REG - Edinburgh Inv. Trust - Half-year Report
23/11/2022 07:00
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RNS Number : 2758H Edinburgh Investment Trust PLC 23 November 2022
The Edinburgh Investment Trust plc
HALF-YEARLY FINANCIAL REPORT
SIX MONTHS TO 30 SEPTEMBER 2022
23 November 2022 - The Directors of the Edinburgh Investment Trust plc ("the
Company") have today announced the interim results for the period ended 30
September 2022.
Highlights
· Total Return Net Asset Value (with debt at fair value) fell by 8.2%
compared with a fall of 8.3% for the FTSE All-Share Index
· The refinancing of the Company's debenture at end September 2022,
and the resulting debt-driven boost of c.4% to NAV, has offset
underperformance at the portfolio level over the six-month period
· First interim dividend, declared on 26 October, up 6.7% from 2021
at 6.4p per share
· Net gearing at 30 September 2022 of 4.4%
· Share price discount to NAV widened from 7.7% to 10.6% in the six
months to September 2022 but has tightened to mid-single digits since the end
of the period
· Since management of the trust moved in March 2020, the cumulative
NAV return of +41.2% and the share price return of +44.1% have outperformed
the FTSE All-Share return of +31.3% (all in total return terms)
Elisabeth Stheeman, Chair, said: "This has been an active six months for the
Company. In addition to the normal day-to-day business of managing the
portfolio, there have been changes to the debt structure, a first interim
dividend announced and the welcome return of our in-person events for
shareholders.
Since the current Portfolio Manager began day-to-day management of the
Company's portfolio at the end of March 2020, the cumulative NAV return has
been +41.2% and the share price return +44.1%, compared with the FTSE
All-Share return of +31.3%. Delivering returns above that of the index over
all longer-term periods remains a key priority.
There are many reasons to be positive and the Company is in a strong position
to take advantage of the attractive opportunities that are now arising, as
well as to continue with the important business of working with existing
holdings that underpin the income and capital value of the portfolio. Things
are in good health and this should support attractive returns to shareholders
in the years ahead."
James de Uphaugh, Manager, said: "Equity markets gave up some ground over this
six-month period. Part of that is the general weakness of global equity
markets, part was self-made problems in the UK owing to the political
uncertainty. However, hopefully the worst of it is behind us.
The good news is that inflationary pressures are easing as commodity prices
come off their highs. Supply problems are also easing. The UK economy is
slowing, but a deep recession is not a certainty, especially if the job market
can remain robust. In recent years many consumers and businesses have become
accustomed to operating with an element of macroeconomic and political
uncertainty. As such, we think the most important thing is to produce a
diversified equity portfolio that has the ability to thrive, as well as
withstand any unanticipated shocks. On this basis we believe the portfolio is
well placed to underpin the delivery of the Company's dual objectives in the
years ahead."
ENDS
Enquiries
Liontrust Fund Partners LLP
James Mowat +44 20 3908 8822
james.mowat@liontrust.co.uk (mailto:james.mowat@liontrust.co.uk)
Montfort Communications
Gay Collins +44 7798 626282
Shireen Farhana +44 7757 299250
Ella Henderson +44 7762 245122
EIT@montfort.london (mailto:EIT@montfort.london)
About The Edinburgh Investment Trust plc
Founded over 130 years ago, The Edinburgh Investment Trust plc is listed on
the London Stock Exchange and is included in the FTSE 250 index. It invests
primarily in a portfolio of UK listed shares and has net assets of
approximately £1.1 billion. The Company's twin investment objectives for the
long term are to outperform the FTSE All-Share Index on a Net Asset Value
(NAV) basis and to produce dividend growth in excess of the rate of UK
inflation. Liontrust Fund Partners LLP became the Company's AIFM with effect
from 1 April 2022.
The Edinburgh Investment Trust plc
HALF-YEARLY FINANCIAL REPORT
SIX MONTHS TO 30 SEPTEMBER 2022
£1,003m
Net assets
553.00p
Share price
(10.6)%
Discount*
4.4%
Gearing (net)*
* Alternative Performance Measures
Investment Objective
The Edinburgh Investment Trust plc ('the Company') is an investment trust
whose investment objective is to invest primarily in UK securities with the
long-term objective of achieving:
1. an increase of the Net Asset Value per share in excess of the growth in
the FTSE All-Share Index; and
2. growth in dividends per share in excess of the rate of UK inflation
The Company will generally invest in companies quoted on a recognised stock
exchange in the UK. The Company may also invest up to 20% of the portfolio in
securities listed on stock exchanges outside the UK. The portfolio is selected
on the basis of assessment of fundamental value of individual securities and
is not structured on the basis of industry weightings.
Nature of the Company
The Company is a publicly listed Investment Company whose shares are traded on
the London Stock Exchange. The business of the Company consists of investing
the pooled funds of its shareholders, according to a specified investment
objective and policy (set out on page 14 of the Company's 2022 Annual
Financial Report), with the aim of spreading investment risk and generating a
return for shareholders.
The Company uses borrowing to enhance returns to shareholders. This increases
the risk to shareholders should the value of investments fall.
In April 2022 Liontrust Fund Partners LLP became the Company's AIFM (the
Manager) following the acquisition of Majedie Asset Management Limited (the
Company's AIFM since its appointment in March 2022) by Liontrust Asset
Management PLC. The responsibility for the day-to-day investment management
activities of the Company has been delegated to Liontrust Investment Partners
LLP. The Company's portfolio management team, with James de Uphaugh as the
portfolio manager and Chris Field as the deputy manager, has remained
unchanged. Other administrative functions are contracted to other external
service providers. The Company has a Board of non-executive Directors who
oversee and monitor the activities of the Manager and other third party
service providers on behalf of shareholders and ensure that the investment
objective and policy is adhered to. The Company has no employees.
The Company's ordinary shares qualify to be considered as mainstream
investment products suitable for promotion to retail investors. The Company's
ordinary shares are eligible for investment in an ISA.
Strategic Report
Financial Information and Performance Statistics
Six months to
30 September 2022
Total Return((1)(2)(3)) (all with dividends reinvested) % Change
Net asset value (NAV) - debt at fair value -8.2
Share price -11.0
FTSE All-Share Index -8.3
The Company's benchmark is the FTSE All-Share Index.
At 30 September At 31 March %
Capital Return 2022 2022 Change
Net asset value - debt at fair value((2)) 618.85p 686.69p -9.9
Share price((1)(2)) 553.00p 634.00p -12.8
FTSE All-Share Index((1)) 3,763.48 4,187.78 -10.1
Discount((2)(3)) - debt at fair value (10.6)% (7.7)%
Gearing (debt at fair value)((2)(3)) - gross gearing 7.3% 10.3%
4.4% 4.4%
- net gearing
Consumer Price Index((1)) - annual change 10.1% 7.0%
%
Six months to 30 September 2022 2021 Change
Revenue Return and Dividends
Revenue return per ordinary share 14.77p 13.77p +7.3
First interim dividend((4)) 6.40p 6.00p +6.7
Notes:
((1)) Source: Refinitiv.
