REG-The Lindsell Train Investment Trust plc: Annual Financial Report
12/06/2024 07:15
12 June 2024
The Lindsell Train Investment Trust plc
(the “Company” or “LTIT”)
This announcement contains regulated information
Annual Financial Report for the year ended 31 March 2024
Company Summary
The Company
The Lindsell Train Investment Trust plc (the “Company” or “LTIT”) is a
listed investment company. Its shares are quoted on the premium segment of the
Official List and traded on the main market of the London Stock Exchange. The
Company is a member of the Association of Investment Companies (“AIC”).
The Company is a UK Alternative Investment Fund (“AIF”) under the European
Union Alternative Investment Fund Managers’ Directive (“AIFMD”). The
Board is the Small Registered UK Alternative Investment Fund Manager
(“AIFM”) of the Company.
Investment Objective
The objective of the Company is to maximise long-term total returns with a
minimum objective to maintain the real purchasing power of Sterling capital.
Investment Manager
Lindsell Train Limited (“LTL”) acts as discretionary Investment Manager
(the “Manager”) of the Company’s assets. However, the Board retains
ultimate discretion over the investments in LTL and in the LTL managed fund
products. Decisions on these investments are based on advice and information
received from the Manager.
Further details concerning the Agreements with the Company’s service
providers can be found in Appendix 3.
Performance and Benchmark
The performance and financial highlights are provided on pages 4 and 5 of the
Annual Report.
The Company compares its performance and calculates its performance fee
relative to its benchmark, the MSCI World Index in Sterling.
Dividend
An unchanged final dividend of £51.50 per Ordinary Share (2023: a final
dividend of £51.50 per Ordinary Share) is proposed for the year ended 31
March 2024. If this dividend is approved by shareholders at the Annual General
Meeting, it will be paid on Friday, 13 September 2024 to shareholders on the
register at close of business on Friday, 9 August 2024 (ex-dividend Thursday,
8 August 2024).
Annual General Meeting
The notice of the Annual General Meeting, scheduled for Wednesday, 4 September
2024 at 2.30 p.m. at the Marlborough Suite, St Ermin’s Hotel, 2 Caxton
Street, London, SW1H 0QW, is provided on pages 102 to 106 of the Annual
Report.
Capital Structure
The Company’s capital structure comprises 200,000 Ordinary Shares of 75
pence each. Details are given in note 13 to the Financial Statements.
Business Review
The Directors present their Strategic Report for the Company for the year
ended 31 March 2024. The Report contains: a review of the Company’s business
model and strategy, an analysis of its performance during the financial year
and its future developments as well as details of the principal risks and
challenges it faces. Its purpose is to inform shareholders and help them to
assess how the Directors have performed their duty to promote the success of
the Company.
Further information on how the Directors have discharged their duty under
Section 172 of the Companies Act 2006 can be found on pages 21 to 23 of the
Annual Report.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this Report and such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
Business Model
The objective of the Company is to maximise long-term total returns with a
minimum objective to maintain the real purchasing power of Sterling capital.
The Company’s strategy is to create value for shareholders through achieving
its investment objective.
As an externally managed investment company the Company has no executive
directors, employees or internal operations. The Company delegates its
day-to-day management to third-parties.
The Board is responsible for all aspects of the Company's affairs, including
the setting of parameters for and monitoring of the investment strategy as
well as the review of investment performance and policy. It also has
responsibility for all strategic issues and corporate governance matters.
Reviews of the financial year and commentary on the future outlook are
presented in the Chairman’s Statement and the Manager’s Report.
Investment Objective
The objective of the Company is to maximise long-term total returns with a
minimum objective to maintain the real purchasing power of Sterling capital.
Investment Policy
The Investment Policy of the Company is to invest
(i) in a wide range of financial assets including equities, unlisted
equities, bonds, funds, cash and other financial investments globally with no
limitations on the markets and sectors in which investment may be made,
although there is likely to be a bias towards equities and Sterling assets,
consistent with a Sterling-dominated investment objective. The Directors
expect that the flexibility implicit in these powers will assist in the
achievement of the investment objective;
(ii) in LTL managed fund products, subject to Board approval, up to 25% of
its gross assets; and
(iii) in LTL and to retain a holding, currently 23.9%, in order to benefit
from the expected long term growth of the business of the Company’s Manager.
The Company does not envisage any changes to its objective, its investment
policy or its management for the foreseeable future. The current composition
of the portfolio as at 31 March 2024, which may be changed at any time
(excluding investments in LTL and LTL managed funds) at the discretion of the
Manager within the confines of the policy stated above, is shown on pages 9
and 10 of the Annual Report.
Diversification
The Company expects to invest in a concentrated portfolio of securities with
the number of equity investments averaging fifteen companies. The Company will
not make investments for the purpose of exercising control or management and
will not invest in the securities of, or lend to, any one company (or other
members of its group) more than 15% by value of its gross assets at the time
of investment. The Company will not invest more than 15% of gross assets in
other closed-ended investment funds.
Gearing
The Directors have discretion to permit borrowings up to 50% of the Net Asset
Value. However, the Directors have decided that it is in the Company’s best
interests not to use gearing. This is in part a reflection of the size and
risk associated with the Company’s unlisted investment in LTL, but also in
response to the additional administrative burden required to adhere to the
full scope regime of the AIFMD.
Dividends
The Directors’ policy is to pay annual dividends consistent with retaining
the maximum permitted earnings in accordance with investment trust
regulations, thereby building revenue reserves.
In a year when this policy would imply a reduction in the ordinary dividend
the Directors may choose to maintain the dividend by increasing the percentage
of revenue paid out or by drawing down on revenue reserves. Revenue reserves
are currently more than twice the annual proposed 2024 ordinary dividend.
All dividends have been distributed from revenue or revenue reserves.
Financial Highlights for the Year
Performance Comparisons 2024 2023
Net Asset Value total return per Ordinary Share*^ + 2.1% -0.4%
Share price total return per Ordinary Share*^ -19.8% -0.7%
MSCI World Index total return (Sterling) +22.5% -1.0%
UK RPI Inflation (all items) 4.3% 13.5%
* The Net Asset Value and the share price at 31 March 2024 have been adjusted
to include the Ordinary dividend of £51.50 paid on 13 September 2023, with
the associated ex-dividend date of 8 August 2023.
^ Alternative Performance Measure (“APM”). See Glossary of Terms and
Alternative Performance Measures.
Source: Morningstar and Bloomberg.
Five Year Historical Record
Net revenue Dividends Dividends Net Share
available for on Ordinary on Ordinary Asset Value price per
Gross Ordinary Shares Shares per Ordinary Ordinary
income Shares Cost Rate Share Share
To 31 March £’000 £’000 £’000 (£) (£) (£)
2020 12,395 10,598 8,800 44.00 956.65 1,060.00
2021 13,782 12,002 10,000 50.00 1,185.58 1,420.00
2022 14,784 12,729 10,600 53.00 1,113.81 1,105.00
2023 14,135 12,211 10,300 51.50 1,056.95 1,052.50
2024 12,005 10,214 10,300 51.50 1,026.43 801.00
Principal Data
31 March 2024 31 March 2023 % Change
Shareholders’ funds (£’000) 205,285 211,390 -2.9%
NAV per Ordinary Share £1,026.43 £1,056.95 -2.9%
Discount to NAV^ 22.0% 0.4%
Share price per Ordinary Share £801.00 £1,052.50 -23.9%
Recommended final dividend per Ordinary Share £51.50 £51.50 –
Recommended special dividend per Ordinary Share – – –
Total dividends recommended for the year £51.50 £51.50
Dividend yield^ 6.4% 4.9%
Ongoing Charges^ 0.8% 0.9%
Earnings/(loss) per Ordinary Share – basic £20.97 £(3.85)
Revenue £51.07 £61.06
Capital £(30.10) £(64.91)
NAV total return^ † +2.1% -0.4%
Share price total return^ † -19.8% -0.7%
Benchmark (MSCI World Index in Sterling) † +22.5% -1.0%
^ Alternative Performance Measure (see Glossary).
† These are percentage change figures for the year to 31 March.
Please see Glossary of Terms for an explanation of terms used.
Chairman’s Statement
At 31 March 2024, the Company’s NAV per share was £1,026.43. It was down
from £1,056.95 a year earlier but when taking into account the payment of the
annual dividend of £51.50 per share in September 2023, the total NAV return
was a positive 2.1%. On the other hand the Company’s share price ended the
financial year at £801.00, down materially from £1,052.50 on 31 March 2023.
Whilst the dividend offset some of this decline, the size of the fall resulted
in a share price total return of minus 19.8% over the year. This was the
result of the share price discount to the NAV per share widening from 0.4% at
31 March 2023 to 22.0% at 31 March 2024. The sharp widening of the share price
discount to NAV was attributable to a combination of factors. These include a
lower rate of annualised NAV total returns achieved since 31 March 2020 (6.4%
per annum versus 14.4% per annum from 31 March 2001 to 2020), heightened
competitive pressures within the fund management industry, outflows from LTL
managed funds and a general widening of discounts within the investment trust
sector.
The benchmark index proved a tough comparator to beat for the fourth
successive year. Both the NAV and share price performances compared
unfavorably with the Company’s benchmark index, the MSCI World Index in
Sterling, which over the same period had a much better total return of 22.5%.
During the year to 31 March 2024, of the Company’s quoted holdings, only
RELX and Nintendo performed better than the benchmark, achieving total returns
of 33.6% and 41.1% in Sterling, respectively. Even more significant than the
disappointing return from the remaining quoted portfolio holdings was the
total return of minus 7.1% generated by the Company’s 23.9% unlisted
investment in LTL. With the investment representing 33.6% of NAV at 31 March
2024, it proved to be the biggest detractor from the NAV’s performance over
the year and its fall in value also contributed to the Company’s widening
share price discount to the NAV.
Lindsell Train Limited
For the third time in four calendar years LTL’s core strategies, Global, UK,
Japan and North America, underperformed their comparative benchmark indices.
The market’s direction has increasingly been dictated by a narrow range of
technology companies. This has played into the hands of passive strategies,
which have continued to take market share from all active managers including
LTL. Whilst there is no knowing how long this phase can continue, we are
reassured that the key business fundamentals of LTL’s portfolios, such as
the average underlying return on equity of its companies, remains superior to
the benchmark indices against which it is compared. In time these fundamentals
should win through, bringing a sustained improvement in absolute and relative
performance. Until that happens, it is understandable that, in such a
competitive industry, some clients are attracted to today’s better
performing strategies.
These pressures on LTL’s business have resulted in clients withdrawing
funds. All LTL’s pooled funds, except for North America, its smallest, have
shrunk in size and some segregated clients have terminated mandates. FUM
outflows over the year to 31 January 2024 amounted to £3.4bn (2023: £2.9bn)
with funds under management falling to £15.9bn. LTL now has 21 client
relationships (funds and segregated mandates) down from 22 at 31 January 2023.
FUM has however fallen more within LTL’s pooled funds that now make up 62%
of FUM.
Whilst the fall in FUM has led to a decline in revenues, it is reassuring to
see that the Company’s salary and bonus cap has helped to ensure that
overall costs have declined proportionately and operating profit margins
remain constant at above 65%. Over the year there have been some important
generational changes within the company. A new leadership team is evolving at
LTL with the appointment of James Bullock, Jessica Cameron and Joss Saunders
as LTL directors. Nick Train and Michael Lindsell remain at the heart of the
business but there is no doubting the direction of travel. The future lies
with a new generation of leaders and their lieutenants. Reflecting these
changes, variable remuneration paid to Nick and Michael in the year to 31
January 2024 fell 66% and accounted for 16% of LTL’s total remuneration.
Profit share and one-off payments to these new directors and other key staff
increased 103% to 40% of the overall remuneration. Half of these payments
(virtually all of them after accounting for tax) were mandated to fund the
purchase of LTL shares from Nick, Michael and the Company, helping to
accelerate the transfer of ownership to potential successors. From LTL’s
current financial year at least 17% of its net profits will be paid in this
way to seven members of this upcoming generation.
The changes outlined above represent part of a long-term plan to ensure that
the Company remains true to the investment and business principles first
enshrined by Nick and Michael. It is important that clients who have committed
their savings to LTL for multi-year periods know that the approach they first
accessed remains consistent even if the personnel change. Certainly the Board,
as a client and co-investor in LTL, is reassured by the changes made, the
progress of succession and the constancy of how LTL invests.
That constancy, together with all the nuances surrounding it, is outlined in
Nick’s Manager Review that follows. In it he describes an optimistic and
encouraging outlook for the quoted assets which the Company owns. It is
self-evident that this optimism also extends to LTL as similar assets underlie
all its client portfolios.
The Valuation of Lindsell Train Limited
The valuation methodology was last amended at 31 March 2022, having taken
professional advice, and is unchanged since. It is based on a percentage of
LTL’s FUM, with the percentage applied adjusted to reflect the ongoing
profitability of LTL. Using this methodology the Company’s holding in LTL
was valued at £69m as at 31 March 2024 (2023: £85m). The Board took further
professional advice in January 2024 which confirmed that the methodology
adopted in 2022 remains valid.
As part of its regular valuation, the Board compares LTL’s value with other
quoted fund management companies. What stands out is LTL’s profitability
that in almost all cases is higher than its peers. Furthermore, LTL retains
considerable financial flexibility and optionality with cash resources of
£108m in addition to the £7.6m invested in the LT North American Fund as at
31 January 2024.
The Company’s Dividend
An important consequence of the fall in LTL’s FUM and the contraction of its
business is the concomitant decline in LTL’s dividend paying capacity. This
is a risk my predecessor consistently warned about in past annual statements.
In the year to 31 March 2024 LTL’s dividend accounted for 80% of the
Company’s revenues, down slightly from 84% a year earlier. Such a
significant dependence on LTL, much more than the 33.6% (2023: 40.3%) which it
makes up of the Company’s NAV, means that it has an overwhelming influence
on the Company’s dividend paying potential.
In framing its dividend policy, the Company has always assumed that retaining
as much net income as allowable within the Company is preferable and more tax
efficient for the Company’s shareholders. This principle runs alongside the
Board’s desire to see the Company’s dividends grow as returns compound the
increasing value of the underlying investments.
In the current year, owing to the decline in the Company’s net revenue after
taxation, the Board has decided to pay an unchanged ordinary dividend of
£51.50 per share. Like last year, the Company will omit paying a special
dividend as LTL earned no performance fees in the year to 31 January 2024. In
maintaining the Company’s dividend, it will pay out all of its retained
earnings in the year to 31 March 2024 and will utilise £86,000 or just 0.4%
of revenue reserves earned in prior years.
To maintain or grow the Company’s dividend in the future is likely to
require a combination of factors, notably a material improvement in LTL’s
relative performance, a stabilisation in LTL’s FUM and consequent growth in
its cash flow together with the continued compounding of the Company’s
investments. That will be asking a lot over the next year and the Board will
need to see evidence of this materialising before utilising more revenue
reserves in order to maintain the Company’s dividend in 2025.
Board Changes
During the year the Board was delighted to welcome David MacLellan who was
appointed Chairman of the Audit Committee in August 2023 following a formal
recruitment process. A resolution proposing his election together with
resolutions for those Directors standing for re-election will be put to
Shareholders at the forthcoming Annual General Meeting.
Julian Cazalet resigned as the Chairman of Board in December 2023 as part of
the normal succession process.
I would like to take this opportunity to thank Julian for his considerable
contribution to the Company during his nine years as a director, of which
eight were as the Chairman of the Board. He brought an in-depth knowledge of
the investment trust sector, together with extensive experience of wider
financial markets, wisdom, understanding and sound common sense to all his
actions and decisions whilst on the Board. We wish him well in the future.
The Annual General Meeting (“AGM”)
This year the AGM will be held at 2.30 p.m. on Wednesday, 4 September 2024, at
the Marlborough Suite, St Ermin's Hotel, 2 Caxton Street, London, SW1H 0QW. As
well as the formal proceedings, there will be an opportunity for shareholders
to meet the Board and the Investment Manager who will give an update on the
Company’s strategy and its investments. Like last year voting will be
conducted via a poll and the Board encourages all shareholders to exercise
their right to vote and to register their votes online in advance. Registering
your vote in advance will not restrict shareholders from attending and voting
at the meeting in person should they wish to do so. As investors we demand
high standards of corporate governance from the companies we own in the
Company’s portfolio and we urge all shareholders to follow suit and vote on
the resolutions proposed, as we the Directors intend to do ourselves.
