TIDMSSON
RNS Number : 6181H
Smithson Investment Trust PLC
31 July 2023
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79 Date: 31 July 2023
INTERIM RESULTS ANNOUNCEMENT
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
31 December
30 June 2023 30 June 2022 2022
Net assets GBP2,622,930,000 GBP2,361,331,000 GBP2,417,967,000
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 NAV(1) (11.1)% (11.5)% (7.3)%
------------------------- ---------------- ---------------- ----------------
For the period
from
Company's listing
on
19 October 2018
Six months ended Six months ended to
30 June 2023 30 June 2022 30 June 2023
% Change(2) % Change(2) % Change(2)
NAV total return per
share(1) +11.7% -31.7% +57.5%
Share price total return(1) +7.0% -41.3% +40.0%
Benchmark total return(3) +1.9% -13.7% +37.5%
Ongoing charges ratio(1) 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, GBPNet 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 GBP152.4 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 GBP274
million comprised a capital gain of GBP269 million and a revenue
return of GBP5 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
Investment Manager's Review
Dear Fellow Shareholder,
The performance of Smithson Investment Trust ("Smithson"), along
with comparators, is laid out below. For the first half of 2023 the
Net Asset Value per share ("NAV") of the Company increased by 11.7%
and the share price was up 7%. Over the same period, the MSCI World
Small and Mid Cap Index ("MSCI World SMID"), our reference index,
increased by 1.9%. We also provide the performance of UK bonds and
cash for comparison.
Launch
to 30.06.23
--------------------- ----------------------
Total Return(5)
01.01.23
to 30.06.23 Cumulative Annualised
% % %
--------------------- --------------- ---------- ----------
Smithson NAV(1) +11.7 +57.5 +10.2
Smithson Share Price +7.0 +40.0 +7.4
Small and Midcap
Equities(2) +1.9 +37.5 +7.0
UK Bonds(3) -3.4 -13.0 -2.9
Cash(4) +2.0 +4.8 +1.0
--------------------- --------------- ---------- ----------
(1) Source: Bloomberg, starting NAV 1000.
(2) MSCI World SMID Cap Index, GBP Net source: www.msci.com.
(3) Bloomberg/Barclays Bond Indices UK Govt 5-10 yr, source:
Bloomberg.
(4) Month GBP LIBOR Interest Rate source: Bloomberg.
(5) Alternative Performance Measure (see pages 23 to 24 of the
Interim Report).
The performance during this half year is more satisfactory than
last year, being 9.8% ahead of the reference index. In fact, from
the lows of June 2022, the overall performance of the fund is much
improved over the last 12 months, with the NAV increasing by 24%
and the share price by 22% since that point.
To provide some context to this performance, and as detailed at
some length in the last two management reports, the primary
macroeconomic pressures on fund performance from early 2022 were
the market's increasing interest rate expectations and fears of
recession.
Clearly, a lot happened over the following 18 months, with
persistent core inflation (which excludes more volatile elements
such as food and energy prices) prompting the Fed to increase US
interest rates from 25bps at the start of 2022 to 5.25% at the time
of writing, the fastest rate of increases for over 40 years. The
Bank of England has raised rates at a similar pace, from 25bps at
the end of 2021 to 5% currently, while the European Central Bank is
only lagging a little behind, with a 4% interest rate presently.
However, what is much more important to us as investors is where
rates are going next, and it is very likely that we are much nearer
the end of the rate hiking cycle than the beginning.
This matters, because the downward pressure being applied to the
valuation multiples of our faster growing, high quality companies
due to the market's expectation of rising interest rates, has
started to ease over the last few months. This is helped by the
possibility that we can even, dare we say, look ahead to interest
rate cuts next year. The share prices of many of our companies have
begun to recover, with some of the best performing shares this year
being those which were the worst affected last year.
The subject of recession is a slightly different story. As
labour market, services and consumer data has remained robust in
several regions, particularly the US, market expectations regarding
recession have waxed and waned. People have tended to become more
fearful as inflation appeared more stubborn than expected, causing
central banks to further increase interest rates and leading many
to the conclusion that this will continue until the economy falls
into recession. This was also in combination with the short-lived
regional banking crisis in the US which simply served to cause
greater market anxiety.
But then, as data on consumer spending and employment showed the
ongoing ability and willingness for people to keep spending,
potentially thanks to pandemic era savings (which will eventually
run out), the market periodically became less concerned about an
imminent, or at least a deep, recession. I would characterise the
market sell-offs during last October and March as the result of
growing recessionary fears, while rallies in November, January and
June indicated the market was becoming more sanguine on the
issue.
While a recession does appear likely in our view because most
interest rate increases already enacted have yet to impact the
economy (they tend to operate with an 18 month lag), we don't know
for sure, and it could well be of the short and shallow variety.
But in any case, our high-quality companies should fare reasonably
well because they are not particularly cyclical and have strong
balance sheets and competitive positions. This also means that
there is the potential for them to actually appear more attractive
during a recession compared to other companies in the index.
