CT UK Capital And Income Investment Trust Plc (CTUK) Earnings Call Transcript & Summary

Good morning, and welcome to the CT UK Capital and Income Investment Trust Plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to you Fund Manager, Dominic Younger. Good morning to you.

Good morning, everyone. Hello, and thank you for taking the time to join today's session covering the CT UK Capital and Income Investment Trust. My name is Dominic Younger, and I have the privilege of introducing myself to you today as a person taking up the reins from Julian Cane in the management of this trust after an outstanding 28 years at the helm. This is a period during which the trust has not only outperformed the U.K. market but also grown the dividend every year as it has done in each year of its existence. It's a formidable legacy to be taking on and I genuinely think a compelling proposition for savers and income seekers alike. And as I look to the future, there is much to be excited about in both the portfolio and the broader U.K. equity space. And for me, the investment trust wrapper all these decades and centuries later with its unique advantages still represents a really interesting solution for savers and investors. So to today's agenda. Over the next half hour, we'll run through a little bit about the team here at CTI, the U.K. equity income platform, the deep resource we have at our disposal. We'll then touch on how we hunt for new ideas and why we think we can offer you something different, both when it comes to capital and income. We'll look at how that investment approach feeds into portfolio positioning and then give an idea of why we think, despite the market delivering strong returns last year, there is plenty left on the table. At the end, I'll be delighted to take any questions, which I believe you can submit via the portal throughout. So first, a little bit about myself. Although I'm new to the trust, I've spent a decade on the U.K. desk here at Threadneedle, including the last few years working closely with Julian Cane, who I'm pleased to say remains an incredibly knowledgeable touch point on the team. Within the U.K. equity income strategy, I run an open-ended fund called the CT UK Monthly Income Fund as well as a number of institutional portfolios amounting to about GBP 1 billion of assets if you include the trust. What do I hope to achieve as I take this trust forward? Well, it's my hope that our shareholders will continue to regard the trust as a go-to place to park their hard-earned savings and see that capital increase over time while also receiving that sustainable income stream that grows every year year-on-year. Whether you take that income or harness the full power of compounding by reinvesting your dividends, I'm really excited to putting my energies into driving the trust forward into the new era. But let's just recap what this company has delivered to you so far, and there's no better place to start than the dividend. And it is an incredible record of income delivery to take forward with only 13 other trusts able to match this kind of vintage of growing the dividend every year and many of those delivering deeply submarket yield. So it really is one amongst a few. And we have grown it again in the most recent financial year and every expectation of doing the same as it has done in every year since its launch in 1992, achieving a sizable 280% increase on the starting level of the dividend, 3.4p, which compares pretty favorably with CPI over the same period, increasing about 120%. I want to be crystal clear. There will be absolutely no change to our ambitions here, and extending this record will remain a core focus as we take the trust forward. And on the next slide, I think it's worth dwelling for a moment on the pound note example of the impact this performance has on a notional GBP 1,000 invested at this inception of the trust. And here, we show the steady accumulation of payouts for our hypothetical shareholder who invested their capital on launch in that -- those dark blue bars. The light blue bars show what the same investor would have gotten from investing the same amount in the U.K. market index fund. And the orange line in that chart shows where a standard savings account would have got you, which is, I think, food for thought for the GBP 400 billion-odd funds and cash ISAs. So in hard numbers, if you invested that GBP 1,000 of capital on launch of the trust, so far, you would have been paid out GBP 2,631 versus the GBP 1,000-ish for the market. And of course, that's totally separate to your capital, which remains safely invested, gradually compounding in step with the value of the underlying portfolio. So what would that look like in total return terms if you had invested with us for a long time? Well, over the long term, in that chart on the right-hand side, you can see that there's a picture of steady value creation with the share price stretching over 560% over Julian's 28-year tenure and beating the benchmark handily, which was about 528%. Over the recent past, on the left-hand side, as we all know, the market of late has seen a very unusually high concentration of returns coming from the very narrow range of mega cap stocks, which has proved less favorable for near-term performance of the trust, which, although it did post double-digit returns in 2025, does tend to hunt lower down the FTSE 100 and into the FTSE 250, so lag the market accordingly. But later on, I hope to give you a sense of why we are cautiously optimistic about new