REG - Smithson Inv.Trust - Half-year Report
29/07/2024 07:00
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RNS Number : 1023Y Smithson Investment Trust PLC 29 July 2024
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79
Date: 29 July 2024
INTERIM RESULTS ANNOUNCEMENT
Results for the six months ended 30 June 2024
The full Interim Report for the six months ended 30 June 2024 (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 2024 30 June 2023 31 December 2023
Net assets £2,274,421,000 £2,622,930,000 £2,551,938,000
Net asset value ("NAV") per
ordinary share ("share") 1,569.5p 1,575.4p 1,598.0p
Share price 1,378.0p 1,400.0p 1,415.0p
Share price discount to NAV(1) 12.2% 11.1% 11.5%
For the period from
Company's listing on
Six months ended Six months ended 19 October 2018 to
30 June 2024 30 June 2023 30 June 2024
% Change(2) % Change(2) % Change(2)
NAV total return per share(1) -1.8% +11.7% +56.9%
Share price total return(1) -2.6% +7.0% +37.8%
Comparator index total return(3) +3.4% +1.9% +52.2%
Ongoing charges ratio(1) 0.9% 0.9% 1.0%
Source: Bloomberg.
(1) These are Alternative Performance Measures ("APMs"). Definitions of these,
together with how these measures have been calculated, are disclosed on pages
24 and 25 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.
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 2024 ("Interim Report").
Performance
The Company's net asset value ("NAV") per share total return for the period
was negative 1.8% compared with the 3.4% positive return from the MSCI World
SMID Index. This is, as the Investment Manager reports in his half year
review, frustrating. The last two and a half years, and particularly the last
18 months, have been challenging for those investing in small and mid-cap
stocks.
The performance of the MSCI World Index, which is driven by the performance of
a small number of very large technology stocks, has been very strong, and the
divergence in performance between the MSCI World Index and the MSCI World SMID
Index over the last 18 months is significant. The MSCI SMID Index has returned
12.8% over that period, whilst the MSCI World Index has returned 31.6%. These
market conditions, and the performance of the Company's portfolio, are
discussed in more detail in the Investment Manager's review.
There is no doubt that good returns can be delivered by investing in small and
mid-cap stocks. The Company's objective is to provide shareholders with long
term growth; the Company's annualised NAV per share performance in the nearly
six years since inception to the end of June 2024 was +8.2% pa, 0.5 percentage
points higher than the return from the MSCI World SMID Index.
Despite the efforts of the Board to try to reduce the discount to NAV at which
the Company's shares trade though its buyback programme, the share price
performance continues to be disappointing, with the share price loss for the
first half amounting to 2.6% and the annualised return since inception lagging
NAV performance at +5.8%. The buyback programme is detailed further below.
Discount and Share Buybacks
Since the end of the first quarter of 2022 the Company's shares have traded at
a discount to net asset value. The problem of discounts is common across the
investment trust sector, and to put the scale of the problem into context, at
the end of June 2024, according to the Association of Investment Companies'
statistics, some 94% of investment trusts were trading at a discount and the
average discount across the industry at 30 June 2024, excluding 3i, was 15%.
The Board has reacted to the Company's discount by adopting the common
practice of buying back shares and commenced a programme of regular market
purchases in April 2022. In the first half of 2024 the Board spent £206.4m on
buybacks, representing 8.3% of the issued share capital before the buyback
programme began. This brings the total spent on share buybacks from the start
of the programme in 2022 until the end of the first half of 2024 to £439.7m,
equivalent to 18.2% of the issued share capital at the start of the buyback
programme. Nevertheless, the discount at the end of June 2024 was 12.2%.
As I mentioned above, discounts are a common problem across the investment
trust industry and despite the Company, in the first half of 2024, ranking
second overall in the investment trust market in terms of amount bought in and
third in terms of percentage of share capital in issue at the start of the
year bought back, the discount still widened.
