REG - Edinburgh Inv. Trust - Half-year Report
21/11/2023 07:00
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RNS Number : 0414U Edinburgh Investment Trust PLC 21 November 2023
LEI:
549300HV0VXCRONER808
21 November 2023
The Edinburgh Investment Trust plc
HALF-YEARLY FINANCIAL REPORT
SIX MONTHS TO 30 SEPTEMBER 2023
21 November 2023 - The Directors of the Edinburgh Investment Trust plc ("the
Company") have today announced the interim results for the period ended 30
September 2023.
Highlights:
· Net Asset Value (NAV) per share (with debt at fair value) on a total
return basis increased by 4.5% compared to the 1.4% return on the FTSE
All-Share Index
· The share price total return was 3.3%
· First interim dividend declared on 25 October 2023, up 4.7% from the
same period in 2022, at 6.7p per share
· Net gearing (debt at fair value) at 30 September 2023 of 4.1%
· Share price discount to NAV moved from 7.5% to 8.7% in the six months
to 30 September 2023
· Since James de Uphaugh became Manager of the Company in March 2020,
the cumulative NAV return of 73.3% and the share price return of 81.2% have
outperformed the FTSE All-Share return of 49.5 (all in total return terms)
Elisabeth Stheeman, Chair, said: "Your Company has produced a Net Asset Value
(NAV) total return of 4.5% over the period, and a share price return of 3.3%.
These compare with 1.4% for the comparator FTSE All-Share Index. It is
pleasing to be able to record that the NAV return now also exceeds that of the
index over five and ten years, reflecting the strong progress on many fronts
in recent years.
"We announced last month that James de Uphaugh, the Company's Portfolio
Manager, will retire in February 2024 after 36 years in the industry. James
will be replaced as Portfolio Manager by his colleague Imran Sattar. As part
of the succession, Imran has been appointed the Company's deputy Portfolio
Manager, replacing Chris Field who has recently retired from Liontrust. I
would like to thank James and Chris for their careful stewardship of the
Company's portfolio and strong investment results since the appointment of the
investment management team in March 2020.
"Once in place as the Company's Portfolio Manager, Imran will continue to
apply the same flexible investment process that has been the hallmark of the
portfolio for the last three and a half years. The rest of the Board and I
look forward to working with Imran. We would like to see Edinburgh considered
as a natural 'core' equity investment for savers in the UK and beyond. There
is much to be done to achieve this objective, but we are confident that we are
making strides towards that goal."
James de Uphaugh, Portfolio Manager, said: "The equity market backdrop
improved over the period, principally because inflation has dropped from the
previous elevated double-digit levels, but the higher level of interest rates
looks likely to persist for some years to come. This means a changed
environment for investing when compared with the very low levels of interest
rates that have prevailed for most of the period since the 2008/09 global
financial crisis.
"On a three-year view, we believe there is potential for a pleasant surprise
from UK equities. While it is hard to identify in advance a specific catalyst
that will ignite a rerating of UK equities, we do note that the market has
absorbed a lot of selling since 2016. At the same time, we observe a pick-up
in interest in UK companies by overseas corporates.
"To meet the Company's two investment objectives, we take a total return
approach. Within the Company's investment portfolio, we aim to deliver
exposure to a diversified range of economic and market themes. Reflecting the
diversified portfolio, the contributors to returns came from a broad selection
of holdings. Prominent stocks included Centrica (gas supply), Marks &
Spencer (retail) and Admiral (insurance).
"Being the Portfolio Manager of your Company for the last three and a half
years has been a highlight of my career. While I will miss the engagement with
shareholders and the Board alike, I am delighted that my longstanding
colleague Imran Sattar will be the next Portfolio Manager. The same investment
process and collegiate team approach will remain in place once Imran takes
over next year."
Enquiries
Liontrust Fund Partners LLP
James Mowat
+44 20 3908 8822
james.mowat@liontrust.co.uk (mailto:james.mowat@liontrust.co.uk)
Investec Bank plc
Tom Skinner +
44 20 7597 4000
Montfort Communications
Gay Collins
+44 7798 626282
Shireen Farhana +44
7757 299250
Ella Henderson +44
7762 245122
EIT@montfort.london (mailto:EIT@montfort.london)
Apex Listed Companies Services (UK) Limited
(Company Secretary)
Nadezda
Weissert +44
20 3327 9720
Notes to editors
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 2023
£1,122m
NET ASSETS (2022: £1,003M)
668.00p
SHARE PRICE (2022: 553.00p)
(8.7)%
DISCOUNT* (2022: (10.6)%)
4.1%
GEARING (NET)* (2022: 4.4%)
* Alternative Performance Measures (see page 27 of the Half-Yearly
Financial Report)
Investment Objective
The Edinburgh Investment Trust plc (the 'Company' or the 'Trust' or
'Edinburgh') 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 ('NAV') 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 ('LSE'). 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 2023
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.
