Half-year Report

Brunner Investment Trust PLC
15 July 2024
 

 

THE BRUNNER INVESTMENT TRUST PLC

HALF-YEARLY FINANCIAL REPORT

For the six months ended 31 May 2024

 

 

 

 

Financial Headlines

For the six months ended 31 May 2024

 

 

·      Net asset value total return (debt at fair value) per share increased by 12.8% (2023: +1.6%)

·      Net asset value total return (debt at par) per share increased by 13.0% (2023: +1.1%)

·    Benchmark index total return increased by 13.9% (2023: +0.3%)

·      Net asset value (debt at fair value) per share increased by 11.8% (2023: +0.7%)

·      Net asset value (debt at par) per share increased by 12.0% (2023: +0.2%)

·      Share price total return increased by 26.0% (2023: +2.3%)

·      Earnings per ordinary share increased by 8.9% to 17.1p (2023: 15.7p)

·      Dividends for the half year increased by 6.3% to 11.8p (2023: 11.1p)

·      Discount of net asset value (debt at fair value) to share price 5.5% and an average of 7.6% over the period (2023: 13.0%, average over the period 10.6%) 

 

 

 

 

Revenue

Six months ended

31 May 2024

Six months ended

31 May 2023

% change

 

 

Available for ordinary dividend

£7,305,000

 £6,689,000

+9.2


Earnings per ordinary share

17.1p

15.7p

+8.9


Dividends per ordinary share

11.8p1

11.1p

+6.3


Consumer price index

133.9  

 131.3  

+2.0












 





Assets

 

At 31 May

2024

At 30 Nov 2023

Capital return %

change

Total return1

% change

Net asset value per ordinary share

(debt at fair value)

1407.5p

1258.6p

+11.8

+12.8

Net asset value per ordinary share (debt at par)

1386.2p

1237.2p

+12.0

+13.0

Ordinary share price

1330.0p

1065.0p

+24.9

+26.0

Total net assets with debt at fair value

 £600,912,000

 £537,308,000

+11.8


Total net assets with debt at par

 £591,799,000

 £528,210,000

+12.0







 

 

Performance relative to the benchmark for the six months to 31 May 2024

 

Net Asset Value with debt at fair value relative to Benchmark2



 

Capital Return

 

Total Return3






Change in net asset value



11.8%

12.8%

Change in benchmark



12.4%

13.9%




 

 

Percentage point performance against benchmark2



-0.6

-1.1




 

 

 

1First interim 5.90p, second interim 5.90p

2 The benchmark applied is 70% FTSE World Ex UK Index and 30% FTSE All-Share Index.

3Total returns are calculated with net dividends reinvested

 

 

 

 

Interim Management Report

 

Half-yearly report

As I mentioned in my Chair's Statement in the Annual Report, 2024 was going to be the year that 64 countries plus the European Union were going to hold elections and that associated news was likely to be rampant. So far news has proved to be even more volatile than expected. The most surprising and significant outcome was the initial success of the far right in the first round of the unexpected French parliamentary election, who were then quickly surpassed by the Nouveau Front Populaire, an alliance of left-wing parties ranging from communists to centre left, in the second round. It is difficult to see how France can continue to play a leading and unifying force in driving Europe with such a fractured parliament and since Germany has its own political divergences in its parliament, who will? On the other side of the Atlantic there is a potential President with a criminal conviction and an incumbent where there are doubts about his physical competencies. At a time of wars with horrific civilian casualties, it is unclear which power block will be able to lead the world out of these.

·      The condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with FRS 102 as set out in Notes 3 and 4, and the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

·      This report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7 R 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 for the remaining six months of the financial year; and

·      This report includes a fair review of the information concerning related parties' transactions as required by the Disclosure and Transparency Rule 4.2.8 R. Note 17 of the company's 2023 Annual Financial Report gives details of related party transactions and transactions with the AIFM. The basis for these has not changed during the six months under review.

