REG - Edinburgh Inv. Trust - Annual Financial Report
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RNS Number : 4766J Edinburgh Investment Trust PLC 21 May 2025
The Edinburgh Investment Trust plc
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 31 MARCH 2025
21 May 2025 - The Directors of the Edinburgh Investment Trust plc ("the
Company" or "EIT") have today announced the annual results for the year ended
31 March 2025.
Highlights
· The Company's NAV rose 8.3% over the period under review
· The share price rose 11.3% to 740p (2024: 690p)
· Final dividend proposed of 7.5p per share, representing a full
year dividend yield of 3.9%
· Subject to approval at the July 2025 AGM, total dividends for the
year will be 28.8p per share (2024: 27.2p) representing an increase of 5.9%
· Share price discount to NAV narrowed to 9.4% from 11.5%,
following the Company's active share buyback programme, enhancing the NAV by
0.4%
· Ongoing charges ratio reduced to 0.51% from 0.53%, helped by a
lower investment management fee
· The Company's NAV and share price returns are ahead of the
benchmark over three and five years to 31 March 2025
Elisabeth Stheeman, Chair, EIT, said: "The end of the Company's financial year
was also the fifth anniversary of the appointment of Liontrust as our
investment management team, who have delivered strong performance. Despite
significant challenges faced by the investment trust sector, Edinburgh
Investment Trust's five year NAV and share price returns are in excess of the
benchmark, with the NAV return being 103.9% compared with the benchmark
returning 76.5%. The Board has sought to address the share price discount to
NAV, which has been fluctuating at around 10% for the last year, with an
active programme buying back 4.7% of shares in the last twelve months, and
17.4% cumulatively since March 2020, enhancing the NAV by 0.4% and 1.7%
respectively.
"It is encouraging that the UK equity market has had a better year compared
with other equity markets, with the returns of the market illustrating why we
remain enthusiastic about the strength of the UK-listed businesses in the
Company. Our investment objective of growth in dividends per share in excess
of the rate of UK inflation was more than comfortably met over the year. At
the time of writing, equity markets have recovered much of the ground lost
after the uncertainty of President Trump's tariffs announcement. Nonetheless,
volatility in markets is a reminder of the short-term challenges that
investors face as the global economic order evolves. The Portfolio Managers'
diversified portfolio of deeply researched stocks means the Company is well
placed to continue to deliver attractive future returns for its shareholders
in the years ahead and live up to its mantra to trust in a style to last
through the ages."
Imran Sattar, Portfolio Manager, EIT, said: "Together with Emily Barnard, it
has been a great pleasure to complete our first full year as Portfolio
Managers of your Company. We have enjoyed the opportunity to set out how we
are stewarding the Company's assets and look forward to continued engagement
with shareholders. We manage the portfolio with a total return approach, with
the income generated by the portfolio supporting the dividends that the
Company pays to its shareholders. Operationally, the portfolio has had a
strong year, matching our expectations. Positive contributors to returns
included NatWest Group, Verisk (the US insurance focused data and analytics
company) and Baltic Classifieds Group (classifieds business), with the latter
two new positions in the portfolio.
"The re-election of Donald Trump has increased economic uncertainty. Tariffs
are expected to increase the cost of doing business and will weigh on consumer
and corporate confidence. Furthermore, the UK has its own additional
challenges with the increase in employer National Insurance rates a direct
cost headwind for UK businesses. Our focus remains on constructing a
well-balanced and diversified portfolio of advantaged businesses. The
Company's holdings have made excellent strategic, operational, and financial
progress, and continue to do so."
ENDS
Enquiries
Liontrust Fund Partners LLP
James Mowat +44 203 908
8822/ james.mowat@liontrust.com
Montfort Communications
Gay Collins/Shireen Farhana +44 7798 626282 /
EIT@montfort.london
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
INVESTMENT OBJECTIVES
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 public listed Investment Company whose shares are traded on
the London Stock Exchange ('LSE'). The business of the Company consists of
investing its assets according to a specified investment objective and policy,
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 Managers' as Alternative Investment Fund
Manager ('AIFM')) to manage its investments. Other administrative functions
are contracted to external services providers. The Company has a Board of
non-executive directors who oversee and monitor the activities of the
Portfolio Managers 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 are mainstream investment products suitable for
both retail and professional investors. The Company's ordinary shares are
eligible for investment in an ISA.
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
Year Ended Year Ended
Total Return((1)(2)(3)) (all with dividends reinvested) 31 March 2025 31 March 2024
Net asset value((1)) (NAV) - debt at fair value +8.3% +13.4%
Share price((4)) +11.3% +8.9%
FTSE All-Share Index((4)) +10.5% +8.4%
The Company's benchmark is the FTSE All-Share Index.
Capital Return((1)(3)) At 31 March 2025 At 31 March 2024 Change %
Net asset value - debt at fair value 817.16p 779.97p +4.8
Share price((4)) 740.00p 690.00p +7.2
FTSE All-Share Index((4)) 4,623.62 4,338.05 +6.6
Discount((1)(2)(3)) - debt at fair value (9.4)% (11.5)%
Gearing (debt at fair value)((1)(2)(3)) - gross gearing 5.6% 6.2%
- net gearing 5.0% 3.1%
Year Ended Year Ended
Revenue and Dividends((2)) 31 March 2025 31 March 2024 Change %
Revenue return per ordinary share 25.02p 23.93p +4.6
Dividends - first interim 6.90p 6.70p
- second interim 6.90p 6.70p
- third interim 7.50p 6.90p
- proposed final 7.50p 6.90p
- total dividends 28.80p 27.20p +5.9
Consumer Price Index((3)(4)) - annual change 2.3% 3.2%
Dividend Yield((1)(2)(3)) 3.9% 3.9%
Ongoing Charges Ratio((1)(2)(3)) 0.51% 0.53%
Notes:
((1) ) These terms are defined in the Glossary of Terms and
Alternative Performance Measures, including reconciliations. 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.
((2) ) Key Performance Indicator.
((3) ) Alternative Performance Measures.
((4) ) Source: LSEG Data & Analytics.
TEN YEAR HISTORICAL INFORMATION
Per ordinary share
Year ended 31 March Ordinary Shares Revenue return Dividend Net asset Share Discount Gross Net
shareholders' funds (bought p rate value price (debt at gearing gearing
£m back)/ issued p (debt at p fair (debt at (debt at
m fair value) fair fair value)
value) % value) %
p %
2016 1,392 0.55 26.66 24.35 695.30 665.00 (4.4) 15.5 15.3
2017 1,535 - 27.94 25.35 768.81 713.50 (7.2) 15.9 15.7
2018 1,400 - 29.25 26.60 703.34 642.00 (8.7) 12.1 11.8
2019 1,382 (0.19) 28.66 28.00 696.91 644.00 (7.6) 11.0 10.8
2020 872 (20.80) 27.83 28.65 490.40 434.00 (11.5) 13.4 8.3
2021 1,091 (2.50) 16.21 28.65((1)) 628.29 600.00 (4.5) 10.1 7.1
2022 1,176 (1.10) 22.41 24.80 686.69 634.00 (7.7) 10.3 4.4
2023 1,139 (5.60) 25.99 26.20 713.75 660.00 (7.5) 6.6 4.7
2024 1,135 (13.99) 23.93 27.20 779.97 690.00 (11.5) 6.2 3.1
2025 1,126 (7.17) 25.02 28.80 817.16 740.00 (9.4) 5.6 5.0
((1)) including special dividend of 4.65p.
Capital Returns (excluding dividends paid) to 31 March 2025
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 3yr 5yr 10yr
NAV (debt at fair value) (%) 1.3 10.6 -8.5 -0.9 -29.6 28.1 9.3 3.9 9.3 4.8 19.0 66.6 19.1
Share Price (%) 0.5 7.3 -10.0 0.3 -32.6 38.2 5.7 4.1 4.5 7.2 16.7 70.5 11.8
FTSE All-Share Index (%) -7.3 17.5 -2.4 2.2 -21.9 23.3 9.3 -0.7 4.3 6.6 10.4 48.8 26.2
Source: LSEG Data & Analytics.
Total Returns (with dividends reinvested) to 31 March 2025
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 3yr 5yr 10yr
NAV (debt at fair value) (%) 5.0 14.7 -5.9 2.9 -26.7 34.8 14.1 7.9 13.4 8.3 32.6 103.9 75.1
Share Price (%) 4.0 11.2 -6.7 4.6 -29.4 46.4 10.6 8.4 8.9 11.3 31.4 112.7 69.5
FTSE All-Share Index (%) -3.9 22.0 1.2 6.4 -18.5 26.7 13.0 2.9 8.4 10.5 23.3 76.5 81.7
Source: LSEG Data & Analytics.
CHAIR'S STATEMENT
DEAR SHAREHOLDERS,
The end of the Company's financial year was an important milestone, as it was
the fifth anniversary of the appointment of our management team. Most
importantly, the strong investment performance over these five years has been
encouraging. We have also made a series of other improvements to the Company
over this period, including reducing the investment management fee, therefore
helping to lower the ongoing cost ratio to 0.51%, putting in place attractive
new long-term borrowing arrangements and more recently returning the dividend
back to getting ahead of inflation. The Company also enjoys an increasingly
high brand profile. All of this leaves us very well placed to develop and grow
the Company further in the years ahead.
While the Company has enjoyed a strong period of operation, there have been
significant challenges to the broader investment trust sector in the last
twelve months and beyond. The issues faced have included corporate activity
seeking to exploit wide discounts, as well as an evolving regulatory approach
towards cost disclosure that has had the unintended consequence of making the
sector less attractive to some wealth managers.
As a Board we remain alert to all these challenges in the sector. For the
Company specifically, while the five year NAV and share price returns are
comfortably in excess of the benchmark, the share price discount to NAV has
remained at or around 10% for the last year. The challenge within the
investment trust sector is an imbalance of supply and demand for shares. The
Company has sought to address this by buying back a significant number of
shares over the period, 17.4% cumulatively since March 2020, including 4.7% in
the last twelve months. I discuss this and other initiatives to address the
discount later in this statement.
INVESTMENT OBJECTIVE AND POLICY
One initiative we have undertaken recently is to seek to simplify our
investment objective and investment policy. In particular we propose that the
investment objective is set out in one clear statement. We are recommending:
'The Company aims to exceed the total return on the FTSE All-Share Index and
grow its dividend faster than UK inflation. This objective will be assessed
over the long term and performance against the FTSE All-Share Index will be
measured on a NAV total return basis.' These changes to the wording of our
investment objective and policy will change neither the manner in which the
Company's portfolio is managed nor what the Company is seeking to achieve. But
we do hope they will resonate with investors.
You can see this described in more detail in the Business Review section and
we seek your approval to the changes at our upcoming AGM - see resolution 12
in the notice of the AGM.
PERFORMANCE
The Company's NAV rose 8.3% over the twelve months under review. The share
price rose 11.3%. Both these returns compare with the FTSE All-Share Index
return of 10.5%. The underperformance of the NAV over the year was primarily a
function of share price weakness in a small number of holdings, which the
Portfolio Managers explore further in their statement. More generally, it is
encouraging that the UK equity market has had a better year compared with
other equity markets, particularly the US. The MSCI US Index returned 7.8%
over the period and the MSCI All Country World Index returned 4.9%.
The returns of the UK market illustrate why we remain enthusiastic about the
strength of the UK-listed businesses in the portfolio. As a Board we regularly
discuss the challenges facing the UK equity market with the Portfolio Managers
and shareholders - these include a shrinking universe of stocks (in common
with many other markets) and some biases in the composition of the benchmark
towards sectors such as pharmaceuticals and extractive industries. However, as
the returns of the last year demonstrate, and with three and five year returns
for UK equities now much closer to global equity market returns, we remain
confident that the Portfolio Managers' diversified portfolio of deeply
researched stocks should underpin attractive future returns to shareholders.
Overall, it is encouraging to record that the Company's NAV and share price
returns are ahead of the benchmark over three and five years to 31 March 2025.
Over ten years the NAV is marginally behind the benchmark and the share price
marginally ahead. Over the three years, the Company's NAV return has been
32.6%, with the Company's benchmark returning 23.3% over the same period. Over
the past five years, the NAV return has been 103.9%, compared with the
benchmark returning 76.5%. Over the past ten years, the NAV return has been
75.1%, compared with the benchmark returning 81.7%. In all these cases, the
NAV is stated after deducting debt at fair value.
DIVIDENDS
Last month, we declared the third interim dividend of 7.5 pence per share. As
a Board we are proposing the same payment of 7.5 pence per share for the final
dividend, which is paid this summer. Assuming this proposal is approved by
shareholders at July's AGM, total dividends for the financial year as a whole
will be 28.8 pence per share. This will represent an increase of 5.9% compared
with the previous year and is comfortably in excess of the rate of UK
inflation which was 2.3%, ensuring that we meet the second of our investment
objectives.
This year's dividend is funded largely by the portfolio's natural underlying
income. Overall, the Company generated earnings per share of 25.0 pence. We
are content that a modest draw on capital is sustainable.
Additionally, as the Portfolio Managers note in their report, the headline
level of portfolio income understates the overall distributions by portfolio
holdings to shareholders including Edinburgh, as many companies also return
surplus capital through share buybacks. Overall, the company's income
generation and dividend paying capabilities are in strong shape - as the 5.9%
increase indicates.
BORROWINGS
The Company has £120m of long-term debt (the 'par' value) which was
negotiated in 2021. The blended fixed annual coupon across the four tranches
of debt is 2.4% and the average period to maturity is 23 years. Given our high
expectations for portfolio returns over time, we expect this debt to be
additive to the Company's returns. This was the case in the year under review.
At the end of the financial year the Company had cash balances of 0.6%,
meaning that net debt at par as a percentage of NAV was 10.0%. However, it is
the general convention in the investment trust sector to look at the fair
value of debt, which takes account of the change in bond yields. Such changes
can have dramatic effects on the value of long-term debt such as ours. Indeed,
as bond yields have risen since we negotiated the borrowings in 2021, the fair
value of the debt has fallen from £120m to £67m. Once cash is deducted, net
borrowing at fair value as a percentage of NAV is 5.0%. This is the figure
quoted at the front of this report and in factsheets.
