Temple Bar Investment Trust PLC
Annual Report 2019

Plain-text annual report

T e m p e B a r l I n v e s t m e n t T r u s t P L C A n n u a l R e p o r t & F i n a n c i a l S t a t e m e n t s 2 0 1 9 ANNUAL REPORT & FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 OBJECTIVE Temple Bar Investment Trust’s investment objective is to provide growth in income and capital to achieve a long term total return greater than the benchmark FTSE All-Share Index, through investment primarily in UK listed securities. The Company’s policy is to invest in a broad spread of securities with typically the majority of the portfolio selected from the constituents of the FTSE 350 Index. PURPOSE The purpose of the Company is to deliver long term returns for shareholders from a diversified portfolio of investments. CONTENTS STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL REPORT 1 Summary of results 17 Board of Directors 35 Statement of SHAREHOLDER INFORMATION 2 Chairman’s statement 18 Report of Directors 4 Manager’s review 21 Report on directors’ 6 Ten year record 7 Attribution analysis 8 Overview of strategy 15 Portfolio of investments remuneration 23 Corporate governance 26 Report of the audit and risk committee 28 Statement of directors’ responsibilities 29 Independent auditor’s report Comprehensive Income 49 Notice of meeting 36 Statement of Changes in Equity 37 Statement of Financial Position 38 Statement of Cash Flows 53 Useful information for shareholders 54 Alternative Investment Fund Managers (AIFM) Directive 55 Corporate information 39 Notes to the Financial 55 Glossary of terms Statements TEMPLE BAR INVESTMENT TRUST PLC Annual Report & Financial Statements for the year ended 31 December 2019 Perivan 257618 SUMMARY OF RESULTS Assets as at 31 December Net assets Ordinary Shares Net asset value per share with debt at book value Net asset value per share with debt at market value Market price Premium/(discount) with debt at market value Revenue for the year ended 31 December Revenue return attributable to ordinary shareholders Revenue return per ordinary share Dividends per ordinary share – interim and proposed final Capital for the year ended 31 December Capital return attributable to ordinary shareholders Capital return attributable per ordinary share Net gearing*† Ongoing charges*†† Total Returns for the year to 31 December 2019 Return on net assets* Return on gross assets* Return on share price* FTSE All-Share Index Change in Retail Prices Index over year Dividend Yields (Net) as at 31 December 2019 Yield (historic) on ordinary share price (1,476p) *††† Yield on FTSE All-Share Index 2019 £000 2018 £000 % change 985,123 802,182 1,473.13p 1,462.46p 1,476.00p 0.9% 35,523 53.12p 51.39p 183,167 273.90p 8.0% 0.49% 1,199.56p 1,190.37p 1,146.00p (3.7%) 33,099 49.50p 46.72p (138,091) (206.50p) 9.1% 0.47% 22.8 22.8 22.9 28.8 27.9 24.2 34.3 19.2 2.2 3.6 4.1 * Alternative Performance Measures – See glossary of terms on page 55 for definition and more information. † Defined as shareholders’ funds divided by total assets less current liabilities and cash or cash equivalents (including gilt holdings) expressed as a percentage. †† Defined as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. ††† Based on the three interim dividends paid during the year together with the final dividend for 2018. BENCHMARK Performance is measured against the FTSE All-Share Index. CAPITAL STRUCTURE Ordinary Shares 5.5% Debenture Stock 2021 66,872,765 £38,000,000 4.05% Private Placement Loan 2028 £50,000,000 2.99% Private Placement Loan 2047 £25,000,000 VOTING STRUCTURE Ordinary shares 100% TOTAL ASSETS LESS CURRENT LIABILITIES £1,099,172,000 TOTAL EQUITY* £985,123,000 MARKET CAPITALISATION £987,042,000 * With debenture and loan stocks at book value 1 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 CHAIRMAN’S STATEMENT The 36th consecutive year in which the Company has raised its annual dividend payment. PERFORMANCE DIVIDEND During the year the total return on the net assets of Temple Bar was 27.9%, outperforming the total return of the FTSE All Share Index of 19.2%. While it is always welcome to report on good performance over the year the Board attaches greater significance to the longer term performance and in this context I am pleased to report that on the same basis Temple Bar continues to outperform its benchmark over ten years, as demonstrated by the chart on page 10. The Manager’s Review on pages 4 to 6 sets out some of the main themes which drove both portfolio construction and performance during the year, including comments on some of the positive and negative contributors to performance at an individual stock level. There have been three interim dividend payments during the year each of 11.0p per share and the directors are now recommending a final dividend payment for the year ended 31 December 2019 of 18.39p per share to be paid on 31 March 2020 to those shareholders on the register as at 13 March 2020. The ex-dividend date for this payment is 12 March 2020. If approved this would give an increase in the total dividend payment for the year of 10.0%. In spite of this significant increase the dividend is fully covered by this year’s earnings and has not required recourse to the Company’s significant revenue reserves. Shareholders will note that the final dividend is lower than that paid in the previous year, reflecting the rebalancing exercise between the size of the final and interim dividends that was highlighted during the year. This will be the 36th consecutive year in which the Company has raised its annual dividend payment, such consistency being reflected in Temple Bar’s status as one of The Association of Investment Companies’ ‘Dividend Heroes’. GEARING At the year end, gearing (calculated net of cash and related liquid assets) was 8.0%. The Company’s £38m 5.5% debenture stock matures in April 2021. During the year the Board will carefully consider all the available options for managing the Company’s borrowings going forward. CULTURE AND PURPOSE It is a new requirement for all companies to set out their culture and purpose. It is perhaps more difficult for a conventional investment trust such as Temple Bar to articulate these matters given certain unique factors, such as an absence of any employees. Our defined purpose is relatively simple; it is to deliver attractive long term returns from a diversified portfolio of predominantly UK listed investments. Board culture promotes a desire for strong governance and long term investment, mindful of the interests of all stakeholders. THE BOARD As highlighted in my Statement last year, Sir Richard Jewson will be retiring from the Board at the AGM and will not, therefore, be seeking re-election. Sir Richard has provided outstanding service to the Board over the 19 years that he has served, particularly in his capacity as Senior Independent Director and Chairman of the Audit and Risk Committee. We will greatly miss his wise counsel and wish him the very best for the future. Lesley Sherratt will succeed Sir Richard as Senior Independent Director and Chairman of the Audit and Risk Committee. In October 2019 we appointed Sonita Alleyne and Shefaly Yogendra to the Board pursuant to the refreshment process to which I referred last year and both have already made strong contributions to Board discussion. It was very unfortunate that in January this year Sonita felt compelled to resign from the Board due to a conflict of interest in allowable investment categories between Temple Bar and one of her other portfolio positions. 2 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019ANNUAL GENERAL MEETING The AGM this year will be held at the offices of our Manager at Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA on Monday 30 March 2020 at 11am. Please note that this is a different building to that where the AGM was held last year. In addition to the formal business of the meeting the portfolio manager will, as usual, make a presentation reviewing the past year and commenting on the outlook. He will also be available to answer questions, as will the directors. Shareholders who are unable to attend are encouraged to use their proxy votes. AUDITOR Regulations on compulsory auditor rotation mean that Ernst & Young LLP, the Company’s auditor, is stepping down to be replaced, following an audit tender, by BDO LLP. Ernst & Young LLP has audited the Company since 2003 and I should like to record our thanks for its service to the Company over this period. OUTLOOK The current year has not started well for value investors, with January seeing a return of investors’ appetite for momentum stocks. Time will tell whether this situation will continue for an extended period. Nonetheless, with our experienced, well-resourced management team we believe that Temple Bar is well placed to generate significant returns for shareholders over the longer term. Arthur Copple Chairman 19 February 2020 The Board does not believe that long service should automatically render a director to be considered as non- independent. However, in recognition of the importance attached to tenure in the various corporate governance codes it has been agreed that a director will ordinarily serve on the Board for a maximum of nine years. This month I will have been on the Board for nine years and accordingly under normal circumstances I would be looking to stand down. However, a significant percentage of the Board has only recently been appointed, and indeed following Sonita’s resignation we will have to appoint another new director. Therefore, in the interests of optimising Board balance in terms of experience it has been proposed that I should continue to serve for a further three years. Every year the Board undertakes a thorough evaluation of each director, including myself as Chairman. In addition, in line with best practice in this regard, all directors are subject to annual re-election by shareholders. SECRETARY Our company secretary, Martin Slade, will be retiring from this position after the AGM. Martin has provided the Company with exemplary secretarial services for over 26 years. He has kindly agreed to act as a consultant for the next 12 months to provide an orderly transfer of responsibilities. The Board would like to express its sincere thanks for everything Martin has done for the Company over this period and to wish him a long and happy retirement. SHARE CAPITAL MANAGEMENT Temple Bar’s shares traded at a modest discount throughout most of the year but at the year end they stood at a small premium of 0.9%. The Board is prepared to undertake share buy backs if the discount widens excessively, either in absolute terms or relative to the Company’s peer group. While no share repurchases took place during the year, the Board nonetheless recommends that the existing authorities to issue new ordinary shares and to repurchase shares in the market for cancellation or to hold in Treasury be continued. Accordingly, it is seeking approval from shareholders to renew the share issue and repurchase authorities at the forthcoming annual general meeting. INVESTMENT POLICY As signaled in my statement last year, the Board consulted with shareholders as to whether they would support the Trust declining to invest in companies whose very business model was arguably unethical. Feedback suggested there was little support for this measure among shareholders, so at the present time the Board is not proposing to change policy in this regard. Shareholders should note, however, that the Manager does not invest in certain categories of stock, such as companies involved in cluster munitions, as set out on page 13. 3 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019MANAGER’S REVIEW Equity markets worldwide were strong in 2019. As is often the case over the short-term (and yes, one year is short-term!) it is rather hard to explain this strength. There remained plenty of political, geo-political and economic factors about which one could worry and company earnings growth was unexciting, but price momentum can be a tough beast to tame. Investors seemed to gain confidence that Central Banks had their backs (despite that not ending well in the last two bear markets) notwithstanding valuations in a number of markets moving above where they were ahead of the Global Financial Crisis. Investors in the UK equity market also had to consider the continuing saga of Brexit and over the course of the year sentiment over the outcome swung significantly. It remains impossible to speak with any certainty in this area, but at least a clear result in December’s General Election made it more likely that something could now happen. And that ‘something’ is probably much better than some of the worst outcomes that were being discounted over the last few years. Fortunately we were on the correct side of the trade and the portfolio benefited from its significant weighting towards companies exposed to the UK economy. Many shareholders have asked whether following this bounce in ‘domestics’ we are tempted to reduce this exposure, particularly as Brexit is far from resolved. Whilst we understand this sentiment, we believe such a move could be premature. The Conservatives seem at least mildly keen to reverse some of their more austere policies and with an increasingly populist electorate expecting various promises on infrastructure spend to be delivered conditions seem ripe for fiscal expansion. In apparent preparation for this, in his short time as Chancellor Sajid Javid had already made it clear that the Government’s old fiscal rules had been relaxed. He has left the building already, but it is unlikely his successor will be allowed to keep the purse strings too tight. It is also likely that significant amounts of corporate investment plans have been suspended in the last few years and that the (slightly) clearer outlook will encourage these to be made. Finally, the Monetary Policy Committee of the Bank of England appears ready to reduce interest rates at the slightest hint of economic trouble. All this suggests that the UK economy – and the earnings of UK focused companies – could be more robust than expected in the next few years. If this backdrop is correct (or even perceived to be correct) we would not be surprised to see private equity buyers reduce their very large cash piles by taking advantage of some cheap sterling assets. We have written a great deal about value investing and its woes in recent years. The long-awaited comeback (by us anyway) of value investing did still not arrive in 2019. Most investors remain focused on purchasing what they regard as high quality companies with the price paid seeming to be of little consequence. As we have commented before, we believe the big driver of the performance of ‘quality’ has been lower bond yields and therefore higher bond yields could provide a headwind for these stocks. While the consensus is convinced that inflation will be lower for longer (and that ‘Japanification’ ALASTAIR MUNDY Alastair, who has been the portfolio manager of Temple Bar since 2002, is head of the Value Team at Investec Asset Management having joined in 2000 from Morley Fund Management. In addition to Temple Bar Investment Trust, Alastair manages a number of funds including the Investec Cautious Managed Fund and the Investec UK Special Situations Fund. Alastair graduated from City University in 1988 with a Bachelor of Science degree in Actuarial Science. 4 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 The portfolio benefited from its significant weighting towards companies exposed to the UK economy. remains a real risk) we believe a combination of overly complacent Central Bankers, free-spending politicians and an increasingly populist electorate (making their views on issues such as immigration and globalisation very clear) could prove to be the inflationary spur. WHAT WORKED DURING 2019? We have already mentioned the strength of many UK focused stocks during the year. Consequently, the portfolio benefited from holdings in Forterra (bricks), Grafton (builder’s merchants) , Next (retailing) and Tesco (food retailing). The two stocks which contributed the most by far to performance were Travis Perkins (another builder’s merchants) and Capita, the outsourcing company, whose share price had previously struggled to make progress while a significant shareholder reduced its holding. The portfolio also benefited from avoiding a large number of reasonably high-profile poorly performing mid and large cap stocks. We will not always be this lucky. WHAT DIDN’T WORK DURING 2019? Of stocks held, one of the largest detractors was Marks & Spencer. Recovery is proving elongated and much change is needed, but we believe the nettle has been grasped by management. The food division seems to have turned a corner, but clothing still remains a concern. There is much for management to do here and we are aware of the many structural issues the company faces. We keep the faith but will monitor events closely. THE OUT OF FAVOUR UNIVERSE We commented last year that our universe of out of favour stocks was particularly large and consequently it was no surprise that a number of new stocks came onto the portfolio in 2018. The universe became a lot smaller in 2019 so pickings are currently much slimmer. The good news is that we believe there remains good upside from the 2018 vintage and from last year’s purchases. PORTFOLIO ACTIVITY After a rather frenetic 2018 (by our standards) activity on the portfolio in 2019 was relatively low. Following poor trading statements we added to our holdings in retailers Marks & Spencer and Kingfisher (we think activists might encourage new management to demerge the successful Screwfix business). Some Brexit related angst allowed us to increase our holdings in McCarthy & Stone and easyJet. We introduced new holdings in J Sainsbury (a low valuation, possible corporate interest and upside from potentially closing the bank) and Vodafone which, after a number of years of disappointing trading, appears to have stabilised. Rolls-Royce was also purchased. We believe the company will ultimately benefit from long-term service agreements for the engines it has sold. However, in the short-term the market has a number of (sensible) concerns surrounding quality issues with new engines, accounting quality, balance sheet strength and management focus on generating the promised cashflow in 2020. We think most of these PORTFOLIO DISTRIBUTION % 1 2 3 Industrials Financials Consumer Services 4 Oil & Gas 5 6 7 8 9 Consumer Goods Healthcare Basic Materials Physical Gold and Silver Telecommunications 10 Technology 11 Utilities Total Equities 12 Fixed Interest 13 Cash Temple Bar % FTSE All-Share % 29.5 19.5 16.4 9.5 7.0 6.8 2.9 2.9 2.9 – – 11.6 27.1 12.0 11.8 14.0 9.3 7.6 – 2.5 1.1 3.0 97.4 100.0 1.6 1.0 100.0 I S T R A T E G C R E P O R T G O V E R N A N C E R E P O R T I I F N A N C A L R E P O R T S H A R E H O L D E R I N F O R M A T I O N 5 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 MANAGER’S REVIEW CONTINUED The UK economy – and the earnings of UK focused companies – could be more robust than expected in the next few years. negative issues are well discounted in the price but we would not be surprised if, as often happens, we are able to add to our position at lower prices. We sold our holdings and booked modest profits in Drax and Go-Ahead Group. Avon Products received a bid thus putting to an end a painfully bad investment. We also significantly reduced our holding in Lloyds Banking Group – the UK mortgage market remains highly competitive and continues to put pressure on the Group’s profitability especially as its own customers move on to lower rate (and consequently less profitable) mortgages. Central Banks are clear that interest rates are a fairly blunt (and overused) tool and that governments must do more to increase long term economic growth. Governments appear only too happy to oblige, but we fear the ultimate price of expansionary fiscal policy, central banking complacency and increased populism could be inflation. As we concluded last year, an upwardly sloping yield curve is a likely conclusion to this cycle as Central Banks keep short- term rates low (to avoid recession) and investors, illustrating their anxiety about inflation rates, push long-term rates higher. PORTFOLIO POSITIONING The portfolio remains near to being fully invested with longstanding overweights in banks, consumer stocks (particularly food and clothing retailers) and industrials (through large holdings in companies exposed to repair, maintenance and home improvement). As highlighted earlier the portfolio still holds a large position in UK centric stocks and, as always, has a significant skew to value stocks. Approximately 6% of the portfolio is allocated to precious metal investments. OUTLOOK Last year I described investors as ‘skittish’. Equity markets have since moved significantly higher and investors appear to have had their skittishness knocked out of them. That often seems to happen in bull markets particularly near their end. Low short-term rates (below the level of inflation), higher long-term rates, Central Banks’ desire for slightly higher inflation, increased government spending and a changing political wind all suggest that precious metals could prove a good insurance policy against sub-optimal outcomes. If this outlook is correct, those highly rated stocks which have been purchased for their safety and dependability could be very vulnerable if there is a rotation into more economically cyclical stocks. Alastair Mundy For Investec Fund Managers Limited 19 February 2020 TEN YEAR RECORD Total assets less current liabilities (£000) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 603,444 585,480 664,648 905,775 913,198 869,535 968,790 1,050,285 916,153 1,099,172 Net assets (£000) 540,022 522,040 601,191 792,070 799,444 755,755 879,940 936,366 802,182 985,123 Net assets per ordinary share (pence) Revenue return to ordinary shareholders (£000) Revenue return per share (pence) Dividends per share* (pence) 915.89 874.42 992.86 1,250.84 1,195.47 1,130.14 1,315.84 1,400.22 1,199.56 1,473.13 18,915 22,552 24,873 22,274 25,782 26,663 29,253 28,958 33,099 35,523 32.08 34.20 38.08 35.23 41.39 36.65 36.17 37.75 39.82 38.88 39.87 39.66 43.74 40.45 43.30 42.47 49.50 46.72 53.12 51.39 * Interim(s) and proposed final for the year 6 6 TEMPLE BAR INVESTMENT TRUST PLC Annual Report & Financial Statements for the year ended 31 December 2019 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019ATTRIBUTION ANALYSIS By stocks held in the portfolio Source: Factset TOP TEN CONTRIBUTORS BOTTOM TEN CONTRIBUTORS % 2 2 . 3 % 6 8 . 2 % 6 6 . 1 % 1 5 . 1 % 3 3 . 1 % 1 2 . 1 % 4 1 . 1 l c P a t i p a C i l c P s n k r e P s i v a r T l c P o c s e T l c P a r r e t r o F l c P e n i l K h t i m S o x a G l l c P p u o r G n o t f a r G l c P p u o r G g n k n a B s d y o L i l l c P g n n M d i i l i h c s h c o H % 1 0 . 0 l c P p u o r G e n o f a d o V % 1 0 . 0 l c P a t r a C & n K i % 0 0 . 0 l c P p u o r G r e c n e p S & s k r a M % 4 0 . 0 - l i l c P s g n d o H e c y o R - s l l o R % 4 0 . 0 - l c P s t e k r a m r e p u S n o s i r r o M m W % 1 0 . 0 % 4 0 . 1 l c P t x e N % 5 9 . 0 % 1 9 . 0 . c n I p u o r g i t i C l c P p u o r G d n a l t o c S f o k n a B l a y o R l l i c P s g n d o H C B S H i l c P e d w y r t n u o C % 5 0 . 0 - % 2 1 . 0 - i l c P s e g o o n h c e T l i l h p e D % 5 1 . 0 - The bar charts above show the top and bottom contributors to total performance during the year from those stocks held in the portfolio. Relative to the benchmark index Source: Factset TOP TEN CONTRIBUTORS BOTTOM TEN CONTRIBUTORS % 6 9 1 . % 8 6 1 . l c P a t i p a C i l c P s n k r e P s i v a r T % 5 7 0 . l c P a r r e t r o F % 7 6 . 0 l c P p u o r G n o t f a r G % 0 6 . 0 l c P t x e N % 3 5 . 0 . c n I p u o r g i t i C % 0 5 . 0 . c n I , s t c u d o r P n o v A % 6 4 . 0 l c P o c s e T l c P s t e k r a m r e p u S n o s i r r o M m W % 9 1 . 0 - l c P y r d r e p u S % 0 2 . 0 - % 8 4 . 0 % 8 4 . 0 l * c P e r o c n e G l l i l c P s g n d o H C B S H i l c P e d w y r t n u o C l * c P o t n T o R i i % 1 2 . 0 - % 2 3 . 0 - l c P p u o r G T B % 4 3 . 