The Company has contracted an external manager, Liontrust Fund Partners LLP,
('LFP' or the 'Manager' or 'Portfolio Manager') as Alternative Investment Fund
Manager ('AIFM') to manage its investments. Other administrative functions are
contracted to external service providers. The Company has a Board of
non-executive Directors who oversee and monitor the activities of the Manager
and other service providers on behalf of shareholders and ensure that the
investment objective and policy are 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
2023
Total Return((1)(3)(4)) (all with dividends reinvested) % Change
Net asset value((1)) (NAV) - debt at fair value +4.5
Share price((2)) +3.3
FTSE All-Share Index((2)) +1.4
The Company's benchmark is the FTSE All-Share Index.
At 30 September At 31 March
Capital Return((1)(4)) 2023 2023 Change %
Net asset value - debt at fair value 731.79p 713.75p +2.5
Share price((2)) 668.00p 660.00p +1.2
FTSE All-Share Index((2)) 4,127.24 4,157.88 -0.7
Discount((1)(3)(4)) - debt at fair value (8.7)% (7.5)%
Gearing (debt at fair value)((1)(3)(4)) - gross gearing 5.8% 6.6%
- net gearing 4.1% 4.7%
Six months to Six months to
30 September 30 September
Revenue Return and Dividends((3)) 2023 2022 Change %
Revenue return per ordinary share ordinary share 11.54p 14.77p -21.9
First interim dividend((5)) 6.70p 6.40p +4.7
Consumer Price Index((2)(4)) - annual change 6.7% 10.2%
Notes:
((1) ) These terms are defined in the Glossary of Terms and
Alternative Performance Measures, on pages 27 to 30 of the Half-Yearly
Financial Report. NAV with debt at fair value is widely used by the investment
company sector for the reporting of performance, premium or discount, gearing
and ongoing charges. Further details are provided in the Alternative
Performance Measures on pages 83 to 86 of the Company's 2023 Annual Financial
Report.
((2) ) Source: Refinitiv.
((3) ) Key Performance Indicator.
((4) ) Alternative Performance Measures.
((5) ) Dividends declared in respect of the financial year.
Chair's Statement
ELISABETH STHEEMAN / CHAIR
PERFORMANCE
Your Company has produced a Net Asset Value (NAV) total return of 4.5% over
the period, and a share price return of 3.3%. These compare with 1.4% for the
comparator FTSE All‑Share Index. The majority of this outperformance has
come, as we would expect, from stock selection. The most significant
contributions came from two of the more contrarian positions in the portfolio:
Centrica and Marks & Spencer. There were no particular detractors of note.
The Manager expands on the market backdrop and performance in his section of
this report. There was also a further contribution to the NAV from the fair
value of the Company's debt: as bond yields have continued to rise, the fair
value of the Company's long-term borrowings has fallen. Over the period the
value of the debt fell by £10m (see the Alternative Performance Measures
section of this report, which set out the detail), or approximately 0.9% of
average NAV. The share price return of 3.3% was slightly lower than the NAV
return, as the discount widened a little. I discuss the discount, and how we
are addressing it, below.
As ever, I would recommend that any assessment of investment performance is
based on longer-term returns. The period since March 2020, which is the full
length of the Manager's tenure, is the longest period we can assess. Over this
three and a half year period, the NAV total return has been 73.3%, versus a
rise in the FTSE All‑Share Index of 49.5%. The share price total return is
81.2%, reflecting a narrowing of the discount since March 2020.
It is pleasing to be able to record that the NAV return now also exceeds that
of the index over five and ten years, albeit modestly in the case of the five
year return. Nevertheless, this is the first time in several years that we
have been in this position, reflecting the strong progress on many fronts in
recent years.
DIVIDEND
The Board declared a first interim of 6.7p per share in October. The interim
accounts in this report record six month income comprising underlying regular
dividend income of £19.9m and special dividends of £0.5m. Total income for
the period, including some welcome interest on uninvested cash, is therefore
£20.9m. This has reduced compared with the same period last year, but last
year's income was boosted by several special dividends. Overall, the level of
dividend income for the portfolio remains in line with our longer term
expectations.
BORROWINGS
There have not been any changes to the debt profile of the Company. We
continue to operate with £120m of debt in nominal terms which is c.10% of
NAV. Net gearing measured at fair value is a more modest 4.1% of NAV. The
Company's debt has an average of 24 years to run and a blended cost of a fixed
2.4% per annum. The rates of interest in the market now are far higher: we
have a competitive advantage from having secured this debt at such low rates.
SHARE PRICE DISCOUNT TO NET ASSET VALUE
The Company's shares continue to trade at a discount. This widened slightly
over the period, reflecting wider discounts for many equity investment trusts.
This explains why the share price return was a little lower than that of the
Net Asset Value. We monitor the discount relative to peers as well as against
the Company's own history. Over the period we bought back shares actively, as
did many other investment trusts, with 3% of the Company's shares purchased
over the period. These buybacks should both help narrow the discount, and be a
sound allocation of capital: buying back the Company's shares at a discount
unarguably enhances NAV returns for those shareholders that remain invested.
We think of share buybacks as one of a number of factors designed to help
narrow the discount. Other factors include generating investor confidence in a
repeatable investment process, careful management of the balance sheet of the
Company, and raising the profile of the Company through a range of marketing
initiatives.