tailwinds emerging for the trust and the broader opportunity set going forward. Meanwhile, we remain very focused on building on this multi-decade value creation story for our shareholders, a vital part of which is that income stream that helps you beat inflation over time. So how do we plan to achieve this? Well, our investment approach on the long-standing U.K. equity income franchise here at Columbia Threadneedle is grounded in core principles of investing based on fundamentals with a value contrarian lens. I'll touch a little bit more about what that means in a moment but first, just a reminder of where the trust fits in, in Columbia Threadneedle Investments. The group itself is a very stable and deeply resourced platform from which to manage your trust. There's about GBP 0.5 trillion of AUM, over 500 investment professionals, 18 countries, over 200 dedicated research analysts. And on the U.K. desk specifically, we are one of the best resources you'll find in the city, 8 portfolio managers and then a 12-strong bank of central research analysts, that research engine providing rooms of high-quality, differentiated research on the companies that matter. And the heritage of the team from before when we joined forces with the former F&C Fund Management business is as a leading U.K. equity income franchise with a very well-defined DNA, which has been decades in the making as bottom-up contrarian investors. And in a minute, we look at how this heritage feeds through to stock selection. So how do we try and do this? Well, the portfolio as a whole, will always remain balanced. But for new positions, we look for names that are out of favor with the market and typically have underperformed materially. This can be for a whole range of reasons, often leading to what we are on the desk referred to as change situations, where unlike a business, which is just churning out 10% earnings growth year-on-year-on-year, the market can really struggle to price cash flows effectively. This is where self-help is king, interrogating financial statements through cycles is critical and really immersing yourself in the web of personalities involved is essential. Often, it can mean finding average businesses priced as poor ones as well as finding those great businesses valued as average ones. And that's our classic hunting ground for new ideas. And right now, we do think there's a lot to go after. We are firm believers that, unlike some of our peers, we want our investors to share an award from picking winners, not just from that initial phase of the turnaround but then continue to reap the benefits as these businesses carry on through their recovery trajectory to become the capital growth engines of the portfolio. So drawing that together, underpinning our balanced approach to the portfolio as a whole, we'll have a range of vintages from which you can see in the boxes at the bottom of this slide from newer, sometimes higher risk positions where there's lots of change, cash flows are inflecting. We're trying to notch up a time series of improving numbers to those more established average risk businesses where the recovery's a bit more entrenched and catching the wave of the business cycle can lead to strong returns. And then, of course, as those defensive stores churning out growing dividend income streams come wind, rain or shine. And although organic growth can be less exciting in those defensive sectors, the power of income generated from these guys should never be underestimated. And more broadly, there are few -- fewer places than the U.K. market where that power of income is more apparent. And if you were to decompose the total return of the U.K. market over the last 100-plus years, actually, most of that return comes from reinvesting your dividends. So we think we're on to a good thing. On the next slide, what we see is it's a chart that I actually really like, shows a breakdown by sector of the cash flow streams, which form the dividend of the trust. And we want to be clear that the dividend stream of the trust is not just an afterthought. It's not an output of anything else. We think carefully about how we want to structure it. And we want -- what I want you to take away is that the resilient nature of many of these businesses, we're talking insurance companies, soap sellers, beer brewers, drug makers, which is in stark contrast to the market yield, which is dominated by much more economically sensitive cash flows of banks, oil, miners, which provide actually about 40% of the whole market yield, where the trust is about half that in those sectors. And in fact, considering the top 30 contributors to the overall market yield, which generates about 70% of it, so the vast majority, we only have exposure to about 12 of them. So what we're trying to give you is a really differentiated source of income. So turning to how this approach is put to work for you, our shareholders. I want to emphasize the high degree of continuity that will come with the handover from Julian to myself. We have worked together for years and the majority of the names in the portfolio are well set to continue driving shareholder returns for years to come. There has been activity in recent weeks, which will begin to abate, and in fact, most of that's done. It's centered around tilting the portfolio in line with the more refreshed approach. What does this mean in practice? Well, I mean the portfolio is packed with lots of great ideas, long-term winners. Much more of our work has been around flexing those