SHARE PRICE DISCOUNT TO NET ASSET VALUE
The Company's discount averaged 10% over the year, having started at 11.5% and
finishing at 9.4%. At the time of signing this statement, it had narrowed to
7.8%. We took advantage of the discount over the year, with an active share
buyback programme, buying back 4.7% of the opening share count. This has
enhanced the NAV by 0.4% over the period. Over the last five years, we have
bought back a cumulative 17% of shares in issue, which has enhanced the NAV by
1.7%. As a Board we have considered the scale of the buyback and whether we
should go further with a view to achieving a tighter discount. We have also
considered other measures that might help narrow the discount, such as
continuation votes and tenders. For now, with strong long-term NAV total
returns, including the dividend growth described above, as well as the
marketing of the Company described below, we are confident that our approach
will move market perceptions in Edinburgh's favour and allow the discount to
tighten further. The Board will continue its strong focus on this and will
keep all options under close consideration.
MARKETING
We continue to execute a marketing plan to raise the profile of the Company
and drive demand from new and existing shareholders. Initiatives have included
podcasts, videos, a publication reviewing the last five years, and attendance
at a range of events including a major AJ Bell investment trust conference in
London. The management team have been quoted and interviewed in a range of
publications over the year, including the Financial Times, Sunday Times and
Daily Mail, and I was interviewed by the influential Money Makers podcast. We
also hosted in-person events for shareholders in London in addition to the AGM
in Edinburgh. The cost of this marketing is carefully assessed by the Board
against a series of Key Performance Indicators (KPIs), to ensure value for
money.
BOARD AND GOVERNANCE
There have been no changes to the composition of the Board over the year. It
has operated well throughout with all Directors making significant
contributions to our discussions. As per the AIC Corporate Governance Code
(the 'AIC Code') recommendations, an internal Board review was undertaken,
covering performance of the Board, individual directors and the Chair. The
overall results were good, providing useful insight for the Board. The Board
continues to meet the FCA Listing Rules targets on gender diversity, female
representation in senior roles and ethnic representation on the Board. All
Directors also conform with the UK Corporate Governance Code's guidance on
board tenure. I thank all my fellow Directors for their hard work on behalf of
shareholders over the last year.
ANNUAL GENERAL MEETING ('AGM')
This year's AGM will take place on Tuesday 22 July 2025 at 11:00 a.m. at the
Balmoral Hotel in Edinburgh. The Board looks forward to meeting as many
shareholders there as possible. As usual there will be votes on resolutions as
set out in the notice of AGM. I encourage shareholders to vote in person at
the AGM or through the proxy facility on the voting card. The holders of
shares on investment 'platforms' should be able to vote through their service
provider. After the voting, there will be a presentation by the Portfolio
Managers. There will also be an informal lunch and a chance to meet a range of
colleagues and advisors that manage the Company on a day-to-day basis. For
those unable to attend in person, the AGM will be streamed online, with the
ability to post questions live into the meeting. The link for electronic
access will be displayed prominently on the Company's website.
LONDON SHAREHOLDER EVENT
We will host a presentation to shareholders on Wednesday 8 October 2025 at
11:00 a.m. This will be another chance to meet the Board, Portfolio Managers
and other members of the team. Further details will be posted on the Company's
website in due course. We look forward to meeting shareholders at this event
and at the AGM.
OUTLOOK
At the time of writing, equity markets have recovered much of the ground that
was lost in early April after President Trump's tariff plans were announced.
The scale of any tariffs is yet to be confirmed and therefore the actual
economic impact hard to predict. Nonetheless, the volatility in markets that
followed the tariff announcements is another reminder of the short‑term
challenges that investors face as the global economic order evolves. We feel
more strongly than ever that a stock‑driven and flexible investment process,
focusing on delivering attractive long-term total returns, is the best way of
navigating the geopolitical and macroeconomic challenges to the advantage of
shareholders. With the companies held in the portfolio in strong shape, we are
confident that Edinburgh Investment Trust is well placed to deliver attractive
returns to its shareholders in the years ahead.
ELISABETH STHEEMAN / Chair / 20 May 2025
PORTFOLIO MANAGERS' REPORT
FOR THE YEAR ENDED 31 MARCH 2025
DEAR SHAREHOLDERS,
It has been a great pleasure to complete our first full year as the Portfolio
Managers of your Company, since taking over from colleagues on the Global
Fundamental team at Liontrust. Over the year we have attended a range of
in-person shareholder events, explaining to attendees how we execute our
day-to-day responsibilities. We have enjoyed the opportunity to discuss how we
are stewarding the Company's assets. We have also posted a series of updates
on our investment views on the Company's website and on social media and trust
that these have also been helpful. We are looking forward to another year of
engagement with shareholders, starting with the Annual General Meeting this
July in Edinburgh, and then a shareholder update in London in October. We hope
as many shareholders as possible will attend these events.
Our approach is rooted in bottom-up fundamental analysis with the vast
majority of our time spent on in-depth stock research. We identify companies
we think are underappreciated by the market through in-depth research. These
companies can be across the style spectrum but generally we believe the best
medium to long-term returns are found in businesses that have a durable
economic moat and exposure to structural growth.
However, no company operates in a vacuum; it is important to understand what
is going on in the macroeconomic environment. We do this through both a more
traditional macroeconomic overlay, but most importantly in the approach we
call 'Macro from the Micro', where we build a macroeconomic picture from the
ground up, by speaking to a broad range of companies and understanding what
they are seeing at the coalface.
The end result is the construction of a portfolio of high quality stocks,
adopting a flexible investment style to produce an 'all weather' portfolio
aiming to outperform in different economic and market environments. We manage
the portfolio with a total return approach, with the income generated by the
portfolio supporting the dividends that the Company pays to its shareholders.
RETURNS
Over the financial year the NAV total return was 8.3% and the share price
total return was 11.3%. These compare with a rise in the Company's benchmark,
the FTSE All-Share index, of 10.5%. Operationally, the portfolio has had a
strong year with the profit and dividend growth of the holdings closely
matching our expectations. However, the NAV return was modestly behind the
index, primarily because of share price weakness in a small number of holdings
such as Greggs (the value 'food to go' operator, which has seen a slow down in
sales and has reported weak consumer confidence), Spirax (the specialist
engineering group, which is exposed to slowing global industrial production
and challenges within its thermal solutions division) and Dunelm (the UK
homewares leader, also exposed to slowing retail demand). The portfolio also
had only a small position in HSBC, which in common with several other banking
stocks, had a strong year. This was an additional significant hinderance of
the portfolio's return relative to that of the index.
Positive contributors to returns included NatWest Group, Verisk (the US
insurance focused data and analytics company) and Baltic Classifieds Group
(classifieds business) with Verisk and Baltic Classifieds new positions in the
portfolio. NatWest's share price responded to strong capital generation and
cash returns to shareholders, combined with improving sentiment as the UK
government's stake - dating back to the financial crisis of 2008 -
significantly reduced over the year. Having no holdings in either Diageo
(alcoholic drinks) or Glencore (mining), both of which we have had concerns
about the growth outlook, also helped relative performance as the share prices
of these large stocks fell.
The Company's share price return was ahead of the index over the year. This
was principally because the share price discount to NAV narrowed, from 11.5%
to 9.4%.
Turning to the detail behind the dividend, the Company's earnings per share
rose from 23.9p to 25.0p, an increase of 4.6%. Top line revenues were £40.7m,
and as such, the approximate headline portfolio yield is 3.4%. As we flagged
in this report last year, the revenues generated by the portfolio understate
the distributions made by investee companies as some choose to return cash to
shareholders through share buybacks. We estimate that the 'buyback yield' of
the portfolio over the year was approximately 1.9%, which represents a
significant return of capital even though it does not affect the numbers
immediately above.
As the Chair has written in her report, total dividends per share for the year
of 28.8p will represent growth of 5.9% compared with the previous financial
year. We are confident that the Company should be able to generate mid-single
digit growth in earnings over the medium term, which should be supportive of
similar dividend growth in excess of inflation for the Company. The main
variable is the degree to which companies return capital to shareholders via
buybacks instead of conventional dividends.
TRANSACTIONS
Notable transactions during the year include purchases in National Grid, LSEG
(London Stock Exchange Group), Grainger, and Segro - all of which are new
additions to your portfolio.
National Grid is a leading US and UK regulated utility, playing a critical
role in the global energy transition. The company is exposed to the strong
structural growth tailwind of electrification as a result of global moves to
decarbonise, providing medium-term earnings visibility. We initiated the
position following National Grid strengthening its balance sheet through a
rights issue and a dividend cut, leaving it better equipped to capitalise on
these trends over the medium term.
Grainger is a leader in the growing professional build to rent property sector
in the UK. The supply-demand dynamic of this sector is attractive, with
consistently strong demand for high-quality rental properties, set against a
supply side dominated by private rental landlords who are likely to struggle
with new efficiency regulations.
Segro is a leading owner, manager and developer of warehouses and industrial
property. With high-quality assets strategically located in prime areas, Segro
is well-positioned to benefit from structural trends including the growing
demand for data centres which continue to drive long-term growth
opportunities.
The main sales from the portfolio were Marks and Spencer, Centrica (utility),
and Mondi (paper and packaging). Marks and Spencer has delivered on a
hard-fought turnaround under the new management team, reinvesting in product,
price, and proposition. We felt the turnaround and future prospects had become
fairly priced, and exited the position. Centrica, like Marks and Spencer, has
been on a self-help journey, with a significant improvement in capital
allocation and discipline over recent years, alongside an improvement in
operational and financial delivery. Candidly, we exited the position in
Centrica too early as the business has continued to surprise positively around
its cash generation potential. Mondi we exited owing to cyclical concerns and
concerns that sector consolidation would likely place them at a strategic
disadvantage.
CURRENT SHAPE OF PORTFOLIO
We think about portfolio construction very carefully and, by building a
portfolio of around 40-50 advantaged businesses, we aim for a set of holdings
that are economically and thematically well diversified. The current themes
and economic diversification within the portfolio are shown below and will be
dealt with in more detail at the shareholder event in October 2025.
The proportion of the portfolio invested in overseas stocks is 6.7%, with
three names featuring: Verisk and Thermo Fisher Scientific in the US, and KONE
in Finland. These three holdings each bring unique economic characteristics
that we cannot replicate from the universe of UK stocks. However, the
remaining 42 holdings are all UK listed, reflecting the wide range of strong
businesses in the UK market combined with attractive valuation both in
absolute terms and relative to global peers.
ENGAGEMENT WITH COMPANIES
Our investment process seeks to take account of the significant variables that
influence a company's prospects. Whether these variables be financial,
strategic, reputational or have any other feature, our process tracks the most
material ones. The following three examples illustrate how we engage with
companies on key issues for each investment case.
Greggs
This company has made substantial investment in its infrastructure and
distribution assets. While the management team's decision to invest ahead of
its anticipated growth is to be applauded, as this should underpin the
long-term competitive advantages of the business, the extent of the investment
was higher than we (and the market) anticipated. The consequence on the
company is the financial impact of margin erosion. We have discussed this with
the company, highlighting in particular how they have communicated the
investment programme to the market. This subject will remain an area of focus
for us in the year ahead, while for now the company is a 2.5% weight in the
portfolio, and remains one of the top 15 positions relative to its index
weight.
Dunelm
In late 2024 we visited this market leader in the fragmented UK homewares and
furniture market. Dunelm continues to gain market share by offering
high-quality, own-brand products at compelling prices - a proposition that is
difficult for peers to replicate and creates a meaningful barrier to entry.
Our visit included a Dunelm store, their made-to-measure manufacturing centre
(curtains, blinds and other soft furnishings), and head office where we met
the Digital Director and Group General Counsel & Company Secretary. We
were given a store tour by a regional manager who explained the strong return
profile from store refits - a key area of investment for Dunelm. The
manufacturing visit highlighted operational strengths: lead times have been
reduced from 27 to 7-8 days, with potential to deliver in as little as 3 days.
Pleasingly there is ample capacity for further growth. Our discussions at head
office also provided insights into how Dunelm is leveraging digital and data
capabilities to deepen customer engagement and expand market share. We engaged
with the Digital Director regarding Dunelm's advertising strategy and thinking
around introducing an app. We came out of the meeting confident that Dunelm is
thinking sensibly around different ways to drive organic traffic to its site
and boost conversion.
Overall, our conviction in Dunelm's quality as a company has grown. Despite
some near-term consumer uncertainty, we remain confident in the company's
medium-term outlook, underpinning its standing as the top position in the
portfolio relative to the index.
Rotork
This company is a market leader in flow control and instrumentation products
(actuators) and is exposed to attractive long-term growth drivers such as oil
and gas electrification, and industrial process automation. Rotork's CEO,
appointed in 2022, brought a renewed focus on driving organic growth through
its 'Growth +' strategy, aiming to deliver mid to high-single digit topline
growth, with gentle margin accretion medium term, through focusing on target
segments with higher growth rates, reinforcing and improving the customer
value proposition, and improving innovation.
A site visit confirmed strong operational efficiency and a more customer
centric culture. Lead times are now best-in-class and well below industry
averages. The facility is well invested with plenty of capacity to support
future growth. Incremental investments are delivering strong returns. Our
thesis for Rotork revolves around a renewed focus on organic growth. The
organisation has become much more front-footed and the mentality of the
engineers has evolved to be customer focused. Meeting the Managing Director of
Water & Power, a key growth driver for organic growth, it was evident that
these changes had fed through the division and had resulted in them winning
new projects. For example, in Singapore they now have a 97% share at a water
plant vs 50% a couple of years ago. The visit reinforced our conviction in
Rotork's ability to execute and deliver sustainable growth. The holding
remains a mid-sized 2% position in the portfolio.
Spirax
Spirax is a steam specialities engineering business with a strong market
position, providing low cost essential solutions to customers. Around 85% of
their sales are exposed to customer operating budgets rather than capex
budgets, giving the business a degree of resilience relative to Industrial
Production. While Spirax has faced recent challenges due to both
company-specific and macroeconomic factors, we believe the new management team
is high calibre and has implemented changes that should enable a return to
good organic growth with margin expansion.
The facility we visited has undergone major investment in recent years with
the average age of a machine down from around 20 years to 10 years and more
automation has been introduced. Several lines have already doubled output
while halving labour input, an achievement they want to achieve more widely
throughout the site. The management team outlined plans to maximise floor
space efficiency and drive further productivity gains. The General Manager for
UK Supply has a very strong background and seemed to be an agent for change
and would help drive these improvements across the site. Recently there has
been an operational issue at one of its plants and our visit reassured us that
they are on top of the supply chain issues. These actions helped us better
understand the level of ongoing change in the business, as the management team
continues to drive operational efficiency and position the business for
profitable growth.
