Final Results
29 May 2008
THE EDINBURGH INVESTMENT TRUST plc
PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2008
The Edinburgh Investment Trust plc is one of the UK's largest investment trusts
focussed entirely on the UK. The long term objectives of The Edinburgh
Investment Trust plc are the achievement of capital growth at a higher rate
than the FTSE All-Share Index (`Index') and dividend growth above the rate of
UK inflation.
The Chairman, Scott Dobbie, commenting on the results, said:
"Although your Company in common with most funds with an income bias did not
this year meet its capital objective, it has, over the last three years as a
whole, achieved a total return of dividends received and share price growth of
38.8% - this compares to 31.3% for the benchmark index and is greater than any
other of its AIC UK Growth and Income peer group."
Please note that past performance is not a guide to future returns. The value
of investments and the income from them can go down as well as up.
For further information, please contact:
Fidelity Investments International
Simon Ellis 020 7074 5205
Richard Miles 020 7961 4921
Issued by Fidelity Investments International, authorised and regulated in the
UK by the Financial Services Authority.
CB34047/1108
CHAIRMAN'S STATEMENT
The UK Equity Market
The UK equity market has been highly volatile in the 12 months to 31 March 2008
as it reacted to the national and international effects of the credit crunch.
Over the year as a whole, the FTSE All-Share Index ("the Index") fell by 10.8%,
with particular weakness in banking, building and consumer stocks as investor
concerns spread from financial sectors to the broader economy. On the other
hand, the mining and oil exploration sectors continued to perform well in
response to the continued strong growth in commodity prices.
Capital and Share Price Performance
This was a difficult year for income funds and the Company's net asset value
("NAV") fell by 14.8% (debt at par) or 15.5% (debt at market), significantly
more than the 10.8% fall in the benchmark Index. The Company's portfolio was
overweight banks which underperformed strongly but pay substantial dividends,
and underweight mining groups which yield little. Full details of the portfolio
performance are contained in the Business Review in the annual report. It is
noteworthy that although failing to meet its first objective - that NAV growth
should exceed that of the Index - the Company's NAV performance has been no
worse than average (rank 7th) in the peer group of 12 trusts in the AIC UK
Growth and Income sector. (Source Fund Data 12 months to 31 March 2008).
The Company's share price declined by 16.2% - this fall was greater than the
benchmark Index and more than the fall in NAV, reflecting an increase over the
year in the discount to NAV. The relative fall in share price over the year was
disappointing, particularly given the Company's strong price performance in the
previous two years. Despite the recent setback, shareholder returns over the
past three years have been good. Total return - the sum of growth in share
price and dividends received in the three years - is 38.8% of the base price at
1 April 2005. This compares to 31.3% for the benchmark Index, and is greater
than any of the 11 other trusts in the peer group already defined.
During the year, the Company bought back 17.2m shares, enhancing the NAV for
remaining holders. The Board believes it to be essential to have power to
continue the programme in appropriate circumstances, and will seek authority
from shareholders at the Annual General Meeting.
Income Performance
Shareholders will recall that dividends increased by a total of 43% over the
two years ending 31 March 2007. The increase was due both to increasing payouts
by underlying investments and to a change in portfolio emphasis towards higher
yielding securities. In my statement last year, I counselled that holders could
expect a much lower rate of growth in future, since the portfolio change was
one-off, and dividend growth generally was expected to slow. Both trends have
been apparent in the year under review. Shareholders have received three
interim dividends each of 4.75p per share: a final dividend of 5.65p per share
is recommended. Total dividends, 19.9p per share, are therefore 5.6% higher
than in the previous year: this increase is greater than the increase in RPI in
the equivalent period and the Company's second objective - to grow dividends/
share by more than UK inflation - has therefore been achieved.
Subject to shareholder approval at the 2008 Annual General Meeting the proposed
final dividend of 5.65 pence per share will be paid on 22 July 2008 to
shareholders on the Company's register on 6 June 2008 (ex-dividend date 4 June
2008).