To summarise, I would be very surprised if I had suggested to
you a year ago that over the next 12 months inflation would prove
so stubborn that central bank interest rate rises would be the
fastest in decades, that recession would be continually on the
horizon and that we'd live through another banking crisis, and you
guessed that our portfolio would be up 24% during the course of
these events. Because I wouldn't have guessed that either.
All of which serves to illustrate the futility in predicting
macroeconomic events and the market reactions to them. Therefore,
all we will do is continue looking for fantastic small companies
that are trading at attractive valuations and hold on to them as
the macroeconomic entropy swirls around us, eventually assigning
higher valuations to our great businesses as they grow and develop
over time.
The current free cash flow yield of the portfolio is 2.3% and
you would be forgiven for thinking it looks expensive, especially
compared to last year's figure of 3.3%. However, I would caution
that there have been a lot of working capital shifts over the last
12 months, as last year companies built up inventory to protect
against unreliable supply chains, while more recently this is
starting to unwind as lead times return to pre-pandemic norms. This
is illustrated by the fact that last year the average revenue and
earnings for our companies increased while the free cash flow
produced actually fell, although the good news is that cash flow in
the most recent quarter was improving. Also, there are several
companies which, for different reasons, produced little to no cash
flow over the last 12 months due to restructuring or short-term
operational pressures - Sabre, mentioned below, being a prime
example. Adjusting for these handful of companies would take the
free cash flow yield nearer to 3%.
Trading activity was reduced in this period compared to the
changes that were made during the market turmoil last year. This
meant that portfolio turnover adjusted for share buybacks was
13.1%, almost half the 28.1% this time last year. Annualised costs
were also unchanged, with an Ongoing Charge Figure of 0.9% of NAV
(including the annualised Management Fee of 0.9% of market
capitalisation). Costs of dealing, including taxes, amounted to
0.01% of NAV in the period, half of that incurred last year, which
meant that the Total Cost of Investment was 0.91%.
Having added three new companies last year, two of which are
pleasingly in our top six performance contributors this year, we
only made two changes to the portfolio in the first half, and that
was to purchase Graco and Exponent, both US based companies.
Graco - pronounced Gray-co after the founding Gray brothers -
designs, manufactures and markets systems and equipment to move,
control and dispense fluid and powdered materials. Founded in 1926,
it is the market leader in technology for the management of fluids
and coatings in both industrial and commercial applications. Its
products can help customers solve manufacturing problems and
increase productivity and quality, and range from basic paint
sprayers for the DIY market to fully-automated precision fluid
dispense systems used in consumer electronics component production.
We were attracted to the long track record of consistent revenue
growth and stable margins, its net cash balance sheet and very
strong return on invested capital.
Founded in 1967, Exponent is a consulting business which focuses
on highly technical areas across a broad range of disciplines,
often in response to disasters or litigation. For example, they did
investigative work for the Challenger shuttle explosion, the 9/11
World Trade Centre collapse analysis, the Exxon Valdez oil spill,
Samsung's exploding tablets, and the preliminary fire investigation
into the Grenfell tower disaster. It serves a huge array of end
markets, the largest ones are Consumer Products, Energy &
Utilities and Transportation with customers including corporations,
law firms and government entities. Their professionals charge
anywhere from $190 to $900 an hour and many have PhDs in their
respective scientific fields and publish in academic journals.
Around half the business is 'reactive', that is conducting
investigations into historic issues or litigation and the other
half is 'proactive', to help clients improve processes, risk
management and research & development. The company has a long
track record of success with 20 years of revenue growth in the high
single digit percentage but operating profit has compounded
at an annual growth rate of over 12%. It is an asset-light
business, with returns on invested capital, excluding its large
cash balance, in excess of 100%. Finally, we were able to acquire
our position at a reasonable valuation, with the shares still
trading 30% below their peak in 2021, possibly because it is still
only researched by a couple of sell-side analysts.
To discuss specific events which affected the portfolio during
the period, we have set out the top five contributors below:
Country Contribution%
----------- -------------- -------------
Simcorp Denmark 1.9%
Fortinet United States 1.6%
Moncler Italy 1.5%
Nemetschek Germany 1.2%
Temenos Switzerland 1.1%
----------- -------------- -------------
Simcorp was our best performing share in the first half after it
was bid for by Deutsch Börse in April, sending the share price up
38% in one day. While the price offered for the company is not
spectacular, it is reasonably fair in the current environment, and
as there are limited competition and regulatory concerns we suspect
Deutsche Börse will achieve its ambition of a full takeover.
Fortinet performed well, up over 45% during the period, as
corporate cyber security budgets remained healthy, allowing the
company to grow revenue by 32%. This is the fourth time in the past
five quarters in which Fortinet has delivered revenue growth of
more than 30%. Last year it was feared by many that a recession
might squeeze corporate IT budgets, and with it their cybersecurity
budgets. So far however, our simple conclusion that corporate
cyber-attacks will continue to be a persistent and growing threat
(crime goes up during a recession, not down) means cybersecurity
spending has had to continue increasing.