Considerations for the Future
There is no doubt that the challenges which the Company and LTL face are
considerable but they are not intractable. Throughout this difficult period of
performance LTL has kept true to its investment disciplines. It owns a limited
number of holdings in great businesses which rarely, if ever change; this
allows the underlying companies to do the job of compounding earnings and
value over time. It is a differentiated approach that stands out against the
crowd and is one that has generated above average return for LTL’s clients
for significant periods of time in the past and the Board believes will
continue to do so in the future.
Roger Lambert
Chairman
11 June 2024
Portfolio Holdings at 31 March 2024
(All ordinary shares unless otherwise stated)
% of Look through
Fair value net basis % of
Holding Security £’000 assets net assets†
6,378 Lindsell Train Limited 69,002 33.6 33.6
235,000 London Stock Exchange 22,302 10.9 11.1
12,500,000 WS Lindsell Train North American 19,624 9.6 –
Equity Fund Acc*
410,000 Nintendo 17,574 8.6 8.6
425,000 Diageo plc 12,433 6.0 6.3
363,000 RELX 12,429 6.0 6.3
222,000 Unilever 8,825 4.3 4.5
149,980 Mondelez International 8,306 4.0 4.4
1,263,393 A.G. Barr 7,353 3.6 3.6
89,000 Heineken 5,688 2.8 2.8
96,800 PayPal 5,131 2.5 2.8
39,099 Laurent Perrier 4,011 1.9 1.9
420,000 Finsbury Growth & Income Trust* 3,612 1.8 –
117,191 Universal Music Group 2,792 1.4 1.4
Indirect Holdings – – 9.6
Total Investments 199,082 97.0 96.9
Cash & Other net current assets 6,203 3.0 3.1
Net Assets 205,285 100.00 100.00
† Look-through basis: Percentages held in each security are adjusted upwards
by the amount of securities held by LTL managed funds owned by the Company. A
downward adjustment is applied to the fund‘s holdings to take into account
the underlying holdings of these funds. It provides shareholders with a
measure of stock specific risk by aggregating the direct holdings of the
Company with the indirect holdings held within LTL managed funds.
* LTL managed funds.
Leverage^
We detail below the equity exposure of the Funds managed by LTL as at 31 March
2024:
Net Equity Exposure
WS Lindsell Train North American Equity Fund Acc 98.7%
Finsbury Growth & Income Trust PLC 101.1%
^ See glossary.
Analysis of Investment Portfolio at 31 March 2024
Breakdown by Location of Listing
(look-through basis)^
UK* 66.0%
USA 16.1%
Japan 8.6%
Europe excluding UK 6.2%
Rest of World 0%
Cash & Other net current assets 3.1%
100.0%
Breakdown by Location of Underlying Company Revenues
(look-through basis)^
USA** 31.3%
Europe excluding UK** 25.1%
UK** 24.7%
Rest of World 12.5%
Japan 3.3%
Cash & Other net current assets 3.1%
100.0%
Breakdown by Sector
(look-through basis)^
Financials 49.8%
Consumer Staples 25.4%
Communication Services 11.5%
Industrials 7.4%
Information Technology 2.3%
Consumer Discretionary 0.4%
Health Care 0.1%
Cash & Other net current assets 3.1%
100.0%
^ Look-through basis: this adjusts the percentages held in each asset class,
country or currency by the amount held by LTL managed funds. It provides
shareholders with a more accurate measure of country and currency exposure by
aggregating the direct holdings of the Company with the indirect holdings held
by the LTL funds.
* LTL accounts for 33.6% and is not listed.
** LTL accounts for 14 percentage points of the Europe figures, 15 percentage
points of the UK figures, 4 percentage points of the USA figures and 0
percentage point of the RoW figure.
Manager’s Report
At the half year I gave a review of the strategic investment case for ten of
these direct equity holdings. Rather than repeat those reviews in this report,
I instead give an update on developments for each holding over the most recent
six-month period, including an account of why we initiated a new position in
Universal Music Group. With one exception (Laurent-Perrier) each of the eleven
is also a holding in our Global and/or UK strategies. This means their
performance is important not just for your portfolio but, more broadly, for
the rest of LTL.
Over the six months to 31 March 2024, two of the eleven were down, with the
worst faller down c.4%, two were effectively unchanged and the remainder up
between c.5 and 30%. Overall, rather encouraging.
The two fallers were Diageo (-3.6%) and Unilever (-2.1%).
Diageo unpleasantly surprised investors including us, in Q4 2023 with news
that its Latin American business (c.11% revenues) was suffering an unexpected
and marked contraction. Six months later the situation there seems to be
stabilising. What has proven a longer-lasting drag on Diageo’s share price
is the slowing growth in its biggest geography, the United States. Here
consumers have felt the pinch from higher interest rates and, at the margin,
traded down their spirits consumption to more “value” brands. This has
impinged on Diageo, given its strong growth in the US since Covid-19 had been
driven by its higher price and higher profit margin premium brands.
Nonetheless, it is important to note here that, at the global level,
Diageo’s revenues were c.$15 billion in 2020. This year, a
“disappointing” year, we expect they should be over $20 billion. In other
words, Diageo has grown notably since 2020 and will continue to grow. Just not
in a straight line. We are also sure that this orientation of Diageo’s
product portfolio towards premium brands is beneficial for investors over
anything but the short term and look to US consumer confidence to rebuild as
that economy grows.
Unilever’s price fall is, we think, a sign of investors’ doubts about the
willingness or ability of its board to take actions to unlock the value that
most observers, including us, see in its global brands and distribution
networks. Notwithstanding the share price weakness, we are encouraged by the
air of urgency and competence being displayed by Unilever’s new CEO, CFO and
Chairman (all appointed in 2023) and hope that they can deploy the company’s
strong balance sheet and cash flows in a way that reignites growth and
restores investor confidence, including improving the current lowly rating of
its shares.
The two effectively unchanged share prices were Laurent-Perrier and Mondelez.
Laurent-Perrier’s current year revenues are forecast to be barely up
year-on-year, for similar reasons to Diageo – in 2023/4 consumers are, at
the margin, drinking less highest quality alcoholic beverages. But also like
Diageo, it is important to consider that Laurent-Perrier’s revenues this
year will be still c.25% higher than those of 2020. The trend towards global
consumers drinking lower volumes of alcohol, but instead drinking more
premium, high quality products continues and should be beneficial for the
owners of iconic premium brands like Laurent-Perrier or Johnnie Walker.
Mondelez has continued to meet or exceed most analysts’ expectations for
business and earnings growth (and our own expectation). Last year organic
revenues were up over 14%, reported adjusted earnings per share grew at 19%
and the dividend was up 10%. More growth is forecast for this year. Perhaps
the current 20x earnings might be considered a fair valuation for Mondelez
shares and this explains the dull recent share price. To us, however, the
reliability of the brands and the growing cash they generate argues for a
higher valuation. We would not consider selling an asset of this calibre below
30x!
The shares that made money for their owners in local currency terms over the
last six months were Heineken (4.8%), PayPal (14.6%), London Stock Exchange
Group (“LSEG”) (15.3%), A.G. Barr (18.5%), RELX (23.4%) and Nintendo
(31.6%).
Confidence in Heineken’s earnings power is gradually recovering, as
commodity prices subside, but we expect there will need to be an acceleration
in beer consumption across the company’s emerging market footprint,
particularly in its Asian strongholds, before the shares really rerate.
PayPal shares have recovered from recent lows, but are still ostensibly lowly
valued at 12x estimated forward earnings. It is reassuring to see the board
responding to that low valuation by retiring shares; buying back $5 billion
last year and proposing to match that figure in 2024. Those are sizable sums
in the context of PayPal’s current c.$67 billion market capitalisation. For
us to add to our holding, however, we need to see more evidence of the success
of the new products PayPal is bringing to market – tools to streamline
e-commerce transactions for vendors and consumers. We continue to monitor
PayPal closely.
LSEG’s shares have also recovered from their lows of 2022, up nearly 50%
since then, but are still a few per cent below the all-time high they hit in
2021, just before the completion of its merger with Refinitiv. That merger has
gone well and we hope LSEG’s shares can hit new highs, particularly once the
benefits of its recent joint venture with Microsoft become apparent, with
product launches due in the second half of 2024.
A.G. Barr’s shares have rallied after a period of torpor; they had gone
sideways since 2019. The rally reflects a number of factors. Most important,
this well-run soft drinks manufacturer generates steady operating margins and
a Return on Capital in the mid-teens – 16% and 18% respectively at the
recent interim results. These returns allow the company to generate cash, on
top of its existing net cash and debt free balance sheet. That cash has been
used to support existing brands, but also to acquire new ones, which can
benefit from the company’s manufacturing and distribution capabilities and
its marketing nous. The departing CEO, Roger White, has done an outstanding
job for shareholders. If his successor can build on this legacy of growing,
profitable brands and a pristine balance sheet, investors can hope the shares
will build on their recent gains.
RELX continues to impress investors with the consistency not only of its
growth, but its adherence to a clearly articulated strategy. That strategy is
making RELX data services ever more valuable to the global scientific, legal
and insurance industries. This is one of the biggest holdings we have at LTL
and we believe it can be a big driver of returns for both our Global and UK
portfolios.
Nintendo’s share price reflects mingled excitement and impatience about the
timing of the launch of its next gaming console – probably to be released in
early 2025. Sales of the current one, Switch, have exceeded all expectations
and its success has allowed Nintendo to sell more copies of its first-party
game software (which is where it earns the richest profits) than ever before.
As with Apple, there is always a degree of apprehension before the release of
a next generation device – can it possibly match or beat the success of its
predecessor? All one can say are that the portents are good. Nintendo shares
have proven to be a good proxy for the multi-decade increase in popularity of
interactive entertainment. As each generation of gamers grows in size and with
the promise of technology enhancing the gaming experience even more,
Nintendo’s centrality to the industry looks ever more strategically valuable
to us. A P/E of 18x for this franchise seems modest.
Universal Music Group’s (“UMG”) share price also rose over the last six
months, up 12.7%, while we continued to accumulate a holding. The paragraph
that follows provides our summary justification for making this investment.
The shares have now moved back toward the upper end of their post-IPO trading
range, but that means all the potential alluded to below remains still to
come.
UMG stands out for its impressive oligopolistic position (which importantly is
effectively global). As the world’s leading record label, built through a
generation of consolidation (MCA and Decca, arguably UMG’s predecessors,
were founded in 1924 and 1929 respectively), UMG controls roughly a third of
the planet’s recorded music (ahead of the other two ‘majors’ Sony on
c.23% and Warner on c.16%), curating, producing, and promoting artists. On top
of this, as a publisher, UMG holds nearly a quarter of all written songs (just
behind Sony’s c.25%, and ahead of Warner’s 12%). Spun out from Vivendi as
an independent listed entity in 2021, backed by major strategic shareholders
such as Tencent and Bill Ackman/Pershing Square, the shares languished for
three years. Despite a torrent of good news (including enhanced distribution
agreements) they still trade near their 2021 IPO price.
This perhaps reflects over-optimism at float. However, estimated FY23 sales
and operating profit were c.50% higher than in FY19, taking UMG’s adjusted
forward P/E ratio to a mid-20s level. Music is ingrained and integral to the
daily life of swathes of humanity, with engagement levels rising as new
distribution channels widen access. Monetisation (though not consumption) has
eluded the industry at times in the past, but these issues appear well
resolved by growing subscription services, with new markets (such as video
games or social media) also emerging. As core content owners and market
leaders UMG holds a uniquely strong hand. The importance of this dominance is
clear, given that globally the top 1% of artists represent 90% of music
streams. If management can embrace these tailwinds and execute on analyst
expectations for low double-digit growth, this should prove an attractive
entry point.
In summary, we believe your portfolio (and by extension other LTL portfolios)
comprise a combination of companies remarkable for their strong consumer
brands or unique intellectual property. Such companies have generated
attractive investment returns for patient owners over many decades and we see
no reason to expect coming ones to be any different.
Nick Train
Investment Manager
Director,
Lindsell Train Limited
11 June 2024
Performance and Prospects
The Board continues to support fully the Manager's strategy and firmly
believes that it will continue to deliver strong investment returns over the
long term.
This is supported by the Company's performance since inception (21 January
2001) with a net asset value per share total return^ of 12.7% compared with a
total return from the Company's combined benchmark index of 7.1% both
calculated on an annualised basis.
The Directors provide an explanation in the Viability Statement as to how they
have assessed the prospects of the Company, over what period they have done so
and why they consider that period to be appropriate.
Key Performance Indicators (“KPIs”)
The Board reviews the performance of the portfolio in detail and is presented
with the views of the Manager at each meeting. Information on the Company’s
performance is provided in the Chairman’s Statement and the Manager's
Report. This performance is assessed against the following KPIs: Net Asset
Value Total Return, Share Price Total Return and Dividend per Ordinary Share.
The KPIs are unchanged from the prior year.
Net Asset Value Total Return^ and Share Price Total Return^ are compared with
the benchmark and provide the key performance indicators for assessing the
development and performance of the Company.
31 March 2024 31 March 2023 % Change
NAV total return ^† +2.1% -0.4%
Share price total return ^† -19.8% -0.7%
Benchmark (MSCI World Index in Sterling) † +22.5% -1.0%
Recommended final dividend per Ordinary Share £51.50 £51.50 –
Recommended special dividend per Ordinary Share – – –
^ Alternative Performance Measure (see Glossary).
† These are percentage change figures for the year to 31 March.
Please see Glossary of Terms for an explanation of terms used.
Alternative Performance Measures (“APMs”)
The Board believes that each of the APMs, which are typically used within the
Investment Trust Sector, provides additional useful information to
shareholders in order to assess the Company’s performance between reporting
periods and against its peer group. The measures used for the year under
review have remained consistent with the prior year.
Discount/premium to NAV^
The Board regularly reviews the level of the discount/premium of the
Company’s share price to the net asset value per share and considers ways in
which share price performance may be enhanced, including the effectiveness of
share buybacks, where appropriate. Any decision to repurchase shares is at the
discretion of the Board.
Dividend Yield^
The Directors regard the Company’s dividend yield to be a key indicator of
performance. The dividend yield measures the gross income receivable based on
the payment of the historic dividend per share expressed as a percentage of
the Company’s current share price.
Ongoing Charges^
Ongoing charges represent the costs that shareholders can reasonably expect to
pay from one year to the next, under normal circumstances. The Board continues
to be conscious of expenses and works hard to maintain a sensible balance
between high quality service and the cost of provision.
NAV Total Return^
The Directors regard the Company’s net asset value per share total return as
being the overall measure of value delivered to shareholders over the long
term. The Board considers the principal comparator to be the MSCI World Index
Total Return (Sterling adjusted).
Share Price Total Return^
The Directors also regard the Company’s share price total return to be a key
indicator of performance. This reflects share price growth of the Company
which the Board recognises is important to investors.
^ Further information on each of the Alternative Performance Measures and the
basis of their calculation can be found in the Glossary.
31 March 2024 31 March 2023
Discount to NAV 22.0% 0.4%
Dividend yield 6.4% 4.9%
Ongoing charges 0.8% 0.9%
NAV total return +2.1% -0.4%
Share price total return -19.8% -0.7%
Principal Risks, Emerging Risks and Risk Management
The Board is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established procedures to
manage risk, to review the Company’s internal control framework and to
establish the level and nature of the principal risks the Company is prepared
to accept in order to achieve its long-term strategic objective. At least once
a year the Audit Committee carries out a robust assessment of the principal
and emerging risks. Further information is provided in the Audit Committee
Report beginning on page 59 of the Annual Report. These principal risks and
the ways they are managed or mitigated are set out below.
The Board’s policy on risk management has not materially changed during the
course of the reporting period and up to the year end.
The Company's Approach to Risk Management
Change in inherent risk assessment over the last financial year: No change,
Decreased, Increased and New risk included during the year.
Change Principal Risks and Uncertainties Key Mitigations
Corporate Strategy The Board may have to reduce the Company’s dividend. 80% of the Company’s income is represented by dividends from LTL. If LTL’s funds under management fall the Company’s dividend paying potential could be negatively impacted. The Board reviews at every Board meeting the investment portfolio, income forecasts and levels of available revenue reserves prepared by the Company Secretary. Sufficient dividends are paid to maintain investment trust status. The Company has retained revenue reserves, which can be used to supplement dividend payments in the event of a short-term reduction in net revenue. In the event of a
sustained fall in LTL’s FUM and its dividend paid to the Company, the Company’s dividend would have to be adjusted downwards.
The Company’s share price may differ materially from the NAV per share resulting in the shares trading at either a premium or a discount to NAV. Regular consideration is given to the share price premium or discount to NAV per share and the Company has authority to buy back shares and hold in treasury.
