Capital Gearing Trust P.l.c. - Half-Year Results - 30 September 2024
(the ‘Company’)
Unaudited Half-Year Results for the six months ended
Legal Entity Identifier: 213800T2PJTPVF1UGW53
Information disclosed in accordance with DTR 4.2.2
Financial Summary and Highlights
30 September 31 March
2024 2024
Share Price 4,760.0p 4,695.0p
NAV per Share 4,847.7p 4,810.5p
Share Price Discount to NAV per Share(1) 1.8% 2.4%
Market Capitalisation £959.0m £1,034.7m
Shareholders’ Funds £976.7m £1,060.2m
Total Return Performance to
6 months 1 Year 3 Years 5 Years 10 Years
(%) (%) (%) (%) (%)
Share Price(1) 3.1% 5.8% (1.8)% 15.9% 69.5%
NAV per Share(1) 2.4% 5.6% 2.5% 20.4% 78.2%
Consumer Price Index (‘CPI’)(2) 0.9% 1.7% 19.4% 23.7% 33.8%
Source: AIC/LSEG/ONS.
(1) Please refer to the Half-Year Report for a glossary of terms and definitions.
(2) The Company does not have a formal benchmark but uses the Consumer Price Index (‘CPI’) as a relative measure over the medium to longer term.
-- Net asset value (‘NAV’) total return of +2.4%. This compares with the
Consumer Price Index return of +0.9%. The share price total return over
the period was +3.1%.
-- All parts of the portfolio contributed positively but most of the return
came from the risk asset and the corporate credit holdings.
-- The discount ended the six-month period at the slightly lower level of
1.8% compared to 2.4% as at 31 March 2024 .
-- The discount / premium control policy (‘DCP’), which aims to ensure
that, in normal market conditions, the Company’s ordinary shares trade
at close to underlying asset value, has worked well over the period
under review. The Board believes that the ability of shareholders to buy
or sell shares at a price close to the prevailing NAV is a valuable and
distinguishing attribute of the Company that serves shareholders’ best
interests.
-- On Monday 18 November 2024 at 11.00 a.m. , the Investment Managers will
present the Company’s Half-Year Results via the London Stock Exchange’s
Sparklive webcasting service. Investors and potential investors are
invited to sign up for the event via the following link:
Chairman’s Statement
Performance
The Company’s objective is to preserve and, over time, to grow shareholders’ real wealth. I am pleased to report that this has been modestly achieved over the reporting period with a NAV total return of +2.4%. This compares with the Consumer Price Index (‘CPI’) return of +0.9%. The share price total return over the period was +3.1% as the discount ended the six-month period at the slightly lower level of 1.8% compared with 2.4% as at
Further details regarding the Company’s performance can be found in the Investment Manager’s Report below.
Discount/Premium Control Policy
Our DCP, which aims to ensure that, in normal market conditions, the Company’s ordinary shares trade at close to underlying asset value, has worked well over the period under review. The DCP encompasses both share issuances at a premium and share buybacks at a discount.
Consistent with the experience of many investment companies across different asset classes, the Company has been required to significantly increase the rate of its share buybacks this year to meet the objective of the DCP. Demand for investment trusts from both retail and wealth management buyers remains lacklustre. In addition, recently a number of investors were crystallising capital gains ahead of Labour’s first budget, a factor that seemingly exacerbated the imbalance between supply and demand. It is hoped that the market will return to some semblance of normality now there is more clarity on capital gains taxation for investors. Against this backdrop the Company has repurchased 1,891,138 shares for a total consideration of £89.8 million over the six months to
Income and Distributions
The amount the Company receives in dividends and interest is the outcome of the application of its investment policy, and the amounts distributed to shareholders are designed to satisfy the Company’s annual income distribution test to ensure that it maintains its investment trust status.
In the annual report for the year ended
Investment Trust Cost Disclosure
As shareholders may be aware, the investment trust industry, fronted by its governing body, the
Since 2021, European investment regulations which had been transcribed into
It was announced recently that ahead of a broader reconsideration of cost disclosure requirements by regulators, the industry has been afforded some respite through a temporary suspension of the rules. We are yet to see whether this results in an increase in demand for investment trusts since there are other headwinds playing their part at present.
Company Advisers
As reported in my annual statement, the Board conducted a review of its operational arrangements in late 2023 and, following the completion of that review, the Board appointed
I would like to place on record my thanks to the various advisers guiding us concerning these changes and to my fellow Directors who devoted a lot of extra time to the process to ensure a successful conclusion.
