Half-yearly Report
Half-yearly report
for the six months ended 30 June 2011
Chairman's Statement
The total return on the net assets of Temple Bar during the first half of 2011
was 4.9%, which compares with a total return for the FTSE All-Share Index of
3.0%. Post-tax revenue earnings for the half year were £11.5m compared with £
10.2m in the equivalent period last year.
The Board has declared an interim dividend of 14.0p, an increase of 33.3% over
last year, payable on 30 September 2011 to shareholders on the register at 16
September 2011. This increase mainly reflects a rebalancing exercise between
the interim and final dividends; the underlying increase disregarding the
rebalancing is approximately 2.0%.
John Reeve
26 July 2011
Manager's Report
Market Environment
We live in such volatile times that any report on an historic period runs the
risk of becoming outdated very quickly. It is clear, however, that in contrast
to the bank solvency fears of previous years, investor focus by 2011 had
shifted to the state of Governments' balance sheets.
Winnersand Losers on the Portfolio
It is always difficult to discuss the performance of our portfolio in relation
to major macro- economic themes as the portfolio consists of a number of
individual stocks from different sectors bought at varying times and for very
specific reasons. The outperformance during the period was, therefore, not
surprisingly driven by a number of factors. The best performer of the stocks
held was Filtrona, a mini conglomerate which has recovered strongly from its
lows. The appointment as Chief Executive of the ex Reckitt Benckiser Finance
Director persuaded investors that a similar financial transformation was
possible at Filtrona and this pushed the shares higher. Three stocks which have
been on the portfolio for many years, GlaxoSmithKline, BT and Computacenter
also performed well.
The largest underperformer was Travis Perkins although its negative
contribution to performance was as much a function of its large portfolio size
as to its actual underperformance. The Market Vectors (Gold Shares) ETF also
underperformed as gold shares lagged gold bullion, a relationship which we do
not think can be sustained.
Portfolio Activity
By far the largest transaction in the period was the sale of the entire holding
in BP at an average price of £4.81. We increased our weighting post the
disaster in the Gulf of Mexico in the summer of 2010 and the shares had
recovered strongly. However, we came to the view that the long-term operational
and financial effects of the tragedy were important enough significantly to
change the prospects for the company. The sizeable trust set aside to finance
claims from various parties weakened the balance sheet sufficiently to force
the company to sell some good assets quickly; not usually an optimal way to
secure the best prices. Consequently, the long term oil production forecasts
for the company were reduced and, therefore, spending plans were increased to
fund organic growth and growth via acquisition.
The inevitable tightening of health and safety discipline within the company
and increased scrutiny from regulators would, we expected, both increase costs
and hamper growth. Finally, BP's decision to increase its exposure to the
Russian market raised questions about the quality of both the company's
earnings and corporate governance. Usually we tiptoe out of our holdings,
particularly if they are large positions, but in this case we felt the
negatives were concerning enough to make a quick dash for the exit.
We sold four other stocks in their entirety: Invensys, Sainsbury, Paddy Power
and Drax. The first three had performed well and reached their target prices.
With Drax, we felt that as a result of the increased complexity of the business
our understanding of the company's operations was insufficient to provide the
confidence necessary to remain holders.
As we have commented previously, the most attractive time for contrarian ideas
is when the valuations and profitability of companies are low. Following the
equity market recovery and the bounce in corporate profitability from the 2009
lows, this is clearly not one of those periods. We have, therefore, made few
new purchases on the portfolio in the last six months. Of course, in an
industry obsessed with short-term performance and commentators eager for
portfolio managers always to have strong views, inactivity is rarely lauded.
However, we believe it is imperative to guard one's liquidity jealously until
exciting investment opportunities are found; and if none exist, we see no
incentive to lower the bar. As legendary investor Seth Klarman has noted: "Why
should the immediate opportunity set be the only one considered, when
tomorrow's may well be considerably more fertile than today's?"
Most of the acquisitions completed during the period were, therefore, additions
to existing holdings and were generally made following weakness in the
companies' shares. For example, HSBC continued to underperform as investors
fretted about increasing labour costs and the demanding regulatory burden post
the financial crisis. However, we believe that HSBC's very strong balance sheet
continues to set it apart from its closest peers and will provide a competitive
advantage for some years to come.
