Final Results
5 June 2006
THE EDINBURGH INVESTMENT TRUST plc
PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2006
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 and dividend growth above the rate of UK
inflation.
Key points
* Net asset value ("NAV") with debt at market value increased by 24.0%,
matching the benchmark Index
* Over the three years to 31 March 2006 NAV (debt at market value) increased
by 93.4% compared to growth of 75.6% in the benchmark Index over the same
period
* Share price increased by 30.3% in the year to 31 March 2006
* Final dividend of 10.85p per share recommended, an increase of 21.2% over
the prior year, resulting in a total dividend increase of 16.0%
*
+ The Chairman states:
"Your Board believes that The Edinburgh Investment Trust plc provides a
valuable core holding for long-term investors in the UK equity market,
providing growing income whilst increasing capital value, in real terms. We
remain confident in your Company's ability to fulfil this role."
Please note that past performance is not a guide to future returns. The value
of investments can go down as well as up and may be affected by exchange rate
fluctuations.
For further information, please contact:
Fidelity Investments International
Simon Fraser 020 7961 4500
Charles Payne 020 7961 4616
Stephen Westwood 020 7961 4477
Issued by Fidelity Investments International. Authorised and regulated by the
Financial Services Authority.
CB27336/n2
CHAIRMAN'S STATEMENT
The UK Equity Market
In my Interim Report, I discussed the strong performance of the UK equity
market in the six months to 30 September 2005. After a set-back in late autumn,
growth in the FTSE All-Share Index ("the Index") was resumed and continued
steadily to the Company's year-end on 31 March. Over the year as a whole, the
Index (capital only) grew by 24%. This strong performance was due largely to
strong corporate cash flow and increasing dividend payments, merger activity
and by the Index's relatively heavy weighting in oil and mining stocks in a
period of rising commodity prices.
Investment Performance
The Company's objectives are the achievement of capital growth at a higher rate
than the Index and dividend growth above the rate of UK inflation.
Capital Performance
Net Asset Value ("NAV") with debt at market value, increased by 24% over the
year - precisely the growth in the benchmark Index. Capital returns with debt
at par, and total returns, were also the same as that of the relevant
benchmark.
Over a longer time period returns have been substantially better than the
Index. NAV has increased in the three years to 31 March 2006 by 93.4% and
81.1%, with debt at market value and par respectively. This compares to growth
of 75.6% in the benchmark Index in the same period.
Income Performance
Shareholders will be aware that the Board did not feel able to recommend an
increase in dividend in either of the last two financial years, whilst payments
were not covered by earnings. This year, a small increase was paid at the
interim stage, when I reported that the Company was benefiting from increased
dividend payments from its underlying investment portfolio. The Company's
income growth has continued in the October to March period, principally from
increased dividend receipts, but to a small extent too from a slight increase
in the bias towards income in the Manager's portfolio emphasis. The result is
that the Company's earnings have increased year-on-year by 23.6%, and dividend
cover has moved from deficit into surplus. Accordingly, the Board recommends,
for shareholder approval at the Annual General Meeting, that the final dividend
be increased by 21.2%, to 10.85 pence per share (2005: 8.95 pence per share).
The final dividend will be paid on 21 July 2006 to shareholders on the register
at the close of business on 16 June (the ex-dividend date will be 14 June
2006).
If the final dividend is approved, total payments for the year to 31 March 2006
will be 15.25 pence per share - 16.0% higher than in the previous year. The
scale of the increase this year is such that despite the two flat years, growth
over the three year period ending 31 March 2006 is substantially more than the
8.42% increase in UK inflation in this time - hence the Company's income
objective has been achieved not only this year, but also over the past three
years as a whole. The Board sees no present reason why the Company's dividend
objective should not be met or exceeded in the current financial year.
Share Price
The Company's share price increased by 30.3% in the year under review - an
increase significantly greater than the rise of 24.0% in the relevant Index.
This outperformance represents a reduction between 31 March 2005 and 2006 from
15.9% to 11.7% (debt marked to market) in the discount of share price to NAV.
Part, at least, of this reduction reflects demand from personal savers in a
period of greater optimism in financial markets. Seeking to increase this
demand, the Company and its Manager continue actively to promote the benefits
of the Company to potential investors. The Board also believes that it is
important to be able to buy back shares for cancellation in appropriate
circumstances. Power to do so will again be sought at the Annual General
Meeting. During the year under review, the Company bought back 5.5 million
shares - this enhanced the NAV for remaining shareholders by 0.44%.
Portfolio Structure
The Company's portfolio continues to be allocated by Fidelity to three
portfolio managers. There has, as already stated, been some change of emphasis
towards securities with above average yields and to those seen likely to
achieve strong dividend growth. The Board does not believe that this change
will prejudice future capital performance.