weightings and exposures to fine-tune the trust for making the best of the period ahead as we see it. So by way of example, OneSavings Bank, OSB, specialist lender, which follows the trust, will know has been a long-standing position. It's delivered a staggering 480% return since the trust picked up those shares on float in 2014. And that one, we are taking the chance to book a slice of those profits to reinvest in new ideas, but it very much remains a big position for the trust. An example of a position that we've added to is Rentokil, a pest control business, one that we own in the rest of our income funds, I think represents a really brilliant contrarian prospect at the moment. So we've taken the opportunity to build up that position as the building blocks start to fall in place for a recovery in its underlying business. An example of a position that we've chosen to recycle, Experian, a credit scoring business that has been regarded as very high quality in the past, delivered good returns but is facing into some structural questions about the defensibility of its market positions in the world of generative AI. And it's also a low yield. So for choice, we've chosen to -- we've made choices, which we hope will enhance the yield of the overall portfolio. So that's been recycled into some new holdings, and of course, there's a few of those. We tended to try and bolster that dividend generation power as well as stock that capital growth engine with plenty of fuel for the years ahead with our contrarian value picks. So how does this shake out for the overall look of the portfolio? Well, this slide provides a glance at the shape. Many of those names will be familiar as long-term holdings. And indeed, OSB, you can see, remains our highest active weight versus our benchmark for FTSE All-Share. Unilever, Glaxo, London Metric, Rio Tinto, Pearson, Smith & Nephew, AstraZeneca, Shell, these are all long-term stores of your portfolio, and they're stores still. New positions, you'll see here, precision engineering firm, IMI, one of the long-standing high-conviction picks on the income strategy; tobacco name, Imperial Brands; Asian-focused bank, Standard Chartered. These are some of our best ideas in the open-ended funds, which we're really excited to start delivering for the trust. In terms of sector exposure, we'll look to retain a balance always [indiscernible] rather than taking a sector view. But you can see here, we think there's plenty to be interested in, in consumer discretionary, real estate. Staples, too, has seen a lot of stocks at extreme lows versus the hotter sectors globally. Interestingly, in the market yesterday, we saw some of that reverse. So more of that to come should help us, while we're less enamored by some of the names in energy and technology. And financials is somewhat skewed by the inclusion of investment companies actually in that benchmark, so we're not deeply underweight as that would imply. Turning to some of the key portfolio characteristics. We are a focused conviction investment team, so we'll never run with a huge perfusion of holdings. So our number of holdings will remain in the 45 to 55 range. This allows us to back our conviction in size where we want to while leaving enough oxygen at the smaller end of the weighting range for newer or slightly higher risk investments to still move the dial. Market cap is obviously another important factor we take into account on position sizing. And the range of investments across the spectrum, you can see in the chart on the left here, is fairly evenly spread with a slight bias to the lower end of the FTSE 100 and top end of the FTSE 250. That said, if you take a weighted average of the whole portfolio, the market cap you get is GBP 37 billion. So not small, weighs in about -- that would weigh in about the top edge of the -- or the bottom edge of the top 20 in the FTSE 100. Dividend yield, the portfolio currently running at 3.7%, so a handy premium to the market, which is on about 3.1%. Our best guess on a forward-looking basis, which is subject obviously to assumptions on the movements of price and dividends in the year ahead, is just over 4% for the trust, so decent dividend growth and the market on a slightly lower 3.3%. And looking through the portfolio's holdings in terms of regional sales exposures, the obvious point here to make is that when you look at those lighter blue bars or -- yes, the lighter blue bars, the U.K. market is far from a mirror image of the U.K. economy, which is important to point, to reiterate. We continue to be a global market underpinned by world-class institutions and professional services, unalienable property rights and the rule of law, all elements, which I do think are worth highlighting because it's a scarcer investing environment than it was a few years ago in the present day. Now our exposure to the domestic economy is higher than the market. We're about 40% of underlying revenue to the U.K. economy. And it's important to highlight, we've not gone out to over-index to the U.K. economy, but it is somewhere where there's just an abundance of stocks, which fits our process. We -- but we tend to light on genuine market leaders in what they do, so builders' merchant, Travis Perkins; [ ITV ] in real estate; Land Securities and LondonMetric; construction services firm, Morgan Sindall; Marks & Spencer, Sainsbury's, all leaders able to expand the categories in which they compete. They're not hostages to fortune. They're driving their own momentum, which brings us more broadly