17 June 2021

The Lindsell Train Investment Trust plc

This announcement contains regulated information

Annual Financial Report for the year ended 31 March 2021

Financial Highlights for the Year

Performance comparisonsChange
Share price total return per Ordinary Share*^ 38.9%
Net Asset Value total return per Ordinary Share*^ 29.0%
Benchmark† 4.0%
MSCI World Index total return (Sterling) 38.4%
UK RPI Inflation (all items) 1.5%

* The Net Asset Value and the share price at 31 March 2021 have been adjusted to include the Ordinary dividend of £41.39 per Share and a special dividend of £2.61 per Ordinary Share paid on 8 September 2020, with the associated ex-dividend date of 13 August 2020.

The annual average running yield on the longest-dated UK government fixed rate bond currently UK Treasury 1.625% 2071, calculated using weekly data, plus a premium of 0.5%, subject to a minimum yield of 4.0%.

^ Alternative Performance Measure (‘APM’). See Glossary of Terms and Alternative Performance Measures.

Source: Morningstar and Bloomberg

Chairman’s Statement

The Company’s previous financial year ended near the depths of the market’s reaction to the pandemic. Since then, world equity markets have recovered, hitting new highs in late 2020 and making further progress in 2021. The Company’s net asset value per share (‘NAV’) echoed but did not lead this recovery. It was up from £956.65 at 31 March 2020 to £1,185.58 on 31 March 2021. Including the dividend this represented an NAV total return of 29.0%, with the Company’s holding in Lindsell Train Limited (‘LTL’) – that now accounts for 48.2% of NAV – contributing a total return performance of 40.8%; and the quoted portfolio an attributed total return of 18.6%. The share price total return^ was better, at 38.9%, but this performance should be set against the fall of 26.5% in the previous financial year. The benchmark return for the year to 31 March 2021 was up 4.0%. In comparison the MSCI World Index total return in Sterling was up by a huge 38.4%, which meant that for, the first time in a number of years, the Company’s NAV total return underperformed world markets. This is addressed by Nick Train in more detail in the Investment Manager’s review.

Share Price Premium

The share price premium to the NAV ended the year at 20%, up from 11% on 31 March 2020. During the year the premium has averaged just under 10%, a lower level when compared to previous years. Nonetheless we continue to advise new investors to exercise restraint, or at least consider carefully, before buying the Company’s shares at a premium to the NAV. Falling markets, similar to that experienced in early 2020, or poor relative performance from our concentrated portfolio (there are only 14 holdings, with the top five accounting for c.80% of NAV) could quickly undermine the Company’s share price. Buying shares at a premium to the NAV today would only magnify the loss in such a situation. A clear example of how one holding in a concentrated portfolio can significantly affect the overall portfolio’s return was the recent plunge in the share price of the London Stock Exchange (“LSE”). This was the Company’s largest quoted holding at c.9% of NAV before the fall. After rising by more than 10x over 10 years it was down 28% in March alone as investors reassessed the risk associated with its recent acquisition of Refinitiv, Thomson Reuter’s financial data business. In the Investment Manager’s view, portfolio concentration increases the Company’s chances of meeting or exceeding our Shareholders’ expectations for investment returns over the longer-term, but the recent experience with the LSE was a ready reminder that concentration can cut both ways.

Lindsell Train Limited

The performance of the Company’s unquoted holding in Lindsell Train Limited (‘LTL’) (in which it owns a 24.21% minority shareholding) once again contributed most to this year’s NAV increase. Underlying this was a 26% increase in LTL’s funds under management (‘FUM’) over the 12 months to 31 March 2021, from £18.2bn to £22.9bn. The Board’s valuation of LTL, based on a formula which the Directors amended at this time last year, now captures the immediacy of FUM changes on LTL’s earnings. The increase in LTL’s FUM was largely attributable to market movements, although net inflows amounted to £1.1bn over the year. Particularly pleasing was the growing support from US-based investors for the US domiciled Lindsell Train Global Equity LLC, which garnered net new assets of over £940m. This reflects the work that LTL has undertaken with North American based institutional investors and their consultants over a number of years. Its patient approach is paying off and we see this diversification in its client base as an encouraging development. North American sourced FUM now make up nearly 11% of LTL’s total, up from 6.5% a year ago.

The relative performance of LTL’s investment strategies has suffered over the last year, especially in the last six months. At  31 May 2021 the one and three year performance of the Lindsell Train Japan and Global Equity funds lagged their respective benchmarks. There is no knowing how long this period of underperformance will last. Bouts of relative underperformance are bound to occur, especially for a strategy and approach to investment that is so concentrated and committed to its constituent companies. Indeed, the approach makes a virtue of being unbending to the vicissitudes of markets. The aim is to own durable franchises that generate consistently higher returns than others over the long term. The belief is that over time market prices will reflect these superior characteristics with better underlying share price performance; but for periods, perhaps extended periods, this might not be the case – as is occurring now.

It is debatable what effect this will have on LTL’s business. LTL has always made every effort to convey to its investors the possibility of a period of underperformance relative to markets and for the reasons given above, many investors are likely to take this in their stride. Some may even allocate additional assets to LTL, recognising that often the best time to access such a differentiated strategy is when it is out of favour. We, at least, are reassured that for however long this relative underperformance lasts, LTL will stick to the strategy that has delivered so much value for the Company over so many years. We all know that the investment management business is a highly competitive one – indeed I cannot think of another profession where performance can be so objectively judged with such frequency and immediacy. We must therefore be prepared for LTL to face more of a challenge to raise new assets and to be vulnerable to redemptions as investors are lured to other approaches. This could lead to a fall in LTL’s FUM and if so a corresponding fall in its valuation.

At least LTL’s profit margins in such a scenario should be protected by the salary and bonus cap that was put in place to protect the interests of its minority Shareholders, including the Company. Similarly, the dividends paid by LTL are essentially formulaic and have typically represented a yield on its valuation of more than 10%. A further comfort is that LTL is well capitalised, with substantial net cash retained on its balance sheet. But there is no getting away from the reality that, with LTL representing 48.2% of NAV and its dividends 80% of gross revenues, the Company could suffer from a falling NAV and a lower dividend payment.

Performance Fee

This year the Company paid a performance fee to the Investment Manager (LTL) of £2,661,702. This rewards not only this year’s NAV performance but also last year’s, when the NAV total return was up 9.8%. The total return for the two years taken together was 39.9% compared with the MSCI World Index Sterling return of 30.4%. The fee for two years in one came about because the Investment Manager chose to defer the fee it was due last year in consideration of the sharp fall in the share price over the period. Contractually the fee this year should have amounted to £5,323,404 but LTL offered to waive (as distinct from defer) half its fee. This was a generous gesture which the Board has accepted with gratitude.

Change of Benchmark

Since its inception the Company has benchmarked its performance against an absolute return measure that was originally designed as a market-based proxy for inflation. It specifically captured the Company’s minimum objective to protect the real value of Shareholders’ capital from year to year. In its first ten years the Company successfully modified its asset allocation between equities and other asset classes in order to meet this objective. However in the more recent ten years the rise in the value of LTL to now almost 50% of NAV, together with the lack of asset allocation alternatives (particularly bonds) offering comparable value to equities, means that the portfolio is now predominantly invested in equities and likely to remain so for the foreseeable future. The Board and the Investment Manager have concluded that, in light of this reality, it is more appropriate to change to an equity benchmark – the MSCI World Index total return in Sterling – from the beginning of the Company’s current financial year. Although changing the benchmark may seem fundamental, in practice we think it formalises the increased orientation to equities. In communications with Shareholders over the years we have increasingly referenced this index as the equity component of the Company has risen.

Revision to the Performance Fee

The performance fee will also change from 1 April 2021 and will in future be calculated as 10% of the value of any positive relative performance versus the new benchmark in a financial year. Relative performance is measured by taking the lower of the NAV or Average Market Price (defined as the average price over the last month of the performance period), taking into account dividends, at the end of each financial year and comparing the percentage annual change with the total return of the benchmark. A performance fee will only be paid out if the annual change is both above the benchmark and is a positive figure. Relative performance will be carried forward in years where the Investment Manager is not eligible for a performance fee based on these two criteria. The Board believes this new benchmark and the performance fee associated with it incentivises LTL to achieve both parts of the Company’s objective to preserve value and to maximise long-term returns.

Considerations for the Future

Increasingly a crucial part of the Board’s assessment of the ongoing valuation of LTL is our judgement of whether LTL can manage a seamless succession beyond the involvement of its two founders. It is encouraging to see the investment team, now numbering six in total, maturing and to observe that the more recent members are increasingly taking on responsibility and contributing to the decision-making process. In addition, a new generation of executives is beginning to take on vital responsibilities for running other important parts of the business. The founders remain as committed as ever to the long-term success of LTL but recognise the necessity to plan ahead and to ensure that these key individuals have the right incentives in place. As significant minority Shareholders the Board is working with the founders closely to arrive at the right outcome for all stakeholders.

With vaccinations rolling out worldwide the future looks a little clearer than it did in the midst of the pandemic at this time last year. On the other hand, the unprecedented economic measures enacted by governments and monetary authorities that have been such a support to markets are likely to have secondary effects, the implications of which we cannot predict but could be material. We take reassurance from the strength and quality of the franchises and market positions of the quoted companies the Company owns and we expect them to survive and thrive in the future in the same way as they have done over the 149 years that the average investee company has endured.

Dividend

The Board recommends paying a total dividend in respect of the year to 31 March 2021 of £50 per share, up 12% from last year. This is made up of an ordinary dividend of £47.07 and a special dividend of £2.93 in respect of the proportion of LTL’s income that is earned from performance fees. My remarks above might lead you to think that we should be more cautious in our dividend policy. However an investment trust is only allowed to retain 15% of the Company’s qualifying net income, which makes £50 per share the minimum dividend we have to pay to ensure that we retain that status and the benefits it affords to Shareholders.

If these dividends are approved by Shareholders, they will be paid on Tuesday, 14 September 2021 to Shareholders on the register at close of business on Friday, 13 August 2021 (ex-dividend Thursday, 12 August 2021).

Amendment to the Company’s Investment Policy

The Board has considered a minor amendment to the Investment Policy to align it with the revision of the performance fee and change of benchmark. This amendment is not considered to be material.

Amendments to the Company’s Articles of Association

In case we should again face restrictions on public gatherings similar to those imposed by the UK Government during the Covid-19 pandemic, the Board commissioned a review of the Company’s Articles of Association with a view to enabling the holding of general meetings remotely in future, or in a hybrid format, should the need arise.

Pursuant to this, a resolution to amend the Articles of Association is included in the Notice of Annual General Meeting for approval by Shareholders. Further information of the proposed amendments to the Articles of Association can be found within the Report of the Directors in the Annual Report.

Half-year Report and Accounts

In common with many other companies the Company is doing what it can to reduce its carbon footprint. As part of this strategy, and also to produce cost savings for the Shareholders, the Company will no longer be preparing printed copies of its Half-year Report and Accounts. This document will, however, continue to be available on the Company’s website. The Company’s Annual Report will continue to be available in print.

Annual General Meeting

The Company’s Annual General Meeting (“AGM”) will be held at the Marlborough Suite, St Ermin’s Hotel, 2 Caxton Street, London, SW1H 0QW on Thursday, 9 September 2021 at 2.30 p.m.

At the time of writing, it is hoped that it will be possible to hold the AGM in its normal format at the venue set out above. The Board will keep the impact of the Covid-19 pandemic under review and will make necessary changes to the arrangements for the AGM should infection levels or continuing government restrictions dictate. The situation will be kept under constant review and any changes to the AGM will be communicated on the Company’s website. Shareholders are encouraged to consult the Company’s website for any final arrangements. In the event that no physical AGM is possible, the Board intends to host a webinar in addition to the AGM to enable the Investment Manager to give a presentation online.

Shareholders should send any questions they may have to the Company Secretary at info@frostrow.com. Further details will be made available nearer the time.

The Board strongly encourages all Shareholders to exercise their votes in respect of the meeting in advance. Shareholders can vote online by visiting www.signalshares.com and following instructions. Any Shareholder who requires a hard copy form of proxy may request one from the registrar, Link Group. Voting by proxy will ensure that your votes are registered in the event that attendance at the AGM is not possible or restricted. If the meeting is postponed your votes will still be valid when the meeting is eventually held. The Board will continue to monitor the Government’s advice and urges all Shareholders to comply with any restrictions in place at the time of the AGM.

Following improvements in technology the Company has ceased to automatically offer paper proxy forms to Shareholders. As mentioned, Shareholders will be able to vote on resolutions via our Registrar’s website. However, a paper proxy form will be available on request from our Registrar.

Julian Cazalet
Chairman
16 June 2021

Portfolio Holdings at 31 March 2021

(All ordinary shares unless otherwise stated)

HoldingSecurityFair value
£’000
% of
net assets
Look-through
basis % of
net assets
6,450 Lindsell Train Limited 114,238 48.1848.18
97,400 PayPal 17,143 7.237.64
41,000 Nintendo 16,620 7.017.01
235,000 London Stock Exchange 16,304 6.877.01
12,500,000 LF Lindsell Train North American Equity Fund 15,686 6.625.99
420,500 Diageo 12,571 5.305.46
222,000 Unilever 9,004 3.803.93
363,000 RELX 6,603 2.782.94
150,000 Mondelez International 6,363 2.683.03
1,263,393 A.G. Barr 6,191 2.612.63
89,000 Heineken 5,751 2.432.50
420,000 Finsbury Growth & Income Trust PLC 3,599 1.520.68
250,000 Pearson 1,929 0.810.84
28,093 Laurent-Perrier 1,891 0.800.80
Total Investments 233,893 98.6498.64
Net current assets 3,223 1.361.36
Net Assets 237,116 100.0100.00

Look-through basis: This adjusts the percentages held in each security by the amount held by Lindsell Train managed funds and adjusts the Company’s holdings to account for the overlap. It provides Shareholders with a measure of stock specific risk by amalgamating the direct holdings of the Company with the indirect holdings held within the Lindsell Train funds

Leverage

We detail below the equity exposure of the funds managed by LTL as at 31 March 2021:

Equity
Exposure
Fund
LF Lindsell Train North American Equity Fund Acc 99.37%
Finsbury Growth & Income Trust PLC 100.94%

Analysis of Investment Portfolio at 31 March 2021

Breakdown by location of listing

(look-through basis)^
Japan7%
Europe3%
UK*78%
USA11%
Emerging0%
Cash and Equivalents1%
100%
Breakdown by location of underlying company revenues
(look-through basis)^
Japan3%
Europe**31%
UK**31%
USA**24%
Emerging**10%
Cash and Equivalents1%
100%
Breakdown by sector
(look-through basis)^
Consumer Staples20%
Communication Services9%
Industrials4%
Financials56%
Health Care0%
Information Technology9%
Consumer Discretionary1%
Cash & Equivalents1%
100%

* LTL accounts for 48.2% and is not listed.

