TIDMSSON
RNS Number : 5178U
Smithson Investment Trust PLC
02 August 2022
SMITHSON INVESTMENT TRUST PLC
LEI: 52990070BDK2OKX5TH79
INTERIM RESULTS ANNOUNCEMENT
Results for the six months ended 30 June 2022
The full Interim Report for the six months ended 30 June 2022
(the "Interim Report") can be found on the Company's website at
www.smithson.co.uk .
Financial Highlights
Net Asset Value
At At At
31 December
30 June 2022 30 June 2021 2021
Net assets GBP2,361,331,000 GBP2,796,700,000 GBP3,367,070,000
Net asset value ("NAV")
per
ordinary share ("share") 1,339.5p 1,746.6p 1,961.0p
Share price 1,185.0p 1,780.0p 2,020.0p
Share price (discount)/premium
to NAV(1) (11.5)% 1.9% 3.0%
------------------------------- ---------------- ---------------- ----------------
Performance Summary
For the period
from
Company's listing
on
19 October 2018
Six months ended Six months ended to
30 June 2022 30 June 2021 30 June 2022
% Change(2) % Change(2) % Change(2)
NAV total return per
share(1) (31.7)% +5.9% +33.9%
Share price total return(1) (41.3)% +4.1% +18.5%
Benchmark total return (13.7)% +12.4% +27.6%
Ongoing charges ratio(1) 0.9% 1.0% 1.0%
---------------------------- ---------------- ---------------- -----------------
Source: Bloomberg.
This report contains terminology that may be unfamiliar to some
readers. The Glossary section in the Interim Report gives
definitions for frequently used terms.
(1) These are Alternative Performance Measures ("APMs").
Definitions of these and other APMs used in this Interim Report,
together with how these measures have been calculated, are
disclosed in the APM section.
(2) Total returns are stated in GBP sterling.
Chairman's Statement
Introduction
I am pleased to present this Interim Report of Smithson
Investment Trust plc (the "Company") for the six months to 30 June
2022.
This is the first reporting period since 2018 for which the
Company has reported a fall in its net asset value. While this
decline is disappointing, it comes against the backdrop of a steep
decline in markets across the globe. In addition, the Company's
shares have started to trade at a discount to net asset value. The
Company's performance and the Board's efforts to address the
discount are summarised below and the Investment Manager's Review
explains the Company's performance in greater detail.
Performance
The decline in the Company's net asset value (NAV) per share for
the period was 31.7%, underperforming the MSCI World SMID Index by
18 percentage points. Despite this recent underperformance the
Company's annualised NAV per share total return since inception is
+8.2% compared with the +6.8% return from the index with dividends
reinvested.
The Company's shares, which have traded at a premium to its NAV
for the vast majority of the period from launch through to the end
of 2021, have now been trading at a discount for the last four
months. The discount at the end of the period was 11.5%, compared
with the premium of 3.0% at the end of December last year. With the
negative total return on the Company's NAV, the move from a modest
premium to a discount has resulted in the share price total return
for the period of -41.3%. The annualised share price total return
since inception to 30 June 2022 is +4.7%.
Premium/discount control
The Company was floated on the premium list of the London Stock
Exchange ("LSE") on 19 October 2018, breaking the record for the
largest IPO of an investment trust in the history of the LSE with
funds raised exceeding GBP822 million. From inception until March
2022 the Company continuously issued new shares at a premium to NAV
(net of all costs). The Company's shares began the year trading at
a 3% premium to NAV but in the second quarter the shares started
trading at a discount, which widened to over 11% at the end of
June. The average discount across the first half of the year was
3.5%, the first period of a sustained discount since the launch of
the Trust.
In response to the emergence of the discount, the Board, in
consultation with its advisers and the investment manager, has
sought to address the situation through the use of share buybacks.
The Company started to buy back shares at the end of April, and by
the end of June had acquired just under 0.5% of the total shares in
issue. A further 0.5% has since been bought back and at the end of
July, the discount was 6.3%.
The Company intends to continue with its current programme of
regular market purchases whilst the shares trade at a material
discount. All shares purchased are held in Treasury and will only
be reissued at a premium, net of all costs.
Dividends
The Company generated a revenue return in the first half of GBP7
million, thanks to an unusually high level of non-regular dividends
from its investments; this is not expected to be repeated at the
same level in the remainder of the year.
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. In accordance with the
Company's policy, an interim dividend is not proposed by the
Board.
Whilst the position will be kept under review, there is no
current intention to change the dividend policy. 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, but
the Board intends to declare such annual dividends as are necessary
to maintain the Company's UK investment trust status.
Investment approach
In common with all funds managed by Fundsmith, the Company has a
focused strategy of investing in high-quality, listed company
shares, seeking not to overpay for those shares and then holding
them as long-term investments; the Company does not use derivatives
and has no borrowings. The Investment Manager also considers
Environmental, Social and Governance ("ESG") and other
sustainability issues when implementing the Company's investment
strategy.
