Science-based targets provide companies with a clearly-defined path to
reduce emissions in line with the Paris Agreement goals.
Engagement by Topic
Source: Lindsell Train. 1 October 2022 – 30 September 2023. 12 topics raised
with 5 companies.
Key Engagement Case Studies:
Company name: Unilever
Year Founded: 1929
Year FGT first invested: 2006
Sector: Consumer Staples
Engagement topics: Capital Allocation/Strategy & Other (Reputation)
Date of engagements: February 2023 & August 2023
Engagement format: Call
Reason for Engagement: Lindsell Train spoke with Nils Andersen (Chairman) and
Richard Williams (Investor Relations) early in 2023, following the news that
Hein Schumacher was succeeding Alan Jope as CEO. It was explained that Hein
had been identified several years ago as a possible candidate. He was
appointed following Board interviews where he received unanimous support. His
CV showcases his numerical capabilities (he has been a CFO at dairy
multinational Royal FrieslandCampina) and his sustainability credentials as
well as strong leadership skills and a good knowledge of emerging markets
(having run China for Heinz). From a perception and reputational standpoint,
it also helps that he is an external hire. Unilever’s new strategy will be
well supported by Hein, who accomplished a similar strategy at his previous
employer. Nils reaffirmed that there are currently no plans to make any
significant disposals or acquisitions to any significant parts of the business
and there is also unlikely to be any large cost-cutting program under Hein’s
leadership. The fact that Hein hails from the Netherlands does also not
foreshadow any shift in focus.
In a call with CFO Graeme Pitkethly later in the year, the Lindsell Train
investment team discussed Unilever’s decision to retain its presence in
Russia. It sought justification for this decision and, whilst the team
recognises that there is no easy choice, Lindsell Train conveyed its
expectation that management would keep the situation under active review with
the hope of finding the ‘least worst’ outcome.
Next steps: The engagement regarding the hiring of Hein Schumacher was
productive and insightful, but as with all of our portfolio companies we will
continue to monitor progress closely and engage with management on aspects of
their corporate strategy on an ongoing basis. The engagement regarding
Unilever’s presence in Russia is ongoing.
Company name: Mondelez
Year Founded: 1923 (Cadbury was founded in 1824)
Year FGT first invested: 2001 (Kraft Foods (formerly Cadbury) became Mondelez
following a demerger in 2012)
Sector: Consumer Staples
Engagement topic: Human Rights/Modern Slavery
Date of engagement: May 2023
Engagement format: Call
Reason for Engagement: Lindsell Train spoke with the management of Mondelez
ahead of its AGM, which included a contentious shareholder proposal relating
to the eradication of child labour from the cocoa supply chain. The team has
regularly engaged with Mondelez on this issue and so were eager to hear
management’s views on the resolution, and also receive an update on the
progress the company is making on this specific initiative. Management
communicated that whilst it is entirely supportive of the aims and intentions
of the shareholder proposal, the company is already working towards these
exact goals and believes that the current strategy continues to be the right
one to achieve them. They confirmed that significant progress has been made:
74% of the company’s supply chain is now covered by its Cocoa Life
programme, up from 28% in 2020. Like Mondelez, Lindsell Train recognises that
eradicating child labour from the cocoa supply chain is a systemic issue that
requires wide-scale collaboration and so Lindsell Train voted in line with
management, as it believes it is unproductive to expect Mondelez to solve this
wider issue on its own.
Next steps: This engagement is ongoing. While Lindsell Train accepts that
Mondelez cannot solve this wider issue on its own, as the number 2 chocolate
brand in the world Lindsell Train would like to see the company continuing to
set the agenda. Lindsell Train would like the percentage of the company’s
supply chain covered by the Cocoa Life programme to continue to increase to
full coverage, with credible and sustainable ongoing monitoring firmly in
place as this is not a ‘set and forget’ issue.
Proxy Voting
The primary voting policy of Lindsell Train is to protect or enhance the
economic value of its investments on behalf of its clients. Lindsell Train has
appointed Glass Lewis to aid the administration of proxy voting and provide
additional support in this area. However, the Manager maintains decision
making responsibility based on its detailed knowledge of the investee
companies. It is Lindsell Train’s policy to exercise all voting rights which
have been delegated to Lindsell Train by its clients.
Voting record:
MANAGEMENT PROPOSALS SHAREHOLDER PROPOSALS TOTAL PROPOSALS
With Management 387 2 389
Against Management 0 0 0
Abstain 1 1 2
Totals 388 3 391
Source: Glass Lewis. 1 October 2022 – 30 September 2023.
Votes against management and abstentions have typically been in the low
single-digit range. The main reason for this is that Lindsell Train’s
long-term approach to investment generally leads it to be supportive of
company management and, where required, Lindsell Train will try to influence
management through its engagement activities. Given Lindsell Train often
builds up large, long-term stakes in the businesses in which it invests,
Lindsell Train finds that management is open to (and very often encourage)
engagement with Lindsell Train. Furthermore, it is Lindsell Train’s aim to
be invested in ‘exceptional’ companies with strong corporate governance
and hence it ought to be rare that Lindsell Train finds itself in a position
where it is voting against management.
In the majority of cases where Lindsell Train has voted against management it
has been on matters relating to remuneration. Where Lindsell Train does not
believe that a company’s compensation policy is aligned with the long-term
best interests of the shareholders it will write to management to inform them
of Lindsell Train’s intention to vote against such policies.
INTEGRITY AND BUSINESS ETHICS
The Company is committed to carrying out business in an honest and fair
manner. The Board has adopted a zero-tolerance approach to instances of
bribery and corruption. Accordingly, it expressly prohibits any Director or
associated persons when acting on behalf of the Company from accepting,
soliciting, paying, offering or promising to pay or authorise any payment,
public or private, in the United Kingdom or abroad to secure any improper
benefit from themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy can be found in
the Board and Policies section of the Company's website. The policy is
reviewed annually by the Audit Committee.
In response to the implementation of the Criminal Finances Act 2017, the Board
adopted a zero-tolerance approach to the criminal facilitation of tax evasion.
A copy of the Company’s policy on preventing the facilitation of tax evasion
can be found in the Board and Policies section of the Company's website. The
policy is reviewed annually by the Audit Committee.
In carrying out its activities, the Company aims to conduct itself
responsibly, ethically and fairly, including in relation to social and human
rights issues. As an investment company with limited internal resource, the
Company has little impact on the environment. The Company believes that high
standards of ESG make good business sense and have the potential to protect
and enhance investment returns. Consequently, the Portfolio Manager’s
investment criteria ensure that ESG and ethical issues are taken into account
and best practice is encouraged. The Board's expectations are that its
principal service providers have appropriate governance policies in place.
COMPANY PROMOTION
The Company has appointed Frostrow to promote the Company’s shares to
professional investors in the UK and Ireland. As investment company
specialists, the Frostrow team provides a continuous, proactive marketing and
investor relations service that aims to promote the Company by encouraging
demand for the shares.
MANAGEMENT ARRANGEMENTS
Alternative Investment Fund Manager (“AIFM”)
Frostrow under the terms of its AIFM agreement with the Company provides,
inter alia, the following services:
* oversight of the portfolio management function delegated to Lindsell Train;
* promotion of the Company;
* investment portfolio administration and valuation;
* risk management services;
* share price discount and premium management;
* administrative and company secretarial services;
* advice and guidance in respect of corporate governance requirements;
* maintenance of the Company’s accounting records;
* maintenance of the Company’s website;
* preparation and publication of annual reports, half year reports and monthly
fact sheets; and
* ensuring compliance with applicable legal and regulatory requirements.
The AIFM Agreement may be terminated by either party on giving notice of not
less than 12 months.
Portfolio Manager
Lindsell Train, as delegate of the AIFM, is responsible for the management of
the Company’s portfolio of investments under an agreement between it, the
Company and Frostrow (the “Portfolio Management Agreement”).
Under the terms of its Portfolio Management Agreement, Lindsell Train
provides, inter alia, the following services:
* seeking out and evaluating investment opportunities;
* recommending the manner by which monies should be invested, realised or
retained;
* advising on how rights conferred by the investments should be exercised;
* analysing the performance of investments made; and
* advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
The Portfolio Management Agreement may be terminated by either party on giving
notice of not less than 12 months.
