Announcement
FLLYR: BIT: BIT - Annual Financial Report
08:30am
BIT
18/01/2022 08:30
FLLYR
PRICE SENSITIVE
REL: 0830 HRS The Bankers Investment Trust Plc
FLLYR: BIT: BIT - Annual Financial Report
PLEASE REFER TO THE PDF TO VIEW THE FULL ANNOUNCEMENT
LEGAL ENTITY IDENTIFIER: 213800B9YWXL3X1VMZ69
THE BANKERS INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 October 2021
This announcement contains regulated information
Performance Highlights1 31 October 2021 31 October 2020
Net Asset Value per ordinary share
- With debt at par 120.9p 97.6p
- With debt at market value 120.7p 97.4p
Share price at year end2 114.0p 98.0p
Dividend per share for year3 2.176p 2.154p
31 October 2021
31 October 2020
Dividend growth 1.0% 3.1%
(Discount)/premium at year end4 (5.7%) 0.4%
Net gearing/(cash) at year end5 6.6% (1.1%)
Ongoing Charge for year 0.48% 0.50%
Long term growth record to 31 October 2021
1 year %
3 years %
5 years %
10 years %
15 years %
Capital return6
Net asset value 24.1 40.1 60.8 174.3 172.3
Share price 16.3 36.5 65.2 196.1 195.7
FTSE World Index7 29.8 44.3 61.1 112.2 93.3
Total return8
Net asset value 26.5 49.3 79.2 247.7 295.0
Share price 18.6 45.5 84.4 278.1 339.6
FTSE World Index7 32.3 54.2 83.1 188.1 213.7
Dividend 1.0 10.3 28.0 71.3 129.5
Consumer Price Index 4.2 6.5 12.3 20.3 41.0
Comparative figures for 2020 have been adjusted following the 10 for 1 share
split on 1 March 2021
1 A glossary of terms and alternative performance measures can be found in
the Annual Report
2 Share price is the mid-market closing price
3 This represents the four ordinary dividends recommended or paid for the
year (see the Annual Report for more details)
4 Based on the mid-market closing price with debt at par
5 Net gearing/(cash) is calculated in accordance with the gearing definition
in the alternative performance measures in the Annual Report
6 Capital return excludes all dividends
7 For the 5, 10 and 15 years, this is a composite of the FTSE World Index and
the FTSE All-Share Index
8 Total return assumes dividends reinvested
Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream
CHAIR'S STATEMENT
o Net asset value total return increase of 26.5%.
o Share price total return increase of 18.6%.
o Average discount to net asset value of 0.04%.
o Dividend increase of 1.0% to 2.176p per share.
o Forecast increase in current financial year dividend of at least 3.0%.
Financial performance
Over the year ended 31 October 2021, the Company's NAV per share increased by
24.1% (2020: 3.0%) in capital terms. With dividends reinvested, the NAV
total return per share of 26.5% (2020: 5.3%) was strong in absolute terms but
lagged the FTSE World Index on a relative basis as the Index achieved a total
return of 32.3% (2020: 4.3%). All returns are in sterling.
The announcement of successful Covid-19 vaccine trials early in the financial
year provided further impetus to the economic recovery that had begun months
earlier. The success of Covid-19 vaccine rollouts in most advanced
economies, together with ongoing fiscal stimulus and easy monetary support,
allowed many economies to recover more quickly than expected. In the wake of
this recovery came supply chain bottlenecks, labour shortages and sharp rises
in energy prices and the resultant price pressures propelled inflation to
levels not seen for many years. As the year progressed inflation concerns
grew and led to increased volatility as investors speculated as to when the
US central bank would begin to tighten monetary policy. Worries over the
evolution of Covid-19 continued to recur, particularly in response to news of
further variants and concerns over the effectiveness of current vaccines.
Covid-19 was a massive shock to the global economy and, inevitably, the
recovery was going to be bumpy. Reflecting these bumps, the global stock
market recovery was led, at separate times, by highly cyclical companies
rallying on a strengthening economic recovery and high growth companies, with
defensive equities appreciating but lagging the broader market.
It is disappointing to report underperformance of our benchmark this year.
However, the Company is a long-term investor and our portfolio has a more
defensive tilt than the broader market. This means that, at times of rampant
stock market growth, it is more challenging for our Manager to outperform the
benchmark (but, in falling markets, our portfolio is generally more resilient
than the broader market).