** LTL accounts for 22 percentage points of the Europe figure, 20 percentage points of the UK figure, 4 percentage points of the USA figure and 2 percentage points of the Emerging Markets figure.

^ Look-through basis: This adjusts the percentages held in each asset class, country or currency by the amount held by LTL managed funds. It provides Shareholders with a more accurate measure of country and currency exposure by amalgamating the direct holdings of the Company with the indirect holdings held by the LTL funds.

Investment Manager’s Report year ended 31 March 2021

The Chairman notes in his statement that the recent investment performance of the Company’s quoted portfolio and of Lindsell Train Limited’s (“LTL”) other client portfolios has been disappointing. Although we are cautious about drawing conclusions from returns over just a few months, particularly given what an extraordinary period those months have spanned, we admit that we too are disappointed. Let me address what has happened.

Our portfolios can usefully be understood as being constructed around three strategic ideas; three ideas that have remained constant over the 20-year life of Lindsell Train. First, investing in companies that use technology to inform or entertain their customers or make their customers’ lives more convenient. For instance, the direct holdings in the Company that represent this theme are the London Stock Exchange Group (now even more of a data and technology company after the acquisition of Refinitiv), Nintendo, PayPal, Pearson and RELX. Second, companies that own beloved and trusted consumer brands - in the expectation these brands will continue to deliver inflation-protected cash flow growth, as they have for decades. The Company’s holdings here are A.G. Barr, Diageo, Heineken, Laurent-Perrier, Mondelez and Unilever. Finally, we have been long-term investors in the wealth management industry, believing this industry offers an attractive proxy participation in wealth creation around the world. For our other clients we own stakes in companies such as Hargreaves Lansdown or Schroders, but in your portfolio this theme is represented by the 24.21% stake the Company holds in LTL.

Looking back over the history of Lindsell Train and The Lindsell Train Investment Trust plc we have been gratified by how effective sticking to these three simple, but powerful strategic ideas has proven. We have benefited from good capital appreciation from most of our technology-exposed investments, while the consumer brands have proven reliable money-makers, delivered growing dividends and been resilient during tough periods (like last year). And the wealth managers have by and large done well too. This portfolio mix has allowed us to deliver competitive absolute and relative returns, from the inception of Lindsell Train in 2000 pretty much all the way through to June 2020.

Very recently though the strategy has not been so successful. In particular, over the last nine months to end March 2021 all Lindsell Train’s portfolios lagged their respective benchmarks. All investors are prone to such episodes – certainly Michael and I have experienced similar periods several times over our careers. In such circumstances, one must first establish what isn’t working and why. Then determine whether a change of strategy is necessary to improve investment returns.

The reasons for our recent lacklustre performance are easy to find. Since mid-2020 global equity markets have risen strongly, driven by two dominant trends. First, the bull market in Technology has continued, with investors willing to pay ever higher prices and increasingly willing to back new and sometimes untested companies. Second, as the world emerges from the pandemic there has been a big recovery in the cyclical and economically sensitive industry sectors that were so hard hit during the first half of 2020. We must admit to being under-represented in our global portfolios to both these trends. Although holdings like LSE, Nintendo and PayPal did well in 2020, we are not natural investors in young technology companies and have always avoided cyclical sectors. Meanwhile, the steady reliability of beer, chocolate and personal care brands is currently less highly prized. This means our brand owners, like Heineken, Mondelez and Unilever have been left behind in this phase of the bull market.

What will we do in response? The answer is not much – although we are always working to increase the value in our portfolios, by adding to existing holdings when depressed or, occasionally, initiating new ones. That is because we remain optimistic about the thematic ideas and companies we are invested in and think their recent underperformance is indeed an opportunity to add, not a reason to sell. Submitting client portfolios to surgery incurs transaction costs which need to be justified; and certainly reinvesting in the areas of global stock markets that are currently booming would not only be costly but could also expose our clients to the risk of joining a party late.

Returning to the Company’s portfolio, we hope the consumer companies will offer accelerating sales growth, as lockdowns ease across Europe and Emerging Markets. In addition, efficiency measures announced by portfolio companies such as A.G. Barr, Heineken and Unilever should make that resumption of sales growth, even more profitable. Of particular significance, Diageo is one of the biggest holdings we have across LTL, with c.£1.9bn invested and its shares have rallied over 30% from the lows of last year, as consumption of premium spirits picks up pace around the world. We hope there is more to come for Diageo and peers. Meanwhile, the prospects for LSE, Nintendo, PayPal and RELX seem better than ever, as technology enhances the utility of their products and services.

If we are correct in these strategic views and our investment performance benefits over time, then we hope more value will build in your holding in LTL.

Nick Train
Investment Manager
Director
Lindsell Train Limited
16 June 2021

Business Review

The Directors present their Strategic Report for the Company for the year ended 31 March 2021. The Report contains: a review of the Company’s strategy, an analysis of its performance during the financial year, comment on its future outlook and details of the principal risks and challenges that it faces.

Reviews of the financial year and commentary on the future outlook are presented in the Chairman’s Statement and the Investment Manager’s Report.

The Strategic Report has been prepared to provide Shareholders with information to assess how the Directors have performed their duty to promote the success of the Company.

The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

As an externally managed investment trust the Company has no executive directors, employees or internal operations. The Company delegates its day-to-day management to third parties. The principal service providers to the Company are Lindsell Train Limited (“LTL”) which acts as Investment Manager and Frostrow Capital LLP (”Frostrow”) which acts as Company Secretary and Administrator.

The Board is responsible for all aspects of the Company's affairs, including the setting of parameters for and monitoring of the investment strategy as well as the review of investment performance and policy. It also has responsibility for all strategic issues and corporate governance matters.

Throughout the year under review, the Company continued to operate as an authorised Investment Trust, following its investment objective to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.

Company Profile

Investment Objective

The objective of the Company is to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.

Investment Policy

The Investment Policy of the Company is to invest:

  1. in a wide range of financial assets including equities, unlisted equities, bonds, funds, cash and other financial investments globally with no limitations on the markets and sectors in which investment may be made, although there is likely to be a bias towards equities and Sterling assets, consistent with a Sterling-dominated investment objective. The Directors expect that the flexibility implicit in these powers will assist in the achievement of the investment objective;
  2. in Lindsell Train managed fund products, subject to Board approval, up to 25% of its gross assets; and
  3. in LTL and to retain a holding, currently 24.21%, in order to benefit from the growth of the business of the Company’s Investment Manager.

The above paragraph (i) contains non-material changes to the investment policy. For comparison, the previous version of the paragraph without the changes is set out below:

  1. in a wide range of financial assets including equities, unlisted equities, bonds, funds, cash and other financial investments globally with no limitations on the markets and sectors in which investment may be made, although there may be bias towards Sterling assets, consistent with a Sterling-dominated investment objective. The Directors expect that the flexibility implicit in these powers will assist in the achievement of the absolute returns that the investment objective requires.

The Company does not envisage any further changes to its objective, its investment policy, or its management for the foreseeable future. The current composition of the portfolio as at 31 March 2021, which may be changed at any time (excluding investments in LTL and LTL managed funds) at the discretion of the Investment Manager within the confines of the policy stated above.

Diversification

The Company expects to invest in a concentrated portfolio of securities with the number of equity investments averaging fifteen companies. The Company will not make investments for the purpose of exercising control or management and will not invest in securities of or lend to any one company (or other members of its group) more than 15% by value of its gross assets at the time of investment. The Company will not invest more than 15% of gross assets in other closed-ended investment funds.

Gearing

The Directors have discretion to permit borrowings up to 50% of the Net Asset Value. However, the Directors have decided that it is in the Company’s best interests not to use gearing. This is in part a reflection of the increasing size and risk associated with the Company’s unlisted investment in LTL, but also in response to the additional administrative burden required to adhere to the full scope regime of the Alternative Investment Fund Managers Directive (“AIFMD”).

Dividends

The Directors’ policy is to pay annual dividends consistent with retaining the maximum permitted earnings in accordance with investment trust regulations. All dividends have been distributed from Revenue.

Performance and Prospects

As set out in the Chairman’s statement, considering the opportunities and challenges faced during the year, relative to the wider market, the Board is satisfied with the Company’s performance relative to the benchmark and other key performance indicators.

Key Performance Indicators (“KPIs”)

The Board reviews the performance of the portfolio in detail and hears the views of the Investment Manager at each meeting. Information on the Company’s performance is provided in the Chairman’s Statement and the Investment Manager’s Review. This performance is assessed against the following KPIs which are unchanged from last year.

Net Asset Value^ and Share Price Total Return^ are measured against the benchmark and provide the key performance indicators for assessing the development and performance of the Company.

Principal Data

31 March 2021 31 March 2020 % Change
Shareholders’ funds (£’000)237,116 191,330 23.9
NAV per Ordinary Share£1,185.58 £956.65 23.9
Premium to NAV^19.77% 10.80%
Share price per Ordinary Share£1,420.00 £1,060.00 34.0
Recommended final dividend per Ordinary Share£47.07 £41.39 13.7
Recommended special dividend per Ordinary Share£2.93 £2.61 12.3
Dividend yield^3.52% 4.15%
Ongoing Charges^0.75% 0.83%
Earnings per Ordinary Share – basic£272.93 £90.23 202.5
Revenue£60.01 £52.99 13.2
Capital£212.92 £37.24 471.8
NAV total return†^29.0% 9.8%
Share price total return†^38.9% (26.5%)
Benchmark**†4.0% 4.0%

^ Alternative Performance Measure (see Glossary).

** See Company Summary on inside front cover.

These are percentage change figures for the year to 31 March.

Please see Glossary of Terms for an explanation of terms used.








Five Year Historical Record
Net revenue Dividends Dividends Net Share
available for on Ordinary on Ordinary asset value price per
Gross Ordinary Shares Shares per Ordinary Ordinary
income Shares Cost Rate Share Share
To 31 March £’000 £’000 £’000 (£) (£) (£)
2017 4,887 3,900 3,160 15.80 588.21 810
2018 6,505 5,283 4,360 21.80 747.08 1,030
2019 8,680 7,172 5,900 29.50 895.93 1,475
2020 12,395 10,598 8,800 44.00 956.65 1,060
202113,78212,00210,00050.001,185.581,420

Ongoing Charges^

Ongoing charges represent the costs that Shareholders can reasonably expect to pay from one year to the next, under normal circumstances. The Board continues to be conscious of expenses and works hard to maintain a sensible balance between high quality service and costs.

The ongoing charges (excluding the performance fee) for the year ended 31 March 2021 amounted to £1,679,000 (2020: £1,722,000) equivalent to 0.75% (2020: 0.83%), based on average net assets of £225,120,000 (2020: £207,946,000).

The performance fee paid for the year ended 31 March 2021 amounted to £2,661,702 (2020: £3,000)*, equivalent to 1.2% of average assets of £225,120,000. Contractually the fee this year should have amounted to £5,323,404 but LTL offered to permanently waive half its fee. See the Chairman’s Statement for further details.

* There was no performance fee charged for the year to 31 March 2020 as LTL did not take the performance fee due other than £3,000 in respect of an adjustment for the prior year.

^ Alternative Performance Measure (see Glossary).

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal identified risks facing the Company, including those that would threaten its objective, future performance, solvency or liquidity. The Audit Committee on behalf of the Board regularly reviews these risks and how they are managed and its Investment Manager also closely monitors them. In the event that any factor poses a potential material risk to the Company, the Board will consider what action (if any) should be taken.

During the year the Committee undertook a full review of the scoring methodology applied to the Company’s risk register, resulting in a new approach being implemented. This approach was then applied to the existing risks causing some inherent risks to be scored more highly than previously, whilst others had their risk level reduced. It also identified a new emerging risk.

The key risks affecting the Company are described below. Further detail on financial risks and how these are managed are discussed in note 17 to the Financial Statements.

