IIT.L Regulatory News (IIT)

The following is the unaudited preliminary statement of annual results for the year to 30 November 2020 which was approved by the board on 14 January 2021.

Over the year to 30 November 2020, our company produced a net asset value (NAV) total return of -2.2%. Over the same period, theoretical investments in the FTSE All-Share Index and the FTSE World Index would have produced total returns of -10.3% and +11.3% respectively. The best that can be said of this outcome is that it is considerably better than seemed likely at the half way stage: over the second half of our year our net asset value staged a good recovery, and we outperformed both the FTSE World Index and, by a comfortable margin, the FTSE All-Share Index. This despite the heavy burden of high cash balances that resulted from our flawed decision to reduce equity exposure in the second half of March.

A marginal recovery in the rating of our shares saw the discount move down from 9.4% at 30 November 2019 to 7.7% at 30 November 2020, producing a share price total return of -0.2%. 

Economic developments over the year have been without precedent in our experience. The need, generated by the Covid-19 pandemic, for severe restrictions on all forms of activity created massive disruption for all economies. The anticipation of this disruption created one of the shortest and most painful bear markets in history, and this in turn provoked programmes of extraordinary monetary and fiscal stimulus. These had the desired effect of restoring confidence in markets whilst at the same time raising big questions as to their long term consequences. Our efforts to react to these developments were not notably successful: we would have done much better just to have shut our eyes and hoped for the best. Fortunately, our companies - including those we sold out of in March - have generally done a good job in coping with trying conditions: while many have suffered lower profits, all have maintained strong liquidity profiles and are thus well placed to capitalize on a return to a more normal operating environment.

The only major sector of the portfolio to have changed materially in importance is housebuilding, where initial enthusiasm was comprehensively reversed on the arrival of Covid-19. The move towards a more defensive portfolio saw the re-emergence of tobacco and insurance as significant exposures. From March onwards we carried high levels of cash: at 30 November 2020 cash accounted for 19.2% of the net assets (13.6% at 30 November 2019). As at 13 January 2021 the cash content was 11.6% of net assets. Further comments on the portfolio can be found in the Managing Director's Report on pages 4 and 5 of the Annual Report and Financial Statements.

Despite the ups and downs of recent years, we can still point to a respectable longer term record: for the period from inception in October 2000 to 30 November 2020, we produced an NAV total return of 746%, equivalent to a rate of roughly 11.3% per annum, of which 2.7% per annum can be offset by RPI inflation. By comparison, the notional return available from the FTSE All-Share Index over the period amounted to 141%, or 4.5% per annum

Revenue earnings per share for the year were 6.09p (13.48p in 2019). This is a better result than we had expected at the time of the Interim Report. In order to keep to our traditional payment timetable (see comments below on the timing of the AGM), we have decided to replace this year's final dividend with a second interim of 5p, making a total dividend of 8p (8p regular and 5p special in 2019). It will be paid on 9 April with an ex-dividend date of 18 February. It is too early to make any predictions for the current year; in particular, we cannot rule out the possibility of a cut.

Our ongoing charges ratio rose from 0.24% to 0.27%. This increase was almost entirely due to a lower daily average for the value of our assets (the increase in our expenses was well under ½%). This figure remains very low by industry standards and would have been lower still if calculated on the value of assets at 30 November 2020.

We have always been keen to buy in our own shares when it has been clearly in the interests of continuing shareholders to do so. For a period in the spring, the volatility of markets was such that we were unable to convince ourselves that this criterion would be met. However, once markets had calmed down, we re-entered the market and over the course of the year we were able to buy in rather over 560,000 shares at an average discount of 11.7%. 

The arrival of effective vaccines for Covid-19 has allowed markets to rally, in some cases to new peaks. The likelihood that we shall return to some form of normality in the year ahead may well continue to sustain them for some time, but eventually their unhealthy dependence on freakishly stimulative monetary conditions will have to be addressed. The UK market has, until recently, been a laggard in global terms and perhaps offers better value than some others, but it too is vulnerable to a return to monetary orthodoxy. We try to ensure that we are invested in companies strong enough to withstand the inevitable upheavals when this happens, and we believe the constituents of our current portfolio meet that criterion. We do not expect the departure of the UK from the European Union to have a material impact on our portfolio

We are planning to hold the AGM in the offices of Baillie Gifford at Calton Square at 4.30pm on 27 May 2021. This is a later date than would normally be the case, in order to give more time for the covid restrictions on attendance to clear. It will help our planning if we know how many shareholders are likely to attend, and I shall be grateful if you will mark the proxy form accordingly and return it to the Company's registrars. I look forward to seeing as many of you as possible there. The Board will, however, continue to monitor developments and any necessary changes will be posted on the Company's website www.independentinvestmenttrust.co.uk.

Douglas McDougall

14 January 2021

Past performance is not a guide to future performance.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Total return information is sourced from Baillie Gifford /Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.

Our performance over the year has been covered in the Chairman's Statement.