All our regional portfolios, with the exception of China, delivered positive
returns and two (US and Pacific (ex Japan and China)) outperformed their
respective local benchmarks over the financial year. Having been a
significant contributor to performance since its inception in 2014, our China
portfolio was the biggest detractor from our overall performance. Its
benchmark return was among the lowest in global markets, and our portfolio
underperformed the benchmark. Whilst there may continue to be some relative
weakness in the Chinese stock market in the short term, we believe that, on a
longer-term view, the investment case for China remains intact. Details of
the performance of the Company, our regional portfolios and global markets
during the year are included in the Fund Manager's and Regional Portfolio
Manager Reports in the Annual Report.
Our share price total return over the year was 18.6% (2020: 8.1%), lower than
our NAV total return as our shares de-rated from a 0.4% premium at 31 October
2020 to a discount of 5.7% at 31 October 2021. Over the year, our shares
traded at an average discount of 0.04% (2020: average premium 0.3%).
Revenue and dividends
I am pleased to report that the Company's revenue in 2021 has recovered
faster from the initial effects of the pandemic than I anticipated in my
statement last year, with our revenue earnings per share increasing by 29% to
2.17p (2020: fell 22% to 1.68p). The Board, therefore, is recommending a
final quarterly dividend of 0.55p per share, to be paid on 28 February 2022
to shareholders on the register of members at the close of business on 28
January 2022. If approved by shareholders at the forthcoming AGM, this will
result in total dividends per share for the year of 2.176p (2020 2.154p), an
increase of 1.0%, which is double our forecast for the year. This will be
the Company's 55th successive year of annual dividend growth.
The ability to use the revenue reserve to help smooth the level of dividend
payments over the longer term is a distinguishing feature of investment
trusts. After taking into account the recommended final 2021 dividend
payment, if approved, approximately ?0.2 million (2020: ?6.4 million),
equivalent to 0.015p per share (2020: 0.491p per share), will be transferred
from our revenue reserve. Adjusted for that transfer and the third and final
dividends, our revenue reserve at the year-end amounts to approximately ?24.1
million (2020: ?24.3 million), or 1.84p per share (2020: 1.87p per share).
Higher expected dividend receipts, together with the revenue reserve, gives
the Board confidence to forecast dividend growth of at least 3%, equivalent
to total dividends of 2.24p per share, for the current financial year.
Borrowings
The Company has traditionally maintained a range of borrowings to provide
balance between longer-term and short-term maturities and between fixed and
floating rates of interest. During the year, the Company issued ?37 million
senior unsecured fixed rate private placement loan notes at an annualised
coupon of 2.28% maturing in 2045 and EUR44 million senior unsecured fixed
rate private placement loan notes at an annualised coupon of 1.67% maturing
in 2041. The Board considers that such financing on the terms obtained to be
highly attractive. The issuance, which anticipated the repayment of the
Company's ?15 million 8% debenture stock due in 2023, gives our Manager more
scope to take advantage of suitable investment opportunities within the
Company's existing gearing limit and and is expected to enhance long-term
investment returns for shareholders. The Company also has in issue ?50
million senior unsecured fixed rate private placement loan notes at an
annualised coupon of 3.68% maturing in 2035.
The Company's ?20 million short-term borrowing facility with SMBC Bank
International plc expires in February 2022 and we are in the process of
renewing it for a further two years. The Company continually reviews
opportunities to deploy gearing and the short-term facility gives our Manager
additional flexibility to invest and create returns for shareholders.
Share split, issues and buy-backs
At last year's AGM, shareholders approved a resolution to sub-divide each
ordinary share of 25p into 10 ordinary shares of 2.5p each (the share split).
The share split took effect on 1 March 2021. Prior year figures reported in
the Annual Report have been adjusted for the share split.
When the shares are trading at a premium, the Company may issue new shares
(or sell shares out of treasury) to meet market demand. Conversely, when the
shares are trading at a discount, the Company may buy back shares, taking
account of prevailing market conditions, the level of the discount (both
absolute and relative to the Company's closest peers) and the impact on the
NAV per share. The Company only issues new shares (or sells shares from
treasury) and buys back shares at prices which enhance the NAV per share and
when it is considered in shareholders' interests to do so. During the year,
the Company issued 14,750,000 new shares (2020: 65,510,000 issued or sold
from treasury), raising gross proceeds of ?26.3 million (2020: ?57.0 million)
and bought back 2,031,754 shares (2020: none) to be held in treasury at an
aggregate cost of ?2.3 million. Since the year end, no further shares have
been issued or bought back.
