Temple Bar Chairman’s Statement
Performance
I have commented for a long time about the protracted timescale
in which the Value investing style has been out of favour relative
to other styles. There have been brief periods during which the
tide appeared to be turning in favour of Value but these rallies
have thus far proved to be fairly short lived and, consequently,
the underperformance of Value continued into 2017. As our portfolio
manager is a disciplined adherent of the Value investing style this
has had a negative impact on the short to near term performance of
Temple Bar compared with its nominated benchmark, the FTSE All
Share Index. During the year the total return on the net assets of
Temple Bar was 9.7%, underperforming the total return of the FTSE
All Share Index of 13.1%. We attach greater significance to the
longer term performance and in this context I am pleased to report
that Temple Bar continues to outperform its benchmark over both
five and ten year periods on the same basis.
Dividend
There have been three interim dividend payments during the year
each of 8.33p per share and the directors are now recommending a
final dividend payment for the year ended 31
December 2017 of 17.48p per share to be paid on 29 March 2018 to those shareholders on the
register as at 9 March 2018. The
ex-dividend date for this payment is 8 March
2018. If approved this would give an increase in the total
dividend payment for the year as a whole of 5.0%. The dividend has
been increased in light of the significant accretion to revenue
reserves in recent years and the availability of income in the
current year. This would be the 34th consecutive year in which the
Company has raised its annual dividend payment. The Board is proud
of the Company’s record of generating long term dividend growth,
such consistency being reflected in Temple Bar’s status as one of
The Association of Investment Companies’ ‘Dividend Heroes’.
Gearing
In recent years the Company’s fixed long term borrowings have
largely been offset by a fairly high cash or near cash position on
the portfolio pending the emergence of attractively priced
investment opportunities. The position was unchanged throughout
2017 such that at the year end, net gearing (calculated net of cash
and related liquid assets, including our investment in a UK short
dated gilt) was -3.0%.
From a long term gearing perspective, however, I am pleased to
be able to report that the Company’s expensive £25m 9.875%
debenture matured on 31 December 2017
and was duly repaid in full on that date. In advance of its
repayment the Board took the decision in October to replace it with
an additional private placement loan in the same amount but with a
much more attractive coupon of 2.99%. The loan, which covers a
fixed 30 year period extending to 2047, was provided by the
Prudential Insurance Company of America, who also provided funding
for the existing 4.05% private placement loan undertaken in 2013.
It may seem somewhat anomalous that the Company has taken out a new
borrowing facility at the same time that the Manager has
highlighted a lack of attractive investment opportunities in the
market. I should, therefore, emphasise that an important
factor in taking out this additional loan was to secure attractive
fixed rate funding for the purposes of pursuing the Company’s
investment objectives over a very long period, mindful of the
likelihood of future interest rate increases and the potential for
future investment opportunities.
Share Capital Management
Temple Bar’s shares traded at a modest discount throughout most
of the year and at the year end the discount stood at 5.3%. The
Board is prepared to undertake share buy backs if the discount
widens both in absolute terms and relative to the Company’s peer
group. While no share repurchases took place during the year, the
Board nonetheless recommends that the existing authorities to issue
new ordinary shares and to repurchase shares in the market for
cancellation or to hold in Treasury be continued. Accordingly it is
seeking approval from shareholders to renew the share issue and
repurchase authorities at the forthcoming annual general
meeting.
The Board
In November of last year Richard
Wyatt was appointed as an additional director of the
Company. Richard brings a wealth of broad based business experience
to the role including valuable insight gleaned from the technology
sector. I am confident that he will add a great deal to the Board’s
discussions in the coming years. The Board is proposing to make a
further appointment for which an independent recruitment process is
already underway. Shareholders might reasonably enquire about the
rationale for this expansion in the size of the Board. I can
confirm that these additional appointments are being made in
anticipation of three or four existing Board members retiring over
the next two years and are designed to ensure an orderly transition
and the refreshment of the Board. The first such retirement has
already taken place, with David
Webster stepping down as a director on 31 December 2017. David made an outstanding
contribution to the Board over the nine years that he served as a
director and we wish him the very best in his future life.
Furthermore, I will be standing down as Chairman this summer. It
has been a privilege to serve on the Board as both a director since
1992 and as Chairman for nearly 15 years. A decision on my
successor as Chairman will be made in the coming months and
notified to shareholders in due course. Temple Bar has historically
benefitted from a strong Board and I am confident that this will
continue into the future.