Half-Year Report
In common with many other listed entities the Company is doing what it can to reduce its carbon footprint. As part of this strategy, and also to achieve cost savings for the benefit of shareholders, the Company will no longer be preparing printed copies of its Half-Year Report. This document will continue to be available on the Company’s website at www.capitalgearingtrust.com . The Company’s annual report will continue to be available in print.
Board Update
The Board plans for succession to ensure it retains an appropriate balance of skills, knowledge and diverse perspectives. To this end, we commenced two recruitment campaigns this year and, as a result, we were delighted to welcome
We bade farewell to
As detailed in my annual statement, I will retire at the Company’s AGM in
Marketing, Promotion and Shareholder Interaction
Following enhancements to investor relations and marketing resource, as mentioned above, the Board is working with
There will be an opportunity to hear from the Investment Managers on Monday
Outlook
The significant increase in buybacks, reflecting the operation of the DCP, has now reduced the Company’s market capitalisation to under £1 billion. Your Board believes that the ability of shareholders to buy or sell shares at a price close to the prevailing NAV is a valuable and distinguishing attribute of the Company that serves shareholders’ best interests. The operation of the DCP insulates shareholders from the reduced secondary market liquidity often associated with smaller trusts and puts the Company in a strong position to grow again as shareholder sentiment improves.
The Board has recently completed a review of the Company’s investment remit and concluded that it remains appropriate and that the Company represents a compelling investment vehicle for those seeking to preserve and, over time, grow real wealth over the medium term.
Our Investment Managers consider the preservation of wealth to be a central objective and view the medium-term outlook with caution. This comes not only from the many geopolitical concerns that surround us but the threat from persistent inflation impacting interest rates and economic growth both here and abroad. While this makes for a challenging time, our Investment Managers will, as always, be alert to market opportunities as and when they arise.
Chairman
Investment Manager’s Report
Performance and Portfolio Positioning
The Company delivered a NAV total return of +2.4% and a share price total return of +3.1% during the first six months of its financial year. All parts of the portfolio contributed positively but most of the return came from the risk asset (1) and corporate credit holdings. Performance would have been stronger, had it not been for the appreciation of sterling, which gained in value by 7% against the dollar. After an extended period of political instability, the election of a Labour Government, with a sizable majority, helped sterling to be one of the strongest performing currencies globally. Whether this sterling strength will last as the new Government runs into political headwinds is an open question.
Attribution Analysis
Return on portfolio Cash and Treasury Bills 0.20% Credit 0.30% Index-Linked Bonds 0.20% Gold 0.10% Alternatives 1.00% Property 0.30% Equities 0.30% Gross return 2.40% NAV accretion from share buybacks 0.40% Management fee and costs -0.30% Corporation tax -0.10% Net return 2.40%
Risk asset weightings started the period at 28% and the allocation rose to 33% by the end due to a combination of additions and organic performance. Investment trusts are a key focus of the Company’s allocation to risk assets, comprising approximately 25% of the overall portfolio. Investment trust discounts started the period at historically wide levels so the Company was actively adding to these positions, particularly in alternative investment trusts. New positions include
Investment trust discounts appear to be bottoming out after two years of poor relative performance. Over the period the Investment Trust Index returned +3.9%, delivering better returns in sterling than the MSCI World Index (+3.1%) and the Company’s risk assets exceeded the return of the Investment Trust Index, returning +5.0% over the period. We hope this is a trend that will continue into the medium term. The credit portfolios also performed well, indeed so well that credit spreads no longer seem sufficiently wide to justify the additional risk over holding Treasury Bills. As a result the credit portfolio was reduced from 12% to 9% of the portfolio through a combination of disposals and maturing bonds.
Perhaps the most significant change in the period was the reduction in our holdings of index-linked bonds, which fell from 44% of the portfolio to 34%. The main change was in our holdings of
Outlook
It is widely known that every US recession since the second world war was preceded by an inverted
Whilst a US recession in the next 12 months is not our central expectation it is notable how many US economic indicators are slowing, in some cases markedly. Key amongst these are falling consumer confidence, falling wage growth, rising unemployment and falling future capital expenditure intentions. It is clear that less affluent Americans are feeling stretched as evidenced by the very low savings rate. On balance we think the implied forecast of six interest rate cuts is too pessimistic but a slowdown seems all but assured.
