LINDSELL TRAIN INVESTMENT TRUST PLC 15 June 2022
The Lindsell Train Investment Trust plc
(the “Company” or “LTIT”)
This announcement contains regulated information
Annual Financial Report for the year ended 31 March 2022
Financial Highlights for the Year
| Performance Comparisons | Change |
| Share price total return per Ordinary Share*^ | -20.0% |
| Net Asset Value total return per Ordinary Share*^ | -2.3% |
| MSCI World Index total return (Sterling) | 15.4% |
| UK RPI Inflation (all items) | 8.9% |
* The Net Asset Value and the share price at 31 March 2022 have been adjusted to include the Ordinary dividend of £47.07 per Share and a special dividend of £2.93 per Ordinary Share paid on 14 September 2021, with the associated ex-dividend date of 12 August 2021.
^ Alternative Performance Measure (“APM”). See Glossary of Terms and Alternative Performance Measures.
Source: Morningstar and Bloomberg.
Chairman’s Statement
The Company’s net asset value (‘NAV’) total return suffered a second year of disappointing relative performance as compared to its recently introduced equity benchmark - the MSCI World index in Sterling. The NAV at 31 March 2022 was £1,113.81 as compared to £1,185.58 at 31 March 2021 with the NAV total return down 2.3%, which compared with the benchmark’s rise of 15.4%. The share price total return fell more, down 20.0%, as the share price premium to NAV contracted from 20.0% to a discount of 0.8% over the twelve month period.
The underperformance relative to the benchmark was attributable to three factors. Firstly, the Company has limited investments in the technology companies that have been at the vanguard of performance in global markets since 2019 and have contributed most to strong benchmark returns. The only direct holding that the Company owns that could be categorised as technology – PayPal – fell by 52% over the year and was the Company’s worst performer, having done exceptionally well in the year to 31 March 2021 when it was up 154%. Nick Train comments on this in his Manager’s Report. Secondly, the Manager’s investment approach specifically avoids companies in two other sectors that also contributed significantly to the strong performance of the benchmark index – energy and financials. With little or no exposure to these three sectors of the market, and instead big positions in consumer franchises that faced headwinds such as disrupted sales during the pandemic and steeply rising input prices thereafter, keeping up with the market proved particularly difficult. The final factor was the lower valuation attributed to the Company’s Manager, Lindsell Train Limited (‘LTL’) in which the Company owns a 24.3% stake. Recently, LTL’s funds under management (‘FUM’) have fallen, largely as a result of net redemptions but also because of the decline in the value of investments held in client portfolios. We should also record that the Company’s holding in the Lindsell Train North American fund has appreciated in value by 41% since we initiated the investment in April 2020 but it too has struggled to match its benchmark returns with the MSCI North American index up 59%.
Given LTL’s focused investment approach, it is not surprising that the Company’s investment performance has been reflected in LTL’s other strategies and this is making it more difficult to attract new business. But our view is that no disciplined strategy does well all the time, especially one where concentration and minimal portfolio turnover are its hallmarks. What is crucial is that the exceptional business characteristics of LTL’s portfolio companies should endure – in other words, in aggregate they should exhibit higher returns on capital than the average company. This remains the case and the Manager, supported by your Board, expects compounding and time will work to enable returns to catch up in the future.
Certainly these characteristics have underpinned performance in the past, evidenced by the satisfactory long-term absolute and relative annualised returns the Company achieved of 17.2% over five years and 20.0% over ten years to 31 March 2022, compared to MSCI World Index returns of 10.4% and 13.0% respectively. Given the Manager’s long-term investment approach the Board considers it important to assess performance over longer periods of time rather than just one year.
Lindsell Train Limited
Despite the pressures documented above, LTL’s business performed well during its financial year to 31 January 2022, with revenues and profits exceeding previous years (see Appendix 1). However, as LTL’s year end valuation attests, there was a slow but steady deterioration as the year progressed and that trend has persisted into its new financial year.
LTL has for some years been taking steps to improve the durability of its business and is implementing some important initiatives, with particular focus on succession. Both Nick Train and Michael Lindsell plan to continue to be actively involved in portfolio management and running the business for at least another seven years but since 2010 have built up a strong pool of investment talent. There are now five additional members of the investment team, including a Portfolio Manager and two Deputy Portfolio Managers. All are progressing well and taking on more responsibility. Within operations and marketing, a similar line-up of talent is in place to assume additional responsibilities as long-standing employees lessen their involvement. For instance, Michael Lim, a director of LTL, who has undertaken multiple non-investment roles over the 21 years of his tenure with the company, is passing on his COO responsibilities to Joss Saunders, who joined the company in May 2021. LTL has been recruiting to bolster all aspects of its business with the result that its employees now number 25, up from 19 at this time last year.
It is important that key employees are incentivised to build their careers at LTL. LTL’s profit share scheme has now been extended to four members of staff who have a perpetual claim (so long as they remain employed by LTL) currently between 5 and 10% of LTL’s net profits. Half of this reward (therefore almost all of the post-tax amount) is required to be invested in LTL shares to create the alignment of interest that is a core feature of LTL’s business approach. LTL shares will be bought from LTL’s treasury and retiring employees but ultimately from the founders of the company who over time expect their holding to diminish. Nine LTL employees have now bought shares in LTL, up from five at this time last year.
Shareholders should note that despite the recent decline in FUM and revenues and the increased costs associated with the rise in staff numbers, LTL’s profit margin is currently protected by its salary and bonus cap (ex employers’ National Insurance payments), which remains at 25% of all fee revenues (other than those derived from LTIT). This policy has been in place since the Company’s inception and, together with the commitment from LTL to pay out 80% of its net profits as dividends, was designed to provide an important reassurance to minority shareholders – LTIT and LTL non-founder employees – that any success in growing LTL would be translated into tangible rewards for LTL shareholders by way of dividends. As LTL’s profit share scheme expands (as it is intended it will in future years), it may well be that the salary and bonus cap will need to be raised to accommodate higher awards and, should that occur, shareholders should be aware that LTL profit margins would fall from current levels (see Appendix 1).
LTL’s relative investment performance has deteriorated across its four strategies for the same reasons as this Company’s performance has proved disappointing. Ten year returns both from an absolute and relative perspective remain satisfactory but over shorter-term periods, especially one and three years, returns lag their respective benchmarks by wide margins.
Holding onto investments in good times and bad is difficult when the pressure from much of the financial industry is to demonstrate activity in the face of adversity. We think that by standing out against the crowd LTL has the best chance to generate competitive long-term returns and offer a worthwhile service to its clients.
The Valuation of Lindsell Train Limited
One of the important tasks which your Board undertakes is to value the non-controlling unquoted 24.3% minority stake in LTL, currently valued at £96.9m. The work the Board puts into this task is supplemented by professional advice it receives to inform and validate its decision. Having conducted a review of the valuation methodology with its advisors in early 2022 the Board has changed LTL’s valuation methodology from 31 March 2022 onwards to a simpler, single component. This is based on a percentage of LTL’s FUM, with the percentage applied adjusted to reflect the ongoing profitability of LTL. The Board believes that a change from the old methodology was necessary as in recent years the valuation difference between the two components used previously had widened considerably on account of the operating leverage in LTL’s business as its FUM increased. Shareholders should be reassured that the valuations calculated by the new methodology correlate closely to the results of the old one, both on 31st March 2022 and historically (see the graph comparing the output of the two methodologies in Appendix 1). The Board will continue to monitor a number of alternative approaches to the valuation of LTL to ensure that the result of the new methodology makes sense in the context of the future prospects for LTL and also when it is compared with similar businesses.
In assessing the net profits of LTL for the purposes of the LTL valuation, the Board continues to apply an adjustment to total salary costs of 45% of revenues as opposed to the actual percentage that has averaged 33% (salary costs including employers’ National Insurance payments) over the past 10 years. In doing so the Board has explicitly acknowledged for some years the risk that LTL’s salary costs might have to rise above the 25% salary and bonus cap threshold in order to sufficiently incentivise key employees, as I alluded to earlier.
Dividend
The Board recommends paying a dividend for the year to 31 March 2022 of £53.00 per share, up 6% from last year and reflecting the small increase in LTIT’s net profits. This is made up of an ordinary dividend of £51.12 and special dividend of £1.88 in respect of the proportion of LTL’s income that was earned from performance fees. This is the minimum dividend that the Company must pay to maintain the Company’s Investment Trust status.
If these dividends are approved by shareholders at the Annual General Meeting, they will be paid on Tuesday, 13 September 2022 to shareholders on the register at close of business on Friday, 12 August 2022 (ex-dividend Thursday, 11 August 2022).
Last year 85% of the Company’s total revenues were accounted for by dividends paid by LTL. It is clear that falling LTL FUM could in future affect the Company’s profitability and its dividend. Although the Board has sanctioned paying a maintained dividend out of revenue reserves in the past, consideration may need to be given to reducing the dividend in future years should circumstances so dictate.
Considerations for the Future
Viewed objectively the outlook for the Company’s investments could not be more uncertain. The war in Ukraine, the pandemic, supply chain issues and the associated logistical challenges, the rise in commodity prices, inflation and rising interest rates all spring to mind as material risks to the value of equities. We have no special insight on any of these risks except to reflect that their combined impact is impossible for anyone to predict! We endorse our Manager’s approach to mitigating these risks – and indeed any others yet to materialise – which is to invest in a concentrated portfolio of treasured and durable business franchises trusting that the unique market positions they have carved out for themselves allow them to survive and prosper through all eventualities.
Julian Cazalet
Chairman
14 June 2022
Portfolio Holdings at 31 March 2022
(All ordinary shares unless otherwise stated)
| Look-through | ||||
| Fair value | % of net | basis % of | ||
| Holding | Security | £’000 | assets | net assets† |
| 6,450 | Lindsell Train Limited | 96,910 | 43.51 | 43.51 |
| 235,000 | London Stock Exchange | 18,716 | 8.40 | 8.57 |
| 12,500,000 | LF Lindsell Train North American Equity Fund | 17,601 | 7.90 | 0.00 |
| 420,500 | Diageo | 16,246 | 7.29 | 7.51 |
| 41,000 | Nintendo | 15,819 | 7.10 | 7.10 |
| 363,000 | RELX | 8,647 | 3.88 | 4.10 |
| 97,400 | PayPal | 8,554 | 3.84 | 4.07 |
| 222,000 | Unilever | 7,670 | 3.45 | 3.57 |
| 150,000 | Mondelez International | 7,152 | 3.21 | 3.62 |
| 1,263,393 | A.G. Barr | 6,709 | 3.01 | 3.03 |
| 89,000 | Heineken | 5,347 | 2.40 | 2.48 |
| 420,000 | Finsbury Growth & Income Trust | 3,482 | 1.56 | 0.00 |
| 36,621 | Laurent Perrier | 2,915 | 1.31 | 1.31 |
| Indirect Holdings | – | – | 7.95 | |
| Total Investments | 215,768 | 96.86 | 96.82 | |
| Net Current Assets | 6,993 | 3.14 | 3.18 | |
| Net Assets | 222,761 | 100.00 | 100.00 |
† Look-through basis: Percentages held in each security is adjusted upwards by the amount of securities held by Lindsell Train managed funds. A downward adjustment is applied to the fund‘s holdings to take into account the underlying holdings of these funds. It provides shareholders with a measure of stock specific risk by aggregating the direct holdings of the Company with the indirect holdings held within Lindsell Train funds.
