MURRAY INTERNATIONAL TRUST PLC
Legal Entity Identifier (LEI): 549300BP77JO5Y8LM553
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2021
1. STRATEGIC REPORT – COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Financial Highlights
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Net asset value total return{AB} |
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Share price total return{AB} |
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2021 |
+14.1% |
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2021 |
+7.2% |
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2020 |
+0.9% |
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2020 |
-5.3% |
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Reference Index total return{BC} |
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Discount to net asset value{AD} |
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2021 |
+20.0% |
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2021 |
-6.8% |
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2020 |
+7.0% |
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2020 |
-0.7% |
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Dividends per share{BE} |
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Revenue return per share{B} |
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2021 |
55.0p |
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2021 |
51.7p |
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2020 |
54.5p |
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2020 |
46.6p |
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Retail Prices Index{B} |
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Ongoing charges ratio{AD} |
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2021 |
7.5% |
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2021 |
0.59% |
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2020 |
1.2% |
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2020 |
0.68% |
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{A} Alternative Performance Measure (see below). |
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{B} For the year to 31 December. |
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{C} Reference Index comprising 60% FTSE World ex UK Index/40% FTSE World UK Index up to April 2020 and 100% FTSE All World TR Index from May 2020. |
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{D} As at 31 December |
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{E} Dividends declared for the year in which they were earned |
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2. CHAIRMAN'S STATEMENT
Introduction
It was with great sadness that I wrote to shareholders in August to advise of the death of Simon Fraser, the Company's Chairman, following a short illness. Simon joined the Board in May 2020, initially as a non-executive Director, becoming Chairman in April 2021. Drawing on his wealth of experience in fund management, the investment trust sector and his broader business interests, Simon made a significant contribution to Board discussions during his all too short tenure; he will be greatly missed. As a result, I was appointed interim Chairman in August 2021 and then accepted the Board's invitation in October 2021 to become Chairman of the Company.
Performance
The Company's net asset value (“NAV”) posted a total return for the year (i.e. with net income reinvested) of 14.1%. The Company has no benchmark, but this performance compares with a rise over the same period of 7.6% for the UK Retail Price Index and a total return for the Reference Index, the FSTE ALL World TR Index, of 20.0%. The share price posted a lower total return of 7.2%, reflecting the widening of the discount to NAV. Income per share generated from the Company's portfolio increased to 51.7p for the year (2020: 46.6p).
Our investment focus continued to emphasise both geographical and sector diversification across a broad range of quality companies in order to deliver both income and capital growth. Such characteristics tend not to be as heavily represented in the Reference Index where in-favour growth stocks still tend to dominate. For this reason, relative performance over any short time period can and does deviate significantly on a comparative basis.
Economic recovery in the Developed World exceeded expectations and was quickly discounted in the associated equity markets. As for the Developing World, however, progress proved slower often due to the complexities involved with immunisation of predominately large, dispersed populations. Here improvements in fundamentals are more likely to occur this year and beyond. Specific performance highlights of regions, sectors and holdings are discussed further in the Investment Manager's Review.
Against the backdrop of a challenging environment for the Company in recent years, it is useful to step back and to look at the Company's performance versus its investment objective over time; there may be particular points in time when inflation spikes cannot be matched but the chart detailed on page 8 of the published Annual Report and financial statements for the year ended 31 December 2021 indicates that, over the longer term, the Company has been delivering on its investment objective to shareholders.
However, in recent years, capital performance has underperformed the Reference Index and, indeed, the Company's peer group; while this is understandable to an extent, given the significant differences between the Company's portfolio and both of these, it has of course been a source of disappointment to the Board.
Accordingly, the Board and Manager have engaged extensively to discuss the Manager's investment style and other factors behind this. These discussions have included topics such as:
– the Manager's focus on high quality companies with strong balance sheets and track records, which have been out of favour more recently but which may be better able to weather market volatility and higher inflationary environments over the longer term;
– the Company's preference to pay its dividends fully from revenue and revenue reserves, rather than seeking to distribute from capital; and
– the Company's high dividend yield, which leads its peers.
It is noteworthy that it is these factors and the Company's ownership of both bonds as well as equities which provide shareholders with a markedly different and, hopefully, attractive opportunity for diversification.
In addition, adverse stock selection has clearly also played a part in the recent underperformance as can be seen from the table on page 13 of the published Annual Report and financial statements for the year ended 31 December 2021. The Board continues to challenge the Manager to identify investment opportunities with an acceptable yield that also have attractive growth prospects and are able to balance successfully the need for income with the Company's desire to deliver capital growth over time. Recent changes in the portfolio are referred to in the Investment Manager's Review.