Key Risks and UncertaintiesKey Mitigations
Corporate Strategy
The Board may have to reduce the Company’s dividend.
The Board reviews the investment portfolio, income forecasts and levels of available revenue reserves prepared by the Company Secretary at every Board meeting. Dividends are paid to maintain investment trust status.
The Company’s share price total return may differ materially from the NAV per share total return. The Company has authority to buy back shares, hold shares in treasury and regular consideration is given to the share price premium or discount to NAV per share.
The share price premium is addressed by the Chairman within his statement.
Investment Strategy and Activity
The departure of a key individual at the Investment Manager may affect the Company’s performance.
The Board keeps the investment management arrangements under continual review. In turn, the Investment Manager reports on developments at LTL, including succession and business continuity plans. The Board meets with other members of the wider team employed by the investment manager.
It is intended that key-man insurance will be secured by the Company to help mitigate this risk. The Board is also encouraged by the continued development of the investment management team at LTL who are now taking on greater responsibility at a more senior level.
The investment strategy adopted by the Investment Manager, including the high degree of concentration of the investment portfolio, may lead to an investment return that is materially lower than the Company’s benchmark index, thereby failing to achieve the Company’s investment objective. The Board discusses with the Investment Manager the structure of the portfolio, including asset allocation and portfolio concentration.
The Board reviews the performance of the portfolio against the benchmark at every meeting.
The investment in LTL becomes an even greater proportion of the overall value of the Trust’s portfolio. The Board holds quarterly discussions with the Investment Manager at each Board meeting. Consideration is given during a strategy meeting to the prospects of LTL and subsequent impact on the Company.
The Board receives monthly compliance reports from the Company Secretary which monitor compliance with the investment restrictions.
The investment objective of existing Shareholders no longer coincides with the investment objective of the Company. The Board periodically interacts with Shareholders which includes at the Company’s Annual General Meeting.
The Board reviews the Company’s share register at every meeting and receives regular reporting by the Investment Manager on register changes and interactions with the shareholder base.
Operational
Adverse reputational impact of one or more of the Company’s key service providers which, by association, causes the Company reputational damage.
The Board has appointed reputable service providers who are well experienced in the investment trust sector. Individual Directors are well connected in the investment market and investment company sector and thereby keep appraised of developments in the sector. The Investment Manager and Company Secretary provide regular news updates on all matters affecting the Company.
The Board undertakes an annual review of the level of service provision of the service providers.
Financial
Fraud (including unauthorised payments and cyber fraud) occurs leading to a loss.
The Investment Manager and Company Secretary have in place robust compliance and risk monitoring programmes.
The Board regularly receives monthly compliance reviews and quarterly expenses analysis.
An annual statement is obtained by the Audit Committee from all service providers giving representations that there have been no instances of fraud or bribery.
The Company is exposed to credit risk. The Investment Manager is responsible for undertaking reviews of the creditworthiness of the counterparties that it uses.
All business with respect to portfolio activity is conducted through selected brokers on a delivery versus payment basis thereby minimising exposure to broking counterparties.
Further information on financial instruments and risk can be found in note 17 to the Financial Statements.
The Company is exposed to market price risk. The Directors acknowledge that market risk is inherent in the investment process. The Investment Manager maintains a diversified portfolio which is, however, concentrated in a few key sectors. The Board has imposed guidelines within its investment policy to limit exposure to individual holdings.
The Company Secretary reports to the Board with respect to compliance with investment guidelines on a monthly basis. The Investment Manager provides the Board with regular updates on market movements. No investment is made in derivative instruments and no currency hedging is undertaken.
Further information on financial instruments and risk can be found in note 17 to the Financial Statements.
Accounting, Legal and Regulatory
The Company and/or the Directors fail(s) to comply with its legal requirements in relation to FCA dealing rules/handbook procedures, the Listing Rules, the Companies Act 2006, relevant accounting standards, the Bribery Act 2010, the Criminal Finances Act 2017, GDPR, tax regulations or any other applicable regulations.
The Board monitors regulatory changes with the assistance of the Company Secretary, Investment Manager and external professional advisers to ensure compliance with applicable laws and regulations.
The Board reviews compliance reports and internal control reports provided by its service providers, as well as the Company’s Financial Statements and revenue forecasts.
The Directors attend AIC Roundtables and conferences to keep up to date on regulatory changes and receive industry updates from the Company Secretary.
The Company Secretary presents a quarterly report on changes in the regulatory environment, including AIC updates, and how changes have been addressed.
The regulatory environment in which the Company operates changes, affecting the Company’s modus operandi. The Board monitors the regulatory environment with the assistance of its Company Secretary, Investment Manager and external professional advisers to ensure that the Board is aware of any likely changes in the regulatory environment and will be able to adapt as required.
The Company’s valuation of its investment in Lindsell Train Limited is materially misstated. The Board approves the valuation of the Company’s investment.
An audit of LTL’s valuation is conducted annually by a leading independent external audit firm.
The Investment Manager and Company Secretary report to the Board at every meeting. An internal controls report is produced by the Company Secretary on an annual basis covering controls over valuation and release of weekly net asset value per share.
Emerging Risks
The growth of retail platforms has a detrimental effect on shareholder engagement.
The Board receives regular updates from the Investment Manager and the Company Secretary on developments in the sector. The shareholder register is reviewed at every Board meeting.
The Board welcomes retail platform holders to attend the Company’s Annual General Meeting.

Brexit

The Board has considered whether the UK’s exit from the European Union (“Brexit”) poses a discrete risk to the Company. At the date of this report, the UK left the EU nearly six months ago with a trade and security deal finalised with the EU on 24 December 2020. The Board believes that, over the longer-term, Brexit is unlikely to affect the Company’s business model. The Board will continue to monitor developments as they occur.

Impact of Covid-19

The Board recognises that the emergence and spread of new coronavirus strains represents a continuing risk, both to the Company’s investments, investment performance and to its operations. The Investment Manager has continued its dialogue with investee companies as usual. Furthermore, the Board has stayed in close contact with the Investment Manager and has been regularly monitoring portfolio and share price developments.

The Board has also received assurances from the Company’s key service providers in respect of their business continuity plans and the steps being taken to guarantee the ongoing efficiency of their operations while ensuring the safety and well-being of their employees.

As the vaccine programme nears completion, the outlook is cautiously positive, but the Board will continue to monitor developments as they occur.

Climate Change Risk

The Investment Manager considers how climate change could affect the Company’s portfolio companies and shareholder returns.

Emerging Risks

The Company has carried out a detailed assessment of the Company’s emerging risks. The International Risk Governance Council definition of an ‘emerging’ risk is one that is new, or is a familiar risk in a new or unfamiliar context or under new context conditions (re-emerging). Failure to identify emerging risks may cause reactive actions rather than being proactive and, in the worst case, could cause the Company to become unviable or otherwise fail or force the Company to change its structure, objective or strategy.

The Audit Committee reviews a risk map during the year. Emerging risks are discussed as part of this process. The experience and knowledge of the Directors is useful in these discussions, as are update papers from the Board’s key service providers such as the Investment Manager and Company Secretary. In addition, the Company is a member of the AIC, which provides regular technical updates as well as drawing members’ attention to forthcoming industry and/or regulatory issues and advising on compliance obligations.

The Audit Committee identified one emerging risk during the year concerning the growth of retail platforms.

Future Developments

The Board’s primary focus is on LTL’s investment approach and performance both as the Company’s Investment Manager and as an investment. The subject is thoroughly discussed at every Board meeting.

An outline of performance, investment activity and strategy, and market background during the year, as well as the outlook, is provided in the Chairman’s Statement and the Investment Manager’s Review.

It is expected that the Company’s strategy will remain unchanged in the coming year.

Longer-Term Viability Statement

In accordance with the UK Corporate Governance Code the Board reviews the performance and progress of the Company in depth at each quarterly Board meeting over historic periods and uses these assessments, regular investment performance updates from the Investment Manager and a continuing programme of monitoring risk to assess the future viability of the Company. The Directors consider that a period of three years is the most appropriate time horizon to consider the Company’s viability and, after careful analysis, the Directors believe that the Company is viable over a three year period, taking into account the possible impact of the potential risks and uncertainties it faces, including the impact of the Covid-19 pandemic as detailed in the Chairman’s Statement, Investment Manager’s Report and Principal Risk sections of this Report. The following facts support the Directors’ view.

  • The Company has a liquid investment portfolio in relation to investments in UK and internationally listed securities and funds and has some short-term cash on deposit. These liquid assets represent 52% of net assets, the other 48% is the unlisted investment in LTL, which is not readily realisable.
  • Based on historic analysis 49% of the current portfolio could be liquidated within 30 business days with 45% in five businesss days. There is no expectation that the nature of the investments held within the portfolio will be materially different in the future.
  • The founder directors of LTL, in which the Company holds 24.21%, have given their verbal assurance that they remain committed to the business for the foreseeable future.
  • The Company has decided not to use gearing.
  • Revenue expenses of the Company are covered five times by investment income.
  • The Company has no employees, only its non-executive Directors. Consequently it does not have redundancy or other employment related liabilities or responsibilities.

In order to maintain viability, the Company has a robust risk control framework for the identification and mitigation of risk which is reviewed regularly by the Board. The Directors also seek reassurance from service providers that their operations are well managed and they are taking appropriate action to monitor and mitigate risk. The Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

The continued impact of the pandemic was also factored into the key assumptions by addressing its impact on the Company’s key risks and whether the effect of those risks on the Company had increased under normal, favourable and stressed market conditions. As part of this review the Board considered the impact of a significant and prolonged decline in the Company’s performance and prospects. This included a range of plausible downside scenarios such as reviewing the effects of substantial falls in investment values and the impact of the Company’s ongoing charges ratio, which were the subject of stress testing.

Section 172 Disclosure

Engaging with the Company’s Stakeholders

Under the AIC Code, the Directors must now explain more fully how they have discharged their duty under Section 172 of the Companies Act 2006 in promoting the success of the Company for the benefit of the members as a whole. This includes the likely consequences of the Directors’ decisions in the long-term and how they have taken wider stakeholders’ needs into account.

STAKEHOLDER GROUPTHE BENEFITS OF ENGAGEMENT WITH THE COMPANY’S STAKEHOLDERSHOW THE BOARD, THE COMPANY SECRETARY AND THE INVESTMENT MANAGER HAVE ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Who?Why?How?
Investors Clear communication of the Company’s strategy and the performance against the Company’s objective can help maintain demand for the Company’s shares.
The Board recognises the importance of communication with Shareholders.
The Board and the Investment Manager receive shareholder feedback directly from Shareholders or from the appointed broker.
An analysis of the Company’s shareholder register is provided to the Directors at each Board meeting
Shareholders have access to the Board, directly and via the Company Secretary, throughout the year. These communications help the Board make informed decisions when considering how to promote the success of the Company for the benefit of Shareholders over the long-term.
Key mechanisms of engagement include:
Investment Manager Engagement with the Company’s Investment Manager is necessary to evaluate its performance against the Company’s stated strategy and to understand any risks or opportunities this may present.
The Board monitors the Investment Manager’s approach to environmental, social and governance (“ESG”) issues.
Engagement also helps ensure that investment management costs are closely monitored and remain competitive.
The Chairman’s Statement and Appendix 3 describe the key decisions taken during the year relating to LTL. In particular, they describe changes to the Company’s investment management arrangements, the waiver of half of the investment management fee and change in benchmark, which were decisions taken in consultation with LTL and which the Board and LTL believe will be of benefit to Shareholders over the longer-term.
The Board meets regularly with the Company’s Investment Manager throughout the year both formally at the quarterly Board meetings and informally as needed. The Board and Investment Manager communicate regularly outside of these meetings to ensure a collegiate approach.
Furthermore, Michael Lindsell is a Director of both the Company and of the Investment Manager. The aim is to maintain a strong relationship between the Board and Investment Manager when considering the interests of the Company’s stakeholders, whilst upholding the Company’s values.
The Investment Manager’s attendance at each Board meeting also provides the opportunity for the Investment Manager and Board to further reinforce their mutual understanding of what is expected from both parties.
The Investment Manager’s performance is evaluated informally on a regular basis, with a formal review carried out on an annual basis by the Management Engagement Committee. The Investment Management Agreement is reviewed as part of this process.
Service Providers The Company contracts with third parties for other services including: accounting & administration as well as company secretarial and registrar and custody. The Company ensures that the third parties to whom the services have been outsourced complete their roles in line with expectation thereby supporting the Company in its success and ensuring compliance with its obligations.
The Covid-19 pandemic has meant that it was vital to make certain there were adequate procedures in place at the Company’s key service providers to ensure safety of their employees and the continued high quality service to the Company.
The Board engages regularly with other service providers both in one-to-one meetings and via regular written reporting. This regular interaction provides an environment where topics, issues and business development needs can be dealt with efficiently and collegiately.
The Board has maintained regular contact with the Company’s key service providers during the pandemic, as well as carrying out a review of the service providers’ business continuity plans and additional cyber security provisions.
The key service providers’ performance is evaluated by the Management Engagement Committee on an annual basis, or more often if appropriate. The terms and conditions underlying the relationship between the service providers are reviewed as part of this process. This approach is taken to enhance service levels and strengthen relationships between the Company and its providers to ensure the interests of the Company’s stakeholders are best served by maintaining a high level of service whilst keeping costs proportionate.
Portfolio companies The Investment Manager invests in a concentrated portfolio of durable business franchises with the intention of holding these positions for a considerable time. The Investment Manager engages with the management of these companies on a periodic basis and reports its impressions on the prospects of the companies to the Board.
Gaining a deeper understanding of the portfolio companies and their strategies as well as incorporating consideration of ESG factors into the investment process assists in understanding and mitigating risks of an investment as well as identifying future potential opportunities.
The Board encourages the Company’s Investment Manager to engage with companies and in doing so expects ESG issues to be a key consideration.
The Board receives an update on Lindsell Train’s engagement activities within a dedicated quarterly ESG report.
Regulators The Board ensures compliance with rules and regulations as relevant to the Company. The Company Secretary reports to the Board on a monthly basis and at each Board meeting.

