REG-The Lindsell Train Investment Trust Plc: Half-year Report
05/12/2022 07:15
5 December 2022
LONDON STOCK EXCHANGE ANNOUNCEMENT
The Lindsell Train Investment Trust plc (the “Company”)
Unaudited Half-Year Results for the six months ended
30 September 2022
This Announcement is not the Company’s Half-year Report & Accounts. It is an
abridged version of the Company’s full Half-year Report & Accounts for the
six months ended 30 September 2022. The full Half-year Report & Accounts
together with a copy of this announcement, will shortly be available on the
Company’s website at www.ltit.co.uk where up to date information on the
Company, including NAV, share prices and monthly updates, can also be found.
The Company's Half-year Report & Accounts for the six months ended 30
September 2022 has been submitted to the UK Listing Authority, and will
shortly be available for inspection on the National Storage Mechanism (NSM) at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Financial Highlights
Performance comparisons 1 April 2022 – 30 September 2022 Change
Share price total return per Ordinary Share*^ -6.5%
Net asset value total return per Ordinary Share*^ -3.0%
MSCI World Index total return (Sterling) -7.3%
UK RPI Inflation (all items) +7.5%
* The net asset value and the share price at 30 September 2022 have been
adjusted to include the ordinary dividend of £51.12 per share and a special
dividend of £1.88 per share paid on 13 September 2022, with the associated
ex-dividend date of 11 August 2022.
^ Alternative Performance Measure (“APM”). See Glossary of
Terms and Alternative Performance Measures.
Source: Morningstar/Bloomberg
Investment Objective
The objective of the Company is to maximise long-term total returns with a
minimum objective to maintain the real purchasing power of Sterling capital.
Investment Policy
The Investment Policy of the Company is to invest:
(i) in a wide range of financial assets including equities, unlisted
equities, bonds, funds, cash and other financial investments globally with no
limitations on the markets and sectors in which investment may be made,
although there is likely to be a bias towards equities and Sterling assets,
consistent with a Sterling-dominated investment objective. The Directors
expect that the flexibility implicit in these powers will assist in the
achievement of the investment objective;
(ii) in Lindsell Train managed fund products, subject to Board
approval, up to 25% of its gross assets; and
(iii) in LTL and to retain a holding, currently 24.2%, in order to
benefit from the growth of the business of the Company’s Manager.
The Company does not envisage any changes to its objective, its investment
policy, or its management for the foreseeable future. The current composition
of the portfolio as at 30 September 2022, which may be changed at any time
(excluding investments in LTL and LTL managed funds) at the discretion of the
Investment Manager within the confines of the policy stated above.
Diversification
The Company expects to invest in a concentrated portfolio of securities with
the number of equity investments averaging fifteen companies. The Company will
not make investments for the purpose of exercising control or management and
will not invest in the securities of, or lend to, any one company (or other
members of its group) more than 15% by value of its gross assets at the time
of investment.
The Company will not invest more than 15% of gross assets in other
closed-ended investment funds.
Gearing
The Directors have discretion to permit borrowings up to 50% of the Net Asset
Value. However, the Directors have decided that it is in the Company’s best
interests not to use gearing. This is in part a reflection of the increasing
size and risk associated with the Company’s unlisted investment in LTL, but
also in response to the additional administrative burden required to adhere to
the full scope regime of the AIFMD.
Dividends
The Directors’ policy is to pay annual dividends consistent with retaining
the maximum permitted earnings in accordance with investment trust
regulations, thereby building revenue reserves.
In a year when this policy would imply a reduction in the ordinary dividend,
the Directors may choose to maintain the dividend by increasing the percentage
of revenue paid out or by drawing down on revenue reserves. Revenue reserves
on 31 March 2022 were twice the annual 2022 ordinary dividend paid on 13
September 2022.
All dividends have been distributed from revenue or revenue reserves.
Chairman’s Statement
The Company’s net asset value per share (“NAV”) fell by 7.6% (from
£1,113.81 to £1,029.42) over the first six months of the financial year
ending 31 March 2023; although once the dividend was added in, the total
return to shareholders was minus 3.0%. The total return of the share price
registered a steeper fall of 6.5% with the price falling from £1,105 to £991
and ended the half year trading at a 3.7% discount to the NAV. These returns
are better than the 7.3% fall in the benchmark MSCI World Index (including
dividends). This fall is understandable when one considers the background
uncertainties surrounding the conflict in Ukraine, rising inflation and rising
interest rates.
In this environment it was not surprising that the Company’s 24.2% ownership
of Lindsell Train Limited (“LTL”), which accounted for 42.7% of NAV at 30
September 2022, had the most bearing on performance. LTL’s valuation fell by
10.4% reflecting its reduced funds under management (“FUM”). FUM fell from
£20.5bn to £18.6bn over the six months, £1.5bn due to net redemptions and
£0.4bn due to falling market prices. LTL has suffered from more than two
years of disappointing relative performance across all its four equity
strategies which, together with widespread outflows from equity funds
generally, underlies this loss of FUM. The experience of recent years
illustrates the investment risk inherent in a fund management business that
has a singular approach to investing. Although LTL offers four strategies
differentiated by geography, all its portfolios are run following a consistent
approach and tend to be populated with the same type of companies. LTL and the
Company’s Directors strongly believe that this approach will outperform in
the long term, given the Investment Manager’s concentration on companies
that should generate consistently higher returns on capital over time.