More recently we have met with the Chair of the company to emphasise that not
only has operational execution been poor, but also that financial guidance to
the market has been lacking. We conveyed that these both need to improve. We
also discussed the company's historic acquisition strategy. In recent years
the company has made a series of acquisitions, of c. £1b, to create an
electric thermal solutions business. To date the company has not earnt an
attractive return on capital on these investments and we discussed the likely
progression of returns from here. Like Greggs, the company is a 2.5% weight in
the portfolio, and remains one of the top 15 positions relative to its index
weight.
OUTLOOK
The re-election of Donald Trump has increased economic uncertainty. The
'Liberation' day tariff announcement proved more severe than the markets had
anticipated, triggering sharp sell-offs across global equity markets. Tariffs
are expected to increase the cost of doing business for companies and will
weigh on consumer and corporate confidence. Closer to home, the UK faces its
own set of challenges alongside these announcements. The increase in employer
National Insurance rates following Labour's budget will be a direct cost
headwind for UK businesses, especially those with high domestic exposure and
labour-intensive models. We are assessing the extent to which companies are
able to offset these cost headwinds through efficiency gains and pricing
power. Our focus remains on constructing a well-balanced, and diversified
portfolio of advantaged businesses. Our confidence in the medium-term outlook
for the portfolio comes from the excellent strategic, operational, and
financial progress that the vast majority of the companies in the portfolio
have made (and continue to make) over the last couple of years.
IMRAN SATTAR
PORTFOLIO MANAGER
EMILY BARNARD
DEPUTY PORTFOLIO MANAGER
20 MAY 2025
THE PORTFOLIO MANAGERS' CORE INVESTMENT BELIEFS
Our competitive edge rests on the combination of our Global Fundamental team's
experience and our flexible investment style.
ACTIVE MANAGEMENT
Stock-driven. Share prices follow fundamentals over the long term. Through our
proven investment approach, we expect to outperform over the long term, net of
fees.
High conviction portfolio. We expect the portfolio to contain around 40 to 50
stocks. Holdings sizes reflect the conviction we have in each company and our
assessment of the upside and downside potential of its share price.
Risk. We think of risk as permanent capital loss. To mitigate this, our
analysis of a company's valuation is the first line of defence. Our risk
management process combines our depth of knowledge of the stocks in the
portfolio, plus separate oversight by Liontrust's Portfolio Risk Committee.
FLEXIBLE INVESTMENT STYLE
Open-minded approach. We do not have dogmatic style biases, such as 'growth'
or 'value'. We are also prepared to invest in companies that we identify as
having scope for recovery through management change, business transformation
or an improving business environment. We expect the profile of the portfolio
to evolve depending on our assessment of individual companies and our reading
of the economic and market background.
Disciplined, rigorous, fundamental research. In keeping with the stock-driven
nature of the portfolio, the vast majority of our effort takes the form of
in-depth stock research. The remainder is spent on macroeconomic analysis.
Materiality assessment is a core part of the investment process. As part of
the investment process, we identify and prioritise the key risks and
opportunities that each holding (or potential holding) faces over our
investment time horizon. Some of these have financial implications for the
portfolio's holdings and, as such, we engage each holding on its key issues or
exposures. The outcomes from our in-depth analysis and engagement help form
our conviction level and investment decisions.
TOTAL RETURN STRATEGY
A focus on both capital growth and income. We take a total return approach:
investor returns should derive over the long term from both capital
appreciation and dividend income. We generally prefer companies with organic
investment opportunities, but will sometimes hold companies with acquisitive
profiles. Either way, companies with growth tailwinds are preferred. We view
income as an important component rather than the primary driver of investment
return. This aligns with the Company's twin objectives.
LONG TERM
Typical holding period of three to five years. This is an appropriate period
to ensure that underlying corporate fundamentals drive investment returns. It
is therefore also a sensible period over which to measure an active manager.
Gearing should enhance shareholder returns. One of the advantages of an
investment trust is the ability to borrow to enhance equity returns. We
therefore expect gearing to boost investment returns over time.
CAPACITY MANAGEMENT
Scale diseconomies. In our view, investment performance can rapidly suffer if
assets under management become too large. We carefully manage capacity to
ensure that the interests of existing clients take precedence over new
clients. The approach ensures we retain a size advantage. It enables us to
reposition the portfolio - and those of all our other clients - quickly and
efficiently when required.
DEEP INVESTMENT RESOURCE WITH GLOBAL PERSPECTIVE
A close-knit investment team. Average experience of the investment team is 14
years. The team has been stress-tested across various market cycles.
Challenge and debate. This is encouraged within a structured risk control
environment, with robust oversight processes. Team members own Liontrust
equity and co-invest in the team's investment strategies, including Edinburgh
Investment Trust, which in turn underpins teamwork and collaboration.
BUSINESS REVIEW
STRATEGY AND BUSINESS MODEL
The Edinburgh Investment Trust plc is an investment company and its investment
objective is set out below. The strategy the Board follows to achieve that
objective is to set investment policy and risk guidelines, including
investment limits, and to monitor how they are applied. These are also set out
below and have been approved by shareholders.
The business model the Company has adopted to achieve its investment objective
has been to contract the services of the Manager to manage and administer the
portfolio in accordance with the Board's strategy and under its oversight. The
Portfolio Manager with lead individual responsibility for the day-to-day
management of the portfolio is Imran Sattar and the Deputy Portfolio Manager
is Emily Barnard. Imran Sattar and Emily Barnard took on these new roles on 6
February 2024, following the retirement of James de Uphaugh, after 36 years in
the industry.
In addition, the Company has contractual arrangements with MUFG Corporate
Markets to act as registrar, The Bank of New York Mellon (International)
Limited as depositary and custodian, and NSM Funds (UK) Limited to act as
Company Secretary.
INVESTMENT OBJECTIVE AND POLICY
Investment Objective
The Company invests 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.
Investment Policy
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 market value
of the Company's investment portfolio, measured at the time of any
acquisition, in securities listed on stock exchanges outside the UK. The
portfolio is selected by the Portfolio Manager on the basis of its assessment
of the fundamental value available in individual securities. Whilst the
Company's overall exposure to individual securities is monitored carefully by
the Board, the portfolio is not primarily structured on the basis of industry
weightings. No acquisition may be made which would result in a holding being
greater than 10% of the market value of the Company's investment portfolio,
nor will the Company invest more than 15% of the market value of its
investment portfolio in any other UK-listed investment trusts or investment
companies. Further, the Company may not hold more than 5% of the issued share
capital (or voting shares) of any one company. Investment in convertibles is
subject to normal security limits. Should these or any other limit be exceeded
by subsequent market movement, each resulting position is specifically
reviewed by the Board. The Company may borrow money to provide gearing to the
equity portfolio of up to 25% of net assets.
Use of derivative instruments is monitored carefully by the Board and
permitted within the following constraints: the writing of covered calls
against securities which in aggregate amount to no more than 10% of the value
of the portfolio, and the investment in FTSE 100 futures which when exercised
would equate to no more than 15% of the value of the portfolio. Other
derivative instruments may be employed, subject to prior Board approval,
provided that the cost (and potential liability) of exercise of all
outstanding derivative positions at any time should not exceed 25% of the
value of the portfolio at that time. The Company may hedge exposure to changes
in foreign currency rates in respect of its overseas investments.
Amendment to the Company's Investment Objective and Policy
The Company, after discussion with the Portfolio Managers, determined that it
would be beneficial to amend the existing investment objective and policy to
simplify the wording and to clarify (in the investment objective) the nature
of the shareholder returns targeted by the Company. The proposed change to the
investment objective and policy wording will change neither the manner in
which the Company's portfolio is managed, nor what the Company is seeking to
achieve.
It is proposed that the investment objective be simplified by using wording
more easily understood by the investor which makes it clear that the Company
aims to exceed the total return on the FTSE All-Share Index on a net asset
value total return basis and grow its dividend faster than UK inflation. This
will be set out in one clear statement which may resonate more effectively
with the retail investor base, and which may be more simply messaged in
marketing campaigns and as a short, memorable phrase going forwards.
To avoid any ambiguity, the stated investment objective will be expanded upon
to make it clear that (i) the Company's objectives will be assessed over the
long term; and (ii) the Company's net asset value total return performance
will be measured against the FTSE All-Share Index total return. This will
ensure that it is clear that the investment objective is to target an
attractive total return relative to the total return of the Index (which is
how the portfolio is currently managed and, accordingly, the material change
is to the wording of the investment objective and not to its substance).
In addition, the Company proposes to make some non-substantive changes to the
wording of its investment policy, which will serve to re-order the text and
break it into shorter, more easily digestible sections for the reader.
The Board believes that the proposed amendments are in the best interests of
the shareholders.
The proposed amendments have been approved by the FCA and also require
shareholder approval. The full text of the revised investment objective and
investment policy may be found in the appendix to the notice of the AGM.
RESULTS AND DIVIDENDS
At the year end the share price was 740.00p per ordinary share (2024:
690.00p). The net asset value (debt at fair value) per ordinary share was
817.16p (2024: 779.97p).
The Directors declared a third interim dividend for the year ended 31 March
2025 of 7.50 pence per ordinary share (2024: 6.90 pence), an increase of 8.7%
compared with each of the first two interim dividends. This dividend is
payable on 23 May 2025 to ordinary shareholders on the register on 2 May 2025.
The shares were quoted ex-dividend on 1 May 2025.
The Board is recommending a final dividend of 7.50 pence per share which is
the same as the third interim dividend declared last month, implying a full
year payout of 28.8 pence per share. This represents an increase of 5.9%
compared with the total underlying ordinary dividends paid for the financial
year to 31 March 2024.
Subject to approval at the Company's AGM, the dividend will have an
ex-dividend date of 5 June 2025 and will be paid on 31 July 2025, to
shareholders on the register at 6 June 2025.
PERFORMANCE
The Board reviews the Company's performance by reference to a number of KPIs.
They are measures of the Company's absolute and relative performance and
assist in managing performance and compliance and are reviewed by the Board at
each meeting.
The Chair's Statement gives a commentary on the performance of the Company
during the year, the gearing and the dividend.
The Board reviews an analysis of expenditure at each Board meeting, and the
Audit and Management Engagement Committees formally review the fees payable to
the main service providers, including the Manager, on an annual basis.
The ongoing charges figure is calculated in accordance with the AIC
methodology and is reviewed by the Board annually in comparison to peers.
The Board also regularly reviews the performance of the Company in relation to
the 20 investment trusts in the UK Equity Income sector (including the
Company). As at 31 March 2025 the Company was ranked 20th by NAV performance
in this sector over one year, 2nd over three years and 4th over five years
(source: JP Morgan Cazenove).
OUTLOOK, INCLUDING THE FUTURE OF THE COMPANY
The main trends and factors likely to affect the future development,
performance and position of the Company's business can be found in the
Portfolio Managers' Report.
FINANCIAL POSITION AND BORROWINGS
The Company's balance sheet shows the assets and liabilities at the year end.
Borrowings at the year end comprised £120 million of Unsecured Senior Loan
Notes (2024: £120 million).
PERFORMANCE ATTRIBUTION
The following table illustrates the differing contributions to NAV excess
returns, split between underlying stock selection and other factors such as
gearing, costs and share buybacks.
for the for the
year ended year ended
31 March 2025 31 March 2024
% %
Total Return Basis((1))
NAV (debt at fair value) 8.3 13.4
Benchmark 10.5 8.4
Relative performance -2.2 5.0
Analysis of Relative
Performance
Portfolio total return 7.3 11.8
Benchmark total return((1)) 10.5 8.4
Portfolio outperformance A -3.2 3.4
Borrowings:
Net gearing effect 0.8 1.2
Interest -0.3 -0.3
Market value movement 0.6 0.4
Management fee -0.4 -0.4
Other expenses -0.1 -0.1
Tax 0.0 0.0
Share buybacks 0.4 0.8
Subtotal B 1.0 1.6
Relative performance A+B -2.2 5.0
((1)) LSEG Data & Analytics.
Performance attribution - analyses the performance of the Company relative to
its benchmark. The Analysis of Relative Performance estimates the quantum of
relative performance that is attributable to each of the factors set out in
this table. The table is intended to be indicative rather than precise; the
accuracy of each estimate is determined by a variety of factors such as the
volatility of investment returns over the year and intra-month, and the timing
of income receipts and expenditure payments.
Relative performance - represents the arithmetic difference between the NAV
and benchmark returns.
Portfolio total return - represents the return of the holdings in the
portfolio including transaction costs, cash and income received, but excluding
expenses incurred by the Company.
Net gearing effect - measures the impact of the unsecured senior loan notes
and cash on the Company's relative performance. This will be positive if the
portfolio has positive capital performance and negative if capital performance
is negative.
Interest - interest payable on the unsecured senior loan notes has a negative
impact on performance.
Market value movement - represents the change in market value of the Company's
borrowings, measured to the end of the financial year or maturity from the
start of the financial year or issuance, each as appropriate.
Management fee - the fee reduces the Company's net assets and decreases
returns.
Other expenses and tax - reduce the level of assets and therefore result in a
negative effect on relative performance.
Share buybacks - measures the effect of ordinary shares bought back at a
discount to net asset value on the Company's relative performance.