There have been positive indicators such as inflation starting to ease and the world economy continues to grow modestly but global political uncertainty is high and has the potential to cause economic upset. As noted by our investment managers in their report, the best service we can perform for shareholders is to concentrate less on the noise of the news and predictions and instead focus on the more contained stories of the companies they uncover as potential investments for the Brunner portfolio. After the mono-dimensional markets of the past few years it is interesting to see such different types of equity investments leading this year. On the one hand, markets are being led by companies which are creating scarcely believable technologies. On the other, traditional banks - a business model which dates back centuries- are having a very strong performance. This wider market breadth is reassuring and suits Brunner's balanced approach.

Carolan Dobson

Chair

 

 

 

 

 

Investment Manager's Review

 

Market Review

Global equity markets were very strong in the six months to the end of May 2024. The FTSE World Index was up over 14% in Sterling, which strengthened slightly over the period. The UK FTSE All Share Index was up a similar amount. Together, Brunner's benchmark was up just under 14% over the period.

Returns varied considerably by sector. Leading the pack were Technology, Financials and Industrials - three areas which account for about two thirds of Brunner's portfolio. Lower quality, more indebted sectors like Telecoms and Real Estate lagged considerably. Brunner has negligible exposure here.

The Technology sector continues to garner the headlines. The US listed 'Magnificent 7' - Microsoft, Amazon, Nvidia, Tesla, Alphabet, Meta and Apple - now collectively account for about 1/3 of the entire S&P benchmark of the top 500 US companies, a level of concentration unprecedented in modern times. The Magnificent 7, of course, is an eye-catching journalistic term; in reality, all seven are very different and saw varying returns over the period. Nvidia, which produces graphics processing units (GPUs) used in artificial intelligence (AI) applications, was up an extraordinary 130%, propelling it close to a $3 trillion market capitalisation - an amount only ever equalled by Apple and Microsoft. Tesla, meanwhile, was down over 20% as the competitive realities of the brutal automotive industry were felt. In 2022 Tesla's margins were 17%. In their last quarter, they were just 5.5%.

The comparatively staid Financials sector was the second-best performing area of the market over the period. Traditional banks and insurers provided most of the return as interest rates remained high, credit losses remained low, and as they re-rated from low levels.

The strong performance of banks, particularly, is worth commenting upon. By and large, banks have been a poor investment for many years. Many had their equity wiped out during the financial crisis and have spent the subsequent years strengthening their balance sheets to levels commensurate with modern regulatory requirements, which demand they are sufficiently capitalised to withstand most conceivable future adverse events. This has been enormously costly, heavily limiting, until recently, material dividend payments.

In recent times those factors have reversed. Although most Western economies are not exactly flourishing, most avoided outright recession and bank loan losses have remained well controlled - testament to the far more sensible lending standards imposed since the 2007-8 financial crisis. Interest rates have risen considerably, allowing banks to charge more for loans and gain more income for money on deposit with central banks. Observant depositors will have noticed that equivalent increases have not been applied to their current accounts. In industry parlance, the 'net interest margin' has increased, with positive ramifications for profitability.

Industrial companies also enjoyed a strong first half. The fiscal stimulus associated with the US Inflation Reduction Act is substantial. After many years offshoring industrial capacity, countries and companies are also reshoring or nearshoring production to offset geopolitical supply-chain risks. The construction of semiconductor foundries in Arizona is a case in point; hitherto they have virtually all been in the Far East. AI is also very capital intensive. AI data centres are huge and very energy hungry. A single AI data centre can easily consume 50 megawatts of electricity, the same as a small town. Electrification was already a longstanding industrial theme associated with decarbonisation. Technology has added another element to this longstanding trend.

After the mono-dimensional markets of the past few years it is interesting to see such different types of equity investments leading this year. On the one hand, markets are being led by companies which are creating scarcely believable technologies. On the other, traditional banks - a business model which dates to the Medicis - are having a field day. This wider market breadth is reassuring and suits Brunner's balanced approach.

Portfolio Review

Over the six months to the end of May 2024, the net asset value (NAV) of the Brunner Investment Trust with debt at fair value was up 12.8% vs the benchmark which was up 13.9%. The Trust's share price was much stronger, up over 25%. This reflects a sharp narrowing of the discount to NAV at which the shares trade, from an unusually high level of 16% at the end of November to under 6% at the end of May. The share price of an investment trust is an outcome of supply and demand for the shares and the price relative to NAV (the 'discount' or, more rarely, 'premium') can therefore vary. NAV refers to the value of the trust's equity holdings less the fair value of the trust's modest debt load, with adjustments for income and expenses.

