REG-Temple Bar Inv.Tst: Annual Financial Report
24/03/2022 07:15
Temple Bar Investment Trust Plc
Full Year Results for the year ended 31 December 2021
Temple Bar Investment Trust Plc (the “Company”) is pleased to present its
full year results for the year ended 31 December 2021.
The Company's Annual Report & Financial Statements for the year ended 31
December 2021 is also being published in hard copy format and an electronic
copy will shortly be available to download from the Company's website:
www.templebarinvestments.co.uk.
Please click on the following link to view the document:
https://mma.prnewswire.com/media/1772612/TBIT_RA21_7_29_web.pdf
CHAIRMAN’S STATEMENT
“The UK market would appear still to be very cheap relative to its overseas
counterparts. This valuation discount could well narrow.’’
Review
2021 was the first full year the Company was under the fund management of RWC
Asset Management LLP (“Redwheel”). The year started extremely well as the
post-vaccine bounce in value stocks continued into the new year. The first
quarter brought a net asset value (“NAV”) return of 17.0% versus the
benchmark index return of 5.2%. However, this outperformance did not continue
into the following three quarters in all of which the portfolio
underperformed, albeit marginally in the fourth quarter. All this resulted in
the full-year NAV return of 24.5% versus the index’s 18.3% – a very
pleasing result.
Less pleasing was the persistent discount at which the shares traded relative
to their NAV. At times the discount was in double figures and for the year as
a whole, it averaged about 7.1%. In reaction to this, and to accrete to
shareholders’ NAV, the Board instigated a buy-back programme. Shares to the
value of nearly £10 million (excluding costs) were purchased during the
period and placed in treasury. At 31 December 2021, the discount was 7.8%.
Encouragingly, after the year end the discount narrowed to between 1% and 2%,
but the terrible events in Ukraine have created such market volatility that it
has recently widened again.
Portfolio
The change of Investment Manager in 2020, along with elevated market
volatility, saw a period of increased trading. As detailed in the Investment
Manager’s Report below, by comparison there was very limited trading during
the year under review.
Dividend
During the year the Company paid four interim dividends amounting to 39.5p.
This compares to a dividend of 38.5p in the previous year (an increase of
2.6%). Although this did require a contribution from revenue reserves, it
nonetheless represents a return to the previous pattern of annual dividend
increases.
The Company saw a significant increase in income compared to 2020, receiving
over £30.7 million, as investee companies resumed paying dividends following
numerous suspensions and reductions in the early stages of the pandemic.
The Board does not intend to recommend a final dividend.
Gearing
At the year-end, gearing (net of cash and related liquid assets) was 6.5% and
the level of gearing remained stable throughout the year.
Purpose and Culture
The purpose of the Company is to deliver long-term returns for shareholders
from a diversified portfolio of investments. These investments will primarily
be UK listed.
As an investment trust, the Company has no employees, but the culture of the
Board is to promote strong governance and a long-term investment outlook with
an emphasis on investing in businesses that can deliver sustainable value to
shareholders. Therefore, the Board asks the Company’s Investment Manager to
invest in stocks that fulfil the traditional metrics of the value style and
possess a business model that is sustainable in the long term.
Environmental, Social & Governance (“ESG”) and Stewardship Issues
The Board believes that ESG issues can be a material factor in determining the
valuation of a company. Bad practice can have a negative impact on society
which could in time threaten a company’s social licence to operate and
therefore detract from investors’ capital.
The Board embraces the concept of active stewardship, asking the Investment
Manager to monitor, evaluate and actively engage with investee companies with
the aim of preserving or adding value to the portfolio. Further, conscious
that on some issues, particularly globally catastrophic negative
externalities, one manager acting alone can have limited effect, the Board
asks the Investment Manager to collaborate with other investors in working
with investee companies. The Investment Manager reports back to the Board
regularly on engagement in these specific areas.
The Board
There were no changes to the Board during the year. However, the Board is
pleased to welcome Charles Cade, as a new non-executive Director and member of
the Audit and Risk, Management Engagement and Nomination Committees, with
effect from 24 March 2022. He brings a wealth of experience and expertise, not
just in investment trusts, but in investment generally. The Board continues to
operate efficiently and demonstrates great diversity of gender, ethnicity,
knowledge and experience. As stated in previous annual reports, this will be
the last Annual General Meeting ("AGM") at which I will offer myself for
re-election. In line with best practice, the Board’s policy remains that
Directors should serve a maximum of nine years. Only in exceptional
circumstances will any Director serve more than this.
Share Split
The Board has been advised that a share split would help liquidity in the
market and be helpful to shareholders who invest on a regular basis or who
re-invest their dividends. Accordingly, as described in Resolution 10, the
Board is recommending a five for one division. This should have no effect on
the overall value of your holding.
Directors’ Fees
As presaged in my statement in the half-year report for the six months ended
30 June 2021, in the autumn the Board reviewed the level of Directors’ fees.
A study was commissioned from Trust Associates, an independent investment
trust advisory business, to establish the level of comparable investment
trusts’ directors’ fees. Following this analysis, the Board concluded that
it would be appropriate to set Directors’ fees at the anticipated 2022
average of comparable vehicles. Full details of the new fees are given in the
full Annual Report & Financial Statements.
AGM
The AGM this year will be held at Verde 8th Floor, 10 Bressenden Place, London
SW1E 5DH on Tuesday, 10 May 2022 at 12.30pm. Unlike last year, shareholders
are welcome to attend in person where you will be able to hear a presentation
from the Portfolio Managers Nick Purves and Ian Lance. Shareholders unable to
attend are invited to submit their form of proxy in advance by 12.30pm on
Friday, 6 May 2022 at the latest. Should circumstances or Government guidance
change, including the introduction of regulations to prohibit or restrict
public gatherings, the Company reserves the right to take further steps in
respect of AGM attendance. To the extent this is necessary, we will provide an
update via a Regulatory Information Service announcement and our website as
soon as practicable.