to how we view the world at the moment. And I won't spend too long on these bullets as we have got some charts that I would like to show you, but it seems clear to us we are shifting to a new paradigm on geopolitical and technological fronts. These are profound changes, which will continue to ripple through our markets. And the seismic shift, which is certainly of at least equal important to us, is one that we're still adjusting to but which isn't so novel, which is where suddenly from having a period post GFC, where interest rates were near 0 for years and really kind of plummeted at the height of COVID, we're now back in an era where money costs money and interest rates won't be returning to those near 0 levels. And it's hard to overemphasize how profound a change that is. But it's one that we think is -- you can quite clearly see in some of the stylistic trends that are playing out in the market. What I'm trying to show on this slide is how both investors with a more pronounced growth and a more pronounced quality style have found life a bit tougher after that halcyon era post GFC. And here on the left chart, I've charted what an index populated only by growth stocks, how that has performed by an index populated only by value stocks, both at a global level, which realistically is just populated by a lot of U.S. companies and then at a European level, which includes U.K. That's the dark blue line in the left-hand chart. The lines -- when the line is going up, that suggests growth is outperforming the growth investment style. And likewise, when the line turns down, that shows value has started to outperform growth. And what you can see is there's a long period where growth was [ transing ] value as very low nominal growth world, anything that could promise any growth or pricing power was favored. But what you can see here is that, in this part of the world, especially, I'm talking U.K. and Europe, there has been a stark reversal in fortunes over the last 3 years, which has coincided with that normalization of interest rate policy and the return of inflation. Higher borrowing costs have all sorts of implications for businesses and investment. But a really simple one is that, for the growth companies, most of their valuation comes from their far-out earnings expectations of high growth. And if the risk-free rate being offered by central banks is higher, then the discount rate at which you discount those future cash flows has to go higher and the value of those future cash flows has to go lower. So you do have a mechanistic devaluation of a lot of those names, and I think it's clear to see that, that has begun to come through but we think could have further to run. The chart on the right shows a similar picture where -- so good quality businesses that have made hay for years from their strong pricing power, in particular, enable -- which has enabled good top line growth in a time of scarce volumes in the COVID era, has really started to reverse as well because they took this pricing way too far and further emboldened by investors crowding into their shares. So the valuation unwind from this is still playing out. And through some adjustments to your portfolio, we do expect to be on the right side of this trend as it continues. Now in this destabilized environment more broadly, the attractions of the U.K. market often tend to grow because we have a perfusion of traditionally more unloved and defensive and generally old economy names, companies which are often dismissed as unexciting and lacking the sparkle of promising tech-driven future riches. But what they are is tried and tested businesses, which generate predictable cash flows or simply operate in sectors of the market, that the market has lost interest in. So it's a hugely fertile hunting ground for contrarians like us who understand the power of dividends, seek to maximize the opportunity of the market where we're being offered valuations across the whole swath of the investment landscape, which are incredibly appealing. So with this in mind, as we consider the starting point for where our market is, we do think it's a good one relative to other more consensual places. What you're looking at in the chart on the left, showing the U.K. market and the chart on the right showing the U.S. market. And the chart takes dozens of historic starting price-to-earnings ratios that have been on offer across the last 40 years and then looks at what your average return each year for the next 10 years would be if you invested at that valuation point. And the signal is that when you have sent your marginal pound over to the U.S. market, for instance, at these levels, your average yearly return for the next decade has been the square root of not very much at all. By contrast, for the U.K., when you've invested at the current valuation level measured by price to earnings, you've got a surprisingly respectable 7.5% per year. Now as you may say that the U.S. has all sorts of advantages, and you'd be right in many ways, the lack of big technology names in the U.K. is often seen as a handicap, but we do think it represents a pretty helpful offset for the bubble-like backdrop of other AI-infused CapEx manias. Guaranteed overspend is underway, we think, in the U.S. And they're all competing not to be the loser, but what that guarantees is that only -- there will be losers out there and a huge amount of capital disruption taking place. So given that, what may also surprise you is that despite the lack of cutting-edge technology