City of London Investment Trust NAV outperforms benchmarks

City of London Investment Trust PLC (LON:CTY) has announced its Unaudited Results for the Half-Year Ended 31 December 2024.

INVESTMENT OBJECTIVE

The Company’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. The Board fully recognises the importance of dividend income to shareholders.

PERFORMANCE

	As at 31 December 2024	As at 30 June 2024
Net asset value (“NAV”) per ordinary share	425.1p	424.3p
Premium/(discount)	1.4%	(1.0)%
Net asset value per ordinary share (debt at fair value)	430.8p	429.6p
Premium/(discount) (debt at fair value)	0.0%	(2.2)%
Ordinary share price	431.0p	420.0p
Gearing (debt at par value)	7.6%	7.1%
	Six months to 31 December 2024	Six months to 31 December 2023
Dividends per share	10.5p	10.1p

Dividend yields		As at 31 December 2024		As at 30 June 2024
The City of London Investment Trust plc		4.9%		4.9%
FTSE All-Share Index (Benchmark)		3.8%		3.7%
AIC UK Equity Income sector		4.8%		4.2%
IA UK Equity Income OEIC sector		4.2%		4.3%
Sources: Morningstar Direct, LSEG Datastream
Total return performance to 31 December 2024	6 months %	1 year %	3 years %	5 years %	10 years %
NAV1	2.8	11.5	24.8	29.2	83.8
Share price2	5.1	10.6	26.8	25.1	80.1
FTSE All-Share Index (Benchmark)	1.9	9.5	18.5	26.5	81.9
AIC UK Equity Income sector3	2.7	10.1	16.6	26.9	88.2
IA UK Equity Income OEIC sector4	1.4	8.7	13.8	20.0	66.2

Sources: Morningstar Direct, Janus Henderson, LSEG Datastream

1 Net asset value per ordinary share total return with debt at fair value (including dividends reinvested)

2 Share price total return using mid-market closing price

3 AIC UK Equity Income sector size weighted average NAV total return (shareholders’ funds)

4 The Investment Association (“IA”) peer group average is based on mid-day NAV whereas the returns of the investment trust are calculated using close of business NAV

INTERIM MANAGEMENT REPORT

CHAIRMAN’S STATEMENT

Introduction

City of London Investment Trust achieved a 2.8% net asset value total return during the six months to 31 December 2024 against a backdrop of political change in the UK and USA, uncertain economic prospects globally and cuts in interest rates.

The Markets

Following July’s general election, the new Labour government introduced a Budget in October which raised public spending, increased the employer’s national insurance tax rate and signalled the removal of the Inheritance Tax exemption for personal pension funds. Growth in the UK economy slowed from the pace of the first half of the year, whilst the Bank of England lowered the base rate to 4.75% through two cuts of 25 basis points. The UK 10-year gilt yield rose from 4.2% to 4.6% during the six months, reflecting concerns about the stickiness of inflation and the prudent sustainability of government finances. Growth in Europe was also weak, with the European Central Bank reducing its deposit rate to 3.0%. Economic growth in the US, in contrast, remained relatively robust, with the US Federal Reserve making three cuts in interest rates to 4.5%.

The UK equity market returned 1.9%, as measured by the FTSE All-Share Index, with medium-sized and small companies slightly outperforming larger peers. The banking sector was a notable outperformer, with banks benefitting through rolling over structural hedges of funds on better terms than had prevailed during the period of ultra-low interest rates. The oil sector, however, was weak with the Brent oil price falling by 7% to $75 per barrel during the six months, reflecting reduced global demand.

Net Asset Value Total Return

City of London’s net asset value total return was 2.8%, exceeding the FTSE All-Share Index (1.9%), the AIC UK Equity Income sector average (2.7%) and the IA UK Equity Income OEIC sector average (1.4%). Stock and sector selection contributed to relative outperformance against the Index by 93 basis points. The biggest sector contributor was tobacco, where corporate earnings and dividends were resilient. Imperial Brands was the second biggest stock contributor. The biggest stock contributor was our underweight position in AstraZeneca. The third biggest contributor was NatWest, whose share price rose by 29% during the six months. The biggest detracting sector was aerospace and defence, where Rolls Royce, which we do not hold, continued to perform well despite not paying a dividend, and was our biggest stock detractor. In addition, our holding in BAE Systems gave back some gains, having been a very strong performer over the previous three years.

Earnings and Dividends

Earnings per share declined from 8.8p to 8.4p, compared with the same six-month period last year, mainly due to the change in timing of dividend payments from some investee companies. Another factor was the absence of any special dividends compared with £0.9 million received during the same period last year. This reflected an increasing trend by UK listed companies to substitute dividend distributions with share buy backs to fund shareholder returns, particularly in relation to exceptional profits.

The Board continues to control expenses tightly. City of London’s ongoing charge, which represents the investment management fee and other administrative non-interest expenses as a percentage of shareholder funds, is expected to remain around 0.37% during this financial year. This is low compared with almost all other investment trusts and (non-tracker) managed equity investment products.