   

WHAT WERE THE KEY TOPICS OF ENGAGEMENT?WHAT ACTIONS WERE TAKEN, INCLUDING PRINCIPAL DECISIONS?
  • Dialogue with Shareholders concerning the strategy of the Company, performance and the portfolio.
  • The Investment Manager meets with Shareholders as required and at the AGM.
  • Board Composition.
  • The Board has in place a refreshment programme. Rory Landman retired during the year and Vivien Gould became the Senior Independent Director. Vivien retired as Chair of the Audit Committee and was replaced by Richard Hughes.
  • The make up of the investment portfolio including the percentage of NAV attributable to the holding in the investment manager.
  • Consideration of the prospects of LTL.
  • The impact of Covid-19 upon LTL and how companies in the LTIT portfolio have responded to the pandemic, in particular through increased digitalisation.
  • Review of the Company’s Benchmark and Perfomance Fee.
  • Continued monitoring of the percentage of the NAV attributable to LTL and other investments.
  • The Board has received regular updates from the Investment Manager throughout the Covid-19 pandemic and its impact on investment decision making. In addition, the impact of new working practices adopted by the Investment Manager as a consequence of the pandemic have been reviewed by the Board.
  • The Chairman’s Statement describes the changes to the Benchmark and Performance Fee.
  • The integration of ESG into the Investment Managers investment processes.
  • The Investment Manager reports regularly any ESG issues in the portfolio companies to the Board.
Other Service Providers
  • No specific action required as the reviews of the Company’s service providers have been positive and the Directors believe their continued appointment is in the best interests of the Company.
  • During the year the Company appointed a new Company Secretary and administrator.

Committed to responsible investing

Responsible ownership

It is the Board’s view that, in order to achieve long-term success, companies need to maintain high standards of corporate governance and corporate responsibility. Therefore the Company expects the companies in which it is invested to comply with best practice in corporate governance matters, or to provide adequate explanation of any areas in which they fail to comply, whilst recognising that a different approach may be justified in special circumstances. In respect of UK companies, current best practice in corporate governance matters is set out in the Corporate Governance Code.

The Company also monitors the Environmental, Social and Governance (“ESG”) policies of the Investment Manager, given the likely influence of such factors on the long-term growth prospects of the companies in which they invest on the Company’s behalf. Whilst the Company’s Investment Manager is appraised of the Company’s approach to the stewardship of its assets and the importance of sound corporate governance, it uses its discretion according to its knowledge of the relevant circumstances. The Investment Manager reports its compliance with the UK Stewardship Code, or equivalent legislation, to the Audit Committee each year.

The Investment Manager’s commitment to responsible investing is set out overleaf.

Lindsell Train’s primary aim is to protect the real value of its clients’ capital over the long-term. To achieve this aim, Lindsell Train invests in what it has determined to be “exceptional” companies – that are durable, cash generative businesses that achieve higher than average returns on capital  – with the expectation of holding them for the very long-term. It has historically found that such companies more often than not exhibit characteristics associated with good corporate governance and responsible business practices. Indeed, Lindsell Train believes that companies that observe high standards should increase their chances of survivability.

To that end Lindsell Train’s analysis and company engagement strategy seeks to incorporate all factors that it believes will affect the Company’s ability to deliver long-term sustainable value to Shareholders. Such factors include, but are not limited to corporate strategy, operating performance, competitive positioning, company governance, environmental factors (including climate change), social factors, remuneration, reputation and litigation risks, deployment of capital, regulation and any other risks or issues facing the business. Thus, whilst not a separate function, its evaluation of ESG factors is a natural part of Lindsell Train’s investment process and engaging with and monitoring investee companies is an integral element of the investment strategy.

As a product of its investment approach, Lindsell Train does not invest in capital intensive industries (energy, commodities or mining) or any companies involved in the extraction and production of coal, oil or natural gas. Lindsell Train also avoids industries that it judges to be sufficiently detrimental to society and that may be exposed to burdensome regulation or litigation that could impinge on financial returns (e.g. tobacco, gambling or arms manufacturers). Finally, a fortuitous outcome of Lindsell Train’s investment process is that a number of holdings in its portfolios play an important positive social role, for example through providing access to education or encouraging saving for the future.

From a corporate responsibility perspective, Lindsell Train is in the process of updating its UK Stewardship Code statement in response to the recently published 2020 Code. It engaged with the UK Financial Reporting Council as part of the 2019 Consultation and it is Lindsell Train’s intention to remain a signatory of the Code.

Additionally, Lindsell Train became a signatory to the UN Principles for Responsible Investment in November 2019.

Lindsell Train appointed Glass Lewis to assist the administration of its proxy voting process. It is its intention that proxy voting reports will be made publicly available on the Lindsell Train website in due course, which is in line with the expectations of the UK Stewardship Code 2020 and Shareholder Rights Directive II. Lindsell Train does not, however, outsource the proxy voting decisions, as this forms an important part of its investment process and proactive company engagement strategy. The Investment Manager maintains final decision-making responsibility, which is based on its detailed knowledge of the companies in which Lindsell Train invests.

Integrity and Business Ethics

The Company is committed to carrying out business in an honest and fair manner with a zero-tolerance approach to bribery, tax evasion and corruption. As such, policies and procedures are in place to prevent bribery and corruption. In carrying out its activities, the Company aims to conduct itself responsibly, ethically and fairly.

As an Investment Trust with limited internal resource, the Company has little direct impact on the environment. The Company believes that high standards of ESG make good business sense and have the potential to protect and enhance investment returns. Consequently, the Investment Manager’s investment criteria ensure that ESG and ethical issues are taken into account and best practice is encouraged. The Board’s expectations are that its principal service providers have appropriate governance policies in place.

Purpose, Values and Culture

The Company’s culture is driven by its values of integrity, knowledge, skill and frank and courteous conduct. It focuses on achieving returns for Shareholders in line with the Company’s Investment Objective, as set out on the inside front cover.

As the Company has no employees, its culture is represented by the values, conduct and performance of the Board, the Investment Manager and its key service providers.

Employees, Social, Human Rights and Environmental Matters

The principal activity of the Company is to invest in line with the Investment Policy. The Company has no employees and accordingly it has no direct social, human rights or environmental impact from its operations. It does not hold sufficiently large proportions of portfolio companies to be able to influence their social or environmental footprints.

As an Investment Trust the Company does not provide goods or services in the normal course of business, and does not have customers but does engage service providers. Due diligence is carried out on key service providers prior to their engagement. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

Directors

The number of Directors at the financial year end was five (2020: six).

2021 2020
MaleFemale Male Female
Directors (Non-Executive)41 5 1
There were no Executive Directors or employees during the year.

Board Diversity

When considering new appointments, the Board reviews the skills of the Directors and seeks to add persons with complementary skills or who possess skills and experience which fill any gaps in the Board’s knowledge or experience. The Company is committed to ensuring that any vacancies arising are filled by the best qualified candidates. The Board acknowledges the benefits of greater diversity, and remains committed to ensuring that the Company’s Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives to the Board. As such, the Board is minded to increase the diversity of its Board and in particular the proportion of female directors.

The following key objectives for the appointment process for new Directors have been established:

  • all Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective;
  • candidates selected must have sufficient time to devote to their duties as a Director of the Company; and
  • long lists of potential non-executive directors should include diverse candidates of appropriate merit.

The Board is aware that targets concerning ethnic diversity have been recommended for FTSE 250 companies. While the Company is not a FTSE 250 constituent and the Board is small in size, the Directors will continue to monitor developments in these areas and to consider diversity during any director search process.

Approval Statement

The Strategic Report of the Company has been approved by the Board.

For and on behalf of the Board

Julian Cazalet
Chairman
16 June 2021

Statement of Directors’ responsibilities in respect of the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Financial Statements the Directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements;
  • make judgments and estimates that are reasonable and prudent; and
  • prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, which whether due to fraud or error, and have general responsibility for taking such steps as are reasonable to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

The Directors have delegated responsibility to the Administrator for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual Financial Report

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, business model and strategy.

Each of the Directors confirms that, to the best of their knowledge:

  • the Company Financial Statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law (United Kingdom Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and loss of the Company; and
  • the Strategic Report includes a fair review of the development and performance of information required by 4.1.8R to 4.1.11R of the FCA's Disclosure Guidance and Transparency Rules.

Going Concern

The Company’s business activities, together with the factors likely to affect its future development, performance and position, are described in the Chairman’s Statement and in the Investment Manager’s Report. The Company has adequate financial resources including readily realisable equity securities and cash and the value of its assets is greater than its liabilities. Additionally, after reviewing the Company’s budget including the current financial resources and projected expenses for the next 12 months and its medium-term plans, the Directors believe that the Company’s resources are adequate for continuing in business for the foreseeable future. Notwithstanding the challenges arising from the impact of Covid-19, the Investment Manager and its other service providers continue to operate, administer and calculate the net asset value of the Company in accordance with relevant accounting standards.

Accordingly, having assessed the principal risks and the other matters set out in the Longer-Term Viability Statement, the Directors believe that the Company is well placed to manage its business risks successfully and it is thus appropriate to prepare the Annual Report and Financial Statements on a going concern basis. The Company does not have a fixed life.

Approved by the Board of Directors and signed on its behalf by

Julian Cazalet
Chairman
16 June 2021

Financial Statements

Income Statement for the year ended 31 March 2021

2021 2020
RevenueCapitalTotal Revenue Capital Total
Notes£’000£’000£’000 £’000 £’000 £’000
Gains on investments held at fair value through profit or loss 1145,21945,219 7,457 7,457
Exchange gains/(losses) on
currency2727 (6) (6)
Income 213,78213,782 12,395 12,395
Investment management fees 3(1,178)(2,662)(3,840) (1,298) (3) (1,301)
Other expenses 4(501)(501) (424) (1) (425)
Net return before finance costs and tax12,10342,58454,687 10,673 7,447 18,120
Interest payable and
similar charges 7
Return before tax12,10342,58454,687 10,673 7,447 18,120
Tax 8(101)(101) (75) (75)
Return after tax for the financial year12,00242,58454,586 10,598 7,447 18,045
Return per Ordinary Share 10£60.01£212.92£272.93 £52.99 £37.24 £90.23

All revenue and capital items in the above statement derive from continuing operations.

The total columns of this statement represent the profit and loss account of the Company. The revenue and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

The Company does not have any other recognised gains or losses. The net gains for the year disclosed above represent the Company’s total comprehensive income.

No operations were acquired or discontinued during the year.

The notes form part of these Financial Statements.

Statement of Changes in Equity for the year ended 31 March 2021

Share capital
£’000
Special reserve
£’000
Capital reserve
£’000
Revenue  reserve
£’000
Total
£’000
For the year ended 31 March 2021
At 1 April 202015019,850155,48215,848191,330
Return after tax for the financial year42,58412,00254,586
Dividends paid (see note 9)(8,800)(8,800)
At 31 March 202115019,850198,06619,050237,116

   

Share
 capital
£’000
Special reserve
£’000
Capital reserve
£’000
Revenue  reserve
£’000
Total
£’000
For the year ended 31 March 2020
At 1 April 2019 150 19,850 148,035 11,150 179,185
Return after tax for the financial year 7,447 10,598 18,045
Dividends paid (see note 9) (5,900) (5,900)
At 31 March 2020 150 19,850 155,482 15,848 191,330

The notes form part of these Financial Statements.

Statement of Financial Position at 31 March 2021

2021 2020
Notes£’000£’000 £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 11233,893185,678
Current assets
Other receivables 12561415
Cash at bank and in hand5,5415,390
6,1025,805
Creditors: amounts falling due within one year
Other payables 13(2,879)(153)
Net current assets3,2235,652
Net assets237,116191,330
Capital and reserves
Called up share capital 14150150
Special reserve 1519,85019,850
20,00020,000
Capital reserve 15198,066155,482
Revenue reserve19,05015,848
Total Shareholders’ funds237,116191,330
Net Asset Value per Ordinary Share 16£1,185.58£956.65

The Financial Statements were approved by the Board on 16 June 2021 and were signed on its behalf by:

Julian Cazalet
Chairman
The Lindsell Train Investment Trust plc
Registered in England & Wales, No: 4119429

The notes form part of these Financial Statements.

Cash Flow Statement for the year ended 31 March 2021

2021 2020
Notes£’000 £’000
Operating Activities
Net return before finance costs and tax54,687 18,120
Gains on investments held at fair value(45,219) (7,457)
(Gains)/losses on exchange movements(27) 6
Decrease/(increase) in other receivables12 (33)
Increase in accrued income(163) (88)
Increase/(decrease) in other payables2,726 (2,430)
Purchase of investments held at fair value(12,540) (581)
Sale of investments held at fair value9,544 53
Net cash inflow from operating activities before interest
and taxation9,020 7,590
Interest paid
Taxation on investment income(96) (76)
Net cash inflow from operating activities8,924 7,514
Financing activities
Equity dividends paid 9(8,800) (5,900)
Net cash outflow from financing activities(8,800) (5,900)
Increase in cash and cash equivalents124 1,614
Cash and cash equivalents at beginning of year5,390 3,782
Gains/(losses) on exchange movements27 (6)
Cash and cash equivalents at end of year5,541 5,390

The notes form part of these Financial Statements.

Notes to the Financial Statements

1 Accounting policies

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below:

(a) Basis of accounting

The Financial Statements of the Company have been prepared under the historical cost convention modified to include the revaluation of fixed assets in accordance with United Kingdom Company law, FRS 102 ‘The Financial Reporting Standard applicable in the UK and Ireland’ 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 (issued October 2019 and updated in April 2021 with consequential amendments).

After considering a schedule of the Company’s current financial resources and liabilities for the next twelve months, and as a majority of the net assets of the Company are securities which are traded on recognised stock exchanges, the Directors have determined that its resources are adequate for continuing in business for the foreseeable future and that it is appropriate to prepare the Financial Statements on a going concern basis. The Company does not have a fixed life.

(b) Reporting currency

The Financial Statements are presented in Sterling which is the functional currency of the Company because it is the currency of the primary economic environment in which the Company operates.

(c) Dividends

Under Section 32 of FRS 102, final dividends should not be accrued in the Financial Statements unless they have been approved by Shareholders before the Balance Sheet date.

Dividends payable to Shareholders are recognised in the Statement of Changes in Equity when they have been approved by Shareholders and have become a liability of the Company. Interim dividends are only recognised in the Financial Statements in the period in which they are paid.

(d) Valuation of fixed asset investments

The Company’s investments are classified as held at fair value through profit or loss in accordance with Section 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.

When a purchase or sale is made under a contract, the terms of which require delivery within the time frame of the relevant market, the investments concerned are recognised or derecognised on the trade date.