Leverage
We detail below the equity exposure of the Funds managed by LTL as at 31 March 2022:
| Net Equity | |
| Exposure | |
| LF Lindsell Train North American Equity Fund Acc | 99.05% |
| Finsbury Growth & Income Trust | 101.93% |
Analysis of Investment Portfolio at 31 March 2022
Breakdown by location of listing
| (look-through basis)^ | |
| UK* | 71% |
| USA | 15% |
| Japan | 7% |
| Europe excluding UK | 4% |
| Rest of World | 0% |
| Cash and Equivalents | 3% |
| 100% | |
| Breakdown by location of underlying company revenues | |
| (look-through basis)^ | |
| Europe excluding UK** | 30% |
| UK** | 28% |
| USA** | 25% |
| Rest of World** | 11% |
| Japan | 3% |
| Cash & Equivalents | 3% |
| 100% | |
| Breakdown by sector | |
| (look-through basis)^ | |
| Financials* | 54% |
| Consumer Staples | 23% |
| Communication Services | 8% |
| Information Technology | 6% |
| Industrials | 5% |
| Consumer Discretionary | 1% |
| Cash & Equivalents | 3% |
| 100% |
^ 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 aggregating the direct holdings of the Company with the indirect holdings held by the LTL funds.
* LTL accounts for 43.5% and is not listed.
** LTL accounts for 19 percentage points of the Europe figures, 19 percentage points of the UK figures, 4 percentage points of the USA figures and 1 percentage point of the ROW figure.
Manager’s Report
We are displeased by the investment performance your Company has delivered for shareholders over the last 12 months. Nonetheless, and I don't know if this is reassuring to you, we are happy with the business performance of the quoted companies in your portfolio. I report on these alphabetically below.
A.G. Barr reported full year revenues ahead of pre-Covid-19 levels, on a like for like basis, resulting not only from a rebound from the lockdowns, but continued steady growth from its brand portfolio, notably IRN-BRU in England. Its cocktail mixer brand, Funkin, has prospered under Barr’s ownership, roughly quadrupling revenues over 6 years and is now a substantive contributor to the whole, with plenty more potential. The company remains highly cash-generative, with over 10% of its market capitalisation in accumulated net cash. The shares trade on an earnings yield of nearly 6%, which should be cheap. IRN-BRU is 121 years-old but looks well set for the rest of this century, at least.
Diageo’s most recent results showed it too is enjoying secular growth in worldwide consumption of premium spirits and cocktails. Diageo is the biggest holding we have at Lindsell Train and we continue to believe the scale of that investment is merited by the calibre of the company’s brands and the growth still to come. Senior management note that in its biggest market, the US, spirits-buying households spend only $1 a day, on average, on this premium product and that relatively modest sum is expected to increase meaningfully. Diageo speaks for 4% of the global alcoholic beverage market and the company has set itself the target of reaching 6% by 2030, as premium spirits take an increasing share. Attaining that target would likely be very rewarding for shareholders.
Heineken’s business is still recovering from Covid-19, especially in Asia, with recent profits still c.12% below 2019 levels. The company reminds shareholders that over the five years between 2015 – 2019, its revenues grew at 5% pa, driving operating profit growth of 7% pa, ahead of its peers, and it is hopeful this rate of long-term growth will resume. Impressively, those were effectively “real” growth rates with inflation very low in that period. With 40% of its revenues in premium, the successful innovations of Heineken 0.0 and Heineken Silver opening up new markets and important recent acquisitions in India and South Africa this seems credible. Heineken’s shares more than quadrupled from the lows of the last global crisis in 2009 to late 2019 and we’d love to think something similar might be possible as this decade proceeds.
Laurent-Perrier describes itself in its press releases as “one of the rare family groups of champagne houses which is listed on the stock market and which is exclusively dedicated to champagne and the high-end market.” The scarcity value of the company and the iconic eponymous brand are indeed attractive for long-term investors, we think. Hit by Covid-19, the shares are currently valued on 13x earnings and at little more than book value. We have been adding to the holding.
London Stock Exchange Group’s shares have recovered somewhat in 2022, up 15% in the first quarter. This is a relief, because 2021 was a dismal year for them. As another of Lindsell Train’s biggest holdings this hurt both our Global and UK Fund performance, as well as your portfolio. The bounce followed its full year results, which seemed to confirm the integration of Refinitiv is going to plan. The strategic rationale for the acquisition is simply stated. The breadth of LSE and Refinitiv’s combined services - data and analytics, liquidity pools, and clearing and valuation – is unique in global financial services and means the company can propose to both save money for its clients and simplify its operations. If this powerful strategic proposition can be delivered, we consider the LSE to be one of the best value securities we own.
Mondelez continues its track record of revenue, earnings and dividend growth. Since it spun out of Kraft in 2012 its shares have risen 2.5x, hitting an all-time high as recently as January 2022. Meanwhile, over the last five years earnings are up 40% and dividends 60% (still twice covered). Oreos were launched in 1912, but according to recent surveys remain the most popular food brand of Generation Z. History suggests the longevity of Oreos or Cadbury’s is exceptionally valuable for investors, offering predictability and protection against inflation.
Nintendo is enjoying one of the most successful periods in its history. Admittedly, sales of its Switch console are slowing, but it has joined an exclusive group of only three home consoles to ship over 100 million units and is set to sell many millions more. But Nintendo’s profitability is primarily driven by its software sales and these continue to hit new highs, as its classic franchises, delivered to Switch’s huge installed base, delight old and newer cohorts of gamers. The shares trade on 16x, which seems modest for a business that has a current Return on Capital of 28% and has grown its dividend by over 30% pa for the last five years, accompanied by an on-going share buyback. It also has 20% of its market capitalisation in cash. The sceptics argue the shares deserve to be lowly valued, because of the increasing maturity of this generation of hardware. The bulls, like us, counter that “video-gaming” is now an entrenched, though still young, entertainment industry and that Nintendo’s software franchises have triumphantly reasserted their evergreen credentials as being integral to it. This “Disney for the 21st Century” has decades of value-creation ahead of it (although Disney has done a good job reorientating itself for the 21st century too, and is an important holding in our Global Fund, along with Nintendo).
PayPal’s recent results were taken by investors to evidence signs of slowing growth and this was enough to hit the share price. Truth be told this had trebled between 2020 and 2021 and was probably due a correction. PayPal management disagrees about possible strategic maturity, with the following recent quote from the CEO laying out the scope of the future opportunity: “Our vision of becoming an essential consumer financial super-app across payments, financial services and shopping tools is more relevant than ever before, and our tens of millions of merchants continue to look to us to provide a comprehensive platform for them to navigate the digital economy.” With 421 million individual users of PayPal and acceptance by 76% of the top 1,500 US and European retailers (nearly 3x more than its nearest rival), the company is clearly in a strong position to deliver on that vision. And after the share price fall, an estimated 2022 P.E of 22x does not seem a high price to pay for the potential.
RELX too delivered reassuring 2021 results, growing faster than expected, with a bigger dividend increase and a new share buyback. But what is so compelling about the investment case for the company is the evidence that its clients are becoming increasingly reliant on its services and that this is accelerating growth. Providing not just data, but software and analytics too, RELX’s algorithms help clients work faster, cheaper and better. It is no trivial thing to be a leading provider of such services to the global scientific, legal, insurance and e-commerce industries and we are not surprised that RELX’s shares have recovered from a sell-off at the start of 2022 to hit new all-time highs in April. And, to our eyes, its valuation remains reasonable in comparison to US peers. The shares have more than quintupled since 2012 and as a result become one of Lindsell Train’s biggest holdings. We still have high hopes for them.
Unilever’s full year results were solid enough, albeit pedestrian in comparison to some peers. The business looks to have contracted a case of “long Covid”, with its emerging markets recovering slowly, if at all in some cases, and an undoubted vulnerability to rising input costs. However, surely some of this is captured in a share price that by end March 2022 had fallen over 30% from its peak of over £50 in 2019? We remind our clients that Unilever’s share price was c.£5 in 1992, c.£12 in 2002, c.£20 in 2012 and £35 in 2022 (albeit down from that £50 of a couple of years ago). Such a price trajectory seems to us to be consistent with our understanding of the strengths of this company – the ability to generate steadily rising, inflation-proofed earnings over long periods of time from its diverse brands and markets. We do look to management to build further value for shareholders by periodic acquisitions, but just as important, by growing existing still promising brands such as Ben & Jerry’s, Dermalogica, Dove, Hellmann’s and Magnum. Meanwhile, India grew at double digits for Unilever in 2021 and why shouldn’t its 62% stake in Hindustan Lever, the biggest consumer company in India, which has created billions of pounds of market appreciation for Unilever shareholders over the last two decades, carry on doing so for decades to come?
I have spent time on each direct equity holding in this report for several reasons. In part because the concentrated nature of the portfolio (indeed all Lindsell Train portfolios) makes it possible. Also, because I believe that a review of the actual business performance and prospects of the companies we are invested in is more promising than the recent performance of their share prices implies. Finally, to reinforce the previous point, all the holdings discussed above, except for Laurent-Perrier, are strategically important holdings in Lindsell Train’s Global and/or UK funds. So, for our clients and Lindsell Train’s business it is important these companies fulfil the potential we see in them.
In conclusion, our investment approach is based on owning durable and predictable companies, while avoiding the speculative and cyclical ones – which often do offer rapid growth, at least for a period. The idea is that steady dependability is rarely highly valued, because investors are, as a generalisation, too busy trying to identify the next Tesla or trying to time the next gyration of the economic cycle. As a result – so our argument and historic track record asserts – you can be well-rewarded over time for holding what others regard as boring. We hope this remains the case.
Nick Train
Investment Manager
Director,
Lindsell Train Limited
14 June 2022
Strategic Report
Business Review
The Directors present their Strategic Report for the Company for the year ended 31 March 2022. 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 Managers 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 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, pursuing its investment objective to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.
The Board is aware of the increased emphasis on Environmental Social and Governance (“ESG”) matters in recent years. The Manager engages with all the companies in the portfolio to understand their ESG approach and has developed its own methodology to assess the carbon impact of the portfolio. Further details of the Manager’s approach to ESG can be found within LTL’s approach to responsible ownership.
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:
(i) 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;
(ii) in Lindsell Train managed fund products, subject to Board approval, up to 25% of its gross assets; and
(iii) in LTL and to retain a holding, currently 24.3%, in order to benefit from the growth of the business of the Company’s Manager.
The Company does not envisage any changes to its objective, its investment policy, or its management for the foreseeable future. The current composition of the portfolio as at 31 March 2022, which may be changed at any time (excluding investments in LTL and LTL managed funds) at the discretion of the Manager within the confines of the policy stated above, is shown in the .
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 the 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 AIFMD.
Dividends
The Directors’ policy is to pay annual dividends consistent with retaining the maximum permitted earnings in accordance with investment trust regulations, thereby building revenue reserves.
In a year when this policy would imply a reduction in the ordinary dividend the Directors may choose to maintain the dividend by increasing the percentage of revenue paid out or by drawing down on revenue reserves. Revenue reserves are currently twice the annual proposed 2022 ordinary dividend.
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, when assessed over the five and ten year period.
The Directors provide an explanation in the Viability Statement as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate.
Key Performance Indicators (“KPIs”)
The Board reviews the performance of the portfolio in detail and is presented with the views of the Manager at each meeting. Information on the Company’s performance is provided in the Chairman’s Statement and the Manager's Report. This performance is assessed against the following KPIs which are unchanged from last year.