((2)) These terms are defined in the Alternative Performance Measures
section. NAV with debt at fair value is widely used by the investment company
sector for the reporting of performance, premium or discount and gearing. NAV
with debt at par is explained in the Alternative Performance Measures
((3)) Key Performance Indicator.
((4)) Dividends declared in respect of the financial year.
Chair's Statement
ELISABETH STHEEMAN / CHAIR
DEAR SHAREHOLDER
This has been an active six months for your Company: in addition to the normal
day-to-day business of managing the portfolio, there have been changes to the
debt structure, a first interim dividend announced and the welcome return of
our in-person events for shareholders.
INTRODUCTION
Since your Company's last year end on 31 March 2022, global equity markets
have been weaker and more volatile. This reflects a number of concerns,
including geopolitical risks - such as the war in Ukraine and the rising
tensions over Taiwan in the Far East - or economic ones, principally slower
economic growth with higher interest rates and bond yields, as central banks
around the world try to address rising inflation.
MARKET BACKDROP AND INVESTMENT RETURNS
The UK equity market has not been immune from these concerns. On top of this
we have had the added uncertainty of domestic policymaking. This reached a
peak at the Company's half year end in September, with the policy U-turns of
the then prime minister. Financial markets - particularly the gilt market -
sold off sharply. This had an indirect - but in this case helpful - effect on
your Company, as I describe further below. Fortunately those concerns have
since receded with a change in leadership in Downing Street. At the time of
writing the gilt market has returned to yields similar to those before the
infamous 'mini' Budget at the end of September. However, the outcome over your
Company's first half to 30 September was the backdrop of a UK equity market
8.2% lower in total return terms. Your company's Net Asset Value ('NAV', also
in total return terms) fell by 8.3%.
Since the current Portfolio Manager began day-to-day management of the
Company's portfolio at the end of March 2020, the cumulative NAV return has
been +41.2% and the share price return +44.1%, compared with the FTSE
All-Share return of +31.3% (all in total return terms). Furthermore, it is
encouraging to see that over three years the Company's returns are now ahead
of the index. However, the five year return remains behind the index.
Delivering returns above that of the index over all longer term periods
remains a key priority.
I would like to highlight that the NAV return I quote above is calculated by
deducting the value of the Company's borrowings at fair value. It has been our
longstanding approach to quote NAV returns on this basis (the other option
being to quote NAV after deducting debt at par value, which is not typically
market practice). For the six month period covered in this report there was an
unanticipated boost of approximately 4% to NAV with debt at fair value, which
took effect as the new debt went onto the balance sheet at the end of
September. In short, when a bond yield rises, the price of that debt
correspondingly falls, resulting in a lower fair value for the debt being
deducted from our gross asset value. The scale of the rises in bond market
yields compared with the rates we achieved a year ago on the new debt drove
this. The reason I flag this now is that this debt driven boost to NAV has
offset underperformance at the portfolio level. It is possible that some or
all of this boost may reverse if bond markets begin to recover - as they have
since the half year end.
The Portfolio Manager explores the factors behind the fall in the NAV, and of
its relative performance, in his report in the pages that follow. Your Board
regularly reviews performance with the Portfolio Manager and also examines the
investment approach of him and his team. We remain comfortable with their
approach, which remains focused on delivering attractive total returns through
a combination of dividend income and capital growth. We expect periodic
periods of underperformance in the same way that we have had periods of strong
performance since their appointment. We note that over this six month period a
diverse range of the portfolio's larger holdings, such as BAE Systems,
TotalEnergies, Standard Chartered and NatWest, made positive contributions to
performance. Offsetting this were some of the mining groups held in the
portfolio (Anglo American and Newmont), Tesco, and in the holding in the data
analytics group Ascential.
Several of the holdings I mention above are exposed to specific Environmental,
Social and Governance ('ESG') concerns. During the period the Board reviewed
the manager's approach to ESG, which forms part of the investment process. The
Portfolio Manager has included extra detail on ESG in his own report, complete
with a detailed stock example, to illustrate the process in action - and how
specific ESG concerns are addressed. I encourage shareholders to read it. ESG
is an important topic for a portfolio such as Edinburgh's and we will further
enhance disclosures and reporting in the months and years ahead.
DIVIDEND
The historic dividend yield on the Company's shares (taking the dividends paid
in the 12m to end Sept) was 4.5%. Since then, the Board has declared a first
interim dividend of 6.4p per share, which will be paid to shareholders on 25
November 2022. This first interim dividend is 6.7% higher than the 6.0p per
share declared at the same time a year ago.
The current year's dividend payments to shareholders are set to be well
supported by the portfolio's underlying income. This support continues to
improve from the 2020 pandemic lows. As the Manager notes, there has been a
boost this year as a significant proportion of income generated by the
companies in the portfolio is paid as dividends in non-Sterling currencies:
Sterling weakness has boosted dividend income. However, this currency effect
could in time reverse.
In the months ahead, the Board will consider the level of the dividend per
share to be paid in respect of the current financial year. We are mindful of
one of the Company's objectives, namely to increase the dividend per share in
excess of UK inflation. In coming to our decision on future dividends per
share we will carefully monitor the portfolio's income after all costs have
been deducted, as well as the level of UK inflation.
BORROWINGS
The Board and Portfolio Manager are firmly of the view that a well-managed,
sensibly-diversified equity portfolio should generate attractive absolute
returns over the medium term. As such, low cost long-term borrowings should
boost shareholders' returns.
The last year or so has been a busy one in respect of the Company's
borrowings. An important project completed in September 2021 when the
refinancing of the Company's long-term debt was arranged. This was in
anticipation of the maturing of the Company's debenture (a listed, long-term
debt instrument) on 30 September 2022. By prearranging the refinancing of this
debenture, the Company was able to take advantage of the low interest rates
then available. The Company has thus locked in fixed term debt instruments of
up to 35 years' maturity at a very attractive annual interest rate of 2.44%.
The rates we achieved last year should be a source of competitive advantage in
the years ahead. Had we been refinancing today, we estimate that the annual
interest rate would be approximately 4.75%.
The end result has been the successful repayment and retirement of the
debenture, which no longer features on the Company's balance sheet. It has
been replaced by four privately issued loan notes - hence the reference to
debt at fair value, rather than at market value as was the case for the
(listed) Debenture. All borrowings are fixed rate and long-term in nature:
there was a revolving credit facility with a bank, but this had not been used
in over two years and it expired in June. The manager expands on the level of
gearing in his report.
DISCOUNT
The Company's discount has ranged from 4.8% to 12.0%% over the period. At the
half year it was at 10.6%. As a Board we would like to see a tighter discount,
but we are mindful that it is a function of many factors beyond the Company's
own performance. These include market sentiment towards UK equities, towards
dividend-paying stocks, and indeed sentiment towards the investment trust
sector as a whole. Regardless of the reasons for the discount, we have in
place a share buy-back programme that modestly enhances value for existing
shareholders by buying back shares at a discount from those who wish to sell.
