Unaudited results for the half-year ended 30 April 2023
This announcement contains regulated information
INVESTMENT OBJECTIVE
Over the long term, the Company aims to achieve capital growth in excess of the FTSE World Index and dividend growth greater than inflation, as measured by the UK Consumer Price Index (‘CPI’), by investing in companies listed throughout the world.
INVESTMENT POLICY
The following investment ranges apply:
· Equities: 80% to 100%
· Debt securities and cash investments: 0% to 20%
· Investment trusts, collective funds and derivatives: 0% to 15%
To achieve an appropriate spread of investment risk the portfolio is broadly diversified by geography, sector and company. The Manager (‘Janus Henderson’) has the flexibility to invest in any geographic region and any sector with no set limits on individual country or sector exposures and, therefore, the make-up and weighting of the portfolio may differ materially from the FTSE World Index.
The Manager primarily employs a bottom-up stock picking investment process, across six regional portfolios, to identify suitable opportunities. While each regional portfolio manager employs their own investment style, they all pay particular regard to cash generation and dividend growth over the medium term.
The Company can, but normally does not, invest up to 15% of its gross assets in any other investment companies (including listed investment trusts).
Derivatives
The Company may use financial instruments known as derivatives for the purpose of efficient portfolio management while maintaining a level of risk consistent with the risk profile of the Company.
Gearing
The Company can borrow to make additional investments with the aim of achieving a return that is greater than the cost of the borrowing. The Company can borrow up to 20% of net assets at the time of draw down.
PERFORMANCE HIGHLIGHTS
| 30 April 2023 | 30 April 2022 | |
| Net asset value (‘NAV’) per share | 112.3p | 113.0p |
| Share price | 100.6p | 105.9p |
| Revenue return per share | 1.29p | 1.08p |
| Dividends paid or declared in respect of the period1 | 1.24p | 1.128p |
Total return performance to 30 April 2023 (including dividends reinvested and excluding transaction costs)
| 6 months% | 1 year% | 3 years% | 5 years% | 10 years % | |
| NAV2 | 8.1 | 1.5 | 32.0 | 44.3 | 157.6 |
| FTSE World Index3 | 3.5 | 3.2 | 46.6 | 62.1 | 131.5 |
| Share price4 | 5.4 | -2.6 | 18.5 | 30.4 | 138.3 |
1 The first interim dividend for 2023 was paid on 31 May 2023; the second interim dividend has been declared and will be paid on 31 August 2023
2 Net asset value total return per share with income reinvested and with debt at par
3 For 10 years, this is a composite of the FTSE World Index and the FTSE All-Share Index
4 Share price total return using mid-market closing price
Sources: Janus Henderson, Morningstar Direct and Refinitiv Datastream
INTERIM MANAGEMENT REPORT
Dear shareholder,
Performance
Your Company has delivered a strong net asset value total return over the six months ended 30 April 2023 of 8.1% (2022: -5.6%) and a share price total return of 5.4% (2022: -6.3%), outperforming the FTSE World Index total return of 3.5% (2022: -2.6%). The Company’s portfolio benefitted as equity markets fared better than last year.
The majority of the regional portfolios, with the exception of Asia Pacific and China, outperformed their respective benchmark indices. The UK portfolio performed the best relative to its benchmark, outperforming by 3.1% and reversing all the underperformance in 2022. The European portfolio benefitted from positive news from the luxury consumer sector, responding to the opening of travel and the Chinese economy. The Fund Manager discusses the key drivers of performance in the period in more detail in his report.
Revenue
We have also seen the Company’s revenue increase over the period, as corporate profits defied the predictions of many commentators and held up well, with profit margins improving on the back of price rises. This has enabled many of the companies in the portfolio to increase their dividends paid from 2022 profits.
The change in the US portfolio has also boosted income from that region which, combined with the continued good dividend growth elsewhere, has allowed us to increase the Company’s quarterly dividends quicker than we anticipated at the year end. Our net revenue for the six months was £16.5 million (2022: £14.2 million), equivalent to 1.29p per share (2022: 1.08p).
A first interim dividend of 0.62p per share (2022: 0.55p) was paid on 31 May 2023. The Board has declared a second interim dividend of 0.62p (2022: 0.578p) per share, which will be payable on 31 August 2023 to shareholders on the register on 28 July 2023.
Our current expectation is that our dividend for the full year will be at least 7% above the level for 2022, higher than the 5% that we forecast originally for 2023. This is supportive of our progressive dividend policy and the Board anticipates continuing the Company’s track record of successive annual dividend growth which it has achieved over the past 56 years.
Share buy-backs
It is frustrating to see the Company’s share price continue to trade at a wide discount to its net asset value. However, we have taken advantage of this opportunity to buy back shares from the market. This activity is beneficial to ongoing shareholders, as shares are only purchased when the Company’s shares are trading at a discount, thereby enhancing shareholder value.