MARKETING
We were delighted to host a well-attended Annual General Meeting in Edinburgh
in July. Similarly, we hosted a popular presentation to retail investors in
central London in October. Thank you to the shareholders who took the trouble
to attend one or both of these events. Videos of these presentations have
since been posted to the Company's website. We will flag other events and
presentations on the website and via other media (including the occasional
old-fashioned letter via Royal Mail - this helped generate much interest in
the London event). Shareholders can also subscribe to updates via the website,
which is a quick and easy way to ensure that you are up to date on all the
Company's different activities.
Other promotional activities are underway - for example in both print media
and online - and the Board carefully reviews the success of these initiatives
against a series of key performance indicators.
MANAGER SUCCESSION
We announced last month that James de Uphaugh, the Company's Portfolio
Manager, will retire in February 2024 after 36 years in the industry. James
will continue to manage the Company's portfolio until February and will then
be replaced as Portfolio Manager by his colleague Imran Sattar. As part of the
succession, Imran has been appointed the Company's deputy Portfolio Manager,
replacing Chris Field who has recently retired from Liontrust. I would like to
thank James and Chris for their careful stewardship of the Company's portfolio
and strong investment results since the appointment of the investment
management team in March 2020.
Imran has been a member of the Liontrust Global Fundamental Team ('GFT') since
2018, managing UK equity client portfolios jointly alongside James and Chris.
Imran is also lead manager for another UK equity strategy in his own right.
Before joining the GFT, he was a Managing Director and Fund Manager at
BlackRock, where he managed UK equity funds with combined assets of over £2
billion. Imran joined Mercury Asset Management (now BlackRock) in 1997, where
he first worked with James. He will become head of the GFT in February 2024.
Imran has already been out introducing himself to shareholders and this
process will continue ahead of February's transition.
Once in place as the Company's Portfolio Manager, Imran will continue to apply
the same flexible investment process that has been the hallmark of the
portfolio since March 2020. Other than the change of Portfolio Manager, there
will be no change to the Company's two investment objectives, strategy or the
portfolio's key features - namely a high conviction portfolio of 40 to 50
differentiated holdings, primarily invested in UK equities, underpinned by
fundamental company research. Imran, like James, will also be supported by a
collegiate team of nine fund managers and analysts: the depth of experience
across the GFT will be an important factor to ensure the repeatability of
attractive long-term returns in the years ahead. The rest of the Board and I
look forward to working with Imran. We will make a further announcement about
the wider team responsible for managing the Company, including a deputy
Portfolio Manager, in due course.
OUTLOOK
As well as delivering on the Company's two investment objectives, we would
like to see Edinburgh considered as a natural 'core' equity investment for
savers in the UK and beyond. There is much to be done to achieve this
objective, but we are confident that we are making strides towards that goal.
A new Portfolio Manager will take the Company forward in 2024 and we look
forward to working with him and his colleagues in the years ahead.
ELISABETH STHEEMAN / Chair / 20 NOVEMBER 2023
Portfolio Manager's Report
For the period ended 30 September 2023
JAMES DE UPHAUGH /
PORTFOLIO MANAGER
MEETING THE COMPANY'S OBJECTIVES
To meet the Company's two investment objectives, we take a total return
approach. By this, we mean seeking an attractive combination of capital and
income. We apply a flexible investment process, with an open-minded approach
to investments, delivered through a team approach. Within the Company's
investment portfolio, we aim to deliver exposure to a diversified range of
economic and market themes. As the Chair has noted in her statement, I will
retire in 2024. Being the Portfolio Manager of your Company for the last three
and a half years has been a highlight of my career. While I will miss the
engagement with shareholders and the Board alike, I am delighted that my
longstanding colleague Imran Sattar will be the next Portfolio Manager. The
same investment process and collegiate team approach will remain in place once
Imran takes over next year.
PERFORMANCE REVIEW
The equity market backdrop improved over the period, principally because
inflation has dropped from the previous elevated double-digit levels. This has
enabled the Bank of England to slow the pace of interest rate rises.
Nonetheless, the higher level of interest rates looks likely to persist for
some years to come. This means a changed environment for investing when
compared with the very low levels of interest rates that have prevailed for
most of the period since the 2008/09 global financial crisis.
The total return for the portfolio over the six month reporting period was
modestly positive, and a little ahead of the index return.
Reflecting the diversified portfolio, the contributors to returns came from a
broad selection of holdings. Prominent stocks included Centrica (gas supply),
Marks & Spencer (retail) and Admiral (insurance). As is sometimes the
case, avoiding large index constituents that fall in price can also help
relative returns. Diageo, Prudential and British American Tobacco fell into
this category over the last six months.
On the negative ledger, the electrical distribution group RS continues to
grapple with unexpected management change and less than sparky trading. WPP
was also weak - we have since reduced the holding. NatWest has been caught up
in the general change in sentiment towards banks - a reaction to the Silicon
Valley Bank collapse earlier in the year, combined with the self-made
difficulty of the unplanned departure of its chief executive.
TRADING ACTIVITY
In aggregate, activity has been relatively low, with portfolio turnover of 7%.
Over the full tenure of our appointment, annual turnover has been 25% implying
a typical holding period for each stock of four years. The biggest purchases
in this period have been Lloyds Bank, Haleon, Marks & Spencer and
Publicis.
