Half-year Report
31/07/2023 07:00
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RNS Number : 6181H Smithson Investment Trust PLC 31 July 2023
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79
Date: 31 July 2023
INTERIM RESULTS ANNOUNCEMENT
Results for the six months ended 30 June 2023
The full Interim Report for the six months ended 30 June 2023 (the "Interim
Report") can be found on the Company's website at www.smithson.co.uk
(http://www.smithson.co.uk)
Performance Highlights
Net Asset Value
At At At
30 June 2023 30 June 2022 31 December 2022
Net assets £2,622,930,000 £2,361,331,000 £2,417,967,000
Net asset value ("NAV") per
ordinary share ("share") 1,575.4p 1,339.5p 1,410.7p
Share price 1,400.0p 1,185.0p 1,308.0p
Share price discount to NAV(1) (11.1)% (11.5)% (7.3)%
For the period from
Company's listing on
Six months ended Six months ended 19 October 2018 to
30 June 2023 30 June 2022 30 June 2023
% Change(2) % Change(2) % Change(2)
NAV total return per share(1) +11.7% -31.7% +57.5%
Share price total return(1) +7.0% -41.3% +40.0%
Benchmark total return(3) +1.9% -13.7% +37.5%
Ongoing charges ratio(1) 0.9% 0.9% 0.9%
Source: Bloomberg.
This report contains terminology that may be unfamiliar to some readers. The
Glossary section gives definitions for frequently used terms.
(1) These are Alternative Performance Measures ("APMs"). Definitions of these,
together with how these measures have been calculated, are disclosed on pages
23 and 24 of the Interim Report where it is made clear how these APMs relate
to figures disclosed and calculated under IFRS.
(2) Total returns are stated in GBP sterling.
(3) MSCI World SMID Cap Index, £Net Source: www.msci.com.
Diana Dyer Bartlett, Chairman, commented:
"The Company's net asset value ("NAV") per share total return for the period
was +11.7%, outperforming the MSCI World SMID Index by 9.8 percentage points.
Since inception on 19 October 2018, the Company's NAV per share total return
is 57.5%, an annualised increase of 10.2% pa compared with the annualised
index return of 7.0%. Since inception the NAV per share total return is 20
percentage points higher than the Index. It is pleasing to note that both the
first half results and our returns since inception represent good absolute
performance as well as a healthy outperformance of our comparator index."
Chairman's Statement
Introduction
I am pleased to present this Interim Report of Smithson Investment Trust plc
(the "Company") for the six months ended 30 June 2023.
Performance
The Company's net asset value ("NAV") per share total return for the period
was +11.7%, outperforming the MSCI World SMID Index by 9.8 percentage points.
Since inception on 19 October 2018, the Company's NAV per share total return
is 57.5%, an annualised increase of 10.2% pa compared with the annualised
index return of 7.0%. Since inception the NAV per share total return is 20
percentage points higher than the Index. It is pleasing to note that both the
first half results and our returns since inception represent good absolute
performance as well as a healthy outperformance of our comparator index.
As our Investment Manager reports, the improvement since this time last year
is significant. The Company's investment policy is to invest in quality growth
companies capable of compounding returns over the long term. Short term
performance from this strategy will be affected by numerous factors including
market sentiment and changes in interest rates, and whilst volatility in the
Company's performance over short time periods is uncomfortable, the focus is
always on longer term performance.
Despite our good NAV performance, the share price of the Company has continued
to trade at a discount to NAV, and this discount widened during the first half
of 2023; at 30 June 2023 the discount was 11.1%. The issue of discounts is
common across the investment trust sector and at 30 June 2023 the Association
of Investment Companies reported discounts of some 14% across global
investment trusts and 16% across global smaller company strategies. The
Board's approach to the management of the discount is set out below.
Capital and Share Buy Backs
The Company was floated on the Premium Segment of the London Stock Exchange on
19 October 2018. The Company's shares traded at a premium for almost all of
the period from inception through to the end of the first quarter of 2022.
Since that time the Company's shares have traded at a discount to net asset
value.
Although the Board commenced a programme of regular market purchases in April
2022, this has not as yet had any sustained impact on reducing the discount.
This is perhaps not altogether surprising, as there has long been debate as to
whether and to what extent buyback programmes are capable of shifting the
demand/supply balance decisively; as ever, the most important factor in
reducing a discount over the longer term will be a sustained period of good
investment performance. However, share buybacks undoubtedly provide NAV
accretion and can have a positive effect upon share price volatility and
market spreads, factors which are significant for shareholders and potential
investors. The Board will therefore continue to make regular market purchases
while the shares trade at a significant discount. All shares purchased are
held in Treasury and will only be reissued at a premium.
Over the period since this programme commenced up until 21 July 2023 being the
latest practicable time before the publication of this Interim Report, we have
bought back 11,310,000 shares, representing 6.4% of the issued share capital
before the buy-back programme commenced, at a total cost including expenses of
approximately £152.4 million. The average discount to NAV on the buy-backs
was approximately 9.0%.
Results and Dividends
The Company's total return after tax for the half year of £274 million
comprised a capital gain of £269 million and a revenue return of £5
million. The income the Company receives from its investments tends to be
higher in the first half of the year than in the second half, whereas its
expenses are more evenly split between the half years, and it is expected that
the full year revenue return will be lower than in the first half and may even
be negative.