City of London has declared two interim dividends to date of 5.25p each in respect of this financial year. The Company’s diverse portfolio, strong cash flow and revenue reserve give the Board confidence that in line with its objective to provide long-term income and capital growth, it will be able to increase the total annual dividend for the 59^th consecutive year. The quarterly dividend rate will be reviewed by the Board before the third interim dividend is declared in April 2025.

Material Events and Transactions during the Period

The Board continued with its stated policy, subject to prevailing conditions, of issuing and buying back shares within a narrow band relative to net asset value. During the six-month period, the Company’s shares traded close to net asset value and ended the period with the share price equal to net asset value (valuing debt at fair value) and at a 1.4% premium to net asset value (valuing debt at par value). 28,278 shares were bought back, costing £119,000, at a small discount and no shares were issued.

A new holding was bought in TP ICAP, a leading intermediary in global financial markets. Notable additions were made to Shell, the oil and gas company, and to the diversified Real Estate Investment Trusts, British Land and Land Securities. DS Smith, the paper and packaging company in the process of being taken over by the US company, International Paper, was sold. Pennon, the water utility, was sold ahead of the final determination of the regulatory review of UK water companies. In a tough backdrop for consumer spending, Burberry and DFS Furniture omitted their dividends and were sold. A significant profit was realised with the sale of half the holding in 3i following a very strong share price performance. Some profits were also taken in BAE Systems.

Outlook for the Six Months to 30 June 2025

The UK economy is struggling to grow, with business confidence adversely affected by a combination of the rise in employer’s national insurance, the prospect of tighter labour regulations and the well-above inflation increase in the National Minimum Wage from April 2025. Although it seems likely that there will be further interest rate cuts from the current level of 4.5%, the Bank of England’s decision is made harder by the ripple effect of government induced cost pressures on inflation. Cuts in interest rates could be well received by investors, who will anticipate an improvement in corporate profits and consumer spending. The outlook for growth in Europe is also weak, with considerable political uncertainty in both France and Germany. The European Central Bank is expected to make further cuts in interest rates which may improve sentiment. Prospects for economic growth are stronger in the US, with its technology sector continuing to generate impressive returns. The policies of the Trump administration, such as in relation to tariffs, currently remain uncertain and the judgement of the potential impact of such policies will feature materially in the Federal Reserve’s determination of future interest rates.

Many domestic UK stocks remain on relatively depressed valuations, both absolutely and relatively when compared with their peers in overseas markets. The diversified Real Estate Investment Trusts exemplify this valuation discrepancy, trading on discounts to net asset value of 30% and dividend yields of 6%. It is important to recognise, however, that City of London’s portfolio is biased towards companies with overseas sales. At 31 December 2024, some 63% of the underlying sales of investee companies were made overseas. They are therefore well placed to benefit from global growth trends. It is also worth noting the possible signs of a lessening of geo-political tensions, such as the ceasefire in Gaza, and President Trump’s proactive engagement in efforts to end the war in Ukraine.

Given the relative attraction of UK equities to their equivalents in overseas markets, especially with regard to dividend yield, it remains the case that investors in UK equities “are paid to hold on”. It is encouraging to see many companies taking advantage of their low valuations to buy back their shares “on the cheap”. Imperial Brands, City of London’s seventh largest holding, has demonstrated the benefits of this approach with its share buy backs over the last two years having been significantly accretive to earnings per share.

More takeovers can be expected from overseas companies and private equity firms while this low relative value of UK equities persists. The dividend yield of UK equities will also become increasingly attractive relative to bank deposit rates as interest rates decline.

Sir Laurie Magnus CBE

Chairman

20 February 2025

FORTY LARGEST INVESTMENTS

Company	Market value31 December2024£’000		Company	Market value31 December2024£’000
HSBC	105,230		Aviva	40,777
Shell	97,802		GSK	40,380
RELX	92,175		IG	39,620
Unilever	85,256		3i	35,640
British American Tobacco	76,293		British Land	30,797
BAE Systems	73,759		Munich Re	28,985
Imperial Brands	73,399		Severn Trent	28,842
Tesco	72,923		Reckitt Benckiser	26,576
NatWest	71,373		SSE	26,466
AstraZeneca	64,354		TotalEnergies	26,465
National Grid	53,701		Schroders	23,872
Barclays	52,021		Sage	21,760
Lloyds Banking	51,493		Swire Pacific	21,725
Rio Tinto	51,481		Glencore	21,204
M&G	51,389		Beazley	20,413
Diageo	49,725		Anglo American	20,094
BP	49,512		Deutsche Telekom	19,651
Phoenix	44,028		Britvic	19,620
Legal & General	43,662		St. James’s Place	19,519
Land Securities	40,880		Novartis	18,752
These investments total £1,831,614,000 or 81.0% of the portfolio.
Convertibles and all classes of equity in any one company are treated as one investment.