A focus on ESG matters
Environmental, social and governance matters have been a focus for the Board
over the last three years as we believe their integration into the Company's
investment process are important elements in achieving its investment
objective. In recognition of the growing importance of ESG matters, our
Manager has been investing in this area through expanding its dedicated
resources. Our approach to ESG is covered in the Annual Report. Financial
reporting has been developed over centuries. ESG reporting is evolving much
more quickly but the current measures have their weaknesses. The key points
now are that the Board discusses ESG matters with our Fund Manager and
Regional Portfolio Managers when they present to us and we continue to review
and assess the integration of ESG matters into the investment process and
consider the most appropriate metrics for measuring our portfolio of
investments against available benchmarks and other relevant information.
Board changes
Further to my statement at the half year, recruitment for a new Director
concluded with the appointment of Simon Miller, which was announced on 27
July 2021, and he joined the Board on 1 January 2022. Simon brings extensive
financial services knowledge to the Board. Having served on the Board for
nine years, I will be retiring at the conclusion of this year's AGM and Simon
will succeed me as Chair of the Board. I will be leaving the reins of your
Company in very good hands.
Richard Huntingford, who joined the Board in September 2018, stood down as a
Director on 31 October 2021 due to his other business commitments. On behalf
of the Board, I would like to express our gratitude for his valued
contribution during his tenure.
The Board plans to start a recruitment process to appoint a new Director in
early 2022.
Management fee
I am pleased to report that we have agreed with our Manager an additional
level to our tiered management fee. Therefore, with effect from 1 November
2021, net assets in excess of ?1.5 billion will be subject to a management
fee at the rate of 0.35% per annum. The management fee will continue at the
rate of 0.45% per annum on net assets up to ?750 million and 0.40% per annum
on net assets in excess of ?750 million and up to ?1.5 billion. At the
timing of writing, the Company had net assets of approximately ?1.6 billion.
Annual General Meeting (AGM)
Last year, along with taking precautionary action in amending the Company's
Articles of Association to allow a combination of virtual and physical
shareholder meetings to be held in the future, the Board committed to holding
physical meetings when restrictions were not in place and these could be held
safely. However, at the time of writing, due to the current guidance
regarding the Covid-19 pandemic, it will not be possible for shareholders to
attend the AGM in person, but we invite you to join the meeting by Zoom, the
conferencing software provider. The meeting will include a presentation by
our Fund Manager, Alex Crooke. Due to technical restrictions, we cannot offer
live voting by Zoom. Therefore, voting on the resolutions to be proposed will
be conducted on a poll, and we request that all shareholders submit their
votes by proxy to ensure that their votes count at the AGM.
If you have any questions on the Annual Report or any of the other business
to be transacted at the AGM, please email ITSecretariat@janushenderson.com in
advance of the meeting. All questions received will be considered and
responses will be available on the Company's website. There will be an
opportunity to ask questions via Zoom regarding the Fund Manager's
presentation, details of which will be in the Notice of Meeting to be sent to
shareholders.
Please note that, due to Covid-19, it may be necessary to change the time or
date of the AGM, having regard to the advice of the public health authorities
and UK government closer to the time. We will keep shareholders updated of
any changes through the Company's website at www.bankersinvestmenttrust.com
and announcements to the London Stock Exchange.
Outlook
Confidence in the outlook for economic growth is reflected in announcements
from central banks signalling intentions to begin reducing their support
through tapering their quantitative easing and increasing interest rates and
the recovery in corporate earnings is encouraging with global stock market
dividend payments currently expected to return to their pre-pandemic levels
in this calendar year. Nevertheless, the global economy still faces a number
of headwinds. Inflation is a key concern and it is not yet clear whether the
current higher inflationary environment is transitory or will be prolonged.
It is our Manager's view that it will be the latter and it is positioning the
portfolio accordingly. The ongoing impact of Covid-19, including supply chain
disruptions, worries over new variants and imposition of new restrictions on
movement and activities, are likely to constrain global economic growth and
may inhibit corporate earnings in the short term. An aggressive reduction in
central bank support, such as increasing interest rates too quickly in the
event of persistent high and rising inflation, could choke off economic
growth.
Short-term headwinds may give way to tailwinds for global economic growth. As
supply chain bottlenecks ease, depleted inventories will require to be
replenished. The Omicron variant is beginning to appear to be less of a
concern than initially feared and, although it will continue to be disruptive
in the short-term, vaccines should help societies and economies to live with
Covid. We believe, on balance, that there is further upside for share prices
this year, albeit global economic growth is expected to be more moderate when
compared with last year and headwinds and uncertainties are likely to lead to
further bumps, and continued stock market volatility, along the way. We
would expect, on a relative basis, this environment to be better suited to
the Company's investment style than last year's high-octane markets.
