REG-Temple Bar Investment Trust Plc: Annual Financial Report
04/04/2024 07:15
3 April 2024
Temple Bar Investment Trust Plc
(the “Company”)
This announcement contains regulated information
Annual Financial Report for the year ended 31 December 2023
Objective
The investment objective of Temple Bar Investment Trust Plc* is to provide
growth in income and capital to achieve a long-term total return greater than
the benchmark FTSE All-Share Index, through investment primarily in UK-listed
securities. The Company’s policy is to invest in a broad spread of
securities with the majority of the portfolio typically selected from the
constituents of the FTSE 350 Index.
Purpose
The purpose of the Company is to deliver long-term returns for shareholders
from a diversified portfolio of investments.
* “Temple Bar”, the “Trust” or the “Company”
Summary of Results
2023 2022 4 % change
NAV total return with debt at fair value 1,2,3 12.3% 0.9%
Share price total return 1,3 12.5% 3.6%
FTSE All-Share Index (the “Benchmark”) 4 7.9% 0.3%
Change in Retail Price Index over year 5 5.2% 13.4%
NAV per share with debt at book value 248.0p 228.5p 8.5%
NAV per share with debt at fair value 1,2 252.2p 233.5p 8.0%
Share price 238.0p 220.5p 7.9%
Discount of share price to NAV per share with debt at fair value 1 5.6% 5.6%
Dividends per share 9.60p 9.35p 2.7%
Dividend Yield 1 4.0% 4.2%
Net gearing with debt at book value 1 9.8% 8.4%
Ongoing charges 1 0.56% 0.54%
1 Alternative Performance Measure – See glossary of terms for definition
and more information.
2 Debt fair value is calculated based on unobservable input, see note 20.
3 Source: Morningstar.
4 Source: Redwheel.
5 Source: ons.gov.uk.
Chairman’s Statement
Review
In the year under review, I am pleased to report that the Trust’s Net Asset
Value total return with debt at fair value was +12.3%, outperforming the total
return on the FTSE All-Share Index of +7.9%. The share price total return was
slightly better at +12.5%.
Since Redwheel took over the management of the Trust at the end of October
2020, the Net Asset Value total return to the end of 2023 has been 86.7%
compared with 50.0% for the Benchmark, a significant outperformance. Although
annual metrics are of course important, the Board continues to focus primarily
on the Trust’s longer-term performance.
Capital
Challenging stock market conditions have continued to have a negative impact
on share price discounts across the investment company sector, with the
average level of discount standing at c.12.3%* for equity investment trusts,
compared to the Trust’s discount of 10.1% as at 2 April 2024. The Board has
continued with its active share buyback policy, purchasing 27,209,505 shares
to be held in treasury for a total consideration of £63.5m during the year.
These buybacks not only have the effect of stabilising the supply/ demand
balance but are also accretive to the Trust’s Net Asset Value, adding 1.4p
per share to our year-end Net Asset Value.
On 31 December 2023, there were 290,612,881 shares in issue (excluding the
43,750,944 shares held in treasury). Since this date to 2 April 2024, a
further 3,771,869 shares have been bought back for treasury, at a cost of
£8.9m.
Portfolio
Portfolio turnover^ increased in 2023, although remained comparatively low at
16.9% (2022: 7.2%) with our Portfolio Manager being generally satisfied with
the positioning of the portfolio.
Further details of the Portfolio Manager’s investment approach, portfolio
construction and significant contributors to and detractors from return in the
year can be found in the Portfolio Manager’s Report.
Dividend
Total dividends for the year amounted to 9.60p per share (2022: 9.35p per
share), an increase of 2.7% and representing a current yield of 4.0% This
increase has been supported by a marginal contribution from the Trust’s
distributable revenue reserves this year.
The Board closely monitors the Trust’s net revenue position and, based on
the latest forecasts, expects future annual dividends to increase from this
level over time.
Gearing
At the year end, the Trust’s net gearing was 9.8% (2022: 8.4%).
Environmental, Social & Governance (“ESG”) Issues
ESG matters continue to be an important priority for the Board and our
objective is to have full, transparent disclosure on the topic. The Board
continues to advocate the concept of active stewardship, requesting that our
Portfolio Manager monitors, evaluates and actively engages with investee
companies with the aim of preserving or adding value to the portfolio. The
Portfolio Manager reports back to the Board regularly on ESG related matters.
Further details can be found in the Portfolio Manager’s Report.
* Source: Cavendish Securities
^ See glossary for definition.
The Board
Lesley Sherratt, the Company’s Senior Independent Director and the Chair of
the Audit and Risk Committee, having served on the Board since 2015, will
retire at the conclusion of the Company’s Annual General Meeting on Tuesday,
7 May 2024. Lesley’s leadership, and her financial and investment industry
experience have been invaluable to the Board. Carolyn Sims, a Chartered
Accountant, will take over from Lesley as the Chair of the Audit and Risk
Committee and Charles Cade will take over as the Senior Independent Director.
Annual General Meeting (“AGM”)
Like last year, the AGM this year will be held at 25 Southampton Buildings,
London WC2A 1AL. It will be held on Tuesday,7 May 2024 at 11.00am.
Shareholders are welcome to attend in person where you will be able to hear a
presentation from the portfolio management team Nick Purves and Ian Lance and
also to meet the Board of Directors.
I encourage all shareholders to exercise their right to vote at the AGM and to
register your votes in advance of the meeting. Registering your vote in
advance will not restrict you from attending and voting at the meeting in
person should you wish to do so.
Shareholders are invited to register their vote in advance by 11.00am on
Thursday, 2 May 2024 at the latest.
Outlook
Against a backdrop of continued concerns regarding the level of inflation in
the UK and uncertainty for the global economy and also rising geopolitical
tensions, the valuation of UK equities looks compelling compared to their
equivalents overseas.
Your Board shares the view of our Portfolio Manager that the Trust’s
portfolio continues to be priced to offer shareholders further excess
investment returns in the future.
The UK equity market continues to be valued at a significant discount to its
international peers as many market participants in the UK have been allocating
away from UK equities. This has resulted in large portions of the UK equity
market being valued at a significant discount to intrinsic value. Unless this
changes, it seems likely that we will continue to see overseas corporate
buyers step in to take advantage of these depressed valuations, with ownership
falling into foreign hands and the number of quoted UK businesses continuing
to decline. Whilst this process is likely to be very rewarding for the
Company’s shareholders, with takeover premiums often between 50% and 100% of
the previously prevailing share price, your Board believes that a healthy
equity market is beneficial to the functioning of the economy.
Richard Wyatt
Chairman
3 April 2024
Investment Approach
A classic approach to value investing
The portfolio management team of Nick Purves and Ian Lance are long-term
intrinsic value investors who believe that short-term sentiment amongst many
market participants causes them to overreact to news which has little or no
impact on the long-run value of a business. This overreaction causes share
prices to diverge from the intrinsic value of the underlying business and
provides an opportunity for long-term investors to purchase shares at less
than their true value. In the long term the share price tends to move closer
to the intrinsic value of the business and this creates excess returns for
investors who purchased shares at low valuations. The team form a view of a
company’s long-run profit potential and make balance sheet adjustments to
assess intrinsic value. They use their experience and knowledge of companies
and sectors to identify those companies that are more likely to recover and
improve in the future.
Identifying quality and avoiding value traps
Some value strategies simply apply mechanistic measures to identify
undervalued stocks but this can lead to investing in businesses that are in
structural decline; they may be cheap but their potential to recover is
limited. Instead, the portfolio management team’s ‘intrinsic value’
approach aims to identify undervalued, yet good, quality companies with strong
cash flows and robust balance sheets. The portfolio management team put a
strong emphasis on financial strength because it gives them the confidence
that a company can survive through a prolonged period of lower profitability
caused by company-specific issues, or an unexpected downturn in the economy.
As Temple Bar’s Portfolio Manager, Redwheel, aims to avoid lower-quality
stocks or so called ‘value traps’ by monitoring companies against three
different types of risk:
· Valuation – extrapolating favourable trends and paying more than the
intrinsic value of the business (e.g. avoiding a situation where something is
positively impacting a company’s share price in the short term but that
isn’t sustainable longer term);
· Earnings – the risk that the earnings of the Company decline for
cyclical or secular reasons (e.g. the industry or sector that the business
operates in is itself in cyclical or long-term decline);
· Environmental, Social & Governance – unethical or neglectful behaviour
by a company in one of these areas can harm those who invest as well as the
environment or society in which a company is located. We believe that applying
ESG best practices, such as consideration of environmental and product safety,
workplace diversity and strong corporate governance can contribute to
long-term investment returns while mitigating risks.
Redwheel have set out some of the key factors it considers when seeking to
uncover the most compelling value opportunities:
Consider probabilities and payoffs
No matter the research, there are always surprises, positive and negative.
Think best and worst case scenarios. If we think a share price could go to
zero in one scenario, but has 400% upside in another, there is probably a case
for investing.
Enhance, don’t drift
Discipline is key to value investing –stick to your philosophy, you’re
here for the long run. Always look to improve and adapt as things change.
Simple but not easy
Buying shares for less than their worth then selling when the value has been
realised is easy to understand. But most don’t invest this way due to a lack
of ‘sticking with it’. Value investing is tricky – we are hard-wired to
conform – but can be rewarding.
Cycles, cycles, cycles
Profits and share prices are impacted by cycles such as credit, commodity and
business. An investor’s overreaction can throw up opportunities. An
advantage lies in knowing which cycles impact an investment and where we are
in that cycle.
Be contrarian but not mindless contrarian
Investors love to buy what everyone else hates. But having respect for what
the market is saying is key. Eagerly buying shares being sold in companies
with too much debt, or declining profits, can prove costly and mindlessly
contrarian.
Don’t buy rubbish
Recently the market has become fixated with quality and growth. Quality and
growth are intrinsic to a business’ value. We’ve had success when high
quality businesses have been questioned by the market, resulting in low value
entry.
Bargains are rare, make the most of them
It’s unlikely that you’re going to buy a business trading at half its
intrinsic value. However, a company or an industry will suffer a drawdown at
some stage, which may present an opportunity to buy at a good value.
Adopt an absolute return mindset
Value investing is a risk averse strategy born out of a reaction to the Great
Depression. By buying a dollar of value for 50 cents, you build in a ‘margin
of safety’ in case the economy and/or the stock market suffer. Value
investors see risk as the risk of permanent capital impairment, so, invest
with this at top of mind.
Be patient, be long term
A struggling, out-of- favour business is unlikely to turn around the day after
you invest. It’s more likely that things continue to get worse, so we try to
be patient, allowing for profitability to improve and for the market to
recognise it. Our typical holding period is at least five years.
There is no single correct method
Value investing relies on estimating the intrinsic worth of a business. Our
experience tells us to be flexible, by adjusting earnings for cyclicality, and
to recognise the positive (hidden value), and the negative (e.g. pension fund
deficit), on a balance sheet.
The Portfolio Manager’s Report
How do you describe your approach to investing?
We are value investors. This means that we invest the Trust’s assets in
companies whose stock market value is at a significant discount to the fair or
intrinsic value of the business. Investing in undervalued companies provides
two benefits. First, it provides investors with a margin of safety if events
don’t unfold in a way that investors would have hoped and second, they can
expect to receive an excess investment return as and when this undervaluation
is corrected by the stock market.
How does this work in practice?
A company’s shares will trade at a discount to its intrinsic value for one
of two reasons: neglect or controversy. Where the cause is neglect, the stock
market is not concerned that there is a particular problem with the business;
it is just that the company is seen to offer relatively dull prospects in a
world where many investors crave excitement. Where there is a controversy
surrounding the company, investors are worried that a downturn in the economy
or some secular change in the company’s industry will negatively impact
profitability. This uncertainty is unsettling for many investors and can cause
them to sell the shares. In a desire to avoid what are sometimes seen as
troubled businesses, investors often forget that the purchase of a share
exposes them to a very long-term stream of corporate cash flows, the true
value of which only changes by a relatively small amount even in the event of
a severe recession. The result is that share prices will often overreact to
short-term news flow. Temple Bar seeks to take advantage of this excess
volatility by investing in companies whose shares are significantly
undervalued based on a conservative view of a business’s long-term profit
potential.
What evidence is there supporting this style of investment?
Numerous academic studies1 have shown that systematically investing in lowly
valued companies has seen investors enjoy an excess long-term investment
return above the wider stock market, even though it is often these companies
that are seen to operate in the most challenged industries. The reason for
this outperformance comes down to psychological factors where investors
systematically overpay for those companies whose prospects are seen to be the
most attractive, whilst being too quick to overlook or dismiss companies where
the outlook is more difficult. By investing the Trust’s assets in lowly
valued companies, we aim to take advantage of these behavioural
inconsistencies to the benefit of the Temple Bar’s shareholders.
1 One study from Professors Dimson, Marsh and Staunton used dividend yield as
a measure of valuation and demonstrated that the highest yielding part of the
US stock market between 1927 and 2022 generated a total return of 11.2% per
annum versus 9.4% per annum for the lowest yielding part, meaning that $1 at
the start of the period became $25,277 in the former but only $5,513 in the
latter. The data for the UK market starts from 1900 with £1 invested
producing £199,040 in high yielding stocks versus £9,717 for low yielding
stocks. Source: © Elroy Dimson, Paul Marsh and Mike Staunton; US data is from
Professor Kenneth French, Tuck School of Business, Dartmouth. UK data is from
Elroy Dimson, Paul Marsh, and Mike Staunton, London Share Price Database.
The following link can be used to obtain further information online:
https://assets.london.edu/hxo16fanegqh/
2IqOF6Hm6WFzJrm96rPwFY/
a00257bcf04cd917a821b3e40084de89/global-investments-yearbook.pdf
Past performance is not a guide to future returns. The information shown
above is for illustrative purposes.
So, what is that you look for in companies?
We seek to identify fundamentally sound but lowly valued companies whose
shares are priced to offer higher investment returns in the future. A
fundamentally sound business is one that can grow its profits over time
(although not necessarily in each year), has strong finances and a capable and
sensible management team who allocate capital in the best interests of their
shareholders.
How would you describe the investment backdrop in the last year?