We would highlight the purchase of Haleon, which we believe has arrived on the
market at too low a price following its demerger from GSK. Demergers are
typically of interest to us - they tend to be unloved assets that come to the
market without all the excitement of a normal flotation. The purchase was
funded by a sale of Reckitt, which is now struggling to generate positive
underlying sales growth.
The biggest sales were WPP, Standard Chartered, Shell and Tesco. The sale of
WPP funded the Publicis investment - WPP has greater exposure to legacy
advertising which faces greater challenges, whereas Publicis has made some
bold but prescient moves to build up its exposure to the increasingly
important 'data' side of the advertising market.
BORROWINGS
As the Chair has noted in her statement, the fair value of the debt has
further reduced over the period in line with the bond market. We ended the
period with net gearing (i.e. after adjusting for cash balances) of 4.1%. As
the last practical date before signing this report, net gearing was 5.6%. Were
we to have had a fully invested portfolio (i.e. no cash and all the debt
invested in the equity portfolio) at the end of September, gearing would have
been 5.8%. We are firmly of the view that there is significant upside to UK
equities (see Outlook comment below) and as such we are deploying the gearing
in full, bar a normal c2% cash balance.
OUTLOOK
In our opinion, UK equities are undervalued in absolute terms and against
peers. For example, the market's free cash flow yield is the highest of major
markets. Even if you adjust for the cyclical element of the market (i.e.
allowing for the higher exposure of the market to e.g. banks and oil stocks),
it still appears very attractively valued.
While it is hard to identify in advance a specific catalyst that will ignite a
rerating of UK equities, we do note that the market has absorbed a lot of
selling since 2016, particularly by pension and retail investors. At the same
time, we observe a pick-up in interest in UK companies by overseas corporates.
Taking all this together, we believe there is potential for a pleasant
surprise from UK equities on a three year view.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE PORTFOLIO ISSUES: HOW THEY ARE MANAGED
FOCUSING ON WHAT MATTERS
With a mandate to manage the Trust's assets and a long term investment
perspective, the Global Fundamental Team ('GFT') looks holistically at
companies when making investment decisions. It examines macro-economic factors
which address financial, societal or environmental changes that a group may
face (for example new technology, demographic or climate change). The team
also considers internal changes that may take place within an organisation
including restructuring, closing business lines, or pivoting to new business
models and products. Such internal changes may enable a company to re-engineer
itself so that its future is very different from its past.
As part of these examinations, the GFT undertakes materiality assessments to
identify and prioritise the key exposures that a company faces over the
investable time horizon of the Trust, which is typically three years. These
assessments bring together the external factors and internal changes and
enable the team to determine where the greatest threats and opportunities lie
for each holding. These key issues lead the team's engagement with companies.
The team assigns Resiliency scores, using a 1-5 scale, based on how well a
holding is managing its key exposures. It also assigns Conviction scores,
again on a 1-5 scale, which reflect the team's conviction in owning a stock.
Portfolio weightings are determined to some extent by conviction scores and
changes in these over time.
Within this context, analysing a company's ESG exposures becomes
straightforward. Whether these exposures focus on climate change areas, supply
chain matters, diversity stats, or other areas, the team takes a holistic
approach to ensure that it considers the most likely and most potentially
impactful exposures for a holding. It is not uncommon for some ESG related
risks / opportunities to have a longer time horizon than the Trust's focus -
for example, where physical or transitional risks arise from global warming.
The team, therefore, also considers a group's emerging exposures within the
context of a group's macroeconomic and evolving environment - this helps the
team develop a view of how competitive a group will be in three years and
beyond.
IMPLEMENTING OUR MATERIALITY PROCESS IN PRACTICE
Haleon
Edinburgh acquired a position in Haleon as a result of its spin-out from GSK.
Since then the team has been increasing the weighting in the holding across
client portfolios, including for the Trust. The team has raised its conviction
and resiliency scores for Haleon to 4 (from 3) as Haleon's management has
demonstrated its ability to drive attractive topline growth with an
appropriate balance of price and volume. Maintaining volume growth is key for
brand health and thus the long duration growth of Haleon's portfolio. Driving
attractive topline growth is a key identified material risk/opportunity for
Haleon, growing revenue through increased household penetration, market share
gains, and portfolio innovation and expansion. Haleon is a leading consumer
health company with a strong scientific heritage and, as such, plays an
important role as a trusted brand as consumers increasingly make their own
decisions about healthcare.
BENEFITS OF OUR APPROACH
One of the many virtues of this approach is nuance. Investors know that
companies come in all shapes, sizes, and management abilities, and a holistic
approach makes understanding nuance possible. Take, for example, the risks and
opportunities from climate change. For one group, a key concern might be the
speed at which it is (or isn't) transitioning from fossil fuels to greener
energy. For another group, a prime concern could be that all of its
manufacturing plants are concentrated in areas of extreme flood risk. And a
third company might lack the board expertise required for managing climate
issues and linking this directly with pay and group strategy. Appreciating the
nuance in these is critical - not only does it lead to much better engagement
with a group and increases the chance of promoting positive change, it also
helps the team make more informed investment decisions for the fund.