Investments are held through profit or loss and accordingly are valued at fair value, deemed to be bid or last market prices depending on the convention of the exchange on which they are listed. As the Company’s business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, investments are held through profit or loss on initial recognition at fair value. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the Company is provided internally on this basis to the Board.

Lindsell Train fund products are valued daily using prices supplied by the administrator of these funds.

The unlisted investment in Lindsell Train Limited is valued by the Directors at fair value using a valuation methodology adopted by the Board. The formula is monitored by the Board to ensure its ongoing appropriateness. In 2018 and 2020 the Board sought external advice to verify its approach. Please refer to note 1(j) for further information.

The investment in LTL (representing 24.21% of the Investment Manager) is held as part of the investment portfolio. Accordingly, the shares are accounted for and disclosed in the same way as other investments in the portfolio. The valuation of the investment (see note 17) is calculated at the end of each month on the basis of fair value as determined by the Directors of the Company. The valuation process is based upon a methodology that takes into account, inter alia, the value of the funds under LTL’s management and an estimate of its annual earnings.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

  • Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
  • Level 2 – Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
  • Level 3 – Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

(e) Income

Dividends are credited to the revenue column of the Income Statement on an ex-dividend basis. Where an ex-dividend date is not available, dividends are recognised when the Company’s right to receive payment is established. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the debt security. Bank and deposit interest is accounted for on an accruals basis.

(f) Expenses

All expenses are accounted for on an accruals basis. Finance costs are accounted for on an accruals basis using the effective interest rate method. Expenses are charged through the revenue column of the Income Statement except as follows:

  • expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of the Income Statement;
  • expenses are charged to the realised capital reserve, via the capital column of the Income Statement, where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
  • performance fees payable to the Investment Manager are charged 100% to capital.

(g) Taxation

Deferred taxation is provided on all differences which have originated but not reversed by the balance sheet date, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be recovered.

In line with recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented in the capital column of the Statement of Comprehensive Income is the marginal basis under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue column of the Income Statement then no tax relief is transferred to the capital column.

(h) Foreign currency

Transactions denominated in foreign currencies are recorded in the local currency at the actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the capital or revenue column of the Income Statement depending on whether the gain or loss is of a capital or revenue nature respectively.

(i) Capital reserve

The following are taken to this reserve:

  • Gains and losses on the disposal of investments;
  • Exchange differences of a capital nature;
  • Expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies; and
  • Investment holding gains being the increase and decrease in the valuation of investments held at the year end.

Revenue reserve

The revenue reserve reflects all income and expenditure which are recognised in the revenue column of the income statement.

Special reserve

The special reserve arose following Court approval in September 2002 to transfer £19,850,000 from the share premium account. This reserve can be used to finance the redemption and/or purchase of shares in issue.

In accordance with the Company’s Articles of Association, the capital reserve and special reserve may not be distributed by way of a dividend but may be utilised for the purposes of share buybacks. The Company may only distribute by way of dividend accumulated revenue profits within the revenue reserve.

(j) Significant judgments and estimates

The key significant estimate to report is the valuation of the investment in LTL where material judgments are made. Please refer to notes 1(d) and 17 for details of how this holding is valued.

Other than this, in the course of preparing the Financial Statements, no material judgments have been made in the process of applying the Company’s accounting policies, except those that involve estimations.

(k) Registered address and nature of business

The Company is an investment company defined in Section 833 of the Companies Act 2006. Its registered office address is provided on page 104 of the Annual Report.

2 Income

2021
£’000
2020
£’000
Income from investments
Overseas dividends933 650
UK dividends
– Lindsell Train Limited11,719 10,442
– Other UK dividends1,130 1,303
13,782 12,395
Total income comprises:
Dividends13,782 12,395
13,782 12,395

3 Investment Management fees

2021
£’000
2020
£’000
Investment management fee1,262 1,351
Investment Manager’s performance fee – charged to capital2,662 3
Rebate of investment management fee (see below)(84) (53)
Total Management fees3,840 1,301

In accordance with an Investment Management Agreement dated 21 December 2000 (last revised in March 2016) between the Company and LTL, LTL has been providing investment management services to the Company. For their services, LTL receive an annual fee of 0.6% (reduced from 0.65% from 1 July 2019), calculated on the lower of the Adjusted Market Capitalisation and the Adjusted Net Asset Value of the Company, calculated using weekly data and payable in arrears in respect of each calendar month. The amount charged during the year is shown above, and £112,111 (2020: £102,862) of the fee for the year was outstanding as at the balance sheet date.

A performance fee is payable at the rate of 10 per cent of the amount by which the growth in the lower of (i) the Adjusted Market Capitalisation per Ordinary Share of the Company and (ii) the Adjusted Net Asset Value per Ordinary Share of the Company in each performance period exceeds the annual average running yield on the longest-dated UK government fixed rate bond, currently Treasury 1.625% 2071, calculated using weekly data, plus a premium of 0.5% over the period, subject to a minimum yield of 4%, and to a high watermark. The Company has twelve month performance periods, ending on 31 March in each year. The performance fee is payable in arrears in respect of each performance period.

The performance fee payable to the Investment Manager for the year to the 31 March 2021 was £2,661,702 (2020 £3,000). Contractually the fee for this year should have amounted to £5,323,404, but LTL offered to waive (as distinct from defer) half its fee. See the Chairman’s Statement for further details. The 2020 payment represents an adjustment in respect of the fee to the 31 March 2019. The performance fee accrued for the year to 31 March 2020 was £448,679, but was not taken by LTL on account of the Company’s 26.5% negative share price total return over that year.

For the avoidance of double charging management fees, the Investment Manager has agreed to rebate any periodic management fee that it receives from the Company by the amount of fees receivable by it from Lindsell Train fund products and other fund products where LTL is the Investment Manager in respect of the Company’s investments in those funds. The amounts rebated on the Investment Management fee are shown above, of which £4,247 (2020: £35,176) relates to the Company’s investment in the Lindsell Train Japanese Equity Fund, £62,796 (2020: £ nil) relates to the Company’s investment in Lindsell Train North American Equity Fund and £16,985 (2020: £18,050) relates to the Company’s investment in the Finsbury Growth & Income Trust PLC.

4 Other expenses

2021
£’000
2020
£’000
Directors’ emoluments (see note 5)122 127
Administration fee – Maitland47 80
Administration & Company Secretarial fee – Frostrow86
AIFM monitoring fee12 20
Auditors’ remuneration for:
– audit of the Financial Statements of the Company*34 25
Tax Compliance fee5 3
Safe custody fees20 19
Printing fees37 11
Registrars’ fees39 42
Listing fees17 16
Legal fees18 15
Employer’s National Insurance7 9
Directors’ liability insurance7 7
Key man insurance19 22
Sundry31 28
501 424
Capital charges 1
501 425

* Excluding VAT

During the year, effective 1 November 2020 Frostrow Capital LLP was appointed Administrator and Company Secretary to the Company. This role was formerly held by Maitland Administration Services Limited.

5 Directors’ emoluments

These are reflected in the table below:

2021
£’000
2020
£’000
Directors’ fees122 127

Since 1 January 2021, the Chairman of the Board, Chairman of the Audit Committee, and other Directors receive set fees at rates of £36,500, £30,000 and £25,000 respectively per annum, and have no entitlement to any performance fees. Directors’ fees amounting to £25,000 (2020: £22,500) have been waived by Michael Lindsell in view of his connection with the Investment Manager.

There were no pension contributions paid or payable.

6 Disclosure of interests

As at 31 March 2021 the Company held 12,500,000 shares in Lindsell Train North American Equity Fund at a cost of £12,539,988.

LTL is also the Portfolio Manager of Finsbury Growth & Income Trust PLC in which the Company has an investment of 420,000 shares at a cost of £758,721.

LTL’s appointment as Investment Manager to the Company is subject to termination by either party on twelve months’ notice.

7 Interest payable and similar charges

2021
£’000
2020
£’000
On foreign currency cash balances

8 Taxation

The tax charge on the profit on ordinary activities for the year was as follows:

2021 2020
Revenue  £’000Capital  £’000Total
£’000
Revenue  £’000 Capital  £’000 Total
£’000
UK corporation tax
Overseas tax105105 82 82
Overseas tax recoverable(4)(4) (7) (7)
Tax charge per accounts101101 75 75

The taxation charge for the year is lower than the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained below:

2021
£’000
2020
£’000
Net return before tax54,687 18,120
Theoretical tax at UK corporation tax rate of 19% (2020: 19%)10,390 3,443
Effects of:
– UK dividends which are not taxable(2,441) (2,232)
– Overseas dividends which are not taxable(177) (124)
– Capital gains not subject to corporation tax(8,597) (1,416)
– Current year excess expenses319 327
– Unutilised capital expenses506 1
– Overseas tax suffered105 82
– Overseas tax recoverable(4) (6)
Total tax charge101 75

As an investment trust the Company, whilst it maintains exemption under Sections 1158/1159 Corporation Tax Act 2010, is not subject to UK taxation on capital gains. In the opinion of the Directors, the Company has complied with the requirements of Section 1159 Corporation Tax Act 2010.

Factors that may affect future tax charges

As at 31 March 2021, the Company had unutilised management expenses of £26,263,000 (2020: £21,922,000).  These expenses could only be utilised if the Company were to generate taxable profits in the future.  As a result the Company has not recognised a deferred tax asset of £4,990,000 (2020: £4,165,000) arising from management expenses exceeding taxable income.

9 Dividends paid and payable

2020
£’000
2019
£’000
Final dividend paid for the year ended 31 March 2020 of £41.39
per Ordinary Share (2019: £27.87 per Ordinary Share) 8,278 5,574
Special dividend paid for the year ended 31 March 2020 of £2.61
per Ordinary Share (2019: £1.63 per Ordinary Share) 522 326
Total Dividends 8,800 5,900

The total dividend payable in respect of the financial year is set out below. This complies with the requirements of Section 1158 Corporation Tax Act 2010.

2021
£’000
2020
£’000
FinaI dividend payable for the year ended 31 March 2021 of £47.07
per Ordinary Share (2020: £41.39 per Ordinary Share)
9,414 8,278
Special dividend payable for the year ended 31 March 2021 of £2.93
per Ordinary Share (2020: £2.61 per Ordinary Share)
586 522
Total Dividends10,000 8,800

10 Return per Ordinary Share

2021 2020
Return per Ordinary Share
Total return£54,586,000 £18,045,000
Weighted average number of Ordinary Shares
in issue during the year200,000 200,000
Total return per Ordinary Share£272.93 £90.23

The total return per Ordinary Share shown above can be further analysed between revenue and capital, as below:

2021 2020
Revenue return per Ordinary Share
Revenue return£12,002,000 £10,598,000
Weighted average number of Ordinary Shares in
issue during the year200,000 200,000
Revenue return per Ordinary Share£60.01 £52.99
Capital return per Ordinary Share
Capital return£42,584,000 £7,447,000
Weighted average number of Ordinary Shares in
issue during the year200,000 200,000
Capital return per Ordinary Share£212.92 £37.24

11 Investments held at fair value through profit or loss

2021
£’000
2020
£’000
Investments listed on a recognised investment exchange103,969 96,200
Unlisted Investment and Funds129,924 89,478
Valuation at year end233,893 185,678
Opening book cost33,997 33,418
Opening investment holding gains151,681 144,275
Opening Fair Value185,678 177,693
Analysis of transactions made during the year
Purchases at cost12,540 581
Sales proceeds received(9,544) (53)
Gains on investments6,813 7,457
Increase in Investment holding gains for the year38,406
Closing Fair Value233,893 185,678
Closing book cost43,805 33,997
Closing investment holding gains190,088 151,681
Closing Fair Value233,893 185,678

The Company received proceeds of £9,544,000 (2020: £53,000) from investments sold in the year. The book cost of these investments when they were purchased was £2,731,000 (2020: £2,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Investment transaction costs on purchases and sales of investments during the year to 31 March 2021 amounted to £0 and £1,758 respectively (2020: £232 and £3 respectively).

During the year the investment holding gain attributable to the Company’s holding in LTL amounted to £24,760,000 (2020: £7,162,144).

Significant holdings

Included in the above are the following investments in which the Company has an interest exceeding 10% of the nominal value of the shares of that class in the investee company as at 31 March 2021.

InvestmentsCountry of registration or incorporationClass of capital% of class held
Lindsell Train Limited* England Ordinary Shares of £100 24.21%

* As at 31 January 2021, the latest year end for LTL, its audited aggregate capital and reserves amounted to £80,125,000, (2020: £66,735,000) and the profit for that year amounted to £62,311,000 (2020: £59,646,000). The total amount of dividends paid during the year was £48,367,000, equating to dividends of £1,817.00 per share. The earnings per share were £2,339. The cost of the Company’s investment in LTL was £64,500.

LTL is the only related undertaking of the Company. LTL’s registered office address is 66 Buckingham Gate, London SW1E 6AU.

LTL has been accounted for as an investment in accordance with the accounting policy in note 1(d).

The Company has arrangements in place with the Investment Manager to avoid double charging of fees and expenses on investments made in other Lindsell Train fund products (see note 3).

12 Other receivables

2021
£’000
2020
£’000
VAT recoverable14 31
Prepayments and accrued income547 384
561 415

13 Other payables

2021
£’000
2020
£’000
Accruals and deferred income217 150
Performance fee2,662 3
2,879 153

14 Called up share capital

2021 2020
No. of shares
000’s
£’000 No. of shares
000’s
£’000
Authorised:
Ordinary Shares of 75p each200150 200 150
Allotted, called up and fully paid:
Ordinary Shares of 75p each200150 200 150

There has been no change in the capital structure during the year to 31 March 2021.

15 Capital reserve

The capital reserve includes investment holding gains of £190,088,000 (2020: £151,681,000).

Revenue reserve

The revenue reserve reflects all income and expenditure which are recognised in the revenue column of the income statement.