Whilst the buyback programme has clearly not addressed the Company's discount,
(although the discount may have been greater if we had not bought back so many
shares), it has nevertheless brought some benefits to shareholders, taken as a
whole. The accretive value of the buybacks in the first half amounted to an
estimated £25.7m, equivalent to 152% of the Company's operating expenses;
since inception of the programme to the end of the first half of 2024, £50.2m
of estimated accretive benefit to shareholders has been generated. It should
also not be forgotten that as the Investment Manager's fees are based on
market capitalisation rather than NAV, we estimate the discount has been
responsible for their fees being reduced by some £1.1m in the first half of
the year and by £2.2m during 2023.
When I met shareholders earlier this year, it was clear that they favoured the
higher level of buybacks and the Board intends to continue allocating a
substantial amount of the Company's capital to the buyback programme if
discounts continue to prevail at high levels.
Results and Dividends
The Company's total loss after tax for the half year was £71m comprising a
capital loss of £77m and a revenue profit of £6m. 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, as in previous years, it is expected that the full year
revenue profit will be lower than in the first half and may even be negative.
In the first half, the Company's operating cost ratio ("OCR") was 0.86%
compared with the OCR for 2023 of 0.88%. The main reason for the improvement
is the impact of the Company's discount on the Investment Manager's fee. We
would expect this to reverse once the Company's discount narrows and the share
price more closely tracks the NAV.
The Company's objective is to focus on capital growth and its expenses
allocation 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 25 April 2024. 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.
Following investor feedback to the Board's original decision not to hold a
continuation vote at the AGM, the decision was reversed, and an ordinary
resolution in favour of continuation of the Company was included in the
Notice. The resolution was passed with 90% of the votes cast in favour. The
Board has also resolved that where similar circumstances arise in future, the
Board will automatically put such a vote to shareholders at the following AGM.
This means that if the average discount in the first half, prevails in the
second half, we will put another continuation vote to shareholders at the 2025
AGM.
Outlook
Our Investment Manager has continued to refresh the portfolio, adding new
names and exiting some long-held names, and they continue to believe that the
portfolio is well positioned to achieve the objective to deliver long term
growth in value. The Board shares the Investment Manager's optimism and is
pleased that Simon and his team remain focused on the things they can control
and remain resolute in maintaining their investment approach.
Although the first half performance has been disappointing, shareholders
should not lose sight of the fact that the Company has nevertheless
outperformed its comparator index since inception. As our Investment Manager
says, the headwind of rising interest rates will not last forever. The Board
continues to have confidence that the Company's Investment Manager can execute
the strategy successfully, and the Board believes that as the Company offers
investors exposure to some of the best companies available globally in the
small and mid-cap sector, the long-term investor will be well rewarded.
Diana Dyer Bartlett
Chairman
26 July 2024
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 2024 the NAV of the
Company decreased by 1.8% and the share price declined by 2.6%. Over the same
period, the MSCI World Small and Mid Cap Index ("SMID"), our reference index,
increased by 3.4%. We also provide the performance of UK bonds and cash for
comparison.
Launch
to 30.06.24
Total Return(5) 01.01.24 to 30.06.24 Cumulative Annualised
%
%
%
Smithson NAV(1) -1.8 +56.9 +8.2
Smithson Share Price -2.6 +37.8 +5.8
Small and Midcap Equities(2) +3.4 +52.2 +7.7
UK Bonds(3) -2.2 -7.0 -1.3
Cash(4) +2.6 +10.2 +1.7
(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 24 to 25) of the Interim
Report.
As a colleague recently commented, our performance so far this year has been
"like watching paint dry", and I couldn't agree more; we are finding it as
frustrating as you are. While we have had a couple of stock specific issues in
the portfolio, which I discuss below, there is no doubt that this is a tough
time in the market for smaller companies. As has happened in the past, large
and 'glamourous' stocks have outperformed strongly this year, while small and
medium sized companies as an asset class have struggled, and we only need to
look at certain individual companies to get a sense of the scale of this
issue.