INVESTMENTS IN ORDER OF VALUATION
AT 31 MARCH 2025
UK LISTED ORDINARY SHARES UNLESS OTHERWISE STATED
At Market Value % of
Company Sector £'000 Portfolio
Shell Oil, Gas and Coal 92,150 7.5
Unilever Personal Care, Drug and Grocery Stores 76,791 6.2
GSK Pharmaceuticals and Biotechnology 55,563 4.5
Haleon Pharmaceuticals and Biotechnology 55,456 4.5
Compass Consumer Services 49,687 4.0
NatWest Banks 49,167 4.0
Tesco Personal Care, Drug and Grocery Stores 47,345 3.8
AstraZeneca Pharmaceuticals and Biotechnology 46,497 3.8
Dunelm Retailers 45,561 3.7
National Grid Gas, Water and Multi-utilities 44,222 3.6
TOP TEN HOLDINGS 562,439 45.6
Whitbread Travel and Leisure 37,091 3.0
Auto Trader Software and Computer Services 35,583 2.9
Rentokil Industrial Support Services 34,573 2.8
Grainger Real Estate Investment and Services 33,179 2.7
Verisk - US Listed Industrial Support Services 32,729 2.7
London Stock Exchange Group Finance and Credit Services 31,354 2.5
Spirax-Sarco Engineering Industrial Engineering 30,899 2.5
Anglo American Industrial Metals and Mining 30,481 2.5
Greggs Personal Care, Drug and Grocery Stores 30,341 2.5
Segro Real Estate Investment Trusts 28,867 2.3
TOP TWENTY HOLDINGS 887,536 72.0
Admiral Non-Life Insurance 27,141 2.2
Baltic Classifieds Software and Computer Services 25,746 2.1
Rotork Electronic and Electrical Equipment 24,604 2.0
Rightmove Real Estate Investment and Services 24,549 2.0
Thermo Fisher Scientific - US Listed Medical Equipment and Services 22,661 1.8
KONE - B shares - Finnish Listed Industrial Engineering 20,701 1.7
Halma Electronic and Electrical Equipment 20,021 1.6
HSBC Banks 17,401 1.4
Sage Software and Computer Services 16,854 1.4
AJ Bell Investment Banking and Brokerage Services 16,431 1.3
TOP THIRTY HOLDINGS 1,103,645 89.5
BAE Systems Aerospace and Defence 16,376 1.3
Howden Joinery Retailers 15,377 1.3
RELX Media 14,701 1.2
Money Supermarket Software and Computer Services 13,420 1.1
Lloyds Bank Banks 12,482 1.0
Sainsbury's Personal Care, Drug and Grocery Stores 11,960 1.0
Diploma Industrial Support Services 10,993 0.9
3i Investment Banking and Brokerage Services 10,492 1.0
SSE Electricity 5,291 0.4
Applied Nutrition Food Producers 5,152 0.4
TOP FORTY HOLDINGS 1,219,889 99.1
Oxford Instruments Electronic and Electrical Equipment 4,186 0.3
Renishaw Electronic and Electrical Equipment 3,623 0.3
LondonMetric Property Real Estate Investment Trusts 3,190 0.3
Eurovestech (UQ) Investment Banking and Brokerage Services - -
Raven Property (S) - Preference shares Real Estate Investment and Services - -
TOTAL HOLDINGS 45 1,230,888 100.0
(31 MARCH 2024: 52)
UQ - Unquoted investment
S - Delisted
PRINCIPAL RISKS AND UNCERTAINTIES
RISK MANAGEMENT AND MITIGATION
The Manager ('AIFM') is responsible for the portfolio management of the
Company and for exercising the risk management function in respect of the
Company. As part of this risk management function, the AIFM maintains a risk
control summary of identified risks including emerging risks likely to impact
the Company. This is updated regularly, following discussions with the Manager
and highlighted to the Board.
The Board, through the Audit Committee and with the assistance of the Manager,
regularly reviews a report of potential risks to the Company in the form of a
risk control summary. The document includes a description of each identified
risk, the mitigating action taken, reporting and disclosure to the Board and
an impact and probability risk rating. The rating is given both prior to and
after the Board's mitigation of each risk. The information is then displayed
in matrix form which allows the Board to identify the Company's key risks. As
the changing risk environment in which the Company operates has evolved, the
total number of risks has fluctuated, with certain risks having been removed
and new risks added with emerging risks actively discussed as part of this
process and, so far as practicable, mitigated.
Furthermore, the risk control summary underpins the Company's preparation for
the revised AIC Code, which requires boards to make a declaration of the
effectiveness of the material controls at the balance sheet date, which
applies to accounting periods beginning on or after 1 January 2026. This
particularly supports the new Provision 34 of the AIC Code which ensures the
Board has established and maintains procedures to manage risk, oversee the
internal control framework and identify any material controls which have not
operated effectively, identifying both actions and improvements.
The composition of the Board is regularly reviewed to ensure its members offer
sufficient knowledge and experience to assess, anticipate and mitigate these
risks, as far as possible.
The principal risks and uncertainties facing the Company are an integral
consideration when assessing the operations in place to meet these objectives,
including the performance of the portfolio, share price and dividends. The
Board is ultimately responsible for the risk control systems, but the
day-to-day operation and monitoring are delegated to the Manager. The Board
has carried out a robust assessment of the principal and emerging risks facing
the Company, including those that would threaten its business model, future
performance, solvency or liquidity. The following sets out a description of
the principal and emerging risks and how they are being managed or mitigated.
MARKET RISK
All the Company's investments are traded on recognised stock exchanges, bar a
very small number that have delisted or suspended since purchase. The
principal risk for investors in the Company is a significant fall and/or a
prolonged period of decline in those markets. The Company's investments and
the income derived from them are influenced by many factors such as general
economic conditions, interest rates, inflation, currency movements, a
recurrence of a pandemic, geopolitical events, the war in Ukraine and
government policies (e.g. the recent changes to tariffs by the Trump
administration in the US) as well as by supply and demand reflecting investor
sentiment. Such factors are outside the control of the Board and Manager and
may give rise to high levels of volatility in the prices of investments held
by the Company. The asset value and price of the Company's shares and its
earnings and dividends may consequently also experience volatility and may
decline.
Changes in interest rates, inflation and currency could reduce returns and
lead to depreciation of the Company's net asset value.
Market risk is included in the risk control summary report that is prepared by
the Manager and reviewed by the Board at each meeting. Additionally, the Board
receives reports on the performance of the portfolio at each meeting. The
portfolio is positioned by the Portfolio Managers for medium to long-term
returns.
INVESTMENT RISK
The Board sets investment policy and risk guidelines, together with investment
limits, and monitors adherence to these at each Board meeting. All individual
investment decisions are undertaken by the Portfolio Managers. The Portfolio
Managers' approach is to construct a portfolio which should benefit from
expected future trends in the UK and global economies. The Portfolio Manager
is a long-term investor, prepared to take substantial positions in securities
across a range of different types of stock. This reflects the Portfolio
Managers' high conviction, stock-driven investment process and total return
approach. Strategy, asset allocation and stock selection decisions by the
Portfolio Managers can lead to underperformance of the portfolio relative to
the benchmark and/or income targets.
The Portfolio Managers' style may result in a concentrated portfolio with
significant overweight or underweight positions in individual stocks or
sectors compared to the benchmark and, consequently, the Company's performance
may deviate significantly, possibly for extended periods, from that of the
benchmark. In a similar way, the Portfolio Managers manage other portfolios,
holding many of the same stocks as the Company which reflects the Portfolio
Managers' high conviction style of investment management. This could increase
the liquidity and price risk of certain stocks under certain scenarios and
market conditions. However, the Board and the Portfolio Managers believe that
the investment process and policy outlined above should, over the long term,
meet the Company's objectives of Net Asset Value per share growth in excess of
the benchmark and real growth in the dividend per share. Investment selection
is delegated to the Portfolio Managers. The Board does not specify asset
allocations. Information on the Company's performance against the benchmark
and peer group is provided to the Board at each Board meeting. The Board uses
this to review the performance of the Company, taking into account how
performance relates to the Company's objectives. The Portfolio Managers are
responsible for monitoring the portfolio selected and seek to ensure that
individual stocks meet an acceptable risk-reward profile. There is also
independent oversight of the portfolio and Company's asset structure by the
Liontrust Investment Risk team.
As described in the investment policy, derivatives may be used provided that
the market exposure arising is less than 25% of the value of the portfolio.
Investment performance risk is included in the risk control summary report
that is prepared by the Manager and reviewed by the Board at each meeting. The
Board also receives reports on the performance of the portfolio and on
compliance with the Company's investment policy guidelines from the Manager's
risk and compliance department at each meeting. As part of an annual
assessment, the Board reviews the performance of the Manager and the
management contract at the Management Engagement Committee meeting.
The Board also reviews the annual depository report and report from the
compliance department of the Manager and any breaches of the investment
policy, limits or guidelines are reported immediately to the Board and Audit
Committee Chairs.
Investment risk is increased through the Company's borrowing, namely the
£120m Unsecured Senior Loan Notes. This facilitates additional investment
exposure than would be the case for an unleveraged portfolio; if the
investments fall in value, this will increase the adverse impact on
performance. On a routine basis the Board monitors the appropriateness of
gross and net gearing levels, and the amount of headroom above minimum NAV
levels as agreed with the lenders.
INCOME/DIVIDEND RISK
The Company is subject to the risk that income generation from its investments
fails to reach the level of income required to meet its objectives.
The Board monitors this risk through the review of detailed income and
dividend forecasts and comparison against budget. These are contained within
the Board papers and the Board considers the level of income at each meeting.
Revenue estimates are presented at each Board meeting and Board Committee
meeting which determine the three interim dividends and propose the final
dividend.
The Board also takes into account the size of the Company's accumulated income
and capital reserves which can be used to supplement dividends when income
levels alone do not cover the proposed dividend payments. These reserves are
currently being used to support the dividend and, given the nature of the
portfolio's underlying income generation, we expect this to continue for the
foreseeable future.
DISCOUNT RISK
The share price is monitored on a daily basis and, at the request of the
Board, the Company is empowered to repurchase shares within agreed parameters
which are regularly reviewed with the Company's broker. The discount at which
the shares trade to NAV can be influenced by share repurchases. During the
year, the Company repurchased 7,170,500 shares for holding in treasury (2024:
13,985,000).
Risk management activity includes systematic reviews of the investment
objective and investment strategy and regular dialogue with shareholders and
marketing activities.
Share price and discount risk is included in the risk control summary report
that is prepared by the Manager and reviewed by the Board at each meeting. In
addition, the Board monitors the Company's investment performance against its
stated objectives and peer group and reviews the marketing report at every
Board meeting.
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 (which include the
safeguarding of the assets), registration services, accounting and company
secretarial services.
The principal risks arising from the above mentioned contracts relate to the
performance of the Manager, the performance of administrative, registration,
depositary, custodial and banking services, and the failure of information
technology systems used by third-party service providers. These risk areas
could lead to the loss or impairment of the Company's assets, inadequate
returns to shareholders and loss of investment trust status. Consequently, in
respect of these activities, the Company is dependent on Liontrust's control
systems and those of its administrator, depositary, custodian and registrar.
An annual review of the control environments of all service providers is
carried out by the Company Secretary who provides an assessment of these risks
and the operation of the controls for consideration by the Audit Committee and
is formally reported to and considered by the Board.
Investment trust status is assessed by the Manager, reviewed at every Board
meeting and confirmed by the Audit Committee and HMRC annually. Taxation
matters are dealt with by independent accountants, with oversight from the
Board.
RELIANCE ON THE MANAGER AND OTHER THIRD-PARTY PROVIDERS RISK
The Company is reliant upon the performance of third-party service providers
for its executive function and other service provisions. The Company's most
significant contract is with Liontrust Fund Partners LLP who have been
appointed as the Company's AIFM. The Company has other contractual
arrangements with third parties to act as administrator, company secretary,
registrar, depositary and broker. The Company's operational structure means
that all cyber risk (information and physical security) arises at its
third-party service providers, including fraud, sabotage or crime against the
Company. Failure by any service provider to carry out its obligations to the
Company in accordance with the terms of its appointment could have a
materially detrimental impact on the operation of the Company and could affect
the ability of the Company to pursue successfully its investment policy and
expose the Company to risk of loss or to reputational risk.
In particular, the Manager performs services which are integral to the
operation of the Company. The Manager may be exposed to the risk that
litigation, misconduct, operational failures, negative publicity and press
speculation, whether or not it is valid, will harm its reputation. Any damage
to the reputation of the Manager could result in counterparties and third
parties being unwilling to deal with the Manager and by extension the Company.
This could have an adverse impact on the ability of the Company to pursue its
investment policy.
The Board seeks to manage these risks in a number of ways:
- The Company Secretary reviews the performance and the service
organisation control reports of third-party service providers and reports to
the Board on an annual basis at the Audit Committee meeting.
- The Board reviews the performance of the Manager at every Board meeting
and otherwise as appropriate. The Board has the power to replace the Manager
and reviews the management contract formally once a year.
- The day-to-day management of the portfolio is the responsibility of the
named Portfolio Managers.
- The risk that the Portfolio Manager might be incapacitated or otherwise
unavailable is mitigated by the fact that he works within, and is supported
by, the wider Liontrust team. Moreover, Emily Barnard, as Deputy Portfolio
Manager, works closely with Imran on a daily basis and would be able to manage
the portfolio if Imran Sattar was unable to do so for any reason.
- The Board has set guidelines within which the Portfolio Managers are
permitted wide discretion. Any proposed variation outside these guidelines is
referred to the Board and compliance with the guidelines and the guidelines
themselves are reviewed at every Board meeting.
PHYSICAL AND TRANSITIONAL CLIMATE CHANGE
Globally, climate change effects are already emerging in the form of changing
weather patterns. Extreme weather events could potentially impair the
operations of individual investee companies, potential investee companies,
their supply chains and their customers. Legislative changes are driving an
economic adjustment towards a low-carbon economy. There are considerable risks
to the value, business model and operations of investee and potential investee
companies due to stranded assets and how investors, financial regulators and
policymakers respond to climate concerns. The Portfolio Managers take such
risks into account, along with the downside risk to any company - whether in
the form of its business prospects, market valuation or sustainability of
dividends - that is perceived to be making a detrimental contribution to
climate change. The Company invests in a broad portfolio of businesses with
operations spread geographically, which should limit the impact of
location-specific weather events.
Climate change related risks are regularly monitored by the Manager and
reviewed by the Board as required, together with any new guidance.
OTHER RISKS
The Company is subject to laws and regulations by virtue of its status as an
investment trust and is required to comply with certain regulatory
requirements that are applicable to listed closed-ended investment companies.
The Company is subject to the continuing obligations imposed by the UK Listing
Authority on all companies whose shares are listed on the Official List.
The Manager reviews compliance with investment trust tax conditions and other
financial and regulatory requirements on a daily basis with any issues being
immediately brought to the attention of the Board.
The Company may be exposed to other business, strategic and political risks in
the future, as well as regulatory risks (such as an adverse change in the tax
treatment of investment companies), credit, liquidity and concentration risks.