The Company's objective is to focus on capital growth and its accounting
policies are not designed to facilitate maximisation of revenue reserves and
dividend payments. Consistent with previous interim periods a dividend is not
proposed by the Board.
There is no current intention to change the Company's approach. It should not
be expected that the Company will pay a significant annual dividend, and it is
likely that no interim dividends will be declared. The Board intends to
declare such annual dividends as are necessary to maintain the Company's UK
investment trust status.
AGM and Shareholder Engagement
The Company held its Annual General Meeting on 27 April 2023. It was good to
see so many shareholders attend in person and to hear directly from Simon
Barnard, our portfolio manager, and his team. Simon's presentation is
available on the Company's website.
The resolution proposing my re-election as a director of the Company received
76% of the votes cast in favour, with all the other resolutions receiving over
90% of the votes cast in favour. As announced with the AGM results, the lower
level of voting in favour of my re-appointment was due to one large
shareholder's concerns about the Company's diversity policy and we accordingly
announced that we intended to consult shareholders on this subject.
As Listing Rule requirements on Board diversity disclosures in annual reports
concerning ethnic minority director appointments had not yet come into effect,
in common with many companies, our diversity policy set out in our 2022 Annual
Report was not explicit on the subject. To address this issue and to provide
comfort that the Board takes its diversity targets seriously, I met with the
dissenting shareholder as well as offering meetings to some of our other
larger shareholders to explain our approach. I believe that the shareholders
consulted now have a better understanding and acceptance of the Board's
diversity policy.
The Board recognises the benefit of having diverse representation reflecting
wider society, including ethnic minority representation. Whilst further
diversity may be achievable in future board appointments, it is pleasing that
there is already gender balance, with the Board currently comprising two women
and two men.
Outlook
Economic factors such as inflation, interest rates and growth are hard to
predict accurately. Our Investment Manager does not attempt to forecast future
macro-economic conditions and focuses instead on identifying good companies
with robust business models that will be able to thrive throughout market
cycles. The Board believes that the patient investor will be well rewarded.
Diana Dyer Bartlett
Chairman
28 July 2023
Investment Manager's Review
Dear Fellow Shareholder,
The performance of Smithson Investment Trust ("Smithson"), along with
comparators, is laid out below. For the first half of 2023 the Net Asset Value
per share ("NAV") of the Company increased by 11.7% and the share price was
up 7%. Over the same period, the MSCI World Small and Mid Cap Index ("MSCI
World SMID"), our reference index, increased by 1.9%. We also provide the
performance of UK bonds and cash for comparison.
Total Return(5) Launch
to 30.06.23
01.01.23
to 30.06.23
%
Cumulative Annualised
% %
Smithson NAV(1) +11.7 +57.5 +10.2
Smithson Share Price +7.0 +40.0 +7.4
Small and Midcap
Equities(2) +1.9 +37.5 +7.0
UK Bonds(3) -3.4 -13.0 -2.9
Cash(4) +2.0 +4.8 +1.0
(1) Source: Bloomberg, starting NAV 1000.
(2) MSCI World SMID Cap Index, £ Net source: www.msci.com.
(3) Bloomberg/Barclays Bond Indices UK Govt 5-10 yr, source: Bloomberg.
(4) Month £ LIBOR Interest Rate source: Bloomberg.
(5) Alternative Performance Measure (see pages 23 to 24 of the Interim
Report).
The performance during this half year is more satisfactory than last year,
being 9.8% ahead of the reference index. In fact, from the lows of June 2022,
the overall performance of the fund is much improved over the last 12 months,
with the NAV increasing by 24% and the share price by 22% since that point.
To provide some context to this performance, and as detailed at some length in
the last two management reports, the primary macroeconomic pressures on fund
performance from early 2022 were the market's increasing interest rate
expectations and fears of recession.
Clearly, a lot happened over the following 18 months, with persistent core
inflation (which excludes more volatile elements such as food and energy
prices) prompting the Fed to increase US interest rates from 25bps at the
start of 2022 to 5.25% at the time of writing, the fastest rate of increases
for over 40 years. The Bank of England has raised rates at a similar pace,
from 25bps at the end of 2021 to 5% currently, while the European Central
Bank is only lagging a little behind, with a 4% interest rate presently.
However, what is much more important to us as investors is where rates are
going next, and it is very likely that we are much nearer the end of the rate
hiking cycle than the beginning.
This matters, because the downward pressure being applied to the valuation
multiples of our faster growing, high quality companies due to the market's
expectation of rising interest rates, has started to ease over the last few
months. This is helped by the possibility that we can even, dare we say, look
ahead to interest rate cuts next year. The share prices of many of our
companies have begun to recover, with some of the best performing shares this
year being those which were the worst affected last year.
The subject of recession is a slightly different story. As labour market,
services and consumer data has remained robust in several regions,
particularly the US, market expectations regarding recession have waxed and
waned. People have tended to become more fearful as inflation appeared more
stubborn than expected, causing central banks to further increase interest
rates and leading many to the conclusion that this will continue until the
economy falls into recession. This was also in combination with the
short-lived regional banking crisis in the US which simply served to cause
greater market anxiety.
But then, as data on consumer spending and employment showed the ongoing
ability and willingness for people to keep spending, potentially thanks to
pandemic era savings (which will eventually run out), the market periodically
became less concerned about an imminent, or at least a deep, recession.