The combination of an economic slowdown (recession or not) and very high US equity valuations could make for a testing time for investors in US equities. Much of the recent equity market performance has been driven by the “magnificent seven” hyperscale technology companies that are central to the development of Generative Artificial Intelligence (‘AI’). Goldman Sachs estimates that the capital expenditure to build AI infrastructure will cost $1tn in the coming years and they are sceptical that there are general applications valuable enough to deliver a good return on this investment. News that the infamous mothballed nuclear plant at
Much like the internet inspired dot-com boom (and bust) even if AI does prove to be revolutionary technology it seems likely we are at least a decade away from deploying it in a way that meaningfully impacts economy wide productivity. The early 2000’s proved that a slowing economy combined with post-bubble asset write-downs could inflict very serious losses on investors even in the absence of a serious recession. The American economist
It is this concerning prospect that means we retain a constrained weighting to equities even though the discount opportunities in investment trusts are at their most attractive level for a decade. Our risk asset weightings have increased from 28% at the start of the period to 33% at the end but that could well be at the high point in this cycle. We are taking profits in several positions that have performed well, and as such, dry powder (1) now sits at 31% of the portfolio. This will help to ensure that the portfolio could withstand the stern test that may be coming our way, and will provide optionality to redeploy these resources into yield-seeking assets as the risk environment moderates.
Investment Management Team
(1) Please refer to the Half-Year Report for a glossary of terms and definitions.
Portfolio Investments
at
The top ten
(1)
investments in each asset category are listed below. The full portfolio listing of the Company as at
30 September 31 March
2024 2024
£’000 £’000
Index-Linked Government Bonds
Index-Linked Bonds – United States 199,434 175,243
Index-Linked Bonds – United Kingdom 121,695 238,005
Index-Linked Bonds – Sweden 11,557 32,182
Index-Linked Bonds – Japan 2,132 16,985
Index-Linked Bonds – Canada 2,537 5,036
337,355 467,451
Conventional Government Bonds
Conventional Government Bonds – Japan 136,099 34,837
Conventional Government Bonds – United Kingdom 66,053 110,063
Conventional Government Bonds – Sweden – 5,553
202,152 150,453
Preference Shares/Corporate Debt
NB Private Equity Partners ZDP 2024 5,774 4,919
BP Capital Perpetual Bond 5,761 5,629
Network Rail 1.75% 2027 4,902 4,829
abrdn Asia Focus 2.25% 2025 4,878 4,431
RMS IL 2.8332% 2035 4,535 4,451
Akelius Residential Property 2.375% 2025 4,323 4,239
Dwr Cymru (Financing) 4.377% 2026 4,222 –
British Telecom 3.65% 2025 4,041 –
abrdn 5.25% 2071 4,033 3,835
Enquest 11.625% 2027 3,441 –
Other Preference Shares/Corporate Debt Investments 47,901 92,082
93,811 124,415
Funds/Equities
iShares MSCI Japan ESG Screened UCITS ETF 33,389 43,719
Vanguard FTSE 100 UCITS 25,045 24,311
North Atlantic Smaller Companies Investment Trust 17,490 15,981
Vanguard FTSE 250 UCITS 15,125 –
SPDR MSCI Europe Energy UCITS ETF 15,005 17,835
BH Macro 10,868 –
3i Infrastructure 9,969 7,586
International Public Partnerships 9,965 8,441
HICL Infrastructure 9,911 7,650
Polar Capital Global Financials Trust 7,819 –
Other Fund/Equity Investments 174,047 174,932
328,633 300,455
Gold
Wisdomtree Physical Swiss Gold 10,449 11,018
10,499 11,018
Total Investments 972,400 1,053,792
Cash 20,997 11,643
Total 993,397 1,065,435
(1) some asset categories comprise fewer than ten investments.
30 September 31 March
2024 2024
Asset Allocation Analysis
Index-Linked Government Bonds 34% 44%
Funds/Equities 33% 28%
Cash 3% 1%
Conventional Government Bonds 20% 14%
Preference Shares/Corporate Debt 9% 12%
Gold 1% 1%
100% 100%
Currency Allocation Analysis
Sterling 52% 65%
US Dollar 28% 22%
Japanese Yen(1) 14% 5%
Euro 2% 2%
Swedish Krona 2% 4%
Other 2% 2%
100% 100%
(1) Currency exposure is before the effect of currency hedging.
Interim Management Report
A review of the half-year and the outlook for the Company can be found in the Chairman’s Statement and the Investment Manager’s Report.
Principal Risks and Uncertainties
The principal risks faced by the Company fall into the following broad categories: investment strategy and performance; share price premium/discount level; operational risk, regulatory and governance risk, and financial and economic risk. Information on each of these areas is given in the Strategic Review within the Annual Report for the year ended
The Directors continue to work with the agents and advisers to the Company to manage the risks, including any emerging risks, as best they can.