Every year the Board undertakes a thorough evaluation of each
director, including myself as Chairman. In line with best practice
in this regard, all directors are subject to annual re-election by
shareholders.
Packaged Retail and Insurance-based
Investment Products (PRIIPs)
New EU originated regulations require investment entities such
as Temple Bar to prepare Key Information Documents (KIDs) that are
available to be perused prior to making an investment decision. The
intention is that investors are able to make comparisons between
different products based on highly prescribed information, as set
out in the regulations. Accordingly, Temple Bar has prepared its
own KID, which is available on its website and has also been
disseminated to various platform providers and investment
allocators. However, the Board believes that there are aspects to
the way that some of the information is required to be calculated
and presented which cast significant doubts over the validity of
comparisons, particularly with non-investment trust products. As
but one example, the KID rules require investment trusts to include
as part of an ongoing cost calculation the cost of their
borrowings. These borrowings are designed to enhance shareholder
returns over the longer term; however, the costs of such borrowings
are required to be included within total costs shown on the KID,
without corresponding recognition of the potential benefits of such
gearing, while ungeared investment vehicles have no such costs,
thus distorting cost comparisons. Furthermore, investment trusts
are required to show portfolio transaction costs while UCITS
vehicles can currently exclude them, rendering comparisons
meaningless. The Board also has significant reservations about the
prescribed methodology for the calculation of performance
projections in the KID, which, it believes, does not provide a
reliable guide to investors and should not, therefore, be taken as
an indicator of future performance expectations. As a result of
these and other concerns the Board believes that more helpful and
comparable information about Temple Bar’s costs and performance can
be obtained both from the monthly factsheet published on the Temple
Bar website and from information contained in the Annual
Report.
Website
As the permanent representation of the Temple Bar brand and
investment philosophy and the primary source for up-to-date
relevant information, the efficacy of the website for shareholders
and other key users is paramount. A review of competitor websites
revealed that the majority of ‘independent’ investment company
websites felt somewhat dated from both a design and technology
perspective, and adopted a very similar ‘corporate’ online
experience. As such, we believe there is an opportunity to make our
website more modern looking, technologically advanced and easier to
navigate, with the ultimate aim of improving the online experience
for users. Consequently, a project to re-design the Temple Bar
website was undertaken and the new site will go live early in
2018.
Annual General Meeting
The AGM this year will be held once again at 2 Gresham
Street, London EC2V 7QP on
Monday 26 March 2018 at 11am. In addition to the formal business of the
meeting the portfolio manager will, as usual, make a presentation
reviewing the past year and commenting on the outlook. He will also
be available to answer questions alongside the directors.
Shareholders who are unable to attend are encouraged to use their
proxy votes.
Outlook
It may be something of a statement of the obvious to recognise
that we face a number of political and economic risks over the
short to medium term, such as the ramifications of Brexit
negotiations, the consequences of attempts by certain central
bankers to reverse ‘experimental’ policies relating to ultra-low
interest rates and the accumulation on balance sheet of vast
quantities of fixed interest securities, and the possible impact of
developments in US domestic and foreign policy under President
Trump. However, over the long 90 year existence of Temple Bar there
have been numerous even more perilous events that it has
successfully negotiated to provide good long term returns to its
shareholders, not least by exploiting value opportunities arising
from such dislocations.
In these circumstances our preference is to focus on individual
companies’ financial strength and performance rather than seek to
predict the direction of markets. Through maintaining our approach
of investing in a diversified portfolio of mainly UK domiciled
companies and with strict adherence to a Value based approach we
believe that Temple Bar can continue to thrive notwithstanding
future uncertainties. Furthermore, Temple Bar is well positioned to
maintain its policy of paying a high and growing dividend for the
foreseeable future.