Outlook
The last two years have taught us how dangerous it is to make any prediction
about future events. The dreadful events unfolding in Ukraine painfully
underline this point. Nevertheless, the UK market would appear still to be
very cheap relative to its overseas counterparts. This valuation discount
could well narrow.
Arthur Copple
Chairman
23 March 2022
INVESTMENT MANAGER’S REVIEW
”Our investment approach has always been to seek out fundamentally sound
businesses which by virtue of their market positions can grow their profits
over the long term, but where for one reason or another the shares are
modestly valued as a low starting valuation ensures that shareholders benefit
fully from improved profit growth, whilst often in the meantime drawing an
attractive income.”
Equity markets delivered strong returns in 2021, driven higher by a sharp
rebound in economic growth, a corresponding recovery in corporate
profitability, and large quantities of both fiscal and monetary stimulus.
Whilst the reflation narrative was challenged by the emergence of both the
Delta and Omicron COVID-19 variants, investors came firmly to the view that
the worst of the adverse economic effects of COVID-19 were behind us. The
recovery was sufficiently vigorous that corporate earnings made up the ground
lost in 2020 with the result that those earnings returned to record levels.
Unsurprisingly perhaps, commodity prices were also strong in 2021, with Brent
Oil rising around 50% and copper around 30%.
The Company’s portfolio performed well in 2021, continuing the sharp rebound
that started at the end of 2020, when it was announced that vaccines would be
largely successful in reducing severe illness from the virus. Top contributors
to the Company’s portfolio return in the year included: Royal Mail (+3.3%),
Marks & Spencer Group (+2.8%), Shell (+2.1%) and NatWest Group (+1.7%); from a
total absolute return on net assets of +24.5%.
After several years of sluggish sales, declining productivity, and falling
profits, Royal Mail looks to have turned a corner. The company was a
beneficiary of the pandemic, seeing a meaningful increase in parcel volumes.
This, coupled with improved labour relations, has resulted in a sharp rebound
in earnings. We continue to see significant unrealised profit potential in the
company’s UK business, which combined with continued growth in the
company’s overseas operations should result in meaningful profit growth from
here. Despite the strong recovery in the share price in 2021, the stock market
still applies little or no value to the company’s UK operations.
At Marks & Spencer Group, there are signs that the recent overhaul of the
business is really starting to bear fruit. In online food, the Ocado joint
venture has been a significant success, whilst in store-based food the company
is taking advantage of its niche to grow market share. Even in the troubled
clothing business, performance has started to improve. In online clothing, the
company is outgrowing its competitors and is now number two in the UK by
market share. The company has a target that 40% of its clothing sales will be
online within three years. The improved operating performance has led to
significant upgrades to profit expectations and yet, despite the strong share
price performance, the stock market continues to ascribe no value to the
company’s clothing operations.
The Company holds three energy names: Shell, BP and TotalEnergies, which
collectively added over 5% to the Company’s portfolio investment return in
2021. All benefitted from the sharp upward move in oil and gas prices, coupled
with low starting valuations. Whilst we don’t attempt to predict oil or gas
prices, we were not surprised by the upward move in 2021 given that demand for
fossil fuels bounced back strongly after a period in which industry investment
had been significantly curtailed. Some of this reduction in investment was no
doubt an ongoing response to the weakness in energy prices in 2015/2016 and
2020, and some will have resulted from the sector’s desire to fund increased
investment in green energy; however, the upshot is that when strong demand
meets restricted supply, prices normally increase.
Again, despite the recent strength in share prices, sector valuations continue
to be attractive. Shell is the world’s largest privately owned gas producer.
Nevertheless, its enterprise value is around $250 billion at the end of 2021,
the entirety of which can be accounted for by the company’s so-called
transition assets (Gas Production, Marketing and Renewables), even though
these assets currently account for less than 50% of group profits. Assigning
even a modest valuation to the remaining assets (Upstream, Refining and
Chemicals) suggests significant upside to the share price. Meanwhile, BP is
valued at around 9x shareholder free cash flow (after all investment but
before dividends) assuming Brent oil prices of just $60 per barrel,
significantly below where oil prices sit today. All three companies have set
out ambitious but credible plans to get to net zero carbon emissions by 2050
and, whilst it will no doubt be a challenge, we believe that these companies
can therefore play a significant part in the forthcoming energy transition.
In the banking sector, the Company has exposure to four names: NatWest Group,
Barclays, Citigroup and Standard Chartered. These companies collectively added
over 4% to the portfolio’s return in 2021. We have for some time believed
that the stock market is not giving enough credit to the banks for the very
profound changes that the companies have made over the last few years. Their
capital strength is much improved on where it was even a few years ago and
lending standards are much better than they were. Whilst ultra-low interest
rates have suppressed interest margins and have therefore been unhelpful, the
banks have been using the benefits of technology to engineer cost out of their
businesses. As a result, even assuming no pick up in interest rates, the
companies are confident that they can deliver a 10% return on shareholder
equity, as stated in their investor presentations. Nevertheless, the stock
market has remained sceptical and many in the sector have continued to be
valued at meaningful discounts to the value of that shareholder equity. Whilst
the continued low level of loan losses and the spectre of rising interest
rates were helpful for share prices in 2021, the companies continue to be
valued at just mid-to-high single-digit multiples of earnings. In our view,
therefore, the sector continues to be undervalued.