Net Asset Value Total Return^ 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 2022 | 31 March 2021 | % Change | |
| Shareholders’ funds (£’000) | 222,761 | 237,116 | -6.1 |
| NAV per Ordinary Share | £1,113.81 | £1,185.58 | -6.1 |
| (Discount)/premium to NAV^ | (0.79%) | 19.77% | |
| Share price per Ordinary Share | £1,105.00 | £1,420.00 | -22.2 |
| Recommended final dividend per Ordinary Share | £51.12 | £47.07 | +8.6 |
| Recommended special dividend per Ordinary Share | £1.88 | £2.93 | -35.8 |
| Dividend yield^ | 4.80% | 3.52% | |
| Ongoing Charges^ | 0.82% | 0.75% | |
| Earnings per Ordinary Share – basic | £(21.77) | £272.93 | |
| Revenue | £63.65 | £60.01 | |
| Capital | £(85.42) | £212.92 | |
| NAV total return^† | -2.3% | 29.0% | |
| Share price total return^† | -20.0% | 38.9% | |
| Benchmark (MSCI World Index in Sterling)* | 15.4% | 4.0%** |
^ Alternative Performance Measure.
† These are percentage change figures for the year to 31 March.
Please see Glossary of Terms for an explanation of terms used.
* The Company’s Benchmark was changed and first adopted on 1 April 2021.
** Prior to 1 April 2021 the Company’s Benchmark was the annual average redemption yield on the longest-dated UK government fixed rate bond (UK Treasury 1.625% 2071), calculated using weekly data, plus a premium of 0.5%, subject to a minimum yield of 4.0%.
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 | (£) | (£) | (£) |
| 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 |
| 2021 | 13,782 | 12,002 | 10,000 | 50.00 | 1,185.58 | 1,420 |
| 2022 | 14,784 | 12,729 | 10,600 | 53.00 | 1,113.81 | 1,105 |
Alternative Performance Measures (“APM”) The Board believes that each of the APMs, which are typically used within the investment trust sector, provide addittional usueful information to the shareholders in order to assess the Company’s performance between reporting periods and against its peer group. The measures used for the year under review have remained consistent with the prior year. (Discount)/premium to NAV^
The Board regularly reviews the level of the discount/premium of the Company’s share price to the net asset value per share and considers ways in which share price performance may be enhanced, including the effectiveness of share buybacks, where appropriate. Any decision to repurchase shares is at the discretion of the Board.
Dividend Yield^
The Directors regard the Company’s dividend yield to be a key indicator of performance. The dividend yield measures the gross income receivable based on the payment of the historic dividend per share expressed as a percentage of the Company’s current share price.
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 the cost of provision.
NAV Total Return^
The Directors regard the Company’s net asset value per share total return as being the overall measure of value delivered to shareholders over the long-term. The Board considers the principal comparator to be the MSCI World Index Total Return (sterling adjusted).
Share Price Total Return^
The Directors also regard the Company’s share price total return to be a key indicator of performance. This reflects share price growth of the Company which the Board recognises is important to investors.
^ Further information on the Alternative Performance Measures can be found in the 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 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. The Board’s policy on risk management has not materially changed during the course of the reporting period and up to the year end.
While the effects of the Covid-19 pandemic appear to be easing, its ultimate duration and the full extent of its impact remains unknown. The Board recognises the continued heightened risks posed by the pandemic, both to the Company's investments, investment performance and to its operations. The Manager has continued its dialogue with investee companies and the Board remains appraised of any developments.
The Board continues to monitor the ramifications of Russia's invasion of Ukraine and implications on market volatility, investors’ risk appetite, and the outlook for the global economy.
The Board considers that the risks detailed within this Report are the principal risks currently facing the Company that could affect the ability of the Company to deliver its strategy. Further detail on financial risks and how these are managed are discussed in note 16 to the Financial Statements.
| Key Risks and Uncertainties | Key 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 has retained revenue reserves which can be used to supplement dividend payments in the event of a short term reduction in net revenue. |
| The Company’s share price total return may differ materially from the NAV per share total return. | Regular consideration is given to the share price premium or discount to NAV per share and the Company has authority to buyback shares and hold in treasury. |
| The growth of retail platforms has a detrimental effect on shareholder engagement. |
The Board receives regular updates from the Manager and the Company Secretary on developments in the investment trust sector. The shareholder register is reviewed at every Board meeting. The Board will be actively encouraging retail platform holders to attend and vote at the Company’s Annual General Meeting. |
| Investment Strategy and Activity The departure of a key individual at the Manager may affect the Company’s performance. |
The Board keeps the investment management arrangements under continual review. In turn, the 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 Manager. Key-man insurance has been 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 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, and/or a possible failure to achieve the Company’s investment objective. |
The Board discusses with the 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 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. |
| 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 themselves appraised of developments in the sector. The 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 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 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 16 to the Financial Statements. |
| The Company is exposed to market price risk. |
The Directors acknowledge that market risk is inherent in the investment process as the Manager maintains a concentrated portfolio of securities. 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 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 16 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, 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 Company Secretary presents a quarterly report on changes in the regulatory environment and how and when changes are to be addressed As a member of the AIC, the Board receives regular technical updates which highlight forthcoming compliance obligations and regulatory issues. |
| The regulatory environment in which the Company operates changes, affecting the Company's business model. | The Board monitors the regulatory environment with the assistance of its Company Secretary, 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 LTL is materially misstated. |
The Board approves the monthly valuation of the Company's Investment. An audit of LTL’s valuation is conducted annually by a leading independent external audit firm. During the year the Board appointed J.P. Morgan Cazenove Ltd to undertake an independent review of the Company’s valuation methodology applied to its unlisted investment in LTL. The 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 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 lead to disruption to the Company’s strategy, structure and operations and ultimately threaten its viability. Conversely, the early identification of emerging risks increases the Company’s resilience and may provide business opportunities.
The Audit Committee reviews a risk map regularly 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 Manager and Company Secretary.
The Audit Committee identified the following emerging risks during the year:
| Key Risks and Uncertainties | Key Mitigations |
| Emerging Risks The invasion of Ukraine by Russia introduces new risks and exacerbates existing risks. These include: Increased inflationary pressures, that were already elevated from supply shortages as the Covid-19 pandemic eased. Higher inflation is leading policy makers to increase interest rates. This in turn may lead to a reduction in trade, a threat of recession and higher unemployment. Sanctions damage the prospects of investee companies with material exposure to Russia. Increased market volatility and reduced risk appetites across a wide variety of asset classes. Increased threat of state-sponsored cyber-attacks. |
The Manager monitors portfolio construction, performance and liquidity to assess and manage the impact of increased market volatility on the listed portfolio and on the Company’s holding in LTL. The Manager monitors the current impact of sanctions and other economic responses to the invasion of Ukraine on investee companies. The Company’s investment approach sees it own companies with strong brand equity and pricing power making them more able to pass on cost increases and mitigate the effects of inflation on portfolio holdings. The Board reviews regular internal control reports from its key service providers that include cyber defences and other mitigants against unauthorised network access. |
Climate Change Risk
The Manager considers how climate change could affect the Company’s portfolio companies and shareholder returns. Climate change risks within the portfolio are addressed as part of the Manager’s quarterly reports to the Board on its Responsible Engagement and Investment Policy.
Future Developments
The Board’s primary focus is on LTL’s investment approach and performance both as the Company’s 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 Manager's Report.
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. These assessments, regular investment performance updates from the Manager and a continuing programme of monitoring risk are used 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. 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 ongoing impact of the Covid-19 pandemic and Russia's invasion of Ukraine as detailed in the Chairman’s Statement 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 56% of net assets. The other 44% is the unlisted investment in LTL, which is not readily realisable.
Based on historic analysis, 54% of the current portfolio could be liquidated within 30 business days with 49% in five business days. There is no expectation that the nature of the investments held within the portfolio will be materially different in the future.
The closed-ended nature of the Company means that, unlike an open-ended fund, it does not need to realise investments when shareholders wish to sell their shares.
The founder directors of LTL, in which the Company holds 24.3%, have given their verbal assurance that they remain committed to the business for at least seven years.
The Company has decided not to use gearing.
Revenue expenses of the Company are covered five times by investment income.
The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position.
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 Covid-19 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.
The Board’s long-term view of viability will, of course, be updated each year in the Company’s Annual Report.
Going Concern Statement
In light of the conclusions drawn in the foregoing statement, the Company has adequate financial resources including readily realisable equity securities and cash and the value of its assets is greater than its liabilities. The Company does not have a fixed life.
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 at least the next 12 months. The Directors have given careful consideration to the consequences for the Company of continuing uncertainty in the global economy. The Russian invasion of Ukraine and the ongoing impact of the Covid-19 pandemic, including further lockdowns in China, have created significant supply chain disruption contributing to inflationary pressures worldwide.
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.
In reviewing the positions as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council.
Section 172 Disclosure
Engaging with the Company’s Stakeholders
The following Section 172 disclosure, which is required by the Companies Act 2006 and the AIC Code, describes how the Directors have had regard to the views of the Company's stakeholders in their decision making.
| STAKEHOLDER GROUP | ||
|---|---|---|
| Who? | Why? | How? |
| Investors | The benefits of engagement with the Company’s Stakeholders 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. | How the Board, the Company Secretary and the Manager have engaged with the Company’s Stakeholders The Board and the 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: The Annual General Meeting. Should any significant votes (greater than 20%) be cast against resolutions, proposed at the Annual General Meeting, the Board will engage with shareholders. The Board will explain in its announcement of the results of the AGM the actions it intends to take to consult shareholders in order to understand the reasons behind the significant votes against. Following the consultation, an update will be published no later than six months after the AGM and the Annual Report will detail the impact the shareholder feedback has had on any decisions the Board has taken and any actions or resolutions proposed. The Company’s website which hosts monthly reports and Annual and Half Year Reports. One-on-one investor meetings as required. |
| Manager | The benefits of engagement with the Company’s Stakeholders Engagement with the Company’s 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 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 valuation methodology of the Company’s holding in LTL, which the Board and LTL believe will be of benefit to shareholders over the longer?term. | How the Board, the Company Secretary and the Manager have engaged with the Company’s Stakeholders The Board meets regularly with the Company’s Manager throughout the year both formally at the quarterly Board meetings and informally as needed. The Board and 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 Manager. The aim is to maintain a strong relationship between the Board and Manager when considering the interests of the Company’s stakeholders, whilst upholding the Company’s values. The Manager’s attendance at each Board meeting also provides the opportunity for the Manager and Board to further reinforce their mutual understanding of what is expected from both parties. The 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, 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 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 maintains regular contact with the Company’s key service providers 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 benefits of engagement with the Company’s Stakeholders The Manager invests in a concentrated portfolio of durable business franchises with the intention of holding these positions for a considerable time. The 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 a investments as well as identifying future potential opportunities. | How the Board, the Company Secretary and the Manager have engaged with the Company’s Stakeholders The Board encourages the Company’s 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. Details of Lindsell Train's approach to responsible ownership can be found within the Strategic 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? |
| Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. |
The Manager meets with shareholders as required and at the AGM. Shareholders are provided with performance updates via the Company's website as well as the usual financial reports and monthly reports. |
| Board Composition. |
The Board has in place a refreshment programme. During the year Julian Cazalet retired as the Chair of the Nomination Committee and was replaced by Nicholas Allan. Cornforth Consulting were appointed by the Board in April 2022 to assist with succession planning. |
|
Informing investors of their rights to attend and vote in the AGM. The constituents of the investment portfolio including the percentage of NAV attributable to the holding in the Manager. Consider 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 valuation methodology applied to the Company's holding in LTL. |
Holders of shares via online platforms will be written to, informing them of how they can vote, attend the AGM and view the Annual Report. Continued monitoring of the percentage of the NAV attributable to LTL and other investments. The Board has received regular updates from the Manager throughout the Covid-19 pandemic and its impact on investment decision making. In addition, the impact of new working practices adopted by the Manager as a consequence of the pandemic were reviewed by the Board. The Chairman’s Statement, describes the recent changes to the methodology. |
| The integration of ESG into the Manager’s investment processes. | The Manager reports regularly any ESG issues in the portfolio companies to the Board. |
| Other Service Providers The Directors have frequent engagement with the Company’s other service providers through the annual cycle of reporting. | 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. |
Social, Human Rights and Environmental Matters
As an externally-managed investment trust, the Company does not have any employees or maintain any premises, nor does it undertake any manufacturing or other physical operations itself. All its operational functions are outsourced to third-party service providers. Therefore the Company has no material, direct impact on the environment or any particular community and, as a result, the Company itself has no environmental, human rights, social or community policies.