One example of employing nuance in engagement over the past year has been in
the team's engagement with banks on their approach to incorporating carbon
considerations in lending decisions. While lending decisions have
ramifications beyond the investable time horizon of the fund, having these
discussions with banks has helped the team understand banks' asset allocation
decisions and expectations for return on investment. Inevitably, different
banks manage climate risks differently - some may not enforce specific
exclusions on coal or fossil fuels development, and instead may score loans
based on longer term risks, including climate exposures. Others may take a
more blunt approach, refusing to finance projects that do not have specific
climate related targets and management in place. Each approach has costs and
benefits associated with it and the GFT takes these into account when engaging
with management and when analysing the company for inclusion in the Trust. The
importance comes in understanding what matters most - and then engaging,
voting, and making investment decisions with that in mind.
EXAMPLES OF ENGAGEMENT ON CARBON ISSUES
In the last year, the team undertook several engagements with holdings that
focused on carbon. Two examples are HSBC and Standard Chartered. In both
instances, the GFT aimed to understand how the groups take carbon and climate
change exposures into considerations when making loan or funding decisions.
The team wanted to understand what factors these banks see as 'red lines', if
any; what time horizon the groups use when thinking about climate related
exposures; and how the evaluation of exposures impacts the cost of borrowing
money, if at all.
HSBC
During engagement with HSBC in February 2023, the group reported that it is
building a new centre of excellence in terms of net zero which includes
regional hubs with focus on regulatory changes. The focus will also cover
carbon impacts related to real estate (commercial and residential), shipping,
oil and gas, utilities, and agriculture. When evaluating projects, HSBC
assesses clients' transition plans and whether clients' plans align with net
zero. In assessing clients' transition plans, HSBC uses sector-specific
indicators over 3 areas: climate transition plans, policy compliance and
finance related emissions. HSBC has a policy to phase out the financing of
coal-fired power and thermal coal mining in the EU from 2030 and in the other
markets by 2040. The group engages with clients with the greatest material
exposures to help formulate a decarbonisation plan that is stretching but
achievable. HSBC's approach to carbon also covers its underwriting activities,
as well.
JAMES DE UPHAUGH / Portfolio Manager
20 NOVEMBER 2023
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 on pages 4 and 5 and the Portfolio Manager's Report on pages 6 to 7
of the Half-Yearly Financial Report provide details of the important events
which have occurred during the six months ended 30 September 2023 ('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 2024 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 18 to 21 of the 2023 Annual Financial Report,
which is available on the Company's website at
www.edinburgh-investment-trust.co.uk
Since the publication of the 2023 Annual Financial Report and as detailed
above, 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. In addition, the recent tragic events in Israel and Gaza and the
potential for further escalation provide further risk to the stability of 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;
Income/Dividend Risk - the Company is subject to the risk of not generating
enough income from its investments to meet its objectives. The Board monitors
this risk by reviewing income and dividend forecasts and comparing them with
budget. The Board also considers the level of income at each meeting and
decides on the dividends to be paid. The Board can use the Company's income
and capital reserves to supplement dividends if needed;
Borrowing Risk - the Company has fixed long-term borrowings through its
Unsecured Senior Loan Notes. If the Company's investments fall in value,
gearing will result in an increased adverse impact on performance;
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, Company Secretary,
administrator, depositary, custodian and registrar;
Physical and Transitional Climate Change - climate change may pose significant
risks to investments, as it affects the operations, value, business model and
dividends of the companies we invest in. We also face the challenge of
adapting to a low-carbon economy and responding to the expectations of
investors, regulators and policymakers. Our Portfolio Manager evaluates these
risks and considers the potential impact of climate change on each portfolio
holding. You can find more details on this process in the s.172 statement on
page 23 of the Annual Report. We also diversify our portfolio by investing in
businesses across different regions, which helps us mitigate the risk of
location-specific weather events. We monitor and review the climate change
related risks regularly and follow any new guidance;
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. 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 2023
UK LISTED ORDINARY SHARES UNLESS STATED OTHERWISE
Value % of
Investment Sector £'000 Portfolio
Shell Oil, Gas and Coal 92,370 7.6
Centrica Gas, Water and Multi-Utilities 69,654 5.7
BAE Systems Aerospace and Defence 62,251 5.1