Pearson, easyJet and Capita all marginally detracted from portfolio returns in
the year. easyJet has continued to be disrupted by COVID-19 induced lockdowns
and has continued to burn through its cash reserves, albeit at a much-reduced
rate. Pre-COVID-19, the company had no net financial debt on its balance
sheet; however, its finances have since been undermined by cash losses that
have accumulated over the last two years. Unsurprisingly therefore, last year
the company took the decision to issue fresh equity and, whilst this restored
the company’s balance sheet to health, it was dilutive to existing
shareholder returns. Pearson has continued to struggle with the transition
from physical print textbooks to a digital offering in its North American
Higher Education business and although this journey is proving to be
protracted and damaging to group profitability, we continue to believe that
educational publishing is an attractive business offering the prospect of
healthy returns. Accordingly, during the year, we used share price weakness to
add to Temple Bar’s holding in the company. Likewise, the turnaround at
Capita is proving more challenging than we had originally hoped. Nevertheless,
we continue to believe that there is significant unrealised potential in the
business, at a time when understandable scepticism in the stock market means
that the shares are valued at a mid-single digit multiple of our conservative
view of the company’s medium-term profit potential. Although Capita has been
a poor investment for the Company, we think that ultimately patience will be
rewarded in this instance.
We are long-term investors, who recognise the importance of keeping
transaction costs to a minimum. At times of major stock market dislocation,
such as that seen in 2020, we will rotate portfolios more aggressively to try
and take advantage of other investors’ willingness to sell reasonable
businesses at knock-down prices. More normally however, shareholders should
expect that portfolio turnover will be low. This was the case in 2021, with
just under £300 million of notional value trade. We established no new
positions in the year although we did exit the Company’s positions in
GlaxoSmithKline and Tesco in order to take advantage of what we believed were
better opportunities elsewhere.
For some time now, UK equities have traded at a significant discount to other
stock markets, and this resulted in high levels of corporate activity as
overseas buyers sought to take advantage of this disconnect. Consequently,
during the year the Company benefitted from the takeover of Royal & Sun
Alliance Insurance (by an overseas competitor) and WM Morrison (by private
equity), both at large premiums to the previously prevailing share price.
Our investment approach has always been to seek out fundamentally sound
businesses which by virtue of their market positions can grow their profits
over the long term, but where for one reason or another the shares are
modestly valued. This may be because the company is underperforming its
longer-term potential (Marks & Spencer Group) or because of a lack of interest
or neglect (Shell). Either way, a low starting valuation looks to ensure that
shareholders benefit fully from improved profit growth, whilst often in the
meantime drawing an attractive income. Companies with low valuations also have
a greater potential to re-rate as investor perceptions improve, further adding
to investment returns. We believe investors should learn the lesson of stock
market history which is that the starting valuation has proven to be the best
predictor of investment return over time.
As we write, the economic outlook is particularly unclear. Following
Russia’s invasion of Ukraine, commodity prices have increased very
dramatically and this will squeeze corporate profit margins whilst
acting as a tax on consumers, thereby reducing their spending power. It is
possible and maybe even likely that Europe and the US are on the verge of
another recession, putting renewed short-term pressure on corporate profits.
The direct effect of the Ukraine conflict on the holdings in the portfolio are
largely limited to the holdings in the Energy companies. In response to the
crisis, BP has announced that it will be selling its 20% holding in Rosneft,
thereby ceasing its involvement with Russia.
We have assumed that the company will not receive anything in consideration
for its stake and yet the company estimates that the annual hit to corporate
cash flow is likely to be in the order of just 5%. Shell has announced it will
exit its joint venture with Gazprom, including its stake in a liquefied
natural gas facility. At the end of 2021, Shell had around $3 billion in
non-current assets in these ventures in Russia and likewise will now cease its
exposure to Russia. TotalEnergies has a 19% holding in NovaTek, a Russian
producer of natural gas. The company has said that it will not supply capital
to any new projects that NovaTek undertakes.
The stock market is a discounting mechanism and therefore some companies in
the portfolio have already seen their share prices fall as investors attempt
to price in increased risks in the short term. However, it is important to
remember that a share represents a claim on a long-term stream of cash flows
and therefore, a temporary reduction in those cash flows because of an
economic downturn does very little to alter the long-run intrinsic value of a
business.
In our minds, this serves to highlight the importance of investing for the
long term (five years plus) in financially strong but lowly valued companies,
where profits can grow, and any set back is likely to prove temporary. In this
report we have attempted to highlight the undervaluation that exists in some
of the Company’s largest holdings. It is our belief that if we are roughly
correct in our view of the potential of these businesses then, despite the
inherent economic uncertainties of today, patient shareholders are likely to
be rewarded with outsized investment returns over the coming years.
Ian Lance and Nick Purves
Redwheel
23 March 2022
PRINCIPAL AND EMERGING RISKS
The Board has overall responsibility for reviewing the effectiveness of the
system of risk management and internal control which is operated by the
Investment Manager and the Company’s other service providers. The
Company’s ongoing risk management process is designed to identify, evaluate
and mitigate the significant risks that the Company faces.
The Board undertakes a risk review with the assistance of the Audit and Risk
Committee, to assess the adequacy and effectiveness of the Investment Manager
and other service providers’ risk management and internal control processes.
The Board has carried out a robust assessment of its principal and emerging
risks during the period under review, including those that would threaten its
business model, future performance, solvency or liquidity.
The principal and emerging risks and uncertainties faced by the Company are
set out below. The risks arising from the Company’s financial instruments
are set out in note 22 in the full Annual Report & Financial Statements.
RISK MITIGATION AND MANAGEMENT
INVESTMENT STRATEGY RISK An inappropriate investment strategy on matters such as asset allocation or the level of gearing may lead to underperformance compared with the Company’s benchmark index or peer companies. The Board manages such risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on by the Investment Manager. The AIFM also monitors Redwheel against the investment guidelines. The Investment Manager provides the Directors with regular management information including absolute and relative performance data, attribution analysis, revenue estimates, liquidity reports and risk profile. The Board monitors the implementation and results of the investment process with the Portfolio Managers who attend Board meetings. During the year under review, the portfolio performed well relative to the benchmark index. Further details can be found on page in the full Annual Report & Financial Statements.
