F&C Investment Trust PLC Half-year Report

RNS Number : 6608Y

F&C Investment Trust PLC

01 August 2024

 

F&C INVESTMENT TRUST PLC

Unaudited Results for the half-year ended 30 June 2024

 

Legal Entity Identifier: 213800W6B18ZHTNG7371

Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.2.2

 

1 August 2024

 

F&C Investment Trust PLC (the 'Company' or 'F&C') today announces its results for the six months ended 30 June 2024.

 

·    The net asset value ('NAV') total return was +13.2%. This was ahead of the return from the benchmark, the FTSE All-World Index' which returned +12.0%.

The NAV rose to 1,145.47p from 1,022.07p at 31 December 2023.

·    The share price total return was +6.4%.

The share price increased to 1,012.0p from 962.0p at 31 December 2023.

·    The Board aims to increase the total dividend again this year. The first interim dividend of 3.6 pence for 2024 to be paid today, 1 August.

 

The Chairman, Beatrice Hollond, said:

 

"Equity markets delivered strong returns in the first half, led by technology stocks which were driven by robust earnings growth and ongoing enthusiasm relating to Artificial Intelligence ('AI'). I am pleased to report that the Company produced a net asset value ('NAV') total return of +13.2%, outperforming the return of +12.0% from our benchmark."

 

Commenting on the markets, Paul Niven, Fund Manager of F&C, said:

 

"Equity markets have had an excellent start to 2024, building upon their strong returns delivered in late 2023. A number of the 'Magnificent Seven', all of which we hold in our portfolio, were again stand out performers despite rich valuations, still high interest rates and signs of fading US economic exceptionalism.

 

"Concentration of stocks within the S&P 500 has surged to the highest level since the turn of the century, with the Magnificent Seven now accounting for over 30% of the index. However, recently, performance within the group has been more mixed, with those geared to the AI theme leading.

 

"F&C remains underweight to the Magnificent Seven, gaining more diversified exposure to the AI theme from holdings in Broadcom, Vertiv Holdings, and Qualcomm. We delivered relative outperformance on our listed holdings despite underweight positions in many of the US stocks which drove the first half rally.

 

"Outside of the US, key market indices in Japan, Europe and the UK climbed to new record highs as the rally broadened and global economic activity recovered. Emerging Markets were the notable laggard as the Chinese economic recovery continued to disappoint.

 

"Looking forward, while we remain uncertain of the unfolding economic environment, we do expect that

performance within equities will broaden and that relative value will be an important consideration for prospective returns.

 

"We have a relatively balanced approach within our portfolio between the cheaper, but more cyclically exposed areas of the market, and the higher growth, more expensive segments which have exciting prospects but appear fully priced.

 

"A narrow market presents both opportunities and risks and we believe that a diversified approach will, in due course, provide better returns, with lower risk, for shareholders."

 

The full results statement is attached.

 

Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Contacts

Paul Niven - Fund Manager

020 3530 6396

 

Campbell Hood

[e-mail]

07860 911 622

 

FTI Consulting

[e-mail]

020 3727 1888

 

About FCIT:

·    Founded in 1868 - the oldest collective investment trust

·    A diversified portfolio provides exposure to most of the world's stock markets, with exposure to over 400 individual companies across the globe

·    Its aim is to generate long-term growth in capital and income by investing primarily in an international portfolio of listed equities

 

CHAIRMAN'S STATEMENT

 

Equity markets delivered strong returns in the first half, led by technology stocks which were driven by robust earnings growth and ongoing enthusiasm relating to Artificial Intelligence ('AI'). I am pleased to report that the Company produced a net asset value ('NAV') total return of +13.2%, outperforming the return of +12.0% from our benchmark, the FTSE All-World Index. There was a general widening in the discount level of investment trust companies across the sector and the Company's discount moved out from 5.9% to 11.7%. Consequently, the return to shareholders of +6.4% lagged the NAV return.

 

Our NAV per share ended the period at 1,145.47 pence compared with 1,022.07 pence at the end of 2023. The return from our investment portfolio, i.e. before fees and other effects, of +12.2% exceeded the benchmark return, while higher market interest rates reduced the fair value of our outstanding debt, adding 0.4% to our NAV return. The Company's gearing (with debt at fair value) fell from 6.3% at the start of the year to 4.9% at the end of the period.

 

In response to a widening in our discount we increased the scale of share buybacks and bought back 10.2m of shares over the first half of the year. This added approximately 0.2% to our NAV. The Board believes that the relatively wide discount at which we ended the first half does not reflect the strength of our investment proposition for shareholders and remains firmly committed to the use of share buybacks where we see value. We note that our discount has narrowed since the end of June. In addition to the use of share buybacks to aid the management of our discount, we continue to pursue an active marketing programme with the aim of broadening our current shareholder base.