One of the most glamourous and best performing large cap companies this year
so far has been Nvidia, boosted by orders for its chips to facilitate the
development of Generative AI. The shares are up 149% in the first half, or to
put it another way, the company has increased in value by $1.8 TRILLION in the
last 6 months alone. In comparison, the most frequently cited US small cap
index, the Russell 2000, which incidentally, similar to our portfolio, has
done very little year to date, has a total market capitalisation of only $3
trillion. It is therefore not an exaggeration to say that the level of asset
flows currently being attracted to certain US large cap stocks is potentially
sucking the air out of entire asset classes. This cannot go on forever, and
it reminds me of a quote from veteran small cap manager, Ralph Wanger, who,
suffering from the same issue, said "there is only one stock market, not two,
and the market will soon shed a tier". Although it's worth pointing out that
he said this over half a century ago.
Why is this now happening again? As you have seen me comment several times
before in these reports, the short term movements of certain 'risk assets',
including the small and mid-cap equity sectors, have been correlated to the
movement in interest rate expectations. This could be due to the faster
growing nature of small caps vs large caps (causing the higher future profits
to be discounted more by higher interest rates), and the fact that smaller
companies tend to be more operationally and financially geared, although this
latter point does not apply to the majority of Smithson companies. Whatever
the reason, interest rates increasing by over 50 basis points year to date, as
measured by the US 10-year Treasury yield, has provided a headwind to
performance.
We know that this headwind won't last forever. But what we should also bear in
mind, which is apparent even from the relatively short operating period of
Smithson, is that when small caps do move, they can really move. For example,
from the trough in October 2022, the NAV of the trust increased by 23% in the
following three months and in Q4 last year, the NAV was up 18% in just a two
month period.
You will notice me having referred specifically to short term performance,
because of course these factors I discussed are only affecting the short term
valuations of the companies we own, while it is the delivery of growth in
profits and free cash flow from our companies which will drive the long term
performance of the trust. On this point we can report that over the last
twelve months, the growth in free cash flow for our companies has been 14%,
demonstrating why we remain so enthusiastic about the portfolio, while the
free cash flow yield increased to 3%, from 2.3% this time last year.
Portfolio turnover adjusted for share buybacks was 20.0% in the half year, a
little higher than the 13.1% last year. Annualised costs were unchanged, with
an Ongoing Charges 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, similar to that incurred over the same
period last year, which meant that the annualised Total Cost of Investment was
0.93%.
We have been relatively busy in the first six months of the year due to the
large number of opportunities being offered to us during this period of price
weakness for high quality small cap companies. We added five exciting new
companies to the portfolio and funded these by selling out of three existing
positions, all of which I describe below.
One new holding is Inficon, a Swiss producer of instruments for gas analysis,
measurement and control which are used for leak detection and vacuum control
in precise manufacturing processes including semiconductors, flat panel
displays, solar cells and industrial coatings. With all the fervour around the
number of specialist GPUs being ordered to power generative AI applications,
such as those produced by Nvidia, many will be surprised to hear that there
has actually been a downcycle in the production of ordinary semiconductor
chips since 2021. This is due to the fact that a shortage of chips in 2020
resulting from supply disruptions led to an overproduction in 2021 to catch
up, in turn leading to inventories building up just as demand for consumer
items such as cars and TVs softened. Inficon's semiconductor division,
accounting for up to half of group revenue, has suffered somewhat over the
last two years but is now receiving increasing orders which, based on company
data, are accelerating every month. Longer term, the company is well placed to
take advantage of growing markets, not just in semiconductors, but also in
renewable energy, automotive and water purity, as it is positioned as the
number one or two player in every market it serves. The Management also
believe that being a European company selling semiconductor related equipment
into China will continue to give them an advantage over US based competitors
if geopolitical tensions escalate.
This position was funded by selling out of Temenos, a Swiss banking software
company that had caused us much frustration over recent months. We believe
that the company will require more investment in the short and medium term to
fix a badly managed transition to a Software as a Service ("SaaS") business
model, which will likely place pressure on margins and returns.
Reply is an IT consulting company based in Italy that helps corporates with
technology adoption, not only with advice and 3rd party software integration
but also developing and coding custom software. They are being increasingly
engaged to help integrate AI technology into corporate IT systems, and so have
direct exposure to the long-term growth in AI adoption. It strikes us that
whoever the winners in AI may be, those helping companies to implement the
resulting technology will not be short of demand. The company is actually a
group of small 'pods' of specialist teams that focus on very specific IT
niches and so the company grows both organically and through acquiring new
pods, which also enables it to remain at the cutting edge of IT integration.