Portfolio Structure
The portfolio can be geared by investing all or part of the two long term
debenture stocks, of £200m book value, in equities. I reported at the interim
stage that about 60% of the debenture stocks were invested in the equity market
- equivalent to an actual gearing ratio of 9.7%. Having reduced gearing earlier
in the financial year, it was increased in January when it was felt that market
fundamentals had improved. At the year end, the actual gearing ratio was 12.9%,
this compared with 14.3% at 31 March 2007. The performance attribution shown in
the annual report demonstrates that gearing in a falling market was detrimental
to the year's capital performance.
I described in my statement last year that the Company's funds are allocated by
Fidelity to two portfolio managers - one biased to holdings expected to
increase dividends by more than the market average and the other with a
stronger current income orientation . The first has continued to perform well
and has offset some of the weakness in the funds allocated to the higher income
portfolio. The latter, even allowing for the difficult market conditions,
already described, has not met expectations and the Board and Fidelity are
working to improve the capital performance of this part of the portfolio whilst
continuing to meet the Company's income objective.
VAT on Management Fees
I reported at the Interim stage the ruling by the European Court of Justice
that Her Majesty's Revenue and Customs had been wrong in levying VAT on
management fees borne by investment trusts. Initially it was believed that
recovery could be made of some at least of the tax paid since 2001. A
subsequent legal decision means that this potential repayment will be extended
to a period of about five years from 1990. The Company is no longer paying VAT
on management fees and is currently negotiating recovery of VAT paid since 2002
to its Manager, Fidelity Investments International, and to Aberdeen Asset
Managers, successors to its previous manager, Edinburgh Fund Managers. It is
not yet possible to estimate the scale of funds to be rebated and no provision
for their receipt has been made in these financial statements. Shareholders
should be aware that any funds received will be allocated to income and capital
in the proportions in which the original charges were applied.
Outlook
The liquidity crisis which first became apparent in the US sub-prime loans
business about nine months ago continued to erode confidence in financial
markets. There are now strong signs of increasing inflation, a reduction in the
rate of growth of the global economy, and reduced expectations of growth in
corporate earnings. Against this background, fixed interest securities,
particularly corporate bonds, have fallen sharply in value, whilst equity
markets, although volatile, have reacted to a much lesser extent. The
resilience of equity markets can be justified, in good part, by ratings which
are undemanding relative to historic norms, or to alternative asset classes.
Your Board believes that whilst there is some risk of decline in equity values,
there is good potential for upward movement when the market sees a return to
confidence. The current cautious approach is to remain only partly geared.
A reduction in market earnings is likely to be followed by caution in dividend
payments by the corporate sector, and your Board foresees a fall in the rate of
growth in the dividends paid on the Company's own investments. We are
nevertheless at this stage confident that the Company can next year increase
its own dividends by at least the rate of inflation and hence continue to meet
its income objective.
Scott Dobbie
Chairman
29 May 2008
Income Statement for the year ended 31 March
2008 2007
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (163,699) (163,699) - 91,751 91,751
investments
Income from financial
assets designated at fair
value through profit or
loss:
- franked investment income 45,108 - 45,108 45,237 - 45,237
- UK scrip dividends 23 - 23 - - -
- other investment income 742 - 742 425 - 425
- fixed interest - - - 137 - 137
- premium on call options 1,199 - 1,199 639 - 639
Other income from financial
assets not at fair value
through profit or loss:
- interest receivable on 1,980 - 1,980 1,338 - 1,338
short term deposits
- income from Fidelity 2,601 - 2,601 671 - 671
Institutional Cash Fund plc
- underwriting commission 46 - 46 - - -
- sundry income 24 - 24 118 - 118
Investment management fee (1,112) (2,596) (3,708) (1,241) (2,896) (4,137)
Other expenses (705) - (705) (751) - (751)
Exchange (losses)/gains (6) (3) (9) 5 (128) (123)
NET RETURN/(LOSS) BEFORE F 49,900 (166,298) (116,398) 46,578 88,727 135,305
INANCE COSTS AND TAXATION
Interest payable (5,850) (13,651) (19,501) (5,850) (13,651) (19,501)
NET RETURN/(LOSS) ON 44,050 (179,949) (135,899) 40,728 75,076 115,804
ORDINARY ACTIVITIES BEFORE
TAXATION
Taxation on return/(loss) (276) - (276) (14) - (14)
on ordinary activities *
RETURN/(LOSS) ON ORDINARY 43,774 (179,949) (136,175) 40,714 75,076 115,790
ACTIVITIES AFTER TAXATION
FOR THE YEAR
RETURN/(LOSS) PER ORDINARY 21.41p (88.01p) (66.60p) 18.13p 33.44p 51.57p
SHARE (1)
A Statement of Total Recognised Gains and Losses has not been prepared as there
are no gains and losses other than those reported in this Income Statement. The
total column of the Income Statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
* This relates to overseas taxation only.