Sue Inglis
Chair
17 January 2022
FUND MANAGER'S REPORT
Performance
'We live in interesting times.'
It has been an often-used phrase through this period of Covid-19 infection.
Robert F Kennedy quoted the expression in 1966 and went on to say, 'They are
times of danger and uncertainty; but they are also the most creative of any
time in the history of mankind.' This nicely sums up the investment
opportunities over the past couple of years. There has been so much
creativity, including spectacular advancements in medicine, such as new
vaccine techniques, and software allowing us to work and interact remotely
with colleagues and friends. While some industries have faced huge
uncertainty, it is a remarkable endorsement of government support that there
are still cinemas, music venues or even airlines operating today.
The stock markets have continued to march to the beat from central banks, the
latter creating waves of new money and support schemes for wages and
corporate loans. This massive increase in money supply has historically
pushed asset prices higher and globally we have seen property, stock markets
and resources all reach new high prices. At the start of the reporting year,
the approval of Covid-19 vaccines in December 2020 buoyed the markets to new
highs and supported so-called 're-opening stocks', such as retailers,
airlines and resources. These are sectors that we had reduced materially in
2020 and so the Bankers portfolio underperformed in this period. The regional
portfolio managers tend to choose companies that have a bias towards those
with dependable earnings, higher margins and more stable revenues. When the
stock market is driven by momentum, high demand for new issues and
risk-taking, then the portfolio may underperform the benchmark index. Our
investment process aims to limit the downside when the market falls by
focussing on companies with defensive qualities.
The vaccines turned out to be difficult to manufacture, and in high demand,
which led to short supply through the Spring of 2021. Stock markets wobbled
and this allowed us to regain some relative return until March when the
Chinese stock market fell sharply. The regulators in China started the first
of their crackdowns on the internet sector, including new rules for the
ecommerce sector. Our investments in China have delivered significant returns
over the last five years but in this recent year they have failed to keep up
with other developed markets. The government has increased regulation at the
same time as normalising monetary supply to limit the expansion of the
property sector. Although we reduced our investments in the country through
the year, and also focused on less-regulated industries, the allocation to
China was a major drag on performance.
In the Summer and Autumn of 2021, optimism increased that the vaccines were
having a significant effect in reducing major illness and governments in most
parts of the world started reopening their economies. This led to some wildly
bullish investor behaviour sparking meme stocks, strong new issuance and a
return to growth investing at any price. The impact of Covid-19 lockdowns was
now beginning to be felt in terms of dislocated supply chains and strong
demand for key manufacturing components such as semi-conductors and oil.
Prices have risen sharply across all commodities and many components of the
inflation price indices. Central banks initially commented that inflation
trends were transitory and reflected localised supply bottlenecks but in
recent months have admitted that there are more fundamental grounds for
expecting prices to remain elevated. Investors in stock markets over the past
decade have favoured growth investing, as opposed to value investing,
principally driven by favourable factors such as falling interest rates and
central bank support. Through this year, growth investing still outperformed,
but only marginally and cyclical value stocks such as banks and industrials
delivered very strong performance.
The underperformance relative to the benchmark index this year was partially
driven by the asset allocation to China but also underperformance in key
markets such as the UK. The UK portfolio has struggled to deliver consistent
relative performance since the Brexit vote in 2016, as the weakness in
Sterling impacted the focus on domestic companies. The relative value of UK
stocks compared to the remainder of the world keeps widening and is at a
multi-decade low, signifying there is value in UK holdings. We have decided
to reduce the number of holdings in the UK portfolio to the 25-30 level that
most other portfolios hold. This reflects the reduction of smaller companies
that we have traditionally held in the UK and will focus the portfolio on our
best ideas. The main elements of underperformance this year came from these
smaller companies combined with zero exposure to oil stocks which performed
very strongly as the oil price surged to over US $80 per barrel.
The European, Japan and North American portfolios are all, to varying
degrees, more growth orientated in their stock selection and, following very
strong relative performance in the previous year, the first two gave up some
performance this year under review. However, the North American portfolio
ended the period marginally above its benchmark, following a strong October
driven by the large tech and credit card stocks. The Japan portfolio also
staged a good second half recovery but, despite an equally good October
return, could not quite return to positive performance. Europe has been more
challenging, reflecting derating of some of the best performing holdings from
last year and being underweight the strongly recovering banking and
industrial sectors early in the year. All three of these key regions have
delivered excellent returns over the past 3 years despite more challenging
recent investment conditions.