However, the strategy can fall out of favour when it is seen to be generating
inferior short-term returns compared with alternative strategies. Whilst the
falls in LTL’s FUM and valuation (they are inextricably linked through the
Directors’ valuation formula) are painful, the total return from the
Company’s investment in LTL over the six months of minus 4.0% is less
negative. This is because LTL’s current profits generate a dividend yield on
LTL’s shares of more than 10% per annum, which negates the bulk of the fall
in the LTL valuation.
Putting LTL’s valuation fall in the context of its peers, the recent fall in
markets has hit the valuation of many quoted fund management businesses hard.
The Directors monitor a universe of quoted fund managers listed in developed
markets and a year ago they were valued on average at 3.2% of FUM. That same
universe was valued at 1.4% of FUM at the end of September 2022, a 60% fall.
It is a sobering reminder of how today’s reality of falling FUM bears down
on the industry. In this environment, we judge that it is important to be
differentiated, to offer value for money and to be cognisant of the ESG
priorities that clients increasingly demand in addition to adding value
through performance. LTL possesses all these qualities. We take encouragement
that LTL is defined by a well-articulated investment approach that over the
longer term has generated competitive returns. The costs of delivering that
approach are generally well below the industry average and the type of
companies favoured using this approach rank highly on ESG credentials. For
these reasons we have confidence in LTL’s future and with what it offers to
its clients including you, our shareholders. It is also for these reasons as
well as in acknowledgment of LTL’s superior profitably (notional operating
margins of approximately 50% versus the peer group average of 35%) that the
Board values LTL at 1.95% of FUM at 30 September 2022.
One way in which the Company can directly assist LTL is to help seed its new
fund launches. The Company has used this option - limited to a maximum of 25%
of NAV at cost - throughout its history. Today it retains a holding in the
Lindsell Train North American Equity Fund (“LTNA”), which was bought on
its inception in 2020. It amounted to 8.2% of net assets on 30 September
2022. LTNA’s first two years have been burdened with the same sort of
relative underperformance that has affected all LTL strategies. Since the
fund’s inception (on 22 April 2020) to 30 September 2022, its total return
has been 13.0% per annum versus the 17.5% per annum rise in the MSCI North
American Index. The underlying investments represent many of the same
industries and themes that are present in our other funds but currently with
more of a bias to media and software. And like LTL’s other funds, its
companies boast impressive returns on capital that have been sustained for
decades and well exceed comparative benchmark index returns; this provides the
foundation for the durability in companies that the Manager seeks. Its largest
holdings - all above 5% of the fund’s NAV - include Estée Lauder, American
Express, Alphabet and Pepsi. From the time the portfolio was created, with 23
constituent companies, it has not changed aside from the additions of Madison
Square Garden Sports later in 2020 and FICO earlier this year. Now into its
third year, LTL and the fund’s manager James Bullock are beginning to
promote the fund more widely with its recent addition to multiple investment
platforms.
Notwithstanding its relative underperformance, LTNA has made an important
contribution to the Company’s returns through its strong absolute
performance of 13% per annum since inception, from a market (North America)
otherwise less represented within the Company’s portfolio. We hope that it
will also grow and flourish as a core strategy for LTL in the future.
I am also pleased to welcome two new additions to the Board. Roger Lambert and
Helena Vinnicombe joined as Non-Executive Directors at the end of September.
They have joined the Audit, Nomination and Management Engagement Committees.
Roger and Helena will offer themselves for election by shareholders at the
2023 AGM. Both bring relevant experience and skills and, I dare say, some new
perspectives.
Julian Cazalet
Chairman
4 December 2022
Investment Manager’s Report
“The best is yet to come.” This attitude to life is both rational and
psychologically therapeutic – certainly for those facing the challenges of
investment markets.
I admit that threading through today’s macro-economic and geopolitical
thickets I must work harder than usual to maintain my native optimism. But
when I turn to the prospects for the businesses we are invested in – they
appear brighter and brighter.
Here are some facts or anecdotes that help justify a view that the best is
still to come for your Company’s key portfolio holdings.
Nintendo is the creator of some of the most sought-after entertainment content
on the planet. This content includes at least 33% ownership of purportedly the
biggest grossing media franchise of all-time: Pokémon, with estimated
lifetime revenues of $90bn. Nintendo has rights to make all Pokémon console
games, in addition to its ownership stake. Now, the biggest ever Japanese
launch for a Pokémon game was that of Pokémon Black and White, which sold
2.6m copies in 7 days back in 2010. This was the biggest first week sale for
any game in Japan ever, until September 2022 when Nintendo released Splatoon
3. This relatively new (2015) and fun series, which is 100% owned by
Nintendo, sold 3.6m copies in 3 days – a new record for a first week – and
continues to top the Japanese charts and perform strongly worldwide. Well done
to Nintendo for creating a new franchise with the potential for revenues of
billions of dollars. Meanwhile, the Mario and Zelda franchises have sold more
games on Switch than any previous Nintendo device; with Mario Kart 8, at 55m
copies sold, the bestselling in this series and now the 6th bestselling video
game of all time. Gaming is an immature industry; Nintendo’s content is
beloved; new sales records for its games and devices are likely to be set for
years to come.
