Lindsell Train Investment Trust plc Half-Year Report

LONDON STOCK EXCHANGE ANNOUNCEMENT

The Lindsell Train Investment Trust plc (the “Company”)

Unaudited Half-Year Results for the six months ended

30 September 2024

This Announcement is not the Company’s Half-year Report & Accounts. It is an abridged version of the Company’s full Half-year Report & Accounts for the six months ended 30 September 2024. The full Half-year Report & Accounts together with a copy of this announcement, will shortly be available on the Company’s website at www.ltit.co.uk where up to date information on the Company, including NAV, share prices and monthly updates, can also be found.

Financial Highlights

Performance comparisons	6 months to 30th Sept 2024	Year to 31st March 2024
Net asset value total return per Ordinary Share1	-1.9%	+2.1%
Share price total return per Ordinary Share1	+2.7%	-19.8%
Discount of Share price to Net Asset Value	19.3%	22.0%
MSCI World Index total return (Sterling)	+2.8%	+22.5%
UK RPI Inflation (all items)	+1.5%	+4.3%

1. The net asset value and share price total returns at 30 September 2024 have been adjusted to include the ordinary dividend of £51.50 per share paid on 13 September 2024, with the associated ex-dividend date of 8 August 2024.

Investment Objective

The objective of the Company is to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.

Investment Policy

The Investment Policy of the Company is to invest:

(i) in a wide range of financial assets including equities, unlisted equities, bonds, funds, cash and other financial investments globally with no limitations on the markets and sectors in which investment may be made, although there is likely to be a bias towards equities and Sterling assets, consistent with a Sterling-dominated investment objective. The Directors expect that the flexibility implicit in these powers will assist in the achievement of the investment objective;

(ii) in LTL managed fund products, subject to Board approval, up to 25% of its gross assets; and

(iii) in LTL and to retain a holding, currently 23.9%, in order to benefit from the growth of the business of the Company’s Manager.

The Company does not envisage any changes to its objective, its investment policy, or its management for the foreseeable future. The current composition of the portfolio as at 30 September 2024, which may be changed at any time (excluding investments in LTL and LTL managed funds) at the discretion of the Manager within the confines of the policy stated above.

Chairman’s Statement

The Company’s net asset value (“NAV”) per share fell from £1,026.43 to £955.83 over the six months to 30 September 2024, which resulted in a NAV total return of minus 1.9% once the payment of the dividend of £51.50 was added back. This compared with the 2.8% total return of the MSCI World index. The share price total return over the same period was 2.7%. The share price discount to the NAV narrowed marginally over the six months but remained near its peak at 19% on 30 September 2024.

The six months were characterised by the steady fall in the valuation of LTL, the Company’s unlisted investment in its Investment Manager. LTL’s total return over the period was minus 8.4% and proved to be the biggest detrimental contributor to the Company’s performance, resulting in the holding falling from 34% of NAV six months earlier to 31% on 30 September 2024. The decline in valuation reflected a contraction in LTL’s funds under management (“FUM”). LTL’s strategies have suffered from disappointing relative performance in recent years and some of its clients have understandably responded by withdrawing funds, with LTL’s FUM falling from £15.2bn to £13.4bn over the six months to 30 September 2024. A good proportion of clients, including the Company, have experienced LTL’s successful longer-term performance and remain loyal supporters of its differentiated investment approach which, as the Investment Manager’s report implies, remains consistent with its core principles.

The fall in FUM had a direct impact on LTL’s revenues, as is evident in LTL’s half-year financial review shown in Appendix 1, but less so on its operating profit margins, which remained above 60%. However, should FUM fall below £11bn, caused either by client withdrawals or declining asset prices, there is a risk that the margin protection provided by LTL’s salary and bonus cap, which restricts salary and bonus payments to LTL employees to c.26% of LTL revenues, may be compromised. The fall in LTL’s FUM was more directly reflected in declining LTL dividend payments to the Company. The dividend from LTL received in June fell 16% from last year and 7% from the December payment. Declining LTL dividends will impact the Company’s ability to maintain its dividend at the same level in 2025 without using revenue reserves to do so.