 

Both Europe and the UK saw an encouraging fall in inflation rates over the first half of the year. UK consumer price inflation fell from 4.0% in December to 2.0% in May while, in June, the European Central Bank cut interest rates for the first time since 2019. US inflation, however, has proved to be 'stickier' due to more resilient economic growth, with the US Federal Reserve now expected to cut interest rates later and by less than previously forecast. Sterling fell modestly, by 0.7%, against the US dollar in the first half of 2024. The return from our private equity investments was +6.0%. While it was encouraging to see progress, these returns lagged gains from listed equities. The near-term backdrop for private equity assets remains challenging, particularly given rises in the cost of debt and a slow pace of deal flow. Nonetheless, we have made good returns from our investments in this area over longer periods and there are tentative signs that the environment for private equity is now improving.

 

INCOME AND DIVIDENDS

We paid a third interim dividend of 3.4 pence per share for the year ended 31 December 2023 in February 2024 and a final dividend of 4.5 pence in May. Our full year 2023 dividend of 14.7 pence per share was fully covered by earnings of 15.83 pence per share and represented an increase of 8.9% on the previous year.

 

Our net revenue return per share over the first six months of the year rose by 10.9% to 9.64 pence, compared to 8.69 pence over the corresponding period last year. Although sterling was little changed against both the US Dollar and the Euro in the first six months of 2024, it was trading at a higher average level than in the first half of 2023 and this detracted £1.9m from the return. Special dividends totalled £1.2m, down from £2.2m in the first half of 2023.

 

We expect that our earnings will again cover our full year dividend in 2024. It remains the aspiration of the Board to continue the Company's track record of delivering rises in dividends which exceed inflation over the long term and we retain a substantial revenue reserve to help meet this objective if required. We have declared a first interim dividend for the current year of 3.6 pence per share to be paid on 1 August 2024. The Board plans to deliver another rise in our total dividend for this year, which will be the 54th consecutive annual rise. We are also continuing our marketing efforts to increase awareness of the benefits of investing in the Company and to attract new investors.

 

THE BOARD

Tom Joy retired from the Board on 31 March this year after accepting an opportunity to take on a new executive role which precluded him from continuing as a Director of the Company. Tom made a significant contribution since joining the Board in 2021 and we shall miss his considerable investment knowledge and experience in global equity markets. I am delighted that Richard Robinson joined the Board with effect from 3 May 2024. Richard has been the Investment Director of the Paul Hamlyn Foundation since 2009 and was previously Head of Charities & Foundations at Schroders plc. He has held a number of senior positions at Rothschild Asset Management and is a former director of JPMorgan Global Emerging Markets Income Trust plc and Aurora Investment Trust plc.

 

OUTLOOK

While the fundamental backdrop is constructive and US recession has been avoided, global equity markets, dominated by the US, continue to trade at historically elevated valuation levels. Strong growth in earnings has propelled most of the so-called "Magnificent Seven" group of stocks to new highs but elevated valuations and market concentration remain a concern, with optimistic earnings expectations presenting an additional challenge if investment in AI fails to translate to sustained growth in earnings. Politics will remain an area of focus for investors in 2024 and, while a Labour government with a significant majority may present a more stable backdrop for UK assets, the US and Europe face a period of political uncertainty in the months ahead. This, in conjunction with signs of moderating US growth after a strong period, presents some near-term risk for equity markets.

 

There remain grounds for optimism, however, including for international equities that have struggled to beat the technology-heavy US market for many years and which potentially stand to benefit from a broadening out of the equity rally. Improving economic prospects and earlier interest rate cuts may provide a near-term tailwind for European and UK equities, while corporate governance reform means that Japan continues to look attractive from a longer-term structural perspective. In addition, there are now signs of progress (in terms of valuation uplifts and increased pace in realisation of investments) in the private equity sector, helped by a pickup in merger and acquisition activity, which should provide further support. Against this background your Manager will continue to adopt a diversified approach and remains focused on longer-term opportunities as they emerge.

 

Beatrice Hollond

Chairman

31 July 2024

 

FUND MANAGER'S REVIEW

 

Equity markets have had an excellent start to 2024, building upon their strong returns delivered in late 2023. A number of the 'Magnificent Seven' (comprising Alphabet +31.8%, Microsoft +20.4%, Amazon +28.4%, Apple +10.7%, Nvidia +151.9%, Meta +44.1% and Tesla -20.4%), all of which we hold in our portfolio, were again stand out performers despite rich valuations, still high interest rates and signs of fading US economic exceptionalism. Outside of the US, key market indices in Japan, Europe and the UK climbed to new record highs as the rally broadened and global economic activity recovered. Emerging Markets were the notable laggard as the Chinese economic recovery continued to disappoint.

 

The first half of the year also served to remind investors that geopolitical events continue to present risks to the relatively benign backdrop. Globally, more voters than ever will head to the polls this year and rising geopolitical tensions, notably in the Middle East, led commodity prices higher over the period. US elections are likely to be a focal point for investors later this year.