Related Party Transactions
Details of related party transactions are contained in the Annual Report issued in
Going Concern
The Company’s investment objective and business activities, together with the main trends and factors likely to affect its development and performance are monitored continuously by the Board. The Directors believe that the Company is reasonably well placed to manage its business risks and, having reassessed the principal risks, consider it appropriate to continue to adopt the going concern basis of accounting in preparing the interim financial information.
Statement of Directors’ Responsibilities
Each Director confirms that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting); and
(ii) the Half-Year Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and 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 includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last annual report that could do so; and
(iii) the Half-Year Report, taken as a whole, is fair balanced and understandable and provides information necessary for shareholders to access the Company’s performance, position and strategy.
This Half-Year Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
For and on behalf of the Board
Chairman
Condensed Income Statement
(unaudited) (unaudited)
Six months ended Six months ended
30 September 2024 30 September 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net gains/(losses) on
investments held at fair – 15,334 15,334 – (27,390) (27,390)
value
Net currency gains/(losses) – 32 32 – (82) (82)
Investment income (note 2) 10,708 – 10,708 13,627 – 13,627
Other income 205 – 205 160 – 160
Gross return 10,913 15,366 26,279 13,787 (27,472) (13,685)
Investment management fee (2,015) – (2,015) (2,188) – (2,188)
Other expenses (774) – (774) (538) – (538)
Net return before tax 8,124 15,366 23,490 11,061 (27,472) (16,411)
Tax charge (530) – (530) (1,818) – (1,818)
Net return attributable to 7,594 15,366 22,960 9,243 (27,472) (18,229)
equity shareholders
Net return per share (note 3) 36.16p 73.15p 109.31p 36.47p (108.40)p (71.93)p
The total column of this statement represents the Income Statement of the Company. The Revenue return and Capital return columns are supplementary to this and are prepared in accordance with the Statement of Recommended Practice issued by the
All revenue and capital items in the above statement derive from continuing operations.
There are no gains or losses other than those recognised in the Income Statement.
The accompanying notes are an integral part of the condensed financial statements.
Condensed Statement of Changes in Equity
For the six Called-up Capital Unrealised Realised
months Special Revenue
ended Share redemption capital capital Total
30September reserve* reserve*
2024 capital reserve reserve* reserve* £’000
(unaudited) £’000 £’000
£’000 £’000 £’000 £’000
Opening
balance at 6,645 16 1,037,403 (9,215) 7,670 17,654 1,060,173
1 April
2024
Net return
for the – – – 10,960 4,406 7,594 22,960
period
Repurchase
of shares
into – – (89,840) – – – (89,840)
treasury
(note 6)
Dividends
paid (note – – – – – (16,598) (16,598)
4)
Closing
balance at 6,645 16 947,563 1,745 12,076 8,650 976,695
30September
2024
For the six Called-up Share Capital Unrealised Realised
months Revenue
ended Share premium redemption capital capital Total
30September reserve*
2023 capital account reserve reserve* reserve* £’000
(unaudited) £’000
£’000 £’000 £’000 £’000 £’000
Opening
balance at 6,645 1,101,753 16 (7,973) 140,426 18,852 1,259,719
1 April
2023
Net return
for the – – – (24,365) (3,107) 9,243 (18,229)
period
Repurchase
of shares
into – – – – (102,065) – (102,065)
treasury
(note 6)
Dividends
paid (note – – – – – (15,577) (15,577)
4)
Closing
balance at
30 6,645 1,101,753 16 (32,338) 35,254 12,518 1,123,848
September
2023
* These reserves are available for distribution except for the gains and losses relating to Level 3 investments.
The accompanying notes are an integral part of the condensed financial statements.
Condensed Statement of Financial Position
at
(unaudited) (audited)
30 September 31 March
2024 2024
£’000 £’000
Fixed assets
Investments held at fair value through profit or loss 972,400 1,053,792
(note 7)
Current assets
Debtors 3,595 4,500
Cash 20,997 11,643
24,592 16,143
Creditors: amounts falling due within one year (20,297) (9,762)
Net current assets 4,295 6,381
Net assets 976,695 1,060,173
Capital and reserves
Called-up share capital 6,645 6,645
Capital redemption reserve 16 16
Special reserve 947,563 1,037,403
Capital reserve 13,821 (1,545)
Revenue reserve 8,650 17,654
Total equity shareholders’ funds 976,695 1,060,173
Net asset value per Ordinary share 4,847.7p 4,810.5p
The accompanying notes are an integral part of the condensed financial statements.