An analysis of our contribution to performance by sector show that we benefitted from our overweight positions in Industrials and Financials. As discussed above, both these sectors enjoyed a strong first half. We also benefitted from our underweight in Consumer Staples. After a couple of years of unusually strong growth driven by inflation related price increases, growth has decelerated sharply.

We discussed Nvidia earlier. At a $3 trillion market value it has become a large part of the global benchmark. Not owning it cost us 1.6% of relative performance over the 1H. However, not owning NVDA was largely offset by several investments in the related semiconductor and industrial area. Top of the list was Taiwan Semiconductor Manufacturing Company (TSMC) which has emerged from a multi decade competitive battle as the only 'foundry' able to make the most complex logic chips sold and used by companies such as Nvidia and Apple, who don't manufacture the chips they design themselves. TSMC have recently noted a reacceleration in growth, driven by orders from Nvidia et al and a cyclical recovery elsewhere, sending shares up over 50%.

TSMC itself relies on machines produced by ASML, the Dutch semiconductor capital equipment company specialising in the most advanced lithography tools where shares were up 39%, Both these companies have, effectively, 100% market share at the upper end of their markets and benefit from structural growth enjoyed by the semiconductor industry.

Two other positive contributors benefitted from the same theme. Amphenol make electrical connectors which are used across a wide variety of end markets, including data centres. Similarly, Schneider Electric make a wide range of components used in all manner of electrical systems. Like Amphenol, their current growth rates are being boosted by the construction of AI infrastructure.

Other positive contributors include two new holdings to the trust during the period - Bank of Ireland and GE Aerospace. The investment cases for each are discussed in more detail in the 'Purchases' section. Intercontinental Hotels also performed well. This is another relatively recent purchase, acquired in the first half of 2023. This asset light business owns few hotels, but generates reliable fee streams lending its brands, management capability, systems and loyalty program to hotel owners under long term contracts. We believe it is amongst the best businesses listed in the UK.

Negative detractors aside from Nvidia include UnitedHealth Group, the US health insurer, which has faced some margin pressure as patients have returned to hospital after COVID for elective surgeries, increasing claims rates and 'medical loss ratios'. Given this is an industry-wide issue, and as UnitedHealth's insurance policies are repriced annually, this is nothing more than a short-term concern.

IT consultant Accenture also fared poorly as revenue growth slowed after a strong period, and investor focus switched to perceived AI winners. Adobe saw its P/E multiple contract as some questioned the resilience of its software used by designers to new entrants powered by AI. We worked with Grassroots Research, a division of Allianz Global Investors which uses market research and investigative journalism, to uncover trends in the competitive environment. Tellingly, not even one of the graphic designers who use Adobe's 'Creative Suite' interviewed intended to cancel their subscription to what has become the de facto industry standard.

Within the financials sector, insurance broker AJ Gallagher, payment network Visa and private equity firm Partners Group all saw modest gains in absolute terms, but they were insufficient to keep up with the market.  In each case, there is nothing of importance to mention, but these examples do serve to highlight how difficult it has been for anything untouched by AI fever to keep up with the bull market. More damaging was our small investment in UK lender Close Brothers, which we discuss later in the 'Significant Transactions' section.

Significant Transactions

In recent years, annual turnover on the Brunner portfolio has ranged between 15% and 20%. This implies an average holding period of 5 to 7 years for our investments.

We often say that our ideal holding period is forever. However, there are three primary reasons why we may make changes:

1.   We were wrong;

 

 

2.   The investment becomes overvalued;

 

 

3.   We find something new we would rather own.

 

Purchases

Founded by Thomas Edison in 1892, General Electric is notorious in corporate history. As recently as 2005 it was the largest company in the world by market capitalisation. CEO Jack Welch and his successor Jeff Immelt were feted darlings of the business community before the conglomerate's undercapitalised finance business crumbled in the aftermath of the global financial crisis.

Since then, the business has been almost entirely dismantled, leaving GE as a standalone aircraft engine business trading as GE Aerospace.