 

Contributors to total returns in first half of 2024      %
Portfolio return	12.2
Management fees	(0.2)
Interest and other expenses	(0.2)
Buybacks	0.2
Change in value of debt	0.4
Gearing/other	0.8
Net asset value total return*	13.2
Change in share price discount	(6.8)
Share price total return	6.4
FTSE All-World total return	12.0

*Debt at market value

Source: Columbia Threadneedle/State Street

 

Concerns around inflation resurfaced and pushed government bond yields higher during the first half of 2024. Indeed, market expectations for interest rate cuts have been pushed out significantly since the end of last year, reflecting a view that rates will need to be kept higher for longer following a series of upside surprises to US inflation this year. Outside of the US, powerful disinflationary forces continue to supress prices, prompting the first interest rate cut from the European Central Bank in early June. However, the more hawkish outlook for US monetary policy has done little to dampen positive equity market sentiment, with developed markets rising strongly in the first six months of the year.

 

With higher US yields over the period, sterling weakened modestly versus the US dollar from 1.27 to 1.26, while the yen dropped to lows last seen in 1986, having depreciated by 12.3% versus the US Dollar year-to-date despite market intervention by the Japanese authorities.

 

Concentration of stocks within the S&P 500 has surged to the highest level since the turn of the century, with the Magnificent Seven now accounting for over 30% of the index. However, recently, performance within the group has been more mixed. Those most geared towards the AI theme, including Nvidia and Meta, have enjoyed the strongest performance year-to-date, whilst those most exposed to China, namely Apple and Tesla, have suffered due to burgeoning local competition and weak domestic demand resulting from China's sluggish economic recovery and ongoing property crisis.

 

The Company maintains significant exposure to the AI theme via positions in stocks such as Broadcom (+46.1%), Vertiv Holdings (+81.9%) and Qualcomm (+40.2%) and we delivered relative outperformance on our listed holdings despite underweight positions in many of the US stocks which drove the first half rally.

 

Our US large cap growth strategy produced excellent performance over the period, delivering a return of +25.7% versus the Russell 1000 Growth Index return of +21.9%. Eli Lilly (+57.2%) contributed strongly to relative returns as weight loss drugs Mounjaro and Zepbound continued to boost revenue and profits. The strategy's sizable underweight to Apple was also additive, given strong US market performance, following growing scrutiny from European competition authorities and intensifying competition from local rivals in China. Meta was another strong contributor, as the company delivered better than expected results for the first quarter.

 

Within our US holdings the backdrop remained more challenging for lowly rated value stocks over the period. While Barrow Hanley (+10.9%) and Columbia Threadneedle (+9.8%) each generated returns which exceeded value indices, they lagged the broader market. Our long-standing US value manager Barrow Hanley generated good outperformance versus the value index (with the Russell 1000 Value Index gaining 7.6%), with positions in Vertiv Holdings and Broadcom each benefitting from continued bullish sentiment surrounding AI stocks and positive financial results. Vertiv - a leading supplier of cooling equipment, power solutions and technology to data centers - has gained by over 250% in the past year in response to a surge in spending on the digital infrastructure necessary to support AI applications. The Company's US value mandate managed by Columbia Threadneedle Investments also delivered outperformance against the value index, with Qualcomm - a global leader in the development of semiconductors and wireless chips - performing strongly. It gained 40.3% over the first half.

 

Performance across our global strategies was mixed versus global comparators. Global Focus (+18.6%) outperformed market indices, with Nvidia being a strong contributor to relative performance. Indeed, Nvidia's revenues were up by 262% year-on year in May, driven by huge growth in the demand for chips manufactured specifically for the AI industry. The strategy also benefitted from lesser known companies geared towards the AI theme, with potentially more attractive valuations, such as Applied Materials (+54.6%), the largest US maker of chip-making machinery. Global Income (+10.3%) and Global Enhanced (+10.8%), both of which have a focus on companies with an attractive dividend yield, performed broadly in-line with the global benchmark, while Global Value, managed by Pyrford (+7.2%), disappointed. Here, under-exposure to the Magnificent Seven group of stocks, notably Nvidia, Meta and Microsoft, and the US market more broadly, detracted significantly. This negative impact more than offset the positive effects on holdings in stocks such as KLA Corp (+43.6%) and American Express (+25.4%).

 

Our European (including the UK) exposure (+10.4%) was ahead of benchmark (which returned +6.5%). Novo Nordisk (+41.9%) - our largest European holding in the strategy - emerged as one of the standout performers among European mega cap stocks in the first half of this year, with excess returns attributed to triple digit revenue growth from its weight-loss drug Wegovy in 2023. Our position in Ryanair (-15.4%) detracted, as stocks in European airlines slumped after ticket fare prices rose less than previously forecast. Despite reporting a 34% rise in full-year profit after tax, delayed Boeing aeroplane deliveries sent Ryanair's shares lower. Elsewhere, our Japanese holdings (+5.6%) produced returns in-line with the local benchmark but behind the global index. In local currency terms, this region was amongst the strongest performing areas globally during the first half, with the Nikkei up 19.3% year-to-date. However, weakness in the yen, which declined by 11.7% relative to sterling, detracted from returns here. Disco Corp (+54.9%), the Japanese precision tools maker for the semiconductor industry, was one of the strongest performing holdings, while holdings in Tokio Marine (+52.4%) and NGK Spark Plug (+25.3%) also performed strongly. Nonetheless, several holdings such as PAL Group (-33.5%) and Matsumotokiyoshi Holdings (-22.0%) disappointed over the six month period.