John Reeve
Chairman
20 February 2018
Twenty Largest Investments
as at 31 December 2017
Company |
Industry |
Place
of listing |
Valuation
£’000 |
% of
portfolio |
UK Treasury 1.25% 2018 |
Fixed Interest |
UK |
128,815 |
12.4 |
HSBC Holdings |
Financials |
UK |
76,013 |
7.3 |
Royal Dutch Shell |
Oil & Gas |
UK |
62,990 |
6.1 |
GlaxoSmithKline |
Health Care |
UK |
55,261 |
5.3 |
BP |
Oil & Gas |
UK |
52,541 |
5.1 |
Barclays |
Financials |
UK |
46,619 |
4.5 |
Grafton Group |
Industrials |
UK |
42,354 |
4.1 |
SIG |
Industrials |
UK |
37,162 |
3.6 |
Royal Bank of Scotland |
Financials |
UK |
34,239 |
3.3 |
Lloyds Banking Group |
Financials |
UK |
34,091 |
3.3 |
Travis Perkins |
Industrials |
UK |
27,448 |
2.7 |
Tesco |
Consumer Services |
UK |
26,710 |
2.6 |
CitiGroup |
Financials |
USA |
26,540 |
2.6 |
WM Morrison
Supermarkets |
Consumer Services |
UK |
26,014 |
2.5 |
Marks & Spencer |
Consumer Services |
UK |
20,873 |
2.0 |
ETFS Physical
Silver |
Physical Gold and
Silver |
UK |
19,666 |
1.9 |
Yara
International |
Basic Materials |
Norway |
18,938 |
1.8 |
Direct Line
Insurance |
Financials |
UK |
17,809 |
1.7 |
Centrica |
Utilities |
UK |
17,455 |
1.7 |
CRH |
Industrials |
UK |
16,998 |
1.6 |
|
|
|
788,536 |
76.1 |
Statement of Comprehensive Income
For the year ended 31 December
2017
|
|
2017 |
2016 |
|
|
|
|
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
|
Investment income |
|
33,990 |
- |
33,990 |
34,069 |
- |
34,069 |
Other operating income |
|
8 |
- |
8 |
5 |
- |
5 |
|
|
33,998 |
- |
33,998 |
34,074 |
|
34,074 |
|
|
|
|
|
|
|
|
Profit/(losses) on
investments |
|
|
|
|
|
|
|
Profit/(losses) on investments held
at fair value through profit or loss |
|
- |
62,251 |
62,251 |
- |
128,792 |
128,792 |
Total income |
|
33,998 |
62,251 |
96,249 |
34,074 |
128,792 |
162,866 |
|
|
|
|
|
|
Expenses |
|
|
|
|
|
Management fees |
|
(1,532) |
(2,215) |
(3,747) |
(1,380) |
(1,990) |
(3,370) |
Other expenses |
|
(600) |
(969) |
(1,569) |
(633) |
(1,039) |
(1,672) |
|
|
|
|
|
|
Profit/(loss) before finance costs
and tax |
|
31,866 |
59,067 |
90,933 |
32,061 |
125,763 |
157,824 |
Finance costs |
|
(2,701) |
(4,078) |
(6,779) |
(2,645) |
(4,012) |
(6,657) |
|
|
|
|
|
|
Profit/(loss) before
tax |
|
29,165 |
54,989 |
84,154 |
29,416 |
121,751 |
151,167 |
Tax |
|
(207) |
- |
(207) |
(163) |
- |
(163) |
Profit/(loss) for the
year |
|
28,958 |
54,989 |
83,947 |
29,253 |
121,751 |
151,004 |
Earnings per share
(basic & diluted) |
|
43.30p |
82.23p |
125.53p |
43.74p |
182.06p |
225.80p |
The total column of this statement represents the Statement of
Comprehensive Income prepared in accordance with IFRS. The
supplementary revenue return and capital return columns are both
prepared under guidance issued by the Association of Investment
Companies. All items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
The Company does not have any income or expense that is not
included in net profit for the year. Accordingly, the net
profit for the year is also the Total Comprehensive Income for the
Year, as defined in IAS1 (revised).
