Temple Bar Investment Trust Plc - Half-year Report
Temple Bar Investment Trust PLC
The period under review, as can be seen in the accompanying tables, has been hugely disappointing. The net asset value of your shares, and their price, have suffered very significant falls. In addition, the Trust has seen a near 70% fall in its earnings per share. It is in this context that the Board has decided to replace the current investment managers, Ninety One, with RWC Asset Management LLP.
Please see below the Stock Exchange announcement detailing the above, which was issued on 23rd September:
“Change of investment manager
Further to the announcement made on , the Board is pleased to announce the proposed change of the Trust’s investment manager to RWC Asset Management LLP (“RWC”). Temple Bar has today entered into heads of terms with RWC (the “Heads of Terms”) under which, subject to the satisfaction of conditions detailed below, RWC will become the Trust’s investment manager. It is currently anticipated that the appointment of RWC will become effective on or around the end of at which time a further announcement will be made.
Following the disappointing performance of the Trust in 2020 and the departure due to ill health of the named fund manager, the Board announced that it would conduct a review of its management arrangements. The Board chose the services of Stanhope Consulting (“Stanhope”), initially to conduct an independent analysis of the performance of the value style both internationally and in the context of the equity market. It is apparent that this style can be characterised by quite long periods of relative weakness followed by sharp periods of strong outperformance. The Board concluded that this is not a time in the cycle of returns to abandon this value style bias. The Board, advised by Stanhope, then invited investment management proposals from providers internationally. These were all examined in great detail and after an exhaustive, multi-stage process, the Board concluded that the investment proposition from RWC, offering a sustainable value investment style, was in the current circumstances by far the strongest that they had received.
Investment objective, investment policy, strategy and style
The Trust’s investment objective will remain unchanged; to provide growth in income and capital to achieve a long-term return greater than the benchmark FTSE All-Share Index, through investment primarily in securities. Likewise, the investment policy (including investment restrictions) will remain unchanged.
Temple Bar has for many years had a value investment approach and the Board has selected RWC for its proven expertise and excellent long-term track record in this investment discipline, thereby ensuring continuity in the investment approach for Shareholders.
About the new investment management team
The Trust’s portfolio will be managed by the long-term partnership of and , each of whom has around 30 years investment experience. They employ a long-term, value-oriented approach, which takes advantage of stock market over-reaction to enable them to purchase shares in sound businesses at a significant discount to their intrinsic value. They have applied this tried and tested approach in a disciplined manner over many years, and this has resulted in creating significant added value for their clients.
Benefits of the proposals
The Board believes that the change in investment manager will provide the following benefits to Shareholders:
Added value of two highly experienced fund managers, backed by a proven long term track record: 20 year fund total return of 234 per cent. vs. 122 per cent. for FTSE All-Share.
Exposure to equities which are trading at their greatest discount to World equities for fifty years and in particular to value stocks which are trading at their greatest ever discount to growth stocks.
Future capital appreciation alongside attractive dividends and steady income growth, to be delivered by investing in a focused list of sustainable companies which can grow profits over time, whose finances are strong and which the new managers believe are significantly under-valued.
Maintained management fee of 0.35 per cent of total assets and competitive fixed costs mean that the total expense ratio will continue to be one of the lowest in the sector.
Material contribution, by fee waiver to , by the incoming investment manager to offset transition costs.
RWC is a specialist, independent investment manager established in 2000 with circa £13.4 billion (as at ) under management.
The organisation focuses on building strong teams of people who have clear and disciplined investment processes. RWC further believes in ensuring that its investment teams have the resources and autonomy that enable them to focus on the long-term returns for its clients. This is underpinned by the majority of the organisation being owned by the people who work at RWC.
The RWC income and value team have been at RWC for over a decade having over 60 years experience between the two lead managers. They are market leading value investors and are responsible for over £3 billion of client assets.
The Heads of Terms
Under the Heads of Terms the formal appointment of RWC as the Trust’s investment manager is conditional upon the satisfaction of a number of conditions, including: (i) the negotiation and entering into a form of Alternative Investment Fund Manager’s Agreement (the “AIFM Agreement”) with an independent Alternative Investment Fund Manager (“AIFM”) under the terms of which (and pursuant to a portfolio management agreement to which Temple Bar will also be a party (the “Portfolio Management Agreement”) the AIFM will delegate portfolio management to RWC; (ii) all necessary regulatory approvals; and (iii) the Trust concluding arrangements with Ninety One Fund Managers UK Limited (“Ninety One”) for the termination of the existing investment management arrangements.
Under the terms of the proposed Portfolio Management Agreement RWC will be paid a management fee equal to 0.35 per cent. per annum of the Trust’s total assets. Furthermore, as Ninety One is contractually entitled to receive the management fee for the remainder of the notice period which it is currently serving, RWC has agreed that it will forgo the management fee to which it would otherwise be entitled to in order largely to defray the fixed costs and expenses incurred by Temple Bar in connection with the appointment of RWC. It is proposed that RWC’s appointment will be for an initial term of 18 months and may thereafter be terminated by either party giving 6 months’ notice. It is proposed that the Portfolio Management Agreement is capable of summary termination in certain usual circumstances including in the event that both and cease to be responsible for the management of the Trust’s assets or otherwise become incapacitated.
