British Empire Trust PLC (LON:BTEM), today announcedunaudited results for the half year ended 31 March 2019.
The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.
- Net asset value (‘NAV’) total return per share decreased by -3.0%
- Share price total return -3.5%
- Benchmark index decreased on a total return basis by -2.1%
- Interim dividend maintained at 2.0p
|Net asset value per share (total return) for six months to 31 March 20191||-3.0%|
|Share price total return for six months to 31 March 2019||-3.5%|
|31 March 2019||31 March 2018||30 September 2018||% change since 30 September 2018|
|MSCI All Country World ex-US Index (£ adjusted total return)||464.38||448.10||474.26||-2.1%|
|Share Price Discount|
|(difference between share priceand net asset value)2||9.08%||10.34%||8.46%|
|Six months to||Six months to|
|31 March 2019||31 March 2018|
|Earnings and Dividends|
|Revenue earnings per share||2.87p||3.03p|
|Capital earnings per share||-24.88p||14.34p|
|Total earnings per share||-22.01p||17.37p|
|Ordinary dividends per share||2.00p||2.00p|
|Ongoing Charges Ratio (annualised)|
|Management, marketing and other expenses (as a percentage of average shareholders’ funds)||0.88%||0.87%|
|Net asset value per share||845.37p||738.71p|
|Net asset value per share (debt at fair value)||838.00p||731.27p|
|Share price (mid market)||762.00p||660.00p|
1 As per guidelines issued by the AIC, performance is calculated using net asset values per share inclusive of accrued income and debt marked to fair value.
2 As per guidelines issued by the AIC, the discount is calculated using the net asset value per share inclusive of accrued income and with the debt marked to fair value.
During the period, the Company purchased 939,938 Ordinary Shares, all of which have been placed into treasury.
Alternative Performance Measures
For all Alternative Performance Measures included in this Report, please see definitions in the Glossary below.
This Half Year Report covers the period from 1 October 2018 to 31 March 2019.
As set out in the Investment Manager’s Review, the six months to 31 March were a challenging period and the volatility which I mentioned in last year’s annual report continued unabated. December, in particular, was difficult and the share price hit a low point on Christmas Eve before staging a substantial recovery in the first quarter of 2019.
While it is disappointing to report a fall in share price and NAV over the period under review, the longer-term track record of the Investment Manager is strong and, as illustrated in their report by a number of examples, there is a good store of value in the portfolio.
Income and Dividend
The Company paid a final dividend for the accounting year ended 30 September 2018 of 11.0p per share on 4 January 2019.
In the six months under review, revenue earnings per share were 2.87p and the Company will pay an interim dividend of 2.0p per share on 28 June 2019, the same as last year. Shareholders should note that the Company usually receives the majority of its revenues in the second half of its accounting year, as many investee companies pay annual dividends in April and May each year.
Debt Structure and Gearing
On 29 April 2019, we announced that the Company had entered into an agreement with Scotiabank Europe PLC for a Japanese Yen 4.0 billion revolving credit facility for a period of three years. The facility was equivalent to £27.7 million on that date.
The facility was drawn down in full and funds will be used to repay the Company’s £15m 81/8% Debenture Stock on 3 June 2019. The debt was due to mature on 2 July 2023. The total cost of redeeming the debt early will be £19.9 million including accrued interest. Following this refinancing exercise, the Company’s weighted average interest on all borrowings will be reduced to 2.9%, compared with 4.3% before the refinancing.
The revolving credit facility introduces some flexibility in managing the Company’s gearing, which in recent years has been entirely through long-term, fixed rate debt. Further, borrowing in Japanese Yen provides a natural hedge against exchange rate fluctuations.
While the cost of redemption initially reduced the NAV per share by 0.1% (or 0.8p per share) with debt at fair value, the refinancing exercise described above is expected to reduce the total annual interest cost by approximately £930,000 (or 0.8p per share), based on current short-term interest rates for the revolving credit facility. This will potentially marginally enhance both the revenue earnings and capital returns.
The facility was larger than the amount required to repay the debentures and the balance was deployed by the Investment Manager in Japanese equities.
Your Board continues to believe that it is in the best interests of shareholders to use share buy backs with the intention of limiting any volatility in the discount. During the six months under review, some 0.94 million shares were bought back. The share buybacks occurred in the period October to December, when market volatility was high.
Steven Bates duly retired as a Director following the annual general meeting on 19 December 2018.
Graham Kitchen was appointed as a Director with effect from 1 January 2019. Graham was Global Head of Equities at Janus Henderson Investors until March 2018, having joined in 2005. Prior to that he held senior positions in fund management at Threadneedle Investments and Invesco as a UK Fund Manager. Graham is a non-executive director of the Mercantile Investment Trust plc and of Invesco Perpetual Select Trust plc. He also provides investment advice to a small number of charities.
I would like once again to record my thanks to Steven for his long and committed service to the Company and also to welcome Graham to the Board.
The Board regularly reviews feedback both from existing shareholders and those who may buy shares in the future. After lengthy consideration of a number of alternatives, it is our intention to change the name of the Company to AVI Global Trust plc; this should take effect in the near future and an announcement will be made as soon as the name change has been completed. Over its long history, the Company’s name has made reference to the scope of its investment mandate, having launched in July 1889 as the Transvaal Mortgage, Loan & Finance Company Limited, and being renamed on three occasions since then as your Company has evolved. Over the past 30 years, the Company has developed a global reach and the new name, we believe, will more accurately reflect where we invest and how the assets are managed.
At the time of writing, the timing and terms of the United Kingdom’s exit from the European Union (‘Brexit’), or indeed whether this will occur, remain unclear.
The vast majority of the Company’s underlying assets are located outside the United Kingdom. For at least as long as the outcome of Brexit remains uncertain, it is likely that exchange rates between Sterling and other major currencies will remain volatile, affecting the net asset value and the value of income when converted into Sterling. The effect of this is, to an extent, offset by our borrowings in Euros and Japanese Yen.
The Board considers that the structure of the Company as an investment trust with a diversified portfolio of international assets – notwithstanding the effect of currency exposures – provides reasonable mitigation to the uncertainty of Brexit. However, the situation is kept under regular review.
Since the period end, the NAV and share price have recovered the majority of losses incurred during the last three calendar months of 2018. Our Investment Manager continues to focus on investments in shares trading at a meaningful discount to underlying assets whose values are tangible and verifiable. This approach has proven fruitful and we have every reason to believe that it will continue to do so.
British Empire Trust Chairman