Over the period 1.89 million shares were bought back, representing 1.1% of the
Company's equity capital.
SHAREHOLDER COMMUNICATIONS
After two years of difficulty in meeting with shareholders face to face
because of the pandemic, I was pleased to see the return of shareholders at
the Company's Annual General Meeting in Edinburgh in July this year. We also
hosted two events in London for shareholders in September. Further events will
be promoted on the Company's website and the Portfolio Manager periodically
speaks at other industry events, again often with the content subsequently
made available on the website. A video of the Portfolio Manager discussing the
last six months and the portfolio outlook is now on the website.
OUTLOOK
At present there seem to be a multitude of reasons to be cautious. Global
geopolitical tensions, slower growth, rising inflation and the domestic
political situation all play a role. As the Portfolio Manager notes, the
latter issue has even dented the confidence of some corporate management
teams. Nonetheless, at the stock specific level there are many reasons to be
positive. Indeed, it is heartening to see markets recovering. At the last
practical date before signing this report, the share price is 627p. As such,
the Company is in a strong position to take advantage of the attractive
opportunities that are now arising, as well as to continue with the important
business of working with existing holdings that underpin the income and
capital value of the portfolio. As the Portfolio Manager describes, on this
front things are in good health and this should support attractive returns to
shareholders in the years ahead.
ELISABETH STHEEMAN /
CHAIR /
23 NOVEMBER 2022
Portfolio Manager's Report
For the period ended 30 September 2022
JAMES DE UPHAUGH / PORTFOLIO MANAGER
CHRIS FIELD / PORTFOLIO MANAGER
A BRIEF REMINDER OF WHAT WE DO
Our overarching aim is to generate attractive medium term investment results
for shareholders by meeting the two formal objectives set out at the front of
this report. We do this by managing a portfolio of equities and by ensuring
the other aspects of the Company - such as the debt structure and risk
oversight - are as strong and efficient as possible.
We take a team approach to researching investment opportunities. We are
'bottom-up' in style, focusing on individual stock opportunities - which is
where we believe we have an edge. Our emphasis is primarily on stocks that
should provide an attractive combination of income and capital growth: a total
return approach. The resulting portfolio is designed to be sensibly
diversified by stock and industry, and to be as 'all-weather' as possible by
reflecting the economic and market backdrop. We draw predominantly from UK
stocks and, for up to 20% of the portfolio, on our best ideas from overseas
too.
PERFORMANCE UPDATE
As the Chair has noted in her statement, equity markets gave up some ground
over this six month period. Part of that is the general weakness of global
equity markets, part was self-made problems in the UK owing to the political
uncertainty. The political uncertainty undoubtedly hinders sentiment towards
UK equities. It is also unhelpful for company management teams. However,
hopefully the worst of it is behind us: a more credible set of leaders is in
Downing Street, and there is a dawning realisation in parliament that economic
nettles need to be grasped. The portfolio's performance against the index over
this period was a little weak. Part of the underperformance was a function of
weakness among several of the midcap holdings in the portfolio. Given the
weakness in equity markets, and of the portfolio as a whole, the effect of
leverage slightly increased the underlying underperformance.
In terms of stock specifics, there was weakness among some of the mining
stocks, such as Newmont and Anglo American - we remain happy with both, but
have reduced Newmont a little (see profile in box); and mid cap holdings such
as Ascential, Marshalls and Dunelm. The latter two have significant exposure
to the UK and are seeing trade slow but their market positions remain strong.
Positive contributors included BAE Systems - the dreadful events in Ukraine
are a prompt for investment in defence systems around the world, NatWest -
this bank should generate further improving returns for shareholders even in
the face of softer economic growth; and TotalEnergies, which continues to
drive its portfolio into renewable energy in an impressive way.
TRADING ACTIVITY
Changes in the portfolio are typically modest over any six month period. This
is in keeping with our general approach of holding stocks for three years or
more on average. Nonetheless, we do gently change the composition and this
period has been no exception. Notable purchases have included:
- CNHI: an agricultural equipment company, it manufactures under the Case
IH, New Holland and STEYR brands. It is the second largest global
manufacturer, behind Deere. The long-term outlook for agricultural equipment
is strong: food production efficiency needs to improve. In the shorter term,
high crop prices and low inventories are supportive. The company also has
attractive financial characteristics: it should be net debt free next year and
pays a reasonable dividend yield. In our view there is scope for shareholder
returns to improve substantially.
- We added to our WPP holding post results. The fragmentation of the
digital and media landscape increases the value of a global player that
clients can use to optimise their marketing spend in a fast evolving market.
The sensible decision by management not to set a margin target for next year
at this stage created a sell off that is, in our view, a valuation anomaly.
During the period we also added to a selection of other existing positions
including Tesco, GSK, Unilever, Centrica and Thales. These additions were
funded to a degree through reductions to Newmont, TotalEnergies and Mondi, and
by drawing on the funds available from the Company's borrowing facilities.
We have sold the insurer Direct Line, as we are concerned about the volatility
earnings and cashflow of the business. We reinvested the proceeds into its
rival Admiral, which offers a higher growth, higher margin and arguably higher
quality and lower volatility of earnings stream than Direct Line. In addition
Direct Line is less well capitalised with higher yielding corporate debt
within the capital structure. Admiral offers an attractive 6%+ dividend yield
that should grow.
HOW WE ASSESS ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FACTORS WITHIN THE
INVESTMENT PROCESS
Our investment approach incorporates a materiality process to integrate the
consideration of key risks and opportunities, including those that are ESG
related, into the investment decision making process for the EIT portfolio. As
part of the fundamental assessment of a holding, we undertake a materiality
assessment on the risks and opportunities faced by each holding over a time
horizon of one to three years.
To illustrate, EIT is invested in US gold miner, Newmont. The following are an
example of key issues we think face Newmont:
- The opportunity that the Group has to reduce its carbon footprint and
energy costs through automation and improved efficiency;
- The risk that the Group's health and safety record deteriorates;
- The risk that the Group's relationships with the governments and/or
communities where it has operations deteriorate.
These key ESG issues are mapped on a materiality matrix alongside other
investment considerations (based on their likelihood and impact) and are
important for the following reasons:
- All these issues lead the team's engagement with Newmont. Through
engagement, the team aims to understand how Newmont is managing these issues.
This information is central to the resiliency score that the team assigns for
Newmont.
- How Newmont is managing them may also impact the team's conviction
score for Newmont in the EIT portfolio.
The 'resiliency' score for Newmont is '3' (an average score on our one 1 to 5
scale) due to: its track record of operating mines safely; providing
employment and tax revenue in remote and often reasonably poor places,
benefitting both the local government and communities; and having
science-based targets to reduce carbon emissions by 30% by 2030 and reach net
zero by 2050, helping to reduce its carbon footprint. Newmont's resiliency
score was recently reduced (from 4 to 3) in light of the decreased
efficiency of operations: the company has been facing challenges due to rising
energy costs, supply chain issues, and labour shortages which led Newmont to
downgrade its production guidance.