A modern jet engine is amongst the most sophisticated devices ever made. The latest variants contain over a million parts and operate at the limits of physics and material science.  Additionally, there is the obvious importance of absolute safety and near total reliability.

Reflective of their exceptional competitive position and what we believe are near total barriers to entry, about 75% of all flights that take off worldwide are powered with a GE engine 'under wing'. GE make their money by servicing the engines under long term agreements with the owners. This provides a highly visible, very profitable recurring income stream for the 20 year plus life of the engine. Growth should come with regular price increases plus ongoing expansion in the global aircraft fleet.

As one of the largest banks in a country particularly hard hit by the global financial crisis and subsequent sovereign debt crisis, it is perhaps unsurprising that shares in Bank of Ireland fell 99% during this period. The bank was saved from full insolvency by a distressed equity raise that increased the number of shares outstanding by a factor of twenty, diluting existing shareholders an equivalent amount.

Crises often induce lasting change. In a banking context, Scandinavia provides a helpful historical precedent. In the early '90s, Sweden, Norway and Finland saw a similar boom and bust. The insolvency of the entire banking sector and the socialisation of those costs resulted in a wholesale change in regulatory attitudes to risk. The result has been that Scandinavian banks are now widely seen as setting the benchmark for financial strength and prudency.

We believe a similar process has taken place in Ireland. Debt levels across the entire economy are much reduced. Lending standards have greatly improved. The Bank of Ireland et al have recapitalised their balance sheets at great expense. This cost has forced the industry to consolidate, resulting in a more concentrated market where the survivors stand a greater chance of generating a decent return.

With the recapitalisation process now complete, dividend payments and share repurchases have now restarted in earnest. At the time of purchase, we estimated that the bank could return over 40% of our initial investment to shareholders over just a three-year period, assuming interest rate and credit conditions remain benign.

UK listed Inchcape is an unusual company. They market and distribute cars and parts on behalf of companies like Toyota, Subaru and Jaguar Land Rover in smaller markets such as Chile, Singapore and Australia. They are, by some distance, the leader in what is a highly fragmented market where we believe scale is becoming more important. It is a business with attractive financial characteristics, including good levels of profitability and free cash flow generation. They are well positioned to add new automotive brands and geographies to their stable via contract wins and small, bolt-on acquisitions.

Inchcape is a smaller company with a generous dividend which typifies the exceptional value currently on offer in parts of the UK market. As an aside, we note that two of our other smaller UK holdings - homebuilder Redrow and industrial Tyman - have recently been subject to takeover bids, suggesting corporate buyers also detect attractive opportunities. 

Roper is a US listed industrial technology company focused on mission critical, industry specific software for a wide range of verticals including education, utilities and insurance.

Most of its revenues are recurring in nature and customer retention is extremely high. We are impressed by management's relentless focus on creating a predictable, growing, high quality cash flow stream, with growth in the existing business augmented by sensibly judged acquisitions that add new end markets to its range.

Alphabet is the parent company of Google, a company we have long admired. It consistently enjoys over 90% share in sponsored search, their core business. They also make money arranging and placing adverts across their network of third-party websites. Additionally, Alphabet owns and operates YouTube and Google Cloud, where it has emerged as a credible competitor alongside Microsoft and Amazon in the provision of cloud computing services.

Alphabet has become a prodigious generator of free cash and recently paid its maiden dividend. We believe the company will continue to grow, albeit not at the pace seen in the past. The multiple is very reasonable, particularly in the context of its net cash balance sheet. Looking forward, a combination of cash returns, growth and a stable valuation should lead to a solid outcome for investors.

Towards the end of the first half, we took a position in American Financial Group (AFG). AFG is a family-run speciality property and casualty insurer based in Cincinnati, Ohio. 'Combined' loss ratios - which measure both incurred payouts on policies written and the expense of running the business - have been superior to most peers over long timeframes. They have also been within a sufficiently narrow corridor for us to be persuaded that their underwriting prowess and risk management abilities are first rate. Growth has been modest but consistent.

Over time, AFG has divested various businesses to focus solely on specialty property and casualty insurance. This is the part of the industry we like best. They generate dependable returns which are largely uncorrelated to macro-economic factors. Cash returns are high, helped by AFG having significant excess capital; the dividend yield in 2023 was 6.4% based on the share price at time of purchase.

