Final Results
Page 1 of 35
WITAN INVESTMENT TRUST PLC
This announcement contains regulated information
Annual Financial Report for the year ended 31 December 2020
Chairman's Report
HIGHLIGHTS
· Full-year NAV total return of 4.2%. The benchmark returned 9.5%
· Portfolio restructured to reflect a more global outlook and a new benchmark
· Second half performance turnaround: 22% total return, ahead of the new benchmark's 12%
· Ten-year NAV total return of 156%, compared with 142% for the benchmark
· Share price discount to NAV 2.4% at year-end (2019: 0.7%)
· Dividend increased by 1.9% to 5.45 pence, more than double that paid in 2010 and an unbroken run of increases since 1974
· Intention to use reserves to support and grow the dividend while cover rebuilds
2020 will forever be associated with the COVID-19 pandemic, and I would first like to take this opportunity to express my deep sympathy to those affected and gratitude to those in the front line of the fights against the disease, before I turn my attention to how Witan has fared in the past year.
At the start of 2020, Witan changed its benchmark strategic asset allocation to reflect the increasing growth opportunities in the US and faster growing regions of the world, relative to those in the UK and Europe. This entailed an increase in the North America weight of our benchmark from 25% to 51% and a reduction in the combined weights for the UK and Europe from 50% to approximately 30%. However, on valuation grounds, we decided, wrongly with the benefit of hindsight, to phase these changes in gradually, meaning our portfolio remained underrepresented in the US which outperformed and overrepresented in the UK and Europe which underperformed during the sharp falls in the first quarter. In addition, some of our managers' portfolios were exposed to cyclical recovery stocks that had started to perform well at the end of 2019 and were underweight in the technology stocks that subsequently led the market for much of 2020, particularly during the early reactions to the pandemic. Our use of gearing, which is so often a positive for Witan, amplified the losses. This perfect storm of negative factors created a significant performance shortfall which, while short-lived, was atypical of what we and our shareholders expect. Our Chief Executive provided shareholders with a detailed explanation of these events in June 2020. The conclusion was that we were appropriately positioned for how the world looked in January but suffered from the unforeseen reversal of market fortunes resulting from the pandemic.
Against this turbulent background, we were conducting a review of our managers to enact the change to our strategic asset allocation mentioned above. In August, we appointed two US-based global managers, following a detailed review of a broad range of highly talented managers, most of whom are not readily available to individual investors in the UK. However, timing is all in investment and it was important to avoid compounding the earlier period of underperformance by making these changes at the wrong moment. Consequently, we phased in an increased share of assets under management to managers with greater exposure to US stocks and the technology sector while retaining some managers who had underperformed but were expected to recover. The net effect was to reduce our exposure to the UK and continental Europe, while increasing our exposure to managers seeking growth opportunities globally, with a less cyclical approach.
Page 2 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Chairman's Report (continued)
Encouragingly, following this reshaping of the portfolio, there has been a welcome and significant recovery in Witan's performance (discussed in more detail on page 5). Unlike the sudden pandemic-linked underperformance during February and March, the recovery was steady and persistent, through up and down months for the markets. Whereas at mid-year our total return of -14.7% was 12.6% behind our benchmark, the second half of the year showed a 22.2% total return, well ahead of the 11.8% return on our benchmark, with outperformance in every month from June onwards. As a result, our total return for the full year was a gain of 4.2% and, although there is more to do, we recovered most of the earlier shortfall against the benchmark index, which returned 9.5%. Our share price total return was 2.7%, reflecting a slightly wider discount than at the end of 2019.
Taking a longer-term perspective, Witan has invested with a multi-manager approach since 2004. Over this period, we have beaten the returns on our benchmark and raised the dividend significantly faster than the rate of inflation. Over the ten years to the end of 2020, Witan achieved a NAV total return of 156.1% and a share price total return of 183.8%, both of which exceeded the benchmark's 141.7% return.
Although implementing the transition in our benchmark was complicated by the changed economic environment, we have taken decisive action to restructure our portfolio to reflect the changed opportunities, while retaining established managers expected to perform well for Witan in the future. 2020 will certainly not go down as a good year for Witan. However, we pressed on with our plans during the exceptionally difficult conditions early in the year and since the early summer there has been a consistent and significant recovery in performance.
SUSTAINABILITY AND ESG
We have made further strides this year in formalising and deepening our engagement on Environmental, Social and Governance ('ESG') issues with our investment managers and other service providers. This reflects your Board's belief that investing in well-managed companies with sustainable, growing businesses is the foundation for achieving good returns for shareholders as well as a better future for the planet and its people. In February 2020, we became a signatory to the UN-supported Principles for Responsible Investment ('PRI'), seen as a code of best practice on ESG issues.
All our investment managers are also themselves direct signatories to the PRI. Although the pandemic was not itself an ESG issue, it demonstrated the potential costs from unforeseen external shocks. In doing so, it indirectly underlined the importance of businesses taking proper account of the already foreseeable risks to their sustainability, such as regulation, technological obsolescence, and environmental risks, many of which are covered by adherence to the PRI. Further details of our activity on ESG matters during the year are set out on pages 14 and 15 and in the Annual Report.
Page 3 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Chairman's Report (continued)
2020 DIVIDEND
A fourth interim dividend of 1.43 pence was declared in February 2021, payable on 31 March 2021. As a result, the dividend for the year increased by 1.9% to 5.45 pence per share (2019: 5.35 pence), ahead of the 0.6% rate of UK inflation at the year end. This is a lower rate of increase than the 9.6% annual rate over the past ten years, because our revenue earnings fell sharply during the year. This was principally due to the exceptional negative impact of the COVID-19 pandemic on Company profits and dividends.
One of the advantages of the investment trust structure is that trusts can use previously retained revenue earnings to sustain their own dividends to shareholders when there are fluctuations in dividends from the underlying investments. Accordingly, we used £19m of our revenue reserves to absorb the shortfall in current year revenue, after a decade during which these reserves had risen from £41m to £71m. The Board expects portfolio dividends to grow in coming years and it is the Company's intention to continue to make use of these retained earnings to increase the dividend to shareholders annually while cover is rebuilt. If necessary, realised capital reserves could also be used, as part of a defined path towards our dividends once again being fully funded by revenue earnings. We have increased the dividend every year for the last 46 years, with the latest dividend being two and a half times that paid in 2010. A chart in the Annual Report shows the dividend's growth over the past ten years, compared with inflation.
BOARD CHANGES
Our previous Chairman, Harry Henderson, stood down at the AGM in 2020 after 32 years of service to Witan shareholders, 17 of them as Chairman. His was an outstanding tenure and I know that he was particularly sorry not to be able to say farewell in person at the AGM, owing to the pandemic-related restrictions on public meetings. At the meeting, he was elected by shareholders as Honorary President of the Company.
Richard Oldfield also stood down at the 2020 AGM, after nine years on the Board, serving as Chairman of the Remuneration and Nomination Committee since 2018. His investment and managerial experience and advice were of great value to the Company and will be sorely missed. Paul Yates succeeded him as Chairman of the Remuneration and Nomination Committee.
We welcomed Rachel Beagles as a director of the Company in July 2020. Rachel is an experienced investment company director and was until recently chair of the Association of Investment Companies. Finally, as scheduled in the Company's succession plans, our Senior Independent Director, Tony Watson, is standing down at the AGM in 2021, having been a director since 2006 and Senior Independent Director since 2008. His deep experience in investment management and as a listed company director have been of great value to Witan and he leaves with our thanks. The Board has appointed Suzy Neubert to be his successor as Senior Independent Director.
Following these and the other changes in recent years, the Board will consist of eight directors, representing a broad diversity in background, experience, gender and other factors. This satisfies the primary need to have the requisite balance of skills to oversee the Company's affairs while fully meeting formal corporate governance guidelines on diversity.
Page 4 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Chairman's Report (continued)
In terms of length of service on the Board, there is a balance to be struck between stability and change. Six of Witan's seven non-executive directors have been appointed within the past one to five years, while Suzy Neubert, our new Senior Independent Director, has nine years' service on the Board, providing an essential element of continuity. With effect from this year, all directors will stand for election each year.
AGM
Our 113th Annual General Meeting this year will have to be organised remotely, as in 2020, due to continued government guidelines on the holding of public gatherings. Formal notice of the meeting will be sent to shareholders when the Annual Report is published.
Andrew Ross
Chairman
10 March 2021
Page 5 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's Review of the year
A ROLLERCOASTER YEAR, DEFINED BY THE PANDEMIC
2020 was dominated by the impact of the COVID-19 pandemic, both its direct effect on human health and wellbeing and the consequences of the measures taken by governments seeking to bring the outbreak under control. Enforced shutdowns of wide swathes of the economy were unprecedented, leading to the deepest recession many countries had ever seen. The initial reaction to the pandemic shutdowns in February, with no precedent to act as a guide, was a synchronous collapse in equity markets amid signs of financial distress in government bond and credit markets.
Equity markets began 2020 expecting a broadening of economic growth. The US Federal Reserve had cut rates in 2019, an earlier growth slowdown seemed to have run its course and the UK General Election result appeared to promise an end to the eternal squabbling over Brexit. These hopes were turned on their heads as lockdowns spread. In the resulting equity market fallout, the worst hit were the cyclical sectors that had prospered at the end of 2019, whose hopes of better times in 2020 were dashed.