The composition of the portfolio at 30 June 2022 is shown below,
and the Investment Manager's Review explains the investment
performance and the evolution of the portfolio during the first
half of 2022 in detail.
Investment policy
At the Company's AGM in April, shareholders approved a revision
to the investment policy, which clarifies that the investment
restriction as to market capitalisation range applies at the time
of initial investment in a company and removed the expectation of
the average market capitalisation of investee companies. This
change, which came into effect on 3 May 2022, has had no effect, in
any way, on how the Company's investments are managed.
Governance
I took over as Chair of the Board at the end of February 2022
and Lord St John of Bletso replaced me as Chair of the Audit
Committee. Jeremy Attard-Manche joined the Board on 1 March and is
Chair of the Management Engagement Committee. As part of our
succession planning and to broaden the experience and diversity of
the Board, Denise Hadgill was appointed as a Director of the
Company with effect from 1 June 2022.
Outlook
Since the start of this year the world's stock markets have
experienced significant falls and this period has clearly been a
very challenging one for investors. Higher interest rates, the
spectre of inflation and recession as well as the continuing war in
Ukraine continue to weigh on investor sentiment, particularly in
respect of growth companies. This does, however, also provide
opportunities for investment and shareholders will note that both
the investment manager and I have bought more shares in the Company
in the last few months.
Our investment manager focuses on investing in companies which
it believes can compound in value over many years. Owning high
quality companies capable of sustainable growth is a strategy that
has been shown to work well over the long term, through many
economic cycles, and the Board has confidence that the investment
manager can execute the strategy successfully.
The Company continues to offer investors exposure to some of the
best companies available in the global small and mid-cap sector and
the Board believes that the long-term investor will be well
rewarded.
Diana Dyer Bartlett
Chairman
1 August 2022
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 2022 the
Net Asset Value per share (NAV) of the Company decreased by 31.7%
and the share price declined by 41.3%. Over the same period, the
MSCI World Small and Mid Cap Index ('MSCI World SMID'), our
reference index, declined by 13.7%. We also provide the performance
of UK bonds and cash for comparison.
Launch
to 30.06.22
--------------------- ----------------------
Total Return(5)
01.01.22
to 30.06.2022 Cumulative Annualised
% % %
--------------------- --------------- ---------- ----------
Smithson NAV(1) -31.7 +33.9 +8.2
Smithson Share Price -41.3 +18.5 +4.7
Small and Midcap
Equities(2) -13.7 +27.6 +6.8
UK Bonds(3) -7.1 -1.6 -0.4
Cash(4) +0.3 +1.7 +0.5
--------------------- --------------- ---------- ----------
(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.
This is by far the worst period of performance since the
inception of the Trust and I will therefore discuss it in some
detail. There appear to have been three key factors building upon
each other to cause the poor performance. First came inflation,
then rising interest rate expectations and most latterly, fears of
recession.
Although inflation started to accelerate from a very low level
at the start of 2021, the market was relatively sanguine about this
for some time, owing to commentary from central banks depicting
these initial price rises as 'transitory', brought about by short
term shortages in component, freight and labour supply due to the
effects of the pandemic. Meaningful concerns regarding inflation
didn't start to surface until late last year, when these same
central banks publicly concluded that perhaps inflation might be
more persistent than they initially believed, and will only be
quelled with aggressive monetary tightening. This problem was then
exacerbated by higher energy and food costs; a consequence of the
war in Ukraine.
Around the same time, and for obvious reasons, the market
started to become transfixed on a future economic environment
weighed down by higher interest rates. For illustration, back in
December 2021, the market appeared to be pricing in just two
interest rate increases of 0.25% by the US Federal Reserve in 2022.
By June 2022, not only had we already had the equivalent of six
0.25% raises, but the market was now expecting a further 1.75%
increase before the end of the year. This was a very sharp
adjustment, and it is likely that this movement in future interest
rate expectations did the most damage to market values.
Fears of recession are a natural extension of increasing
interest rate expectations and these concerns have intensified as
the year has gone on. There is now discussion of recession in many
countries including the US, UK, The Eurozone, Japan, Australia and
Canada. The trend of falling long bond yields over the last few
weeks is a likely consequence of this, as is the inversion of the
yield curve, where 2 year bond yields become higher than 10 year
yields, a phenomenon occurring prior to recessions in the past.
These three issues have affected both the market and the
portfolio, but have done so in different ways and to varying
degrees. To our minds, it has been the second point, interest rate
expectations, that has affected the performance of the fund the
most. This is because the high quality, growing companies that we
invest in typically have higher ratings than the rest of the
market, and by the end of 2021, this was particularly true.