Annual Fees
FEES ON THAT PART OF MARKET CAPITALISATION AIFM PORTFOLIO MANAGER
≤ £1 bn 0.15% 0.45%
> Between £1 bn - £2 bn 0.135% 0.405%
£2 bn + 0.12% 0.36%
Performance Fees
The Company does not pay performance fees.
AIFM AND PORTFOLIO MANAGER EVALUATION AND RE-APPOINTMENT
The performance of Frostrow as AIFM and Lindsell Train as Portfolio Manager is
continuously monitored by the Board with a formal evaluation being undertaken
each year. As part of this process the Board monitors the services provided by
the AIFM and the Portfolio Manager as well as receiving regular reports and
views from them. The Board has also considered the assessment carried out by
the AIFM as required by the FCA’s new Consumer Duty obligations, that the
Company’s Shares provide fair value. It also receives comprehensive
long-term performance measurement reports to enable it to determine whether or
not the performance objective set by the Board has been met.
Following a review at the Board meeting in September 2023, the Board considers
that the continuing appointment of Frostrow and Lindsell Train, under the
terms described above, is in the best interests of the Company’s
Shareholders. In coming to this decision, it took into consideration the
following additional reasons:
* the quality and depth of experience of the management, company secretarial,
administrative and marketing team that the AIFM brought to the management of
the Company; and
* the quality and depth of experience that the Portfolio Manager brought to
the management of the portfolio, the clarity and rigour of the investment
process, consideration of ESG targets, the high degree of engagement with
portfolio companies on ESG matters, the level of past long-term performance of
the portfolio in absolute terms and also by reference to the benchmark index.
Depositary
The Bank of New York Mellon (International) Limited (the “Depositary”)
acts as the Company’s depositary in accordance with the AIFMD on the terms
and subject to the conditions of the depositary agreement between the Company,
Frostrow and the Depositary (the “Depositary Agreement”). Under the terms
of the Depositary Agreement the Company pays the Depositary a fee between
0.007% to 0.008% of net assets.
The Depositary provides the following services:
* responsibility for the safe-keeping of custodial assets of the Company;
* verification and maintenance of a record of all other assets of the Company;
* the collection of income that arises from those assets;
* taking reasonable care to ensure that the Company is managed in accordance
with the AIFMD, the FUND Sourcebook and the Company’s instrument of
incorporation, in relation to the calculation of the net asset value per share
and the application of income of the Company; and
* monitoring the Company’s compliance with investment restrictions and
leverage limits set by the Board and the AIFM.
In accordance with the AIFM Rules the Depositary acts as global custodian and
may delegate safekeeping to one or more global sub-custodians. The Depositary
has delegated safekeeping of the assets of the Company to The Bank of New York
Mellon SA/NV and/or The Bank of New York Mellon (The Global Sub-custodians).
As at the date of this report, the applicable active sub-custodians appointed
by the Depositary who might be relevant for the purposes of holding the
Company’s investments are:
COUNTRY NAME OF SUB-CUSTODIAN REGULATOR
The Netherlands The Bank of New York Mellon SA/NV Financial Services and Markets Authority, Belgium
United States of America The Bank of New York Mellon, New York US Securities and Exchange Commission
France The Bank of New York Mellon SA/NV The Autorité des Marchés Financiers
United Kingdom Depositary and Clearing Centre (DCC) Deutsche Bank AG, London Branch The Financial Conduct Authority
The Bank of New York Mellon, New York US Securities and Exchange Commission
Custodian
The Global Sub-Custodian’s safekeeping fees are charged according to the
jurisdiction in which the holdings are based. The majority of the Company’s
assets attract a custody fee of 0.0033% of their market value. Variable
transaction fees are also chargeable.
The Depositary Agreement may be terminated by either party on giving notice of
not less than 90 days.
On behalf of the Board
Simon Hayes
Chairman
6 December 2023
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have prepared the Company's
Financial Statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102
“The Financial Reporting Standard applicable in the UK and Republic of
Ireland”, and applicable law).
Under company law the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing the Financial Statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* state whether applicable United Kingdom Accounting Standards, comprising FRS
102 have been followed, subject to any material departures disclosed and
explained in the Financial Statements;
* make judgements and accounting estimates that are reasonable and prudent;
and
* prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for:
* keeping adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure that the
Financial Statements comply with the Companies Act 2006; and
* the maintenance and integrity of the Company’s website. Legislation in the
United Kingdom governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT
The Directors consider that the Annual Report and Financial Statements, taken
as a whole, are fair, balanced, understandable and provide the information
necessary for Shareholders to assess the Company’s position, performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in the ‘Board of
Directors’ section of the Annual Report confirms that, to the best of their
knowledge:
* the Company's Financial Statements, which have been prepared in accordance
with United Kingdom Accounting Standards give a true and fair view of the
assets, liabilities, financial position and profit of the Company; and
* the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
Approved by the Board of Directors and signed on its behalf by
Simon Hayes
Chairman
6 December 2023
Note to those who access this document by electronic means:
The Annual Report for the year ended 30 September 2023 has been approved by
the Board of Finsbury Growth & Income Trust PLC. Copies of the Annual Report
are circulated to Shareholders and, where possible to potential investors. It
is also made available in electronic format for the convenience of readers.
Printed copies are available from the Company Secretary's office in London.
INCOME STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2023
YEAR ENDED YEAR ENDED
30 SEPTEMBER 2023 30 SEPTEMBER 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTE £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments at fair
value through profit or loss 9 – 96,387 96,387 – (155,883) (155,883)
Currency translations – (65) (65) – 14 14
Income 2 47,391 – 47,391 50,792 – 50,792
AIFM and portfolio management fees 3 (2,609) (7,828) (10,437) (2,678) (8,034) (10,712)
Other expenses 4 (1,150) (17) (1,167) (1,069) (9) (1,078)
Return/(loss) on ordinary activities before finance charges and taxation 43,632 88,477 132,109 47,045 (163,912) (116,867)
Finance charges 5 (517) (1,548) (2,065) (171) (512) (683)
Return/(loss) on ordinary activities before taxation 43,115 86,929 130,044 46,874 (164,424) (117,550)
Taxation on ordinary activities 6 (1,186) – (1,186) (1,190) – (1,190)
Return/(loss) on ordinary activities after taxation 41,929 86,929 128,858 45,684 (164,424) (118,740)
Return/(loss) per share – basic and diluted 7 20.0p 41.4p 61.4p 20.6p (74.0)p (53.4)p
The “Total” column of this statement represents the Company’s income
statement.
The “Revenue” and “Capital” columns are supplementary to this and are
prepared under guidance published by the Association of Investment Companies
(“AIC”).
All items in the above statement derive from continuing operations.
The Company had no recognised gains or losses other than those declared in the
Income Statement; therefore no separate Statement of Comprehensive Income has
been presented.
The notes form part of these Financial Statements.
Statement of Changes in Equity
FOR THE YEAR ENDED 30 SEPTEMBER 2023
NOTE CALLED UP SHARE CAPITAL £’000 SHARE PREMIUM ACCOUNT £’000 CAPITAL REDEMPTION RESERVE £’000 CAPITAL RESERVE £’000 REVENUE RESERVE £’000 TOTAL SHAREHOLDERS’ FUNDS £’000
At 1 October 2022 56,248 1,099,847 3,453 614,947 55,889 1,830,384
Net return from ordinary activities – – – 86,929 41,929 128,858
Second interim dividend (9.8p per share)
for the year ended 30 September 2022 8 – – – – (21,182) (21,182)
First interim dividend (8.5p per share)
for the year ended 30 September 2023 8 – – – – (17,667) (17,667)
Repurchase of shares into Treasury 13 – – – (97,664) – (97,664)
At 30 September 2023 56,248 1,099,847 3,453 604,212 58,969 1,822,729
NOTE CALLED UP SHARE CAPITAL £’000 SHARE PREMIUM ACCOUNT £’000 CAPITAL REDEMPTION RESERVE £’000 CAPITAL RESERVE £’000 REVENUE RESERVE £’000 TOTAL SHAREHOLDERS’ FUNDS £’000
At 1 October 2021 56,248 1,099,847 3,453 855,886 49,224 2,064,658
Net (loss)/return from ordinary activities – – – (164,424) 45,684 (118,740)
Second interim dividend (9.1p per share)
for the year ended 30 September 2021 8 – – – – (20,474) (20,474)
First interim dividend (8.3p per share)
for the year ended 30 September 2022 8 – – – – (18,545) (18,545)
Repurchase of shares into Treasury 13 – – – (76,515) – (76,515)
At 30 September 2022 56,248 1,099,847 3,453 614,947 55,889 1,830,384
The notes form part of these Financial Statements.
