Investment Company

The Investment Company plc

Half Year Report Announcement (Unaudited) for the six months ended 31 December 2021

Summary of Results

* The total return per ordinary share is based on total income after taxation as detailed in the Condensed consolidated income statement and in note 3.

Investment Objective

At the Annual General Meeting on 4 November 2020, Shareholders voted to amend the Company's Investment Objective and Policy to that shown below.

The Company's investment objective is to protect the purchasing power of its capital in real terms, and to participate in enduring economic activities which lend themselves to genuine capital accumulation and wealth creation. 

Investment Policy 

The Company will seek to acquire and hold, with no predetermined investment time horizon, a collection of assets which, in the Directors' judgement, are well-suited to the avoidance of a permanent loss of capital. These assets will be comprised of minority participations in the equity, debt or convertible securities of quoted businesses which the Directors believe are led by responsible and like-minded managers and suitable for the long-term compounding of earnings. In addition, to protect its capital as well as to maintain liquidity for future investments, the Company will keep reserves in (a) liquid debt instruments such as cash in banks or securities issued by governments and/or (b) liquid, non-debt, tangible assets such as gold bullion, whether held indirectly or in physical form. 

The Company has no predetermined maximum or minimum levels of exposure to asset classes, currencies or geographies, and has the ability to invest globally. These exposures will be monitored by the Board in order to ensure an adequate spreading of risks. No holding in an individual company or debt instrument will represent more than 15 per cent. by value of the Company's total assets at the time of acquisition (such restriction does not, however, apply to gold bullion or cash balances). The Company's holdings of gold bullion may be as high as 35 per cent. of total assets at the time of investment. 

Given the Company's investment objective, asset mix and time horizon, the portfolio will not seek to track any benchmark or index. The Company will not invest more than 10 per cent. of its total assets in other listed closed-ended investment funds. The Company will not use derivative instruments for speculative purposes, nor will it use currency hedges to manage returns in any currency. 

The Company's gearing will not exceed 20 per cent. of net assets at the time of drawdown.

No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.

Chairman's Statement

Dear fellow shareholders,

Results

During the six-month period ended 31 December 2021, the Group's net assets increased by 8.07 pence per share to 349.26 pence per share. This represents a total return of 2.36%. The details of this return are outlined in the table below.

Equity Participations

During the half year we sold in aggregate shares worth £1.7 million realising a gain of £0.4 million (+28%), and we purchased shares worth £2.6 million. This increased our equity participations from 66.7% to 72.1% of net assets. We are looking forward to further opportunities to add to our existing holdings.

We sold out of three holdings entirely. We sold our small position in Fromageries Bel for a 23% gain because the founding family is taking the business private and delisting the shares. We sold the rest of our Rio Tinto shares for a 14% gain. Our existing interest in oil and precious metals producers is already substantial and having a few firms like this in our collection will go a long way toward preparing us from any inflationary storms ahead, whether transitory or not. We also sold out of Unilever realising a 6% loss. The brand strength and their entrenched position in so many countries remain a wonderful asset, and the shares undervalued, but an undue focus on managing to a sterile ESG mandate and institutional expectations doesn't sit well with us. Whenever our priorities differ from the managers the decision to sell becomes an easy one.

We sold part of our stake in Safilo realising a 95% gain. Despite operating during two difficult years the turnaround under their new CEO has gone exceptionally well. Later in the year, Safilo also conducted a rights offering which eliminated most of their debt burden and enables them to embark on an investment program after a period of downsizing. We also bought shares in the offering on very attractive terms.

We reduced our holding in Strix after a period of substantial price appreciation, realising a 172% gain. Credit goes to our prior investment manager for buying the shares well. Holding great businesses at high prices is not a problem for us - we expect most of our holdings to meet these criteria eventually - but it demands a conviction which for us has to come from a proven capacity to execute within their specialty for many years. The promise of future growth in new product categories, though welcome, is not something our objective places a premium on.