Most stock markets delivered attractive returns in 2023, despite having to
contend with further interest rate rises, the ongoing war in Ukraine and
instability in the US banking sector. In the US, the UK and Continental
Europe, Central Banks have been raising rates to bring inflation back to the
target level of around 2%. In the summer, there were concerns that Central
Banks were losing this battle which led to fears that interest rates might
have to take another step up, thereby increasing the risk of a hard landing in
the economy. However, in the fourth quarter, the narrative changed
considerably thanks to several downside surprises in inflation readings, which
led to hopes that inflation would soon be back to around target levels. For
stock markets, this led to optimism that an economic soft landing was coming
into view, whereby inflation would be back at target levels without a
recession taking place.
Turning to the financial year, how has the portfolio performed and what were
the major winners and losers?
Despite the depressed starting valuation, the UK equity market was a laggard
in 2023, delivering a total return of around 8%, however, the Trust’s
portfolio performed well in the year, outpacing the rise in the FTSE
All-Share. Temple Bar benefitted from significant rises in the share prices of
Marks & Spencer, Centrica and International Distribution Services (the old
Royal Mail Group). Each of these three companies added over a per cent to the
Trust’s return, with Marks & Spencer more than doubling during the year. The
Trust’s portfolio was negatively impacted by a more than 30% fall in the
share price of Anglo American.
In 2023, Marks & Spencer continued to perform well from an operational
perspective, taking market share in both clothing and food and continuing to
make good progress towards its longer-term profitability targets. Although it
can’t be quantified, there is little doubt that the company is benefiting
from the demise of several competitors during the COVID pandemic, and the
company is able to invest capital at high returns in rightsizing and
re-orientating its store estate. If achieved, the company’s profitability
targets would simply bring the retailer’s profitability in line with its
peers and would result in significant growth in shareholder earnings, thereby
suggesting that the shares continue to be undervalued.
Centrica announced the results of a strategic review in the summer. The
company has a unique place in the energy value chain and can add value as a
producer of power, through the provision of energy infrastructure, system
optimisation through its Marketing and Trading business and energy retail
through British Gas. Having simplified and de-risked the business, management
intend to invest in the energy transition and thereby create further value for
shareholders. Nevertheless, the company’s profits will continue to be
sensitive to the level of energy prices. Even assuming a ‘normalisation’
of commodity prices from today’s elevated levels to pre COVID levels, the
company continues to be valued at around nine times it annual profits. The
company also has significant portion of its market capitalisation as net cash
on its balance sheet, and this needs to be factored into any consideration of
value.
International Distribution Services performed well in 2023 as a new agreement
with its unions bedded in well. A successful execution of the agreement will
enable the company to release significant unrealised potential in the
company’s UK business and thereby drive group profitability higher. Making
just modest assumptions about the potential profitability in the company’s
UK business, suggests that the company is valued at less than six times its
earnings potential. For some time, we have believed that more than 100% of the
company’s market capitalisation can be justified by its overseas (parcels
only) business alone, suggesting that the stock market is placing a negative
valuation on the more challenged UK business. This is even though more than
half of the company’s UK revenues are derived from parcels (rather than
letters) and it has around a 50% market share in the UK parcels market.
On the negative tack, Anglo American downgraded its production guidance for
2024 and 2025 and as a result 2024 earnings estimates were cut by 20% to 25%.
These profit downgrades are unwelcome although the accompanying share price
fall has left the shares looking very undervalued. To address balance sheet
issues, the company went through a radical restructuring in 2015, halving the
number of assets in its portfolio and consequently, the assets that remain are
generally of good quality. Anglo American has significant investments in
publicly quoted assets and stripping these out, the company’s Copper,
Diamond, Metallurgical Coal and Nickel assets are valued at just five times
earnings before interest and tax. We would therefore not be surprised to see
some corporate activity if the operating performance of the company does not
improve. This could take the form of asset disposals to demonstrate value or a
bid for all or parts of the group.
How has the Trust’s portfolio changed over the year?
In 2023, the Trust purchased shares in Stellantis, a company formed by the
merger of Fiat Chrysler and Peugeot in 2021. The rationale for the merger was
to combine the European strength of the Peugeot business with the North
American strength of Fiat Chrysler. Combining the entities has allowed for
significant cost savings and created a stronger and more diversified business.
At the time of purchase, the company was valued at around three times its
annual profits and the shares offered a dividend yield of around 8%. In the
last two years, the auto industry has enjoyed high profitability as strong
demand post COVID, coupled with muted supply drove price increases in most
markets. Whilst profitability is likely to decline in future years as industry
conditions normalise, in our view, the company would nevertheless continue to
be very attractively valued. The company has significant net cash on its
balance sheet, equating to around one third of its market capitalisation.
Stellantis has performed well since its purchase and in 2023 added over 1% to
the Trust’s return.
We also established a position in GlaxoSmithKline (“GSK”), a high-quality
global franchise which has traditionally struggled with execution and whose
shares have therefore significantly underperformed its peers over almost
all-time frames. The company’s vaccines business is the global leader, with
the widest product and technology portfolio, and is well insulated from
threats, with more than 90% of revenues coming from vaccines with more than
90% efficacy. In combination with GSK’s pharmaceutical business, the company
should be capable of delivering good levels of growth. The management targets
annual sales and operating profit growth of more than 5% and 10% respectively
over the five years to 2026.
A new position in the Dutch Insurer, NN Group, was also established which
derives most of its profits from the Dutch pension market. The company targets
moderate growth in profits in the coming years and its balance sheet is
strong. At the time of purchase, the company was valued at a multiple of
six-times profits and offered a dividend yield of around 9% and is expected to
return another 3% of its market capitalisation in share buybacks in respect of
2023.
The UK stock market continues to be compared negatively with other major
equity markets. Do you think this is justified and are you able to find
appealing investment opportunities in the UK?
The UK stock market remains very out of favour with investors who continue to
sell UK assets to channel money overseas. Here investment prospects are seen
to be more exciting even though a large portion of the profits of companies
listed in the UK are derived from outside the UK. The result of this negative
sentiment towards the UK however is that UK listed stocks are valued at a
significant discount to their overseas listed peers for no other reason than
they happen to be listed in the UK. Today, your portfolio in aggregate is
valued at a multiple of around eight times last year’s estimated earnings.
In contrast, in the US, the S&P 500 is valued on a multiple of over twenty
times, more than 2.5x the valuation of the Trust’s portfolio. In respect of
the UK, you should take comfort from the fact that markets don’t de-rate
forever and that this headwind will ultimately abate and maybe even become a
tailwind. If the Trust’s portfolio simply re-rated back to a still
conservative ten times earnings on an earnings base that was unchanged, the
Trust would deliver a return of around 25% to its shareholders from this
re-rating alone. Whilst many will no doubt continue to take a dim view of UK
economic prospects; it is important to remember that the Trust buys companies
and not economies. The companies in which the Trust is invested are sound,
conservatively run businesses with strong finances and capable management
teams.
How is the portfolio currently positioned and what is your outlook for the
year ahead?
Whilst it is somewhat frustrating that UK listed shares continue to attract
such miserly valuations, the attraction for the long-term investor is
significant as stock market history has shown that the best predictor of
long-term future investment return is starting valuation. Time and time again,
those that have invested in highly valued assets have been rewarded with
suboptimal returns, even though the underlying asset has continued to perform
well from an operational perspective. Conversely, those that have invested in
lowly valued, but fundamentally sound businesses, which did not happen to fit
with the prevailing investment narrative at the time of purchase, have enjoyed
outsized gains. We are often asked when UK equities will re-rate and whilst we
can’t answer this question, we would point out that one doesn’t need the
Trust’s portfolio to re-rate to enjoy an attractive investment return. A
lowly valued company that converts a significant portion of its profits into
cash can pay a generous dividend and undertake value enhancing share buybacks
whilst holding debt at a constant level. As we enter 2024, the Trust’s
portfolio continues to be priced to offer its shareholders further excess
investment return in the future.
Could you provide your views on the post-period takeover bids that were
received on holdings within the portfolio?”
So far in 2024, there have been two bids for companies held in the Trust’s
portfolio; first Currys and then Direct Line Group. Whilst takeover bids can
come at any time, this is perhaps not a surprise as many of the companies in
the portfolio carry a stock market valuation which is significantly below a
reasonable view of their true value. The UK continues to be an attractive
place to invest and given the rock bottom valuations that exist in some parts
of the UK market, it is understandable that private equity and corporate
buyers would want to take advantage of that.
We have mixed feelings about these takeover approaches. Takeover bids
highlight the undervaluation that exists in the target companies and can
result in a rapid crystallisation of the upside that we believed existed at
the time of a stock’s purchase. However, we must also remember that private
equity bidders especially are intent on paying a price which continues to
undervalue the company and from which they themselves can make an attractive
investment return. They will therefore rarely be prepared to pay what we think
the target company is worth. Currys is a case in point. Our view of the
company’s fair value was significantly higher than the 67p offered by hedge
fund Elliott who have since said that they are not prepared to bid any more.
In 2022, the private equity group, Apollo Capital, made three takeover offers
for Pearson, the educational publisher, and last year, First Abu Dhabi Bank
approached Standard Chartered. It is reasonable to expect that there will be
more bids for companies in the Trust’s portfolio and shareholders should
expect to benefit further from that.
Ian Lance and Nick Purves
Redwheel
3 April 2024
Portfolio of Investments
As at 31 December 2023
Place of primary Valuation % of
Company Sector listing £’000 portfolio
1 Royal Dutch Shell
Shell explores for, produces, and refines petroleum. The company produces fuels, chemicals, and lubricants. Shell owns and operates gasoline filling stations worldwide. Energy UK 57,818 7.3
2 BP
BP is an oil and petrochemicals company. The company explores for and produces oil and natural gas, refines, markets, and supplies petroleum products, generates solar energy, and manufactures and markets chemicals. Energy UK 50,819 6.5
3 TotalEnergies
TotalEnergies operates as an energy company. The company produces, transports, and supplies crude oil, natural gas, and low carbon electricity, as well as refines petrochemical products. TotalEnergies owns and manages gasoline filling stations worldwide. Energy France 43,078 5.5
4 Marks & Spencer Group
Marks & Spencer Group operates a chain of retail stores. The company sells consumer goods and food products, as well as men’s, women’s, and children’s clothing and sportswear Consumer Staples UK 42,012 5.3
5 NatWest Group
NatWest Group operates as a banking and. financial services company. The Bank provides personal and business banking, consumer loans, asset and invoice financing, commercial and residential mortgages, credit cards, and financial planning services, as well as life, personal, and income protection insurance. Financials UK 40,581 5.1
6 Aviva
Aviva operates as an international insurance company that provides all classes of general and life assurance. The Company also offers a variety of financial services, including long-term savings and fund management Financials UK 35,019 4.4
7 ITV
ITV provides broadcasting services. The company produces and distributes content on multiple platforms. ITV serves customers in the United Kingdom. Communications UK 34,338 4.3
8 Stellantis
Stellantis manufactures and markets automobiles and commercial vehicles. The Company also produces metallurgical products and production systems for the automobile industry, as well as owning publishing and insurance companies. Stellantis serves customers worldwide. Consumer Discretionary Netherlands 32,110 4.1
9 Barclays
Barclays is a global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management, and investment management services Financials UK 31,721 4.0
10 Anglo American
Anglo American is a global mining company. The company’s mining portfolio includes bulk commodities including iron ore, manganese, and metallurgical coal, base metals including copper and nickel, and precious metals and minerals including platinum and diamonds. Materials UK 30,013 3.8
Top Ten Investments 397,509 50.3
11 NN Group Financials Netherlands 29,939 3.8
12 Standard Chartered Financials UK 29,199 3.7
13 WPP Communications UK 28,513 3.6
14 GSK Healthcare UK 26,536 3.4
15 Kingfisher Consumer Discretionary UK 26,145 3.3
16 International Distributions Industrials UK 24,933 3.1
17 HP Information Technology United States 24,010 3.0
18 Centrica Utilities UK 23,471 3.0
19 Pearson Consumer Discretionary UK 22,762 2.9
20 Citigroup Financials United States 20,453 2.6
Top 20 Investments 653,470 82.7
21 Currys Consumer Discretionary UK 16,434 2.1
22 Honda Motor Consumer Discretionary Japan 14,609 1.8
23 BT Group Communications UK 14,249 1.8
24 Forterra Materials UK 14,142 1.8
25 Vodafone Group Communications UK 13,098 1.7
26 Capita Industrials UK 11,014 1.4
27 Newmont Materials United States 10,590 1.3
28 CK Hutchison Group Industrials Hong Kong 10,394 1.3
29 Barrick Gold Materials Canada 9,892 1.3
30 Continental Consumer Discretionary Germany 8,983 1.1
Total Equity Investments 776,875 98.3
Short-dated UK T-Bills Fixed Interest UK 13,713 1.7%
Total Valuation of Portfolio 790,588 100%
Portfolio Distribution
As at 31 December 2023
Discount to NAV Industry Temple Bar % FTSE All-Share %
1 Financials 23.6 18.6
2 Energy 19.3 11.7
3 Consumer Discretionary 15.3 8.8
4 Communications 11.4 2.9
5 Materials 8.2 9.0
6 Industrials 5.8 13.8
7 Consumer Staples 5.3 15.7
8 Healthcare 3.4 11.1
9 Information Technology 3.0 1.7
10 Utilities 3.0 4.0
11 Real Estate – 2.7
Total Equities 98.3 100.0
Fixed Interest 1.7 –
Total Portfolio 100.0 100.0
Source: Redwheel
* FTSE All-Share ex investment Trusts
Overview of Strategy
The Strategic Report is designed to help shareholders assess how the Directors
have performed their duty to promote the success of the Company during the
year under review.
Business of the Company
Temple Bar Investment Trust Plc was incorporated in England and Wales in 1926
with the registered number 00214601.
The Company carries on business as an investment company under Section 833 of
the Companies Act 2006 and has been approved by HM Revenue & Customs as an
investment trust in accordance with Section 1158 of the Corporation Tax Act
2010.
Section 172 Statement
The Directors’ overarching duty is to act in good faith and in a way that is
the most likely to promote the success of the Company as set out in Section
172 of the Companies Act 2006 (“Section 172”). In doing so, Directors must
take into consideration the interests of the various stakeholders of the
Company, having regard, amongst other matters, to the following six items:
The likely consequences of any decision in the long term All Board discussions include consideration of the longer-term consequences of any key decisions and their implications for the relevant stakeholders. In managing the Company during the year under review, the Board acted in the way which it considered, in
good faith, would be most likely to promote the Company’s long-term sustainable success and to achieve its wider objectives for the benefit of our shareholders as a whole, having had regard to our wider stakeholders and the other matters set out in Section
172.