Having reviewed the Trust’s income position with RWC, the Board intends to recommend a total dividend for the current year of per ordinary share, with both the third interim dividend and the final dividend recommended to be 8.25p. This new total dividend, unfortunately, represents a cut of 25 per cent. from the previous level. From this base level, however, the Board believes that it will be possible to renew dividend growth going forward. Current projections suggest that there will have to be transfers from reserves to enable the 2020 and the 2021 dividend to be paid, but thereafter the dividend should be covered by earnings.
Comments from the Chairman and named fund managers
, Chairman of Temple Bar, commented “Up until recently Temple Bar had a long history of providing attractive investment returns. In selecting RWC as investment manager we aim to reinvigorate the Trust and return it to its former position as one of the market leaders in the sector.
It is obviously very disappointing for us to announce a fall in the dividend for the first time in many years, but this has been an especially challenging year for many dividend paying companies and unfortunately the portfolio of the Trust has been particularly adversely impacted. We understand how important dividends are to our Shareholders and this played a large part in our rationale in selecting RWC as manager. We strongly believe they are well placed to put Temple Bar back on the path to provide not only a high but growing dividend over the medium to longer term”.
and , proposed fund managers of Temple Bar, commented “In our long investing career, we have seen three occasions when dislocation in the stock market has created the most exceptional opportunities for long term, value investors; post the technology bubble of the late nineties, coming out of the global financial crisis and today. We very much look forward to harnessing these opportunities for the benefit of the Temple Bar Shareholders.”
, CEO of RWC Partners, commented “It’s a real privilege to have been appointed as only the third portfolio manager of Temple Bar in its 94 year history. Our appointment comes at an interesting moment as investors consider whether there will be a change of leadership in equity markets, and where to allocate capital in a world of low interest rates and high valuations. Nick and Ian’s track record of over twenty years is steeped in sustainable value; they are arguably one of the most experienced portfolio management partnerships in the industry and have always run money consistently to this ethos, regardless of wider market sentiment. We are honoured to now have the opportunity to start building a track record with Temple Bar, at what feels like a very exciting juncture in the world of true value investing.”
Further details of the key individuals
and joined RWC in and together manage over £3 billion of client assets, including the TM RWC Equity Income Fund. After qualifying as a Chartered Accountant, Nick worked at Schroders for over 16 years. Ian has been working with Nick since 2007, initially at Schroders and then at RWC. Prior to joining Schroders, Ian was Head of European Equities and Director of Research at Citigroup and Head of Global Research at Gartmore.
Appointment of AIFM
The Board is also announcing that Link Fund Solutions Limited is expected to be appointed as the AIFM. They believe that this enhances the trust’s long-term governance structure and independence.”
TEN LARGEST HOLDINGS AS AT
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED (unaudited)
A first interim dividend of per share in respect of the quarter ended was paid on .
A second interim dividend of per share in respect of the quarter ended was declared on and is payable on .
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED (unaudited)
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED (unaudited)
STATEMENT OF FINANCIAL POSITION AS AT (unaudited)
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED (unaudited)
1. Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities.
The Directors confirm to the best of their knowledge that:
The half-yearly financial report was approved by the Board on and the above responsibility statement was signed on its behalf by:
1. Comparative figures
The financial information contained in this half-year report does not constitute statutory accounts as defined in section 434-436 of the Companies Act 2006. The financial information for the six months ended and has not been audited.
The information for the year ended does not constitute statutory accounts, but has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.
This half-year report is being sent to shareholders and copies will be made available to the public at the Company’s registered office and on its website.
