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Temple Bar Investment Trust Plc - Final Results

  • Title: Temple Bar Investment Trust Plc - Final Results
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Temple Bar Investment Trust Plc - Final Results

Temple Bar Investment Trust Plc - Final Results

PR Newswire

CHAIRMAN’S STATEMENT

Performance

I am delighted to present my first annual statement as Chairman of the Company. Firstly, I must reiterate my thanks to my predecessor, John Reeve, for his diligent stewardship over the 26 year period that he served on the Board. In his last report to shareholders John commented on the protracted timescale in which the Value investing style had been out of favour relative to other styles, suggesting that while there had been brief periods during which the tide appeared to be turning in favour of Value those rallies had generally been fairly short lived. This theme continued into 2018, causing a negative impact on the short to near term performance of Temple Bar compared with its nominated benchmark index. During the year the total return on the net assets of Temple Bar was -11.2%*, underperforming the total return of the FTSE All Share Index of -9.5%. The Board continues to attach greater significance to the longer term performance and in this context I am pleased to report that on the same basis Temple Bar continues to outperform its benchmark over ten years.

Dividend

There have been three interim dividend payments during the year each of 8.75p per share and the directors are now recommending a final dividend payment for the year ended 31 December 2018 of 20.47p per share to be paid on 29 March 2019 to those shareholders on the register as at 8 March 2019. The ex-dividend date for this payment is 7 March 2019. If approved this would give an increase in the total dividend payment for the year of 10.0%. This significant increase in the dividend is possible due to the accretion to revenue reserves in recent years and the availability of income in the current year. This will be the 35th consecutive year in which the Company has raised its annual dividend payment. The Board is proud of the Company’s record of generating long term dividend growth, such consistency being reflected in Temple Bar’s status as one of The Association of Investment Companies’ ‘Dividend Heroes’.

Gearing

In recent years the Company’s fixed long term borrowings have largely been offset by a fairly high cash or near cash position on the portfolio pending the emergence of attractively priced investment opportunities. However, in the year under review our investment manager identified an increasing number of such opportunities into which he invested a significant proportion of that cash/near cash position. As a consequence, at the year end, gearing (calculated net of cash and related liquid assets, including our investment in a UK short dated gilt) increased to 9.1%.

The higher investment level at the year-end supports the Board’s decision in 2017 to replace the expensive £25m 9.875% debenture with an additional private placement loan in the same amount but with a much more attractive coupon of 2.99%. An important factor in taking out this replacement loan was to secure attractive fixed rate funding for the purposes of pursuing the Company’s investment objectives over a 30 year period.

The Board

As stated above, John Reeve retired as Chairman in May 2018 and I am honoured to have been chosen as his successor. We were very sorry to lose the services of Nick Lyons as a director in August, due to time pressures from his new commitments elsewhere. As part of the orderly transition and refreshment of the Board to which John referred in his last statement, June de Moller will be retiring at the AGM and will not, therefore, be seeking re-election. We are extremely grateful to June for the valuable insights that she has provided during her 12 years on the Board and wish her well for the future. In order to maintain continuity through this refreshment process, Richard Jewson has kindly agreed to remain on the Board, but will stand down at some point during the current year. It is expected that there will be two new appointments to the Board in the coming months.

Every year the Board undertakes a thorough evaluation of each director, including myself as Chairman. In line with best practice in this regard, all directors are subject to annual re-election by shareholders.

Portfolio Management Responsibilities

Shareholders will of course be aware that Alastair Mundy has managed the Temple Bar portfolio for many years. What might not be apparent, though, is that Alastair has behind him a large group of analysts in Investec Asset Management’s UK Value team working hard in evaluating numerous investment opportunities. The Board believes that it is now appropriate more overtly to recognise this situation and to put it on a more formal footing, so it has been agreed that Peter Lowery will be appointed as the Company’s deputy portfolio manager with immediate effect. Peter joined IAM in 2003 and has worked closely with Alastair on matters related to Temple Bar ever since.

Share Capital Management

Temple Bar’s shares traded at a small discount throughout most of the year and at the year end the discount stood at 3.7%*. The Board is prepared to undertake share buy backs if the discount widens both in absolute terms and relative to the Company’s peer group. While no share repurchases took place during the year, the Board nonetheless recommends that the existing authorities to issue new ordinary shares and to repurchase shares in the market for cancellation or to hold in Treasury be continued. Accordingly, it is seeking approval from shareholders to renew the share issue and repurchase authorities at the forthcoming annual general meeting.

Proposed Change to Investment Objectives and Policy

At its strategy session in September 2018 the Board conducted a thorough review of the Company’s investment objectives and policy. As a consequence of this review a few changes to this policy are being proposed. The Board is therefore seeking shareholder approval at the AGM to amend the Company’s investment objectives and policy to incorporate these changes which, if approved, will take effect immediately following the AGM.

