The Investment Company plc
Half Year Report Announcement (Unaudited) for the six months ended 31 December 2021
Summary of Results
|
At 31 December 2021 (unaudited) |
At 30 June 2021 (audited) |
Change % |
|
|
Equity Shareholders' funds (£) |
16,666,708 |
16,281,804 |
2.36 |
|
Number of ordinary shares in issue |
4,772,049 |
4,772,049 |
– |
|
Net asset value (“NAV”) per ordinary share |
349.26p |
341.19p |
2.36 |
|
Ordinary share price (mid) |
308.00p |
309.00p |
(0.32) |
|
Discount to NAV |
11.81% |
9.43% |
(2.38) |
|
6 months to 31 December 2021 (unaudited) |
Year ended 30 June 2021 (audited) |
||
|
Total return per ordinary share * |
8.07p |
(29.08)p |
|
|
Dividends paid per ordinary share |
nil |
3.00 p |
|
* The total return per ordinary share is based on total income after taxation as detailed in the Condensed consolidated income statement and in note 3.
Investment Objective
At the Annual General Meeting on 4 November 2020, Shareholders voted to amend the Company's Investment Objective and Policy to that shown below.
The Company's investment objective is to protect the purchasing power of its capital in real terms, and to participate in enduring economic activities which lend themselves to genuine capital accumulation and wealth creation.
Investment Policy
The Company will seek to acquire and hold, with no predetermined investment time horizon, a collection of assets which, in the Directors' judgement, are well-suited to the avoidance of a permanent loss of capital. These assets will be comprised of minority participations in the equity, debt or convertible securities of quoted businesses which the Directors believe are led by responsible and like-minded managers and suitable for the long-term compounding of earnings. In addition, to protect its capital as well as to maintain liquidity for future investments, the Company will keep reserves in (a) liquid debt instruments such as cash in banks or securities issued by governments and/or (b) liquid, non-debt, tangible assets such as gold bullion, whether held indirectly or in physical form.
The Company has no predetermined maximum or minimum levels of exposure to asset classes, currencies or geographies, and has the ability to invest globally. These exposures will be monitored by the Board in order to ensure an adequate spreading of risks. No holding in an individual company or debt instrument will represent more than 15 per cent. by value of the Company's total assets at the time of acquisition (such restriction does not, however, apply to gold bullion or cash balances). The Company's holdings of gold bullion may be as high as 35 per cent. of total assets at the time of investment.
Given the Company's investment objective, asset mix and time horizon, the portfolio will not seek to track any benchmark or index. The Company will not invest more than 10 per cent. of its total assets in other listed closed-ended investment funds. The Company will not use derivative instruments for speculative purposes, nor will it use currency hedges to manage returns in any currency.
The Company's gearing will not exceed 20 per cent. of net assets at the time of drawdown.
No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.
Chairman's Statement
Dear fellow shareholders,
Results
During the six-month period ended 31 December 2021, the Group's net assets increased by 8.07 pence per share to 349.26 pence per share. This represents a total return of 2.36%. The details of this return are outlined in the table below.
|
6 months to 31 December 2021 |
Year ended 30 June 2021 |
|||
|
Pence per share |
% |
Pence per share |
% |
|
|
Opening net assets |
341.19 |
100.00 |
315.11 |
100.00 |
|
Gain on portfolio valuations |
8.62 |
2.53 |
27.57 |
8.75 |
|
Investment income |
3.12 |
0.91 |
14.75 |
4.68 |
|
Expenses |
(3.67) |
(1.08) |
(13.24) |
(4.20) |
|
Dividends paid |
– |
– |
(3.00) |
(0.95) |
|
Closing net assets |
349.26 |
2.36 |
341.19 |
8.28 |
Equity Participations
During the half year we sold in aggregate shares worth £1.7 million realising a gain of £0.4 million (+28%), and we purchased shares worth £2.6 million. This increased our equity participations from 66.7% to 72.1% of net assets. We are looking forward to further opportunities to add to our existing holdings.
We sold out of three holdings entirely. We sold our small position in Fromageries Bel for a 23% gain because the founding family is taking the business private and delisting the shares. We sold the rest of our Rio Tinto shares for a 14% gain. Our existing interest in oil and precious metals producers is already substantial and having a few firms like this in our collection will go a long way toward preparing us from any inflationary storms ahead, whether transitory or not. We also sold out of Unilever realising a 6% loss. The brand strength and their entrenched position in so many countries remain a wonderful asset, and the shares undervalued, but an undue focus on managing to a sterile ESG mandate and institutional expectations doesn't sit well with us. Whenever our priorities differ from the managers the decision to sell becomes an easy one.