Sales

We sold our shares in wealth manager St James's Place in December. This has been a disappointing holding. Although the company's model has clear financial appeal (recurring fees, sticky assets, low capital requirements and a solid record of growth) the company's opaque charging structure has come under increased scrutiny. Growth has also slowed dramatically. We are therefore happier with our holdings in Charles Schwab and Partners Group, both of whom are also 'asset gatherers'.

We sold our small position in the specialist UK lender, Close Brothers, which has also been a costly holding. The company was impacted by a Financial Conduct Authority (FCA) review into historic motor finance commission arrangements.  Whilst there is wide range of potential outcomes from this review, the worst-case scenario for Close could require a capital raise and significantly reduce the equity value.  The investment case had therefore become an uncomfortably binary situation, so we decided to sell. Soon afterwards, the company took a large provision and cut its dividend in recognition of the meaningful risk to its capital position.

ANZ is one of the largest banks in Australia and New Zealand. We sold our small, residual position to purchase Bank of Ireland, which we believe represents superior quality and value on several key metrics. As global investors we are well placed to take advantage of regional differences such as this as we see fit.

Rentokil's acquisition of Terminix in the US appeared strategically sound, bringing together the no 2 and 3 players in the pest control market. However, there is growing evidence that the acquired target has structural growth challenges which may prove difficult to correct. Share losses to their largest competitor have continued and were sufficiently concerning for us to sell our small position.

We sold Intuit, a high-quality US software company, where the valuation means we can no longer see a route to a good return in the next several years. The company has also become an increasingly profligate user of stock-based compensation for employees, which we believe represents an under-appreciated and persistent drag on the true free cash flow attributable to shareholders. Roper, by comparison, generates a far higher and cleaner free cash flow stream. Our valuation work always focuses on the cash that will ultimately come due to investors.

Market Outlook

In meetings with clients, we often say we are micro-economists, not macro-economists. Micro-economics refers to the economics of the firm and industry structure whilst macro-economics refers to factors like GDP, inflation and interest rates. Why are we more interested in the former than the latter?

Generally, it relates to predictability. Economies are hugely complex, adaptive systems which, like the weather, are inherently chaotic and random. Serious meteorologists don't even bother to forecast the weather more than a couple of weeks ahead, yet the financial industry is full of commentators who think nothing of making confident predictions of the economic environment months or even years ahead. They are often wrong but rarely uncertain. As a species who appreciate clarity about the future they provide us with something we desire but cannot have.

In our opinion, business is slightly different. While there is still randomness and shocks, we are sometimes able to identify and understand the dynamics that deliver lasting returns for certain companies or sectors. In some cases, competition is revolutionary (think of the impact of combustion engines on horse breeders) but often it is evolutionary. Things improve. Good ideas float. Bad ones sink.

Biologists distinguish between two types of evolution - contingent and convergent. Contingent evolution is random. The asteroid that hit Yucatan and wiped out the dinosaurs was a contingent event. If the offending asteroid's billion-year journey through space was on an infinitesimally different trajectory it would have missed the earth, the dinosaurs' reign would have continued uninterrupted, mammals would've remained a minor class and none of us would exist.

In contrast, convergent evolution refers to what was bound to happen. Throughout different branches of the evolutionary tree, eyes and wings have repeatedly and separately developed. Sleep, interestingly, too. Seeing, flying and restoration are all too useful not to have inevitably emerged through a long, natural process of trial and error.

Recessions, like asteroids, are random. Most people have wondered how different the world would've been if Wuhan's patient zero had stayed in bed that day. As they didn't, that single contingent event diverted the course of history.  By comparison, the way some industries develop is often convergent. As an example, we cannot foresee a world in which the semiconductor industry does not continue to grow; processing power and data transmission is simply too useful for it not to. This brings an element of long-term predictability that is very different from the random machinations of the short-term economic cycle.

 

Julian Bishop / Christian Schneider

Allianz Global Investors

 

 

 

[1] All data in GBP as of 31 May 2024 unless stated.