0 - l * c P p u o r G e g n a h c x E k c o t S n o d n o L l c P p u o r G r e c n e p S & s k r a M l * c P o c c a b o T n a c i r e m A h s i t i r B l i c P s e g o o n h c e T l i l h p e D % 1 4 . 0 - % 3 4 . 0 - % 5 4 . 0 - % 7 4 . 0 - l c P p u o r G T B % 9 2 . 0 - l * c P a c e n e Z a r t s A % 1 5 . 0 - The bar charts above show the top and bottom contributors relative to the performance of the FTSE All-Share Index during the year and include the impact of stocks not held in the portfolio. Both positive and negative relative performance can be derived from stocks that are not owned by Temple Bar. * indicates company was not held 7 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 OVERVIEW OF STRATEGY The strategic report is designed to help shareholders assess how the directors have performed their duty to promote the success of the Company during the year under review. BUSINESS OF THE COMPANY Temple Bar Investment Trust PLC was incorporated in England and Wales in 1926 with the registered number 214601. The Company carries on business as an investment company under Section 833 of the Companies Act 2006 and has been approved by HM Revenue & Customs as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010. The Company’s principal business activity of investment management is sub-contracted to Investec Fund Managers Limited (‘IFM’), the Alternative Investment Fund Manager of the Company. IFM delegates the management of the Company’s portfolio to Investec Asset Management Limited (‘IAM’). A review of the business is given in the Chairman’s Statement and the Manager’s Review. The results of the Company are shown on page 35. PROMOTING THE SUCCESS OF TEMPLE BAR The directors have a statutory duty under Section 172 of the Companies Act 2006 to promote the success of the Company for the benefit of shareholders and other stakeholders and to explain how they have discharged their duties, including the likely consequences of their decisions in the longer term and how they have taken wider stakeholders’ interests into account. A company’s stakeholders are usually considered to be its shareholders, employees, customers, suppliers and the wider community which the company operates in and affects. An investment trust is different in having no employees and its customers are also its shareholders. By far its major supplier is its investment manager, to whom the Board relates as principal to agent rather than conceiving of this relationship as a stakeholder one. The Board believes the wider community in which an investment trust operates is the wider community in which all of its investee companies operate. Thus the Board sees its duty to promote the success of the company as being primarily owed to its shareholders and the wider community which its investee companies serve. The primary purpose of the Company is to deliver long term returns for shareholders from a diversified portfolio of investments. The Board believes that, as an investment company with no employees, this is best achieved by working in partnership with our appointed Manager. Within broad policies set and overseen by the Board, the Manager has been given responsibility for the management of Temple Bar’s assets. The Board remains responsible for decisions over corporate strategy, corporate governance, risk and control assessment, establishing investment policies on matters such as diversification and gearing, monitoring investment performance and setting and monitoring marketing strategies. Temple Bar is a closed ended listed investment company with a simple share structure comprising only ordinary shares. This allows the Company to take long term positions without being constrained by the need to make asset sales to meet redemptions. In addition, we believe the Company’s ability to borrow confers an advantage over a number of other investment fund structures. In recognition of the need to achieve long term success, the Temple Bar Board works closely with its Manager in developing its investment strategy and underlying policies. This is not simply for the purpose of achieving its investment objective but also to do so in an effective and responsible way in the interests of shareholders, future investors and society at large. The Board recognises that ethical and Environmental, Social and Governance (ESG) issues cannot be ignored by asset managers and investment companies alike. We have, therefore, included on pages 13 to 14 additional information on our approach towards responsible investment and illustrative examples of engagement in practice are set out on page 14. The Board is supportive of IAM’s approach, which focuses on engagement with investee companies on ESG issues. Some of the key decisions taken by the Board during the year were: • • • • to change the Company’s investment policy (as approved by shareholders) with the broad objective of enabling the portfolio to be managed in a less constrained manner. The Board believes that this will be to the long term benefit of shareholders. the appointment of two additional directors so as to enable long term succession planning and an optimal balance of skillsets on the Board. to determine whether to refinance the £38m 5.5% debenture stock ahead of its maturity in April 2021. A decision was taken to defer this until the current financial year given the numerous uncertainties prevailing for most of 2019, not least connected to Brexit. Brexit related issues were discussed on many occasions but it was decided that there were no directly related changes required to portfolio construction. During the year the Board carried out an extensive consultation and feedback exercise on investment in tobacco stocks to establish whether shareholders were supportive of a prohibition of investment in such stocks as part of a broader investment principle not to profit from companies whose business model entails addicting their customers to harmful products. The majority of shareholders did not support the introduction of such a policy at this stage. The Chairman also held a series of meetings with major shareholders to solicit broader feedback on a variety of issues. Pursuant to this process a view emerged that the independent board evaluation process carried out in 2019 was not sufficiently rigorous. As a result of these concerns the Board has decided to conduct a more comprehensive evaluation process in the second half of this year. The same shareholder discussions also revealed a preference for greater clarity on the Board’s policy on director tenure. This has resulted in more specific policies being introduced, as set out in the Corporate Governance report on page 23. 8 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019The portfolio activities undertaken by our Manager can be found in the Manager’s Review on page 4. One of our long-term strategic aspirations has been that the Company’s shares should trade consistently at a price close to the NAV per share. For much of the year the shares traded at a relatively modest discount to NAV, this rating being aided by the marketing and promotional activities that we have asked the Manager to put into effect. An important role of the Board is to ensure that Temple Bar’s ongoing charges are competitive both in terms of its peer group and other comparable investment products. Costs can eat away at investment returns. We recognise that the financial services industry needs to provide simple to use, transparent investment products that allow investors to invest for the longer term and secure their financial future. In that context we believe that Temple Bar provides an attractive investment opportunity, particularly for UK based investors. We therefore took the opportunity during the year to promote the Company through marketing and public relations initiatives. We plan to continue to develop these initiatives and will strive to work towards the optimal delivery of the Company’s investment proposition and to promote the success of Temple Bar for the benefit of all shareholders, stakeholders and the community at large. CULTURE A company’s culture would conventionally be defined as a blend of attributes and behaviours people experience while at work and which inform actions and decision making. While Temple Bar has no employees it recognises the importance of culture in terms of its alignment with purpose, values and strategy. The Board’s own culture promotes a desire for strong governance and openness of debate. The Board attaches great importance to long term investment, mindful of the interests of all stakeholders. INVESTMENT OBJECTIVE AND POLICY The Company’s investment objective is to provide growth in income and capital to achieve a long term total return greater than the benchmark FTSE All-Share Index, through investment primarily in UK listed securities. The Company’s policy is to invest in a broad spread of securities with typically the majority of the portfolio selected from the constituents of the FTSE 350 Index. The UK equity element of the portfolio will be mostly invested in the FTSE All-Share Index; however, exceptional positions may be sanctioned by the Board and up to 30% of the portfolio may be held in listed international equities, subject to a maximum 10% exposure to emerging markets. The Company may continue to hold securities that cease to be quoted or listed if the Manager considers this to be appropriate. There is an absolute limit of 10% of the portfolio in any individual stock with a maximum exposure to a specific sector of 35%, in each case irrespective of their weightings in the benchmark index. It is the Company’s policy to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts). The Company maintains a diversified portfolio of investments, typically comprising 30-50 holdings, but without restricting the Company from holding a more or less concentrated portfolio from time to time as circumstances require. The Company’s long term investment strategy emphasises stocks of companies that are out of favour and whose share prices do not match the Manager’s assessment of their longer term value. From time to time fixed interest holdings or non equity interests may be held for yield enhancement and other purposes. Derivative instruments are used in certain circumstances, and with the prior approval of the Board, for hedging purposes or to take advantage of specific investment opportunities. Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The Company’s gross gearing range may fluctuate between 0% and 30%, based on the current balance sheet structure, with an absolute limit of 50%. As a general rule it is the Board’s intention that the portfolio should be reasonably fully invested. An investment level of 90% of shareholder funds is regarded as a guideline minimum investment level dependent on market conditions. Risk is managed through diversification of holdings, investment limits set by the Board and appropriate financial and other controls relating to the administration of assets. INVESTMENT APPROACH The investment approach of the Manager is premised on a contrarian view on the timing of buy and sell decisions, buying the shares of companies when sentiment towards them is thought to be near its worst and selling them as fundamental profit improvement and/or re-evaluation of their long term prospects takes place. The belief is that repeated investor behaviour in driving down the prices of ‘out of favour’ companies to below their fair value will offer investment opportunities. This will allow the Company to purchase shares at significant discounts to their fair value and to sell them as they become more fully valued, principally as a result of predictable patterns in human psychology. The Manager’s process is designed to produce ‘best ideas’ to drive active fund management within a rigorous control framework. The framework begins through narrowing down the universe of stocks by passing those companies with a market capitalisation above £200 million through a screening process which highlights the weakest performing stocks. This isolates opportunities with the most negative sentiment characteristics which are then in turn scrutinised in greater detail to identify investment opportunities. The process is very much bottom up and can result in large sector positions being taken if enough stocks of sufficient interest are found within a single sector. However, top down risk analysis is undertaken to identify potential concentration of risk and to factor this awareness into portfolio construction. The portfolio comprises stocks which have been purchased for different reasons and at different times. In general, because of the bottom up approach to stockpicking, each of these reasons is independent of the other and the portfolio, therefore, is not excessively vulnerable to longer term macro trends. Cash is a residual of the process and normally will not exceed 15% of the portfolio value. 9 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 OVERVIEW OF STRATEGY CONTINUED The approach to stock selection and portfolio construction is driven by four core beliefs: 1. Markets overreact to news on the upside and the downside. The Manager aims to be sceptical of the crowd and aware of investor psychology, which often causes overvaluation of those stocks that are deemed to have good prospects and an undervaluation of those which are out of favour. KEY PERFORMANCE INDICATORS The key performance indicators (‘KPIs’) used to determine the progress and performance of the Company over time, and which are comparable to those reported by other investment trusts, are: • Net asset value total return relative to the FTSE All-Share Index and to competitors within the UK Equity Income sector of investment trust companies; 2. There are few companies which sustain below normal profits over the longer term. Weaker companies tend to leave an industry, thus improving the balance of supply and demand, are bid for or management is changed. Similarly, there are few companies which can sustain supernormal profits over the longer term. Such profits tend to be competed or regulated away. 3. Fundamental valuation is the key determinant of share price performance over the long term. In other words ‘cheap’ stocks will outperform ‘expensive’ stocks. 4. Diversification is an important control. Particular companies or sectors can be out of favour for a considerable time. PERFORMANCE In the year to 31 December 2019 the net asset value total return of the Company was 27.9% compared with a total return of the Company’s benchmark index of 19.2%. The effect of removing gearing from the performance calculation is shown in the following graph of investment performance over a ten year period compared with the FTSE All-Share Index. The Chairman’s Statement on pages 2 to 3 and the Manager’s Review on pages 4 to 6 include a review of developments during the year together with information on investment activity within the Company’s portfolio and an assessment of future developments. Ungeared 10 year performance 260 240 220 200 180 160 140 120 100 80 • Discount/premium on net asset value; • Earnings and dividends per share; and • Ongoing charges. While some elements of performance against KPIs are beyond management control they provide measures of the Company’s absolute and relative performance and are, therefore, monitored by the Board on a regular basis. Net asset value (‘NAV’) total return In reviewing the performance of the assets of the Company’s portfolio the Board monitors the NAV in relation to the FTSE All-Share Index. This is the most important KPI by which performance is judged. During the year the net asset value total return of the Company was 27.9% compared with a total return of 19.2% by the FTSE All-Share Index. The ten year net asset value total return performance is shown below. Net asset value total return 300 280 260 240 220 200 180 160 140 120 100 80 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Thomson Reuters Datastream Temple Bar share price – total return Temple Bar NAV – total return FTSE All-Share Index – total return The Board also monitors Temple Bar’s performance relative to its peer group over various time periods and believes that this is satisfactory. Temple Bar is 7th out of the 15 companies featuring in its designated peer group within the AIC Equity Income sector over a 10 year period (Source: Morningstar). 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Temple Bar – gross assets, excluding effects of gearing and associated costs FTSE All-Share Index – total return Sources: Thomson Reuters Datastream and IAM 10 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Discount on net asset value The Board monitors the premium/discount at which the Company’s shares trade in relation to their net asset value. During the year the shares traded at an average discount to NAV of 3.9%. This compares with an average discount of 5.7% in the previous year. The Board and Manager closely monitor both movements in the Company’s share price and significant dealings in the shares. In order to avoid substantial overhangs or shortages of shares in the market the Board asks shareholders to approve resolutions which allow for both the buy back of shares and their issuance which can assist in the management of the discount or premium. (Discount)/premium to net asset value (excluding current year revenue) 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% -11% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Cum income NAV, debt at market value Source: Morningstar Earnings and dividend per share It remains the directors’ intention to distribute, over time, by way of dividends substantially all of the Company’s net revenue income after expenses and taxation. The Manager aims to maximise total returns from the portfolio. PRINCIPAL RISKS The final dividend recommended for the year is 18.39p per ordinary share which brings the total for the year to 51.39p per ordinary share, an increase of 10.0% from the prior year. This will be the 36th consecutive year in which the Company has increased the overall level of its dividend payment. 10 Year Comparative Dividend Growth 160 150 140 130 120 110 100 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Temple Bar dividend Retail Prices Index Source: Bloomberg Ongoing charges Ongoing charges is an expression of the Company’s management fees and other operating expenses as a percentage of average daily net assets over the year. The ongoing charges for the year ended 31 December 2019 were 0.49% (2018: 0.47%). The Board compares the Company’s ongoing charges with those of its peers on a regular basis. At the present time the Company has one of the lowest ongoing charges in the UK Equity Income sector of investment trust companies. With the assistance of the Manager the Board has drawn up a risk matrix which identifies the key risks to the Company. The Board has carried out a robust assessment of these risks which includes those that would threaten the Company’s business model, future performance, solvency or liquidity. The Board reviews and agrees policies, which have remained unchanged since the beginning of the accounting period, for managing these risks, as summarised below. RISK MITIGATION AND MANAGEMENT INVESTMENT STRATEGY RISK An inappropriate investment strategy on matters such as asset allocation or the level of gearing may lead to underperformance against the Company’s benchmark index or peer companies. The Board manages such risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on by the Manager. The Manager provides the directors with regular management information including absolute and relative performance data, attribution analysis, revenue estimates, liquidity reports, risk profile and shareholder analysis. The Board monitors the implementation and results of the investment process with the portfolio manager, who attends Board meetings. Periodically the Board holds a separate meeting devoted to strategy, the most recent being in December 2019. LOSS OF INVESTMENT TEAM OR PORTFOLIO MANAGER A sudden departure of the investment manager or several members of the investment management team could result in a short term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel. 11 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 OVERVIEW OF STRATEGY CONTINUED RISK MITIGATION AND MANAGEMENT INCOME RISK – DIVIDEND Generating the necessary level of income from portfolio investments to meet the Company’s expenses and to provide adequate reserves from which to base a sustainable programme of increasing dividend payments to shareholders is subject to the risk that income generation from investments fails to meet the level required. SHARE PRICE RISK Should the market price of the Company’s ordinary shares trade at a significant discount to the underlying net asset value per share shareholders might not be able to realise the full value of their investment and the Company might itself be vulnerable to some form of corporate activity. ACCOUNTING, LEGAL & REGULATORY In order to qualify as an investment trust the Company must comply with Section 1158 of the Corporation Tax Act 2010. Were the Company to breach Section 1158 it might lose investment trust status and, as a consequence, inter alia, realised gains within the Company’s portfolio would be subject to capital gains tax. The Company must also comply with the provisions of the Companies Act and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules. A breach of the Companies Act could result in the Company being fined or subject to criminal proceedings. Breach of the UKLA Listing Rules could result in the Company’s shares being suspended from listing which in turn would breach Section 1158. This risk would be exacerbated by inadequate resources or insufficient training within the Company’s third party providers to properly manage compliance with current and future requirements. The Company’s business model could become non-viable as a result of new or revised rules or regulations arising from, for example, policy change or financial monitoring pressure. CONTROL SYSTEMS RISK Disruption to, or failure of, IFM’s accounting, dealing or payments systems or the custodian’s records could prevent accurate reporting and monitoring of the Company’s financial position or adversely impact the ability to trade. OTHER RISKS Other risks to which the Company is exposed and which form part of the market risks referred to above are included in note 22 of the financial statements together with summaries of the policies for managing these risks. These comprise: market price risk, interest rate risk, liquidity risk, credit risk and currency risk. EMERGING RISKS The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties and also to identify and evaluate newly emerging risks. The Board regularly reviews all risks to the Company, including emerging risks, which are identified by a variety of means, including advice from the Company’s professional advisors, the AIC, and directors’ knowledge of markets, changes and events. The following new or emerging risks were identified and reviewed during the year. Brexit The Board considered the market uncertainty arising from the impact of the UK leaving the EU in both orderly or ‘no deal’ scenarios. At the time of writing the Board does not expect the Company’s business model, over the longer term, to be materially affected by Brexit. The Board monitors this risk through the receipt of detailed income reports and forecasts which are considered at each meeting. As at 31 December 2019 the Company had distributable revenue reserves of £37.1 million before declaration of the final dividend for 2019 of £12.3 million. Furthermore, income risk is mitigated by the Company’s ability to distribute realised capital gains if required to meet any revenue shortfall. The Company’s share price and premium or discount to NAV are monitored by the Manager and considered by the Board on a regular basis. The directors attach considerable importance to the level of premium or discount to NAV at which the shares trade, both in absolute terms and relative to the rating at which the UK Equity Income sector of investment trusts is trading. Premiums judged to be excessive will be addressed by repeated share issues, either new or from Treasury. Discounts judged to be excessive will be addressed by repeated share buybacks, for Treasury or cancellation. The