Annual Financial Report

RNS Number : 8981M

Edinburgh Investment Trust PLC

26 May 2022

 

The Edinburgh Investment Trust plc

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 31 MARCH 2022

Financial Information and Performance Statistics

	Year Ended	Year Ended
Total Return(1)(4) (all with dividends reinvested)	31 March 2022	31 March 2021
Net asset value(1) (NAV) - debt at market value	+14.1%	+34.8%
Share price(2)	+10.6%	+46.4%
FTSE All-Share Index(2)	+13.0%	+26.7%

The Company's benchmark is the FTSE All-Share Index.

	At 31 March	At 31 March	Change
Capital Return(1)	2022	2021	%
Net asset value - debt at market value	686.69p	628.29p	+9.3
Share price(2)	634.00p	600.00p	+5.7
FTSE All-Share Index(2)	4,187.78	3,831.05	+9.3
Discount(1)(4) - debt at market value	(7.7)%	(4.5)%
Gearing (debt at market value)(1)(4)   - gross gearing	10.3%	10.1%
- net gearing	4.4%	7.1%

		Year Ended	Year Ended	Change
Revenue and Dividends(4)		31 March 2022	31 March 2021	%
Revenue return per ordinary share		22.41p	16.21p	+38.2
Dividends	- first interim	6.00p	6.00p
	- second interim	6.00p	6.00p
	- third interim	6.40p	6.00p
	- proposed final	6.40p	6.00p
	- total dividends excluding special dividend	24.80p	24.00p	+3.3
	- special dividend	nil	4.65p
	- total dividends including special dividend	24.80p	28.65p	-13.4
Retail Price Index(2)(3) - annual change		9.0%	1.5%
Consumer Price Index(2) - annual change		7.0%	0.7%
Dividend Yield(1)(4)		3.9%	4.0%
Ongoing Charges Ratio(1)(4)(5)		0.52%	0.43%

Notes:

⁽¹⁾   These terms are defined in the Glossary of Terms and Alternative Performance Measures, including reconciliations, below. NAV with debt at market value is widely used by the investment company sector for the reporting of performance, premium or discount, gearing and ongoing charges. The prior year Dividend Yield was exclusive of a special dividend of 4.65p per share. Including the special dividend, the dividend yield was 4.8%.

⁽²⁾   Source: Refinitiv.

⁽³⁾   This measure of inflation will not be shown in future reports. The Consumer Price Index will then become the sole measure of inflation in future reports.

⁽⁴⁾   Key Performance Indicator.

⁽⁵⁾   Majedie Asset Management Limited waived its investment management fee for the first three months of its appointment from 4 March 2020. The Ongoing Charges Ratio disclosed above for the prior year show the actual charges incurred during the period. The pro-forma charges had the investment management fees not been waived over that period would have been 0.51%.

Chairman's Statement

DEAR SHAREHOLDER

After a long and difficult period in the aftermath of the Financial Crisis, and then Brexit and most recently a challenging two year period during the Covid pandemic, markets now have to contend with a crisis in Ukraine and all the economic consequences that flow from that.

The situation in Ukraine is above all a humanitarian crisis, which puts all other matters firmly in the shade. Few of us surely remain unmoved after seeing pictures of dead civilians, bombed out cities, train stations packed with people fleeing in fear. And, tragically, it is happening on our own continent.

All these events have created a huge economic challenge in the UK market. Both the Office of Budget Responsibility and the Monetary Policy Committee of the Bank of England have recently published gloomy forecasts for the economy over the next few years. The Monetary Policy Committee, in particular, expects the country to be teetering on the edge of recession for the next two years, with inflation peaking at over 10% this year, slowly returning to its 2% target by 2025 after several interest rate rises and big falls in living standards.

Despite this difficult backdrop, the Company has continued to make progress.

It is now two full years since we appointed Majedie and James de Uphaugh as Manager of the Company - and I am pleased to report that the Company has recorded its second consecutive year of strong investment returns - both absolute and relative to the comparator index. So, we continue to make solid progress in our objective of making the Company once again a core holding in UK equity portfolios.

While the Majedie team remains the same, the ownership of the team has changed after Liontrust Asset Management PLC acquired Majedie Asset Management Limited on 1 April 2022. The Board has reviewed the transaction after it was announced on 7 December 2021. James will continue to be the Portfolio Manager and we are satisfied that the change of ownership does not materially change the way in which the portfolio will be managed. We expect (and have been promised) that the change of ownership will bring enhanced marketing resources.

RETURNS

As you know, the Company has two long-term investment objectives: first, to increase Net Asset Value per share in excess of the growth in the FTSE All-Share Index; and secondly, to grow dividends per share in excess of the rate of UK inflation.

For the first objective, it is encouraging to be able to report another year in which the growth in Net Asset Value (NAV) has exceeded that of the FTSE All-Share Index. This is despite the profound headwinds facing the economy over this period. As the Portfolio Manager's Report below sets out, the diversified nature of the portfolio has contributed to this result. This bottom-up stock-led investment approach is driven by the Portfolio Manager's total return philosophy, incorporating environmental, social and governance factors throughout. The return was also boosted by the effect of the Company's borrowings and, to a smaller degree, share buybacks. Both these are discussed in more detail below, and their numerical impact is set out in the table below.

The Company's NAV growth on a total return basis, i.e. including reinvested dividends, was +14.1% over the financial year ended 31 March 2022 and the share price returned +10.6%. These compare with a total return of +13.0% for the FTSE All-Share Index. The equivalent returns on a capital only basis are +9.3% for the NAV, +5.7% for the share price, and +9.3% for the index.

The difference between the NAV total return and capital return is explained not only by the dividends paid by the Company, but also because the Company has been using some of its reserves to pay dividends to shareholders (discussed in more detail below). Over the past three years, the Company's NAV return has been -1.5% cumulatively, with the Company's benchmark index returning +5.3% over the same period. Over the past five years, the Company's NAV return has been -10.7% cumulatively, with the Company's benchmark index returning +5.0% over the same period. In all these cases, the NAV is stated after deducting debt at market values.

I would like to take this opportunity to remind shareholders that investment returns, especially from an active manager such as our own, are not delivered in a linear fashion. While it is satisfying to be able to report two years of positive absolute and relative returns, at some point the portfolio may produce a negative absolute return and/or lag the index. However, longer time periods enable more meaningful assessments of manager skill. By this time next year for example we will have a three year track record: a more significant period over which to make informed judgements. For now, it remains the case that under the new Portfolio Manager we have made a very encouraging start.

DIVIDENDS

The Company's second objective is to grow the dividend in excess of inflation. In the short term, the Board has the ability to decide on the level of the dividend - by paying dividends out of revenue or capital reserves if appropriate. But in the medium term dividend progression is a function of the Company's finances. An important aspect of this is the Company's income from dividends paid by companies held in the portfolio, after the deduction of expenses.

This year, the Company's income does not cover the cost of dividends to shareholders. And it was the same last year. This reflects, as I explained in my report to you last year, the difficult environment that companies in the market have faced over several years, culminating in reduced dividend payouts during the COVID crisis. As James explains in his Portfolio Manager's Report, things are getting better and portfolio income continues to improve after the lows of the pandemic. Furthermore, James believes that the stocks he holds in the portfolio have strong economic advantages, such as pricing power, that should provide some additional inflation protection to the Company's revenues. This strengthening position in the Company's finances is important in the Board's view and was behind the Board's decision to increase the third interim dividend and to recommend the same increased payout in the final dividend.

In making its recommendations for the final dividend, the Board has also taken into account the strength of the Company's financial position: the refinancing of the Company's borrowings last year at a much lower cost will allow the interest expense to fall in future years, creating further capacity to support the dividend. And on top of this, the Company's balance sheet has a healthy 'revenue reserve' of £50.8m which can be distributed by way of dividend. This should allow the Board to address any shortfall in dividend cover in the short term. Shareholders should note that these revenue reserves are an accounting record and are not, in any actual sense, ring fenced cash.

Our approach to dividends is consistent with the Portfolio Manager's investment approach. This approach, remember, seeks to maximise total return, whether that return comes from capital growth or dividend payouts. This means that while we expect the Company's income typically to finance dividend, there may also be periods (years) when capital returns are more important.

