Monks InvestmentTrust – Annual Financial Report

The Monks Investment Trust PLC

Legal Entity Identifier: 213800MRI1JTUKG5AF64

Over the year to 30 April 2018, the Company's net asset value (NAV) total return* was 15.8% compared to a total return of 7.5% for the FTSE World Index (in sterling terms). The share price total return for the same period was 20.4%.

–  Amazon, NVIDIA and Alibaba were the most notable positive contributors to absolute returns in the period during which 14 of our holdings appreciated by more than 50% in sterling terms.

–  Portfolio turnover for the 12 months was 19.8% and the Company's invested gearing stood at 4.6% at the financial year end.

–  A single final dividend of 1.40p is being recommended, compared to 1.25p last year. This is the minimum required to maintain the Company's investment trust status, reflecting its priority which is capital growth.

–  Over the period, 3,180,000 shares were issued at a premium to NAV, being 1.5% of the Company's share capital, raising £25m. The share price ended the year at a 3.4% premium to NAV*.

–  Ongoing charges for the year to 30 April 2018 were 0.52%, down from 0.59% in the prior year.

–  An additional third tier to the management fee of 0.30% on assets above £1.75bn took effect 1 May 2018.

–  The managers continue to see a broad spread of new ideas coming forward, from a range of different industries and geographies, and remain optimistic for future portfolio returns.

–  Since the change in approach in March 2015 the NAV total return at fair value has been 57.9% and the share price total return 84.4% against the comparative index at 40.3%**.

* With borrowings deducted at fair value

** Total returns from 31 March 2015 to 30 April 2018.

Past performance is not a guide to future performance. Total return information is sourced from Baillie Gifford /Morningstar. See disclaimer at the end of this announcement. For a definition of terms see Glossary of Terms at the end of this announcement.

The Monks Investment Trust PLC invests globally in order to achieve capital growth. This takes priority over income and dividends. Monks is managed by Baillie Gifford, an independent fund management group, which has around £193 billion under management and advice as at 4 June 2018.

Monks is a listed UK company. The value of its shares and any income from them can fall as well as rise and investors may not get back the amount invested. The Company is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority. You can find up to date performance information about Monks at www.monksinvestmenttrust.co.uk^‡. Past performance is not a guide to future performance. See disclaimer at the end of this announcement.

For the second year in succession Monks has produced strong returns which significantly exceeded the comparative index.  Our managers comment in detail later in this report but the key contributor has been the strong revenue and profit growth of the underlying portfolio.  This is the direct consequence of the change made three years ago towards an explicit growth approach and our managers have constructed a balanced and differentiated portfolio of above average growth companies, many of which face substantial open-ended opportunities. 

Performance since this change has been good and, when combined with an increase in the Company's marketing budget and the Managers' effective marketing efforts to attract new buyers and long-term holders, has increased demand for Monks shares.   This has had the result that the shares have recently been trading at a premium to Net Asset Value ('NAV') which has enabled Monks to issue new shares for the first time in more than 55 years.  The increase in the size of the Company has encouraged the managers to reduce further the tiered management fee, to the benefit of all shareholders and to increase their marketing efforts. 

The Board is encouraged by the results of the new approach over the last three years and believes that Monks is today well placed to become a preferred long-term savings vehicle for individuals and wealth managers.

Performance

Although five years is really the minimum period over which to measure the success or failure of an investment approach, the Board is encouraged nonetheless to note that in the year to 30 April 2018 the NAV total return, with borrowings calculated at fair value, was 15.8% and the share price total return was 20.4%. Over the same period the total return for the FTSE World Index was 7.5%, in sterling terms.  Since the change in approach in March 2015 the NAV total return at fair value has been 57.9% and the share price total return 84.4% against the comparative index at 40.3%*.

Borrowings and Gearing

As at the financial year end, the invested gearing was 4.6% compared to 6.6% at the start of the period.  The Board and managers believe the long-term neutral position is likely to be close to invested gearing of 10% and flexible short-term bank facilities are in place should appealing opportunities arise.

Share Issuance

Over the course of the year, Monks shares traded close to NAV.  This enabled the Company to issue 3,180,000 new shares at a premium to NAV, being 1.5% of Monks share capital and raising £25m of new funds for investment. Share issuance is only undertaken at a premium to the NAV so as to benefit existing investors.

Management Fee

Ongoing charges for the year to 30 April 2018 were 0.52%, down from 0.59% in the prior year. Having agreed a new two tiered management fee in 2017, I am pleased to note that the continued growth of the Company has meant that the Managers have agreed an additional tier to the management fee, coming down to 0.30% on assets above £1.75bn, with effect from 1 May 2018. Last year's change in fee structure resulted in a saving of £873,000 compared to what would have been paid under the former arrangement.  Lower fees are an important contributor to shareholder returns and we welcome this further reduction.  Although there is little immediate cost saving from the new third tier, it will ensure that shareholders continue to benefit from economies of scale and any future growth of Monks.

Earnings and Dividend

Monks invests with the aim of maximising capital growth rather than income and all costs are charged to the Revenue Account.  Earnings per share were 2.61p compared to 2.36p in 2017 and the Board is recommending that a single final dividend of 1.40p should be paid, compared to 1.25p last year. This is the minimum required to maintain investment trust status. No interim dividend was paid during the year.

Outlook

The chief concerns facing markets currently are elevated valuations, the uncertain impact of rising interest rates and an apparent return of volatility.   On the other hand, there appears to be an abundance of growth opportunities from across a range of economies and new and fast changing technologies.  It is our managers' belief that investors generally dwell too much on the macro environment and not enough on individual company prospects, which typically drive most long term value creation.  They report a wide range of new investment opportunities, well diversified by geography and by industry, trading on still reasonable levels of valuation, which gives us confidence in the future returns from the portfolio over the longer term. 

Annual General Meeting

I would encourage shareholders to attend the Annual General Meeting, which will be held on 4 September 2018 at 11.00am at the Institute of Directors. Our managers will give a presentation and there will be an opportunity to ask questions and to meet them and the Directors informally.

James Ferguson

Chairman

5 June 2018