We added four new holdings during the half year: Robertet, the world's pre-eminent producers of all-natural flavours and fragrances; Kri Kri Milk, a premium Greek dairy company specialising in exporting ice cream and yogurt; Crete Plastics, a European producer of masterbatches for plastics manufacturing and specialty agricultural films; and Karelia Tobacco, a family-owned Greek cigarette producer serving markets in Southeast Europe and across the Mediterranean. These are all multi-generational, family-owned businesses with decades of deep experience in relatively narrow markets. They have demonstrated a constant drive to reinvest in new capacities and add to their business strengths, show a history of operating with care and we think they can develop their markets for decades to come. Though Robertet is 'a great business at a high price', the other three are smaller companies, completely unknown outside of their local markets and, fortunately for us, priced to reflect their relative obscurity. Though not small in any business sense, these companies are controlled by the founding families and a fairly small group of other real, long-term owners. We count ourselves among them.

For our existing holdings, we continued to add to Cembre, Lucas Bols, Hal Trust and Nedap.

Legacy Assets

We sold out of our three largest legacy fixed income holdings, generating £629k in proceeds and realising a 3% gain. This reduced the legacy holdings down to 0.4% of net assets and marks the end of the transition from the prior portfolio. The fixed 5% to 6% yields on these instruments were once alluring, but in the present inflationary environment they look for our purposes like wasting assets. It's better that the proceeds be invested in business where time is our ally rather than having it count down the erosion of our capital.

Precious Metals

With consumer price inflation finally arriving in the UK our reasons for holding gold are unchanged - they form a liquid reserve that we believe will retain its purchasing power across periods of inflation and monetary disorder. As with our stakes in businesses, the intended time horizon of our holding matters a great deal. Gold is not suitable as a short-term hedge against rising consumer prices, and though one could speculate on its price that is not our reason for holding it. Gold has the curious property that as we extend our gaze further into the future, and as we broaden our understanding of the myriad effects of monetary debasement, the more suitable it appears.

There were no changes to our gold holdings in the period, as new equity purchases were largely offset against the sales of other shares and our remaining legacy assets.

Income and costs

Total income for the first six months came to £162k, while expenses totalled £175k. There were no extraordinary expenses in the period, and we believe current expenses are indicative of ongoing expenses for the Group. At our present size, we expect investment income to largely - but not completely - offset expenses for the full year.

Foreign Exchange

The Group reports its results in Sterling, but as of 31 December 2021 91.0% of our portfolio was invested in companies, securities and reserve assets denominated in other currencies and we expect this to continue in the   future. Because of this shift any strengthening or weakening of Sterling against these currencies will now have a direct impact on our financial results in future periods. We will not employ any currency hedging to manage the returns as expressed in Sterling as we believe the exercise would be both costly and counter to our purpose.

Although we have had a total return of some £385k in the half year, this arises from our capital rather than income and the Directors do not propose to pay an interim dividend.

Outlook

The Board welcomes dialogue with our Shareholders who will find details of how to contact us at the Company's website, www.theinvestmentcompanyplc.co.uk.

In these uncertain and volatile times, we believe the Company is well positioned to provide Shareholders with capital preservation and wealth creation over the long-term. Furthermore, we continue to evaluate opportunities to grow the capital base.

I.R. Dighé

Chairman

14 February 2022

Portfolio Summary

Asset Exposure by Trading Currency

At 31 December 2021

Equity Participations - Regional Economic Exposure*

At 31 December 2021

Equity Participations - By Sector*

At 31 December 2021

*Director estimates. Regional Economic Exposure represents where in the world the underlying business activity of the equity participations takes place.

Portfolio and Assets

At 31 December 2021

Interim management report and Directors' responsibility statement

Interim management report

The important events that have occurred during the period under review and their impact on the financial statements are set out in the Chairman's Statement above.

In the view of the Board, the principal risks facing the Group are substantially unchanged since the date of the Report and Accounts for the year ended 30 June 2021 and continue to be as set out in that report. Risks faced by the Group include, but are not limited to, market risk (which comprises market price risk, interest rate risk and liquidity risk). Details of the Group's management of these risks and exposure to them is set out in the Group's Report and Accounts for the year ended 30 June 2021.

There have been no significant changes in the related party disclosures set out in the Annual Report.

Directors' responsibility statement

The Directors confirm that to the best of their knowledge:

·    the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

·    this Half-Yearly Financial Report includes a fair review of the information required by:

a)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, 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

b)    DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, 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 Group during that period; and any changes in the related party transactions that could do so.

This Half-Yearly Financial Report was approved by the Board of Directors on 14 February 2022 and the above responsibility statement was signed on its behalf by I. R. Dighé, Chairman.