Overall, a healthy combination of income and capital growth over the medium term should support a dividend that grows faster than inflation. We have returned to a growing dividend this year - albeit not at the rate of the current elevated level of inflation - and believe this is a platform from which it will increase ahead of normalised inflation over time.

SHARE PRICE DISCOUNT TO NET ASSET VALUE

The Board keeps the Company's share price discount under careful review. The level of the discount has slightly widened in the last twelve months, from 4.5% to 7.7%. At 23 May 2022, the last practical date before signing this report, the discount was 8.3 %. To be clear, the rest of the Board and I would like to see the Company's share price much closer to Net Asset Value. An important part of this process is the rebuilding of the Company's profile in the savings market, to which Liontrust are committed. While the profile has improved in the last two years, there is more to do. Building an impressive three year track will, for example, be part of this. In the meantime, the Board will do what we can to help the discount. One tangible action is to buy back shares. We restarted a buyback programme in early 2022. As a result, in the financial year we have bought back 1,104,800 shares.

Ultimately, we would like to return the Company to a position from which it can issue shares at a small premium to asset value. This would enhance net asset value per share and enable the Company's fixed costs to be spread across a larger asset base.

BORROWINGS

The Company's borrowings currently comprise a £100m debenture repayable in September this year, a loan note of £20m repayable in 2051, and a revolving credit facility which is currently undrawn. As the table below illustrates, the borrowings have enhanced shareholder returns.

As we announced last autumn, we took advantage of the low interest rates then available to arrange refinancing for the debenture. £100m of new debt was prearranged and will be available to replace the debenture when it matures this September. This new debt, combined with a new additional £20m tranche that was taken out last October, has a blended average interest rate of 2.44%. Our debt markets adviser is of the opinion that raising the same sums today would incur an equivalent annual cost of c. 3.51%, which when fully drawn would be an increase of 44% or c. £1.3m per annum compared with the actual costs agreed last autumn . As a reminder, the annual cost of the outgoing debenture is 7.75%. A more efficient debt structure is clearly attractive in its own right. More importantly, the refinanced borrowings should provide a structure to enhance shareholder returns over time.

The revolving credit facility, which has not been used in the last financial year, will expire this June. We do not intend to renew it. This means that all remaining borrowings will be long-term in nature.

At the end of March, net gearing (borrowing less cash balances) was 4.4%. Had all cash balances been invested, net gearing would have been 10.3%. The Portfolio Manager expands further on his approach to using the gearing facility in his report below.

APPOINTMENT OF MANAGER

Since Liontrust's acquisition of Majedie Asset Management was announced, the Board has had extensive conversations with both the existing team that manages your Company (principally James de Uphaugh and his immediate colleagues) and the broader team at Liontrust. We are reassured by the 'business as usual' aspect of the investment management process underpinning the day-to-day operation of the Company. This includes the team's consideration of environmental, social and governance factors in their work. We also anticipate that Liontrust should offer some enhanced capabilities, particularly in the marketing of the Company. We also note that the process of migrating all the systems, controls and permissions concerning the Company's assets from the old management company to the new one has taken place seamlessly. Taking all this together, the Board therefore considers that the transfer of management to Liontrust that has resulted from the takeover to be in the best interests of shareholders.

ANNUAL GENERAL MEETING ('AGM')

We held last year's AGM in person in Edinburgh, although there were Covid-driven restrictions on the number of attendees that could attend. This year we do not anticipate any such limitations: we therefore encourage shareholders to attend if possible. All members of the Board - and the Portfolio Manager and his colleagues - look forward to meeting as many shareholders as possible at this event. For those that are unable to attend in person, the meeting will again be 'hybrid' with a live on-line link to the speakers and their presentations. This worked well last year and included a helpful facility for shareholders to submit questions on-line. We will post details on how to register for on-line access via the Company's website. Should there be any changes to plans for the AGM because of changing Covid restrictions, we will issue a regulatory announcement and post details of new arrangements on the Company's website.

The Company is also pleased to invite shareholders to a presentation by James de Uphaugh on 22 September 2022. I do hope that shareholders unable to attend the AGM will be able to attend this meeting to hear from the Portfolio Manager and meet with directors. Please note that shareholders will not be able to vote at this meeting. Shareholders can register to attend by visiting the Company's website at www.edinburghinvestmenttrust.com

BOARD

I will be stepping down from the Board after having served nine years, the last five years as Chairman. During this period the Board has made some big changes to improve the performance of the Company: the Manager, Auditor and Company Secretary have been changed; the long term debt has been refinanced; the dividend rebased and a major share-buy programme has been conducted. This year the Board has overseen the impact on the Company of the change in ownership of Majedie. The Board is now focused on improving the way in which the Company is marketed. This has all been carried out alongside the normal activities of monitoring performance and portfolio risk as well as the broader control risks that the Company faces. This has all required a huge time commitment from Directors. So I would like to thank my fellow Board colleagues, both past and present, for the time, thought and, most of all, the judgment that each of them has brought to the Board's deliberations, which has made my task as Chairman easier than it might otherwise have been.

The new Chairman, as I flagged in last year 's Chairman's Statement will be Elisabeth Stheeman who has been a Director of your Company since 2019. She will take over at the AGM this year. Elisabeth was appointed Chairman-Elect after a thorough process overseen by Vicky Hastings, the Senior Independent Director. Elisabeth has made a significant contribution to the Board, drawing on her extensive experience both of investment markets and of the broader macroeconomic and regulatory backdrop.

I am also delighted about the appointment to the Board of Aidan Lisser, which will take effect from 27 May 2022. Aidan has considerable experience as an investment trust non ‑ executive director and has a background specifically in asset and wealth management retail marketing. Aidan is currently a non ‑ executive director of JPMorgan Global Emerging Markets where he is Chair-designate, Henderson International Income Trust (formerly Henderson Global) and Chapter Zero, an organisation to assist non-executive directors with the impact of climate change. He is also a member of the AIC's Marketing Committee. On behalf of all the Directors, we welcome Aidan and very much look forward to working with him.

OUTLOOK

As the Portfolio Manager describes below, the Company is in the fortunate position of owning a distinctive set of businesses that are performing strongly on the world stage. Their robust underlying operational progress, combined with attractive starting valuations, should underpin attractive returns to shareholders over the long term. The Company has the added advantages of attractively priced long-term borrowings and a pragmatic approach to growing the dividend.

I am also confident that in the years ahead the Portfolio Manager will continue to build on the strong start to his tenure. Despite the potential for significant headwinds from macroeconomic and geopolitical forces, the potential is firmly in place for the Portfolio Manager's stock-driven approach to generate a long-term record that pleases existing shareholders and attracts new ones.

Finally, I would also like to thank shareholders for their loyalty to the Company. I am confident, under the Manager and Board that is now in place, that the Company will become again a core UK equity holding for long-term savers.

GLEN SUAREZ / CHAIRMAN / 25 MAY 2022

Portfolio Manager's Report

For the year ended 31 March 2022

For much of the last twelve months there has been improving economic sentiment, as western economies have emerged from varying degrees of Covid restrictions. However, much of the economic progress has been overturned by the depressing turn of events in Ukraine.

If the events in Ukraine are a reminder of anything, they are of the importance of managing a sensibly diversified portfolio. As a result, positive contributors to the portfolio's performance since the start of the war have come from existing holdings in sectors such as oil and defence stocks.

Naturally our core task is to meet the Company's two investment objectives - which are set above of this document. As we said from the outset of our appointment in 2020, we believe the best way to meet the Company's objectives is to manage the portfolio on a total return basis. We also believe that, over time, listed equities provide a sound base from which to achieve these objectives. To deliver them, we apply an investment approach that looks for attractive returns both from dividends and from capital growth. Which of these two factors dominates at any point in time is a function of market sentiment and the strengths (or indeed weaknesses) of the companies in the portfolio.

The income element of total return comes in differing forms. In addition to ordinary dividends, companies also have the option of paying income to shareholders in the form of special dividends - which by their nature are harder to forecast. There are also share buybacks, which while not income in any sense, are sometimes used by company managements in lieu of cash payout to shareholders. Buybacks are becoming more common among UK-listed stocks - indeed about 40% of the stocks in the current portfolio have ongoing buyback programmes. We are relatively indifferent to these different forms of distribution to shareholders; the key point is that capital and income form the underlying bedrock of Edinburgh's returns to its own shareholders.