Finally, we assign a 'conviction' score. The team downgraded Newmont's score
to an average '3' in September 2022 to reflect the challenging operational
performance of the mines. This corresponded to a decrease in the weighting of
Newmont in the EIT portfolio. The score still takes account of the increased
attractiveness of gold (and gold miners) given the multiple uncertainties
worldwide. An economic slowdown now seems more likely given higher inflation,
which tends to favour gold. Use of sanctions by the US may also encourage more
central banks to hold more of their reserves in gold and thus may drive
additional demand for the commodity.
BORROWINGS
It is very good to have completed the refinancing of the debenture which
matured at the end of the period under review. The new debt structure has a
fixed annual cost of 2.44% and an average term of 25 years. We are optimistic
that over time the portfolio should be able to generate a return comfortably
in excess of the cost of this debt. We ended the period with net gearing (i.e.
after adjusting for cash balances) of 4.4%. At the last practical date before
signing this report, net gearing is 5.7%. Were we to have a fully invested
portfolio (i.e. no cash balances and the debt fully invested in the equity
portfolio) at the end of September, the gearing would have been 7.3%.
DIVIDEND INCOME
The portfolio continues to benefit from a rising level of underlying income
and we will work with the Board to enable them to decide on the most
appropriate level of future payouts. We have had a tailwind from dividends
that are either based on overseas profits, or are paid in overseas currencies
- especially the US dollar which has been particularly strong against
Sterling. Approximately 30% of dividends currently received are paid in US
dollars.
OUTLOOK
The UK still has the third lowest level of debt in the G7 behind Germany and
Canada, and its debt to maturity is around 14 years, which is much longer
than any other G7 country. A weak currency means interest rates need to be
higher to tackle inflation. The good news is that inflationary pressures are
easing too as commodity prices come off their highs, including for oil and
gas. Having been cautious about the inflationary outlook for the last year, it
is plausible to make a case for inflation having peaked.
Supply problems are also easing, with China tip toeing towards re-opening and
freight rates falling substantially. The economy is slowing, but a deep
recession is not a certainty, especially if the jobs market can remain robust.
In recent years many consumers and businesses have become accustomed to
operating with an element of macroeconomic and political uncertainty. The
situation today is no different. As such, we think the most important thing is
to produce an equity portfolio that has the ability to thrive, as well as
withstand any unanticipated shocks. To return to our opening comments, a
diversified portfolio is important. On this basis we believe the portfolio is
well placed to underpin the delivery of the Company's dual objectives in the
years ahead.
JAMES DE UPHAUGH /
PORTFOLIO MANAGER
CHRIS FIELD /
DEPUTY PORTFOLIO MANAGER
23 NOVEMBER 2022
Interim Management Report
The Directors are required to provide an Interim Management Report in
accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance
and Transparency Rules ("DTR"). The Directors consider that the Chair's
Statement and the Portfolio Manager's Report on previous pages of this
Half-yearly Financial Report, provide details of the important events which
have occurred during the six months ended 30 September 2022 ("Period") and
their impact on the financial statements.
The statement on related party transactions and the Directors' Statement of
Responsibility (below), the Chair's Statement and the Portfolio Manager's
Report together constitute the Interim Management Report of the Company for
the Period. The outlook for the Company for the remaining six months of the
year to 31 March 2023 is discussed in the Chair's Statement and the Portfolio
Manager's Report.
Principal Risks and Uncertainties
A detailed explanation of the principal risks and uncertainties facing the
Company can be found on pages 19 to 21 of the 2022 annual financial report,
which is available on the Company's website at
www.edinburghinvestmenttrust.com.
Since the publication of the 2022 annual financial report, the risks posed by
the war in Ukraine, inflation and the secondary effects of the COVID-19
pandemic continue to be a serious threat to the global economy. The Board
continues to monitor these situations closely and has been in regular contact
with the Manager and the Company's other service providers to assess and
mitigate the impact on the Company's investment objectives, investment
portfolio and shareholders.
Otherwise, in the view of the Board, these principal risks and uncertainties
are substantially unchanged from the previous year end and are as much
applicable to the remaining six months of the financial year, as they were to
the six months under review.
The principal risk factors relating to the Company can be summarised as
follows:
- Market Risk - a fall in the stock market as a whole will affect the
performance of the portfolio as well as the performance of individual
portfolio investments; it also includes interest rate, inflation and currency
risks; market risk may be impacted by increased volatility during the
continuing period of uncertainty arising from the war in Ukraine, energy
costs, supply chain disruption and potential further evolution of COVID-19;
- Investment Performance Risk - this is the stock specific risk that the
stock selection process may not achieve the Company's published objectives;
- Borrowing Risk - the Company has fixed long term borrowings through its
recently arranged Unsecured Senior Loan Notes. If the Company's investments
fall in value, gearing will result in an increased adverse impact on
performance;
- Income/Dividend Risk - investment income may fail to reach the level
required to meet the Company's income objective;
- Share Price Risk - the Company's prospects and NAV may not be fully
reflected in the share price;
- Corporate Governance and Internal Controls Risk - the Board has
delegated to third-party service providers the management of the investment
portfolio, depositary and custody services, registration services, accounting
and company secretarial services and therefore relies on these service
providers to manage the associated risks;
- Reliance on Manager and other Third-Party Service Providers Risk - the
Company has no employees, so is reliant upon the performance of third-party
service providers for it to function, particularly the Manager, administrator,
depositary, custodian and registrar;
- Emerging Risks - the Company may be affected by unexpected
macro-economic changes in inflation, interest rates and energy costs. It may
also be affected by the changing regulatory landscape around ESG issues,
including climate change. Whilst these risks currently exist, the extent of
them is yet to fully emerge but they are regularly assessed by the Manager and
the Board.
Other risks such as business, cyber security, strategic, policy and political
risks, as well as regulatory risks (such as an adverse change in the tax
treatment of investment companies) and the perceived impact of the Manager
ceasing to be involved with the Company, are all considered.