LOSS OF INVESTMENT TEAM OR PORTFOLIO MANAGER A sudden departure of the Portfolio Managers or several members of the investment management team could result in a short-term deterioration in investment performance. The investments of the Company are managed by a team of two Portfolio Managers, Ian Lance and Nick Purves. The Investment Manager takes steps to reduce the likelihood of such an event by aligning the interests of the investment team with the wider organisation, as well as a high degree of autonomy with no overarching chief investment officer or investment committee. Furthermore, the AIFM, in consultation with the Board, may terminate the Investment Management Agreement should Ian Lance and Nick Purves cease to be able to perform their duties as Portfolio Managers or cease to be associated with the Investment Manager and not be replaced by people with relevant experience. The Board previously demonstrated its ability to effect change, while the current service provider model with an independent AIFM makes the future removal of an investment manager more straightforward.
INCOME RISK – DIVIDEND Generating the necessary level of income from portfolio investments to meet the Company’s expenses and to provide adequate reserves from which to base a sustainable programme of increasing dividend payments to shareholders is subject The Board monitors this risk through the receipt of detailed income reports and forecasts which are considered at each meeting. As at 31 December 2021 the Company had distributable revenue reserves of £11.7 million. Furthermore, income risk is mitigated by the Company’s ability to distribute realised capital gains if required to meet any revenue shortfall. As investee company dividend payments began to recover in 2021, the Board again reviewed its approach and decided to maintain the Company’s own dividend at a similar level, from which it hopes to resume dividend growth in due course without recourse to reserves.
to the risk that income generation from investments fails to meet the level required.
SHARE PRICE RISK Should the market price of the Company’s ordinary shares trade at a significant discount to the underlying NAV per share, shareholders might not be able to realise the full value of their investment and the Company might itself be The Company’s share price and premium or discount to NAV are monitored by the Investment Manager and the Board on a regular basis. The Directors attach considerable importance to the level of premium or discount to NAV at which the shares trade, both in absolute terms and relative to the rating at which the UK Equity Income sector of investment trusts is trading. Premiums judged to be excessive will be addressed by repeated share issues, either new or from treasury. Discounts judged to be excessive will be addressed by repeated share buy backs, for treasury or cancellation. The Directors are prepared to be proactive in premium/discount management to minimise potential disadvantages to shareholders, as was demonstrated in the fourth quarter of 2021.
vulnerable to some form of corporate activity.
RELIANCE ON THE INVESTMENT MANAGER AND OTHER SERVICE PROVIDERS The Company has no employees and relies on a number of third-party service providers, principally the Investment Manager, AIFM, Company Secretary, Registrar, Administrator, Custodian and The Company operates through a series of contractual relationships with its service providers. These agreements set out the terms on which a service is to be provided to the Company. During the year the Board, through the Management Engagement Committee, monitored and evaluated the performance of the Company’s service providers. The Committee meets at least once a year and receives and reviews submissions from its service providers regarding their interactions with each other, most notably the Investment Manager’s assessment of services provided by other providers. The Audit and Risk Committee receives assurance or internal controls reports from key service providers and in the year under review paid close attention to the continued risks posed by disruption due to the ongoing COVID-19 pandemic. The AIFM carries out a comprehensive annual due diligence exercise on the Investment Manager on behalf of the Board, ensuring that the appropriate controls, processes and resourcing are in place to manage the portfolio within the stated investment policies and guidelines.
Depositary. It is dependent on the effective operation of its service providers’ control systems with regard to the security of the Company’s assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements.
COMPLIANCE WITH LAWS AND REGULATIONS In order to qualify as an investment trust the Company must comply with Section 1158 of the Corporation Tax Act 2010. Were the Company to breach Section 1158 it might lose investment trust status and, as a consequence, Compliance with investment trust status regulations is reviewed at each Board meeting. The Board reviews compliance with other regulatory, tax and legal requirements and is kept informed of forthcoming regulatory changes.
inter alia, realised gains within the Company’s portfolio would be subject to capital gains tax. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the Listing Rules. A
breach of the Companies Act 2006 could result in the Company being fined or subject to criminal proceedings. Breach of the Listing Rules could result in the Company’s shares being suspended from listing which in turn would breach Section 1158. This risk
would be exacerbated by inadequate resources or insufficient training within the Company’s third-party service providers leaving them unable to properly manage compliance with current and future requirements. The Company’s business model could become non
-viable as a result of new or revised rules or regulations arising from, for example, policy change or financial monitoring pressure.
CYBER SECURITY The Company has limited direct exposure to cyber risk. However, the Company’s operations or reputation could be affected if any of its service providers suffered a major cyber security breach. A State-backed cyber attack could also result The Audit and Risk Committee receives control reports and confirmation from its service providers regarding the measures that they take in this regard. The cyber security policies of all providers have also been reviewed by the Board. For more widespread disruption such as a State-backed cyber attack limited mitigation is possible, however all service providers remain vigilant given the increased likelihood of such an event in the current climate.
in widespread disruption across the financial services industry.
GLOBAL Unforeseen global emergencies such as a pandemic could lead to dramatically increased market and Company share-price volatility. Fraud and cyber security vulnerability could increase for key service providers. During 2021, the world continued to adjust to the realities of life with COVID-19 and saw news of a succession of variants to the virus. With vaccines and boosters now largely a normal part of everyday life, at least in the Developed World, the impact to both global markets and the Company itself has been minimal. While market volatility has seen short-term spikes on the back of news regarding new variants or the efficacy of existing vaccines, overall portfolio performance has remained stable and company dividends continue to recover in line with the wider economy. The experiences of COVID-19 have evidenced the ability of both the Company and its service providers to react to severe global emergencies and to continue to manage shareholder assets with minimal disruption. Remote working is now widespread and seamless, allowing a switch away from using centralised office locations at any time if Government guidance requires it. Cyber security policies have been reviewed and strengthened to react to the new environment and no major incidents or outages have been experienced during the pandemic.