As the Chairman has noted, the team remains the same, but our firm changed ownership during the financial year. Our team approach and core investment beliefs (which we describe in more detail below) remain the same. The flexible investment approach, combined with in-depth work on Environmental, Social and Governance (ESG) factors, are at the core of our work.

INVESTMENT RESULTS

Over the twelve months to the Company's year end the Net Asset Value (NAV) rose 14.1% in total return terms. The share price rose 10.6%. These returns compare with the FTSE All Share index return of 13.0%. It is pleasing to deliver a second year of double digit returns since our appointment, albeit those two years followed the lows of markets around the start of the pandemic in early 2020.

The discount, which moved out from 4.5% to 7.7%, explains the slightly weaker share price return. As the Chairman has explained in his report, the Company has been buying back shares since the start of the calendar year.

In keeping with the diversified nature of the portfolio, prominent positive contributors to performance have come from a range of different sectors and industries. The biggest contributors were Anglo American (commodity metal mining), BAE Systems (defence), WM Morrison (the food retailer that was acquired by private equity during the period), Newmont (gold mining), Centrica (gas distribution) and Tesco. We have long considered the ESG issues facing companies such as BAE Systems: to date we have been comfortable with this long-standing holding. The sad turn of events highlights the important reality of defence spending by western governments. Liberal democracy requires defence - and a lot of catch-up spending is in order. BAE Systems is a prime beneficiary.

Negative contributors to performance came from long-standing positions in Mondi (paper production), Hays (recruitment) and Weir (engineering) which had modestly weaker share prices and all of which we remain happy to hold. Glencore, another large mining group which performed well and was not held in the portfolio, was also a negative contributor.

Over the two years since our appointment, the NAV has risen 24.0% per annum and the share price 27.3% per annum, compared with the index return of 19.7%. Overall, we are encouraged by the first two years under our tenure.

ACTIVITY OVER THE YEAR

The largest purchase over the year was in the pharmaceutical group GlaxoSmithKline. The forthcoming demerger of GSK's consumer health unit should release value, in turn supporting greater investment in the pharmaceutical pipeline which is relatively weak. The company has also flagged a dividend cut and this, along with the consumer health unit being demerged with a meaningful proportion of the group's debt, should leave the remaining pharmaceutical business in a stronger long-term position.

Another prominent purchase was Novartis, itself another large player in the pharmaceutical sector. It has one of the broadest product portfolios and pipelines, plus a strong record of innovation. After a period of high single digit revenue growth, sales growth has slowed and the shares have derated, providing the opportunity to purchase a business that is still confident of delivering 4% plus annual sales growth over the period to 2026 and above peer median growth thereafter.

Ascential has a fast growing and attractive digital commerce division which helps brands understand consumer trends and optimise their e-commerce execution on marketplaces like Amazon through data and analytics. In July it made an acquisition of ASR following which Ascential issued new shares to help fund the purchase. We support the management's digital strategy and added to the position through buying some of the newly-issued shares.

Other prominent non-UK purchases were Intel and Thales. Intel has a new CEO, a technologist, who has the aim of re-establishing Intel's industry leadership. We think he has a credible plan to evolve their product offering. In the short term this reduces profitability but longer term should improve returns as it re-establishes Intel's competitive position. Thales is a leading defence and aerospace group with a focus on communications, sensors, flight management, surveillance, satellites and digital security. Thales has a record of good organic growth and a strong order book, while its shares languish on relatively low valuation metrics. There is also an attractive dividend yield, and the company has announced the intention to buy back shares.

We sold the holding in Associated British Foods. Much of the value in this conglomerate resides in the medium term prospects for Primark. We are doubtful that sales per square foot will recover to match consensus expectations, as consumer consciousness gradually embraces sustainability in clothing to the detriment of volumes.

We also sold Rio Tinto. Its strategically important Australian iron ore assets were milked under the previous management. The group is now undergoing a cultural and capex reset under the new CEO. Meanwhile a key determinant of the cashflows is the iron ore price which has remained elevated because of Brazilian supply issues. As this comes back on stream, against the backdrop of a deflating Chinese property market, we see downside in the iron ore price.

Sales have included Barclays - the CEO has left the business and there may be future downward pressure on investment banking fee income. We also sold NXP, the chip manufacturer for cars, after a strong run in the shares.

CURRENT PORTFOLIO

The emphasis remains firmly on managing a diversified portfolio with all-weather potential. In terms of traditional labels, we hold a balance of 'growth' (examples include Ascential and Electrocomponents), 'value' (Tesco, HSBC and Shell) and 'recovery' stocks (NatWest, Centrica).

More importantly, we tend to think about stocks in terms of their financial and operational characteristics. As such, important characteristics include Darwinism (businesses gently crunching the competition such as Marshalls and easyJet), cookie-cutter expansion models (Greggs and Ashtead), supply chain resilience (Compass and Intel) and users of data analytics (Dunelm and Weir). We look to blend these different features to produce a portfolio that is 'core' in nature, with a bias towards mid and large cap stocks.

Our ESG integration work is an important factor in the investment case for each stock. Challenges such as the pandemic and war in Ukraine highlight the importance of investing in robust businesses that can address - and indeed capitalise on - these changes while simultaneously managing ESG risks and opportunities. Our thinking on each company's approach to managing their key issues has helped shape a portfolio of stocks of which some - such as Anglo American and Shell - are generating attractive shareholder returns in the face of some of these difficulties, as well as making meaningful ESG strides forwards.

Taken together, these features should deliver a portfolio of companies that have pricing power. With inflation running at elevated levels, this is an important feature which should in turn support Edinburgh Investment Trust's ability to deliver a shareholder dividend that has the potential to rise in excess of core inflation over time.

DIVIDENDS

After the dividend cuts that many companies announced early in the pandemic, it seems reasonable from today's position that the UK market should in total produce dividend growth of about 3% per annum over the medium term. This would be somewhat less than the market weighted average growth in pre-tax profits, which should be something akin to Eurozone nominal GDP of circa 5% per annum. The difference between these two numbers is explained by the headwind from rising UK corporate tax rates.

We have worked through a range of different scenarios with the Board. While making estimates is particularly fraught at present, there are in fact two factors in which we have high confidence. The first is that we expect the boards of operating companies to be cautious about future dividend increases. After the various 'black swans' of recent years - Brexit, supply chain difficulties, Covid, Ukraine - they are unlikely to push for sizeable dividend increases after adjusting for inflation.

The second factor is the strength of the Company's balance sheet. With stated revenue reserves of £50.8m at the year end, this provides a buffer for current shortfalls in income versus dividend expenditure.

Overall, we remain of the view that, after taking into account the Board's decision to increase this year's dividend, the Company's net revenues - underpinned by the operational features described above - should begin to cover the cost of the dividend in the medium term. The current position of the Company's income profile, along with its strong balance sheet, should enable the current growth trajectory to be maintained.

BORROWINGS

The Company carries a modest amount of gearing. This should boost returns to shareholders, assuming positive underlying portfolio returns. Net gearing has been reduced since the half year stage, when it stood at 7.7%. This reflects the various uncertainties: Ukraine, rising interest rates, inflation. Net gearing was 4.4% at the year end. As the Chairman described in more detail, attractive new funding is due to come on stream this September. We expect to put more of this capital to work in the months ahead, particularly if the current market weakness persists.

LOOKING TO THE FUTURE: WHY INVEST IN THE UK EQUITY MARKET?

This is a question we are often asked. Our short answer is that the opportunity set remains huge and there are multiple factors underpinning our medium term confidence. There are inevitably risks too: the war in Ukraine, plus factors such as ongoing supply chain issues, make the shorter term harder to predict. But for now we observe that the UK equity market has regained its mojo, but the valuation on a whole host of metrics is still low relative to many markets.