Dividends
Three interim dividends of 12.0p per share (2020: three interims of 12.0p) have been declared during the year. Your Board is now recommending an increased final dividend of 19.0p per share (2020: final dividend of 18.5p). If approved at the Annual General Meeting, this final dividend will be paid on 18 May 2022 to shareholders on the register on 8 April 2022 (ex dividend 7 April 2022). If the final dividend is approved, total Ordinary dividends for the year will amount to 55.0p (2020: 54.5p), an increase over the previous year of 0.9% which compares with the 7.5% increase in the Retail Price Index in 2021. The level of increase reflects the fact that the Company already pays a competitively high dividend yield which stood at 4.8% at year end. This represents the 17th year of dividend increases for the Company, which remains an AIC 'Next Generation Dividend Hero'.
As a long-established investment trust, the Company has the benefit of £62.9 million of distributable reserves on its balance sheet at 31 December 2021, which have been accumulated by the Company over many years. The payment of the final dividend, if approved, will use approximately £23.9 million from revenue reserves. This amounts to approximately 36.1% of these reserves and dividend cover at year end was 0.94x (2020: 0.86x). This use of reserves is in line with the policy that we have highlighted to shareholders in previous years. I can confirm that the Board intends to maintain a progressive dividend policy, given the Company's investment objective. This means that, in some years, revenue will be added to reserves while, in others, some revenue may be taken from reserves to supplement earned revenue for that year, in order to pay the annual dividend. Shareholders should not be surprised or concerned by either outcome as, over time, the Company will aim to pay out what the underlying portfolio earns in sterling terms. Currency fluctuations may also have an impact on income and therefore the level of dividend. The Board, however, is maintaining the present policy not to hedge the sterling translation risk of revenue arising from non-UK assets.
Gearing
At the year end, total borrowings amounted to £200 million, representing net gearing (calculated by dividing the total borrowings less cash by shareholders' funds) of 12.2% (2020: 13.4%), all of which is drawn in sterling. In May 2021, the Company extended part of its long-term borrowings by issuing a £50 million 10 year Senior Unsecured Loan Note (the “Loan Note”) at an annualised interest rate of 2.24%. The Company used the proceeds of the Loan Note to repay, and cancel in full, the Company's £50 million Revolving Credit Facility, which expired at that time. Under the Loan Note facility, an additional £150 million remains available for drawdown by the Company for a five-year period from its first issue. The Board's current intention is to only draw this down to repay existing debt and the Company is now at an advanced stage in the process of agreeing terms to use £60m of this shelf facility to replace the £60m term loan when it expires in May 2022 and expects to provide an update on this shortly.
Annual General Meeting (“AGM”) and Online Presentation
For the second year running, the Company's AGM in 2021 was a functional only AGM due to the pandemic. This was a source of frustration for the Board; however, an interactive online shareholder presentation was convened ahead of the AGM. The online presentation was very well attended and provided a useful opportunity for the Board to receive feedback and views as well as to answer questions from shareholders and prospective investors. Given the success of the online event, the Board has decided to hold another, similar interactive online shareholder presentation, which will be held at 11.00 a.m. on Thursday 7 April 2022. This is in addition to the in-person AGM to be held in London on 22 April 2022. At the online presentation, shareholders will receive updates from me as Chairman and the Investment Manager, and there will be an interactive question and answer session. Full details on how to join the Online Shareholder Presentation can be found in my accompanying letter and further information on how to register for the event can be found at www.workcast.com/register?cpak=6147225932852209XX .
Following the online presentation, shareholders will still have almost two weeks during which to submit their proxy votes prior to the AGM and I would encourage all shareholders (whether or not they intend to attend the AGM in person) to lodge their votes in advance in this manner.
The AGM has been convened for 12:30 p.m. on 22 April 2022 at the Mermaid Conference Centre in London, and will be followed by light refreshments and an opportunity to meet the Board and the Investment Manager. Given the evolving nature of the pandemic, should circumstances change significantly, rendering an in-person AGM inadvisable or not permissible, we will notify shareholders of any changes to the AGM arrangements by updating the Company's website at murray-intl.co.uk and through an RNS announcement, where appropriate, with as much notice as possible.
Ahead of the online presentation and AGM, I would encourage shareholders to send in any questions that they may have for either forum to: murray-intl@abrdn.com.
On behalf of the Board, I should like to thank shareholders for their understanding and support over the last two years and very much look forward to the opportunities to engage directly with shareholders provided by the online presentation and subsequent in-person AGM.
Management of Discount and Premium
At the AGM held in April 2021, shareholders renewed the annual authorities to issue up to 10% of the Company's issued share capital for cash at a premium and to buy back up to 14.99% of the issued share capital at a discount to the prevailing NAV. During the year, 2,576,806 Ordinary shares were purchased for Treasury, representing 2.0% of issued share capital. The Board will be seeking approval from shareholders to renew the buyback authority together with the authority to allot new shares or sell shares from Treasury at the AGM in 2022. As in previous years, new or Treasury shares will only be issued or sold at a premium to NAV (excluding income) and shares will only be bought back at a discount to NAV (including income). Resolutions to this effect will be proposed at the AGM and the Directors strongly encourage shareholders to support these proposals.