or characters like Elon Musk in our market, for better or worse, U.K. stock markets still haven't actually lagged U.S. counterparts in delivering solid earnings growth over the years. The aggregate earnings per share of the FTSE 100 over nearly a quarter of a century has been about 8.2% per year versus the S&P 500's 8.7%, so actually not very far short. And while the U.K. investment and political ecosystem is less likely to deliver companies such as NVIDIA that promise eye-catching AI-driven price returns, what it does have is a track record of steady earnings and dividend growth over the long term. We think all of this is quite interesting, especially given seemingly most U.K. pension funds, asset allocators and a lot of retail investors are all still [ max ] along the U.S. And what we're not saying is we think the U.K. domestic economy will uncover some kind of economic miracle. And the important thing to remember is it doesn't need to for us to make really good money from here. And just as -- although we like to iterate that we are a global market by revenue composition, we do accept that the perceptions will always be disproportionately colored by domestic affairs. And on the domestic front, it's not as bad as the Daily Mail would have you believe. We were the second fastest-growing economy in the G7 last year. And this year, the IMF, who are not renowned as diehard in the world Anglophiles have us as the third fastest-growing economy this year behind the U.S. and Canada. Elsewhere, the U.K. consumer and corporate balance sheets are in really good health. From being a very indebted society, we've seen enormous deleveraging over recent years as those household balance sheets have moved from just, in 2008, GBP 750 billion of net debt, we're now just recently shifted into GBP 60 billion of net cash. And that is driven in part by the savings ratio, which is staying stubbornly high in double figures in the kind of realm of 10% to 11%, which is a function of confidence in our national leadership in finances, which you can see because people's confidence in their own personal finances is much better. And we think a normalization of the savings rate alone could represent a full point boost to GDP growth. So it's a real lever. And that gentle easing of financial conditions should continue as policymakers watch on as inflation drifts down and we can get into some of the inputs into that later on and labor markets do soften. This paves the way, we think, for further interest rate cuts and a normalization of spending from those businesses, which you can see in the chart on the right, where confidence in spending isn't actually too bad to -- and consumers alike. And we have seen long-term bond yields coming down this year, which is remarkable considering we haven't actually heard from Rachel Reeves since the budget, but maybe that tells you what the market thinks about her particular contributions. House prices are stabilizing. Mortgage approvals are picking up and sterling is at 4-year highs versus the dollar. So we don't think it is as bad as the headlines would have you believe. And when it comes to the unlocks, I think it's worth emphasizing just in that chart on the top right what an important lever the housing market itself is. And as those interest rates come down, the release on mortgage borrowing costs, the increase in mortgage transactions and the gentle uplift on the housing market should start to deliver a really unique wealth effect for the U.K. populace, where, in the U.K., our housing market is worth 3.5x the size of our stock market, where the equivalent statistic in the U.S. is 0.8. So it's a really important lever for emboldening people to feel a bit better about the world and go out and spend. So we'll be watching that closely this year. So just to close on our North Star of valuation, this chart is quite simply trying to tell you, despite our market doing 24% last year, and it's actually already up over 5% this year, you have not missed it. But you're not the only ones thinking about it. There's M&A activity, is showing signs of life. We've had takeover interest in several U.K. companies, bids starting to emerge. We've had -- we've got the IPO market reopening, a few names on the slate coming, and we'd expect more, especially from PE who are struggling to sell their businesses. And this is all emboldened by the path of monetary easing, the easing of financial conditions, further rate cuts to -- over the course of the year, which all together supports strong shareholder returns on offers. And in the U.K. market, if you -- as we know, buybacks have become a huge theme as companies buy back their shares, which are trading at discounted levels, combining that dividend and buyback yield on U.K. stocks. You won't find a higher overall shareholder distribution yield in any other market globally. So we think that's really interesting. All these factors and the building blocks that I've alluded to today feed our optimism that the trust is fighting fair for the path ahead, and we're really excited for the future of this company. We have the resources and the opportunity to take it forward, keep delivering on our core objectives for shareholders and what we see as a really compelling proposition for savers and investors. And you'll be greatly relieved to hear that, that concludes the remarks that I plan to make. I hope that's given you a flavor of who we are and what we're about. Thank you so much for listening, and I'll be very happy to take any questions.