I would characterise the market sell-offs during last October and March as
the result of growing recessionary fears, while rallies in November, January
and June indicated the market was becoming more sanguine on the issue.
While a recession does appear likely in our view because most interest rate
increases already enacted have yet to impact the economy (they tend to operate
with an 18 month lag), we don't know for sure, and it could well be of the
short and shallow variety. But in any case, our high-quality companies should
fare reasonably well because they are not particularly cyclical and have
strong balance sheets and competitive positions. This also means that there is
the potential for them to actually appear more attractive during a recession
compared to other companies in the index.
To summarise, I would be very surprised if I had suggested to you a year ago
that over the next 12 months inflation would prove so stubborn that central
bank interest rate rises would be the fastest in decades, that recession would
be continually on the horizon and that we'd live through another banking
crisis, and you guessed that our portfolio would be up 24% during the course
of these events. Because I wouldn't have guessed that either.
All of which serves to illustrate the futility in predicting macroeconomic
events and the market reactions to them. Therefore, all we will do is continue
looking for fantastic small companies that are trading at attractive
valuations and hold on to them as the macroeconomic entropy swirls around us,
eventually assigning higher valuations to our great businesses as they grow
and develop over time.
The current free cash flow yield of the portfolio is 2.3% and you would be
forgiven for thinking it looks expensive, especially compared to last year's
figure of 3.3%. However, I would caution that there have been a lot of working
capital shifts over the last 12 months, as last year companies built up
inventory to protect against unreliable supply chains, while more recently
this is starting to unwind as lead times return to pre-pandemic norms. This is
illustrated by the fact that last year the average revenue and earnings for
our companies increased while the free cash flow produced actually fell,
although the good news is that cash flow in the most recent quarter was
improving. Also, there are several companies which, for different reasons,
produced little to no cash flow over the last 12 months due to restructuring
or short-term operational pressures - Sabre, mentioned below, being a prime
example. Adjusting for these handful of companies would take the free cash
flow yield nearer to 3%.
Trading activity was reduced in this period compared to the changes that were
made during the market turmoil last year. This meant that portfolio turnover
adjusted for share buybacks was 13.1%, almost half the 28.1% this time last
year. Annualised costs were also unchanged, with an Ongoing Charge Figure of
0.9% of NAV (including the annualised Management Fee of 0.9% of market
capitalisation). Costs of dealing, including taxes, amounted to 0.01% of NAV
in the period, half of that incurred last year, which meant that the Total
Cost of Investment was 0.91%.
Having added three new companies last year, two of which are pleasingly in our
top six performance contributors this year, we only made two changes to the
portfolio in the first half, and that was to purchase Graco and Exponent, both
US based companies.
Graco - pronounced Gray-co after the founding Gray brothers - designs,
manufactures and markets systems and equipment to move, control and dispense
fluid and powdered materials. Founded in 1926, it is the market leader in
technology for the management of fluids and coatings in both industrial and
commercial applications. Its products can help customers solve manufacturing
problems and increase productivity and quality, and range from basic paint
sprayers for the DIY market to fully-automated precision fluid dispense
systems used in consumer electronics component production. We were attracted
to the long track record of consistent revenue growth and stable margins, its
net cash balance sheet and very strong return on invested capital.
Founded in 1967, Exponent is a consulting business which focuses on highly
technical areas across a broad range of disciplines, often in response to
disasters or litigation. For example, they did investigative work for the
Challenger shuttle explosion, the 9/11 World Trade Centre collapse analysis,
the Exxon Valdez oil spill, Samsung's exploding tablets, and the preliminary
fire investigation into the Grenfell tower disaster. It serves a huge array of
end markets, the largest ones are Consumer Products, Energy & Utilities
and Transportation with customers including corporations, law firms and
government entities. Their professionals charge anywhere from $190 to $900 an
hour and many have PhDs in their respective scientific fields and publish in
academic journals. Around half the business is 'reactive', that is conducting
investigations into historic issues or litigation and the other half is
'proactive', to help clients improve processes, risk management and research
& development. The company has a long track record of success with 20
years of revenue growth in the high single digit percentage but operating
profit has compounded at an annual growth rate of over 12%. It is an
asset-light business, with returns on invested capital, excluding its large
cash balance, in excess of 100%. Finally, we were able to acquire our position
at a reasonable valuation, with the shares still trading 30% below their peak
in 2021, possibly because it is still only researched by a couple of sell-side
analysts.
To discuss specific events which affected the portfolio during the period, we
have set out the top five contributors below:
Country Contribution%
Simcorp Denmark 1.9%
Fortinet United States 1.6%
Moncler Italy 1.5%
Nemetschek Germany 1.2%
Temenos Switzerland 1.1%
Simcorp was our best performing share in the first half after it was bid for
by Deutsch Börse in April, sending the share price up 38% in one day. While
the price offered for the company is not spectacular, it is reasonably fair in
the current environment, and as there are limited competition and regulatory
concerns we suspect Deutsche Börse will achieve its ambition of a full
takeover.
