Half-yearly Report
TEMPLE BAR INVESTMENT TRUST PLC
Equity markets traded in a tight range in the first half of the year with
economic, political and corporate news providing succour for both the bulls and
the bears.
The UK economy grew faster than most of its developed peers and, with the next
General Election coming into focus, the UK Government successfully resorted to
the tried and tested routine of a housing boom to keep the recovery on track.
This growth allowed Sterling to take the mantle as the least ugly of the major
currencies; although it is unclear how positive such appreciation is for both
corporate profitability and the economy in general.
Within UK equities, the FTSE 250, which fell 1.3%, stalled after some
phenomenal growth in previous years and slightly underperformed the FTSE 100,
which fell by 0.1%. We have been concerned for some time that recent rises in
equity markets have been driven primarily by re-ratings rather than earnings
growth and that ratings have in general moved to unattractive levels. We
continue to believe that many equities need stronger earnings to justify their
current valuation and something even better to drive them on from current
levels.
The performance of the Temple Bar portfolio slightly lagged that of the FTSE
All-Share Index. This was due as much as to what was not held on the portfolio
(AstraZeneca and Shire Pharmaceuticals in particular) rather than what was
held. Of the stocks in the portfolio, Signet Jewelers contributed most to
performance whilst the biggest laggard was Grafton Group. The total return on
the net assets of Temple Bar during the first half of 2014 was 0.3%, compared
with a total return for the FTSE All Share Index of 1.6%.
Dividend
The Board has declared an interim dividend of 15.55p, an increase of 3.0% over
last year, payable on 30 September 2014 to shareholders on the register at 12
September 2014.
On a number of occasions in recent years the Board has considered the frequency
of dividend payments. In light of changes in both market practice and the
Board's perception of shareholder preference it has been decided that with
effect from the financial year beginning on 1 January 2015 the Company will pay
dividends on a quarterly basis. Whilst the precise amount of each quarterly
payment has yet to be determined, it is the Board's intention, all else being
equal, that shareholders will receive payments amounting to at least those
received under the previous arrangements and that the progressive annual
dividend growth of the last 30 years will be continued.
New Share Issues
During the period the Company obtained a block listing for a further 2 million
shares to facilitate the issue of smaller amounts of shares for cash to market
participants in a cost effective manner at a modest premium to net asset value.
The Board believes that it is important to be proactive in managing any premium
or discount in the best interests of shareholders. The Company's shares have
generally been trading at a premium to net asset value for a substantial
period. The Board favours regular small issues of shares to ensure that such
premium is kept at a reasonable and sustainable level. In the first half of the
year a total of 1,418,625 ordinary shares were issued, raising proceeds of £
17,602,319.
Alternative Investment Fund Manager Directive (`AIFMD')
Shareholders many recall that AIFMD is a European Directive affecting many
investment companies, including the Company, that are managed within the
European Union. As a result the Board is required to appoint an Alternative
Investment Fund Manager (`AIFM') and has decided to appoint a subsidiary of
Investec Asset Management Limited to this role. The Board has also appointed
HSBC as depositary. HSBC will also act as the custodian. These regulatory
changes require new investment management and depositary agreements which have
now been finalised.
John Reeve
Chairman
22 July 2014
PORTFOLIO MANAGERS REPORT
Portfolio activity, compared with previous years at least, was fairly high. The
holding in Vodafone was sold in its entirety. Ahead of the significant return
of cash to shareholders (itself a consequence of Vodafone's sale of its holding
in US mobile telecommunication company Verizon Wireless) rumours had grown of a
bid for Vodafone by AT&T. We used the liquidity and share price strength this
provided to eliminate the holding, particularly as we believe Vodafone has a
number of strategic challenges over the next few years which may demand high
levels of capital expenditure and also lead to some large acquisitions. The
weighting in the telecommunications sector was further reduced through sales of
BT. The Company has recovered well in the last 10 years and there are
apparently still opportunities to cut operating costs further. However, the
rating has moved up significantly and the company's ambitions in sports
programming may require significant expenditure ahead of the hoped for
increases in revenues.
The move from in favour telecoms companies was balanced by further acquisitions
of out of favour oil and gas companies. We have written about the positive
prospects for the largest UK listed companies, including the oil and gas
companies, for some years and have clearly been far too early with our
purchases of many companies in this category. However, we believe that the
positive factors in favour of this argument continue to grow. The bid for
AstraZeneca suggests that even the largest companies are now vulnerable to
outsiders, be they corporate bidders, activists or even institutional
shareholders and we believe this has created further encouragement to the
newish management of many of these large companies to drive efficiencies, sell
non-core assets and increase the focus on those areas of competitive advantage.
Little of this potential progress appears to be priced into valuations which
stand at a discount to the rest of the UK market.