RELX’s Elsevier academic publishing division recently confirmed it publishes
18% of global research articles, but that it commands 27% of all citations
(demonstrating the high calibre of research submitted to its journals).
Reinforcing the value of Elsevier’s market position, consider the following
statistics RELX shares on its website. Back in 1950, the quantum of medical
research undertaken worldwide was doubling every 50 years. By 2020, it was
doubling every 73 days. Meanwhile, the data handled by RELX’s legal and
business information subsidiary, LexisNexis, is doubling every year. Finally,
note that RELX’s fastest growing division, Risk, derives 65% of its profits
from services that didn’t exist 7 years ago. It’s hard to conclude
anything but that RELX’s customers are going to need even more of its data
and analytics services in years to come, as business and academic
professionals are required to make sense of exponentially growing scads of
data.
At another data service provider, London Stock Exchange Group, we were
encouraged by the chutzpah demonstrated by CEO David Schwimmer in July, when
he remarked that in his previous role at Goldman Sachs he had advised on
hundreds of transactions, but he genuinely couldn’t think of a single one
“as transformational and value-creating as this one” (LSE’s 2021
acquisition of Refinitiv). It has to be said that with each passing update
from the company, Schwimmer’s assertion looks better and better based.
Meanwhile, while turmoil in fixed interest and currency markets is, of course,
troubling for asset owners, it is not necessarily so for the owners of
liquidity pools where trades are executed, or for providers of post-trade
services. It seems clear volumes are exceptionally strong across LSE’s
business currently.
Ivan Menezes, CEO of Diageo, was rightly proud to note that in 2022 one in
every ten pints served in a London pub or bar was a pint of Guinness. That’s
a new record and another milestone for this extraordinary global brand.
Guinness is Diageo’s second biggest brand by sales value and grew at 32%
last year and not all of that is just a rebound from Covid-19. And, sticking
to beer, what to make of the fact that Heineken 0% has become the world’s #1
non-alcoholic beer brand, 2.5 billion pints sold last year, growing at 30%?
That’s 6% of Heineken’s total business and it appears it does not
cannibalise the rest of group sales. In other words, this is a new and
dynamically growing brand for Heineken. Heineken shares traded at c.€6 in
1992 and are close to €90 today. No one will complain if the stock gives
another 15-fold increase over the next three decades – and looking at its
brands and market opportunities – why shouldn’t it?
Of course, I can continue. We don’t own any companies where we don’t
expect their future to be better than the past, however glorious. To conclude
and turning to the geopolitics – we admired Narendra Modi, India’s prime
minister, when he proclaimed: “I know that today’s era is not the era of
war.” Factually, of course, he is sadly incorrect. But we must hope that his
aspiration is shared around the world, especially by the young. If he turns
out to be right: the best really is still yet to come.
Nick Train
Lindsell Train Limited
Investment Manager
4 December 2022
Portfolio Holdings at 30 September 2022
(All ordinary shares unless otherwise stated)
Look-
through
Fair % of basis:
value net % of total
Holding Security £’000 assets assets†
6,450 Lindsell Train Limited 87,855 42.7% 42.7%
235,000 London Stock Exchange 17,926 8.7% 8.9%
12,500,000 LF Lindsell Train North American Equity Fund 16,841 8.2% 0.0%
420,500 Diageo 15,966 7.7% 8.0%
410,000 Nintendo 14,845 7.2% 7.2%
222,000 Unilever 8,811 4.3% 4.4%
363,000 RELX 7,990 3.9% 4.1%
97,400 PayPal 7,510 3.6% 3.9%
150,000 Mondelez International 7,365 3.6% 4.0%
1,263,393 A.G. Barr 5,748 2.8% 2.8%
89,000 Heineken 5,506 2.7% 2.8%
420,000 Finsbury Growth & Income Trust PLC 3,322 1.6% 0.0%
36,621 Laurent Perrier 3,092 1.5% 1.5%
The Lindsell Train Investment
Trust plc Indirect Holdings – – 8.2%
Total Investments 202,777 98.5% 98.5%
Net current Assets 3,106 1.5% 1.5%
Net Assets 205,883 100.0% 100.0%
† Look-through basis: This adjusts the percentages held in each
security upwards by the amount held by LTL managed funds and adjusts the
funds’ holdings downwards to account for the overlap. It provides
shareholders with a measure of stock specific risk by amalgamating the direct
holdings of the Company with the indirect holdings held within the LTL funds.
Leverage
The balance sheet positions of the Funds managed by LTL as at 30 September
2022 are shown below:
Net equity
Fund exposure
LF Lindsell Train North American Equity Fund Acc 99.0%
Finsbury Growth & Income Trust PLC 102.4%
Analysis of Investment Portfolio at 30 September 2022
Breakdown by location of listing
(look-through basis)^
30 September
2022
UK* 71%
USA 16%
Japan 7%
Europe excluding UK 4%
Cash and equivalents 2%
100%
Breakdown by location of underlying company revenues
(look-through basis)^
UK^^ 28%
Europe excluding UK^^ 30%
USA^^ 26%
Rest of the World^^ 11%
Japan 3%
Cash and Equivalents 2%
100%
Breakdown by sector
(look-through basis)^
Financials* 53%
Consumer Staples 26%
Communication services 8%
Information Technology 5%
Industrials 5%
Cash and Equivalents 2%
Consumer Discretionary 1%
100%
^ Look-through basis: This adjusts the percentages held in each
asset class, country or currency by the amount held by LTL managed funds. It
provides Shareholders with a more accurate measure of country and currency
exposure by aggregating the direct holdings of the Company with the indirect
holdings held by the LTL funds.