BRUNNER INVESTMENT TRUST PLC

PORTFOLIO BREAKDOWN AS AT 31 MAY 2024

 

 

Value

£'000s

% of Invested Funds

Sector

 40,479

 6.56

 Software & Computer Services

 Visa

 23,123

 3.75

 Industrial Support Services

 United Health

 21,826

 3.54

 Health Care Providers

 Taiwan Semiconductor

 20,181

 3.27

 Technology Hardware & Equipment

 Microchip Technology

 18,529

 3.00

 Technology Hardware & Equipment

 Schneider Electric

 17,683

 2.87

 Electronic & Electrical Equipment

 Shell

 16,620

 2.69

 Oil, Gas & Coal

 Thermo Fisher Scientific

 16,148

 2.62

 Medical Equipment & Services

 Bank of Ireland Group

 15,630

 2.53

 Banks

 ASML Holding

 15,620

 2.53

 Technology Hardware & Equipment

 Intercontinental Hotels

 15,532

 2.52

 Travel & Leisure

 Charles Schwab

 14,723

 2.39

 Investment Banking & Brokerage

 Partners Group

 14,241

 2.31

 Investment Banking & Brokerage

 TotalEnergies

 13,678

 2.22

 Oil, Gas & Coal

 Arthur J. Gallagher & Co.

 13,379

 2.17

 Non-Life Insurance

 AMETEK

 13,196

 2.14

 Electronic & Electrical Equipment

 General Electric

 12,798

 2.07

 Aerospace & Defence

 Alphabet

 12,737

 2.06

 Software & Computer Services

 Itochu

 12,561

 2.04

 General Industrials

 American Financial Group

 12,549

 2.03

 Non-Life Insurance

 AENA

 11,594

 1.88

 Industrial Transportation

 Unilever

 11,227

 1.82

 Personal Care, Drug & Grocery

 DNB Bank

 10,883

 1.76

 Banks

 Atlas Copco

 10,650

 1.73

 Industrial Engineering

 Admiral Group

 10,042

 1.63

 Non-Life Insurance

 Roper Technologies

 9,753

 1.58

 Software & Computer Services

 Accenture

 9,427

 1.53

 Industrial Support Services

 The Cooper Companies

 9,334

 1.51

 Medical Equipment & Services

 Redrow

 9,163

 1.49

 Household Goods & Home Construction

 Roche Holdings

 8,530

 1.38

 Pharmaceuticals & Biotechnology

 SSE

 8,458

 1.37

 Electricity

 Baltic Classifieds

 8,336

 1.35

 Software & Computer Services

 Assa Abloy

 7,523

 1.22

 Construction & Materials

 Amphenol

 7,497

 1.22

 Technology Hardware & Equipment

 S&P Global

 7,312

 1.19

 Finance & Credit Services

 CME Group

 7,269

 1.18

 Investment Banking & Brokerage

 Nestle

 7,264

 1.18

 Food Producers

 Corpay

 7,152

 1.16

 Industrial Support Services

 SThree

 7,055

 1.14

 Industrial Support Services

 IG Group

 6,881

 1.12

 Investment Banking & Brokerage

 Inchcape

 6,766

 1.10

 Industrial Support Services

 Tyman

 6,766

 1.10

 Construction & Materials

 Munich Re

 6,661

 1.08

 Non-Life Insurance

 RELX

 6,576

 1.07

 Media

 Novo Nordisk

 6,305

 1.01

 Pharmaceuticals & Biotechnology

 Iberdrola

 6,140

 1.00

 Electricity

 Haleon

 6,094

 0.99

 Pharmaceuticals & Biotechnology

 DCC

 5,975

 0.97

 Industrial Support Services

 Brambles

 5,654

 0.92

 General Industrials

 GSK

 5,298

 0.85

 Pharmaceuticals & Biotechnology

 Rio Tinto

 5,201

 0.84

 Industrial Metals & Mining

 Adobe

 5,172

 0.84

 Software & Computer Services

 LVMH Moet Hennessy Louis Vuitton 

 5,025

 0.81

 Personal Goods

 AIA

 4,456

 0.72

 Life Insurance

 Jumbo

 4,037

 0.65

 Leisure Goods

 AbbVie

 4,020

 0.65

 Pharmaceuticals & Biotechnology

 Align Technology

 3,838

 0.62

 Medical Equipment & Services

 Diageo

 3,682

 0.60

 Beverages

 Estée Lauder 

 2,634

 0.43

 Personal Goods






616,883

100.00

% of Total Invested Funds






 

