IIT.L Regulatory News (IIT)

Legal Entity Identifier: EMMWZ68BJXG580FSQ522

Regulated Information Classification: Half Yearly Financial Report.

The following information is disclosed in accordance with DTR 4.2 of the UKLA Listing Rules (half-yearly financial reports).

Objective and Policy

The Company's objective is to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities and, if appropriate, index futures. The portfolio is constructed without reference to the composition of any stockmarket index. Although its investment policy allows gearing, including the use of derivatives, the Company is not permitted to employ gearing whilst it continues to be registered as a small UK Alternative Investment Fund Manager (AIFM). When appropriate, the directors will sanction a relatively concentrated portfolio structure and, depending on its AIFM status, relatively high levels of gearing.

Principal Risks and Uncertainties

The principal risks facing the Company, which have not changed since the date of the Company's Annual Report and Financial Statements for the year to 30 November 2016, are financial risk, regulatory risk, custody risk, operational risk, discount/premium volatility risk, political risk and resource risk. An explanation of these risks and how they are being managed or mitigated is set out on pages 9 and 10 of that report, which is available on the Company's website: www.independentinvestmenttrust.co.uk. The Company's policy is designed to allow the Company an unusually high degree of freedom to exploit the directors' judgement. To the extent that the directors' judgement is flawed, future results could be unusually poor.

Responsibility Statement

We confirm that to the best of our knowledge:

a) the condensed set of financial statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b) the Chairman's Statement includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c) the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the board

Douglas McDougall

Chairman

17 July 2017

The six month period ending 31 May 2017 saw our company produce a net asset value total return* of 35.5%. The total returns* notionally attributable to the FTSE All Share Index and the FTSE World Index were 13.6% and 10.1% respectively. Our net asset value per share rose from 397.7p to 536p over the period, and the share price from 353p to 518p, causing the discount to net asset value† to fall from 11.2% to 3.4%. 

Earnings for the half year amounted to 4.43p (4.28p) and we intend to pay an interim dividend of 2p (5p). As always, the outcome for the year will depend upon changes made to the portfolio during the second half of the year, but we expect to recommend a final dividend of 3p with surplus income being distributed by way of special dividend. Over the six months we bought back a total of 60,000 shares for cancellation at a discount† of 7.3%. 

In line with the experience of recent years, it was a relatively uneventful period in economic terms with most parts of the industrialized world enjoying modest growth, low (but rising) inflation and improving employment. Against this background, the widely anticipated decision of the Federal Reserve Bank to start raising interest rates had little impact on stockmarkets, many of which made good progress on the back of favourable corporate earnings trends. A modest recovery in sterling was helpful to our portfolio with its domestic bias.

Once again activity has been dominated by companies that made their initial public offerings (IPOs) during the period, in this case UP Global Sourcing, Medica, Eddie Stobart Logistics and Alfa Financial Software. Together these accounted for £27m of the £38m purchases made during the six months and were showing a profit on cost of £4.9m at 31 May 2017. Most of our sales during the period represented profit taking in long term holdings for which we still have enthusiasm, although we did sell out of Telecom Plus on grounds of valuation. Our net cash balances fell from 4.7% at 30 November 2016 to 2.5% at 31 May 2017.

Our housebuilding holdings have staged a strong recovery from their disappointing performance in the second half of our last financial year. In contrast to the many gloomy predictions a year ago, the market for new homes has remained buoyant, especially where the homes in question have qualified for the government's Help to Buy scheme. Those of our holdings that have low average selling prices and a high exposure to first time buyers have enjoyed excellent trading conditions and produced results well in excess of the expectations we had before the vote to leave the European Union. Those with higher price points have seen a greater hesitancy in their customer base, but have still produced good results. The retirement homes specialist McCarthy and Stone, however, has struggled as its customers all have to sell into a decidedly soggy second hand market in order to finance their purchases. We continue to believe that the long term prospects for the industry are very good, but we recognize that there will be cyclical fluctuations along the way and that these will not always be predictable in advance. It is our confidence in the long term prospects together with our belief that these are not recognized in current valuations that persuade us to continue with our large housebuilding stake. The value of our unchanged stake rose from £51.0m at 30 November 2016 to £67.75m at 31 May 2017.

It has also been an outstanding period for our large technology and telecommunications stake: worth £44.6m at 30 November 2016, it had risen in value to £61.0m by 31 May 2017 after £5.9m of net sales. The star of the show was the robotic process automation company, Blue Prism, which has become something of a stockmarket darling as its software robots have been snapped up by big blue chip companies on both sides of the Atlantic. As always with investments that become fashionable, there is a danger that the share price may have run ahead of itself, but the scale of the opportunity confronting the company argues in favour of maintaining the position. Elsewhere, FDM, Gamma Communications and our old favourite Herald all delivered strong share price performances, of which we took advantage to realize some profits. Kainos enjoyed a modest increase in its share price despite suffering from a hiatus in orders from the NHS. Finally, towards the end of the period we took a stake in Alfa Financial Software at the time of its IPO. Alfa is a leading software provider to the asset finance industry with an impressive client base, a strong proprietary aspect to its products and apparently bright prospects.

