Smithson Investment Trust Plc
Results Announcement
Audited Results For The Year Ended 31 December 2021
Financial Highlights
|
At |
At |
|
|
31 December 2021 |
31 December 2020 |
|
|
Net assets |
£3,367,070,000 |
£2,331,950,000 |
|
Net asset value (“NAV”) per ordinary share (“share”) |
1,961.0p |
1,648.9p |
|
Share price |
2,020.0p |
1,710.0p |
|
Share price premium to NAV1 |
3.0% |
3.7% |
|
For the period from |
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|
Company's listing on |
|||
|
For the year ended |
For the year ended |
19 October 2018 to |
|
|
31 December 2021 |
31 December 2020 |
31 December 2021 |
|
|
% change2 |
% change2 |
% change2 |
|
|
NAV total return per share1 |
+18.9% |
+31.4% |
+96.1% |
|
Share price total return1 |
+18.1% |
+31.7% |
+102.0% |
|
Benchmark total return |
+17.8% |
+12.2% |
+47.8% |
|
Ongoing charges ratio1 |
1.0% |
1.0% |
1.0% |
Source: Bloomberg
This report contains terminology that may be unfamiliar to some readers. The Glossary in the Annual Report gives definitions for frequently used terms.
3 Year Record
|
At 31 December |
2021 |
2020 |
2019 |
|
Net assets |
£3,367,070,000 |
£2,331,950,000 |
£1,437,305,000 |
|
NAV per ordinary share |
1,961.0p |
1,648.9p |
1,255.2p |
|
Share price |
2,020.0p |
1,710.0p |
1,298.0p |
|
Share price premium to NAV1 |
3.0% |
3.7% |
3.4% |
|
Year ended 31 December |
|||
|
NAV total return per share |
+18.9% |
+31.4% |
+33.2% |
|
Share price total return |
+18.1% |
+31.7% |
+29.8% |
|
Benchmark total return |
+17.8% |
+12.2% |
+21.9% |
|
Ongoing charges ratio |
1.0% |
1.0% |
1.0% |
1 These are Alternative Performance Measures (“APMs”). Definitions of these and other APMs used in the Annual Report, together with how these measures have been calculated, are disclosed in the Annual Report.
2 Total returns are stated in GBP sterling.
Chairman's Statement
Introduction
I am pleased to present our third Annual Report and my first as Chairman.
Performance
The Company's net asset value (NAV) per share total return for the year was +18.9% outperforming the MSCI World SMID Index by 1.1% points. The Company's annualised NAV per share total return since inception is +23.4% compared with the +13.0% return from the index with dividends reinvested.
The Company's shares traded at a premium to its NAV throughout 2021 reflecting the continued demand from investors. The premium at the end of the year was 3.0%, slightly narrower than the 3.7% at the end of the previous year, and the Company's share price therefore increased by 18.1% during 2021, slightly lower than the increase in the NAV per share. The annualised share price return total return since inception is +24.5%, slightly higher than the annualised increase in NAV per share.
The Company's market capitalisation at the end of 2021 was £3.5 billion and it is a member of the FTSE 250 index.
Capital Structure
The Company was floated on the premium list of the London Stock Exchange (“LSE”) on 19 October 2018, breaking the record for the largest IPO of an investment trust in the history of the LSE with funds raised exceeding £822 million. The Company raised a further £531 million net of costs during 2021, taking the total amount raised since the IPO to £1,305 million net of costs.
The Board monitors the level of premium to NAV at which the Company's shares trade and has a regular share issuance programme to manage the premium. Shares are only issued at a premium to net asset value which creates additional value for shareholders net of all issue costs. The average premium to the prevailing net asset value at which new shares were issued during the year was 2.65% and the net premium on share issues amounted to approximately £6.8 million.
Since the year end and up to 10 March 2022, a further 5,235,000 ordinary shares have been issued, raising £89.8 million net of costs. This brings the total net funds raised since the Company's IPO in October 2018 to £1,395 million.
In view of the continuing strong demand for the Company's shares, shareholders will be asked, at the forthcoming Annual General Meeting, to grant the Company authorities to issue up to a further 20% of the issued share capital as at the latest practicable date before publication of the Annual Report. This will enable the Directors to continue to create further shareholder value and help manage the level of any share price premium. Any such issues will be on a non pre-emptive basis.
Results and Dividends
The Company's total return after tax for the year was £503.7 million (2020: £496.5 million), equivalent to 316.2p per share (2020: 396.7p) comprising a capital return of £512.1 million (2020: £499.4 million), equivalent to 321.5p per share (2020: 399.3p) and a revenue loss of £8.4 million (2020: loss of £2.9 million) equivalent to a loss of 5.3p per share (2020: loss of 2.3p).
The revenue losses, which are netted against capital gains reported in the total returns, arise because the Company's dividend income is lower than its operating expenditure, all of which is charged to revenue, rather than a percentage being allocated to the capital reserve. This reflects the Company's objective of focusing on capital growth which means that its accounting policy is not designed to facilitate maximisation of revenue reserves and dividend payments.
In accordance with the Company's policy, a dividend is not proposed by the Board.
Whilst the position will be kept under review, there is no current intention to change the policy, even if losses continue to be reported in revenue reserves. It should not be expected that the Company will pay a significant annual dividend and it is likely that no interim dividends will be declared, but the Board intends to declare such annual dividends as are necessary to maintain the Company's UK investment trust status.