Investment Strategy and Activity The departure of a key individual at the Manager may affect the Company’s performance. The Board keeps the investment management arrangements under continual review. In turn, the Manager reports on developments at LTL, including succession and business continuity plans. The Board meets with other members of the wider team employed by the Manager. Key-man insurance has been secured by the Company to help mitigate this risk. The Board is also encouraged by the continued
development of the investment management team at LTL who are now taking on greater responsibility at a more senior level.
The investment strategy adopted by the Manager, the high degree of concentration of the investment and other factors, may lead to a long-term investment return that is materially lower than the Company’s comparator benchmark index, and a possible failure to achieve the Company’s investment objective. The Board regularly discusses with the Manager the structure of the portfolio, including asset allocation and portfolio concentration. The Board reviews the performance of the portfolio against the benchmark at every meeting.
The adverse impact of climate change on the portfolio companies’ operational performance. The Board receives quarterly ESG updates, which include an update on any climate change related engagement, from the Manager.
The Board monitors the Manager on ESG matters to ascertain that the portfolio companies are acting in accordance with the
Manager’s ESG approach. The Manager is a signatory to the UK Stewardship Code and actively engages with portfolio companies on
ESG matters including climate change. LTL developed its own methodology to assess the carbon impact of the portfolio. LTL became
a signatory of Net Zero Asset Managers (“NZAM”) in December 2021. This reflects LTL's enhanced efforts as a firm to support the
goal of net zero greenhouse gas emissions by 2050. Details of the Company’s and Manager’s ESG policies together with the
weighted average carbon intensity of the portfolio companies are set out on pages 26 to 31 of the Annual Report.
The investment in LTL becomes an even greater proportion of the overall value of the Company’s portfolio. The Board holds quarterly discussions with the Manager at each Board meeting. Consideration is given during a strategy meeting
to the prospects of LTL and subsequent impact on the Company. The Board receives monthly compliance reports from the Company
Secretary which monitor compliance with the investment restrictions.
Operational Adverse reputational impact of one or more of the Company’s key service providers which, by association, causes the Company reputational damage. The Board has appointed reputable service providers who are well experienced in the investment trust sector. Individual
Directors are well connected in the investment market and investment company sector and thereby keep themselves appraised of
developments in the sector. The Manager and the Company Secretary provide regular news updates on all matters affecting the
Company. The Board undertakes an annual review of the level of service provision of the service providers.
Financial Fraud (including unauthorised payments and cyber fraud) occurs leading to a loss. The Manager and the Company Secretary have in place robust compliance and risk monitoring programmes. The Board receives monthly
compliance reviews and quarterly expenses analysis. An annual statement is obtained by the Audit Committee from all service
providers giving representations that there have been no instances of fraud or bribery.
The Company is exposed to credit risk. The Manager is responsible for undertaking reviews of the creditworthiness of the counterparties that it uses. All business with
respect to portfolio activity is conducted through selected brokers on a delivery versus payment basis thereby minimising
exposure to broking counterparties. Further information on financial instruments and risk can be found in note 17 to the
Financial Statements.
The Company is exposed to market price risk. The Directors acknowledge that market risk is inherent in the investment process as the Manager maintains a concentrated
portfolio of securities. The Board has imposed guidelines within its investment policy to limit exposure to individual holdings.
The Company Secretary reports to the Board with respect to compliance with investment guidelines on a monthly basis. The Manager
provides the Board with regular updates on market movements. No investment is made in derivative instruments and no currency
hedging is undertaken. Further information on financial instruments and risk can be found in note 17 to the Financial
Statements.
Accounting, Legal and Regulatory The Company and/or the Directors fail(s) to comply with its legal requirements in relation to FCA dealing rules/handbook procedures, the Listing Rules, the Companies Act 2006, relevant accounting standards, the Bribery Act 2010, the Criminal Finances Act 2017, the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”), GDPR, tax regulations or any other applicable regulations. The Board monitors regulatory changes with the assistance of the Company Secretary, the Manager and external professional
advisers to ensure compliance with applicable laws and regulations. The Board reviews compliance reports and internal control
reports provided by its service providers, as well as the Company’s Financial Statements and revenue forecasts. The Company
Secretary presents a quarterly report on changes in the regulatory environment and how and when changes are to be addressed. As
a member of the AIC, the Board receives regular technical updates which highlight forthcoming compliance obligations and
regulatory issues.
The regulatory environment in which the Company operates changes, affecting the Company's business model. The Board monitors the regulatory environment with the assistance of its Company Secretary, Manager and external professional
advisers to ensure that the Board is aware of any likely changes in the regulatory environment and will be able to adapt as
required.
The Company’s valuation of its investment in LTL is materially misstated. The Board approves the monthly valuation of the Company's Investment. An audit of LTL’s valuation is conducted annually by a
leading independent external audit firm. J.P. Morgan Cazenove Ltd undertook an independent review of the Company’s valuation
methodology applied to its unlisted investment in LTL during 2022. The appropriateness of the valuation methodology was reviewed
by the Board and J.P. Morgan Cazenove Ltd during the year. The Manager and the Company Secretary report to the Board at every
meeting. An internal controls report is produced by the Company Secretary on an annual basis covering controls over valuation
and release of weekly net asset value per share.
Emerging Risks
The Audit Committee regularly reviews the risk register. Mitigations, the
scoring of each risk and any emerging risks are discussed in detail as part of
this process to ensure that emerging as well as known risks are identified
and, so far as practicable mitigated.
The experience and knowledge of the Directors is useful in these discussions,
as are update papers and advice received from the Board's key service
providers such as the Manager and the Company Secretary. In addition, the
Company is a member of the AIC, which provides regular technical updates as
well as drawing members' attention to forthcoming industry and/or regulatory
issues and advising on compliance obligations.
Current identified emerging risks are as follows:
Emerging Risks and Uncertainties Key Mitigations
Emerging Risks Geopolitical and macroeconomic conflicts, whether they be political, economic or military, introduce new risks and exacerbate existing risks. such as: disruptions to supply chains, operations and markets for investee companies both as a direct result of conflict and as result of economic sanctions; prolonged inflation and elevated interest rates, slowing global economic growth and the fear or presence of recession; increased market volatility and reduced investor risk appetites; and increased threat of state sponsored cyberattacks. While presenting investment opportunities, the rapid development of new technologies, such as artificial intelligence, may disrupt the markets and operating models of the companies in which the Company invests, damaging their potential investment returns. The Manager monitors portfolio construction, performance and liquidity to assess and manage the impact of increased market volatility on the listed portfolio and on the Company’s holding in LTL. The Manager monitors the impact of the continued war in
Ukraine and the effect of sanctions against Russia; the conflict in the Middle East and tensions between China and the West. The Company’s investment approach means that it owns companies with strong brand equity and pricing power making them more able to
pass on cost increases and mitigate the effects of inflation on portfolio holdings. The Board reviews regular internal control reports from its key service providers that include cyber defences and other mitigants against unauthorised network access. In
view of the number of extraordinary and unpredictable events in recent years, the Board considered that the likelihood of the emerging risks identified due to geopolitical and macroeconomic conflicts had increased.
The Audit Committee will continue to review newly emerging risks that arise
from time to time to ensure that the implications for the Company are properly
assessed and mitigating controls introduced where necessary.
Future Developments
The Board’s primary focus is on LTL’s investment approach and performance
both as the Company’s Manager and as an investment. The subject is
thoroughly discussed at every Board meeting.
In addition, the Company Secretary updates the Board on investor feedback, as
well as wider investment company issues.
An outline of performance, investment activity and strategy, and market
background during the year, as well as the outlook, is provided in the
Chairman's Statement and the Manager's Report.
It is expected that the Company’s strategy will remain unchanged in the
coming year.
Long-Term Viability Statement
The Directors have carefully assessed the Company’s financial position and
prospects as well as the principal risks facing the Company and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company’s financial position and its ability to liquidate
its portfolio and meet its liabilities as they fall due and notes the
following:
• The Company has a liquid investment portfolio of UK and internationally
listed securities and funds, and has some short-term cash on deposit. These
liquid assets represent 66.4% of net assets. The other 33.6% is the unlisted
investment in LTL, which is not readily realisable.
• Based on historic analysis, excluding the holding in the LTL fund, 95.9%
of the current portfolio could be liquidated within 30 business days with
92.4% in five business days. There is no expectation that the nature of the
investments held within the portfolio will be materially different in the
future.
• With an ongoing charges ratio of 0.83%, the expenses of the Company are
predictable and modest in comparison with its assets and there are no capital
commitments currently foreseen which would alter that position.
• Revenue expenses of the Company are covered more than five times by
investment income.
• The closed-ended nature of the Company means that, unlike an open-ended
fund, it does not need to realise investments when shareholders wish to sell
their shares.
• The founder directors of LTL, in which the Company holds 23.9%, have
given their verbal assurance that they remain committed to LTL for at least
seven years on a rolling basis.
• The Company has decided not to use gearing.
• The Company has no employees, only its non-executive Directors.
Consequently it does not have any potential redundancy or other employment
related liabilities or responsibilities.
The Directors, as well as considering the potential impact of the principal
risks and various severe but plausible downside scenarios, have also made the
following assumptions in considering the Company’s longer-term viability:
• The Board and the Investment Manager will continue to adopt a long-term
view when making investments, and anticipated holding periods will be at least
five years.
• Regulation will not increase to a level that makes running the Company
uneconomical.
The Board’s long-term view of viability will, of course, be updated each
year in the Company’s Annual Report.
Stakeholder Interests and Board Decision Making (Section 172 of the Companies
Act 2006)
The following disclosure, which is required by the Companies Act 2006 and the
AIC Code, describes how the Directors have had regard to the views of the
Company's stakeholders in their decision making.
Stakeholder Group The benefits of engagement with the Company's stakeholders How the Board, the Manager and the Company Secretary have engaged with the Company's stakeholders
Investors The Board recognises the importance of communication with shareholders. Clear communication of the Company’s strategy and the performance against the Company’s objective can help maintain demand for the Company’s shares. The Board and the Manager receive shareholder feedback directly from shareholders or from the appointed broker. An analysis of the Company’s shareholder register is
provided to the Directors at each Board meeting. Shareholders have access to the Board, directly and via the Company Secretary, throughout the year. These communications
help the Board make informed decisions when considering how to promote the success of the Company for the benefit of shareholders over the long term. Key mechanisms of
engagement include: • The Annual General Meeting. • The Board will explain in its announcement of the results of the Annual General Meeting the actions it intends to take
to consult shareholders in order to understand the reasons behind any significant votes against. Following the consultation, an update will be published no later than six
months after the Annual General Meeting and the Annual Report will detail the impact the shareholder feedback has had on any decisions the Board has taken and any actions
or resolutions proposed. • The Company’s website which hosts monthly reports and Annual and Half-year Reports. • One-on-one investor meetings as required. • Group
meetings with professional investors as required.
Manager Engagement with the Company’s Manager is necessary to evaluate its performance against the Company’s stated strategy and to understand any risks or opportunities this may present. The Board monitors the Manager’s approach to environmental, social and governance (“ESG”) issues. Engagement also helps ensure that investment management costs are closely monitored and remain competitive. The Chairman’s Statement and Appendix 3 describe the key decisions taken during the year relating to LTL. The Board meets regularly with the Company’s Manager throughout the year both formally at the quarterly Board meetings and informally as needed. The Board and Manager
communicate regularly outside these meetings to ensure a collegiate approach. Furthermore, Michael Lindsell is a Director of both the Company and of the Manager. The aim
is to maintain a strong relationship between the Board and Manager when considering the interests of the Company’s stakeholders, whilst upholding the Company’s values.
The Manager’s attendance at each Board meeting also provides the opportunity for the Manager and Board to further reinforce their mutual understanding of what is expected
from both parties. The Manager’s performance is evaluated informally on a regular basis, with a formal review carried out on an annual basis by the Management Engagement
Committee. The Investment Management Agreement is reviewed as part of this process. The Audit Committee review the Manager's internal controls and governance policies on
an annual basis.
Service Providers As an externally managed investment company, the Company has no employees, customers, operations or premises. Therefore, the Company's key stakeholders (other than its shareholders) are considered to be its service providers. The Company contracts with third- parties for other services including: Company Secretary and Administrator, Registrar and Custodian. The Company ensures that the third-parties to whom the services have been outsourced complete their roles in line with their service level agreements and are able to continue to provide these services, thereby supporting the Company in its success and ensuring compliance with its obligations. The Board and the Company Secretary engage regularly with other service providers both in one- to-one meetings and via regular written reporting. This regular interaction
provides an environment where topics, issues and business development needs can be dealt with efficiently and collegiately. The Board maintains regular contact with the
Company’s key service providers as well as carrying out a review of the service providers’ business continuity plans and additional cyber security provisions. The key
service providers’ performance is evaluated by the Management Engagement Committee on an annual basis, or more often if appropriate. The terms and conditions underlying
the relationship between the service providers are reviewed as part of this process. This approach is taken to enhance service levels and strengthen relationships between
the Company and its providers to ensure the interests of the Company’s stakeholders are best served by maintaining a high level of service whilst keeping costs
proportionate.
Portfolio companies The Manager invests in a concentrated portfolio of durable business franchises with the intention of holding these positions for a considerable time. The Manager engages with the management of these companies on a periodic basis and reports its impressions on the prospects of the companies to the Board. Gaining a deeper understanding of the portfolio companies and their strategies as well as incorporating consideration of ESG factors into the investment process assists in understanding and mitigating risks of investments as well as identifying future potential opportunities. The Board encourages the Company’s Manager to engage with companies and in doing so expects ESG issues to be a key consideration. The Board receives an update on LTL's
engagement activities within a dedicated quarterly ESG report together with quarterly updates concerning the prospects of the portfolio companies. Details of LTL's
approach to responsible ownership can be found on pages 26 to 31 of the Annual Report.
Regulators The Board ensures compliance with rules and regulations as relevant to the Company. The Company Secretary reports to the Board on a monthly basis and at each Board meeting.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
• Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. • The impact of market volatility caused by certain geopolitical events in the portfolio. • Share price performance and the Company's and wider investment trust sector discounts. • The Manager meets with shareholders as required and at the Annual General Meeting. • Shareholders are provided with performance updates via the Company's website as well as the usual financial reports and monthly manager reports. • The Board continued to
monitor share price movements closely and concluded that it was not in shareholders' best interests to utilise the share buy-back facility.
• Board Composition. • The Board has in place a refreshment programme which is reviewed annually by the Nomination Committee. During the year Julian Cazalet retired as the Chairman of the Board and Management Engagement Committee and was replaced by Roger Lambert. • Cornforth
Consulting was appointed by the Board in April 2023 to assist with the appointment of a new Audit Committee Chairman. This resulted in the appointment of David MacLellan, who joined the Board on 30 August 2023 and will offer himself for election by
shareholders at the 2024 Annual General Meeting. • To assist with succession planning and to ensure Board continuity Vivien Gould will seek re-election at the forthcoming Annual General Meeting and will retire at the conclusion of Annual General Meeting
due to be held in September 2025. In accordance with the Board's Succession Plan Vivien was previously scheduled to retire at the conclusion of the 2024 Annual General Meeting.
LTIT’s Responsible Investment Policy
The Board believes that consideration of ESG factors is important to
shareholders and other stakeholders, and has the potential to protect and
enhance investment returns.
In its Responsible Engagement & Investment Policy, the Manager states that its
evaluation of ESG factors is an inherent part of the investment process and
best practice in this area is encouraged by the Board. These factors include,
but are not limited to: “corporate strategy, operating performance,
competitive positioning, governance, environmental factors (including climate
change), social factors, remuneration, reputation and litigation risks,
deployment of capital, regulation and any other risks or issues facing the
business”.
The Board has delegated authority to the Manager to vote the shares owned by
the Company that are held on its behalf by its Custodian. The Board has
instructed that the Manager submits votes for such shares wherever possible
and practicable. The Manager is required to refer to the Board on any matters
of a contentious nature.
The Manager’s Responsible Investment and Engagement Policy has been reviewed
and endorsed by the Board. The Manager is a signatory to the United Nations
Principles for Responsible Investment and a signatory of the 2021 UK
Stewardship Code.
LTL became a signatory of Net Zero Asset Managers Initiative in December 2021.
Modern Slavery Act
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle, does not have customers.
Therefore, the Directors do not consider that the Company is required to make
a statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking. The Company’s suppliers are typically professional advisers and
the Company’s supply chains are considered to be low risk in this regard.
UK Sanctions
The Board has made due diligence enquiries of the service providers that
process the Company’s shareholder data to ensure the Company’s compliance
with the UK sanctions regime. The relevant service providers have confirmed
that they check the Company’s shareholder data against the UK sanctions list
on a daily basis. At the date of this report, no sanctioned individuals had
been identified on the Company’s shareholder register. The Board notes that
stockbrokers and execution-only platforms also carry out their own due
diligence.