Investments in Order of Valuation
As at 30 September 2022
UK LISTED ORDINARY SHARES UNLESS STATED OTHERWISE
Value % of
Investment Sector £'000 Portfolio
Shell Oil, Gas and Coal 89,520 8.2
Unilever Personal Care, Drug and Grocery Stores 68,244 6.3
BAE Systems Aerospace and Defence 58,374 5.4
AstraZeneca Pharmaceuticals and Biotechnology 52,437 4.8
NatWest Banks 49,528 4.5
Tesco Personal Care, Drug and Grocery Stores 48,132 4.4
Anglo American Industrial Metals and Mining 42,886 3.9
Ashtead Industrial Transportation 36,533 3.4
RS Industrial Support Services 35,600 3.3
HSBC Banks 32,404 3.0
TEN TOP HOLDINGS 513,658 47.2
Weir Industrial Engineering 31,583 2.9
Standard Chartered Banks 30,038 2.7
Centrica Gas, Water and Multi-Utilities 29,476 2.7
Hays Industrial Support Services 26,215 2.4
WPP Media 25,017 2.3
Compass Consumer Services 24,777 2.3
KPN - Dutch Listed Telecommunications Service Providers 24,112 2.2
TotalEnergies - French Listed Oil, Gas and Coal 23,310 2.1
Smith & Nephew Medical Equipment and Services 22,684 2.1
Serco Industrial Support Services 22,580 2.1
TWENTY TOP HOLDINGS 773,450 71.0
Mondi General Industrials 21,454 2.0
GSK Pharmaceuticals and Biotechnology 20,747 1.9
Dunelm Retailers 20,628 1.9
Novartis - Swiss Listed Pharmaceuticals and Biotechnology 20,447 1.9
Newmont - US Listed Precious Metals and Mining 18,609 1.7
Greggs Personal Care, Drug and Grocery Stores 17,005 1.6
ConvaTec Medical Equipment and Services 16,911 1.5
Reckitt Personal Care, Drug and Grocery Stores 15,900 1.5
Haleon Pharmaceuticals and Biotechnology 13,315 1.2
Whitbread Travel and Leisure 13,234 1.2
THIRTY TOP HOLDINGS 951,700 87.4
Thales - French Listed Aerospace and Defence 13,061 1.2
Ascential Software and Computer Services 12,349 1.1
CNH Industrial Industrial Engineering 11,361 1.1
Admiral Non-Life Insurance 11,196 1.0
Marks & Spencer Retailers 10,798 1.0
Roche - Swiss Listed Pharmaceuticals and Biotechnology 10,586 1.0
Redrow Household Goods and Home Construction 10,267 1.0
QinetiQ Aerospace and Defence 10,219 0.9
Bellway Household Goods and Home Construction 10,087 0.9
Genuit Construction and Materials 7,650 0.7
FORTY TOP HOLDINGS 1,059,274 97.3
Marshalls Construction and Materials 6,867 0.6
easyJet Travel and Leisure 6,761 0.6
Howden Joinery Retailers 5,977 0.5
Dr. Martens Personal Goods 5,297 0.5
Intel - US Listed Technology Hardware and Equipment 5,029 0.5
EurovestechUQ Investment Banking and Brokerage Services - -
Raven PropertyUQ - Preference shares Real Estate Investment and Services - -
TOTAL HOLDINGS 47 (31 MARCH 2022: 50) 1,089,205 100.0
Governance
Going Concern, Related Party Transactions and Statement of Directors'
Responsibilities in respect of the preparation of the half-yearly financial
report
GOING CONCERN
This half-yearly Financial Report has been prepared on a going concern basis.
The Directors consider this is the appropriate basis as the Company has
adequate resources to continue in operational existence for the foreseeable
future, being at least twelve months from the date of this report. In
considering this, the Directors have reviewed the Company's investment
objective and capital structure generally. The Directors considered the
diversified portfolio of readily realisable securities which can be used to
meet funding commitments, the recent arrangement of private loan notes and
repayment of the 2022 debenture, and the ability of the Company to meet all
its liabilities and ongoing expenses from its assets and revenue. The
Directors also considered revenue forecasts for the forthcoming year and
future dividend payments and accumulated revenue reserves in concluding that
the going concern basis is appropriate.
RELATED PARTY TRANSACTIONS
Under UK Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law) and in accordance with the definition provided by Listing Rule
11.1.4, the Company has identified the Directors as related parties. No other
related parties have been identified. No transactions with related parties
have taken place which have materially affected the financial position or the
performance of the Company.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the half-yearly Financial Report
using accounting policies consistent with applicable law and UK Accounting
Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements has been prepared in
accordance with the FRS 104 Interim Financial Reporting and
- the interim management report includes a fair review of the information
required by Disclosure Guidance and Transparency Rules (DTR):
(a) DTR 4.2.7R, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R, being related party transactions that have taken place in
the first six months of the current financial year and that have materially
affected the financial position or performance of the Company during that
period; and any changes in the related party transactions described in the
last annual report that could do so.
The half-yearly Financial Report has not been audited or reviewed by the
Company's auditor.
Signed on behalf of the Board of Directors
ELISABETH STHEEMAN /
CHAIR /
23 NOVEMBER 2022
Financial Review
Condensed Income Statement
Six Months To 30 September 2022 Six Months To 30 September 2021
(Unaudited) (Unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments held at fair value - (159,708) (159,708) - 82,797 82,797
Losses on foreign exchange - (223) (223) - (48) (48)
Income - note 2 28,071 - 28,071 26,447 - 26,447
28,071 (159,931) (131,860) 26,447 82,749 109,196
Investment management fee - note 3 (722) (1,686) (2,408) (751) (1,752) (2,503)
Other expenses (504) (4) (508) (482) (4) (486)
Net return before finance costs and taxation 26,845 (161,621) (134,776) 25,214 80,993 106,207
Finance costs - note 3 (1,285) (3,002) (4,287) (1,211) (2,826) (4,037)
Return on ordinary activities before taxation 25,560 (164,623) (139,063) 24,003 78,167 102,170
Taxation - note 4 (376) - (376) (302) - (302)
Return on ordinary activities after taxation for the financial period 25,184 (164,623) (139,439) 23,701 78,167 101,868
Return per ordinary share:
Basic 14.77p (96.56)p (81.79)p 13.77p 45.39p 59.16p
Weighted average number of ordinary shares in issue during the period 170,486,924 172,182,929
The 'Total' column of this statement represents the Company's income
statement, prepared in accordance with UK Accounting Standards. The 'Return on
ordinary activities after taxation for the financial period' is the total
comprehensive income/(expense) and therefore no additional statement of other
comprehensive income is presented. The supplementary 'Revenue' and 'Capital'
columns are presented for information purposes in accordance with the
Statement of Recommended Practice issued by the Association of Investment
Companies. All items in the above statement derive from continuing operations
of the Company. No operations were acquired or discontinued in the period.