As the central banks began discussing rate hikes more
vociferously from the start of this year, and the interest rate
expectations of the market moved rapidly, the value of the future
earnings of our companies, a substantial component of their overall
valuation, became more heavily discounted by the market. Indeed, it
is the change in expectations, rather than official interest rate
hikes, that have done the damage to valuations, the market being a
forward-looking discounting machine.
It therefore stands to reason that the pressure on the ratings
of our companies will be relieved once interest rate expectations
stabilise. This, in turn, likely requires us to observe the peak in
inflation, because once that stops increasing, we can get a sense
for the size and shape of the interest rate cycle that will be
required to tame it. While the actual peak will be determined after
the fact, by a few months of declining inflation data to prove the
case, we can still hope that we are living through the peak of
inflation now.
The reason we are less concerned about the impact of inflation
on the companies in the portfolio is because, as often described,
our companies tend to have high gross margins and low capital
requirements, which mean that they are less susceptible to cost
increases than other companies. They are also in strong competitive
positions, which typically allows them to increase prices to offset
the higher costs, should they choose to do so.
High quality companies should also fare reasonably well during a
recession, particularly if it is mild as is currently being
forecast. In general, our companies are not particularly cyclical
and have strong balance sheets, which means that if anything, they
will appear more attractive during a recession compared to others
in the market.
To illustrate the impact of the issues above, it is useful to
look more closely at how the market has performed year-to-date, as
the recent turmoil has led to wide differences in the performance
of sectors within the market. The table below shows the sector
performance for our reference index, alongside the exposure of the
portfolio to each sector.
Six months to 30 June 2022 Sector Performance
SMITHSON
MSCI W SMID
Sectors (%) WEIGHT (%)
---------------------------------------------- ----------- ----------
Energy +41% -
Utilities +11% -
Consumer Staples -1% 4%
Financials -8% 3%
Materials -9% -
Real Estate -11% -
Communication Services -15% 4%
Industrials -15% 19%
Health Care -16% 14%
Consumer Discretionary -24% 13%
Information Technology -24% 44%
---------------------------------------------- ----------- ----------
As becomes clear from the table, those sectors which have been
the worst performing in the index, namely Information Technology,
Consumer Discretionary, Health Care and Industrials, happen to be
those to which Smithson is most exposed.
We did not set out to engineer this particular exposure, it is
simply a natural consequence of our strategy, seeking high quality
growing companies which generate strong shareholder returns over
the long term, most of which are to be found in these sectors. On
top of this, the only sectors to increase in price during the first
half are Energy and Utilities; commodity and regulated industries
which have little control over their own destiny, and therefore
areas in which we will never invest.
We hope this brings some further explanation, although likely
little comfort, as to why the portfolio is down to the extent that
it is.
What might bring more comfort, is that we remain confident in
the fundamentals of the companies owned in the portfolio. Indeed,
the results they reported in the first quarter were on the whole
strong, with several companies producing revenue growth well above
20%, although of course this is now ancient history. We wait to see
how they will perform in the next recessionary environment, should
it transpire, but we are optimistic that their low cyclicality,
high margins and strong competitive positions will stand them in
good stead.
On top of this, valuations are now more attractive. The free
cash flow yield (the cash generated divided by the market value) of
the portfolio is at 3.3%, having been as low as 2.0% at the end of
2021. To put this into historical perspective, the fund was trading
at a similar level at the end of 2018.
Given the turbulent markets since the start of the year, trading
activity increased significantly, which meant that discretionary
portfolio turnover, excluding the investment of proceeds from new
shares issued, was 28.1% for the period, compared to just 2.3% this
time last year. While we aim to 'do nothing' with our holdings, we
still try to take advantage of low share prices when the market
deigns to offer them.
Annualised costs in the first half were slightly lower, with an
Ongoing Charges Figure of 0.9% compared to 1.0% in the first half
of last year. This reduction arises because the Investment
Manager's fee is based on the Company's market capitalisation
rather than its NAV, and the charge will therefore be lower for a
period during which the Company's shares have traded at a discount.
Costs of dealing, including taxes, amounted to 0.02% of NAV in the
period, close to that incurred last year. This may seem odd given
the elevated discretionary turnover, but the reason for this is
that the overall turnover of the fund, including the investment of
the proceeds from share issuance, was actually similar to last
year.
We bought two new companies in the first half after the decline
in their share prices brought their valuations into attractive
territory. Moncler is an Italian clothing company which designs and
produces high-end branded apparel. It traces its roots back to 1952
and its invention of down filled mountaineering coats, but fell on
harder times in the 1990s before being rejuvenated in the 2000's.
It now produces luxury items across most categories in clothing and
accessories. The company has until recently been expanding by
opening new Moncler branded stores but this changed when it
acquired the Stone Island brand in 2020. Stone Island is another
Italian luxury clothing company which today has a similar profile
to Moncler's in 2000 and why management believe they can greatly
improve and grow the Stone Island brand, much as they have done
over the last 20 years with Moncler.