The Half-Year Financial Report for the six months ended
Chairman
Condensed Cash Flow Statement
for the six months ended
(unaudited) (unaudited)
Six months Six months
ended ended
30 September 30 September
2024 2023
£’000 £’000
Net cash inflow from operating activities (note 5) 7,123 5,821
Purchases of investments (648,871) (339,122)
Sales of investments 759,982 440,413
Net cash inflow from investing activities 111,111 101,291
Equity dividends paid (16,598) (15,577)
Repurchase of shares into treasury (92,002) (100,185)
Cost of share buybacks paid (280) (110)
Net cash outflow from financing activities (108,880) (115,872)
Increase/(decrease) in cash 9,354 (8,760)
Cash at start of period 11,643 13,766
Cash at end of period 20,997 5,006
The accompanying notes are an integral part of the condensed financial statements.
Notes to the Financial Statements
for the six months ended
1. Basis of preparation
The condensed Financial Statements for the six months to
2. Investment income
(unaudited) (unaudited)
Six months Six months
ended ended
30 September 30 September
2024 2023
£’000 £’000
Income from investments
Interest from UK bonds 3,754 5,116
Income from UK equity and non-equity investments 3,415 4,740
Interest from overseas bonds 1,033 3,474
Income from overseas equity and non-equity investments 2,506 297
Total income 10,708 13,627
3. Net return per share
The calculation of return per share is based on results after tax divided by the weighted average number of shares in issue during the period, excluding shares held in treasury, of 20,147,589 (
The revenue, capital and total returns per share are shown in the Income Statement.
4. Dividends paid
(unaudited) (unaudited)
Six months Six months
ended ended
30 September 30 September
2024 2023
£’000 £’000
2023 Dividend paid 10 July 2023 (60.0p per share) – 15,577
2024 Dividend paid 5 July 2024 (78.0p per share) 16,598 –
5. Reconciliation of net return before tax to net cash inflow from operating activities
(unaudited) (unaudited)
Six months Six months
ended ended
30 September 30 September
2024 2023
£’000 £’000
Net return before tax 23,490 (16,411)
Adjustments for:
(Gains)/losses on investment held at fair value (15,334) 27,472
Decrease in prepayments 28 16
(Decrease)/increase in accrued income (750) 16
Overseas withholding tax reclaimed/(paid) 32 (29)
Decrease in recoverable tax – 3
UK Corporation tax paid (884) (1,006)
Increase in dividends receivable (183) (326)
Decrease/(increase) in accrued interest 692 (3,832)
Realised gains/(losses) on foreign currencies 32 (82)
Net cash inflow from operating activities 7,123 5,821
6. Ordinary shares
During the period, the Company repurchased 1,891,138 shares for a cash consideration of £89,840,000 (six months to
At
7. Fair value of financial assets and liabilities
Financial Reporting Standard 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1: valued using unadjusted quoted prices in active markets for identical assets;
Level 2: valued using observable inputs other than quoted prices included within Level 1; and
Level 3: valued using inputs that are unobservable and are valued by the Directors using International Private Equity and Venture Capital Valuation (‘IPEV’) guidelines, such as earnings multiples, recent transactions and net assets, which equate to their fair values.
The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy as follows:
(unaudited)
Level 1 Level 2 Level 3 As at
Financial assets held at fair value 30 September 2024
through profit or loss £000 £000 £000
Total
£000
Quoted securities 970,023 – – 970,023
Unquoted equities – – 2,377 2,377
Total fair value of financial assets 970,023 – 2,377 972,400
(audited)
As at
Financial assets held at fair value Level 1 Level 2 Level 3
through profit or loss 31 March 2024
£000 £000 £000
Total
£000
Quoted securities 1,051,371 – – 1,051,371
Unquoted equities – – 2,421 2,421
Total fair value of financial assets 1,051,371 – 2,421 1,053,792
8. General information
The financial information contained in this Half-Year Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half-years ended 30
A copy of the Half-Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Half-Year Report will also shortly be available on the Company's website at www.capitalgearingtrust.com where up to date information on the Company, including daily NAV and share prices, factsheets, quarterly reports, webinars and portfolio information can also be found.
-ENDS-
Company Secretary
For further information contact:
Investment Manager
Tel: 020 3906 1649
Company Secretary
company.secretary@capitalgearingtrust.com
Tel: 07376 982071
Tel: 020 3757 6882