We also added to a number of stocks such as Home Retail, Cable & Wireless
Worldwide and QinetiQ after they had issued profit warnings. A cross that all
contrarian investors bear is that many of the stocks purchased often appear
extraordinarily unpopular to the consensus. Of course, this is usually part of
the appeal, but when the purchases are unsuccessful there is often an orderly
queue of soothsayers only too happy to announce that `I told you so'. These
three stocks fall straight into the `I told you so' category: a general
retailer under extraordinary competitive pressure from the ever expanding food
retailers while also struggling against the economic backdrop, a corporate
telecommunications provider which has failed to generate cash in thirteen years
and a defence contractor with great dependence on UK and US government spending
at a time of significant budget cuts.
The comfort we have in buying apparently unattractive companies is because we
typically take little interest in their immediate earnings power at purchase.
Instead, we focus on what the company can achieve in the longer term. This can
generate a completely different assessment of a company's virtues from the
consensus and which is far more interesting in the short-term.
While we usually assume a company will maintain its independence and that
shareholders will ultimately benefit from an earnings recovery, even if it is
delayed, it is always possible that underperforming companies will be acquired
by predators. We never seek to pay a premium for the possibility of a takeover
as experience informs us they are virtually impossible to forecast, but instead
we regard their presence as a `free bet'. Cable & Wireless Worldwide and Home
Retail are both potential takeover candidates. Cable & Wireless's strong market
position in the UK could be a valuable asset for a number of international
operators. Home Retail's strong brands of Argos and Homebase combined with
their delivery and internet retailing skills might prove an attractive
acquisition to the food retailers as they strive to match the success of Tesco
in non-food products.
Market Outlook
A common theme amongst investors currently is that we are living in times of
great uncertainty and that anyone espousing strong views on market directions
is either brave or mad. Clearly, the future is by definition uncertain, but
concerns seem, in particular, to focus on `fat tails' - extreme outcomes such
as, for example, the euro collapsing, worldwide inflation accelerating or the
Federal Reserve System turning on the printing press.
These worries are understandable, but what is less comprehensible is the
investor actions that follow. Investor sentiment can be nicely summarised by
looking at equity market activity. The FTSE 250 Index (income not re-invested)
is a hair's breadth away from reaching its all time high. A financially
literate martian landing on Planet Earth would surely be left scratching his
head - mid caps up 120% since the lows of November 2008 appear to indicate
little uncertainty. Similarly, the FTSE 100 ended June within 10% of the
highest levels it reached in the last decade and virtually the whole of that
gap is due to the meltdown in the banking sector. It seems that talk of
uncertainty is just that; animal spirits are back.
One solution to this paradox is the Chuck Prince response. The former chief
executive officer of Citigroup is often credited with producing one of the
craziest quotes of the last bull market when he acknowledged that: `as long as
the music is playing, you've got to get up and dance'. Perhaps a number of
investors are unwittingly behaving in the same way as Mr Prince. After all, we
live in a world where short-term performance is considered as, if not more,
important than long term performance. Therefore, many investors are tempted to
remain for just one more dance despite knowing the consequences may be severe.
After all, many of them would say, the worst-case scenario is so bad that it is
not worth worrying about. Alternatively, other investors may be backing
themselves to leave the dance floor just before events turn sour believing
their interpretation of short-term market information is superior to the
majority. In light of this background we continue to favour a defensively
positioned portfolio.
While investors typically fear volatility it is essential to remember that it
also provides opportunities. We need to remain objective and rational at these
times and to act decisively when necessary.