directors are prepared to be proactive in premium/discount management to minimise potential disadvantages to shareholders. The Manager provides investment, company secretarial, administration and accounting services through qualified third party professional providers. The Board receives regular reports from them in respect of their compliance with all applicable rules and regulations. The Board receives regular reports from its broker, depositary, registrars and Manager as well as the industry trade body (the Association of Investment Companies) on changes to regulations which could impact the Company and its industry. The Company monitors events and relies on the Manager and its other key third party providers to manage this risk by preparing for any changes, adverse or otherwise. Details of how the Board monitors the services provided by IFM and its associates and the key elements designed to provide effective internal control are included within the internal control section of the Corporate Governance report on page 23. Cyber crime The threat of cyber attack, in all its guises, is at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and IFM has assured directors that the Company benefits directly or indirectly from all elements of IFM’s cyber security programme. The Manager’s IT team has developed a number of initiatives and controls in order to provide enhanced mitigating protection to this ever increasing threat and the Board is updated on these as part of the reporting it receives from the Manager. VIABILITY STATEMENT The Board makes an assessment of the longer term prospects of the Company beyond the timeframe envisaged under the going concern basis of accounting having regard to the Company’s current position and the principal risks it faces. The Company is a long term investment vehicle and the directors, therefore, believe that it is appropriate to assess its viability over a long term horizon. For the purposes of assessing the Company’s prospects in accordance with Code Provision 31 of the UK Corporate Governance Code, the Board considers that assessing the Company’s prospects over a period of five years is appropriate given the nature of the Company and the inherent uncertainties 12 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019of looking over a longer time period. The directors believe that a five year period appropriately reflects the long term strategy of the Company and over which, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. In assessing the viability of the Company the directors have conducted a thorough assessment of each of the Company’s principal risks and uncertainties as set out above. Particular scrutiny was given to the impact of a significant fall in equity markets on the value of the Company’s investment portfolio. The directors have also considered the Company’s leverage and liquidity in the context of its long dated fixed rate borrowings, its income and expenditure projections and the fact the Company’s investments comprise mainly readily realisable quoted securities which can be sold to meet funding requirements if necessary. The Company’s £38 million 5.5% debenture stock matures in April 2021. During the year the Company will assess various options for its possible replacement but, irrespective of whether it is replaced, the directors do not believe that there will be any impact on the Company’s long term viability. All the key operations required by the Company are outsourced to third party providers and alternative providers could be secured at relatively short notice if necessary. Having taken into account the Company’s current position and the potential impact of its principal risks and uncertainties, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report. MODERN SLAVERY ACT Due to the nature of the Company’s business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter. GENDER DIVERSITY At the year end there were three male directors and three female directors on the Board. The Company has no employees and therefore there is nothing further to report in respect of gender representation within the Company. The Company’s policy on diversity is detailed in the corporate governance report on page 23. GREENHOUSE GAS EMISSIONS All the Company’s activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from its operations. BRIBERY ACT The Company has a zero tolerance policy towards bribery and is committed to carrying out business fairly, honestly and openly. The Manager also adopts a zero tolerance approach and has policies and procedures in place to prevent bribery. CRIMINAL FINANCES ACT 2017 The Company has a commitment to zero tolerance towards the criminal facilitation of tax evasion. STEWARDSHIP/ENGAGEMENT The Board embraces the concept of active stewardship; this is central to the achievement of its aim to preserve and grow the long term real purchasing power of the assets entrusted to it by shareholders. In doing so, the Board asks the Manager to adopt a stewardship role, including the effective exercising of shareholders’ ownership rights. The Manager monitors, evaluates and if necessary, actively engages or withdraws from investments with the aim of preserving or adding value to the portfolio. The Manager signed the Principles for Responsible Investment in 2008 and the UK Stewardship Code in 2012. It has carefully considered all global principles and focuses on five core principles to guide its stewardship role in representing its shareholders’ ownership rights. The Manager will: • Disclose how it discharges its stewardship duties through publicly available policies and reporting. • Address internal governance of effective stewardship including conflicts of interest and potential obstacles. • Support a long-term investment perspective by integrating, engaging, escalating and monitoring material Environmental, Social and Governance (ESG) issues. • Exercise its ownership rights responsibly including engagement and voting rights. • Act alongside other investors, where appropriate. The Manager believes that the consideration of material ESG risks and opportunities, be those material environmental, human rights, social or governance considerations, allows it to better understand risks and identify companies that are well placed to create long-term shareholder value. It is an inherent characteristic of value investing to look at any upside, including ESG considerations, which could enable a company to improve its current low valuation. This will often involve issues related to governance or management. Any ESG issues identified will be incorporated into the investment team’s final analysis, and any impact that these issues may have on valuation will be considered. The Manager has a dedicated ESG team that works very closely with the investment team to provide support, guidance, training and in depth research across ESG integration and active ownership. Examples of engagement that took place during the year are set out on the following page. The Manager, across all the funds under its management, does not invest in the cluster munitions industry. In addition to cluster munitions, the Manager’s ‘controversial weapons exclusion policy’ excludes companies directly involved in the manufacture and production of antipersonnel landmines, biological weapons and chemical weapons. The Board endorses the Manager’s controversial weapons policy. The Manager’s Stewardship Policy and Ownership Policy & Proxy Guidelines are available on request from the Company Secretary or can be downloaded from its website. Notwithstanding the above, the Board is aware that there is currently no industry consensus on the substance of ESG requirements, with a great deal of variance on what is meant by the ‘social’ issues particularly. The Board expects this debate to continue to evolve. 13 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019OVERVIEW OF STRATEGY CONTINUED ENGAGEMENT IN PRACTICE INVESTEE COMPANY AND NATURE OF ENGAGEMENT OUTCOME CAPITA PLC We sought more clarity on payments made to the departing CFO and the structure of the annual bonus and LTIP together with the pay outcomes. We also requested information about Capita’s involvement in the Personal Independence Payments (‘PIP’) scheme which was introduced by the Government in 2013. There had been some negative press and we sought to establish how Capita was managing potential reputational risk. BARCLAYS PLC Further to meeting the new Chairman and conversations with the CFO, we supported the board and voted against the resolution to vote Edward Bramson of Sherborne Investors to the board. SUPERDRY PLC We met the group’s Chairman and Interim CEO to discuss, amongst other things, progress on reconstituting the board. This was a matter of some urgency given that all previous board members had handed in their resignation notices at the EGM that confirmed Julian Dunkerton, the co-founder of the company, had won the vote he had called and would be returning as Interim CEO. COUNTRYWIDE PLC We met with the head of the Remuneration Committee to discuss the remuneration and incentive scheme. We also discussed succession planning for senior management given the unusual, but understandable, situation of the company being led by an executive chairman. HIPGNOSIS PLC We engaged with the company on several concerns: 1. Proposed increase in borrowing powers 2. The need to improve disclosure to shareholders 3. New music catalogue purchases not being ‘evergreens’, as stated in the Prospectus HEADLAM GROUP PLC We engaged with the Chairman of the company with regard to its capital allocation policy. We encouraged a more structured approach, perhaps returning any surplus cash to shareholders in a disciplined manner. The company explained the reasoning behind the non-financial element of the CEO’s pay and explained that the 2019 bonus will place a higher emphasis on financial performance which mitigated our concerns. A follow up call with the Head of the PIP division gave us comfort that the company was managing this risk appropriately. The Chairman is aware of shareholders’ views and this provides us with confidence that the company is moving in the right direction. It is likely to take at least a year to find a suitable, long-term CEO. We will remain in close contact with the Chairman and board on this and other corporate governance issues. The company accepted our comments. We will monitor the situation. The proposed increase in borrowing powers was withdrawn and the company instead raised equity via a placing. After meeting the Chairman and sending a letter to the company, we received responses acknowledging our concerns. We will continue to monitor. We were happy with the company’s proposals for a new policy in future. EXTERNALITIES EMPLOYEE POLICY The Board notes the Manager’s policy statement in respect of Environmental, Social and Governance issues, as outlined on page 13. The Company is managed by IFM, has no employees and all of its directors are non-executive. Therefore there are no disclosures to be made in respect of employees. In addition to this, the Board has asked the Manager to include externalities when assessing a stock’s suitability for investment. Externalities are costs, usually to society or the environment, which are not captured by market pricing. As a part of its assessment of the long-term value of a stock and the sustainability of its franchise, the Manager takes these non- financial factors in to account. In particular, there are some areas where companies operating legally and ethically may, through their joint (unco-ordinated) action, create a globally catastrophic result. These are specifically in the areas of climate change, global financial fragility and antimicrobial resistance. These are areas where the Board believes that engagement with investee companies, in conjunction with other asset owners, is essential to prevent disastrous unintended consequences. The Board therefore asks its Manager to report to it regularly with regard to its engagement in these specific areas. FUTURE DEVELOPMENTS The future development of the Company is dependent on the success of its investment strategy in the light of economic and equity market developments. The outlook is discussed in the Chairman’s Statement on page 2 and the Manager’s Review on page 4. By order of the Board of Directors Arthur Copple Chairman 19 February 2020 14 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019PORTFOLIO OF INVESTMENTS COMPANY INDUSTRY PLACE OF PRIMARY LISTING VALUATION £000 % OF PORTFOLIO 1 CAPITA Capita offers outsourcing services to both the private and public sector, mainly in the UK. After a few turbulent years it has strong turnaround potential. 2 3 4 5 6 7 8 9 GLAXOSMITHKLINE GlaxoSmithKline is a global health care company focusing on pharmaceuticals, vaccines and consumer healthcare. The company plans to separate into two companies: pharmaceuticals/vaccines and OTC by the end of 2022. TRAVIS PERKINS Travis Perkins is the UK’s largest product supplier to the building, construction and home improvement markets. Management plans to move away from plumbing and heating and consumer markets. ROYAL DUTCH SHELL Royal Dutch Shell is a global oil and gas company. It is one of the six oil and gas “supermajors”. It is vertically-integrated and is active in oil and gas exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. BP BP is a global oil and gas company and is one of the six oil and gas “supermajors”. It is vertically-integrated and is active in oil and gas exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. GRAFTON GROUP Grafton is a distributor of building products that operates across the UK and Ireland and also has a small Dutch business. The group operates from about 500 sites in the UK, and this is by far its most important market, accounting for approximately 75% of sales. UK profitability has been held back by disappointing spend on improvement of the UK housing stock but this spending should bounce back. TESCO Tesco is the market leading groceries retailer in the UK, and also has operations in Ireland, Europe and Asia. Management has significantly improved the balance sheet and operations in the last few years and now has the chance to build a large market position. BARCLAYS Barclays has significant consumer, corporate and investment banking positions, particularly focused on the UK and the US. Management has reduced the non-core part of the business and re-built capital strength. Significant efforts are being made to improve the profitability of the investment banking division. ROYAL BANK OF SCOTLAND RBS operates across a wide range of banking activities including personal and corporate lending, capital markets, leasing, personal financial services and private banking. The majority of the bank’s assets are located in the UK. The company’s balance sheet is strong and dividends have now been resumed. 10 SIG SIG is the largest supplier of insulation products in Europe, with around 50% of sales being generated in the UK. A recent trading update highlighted a significant deterioration in trading in the UK and Germany but a healthy balance sheet post recent disposals gives the group time to achieve a more normalised performance. UK 85,282 7.8% UK 74,573 6.9% UK 71,010 6.5% UK 56,336 5.2% UK 47,458 4.4% UK 46,474 4.3% Industrials Healthcare Industrials Oil & Gas Oil & Gas Industrials UK 41,843 3.9% Consumer Services UK 41,234 3.8% UK 39,654 3.6% UK 35,371 3.3% Financials Financials Industrials Top Ten Investments 539,235 49.7% 15 STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 PORTFOLIO OF INVESTMENTS CONTINUED COMPANY HSBC Holdings Kingfisher Forterra easyJet 11 12 13 14 15 Marks & Spencer 16 17 18 19 TP ICAP Citigroup Lloyds Banking Group Land Securities Group REIT 20 McCarthy & Stone Top Twenty Investments 21 22 23 24 CRH Aggreko UK Treasury 3.75% 2021 Superdry 25 Global X Silver Miners ETF 26 Vodafone 27 Next BT Group 28 29 30 41 42 43 44 45 46 47 48 36 37 38 39 40 Rolls-Royce Holdings Crest Nicholson Chemring Brown (N) Group Hipgnosis Songs Fund Top Forty Investments Dixons Carphone ETFS Physical Silver Countrywide Bovis Homes INDUSTRY Financials Consumer Services Industrials Consumer Services Consumer Services Financials Financials Financials Financials Consumer Goods PLACE OF PRIMARY LISTING VALUATION OF HOLDING £000 % OF PORTFOLIO UK UK UK UK UK UK USA UK UK UK 29,698 29,150 29,005 28,486 27,561 24,236 23,411 21,680 21,473 20,027 2.7% 2.7% 2.7% 2.6% 2.5% 2.2% 2.2% 2.0% 2.0% 1.8% 793,962 73.1% Industrials Industrials Fixed Interest Consumer Goods Basic Materials Telecommunications Consumer Services Telecommunications Ireland UK UK UK USA UK UK UK Industrials Consumer Goods Industrials Consumer Services Financials UK UK UK UK UK Consumer Services UK Physical Gold and Silver UK Financials Consumer Goods UK UK UK UK UK UK 19,455 17,405 16,780 16,683 16,647 16,199 15,585 15,459 15,043 14,965 958,183 14,233 12,336 11,628 11,254 10,544 10,316 8,821 8,265 8,087 6,962 1.8% 1.6% 1.6% 1.5% 1.5% 1.5% 1.4% 1.4% 1.4% 1.4% 88.2% 1.3% 1.1% 1.1% 1.0% 1.0% 1.0% 0.8% 0.8% 0.7% 0.6% 1,060,629 97.6% 6,911 6,542 4,417 4,116 972 927 685 645 0.6% 0.6% 0.4% 0.4% 0.1% 0.1% 0.1% 0.1% Sprott Physical Silver Trust Physical Gold and Silver Canada VanEck Vectors Gold Miners ETF Basic Materials USA Top Thirty Investments 31 32 Delphi Technologies Headlam Group 33 Wm Morrison Supermarkets 34 J Sainsbury Consumer Goods USA Consumer Goods Consumer Services Consumer Services UK UK UK 35 Gold Bullion Securities ETF Physical Gold and Silver UK Aviva 2020 5.9021% FRN Perpetual Fixed Interest Lloyds Banking Group – 9.25% preference shares Hochschild Mining Kin & Carta Financials Basic Materials Industrials Total Valuation of Portfolio 1,085,844 100.0% 16 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019BOARD OF DIRECTORS ARTHUR COPPLE SIR RICHARD JEWSON* Arthur Copple, Chairman, was appointed a director in 2011. He has specialised in the investment company sector for over 30 years. He was a partner at Kitcat & Aitken, an executive director of Smith New Court PLC and a managing director of Merrill Lynch. He is currently Chairman of Montanaro UK Smaller Companies Investment Trust PLC and Vice Chairman of The University of Brighton Academies Trust. Sir Richard Jewson, senior independent director, was appointed a director in 2001. He first worked in the timber and building material supply industry, becoming managing director of Jewson, the builders’ merchants, for twelve years from 1974, and then managing director and chairman of its parent company Meyer International PLC from which he retired in 1993. He is currently chairman of Raven Property Limited and Tritax Big Box REIT PLC and a non-executive director of other private companies. I S T R A T E G C R E P O R T G O V E R N A N C E R E P O R T I I F N A N C A L R E P O R T LESLEY SHERRATT RICHARD WYATT SHEFALY YOGENDRA Richard Wyatt was appointed a director in 2017. He is a former Group Managing Director at Schroders, Lazard and a Vice Chairman at Rothschild. He was Chairman of the media agency Engine Group and served on the Regulatory Decisions Committee of the FSA. He is currently a global partner of Rothschild & Co, Chairman of Loudwater Partners Limited and a director of a number of other companies. Lesley Sherratt was appointed a director in 2015. She was formerly Investment Director for the Save & Prosper and Fleming Flagship range of funds, and CEO & CIO of Ark Asset Management Ltd. She has over twenty years experience investing in the financial sector, including investment trusts, and served as a director and Chair of US Small Companies Investment Trust. She is currently a director of a private foundation, a trustee of the Medical Research Foundation and the Global Alliance for Chronic Diseases, lectures in global business ethics at King‘s College London and is the author of ‘Can Microfinance Work? How to Improve its Ethical Balance and Effectiveness‘. Shefaly Yogendra, PhD was appointed a director in 2019. She was most recently the COO of Ditto AI, a symbolic AI startup. She built her career in corporate venturing in the technology industry, followed by strategy advisory to investors, regulators and leaders of operating companies on strategic investment in emergent and regulated technologies. She focuses on digital and tech leadership and governance, organisational growth, risk, and decision making. She is an independent governor of London Metropolitan University and a non executive director of JP Morgan US Smaller Companies Investment Trust. She was listed among the “100 Women To Watch” in the 2016 edition of the Female FTSE Board Report. All the directors are independent and members of the audit and nomination committees. * Chairman of the audit committee and Senior Independent Director. S H A R E H O L D E R I N F O R M A T I O N 17 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 REPORT OF DIRECTORS The directors present their report and accounts for the year ended 31 December 2019. THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (‘AIFMD’) Investec Fund Managers Limited (‘IFM’), an affiliate of Investec Asset Management Limited (‘IAM’), is the Company’s Alternative Investment Fund Manager (‘AIFM’ or ‘Manager’). For the purposes of the AIFMD the Company is an Alternative Investment Fund (‘AIF’). IFM has delegated responsibility for the day to day management of the Company’s portfolio to IAM. IFM is required to ensure that a depositary is appointed and accordingly IFM and the Company have appointed HSBC as the depositary and custodian. HSBC is responsible for the custody of the Company’s assets and for monitoring its cash flows. The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. An Investor Information Document, which sets out information on the Company’s investment strategy and policies, leverage, risk, liquidity, administration, management, fees, conflicts of interest and other shareholder information is available on the Company’s website at www.templebarinvestments.co.uk. There have been no material changes to this information requiring disclosure. Any information requiring immediate disclosure pursuant to the AIFMD will be disclosed to the London Stock Exchange through a primary information provider. As an authorised AIFM, IFM will make the requisite disclosures on remuneration levels and policies to the Financial Conduct Authority (‘FCA’) at the appropriate time. MANAGEMENT FEES The Company has a management agreement with IFM for the provision of investment management services. The agreement is subject to one year’s notice of termination by either party. IFM receives an investment management fee of 0.35% per annum, payable quarterly, based on the value of the investments (including cash) of the Company together with an additional fee of £125,000 pa, plus or minus 0.005% of the value of the investments (including cash) of the Company above or below £750 million, calculated and payable quarterly. Investments in funds managed by IFM are wholly excluded from this charge. There is also a fee payable to Investec Asset Management Limited of £47,313 pa excluding VAT in respect of the provision of secretarial and administrative services, adjusted annually in line with the Retail Price Index. The contract terms are reviewed at least annually. This covers, inter alia, the performance of the Manager, its management processes, investment style, resources and risk controls. The Board endorses the investment approach adopted by the Manager, recognising that while the contrarian style can sometimes lead to periods of underperformance it has in the past usually delivered superior investment returns over the longer term. In addition, the portfolio has produced high and growing dividend income to shareholders. In the opinion of the directors the continued appointment of the Manager on the terms set out above is, therefore, in the best interests of shareholders. GOING CONCERN The directors have reviewed the going concern basis of accounting for the Company. The Company’s assets consist substantially of equity shares in listed companies and in most circumstances are realisable within a short timescale. The use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern. After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, including recourse to a £7.5 million overdraft facility with HSBC Bank. Accordingly, the directors continue to adopt the going concern basis in preparing the accounts. ORDINARY DIVIDENDS Interim dividends of 11.0p per ordinary share were paid on 28 June 2019, 30 September 2019 and 30 December 2019 (2018: 8.75p in each case) and the directors are recommending a final dividend of 18.39p per ordinary share (2018: 20.47p), a total for the year of 51.39p (2018: 46.72p). Subject to shareholders’ approval, the final dividend will be paid on 31 March 2020 to shareholders on the register on 13 March 2020. ISAs The Company has conducted its investment policy so as to remain a qualifying investment trust under the Individual Savings Account (ISA) regulations. It is the intention of the Board to continue to satisfy these regulations. 