The risk control summary report allows the Board to consider all these risks,
the measures in place to control them and the possibility of any other risks
that could arise.
The Board ensures that satisfactory assurances are received from the service
providers. The Manager's compliance officers produce regular reports for
review by the Company's Audit Committee.
Additionally, the depositary monitors stock, cash, borrowings and investment
restrictions throughout the year. The depositary reports formally once a year
and also has access to the Company Chair and the Audit Committee Chair if
needed during the year.
Please see Note 16 to read more about risk management and financial
instruments.
EMERGING RISKS
The Board has put in place robust procedures to assist with identifying
emerging risks that arise from existing risks or from new situations. Failure
to identify emerging risks may cause reactive rather proactive actions. The
experience and knowledge of the Board is invaluable in consideration of
emerging risks, as are updates and advice received from the Board's key
service providers such as the Company's Manager, Broker, Company Secretary and
Auditors. The Association of Investment Companies ('AIC') also provides
regular updates and draws members' attention to forthcoming industry and/ or
regulatory issues.
There are currently a growing number of risks as a result of emerging
geopolitical factors that may translate into greater stock market risk, as
well as heightened macro‑economic changes in inflation, interest rates,
currencies and energy costs, the ever-evolving global regulatory and trade
environments and a risk of re-emergence of a global pandemic.
Geopolitical factors include the continuation of conflict in Ukraine and the
Middle East and also US trade policy under the second Trump administration.
Whilst these risks currently exist, their extent and long-term impact are yet
to emerge but they are regularly assessed by the Manager and the Board. These
emerging risks are kept under review and mitigating actions are discussed and
documented. This ensures that the Board can react ahead of any risk
materialising, therefore minimising risk exposure.
VIABILITY STATEMENT
The Directors' view of the Company's viability has not changed since last
year. The Company, as an investment trust, is a collective investment vehicle
rather than a commercial business venture and is designed and managed for
long-term investment. The Company's investment objective clearly sets this
out. 'Long-term' for this purpose is considered by the Directors to be at
least five years, a timeframe in which the accuracy of estimates and
assumptions is deemed to be reasonable. The Company's viability has thus been
assessed over that period. Five years is considered a reasonable time frame
for a forecast, however, the life of the Company is not intended to be limited
to that or any other period.
There are no current plans to amend the investment strategy, which has
delivered long-term good investment performance above or in line with
benchmark for shareholders and, the Directors believe, should continue to do
so. The investment strategy and its associated risks are kept under constant
review by the Board.
In assessing the viability of the Company under various scenarios, the
Directors undertook a robust assessment of the risks to which it is exposed,
as set out in the annual report, together with mitigating factors. The risks
of failure to meet the Company's investment objective, and contributory market
and investment risks, were considered to be of particular importance. The
Directors also took into account: the investment capabilities of the Portfolio
Managers; the liquidity of the portfolio, with nearly all investments being
listed and readily realisable; the Company's borrowings as considered in
further detail in the Going Concern Statement; the ability of the Company to
meet its liabilities as they fall due; the Company's annual operating costs;
and that, as a closed-ended investment trust, the Company is not affected by
the liquidity issues of open-ended companies caused by large or unexpected
redemptions.
In taking account of these factors and on reviews conducted as part of the
detailed internal controls and risk management processes set out above, the
Directors have undertaken a reverse stress test seeking to identify the
financial circumstances that might result in the Company becoming unviable.
This concluded that the viability of the Company would be challenged if the
value of Total Shareholders' Funds were to fall permanently by approximately
80% from the level at the year end, a fall that the Board considers to be
highly unlikely having noted that since the inception of the Company's FTSE
All-Share Index Total Return benchmark in December 1985, the largest fall over
any calendar year has been 29.9%, the largest fall over any rolling five year
period was 28.8% and the largest fall since launch was 42.9% (all based on
benchmark calendar month end values).
Based on the above, and assuming there is no adverse change to the regulatory
environment and tax treatment of UK investment trusts to the extent that would
challenge the viability of the UK investment trust industry as a whole, the
Directors have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
five-year period of assessment.
SECTION 172 STATEMENT, COMPANY SUSTAINABILITY AND STAKEHOLDERS
BOARD RESPONSIBILITIES
The responsibilities of the Board include setting the Company's strategic
aims, providing the leadership to put them into effect, supervising the
Manager and reporting to shareholders on their stewardship. The Board is
ultimately responsible for the direction, management, performance and
long-term sustainable success of the Company.
The Board sets the Company's strategy and objectives, taking into account the
interests of all its stakeholders. However, the Company has no employees and
no customers in the traditional sense. Consistent with the Company's nature as
an investment trust, the Board's principal concern has been, and continues to
be, the interests of the Company's shareholders taken as a whole.
COMPANY SUSTAINABILITY AND STAKEHOLDERS
A good understanding of the Company's stakeholders enables the Board to
consider the potential impact of strategic decisions on each stakeholder group
during the decision-making process. By considering the Company's purpose,
vision and values, together with its strategic priorities, the Board aims for
its decisions to be fair and take account of the interests of the key
stakeholder groups. As an externally managed investment company, the Company
does not have any employees. The Board considers its main stakeholders to be
its shareholders, service providers and investee companies.
SECTION 172 STATEMENT
Section 172 of the Companies Act 2006 requires the Board to act in the way
that it considers would most likely promote the success of the Company for the
benefit of all stakeholders, taking into consideration the interests of
stakeholders in their decision-making and to share how they have discharged
this duty. During the year under review, the Board believes that it has acted
in good faith and discharged its duties under Section 172 of the Companies Act
2006. The fulfilment of this duty not only helps the Company achieve its
investment objective but ensures decisions are made in a responsible and
sustainable way for shareholders.
The following section includes examples of how the Company's stakeholders were
considered during the key Board decisions. Key Board decisions include payment
of dividends, liquidity management via share issuance and share buybacks,
marketing, performance evaluation, negotiation on debt and re-appointment of
the Manager and other key service providers, ESG integration into investment
decisions and Board succession planning.
ENGAGEMENT WITH SHAREHOLDERS
Shareholder relations are given high priority by both the Board and the
Manager, and the Board welcomes feedback from shareholders throughout the
year. The prime medium by which the Company communicates with shareholders is
through the half-yearly and annual financial reports, which aim to provide
shareholders with a full understanding of the Company's activities and
results. This information is supplemented by the daily publication of the Net
Asset Value, monthly factsheets as well as dividend and other announcements.
Feedback from shareholders forms part of the discussion at all Board meetings
and at the Board's annual strategy meeting which involves consideration of how
the Company is meeting shareholder expectations. In October 2024, Imran Sattar
and Emily Barnard spoke at the Company's annual retail shareholder event in
London. The Company has also participated in various marketing initiatives,
including podcasts, videos, a publication reviewing the Company's last five
years, and attendance at a range of events including the AJ Bell investment
trust conference in London. The Company has also been involved in a range of
publications in the year to date, including the Financial Times, Sunday Times
and Daily Mail, and Money Makers podcast.
Shareholders can also visit the Company's website
www.edinburgh-investment-trust.co.uk in order to access copies of the annual
and half-yearly financial reports, pre-investment information, Key Information
Documents (KIDs), proxy voting results, factsheets and stock exchange
announcements. The Company's website also hosts videos and other applicable
written materials by the Manager to enhance the information available.
Shareholders can send their questions using a dedicated section of the
Company's website.
Typically, at each AGM, a presentation is made by the Portfolio Managers
following the formal business of the meeting and shareholders have the
opportunity to attend, vote and most importantly to communicate directly with
the Portfolio Managers and Board. Presentations to both institutional
shareholders and analysts also follow the publication of the annual results.
The Company held a physical AGM on 17 July 2024, with voting on a show of
hands. Shareholders also had the opportunity to join the meeting virtually via
a live weblink using their smartphone, tablet or computer, with the option to
submit questions to the meeting in real time. In addition to the AGM and
presentations, the Board and Portfolio Managers hosted a presentation to
retail investors in central London in October 2024. The Chair uses these
events to lead the Company's engagement with its retail shareholders. Please
see the notice of the 2025 Annual General Meeting for details of the 2025
shareholder event.
Regular dialogue is maintained between the Board and Portfolio Managers with a
wide range of shareholders throughout the year to discuss aspects of
investment performance, governance and strategy and to listen to shareholder
views in order to help develop an understanding of their issues and concerns.
All meetings between the Portfolio Managers and shareholders are reported to
the Board and the directors receive regular updates on the shareholder
register and trading activity.
There is an additional clear channel of communication between the Board and
the Company's shareholders via the Company Secretary. The Company Secretary
passes to the Chair all correspondence addressed to the Board of the Company.
The strategy of the Company is reviewed regularly and formally by the Board on
an annual basis. At the strategy day on 9 October 2024 the Board discussed
industry and sector trends, growth opportunities, share buybacks, the
Company's investment objective, marketing and dividends. Whilst feedback from
shareholders is sought regularly, shareholders' feedback provided by the
Company's Broker and Manager is a major consideration at this meeting.
ENGAGEMENT WITH THE MANAGER
The Board maintains a constructive and collaborative working relationship with
the Portfolio Managers, encouraging open discussion. The Board has regular
dialogue with and receives reports from the Portfolio Manager on the portfolio
of investments, including performance against set objectives and risk
management. The Portfolio Managers and Deputy Portfolio Manager normally
attend each Board meeting to provide updates and answer questions from the
Board. The Chair also regularly meets with Liontrust executive directors. The
Board has also discussed the AIFM's responsibility under the FCA Consumer Duty
with the Manager and received comfort as to how those responsibilities will be
met.
The Board agreed a lower management fee scale from 1 April 2024, further
supporting the role of the Company as a natural home for long-term equity
investors.
The Portfolio Manager with individual responsibility for the day-to-day
management of the portfolio is Imran Sattar and the Deputy Portfolio Manager
is Emily Barnard.
Imran Sattar and Emily Barnard took on these new roles on 6 February 2024,
following the retirement of James de Uphaugh, after 36 years in the industry.
ENGAGEMENT WITH SERVICE PROVIDERS
As an externally managed investment trust, the Company conducts all its
business through its key service providers. The Board believes that
maintaining a collaborative relationship with each of the Company's service
providers is essential to the Board's decision-making and the ongoing success
of the Company. At least annually the Board reviews the performance and
services of its key service providers including the Manager and receives and
considers their internal control reports on a quarterly basis covering their
operations, policies and control environments.
The Board reviews the quarterly reports of the service providers and whether
the services meet the requirements of the Company, represent value for money
and are therefore in the best interests of shareholders. The Board treats all
service providers fairly, to maintain a reputation as a trusted, fair and
reliable partner. The Board and/or delegates of the Board engage with key
providers on a periodic basis through service review meetings or, by
invitation, attendance at Board or committee meetings. Such engagement gives
opportunity to both parties to discuss any challenges being experienced and
potential solutions thereon, and to identify planned developments at the
Company or the service provider. We aim to pay promptly and if in dispute, to
engage openly to resolve matters in a timely manner.
The Board continues to ensure that service providers are as prepared as
possible for all such eventualities which could disrupt the performance of
their respective functions.
ENGAGEMENT WITH INVESTEE COMPANIES
The Portfolio Managers are long-term investors and typically develop strong
relationships with both investee and potential investee companies. Both the
Board and the Portfolio Managers believe that engagement with investee
companies is positive, beneficial and welcomed.
Voting is a key activity in the dialogue with investee companies and these
decisions are reported to the Board on a quarterly basis.
The Board supports the Portfolio Managers' approach to ESG in the context of
its management of the portfolio, as discussed below.
ENVIRONMENTAL SOCIAL AND GOVERNANCE ("ESG") MATTERS
As an investment company with no employees, property or activities outside
investment, environmental policy has limited application. Nevertheless, the
Board is committed to taking a responsible approach to ESG matters. The
Company's compliance with the AIC Corporate Governance Code is detailed in the
Corporate Governance Statement, which demonstrates the Company's own
responsibilities on matters such as governance.
In respect of the Company's investments, the Portfolio Managers and the other
members of the investment team integrate ESG risks and opportunities
(including climate change related risks) as part of a material assessment
undertaken for all holdings. Consistent with the Portfolio Managers'
investment approach, this analysis is undertaken on a bottom-up, stock basis.
The risks and opportunities that each holding faces over a three-to-five-year
period are then identified and prioritised. Many of these issues can be
sub-categorised as "E", "S" and "G" issues. The issues that are identified as
the key ones are at the forefront of engagement discussions on holdings with
the investee companies. These frequently include issues related to global
warming, including those focused on transitional risks, legislation risks,
and/or physical risks. The Manager is a signatory to the Principles of
Responsible Investment ('PRI') and the Company's assets form part of its
commitment to the Net Zero Asset Managers Initiative. Further information is
available at www.liontrust.co.uk and through the investment company ESG
disclosures at www.theaic.co.uk.
The Board recognises that the most material way in which the Company can have
an impact is through responsible ownership of its investments. The Manager
discusses below how it engages with the management of investee companies to
encourage that high standards of ESG practice are adopted.
The Company made no political donations during the year in review.
Please see the table below for a reference to where information can be found
of how the Company's key stakeholders were considered during key Board
decisions:
Section 172 statement area Reference
The likely consequences of any decision in the long-term See Chair's Statement, The Portfolio Managers' Report, Core Investment Beliefs
and Business Review, Going Concern and Viability Statements and Stakeholder
Engagement section below.
The interests of the Company's employees As a closed-ended investment company, the Company has no employees.
Stewardship section refers to how the Company assesses its impact on social
issues.
The need to foster the Company's business relationships with suppliers, As a closed-ended investment company, the Company has no customers in the
customers and others traditional sense. See Stakeholder Engagement section below Principal Risks
and Uncertainties and Stewardship section on how the Company assesses its
impact on and engages with its key stakeholders.
The impact of the Company's operations on the community and environment See Principal Risks and Uncertainties, Stewardship section and ESG matters
disclosure below on how the Company assesses its impact on the community and
environment of its investee companies.
The desirability of the Company maintaining a reputation for high standards of See Stakeholder Engagement section, Anti-Bribery and Corruption and Modern
business conduct Slavery disclosures.
The need to act fairly as between members of the Company See Stakeholder Engagement section and Corporate Governance Report.