The factors driving the low starting valuation are unduly skewed towards muscle memory: factors that are firmly in the past, less evident in UK quoted companies or of rapidly declining impact. Taking each in turn: first, the prolonged uncertainty around Brexit. It was difficult enough understanding the range of outcomes as a UK voter. It is therefore unsurprising that global investors parked it in the 'too difficult' category and gave the UK market the proverbial long spoon treatment. But that is over - quoted companies can live with the reality of Brexit. Second, UK productivity lags our major peers - this may well be right at a macro level but the companies we invest in certainly do not lag their peers. Third, the long trend towards global equities - which in reality means buying the US given it makes up about 60% of global benchmarks - and pension scheme de-risking which amounts to selling equities and buying bonds are both decreasing in intensity. The starting point of underownership and skinny positioning is a good set up for the current trends.

So what are the trends? Economies are late cycle and central bankers are looking to raise interest rates and where applicable shrink their balance sheets in order to reduce inflation expectations before they get entrenched at higher levels. All this is not easy with actual inflation rates reaching generational highs and more in the pipe near term. One of the economic effects of the tragic events in Ukraine is to layer yet more inflation on already high inflation. Food inflation is one of the myriad examples consumers face.

Input cost inflation combined with waning corporate and consumer confidence means earnings downgrades but the downgrades could well be greatest in a number of the faster growing segments of the market. Here the UK market scores highly as its "par earnings run rate" has over the last few years lagged the US. What investors consider to be a competitive run rate of earning per share is likely to take a step down and the UK will be back in the running. Markets are often about rates of change and changing perceptions. So that ticks off a recurrent concern that the UK doesn't have any growth shares. Not only is it off beam - as the Edinburgh portfolio itself illustrates - but it is also less relevant for the current environment.

The next concern from some investors about the UK is that the market is full of banks, international energy companies and miners. This is seen to be the Achilles heel. Again taking each in turn: banks - it has been a long work out since the Global Financial Crisis ("GFC") in 2007-08. Regulators have forced capital raises, profits have been eaten up in conduct charges - remember PPI? - but that is all over. A good example is NatWest which is seeing profits convert into distributable cash and has a chunky dividend and an ongoing buyback programme. These purchases are being done at a discount to its accounting value: a compelling level. Next up are the international energy companies. The Russian invasion of Ukraine has shown that it matters where energy comes from. Shell is ranked number one in globally traded liquefied natural gas. It could well generate up to 40% of its market capitalisation in cash over the next three years. A good chunk will be reinvested in energy transition spend, so it is not only supplying our current energy needs responsibly but also is investing to help its customers decarbonise their energy needs in the future. Then among the miners there is Anglo American, which is about to bring on stream a significant long duration copper project in the form of Quellaveco. The world desperately needs copper to transition our energy sources. Anglos is an agent of that change. So what was an Achilles heel is now definitively a positive. This is also an excellent example of our engagement with management to understand how they manage their key ESG issues, which in this case includes safety of operations, energy efficiency and management of waste from the mining process. Investment is full of 180 degree changes in perception but they take time to take effect. We are in the early innings of one now.

Then let us look at the UK through the lens of private equity or an activist investor. The growth in money allocated to private equity has been huge over the last decade - "dry powder" that needs to be invested to earn its fees. The UK is a fertile hunting ground: there will be more Morrisons as the gap between the earnings yield and the cost of borrowing remains wide. Then there are the activists who can accelerate change and are currently on the register of three of the UK's largest companies: Shell, Unilever and GSK. Mega cap is no longer too large for such action.

So there are multiple reasons why we believe the UK equity market is in the foothills of a multi-year rehabilitation.

We also carefully consider the broader backdrop to global equity markets. As many have observed in the last year or so, the long era of low interest rates since the financial crisis of 2008 may have resulted in some excessive valuations, particularly in some technology stocks. Their potential to recover after the recent sell-off is a live debate. As we described earlier, Edinburgh's portfolio contains selected attractive technology stocks both at home and abroad. We are using the current lower share prices to consider other opportunities. However, we will maintain a balanced portfolio and an open-minded approach to all types of stock.

In our opinion the core of the portfolio comprises sound, profitable businesses trading at attractive valuations. This means it is ideally placed to drive attractive returns through to shareholders in the years ahead.

JAMES DE UPHAUGH / PORTFOLIO MANAGER CHRIS FIELD / DEPUTY PORTFOLIO MANAGER

25 MAY 2022

The Portfolio Manager's Core Investment Beliefs

Our competitive edge rests on the combination of our Global Fundamental team's structure within Liontrust and our flexible investment style. Liontrust provides a stable environment in which our fund portfolio managers operate, and our investment approach produces portfolios that aim to deliver long-term outperformance on a repeatable basis.

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, typically approximately three quarters of our effort takes the form of in-depth stock research. The remainder is spent on macroeconomic and geopolitical analysis.

Full Environmental, Social and Governance ('ESG') integration. ESG-related considerations have financial implications for the portfolio's holdings. We prioritise and engage our holdings on their key, material issues, many of which are ESG-related. The outcomes from our in-depth analysis and engagements help form our conviction level and investment decisions. In this way, ESG lies at the heart of our investment process.

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 often prefer companies with organic investment opportunities: as such, we normally expect companies with growing profits - and share prices - to contribute to returns. 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 3-5 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 for each member of the team is 15 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 coinvest in the team's investment strategies, 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, together with 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 individual responsibility for the day-to-day management of the portfolio is James de Uphaugh and the deputy portfolio manager is Chris Field.

In addition, the Company has contractual arrangements with Link Group to act as registrar, The Bank of New York Mellon (International) Limited as depositary and custodian, and Sanne Fund Services UK Limited (formerly PraxisIFM Fund Services (UK) Limited) Fund Services (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. Similarly, the Company may not hold more than 5% of the issued share capital (or voting shares) in 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.

RESULTS AND DIVIDENDS

At the year end the share price was 634.00p per ordinary share (2021: 600.00p). The net asset value (debt at market value) per ordinary share was 686.69p (2021: 628.29p).

The directors have declared a third interim dividend for the year ended 31 March 2022 of 6.40 pence per ordinary share (2021: 6.00 pence), an increase of 6.7% compared with each of the first two interim dividends. This dividend is payable on 27 May 2022 to ordinary shareholders on the register on 6 May 2022. The shares were quoted ex‑divided on 5 May 2022.

The Board is recommending a final dividend of 6.4p per share, which is the same as the third interim dividend declared last month implying a full year payout of 24.80 pence per share. This represents an increase of 3.3% compared with the total underlying ordinary dividends paid for the financial year to 31 March 2021.

PERFORMANCE

The Board reviews the Company's performance by reference to a number of key performance indicators (KPIs) which are shown above. Notwithstanding that some KPIs are beyond its control, they are measures of the Company's absolute and relative performance. The KPIs assist in managing performance and compliance and are reviewed by the Board at each meeting.

The Chairman's Statement above 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 22 investment trusts in the UK Equity Income sector (including the Company). As at 31 March 2022 the Company was ranked 5th by NAV performance in this sector over one year, 17th over three years and 19th over five years (source: Morningstar).

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 Manager's Report. Details of the principal risks affecting the Company can be found below.

FINANCIAL POSITION AND BORROWINGS

The Company's balance sheet below shows the assets and liabilities at the year end. Borrowings at the year end comprised the £100 million 7 ¾% debenture which matures in 2022, £20m of Unsecured Senior Loan Notes and £nil (2021: £nil) drawn down on the Company's £25 million bank revolving credit facility (2021: £50 million). Details of this bank facility are contained in note 11.

PERFORMANCE ATTRIBUTION

	for year ended
	31 March 2022
	%
Total Return Basis(1)
NAV (debt at market value)	14.1
Less: Benchmark	13.0
Relative performance	1.1
Analysis of Relative Performance
Portfolio total return	13.9
Less: Benchmark total return(1)	13.0
Portfolio outperformance	0.9
Borrowings:
Net gearing effect	0.8
Interest	-0.7
Market value movement	0.7
Management fee	-0.4
Other expenses	-0.1
Tax	-0.1
Share buybacks	0.0
Total	1.1

⁽¹⁾   Source: Refinitiv.

Performance Attribution - analyses the performance of the Company relative to its benchmark index. The Analysis of Relative Performance seeks to estimate 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 debenture stock, bank facility and cash on the Company's relative performance. This will be positive if the portfolio has positive capital performance, total return is positive and negative if capital performance total return is negative.

