BIT - Annual Financial Report

PLEASE REFER TO THE PDF TO VIEW THE FULL ANNOUCEMENT LEGAL ENTITY IDENTIFIER: 213800B9YWXL3X1VMZ69 THE BANKERS INVESTMENT TRUST PLC Financial results for the year ended 31 October 2024 This announcement contains regulated information PERFORMANCE HIGHLIGHTS 1, 2 31 October 2024 31 October 2023 - NAV per share total return 21.1% 5.2% - Share price at year end3 110.8p 93.5p - NAV per ordinary share with debt at fair value 127.9p 111.0p - Dividend per share for year4 2.688p 2.56p - Dividend growth 5.0% 10.0% -(Discount)/premium with debt (13.4%) (15.8%) at fair value at year end5 - Net (gearing)/cash at year end6 (1.5%) (7.1%) - Ongoing Charge for year 0.51% 0.50% LONG TERM TRACK RECORD TO 31 OCTOBER 2024 1 year % 3 years% 5 years% 10 years% 15 years% Total Return7 Net Asset Value 21.1 12.9 50.3 168.7 364.1 Share price 21.4 4.4 33.7 148.3 365.7 FTSE World Index8 26.1 29.5 78.8 174.0 341.1 1 A glossary of terms can be found in the Annual Report 2 The alternative performance measures can be found in the Annual Report 3 Share price is the mid-market closing price 4 This represents the four ordinary dividends recommended or paid for the year (see the Annual Report for more details) 5 Based on the mid-market closing price with debt at fair value 6 Net (gearing)/cash calculated in accordance with the gearing definition in the alternative performance measures in the Annual Report 7 Total return assumes dividends reinvested and debt at fair value 8 For the 10 and 15 years, this is a composite of the FTSE World Index and the FTSE All-Share Index Sources: Morningstar Direct, Janus Henderson, LSEG Datastream CHAIR’S STATEMENT Dear Shareholder, Performance In the year to 31 October 2024, your Company delivered strong absolute performance with a net asset value total return of 21.1% (2023: 5.2%) and a share price total return of 21.4% (2023: -0.7%). This underperformed the FTSE World Index total return of 26.1% (2023: 5.7%). It is worth noting that only a few investment funds have outperformed our global benchmark index this year. Markets were dominated by returns in the US, led once more by the Magnificent Seven technology companies. The US market rose by 30.3% in sterling terms during the year, roughly double the return from European and Japanese stocks over the same period. Both stock selection in the US and the Company’s relative underweight to the US market contributed to the underperformance. Further discussion of performance is contained in the Fund Manager’s report. I believe that one of the benefits for shareholders of the Company’s approach to global investing is exposure to market experts, based in their regions. This was demonstrated by the Japanese portfolio this year. While most economies have suffered in recent years from higher inflation, the emergence of Japan from decades of deflation has supported their stock market. The declining working age population is leading to better wage growth. Japanese companies are also improving productivity and increasing return on equity by paying out a higher proportion of profits and buying back stock. Our Japanese portfolio was able to benefit from these trends and outperformed the local market during the year. Portfolio changes As reported in our half-year update, the portfolio is now managed through four regional sleeves: Pan Europe, North America, Japan and Pan Asia. The restructuring has concentrated the number of holdings to approximately 100. The impact of dedicating more capital towards the best ideas in the portfolio can be seen in the top 10 holdings amounting to 22.8% of gross assets this year, compared to 17.4% last year. The allocation towards the US equity market has increased from 40% a year ago to 50% at the year end and is currently 60% at the time of writing. We hope to see improved performance relative to the benchmark next year as a result of these changes. Revenue, dividends and share buybacks Revenue earnings per share of 2.63p (2023: 2.72p) allows the Board to recommend a final quarterly dividend of 0.672p per share, resulting in total dividends per share for the year of 2.688p (2023: 2.56p), an increase over last year of 5%. The final dividend will be paid on 28 February 2025 to shareholders on the register of members at the close of business on 24 January 2025. This will be the Company’s 58th successive year of annual dividend growth, the second longest record in the investment trust sector. As discussed in the half-year update, the dominance of the low-yielding US stocks over global markets has meant our income mandate has put the Company at some disadvantage when it comes to capturing future capital returns. Revenue reserves will be used to top up future dividends in the short to medium-term in order to give the Manager the