Half-yearly Report
Chairman's Statement
for the six months ended 30 June 2013
The total return on the net assets of Temple Bar during the first half of 2013
was 16.7%, an encouraging capital performance compared with a total return for
the FTSE All-Share Index of 8.5%. Post-tax revenue earnings for the half year
were £12.2m compared with £12.6m in the equivalent period last year. The Board
has declared an interim dividend of 15.10p, an increase of 3.1% over last year,
payable on 30 September to shareholders on the register at 13 September 2013.
Long term borrowing
At the beginning of July the Board announced that it had agreed a £50 million
fixed rate 15 year private placement loan note at a coupon of 4.05%. The loan,
which will be drawn down on 3 September 2013, provides long term funding at
attractive rates and will help the Company to pursue its stated investment
objective as well as contributing to the Company's overall debt management in
the context of its existing debenture stocks, which mature in 2017 and 2021. As
at the half year the Company's net gearing level, calculated in accordance with
AIC recommended methodology, was 3%.
New share issues
During the period the Company obtained a block listing for 2 million shares to
facilitate the issue of smaller amounts of shares for cash to market
participants in a cost effective manner at a modest premium to net asset value.
The Board believes that it is important to be proactive in managing the
discount/premium in the best interests of shareholders. The Company's shares
have generally been trading at a premium to net asset value for a substantial
period of time. The Board therefore favours regular small issues of shares to
ensure that a premium is kept at a reasonable and sustainable level. In the
first half of the year a total of 606,113 ordinary shares were issued raising
net proceeds of £6,794,872.
Industry developments
In the Annual Report I referred to the effect on the Company of the European
Union's Alternative Investment Fund Managers Directive which imposes additional
oversight on investment companies. The Board is required to appoint an AIFM
under the relevant legislation and will report further on this at the year end.
There is also a requirement to appoint a depositary and the Board is confident
that an appointment can be concluded within the next few months, ahead of the
implementation date of the legislation in July 2014.
John Reeve
23 July 2013
Manager's Report
In the face of the continued extravagant quantitative easing by the major
Central Banks in the first half of the year, bearish investors decided the best
course of action was to step out of the way. The `don't fight the Fed' (and by
implication, the Bank of England, European Central Bank and the Bank of Japan)
mentality determined that until economic growth was self-sustaining, the
Central Banks' actions would support markets. And with the Central Banks'
policies designed to ensure interest rates remained low across the yield curve,
equities' relative valuation advantage was considered by the consensus to be
underpinned.
In general, investors prefer strong, simple narratives and happy endings and,
because of this, shy away from uncomfortable arguments. However, that often
results in investment decisions based more on hope than objectivity. Our views
remain the same - the results of the great financial experiment, which we are
only part way through, remain inconclusive and monetary authorities do not have
the power to support equity markets indefinitely. The unintended consequences
and disadvantages of their adventurous policy are in all likelihood still to
come. Equity investors may then have to compare equity valuations with rather
higher bond yields. What is more, even if economic recovery takes a grip, the
more pertinent question is the level of future company profitability. This
profitability is already high relative to history and to believe it is moving
much higher is to believe in a new paradigm; not impossible, but in our view
not a great bet to make. And even if investors are comfortable with current and
forecast levels of profitability, it remains vital to determine the correct
price to pay for the profit stream. Once again, relative to history, investors
are currently paying a high price.
We see little reason to assume future profitability will be significantly
higher than historic profitability or to pay more for this stream of profits
than we have historically. As the market clearly disagrees with us (on both
points) we have consequently had an opportunity to sell stocks at attractive
prices. Travis Perkins and Devro, two long-time holdings, were sold in full and
two of our largest holdings, Signet Jewelers and Unilever, were reduced. We
also decided that, post its decision to cancel share buybacks, we could no
longer justify our holding in AstraZeneca and sold out, reinvesting the
proceeds in GlaxoSmithKline and Vodafone. We also added to Direct Line, a
company about which we wrote in detail in the last Report and Accounts, BAT and
Carnival.