Whilst the decline in LTL’s FUM is disappointing, the Board takes some comfort from LTL’s financial strength, which gives LTL the option to invest behind its business if necessary. LTL’s half-year financial review shows that LTL has cash resources of £105m at 30 September 2024.

The decline in LTL’s weighting within the Company’s portfolio brings increased attention to the Company’s other investments. 56% of NAV is invested in a concentrated selection of global quoted equities that in aggregate contributed  1.4% of total return to the portfolio, with strong individual total return contributions from Unilever up 23.7% and the London Stock Exchange Group up 9.1%, offset by a 9.3% negative return from Diageo and 8.6% from Nintendo. The Investment Manager’s report that follows reviews the performance and prospects of these companies in some more detail.

An important feature of the Company’s symbiotic relationship with LTL is its desire to support LTL’s business by investing its capital into LTL managed funds to help bolster a fund’s critical mass at an early stage of its existence. Almost all of LTL’s funds have benefited from such investments over time. Once sufficient critical mass is achieved the Company has sold the investments to reallocate capital to either quoted investments or alternative LTL funds. In the early 2000s the Company invested its maximum allocation of 25% in LTL funds, but since 2015 the allocation has averaged 9% of NAV, with the allocation at 12.5% at 30 September 2024. All investments in LTL fund products are the direct responsibility of the Board and any fees charged by the funds are rebated to the Company to avoid double charging.

The investment in the Lindsell Train North American Equity Fund was made at its inception in 2020. It accounted for 10.6% of NAV at 30 September 2024. The Fund has compounded at 12.8% (in US dollars) since 30 April 2020, a satisfactory return in the context of long-term US equity returns that have averaged 10.5% over the last 50 years, yet not enough to keep up with the 17.5% U S dollar annualised return of its comparative benchmark over its life. The Fund’s investments in Estée Lauder, PayPal, Brown Forman and Disney have held back performance at a time when a narrow range of large technology companies have driven the performance of the index. The Fund has benefited from the exceptional performance of FICO, up more than 3 times since purchase, and has recently sold part of the holding to add to the Fund’s underperformers. Aside from the purchases of FICO, Madison Square Garden Sports and the spinout of Kenvue from Johnson & Johnson, the constituents of the Fund are unchanged from its inception, with the recent partial sale of FICO representing the only turnover in its history. The Fund’s portfolio valuation at 30 September 2024 is outlined in Appendix 3. Like all LTL funds, the North American Equity portfolio stands out due to its concentration, its focus on a narrow range of cash generative companies and its long-term approach, all factors which should underpin its allure to other investors. What is missing, of course, is outperformance relative to its benchmark, and until that happens it will likely remain challenging for LTL to grow assets meaningfully from its current size of £40m.

The Investment Manager’s report continues to paint a positive outlook for the Company’s quoted investments, which they anticipate should result in better relative performance for the Company and for LTL’s strategies. As improved performance is only recognisable after the event, it is likely that it will take some time before this is translated into rising FUM at LTL. In the meantime we are realistic in recognising that LTL’s FUM will in all probability continue to wane in the shorter term, which will impact LTL’s valuation and by extension the Company’s NAV – a linkage that has been well flagged as a risk in successive past statements by me and my predecessors.

The Company’s elevated share price discount to its NAV is a source of concern for the Board. It reflects, to varying degrees, LTL’s and the Company’s disappointing investment performance, the continued and prospective decline in the valuation of LTL, its largest investment, the succession risk at LTL and the general level of discounts in the Investment Trust industry. The Board thinks that resorting to share repurchases to reduce the discount would prove ineffective and believes its buyback powers are better deployed to take advantage of a discernible opportunity to add value for remaining shareholders should one materialise. Any opportunity has to be balanced with the need to fund a share repurchase with a sale of existing quoted investments, the consequence of an increase in LTL’s percentage weighting within the Company investment portfolio and the burden of an increased expense ratio for remaining shareholders. The Board also believes that the surest way to improve the Company’s rating is for LTL to generate better relative and absolute performance for the Company and for broader LTL funds. The Board has every confidence that this will happen and is doing everything in its power to the provide the support necessary to LTL to ensure that outcome.