Common Reporting Standard ("CRS")
CRS is a global standard for the automatic exchange of information
commissioned by the Organisation for Economic Cooperation and Development and
incorporated into UK law by the International Tax Compliance Regulations 2015.
CRS requires the Company to provide certain additional details to HMRC in
relation to certain shareholders. The reporting obligation began in 2016 and
is an annual requirement.
The Registrar, Link Group, has been engaged to collate such information and
file the reports with HMRC on behalf of the Company.
Taskforce for Climate Related Financial Disclosures (“TCFD”)
The Company notes the TCFD recommendations on climate related financial
disclosures. The Company is an investment company and, as such, it is exempt
from the Listing Rules requirement to report against the TCFD framework.
Climate reporting, at both the LTL and LTIT level, will be available from 30
June 2024 via the LTL website.
Global Greenhouse Gas Emissions
The Company is an investment trust, with neither employees nor premises, nor
has it any financial or operational control of the assets which it owns. It
has no greenhouse gas emissions to report from its operations, nor does it
have responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Reports and Directors’ Reports) Regulations
2013 or the Companies (Directors’ Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018, including those within the
Company’s underlying investment portfolio.
The Company consumed less than 40,000 kWh of energy during the year in respect
of which the Directors’ Report is prepared and therefore is exempt from the
disclosures required under the Streamlined Energy and Carbon Reporting
criteria.
The Board is aware of the continued emphasis on ESG matters in recent years.
The Manager engages with all the companies in the portfolio to understand
their ESG approach and has developed its own methodology to assess the carbon
impact of the portfolio.
LTL's Approach to Responsible Ownership
ESG integration
Seeking Sustainability
As a long-term investor, LTL aims to identify companies that can generate
long-term sustainable high returns on capital. LTL has historically found that
such companies tend to exhibit characteristics associated with good corporate
governance and responsible business practices. Indeed, LTL believes that
companies which observe such standards, and that are serious in their
intention of addressing environmental and social factors, will not only become
more durable but will likely prove to be superior investments over time.
To that end LTL’s initial analysis and ongoing company engagement strategy
seeks to incorporate all sustainability factors that they believe will affect
the company’s ability to deliver long-term value to shareholders. Such
factors may include but are not limited to; environmental (including climate
change), social and employee matters (including turnover and culture) and
governance factors (including remuneration and capital allocation), cyber
resilience, responsible data utilisation, respect for human rights,
anti-corruption and anti-bribery, and any other risks or issues facing the
business and its reputation. This work is catalogued in a proprietary database
of risk factors in order to centralise and codify the team’s views, as well
as to prioritize LTL’s ongoing research and engagement work and is
cross-referenced with the SASB Materiality Map ©.
If, as a result of this assessment, LTL believes that an ESG factor is likely
to materially impact a company’s long-term business prospects (either
positively or negatively) then this will be reflected in the long-term growth
rate that is applied in the investment team’s valuation of that company,
which alongside the team’s more qualitative research will influence any
final portfolio decisions (for example, whether LTL starts a new position or
sell out of an existing holding).
Positive/Negative Screening
As a product of LTL’s investment philosophy, it does not invest in the
following industries:
– capital intensive industries (energy, commodities or mining) or any
companies involved in the extraction and production of coal, oil or natural
gas; and
– industries that LTL judges to be sufficiently detrimental to society that
they may be exposed to burdensome regulation or litigation that could impinge
on financial returns (e.g. tobacco, gambling or arms manufacturers).
Similarly, LTL’s investment approach has steered Nick Train and the
investment team to invest in a number of companies that play an important
positive social or environmental role, for example through providing access to
educational information (e.g. RELX) or encouraging environmental progress and
developing best practice (e.g., Diageo and Mondelez). LTL believes that such
positive benefits for society should be consistent with its aim to generate
competitive long-term returns, thus helping it meet its clients’ investment
objectives.
Climate Change
The risks associated with climate change represent the great issue of our era
and the transition to a low-carbon economy will affect all businesses,
irrespective of their size, sector or geographic location. Therefore, no
company’s revenues are immune and the assessment of such risks must be
considered within any effective investment approach, particularly one like
LTL’s that seeks to protect its clients’ capital for decades to come.
As a relatively small company with a single office location and fewer than 30
employees, LTL’s climate exposure comes predominantly from the investment
portfolios that it manages on behalf of its clients. LTL recognises the
systemic risk posed by climate change and the potential financial impacts
associated with a transition to a low-carbon economy.
To help address this, LTL became a signatory of the Net Zero Asset Managers
(NZAM) initiative in December 2021, which affirms its commitment to support
the goal of net zero greenhouse gas emissions by 2050 or sooner. In line with
this ambition, LTL published a 2030 interim target in Q4 2022 which has since
been approved by the Institutional Investors Group on Climate Change
(‘IIGCC’). LTL felt it was most appropriate to set a Portfolio Coverage
Target and has duly targeted 55% of its asset-weighted committed1 assets to be
considered Aligned2 by 2030, as set out by the PAII Net Zero Investment
Framework. This represents a circa 50% improvement from its baseline of 36% of
assets being Aligned as of 2022, consistent with a fair share of the 50%
global reduction in CO2 identified as a requirement in the Intergovernmental
Panel on Climate Change (‘IPCC’) special report on global warming of
1.5°C.
LTL also supports the recommendations of the Task Force on Climate-Related
Financial Disclosures (“TCFD”) and its efforts to encourage companies to
report their climate related disclosures and data in a uniform and consistent
way. Further information on LTL’s TCFD related disclosures can be found in
its 2023 TCFD Report, which can be found on LTL’s website:
www.lindselltrain.com.
1 Committed assets are currently 94% of LTL's total AUM. The assets that were
excluded relate to segregated clients that either declined to have their
assets included at this time or did not respond by the required deadline.
There is scope to increase the level of committed assets over time.
2 Aligned status, as set out by the PAII Net Zero Framework, has prescribed
requirements of the portfolio companies, including; 1) Setting short and
medium term emission reduction targets, 2) Monitoring emission intensity
performance relative to those targets, and 3) Disclosure of scope 1, 2 and 3
emissions. For higher impact sectors, further criteria are required to be
categorised as Aligned.
Further, using Morningstar’s carbon metrics calculations, LTL is pleased to
note that LTIT’s listed equity holdings have a significantly lower weighted
average carbon intensity than its comparable benchmark.
Stewardship
Engagement
Engaging with and monitoring investee companies on matters relating to
stewardship has always been an essential element of LTL’s investment
strategy. Its long-term approach generally leads it to be supportive of
company management. However, where LTL disagrees with a company’s actions,
it will try to influence management on specific matters or policies if LTL
believe it is in the best interests of its clients. Constructive dialogue has
more often than not resulted in satisfactory outcomes, thus limiting the need
for escalation. However, where this is not the case, LTL will consider
escalating its engagement and stewardship activities.
During the year, on a look-through basis (i.e. including positions held by LTL
managed funds owned by the Company), LTL engaged with 27 companies held within
the Company’s portfolio on a wide range of environmental, societal and
governance related issues, as detailed in the chart below. Moreover, to ensure
that the 2030 net zero interim target remains achievable, LTL continues to
engage proactively with the management of companies it holds across its
portfolios, the aim being to understand each company’s individual goals and,
where appropriate, to provide the team’s thoughts on their road maps, with
the overall ambition of reaching an absolute reduction in global carbon
emissions. Using the data gathered to set the 2030 interim target, LTL has
been able to identify which portfolio companies should be prioritised for
engagement on their progress. LTL has engaged with management at a number of
companies in recent months and will continue to engage with all portfolio
companies to understand how they align with LTL’s net zero goals. This
includes encouraging them to set science-based targets where possible. This
initiative has been led by Madeline Wright, Deputy Portfolio Manager and Head
of Investment ESG. The information gathered from this exercise is stored,
assessed, and monitored within Sentinel, LTL’s proprietary ESG database.
Engagement by Topic
Source: Lindsell Train. 1 April 2023 to 31 March 2024. 53 topics raised with
27 companies (on a look through basis).
Key Engagement Case Studies:
Company name: Unilever
Sector: Consumer Franchises
Engagement topics: Strategy, Reputation, Environmental claims
Date of engagements: August 2023, October 2023 and December 2023
Engagement format: Calls
Reason for Engagement: In a call with CFO Graeme Pitkethly, the LTL investment
team discussed Unilever’s decision to retain its presence in Russia. It
sought justification for this decision and, whilst the team recognises that
there is no easy choice, LTL conveyed its expectation that management would
keep the situation under active review with the hope of finding the ‘least
worst’ outcome.
In October, LTL followed up with Ian Meakins, Designate Chairman. Topics
covered included their retained interest in Russia, Nelson Peltz’s presence
on the Board, as well as strategic priorities and M&A. On Russia, Ian Meakins
agreed that clarity and haste are needed. From a strategic perspective, the
focus will be on SKU rationalisation, bolstering existing high-performing
brands and targeted geographic expansion, before any more deals are done.
Unilever admit that it has overinvested in some emerging markets, in some
cases at the expense of some developed markets, and hence a more targeted
approach, with due consideration given to the translation of local currency
earnings, is required.
Further engagement took place in December when the LTL team spoke with
Unilever IR regarding the Competition & Markets Authority’s ('CMA')
investigation into its green claims. Whilst Unilever was “surprised and
disappointed”, it is not against the purpose of the exercise, in that it
upholds the need for higher standards against claims which could mislead the
consumer. Unilever have been in discussions with the CMA for some time
regarding specific claims for a small number of products, and so it was
surprised by the announcement of a formal investigation specifically targeting
only Unilever. The investigation is focussed on the use of vague and broad
language in marketing materials as well as claims about ingredients that might
exaggerate how ‘natural’ a product is. As a result, there is unlikely to
be a binary outcome. Nonetheless, it is an opportunity for Unilever to refute
claims that its new CEO, Hein Schumacher, is giving up on sustainability and
instead focus consumer and investor attention on progress made on its four
sustainability priorities (plastic, climate, nature and livelihoods).
Next steps: The engagement regarding Unilever’s presence in Russia and CMA
claims is ongoing.
Company name: Mondelez
Sector: Consumer Franchises
Engagement topic: Human Rights / Modern Slavery Date of engagement: May 2023
Engagement format: Call
Reason for Engagement: LTL spoke with the management of Mondelez ahead of its
AGM, which included a contentious shareholder proposal relating to the
eradication of child labour from the cocoa supply chain. The team has
regularly engaged with Mondelez on this issue and so were eager to hear
management’s views on the resolution, and also receive an update on the
progress the company is making on this specific initiative. Management
communicated that whilst it is entirely supportive of the aims and intentions
of the shareholder proposal, the company is already working towards these
exact goals and believes that the current strategy continues to be the right
one to achieve them. It confirmed that significant progress has been made:
74% of the company’s supply chain is now covered by its Cocoa Life
programme, up from 28% in 2020. Like Mondelez, LTL recognises that eradicating
child labour from the cocoa supply chain is a systemic issue that requires
wide-scale collaboration and so LTL voted in line with management, as it
believes it is unproductive to expect Mondelez to solve this wider issue on
its own.
Next steps: This engagement is ongoing. While LTL accepts that Mondelez cannot
solve this wider issue on its own, as the number 2 chocolate brand in the
world LTL would like to see the company continuing to set the agenda. LTL
would like the percentage of the company’s supply chain covered by the Cocoa
Life programme to continue to increase to full coverage, with credible and
sustainable ongoing monitoring firmly in place as this is not a ‘set and
forget’ issue.
Company name: Nintendo
Sector: Media
Engagement topic: Capital Allocation Date of engagement: September 2023
Engagement format: Call
Reason for Engagement: Like many Japanese companies, Nintendo could be accused
of maintaining an overly conservative balance sheet. Currently the company has
¥2 trillion of cash to guard against technology change and for future growth
investments. As a rule, we are supportive of our companies maintaining net
cash balances and, indeed, would be concerned by any significant levels of net
debt, however we recognise that Nintendo could manage its balance sheet more
efficiently. As such, during Q3 we had the opportunity to share with company
management that we would encourage the Board to review its capital allocation
and the uses of its retained earnings. If it was decided to return funds to
shareholders we expressed our preference for a share buyback at an accretive
share price rather than a special dividend.
Next steps: This engagement is ongoing.
Proxy Voting
The primary voting policy of LTL is to protect or enhance the economic value
of its investments on behalf of its clients. LTL has appointed Glass Lewis to
aid the administration of proxy voting and provide additional support in this
area. However, the Manager maintains decision making responsibility based on
its detailed knowledge of the investee companies. It is LTL’s policy to
exercise all voting rights which have been delegated to LTL by its clients.
Voting record:
Management Proposals Shareholder Proposals Total Proposals
With Management 199 7 206
Against Management 2 0 2
Abstain 1 1 2
Totals 202 8 210
Source: Glass Lewis. 1 April 2023 to 31 March 2024.
Votes against management and abstentions have typically been in the low
single-digit range. The main reason for this is that LTL’s long-term
approach to investment generally leads it to be supportive of company
management and, where required, LTL will try to influence management through
its engagement activities. Given LTL often builds up large, long-term stakes
in the businesses in which it invests, LTL finds that management is open to
(and very often encourage) engagement with LTL. Furthermore, it is LTL’s aim
to be invested in ‘exceptional’ companies with strong corporate governance
and hence it ought to be rare that LTL finds itself in a position where it is
voting against management.
In the majority of cases where LTL has voted against management it has been on
matters relating to remuneration. Where LTL does not believe that a
company’s compensation policy is aligned with the long-term best interests
of the shareholders it will write to management to inform them of LTL’s
intention to vote against such policies.
Regulatory Update on ESG
During the year, regulators around the world remained active on defining and
classifying ESG investing and curbing greenwashing. The UK Financial Conduct
Authority (‘FCA’) released its final Policy Statement on Sustainability
Disclosure Requirements (‘SDR’) and investment labels on 28 November 2023.
The UK SDR, which applies to all FCA-regulated firms, introduces a set of
sustainability-related product labels, product and entity-level disclosures,
and anti-greenwashing rules for sustainable investing in the UK. While the
Investment Manager considers ESG issues to be important when selecting
investments, the Company does not have explicit sustainability objectives in
its investment policy and the Company will not seek to apply a sustainability
label under SDR.
Integrity and Business Ethics
The Company is committed to carrying out business in an honest and fair
manner. The Board has adopted a zero tolerance approach to instances of
bribery and corruption. Accordingly, it expressly prohibits any Director or
associated persons when acting on behalf of the Company from accepting,
soliciting, paying, offering or promising to pay or authorise any payment,
public or private, in the United Kingdom or abroad to secure any improper
benefit from themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company. A copy of the Company’s Anti Bribery and
Corruption Policy can be found in the Board and Policies section of the
Company's website. The policy is reviewed annually by the Audit Committee.
In response to the implementation of the Criminal Finances Act 2017, the Board
adopted a zero-tolerance approach to the criminal facilitation of tax evasion.
A copy of the Company’s policy on preventing the facilitation of tax evasion
can be found in the Board and Policies section of the Company's website. The
policy is reviewed annually by the Audit Committee.
The Company’s culture is driven by its values of integrity, knowledge and
frank and courteous conduct. It focusses on achieving returns for shareholders
in line with the Company’s Investment Objective. In carrying out its
activities, the Company aims to conduct itself responsibly, ethically and
fairly, including in relation to social and human rights issues. As an
investment company with limited internal resource, the Company has little
direct impact on the environment. The Company believes that high standards of
ESG make good business sense and have the potential to protect and enhance
investment returns. Consequently, the Manager’s investment criteria ensure
that ESG and ethical issues are taken into account and best practice is
encouraged. The Board's expectations are that its principal service providers
have appropriate governance policies in place.
By order of the Board
Roger Lambert
Chairman
11 June 2024
Governance
Statement of Directors’ responsibilities in respect of the Financial
Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have prepared the Financial
Statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102 “The
Financial Reporting Standard applicable in the UK and Republic of Ireland”,
and applicable law).
Under company law the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period.
In preparing the Financial Statements the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK Accounting Standards, comprising FRS 102,
have been followed, subject to any material departures disclosed and explained
in the Financial Statements;
• make judgments and estimates that are reasonable and prudent;
• prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
• prepare a directors' report, a strategic report and a directors'
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
They are responsible for such internal control as they determine is necessary
to enable the preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error, and have general responsibility
for taking such steps as are reasonable to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The Directors have delegated responsibility to the Administrator for the
maintenance and integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors consider that the Annual Report and Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in the ‘Board of
Directors’ on pages 32 and 33 of the Annual Report confirms that, to the
best of their knowledge:
• the Company Financial Statements, which have been prepared in accordance
with United Kingdom Accounting Standards, comprising FRS 102 “The Financial
Reporting Standard applicable in the UK and Republic of Ireland”, and
applicable law (United Kingdom Generally Accepted Accounting Practice), give a
true and fair view of the assets, liabilities, financial position and loss of
the Company; and
• the Strategic Report includes a fair review of the development and
performance of information required by the FCA's Disclosure Guidance and
Transparency Rules.