A strong share price performance from On the Beach has once again been the feature of our travel and leisure stake, which rose in value from £24.7m at 30 November 2016 to £32.9m at 31 May 2017, after net purchases of less than £0.1m. The strength of the On the Beach share price is the more remarkable for having occurred against a background of difficult trading conditions and continual placings of private equity stock. With the trading outlook now much better and the private equity stake largely sold, we view the immediate future with some optimism, while the long term prospects continue to excite. Solid results from Gym Group have allowed its share price to stage a modest recovery, but that of Hollywood Bowl was largely unmoved by comforting trading news.

Our business services stake has been expanded by both the purchase of Eddie Stobart Logistics and the reclassification of Gama Aviation. Improving results from Gama helped to extend the rally in its share price from very depressed levels, while a surprisingly strong trading performance from Midwich, to which we added during the period, was well received by the market. Eddie Stobart, the firm that has used technology to derive clear competitive advantage in the transport market, had a quiet debut, while the recruitment company SThree, which we reduced during the period, showed some capital appreciation despite experiencing difficult trading conditions. Overall, a stake worth £11.4m at 30 November 2016 had grown in value to £25.9m by 31 May 2017, after net purchases of £9.7m.

The managing director's fascination with UK retailers has not added much value over the life of The Independent, but this has not blunted his enthusiasm for the sector. Indeed, we have taken advantage of a depressed share price resulting from uncharacteristically dull results to add to our old favourite Dunelm, an addition only partially offset by the profits we have taken in last year's IPO, Joules. Our third active holding, Motorpoint, enjoyed a good recovery in its share price on the back of much improved results. Overall, our retail holdings grew in value from £15.2m at 30 November 2016 to £19.3m at 31 May 2017, after net purchases of £1.1m.

Once again, Fever-Tree's performance, both operationally and in share price terms, has been such as to justify a paragraph to itself. Sales growth in all markets, but most particularly in the UK (arguably its most mature market), has been quite extraordinary. The stockmarket was unusually slow to recognize the implications of this at the time of the annual sales announcement, offering us a chance to add to our already large holding on advantageous terms. It can be argued that the shares are now generously valued in relation to market expectations, but such expectations have been hopelessly low in the past. Moreover, we place considerable value on the company's dominant position in the global market for premium soft drink mixers. At the moment, the risk of selling too early, a sin we have already committed on more than one occasion, looks at least as big as the risk of selling too late.

Elsewhere in the portfolio, recent IPOs Medica, Luceco and UP Global Sourcing all produced dazzling returns, while the more mature holdings Ashtead, Polar Capital and Bluefield Solar made more modest progress. NAHL, however, was hurt by continuing uncertainty over the future of its small claims processing business.

In our last annual report, we listed the many features of the economic and political landscape that were of concern to us. This list has not grown any shorter and some of our concerns - for example the political outlook in the UK - have intensified, but this has not prevented world stockmarkets from delivering strong returns. More importantly from our point of view, the current environment is one in which many of our companies are flourishing. It is impossible to predict how long this happy state of affairs will last, but as long term investors we take confidence in the underlying strengths of the businesses we are invested in. 

The principal risks facing the Company are set out at the start of this report. We draw your attention, in particular, to the unusually important role of the directors' judgement in the success or failure of the Company's policy. Related party transactions disclosures are set out in note 7 of the notes to the condensed financial statements below.

* Total returns include the reinvestment of dividends on the date the shares are quoted ex-dividend. Source: Baillie Gifford/Thomson Reuters Datastream and relevant underlying index providers. See disclaimer at the end of this announcement.

† When the Company's share price is lower than its net asset value per share the shares are said to be trading at a discount. The size of the discount is calculated as the difference between these two figures expressed as a percentage of the net asset value per share. 

Douglas McDougall

17 July 2017

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

* Suspended security.

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 all gains and losses of the Company have been reflected in the above statement.

For the six months ended 31 May 2017

For the six months ended 31 May 2016

* The Capital Reserve balance at 31 May 2017 includes investment holding gains on fixed asset investments of £121,558,000 (31 May 2016 - gains of £66,473,000).

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The Interim Financial Report will be available at www.independentinvestmenttrust.co.uk† and will be posted to shareholders on or around 27 July 2017. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

† 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.