Special reserve

The special reserve arose following Court approval in September 2002 to transfer £19,850,000 from the share premium account. This reserve can be used to finance the redemption and/or purchase of shares in issue.

In accordance with the Company’s Articles of Association the capital reserve and special reserve may not be distributed by way of a dividend but may be utilised for the purposes of share buybacks. The Company may only distribute by way of dividend accumulated revenue profits within the revenue reserve.

The Institute of Chartered Accountants in England and Wales has issued guidance stating that profits arising out of a change in fair value of assets, recognised in accordance with Accounting Standards, may be distributed provided the relevant assets can be readily convertible into cash. Securities listed on a recognised stock exchange are generally regarded as being readily convertible into cash. In accordance with the Company’s Articles of Association the capital reserve and special reserve may not be distributed by way of dividend but may be utilised for the purposes of share buybacks and the Company may only distribute by way of dividend accumulated revenue profits.

16 Net Asset Value per Ordinary Share

The Net Asset Value per Ordinary Share and the Net Asset Value at the year end calculated in accordance with the Articles of Association of the Company were as follows:

Net Asset Value per share attributableNet Asset Value attributable
2021
£
2020
£
2021
£’000
2020
£’000
1,185.58 956.65237,116 191,330

The movements during the year of the assets attributable to each Ordinary Share are disclosed in the Statement of Changes in Equity.

The Net Asset Value per Ordinary Share is based on net assets of £237,116,000 (2020: £191,330,000) and on 200,000 Ordinary Shares (2020: 200,000), being the number of Ordinary Shares in issue at the year end.

17 Financial instruments and capital disclosures

Risk management policies and procedures

The investment objective of the Company is to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital. In pursuit of this objective, the Company may be exposed to various forms of risk, as described below.

The Board sets out its principal risks, investment policy including its policy on gearing (bank borrowing), diversification and dividends within the Strategic Report.

The Board and its Investment Manager consider and review the number of risks inherent with managing the Company’s assets which are detailed below.

Market risk

The fair values or future cash flows of the Company’s financial instruments may fluctuate due to changes in market risk. Market risk encompasses mainly equity price risk but also foreign exchange risk and interest rate risk which are discussed below.

At 31 March 2021, the fair value of the Company’s assets exposed to market price risk was £233,893,000 (2020: £185,678,000). If the fair value of the Company’s investments at the Statement of Financial Position date increased or decreased by 10%, whilst all other variables remained constant, the capital return and net assets attributable to Shareholders as at 31 March 2021 would have increased or decreased by £23,389,000 or 116.95p per share (2020: £18,568,000 or 92.84p per share).

Market risk is reviewed by the Board on a quarterly basis and monitored on a continuous basis by the Investment Manager.

The Covid-19 pandemic could reduce the value of the Company’s investments, and impact on the Company’s revenues in the future.

Foreign currency exposure as at 31 March 2021

US$
£’000
Euro
£’000
JPY
£’000
Total
£’000
Short-term debtors294341374
Foreign currency exposure on net
monetary items294341374
Investments held at fair value through
profit or loss that are equities39,1927,64116,62063,453
Foreign currency exposure39,2217,64516,96163,827

Foreign currency exposure as at 31 March 2020

US$
£’000
Euro
£’000
JPY
£’000
Total
£’000
Short-term debtors 32 8 171 211
Foreign currency exposure on net
monetary items 32 8 171 211
Investments held at fair value through
profit or loss that are equities 16,113 7,347 17,742 41,202
Foreign currency exposure 16,145 7,355 17,913 41,413

Over the year against all of the Company’s principal investing currencies, Sterling strengthened against the US Dollar by 11.27% (2020: weakened by 4.84%), strengthened against the Euro by 3.88% (2020: weakened by 2.62%) and strengthened against the Japanese Yen by 13.89% (2020: weakened by 7.19%).

A 5% decline or rise of Sterling against foreign currency denominated (i.e. non Sterling) assets held at the year end would have increased/decreased the Net Asset Value by £3,187,000 or 1.36% of Net Asset Value (2020: £2,071,000 or 1.08% of Net Asset Value). The impact on the profit and loss account is difficult to estimate, since the profit and loss is the net result of all the transactions in the portfolio throughout the year.

Interest rate risk

There is no material exposure to interest rate risk.

Liquidity risk

Liquidity risk is not considered significant under normal market conditions in relation to the Company’s investments which are listed on recognised stock exchanges and are, for the most part, readily realisable securities which can be easily sold to meet funding commitments if necessary. The Company’s unlisted investment in LTL is not readily realisable.

As of March 2021, 45% (2020: 46%) of the investment portfolio (94% of the listed portfolio) could be liquidated within five business days , based on 20% of 90 days’ average daily trading volume obtained from Bloomberg. The Company would be able to sell all of its listed holdings within five business days, with the exception of two securities representing 3.5% of NAV.

Credit risk

Cash at bank and other debtors of the Company at the year end as shown on the Balance Sheet was £6,102,000 (2020: £5,805,000).

Counterparty risk

Northern Trust Company (the “Bank”) is the appointed custodian of the Company. It provides securities clearing, safe-keeping, foreign exchange, advance credits and overdrafts, and cash deposit services. The Bank has a credit rating for long-term deposits/debt of Aa2 from Moody’s and AA- from Standard & Poor’s.

As cash placed at the Bank is deposited in its capacity as a banker not a trustee in line with usual banking practice, such cash is not held in accordance with the Financial Conduct Authority’s client money rules.

Fair values of financial assets and financial liabilities

The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets/liabilities at fair value through profit or loss

At 31 March 2021Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Investments103,96915,686114,238233,893
103,96915,686114,238233,893

   

At 31 March 2020 Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Investments 96,199 89,479 185,678
96,199 89,479 185,678

Note: Within the above tables, the entirety of level 1 comprises all the Company’s ordinary equity investments, level 2 represents the investment in LF Lindsell Train North American Equity Fund and level 3 represents the investment in LTL.

The valuation techniques used by the Company are explained in the accounting policies note.

LTL valuation methodology

The valuation of the investment in LTL derives from a formula created after taking advice from an expert in the sector and was formally reviewed in March 2018 and again in March 2020 by professional advisors and amended by the Board in 2020. The valuation is reviewed at the end of each month by the Company's Directors and the methodology is reviewed by the Board at its quarterly meetings.

The formula is a simple average of two different components:

  • 1.5% of LTL’s most recent funds under management (“FUM”); and
  • LTL’s net earnings (adjusted for a notional increase in staff costs to 45% of revenues excluding performance fees) calculated with reference to LTL’s most recent end month’s FUM, divided by the annual average running yield on the longest dated UK government fixed rate bond, currently UK Treasury 1.625% 2071, calculated using weekly data, plus a premium of 0.5%, subject to a minimum yield of 4%, plus an equity risk premium of 4.5%.

The valuation matrix below shows the sensitivity of the valuation of each LTL share, which as at 31 March 2021 was £17,711 per share, to changes to key assumptions in the LTL valuation methodology. The horizontal axis shows the impact when the percentage of LTL’s FUM (currently 1.5%) is changed. The vertical axis shows the impact when the discount rate (currently 8.5%) is changed.

LTL Valuation Matrix at 31 March 2021

LTL valuation per share using differing valuation assumptions

Discount rateFunds under Management Multiple
0.50%1.00%1.50%2.00%2.50%
7.00% £15,826 £17,975£20,125 £22,274 £24,424
7.50% £14,914 £17,064£19,213 £21,363 £23,512
8.00% £14,116 £16,266£18,415 £20,565 £22,714
8.50%£13,412£15,562£17,711£19,861£22,010
9.00% £12,787 £14,936£17,086 £19,235 £21,385
9.50% £12,227 £14,376£16,526 £18,675 £20,825
10.00% £11,723 £13,872£16,022 £18,171 £20,321
10.50% £11,267 £13,417£15,566 £17,716 £19,865
11.00% £10,853 £13,002£15,152 £17,301 £19,451
11.50% £10,474 £12,624£14,773 £16,923 £19,072
12.00% £10,127 £12,277£14,426 £16,576 £18,725

Another valuation matrix shows the sensitivity of the per share valuation of LTL to changes in the weighting of the two components of the LTL valuation calculation. It shows both the resultant valuation as a percentage of FUM and in terms of the earnings yield at different weightings.

LTL valuation using different weightings of the two components of the LTL valuation calculation at 31 March 2021

Valuation based on FUM

Valuation based on earnings100%75%50%25%0%% of
FUM
0%12,8971.5%
25%15,3041.8%
50%17,7112.1%
75%20,1192.3%
100%22,5262.6%
Earnings Yield14.8%12.5%10.8%9.5%8.5%

LTL valuation using different weightings of the two components of the LTL valuation calculation at 31 March 2020

Valuation based on FUM

Valuation based on earnings 100% 75% 50% 25% 0% % of
FUM
0% £10,275 1.5%
25%£12,0741.8%
50% £13,873 2.0%
75%£15,6712.3%
100% £17,470 2.6%
Earnings Yield 14.5% 12.3% 10.7% 9.5% 8.5%

The following scenarios show the sensitivity of the Company’s NAV to changes in the valuation of LTL arising from a change of 10% or 20% in LTL’s FUM.

31 March 2021*31 March 2020*
LTL
Valuation
£’000
LTIT
NAV
£’000
LTL
Valuation
£’000
LTIT
NAV
£’000
114,238237,116 89,479 191,330

   

LTL
Change in
valuation
(estimated)
LTIT
Change in
NAV
(estimated)
LTL
Change in
valuation
(estimated)
LTIT
Change in
NAV
(estimated)
10% change in LTL’s FUM+/-10.4%+/-5.0% +/-10.6% +/-5.0%
20% change in LTL’s FUM+/-20.8%+/-10.0% +/-21.3% +/-9.9%

* The estimates assume that the LTL valuation is based on the same methodology used to calculate the 31 March 2021 and 31 March 2020 valuations.

Note:

Both estimates assume that the issued share capital of the Company remains 200,000 shares and the shareholding in LTL remains unchanged.

There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 March 2021 and 31 March 2020. A reconciliation of fair value measurements in Level 3 is set out below.

Level 3 Financial assets at fair value through profit or loss at 31 March

2021
£’000
2020
£’000
Opening fair value89,479 82,360
Purchases at cost
Sales proceeds (43)
Total gains or losses included in gains on investments
in the Income Statement
– on sold assets 43
– on assets held at the end of the year24,760 7,119
Closing fair value114,238 89,479

Capital management policies and procedures

The Company’s capital management objectives are:

  • to ensure that it will be able to continue as a going concern; and
  • to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital through an appropriate balance of equity capital and debt. The Directors have discretion to permit borrowings up to 50% of the Net Asset Value. However, the Directors have decided it is in the best interests of the Company not to use gearing.

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis.

The Company’s objectives, policies and processes for managing capital are unchanged from last year.

The Company is subject to externally imposed capital requirements:

  • as a public company, the Company has a minimum share capital of £50,000; and
  • in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by UK company law.

These requirements are unchanged since last year and the Company has complied with them at all times.

The Company intends to renew its authority to repurchase shares at a discount to Net Asset Value in order to enhance value for Shareholders at the next Annual General Meeting.

18 Guarantees, financial commitments and contingent liabilities

There were no financial commitments or contingent liabilities outstanding at the year end (2020: None)

19 Ongoing charges (APM)

2021 2020
£’000% £’000 %
Total operating expenses1,6790.75 1,722 0.83

Total operating expenses include £84,000 (2020: £53,000) in respect of a management fee waiver (see note 3). They exclude the Manager’s performance fee of £2,662,000 (2020: £3,000).

The above total expense ratios are based on the average Shareholders’ funds of £225,120,000 (2020: £207,946,000) calculated at the end of each month during the year.

It should be noted that administrative expenses borne by the Lindsell Train funds are excluded from the above.

See the glossary for further details.

20 Related Party transactions

Lindsell Train Limited acts as the Investment Manager of the Company. LTL is considered a related party as it has a Director in common with the Company, as well as the Company owning a significant share of LTL. The amounts paid to the Investment Manager are disclosed in note 3 and further details of the relationship between the Company and the Investment Manager are set out in note 6 and note 11. Disclosure of the Directors’ interests in the Ordinary Shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report.

Appendices

DISCLAIMER

The information contained in these Appendices has not been audited by the Auditors and does not constitute any form of financial statement. The appendices are for information purposes and should not be regarded as any offer or solicitation of an offer to buy or sell shares in the Company.

Appendix 1

Annual Review of Lindsell Train Limited (‘LTL’) at 31 January 2021

The Manager of The Lindsell Train Investment Trust

Background

LTL was established in 2000 by Michael Lindsell and Nick Train and was founded on the shared investment philosophy that developed while they worked together during the 1990s. The company’s aim is to foster a work environment in which the investment team can manage capital consistent with this philosophy, which entails managing concentrated portfolios, invested strategically in durable franchises. Essential to success is maintaining a relatively simple business structure encompassing an alignment of interests between on one side LTL’s clients and on the other its founders and employees.

People

LTL’s board of directors consists of the two founders Michael Lindsell and Nick Train, the Chief Operating Officer Michael Lim, the Head of Marketing and Client Services Keith Wilson, Director of Marketing Jane Orr and James Alexandroff and Julian Bartlett, the non-executive directors. James was a co-founder of a specialist investment boutique, Arisaig Partners, and is a longstanding Shareholder in LTIT and Julian is a former partner of Grant Thornton LLP. LTL’s executive staff number 19, a temporary decrease from 20 a year ago although additional recruitment is already underway in 2021. All staff are based in the UK aside from LTL’s North American Marketing and Client Services representative, who works out of Boston.

LTL’s board recognises that key employees should share in the ownership of the company whilst furthering the alignment of interests between them, LTIT and the founders. This is achieved by acquiring shares from LTL’s major stakeholders and through a recently introduced dedicated profit share scheme.