The Directors also confirm that the Financial Statements, taken as a whole,
are fair, balanced and understandable, and provide the information necessary
for shareholders to assess the Company's position, performance, business model
and strategy.
Approved by the Board of Directors and signed on its behalf by
Roger Lambert
Chairman
11 June 2024
Note to those who wish to access this document by electronic means:
The Annual Report for the year ended 31 March 2024 has been approved by the
Board of The Lindsell Train Investment Trust plc. Copies of the Annual Report
are circulated to shareholders and, where possible, to investors through other
providers’ products and nominee companies (or written notification is sent
when they are published online). It is also made available in electronic
format for the convenience of readers. Printed copies are available from the
Company’s Registered Office in London.
Financial Statements
Income Statement for the year ended 31 March 2024
2024 2023
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Losses on investments held at fair value 10 – (6,014) (6,014) – (12,978) (12,978)
Exchange losses on currency balances – (4) (4) – (3) (3)
Income 2 12,005 – 12,005 14,135 – 14,135
Investment management fees 3 (976) – (976) (1,138) – (1,138)
Other expenses 4 (715) (1) (716) (690) (1) (691)
Net return/(loss) before taxation 10,314 (6,019) 4,295 12,307 (12,982) (675)
Taxation 7 (100) – (100) (96) – (96)
Return/(loss) after taxation for the financial year 10,214 (6,019) 4,195 12,211 (12,982) (771)
Return/(loss) per Ordinary Share 9 £51.07 £(30.10) £20.97 £61.06 £(64.91) £(3.85)
All revenue and capital items in the above statement derive from continuing
operations.
The total columns of this statement represent the profit and loss account of
the Company. The revenue and capital return columns are supplementary to this
and are prepared under the guidance published by the Association of Investment
Companies.
The Company does not have any other recognised gains or losses. The net return
for the year disclosed above represents the Company’s total comprehensive
income.
No operations were acquired or discontinued during the year.
The notes form part of these Financial Statements.
Statement of Changes in Equity for the year ended 31 March 2024
Share Special Capital Revenue
capital reserve reserve reserve Total
2024 2024 2024 2024 2024
£’000 £’000 £’000 £’000 £’000
At 1 April 2023 150 19,850 168,000 23,390 211,390
(Loss)/return for the financial year – – (6,019) 10,214 4,195
Dividends paid for the year ended 31 March 2023 (see note 8) – – – (10,300) (10,300)
At 31 March 2024 150 19,850 161,981 23,304 205,285
For the year ended 31 March 2023
Share Special Capital Revenue
capital reserve reserve reserve Total
2023 2023 2023 2023 2023
£’000 £’000 £’000 £’000 £’000
At 1 April 2022 150 19,850 180,982 21,779 222,761
(Loss)/return for the financial year – – (12,982) 12,211 (771)
Dividends paid for the year ended 31 March 2022 (see note 8) – – – (10,600) (10,600)
At 31 March 2023 150 19,850 168,000 23,390 211,390
The notes form part of these Financial Statements.
Statement of Financial Position at 31 March 2024
2024 2023
Notes £’000 £’000 £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 10 199,082 203,128
Current assets
Other receivables 11 478 491
Cash at bank 6,028 8,010
6,506 8,501
Creditors: amounts falling due within one year
Other payables 12 (303) (239)
Net current assets 6,203 8,262
Net assets 205,285 211,390
Called up share capital 13 150 150
Special reserve 14 19,850 19,850
20,000 20,000
Capital reserve 14 161,981 168,000
Revenue reserve 23,304 23,390
Equity Shareholders’ funds 205,285 211,390
Net Asset Value per Ordinary Share 15 £1,026.43 £1,056.95
The Financial Statements were approved by the Board on 11 June 2024 and were
signed on its behalf by:
Roger Lambert
Chairman
The Lindsell Train Investment Trust plc
Registered in England & Wales, No: 4119429
The notes form part of these Financial Statements.
Statement of Cash Flows for the year ended 31 March 2024
2024 2023
Notes £’000 £’000
Net cash inflow from operating activities 16 10,294 12,243
Investing activities
Purchase of investments held at fair value (2,845) (339)
Sale of investments held at fair value 873 1
Net cash outflow from investing activities (1,972) (338)
Financing activities
Equity dividends paid 8 (10,300) (10,600)
Net cash outflow from financing activities (10,300) (10,600)
(Decrease)/increase in cash and cash equivalents (1,978) 1,305
Cash and cash equivalents at beginning of year* 8,010 6,708
Loss on exchange movements (4) (3)
Cash and cash equivalents at end of year* 6,028 8,010
Cash flows from operating activities includes dividend income received (gross)
of £11,809,000 (2023: £14,156,000) and deposit interest of £190,000 (2023:
£36,000).
* Comprises solely cash held at bank.
The notes form part of these Financial Statements.
Notes to the Financial Statements
1 Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below:
(a) Basis of accounting
The Financial Statements of the Company have been prepared under the
historical cost convention modified to include the revaluation of fixed assets
in accordance with United Kingdom Company law, FRS 102 ‘The Financial
Reporting Standard applicable in the UK and Ireland’ and with the Statement
of Recommended Practice (“SORP”) “Financial Statements of Investment
Trust Companies and Venture Capital Trusts”, issued by the Association of
Investment Companies in July 2022.
Going concern
The Financial Statements have been prepared on the going concern basis.
The Directors have a reasonable expectation, after considering a schedule of
the Company’s current financial resources and liabilities, that the Company
has adequate resources to continue in existence for at least 12 months from
the approval of the Financial Statements; and that it is appropriate to
prepare the Financial Statements on a going concern basis.
The Company does not have a fixed life.
As at 31 March 2024, the Company held £110,456,000 (2023: £100,547,000) in
listed investments and £88,626,000 (2023: £102,581,000) in an unlisted
investment and an unlisted fund. The total operating expenses for the year
ended 31 March 2024 were £1,692,000 (2023: £1,829,000). It is estimated that
56.6% of the investment portfolio, (92.4% of the portfolio, excluding the
holding in LTL), could be liquidated within five business days based on 20% of
the 90 days’ average trading volumes obtained from Bloomberg.
(b) Reporting currency
The Financial Statements are presented in Sterling which is the functional
currency of the Company because it is the currency of the primary economic
environment in which the Company operates.
(c) Dividends
Under Section 32 of FRS 102, final dividends should not be accrued in the
Financial Statements unless they have been approved by shareholders before the
balance sheet date.
Dividends payable to shareholders are recognised in the Statement of Changes
in Equity when they have been approved by shareholders and have become a
liability of the Company. Interim dividends are recognised in the Financial
Statements in the period in which they are paid.
(d) Valuation of fixed asset investments
The Company’s investments are classified as held at fair value through
profit or loss in accordance with Section 11 and 12 of FRS 102 and are managed
and evaluated on a fair value basis in accordance with its investment
strategy.
When a purchase or sale is made under a contract, the terms of which require
delivery within the time frame of the relevant market, the investments
concerned are recognised or derecognised on the trade date.
Listed investments are held through profit or loss and accordingly are valued
at fair value, deemed to be bid or last market prices depending on the
convention of the exchange on which they are listed. As the Company’s
business is investing in financial assets with a view to profiting from their
total return in the form of interest, dividends or increases in fair value
quoted, investments are held through profit or loss on initial recognition at
fair value. The Company manages and evaluates the performance of these
investments on a fair value basis in accordance with its investment strategy,
and information about the Company is provided internally on this basis to the
Board.
Lindsell Train fund products are valued daily using prices supplied by the
administrator of these funds.
The unlisted investment in LTL is valued by the Directors at fair value using
a valuation methodology adopted by the Board. The formula is monitored by the
Board to ensure its ongoing appropriateness. At the most recent update in 2024
the Board sought external advice to verify its approach. Please refer to note
1(j) for further information.
The investment in LTL (representing 23.9% of the Manager) is held as part of
the investment portfolio. Accordingly, the shares are accounted for and
disclosed in the same way as other investments in the portfolio. The valuation
of the investment (see note 17) is calculated at the end of each month on the
basis of fair value as determined by the Directors of the Company. The
valuation process in effect from 31 March 2022 remains unchanged and is based
upon a methodology that uses a percentage of LTL’s funds under management,
with the percentage applied being reviewed monthly and adjusted to reflect the
ongoing profitability of LTL.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows:
* Level 1 – The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement date.
* Level 2 – Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly.
* Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
(e) Income
Dividends are credited to the revenue column of the Income Statement on an
ex-dividend basis. Where an ex-dividend date is not available, dividends are
recognised when the Company’s right to receive payment is established. The
fixed return on a debt security is recognised on a time apportionment basis so
as to reflect the effective interest rate on the debt security. Bank and
deposit interest is accounted for on an accruals basis.
(f) Expenses
All expenses are accounted for on an accruals basis. Finance costs are
accounted for on an accruals basis using the effective interest rate method.
Expenses are charged through the revenue column of the Income Statement except
as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Income Statement;
* expenses are charged to the realised capital reserve, via the capital column
of the Income Statement, where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated;
* the non allocation approach has been taken and charged 100% of the
management fees to revenue; and
* performance fees payable to the Manager are charged 100% to capital.
(g) Taxation
Deferred taxation is provided on all differences which have originated but not
reversed by the balance sheet date, calculated at the rate at which it is
anticipated the timing differences will reverse. Deferred tax assets are
recognised only when, on the basis of available evidence, it is more likely
than not that there will be taxable profits in the future against which the
deferred tax asset can be recovered.
In line with recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented in the capital column of the
Statement of Comprehensive Income is the marginal basis. Under this basis if
taxable income is capable of being offset entirely by expenses presented in
the revenue column of the Income Statement then no tax relief is transferred
to the capital column.
(h) Foreign currency
Transactions denominated in foreign currencies are recorded in the local
currency at the actual exchange rates as at the date of the transaction.
Assets and liabilities denominated in foreign currencies at the year end are
reported at the rate of exchange prevailing at the year end. Any gain or loss
arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss in the capital or revenue
column of the Income Statement depending on whether the gain or loss is of a
capital or revenue nature.
(i) Capital reserve
The following are taken to this reserve:
* gains or losses on the disposal of investments;
* exchange differences of a capital nature;
* expenses, together with the related taxation effect, allocated to this
reserve in accordance with the above policies; and
* investment holding gains or losses, being the increase or decrease in the
valuation of investments held at the year end.
Revenue reserve
The revenue reserve reflects all income and expenditure which are recognised
in the revenue column of the income statement.
Special reserve
The special reserve arose following Court approval in September 2002 to
transfer £19,850,000 from the share premium account. This reserve can be used
to finance the redemption and/or purchase of shares in issue.
In accordance with the Company’s Articles of Association, the capital
reserve and special reserve may not be distributed by way of a dividend but
may be utilised for the purposes of share buybacks. The Company may only
distribute by way of dividend accumulated revenue profits within the revenue
reserve.
(j) Significant judgments and estimates
The key significant estimate to report is the valuation of the investment in
LTL where material judgments are made. Please refer to notes 1(d) and 17 for
details of how this holding is valued.
Other than this, in the course of preparing the Financial Statements, no
material judgments have been made in the process of applying the Company’s
accounting policies, except those that involve estimations.
2 Income
2024 2023
£’000 £’000
Income from investments
Overseas dividends 862 833
UK dividends
– Lindsell Train Limited 9,410 11,875
– Other UK dividends 1,543 1,391
11,815 14,099
Other income
Deposit Interest 190 36
190 36
Total income comprises:
Dividends 11,815 14,099
Interest 190 36
12,005 14,135
3. Management fees
2024 2023
£’000 £’000
Investment management fee 1,099 1,255
Rebate of investment management fee (see below) (123) (117)
Total management fee 976 1,138
In accordance with an Investment Management Agreement dated 21 December 2000
(last revised in November 2020) between the Company and LTL, LTL has been
providing investment management services to the Company. For its services, LTL
receives an annual fee of 0.6%, calculated on the lower of the Adjusted Market
Capitalisation and the Adjusted Net Asset Value of the Company, calculated
using weekly data and payable in arrears in respect of each calendar month.
The amount charged during the year is shown above. £139,623 (2023: £94,893)
of the fee for the year was outstanding as at the Balance Sheet date.
A performance fee is payable at the rate of 10 per cent of the value of any
positive relative performance versus the Benchmark (the MSCI World Index Total
Return (Sterling adjusted)), in a financial year. Relative performance is
measured by taking the lower of the NAV or Average Market Price, taking into
account dividends, at the end of each financial year and comparing the
percentage annual change with the total return of the Benchmark. A performance
fee will only be paid out if the annual change is both above the Benchmark and
is a positive figure. Relative performance will be carried forward in years
where the Manager is not eligible for a performance fee based on these two
criteria. The Company has twelve month performance periods, ending on 31 March
in each year. The performance fee is payable in arrears in respect of each
performance period.
The performance fee payable to the Manager for the year to 31 March 2024 was
£nil (2023: £nil).
For the avoidance of double charging management fees, the Manager has agreed
to rebate any periodic management fee that it receives from the Company by the
amount of fees receivable by it from LTL managed fund products and other fund
products where LTL is the Manager. The amounts rebated on the Investment
Management fee are shown above, of which £107,585 (2023: £101,725) relates
to the Company’s investment in Lindsell Train North American Equity Fund and
£15,656 (2023: £15,065) relates to the Company’s investment in the
Finsbury Growth & Income Trust PLC.
4 Other expenses
2024 2023
£’000 £’000
Directors’ emoluments 178 151
Company Secretarial and Administration fee 192 195
Auditor’s remuneration* † 55 55
Tax compliance fee 4 6
Safe custody fees 19 18
Printing fees 36 40
Registrars’ fees 32 35
Listing fees 13 14
Legal fees 7 5
Employer’s National Insurance 11 11
Directors’ liability insurance 13 13
Key man insurance 45 47
Director recruitment costs 25 40
Sundry 76 60
VAT irrecoverable 9 –
715 690
Capital charges 1 1
716 691
* Excluding VAT.
† Remuneration for the audit of the Financial Statements of the Company.
5 Directors’ emoluments
These are reflected in the table below:
2024 2023
£’000 £’000
Directors’ fees 178 151
Since 1 January 2024, the Chairman of the Board, Chairman of the Audit
Committee, and other Directors receive set fees at rates of £43,000, £36,000
and £29,000 respectively per annum, and have no entitlement to any
performance fees. Directors’ fees amounting to £29,000 (2023: £27,000)
have been waived by Michael Lindsell in view of his connection with the
Manager.
There were no pension contributions paid or payable.
6 Disclosure of interests
As at 31 March 2024 the Company held 12,500,000 shares in WS Lindsell Train
North American Equity Fund with a fair value of £19,624,000 and a cost of
£12,912,000.
LTL is also the Portfolio Manager of Finsbury Growth & Income Trust PLC in
which the Company has an investment of 420,000 shares with a fair value of
£3,612,000 at a cost of £759,000.
LTL’s appointment as Manager to the Company is subject to termination by
either party on twelve months’ notice.
7 Taxation
The tax charge on the loss on ordinary activities for the year was as follows:
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
UK corporation tax – – – – – –
Overseas tax 114 – 114 102 – 102
Overseas tax recoverable (14) – (14) (6) – (6)
Tax charge per accounts 100 – 100 96 – 96
The current taxation charge for the year is different from the standard rate
of corporation tax in the UK of 25% (2023: 19%). The differences are explained
below:
2024 2023
£’000 £’000
Net gains/(loss) on ordinary activities before taxation 4,295 (675)
Theoretical tax at UK Corporation tax rate of 25% (2023: 19%) 1,074 (128)
Effects of:
– UK dividends which are not taxable (2,738) (2,521)
– Overseas dividends which are not taxable (215) (158)
– Non-taxable loss on investments 1,504 2,466
– Current year excess expenses 375 341
– Overseas tax suffered 114 102
– Overseas tax recoverable (14) (6)
Actual current tax charge 100 96
As an Investment Trust, the Company is not subject to UK taxation on capital
gains as long as it maintains exemption under Sections 1158 and 1159 of the
Corporation Tax Act 2010. In the opinion of the Directors, the Company has
complied with the requirements of Sections 1158 and 1159 of the Corporation
Tax Act 2010.