Statement of Changes in Equity
for the year ended 31 December
2017
|
Ordinary |
Share |
|
|
|
|
share |
premium |
Capital |
Retained |
Total |
|
capital |
account |
reserves |
earnings |
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
Balance at
1 January 2016 |
16,719 |
96,040 |
613,427 |
29,569 |
755,755 |
|
|
|
|
|
|
Unclaimed
dividends |
- |
- |
- |
24 |
24 |
Profit for the
year |
- |
- |
121,751 |
29,253 |
151,004 |
Dividends paid to equity
shareholders |
- |
- |
- |
(26,843) |
(26,843) |
|
|
|
|
|
|
Balance at
31 December 2016 |
16,719 |
96,040 |
735,178 |
32,003 |
879,940 |
|
|
|
|
|
|
Unclaimed dividends |
- |
- |
- |
11 |
11 |
Profit for the
year |
- |
- |
54,989 |
28,958 |
83,947 |
Dividends paid to equity
shareholders |
- |
- |
- |
(27,532) |
(27,532) |
Balance at
31 December 2017 |
16,719 |
96,040 |
790,167 |
33,440 |
936,366 |
Statement of Financial Position
as at 31 December 2017
|
31
December 2017 |
31
December 2016 |
|
£’000 |
£’000 |
£’000 |
£’000 |
Non-current
assets
Investments held at fair value through profit or loss |
|
1,035,670 |
|
973,353 |
|
|
|
|
|
Current assets |
|
|
|
Receivables |
3,613 |
|
4,266 |
|
Cash and cash equivalents |
12,161 |
|
17,340 |
|
|
|
15,774 |
|
21,606 |
Total assets |
|
1,051,444 |
|
994,959 |
|
|
|
|
Current liabilities |
|
|
|
Interest bearing borrowings |
|
- |
|
(25,000) |
Payables |
|
(1,159) |
|
(1,169) |
Total assets less current
liabilities |
|
1,050,285 |
|
968,790 |
|
|
|
|
Non-current liabilities |
|
|
|
Interest bearing borrowings |
|
(113,919) |
|
(88,850) |
Net assets |
|
936,366 |
|
879,940 |
|
|
|
|
Equity attributable to equity
holders |
|
|
|
Ordinary share capital |
16,719 |
|
16,719 |
|
Share premium |
96,040 |
|
96,040 |
|
Capital reserves |
790,167 |
|
735,178 |
|
Retained revenue earnings |
33,440 |
|
32,003 |
|
|
|
|
|
|
Total equity |
|
936,366 |
|
879,940 |
|
|
|
|
Net asset value per
share |
|
1,400.22p |
|
1,315.84p |
Statement of Cash Flows
for the year ended 31 December
2017
|
2017
£’000
£’000 |
2016
£’000
£’000 |
Cash flows from operating
activities |
|
|
|
Profit/(Loss) before tax |
|
84,154 |
|
151,167 |
|
|
|
|
Adjustments for: |
|
|
|
(Gains)/losses on investments |
(62,251) |
|
(128,792) |
|
Financing costs |
6,779 |
|
6,657 |
|
Purchases of investments¹ |
(437,327) |
|
(335,164) |
|
Sales of investments¹ |
437,261 |
|
346,228 |
|
Dividend income |
(32,410) |
|
(32,841) |
|
Interest income |
(1,588) |
|
(1,233) |
|
Dividend received |
32,189 |
|
32,078 |
|
Interest received |
1,248 |
|
1,683 |
|
Decrease/(increase) in
receivables |
1,212 |
|
(1,231) |
|
(Decrease) / increase in
payables |
(10) |
|
95 |
|
Overseas withholding tax
suffered |
(207) |
|
(163) |
|
|
|
(55,104) |
|
(112,683) |
|
|
|
|
Net cash flows from operating
activities |
|
29,050 |
|
38,484 |
|
|
|
|
Cash flows from financing
activities |
|
|
|
Repayment of 9.875%
2017 debenture
Proceeds from issue of 2.99% Private Placement Loan
Issue costs relating to 2.99% Private Placement Loan
Unclaimed dividends
Equity dividends paid
Interest paid on borrowings |
(25,000)
25,000
(121)
11
(27,532)
(6,587) |
|
-
-
-
24
(26,843)
(6,587) |
|
|
|
|
|
Net cash from financing
activities |
|
(34,229) |
|
(33,406) |
|
|
|
|
Net (decrease)/increase in cash and
cash equivalents |
|
(5,179) |
|
5,078 |
Cash and cash equivalents at the
start of the year |
|
17,340 |
|
12,262 |
Cash and cash equivalents at the end
of the year |
|
12,161 |
|
17,340 |
|
|
|
|
|
¹ Purchases and sales of investments are
considered to be operating activities of the Company, given its
purpose, rather than investing activities.
Notes
-
The figures set out above are
prepared on the same basis as set out in the previous year’s annual
accounts and are derived from the audited accounts of Temple Bar
Investment Trust Plc for the years ended 31
December 2016 and 31 December 2017.The 2017 accounts will be
sent to shareholders shortly.
-
The financial information contained
in this announcement does not constitute full accounts within the
meaning of Section 434 of the Companies Act 2006.The 2017 accounts,
on which the report of the auditors is unqualified, will be filed
with the Registrar of Companies in due course.The audited accounts
for the year ended 31 December 2016
on which the report of the auditors was unqualified and did not
contain a statement under Section 498 of the Companies Act 2006,
have been filed with the Registrar of Companies.
20 February 2018
Contact: Alastair Mundy
Telephone 020 7597 2000
Investec Fund Managers Limited