IIT.L Regulatory News (IIT)

Legal Entity Identifier: 213800IYHGJTZJ3MO642

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).

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 a small registered 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.

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 2018, are financial risk, investment strategy risk, regulatory risk, custody risk, operational risk, discount risk, political risk and resource risk. An explanation of these risks and how they are being managed or mitigated is set out on pages 10 to 12 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.

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 Rule 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements, and a description of the 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 Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the board

Douglas McDougall

Chairman

12 July 2019

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

# Alternative performance measure, see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

† Source: Baillie Gifford/Refinitive and relevant underlying data providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

The six month period ending 31 May 2019 saw our Company produce a net asset value total return of 8.1%. The total returns notionally attributable to the FTSE All-Share Index and the FTSE World Index were 4.9% and 2.8% respectively. Our net asset value per share rose from 537.4p to 572.3p over the period, and the share price from 531p to 556p, causing the discount to net asset value to rise from 1.2% to 2.8%. The share price total return for the period was 6.2%.

Earnings for the half year amounted to 8.08p (5.8p). The buoyancy of our revenue account gives us confidence that the outcome for the full year will be significantly ahead of last year's figure. We are therefore paying an interim dividend of 3p on 23 August with an xd date of 1 August. We expect to recommend a final dividend of at least 5p with any surplus income being distributed by way of special dividend.

During the period we were able to buy back 50,000 shares at a discount of 5.1%. Subject to market conditions and the availability of cash, we continue to be happy to buy back stock when we can do so on terms that do not harm the interests of continuing shareholders. Since the end of the period we have bought back a further 393,649 shares on an average discount of 5.4%.

The Association of Investment Companies has unilaterally decided to change the sector under which The Independent is listed. Previously we were listed as a global trust, but we are now classified as a UK trust. It is true that most of our money has been invested in UK equities in recent years, but we have always had - and intend to retain - the freedom to invest in quoted equities wherever they are listed. We regret the fact that our new classification may mislead potential investors into believing that it is a permanent part of our formal investment policy to have a high UK stake.

Economic developments during the period have been rather overshadowed by political developments. Of particular note have been the belligerent tone adopted by the USA in its trade negotiations with China and Mexico, and the political chaos that has attended the apparently interminable Brexit process. The latter increases the possibility of Britain being subjected to an extreme left wing government, not an appetising prospect for investors. The most significant economic development of the period was the softening of central bank rhetoric on monetary policy. Markets have reacted favourably to this, but it can be argued that it should be a matter of concern that developed economies, many of which are operating close to capacity, are still not strong enough to cope with a normal interest rate environment.

This has been a quiet period for us with low turnover and only one new purchase, the café-bar chain Loungers. There have been no material changes in our sectoral distribution but, as foreshadowed in our annual report, our cash balances continued to rise: from 8.5% at 30 November 2018 to 14% at 31 May 2019. More recently they have fallen back a little: on 11 July they represented 12%.

Our technology holdings fell in value from £72.7m at 30 November 2018 to £70.15m at 31 May 2019, but this was after net sales of £11.5m and thus masked a solid underlying rebound from the depressed levels prevailing at the start of the period. We have sold the rest of our holding in Kainos on grounds of valuation; it did us proud. We have also taken advantage of the strong recovery in the Blue Prism share price to make a substantial net reduction in the size of the holding which, with the benefit of hindsight, had become too large. It remains a very exciting business, but the volatility of the share price is evidence of the difficulty we and others have in valuing it. Our sole technology purchase was an addition to our holding in Seeing Machines which, not for the first time in its chequered history, had run out of money. It is to be hoped that the funds raised, together with a more disciplined approach on the part of its new management team, will allow the company to bring its impressive technology to commercial fruition. Herald, FDM and Gamma all made good progress, both operationally and in share price terms, but Zoo Digital suffered from the loss of an important client and Alfa Financial remained becalmed by subdued market conditions.

Our large stake in the travel and leisure sector fared well during the period: worth £50.3m at 30 November 2018, it had grown in value to £55m at 31 May 2019 after net sales of £1.5m. The principal impetus to this performance was the publication of pleasing results by all of the constituent holdings apart from Gym Group, which fell behind on its schedule of new openings at a time of increasing competition in the low cost gym sector. It was a particular relief to see good results from our computer games companies, which had suffered badly in the stockmarket sell off in the second half of 2018. It was also reassuring to see solid results from On the Beach and Hollywood Bowl, both of which have had to contend with difficult trading conditions over the last year or so. Finally, we bought shares in the café-bar company Loungers at the time of its initial public offering. The Loungers format, which is particularly popular with women, is unusual in that it trades well throughout the day. This generates a high return on invested capital and thus facilitates a rapid rate of expansion. The company believes there is ultimately scope for at least three times the current number of outlets.