LTIT’s Responsible Investment Policy
The Board believes that it is in shareholders’ best interests to consider ESG factors when selecting and retaining investments and the Manager takes these issues into account.
In its Responsible Engagement & Investment Policy, the Manager states that its evaluation of ESG factors is an inherent part of the investment process. These factors include, but are not limited to: “corporate strategy, operating performance, competitive positioning, 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”.
The Board has delegated authority to the Manager to vote the shares owned by the Company that are held on its behalf by its Custodian. The Board has instructed that the Manager submits votes for such shares wherever possible and practicable. The Manager is required to refer to the Board on any matters of a contentious nature.
The Manager’s Responsible Investment and Engagement Policy has been reviewed and endorsed by the Board. The Manager is a signatory to the United Nations Principles for Responsible Investment and a Tier 1 signatory of the 2020 UK Stewardship Code.
The Company considers that it does not fall within the scope of the Modern Slavery Act 2015 (“Act”) and it is not, therefore, obliged to make a slavery and human trafficking statement. In any event, the Company considers its supply chains to be of low risk as its suppliers are typically professional advisers.
The Company also complies with the AIC Code of Corporate Governance and has policies in place regarding Board diversity, integrity and business ethics.
LTL’s approach to Responsible Ownership
ESG integration
Seeking Sustainability
As a long-term investor, LTL aims to identify companies that can generate long-term sustainable high returns on capital. LTL has historically found that such companies tend to exhibit characteristics associated with good corporate governance and responsible business practices. Indeed, LTL believes that companies which observe such standards, and that are serious in their intention of addressing environmental and social factors, will not only become more durable but are likely to prove to be superior investments over time.
To that end LTL’s initial analysis and ongoing company engagement strategy seeks to incorporate all sustainability factors that it believes will affect the company’s ability to deliver long-term value to shareholders. Such factors may include but are not limited to: environmental (including climate change), social and employee matters (including turnover and culture) and governance factors (including remuneration and capital allocation), cyber resilience, responsible data utilisation, respect for human rights, anti-corruption and anti-bribery, and any other risks or issues facing the business and its reputation. This work is catalogued in a proprietary database of risk factors in order to centralise and codify LTL’s investment team’s views, as well as to prioritize its ongoing research and engagement work and is cross-referenced with the SASB Materiality Map©.
If, as a result of this assessment, LTL believes that an ESG factor is likely to materially impact a company’s long-term business prospects (either positively or negatively) then this will be reflected in the long-term growth rate that is applied in LTL’s valuation of that company, which alongside its more qualitative research will influence any final portfolio decisions (for example, whether LTL starts a new position or sells out of an existing holding).
Positive/Negative Screening
As a product of LTL’s investment philosophy, it does not invest in the following industries:
capital intensive industries (energy, commodities or mining) or any companies involved in the extraction and production of coal, oil or natural gas; and
industries that LTL judges to be sufficiently detrimental to society that they may be exposed to burdensome regulation or litigation that could impinge on financial returns (e.g. tobacco, gambling or arms manufacturers).
Similarly, LTL’s investment approach has steered it to invest in a number of companies that play an important positive social or environmental role, for example through providing access to educational information (e.g. RELX), encouraging saving for the future (e.g. LTL) or encouraging environmental progress and best practice (e.g. Unilever). LTL believe that such positive benefits for society should be consistent with its aim to generate competitive long-term returns, thus helping it meet its clients’ investment objectives.
Climate Change
The risks associated with climate change represent the great issue of our era and the transition to a low-carbon economy will affect all businesses, irrespective of its size, sector or geographic location. Therefore, no company’s revenues are immune and the assessment of such risks must be considered within any effective investment approach, particularly one like LTL’s that seeks to protect its clients’ capital for decades to come.
As a relatively small company with a single office location and 25 employees, LTL’s climate exposure comes predominantly from the investment portfolios that it manages on behalf of its clients. LTL recognise the systemic risk posed by climate change and the potential financial impacts associated with a transition to a low-carbon economy. LTL therefore support the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”) and its efforts to encourage companies to report their climate related disclosures and data in a uniform and consistent way. Further information on LTL’s TCFD related disclosures can be found on LTL’s website: www.lindselltrain.com within its 2022 TCFD Report. Furthermore, LTL has built a proprietary tool that measures the carbon footprint/intensity of its portfolios, and LTL is pleased to note that LTIT’s listed equity holdings have a significantly lower weighted average carbon intensity than its comparable benchmark.
Stewardship
Engagement
Engaging with and monitoring investee companies on matters relating to stewardship has always been an essential element of LTL’s investment strategy. Its long-term approach generally leads it to be supportive of company management. However, where LTL disagrees with a company’s actions, it will try to influence management on specific matters or policies if LTL believe it is in the best interests of its clients. Constructive dialogue has more often than not resulted in satisfactory outcomes, thus limiting the need for escalation. However, where this is not the case, LTL will consider escalating its engagement and stewardship activities.
During the year, LTL engaged with nine companies held within the Company’s portfolio on a wide range of environmental, social and governance issues as detailed in the chart below. LTL is also in the process of writing to several of our companies to complete an information gathering exercise aimed at clarifying its portfolio companies’ stances on, and approaches to, certain ESG factors with the objective of ensuring that all portfolio companies report this essential data going forward.
As public supporters of Task Force on TCFD and The Sustainability Accounting Standards Board (“SASB”), LTL is also encouraging these companies to report in line with these, or similar (if more relevant to their business) frameworks, and also to report on positive impact goals and progress. This ongoing ESG research is further complemented by a series of ESG specific telephone calls that LTL is hosting with each of its companies. This will enable LTL to identify additional matters of concern or opportunity that require further scrutiny within its engagement program.
Key Engagement Examples and Outcomes
Unilever
This engagement was in part in response to the recent news that from 1 May 2021, China will remove the mandatory animal testing requirements for imported cosmetics. In the case of Unilever, this follows ten years of hard work to ban this practice and it will enable Unilever to develop its Chinese cosmetics business.
Animal testing of health and personal care products, cosmetics and fragrances is a practice that is not only unnecessary but also acts as a barrier to the growing numbers of cruelty-conscious consumers globally. Fortunately, the practice is less common these days and LTL has determined through its research that very few companies engage in animal testing. Indeed, only companies selling personal care products, cosmetics or fragrances into China will have made its products available for animal-testing. Nonetheless LTL has monitored this for some time and engaged with the management of Unilever on this matter.
A.G. Barr
A notable theme of LTL’s engagement last year related to conversations with management regarding plastic production. Specifically, LTL spoke to the management of A.G. Barr regarding its strategies to reduce the amount of plastic packaging, to protect the environment and specifically the oceans (Sustainable Development Goal 14 – Life Below Water). Whilst there is clearly value in plastic, in terms of getting products to consumers safely and efficiently, recent global research has widely publicised the alarming rate at which plastic flows into our oceans each year. With the advent of plastic packaging taxes (for example in the UK the proposed tax will apply to packaging produced or imported that does not contain at least 30% recycled plastic), this is fast becoming a potentially material financial issue. A.G. Barr noted not only the potential explicit costs (e.g. litigation, plastic taxes etc.) but also the potential decline in consumer demand they could face given that currently plastic in packaging is the most cited consumer concern. So whilst its reduction commitments are currently an economic drag, A.G. Barr is optimistic that the costs associated with this strategy will be more than outweighed by the positive sentiment and subsequent economic value derived from a trusting consumer base, who love its brands.
Mondelez
LTL had a number of meetings with Mondelez management throughout the year and ESG has been an important thread. In June 2021, the CFO described the opportunities presented by a mindful and deliberate ESG strategy. Management intend to focus their approach on a handful of clear commitments; for example, it is stepping up their efforts to prevent slavery and child labour, as well as improving their knowledge of sustainable cocoa sourcing and deforestation. These are complex challenges that require collaboration across corporations, NGOs and the local communities, as driving change is not about intervention but rather providing tools, training and support. Mondelez’s Cocoa Life program, launched in 2012, is a good example of such a collaboration, as are the child-labour monitoring committees that Mondelez has helped establish. Whilst Covid-19 has slowed progress, Chris McGrath, Head of Sustainability at Mondelez, confirmed during a meeting in July 2021 that most projects are well underway and largely on track to meet its published targets. More recently LTL engaged with Mondelez management regarding the recent Nabisco strike in Portland, Oregon, where Mondelez ultimately settled with the workers’ union, limiting the potential repercussions.
LTL has also engaged with the company on several occasions to share its views regarding compensation best practice and continue to believe that the company could foster greater shareholder alignment through improved compensation structures. In assessing its compensation policies LTL focus more on how incentives are structured rather than the actual quantum of compensation. In other words, LTL can be comfortable with the large rewards provided that the incentives are aligned with shareholders’ interest and its principles. In the case for Mondelez, LTL wrote to management, outlining its reason for abstaining on the resolution concerning compensation at their 2021 AGM.
Proxy Voting
The primary voting policy of LTL is to protect or enhance the economic value of its investments on behalf of its clients. LTL has appointed Glass Lewis to aid the administration of proxy voting and provide additional support in this area. However, the Manager maintains decision making responsibility based on its detailed knowledge of the investee companies. It is LTL’s policy to exercise all voting rights which have been delegated to LTL by its clients.
Voting record:
| Management | Shareholder | Total | |
| Proposals | Proposals | Proposals | |
| With Management | 210 | 3 | 213 |
| Against Management | 1^ | 0 | 1 |
| Abstain | 1* | 0 | 1 |
| Totals | 212 | 3 | 215 |
Source: Glass Lewis. 1 April 2021 – 31 March 2022.
^ PayPal executive compensation resolution.
* Mondelez executive compensation resolution.
Votes against management have typically been in the low single-digit range. The main reason for this is that LTL’s long-term approach to investment generally leads it to be supportive of company management and, where required, LTL will try to influence management through its engagement activities. Given LTL often builds up large, long-term stakes in the businesses in which it invests, LTL finds that management is open to (and very often encourage) engagement with LTL. Furthermore, it is LTL’s aim to be invested in ‘exceptional’ companies with strong corporate governance and hence it ought to be rare that LTL finds itself in a position where it is voting against management.
In the majority of cases where LTL has voted against management it has been on matters relating to remuneration. Where LTL does not believe that a company’s compensation policy is aligned with the long-term best interests of the shareholders it will write to management to inform them of LTL’s intention to vote against such policies.