EMERGING RISKS
The Board has in place a robust process to identify, assess and monitor the
principal risks and uncertainties and also to identify and evaluate newly
emerging risks. The Board, through the Audit and Risk Committee, regularly
reviews all risks to the Company, including emerging risks, which are
identified by a variety of means, including advice from the Company’s
professional advisors, the Association of Investment Companies (the
“AIC”), and Directors’ knowledge of markets, changes and events. The
following new or emerging risks were identified and reviewed during the year:
i) Following the COVID-19 pandemic in 2020 and the huge disruption it caused
both to everyday life and financial markets across the world, the risk of new
global pandemics must now be considered an ever-present emerging risk.
Indeed, epidemiologists and health organisations are already searching for the
next possible candidate, which could originate from a number of different
sources. Human interactions with animals as well as their integration into the
food system, and ancient pathogens uncovered in melting permafrost caused by
climate change are two such areas of concern. When these factors are combined
with ever-increasing global travel and trade, a follow-up pandemic of equal or
greater severity at some point in the future cannot be discounted.
ii) The impact of climate change came increasingly into focus in 2021 and its
impact is now considered by both the Board and its Investment Manager as an
emerging risk to the Company.
While the Company itself faces limited direct risk from climate change, the
same is not the case for the underlying investments selected by the
Company’s Investment Manager. Significant changes in climate, or indeed
Government measures taken to combat it, could present a material risk to the
value of investments held and therefore the NAV of the Company. This is
addressed by the incorporation of ESG considerations into the investment
process of Redwheel, as part of the drive to invest in companies with
long-term viability.
The Investment Manager also uses its voting powers to engage with and
influence companies towards taking positive steps against climate change and
other environmental impacts.
iii) While it took place after the end of the period under review, the tragic
recent events in Ukraine also highlight the risks that geopolitics and armed
conflict can present to the Company. While the Company did not hold Russian
investments, either via local equities or through depository receipts traded
internationally, the impact of sanctions and exposure via the underlying
businesses of multinational companies can have a material impact on investment
returns. The Investment Manager complies with all sanctioning regimes and
presently views Russia as uninvestable, while both the Board and Redwheel echo
global calls for an urgent return to peace in the region.
GOING CONCERN
The Directors have reviewed the going concern basis of accounting for the
Company. The Company’s assets consist substantially of equity shares in
listed companies and in most circumstances are realisable within a short
timescale. The use of the going concern basis of accounting is appropriate
because there are no material uncertainties related to events or conditions
that may cast significant doubt about the ability of the Company to continue
as a going concern. The Directors therefore have a reasonable expectation that
the Company has adequate resources to continue in operational existence for a
period of at least 12 months from the date of the approval of these financial
statements. Accordingly, the Directors continue to adopt the going concern
basis in preparing the accounts. See note 1 in the full Annual Report &
Financial Statements for further detail.
VIABILITY STATEMENT
The Board makes an assessment of the longer-term prospects of the Company
beyond the timeframe envisaged under the going concern basis of accounting,
having regard to the Company’s current position and the principal and
emerging risks and uncertainties it faces. The AIFM and Investment Manager
have assisted the Board in making this assessment via financial modelling and
income forecasting, which demonstrates the financial viability of the Company.
Stress-testing scenarios, such as an extreme drop in equity markets, have also
been carried out and the projected financial position remains strong and all
payment obligations meetable.
The stress-testing scenarios used to assess future viability incorporate a
number of inputs. The financial structure of the Company is stable, with known
payment obligations that can be modelled for future years with a low
likelihood of any changes. Revenue expectations are modelled by the Investment
Manager for future years with decreasing levels of certainty over time, based
on the financial position and performance of investee companies. This is
combined with an expectation of the rate of dividend payments to be made by
the Company over the coming years to give an overall financial projection in
normal market conditions.
To stress-test this projection, scenarios are then modelled for a 20% and 50%
fall in both investee company valuations and the level of dividend payments
made. In both cases, because the Company has both the ability to control its
own dividend payments and a liquid portfolio of investments, the impact to
reserves could be managed and the Company would remain viable during such
periods. This was demonstrated during 2020 when markets reacted negatively to
the onset of the COVID-19 pandemic.
The Company is a long-term investment vehicle and the Directors, therefore,
believe that it is appropriate to assess its viability over a long-term
horizon. For the purposes of assessing the Company’s prospects in accordance
with the AIC Code of Corporate Governance (the “AIC Code”), the Board
considers that assessing the Company’s prospects over a period of five years
is appropriate given the nature of the Company and the inherent uncertainties
over a longer time period.
The Directors believe that a five-year period appropriately reflects the
long-term strategy of the Company and over which, in the absence of any
adverse change to the regulatory environment and the favourable tax treatment
afforded to UK investment trusts, they do not expect there to be any
significant change to the current principal and emerging risks and to the
adequacy of the mitigating controls in place.
In assessing the viability of the Company, the Directors have conducted a
thorough assessment of each of the Company’s principal and emerging risks
and uncertainties set out above. Particular scrutiny was given to the impact
of a significant fall in equity markets on the value of the Company’s
investment portfolio.
The Directors have also considered the Company’s leverage and liquidity in
the context of its long-dated fixed-rate borrowings, its income and
expenditure projections and the fact that the Company’s investments comprise
mainly readily realisable quoted securities which can be sold to meet funding
requirements if necessary. As a result, the Directors do not believe that
there will be any impact on the Company’s long-term viability.