Statement of Financial Position
AS AT 30 SEPTEMBER 2023
2023 2022
NOTE £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9 1,836,660 1,852,078
Current assets
Debtors 10 10,209 12,398
Cash and cash equivalents 17,426 7,835
27,635 20,233
Current liabilities
Creditors: amounts falling due within one year 11 (4,866) (5,227)
Bank loan 12 – (36,700)
(4,866) (41,927)
Net current assets/(liabilities) 22,769 (21,694)
Total assets less current liabilities 1,859,429 1,830,384
Creditors: amount falling due after more than one year
Bank loan 12 (36,700) –
Net assets 1,822,729 1,830,384
Capital and reserves
Called up share capital 13 56,248 56,248
Share premium account 1,099,847 1,099,847
Capital redemption reserve 3,453 3,453
Capital reserve 14 604,212 614,947
Revenue reserve 58,969 55,889
Total Shareholders’ funds 1,822,729 1,830,384
Net asset value per share 15 891.2p 848.4p
The Financial Statements were approved by the Board of Directors on 6 December
2023 and were signed on its behalf by:
Simon Hayes
Chairman
The notes form part of these Financial Statements.
Company Registration Number SC013958 (Registered in Scotland)
Statement of Cash Flows
FOR THE YEAR ENDED 30 SEPTEMBER 2023
2023 2022
NOTE £’000 £’000
Net cash inflow from operating activities 18 36,895 38,098
Investing activities
Purchase of investments (41,840) (79,080)
Sale of investments 154,301 139,227
Net cash inflow from investing activities 112,461 60,147
Financing activities
Dividends paid (38,849) (39,019)
Repurchase of shares into Treasury (98,792) (73,253)
Interest paid † (2,059) (683)
Net cash outflow from financing activities (139,700) (112,955)
Increase/(decrease) in cash and cash equivalents 9,656 (14,710)
Currency transactions (65) 14
Cash and cash equivalents at the beginning of the financial year* 7,835 22,531
Cash and cash equivalents at the end of the financial year* 17,426 7,835
† Reclassified as “financing activities” from “operating activities”
as it better reflects the nature of this expense.
Reconciliation of net debt
2023 2022
£’000 £’000
Cash and cash equivalents* 17,426 7,835
Borrowings (36,700) (36,700)
Net debt (19,274) (28,865)
* Comprises solely cash held at bank.
The notes form part of these Financial Statements.
Notes to the financial statements FOR THE YEAR ENDED 30 SEPTEMBER 2023
1. Accounting Policies
The Company is a public limited company (PLC) incorporated in the United
Kingdom, with registered office at 50 Lothian Road, Festival Square, Edinburgh
EH3 9WJ.
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these Financial Statements, are set
out below:
(A) BASIS OF PREPARATION
The Financial Statements have been prepared in accordance with UK Generally
Accepted Accounting Practice (GAAP) under UK and Republic of Ireland Company
Law, FRS 102 ‘The Financial Reporting Standard applicable in the UK, the
Statement of Recommended Practice (SORP) for “Financial Statements of
Investment Trust Companies and Venture Capital Trusts” issued by the
Association of Investment Companies in July 2022 and the Companies Act 2006
under the historical cost convention as modified by the valuation of
investments at fair value through profit or loss.
The Financial Statements have been prepared on a going concern basis. The
disclosure on going concern on in the Statement of Directors' Responsibilities
forms part of these Financial Statements.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The net revenue return is the
measure the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Sections 1158 and 1159 of the
Corporation Tax Act 2010.
Significant Judgements and Critical Sources of Estimation Uncertainties
There were no significant judgements or critical estimates reported during the
financial year ended 30 September 2023 (2022: none).
(B) INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
Investments are measured under FRS 102, sections 11 and 12 and are measured
initially, and at subsequent reporting dates, at fair value.
Changes in the fair value of investments and gains and losses on disposal are
recognised in the Income Statement as a capital item. The Company manages and
evaluates the performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the investments
is provided internally on this basis to the Board. Fair value for quoted
investments is deemed to be bid market prices, or last traded price, depending
on the convention of the stock exchange on which they are quoted.
All purchases and sales of investments are accounted for on a trade date
basis.
The Company’s policy is to expense transaction costs on acquisition/disposal
through the gains on investment at fair value through profit or loss. The
total of such expenses, showing the total amounts included in disposals and
acquisitions, is disclosed in note 9.
(C) INCOME
Dividends receivable from equity shares are recognised in Revenue on an
ex-dividend basis except where, in the opinion of the Board, the dividend is
capital in nature, in which case it is included in Capital. Overseas dividends
are stated gross of any withholding tax.
When the Company has elected to receive scrip dividends in the form of
additional shares rather than cash, the amount of cash dividend foregone is
recognised in Revenue.
Fixed returns on non-equity shares are recognised on a time apportionment
basis.
Special dividends: In deciding whether a dividend should be regarded as a
Capital or Revenue receipt, the Company reviews all relevant information as to
the reasons for and sources of the dividend on a case by case basis depending
upon the nature of the receipt. Special dividends of a revenue nature are
recognised through the Revenue column of the Income Statement. Special
Dividends of a capital nature are recognised through the Capital column of the
Income Statement.
The limited liability partnership (LLP) profit share is recognised in the
financial statements when the entitlement to the income is established,
following the conclusion of the partnership's annual audit. Deposit interest
receivable is taken to revenue on an accruals basis.
(D) DIVIDENDS PAYABLE
Dividends paid by the Company are recognised in the Financial Statements and
are shown in the Statement of Changes in Equity in the period in which they
became legally binding, which in the case of an interim dividend is the point
at which it is paid and for a final dividend when it is approved by
Shareholders in line with the ICAEW Tech Release 02/17BL.
(E) EXPENDITURE AND FINANCE CHARGES
All the expense and finance costs are accounted for on an accruals basis.
Expenses are charged through the Revenue column of the Income Statement except
as follows:
• expenses which are incidental to the acquisition or
disposal of an investment are treated as part of the cost or deducted from
proceeds of that investment (as explained in 1(B) above);
• expenses are taken to the Capital reserve via the
Capital column of the Income Statement, where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated. In line with the Board's expected long-term split of returns,
75% of the portfolio management fee, AIFM fee and finance costs are taken to
the Capital reserve and the balance to the Revenue reserve (2022: 75%
capital, 25% revenue).
(F) TAXATION
Dividend income received by the Company may be subject to withholding tax
imposed in the country of origin. The tax charges shown in the Income
Statement relates to overseas withholding tax on dividend income.
Current tax is provided at the amounts expected to be paid or recovered.
Deferred taxation is provided on all timing differences that have originated
but not been reversed by the Statement of Financial Position date other than
those differences regarded as permanent. This is subject to deferred tax
assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the reversal of timing differences
can be deducted. Any liability to deferred tax is provided for at the rate of
tax enacted or substantially enacted.
(G) FOREIGN CURRENCY
Transactions recorded in overseas currencies during the year are translated
into sterling at the exchange rates ruling at the date of the transaction.
Assets and liabilities denominated in overseas currencies at the Statement of
Financial Position date are translated into sterling at the exchange rate
ruling at that date. Profits or losses on the translation of foreign currency
balances, whether realised or unrealised are credited or debited to the
Revenue or Capital column of the Income Statement depending on whether the
gain or loss is of a revenue or capital nature.