The second new position is in a Swedish industrial company
called Addtech. Since the inception of the fund, we have
experienced success in owning decentralised industrial
conglomerates such as Halma and Diploma. While the organic growth
of these businesses is acceptable, around the mid-single digit
percent level, it is the consistent, disciplined acquisition of
small, high quality 'bolt-on' companies that allow the groups to
create substantial shareholder value over time. Addtech is another
example of these types of businesses, with a very small head office
directing the allocation of the cash flow that is generated by its
independently managed businesses. Addtech itself has 140
subsidiaries and 3,000 employees grouped into five industrial
business areas including Industrial Process, Energy, Automation,
Components and Power Solutions. Its origins date back to 1906 and
it has had the same business concept for over 100 years. At the
very least, this is one where we can be confident in its direction
over the next decade and beyond.
We also sold one company in the period, a US based boiler and
heater manufacturer called AO Smith. While the company has a very
attractive US business operating in a tight oligopoly, its future
growth opportunities lie in areas with much more aggressive
competition, such as water heaters in China and water purification
in the US and abroad. For this reason, we became less optimistic on
its ability to sustain profitable growth over time and decided to
sell.
To discuss other specific events which affected the portfolio
during the period, we have set out the top five contributors and
five largest detractors of performance below:
Country Contribution%
--------------------- --------------- -------------
Fevertree Drinks United Kingdom -2.8%
Ambu Denmark -2.0%
Nemetschek Germany -1.7%
Domino's Pizza Group United Kingdom -1.6%
Rightmove United Kingdom -1.5%
--------------------- --------------- -------------
It seems appropriate to begin with the detractors and Fevertree
was our worst performing position for a couple of reasons. First,
the inflation they have suffered in logistics (until recently much
of their product was shipped around the world from bottling plants
in the UK and Europe) and packaging including glass and tin, has
compressed the gross margin from over 50% in 2019 to under 40% by
the end of this year. This decline in margin has taken place
because the management decided not to put up prices in the face of
increasing costs, as they wanted to maintain the strong sales
momentum that they are enjoying in markets such as the US. This
leads us to the second issue: the growth the company has seen over
the last two years meant that the company was being rated highly by
the market in relation to the cash flow that was produced last
year. Despite a recent update from the company confirming weaker
margins for this year due to higher costs, we remain holders as we
believe that over time the company can improve the margin and with
continued growth in revenue alongside this, the potential for
future cash generation is substantial.
Ambu's extremely strong growth in medical device sales recorded
during the initial stages of Covid has gradually petered out as the
pandemic subsided. This slowdown coincided with a period of heavy
investment by the company to grow its sales and research teams,
suppressing margins and cash flow, in advance of several product
launches that it is expecting to make in 2022 and beyond. The final
straw as far as the market was concerned came when the Board fired
the CEO for not taking a more gradual path to the corporate
transformation. We have yet to hear from the new CEO, who was
immediately appointed, but have been assured by the Chair of the
supervisory board that the current strategy, which we continue to
support, will remain in place but may be executed less
aggressively.
Change in management was also an issue at Domino's Pizza Group
and Rightmove where the CEOs of both companies resigned during the
period to pursue other opportunities. Having looked very carefully
into both cases, including speaking to the Chairs of the respective
supervisory boards, we are satisfied that there was nothing
untoward about the departures, and that both had personal reasons
for leaving.
Nemetschek is a German technology company selling design
software to architects and construction firms as well as for media
special effects. Despite the company reporting strong results
during the period, the shares likely underperformed due to the high
rating they had attained last year, attributed to the track record
of significant growth over the last few years, and so the valuation
was susceptible to the change in interest rate expectations already
discussed.
Country Contribution%
--------------- -------------- -------------
Rollins United States 0.2%
Qualys United States 0.1%
Addtech Sweden -0.4%
Technology One Australia -0.4%
Fortinet United States -0.4%
--------------- -------------- -------------
Surprisingly perhaps, there were a couple of positions that
contributed positive performance to the fund. One of these was
Rollins, a US pest control company. This is a business with highly
repeatable earnings, given that in some parts of the US where it
operates it is necessary to have frequent visits from pest control
to keep buildings habitable. This leads to much of its revenue
being paid on subscription and thus fairly dependable, which is
almost certainly why the shares performed well in a period of
concerns regarding inflation and recession.
Qualys, the US software company, also managed to eke out a gain,
with further free cash flow growth disclosed in the first quarter
results pleasing the market, as well as operating in an industry -
cyber security - that should still be in high demand whatever
occurs in the economy. Fortinet is in a similar position, as a US
based cyber security provider, allowing it to also make it into the
top five performers of the portfolio.
