Annual Financial Report

Temple Bar Investment Trust Plc

Full Year Results for the year ended 31 December 2022

Temple Bar Investment Trust Plc (the “Company”) is pleased to present its full year results for the year ended 31 December 2022.

The Company’s Annual Report & Financial Statements for the year ended 31 December 2022 is also being published in hard copy format and an electronic copy will shortly be available to download from the Company’s website https://www.templebarinvestments.co.uk/.

Please click on the following link to view the document: https://mma.prnewswire.com/media/2038521/TBIT_RA22_1_17_clean.pdf

   Summary of Results

	2022 £000	2021 £000	% change
Assets as at 31 December
Net assets	726,346	797,083	(8.9)
Ordinary shares
Net asset value per share with debt at book value7	228.54p	241.72p	(5.5)
Net asset value per share with debt at market value1,2,7	233.52p	240.35p	(2.8)
Share price7	220.50p	221.60p	(0.5)
Discount with debt at market value1	5.6%	7.8%
Revenue for the year ended 31 December
Revenue return attributable to ordinary shareholders	30,550	23,737	28.7
Revenue return per ordinary share7	9.38p	7.11p	31.9
Dividends per ordinary share1,7	9.35p	7.90p	18.4
Capital for the year ended 31 December
Capital return attributable to ordinary shareholders	(46,519)	133,039
Capital return attributable per ordinary share7	(14.29)p	39.87p
Net gearing with debt at book value 1,4	7.2%	6.5%
Ongoing charges 1,5	0.54%	0.48%
Total returns for the year to 31 December 2022
Return on net assets1,3			(2.0)
Return on gross assets1,3			(1.5)
Return on share price1,3			3.6
FTSE All-Share Index6			0.3
Change in Retail Price Index over year			13.4

1. Alternative Performance Measures – See glossary in the full annual report for definition and more information.
2. Debt market value is calculated based on unobservable input, see note 22 in the full annual report for the net assets with debt at market value.
3. Source: Morningstar.
4. Defined as Company’s borrowings less cash and cash equivalents (including gilts) divided by investments expressed as a percentage.
5. Defined as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.
6. Source: Redwheel, trading name of RWC Asset Management LLP from January 2022.
7. 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.

Benchmark	Capital Structure
Performance is measured against the FTSE All-Share Index.	Ordinary shares	334,363,825
Total Assets Less Current Liabilities £801,053,000	4.05% private placement loan 2028	£50,000,000
Total Equity* £726,346,000	2.99% private placement loan 2047	£25,000,000
Market Capitalisation £700,798,000

*  With loan stocks at book value.

Chairman’s Statement

Review

In the year under review, the Company's NAV total return was (2.0%), which compares to the total return on the benchmark FTSE All-Share index of 0.3%. More pleasingly, the share price total return was 3.6% as the discount narrowed over the year to finish at 5.6%. Since Redwheel took over the management of the Company at the end of October 2020, the NAV total return to the end of 2022 has been 57.7% compared with 39.0% for the benchmark, a significant outperformance. Although annual metrics are important, the Board would always prefer to take a longer-term view of performance.

The Board continued with its active share buyback policy, purchasing 10,896,039 shares for a total consideration of £25.9m. These buybacks not only have the effect of stabilising the supply/demand balance but are also accretive to the NAV.

Portfolio

Portfolio turnover was again low this year at 7.2% (2021: 6.6%) with the managers being generally satisfied with the positioning of the portfolio. Further details can be found in the Manager’s Report below.

Dividend

As detailed in the interim report, the Company's income account has been more robust than expected. As a result, the Board is recommending a total dividend of 9.35p per share, an increase of 18.4% over the 2021 level. The dividend is fully covered by earnings and the Board is confident that the dividend will increase from this level over time.

Gearing

At the year end, the Company's net gearing was 7.2% and the level has been relatively stable since more exposure was deployed by the Investment Manager in the Spring, having reduced the level at the outset of 2022 as market volatility increased.

Purpose and Culture

The purpose of the Company is to deliver long-term returns for shareholders from a diversified portfolio of investments. These investments will primarily be UK listed.

