Capital Gearing Trust P.l.c. (the “Company”)
Announcement of the Half-Year Financial Report for the six months ended 30 September 2023
Chairman’s Statement
Investment Performance
At the half year to 30 September 2023, the net asset value per share (‘NAV’) was 4,674.9p, compared to 4,797.3p at 31 March 2023. This represents a NAV total return of -1.3% over the past six months. This return was better than the global aggregate bond index and the investment trust index which returned -3.8% and -1.7% respectively in Sterling terms. Whilst it is always disappointing to report negative returns the defensive orientation of the portfolio did provide some protection from simultaneously weak bond and equity markets. The returns lagged Consumer Price Index (‘CPI’) inflation of 2.4% in the period.
The share price ended the half year at 4,585p, a fall of 1.8%. During the period 2,218,929 shares, with an aggregate value of £102.1m, were bought back under the Company’s discount control policy (‘DCP’).
Discount Control Policy Update
Since 2015 the Company has operated the DCP which aims to ensure that, in normal market conditions, the shares trade consistently close to their underlying NAV.
As announced on 31 October 2023, the Company was in the process of seeking approval from the Northern Irish Courts to reclassify its share premium account as a distributable reserve to continue to support the DCP. In our announcement, we referred to this process having been subject to significant delays as a result of various “technical and administrative issues”. It is now clear that these issues comprise a series of errors and omissions on the part of third parties. As a result, the Board has decided to take direct control over this process and has agreed a revised timetable to take this through to a successful conclusion. This will start with refreshing the requisite shareholder authority at a soon to be convened General Meeting and should result in the reserves being created in the early part of next year. The Board is extremely frustrated by the delay caused in the process and the fact that it was not made aware of this until very recently. The Board intends to investigate matters further and seek compensation for any costs incurred whilst reserving all the Company’s other rights.
Following the cancellation of the share premium account the Company will have very significant headroom in its reserves to support the DCP for the foreseeable future. Shareholders should be assured that the Board remains fully committed to the DCP and any temporary modifications will be reversed as soon as the Northern Irish Court process is concluded.
Performance Comparators
The Company does not have a formal benchmark but over the years has compared its performance against Retail Price Index (‘RPI’) inflation and the MSCI UK index. RPI inflation is no longer classified as a national statistic by the Office for National Statistics due to methodological flaws. It has been replaced by CPI inflation, which we will now refer to as a comparator. As a number of shareholders have pointed out, neither our investment objective nor our portfolio construction reflect the UK equity market, so the Company will no longer use the MSCI UK index as a comparator but may refer to equity indices more generally when looking at specific components of performance.
Board Update
We are pleased to welcome Ravi Anand as a non-executive Director with effect from 1 August 2023. Ravi has already made a positive impact on our discussions pulling on his experience of investment trusts and financial services more generally.
Wendy Colquhoun has been appointed as Chair of the Nominations Committee to lead our Board succession planning. Robin Archibald will retire at the 2024 AGM after nine years on the Board. As noted in the Annual Report, to avoid two long standing Directors departing at the same time, it has been agreed that I will remain on the Board for a further period of one or two years beyond 2024 to enable a further Board member to be recruited and to oversee an orderly handover to a new Chairman.
Outlook
It seems likely that the second half of the year will continue to be challenging, as all asset markets are buffeted by a deteriorating geopolitical backdrop, high interest rates and lingering inflation. Against this backdrop the Company remains defensively positioned, with a relatively constrained allocation to equities and significant exposure to short duration high quality bonds. However, with volatile markets come opportunities and the investment manager will seek to exploit falling prices in the bond and equity markets when values become compelling.