Thank you, Dominic. Thank you very much for that. My name is Peter Brown. I'm part of the investment trust team at Columbia Threadneedle. And may I say welcome to the team, Dominic. You got big shoes to fill, but it's -- you've started very well. You've given a great insight into the portfolio and your expectations for the future. Thank you, everyone, for your questions. Please continue to submit them. We'll get through as many as we possibly can. And just to remind you, the presentation will be available for download post the webinar. So Dominic, if you don't mind, I'll start by merging 2 questions, which are relatively similar. One is -- or both for you. One part is where will your approach differ the most from Julian's and should shareholders expect portfolio changes over the next year. And I'll combine that with, given your background and current management of other funds such as the monthly income, is it fair to say you're naturally more value-orientated. So will it bring more of a value-tilted approach to CTUK? I appreciate the underlying focus won't change, but Julian was more style agnostic. So this will be -- will this see the naturally different opportunities kick up on your radar?

Yes. Thanks for those questions, Peter. I mean I'd say, look, I've worked with Julian for years. So there's not -- I wouldn't characterize my taking up the reins from Julian as some kind of major break from the past. It's an evolution. And Julian is an incredibly experienced investor. He remains on the team and remains involved as a touch point and part of the debate that we're constantly having on the desk on the merits of stocks and markets. Where do I differ stylistically? I think it is fair to say that there will be a slightly more value contrarian tilt to -- particularly to new positions for the trust. That is we -- as a U.K. equity income franchise that preexisted joining forces with the F&C fund family, we have a way of doing things, a DNA that has been decades in the making, and it's delivered a very strong performance track record. And definitely, some of that philosophy, you'll be able to see feeding through into the trust. Where I think it's important to highlight is that, that is very much the case for new positions. But taking the portfolio as a whole will -- you would see a much broader blend of companies. So it's not just value names in there. It's names which have started life in our strategy as value contrarian turnaround names but have really kind of traveled, evolved through the initial phases of the turnaround where you get the recovery of earnings, the recovery of the PE rating, which gives you a great big flush of return. But then we continue to hold those as they become cash flow and capital compounders for the portfolio. So there's plenty of stocks in the portfolio that you would think might not be -- they're not at the kind of the hair shirted end of the value spectrum, but they're long-held stocks, which we're excited to get into the trust.