Factors that may affect future tax charges
As at 31 March 2024, the Company had unutilised management expenses of
£31,533,000 (2023: £30,032,000). These expenses could only be utilised if
the Company were to generate taxable profits in the future. As a result, the
Company has not recognised a deferred tax asset of £7,883,250 (2023:
£7,508,000) arising from management expenses exceeding taxable income based
on the prospective corporation tax rate of 25% (2023: 19%).
8 Dividends paid and payable
2023 2022
£’000 £’000
Final dividend for the year ended 31 March 2023 of £51.50 per Ordinary share (2022: £51.12 per Ordinary Share) 10,300 10,224
The total dividend forming the basis of Sections 1158 and 1159 of the
Corporation Tax Act 2010 payable in respect of the financial year is set out
below:
2024 2023
£’000 £’000
FinaI dividend for the year ended 31 March 2024 of £51.50 per Ordinary share (2023: £51.50 per Ordinary Share) 10,300 10,300
9 Return/(loss) per Ordinary Share
2024 2023
Total return/(loss) per Ordinary share
Total return/(loss) £4,195,000 £(771,000)
Weighted average number of Ordinary Shares in issue during the year 200,000 200,000
Total return/(loss) per Ordinary share £20.97 £(3.85)
The total return/(loss) per Ordinary share shown above can be further analysed
between revenue and capital, as below:
2024 2023
Revenue return per Ordinary Share
Revenue return £10,214,000 £12,211,000
Weighted average number of Ordinary Shares in issue during the year 200,000 200,000
Revenue return per Ordinary Share £51.07 £61.06
Capital loss per Ordinary Share
Total return £(6,019,000) £(12,982,000)
Weighted average number of Ordinary Shares in issue during the year 200,000 200,000
Capital loss per Ordinary Share £(30.10) £(64.91)
10 Investments held at fair value through profit or loss
2024 2023
£’000 £’000
Investments listed on a recognised investment exchange 110,456 100,547
Unlisted investment and Fund 88,626 102,581
Valuation at year end 199,082 203,128
Opening book cost 42,591 42,252
Opening investment holding gains 160,537 173,516
Opening Fair Value 203,128 215,768
Movements in the year:
Purchases at cost 2,845 339
Sales – proceeds (877) (1)
Losses on investments (6,014) (12,978)
Closing Fair Value 199,082 203,128
Closing book cost 45,428 42,591
Closing investment holding gains 153,654 160,537
Closing Fair Value 199,082 203,128
Realised gains on investments 869 1
Decrease in investment holding gains for the year (6,883) (12,979)
Losses on investments held at fair value (6,014) (12,978)
The Company received proceeds of £877,000 (2023: £1,000) from investments
sold in the year. The book cost of these investments when they were purchased
was £7,729 (2023: £400). These investments have been revalued over time and
until they were sold any unrealised gains/losses were included in the fair
value of the investments.
Investment transaction costs on purchases and sales of investments during the
year to 31 March 2024 amounted to £805 and £9 respectively (2023: £85 and
£nil respectively).
During the year the investment holding loss attributable to the Company’s
holding in LTL amounted to £16,218,000 (2023 loss: £11,690,000). See note 17
for further details.
Significant holdings
Included in the above are the following investments in which the Company has
an interest exceeding 10% of the nominal value of the shares of that class in
the investee company as at 31 March 2024.
Investments Country of registration Class of % of
or incorporation capital class held
Lindsell Train Limited* England Ordinary Shares of £100 23.9%
* As at 31 January 2024, the latest year end for LTL, its audited aggregate
capital and reserves amounted to £103,519,000, (2023: £97,680,000) and the
profit for that year amounted to £44,596,000 (2023: £54,315,000). The total
amount of dividends paid during the year was £38,967,000 (2023: £48,876,000)
equating to dividends of £1,462 per share (2023: £1,841 per share). The
earnings per share were £1,673 (2023: £2,038). The cost of the Company’s
investment in LTL was £64,500.
See note relating to the 2024 and 2023 results under the tables in Appendix 1.
LTL is a related undertaking of the Company. LTL’s registered office address
is 66 Buckingham Gate, London SW1E 6AU.
LTL has been accounted for as an investment in accordance with the accounting
policy in note 1(d).
The Company has arrangements in place with the Manager to avoid double
charging of fees and expenses on investments made in other LTL managed funds
(see note 3).
11 Other receivables
2024 2023
£’000 £’000
Amounts due from brokers 5 1
VAT recoverable 27 34
Prepayments and accrued income 446 456
478 491
12 Other payables
2024 2023
£’000 £’000
Accruals and deferred income 303 239
13 Share capital
2024 2023
No. of shares No. of shares
000’s £’000 000’s £’000
Allotted and fully paid:
Ordinary Shares of 75p each 200 150 200 150
There has been no change in the capital structure during the year to 31 March
2024.
14 ReservesCapital reserve
The capital reserve includes investment holding gains of £153,654,000 (2023:
£160,537,000).
Revenue reserve
The revenue reserve reflects all income and expenditure which are recognised
in the revenue column of the income statement.
Special reserve
The special reserve arose following Court approval in September 2002 to
transfer £19,850,000 from the share premium account. This reserve can be used
to finance the redemption and/or purchase of shares in issue.
In accordance with the Company’s Articles of Association the capital reserve
and special reserve may not be distributed by way of a dividend but may be
utilised for the purposes of share buybacks. The Company may only distribute
by way of dividend accumulated revenue profits within the revenue reserve.
The Institute of Chartered Accountants in England and Wales has issued
guidance stating that profits arising out of a change in fair value of assets,
recognised in accordance with Accounting Standards, may be distributed
provided the relevant assets can be readily convertible into cash. Securities
listed on a recognised stock exchange are generally regarded as being readily
convertible into cash. In accordance with the Company’s Articles of
Association the capital reserve and special reserve may not be distributed by
way of dividend but may be utilised for the purposes of share buybacks and the
Company may only distribute by way of dividend accumulated revenue profits.
15 Net Asset Value per share
The Net Asset Value per Ordinary Share and the Net Asset Value at the year end
calculated in accordance with the Articles of Association were as follows:
Net Asset Value per share attributable Net Asset Value attributable
2024 2023 2024 2023
£ £ £’000 £’000
1,026.43 1,056.95 205,285 211,390
The movements during the year of the assets attributable to the Ordinary
Shares were as follows:
2024 Ordinary 2023 Ordinary
Shares £’000 Shares £’000
Total Net Assets attributable at beginning of year 211,390 222,761
Total recognised profit/(loss) for the year 4,195 (771)
Dividends paid during the year (10,300) (10,600)
Total Net Assets attributable at the end of year 205,285 211,390
The Net Asset Value per Ordinary Share is based on net assets of £205,285,000
(2023: £211,390,000) and on 200,000 Ordinary Shares (2023: 200,000), being
the number of Ordinary Shares in issue at the year end.
16 Statement of Cash Flows
(a) Reconciliation of operating return to net cash inflow from operating
activities
2024 £’000 2023 £’000
Net return/(loss) before finance costs and taxation 4,295 (675)
Losses on investments held at fair value 6,014 12,978
Loss on exchange movements 4 3
Decrease/(increase) in other receivables 32 (34)
(Increase)/decrease in accrued income (15) 56
Increase in other payables 64 11
Taxation on investment income (100) (96)
Net cash inflow from operating activities 10,294 12,243
(b) Analysis of cash flows
At At
1 April Exchange 31 March
2023 Cash Flow Movement 2024
£’000 £’000 £’000 £’000
Cash at bank 8,010 (1,978) (4) 6,028
Total 8,010 (1,978) (4) 6,028
At Cash Flow Exchange At
1 April Movement 31 March
2022 2023
£’000 £’000 £’000 £’000
Cash at bank 6,708 1,305 (3) 8,010
Total 6,708 1,305 (3) 8,010
17 Financial instruments and capital disclosures
Risk management policies and procedures:
The investment objective of the Company is to maximise long-term total returns
with a minimum objective to maintain the real purchasing power of Sterling
capital. In pursuit of this objective, the Company may be exposed to various
forms of risk, as described below.
The Board sets out its principal risks on pages 16 to 20 of the Annual Report
and its investment policy including its policy on gearing (bank borrowing),
diversification and dividends on page 3 of the Annual Report.
The Board and its Manager consider and review the number of risks inherent
with managing the Company’s assets which are detailed below:
Market risk
The Company’s portfolio is exposed to fluctuations in market prices in the
regions in which it invests. Market-wide uncertainties which have caused
increased volatility include the continued impact of war in Ukraine and the
effect of sanctions against Russia; tensions between China and the West; the
conflict in the Middle East; and the threat of prolonged inflation and
elevated interest rates slowing economic growth, and the fear or presence of
recession.
At 31 March 2024, the fair value of the Company’s assets exposed to market
price risk was £199,082,000 (2023: £203,128,000). The Company’s exposure
to market price fluctuations is reviewed by the Board on a quarterly basis and
monitored on a continuous basis by the Manager in pursuance of the investment
objective.
Market price risk comprises three elements – foreign currency risk, interest
rate risk and other price risk.
Foreign currency risk
Foreign currency exposure as at 31 March 2024
US$ Euro JPY Total
£’000 £’000 £’000 £’000
Short-term debtors 49 23 210 282
Foreign currency exposure on net monetary items 49 23 210 282
Investments held at fair value through profit or loss that are equities 33,061* 12,492 17,574 63,127
Foreign currency exposure 33,110 12,515 17,784 63,409
* This includes the holding in WS Lindsell Train North American Equity Fund of
£19,624,000.
Foreign currency exposure as at 31 March 2023
US$ Euro JPY Total £’000
£’000 £’000 £’000
Short-term debtors 41 12 216 269
Foreign currency exposure on net monetary items 41 12 216 269
Investments held at fair value through profit or loss that are equities 31,818* 10,634 12,828 55,280
Foreign currency exposure 31,859 10,646 13,044 55,549
* This includes the holding in WS Lindsell Train North American Equity Fund of
£17,361,000.
Over the year Sterling strengthened against the US Dollar by 2.2% (2023:
weakened by 6.2%), strengthened against the Euro by 2.9% (2023: weakened by
4.0%) and strengthened against the Japanese Yen by 16.6% (2023: strengthened
by 2.6%).
A 5.0% decline or rise of Sterling against foreign currency denominated (i.e.
non Sterling) assets held at the year end would have increased/decreased the
Net Asset Value by £3,170,000 or 1.5% of Net Asset Value (2023: £2,777,000
or 1.3% of Net Asset Value).
Interest rate risk
There is no direct exposure to interest rate risk.
Other price risk
Other price risk may affect the value of the quoted investments.
If the fair value of the Company’s investments at the Statement of Financial
Position date increased or decreased by 10%, whilst all other variables
remained constant, the capital return and net assets attributable to
shareholders as at 31 March 2024 would have increased or decreased by
£19,908,000 or £99.54 per share (2023: £20,313,000 or 101.56p per share).
Liquidity risk
Liquidity risk is not considered significant under normal market conditions in
relation to the Company’s investments which are listed on recognised stock
exchanges and are, for the most part, readily realisable securities which can
be easily sold to meet funding commitments if necessary. The Company’s
unlisted investment in LTL is not readily realisable.
As at 31 March 2024, 56.6% (2023: 51.0%) of the investment portfolio (92.4% of
the listed portfolio) could be liquidated within five business days, based on
20% of the 90 days’ average daily trading volumes obtained from Bloomberg.
The Company would be able to sell all of its listed holdings within five
business days, with the exception of two securities representing 5.5% of NAV.
Credit risk
Cash at bank and other debtors of the Company at the year end as shown on the
Balance Sheet was £6,506,000 (2023: £8,501,000).
Counterparty risk
The Northern Trust Company (the “Bank”) is the appointed custodian of the
Company. It provides securities clearing, safe-keeping, foreign exchange,
advance credits and overdrafts, and cash deposit services. The Bank has a
credit rating for long-term deposits/debt of Aa2 from Moody’s, AA- from
Standard & Poor’s and AA from Fitch Ratings.
As cash placed at the Bank is deposited in its capacity as a banker not as a
trustee, in line with usual banking practice, such cash is not held in
accordance with the Financial Conduct Authority’s client money rules.
Fair values of financial assets and financial liabilities
The tables below set out fair value measurements of financial instruments as
at the year end, by the level in the fair value hierarchy into which the fair
value measurement is categorised.
Financial assets/liabilities at fair value through profit or loss
At 31 March 2024 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 110,456 19,624 69,002 199,082
110,456 19,624 69,002 199,082
At 31 March 2023 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments 100,547 17,361 85,220 203,128
100,547 17,361 85,220 203,128
Note: Within the above tables, the entirety of level 1 comprises all the
Company’s ordinary equity investments, level 2 represents the investment in
LF Lindsell Train North American Equity Fund and level 3 represents the
investment in LTL.
The valuation techniques used by the Company are explained on pages 5 to 7 of
the Annual Report.
LTL Valuation Methodology
The current methodology was approved and applied to monthly valuations of the
Company from 31 March 2022. J. P. Morgan Cazenove undertook an independent
review of the methodology in January 2024, which confirmed that the
methodology adopted in 2022 remains valid. The methodology seeks to capture
the changing economics and prospects for LTL’s business. It is designed to
be as transparent as possible so that shareholders can themselves calculate
how any change to the inputs would affect the resultant valuation.
The methodology has a single component based on a percentage of LTL’s funds
under management (‘FUM’), with the percentage applied being reviewed
monthly and adjusted to reflect the ongoing profitability of LTL. At the end
of each month the ratio of LTL’s notional annualised net profits1 to LTL’s
FUM is calculated and, depending on its result, the percentage of FUM is
adjusted according to the table below.
Notional annualised net profits 1 /FUM (%) Valuation of LTL – Percentage of FUM
0.15 – 0.16 1.70%
0.16 – 0.17 1.75%
0.17 – 0.18 1.80%
0.18 – 0.19 1.85%
0.19 – 0.20 1.90%
0.20 – 0.21 1.95%
0.21 – 0.22 2.00%
0.22 – 0.23 2.05%
0.23 – 0.24 2.10%
1 LTL’s notional net profits are calculated by applying a fee rate (averaged
over the last six months) to the most recent end-month FUM to produce
annualised fee revenues excluding performance fees. Notional staff costs of
45% of revenues, annualised fixed costs and tax are deducted from revenues to
then produce notional annualised net profits.
For instance at 31st March 2024 LTL’s annualised notional net profits were
£29.4m and its FUM was £15.2bn. The ratio between the two as a percentage
was calculated as 0.193% resulting in a percentage of FUM of 1.90% and a
valuation of LTL of £10,818.76 per share.
The valuation of the investment in LTL continues to be reviewed at the end of
each month by the Company’s Directors, with the methodology reviewed by the
Board at its quarterly meetings.
LTL Valuation per share using differing valuation scenarios
The two tables below show the impact on the LTL valuation if:
(i) in Table 1 a different % was applied to 31 March 2024 FUM; and
(ii) in Table 2 different Price / Earnings (‘P/E’) ratios were applied to
LTL’s March 2024 notional net profits.
Table 1 – varying the % of FUM
LTL FUM Valuation Valuation
as at 31 March 2024 per share
(£’000) % of FUM (£’000) (£)
15,180,432 1.00% 151,804 5,694.09
15,180,432 1.25% 189,755 7,117.61
15,180,432 1.50% 227,706 8,541.13
15,180,432 1.75% 265,658 9,964.65
15,180,432 1.90% 288,428 10,818.76
15,180,432 2.00% 303,609 11,388.17
15,180,432 2.25% 341,560 12,811.69
15,180,432 2.50% 379,511 14,235.21
15,180,432 2.75% 417,462 15,658.73
Table 2 – varying the P/E ratio
LTL notional net profits Valuation Valuation
as at 31 March 2024 per share
(£’000) P/E ratio (£’000) (£)
29,240 7.00 204,682 7,677.48
29,240 8.00 233,922 8,774.27
29,240 9.00 263,162 9,871.05
29,240 9.86 288,428 10,818.76
29,240 10.00 292,402 10,967.84
29,240 11.00 321,643 12,064.62
29,240 12.00 350,883 13,161.40
There were no transfers between levels for financial assets and financial
liabilities during the year recorded at fair value as at 31 March 2024 and 31
March 2023. A reconciliation of fair value measurements in Level 3 is set out
below.
Level 3 Financial assets at fair value through profit or loss at 31 March
2024 2023
£’000 £’000
Opening fair value 85,220 96,910
Purchases at cost – –
Sales proceeds (846) –
Realised gains on investments 846 –
Decrease in investment holding gains for the year (16,218) (11,690)
Closing fair value 69,002 85,220
Capital management policies and procedures
The Company’s capital management objectives are:
• to ensure that it will be able to continue as a going concern; and
• to maximise long-term total returns with a minimum objective to maintain
the real purchasing power of Sterling capital through an appropriate balance
of equity capital and debt. The Directors have discretion to permit borrowings
up to 50% of the Net Asset Value. However, the Directors have decided it is in
the best interests of the Company not to use gearing.