 



 

 



 

 



 

 










 

 

 

                       

ANALYSIS BY REGION AS AT 31 MAY 2024

 

Region

Value (£m)

 

% of Invested Funds


 

 

272.9

44.3

Continental Europe

145.9

25.2

UK

155.3

23.6

Pacific Basin

30.2

4.9

Japan

12.6

2.0

 



Total

616.9

100.0

 

 

 

ANALYSIS BY SECTOR AS AT 31 MAY 2024

 

Sector

 % of Invested Funds


 

25.6

Financials

20.1

Technology

22.4

Health Care

13.2

7.0

Energy

4.9

Consumer Staples

3.6

Utilities

2.4

Basic Materials

0.8

 


Total

100.0

 

SUMMARY OF UNAUDITED RESULTS

INCOME STATEMENT

for the six months ended 31 May 2024

 

Revenue

Capital

Total Return

£'000s

£'000s

£'000s

 


(Note 2)

Gains on investments held at fair value through profit or loss

-

 

62,736

 

62,736

Losses on foreign currencies

-

(87)

(87)

Income from investments

9,170

-

9,170

Investment management fee

(402)

(938)

(1,340)

(492)

(2)

(494)

8,276

61,709

69,985

(216)

(473)

(689)

8,060

61,236

69,296

(755)

-

(755)




7,305

61,236

68,541

17.11p

143.44p

160.55p

 

 

 

 

 

BALANCE SHEET

as at 31 May 2024

 

 

 

£'000s


616,883

22

616,905

(25,106)

591,799


 10,673

 5,327

555,867

19,932

591,799


1,386.2p

 


 

SUMMARY OF UNAUDITED RESULTS

INCOME STATEMENT

for the six months ended 31 May 2023

 

Revenue

Capital

Total Return

£'000s

£'000s

£'000s

 


(Note 2)

Gains on investments held at fair value through profit or loss

-

 

409

 

409

Losses on foreign currencies

-

(191)

(191)

Income from investments

8,678

-

8,678

Investment management fee

(354)

(827)

(1,181)

(426)

(1)

(427)

7,898

(610)

7,288

(194)

(426)

(620)

7,704

(1,036)

6,668

(1,015)

-

(1,015)




6,689

(1,036)

5,653

15.67p

(2.43p)

13.24p

 

 

 

 

BALANCE SHEET

as at 31 May 2023

 

 

 

£'000s


523,038

26

523,064

(25,096)

497,968


 10,673

 5,327

464,215

17,753

497,968


1,166.4p

 


 

 

STATEMENT OF CHANGES IN EQUITY

 

 

 

 

Called up

Share

Capital

£'000s

Capital Redemption Reserve

£'000s

 

Capital

Reserve

£'000s

 

Revenue Reserve

£'000s

 

 

Total

£'000s







Six months ended 31 May 2023






Net assets at 1 December 2022

 10,673

  5,327

465,251

 15,846

  497,097

Revenue profit

 -

 -

 -

 6,689

6,689

Dividends on ordinary shares (Note 4)

        -

 -

 -

(4,782)

(4,782)

Capital loss

        -

 -

(1,036)

 -

(1,036)







Net assets at 31 May 2023

   10,673

    5,327

464,215

17,753

497,968

 












Six months ended 31 May 2024






Net assets at 1 December 2023

 10,673

  5,327

494,631

17,579

  528,210

Revenue profit

 -

 -

 -

 7,305

 7,305

Dividends on ordinary shares (Note 4)

        -

 -

 -

(4,952)

(4,952)

Capital profit

        -

 -

61,236

 -

61,236







Net assets at 31 May 2024

   10,673

    5,327

555,867

19,932

591,799

 






 

 

CASH FLOW STATEMENT

 

 

Six months

 

Six months

 

 

ended

 

ended

 

 

31 May

 

31 May

 

 

2024

 

2023

 

 

 

£000's

 

£000's

Operating activities






Profit before finance costs and taxation



69,985

 

 7,288



(62,736)


(409)


87


 191


(755)