As an investment trust, the Company has no employees, but the culture of the Board is to promote strong governance and a long-term investment outlook with an emphasis on investing in businesses that can deliver value to shareholders over an extended time horizon. Therefore, the Board asks the Company’s Investment Manager to invest in stocks that fulfil the traditional metrics of the value style and possess a business model that is resilient in the long term.

Environmental, Social & Governance (“ESG”) Issues

In September, the Board attended an Away Day at the offices of Redwheel, with a broad agenda covering ESG matters in relation to the management of the portfolio. The Board heard from representatives of Redwheel’s Investment, Sustainability, Compliance and Product Teams, with a particular focus on how stewardship is used by the Investment Manager to influence positively investee companies and how ESG-related factors are incorporated into investment research, stock selection, and portfolio management processes.

The Board continues to embrace the concept of active stewardship, asking the Investment Manager to monitor, evaluate and actively engage with investee companies with the aim of preserving or adding value to the portfolio. Further, with need for a collaborative approach becoming ever more pressing, if the situation warrants it, the Board encourages the Investment Manager to liaise with other investors when engaging with investee companies. The Investment Manager reports back to the Board regularly on these matters.

The Board

As mentioned in last year’s Statement, Charles Cade joined the Board in March. After the year end, the Board appointed Carolyn Sims as a Non-Executive Director and member of the Audit and Risk, Management Engagement and Nomination Committees. The Board is very pleased to welcome Carolyn, who brings a wealth of expertise and experience which will be invaluable. I will be standing down as Chairman at the upcoming AGM and Richard Wyatt will succeed me. The Company will be in good hands after my departure.

Annual General Meeting (“AGM”)

The AGM this year will be held at 25 Southampton Buildings, London WC2A 1AL on 9 May 2023 at 12:30pm. Like last year, shareholders are welcome to attend in person where you will be able to hear a presentation from the Portfolio Managers Nick Purves and Ian Lance and to meet the Board of Directors.

Shareholders unable to attend in person are invited to submit their form of proxy in advance by 12:30pm on 4 May at the latest.

Outlook

Although the UK market performed better than many overseas markets, valuations still look reasonable. The Company's managers are optimistic that further progress can be made and that the portfolio is well positioned. The Board shares this optimism.

Arthur Copple
Chairman

22 March 2023

Investment Approach

A classic approach to value investing

The Portfolio Managers 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 forms a view of a company’s long-run profit potential and makes 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 Managers ‘intrinsic value’ approach aims to identify under-valued, yet good, quality companies with strong cash flows and robust balance sheets. The Investment Manager puts 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 Investment 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 or 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	Enhance, don't drift	Simple but not easy	Cycles, cycles, cycles	Be contrarian but not mindless contrarian
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, but has 400% upside in another, there is probably a case for investing.	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.	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.	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.	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.
10 PILLARS OF VALUE INVESTING Ian Lance and Nick Purves believe value investing is making a comeback. Here is why from their 30 years’ experience in these markets.
Don't buy rubbish	Bargains are rare, make the most of them	Adopt an absolute return mindset	Be patient, be long term	There is no single correct method
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.	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.	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.	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.	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.

Investment Manager’s Report

Our investment approach has always been to seek out fundamentally sound businesses which by virtue of their market positions can grow their profits over the long term, but where for one reason or another the shares are modestly valued. This may be because the Company is underperforming its longer-term potential or because of a lack of interest or neglect. Either way, a low starting valuation looks to ensure that shareholders benefit fully from improved profit growth, whilst often in the meantime drawing an attractive income. Companies with low valuations also have a greater potential to re-rate as investor perceptions improve, further adding to investment returns. All investors should remember the lesson of stock market history which is that starting valuation has proven to be the best predictor of investment return over time.

We are long term investors, who recognise the importance of keeping transaction costs to a minimum. At times of major stock market dislocation, such as that which we saw when COVID first struck in 2020, we will rotate portfolios more aggressively to try and take advantage of other investors’ willingness to sell reasonable businesses at knock down prices. More normally however, shareholders should expect that portfolio turnover will be low. This was the case in 2022 and accordingly, we established no new positions in the year. We did, however, utilise the gearing available to the Trust to increase position sizes in a number of particularly undervalued holdings.