SECTOR EXPOSURE

As a percentage of the investment portfolio excluding cash

	%
Financials	32.3
Consumer Staples	20.2
Industrials	9.8
Energy	8.1
Health Care	7.3
Consumer Discretionary	6.3
Utilities	5.3
Basic Materials	4.7
Telecommunications	2.6
Real Estate	2.4
Technology	1.0
Total	100.0

Source: Janus Henderson

SECTOR BREAKDOWN OF INVESTMENTS

	Valuation31 December2024£’000				Valuation31 December2024£’000
ENERGY			Industrial Support Services
Oil, Gas and Coal			PayPoint		15,600
BP	97,802		Hays		10,285
Shell	49,512		Inchcape		9,619
TotalEnergies1	26,465				35,504
ENI1	9,673		Total Industrials		222,419
	183,452
Total Energy	183,452		CONSUMER STAPLES
			Beverages
BASIC MATERIALS			Diageo		49,725
Chemicals			Britvic		19,620
Victrex	8,308		Coca-Cola1		10,940
Johnson Matthey	6,014				80,285
	14,322
			Food Producers
Industrial Metals and Mining			Nestlé1		17,803
Rio Tinto	51,481		Hilton Food		9,050
Glencore	21,204		Tate & Lyle		8,638
Anglo American	20,094				35,491
	92,779
Total Basic Materials	107,101		Personal Care, Drug and Grocery Stores
			Unilever	85,256
INDUSTRIALS			Tesco		72,923
Aerospace and Defence			Reckitt Benckiser	26,576
BAE Systems	73,759				184,755
	73,759
			Automobiles and Parts
Construction and Materials			Dowlais		6,740
Ibstock	14,432				6,740
Marshalls	7,338
	21,770		Tobacco
			British American Tobacco		76,293
Electronic and Electrical Equipment			Imperial Brands		73,399
IMI	13,202				149,692
Morgan	11,288		Total Consumer Staples		456,963
Rotork	5,962
XP Power	2,974		HEALTH CARE
	33,426		Medical Equipment and Services
			Smith & Nephew	12,586
General Industrials					12,586
Swire Pacific1	21,725
Smiths	13,720		Pharmaceuticals and Biotechnology
Mondi	11,319		AstraZeneca	64,354
	46,764		GSK		40,380
			Novartis1		18,752
Industrial Engineering			Merck1		16,285
Vesuvius	11,196		Johnson & Johnson1	12,010
	11,196				151,781
			Total Health Care		164,367

	Valuation31 December 2024£’000							Valuation31 December 2024£’000
CONSUMER DISCRETIONARY				Investment Banking and Brokerage Services
Retailers				M&G				51,389
Kingfisher	11,311			IG				39,620
Halfords	3,930			3i				35,640
	15,241			Schroders				23,872
				St. James’s Place				19,519
Media				Rathbones			14,940
RELX	92,175			TP ICAP			11,610
	92,175							196,590
Household Goods and Home Construction				Life Insurance
Persimmon	17,103			Phoenix				44,028
Taylor Wimpey	15,690			Legal & General				43,662
	32,793			Aviva				40,777
				Prudential				7,642
Travel and Leisure								136,109
Young	2,475
	2,475			Non-life Insurance
Total Consumer Discretionary	142,684			Munich Re1				28,985
				Beazley				20,413
TELECOMMUNICATIONS				Direct Line Insurance				12,118
Telecommunications Service Providers				Hiscox				9,189
Deutsche Telekom1	19,651			Sabre Insurance				6,555
BT	14,045							77,260
Vodafone	12,973			Total Financials				698,559
Verizon Communications1	12,782
	59,451			REAL ESTATE
Total Telecommunications	59,451			Real Estate Investment Trusts
				Land Securities	40,880
UTILITIES				British Land				30,797
Electricity				Segro				12,614
SSE	26,466							84,291
		26,466		Total Real Estate				84,291
Gas, Water and Multi-utilities				TECHNOLOGY
National Grid	53,701			Software and Computer Services
Severn Trent	28,842			Sage	21,760
United Utilities	10,515				21,760
	93,058			Total Technology				21,760
Total Utilities	119,524
				TOTAL INVESTMENTS				2,260,571
FINANCIALS
Banks
HSBC	105,230			UK investments				2,065,500
NatWest	71,373			Overseas investments				195,071
Barclays	52,021			TOTAL INVESTMENTS		2,260,571
Lloyds Banking	51,493
Nationwide Building Society 10.25% Var Perp CCDS	8,483
	288,600

¹ Overseas listed

All classes of equity in any one company are treated as one investment.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties associated with the Company’s business can be divided into the following main areas:

·   Portfolio and market price

·   Dividend income

·   Investment activity, gearing and performance

·   Tax and regulatory

·   Operational

Information on these risks and how they are managed is given in the Annual Report for the year ended 30 June 2024. In the view of the Board, these principal risks and uncertainties at the year end remain and are as applicable to the remaining six months of the financial year as they were to the six months under review.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors confirm that, to the best of their knowledge:

•	the condensed set of financial statements has been prepared in accordance with FRS 104 “Interim Financial Reporting”.
•	the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year); and
•	the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board

Sir Laurie Magnus CBE

Chairman, City of London Investment Trust PLC

20 February 2025