The Board takes a long term, stewardship approach to the management of its assets and this is also the approach of its fund manager, Investec Asset Management. In general, this means that where an investee company poses challenging issues on an ethical or governance front, the manager will engage with company management over the long haul to improve the situation. In addition, the Board is actively considering whether there are some stocks whose very business model is inherently unethical, even when legal, and whether the Trust should seek to profit from opportunities offered in such areas. These are stocks whose product is both harmful to humans and addictive in nature, undermining the autonomous choice of the consumer to decide if he/she wishes to harm him/herself in this manner, and the product offers no significant benefit to consumer welfare to justify the harm. Clearly, which stocks fall foul of these criteria can change over time. At present this approach would lead to the exclusion of tobacco stocks from portfolio construction.

During the coming months the Board will be canvassing shareholder opinion on this matter and would welcome feedback from all shareholders.

Annual General Meeting

The AGM this year will be held at 30 Gresham Street, London EC2V 7QP on Thursday 28 March 2019 at 11am. Please note that this is a different building in Gresham Street and not where the AGM was held last year.

In addition to the formal business of the meeting the portfolio manager will, as usual, make a presentation reviewing the past year and commenting on the outlook. He will also be available to answer questions, as well as the directors. Shareholders who are unable to attend are encouraged to use their proxy votes.

Outlook

So far this year there have been encouraging signs that the anti-Value stance of the market might be beginning to reverse and performance in January was impressive as a result. It is still, however, very early days.

We continue to face several political and economic risks over the short to medium term, not least the ramifications of Brexit negotiations. But haven’t there always been uncertainties of some description? Temple Bar has faced many of these over its long life and successfully negotiated them to provide good long term returns to its shareholders by exploiting value opportunities arising from the resultant dislocations. A return to more volatile market conditions, while undoubtedly offering a bumpy ride, is likely to play to Temple Bar’s strengths.

Our preference – stated on many occasions - is to focus on an individual company’s financial strength and performance rather than seek to predict the direction of markets. Through maintaining our approach of investing in a diversified portfolio of mainly UK domiciled companies and with strict adherence to a Value based approach we believe that Temple Bar can continue to prosper, notwithstanding future uncertainties. Furthermore, Temple Bar is well positioned to maintain its policy of paying a high and growing dividend for the foreseeable future.

_____________

Arthur Copple

Chairman

*Alternative Performance Measure – please see glossary of terms

Twenty Largest Investments

as at 31 December 2018

Company Industry Place of listing Valuation
£’000
% of portfolio
GlaxoSmithKline Health Care UK 62,553 6.9
Royal Dutch Shell Oil & Gas UK 58,789 6.5
Capita Industrials UK 53,696 5.9
BP Oil & Gas UK 49,909 5.5
Travis Perkins Industrials UK 47,429 5.2
HSBC Holdings Financials UK 42,339 4.7
Lloyds Banking Group Financials UK 37,027 4.1
Royal Bank of Scotland Financials UK 35,677 3.9
Barclays Financials UK 34,545 3.8
Grafton Group Industrials Ireland 34,467 3.8
SIG Industrials UK 31,575 3.6
Tesco Consumer Services UK 31,194 3.5
UK Treasury 2% 2020 Fixed Interest UK 24,516 2.7
Marks & Spencer Consumer Services UK 20,930 2.3
BT Group Telecommunications UK 19,123 2.1
Forterra Industrials UK 18,499 2.0
Land Securities Group Financials UK 17,451 1.9
TP ICAP Financials UK 17,396 1.9
easyJet Consumer Services UK 16,516 1.8
Citigroup Financials USA 15,863 1.8
669,464 73.9

Statement of Comprehensive Income

For the year ended 31 December 2018

2018 (unaudited) 2017 (audited)
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment income 37,258 - 37,258 33,990 - 33,990
Other operating income 26 - 26 8 - 8
37,284 - 37,284 33,998 - 33,998
Profit/(losses) on investments
Profit/(losses) on investments held at fair value through profit or loss - (131,528) (131,528) - 62,251 62,251
Total income/(loss) 37,284 (131,528) (94,244) 33,998 62,251 96,249
Expenses
Management fees (1,503) (2,168) (3,671) (1,532) (2,215) (3,747)
Other expenses (559) (1,427) (1,986) (600) (969) (1,569)
Profit/(loss) before finance costs and tax 35,222 (135,123) (99,901) 31,866 59,067 90,933
Finance costs (1,962) (2,968) (4,930) (2,701) (4,078) (6,779)
Profit/(loss) before tax 33,260 (138,091) (104,831) 29,165 54,989 84,154
Tax (161) - (161) (207) - (207)
Profit/(loss) for the year 33,099 (138,091) (104,992) 28,958 54,989 83,947
Earnings per share (basic & diluted)   49.50p (206.50p) (157.00p) 43.30p 82.23p 125.53p

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 Association of Investment Companies.  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 net profit for the year.  Accordingly, the net profit for the year is also the Total Comprehensive Income for the Year, as defined in IAS1 (revised).