The Board, with the assistance of the Manager, monitors and reviews the broad
structure of the Company’s capital on an ongoing basis.
The Company’s objectives, policies and processes for managing capital are
unchanged from last year.
The Company is subject to externally imposed capital requirements:
• as a public company, the Company has a minimum share capital of £50,000;
and
• in order to be able to pay dividends out of profits available for
distribution, the Company has to be able to meet one of the two capital
restriction tests imposed on investment companies by UK company law.
These requirements are unchanged since last year and the Company has complied
with them at all times.
At the next Annual General Meeting the Company intends to renew its authority
to repurchase shares at a discount to Net Asset Value.
18 Guarantees, financial commitments and contingent liabilities
There were no financial commitments or contingent liabilities outstanding at
the year end (2023: None).
19 Ongoing charges (APM)
2024 2023
£’000 % £’000 %
Total operating expenses 1,692 0.8 1,829 0.9
Total operating expenses are included after a management fee waiver of
£123,000 (2023: £117,000) (see note 3).
The above total expense ratios are based on the average Shareholders’ Funds
of £203,091,000 (2023: £211,310,000) calculated at the end of each month
during the year.
It should be noted that administrative expenses borne by the LTL managed funds
are excluded from the above.
See Glossary for other cost disclosures.
20 Related party disclosures
LTL acts as Investment Manager of the Company. The amounts paid to the
Investment Manager are disclosed in note 3 and further details of the
relationship between the Company and the Investment Manager are set out in
note 6. Full details of Directors’ interests are set out on page 53 of the
Annual Report.
On 5 June 2024, the Company and LTL entered into an amended and restated
Investment Management Agreement, to incorporate changes made, and announced,
in June 2021 and June 2022 and additional non-material changes. LTL is
considered to be a related party of the Company under the Listing Rules. The
amendment and restatement of the Investment Management Agreement amounted to
small related party transaction to which certain provisions of Chapter 11 of
the Listing Rules do not apply in accordance with LR 11.1.6 R.
21 Subsequent events
There are no significant events that have occurred after the end of the
reporting period to the date of this report which require disclosure.
Appendices (unaudited)
DISCLAIMER
The information contained in these Appendices has not been audited by the
Auditor and does not form part of the financial statements. The appendices are
for information purposes and should not be regarded as any offer or
solicitation of an offer to buy or sell shares in the Company.
Appendix 1 Annual Review of Lindsell Train Limited (‘LTL’) at 31 January
2024
Background
LTL was established in 2000 by Michael Lindsell and Nick Train and was founded
on the shared investment philosophy that developed while they worked together
during the 1990s. The company’s aim is to foster a work environment in which
the investment team can manage capital consistent with this philosophy, which
entails managing concentrated portfolios, invested strategically in durable
franchises. Essential to success is maintaining a relatively simple business
structure encompassing an alignment of interests between on one side LTL’s
clients and on the other its founders and employees.
People
LTL’s board of directors consists of the two founders Michael Lindsell and
Nick Train, Michael Lim who was the Chief Operating Officer and is now the
Company Secretary, Joss Saunders (Chief Operating Officer), and three
non-executive directors,; Rory Landman, Julian Bartlett and Jane Orr, two of
which are independent. Rory was appointed to the LTL Board following the
retirement of James Alexandroff in March 2023. Rory served as a non-executive
director of the Lindsell Train Investment Trust from 2011 to 2020, and Julian
is a former partner of Grant Thornton LLP. Jane retired from her executive
responsibilities at LTL in March 2023, having previously led the Marketing &
Client Services team and was an executive director of the board, appointed in
2010. After 14 years at LTL, Keith Wilson retired from the company and left
the Board on 31 January 2024. James Bullock and Jessica Cameron were both
appointed to the Board in May 2024.
LTL’s executive staff reduced by three from 28 to 25 the last 12 months,
which includes the retirements of Jane Orr and Keith Wilson. All staff are
based in the UK other than LTL’s North American Marketing and Client
Services representative, who works out of Texas. LTL’s board recognises that
key employees should share in the ownership of the company, furthering the
alignment of interests between them, LTIT and the founders. This is achieved
by acquiring shares from LTL’s major stakeholders either directly or through
a dedicated profit share scheme.
Business
LTL’s strategy is to build excellent long-term performance records for its
funds in a way that is consistent with its investment principles and that meet
the aims of its clients. Long-term performance is detailed below. Success in
achieving satisfactory investment performance should allow the company to
expand its FUM in its four key product areas: UK, Global, Japanese, and North
American equities. LTL aspires to manage multiple billions of pounds in each
product area, whilst recognising that there will be a size per product above
which their ability to achieve clients’ performance objectives may be
compromised. LTL thinks this growth is possible without significantly
expanding the investment team, which numbered six at 31 January 2024.
To achieve this growth in a manageable way, LTL looks to direct new business
flows into LT badged pooled funds and to limit the number of separately
managed accounts. The open-ended pooled funds represented 62% of FUM at end of
January, down from 65% the year before. The fall resulted from a greater
proportion of net outflows emanating from open-ended pooled products.
Additionally, LTL managed 16 separate client relationships, one fewer than a
year ago. The largest pooled fund (the Lindsell Train Global Equity Fund)
represented 29% of total FUM and the largest segregated portfolio accounted
for 11%.
In the year to 31 January 2024, LTL’s total FUM fell by 15% from £18.6bn to
£15.9bn. This represented net outflows of £3.4bn, broken down by strategy as
Global (£1,993m), Japan (£380m) and UK (£1,038m).
All four strategies generated positive absolute returns over the twelve
months, however each underperformed relative to their corresponding
benchmarks. LTL’s process is simple and remains the same as it always has
been, with LTL seeking to find companies that own long-lasting franchises with
deep moats and the ability to reinvest returns at relatively high rates of
return for extended periods of time. To capture these characteristics LTL
portfolios are relatively concentrated with large average position sizes which
rarely change. It also means that at any given time there will be a large
number of quoted companies that LTL do not own, amongst which there are bound
to be some exceptional performers. The unusual feature today is that the
performance of some of these companies has reached new extremes, which makes
their omission felt more keenly.
However, this current phenomenon has not, and will not change how LTL invests.
It remains focused on exploiting the credentials of its highly concentrated,
idiosyncratic portfolios.
The relative returns of the LTL funds representing each strategy since their
inception are shown below:
To 31 January 2024 Relative Return Inception date Benchmark
UK Equity Fund (GBP) +4.2% p.a. July 2006 FTSE All Share
Global Equity Fund (GBP) +1.6% p.a. March 2011 MSCI World
Japanese Equity Fund (Yen) +0.2% p.a. January 2004 TOPIX
North American Equity Fund (GBP) -4.4% p.a. April 2020 MSCI North America
Returns based on NAV. LF Lindsell Train UK Equity Fund Acc share class;
Lindsell Train Global Equity Fund B share class; Lindsell Train Japanese
Equity Fund A Yen share class; LF Lindsell Train North American Equity Fund
Acc share class.
The Marketing and Client Services team is in contact with institutional
clients both directly and through investment consultants, primarily in the UK,
South Africa and the USA. FUM derived from North America makes up over 14% of
total FUM. LTL’s funds are also widely represented on the major UK retail
and IFA platforms.
Financials
In the year to 31 January 2024 LTL’s total revenues fell 11%. Annual
management fees make up the lion’s share of total revenues, at 98.9%, with
interest income the remainder; there were no performance fees earned in the
year. LTL’s biggest cost item, direct staff remuneration, is capped at 25%
of fees (other than those earned from The Lindsell Train Investment Trust
plc), as governed by LTL’s Shareholders’ Agreement. Employer National
Insurance costs are excluded from the restriction. Total staff remuneration,
including employer National Insurance, amounted to 30% of fee revenue, the
same as last year. Fixed overheads remained constant at £4.6m. Operating
profits were down 12%, registering a margin on sales of 67%. Net profits fell
more, by 18% to £44.6m, on account of the rise in the effective tax rate from
19% to 25%.
LTL intends to distribute to shareholders dividends equivalent to 80% of its
net profits in respect of each accounting year-end, subject to retaining
sufficient working, fixed and regulatory capital to enable it to continue its
business in a prudent manner. Total dividends paid in the year to 31 January
2024 were £1,462 per share, down from £1,841 per share in the previous year.
At 31 January 2024 LTL’s balance sheet was made up of shareholders’ funds
of £103.5m including £96.2m of net current assets.
The Future
LTL believes it has plenty of headroom to grow its FUM, with a continued focus
on its stable of pooled funds. LTL’s investment approach is applied
uniformly across all its products and remains differentiated and appealing to
a wide range of clients. A crucial part of that appeal is the ability for LTL
to demonstrate investment results that meet clients’ objectives. Over most
of LTL’s history this has been achieved, but recently the investment
approach has faced several difficult years. Most clients will tolerate short
periods of underperformance, especially in a strategy that is so concentrated
and committed to its constituent companies. However, it is not surprising,
following four years of cumulative underperformance, that the company is
seeing some net outflows as clients are attracted to other investment
approaches that have exhibited better short-term investment results.
LTL is confident that by remaining committed to its differentiated investment
approach that targets companies earning higher returns on capital than
average, and with the support of a stable and dedicated team, and a still
competitive longer-term performance track record, it can stay positive about
its future. But it is fully aware that there are risks ahead which could have
a material impact on the value of LTL and its dividend paying potential. These
risks include increasing pressure on the active management industry; continued
pressures on global equity markets from inflation, higher interest rates and
conflict; the growth of ESG designated investment funds; and, the
underperformance from LTL’s strategies. Perhaps the greatest risk in
relation to LTL’s reputation however remains the withdrawal of either of the
founders. They are currently aged 65 and 64, in good health and remain
strongly committed to LTL. They are supported by increasingly mature and
experienced investment professionals, currently numbering four, all of whom
are taking on more responsibility and contributing more to investment
decisions as their careers progress with the company. The clearer articulation
of the firm’s succession planning and the accelerated transfer of ownership
of LTL shares to key individuals should also help mitigate the risk if either
founder withdraws.
Data to 31 January 2024 unless stated otherwise. The period from 31 January to
31 March 2024 has been reviewed by the Board and there are no significant
matters to highlight other than those detailed in this Appendix.
Funds Under Management*
FUM by Strategy
Jan 2024 Jan 2023
£m £m
UK 6,729 7,690
Global 8,956 10,352
Japan 154 554
North America 37 30
Total 15,876 18,626
Largest Client Accounts
Jan 2024 Jan 2023
% of FUM % of FUM
Largest Pooled Fund Asset 29% 30%
Largest Segregated Account 11% 10%
* LTL 's year end 2024 and year end 2023 figures above are based on published
financial statements. LTL 's year end 2023 figures in L TIT'S Annual Report
last year were based on unaudited management accounts. This therefore results
in differences when compared with L TIT's Annual Report last year, as last
year's Report contained LTL unaudited management account numbers for year
ending 31 January 2023, which in this year's Annual Report are using numbers
based on published Financial Statements.
Lindsell Train Fund Performance
Annualised data to 31 January 2024 1 Year % 3 Years % 5 Years % 10 Years %
GBP UK Equity Fund (Accumulation) 1.4 3.4 5.3 7.9
FTSE All Share 1.9 8.4 5.5 5.5
GBP Global Equity Fund (B share) 6.1 2.1 6.2 12.7
MSCI World 13.1 10.8 12.1 12.0
JPY Japanese Equity Fund (A share) 6.9 1.3 3.7 8.3
TOPIX 32.4 14.9 13.0 10.1
GBP North American Equity Fund
(Accumulation) 10.3 8.5
MSCI North American 15.8 12.3
Source: Morningstar Direct
Note: all figures above show total returns.
Financials*
Jan 2024 Jan 2023 %
Profit & Loss £’000 £’000 Change
Fee Revenue
Investment Management fee 86,146 96,542 -10.8%
Performance Fee 0 0
86,146 96,542 -10.8%
Bank Interest & Other Income 997 299
87,143 96,841
Staff Remuneration** (25,864) (29,104) -11.1%
Fixed Overheads (4,578) (4,622) -1.0%
FX Currency Translation (losses)/gains (676) 3,878
Investment Unrealised Gain 2,733 46
Operating Profit 58,758 67,039 -12.4%
Taxation (14,162) (12,724)
Net Profit 44,596 54,315 -17.9%
Dividends (38,967) (48,876)
Retained profit 5,629 5,439
Balance Sheet
Fixed Assets 51 75
Investments 7,672 6,960
Assets (inc cash at bank and investment in Gilts & Bonds) 118,354 107,524
Liabilities (22,558) (16,879)
Net Assets 103,519 97,680
Capital & Reserves
Called up Share Capital 267 267
Share Premium*** 57 57
Share Discount*** (494) (416)
Treasury Share Reserve † 0 (288)
Profit & Loss Account 103,689 98,060
Shareholders' Funds 103,519 97,680
* LTL 's year end 2024 and year end 2023 figures above are based on
published financial statements. LTL 's year end 2023 figures in L TIT'S Annual
Report last year were based on unaudited management accounts. This therefore
results in differences when compared with L TIT's Annual Report last year, as
last year's Report contained LTL unaudited management account numbers for year
ending 31 January 2023, which in this year's Annual Report are using numbers
based on published Financial Statements.
** Staff costs include permanent staff remuneration, social security,
temporary apprentice levy, introduction fees and other staff related costs. No
more than 25% of fees (other than those earned from LTIT) can be paid as
permanent staff remuneration.
*** The Share Premium and Share Discount account for the difference in the
cost and resale of shares that were held in Treasury.
† The Treasury Share Reserve accounts for the difference between the cost
and current value of the remaining shares held in Treasury.
Five Year History*
Jan 2024 Jan 2023 Jan 2022 Jan 2021 Jan 2020
Operating Profit Margin 64% 69% 66% 66% 65%
Earnings per share (£) 1,673 2,038 2,463 2,340 2,237
Dividends per share (£) 1,462 1,841 1,994 1,817 1,619
Total Staff Cost as % of Fee Revenue 30% 30% 32% 30% 31%
Opening FUM (£m) 18,626 21,215 22,802 21,450 16,260
Changes in FUM (£m) (2,751) (2,589) (1,587) 1,352 5,190
– of market movement 657 338 331 1,200 2,781
– of net new fund (outflows)/inflows (3,408) (2,927) (1,918) 152 2,409
Closing FUM (£m) 15,875 18,626 21,215 22,802 21,450
LT Open ended funds as % of total 62% 65% 70% 73% 73%
* LTL’s year end figures above are based on published financial statements.
LTL’s year end 2023 figures in LTIT’s Annual Report last year were based
on unaudited management accounts. This therefore results in differences when
compared with LTIT’s Annual Report last year, as last year’s Report
contained LTL unautited management account numbers for year ending 31 January
2023, which in this year’s Annual Report are using numbers based on
published Financial Statements.
Jan 2024 Jan 2023 Jan 2022 Jan 2021 Jan 2020
Client Relationships
– Pooled funds 5 5 5 5 4
– Separate accounts 16 17 18 17 17
Ownership
Jan 2024 Jan 2023 Jan 2022
Michael Lindsell and spouse 9,578 9,650 9,650
Nick Train and spouse 9,578 9,650 9,650
The Lindsell Train Investment Trust plc 6,378 6,450 6,450
Other Directors/employees 1,126 893 778
26,660 26,643 26,528
Treasury Shares 0 17 132
26,660 26,660 26,660
Board of Directors
Rory Landman Independent Non-Executive
Julian Bartlett Independent Non-Executive
James Bullock* Director
Jessica Cameron** Director
Michael Lim Director, IT & Company Secretarial
Michael Lindsell Chief Executive Officer & Portfolio Manager
Jane Orr Non-Executive
Joss Saunders Chief Operating Officer
Nick Train Chairman and Portfolio Manager
* Appointed as a Director on 29 May 2024
** Appointed as a Director on 27 May 2024
Employees
Jan 2024 Jan 2023
Investment Team (including three Portfolio Managers) 6 7
Client Servicing and Marketing 7 9
Operations and Administration 10 11
Fixed Term Contractors 2 1
Total Employees 25 28
Non-Executive directors 3 2
Total Headcount 28 30
LTIT Directors’ valuation of LTL
31 Mar 2024 31 Mar 2023
Notional annualised net profits (A)* (£’000) 29,240 35,554
Funds under Management less LTIT holdings (B) (£’000) 15,180,432 18,530,045
Normalised notional net profits as % of FUM A/B = (C) 0.193% 0.192%
% of FUM (D) (see table below to view % corresponding to C) 1.90% 1.90%
Valuation (E) i.e. B x D (£’000) 288,428 352,071
Number of shares (F)^ 26,660 26,647
Valuation per share in LTL i.e. E / F 10,818.76 13,212.40
* Notional annualised net profits are made up of:
– annualised fee revenue, based on 6-mth average fee rate applied to most
recent month-end unaudited AUM
– annualised fee revenue excludes performance fees
– annualised interest income, based on 3-mth average
– notional staff costs of 45% of annualised fee revenue
– annualised operating costs (excluding staff costs), based on 3-mth
normalised average
^ The increase in share in issue is due to the sale of shares from LTL's
Treasury to LTL's employees; these Treasury shares had been purchased in prior
years from other LTL employees.