Condensed Statement of Changes in Equity
Share Share Premium £'000 Capital Redemption Reserve Capital Revenue Reserve Total
Capital
£'000
Reserve
£'000
£'000
£'000
£'000
For the six months ended
30 September 2022 (Unaudited)
At 31 March 2022 48,917 10,394 24,676 1,041,086 50,764 1,175,837
Return on ordinary activities - - - (164,623) 25,184 (139,439)
Dividends paid - note 5 - - - - (21,859) (21,859)
Shares bought back and held in treasury - - - (11,569) - (11,569)
At 30 September 2022 48,917 10,394 24,676 864,894 54,089 1,002,970
For the six months ended
30 September 2021 (Unaudited)
At 31 March 2021 48,917 10,394 24,676 945,728 61,516 1,091,231
Return on ordinary activities - - - 78,167 23,701 101,868
Dividends paid - note 5 - - - - (28,669) (28,669)
At 30 September 2021 48,917 10,394 24,676 1,023,895 56,548 1,164,430
Condensed Balance Sheet
30 September 31 March
2022 2022
(Unaudited) (Audited)
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss - note 7 1,089,205 1,218,725
Current assets
Amounts due from brokers 7,198 1,138
Tax recoverable 2,220 1,897
Prepayments and accrued income 4,747 7,789
Cash and cash equivalents 29,679 68,728
43,844 79,552
Creditors: amounts falling due within one year
Debenture Stock 7¾% 30 September 2022 - (99,874)
Amounts due to brokers (8,645) (1,316)
Share buybacks awaiting settlement - (448)
Accruals (1,434) (802)
(10,079) (102,440)
Net current assets/(liabilities) 33,765 (22,888)
Total assets less current liabilities 1,122,970 1,195,837
Creditors: amounts falling due after more than one year
Unsecured Senior Loan Notes (120,000) (20,000)
Net assets 1,002,970 1,175,837
Capital and reserves
Share capital - note 6 48,917 48,917
Share premium 10,394 10,394
Capital redemption reserve 24,676 24,676
Capital reserve 864,894 1,041,086
Revenue reserve 54,089 50,764
Total Shareholders' funds 1,002,970 1,175,837
Net asset value per ordinary share - note 8
Basic - debt at par value 592.82p 687.24p
- debt at fair value 618.85p 686.69p
Number of 25p ordinary shares in issue at the period end - note 6 169,187,037 171,078,129
Condensed Cash Flow Statement
SIX MONTHS TO
30 SEPTEMBER
2022 2021
£'000 £'000
Cash flow from operating activities
Net return before finance costs and taxation (134,776) 106,207
Tax on overseas income - note 4 (376) (302)
Adjustments for:
Purchase of investments (141,998) (174,387)
Sale of investments 113,079 168,219
(28,919) (6,168)
Losses/(gains) on investments held at fair value 159,708 (82,797)
Decrease/(increase) in debtors 2,719 (783)
Increase in creditors 359 395
Net cash (outflow)/inflow from operating activities (1,285) 16,552
Cash flow from financing activities
Interest and commitment fees paid on bank facility (14) (49)
Interest paid on unsecured senior loan notes/debenture stocks (3,874) (3,874)
Issue of unsecured senior loan notes 100,000 -
Redemption of debenture loan stock (100,000) -
Shares bought back and held in treasury (12,017) -
Dividends paid - note 5 (21,859) (28,669)
Net cash outflow from financing activities (37,764) (32,592)
Net decrease in cash and cash equivalents (39,049) (16,040)
Cash and cash equivalents at start of the period 68,728 32,570
Cash and cash equivalents at the end of the period 29,679 16,530
Reconciliation of cash and cash equivalents to the Balance Sheet is as
follows:
Cash held at custodian 2,324 2,007
Goldman Sachs Liquidity Reserve International Fund 27,355 14,523
Cash and cash equivalents 29,679 16,530
Cash flow from operating activities includes:
Dividends received 30,342 25,340
At 1 April 2022 Cash flows Non-cash At 30 September
£'000 £'000 movement 2022
£'000 £'000
Reconciliation of net debt:
Cash and cash equivalents 68,728 (39,049) - 29,679
Debenture Stock 7¾% 30 September 2022 (99,874) 100,000 (126) -
Unsecured Senior Loan Notes (20,000) (100,000) - (120,000)
Total (51,146) (39,049) (126) (90,321)
Notes to the Condensed Financial Statements
1. ACCOUNTING POLICIES
The condensed financial statements have been prepared in accordance with
applicable United Kingdom Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS 102. The Financial
Reporting Standard applicable in the UK and Republic of Ireland, FRS 104
Interim Financial Reporting and the Statement of Recommended Practice
Financial Statements of Investment Trust Companies and Venture Capital Trusts,
issued by the Association of Investment Companies in July 2022. The financial
statements are issued on a going concern basis.
The accounting policies applied to these condensed financial statements are
consistent with those applied in the financial statements for the year ended
31 March 2022.
2. INCOME
SIX MONTHS TO
30 SEPTEMBER
2022 2021
(Unaudited)
(Unaudited)
£'000
£'000
Income from investments:
UK dividends - ordinary 19,076 18,770
- special 5,693 4,954
UK zero coupon bond income 41 -
Overseas dividends 3,116 2,686
UK unfranked investment income 145 -
28,071 26,410
Other income:
Underwriting commission - 37
Total income 28,071 26,447
3. MANAGEMENT FEE AND FINANCE COSTS
The management fee arrangements are as reported in the Company's 2022 annual
financial report, being 0.04000% on the first £500 million and 0.03875% on
the remainder of the market capitalisation of the Company's ordinary shares at
each month end and paid monthly in arrears (equivalent to an annualised fee of
0.480% on the first £500m and 0.465% on the remainder). The management fee
and finance costs are allocated 30% to revenue and 70% to capital.
4. TAXATION
Owing to the Company's status as an investment company, no tax liability
arises on capital gains. The tax charge represents withholding tax suffered on
overseas income. A deferred tax asset is not recognised in respect of surplus
management expenses since the Directors believe that there will be no taxable
profits in the future against which these can be offset.
5. DIVIDENDS PAID ON ORDINARY SHARES
SIX MONTHS TO 30 SEPTEMBER
2022 2021
(Unaudited)
(Unaudited)
pence £'000 pence £'000
Third interim 6.40 10,934 6.00 10,331
Final 6.40 10,925 6.00 10,331
Total (excluding special dividends) 12.80 21,859 12.00 20,662
Special dividend in respect of previous period - - 4.65 8,007
Total paid 12.80 21,859 16.65 28,669
The first interim dividend of 6.40p per ordinary share for the year ended 31
March 2023 (2022: 6.00p) will be paid on 25 November 2022 to shareholders on
the register on 4 November 2022.
6. SHARE CAPITAL, INCLUDING MOVEMENTS
Share capital represents the total number of shares in issue, including
treasury shares.
SIX MONTHS TO YEAR TO
30 SEPTEMBER 2022 31 MARCH 2022
(Unaudited) (Audited)
Share capital £'000 £'000
Ordinary shares of 25p each 42,297 42,770
Treasury shares of 25p each 6,620 6,147
48,917 48,917
SIX MONTHS TO YEAR TO
30 SEPTEMBER 2022 31 MARCH 2022
Share capital (Unaudited) (Audited)
Number of ordinary shares in issue:
Brought forward 171,078,129 172,182,929
Shares bought back into treasury (1,891,092) (1,104,800)
Carried forward 169,187,037 171,078,129
Number of shares held in treasury:
Brought forward 24,588,605 23,483,805
Shares bought back into treasury 1,891,092 1,104,800
Carried forward 26,479,697 24,588,605
Total ordinary shares 195,666,734 195,666,734
Subsequent to the period end 809,000 ordinary shares were bought back at an
average price of 580p.