I reported in my statement last year that the Board and Manager had agreed that
the amount of the Company's borrowings to be invested in the equity market
should be in the range £90-£130 million. An average of about £110m was utilised
during the year, contributing 1.3 percentage points to the growth in NAV.
Towards the end of the year, the utilisation limit was raised; at the year-end
£140m of the Debentures was invested in equities.
The Board has continued carefully to monitor the position of the two Debenture
Stocks. We remain of the view that redemption at current prices is not in the
interest of shareholders of a long term equity fund such as that of your
Company.
The Board
I informed shareholders at the interim stage of the appointment of Jim
Pettigrew to the Board.
My colleagues and I are sorry that Ian Inglis has decided not to stand for
re-election at the Annual General Meeting. Ian, who had a distinguished career
as a senior corporate lawyer in Edinburgh, was appointed a Director in 1997. He
has made a major contribution to the work of the Board, particularly as
Chairman of the Audit Committee, and his legal background has been of
particular benefit to your Company in dealing with increasingly complex
corporate governance requirements. We shall all miss his wise counsel and I
would like to thank Ian on behalf of shareholders for all he has done on their
behalf. Jim Pettigrew, a Chartered Accountant with substantial experience as
finance director of a major listed financial services company, will be
appointed to chair the Audit Committee with effect from 19 July 2006.
Prospects
The UK equity market has delivered excellent returns to investors over the past
three years. A strong economy, domestically in the UK and elsewhere, has
produced an environment favourable to the corporate sector; investors have
benefited particularly from substantial dividend increases and from merger
activity. The outlook is now less benign and markets have become much more
volatile, reminding us of the risks which can accompany rewards. History
demonstrates the long-term benefits of investment in equities and many
commentators are agreed that the UK equity market, where prospects remain good
for further profit and dividend growth, does not appear expensive relative to
alternative savings vehicles.
Your Board believes that The Edinburgh Investment Trust plc provides a valuable
core holding for long term investors in the UK equity market, providing growing
income whilst increasing capital values, in real terms. We remain confident in
your Company's ability to fulfil this role.
Scott Dobbie
Chairman
5 June 2006
THE EDINBURGH INVESTMENT TRUST plc
Income Statement for the year ended 31 March
2006 2005
restated
(note 1)
revenue capital total revenue capital total
notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on - 246,317 246,317 - 125,488 125,488
investments
Income from
investments:
- franked 38,809 - 38,809 32,528 - 32,528
investment income
- other 543 - 543 312 - 312
investment income
- fixed interest 275 - 275 81 - 81
- premium on call 149 - 149 - - -
options
Other income:
- interest 890 - 890 497 - 497
receivable on
short term
deposits
- income 3,391 - 3,391 3,881 - 3,881
receivable from
Fidelity
Institutional Cash
Fund plc
- underwriting - - - 1 - 1
commission
Investment (1,099) (2,564) (3,663) (953) (2,223) (3,176)
management fee
Other expenses (762) - (762) (797) - (797)
Exchange gains/ 2 3 5 - (22) (22)
(losses)
NET RETURN BEFORE 42,198 243,756 285,954 35,550 123,243 158,793
FINANCE COSTS AND
TAXATION
Interest payable (5,850) (13,651) (19,501) (5,850) (13,651) (19,501)
RETURN ON ORDINARY 36,348 230,105 266,453 29,700 109,592 139,292
ACTIVITIES BEFORE
TAXATION
Taxation on (30) - (30) (40) - (40)
ordinary
activities *
RETURN ON ORDINARY 36,318 230,105 266,423 29,660 109,592 139,252
ACTIVITIES AFTER
TAXATION FOR THE
YEAR
RETURN PER 2 15.28p 96.80p 112.08p 12.36p 45.65p 58.01p
ORDINARY SHARE
The total column of the Income Statement is now the revenue account of the
Company. There are no other gains and losses other than those reported in this
Income Statement. 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 60,699 6,639 12,756 666,475 103,005 34,067 883,641
shareholders'
funds as
previously stated:
1 April 2004
Effect of prior - - - - - 21,730 21,730
year adjustment as
a result of a
change in
accounting policy
regarding the
treatment of
proposed dividends
Opening 60,699 6,639 12,756 666,475 103,005 55,797 905,371
shareholders'
funds as restated:
1 April 2004
Net recognised - - - 75,454 50,012 - 125,466
gains for the year
Repurchase of (837) - 837 (9,703) - - (9,703)
ordinary shares
Management fee to - - - (2,223) - - (2,223)
capital
Debenture interest - - - (13,651) - - (13,651)
and amortised
expenses to
capital
Revenue after - - - - - 29,660 29,660