The market panic subsided at the end of March through central banks promising sufficient liquidity to limit the risk that the collapse in economic activity would lead to widespread bankruptcies and by governments acting to sustain personal and corporate incomes, through 'furlough' pay schemes and tax concessions. Although markets subsequently stabilised, there was a marked divergence between the companies seen as benefiting from lockdowns (in sectors such as internet communications, computing, online activity and healthcare) and 'COVID losers' such as the retail, leisure and travel sectors.
Economies began to recover during the summer, although the level of activity remained below pre-pandemic levels owing to the sustained restrictions on movement. However, unprecedentedly low interest rates and, late in the year, positive news on the efficacy of vaccines encouraged investors to look through the immediate problems towards a potentially strong growth rebound during 2021. Consequently, there was a divergence between the widespread falls in economic activity in 2020 and the significant gains made by most equity markets. Global equities finished the year with advances, led by 15-16% rises in the US and Asian indices, regions where economic growth had held up better and there was greater representation of technology stocks. The poorest performers were Europe, with a rise of 8% and the UK, which declined by 12%. Both were affected by the sector mix in the indices and, in the case of the UK, investors were held back by Brexit concerns, which were only mitigated late in the year with the UK/EU free trade deal.
WITAN'S 2020 PERFORMANCE
At the start of 2020, Witan reduced the UK proportion in its benchmark asset allocation and simplified the overseas component (previously a composite of four indices) to a single, global index. This change entailed a doubling of the North American weight (from 25% to 51%) and a reduction in the weights for the UK (from 30% to 19%) and Europe (from 20% to 12%). As set out in the Chairman's Statement, the decision not to put these changes immediately into effect proved costly. We and our external managers had seen better value in other markets than the US. However, evolving circumstances during the pandemic favoured renewed US outperformance, helped by its significant weighting in internet stocks benefiting from remote working, and other online services. The UK and Europe, where our managers' portfolios were over-represented, lagged the US,
Page 6 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
particularly the UK where the sector mix of the market and the continued Brexit uncertainty were significant headwinds. Poor portfolio performance was amplified by gearing, which we were, in retrospect, too slow to reduce.
The first quarter was the period of greatest weakness. In the second, there was a significant bounce in absolute performance and in the second half we outperformed very strongly. During the early months of 2020, a review of our existing managers' suitability for our new asset allocation was underway, along with a search for additional global managers. This led to changes which reduced our exposure to the UK and Europe as well as the appointment of two new global managers in August. Whilst the departing managers had underperformed, this was not the primary reason for their removal, as explained on page 8. We retained some managers who, at the time, had underperformed (e.g. Artemis, Lansdowne) where the prospects for recovery appeared well-founded and where they were expected to adapt to a changing investment landscape. They have contributed to the subsequent rebound in Witan's absolute returns and relative performance against our equity benchmark.
As noted in the Chairman's Statement, at the interim stage our total return was behind our benchmark. There was a significant turnaround in the second half (discussed in more detail on page 9 below) which turned the first half loss into a full-year gain in both net asset value and share price total return terms. As noted earlier, the total return for the full year was a gain of 4.2% compared with the benchmark index return of 9.5%. The outperformance in each month from June onwards supports the conclusion that the first quarter fall was anomalous, caused by exceptional circumstances and that the combination of retained and new managers has set a positive direction for shareholder returns in the future.
OUTLOOK
The pandemic upended all personal plans and economic forecasts early in 2020 and reminded us that humankind, even though apparently the planet's dominant species, can be humbled by one of the smallest. For many, the costs of COVID have been severe and sometimes, at the human level, irreversible. Many businesses, aspects of society and livelihoods have suffered from the unforeseen events of 2020. Although developments in public health and improved treatments enabled societies to cope up to a point in 2020, it is the extraordinary speed with which modern science has developed effective vaccines that gives hope for 2021 to be a new start for damaged economies and people's quality of life.
The timing of economies fully emerging from the renewed restrictions in place at the end of 2020 remains uncertain. Nonetheless, it seems increasingly likely that 2021 will see a gradual but consistent reopening of activity, particularly in the sectors such as hospitality, leisure and travel that depend on human interactions that cannot be replicated in an armchair. There is likely to be pent-up demand in these areas. There will inevitably be permanent damage to many businesses as well as a reassessment of the spare capacity needed (for example in healthcare) to respond to the unexpected. In the UK's case, the economy will also need to adapt to the agreed new trading arrangements with the EU and the rest of the world.
Page 7 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
Another feature that seems likely to remain for some years is financial repression - interest rates being held at rates that offer virtually no return and, after inflation, will be loss-making. Substantial increases in public debt have been taken on to combat the pandemic, with the current political debate (and the new US Administration) focused on growth rather than retrenchment as the means to shrink the debt relative to the size of the economy. With governments seemingly able to lean on their central banks to buy government bonds at record low interest rates, an expansion in government spending seems in prospect, to incorporate priority areas such as infrastructure, decarbonisation, and health. The resulting boost to economic growth may well help spread the recovery in corporate fortunes and stock markets to include some of the cyclical sectors which were depressed during 2020. At some stage, the balance between spending plans and the markets' willingness to finance them will reach a limit and interest rates will rise but this does not seem to be imminent. In this environment, the potential for fixed-coupon bonds to protect wealth against even modest rises in inflation seems questionable.
Equities have become by default the only area where prospective long-term returns appear positive, but the main indices are not lowly valued and include some companies where the hopes for growth appear very high and may not always be fulfilled. A year ago, as markets were plunging in the early weeks of the pandemic, we said that for contrarians the signals were shifting from red to green, as expectations became increasingly depressed. Although areas of the equity market still have the scope to exceed expectations, this appears less likely of markets as a whole than a year ago, particularly as many of 2020's high-profile winners are also significant index components. Accordingly, greater selectivity in stock selection may be warranted as well as greater scepticism of the near-universal assumption that interest rates can be indefinitely suppressed.
PERFORMANCE DRIVERS OF WITAN'S GROWTH IN NET ASSET VALUE DURING 2020
The financial statements in the Annual Report set out the required statutory reporting measures of the Company's financial performance.
A chart in the Annual Report shows the contributions (in pence per share) attributable to the various components of investment performance and costs, which together add up to the small rise from the starting NAV for the year of 233.1 pence to the year-end NAV of 236.0 pence, after the payment of dividends to shareholders.
A breakdown of the relative performance attribution in 2020 (based on the Company's financial statements) is shown in the table on page 8.
The third-party managers, in aggregate, lagged their benchmarks during the early part of the year but recovered most of their relative shortfall from June onwards. Gearing detracted 0.4% from returns in the year, 0.8% after taking account of the mostly fixed interest charges. A larger negative impact during the first quarter, when markets fell abruptly, was mostly recouped due to the subsequent use of gearing as markets recovered. Gearing averaged 10% during the year and ended the year at 12.3%.
Page 8 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
A BREAKDOWN OF THE PERFORMANCE ATTRIBUTION IN 2020 (%)
|
Net asset value total return |
4.2 |
Portfolio total return (gross) |
6.5 |
|
|
Benchmark total return |
9.5 |
Benchmark total return |
9.5 |
|
|
|
|
Relative investment performance |
-3.0 |
|
|
|
|
Investment management costs |
-0.5 |
|
|
|
|
Investment contribution |
|
-3.5 |
|
|
|
Gearing impact |
-0.4 |
|
|
|
|
Borrowing costs |
-0.4 |
|
|
|
|
Gearing contribution |
|
-0.8 |
|
|
|
Effect of changed fair value of debt |
-1.1 |
|
|
|
|
Share buybacks |
0.5 |
|
|
|
|
Other contributors |
|
-0.6 |
|
|
|
Other operating costs and tax |
-0.4 |
|
|
|
|
|
|
-0.4 |
|
Relative performance(1) |
-5.3 |
|
|
-5.3 |
(1) N.B. Figures may not sum due to rounding.
PORTFOLIO STRUCTURE AND MANAGER PERFORMANCE
During 2020, contracts with four of the ten external managers in place at the start of the year were terminated. Three (two investing in Europe and one in the UK market) reflected the change to a simplified and more global asset allocation from the start of 2020. The fourth (a global value manager) reflected our assessment of the accelerated economic changes in the wake of the pandemic, which were felt to be more favourable to adaptable, quality and growth investment styles and less supportive of systematic cyclical or mean reversion approaches. We appointed two new global managers in August: Jennison, seeking out companies with exceptional growth prospects, and WCM, with a focus on high-quality companies with strong culture and increasing competitive advantages. They were funded with smaller allocations initially, to which we have gradually added, as relative valuations between growth stocks and the rest of the market were at an historic extreme during the summer.
Two small externally managed portfolios were increased during the year. We added £15m to the Latitude global portfolio at the start of April. The portfolio (2.6% of assets at the year-end) subsequently recovered strongly in absolute terms, albeit lagging the global index benchmark. We added a total of £25m to the GMO Climate Change Fund holding in April and June, taking advantage of the setback to its renewable energy and other holdings as an indirect effect of the fall in oil prices. The fund with 3% of assets at the year-end delivered a return of over 37% during 2020, well ahead of the 13% benchmark return.
The third-party managers implement mandates set by the Company. Each manager's mandate, benchmark, investment style and date of appointment are shown in the Annual Report. The returns during the year and since their appointment are set out in the table on page 9. This shows that, since inception, all the principal current managers have outperformed their benchmarks (although this was not the case for some of the managers dropped during the year).
Page 9 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
Although Witan's overall performance is the primary focus, monitoring individual managers' performance is an important check. In 2020, four of the six principal third-party managers in place for the full year outperformed their benchmarks, as did the directly managed portfolio of investment
companies.