Integrity and Business Ethics
The Company is committed to carrying out business in an honest and fair manner. In carrying out its activities, the Company aims to conduct itself responsibly, ethically and fairly.
Anti-Bribery and Corruption Policy
The Board has adopted a zero-tolerance approach to instances of bribery and corruption. Accordingly it expressly prohibits any Director or associated persons when acting on behalf of the Company from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit from themselves or for the Company.
The Board applies the same standards to its service providers in their activities for the Company.
A copy of the Company’s Anti-Bribery and Corruption Policy can be found in the Board and Policies section of the Company's website. The policy is reviewed regularly by the Audit Committee.
Prevention of the Facilitation of Tax Evasion
In response to the implementation of the Criminal Finances Act 2017, the Board adopted a zero-tolerance approach to the criminal facilitation of tax evasion. A copy of the Company’s policy on preventing the facilitation of tax evasion can be found in the Board and Policies section of the Company's website. The policy is reviewed annually by the Audit Committee.
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 Manager and its key service providers.
Approval Statement
The Strategic Report of the Company has been approved by the Board of Directors on 14 June 2022 and is signed on its behalf by:
Julian Cazalet
Chairman
Governance
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, whose names and functions are listed in the ‘Board of Directors’ on page 32 of the Annual Report 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 the FCA's Disclosure Guidance and Transparency Rules.
The Directors also confirm that the Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
Approved by the Board of Directors and signed on its behalf by
Julian Cazalet
Chairman
14 June 2022
Note to those who wish to access this document by electronic means:
The Annual Report for the year ended 31 March 2022 has been approved by the Board of The Lindsell Train Investment Trust plc. Copies of the Annual Report are circulated to shareholders and, where possible, to investors through other providers’ products and nominee companies (or written notification is sent when they are published online). It is also made available in electronic format for the convenience of readers. Printed copies are available from the Company’s Registered Office in London.
Financial Statements
Income Statement for the year ended 31 March 2022
| 2022 | 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| (Losses)/gains on investments held at fair value | 10 | – | (17,089) | (17,089) | – | 45,219 | 45,219 |
| Exchange gains on currency balances | – | 6 | 6 | – | 27 | 27 | |
| Income | 2 | 14,784 | – | 14,784 | 13,782 | – | 13,782 |
| Investment management fees | 3 | (1,309) | – | (1,309) | (1,178) | (2,662) | (3,840) |
| Other expenses | 4 | (668) | (1) | (669) | (501) | – | (501) |
| Net return/(loss) before tax | 12,807 | (17,084) | (4,277) | 12,103 | 42,584 | 54,687 | |
| Tax | 7 | (78) | – | (78) | (101) | – | (101) |
| Return/(loss) after tax for the financial year | 12,729 | (17,084) | (4,355) | 12,002 | 42,584 | 54,586 | |
| Return/(loss) per Ordinary Share | 9 | £63.65 | £(85.42) | £(21.77) | £60.01 | £212.92 | £272.93 |
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 loss 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 2022
| Share | Special | Capital | Revenue | ||
| capital | reserve | reserve | reserve | Total | |
| 2022 | 2022 | 2022 | 2022 | 2022 | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| For the year ended 31 March 2022 | |||||
| At 1 April 2021 | 150 | 19,850 | 198,066 | 19,050 | 237,116 |
| Return after tax for the financial year | – | – | (17,084) | 12,729 | (4,355) |
| Dividends paid for the year ended | |||||
| 31 March 2021 (see note 8) | – | – | – | (10,000) | (10,000) |
| At 31 March 2022 | 150 | 19,850 | 180,982 | 21,779 | 222,761 |
| Share | Special | Capital | Revenue | ||
| capital | reserve | reserve | reserve | Total | |
| 2021 | 2021 | 2021 | 2021 | 2021 | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| For the year ended 31 March 2021 | |||||
| At 1 April 2020 | 150 | 19,850 | 155,482 | 15,848 | 191,330 |
| Return after tax for the financial year | – | – | 42,584 | 12,002 | 54,586 |
| Dividends paid for the year ended | |||||
| 31 March 2020 (see note 8) | – | – | – | (8,800) | (8,800) |
| At 31 March 2021 | 150 | 19,850 | 198,066 | 19,050 | 237,116 |
The notes form part of these Financial Statements.
Statement of Financial Position at 31 March 2022
| 2022 | 2021 | ||||
| Notes | £’000 | £’000 | £’000 | £’000 | |
| Fixed assets | |||||
| Investments held at fair value through profit or loss | 10 | 215,768 | 233,893 | ||
| Current assets | |||||
| Other receivables | 11 | 513 | 561 | ||
| Cash at bank | 6,708 | 5,541 | |||
| 7,221 | 6,102 | ||||
| Creditors: amounts falling due within one year | |||||
| Other payables | 12 | (228) | (2,879) | ||
| Net current assets/(liabilities) | 6,993 | 3,223 | |||
| Net assets | 222,761 | 237,116 | |||
| Called up share capital | 13 | 150 | 150 | ||
| Special reserve | 14 | 19,850 | 19,850 | ||
| 20,000 | 20,000 | ||||
| Capital reserve | 14 | 180,982 | 198,066 | ||
| Revenue reserve | 21,779 | 19,050 | |||
| Equity Shareholders’ funds | 222,761 | 237,116 | |||
| Net Asset Value per Ordinary Share | 15 | £1,113.81 | £1,185.58 | ||
The Financial Statements were approved by the Board on 14 June 2022 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.
Statement of Cash Flows for the year ended 31 March 2022
| 2022 | 2021 | ||
| Notes | £’000 | £’000 | |
| Operating Activities | |||
| Net (loss)/return before finance costs and tax | (4,277) | 54,687 | |
| Losses/(gains) on investments held at fair value | 17,089 | (45,219) | |
| Gains on exchange movements | (6) | (27) | |
| (Increase)/decrease in other receivables | (23) | 12 | |
| Decrease/(increase) in accrued income | 80 | (163) | |
| (Decrease)/increase in other payables | (2,651) | 2,726 | |
| Purchase of investments held at fair value | (673) | (12,540) | |
| Sale of investments held at fair value | 1,709 | 9,544 | |
| Net cash inflow from operating activities before interest and taxation | 11,248 | 9,020 | |
| Interest paid | – | – | |
| Taxation on investment income | (87) | (96) | |
| Net cash inflow from operating activities | 11,161 | 8,924 | |
| Financing activities | |||
| Equity dividends paid | 8 | (10,000) | (8,800) |
| Net cash outflow from financing activities | (10,000) | (8,800) | |
| Increase in cash and cash equivalents | 1,161 | 124 | |
| Cash and cash equivalents at beginning of year | 5,541 | 5,390 | |
| Gains on exchange movements | 6 | 27 | |
| Cash and cash equivalents at end of year | 6,708 | 5,541 |
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 dated April 2021.
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. At the most recent update in 2022 the Board sought external advice to verify its approach. Please refer to note 1(j) for further information.
The investment in LTL (representing 24.3% of the 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 16) calculated at the end of each month on the basis of fair value as determined by the Directors of the Company. The valuation process effective 31 March 2022, is based upon a methodology that takes a percentage of LTL’s funds under management, with the percentage applied being reviewed monthly and adjusted to reflect the ongoing profitability of LTL.
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 (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. 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 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 or 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 or losses being the increase or 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 16 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 25 Southampton Buildings, London W.
2 Income
| 2022 | 2021 | |
| £’000 | £’000 | |
| Income from investments | ||
| Overseas dividends | 689 | 933 |
| UK dividends | ||
| Lindsell Train Limited | 12,861 | 11,719 |
| Other UK dividends | 1,234 | 1,130 |
| 14,784 | 13,782 | |
| Total income comprises: | ||
| Dividends | 14,784 | 13,782 |
| 14,784 | 13,782 |
3 Management fees
| 2022 | 2021 | |
| £’000 | £’000 | |
| Investment management fee | 1,449 | 1,262 |
| Manager’s performance fee – charged to capital | – | 2,662 |
| Rebate of investment management fee (see below) | (140) | (84) |
| Net Management fees | 1,309 | 3,840 |
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%, 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 £101,681 (2021: £112,111) 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 value of any positive relative performance versus the Benchmark (the MSCI World Index total return in Sterling), in a financial year. Relative performance is measured by taking the lower of the NAV or Average Market Price, 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 Manager is not eligible for a performance fee based on these two criteria. 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 Manager for the year to 31 March 2022 was £nil (2021: £2,661,702).
For the avoidance of double charging management fees, the 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 Manager in respect of the Company’s investments in those funds. The amounts rebated on the Investment Management fee are shown above, of which £nil (2021: £4,247) relates to the Company’s investment in the Lindsell Train Japanese Equity Fund, £123,593 (2021: £62,796) relates to the Company’s investment in Lindsell Train North American Equity Fund and £16,399 (2021: £16,985) relates to the Company’s investment in the Finsbury Growth & Income Trust PLC.
4 Other expenses
| 2022 | 2021 | |
| £’000 | £’000 | |
| Directors’ emoluments (see note 5) | 118 | 122 |
| Administration fee – Maitland | – | 47 |
| Company Secretarial & Administration fee – Frostrow | 211 | 86 |
| AIFM monitoring fee | – | 12 |
| Auditors’ remuneration*† | 35 | 34 |
| Tax compliance fee | 5 | 5 |
| Safe custody fees | 19 | 20 |
| Printing fees | 44 | 37 |
| Registrars’ fees | 33 | 39 |
| Listing fees | 10 | 17 |
| Legal fees | 12 | 18 |
| Employer’s National Insurance | 8 | 7 |
| Directors’ liability insurance | 12 | 7 |
| Key man insurance | 24 | 19 |
| Consultancy fees** | 50 | – |
| Costs associated with the redesign of the Company’s website | 12 | – |
| VAT Irrecoverable | 34 | – |
| Sundry | 41 | 31 |
| 668 | 501 | |
| Capital charges | 1 | – |
| 669 | 501 |
* Excluding VAT.
† Remuneration for the audit of the Financial Statements of the Company.
** Fees paid to J.P.Morgan Cazenove Ltd in relation to amendments to the Management Agreement and their review of the Company’s valuation methodology applied to its unlisted investment in LTL.
With effect from 1 November 2020 Frostrow Capital LLP was appointed Administrator and Company Secretary to the Company. Details of Frostrow’s fee arrangements can be found in Appendix 3.
5 Directors’ emoluments
These are reflected in the table below:
| 2022 | 2021 | |
| £’000 | £’000 | |
| Directors’ fees | 118 | 122 |
Since 1 January 2022, the Chairman of the Board, Chairman of the Audit Committee, and other Directors receive set fees at rates of £38,500, £31,500 and £26,000 respectively per annum, and have no entitlement to any performance fees. Directors’ fees amounting to £26,000 (2021: £25,000) have been waived by Michael Lindsell in view of his connection with the Manager.
There were no pension contributions paid or payable.
6 Disclosure of interests
As at 31 March 2022 the Company held 12,500,000 shares in Lindsell Train North American Equity Fund with a fair value of £17,601,000 and a cost of £12,638,225.
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 Manager to the Company is subject to termination by either party on twelve months’ notice.