STEWARDSHIP CODE AND EXERCISE OF VOTING POWERS
The Board considers that the Company has a responsibility as a shareholder to
ensure that high ESG standards are maintained in the companies in which it
invests. One of the principal means of putting shareholder responsibility into
practice is through the exercise of voting rights. The Company aims to provide
investment specific active stewardship and the Company's voting rights are
exercised on an informed and independent basis. The Manager has adopted a
clear and considered policy towards its stewardship responsibility on behalf
of the Company. The Manager takes steps to satisfy itself about the extent to
which investee companies protect shareholder value and comply with local
recommendations and practices, such as the UK Corporate Governance Code. The
Manager's approach to corporate governance and the UK Stewardship Code can be
found on the Manager's website at www.liontrust.co.uk together with a copy of
the Manager's Stewardship Policy and the Manager's global proxy voting policy.
Members of the Managers' investment team are responsible for overseeing all
aspects of the Stewardship process, including voting on all resolutions at all
Annual General Meetings and Extraordinary General Meetings in the UK and
overseas. The Portfolio Managers assess corporate governance, remuneration
policies and, if deemed necessary, will challenge management where it is felt
that the best interests of shareholders are not being met.
The Board reviews the Portfolio Managers' voting record at each meeting. The
table below demonstrates how the Portfolio Managers voted during the year in
review. The Portfolio Managers voted at all meetings, except for an unlisted
legacy holding in Raven Property.
Proposal Category Number of Number voted with Management
Proposals Voted
Audit related 99 99
Capitalisation 202 202
Company Articles 2 2
Compensation 88 84
Corporate Governance 1 1
Director Election 488 488
Director Related 4 4
E&S Blended 1 1
Environmental 4 4
Miscellaneous 2 2
No research 6 0
Routine business 93 93
Social 34 34
Strategic transactions 1 1
Takeover related 43 43
Total 1,068 1,058
The Portfolio Managers' policy is to invest in well-managed companies. We
therefore expect few contentious votes, but in any given twelve month period
there will be a handful. To illustrate:
The Portfolio Managers voted in favour of the Remuneration Policy of Sage
Group, the UK-based software company that provides accounting, HR and payroll
technology for small and mid-sized businesses. This is a global company, 80%
of their revenues are outside the UK, competing against international players
such as Intuit in the US. While proxy advisor ISS raised concerns about the
overall size of the pay package, we believe Sage must offer a competitive
remuneration structure to attract and retain high-calibre talent. In our view,
this is necessary to support the company's continued growth and ensure it
remains a leading player in its markets.
The Portfolio Managers voted against the proposed remuneration policy and
proposed new LTIP (long-term incentive plan) for Ashtead, the North America
focused equipment rental business. We judged the quantum of the proposals to
be incommensurate with the current performance and outlook for the business.
We exited the position during the year.
In addition, the Manager publishes an annual Responsible Capitalism report,
providing cumulative voting statistics, full disclosure on voting policy and
extracts of engagement for the year. The Manager publishes a quarterly voting
record on its website www.liontrust.co.uk.
MODERN SLAVERY DISCLOSURE
The Company aims to adopt the highest standards of conduct and is committed to
integrating responsible business practices throughout its operations. The
prevention of modern slavery is an important part of corporate good
governance.
The Company is an investment vehicle and does not provide goods or services in
the normal course of its business or have customers or employees. Accordingly,
the Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015.
ANTI-BRIBERY AND CORRUPTION
It is the Company's policy to conduct its business in an honest and ethical
manner. The Company takes a zero-tolerance approach to bribery and corruption
and is committed to acting professionally, fairly and with integrity in all
its business dealings and relationships wherever it operates. The Company's
policy and the procedures that implement it are designed to support that
commitment and the appropriate training has been undertaken by the Board and
key service providers. The Company also has policies, procedures and controls
in place to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
PREVENTION OF THE FACILITATION OF TAX EVASION
The Board has adopted a zero-tolerance approach to the criminal facilitation
of tax evasion.
GREENHOUSE GAS EMISSIONS AND STREAMLINED ENERGY AND CARBON REPORTING ('SECR')
The Company has no employees, physical assets, property or operations of its
own, does not provide goods or services and does not have its own customers.
It follows that the Company has little or no direct environmental impact. In
consequence, the Company has limited greenhouse gas emissions to report from
its operations aside from travel to board meetings, nor does it have
responsibility for any other sources of emissions under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013. As the Company has
no material operations and therefore has low energy usage, it has not included
an energy and carbon report.
CONCLUSION
The Directors believe that they have fulfilled their duties under s172 of the
Companies Act 2006 in their deliberations on all matters. The Board takes into
account the interests of all the Company's key stakeholders, as outlined
above, in its decision-making which reflects the Board's belief that the
long-term sustainable success of the Company is linked directly to its key
stakeholders. The work of the Board and its Committees is described in the
Governance Report.
This Strategic Report was approved by the Board on 20 May 2025.
Signed by order of the Board of Directors
NSM FUNDS (UK) LIMITED
COMPANY SECRETARY
20 MAY 2025
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT
The Directors are responsible for preparing the annual financial report and
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with UK accounting standards, including FRS 102 The
Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006.
They are responsible for such internal controls as they determine are
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, which
is maintained by the Company's Manager. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL
REPORT
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
We consider the annual financial report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
In the case of each Director in office at the date the Directors' report is
approved:
- so far as the Director is aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
- they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Company's Auditors are aware of that information.
Signed on behalf of the Board of Directors
ELISABETH STHEEMAN
CHAIR
20 May 2025
FINANCIAL REVIEW / INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH
2025 2024
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value 9(b) - 53,697 53,697 - 99,095 99,095
Gains/(losses) on foreign exchange - 22 22 - (41) (41)
Income 2 40,666 - 40,666 42,095 - 42,095
Investment management fee 3 (1,385) (3,231) (4,616) (1,493) (3,483) (4,976)
Other expenses 4 (1,274) (19) (1,293) (1,179) (14) (1,193)
Net return before finance costs and taxation 38,007 50,469 88,476 39,423 95,557 134,980
Finance costs 5 (884) (2,066) (2,950) (888) (2,071) (2,959)
Return on ordinary activities before taxation 37,123 48,403 85,526 38,535 93,486 132,021
Tax on ordinary activities 6 (78) - (78) (316) - (316)
Return on ordinary activities after taxation for the financial year 37,045 48,403 85,448 38,219 93,486 131,705
Return per ordinary share:
Basic and diluted 7 25.02p 32.70p 57.72p 23.93p 58.55p 82.48p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The return after
taxation is the total comprehensive income and therefore no additional
statement of 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 year.
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW / BALANCE SHEET
AT 31 MARCH
2025 2024
Notes £'000 £'000
Non current assets
Investments held at fair value 9(a) 1,230,888 1,206,563
Current assets
Debtors 10 8,518 19,878
Cash and cash equivalents 7,233 36,314
Total assets 1,246,639 1,262,755
Non current liabilities
Unsecured Senior Loan Notes 12 (120,000) (120,000)
Current liabilities
Other payables 11 (693) (7,708)
Total assets less current liabilities 1,245,946 1,255,047
Total liabilities (120,693) (127,708)
Net assets 1,125,946 1,135,047
Equity
Called up share capital 13 48,917 48,917
Share premium account 14 10,394 10,394
Capital redemption reserve 14 24,676 24,676
Capital reserve 14 999,335 1,004,498
Revenue reserve 14 42,624 46,562
Total equity 1,125,946 1,135,047
Net asset value per ordinary share:
Basic and diluted - debt at par value 15 780.17p 749.25p
Basic and diluted - debt at fair value 15 817.16p 779.97p
The financial statements were approved and authorised for issue by the Board
of Directors on 20 May 2025.
ELISABETH STHEEMAN
CHAIR
Signed on behalf of the Board of Directors
Company Number SC001836
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW / STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve(1) Reserve(1) Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2023 48,917 10,394 24,676 1,003,989 51,368 1,139,344
Return on ordinary activities - - - 93,486 38,219 131,705
Dividends paid 8 - - - - (43,025) (43,025)
Shares bought back and held in treasury(2) 13 - - - (92,977) - (92,977)
At 31 March 2024 48,917 10,394 24,676 1,004,498 46,562 1,135,047
Return on ordinary activities - - - 48,403 37,045 85,448
Dividends paid 8 - - - - (40,983) (40,983)
Shares bought back into treasury(2) 13 - - - (53,566) - (53,566)
At 31 March 2025 48,917 10,394 24,676 999,335 42,624 1,125,946
1 The revenue reserve and certain amounts of the capital
reserve are distributable by way of dividend.
2 Shares bought back and held in treasury includes
transaction costs.
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW / CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
2025 2024
Notes £'000 £'000
Cash flow from operating activities
Net return before finance costs and taxation 88,476 134,980
Tax on overseas income 6 (78) (316)
Adjustments for:
Purchase of investments (559,942) (329,331)
Sale of investments 593,166 444,660
Gains on investments held at fair value (53,697) (99,095)
Decrease in debtors 1,594 2,280
Decrease in creditors (3) (2,211)
Net cash inflow from operating activities 69,516 150,967
Cash flow from financing activities
Interest paid on overdraft (7) (9)
Interest paid on Unsecured Senior Loan Notes (2,943) (2,093)
Shares bought back and held in treasury (54,664) (91,888)
Dividends paid 8 (40,983) (43,025)
Net cash outflow from financing activities (98,597) (137,015)
Net (decrease)/increase in cash and cash equivalents (29,081) 13,952
Cash and cash equivalents at the start of the year 36,314 22,362
Cash and cash equivalents at the end of the year 7,233 36,314
Reconciliation of cash and cash equivalents to the Balance Sheet is as
follows:
Cash held at custodian 1,068 2,768
Goldman Sachs Liquidity Reserve International Fund - Money Market Fund 6,165 33,546
Cash and cash equivalents 7,233 36,314
Cash flow from operating activities includes:
Dividends received 39,922 43,681
Interest received 9 11
At 1 April Non-cash At 31 March
2024 Cash flow movement 2025
£'000 £'000 £'000 £'000
Reconciliation of net debt:
Cash and cash equivalents 36,314 (29,081) - 7,233
Unsecured Senior Loan Notes (120,000) - - (120,000)
Total (83,686) (29,081) - (112,767)
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW / NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES
Accounting policies describe the Company's approach to recognising and
measuring transactions during the year and the position of the Company at the
year end.
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied during the year and the preceding year.
A. Basis of Preparation
Accounting Standards Applied
The financial statements have been prepared in accordance with the Companies
Act 2006, applicable United Kingdom Accounting Standards and applicable law
(UK Generally Accepted Accounting Practice (UK GAAP)) including FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of Ireland' and
with the Statement of Recommended Practice Financial Statements of Investment
Trust Companies and Venture Capital Trusts, issued by the Association of
Investment Companies (SORP) in April 2021 (as amended in July 2022).
The financial statements are issued on a going concern basis. Details of the
Directors' assessment of the going concern status of the Company, which
considered the adequacy of the Company's resources are given in the annual
report.
As an investment fund the Company has the option not to present a cash flow
statement. A cash flow statement is not required when an investment fund meets
all the following conditions: substantially all investments are highly liquid
and are carried at market value, and where a Statement of Changes in Equity is
provided: all of which are satisfied.
However the Directors' have elected to present a cash flow statement in the
annual financial report to present additional relevant information to readers
of the financial statements.
Significant Accounting Estimates, Assumptions and Judgements
The preparation of the financial statements may require the use of estimates,
assumptions and judgements which may affect the reported amounts of assets and
liabilities at the reporting date. While estimates are based on best judgement
using information and financial data available, the actual outcome may differ
from these estimates. The Directors have applied their judgement for the
allocation of the investment management fee and finance costs between capital
and revenue in the income statement as set out in Note 1G and the treatment of
special dividend income between capital and income, as set out in Note 1J. The
Directors do not believe that these judgements nor any accounting estimates,
assumptions or judgements that have been applied to the financial statements
have a significant risk of causing material adjustment to the carrying amount
of assets and liabilities within the next financial year.
B. Foreign Currency and Segmental Reporting
(i) Functional and presentational currency
The financial statements are presented in sterling, which is the
Company's functional and presentational currency and the currency in which the
Company's share capital and expenses, as well as its assets and liabilities,
are denominated.
(ii) Transactions and balances
Transactions in foreign currency, whether of a revenue or capital
nature, are translated to sterling at the rates of exchange ruling on the
dates of such transactions. Foreign currency assets and liabilities are
translated to sterling at the rates of exchange ruling at the balance sheet
date. Any gains or losses, whether realised or unrealised, are taken to the
capital reserve or to the revenue account, depending on whether the gain or
loss is of a capital or revenue nature. All gains and losses are recognised in
the income statement.
(iii) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single segment of business of investing in equity and debt securities, issued
by companies quoted mainly on the UK or other recognised stock exchanges.
C. Financial Instruments
The Company has chosen to apply Section 11 and 12 of FRS102 in full in respect
of the financial instruments.
(i) Recognition of financial assets and financial liabilities
The Company recognises financial assets and financial liabilities
when the Company becomes a party to the contractual provisions of the
instrument. The Company will offset financial assets and financial liabilities
if the Company has a legally enforceable right to set off the recognised
amounts and intends to settle on a net basis.
(ii) Derecognition of financial assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire or it transfers the right to
receive the contractual cash flows on the financial asset in a transaction in
which substantially all the risks and rewards of ownership of the financial
asset are transferred. Any interest in the transferred financial asset that is
created or retained by the Company is recognised as an asset.
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are
discharged, cancelled or have expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being
the date on which the Company commits to purchase or sell the assets.
(v) Classification and measurement of financial assets and financial
liabilities
- Financial assets
The Company's investments are classified as held at fair value through profit
or loss.
Financial assets held at fair value through profit or loss are initially
recognized as fair value, which is taken to be their acquisition price, with
transaction costs expensed in the income statement. These are subsequently
valued at fair value.
Fair value for investments that are actively traded in organised financial
markets is determined by reference to stock exchange quoted bid prices at the
balance sheet date. Fair value for investments that are actively traded but
where active stock exchange quoted bid prices are not available is determined
by reference to a variety of valuation techniques including broker quotes and
price modelling. Unquoted, unlisted or illiquid investments are valued by the
Directors at fair value using a variety of valuation techniques including
earnings multiples, recent transactions and other market indicators, cash
flows and net assets.