A particularly strong relative performance was achieved by Artemis, our remaining specialist UK manager, whose +0.2% portfolio return was well ahead of the fall of 12% in the MSCI UK IMI Index. This followed the strong recovery they had enjoyed in 2019 after several years of underperformance. Veritas (+11%) and Lindsell Train (+13.3%) were, respectively, slightly behind and slightly ahead of their benchmark at the year end, having outperformed in the turbulent first half. Matthews' 26% return in Asia was 10% ahead of the regional benchmark, while GQG Partners' 32% return was over double the return on the emerging markets benchmark. Lansdowne's 0.2% total return was well adrift of the 13% global index return owing to exposure to the underperforming UK market and to sectors, such as airlines, that were badly hit by the pandemic. However, their portfolio significantly outperformed in the second half, recovering from a 22% loss at the end of June. Jennison and WCM both outperformed in the short period since they were appointed.
INVESTMENT MANAGERS' PERFORMANCE
|
|
Appoint- ment date |
Witan assets managed as at 31.12.20 |
Performance in 2020 % |
Performance since appointment(2) % |
|||||||
|
Investment manager and mandate |
|
£m |
%(1) |
Manager |
Benchmark |
Manager |
Benchmark |
||||
|
CORE |
|
|
|
|
|
|
|
||||
|
Jennison (Global) |
31.08.20 |
104.8 |
4.8 |
n/a |
n/a |
12.4 |
8.9 |
||||
|
Lansdowne (Global) |
14.12.12 |
426.1 |
19.4 |
0.2 |
13.2 |
15.1 |
13.5 |
||||
|
Lindsell Train (Global) |
31.12.19 |
298.4 |
13.6 |
13.3 |
13.2 |
13.3 |
13.2 |
||||
|
Veritas (Global) |
11.11.10 |
407.9 |
18.6 |
11.0 |
13.2 |
13.7 |
11.7 |
||||
|
WCM (Global) |
31.08.20 |
208.0 |
9.5 |
n/a |
n/a |
13.4 |
8.9 |
||||
|
Artemis (UK) |
06.05.08 |
141.3 |
6.4 |
0.2 |
(11.7) |
8.7 |
4.6 |
||||
|
SPECIALIST |
|
|
|
|
|
|
|
||||
|
Matthews (Asia inc. Japan) |
20.02.13 |
124.8 |
5.7 |
26.3 |
16.4 |
11.0 |
9.6 |
||||
|
GQG (EM) |
16.02.17 |
135.9 |
6.2 |
31.6 |
15.0 |
14.0 |
8.9 |
||||
|
Witan Direct Holdings |
19.03.10 |
224.4 |
10.2 |
13.4 |
9.5 |
11.4 |
9.2 |
||||
|
Latitude (Global) |
31.03.18 |
58.3 |
2.6 |
6.9 |
13.2 |
10.5 |
13.0 |
||||
|
GMO (Climate Change) |
05.06.19 |
66.8 |
3.1 |
37.4 |
13.2 |
32.0 |
14.6 |
||||
(1) Percentage of Witan's investments managed.
(2) The percentages are annualised where the date of appointment was more than one year ago.
DIRECTLY HELD INVESTMENTS
The return on the portfolio of directly managed investment company investments (+13.4%) was ahead of Witan's benchmark return of 9.5%, with positive news from most of the larger holdings fuelling a strong recovery from a weak first half.
Page 10 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
The main holdings are listed in the UK, but the underlying exposure is principally global. At the year end, half the portfolio was in listed private equity vehicles. The largest holding, Apax Global Alpha had a 2020 total return of 19%, from a portfolio of growth companies, concentrated in the technology and healthcare sectors. Princess Private Equity's price fell in the early stages of the pandemic, as it suspended its dividend while it assessed the funding needs of its portfolio. We doubled our holding and the price subsequently rebounded, as the net asset value recovered, and the dividend was reinstated. Electra Private Equity, a smaller holding, suffered from the concentration of its portfolio in two UK companies exposed to the recurrent pandemic shutdowns. Better news on the portfolio enabled the share to double from its lows but it still fell sharply during the year. The second largest portfolio holding is Syncona, a company specialising in founding and funding
innovative life science companies. The shares performed strongly, rising 19% during the year. For a number of years, we have had a holding in the BlackRock World Mining Trust, which gives Witan additional exposure to the commodity mining sector. Demand was strong in 2020, due (among other factors) to growth in China and the expansion of demand for copper due to growth in electrification. The shares' total return (having been down 40% in March) was +47% at the year end and we took the opportunity to trim our exposure. The other material holding is in the Schroder Real Estate Investment Trust, a company investing in UK commercial property. Although the net asset value return was fairly resilient (down 5%) sentiment was adversely impacted by a reduction in its dividend, concerns over Brexit and the impact on the sector of increased working from home and trading restrictions in the restaurant and retail sectors. As a result, despite relatively low exposure to the London office and retail segments, the discount to NAV widened and the share price total return was -26%
The portfolio held 9.2% of assets at the start of the year and was 10.2% of the investment portfolio at the end of 2020 .
GEARING ACTIVITY DURING 2020
Under its Articles of Association, the Company may borrow up to 100% of the adjusted total of shareholders' funds. However, the Board's longstanding policy is not to allow gearing (as defined in the Annual Report) to rise more than 20%, other than temporarily in exceptional circumstances. Where appropriate the Company may hold a net cash position.
Following a review of the Company's long-term gearing requirements and a decline in market borrowing costs, the decision was made in April to repay the Company's 6.125% 2025 Secured Bonds early. This entailed paying a premium of £21.6m to the £64.3m principal value. With short-term borrowings costing under 1%, the interest savings (at current interest rates) over the period to the bonds' originally scheduled maturity are expected to be between £3.1m and £3.9m p.a. so the eventual net cost of the early repayment is expected to be between zero and 0.3% of net assets. The benefits are greater flexibility in the management of gearing, with short-term borrowings repayable at will, and the option to take advantage of low long-term interest rates to fix borrowing costs for the longer term, should an appropriate opportunity arise in coming years.
Gearing varied between 4% and 15%, averaging 10% for the year. Gearing was cut back in March to reduce portfolio risk given the significant uncertainty in the early stages of the pandemic.
Page 11 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
It was increased early in the second half, as the prospects for markets improved in response to progress on COVID-19 vaccines and Brexit. This proved helpful to returns, recouping most of the cost from being geared when the markets plunged at the start of the pandemic.
At the end of 2019, net gearing (the total value of borrowings less cash) was 11.0% of net assets. At the end of 2020, gearing(on the same basis) was 12.3%.
STRUCTURE OF BORROWINGS
The Company has fixed-rate borrowings of £155m, consisting of:
|
Secured Notes 2035 3.29% |
£21m |
|
Secured Notes 2045 3.47% |
£54m |
|
Secured Notes 2051 2.39% |
£50m |
|
Secured Notes 2054 2.74% |
£30m |
The Company has a £125m one-year borrowing facility, providing additional flexibility over the level of gearing, as well as enabling the Company to borrow in currencies other than sterling, if deemed appropriate. The drawn balance was £109m at the end of 2020. The average interest rate on the Company's fixed-rate borrowings is 3.0% (2019: 3.8%). The average interest rate, including short-term borrowings, is currently 2.0% (2019: 3.4%).
Witan will either invest its borrowings fully or neutralise their effect with cash balances according to its assessment of the markets. The Company's third-party managers are not permitted to borrow within their portfolios but may hold cash.
DERIVATIVES ACTIVITY DURING 2020
The Company from time to time makes use of derivatives for reasons of efficient portfolio management, to take advantage of tactical opportunities presented by market volatility or to manage portfolio risks. Only simple, liquid exchange-traded index contracts are used.
During the first half of 2020, equity index futures contracts were used to facilitate the process of shifting Witan's portfolio towards a more global asset allocation. The combined weight of the UK and Europe in the new benchmark is approximately 30% compared with 50% before, while the US benchmark weight increased from 25% to approximately 50%. The principal investments were purchases of US Equity Index futures to increase exposure to the US market pending increased allocations to global active managers and sales of UK and European equity index futures pending the liquidation of specialist geographical portfolios. Equity index futures were also used in the tactical management of gearing.
There were no derivatives positions in place at the end of the year. There was a realised capital gain on index futures during the year of £4.9m, as shown in the cash flow statement on page 30 (2019: £3.5m).
Page 12 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
DIVIDEND AND REVENUE PERFORMANCE IN 2020
The Company has already paid three quarterly dividends of 1.34 pence per share in respect of 2020.
The Board has also declared a fourth interim dividend of 1.43 pence per share, to be paid to shareholders on 31 March 2021, making a total distribution for the year of 5.45 pence (2019: 5.35 pence), entailing the use of £19.0m of revenue reserves. This represents an increase of 1.9%, ahead of the 0.6% UK rate of consumer price inflation in the year to December 2020.
2020's dividend is two and a half times the dividend paid for 2010, the dividend per share having risen by 150% compared with 20% for the UK CPI and 43% dividend growth for the UK market (Source: Refinitiv/DataStream).
Revenue earnings per share fell by almost 50% to 3.1 pence per share in 2020. This was principally due to the widespread and unprecedented cuts in portfolio dividends (sometimes under regulatory pressure) as companies took defensive action in response to the pandemic. Witan's adoption of a more global asset allocation and changes in external managers also contributed to the portfolio having a lower yield, albeit with better expected growth prospects. However, the Company had previously taken advantage of strong revenue growth to add to revenue reserves in nine out of the ten years between 2009 and 2019, in addition to increasing the dividend per share over the period by more than 9.6% p.a. At the end of 2019, revenue reserves had reached £71m (after deducting the fourth interim dividend payment). The purpose of such reserves is to enable income payments to shareholders to be supported during leaner times, such as the year just passed.