(1,015)



(1,727)


(413)



188


(33)



(67,254)


(57,797)



 66,484

 

 58,971



4,272

 

6,783











Interest paid



(668)


(516)

Dividend paid on cumulative preference stock



(11)


(11)

Dividends paid on ordinary shares



(4,952)


(4,782)



(5,631)


(5,309)




 




(1,359)

 

1,474













 9,865


 7,919



(87)


(191)



 8,419


 9,202



 


 



 


 



8,419


9,202








 

 

Notes to the Financial Statements

Note 1

 

The returns per ordinary share have been calculated using a weighted average number of shares in issue of 42,692,727 (31 May 2023: 42,692,727 shares).                                                                          

 

Note 2

 

The total column of this statement is the profit and loss account of the company.

 

All revenue and capital items derive from continuing operations. No operations were acquired or discontinued in the period.

 

Purchases for the half year ended 31 May 2024 were £67,254,000 (31 May 2023: £57,797,000) and sales for the half year ended 31 May 2024 were £66,484,000 (31 May 2023: £57,997,000).                                                                                                                                                                     

Included in the cost of investments are transaction costs on purchases which amounted to £162,000 (31 May 2023: £159,000) and transaction costs on sales which amounted to £15,000 (31 May 2023: £16,000).                                                                                                                                                        

Note 3

 

Investments are designated as held at fair value through profit or loss in accordance with FRS 102 sections 11 and 12.  Investments are initially recognised at fair value, which is determined to be their cost. Subsequently, investments are revalued at fair value which is the bid market price for listed investments.

 

FRS 102 sets out three fair value levels.

 

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e., developed using market data) for the asset or liability, either directly or indirectly

 

Level 3: Inputs are unobservable (i.e., for which market data are unavailable) for the asset or liability

 

As at 31 May 2024, the financial assets at fair value through profit and loss of £616,883,000 (30 November 2023: £553,377,000) are categorised as follows:                                                                     

Six months ended

Year ended

31 May

30 November

2024

2023

 £'000s

 £'000s



616,883

553,377

 -

 -

 -

-

616,883

553,377

 

 

Note 4

 

In accordance with section 32 FRS102 ' Events After the end of the Reporting Period', dividends declared after the end of the reporting period shall not be recognised as a liability.

 

Dividends paid on ordinary shares in respect of earnings for each period are as follows:

 

Six months ended

31 May 2024

£'000s

Six months ended

31 May 2023

£'000s

Year ended

30 November 2023

£'000s

 

Final dividend - 6.05p paid 4 April 2024 (2023 - 6.05p)

2,583

2,583

 2,583

First interim dividend - 5.55p paid 25 July 2023 (2022 - 5.15p)

 -

 -

2,369

Second interim dividend - 5.55p paid 15 September 2023 (2022 - 5.15p)

 -

 -

2,369

Third interim dividend - 5.55p paid 12 December 2023 (2022 - 5.15p)

2,369

2,199

  2,199 


4,952

4,782

9,520

 

Dividends declared after the period end are not recognised as a liability under section 32 FRS 102 'Events after the end of the reporting period'. Details of these dividends are set out below.

 

Six months ended

31 May 2024

£'000s

 

Six months ended

31 May 2023

£'000s

 

Year ended

30 November 2023

£'000s





First interim dividend 5.90p payable 25 July 2024 (2023: 5.55p)

2,519

2,369

-

Second interim dividend 5.90p payable 12 September 2024 (2023: 5.55p)

2,519

2,369

-

Third interim dividend 5.55p

-

-

  2,369

 Final dividend 6.05p

       -

       -

  2,583


5,038

4,738

4,952

 

 

The final and interim dividends above are based on the number of shares in issue at the period end. However, the dividend payable will be based upon the number of shares in issue on the record date and will reflect any purchase or cancellation of shares by the company settled subsequent to the period end.

 

 

Note 5

 

The directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements, as the assets of the company consist mainly of securities which are readily realisable and accordingly, that the company has adequate financial resources to continue in operational existence for the foreseeable future.

 

Note 6

 

The half-yearly report has neither been audited nor reviewed by the company's auditors. The financial information for the year ended 30 November 2023 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006.                                                                          

 

 

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