Fortinet performed well, up over 45% during the period, as corporate cyber
security budgets remained healthy, allowing the company to grow revenue by
32%. This is the fourth time in the past five quarters in which Fortinet has
delivered revenue growth of more than 30%. Last year it was feared by many
that a recession might squeeze corporate IT budgets, and with it their
cybersecurity budgets. So far however, our simple conclusion that corporate
cyber-attacks will continue to be a persistent and growing threat (crime goes
up during a recession, not down) means cybersecurity spending has had to
continue increasing.
Moncler continued to outperform in the first half as consumer spending on
luxury goods remained resilient in the face of recessionary fears. The
resurgence of luxury demand in China after the post-Covid re-opening of the
country benefited sales, as did ongoing consumer spending on high-end brands
in the US.
Nemetschek is a fast-growing software company and is therefore one where the
valuation fell during the interest rate increases last year. As the market has
looked ahead to the peak of this interest rate cycle, the pressure on the
valuation multiple has diminished and the share price performed far better
this year.
Temenos is another software company which performed poorly last year, partly
because the management team were mishandling the transition from perpetual
software licences to a subscription-based Software as a Service ("SaaS")
model. While we have little remaining patience regarding this situation, the
CEO left the company at the start of 2023, and so it may be the case that a
new management team could meaningfully improve its performance. We will be
watching closely.
The five largest detractors of performance were:
Country Contribution%
Sabre United States -2.3%
Domino's Pizza Enterprises Australia -1.2%
IDEX United States -0.2%
MSCI United States -0.1%
Exponent United States -0.1%
Our worst performing company in the first half was Sabre, the travel
technology provider. This is one of the more cyclical businesses we own, with
fewer people tending to travel during recessions, and is the most likely
reason for its underperformance year to date. It is also an outlier in the
portfolio, having taken on a lot of debt during the pandemic when travel was
all but stopped, increasing its financial gearing to an economic downturn.
However, the travel market continues to improve, with the green shoots of
business travel recovery now also appearing. Sabre also has a strong, and
arguably improving, market position, with the potential free cash flow it can
generate over the next three years possibly being in excess of its current
market capitalisation. Needless to say, if this comes to pass, the share price
will then be a multiple of where it is today.
The performance of Domino's Pizza Enterprises was also disappointing in the
period. This was precipitated by the fiscal half year results, released in
February, indicating weaker sales after prices and delivery charges had been
increased to offset cost inflation, with consumer price sensitivity noted in
Japan and Germany particularly. We continue to watch this situation closely in
case we need to take action, but at this point we expect the issue to resolve
itself once inflation abates.
IDEX and Exponent are both new additions to the portfolio and, as is often the
case, underperformed the overall portfolio shortly after acquisition. This is
because we tend to start buying the shares of new companies when the share
price is low or falling due to certain factors, and so it is very likely that
the share price will continue falling for a period after the buying has been
completed. For IDEX this was concern regarding industrial cyclicality ahead of
a recession, while for Exponent the market was worried about increasing
employee costs.
MSCI, the index provider, declined after a lacklustre earnings update in April
which showed the detrimental effect of poor markets last year on the fees they
levy on overall client assets under management. As this is a natural effect of
the market cycle it doesn't overly concern us with regards to the long term
health of the company.
We have provided a breakdown of the portfolio in terms of sector and geography
at the end of June 2022 and June 2023 for comparison below. The median year of
foundation of the companies in the portfolio at the period end was 1971.
Sector 30 June 2023 (%) 30 June 2022 (%)
Industrials 33% 19%
Information Technology 32% 44%
Healthcare 14% 13%
Consumer Discretionary 10% 13%
Consumer Staples 4% 4%
Communication Services 3% 3%
Financials 3% 3%
Materials - -
Cash - Uninvested 1% 1%
Source: Fundsmith
This is a watershed moment in the history of the Smithson Investment Trust as
for the first time, the largest sector weighting is in Industrials, rather
than Information Technology. This has occurred for a couple of reasons, some
down to our actions, and some not, but none were because of us designing the
portfolio to look this way from the top down. We always construct the
portfolio from the bottom up, acquiring the best companies that look most
attractive at any given time. To start with our own actions, the sale of
Ansys, a US based software company, reduced the weighting of Information
Technology, while the addition of IDEX and Exponent increased the weighting of
Industrials. After lamenting now for four years that the broad MSCI defined
Information Technology 'bucket' was not representative of the businesses we
own, some constituents were recently changed (although there had been no
lobbying on our part, as we have far better things to do). As part of this
rebalance, Sabre was moved to Consumer Discretionary while Paycom, the human
resources software and payroll provider, was moved to Industrials.
Country of Listing 30 June 2023 (%) 30 June 2022 (%)
USA 44% 44%
UK 15% 17%
Italy 10% 9%
Denmark 8% 7%
Switzerland 7% 7%
Germany 6% 5%
Australia 4% 6%
Sweden 3% 2%
New Zealand 2% 2%
Cash 1% 1%
Source: Fundsmith
The movement in geographical weighting over the course of 12 months has been
very small, with the addition of Exponent and Graco offsetting the positions
we exited in the US last year. The UK is down slightly as we have trimmed
certain positions in that region but most of the other changes, such as in
Denmark, have been due to market moves of the underlying share prices.