Reconciliation of Movements in Shareholders' Funds for the year ended 31 March
called share capital capital capital revenue total
up premium redemption reserve reserve reserve equity
share account reserve realised unrealised
capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening 58,487 6,639 14,968 830,830 245,481 58,199 1,214,604
shareholders'
funds: 1 April 2006
Net recognised - - - 126,161 (34,538) - 91,623
gains/(losses) for
the year
Repurchase of (4,612) - 4,612 (80,571) - - (80,571)
ordinary shares
Management fee to - - - (2,896) - - (2,896)
capital
Debenture interest - - - (13,651) - - (13,651)
and amortised
expenses to capital
Revenue after - - - - - 40,714 40,714
taxation
Dividends paid - - - - - (44,596) (44,596)
Closing 53,875 6,639 19,580 859,873 210,943 54,317 1,205,227
shareholders'
funds:
31 March 2007
Transfer between - - - 211,728 (211,728) - -
reserves
Net recognised - - - (163,759) 57 - (163,702)
(losses)/gains for
the year
Repurchase of (4,301) 4,301 (83,492) - - (83,492)
ordinary shares
Management fee to - - - (2,596) - - (2,596)
capital
Debenture interest - - - (13,651) - - (13,651)
and amortised
expenses to capital
Revenue after - - - - - 43,774 43,774
taxation
Dividends paid - - - - - (40,522) (40,522)
Closing 49,574 6,639 23,881 808,103 (728) 57,569 945,038
shareholders'
funds:
31 March 2008
Balance Sheet as at 31 March
2008 2007
£'000 £'000
FIXED ASSETS
Investments at fair value through 1,064,645 1,374,218
profit or loss
CURRENT ASSETS
Debtors 10,733 14,008
Fidelity Institutional Cash Fund plc 52,601 -
Cash at bank 25,444 27,821
88,778 41,829
CREDITORS - AMOUNTS FALLING DUE (12,029) (14,715)
WITHIN ONE YEAR
NET CURRENT ASSETS 76,749 27,114
TOTAL ASSETS LESS CURRENT LIABILITIES 1,141,394 1,401,332
CREDITORS - AMOUNTS FALLING DUE AFTER (196,356) (196,105)
MORE THAN ONE YEAR
TOTAL NET ASSETS 945,038 1,205,227
CAPITAL AND RESERVES
Called up share capital 49,574 53,875
Share premium account 6,639 6,639
Capital redemption reserve 23,881 19,580
Capital reserve - realised 808,103 859,873
Capital reserve - unrealised (728) 210,943
Revenue reserve 57,569 54,317
TOTAL EQUITY SHAREHOLDERS' FUNDS 945,038 1,205,227
NET ASSET VALUE PER ORDINARY SHARE 474.74p 557.47p
Cash Flow Statement for the year ended 31 March
2008 2007
£'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 46,438 43,755
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (19,250) (19,250)
NET CASH OUTFLOW FROM SERVICING OF FINANCE (19,250) (19,250)
FINANCIAL INVESTMENT
Purchase of investments (475,734) (664,058)
Exchange losses (60) -
Disposal of investments 624,890 713,493
Realised losses on long futures positions closed - (179)
NET CASH INFLOW FROM FINANCIAL INVESTMENT 149,096 49,256
EQUITY DIVIDENDS PAID (40,522) (44,596)
NET CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND 135,762 29,165
FINANCING
NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID (52,601) 47,451
RESOURCES
NET CASH INFLOW BEFORE FINANCING 83,161 76,616
FINANCING
Repurchase of ordinary shares (85,595) (77,225)
NET CASH OUTFLOW FROM FINANCING (85,595) (77,225)
DECREASE IN CASH (2,434) (609)
Notes
1. Returns/(losses) per ordinary share are based on the net revenue return on
ordinary activities after taxation of £43,774,000 (2007: £40,714,000), the net
capital loss in the year of £179,949,000 (2007: return £75,076,000) and the
total loss in the year of £136,175,000 (2007: return £115,790,000) and on
204,452,781 ordinary shares (2007: 224,522,324) being the weighted average
number of ordinary shares in issue during the year.