Interest - the debenture stock and bank facility interest paid 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 base 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.

Strategic Report / Investments in Order of Valuation

At 31 March 2022

UK LISTED ORDINARY SHARES UNLESS OTHERWISE STATED

		Value	% of
Company	Sector	£'000	Portfolio
Shell	Oil, Gas and Coal	89,094	7.3
Tesco	Personal Care, Drug and Grocery Stores	63,192	5.2
Anglo American	Industrial Metals and Mining	60,815	5.0
AstraZeneca	Pharmaceuticals and Biotechnology	54,918	4.5
BAE Systems	Aerospace and Defence	53,545	4.4
Unilever	Personal Care, Drug and Grocery Stores	52,043	4.3
NatWest	Banks	45,242	3.7
Ashtead	Industrial Transportation	44,743	3.7
Electrocomponents	Industrial Support Services	36,994	3.0
Weir	Industrial Engineering	36,567	3.0
TEN TOP HOLDINGS		537,153	44.1
Newmont - US Listed	Precious Metals and Mining	35,458	2.9
GlaxoSmithKline	Pharmaceuticals and Biotechnology	32,290	2.6
KPN - Dutch Listed	Telecommunications Service Providers	31,396	2.6
Ascential	Software and Computer Services	30,760	2.5
Smith & Nephew	Medical Equipment and Services	30,114	2.5
Hays	Industrial Support Services	29,484	2.4
HSBC	Banks	29,051	2.4
TotalEnergies - French Listed	Oil, Gas and Coal	27,865	2.3
Centrica	Gas, Water and Multi-Utilities	27,488	2.3
Dunelm	Retailers	26,127	2.1
TWENTY TOP HOLDINGS		837,186	68.7
Standard Chartered	Banks	24,831	2.0
WPP	Media	23,344	1.9
Compass	Consumer Services	23,258	1.9
Mondi	General Industrials	22,178	1.8
Serco	Industrial Support Services	21,552	1.8
Reckitt	Personal Care, Drug and Grocery Stores	21,037	1.7
Diageo	Beverages	19,442	1.6
Direct Line	Non-Life Insurance	18,311	1.5
Greggs	Personal Care, Drug and Grocery Stores	17,934	1.5
Novartis - Swiss Listed	Pharmaceuticals and Biotechnology	17,588	1.5
THIRTY TOP HOLDINGS		1,046,661	85.9
Marks & Spencer	Retailers	14,902	1.2
Marshalls	Construction and Materials	14,805	1.2
Genuit	Construction and Materials	12,906	1.1
easyJet	Travel and Leisure	12,810	1.1
Bellway	Household Goods and Home Construction	12,731	1.0
Whitbread	Travel and Leisure	12,400	1.0
ConvaTec	Medical Equipment and Services	12,060	1.0
Redrow	Household Goods and Home Construction	11,624	0.9
Thales - French Listed	Aerospace and Defence	10,771	0.9
QinetiQ	Aerospace and Defence	10,068	0.8
FORTY TOP HOLDINGS		1,171,738	96.1
Roche - Swiss Listed	Pharmaceuticals and Biotechnology	10,047	0.8
Intel - US Listed	Technology Hardware and Equipment	9,054	0.8
Domino's	Travel and Leisure	8,409	0.7
St James's Place	Investment Banking and Brokerage Services	5,148	0.4
Dr. Martens	Personal Goods	4,711	0.4
RELX	Media	4,025	0.3
Made.com	Household Goods and Home Construction	3,158	0.3
Cazoo - US Listed	Retailers	2,129	0.2
Raven PropertyS - Preference shares	Real Estate Investment and Services	237	-
EurovestechUQ	Investment Banking and Brokerage Services	69	-
TOTAL HOLDINGS 50 (2021: 50)		1,218,725	100.0

^S   Temporary suspension

^UQ   Unquoted investment

Strategic Report / Principal Risks and Uncertainties

RISK MANAGEMENT AND MITIGATION

The Board, through the Audit Committee and with the assistance of the Manager, maintains and 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.

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 Company's key long-term investment objectives are an increase in the net asset value per share in excess of the growth in the FTSE All-Share Index (the 'benchmark') and an increase in dividends in excess of the annual rate of inflation. 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 is delegated to the Manager. The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity with consideration being given to the effect of the COVID-19 pandemic, Russia's invasion of Ukraine, supply chain issues globally and risks of stagflation. The following sets out a description of the principal risks and how they are being managed or mitigated.

MARKET RISK

A great majority of the Company's investments are traded on recognised stock exchanges. 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, the severe impact of the COVID-19 pandemic, geopolitical events, the war in Ukraine and government policies 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.

Fluctuations in interest rates and exchange rates 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 reviewed by the Board at each meeting. Additionally, the Board receives reports on the performance of the portfolio at each meeting.

INVESTMENT PERFORMANCE 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 delegated to the Portfolio Manager. The Portfolio Manager's 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 and sectors across a range of different types of stock. This reflects the Portfolio Manager's high conviction, stock-driven investment process and total return approach. Strategy, asset allocation and stock selection decisions by the Portfolio Manager can lead to underperformance of the portfolio relative to the benchmark and/or income targets.

The Portfolio Manager's style may result in a concentrated portfolio with significant overweight or underweight positions in individual stocks or sectors compared to the index and consequently the Company's performance may deviate significantly, possibly for extended periods, from that of the benchmark. In a similar way, the Portfolio Manager manages other portfolios holding many of the same stocks as the Company which reflects the Portfolio Manager's 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 Portfolio Manager 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 dividend per share growth. Investment selection is delegated to the Portfolio Manager. 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 Manager is responsible for monitoring the portfolio selected and seeks to ensure that individual stocks meet an acceptable risk-reward profile.

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 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 at each meeting.

BORROWING RISK

The Company may borrow to provide gearing to the equity portfolio of up to 25% of net assets. Borrowing is a mix of the Company's £100 million debenture stock which will mature at 30 September 2022 and £20m of long-term fixed rate Unsecured Senior Loan Notes and a £25 million bank facility. The Company has in place agreements for replacement funding for the debenture through additional fixed rate notes. Details of all borrowings are given in Notes 11 and 12. The principal gearing risk is that the level of gearing may have an adverse impact on performance. Secondary risks include whether the cost of borrowing is too high and whether the bank facility which is currently undrawn can be renewed and on terms acceptable to the Company.

Within an overall limit set by the Board, the Manager has full discretion over the amount of the borrowing it uses to gear its portfolio, whilst the issuance, repurchase, or restructuring of borrowing are for the Board to decide.

Borrowing and gearing risk is included in the risk control summary report that is reviewed by the Board at each meeting. Additionally, compliance with the Company's investment policy guidelines is continuously monitored by the Manager and reported to the Board at each meeting.

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 forecasts and comparison against budget. These are contained within the Board papers and the Board considers the level of income at each meeting.

SHARE PRICE RISK

There is a risk that the Company's prospects and NAV may not be fully reflected in the share price from time-to-time.

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 1,104,800 shares for holding in treasury (2021: 2,500,000).

Share price risk is included in the risk control summary report that is reviewed by the Board at each 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 contracts relate to 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 the Manager'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.

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 the Manager, to whom responsibility for management of the Company's portfolio is delegated. 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.

-  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 manager, James de Uphaugh, Head of the Liontrust Global Fundamental team. James joined Liontrust in April 2022 as part of the acquisition of Majedie Asset Management where he was Chief Investment Officer. He is a Fund Manager and Analyst with 34 years' investment experience in UK and international equity markets. James is responsible for co-managing the UK Equity Fund of Liontrust and managing the Edinburgh Investment Trust.

-  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, Chris Field, as deputy portfolio manager, would be able to manage the portfolio if James de Uphaugh was unable to do so for any reason.

-  The Board has set guidelines within which the portfolio manager is 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.

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. The Board is kept informed through its advisors and Manager regarding any political, economic or legal or regulatory changes that affect the Company.

For example, there are currently a growing number of risks as a result of emerging geopolitical factors that may translate into greater stock market risk. These geopolitical factors include the war in Ukraine, global supply chain issues and stagflation.