(H) CASH AND CASH EQUIVALENTS
Cash and cash equivalents and demand deposits readily convertible to known
amounts of cash and subject to insignificant risk of changes in value are
defined as cash.
(I) BANK LOAN
Bank loans are initially recognised at fair value, net of transaction costs
incurred. Bank loans are subsequently measured at amortised cost. The loan
amounts falling due for repayment within one year are included under current
liabilities in the Statement of Financial Position and the loan amounts
falling due after one year are included under “Creditors: amounts falling
due after more than one year” in the Statement of Financial Position.
(J) REPURCHASE OF SHARES FOR CANCELLATION OR TO HOLD IN TREASURY
The cost of repurchasing ordinary shares (for cancellation or to hold in
Treasury) including the related stamp duty and transaction cost is charged to
the ‘capital reserve’ and dealt with in the Statement of Changes in
Equity. Share repurchase transactions are accounted for on a trade date basis.
Where shares are cancelled (or are subsequently cancelled having previously
been held in Treasury), the nominal value of those shares is transferred out
of ‘Called up share capital’ and into the ‘Capital redemption
reserve’.
Should shares held in Treasury be reissued, the sales proceeds will be treated
as a realised capital profit up to the amount of the purchase price of those
shares and will be transferred to capital reserves. The excess of the sales
proceeds over the purchase price will be transferred to ‘Share premium’.
(K) OPERATING SEGMENTS
The Company defines operating segments and segment performance in the
financial statements based on information used by the Board of Directors which
is considered the Chief Operating Decision Maker^. The Directors are of the
opinion that the Company is engaged in a single segment of business, being the
investments business. The results published in this Annual Report therefore
correspond to this sole operating segment.
(L) NATURE AND PURPOSE OF RESERVES
Capital Redemption Reserve
This reserve arose when ordinary shares were bought by the Company and
subsequently cancelled, at which point the amount equal to the par value of
the ordinary share capital was transferred from the ordinary share capital to
the Capital Redemption reserve.
Capital Reserve
This reserve reflects any:
• gains or losses on the disposal of investments;
• exchange differences of a capital nature;
• increases and decreases in the fair value of investments
which have been recognised in the capital column of the Income Statement;
• expenses which are capital in nature as disclosed in
note 1(E); and
• excess of the purchase price over the nominal value of
shares which have been bought back by the Company for cancellation or to be
held in Treasury. See note 1(J) above for further details.
Following amendments to the Company’s Articles of Association in 2015, this
reserve can be used to distribute certain capital profits by way of dividend.
Revenue Reserve
This reserve reflects all income and expenditure which are recognised in the
revenue column of the Income Statement and may be distributable by way of
dividend.
When making a distribution to Shareholders, the Directors determine profits
available for distribution by reference to ‘Guidance on realised and
distributable profits under the Companies Act 2006’ issued by the Institute
of Chartered Accountants in England and Wales and the Institute of Chartered
Accountants of Scotland in April 2017. The availability of distributable
reserves in the Company is dependent on those distributions meeting the
definition of qualifying consideration within that guidance and on available
cash resources of the Company and other accessible sources of funds. The
distributable reserves are therefore subject to these restrictions or
limitations at the time such distribution is made.
^ See glossary of terms.
2. Income
2023 2022
£’000 £’000
Income from investments
UK listed dividends* 39,247 41,827
Overseas dividends* 7,496 8,257
Priority profit share on AIFM Capital contribution – 81
Limited liability partnership – profit-share 443 613
Other operating income – bank interest and miscellaneous income 205 14
Total income 47,391 50,792
* Include special dividends which have been credited to the revenue account
totalling £591,000 (2022: £1,833,000):
• UK listed dividends £nil (2022: £1,205,000).
• Overseas dividends £591,000 (2022: £628,000).
3. AIFM and portfolio management fees
2023 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 652 1,957 2,609 670 2,008 2,678
Portfolio Management fee 1,957 5,871 7,828 2,008 6,026 8,034
Total fees 2,609 7,828 10,437 2,678 8,034 10,712
75% of the Portfolio management and AIFM fees are taken to the Capital reserve
and 25% is taken to the Revenue reserve. See note 1(E) for further details.
4. Other Expenses
2023 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
Directors’ fees 178 – 178 150 – 150
Auditors’ fees – statutory annual audit 69 – 69 63 – 63
Depositary’s fees 175 – 175 193 – 193
Stock listing and FCA fees 152 – 152 140 – 140
Custody fees 119 – 119 118 – 118
Index costs 85 – 85 74 – 74
Registrar’s fees 64 – 64 59 – 59
Promotional costs 55 – 55 60 – 60
Printing and postage 43 – 43 52 – 52
Directors' D&O insurance 37 – 37 41 – 41
Broker fees 36 – 36 7 – 7
Other expenses 137 17 154 112 9 121
Total expenses 1,150 17 1,167 1,069 9 1,078
Further details of the amounts paid to Directors are included in the
Directors’ Remuneration Report
During the year ended 30 September 2023 there were no non-audit services
provided by the Company's Auditor (2022: nil).
All of the above expenses include VAT where applicable. The auditor’s fees
for the statutory annual audit were £57,780 excluding VAT (2022: £52,080).
5. Finance Charges
2023 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
Interest payable on bank loan 483 1,445 1,928 161 482 643
Loan facility commitment fees 23 69 92 10 30 40
Arrangement fee 11 34 45 – – –
517 1,548 2,065 171 512 683
6. Taxation on Ordinary Activities
(A) ANALYSIS OF CHARGE IN THE YEAR
2023 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
UK Corporation tax at 22% # (2022: 19%) – – – – – –
Overseas withholding tax 1,308 – 1,308 1,364 – 1,364
Recoverable overseas withholding tax (122) – (122) (174) – (174)
1,186 – 1,186 1,190 – 1,190
(B) FACTORS AFFECTING TOTAL TAX CHARGE FOR YEAR
The tax assessed for the year is lower (2022: higher) than the standard rate
of UK corporation tax of 25% (2022: 19%).
The differences are explained below:
2023 2022
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
Total return/(loss) on ordinary activities before taxation 43,115 86,929 130,044 46,874 (164,424) (117,550)
Return/(loss) on ordinary activities multiplied by UK corporation tax of 22% # (2022: 19%) 9,485 19,124 28,609 8,906 (31,240) (22,334)
Effects of:
Overseas taxation 1,186 – 1,186 1,190 – 1,190
Franked investment income not subject to corporation tax – UK dividend income (8,634) – (8,634) (7,947) – (7,947)
Overseas dividends not taxable (1,649) – (1,649) (1,569) – (1,569)
Excess management expenses 798 – 798 610 – 610
Amounts charged to capital – 2,067 2,067 – 1,625 1,625
Non-taxable (return)/loss on investments* – (21,205) (21,205) – 29,618 29,618
Currency translations – 14 14 – (3) (3)
Total tax charge for the year (note 6(A)) 1,186 – 1,186 1,190 – 1,190
* (Return)/loss on investments are not subject to corporation tax within an
investment company.
# With effect from 1 April 2023, the main rate of corporation tax increased
from 19% to 25%, therefore the hybrid rate of 22% has been used.
(C) DEFERRED TAXATION
As at 30 September 2023, the Company had unused management expenses and other
reliefs for taxation purposes of £135,063,000 (2022: £122,041,000). It is
unlikely that the Company will generate sufficient taxable income in excess of
the available deductible expenses and therefore the Company has not recognised
a deferred tax asset of £33,766,000 (2022: £30,510,000) based on the
prospective corporation tax rate of 25% (2022: 25%).
Given the Company’s status as an investment company and the intention to
continue to meet the conditions required to maintain such status in the
foreseeable future, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation or disposal of investments.