One new acquisition we have made, through an Exchange Traded Commodity, is of
gold bullion. Gold has lost its allure in recent months as investors concluded
that the potential inflationary impact of quantitative easing has reduced now
the Federal Reserve has given the first signs that it is preparing to reduce
the artificial stimulants to economic growth.
We would question the enthusiasm for selling gold. Firstly, while the Federal
Reserve clearly believes that economic conditions are improving, its
forecasting record is less than perfect and secondly, the market's assumptions
that quantitative easing will soon be totally reversed may be a touch premature
as the Fed's first actions will be `tapering' (i.e. buying less bonds) rather
than selling any of the $3.5 trillion dollars' worth of bonds on its books.
It is possible that the world's major central bankers have cobbled together and
implemented policies perfectly designed for the prevailing conditions and that
they will exit stage left to rapturous applause leaving little evidence of
their handiwork. Alternatively, their policies may well have longer lasting
effects and investor confidence in paper money could be severely tested. We
believe it is far too early to announce success and therefore we made a modest
investment in gold bullion in April to provide some element of insurance to the
portfolio.
The gold bullion builds on our current gold exposure which we hold through an
ETF of large gold mining shares. This ETF was the most costly of the holdings
on the portfolio in the six months under review. Whilst the weakness in the
gold price did not help, there were a host of other issues weighing on the
stock prices; increasing extraction and labour costs, poor allocation of
capital and weakening balance sheets all contributed. We typically aim to
increase our holdings as share prices fall but our initial confidence in gold
mining companies has been knocked. If the gold price recovers significantly,
the gold mining shares should be carried along in their wake, but this cannot
be guaranteed. A mix of gold and gold mining shares is therefore our preferred
approach.
Fortunately, the underperformance of the gold shares was more than
counterbalanced by a decent number of winners. Long-term holdings Signet
Jewelers, Grafton and Travis Perkins all continued to perform well and Avon,
under new management, bounced back well. A lack of exposure to UK listed mining
stocks also contributed positively to performance.
Outlook
In the UK, the appointment of Mark Carney, the new governor of the Bank of
England and previously head of the Bank of Canada, has been taken positively by
investors (although the best way to endear yourself to investors is clearly to
promise low interest rates for elongated periods). He has, however, left behind
an economy that has its own problems, not least a huge amount of household debt
and a troubled residential property market. Perhaps Mr Carney's main selling
point to his new employers was his very relevant previous experience.
As we have made clear, the market's higher valuations cannot be justified by
expectations of higher profits and we believe there is significantly less value
apparent than say twelve months ago. This is particularly evident in the higher
yielding areas in which Temple Bar typically participates, probably a
consequence of the lack of income opportunities in bond markets. We are
convinced it is wrong to chase these lower yields and are therefore, in
general, happy to stand back and await better opportunities.