After a resilient first half performance, our technology holdings really came into their own during the second half of our year, converting a loss of £2.6m at 31 May into a profit of £14.2m at 30 November. The key contributors were Herald, Seeing Machines and Gamma Communications. At long last, Herald started to receive recognition for its outstanding record over the life of the Independent; new management at Seeing Machines has instilled the commercial disciplines that should finally allow the company to exploit its fine technology for the benefit of shareholders; and Gamma Communications has continued to bolster its position in cloud based telecommunications both here and in continental Europe. Both Blue Prism and FDM saw their operations hampered by Covid-19, but fared better than many had expected. Alfa Financial experienced the first signs of a long awaited upturn in its markets, but Zoo Digital, the only holding not to appreciate over the year, has still to make the breakthrough in its market place that we had hoped for. Overall, a position worth £64.9m at 30 November 2019 had grown in value to £69.8m by 30 November 2020 after net sales of £9.3m.

Our holdings in the travel and leisure sector had a value of £60.6m at 30 November 2019; by 30 November 2020, this had fallen to £47.6m after net sales of £29m. This strong performance split into an outstanding showing from our three computer games companies (the third, Codemasters, was sold after it was bid for) and a dismal showing from our (now much depleted) traditional holdings. The computer games companies were big beneficiaries of the restrictions on movement imposed round the world in response to Covid-19, just as the traditional leisure companies were severely hit by the same restrictions. In the latter part of our year, On the Beach and Loungers staged strong recoveries as hopes rose for a return to some form of normality following the announcement of successful vaccine trials. In the case of Loungers, trading in the summer and early autumn was also well ahead of general expectations.

Our dealings in housebuilders in the year under review were badly wrong-footed by the appearance of Covid-19. Early purchases in anticipation of a prolonged period of favourable trading conditions were looking good up until late February. The sector then suffered a sudden and dramatic change in investor sentiment as the prospect of lockdown threatened both the supply of housing and the demand for it. We were slow to recognize this, but felt that the scale of our position posed an unacceptable risk in the face of a possibly prolonged period of extremely difficult operating conditions. We therefore made substantial sales at what turned out to be distressed prices. This reflects one of the problems of investing with conviction: when the basis of one's conviction is seriously undermined in short order one is left with little choice but to prioritize risk over value. The net result was that we ended up buying high and selling low - a textbook example of how not to ply our trade, about which we feel suitably sheepish. On a happier note, the industry adapted quickly to the constraints imposed by the virus and enjoyed unexpectedly buoyant demand over the summer and early autumn. The most recent government restrictions have been unhelpful (but much less damaging than the initial lockdown), but our confidence in the long term outlook for the industry has been strengthened by the experiences of the last twelve months. After net sales of £3.8m, our housing stake fell in value from £53.6m at 30 November 2019 to £28.6m at 30 November 2020.

A wish to reduce the sensitivity of our portfolio to fluctuating economic conditions, together with considerations of value, led to tobacco reappearing in the portfolio after an absence of some years and to Direct Line Group joining our longstanding holding in the Polar Capital Insurance Fund. Our tobacco companies have performed well so far, but Direct Line was held back by regulatory issues. During the course of the year we eliminated our exposure to the oil and gas sector, which also had the effect of reducing the portfolio's economic sensitivity.

Our two healthcare holdings saw divergent share price performances. Medica suffered from a big drop in routine scans following the outbreak of Covid-19, while Oxford Biomedica benefited both from a greater range of collaborations with other biotechnology companies and from its involvement in the manufacture of the Astra Zeneca covid vaccine, although the latter will contribute more in terms of prestige than of profit.

New holdings were taken in Telecom Plus, a company which should benefit from more rational pricing in the household energy market, and Derwent London, a high quality West End property company whose shares looked cheap following concerns about the impact of working from home on office property prices.

Elsewhere in the portfolio, we were hurt by poorly timed sales of Ashtead and Fever-Tree, although we retained a holding in the latter. We sold out of the retailers Joules and The Works, fortunately before covid struck but at prices that were disappointing in relation to our book cost. Small holdings in NAHL and Eddie Stobart were also sold, realizing big losses. Finally, our old favourite, Midwich, had a difficult year owing to covid disruptions to its business but we remain hopeful that it can achieve a full recovery on a return to normal trading conditions.

Max Ward

14 January 2021

Past performance is not a guide to future performance.

List of Investments as at 30 November 2020 (unaudited)

All holdings are in equities domiciled in the UK unless otherwise stated.

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.

For the year ended 30 November 2020 (unaudited)

For the year ended 30 November 2019 (audited)

* The Capital Reserve balance at 30 November 2020 included an investment holding gain on fixed asset investments of £95,283,000 (2019 - gain of £96,327,000).

† 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.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Glossary of Terms and Alternative Performance Measures (APM)

Total Assets

The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Net Asset Value

Net Asset Value (NAV) is the value of all assets held less all liabilities (including liabilities in the form of borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

(Discount)/Premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings).

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

Net Asset Value

* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into shares of the Company at the cum income NAV at the ex-dividend date.

Share Price

* The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into shares of the Company at the last traded price quoted at the ex-dividend date.

Ongoing Charges (APM)

The total administrative expenses incurred by the Company as a percentage of the average shareholders' funds, calculated on a daily basis.

Available cash

Cash and cash equivalents as adjusted for investment and share buy-back transactions awaiting settlement.

Gearing

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which affect the sensitivity of the value of the portfolio to changes in the level of markets.

Net gearing/(cash) (APM) is borrowings less available cash (as defined above) and fixed interest securities (ex convertibles) divided by shareholders' funds.

Compound Annual Return

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compounded value at the start of each year.

Third Party Data Provider Disclaimer

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

FTSE Index data

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