Condensed consolidated income statement

For the six months ended 31 December 2021 (unaudited)

The total column of this statement is the Income Statement of the Group prepared in accordance with IFRS as adopted by the United Kingdom. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice ("AIC SORP") issued in April 2021 by the Association of Investment Companies.

The Group did not have any income or expenses that was not included in total income for the period. Accordingly, total income is also total comprehensive income for the period, as defined by IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.

The notes form part of these condensed financial statements.

Condensed consolidated statement of changes in equity

For the six months ended 31 December 2021 (unaudited)

The notes form part of these condensed financial statements.

Condensed consolidated balance sheet

At 31 December 2021 (unaudited)

The notes form part of these condensed financial statements.

Condensed consolidated cash flow statement

For the six months ended 31 December 2021 (unaudited)

Condensed notes to the consolidated financial statements

At 31 December 2021 (unaudited)

1.     Significant accounting policies

Basis of Preparation

The condensed consolidated financial statements, which comprise the unaudited results of the Company and its wholly owned subsidiaries, Abport Limited and New Centurion Trust Limited, together referred to as the "Group", have been prepared in accordance with IFRS, as adopted by the United Kingdom, and as applied in accordance with the provisions of the Companies Act 2006. The financial statements have been prepared in accordance with the AIC SORP, except to any extent where it is not consistent with the requirements of IFRS. The accounting policies are as set out in the Report and Accounts for the year ended 30 June 2021.

The half-year financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".

The financial information contained in this half year financial report does not constitute statutory accounts as defined by the Companies Act 2006. The financial information for the periods ended 31 December 2021 and 31 December 2020 have not been audited or reviewed by the Company's Auditor. The figures and financial information for the year ended 30 June 2021 are an extract from the latest published audited statements, and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include a report of the Auditor, which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

Going Concern

The Directors have made an assessment of the Group's ability to continue as a going concern. This has included consideration of portfolio liquidity, the Group's financial position in respect of its cash flows and investment commitments (of which there are none of significance), the working arrangements of the key service providers, continued eligibility to be approved as an investment trust company and the continued impact of the Covid-19 pandemic. In addition, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern.

The Directors are satisfied that the Group has the resources to continue in business for the foreseeable future being a period of at least 12 months from the date that these financial statements were approved. Therefore, the financial statements have been prepared on the going concern basis.

Segmental Reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business.

2.     Income

3.     Return per Ordinary Share

Returns per share are based on the weighted average number of shares in issue during the period. Normal and diluted returns per share are the same as there are no dilutive elements on share capital.

4.     Dividends per Ordinary Share

Amounts recognised as distributions to equity holders in the period.

5.     Ordinary Share Capital

The Company does not hold any shares in treasury as at 31 December 2021 (31 December 2020: Nil and 30 June 2021: Nil).

6.     Net Asset Value per Ordinary Share

The NAV per ordinary share is calculated as follows:

7.     Investment Management fee

Pursuant to the changes to the Company's Investment Objective and Policy, the Investment Manager, Fiske plc, was given notice to terminate the investment management agreement as of 5 May 2021.

The management fee payable monthly in arrears by the Company to the Investment Manager, was previously calculated at the rate of one-twelfth of 0.75% of the NAV as at the last business day of each calendar month.

At 31 December 2021, an amount of £nil (31 December 2020: £9,675 and 30 June 2021: £1,678) was outstanding and due to the Investment Manager.

8.     Fair Value Hierarchy

The fair value is the amount at which an asset could be sold in an ordinary transaction between market participants at the measurement date, other than a forced or liquidation sale. The Group measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

Level 1 - valued using quoted prices, unadjusted in active markets for identical assets and liabilities.

Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

The table below sets out fair value measurement of financial instruments as at 31 December 2021, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Reconciliation of Level 3 investments
The following table summarises Level 3 investments that were accounted for at fair value.

* The Group and Company received £573,939 from investments sold in the period. The book cost of these investments when they were purchased was £518,840. These investments have been revalued over time and until they were sold any unrealised gains/(losses) were included in the fair value of investments.

9.     Related party transactions

During the first six months of the financial year, no transactions with related parties have taken place which have materially affected the financial position or performance of the Group.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of this announcement.