7. CLASSIFICATION UNDER FAIR VALUE HIERARCHY
All except two of the Company's portfolio of investments are in the Level 1
category as defined in FRS 102 as amended for fair value hierarchy disclosures
(March 16). The three levels set out in this follow.
Level 1 - The unadjusted quoted price in an active market for
identical assets or liabilities that the entity can access at the measurement
date.
Level 2 - Inputs other than quoted prices included within
Level 1 that are observable (i.e. developed using market data) for the asset
or liability, either directly or indirectly.
Level 3 - Inputs are unobservable (i.e. for which market data
is unavailable) for the asset or liability.
The fair value hierarchy analysis for investments and related forward currency
contracts held at fair value at the period end is as follows:
30 SEPTEMBER 2022 31 MARCH 2022
(Unaudited) (Audited)
£'000 £'000
Financial assets designated at fair value through profit or loss:
Level 1 1,089,205 1,218,419
Level 3 - 306
Total for financial assets 1,089,205 1,218,725
There were two investments in Level 3 at the period end (31 March 2022: two
investments) totalling £nil (31 March 2022: £306,000).
The position size for neither holding changed during the reporting period,
although the estimated fair value of both was reduced; for Eurovestech to
£nil (31 March 2022: £69,000) and for Raven Russia to £nil (31 March 2022:
£237,000).
8. NET ASSET VALUE (NAV) PER ORDINARY SHARE
Refer to Alternative Performance Measures for definitions of NAV - debt at par
and NAV - debt at fair value.
(a) NAV - debt at par
The shareholders funds in the balance sheet are accounted for in accordance
with accounting standards. Prior to the redemption of the £100m debenture
stock on 30 September 2022 this did not reflect the rights of shareholders on
a return of assets under the Articles of Association. Those rights were
reflected in the net assets with debt at par and the corresponding NAV per
share. A reconciliation between the two sets of figures follows. As the £120m
Unsecured Senior Loan Notes were issued at and being recorded at par, a
reconciliation is not required.
30 SEPTEMBER 2022 31 MARCH 2022
(Unaudited) (Audited)
Pence per share Pence per share
Shareholders' funds 592.82 687.31
Less: unamortised discount and expenses arising from debenture issue - (0.07)
NAV - debt at par 592.82 687.24
NAV - debt at par £'000 1,002,970 1,175,711
(b) NAV - debt at fair value
The fair value of each tranche of the £120m Unsecured Senior Loan Notes is
ascertained by the administrator by aggregating the discounted value of future
cashflows, being the contractual interest payments and the repayment of
capital at maturity as each falls due. The discount factor used for each
tranche is based on the market yield of UK Treasuries with similar maturity
dates adjusted to incorporate a credit spread. The £100m debenture stock was
redeemed in full on 30 September 2022. Prior to its redemption, its fair value
was determined by reference to the daily closing price.
30 SEPTEMBER 2022 31 MARCH 2022
(Unaudited) (Audited)
Pence per share Pence per share
NAV - debt at par 592.82 687.24
Debenture Stock - debt at par - 58.45
Unsecured senior loan notes - debt at par 70.92 11.69
- debt at fair value (44.89) (70.69)
NAV - debt at fair value 618.85 686.69
NAV - debt at fair value £'000 1,047,022 1,174,773
Debenture Stock at fair value £'000 - 102,734
Unsecured senior loan notes at fair value £'000 75,948 18,204
9. INVESTMENT TRUST STATUS
It is the intention of the Directors to conduct the affairs of the Company in
order that they satisfy the conditions for approval as an investment trust
company within the meaning of section 1159 of the Corporation Tax Act 2010.
10. STATUS OF HALF-YEARLY FINANCIAL REPORT
The financial information contained within the financial statements in this
half-yearly financial report does not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. The financial information
for the half years ended 30 September 2022 and 30 September 2021 has not been
audited or reviewed by the Company's auditors. The figures and financial
information for the year ended 31 March 2022 are extracted and abridged from
the latest audited accounts and do not constitute the statutory accounts for
that year. Those accounts have been delivered to the Registrar of Companies
and included the Independent Auditor's Report which was unqualified and did
not contain a statement under section 498 of the Companies Act 2006.
By order of the Board
SANNE FUND SERVICES (UK) LIMITED
Company Secretary
23 November 2022
Other Information for Shareholders
Directors, Advisors and Principal Service Providers
DIRECTORS
Elisabeth Stheeman, Chair
Victoria Hastings, Senior Independent Director
Steve Baldwin, Audit Committee Chairman
Patrick Edwardson
Aidan Lisser (Appointed 27 May 2022)
Glen Suarez (Resigned 21 July 2022)
REGISTERED OFFICE
Quartermile One
15 Lauriston Place
Edinburgh
EH3 9EP
COMPANY NUMBER
Registered in Scotland.
Number: SC1836
ALTERNATIVE INVESTMENT FUND MANAGER (MANAGER)
Liontrust Fund Partners
LLP 2 Savoy Court
London
WC2R 0EZ
020 7412 1700
COMPANY SECRETARY
Sanne Fund Services (UK) Limited
6th Floor, 125 London Wall
London
EC2Y 5AS
020 3327 9720
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
DEPOSITARY AND CUSTODIAN
The Bank of New York Mellon (International) Limited
160 Queen Victoria Street
London
EC4V 4LA
BANKER
The Bank of New York Mellon
160 Queen Victoria Street
London
EC4V 4LA
CORPORATE BROKER
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
LAWYER
Dentons UK and Middle East LLP
Quartermile One
15 Lauriston Place Edinburgh
EH3 9EP
THE ASSOCIATION OF INVESTMENT COMPANIES
The Company is a member of the Association of Investment
Companies. Contact details are as follows:
020 7282 5555
Email: enquiries@theaic.co.uk (mailto:enquiries@theaic.co.uk)
Website: www.theaic.co.uk (http://www.theaic.co.uk)
REGISTRAR
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds, LS1 4DL
If you hold your shares direct and not through a Savings Scheme or ISA and
have queries relating to your shareholding, you should contact the Registrars
on:
0371 664 0300
Calls are charged at the standard geographic rate and will vary by provider.
From outside the UK: +44 371 664 0300. Calls from outside the United Kingdom
will be charged at the applicable international rate. Lines are open from
9.00am to 5.30pm, Monday to Friday (excluding UK Public Holidays).
Shareholders can also access their holding details via Link's website:
www.signalshares.com (http://www.signalshares.com)
Link Group provide an on-line and telephone share dealing service to existing
shareholders who are not seeking advice on buying or selling. This service is
available at www.linksharedeal.com or 0371 664 0445
Calls are charged at the standard geographic rate and will vary by provider.