Alastair Mundy
Investec Asset Management Limited
26 July 2011
Twenty largest holdings
as at 30 June 2011
Company Sector Place of Valuation % of
Listing £'000 Portfolio
Royal Dutch Shell Oil & Gas UK 49,635 8.17
HSBC Banks UK 46,933 7.72
GlaxoSmithKline Health Care UK 46,419 7.64
Signet Jewelers Retail UK/USA 42,134 6.93
Unilever Food & Beverage UK 35,158 5.79
Vodafone Telecommunications UK 28,570 4.70
AstraZeneca Health Care UK 25,234 4.15
Travis Perkins Industrial Goods & UK 22,927 3.77
Services
BT Telecommunications UK 22,474 3.70
British American Personal & Household UK 18,230 3.00
Tobacco Goods
UK Treasury 3.25% Fixed Interest UK 15,457 2.55
Stock 2011
Grafton Group Industrial Goods & UK/Ireland 14,916 2.46
Services
Centrica Utilities UK 14,185 2.34
QinetiQ Group Industrial Goods & UK 13,082 2.15
Services
Avon Products Personal & Household USA 12,115 1.99
Goods
Computacenter Technology UK 10,934 1.80
UK Commercial Real Estate UK 10,532 1.73
Property Trust
Pfizer Heath Care USA 10,472 1.72
UK Treasury 2.5% Fixed Interest UK 9,826 1.62
Index-linked Stock
2011
Charter Industrial Goods & UK 8,466 1.39
International Services
457,699 75.32
Consolidated statement of comprehensive income
for the six months ended 30 June 2011
30 June 2011 30 June 2010 31 December 2010
(unaudited) (unaudited) (audited)
Revenue Capital Revenue Capital Revenue Capital
return return Total return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment income 13,132 - 13,132 11,738 - 11,738 22,030 - 22,030
Other operating 72 - 72 41 - 41 26 - 26
income
Total income 13,204 - 13,204 11,779 - 11,779 22,056 - 22,056
Gains/(losses) on
investments
Gains/(losses) on
fair value
through profit or - 13,317 13,317 - (38,309) (38,309) - 55,254 55,254
loss assets
13,204 13,317 26,521 11,779 (38,309) (26,530) 22,056 55,254 77,310
Expenses
Management fees (421) (632) (1,053) (373) (559) (932) (776) (1,162) (1,938)
Other expenses (346) (455) (801) (315) (292) (607) (534) (473) (1,007)
including dealing
costs
Profit/(loss) 12,437 12,230 24,667 11,091 (39,160) (28,069) 20,746 53,619 74,365
before finance
costs and tax
Finance costs (908) (1,362) (2,270) (915) (1,373) (2,288) (1,831) (2,746) (4,577)
Profit/(loss) 11,529 10,868 22,397 10,176 (40,533) (30,357) 18,915 50,873 69,788
before tax
Tax - - - - - - - - -
Profit/(loss) for 11,529 10,868 22,397 10,176 (40,533) (30,357) 18,915 50,873 69,788
the period
Earnings per share 19.55p 18.43p 37.98p 17.26p (68.75)p (51.49)p 32.08p 86.28p 118.36p
(basic and
diluted)
An interim dividend of 14.0 pence per share (£8,255,000) in respect of the six
months ended 30 June 2011 was declared on 26 July 2011 and is payable on 30
September 2011. An interim dividend of 10.50 pence per share (£6,191,000) in
respect of the six months ended 30 June 2010 was declared on 28 July 2010 and
was paid on 30 September 2010. A final dividend of 23.7 pence per share (£
13,974,000) in respect of the year ended 31 December 2010 was declared on 23
February 2011 and was paid on 31 March 2011. The total column of this statement
represents the Group's Income Statement, prepared in accordance with IFRS. The
supplementary revenue return and capital return columns are both prepared under
guidance published by the Association of Investment Companies. All items in the
above statement derive from continuing operations. All income is attributable
to the equity holders of the parent company. There are no minority interests.