All of the key operations required by the Company are outsourced to
third-party providers and alternative providers could be secured at relatively
short notice if necessary.
Having taken into account the Company’s current position and the potential
impact of its principal and emerging risks and uncertainties, the Directors
have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due for a period of five years
from the date of this Annual Report.
PORTFOLIO OF INVESTMENTS
AS AT 31 DECEMBER 2021
COMPANY INDUSTRY PLACE OF PRIMARY LISTING VALUATION £000 % OF PORTFOLIO
1. Royal Mail Industrials UK 61,358 7.2
2. Marks & Spencer Group Consumer Services UK 60,243 7.0
3. BP Oil & Gas UK 51,440 6.0
4. Shell Oil & Gas UK 48,272 5.6
5. Anglo American Basic Materials UK 47,851 5.6
6. NatWest Group Financials UK 45,506 5.3
7. TotalEnergies Oil & Gas France 38,284 4.5
8. Centrica Utilities UK 37,324 4.3
9. WPP Consumer Services UK 35,195 4.1
10. Aviva Financials UK 35,049 4.1
Top Ten Investments 460,522 53.7
11. Standard Chartered Financials UK 34,291 4.0
12. ITV Consumer Services UK 33,124 3.9
13. Pearson Consumer Services UK 29,063 3.4
14. Barclays Financials UK 28,383 3.3
15. Currys Consumer Services UK 26,398 3.1
16. HP Technology USA 24,094 2.8
17. Citigroup Financials USA 24,001 2.8
18. Forterra Industrials UK 23,594 2.7
19. Vodafone Group Telecommunications UK 22,778 2.7
20. BT Group Telecommunications UK 20,815 2.4
Top 20 Investments 727,063 84.8
21. easyJet Consumer Services UK 18,838 2.2
22. Capita Industrials UK 18,239 2.1
23. Newmont Basic Materials USA 15,871 1.9
24. Kingfisher Consumer Services UK 15,683 1.8
25. Honda Motor Consumer Goods Japan 13,172 1.6
26. CK Hutchison Holdings Industrials Hong Kong 12,531 1.5
27. Continenta Consumer Goods Germany 11,204 1.3
28. Barrick Gold Basic Materials Canada 10,389 1.2
29. Sprott Physical Silver Trust Financials USA 5,128 0.6
30. Vitesco Technologies Group Consumer Goods Germany 1,032 0.1
Total Equity Investments 849,150 99.1
Short-dated UK Gilts 7,944 0.9
Total Valuation of Portfolio 857,094 100.0
PORTFOLIO DISTRIBUTION
AS AT 31 DECEMBER 2021
INDUSTRY TEMPLE BAR % FTSE ALL-SHARE %
1. Consumer Services 25.2 11.9
2. Financials 19.9 25.9
3. Oil & Gas 15.9 7.9
4. Industrials 13.3 13.4
5. Basic Materials 8.5 9.3
6. Telecommunications 5.0 2.0
7. Utilities 4.3 3.3
8 Consumer Goods 2.9 14.9
9. Technology 2.8 1.6
10. Healthcare - 9.8
Total Equities 97.8 100.0
11. Fixed Interest 0.9
12. Cash 1.3
100.0
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report & Financial
Statements in accordance with UK-adopted international accounting standards
and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
company financial statements in accordance with UK-adopted international
accounting standards. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss for the
Company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether they have been prepared in accordance with UK-adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
* prepare a Directors’ report, a strategic report and Directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
Annual Report & Financial Statements, taken as a whole, are fair, balanced,
and understandable and provides the information necessary for shareholders to
assess the Company’s position and performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report & Financial
Statements are made available on a website. Financial statements are published
on the Company’s website in accordance with legislation in the UK governing
the preparation and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity of the
Company’s website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors’ responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
* the financial statements have been prepared in accordance with the
applicable set of accounting standards give a true and fair view of the
assets, liabilities, financial position and profit of the Company; and
* the Annual Report includes a fair review of the development and performance
of the business and the financial position of the Company, together with a
description of the principal risks and uncertainties that it faces.
On behalf of the Board
Arthur Copple
Chairman
23 March 2022
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company’s
statutory accounts for the year ended 31 December 2021 but is derived from
those accounts. Statutory accounts for the year ended 31 December 2021 will be
delivered to the Registrar of Companies in due course. The Independent Auditor
has reported on those accounts; its report was (i) unqualified, (ii) did not
include a reference to any matters to which the Independent Auditor drew
attention by way of emphasis without qualifying its report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
The text of the Independent Auditor’s Report can be found in the Company’s
full Annual Report & Financial Statements.
STATEMENT OF COMPREHENSIVE INCOME
2021 2020
Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000
Investment Income 27,721 3,026 30,747 12,687 - 12,687
Other operating income - - - 6 - 6
27,721 3,026 30,747 12,693 - 12,693
Profit/(losses) on investments
Profit/(losses) on investments held at fair value through profit and loss - 133,841 133,841 - (277,554) (277,554)
Currency exchange (loss)/gain - (12) (12) - 90 90
Total income/(loss) 27,721 136,855 164,576 12,693 (277,464) (264,771)
Expenses
Management fees (1,031) (1,546) (2,577) (1,052) (1,497) (2,549)
Other expenses (1,022) (369) (1,391) (943) (3,726) (4,669)
Profit/(loss) before finance costs and tax 25,668 134,940 160,608 10,698 (282,687) (271,989)
Finance costs (1,267) (1,901) (3,168) (1,977) (2,963) (4,940)
Profit/(loss) before tax 24,401 133,039 157,440 8,721 (285,650) (276,929)
Tax (664) - (664) (331) - (331)
Profit/(loss) for the year 23,737 133,039 156,776 8,390 (285,650) (277,260)
Earnings per share (basic and diluted) 35.57p 199.35p 234.92p 12.55p (427.15)p (414.60)p
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with IFRS. The supplementary revenue return and
capital return columns are both prepared under guidance issued by the AIC. All
items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
The Company does not have any income or expense that is not included in profit
for the year. Accordingly, the profit for the year is also the Total
Comprehensive Income for the year, as defined in IAS1 (revised).