7 Taxation
The tax charge on the profit on ordinary activities for the year was as follows:
| 2022 | 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| UK corporation tax | – | – | – | – | – | – |
| Overseas tax | 90 | – | 90 | 105 | – | 105 |
| Overseas tax recoverable | (12) | – | (12) | (4) | – | (4) |
| Tax charge per accounts | 78 | – | 78 | 101 | – | 101 |
The taxation charge for the year is higher than the standard rate of corporation tax in the UK of 19% (2021: 19%). The differences are explained below:
| 2022 | 2021 | |
| £’000 | £’000 | |
| Net (loss)/return before tax | (4,277) | 54,687 |
| Theoretical tax at UK corporation tax rate of 19% (2021: 19%) | (813) | 10,390 |
| Effects of: | ||
| – UK dividends which are not taxable | (2,678) | (2,441) |
| – Overseas dividends which are not taxable | (131) | (177) |
| – Capital gains/(losses) not subject to corporation tax | 3,246 | (8,597) |
| – Current year excess expenses | 376 | 319 |
| – Unutilised capital expenses | – | 506 |
| – Overseas tax suffered | 90 | 105 |
| – Overseas tax recoverable | (12) | (4) |
| Total tax charge | 78 | 101 |
As an investment trust the Company, is not subject to UK taxation on capital gains as long as it maintains exemption under Sections 1158/1159 Corporation Tax Act 2010. 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 2022, the Company had unutilised management expenses of £28,241,000 (2021: £26,263,000). 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 £7,060,000 (2021: £4,990,000) arising from management expenses exceeding taxable income based on the prospective corporation tax rate of 25% (2021: 19%).
8 Dividends paid and payable
| 2021 | 2020 | |
| £’000 | £’000 | |
| Final dividend paid 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 paid for the year ended 31 March 2021 of £2.93 | ||
| per Ordinary Share (2020: £2.61 per Ordinary Share) | 586 | 522 |
| Total Dividends | 10,000 | 8,800 |
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.
| 2022 | 2021 | |
| £’000 | £’000 | |
| FinaI dividend payable for the year ended 31 March 2022 of | ||
| £51.12 per Ordinary Share (2021: £47.07 per Ordinary Share) | 10,224 | 9,414 |
| Special dividend payable for the year ended 31 March 2022 of | ||
| £1.88 per Ordinary Share (2021: £2.93 per Ordinary Share) | 376 | 586 |
| Total Dividends | 10,600 | 10,000 |
9 Return/(loss) per Ordinary Share
| 2022 | 2021 | |
| Total (loss)/return | £(4,355,000) | £54,586,000 |
| Weighted average number of Ordinary Shares in issue during the year | 200,000 | 200,000 |
| Total (loss)/return per Ordinary Share | £(21.77) | £272.93 |
The total return per Ordinary Share shown above can be further analysed between revenue and capital, as below:
| 2022 | 2021 | |
| Revenue return per Ordinary Share | ||
| Revenue return | £12,729,000 | £12,002,000 |
| Weighted average number of Ordinary Shares in issue during the year | 200,000 | 200,000 |
| Revenue return per Ordinary Share | £63.65 | £60.01 |
| Capital (loss)/return per Ordinary Share | ||
| Capital (loss)/return | £(17,084,000) | £42,584,000 |
| Weighted average number of Ordinary Shares in issue during the year | 200,000 | 200,000 |
| Capital (loss)/return per Ordinary Share | £(85.42) | £212.92 |
10 Investments held at fair value through profit or loss
| 2022 | 2021 | |
| £’000 | £’000 | |
| Investments listed on a recognised investment exchange | 101,256 | 103,969 |
| Unlisted Investment and Fund | 114,512 | 129,924 |
| Valuation at year end | 215,768 | 233,893 |
| Opening book cost | 43,805 | 33,997 |
| Opening investment holding gains | 190,088 | 151,681 |
| Opening Fair Value | 233,893 | 185,678 |
| Analysis of transactions made during the year | ||
| Purchases at cost | 673 | 12,540 |
| Sales proceeds received | (1,709) | (9,544) |
| (Loss)/gains on investments | (17,089) | 45,219 |
| Closing Fair Value | 215,768 | 233,893 |
| Closing book cost | 42,252 | 43,805 |
| Closing investment holding gains | 173,516 | 190,088 |
| Closing Fair Value | 215,768 | 233,893 |
The Company received proceeds of £1,709,000 (2021: £9,544,000) from investments sold in the year. The book cost of these investments when they were purchased was £2,227,000 (2021: £2,731,000). 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 2022 amounted to £280 and £673 respectively (2021: £0 and £1,758 respectively).
During the year the investment holding loss attributable to the Company’s holding in LTL amounted to £17,328,000 (2021 gain: £24,759,000). See note 16 for further details.
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 2022.
| Investments | Country of registration or incorporation | Class of capital | % of class held |
| Lindsell Train Limited* | England | Ordinary Shares of £100 | 24.3% |
*As at 31 January 2022, the latest year end for LTL, its audited aggregate capital and reserves amounted to £90,554,000, (2021: £80,125,000) and the profit for that year amounted to £65,193,000 (2021: £62,311,000). The total amount of dividends paid during the year was £53,134,000, equating to dividends of £2,003 per share. The earnings per share were £2,458. 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 Manager to avoid double charging of fees and expenses on investments made in other Lindsell Train fund products (see note 3).
11 Other receivables
| 2022 | 2021 | |
| £’000 | £’000 | |
| VAT recoverable | – | 14 |
| Prepayments and accrued income | 513 | 547 |
| 513 | 561 |
12 Other payables
| 2022 | 2021 | |
| £’000 | £’000 | |
| Accruals and deferred income | 228 | 217 |
| Performance fee | – | 2,662 |
| 228 | 2,879 |
13 Called up share capital
| 2022 | 2021 | |||
| No. of shares 000’s | £’000 | No. of shares 000’s | £’000 | |
| Authorised: | ||||
| Ordinary Shares of 75p each | 200 | 150 | 200 | 150 |
| Allotted, called up and fully paid: | ||||
| Ordinary Shares of 75p each | 200 | 150 | 200 | 150 |
There has been no change in the capital structure during the year to 31 March 2022.
14 Capital reserve
The capital reserve includes investment holding gains of £173,516,000 (2021: £190,088,000).
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.
15 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 attributable | Net Asset Value attributable | ||
| 2022 | 2021 | 2022 | 2021 |
| £ | £ | £’000 | £’000 |
| 1,113.81 | 1,185.58 | 222,761 | 237,116 |
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 £222,761,000 (2021: £237,116,000) and on 200,000 Ordinary Shares (2021: 200,000), being the number of Ordinary Shares in issue at the year end.
16 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 and its investment policy including its policy on gearing (bank borrowing), diversification and dividends.
The Board and its Manager consider and review the number of risks inherent with managing the Company’s assets which are detailed below.
Market risk
The Company’s portfolio is exposed to fluctuations in market prices in the regions in which it invests. Market-wide uncertainties which have recently caused increased volatility in the markets include the outbreak of war in Ukraine and the ongoing Covid-19 pandemic including further lockdowns in China and increased inflationary pressures.
At 31 March 2022, the fair value of the Company’s assets exposed to market price risk was £215,768,000 (2021: £233,893,000). The Company’s exposure to market price fluctuations is reviewed by the Board on a quarterly basis and monitored on a continuous basis by the Manager in pursuance of the investment objective.
Market price risk comprises three elements – foreign currency risk, interest rate risk and other price risk.
Foreign currency risk
Foreign currency exposure as at 31 March 2022
| US$ | Euro | JPY | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Short-term debtors | 40 | 6 | 249 | 295 |
| Foreign currency exposure on net monetary items | 40 | 6 | 249 | 295 |
| Investments held at fair value through profit or loss that are equities | 33,308 | 8,262 | 15,819 | 57,389 |
| Foreign currency exposure | 33,348 | 8,268 | 16,068 | 57,684 |
Foreign currency exposure as at 31 March 2021
| US$ | Euro | JPY | Total | |
| £’000 | £’000 | £’000 | £’000 | |
| Short-term debtors | 29 | 4 | 341 | 374 |
| Foreign currency exposure on net monetary items | 29 | 4 | 341 | 374 |
| Investments held at fair value through profit or loss that are equities | 39,192 | 7,641 | 16,620 | 63,453 |
| Foreign currency exposure | 39,221 | 7,645 | 16,961 | 63,827 |
Over the year Sterling weakened against the US Dollar by 4.57% (2021: strengthened by 11.27%), strengthened against the Euro by 0.81% (2021: strengthened by 3.88%) and strengthened against the Japanese Yen by 4.82% (2021: strengthened by 13.89%).
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 £2,884,000 or 1.29% of Net Asset Value (2021: £3,187,000 or 1.36% 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 direct exposure to interest rate risk.
Other price risk
Other price risk may affect the value of the quoted investments.
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 2022 would have increased or decreased by £21,577,000 or 107.88p per share (2021: £23,389,000 or 116.95p per share).
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 at 31 March 2022, 49% (2021: 45%) of the investment portfolio (95% of the listed portfolio) could be liquidated within five business days, based on 20% of the 90 days’ average daily trading volumes 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% of NAV.
Credit risk
Cash at bank and other debtors of the Company at the year end as shown on the Balance Sheet was £7,221,000 (2021: £6,102,000).
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, AA- from Standard & Poor’s and AA from Fitch Ratings.
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
| Level 1 | Level 2 | Level 3 | Total | |
| At 31 March 2022 | £’000 | £’000 | £’000 | £’000 |
| Investments | 101,257 | 17,601 | 96,910 | 215,768 |
| 101,257 | 17,601 | 96,910 | 215,768 |
| Level 1 | Level 2 | Level 3 | Total | |
| At 31 March 2021 | £’000 | £’000 | £’000 | £’000 |
| Investments | 103,969 | 15,686 | 114,238 | 233,893 |
| 103,969 | 15,686 | 114,238 | 233,893 |
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 note 16.
LTL Valuation Methodology
During the year the Board appointed J.P. Morgan Cazenove Ltd to undertake an independent review of the Company’s valuation methodology applied to its unlisted investment in LTL. The new methodology was adopted and applied to monthly valuations from 31 March 2022 onwards.
In adopting the new methodology the Board seeks to capture the changing economics and prospects for LTL’s business. It is designed to be as transparent as possible so that shareholders can themselves calculate how any change to the inputs would affect the resultant valuation.
The new methodology has a single component based on a percentage of LTL’s funds under management (“FUM”), with the percentage applied being reviewed monthly and adjusted to reflect the ongoing profitability of LTL. At the end of each month the ratio of LTL’s notional annualised net profits* to LTL’s FUM is calculated and, depending on the result, the percentage of FUM is adjusted according to the table below.
| Notional annualised net | Valuation of LTL - |
| profits*/FUM (%) | Percentage of FUM |
| 0.15 – 0.16 | 1.70% |
| 0.16 – 0.17 | 1.75% |
| 0.17 – 0.18 | 1.80% |
| 0.18 – 0.19 | 1.85% |
| 0.19 – 0.20 | 1.90% |
| 0.20 – 0.21 | 1.95% |
| 0.21 – 0.22 | 2.00% |
| 0.22 – 0.23 | 2.05% |
| 0.23 – 0.24 | 2.10% |
| 0.24 – 0.25 | 2.15% |
| 0.25 – 0.26 | 2.20% |
| 0.26 – 0.27 | 2.25% |
For instance at 31st March 2022 LTL’s annualised notional net profits were £42.6m and its FUM was £20.45bn. The ratio between the two as a percentage was calculated at 0.208% resulting in a percentage of FUM of 1.95% and a valuation of LTL of £15,024.84 per share.
Appendix 1 provides more detail on this new methodology, as well as showing the close correlation of this new methodology compared with the prior methodology.
The valuation of the investment in LTL continues to be reviewed at the end of each month by the Company’s Directors, with the methodology reviewed by the Board at its quarterly meetings.