The interests of the Company’s employees This provision is not relevant as the Company does not have any employees.
The need to foster the Company’s business relationships with suppliers, customers and others The Board’s approach is described under “Stakeholders” in in the Strategic Report.
The impact of the Company’s operations on the community and the environment The Board takes a close interest in responsible investment issues and sets the overall strategy. Management of the portfolio is delegated to the Portfolio Manager, which is responsible for the practical implementation of policy. A description of the
Company’s approach to stewardship and the role of the Portfolio Manager is set out in the Strategic Report.
The desirability of the Company maintaining a reputation for high standards of business conduct The Board’s approach is described under “Culture” in the Strategic Report.
The need to act fairly between shareholders of the Company The Board’s approach is described under “Stakeholders” in the Strategic Report.
In considering the primary purpose of the Company, the Board made several key
decisions during the year. The Board:
· continued to instruct the use of share buy backs as a means of stabilising
the share price discount to NAV in response to sector weakness;
· worked with the Portfolio Manager and Frostrow Capital to maintain a high
level of shareholder engagement via webinars and newsletters; and
· increased dividend payments at a sustainable level based on income
received from investments (for further details see the dividend per share
section in the Strategic Report).
The Directors have reviewed and discussed each aspect of Section 172 and
consider that the information set out in the Strategic Report is particularly
relevant in the context of the Company’s business as an externally managed
investment company which does not have any employees or suppliers.
Stakeholders
The Board continuously seeks to understand the needs and priorities of the
Company’s stakeholders, and these are taken into account during all of its
discussions and as part of its decision making. As the Company is an
externally managed investment company and does not have any employees or
customers, it therefore has very little direct impact on the community or the
environment. Its key stakeholders comprise its shareholder base and its
lender. The Company also has important contractual relationships with its key
service providers but does not consider these to be stakeholders. The Company
recognises the indirect impact it may have on the community and the
environment through its investee companies. Further details on this are set
out in the Strategic Report. The sections below outline why these key
stakeholders are considered of importance to the Company and the actions taken
to ensure that their interests are considered.
Shareholders
The primary purpose of the Company is to deliver long-term returns for
shareholders from a diversified portfolio of investments. Continued
shareholder support and engagement are critical to the existence of the
Company and the delivery of its long-term strategy.
The Board recognises the importance of engaging with shareholders on a regular
basis to maintain a high level of transparency and accountability and to
inform the Company’s decision making and future strategy.
The Board primarily engages with shareholders through direct engagement by the
Chairman and through the Portfolio Manager and Frostrow Capital who maintain
an ongoing dialogue with shareholders through regular shareholder
communications, both written and verbal. The Portfolio Manager has continued
to publish quarterly newsletters written by the portfolio management team,
which explore their ideas and philosophies around investing and explain the
positioning of the portfolio. Online statistics on engagement show that these
newsletters remain very popular with shareholders. Additional dialogue with
shareholders is achieved through the annual and half-yearly reports, both of
which contain reports from the Portfolio Manager, the daily NAV announcements
and the monthly fact sheet which is available on the Company’s website.
Portfolio data is also provided to external providers such as Morningstar,
which feeds several websites on a monthly basis.
One of the Board’s long-term strategic aspirations has been that the
Company’s shares should trade consistently at a price close to the NAV per
share. During the year under review investment companies as a sector again saw
discounts widen significantly, in the face of economic headwinds and political
instability (the average discount was 13.5%* as at 31 December 2023). The
Company continued to use share buy backs throughout the year to protect its
discount, generally maintaining it at a level less than 6%. Both the Board and
the Portfolio Manager has continued to focus heavily on the promotion of the
Company, in order to maintain buying interest in the Company’s shares and to
support a natural narrowing of the discount.
An important role of the Board is to ensure that the Company’s ongoing
charges are competitive both in terms of its peer group and other comparable
investment products. While having an optimal service provider structure brings
inevitable cost, excessive expense can eat away at investment returns over
time. For that reason, despite the exercise described later in the document
the Board remains focused on limiting cost increases to shareholders as far as
possible, despite the current inflationary environment.
All shareholders are encouraged to attend and vote at AGMs, at which the Board
and the portfolio management team are available to discuss issues affecting
the Company and to answer any questions. Further details regarding the AGM are
set out in the Notice of AGM.
* Source: Cavendish Securities.
Lenders
Alongside shareholders’ equity, the Company is partly funded by debt. All
the Company’s debt is subject to contractual terms and restrictions. We have
an established procedure to report regularly to our lender on compliance with
debt terms. It is our policy that all interest payments and repayments of
principal will continue to be made in full and on time.
Service Providers
To function as an investment trust with a premium listing on the London Stock
Exchange, the Company relies on a number of suppliers and advisers for support
in complying with all relevant legal and regulatory obligations.
The Company’s day-to-day operational functions are delegated to a number of
third-party service providers, each engaged under separate contracts. The
Company’s principal service providers are the Portfolio Manager, Alternative
Investment Fund Manager, Administrator and Company Secretary, Custodian and
Depositary, Broker, Solicitor and the Registrar.
Over the past three years the Board believes it has continued to develop a
close and constructive working relationship with the Portfolio Manager, which
it believes is crucial to promoting the long-term success of the Company.
Representatives of the Portfolio Manager attend Board meetings and provide
reports and verbal updates on matters relating to investments, performance and
marketing.
The Board, primarily through the Audit and Risk and Management Engagement
Committees, keeps the ongoing performance of the Portfolio Manager and the
Company’s other principal third-party service providers under continual
review.
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. 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 enduring value to shareholders.
Therefore, the Board asks the Company’s Portfolio Manager to invest in
stocks that fulfil the traditional metrics of the value style but also possess
a business model that is resilient and viable in the long term.
Investment Objective and Policy
The Company’s investment objective is to provide growth in income and
capital to achieve a long-term total return greater than the benchmark FTSE
All-Share Index, through investment primarily in UK-listed securities. The
Company’s policy is to invest in a broad spread of securities with typically
the majority of the portfolio selected from the constituents of the FTSE 350
Index.
Investment Guidelines
The UK equity element of the portfolio will be mostly invested in the FTSE
All-Share Index; however, exceptional positions may be sanctioned by the Board
and up to 30% of the portfolio may be held in listed international equities,
subject to a maximum 10% exposure to emerging markets. The Company may
continue to hold securities that cease to be quoted or listed if the Portfolio
Manager considers this to be appropriate. There is an absolute limit of 10% of
the portfolio in any individual stock with a maximum exposure to a specific
sector of 35%, in each case irrespective of their weightings in the Benchmark.
It is the Company’s policy to invest no more than 15% of its gross assets in
other listed investment companies (including listed investment trusts).
The Company maintains a diversified portfolio of investments, typically
comprising 30-50 holdings, but without restricting the Company from holding a
more or less concentrated portfolio from time-to-time as circumstances
require.
The Company’s long-term investment strategy emphasises stocks of companies
that are out of favour and whose share prices do not match the Portfolio
Manager’s assessment of their longer-term value.
From time-to-time fixed interest holdings or non-equity interests may be held
for yield enhancement and other purposes. Derivative instruments may be used
in certain circumstances, and with the prior approval of the Board, for
hedging purposes or to take advantage of specific investment opportunities.
Liquidity and borrowings are managed with the aim of increasing returns to
shareholders. The Company’s gross gearing range may fluctuate between 0% and
30%, based on the current balance sheet structure, with an absolute limit of
50%.
As a general rule, it is the Board’s intention that the portfolio should be
reasonably fully invested. An investment level of 90% of shareholder funds is
regarded as a guideline minimum investment level dependent on market
conditions.
Risk is managed through diversification of holdings, investment limits set by
the Board and appropriate financial and other controls relating to the
administration of assets.
Key Performance Indicators
The key performance indicators (“KPIs”) used to determine the progress and
performance of the Company over time, and which are comparable to those
reported by other investment trusts, are:
· NAV total return relative to the FTSE All-Share Index;
· Discount/premium to NAV;
· Dividends per share; and
· Ongoing charges.
While some elements of performance against KPIs are beyond the Board’s and
Portfolio Manager’s control, they provide measures of the Company’s
absolute and relative performance and are, therefore, monitored by the Board
on a regular basis.
NAV Total Return
In reviewing the performance of the assets in the Company’s portfolio the
Board monitors the NAV in relation to the FTSE All-Share Index. This is the
most important KPI by which performance is judged. During the year the NAV
total return with debt at fair value of the Company was 12.3% compared with a
total return of 7.9% by the FTSE All-Share Index. As noted in both the
Chairman’s Statement and Portfolio Manager’s Report, the Company
outperformed the FTSE All-Share Index on both a NAV and share price basis.
Discount to NAV
The Board monitors the premium/discount at which the Company’s shares trade
in relation to their NAV. During the year the shares traded at an average
discount to NAV of 6.0%. This compares with an average discount of 5.1% in the
previous year. As set out in the Chairman’s Statement, during the year the
Board closely monitored the discount and utilised share buy backs when it was
considered appropriate to do so. The Board and Portfolio Manager closely
monitor both movements in the Company’s share price and significant dealings
in the shares. In order to avoid substantial overhangs or shortages of shares
in the market the Board asks shareholders to approve resolutions which allow
for both the buy back of shares and their issuance, which can assist in the
management of the discount or premium.
Dividend per Share
It remains the Directors’ intention to distribute, over time, by way of
dividends, substantially all of the Company’s net revenue income after
expenses and taxation. The Portfolio Manager aims to maximise total returns
from the portfolio. The Company has paid dividends totalling 9.60 pence per
ordinary share for the year ended 31 December 2023 (2022: 9.35 pence). The
Board hopes to continue sustainable dividend growth over the coming years.
This is explained in more detail in the Chairman’s Statement.
Ongoing Charges
Ongoing charges is an expression of the Company’s management fees and other
operating expenses as a percentage of average daily net assets over the year.
The ongoing charges for the year ended 31 December 2023 were 0.56% (2022:
0.54%). The Board reviews the Company’s ongoing charges on a regular basis.
The Company’s ongoing charges ratio has remained relatively consistent and
compares favourably with peers in the UK Equity Income sector of investment
trust companies.
Ten-Year KPI Summary
Discount to NAV 2014 2015 2016 2017 2018 2019 2020^ 2021 2022 2023
Total Returns
NAV with debt at fair value 3 -2.6% -1.2% 20.6% 10.2% -11.3% 27.9% -28.0% 24.6% 0.9% 12.3%
Share Price 3 -1.4% -7.9% 20.7% 11.0% -9.7% 34.3% -31.5% 20.0% 3.6% 12.5%
FTSE All-Share Index 3 1.2% 1.0% 16.8% 13.1% -9.5% 19.2% -9.8% 18.3% 0.3% 7.9%
NAV per share* (p) 239.1 226.0 236.2 280.0 239.9 294.6 202.0 241.7 228.5 248.0
NAV per share with debt at fair value* (p) 234.9 222.9 259.6 277.4 238.1 292.5 199.2 240.4 233.5 252.2
Share Price* (p) 238.2 210.4 244.6 262.8 229.2 295.2 191.0 221.6 220.5 238.0
Premium/(Discount) 2 1.4% (5.6%) (5.8%) (5.3%) (3.7%) 0.9% (4.1%) (7.8%) (5.6%) (5.6%)
Dividends per share* (p) 7.78 7.93 8.09 8.49 9.34 10.28 7.70 7.90 9.35 9.60
Dividend Yield 1 3.3% 3.8% 3.3% 3.2% 4.1% 3.5% 4.0% 3.6% 4.2% 4.0%
Ongoing Charges 0.48% 0.49% 0.51% 0.49% 0.47% 0.49% 0.50% 0.48% 0.54% 0.56%
* Comparative periods have been restated for the sub-division of each
ordinary share into 5 new ordinary shares, approved at the AGM held on
10 May 2022 and completed on 13 May 2022.
^ Redwheel was appointed as Portfolio Manager on 30 October 2020.
1 Calculated as dividends per share divided by the year end share price.
2 Premium / (Discount) of share price to NAV per share with debt at fair
value
3 Source: Morningstar for Company returns, Redwheel for FTSE All-Share
returns.
Risk Mitigation and Management
Market Risk
By the nature of its activities and Investment Objective, the Company’s portfolio is exposed to fluctuations in market prices (from both individual security prices and foreign exchange rates). As such investors should be aware that by investing in the Company they are exposing themselves to market risks. The Company also uses gearing, via the private placement loans issued, the effect of which is to amplify the gains or losses the Company experiences. To manage these risks the Board and the AIFM have appointed Redwheel to manage the portfolio within the remit of the investment objective and policy, and imposed various limits and guidelines, set out in the Strategic Report. These limits ensure that the
portfolio is diversified, reducing the risks associated with individual stocks. The compliance with those limits and guidelines is monitored daily by Frostrow and Redwheel and reported to the Board weekly. In addition, Redwheel reports at each Board
meeting on the performance of the Company’s portfolio, including the rationale for investment decisions, the make-up of the portfolio and the investment strategy. As part of its review of the viability of the Company, the Board also considers the
sensitivity of the Company to changes in market prices and foreign exchange rates (see note 20), how the portfolio would perform during a market crisis, and the ability of the Company to liquidate its portfolio if the need arose. Further details are
included in the Going Concern and Viability Statements contained in the Strategic Report.
Geopolitical and Macro Risks
As recent years have demonstrated, global events, including unforeseen events, can have a dramatic effect on both financial markets and everyday life. The Company is at risk from both the financial impacts of such events, as well as possible disruption to the day-to-day activities of its service providers and portfolio companies. Ongoing geopolitical tensions around the world while not currently directly affecting the Company may have an impact on its investments. While global events are outside the control of the Company the Board reviews regularly, and discusses with the Portfolio Manager, the wider economic and political environment, along with the portfolio exposure and the execution of the investment policy
against the long-term objectives of the Company. The Portfolio Manager performs risk analysis, including country and industry specific monitoring, on an ongoing basis.