 

Our emerging markets strategy (+4.6%) performed poorly over the period, lagging the emerging markets index due to weak performance delivery across a small number of holdings. While there were strong returns from Indian holdings such as Biocon (+41.5%), India's largest biopharmaceutical company, and Max Healthcare (+37.9%), the private hospital chain, gains were offset against weak performance from larger positions in AIA Group (-19.9%) and Jeronimo Martins (-19.9%).

 

Our private equity exposure (+6.0%) lagged listed markets but showed positive incremental progress despite persistently higher borrowing costs and a weak, albeit improving, environment for exits. This modest performance from our unlisted portfolio detracted from our returns relative to our benchmark over the period, with the Company's listed portfolio, in aggregate, delivering solid outperformance versus the broad market benchmark for the year thus far. As noted previously, our private equity investments are long-term in nature and we have, historically, enjoyed robust returns from our private equity holdings compared to listed market equivalents. Furthermore, our holdings in this area are, as with the rest of our portfolio, highly diversified across a range of regions and sectors.

 

Our recent private equity commitments with Columbia Threadneedle Investments, where we hold 7.7% of the total portfolio assets, rose in value by 3.6%, while our older holdings overseen by Pantheon and HarbourVest rose by 7.1% following a pick-up in distributions. The two Pantheon Future Growth programmes, with a combined $360m of commitments, also rose in value, by 10.4%.

 

A further rise in market interest rates led to another reduction in the fair value of our debt over the period. The ten-year gilt yield rose from just more than 3.5% at the start of the year to just under 4.2% by the end of June. The rise in market yields added 0.4% to our NAV return over the six months. Furthermore, strong market performance meant gearing was additive, contributing 0.8%.

 

CURRENT MARKET PERSPECTIVE

 

Recent equity market performance has been robust - inflation is trending lower, cuts in interest rates are on the horizon, growth has been more resilient than expected and earnings have surpassed expectations. Market pricing now assigns a low probability to a recession and the industry consensus expects a healthy growth in earnings for the S&P 500 in 2024. However, with the ten largest stocks in the S&P 500 now accounting for more than 35% of the market's total capitalisation, and almost 30% of its net income, equity markets are vulnerable to slowing momentum in this segment of the market. It is notable that the major winners of the broader AI theme, at least so far, are the infrastructure vendors, or 'enablers.' This includes cloud platform providers like Google, Microsoft and Amazon and graphics processing unit (GPU) producers like Nvidia and others. AI is still at an early stage of adoption overall and, while in the longer term there are likely to be significant benefits, most companies today lack the foundational building blocks that enable AI to generate value and productivity gains at scale. Moreover, signs of a weaker US consumer, including a sharp drop in home sales and an uptick in consumer delinquencies, and a potentially highly consequential US presidential election in November, present additional near-term risks for equity markets. Furthermore, if a 'soft' landing has been achieved with interest rates at current levels, then markets will need to reassess what constitutes a 'normal' policy rate going forward, which may well be significantly higher than the pre-Covid period.

 

Looking forward, while a significant amount of positive news is already priced-in for equities, the Company is well positioned to benefit from a broadening of the rally driven by improving economic momentum outside of the US. Our balanced approach within our portfolio across recognised styles, including value, growth/quality and momentum, provides our shareholders with a well-diversified, global equity investment portfolio that places the Company in an excellent position to deliver on our performance objectives in the future.

 

 

Paul Niven

Fund Manager

31 July 2024

 

 

	Weightings, stock selection and performance in each investment portfolio strategy and underlying geographic exposure versus index as at 30 June 2024
Investment portfolio strategy	Our portfolio strategy weighting %	Underlying geographic exposure(1) %	Benchmark weighting %	Our strategy performance in sterling six months to 30 June 2024 %	Index performance in sterling six months to 30 June 2024 %
North America	41.2	63.2	65.3	17.1	15.1
Europe inc. UK	8.4	19.2	15.0	10.4	6.5
Japan	5.1	6.2	5.9	5.6	6.2
Emerging Markets	5.4	7.9	9.9	4.6	9.1
Developed Pacific	-	3.5	3.9	-	1.1
Global Strategies(2)	29.3	-	-	11.7	12.0
Private Equity(3)	10.6	-	-	6.0	-

Source: Columbia Threadneedle/State Street

⁽¹⁾ Represents the geographic exposure of the portfolio, including underlying exposures in private equity and fund holdings

⁽²⁾ The Global Strategies allocation consists of Global Income, Global Value, Global Sustainable Opportunities and latterly Global Focus.

⁽³⁾ Includes the holdings in Schiehallion and Syncona.