Moncler continued to outperform in the first half as consumer
spending on luxury goods remained resilient in the face of
recessionary fears. The resurgence of luxury demand in China after
the post-Covid re-opening of the country benefited sales, as did
ongoing consumer spending on high-end brands in the US.
Nemetschek is a fast-growing software company and is therefore
one where the valuation fell during the interest rate increases
last year. As the market has looked ahead to the peak of this
interest rate cycle, the pressure on the valuation multiple has
diminished and the share price performed far better this year.
Temenos is another software company which performed poorly last
year, partly because the management team were mishandling the
transition from perpetual software licences to a subscription-based
Software as a Service ("SaaS") model. While we have little
remaining patience regarding this situation, the CEO left the
company at the start of 2023, and so it may be the case that a new
management team could meaningfully improve its performance. We will
be watching closely.
The five largest detractors of performance were:
Country Contribution%
--------------------------- -------------- -------------
Sabre United States -2.3%
Domino's Pizza Enterprises Australia -1.2%
IDEX United States -0.2%
MSCI United States -0.1%
Exponent United States -0.1%
--------------------------- -------------- -------------
Our worst performing company in the first half was Sabre, the
travel technology provider. This is one of the more cyclical
businesses we own, with fewer people tending to travel during
recessions, and is the most likely reason for its underperformance
year to date. It is also an outlier in the portfolio, having taken
on a lot of debt during the pandemic when travel was all but
stopped, increasing its financial gearing to an economic downturn.
However, the travel market continues to improve, with the green
shoots of business travel recovery now also appearing. Sabre also
has a strong, and arguably improving, market position, with the
potential free cash flow it can generate over the next three years
possibly being in excess of its current market capitalisation.
Needless to say, if this comes to pass, the share price will then
be a multiple of where it is today.
The performance of Domino's Pizza Enterprises was also
disappointing in the period. This was precipitated by the fiscal
half year results, released in February, indicating weaker sales
after prices and delivery charges had been increased to offset cost
inflation, with consumer price sensitivity noted in Japan and
Germany particularly. We continue to watch this situation closely
in case we need to take action, but at this point we expect the
issue to resolve itself once inflation abates.
IDEX and Exponent are both new additions to the portfolio and,
as is often the case, underperformed the overall portfolio shortly
after acquisition. This is because we tend to start buying the
shares of new companies when the share price is low or falling due
to certain factors, and so it is very likely that the share price
will continue falling for a period after the buying has been
completed. For IDEX this was concern regarding industrial
cyclicality ahead of a recession, while for Exponent the market was
worried about increasing employee costs.
MSCI, the index provider, declined after a lacklustre earnings
update in April which showed the detrimental effect of poor markets
last year on the fees they levy on overall client assets under
management. As this is a natural effect of the market cycle it
doesn't overly concern us with regards to the long term health of
the company.
We have provided a breakdown of the portfolio in terms of sector
and geography at the end of June 2022 and June 2023 for comparison
below. The median year of foundation of the companies in the
portfolio at the period end was 1971.
30 June 2023 30 June 2022
Sector (%) (%)
----------------------- ------------ ------------
Industrials 33% 19%
Information Technology 32% 44%
Healthcare 14% 13%
Consumer Discretionary 10% 13%
Consumer Staples 4% 4%
Communication Services 3% 3%
Financials 3% 3%
Materials - -
Cash - Uninvested 1% 1%
----------------------- ------------ ------------
Source: Fundsmith
This is a watershed moment in the history of the Smithson
Investment Trust as for the first time, the largest sector
weighting is in Industrials, rather than Information Technology.
This has occurred for a couple of reasons, some down to our
actions, and some not, but none were because of us designing the
portfolio to look this way from the top down. We always construct
the portfolio from the bottom up, acquiring the best companies that
look most attractive at any given time. To start with our own
actions, the sale of Ansys, a US based software company, reduced
the weighting of Information Technology, while the addition of IDEX
and Exponent increased the weighting of Industrials. After
lamenting now for four years that the broad MSCI defined
Information Technology 'bucket' was not representative of the
businesses we own, some constituents were recently changed
(although there had been no lobbying on our part, as we have far
better things to do). As part of this rebalance, Sabre was moved to
Consumer Discretionary while Paycom, the human resources software
and payroll provider, was moved to Industrials.
30 June 2023 30 June 2022
Country of Listing (%) (%)
------------------- ------------ ------------
USA 44% 44%
UK 15% 17%
Italy 10% 9%
Denmark 8% 7%
Switzerland 7% 7%
Germany 6% 5%
Australia 4% 6%
Sweden 3% 2%
New Zealand 2% 2%
Cash 1% 1%
------------------- ------------ ------------
Source: Fundsmith
The movement in geographical weighting over the course of 12
months has been very small, with the addition of Exponent and Graco
offsetting the positions we exited in the US last year. The UK is
down slightly as we have trimmed certain positions in that region
but most of the other changes, such as in Denmark, have been due to
market moves of the underlying share prices.