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 Manager takes 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. Further details on the Portfolio Manager's process for managing climate risk relating to each portfolio holding is supplied in the s.172 statement below. The Company invests in a broad portfolio of businesses with operations spread geographically, which should limit the impact of location-specific weather events.

Pandemic (COVID-19)

There is a risk of re-emergence of future strains of COVID-19 or other pandemics and lockdowns.

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 considers 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 Chairman and the Audit Committee Chairman if needed during the year.

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 timeframe before 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 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 (including the issues arising from the COVID-19 pandemic, Russia's invasion of Ukraine and climate change), as set out above 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 manager; 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 below; 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 below, the Directors have concluded that the viability of the Company may start to be challenged if the value of investments reduced by over 80% from the aggregate level at the year end and the board considers this implausible having noted that since the inception of the Company's 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 over any period 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

As set out in the Directors' Report below the Directors have a statutory duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, suppliers, customers and others, and to have regard to their interests (s172 Companies Act 2006). 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

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, investee companies and the Manager.

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.

Shareholders can also visit the Company's website www.edinburghinvestmenttrust.com 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.

Typically at each AGM, a presentation is made by the Manager following the formal business of the meeting and shareholders have the opportunity to attend, vote and most importantly to communicate directly with the Manager and Board. Presentations to both institutional shareholders and analysts also follow the publication of the annual results. Due to COVD-19 restrictions the Board held a hybrid AGM on 21 July 2021 which allowed shareholders to join via a live weblink and to submit questions during the meeting. In addition to the AGM and presentations, the Board and Manager will host a shareholder event in London on 22 September 2022 and shareholders can register via the Company's website. The Chairman uses these events to lead the Company's engagement with its shareholders.

Regular dialogue is maintained between the Manager and major institutional 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 Manager and shareholders are reported to the Board. As a part of the process of change of Chairman from Glen Suarez, the next Chair, Elisabeth Stheeman, has been in attendance at meetings with shareholders during the financial year.

There is a clear channel of communication between the Board and the Company's Shareholders via the Company Secretary. The Company Secretary passes to the Chairman all correspondence addressed to the Board of the Company.

The strategy of the Company is reviewed by the Board on an annual basis. At the strategy day in October 2021 the Board discussed the refinancing of the debenture, discount management, marketing and board recruitment. 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 has regular dialogue with and reporting from the Manager on the portfolio of investments and a representative of the Manager attends each Board meeting to provide updates and answer questions from the Board.

During the financial year ended 31 March 2022, the Manager assisted with sourcing new debt finance through the issue of a loan note of £20m repayable in 2051 and £100m of pre-arranged new debt which will be available to replace the debenture when it matures in September 2022.

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 all its service providers including the Manager, and receives and considers the 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 assesses annually whether the services meet the requirements of the Company, represent value for money and are therefore in the best interests of shareholders.

Following the COVID-19 pandemic, the Board continues to ensure that service providers are as prepared as possible for all such eventualities which could disrupt performance of their respective functions.

ENGAGEMENT WITH INVESTEE COMPANIES

The Manager is a long-term investor and develops strong relationships with both investee and potential investee companies and reports their conversations back to the Board. Both the Board and the Manager 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. Voting is undertaken by the same team that manages the portfolio assets rather than it being delegated to an independent third party.

The Board supports the Manager's approach to ESG in the context of its management of the portfolio. In July 2021 the Board held a meeting to which the Head of Responsible Capitalism at Majedie was invited to provide an overview of developments in ESG and the implications for the Company.

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 direct ly to its key stakeholders.

ENVIRONMENTAL SOCIAL AND GOVERNANCE ("ESG") MATTERS

As an investment company with no employees, property or activities outside investment, environmental policy has limited application. In respect of the Company's investments, the Manager and the other members of the investment team integrate ESG risks and opportunities as part of a material assessment undertaken for all holdings. Consistent with the Manager's 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 with holdings. As part of the materiality assessments., the manager identifies and prioritises any key issues for a company over the three to five year period. These frequently include issues related to global warming, including those focussed on transitional risks, legislation risk, and/or physical risks. The Manager is a signatory to the Principles of Responsible Investment ('PRI'). Further information is available at www.liontrust.co.uk and through the investment company ESG disclosures at www.theaic.co.uk

EXERCISE OF VOTING POWERS AND STEWARDSHIP CODE

Stewardship

The Board considers that the Company has a responsibility as a shareholder towards ensuring that high Environmental, Social and Governance standards are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met. The principal means of putting shareholder responsibility into practice is through the exercise of voting rights. 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 the companies in which it invests look after shareholders' 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.

M embers of the Manager's 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 ballots. The Manager assesses 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.

When voting against or abstaining in a vote the Manager may communicate with management beforehand, either setting out its position in its regular meetings with the management of investee companies or in a communication to management.

The Manager discloses its voting record to the Board at each meeting with notes explaining the reasons for any votes against resolutions.

In addition, the Manager discloses to all clients 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 for the previous year on its website www.liontrust.co.uk.

MODERN SLAVERY DISCLOSURE

The Company aims to adopt the highest standards 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. 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 all of 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.

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.

This Strategic Report was approved by the Board on 25 May 2022

SANNE FUND SERVICES (UK) LIMITED / COMPANY SECRETARY

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 FinancialReporting Standard applicable in the UK and Republic of Ireland.

The revised SORP issued in April 2021 is applicable for accounting periods beginning on or after 1 January 2021. The SORP has no substantive changes but has been updated to reflect changes IFRS standards and regulatory requirements. No accounting policies or disclosures have changed as a result of the revised SORP.

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 control as they determine is 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.

Signed on behalf of the Board of Directors

GLEN SUAREZ / CHAIRMAN / 25 MAY 2022

Income Statement

For the year ended 31 March

			2022			2021
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value	9(b)	-	101,815	101,815	-	247,596	247,596
Losses on foreign exchange		-	(148)	(148)	-	(91)	(91)
Income	2	44,211	10,036	54,247	32,842	11,041	43,883
Investment management fee	3	(1,512)	(3,528)	(5,040)	(1,016)	(2,371)	(3,387)
Other expenses	4	(977)	(9)	(986)	(814)	(13)	(827)
Net return before finance costs and taxation		41,722	108,166	149,888	31,012	256,162	287,174
Finance costs	5	(2,492)	(5,815)	(8,307)	(2,438)	(5,690)	(8,128)
Return on ordinary activities before taxation		39,230	102,351	141,581	28,574	250,472	279,046
Tax on ordinary activities	6	(663)	-	(663)	(495)	-	(495)
Return on ordinary activities after taxation for the financial year		38,567	102,351	140,918	28,079	250,472	278,551
Return per ordinary share:
Basic	7	22.41p	59.47p	81.88p	16.21p	144.58p	160.79p

The total column of this statement represents the Company's income statement, prepared in accordance with UK Accounting Standards. The return/(loss) after taxation is the total comprehensive income/(expense) 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.

Financial Review / Balance Sheet

As at 31 March

		2022	2021
	Notes	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	9(a)	1,218,725	1,151,008
Current assets
Debtors	10	10,824	7,974
Cash and cash equivalents		68,728	32,570
		79,552	40,544
Creditors: amounts falling due within one year
Other payables	11	(2,566)	(698)
7.75% Debenture Stock 30 Sep 2022	11	(99,874)	-
		(102,440)	(698)
Net current (liabilities)/assets		(22,888)	39,846
Total assets less current liabilities		1,195,837	1,190,854
Creditors: amounts falling due after more than one year	12	(20,000)	(99,623)
Net assets		1,175,837	1,091,231
Capital and reserves
Share capital	13	48,917	48,917
Share premium	14	10,394	10,394
Capital redemption reserve	14	24,676	24,676
Capital reserve	14	1,041,086	945,728
Revenue reserve	14	50,764	61,516
Total Shareholders' funds		1,175,837	1,091,231
Net asset value per ordinary share:
Basic  - debt at par value	15	687.24p	633.54p
- debt at market value	15	686.69p	628.29p

These financial statements were approved and authorised for issue by the Board of Directors on 25 May 2022.

GLEN SUAREZ / CHAIRMAN

Signed on behalf of the Board of Directors

The accompanying notes are an integral part of these financial statements. 