The Board has reviewed the prospects for portfolio dividend growth in 2021 and future years and, recognising the importance for many shareholders of a reliable and growing income, it is the intention to use revenue reserves to bridge the gap between portfolio revenue earnings and the dividends paid to shareholders. Rebuilding dividend cover will take more than one year but, although forecasting after the events of the past year should be undertaken with caution, the Board anticipates dividend cover improving each year, after allowing for continued annual dividend growth, albeit at a more moderate pace than over the past decade. If necessary, a modest contribution from retained capital reserves would be made, as part of a defined path towards dividends being covered from portfolio income received.
2021 DIVIDENDS
The first three quarterly payments for 2021 (in June, September and December) will, in the absence of unforeseen circumstances, be paid at a rate of 1.36 pence per share (2020: 1.34 pence), being approximately one quarter of the 5.45 pence per share full-year payment for 2020. The fourth payment (in March 2022) will be a balancing amount, reflecting the difference between the three quarterly dividends already paid and the payment decided for the full year.
Page 13 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
CEO's review of the year (continued)
WITAN'S SHARES IN THE MARKET - LIQUIDITY AND DISCOUNTS
Witan is a member of the FTSE 250 Index, with a market capitalisation of over £1.8bn.
The Board has always paid attention to discount-related issues and has, over many years, made significant use of share buybacks, when Witan's shares have stood at a discount as well as being prepared to issue shares at a premium to NAV to meet demand from investors. Both actions are accretive to NAV, provide liquidity in the market and help to moderate discount volatility.
WITAN INVESTMENT TRUST DISCOUNT TREND
The discount trend during the past five years is illustrated in a chart in the Annual Report. After staying in a range around 2% in 2017-18, the discount widened during the first half of 2019 before recovering as UK political uncertainties reduced towards the year end. 2020 proved to be a more challenging year, owing to uncertainty relating to the pandemic and the lack of a Brexit deal until late in the year. There was also understandable investor concern at Witan's weak performance during the period of volatile markets early in the year, the reasons for which are discussed elsewhere in this report. The discount is, amongst other things, akin to an opinion poll and, after Witan was wrong-footed by the economic effects of the pandemic, demand for the shares was reduced for a while and the discount widened accordingly.
As in the political sphere, opinion polls are not always correct, with Witan's performance improving consistently from May onwards, leading to seven consecutive months of outperformance, shown in the chart (in the Annual Report) of absolute and relative performance in 2020. Nonetheless, as the discount remained persistently wide (along with that of a number of other trusts in the sector) the Company bought back shares consistently and in significant amounts. In total, Witan bought 64.3m shares into treasury (7.4% of the total at the start of the year) at an average discount of 7.4%. This directly added 1.1p per share to the net asset value for remaining shareholders, helping to limit then reduce the discount, which closed the year at 2.4%. This was wider than the 0.7% discount at the end of 2019 but below the average discount during the year of 6.0% (2019: 2.8%).
Discounts are affected by many factors outside the Company's control but where it is in shareholders' interests (taking account of market conditions), the Company is prepared to buy back shares at a discount to NAV or to issue shares (though only at a premium). It remains a long-term objective to create sustainable liquidity in Witan's shares at or near to asset value and the robust actions taken during the volatile conditions of 2020 are evidence of this continuing commitment.
Andrew Bell
Chief Executive Officer
10 March 2021
Page 14 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report
RESPONSIBLE INVESTMENT
OUR POLICY
We believe that investing in well-managed companies with sustainable, growing businesses is the foundation for achieving good returns for shareholders as well as for a better future for the planet and its people. Our expectation of our managers is that they will consider all factors when seeking to maximise returns while taking proper account of the associated risks. Witan is a signatory to the UN-supported Principles for Responsible Investment ('PRI') and is committed to incorporating the principles into our investment process. We seek to collaborate with other investors on environmental, social and governance ('ESG') issues, to engage with policymakers (primarily via the AIC) and are members of the Institutional Investors Group on Climate Change.
Witan takes its fiduciary responsibilities seriously and our membership of these organisations complements our portfolio which is largely comprised of well-managed businesses with sustainable cash flows. In addition to the clear social and environmental benefits of good corporate behaviour, we believe that incorporation of sound ESG policies benefits Witan's shareholders financially. The Company has a broad investment universe and aims to increase the potential for long-term success by minimising exposure to companies which are at risk of disruption, litigation, regulation, or loss of business as a result of poor ESG practices.
The Witan Executive team monitors the characteristics of Witan's portfolio to identify, among other things, any ESG risks which may arise. The Executive team also scrutinises the ESG policies of our managers, reviews and assesses the implementation of these policies at annual ESG-focused meetings with investment managers and reports to the Board on its findings.
Witan does not preclude managers from owning specific companies or those in certain sectors, although some managers may choose not to invest in a sector for ESG and/or financial reasons. We believe these investment choices are best left to our managers, with our role being to ensure that they work within a proper ESG framework and have a clear rationale for owning any company. Typically, our portfolio will consist of high-quality companies with sustainable cash flows, those with underestimated growth prospects and some businesses which are more cyclical in nature. These companies tend to exhibit superior or improving ESG characteristics even though there is no guarantee that ESG incidents will be avoided entirely. Where negative ESG issues do occur, managers should engage with the company concerned, encourage positive change, and vote shares accordingly. Managers should not own companies if they conclude that management has failed to take ESG factors into consideration.
STEWARDSHIP AND THE EXERCISE OF VOTING POWERS
Under our multi-manager structure, the fiduciary duty for the maintenance of high standards of corporate governance falls, in the first instance, to the Company's appointed investment managers. Furthermore, under Principle 2 of the PRI, Witan has committed to be an 'active owner and incorporate ESG issues into our ownership policies and practices'. The Board therefore expects its managers to engage with investee companies and to vote shares. Voting and engagement records are reported to the Board at regular intervals. Managers who fail to meet these high standards are unlikely to be appointed or retained to invest money on behalf of Witan shareholders.
Page 15 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
Witan monitors the stewardship policies of its investment managers including specifically in respect of the UK Stewardship Code, where applicable. Whilst the Company's investment managers are apprised of the Company's approach to the stewardship of its assets and the importance of sound corporate governance, they use their discretion according to their knowledge of the relevant circumstances. The investment managers report their compliance with the UK Stewardship Code, or equivalent legislation, to the Witan Audit Committee each year.
The Company's Executive management maintains regular contact with the management of the investment companies held in the Direct Holdings portfolio. Aside from regular updates, engagement has included, but is not limited to, specific issues with underlying portfolio companies, the manager's ESG policy and its integration into the investment company's ESG framework, discount or premium management, distribution/dividend policy and other balance sheet management issues. Witan will engage with management and boards where it identifies issues which it considers fall short of best practice and will vote according to the interests of Witan shareholders and considering all factors including ESG issues. Witan's Executive management provides an annual report to the Audit Committee in compliance with the UK Stewardship Code.
PRINCIPAL RISKS AND UNCERTAINTIES
The directors have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency, liquidity or reputation. These risks, and the actions taken to mitigate them, are set out below.
Risks are inherent in investment and corporate management. It is important to identify important
risks and ways to control or avoid them. Witan Investment Services Limited ('WIS') has a Risk Committee in order to monitor compliance with its risk management and reporting obligations as Witan's Alternative Investment Fund Manager ('AIFM'). The Company maintains a framework of the key risks, with the policies and processes devised to monitor, manage and mitigate them where possible. Its detailed risk map is reviewed regularly by the Audit Committee and the WIS Risk Committee, which report on pertinent issues to their respective Boards.
The guiding principles remain watchfulness, proper analysis, prudence and a clear system of risk management.
Where appropriate, the Witan and WIS Boards meet jointly to cover matters of common interest. The WIS Board consists of seven non-executive directors and one executive director who are also directors of Witan, and one executive director who is a Company employee.
Other than the risks associated with the COVID-19 pandemic, the Board's policy on risk management has not materially changed during the course of the reporting period and up to the date of this report.
Page 16 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
The Company's key risks fall broadly under the following categories:
|
Market and investment portfolio |
(Increased) |
||
|
Risk |
|
Mitigation |
|
|
Investment risk . As an equity fund, a key risk of investing is a general fall in equity prices and investment income, which could be exacerbated by gearing and the risks associated with the performance of its investment managers and changes in Witan's share price rating
Other risks are the portfolio's exposure to country, currency, industrial sector and stock-specific factors (including those relating to the sustainability of the business model taking account of environmental, social and governance factors). Macro topics such as Brexit, pandemic outbreaks (e.g. COVID-19), trade wars and regional conflict can all be expected to lead to market volatility. |
|
The Board seeks to manage these risks through: · a broadly diversified equity benchmark; · appropriate asset allocation decisions; · selecting competent managers and regularly monitoring their performance, awareness of emerging risks and the robustness of their processes for taking account of those risks; · paying attention to key economic and political events; · engagement with shareholders and other stakeholders · active management of risk, whether to preserve capital or capitalise on opportunities; · the application of relevant policies on gearing and liquidity; and · share buybacks and issuance to respond to market supply and demand.