30 June 2023 30 June 2022
Source of Revenue (%) (%)
----------------------------- ------------ ------------
North America 39% 37%
Europe 37% 38%
Asia Pacific 18% 19%
Eurasia, Middle East, Africa 4% 4%
Latin America 2% 2%
----------------------------- ------------ ------------
Source: Fundsmith. Portfolio weightings as of 30 June 2023 and
30 June 2022
In terms of the location where our companies generate their
sales and earnings, this too has changed little. North America has
regained the number one position after the US acquisitions this
year, with Europe still close behind, and our developed
market-based companies are still generating a small amount of
revenue from emerging markets.
Finally, we would like to thank all shareholders for their
support of Smithson Investment Trust during what has been an
eventful 18 months. While periods of underperformance such as last
year are undesirable and always very uncomfortable, they do tend to
have the silver lining of producing subsequent periods of improved
prospects. We continue to search for exciting opportunities that
this stage of the market cycle often provides, and hope that you
will join us for the journey.
Simon Barnard
Fundsmith LLP
Investment Manager
28 July 2023
Investment Portfolio
Investments held as at 30 June 2023
Country Fair value %
Security of incorporation GBP'000 of investments
--------------------------- ------------------ ---------- ---------------
Fortinet USA 130,220 5.0
Moncler Italy 129,957 5.0
Simcorp Denmark 126,990 4.9
Recordati Italy 122,376 4.7
Verisign USA 113,484 4.3
Fevertree Drinks UK 102,823 3.9
Ambu Denmark 98,799 3.8
Temenos Switzerland 96,334 3.7
Masimo USA 89,443 3.4
Verisk Analytics USA 89,203 3.4
--------------------------- ------------------ ---------- ---------------
Top 10 Investments 1,099,629 42.1
----------------------------------------------- ---------- ---------------
Diploma UK 86,892 3.3
Equifax USA 86,761 3.3
Cognex USA 85,931 3.3
Geberit Switzerland 82,978 3.2
Rightmove UK 80,939 3.1
Graco USA 79,186 3.0
Exponent USA 76,426 2.9
Nemetschek Germany 76,390 2.9
Rational Germany 74,182 2.8
Addtech Sweden 74,001 2.8
--------------------------- ------------------ ---------- ---------------
Top 20 Investments 1,903,315 72.7
----------------------------------------------- ---------- ---------------
MSCI USA 73,850 2.8
Fisher & Paykel Healthcare New Zealand 67,988 2.6
Qualys USA 63,334 2.4
IDEX USA 62,810 2.4
IPG Photonics USA 56,624 2.2
Domino's Pizza Enterprises Australia 56,615 2.2
Rollins USA 55,031 2.1
Sabre USA 53,775 2.1
Spirax-Sarco Engineering UK 53,249 2.0
Halma UK 52,852 2.0
Technology One Australia 49,879 2.0
Paycom Software USA 38,512 1.6
Domino's Pizza Group UK 21,022 0.9
--------------------------- ------------------ ---------- ---------------
Total Investments 2,608,856 100.0
=============================================== ========== ===============
Investment Objective and Policy
Investment Objective
The Company's investment objective is to provide shareholders
with long term growth in value through exposure to a diversified
portfolio of shares issued by listed or traded companies.
Investment Policy
The Company's investment policy is to invest in shares issued by
small and mid-sized listed or traded companies globally with a
market capitalisation (at the time of initial investment) of
between GBP500 million to GBP15 billion. The Company's approach is
to be a long-term investor in its chosen shares. It will not adopt
short-term trading strategies. Accordingly, it will pursue its
investment policy by investing in approximately 25 to 40 companies
as follows:
(a) the Company can invest up to 10 per cent. in value of its
gross assets (as at the time of investment) in shares issued by any
single body;
(b) not more than 20 per cent. in value of its gross assets (as
at the time of investment) can be in deposits held with a single
body. This limit will apply to all uninvested cash (except cash
representing distributable income or credited to a distribution
account that the depositary holds);
(c) not more than 20 per cent. in value of its gross assets (as
at the time of investment) can consist of shares issued by the same
group. When applying the limit set out in (a) this provision would
allow the Company to invest up to 10 per cent. in the shares of two
group member companies (as at the time of investment);
(d) the Company's holdings in any combination of shares or
deposits issued by a single body must not exceed 20 per cent. in
value of its gross assets (as at the time of investment);
(e) the Company must not acquire shares issued by a body
corporate and carrying rights to vote at a general meeting of that
body corporate if the Company has the power to influence
significantly the conduct of business of that body corporate (or
would be able to do so after the acquisition of the shares). The
Company is to be taken to have power to influence significantly if
it exercises or controls the exercise of 20 per cent. or more of
the voting rights of that body corporate; and
(f) the Company must not acquire shares which do not carry a
right to vote on any matter at a general meeting of the body
corporate that issued them and represent more than 10 per cent. of
the shares issued by that body corporate.
The Company may also invest cash held for working capital
purposes and awaiting investment in cash deposits and money market
funds.
For the purposes of the investment policy, certificates
representing certain shares (for example, depositary interests)
will be deemed to be shares.
Hedging Policy
The Company will not use portfolio management techniques such as
interest rate hedging and credit default swaps.
The Company will not use derivatives for purposes of currency
hedging or for any other purpose.