The position in Addtech benefited relative to the rest of the
portfolio from the fact that we bought it after declines in its
share price at the start of the year. It has also continued making
small acquisitions as the year has progressed, suggesting that the
growth of the company continues unabated, despite the tougher
markets.
Finally, Technology One is a software company based in Australia
that sells management software systems to institutions such as
schools and governments. As these customers tend to be more
insulated from recession, the shares have held up well amid the
growing market concerns.
We have provided a breakdown of the portfolio in terms of sector
and geography at the end of June 2021 and June 2022 for comparison
below. The median year of foundation of the companies in the
portfolio at the period end was 1972.
Sector
30 June 2022 30 June 2021
Sector (%) (%)
----------------------- ------------ ------------
Information Technology 44% 43%
Industrials 19% 22%
Healthcare 13% 9%
Consumer Discretionary 13% 10%
Consumer Staples 4% 4%
Communication Services 3% 5%
Financials 3% 3%
Materials - 2%
Cash - Uninvested 1% 2%
----------------------- ------------ ------------
Source: Fundsmith
The weighting of Information Technology is one percentage point
higher than a year ago which can largely be put down to the
outperformance of the cyber security companies mentioned above,
making up for the relative weakness of the rest of the technology
sector. The Industrials sector was three percentage points lower,
despite the new position in Addtech, as AO Smith was sold from the
portfolio along with trims of other industrial positions.
Healthcare increased meaningfully, by over four percentage points,
as we added to healthcare names such as Recordati, Ambu and Masimo.
Consumer Discretionary decreased, despite adding Moncler as a new
position, partly due to underperformance and partly because we
trimmed companies such as Domino's Pizza Enterprises. The absence
of a position in the Materials sector in 2022 was due to the sale
of Chr. Hansen last year.
30 June 2022 30 June 2021
Country of Listing (%) (%)
------------------- ------------ ------------
USA 44% 47%
UK 17% 21%
Italy 9% 4%
Switzerland 7% 7%
Denmark 7% 6%
Australia 6% 7%
Germany 5% 5%
New Zealand 2% 1%
Sweden 2% -
Cash 1% 2%
------------------- ------------ ------------
Source: Fundsmith
Looking at the geographical split of the portfolio, notable
changes included the US weighting, which decreased due to the sale
of AO Smith and other reductions in position sizes. The UK also
declined in weight as we trimmed positions whilst the boost to
Italy and Sweden was from the purchase of Moncler and Addtech.
The geographic exposure that matters the most, however, is where
the sales of our companies actually come from, as shown below.
30 June 2022 30 June 2021
Source of Revenue (%) (%)
----------------------------- ------------ ------------
Europe 38% 38%
North America 37% 36%
Asia Pacific 19% 19%
Eurasia, Middle East, Africa 4% 4%
Latin America 2% 3%
----------------------------- ------------ ------------
Source: Fundsmith. Portfolio weightings as of 30 June 2022 and
30 June 2021
This demonstrates that the geographical weighting of revenue is
relatively balanced, with similar exposure to North America and
Europe, and with meaningful exposure to Asia Pacific. While
Smithson only invests in companies listed in developed markets,
some of those companies do have revenue coming from emerging
markets, as represented by the 4% from Eurasia, Middle East and
Africa and 2% from Latin America as well as a portion of the Asia
Pacific revenue. As is apparent from the tables, despite the
trading activity and relative performance, very little has changed
in terms of overall geographical exposure.
Finally, we would like to thank all shareholders for their
support of Smithson Investment Trust during this difficult period.
We don't know how long this may last, but we continue undeterred in
investing in high quality, growing businesses, and remain confident
in the fundamentals of the companies in the portfolio. We look
forward to enjoying a better performance when the market once again
appreciates these attractive assets.
Simon Barnard
Fundsmith LLP
Investment Manager
1 August 2022
Investment Portfolio
Investments held as at 30 June 2022
Country of Fair value %
Security incorporation GBP'000 of investments
--------------------------- --------------- ---------- ---------------
Recordati Italy 116,446 5.0
Moncler Italy 109,869 4.7
Temenos Switzerland 108,100 4.6
Sabre USA 102,853 4.4
Fortinet USA 102,074 4.3
Simcorp Denmark 94,993 4.0
Qualys USA 92,421 3.9
Fevertree Drinks UK 90,929 3.9
Verisign USA 88,026 3.7
Rightmove UK 87,931 3.7
--------------------------- --------------- ---------- ---------------
Top 10 Investments 993,642 42.2
-------------------------------------------- ---------- ---------------
Technology One Australia 77,920 3.3
Masimo USA 77,861 3.3
Domino's Pizza Group UK 77,152 3.3
Verisk Analytics USA 71,530 3.0
ANSYS USA 71,409 3.0
Equifax USA 70,577 3.0
Cognex USA 68,262 2.9
MSCI USA 67,910 2.9
Domino's Pizza Enterprises Australia 67,186 2.9
Ambu Denmark 64,861 2.8
--------------------------- --------------- ---------- ---------------
Top 20 Investments 1,708,310 72.6
-------------------------------------------- ---------- ---------------
Nemetschek Germany 63,507 2.7
IPG Photonics USA 62,688 2.7
Diploma UK 59,709 2.5
Fisher & Paykel Healthcare New Zealand 59,274 2.5
Paycom Software USA 56,462 2.4
Rational Germany 56,252 2.4
Geberit Switzerland 52,734 2.2
Rollins USA 51,681 2.2
Wingstop USA 48,632 2.1
Halma UK 46,631 2.0
Addtech Sweden 46,546 2.0
Spirax-Sarco Engineering UK 37,648 1.7
--------------------------- --------------- ---------- ---------------
Total Investments 2,350,074 100.0
-------------------------------------------- ---------- ---------------
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 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
2022 to 30 June 2022.