We also built a position in food retailers, primarily through an acquisition of
Tesco but also of Wm Morrison. The industry is clearly undergoing significant
change with both discounters and high end competitors performing well at the
expense of those in the middle ground. While it is tempting to extrapolate the
current trends we believe that the large retailers and particularly Tesco as
the largest are well positioned to compete against the thriving competitors.
Tesco has announced new management who may be tempted to sell some
international assets and further cut prices. The next few years are likely to
be volatile and we may have the opportunity to buy more shares at a lower
price, but as long-term shareholders we are comfortable with the price we paid
for the shares.
In terms of new holdings, smaller acquisitions were made of Fresnillo, the
Mexican based but UK listed, gold and silver producer, Royal Mail, the recently
privatised postal company and Coach, the luxury handbag company.
The largest sale after Vodafone was a partial disposal of the holding in Signet
Jewelers. This has been a large position for some years and we decided to
reduce the size of the holding as the shares moved towards fair value.
Unfortunately, post the sale, the company announced the acquisition of Zales's
the second largest jewellery retailer in the US. This acquisition provides
significant prospects for Signet, both in terms of cutting costs and in
leveraging the dominant position it now has in the US speciality jewellery
market.
We remain rather surprised that investors are happy to brush aside any number
of negatives. We face widespread geo-political tensions, increasing government
debt, the prospect of reversal of the extraordinary amounts of monetary easing
of the last few years, historically high equity valuations and the indecent
haste with which private equity groups are offloading their holdings onto the
public market. All these are brushed off as minor inconveniences, irrelevancies
or what Monty Python's Black Knight would have described as just a `flesh
wound'. The opportunity set amongst out of favour companies seems be to more
fertile than it has been for some time which offers some encouragement, but we
must be careful not to pull the trigger too quickly.
Alastair Mundy
Investec Fund Managers Limited
22 July 2014
Twenty Largest Holdings
as at 30 June 2014
Company Supersector Place of Valuation % of
Listing £'000 Portfolio
UK Treasury Fixed Interest UK 105,904 11.97
4.75% 2015
Royal Dutch Oil & Gas UK 82,079 9.28
Shell
HSBC Financials UK 74,472 8.42
GlaxoSmithKline Health Care UK 65,554 7.41
BP Oil & Gas UK 52,697 5.96
Grafton Group Industrials UK 35,446 4.01
British American Consumer Goods UK 30,446 3.44
Tobacco
Signet Jewelers Consumer Services USA 26,791 3.03
Unilever Consumer Goods UK 26,303 2.97
BT Group Telecommunications UK 24,634 2.78
Top Ten 524,326 59.27
Investments
QinetiQ Industrials UK 23,259 2.63
Direct Line Financials UK 20,685 2.34
Insurance
Royal Bank of Financials UK 20,182 2.28
Scotland
Tesco Consumer Services UK 20,046 2.27
SIG Industrials UK 19,071 2.16
Gold Bullion Financials UK 18,438 2.08
Securities ETF
Imperial Tobacco Consumer Goods UK 15,018 1.70
Centrica Utilities UK 14,228 1.61
BG Oil & Gas UK 13,830 1.56
Carnival Consumer Services UK 13,359 1.51
Top Twenty 702,442 79.41
Investments
Statement of comprehensive income
for the six months ended 30 June 2014
30 June 2014 30 June 2013 31 December 2013
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment 15,593 - 15,593 13,918 - 13,918 26,064 - 26,064
income
Other 4 - 4 4 - 4 10 - 10
operating
income
Total 15,597 - 15,597 13,922 - 13,922 26,074 - 26,074
income
(Losses)/
gains on
investments
(Losses)/
gains on
investments
held at
fair value
through
profit or
loss assets
- (7,603) (7,603) - 91,265 91,265 - 164,732 164,732
15,597 (7,603) 7,994 13,922 91,265 105,187 26,074 164,732 190,806
Expenses
Management (630) (945) (1,575) (528) (792) (1,320) (1,141) (1,711) (2,852)
fees
Other (298) (667) (965) (248) (563) (811) (569) (1,154) (1,723)
expenses
including
dealing
costs
Profit / 14,669 (9,215) 5,454 13,146 89,910 103,056 24,364 161,867 186,231
(Loss)
before
finance
costs and
tax
Finance (1,306) (1,983) (3,289) (910) (1,362) (2,272) (2,090) (3,163) (5,253)
costs
Profit/ 13,363 (11,198) 2,165 12,236 88,548 100,784 22,274 158,704 180,978
(loss)
before tax
Tax - - - - - - - - -
Profit/ 13,363 (11,198) 2,165 12,236 88,548 100,784 22,274 158,704 180,978
(loss) for
the period
Earnings 20.94p (17.55)p 3.39p 20.13p 145.72p 165.85p 36.17p 257.72p 293.89p
per share
(basic and
diluted)
An interim dividend of 15.55 pence per share in respect of the six months ended
30 June 2014 was declared on 22 July 2014 and is payable on 30 September 2014.
An interim dividend of 15.10 pence per share in respect of the six months ended
30 June 2013 was declared on 23 July 2013 and was paid on 30 September 2013. A
final dividend of 22.65 pence per share in respect of the year ended 31
December 2013 was declared on 12 February 2014 and was paid on 31 March 2014.