Borrowing Policy
The Company has the power to borrow using short-term banking
facilities to raise funds for short-term liquidity purposes or for
discount management purposes including the purchase of its own
shares, provided that the maximum gearing represented by such
borrowings shall be limited to 15 per cent. of the net asset value
at the time of drawdown of such borrowings. The Company may not
otherwise employ leverage.
Interim Management Report
The Directors are required to provide an Interim Management
Report in accordance with the FCA's Disclosure Guidance and
Transparency Rules. The Directors consider that the Chairman's
Statement and the Investment Manager's Review on pages 5 to 6 and 7
to 10 of the Interim Report respectively, provide details of the
important events which have occurred during the period and their
impact on the condensed set of financial statements. The following
statements on principal risks and uncertainties, related party
transactions and the Directors' responsibility statement below,
together constitute the Interim Management Report for the Company
for the period from 1 January 2023 to 30 June 2023.
Principal Risks and Uncertainties
The Board considers that the principal risks and uncertainties
faced by the Company can be summarised as (i) investment objective
and policy risk, (ii) market risks, (iii) outsourcing risks, (iv)
key individuals' risk and (v) regulatory risks. A detailed
explanation of risks and uncertainties can be found on pages 23 to
25 of the Company's most recent Report and Accounts for the year
ended 31 December 2022. The Board also considers the risks
associated with the macroeconomic backdrop such as uncertainty over
inflation, higher interest rates, possibility of a recession, the
continuing war in Ukraine and secondary impacts from the COVID
pandemic. The Board monitors the potential risks to the Company and
its portfolio and receives regular updates and assurance from the
Investment Manager and other key service providers on operational
resilience and portfolio exposure and impact.
A review of the period and the outlook can be found in the
Chairman's Statement and in the Investment Manager's Review.
Related Party Transactions
The Company's Investment Manager, Fundsmith LLP, is considered a
related party in accordance with the Listing Rules. There have been
no changes to the nature of the Company's related party
transactions since the Company's most recent Report and Accounts
for the period ended 31 December 2022 were released. Details of the
amounts paid to the Company's Investment Manager and the Directors
during the period are detailed in the notes to the financial
statements.
Directors' Responsibility Statement
The Directors confirm to the best of their knowledge that:
-- the Interim Management Report includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7R
(indication of important events during the first six months, their
impact on the condensed set of Financial Statements and a
description of the principal risks and uncertainties for the
remaining six months of the year); and
-- the Interim Financial Statements includes a fair review of
the information required by Disclosure and Transparency Rule 4.2.8R
(disclosure of related party transactions and changes therein).
On behalf of the Board of Directors
Diana Dyer Bartlett
Chairman
28 July 2023
Condensed Statement of Comprehensive Income (Unaudited)
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
=========================== ================================== ==============================
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
Income from
investments
held at fair
value through
profit or
loss 4 21,712 - 21,712 22,285 - 22,285 31,341 - 31,341
Gains/(losses)
on investments
held at fair
value through
profit or
loss 3 - 269,112 269,112 - (1,093,717) (1,093,717) - (970,879) (970,879)
Foreign
exchange
(losses)/gains (136) (227) (363) 76 (940) (864) 147 (399) (252)
Investment
management
fees (10,523) - (10,523) (11,808) - (11,808) (21,998) - (21,998)
Other expenses
and
transaction
costs (769) (139) (908) (847) (553) (1,400) (1,463) (743) (2,206)
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
Profit/(loss)
before tax 10,284 268,746 279,030 9,706 (1,095,210) (1,085,504) 8,027 (972,021) (963,994)
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
Tax (5,375) - (5,375) (2,312) - (2,312) (3,670) - (3,670)
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
Profit/(loss)
for the period 6 4,909 268,746 273,655 7,394 (1,095,210) (1,087,816) 4,357 (972,021) (967,664)
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
Return/(loss)
per share
(basic and
diluted)
(p) 6 2.91 159.09 162.00 4.20 (621.79) (617.59) 2.49 (555.60) (553.11)
=============== ===== ======== ======= ======== ======== =========== =========== ======== ========= =========
The Company does not have any income or expenses which are not
included in the profit for the period.
All of the profit and total comprehensive income for the period
is attributable to the owners of the Company.
The "Total" column of this statement represents the Company's
Income Statement, prepared in accordance with International
Financial Reporting Standards ("IFRS"). The "Revenue" and "Capital"
columns are supplementary to this and are prepared under guidance
published by the Association of Investment Companies ("AIC").
All items in the above statement derive from continuing
operations.
The accompanying notes on pages 18 to 22 of the Interim Report
are an integral part of these financial statements.