flexibility to invest in some of the lower-yielding sectors of the market. The build-up in revenue reserves over the past decade will support these efforts. The Company remains committed to progressive dividend growth. For the current financial year, the Board expects to recommend dividend growth of at least 2.0%, which is in line with the forecast for UK Consumer Price Index (‘CPI’) inflation in a year’s time and equates to a full year dividend of 2.742p per share. Discount management In common with our investment trust peers, the Company’s shares have continued to trade at a wide discount to net asset value. A total of 88,341,407 shares were bought back in the year ended 31 October 2024 (2023: 60,618,929 shares were repurchased). This activity is beneficial to ongoing shareholders, as shares are only purchased when the Company’s shares are trading at a wide discount thereby enhancing shareholder value. The Company will continue to buyback shares to be held in treasury as appropriate. Annual General Meeting (‘AGM’) I look forward to welcoming shareholders to the Company’s AGM, scheduled to take place at 12 noon on Tuesday, 25 February 2025 at the offices of Janus Henderson Investors at 201 Bishopsgate, London EC2M 3AE. Light refreshments will be served. All voting will be on a poll and therefore we would ask that you submit your proxy votes in advance of the meeting. If you are unable to attend in person, you can watch the meeting live on the internet by visiting www.janushenderson.com/bnkr-agm. If you have any questions about the Annual Report, the Company’s performance over the year, the investment portfolio or any other matter relevant to the Company, please write to us via email at ITSecretariat@janushenderson.com in advance of the AGM. The Board is proposing a number of changes to modernise the Company’s articles of association as summarised in the Notice of Meeting. These changes are based on the provisions of the Listing Rules and ensure that best practice on corporate governance is enshrined within the Company’s articles. Outlook I have cautious optimism about the future. The prospect for further interest rate cuts on the back of lower inflation gives credence to the view that this year’s performance will not be given up next year. The new administration in the US appears focused on growth and reform, which will be welcomed by many businesses there. The large unknown next year will be the effect of rising tariffs on global trade, initiated by the US. I expect the worst-case headline figures will be negotiated downwards by many countries and a stronger US dollar will ironically reduce the impact of absorbing price rises for non-US companies. Provided the economic outlook prevails, Bankers is in strong position to take advantage of a broadening out in markets. Simon Miller Chair   FUND MANAGER’S REPORT The year started with optimism that, despite higher interest rates, the world would avoid an economic recession. The view that central banks had engineered a soft landing carried equity markets to new highs through the first half of the year. Once more, technology shares and anything related to Artificial Intelligence (‘AI’) led the way although the broader market, especially the financials, did participate. In the summer, new job creation slowed and inflation stopped its descent causing a wobble in markets. This was amplified by negative news coming out of Asia and Europe, as their economic growth stalled. Investors sought new policies in markets like China and Germany to stimulate growth but politicians offered little to support their equity markets. Meanwhile in July the Japanese currency reached breaking point and sharply corrected against the US dollar, disrupting the Yen carry trade. However, it did not take long for renewed optimism to be established as interest rates in Europe and then the US, finally started to be cut. Our financial year ended the week before the US presidential election with markets at all time highs, buoyed by the prospect of a Trump win. The portfolio performed in line with the market until mid-year when Asia and Japan both diverged in performance from the rest of the world. Then Europe also faded against the US following the collapse of the French government. Finally, the US market left all others behind in the run up to the presidential election. Our broadly diversified portfolio has impacted returns, in a year when the US market outperformed the rest of the world by over 10%. Stock selection was also affected by stock picking in the consumer discretionary sector and health care. Consumers were clearly struggling with higher inflation and spending patterns have changed, impacting some past winners like Nike, Burberry and Samsonite. Health care stocks suffered from a sharp derating