Part of its advantage is that the group has built up very strong relationships
with large multinational companies, over decades in some cases, that now
provide revenue that is recurring in nature. Its second advantage is that the
majority of its contracts are fixed price, allowing them to generate higher
fees per employee compared to its peers, who bill by the hour. Lower corporate
IT budgets due to the macroeconomic pressures over the past couple of years
have allowed us to acquire a position in the company at what we believe to be
an attractive 4% free cash flow yield.
We also started a position in Melexis, a Belgian company which designs and
sells advanced sensors, integrated circuits and systems principally for the
automotive industry, but also for smart buildings, energy management and
robotics. We are attracted to the fact that it produces very low cost ($0.50
on average) but highly functional chips and sensors which are growing, in
terms of number used per car, by around 10% a year. The low cost but high
functionality not only enables this continued penetration into cheaper cars
and novel uses, but also protects the company against copycats, as it is
difficult to design and produce them at much lower cost, and that is assuming
a competitor could guarantee the same functionality and reliability, which is
critical for car manufacturers. As manufacturers have been running down their
inventory over the last year or so, revenue growth has slowed and the share
price has underperformed. This has created an attractive entry point now that,
as suggested by management at its last quarterly earnings report, customer
inventories were approaching normal levels and the company's free cash flow is
growing once more.
The positions in Reply and Melexis were funded by selling our holding in
Domino's Pizza Enterprises, the Australian Domino's franchisor. This is a
company that had performed very well until 2021, after which mis-execution in
core markets including Japan and Germany, led to underperformance. While
management have set out a plan to recover sales in these markets, we believe
that given the length of time this turnaround might involve, our shareholders'
capital would be better deployed in other opportunities.
We also sold out of our position in IPG Photonics, a US manufacturer of
high-powered lasers for industrial use to fund a new position in HMS Networks.
IPG Photonics has seen increasing competition from Chinese companies, which
produce lasers with less power and reliability, but also at far lower prices.
This has put a degree of pricing pressure on IPG's lasers over time and is an
issue that we had become increasingly concerned about.
HMS Networks is a Swedish producer of factory automation products. It sells
devices that are integrated into factory equipment produced by other
manufacturers, which allow that equipment to communicate with any other type
of equipment or network, thus allowing for the automation of factories through
remote diagnostics, monitoring and control, an important trend which we expect
to continue for many years.
Finally, Choice Hotels is a US based hotel franchisor known for its Quality
Inn and Radisson brands, among several others. It is another high-quality
company with a strong track record of steady growth and profitability,
achieving over 30% operating margins in recent years. Over the past 12 months
however, the shares have been held back as management pursued a hostile bid
for Wyndham Hotels and Resorts, a lower quality US hotel business of a similar
size to Choice Hotels. This bid was ultimately abandoned by management in
March, who at the same time communicated to shareholders that the funds
earmarked for the deal would instead be spent on share buybacks, an approach
we support given the currently attractive valuation of 5% free cash flow
yield. We took the opportunity to acquire the position soon after this
announcement was made.
To discuss in more detail the fund performance in the first half, the top five
contributors to performance are shown below.
Country Contribution %
Ambu Denmark 0.8%
Fisher & Paykel Healthcare New Zealand 0.8%
Diploma United Kingdom 0.7%
Verisk Analytics United States 0.5%
Halma United Kingdom 0.4%
Source: Northern Trust
Shares in Ambu, the Danish medical device manufacturer, performed well after
the management team upgraded its guidance for the full year results after the
company achieved strong revenue growth of over 20% in its disposable
endoscopes business during the first six months.
Fisher & Paykel, the medical device manufacturer based in New Zealand,
contributed to performance after both strong demand for hospital consumables
and a good reception for its new CPAP mask led management to upgrade profit
guidance.