Climate Risks
While the Company itself faces limited direct risk from climate change, the board is cognisant of the potential impact on portfolio companies and their operations. Significant changes in climate, or indeed Government measures taken to combat climate change, could present a material risk to the value of the portfolio. The Board regularly reviews global environmental, geopolitical and economic developments with the Portfolio Manager, along with the implications of these risks and events on portfolio construction and the Company’s operations. ESG considerations are
incorporated into the investment process of Redwheel, as part of the drive to invest in companies with long-term viability. The Portfolio Manager also uses its voting powers to engage with and influence investee companies towards taking positive steps
against climate change and other environmental impacts.
Shareholder Relations and Share Price Performance Risk
The Company is exposed to the risk, particularly if the investment strategy and approach are unsuccessful, that the Company may underperform resulting in the Company becoming unattractive to investors, a widening of the share price discount to NAV per share and the Company may become vulnerable to activist shareholders. In managing this risk the Board: · reviews the Company’s investment strategy and objective in relation to market and economic conditions, and the operation of the Company’s peers; · discusses at each Board meeting the Company’s future development and
strategy; · reviews the shareholder register at each Board meeting; and, · actively seeks to promote the Company to current and potential investors. In addition the Company’s share price and premium or discount to NAV are monitored by the Portfolio 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, and will take action where levels are deemed to be excessive. The Directors are prepared to be proactive in premium/ discount management to minimise potential disadvantages to shareholders, which continued to be demonstrated during 2023.
Loss of Investment Team or Portfolio Manager
A sudden departure of the members of the portfolio management team could result in a short-term deterioration in investment performance. The investments of the Company are managed by a team of two managers, Ian Lance and Nick Purves. The Portfolio 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 providing 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 Portfolio Management Agreement should Ian Lance and Nick Purves cease
to be able to perform their duties or cease to be associated with the Portfolio Manager and not be replaced by people with relevant experience.
Income Risk – Dividend
Risk that the portfolio does not generate the necessary level of income, over time, from which to maintain progressive dividend payments to shareholders. The Board monitors this risk through the review of detailed income reports and forecasts which are considered at each meeting, with input from the Portfolio Manager. As at 31 December 2023 the Company had distributable revenue reserves of £12.7 million.
Furthermore, income risk is mitigated by the Company’s ability to distribute realised capital gains if required to meet any revenue shortfall. With the level of income paid and forecast by investee companies continuing to increase across the year, the
Company has been able to raise its dividend.
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 in widespread disruption across the financial services industry. 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 cyberattack limited mitigation is possible, however all service providers remain vigilant given the increased likelihood of such an event in the current climate.
Service Provider Risk
The Company is reliant on the systems of its service providers and as such disruption to, or a failure of, those systems (including, for example, as a result of cyber-crime or a ‘black swan’ event) could lead to a failure to comply with law and regulations leading to reputational damage and/or a financial loss. To manage these risks the Board, via its Management Engagement Committee and Audit and Risk Committee: · receives reports from Frostrow at each Board meeting, which includes, inter alia , details of compliance with applicable laws and regulations; ·
reviews internal control reports, key policies, including measures taken to combat cyber security issues, and also the disaster recovery procedures of its service providers; · maintains a risk matrix with details of risks the Company is exposed to and the
controls/mitigation in relation to those risks; · receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with these; and · has considered the increased risk of cyber-attacks and received
reports and assurance at meetings with its service providers that appropriate information security controls are in place. The AIFM, in addition, to its ongoing monitoring of the investment portfolio and transactions, carries out a formal due diligence
exercise on the Portfolio Manager annually, ensuring that the appropriate controls, processes and resourcing are in place to manage the portfolio within the stated investment policies and guidelines. Responsibility for this process moved from Link Group to
Frostrow during the year, with Frostrow performing initial due diligence process prior to their appointment.
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. No new
or emerging risks were identified during the year.
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 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 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 Portfolio 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 achievable.
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 Portfolio
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.
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 in the Strategic Report. 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 (see notes 8 and 15 for
further details on the 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. The change from Link Group to Frostrow has
demonstrated this and leaves the Company strongly positioned.
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.
Modern Slavery Act
Due to the nature of the Company’s operational model and the fact that it
generates no turnover, the Board is satisfied that the Company is not subject
to the UK’s Modern Slavery Act 2015. The Company does not therefore make a
modern slavery and human trafficking statement. The Board however appreciates
the significance of Modern Slavery as an issue but considers the Company’s
supply chains, dealing predominantly with professional advisers and service
providers in the financial services industry, to represent a low risk of
exposure to modern slavery.
In relation to the Company’s investments, the Board has noted that the
Portfolio Manager signed a letter in 2023, and will again in 2024, which is
sent to FTSE 350 companies considered at that time not to be in compliance
with the requirements of the Modern Slavery Act 2015. This initiative,
coordinated by Rathbones, was awarded the Stewardship Initiative of the Year
award in 2022 by the UN Principles for Responsible Investment. Infractions
tend to be of a technical nature, such as not having a Modern Slavery
Statement available on websites, or not evidencing that such Statements have
approval from the board of the relevant organisation. In 2023, the Portfolio
Manager engaged with investee companies to highlight where corrections were
required to achieve compliance and worked with Rathbones to monitor responses.
Within investments, Redwheel principally assesses the risk of modern slavery
exposure through reference to the Corporate Human Rights Benchmark (which
scores companies on governance and policies; remedies and grievance
mechanisms; and embedding respect and human rights due diligence) and through
company compliance with the UN Global Compact, the UN Guiding Principles on
Business and Human Rights, and the Organisation for Economic Co-operation and
Development Guidelines for Multinational Enterprises.
The Portfolio Manager also uses Sustainalytics data to monitor breaches in
global norms and controversies including employee incidents. The Materiality
Map developed originally by the Sustainability Accounting Standards Board
helps improve understanding of the sectors in which companies are most at risk
of exposure to labour and modern slavery issues.
Gender Diversity
At the year end, there were two male and three female Directors on the Board.
The Company has no employees and therefore there is nothing further to report
in respect of gender representation within the Company.
The Company’s policy on diversity is detailed in the Corporate Governance
Statement.
Bribery Act
The Company has a zero-tolerance policy towards bribery and is committed to
carrying out business fairly, honestly and openly. The Portfolio Manager also
adopts a zero-tolerance approach and has policies and procedures in place to
prevent bribery.
Criminal Finances Act 2017
The Company has a commitment to zero tolerance towards the criminal
facilitation of tax evasion.
Stewardship/Engagement
The Board requires the Portfolio Manager to adopt an active stewardship role,
including the effective exercising of shareholders’ ownership rights. It
believes that this is central to the achievement of its aim to preserve and
grow the long-term real purchasing power of the assets entrusted to it by
shareholders.
The Portfolio Manager thus monitors, evaluates and if necessary, actively
engages or withdraws from investments with the aim of preserving or adding
value to the portfolio. It became a signatory to the UN Principles for
Responsible Investment in 2020, had been a signatory to the UK Stewardship
Code 2012 and in 2023 was again endorsed as a signatory to the UK Stewardship
Code 2020.
Both the Board and the Portfolio Manager firmly believe that environmental,
social and governance issues can have a material financial impact on the value
of a company along with its social licence to operate, and therefore on the
value of its investors’ capital. It is thus important for a long-term
responsible investor to integrate these issues into the investment process.
The Portfolio Manager believes that its stewardship role is wholly consistent
with supporting companies to grow in a sustainable way, for executive teams
and board members to run their companies for the long term and for the benefit
of all stakeholders. Moreover, it believes that companies not run in a
sustainable manner, from lack of prudence on financial strength and
recklessness in the pursuit of growth at the expense of the environment and
relations with business stakeholders, have significant potential to put
shareholders’ capital at risk. Conversely, companies run in a prudent manner
for all stakeholders are believed to be more likely to be successful,
resilient, and financially rewarding for shareholders.
Further detail on the Portfolio Manager’s approach to stewardship is
detailed within its Stewardship Policy1.
1 www.redwheel.com/uk/en/individual/resources
Environment
As an investment trust which outsources all of its operations, there are no
greenhouse gas emissions to report from the operations of the Company other
than those of the service providers and limited home working by the Board. The
Company does not have responsibility for any other emissions producing sources
reportable under the Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013 or the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Consequently, the Company consumed very little direct energy during the year
and therefore is exempt from the disclosures required under the Streamlined
Energy and Carbon Reporting criteria.
Environmental and climate considerations – both in a systemic sense and
idiosyncratically – have become increasingly important for many in the
investment industry and beyond over the past decade. Physical and transitional
climate risks remain very much at the top of the list of factors considered to
potentially have a material financial impact over the longer term. Attention
is now also increasing in relation to the use and management by companies of
natural resources, such as water, as well as biodiversity impacts arising in
particular from pollution and waste management practices. The Portfolio
Manager believes active engagement with portfolio companies is required to
address these kinds of challenges. Divesting simply does not address the
problem. Instead, by supporting companies as they transition over time to more
sustainable business models, the Portfolio Manager believes that environmental
impacts can be both reduced and mitigated.
Detail on the carbon characteristics of the Company is shown in the following
sections.
When monitoring and reporting the carbon credentials of the Company, we use
the metrics and methodologies recommended by the Taskforce on Climate-Related
Financial Disclosures (TCFD). Analysis focuses on the emissions of companies
that are considered to be either “Scope 1” or “Scope 2”. Scope 1
emissions are the emissions directly attributable to a company’s operations,
whereas Scope 2 emissions are the emissions indirectly attributable to a
company’s operations (e.g. relating to the power it consumes). Both are
expressed in terms of tonnes of carbon dioxide equivalent (t CO2eq), the
universal unit of measurement used to indicate the global warming potential of
greenhouse gases, definition and methodology by Greenhouse Gas Protocol.
The integration into the analysis of corporate “Scope 3” emissions remains
an aspiration as there are issues relating to data quality and the
double-counting of emissions within methodologies which continue to hamper
expansion of the analysis.
Total Scope 1 & 2 Emissions
A chart contained in the published Annual Report and Accounts provides
representations of the absolute greenhouse gas emissions (GHG) attributable
both to Temple Bar, and also to a notional investment of equal value in the
FTSE All-Share.
An equity ownership approach is used to allocate both Scope 1 and Scope 2
emissions to investments. Under this approach, if an investor holds shares
equal in value to 5 percent of a company’s total market capitalisation, then
the investor is considered to own 5 percent of the Company; accordingly, it is
considered to be liable for 5 percent of the Company’s GHG (or carbon)
emissions.
As compared to the FTSE All-Share, Temple Bar exhibits a higher value for its
Scope 1 and Scope 2 emissions (+37%).
These metrics are presented on an absolute basis; as the value of the Company
increases, we would expect the overall emissions attributable to Temple Bar to
increase. The respective values for Temple Bar and the FTSE All-Share,
normalised by the value of the Company, which in essence is the carbon
footprint metric, are 157.2 and 116.5 tCO2eq/ GBPm, respectively. Temple
Bar’s carbon footprint is 35% higher as it has a higher exposure to sectors
responsible for a considerable amount of emissions, such as Energy and
Consumer Discretionary.
Weighted Average Carbon Intensity (WACI):
This chart shows the asset-weighted emissions intensity both of Temple Bar,
and also of an investment of equal value in the FTSE All-Share.
Emissions intensity as a metric reflects the value of a company’s Scope 1
and Scope 2 carbon emissions (t CO2eq), normalised by revenues derived (here,
using GBP millions), over a particular period in line with the carbon
reporting one, which is financial year 2022 and 2021 respectively.
The weighted average carbon intensity of the Company is 3% lower than the FTSE
All-Share, indicating on average a lower allocation to carbon intensive
companies.
Observations
As compared to the FTSE All-Share (ex Investment Trusts), Temple Bar has a
higher allocation to the Energy sector (+7.6%), Consumer Discretionary sector
(+6.5%)At the same time, the Company’s allocation to the Materials and
Utilities sectors is roughly the same as the FTSE All-Share. These are sectors
responsible for a significant amount of carbon emissions and the previous
figures and charts above demonstrate this.
That said, it is important to note that whilst Temple Bar has 100% reported
emissions coverage, this is not the case for the FTSE All-Share. Here, only
60.1% of companies disclose emissions data directly. For some of the remaining
38.5% of companies it is possible to make an estimate; for others it is not.
Where there is no available emissions data or third party estimates the
companies have been excluded from the FTSE All-Share’s analysis, this
portion of companies represent around 2.6% of the FTSE All-Share weight in
terms of total invested.
Social
The Portfolio Manager continues to believe that the financial impact from
social issues can be substantial.
Companies treating their employees, customers or suppliers inappropriately,
store up future problems for the business in terms of human capital (lower
productivity, disruption to production, staff turnover), brand value
(dissatisfied customers, litigation) and reputation (supply-chain issues,
health and safety). Local communities are also important to consider,
particularly in extractive industries.
Cyber security is a notable risk for many companies, particularly for those
holding customer information, sensitive sectors such as banks or utilities or
where intellectual property is the basis of the value of a company.
The Portfolio Manager researches and monitors social risks, reviewing issues
for focus based on the Company’s composition. Exposure to conflict regions
is monitored for a risk of human rights abuses. Where there is potential
exposure the Portfolio Manager will monitor news flow and speak with the
investee companies to evaluate the risk. It may also speak to a company’s
wider stakeholders in order to seek a more holistic assessment of specific
situations. For instance, during the course of the year, a representative of
the Portfolio Manager attended an event hosted by the Trades Union Congress to
hear more about the experience of companies engaging with their workforces via
unions.
Governance
The consideration of companies’ approaches to governance has been at the
heart of the Portfolio Manager’s process since inception. Governance
describes the controls and oversight processes in place to manage operational
risks (including environmental and social risks); it also sets the basis for
the culture of a firm. The Portfolio Manager seeks investee companies whose
management runs the business as owners, and thinks long term about customers,
employees, suppliers, and community. Such an approach is believed ultimately
to benefit shareholders.
The Portfolio Manager believes in the importance of investee companies
possessing a strong board, with non-executive directors possessing the
requisite skills, experience and independence to counter the impact of a
powerful or dominant chief executive officer. Diversity can support this aim
and helps to counter ‘group think’ and incorporate better the views of
wider stakeholders. Remuneration is an area of controversy, with management
pay ratcheting higher, often without consequence for failure or poor
performance. Compensation packages must be tied to long-term drivers of
sustainable value, rather than a function of financial engineering. The
timeframe for executive evaluations should be extended and there should also
be a downside risk by requiring management to put significant ‘skin in the
game’.