The total column of this statement represents the Statement of Comprehensive
Income, prepared in accordance with IFRS. The supplementary revenue and capital
columns are both prepared under guidance published by the Association of
Investment Companies. All items in the above statement derive from continuing
operations.
Statement of changes in equity
for the six months ended 30 June 2014
Ordinary Share
share premium Capital Retained Total
capital account reserves earnings equity
£'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 2014 15,831 54,002 689,117 33,120 792,070
Profit for the period - - (11,198) 13,363 2,165
15,831 54,002 677,919 46,483 794,235
Issue of share capital* 354 17,287 - - 17,641
Dividends paid to equity - - - (14,396) (14,396)
shareholders
BALANCE AT 30 JUNE 2014 16,185 71,289 677,919 32,087 797,480
* Due to investor demand 1,418,625 shares were issued during the period for a
total consideration of £17,602,319 at a premium to the prevailing net asset
value.
Statement of changes in equity
for the six months ended 30 June 2013
Ordinary Share
share premium Capital Retained Total
capital account reserves earnings equity
£'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 2013 15,138 22,105 530,413 33,535 601,191
Profit for the period - - 88,548 12,236 100,784
15,138 22,105 618,961 45,771 701,975
Issue of share capital * 152 6,683 - - 6,835
Dividends paid to equity - - - (13,366) (13,366)
shareholders
BALANCE AT 30 JUNE 2013 15,290 28,788 618,961 32,405 695,444
* Due to investor demand 606,113 shares were issued during the period for a
total consideration of £6,834,993 at a premium to the prevailing net asset
value.
Statement of financial position
as at 30 June 2014
30 June 30 June 31 December
2014 2013 2013
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
NON-CURRENT ASSETS
Investments held at fair value 884,634 709,834 889,385
through profit or loss*
CURRENT ASSETS
Receivables 4,328 5,452 4,087
Cash and cash equivalents 27,775 44,433 14,139
32,103 49,885 18,226
TOTAL ASSETS 916,737 759,719 907,611
CURRENT LIABILITIES
Payables (5,554) (815) (1,836)
TOTAL ASSETS LESS CURRENT 911,183 758,904 905,775
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings (113,703) (63,460) (113,705)
NET ASSETS 797,480 695,444 792,070
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS
Ordinary share capital 16,185 15,290 15,831
Share premium 71,289 28,788 54,002
Capital reserves 677,919 618,961 689,117
Retained earnings 32,087 32,405 33,120
TOTAL EQUITY 797,480 695,444 792,070
NET ASSET VALUE PER SHARE 1,231.78p 1,137.14p 1,250.84p
* Includes £106 million UK Treasury holding considered by the board to be held
in lieu of cash.
Statement of cash flows
for the six months ended 30 June 2014
30 June 30 June 31 December
2014 2013 2013
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax 2,165 100,784 180,978
Adjustments for:
Purchases of investments ¹ (221,998) (149,041) (351,220)
Sales of investments ¹ 219,146 164,971 261,070
(2,852) 15,930 (90,150)
Losses/(gains) on investments 7,603 (91,265) (164,732)
Financing costs 3,289 2,272 5,253
Operating cash flows before 10,205 27,721 (68,651)
movements in working capital
(Increase)/decrease in accrued (1,171) 19 (332)
income and prepayments
Decrease/(increase) in 930 (2,730) (929)
receivables
Increase in payables 4,030 159 779
NET CASH FLOW FROM OPERATING 13,994 25,169 (69,133)
ACTIVITIES BEFORE AND AFTER
INCOME TAX
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issue of new shares 17,641 6,835 32,590
Proceeds from issue of 4.05% - - 50,000
Private Placement Loan
Issue costs relating to 4.05% (311) - (133)
Private Placement Loan
Unclaimed dividends - - 29
Interest paid on borrowings (3,292) (2,268) (4,559)
Equity dividends paid (14,396) (13,366) (22,718)
NET CASH USED IN FINANCING (358) (8,799) 55,209
ACTIVITIES
NET INCREASE IN CASH AND CASH 13,636 16,370 (13,924)
EQUIVALENTS
Cash and cash equivalents at the 14,139 28,063 28,063
start of the period
Cash and cash equivalents at the 27,775 44,433 14,139
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 2014 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 22 July 2014 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 2014 and
30 June 2013 has not been audited.
The information for the year ended 31 December 2013 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 Company's registered office and on its website.
For further information please contact:
Alastair Mundy
Investec Fund Managers Limited 020 7597 2000
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