A total of 24,080,927 shares were bought back at an average discount of 9.0% to the net asset value in the six months ended 30 April 2023 (2022: 4,243,874 shares bought back at an average discount of 6.0%) for a total consideration of £24.9 million (2022: £4.5 million). The discount at 30 April 2023 was 10.4% (2022: 6.3%).
Board changes and succession planning
Isobel Sharp, Chair of the Audit Committee, is to step down from the Board on 30 June 2023. On behalf of the Board, I would like to express our gratitude for her valued contribution during her tenure.
Julian Chillingworth, our Senior Independent Director, is to retire from the Board at the conclusion of the 2024 AGM when he will have served for nine years.
In line with its long-term succession planning, and very mindful of the FCA’s diversity targets, the Nominations Committee has begun the recruitment process for additional non-executive Directors and the Board expects to make at least one appointment before the year end.
Outlook
Following the opening of the Chinese economy we expect to see an economic recovery under way in Asia and Japan where nearly a third of our assets are invested. However, we should expect further volatility in equity markets due to the uncertain trajectory of interest rates and the elevated levels of inflation.
We remain relatively cautious in our outlook but optimistic that our improved performance can continue. We are confident in the ability of our Fund Manager and the investment philosophy applied to the portfolio. This provides the flexibility for the regional portfolio managers to use their best ideas to drive future growth as they continue to focus on finding quality companies at the right price.
Simon Miller
Chair
22 June 2023
FUND MANAGER’S REPORT
Market review
Persistent inflation during the period under review has meant central banks around the world have continued raising interest rates to depress demand for goods and services. The bottlenecks and limited supply of certain goods due to Covid restrictions have generally eased, though the delayed impact of elevated energy prices in 2022 is still being felt in consumer prices. Initially, equity valuations were impacted by worries that reduced money supply and higher borrowing costs would cause a recession. However, corporate earnings and economic activity have been far more resilient than expected. Time will tell whether trading down or changing spending patterns by consumers leads companies to cut prices to maintain volumes or market share.
Growth stocks in the US corrected in price through the start of the period as a response to rising interest rates, and because investors preferred more defensive sectors. At the same time China abruptly opened its economy from Covid restrictions and Asian markets responded favourably to expectations of increased activity. In recent months there has been quite a reversal in both these markets. The largest US technology companies, often referred to as the FAANG stocks, have led a remarkable recovery driven by profit upgrades, especially at Nvidia and Meta, combined with investors’ enthusiasm for everything related to generative artificial intelligence. Meanwhile the equity market recovery in China has started to fade, although the 5% GDP target, if met, would far exceed growth in any Western markets this year.
Europe and the UK have been the standout markets during the period, but it is hard to put this down to positive news, rather it has been a lack of further bad news. Investors were very downbeat towards the end of 2022. Although economies in Europe have been weak, they have not collapsed, and markets had been clearly oversold. Gas prices have fallen sharply over the winter and the warmer than usual winter weather has helped limit reserve drawdown. Wage growth has helped offset the higher interest rates, preserving consumers’ ability to keep spending.
Performance
Overall, the portfolio outperformed the benchmark FTSE World Index by 4.6% over the period. The portfolio was positioned for a recovery in Asia and performed well relative to the benchmark through October and November as Chinese equities recovered. The allocation towards Europe and the UK also provided an overall positive benefit, with these two portfolios generating a total return of 19.3% and 12.5% respectively. As there was little actual good news in the region, we reduced exposure to both in February and lowered the portfolio’s gearing. The gearing remained at 5% through to the period end as we look forward to repaying the £15 million 2023 debenture at the end of October. The majority of regional portfolios fared better in the period, with the exception of Asia Pacific and China. The former was lacking exposure to technology and in China the state-owned companies were the best performers in the market, where we have no exposure.
The US portfolio was repositioned in mid-December, reflecting the transfer of portfolio management to Jeremiah Buckley, who is based in Denver alongside the large analyst team at Janus Henderson covering the US market. The change has broadened coverage within the US stock market, increasing exposure to pharmaceuticals and larger US financials. We held no exposure to US regional banks which have experienced a flight of deposits in recent months and a sharp correction in share prices.
The UK portfolio performed the best relative to its benchmark, outperforming by 3.1% and reversing some of the underperformance in 2022. The European portfolio benefitted from positive news from the luxury consumer sector, responding to the opening of travel and the Chinese economy, with companies such as Moncler and Hermès performing well. Other notable performers in the portfolio were Microsoft in the US, Sony in Japan and 3i in the UK.
Outlook
Tighter monetary conditions, driven by increasing interest rates and bond sales from central banks, have a dampening effect on economic activity. However, the real economy is actually weathering these conditions well, with many companies having low levels of debt and possessing pricing power, while consumers are benefitting from wage growth or using savings to bolster spending. However, the rate of inflation needs to fall. The alternative is that interest rates will continue to rise or be maintained at a high level for longer and their impact will be felt more deeply by many. There is good evidence that prices are starting to moderate and, in the case of energy, starting to fall. We expect markets in Asia to lead the recovery and are positioned for better news in that region. However, we remain more cautious in other regions.
Alex Crooke
Fund Manager
22 June 2023