Final Results
29 May 2007
THE EDINBURGH INVESTMENT TRUST plc
PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2007
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.
Highlights:
* Net asset value ("NAV") (capital only - debt marked to market) up on an
adjusted basis by 8.1%¹: ahead of 7.7% Index growth. NAV growth with debt
marked to market was 9.6%¹.
* Dividends up by 23.6% following an increase last year of 16%.
* Share price up by 12%. Over three years, share price has risen by 60%,
compared to 49% rise in the Index.
* Total shareholder return² for the year was 17.4% - the equivalent Index
return was 11.1%.
The Chairman, Scott Dobbie, said:
"Shareholders have enjoyed very good returns - above Index capital growth and,
for the second year running, a substantial dividend increase. This performance
underlines the Company's strength as a vehicle for long-term investment in the
UK equity market."
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 01737 837844
Stephen Westwood 020 7961 4477
Issued by Fidelity Investments International, authorised and regulated in the
UK by the Financial Services Authority.
Notes
1. Capital return NAV is shown after adjustment to reflect dividends in respect
of the year but unpaid at the balance sheet date
2. Total shareholder return is share price total return with net income
reinvested
CB31399/na
CHAIRMAN'S STATEMENT
The UK Equity Market
I reported at the interim stage that the UK equity market had made little
progress in the period April to September 2006. Forward momentum was regained
shortly thereafter and, despite two setbacks from both of which recovery was
rapid, the FTSE All-Share Index (the `Index') rose by 7.7% over the full
twelve-month period ending 31 March 2007.
Capital Performance
The Accounts show Net Asset Value (`NAV') to have increased over the period by
9.2% (debt marked to market) and 7.7% (debt at par). As note 3 demonstrates the
underlying growth in capital value has, due to the combination of changes in
the timing of dividend payments and accounting standards, been
under-represented by 0.4 percentage points. Hence, the Board believes that a
truer measure of NAV growth for the year is 9.6%, (debt at market) and 8.1%
(debt at par) and that, against the background of a 7.7% increase in the
benchmark Index, the Company's overall capital performance was satisfactory.
On a total return basis, which incorporates both capital and income, growth in
NAV was greater than the relevant benchmark return.
The attribution analysis shown in the Manager's Business Review which is
contained in the Annual Report demonstrates that on a total return basis whilst
the underlying investment portfolio underperformed the Index by 0.9%, both
gearing (net contribution 0.8%) and share buy-backs (1.4%) contributed
positively to returns.
On a three year perspective, the Index (capital only) has increased by 49.4%.
NAV on a consistent basis has grown in the same period by 55% and 51%, with
debt marked respectively to market and at par.
These results demonstrate that the Company has, on both a one and three year
basis, met its capital performance objective - the achievement of capital
growth at a higher rate than the Index.
Income Performance
Dividends
Shareholders will recall that the Board was able last year to recommend a
substantial 16% increase in dividend in respect of the twelve months to March
2006. This was due both to increasing payouts by underlying investments and to
the change in portfolio emphasis which had occurred during the year and to
which I referred in my Statement last year. In the current year, the UK
corporate sector has continued to perform well and, again, increased
significantly dividend payments. The Company's receipts have benefited
additionally from a full year of the 2005/6 policy change, and accordingly its
own total dividend income has again increased substantially. Reflecting its
view of the adequacy of reserves the Board has adopted a policy of full
distribution, and it now recommends a final dividend payment of 5.65p, which
together with the three quarterly payments of 4.4p already made, gives a total
for the year of 18.85p - 23.6% higher than in 2005/6. Over the last two years,
dividends will have increased by 43.3% - clearly achieving the Company's income
objective of giving growth above the rate, 7.3%, of UK inflation (RPI) in that
period. Looking to the future, the rate of growth in dividend payments by UK
corporates generally is slowing, and the Company's one-off benefit from its
policy change will not be repeated. Accordingly, shareholders should expect
future dividend growth to be of a much lower order than that seen in the past
two years.
Share Price
The Company's share price increased by 12% in the year under review - well
ahead of the 7.7% increase in the benchmark Index and reflecting a significant
reduction from 11.7% to 9.4% (debt marked to market) in the discount to NAV.
Over three years, the share price has increased by 60% - again, substantially
more than the 49% Index growth. The Board believes that it is important to have
the power to buy back shares in appropriate circumstances, with the prime
objective of increasing NAV per share for remaining shareholders and will seek
powers to continue this programme at the Annual General Meeting. During the
year, the Company bought back 18.4 million shares, enhancing NAV by 1.4%.