Business

LTL’s strategy is to build excellent long-term performance records for its funds in a way that is consistent with its investment principles and that meet the aims of its clients. Long-term performance is detailed below.

Success in achieving satisfactory investment performance should allow the company to expand its FUM in its three key product areas: UK, Global and Japanese equities. Its fourth strategy, North American Equities, was launched last year but will not be promoted to external investors until it has built up a meaningful track record. LTL aspires to manage multiple billions of pounds in each product area, whilst recognising that there will be a size per product above which their ability to achieve clients’ performance objectives may be compromised. LTL thinks this growth is possible without significantly expanding the investment team, which stood at six at 31 January 2021.

To achieve this growth in a manageable way LTL looks to direct new business flows into LT badged pooled funds and to limit the number of separately managed accounts. The open-ended pooled funds represented 72% of FUM at end of January, unchanged from the year before. Additionally, LTL managed 17 separate client relationships, unchanged from a year ago. The largest pooled fund (the Lindsell Train Global Equity Fund) represented 36% of total FUM and the largest segregated portfolio accounted for 8%.

In the year to 31 January 2021 LTL’s total FUM grew 6% from £21.5bn to £22.8bn, of which £152m represented net new inflows, broken down by strategy as Global (+£234m), Japan (+£185m), UK (a net outflow of £286m) and North America (its initial funding of £20m). Relative performance began to deteriorate in all strategies over the second half of the year although long-term excess returns remain competitive, as shown in the table below.

To 31.1.2021Excess ReturnInception dateBenchmark
UK Equity Fund (GBP) +6.1% p.a. July 2006 FTSE All Share
Global Equity Fund (GBP) +4.9% p.a. March 2011 MSCI World
Japanese Equity Fund (Yen) +2.6% p.a. January 2004 TOPIX

Returns based on NAV. LF Lindsell Train UK Equity Fund Acc share class; Lindsell Train Global Equity Fund B share class; Lindsell Train Japanese Equity Fund A Yen share class.

The Marketing and Client Services team are in contact with institutional clients both directly and through investment consultants, primarily in the UK and the USA. Last year LTL succeeded in increasing its clients and FUM from North America mainly through increasing inflows into Lindsell Train Global Equity LLC. FUM derived from North America now makes up over 11% of total FUM. LTL’s funds are also widely represented on the major UK retail and IFA platforms.

Financials

In the year to 31 January 2021 LTL’s total revenues grew 4%. Annual management fees make up the lion’s share, at 94%, with less predictable performance fees the rest. LTL’s biggest cost item, direct staff remuneration, is capped at 25% of fees (other than those earned from The Lindsell Train Investment Trust plc), as governed by LTL’s Shareholders’ agreement. Employer national insurance costs are excluded from the restriction. Total staff remuneration, including employer national insurance, amounted to 29% of total revenues, down from 31% last year. Fixed overheads were up from £3.3m to £4.2m owing primarily to the rising costs associated with increased contributions to the Financial Services Compensation Scheme. Operating profits were up 4%, registering a margin on sales of 66%.

LTL intends to distribute to Shareholders dividends equivalent to 80% of its retained profits in respect of each accounting year-end, subject to retaining sufficient working and fixed or regulatory capital to enable it to continue its business in a prudent manner. Total dividends paid in the year to 31 January 2021 were £1,817 per share, up from £1,619 per share in the previous year.

At the end of January 2021 LTL’s balance sheet was made up of Shareholders’ funds of £80.1m backed by £79.9m of net current assets including £73.9m of cash.

The Future

LTL believes it has plenty of headroom to grow its FUM, with a continued focus on its stable of pooled funds. LTL’s investment approach is applied uniformly across all its products and remains differentiated and appealing to a wide range of clients. A crucial part of that appeal is the ability for LTL to demonstrate investment results that meet clients’ objectives. Over most of LTL’s history this has been achieved but towards the end of the year under review relative performance deteriorated and has worsened since. Most clients will tolerate short periods of underperformance, especially in a strategy that is so concentrated and committed to its constituent companies, but longer bouts of underperformance could lead to reduced inflows or redemptions. Despite these concerns LTL is currently growing its FUM – most particularly derived from US investors through subscriptions to Lindsell Train Global Equity LLC, which has grown to a size of £1.35bn (up from £306m a year earlier).

With the support of a stable and dedicated team and a strong long-term performance track record, LTL remains positive about its future. But it is fully aware that there are risks ahead which could have a material impact on the value of LTL and its dividend paying potential. These risks include increasing pressure on the active management industry; a material reversion of recent strength in global developed equity markets; and, as mentioned above, the possibility of a sustained bout of underperformance from LTL’s strategies. Perhaps the greatest risk in relation to LTL’s reputation however remains the demise of either of the founders. They are currently aged 62 and 61, in good health and remain strongly committed to LTL. They are supported by increasingly mature and experienced investment professionals, currently numbering four, all of whom are taking on more responsibility and contributing more to investment decisions as their careers progress with the company.

Data to 31 January 2021 unless stated otherwise. The period from 31 January to 31 March 2021 has been reviewed by the Board and there are no significant matters to highlight other than those detailed in this Report.

Funds Under Management

FUM by StrategyJan 2021
£m
Jan 2020
£m
UK9,121 9,486
Global12,637 11,160
Japan1,020 804
North America24 -
Total22,802 21,450

Largest Client Accounts

Jan 2021
% of FUM
Jan 2020
% of FUM
Largest Pooled Fund Asset36% 38%
Largest Segregated Account8% 9%

Lindsell Train Fund Performance

Annualised data to 31 January 20211 Year
%
3 Years
%
5 Years
%
10 Years
%
GBP UK Equity Fund (Accumulation)(1.0)6.310.112.4
FTSE All Share (total return)(7.6)(0.5)5.65.5
GBP Global Equity Fund (B share)9.913.018.1na
MSCI World (total return)10.8(9.6)14.1na
JPY Japanese Equity Fund (A share)3.03.310.512.3
TOPIX (total return)10.01.97.29.5

Source: Morningstar Direct

FinancialsUnauditedAudited
Jan 2021
£’000
Jan 2020
£’000
%
Change
Profit & Loss
Fee Revenue
Investment Management Fee109,369 107,143 2%
Performance Fee6,576 4,717 39%
Bank interest121 415
116,066 112,275
Staff Remuneration*(34,362) (35,232) (2%)
Fixed Overheads(4,246) (3,321) 28%
FX Currency Translation loss(1,578) (67)
Investment Gain1,000 -
Operating Profit76,880 73,655 4%
Taxation(14,569) (14,009)
Net Profit62,311 59,646 4%
Dividends(48,367) (43,162)
Retained Profit13,944 16,484
Capital & Reserves
Called up Share Capital267 267
Treasury Shares(550) -
Profit and Loss Account80,408 66,468
Shareholders Funds80,125 66,735
Balance Sheet
Fixed Assets195 61
Investments6,000 -
Current Assets (inc cash at bank)83,587 81,130
Liabilities(9,657) (14,456)
Net Assets80,125 66,735

* No more than 25% of fees (other than LTIT fees) can be paid as staff remuneration. Employer national insurance costs are excluded from this limit.

Five Year History

Jan 2021 Jan 2020 Jan 2019 Jan 2018 Jan 2017
Operating Profit Margin66% 66% 66% 62% 68%
Earnings per share (£)*2,339 2,237 1,688 1,149 813
Dividends per share (£)*1,817 1,619 1,099 784 545
Total staff costs as % of revenue30% 31% 32% 34% 30%
Opening FUM (£m)21,450 16,260 13,179 8,975 6,189
Changes in FUM (£m)1,352 5,190 3,081 4,204 2,786
– of market movement1,200 2,781 808 2,074 1,179
– of fund flows152 2,409 2,273 2,130 1,607
Closing FUM (£m)22,802 21,450 16,260 13,179 8,975
LT Open ended funds as % of total73% 73% 72% 67% 61%
Client Relationships
Pooled Funds4 4 4 4 4
Separate Accounts17 17 17 15 16

Ownership*

Jan 2021 Jan 2020
Michael Lindsell & spouse9,650 9,650
Nick Train & spouse9,650 9,650
The Lindsell Train Investment Trust plc6,450 6,450
Other Directors & employees875 910
26,625 26,660
Treasury35
Total Shares26,660 26,660

Board of Directors

Nick Train Chairman and Portfolio Manager
Michael Lindsell Chief Executive and Portfolio Manager
Michael Lim Chief Operating Officer
Keith Wilson Head of Client Servicing & Marketing
Jane Orr Director of Marketing
James Alexandroff Non-Executive Director
Julian Bartlett Non-Executive Director

Employees

Jan 2021 Jan 2020
Investment Team (inc. 3 Portfolio Managers)6 6
Client Servicing & Marketing6 6
Operations & Administration7 8
Non-Executive Directors2 1
Total number of employees21 21

* On 1 February 2019 LTL undertook a share split with each share subdivided into 10 shares of £10 each. The per share figures are retrospectively changed from January 2016 to January 2019 based on 26,660 shares for ease of comparison.

LTIT Directors’ Valuation of LTL

Mar 2021
£’000
Mar 2020
£’000
Funds under Management ex LTIT22,908,969 18,232,082
Valuation of LTL based on 1.5% of FUM (A)343,634 273,481
Revenue ex performance fees121,871* 97,542**
Notional Staff costs (45%)(54,842) (43,894)
Interest Income8* 221**
Operating Costs(4,052)* (5,076)**
Notional tax(11,967) (9,271)
Notional post tax earnings51,017 39,522
Benchmark +4.0% 4.0%
Equity Risk Premium4.5% 4.5%
Total yield + premium (discount rate)8.5% 8.5%
Valuation of LTL based on earnings (B)600,205 464,961
Valuation of LTL (A+B)/2 (C)471,920 369,221
Number of shares in issue (D)#26,645 26,615
Valuation per share in LTL (C/D)£17,711 £13,783

* Revenues based on 31 March 2021 LTL FUM multiplied by LTL's average fee rate for the six months to 28 February 2021 and interest income and operating costs based on the average of three months to 28 February 2021.

** Revenues based on 31 March 2020 LTL FUM multiplied by LTL's average fee rate for the year to 31 January 2020 and interest income and operating costs based on February 2020 data annualised.

+ As described in the Company summary on the inside front cover.

# The increase in the shares in issue is accounted for by sales of Treasury shares to LTL employees.

LTL’s valuation is based on a formula first developed at the inception of the Company, amended by an independent professional advisor in 2007 and further reviewed by professional external advisors in 2018 and 2020 and amended by the Board in 2020.

At its core are two methodologies widely used in the industry – a value based on a percentage of LTL’s FUM and one on its earnings. The LTIT Board view these methods of valuation to have equal validity and thus equally weight their contribution to the overall calculation.

In calculating the valuation based on LTL’s FUM the LTIT Board currently values LTL at 1.5% of FUM. LTL monitors merger and acquisition transactions in the fund management industry and of the 153 transactions since 2009 the median transaction value has been 1.7% of FUM. The median average value of transactions during 2020 was 1.5% of FUM. These values compare with the ongoing median average value of Global quoted fund managers (ex. Alternative Asset Managers) of 1.5% of FUM at 31 March 2021.

In calculating the earnings based valuation performance fees are excluded owing to their unpredictability.

LTL earnings are calculated by reference to LTL’s most recent end month FUM.

Salary and bonus expenses at LTL are restricted by a salary and bonus cap*. Currently the founders of LTL earn rewards for their endeavours from salaries and bonuses together with dividends from their shareholdings. The LTIT Board believe that if it became necessary to replace the founders with individuals with a lesser ownership interest in the company, it may be necessary to increase the salary and bonus cap to compensate them sufficiently. LTL’s actual salary and bonus costs have averaged 37% of revenues since 2001 but the LTIT Board judges it necessary to instead apply a notional salary cost at 45% of revenues in calculating earnings. Currently a quoted peer group of fund managers exhibit an average salary cost to revenue ratio of 38% but the salary to revenue ratio of peers with FUM equivalent to LTL is higher at 44%. The LTIT Board believes a notional salary to revenue ratio of 45% makes sufficient allowance for the eventuality described above.

Notional post-tax earnings are discounted by a discount rate made up of two parts: the Company’s benchmark – the annual average yield on the longest dated UK Government bond yield, which is a proxy for the risk free rate, with a minimum of 4%, plus an equity risk premium of 4.5%. As the current redemption yield on the longest dated UK Government bond is at c.1.1%, well below the minimum, you could argue that there is an implicit additional risk premium of 2.9%. This part of the calculation will fluctuate but only when long-term interest rates rise above 3.5%. The 4.5% equity risk premium could change at the LTIT Board’s discretion if there was more (or less) certainty that the company could continue beyond the active participation of the founders. While there remains doubt the LTIT Board believe it is prudent to use a higher premium (4.5%). The warranted discount rate amounting to 8.5% is the sum of the risk premium and the benchmark.

The formula is calculated monthly referencing the end month FUM of LTL and LTL’s annualised revenues ex performance fees based on the prior three month data.

* No more than 25% of fees (other than LTIT fees) can be paid as staff remuneration. Employer national insurance costs are excluded from this limit.

Appendix 2

Share Capital

At 31 March 2021 and 31 March 2020, and up to the date of this report, the Company had an authorised and issued share capital comprising 200,000 Ordinary Shares of 75p nominal value each. At 31 March 2021 the Ordinary Share price was £1,420 (31 March 2020: £1,060).

Income entitlement

The Company’s revenue earnings are distributed to holders of Ordinary Shares by way of such dividends (if any) as may from time to time be declared by the Directors and approved by the Shareholders.

Capital entitlement

On a winding up of the Company, after settling all liabilities of the Company, holders of Ordinary Shares are entitled to a distribution of any surplus assets in proportion to the respective amounts paid up or credited as paid up on their shares.