18 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 SHARE CAPITAL No new ordinary shares were issued during the year. SECTION 992 OF THE COMPANIES ACT 2006 The following information is disclosed in accordance with Section 992 of the Companies Act 2006. Capital structure The Company’s capital structure is summarised on page 45. Voting Rights in the Company’s Shares The voting rights at 31 December 2019 were: basis considers that all directors standing for re-election are independent. It is confirmed that, following formal evaluation, the performance of each director continues to be effective and each continues to demonstrate commitment to the role. There were no contracts subsisting during or at the end of the year in which a director of the Company is or was interested and which are or were significant in relation to the Company’s business. No director has a service contract with the Company. The Company maintains insurance cover for its directors under a Directors’ & Officers’ Liability policy, as permitted by the Companies Act 2006. Directors are also covered by the indemnity provisions in the Company‘s Articles of Association. I S T R A T E G C R E P O R T G O V E R N A N C E R E P O R T Number of shares issued Voting rights per share Total voting rights SUBSTANTIAL SHAREHOLDERS Share class Ordinary shares of 25p each 66,872,765 1 66,872,765 As at 19 February 2020, the share capital of the Company and total voting rights were 66,872,765. There are no restrictions on the transfer of securities in the Company and there are no special rights attached to any of the shares. Deadlines for the exercise of voting rights and details of arrangements by which someone other than the registered shareholder can exercise voting rights are provided in the Notes to the Notice of Meeting on page 51. The Company’s ordinary shares have a Premium listing on the London Stock Exchange. To the extent that they exist, the revenue profits and capital of the Company (including accumulated revenue and realised capital reserves) are available for distribution by way of dividends to the holders of the ordinary shares. Upon a winding-up, after meeting the liabilities of the Company, the surplus assets would be distributed to the shareholders pro rata to their holding of ordinary shares. Change of control There are no agreements that may be altered or terminated on change of control of the Company. DIRECTORS The directors of the Company who held office at the end of the year and up to the date of the signing of the Financial Statements are detailed on page 17. June de Moller retired as a director on 28 March 2019. Sonita Alleyne and Shefaly Yogendra were both appointed as directors on 1 October 2019. Sonita Alleyne resigned as a director on 28 January 2020. No other person was a director for part of the year. Details of directors’ beneficial shareholdings may be found in the Report on Directors‘ Remuneration on page 21. With the exception of Sir Richard Jewson, who will be standing down as a director at the AGM, all the directors will be retiring in compliance with the provisions of the AIC Code and, each being eligible, the Board recommends their re-election. In making these recommendations the Board has carefully reviewed the composition of the Board as a whole and borne in mind the need for a proper balance of skills and experience. Although some directors have served over nine years the Board does not believe that length of service of itself detracts from the independence of a director, particularly in relation to an investment trust, and on that As at 31 December 2019 and 19 February 2020 the following were registered or had indicated an interest in 3% or more of the issued ordinary shares of the Company. Brewin Dolphin Ltd Alliance Trust Savings Ltd Investec Wealth & Investment Ltd Rathbones Equiniti Financial Services AXA SA % 10.5 7.7 7.3 6.2 3.9 3.1 DISCLOSURE OF INFORMATION TO AUDITOR The directors are not aware of any relevant information of which the auditor is unaware and have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. AUDITOR Ernst & Young LLP have been auditor to the Company since 2003. In accordance with the Audit Regulations and Guidance the Company is required to change its auditor no later than 2023. Therefore, during the year the Audit and Risk Committee undertook an auditor review, pursuant to which it has been agreed to appoint BDO LLP to succeed Ernst & Young. Accordingly, a resolution to appoint BDO as auditor to the Company will be proposed at the forthcoming AGM. ANNUAL GENERAL MEETING The notice of the Annual General Meeting of the Company to be held on 30 March 2020 is on page 49. In addition to the ordinary business the following matters are proposed as special business. Authority to allot shares and disapplication of pre-emption rights It is proposed that the directors be authorised to allot up to £1,671,819 of relevant securities in the Company (equivalent to 6,687,276 ordinary shares of 25p each, representing 10.0% of its ordinary shares in issue as at 19 February 2020). When shares are to be allotted for cash, the Companies Act 2006 requires such new shares to be offered first to I I F N A N C A L R E P O R T S H A R E H O L D E R I N F O R M A T I O N 19 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 REPORT OF DIRECTORS CONTINUED existing shareholders in proportion to their existing holdings of ordinary shares. However, in certain circumstances, it is beneficial to allot shares for cash otherwise than pro rata to existing shareholders and the ordinary shareholders can by special resolution waive their pre-emption rights. Therefore, a special resolution will be proposed at the AGM which, if passed, will give the directors the power to allot for cash equity securities up to an aggregate nominal amount of £1,671,819 (equivalent to 6,687,276 ordinary shares of 25p each or 10.0% of the Company’s existing issued ordinary share capital). The directors intend to use this authority to issue new shares to prospective purchasers whenever they believe it may be advantageous to shareholders to do so. Any such issues would only be made at prices greater than net asset value per share, including current year income, as adjusted for the market value of the Company’s debt and would therefore increase the assets underlying each share. The issue proceeds would be available for investment in line with the Company’s investment policy. No issues of shares will be made which would alter the control of the Company without the prior approval of shareholders in general meeting. Directors’ authority to purchase the Company’s own shares The directors consider it desirable to give the Company the opportunity to buy back shares in circumstances where the shares may be bought for a price which is below the net asset value per share of the Company, as previously defined. The purchase of ordinary shares is intended to reduce the discount at which ordinary shares trade in the market through the Company becoming a new source of demand for such shares, as well as being accretive to NAV. The rules of the UK Listing Authority provide that the maximum price which can be paid by the Company is 5% above the average of the market value of the ordinary shares for the five business days before the purchase is made. Recommendation The Board considers the resolutions to be proposed at the AGM to be in the best interests of the Company and its members as a whole. Accordingly, the directors unanimously recommend that shareholders should vote in favour of the resolutions to be proposed at the AGM, as they intend to do so in respect of their own beneficial holdings, amounting to 158,470 ordinary shares. By order of the Board of Directors Arthur Copple Chairman 19 February 2020 20 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019REPORT ON DIRECTORS’ REMUNERATION The Board presents the report on directors’ remuneration for the year ended 31 December 2019 which has been prepared in accordance with Section 421 of the Companies Act 2006. The report comprises a policy report, which is subject to a triennial binding shareholder vote, or sooner if an alteration to the policy is proposed, and a remuneration policy report, which is subject to an annual advisory vote. The remuneration policy was last approved at the AGM held on 27 March 2017 and is, therefore, required to be re-submitted to shareholders for approval. The remuneration policy is set out in the Future Policy Table on this page. The law requires the Company’s auditor to audit certain parts of the disclosures provided. Where disclosures have been audited, they are indicated as such. The auditor’s opinion is included in their report on page 29. The principles remain the same as for previous years. There have been no changes to remuneration policy during the period of this report nor are there any proposals for change in the foreseeable future. DIRECTORS’ REMUNERATION POLICY REPORT The Company does not have any executive directors and, as permitted under the Listing Rules, has not, therefore, established a remuneration committee. Remuneration of non-executive directors is viewed as a decision of the Board, subject to any shareholder approvals which may be necessary. The level of directors’ fees is determined with reference to a range of factors including the remuneration paid to the directors of other investment trusts, comparable in terms of both size and investment characteristics, and the rate of inflation. The Manager of the Company compiles such analysis as part of the management and secretarial services provided to the Company. To support such analysis in 2017 the Board commissioned Trust Associates to carry out an independent assessment of the remuneration paid to Temple Bar’s Board relative to its peer group. The Company has no other relationship with Trust Associates. These data, together with consideration of any alteration in non-executive directors’ responsibilities, are used to review whether any change in remuneration is necessary. Based on these inputs it has been agreed that the Chairman's fee for the year commencing 1 January 2020 will be £38,750 pa. The chairman of the audit and risk committee will receive a fee of £30,750 pa and the directors will receive a fee of £25,750 pa. It is the Company’s policy that no director shall be entitled to any performance related remuneration, benefits in kind, long term incentive schemes, share options, pensions or other retirement benefits or compensation for loss of office. None of the directors has a service contract with the Company. The Company has no employees and consequently no consideration is required to be given to employment conditions elsewhere in setting directors’ pay. Consideration of Shareholders’ Views An ordinary resolution to approve the remuneration report is put to shareholders at each AGM, and shareholders have the opportunity to express their views and raise any queries in respect of remuneration policy at this meeting. To date, no shareholders have commented in respect of remuneration policy. FUTURE POLICY TABLE Purpose and link to strategy Fees payable to directors should be sufficient to attract and retain individuals of high calibre with suitable knowledge and experience. Those chairing the Board and key committees should be paid higher fees than other directors in recognition of their more demanding roles. Fees should reflect the time spent by directors on the Company’s affairs and the responsibilities borne by the directors. Maximum and minimum levels Remuneration consists of a fixed fee each year, set in accordance with the stated policies, and any increase granted must be in line with the stated policies. The Company’s Articles of Association set a limit of £250,000 in respect of the total remuneration that may be paid to directors in any financial year. The Board reviews the quantum of directors’ fees each year to ensure this is in line with the level of remuneration for other investment trusts of a similar size. When making recommendations for any changes in fees, the Board considers wider factors such as the average rate of inflation over the period since the previous review, and the level and any change in complexity of the directors’ responsibilities (including additional time commitments as a result of increased regulatory or corporate governance requirements). There is no compensation for loss of office. REMUNERATION POLICY REPORT (AUDITED) A single figure for the total remuneration of each director is set out in the table below for the year ended 31 December 2019. These fees exclude employers’ national insurance contributions and VAT where applicable: Total amount of fees1 2019 £ 37,500 6,250 6,250 30,000 Nil Nil 25,000 25,000 6,250 2018 £ 32,054 Nil 24,500 29,400 14,763 14,794 24,500 24,500 Nil 136,250 164,511 Arthur Copple2 Sonita Alleyne4 June de Moller5 Richard Jewson Nicholas Lyons6 John Reeve3 Lesley Sherratt Richard Wyatt Shefaly Yogendra4 Total 1 Other columns have been omitted as no payments of any other type were made. 2 Appointed Chairman 24 May 2018. 3 Retired 24 May 2018. 4 Appointed 1 October 2019. 5 Retired 28 March 2019. 6 Resigned 7 August 2018. The amounts paid by the Company to the directors were for services as non-executive directors. There were also no taxable benefits received by any directors during the year. 21 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATION REPORT ON DIRECTORS’ REMUNERATION CONTINUED Expenditure by the Company on remuneration and distributions to shareholders The table below compares the remuneration paid to directors with distributions made to shareholders during the year under review and the prior financial year. The total fees paid to directors are shown on page 21. Performance graph The directors consider that the most appropriate measure of the Company’s performance is its share price total return compared with the total return on the FTSE All-Share Index. A graph illustrating this relative performance over a ten year period is shown below. 2019 £000 2018 £000 % change Share price total return Remuneration paid to directors 136 165 (18) Distributions to shareholders – dividends* 35,757 29,243 22 * Based on the three interim dividends paid during the year together with the final dividend for 2018. Directors’ shareholdings (audited) The directors’ shareholdings are detailed below: 31 December 2019 1 January 2019 72,309 Nil N/A 10,851 65,000 10,000 310 42,643 N/A 10,474 10,851 31,000 10,000 N/A Arthur Copple Sonita Alleyne1 June de Moller2 Richard Jewson Lesley Sherratt Richard Wyatt Shefaly Yogendra1 1 Appointed 1 October 2019. 2 Retired 28 March 2019. All the above interests are beneficial. None of the directors had at any date any interest in the Company’s debenture stock. No other changes in the interests shown above occurred between 31 December 2019 and 19 February 2020. 300 280 260 240 220 200 180 160 140 120 100 80 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Temple Bar share price (total return) FTSE All-Share Index (total return) Source: Thomson Reuters Datastream Annual statement The Board confirms that the above Remuneration Policy Report in respect of the year ended 31 December 2019 summarises: • the major decisions on directors’ remuneration; • any significant changes relating to directors’ remuneration made during the year; and • the context in which the changes occurred and decisions have been taken. The portfolio manager also holds 68,130 ordinary shares in the Company. By order of the Board of Directors Statement of Voting at General Meeting At the Company‘s last AGM held on 28 March 2019 shareholders approved the Directors‘ Remuneration Report in respect of the year ended 31 December 2018. 99.8% of proxy votes were in favour of the resolution, 0.2% were against and 22,887 votes were withheld. At the AGM held on 27 March 2017, a resolution for the approval of the Remuneration Policy, as set out in the future policy table above, was approved by 99.8% of proxy votes, 0.2% were against and 12,540 votes were withheld. Arthur Copple Chairman 19 February 2020 22 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019CORPORATE GOVERNANCE THE AIC CODE OF CORPORATE GOVERNANCE Corporate Governance is the process by which the board of directors of a company protects shareholders’ interests and by which it seeks to enhance shareholder value. Shareholders hold the directors responsible for the stewardship of a company’s affairs, delegating authority and responsibility to the directors to manage the Company on their behalf and holding them accountable for its performance. The Board considers the practice of good governance to be an integral part of the way it manages the Company and is committed to maintaining high standards of financial reporting, transparency and business integrity. As Temple Bar is a UK-listed company the Board’s principal governance reporting obligation is in relation to the UK Corporate Governance Code (the “UK Code”) issued by the Financial Reporting Council (‘FRC’). However, it is recognised that investment companies have special circumstances which have an impact on their governance arrangements. An investment company typically has no employees and the roles of portfolio manager, administration, accounting and company secretarial tend to be outsourced to a third party. The Association of Investment Companies has therefore drawn up its own set of guidelines known as the AIC Code of Corporate Governance (the “AIC Code”), last updated in February 2019, which recognises the nature of investment companies by focusing on matters such as board independence and the review of management and other third party contracts. The FRC has endorsed the AIC Code and confirmed that companies which report against the AIC Code will be meeting their obligations in relation to the UK Code and paragraph LR9.8.6 of the FCA’s Listing Rules. The Board believes that reporting against the principles and recommendations of the AIC Code will provide better information to shareholders. Asset Management Limited (‘IAM’). The Board reviews the performance of the Company at Board meetings and sets the objectives for the Manager. The Corporate Company Secretary (‘the Company Secretary’) is responsible to the Board, inter alia, for ensuring that Board procedures are followed and for compliance with applicable rules and regulations including the AIC Code. Appointment or removal of the nominated representative of the Company Secretary is a matter for the Board as a whole. The Board believes that the content and presentation of Board papers circulated before each meeting contain sufficient information concerning the financial condition of the Company. Key representatives of IFM attend each Board meeting enabling directors to probe on matters of concern or seek clarification on certain issues. Biographies of those directors in office at the date of signing of the financial statements are set out on page 17. There were four Board meetings, two audit committee meetings and two nomination committee meetings held during the year and the attendance by the directors was as follows: Arthur Copple Sonita Alleyne1 June de Moller2 Richard Jewson Lesley Sherratt Richard Wyatt Number of meetings attended Board Committee Audit Nomination Committee 4 1 1 4 4 4 1 2 0 1 2 2 2 0 2 1 0 2 2 2 1 The Company has complied with the provisions of the AIC Code (which incorporates the UK Code), except as set out below. The UK Code includes provisions relating to: Shefaly Yogendra1 1 Appointed 1 October 2019. 2 Retired 28 March 2019. • the role of the chief executive • executive directors’ remuneration • the need for an internal audit function The Board considers these provisions are not relevant to the position of Temple Bar, being an externally managed investment company. In particular, all of the Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations such as an internal audit function. The Company has therefore not reported further in respect of these provisions. COMPLIANCE WITH THE PRINCIPLES OF THE AIC CODE OF CORPORATE GOVERNANCE Operation of the Board The Board is ultimately responsible for framing and executing the Company’s strategy and for closely monitoring risks. There is a formal schedule of matters to be specifically approved by the Board. It has delegated investment management, within clearly defined parameters and dealing limits, to Investec Fund Managers Limited (‘IFM’) and the administration of the business to Investec Audit and risk committee The audit and risk committee is a formally constituted committee of the Board with defined terms of reference. Its role and responsibilities are set out in the Report of the Audit and Risk Committee on page 26. The Board is satisfied that members of the audit and risk committee have relevant and recent financial experience to fulfil their role effectively and also have sufficient experience relevant to the sector. The auditor, who the Board has identified as being independent, is invited to attend the audit and risk committee meeting at which the annual accounts are considered and any other meetings that the committee deems necessary. The committee is chaired by Sir Richard Jewson, the Senior Independent Director. Nomination committee A nomination committee comprising all the directors has been established to oversee a formal review procedure governing the appointment of new directors and to evaluate the overall composition of the Board from time to time, taking into account the existing balance of skills and knowledge. This committee is chaired by Mr Copple. 