2022 was a difficult year for investors, as equity and bond markets had to contend with high inflation, rising interest rates and the added uncertainty caused by the invasion of Ukraine. Investors in the UK were also exposed to significant political instability with the arrival and departure of the Liz Truss Government in the Autumn.

It is worth reflecting on the speed with which interest rates have risen in 2022. At the beginning of the year, Central Banks were taking the view that inflation was a ‘transitory’ phenomenon. Accordingly, the Bank of England base rate and the US Federal Funds target rate were both set at just 0.25%. As we enter 2023, those rates are 3.5% and 4.5% respectively and the word ‘transitory’ has been dropped. The tighter monetary backdrop is likely to push many economies into recession (some are likely to already be in one) as defined by falling real economic output, although elevated inflation is likely to ensure that economies continue to grow in nominal terms. Given the size of the interest rate moves and the darkening economic outlook, it is not a surprise perhaps that equity markets struggled in 2022.

Within the markets, the companies that fared relatively well were the more defensive names whose profits will likely be less affected by an economic downturn, the Energy and Materials sectors and Banks. The Energy and Materials sectors have benefited from elevated commodity prices, brought about by continuing strong demand and the invasion of Ukraine, whilst Banks have benefited from rising interest rates which lead to higher margins on bank lending. The companies that particularly struggled were those where growth expectations are high as their profits are often far into the future and their valuations are therefore disproportionately impacted by a rise in interest rate assumptions, and those where operating leverage is high and revenues are most exposed to a consumer led economic downturn.

Given its high exposure to the Energy and Materials sectors and an under-weighting towards high growth technology sectors, the UK market fared relatively well in 2022, delivering a small positive total return. The Company portfolio delivered a small negative return over the period, although this masks a large disparity in the performance of some of the individual names. The Company's holdings in the Energy sector (BP, Shell and Total Energies), Pearson, Centrica and Standard Chartered all delivered strong returns, with each stock adding between 1.5% and 3.0% to the portfolio return. Conversely, the portfolio’s holdings in International Distribution Services (formally Royal Mail Group), Marks & Spencer and Currys all declined markedly as investors attempted to factor in the deteriorating economic outlook. Each stock detracted between 2% and 4% from portfolio return.

The share prices of the three energy companies performed well on the back of rising oil and gas prices caused by the effects of the war in Ukraine coupled with a muted supply response; itself caused by several years of under investment in bringing new resources to the market. We cannot predict the path of future oil and gas prices, but would make the observation that demand for fossil fuels is strong today and is likely to remain so for many years at a time when many companies in the sector have severely curtailed investment. This provides the set up for continued strength in energy prices at a time when the share prices to levels of all three companies continue to discount commodity prices that are much below where we are today. By way of illustration, according to their own sensitivity analysis, BP, Shell and Total Energies are valued on price to earnings ratios of around 10x assuming a $60 Brent oil price. Oil prices at the time of writing are around $80 per barrel, and we therefore take the view that there is a considerable margin of safety built into the share prices of the companies. Centrica likewise delivered strong returns in the year, benefitting from high gas and electricity prices and significant consolidation in energy supply markets following the demise of a number of its competitors.

Pearson has struggled for some time with the transition from physical print textbooks to a digital offering in its North American Higher Education business and although this journey has proven to be protracted and damaging to group profitability, we continue to believe that educational publishing is an attractive business offering the prospect of healthy returns. The company’s share price performed well in the year prompted by two separate bid approaches from the private equity firm, Apollo, and evidence that the company has again returned to revenue growth. Although both Apollo bids were rejected by the management team as undervaluing the company and therefore came to nothing, the approach highlighted the potential undervaluation in the company’s shares.

Standard Chartered has been a beneficiary of rising interest rates, which in turn should lead to higher income growth and thereby help the bank achieve its 2024 10% Return on Equity target. Although the large increase in interest rates that we have seen could lead to credit stresses and increased loan loss provisions, the bank has been significantly de-risked over the last few years and lending standards are now much improved. It is possible and maybe even likely therefore that credit provisions will not need to be increased significantly from current levels. If the company is successful in hitting its financial targets for 2024, its shares would be valued by the stock market at less than seven times its annual profits. In January 2023, it was announced that First Abu Dhabi Bank had evaluated the idea of making a bid for the company and whilst again it came to nothing, it serves to highlight the strategic value of the company’s geographic footprint and its attractive valuation.