Notional annualised net profits*/FUM (%) Valuation of LTL - Percentage of FUM
0.15 to 0.16 1.70%
0.16 to 0.17 1.75%
0.17 to 0.18 1.80%
0.18 to 0.19 1.85%
0.19 to 0.20 1.90%
0.20 to 0.21 1.95%
0.21 to 0.22 2.00%
0.22 to 0.23 2.05%
0.23 to 0.24 2.10%
LTL’s Salary and Bonus Cap
LTL’s salary and bonus expenses are capped at 25% of fees (other than those
earned from LTIT as governed by LTL’s Shareholders’ Agreement. Employer
national insurance costs are excluded from the restriction. This cap has been
in place since the inception of both LTL and LTIT which, alongside LTL’s
intent to distribute to shareholders dividends equivalent to 80% of its
retained profits in respect of each accounting year (subject to retaining
sufficient working and fixed and regulatory capital to enable LTL to continue
its business in a prudent manner) ensures LTL shareholders earn a tangible
reward from their investment in LTL.
The Board has long recognised that it is important that LTL has the ability to
sufficiently reward potential successors, or, if it became necessary to
replace the founders, to recruit suitable outside talent. As a consequence,
since 2007 the Board has judged it necessary to apply a higher notional salary
cost of 45% of revenues in calculating LTL’s net profits when determining
the valuation of LTL.
To put this in context, LTL’s total salary and bonus expenses (including
employer national insurance payments) have averaged 36% of revenues since
2001. Currently a peer group of quoted fund managers exhibits an average
remuneration costs to revenue of 42%, with the salary to revenue of peers with
FUM equivalent to LTL is slightly higher at 44%. The Board therefore believes
that a notional salary to revenue ratio of 45% makes sufficient allowance for
the eventualities described above.
Whilst the 25% salary and bonus cap remain in place for now, both the LTL and
LTIT Boards recognise that it may be necessary to review this limit in the
future.
Appendix 2
Share Capital
At 31 March 2024 and 31 March 2023, and up to the date of this report, the
Company had an authorised and issued share capital comprising 200,000 Ordinary
Shares of 75p nominal value each. At 31 March 2024 the Ordinary Share price
was £801.00 (31 March 2023: £1,052.50).
Income entitlement
The Company’s revenue earnings are distributed to holders of Ordinary Shares
by way of such dividends (if any) as may from time to time be declared by the
Directors and approved by the shareholders.
Capital entitlement
On a winding up of the Company, after settling all liabilities of the Company,
holders of Ordinary Shares are entitled to a distribution of any surplus
assets in proportion to the respective amounts paid up or credited as paid up
on their shares.
Voting entitlement
Subject to any rights or restrictions attached to any shares, on a show of
hands, every member who is present in person has one vote and every proxy
present who has been duly appointed has one vote. However, if the proxy has
been duly appointed by more than one member entitled to vote on the
resolution, and is instructed by one or more of those members to vote for the
resolution and by one or more others to vote against it, or is instructed by
one or more of those members to vote in one way and is given discretion as to
how to vote by one or more others (and wishes to use that discretion to vote
in the other way) he or she has one vote for and one vote against the
resolution. Every corporate representative present who has been duly
authorised by a corporation has the same voting rights as the corporation. On
a poll, every member present in person or by duly appointed proxy or corporate
representative has one vote for every share of which they are the holder or in
respect of which their appointment as proxy or corporate representative has
been made.
A member, proxy or corporate representative entitled to more than one vote
need not, if they vote, use all their votes or cast all the votes they use the
same way. In the case of joint holders, the vote of the senior who tenders a
vote shall be accepted to the exclusion of the votes of the other joint
holders, and seniority shall be determined by the order in which the names of
the holders stand in the register of members. A member is entitled to appoint
another person as his proxy to exercise all or any of their rights to attend
and to speak and vote at a meeting of the Company.
The appointment of a proxy shall be deemed also to confer authority to demand
or join in demanding a poll. Delivery of an appointment of proxy shall not
preclude a member from attending and voting at the meeting or at any
adjournment of it. A proxy need not be a member. A member may appoint more
than one proxy in relation to a meeting, provided that each proxy is appointed
to exercise the rights attached to a different share or shares held by them.
Transfers
There are no restrictions on transfers of Ordinary Shares except: a) dealings
by Directors, Persons Discharging Managerial Responsibilities and their
connected persons which may constitute insider dealing or are otherwise
prohibited by the rules of the FCA; b) transfers to more than four joint
holders; c) transfers to US persons other than as specifically permitted by
the Directors; d) if, in the Directors’ opinion, the assets of the Company
might become “plan assets” for the purposes of US ERISA 1974; and e)
transfers which in the opinion of the Directors would cause material legal,
regulatory, financial or tax disadvantage to the Company.
Appendix 3
Agreements with Service Providers
Investment Management Agreement
In accordance with an Investment Management Agreement ('IMA') originally dated
21 December 2000 (last revised in June 2024) between the Company and LTL, LTL
has been providing investment management services to the Company.
Fees
The Investment Management Fee is payable at the annual rate of 0.60 per cent.
of the lower of (a) the Market Capitalisation of the Company and (b) the Net
Asset Value of the Company, calculated daily.
The Performance Fee is calculated as 10% of the value of any positive relative
performance versus the benchmark in a financial year. Relative performance is
measured by taking the lower of the NAV or Average Market Price (defined as
the average price over the last month of the performance period), taking into
account dividends, at the end of each financial year and comparing the
percentage annual change with the total return of the benchmark. A performance
fee will only be paid out if the annual change is both above the benchmark and
is a positive figure. Relative performance will be carried forward in years
where the Manager is not eligible for a performance fee based on these
two criteria.
During the year the Directors reviewed the performance of the Manager and
consider that the continued engagement of LTL under the existing terms is in
the best interests of the Company and shareholders. Michael Lindsell did not
participate in the review as he is an employee and shareholder of the Manager.
In addition to the day to day management of investments, the Manager advises
the Board on liquidity and borrowings and liaises with major shareholders. The
Manager has a stated policy on stewardship and engagement with investee
companies, which the Board has reviewed and endorses, and provides verbal
reports to the Board where any concerns or issues have been raised.
Administration, Company Secretarial and Management Services Agreement
Accounting, company secretarial and administrative services are provided by
Frostrow Capital LLP (“Frostrow”) pursuant to an agreement dated 30
October 2020. With effect from 1 November 2020, Frostrow is entitled to
receive from the Company an annual fee of 0.11 per cent. of the Company’s
Net Asset Value up to £150 million plus 0.05 per cent. of that part of the
Company’s Net Asset Value in excess of £150 million. The agreement is
terminable by either party on not less than six months’ notice.
Details of the fees paid to Frostrow are given in note 4 to the Financial
Statements. The services provided by Frostrow since their appointment were
also reviewed during the year and the Board considered it to be in the best
interests of the Company to continue Frostrow’s appointment under the
existing terms.
Other third-party service providers
In addition to the Manager and Administrator, the Company has engaged Link
Group to maintain the share register of the Company, and The Northern Trust
Company, London Office as the Company’s custodian. The agreements for these
services were entered into after careful consideration of their terms and
their cost-effectiveness for the Company.
Additional Shareholder Information (unaudited)
Glossary of Terms and Alternative Performance Measures (“APM”) (unaudited)
AIC
Association of Investment Companies.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Alternative Investment Fund Managers Directive (the “Directive”) is a
European Union Directive that entered into force on 22 July 2013. The
Directive regulates EU fund managers that manage alternative investment funds
(this includes investment trusts).
Alternative Performance Measure (“APM”)
An alternative performance measure is a financial measure of historical or
future financial performance, financial position or cash flow that is not
prescribed by the relevant accounting standards. The Company’s APMs are the
discount and premium, dividend yield, share price and NAV total return and
ongoing charges as defined within this Glossary. The Directors believe that
these measures enhance the comparability of information between reporting
periods and aid investors in understanding the Company’s performance. The
measures used for the year under review have remained consistent with the
prior year.
Benchmark
With effect from 1 April 2021 the Company’s comparator benchmark is the MSCI
World Index total return in Sterling.
Prior to 1 April 2021 the benchmark was the annual average redemption yield on
the longest- dated UK government fixed rate (1.625% 2071) calculated using
weekly data, plus a premium of 0.5%, subject to a minimum yield of 4.0%.
Discount and premium (APM)
If the share price of an investment trust is higher than the Net Asset Value
(NAV) per share, the shares are trading at a premium to NAV. In this
circumstance the price that an investor pays or receives for a share would be
more than the value attributable to it by reference to the underlying assets.
The premium is the difference between the share price (based on share prices)
and the NAV, expressed as a percentage of the NAV.
A discount occurs when the share price is below the NAV. Investors would
therefore be paying less than the value attributable to the shares by
reference to the underlying assets.
A premium or discount is generally the consequence of supply and demand for
the shares on the stock market.
The discount or premium is calculated by dividing the difference between the
share price and the NAV by the NAV.
As at As at
31 March 31 March
2024 2023
£ £
Share Price 801.00 1,052.50
Net Asset Value per Share 1,026.43 1,056.95
Discount to Net Asset Value per Share 22.0% 0.4%
Dividend yield (APM)
A financial ratio that indicates how much a company pays out in dividends each
year relative to its share price. Dividend yield is represented as a
percentage and can be calculated by dividing the value of dividends paid in a
given year per share held by the share price.
The figures disclosed on pages 5, 14 and 15 of the Annual Report have been
calculated as shown below:
2024 2023
Total Dividends declared per Ordinary Share (a) £51.50 £51.50
Closing price per Ordinary Share on 31 March (b) £801.00 £1,052.50
Dividend Yield (a) ÷ (b) 6.4% 4.9%
ESG
Environmental, social and governance.
Leverage
The AIFMD leverage definition is slightly different from the Association of
Investment Companies’ method of calculating gearing and is defined as
follows: any method by which the AIFM increases the exposure of an AIF it
manages whether through borrowing of cash or securities, or leverage embedded
in derivative positions.
For the purposes of the AIFMD, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company’s exposure and
its net asset value.
The MSCI requires the Company to include the following statement in the Annual
Report.
MSCI World Index total return in Sterling (the Company's comparator Benchmark)
The MSCI information (relating to the Benchmark) may only be used for your
internal use, may not be reproduced or redisseminated in any form and may not
be used as a basis for or a component of any financial instruments or products
or indices. None of the MSCI information is intended to constitute investment
advice or a recommendation to make (or refrain from making) any kind of
investment decision and may not be relied on as such. Historical data and
analysis should not be taken as an indication or guarantee of any future
performance analysis, forecast or prediction. The MSCI information is provided
on an “as is” basis and the user of this information assumes the entire
risk of any use made of this information. MSCI, each of its affiliates and
each other person involved in or related to compiling, computing or creating
any MSCI information (collectively, the “MSCI Parties”) expressly
disclaims all warranties (including, without limitation, any warranties of
originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect to this
information. Without limiting any of the foregoing, in no event shall any MSCI
Party have any liability for any direct, indirect, special, incidental,
punitive, consequential (including, without limitation lost profits) or any
other damages. (www.msci.com).
Net Asset Value (“NAV”) per Ordinary Share
The NAV per Ordinary Share is Shareholders’ funds expressed as an amount per
individual share. Equity Shareholders’ funds are the total value of all the
Company’s assets, at current market value, having deducted all current and
long-term liabilities and any provision for liabilities and charges.
The NAV per Ordinary Share of the Company is announced to the market weekly.
The figures disclosed on pages 5, 14 and 15 of the Annual Report have been
calculated as shown below:
2024 2023
‘000 ‘000
Net Asset Value (a) £205,285 £211,390
Ordinary Shares in issue (b) 200 200
Net Asset Value per Ordinary Share (a) ÷ (b) £1,206.43 £1,056.95
Ongoing charges (APM)
Ongoing charges are expenses of a type that are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the Company as an investment trust, excluding the costs of
acquisition or disposal of investments, financing costs and gains or losses
arising on investments. Ongoing charges are based on costs incurred in the
year as being the best estimate of future costs and include the annual
management charge but not the performance fee. The calculation methodology is
set out by the Association of Investment Companies.
The figures disclosed on pages 5 and 15 of the Annual Report have been
calculated as shown below:
2024 2023
£'000 £'000
Total operating expenses (a) 1,692 1,829
Average Net Asset Value (b) 203,091 211,310
Ongoing Charges excluding synthetic costs (a) ÷ (b) 0.8% 0.9%
Ongoing Charges including the charges of the underlying funds (Ws Lindsell Train North American Fund) synthetic costs 0.9% 0.9%
Revenue return per Share
The revenue return per share is the revenue return profit for the year divided
by the weighted average number of ordinary shares in issue during the year.
SASB
The Sustainability Accounting Standards Board.
SASB Materiality Map©
The Materiality Map was developed by the SASB. It ranks issues by industry
based on two types of evidence: evidence that investors in the industry are
interested in the issue, and evidence that the issue has the ability to impact
companies within the industry.
Share price and NAV total return (APM)
These are the returns on the share price and NAV respectively taking into
account both the rise and fall of share prices and valuations and the
dividends paid to Shareholders.
Any dividends received by a Shareholder are assumed to have been reinvested in
either additional shares (for share price total return) or the Company’s
assets (for NAV total return).
The share price and NAV total return are calculated as the returns to
Shareholders after reinvesting the net dividend in additional shares on the
date that the share price goes ex-dividend.
The figures disclosed on pages 5, 14 and 15 of the Annual Report have been
calculated at shown below:
Year Ended 31 March 2024
LTIT NAV LTIT Share Price
NAV/Share Price at 31 March 2024 a £1,206.43 £801.00
Dividend Adjustment Factor* b 1.02 0.80
Adjusted closing NAV/Share Price c = a x b 1,231.77 642.40
NAV/Share Price at 31 March 2023 d £1,056.95 £1,052.50
Total return ((c/d)-1)) x100 +2.1% -19.8%
* The dividend adjustment factor is calculated on the assumption that the
dividends of £51.50 paid by the Company during the year were reinvested into
shares or assets of the Company at the cum income NAV per share/share price,
as appropriate, at the ex-dividend date.
LTL total return performance
The total return performance for LTL is calculated as the return after
receiving but not reinvesting dividends received over the year.
The figure disclosed on page 5 of the Annual Report has been calculated as
shown below:
LTL valuation
Valuation at 31 March 2023 a £13,212
Valuation at 31 March 2024 b £10,819
Dividends paid during the year c £1,462
Total return {((b-a)+c)/a}x100 -7.0%
TCFD
Task Force on Climate-Related Financial Disclosures.
Treasury Shares
Shares previously issued by a company that have been bought back from
Shareholders to be held by the company for potential sale or cancellation at a
later date. Such shares are not capable of being voted and carry no rights to
dividends.
2024 Accounts
The figures and financial information for 2024 are extracted from the Annual
Report and financial statements for the year ended 31 March 2024 and do not
constitute the statutory accounts for the year. The Annual Report and
financial statements include the Report of the Independent Auditor which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of Companies.
2023 Accounts
The figures and financial information for 2023 are extracted from the
published Annual Report and financial statements for the period ended 31
March 2023 and do not constitute the statutory accounts for that year. The
Annual Report and financial statements have been delivered to the Registrar of
Companies and included the Report of the Independent Auditor which was
unqualified and did not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006.
Annual report and financial statements
Copies of the Annual Report and financial statements will be posted to
shareholders in mid June 2024 and will be available on the Company’s
website shortly and in hard copy format from the Company Secretary.
The Company's Annual Report for the period ended 31 March 2024 has been
submitted to the Financial Conduct Authority and will shortly be available for
inspection on the National Storage Mechanism (NSM)
via https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting will be held on Wednesday, 4 September 2024.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
- END -
For further information please contact
Victoria Hale
Company Secretary
For and on behalf of Frostrow Capital LLP
020 3170 8732
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