Okay. And then another question, which is along the same lines. Given your contrarian investment style, how do you avoid value traps?

I mean that's a very good question. And it comes with the territory of our investment style. We kiss a lot of frogs, to coin a phrase, and we'll look at a lot of businesses before perhaps only 1, 2, 3 ideas a year will make it into the portfolio. So we try and be very disciplined about the situations that we're getting into. And we'll carry out a lot of -- a deep research process before becoming involved. And that will involve not just going through the financials of the business and meeting the management but speaking to -- through our kind of our network of nonexecutives, chairman, advisers and really trying to kind of triangulate what mean reversion will look like in any particular business. What are the major problems here? Do they have the right people in the right roles to deliver a solution? And then while investing would be easy if you could be 100% certain at the point that you invest and you never are. So we'll tend to have a -- if we get to the point where we have conviction that there's an asymmetric setup, so whereby we think our downside is actually much less than our potential upside from getting it right, then we'll have a starting position. And as building blocks drop into our investment thesis, we'll build up that position. So we'll try and build up our position incrementally, noting that sometimes you get these things wrong, and so you need to manage your risk in that regard.

Certainly. Okay. Thank you for the insight. Quick question. How benchmark aware are you? Do you have any firm boundaries for your positioning relative to benchmark?

I mean we're relatively unconstrained, I'd say. We understand the market in which we operate, and we do have a formal benchmark of the FTSE All-Share. So we'll be unafraid to take strong benchmark -- strong off-benchmark positions or strong active positions, I suppose, when our conviction dictates. So I would say we're not benchmark constrained, and we want to deliver you an active share to earn our fee. But we're not completely oblivious to the shape of the benchmark.

Understood. A question here from a shareholder. Can you bring one of -- to life one of your holdings that you're keen on and why you're keen on it, please?

Yes, absolutely actually. I mean I'll talk about one of the -- one of our newer holdings. I'll just flick through. I've got some stock examples in the appendix. And it's a contrarian position, not in the trust before but one which I have introduced, a business called Croda, specialty chemicals business. They make clever bits that go into face creams and fragrances. And it has been a very well-regarded business in the past, and it's delivered high 20s returns on capital, mid-20s margins, good top line growth and very specialized, got lots of intellectual property. So you may say, why has this come up on our radar as value contrarians. Well, the share price chart on the right, you can see, has something to do with that. And in the post-COVID era after which there was a huge spike in volumes and pricing, there's been a huge destocking cycle in a lot of their end markets. The share price has accordingly fallen precipitously. The shares fell back to about kind of 13 to 14x price to earnings, offering a yield over 4%. And that came up on our -- we have a quantitative screen, which tries to pick up businesses, which have deeply underperformed the market over a 3-year period. And we'll score it according to various other contrarian metrics. And that just kind of starts to form our ideas pool for things that we should start to look at. And in the case of Croda, it delivered that deep underperformance. And that tells you that it's very unloved by the market, which can happen for any number of reasons. This can be because of the economic cycle and the underlying business being the P&L getting very heavily hit. It can be because they've done deals at the wrong price or the wrong time or it can be because management -- the market confidence in management has grown a little bit stale. They might have made a couple of questionable calls. And to an extent, Croda did all of these things. So that became our starting point for going out and trying to kind of get to know the business. We -- one of our central research analysts has created a model, and we've got -- we modeled it going back, looking at how the shares in the P&L behaved through past cycles. We've gone to -- we've spoken to management, former CFO, who we know who's a director on various other companies. They appointed a chairperson who had just come from chairing one of our businesses, which got acquired recently. So we had a good interaction with her, explaining what she thought about the business, what needed to change. They also appointed a new CFO. There's been quite a lot of churn in CFOs, and they appointed a new CFO from a business we have elsewhere in the portfolio, who we know what his skills are. He's come in, unveiled a cost-saving program, which alone actually gets them quite far back towards their margin level, which they were before. And then we start to build a case for what mean reversion could look like in this business and built up our confidence enough to start a position. Now of course, we don't know when the underlying cycle is going to inflect positively for them. So as those signs start to slot into place, as they start to hit their cost saving targets, then we can build up that position. But we're really excited for the potential for this to become a really strong capital growth generator for the trust, and in the meantime, we're getting paid an above-market yield while we wait, so one that we're very positive on. And hopefully, that gives a little flavor for how we go about investments.

Yes, indeed, very, very interesting. Moving slightly to gearing. Can you talk about the approach to gearing? What factors would lead to changes in the gearing level?