* LTL accounts for 42.7% and is not listed.
^^ LTL accounts for 18 percentage points of the Europe figure, 19 percentage
points of the UK figure, 5 percentage points of the USA figure, and
1 percentage point of the Rest of the World figure.
Income Statement
Six months ended Six months ended
30 September 2022 30 September 2021
Unaudited Unaudited
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments held at fair value through profit or loss – (13,047) (13,047) – 7,764 7,764
Exchange (loss)/gains on currency – (10) (10) – 2 2
Income 2 7,793 – 7,793 7,647 – 7,647
Investment management fees 3 (586) – (586) (675) – (675)
Other expenses 4 (371) – (371) (340) – (340)
Return/(loss) before tax 6,836 (13,057) (6,221) 6,632 7,766 14,398
Tax 5 (57) – (57) (42) – (42)
Return/(loss) after tax for the financial period 6,779 (13,057) (6,278) 6,590 7,766 14,356
Return/(loss) per Ordinary Share 6 £33.90 £(65.29) £(31.39) £32.95 £38.83 £71.78
All revenue and capital items in the above statement derive from continuing
operations.
The total columns of this statement represent the profit and loss accounts of
the Company. The revenue and capital columns are supplementary to this and are
prepared under the guidance published by the Association of Investment
Companies.
The Company does not have any other recognised gains or losses. The net loss
for the period disclosed above represents the Company’s total comprehensive
income.
No operations were acquired or discontinued during the period.
Statement of Changes in Equity
Share Special Capital Revenue
capital reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000
For the six months ended 30 September 2022 (unaudited)
At 31 March 2022 150 19,850 180,982 21,779 222,761
(Loss)/return after tax for the financial period – – (13,057) 6,779 (6,278)
Dividends paid – – – (10,600) (10,600)
At 30 September 2022 150 19,850 167,925 17,958 205,883
Share Special Capital Revenue
capital reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000
For the six months ended 30 September 2021 (unaudited)
At 31 March 2021 150 19,850 198,066 19,050 237,116
Return after tax for the financial period – – 7,766 6,590 14,356
Dividends paid – – – (10,000) (10,000)
At 30 September 2021 150 19,850 205,832 15,640 241,472
Statement of Financial Position
30 September 31 March
2022 2022
Unaudited Audited
Note £’000 £’000
Fixed assets
Investments held at fair value through
profit or loss 202,777 215,768
Current assets
Other receivables 469 513
Cash at bank 2,839 6,708
3,308 7,221
Creditors: amounts falling due within one year
Other payables (202) (228)
(202) (228)
Net current assets 3,106 6,993
Net assets 205,883 222,761
Capital and reserves
Called up share capital 150 150
Special reserve 19,850 19,850
20,000 20,000
Capital reserve 167,925 180,982
Revenue reserve 17,958 21,779
Total shareholders’ funds 205,883 222,761
Net asset value per Ordinary Share 7 £1,029.42 £1,113.81
Cash Flow Statement
Six months ended Six months ended
30 September 30 September
2022 2021
Unaudited Unaudited
£’000 £’000
Net (loss)/return before finance costs and tax (6,221) 14,398
Losses/(gains) on investments held at fair value 13,047 (7,764)
Losses/(gains) on exchange movements 10 (2)
Decrease/(increase) in other receivables 13 (5)
Decrease in accrued income 33 120
Decrease in other payables (35) (2,675)
Taxation on investment income (50) (49)
Net cash inflow from operating activities 6,797 4,023
Purchase of investments held at fair value (56) (47)
Sale of investments held at fair value – 694
Net cash (outflow)/inflow from investing activities (56) 647
Equity dividends paid (10,600) (10,000)
Net cash outflow from financing activities (10,600) (10,000)
Decrease in cash and cash equivalents (3,859) (5,330)
Cash and cash equivalents at beginning of period 6,708 5,541
(Losses)/gains on exchange movements (10) 2
Cash and cash equivalents at end of period 2,839 213
Notes to the Financial Statements
1 Accounting policies
The financial statements of the Company have been prepared under the
historical cost convention modified to include the revaluation of investments
and in accordance with FRS 104 “Interim Financial Reporting” and with the
Statement of Recommended Practice (“SORP”) “Financial Statements of
Investment Trust Companies and Venture Capital Trusts”, issued by the
Association of Investment Companies updated in July 2022 and the Companies Act
2006.
The accounting policies followed in this Half-year Report are consistent with
the policies adopted in the audited financial statements for the year ended 31
March 2022.
2 Income
Six months ended Six months ended
30 September 2022 30 September 2021
Unaudited Unaudited
£’000 £’000
Income from investments
Overseas dividends 493 369
UK dividends
– Lindsell Train Limited 6,288 6,476
– Other UK dividends 1,006 802
– Deposit interest 6 –
7,793 7,647
3 Investment management fees
Six months ended Six months ended
30 September 30 September
2022 2021
Unaudited Unaudited
£’000 £’000
Investment management fee 644 754
Rebate of investment management fee (58) (79)
Net management fees 586 675
4 Other expenses
Six months ended Six months ended
30 September 30 September
2022 2021
Unaudited Unaudited
£’000 £’000
Directors’ emoluments 61 58
Company Secretarial & Administration fee 99 109
Auditor’s remuneration†* 30 18
Tax compliance fee 2 2
Other** 179 153
371 340
† Remuneration for the audit of the Financial Statements of the
Company.