2. The third interim dividend of 4.75 pence per share amounting in total to £
9,441,000 was paid on 22 May 2008 for the year ended 31 March 2008 (2007: 4.40
pence) and has not been included as a liability in these financial statements.
The Directors have proposed a final dividend of 5.65 pence per share, amounting
to £11,085,000, which is subject to approval by the shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.
3. Net asset value per share
Total shareholders' funds have been calculated in accordance with the
provisions of FRS 26. The analysis of total shareholders' funds on the face of
the balance sheet does not reflect the rights, under the Articles of
Association, of the ordinary shareholders on a return of assets. These rights
are reflected in the net asset value and the asset value per share attributable
to ordinary shareholders at the year end, adjusted to reflect the deduction of
the debenture stocks at par. A reconciliation between the two sets of figures
follows:-
2008 2007
Total shareholders' funds (£) 945,038,000 1,205,227,000
Less: Debenture stocks discount (£) (54,000) (57,000)
Less: Debenture stocks issue expenses (£) (3,590,000) (3,838,000)
Net assets - debt at par (£) 941,394,000 1,201,332,000
Number of ordinary shares in issue at year 198,294,748 215,496,748
end
Total shareholders' funds per share (pence) 476.58 559.28
Less: Unamortised debenture stocks discount (1.84) (1.81)
and issue expenses (pence)
Net asset value per share - debt at par 474.74 557.47
(pence)
2008 2007
£'000 £'000
The movements during the year of the assets
attributable to the ordinary shares were as
follows:-
Net assets - debt at par - at 31 March 2007 1,201,332 1,210,458
Total recognised capital (loss)/gain for the (179,949) 75,076
year
Revenue return for the year 43,774 40,714
Dividend appropriated in the year (40,522) (44,596)
Movement in unamortised debenture stocks 251 251
discount and issue expenses
Repurchase of ordinary shares (83,492) (80,571)
Net assets - debt at par - at 31 March 2008 941,394 1,201,332
The net asset value per share adjusted to include the debenture stocks at
market value rather than at par is as follows:
2008 2007
£'000 £'000
Net assets - debt at par - at 31 March 2008 941,394 1,201,332
(from above)
Adjust for debt at market value:
Debt at par 200,000 200,000
Debt at market value (251,974) (257,248)
Adjusted capital net assets - debt at 889,420 1,144,084
market value - 31 March 2008
Number of ordinary shares in issue at year 198,294,748 215,496,748
end
Adjusted capital net asset value per share 448.53 530.90
- debt at market value (pence)
4. The above statements have been prepared on the basis of the accounting
policies as set out in the annual financial statements to 31 March 2008. The
financial statements have been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice ("UKGAAP") and the AIC Statement of
Recommended Practice ("SORP") for Investment Trusts dated January 2003 and
revised in December 2005. The figures for the year to 31 March 2007 have been
extracted from the financial statements for the year ended 31 March 2007 which
have been delivered to the Registrar of Companies and on which the Auditors
gave an unqualified report.
The statutory financial statements for the year ended 31 March 2008 which
contain an unqualified audit report will be delivered to the Registrar of
Companies following the Company's Annual General Meeting which will be held at
The Weston Link, National Galleries of Scotland, Princes Street, Edinburgh on
Monday 21 July 2008 at 2.30 pm.
The income statement, reconciliation of movements in shareholders' funds,
balance sheet and cash flow set out above do not represent full accounts in
accordance with Section 240 of the Companies Act 1985.
5. The annual report will be posted to shareholders on or before 18 June 2008
and copies will be available from the Secretary - Fidelity Investments
International, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge,
Kent, TN11 9DZ.
Fidelity only gives information about its own products and services and does
not provide investment advice based on individual circumstances. Fidelity
Investment Trusts are managed by Fidelity Investments International. Issued by
Fidelity Investments International, authorised and regulated in the UK by the
Financial Services Authority.
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