Condensed Statement of Financial Position (Unaudited)
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2023 2022 2022
Notes GBP'000 GBP'000 GBP'000
====================================== ===== ========= ========= ===========
Non-current assets
Investments held at fair value
through profit or loss 3 2,608,856 2,350,074 2,393,848
====================================== ===== ========= ========= ===========
Current assets
Receivables 1,011 2,562 3,853
Cash and cash equivalents 21,057 17,750 24,589
====================================== ===== ========= ========= ===========
22,068 20,312 28,442
====================================== ===== ========= ========= ===========
Total assets 2,630,924 2,370,386 2,422,290
====================================== ===== ========= ========= ===========
Current liabilities
Trade and other payables (7,994) (9,055) (4,323)
====================================== ===== ========= ========= ===========
Total assets less current liabilities 2,622,930 2,361,331 2,417,967
====================================== ===== ========= ========= ===========
Equity attributable to equity
shareholders
Share capital 8 1,771 1,771 1,771
Share premium 1,719,487 2,219,487 2,219,487
Capital reserve 903,412 143,685 203,358
Revenue reserve (1,740) (3,612) (6,649)
====================================== ===== ========= ========= ===========
Total equity 2,622,930 2,361,331 2,417,967
====================================== ===== ========= ========= ===========
Net asset value per share (p) 7 1,575.4 1,339.5 1,410.7
====================================== ===== ========= ========= ===========
The accompanying notes on pages 18 to 22 of the Interim Report
are an integral part of these financial statements.
Condensed Statement of Changes in Equity (Unaudited)
For the six months ended 30 June 2023 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ========= =========== ======== ===========
Balance at 1 January 2023 1,771 2,219,487 203,358 (6,649) 2,417,967
Ordinary shares bought back
and held in treasury - - (68,318) - (68,318)
Costs on buybacks - - (374) - (374)
Transfer of share premium - (500,000) 500,000 - -
Profit for the period - - 268,746 4,909 273,655
============================== ======= ========= =========== ======== ===========
Balance at 30 June 2023 1,771 1,719,487 903,412 (1,740) 2,622,930
============================== ======= ========= =========== ======== ===========
For the six months ended 30 June 2022 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ========= =========== ======== ===========
Balance at 1 January 2022 1,717 2,126,997 1,249,362 (11,006) 3,367,070
Issue of new shares 54 93,050 - - 93,104
Costs on new share issues - (560) - - (560)
Ordinary shares bought back
and held in treasury - - (10,430) - (10,430)
Costs on buybacks - - (37) - (37)
(Loss)/profit for the period - - (1,095,210) 7,394 (1,087,816)
============================== ======= ========= =========== ======== ===========
Balance at 30 June 2022 1,771 2,219,487 143,685 (3,612) 2,361,331
============================== ======= ========= =========== ======== ===========
For the year ended 31 December 2022 (Audited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ========= =========== ======== ===========
Balance at 1 January 2022 1,717 2,126,997 1,249,362 (11,006) 3,367,070
Issue of new shares 54 93,050 - - 93,104
Costs on new share issues - (560) - - (560)
Ordinary shares bought back
and held in treasury - - (73,604) - (73,604)
Costs on buybacks - - (379) - (379)
(Loss)/profit for the year - - (972,021) 4,357 (967,664)
============================== ======= ========= =========== ======== ===========
Balance at 31 December 2022 1,771 2,219,487 203,358 (6,649) 2,417,967
============================== ======= ========= =========== ======== ===========
The accompanying notes on pages 18 to 22 of the Interim Report
are an integral part of these financial statements.
Condensed Statement of Cash Flows (Unaudited)
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Notes GBP'000 GBP'000 GBP'000
==================================== ===== ========== =========== ===========
Operating activities
Profit/(loss) before tax 279,030 (1,085,504) (963,994)
Adjustments for:
(Gain)/loss on investments held
at fair value through profit or
loss 3 (269,112) 1,093,717 970,879
(Increase)/decrease in receivables (516) (430) 25
Increase/(decrease) in payables 176 5,198 (1,175)
Overseas taxation paid (3,564) (3,240) (4,584)
==================================== ===== ========== =========== ===========
Net cash generated by operating
activities 6,014 9,471 1,151
==================================== ===== ========== =========== ===========
Investing activities
Purchase of investments 3 (176,626) (479,693) (651,473)
Sale of investments 3 232,983 372,787 624,269
==================================== ===== ========== =========== ===========
Net cash generated by/(used in)
investing activities 56,357 (106,906) (27,204)
==================================== ===== ========== =========== ===========
Financing activities
Proceeds from issue of new shares - 93,104 93,104
Issue costs relating to new shares - (560) (560)
Purchase of shares held in treasury (65,531) (9,673) (73,604)
Costs relating to buy backs (372) (37) (379)
==================================== ===== ========== =========== ===========
Net cash (used in)/generated from
financing activities (65,903) 82,834 18,561
==================================== ===== ========== =========== ===========
Net decrease in cash and cash
equivalents (3,532) (14,331) (7,492)
Cash and cash equivalents at start
of the period/year 24,589 32,081 32,081
==================================== ===== ========== =========== ===========
Cash and cash equivalents at end
of the period/year 21,057 17,750 24,589
==================================== ===== ========== =========== ===========
Comprised of:
Cash at bank 21,057 17,750 24,589
==================================== ===== ========== =========== ===========
The accompanying notes on pages 18 to 22 of the Interim Report
are an integral part of these financial statements.