23 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE GOVERNANCE CONTINUED During the year the Board appointed Sonita Alleyne and Shefaly Yogendra as additional directors. The process leading up to these appointments involved the identification and interview of potential candidates put forward by an external agency, Cornforth, alongside the evaluation of various other candidates either known personally to or recommended by individual board members. Cornforth, who have no other connection with the Company, were given a brief to identify a diverse range of candidates. Following an extensive review process it was decided to proceed with the appointments of Ms Alleyne and Dr Yogendra as the candidates best qualified to complement the existing balance of skills and experience of the Board. Dr Yogendra will stand for election at the AGM alongside all other Board members proposed for election in accordance with our policy. Ms Alleyne resigned as a director on 28 January 2020. The committee is also responsible for assessing on an annual basis the individual performance of directors and for making recommendations as to whether they should remain in office. Management engagement committee As all the directors are fully independent of the management company, the Board as a whole fulfils the function of a management engagement committee. Independence of the directors Each of the directors is independent of any association with the Manager and has no other relationships or circumstances which might be perceived to interfere with the exercise of independent judgement. Two of the five directors (Arthur Copple and Sir Richard Jewson) have served on the Board for more than nine years from the date of their first election, but given the nature of the Company as an investment trust and the strongly independent mindset of the individuals involved, the Board is firmly of the view that all of the directors can be considered to be independent. In arriving at this conclusion the Board makes a clear distinction between the activities of an investment trust and a conventional trading company. An investment trust has no employees or executive directors, the most significant relationship being with the Manager. In overseeing this relationship it is the view of the Board that long service can aid the understanding and judgement of the directors. The directors have a range of business and financial skills and experience relevant to the direction of the Company. Sir Richard Jewson is currently the Senior Independent Director. Lesley Sherratt will replace him after he stands down at the AGM. Director tenure Directors are subject to re-election by shareholders at the first AGM following their appointment and, thereafter, are subject to retirement on an annual basis. In addition, the appointment of each director is reviewed by other members of the Board every year. Directors are not, therefore, subject to automatic re-appointment. Directors are not appointed for specified terms but the Board would not normally expect directors to serve for more than nine years. However, in exceptional circumstances, mindful of the prevailing balance of skills and experience on the Board, it may be considered appropriate for one or more directors to extend their tenure by a further three year period. Due to the recent Board refreshment exercise the average length of service for those directors seeking re-election at the AGM is relatively low. The Board, therefore, feels that it is appropriate for Mr Copple, who has served as a director for nine years, to be re-appointed in order to provide an appropriate level of continuity. Unlike the UK Code, the AIC Code does not contain a specific nine year limit on the appointment of the Chair. The Board would, however, expect the Chair ordinarily to adhere to the nine year limit unless there are exceptional circumstances that would render a further three year extension advisable, such as the need for a sufficient degree of Board experience and balance, as outlined above. Because of the nature of an investment trust the Board believes that the contribution and independence of a director is not necessarily diminished by long service. The Board has carefully considered the position of each of the directors seeking re-election and believes it would be appropriate for them to be proposed for re-election. Each of the directors continues to be effective and to display an undiminished enthusiasm and commitment to the role. Diversity The Board’s policy on diversity, including gender and ethnicity, is to take this into consideration during the recruitment and appointment process. However, the Board is committed to appointing and retaining the most appropriate, well qualified candidates, and therefore no specific targets have been set against which to report. Induction and training New directors appointed to the Board are provided with an induction programme which is tailored to the particular circumstances of the appointee. Regular briefings are provided during the year on industry and regulatory matters and the directors receive other relevant training as required. Individual directors may seek independent advice at the expense of the Company within certain limits. Ongoing evaluation On an annual basis the Board formally reviews its performance, together with that of the audit and risk and nomination committees and the effectiveness and contribution of the individual directors, including the Chairman, within the context of service on those bodies. The review encompasses an assessment of how cohesively these bodies work as a whole as well as the performance of the individuals within them. In 2019 the Board also employed the services of Board Evaluation, an external evaluation agency, to carry out an independent triennial evaluation of its performance. On the basis of these reviews the Board has concluded that it has an appropriate balance of skills and is operating effectively. The Board Evaluation review largely comprised a web based questionnaire aimed at drawing out potential areas for improvement in the operation of the Board. Two such areas related to succession planning arrangements and shareholder communications respectively. The former was addressed by the appointments of Sonita Alleyne and Shefaly Yogendra in October 2019 and the latter was satisfied by a shareholder engagement programme carried out by the Chairman in December 2019. The Board is aware that the direction of travel for external evaluation 24 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019four scheduled occasions during the year. At each meeting it received sufficient financial and statistical information to enable it to monitor adequately the investment performance and status of the business. The Board has also established a series of investment parameters, which are reviewed annually, designed to limit the risk inherent in managing a portfolio of investments. The safeguarding of assets is entrusted to an independent reputable custodian with whom the holdings are regularly reconciled. The effectiveness of the overall system of internal control is reviewed on an annual basis by the Board. Such a system can provide only reasonable and not absolute assurance against material misstatement or loss. The Board believes that there is a robust framework of internal controls in place to meet the requirements of the AIC Code. The Board receives reports from its advisers on internal control matters. Based on the foregoing the Company has a continuing process for identifying, evaluating and managing the risks it faces. This process has been in place for the reporting period and to the date of this report. By order of the Board of Directors Arthur Copple Chairman 19 February 2020 exercises is for a more interactive process. Accordingly, a more comprehensive external evaluation exercise will be carried out during this year and reported on in the next Annual Report. The purpose of an independent review is to provide a robust and objective assessment of the Board’s effectiveness to help the Board continually improve its own performance. It also demonstrates to shareholders and other stakeholders that the Board is committed to performing to a high standard and that it understands and is addressing any ares of weakness. Shareholder communications Shareholder relations are given high priority by both the Board and the Manager. The principal medium by which the Company communicates with shareholders is through half yearly and annual reports. The information contained therein is supplemented by daily NAV announcements and by a monthly fact sheet available on the Company’s website. The Board largely delegates responsibility for communication with shareholders to the management company and, through feedback, both from the Manager and the Company’s stockbroker, expects to be able to develop an understanding of shareholders’ views. The Board receives a quarterly report from the Manager summarising any shareholder correspondence together with any comments about Temple Bar on social media. Members of the Board are always happy to meet with shareholders for the purpose of discussing matters in relation to the operation and prospects of the Company. During the year the Chairman engaged in a proactive series of discussions with major shareholders to consider various aspects of the Company’s management and procedures including its ESG policy. The views of all shareholders were solicited on the specific subject of investment in tobacco stocks, as detailed on page 8. The Board encourages investors to attend the AGM and welcomes questions and discussion on issues of concern or areas of uncertainty. Following the formal AGM proceedings the portfolio manager makes a presentation to the meeting outlining the key investment issues that face the Company. Accountability, internal controls and audit The Board pays careful attention to ensuring that all documents released by the Company, including the Annual Report, present a fair and accurate assessment of the Company’s position and prospects. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company in accordance with the FRC’s document ‘Guidance on Risk Management, Internal Controls and Related Financial and Business Reporting’. The directors are responsible for the Company’s system of internal control and for reviewing its effectiveness. In order to facilitate the control process the Board has requested the Manager to confirm annually that it has conducted the Company’s affairs in compliance with the legal and regulatory obligations which apply to the Company and to report on the systems and procedures within IFM which are applicable to the management of Temple Bar’s affairs. The Board met on 25 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONREPORT OF THE AUDIT AND RISK COMMITTEE I am pleased to present the Committee’s report to shareholders on the effectiveness of the external audit process and how this has been assessed for the year ended 31 December 2019. ROLE AND RESPONSIBILITIES The Company has established a separately chaired Audit and Risk Committee (“the Committee”) whose duties include considering and recommending to the Board for approval the contents of the half yearly and annual financial statements, and providing an opinion as to whether the Annual Report, taken as a whole, is fair, balanced, understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Committee also reviews the external auditor’s report thereon and is responsible for reviewing and forming an opinion on the effectiveness of the external audit process and audit quality. Other duties include reviewing the appropriateness of the Company’s accounting policies and ensuring the adequacy of the internal control systems and standards, as set out in more detail below. The Terms of Reference of the Committee are available on the Company’s website at www.templebarinvestments.co.uk The Committee meets at least twice a year. The two planned meetings are held prior to the Board meetings to approve the half yearly and annual results. COMPOSITION All the directors are members of the Committee, which is chaired by Sir Richard Jewson until his retirement at the forthcoming AGM, following which he will be succeeded by Lesley Sherratt. The Board considers that the members of the Committee have sufficient recent and relevant financial experience for the Committee to discharge its function effectively. The Committee has members with sufficient experience relevant to the sector. The Chairman of the Company is a member of the Committee to enable him to be kept fully informed of any issues which may arise. RESPONSIBILITIES AND REVIEW OF THE EXTERNAL AUDIT During the year the principal activities of the Committee included: • considering and recommending to the Board for approval the contents of the half yearly and annual financial statements and reviewing the external auditor’s report thereon; • • • • reviewing the scope, execution, results, cost effectiveness, independence and objectivity of the external auditor; reviewing and recommending to the Board for approval the audit and non-audit fees payable to the external auditor and the terms of their engagement; reviewing and approving the external auditor’s plan for the financial year, with a focus on the identification of areas of audit risk, and consideration of the appropriateness of the level of audit materiality adopted; reviewing the quality of the audit engagement partner and the audit team, and making a recommendation to the Board with respect to the re-appointment of the auditor or the selection of a new audit firm; • reviewing the appropriateness of the Company’s accounting policies; and • ensuring the adequacy of the internal control systems and standards. SIGNIFICANT ISSUES CONSIDERED REGARDING THE ANNUAL REPORT AND FINANCIAL STATEMENTS The Committee also considered significant issues and areas of audit risk in respect of the Annual Report and Financial Statements, as outlined below. The Committee reviewed the external audit plan at an early stage and concluded that the appropriate areas of audit risk relevant to the Company had been identified and that suitable audit procedures had been put in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements. The table below sets out the key areas of risk identified by the Committee and also explains how these were addressed by it. Significant Issue How the issue was addressed Verification of the existence of the assets in the portfolio The valuation of the investment portfolio Going concern The verification of investment income The Committee reviews reports from its service providers on key controls over the assets of the Company. Monthly reconciliations are performed by the independent depositary together with an annual verification of the existence of all portfolio holdings carried out by the auditor. Any significant issues are reported by the Manager to the Committee. The Committee reviews detailed portfolio valuations on a regular basis throughout the year and receives confirmation from the Manager that the pricing basis is appropriate. The audit includes a check of pricing back to source data to confirm that the correct valuation basis has been applied in accordance with the accounting policies adopted, as disclosed in note 1 to the Financial Statements. All investments are in quoted securities in active markets, are considered to be liquid and have been categorised as level 1 within the IFRS 13 hierarchy. Having considered the Company’s investment objective, risk management policies and cash flow projections, the Committee is satisfied that the Company has adequate resources and an appropriate financial structure to continue in operational existence for the foreseeable future. The Committee reviews income forecasts and receives explanations from the Manager for any variations or significant movements from previous forecasts and prior year numbers. The provision of portfolio valuation, accounting and administration services is delegated to the Company’s Manager, who sub-delegates fund accounting to a third party service provider. The provision of custody services is contracted to HSBC. 26 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019CONCLUSIONS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS The production and audit of the Company’s Annual Report and Financial Statements is a comprehensive process requiring input from a number of different contributors. One of the key governance requirements of a Company’s financial statements is for the Report and Financial Statements to be fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. As a result of the work performed, the Committee has concluded that the Annual Report for the year ended 31 December 2019, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Committee has reported on these findings to the Board. The Board’s conclusions in this respect are set out in the Statement of Directors’ Responsibilities on page 28. Sir Richard Jewson Chairman Audit and Risk Committee 19 February 2020 AUDITOR AND AUDIT TENURE The Company’s current auditor, Ernst & Young LLP, have acted in this role since 2003 pursuant to a competitive tender process which took place at that time. The appointment of the auditor is reviewed each year and the audit partner changes at least every five years in accordance with professional and regulatory standards in order to protect independence and objectivity and to provide fresh challenge to the business. The last five yearly partner rotation took place in 2017 when Caroline Mercer was appointed. The Committee is aware that legislation requires listed companies to rotate their auditor every 10 years. Under the transitional arrangements for firms where the tenure was between 11 and 20 years on the effective date under the new rules, there is a grace period of nine years after the enactment of the legislation. Accordingly, Ernst & Young could not act as auditor to the Company for accounting periods starting on or after 17 June 2023. During the year the Committee undertook a tender process and the Board has agreed to appoint BDO LLP to succeed Ernst & Young as auditor of the Company at the forthcoming AGM. Shareholders will have the opportunity to vote on the appointment of BDO at the AGM. Other non-audit fees of £2,300 (excluding VAT) paid to Ernst & Young LLP relate to their services in the electronic filing of tax returns; due to the nature of this service, the Committee does not consider this a threat to the auditor's independence. ASSESSMENT OF THE EFFICIENCY OF THE EXTERNAL AUDIT PROCESS To assess the effectiveness of the external audit, members of the Committee work closely with the Manager to obtain a good understanding of the progress and efficiency of the audit. Feedback in relation to the audit process, and also of the effectiveness of the Manager in performing its role, is also sought from relevant parties, notably the audit partner and team. The external auditor is invited to attend the Committee meeting at which the annual accounts are considered, where they have the opportunity to meet with the Committee without representatives of the Manager being present. To form a conclusion with regard to the independence of the external auditor, the Committee considers whether the skills and experience of the auditor make them a suitable supplier of any non-audit service and whether there is any threat to their objectivity and independence in the conduct of the audit resulting from the provision of such services. On an annual basis, Ernst & Young LLP review the independence of their relationship with the Company and report to the Board, providing details of any other relationships with the Manager. As part of this review, the Committee also receives information about policies and processes for maintaining independence and monitoring compliance with relevant requirements from the Company’s auditor, including information on the rotation of audit partners and staff, and details of any relationships between the audit firm and its staff and the Company, as well as an overall confirmation from the auditor of its independence and objectivity. As a result of their review, the Committee has concluded that Ernst & Young LLP is independent of the Company and the Manager. The Company confirms that it has complied with the September 2014 Competition and Markets Authority Order. 27 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors confirm that to the best of their knowledge: • • the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces. The UK Corporate Governance Code also requires directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Risk Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Risk Committee’s report on pages 26 and 27. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 December 2019, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. On behalf of the Board Arthur Copple Chairman 19 February 2020 The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have chosen to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies in accordance with IAS8: ‘Accounting Policies, Changes in Accounting Estimates and Errors’, and then apply these consistently; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements. The directors are responsible for keeping adequate accounting records which are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring that the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces. 28 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEMPLE BAR INVESTMENT TRUST PLC Opinion We have audited the financial statements of Temple Bar Investment Trust plc (the ‘Company’) for the year ended 31 December 2019 which comprise the Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Position, Statement of Cash Flows and the related notes 1 to 22, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. In our opinion, the financial statements: • give a true and fair view of the Company’s affairs as at 31 December 2019 and of its profit for the year then ended; • have been properly prepared in accordance with IFRS as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report below. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to principal risks, going concern and viability statement We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: • • • the disclosures in the annual report set out on page 11 that describe the principal risks and explain how they are being managed or mitigated; the directors’ confirmation set out on page 28 in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; the directors’ statement set out on page 18 in the annual report about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements • whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or • the directors’ explanation set out on page 12 in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Overview of our audit approach Key audit matters • Risk of incomplete and/or inaccurate revenue recognition, including classification of special dividends as revenue or capital items in the Statement of Comprehensive Income • Risk of incorrect valuation and/or defective title to the investment portfolio Materiality • Overall materiality of £9.85m which represents 1% of equity shareholders’ funds Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. 29 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONINDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF TEMPLE BAR INVESTMENT TRUST PLC Key observations communicated to the Audit Committee The results of our procedures are: We have no issues to communicate with respect to our procedures performed over the risk of incomplete and/or inaccurate revenue recognition, including classification of special dividends as revenue or capital items in the Statement of Comprehensive Income. Risk Incomplete and/or inaccurate revenue recognition, including classification of special dividends as revenue or capital items in the Statement of Comprehensive Income (per the Audit Committee report set out on page 26 and the accounting policy set out on page 39). The income received for the year to 31 December 2019 was £39.75m (2018: £37.26m), consisting primarily of dividend income from the investment portfolio. Special dividends for the year totalled £3.33m of which £2.30m was classified as revenue and £1.03m as capital. The income receivable by the Company during the year directly affects the Company’s revenue return and in turn, the dividend that must be paid by the Company. There is a risk of incomplete or inaccurate recognition of income through the failure to recognise proper income entitlements or applying appropriate accounting treatment. In addition to the above, the Directors are required to exercise judgment in determining whether income receivable in the form of special dividends should be classified as ‘revenue’ or ‘capital’. Our response to the risk We have performed the following procedures: We obtained an understanding of the Manager’s and Administrator’s processes and controls surrounding revenue recognition and the classification of special dividends by reviewing their internal controls reports and performing our walkthrough procedures to evaluate the design and implementation of controls. We agreed a sample of dividends recognised in the income report to the corresponding announcement made by the investee company. We recalculated the dividend amount receivable using exchange rates obtained from an independent data vendor and confirmed that the cash received as shown on bank statements was consistent with the recalculated amount. We agreed a sample of investee company dividend announcements from an independent data vendor to the income recorded by the Company to test completeness of the income recorded. For all dividends accrued at the year end, we reviewed the investee company announcements to assess whether the obligation arose prior to 31 December 2019. We agreed the dividend rate to corresponding announcements made by the investee company, recalculated the dividend amount receivable and confirmed this was consistent with cash received as shown on post year end bank statements, where paid. We performed a review of the income and capital reports to identify all dividends received and accrued during the period that were above our testing threshold. We identified which of the dividends above our testing threshold were special dividends with reference to an external source. There were two special dividends above our testing threshold which had a combined total of £3.21m. £2.18m was classified as revenue and £1.03m as capital. We recalculated and assessed the appropriateness of management’s classification between revenue and capital for both of the special dividends identified with reference to information available from the underlying company which set out the rationale for paying the special dividend. 