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