Unilever Personal Care, Drug and Grocery Stores 56,237 4.6
Tesco Personal Care, Drug and Grocery Stores 53,236 4.4
AstraZeneca Pharmaceuticals and Biotechnology 49,360 4.1
NatWest Banks 44,747 3.7
Ashtead Industrial Transportation 40,371 3.3
Marks & Spencer Retailers 40,311 3.3
HSBC Banks 39,079 3.2
TEN TOP HOLDINGS 547,616 45.0
Anglo American Industrial Metals and Mining 37,918 3.1
Weir Industrial Engineering 35,944 3.0
Haleon Pharmaceuticals and Biotechnology 32,852 2.7
GSK Pharmaceuticals and Biotechnology 32,518 2.7
Dunelm Retailers 32,049 2.5
Hays Industrial Support Services 28,051 2.3
Admiral Non-Life Insurance 27,184 2.2
Compass Consumer Services 26,472 2.2
RS Industrial Support Services 25,560 2.1
Novartis - Swiss Listed Pharmaceuticals and Biotechnology 23,907 2.0
TWENTY TOP HOLDINGS 850,071 69.8
Standard Chartered Banks 22,721 1.9
BP Oil, Gas and Coal 22,603 1.9
Mondi General Industrials 22,503 1.8
Serco Industrial Support Services 22,463 1.8
ConvaTec Medical Equipment and Services 21,192 1.7
Whitbread Travel and Leisure 20,471 1.7
Greggs Personal Care, Drug and Grocery Stores 18,705 1.5
easyJet Travel and Leisure 15,284 1.4
Smith & Nephew Medical Equipment and Services 14,977 1.2
Thales - French Listed Aerospace and Defence 13,300 1.1
THIRTY TOP HOLDINGS 1,044,290 85.8
Lloyds Bank Banks 12,720 1.0
WPP Media 11,930 1.0
CNH Industrial Industrial Engineering 11,801 1.0
Howden Joinery Retailers 11,790 1.0
KPN - Dutch Listed Telecommunications Service Providers 11,709 0.9
Redrow Household Goods and Home Construction 11,490 0.9
Newmont - US Listed Precious Metals and Mining 11,045 0.9
Bellway Household Goods and Home Construction 11,039 0.9
Travis Perkins Industrial Support Services 10,919 0.9
Ascential Software and Computer Services 10,730 0.9
FORTY TOP HOLDINGS 1,159,463 95.2
Publicis - French Listed Media 9,620 0.8
Roche - Swiss Listed Pharmaceuticals and Biotechnology 8,179 0.7
Intel - US Listed Technology Hardware and Equipment 7,606 0.6
QinetiQ Aerospace and Defence 7,248 0.6
Morgan Sindall Construction and Materials 5,427 0.5
LondonMetric Property Real Estate Investment Trusts 5,019 0.4
Marshalls Construction and Materials 4,853 0.4
Siemens - German Listed General Industrials 4,534 0.4
Pets at Home Retailers 3,686 0.3
Vesuvius Industrial Engineering 1,799 0.1
FIFTY TOP HOLDINGS 1,217,434 100.0
Eurovestech (UQ) Investment Banking and Brokerage Services - -
Raven Property (S) - Preference shares Real Estate Investment Services - -
TOTAL HOLDINGS 52 (31 March 2023:46) 1,217,434 100.0
UQ - Unquoted Investment
S - Delisted
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 long term nature and obligations of the
Unsecured Senior Loan Notes, 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
20 NOVEMBER 2023
Financial Review
Condensed Income Statement
Six Months to 30 September 2023 Six Months to 30 September 2022
(Unaudited) (Unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value - 21,802 21,802 - (159,708) (159,708)
Losses on foreign exchange - (48) (48) - (223) (223)
Income - note 2 20,883 - 20,883 28,071 - 28,071
20,883 21,754 42,637 28,071 (159,931) (131,860)
Investment management fee - note 3 (759) (1,772) (2,531) (722) (1,686) (2,408)
Other expenses (611) (5) (616) (504) (4) (508)
Net return before finance costs and taxation 19,513 19,977 39,490 26,845 (161,621) (134,776)
Finance costs - note 3 (472) (1,006) (1,478) (1,285) (3,002) (4,287)
Return on ordinary activities before taxation 19,041 18,971 38,012 25,560 (164,623) (139,063)
Taxation - note 4 (144) - (144) (376) - (376)
Return on ordinary activities after taxation for the financial period 18,897 18,971 37,868 25,184 (164,623) (139,439)
Return per ordinary share:
Basic 11.54p 11.58p 23.12p 14.77p (96.56)p (81.79)p
Weighted average number of ordinary shares in issue during the period 163,782,164 170,486,924
The 'total' columns of this statement represent 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
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 30 September 2023 (Unaudited)
At 31 March 2023 48,917 10,394 24,676 1,003,989 51,368 1,139,344
Return on ordinary activities - - - 18,971 18,897 37,868
Dividends paid - note 5 - - - - (22,086) (22,086)
Shares bought back and held in treasury - - - (33,177) - (33,177)
At 30 September 2023 48,917 10,394 24,676 989,783 48,179 1,121,949
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
Condensed Balance Sheet
30 September 31 March
2023 2023
(Unaudited) (Audited)
£'000 £'000
Non current assets
Investments held at fair value through profit or loss - note 7 1,217,434 1,226,649
Current assets
Debtors 7,817 12,392
Cash and cash equivalents 20,307 22,362
Total assets 1,245,558 1,261,403
Non current liabilities
Unsecured Senior Loan Notes (120,000) (120,000)
Current liabilities
Other payables (3,609) (2,059)
Total liabilities (123,609) (122,059)
Net assets 1,121,949 1,139,344
Equity
Called up share capital - note 6 48,917 48,917
Share premium account 10,394 10,394
Capital redemption reserve 24,676 24,676
Capital reserve 989,783 1,003,989
Revenue reserve 48,179 51,368
Total equity 1,121,949 1,139,344
Net asset value per ordinary share - note 8
Basic and diluted - debt at par value 699.36p 688.52p
Basic and diluted - debt at fair value 731.79p 713.75p
Number of 25p ordinary shares (excluding treasury) in issue at the period end 160,425,525 165,476,525
- note 6
ELISABETH STHEEMAN
CHAIR
20 NOVEMBER 2023
Signed on behalf of the Board of Directors
The accompanying notes on pages below are an integral part of these financial
statements.