30 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 Risk Our response to the risk Key observations communicated to the Audit Committee Incorrect valuation and/or defective title to the investment portfolio (as described on page 26 in the Report of the Audit Committee and as per the accounting policy set out on page 40). The valuation of the investment portfolio at 31 December 2019 was £1,086m (2018: £905m) consisting entirely of listed investments. The valuation of the assets held in the investment portfolio is the key driver of the Company’s net asset value and total return. Incorrect investment pricing, or defective title to the assets held by the Company could have a significant impact on the portfolio valuation and the return generated for shareholders. The fair value of listed investments is determined by reference to stock exchange quoted market bid prices at the close of business on the year-end date. We performed the following procedures: The results of our procedures are: We obtained an understanding of the Administrator’s processes and controls surrounding investment pricing, legal title and portfolio liquidity. We have no issues to communicate with respect to our procedures performed over the risk of incorrect valuation and/or defective title to the investment portfolio. For all listed investments in the portfolio, we compared the prices and exchange rates applied to an independent pricing vendor. We performed an independent evaluation of the portfolio’s liquidity using trading volumes obtained from an external data vendor, where available. We agreed the Company’s investments to the independent confirmation received from the Company’s Custodian and Depositary as at 31 December 2019. There have been no changes to the areas of key focus raised in the above risk table from the prior year. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Company to be £9.85m (2018: £8.02m) which is 1% of equity shareholders’ funds. We believe that equity shareholders’ funds provides us with materiality aligned to the key measurement of the Company’s performance. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Company’s overall control environment, our judgement was that performance materiality was 75% (2018: 75%) of our planning materiality, namely £7.39m (2018: £6.02m). We have set performance materiality at this percentage due to our experience of auditing the Company. Given the importance of the distinction between revenue and capital for the Company, we have also applied a separate testing threshold for the revenue column of the Statement of Comprehensive Income of £1.78m (2018: £1.66m) being 5% of profit before tax. Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.49m (2018: £0.40m) which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. 31 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONINDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF TEMPLE BAR INVESTMENT TRUST PLC Other information The other information comprises the information included in the annual report, including the Strategic Report, Governance Report and Shareholder information, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: • Fair, balanced and understandable set out on page 28 – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or • Audit committee reporting set out on pages 26 to 27 – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or • Directors’ statement of compliance with the UK Corporate Governance Code set out on page 23 – the parts of the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 28, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 32 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. Our approach was as follows: • We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company and determined that the most significant are IFRS, the Companies Act 2006, AIC SORP, the Listing Rules, the UK Corporate Governance Code and Section 1158 of the Corporation Tax Act 2010. • We understood how the Company is complying with those frameworks through discussions with the Audit Committee and Company Secretary and review of the Company’s documented policies and procedures • We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur by considering the key risks impacting the financial statements. We identified a fraud risk with respect to the incomplete and/or inaccurate income recognition through incorrect classification of special dividends. Further discussion of our approach is set out in the section on key audit matters above. • Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved review of the reporting to the directors with respect to the application of the documented policies and procedures and review of the financial statements to ensure compliance with the reporting requirements of the Company. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address • Following the recommendation of the Audit Committee, we were appointed by the Company with effect from 1 January 2003 to audit the financial statements of the Company for the year ending 31 December 2003 and subsequent financial periods and signed an engagement letter on 12 November 2003. The period of total uninterrupted engagement is 17 years, covering periods from our appointment through to the period ending 31 December 2019. • Non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Company and we remain independent of the Company in conducting the audit. • The audit opinion is consistent with the additional report to the Audit Committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Caroline Mercer (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Edinburgh 19 February 2020 Notes: 1. The maintenance and integrity of the Temple Bar Investment Trust plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 33 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STRATEGIC REPORTGOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATION FINANCIAL REPORT 35 Statement of Comprehensive Income 36 Statement of Changes in Equity 37 Statement of Financial Position 38 Statement of Cash Flows 39 Notes to the Financial Statements 34 34 TEMPLE BAR INVESTMENT TRUST PLC Annual Report & Financial Statements for the year ended 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 Investment Income Other operating income Profit/(losses) on investments Profit/(losses) on investments held at fair value through profit or loss Total Income/(loss) Expenses Management fees Other expenses Profit/(loss) before finance costs and tax Finance costs Profit/(loss) before tax Tax Notes 4 4 Revenue £000 39,750 51 39,801 2019 Capital £000 – – – Total £000 Revenue £000 39,750 37,258 51 26 39,801 37,284 2018 Capital £000 – – – Total £000 37,258 26 37,284 12(a) – 188,920 188,920 – (131,528) (131,528) 39,801 188,920 228,721 37,284 (131,528) (94,244) 6 7 9 (1,555) (585) (2,244) (533) (3,799) (1,118) (1,503) (559) (2,168) (1,427) 37,661 186,143 223,804 35,222 (135,123) (1,966) (2,976) (4,942) (1,962) (2,968) (3,671) (1,986) (99,901) (4,930) 35,695 183,167 218,862 33,260 (138,091) (104,831) (172) – (172) (161) – (161) Profit/(loss) for the year 35,523 183,167 218,690 33,099 (138,091) (104,992) Earnings per share (basic and diluted) 11 53.12p 273.90p 327.02p 49.50p (206.50p) (157.00p) 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 issued by the Association of Investment Companies. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The Company does not have any income or expense that is not included in profit for the year. Accordingly, the profit for the year is also the Total Comprehensive Income for the Year, as defined in IAS1 (revised). The notes on pages 39 to 48 form an integral part of the financial statements. TEMPLE BAR INVESTMENT TRUST PLC Annual Report & Financial Statements for the year ended 31 December 2019 35 35 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 Ordinary share capital £000 Notes Share premium account £000 Capital reserves realised £000 Capital reserves unrealised £000 Retained earnings £000 Total equity £000 Balance at 1 January 2018 16,719 96,040 642,322 147,845 33,440 936,366 Unclaimed dividends Profit/(loss) for the year Dividends paid to equity shareholders Balance at 31 December 2018 Unclaimed dividends Profit for the year Dividends paid to equity shareholders 10 10 – – – – – – – – – – – – – – 51 51 29,890 (167,981) 33,099 (104,992) 16,719 96,040 672,212 (20,136) – – (29,243) 37,347 (29,243) 802,182 – – 8 8 (4,912) 188,079 35,523 218,690 – – (35,757) 37,121 (35,757) 985,123 Balance at 31 December 2019 16,719 96,040 667,300 167,943 As at 31 December 2019 the Company had distributable revenue reserves of £37,121,000 (2018: £37,347,000) and distributable realised capital reserves of £667,300,000 (2018: £672,212,000) for the payment of future dividends. The only distributable reserves are the retained earnings and realised capital reserves. Please refer to note 18 for the breakdown of capital reserves. The notes on pages 39 to 48 form an integral part of the financial statements. 36 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 Non-current assets Investments held at fair value through profit or loss Current assets Cash and cash equivalents Receivables Total assets Current liabilities Payables Total assets less current liabilities Non-current liabilities Interest bearing borrowings Net assets Equity attributable to equity holders Ordinary share capital Share premium Capital reserves Retained revenue earnings Total equity attributable to equity holders Net asset value per share 31 December 2019 31 December 2018 Notes £000 £000 £000 £000 12 13 14 1,085,844 905,125 11,149 3,245 9,005 3,231 14,394 1,100,238 (1,066) 1,099,172 12,236 917,361 (1,208) 916,153 15 (114,049) (113,971) 985,123 802,182 16,719 96,040 835,243 37,121 16 17 18 20 16,719 96,040 652,076 37,347 985,123 1,473.13p 802,182 1,199.56p The notes on pages 39 to 48 form an integral part of the financial statements. The financial statements on pages 35 to 48 were approved by the board of directors and authorised for issue on 19 February 2020. They were signed on its behalf by: A Copple Chairman 37 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Cash flows from operating activities Profit/(loss) before tax Adjustments for: (Gains)/losses on investments Finance costs Purchases of investments Sales of investments Dividend income Interest income Dividends received Interest received Decrease in receivables Increase/(decrease) in payables Overseas withholding tax suffered Net cash flows from operating activities Cash flows from financing activities Unclaimed dividends Equity dividends paid Interest paid on borrowings Net cash flows from financing activities Net decrease/(increase) in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year 2019 2018 Notes £000 £000 £000 £000 218,862 (104,831) 12(a) (188,920) 8 12(a) 12(a) 4 4 9 10 15 4,942 (152,237) 160,040 (39,465) (313) 39,578 336 – 106 (172) 8 (35,757) (4,864) 131,528 4,930 (513,298) 512,712 (36,728) (545) 36,115 1,365 25 (199) (161) (176,105) 42,757 135,744 30,913 51 (29,243) (4,877) (40,613) 2,144 9,005 11,149 (34,069) (3,156) 12,161 9,005 The notes on pages 39 to 48 form an integral part of the financial statements. 38 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019NOTES TO THE FINANCIAL STATEMENTS 1 PRINCIPAL ACCOUNTING POLICIES Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’), which comprise standards and interpretations approved by the International Accounting Standards Board (‘IASB’), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (‘IASC’) that remain in effect, and to the extent that they have been adopted by the European Union. The principal accounting policies adopted by the Company are set out below. Where presentational guidance set out in the Statement of Recommended Practice (‘SORP’) for investment trusts issued by the Association of Investment Companies (‘AIC’) in October 2019, is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. All values are rounded to the nearest thousand pounds unless otherwise indicated. Presentation of Statement of Comprehensive Income In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Income Dividend income from investments is recognised when the Company’s right to receive payment has been established, normally the ex-dividend date. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a capital gain in the Statement of Comprehensive Income. Interest income is recognised in line with coupon terms on a time apportioned basis. Special dividends are credited to capital or revenue according to their circumstances. Foreign Currency The financial statements are prepared in Pounds Sterling because that is the currency of the primary economic environment in which the Company operates. The primary objective of the Company is to generate returns in Pounds Sterling, its capital-raising currency. The liquidity of the Company is managed on a day-to-day basis in Sterling as the Company’s performance is evaluated in that currency. Therefore, the directors consider Pounds Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Transactions involving foreign currencies are converted at the exchange rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities as well as instruments carried at fair value are translated into Pounds Sterling at the exchange rate ruling on the year-end date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Expenses All expenses are accounted for on the accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except as follows: • Transaction costs which are incurred on the purchases or sales of investments designated as fair value through profit or loss are expensed to capital in the Statement of Comprehensive Income. • Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated and, accordingly, the investment management fee and finance costs have been allocated 40% to revenue and 60% to capital, in order to reflect the directors’ long term view of the nature of the expected investment returns of the Company. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. The taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using a blended rate as applicable throughout the year. In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this basis, if taxable income is capable of being entirely offset by expenses in the revenue column of the income statement, then no tax relief is transferred to the capital column. 39 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the revenue return of the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. Irrecoverable withholding tax is recognised on any overseas dividends on an accruals basis using the applicable rate for the country of origin. Financial instruments Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument. The Company will offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and interest and intends to settle on a net basis. A financial asset is derecognised when the right to receive cash flows from the asset expires or the rights to receive cash flows from the asset have been transferred and a financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. The Company classifies its financial assets as subsequently measured at amortised cost or measured at fair value through profit or loss on the basis of its business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are measured at fair value through profit or loss if its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and interest and at amortised cost if they do. Receivables Receivables are held to collect contractual cash flows, do not carry any interest, are short term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. The Company has chosen to apply an approach similar to the simplified approach for expected credit losses (ECL) under IFRS 9 to all its receivables. Therefore the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Company's approach to ECLs reflects a probability-weighted outcome, based on reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. Investments After initial recognition, investments are measured at fair value through profit or loss. Gains or losses on investments measured at fair value through profit or loss are included in net profit or loss as a capital item and transaction costs on acquisition or disposal of investments are expensed. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the year-end date. All purchases and sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or sell an asset. Equity investments are held at fair value through profit or loss as they fail the contractual cash flows test under IFRS 9. Debt instruments that pass the contractual cash flow test are held under a business model to manage them on a fair value basis for investment income and fair value gains and are therefore classified as fair value through profit or loss. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Interest bearing borrowings Interest bearing borrowings, being the debenture stock and loans issued by the Company, are initially recognised at a carrying value equivalent to the proceeds received net of issue costs associated with the borrowings. After initial recognition, interest bearing borrowings are subsequently measured at amortised cost using the effective interest rate method. The fair value of the debenture stock is determined by reference to quoted market mid prices at close of business on the year-end date, while the fair value of private placement loans is determined using discounted cash flow techniques which utilise inputs including interest rates obtained from comparable loans in the market. Payables Payables are non interest bearing and are stated at their nominal value. 40 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Equity dividends payable Equity dividends payable are recognised when the shareholders’ right to receive payment is established. For interim dividends this is when they are paid and for final dividends this is when they are approved by shareholders. Cash and cash equivalents Cash and cash equivalents (which are presented as a single class of asset on the Statement of Financial Position) comprise cash at bank and in hand and deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. 2 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Company’s financial statements requires the directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods. There have been no judgements, estimates or assumptions which have had a significant impact on the financial statements for the current or preceding financial year. 3 ADOPTION OF NEW AND REVISED STANDARDS Standards issued but not yet effective There are no standards or amendments to standards not yet effective that are relevant to the Company and should be disclosed. 4 INCOME Income from investments UK dividends Overseas dividends UK REITs Interest from fixed interest securities Other income Deposit interest Underwriting commission Other income Total income Investment income comprises: Listed investments 2019 £000 35,456 3,008 1,001 285 2018 £000 34,308 1,452 968 530 39,750 37,258 28 – 23 15 11 – 39,801 37,284 39,750 39,750 37,258 37,258 During the year ended 31 December 2019, the Company received special dividends totalling £3,450,614 (2018: £1,556,991). Of this £2,416,156 (2018: £1,556,991) is recognised as revenue and is included within investment income and £1,034,458 (2018: £Nil) is recognised as capital and is included in profit on investments held at fair value through profit or loss (see note 12(a)). 5 SEGMENTAL REPORTING The directors are of the opinion that the Company is engaged in a single segment of business being investment business. 41 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 20196 INVESTMENT MANAGEMENT FEE Investment management fee Secretarial fee 2019 Capital £000 2,244 – 2,244 Revenue £000 1,497 58 1,555 Total £000 3,741 58 3,799 Revenue £000 1,446 57 1,503 2018 Capital £000 2,168 – 2,168 Total £000 3,614 57 3,671 As at 31 December 2019 an amount of £1,017,070 (2018: £833,397) was payable to the Manager in relation to the management fees for the quarter ended 31 December 2019. Details of the terms of the investment management agreement are provided on page 18. 7 OTHER EXPENSES Transaction costs on fair value through profit or loss assets1 Director’s fees (see report on Directors Remuneration on page 21) Registrar’s fees Marketing costs Auditors remuneration – annual audit2 – non audit fee Depositary fee Other expenses Revenue £000 2019 Capital £000 – 533 Total £000 Revenue £000 2018 Capital £000 Total £000 533 146 72 77 31 1 84 174 – – – – – – – 533 1,118 – 1,427 1,427 176 63 36 30 3 99 152 559 – – – – – – – 176 63 36 30 3 99 152 1,427 1,986 146 72 77 31 1 84 174 585 1 Transaction costs on fair value through profit or loss assets represent such costs incurred on both the purchase and sale of those assets. Transaction costs on purchases amounted to £478,389 (2018: £1,340,962) and on sales amounted to £54,784 (2018: £85,959). 2 During the year there were audit fees of £26,010 (2018: £25,500) (excluding VAT) paid to the Auditor. All expenses are inclusive of VAT where applicable. 8 FINANCE COSTS Interest on borrowings 5.5% debenture stock 2021 4.05% Private placement loan 20281 2.99% Private placement loan 20471 Revenue £000 852 811 301 1,964 2019 Capital £000 1,277 1,247 452 2,976 Total £000 Revenue £000 2,129 2,058 753 4,940 847 810 301 1,958 2018 Capital £000 1,291 1,226 451 2,968 Total £000 2,138 2,036 752 4,926 Bank interest payable Total finance costs 2 – 2 4 – 4 1,966 2,976 4,942 1,962 2,968 4,930 The amortisation of the debenture and loan issue costs is calculated using the effective interest method. 1 The 4.05% and 2.99% Private Placement Loans contain the following principal financial or other covenants, with which failure to comply could necessitate the early repayment of the loan: • net tangible assets of at least £275 million • aggregate principal amount of financial indebtedness not to exceed 50% of net tangible assets • prior approval by the note holder of any change of Manager • prior approval by the note holder of any change in the Company’s investment objectives and policies 42 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 9 TAXATION (a) There is no corporation tax payable (2018: nil). (b) The charge for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows: Profit/(loss) before taxation 35,695 183,167 218,862 33,260 (138,091) (104,831) Revenue £000 2019 Capital £000 Total £000 Revenue £000 2018 Capital £000 Total £000 Tax at UK corporation tax rate of 19.00% (2018: 19.00%) Tax effects of: Non–taxable (gains) / losses on investments Disallowed expenses Non–taxable UK dividends¹ Overseas withholding tax suffered Non–taxable overseas dividends Movement in excess management expenses2 Total tax charge for the year 1 Investment trusts are not subject to corporation tax on these items. 6,782 34,802 41,584 6,319 (26,237) (19,918) – – (6,736) 172 (571) 525 172 (35,895) (35,895) 101 – – – 992 – 101 (6,736) 172 (571) 1,517 172 . – – (6,518) 161 (197) 396 161 24,990 24,990 271 – – – 976 – 271 (6,518) 161 (197) 1,372 161 2 The Company has not recognised a deferred tax asset of £18,194,222 (2018: £16,779,272) based on an effective tax rate of 17.0% (2018: 17.0%) arising as a result of having unutilised management expenses since, under current tax legislation, it is unlikely that the Company will obtain any benefit for the asset. 