During the year, Andrew Bell (the Chief Executive Officer ('CEO')) managed the overall business and the investment portfolio in accordance with limits determined by the Board and its AIFM, on which the CEO reports at each Board meeting. The Board also regularly reviews investment strategy and performance, supported by comprehensive management information and analysis. |
|
|
Operational and cyber |
|
(Increased) |
|
Risk |
|
Mitigation |
|
Many of the Company's financial systems are outsourced to third parties, principally BNP Paribas Securities Services ('BNPSS'). Disruption to their accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company's financial position. |
|
BNPSS, as the Company's depositary, has a key responsibility for monitoring such issues on behalf of the Company. The Board and AIFM monitor the Depositary as well as its other suppliers. Details of the Board's monitoring and control processes are explained further in the Corporate Governance Statement in the Annual Report. |
Page 17 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
|
Compliance and regulatory change |
|
(Reduced) |
|
Risk |
|
Mitigation |
|
The Company breaches compliance/regulatory requirements or fails to assess the impact. |
|
The Board takes its regulatory responsibilities very seriously and compliance issues and potential regulatory changes are regularly reviewed by the Board and its AIFM.
Details of the Company's corporate governance policies are set out in the Corporate Governance Statement in the Annual Report. The Board conducts an annual assessment of the effectiveness of its governance processes.
There is also a three-yearly independent external review, the most recent of which was in late 2020. See the Annual Report for further details.
Following the closure of the Company's savings plans, the risks associated with the holding of and accounting for client assets has been substantially reduced and will be eliminated in future.
Operational and regulatory risks are regularly reviewed by Witan's Audit Committee and WIS's Risk Committee. WIS is subject to its own operating rules and regulations and is regulated by the Financial Conduct Authority ('FCA'). The Company has established a modus operandi for the effective coordination of its responsibilities and those of WIS, as its AIFM.
Operationally the multi-manager structure is robust, as the investment managers, the custodian and the fund accountants keep their own records which are regularly reconciled. The depositary, the AIFM and the Board provide additional checks and safeguards. Management monitors the activities of all third parties and reports any significant issues to the Board. |
Page 18 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
|
Accounting, taxation and legal |
|
(Unchanged) |
|
Risk |
|
Mitigation |
|
The Company must comply with sections 1158-59 of the Corporation Tax Act 2010 ('CTA'). A breach could result in the Company losing investment trust status and, as a consequence, capital gains realised would be subject to corporation tax.
The Company must comply with the provisions of the Companies Act 2006 ('Companies Act') and with the UK Listing Authority's Listing Rules and Disclosure Rules ('UKLA Rules'). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would itself constitute a breach of the provisions of the CTA.
|
|
The accounting requirements are monitored by the CEO and AIFM and the Company carefully monitors compliance with the applicable rules.
These requirements offer significant protection for shareholders. The Board receives reports from the CEO, the AIFM, the Company Secretary and the Company's professional advisers to enable it to ensure compliance with all applicable rules. WIS is authorised and regulated by the FCA to act as the AIFM for Witan. |
|
Liquidity |
|
(Unchanged) |
|
Risk |
|
Mitigation |
|
The Company's portfolio of securities might not be realisable.
|
|
The Company's portfolio consists mainly of readily realisable securities. The Company and its AIFM regularly review liquidity needs (for example, operational costs, loan servicing and repayment, shareholder dividends and share buybacks) relative to the Company's portfolio income and the value and tradeability of the Company's assets.
Most of the likely liquidity requirements are foreseeable (for example, timetabled loan payments and dividends) while others (such as share buybacks) are subject to the Company's discretion. The Board is satisfied that unexpected liquidity needs are not significant and could readily be met without compromising normal portfolio management.
|
Page 19 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
|
COVID 19- Global Pandemic |
|
(Increased) |
|
Risk |
|
Mitigation |
|
The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks, both investment and operational, posed to the Company by the crisis. |
|
The Board and the WIS Executive maintain close oversight of the Company's portfolio and monitors the investment income flows from its investee companies. The Board monitors the effects of COVID-19 on the operations of the Company and its service providers to ensure that they continue to be appropriate, effective and properly resourced. |
CORPORATE AND OPERATIONAL STRUCTURE
Witan is an investment trust with a Premium Listing on the London Stock Exchange. It has a single, wholly owned subsidiary, Witan Investment Services Limited ('WIS') which acts as the Company's Alternative Investment Fund Manager ('AIFM').
The overwhelming majority of the portfolio is in segregated accounts, held in custody by the Company's depositary. The operations of the custodian and the safeguarding of the Company's assets are supervised by the depositary.
OPERATIONAL MANAGEMENT ARRANGEMENTS
In addition to the appointment of third-party investment managers, Witan and WIS contract with third parties for other services, including:
· BNP Paribas Securities Services London Branch for depositary services, custody, investment accounting and administration;
· Frostrow Capital LLP for company secretarial services;
· RepRisk and Sustainalytics for ESG monitoring of its investment holdings; and
· specialist advice on regulatory compliance issues and, as required, procure legal, investment consulting, financial and tax advice.
The service quality and value received from major service providers are reviewed regularly by the Board.
The contracts governing the provision of all services are formulated with legal advice and stipulate clear objectives and guidelines for the service required.
STAFFING
The Company's policy towards its employees is to attract and retain staff with the skills and expertise required to manage the affairs of an investment trust company. Details of the Company's remuneration policies and required disclosures are set out in the Directors' Remuneration Report in the Annual Report. Employees and those who seek to work at Witan are treated equally regardless of gender, marital status, colour, race, religion or ethnic origin. The Company has six direct employees, three men and three women. The Board currently consists of eight non-executive directors (five men and three women) and the Chief Executive Officer, Andrew Bell,
Page 20 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
who is an employee. Following the AGM, the number of non-executive directors will be seven (four men and three women). Given its outsourced model and the small number of direct employees, the Group has no employment-related specific policies in respect of environmental or social and community affairs. However, as described elsewhere, an increased focus on environmental, social and governance issues has been formalised by the Company's membership of the Institutional Investors Group on Climate Change since July 2019 and its becoming a signatory to the UN-supported Principles for Responsible Investment from February 2020.
WITAN INVESTMENT SERVICES
WIS is authorised and regulated by the Financial Conduct Authority. It is authorised to act as Witan's AIFM, to provide marketing services and to give investment advice to professional investors.
WIS's principal activities are acting as Witan's AIFM, providing executive management services to the Board of Witan and communicating information about the Company to the market.
WIS's operational objectives for 2020 were:
● to fulfil its responsibilities as Witan's AIFM;
● to provide suitable advice to the Boards of its corporate clients; and
● to reduce the net operating costs for Witan.
In 2020, WIS's principal sources of income were the fees (as AIFM or Executive Manager and for marketing services) paid by Witan and Witan Pacific Investment Trust plc. The main costs incurred were staff costs and professional advice to ensure compliance with regulatory and accounting obligations.
Following a review, the Board of Witan Pacific took the decision to change its investment management arrangements. Prior to the review, WIS indicated its readiness to cease its executive services role at a time to be mutually agreed with Witan Pacific. This took place in September 2020. WIS fully supported, and assisted in, the review and was pleased with the outcome of the process.
COSTS
INVESTMENT MANAGEMENT FEES
Each of the third-party managers is entitled to a management fee, based on the assets under management. The agreements can be terminated on one to three months' notice. The base fee rates for managers in place at the end of 2020 range from 0.30% to 0.65% per annum. The weighted average base fee was 0.51% as at 31 December 2020 (2019: 0.53%). One manager, of 6% of Witan's portfolio, has a performance-related fee, which is subject to capping in any particular year.
Witan takes care to ensure the competitiveness of the fees it pays. Most of the fee structures incorporate a 'taper' whereby the average fee rate reduces as the portfolio grows.
Page 21 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
The Company's investment managers may use services which are paid for, or provided by, various brokers. They may place business, including transactions relating to the Company, with those brokers. Under the requirements of MiFID II, broker-provided services (other than the execution of transactions) must either be minor non-monetary benefits or, for research received by investment managers and charged to the Company, separately accounted for .
ONGOING CHARGES AND COSTS
The Company's established measure of the costs of operation is the Ongoing Charges Figure ('OCF'). This represents the recurring costs of operating the business (principally the investment management fees paid to our external managers as well as the Company's fixed and variable overhead costs), as a percentage of net assets. This is calculated in accordance with the AIC's guidelines and provides a consistent basis for the comparison of costs from one year to the next and relative to other investment companies.
The OCF was 0.78% in 2020 (2019: 0.79%). When performance fees due to third-party managers are included, the OCF was 0.82% in 2020 (2019: 0.87%). The sole manager with a performance fee structure significantly outperformed during 2020. This has generated a provision for a performance fee for that manager (which has a lower base fee than comparable managers).
The main cost headings within the OCF are set out on page 22. The figures for transaction costs, borrowing costs and the pro rata ongoing charges of underlying funds are also included in the table, for easy reference.
The Company exercises strict scrutiny and control over costs. The Board believes that the OCF during the year represents good value for money for shareholders, taking account of longer-term performance.
The EU PRIIPS regulations, which are applicable to UK Investment Companies mandate the preparation of a Key Information Document ('KID') calculated on a formulaic basis, which contains a different measure of costs from the OCF, averaged over longer periods rather than specific to one year. The other principal differences between the OCF and the KID measure are the inclusion of transaction costs, borrowing costs, and the underlying costs of holdings in other collective investments .
The Company's investment performance is reported after all costs, however measured.