Diploma is a UK based distributor of industrial products ranging from seals to
laboratory equipment. Over the past few years it has spent an increasing
proportion of its free cash flow on accretive acquisitions and the first six
months of this year saw a continuation of this trend, with the share price
reacting positively to a combination of another deal and strong underlying
growth.
The US insurance data company Verisk reported strong earnings in May, since
which time the share price has increased over 25%. The company has generally
been on a positive trend since it divested several underperforming divisions
over the last couple of years, leaving shareholders with only the highly
profitable core insurance data business.
Halma, the UK manufacturer and distributor of safety and environmental
products, also reported better than expected earnings, with the shares up 13%
on the day of the results release.
The largest detractors of performance are shown below.
Country Contribution %
Temenos Switzerland -1.3%
Domino's Pizza Enterprises Australia -1.2%
Sabre United States -1.1%
Qualys United States -0.9%
Paycom Software United States -0.6%
Source: Northern Trust
The reasons for the underperformance of both Temenos and Domino's Pizza
Enterprises have been discussed above and unfortunately they were detractors
from the fund's performance in the first half before they were sold.
Sabre, the US provider of software to the travel industry, is still recovering
from the lack of travel in the pandemic era. Management released cautious
guidance in February, suggesting that corporate travel was improving at a
slower rate than they had hoped, and they no longer expect growth in this
travel segment for the year. Subsequent to this announcement, corporate travel
growth has actually picked up, so there is potential for Sabre to produce
results ahead of the lowered market expectations, should this continue.
Qualys provides cyber security software and its order growth has been held
back by general weakness in corporate IT budgets due to macroeconomic
uncertainty. We expect this to be temporary and for orders to recover once
buyers become more optimistic in their outlook.
Paycom Software is a US company providing human resources software to small
and medium sized companies. It has recently had an issue with increasing
customer churn, as it transpires that the customer service teams were not
doing nearly as good a job as its excellent sales teams. Management has
refocused the organisation on servicing existing clients before selling more
products to them and we are waiting to see if this begins to resolve the
issue. If this doesn't occur within a satisfactory timeframe, we would be
inclined to exit the position.
The positioning of the fund is described below, with a breakdown of the
portfolio in terms of sector and geography at the end of the period. The
median year of foundation of the companies in the portfolio at the end of the
half year was 1965.
Sector 30 June 2024 (%) 30 June 2023 (%)
Industrials 41% 33%
Information Technology 26% 32%
Healthcare 11% 14%
Consumer Discretionary 9% 10%
Consumer Staples 8% 4%
Financials 3% 3%
Materials 2% -
Communication Services - 3%
Cash - 1%
Source: Northern Trust
While the Industrials sector now appears to be significantly larger than the
Information Technology sector, I would highlight that some companies,
including Paycom Software and Verisk Analytics are classed as industrials by
GICS, with Paycom only recently being reclassified to that sector, while we
would still recognise them as Information Technology companies. I would also
indicate that, given our focus on diversification and risk control, a 40%
weighting in a single sector is the most we would feel comfortable with, and
so this weighting is not expected to move materially higher. The increase in
the Industrial sector weighting over the last 12 months has occurred from the
outperformance of several companies in the sector, in contrast to the
underperformance of certain Information Technology names. The Information
Technology sector weighting also declined due to the sales of Temenos and IPG
Photonics. The Healthcare weighting decreased after the sale of Masimo last
year while that of the Consumer Staples sector increased after the additions
of Oddity and Clorox. The new position in the Materials sector reflects the
relatively recent acquisition of Croda.
Country of Listing 30 June 2024 (%) 30 June 2023 (%)
USA 48% 44%
UK 16% 15%
Italy 9% 10%
Germany 6% 6%
Switzerland 5% 7%
Sweden 5% 3%
New Zealand 4% 2%
Denmark 4% 8%
Australia 2% 4%
Belgium 1% -
Cash - 1%
Source: Northern Trust
Despite the changes to the portfolio, there has been very little movement in
the geographic exposure of the fund, with the USA remaining the largest
weight, as it is in the global index, and the UK being second largest,
increasing slightly after the outperformance of Diploma and Halma and with the
addition of Croda. The weighting to Denmark more than halved after Simcorp was
acquired by Deutsche Börse and subsequently left the portfolio.