STATEMENT OF CHANGES IN EQUITY
Ordinary share capital £000 Share premium account £000 * Restated capital reserves realised £000 * Restated capital reserves unrealised £000 Retained earnings £000 Total equity £000
Balance at 1 January 2020 16,719 96,040 667,300 167,943 37,121 985,123
Total comprehensive (loss)/income for the year - - (119,895) (165,755) 8,390 (277,260)
Contributions by and distributions to owners
Transaction cost restatement adjustment - - 13,851 (13,851) - -
Dividends paid to equity shareholders - - - - (32,527) (32,527)
Balance at 31 December 2020 16,719 96,040 561,256 (11,663) 12,984 675,336
Total comprehensive income for the year - - 8,859 124,180 23,737 156,776
Contributions by and distributions to owners
Cost of shares bought back for treasury - - (10,016) - - (10,016)
Dividends paid to equity shareholders - - - - (25,013) (25,013)
Balance at 31 December 2021 16,719 96,040 560,099 112,517 11,708 797,083
As at 31 December 2021, the Company had distributable revenue reserves of
£11,708,000 (2020: £12,984,000) and distributable realised
capital reserves of £560,099,000 (2020: £561,256,000*) for the payment of
future dividends. The only distributable reserves are the retained earnings
and realised capital reserves.
* A restatement of the realised capital reserves and unrealised capital
reserves has been presented for the year ended 31 December 2020. The
restatement increases the distributable capital reserve by £13,851,000 and
reduces the non-distributable unrealised capital reserve by £13,851,000.
There is no impact to the Statement of Financial Position. See note 12a in the
full Annual Report & Financial Statements for further details.
STATEMENT OF FINANCIAL POSITION
31 December 2021 31 December 2020
£000 £000 £000 £000
Non-current assets
Investments held at fair value through profit or loss 849,150 718,423
Current assets
Investments held at fair value through profit or loss 7,944 55,193
Cash and cash equivalents 11,626 14,217
Receivables 5,172 2,466
24,742 71,876
Total assets 873,892 790,299
Current liabilities
Payables (2,138) (1,675)
Interest bearing borrowings - (38,654)
Total assets less current liabilities 871,754 749,970
Non-current liabilities
Interest bearing borrowings (74,671) (74,634)
Net assets 797,083 675,336
Equity attributable to equity holders
Ordinary share capital 16,719 16,719
Share premium 96,040 96,040
Capital reserves 672,616 549,593
Retained revenue earnings 11,708 12,984
Total equity attributable to equity holders 797,083 675,336
Net asset value per share 1,208.59p 1,009.88p
The financial statements of Temple Bar Investment Trust Plc (registered
number: 00214601) were approved by the Board of Directors and authorised for
issue on 23 March 2022. They were signed on its behalf by:
Arthur Copple
Chairman
STATEMENT OF CASH FLOWS
31 December 2021 31 December 2020
£000 £000 £000 £000
Cash flows from operating activities
Profit/(loss) before tax 157,440 (276,929)
Adjustments for:
Gains/(losses) on investments (133,841) 277,554
Finance costs 3,168 4,940
Dividend income (30,761) (12,558)
Interest income 14 (135)
Dividends received 28,065 13,362
Interest received 932 1,223
Increase in receivables (276) (139)
Increase/(decrease) in payables 69 (230)
Overseas withholding tax suffered (664) (331)
(133,294) 283,686
Net cash flows from operating activities 24,146 6,757
Cash flows from investing activities
Purchases of investments (124,529) (1,061,110)
Sales of investments 174,213 1,094,811
Net cash flows from investing activities 49,684 33,701
Cash flows from financing activities
Repayment of borrowing (38,000) -
Equity dividends paid (25,013) (32,527)
Interest paid on borrowings (3,818) (4,863)
Shares bought back for treasury (9,590) -
Net cash flows used in financing activities (76,421) (37,390)
Net (decrease)/increase in cash and cash equivalents (2,591) 3,068
Cash and cash equivalents at the start of the year 14,217 11,149
Cash and cash equivalents at the end of the year 11,626 14,217
21 RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER
IAS 24 ‘Related party disclosures’ requires the disclosure of material
transactions between the Company and any related parties. Accordingly, the
disclosures required are set out below:
Directors – The remuneration of the Directors is set out in the Report on
Directors’ Remuneration in the full Annual Report & Financial Statements.
There were no contracts existing during or at the end of the year in which a
Director of the Company is or was interested and which are or were significant
in relation to the Company’s business. There were no other material
transactions during the year with the Directors of the Company.
At 31 December 2021, there was £nil (2020: £nil) payable to the Directors
for fees and expenses.
AIFM and Investment Manager – On 30 October 2020, Link Fund Solutions
Limited was appointed the AIFM of the Company and has delegated portfolio
management to Redwheel, who is deemed to be Key Management Personnel for the
purposes of disclosing related party information under IAS24. Details of the
services provided by the Investment Manager are given in the full Annual
Report & Financial Statements. Fees of £1,593,000 were accrued during the
year (2020: £nil). Prior to 30 October 2020, these roles were carried out by
Ninety One and the fees paid for these services are set out in the full Annual
Report & Financial Statements.
23 POST BALANCE SHEET EVENTS
Subsequent to the year end and up to the date of this Annual Report, the
Company bought back 9,300 ordinary shares for treasury, at a total cost of
£108,667, representing 0.01% of the issued share capital as at 31 December
2021.