Page 22 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
ANALYSIS OF COSTS
|
|
|
2020 |
|
2019 |
|
|
2020 |
% of average |
2019 |
% of average |
|
Category of cost |
£m |
net assets |
£m |
net assets |
|
Investment management base fees (note 4, page 33) |
8.70 |
0.51 |
10.09 |
0.53 |
|
Other expenses (excluding loan arrangement and one-off costs) |
4.91 |
0.28 |
6.61 |
0.34 |
|
Less expenses relating to the subsidiary (those expenses not relating to the operation of the investment company) |
(0.15) |
(0.01) |
(1.46) |
(0.08) |
|
Ongoing Charges Figure (including investment management base fees) |
13.46 |
0.78 |
15.24 |
0.79 |
|
Investment management performance fees (note 4, page 33) |
0.58 |
0.04 |
1.54 |
0.08 |
|
Ongoing Charges Figure (including performance fees) |
14.04 |
0.82 |
16.78 |
0.87 |
|
Pro rata ongoing charges of underlying funds(1) |
4.34 |
0.25 |
3.33 |
0.17 |
|
|
18.38 |
1.07 |
20.11 |
1.04 |
|
Portfolio transaction costs including costs relating to manager changes. |
3.58 |
0.21 |
2.75 |
0.14 |
|
Interest costs |
6.43 |
0.37 |
8.74 |
0.46 |
|
Total costs including transaction costs, borrowing costs and underlying fund costs |
28.39 |
1.65 |
31.60 |
1.64 |
(1) This cost represents an estimate of the pro rata attributable fees charged by the managers of the external
specialist collective funds held within the portfolio.
N.B. Figures may not sum due to rounding.
VIABILITY STATEMENT
In accordance with the UK Corporate Governance Code, the Board has assessed the prospects of the Company over a longer period than the 12 months required by the 'going concern' provision.
The Company's current position and prospects are set out in the Chairman's and Chief Executive Officer's reports and the Strategic Report. The principal risks are set out on pages 16 to 19.
The Board has considered the Company's financial position and its ability to liquidate its portfolio and meet its expenses as they fall due and notes the following:
● The portfolio consists of investments traded on major international stock exchanges and there is a spread of investments. In normal conditions, the current portfolio could be liquidated to the extent of more than 87% within five trading days and there is no expectation that the nature of the investments held will be materially different in future.
● The closed-ended nature of the Company means that, unlike an open-ended fund, it does not need to realise investments when shareholders wish to sell their shares.
Page 23 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Strategic Report continued
● The Board has considered the viability of the Company under various scenarios, including periods of acute stock market and economic volatility such as experienced in 2020, and concluded that it would expect to be able to ensure the financial stability of the Company through the benefits of having a diversified portfolio of listed and realisable assets. As illustrated in note 14 to the accounts, the Board has considered price sensitivity risk (the sensitivity of the profit after taxation for the year and the value of the shareholders' funds to changes in the fair value of the Group's investments) and foreign currency sensitivity (the sensitivity to changes in key exchange rates to which the portfolio is exposed).
● In addition to its cash balances, which were £35m at 31 December 2020 (2019: £44m), the Company has a short-term bank facility which can be used to meet its liabilities, and fixed-rate financing in the form of secured notes and cumulative preference shares. With the exception of the short-term facility, this financing will remain in place until at least 2035. Details of the Company's current and non-current liabilities are set out in note 13 to the accounts.
● The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position.
As well as considering the principal risks on pages 16 to 19 and the financial position of the Company, the Board has made the following assumptions in considering the Company's longer-term viability:
● The Company's remit of investing in the securities of global listed companies will continue to be an activity to which investors will wish to have exposure.
● Investors will continue to want to invest in closed-ended investment trusts.
● The performance of the Company will continue to be satisfactory. The Board is able to replace any of the current investment managers when it considers it appropriate to do so.
● The Company will continue to have access to adequate capital when required. The Company will continue to be able to fund share buybacks when required. The Company bought back 64.3m ordinary shares in 2020 at a cost of £122.5m and experienced no problem with liquidity in doing so. It had shareholders' funds in excess of £1.9bn at the end of 2020.
Based on the results of its review, and taking into account the long-term nature of the Company and its financing, the Board has a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for the foreseeable future, taken to mean at least the next five years. The Board has chosen this period because, whilst it has no information to suggest this judgement will need to change in the coming five years, forecasting over longer periods is imprecise. The Board's long-term view of viability will, of course, be updated each year in the Annual Report.
Page 24 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
GOING CONCERN
In light of the conclusions drawn in the foregoing statement on liquidity risk on page 18 and the Viability Statement, the Company has adequate financial resources to continue in operational existence for at least the next 12 months. Therefore, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council.
APPROVAL
This report was approved by the Board of directors on 10 March 2021 and is signed on its behalf by:
|
A J Ross |
A L C Bell |
|
Chairman |
Chief Executive Officer |
10 March 2021
Page 25 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Statement of Directors' Responsibilities
in respect of the Annual Report and the financial statements
Responsibility statement
The directors as at the date of the Annual Report confirm to the best of their knowledge that :
· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description (on pages 16 to 19) of the principal risks and uncertainties that they face.
The directors also confirm that the financial statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
By order of the Board
A J Ross
Chairman
A L C Bell
Chief Executive
10 March 2021
Page 26 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Financial Highlights as at 31 December 2020
Key data
|
|
2020 |
2019 |
|
Share price |
230.5p |
231.5p |
|
NAV per ordinary share (debt at fair value)(3) |
236.0p |
233.1p |
|
Discount (NAV including income, debt at fair value)(3) |
2.4% |
0.7% |
|
Dividend per share |
5.45p |
5.35p |
|
Total return performance |
|
|
|
|
|
1 year % return |
5 years % return |
10 years % return |
|
Share price total return(1)(3) |
2.7 |
66.6 |
183.8 |
|
NAV total return(1)(3) |
4.2 |
69.5 |
156.1 |
|
Witan benchmark(1) |
9.5 |
74.2 |
141.7 |
|
MSCI ACWI INDEX(2) |
13.2 |
97.4 |
189.5 |
|
MSCI UK IMI INDEX(2) |
-11.7 |
25.4 |
65.6 |
|
Percentage of total funds |
|
|
|
North America |
34% |
|
|
United Kingdom |
19% |
|
|
Europe |
17% |
|
|
Asia |
12% |
|
|
Japan |
5% |
|
|
Other, including investment companies |
13% |
|
|
Sector breakdown of the portfolio |
|
|
Information Technology |
15.0% |
|
Industrials |
13.2% |
|
Consumer Staples |
11.9% |
|
Investment Companies |
10.5% |
|
Consumer Discretionary |
10.0% |
|
Healthcare |
9.8% |
|
Communication Services |
9.6% |
|
Financials |
9.5% |
|
Materials |
7.6% |
|
Other |
3.0% |
|
Company size breakdown of the portfolio |
|
|
Large Cap |
76.3% |
|
Mid Cap |
10.8% |
|
Small Cap |
2.4% |
|
Investment Companies |
10.5% |
(1) Source: Morningstar.
(2) Source: Morningstar. See also MSCI for conditions of use (www.msci.com).
(3) Alternative performance measure: The financial statements in the Annual Report set out the required statutory reporting measures of the Company's financial performance. In addition, the Board assesses the Company's performance against a range of criteria which are viewed as particularly relevant for investment trusts, which are summarised in the key performance indicators in the Annual Report. Definitions of the terms used are set out and a reconciliation of the NAV per ordinary share (debt at par value) to the NAV per ordinary share (debt at fair value) are shown in the Annual Report.
Page 27 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
|
|
Year ended 31 December 2020 |
Year ended 31 December 2019 |
||||
|
|
Revenue return £'000 |
Capital return £'000 |
Total £'000 |
Revenue return £'000 |
Capital return £'000 |
Total £'000 |
|
Investment income (note 2) |
36,083 |
- |
36,083 |
65,045 |
- |
65,045 |
|
Other income (note 3) |
604 |
- |
604 |
2,223 |
- |
2,223 |
|
Gains/(losses) on investments held at fair value through profit or loss |
- |
57,813 |
57,813
|
- |
340,727
|
340,727
|
|
Foreign exchange losses on cash and cash equivalents |
- |
(3,259) |
(3,259) |
- |
(1,633) |
(1,633) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total income |
36,687 |
54,554 |
91,241 |
67,268 |
339,094 |
406,362 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Management and performance fees (note 4) |
(2,176) |
(7,103) |
(9,279) |
(2,522)
|
(9,108)
|
(11,630)
|
|
|
|
|
|
|
|
|
|
Other expenses |
(5,050) |
(260) |
(5,310) |
(6,673) |
(101) |
(6,774) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before finance costs and taxation |
29,461 |
47,191 |
76,652 |
58,073 |
329,885 |
387,958
|
|
Finance costs |
(1,674) |
(26,815) |
(28,489) |
(2,253) |
(6,485) |
(8,738) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before taxation |
27,787 |
20,376 |
48,163 |
55,820 |
323,400 |
379,220 |
|
|
|
|
|
|
|
|
|
Taxation |
(1,876) |
(398) |
(2,274) |
(3,028) |
(369) |
(3,397) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit attributable to equity shareholders of the parent company |
25,911 |
19,978 |
45,889 |
52,792 |
323,031 |
375,823 |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
|
|
|
|
|
|
|
Earnings per ordinary share (note 5) |
3.08p |
2.37p |
5.45p |
6.01p |
36.77p |
42.78p |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income.