* Excluding VAT.
** Includes registrar’s fees, printing fees, marketing fees, safe
custody fees, London Stock Exchange/FCA fees, Key Man and Directors’ and
Officers’ liability insurance, Employer’s National Insurance and legal
fees.
5 Effective rate of tax
The effective rate of tax reported in the revenue column of the income
statement for the six months ended 30 September 2022 is 0.83% (six months
ended 30 September 2021: 0.63%), based on revenue profit before tax of
£6,836,000 (six months ended 30 September 2021: £6,632,000). This differs
from the standard rate of tax, 19% (six months ended 30 September 2021: 19%)
as a result of revenue not taxable for Corporation Tax purposes.
6 Total (loss)/return per Ordinary Share
Six months ended Six months ended
30 September 30 September
2022 2021
Unaudited Unaudited
Total (loss)/return £(6,278,000) £14,356,000
Weighted average number of Ordinary Shares
in issue during the period 200,000 200,000
Total (loss)/return per Ordinary Share £(31.39) £71.78
The total (loss)/return per Ordinary Share detailed above can be further
analysed between revenue and capital, as below:
Revenue return per Ordinary Share
Revenue return £6,779,000 £6,590,000
Weighted average number of Ordinary Shares in issue during the period 200,000 200,000
Revenue return per Ordinary Share £33.90 £32.95
Capital (loss)/return per Ordinary Share
Capital (loss)/return £(13,057,000) £7,766,000
Weighted average number of Ordinary Shares in issue during the period 200,000 200,000
Capital (loss)/return per Ordinary Share £(65.29) £38.83
7 Net asset value per Ordinary Share
Six months ended Year ended
30 September 31 March
2022 2022
Unaudited Audited
Net assets attributable £205,883,000 £222,761,000
Ordinary Shares in issue at the period/year end 200,000 200,000
Net asset value per Ordinary Share £1,029.42 £1,113.81
8 Valuation of financial instruments
The Company’s investments and derivative financial instruments as disclosed
in the Statement of Financial Position are valued at fair value.
FRS 102 requires an entity to classify fair value measurements using a 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 relevant asset as follows:
* Level 1 – The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement date.
* Level 2 – Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly.
* Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
The tables below set out fair value measurements of financial instruments as
at the year end by the level in the fair value hierarchy into which the fair
value measurement is categorised.
Financial assets/liabilities at fair value through profit or loss
Level 1 Level 2 Level 3 Total
At 30 September 2022 £’000 £’000 £’000 £’000
Investments 98,081 16,841 87,855 202,777
Level 1 Level 2 Level 3 Total
At 31 March 2022 £’000 £’000 £’000 £’000
Investments 101,257 17,601 96,910 215,768
Note: Within the above tables, level 1 comprises all the Company’s ordinary
investments, level 2 represents the investment in LF Lindsell Train North
American Equity Fund and level 3 represents the investment in LTL.
During the year ended 31 March 2022 the Board appointed J.P. Morgan Cazenove
Ltd to undertake an independent review of the Company’s valuation
methodology applied to its unlisted investment in LTL. The new methodology was
adopted and applied to monthly valuations from 31 March 2022 onwards.
The new methodology has a single component based on a percentage of LTL’s
funds under management (“FUM”), with the percentage applied being reviewed
monthly and adjusted to reflect the ongoing profitability of LTL. At the end
of each month the ratio of LTL’s notional annualised net profits* to LTL’s
FUM is calculated and, depending on the result, the percentage of FUM is
adjusted according to the table shown in Appendix 2.
The valuation methodology was formally reviewed previously in March 2018 and
March 2020.
The Board reserves the right to vary its valuation methodology at its
discretion.
* LTL’s notional net profits are calculated by applying a fee
rate (averaged over the last six months) to the most recent end-month FUM to
produce annualised fee revenues excluding performance fees. Notional staff
costs of 45% of revenues, annualised fixed costs and tax are deducted from
revenues to then produce notional annualised net profits.
9 Sections 1158/1159 of the Corporation Tax Act 2010
It is the intention of the Directors to conduct the affairs of the Company so
that the Company satisfies the conditions for approval as an Investment Trust
Company set out in Sections 1158/1159 of the Corporation Tax Act 2010.
10 Going Concern
The Directors believe, having considered the Company’s investment objective,
risk management policies, capital management policies and procedures, and the
nature of the portfolio and the expenditure projections, that the Company has
adequate resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future, and, more specifically, that there are no material uncertainties
relating to the Company that would prevent its ability to continue in such
operational existence for at least twelve months from the date of the approval
of this Half-year Report. For these reasons, they consider there is reasonable
evidence to continue to adopt the going concern basis in preparing the
financial statements. In reviewing the position as at the date of this Report,
the Board has considered the guidance on this matter issued by the Financial
Reporting Council.
As part of their assessment, the Directors have given careful consideration to
the consequences for the Company of continuing uncertainty in the global
economy. As previously reported, stress testing was also carried out in April
2022 to establish the impact of a significant and prolonged decline in the
Company’s performance and prospects. This included a range of plausible
downside scenarios such as reviewing the effects of substantial falls in
investment values and the impact of the Company’s ongoing charges ratio.