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 21 to
23 of the Company's most recent Report and Accounts for the year
ended 31 December 2021. This also includes details of the market
and outsourcing risks and economic impact associated with the
COVID-19 pandemic and the war in Ukraine. The Board continues to
monitor the potential risks to the Company and its portfolio posed
by these issues and received regular updates and assurance from the
Investment Manager and other key service providers on operational
resilience and portfolio exposure and impact from the Ukraine
conflict.
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 2021 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 Report 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
1 August 2022
Condensed Statement of Comprehensive Income (Unaudited)
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
---------------------------------- --------------------------- ---------------------------
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 22,285 - 22,285 12,841 - 12,841 21,638 - 21,638
(Losses)/gains
on investments
held at fair
value through
profit or
loss 3 - (1,093,717) (1,093,717) - 155,125 155,125 - 513,312 513,312
Foreign exchange
gains/(losses) 76 (940) (864) (36) (264) (300) (25) (565) (590)
Investment
management
fees (11,808) - (11,808) (11,682) - (11,682) (25,884) - (25,884)
Other expenses
and transaction
costs (847) (553) (1,400) (842) (390) (1,232) (1,583) (639) (2,222)
----------------- ----- -------- ----------- ----------- -------- ------- -------- -------- ------- --------
Profit/(loss)
before tax 9,706 (1,095,210) (1,085,504) 281 154,471 154,752 (5,854) 512,108 506,254
----------------- ----- -------- ----------- ----------- -------- ------- -------- -------- ------- --------
Tax (2,312) - (2,312) (1,246) - (1,246) (2,540) - (2,540)
----------------- ----- -------- ----------- ----------- -------- ------- -------- -------- ------- --------
Profit/(loss)
for the period 5 7,394 (1,095,210) (1,087,816) (965) 154,471 153,506 (8,394) 512,108 503,714
----------------- ----- -------- ----------- ----------- -------- ------- -------- -------- ------- --------
Return/(loss)
per share
(basic and
diluted)
(p) 5 4.20 (621.79) (617.59) (0.63) 101.32 100.69 (5.27) 321.50 316.23
----------------- ----- -------- ----------- ----------- -------- ------- -------- -------- ------- --------
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 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
2022 2021 2021
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ----- --------- --------- -----------
Non-current assets
Investments held at fair value
through profit or loss 3 2,350,074 2,752,110 3,339,150
-------------------------------------- ----- --------- --------- -----------
Current assets
Receivables 2,562 3,296 1,203
Cash and cash equivalents 17,750 45,342 32,081
-------------------------------------- ----- --------- --------- -----------
20,312 48,638 33,284
-------------------------------------- ----- --------- --------- -----------
Total assets 2,370,386 2,800,748 3,372,434
-------------------------------------- ----- --------- --------- -----------
Current liabilities
Trade and other payables (9,055) (4,048) (5,364)
-------------------------------------- ----- --------- --------- -----------
Total assets less current liabilities 2,361,331 2,796,700 3,367,070
-------------------------------------- ----- --------- --------- -----------
Equity attributable to equity
shareholders
Share capital 7 1,771 1,601 1,717
Share premium 2,219,487 1,906,951 2,126,997
Capital reserve 143,685 891,725 1,249,362
Revenue reserve (3,612) (3,577) (11,006)
-------------------------------------- ----- --------- --------- -----------
Total equity 2,361,331 2,796,700 3,367,070
-------------------------------------- ----- --------- --------- -----------
Net asset value per share (p) 6 1,339.5 1,746.6 1,961.0
-------------------------------------- ----- --------- --------- -----------
The accompanying notes are an integral part of these financial
statements.