Financial Review / Statement of Changes in Equity

				Capital
		Share	Share	Redemption	Capital	Revenue
		Capital	Premium	Reserve	Reserve(1)	Reserve(1)	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
At 31 March 2020		48,917	10,394	24,676	706,726	81,771	872,484
Return on ordinary activities		-	-	-	250,472	28,079	278,551
Dividends paid	8	-	-	-	-	(48,334)	(48,334)
Shares bought back and held in treasury		-	-	-	(11,470)	-	(11,470)
At 31 March 2021		48,917	10,394	24,676	945,728	61,516	1,091,231
Return on ordinary activities		-	-	-	102,351	38,567	140,918
Dividends paid	8	-	-	-	-	(49,319)	(49,319)
Shares bought back and held in treasury		-	-	-	(6,993)	-	(6,993)
At 31 March 2022		48,917	10,394	24,676	1,041,086	50,764	1,175,837

⁽¹⁾   The revenue reserve and certain amounts of the capital reserve are distributable by way of dividend.

The accompanying notes are an integral part of these financial statements.

Financial Review / Cash Flow Statement

For the year ended 31 March

		2022	2021
	Notes	£'000	£'000
Cash flow from operating activities
Net return before finance costs and taxation		149,888	287,174
Tax on overseas income	6	(663)	(495)
Adjustments for:
Purchase of investments		(426,367)	(417,672)
Sale of investments		462,132	437,425
		35,765	19,753
Gains on investments held at fair value		(101,815)	(247,596)
Increase in debtors		(3,201)	(2,303)
Increase/(decrease) in creditors		128	(141)
Net cash inflow from operating activities		80,102	56,392
Cash flow from financing activities
Interest paid on overdraft		(1)	-
Interest and commitment fees paid on bank facility		(85)	(158)
Interest paid on debenture stocks		(7,994)	(7,750)
Issue of Unsecured Senior Loan Notes 2.53% redeemable 7 October 2051		20,000	-
Shares bought back and held in treasury		(6,545)	(11,538)
Dividends paid	8	(49,319)	(48,334)
Net cash outflow from financing activities		(43,944)	(67,780)
Net increase/(decrease) in cash and cash equivalents		36,158	(11,388)
Cash and cash equivalents at start of the year		32,570	43,958
Cash and cash equivalents at the end of the year		68,728	32,570
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian		1,021	844
Goldman Sachs Liquidity Reserve International Fund - Money Market Fund		47,727	31,726
UK Government Treasury Bill - matures on 30 May 2022		19,980	-
Cash and cash equivalents		68,728	32,570
Cash flow from operating activities includes:
Dividends received		50,447	39,963
Interest received		-	4

	At 1 April 2021 £'000	Cash flows £'000	Non-cash movement £'000	At 31 March 2022 £'000
Reconciliation of net debt:
Cash and cash equivalents	32,570	36,158	-	68,728
Debenture Stock 7¾% 30 September 2022	(99,623)	-	(251)	(99,874)
Unsecured Senior Loan Notes 2.53% 7 October 2051	-	(20,000)	-	(20,000)
Total	(67,053)	16,158	(251)	(51,146)

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 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.

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 and the impacts of the COVID-19 Pandemic, are given above.

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 this year to present additional relevant information to readers of the accounts.

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 fair value, net of transaction costs and 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 held in the Company's base currency 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 accounts 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

The Directors made one significant accounting judgement during the year as set out in the paragraph below.

Daily Mail & General Trust ("DMGT") Capital Special Dividend - £10,036,000

On 12 July 2021, DMGT announced that its controlling shareholder, Rothermere Continuation Limited ("RCL"), had notified it of a possible offer for the entire issued, and to be issued, share capital of DMGT not already owned by RCL.

On 3 November 2021, it was announced that the Non-conflicted DMGT Directors and RCL had reached agreement on the terms of a recommended cash offer for DMGT by RCL, and a conditional special distribution, to all shareholders, of substantially all of the cash in the Group and its stake in Cazoo Group.

This Special Dividend was treated as Capital in nature due to the source being covered by the proceeds of disposal of the non-core parts of the business and the distribution of surplus capital leaving Rothermere Continuation Limited to purchase the remaining newspaper businesses. The Special Dividend was declared on 16 December 2021 and went ex-dividend on 17 December 2021.

This amount is disclosed as part of the amount in the footnote of Note 2 Income.

With the exception of this and the allocation of the investment management fee and finance costs between capital and revenue as described in Note 1G, the Directors do not believe that any other significant accounting judgements have been made. There are no estimates that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial 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.

2. INCOME

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

	2022	2021
	£'000	£'000
Income from investments:
UK zero coupon bond income	11	-
UK dividends	32,253	26,028
UK special dividends	6,689	2,432
Overseas dividends	5,193	4,368
Income from money market funds	28	11
	44,174	32,839
Other income:
Deposit interest	-	3
Underwriting commission	37	-
	37	3
Total income	44,211	32,842

Special dividends of £10,036,000 were recognised in capital during the year (2021: £11,041,000).

3. INVESTMENT MANAGEMENT FEE

This note shows the fee due to the Manager. This is calculated and paid monthly.

		2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	1,512	3,528	5,040	1,016	2,371	3,387

Details of the investment management agreement is disclosed above in the Directors' Report. At 31 March 2022 investment management fees of £427,000 (2021: £407,000) were accrued.

4. OTHER EXPENSES

The other expenses of the Company are presented below; those paid to the Directors and the auditor are separately identified.

		2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Other expenses	977	9	986	814	13	827
Other expenses include the following:
Directors' remuneration(i)	184	-	184	187	-	187
Auditor's fees(ii):
-  for audit of the Company's annual financial statements	41	-	41	33	-	33
-   additional fees in respect of COVID-19 audit procedures in prior year	-	-	-	8	-	8
-   audit related assurance services in respect of the Debenture Stock	-	-	-	3	-	3

The maximum Directors' fees authorised by the Articles of Association are £250,000 per annum.

(i)  There were seven directors for a period during the year and the Director's Remuneration Report above provides further information on Directors' fees.

(ii)  Auditor's fees include expenses but excludes VAT.

(iii)  Other expenses include:

-  £17,000 (2021: £18,000) of employer's National Insurance payable on Directors' remuneration. As at 31 March 2022, the amounts outstanding on Directors' remuneration and employer's National Insurance was £nil (2021: £42,000); and

-  custodian transaction charges of £9,000 (2021: £14,000). These are charged to capital.

5. FINANCE COSTS

Finance costs arise on any borrowing facilities the Company has used. Borrowing facilities are the £100 million debenture stock, £20 million loan note and a £25 million bank revolving credit facility.

		2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Interest payable on borrowings repayable not by
instalment:
- Commitment fees due on loan facility	18	42	60	38	89	127
- Interest on overdraft facility	-	1	1	-	-	-
- Debenture stock repayable within 1 year	2,325	5,425	7,750	-	-	-
- Debenture stock repayable within 2 years	-	-	-	2,325	5,425	7,750
- Unsecured Senior Loan Notes repayable after 5 years	73	171	244	-	-	-
Amortised debenture stock discount and issue costs	76	176	252	75	176	251
	2,492	5,815	8,307	2,438	5,690	8,128

6. TAX AND TOTAL RETURN ON ORDINARY ACTIVITIES

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

	2022	2021
	£'000	£'000
Overseas taxation	663	495

(b) Reconciliation of tax charge

	2022	2021
	£'000	£'000
Return on ordinary activities before taxation	141,581	279,046
Theoretical tax at the current UK Corporation Tax rate of 19% (2021: 19%)	26,900	53,019
Effects of:
- Non-taxable UK dividends	(6,128)	(4,945)
- Non-taxable UK special dividends	(972)	(2,560)
- Non-taxable overseas dividends	(3,178)	(830)
- Non-taxable gains on investments	(19,345)	(47,037)
- Non-taxable losses on foreign exchange	28	11
- Excess of allowable expenses over taxable income	2,693	2,340
- Disallowable expenses	2	2
- Overseas taxation	663	495
Tax charge for the year	663	495

(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 £491,547,000 (2021: £477,190,000) that are available to offset future taxable revenue.