If companies behave responsibly and act sustainably there are benefits for
society in terms of economic prosperity, political stability, and trust in
free markets. This in turn drives further benefits for the companies
themselves. The Portfolio Manager therefore believes it makes sense to
integrate into the investment process the consideration of a company’s
performance in addressing sustainability issues, even if the advantages of
doing so take time to emerge.
Remuneration
The Portfolio Manager believes that governance within UK companies is
generally of a very high standard. This reflects the UK Corporate Governance
Code and the long history of efforts to raise standards. Whilst there are many
individual aspects of corporate governance that the Portfolio Manager
considers, remuneration – the design and implementation in practice of pay
structures to reward and incentivise behaviours that help the Company execute
against its strategy – remains one of the most important.
The Portfolio Manager’s view is that the basis of a good corporate
remuneration policy is a well-constituted remuneration committee. This
requires both the independence of the committee members and relevant
experience in the field of remuneration. A committee must guard against the
ratcheting upward of compensation awards, balancing this with attracting and
retaining talent.
The Portfolio Manager encourages companies to set remuneration metrics that
align with the overall strategy, reflecting appropriate financial incentives,
in combination with non-financial metrics relating to environment and social
issues. Environmental metrics should be calibrated to help address specific
operational challenges, while on social issues relations with employees,
customers, suppliers and the community should be reflected as appropriate.
Remuneration is a complex area and challenging to find the right balance
between the various objectives and agendas. Shareholders will invariably give
conflicting feedback to remuneration committees. Where the Portfolio Manager
can have significant influence, they will engage with companies in the
construction of the remuneration policy. Where they feel their shareholding in
a given company is too low to ensure a constructive basis for engagement, they
will share their own remuneration expectations document which sets out for
companies what the Portfolio Manager expects to see.
The Portfolio Manager in conjunction with the Board will continue to develop
the overall approach and push for higher standards, ensuring that they
collectively protect shareholder interests and promote long-termism, set in
the context of sustainability for all stakeholders.
Engagement Policy
Engagement is central to the Portfolio Manager’s process. Communicating with
investee companies on areas of concern is a key aspect of the Portfolio
Manager’s approach. Having a long-term investment horizon and concentrated
portfolio allows the Portfolio Manager to build meaningful relationships.
The engagement process is led and carried out by the Portfolio Manager,
consistent with the Redwheel Stewardship Policy. The specifics of each process
will be determined by the size of the exposure within the portfolio and the
materiality of the identified risk, amongst other factors. The Portfolio
Manager will draw from its own experience in assessing materiality risks as
well as both the Company’s own materiality assessment and independent
assessments on a sector basis, such as the Materiality Map developed
originally by the Sustainability Accounting Standards Board.
The method of engagement will depend on the engagement objectives. For
example, where the Portfolio Manager holds a position in an investee company
and is materially at odds with the Company’s strategic direction or specific
actions, it will usually set out its concerns in a letter to the Company and
follow up with a meeting. In some instances, the Portfolio Manager will go
further and set out a detailed analysis of the business or sector, with
proposed alterations to strategy, and discuss this analysis with management.
The Portfolio Manager will engage with the chair of an investee company,
particularly at times of management change or in relation to long-term
questions on strategic direction. It may also engage with the investee
company’s senior independent director should it have concerns about the
chair or about board effectiveness. Other engagements may take place in
response to a request from the investee company themselves, such as
engagements with the chair of the remuneration committee to discuss incentive
structures and policies. Engaging in collaboration with other shareholders,
and casting votes against management at a company’s AGM provide further
means to escalate concerns when direct bilateral engagement fails. As regards
remuneration, the Portfolio Manager aligns its approach to reflect the
guidance provided by the Pensions and Lifetime Savings Association, the UK
Corporate Governance Code and The Investment Association, as updated from time
to time.
The evaluation of the outcome of the Portfolio Manager’s engagements will
depend on the type of engagement and the extent to which the original
objective can be considered to have been achieved.
Where the Portfolio Manager looks for specific actions, it will assess the
outcome on whether management or the board engaged and subsequently chose to
act on the suggestions made. On other issues, the evaluation of the engagement
may be more qualitative and not as transparent. The Portfolio Manager tries to
be very open about the nature of its engagements and the outcomes of them.
Case studies of the Portfolio Manager’s engagement with investee companies
during the year are provided in the Company’s full Annual Report and are
just some of numerous calls, meetings and written correspondence that the
Portfolio Manager had with companies to discuss a variety of sustainability
and ESG-related issues.
Externalities and Non-Environmental Issues
In addition to adopting a stewardship approach to investment and integrating
sustainability and ESG considerations into its investment approach, the Board
asks the Portfolio Manager to consider systemic externalities when assessing a
company’s suitability for inclusion in the portfolio. Systemic externalities
are costs, usually considered as costs to society or the environment, which
are not captured by market pricing. In particular, there are some areas where
companies operating legally and ethically may, through their joint actions
(whether or not coordinated), inadvertently contribute to the delivery of
unintended consequences for people and planet, particularly in relation to
climate change, global financial fragility and antimicrobial resistance.
These are areas where the Board believes that engagement with investee
companies, in conjunction with other asset owners, is of particular importance
in order to raise awareness amongst companies of the need for market-based
response. The Portfolio Manager reports regularly to the Board with regard to
its engagement with portfolio companies in relation to such issues.
Future Developments
The future development of the Company is dependent on the success of its
investment strategy in the light of economic and equity market developments.
The outlook is discussed in the Chairman’s Statement and the Portfolio
Manager’s Report.
Strategic Report
On behalf of the Board
Richard Wyatt
Chairman
3 April 2024
Statement of Comprehensive Income
2023 2022
Revenue Capital Total Revenue Capital Total
Notes £000 £000 £000 £000 £000 £000
Total Income 4 32,422 – 32,422 34,791 – 34,791
Profit/(losses) on investments 12 – 62,826 62,826 – (42,572) (42,572)
Currency exchange loss – (143) (143) – (13) (13)
Total income/(loss) 32,422 62,683 95,105 34,791 (42,585) (7,794)
Expenses
Portfolio management fees 6 (1,103) (1,654) (2,757) (1,175) (1,762) (2,937)
Other expenses 7 (1,068) (721) (1,789) (1,057) (487) (1,544)
Profit/(loss) before finance costs and tax 30,251 60,308 90,559 32,559 (44,834) (12,275)
Finance costs 8 (1,123) (1,685) (2,808) (1,123) (1,685) (2,808)
Profit/(loss) before tax 29,128 58,623 87,751 31,436 (46,519) (15,083)
Tax 9 (926) – (926) (886) – (886)
Profit/(loss) for the year 28,202 58,623 86,825 30,550 (46,519) (15,969)
Earnings per share 11 9.3p 19.4p 28.7p 9.4p (14.3p) (4.9p)
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).
The notes to the financial statements form an integral part of the financial
statements.
Statement of Changes in Equity
Called-up Share premium Capital Revenue Total
share
capital account reserves reserve equity
Notes £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2022 16,719 96,040 672,616 11,708 797,083
(Loss)/profit for the year – – (46,519) 30,550 (15,969)
Contributions by and distributions to owners
Cost of shares bought back for treasury – – (25,891) – (25,891)
Dividends paid to equity shareholders 10 – – – (28,877) (28,877)
Balance at 31 December 2022 16,719 96,040 600,206 13,381 726,346
Profit for the year – – 58,623 28,202 86,825
Contributions by and distributions to owners
Cost of shares bought back for treasury – – (63,535) – (63,535)
Dividends paid to equity shareholders 10 – – – (28,932) (28,932)
Balance at 31 December 2023 16,719 96,040 595,294 12,651 720,704
As at 31 December 2023, the Company had distributable revenue reserves of
£12,651,000 (2022: £13,381,000) and distributable capital reserves of
£595,294,000 (2022: £600,206,000) for the payment of future dividends. Only
the revenue reserve and capital reserves are distributable.
The notes to the financial statements form an integral part of the financial
statements.
Statement of Financial Position
31 December 2023 31 December 2022
Notes £’000 £’000 £’000 £’000
Non-current assets
Investments 12 776,875 782,463
Current assets
Investments 12 13,713 5,170
Cash and cash equivalents 4,275 13,240
Receivables 13 2,979 2,257
20,967 20,667
Total assets 797,842 803,130
Current liabilities
Payables 14 (2,394) (2,077)
Total assets less current liabilities 795,448 801,053
Non-current liabilities
Interest bearing borrowings 15 (74,744) (74,707)
Net assets 720,704 726,346
Equity attributable to equity holders
Ordinary share capital 16 16,719 16,719
Share premium 96,040 96,040
Capital reserves 595,294 600,206
Revenue reserve 12,651 13,381
Total equity attributable to equity holders 720,704 726,346
NAV per share 18 248.0p 228.5p
NAV per share with debt at fair value 1 18 252.2p 233.5p
1 Alternative Performance Measure – See glossary of terms for definition
and more information.
The notes to the financial statements form an integral part of the financial
statements.
The financial statements of Temple Bar Investment Trust Plc (registered
number: 00214601) were approved by the Board of Directors and authorised for
issue on 3 April 2024. They were signed on its behalf by:
Richard Wyatt
Chairman
Statement of Cash Flows
31 December 2023 31 December 2022
Notes £’000 £’000 £’000 £’000
Cash flows from operating activities
(Loss)/profit before tax 87,751 (15,083)
Adjustments for:
Losses/(gains) on investments (62,826) 42,572
Finance costs 2,808 2,808
Dividend income 4 (32,278) (34,504)
Interest income 4 (144) (287)
Dividends received 32,037 37,680
Interest received (97) 584
Decrease/(increase) in other receivables 38 (361)
Increase in other payables 584 70
Net overseas withholding tax paid 9 (1,229) (886)
(61,107) 47,676
Net cash flows from operating activities 26,644 32,593
Purchases of investments (137,215) (127,456)
Sales of investments 197,110 154,148
Net cash flows from investing activities 59,895 26,692
Cash flows from financing activities
Equity dividends paid 10 (28,932) (28,877)
Interest paid on borrowings (2,773) (2,772)
Shares bought back for treasury (63,799) (26,022)
Net cash flows used in financing activities (95,504) (57,671)
Net (decrease)/increase in cash and cash equivalents (8,965) 1,614
Cash and cash equivalents at the start of the year 13,240 11,626
Cash and cash equivalents at the end of the year 4,275 13,240
The notes to the financial statements form an integral part of the financial
statements.
Notes to the Financial Statements
General information
Temple Bar Investment Trust Plc was incorporated in England and Wales in 1926
with the registered number 00214601.
The Company carries on the business as an investment trust company within the
meaning of Sections 1158/1159 of the Corporation Tax Act 2010.
1. Principal Accounting Policies
Basis of accounting
The financial statements have been prepared on a going concern basis, under
the historical cost convention, modified by the valuation of investments at
fair value, prepared in accordance with UK adopted international accounting
standards.
The annual financial statements have also been prepared in accordance with the
AIC SORP for investment trusts issued by the AIC in July 2022, except to any
extent where it is not consistent with the requirements of IFRS. The principal
accounting policies adopted by the Company are set out below.
All values are rounded to the nearest thousand pounds unless otherwise
indicated.
Going concern
The Directors are required to make an assessment of the Company’s ability to
continue as a going concern and that the Company has adequate resources to
continue in operational existence for 12 months from the date when these
financial statements are approved.
In making this assessment, the Directors have considered a wide variety of
emerging and current risks to the Company, as well as mitigation strategies
that are in place. The Board has also reviewed stress-testing and scenario
analyses prepared by the AIFM to assist it in assessing the impact of changes
in market value and income with associated cash flows. In making this
assessment, the AIFM has considered plausible downside scenarios.
These tests are carried out as an arithmetic exercise, which can apply equally
to any set of circumstances in which asset value and income are significantly
impaired. It was concluded that in a plausible downside scenario, the Company
could continue to meet its liabilities. Whilst the economic future is
uncertain, the opinion of the Directors is that no foreseeable downside
scenario would be to a level which would threaten the Company’s ability to
continue to meet its liabilities as they fall due.
Based on the information available to the Directors at the time of this
report, including the results of the stress tests and scenario analyses, and
having taken account of the liquidity of the investment portfolio, the
Company’s cash flow and borrowing position (see notes 8 and 15 for further
details on borrowings), the Directors are satisfied that the Company has
adequate financial resources to continue in operation for 12 months from the
date of signing of these financial statements and that, accordingly, it is
appropriate to adopt the going concern basis.
Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income.
Income
Dividend income from investments is recognised when the Company’s right to
receive payment has been established, normally the ex-dividend date.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash, the amount of cash dividend foregone is
recognised as income. Any excess in the value of shares received over the
amount of cash dividend foregone is recognised as a capital gain in the
Statement of Comprehensive Income.
Interest income is recognised in line with coupon terms on a time-apportioned
basis. Special dividends are credited to capital or revenue according to their
circumstances.
Foreign currency
The financial statements are prepared in pounds sterling because that is the
currency of the primary economic environment in which the Company operates.
The primary objective of the Company is to generate returns in pounds
sterling, its capital-raising currency. The liquidity of the Company is
managed on a day-to-day basis in sterling as the Company’s performance is
evaluated in that currency. Therefore, the Directors consider pounds sterling
as the currency that most faithfully represents the economic effects of the
underlying transactions, events and conditions.
Transactions involving foreign currencies are converted at the exchange rate
ruling at the date of the transaction. Foreign currency monetary assets and
liabilities as well as instruments carried at fair value are translated into
pounds sterling at the exchange rate ruling on the year-end date. Foreign
exchange differences arising on translation are recognised in the Statement of
Comprehensive Income.
Expenses
All expenses are accounted for on the accruals basis. In respect of the
analysis between revenue and capital items presented within the Statement of
Comprehensive Income, all expenses have been presented as revenue items except
as follows:
· transaction costs which are incurred on the purchases or sales of
investments designated as fair value through profit or loss are expensed to
capital in the Statement of Comprehensive Income; and
· expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the investments
held can be demonstrated and, accordingly, the investment management fee and
finance costs have been allocated 40% to revenue and 60% to capital, in order
to reflect the Directors’ long-term view of the nature of the expected
investment returns of the Company; this remains consistent with the prior
year.