Source of Revenue 30 June 2023 (%) 30 June 2022 (%)
North America 39% 37%
Europe 37% 38%
Asia Pacific 18% 19%
Eurasia, Middle East, Africa 4% 4%
Latin America 2% 2%
Source: Fundsmith. Portfolio weightings as of 30 June 2023 and 30 June 2022
In terms of the location where our companies generate their sales and
earnings, this too has changed little. North America has regained the number
one position after the US acquisitions this year, with Europe still close
behind, and our developed market-based companies are still generating a small
amount of revenue from emerging markets.
Finally, we would like to thank all shareholders for their support of Smithson
Investment Trust during what has been an eventful 18 months. While periods of
underperformance such as last year are undesirable and always very
uncomfortable, they do tend to have the silver lining of producing subsequent
periods of improved prospects. We continue to search for exciting
opportunities that this stage of the market cycle often provides, and hope
that you will join us for the journey.
Simon Barnard
Fundsmith LLP
Investment Manager
28 July 2023
Investment Portfolio
Investments held as at 30 June 2023
Security Country of incorporation Fair value %
£'000
of investments
Fortinet USA 130,220 5.0
Moncler Italy 129,957 5.0
Simcorp Denmark 126,990 4.9
Recordati Italy 122,376 4.7
Verisign USA 113,484 4.3
Fevertree Drinks UK 102,823 3.9
Ambu Denmark 98,799 3.8
Temenos Switzerland 96,334 3.7
Masimo USA 89,443 3.4
Verisk Analytics USA 89,203 3.4
Top 10 Investments 1,099,629 42.1
Diploma UK 86,892 3.3
Equifax USA 86,761 3.3
Cognex USA 85,931 3.3
Geberit Switzerland 82,978 3.2
Rightmove UK 80,939 3.1
Graco USA 79,186 3.0
Exponent USA 76,426 2.9
Nemetschek Germany 76,390 2.9
Rational Germany 74,182 2.8
Addtech Sweden 74,001 2.8
Top 20 Investments 1,903,315 72.7
MSCI USA 73,850 2.8
Fisher & Paykel Healthcare New Zealand 67,988 2.6
Qualys USA 63,334 2.4
IDEX USA 62,810 2.4
IPG Photonics USA 56,624 2.2
Domino's Pizza Enterprises Australia 56,615 2.2
Rollins USA 55,031 2.1
Sabre USA 53,775 2.1
Spirax-Sarco Engineering UK 53,249 2.0
Halma UK 52,852 2.0
Technology One Australia 49,879 2.0
Paycom Software USA 38,512 1.6
Domino's Pizza Group UK 21,022 0.9
Total Investments 2,608,856 100.0
Investment Objective and Policy
Investment Objective
The Company's investment objective is to provide shareholders with long term
growth in value through exposure to a diversified portfolio of shares issued
by listed or traded companies.
Investment Policy
The Company's investment policy is to invest in shares issued by small and
mid-sized listed or traded companies globally with a market capitalisation (at
the time of initial investment) of between £500 million to £15 billion. The
Company's approach is to be a long-term investor in its chosen shares. It will
not adopt short-term trading strategies. Accordingly, it will pursue its
investment policy by investing in approximately 25 to 40 companies as follows:
(a) the Company can invest up to 10 per cent. in value of its gross assets
(as at the time of investment) in shares issued by any single body;
(b) not more than 20 per cent. in value of its gross assets (as at the time
of investment) can be in deposits held with a single body. This limit will
apply to all uninvested cash (except cash representing distributable income or
credited to a distribution account that the depositary holds);
(c) not more than 20 per cent. in value of its gross assets (as at the time
of investment) can consist of shares issued by the same group. When applying
the limit set out in (a) this provision would allow the Company to invest up
to 10 per cent. in the shares of two group member companies (as at the time of
investment);
(d) the Company's holdings in any combination of shares or deposits issued
by a single body must not exceed 20 per cent. in value of its gross assets (as
at the time of investment);
(e) the Company must not acquire shares issued by a body corporate and
carrying rights to vote at a general meeting of that body corporate if the
Company has the power to influence significantly the conduct of business of
that body corporate (or would be able to do so after the acquisition of the
shares). The Company is to be taken to have power to influence significantly
if it exercises or controls the exercise of 20 per cent. or more of the voting
rights of that body corporate; and
(f) the Company must not acquire shares which do not carry a right to vote
on any matter at a general meeting of the body corporate that issued them and
represent more than 10 per cent. of the shares issued by that body corporate.
The Company may also invest cash held for working capital purposes and
awaiting investment in cash deposits and money market funds.
For the purposes of the investment policy, certificates representing certain
shares (for example, depositary interests) will be deemed to be shares.
Hedging Policy
The Company will not use portfolio management techniques such as interest rate
hedging and credit default swaps.
The Company will not use derivatives for purposes of currency hedging or for
any other purpose.
Borrowing Policy
The Company has the power to borrow using short-term banking facilities to
raise funds for short-term liquidity purposes or for discount management
purposes including the purchase of its own shares, provided that the maximum
gearing represented by such borrowings shall be limited to 15 per cent. of the
net asset value at the time of drawdown of such borrowings. The Company may
not otherwise employ leverage.
Interim Management Report
The Directors are required to provide an Interim Management Report in
accordance with the FCA's Disclosure Guidance and Transparency Rules. The
Directors consider that the Chairman's Statement and the Investment Manager's
Review on pages 5 to 6 and 7 to 10 of the Interim Report respectively, provide
details of the important events which have occurred during the period and
their impact on the condensed set of financial statements. The following
statements on principal risks and uncertainties, related party transactions
and the Directors' responsibility statement below, together constitute the
Interim Management Report for the Company for the period from 1 January 2023
to 30 June 2023.