Voting entitlement

As permitted by applicable law, some of these rights are varied in respect of the upcoming Annual General Meeting of the Company due to the present circumstances regarding the Covid-19 pandemic. Subject to any rights or restrictions attached to any shares, on a show of hands, every member who is present in person has one vote and every proxy present who has been duly appointed has one vote. However, if the proxy has been duly appointed by more than one member entitled to vote on the resolution, and is instructed by one or more of those members to vote for the resolution and by one or more others to vote against it, or is instructed by one or more of those members to vote in one way and is given discretion as to how to vote by one or more others (and wishes to use that discretion to vote in the other way) he or she has one vote for and one vote against the resolution. Every corporate representative present who has been duly authorised by a corporation has the same voting rights as the corporation. On a poll, every member present in person or by duly appointed proxy or corporate representative has one vote for every share of which they are the holder or in respect of which their appointment as proxy or corporate representative has been made.

A member, proxy or corporate representative entitled to more than one vote need not, if they vote, use all their votes or cast all the votes they use the same way. In the case of joint holders, the vote of the senior who tenders a vote shall be accepted to the exclusion of the votes of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the register of members. A member is entitled to appoint another person as his proxy to exercise all or any of their rights to attend and to speak and vote at a meeting of the Company.

The appointment of a proxy shall be deemed also to confer authority to demand or join in demanding a poll. Delivery of an appointment of proxy shall not preclude a member from attending and voting at the meeting or at any adjournment of it. A proxy need not be a member. A member may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by them.

Transfers

There are no restrictions on transfers of Ordinary Shares except: a) dealings by Directors, Persons Discharging Managerial Responsibilities and their connected persons which may constitute insider dealing or are otherwise prohibited by the rules of the UKLA; b) transfers to more than four joint holders; c) transfers to US persons other than as specifically permitted by the Directors; d) if, in the Directors’ opinion, the assets of the Company might become “plan assets” for the purposes of US ERISA 1974; and e) transfers which in the opinion of the Directors would cause material legal, regulatory, financial or tax disadvantage to the Company.

Appendix 3

Agreements with Service Providers

Investment Management Agreement

The Investment Manager, LTL, is engaged under the terms of an amended and restated management agreement dated 10 November 2020 (the “IMA”). Details of the IMA are given in note 6 to the Financial Statements. The IMA is terminable on twelve months’ notice by either party.

The IMA, which has been in place since 21 December 2001, as amended from time to time, was amended during the period to which the Financial Statements relate, on 10 November 2020. The principal amendment was to the calculation of the Investment Management Fee and had the effect of reducing the fees to which LTL was entitled and more accurately reflecting the practice of LTL in charging the Investment Management Fee. Details of the Investment Management Fee and this change are set out below. The IMA was also amended to codify the stated practice of LTL not to charge the Investment Management Fee on holdings by the Company in other funds managed by LTL. The other amendments were non-substantive and intended to update the contract and more accurately reflect the services provided by LTL to the Company.

The IMA was further amended after the period to which the Financial Statements relate, on 3 June 2021. Those amendments related to the Performance Fee, details of which are set out below, and a clarification amendment to the Management Fee provisions.

Lindsell Train Limited (‘LTL’), the Company’s investment manager, is considered a related party of the Company under the Listing Rules and the amendments to the investment management agreement therefore constituted a smaller related party transaction pursuant to Listing Rule 11.1.10 R. As required by the Listing Rules, the Board announced the details of the amendments on 3 June 2021.

Investment Management Fee

Since 1 April 2016, the Investment Management Fee had been calculated by reference to the lower of the Adjusted Market Capitalisation or the Adjusted NAV of the Company, whereby the Market Capitalisation or NAV (as applicable) had been adjusted by adding back the amount of all dividends declared in the relevant period. The IMA was amended on 10 November 2020 to remove these adjustments to (and thereby reducing) the Market Capitalisation and Net Asset Value of the Company for the purpose of calculating the Investment Management Fee.

The Investment Management Fee is payable at the annual rate of 0.60 per cent. of the lower of

  1. the Market Capitalisation of the Company; and
  2. the Net Asset Value of the Company, calculated daily,

Performance Fee

As stated above, the Performance Fee provisions of the IMA were amended on 3 June 2021.

The principal change was to reflect the new benchmark adopted by the Company, the MSCI World Index total return in Sterling, with effect from 1 April 2021. As explained in the Chairman's Statement in this Annual Report, the Board and LTL consider that the MSCI World Index total return in Sterling is a more appropriate benchmark for the Company given the nature of the Company’s portfolio, which is predominantly invested in equities and is likely to remain so for the foreseeable future. Reflecting this change, the Board believes that it is also the appropriate benchmark to use for the purpose of calculating the Performance Fee. The Board is satisfied that, on a historic analysis and based upon forward-looking projections prepared by LTL and considered by the Board and its advisers, the Performance Fee payable by the Company would have been (in respect of the historic analysis) and is generally expected to be (in respect of the projections) lower than if the Performance Fee were calculated by reference to the Company’s former benchmark, although there is no guarantee that this will be the case.

There was also an amendment to the calculation of the performance hurdle whereby the hurdle (whether the Market Capitalisation or Net Asset Value of the Company in respect of which a Performance Fee was previously paid) is adjusted by excluding any dividends that were otherwise taken into account for the purpose of calculating that previous Performance Fee as well as deducting the amount of the Performance Fee paid as a result of that calculation. Whilst expected to have the effect of marginally increasing the level of Performance Fees payable by the Company, the Board is satisfied that this change is fair for Shareholders and in line with standard market practice, and that the effect on the level of fees is likely to be more than offset by the downward effect expected by the change in benchmark.

In each Performance Period the Performance Fee is payable at the rate of 10 per cent. of the difference between (a) the lower of (i) the Adjusted Market Capitalisation per Ordinary Share of the Company and (ii) the Adjusted Net Asset Value per Ordinary Share of the Company, and (b) the Performance Hurdle, if this difference is positive and provided that the lower of (i) and (ii) also exceeds a high water mark such that there must be positive absolute performance in the relevant year.

The Performance Hurdle is calculated by reference to:

  1. the Adjusted Market Capitalisation per Ordinary Share of the Company (using the average share price during the last calendar month of a Performance Period); or
  2. the Adjusted Net Asset per Ordinary Share of the Company,

depending on which was the lower amount when used in the calculation of the most recently paid Performance Fee, adjusted to exclude any dividends that were included for the purpose of that previous calculation and to deduct the amount of the Performance Fee paid as a result of that calculation. That amount is then increased by the percentage performance of the benchmark (on a total return basis) in the relevant period.

A Performance Fee will only be paid if the change over the Performance Period is both above the benchmark and is a positive figure. Relative performance will be carried forward in years where the Investment Manager is not eligible for a Performance Fee based on these two criteria. The Performance Fee remains subject to a maximum amount that, when aggregated with the Investment Management Fee paid over a year, shall not be equal to or greater than 5 percent. of the lower of the Net Asset Value and the market Capitalisation of the Company, save that any excess Performance Fee may be carried forward to when a future payment is due.

During the year the Directors reviewed the performance of the Investment Manager and consider that the continued engagement of LTL under the existing terms is in the best interests of the Company and Shareholders. Michael Lindsell did not participate in the review as he is an employee and shareholder of the Investment Manager.

In addition to the day to day management of investments, the Investment Manager advises the Board on liquidity and borrowings and liaises with major Shareholders. The Investment Manager has a stated policy on stewardship and engagement with investee companies, which the Board has reviewed and endorses, and provides verbal reports to the Board where any concerns or issues have been raised.

Administration, company secretarial and management services agreement

Accounting, company secretarial and administrative services are provided by Frostrow Capital LLP (“Frostrow”) pursuant to an agreement dated 30 October 2020. With effect from 1 November 2020, Frostrow is entitled to receive from the Company an annual fee of 0.11 per cent. of the Company’s Net Asset Value up to £150 million plus 0.05 per cent. of that part of the Company’s Net Asset Value in excess of £150 million. The agreement is terminable by either party on not less than six months’ notice.

Details of the fees paid to Frostrow are given in note 4 to the Financial Statements. The services provided by Frostrow since their appointment were also been reviewed during the year and the Board considered it to be in the best interests of the Company to continue Frostrow’s appointment under the existing terms.

Other third party service providers

In addition to the Investment Manager and Administrator, the Company has engaged Link Group Services to maintain the share register of the Company and Northern Trust Company, London Office as the Company’s custodian. The agreements for these services were entered into after careful consideration of their terms and their cost-effectiveness for the Company.

Glossary of Terms and Alternative Performance Measures (APM)

AIC

Association of Investment Companies.

Alternative Investment Fund Managers Directive (AIFMD)

The Alternative Investment Fund Managers Directive (the “Directive”) is a European Union Directive that entered into force on 22 July 2013. The Directive regulates EU fund managers that manage alternative investment funds (this includes investment trusts).

Alternative Performance Measure (APM)

An alternative performance measure is a financial measure of historical or future financial performance, financial position or cash flow that is not prescribed by the relevant accounting standards. The APMs are the discount and premium, dividend yield, share price and NAV total return and ongoing charges as defined below.

Benchmark for the year ended 31 March 2021

The annual average running yield on the longest-dated UK government fixed rate bond currently UK Treasury 1.625% 2071, calculated using weekly data, plus a premium of 0.5%, subject to a minium yield of 4.0%.

Discount and premium (APM)

If the share price of an investment trust is higher than the Net Asset Value (NAV) per share, the shares are trading at a premium to NAV. In this circumstance the price that an investor pays or receives for a share would be more than the value attributable to it by reference to the underlying assets. The premium is the difference between the share price (based on mid-market share prices) and the NAV, expressed as a percentage of the NAV.

A discount occurs when the share price is below the NAV. Investors would therefore be paying less than the value attributable to the shares by reference to the underlying assets.

A premium or discount is generally the consequence of supply and demand for the shares on the stock market.

The discount or premium is calculated by dividing the difference between the share price and the NAV by the NAV.

Dividend yield (APM)

A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the value of dividends paid in a given year per share held by the share price.

2021 2020
Total Dividends paid per ordinary share (a)£50.00 £44.00
Closing price per Ordinary Share on 31 March (b)£1,420.00 £1,060.00
Dividend Yield (a) ÷ (b)3.52% 4.15%

Net Asset Value (NAV) per Ordinary Share

The NAV per Ordinary Share is Shareholders’ funds expressed as an amount per individual share. Equity Shareholders’ funds are the total value of all the Company’s assets, at current market value, having deducted all current and long-term liabilities and any provision for liabilities and charges.

The NAV per Ordinary Share of the Company is published weekly.

2021
‘000
2020
‘000
Net Asset Value (a)£237,116 £191,330
Ordinary Shares in issue (b)200 200
Net Asset Value per Ordinary Share (a) ÷ (b)£1,185.58 £956.65

Ongoing charges (APM)

Ongoing charges are expenses of a type that are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the Company as an investment trust, excluding the costs of acquisition or disposal of investments, financing costs and gains or losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs and include the annual management charge but not the performance fee. The calculation methodology is set out by the Association of Investment Companies.

2021
£'000
2020
£'000
Total operating expenses (a)1,679 1,722
Average Net Asset Value (b)225,120 207,946
Ongoing Charges (a) ÷ (b)0.75% 0.83%

Revenue return per Share

The revenue return per share is the revenue return profit for the year divided by the weighted average number of ordinary shares in issue during the year.

Share price and NAV total return (APM)

This is the return on the share price and NAV taking into account both the rise and fall of share prices and valuations and the dividends paid to Shareholders.

Any dividends received by a Shareholder are assumed to have been reinvested in either additional shares (for share price total return) or the Company’s assets (for NAV total return).

The share price and NAV total return is calculated as the return to Shareholders after reinvesting the net dividend in additional shares on the date that the share price goes ex-dividend.

Year Ending 31 March 2021
LTIT NAVLTIT Price
NAV/Price at 31 March 2021 a£1,185.58£1,420.00
Dividend Adjustment Factor* b 1.041.00 1.0372.00
Adjusted closing NAV/Price c = a x b 1,234.19 1,472.82
NAV/Price at 31 March 2020 d £956.65 £1,060.00
Total return [(c/d)-1]*100+29.0%+38.9%

* The dividend adjustment factor is calculated on the assumption that the dividends of £44.00 paid by the Company during the year were reinvested into shares or assets of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

LTL total return performance

The total return performance for LTL is calculated as the return after receiving but not reinvesting dividends received over the year.

LTL valuation
Valuation at 31 March 2020 a £13,873
Valuation at 31 March 2021 b£17,711
Dividends paid during the year c £1,817
Total return {[(b-a)+c]/a}*10040.8%

Treasury Shares

Shares previously issued by a company that have been bought back from Shareholders to be held by the company for potential sale or cancellation at a later date. Such shares are not capable of being voted and carry no rights to dividends.

2021 Accounts

The figures and financial information for 2021 are extracted from the Annual Report and financial statements for the year ended 31 March 2021 and do not constitute the statutory accounts for the year.  The Annual Report and financial statements include the Report of the Independent Auditor which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.  The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.

2020 Accounts

 The figures and financial information for 2020 are extracted from the published Annual Report and financial statements for the period ended 31 March 2020 and do not constitute the statutory accounts for that year.  The Annual Report and financial statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditor which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

Annual report and financial statements 

Copies of the Annual Report and financial statements will be posted to shareholders in mid June 2021 and will be available on the Company’s website shortly and in hard copy format from the Company Secretary. 

The Company's Annual Report for the period ended 31 March 2021 has been submitted to the Financial Conduct Authority and will shortly be available for inspection on the National Storage Mechanism (NSM) via https://data.fca.org.uk/#/nsm/nationalstoragemechanism. 

The Annual General Meeting will be held on Thursday, 9 September 2021.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

-ENDS-

For further information please contact

Victoria Hale
Company Secretary
For and on behalf of Frostrow Capital LLP
020 3170 8732