We sold part of our stake in Safilo realising a 95% gain. Despite operating during two difficult years the turnaround under their new CEO has gone exceptionally well. Later in the year, Safilo also conducted a rights offering which eliminated most of their debt burden and enables them to embark on an investment program after a period of downsizing. We also bought shares in the offering on very attractive terms.
We reduced our holding in Strix after a period of substantial price appreciation, realising a 172% gain. Credit goes to our prior investment manager for buying the shares well. Holding great businesses at high prices is not a problem for us – we expect most of our holdings to meet these criteria eventually – but it demands a conviction which for us has to come from a proven capacity to execute within their specialty for many years. The promise of future growth in new product categories, though welcome, is not something our objective places a premium on.
We added four new holdings during the half year: Robertet, the world's pre-eminent producers of all-natural flavours and fragrances; Kri Kri Milk, a premium Greek dairy company specialising in exporting ice cream and yogurt; Crete Plastics, a European producer of masterbatches for plastics manufacturing and specialty agricultural films; and Karelia Tobacco, a family-owned Greek cigarette producer serving markets in Southeast Europe and across the Mediterranean. These are all multi-generational, family-owned businesses with decades of deep experience in relatively narrow markets. They have demonstrated a constant drive to reinvest in new capacities and add to their business strengths, show a history of operating with care and we think they can develop their markets for decades to come. Though Robertet is 'a great business at a high price', the other three are smaller companies, completely unknown outside of their local markets and, fortunately for us, priced to reflect their relative obscurity. Though not small in any business sense, these companies are controlled by the founding families and a fairly small group of other real, long-term owners. We count ourselves among them.
For our existing holdings, we continued to add to Cembre, Lucas Bols, Hal Trust and Nedap.
Legacy Assets
We sold out of our three largest legacy fixed income holdings, generating £629k in proceeds and realising a 3% gain. This reduced the legacy holdings down to 0.4% of net assets and marks the end of the transition from the prior portfolio. The fixed 5% to 6% yields on these instruments were once alluring, but in the present inflationary environment they look for our purposes like wasting assets. It's better that the proceeds be invested in business where time is our ally rather than having it count down the erosion of our capital.
Precious Metals
With consumer price inflation finally arriving in the UK our reasons for holding gold are unchanged – they form a liquid reserve that we believe will retain its purchasing power across periods of inflation and monetary disorder. As with our stakes in businesses, the intended time horizon of our holding matters a great deal. Gold is not suitable as a short-term hedge against rising consumer prices, and though one could speculate on its price that is not our reason for holding it. Gold has the curious property that as we extend our gaze further into the future, and as we broaden our understanding of the myriad effects of monetary debasement, the more suitable it appears.
There were no changes to our gold holdings in the period, as new equity purchases were largely offset against the sales of other shares and our remaining legacy assets.
Income and costs
Total income for the first six months came to £162k, while expenses totalled £175k. There were no extraordinary expenses in the period, and we believe current expenses are indicative of ongoing expenses for the Group. At our present size, we expect investment income to largely – but not completely – offset expenses for the full year.
Foreign Exchange
The Group reports its results in Sterling, but as of 31 December 2021 91.0% of our portfolio was invested in companies, securities and reserve assets denominated in other currencies and we expect this to continue in the future. Because of this shift any strengthening or weakening of Sterling against these currencies will now have a direct impact on our financial results in future periods. We will not employ any currency hedging to manage the returns as expressed in Sterling as we believe the exercise would be both costly and counter to our purpose.
Although we have had a total return of some £385k in the half year, this arises from our capital rather than income and the Directors do not propose to pay an interim dividend.
Outlook
The Board welcomes dialogue with our Shareholders who will find details of how to contact us at the Company's website, www.theinvestmentcompanyplc.co.uk.
In these uncertain and volatile times, we believe the Company is well positioned to provide Shareholders with capital preservation and wealth creation over the long-term. Furthermore, we continue to evaluate opportunities to grow the capital base.
I.R. Dighé
Chairman
14 February 2022