Taxation
The tax expense represents the sum of the current tax expense. The tax
currently payable is based on the taxable profit for the year. The taxable
profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company’s liability for current tax is
calculated using a blended rate as applicable throughout the year.
In line with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Statement of Comprehensive Income is the
‘marginal basis’. Under this basis, if taxable income is capable of being
entirely offset by expenses in the revenue column of the income statement,
then no tax relief is transferred to the capital column.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the balance sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax is calculated at the enacted tax rate that is expected to apply
in the period when the liability is settled or the asset is realised. Deferred
tax is charged or credited in the revenue return of the Statement of
Comprehensive Income, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt with in
equity.
· Investment trusts which have approval under Section 1158 of the
Corporation Tax Act 2010 are not liable for taxation on capital gains.
· Irrecoverable withholding tax is recognised on any overseas dividends on
an accruals basis using the applicable rate for the country of origin.
Financial instruments
The Company classifies its financial assets as subsequently measured at
amortised cost or measured at fair value through profit or loss on the basis
of its business model for managing the financial assets and the contractual
cash flow characteristics of the financial asset. Financial assets are
measured at fair value through profit or loss if their contractual terms do
not give rise to cash flows on specified dates that are solely payments of
principal and interest and at amortised cost if they do. Financial assets and
financial liabilities are recognised in the Statement of Financial Position
when the Company becomes party to the contractual provisions of the
instrument. The Company will offset financial assets and financial liabilities
if it has a legally enforceable right to offset the recognised amounts and
interest and intends to settle on a net basis. A financial asset is
derecognised when the right to receive cash flows from the asset expires or
the rights to receive cash flows from the asset have been transferred and a
financial liability is derecognised when the obligation under the liability is
discharged, cancelled or expired.
Investments
Equity investments are held at fair value through profit or loss as they fail
the contractual cash flows test under IFRS 9. Debt instruments that pass the
contractual cash flow test are held under a business model to manage them on a
fair value basis for investment income and fair value gains and are therefore
classified as fair value through profit or loss.
Upon initial recognition, investments are measured at fair value through
profit or loss. Gains or losses on investments measured at fair value through
profit or loss are included in net profit or loss as a capital item and
transaction costs on acquisition or disposal of investments are expensed. For
investments that are actively traded in organised financial markets, fair
value is determined by reference to stock exchange quoted market bid prices at
the close of business on the year-end date.
All purchases and sales of investments are recognised on the trade date, i.e.
the date that the Company commits to purchase or sell an asset.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the
Company after deducting all of its liabilities.
Interest bearing borrowings
Interest bearing borrowings, being the debenture stock and loans issued by the
Company, are initially recognised at a carrying value equivalent to the
proceeds received net of issue costs associated with the borrowings. After
initial recognition, interest bearing borrowings are subsequently measured at
amortised cost using the effective interest rate method.
When calculating the NAV with debt at fair value the fair value of the private
placement loans is determined using discounted cash flow techniques which
utilise inputs including interest rates obtained from comparable loans in the
market.
Equity dividends payable
Equity dividends payable are recognised when the shareholders’ right to
receive payment is established. For interim dividends this is when they are
paid and for final dividends this is when they are approved by shareholders.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of asset on
the Statement of Financial Position) comprise cash at bank and in hand, and
deposits with an original maturity of three months or less.
The carrying value of these assets approximates their fair value.
Reserves
The share capital represents the nominal value of the Company’s ordinary
shares.
The share premium account represents the excess over nominal value of the fair
value of consideration received for the Company’s ordinary shares, net of
expenses of the share issue. This reserve cannot be distributed.
The capital reserve represents realised and unrealised capital and exchange
gains and losses on the disposal and revaluation of investments and of foreign
currency items. Realised gains can be distributed, unrealised gains cannot be
distributed.
The revenue reserve represents retained profits from the income derived from
holding investment assets less the costs and interest on cash balances
associated with running the Company. This reserve can be distributed.
2. Significant Accounting Judgements, Estimates and Assumptions
There are no significant judgements, estimates or assumptions involved in the
presentation of the Company’s accounts, other than the judgement on the
functional and presentational currency of the Company as set out in the
preceding note.
3. Adoption of New and Revised Standards New standards, interpretations and
amendments adopted from 1 January 2023
There are no new standards impacting the Company that have had a significant
effect on the annual financial statements for the year ended 31 December 2023.
Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements)
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2. The amendments aim to make accounting policy disclosures more
informative by replacing the requirement to disclose ‘significant accounting
policies’ with ‘material accounting policy information’. The amendments
also provide guidance under what circumstance, the accounting policy
information is likely to be considered material and therefore requiring
disclosure.
These amendments have no effect on the measurement or presentation of any
items in the financial statements of the Company nor do they affect the
disclosure of accounting policies of the Company.
Standards issued but not yet effective
There are no standards or amendments not yet effective which are relevant or
have a material impact on the Company.
4. Income
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment Income
UK dividends 23,085 – 23,085 26,541 – 26,541
Overseas dividends 9,193 – 9,193 7,963 – 7,963
Interest from fixed-interest securities 84 – 84 256 – 256
32,362 – 32,362 34,760 – 34,760
Other income
Deposit interest 60 – 60 31 – 31
Total income 32,422 – 32,422 34,791 – 34,791
During the year ended 31 December 2023, the Company received special dividends
totalling £nil (2022: £3,183,079). All the special dividends in 2022 were
recognised as revenue and included within investment income.
5. Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
6. Portfolio Management Fee
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Portfolio management fee 1,103 1,654 2,757 1,175 1,762 2,937
1,103 1,654 2,757 1,175 1,762 2,937
Under the terms of the Portfolio Management Agreement, Redwheel is entitled to
a management fee, details of which are set out in the Report of the Directors.
As at 31 December 2023, an amount of £1,306,000 (2022: £741,000) was payable
to Redwheel in relation to the management fees.
7. Other Expenses
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Transaction costs 1 – 430 430 – 310 310
Directors’ fees 181 – 181 155 – 155
(see Report on Directors’ Remuneration)
AIFM fee 194 291 485 83 124 207
Company Secretary fee 69 – 69 104 – 104
Registrar’s fee 60 – 60 113 – 113
Marketing costs 59 – 59 108 – 108
Auditor’s remuneration – annual audit 2 51 – 51 47 – 47
Depositary fee 92 – 92 95 – 95
Other expenses 362 – 362 352 53 405
1,068 721 1,789 1,057 487 1,544
All expenses are inclusive of VAT where applicable.
1 Transaction costs represent costs incurred on both the purchase and sale of
investments. Transaction costs on purchases amounted to £360,000 (2022:
£283,100) and on sales amounted to £70,000 (2022: £27,000).
2 During the year audit fees of £42,600 (2022: £39,500) (excluding VAT)
were due to the Auditor.
8. Finance Costs
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
4.05% Private Placement Loan 2028 1 823 1,234 2,057 823 1,234 2,057
2.99% Private Placement Loan 2047 1 300 451 751 300 451 751
Total finance costs 1,123 1,685 2,808 1,123 1,685 2,808
The amortisation of the loan issue costs is calculated using the effective
interest method.
1 The 4.05% and 2.99% Private Placement Loans contain the following principal
financial or other covenants, with which failure to comply could necessitate
the early repayment of the loan.
These were all complied with during the current and previous year:
· net tangible assets of at least £275 million;
· aggregate principal amount of financial indebtedness not to exceed 50% of
net tangible assets;
· prior approval by the note holder of any change of Portfolio Manager; and
· prior approval by the note holder of any change in the Company’s
investment objective and policy.
9. Taxation
The Company has no corporation tax liability for the year ended 31 December
2023 (2022: nil).
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Analysis of charge for the year:
Overseas withholding tax suffered 926 – 926 886 – 886
926 – 926 886 – 886
The charge for the year can be reconciled to the profit per the Statement of
Comprehensive Income as follows:
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Profit/(loss) before taxation 29,128 58,623 87,751 31,436 (46,519) (15,083)
Tax at UK corporation tax rate of 23.5% (2022: 19.0%) 6,845 13,776 20,621 5,973 (8,839) (2,866)
Tax effects of:
Non–taxable(gains)/losses on investments 1 – (14,730) (14,730) – 8,091 8,091
Disallowed expenses – 101 101 – 69 69
Non–taxable UK dividends (5,425) – (5,425) (5,043) – (5,043)
Overseas withholding tax suffered 926 – 926 886 – 886
Non–taxable overseas dividends (2,161) – (2,161) (1,513) – (1,513)
Excess management expenses 741 853 1,594 583 679 1,262
Total tax charge for the year 926 – 926 886 – 886
1 Investment trusts are not subject to corporation tax on these items.
No provision for deferred taxation has been made in the current year. The
Company has not provided for deferred tax on capital profits arising on the
revaluation of investments, as it is exempt from tax on these items because of
its status as an investment trust company.
The Company has not recognised a deferred tax asset on the excess management
expenses of £130,092,000 (2022: £124,374,000). It is not anticipated that
these excess expenses will be utilised in the foreseeable future.
10. Dividends
2023 2022
£’000 £’000
Amounts recognised as distributions to equity holders in the year
Fourth interim dividend for year ended 31 December 2022 of 2.5p 7,790 6,759
(2022: fourth interim dividend for year ended 31 December 2021 of 2.05p*) per share
Interim dividends for year ended 31 December 2023. Two payments of 2.3p and one payment of 2.5p (2022: one payment of 2.05p, one payment of 2.3p and one payment of 2.5p) per share 21,142 22,118
28,932 28,877
Fourth interim dividend for the year ended 31 December 2023 of 2.5p 7,214 7,791
(fourth interim dividend 2022: 2.5p) per share
The fourth interim dividend is not included as a liability in these financial
statements.
Therefore, also set out below is the total dividend payable in respect of
these financial years, which is the basis on which the requirements of Section
1158 of the Corporation Tax Act 2010 are considered.
2023 2022
£’000 £’000
Interim dividends (three) 21,142 22,118
Fourth interim dividend for year ended 31 December 2023 of 2.5p (2022: 2.5p) per share 7,214 7,791
28,356 29,909
* Restated to reflect the subsequent 5 for 1 share split.
11. Earnings per Share
2023 2022
Revenue Capital Total Revenue Capital Total
Basic and diluted
Profit/(loss) for the year (£000’s) 28,202 58,623 86,825 30,550 (46,519) (15,969)
Weighted average number of ordinary shares 302,388,667 325,567,365
Earnings per ordinary share (pence) 9.3 19.4 28.7 9.4 (14.3) (4.9)
12. Investments
(a) Investment portfolio summary
2023 2022
Quoted Debt Quoted Debt
equities securities Total equities securities Total
£’000 £’000 £’000 £’000 £’000 £’000
Opening cost at the beginning of the year 734,594 5,172 739,766 736,629 7,948 744,577
Opening unrealised appreciation/(depreciation) at the beginning of the year 47,869 (2) 47,867 112,521 (4) 112,517
Opening fair value at the beginning of the year 782,463 5,170 787,633 849,150 7,944 857,094
Movements in the year:
Purchases at cost 123,559 13,680 137,239 59,648 67,611 127,259
Sales proceeds (191,910) (5,200) (197,110) (83,787) (70,361) (154,148)
Realised gain/(loss) on sale of investments 67,070 – 67,070 22,104 (26) 22,078
Change in unrealised (depreciation)/ appreciation (4,307) 63 (4,244) (64,652) 2 (64,650)
Closing fair value at the end of the year 776,875 13,713 790,588 782,463 5,170 787,633
Closing cost at the end of the year 733,313 13,652 746,965 734,594 5,172 739,766
Closing unrealised appreciation/(depreciation) at the end of the year 43,562 61 43,623 47,869 (2) 47,867
Closing fair value at the end of the year 776,875 13,713 790,588 782,463 5,170 787,633
The Company received £197,110,000 (2022: £154,148,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£130,040,000 (2022: £132,070,000). These investments have been revalued over
time and until they were sold any gains/losses were included in the fair value
of the investments.
(b) Fair value of financial instruments
IFRS 13 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following classifications:
· Level 1 – valued using quoted prices in active markets for identical
investments.
· Level 2 – valued using other significant observable inputs (including
quoted prices for similar investments, interest rates, prepayments, credit
risk, etc). There are no level 2 financial assets (2022: £nil).
· Level 3 – valued using significant unobservable inputs (including the
Company’s own assumptions in determining the fair value of investments).
There are no level 3 financial assets (2022: £nil).
All of the Company’s investments are in quoted securities actively traded on
recognised stock exchanges, with their fair value being determined by
reference to their quoted bid prices at the reporting date and have therefore
been determined as Level 1.
There were no transfers between levels in the year (2022: no transfers) and as
such no reconciliation between levels has been presented.
13. Receivables
2023 2022
£’000 £’000
Accrued income 1,937 1,481
Other receivables 1,042 776
2,979 2,257
Accrued income includes dividends and fixed-interest income.
14. Current Liabilities
2023 2022
£’000 £’000
Accruals 2,363 1,782
Due to broker 31 295
2,394 2,077
Accruals include the interest payable on borrowings amount to £802,000
(£2022: £805,000).
15. Borrowings
2023 2022
£’000 £’000
Interest bearing borrowings
Amounts payable after more than one year:
4.05% Private Placement Loan 2028 49,849 49,817
2.99% Private Placement Loan 2047 24,895 24,890
Total 74,744 74,707
2023 2022
£’000 £’000
Opening balance as per the Statement of Financial Position 74,707 74,671
Borrowings repaid – –
Interest movement (2,771) (2,772)
Finance costs for the year as per the Statement of Comprehensive Income 2,808 2,808
Closing balance as per the Statement of Financial Position 74,744 74,707
The 4.05% Private Placement Loan is secured by a floating charge over the
assets of the Company. The loan is repayable at par, £50,000,000, on 3
September 2028.
The 2.99% Private Placement Loan is secured by a floating charge over the
assets of the Company. The loan is repayable at par, £25,000,000, on 24
October 2047.
See note 20 for the disclosure and fair value categorisation of the financial
liabilities.