Alastair Mundy
Investec Asset Management Limited
23 July 2013
Twenty largest holdings
as at 30 June 2013
Company Industry Place of Valuation % of
Listing £'000 Portfolio
GlaxoSmithKline Health Care UK 61,842 8.71
HSBC Banks UK 54,023 7.61
Vodafone Telecommunications UK 51,924 7.31
Signet Jewelers Consumer Services UK/USA 49,267 6.94
Royal Dutch Shell Oil & Gas UK 48,607 6.85
UK Treasury 2.25% Fixed Interest UK 37,058 5.22
2014
Grafton Industrials UK/Ireland 36,542 5.15
BT Telecommunications UK 34,487 4.86
Unilever Consumer Goods UK 25,452 3.59
SIG Industrials UK 22,644 3.19
Top Ten Investments 421,846 59.43
Avon Products Consumer Goods USA 19,843 2.79
QinetiQ Industrials UK 19,552 2.75
British American Consumer Goods UK 18,998 2.68
Tobacco
Direct Line Financials UK 17,214 2.43
Insurance
BP Oil & Gas UK 16,497 2.32
Royal Bank of Banks UK 16,197 2.28
Scotland
Centrica Utilities UK 15,799 2.23
Carnival Consumer Services UK 13,351 1.88
Kingspan Industrials UK/Ireland 11,554 1.63
CRH Industrials UK/Ireland 10,559 1.49
581,410 81.91
Statement of comprehensive income
for the six months ended 30 June 2013
30 June 2013 30 June 2012 31 December 2012
(unaudited) (unaudited) (audited)
Revenue Capital Revenue Capital Revenue Capital
return return Total return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment 13,918 - 13,918 14,159 - 14,159 28,164 - 28,164
income
Other 4 - 4 1 - 1 3 - 3
operating
income
Total 13,922 - 13,922 14,160 - 14,160 28,167 - 28,167
income
Gains on
investments
Gains on
investments
held at
fair value
through - - 91,265 - 23,871 23,871 - 72,438 72,438
profit or
loss assets
13,922 91,265 105,187 14,160 23,871 38,031 28,167 72,438 100,605
Expenses
Management (528) (792) (1,320) (427) (640) (1,067) (890) (1,334) (2,224)
fees
Other (248) (563) (811) (223) (95) (318) (580) (448) (1,028)
expenses
including
dealing
costs
Profit 13,146 89,910 103,056 13,510 23,136 36,646 26,697 70,656 97,353
before
finance
costs and
tax
Finance (910) (1,362) (2,272) (911) (1,362) (2,273) (1,824) (2,753) (4,577)
costs
Profit 12,236 88,548 100,784 12,599 21,774 34,373 24,873 67,903 92,776
before tax
Tax - - - - - - - - -
Profit for 12,236 88,548 100,784 12,599 21,774 34,373 24,873 67,903 92,776
the period
Earnings 20.13p 145.72p 165.85p 21.04p 36.36p 57.40p 41.39p 113.00p 154.39p
per share
(basic and
diluted)
An interim dividend of 15.10 pence per share in respect of the six months ended
30 June 2013 was declared on 23 July 2013 and is payable on 30 September 2013.
An interim dividend of 14.65 pence per share in respect of the six months ended
30 June 2012 was declared on 24 July 2012 and was paid on 28 September 2012. A
final dividend of 22.0 pence per share in respect of the year ended 31 December
2012 was declared on 20 February 2013 and was paid on 28 March 2013. The total
column of this statement represents the Statement of comprehensive Income,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association of
Investment Companies. All items in the above statement derive from continuing
operations.
Statement of changes in equity
for the six months ended 30 June 2013
Ordinary Share
share premium Capital Retained Total
capital account reserves earnings equity
£'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 2013 15,138 22,105 530,413 33,535 601,191
Profit for the period - - 88,548 12,236 100,784
15,138 22,105 618,961 45,771 701,975
Issue of share capital* 152 6,683 - - 6,835
Dividends paid to equity - - - (13,366) (13,366)
shareholders
BALANCE AT 30 JUNE 2013 15,290 28,788 618,961 32,405 695,444
*606,113 shares were issued during the period for a total gross consideration
of £6,834,993 at a premium to the prevailing net asset value due to investor
demand.
Statement of changes in equity
for the six months ended 30 June 2012
Ordinary Share
share premium Capital Retained Total
capital account reserves earnings equity
£'000 £'000 £'000 £'000 £'000
BALANCE AT 1 JANUARY 2012 14,925 14,442 462,510 30,163 522,040
Profit for the period - - 21,774 12,599 34,373
14,925 14,442 484,284 42,762 556,413
Issue of share capital * 138 4,784 - - 4,922
Dividends paid to equity - - - (12,675) (12,675)
shareholders
BALANCE AT 30 JUNE 2012 15,063 19,226 484,284 30,087 548,660
* 550,000 shares were issued during the period for a total gross consideration
of £4,921,500 at a premium to the prevailing net asset value due to investor
demand.