11 2022 Accounts
The figures and financial information for the year to 31 March 2022 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for the year.
Those accounts have been delivered to the Registrar of Companies and included
the Report of the Company’s auditor which was unqualified and did not
contain a reference to any matters to which the Company’s auditor drew
attention by way of emphasis without qualifying the report, and did not
contain a statement under section 498 of the Companies Act 2006.
Interim Management Report
The Directors are required to provide an Interim Management Report in
accordance with the UK Listing Authority’s Disclosure and Transparency
Rules. They consider that the Chairman’s Statement and the Investment
Manager’s Report, the following statements and the Directors’
Responsibility Statement below together constitute the Interim Management
Report for the Company for the six months ended 30 September 2022.
Principal Risks and Uncertainties
The Directors continue to review the key risk register for the Company which
identifies the risks that the Company is exposed to, the controls in place and
the actions being taken to mitigate them. This is set against the backdrop of
increased risk levels within the global economy created by ongoing global
supply chain disruption, rising levels of inflation and interest rates,
together with the consequences of the war in Ukraine and the subsequent
long-term effects on economies and international relations. The Directors have
considered the impact of the continued uncertainty on the Company’s
financial position and, based on the information available to them at the date
of this Report, have concluded that no adjustments are required to the
accounts as at 30 September 2022.
A review of the half-year and the outlook for the Company can be found in the
Chairman’s Statement and in the Investment Manager’s Review. The principal
risks and uncertainties faced by the Company include the following:
* The Board may have to reduce the Company’s dividend.
* The Company’s share price total return may differ materially from the NAV
per share total return.
* The growth of retail platforms has a detrimental effect on shareholder
engagement.
* The departure of a key individual at the Investment Manager may affect the
Company’s performance.
* The investment strategy adopted by the Investment Manager, including the
high degree of concentration of the investment portfolio, may lead to an
investment return that is materially lower than the Company’s benchmark
index, and/or a possible failure to achieve the Company’s investment
objective.
* The investment in LTL becomes an even greater proportion of the overall
value of the Company’s portfolio.
* Adverse reputational impact of one or more of the Company’s key service
providers which, by association, causes the Company reputational damage.
* Fraud (including unauthorised payments and cyber-fraud) occurs leading to a
loss.
* The Company is exposed to credit risk.
* The Company is exposed to market price risk.
* The Company and/or the Directors fail(s) to comply with its legal
requirement with any applicable regulations or the regulatory environment in
which the Company operates changes, affecting its modus operandi.
* The regulatory environment in which the Company operates changes, affecting
the Company’s business model.
* The Company’s valuation of its investment in LTL is materially misstated.
The Audit Committee identified the following emerging risks during the year to
be included in the risk register.
The invasion of Ukraine by Russia introduces new risks and exacerbates
existing risks. These include:
* Increased inflationary pressures, that were already elevated from supply
shortages as the Covid-19 pandemic eased.
* Higher inflation is leading policy makers to increase interest rates. This
in turn may lead to a reduction in trade, a threat of recession and higher
unemployment.
* Sanctions damage the prospects of investee companies with material exposure
to Russia.
* Increased market volatility and reduced risk appetites across a wide variety
of asset classes.
* Increased threat of state-sponsored cyber-attacks.
Information on these risks is given in the Annual Report for the year ended 31
March 2022.
The Board believes that the Company’s principal risks and uncertainties have
not changed materially since the date of that report and are not expected to
change materially for the remaining six months of the Company’s financial
year.
Related Party Transactions
During the first six months of the current financial year, no transactions
with related parties have taken place which have materially affected the
financial position or the performance of the Company.
Directors’ Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
1. the condensed set of financial statements contained within the Half-year
Report have been prepared in accordance with applicable United Kingdom
Generally Accepted Accounting Practice standards; and
2. the Interim Management Report includes a true and fair review of the
information required by: 1. DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
2. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and
3. any changes in the related party transactions described in the last Annual
Report that could do so.
The Half-year Report has not been audited by the Company’s auditors.
This Half-year 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.
For and on behalf of the Board
Julian Cazalet
Chairman
4 December 2022
Appendix 1
Half-year review of Lindsell Train Limited (“LTL”) the Investment Manager
of The Lindsell Train Investment Trust plc (“LTIT”) as at 31 July 2022
Funds under Management
Jul 2022 Jan 2022 Jul 2021
FUM by Strategy £m £m £m
UK 8,099 8,475 9,483
Global 10,810 12,040 13,900
Japan 624 702 887
North America 29 28 28
Total 19,562 21,245 24,298
Largest Client Accounts
Jul 2022 Jan 2022 Jul 2021
% of FUM % of FUM % of FUM
Largest Pooled Fund Asset 30% 34% 37%
Largest Segregated Account 10% 10% 9%
Financials
Jul 2022 Jul 2021 %
Profit & Loss £’000 £’000 Change
Fee Revenue
Investment Management Fee 49,259 60,539 -19%
Performance Fee 0 2,662 -100%
Bank Interest & Other Income 38 4
49,297 63,205
Staff Remuneration* (15,101) (20,700) -27%
Fixed Overheads (2,228) (2,207) 1%
Operating Profit 31,968 40,298 -21%
FX Currency Translation Gain/(Loss) 3,005 (563)
Investment Unrealised (Loss)/Gain (14) 1,154
Profit before taxation 34,959 40,889
Taxation (6,202) (7,919)
Net Profit 28,757 32,970 -13%
Dividends (25,879) (26,751)
Retained profit 2,878 6,219
Capital & Reserves
Called up Share Capital 266 266
Treasury Shares (1,794) (132)
Profit and Loss Account 95,500 86,632
Shareholders’ Funds 93,972 86,766
Balance Sheet
Fixed Assets 133 185
Investments 6,900 7,153
Current Assets (inc cash at bank) 94,206 88,728
Liabilities (7,267) (9,300)
Net Assets 93,972 86,766
* Staff costs include permanent staff remuneration, social security, temporary
apprentice levy, introduction fees and other staff related costs. No more
than 25% of fees (other than LTIT) can be paid as permanent staff
remuneration.