Principal Risks and Uncertainties
The Board considers that the principal risks and uncertainties faced by the
Company can be summarised as (i) investment objective and policy risk, (ii)
market risks, (iii) outsourcing risks, (iv) key individuals' risk and (v)
regulatory risks. A detailed explanation of risks and uncertainties can be
found on pages 23 to 25 of the Company's most recent Report and Accounts for
the year ended 31 December 2022. The Board also considers the risks associated
with the macroeconomic backdrop such as uncertainty over inflation, higher
interest rates, possibility of a recession, the continuing war in Ukraine and
secondary impacts from the COVID pandemic. The Board monitors the potential
risks to the Company and its portfolio and receives regular updates and
assurance from the Investment Manager and other key service providers on
operational resilience and portfolio exposure and impact.
A review of the period and the outlook can be found in the Chairman's
Statement and in the Investment Manager's Review.
Related Party Transactions
The Company's Investment Manager, Fundsmith LLP, is considered a related party
in accordance with the Listing Rules. There have been no changes to the nature
of the Company's related party transactions since the Company's most recent
Report and Accounts for the period ended 31 December 2022 were released.
Details of the amounts paid to the Company's Investment Manager and the
Directors during the period are detailed in the notes to the financial
statements.
Directors' Responsibility Statement
The Directors confirm to the best of their knowledge that:
· the Interim Management Report includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7R (indication of
important events during the first six months, 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); and
· the Interim Financial Statements includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
On behalf of the Board of Directors
Diana Dyer Bartlett
Chairman
28 July 2023
Condensed Statement of Comprehensive Income (Unaudited)
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Income from investments held at fair value through profit or loss 4 21,712 - 21,712 22,285 - 22,285 31,341 - 31,341
Gains/(losses) on investments held at fair value through profit or loss 3 - 269,112 269,112 - (1,093,717) (1,093,717) - (970,879) (970,879)
Foreign exchange (losses)/gains (136) (227) (363) 76 (940) (864) 147 (399) (252)
Investment management fees (10,523) - (10,523) (11,808) - (11,808) (21,998) - (21,998)
Other expenses and transaction costs (769) (139) (908) (847) (553) (1,400) (1,463) (743) (2,206)
Profit/(loss) before tax 10,284 268,746 279,030 9,706 (1,095,210) (1,085,504) 8,027 (972,021) (963,994)
Tax (5,375) - (5,375) (2,312) - (2,312) (3,670) - (3,670)
Profit/(loss) for the period 6 4,909 268,746 273,655 7,394 (1,095,210) (1,087,816) 4,357 (972,021) (967,664)
Return/(loss) per share (basic and diluted) (p) 6 2.91 159.09 162.00 4.20 (621.79) (617.59) 2.49 (555.60) (553.11)
The Company does not have any income or expenses which are not included in the
profit for the period.
All of the profit and total comprehensive income for the period is
attributable to the owners of the Company.
The "Total" column of this statement represents the Company's Income
Statement, prepared in accordance with International Financial Reporting
Standards ("IFRS"). 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 accompanying notes on pages 18 to 22 of the Interim Report are an integral
part of these financial statements.
Condensed Statement of Financial Position (Unaudited)
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2023 2022 2022
Notes £'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 3 2,608,856 2,350,074 2,393,848
Current assets
Receivables 1,011 2,562 3,853
Cash and cash equivalents 21,057 17,750 24,589
22,068 20,312 28,442
Total assets 2,630,924 2,370,386 2,422,290
Current liabilities
Trade and other payables (7,994) (9,055) (4,323)
Total assets less current liabilities 2,622,930 2,361,331 2,417,967
Equity attributable to equity shareholders
Share capital 8 1,771 1,771 1,771
Share premium 1,719,487 2,219,487 2,219,487
Capital reserve 903,412 143,685 203,358
Revenue reserve (1,740) (3,612) (6,649)
Total equity 2,622,930 2,361,331 2,417,967
Net asset value per share (p) 7 1,575.4 1,339.5 1,410.7
The accompanying notes on pages 18 to 22 of the Interim Report are an integral
part of these financial statements.
Condensed Statement of Changes in Equity (Unaudited)
For the six months ended 30 June 2023 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2023 1,771 2,219,487 203,358 (6,649) 2,417,967
Ordinary shares bought back and held in treasury - - (68,318) - (68,318)
Costs on buybacks - - (374) - (374)
Transfer of share premium - (500,000) 500,000 - -
Profit for the period - - 268,746 4,909 273,655
Balance at 30 June 2023 1,771 1,719,487 903,412 (1,740) 2,622,930
For the six months ended 30 June 2022 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 1,717 2,126,997 1,249,362 (11,006) 3,367,070
Issue of new shares 54 93,050 - - 93,104
Costs on new share issues - (560) - - (560)
Ordinary shares bought back and held in treasury - - (10,430) - (10,430)
Costs on buybacks - - (37) - (37)
(Loss)/profit for the period - - (1,095,210) 7,394 (1,087,816)
Balance at 30 June 2022 1,771 2,219,487 143,685 (3,612) 2,361,331
For the year ended 31 December 2022 (Audited)
Share Share Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 1,717 2,126,997 1,249,362 (11,006) 3,367,070
Issue of new shares 54 93,050 - - 93,104
Costs on new share issues - (560) - - (560)
Ordinary shares bought back and held in treasury - - (73,604) - (73,604)
Costs on buybacks - - (379) - (379)
(Loss)/profit for the year - - (972,021) 4,357 (967,664)
Balance at 31 December 2022 1,771 2,219,487 203,358 (6,649) 2,417,967
The accompanying notes on pages 18 to 22 of the Interim Report are an integral
part of these financial statements.