Statement of financial position
as at 30 June 2013
30 June 30 June 31 December
2013 2012 2012
(unaudited) £ (unaudited) £ (audited) £
'000 '000 '000
NON-CURRENT ASSETS
Investments held at fair value 709,834 602,679 634,503
through profit or loss
CURRENT ASSETS
Cash and cash equivalents 44,433 6,441 28,063
Other receivables 5,452 4,487 2,826
49,885 10,928 30,889
TOTAL ASSETS 759,719 613,607 665,392
CURRENT LIABILITIES
Other payables (815) (1,516) (744)
TOTAL ASSETS LESS CURRENT 758,904 612,091 664,648
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings (63,460) (63,431) (63,457)
NET ASSETS 695,444 548,660 601,191
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS
Ordinary share capital 15,290 15,063 15,138
Share premium 28,788 19,226 22,105
Capital reserves 618,961 484,284 530,413
Retained earnings 32,405 30,087 33,535
TOTAL EQUITY 695,444 548,660 601,191
NET ASSET VALUE PER SHARE 1,137.14p 910.62p 992.86p
Statement of cash flows
for the six months ended 30 June 2013
30 June 30 June 31 December
2013 2012 2012
(unaudited) £ (unaudited) (audited)
£'000 £'000 £'000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax 100,784 34,373 92,776
Adjustments for:
Purchases of investments ¹ (149,041) (85,862) (120,275)
Sales of investments ¹ 164,971 85,110 136,258
15,930 (752) 15,983
Gains on investments (91,265) (23,871) (72,438)
Financing costs 2,272 2,273 4,577
Operating cash flows before 27,721 12,023 40,898
movements in working capital
Decrease/(increase) in accrued 19 6 (1)
income and prepayments
(Increase)/decrease in (2,730) 141 1,327
receivables
Increase in payables 159 422 140
NET CASH FLOW FROM OPERATING 25,169 12,592 42,364
ACTIVITIES BEFORE AND AFTER
INCOME TAX
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issue of new shares 6,835 4,921 7,876
Interest paid on borrowings (2,268) (2,280) (4,559)
Equity dividends paid (13,366) (12,675) (21,501)
NET CASH USED IN FINANCING (8,799) (10,034) (18,184)
ACTIVITIES
NET INCREASE IN CASH AND CASH 16,370 2,558 24,180
EQUIVALENTS
Cash and cash equivalents at the 28,063 3,883 3,883
start of the period
Cash and cash equivalents at the 44,433 6,441 28,063
end of the period
¹ Purchases and sales of investments are considered to be operating activities
of the Company, given its purpose, rather than investing activities.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
* the condensed set of financial statements contained within the half-year
report has been prepared in accordance with the Accounting Standards
Board's Statement `Half-Yearly Financial Reports';
* the half yearly financial report, which incorporates the interim management
report, includes a fair review of the information required by Disclosure
and Transparency Rule 4.2.7R 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 financial year;
and
* in accordance with Disclosure and Transparency Rule 4.2.8R there have been
no related parties transactions during the six months to 30 June 2013 and
therefore nothing to report on any material effect by such a transaction on
the financial position or performance of the Company during that period.
The half-yearly financial report was approved by the Board on 23 July 2013 and
the above responsibility statement was signed on its behalf by:
John Reeve
Chairman
Notes
1. Comparative figures
The financial information contained in this half-year report does not
constitute statutory accounts as defined in section 434-436 of the Companies
Act 2006. The financial information for the six months ended 30 June 2013 and
30 June 2012 has not been audited.
The information for the year ended 31 December 2012 does not constitute
statutory accounts, but has been extracted from the latest published audited
accounts, which have been filed with the Registrar of Companies. The report of
the auditors on those accounts contained no qualification or statement under
section 498(2) or (3) of the Companies Act 2006.
2. Publication
This half-year report is being sent to shareholders and copies will be made
available to the public at the Company's registered office and on its website.
For further information please contact:
Alastair Mundy
Investec Asset Management Limited 020 7597 2000
Tuesday, 4th June 2024
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