At International Distribution Services, a normalisation of parcel volumes post COVID, coupled with an inability to make productivity improvements in the UK (as a result of poor labour relations) has meant that its UK business, Royal Mail, is expected to lose money in the current financial year. The company continues to negotiate with the unions but has made it clear that any agreed pay deal needs to be accompanied by an improvement to outdated working practices. It has also said that it will not allow its international business, GLS, to destroy shareholder value by continuing to fund the UK business, and, if necessary, will separate the two companies to prevent value leakage. GLS is a parcel only business (no letters), with a non-unionised work-force, whose standalone value is greater than the stock market valuation of the entire group. The stock market has therefore placed a substantial negative valuation on Royal Mail, even though it is the leader in the UK parcels market and has significant surplus property that can be sold off over time. Any formal separation should throw a spotlight onto the very significant under valuation of the group’s shares.

Marks & Spencer fell on investor fears that the cost-of-living crisis will result in falling consumer spending and lower profitability. The food retailers generally (Marks & Spencer derives two thirds of its revenues from food) are going through a difficult period, with likely worse to come as they struggle to recover all their input cost increases without damaging sales volumes. However, our view is that this has already been more than factored into the Marks & Spencer share price. The shares are valued on a historic price earnings ratio of 7x at a time when we believe that there are many positive changes happening at the company. The company sells almost 40% of its clothing online (where it is number 2 in the UK by market share) and store-based clothing sales now account for just 20% of the group total, whilst in food the company continues to take market share. The company management target a level of operating performance in line with peers in the sector, which if they were able to achieve would result in further significant growth in earnings and a price earnings ratio of less than 6x at today’s share price.

Currys, the electrical retailer, is struggling with a difficult economic backdrop and as a low margin, operationally geared business is sensitive to relatively small declines in sales volumes. Accordingly, profit expectations have been significantly downgraded since the Summer. Although electrical retailing is a competitive business, the company is well managed and occupies the number one or two position in the UK and the Nordics. Although there is further downside risk to short term profit forecasts, the company is valued at less than 8x 2022/23 earnings, with the potential for a significant profit recovery as and when trading conditions improve.

For some time now, UK equities have traded at a meaningful discount to other stock markets. It is difficult to be sure as to why this is, although uncertainty surrounding Brexit and the recent political instability will have likely played a part. Whilst many are taking a dim view of UK economic prospects, it is important to remember that we buy companies and not economies and the companies in which the Company is invested are strong, conservatively run businesses with good balance sheets and capable management teams. In addition, many of them generate most of their profits overseas with the result that any fall in the value of the pound leads to higher sterling profits. In total we estimate that more than 50% of the Company's portfolio profits are generated 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. For example, Shell is valued at just 5x 2022 estimated earnings, whereas the US listed Exxon Mobil is valued at 8x. In banking, Barclays is valued at just 0.6x the value of its shareholder equity, whereas the US investment banks are valued at around 1x. As a result of what we see as an unjustified UK discount, the UK equity market offers an attractive dividend yield, and many UK listed companies are today priced to give their shareholders superior long term investment returns.