16. Ordinary Share Capital
2023 2022
Number Number
As at 1 January 317,822,386 65,951,785
Purchase of shares into treasury pre-share split – (260,125)
Issue of shares following 5 for 1 share split – 262,766,640
Purchase of shares into treasury post-share split (27,209,505) (10,635,914)
As at year end:
In circulation 290,612,881 317,822,386
In Treasury 43,750,944 16,541,439
Listed 334,363,825 334,363,825
Nominal Value of 5p ordinary shares (£’000) 16,719 16,719
During the year, the Company bought back ordinary shares at a cost of
£63,535,000 (Year ended 31 December 2022: £25,891,000).
At the AGM of the Company held in May 2022, shareholders approved a resolution
for a five for one share split such that each shareholder would receive five
shares with a nominal value of 5 pence each for every one share held.
267,491,060 additional shares (262,766,640 to shareholders and 4,724,420 in
relation to shares held in treasury) were issued following this approval.
17. Contingent Liabilities And Capital Commitments
As at 31 December 2023, there were no contingent liabilities or capital
commitments for the Company (2022: £nil).
18. Net asset value (“NAV”) per share
The NAV per share is based on the net assets attributable to the equity
shareholders of £720,704,000 (31 December 2022: £726,346,000) and
290,612,881 (31 December 2022: 317,822,836) shares being the number of shares
in issue at the year end.
The NAV per share with debt at fair value is based on the net assets
attributable to the equity shareholders, adjusted for the difference between
the debt at book value and fair value as shown in note 20, and the number of
shares in issue at the year end. Adjusting for debt at fair value resulted in
an increase in net assets of £12,290,000 or 4.2p per share (31 December 2022:
increase of £15,938,000 or 5.0p per share).
19. Related Party Transactions and Transactions with the Portfolio 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. 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 2023, there was £nil (2022: £nil) payable to the Directors
for fees and expenses.
AIFM and Portfolio Manager – On 1 July 2023, Frostrow Capital LLP was
appointed the AIFM of the Company and has delegated portfolio management to
Redwheel, who are deemed to be Key Management Personnel for the purposes of
disclosing related party information under IAS24. Details of the services
provided by the Portfolio Manager are given in the Report of the Directors and
their fees for the year, along with outstanding balances to them, are set out
in note 6.
20. Risk Management and Financial Instruments
The Company’s investing activities undertaken in pursuit of its investment
objective involve certain inherent risks. The main financial risks arising
from the Company’s financial instruments are market price risk, interest
rate risk, liquidity risk, credit risk and currency risk. The Board reviews
and agrees policies for managing each of these risks as summarised below. The
Board has also established a series of investment parameters, which are
reviewed annually, designed to limit the risk inherent in managing a portfolio
of investments. These policies have remained substantially unchanged during
the current and preceding periods. The Board meets on four scheduled occasions
in each year and at each meeting it receives sufficient financial and
statistical information to enable it to monitor adequately the investment
performance and status of the business.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company’s business. It represents the
potential loss the Company might suffer through holding market positions in
the face of price movements. The Company’s borrowings have the effect of
increasing the market risk faced by shareholders.
Interest rate risk
Interest rate risk is the risk of movements in the value of financial
instruments or interest income cash flows that arise as a result of
fluctuations in interest rates. The Company finances its operations through
retained profits including capital profits, and additional financing is
obtained through the two Private Placement Loans, on both of which interest is
paid at a fixed rate and therefore subject to fair value interest rate risk.
Cash flow interest rate risk
The majority of the Company’s financial assets are equity shares and other
investments which neither pay interest nor have a maturity date. The
Company’s fixed-interest holdings have a market value of £13,713,000,
representing 1.9% of net assets (2022: £5,170,000; 0.7%). The weighted
average running yield as at 31 December 2023 was 5.0% (2022: 4.0%) and the
weighted average remaining life was 1.6 years (2022: 0.7 years). The
Company’s cash balance of £4,275,000 (2022: £13,240,000) earns interest,
calculated on a tiered basis, depending on the balance held, by reference to
the base rate. Cashflow interest rate risk is not considered a significant
risk to the Company.
Fair value interest rate risk
The 4.05% Private Placement Loan and the 2.99% Private Placement Loan, which
are repayable in 2028 and 2047 respectively, pay interest at fixed rates. The
weighted average period until maturity of the loans is 11 years (2022:
12 years) and the weighted average interest rate payable is 3.7% (2022: 3.7%)
per annum. The fair value of the loans will vary with changes in interest
rates. As interest rates increase the fair value of the loan liability is
expected to decrease, while when interest rates decrease the fair value of the
loan liability is expected to increase.
Liquidity risk
The Company’s assets comprise mainly readily realisable securities, which
can be sold to meet funding commitments if necessary. Short-term flexibility
is achieved through the use of cash balances and short-term bank deposits.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a financial loss.
This is mitigated by the Portfolio Manager reviewing the credit ratings of
broker counterparties. The Company’s Custodian is responsible for the
collection of income on behalf of the Company. Cash is held either with
reputable banks with high quality external credit ratings or in liquidity/cash
funds providing a spread of exposures to various underlying banks in order to
diversify risk. The carrying amounts of financial assets represent their
maximum exposure to credit risk. The debt security held at the year end has a
credit rating of AA.
Currency risk
The income and capital value of the Company’s investments and liabilities
can be affected by exchange rate movements as some of the Company’s assets
and income are denominated in currencies other than Pounds Sterling, which is
the Company’s reporting currency. The Company does not currently hedge its
currency exposure. The key areas where foreign currency risk could have an
impact on the Company are:
· movements in rates that would affect the value of investments; and
· movements in rates that would affect the income received.
The Company had the following currency exposures, all of which are included in
the Statement of Financial Position based on the exchange rates ruling at the
respective year ends. Exposures vary throughout the year as a consequence of
changes in the composition of the net assets of the Company arising out of the
investment and risk-management processes.
2023
Investments Cash Receivables Payables Borrowings Total
£’000 £’000 £’000 £’000 £’000 £’000
Euro 114,111 – – – – 114,111
US Dollar 55,052 – 189 – – 55,241
Canadian Dollar 9,892 – – – – 9,892
Hong Kong Dollar 10,394 – – – – 10,394
Japanese Yen 14,609 – – – – 14,609
Pounds Sterling 586,530 4,275 2,790 (2,394) (74,744) 516,457
790,588 4,275 2,979 (2,394) (74,744) 720,704
2022
Investments Cash Receivables Payables Borrowings Total
£’000 £’000 £’000 £’000 £’000 £’000
Euro 50,086 – – – – 50,086
US Dollar 55,995 – 151 – – 56,146
Canadian Dollar 9,919 – – – – 9,919
Hong Kong Dollar 12,350 – – – – 12,350
Japanese Yen 11,434 – – – – 11,434
Pounds Sterling 647,849 13,240 2,106 (2,077) (74,707) 586,411
787,633 13,240 2,257 (2,077) (74,707) 726,346
Foreign currency sensitivity
2023 2022
£’000 £’000 £’000 £’000
Projected movement +10% -10% +10% -10%
Effect on net assets for the year (18,568) 22,694 (12,858) 15,380
Other price risk exposure
If the investment valuation fell by 20% at 31 December 2023, the impact on the
profit or loss and net assets would have been negative £158.1 million (2022:
20% negative £157.5 million). If the investment portfolio valuation rose by
20% at 31 December 2023, the impact on the profit or loss and net assets
would have been positive £158.1 million (2022: 20% positive £157.5 million).
The calculations are based on the portfolio valuation as at the respective
year-end dates.
The Company held the following categories of financial instruments, all of
which are included in the Statement of Financial Position at fair value or
amortised cost which is an approximation of fair value, with the exception of
interest-bearing borrowings which are shown at amortised cost at 31 December.
2023 2022
Amortised Amortised
cost Fair value cost Fair value
£’000 £’000 £’000 £’000
Assets at fair value through profit or loss 790,588 790,588 787,633 787,633
Cash 4,275 4,275 13,240 13,240
Receivables and Payables
Investment income receivable 1,937 1,937 1,481 1,481
Other receivables 1,042 1,042 776 776
Payables (2,394) (2,394) (2,077) (2,077)
Interest- bearing borrowings:
4.05% Private Placement Loan (49,849) (47,291) (49,817) (44,872)
2.99% Private Placement Loan (24,895) (15,163) (24,890) (13,987)
720,704 732,994 726,346 742,194
The 4.05% Private Placement Loan 2028 and the 2.99% Private Placement Loan
2047 do not have prices quoted on an active market, however their fair values
have been calculated using observable inputs. As such they have been
classified as Level 2 instruments (2022: Level 2).
Liquidity risk exposure
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Contractual maturities of the financial liabilities at the year end, including
future interest payments not yet accrued for, based on the earliest date on
which payment can be required, are as follows:
2023
Three Not more
months than one More than
or less year Two years Three years three years Total
£’000 £’000 £’000 £’000 £’000 £’000
Loan Interest due 1,012 1,760 2,772 2,772 19,748 28,064
Loan principle – – – – 75,000 75,000
Accruals 1,452 140 – – – 1,592
2022
Three Not more
months than one More than
or less year Two years Three years three years Total
£’000 £’000 £’000 £’000 £’000 £’000
Loan Interest due 1,012 1,760 2,772 2,772 22,520 30,836
Loan principle – – – – 75,000 75,000
Accruals 1,133 139 – – – 1,272
Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be
able to continue as a going concern, and to provide long-term growth in
revenue and capital, principally by investment in UK securities. There have
been no changes in the Company’s objectives, policies and processes for
managing capital from the prior year.
The Company’s capital is its equity share capital and reserves that are
shown in the Statement of Financial Position and fixed-term loans (see note
15) at a gross total of £795,488,000 (2022: £801,053,000).
The Company is subject to several externally imposed capital requirements:
· as a public Company, the Company has a minimum share capital of £50,000;
· in order to be able to pay dividends out of profits available for
distribution by way of dividends, the Company has to be able to meet one of
the two capital restriction tests imposed on investment companies by company
law; and
· the Note Purchase Agreements governing the terms of the Private Placement
Loans also contain certain financial covenants as set out in note 8. These are
measured in accordance with the policies used in the Annual Report & Financial
Statements.
The Company has complied with all of the above requirements during the current
and prior year.
21. Post Balance Sheet Events
Subsequent to the year end and up to 2 April 2024, the Company bought back
3,771,869 ordinary shares for treasury, at a total cost of £8,910,000,
representing 1.3% of the issued share capital as at 31 December 2023.
On 15 February 2024, the Board approved a fourth interim dividend for the year
ended 31 December 2023, of 2.5 pence per ordinary share payable on 2 April
2024.
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to the action you take you should consult your
stockbroker, bank manager, solicitor, accountant or other independent
financial adviser authorised under the Financial Services and Markets Act 2000
immediately.
If you have sold or otherwise transferred all of your ordinary shares in
Temple Bar Investment Trust Plc, please forward this document and the
accompanying form of proxy as soon as possible to the purchaser or transferee
or to the stockbroker, bank or other agent through whom the sale or transfer
was or is being effected for delivery to the purchaser or transferee.
NOTICE IS HEREBY GIVEN that the 98th Annual General Meeting (“AGM”) of
Temple Bar Investment Trust Plc will be held at 25 Southampton Buildings,
London WC2A 1AL on Tuesday, 7 May 2024 at 11.00 am for the purpose of
considering and, if thought fit, passing the resolutions below.
1. To approve the Company’s Annual Report & Financial Statements for the
year ended 31 December 2023 (together with the reports of the Directors and
Auditor therein).
2. To approve the Report on Directors’ Remuneration for the year ended 31
December 2023.
3. To re-elect Mrs Carolyn Sims as a Director of the Company.
4. To re-elect Mr Charles Cade as a Director of the Company.
5. To re-elect Mr Richard Wyatt as a Director of the Company.
6. To re-elect Dr Shefaly Yogendra as a Director of the Company.
7. To re-appoint BDO LLP as the Auditor to the Company, to hold office from
the conclusion of this meeting until the conclusion of the next meeting at
which financial statements are laid before the Company.
8. To authorise the Audit and Risk Committee to determine the remuneration of
the Auditor.
9. To approve the Company’s dividend policy, authorising the Directors of
the Company to declare and pay all dividends of the Company as interim
dividends, and for the last dividend referable to a financial year not to be
categorised as a final dividend that is subject to shareholder approval.
10. That, in substitution of all existing authorities, the Directors be and
are hereby generally and unconditionally authorised in accordance with Section
551 of the Companies Act 2006 (the “Companies Act”) to allot shares in the
Company or grant rights to subscribe for or to convert any security into
shares in the Company (‘Rights’) up to an aggregate maximum nominal amount
of £1,434,055, being 10% of the issued share capital of the Company as at 2
April 2024 and representing 28,684,101 ordinary shares in the capital of the
Company (or if changed, the number representing 10% of the issued share
capital of the Company at the date at which this resolution is passed), such
authority to expire at the conclusion of the AGM of the Company to be held in
2025 (unless previously renewed, varied, revoked or extended by the Company in
general meeting), save that the Company may, before such expiry, make offers
or agreements which would or might require ordinary shares to be allotted
after such expiry, and the Directors may allot ordinary shares in pursuance of
such offers or agreements as if the authority conferred by this resolution had
not expired.
SPECIAL RESOLUTIONS
11. That, subject to the passing of resolution 10 set out above, the
Directors be and they are hereby generally empowered pursuant to Sections 570
and 573 of the Companies Act to allot equity securities (as defined in Section
560 of the Companies Act) for cash, including for the avoidance of doubt, the
sale of shares held by the Company as treasury shares, in accordance with the
authority conferred on the Directors by resolution 11, as if Section 561 of
the Companies Act did not apply to the allotment or sale, up to an aggregate
nominal amount of £1,434,055 (being 10% of the issued ordinary share capital
of the Company at 2 April 2024), (or, if changed, the number representing 10%
of the issued share capital of the Company at the date at which this
resolution is passed), such power to expire at the conclusion of the AGM of
the Company to be held in 2025 (unless previously renewed, varied, revoked or
extended by the Company in general meeting) save that the Company may, at any
time prior to the expiry of such power, make an offer or enter into an
agreement which would or might require ordinary shares to be allotted or sold
from treasury after the expiry of such power and the Directors may allot or
sell ordinary shares from treasury in pursuance of such an offer or agreement
as if such power had not expired.