10 DIVIDENDS Amounts recognised as distributions to equity holders in the year Final dividend for year ended 31 December 2018 of 20.47p (2017: 17.48p) per share Interim dividends (three) for year ended 31 December 2019 of 11.0p (2018: three payments of 8.75p) per share 2019 £000 2018 £000 13,689 22,068 35,757 11,689 17,554 29,243 Proposed final dividend for the year ended 31 December 2019 of 18.39p (2018: 20.47p) per share 12,298 13,689 The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Therefore, also set out below is the total dividend payable in respect of these financial years, which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered. 2019 £000 2018 £000 Interim dividends (three) for year ended 31 December 2019 of 11.0p (2018: three payments of 8.75p) per share 22,068 17,554 Proposed final dividend for the year ended 31 December 2019 of 18.39p (2018: 20.47p) per share 12,298 13,689 34,366 31,243 11 EARNINGS PER SHARE Revenue pence 2019 Capital pence Total pence Revenue pence 2018 Capital pence Total pence Earning per ordinary share 53.12p 273.90p 327.02p 49.50p (206.50p) (157.00p) The calculation of the above is based on revenue returns of £35,523,000 (2018: £33,099,000), and capital returns of £183,167,000 (2018: £(138,091,000)) , and total returns of £218,690,000 (2018: £(104,992,000)) and a weighted average number of ordinary shares of 66,872,765 (2018: 66,872,765). 43 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 201912 INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS (a) Movements in the year Opening cost at 1 January Investment holding (losses)/gains at 1 January Opening fair value Purchases at cost Sales – proceeds Increase/(decrease) in investment holding gains Closing fair value at 31 December Closing cost at 31 December Investment holding gains/(losses) at 31 December 2019 £000 2018 £000 925,261 887,825 (20,136) 147,845 905,125 1,035,670 152,107 513,428 (160,308) (512,445) 188,920 (131,528) 1,085,844 905,125 917,901 925,261 167,943 (20,136) 1,085,844 905,125 The Company received £160,308,000 (2018 £512,445,000) from investments sold in the year. The book cost of these investments when they were purchased was £158,397,000 (2018: £400,487,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. (b) Fair value of financial instruments IFRS 13 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 classifications: • • • Level 1 – valued using quoted prices in active markets for identical investments. Level 2 – valued using other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc). There are no level 2 financial assets (2018: £nil). Level 3 – valued using significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). There are no level 3 financial assets (2018: £nil). All of the Company’s investments are in quoted securities actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments of £1,085,844,000 (2018: £905,125,000) has therefore been determined as Level 1. Financial Assets Quoted equities Debt securities 13 RECEIVABLES Due from brokers Accrued income Other receivables 2019 2018 Level 1 £000 Level 1 £000 1,068,093 879,654 17,751 25,471 1,085,844 905,125 2019 £000 268 2,977 – 3,245 2018 £000 – 3,113 118 3,231 The above receivables do not carry any interest and are short term in nature. The directors consider that the carrying values of these receivables approximate their fair value. 44 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 201914 CURRENT LIABILITIES Payables Purchases for future settlement Accruals and deferred income 2019 £000 – 1,066 1,066 2018 £000 248 960 1,208 The above payables do not carry any interest and are short term in nature. The directors consider that the carrying values of these payables approximate their fair value. 15 NON-CURRENT LIABILITIES Interest bearing borrowings Amounts payable after more than one year: 5.5% Debenture stock 2021 4.05% Private placement loan 2028 2.99% Private placement loan 2047 Opening balance as per the statement of financial position Interest paid in the year Finance costs for the year as per the Statement of comprehensive income Closing balance as per the Statement of financial position 2019 £000 2018 £000 38,614 50,418 25,017 38,572 50,386 25,013 114,049 113,971 2019 £000 2018 £000 (113,971) (113,919) 4,864 (4,942) 4,874 (4,926) (114,049) (113,971) The 5.5% Debenture stock is secured by a floating charge over the assets of the Company. The stock is repayable at par (£38,000,000) on 8 March 2021. The 4.05% Private Placement Loan is secured by a floating charge over the assets of the Company. The loan is repayable at par (£50,000,000) on 3 September 2028. The 2.99% Private Placement Loan is secured by a floating charge over the assets of the Company. The loan is repayable at par (£25,000,000) on 24 October 2047. Please refer to Note 22 on page 47 for the disclosure and fair value categorisation of the financial liabilities. 16 ORDINARY SHARE CAPITAL Issued, allotted and fully paid Ordinary shares of 25p each There were no shares issued during 2019 (2018: nil.) 17 SHARE PREMIUM Balance at 1 January 2019 Premium arising on issue of new shares Balance at 31 December 2019 18 CAPITAL RESERVES 2019 Number 2018 Number 2019 £000 2018 £000 66,872,765 66,872,765 16,718,191 16,718,191 2019 £000 2018 £000 96,040 96,040 – – 96,040 96,040 The capital reserves comprise both realised and unrealised amounts. A summary of the split is shown below: Capital reserves realised Capital reserves unrealised 2019 £000 667,300 167,943 2018 £000 672,212 (20,136) 835,243 652,076 45 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 201919 CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS As at 31 December 2019 there were no contingent liabilities or capital commitments for the Company (2018: £nil). 20 NET ASSET VALUES Ordinary shares of 25p each 2019 2018 Net asset value per ordinary share Pence Net assets attributable £000 Net asset value per ordinary share Pence Net assets attributable £000 1,473.13p 985,123 1,199.56p 802,182 The net asset value per ordinary share is based on net assets at the year-end of £985,123,000 (2018: £802,182,000) and on 66,872,765 (2018: 66,872,765) ordinary shares in issue at the year-end. 21 RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE MANAGER IAS 24 ‘Related party disclosures’ requires the disclosure of the details of material transactions between the Company and any related parties. Accordingly, the disclosures required are set out below: Directors – The remuneration of the directors is set out in the Report on Directors’ Remuneration on pages 21 to 22. There were no contracts subsisting during or at the end of the year in which a director of the Company is or was interested and which are or were significant in relation to the Company's business. There were no other material transactions during the year with the directors of the Company. At 31 December 2019 there was £Nil (2018: £38,277) payable to the directors for fees and expenses. Manager – Investec Fund Managers Limited is the Alternative Investment Fund Manager of the Company and has delegated portfolio management to Investec Asset Management Limited. Details of the services provided by the Manager and the fees paid are given on page 18 and also set out in note 6 on page 42. 22 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS The Company’s investing activities undertaken in pursuit of its investment objective, as set out on page 9, involve certain inherent risks. The main financial risks arising from the Company’s financial instruments are market price risk, interest rate risk, liquidity risk, credit risk and currency risk. The Board reviews and agrees policies for managing each of these risks as summarised below. The Board has also established a series of investment parameters, which are reviewed annually, designed to limit the risk inherent in managing a portfolio of investments. These policies have remained substantially unchanged during the current and preceding periods. The Board meets on four scheduled occasions in each year and at each meeting it receives sufficient financial and statistical information to enable it to monitor adequately the investment performance and status of the business. Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Company’s borrowings have the effect of increasing the market risk faced by shareholders. This gearing effect is such that, for example, for a 10% movement in the valuation of the Company’s investments, the net assets attributable to shareholders would move by approximately 11.1%. Interest rate risk Interest rate risk is the risk of movements in the value of financial instruments or interest income cash flows that arise as a result of fluctuations in interest rates. The Company finances its operations through retained profits including capital profits, and additional financing is obtained through the debenture stock in issue and the two Private Placement Loans, on all of which interest is paid at a fixed rate. Assuming that all other variables remain constant, the effect on the net revenue of the Company of a 1% increase or decrease in interest rates at 31 December 2019 is 0.52% and -0.52% respectively (2018: 0.27% and -0.27%). Liquidity risk The Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short term flexibility is achieved through the use of cash balances and short term bank deposits. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. This is mitigated by the Manager reviewing the credit ratings of broker counterparties. The Company’s custodian is responsible for the collection of income on behalf of the Company. Cash is held either with reputable banks with high quality external credit ratings or in liquidity/cash funds providing a spread of exposures to various underlying banks in order to diversify risk. The carrying amounts of financial assets represent their maximum exposure to credit risk. The full portfolio can be found on pages 15 to 16. The issuers’ debt held at year end have credit ratings ranging from AA to BB+. 46 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Currency risk The income and capital value of the Company’s investments and liabilities can be affected by exchange rate movements as some of the Company’s assets and income are denominated in currencies other than Pounds Sterling which is the Company’s reporting currency. The key areas where foreign currency risk could have an impact on the Company are: • movements in rates that would affect the value of investments; and • movements in rates that would affect the income received. The Company had the following currency exposures, all of which are included in the Statement of Financial Position based on the exchange rates ruling at the respective year-ends. Exposures vary throughout the year as a consequence of changes in the composition of the net assets of the Company arising out of the investment and risk management processes. Euro US Dollar Norwegian Krone Pounds Sterling Euro US Dollar Norwegian Krone Pounds Sterling Foreign currency sensitivity Projected movement Effect on net assets for the year Effect on capital return 31 December 2019 Investments £000 Cash £000 Receivables £000 Payables £000 Non-current liabilities £000 – 101,386 – 984,458 1,085,844 Investments £000 10,452 81,193 – 813,480 905,125 – 8 1 11,140 11,149 Cash £000 366 5 1 8,633 9,005 65 175 – 3,005 3,245 – – – – – – (1,066) (1,066) (114,049) (114,049) 31 December 2018 Receivables £000 Payables £000 57 253 – 2,921 3,231 – (117) – (1,091) (1,208) Non-current liabilities £000 – – – (113,971) (113,971) Total £000 65 101,569 1 883,488 985,123 Total £000 10,875 81,334 1 709,972 802,182 2019 2018 £000 +2% 2,033 2,028 £000 -2% (2,033) (2,028) £000 +2% 1,844 1,833 £000 -2% (1,844) (1,833) Financial assets – Interest rate risk The majority of the Company’s financial assets are equity shares and other investments which neither pay interest nor have a maturity date. The Company’s fixed interest holdings have a market value of £17,751,449, representing 1.8% of net assets of £985,123,000 (2018: £25,470,000; 3.2%). The weighted average running yield as at 31 December 2019 was 4.0% (2018: 2.0%) and the weighted average remaining life was 3.2 years (2018: 2.7 years). The Company's cash balance of £11,149,000 (2018: £9,005,000) earns interest, calculated on a tiered basis, depending on the balance held, by reference to the base rate. If the bank base rate had increased by 0.5%, the impact on the profit or loss and net assets would have been a positive £55,745 (2018: £45,025). If the bank base rate had decreased by 0.5%, the impact on the profit or loss and net assets would have been a negative £55,745 (2018: £45,025). The calculations are based on the cash balances at the respective statement of financial position dates. Financial liabilities – Interest rate risk All current liabilities have no interest rate and are repayable within one year. The 5.5% debenture stock, the 4.05% Private Placement Loan and the 2.99% Private Placement Loan, which are repayable in 2021, 2028 and 2047 respectively, pay interest at fixed rates. The weighted average period until maturity of the loans is 10 years (2018: 11 years) and the weighted average interest rate payable is 4.0% (2018: 4.0%) p.a. Other price risk exposure If the investment valuation fell by 10% at 31 December 2019, the impact on the profit or loss and net assets would have been negative £108.6 million (2018: negative £90.5 million). If the investment portfolio valuation rose by 10% at 31 December 2019, the impact on the profit or loss and net assets would have been positive £108.6 million (2018: positive £90.5 million). The calculations are based on the portfolio valuation as at the respective year-end dates. 47 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS CONTINUED The Company held the following categories of financial instruments, all of which are included in the Statement of Financial Position at fair value or an approximation to fair value, with the exception of interest bearing borrowings which are shown at book value at 31 December 2019. Assets at fair value through profit or loss 1,085,844 1,085,844 905,125 905,125 2019 2018 Book value £000 Fair value £000 Book value £000 Fair value £000 Cash Loans and receivables Investment income receivable Other receivables Payables Interest bearing borrowings: 5.5% Debenture stock1 4.05% Private Placement Loan2 2.99% Private Placement Loan3 11,149 11,149 9,005 9,005 2,977 268 (1,066) (38,614) (50,418) (25,017) 2,977 268 (1,066) (40,019) (56,107) (25,058) 3,113 118 (1,208) (38,572) (50,386) (25,013) 3,113 118 (1,208) (41,114) (54,107) (24,902) 985,123 977,988 802,182 796,030 1 Effective interest rate is 5.583% 2 Effective interest rate is 4.133% 3 Effective interest rate is 3.015% The 5.5% Debenture Stock 2021 is classified as a Level 1 instrument (2018: Level 1). The 4.05% Private Placement Loan 2028 and the 2.99% Private Placement Loan 2047 do not have prices quoted on an active market but their fair values are based on observable inputs. As such they have been classified as Level 2 instruments (2018: Level 2). Liquidity risk exposure This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be required, are as follows: 2019 2018 Three months or less £000 Not more than one year £000 More than one year £000 Three months or less £000 Not more than one year £000 More than one year £000 Total £000 Total £000 Creditors: amounts falling due after more than one year Debenture stocks and Loans – – 150,428 150,428 – – 155,290 155,290 Creditors: amounts falling due within one year Accruals and deferred income Debenture stocks and Loan 967 2,058 3,025 99 2,805 2,904 – – 1,066 4,863 150,428 156,357 1,048 2,058 3,106 160 2,805 2,965 – – 1,208 4,863 155,290 161,361 Capital management policies and procedures The Company’s capital management objectives are to ensure that it will be able to continue as a going concern, and to provide long term growth in revenue and capital, principally by investment in UK securities. The Company’s capital is its equity share capital and reserves that are shown in the Statement of Financial Position and its debenture and fixed term loans (see note 15) at a total of £1,099,172,000 (2018: £916,153,000). The Company is subject to several externally imposed capital requirements: • as a public company, the Company has a minimum share capital of £50,000. • • in order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. the terms of the debenture trust deed have various covenants that prescribe that moneys borrowed should not exceed the adjusted total capital and reserves as defined in the debenture trust deed. The Note Purchase Agreements governing the terms of the Private Placement Loans also contain certain financial covenants. These are measured in accordance with the policies used in the annual financial statements. The Company has complied with all of the above requirements. 48 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019NOTICE OF MEETING THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 immediately. If you have sold or otherwise transferred all of your ordinary shares in Temple Bar Investment Trust PLC, please forward this document and the accompanying form of proxy as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was or is being effected for delivery to the purchaser or transferee. NOTICE IS HEREBY GIVEN that the 94th Annual General Meeting of Temple Bar Investment Trust PLC will be held at 11.00am on Monday 30 March 2020 at Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA for the following purposes: ORDINARY BUSINESS: 1. To approve the Company’s Annual Report and Financial Statements for the year ended 31 December 2019 (together with the reports of the directors and auditor thereon). 2. To approve the report on directors’ remuneration for the year ended 31 December 2019. 3. To approve the Company's remuneration policy. 4. To declare a final dividend of 18.39p per ordinary share. 5. To re-elect Mr A T Copple as a director of the Company. 6. To re-elect Dr L R Sherratt as a director of the Company. 7. To re-elect Mr R E J Wyatt as a director of the Company. 8. To elect Dr S M Yogendra as a director of the Company. 9. To appoint BDO LLP as the auditor to the Company in place of the retiring auditor and to authorise the audit and risk committee to determine their remuneration. SPECIAL BUSINESS: To consider and, if thought fit, pass the following resolutions: ORDINARY RESOLUTION: 10. That in substitution of all existing authorities the directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company (‘Rights’) up to an aggregate maximum nominal amount of £1,671,819, being 10% of the issued share capital of the Company as at 19 February 2020 and representing 6,687,276 ordinary shares of 25p each in the capital of the Company (or if changed the number representing 10% of the issued share capital of the Company at the date at which this resolution is passed), provided that: (i) (ii) the authority granted shall expire at the conclusion of the Annual General Meeting of the Company in 2021 or 15 months from the date of the passing of this resolution, whichever is the earlier, but may be revoked or varied by the Company in general meeting and may be renewed by the Company in general meeting; and the said authority shall allow and enable the directors to make an offer or agreement before the expiry of that authority which would or might require shares to be allotted or Rights to be granted after such expiry and the directors may allot shares and grant Rights in pursuance of any such offer or agreement as if that authority had not expired. 49 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 NOTICE OF MEETING CONTINUED SPECIAL RESOLUTIONS: 11. That, in substitution of all existing powers but, subject to the passing of resolution 10 set out above, the directors be and they are hereby generally empowered pursuant to Section 570-573 of the Companies Act 2006 (the ‘Act’) to allot equity securities (as defined in Section 560 of that Act) for cash, including for the avoidance of doubt, the sale of shares held by the Company as treasury shares, in accordance with the authority conferred on them by this meeting to allot shares as if Section 561(i) of that Act did not apply to the allotment, provided that the power conferred by this resolution shall be limited to: (i) (ii) the allotment of equity securities in connection with a rights issue, open offer or the pre-emptive offer in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary shareholders are proportionate to the respective numbers of ordinary shares held by them on the record date of such allotment (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with equity securities in relation to fractional entitlements or legal or practical problems under the law of or the requirements of any regulatory body or any stock exchange in any territory or any other matter whatsoever); and the allotment (otherwise than pursuant to sub paragraph (i) above) of equity securities up to an aggregate nominal value not exceeding £1,671,819, being 10% of the issued share capital of the Company as at 19 February 2020 and representing 6,687,276 shares of 25p each in the capital of the Company (‘Shares’) (or, if changed, the number representing 10% of the issued share capital of the Company at the date at which this resolution is passed), and provided further that (i) the number of equity securities to which this power applies shall be reduced from time to time by the number of treasury shares which are sold pursuant to any power conferred on the directors by resolution 10 set out above and (ii) no allotment of equity securities shall be made under this power which would result in Shares being issued at a price which is less than the higher of the Company’s estimated cum or ex income net asset value per Share as at the latest practicable time before such allotment of equity securities as determined by the directors in their reasonable discretion; and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked, varied or renewed by the Company in general meeting and save that the Company may make an offer or agreement before this power has expired, which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired. 12. That the Company generally be and is hereby authorised for the purpose of Section 701 of the Companies Act 2006 (the ‘Act’) to make one or more market purchases (as defined in Section 693 of the Act) of ordinary shares of 25p each in the capital of the Company (‘ordinary shares’) either for retention as treasury shares for future reissue, resale, transfer or cancellation provided that: (i) (ii) (iii) (iv) (v) the maximum number of ordinary shares hereby authorised to be purchased is 14.99% of the issued share capital of the Company as at the date of the passing of this resolution; the minimum price (exclusive of expenses payable by the Company) which may be paid for such ordinary shares is 25p per share; the maximum price (exclusive of expenses payable by the Company) which may be paid for such ordinary shares shall be 5% above the average of the market value of the share quotations taken from the London Stock Exchange Daily Official List for the five business days immediately before the purchase is made; the authority hereby conferred shall (unless previously renewed or revoked) expire at the end of the Annual General Meeting of the Company to be held in 2021, or, if earlier, the date falling fifteen months from the date of this resolution; the Company may make a contract to purchase its own ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority, and may make a purchase of its own shares in pursuance of any such contract. By order of the Board of Directors M K Slade For Investec Asset Management Limited Secretary 19 February 2020 50 Woolgate Exchange 25 Basinghall Street London EC2V 5HA TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 NOTES 1. Entitlement to attend and vote Members who hold ordinary shares in the Company in uncertificated form must have been entered on the Company’s register of members by 6.30pm on 26 March 2020 in order to be able to attend and vote at the meeting, or if the meeting is adjourned, 6.30pm on the day two business days before the time fixed for the adjourned meeting. Such members may only vote at the meeting in respect of ordinary shares held at the time. 2. Proxies A member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend the meeting to speak and vote on a show of hands and, on a poll, to vote instead of him. A proxy need not be a member of the Company. A member wishing to appoint more than one proxy must appoint each proxy in respect of a specified number of shares within his holding. For this purpose, a member may photocopy the enclosed Form of Proxy before completion and must indicate the number of shares in respect of which each proxy is appointed. Instruments of proxy should be sent to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA so as to arrive no later than 11.00am on 26 March 2020. Completion and return of the form of proxy will not preclude shareholders from attending and voting at the meeting in person should they wish to do so. As an alternative to completing a hard copy Form of Proxy, you can appoint a proxy or proxies electronically by visiting www.sharevote.co.uk. You will need your Voting ID, Task ID and Shareholder Reference Number (this is the series of numbers printed at the top right-hand side of the Form of Proxy). Alternatively, if you have already registered with Equiniti Limited’s online portfolio service, Shareview, you can submit your Form of Proxy at www.shareview.co.uk. You may not use any electronic address provided in this notice of meeting to communicate with the Company for any purposes other than those expressly stated. Full instructions are given on both websites. To be valid, your proxy appointment(s) and instructions should reach Equiniti Limited no later than 11.00am on 26 March 2020. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members and those CREST members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. In order for a proxy appointment made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear’s specifications and must contain the information required for such instructions, as described in the CREST Manual (available via www.euroclear.com). The CREST message must be transmitted so as to be received by the issuer’s agent (ID RA19) by not later than 48 hours (excluding non-working days) before the time appointed for the holding of the meeting or the adjourned meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the CREST message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the CREST message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s), should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member(s) is/are a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that the CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a CREST message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) is/are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 3. Corporate representatives A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the AGM. In accordance with the provisions of the Companies Act 2006, each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. It is no longer necessary to nominate a designated corporate representative. 4. Nominated persons In accordance with Section 325 of the Companies Act 2006, the right to appoint proxies does not apply to persons nominated to receive information rights under Section 146 of the Act. Persons nominated to receive information rights under Section 146 of the Act who have been sent a copy of this notice of meeting are hereby informed, in accordance with Section 149 (2) of the Act, that they may have a right under an agreement with the registered member by whom they were 51 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 NOTICE OF MEETING CONTINUED nominated to be appointed, or to have someone else appointed, as a proxy for this meeting. If they have no such right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the member as to the exercise of voting rights. Nominated persons should contact the registered member by whom they were nominated in respect of these arrangements. 5. Directors The AIC Code of Corporate Governance requires the documentation accompanying the resolutions to elect or re-elect each director to set out specific reasons why their contribution is, and continues to be, important for the Company's long term sustainable success. Accordingly, the reasons for the continued appointment of those directors seeking re-election are set out below: • • • • Arthur Copple: Mr Copple possesses extensive knowledge of the investment trust industry based on a long career working in various executive roles. He continues to be heavily involved in the industry and is therefore able to provide valuable and up to date insight, particularly in advising on how Temple Bar's actions might be perceived externally. Mr Copple is an effective chair and leads the decision making process in an inclusive manner. Lesley Sherratt: Dr Sherratt has detailed knowledge of the funds sector stemming from a long career in the sector. She provides incisive contributions to Board discussions, aided by a clear thinking and analytical approach. Dr Sherratt's principled stance on ESG and ethical matters has been instrumental in driving Board discussion and subsequent engagement with stakeholders. Richard Wyatt: Mr Wyatt typically adopts a 'big picture' approach to Board discussion and decision making. He is well reasoned, knowledgeable and possesses a good understanding of the impact of current events. In certain contexts, Mr Wyatt's ability to approach issues from a unique perspective provides important balance to Board discussion. Shefaly Yogendra: Dr Yogendra joined the Board in October 2019 so had attended only one Board meeting before the Company's year end. She has huge experience of governance and risk, an increasingly important attribute in the Board's risk management and decision making process. This particular skillset is expected to contribute significantly to Board balance and discussion in the coming years. 6. Members’ requests under Section 527 of the 2006 Act Under Section 527 of the Companies Act 2006 members meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to (i) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Annual General Meeting for the financial year beginning 1 January 2019; or (ii) any circumstance connected with an auditor of the Company appointed for the financial year beginning 1 January 2019 ceasing to hold office since the previous meeting at which annual accounts and reports were laid. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 (requirements as to website availability) of the Companies Act 2006. Where the Company is required to place a statement on a website under Section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting for the relevant financial year includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on a website. 7. Members’ rights to ask questions Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. 8. Inspection of documents None of the directors has a service contract with the Company. 9. Total number of shares and voting rights As at 19 February 2020, the latest practicable date prior to publication of this document, the Company had 66,872,765 ordinary shares in issue with a total of 66,872,765 voting rights. 10. Website In accordance with Section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the AGM and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date of this notice will be available on the Company’s website: www.templebarinvestments.co.uk. 52 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 USEFUL INFORMATION FOR SHAREHOLDERS ANNUAL GENERAL MEETING The Annual General Meeting will be held at Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA on 30 March 2020 at 11.00am. FINANCIAL CALENDAR The financial calendar for 2020 is set out below: Ordinary shares Final dividend, 2019 – payable – ex-dividend – record date First interim dividend, 2020 Second interim dividend, 2020 Third interim dividend, 2020 Final dividend, 2020 5.5% Debenture Stock 2021 Interest payments PAYMENT OF DIVIDENDS 31 March 2020 12 March 2020 13 March 2020 30 June 2020 30 September 2020 31 December 2020 End of March 2021 8 March and 8 September Cash dividends will be sent by cheque to the first-named shareholder on the Register at his or her registered address together with a tax voucher. At shareholders’ request, dividends may instead be paid direct into the shareholder’s bank account through the Bankers’ Automated Clearing System (‘BACS’). This may be arranged by contacting the Company’s Registrar on 0371 384 2432. PRICE AND PERFORMANCE INFORMATION The Company’s ordinary shares and debenture stock are traded on the London Stock Exchange. The market price of the ordinary shares is shown daily in the Financial Times, other leading newspapers and on the Company’s website. SHARE REGISTER ENQUIRIES The Company’s Registrar, Equiniti, maintains the share register. In the event of queries regarding your holding, please contact the Registrar on 0371 384 2432 (overseas +44 (0)121 415 7047). Lines are open from 8.30am to 5.30pm Monday to Friday. Changes of name or address must be notified in writing to the Registrar. TAX INFORMATION EXCHANGE Local laws may require Temple Bar to disclose investor, holding and income data to UK and other tax authorities. This will only happen where required by law. ASSOCIATION OF INVESTMENT COMPANIES The Company is a member of the Association of Investment Companies, which produces monthly publications of detailed information on the majority of investment trusts. The Association of Investment Companies can be contacted by telephone on 020 7282 5555. TEMPLE BAR WEBSITE The Company’s own website can be found at www.templebarinvestments.co.uk and includes useful background information on the Company together with helpful downloads of published documentation such as previous Annual Reports. WHERE TO BUY TEMPLE BAR SHARES 1. Via a third party provider Third party providers include: AJ Bell Barclays Stockbrokers Bestinvest Charles Stanley Direct FundsNetwork Hargreaves Lansdown Interactive Investor James Brearley James Hay Selftrade TD Direct Trustnet Direct Please note this list is not exhaustive and the availability of Temple Bar may vary depending on the provider. These websites are third party sites and Temple Bar does not endorse or recommend any. Please consult each site's privacy and cookie policies as well as their platform charges structure. The Board encourages all of its shareholders to exercise their rights and notes that many specialist platforms provide shareholders with the ability to continue to receive Company documentation, to vote their shares and to attend general meetings, at no cost. Please refer to your investment platform for more details, or visit the AIC's website at www.theaic.co.uk/aic/shareholder-voting-consumer-platforms for information on which platforms support these services and how to utilise them. 53 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019 USEFUL INFORMATION FOR SHAREHOLDERS CONTINUED 2. Through a professional adviser Professional advisers are usually able to access the products of all the companies in the market and can help you find an investment that suits your individual circumstances. An adviser will let you know the fee for their service before you go ahead. You can find an adviser at www.unbiased.co.uk You may also buy investment trusts through stockbrokers, wealth managers and banks. To familiarise yourself with the Financial Conduct Authority (FCA) adviser charging and commission rules, visit www.fca.org.uk ALTERNATIVE INVESTMENT FUND MANAGERS (AIFM) DIRECTIVE In accordance with the AIFM Directive, information in relation to the Company’s leverage and the remuneration of the Company’s AIFM, Investec Fund Managers Limited (‘IFM’), is required to be made available to investors. In accordance with the Directive, the AIFM’s remuneration policy is available at www.investecassetmanagement.com or from the Company Secretary on request (see contact details on page 55) and the numerical remuneration disclosures in respect of the AIFM’s relevant reporting period (year ended 31 March 2019) are also available at www.investecassetmanagement.com. Leverage For the purposes of the AIFM Directive, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. The Company’s maximum and actual leverage levels at 31 December 2019 are shown below: Leverage Exposure Maximum limit Actual Gross Commitment method method 250% 118% 200% 122% Remuneration The table below, as provided by the AIFM, shows the total amount of remuneration paid by the AIFM to its staff for the financial year ending 31 March 2019, split into fixed and variable remuneration, and showing the number of beneficiaries. No performance fees or any other type of remuneration was paid directly by the Fund. IFM does not directly employ staff. The table below shows, for the same period, the aggregate amount of remuneration paid to Identified/Code Staff in respect of activities related to the AIFM and the Fund. Identified/Code Staff are staff and other individuals identified by the AIFM whose activities have a material impact on the risk profile of the AIFM or the Fund. This table excludes Identified/Code Staff activities subject to a delegation agreement. Aggregate Remuneration Senior Management Other individuals with material impact Number of Staff £188,917 £184,157 £4,760 15 54 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019Independent auditor Ernst & Young LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Depositary, bankers and custodian HSBC Bank plc Poultry London EC2P 2BX Stockbrokers JPMorgan Cazenove 25 Bank Street Canary Wharf London E14 5JP Solicitors Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU CORPORATE INFORMATION Alternative Investment Fund Manager (AIFM) Investec Fund Managers Limited Authorised and Regulated by the Financial Conduct Authority Portfolio Manager, Alastair Mundy Woolgate Exchange 25 Basinghall Street London EC2V 5HA Telephone No. 020 7597 2000 Registered office Woolgate Exchange 25 Basinghall Street London EC2V 5HA Company Secretary Investec Asset Management Limited, represented by Martin Slade Registered number Registered in England No. 214601 Temple Bar Identifiers Company registration number – 214601 Ordinary Shares ISIN – GB0008825324 Ordinary Shares Sedol – 0882532 Legal Entity Identifier – 213800O8EAP4SG5JD323 Registrar Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone Nos: +44 121 415 7047 (overseas shareholder helpline) 0371 384 2432 (shareholder helpline)* 0906 559 6025 (broker helpline) 0345 603 0561 (Equiniti Investment Account holders) +44 121 415 0223 (overseas Equiniti Investment Account holders) *Lines open 8.30 a.m. to 5.30 p.m., Monday to Friday. GLOSSARY OF TERMS ABSOLUTE PERFORMANCE The return that an asset achieves over a period of time, relative to the investment itself. AIC The Association of Investment Companies. ANNUAL MANAGEMENT FEE The annual consideration paid to an asset management company for managing clients’ investments. ATTRIBUTION ANALYSIS A performance-evaluation tool used to analyse the abilities of portfolio or fund managers. Attribution analysis uncovers the impact of the manager’s investment decisions with regard to overall investment policy, asset allocation, security selection and activity. BENCHMARK A comparative performance index. BORROWING See net gearing. 55 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019GLOSSARY OF TERMS CONTINUED BOTTOM-UP STOCK SELECTION An investment approach that concentrates on the analysis of individual companies and considers the company’s history, management and potential as more important than macroeconomic trends. CASH ALTERNATIVES/EQUIVALENT Also known as cash equivalents. A class of investments considered relatively low-risk because of their high liquidity, meaning they can be quickly converted into cash. CONTRARIAN APPROACH An investment style that goes against prevailing market trends. In very simple terms the approach is defined by buying assets that are performing poorly and then selling when they perform well. DEBENTURE STOCKS A type of stock entitling the bearer to a certain fixed income at set periods of time. DERIVATIVE INSTRUMENTS An instrument whose value depends on the performance of an underlying security or rate which requires no initial exchange of principal. Options, futures and swaps are all examples of derivatives. DISCOUNT* The amount by which the market price per share of an investment trust is lower than the net asset value per share. The discount is normally expressed as a percentage of the net asset value per share. DIVERSIFICATION Holding a range of assets to reduce risk. DIVIDEND The portion of company net profits paid out to shareholders. FIXED INTEREST Fixed interest securities, also known as bonds, are loans usually taken out by a government or company which normally pay a fixed rate of interest over a given time period, at the end of which the loan is repaid. FTSE ALL-SHARE INDEX A comparative index that tracks the market price of the UK’s leading companies listed on the London Stock Exchange. Covering around 600 companies, including investment trusts, the name FTSE is taken from the Financial Times (FT) and the London Stock Exchange (SE), who are its joint owners. FTSE 350 INDEX A comparative index that tracks the market price of the UK’s 350 largest companies, by market value, listed on the London Stock Exchange. GILTS A bond that is issued by the British government which is generally considered low risk. HEDGING A technique seeking to offset or minimise the exposure to a specific risk by entering an opposing position. LIQUIDITY The ease with which an asset can be sold at a reasonable price for cash. MARKET CAPITALISATION The total value of a company’s equity, calculated by the number of shares multiplied by their market price. NET ASSET VALUE In a company context, the net asset value describes total assets minus total liabilities. NET GEARING* In accounting terms, gearing is the amount of a company’s total borrowings divided by its share capital. Net gearing adjusts this amount by any cash and cash equivalents. High gearing means a proportionately large amount of debt, which may be considered more risky for equity holders. However, gearing also entails tax advantages. In investment analysis, a highly geared company is one where small changes in sales produce big swings in profits. Also known as leverage. The gearing ratio as at 31 December 2019 is calculated as the ratio of the Trust’s net assets of £985,123,000 (2018: £801,182,000), divided by a sum of the total assets of £1,100,238,000 (2018: £917,361,000) less current liabilities of £1,066,000 (2018: £1,208,000), less cash and cash equivalents (including gilts) of £27,927,000 (2018: £33,521,000). The resultant ratio of 8.0% can be seen in the summary of results on page 1. 56 TEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019ONGOING CHARGE* Defined as the total of the investment management fee of £3,799,000 and administrative expenses of £585,000 divided by the average cum income net asset value throughout the year of £891,276,390. This figure excludes any performance fee or portfolio transaction costs and may vary from year to year. PEER COMPANIES Companies that operate in the same industry sector and are of similar size. PREMIUM* The amount by which the market price per share of an investment trust exceeds the net asset value per share. The premium is normally expressed as a percentage of the net asset value per share. RELATIVE PERFORMANCE The return that an asset achieves over a period of time, compared to a benchmark. SHARE BUYBACK When a company buys some of its own shares in the market, which leads to a rise in the share price. It changes the company’s debt-to-equity ratio and is a tax-efficient alternative to paying out dividends. STOCK LENDING Also known as securities lending. The act of loaning a stock, derivative, or other security to an investor or firm. It requires the borrower to put up collateral, whether cash, security or a letter of credit. When a security is loaned, the title and the ownership is also transferred to the borrower. TOTAL RETURN* Captures both the capital appreciation/depreciation of an investment as well as the dividends generated over a holding period. Return on Gross Assets As at 31 December 2019, the difference between the Trust's opening and closing total assets less current liabilities stood at £183,019,000 (2019: £1,099,172,000; 2018: £916,153,000); adding the dividend and debenture interest paid in the current year of £35,757,000 and £4,940,000 respectively results in a total return of £223,716,000 for the purposes of this calculation. Dividing this return by the opening total assets less current liabilities of the Trust results in the return of 24.2% (please see the Statement of Financial position as well as notes 8 and 10 of the financial statements on pages 37, 42 and 43 respectively for the audited inputs to the calculation). Return on Net Asset Value As at 31 December 2019, the difference between the Trust's opening and closing NAV stood at £182,941,000 (2019: £985,123,000; 2018: £802,182,000); adding the dividend paid in the current year of £35,757,000 results in a total return of £218,698,000 for the purposes of this calculation. Dividing this return by the opening NAV of the Trust results in the return of 27.9% (please see the Statement of Financial position and note 10 of the financial statements on pages 37 and 43 respectively, for the audited inputs to the calculation). Return on Share price As at 31 December 2019, the difference between the Trust's opening and closing market price per share stood at 330p (2019: 1,476p; 2018: 1,146.00p); adding the dividend accrued in the current year of 53.47p results in a total return per share of 383.47p for the purposes of this calculation. Dividing this return on a daily basis by the opening market value per share results in an annual cumulative return of 34.3% (please see the Summary of Results on page 1 for the inputs to the calculation). VALUATION Determination of the value of a company’s stock based on earnings and the market value of assets. VALUE INVESTING An investment strategy where stocks are selected that trade for less than their intrinsic values because it is believed that the market has undervalued them based on certain forms of fundamental analysis. YIELD* A measure of the income return earned on an investment. In the case of a share the yield expresses the annual dividend payment as the percentage of the market price of the share. In the case of a bond the running yield (or flat or current yield) is the annual interest payable as a percentage of the current market price. The redemption yield (or yield to maturity) allows for any gain or loss of capital which will be realised at the maturity date. * Alternative Performance Measure. 57 GOVERNANCE REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONSTRATEGIC REPORTTEMPLE BAR INVESTMENT TRUST PLCAnnual Report & Financial Statements for the year ended 31 December 2019OBJECTIVE Temple Bar Investment Trust’s investment objective is to provide growth in income and capital to achieve a long term total return greater than the benchmark FTSE All-Share Index, through investment primarily in UK listed securities. The Company’s policy is to invest in a broad spread of securities with typically the majority of the portfolio selected from the constituents of the FTSE 350 Index. PURPOSE The purpose of the Company is to deliver long term returns for shareholders from a diversified portfolio of investments. CONTENTS STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL REPORT 1 Summary of results 17 Board of Directors 35 Statement of SHAREHOLDER INFORMATION 2 Chairman’s statement 18 Report of Directors 4 Manager’s review 21 Report on directors’ 6 Ten year record 7 Attribution analysis 8 Overview of strategy 15 Portfolio of investments remuneration 23 Corporate governance 26 Report of the audit and risk committee 28 Statement of directors’ responsibilities 29 Independent auditor’s report Comprehensive Income 49 Notice of meeting 36 Statement of Changes in Equity 37 Statement of Financial Position 38 Statement of Cash Flows 53 Useful information for shareholders 54 Alternative Investment Fund Managers (AIFM) Directive 55 Corporate information 39 Notes to the Financial 56 Glossary of terms Statements TEMPLE BAR INVESTMENT TRUST PLC Annual Report & Financial Statements for the year ended 31 December 2019 Perivan 257618 T e m p e B a r l I n v e s t m e n t T r u s t P L C A n n u a l R e p o r t & F i n a n c i a l S t a t e m e n t s 2 0 1 9 ANNUAL REPORT & FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 

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