7. Return/(loss) per share – Basic and Diluted
2023 2022
£’000 £’000
The return/(loss) per share is based on the following figures:
Revenue return 41,929 45,684
Capital return/(loss) 86,929 (164,424)
Total return/(loss) 128,858 (118,740)
Weighted average number of shares in issue during the year 209,802,492 222,335,694
Revenue return per share 20.0p 20.6p
Capital return/(loss) per share 41.4p (74.0)p
Total return/(loss) per share 61.4p (53.4)p
The calculation of the total, revenue and capital returns/(loss) per ordinary
share is carried out in accordance with IAS 33, “Earnings per Share (as
adopted in the UK)”.
As at 30 September 2023 and 2022 there were no dilutive instruments in issue,
therefore the basic and diluted return/(loss) per share are the same.
* Excludes shares held in Treasury.
8. Dividends
In accordance with FRS 102 dividends are included in the Financial Statements
in the period in which they are paid or approved by Shareholders.
Amounts recognised as distributable to Shareholders for the year ended 30
September 2023 were as follows:
EX-DIVIDEND PAYMENT 2023 2022
DATE DATE £’000 £’000
Second interim dividend paid for the year ended 30 September 2022 of 9.8p per share 29 September 2022 4 November 2022 21,182 –
First interim dividend paid for the year ended 30 September 2023 of 8.5p per share 6 April 2023 19 May 2023 17,667 –
Second interim dividend paid for the year ended 30 September 2021 of 9.1p per share 7 October 2021 12 November 2021 – 20,474
First interim dividend paid for the year ended 30 September 2022 of 8.3p per share 31 March 2022 13 May 2022 – 18,545
38,849 39,019
* Second interim dividend of 10.5p per share for the year ended 30 September 2023 (2022: 9.8p) 5 October 2023 10 November 2023 21,454 21,182
* The second interim dividend of 10.5p per share (2022: 9.8p) has not been
included as a liability in these Financial Statements as it is only recognised
in the financial year in which it is paid.
The total dividends payable in respect of the financial year which forms the
basis of the retention test under Section 1158 of the Corporation Tax Act 2010
are set out below:
2023 2022
£’000 £’000
Revenue available for distribution by way of dividend for the year 41,929 45,684
2023 First interim dividend of 8.5p per share (2022: 8.3p) paid on 19 May 2023 (17,667) (18,545)
2023 Second interim dividend of 10.5p per share (2022: 9.8p) paid on 10 November 2023 (21,454) (21,182)
Net additions to revenue reserves 2,808 5,957
The Company’s dividend policy is set out in the Strategic Report.
9. Investments held at Fair Value Through Profit or Loss
ANALYSIS OF PORTFOLIO MOVEMENTS
2023 2022
£’000 £’000
Opening book cost 1,293,409 1,303,097
Opening investment holding gains 558,669 768,169
Valuation at 1 October 1,852,078 2,071,266
Movements in the year:
Purchases at cost 42,619 79,246
Sales proceeds (154,424) (142,551)
Gains/(losses) on investments 96,387 (155,883)
Valuation at 30 September 1,836,660 1,852,078
Closing book cost 1,244,868 1,293,409
Investment holding gains at 30 September 591,792 558,669
Valuation at 30 September 1,836,660 1,852,078
The Company received £154,424,000 (2022: £142,551,000) from investments sold
in the year. The realised gains of these investments were £63,263,000 (2022:
£53,618,000) and the book cost of these investments when they were purchased
was £91,161,000 (2022: £88,933,000). These investments have been revalued
over time and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
Purchase transaction costs for the year to 30 September 2023 were £50,000
(2022: £161,000). These comprise stamp duty costs of £33,000 (2022:
£110,000) and commission of £17,000 (2022: £51,000). Sales transaction
costs for the year to 30 September 2023 were £55,000 (2022: £53,000) and
comprise commission.
10. Debtors
2023 2022
£’000 £’000
Amounts due from brokers in respect of portfolio trading – disposals 4,121 3,998
Accrued income and prepayments 6,088 8,400
10,209 12,398
11. Creditors: Amounts Falling Due Within One Year
2023 2022
£’000 £’000
Amounts due to brokers in respect of portfolio trading – purchases 1,669 890
Amounts due to brokers in respect of shares repurchased by the Company 2,134 3,262
Other creditors and accruals 1,063 1,075
4,866 5,227
12. Bank Loan
2023 2022
£’000 £’000
Bank loan 36,700 36,700
Scotiabank Europe PLC, the provider of the Company’s loan facility, has a
fixed and floating charge over the assets of the Company as security against
any funds drawn down under the loan facility. As at 30 September 2023 the
Company was in the first year of its three year secured fixed term
multi-currency revolving loan facility of £60 million (with an additional
£40 million available if required).
This facility was renewed on 4 October 2022 and will expire in early October
2025.
The main covenant under the loan facility required that, at each month end,
total borrowings should not exceed £100 million (2022: £100 million), Net
Asset Value must not fall below £750 million (2022: £300 million) and the
ratio of Adjusted Total Net Assets to Debt is not to be less than 4:1 (2022:
4:1). There were no breaches of the covenants during the year.
The Board has set a gearing limit which must not exceed 25% of the Company’s
net asset value. See the Strategic Report and the Report of the Directors for
further details.
13. Called Up Share Capital
2023 2022
£’000 £’000
Allotted, issued and fully paid:
204,519,434 (2022: 215,737,992) ordinary shares of 25p each 51,130 53,935
20,471,869 (2022: 9,253,311) ordinary shares of 25p held in Treasury 5,118 2,313
224,991,303 (2022: 224,991,303) total ordinary shares of 25p each 56,248 56,248
No shares were issued by the Company during the year (2022: Nil).
During the year, the Company bought back 11,218,558 shares to be held in
Treasury at a cost of £97,664,000 (2022: 9,253,311 shares were bought back at
a cost of £76,515,000).
Between 1 October 2023 and 5 December 2023, the Company bought back a further
5,045,317 shares into Treasury at a cost of £41,531,000.
14. Capital Reserve
CAPITAL RESERVE REALISED £'000 CAPITAL RESERVE INVESTMENT HOLDING GAINS UNREALISED £'000 2023 TOTAL £'000 CAPITAL RESERVE REALISED £'000 CAPITAL RESERVE INVESTMENT HOLDING GAINS UNREALISED £'000 2022 TOTAL £'000
At 1 October 2022 56,279 558,668 614,947 87,717 768,169 855,886
Net gains/(losses) on investments 63,263 33,124 96,387 53,618 (209,501) (155,883)
Repurchase of shares into Treasury (97,664) – (97,664) (76,515) – (76,515)
Expenses charged to capital (7,845) – (7,845) (8,043) – (8,043)
Finance costs charged to capital (1,548) – (1,548) (512) – (512)
Currency translations (65) – (65) 14 – 14
At 30 September 2023 12,420 591,792 604,212 56,279 558,668 614,947
The amount of the capital reserve that is distributable is complex to
determine and is not necessarily the full amount of the reserve as disclosed
within these Financial Statements of £604,212,000 as at 30 September 2023
(2022: £614,947,000) as this is subject to fair value movements and may not
be readily realisable at short notice.
15. Net Asset Value Per Share
2023 2022
Net assets (£'000) 1,822,729 1,830,384
Number of shares in issue (excluding shares held in Treasury) 204,519,434 215,737,992
Net asset value per share 891.2p 848.4p
As at 30 September 2023 and 2022 there were no dilutive instruments held,
therefore the basic and diluted net asset value per share are the same.
At 30 September 2023 20,471,869 shares were held in Treasury (2022:
9,253,311).
16. Transactions with the AIFM, the Portfolio Manager and Related Parties
Details of the relationship between the Company, Frostrow and Lindsell Train
are disclosed on the Company’s website and also in the Report of the
Directors.
As at 30 September 2023, the Company had an investment in Frostrow with a book
cost of £200,000 (2022: £200,000) and a fair value of £3,725,000 (2022:
£4,725,000) (including the AIFM capital contribution of £125,000 (2022:
£125,000)). During the year Frostrow earned a total of £2,609,000 (2022:
£2,678,000) in respect of AIFM fees, of which £209,000 was outstanding at 30
September 2023 (2022: £209,000).