Five Year History
Jul 2022 Jul 2021 Jul 2020 Jul 2019 Jul 2018
Operating Profit Margin 65% 64%** 66%** 64%** 61%**
Earnings per share (£)* 1,083 1,237 1,084 1,054 717
Dividends per share (£)* 975 1,004 949 776 525
Total Staff Cost as % of Revenue 31% 33% 29% 33% 36%
Opening FUM (£m) 24,298 21,151 22,563 15,304 11,326
– Effect of market movements (£m) -1,271 3,041 -1,385 4,568 2,044
– Net new fund flows (£m) -3,465 106 -27 2,691 1,934
Changes in FUM (£m) -4,736 3,147 -1,412 7,259 3,978
Closing FUM (£m) 19,562 24,298 21,151 22,563 15,304
LTL Open-ended funds as % of total 66% 73% 72% 75% 72%
Client Relationships
– Pooled funds 5 5 5 4 4
– Separate accounts 18 17 17 17 17
Ownership
Jul 2022 Jan 2022 Jul 2021 Jan 2021 Jul 2020
Michael Lindsell & spouse 9,650 9,650 9,650 9,650 9,650
Nick Train & spouse 9,650 9,650 9,650 9,650 9,650
The Lindsell Train Investment Trust plc 6,450 6,450 6,450 6,450 6,450
Other Directors/employees 805 778 899 875 871
26,555 26,528 26,649 26,625 26,621
Treasury Shares 105 132 11 35 39
Total Shares 26,660 26,660 26,660 26,660 26,660
* On 1 February 2019 LTL undertook a share split with each share
sub divided into 10 shares of £10 each. The per share figures in the table
above are retrospectively changed in y/e January 2018 and y/e January 2019
based on 26,660 shares for ease of comparison.
** Amended from previous Half-year Reports to exclude the effect of
FX translation and unrealised investment gain/losses.
Board of Directors
Nick Train Chairman and Portfolio Manager
Michael Lindsell Chief Executive and Portfolio Manager
Michael Lim IT Director and Secretarial
Keith Wilson Head of Marketing & Client Services
Jane Orr Director of Marketing
Joss Saunders Chief Operating Officer
James Alexandroff Non-Executive Director
Julian Bartlett Non-Executive Director
Employees
Jul 2022 Jan 2022 Jul 2021 Jan 2021 Jul 2020
Investment Team (including three Portfolio Managers) 7 7 6 6 6
Client Servicing and Marketing 7 7 6 6 6
Operations and Compliance 12 11 8 7 8
Non-Executive Directors 2 2 2 2 2
28 27 22 21 22
Appendix 2
LTIT Director’s valuation of LTL (unaudited)
30 Sept 2022 30 Sept 2021^
Notional annualised net profits (A)* (£’000) 38,368 50,166
Funds under Management less LTIT holdings (B) (£'000) 18,548,853 23,650,721
Normalised notional net profits as % of FUM A/B = (C) 0.207% 0.212%
% of FUM (D) (see table below to view % corresponding to C) 1.95% 2.00%
Valuation (E) i.e. B x D (£’000) 361,703 473,014
Number of shares in issue (F)† 26,555 26,649
Valuation per share in LTL i.e. E / F £13,621 £17,750
* Notional annualised net profits are made up of:
– annualised fee revenue, based on 6-mth average fee rate applied
to most recent month-end AUM
– annualised fee revenue excludes performance fees
– annualised interest income, based on 3-mth average
– notional staff costs of 45% of annualised fee revenue
– annualised operating costs (excluding staff costs), based on
3-mth normalised average
– notional tax at 19%
^ The 30 September 2021 valuation (shown above) was derived by
applying new valuation methodology, which came into effect from 31 March 2022.
† The reduction in shares in issue is accounted for by net
purchases of Treasury shares from LTL employees.
Notional annualised net profits*/FUM (%) Valuation of LTL - Percentage of FUM
0.15 – 0.16 1.70%
0.16 – 0.17 1.75%
0.17 – 0.18 1.80%
0.18 – 0.19 1.85%
0.19 – 0.20 1.90%
0.20 – 0.21 1.95%
0.21 – 0.22 2.00%
0.22 – 0.23 2.05%
0.23 – 0.24 2.10%
0.24 – 0.25 2.15%
0.25 – 0.26 2.20%
0.26 – 0.27 2.25%
Glossary of Terms and Alternative Performance Measures
Alternative Investment Fund Managers Directive (“AIFMD”)
The Alternative Investment Fund Managers Directive (the “Directive”) is a
European Union Directive that entered into force on 22 July 2013. The
Directive regulates EU fund managers that manage alternative investment funds
(this includes investment trusts).