Condensed Statement of Cash Flows (Unaudited)
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Notes £'000 £'000 £'000
Operating activities
Profit/(loss) before tax 279,030 (1,085,504) (963,994)
Adjustments for:
(Gain)/loss on investments held at fair value through profit or loss 3 (269,112) 1,093,717 970,879
(Increase)/decrease in receivables (516) (430) 25
Increase/(decrease) in payables 176 5,198 (1,175)
Overseas taxation paid (3,564) (3,240) (4,584)
Net cash generated by operating activities 6,014 9,471 1,151
Investing activities
Purchase of investments 3 (176,626) (479,693) (651,473)
Sale of investments 3 232,983 372,787 624,269
Net cash generated by/(used in) investing activities 56,357 (106,906) (27,204)
Financing activities
Proceeds from issue of new shares - 93,104 93,104
Issue costs relating to new shares - (560) (560)
Purchase of shares held in treasury (65,531) (9,673) (73,604)
Costs relating to buy backs (372) (37) (379)
Net cash (used in)/generated from financing activities (65,903) 82,834 18,561
Net decrease in cash and cash equivalents (3,532) (14,331) (7,492)
Cash and cash equivalents at start of the period/year 24,589 32,081 32,081
Cash and cash equivalents at end of the period/year 21,057 17,750 24,589
Comprised of:
Cash at bank 21,057 17,750 24,589
The accompanying notes on pages 18 to 22 of the Interim Report are an integral
part of these financial statements.
Notes to the Condensed Financial Statements (Unaudited)
1. General information
Smithson Investment Trust plc is a company incorporated on 14 August 2018 in
the United Kingdom under the Companies Act 2006.
The condensed interim financial statements have been prepared in accordance
with IAS 34 Interim Financial Reporting and the Disclosure Guidance and
Transparency Rules ("DTRs") of the UK's Listing Authority.
Principal activity
The principal activity of the Company is that of an investment company within
the meaning of Section 833 of the Companies Act 2006.
The Company commenced activities on admission to the London Stock Exchange on
19 October 2018.
Going concern
The Directors have adopted the going concern basis in preparing the Condensed
Interim Financial Statements (unaudited) for the period ended 30 June 2023.
The following is a summary of the Directors' assessment of the going concern
status of the Company, which included consideration of macroeconomic
conditions such as uncertainty over inflation, higher interest rates, a
possible recession and the continuing war in Ukraine.
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of this report. In reaching this conclusion, the Directors have
considered the liquidity of the Company's portfolio of investments as well as
its cash position, income and expense flows. At the date of approval of this
report, the Company has substantial operating expenses cover and a suitably
liquid portfolio with which to continue share buybacks.
2. Significant accounting policies
The Company's accounting policies are set out below:
Accounting convention
The financial statements have been prepared under the historical cost
convention (modified to include investments at fair value through profit or
loss) on a going concern basis and in accordance with UK adopted international
accounting standards in conformity with the requirements of the Companies Act
2006 and IFRSs as issued by the International Accounting Standards Board
("IASB") 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 ("AIC") in November 2014 (and updated
in July 2022). They have also been prepared on the assumption that approval as
an investment trust will continue to be granted.
The Directors believe that it is appropriate to continue to adopt the going
concern basis for preparing the financial statements for the reasons stated
above. The Company is a UK listed company with a predominantly UK shareholder
base. The results and the financial position of the Company are expressed in
sterling, which is the functional and presentational currency of the Company.
The accounting policies in this Interim Report are consistent with those
applied in the Annual Report for the year ended 31 December 2022 and have been
disclosed consistently and in line with Companies Act 2006.
Critical accounting judgements and sources of estimation uncertainty
The Board confirms that no significant accounting judgements or estimates have
been applied to the financial statements and therefore there is not a
significant risk of a material adjustment to the carrying amounts of assets
and liabilities.
3. Investments held at fair value through profit or loss
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Opening book cost 2,353,438 2,162,638 2,162,638
Opening investment holding gains 40,410 1,176,512 1,176,512
Opening fair value at start of the period/year 2,393,848 3,339,150 3,339,150
Purchases at cost 177,331 477,428 651,607
Sales - proceeds (231,435) (372,787) (626,030)
Gains/(losses) on investments 269,112 (1,093,717) (970,879)
Closing fair value at end of the period/year 2,608,856 2,350,074 2,393,848
Closing book cost at end of the period/year 2,326,975 2,378,594 2,353,438
Closing unrealised gain/(loss) at end of the period/year 281,881 (28,520) 40,410
Valuation at end of the period/year 2,608,856 2,350,074 2,393,848
The Company received £231,435,000 excluding transaction costs from
investments sold in the period (30 June 2022: £372,787,000, 31 December 2022:
£626,030,000). The book cost of the investments when they were purchased was
£203,933,000 (30 June 2022: £262,025,000, 31 December 2022: £461,550,000).