The Company has an investment in The Lindsell Train Investment Trust plc,
which is managed by Lindsell Train, with a book cost of £1,000,000 (2022:
£1,000,000) and a fair value of £8,760,000 as at 30 September 2023 (2022:
£9,720,000). During the year Lindsell Train earned a total of £7,828,000
(2022: £8,034,000) in respect of Portfolio Management fees of which £626,000
was outstanding at 30 September 2023 (2022: £627,000).
Further details can be found in the Corporate Information section of the
Company's website.
Details of the income received from the AIFM are disclosed in note 2 and
details of the remuneration payable to the AIFM and the Portfolio Manager are
disclosed in note 3.
Details of the fees of all Directors can be found in the Directors
Remuneration Report and in note 4. Directors’ interests in the capital of
the Company can be found in the Directors Remuneration Report within the
Annual Report. There were no other material transactions during the year with
the Directors of the Company.
17. Risk Management
As an investment company the Company invests in equities and other investments
for the long term so as to secure its investment objective. In pursuit of its
investment objective, the Company is exposed to a variety of risks that could
result in either a reduction in the Company’s net assets or a reduction in
the revenue returns available for distribution.
The Company’s financial instruments comprise mainly equity investments, cash
balances, borrowings, debtors and creditors that arise directly from its
operations.
The principal risks inherent in managing financial instruments are market
risk, liquidity risk and credit risk.
The principal and emerging risks of the Company and the Directors’ approach
to the management of those where the Directors consider there to be a high
inherent risk are set out in the Strategic Report.
MARKET RISK
Market risk comprises three types of risk: market price risk, interest rate
risk and currency risk.
Market Price Risk
As an investment company, performance is dependent on the performance of the
underlying companies and securities in which it invests. The market price of
investee companies’ shares is subject to their performance, supply and
demand for the shares and investor sentiment regarding the company or the
industry sector in which it operates. Consequently, market price risk is one
of the most significant risks to which the Company is exposed.
At 30 September 2023, the fair value of the Company’s assets exposed to
market price risk was £1,836,660,000 (2022: £1,852,078,000). If the fair
value of the Company’s investments at the Statement of Financial Position
date increased or decreased by 10%, while all other variables remained
constant, the capital return and net assets attributable to Shareholders for
the year ended 30 September 2023 would have increased or decreased by
£183,666,000 or 89.80p per share (2022: £185,208,000 or 85.85p per share).
No derivatives or hedging instruments are currently utilised to manage market
price risk.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
Interest rate movement may affect:
* the interest payable on the Company’s variable rate borrowings
* the level of income receivable from variable interest securities and cash
deposits
* the fair value of investments of fixed rate securities
The Company’s main exposure to interest rate risk during the year ended 30
September 2023 was through its three year £60,000,000 (2022: £50,000,000)
secured multi-currency committed revolving credit facility (with an additional
£40 million facility available if required (2022: £50 million)) with
Scotiabank Europe PLC.
Borrowings at the year end amounted to £36,700,000 (2022: £36,700,000) at an
interest rate of 6.486% (5.186% SONIA plus 1.30% margin) (2022: 3.257% (2.188%
SONIA plus 1.069% margin and fees)).
If the above level of borrowing was maintained for a year, a 10% increase or
decrease in SONIA would decrease or increase the revenue return by £48,000,
(2022: £20,000), decrease or increase the capital return in that year by
£142,000 (2022: £60,000) and decrease or increase the net assets by
£190,000 (2022: £80,000).
The weighted average interest rate, during the year, on borrowings under the
above mentioned revolving credit facility was 5.15% (2022: 1.74%). At 30
September 2023, the Company’s financial assets and liabilities exposed to
interest rate risk were as follows:
2023 2022
WITHIN MORE THAN ONE YEAR WITHIN MORE THAN ONE YEAR
ONE YEAR ONE YEAR
£’000 £’000 £’000 £’000
Exposure to floating rates:
Assets
Cash and cash equivalents 17,426 – 7,835 –
Liabilities
Creditors: amount falling due within one year – borrowings under the loan facility – – (36,700) –
Creditors: amount falling due after more than one year – borrowings under the loan facility – (36,700) – –
Exposure to fixed rates:
Assets
Investments at fair value through profit or loss # 392 – 367 –
Liabilities – – – –
# Celtic 6% cumulative convertible preference shares and Frostrow Capital LLP
AIFM Capital Contribution.
Currency Risk
The Financial Statements are presented in sterling, which is the functional
and presentational currency of the Company. At 30 September 2023, the
Company’s investments, with the exception of five, were priced in sterling.
The five exceptions were: Heineken, listed in the Netherlands, Remy Cointreau
listed in France, Manchester United, Cazoo and Mondelez, all of which are
listed in the United States. The aggregate of these represents 17.9% of the
portfolio.
The AIFM and the Portfolio Manager monitor the Company’s exposure to foreign
currencies on a continuous basis and regularly report to the Board. The
Company does not hedge against foreign currency movements, but the Portfolio
Manager takes account of the risk when making investment decisions.
Income denominated in foreign currencies is converted into sterling on
receipt. The Company does not use financial instruments to mitigate the
currency exposure in the period between its receipt and the time that the
income is included in the Financial Statements.
Foreign Currency Exposure
At 30 September 2023 the Company held £171,369,000 (2022: £181,124,000) of
investments denominated in U.S. dollars and £156,737,000 (2022:
£203,900,000) in euros.
Currency Sensitivity
The following table details the sensitivity of the Company’s return after
taxation for the year to a 10% increase or decrease in the value of sterling
compared with the U.S. dollar and euro (2022: 10% increase and decrease).
The analysis is based on the Company’s foreign currency financial
instruments held at each Statement of Financial Position date.
In addition to the foreign currency exposure on investments held at 30
September 2023, the Company also held £1,125,000 (2022: £4,039,000) in
debtors denominated in U.S. dollars and £2,117,000 (2022: £1,766,000)
denominated in Euros.
This level of sensitivity is considered to be reasonably possible based on
observation of current market conditions and historical trends.
If sterling had weakened against the U.S. dollar and euro, as stated above,
assuming all other variables remain constant, this would have had the
following effect:
2023 2022
£’000 £’000
Impact on revenue return 259 299
Impact on capital return 36,568 43,109
Total return after tax/increase in Shareholders’ funds 36,827 43,408
If sterling had strengthened against the foreign currencies as stated above,
assuming all other variables remain constant, this would have had the
following effect:
2023 2022
£’000 £’000
Impact on revenue return (212) (245)
Impact on capital return (29,918) (35,288)
Total return after tax/decrease in Shareholders’ funds (30,130) (35,533)
Credit Risk
Credit risk is the risk that the counterparty to a transaction fails to
discharge its obligations under that transaction, which could result in the
Company suffering a loss. Credit risk is managed as follows:
– Investment transactions are carried out only with brokers
which are considered to have a high credit rating.
– Transactions are undertaken on a delivery versus payment
basis whereby the Company’s custodian bank ensures that the counterparty to
any transactions entered into by the Company has delivered its obligation
before any transfer of cash or securities away from the Company is completed.
– Any failing trades in the market are closely monitored by
both the AIFM and the Portfolio Manager.
– Cash is only held at banks that have been identified by
the Board as reputable and of high credit quality.
– Bank of New York Mellon has a credit rating of Aa2
(Moody's) and AA- (Fitch).
At 30 September 2023, the exposure to credit risk was £21,814,000 (2022:
£12,075,000), comprising:
2023 2022
£’000 £’000
Fixed assets:
Non-equity investments (preference shares) 267 242
Current assets:
Other receivables (amounts due from brokers) 4,121 3,998
Cash and cash equivalents 17,426 7,835
Total exposure to credit risk 21,814 12,075
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Liquidity risk is not considered significant as the majority of the
Company’s assets are investments in quoted equities. As at 30 September 2023
it is estimated that 97.5% of the investment portfolio could be realised
within 30 days with 60.4% in seven days, based on current trading volumes.
Liquidity risk exposure
30 SEPTEMBER 2023 30 SEPTEMBER 2022
FINANCIAL LIABILITIES COMPRISE: £’000 £’000
Due within one month:
Balances due to brokers in respect of portfolio trading - purchases 1,669 890
Amounts due to brokers in respect of shares repurchased by the Company 2,134 3,262
Accruals 1,063 1,075
Bank loan – 36,700
Due after three months and after one year:
Bank loan 36,700 –
FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value or at a reasonable approximation of
fair value.