Your Board continues to believe that it is appropriate to seek to address temporary imbalances of supply and demand for the Company's shares which might otherwise result in a recurring material discount or premium. The Board believes that this process is in all shareholders' interests as it seeks to reduce volatility in the discount or premium to underlying NAV whilst also making a small positive contribution to the NAV. Since the year end, up to 3 March 2022, the Company has bought back a further 426,838 Ordinary shares for Treasury. At the latest practicable date, the NAV (excluding income) per share was 1243.4p and the share price was 1189.0p, equating to a discount of 4.4% per Ordinary share compared to a discount of 6.8% per Ordinary share at the year end.
Management Fee Reduction and Ongoing Charges Ratio (“OCR”)
On 30 December 2021, the Board was pleased to announce a reduction in the level of management fees payable by the Company. From 1 January 2022, the management fee will be charged at the rate of 0.5% per annum of Net Assets up to £500m and 0.4% per annum of Net Assets above £500m. Up to 31 December 2021, the management fee was charged at the rate of 0.5% of Net Assets up to £1,200m and 0.425% of Net Assets above £1,200m. The Board remains focused on controlling costs and on delivering value to shareholders. The OCR for 2021 has reduced to 0.59% (2020: 0.68%). The reduction in the level of management fee will, all other things being equal, flow through to a further reduction in the OCR in future years.
Environmental, Social and Governance
As part of its responsible stewardship of shareholders' assets, your Board continues to engage actively with the Manager with regard to the ongoing assessment and further integration of Environmental, Social and Governance (“ESG”) factors in the Manager's investment process. The Board receives regular assessments of the Company's holdings and portfolio, including a MSCI fund ratings report which currently gives the Company's portfolio a rating of 'AA' (2020: 'A'). Further information on the important work undertaken on ESG by the Manager is provided in the Strategic Report on pages 21 to 27 of the published Annual Report and financial statements for the year ended 31 December 2021.
Climate Change
Your Board supports the principle of further regulation to promote climate change disclosures and considers that the related physical, transition and litigation risks are becoming increasingly likely and financially material. Without becoming prescriptive on specific investment criteria, the Board's desire is for the Manager to build an increasingly resilient portfolio and to seek to exploit opportunities arising from a net zero economy, in so far as this is consistent with the Company's investment objective. A key ingredient in building such a portfolio is meaningful, regular and continuing dialogue between the Manager and high emitting investee companies, with a view not only to understanding the risk exposure and evolving business models better, but also to influencing corporate behaviour.
The Board is pleased to note that abrdn has joined the Net Zero Asset Manager initiative – an initiative that will see asset managers work in collaboration with their clients to achieve net zero by 2050 or sooner.
Directorate
The Board has had detailed discussions about its composition during the year and the Company is in the process of recruiting an additional independent non-executive Director using the services of an independent recruitment consultant. Shareholders will be updated when a candidate has been appointed.
Outlook
The global geopolitical situation looks increasingly uncertain as a result of the recent Russian invasion of Ukraine and the consequences and implications which will flow from that. Whilst the Company does not have any direct investment in Russian or Ukrainian equities or bonds, the portfolio does include exposure to some multinational companies with operations there, or potentially affected by these events. However, at the time of writing, little more can usefully be said save that the position will, of course, continue to be monitored by the Manager and the Board. This is in addition to the uncertainties resulting from the pandemic.
As the global economy begins to confront the numerous challenges presented by the ongoing pandemic, certain key issues stand out. Many businesses face an uncertain future from irrevocable changes to work practices, employment demographics, consumer spending patterns and leisure behaviour. Governments will count the costs of expanding fiscal deficits with the unenviable task of allocating future generations the debt burdens. Finally, policymakers must tackle an unfamiliar economic landscape where rising prices and wages arguably present the most serious hurdle for custodians of economic prosperity.
From a portfolio perspective, the evolving business backdrop presents numerous attractive investment opportunities for the Company's unconstrained global mandate. In these uncertain times, the Company's inherent investment flexibility permits broad country, sector and stock diversification at a time when most global equity markets seem never to have been so narrow, concentrated and expensive. Exposure to growth businesses in Asia and the developing world offer, currently often ignored, potential for superior long-term total returns, whilst an overall focus of the portfolio on “real” assets seeks to mitigate rising inflationary threats. Protecting wealth from the corrosive effects of inflation has barely registered on investment mandate radars for many decades now – in the current environment, it may become a priority. The Manager believes that the Company's portfolio exposures reflect such realities as the Company continues to seek to provide shareholders with a differentiated proposition that can meet the Company's long-term income and capital growth objectives.