The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
The Group does not have any other comprehensive income and hence the total profit/(loss), as disclosed above, is the same as the Group's total comprehensive income.
All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of Witan Investment Trust plc, the parent company. There are no non-controlling interests.
Page 28 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Consolidated and Individual Statements of Changes in Equity
for the year ended 31 December 2020
|
Group: Year ended 31 December 2020 |
||||||||
|
|
|
Ordinary |
Share |
Capital |
Other |
|
|
|
|
|
|
share |
premium |
redemption |
capital |
Revenue |
|
|
|
|
|
capital |
account |
reserve |
reserves |
reserve |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total equity at 31 December 2019 |
50,018 |
99,251 |
46,498 |
1,768,281 |
87,058 |
2,051,106 |
||
|
Total comprehensive income: |
|
|
|
|
|
|
||
|
Profit for the year |
- |
- |
- |
19,978 |
25,911 |
45,889 |
||
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
||
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(49,303) |
(49,303) |
||
|
Buybacks of ordinary shares (held in treasury) |
- |
- |
- |
(122,484) |
- |
(122,484) |
||
|
|
|
-------- |
--------- |
--------- |
------------ |
--------- |
------------ |
|
|
Total equity at 31 December 2020 |
50,018 |
99,251 |
46,498 |
1,665,775 |
63,666 |
1,925,208 |
||
|
|
|
|
|
|
|
|
|
|
|
Company: Year ended 31 December 2020 |
||||||||
|
|
|
Ordinary |
Share |
Capital |
Other |
|
|
|
|
|
|
share |
premium |
redemption |
capital |
Revenue |
|
|
|
|
|
capital |
account |
reserve |
reserves |
reserve |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total equity at 31 December 2019 |
50,018 |
99,251 |
46,498 |
1,768,439 |
86,900 |
2,051,106 |
||
|
Total comprehensive income: |
|
|
|
|
|
|
||
|
Profit for the year |
- |
- |
- |
20,075 |
25,814 |
45,889 |
||
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
||
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(49,303) |
(49,303) |
||
|
Buybacks of ordinary shares (held in treasury) |
- |
- |
- |
(122,484) |
- |
(122,484) |
||
|
|
|
-------- |
--------- |
--------- |
------------ |
--------- |
------------ |
|
|
Total equity at 31 December 2020 |
50,018 |
99,251 |
46,498 |
1,666,030 |
63,411 |
1,925,208 |
||
|
|
|
|
|
|
|
|
|
|
|
Group: Year ended 31 December 2019 |
||||||||
|
|
|
Ordinary |
Share |
Capital |
Other |
|
|
|
|
|
|
share |
premium |
redemption |
capital |
Revenue |
|
|
|
|
|
capital |
account |
reserve |
reserves |
reserve |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total equity at 31 December 2018 |
50,018 |
99,251 |
46,498 |
1,498,832 |
78,843 |
1,773,442 |
||
|
Total comprehensive income: |
- |
- |
- |
|
|
|
||
|
Profit for the year |
- |
- |
- |
323,031 |
52,792 |
375,823 |
||
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
||
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(44,577) |
(44,577) |
||
|
Buybacks of ordinary shares (held in treasury) |
- |
- |
- |
(53,582) |
- |
(53,582) |
||
|
|
|
--------- |
--------- |
------------ |
--------- |
------------ |
------------ |
|
|
Total equity at 31 December 2019 |
50,018 |
99,251 |
46,498 |
1,768,281 |
87,058 |
2,051,106 |
||
|
|
|
|
|
|
|
|
|
|
|
Company: Year ended 31 December 2019 |
||||||||
|
|
|
Ordinary |
Share |
Capital |
Other |
|
|
|
|
|
|
share |
premium |
redemption |
capital |
Revenue |
|
|
|
|
|
capital |
account |
reserve |
reserves |
reserve |
Total |
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total equity at 31 December 2018 |
50,018 |
99,251 |
46,498 |
1,498,923 |
78,752 |
1,773,442 |
||
|
Total comprehensive income: |
- |
- |
- |
|
|
|
||
|
Profit for the year |
- |
- |
- |
323,098 |
52,725 |
375,823 |
||
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
||
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(44,577) |
(44,577) |
||
|
Buybacks of ordinary shares (held in treasury) |
- |
- |
- |
(53,582) |
- |
(53,582) |
||
|
|
-------- |
--------- |
--------- |
--------------- |
--------- |
------------ |
||
|
Total equity at 31 December 2019 |
50,018 |
99,251 |
46,498 |
1,768,439 |
86,900 |
2,051,106 |
||
Page 29 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Consolidated and Individual Balance Sheets
As at 31 December 2020
|
|
Group |
Company |
Group |
Company |
|
|
31 December |
31 December |
31 December |
31 December |
|
|
2020 |
2020 |
2019 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Non current assets |
|
|
|
|
|
Investments held at fair value through profit or loss |
2,162,722 |
2,163,877 |
2,276,623 |
2,277,681 |
|
Right of use asset: property |
315 |
315 |
490 |
490 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Total non current assets |
2,163,037 |
2,164,192 |
2,277,113 |
2,278,171 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Current assets |
|
|
|
|
|
Other receivables |
10,877 |
10,759 |
7,260 |
6,933 |
|
Cash and cash equivalents |
36,145 |
35,152 |
44,723 |
43,568 |
|
|
----------- |
----------- |
----------- |
----------- |
|
Total current assets |
47,022 |
45,911 |
51,983 |
50,501 |
|
|
|
|
|
|
|
Total assets |
2,210,059 |
2,210,103 |
2,329,096 |
2,328,672 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
|
Current liabilities |
|
|
|
|
|
Other payables |
(18,488) |
(18,532) |
(6,641) |
(6,217) |
|
Bank loans |
(109,000) |
(109,000) |
(50,500) |
(50,500) |
|
|
---------- |
---------- |
---------- |
---------- |
|
Total current liabilities |
(127,488) |
(127,532) |
(57,141) |
(56,717) |
|
|
---------- |
---------- |
---------- |
---------- |
|
Total assets less current liabilities |
2,082,571 |
2,082,571 |
2,271,955 |
2,271,955 |
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
Other payables |
(417) |
(417) |
(653) |
(653) |
|
Deferred tax liability on Indian capital gains |
(398) |
(398) |
- |
- |
|
Borrowings: |
|
|
|
|
|
Secured debt |
(153,993) |
(153,993) |
(217,641) |
(217,641) |
|
3.4 per cent. cumulative preference shares of £1 |
(2,055) |
(2,055) |
(2,055) |
(2,055) |
|
2.7 per cent. cumulative preference shares of £1 |
(500) |
(500) |
(500) |
(500) |
|
|
---------- |
---------- |
---------- |
---------- |
|
Total non current liabilities |
(157,363) |
(157,363) |
(220,849) |
(220,849) |
|
|
---------- |
---------- |
---------- |
---------- |
|
Net assets |
1,925,208 |
1,925,208 |
2,051,106 |
2,051,106 |
|
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
|
|
Ordinary share capital |
50,018 |
50,018 |
50,018 |
50,018 |
|
Share premium account |
99,251 |
99,251 |
99,251 |
99,251 |
|
Capital redemption reserve |
46,498 |
46,498 |
46,498 |
46,498 |
|
Retained earnings: |
|
|
|
|
|
Other capital reserves |
1,665,775 |
1,666,030 |
1,768,281 |
1,768,439 |
|
Revenue reserve |
63,666 |
63,411 |
87,058 |
86,900 |
|
|
---------- |
---------- |
---------- |
---------- |
|
Total equity |
1,925,208 |
1,925,208 |
2,051,106 |
2,051,106 |
|
|
|
|
|
|
|
Net asset value per ordinary share |
240.14p |
240.14p |
236.85p |
236.85p |
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own income statement. The profit of the Company dealt with in the accounts of the Group amounted to £45,889,000 (2019: profit of £375,823,000).
Page 30 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Consolidated and Individual Company Cash Flow Statements
for the year ended 31 December 2020
|
|
Group |
Company |
Group |
Company |
|
|
2020 |
2020 |
2019 |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Dividend income received |
37,152 |
37,152 |
64,922 |
64,922 |
|
Interest received |
89 |
88 |
156 |
152 |
|
Other income received |
1,142 |
281 |
2,873 |
587 |
|
Operating expenses paid |
(15,757) |
(14,733) |
(18,051) |
(14,905) |
|
Taxation on overseas income |
(2,233) |
(2,233) |
(3,988) |
(3,988) |
|
Taxation recovered |
485 |
485 |
494 |
494 |
|
|
---------- |
----------- |
---------- |
----------- |
|
Net cash inflow from operating activities |
20,878 |
21,040 |
46,406 |
47,262 |
|
|
---------- |
----------- |
---------- |
----------- |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of investments |
(1,687,329) |
(1,687,329) |
(971,055) |
(971,055) |
|
Sales of investments |
1,859,846 |
1,859,846 |
982,575 |
982,575 |
|
Settlement of futures contracts |
4,892 |
4,892 |
3,543 |
3,543 |
|
|
---------- |
----------- |
---------- |
----------- |
|
Net cash inflow from investing activities |
177,409 |
177,409 |
15,063 |
15,063 |
|
|
---------- |
----------- |
---------- |
----------- |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Equity dividends paid (note 7) |
(49,303) |
(49,303) |
(44,577) |
(44,577) |
|
Issue of secured notes net of issue expenses |
(17) |
(17) |
49,685 |
49,685 |
|
Buybacks of ordinary shares |
(120,437) |
(120,437) |
(53,512) |
(53,512) |
|
Repayment of secured bond Interest paid |
(85,750) (6,529) |
(85,750) (6,529) |
- (8,366) |
- (8,366) |
|
Repayment of lease liability |
(70) |
(70) |
(89) |
(89) |
|
Net drawdown/(repayment) of bank loans |
58,500 |
58,500 |
(30,500) |
(30,500) |
|
|
---------- |
----------- |
---------- |
----------- |
|
Net cash outflow from financing activities |
(203,606) |
(203,606) |
(87,359) |
(87,359) |
|
|
---------- |
----------- |
---------- |
----------- |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
(5,319) |
(5,157) |
(25,890) |
(25,034) |
|
Cash and cash equivalents at the start of the period |
44,723 |
43,568 |
72,246 |
70,235 |
|
Effect of foreign exchange rate changes |
(3,259) |
(3,259) |
(1,633) |
(1,633) |
|
|
---------- |
----------- |
---------- |
----------- |
|
Cash and cash equivalents at the end of the period |
36,145 |
35,152 |
44,723 |
43,568 |
Page 31 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Notes to the Financial Statements
for the year ended 31 December 2020
1. Accounting policies
The financial statements of the Group and parent company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ('IFRSs').