12. That, the Company generally be and is hereby authorised for the purpose
of Section 701 of the Companies Act to make market purchases (as defined in
Section 693 of the Companies Act) of its ordinary shares in issue, either for
retention as treasury shares for future reissue, resale, transfer or
cancellation provided that:
i) the maximum number of ordinary shares hereby authorised to be purchased is
14.99% of the issued share capital of the Company as at the date of the
passing of this resolution;
ii) the minimum price (exclusive of expenses payable by the Company) which
may be paid for such ordinary shares is the nominal value per share;
iii) the maximum price (exclusive of expenses payable by the Company) which
may be paid for such ordinary shares shall be the higher of:
i) an amount equal to 105% of the middle market quotations for an ordinary
share as derived from the London Stock Exchange Daily Official List for the
five business days immediately preceding the date on which the ordinary shares
are purchased; and
ii) the higher of the price of the last independent trade and the highest
current independent bid on the trading venue where the purchase is carried
out.
This authority shall expire at the conclusion of the AGM of the Company to be
held in 2025 (unless previously revoked, varied, renewed or extended by the
Company in general meeting) save that the Company may, before such expiry,
enter into a contract to purchase shares which will or may be executed wholly
or partly after the expiry of such authority.
13. That, a general meeting, other than an annual general meeting, may be
called on not less than 14 clear days’ notice.
By order of the Board Registered Office:
Frostrow Capital LLP 25 Southampton
Buildings
3 April 2024 London
WC2A 1AL
NOTES
1. Entitlement to attend and vote
Members who hold ordinary shares in the Company in uncertificated form must
have been entered on the Company’s register of members by 6.30pm on
Thursday, 2 May 2024 in order to be able to attend and vote at the meeting, or
if the meeting is adjourned, 6.30pm on the day two business days before the
time fixed for the adjourned meeting. Such members may only vote at the
meeting in respect of ordinary shares held at the time.
2. Proxies
A member entitled to attend and vote at the above meeting is entitled to
appoint a proxy to attend the meeting to speak and vote on a show of hands
and, on a poll, to vote instead of them. A proxy need not be a member of the
Company. A member wishing to appoint more than one proxy must appoint each
proxy in respect of a specified number of shares within their holding. For
this purpose, a member may photocopy the enclosed form of proxy before
completion and must indicate the number of shares in respect of which each
proxy is appointed.
Instruments of proxy should be sent to Equiniti Limited, Aspect House, Spencer
Road, Lancing, West Sussex BN99 6DA so as to arrive no later than 11.00 am on
Thursday, 2 May 2024. Completion and return of the form of proxy will not
preclude shareholders from attending and voting at the meeting should they
wish to do so.
It is possible for you to submit your proxy votes online by going to
Equiniti’s Shareview website, www.shareview.co.uk, and logging in to your
Shareview Portfolio. Once you have logged in, simply click ‘View’ on the
‘My Investments’ page and then click on the link to vote and follow the
on-screen instructions. If you have not yet registered for a Shareview
Portfolio, go to www.shareview.co.uk and enter the requested information. It
is important that you register for a Shareview Portfolio with enough time to
complete the registration and authentication processes.
CREST members who wish to appoint a proxy or proxies by utilising the CREST
electronic proxy appointment service may do so for the meeting and any
adjournment(s) there of by using the procedures described in the CREST Manual.
CREST personal members or other CREST sponsored members and those CREST
members who have appointed a voting service provider(s) should refer to their
CREST sponsor or voting service provider(s) who will be able to take the
appropriate action on their behalf. In order for a proxy appointment made
using the CREST service to be valid, the appropriate CREST message (a “CREST
proxy instruction”) must be properly authenticated in accordance with
Euroclear’s specifications and must contain the information required for
such instructions, as described in the CREST Manual (available via
www.euroclear.com). The CREST message must be transmitted so as to be received
by the issuer’s agent (ID RA19) by not later than 48 hours (excluding
non-working days) before the time appointed for the holding of the meeting or
the adjourned meeting. For this purpose, the time of receipt will be taken to
be the time (as determined by the timestamp applied to the CREST message by
the CREST Applications Host) from which the issuer’s agent is able to
retrieve the CREST message by enquiry to CREST in the manner prescribed by
CREST.
After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means. CREST members
and, where applicable, their CREST sponsors or voting service provider(s),
should note that Euroclear does not make available special procedures in CREST
for any particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST proxy instructions. It is
the responsibility of the CREST member concerned to take (or, if the CREST
member(s) is/are a CREST personal member or sponsored member or has appointed
a voting service provider(s), to procure that the CREST sponsor or voting
service provider takes) such action as shall be necessary to ensure that a
CREST message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting service provider(s) is/are referred, in particular, to
those sections of the CREST Manual concerning practical limitations of the
CREST system and timings. The Company may treat as invalid a CREST proxy
instruction in the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001.
3. Proxymity
If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been agreed by
the Company and approved by the Registrar. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 11.00
am on Thursday, 2 May 2024 in order to be considered valid. Before you can
appoint a proxy via this process you will need to have agreed to Proxymity’s
associated terms and conditions. It is important that you read these carefully
as you will be bound by them and they will govern the electronic appointment
of your proxy.
4. Corporate representatives
A member of the Company which is a corporation may authorise a person or
persons to act as its representative(s) at the AGM. In accordance with the
provisions of the Companies Act, each such representative may exercise (on
behalf of the corporation) the same powers as the corporation could exercise
if it were an individual member of the Company, provided that they do not do
so in relation to the same shares. It is no longer necessary to nominate a
designated corporate representative.
5. Nominated persons
In accordance with Section 325 of the Companies Act, the right to appoint
proxies does not apply to persons nominated to receive information rights
under Section 146 of the Companies Act. Persons nominated to receive
information rights under Section 146 of the Companies Act who have been sent a
copy of this Notice are hereby informed, in accordance with Section 149 (2) of
the Companies Act, that they may have a right under an agreement with the
registered member by whom they were nominated to be appointed, or to have
someone else appointed, as a proxy for this meeting. If they have no such
right, or do not wish to exercise it, they may have a right under such an
agreement to give instructions to the member as to the exercise of voting
rights. Nominated persons should contact the registered member by whom they
were nominated in respect of these arrangements.
6. Joint holders
In the case of joint holders, the signature of only one of the joint holders
is required on the proxy form and, where more than one joint holder has signed
the proxy form or where more than one joint holder purports to appoint a
proxy, only the signature of, or the appointment submitted by the most senior
holder will be accepted to the exclusion of the other joint holders. Seniority
is determined by the order in which the names of the joint holders appear in
the Company’s Register of Members in respect of the joint holding (the first
named being the most senior).
7. Members’ requests under Section 527 of the Companies Act
Under Section 527 of the Companies Act, members meeting the threshold
requirements set out in that section have the right to require the Company to
publish on a website a statement setting out any matter relating to (i) the
audit of the Company’s accounts (including the Auditor’s report and the
conduct of the audit) that are to be laid before the AGM for the financial
year ended 31 December 2023; or (ii) any circumstance connected with an
Auditor of the Company appointed for the financial year ended 31 December 2023
ceasing to hold office since the previous meeting at which annual accounts and
reports were laid. The Company may not require the shareholders requesting any
such website publication to pay its expenses in complying with Sections 527 or
528 (requirements as to website availability) of the Companies Act. Where the
Company is required to place a statement on a website under Section 527 of the
Companies Act, it must forward the statement to the Company’s Auditor not
later than the time when it makes the statement available on the website. The
business which may be dealt with at the AGM for the relevant financial year
includes any statement that the Company has been required under Section 527 of
the Companies Act to publish on a website.
8. Members’ rights to ask questions
Any member attending the meeting has the right to ask questions. The Company
must cause to be answered any such question relating to the business being
dealt with at the meeting but no such answer need be given if (a) to do so
would interfere unduly with the preparation for the meeting or involve the
disclosure of confidential information, (b) the answer has already been given
on a website in the form of an answer to a question, or (c) it is undesirable
in the interests of the Company or the good order of the meeting that the
question be answered.
9. Members’ rights under Sections 338 and 338A of the Companies Act
Shareholders meeting the threshold under Sections 338 and 338A of the
Companies Act can instruct the Company: (i) to give shareholders (entitled
to receive notice of the AGM) notice of a resolution which may properly be
proposed and is intended to be proposed at the AGM; and/or (ii) to include in
the business to be dealt with at the AGM any matter (other than a proposed
resolution) which may be properly included in the business. A resolution may
properly be proposed or a matter may properly be included in the business
unless: (a) (in the case of a resolution only) it would, if passed, be
ineffective; (b) it is defamatory of any person; or (c) it is frivolous or
vexatious. Such a request may be in hard copy form or in electronic form, must
identify the resolution of which notice is to be given or the matter to be
included in the business, must be authorised by the person or persons making
it, must be received by the Company not later than 26 March 2024, being the
date six weeks before the meeting, and (in the case of a matter to be included
in the business only) must be accompanied by a statement setting out the
grounds for the request.
10. Total number of shares and voting rights
As at 2 April 2024, the latest practicable date prior to publication of this
Notice, the Company had 334,363,825 ordinary shares in issue, with a total of
286,841,012 voting rights. 47,522,813 shares were held in treasury.
11. Website
In accordance with Section 311A of the Companies Act, the contents of this
Notice, details of the total number of shares in respect of which members are
entitled to exercise voting rights at the AGM and, if applicable, any
members’ statements, members’ resolutions or members’ matters of
business received by the Company after the date of this Notice will be
available on the Company’s website at: www.templebarinvestments.co.uk .
12. Documents available for inspection
Copies of letters of appointment between the Company and the Non-Executive
Directors may be inspected during usual business hours on any weekday (public
holidays excepted) at the registered office of the Company from the date of
this Notice until the date of the AGM and at the place of the Meeting from
10.45 am until the Meeting’s conclusion. Any shareholders wishing to inspect
the documents are requested to contact the Company Secretary by email at
cosec@frostrow.com in advance of any visit to ensure that appropriate
arrangements can be made and access can be arranged.
Glossary of Terms
Discount or Premium of share price to NAV per share*
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
Fixed Interest
Fixed-interest securities, also known as bonds, are loans usually taken out by
a government or company which normally pay a fixed rate of interest over a
given time period, at the end of which the loan is repaid.
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.
FTSE 350 Index
A comparative index that tracks the market price of the UK’s 350 largest
companies, by market value, listed on the London Stock Exchange.
Gilts
A bond that is issued by the British government which is generally considered
low risk.
Gross Gearing
Total assets divided by shareholders funds expressed as a percentage.
Liquidity
The ease with which an asset can be purchased or sold at a reasonable price
for cash.
Market Capitalisation
The total value of a company’s equity, calculated by the number of shares
multiplied by their market price.
NAV (‘Net Asset Value’) per Share
The value of total assets less liabilities, with debenture and loan stocks at
book value. Book value is the amount borrowed less the current loan
arrangement fee debtor still to be expensed. The NAV per share is calculated
by dividing this amount by the number of ordinary shares outstanding.
NAV per Share with debt at fair value
The value of total assets less liabilities, with the loans at fair value. The
NAV per share with debt at fair value is calculated by dividing this amount by
the number of ordinary shares outstanding.
Net asset value (NAV) per share total return with debt at fair value*
The theoretical total return on shareholders’ funds per share, reflecting
the change in NAV with debt at fair value assuming that dividends paid to
shareholders were reinvested at NAV with debt at fair value at the time the
shares were quoted ex-dividend. A way of measuring performance which is not
affected by movements in discounts/premiums.
Year to Year to
31 December 31 December
2023 2022
(p) (p)
Opening NAV with debt at fair value 233.5 240.4
Increase /(decrease) in NAV 29.1 (3.9)
Less dividends paid (9.60) (9.35)
Adjustment for movement in fair value of debt (0.8) 6.4
Closing NAV with debt at fair value 252.2 233.5
% increase in NAV with debt at fair value 12.1% 1.0%
Impact of reinvesting dividends 0.2% (0.1%)
NAV total return with debt at fair value 12.3% 0.9%
Net Gearing
Total assets (less cash and cash equivalents) divided by shareholders’ funds
expressed as a percentage.
Ongoing Charge Ratio*
Ongoing charges is calculated on an annualised basis. This figure excludes any
portfolio transaction costs and may vary from period to period. The
calculation below is in line with AIC guidelines.
Year to Year to
31 December 31 December
2023 2022
(p) (p)
Investment management fee 2,757 2,937
Other expenses (excluding transaction costs) 1,359 1,234
Less: one off legal and professional fees (21) (18)
Total (a) 4,095 4,153
Average cum income net asset value throughout the period (b) 731,023 762,206
Ongoing charges (c=a/b) (c) 0.56% 0.54%
* Alternative Performance Measure.
Portfolio Turnover
The portfolio turnover rate measures the Company’s trading activity. It is
calculated by taking the lower of investment purchases and sales and dividing
by the average gross asset value (net assets with debt added back) of the
Company. It is expressed as a % and the lower the % the lower the turnover.
For example a turnover rate of 25% would suggest that the fund holds stocks
for four years on average, while a 50% turnover rate would suggest a two year
holding period.
Transactions in gilts are excluded from the investment purchases and sales for
the purposes of calculating the turnover rate.
Share Price Total Return*
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested at the share price at the time the shares were quoted
ex-dividend.
Year to Year to
31 December 31 December
2023 2022
(p) (p)
Opening share price 220.5 221.6
Increase in share price 27.1 8.3
Less: dividends paid (9.60) (9.35)
Closing share price 238.0 220.5
% increase in share price 12.3% 3.7%
Impact of reinvesting dividends 0.2% (0.1%)
Share price total return 12.5% 3.6%
Value Investing
An investment strategy that aims to identify undervalued yet good quality
companies with strong cash flows and robust balance sheets, putting an
emphasis on financial strength.
Dividend 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 Measure.
Annual Report and Financial Statements
Copies of the Annual Report and financial statements will be posted to
shareholders on 10 April 2024 and will be available on the Company’s website
(www.templebarinvestments.co.uk) or in hard copy format from the Company
Secretary.
The Company's Annual Report for the year ended 31 December 2023 has been
submitted to the Financial Conduct Authority and will shortly be available for
inspection on the National Storage Mechanism (NSM)
via https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting will be held on Tuesday, 7 May 2024.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
-ENDS-
For further information please contact
Mark Pope
For and on behalf of Frostrow Capital LLP
Company Secretary
0203 008 4913
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