These investments have been revalued over time until they were sold and
unrealised gains/losses were included in the fair value of the investments.
All investments are listed.
4. Dividend income
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
UK dividends 4,106 4,077 6,603
UK dividends - special - 3,324 3,324
Overseas dividends 15,785 11,451 16,921
Overseas dividends - special 1,529 3,432 4,437
Bank interest 292 1 56
Total 21,712 22,285 31,341
5. Return/(loss) per share
Return per ordinary share is as follows:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Profit/(loss) for the period/year (£'000) 4,909 268,746 273,655 7,394 (1,095,210) (1,087,816) 4,357 (972,021) (967,664)
Return/(loss) per ordinary share (p) 2.91 159.09 162.00 4.20 (621.79) (617.59) 2.49 (555.60) (553.11)
Return per share is calculated based on returns for the period and the
weighted average number of 168,930,514 shares in issue (excluding treasury
shares) in the six months ended 30 June 2023 (30 June 2022: 176,138,114; 31
December 2022: 174,950,862).
6. Net asset value per share
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
Net asset value £2,622,930,000 £2,361,331,000 £2,417,967,000
Shares in issue 166,497,958 176,289,958 171,407,958
Net asset value per share 1,575.4p 1,339.5p 1,410.7
7. Share capital
Unaudited
30 June 2023
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully paid (ordinary) Number Number Number £'000
Ordinary shares in issue at 1 January 171,407,958 5,700,000 177,107,958 1,771
Ordinary shares bought back and held in treasury (4,910,000) 4,910,000 - -
166,497,958 10,610,000 177,107,958 1,771
Unaudited
30 June 2022
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully paid (ordinary) Number Number Number £'000
Ordinary shares in issue at 1 January 171,697,958 - 171,697,958 1,717
Ordinary shares issued 5,410,000 - 5,410,000 54
Ordinary shares bought back and held in treasury (818,000) 818,000 - -
176,289,958 818,000 177,107,958 1,771
Audited
31 December 2022
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully paid (ordinary) Number Number Number £'000
Ordinary shares in issue at 1 January 171,697,958 - 171,697,958 1,717
Ordinary shares issued 5,410,000 - 5,410,000 54
Ordinary shares bought back and held in treasury (5,700,000) 5,700,000 - -
171,407,958 5,700,000 177,107,958 1,771
During the six months ended 30 June 2023, the Company issued no ordinary
shares of £0.01 each (30 June 2022: 5,410,000, 31 December 2022: 5,410,00)
for a net consideration of £nil (30 June 2022: £92,544,000 31 December 2021:
£92,544,000).
During the six months ended 30 June 2023, the Company bought back to hold in
treasury 4,910,000 shares (30 June 2022: 818,000, 31 December 2022: 5,700,000)
at a total cost of £68,692,000 (30 June 2022: £10,467,000, 31 December 2022:
£73,983,000). At the period end, the Company held 10,610,000 (30 June 2022;
818,000, 31 December 2021: 5,700,000) shares in treasury.
Since 30 June 2023 and up to 21 July 2023, a further 700,000 ordinary shares
have been bought back to hold in treasury at a total cost of £9.7 million.
8. Related party transactions
Fees payable to the Investment Manager are shown in the Condensed Statement of
Comprehensive Income. As at 30 June 2023 the fee outstanding to the Investment
Manager was £1,673,000 (30 June 2022: £7,487,000, 31 December 2022:
£1,659,000).
Fees are payable to the Directors at an annual rate of £30,000 for Board
members, with an additional fee payable per annum of £15,000 to the Chair of
the Board, £10,000 to the Chair of the Audit Committee and £5,000 to the
Chair of the Management Engagement Committee.
The Directors had the following shareholdings in the Company.
As at As at As at
30 June 30 June 31 December
Director 2023 2022 2022
Diana Dyer Bartlett 8,886 8,886 8,886
Lord St John of Bletso 10,000 10,000 10,000
Jeremy Attard-Manche - - -
Denise Hadgill 1,111 - 1,111
As at 30 June 2023, Terry Smith and other founder partners and key employees
of the Investment Manager directly or indirectly and in aggregate, held 1.8%
of the issued share capital of the Company (30 June 2022: 1.7%, 31 December
2022: 1.7%).
9. Events after the reporting period
There were no post-period events requiring disclosure other than those
included in these interim financial statements.
10. Status of this report
These interim financial statements are not the Company's statutory accounts
for the purposes of section 434 of the Companies Act 2006. They are
unaudited. The unaudited Interim Report will be made available to the public
at the registered office of the Company. The report will also be available in
electronic format on the Company's website, http://www.smithson.co.uk.
The financial information for the year ended 31 December 2022 has been
extracted from the statutory accounts which have been filed with the Registrar
of Companies. The auditors' report on those accounts was not qualified and did
not contain statements under sections 498 (2) or (3) of the Companies
Act 2006.
The Interim Report was approved by the Board of Directors on 28 July 2023.
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
For further information please contact Company Secretary at:
Tel: 020 3327 9720
Email: smithsoncosecmailbox@apexfs.group
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. END IR FLFESDIITFIV
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