* LTL’s notional net profits are calculated by applying a fee rate (averaged over the last six months) to the most recent end-month FUM to produce annualised fee revenues excluding performance fees. Notional staff costs of 45% of revenues, annualised fixed costs and tax are deducted from revenues to produce notional annualised net profits.
LTL Valuation per share using differing valuation assumptions
The two tables below show the impact on the LTL valuation if:
(i) in Table 1 a different % was applied to 31 March 2022 FUM; and
(ii) in Table 2 a different Price/Earnings ratio was applied to LTL’s March notional net profits
Table 1 – varying the % of FUM
| LTL Funds under | |||
| Management | Valuation | ||
| as at 31 March 2022 | Valuation | per share | |
| (£'000) | % of FUM | (£'000) | (£) |
| 20,451,498 | 1.00% | 204,515 | 7,705.04 |
| 20,451,498 | 1.25% | 255,644 | 9,631.30 |
| 20,451,498 | 1.50% | 306,772 | 11,557.57 |
| 20,451,498 | 1.75% | 357,901 | 13,483.83 |
| 20,451,498 | 1.95% | 398,804 | 15,024.84 |
| 20,451,498 | 2.00% | 409,030 | 15,410.09 |
| 20,451,498 | 2.25% | 460,159 | 17,336.35 |
| 20,451,498 | 2.50% | 511,287 | 19,262.61 |
| 20,451,498 | 2.75% | 562,416 | 21,188.87 |
Table 2 – varying the P/E ratio
| LTL notional | |||
| net profits | Valuation | ||
| as at 31 March 2022 | Valuation | per Share | |
| (£'000) | P/E ratio | (£'000) | (£) |
| 42,598 | 7.00 | 298,188 | 11,234.15 |
| 42,598 | 8.00 | 340,786 | 12,839.03 |
| 42,598 | 9.00 | 383,385 | 14,443.91 |
| 42,598 | 9.36 | 398,804 | 15,024.84 |
| 42,598 | 10.00 | 425,983 | 16,048.79 |
| 42,598 | 11.00 | 468,581 | 17,653.67 |
| 42,598 | 12.00 | 511,180 | 19,258.55 |
There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 March 2022 and 31 March 2021. 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
| 2022 | 2021 | |
| £’000 | £’000 | |
| Opening fair value | 114,238 | 89,479 |
| Purchases at cost | – | – |
| Sales proceeds | – | – |
| Total gains or losses included in gains on investments in the Income Statement | ||
| on sold assets | – | – |
| on assets held at the end of the year | (17,328) | 24,759 |
| Closing fair value | 96,910 | 114,238 |
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 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.
At the next Annual General Meeting the Company intends to renew its authority to repurchase shares at a discount to Net Asset Value.
17 Guarantees, financial commitments and contingent liabilities
There were no financial commitments or contingent liabilities outstanding at the year end (2021: None).
18 Ongoing charges (APM)
| 2022 | 2021 | |||
| £’000 | % | £’000 | % | |
| Total operating expenses | £1,978 | 0.82 | 1,679 | 0.75 |
Total operating expenses are included after a management fee waiver of £140,000 (2021: £84,000) (see note 3). They exclude the Manager’s performance fee of £nil (2021: £2,662,000).
The above total expense ratios are based on the average shareholders’ funds of £240,223,000 (2021: £225,120,000) 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.
19 Related Party transactions
Lindsell Train Limited acts as the 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 Manager are disclosed in note 3 and further details of the relationship between the Company and the Manager are set out in note 6 and note 10. 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 in the Annual Report.
Appendices (unaudited)
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 2022
The Manager of The Lindsell Train Investment Trust plc (“LTIT”)
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 two non-executive directors, James Alexandroff and Julian Bartlett. 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 have increased in number from 19 to 25 over the last 12 months, reflecting additional recruitment in all areas. All staff are based in the UK other than LTL’s North American Marketing and Client Services representative, who works out of the New York area.
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 either directly or through a 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 four key product areas: UK, Global, Japanese and, more recently, North American equities. 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 seven at 31 January 2022.
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 70% of FUM at end of January, down from 72% the year before. Additionally, LTL managed 18 separate client relationships, up one from a year ago. The largest pooled fund (the Lindsell Train Global Equity Fund) represented 34% of total FUM and the largest segregated portfolio accounted for nearly 10%.
In the year to 31 January 2022 LTL’s total FUM fell by 7% from £22.8bn to £21.2bn. This represented net outflows of £1.9bn, broken down by strategy as Global (£478m), Japan (£177m) and UK (£1,263m). Although relative performance continued to deteriorate in all strategies, market performance cushioned the FUM fall. Long-term excess returns remain competitive, as shown in the table below.
| To 31.1.2022 | Relative Return | Inception date | Benchmark |
| UK Equity Fund (GBP) | +4.9% p.a. | July 2006 | FTSE All Share |
| Global Equity Fund (GBP) | +2.4% p.a. | March 2011 | MSCI World |
| Japanese Equity Fund (Yen) | +1.4% p.a. | January 2004 | TOPIX |
| North American Equity Fund (GBP) | -8.0% p.a. | April 2020 | MSCI North America |
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; LF Lindsell Train North American Equity Fund Acc share class.
The Marketing and Client Services team is 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 the 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 2022 LTL’s total revenues grew 6%. Annual management fees make up the lion’s share, at 98%, 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 32% of total revenues, up from 30% last year. Fixed overheads were up from £4.3m to £5.0m. Operating profits were up 5%, 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 2022 were £2,003 per share, up from £1,817 per share in the previous year.
At the end of January 2022 LTL’s balance sheet was made up of shareholders’ funds of £90.6m backed by £90.4m of net current assets including £72.8m 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, following the warning in last year’s report that performance had started to deteriorate, calendar year 2021 proved to be very disappointing for relative performance across all four strategies. Most clients will tolerate short periods of underperformance, especially in a strategy that is so concentrated and committed to its constituent companies. However, with continued underperformance LTL has started to see net redemptions, predominantly from its key pooled funds.
LTL is confident that by remaining committed to its differentiated investment approach, and with the support of a stable and dedicated team and a still competitive longer-term performance track record, it can stay 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; the growth of ESG designated investment funds; and, as noted above, underperformance from LTL’s strategies. Perhaps the greatest risk in relation to LTL’s reputation however remains the withdrawal of either of the founders. They are currently aged 63 and 62, in good health and remain strongly committed to LTL. They are supported by increasingly mature and experienced investment professionals, currently numbering five, all of whom are taking on more responsibility and contributing more to investment decisions as their careers progress with the company. The clearer articulation of the firm’s succession planning and the accelerated transfer of ownership of LTL shares to key individuals should also help mitigate the risk if either founder withdraws.
Data to 31 January 2022 unless stated otherwise. The period from 31 January to 31 March 2022 has been reviewed by the Board and there are no significant matters to highlight other than those detailed in this Appendix.
Funds Under Management
| Unaudited | ||
| Jan 2022 | Jan 2021 | |
| FUM by Strategy | £m | £m |
| UK | 8,475 | 9,121 |
| Global | 12,040 | 12,637 |
| Japan | 702 | 1,020 |
| North America | 28 | 24 |
| Total | 21,245 | 22,802 |
Largest Client Accounts
| Unaudited | ||||
| Jan 2022 | Jan 2021 | |||
| % of FUM | % of FUM | |||
| Largest Pooled Fund Asset | 34% | 36% | ||
| Largest Segregated Account | 10% | 8% |
Lindsell Train Fund Performance
| 1 Year | 3 Years | 5 Years | 10 Years | ||
| Annualised data to 31 January 2022 | % | % | % | % | |
| GBP | UK Equity Fund (Accumulation) | 6.3 | 7.5 | 8.5 | 12.5 |
| FTSE All Share | 18.9 | 6.8 | 5.4 | 7.4 | |
| GBP | Global Equity Fund (B share) | (2.0) | 7.6 | 12.4 | 15.7 |
| MSCI World | 19.3 | 15.8 | 11.8 | 13.4 | |
| JPY | Japanese Equity Fund (A share) | (10.1) | 1.2 | 5.8 | 12.3 |
| TOPIX | 7.0 | 9.1 | 6.9 | 12.0 | |
| GBP | North American Equity Fund | ||||
| (Accumulation) | 15.2 | ||||
| MSCI North American | 23.5 | ||||
Source: Morningstar Direct
Note: all figures above show total returns.
Financials
| Unaudited | Audited | ||
|---|---|---|---|
| Jan 2022 | Jan 2021 | % | |
| Profit & Loss | £’000 | £’000 | Change |
| Fee Revenue | |||
| Investment Management fee | 119,971 | 109,369 | 10% |
| Performance Fee | 2,662 | 6,576 | -60% |
| Bank Interest | 11 | 121 | |
| 122,644 | 116,066 | ||
| Staff Costs * | (38,843) | (34,362) | 13% |
| Fixed Overheads | (5,041) | (4,246) | 19% |
| FX Currency Translation Gain/(loss) | 954 | (1,578) | |
| Investment Unrealised Gain/(loss) | 914 | 1,000 | |
| Operating Profit | 80,628 | 76,880 | 5% |
| Taxation | (15,435) | (14,569) | |
| Net Profit | 65,193 | 62,311 | 5% |
| Dividends | (53,134) | (48,367) | |
| Retained profit | 12,059 | 13,944 | |
| Capital & Reserves | |||
| Called up Share Capital | 267 | 267 | |
| Share Premium | 57 | 9 | |
| Other reserves | (2,237) | (560) | |
| Profit & Loss Account | 92,467 | 80,409 | |
| Shareholders’ Funds | 90,554 | 80,125 | |
| Balance Sheet | |||
| Fixed Assets | 174 | 195 | |
| Investments | 6,914 | 6,000 | |
| Current Assets (inc cash at bank) | 91,827 | 83,587 | |
| Liabilities | (8,361) | (9,657) | |
| Net Assets | 90,554 | 80,125 |
* Staff costs include permanent staff remuneration, social security, temporary apprentice levy, introduction fees and other staff related costs. No more than 25% of fees (other than LTIT) can be paid as permanent staff remuneration.
Five Year History
| Unaudited | |||||
| Jan 2022 | Jan 2021 | Jan 2020 | Jan 2019 | Jan 2018 | |
| Operating Profit Margin | 66% | 66% | 65% | 66% | 62% |
| Earnings per share (£)* | 2,458 | 2,340 | 2,237 | 1,688 | 1,149 |
| Dividends per share (£)* | 2,003 | 1,817 | 1,619 | 1,099 | 784 |
| Total Staff Cost as % of Revenue | 32% | 30% | 31% | 32% | 34% |
| Opening FUM (£m) | 22,802 | 21,450 | 16,260 | 13,179 | 8,975 |
| Changes in FUM (£m) | -1,557 | 1,352 | 5,190 | 3,081 | 4,204 |
| of market movement | 360 | 1,200 | 2,781 | 808 | 2,074 |
| of net fund (outflows)/inflows | -1,918 | 152 | 2,409 | 2,273 | 2,130 |
| Closing FUM (£m) | 21,245 | 22,802 | 21,450 | 16,260 | 13,179 |
| LT Open ended funds as % of total | 70% | 73% | 73% | 72% | 67% |
| Client Relationships | |||||
| Pooled funds | 5 | 5 | 4 | 4 | 4 |
| Separate accounts | 18 | 17 | 17 | 17 | 15 |
Ownership
| Jan 2022 | Jan 2021 | ||||
| Michael Lindsell and spouse | 9,650 | 9,650 | |||
| Nick Train and spouse | 9,650 | 9,650 | |||
| The Lindsell Train Investment Trust plc | 6,450 | 6,450 | |||
| Other Directors/employees | 778 | 875 | |||
| 26,528 | 26,625 | ||||
| Treasury Shares | 132 | 35 | |||
| 26,660 | 26,660 |
Board of Directors as at 31st January 2022
| Nick Train | Chairman and Portfolio Manager |
| Michael Lindsell | Chief Executive and Portfolio Manager |
| Michael Lim | Chief Operating Officer |
| Keith Wilson | Head of Marketing & Client Services |
| Jane Orr | Director of Marketing |
| James Alexandroff | Non-Executive Director |
| Julian Bartlett | Non-Executive Director |
Employees
| Jan 2022 | Jan 2021 | |
| Investment Team (including three Portfolio Managers) | 7 | 6 |
| Client Servicing and Marketing | 8 | 6 |
| Operations and Administration | 10 | 7 |
| Non-Executive directors | 2 | 2 |
| 27 | 21 |
* On 1 February 2019 LTL undertook a share split with each share sub divided into 10 shares of £10 each. The per share figures in the table above are retrospectively changed in y/e January 2018 and y/e January 2019 based on 26,660 shares for ease of comparison.