taxation
Dividends paid - - - - - (31,787) (31,787)
Shareholders' 59,862 6,639 13,593 716,352 153,017 53,670 1,003,133
funds as restated:
31 March 2005
Effect of changing - - - - (1,405) - (1,405)
prices from middle
market to bid
market at
1 April 2005
Net recognised - - - 152,451 93,869 - 246,320
gains for the year
Repurchase of (1,375) 1,375 (21,758) - - (21,758)
shares
Management fee to - - - (2,564) - - (2,564)
capital
Debenture interest - - - (13,651) - - (13,651)
and amortised
expenses to
capital
Revenue after - - - - - 36,318 36,318
taxation
Dividends paid - - - - - (31,789) (31,789)
Closing 58,487 6,639 14,968 830,830 245,481 58,199 1,214,604
shareholders'
funds:
31 March 2006
Balance Sheet as at 31 March
2006 2005
£'000 restated (
note 1)
£'000
FIXED ASSETS
Investments held at fair value 1,345,215 1,098,015
through profit or loss
CURRENT ASSETS
Debtors 22,348 12,394
Fidelity Institutional Cash Fund plc 47,451 80,060
Amounts held at futures clearing 2,008 174
houses and brokers
Cash at bank 26,550 23,675
98,357 116,303
CREDITORS - AMOUNTS FALLING DUE (33,114) (15,582)
WITHIN ONE YEAR
NET CURRENT ASSETS 65,243 100,721
TOTAL ASSETS LESS CURRENT LIABILITIES 1,410,458 1,198,736
CREDITORS - AMOUNTS FALLING DUE AFTER (195,854) (195,603)
MORE THAN ONE YEAR
TOTAL NET ASSETS 1,214,604 1,003,133
CAPITAL AND RESERVES
Called up share capital 58,487 59,862
Share premium account 6,639 6,639
Capital redemption reserve 14,968 13,593
Capital reserve - realised 830,830 716,352
Capital reserve - unrealised 245,481 153,017
Revenue reserve 58,199 53,670
TOTAL EQUITY SHAREHOLDERS' FUNDS 1,214,604 1,003,133
NET ASSET VALUE PER ORDINARY SHARE: 517.41p 417.10p
Cash Flow Statement for the year ended 31 March
2006 2005
£'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 39,320 34,375
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 (682,956) (662,035)
Exchange losses (3) (22)
Disposal of investments 686,679 713,320
Realised losses on short futures positions closed - (260)
Realised gains on long futures positions closed 455 19
NET CASH INFLOW FROM FINANCIAL INVESTMENT 4,175 51,022
EQUITY DIVIDENDS PAID (31,789) (31,787)
NET CASH (OUTFLOW)/ INFLOW BEFORE USE OF LIQUID (7,544) 34,360
RESOURCES AND FINANCING
NET CASH INFLOW/(OUTFLOW) FROM MANAGEMENT OF LIQUID 32,609 (8,324)
RESOURCES
NET CASH INFLOW BEFORE FINANCING 25,065 26,036
FINANCING
Repurchase of ordinary shares (20,362) (9,703)
NET CASH OUTFLOW FROM FINANCING (20,362) (9,703)
INCREASE IN CASH 4,703 16,333
Notes
1. Prior year adjustments and restatements
2006 2005
Shareholders' Shareholders'
funds funds
£'000 £'000
Opening balance as previously stated: 1 April 2005 981,770 883,641
Effect of prior year adjustment as a result of a 21,363 21,730
change in accounting policy regarding the treatment
of proposed dividends
Opening balance as restated: 1 April 2005 1,003,133 905,371
Effect of changing prices from middle market to bid (1,405) -
market at 1 April 2005
Other recognised gains for the period 230,105 109,592
Repurchase of ordinary shares (21,758) (9,703)
Revenue after taxation 36,318 29,660
Final dividend paid (21,363) (21,730)
Interim dividend paid (10,426) (10,057)
Closing balance as restated: 31 March 2006 1,214,604 1,003,133
2. Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £36,318,000 (2005: £29,660,000) and the capital
return in the year of £230,105,000 (2005: £109,592,000) and on 237,710,961
ordinary shares (2005: 240,061,646) being the weighted average number of
ordinary shares in issue during the year.
3. The Reconciliation of Movements in Shareholders' Funds has been introduced
as a new primary statement. Dividends paid and shares repurchased by the
Company are now reported through this statement. The Directors have proposed a
final dividend of 10.85 pence per share, amounting in total to £25,383,219,
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.
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 2006. The
accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice ("UKGAAP") and the AITC Statement of Recommended
Practice ("SORP") for Investment Trusts dated January 2003 and revised in
December 2005. The figures for the year to 31 March 2005 have been extracted
from the financial statements for the year ended 31 March 2005 which have been
delivered to the Registrar of Companies and on which the Auditors gave an
unqualified report.
The statutory accounts for the year ended 31 March 2006 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 Wednesday 19
July 2006 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 about 15 June 2006
and copies will be available from the Secretary - Fidelity Investments
International, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge,
Kent, TN11 9DZ.
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