Consolidated statement of changes in equity
for the six months ended 30 June 2011
Ordinary Share Capital Capital
share premium reserve reserve Retained Total
capital account realised unrealised earnings equity
£'000 £'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 14,740 8,507 354,403 132,429 29,943 540,022
2011
Profit for the period - - 12,273 (1,405) 11,529 22,397
14,740 8,507 366,676 131,024 41,472 562,419
Dividends paid to equity - - - - (13,974) (13,974)
shareholders
BALANCE AT 30 JUNE 2011 14,740 8,507 366,676 131,024 27,498 548,445
Consolidated statement of changes in equity
for the six months ended 30 June 2010
Ordinary Share Capital Capital
share premium reserve reserve Retained Total
capital account realised unrealised earnings equity
£'000 £'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 14,740 8,507 354,093 81,866 30,782 489,988
2010
Loss for the period - - 4,439 (44,972) 10,176 (30,357)
14,740 8,507 358,532 36,894 40,958 459,631
Dividends paid to equity - - - (13,561) (13,561)
shareholders
BALANCE AT 30 JUNE 2010 14,740 8,507 358,532 36,894 27,397 446,070
Consolidated statement of financial position
as at 30 June 2011
30 June 30 June 31 December
2011 2010 2010
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
NON-CURRENT ASSETS
Investments held at fair value 607,639 507,284 599,878
through profit or loss
CURRENT ASSETS
Cash and cash equivalents 1,978 881 1,974
Other receivables 5,989 4,873 3,202
7,967 5,754 5,176
TOTAL ASSETS 615,606 513,038 605,054
CURRENT LIABILITIES
Other payables (3,749) (3,555) (1,610)
TOTAL ASSETS LESS CURRENT 611,857 509,483 603,444
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings (63,412) (63,413) (63,422)
NET ASSETS 548,445 446,070 540,022
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS
Ordinary share capital 14,740 14,740 14,740
Share premium 8,507 8,507 8,507
Capital reserve - realised 366,676 358,532 354,403
Capital reserve - unrealised 131,024 36,894 132,429
Retained earnings 27,498 27,397 29,943
TOTAL EQUITY 548,445 446,070 540,022
NET ASSET VALUE PER SHARE 930.18p 756.56p 915.89p
Consolidated statement of cash flows
for the six months ended 30 June 2011
30 June 30 June 31 December
2011 2010 2010
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit/(loss) before tax 22,397 (30,357) 69,788
Adjustments for:
Purchases of investments ¹ (97,511) (57,975) (97,611)
Sales of investments ¹ 103,066 53,991 95,608
5,555 (3,984) (2,003)
Gains/(losses) on investments (13,317) 38,309 (55,254)
Financing costs 2,270 2,288 4,577
Operating cash flows before 16,905 6,256 17,108
movements in working capital
(Increase)/decrease in accrued (824) (457) 257
income and prepayments
(Increase)/decrease in (1,963) (954) 3
receivables
Increase in payables 2,139 2,977 20
NET CASH FLOW FROM OPERATING 16,257 7,822 17,388
ACTIVITIES BEFORE AND AFTER
INCOME TAX
CASH FLOWS FROM FINANCING
ACTIVITIES
Interest paid on borrowings (2,279) (2,279) (4,559)
Equity dividends paid (13,974) (13,561) (19,754)
NET CASH USED IN FINANCING (16,253) (15,840) (24,313)
ACTIVITIES
NET INCREASE/(DECREASE) IN CASH 4 (8,018) (6,925)
AND CASH EQUIVALENTS
Cash and cash equivalents at the 1,974 8,899 8,899
start of the period
Cash and cash equivalents at the 1,978 881 1,974
end of the period
¹ Purchases and sales of investments are considered to be operating activities
of the Company, given its purpose, rather than investing activities.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
* the condensed set of financial statements contained within the half-year
report has been prepared in accordance with the Accounting Standards
Board's Statement `Half-Yearly Financial Reports';
* the half yearly financial report, which incorporates the interim management
report, includes a fair review of the information required by Disclosure
and Transparency Rule 4.2.7R of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
* in accordance with Disclosure and Transparency Rule 4.2.8R there have been
no related parties transactions during the six months to 30 June 2011 and
therefore nothing to report on any material effect by such a transaction on
the financial position or performance of the Company during that period.
The half-yearly financial report was approved by the Board on 26 July 2011 and
the above responsibility statement was signed on its behalf by:
John Reeve
Chairman
Notes
1. Comparative figures
The financial information contained in this half-year report does not
constitute statutory accounts as defined in section 434-436 of the Companies
Act 2006. The financial information for the six months ended 30 June 2011 and
30 June 2010 has not been audited.
The information for the year ended 31 December 2010 does not constitute
statutory accounts, but has been extracted from the latest published audited
accounts, which have been filed with the Registrar of Companies. The report of
the auditors on those accounts contained no qualification or statement under
section 498(2) or (3) of the Companies Act 2006.
2. Publication
This half-year report is being sent to shareholders and copies will be made
available to the public at the registered office of Temple Bar.
For further information please contact:
Alastair Mundy
Investec Asset Management Limited 020 7597 2000
Friday, 22nd November 2024
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