Notes to the Condensed Financial Statements (Unaudited)
1. General information
Smithson Investment Trust plc is a company incorporated on 14
August 2018 in the United Kingdom under the Companies Act 2006.
The condensed interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting and the
Disclosure Guidance and Transparency Rules ("DTRs") of the UK's
Listing Authority.
Principal activity
The principal activity of the Company is that of an investment
company within the meaning of Section 833 of the Companies Act
2006.
The Company commenced activities on admission to the London
Stock Exchange on 19 October 2018.
Going concern
The Directors have adopted the going concern basis in preparing
the Condensed Interim Financial Statements (unaudited) for the
period ended 30 June 2023. The following is a summary of the
Directors' assessment of the going concern status of the Company,
which included consideration of macroeconomic conditions such as
uncertainty over inflation, higher interest rates, a possible
recession and the continuing war in Ukraine.
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least twelve months from the date of this report. In reaching this
conclusion, the Directors have considered the liquidity of the
Company's portfolio of investments as well as its cash position,
income and expense flows. At the date of approval of this report,
the Company has substantial operating expenses cover and a suitably
liquid portfolio with which to continue share buybacks.
2. Significant accounting policies
The Company's accounting policies are set out below:
Accounting convention
The financial statements have been prepared under the historical
cost convention (modified to include investments at fair value
through profit or loss) on a going concern basis and in accordance
with UK adopted international accounting standards in conformity
with the requirements of the Companies Act 2006 and IFRSs as issued
by the International Accounting Standards Board ("IASB") and with
the Statement of Recommended Practice ("SORP") 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' issued by the Association of Investment Companies ("AIC")
in November 2014 (and updated in July 2022). They have also been
prepared on the assumption that approval as an investment trust
will continue to be granted.
The Directors believe that it is appropriate to continue to
adopt the going concern basis for preparing the financial
statements for the reasons stated above. The Company is a UK listed
company with a predominantly UK shareholder base. The results and
the financial position of the Company are expressed in sterling,
which is the functional and presentational currency of the Company.
The accounting policies in this Interim Report are consistent with
those applied in the Annual Report for the year ended 31 December
2022 and have been disclosed consistently and in line with
Companies Act 2006.
Critical accounting judgements and sources of estimation
uncertainty
The Board confirms that no significant accounting judgements or
estimates have been applied to the financial statements and
therefore there is not a significant risk of a material adjustment
to the carrying amounts of assets and liabilities.
3. Investments held at fair value through profit or loss
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- ----------- -----------
Opening book cost 2,353,438 2,162,638 2,162,638
Opening investment holding gains 40,410 1,176,512 1,176,512
--------------------------------------------- ---------- ----------- -----------
Opening fair value at start of the
period/year 2,393,848 3,339,150 3,339,150
Purchases at cost 177,331 477,428 651,607
Sales - proceeds (231,435) (372,787) (626,030)
Gains/(losses) on investments 269,112 (1,093,717) (970,879)
--------------------------------------------- ---------- ----------- -----------
Closing fair value at end of the period/year 2,608,856 2,350,074 2,393,848
--------------------------------------------- ---------- ----------- -----------
Closing book cost at end of the period/year 2,326,975 2,378,594 2,353,438
Closing unrealised gain/(loss) at end
of the period/year 281,881 (28,520) 40,410
--------------------------------------------- ---------- ----------- -----------
Valuation at end of the period/year 2,608,856 2,350,074 2,393,848
--------------------------------------------- ---------- ----------- -----------
The Company received GBP231,435,000 excluding transaction costs
from investments sold in the period (30 June 2022: GBP372,787,000,
31 December 2022: GBP626,030,000). The book cost of the investments
when they were purchased was GBP203,933,000 (30 June 2022:
GBP262,025,000, 31 December 2022: GBP461,550,000). These
investments have been revalued over time until they were sold and
unrealised gains/losses were included in the fair value of the
investments.
All investments are listed.
4. Dividend income
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- -----------
UK dividends 4,106 4,077 6,603
UK dividends - special - 3,324 3,324
Overseas dividends 15,785 11,451 16,921
Overseas dividends - special 1,529 3,432 4,437
Bank interest 292 1 56
----------------------------- ---------- ---------- -----------
Total 21,712 22,285 31,341
----------------------------- ---------- ---------- -----------
5. Return/(loss) per share
Return per ordinary share is as follows:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
-------------- ------- ------- ------- ------- ----------- ----------- ------- --------- ---------
Profit/(loss)
for the
period/year
(GBP'000) 4,909 268,746 273,655 7,394 (1,095,210) (1,087,816) 4,357 (972,021) (967,664)
Return/(loss)
per ordinary
share (p) 2.91 159.09 162.00 4.20 (621.79) (617.59) 2.49 (555.60) (553.11)
-------------- ------- ------- ------- ------- ----------- ----------- ------- --------- ---------
Return per share is calculated based on returns for the period
and the weighted average number of 168,930,514 shares in issue
(excluding treasury shares) in the six months ended 30 June 2023
(30 June 2022: 176,138,114; 31 December 2022: 174,950,862).