 

UNAUDITED CONDENSED INCOME STATEMENT

 

		Half year ended 30 June 2024			Half year ended 30 June 2023
Notes		Revenue £'000s	Capital £'000s	Total £'000s		Revenue £'000s	Capital £'000s	Total £'000s
	Gains on investments and derivatives	-	611,228	611,228		-	176,352	176,352
	Exchange (losses)/gains	(322)	1,174	852		(506)	(4,797)	(5,303)
3	Income	64,061	-	64,061		58,420	-	58,420
4	Fees and other expenses	(5,682)	(6,768)	(12,450)		(5,086)	(6,287)	(11,373)
	Net return before finance costs and taxation	58,057	605,634	663,691		52,828	165,268	218,096
4	Interest payable and similar charges	(1,710)	(5,131)	(6,841)		(1,702)	(5,106)	(6,808)
	Net return on ordinary activities before taxation	56,347	600,503	656,850		51,126	160,162	211,288
5	Taxation on ordinary activities	(7,704)	(460)	(8,164)		(6,116)	(543)	(6,659)
6	Net return attributable to shareholders	48,643	600,043	648,686		45,010	159,619	204,629
6	Net return per share - basic (pence)	9.64	118.85	128.49		8.69	30.80	39.49

                                                                                                                             

 

The total column is the profit and loss account of the Company.

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

 

UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY

 

 

			Capital			Total
		Share	redemption	Capital	Revenue	shareholders'
		capital	reserve	reserves	reserve	funds
Notes	Half year ended 30 June 2024	£'000s	£'000s	£'000s	£'000s	£'000s
	Balance brought forward  31 December 2023	140,455	122,307	4,664,438	107,287	5,034,487
	Movements during the half year ended 30 June 2024
11	Shares repurchased by the Company and held in treasury	-	-	(101,160)	-	(101,160)
7	Dividends paid	-	-	-	(58,010)	(58,010)
	Return attributable to shareholders	-	-	600,043	48,643	648,686
	Balance carried forward 30 June 2024	140,455	122,307	5,136,321	97,920	5,524,003

 

 

			Capital			Total
		Share	redemption	Capital	Revenue	shareholders'
		capital	reserve	reserves	reserve	funds
Notes	Half year ended 30 June 2023	£'000s	£'000s	£'000s	£'000s	£'000s
	Balance brought forward 31 December 2022 Movements during the half year ended 30 June 2023	140,455	122,307	4,289,599	97,464	4,649,825
	Shares repurchased by the Company and held in treasury	-	-	(13,213)	-	(13,213)
7	Dividends paid	-	-	-	(54,382)	(54,382)
	Return attributable to shareholders	-	-	159,619	45,010	204,629
	Balance carried forward 30 June 2023	140,455	122,307	4,436,005	88,092	4,786,859
Notes	Year ended 31 December 2023	Share capital £'000s	Capital redemption reserve £'000s	Capital reserves £'000s	Revenue reserve £'000s	Total shareholders' funds £'000s
	Balance brought forward 31 December 2022	140,455	122,307	4,289,599	97,464	4,649,825
	Movements during the year ended 31 December 2023
	Shares repurchased by the Company and held in treasury	-	-	(76,345)	-	(76,345)
7	Dividends paid	-	-	-	(71,837)	(71,837)
	Return attributable to shareholders	-	-	451,184	81,660	532,844
	Balance carried forward 31 December 2023	140,455	122,307	4,664,438	107,287	5,034,487

 UNAUDITED CONDENSED BALANCE SHEET

Notes		30 June 2024 £'000s	30 June 2023 £'000s	31 December 2023 £'000s
	Fixed assets
8	Investments	5,995,998	5,092,930	5,451,521
	Current assets
8	Investments	-	98,332	79,357
	Debtors	58,643	22,246	11,244
14	Cash and cash equivalents	109,274	208,493	87,170
	Total current assets	167,917	329,071	177,771
	Creditors: amounts falling due within one year
10	Other	(59,728)	(54,525)	(13,836)
	Total current liabilities	(59,728)	(54,525)	(13,836)
	Net current assets	108,189	274,546	163,935
	Total assets less current liabilities	6,104,187	5,367,476	5,615,456
	Creditors: amounts falling due after more than one year
9, 14	Loans	(579,609)	(580,042)	(580,394)
9, 14	Debenture	(575)	(575)	(575)
		(580,184)	(580,617)	(580,969)
	Net assets	5,524,003	4,786,859	5,034,487
	Capital and reserves
11	Share capital	140,455	140,455	140,455
	Capital redemption reserve	122,307	122,307	122,307
	Capital reserves	5,163,321	4,436,005	4,664,438
	Revenue reserve	97,920	88,092	107,287
12	Total shareholders' funds	5,524,003	4,786,859	5,034,487
12	Net asset value per ordinary share  - prior charges at nominal value (pence)	1,105.66	926.04	987.56

 

UNAUDITED CONDENSED STATEMENT OF CASH FLOWS

 