Alternative Performance Measure (“APM”)
An alternative performance measure is a financial measure of historical or
future financial performance, financial position or cash flow that is not
prescribed by the relevant accounting standards. The APMs are the discount and
premium, dividend yield, share price and NAV total returns and ongoing
charges. The Directors believe that these measures enhance the comparability
of information between reporting periods and aid investors in understanding
the Company’s performance.
Benchmark
With effect from 1 April 2021 the Company’s performance benchmark is the
MSCI World Index total return in Sterling.
Prior to 1 April 2021 the benchmark was the annual average redemption yield on
the longest-dated UK government fixed rate (1.625% 2071) calculated using
weekly data, plus a premium of 0.5%, subject to a minimum yield of 4.0%.
Discount and premium (APM)
If the share price of an investment trust is higher than the Net Asset Value
(NAV) per share, the shares are trading at a premium to NAV. In this
circumstance the price that an investor pays or receives for a share would be
more than the value attributable to it by reference to the underlying assets.
The premium is the difference between the share price (based on mid-market
share prices) and the NAV, expressed as a percentage of the NAV.
A discount occurs when the share price is below the NAV. Investors would
therefore be paying less than the value attributable to the shares by
reference to the underlying assets.
A premium or discount is generally the consequence of the balance of supply
and demand for the shares on the stock market.
The discount or premium is calculated by dividing the difference between the
share price and the NAV by the NAV.
As at As at
30 September 31 March
2022 2022
£ £
Share Price 991 1,105
Net Asset Value per Share 1,029.42 1,113.81
Discount to Net Asset Value per Share 3.7% 0.8%
MSCI World Index total return in Sterling
The Company’s benchmark provider requires the following statement to be
included.
“The MSCI information (relating to the Benchmark) may only be used for your
internal use, may not be reproduced or redisseminated in any form and may not
be used as a basis for or a component of any financial instruments or products
or indices. None of the MSCI information is intended to constitute investment
advice or a recommendation to make (or refrain from making) any kind of
investment decision and may not be relied on as such. Historical data and
analysis should not be taken as an indication or guarantee of any future
performance analysis, forecast or prediction. The MSCI information is provided
on an “as is” basis and the user of this information assumes the entire
risk of any use made of this information. MSCI, each of its affiliates and
each other person involved in or related to compiling, computing or creating
any MSCI information (collectively, the “MSCI Parties”) expressly
disclaims all warranties (including, without limitation, any warranties of
originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect to this
information. Without limiting any of the foregoing, in no event shall any MSCI
Party have any liability for any direct, indirect, special, incidental,
punitive, consequential (including, without limitation lost profits) or any
other damages. (www.msci.com).”
Net asset value (“NAV”) per Ordinary Share
The NAV is shareholders’ funds expressed as an amount per individual share.
Equity shareholders’ funds are the total value of all the Company’s
assets, at current market value, having deducted all current and long-term
liabilities and any provision for liabilities and charges.
The NAV of the Company is published weekly and at each month end.
The figures disclosed in the Statement of Financial Position have been
calculated as shown below:
Six months
ended Year ended
30 September 31 March
2022 2022
Net Asset Value (a) £205,883,000 £222,761,000
Ordinary Shares in issue (b) 200,000 200,000
Net asset value per Ordinary Share (a) ÷ (b) £1,029.42 £1,113.81
Revenue return per share
The revenue return per share is the revenue return profit for the period
divided by the weighted average number of ordinary shares in issue during the
period.
Share price and NAV total return (APM)
This is the return on the share price and NAV taking into account both the
rise and fall of share prices and valuations and the dividends paid to
shareholders.
Any dividends received by a shareholder are assumed to have been reinvested in
either additional shares (for share price total return) or the Company’s
assets (for NAV total return).
The share price and NAV total returns are calculated as the return to
shareholders after reinvesting the net dividend in additional shares on the
date that the share price goes ex-dividend.
The figures disclosed in the Financial Highlights and Chairmans Statement have
been calculated as shown below:
Six months ended
30 September 2022
LTIT NAV LTIT Price
NAV/Price at 30 September 2022 a £1,029.42 £991.00
Dividend Adjustment Factor* b 1.049 1.043
Adjusted closing NAV/Price c = a x b £1,080.03 £1,033.27
NAV/Price 31 March 2022 d £1,113.81 £1,105.00
Total return (c/d)-1 *100 -3.0% -6.5%
* The dividend adjustment factor is calculated on the assumption
that the dividends of £53.00 paid by the Company during the year were
reinvested into shares or assets of the Company at the cum income NAV per
share/share price, as appropriate, at the ex-dividend date.
LTL total return performance
The total return performance for LTL is calculated as the return after
receiving but not reinvesting dividends received over the period.
Six months ended
30 September 2022
LTL valuation
Valuation at 31 March 2022 a £15,205
Valuation at 30 September 2022 b £13,621
Dividends paid during the period c £975
Total return (b-a)+c /a*100 -4.0%
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.
-ENDS-
For further information please contact
Victoria Hale
Company Secretary
Frostrow Capital LLP
020 3100 8732
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