- Financial liabilities
Financial liabilities, including borrowings, are initially measured at
transaction price, being the fair value. For liabilities issued at a discount
or with significant associated transaction costs, such discount and costs are
subsequently measured at amortised cost using the effective interest method.
D. Cash and Cash Equivalents
Cash and cash equivalents may comprise cash (including short term deposits
which are readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value) as well as cash equivalents, including
money market funds. Investments are regarded as cash equivalents if they meet
all of the following criteria: short term in duration (typically three months
or less from the date of acquisition), highly liquid investments that are
readily convertible to a known amount of cash, are subject to an insignificant
risk of change in value and provide a return no greater than the rate of a
three-month high quality government bond.
E. Hedging
Forward currency contracts entered into for hedging purposes are valued at the
appropriate forward exchange rate ruling at the balance sheet date. Profits or
losses on the closure or revaluation of positions are recognised in the income
statement and taken to capital reserves.
F. Income
Interest income arising from fixed income securities and cash is recognised in
the income statement using the effective interest method. Dividend income
arises from equity investments held and is recognised on the date investments
are marked 'ex-dividend'. Special dividends are looked at individually to
ascertain the reason behind the payment. This will determine whether they are
treated as income or capital in the income statement.
Deposit interest and underwriting commission receivable are taken into account
on an accruals basis.
G. Expenses and Finance Costs
Expenses are recognised on an accruals basis and finance costs are recognised
using the effective interest method in the income statement.
The investment management fee and finance costs are allocated 70% to capital
and 30% to revenue. This is in accordance with the Board's expected long-term
split of returns, in the form of capital gains and income respectively, from
the portfolio. Transaction costs are recognised as capital in the income
statement. All other expenses are allocated to revenue in the income
statement.
H. Taxation
The liability to corporation tax is based on net revenue for the year,
excluding non-taxable dividends. The tax charge is allocated between the
revenue and capital account on the marginal basis whereby revenue expenses are
matched first against taxable income in the revenue account.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax or a right to pay less tax
in the future have occurred. Timing differences are differences between the
Company's taxable profits and its results as stated in the financial
statements. Deferred taxation assets are recognised where, in the opinion of
the Directors, it is more likely than not that these amounts will be realised
in future periods.
A deferred tax asset is only recognised in respect of surplus management
expenses, losses on loan relationships and eligible unrelieved foreign tax to
the extent that it is probable that the Company will be able to recover them
from future taxable revenue.
I. Dividends payable
Dividends are not recognised in the financial statements unless there is an
obligation to pay at the balance sheet date. Proposed dividends are recognised
in the year in which they are paid to shareholders.
J. Critical accounting estimates and judgements
No critical accounting judgements or estimates were made during the year.
K. Accounting for reserves
The share premium comprises the net proceeds received by the Company following
the issue of shares, after deduction of the nominal amount of 25 pence and any
applicable issue costs. The capital redemption reserve maintains the equity
share capital of the Company and arose from the nominal value of any shares
bought back and cancelled; both are non-distributable.
The capital reserve includes the investment holding gains/(losses), being the
difference between cost and market value at the balance sheet date. It also
includes cumulative realised gains/(losses) and costs related to share
buybacks. Capital investment gains and losses are shown in note 9(b) and form
part of the capital reserve.
The revenue reserve shows the net revenue retained after payment of any
dividends. The revenue reserve and certain amounts of the capital reserve are
distributable by way of dividend.
L. Shares repurchased and held in treasury
The cost of repurchasing ordinary shares (for cancellation or to hold in
treasury) including the related stamp duty and transaction cost is charged to
the capital reserve and dealt with in the Statement of Changes in Equity.
Share repurchase transactions are accounted for on a trade date basis. Where
shares are cancelled (or are subsequently cancelled having previously been
held in treasury), the nominal value of those shares is transferred out of
Called up share capital and into the Capital redemption reserve. Should shares
held in treasury be reissued, the sales proceeds will be treated as a realised
capital profit up to the amount of the purchase price of those shares and will
be transferred to capital reserves. The excess of the sales proceeds over the
purchase price will be transferred to Share premium.
2. INCOME
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2025 2024
£'000 £'000
Income from investments:
UK dividends 34,929 35,857
UK special dividends 2,526 2,095
Overseas dividends 1,222 2,789
Overseas special dividends - 318
Interest from money market funds 1,980 1,025
40,657 42,084
Other income:
Deposit interest 9 11
9 11
Total income 40,666 42,095
Special dividends of £702,000 were recognised as capital during the year
(2024: £2,251,000).
3. INVESTMENT MANAGEMENT FEE
This note shows the fee due to the Manager. This is calculated and paid
monthly.
2025 2024
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 1,385 3,231 4,616 1,493 3,483 4,976
Details of the investment management and secretarial agreement is disclosed in
the Directors' Report.
At 31 March 2025, investment management fees of £374,000 (2024: £411,000)
were accrued.
4. OTHER EXPENSES
The other expenses((i)) of the Company are presented below, those paid to the
Directors and the auditors are separately identified.
2025 2024
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Other expenses 1,274 19 1,293 1,179 14 1,193
Other expenses include the following:
Directors' remuneration((ii)) 182 - 182 168 - 168
Auditors' fees((iii)):
- for audit of the Company's annual financial statements 53 - 53 51 - 51
The maximum Directors' fees authorised by the Articles of Association are
£250,000 per annum.
I. Other expenses include:
- £14,000 (2024: £300) of employer's National Insurance payable on
Directors' remuneration. As at 31 March 2025, the amounts outstanding on
Directors' remuneration and employer's National Insurance was £52,000 (2024:
£nil); and
- custodian transaction charges of £19,000 (2024: £14,000). These are
charged to capital.
II. There were five directors during the year and the Directors'
Remuneration Report provides further information on Directors' fees.
III. Auditors' fees include expenses but exclude VAT.
5. FINANCE COSTS
Finance costs arise on any borrowing facilities the Company has used.
Borrowing facilities are the £120m notes (2024: £120m notes). Please see
Note 12 for additional details of the terms.
2025 2024
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest payable on borrowings repayable
not by instalment:
- Interest on overdraft facility 2 5 7 3 6 9
- Unsecured Senior Loan Notes repayable
after 5 years 882 2,061 2,943 885 2,065 2,950
884 2,066 2,950 888 2,071 2,959
6. TAXATION
As an investment trust the Company pays no tax on capital gains. As the
Company invests principally in UK equities, it has little overseas tax and the
overseas tax charge is the result of withholding tax deducted at source. This
note also clarifies the basis for the Company having no deferred tax asset or
liability.
(a) Tax charge
2025 2024
£'000 £'000
Overseas taxation 78 316
(b) Reconciliation of tax charge
2025 2024
£'000 £'000
Return before taxation 85,526 132,021
Theoretical tax at the current UK Corporation Tax rate of 25% (2024: 25%) 21,382 33,005
Effects of:
- Non-taxable UK dividends (8,439) (8,929)
- Non-taxable UK special dividends (632) (603)
- Non-taxable overseas dividends (310) (706)
- Non-taxable gains on investments (13,424) (24,773)
- Non-taxable (gains)/losses on foreign exchange (6) 10
- Excess of allowable expenses over taxable income 1,424 1,993
- Disallowable expenses 5 3
- Overseas taxation 78 316
Tax charge for the year 78 316
(c) Deferred tax
Owing to the Company's status as an investment company, and the Directors'
intention that it continues to meet the conditions required to maintain that
approval in the foreseeable future, no deferred tax has been provided on any
capital gains and losses arising on the revaluation or disposal of
investments.
(d) Factors that may affect future tax changes
The Company has cumulative excess management expenses of £516,349,000 (2024:
£510,654,000) that are available to offset future taxable revenue.
A deferred tax asset of £129,087,000 (2024: £127,664,000) at 25% (2024: 25%)
has not been recognised in respect of these expenses since the Directors
believe that there will be no taxable profits in the future against which the
deferred tax assets can be offset.
7. RETURN PER ORDINARY SHARE
Return per share is the amount of gain generated for the financial year
divided by the weighted average number of ordinary shares in issue.
The basic revenue, capital and total return per ordinary share is based on
each of the returns/loss after taxation and on 148,041,467 (2024: 159,690,463)
ordinary shares, being the weighted average number of ordinary shares in issue
throughout the year.
8. DIVIDENDS ON ORDINARY SHARES
Dividends represent the distribution of income to shareholders. The Company
pays four dividends a year - three interim and one final dividend.
2025 2024
pence £'000 pence £'000
Dividends paid and recognised in the year:
- third interim paid in respect of previous year 6.90 10,429 6.70 11,050
- final paid in respect of previous year 6.90 10,390 6.70 11,036
- first interim paid 6.90 10,153 6.70 10,622
- second interim paid 6.90 10,011 6.70 10,317
27.60 40,983 26.80 43,025
2025 2024
pence £'000 pence £'000
Dividends payable in respect of the year:
- first interim 6.90 10,153 6.70 10,622
- second interim 6.90 10,011 6.70 10,317
- third interim 7.50 10,823 6.90 10,429
- proposed final 7.50 10,823 6.90 10,429
28.80 41,810 27.20 41,797
The proposed final dividend is subject to approval by ordinary shareholders at
the AGM.
9. INVESTMENTS HELD AT FAIR VALUE
The portfolio comprises investments which are principally listed on a
regulated stock exchange or traded on AIM. A very small proportion of
investments are valued by the Directors as they are unlisted.
Gains or losses are either:
- realised, usually arising when investments are sold; or
- unrealised, being the difference from cost on those investments still
held at the year end.
(a) Analysis of investments by listing status
2025 2024
£'000 £'000
Investments listed on a recognised investment exchange 1,230,888 1,206,563
(b) Analysis of investment gains:
2025 2024
£'000 £'000
Opening book cost 976,923 1,040,163
Opening investment holding gains 229,640 186,486
Opening fair value 1,206,563 1,226,649
Movements in year:
Purchases at cost 554,028 335,245
Sales - proceeds (583,400) (454,426)
Gains on investments in the year 53,697 99,095
Closing fair value 1,230,888 1,206,563
Closing book cost 1,097,403 976,923
Closing investment holding gains 133,485 229,640
Closing fair value 1,230,888 1,206,563
The Company received £583,400,000 (2024: £454,426,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£433,548,000 (2024: £398,434,000) realising a gain of £149,852,000 (2024:
£55,992,000). These investments have been revalued over time and until they
were sold any unrealised profits/losses were included in the fair value of the
investments.
The transaction costs included in gains on investments amount to £2,748,000
(2024: £1,642,000) on purchases and £272,000 (2024: £222,000) for sales.
10. DEBTORS
Debtors are amounts which are due to the Company, such as monies due from
brokers for investments sold and income which has been earned (accrued) but
not yet received.
2025 2024
£'000 £'000
Amounts due from brokers - 9,766
Overseas withholding tax recoverable 1,409 2,229
Income tax recoverable 56 28
Prepayments and accrued income 7,053 7,855
8,518 19,878
11. OTHER PAYABLES
Creditors are amounts which must be paid by the Company and are split between
those payable within 12 months of the balance sheet date and those payable
after that time. The main creditors have historically been the long-term debt
and bank borrowings. The other creditors include any amounts due to brokers
for the purchase of investments, amounts owing on share buybacks awaiting
settlement or amounts owed to suppliers (accruals) such as the Manager and
auditors.
2025 2024
£'000 £'000
Amounts due to brokers - 5,914
Share buybacks awaiting settlement - 1,098
Accruals and deferred income 693 696
693 7,708
12. UNSECURED SENIOR LOAN NOTES
These creditors are amounts that must be paid, as shown by note 11, but are
due more than one year after the balance sheet date.
2025 2024
£'000 £'000
Unsecured Senior Loan Notes - 2.26% interest rate, maturity 30 September 2037 35,000 35,000
Unsecured Senior Loan Notes - 2.49% interest rate, maturity 30 September 2047 35,000 35,000
Unsecured Senior Loan Notes - 2.53% interest rate, maturity 30 September 2051 20,000 20,000
Unsecured Senior Loan Notes - 2.53% interest rate, maturity 30 September 2057 30,000 30,000
120,000 120,000
The Unsecured Senior Loan Notes comprise four separate notes. As shown above,
each has a fixed interest rate and contracted maturity date when the par value
must be repaid. Interest is payable on a semi-annual basis, with equal amounts
payable on each of 31 March and 30 September each year. These notes require
the net tangible assets of the Company to remain not less than £300m and net
borrowings to remain less than 35% of net assets. This requirement was met
throughout the year.
13. CALLED UP SHARE CAPITAL
Share capital represents the total number of shares in issue, including
treasury shares.
2025 2024
£'000 £'000
Share capital:
Ordinary shares of 25 pence each 36,080 37,873
Treasury shares of 25 pence each 12,837 11,044
48,917 48,917
2025 2024
Number of ordinary shares in issue:
Brought forward 151,491,525 165,476,525
Shares bought back and held in treasury (7,170,500) (13,985,000)
Carried forward 144,321,025 151,491,525
Number of shares held in treasury:
Brought forward 44,175,209 30,190,209
Shares bought back into treasury 7,170,500 13,985,000
Carried forward 51,345,709 44,175,209
Total ordinary shares 195,666,734 195,666,734
During the year the Company bought back into treasury 7,170,500 (2024:
13,985,000) ordinary shares at an average price of 747.03p (2024: 664.84p)
(including costs).
Since the year end to 19 May 2025 (being the last practicable day prior to the
publication of this report), 125,000 shares have been bought back into
treasury. Note 1L explains the policy on the transaction costs related to the
shares repurchased and held in treasury.
The Directors' Report sets out the Company's share capital structure,
restrictions and voting rights.
14. RESERVES
This note explains the different reserves attributable to shareholders. The
aggregate of the reserves and share capital (see previous note) make up total
shareholders' funds.
The share premium comprises the net proceeds received by the Company following
the issue of shares, after deduction of the nominal amount of 25 pence and any
applicable issue costs. The capital redemption reserve maintains the equity
share capital of the Company and arose from the nominal value of any shares
bought back and cancelled; both are non-distributable.
The capital reserve includes the investment holding gains/(losses), being the
difference between cost and market value at the balance sheet date. It also
includes cumulative realised gains/(losses) and costs related to share
buybacks. Capital investment gains and losses are shown in note 9(b) and form
part of the capital reserve.