Source of Revenue 30 June 2024 (%) 30 June 2023 (%)
North America 44% 39%
Europe 32% 37%
Asia Pacific 19% 18%
Eurasia, Middle East, Africa 3% 4%
Latin America 2% 2%
Source: Fundsmith
In terms of the location where our companies generate their sales, the changes
to the portfolio outlined above mean that North America has increased as a
source of revenue, while Europe has declined somewhat. All other regions
remain similar to this time last year.
In closing, we recognise that you have many options when allocating your
capital, many of which have performed better than Smithson in the first half
of this year. We greatly appreciate your continued support, and hope that we
are able to convince you to keep this faith until the small cap sector returns
to vogue. While we may have to remain patient a little longer while the paint
dries, we remain very optimistic that the picture will be worth it.
Simon Barnard
Fundsmith LLP
Investment Manager
26 July 2024
Investment Portfolio
Investments held as at 30 June 2024
Security Country of incorporation Fair value %
£'000
of investments
Diploma UK 117,954 5.2
Moncler Italy 100,347 4.4
Verisk Analytics USA 98,952 4.4
Geberit Switzerland 92,096 4.1
Rational Germany 91,586 4.0
Fisher & Paykel Healthcare New Zealand 87,937 3.9
Equifax USA 87,899 3.9
Verisign USA 87,858 3.9
Fortinet USA 83,591 3.7
Ambu Denmark 80,897 3.6
Top 10 Investments 929,117 41.1
Fevertree Drinks UK 77,866 3.4
Exponent USA 76,537 3.4
Recordati Italy 74,582 3.3
Graco USA 71,420 3.1
Cognex USA 70,515 3.1
Addtech Sweden 69,644 3.1
Choice Hotels USA 68,983 3.0
Spirax-Sarco Engineering UK 66,637 2.9
MSCI USA 63,468 2.8
Qualys USA 61,811 2.7
Top 20 Investments 1,630,580 71.9
Rollins USA 61,671 2.7
Halma UK 61,604 2.7
Clorox USA 61,558 2.7
Technology One Australia 58,320 2.6
IDEX USA 57,666 2.5
Nemetschek Germany 51,082 2.2
Oddity Israel 50,137 2.2
Croda UK 47,494 2.1
Sabre USA 45,240 2.0
HMS Networks AB Sweden 41,369 1.8
Paycom Software USA 36,477 1.6
Reply Spa Italy 23,601 1.0
Inficon Switzerland 22,354 1.0
Melexis Belgium 22,185 1.0
Total Investments 2,271,338 100.0
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 and £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 11 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 2024
to 30 June 2024.
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 2023. 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 wars in
Ukraine and the Middle East. 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 2023 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 condensed set of financial statements contained within the Interim
Report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting" as required by DTR 4.2.4R.
· this 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 include 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
26 July 2024
Condensed Statement of Comprehensive Income (Unaudited)
Notes Unaudited Unaudited Audited Year ended
Six months ended
Six months ended
30 June 2024
30 June 2023 31 December 2023
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 19,422 - 19,422 21,712 - 21,712 31,116 - 31,116
(Losses)/gains on investments held at fair value through profit or loss 3 - (76,434) (76,434) - 269,112 269,112 - 291,600 291,600
Foreign exchange losses - (546) (546) (136) (227) (363) (136) (656) (792)
Investment management fees (9,472) - (9,472) (10,523) - (10,523) (20,280) - (20,280)
Other expenses and transaction costs (733) (309) (1,042) (769) (139) (908) (1,532) (650) (2,182)
(Loss)/profit before tax 9,217 (77,289) (68,072) 10,284 268,746 279,030 9,168 290,294 299,462
Tax (3,059) - (3,059) (5,375) - (5,375) (6,144) - (6,144)
(Loss)/profit for the period/year 5 6,158 (77,289) (71,131) 4,909 268,746 273,655 3,024 290,294 293,318
(Loss)/return per share 5 4.00 (50.20) (46.20) 2.91 159.09 162.00 1.82 175.02 176.84
(basic and diluted) (p)
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 below 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
2024 2023 2023
Notes £'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 3 2,271,338 2,608,856 2,538,953
Current assets
Trade and other receivables 12,303 1,011 1,851
Cash and cash equivalents 3,814 21,057 16,579
16,117 22,068 18,430
Total assets 2,287,455 2,630,924 2,557,383
Current liabilities
Trade and other payables (13,034) (7,994) (5,445)
Total assets less current liabilities 2,274,421 2,622,930 2,551,938
Equity attributable to equity shareholders
Share capital 7 1,771 1,771 1,771
Share premium 1,719,487 1,719,487 1,719,487
Capital reserve 550,630 903,412 834,305
Revenue reserve 2,533 (1,740) (3,625)
Total equity 2,274,421 2,622,930 2,551,938
Net asset value per share (p) 6 1,569.5 1,575.4 1,598.0
The accompanying notes below are an integral part of these financial
statements.