Portfolio Structure
The structure of your Company's portfolio continues to evolve, and is now
allocated to two portfolio managers, one with an income orientation, and the
other biased to holdings expected to increase dividends by more than the market
average rate. This combination is seen by the Board and Manager as currently
the one most appropriate to meet the Company's twin objectives of providing
balanced growth in both income and capital.
Shareholders know from previous statements that the Board monitors carefully
the position of the Company's two debenture stocks (total par value £200m). The
weakness in the debt market continues to justify the decision to retain these
securities to invest, as appropriate, in the equity market. During the current
year, initially about 70% of these debentures were invested in this way, and
utilisation was increased to over 90% in the second six month period. This use
of gearing contributed positively to returns. Following the end of the
financial year, reflecting principally an expectation of a slower rate of
growth of profits and dividends from UK equities, it was decided to reduce the
Company's gearing: in late May about 60% of the £200m debentures was invested
in the equity market.
Prospects
The UK equity market continues to perform well, and the Index recorded another
five year `high' after the end of the year under review. Some commentators are
now expressing concern about the possibility of a short term correction after
the long period of positive returns. The Board does not discount such a
possibility, but believes that although growth is likely to be at a slower rate
than in the last two or three years, your Company continues to be a good
vehicle for long-term investment in the UK equity market.
Scott Dobbie
Chairman
25 May 2007
Income Statement for the year ended 31 March
2007 2006
revenue capital total revenue capital total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 91,751 91,751 - 246,317 246,317
Income from investments:
- franked investment 45,237 - 45,237 38,809 - 38,809
income
- other investment income 425 - 425 543 - 543
- fixed interest 137 - 137 275 - 275
- premium on call options 639 - 639 149 - 149
Other income:
- interest receivable on 1,338 - 1,338 890 - 890
short term deposits
- income from Fidelity 671 - 671 3,391 - 3,391
Institutional Cash Fund
plc
- sundry income 118 - 118 - - -
Investment management fee (1,241) (2,896) (4,137) (1,099) (2,564) (3,663)
Other expenses (751) - (751) (762) - (762)
Exchange gains/(losses) 5 (128) (123) 2 3 5
NET RETURN BEFORE FINANCE 46,578 88,727 135,305 42,198 243,756 285,954
COSTS AND TAXATION
Interest payable (5,850) (13,651) (19,501) (5,850) (13,651) (19,501)
RETURN ON ORDINARY 40,728 75,076 115,804 36,348 230,105 266,453
ACTIVITIES BEFORE TAXATION
Taxation on ordinary (14) - (14) (30) - (30)
activities *
RETURN ON ORDINARY 40,714 75,076 115,790 36,318 230,105 266,423
ACTIVITIES AFTER TAXATION
FOR THE YEAR
RETURN PER ORDINARY SHARE 18.13p 33.44p 51.57p 15.28p 96.80p 112.08p
(1)
The total column of the Income Statement is now the profit and loss account of
the Company. 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. 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 59,862 6,639 13,593 716,352 151,612 53,670 1,001,728
shareholders'
funds: 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)
ordinary 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
Net recognised - - - 126,161 (34,538) - 91,623
gains/(losses) for
the year
Repurchase of (4,612) 4,612 (80,571) - - (80,571)
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
Balance Sheet as at 31 March
2007 2006
£'000 £'000
FIXED ASSETS
Investments at fair value through 1,374,218 1,345,215
profit or loss
CURRENT ASSETS
Debtors 14,008 22,348
Fidelity Institutional Cash Fund plc - 47,451
Amounts held at futures clearing - 2,008
houses and brokers
Cash at bank 27,821 26,550
41,829 98,357
CREDITORS - AMOUNTS FALLING DUE (14,715) (33,114)
WITHIN ONE YEAR
NET CURRENT ASSETS 27,114 65,243
TOTAL ASSETS LESS CURRENT LIABILITIES 1,401,332 1,410,458
CREDITORS - AMOUNTS FALLING DUE AFTER (196,105) (195,854)
MORE THAN ONE YEAR
TOTAL NET ASSETS 1,205,227 1,214,604
CAPITAL AND RESERVES
Called up share capital 53,875 58,487
Share premium account 6,639 6,639
Capital redemption reserve 19,580 14,968
Capital reserve - realised 859,873 830,830
Capital reserve - unrealised 210,943 245,481
Revenue reserve 54,317 58,199
TOTAL EQUITY SHAREHOLDERS' FUNDS 1,205,227 1,214,604
NET ASSET VALUE PER ORDINARY SHARE 557.47p 517.41p
Cash Flow Statement for the year ended 31 March