LTIT Director’s valuation of LTL
| 31 Mar 2022 | 31 Mar 2021^ | |
| Notional annualised net profits (A)* (£’000) | 42,598 | 51,017 |
| Funds under Management less LTIT holdings (B) (£’000) | 20,451,498 | 22,908,969 |
| Normalised notional net profits as % of FUM A/B = (C) | 0.208% | 0.223% |
| % of FUM (D) (see table below to view % corresponding to C) | 1.95% | 2.05% |
| Valuation (E) i.e. B x D (£’000) | 398,804 | 469,634 |
| Number of shares in issue (F)† | 26,543 | 26,645 |
| Valuation per share in LTL i.e. E / F | £15,024.84 | £17,625.59 |
* Notional annualised net profits are made up of:
annualised fee revenue, based on 6-mth average fee rate applied to most recent month-end AUM
annualised fee revenue excludes performance fees
annualised interest income, based on 3-mth average
notional staff costs of 45% of annualised fee revenue
annualised operating costs (excluding staff costs), based on 3-mth normalised average
notional tax at 19%
^ The 31 March 2021 valuation (shown above) was derived by applying the new valuation methodology, described overleaf, which came into effect from 31 March 2022.
† The reduction in shares in issue is accounted for by net purchases of Treasury shares from LTL employees.
| Notional annualised net profits*/FUM (%) | Valuation of LTL - Percentage of FUM |
| 0.15 – 0.16 | 1.70% |
| 0.16 – 0.17 | 1.75% |
| 0.17 – 0.18 | 1.80% |
| 0.18 – 0.19 | 1.85% |
| 0.19 – 0.20 | 1.90% |
| 0.20 – 0.21 | 1.95% |
| 0.21 – 0.22 | 2.00% |
| 0.22 – 0.23 | 2.05% |
| 0.23 – 0.24 | 2.10% |
| 0.24 – 0.25 | 2.15% |
| 0.25 – 0.26 | 2.20% |
| 0.26 – 0.27 | 2.25% |
During the year the Board appointed J.P. Morgan Cazenove Ltd to undertake an independent review of the Company’s valuation methodology applied to its unlisted investment in LTL. It was agreed that the new methodology be applied to monthly valuations from 31 March 2022 onwards.
In adopting the new methodology the LTIT Board seeks to capture the changing economics and prospects for LTL’s business. It is designed to be as transparent as possible so that shareholders can themselves calculate how any change to the inputs would affect the resultant valuation.
The new methodology is simpler as it has a single component based on a percentage of LTL’s FUM (as opposed to two components in the old methodology, see below), with the percentage applied being reviewed monthly and adjusted to reflect the ongoing profitability of LTL. After the end of each month the ratio of LTL’s notional annualised net profits* to LTL’s FUM is calculated and, depending on its result, the percentage of FUM is adjusted according to the table above.
For instance at 31 March 2022 LTL’s annualised notional net profits were £42.6m and its FUM was £20.45bn. The ratio between the two as a percentage was calculated at 0.208 resulting in a percentage of FUM of 1.95% and a valuation of LTL of £15,024.84 per share.
The LTIT Board determined that a change from the old methodology was necessary as in recent years the valuation difference between its two components used previously widened considerably. This reflected the effect of the operating leverage in LTL’s business as its FUM increased.
The old methodology was a simple average of two components:
1.5% of LTL’s most recent funds under management (“FUM”); and
LTL’s net profits (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 redemption 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%.
In making this change, the Board notes that the new methodology correlates closely to the result of the old one (when the average of the two components in the old methodology is expressed as a percentage of FUM) both on 31 March 2022 and historically as depicted in the graph overleaf. At 31 March 2022 LTL’s valuation based on the old methodology would have been £15,219.25, a difference of just 1.3% to the valuation using the new methodology.
* LTL’s notional net profits are calculated by applying a fee rate (averaged over the last six months) to the most recent end-month FUM to produce annualised fee revenues excluding performance fees. Notional staff costs of 45% of revenues, annualised fixed costs and tax are deducted from revenues to then produce notional annualised net profits.
The Board will continue to monitor a number of alternative approaches to the valuation of LTL to ensure that the result of the new valuation methodology makes sense in the context of the future prospects for LTL and also when it is compared with similar businesses.
In summary, the Board’s view is that this new methodology simplifies the valuation of LTL whilst capturing the changing operating leverage of the business and is also historically consistent with results from the old one.
LTL’s Salary and Bonus cap
Salary and bonus expenses at LTL are restricted by a salary and bonus cap that mandates that no more than 25% of LTL’s fees (other than those derived from LTIT) can be paid as staff remuneration. Employer national insurance costs are excluded from this limit. This policy has been in place since the inception of both LTL and LTIT and together with LTL’s dividend policy ensure LTL shareholders earn a tangible reward from their investment in LTL.
The LTIT Board has long recognised that it is important that LTL has the ability to sufficiently reward potential successors or, if it became necessary to replace the founders, to recruit suitable outside talent. As a consequence, since 2007 the LTIT Board has judged it necessary to apply a higher notional salary cost of 45% of revenues in calculating LTL’s net profits when determining the valuation of LTL.
To put this in context, LTL’s total salary and bonus expenses (including employer national insurance payments) have averaged 37% of revenues since 2001. Currently a peer group of quoted fund managers exhibits an average salary cost to revenue ratio of 36% but the salary to revenue of peers with FUM equivalent to LTL is higher, at 43%. The LTIT board therefore believes that a notional salary to revenue ratio of 45% makes sufficient allowance for the eventualities described above.
Whilst the 25% salary and bonus cap remain in place for now, both the LTL and LTIT Boards recognise that it may be necessary to increase this limit in the future.
Appendix 2
Share Capital (unaudited)
At 31 March 2022 and 31 March 2021, 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 2022 the Ordinary Share price was £1,105 (31 March 2021: £1,420).
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
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 FCA; 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 (unaudited)
Investment Management Agreement
The 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.
Fees
The Investment Management Fee is payable at the annual rate of 0.60 per cent. of the lower of (a) the Market Capitalisation of the Company and (b) the Net Asset Value of the Company, calculated daily.
The Performance Fee is calculated as 10% of the value of any positive relative performance versus the 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 Manager is not eligible for a performance fee based on these two criteria.
During the year the Directors reviewed the performance of the 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 Manager.
In addition to the day to day management of investments, the Manager advises the Board on liquidity and borrowings and liaises with major shareholders. The 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 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 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”) (unaudited)
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 within this Glossary. The Directors believe that these measures enhance the comparability of information between reporting periods and aid investors in understanding the Company’s performance. The measures used for the year under review have remained consistent with the prior year.
Benchmark
With effect from 1 April 2021 the Company’s performance benchmark is the MSCI World Index total return in Sterling.
Prior to 1 April the benchmark was the annual average redemption yield on the longest-dated UK government fixed rate (1.625% 2071) calculated using weekly data, plus a premium of 0.5%, subject to a minimum 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.
The figures disclosed in the Strategic Report have been calculated as shown below:
| 2022 | 2021 | |
| Total Dividends paid per ordinary share (a) | £53.00 | £50.00 |
| Closing price per Ordinary Share on 31 March (b) | £1,105.00 | £1,420.00 |
| Dividend Yield (a) ÷ (b) | 4.80% | 3.52% |
MSCI World Index total return in Sterling (the Company's performance Benchmark)
The MSCI information (relating to the Benchmark) may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation lost profits) or any other damages. (www.msci.com).
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.
The figures disclosed in the Strategic Report have been calculated as shown below:
| 2022 | 2021 | |
| ‘000 | ‘000 | |
| Net Asset Value (a) | £222,761 | £237,116 |
| Ordinary Shares in issue (b) | 200 | 200 |
| Net Asset Value per Ordinary Share (a) ÷ (b) | £1,113.81 | £1,185.58 |
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.
The figures disclosed in the Strategic Report have been calculated as shown below:
| 2022 | 2021 | |
| £'000 | £'000 | |
| Total operating expenses (a) | 1,978 | 1,679 |
| Average Net Asset Value (b) | 240,223 | 225,120 |
| Ongoing Charges (a) ÷ (b) | 0.82% | 0.75% |
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.
SASB
The Sustainability Accounting Standards Board.
SASB Materiality Map©
The Materiality Map was developed by the SASB. It ranks issues by industry based on two types of evidence: evidence that investors in the industry are interested in the issue, and evidence that the issue has the ability to impact companies within the industry.
Share price and NAV total return (APM)
These are the returns on the share price and NAV respectively 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 are calculated as the returns to Shareholders after reinvesting the net dividend in additional shares on the date that the share price goes ex-dividend.
The figures disclosed in the Strategic Report have been calculated at shown below:
| Year Ended 31 March 2022 | |||
| LTIT Share | |||
| LTIT NAV | Price | ||
| NAV/Share Price at 31 March 2022 | a | £1,113.81 | £1.105.00 |
| Dividend Adjustment Factor* | b | 1.041 | 1.029 |
| Adjusted closing NAV/Share Price | c = a x b | 1,158.99 | 1,137.08 |
| NAV/Share Price at 31 March 2021 | d | £1,185.58 | £1,420.00 |
| Total return | ((c/d)-1)) x100 | -2.3% | -20.0% |
* The dividend adjustment factor is calculated on the assumption that the dividends of £50 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.
The figure disclosed in the Strategic Report has been calculated as shown below:
| LTL valuation | ||
| Valuation at 31 March 2021 | a | £17,711^ |
| Valuation at 31 March 2022 | b | £15,025 |
| Dividends paid during the year | c | £2,003 |
| Total return | {((b-a)+c)/a}x100 | -3.9% |
^ Based on the old valuation methodology.
TCFD
Task Force on Climate-Related Financial Disclosures.
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.
2022 Accounts
The figures and financial information for 2022 are extracted from the Annual Report and financial statements for the year ended 31 March 2022 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.
2021 Accounts
The figures and financial information for 2021 are extracted from the published Annual Report and financial statements for the period ended 31 March 2021 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 2022 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 2022 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, 8 September 2022.
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.
-END OF THE ANNOUNCEMENT-
For further information please contact
Victoria Hale
Company Secretary
For and on behalf of Frostrow Capital LLP
020 3170 8732