Ian Lance and Nick Purves

Redwheel

22 March 2023

Portfolio of Investments

As at 31 December 2022

	Company	Industry	Place of primary listing	Valuation £000	% of portfolio
	BP	Oil & Gas	UK	69,554	8.8
1	BP PLC 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
	Royal Dutch Shell	Oil & Gas	UK	56,361	7.2
2	Shell PLC, through subsidiaries, explores, produces, and refines petroleum. The company produces fuels, chemicals, and lubricants. Shell owns and operates gasoline filling stations worldwide.
	Centrica	Utilities	UK	47,438	6.0
3	Centrica PLC operates as an integrated energy company offering a wide range of home and business energy solutions. The company sources, generates, processes, stores, trades, saves, and supplies energy and provides a range of related services.
	Pearson	Consumer Services	UK	47,176	6.0
4	Pearson PLC provides education products and services to institutions, governments, and individual learners in various countries. The company offers test development, processing, and scoring services and a range of education services including teacher development, educational software, and system-wide solutions, as well as owns and operates schools.
	Standard Chartered	Financials	UK	44,790	5.7
5	Standard Chartered PLC is an international banking group operating principally in Asia, Africa, and the Middle East. The company offers its products and services in the personal, consumer, corporate, institutional and treasury areas.
	NatWest Group	Financials	UK	44,543	5.7
6	NatWest Group PLC operates as a banking and financial services company. The Bank provides personal and business banking, consumer loans, asset and invoice finances, commercial and residential mortgages, credit cards, and financial planning services, as well as life, personal, and income protection insurance.
	Anglo American	Basic Materials	UK	42,969	5.5
7	Anglo American PLC 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.
	TotalEnergies	Oil & Gas	France	41,987	5.3
8	TotalEnergies SE 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.
	Marks & Spencer Group	Consumer Services	UK	39,598	5.0
9	Marks & Spencer Group PLC 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.
	ITV	Consumer Services	UK	36,638	4.6
10	TV PLC provides broadcasting services. The company produces and distributes content on multiple platforms. ITV serves customers in the United Kingdom.
	Top Ten Investments			471,054	59.8
11	International Distributions Services PLC (formally Royal Mail Group)	Industrials	UK	34,569	4.4
12	WPP	Consumer Services	UK	31,091	4.0
13	Aviva	Financials	UK	27,045	3.4
14	Barclays	Financials	UK	22,641	2.9
15	Citigroup	Financials	USA	19,049	2.4
16	HP	Technology	USA	18,220	2.3
17	Currys	Consumer Services	UK	17,461	2.2
18	Vodafone Group	Telecommunications	UK	16,096	2.1
19	Forterra	Industrials	UK	15,010	1.9
20	Kingfisher	Consumer Services	UK	14,261	1.8
Top 20 Investments				686,497	87.2
21	BT Group	Telecommunications	UK	12,944	1.6
22	Newmont	Basic Materials	USA	12,800	1.6
23	CK Hutchison Holdings	Industrials	Hong Kong	12,350	1.6
24	Capita	Industrials	UK	12,146	1.5
25	Honda Motor	Consumer Goods	Japan	11,434	1.4
26	easyJet	Consumer Services	UK	10,349	1.3
27	Barrick Gold	Basic Materials	Canada	9,919	1.3
28	Continental	Consumer Goods	Germany	6,720	0.8
29	Sprott Physical Silver Trust	Financials	USA	5,925	0.8
30	Vitesco Technologies Group	Consumer Goods	Germany	1,379	0.2
Total Equity Investments				782,463	99.3
Short-dated UK T-Bills				5,170	0.7
Total Valuation of Portfolio				787,633	100.0

Portfolio Distribution

As at 31 December 2022

Industry

Temple Bar %

FTSE All-Share %

1  Consumer Services	24.6	16.7
2  Oil & Gas	21.0	11.2
3  Financials	20.5	26.4
4  Industrials	9.2	10.3
5  Basic Materials	8.2	10.5
6  Utilities	5.9	3.5
7  Telecommunications	3.6	2.8
8  Consumer Goods	2.4	6.3
9  Technology	2.3	1.5
10  Healthcare	–	10.8
Total Equities	97.7	100.0
11  Fixed Interest	0.6
12  Cash	1.7
	100.0

Notice of Annual General Meeting (“AGM)

Notice is hereby given that the 97^th AGM of the Company will be held on Tuesday, 9 May 2023 at 12.30pm. The AGM will be held at 25 Southampton Buildings, London, WC2A 1AL. The formal Notice of AGM can be found within the full Annual Report.

National Storage Mechanism

A copy of the Annual Report & Financial Statements will shortly be submitted to the National Storage Mechanism (‘NSM’) and will be available for inspection at the NSM, which is situated at:

 https://data.fca.org.uk/a/nsm/nationalstoragemechanism.

END

Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

LEI: 213800O8EAP4SG5JD323