		Half year ended 30 June  2024	Half year ended 30 June  2023	Year ended 31 December  2023
Notes		£'000s	£'000s	£'000s
13	Cash flows from operating activities before dividends received and interest paid	(17,350)	(15,031)	(25,774)
	Dividends received	59,825	54,895	98,937
	Interest paid	(6,866)	(6,832)	(13,842)
	Cash flows from operating activities	35,609	33,032	59,321
	Investing activities
	Purchases of Investments	(1,541,642)	(2,226,716)	(4,224,563)
	Sales of Investments	1,666,308	2,212,566	4,155,297
	Other capital charges and credits	(41)	(21)	(63)
	Cash flows from investing activities	124,625	(14,171)	(69,329)
	Cash flows before financing activities	160,234	18,861	(10,008)
	Financing activities
	Equity dividends paid	(40,007)	(36,807)	(71,837)
	Cash flows from share buybacks for treasury shares	(98,190)	(11,280)	(73,645)
	Cash flows from financing activities	(138,197)	(48,087)	(145,482)
14	Net increase/(decrease) in cash and cash equivalents	22,037	(29,226)	(155,490)
	Cash and cash equivalents at the beginning of the period	87,170	243,836	243,836
14	Effect of movement in foreign exchange	67	(6,117)	(1,176)
	Cash and cash equivalents at the end of the period	109,274	208,493	87,170
	Represented by:
	Cash at bank	86,095	108,453	39,827
	Short term deposits	23,179	100,040	47,343
	Cash and cash equivalents at the end of the period	109,274	208,493	87,170

 

 

UNAUDITED NOTES ON THE CONDENSED ACCOUNTS

 

1 RESULTS

The results for the six months to 30 June 2024 and 30 June 2023 constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 31 December 2023; the report of the Auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The condensed financial statements shown for the year ended 31 December 2023 are an extract from those accounts.

 

2 ACCOUNTING POLICIES

(a)  Basis of preparation

These condensed financial statements have been prepared on a going concern basis in accordance with the Companies Act 2006, Interim Financial Reporting (FRS 104) and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP), issued in July 2022.

 

The accounting policies applied for the condensed set of financial statements are set out in the Company's annual report for the year ended 31 December 2023.

 

(b) Use of judgements, estimates and assumptions

The presentation of the financial statements in accordance with accounting standards requires the Board to make judgements, estimates and assumptions that affect the accounting policies and reported amounts of assets, liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on perceived risks, historical experience, expectations of plausible future events and other factors. Actual results may differ from these estimates.

 

The area requiring the most significant judgement and estimation in the preparation of the financial statements is accounting for the value of unquoted investments.

 

The policy for valuation of unquoted securities is set out in note 8 and further information on Board procedures is contained in the Report of the Audit Committee and note 25(d) of the Report and Accounts as at 31 December 2023. The choice to use the March quarter end valuations and apply a roll forward process to incorporate any known transactions and material events is a judgement made each year for the indirect investments. The valuations as at 30 June are not generally available before approval of the half year report. Material judgements were applied to the valuation of the Company's direct investment, Inflexion Strategic Partners. This investment was valued using an earnings method multiplied by an average of European listed comparable companies multiple (where the judgement of which comparable companies to select and what discounts to apply are subjective). The fair value of unquoted (Level 3) investments, as disclosed in note 8, represented 10.1% of total investments at 30 June 2024. Under foreseeable market conditions the collective value of such investments may rise or fall in the short term by more than 10%, in the opinion of the Directors. A fall of 10% in the value of the unlisted (Level 3) portfolio at the half year would equate to £60m or 1.1% of net assets and a similar percentage rise would equate to a similar increase in net assets.

 

3 INCOME

 

	Half year ended  30 June 2024 £'000s	Half year ended 30 June 2023 £'000s
Income comprises:
UK dividends	4,340	3,992
UK bond income	1,205	566
Overseas dividends	57,673	51,066
Interest on short-term deposits and other income	843	2,796
Income	64,061	58,420

 

Included within income is £1.2m (30 June 2023: £2.2m; 31 December 2023: £4.4m) of special dividends classified as revenue in nature.

The value of special dividends treated as capital in nature is £0.2m (30 June 2023: £0.0m; 31 December 2023: £0.1m).

4 FEES AND OTHER EXPENSES AND INTEREST PAYABLE

	Half year ended  30 June 2024 £'000s	Half year ended 30 June 2023 £'000s
Fees and other expenses	12,450	11,373
Interest payable and similar charges	6,841	6,808
Total	19,291	18,181
Fees and other expenses comprise: Allocated to Revenue Account
- Management fees payable directly to the Manager*	2,242	2,085
- Other expenses	3,440	3,001
	5,682	5,086
Allocated to Capital Account
- Management fees payable directly to the Manager*	6,725	6,256
- Other expenses	43	31
	6,768	6,287
Interest payable and similar charges comprise:
Allocated to Revenue Account	1,710	1,702
Allocated to Capital Account	5,131	5,106

* Including reimbursement in respect of services provided by sub-managers

 

The Manager's remuneration is based on a fee of 0.30% per annum of the market capitalisation of the Company up to £4.0 billion and 0.25% above £4.0 billion calculated at each month end date on a pro-rata basis. The fee is adjusted for fees earned by the Manager in respect of investment holdings managed or advised by the Manager. Variable fees payable in respect of third party sub-managers are also reimbursed. The services provided by the Manager remain unchanged from those disclosed within the accounts for the year ended 31 December 2023. The level of variable fees payable in respect of third party sub-managers and private equity managers remain unchanged since the year end.