Condensed Cash Flow Statement
Six Months to 30 September
2023 2022
£'000 £'000
Cash flow from operating activities
Net return before finance costs and taxation 39,490 (134,776)
Tax on overseas income - note 4 (144) (376)
Adjustments for:
Purchase of investments (89,511) (141,998)
Sale of investments 119,464 113,079
(Gains)/losses on investments held at fair value (21,802) 159,708
Decrease in debtors 7,529 2,719
(Decrease)/increase in creditors (1,255) 359
Net cash inflow/(outflow) from operating activities 53,771 (1,285)
Cash flow from financing activities
Interest and commitment fees paid on bank facility (3) (14)
Interest paid on unsecured senior loan notes/debenture stocks (1,494) (3,874)
Issue of unsecured senior loan notes - 100,000
Redemption of debenture loan stock - (100,000)
Shares bought back and held in treasury (32,243) (12,017)
Dividends paid - note 5 (22,086) (21,859)
Net cash outflow from financing activities (55,826) (37,764)
Net decrease in cash and cash equivalents (2,055) (39,049)
Cash and cash equivalents at start of the period 22,362 68,728
Cash and cash equivalents at the end of the period 20,307 29,679
Reconciliation of cash and cash equivalents to the Balance Sheet is as
follows:
Cash held at custodian 1,131 2,324
Goldman Sachs Liquidity Reserve International Fund 19,176 27,355
Cash and cash equivalents 20,307 29,679
Cash flow from operating activities includes:
Dividends received 27,237 30,342
Interest received 7 -
At 1 April Cash flows Non-cash At
2023 £'000 movement 30 September
£'000 £'000 2023
£'000
Reconciliation of net debt:
Cash and cash equivalents 22,362 (2,055) - 20,307
Unsecured Senior Loan Notes (120,000) - - (120,000)
Total (97,638) (2,055) - (99,693)
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 2023.
2. INCOME
Six Months to 30 September
2023 2022
(Unaudited) (Unaudited)
£'000 £'000
Income from investments:
UK dividends - ordinary 18,299 19,076
- special 147 5,693
UK zero coupon bond income - 41
Overseas dividends - ordinary 1,570 3,116
- special 318 -
UK unfranked investment income 542 145
20,876 28,071
Other income:
Deposit interest 7 -
Total income 20,883 28,071
3. MANAGEMENT FEE AND FINANCE COSTS
The management fee arrangements are as reported in the Company's 2023 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
2023 2022
(Unaudited) (Unaudited)
Pence £'000 Pence £'000
Third interim 6.70 11,050 6.40 10,934
Final 6.70 11,036 6.40 10,925
Total paid 13.40 22,086 12.80 21,859
The first interim dividend of 6.70p per ordinary share for the year ended 31
March 2024 (2023: 6.40p) will be paid on 24 November 2023 to shareholders on
the register on 3 November 2023.
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 31 March
2023 2023
(Unaudited) (Audited)
Share capital £'000 £'000
Ordinary shares of 25p each 40,107 41,369
Treasury shares of 25p each 8,810 7,548
Total called up share capital 48,917 48,917
Six Months to Year to
30 September 31 March
2023 2023
Share capital (Unaudited) (Audited)
Number of ordinary shares in issue (excluding treasury):
Brought forward 165,476,525 171,078,129
Shares bought back into treasury (5,051,000) (5,601,604)
Carried forward 160,425,525 165,476,525
Number of shares held in treasury:
Brought forward 30,190,209 24,588,605
Shares bought back into treasury 5,051,000 5,601,604
Carried forward 35,241,209 30,190,209
Total ordinary shares 195,666,734 195,666,734
Subsequent to the period end, and as at 16 November 2023 (the latest
practicable date before publication of this Half-Yearly Report), 2,749,000
ordinary shares were bought back at an average price of 651.45p.
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.
Categorisation within the hierarchy is determined on the basis of the lowest
level input that is significant to the fair value measurement of each relevant
asset/liability. The valuation techniques used by the Company are explained in
the accounting policies note.
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 31 March
2023 2023
(Unaudited) (Audited)
£'000 £'000
Financial assets designated at fair value through profit or loss:
Level 1 1,217,434 1,226,649
Level 3 - -
Total for financial assets 1,217,434 1,226,649
There were two investments in Level 3 at the period end (31 March 2023: two
investments) totalling £nil (31 March 2023: £nil).
There was no change to the position size or fair value for either holding.
8. NET ASSET VALUE PER ORDINARY SHARE
Refer to Alternative Performance Measures for definitions of NAV - debt at par
and NAV - debt at fair value.
NAV - debt at par
The shareholders' funds and NAV per share in the Condensed Balance Sheet on
page 19 of the Half-Yearly Financial Report are accounted for in accordance
with accounting standards. The Unsecured Senior Loan Notes were issued at and
being recorded at their par value of £120m. A reconciliation showing the NAV
per share and Shareholders' funds using debt at fair value is shown in the
Alternative Performance Measures on page 29 of the Half-Yearly Financial
Report.