Investment Approach
In common with all funds managed by Fundsmith, the Company has a simple, focused strategy of investing in high-quality, listed company shares, seeking not to overpay for those shares and then holding them as long term investments; the Company does not use derivatives and has no borrowings.
As a closed-end investment vehicle focusing on capital growth, the Company is free to focus its energies on pursuing its strategy without having the limiting factors of funding client redemptions, dividend payments (other than a minimum to maintain investment trust status) or gearing concerns. The Company expects to hold between 25-40 investments; at year end, it held 31 investments. During the year it made two new investments and divested two. The Company has a strong balance sheet of highly liquid investments.
The composition of the portfolio at 31 December 2021 is shown below, and the Investment Manager's Review explains the investment performance and the evolution of the portfolio in detail.
The Investment Manager's Review also includes an overview of how the Investment Manager considers Environmental, Social and Governance (“ESG”) and other sustainability issues when implementing its investment strategy and how the Company has discharged its governance duties in respect of investee companies.
Fundsmith is a signatory to the FRC's 'UK Stewardship Code 2020'. A copy of Fundsmith's Stewardship Policy, UK Stewardship Report 2020, and a statement setting out the Company's approach to the integration of ESG factors is integrated into the investment process are available on the Company's website at www.smithson.co.uk.
Investment Policy
The Board held a strategy session in November with the Investment Manager and the Company's advisers to review the investment objective and policy, the evolution of the investible universe and the portfolio since the IPO, the stock selection criteria, and communications with shareholders. One of the conclusions from the review is that we should make a change to clarify the investment policy.
The proposed change clarifies that the market capitalisation range of £500 million to £15 billion applies at the time of the initial investment in a company. We also propose to remove the stated expectation with respect to the average market capitalisation of companies in the portfolio as the Board considers that, as the Company's investments have prospered in the time they have been held, this is no longer appropriate.
The revised investment policy which will not affect, in any way, how the Company's investments are managed, is set out below.
“The Company's investment policy is to invest in sharesissued by small and mid-sized listed or traded companies globally with a market capitalisation (at the time of initial investment) of between £500 million to £15 billion.“
The amended investment policy will apply, subject to shareholder approval (which is required by the Listing Rules as these changes are considered material), with effect from the Company's Annual General Meeting to be held on Wednesday, 3 May 2022; the FCA has already approved these proposed changes. Full details of the proposed amendments are set out in the Notice of Meeting that accompanies this Annual Report. The Board unanimously recommends that shareholders vote in favour of this resolution.
Governance
On 15 February 2022 it was announced that Mark Pacitti, the Chair of the Board from the Company's IPO in October 2018, would step down as a director at the end of February 2022, and I took over as Chairman of the Board. On behalf of the Board, I would like to thank Mark for his contribution, as Chairman, to the success of the Company since its IPO.
Following my appointment as Chairman, Lord St John of Bletso replaced me as Chair of the Audit Committee.
Jeremy Attard-Manche joined the Board on 1 March 2022 and is Chair of the Management Engagement Committee.
We will all stand for election or re-election at the AGM, and details on our background and experience are given in the Annual Report.
Annual General Meeting (“AGM”) and Shareholder Engagement
The Company will hold its AGM on 3 May 2022. My fellow Directors and I are keen to meet with shareholders. However, we recognise that many of our shareholders will not yet feel confident to attend shareholder meetings, given the ongoing risk of contracting COVID-19. I would therefore like to remind shareholders that they are welcome, at any time, to submit any questions they may have either to the Board at smithsonchairman@fundsmith.co.uk or to the Investment Manager at smithson@fundsmith.co.uk.
At the AGM, shareholders will hear a presentation by Simon Barnard our Investment Manager, which will also be made available on the Company's website at www.smithson.co.uk after the meeting. Simon Barnard will also be present in person at the AGM to address any questions. In addition, we would encourage shareholders to visit our website at www.smithson.co.uk where more information is available and which is regularly updated.
Outlook
Since the start of this year the world's stock markets have experienced significant falls. Both the Company's NAV and share price have fallen by more than the MSCI World SMID Cap Index, which we use as a comparator for the Company. Nevertheless, the annualised rate of return from the Company's IPO to the end of February was 14.9% compared with the comparator index return of 10.0%.
At the end of February the Company's shares traded at a discount to NAV of 1.5%, having consistently traded at a premium throughout 2021. At the outbreak of COVID-19 in early 2020, the Company's shares traded at a discount to NAV for a brief period. The Board will monitor the current situation and in the event that the discount persists, the Board will look to take appropriate action.
The last two months have clearly been very challenging for investors, but the Investment Manager and the Board encourage shareholders to take a long term perspective on their investment. We face unprecedented times with the recent invasion of Ukraine which raises a spectrum of uncertain variables. Fortunately, the Company's portfolio has low exposure to that region.
The Investment Manager focuses on investing in companies it believes can compound in value over many years. Owning high quality companies with sustainable growth is a strategy that has been shown to work over the long term, through several economic cycles, and the Board has confidence that the Investment Manager can execute the strategy successfully.
The Company continues to offer investors exposure to some of the best companies available in the small to mid cap sector and the Board believes that the long-term investor will be well rewarded.