I mean, I think, coming from the pools for the open-ended fund side into the investment trust structure, we've got a deep amount of experience in the company, not only in Julian but in a lot of other very, very long-standing investment trust structure. So there's a deep well of experience that I've been able to sit down with, understand their thought processes around using these kind of unique advantages that a trust have. And gearing is something that I see as a really important tool for optimizing the risk/reward on the trust. And it's something -- our gearing at the moment is in the realm of about 5% or 6%. I've ticked that up slightly in the last month or so. And as I see opportunities in the investment landscape, as I do at the moment, I would expect that to slightly nudge up. And looking at our peer group, the average gearing is about 10%. And I wouldn't expect us to move right up to that level in short order, but as opportunities present themselves, I think it's a really important tool for the trust to use to try and optimize returns. But absolutely, it's something where, in the reverse conditions, it can work against you. So it's a really vital tool, which I plan to utilize certainly.

Yes. Obviously, it's a great benefit for the investment trust wrap, as you say. And I think we'll end on this question then, and thank you all for your questions. This is large amounts of U.K. businesses -- business revenues are generated overseas. But in terms of non-U.K. opportunities, how do you see the trust's exposure to overseas stocks panning out under your management?

It's a very good question. We -- I mean, we, in the U.K. market, have some world-class businesses that derive most of their earnings from overseas but happen to be listed in the U.K. So taking a couple of examples, I mentioned IMI precision engineering business. They make specialist valves, which are used in critical applications. A lot of their products go into gas turbines, which provide the electricity to data centers, where there's obviously a lot of CapEx being built out. A lot of it goes into energy infrastructure and the world is -- energy security is more important than ever. A lot of it goes into industrial automation, and we're seeing a polarization of global industrial capacity, which -- all of which provide parts for long-term demand to be supported. Meanwhile, the business itself is priced, I think, quite cheaply versus international peers. And often, this happens just by virtue of being listed in the U.K. as opposed to if they're listed in markets where the big -- the kind of the move of flows is much more towards inflows than outflows. What that creates is great valuation opportunities, and IMI has already been an extremely strong returner in our strategy, but I have every faith that it can kick on from here. As well, you've got Standard Chartered business, which is very focused on Asian banks or it's very focused in the Asian region, listed in the U.K. because the U.K. has some of the best bank's regulation -- regulatory regimes in the world and -- but it's just an incredibly strong business. We bought it in the strategy on 0.4x book. It's still not expensive, barely over 1x book. It's got a huge opportunity in Asian wealth, which is growing very strong. Meanwhile, there's still a cost-cutting program, which the CEO, Bill Winters, has made strong progress in. So another example of a world-class business, which is listed here but derives most of its earnings from overseas. And that's before you get into a lot of the staples where we have large positions in the trust, whether that's Unilever and Imperial Brands, British American Tobacco, where -- which again derive most of their earnings from overseas but I think are really well placed to recover from very oversold levels. So there's huge valuation opportunities in those -- in the international cadre of businesses, which we expect to continue driving returns. We're absolutely on the lookout for names in the market at the moment where we're seeing a lot of volatility. Yesterday, the sell-off was extraordinary in a lot of names related to software and AI CapEx, but the U.K. market was buoyant. And I think that's -- for me, that's really a kind of a taste of the -- what a possible future, whereby just the magnitude of flows, which have flowed into the U.S. market, in particular, from all over the world in the last decade or so doesn't need to change very much for a huge amount of liquidity to return to our shores. And those international businesses will benefit just as much as the domestic ones, which have been starved of that liquidity, starved of those buyers. So I'm -- I feel quite constructive about the opportunity set in both the domestic and the international side of our market.

Wonderful. That sounds very exciting, and we wish you the very best for the year and for the future years. We'll close there. I'd just like, if you don't mind, ask you to summarize in 30 seconds or so, and then we'll hand back to the moderator. Thank you.

Thanks, Peter. And well, thank you very much for taking the time to listen to me today. I'm -- I want to emphasize the continuity from Julian, his incredible 28-year tenure. We will be posting all our energies into sustaining that very strong track record of dividend growth and long-term value creation. And we're very excited for the years ahead and taking this trust into the new era. So thanks for listening.

Fantastic. Thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations? On behalf of the management team, we would like to thank you for attending today's presentation, and good morning to you all.