Investment Co Plc – Final Results

THE INVESTMENT COMPANY PLC

Annual Results Announcement for the year ended 30 June 2022

SUMMARY OF RESULTS

* The total return per ordinary share is based on total income after taxation as detailed in the Consolidated Income Statement and in note 6.

CHAIRMAN'S STATEMENT

During the twelve months the net asset value (“NAV”) decreased by 1.4% to 336.3p and the share price decreased by 4.9% to 294.0p. There were three important components to the change in net asset value for the year: First, the price of gold rose 16.3% against sterling and this increase added about 3.9% to the NAV. Second, the share price contribution from the equities' portfolio was nil, as the modest decline in share prices overseas was completely offset by the weaker British pound. Third, the Company held 3.3% of net assets in depository receipts for Lukoil which were written down to zero fair value during the year on account of the impact of punitive international sanctions regimes which pose great uncertainty as to the likelihood of receiving any future cash-flows from this holding.

The substantial weakness of the British pound was an important contributor to the results during the last twelve months. Though this weakness was unexpected, the protection that comes from our broadly international collection of businesses is deliberate. Most of our investments are listed in different currencies and are active outside the UK. Excluding the gold holdings – a currency in its own right – approximately 61.0% of the portfolio is invested in businesses whose primary listing and trading currency is something other than the British pound. This temporarily flatters the results when the pound is weak and will temporarily flatten them when the pound is strong again.

Income and expenses

Expenses were down substantially from the prior year. This was largely attributable to both the one-time reorganisation expenses incurred in the prior year, and this being the first full year where the cost benefits of being self-managed (i.e. there being no external investment management fees) translated into a lower operating expense base. Income also declined as we shifted away from an income-oriented portfolio to one focused on capital preservation. Despite the Company's small size, dividend income offset most of the annual expenses.

The Board is not proposing a dividend: the results do not justify it and to do so would represent returning capital to Shareholders in the form of taxable income.

Investments

Presently 67.4% of net assets is invested in 19 different businesses representing 14 different industries with operations all over Europe, the Americas and beyond. A further 28.5% is invested in gold bullion held through three ETFs, and we hold 4.1% in cash and other legacy assets.

The changes to the portfolio were modest compared to the transformation of the prior year. We added four new businesses representing interests in the production of natural flavours and fragrances, premium dairy production, specialty plastics and cigarettes – all of which were on our radar screen from day one. We also sold off four businesses, sold almost all our remaining legacy assets, and made a small sale of gold bullion. These sales collectively realised gains of £514,000 representing a 17.9% gain on cost. Excluding the sales of legacy assets and the compulsory redemption of Fromageries Bel, the portfolio turnover for the year was approximately 15%. We think this was an especially active year and anticipate lower turnover in the years to come.

We remain satisfied that gold bullion – as opposed to cash, short-dated bonds, inflation-linked securities or other securities – remains the appropriate reserve asset for a prudent saver looking to protect capital in a thoroughly disingenuous world. In any case the events of the last twelve months have revealed the weaknesses of these and other financial assets that we think is endemic. With the added benefit of hindsight, the timing of the November 2020 repurposing of the Company's investment objective was opportune. Exceptionally high inflation, paired with purposefully depressed interest rates and rapidly falling foreign exchange rates is a trifecta which few financial assets can withstand. Gold is no panacea – but its value comes from the fact that it is inert and completely unaffected by the world around it. It is independent of any price index, foreign exchange level, interest rate, or the credit risk of any financial institution. It requires nothing and it produces nothing. It is the exemplar of financial independence – there is no other asset like it – and it's precisely this financial honesty which makes it valuable.

The illusory world of quantitative easing and zero interest rates is over, and we are already faced with significant inflation and the spectre of recession. Government is already resorting to numerous fiscal measures to support households such as energy subsidies. History teaches us such interventions labeled as temporary rarely are and here in the UK, The Bank of England pleas for wage restraint seem to be going unheeded. Daily profit warnings from seemingly stable businesses are routine. Valuations fall steeply when held against weakening balance sheets and falling profitability. The share prices of soundly and conservatively run companies suffer just the same from higher costs of capital and the anticipation of more challenging times. Against this backdrop we continue to invest the capital alongside a small collection of entrepreneurs and business owners. These are the people who make something real and valuable to their customers and who favour economic resilience, operational independence, and the businesses survival above all else. There is no formula, financial or moral, that will identify these owners for us, but these are the traits we look for in the businesses we own.

Board Overview

Tom Cleverly has notified the Board that he does not wish to seek re-election as a Director at the AGM in order to be able to focus on his other business commitments. The Board wishes to record their deep appreciation of his significant contribution to the Company since his appointment in November 2020 and wishes him well in his future endeavours.

Outlook

The outlook for small, listed investment trusts remains challenging as Shareholders and their advisors grapple with increasing compliance restrictions as to liquidity and overall market capitalisation. Your Board is satisfied as to the underlying strength of its portfolio of undertakings but is fully cognisant of the immense challenges in growing the capital base of the Company. The Board continues to evaluate genuine opportunities to grow the capital base of the Company against the strict criteria of capital preservation and growth over the longer term.