VALUATION OF FINANCIAL INSTRUMENTS
The Company measures fair values using the following fair value hierarchy that
reflects the significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
asset, noting that most of the Company's investments are quoted assets, which
have been categorised as level 1 investments:
* Level 1 – quoted prices in active markets.
* Level 2 – prices of recent transactions for identical instruments.
* Level 3 – valuation techniques using observable and unobservable market
data.
The financial assets and liabilities measured at fair value in the Statement
of Financial Position are grouped into the fair value hierarchy at the
reporting date as follows:
AS AT 30 SEPTEMBER 2023 LEVEL 1 £’000 LEVEL 2 £’000 LEVEL 3 £’000 TOTAL £’000
Equity investments 1,832,668 – – 1,832,668
Limited liability partnership interest (Frostrow) – – 3,600 3,600
Frostrow - AIFM capital contribution – – 125 125
Preference share investments 267 – – 267
1,832,935 – 3,725 1,836,660
AS AT 30 SEPTEMBER 2022 LEVEL 1 £’000 LEVEL 2 £’000 LEVEL 3 £’000 TOTAL £’000
Equity investments 1,847,111 – – 1,847,111
Limited liability partnership interest (Frostrow) – – 4,600 4,600
Frostrow - AIFM capital contribution – – 125 125
Preference share investments 242 – – 242
1,847,353 – 4,725 1,852,078
The unquoted investment in Frostrow has been re-valued by the Directors during
the year, using two unobservable market data sources, being Frostrow’s
earnings and an agreed appropriate comparator multiple. This was the same
methodology adopted to value Frostrow as at 30 September 2022.
There have been no transfers during the year between Levels 1 and 2. A
reconciliation of fair value measurements in Level 3 is set out below.
Level 3 Reconciliation of financial assets at fair value through profit or
loss at 30 September
2023 2022
£’000 £’000
Opening fair value 4,725 5,200
Frostrow - AIFM capital contribution (repayment) – (775)
Total (losses)/gains included in gains/(losses) on investments in the Income Statement (1,000) 300
Closing fair value 3,725 4,725
If the earnings used in the valuation were to increase or decrease by 10%
while all the other variables remained constant, the return and net costs
attributable to Shareholders for the year ended 30 September 2023 would have
increased/decreased by £360,000 (2022: £460,000, applying the same
assumptions).
CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES
The structure of the Company’s capital is described in note 13 and details
of the Company’s reserves are shown in the Statement of Changes in Equity.
The Company’s capital management objectives are:
* to ensure that it is able to continue as a going concern; and
* to achieve capital and income growth and to provide Shareholders with a
total return in excess of that of the FTSE All-Share Index through an
appropriate balance of equity and debt.
The Board, with the assistance of the AIFM and the Portfolio Manager,
regularly monitors and reviews the broad structure of the Company’s capital.
These reviews include:
* the level of gearing, set at a limit in normal market conditions, is not to
exceed 25% of the Company's net assets, which takes account of the Company’s
position and the views of the Board, the AIFM and the Portfolio Manager on the
market;
* the extent to which revenue reserves should be retained or utilised; and
* ensuring the Company’s ability to continue as a going concern.
The Company’s objectives, policies and procedures for managing capital are
unchanged from last year.
There were no breaches by the Company during the year of the financial
covenants put in place by Scotiabank Europe plc in respect of the committed
revolving credit facility provided to the Company.
Apart from the covenant to ensure that the net asset value of the Company
exceeds £750m (2022: £300m), the covenants are unchanged since last year and
the Company has complied with them at all times.
18. Net Cash Inflow from Operating Activities
2023 2022
£’000 £’000
Total return/(loss) before finance charges and taxation 132,109 (116,867)
(Deduct)/add: capital (gain)/loss before finance charges and taxation (88,477) 163,912
Net revenue before finance charges and taxation 43,632 47,045
Decrease in accrued income and prepayments 2,235 81
Decrease in creditors (18) (68)
Taxation – overseas withholding tax paid (1,109) (917)
AIFM, portfolio management fees and other expenses charged to capital (7,845) (8,043)
Net cash inflow from operating activities 36,895 38,098
19. Substantial Interests
At 30 September 2023 the Company held interests in 3% or more of any class of
capital in the following entities:
COMPANY OR LIMITED LIABILITY PARTNERSHIP NUMBER OF SHARES HELD 2023 FAIR VALUE £'000 % OF ISSUED SHARE CAPITAL OR LIMITED LIABILITY PARTNERSHIP INTEREST
A. G. Barr 4,420,000 21,702 4.0
Frostrow Capital LLP (unquoted) † – 3,725 9.8
Manchester United 2,305,000 37,334 4.4
The Lindsell Train Investment Trust plc* 10,000 8,760 5.0
† Includes Frostrow Capital LLP's AIFM Capital Contribution, fair value
£125,000.
* Also managed by Lindsell Train Limited which receives a portfolio management
fee based on the Company’s market capitalisation.
20. Post Balance Sheet Events
During the period from 1 October 2023 to 5 December 2023, a further 5,045,317
shares were bought back and held in Treasury at a cost of £41,531,000.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
ACTIVE SHARE (APM)
Active Share is expressed as a percentage and shows the extent to which a
fund’s holdings and their weightings differ from those of the fund’s
benchmark index. A fund that closely tracks its index might have a low Active
Share of less than 20% and be considered passive, while a fund with an Active
Share of 60% or higher is generally considered to be actively managed. The
Company has a distinctive strategy: a concentrated portfolio of holdings
invested across a small number of sectors and themes. Active Share helps
quantify the extent to which the portfolio differs from the benchmark index.
The Active Share performance is sourced from Morningstar.
AIC
Association of Investment Companies. The AIC represents a broad range of
investment companies, investment trusts, VCTs and other closed-ended funds.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
Shareholders.
ALTERNATIVE PERFORMANCE MEASURE (“APM”)
An Alternative Performance Measure (APM) is a numerical measure of the
Company’s current, historical or future financial performance, financial
position or cash flows other than a financial measure defined or specified in
the applicable financial framework. In selecting these Alternative Performance
Measures, the Directors considered the key objectives and expectations of
typical investors and believe that each APM gives the reader useful and
relevant information in judging the Company's performance and in comparing
other investment companies.
BENCHMARK RETURN
Total return on the benchmark, assuming that all dividends received were
re-invested, without transaction costs, into the shares of the underlying
companies at the time the shares were quoted ex-dividend.
CHIEF OPERATING DECISION MAKER
The Chief Operating Decision Maker of the Company is considered to be the
Board of Directors. It is a Generally Accepted Accounting Principal (GAAP)
requirement to disclose who the chief operating decision maker is.
DISCOUNT OR PREMIUM (APM)
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount. The Board regularly reviews the level of the
discount/premium of the Company’s share price to the net asset value per
share and considers ways in which share price performance may be enhanced,
including the effectiveness of share buy-backs, where appropriate.
DISCOUNT OR PREMIUM (APM) 30 SEPTEMBER 2023 30 SEPTEMBER 2022
Share price (p) 852.0 800.0
Net asset value per share (p) 891.2 848.4
Discount 4.4% 5.7%
FTSE DISCLAIMER
“FTSE©” is a trade mark of the London Stock Exchange Group companies and
is used by FTSE International Limited under licence. All rights in the FTSE
indices and/or FTSE ratings vest in FTSE and or its licensors. Neither FTSE
nor its licensors accept any liability for any errors or omissions in the FTSE
indices and/or FTSE ratings or underlying data. No further distributions of
FTSE Data is permitted without FTSE’s express written consent.
GEARING (APM)
Gearing represents prior charges, adjusted for net current assets, expressed
as a percentage of net assets (AIC methodology). The Directors believe that it
is appropriate to show net gearing in relation to Shareholders’ funds as it
represents the amount of debt funding on the investment portfolio. The gearing
policy is that borrowing will not exceed 25% of the Company's net assets.