The revenue reserve and certain amounts of the capital reserve are
distributable by way of dividend.
15. NET ASSET VALUE PER ORDINARY SHARE
The Company's total net assets (total assets less total liabilities) are often
termed shareholders' funds and are converted into NAV per ordinary share by
dividing by the number of shares in issue (excluding treasury shares).
NAV - debt at par value
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards.
2025 2024
NAV Shareholders' NAV Shareholders'
per share funds per share funds
pence £'000 pence £'000
Shareholders' funds 780.17 1,125,946 749.25 1,135,047
NAV - debt at par 780.17 1,125,946 749.25 1,135,047
A reconciliation showing the NAV per share and Shareholders' funds using debt
at fair value is shown in the Alternative Performance Measures.
16. RISK MANAGEMENT, FINANCIAL ASSETS AND LIABILITIES
Financial instruments comprise the Company's investment portfolio, derivative
instruments (if any) as well as cash, and any borrowings, debtors and
creditors. This note sets out the Company's financial instruments and the
risks related to them.
Financial instruments
The Company's financial instruments mainly comprise its investment portfolio
and Unsecured Senior Loan Notes as well as its cash, debtors and creditors
that arise directly from its operations such as sales and purchases awaiting
settlement and accrued income. For the purpose of this note, 'cash' should be
taken to comprise cash and cash equivalents as defined in note 1D. The
accounting policies in note 1C include criteria for the recognition and the
basis of measurement applied for financial instruments. Note 1 also includes
the basis on which income and expenses arising from financial assets and
liabilities are recognised and measured.
The main financial risks that the Company faces from its financial instruments
are market risk, liquidity risk, and credit risk. These are set out below:
Market risk - arising from fluctuations in the fair value or future cash flows
of a financial instrument because of changes in market prices. Market risk
comprises three types of risk: currency risk, interest rate risk and other
price risk:
- Currency risk - arising from fluctuations in the fair value or future
cash flows of a financial instrument because of changes in foreign exchange
rates;
- Interest rate risk - arising from fluctuations in the fair value or
future cash flows of a financial instrument because of changes in market
interest rates; and
- Other price risk - arising from fluctuations in the fair value or
future cash flows of a financial instrument for reasons other than changes in
foreign exchange rates or market interest rates.
Liquidity risk - arising from any difficulty in meeting obligations associated
with financial liabilities.
Credit risk - arising from financial loss for a company where the other party
to a financial instrument fails to discharge an obligation.
Risk Management Policies and Procedures
The Directors have delegated to the Manager the responsibility for the
day-to-day investment activities and management of gearing of the Company as
more fully described in the Directors' Report.
The Company invests in equities and other investments for the long-term so as
to fulfil its investment policy (incorporating the Company's investment
objective). In pursuing its investment objective, the Company is exposed to a
variety of risks that could result in either a reduction in the Company's net
assets or a reduction of the profits available for dividends. The associated
risk management policies are summarised below and have remained substantially
unchanged for the two years under review.
16.1 Market Risk
The Company's Manager assesses the Company's exposure when making each
investment decision, and monitors the overall level of market risk for the
whole of the investment portfolio on an ongoing basis. The Board has meetings
in each calendar quarter to assess risk and review investment performance, as
disclosed in the Board Responsibilities. Any borrowing to gear the investment
portfolio is used to enhance returns but also increases the Company's exposure
to market risk and volatility. The Company has the ability to gear using its
£120 million Unsecured Senior Loan Notes.
16.1.1 Currency risk
The majority of the Company's assets and liabilities are denominated in
sterling. There is some exposure to US dollar, Swiss franc and the Euro.
16.1.2 Inflation risk
The Company has no assets or liabilities that have direct inflation link
properties.
Management of the currency risk
The Manager monitors the Company's direct exposure to foreign currencies on a
daily basis and reports to the Board on a regular basis. Forward currency
contracts can be used to reduce the Company's exposure to foreign currencies
arising naturally from the Manager's choice of securities. All contracts are
limited to currencies and amounts commensurate with the assets denominated in
currencies. No Forward currency contracts were used during the year (2024:
none).
Income denominated in foreign currencies is converted to sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that income is included in the
financial statements and its receipt.
The Company may invest up to 20% of the portfolio in securities listed on
non-UK stock exchanges. At the year end holdings of non-UK securities total
£76.1 million (2024: £74.3 million) representing 6.2% (2024: 6.2%) of the
portfolio.
Currency exposure
The fair values of the Company's monetary items that had a material currency
exposure at 31 March are shown below. Where the Company's equity investments
(which are not monetary items) are priced in a foreign currency, they have
been included separately in the analysis so as to show the overall level of
exposure.
2025 2024
USD DKK CHF EUR USD DKK CHF EUR
Currency exposure £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Foreign currency exposure on net monetary items 869 38 988 384 2,730 38 2,183 584
Investments at fair value through profit or loss that are equities 55,389 - - 20,701 40,666 - 21,373 12,254
Total net foreign currency exposure 56,258 38 988 21,085 43,396 38 23,556 12,838
The above may not be representative of the exposure to risk during the year,
because the levels of foreign currency exposure may change significantly
throughout the year.
Currency sensitivity
In respect of the Company's material direct foreign currency exposure to
investments denominated in currencies, if sterling had weakened by 2.1%
(2024: 1.7%) against the US dollar, 1.2% (2024: 1.4%) for the Swiss franc,
1.2% (2024: 1.0%) for the Euro, and for the Danish Krone, 1.2% (2024: 1.0%)
during the year, the capital return and net assets of the Company would have
increased for all currency exposures by £1.4 million (2024: £1.2 million).
Conversely, if sterling had strengthened to the same extent for the currencies
mentioned above, the capital return and net assets of the Company would have
decreased by the same amount. The exchange rate variances noted above have
been based on market volatility in the year, using the standard deviation of
sterling's fluctuation to the applicable currency. This sensitivity takes no
account of any impact on the market values of the Company's investments
arising from the foreign currency mix of their respective revenues, expenses,
assets and liabilities.
16.1.3 Interest rate risk
Interest rate movements will affect the level of income receivable on cash
deposits and money market funds, and the interest payable on variable rate
borrowings. When the Company has cash balances, they are held on variable rate
bank accounts yielding rates of interest dependent on the base rate determined
by the custodian, The Bank of New York Mellon (International) Limited.
The Company has Unsecured Senior Loan Notes of £120 million (2024: £120
million). The Unsecured Senior Loan Notes have a fixed interest rate which
only exposes the Company to changes in market value in the event that the debt
is repaid before maturity. Specifics of the Unsecured Senior Loan Notes are
shown in Note 12. The details of their fair value and the affect on net asset
value within the Net Asset Value (NAV) - Debt at Fair Value reconciliation
within the Alternative Performance Measures.
The Company held no fixed income securities during the year (2024: no fixed
income securities). As at 31 March 2025 no government bonds (2024: none) were
recognised as a Cash and Cash Equivalent on the Balance Sheet.
Interest rate exposure
At 31 March the exposure of financial assets and financial liabilities to
interest rate risk is shown by reference to:
- floating interest rates (giving cash flow interest rate risk) - when
the interest rate is due to be re-set; and
- fixed interest rates (giving fair value interest rate risk) - when the
financial instrument is due for repayment.
2025 2024
Between Between
one After one After
Within and five five Within and five five
one year years years Total one year years years Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 7,233 - - 7,233 36,314 - - 36,314
Unsecured Senior Loan Notes - debt at par value - (120,000) (120,000) - - (120,000) (120,000)
Total exposure to interest rates 7,233 - (120,000) (112,767) 36,314 - (120,000) (83,686)
16.1.4 Other price risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk or currency risk) may affect the value of the equity
investments, but it is the business of the Manager to manage the portfolio to
achieve the best return that he can.
Management of the other price risk
The Directors manage the market price risks inherent in the investment
portfolio by meeting regularly to monitor on a formal basis the Manager's
compliance with the Company's stated objectives and policies, and to review
investment performance.
The Company's portfolio is the result of the Manager's investment process and
need not be highly correlated with the Company's benchmark or the market in
which the Company invests. The value of the portfolio will not move in line
with the market but will move as a result of the performance of the company
shares within the portfolio.
If the value of the portfolio fell by 10% at the balance sheet date, the
profit after tax for the year and the net assets of the Company would decrease
by £123.1 million (2024: £120.7 million). Conversely, if the value of the
portfolio rose by 10%, the profit after tax and the net assets of the Company
would increase by the same amounts.
16.2 Liquidity risk
Liquidity risk is minimised as the majority of the Company's investments
constitute a diversified portfolio of readily realisable securities which can
be sold to meet funding commitments as necessary.
Liquidity risk exposure
The contractual maturities of the financial liabilities at the year end, based
on the earliest date on which payment can be required, are as follows:
More than
three
months
Three but less More than
months than one
or less one year year Total
2025 £'000 £'000 £'000 £'000
Unsecured Senior Loan Notes - debt at par value - - 120,000 120,000
Interest on Unsecured Senior Loan Notes - 2,928 64,645 67,573
Accruals and deferred income 693 - - 693
693 2,928 184,645 188,266
More than
three
months
Three but less More than
months than one
or less one year year Total
2024 £'000 £'000 £'000 £'000
Unsecured Senior Loan Notes - debt at par value - - 120,000 120,000
Interest on Unsecured Senior Loan Notes - 2,928 67,573 70,501
Amounts due to brokers 5,914 - - 5,914
Share buybacks awaiting settlement 1,098 - - 1,098
Accruals and deferred income 696 - - 696
7,708 2,928 187,573 198,209
16.3 Credit risk
Credit risk encompasses the failure by counterparties to deliver securities
which the Company has paid for, or to pay for securities which the Company has
delivered, and cash balances. Counterparty risk is minimised by using only
approved counterparties. The Company's ability to operate in the short-term
may be adversely affected if the Company's custodian suffers insolvency or
other financial difficulties. However, with the support of the depositary's
restitution obligation the risk of outright credit loss on the investment
portfolio is remote. The Board reviews the custodian's annual controls report
and the Manager's management of the relationship with the custodian. Cash
balances are limited to a maximum of 1% of net assets with any one deposit
taker, with only approved deposit takers being used, and a maximum deposit of
6% of net assets in aggregate in liquidity funds with credit ratings of AAAm
(or equivalent). These limits are at the discretion of the Board and are
reviewed on a regular basis. The investment policy also allows for UK
Government Treasuries to be held. Such holdings are recorded as cash
equivalents if they meet the criteria set out in Note 1D.
16.4 Custody risk
All investment assets are held in custody by The Bank of New York Mellon
(International) Limited in accounts segregated from the bank's own assets.
17. CLASSIFICATION UNDER FAIR VALUE HIERARCHY
The values of the financial assets and financial liabilities are carried
either at their fair value (investments), or at a reasonable approximation of
fair value (amounts due from brokers, dividends receivable, accrued income,
amounts due to brokers, accruals and cash).
Fair Value Hierarchy Disclosures
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.
2025
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets designated at fair value through profit or loss:
Quoted investments:
Equities and preference shares 1,230,888 - - 1,230,888
Total for financial assets 1,230,888 - - 1,230,888
2024
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets designated at fair value through profit or loss:
Quoted Investments:
Equities 1,206,563 - - 1,206,563
Total for financial assets 1,206,563 - - 1,206,563
The book cost and fair value of Unsecured Senior Loan Notes, are as follows:
2025 2024
Book Fair Book Fair
Value Value Value Value
£'000 £'000 £'000 £'000
Unsecured Senior Loan Notes 120,000 66,611 120,000 73,461
120,000 66,611 120,000 73,461
Incorporating the fair value of the Unsecured Senior Loan Notes, results in
the increase of the net asset value per ordinary share to 817.16p (2024:
779.97p).
18. CAPITAL MANAGEMENT
The Company's total capital employed at 31 March 2025 was £1,245,946,000
(2024: £1,255,047,000) comprising borrowings of £120,000,000 (2024:
£120,000,000) and equity share capital and other reserves of £1,125,946,000
(2024: £1,135,047,000).
The Company's total capital employed is managed to achieve the Company's
objective and investment policy as set out in the annual report, including
that borrowings may be used to provide gearing of the equity portfolio up to
the maximum authorised by shareholders, currently 25% of net assets. Net
gearing was 5.0% (2024: 3.1%) at the balance sheet date. The Company's
policies and processes for managing capital were unchanged throughout the year
and the preceding year.
The main risks to the Company's investments are shown in the Strategic Report
under the 'Principal Risks and Uncertainties' section. These also explain that
the Company is able to use borrowings to gear and that gearing will amplify
the effect on equity of changes in the value of the portfolio.
The Board can also manage the capital structure directly since it has taken
the powers, which it is seeking to renew, to issue and buyback shares and it
also determines dividend payments.
The Company is subject to externally imposed capital requirements with respect
to the obligation and ability to pay dividends by section 1158 Corporation Tax
Act 2010 and by the Companies Act 2006, respectively. The Board regularly
monitors, and has complied with, the externally imposed capital requirements.
This is unchanged from the prior year. As detailed in note 11 and note 12,
current borrowings comprise the Unsecured Senior Loan Notes.
19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
There were no contingencies, guarantees or other financial commitments of the
Company as at 31 March 2025 (2024: nil).
20. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH MANAGER
A related party is a company or individual who has direct or indirect control
or who has significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties.
The Directors' remuneration and interests have been disclosed in the annual
report with additional disclosure in note 4. No other related parties have
been identified.
Details of the Manager's services and fees are disclosed in the Directors'
Report and in note 3.
21. POST BALANCE SHEET EVENTS
There are no significant events after the end of the reporting period
requiring disclosure.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information is derived from the statutory accounts, which will be
delivered to the registrar of companies and will be put forward for approval
at the Company's Annual General Meeting. The auditors have reported on the
accounts for the year ended 31 March 2024 and the year ended 31 March 2025,
their reports were unqualified and did not include a statement under Section
498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 31 March 2025 was approved on 20 May
2025.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 22 July 2025 at 11:00 a.m. at The
Balmoral Hotel, Edinburgh, EH2 2EQ.
For further information contact:
NSM Funds (UK) Limited
4th Floor, 46-48 James Street, London, W1U 1EZ
Email: EIT@nsm.group
Tel: +44 (0) 20 3697 5770
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