Condensed Statement of Changes in Equity (Unaudited)
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 on secondary
market 54 93,050 - - 93,104
Costs on new share issues
on secondary market - (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 six months ended 30 June 2021 (Unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------- --------- ----------- -------- -----------
Balance at 1 January 2021 1,414 1,595,894 737,254 (2,612) 2,331,950
Issue of new shares on secondary
market 187 312,818 - - 313,005
Costs on new share issues
on secondary market - (1,761) - - (1,761)
Profit/(loss) for the period - - 154,471 (965) 153,506
--------------------------------- ------- --------- ----------- -------- -----------
Balance at 30 June 2021 1,601 1,906,951 891,725 (3,577) 2,796,700
--------------------------------- ------- --------- ----------- -------- -----------
For the year ended 31 December 2021 (Audited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------- --------- ----------- -------- -----------
Balance at 1 January 2021 1,414 1,595,894 737,254 (2,612) 2,331,950
Issue of new shares on secondary
market 303 533,918 - - 534,221
Costs on new share issues
on secondary market - (2,815) - - (2,815)
Profit/(loss) for the year - - 512,108 (8,394) 503,714
--------------------------------- ------- --------- ----------- -------- -----------
Balance at 31 December 2021 1,717 2,126,997 1,249,362 (11,006) 3,367,070
--------------------------------- ------- --------- ----------- -------- -----------
The accompanying notes 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
2022 2021 2021
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ----------- ---------- -----------
Operating activities
(Loss)/profit before tax (1,085,504) 154,752 506,254
Adjustments for:
Loss/(gain) on investments held
at fair value through profit or
loss 3 1,093,717 (155,125) (513,312)
(Increase)/decrease in receivables (430) 582 592
Increase in payables 5,198 540 751
Overseas taxation paid (3,240) (1,705) (2,705)
-------------------------------------- ----- ----------- ---------- -----------
Net cash generated by/(used in)
operating activities 9,471 (956) (8,420)
-------------------------------------- ----- ----------- ---------- -----------
Investing activities
Purchase of investments 3 (479,693) (345,359) (673,005)
Sale of investments 3 372,787 27,354 127,272
-------------------------------------- ----- ----------- ---------- -----------
Net cash used in investing activities (106,906) (318,005) (545,733)
-------------------------------------- ----- ----------- ---------- -----------
Financing activities
Proceeds from issue of new shares 93,104 316,035 539,023
Issue costs relating to new shares (560) (1,778) (2,835)
Purchase of shares held in treasury (9,673) - -
Costs relating to buy backs (37) - -
-------------------------------------- ----- ----------- ---------- -----------
Net cash generated by financing
activities 82,834 314,257 536,188
-------------------------------------- ----- ----------- ---------- -----------
Net decrease in cash and cash
equivalents (14,331) (4,704) (17,965)
Cash and cash equivalents at start
of the period/year 32,081 50,046 50,046
-------------------------------------- ----- ----------- ---------- -----------
Cash and cash equivalents at end
of the period/year 17,750 45,342 32,081
-------------------------------------- ----- ----------- ---------- -----------
Comprised of: Cash at bank 17,750 45,342 32,081
====================================== ===== =========== ========== ===========
The accompanying notes are an integral part of these financial
statements.
Notes to the Condensed Financial Statements
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 2022. The following is a summary of the
Directors' assessment of the going concern status of the Company,
which included consideration of the risks and impact of COVID-19
and the ongoing 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.
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 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 April 2021). 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
2021 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
2022 2021 2021
GBP'000 GBP'000 GBP'000
-------------------------------------------- ----------- ---------- -----------
Opening book cost 2,162,638 1,581,420 1,581,420
Opening investment holding gains 1,176,512 698,518 698,518
-------------------------------------------- ----------- ---------- -----------
Opening fair value at start of the
period/year 3,339,150 2,279,938 2,279,938
Purchases at cost 477,428 344,401 673,172
Sales - proceeds (372,787) (27,354) (127,272)
(Losses)/gains on investments (1,093,717) 155,125 513,312
-------------------------------------------- ----------- ---------- -----------
Closing fair value at end of the
period/year 2,350,074 2,752,110 3,339,150
-------------------------------------------- ----------- ---------- -----------
Closing book cost at end of the period/year 2,378,594 1,905,385 2,162,638
Closing unrealised (loss)/gain at
end of the period/year (28,520) 846,725 1,176,512
-------------------------------------------- ----------- ---------- -----------
Valuation at end of the period/year 2,350,074 2,752,110 3,339,150
============================================ =========== ========== ===========
The Company received GBP372,787,000 excluding transaction costs
from investments sold in the period (30 June 2021: GBP27,354,000,
31 December 2021: GBP127,272,000). The book cost of the investments
when they were purchased was GBP262,025,000 (30 June 2021:
GBP20,826,000, 31 December 2021: GBP92,593,000). 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
2022 2021 2021
GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- -----------
UK dividends 4,077 4,564 7,119
UK dividends - special 3,324 - -
Overseas dividends 11,451 8,277 14,232
Overseas dividends - special 3,432 - 287
Bank interest 1 - -
----------------------------- ---------- ---------- -----------
Total 22,285 12,841 21,638
----------------------------- ---------- ---------- -----------
5. Return per share
Return per ordinary share is as follows:
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Revenue Capital Total Revenue Capital Total Revenue Capital Total
--------------------- ------- ----------- ----------- ------- ------- ------- ------- ------- -------
Profit/(loss)
for the period/year
(GBP'000) 7,394 (1,095,210) (1,087,816) (965) 154,471 153,506 (8,394) 512,108 503,714
Return/(loss)
per
ordinary
share (p) 4.20 (621.79) (617.59) (0.63) 101.32 100.69 (5.27) 321.50 316.23
--------------------- ------- ----------- ----------- ------- ------- ------- ------- ------- -------
Return per share is calculated based on returns for the period
and the weighted average number of 176,138,114 shares in issue in
the six months ended 30 June 2022 (30 June 2021: 152,451,930; 31
December 2021: 159,284,761).