For further information please contact:
Ninety One Limited 020 3938 2000
Company Industry Place of Primary Valuation % of Portfolio Listing £’000 Travis Perkins Industrials UK 34,569 5.0% UK Treasury 2% 2020 Fixed Interest UK 32,556 4.7% UK Treasury 3.75% Fixed Interest UK 31,581 4.5% 2020 Bayer Healthcare Germany 31,576 4.4% Grafton Group Industrials UK 28,836 4.1% IWG Industrials UK 26,238 3.8% easyJet Consumer Services UK 23,321 3.3% Rolls-Royce Holdings Industrials UK 23,096 3.3% American Express Financials USA 22,708 3.3% Capita Industrials UK 22,312 3.2% Top Ten Investments 276,793 39.6%
30 June 2020 30 June 2019 31 December 2019 (unaudited) (unaudited) (audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Investment 8,142 - 8,142 22,387 - 22,387 39,750 - 39,750 income Other operating 5 - 5 12 - 12 51 - 51 income 8,147 - 8,147 22,399 - 22,399 Total Income 39,801 - 39,801 (Losses)/profit on investments (Losses)/profit - (381,924) (381,924) - 79,446 79,446 on investments - 188,920 188,920 held at fair value through profit or loss 8,147 (381,924) (373,777) 22,399 79,446 101,845 39,801 188,920 228,721 Expenses Management fees (514) (727) (1,241) (755) (1,089) (1,844) (1,555) (2,244) (3,799) Other expenses (297) (1,519) (1,816) (285) (260) (545) (585) (533) (1,118) including dealing costs (Loss)/profit before finance 7,336 (384,170) (376,834) 21,359 78,097 99,456 37,661 186,143 223,804 costs and tax Finance costs (983) (1,488) (2,471) (983) (1,488) (2,471) (1,966) (2,976) (4,942) (Loss)/profit 6,353 (385,658) (379,305) 20,376 76,609 96,985 35,695 183,167 218,862 before tax Tax (165) - (165) (96) - (96) (172) - (172) (Loss)/profit 6,188 (385,658) (379,470) 20,280 76,609 96,889 35,523 183,167 218,690 for the period Earnings per 9.25p (576.70p) (567.45p) 30.33p 114.56p 144.89p 53.12p 273.90p 327.02p share (basic and diluted)
Ordinary Share premium share Capital Retained Total capital account reserves earnings equity £’000 £’000 £’000 £’000 £’000 BALANCE AT 1 JANUARY 2020 16,719 96,040 835,243 37,121 985,123 Unclaimed dividends - - - - - Loss for the period - - (385,658) 6,188 (379,470) Dividends paid to equity - (19,654) (19,654) shareholders - - BALANCE AT 30 JUNE 2020 16,719 96,040 449,585 23,655 585,999
Ordinary Share premium share Capital Retained Total capital account reserves earnings equity £’000 £’000 £’000 £’000 £’000 BALANCE AT 1 JANUARY 2019 16,719 96,040 652,076 37,347 802,182 Profit for the period - - 76,609 20,280 96,889 Unclaimed dividends - - - 9 9 Dividends paid to equity - (21,045) (21,045) shareholders - - BALANCE AT 30 JUNE 2019 16,719 96,040 728,685 36,591 878,035
30 June 2020 30 June 2019 31 December 2019 (unaudited) £’000 (unaudited) (audited) £’000 £’000 NON-CURRENT ASSETS Investments held at fair value 698,050 966,271 1,085,844 through profit or loss CURRENT ASSETS Cash and cash equivalents 1,412 21,204 11,149 Receivables 2,643 5,584 3,245 TOTAL ASSETS 702,105 993,059 1,100,238 CURRENT LIABILITIES Payables (2,017) (1,014) (1,066) TOTAL ASSETS LESS CURRENT 700,088 992,045 1,099,172 LIABILITIES NON-CURRENT LIABILITIES Interest bearing borrowings (114,089) (114,010) (114,049) NET ASSETS 585,999 878,035 985,123 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS Ordinary share capital 16,719 16,719 16,719 Share premium 96,040 96,040 96,040 Capital reserves 449,585 728,685 835,243 Retained earnings 23,655 36,591 37,121 TOTAL EQUITY 585,999 878,035 985,123 NET ASSET VALUE PER SHARE 876.29p 1,312.99p 1,473.13p
30 June 2020 30 June 2019 31 December 2019 (unaudited) (unaudited) (audited) £000 £000 £000 Cash flows from operating activities (Loss)/profit before tax (379,305) 96,985 218,862 Adjustments for: Losses/(gains) on investments 381,924 (79,446) (188,920) Finance costs 2,471 2,471 4,942 Purchases of investments 1 (467,223) (56,898) (152,237) Sales of investments 1 472,631 75,046 160,040 Dividend income (8,074) (22,224) (39,465) Interest income (64) (175) (313) Dividends received 10,259 19,591 39,578 Interest (receivable)/received (377) 359 336 Increase/(decrease) in payables 271 54 106 Overseas withholding tax suffered (165) (96) (172) 391,653 (61,318) (176,105) Net cash flows from operating 12,348 35,667 42,757 activities Cash flows from financing activities Unclaimed dividends - 9 8 Equity dividends paid (19,654) (2,432) (35,757) Interest paid on borrowings (2,431) (21,045) (4,864) Net cash used in financing (22,085) (23,468) (40,613) activities Net (decrease)/increase in cash (9,737) 12,199 2,144 and cash equivalents Cash and cash equivalents at the 11,149 9,005 9,005 start of the period Cash and cash equivalents at the 1,412 11,149 end of the period 21,204
-- the condensed set of financial statements contained within the half-year report has been prepared in accordance with the Accounting Standards Board’s Statement ‘Half-Yearly Financial Reports’;
-- the half-yearly financial report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- in accordance with Disclosure and Transparency Rule 4.2.8R there have been no related parties transactions during the six months to and therefore nothing to report on any material effect by such a transaction on the financial position or performance of the Company during that period.
30 June 2020
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