2007 2006
£'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 43,755 39,320
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 (664,059) (682,956)
Exchange losses - (3)
Disposal of investments 713,494 686,679
Realised (losses)/gains on long futures positions (179) 455
closed
NET CASH INFLOW FROM FINANCIAL INVESTMENT 49,256 4,175
EQUITY DIVIDENDS PAID (44,596) (31,789)
NET CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID 29,165 (7,544)
RESOURCES AND FINANCING
NET CASH INFLOW FROM MANAGEMENT OF LIQUID RESOURCES 47,451 32,609
NET CASH INFLOW BEFORE FINANCING 76,616 25,065
FINANCING
Repurchase of ordinary shares (77,225) (20,362)
NET CASH OUTFLOW FROM FINANCING (77,225) (20,362)
(DECREASE)/INCREASE IN CASH (609) 4,703
Notes
1. Returns per ordinary share are based on the net revenue return on ordinary
activities after taxation of £40,714,000 (2006: £36,318,000), the capital
return in the year of £75,076,000 (2006: £230,105,000) and the total return in
the year of £115,790,000 (2006: £266,423,000) and on 224,522,324 ordinary
shares (2006: 237,710,961) being the weighted average number of ordinary shares
in issue during the year.
2. Dividends paid and shares repurchased by the Company are reported through
the Reconciliation of Movements in Shareholders' Funds. The third interim
dividend of 4.40 pence per share amounting in total to £9,407,000 was paid on
18 May 2007 for the year ended 31 March 2007. The Directors have proposed a
final dividend of 5.65 pence per share, amounting in total to £12,058,000,
which is subject to approval by the shareholders at the Annual General Meeting.
The third interim dividend and proposed final dividend have 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 stock at par. A reconciliation between the two sets of figures
follows:-
2007 2006
Total shareholders' funds (£) 1,205,227,000 1,214,604,000
Less: Debenture stock discount (£) (57,000) (61,000)
Less: Debenture stock issue expense (£) (3,838,000) (4,085,000)
Net assets - debt at par (£) 1,201,332,000 1,210,458,000
Number of equity shares in issue at year end 215,496,748 233,946,714
Total shareholders' funds per share (pence) 559.28 519.18
Less: Unamortised debenture stock discount (1.81) (1.77)
and issue expenses (pence)
Net asset value per share - debt at par 557.47 517.41
(pence)
2007 2006
£'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 2006 1,210,458 997,331
Total recognised capital gain for the year 75,076 230,105
Revenue return for the year 40,714 36,318
Dividend appropriated in the year (44,596) (31,789)
Movement in unamortised debenture stock 251 251
discount and issue expenses
Repurchase of ordinary shares (80,571) (21,758)
Net assets - debt at par - at 31 March 2007 1,201,332 1,210,458
The net asset value per share adjusted to include the debenture stocks at
market value rather than at par is 530.90p (2006: 486.20p).
In accordance with FRS 21: "Events after Balance Sheet Date" dividends in
respect of the year but paid after the balance sheet date have not been
deducted from the respective year end NAVs. However, the Directors believe that
an adjusted capital NAV, recognising the deduction of such dividends, better
reflects the underlying capital performance, particularly given the change to
distributing dividends more evenly throughout the year. The reconciliation
between NAV per the accounts and the adjusted capital NAV is set out below:
Reconciliation of NAV to adjusted capital NAV
2007 2006
£'000 £'000
Net assets - debt at par as above 1,201,332 1,210,458
Less: Third interim dividend paid after the (9,407) -
year end
Less: Proposed final dividends payable (12,058) (25,383)
after the year end
Adjusted capital net assets - debt at par 1,179,867 1,185,075
Less: Debenture stocks - par to market (57,248) (73,010)
value adjustment
Adjusted capital net assets - debt at 1,122,619 1,112,065
market value
Number of equity shares in issue at year 215,496,748 233,946,714
end
Adjusted capital net asset value per share 547.51 506.56
- debt at par (pence)
Adjusted capital net asset value per share 520.94 475.35
- 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 2007. 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 2006 have been
extracted from the financial statements for the year ended 31 March 2006 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 2007 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
Tuesday 17 July 2007 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 8 June 2007 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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