 

5 TAXATION

The taxation charge of £8,164,000 (30 June 2023: £6,659,000) relates to irrecoverable overseas taxation and Indian tax on capital gains.

 

6 NET RETURN PER SHARE

Net return per ordinary share attributable to ordinary shareholders reflects the overall performance of the Company in the period. Net revenue recognised in the first six months is not indicative of the total likely to be received in the full accounting year.

 

	Half year ended 30 June 2024 pence	Half year ended 30 June 2024 £'000s	Half year ended 30 June 2023 pence	Half year ended 30 June 2023 £'000s
Revenue return	9.64	48,643	8.69	45,010
Capital return	118.85	600,043	30.80	159,619
Total return	128.49	648,686	39.49	204,629
Weighted average ordinary shares in issue excluding treasury shares (see note 11)		504,853,464		518,236,585

 

 

7 DIVIDENDS

Dividends paid and payable on ordinary shares	Register date	Payment date	Half year ended  30 June 2024 £'000s	Half year ended  30 June 2023 £'000s	Year ended 31 December 2023 £'000s
2022 Third interim of 3.20p	6-Jan-2023	1-Feb-2023	-	16,589	16,589
2022 Final of 3.90p	11-Apr-2023	11-May-2023	-	20,218	20,214
2023 First interim of 3.40p	30-Jun-2023	1-Aug-2023	-	17,575	17,581
2023 Second interim of 3.40p	6-Oct-2023	1-Nov-2023	-	-	17,453
2023 Third interim of 3.40p	4-Jan-2024	1-Feb-2024	17,325	-	-
2023 Final of 4.50p	12-Apr-2024	9-May-2024	22,682	-	-
2024 First interim of 3.60p	28-Jun-2024	1-Aug-2024	18,003	-	-
			58,010	54,382	68,983

 

The Directors have declared a first interim dividend in respect of the year ending 31 December 2024 of 3.60p per share, payable on 1 August 2024 to all shareholders on the register at close of business on 28 June 2024. The amount of this dividend will be £18,003,000 based on 500,098,015 shares in issue at 27 June 2024. This amount has been accrued in the results for the half-year ended 30 June 2024 as the ex-dividend date was 27 June 2024.

 

8 INVESTMENTS

Fair value hierarchy

The Company's Investments as disclosed in the balance sheet are valued at fair value.

The fair value as at the reporting date has been estimated using the following fair value hierarchy:

 

Level 1 includes investments and derivatives listed on any recognised stock exchange or quoted on the AIM market in the UK and quoted open-ended funds. These also include gilts of £nil as at 30 June 2024 (30 June 2023: £98m and 31 December 2023: £80m).

 

Level 2 includes investments for which the quoted price has been suspended, forward exchange contracts and other derivative instruments.

 

Level 3 includes investments in private companies or securities, whether invested in directly or through pooled Private Equity vehicles, for which observable market data is not specifically available.

 

The analysis of the valuation basis for financial instruments based on the hierarchy is as follows:

 

	30 June 2024 £'000s	30 June 2023 £'000s	31 December 2023 £'000s
Level 1	5,392,972	4,600,698	4,936,568
Level 3	603,026	590,564	594,310
Total valuation of investments	5,995,998	5,191,262	5,530,878

 

With respect specifically to investments in Private Equity, whether through funds or partnerships, the Directors rely on the latest available unaudited quarterly valuations of the underlying unlisted investments as supplied by the investment advisers or managers of those funds or partnerships. The Directors regularly review the principles applied by the managers to those valuations to ensure they are in compliance with the principal accounting policies as stated in the year end report and accounts.

 

No investments held at 30 June 2024, 30 June 2023 or 31 December 2023 were valued in accordance with level 2.

 

 

9 LOANS AND DEBENTURE

	30 June 2024 £'000s	30 June 2023 £'000s	31 December 2023 £'000s
Loans falling due after more than one year	579,609	580,042	580,394
Debenture falling due after more than one year	575	575	575
Comprising:
Sterling denominated loan, falling due after more one year	£544m	£544m	£544m
Euro denominated loan, falling due after more than one year	€42m	€42m	€42m
4.25% perpetual debenture stock	£0.575m	£0.575m	£0.575m

 

10 OTHER CREDITORS FALLING DUE WITHIN ONE YEAR

	30 June 2024 £'000s	30 June 2023 £'000s	31 December 2023 £'000s
Cost of ordinary shares repurchased	5,670	1,933	2,700
Investment creditors	27,665	30,766	3,670
Management fee payable to the Manager	3,748	1,958	2,625
Provision for Capital Gains Taxation on Indian Investments	1,933	-	2,258
Dividend payable	18,003	17,575	-
Other accrued expenses	2,709	2,293	2,583
	59,728	54,525	13,836

 

11 SHARE CAPITAL
Equity share capital	Number of shares  held in treasury	Number of shares entitled to dividend		Total number of shares in issue	Nominal value of shares in issue £'000s
Ordinary shares of 25p each
Balance at 31 December 2023	52,025,962		509,793,054	561,819,016	140,455
Shares repurchased by the Company and held in treasury	10,180,039		(10,180,039)	-	-
Balance at 30 June 2024	62,206,001		499,613,015	561,819,016	140,455

 

10,180,039 shares were repurchased during the period at a cost of £101,160,000. Shares held in treasury have no voting rights and no right to dividend distributions and are excluded from the calculations of earnings per share and net asset value per share.