9. INVESTMENT TRUST STATUS
It is the intention of the Directors to conduct the affairs of the Company so
that it satisfies 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 2023 and 30 September 2022 has not been
audited. The figures and financial information for the year ended 31 March
2023 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
APEX LISTED COMPANIES SERVICES (UK) LIMITED
Company Secretary
20 November 2023
Other Information for Shareholders
Directors, Advisors and Principal Service Providers
DIRECTORS
Elisabeth Stheeman, Chair
Aidan Lisser, Senior Independent Director*
Steve Baldwin, Audit Committee Chairman
Patrick Edwardson, Management Engagement Committee Chairman
Annabel Tagoe-Bannerman
Victoria Hastings (retired 19 July 2023)
* Senior Independent Director from 19 July 2023
REGISTERED OFFICE
First Floor
9 Haymarket Square,
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
Apex Listed Companies Services (UK) Limited
6(th) Floor, 125 London Wall
London EC2Y 5AS
020 3327 9720
INDEPENDENT AUDITORS
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
LEGAL ADVISORS
Dentons UK and Middle East LLP
First Floor
9 Haymarket Square,
Edinburgh EH3 8RY
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
Website: www.theaic.co.uk
REGISTRAR
Link Group
10(th) 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
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 2023 and the year ended 31 March
2023. 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 Half-Yearly 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 Half-Yearly 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 below on page 29 of
the Half-Yearly Financial Report) 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 31 March
2023 2023
Share price a 668.00p 660.00p
Net asset value per share - debt at fair value b 731.79p 713.75p
Discount c = (a-b)/b (8.7)% (7.5)%
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 31 March
2023 2023
£'000 £'000
Unsecured Senior Loan Notes - debt at fair value 67,966 78,253
Gross borrowings a 67,966 78,253
Net asset value - debt at fair value b 1,173,983 1,181,091
Gross gearing c = a/b 5.8% 6.6%
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 31 March
2023 2023
£'000 £'000
Unsecured Senior Loan Notes - debt at fair value 67,966 78,253
Less: cash and cash equivalents (20,307) (22,362)
Net borrowings a 47,659 55,891
Net asset value - debt at fair value b 1,173,983 1,181,091
Net gearing c = a/b 4.1% 4.7%
LEVERAGE
Leverage, for the purposes of the UK AIFM Directive, is not synonymous with
gearing as defined above. In addition to borrowings, it encompasses anything
that increases the Company's exposure, including foreign currency and exposure
gained through derivatives. Leverage expresses the Company's exposure as a
ratio of the Company's net asset value.
Accordingly, if a Company's exposure was equal to its net assets it would have
leverage of 100%. Two methods of calculating such exposure are set out in the
AIFMD, gross and commitment. Under the gross method, exposure represents the
aggregate of all the Company's exposures other than cash balances held in base
currency and without any offsetting. The commitment method takes into account
hedging and other netting arrangements designed to limit risk, offsetting them
against the underlying exposure.
NET ASSET VALUE (NAV)
Also described as shareholders' funds, the NAV is the value of total assets
less liabilities. Liabilities for this purpose include current and long-term
liabilities. 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).
For accounting purposes assets are valued at fair (usually market) value and
liabilities are valued at amortised cost (their repayment - often nominal -
value). An alternative NAV with debt at fair value, values long term
liabilities at their market (fair) value and is shown below.
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 19 of the
Half-Yearly Financial Report.
NET ASSET VALUE (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 net asset value per share adjusted to include the Unsecured Senior Loan
Notes at fair value rather than at par is as follows:
30 September 2023 31 March 2023
(Unaudited) (Audited)
Shareholders' Shareholders'
NAV per share funds NAV per share funds
pence £'000 pence £'000
NAV - debt at par 699.36p 1,121,949 688.52 1,139,344
Unsecured Senior Loan Notes - at par 74.80p 120,000 72.52 120,000
Unsecured Senior Loan Notes - at fair value (42.37p) (67,966) (47.29) (78,253)
NAV - debt at fair value 731.79p 1,173,983 713.75 1,181,091
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
have been sourced from Refinitiv who calculate returns on an industry
comparative basis.
TREASURY SHARES
Shares previously issued by a Company that have been bought back from
shareholders to be held by the Company for potential sale or cancellation at a
later date. Such shares are not capable of voting and carry no rights to
dividends.
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.
Net Asset Share
Six Months Ended 30 September 2023 Value Price
As at 30 September 2023 731.79p 668.00p
As at 31 March 2023 713.75p 660.00p
Change in period a 2.5% 1.2%
Impact of dividend reinvestments((1)) b 2.0% 2.1%
Total return for the period c = a+b 4.5% 3.3%
Net Asset Share
Year Ended 31 March 2023 Value Price
As at 31 March 2023 713.75p 660.00p
As at 31 March 2022 686.69p 634.00p
Change in year a 3.9% 4.1%
Impact of dividend reinvestments((1)) b 4.0% 4.3%
Total return for the year c = a+b 7.9% 8.4%
(1) Total dividends paid during the period of 13.40p (31 March 2023:
25.60p) 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.
By order of the Board
Apex Listed Companies Services (UK) Limited
Company Secretary
21 November 2023
ENDS
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