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.
(a) Basis of preparation
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out in the financial statements. Where presentational guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies (the 'AIC') in October 2019 is consistent with the requirements of IFRSs, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
Judgements and sources of estimation uncertainty
In the application of the Group's accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may vary from these estimates. The directors do not consider that there are any significant estimates or critical judgements in these financial statements.
(b) Going concern
The financial statements have been prepared on a going concern basis. The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report. The financial position of the Group as at 31 December 2020 is shown in the balance sheet on page 29. The cash flows of the Group for the year ended 31 December 2020 are not untypical and are set out on page 30.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary) made up to 31 December each year.
In accordance with IFRS 10 the Company has been designated as an investment entity on the basis that:
It obtains funds from investors and provides those investors with investment management services;
It commits to its investors that its business purpose is to invest solely for returns from capital appreciation and investment income; and
It measures and evaluates performance of substantially all of its investments on a fair value basis.
The subsidiary of the Company was established for the sole purpose of operating or supporting the investment operations of the Company and is not itself an investment entity. Therefore, under the principles of IFRS 10, the Company has consolidated its subsidiary as it is a controlled entity that supports the investment activity of the investment entity.
Control is achieved where the Company is exposed, or has the right, to variable returns from its investment in the subsidiary and has the ability to affect those returns through its power to direct the relevant activities. Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used by it into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Page 32 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Notes to the Financial Statements continued
(d) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally, the net revenue is the measure the directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.
2. Investment income
|
|
|
|
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
|
|
|
|
UK dividends from listed investments |
10,549 |
22,393 |
|
UK special dividends from listed investments |
104 |
2,085 |
|
|
----------- |
----------- |
|
Total UK dividends |
10,653 |
24,478 |
|
|
----------- |
----------- |
|
|
|
|
|
Overseas dividends from listed investments |
25,122 |
39,089 |
|
Overseas special dividends from listed investments |
257 |
1,476 |
|
Overseas stock dividends from listed investments |
51 |
2 |
|
|
----------- |
----------- |
|
Total investment income |
36,083 |
65,045 |
|
|
|
|
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
Analysis of investment income by geographical segment: |
|
|
|
United Kingdom |
10,653 |
24,478 |
|
North America |
5,840 |
7,062 |
|
Continental Europe |
5,236 |
15,053 |
|
Japan |
1,933 |
2,114 |
|
Asia Pacific (ex Japan) |
3,764 |
8,598 |
|
Latin America |
- |
276 |
|
Other |
8,657 |
7,464 |
|
|
----------- |
----------- |
|
Total investment income |
36,083 |
65,045 |
3. Other income
|
|
|
|
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
Deposit interest |
81 |
138 |
|
Stock lending income |
281 |
557 |
|
Income from the subsidiary company's third party business |
242 |
1,528 |
|
|
----------- |
----------- |
|
|
604 |
2,223 |
At 31 December 2020 the total value of securities on loan by the Company for stock lending purposes was £83,074,000 (2019: £75,895,000). The maximum aggregate value of securities on loan at any time during the year ended 31 December 2020 was £128,597,000 (2019: £136,105,000). Collateral, revalued on a daily basis at a level equivalent to at least 105% (2019: 105%; 110% for equities) of the market value of the securities lent, was provided against all loans. Collateral in respect of UK securities is usually in the form of Crest DBVs (Delivery by Values); the content of Crest DBVs (Delivery by Values) is subject to a concentration limit of 10%.
Page 33 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Notes to the Financial Statements continued
4. Management and performance fees
|
|
Year ended 31 December 2020 |
Year ended 31 December 2019 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Management fees paid to third-party managers |
2,176 |
6,528 |
8,704 |
2,522 |
7,567 |
10,089 |
|
Performance fee payable to third-party managers |
- |
575 |
575 |
- |
1,541 |
1,541 |
|
|
---------- |
----------- |
----------- |
---------- |
----------- |
----------- |
|
|
2,176 |
7,103 |
9,279 |
2,522 |
9,108 |
11,630 |
5. Earnings per ordinary share
The earnings per ordinary share figure is based on the net profit for the year of £45,889,000 (2019: profit of £375,823,000) and on 841,523,451 ordinary shares (2019: 878,509,015), being the weighted average number of ordinary shares in issue during the year.
The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.
|
|
2020 |
2019 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Net revenue profit |
25,911 |
52,792 |
|
Net capital profit |
19,978 |
323,031 |
|
Net total profit |
45,889 |
375,823 |
|
|
|
|
|
Weighted average number of ordinary shares in issue during the year |
841,523,451 |
878,509,015 |
|
|
|
|
|
|
Pence |
Pence |
|
Revenue earnings per ordinary share |
3.08 |
6.01 |
|
Capital earnings per ordinary share |
2.37 |
36.77 |
|
Total earnings per ordinary share |
5.45 |
42.78 |
|
|
|
|
6. Issued share capital
|
The number of ordinary shares of 5p each in issue at 31 December 2020 was 1,000,355,000 (2019: 1,000,355,000), of which 198,641,713 ordinary shares of 5p each (2019: 134,376,565) were held in treasury.
|
Page 34 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Notes to the Financial Statements continued
7. Dividends
|
|
2020 £'000 |
2019 £'000 |
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
Fourth interim dividend for the year ended 31 December 2019 of 1.825p (2018: 1.55p) per ordinary share |
15,783 |
13,764 |
|
First interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
11,536 |
10,379 |
|
Second interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
11,099 |
10,276 |
|
Third interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
10,885 |
10,185 |
|
|
|
|
|
Refund of unclaimed dividends |
- |
(27) |
|
|
---------- |
---------- |
|
|
49,303 |
44,577 |
|
|
====== |
====== |
|
|
|
|
|
Fourth interim dividend for the year ended 31 December 2020 of 1.43p (2019: 1.825p) per ordinary share |
11,294 |
15,783 |
|
|
====== |
====== |
|
|
|
|
|
Total in respect of the year: |
|
|
|
Set out below is the total dividend to be paid in respect of the year. This is the basis on which the minimum distribution requirements of section 1158 of the Corporation Tax Act 2010 are considered. |
||
|
|
||
|
|
2020 £'000 |
2019 £'000 |
|
Revenue profits available for distribution (Company only) |
25,814 |
52,725 |
|
First interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
(11,536) |
(10,379) |
|
Second interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
(11,099) |
(10,276) |
|
Third interim dividend for the year ended 31 December 2020 of 1.34p (2019: 1.175p) per ordinary share |
(10,885) |
(10,185) |
|
Fourth interim dividend for the year ended 31 December 2020 of 1.43p (2019: 1.825p) per ordinary share |
(11,294) |
(15,783) |
|
|
---------- |
---------- |
|
(Revenue reserves utilised)/ revenue retained for the year (Company only) |
(19,000) |
6,102 |
|
|
====== |
====== |
8. 2020 Accounts
The figures and financial information for 2020 are extracted from the Annual Report and financial statements for the year ended 31 December 2020 and do not constitute the statutory accounts for the year. The Annual Report and financial statements include the Report of the Independent Auditor which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.
Page 35 of 35
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
Notes to the Financial Statements continued
9. 2019 Accounts
The figures and financial information for 2019 are extracted from the published Annual Report and financial statements for the year ended 31 December 2019 and do not constitute the statutory accounts for that year. The Annual Report and financial statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditor which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
10. Annual report and financial statements
Copies of the Annual Report and financial statements will be posted to shareholders by the end of March 2021 and will be available on the Company's website (www.witan.com) or in hard copy format from the Registered Office, 14 Queen Anne's Gate, London, SW1H 9AA.
The Annual General Meeting will be held on Wednesday 28 April 2021. For further details regarding arrangements, see the Notice of AGM which will be published by the end of March 2021.
For further information please contact:
Andrew Bell
Chief Executive
Witan Investment Trust plc
Telephone: 020 7227 9770
Alexis Barling
Director of Marketing
Witan Investment Trust plc
Telephone: 020 7227 9770
- ENDS -
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
Latest directors dealings
- 1 day ago IntegraFin Holding
- 1 day ago Spirent Communications
- 1 day ago CRH (CDI)
- 1 day ago Bezant Resources
- 1 day ago EJF Investments Ltd NPV