Condensed Statement of Changes in Equity (Unaudited)
For the six months ended 30 June 2024 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2024 1,771 1,719,487 834,305 (3,625) 2,551,938
Ordinary shares bought back and held in treasury - - (205,333) - (205,333)
Costs on buybacks - - (1,053) - (1,053)
(Loss)/profit for the period - - (77,289) 6,158 (71,131)
Balance at 30 June 2024 1,771 1,719,487 550,630 2,533 2,274,421
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 year ended 31 December 2023 (Audited)
Share Share Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2023 1,717 2,219,487 203,358 (6,649) 2,417,967
Ordinary shares bought back and held in treasury - - (158,506) - (158,506)
Costs on buybacks - - (841) - (841)
Transfer of share premium(#) - (500,000) 500,000 - -
Profit for the period - - 290,294 3,024 293,318
Balance at 31 December 2023 1,771 1,719,487 834,305 (3,625) 2,551,938
# On 28 February 2023, High Court approval was obtained to reduce the
Company's share premium by £500 million. The capital reduction, resulted in a
corresponding increase in the Company's distributable reserves.
The accompanying notes below 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
2024 2023 2023
Notes £'000 £'000 £'000
Operating activities
(Loss)/profit before tax (68,072) 279,030 299,462
Adjustments for:
Losses/(gains) on investments held at fair value through profit or loss 3 76,434 (269,112) (291,600)
Increase in receivables (669) (516) (90)
(Decrease)/increase in payables (270) 176 (70)
Overseas taxation (3,059) (3,564) (4,334)
Net cash generated from operating activities 4,364 6,014 3,368
Investing activities
Purchase of investments 3 (244,667) (176,626) (368,464)
Sale of investments 3 430,545 232,983 514,316
Net cash generated from investing activities 185,878 56,357 145,852
Financing activities
Purchase of shares held in treasury (199,837) (65,531) (156,389)
Costs relating to buy backs (3,170) (372) (841)
Net cash used in financing activities (203,007) (65,903) (157,230)
Net decrease in cash and cash equivalents (12,765) (3,532) (8,010)
Cash and cash equivalents at start of the period/year 16,579 24,589 24,589
Cash and cash equivalents at end of the period/year 3,814 21,057 16,579
Comprised of:
Cash at bank 3,814 21,057 16,579
The accompanying notes below 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 (unaudited) 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 2024.
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 wars in Ukraine and the Middle East.
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 2023 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 Audited
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2023
2024 2023 £'000
£'000 £'000
Opening book cost 2,232,394 2,353,438 2,353,438
Opening investment holding gains 306,559 40,410 40,410
Opening fair value at start of the period/year 2,538,953 2,393,848 2,393,848
Purchases at cost 249,147 177,331 367,539
Sales - proceeds (440,328) (231,435) (514,034)
(Losses)/gains on investments (76,434) 269,112 291,600
Closing fair value at end of the period/year 2,271,338 2,608,856 2,538,953
Closing book cost at end of the period/year 1,999,024 2,326,975 2,232,394
Closing unrealised gain at end of the period/year 272,314 281,881 306,559
Valuation at end of the period/year 2,271,338 2,608,856 2,538,953
The Company received £440,328,000 excluding transaction costs from
investments sold in the period (30 June 2023: £231,435,000, 31 December 2023:
£514,034,000). The book cost of the investments when they were purchased was
£482,687,000 (30 June 2023: £203,933,000, 31 December 2023: £489,233,000).