On 15 February 2022, the Board approved a fourth interim dividend for the year
ended 31 December 2021, of 10.25 pence per ordinary share payable on 31 March
2022.
GLOSSARY OF TERMS
AIC
The Association of Investment Companies.
Benchmark
A comparative performance index.
Borrowing
Borrowing is the amount of finance taken out by the Company.
See net gearing
Discount*
The amount by which the market price per share of an investment trust is lower
than the net asset value per share. The discount is normally expressed as a
percentage of the net asset value per share.
Dividend
The portion of company net profits paid out to shareholders.
Dividends per ordinary share
Dividends per share paid or proposed for the financial year for Section 1158
purposes.
In 2021 there were three interim payments of 9.75p per share and a declared
fourth interim dividend of 10.25p per share, totalling 39.5p.
In 2020 there were two interim payments of 11.0p per share, one interim
payment of 8.25p per share and a declared fourth interim dividend of 8.25p per
share, totalling 38.5p.
FTSE All-Share Index
A comparative index that tracks the market price of the UK’s leading
companies listed on the London Stock Exchange. Covering around 600 companies,
including investment trusts, the name FTSE is taken from the Financial Times
and the London Stock Exchange, who are its joint owners.
Liquidity
The ease with which an asset can be purchased or sold at a reasonable price
for cash.
The gearing ratio as at 31 December 2021 is calculated as the ratio of the
Company’s borrowings of £74,671,000 (2020: £113,288,000) less cash and
cash equivalents (including gilts) of £19,570,000 (2020: £69,409,000),
divided by investments of £849,150,000 (2020: £718,423,000). The resultant
ratio of 6.5% can be seen in the summary of results on page in the full Annual
Reports & Financial Statements.
Net Gearing*
In accounting terms, gearing is the amount of a company’s total borrowings
divided by its shareholder funds. The gearing ratio as at 31 December 2021 is
calculated as the ratio of the Company’s borrowings of £74,671,000 (2020:
£113,288,000) less cash and cash equivalents (including gilts) of
£19,570,000 (2020: £69,409,000), divided by investments of £849,150,000
(2020: £718,423,000). The resultant ratio of 6.5% can be seen in the full
Annual Report & Financial Statements.
Peer Companies
Companies that operate in the same industry sector and are of similar size.
Premium*
The amount by which the market price per share of an investment trust exceeds
the net asset value per share. The premium is normally expressed as a
percentage of the net asset value per share.
Relative Performance
The return that an asset achieves over a period of time, compared to a
benchmark.
Share Buy back
When a company buys some of its own shares in the market, which may lead to a
narrowing of the discount to net asset value. It changes the company’s
debt-to-equity ratio and is a tax-efficient alternative to paying out
dividends.
Total Return*
Captures both the capital appreciation/depreciation of an investment as well
as the dividends generated over a holding period.
Return on Net Asset Value
Expressed in percentage terms, Morningstar’s calculation of total return is
determined each month by taking the change in monthly net asset value,
reinvesting all income, and dividing by the starting net asset value.
Reinvestments are made using the actual reinvestment net asset value.
The total returns account for management and administrative fees and other
costs taken out of assets.
Valuation
Determination of the value of a company’s stock based on earnings and the
market value of assets.
Value Investing
An investment strategy that aims to identify under-valued yet good quality
companies with strong cash flows and robust balance sheets, putting an
emphasis on financial strength.
Yield*
A measure of the income return earned on an investment. In the case of a share
the yield expresses the annual dividend payment as the percentage of the
market price of the share. In the case of a bond the running yield (or flat or
current yield) is the annual interest payable as a percentage of the current
market price. The redemption yield (or yield to maturity) allows for any gain
or loss of capital which will be realised at the maturity date.
* Alternative Performance Measures,
CORPORATE INFORMATION
DIRECTORS Arthur Copple – Chairman Lesley Sherratt – Senior Independent Director Richard Wyatt Shefaly Yogendra DEPOSITARY, BANKERS AND CUSTODIAN The Bank of New York Mellon (International) Limited One Canada Square London E14 5AL
ALTERNATIVE INVESTMENT FUND MANAGER Link Fund Solutions Limited 6th Floor 65 Gresham Street London EC2V 7NQ STOCKBROKER Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS
INVESTMENT MANAGER RWC Asset Management LLP Verde 4th Floor 10 Bressenden Place London SW1E 5DH SOLICITORS Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU
REGISTERED OFFICE Beaufort House 51 New North Road Exeter EX4 4EP INDEPENDENT AUDITOR BDO LLP 55 Baker Street London W1U 7EU
COMPANY SECRETARY Link Company Matters Limited Beaufort House 51 New North Road Exeter EX4 4EP REGISTRAR Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
FUND ADMINISTRATOR Link Alternative Fund Administrators Limited Beaufort House 51 New North Road Exeter EX4 4EP Telephone number s: +44 121 415 7047 (overseas shareholder helpline) 0371 384 2432 (shareholder helpline)* 0906 559 6025 (broker helpline) *Lines open 8.30 a.m. to 5.30 p.m., Monday to Friday.
TEMPLE BAR IDENTIFIERS ISIN (ordinary shares) – GB0008825324 SEDOL (ordinary shares) – 0882532 Legal Entity Identifier – 213800O8EAP4SG5JD323
REGISTERED NUMBER Registered in England Number 00214601
National Storage Mechanism
A copy of the Annual Report & Financial Statements will shortly be submitted
to the National Storage Mechanism (‘‘NSM’’) and will be available for
inspection at the NSM, which is situated at:
https://data.fca.org.uk/a/nsm/nationalstoragemechanism.
END
Neither the contents of the Company’s website nor the contents of any
website accessible from hyperlinks on this announcement (or any other website)
is incorporated into, or forms part of, this announcement.
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