Finally, one region that struggled in the previous financial year was the
Pacific (ex Japan and China) portfolio managed by Mike Kerley. However, it is
pleasing to see that his value and income driven investment process has
delivered a very strong recovery, outperforming its benchmark by over 17%
this year. I prefer to judge performance in each of our regions over the
medium term, being 3-5 years, rather than a single year when markets can be
driven by very specific conditions. The sanctions applied to certain Chinese
companies by the US has driven investment outwards into Asia and we have
found good opportunities to invest in many of the wider Pacific markets.
Environmental, social and governance factors
The recent COP26 conference in Glasgow reminded us that environmental factors
will continue to be an important part of stock selection in the future. All
the investment teams managing the Bankers portfolio integrate environmental,
social and governance ('ESG') factors into their stock selection process, the
ongoing monitoring and ultimately a decision to sell or hold. We feel that
excluding certain sectors because of their industry characteristics will not
contribute to improving the environment or improve societal harm. Our
preferred route is through engagement and insisting on changes backed up by
voting and only ultimately selling the holding if we find we have no
influence. We have outlined in the Annual Report some examples of the
engagement during the past year with companies we invest in.
We take seriously a commitment to vote at all the shareholder meetings of the
companies we invest in and in over a quarter of meetings we voted against one
or more items on the agenda. The portfolio's ESG characteristics are
disclosed in the Annual Report and again show that the portfolio exhibits a
lower carbon intensity than the benchmark.
Income
We indicated in last year's report that there were a number of levers we
could pull to improve income generation from the portfolio and that we had
identified a path to recovery. It has surprised us just how quickly the
dividends have resumed from the companies within the portfolio. The recovery
was sharpest in the UK and Europe, with many companies not only resuming the
payment of dividends but also restoring those that were cancelled in 2020.
The higher level of gearing within the portfolio has helped income generation
but we have not chased dividends and decided to hold on to many of those
companies that cancelled dividends because we felt that they were
undervalued. We expect further improvement in the coming year and hope to see
a similar level of special dividend income which recovered from ?0.2m in 2020
to over ?2m in 2021.
Asset allocation and gearing
As markets recovered and Bankers' net asset value increased, the structural
gearing reduced as a percentage of asset value. Long term interest rates
remained at very low levels despite the prospect of rising inflation. We felt
that the early summer represented a good time to review the structural
gearing, especially given the impending October 2023 repayment of the 8%
debenture. The issuance of both Sterling and Euro loan notes pushed out the
length of the debt profile to 25 years and also reduced the overall cost of
debt. The interest cost of these notes was below 2% combined and is lower
than the overall portfolio yield.
We maintained a positive view of markets and have increased the gearing of
the portfolio through use of the banking facility and the new loan issuance.
The net gearing at the year end was 6.6%. The increased level of structural
gearing results in a neutral level of gearing in the 5-7% range, however this
is market dependent.
Outlook
The two key numbers that will determine whether share prices continue to rise
are corporate earnings and the rate of inflation. The impact of Covid-19 has
resulted in the suspension of large parts of the global economy and the next
two years should see the world open to trade and travel. Consumers have on
average built up savings during the lockdowns and are likely to spend these
cash deposits as liberties return, temporarily raising global economic
growth. All of this points to further growth in corporate earnings to come,
however the pace is uncertain while governments respond to new variants in
different ways. As in previous economic cycles, we expect that share
valuations will de-rate as share prices rise at a slower pace than earnings.
The outlook for inflation will dominate central banks' thinking for the year
ahead. Their response will define the pace of recovery and also determine
which sectors will lead the market. Our view is that the sharp rise in price
inflation is permanent and not transitory. Wages are now starting to rise and
central banks will struggle or be unwilling to enact policy quick enough to
supress the price of goods and services from rising further. This outturn can
be positive for equities, as most companies ultimately pass on the price
inflation. Over the past year we have been raising the portfolio's exposure
to companies that benefit from rising interest rates and inflation. This has
not helped performance in the short term but we expect stock picking to be
key to performance in the coming year.
Alex Crooke
Fund Manager
17 January 2022
PLEASE REFER TO THE PDF TO VIEW THE FULL ANNOUNCEMENT
For further information contact:
Alex Crooke
Fund Manager
The Bankers Investment Trust PLC
Telephone: 020 7818 4447
Sue Inglis
Chair
The Bankers Investment Trust PLC
Telephone: 020 7818 4233
James de Sausmarez
Director and Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 3349
Harriet Hall
PR Manager
Janus Henderson Investors
Telephone: 020 7818 2919
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.
End CA:00386038 For:BIT Type:FLLYR Time:2022-01-18 08:30:34
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