Our housebuilding holdings staged a moderate recovery from the depressed levels they had reached at the end of our last financial year: in aggregate they rose in value from £41.3m at 30 November 2018 to £45.5m at 31 May 2019 after purchases amounting to £0.7m. Our worry at the start of the year had been that the deterioration in trading evident in the latter part of 2018 might intensify given the uncertainties attending Brexit, but in the event the market has stabilized at a level that provides satisfactory sales rates for all our holdings. Coupled with a land market that remains unusually benign, this has led to profits meeting expectations and high levels of cash generation. Our view is that such results can only be reconciled with the current stockmarket valuations of these businesses if the industry is on the verge of a severe downturn in profitability. Such a development is always possible, particularly at a time when political and economic uncertainties abound, but it does not appear likely to us. Nor, were it to occur, would it alter our enthusiasm for the long term outlook for the sector. We are closer to adding to our stake in the industry than to abandoning it.

The performance of our business service holdings has been mixed. We took advantage of a good recovery in the Midwich share price to reduce our holding, more on grounds of the illiquidity of the holding than on any concerns about trading, which remains good. The LoopUp share price, whose poor performance in the period under review was caused by the company's decision to increase its cost base, has since collapsed following the disclosure that it also suffered a sharp deterioration in trading in the period. Shares in Eddie Stobart Logistics performed dismally over the period. It has subsequently emerged that trading has been somewhat disappointing and that new accounting policies will have a mildly negative effect on earnings expectations; despite these revelations, the shares now look very cheap. Overall, the value of our business services holdings fell from £29.1m at 30 November 2018 to £25.5m at 31 May 2019 after sales of £2.6m.

Retailing is no longer a particularly important part of the portfolio, but that did not prevent it from inflicting notable damage on our overall performance: a stake worth £16.8m at 30 November 2018 had declined in value to £14.5m by 31 May 2019 after a single sale amounting to £0.5m. Motorpoint, our largest holding in the sector, traded well but saw its share price succumb to fears over the outlook for the used car market. Joules also traded well and was rewarded with a modest increase in its share price. Both The Works and Quiz were affected by tough trading conditions on the high street and saw their share prices fall sharply; we sold the holding in Quiz at a big loss.

Elsewhere in the portfolio, good results from Fever-Tree allowed its share price to stage a partial recovery; continued strong operating progress at Ashtead went largely unrewarded by the market; and the share prices of both Medica and NAHL reacted with relief as results met previously reduced expectations. The Polar Capital Insurance Fund performed well, but our two energy holdings had a very difficult time as a shortage of pipeline capacity in the Permian Basin affected the economics of their businesses.

Ever since the financial crisis we have struggled to develop any confidence in the outlook for economies or stockmarkets. The most important factor in the outlook is probably the future of monetary policy. The extraordinary laxity of the last decade has continued for far longer than we had thought possible and there is no sign of its coming to an end in the near future. However, the behaviour of stockmarkets in the final quarter of 2018, when many believed that we were entering a period of more restrictive monetary conditions, was a salutary reminder of how uncomfortable conditions may be for investors when policy finally is tightened. In these circumstances, it seems sensible to operate with higher cash balances than we have held in the recent past.

The principal risks facing the Company are set out at the start of this announcement. 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.

Douglas McDougall

12 July 2019

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 period.

For the six months ended 31 May 2019

For the six months ended 31 May 2018

* The Capital Reserve balance at 31 May 2019 includes investment holding gains on fixed asset investments of £92,498,000 (31 May 2018 - gains of £165,092,000).

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.

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FTSE Index data

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* The dividend adjustment factor is calculated on the assumption that the dividends of 8.00p paid by the Company in the six months to 31 May 2019 were reinvested into shares of the Company at the cum income NAV per share/ share price, as appropriate, at the ex-dividend date.

Gearing (APM)

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.

Available Cash

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

The printed version of the Interim Financial Report will be sent to shareholders and will be available on www.independentinvestmenttrust.co.uk† on or around 23 July 2019. 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.

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