Statement of Changes in Equity

for the year ended 31 December 2018 (unaudited)

Ordinary Share Retained
share premium Capital revenue Total
capital account reserves earnings equity
£’000 £’000 £’000 £’000 £’000
Balance at
1 January 2017
16,719 96,040 735,178 32,003 879,940
Unclaimed dividends - - - 11 11
Profit for the year - - 54,989 28,958 83,947
Dividends paid to equity shareholders - - - (27,532) (27,532)
Balance at
31 December 2017
16,719 96,040 790,167 33,440 936,366
Unclaimed dividends - - - 51 51
Profit for the year - - (138,091) 33,099 (104,992)
Dividends paid to equity shareholders - - - (29,243) (29,243)
Balance at
31 December 2018
16,719 96,040 652,076 37,347 802,182

Statement of Financial Position

as at 31 December 2018

31 December 2018
(unaudited)
31 December 2017
(audited)
£’000 £’000 £’000 £’000
Non-current assets
Investments held at fair value through profit or loss
905,125 1,035,670
Current assets
Receivables 3,231 3,613
Cash and cash equivalents 9,005 12,161
12,236 15,774
Total assets 917,361 1,051,444
Current liabilities
Payables (1,208) (1,159)
Total assets less current liabilities 916,153 1,050,285
Non-current liabilities
Interest bearing borrowings (113,971) (113,919)
Net assets 802,182 936,366
Equity attributable to equity holders
Ordinary share capital 16,719 16,719
Share premium 96,040 96,040
Capital reserves 652,076 790,167
Retained revenue earnings 37,347 33,440
Total equity 802,182 936,366
Net asset value per share 1,199.56p 1,400.22p

Statement of Cash Flows

for the year ended 31 December 2018

2018 (unaudited)
£’000              £’000
2017 (audited)
£’000              £’000
Cash flows from operating activities
Profit/(Loss) before tax (104,831) 84,154
Adjustments for:
(Gains)/losses on investments 131,528 (62,251)
Financing costs 4,930 6,779
Purchases of investments¹ (513,298) (437,327)
Sales of investments¹ 512,712 437,261
Dividend income (36,728) (32,410)
Interest income (545) (1,588)
Dividend received 36,115 32,189
Interest received 1,365 1,248
Decrease in receivables 25 1,212
Decrease in payables (199) (10)
Overseas withholding tax suffered (161) (207)
135,744 (55,104)
Net cash flows from operating activities 30,913 29,050
Cash flows from financing activities
Repayment of 9.875% 2017 debenture
Proceeds from issue of 2.99% Private Placement Loan
Issue costs relating to 2.99% Private Placement Loan
Unclaimed dividends
Equity dividends paid
Interest paid on borrowings
-
-
-
51
(29,243)
(4,877)
(25,000)
25,000
(121)
11
(27,532)
(6,587)
Net cash from financing activities (34,069) (34,229)
Net increase in cash and cash equivalents (3,156) (5,179)
Cash and cash equivalents at the start of the year 12,161 17,340
Cash and cash equivalents at the end of the year 9,005 12,161

¹    Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities.

Notes

  1. The figures set out above are prepared on the same basis as set out in the previous year’s annual accounts and are derived from the audited accounts of Temple Bar Investment Trust Plc for the year ended 31 December 2017 and the unaudited accountsfor the year ended 31 December 2018.The 2018 accounts will be sent to shareholders shortly.

  2. The financial information contained in this announcement does not constitute full accounts within the meaning of Section 434 of the Companies Act 2006.The 2018 accounts, on which the report of the auditors is expected to be unqualified, will be filed with the Registrar of Companies in due course.The audited accounts for the year ended 31 December 2017 on which the report of the auditors was unqualified and did not contain a statement under Section 498 of the Companies Act 2006, have been filed with the Registrar of Companies.

20 February 2019

Contact:  Alastair Mundy
                Telephone 020 7597 2000
                Investec Fund Managers Limited

Glossary of Terms

Return on Net Asset Value

As at 31 December 2018, the difference between the Trust's opening and closing NAV stood at £(134,184,000) (2018:£802,182,000; 2017: £936,366,000); adding the dividend paid in the current year of £29,243,000 results in a total return of £(104,940,000) for the purposes of this calculation. Dividing this return by the opening NAV of the Trust results in the return of (11.2)%.

Discount

The amount by which the market price per share of an investment trust is lower than the net asset value per share. The discount is normally expressed as a percentage of the net asset value per share.

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