as investors switched from defensive health care franchises to chase the AI story. The technology underweight in the portfolio was eliminated but not holding Nvidia proved painful for relative performance. The company has strong new order growth but the valuation is now assuming that doubling sales growth and elevated margins carry on for a decade ahead. This would be an unusual outcome in a historically cyclical sector. Competition is also increasing from in-house AI chips developed by the large Technology companies, such as Alphabet and Meta. The portfolio turnover was exceptional this year and will settle back next year. We have taken advantage of market conditions and large block trades to reposition the portfolio cost effectively, as well as raising the US allocation. The reduction in stocks towards 100 holdings was completed in October and the portfolio is more concentrated into the investment team’s best ideas. The Chinese A share portfolio was significantly reduced as we failed to see meaningful government policy to revive the economy, retaining just two holdings making electrical equipment and appliances. Income and gearing The underlying level of dividend growth that each of the companies we hold have declared has broadly held up, although it is apparent that the companies listed in the US increasingly favour a share buyback over cash distributions to shareholders. The US market now yields just over 1% and this trend towards higher levels of capex and buying back stocks is likely to affect future income growth from that market. The overall investment income fell 6.9% during the year, which reflects a higher proportion of the portfolio invested in zero yielding securities, a higher allocation to the US market and raising cash for the Company’s buybacks. The declining number of shares in issue meant that the Company’s earnings per share only fell 3.3% during the year. The outlook for income essentially depends on future corporate profits rising, although structurally there is a shift amongst the wider investment community towards prioritising capital return over dividends. The gearing at the year end was relatively low at 1.5% as we sold down some positions in Asia and the UK late in the year. We have subsequently increased gearing post the year end. We also allowed the £20m loan facility with SMBC Bank International to expire as we did not anticipate utilising the facility while short term interest rates remain high. For the moment we have sufficient levels of long-term borrowings at a historically low average cost of 2.7%. Outlook The health of the US economy and the impact of the new Trump administration dominates the outlook for global equities. Experience tells us that seismic shifts in economic growth are very rare and that we should probably expect Trump’s key policies of tariffs, deregulation and deportation of immigrants to have only a modest effect on markets in the long term. Of course, in the short term, there will be hyperbole from commentators, both positive and negative, on the outlook. Trump’s policies appear to be inflationary in nature and so it is likely that higher short and more importantly long-term rates than over the last twenty years will curtail much of the optimism eventually. The long-term challenge for the US market is the scale of the budget deficit and whether investors will continue to fund the US government at current yields. Unlike the highly indebted governments around the world, the companies we own have rarely been in better health. They have generally locked in the low financing rates a few years back and are benefiting from growing levels of capex developing new products and innovation in AI . We expect corporate profits to rise further next year while interest rate cuts in Europe and Asia will ease the pressure on consumers. The falling return on cash and shorter dated bonds, will mean equities remain attractive to investors despite the increase in valuations we have seen this year. We expect a broadening out of markets as the earnings growth from those companies outside the handful of large technology companies catches up and their valuations look far more appealing. Alex Crooke Fund Manager 15 January 2025 PLEASE REFER TO THE PDF TO VIEW THE FULL ANNOUCEMENT For further information please contact: Alex Crooke Fund Manager Janus Henderson Investors Telephone: 020 7818 4447 Simon Miller Chair The Bankers Investment Trust PLC Telephone: 020 7818 4233 Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: 020 7818 4458 Harriet Hall Investment Trust PR Director Janus Henderson Investors Telephone: 020 7818 2919 Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on the Company’s website (or any other website) are incorporated into, or form part of, this announcement.