The Investment Company plc
Half Year Report for the six months ended 31 December 2022
The Investment Company plc (the “Company”) is pleased to announce its unaudited results for the six months ended 31 December 2022
Summary of Results
| At 31 December 2022(unaudited) | At 30 June 2022 (unaudited) | Change % | |
| Equity Shareholders’ funds (£) | 16,932,578 | 16,048,191 | 5.51 |
| Number of ordinary shares in issue | 4,772,049 | 4,772,049 | – |
| Net asset value (“NAV”) per ordinary share | 354.83p | 336.30p | 5.51 |
| Ordinary share price (mid) | 276.00p | 294.00p | (6.12) |
| Discount to NAV | 22.22% | 12.58% | (9.64) |
| 6 months to 31 December 2022(unaudited) | 6 months to 31 December2021(unaudited) | ||
| Total return per ordinary share * | 18.53p | 8.07p | |
| Dividends paid per ordinary share | nil | nil | |
* 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.
Chairman’s Statement
Dear fellow shareholders,
During the six-months ended 31 December 2022, the Company’s net assets increased from 336.3 pence per share to 354.8 pence per share, an increase of 18.5 pence per share or 5.5%. In the same period our share price fell by 18 pence, a decline of 6.1%, to end the year at a mid-price of 276 pence per share and a 22.2% discount to net asset value. Although we had a total return of £884,000 in the half year, this arises from capital gains rather than income and the Directors do not propose to pay an interim dividend.
On 4 November 2020 Shareholders approved a new investment objective to protect the purchasing power of our capital in real terms. Since then, the UK CPIH has increased by 14.8% and our net asset value per share, inclusive of dividends paid, increased by 16.0%. Even though the CPIH and related metrics provide an inaccurate and one-dimensional view of how inflation threatens our savings, we must measure our results somehow and consider our results with this broad view in mind. Two years is too short a time to evaluate the results of our approach, but it is ample time to consider whether the means we have employed are suitable for our objective.
Avoiding unwanted risks ensures neither prosperity or success, but there is no better way to protect ourselves from the unforeseen and the unknowable. In times of transition and upheaval, the risks we don’t take will matter just as much as those we choose to embrace. With this in mind, we said goodbye in 2020 to our portfolio of preference shares, fixed-income securities and other income-oriented investments and sought to place our capital alongside business owners whose companies have a real and enduring demand for their products. These are businesses who earn an honest profit, keep clean accounts, prudent balance sheets, and a demonstrate a commitment – shown through years of good behaviour – to avoiding the kinds of risks that might put them out of business. What we didn’t deploy was kept in the form of gold bullion. Being distrustful of financial products, and wary of cash in a world of negative rates and reckless money printing, we stuck to businesses we understand and the only kind of reserve asset that protects us from financial risks. Our gold holdings remain unconventional, but we think gold’s 8.7% return in Sterling over the two-year period to 31 December 2022 has been adequate in light of the proliferation of risks.
Our objective and approach do not preclude more opportunistic investments, and there have been a few, but the way we protect the value of our savings is by participating in the long-term success and occasional setbacks of businesses which themselves are built to survive. Anything more than this – by trading around market sentiment, buying whatever ‘grows’ the fastest, or speculating on the next rate hike – may earn you a good return, but is fundamentally different from protecting your capital. So we did not participate in the speculative boom of 2021, but neither did we suffer it’s deflation in 2022. We did not forecast today’s decades-high inflation, and we make no forecasts for 2023 either. If we were prepared for rising prices and higher interest rates, that was because our approach drives us to the kinds of businesses and assets who are not easily threatened by poor financial conditions.
Investments
On 31 December 2022 we had 64.3% of net assets invested in 16 businesses operating in 13 different industries across Europe, North America, and beyond. A further 27.4% was invested in gold bullion held through three ETFs – the equivalent of about 96 one-kilo bars – and we held 8.3% in cash and other net current assets. During the half year we sold in aggregate shares worth £1.8 million realising a loss of £30,000 (-2%), and we purchased shares worth £0.9 million. There were no changes to our gold holdings during the half year.
During the half we sold most of our shares in British American Tobacco. We held the shares because we liked the pricing power inherent to the business, we thought they were mispriced, and the shares offered a material source of income in a time when there was little to be found. Rising interest rates – and the company’s commitment to straining the balance sheet by pursuing share buybacks – have amplified these balance sheet risks beyond what we are willing to bear. Rising rates also create other opportunities to generate income without needing to take these kinds of risks.
The volatility and weakness of gold mining shares has been a disappointment to some, but a continued source of opportunism for us. During the half we sold all of our shares in Franco Nevada and used the proceeds to start a new position in Agnico-Eagle Mines, a Canadian gold miner whose portfolio includes many of Canada’s largest and most profitable gold mines.
We also sold all our remaining shares in Strix and Kri Kri, and we added to Bakkafrost, Robertet and two of our Greek holdings. You can find a full list of holdings as at 31 December 2022 below.
We continue to hold our Lukoil shares at nil value as our ability to realise any value has become increasingly remote.
Income and expenses
Total income (which excludes realised and unrealised capital gains) for the first six months came to £104,000, while expenses and related taxes totalled £214,000. There were no extraordinary expenses in the period, and we believe current expenses are indicative of ongoing expenses for the Group. The increase in interest rates on cash and short-term securities over the past twelve months has made the prospect of interest income appreciable. Even at our small size, we expect investment income to largely – but not completely – offset expenses for the full year.
Outlook
The threats to our capital are more visible now than they were in 2020, as are the challenges of trying to excel as a small investment trust. We are also conscious of the illiquid nature of the Company’s shares and the resulting challenges our Shareholders face in realising the true value of their holdings in the market. The Board is therefore actively considering credible opportunities to grow and increase the liquidity of the Company while also providing an immediate complete liquidity option for all Shareholders who wish to realise their shareholding.
Whilst such growth opportunities are currently being explored there can be no certainty that a proposal will be forthcoming that the Directors can recommend to Shareholders. Therefore, if the Board is not able to recommend an alternative proposal to Shareholders at or before the 2023 Annual General Meeting, expected to be held in October 2023, it is the Directors’ current intention to propose that the Company be wound up and its capital returned to Shareholders.
I.R. Dighé
Chairman
17 February 2023
Enquiries
| The Investment Company plc Ian Dighé, Chairman | +44 (0) 20 3934 6630 info@theinvestmentcompanyplc.co.uk |
| Singer Capital Markets – Corporate Broker | +44 (0)20 7496 3000 |
| James Moat / Alex Emslie | |
| ISCA Administration Services LimitedCompany Secretary | +44 (0) 1392 487056 |