6. Net asset value per share
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
-------------------------- ---------------- ---------------- ----------------
Net asset value GBP2,622,930,000 GBP2,361,331,000 GBP2,417,967,000
Shares in issue 166,497,958 176,289,958 171,407,958
-------------------------- ---------------- ---------------- ----------------
Net asset value per share 1,575.4p 1,339.5p 1,410.7
-------------------------- ---------------- ---------------- ----------------
7. Share capital
Unaudited
30 June 2023
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully
paid (ordinary) Number Number Number GBP'000
---------------------------- ----------- ---------- ----------- -------
Ordinary shares in issue at
1 January 171,407,958 5,700,000 177,107,958 1,771
Ordinary shares bought back
and held in treasury (4,910,000) 4,910,000 - -
---------------------------- ----------- ---------- ----------- -------
166,497,958 10,610,000 177,107,958 1,771
---------------------------- ----------- ---------- ----------- -------
Unaudited
30 June 2022
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully
paid (ordinary) Number Number Number GBP'000
---------------------------- ----------- -------- ----------- -------
Ordinary shares in issue at
1 January 171,697,958 - 171,697,958 1,717
Ordinary shares issued 5,410,000 - 5,410,000 54
Ordinary shares bought back
and held in treasury (818,000) 818,000 - -
---------------------------- ----------- -------- ----------- -------
176,289,958 818,000 177,107,958 1,771
---------------------------- ----------- -------- ----------- -------
Audited
31 December 2022
Ordinary Treasury Total Nominal
Shares Shares Shares Value
Issued, allotted and fully
paid (ordinary) Number Number Number GBP'000
---------------------------- ----------- --------- ----------- -------
Ordinary shares in issue at
1 January 171,697,958 - 171,697,958 1,717
Ordinary shares issued 5,410,000 - 5,410,000 54
Ordinary shares bought back
and held in treasury (5,700,000) 5,700,000 - -
---------------------------- ----------- --------- ----------- -------
171,407,958 5,700,000 177,107,958 1,771
---------------------------- ----------- --------- ----------- -------
During the six months ended 30 June 2023, the Company issued no
ordinary shares of GBP0.01 each (30 June 2022: 5,410,000, 31
December 2022: 5,410,00) for a net consideration of GBPnil (30 June
2022: GBP92,544,000 31 December 2021: GBP92,544,000).
During the six months ended 30 June 2023, the Company bought
back to hold in treasury 4,910,000 shares (30 June 2022: 818,000,
31 December 2022: 5,700,000) at a total cost of GBP68,692,000 (30
June 2022: GBP10,467,000, 31 December 2022: GBP73,983,000). At the
period end, the Company held 10,610,000 (30 June 2022; 818,000, 31
December 2021: 5,700,000) shares in treasury.
Since 30 June 2023 and up to 21 July 2023, a further 700,000
ordinary shares have been bought back to hold in treasury at a
total cost of GBP9.7 million.
8. Related party transactions
Fees payable to the Investment Manager are shown in the
Condensed Statement of Comprehensive Income. As at 30 June 2023 the
fee outstanding to the Investment Manager was GBP1,673,000 (30 June
2022: GBP7,487,000, 31 December 2022: GBP1,659,000).
Fees are payable to the Directors at an annual rate of GBP30,000
for Board members, with an additional fee payable per annum of
GBP15,000 to the Chair of the Board, GBP10,000 to the Chair of the
Audit Committee and GBP5,000 to the Chair of the Management
Engagement Committee.
The Directors had the following shareholdings in the
Company.
As at As at As at
30 June 30 June 31 December
Director 2023 2022 2022
----------------------- ------- ------- -----------
Diana Dyer Bartlett 8,886 8,886 8,886
Lord St John of Bletso 10,000 10,000 10,000
Jeremy Attard-Manche - - -
Denise Hadgill 1,111 - 1,111
----------------------- ------- ------- -----------
As at 30 June 2023, Terry Smith and other founder partners and
key employees of the Investment Manager directly or indirectly and
in aggregate, held 1.8% of the issued share capital of the Company
(30 June 2022: 1.7%, 31 December 2022: 1.7%).
9. Events after the reporting period
There were no post-period events requiring disclosure other than
those included in these interim financial statements.
10. Status of this report
These interim financial statements are not the Company's
statutory accounts for the purposes of section 434 of the Companies
Act 2006. They are unaudited. The unaudited Interim Report will be
made available to the public at the registered office of the
Company. The report will also be available in electronic format on
the Company's website, http://www.smithson.co.uk.
The financial information for the year ended 31 December 2022
has been extracted from the statutory accounts which have been
filed with the Registrar of Companies. The auditors' report on
those accounts was not qualified and did not contain statements
under sections 498 (2) or (3) of the Companies Act 2006.
The Interim Report was approved by the Board of Directors on 28
July 2023.
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
For further information please contact Company Secretary at:
Tel: 020 3327 9720
Email: smithsoncosecmailbox@apexfs.group
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END
IR FLFESDIITFIV
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July 31, 2023 02:00 ET (06:00 GMT)
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