 

12 NET ASSET VALUE PER ORDINARY SHARE	30 June 2024	30 June 2023	31 December 2023
Net asset value per share -pence	1,105.66	926.04	987.56
Net assets attributable at end of period - £'000s	5,524,003	4,786,859	5,034,487
Ordinary shares of 25p in issue at end of period excluding shares held in treasury - number	499,613,015	516,919,027	509,793,054

Net asset value per share (with the debenture stock and long-term loans at market value) at 30 June 2024 was 1,145.47p (30 June 2023: 964.73p and 31 December 2023: 1,022.07p). The market value of debenture stocks at 30 June 2024 was £429,000 (30 June 2023 and 31 December 2023: £429,000). The market value of the long-term loans at 30 June 2024 was £380,845,000 (30 June 2023: £380,170,000 and 31 December 2023: £404,572,000) based on the equivalent benchmark gilts or relevant commercially available current debt.

 

 

13 RECONCILIATION OF NET RETURN BEFORE TAXATION TO CASH FLOWS FROM OPERATING ACTIVITIES

 

	Half year ended 30 June 2024 £'000s	Half year ended 30 June 2023 £'000s	Year ended 31 December 2023 £'000s
Net return on ordinary activities before taxation	656,850	211,288	547,029
Adjust for non-cash flow items, dividend income and interest expense:
Gains on investments	(611,228)	(176,352)	(477,671)
Exchange (gains)/losses	(852)	5,303	1,043
Non-operating expense of a capital nature	43	31	68
Decrease in other debtors	129	24	81
Increase in creditors	1,268	28	964
Dividends receivable	(62,013)	(55,058)	(98,524)
Interest payable	6,841	6,808	13,841
Tax on overseas income and Indian Capital Gains Tax	(8,388)	(7,103)	(12,605)
	(674,200)	(226,319)	(572,603)
Cash flows from operating activities (before dividends received and interest paid)	(17,350)	(15,031)	(25,774)

 

 

14 ANALYSIS OF CHANGES IN NET DEBT

	Cash £'000s		Long term loans £'000s	Debenture £'000s	Total £'000s
Opening net debt as at 31 December 2023		87,170	(580,394)	(575)	(493,799)
Cash-flows:
Net movement in cash and cash equivalents		22,037	-	-	22,037
Non-cash:
Effect of foreign exchange movements		67	785	-	852
Closing net debt as at 30 June 2024		109,274	(579,609)	(575)	(470,910)

 

 

15 GOING CONCERN

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have also considered the Company's objective, strategy and policy; current cash position; the availability of loan finance; compliance with all financial loan and private placement covenants; and the operational resilience of the Company and its service providers. It is recognised that the Company is mainly invested in readily realisable, globally listed securities that can be sold, if necessary, to repay indebtedness.

 

Based on this information and their knowledge and experience of the Company's portfolio and stockmarkets, the Directors believe that the Company has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis.

STATEMENT OF PRINCIPAL AND EMERGING RISKS

 

The Company's principal and emerging risks are described in detail under the heading 'Principal and Emerging Risks' within the Strategic Report in the Company's annual report for the year ended 31 December 2023. They have been identified as: Investment Performance; Effectiveness of Appointed Manager; Cyber Threats and Data Protections; Loss of Key Person; and Transition to Net Zero.

 

In the view of the Board, there have not been any material changes to the fundamental nature of these risks and they are applicable to the remainder of the financial year.

 

DIRECTORS' STATEMENT OF RESPONSIBILITIES IN RESPECT OF THE HALF YEAR FINANCIAL REPORT

 

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:

 

·      the condensed set of financial statements has been prepared in accordance with applicable UK  Accounting Standards on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

 

·      the half year report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

 

·      the Statement of Principal and Emerging Risks shown above is a fair review of the principal and emerging risks for the remainder of the financial year; and

 

·      the half year report includes a fair review of the related party transactions that have taken place in the first six months of the financial year.

 

 

On behalf of the Board

Beatrice Hollond

Chairman

31 July 2024

 

 

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.

Columbia Threadneedle Investment Business Limited,

Company Secretary

 

ENDS

A copy of the half report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.fca.org.uk

 

 

The half year report will be posted to shareholders and made available on the internet at www.fandc.com shortly.  Copies may be obtained during normal business hours from the Company's Registered Office, Cannon Place, 78 Cannon Street, London EC4N 6AG.

 

Columbia Threadneedle Investment Business Limited

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