Results for the six months ended 30 June 2023
The full Interim Report for the six months ended 30 June 2023 (the “Interim Report”) can be found on the Company’s website at www.smithson.co.uk
Performance Highlights
Net Asset Value
| At | At | At | |
| 30 June 2023 | 30 June 2022 | 31 December 2022 | |
| Net assets | £2,622,930,000 | £2,361,331,000 | £2,417,967,000 |
| Net asset value (“NAV”) per | |||
| ordinary share (“share”) | 1,575.4p | 1,339.5p | 1,410.7p |
| Share price | 1,400.0p | 1,185.0p | 1,308.0p |
| Share price discount to NAV1 | (11.1)% | (11.5)% | (7.3)% |
| For the period from | |||
| Company’s listing on | |||
| Six months ended | Six months ended | 19 October 2018 to | |
| 30 June 2023 | 30 June 2022 | 30 June 2023 | |
| % Change2 | % Change2 | % Change2 | |
| NAV total return per share1 | +11.7% | -31.7% | +57.5% |
| Share price total return1 | +7.0% | -41.3% | +40.0% |
| Benchmark total return3 | +1.9% | -13.7% | +37.5% |
| Ongoing charges ratio1 | 0.9% | 0.9% | 0.9% |
Source: Bloomberg.
This report contains terminology that may be unfamiliar to some readers. The Glossary section gives definitions for frequently used terms.
1 These are Alternative Performance Measures (“APMs”). Definitions of these, together with how these measures have been calculated, are disclosed on pages 23 and 24 of the Interim Report where it is made clear how these APMs relate to figures disclosed and calculated under IFRS.
2 Total returns are stated in GBP sterling.
3 MSCI World SMID Cap Index, £Net Source: www.msci.com.
Diana Dyer Bartlett, Chairman, commented:
“The Company’s net asset value (“NAV”) per share total return for the period was +11.7%, outperforming the MSCI World SMID Index by 9.8 percentage points. Since inception on 19 October 2018, the Company’s NAV per share total return is 57.5%, an annualised increase of 10.2% pa compared with the annualised index return of 7.0%. Since inception the NAV per share total return is 20 percentage points higher than the Index. It is pleasing to note that both the first half results and our returns since inception represent good absolute performance as well as a healthy outperformance of our comparator index.”
Chairman’s Statement
Introduction
I am pleased to present this Interim Report of Smithson Investment Trust plc (the “Company”) for the six months ended 30 June 2023.
Performance
The Company’s net asset value (“NAV”) per share total return for the period was +11.7%, outperforming the MSCI World SMID Index by 9.8 percentage points. Since inception on 19 October 2018, the Company’s NAV per share total return is 57.5%, an annualised increase of 10.2% pa compared with the annualised index return of 7.0%. Since inception the NAV per share total return is 20 percentage points higher than the Index. It is pleasing to note that both the first half results and our returns since inception represent good absolute performance as well as a healthy outperformance of our comparator index.
As our Investment Manager reports, the improvement since this time last year is significant. The Company’s investment policy is to invest in quality growth companies capable of compounding returns over the long term. Short term performance from this strategy will be affected by numerous factors including market sentiment and changes in interest rates, and whilst volatility in the Company’s performance over short time periods is uncomfortable, the focus is always on longer term performance.
Despite our good NAV performance, the share price of the Company has continued to trade at a discount to NAV, and this discount widened during the first half of 2023; at 30 June 2023 the discount was 11.1%. The issue of discounts is common across the investment trust sector and at 30 June 2023 the Association of Investment Companies reported discounts of some 14% across global investment trusts and 16% across global smaller company strategies. The Board’s approach to the management of the discount is set out below.
Capital and Share Buy Backs
The Company was floated on the Premium Segment of the London Stock Exchange on 19 October 2018. The Company’s shares traded at a premium for almost all of the period from inception through to the end of the first quarter of 2022. Since that time the Company’s shares have traded at a discount to net asset value.
Although the Board commenced a programme of regular market purchases in April 2022, this has not as yet had any sustained impact on reducing the discount. This is perhaps not altogether surprising, as there has long been debate as to whether and to what extent buyback programmes are capable of shifting the demand/supply balance decisively; as ever, the most important factor in reducing a discount over the longer term will be a sustained period of good investment performance. However, share buybacks undoubtedly provide NAV accretion and can have a positive effect upon share price volatility and market spreads, factors which are significant for shareholders and potential investors. The Board will therefore continue to make regular market purchases while the shares trade at a significant discount. All shares purchased are held in Treasury and will only be reissued at a premium.
Over the period since this programme commenced up until 21 July 2023 being the latest practicable time before the publication of this Interim Report, we have bought back 11,310,000 shares, representing 6.4% of the issued share capital before the buy-back programme commenced, at a total cost including expenses of approximately £152.4 million. The average discount to NAV on the buy-backs was approximately 9.0%.
Results and Dividends
The Company’s total return after tax for the half year of £274 million comprised a capital gain of £269 million and a revenue return of £5 million. The income the Company receives from its investments tends to be higher in the first half of the year than in the second half, whereas its expenses are more evenly split between the half years, and it is expected that the full year revenue return will be lower than in the first half and may even be negative.
The Company’s objective is to focus on capital growth and its accounting policies are not designed to facilitate maximisation of revenue reserves and dividend payments. Consistent with previous interim periods a dividend is not proposed by the Board.
There is no current intention to change the Company’s approach. It should not be expected that the Company will pay a significant annual dividend, and it is likely that no interim dividends will be declared. The Board intends to declare such annual dividends as are necessary to maintain the Company’s UK investment trust status.
AGM and Shareholder Engagement
The Company held its Annual General Meeting on 27 April 2023. It was good to see so many shareholders attend in person and to hear directly from Simon Barnard, our portfolio manager, and his team. Simon’s presentation is available on the Company’s website.
The resolution proposing my re-election as a director of the Company received 76% of the votes cast in favour, with all the other resolutions receiving over 90% of the votes cast in favour. As announced with the AGM results, the lower level of voting in favour of my re-appointment was due to one large shareholder’s concerns about the Company’s diversity policy and we accordingly announced that we intended to consult shareholders on this subject.
As Listing Rule requirements on Board diversity disclosures in annual reports concerning ethnic minority director appointments had not yet come into effect, in common with many companies, our diversity policy set out in our 2022 Annual Report was not explicit on the subject. To address this issue and to provide comfort that the Board takes its diversity targets seriously, I met with the dissenting shareholder as well as offering meetings to some of our other larger shareholders to explain our approach. I believe that the shareholders consulted now have a better understanding and acceptance of the Board’s diversity policy.
The Board recognises the benefit of having diverse representation reflecting wider society, including ethnic minority representation. Whilst further diversity may be achievable in future board appointments, it is pleasing that there is already gender balance, with the Board currently comprising two women and two men.
Outlook
Economic factors such as inflation, interest rates and growth are hard to predict accurately. Our Investment Manager does not attempt to forecast future macro-economic conditions and focuses instead on identifying good companies with robust business models that will be able to thrive throughout market cycles. The Board believes that the patient investor will be well rewarded.
Diana Dyer Bartlett
Chairman
28 July 2023