From outside the UK: +44 371 664 0445. Calls from outside the United Kingdom
will be charged at the applicable international rate. Lines are open from
8.00am to 5.30pm, Monday to Friday (excluding UK Public Holidays).
Link Group is the business name of Link Market Services Limited.
Alternative Performance Measures
ALTERNATIVE PERFORMANCE MEASURE (APM)
An APM is a measure of performance or financial position that is not defined
in applicable accounting standards and cannot be directly derived from the
financial statements. The calculations shown in the corresponding tables are
for the interim period ended 30 September 2022 and the year ended 31 March
2022. The APMs listed here are widely used in reporting within the investment
company sector and consequently aid comparability, providing useful additional
information.
BENCHMARK (OR BENCHMARK INDEX)
A standard against which performance can be measured, usually an index that
averages the performance of companies in a stock market or a segment of the
market. The benchmark most often referred to in this interim financial report
is the FTSE All-Share Index.
BENCHMARK RETURN
Total return on the benchmark is on a mid-market value basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the underlying companies at the time the shares were quoted ex-dividend.
DISCOUNT OR PREMIUM (APM)
Discount is a measure of the amount by which the mid-market price of an
investment company share is lower than the underlying net asset value of that
share. Conversely, Premium is a measure of the amount by which the mid-market
price of an investment company share is higher than the underlying net asset
value of that share. In this interim financial report, the discount is
expressed as a percentage of the NAV per share with debt at fair value (see
reconciliation of NAV per share with debt at fair value in note 8) and is
calculated according to the formula set out below. If the shares are trading
at a premium the result of the below calculation will be positive and if they
are trading at a discount, it will be negative.
30 SEPTEMBER 2022 31 MARCH 2022
Share price a 553.00p 634.00p
Net asset value per share - debt at fair value (note 8) b 618.85p 686.69p
Discount c = (a-b)/b (10.6)% (7.7)%
GEARING
The gearing percentage reflects the amount of borrowings that a company has
invested. This figure indicates the extra amount by which net assets, or
shareholders' funds, would move if the value of a company's investments were
to rise or fall. A positive percentage indicates the extent to which net
assets are geared; a nil gearing percentage, or 'nil', shows a company is
ungeared. A negative percentage indicates that a company is not fully invested
and is holding net cash as described below.
There are several methods of calculating gearing and the following has been
used in this report:
GROSS GEARING (APM)
This reflects the amount of gross borrowings in use by a company and takes no
account of any cash balances. It is based on gross borrowings as a percentage
of net assets.
30 SEPTEMBER 2022 31 MARCH 2022
£'000 £'000
Unsecured Senior Loan Notes - debt at fair value (note 8) 75,948 18,204
Debenture stock - debt at fair value (note 8) - 102,734
Gross borrowings a 75,948 120,938
Net asset value - debt at fair value (note 8) b 1,047,022 1,174,773
Gross gearing c = a/b 7.3% 10.3%
NET GEARING OR NET CASH (APM)
Net gearing reflects the amount of net borrowings invested, i.e. borrowings
less cash and cash equivalents (incl. investments in money market funds). It
is based on net borrowings as a percentage of net assets. Net cash reflects
the net exposure to cash and cash equivalents, as a percentage of net assets,
after any offset against total borrowings.
30 SEPTEMBER 2022 31 MARCH 2022
£'000 £'000
Unsecured Senior Loan Notes - debt at fair value (note 8) 75,948 18,204
Debenture stock - debt at fair value (note 8) - 102,734
Less: cash and cash equivalents (29,679) (68,728)
Net borrowings a 46,269 52,210
Net asset value - debt at fair value (note 8) b 1,047,022 1,174,773
Net gearing c = a/b 4.4% 4.4%
NET ASSET VALUE (NAV)
Also described as shareholders' funds, the NAV is the aggregate value of all
assets less all liabilities. Liabilities for this purpose include debt,
deducted at either par value or fair value as described in more detail below.
The NAV per share is calculated by dividing the net asset value by the number
of ordinary shares in issue (excluding shares held in treasury).
NET ASSET VALUE (NAV) - DEBT AT PAR
The NAV with debt at par recognises the value of the debt liability as the
nominal amount that will be repaid at maturity. For the £120m unsecured
Senior Loan Notes, this recognises a liability of £120m. This is the basis
used in the preparation of the Condensed Balance Sheet on page 17.
NET ASSET VALUE (NAV) - DEBT AT FAIR VALUE
As set out above, NAV with debt at par is the basis for preparation of the
Condensed Balance Sheet. An alternative, NAV with debt at fair value, is
widely used within the investment company sector for the reporting of
performance, premium or discount and gearing, thereby aiding the comparability
of similar investment companies. NAV with debt at fair value estimates the
current value of the debt liability rather than the amount to be repaid at
maturity. This estimates the amount that a willing lender and willing borrower
may be expected to agree on an arms length basis as the value of debt of the
same amount, contracted interest rate and repayment schedule as that borrowed
by the Company. Further detail of the valuation mechanism is set out in Note
8(b) on page 22.
RETURN
The return generated in a period from the investments.
CAPITAL RETURN
Reflects the return on NAV, but excluding any dividends reinvested.
TOTAL RETURN
Total return is the theoretical return to shareholders that measures the
combined effect of any dividends paid together with the rise or fall in the
share price or NAV. In this half-yearly financial report these return figures
shave been sourced from Refinitiv who calculate returns on an industry
comparative basis.
NET ASSET VALUE TOTAL RETURN (APM)
Total return on net asset value per share, with debt at fair value, assuming
dividends paid by the Company were reinvested into the shares of the Company
at the NAV per share at the time the shares were quoted ex-dividend.
SHARE PRICE TOTAL RETURN (APM)
Total return to shareholders, on a mid-market price basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the Company at the time the shares were quoted ex-dividend.
SIX MONTHS ENDED 30 SEPTEMBER 2022 NET ASSET VALUE SHARE PRICE
As at 30 September 2022 618.85p 553.00p
As at 31 March 2022 686.69p 634.00p
Change in period a -9.9% -12.8%
Impact of dividend reinvestments((1)) b 1.7% 1.8%
Total return for the period c = a+b -8.2% -11.0%
YEAR ENDED 31 MARCH 2022 NET ASSET VALUE SHARE PRICE
As at 31 March 2022 686.69p 634.00p
As at 31 March 2021 628.29p 600.00p
Change in year a 9.3% 5.7%
Impact of dividend reinvestments((1)) b 4.8% 4.9%
Total return for the year c = a+b 14.1% 10.6%
((1)) Total dividends paid during the period of 12.80p (31 March 2022:
28.65p) reinvested at the NAV or share price on the ex-dividend date. NAV or
share price falls subsequent to the reinvestment date consequently further
reduce the returns, vice versa if the NAV or share price rises.
The Edinburgh Investment Trust plc
Quartermile One
15 Lauriston Place
Edinburgh
EH3 9EP
www.edinburghinvestmenttrust.com (http://www.edinburghinvestmenttrust.com)
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