6. Net asset value per share
Unaudited Unaudited Audited
30 June 30 June 31 December
2022 2021 2021
-------------------------- ---------------- ---------------- ----------------
Net asset value GBP2,361,331,000 GBP2,796,700,000 GBP3,367,070,000
Shares in issue 176,289,958 160,117,958 171,697,958
-------------------------- ---------------- ---------------- ----------------
Net asset value per share 1,339.5p 1,746.6p 1,961.0p
-------------------------- ---------------- ---------------- ----------------
7. Share capital
Unaudited Unaudited Audited
30 June 2022 30 June 2021 31 December 2021
-------------------- -------------------- --------------------
Issued, allotted
and fully paid Number GBP'000 Number GBP'000 Number GBP'000
----------------- ----------- ------- ----------- ------- ----------- -------
Ordinary shares
of GBP0.01 each 176,289,958 1,763 160,117,958 1,601 171,697,958 1,717
----------------- ----------- ------- ----------- ------- ----------- -------
Shares held in
treasury
----------------- ----------- ------- ----------- ------- ----------- -------
Ordinary shares
of GBP0.01 each 818,000 8 - - - -
----------------- ----------- ------- ----------- ------- ----------- -------
Share capital 177,107,958 1,771 160,177,958 1,601 171,697,958 1,717
----------------- ----------- ------- ----------- ------- ----------- -------
During the six months ended 30 June 2022, the Company issued
5,410,000 (30 June 2021: 18,697,000, 31 December 2021: 30,277,000)
shares of GBP0.01 each for a net consideration of GBP92,732,000 (30
June 2021: GBP311,244,000, 31 December 2021: GBP531,406,000). The
average premium to the prevailing net asset value at which new
shares were issued during the period was 2.62% (30 June 2021: 2.7%,
31 December 2021: 2.65%).
During the six months ended 30 June 2022, the Company bought
back to hold in treasury 818,000 shares (30 June 2021: nil, 31
December 2021: nil) at an aggregate cost of GBP10,467,000 (30 June
2021: nil, 31 December 2021: nil). At the period end, the Company
held 818,000 (30 June 2021; nil, 31 December 2021: nil) shares in
treasury.
Since 30 June 2022 and up to 31 July 2022, a further 800,000
ordinary shares have been bought back to hold in treasury at an
aggregate cost of GBP10,215,000.
8. Related party transactions
Fees payable to the Investment Manager are shown in the
Condensed Statement of Comprehensive Income. As at 30 June 2022 the
fee outstanding to the Investment Manager was GBP7,487,000 (30 June
2021: GBP2,255,000, 31 December 2021: GBP2,576,000).
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
30 June
Director 2022
----------------------- -------
Diana Dyer Bartlett 8,886
Lord St John of Bletso 10,000
Jeremy Attard-Manche -
Denise Hadgill -
----------------------- -------
Directors' shareholdings for Mrs Dyer Bartlett as at 30 June
2021 and 31 December 2021 were 5,000. Directors' shareholdings for
Lord St John of Bletso as at 30 June 2021 and 31 December 2021 were
10,000. Mr Attard-Manche and Mrs Hadgill were appointed as
Directors of the Company 1 March 2022 and 1 June 2022
respectively.
As at 30 June 2022, Terry Smith and other founder partners and
key employees of the Investment Manager directly or indirectly and
in aggregate, held 1.7% of the issued share capital of the Company
(30 June 2021: 1.9%, 31 December 2021: 1.7%).
9. Events after the reporting period
There were no post-period events other than as disclosed 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 2021
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 1
August 2022.
The Interim Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
1 August 2022
Secretary and registered office:
Sanne Fund Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
For further information contact:
Sanne Fund Services (UK) Limited
Tel: 020 3327 9720
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END
IR FLFLRTEILIIF
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August 02, 2022 02:00 ET (06:00 GMT)
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