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
2024 2023 2023
£'000 £'000 £'000
UK dividends 3,880 4,106 7,626
Overseas dividends 15,245 15,785 20,843
Overseas dividends - special - 1,529 1,836
Bank interest 297 292 811
Total 19,422 21,712 31,116
5. (Loss)/return per share
(Loss)/return per ordinary share is as follows:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
(Loss)/return for the period/year (£'000) 6,158 (77,289) (71,131) 4,909 268,746 273,655 3,024 290,294 293,318
(Loss)/return per ordinary share (p) 4.00 (50.20) (46.20) 2.91 159.09 162.00 1.82 175.02 176.84
Return per share is calculated based on returns for the period and the
weighted average number of 153,957,461 shares in issue (excluding treasury
shares) in the six months ended 30 June 2024 (30 June 2023: 168,930,514; 31
December 2023: 165,863,972).
6. Net asset value per share
Unaudited Unaudited Audited
30 June 30 June 31 December
2024 2023 2023
Net asset value £2,274,421,000 £2,622,930,000 £2,551,938,000
Shares in issue 144,917,958 166,497,958 159,692,958
Net asset value per share 1,569.5p 1,575.4p 1,598.0p
7. Share capital
Unaudited
30 June 2024
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 159,692,958 17,415,000 177,107,958 1,771
Ordinary shares bought back and held in treasury (14,775,000) 14,775,000 - -
144,917,958 32,190,000 177,107,958 1,771
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
Audited
31 December 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 (11,715,000) 11,715,000 - -
159,692,958 17,415,000 177,107,958 1,771
During the six months ended 30 June 2024, the Company issued no ordinary
shares (30 June 2023: nil, 31 December 2023: nil).
During the six months ended 30 June 2024, the Company bought back to hold in
treasury 14,775,000 shares (30 June 2023: 4,910,000, 31 December 2023:
11,715,000) at a total cost of £206,386,000 (30 June 2023: £68,692,000, 31
December 2023: £159,347,000). At the period end, the Company held 32,190,000
(30 June 2023; 10,610,000, 31 December 2023: 17,415,000) shares in treasury.
Since 30 June 2024 and up to 24 July 2024, a further 2,457,305 ordinary shares
have been bought back to hold in treasury at a total cost of £34,478,000
8. Related party transactions
Fees payable to the Investment Manager are shown in the Condensed Statement of
Comprehensive Income. As at 30 June 2024, the fee outstanding to the
Investment Manager was £1,331,000 (30 June 2023: £1,673,000, 31 December
2023: £1,599,000).
Fees are payable at an annual rate of £47,250 to the Chair of the Board,
£42,000 to the Chair of the Audit Committee, £36,750 to the Chair of the
Management Engagement Committee and £31,500 to Directors.
The Directors had the following shareholdings in the Company.
As at As at As at
30 June 30 June 31 December
Director 2024 2023 2023
Diana Dyer Bartlett 10,419 8,886 10,419
Lord St John of Bletso 10,000 10,000 10,000
Jeremy Attard-Manche 2,500 - 1,250
Denise Hadgill 2,578 1,111 1,111
As at 30 June 2024, Terry Smith and other partners and key employees of the
Investment Manager directly or indirectly and in aggregate, held 1.91% of the
issued share capital of the Company (30 June 2023: 1.80%, 31 December 2023:
1.70%).
9. Events after the reporting period
There were no post-period events requiring disclosure other than those
included in these Condensed Interim Financial Statements.
10. Status of this report
These Condensed 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 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
(http://www.smithson.co.uk) .
The financial information for the year ended 31 December 2023 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 26 July 2024.
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: 0203 327 9720
Email: smithsoncosecmailbox@apexfs.group
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