Prior charges includes all loans and bank overdrafts for investment purposes.
30 SEPTEMBER 30 SEPTEMBER
2023 2022
£’000 £’000
Bank loan (prior charges) (36,700) (36,700)
Net current assets 22,769 15,006
Bank loan adjusted for net current assets (13,931) (21,694)
Net assets 1,822,729 1,830,384
Gearing 0.8% 1.2%
THE INSTITUTIONAL INVESTORS GROUP ON CLIMATE CHANGE (“IIGCC”)
IIGCC membership enables organisations to ensure that they are part of the
solution to climate change.
THE INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE (“IPCC”)
The IPCC is the United Nations body for assessing the science related to
climate change.
NET ZERO ASSET MANAGERS INITIATIVE (“NZAM”)
The Net Zero Asset Managers initiative is an international group of asset
managers committed to supporting the goal of net zero greenhouse gas emissions
by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees
Celsius; and to supporting investing aligned with net zero emissions by 2050
or sooner.
NET ASSET VALUE (“NAV”)
The value of the Company’s assets, principally investments made in other
companies and cash being held, less any liabilities. The NAV is also described
as “Shareholders’ funds”. The NAV is often expressed in pence per share
after being divided by the number of shares that have been issued. The NAV per
share is unlikely to be the same as the share price which is the price at
which the Company’s shares can be bought or sold by an investor. The share
price is determined by the relationship between the demand and supply of the
shares.
NET ASSET VALUE TOTAL RETURN PER SHARE (APM)
The theoretical total return on an investment over a specified period assuming
dividends paid to Shareholders were reinvested at net asset value per share at
the time the shares were quoted ex-dividend. This is a way of measuring
investment management performance of investment companies which is not
affected by movements in discounts or premiums. The Directors regard the
Company’s net asset value total return per share as being the overall
measure of value delivered to Shareholders over the long term. The Board
considers the principal comparator to be its benchmark, the FTSE All-Share
Index.
NAV TOTAL RETURN 30 SEPTEMBER 2023 30 SEPTEMBER 2022
Opening NAV per share (p) 848.4 917.7
Increase/(decrease) in NAV per share (p) 42.8 (69.3)
Closing NAV per share (p) 891.2 848.4
Increase/(decrease) in NAV per share 5.0% (7.6)%
Impact of dividends re - invested* +2.2% +1.8%
NAV per share total return 2, 3 and 4 7.2% (5.8)%
* The NAV total return is calculated on the assumption that the total
dividends of 18.3p (2022: 17.4p) paid by the Company during the year were
reinvested into assets of the Company at the NAV per share at the ex-dividend
date. The Treasury shares held by the Company have been excluded from this
calculation.
The source of this data is Morningstar who have calculated the return on an
industry comparative basis.
ONGOING CHARGES FIGURE (APM)
Ongoing charges are calculated by taking the Company’s annualised operating
expenses expressed as a proportion of the average daily net asset value of the
Company over the year. The costs of buying and selling investments are
excluded, as are interest costs, taxation, cost of buying back or issuing
ordinary shares and other non-recurring costs. Ongoing charges represent the
costs that Shareholders can reasonably expect to pay from one year to the
next, under normal circumstances.
30 SEPTEMBER 30 SEPTEMBER
2023 2022
£'000 £'000
AIFM and portfolio management fees 10,437 10,712
Operating expenses (excluding finance costs) 1,167 1,078
Total expenses 11,604 11,790
Average net assets during the year 1,907,121 1,973,934
Ongoing charges figure (excluding finance costs) 0.61% 0.60%
OTHER COST RATIOS
The total ongoing costs as described in the Company’s latest Key Information
Document (“KID”) is 0.72%. This represents the impact of the costs that
are incurred each year for the running of the Company including the impact of
the finance costs (0.11%).
THE PARIS AGREEMENT
The Paris Agreement’s central aim is to strengthen the global response to
the threat of climate change by keeping a global temperature rise this century
well below 2 degrees Celsius above pre-industrial levels and to pursue efforts
to limit the temperature increase even further to 1.5 degrees Celsius.
THE PARIS ALIGNED INVESTMENT INITIATIVE (“PAII”)
The PAII was launched by the Institutional Investors Group on Climate Change
(“IIGCC”) in Europe in May 2019, to explore how investors can align their
portfolios with the goals of the Paris Agreement.
PEER GROUP
Finsbury Growth & Income Trust PLC is part of the AIC’s UK Equity Income
sector. The trusts in this universe are defined as trusts whose investment
objective is to achieve a total return for Shareholders through both capital
and dividend growth.
REVERSE STRESS TEST
Reverse stress tests are stress tests that identify scenarios and
circumstances which would make a business unworkable and identify potential
business vulnerabilities.
SASB
The Sustainability Accounting Standards Board (“SASB”) aims to establish
industry-specific disclosure standards across ESG topics that facilitate
communication between companies and investors about financially material,
information that is useful for decision-making.
SHARE PRICE TOTAL RETURN (APM)
The change in capital value of a company’s shares over a given period, plus
dividends paid to Shareholders, expressed as a percentage of the opening
value. The assumption is that dividends paid to Shareholders are re-invested
in the shares at the time the shares are quoted ex-dividend. The Directors
regard the Company’s share price total return to be a key indicator of
performance. This reflects share price growth of the Company which the Board
recognises is important to investors.
SHARE PRICE TOTAL RETURN 30 SEPTEMBER 2023 30 SEPTEMBER 2022
Opening share price share (p) 800.0 876.0
Increase/(decrease) in share price (p) 52.0 (76.0)
Closing share price (p) 852.0 800.0
Increase/(decrease) in share price 6.5% (8.7)%
Impact of dividends re - invested* +1.0% +3.1%
Share price total return 7.5% (5.6)%
* The share price total return is calculated on the assumption that the total
dividends of 18.3p (2022: 17.4p) paid during the year were reinvested into
shares of the Company at the share price at the ex-dividend date.
The source is Morningstar who have calculated the return on an industry
comparative basis.
STERLING OVERNIGHT INDEX AVERAGE (“SONIA”)
SONIA is an interest rate published by the Bank of England. SONIA can be seen
as the average interest rate at which a selection of financial institutions
lend to one another in British pound sterling (GBP) with a maturity of 1 day
(overnight).
STRESS TESTING
Stress testing Is a forward-looking analysis technique that considers the
impact of a variety of extreme but plausible economic scenarios on the
financial position of the Company.
TCFD
The Financial Stability Board created the Task Force on Climate-related
Financial Disclosures (“TCFD”) to improve and increase reporting of
climate-related financial information.
TREASURY SHARES
Shares previously issued by a company that have been bought back from
Shareholders to be held by the company for potential sale or cancellation at a
later date. Such shares are not capable of being voted and carry no rights to
dividends.
2023 Accounts
The figures and financial information for 2023 are extracted from the Annual
Report and financial statements for the year ended 30 September 2023 and do
not constitute the statutory accounts for the year. The Annual Report and
financial statements include the Report of the Independent Auditor which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of Companies.
2022 Accounts
The figures and financial information for 2022 are extracted from the
published Annual Report and financial statements for the period ended 30
September 2022 and do not constitute the statutory accounts for that year.
The Annual Report and financial statements have been delivered to the
Registrar of Companies and included the Report of the Independent Auditor
which was unqualified and did not contain a statement under either section
498(2) or section 498(3) of the Companies Act 2006.
Annual report and financial statements
Copies of the Annual Report and financial statements will be posted to
shareholders in mid December 2023. Members of the public may obtain copies
from Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL or from
the Company’s website www.finsburygt.com where up to date information on the
Company, including daily NAV, share prices and fact sheets, can also be found.
The Company's Annual Report for the period ended 30 September 2023 has been
submitted to the Financial Conduct Authority and will shortly be available for
inspection on the National Storage Mechanism (NSM)
via https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting will be held on Tuesday, 23 January 2024.
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.
-ENDS-
For further information please contact
Victoria Hale
Company Secretary
For and on behalf of Frostrow Capital LLP
020 3170 8732
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