CHAIR'S STATEMENT
Performance
In the six months to 30th June 2018, the total return on net assets per share in sterling terms was +4.2%. The return to Ordinary shareholders per share in sterling terms was +5.1%, reflecting a small narrowing of the Company's discount to net asset value per share ('NAV') at which it traded at the end of the period. The total return from the Company's benchmark, the S&P 500 Index in sterling terms, was +5.0%.
Share price and Discount Management
The Company's shares have traded at a discount to the NAV throughout the period under review and the Company has continued to buy back its shares in line with the Board's commitment to its shareholders to buy shares back when they stand at anything more than a small discount to NAV. The Company bought into Treasury a total of 7,960,319 shares (22.4 million shares for the same period in 2017), or 3.4% of the Company's issued share capital at the beginning of 2018. These shares were purchased at an average discount to NAV of 5.4%, producing a modest accretion to the NAV for continuing shareholders.
Dividend
Revenue generation for the full year ending 31st December 2018 is estimated to be marginally higher than 2017. The Company is declaring a dividend of 2.5 pence per share (2017: 2.25 pence) for the first six months of this year, which will be payable on 5th October 2018 to shareholders on the register on 31st August 2018. The Board will consider the rate of the final dividend when the revenue for the full year is confirmed.
Gearing and Repayment of Debenture Stock
The Company's gearing strategy is implemented through the use of bank borrowing facilities and, until June of this year, debenture stock. The debenture, which carried a fixed interest rate of 6.875%, had been in place since 2000 and the Company confirmed its repayment on 8th June 2018. The Board continues to consider the source, tenor and flexibility of the Company's debt requirements. Shareholders will be informed as and when additional sources of gearing are in place.
The Company's gearing policy is to operate within a range of 5% net cash to 20% geared in normal market conditions, with the present strategic level being set at 10% plus or minus 2%. In early May 2018, the Manager requested permission from the Board to adjust the tactical gearing level to 5% plus or minus 2%, given his belief that market conditions warranted such an adjustment. Having agreed to the request, the retirement of the debenture did not require any replacement borrowings as it was repaid out of the Company's own resources. On 30th June 2018 gearing represented 5% of net assets.
Outlook
The US economy has continued to grow well over the reporting period, supporting company profits, which have also benefited from the corporate tax cuts passed by Congress late last year. However, as intimated in my recent statements, we need to recognise that this present expansion cycle is very long lived, and this is likewise true for the stock market cycle it has supported. The Federal Reserve has been slowly raising short term interest rates and as expected this is having an effect on broader capital markets. In recognition of these realities the Board agreed with the Manager's request to adopt lower gearing in the Company as a tactical decision, when the long term debenture was repaid in June.
We expect success in stock picking to become even more important in the forthcoming market phase. In this regard the Manager's approach to stock selection, emphasising longer term value, and careful portfolio construction should be a positive and differentiating factor for investors in the Company.
Dr Kevin Carter
Chair