A deferred tax asset of £122,886,688 (2021: £90,666,112) at 25% (2021: 19%) 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/(LOSS) 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 on ordinary activities after taxation and on 172,100,486 (2021: 173,236,905) 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 interims and one final dividend.

	2022		2021
	pence	£'000	pence	£'000
Dividends paid and recognised in the year:
- third interim paid in respect of previous year	6.00	10,331	6.40	11,180
- final paid in respect of previous year	6.00	10,331	9.45	16,492
- special dividend	4.65	8,006	-	-
- first interim paid	6.00	10,331	6.00	10,331
- second interim paid	6.00	10,320	6.00	10,331
	28.65	49,319	27.85	48,334

	2022		2021
	pence	£'000	pence	£'000
Dividends payable in respect of the year:
- first interim	6.00	10,331	6.00	10,331
- second interim	6.00	10,320	6.00	10,331
- third interim	6.40	10,934	6.00	10,331
- proposed final	6.40	10,927	6.00	10,331
	24.80	42,512	24.00	41,324
- declared special dividend	0.00	0	4.65	8,007
	24.80	42,512	28.65	49,331

The proposed final dividend is subject to approval by ordinary shareholders at the AGM.

9. INVESTMENTS

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

	2022	2021
	£'000	£'000
Investments listed on a recognised investment exchange	1,218,419	1,150,903
Unlisted or suspended investments at Directors' valuation	306	105
	1,218,725	1,151,008

(b) Analysis of investment gains/(losses):

	2022	2021
	£'000	£'000
Opening book cost	1,026,675	1,068,853
Opening investment holding gains/(losses)	124,333	(146,420)
Opening valuation	1,151,008	922,433
Movements in year:
- Purchases at cost	427,683	416,676
- Sales proceeds	(461,781)	(435,697)
Gains on investments in the year	101,815	247,596
Closing valuation	1,218,725	1,151,008
Closing book cost	1,048,510	1,026,675
Closing investment holding gains	170,215	124,333
Closing valuation	1,218,725	1,151,008

The Company received £461,781,000 (2021: £435,697,000) from investments sold in the year. The book cost of these investments when they were purchased was £405,848,000 (2021: £458,854,000) realising a profit of £55,933,000 (2021: £23,157,000). 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 £1,698,000 (2021: £1,917,000) on purchases and £152,000 (2021: £167,000) 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.

	2022	2021
	£'000	£'000
Amounts due from brokers	1,138	1,489
Overseas withholding tax recoverable	1,897	1,592
Prepayments and accrued income	7,789	4,893
	10,824	7,974

11. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

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 are the debenture and bank borrowings. The other creditors include any amounts due to brokers for the purchase of investments or amounts owed to suppliers (accruals) such as the Manager and auditor.

	2022	2021
	£'000	£'000
Debenture Stock 7¾% redeemable 30 September 2022	99,874	-
Amounts due to brokers	1,316	-
Share buybacks awaiting settlement	448	-
Accruals	802	698
	102,440	698

The debenture is secured by a floating charge on the Company, under which borrowing must not exceed a sum equal to the Adjusted Total of Capital and Reserves.

The effect on the net asset value of deducting the debenture stock at market value, rather than at par, is disclosed in note 15.

The Company has a 364 day committed revolving credit facility (the 'bank facility') of £25 million (2021: £50 million) with the lender, The Bank of New York Mellon. The bank facility was renewed on 16 June 2021 and matures on 15 June 2022. Interest is payable at 1.00% over LIBOR for drawn amounts, with a commitment fee of 0.20% per annum for undrawn amounts. Under the bank facility's covenants, the Company's total indebtedness must not exceed 25% of net assets and net assets must not be less than £300 million (2021: £500 million).

The Company has arranged refinancing for the debenture as previously noted.

12. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

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.

	2022	2021
	£'000	£'000
Debenture Stock and Loan Notes:
Unsecured Senior Loan Notes	20,000	-
Debenture Stock 7¾% redeemable 30 September 2022	-	100,000
Unamortised discount and issue expenses on debenture stock	-	(377)
	20,000	99,623

13. SHARE CAPITAL

Share capital represents the total number of shares in issue, including treasury shares.

	2022	2021
Share capital:
Ordinary shares of 25p each (£'000)	42,770	43,046
Treasury shares of 25p each (£'000)	6,147	5,871
	48,917	48,917

	2022	2021
Number of ordinary shares in issue:
Brought forward	172,182,929	174,682,929
Shares bought back and held in treasury	(1,104,800)	(2,500,000)
Carried forward	171,078,129	172,182,929
Number of shares held in treasury:
Brought forward	23,483,805	20,983,805
Shares bought back into treasury	1,104,800	2,500,000
Carried forward	24,588,605	23,483,805
Total ordinary shares	195,666,734	195,666,734

During the year the Company bought back, into treasury, 1,104,800 (2021: 2,500,000) ordinary shares at an average price of 632.95p (2021: 458.79p) (including costs). Since the year end, 290,000 shares have been bought back into treasury.

The Directors' Report above 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.

The NAV - debt at par is the NAV with the value of the £100 million debenture and the £20 million Unsecured Senior Loan Notes, issued during the year, (the debt) at their combined nominal (equivalent to the par) value of £120 million. The NAV - debt at market value reflects the debenture stock at the value that a third party would be prepared to pay for the debt, and this amount fluctuates owing to various factors including changes in interest rates and the remaining life of the debt. The number of ordinary shares in issue at the year end was 171,078,129 (2021: 172,182,929).

(a) NAV - debt at par value

The shareholders' funds in the balance sheet are accounted for in accordance with accounting standards; however, this does not reflect the rights of shareholders on a return of assets under the Articles of Association. These rights are reflected in the net assets with debt at par value and the corresponding NAV per share. A reconciliation between the two sets of figures follows:

	2022		2021
	NAV	Shareholders'	NAV	Shareholders'
	per share	funds	per share	funds
	pence	£'000	pence	£'000
Shareholders' funds	687.31	1,175,837	633.76	1,091,231
Less:
Unamortised discount and expenses arising from debenture stock issue	(0.07)	(126)	(0.22)	(377)
NAV - debt at par	687.24	1,175,711	633.54	1,090,854

(b) NAV - debt at market value

The market value of the debenture stock is determined by reference to the daily closing price, and is subject to review against various data providers to ensure consistency between data providers and against the reference gilt.

The net asset value per share adjusted to include the debenture stock and Unsecured Senior Loan Notes at market value rather than at par is as follows:

	2022		2021
	NAV	Shareholders'	NAV	Shareholders'
	per share	funds	per share	funds
	pence	£'000	pence	£'000
NAV - debt at par	687.24	1,175,711	633.54	1,090,854
Debenture stock and Unsecured Senior Loan Notes - debt at par	70.14	120,000	58.08	100,000
- debt at market value	(70.69)	(120,938)	(63.33)	(109,041)
NAV - debt at market value	686.69	1,174,773	628.29	1,081,813

16. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

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 (as shown above), a debenture, loan notes, a bank facility 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.

As an investment trust 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 above. 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 £100 million debenture 2022 together with the newly issued £20m Unsecured Senior Loan Notes. In addition there is a bank facility of £25 million (2021: £50 million).

16.1.1 Currency risk

The majority of the Company's assets and all of its liabilities are denominated in sterling. There is some exposure to US dollar, Swiss franc and the Euro.

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 (2021: 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 £144.3 million (2021: £98.8 million) representing 12.0% (2021: 8.6%) 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.

	2022			2021
	USD	CHF	EUR	USD	CHF	EUR
	£'000	£'000	£'000	£'000	£'000	£'000
Foreign currency exposure on net monetary items	3,793	1,106	2,389	1,915	859	979
Investments at fair value through profit or loss that are equities	46,641	27,635	70,032	39,881	12,393	39,593
Total net foreign currency exposure	50,434	28,741	72,421	41,796	13,252	40,572

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 2.0% (2021: 4.1%) for the US dollar, 1.5% (2021: 2.6%) for the Swiss franc and 1.2% (2021: 1.9%) for the Euro during the year, the capital return and net assets of the Company would have increased for all currency exposures by £2.3 million (2021: £3.0 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.

16.1.2 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.

The Company has in place a revolving credit facility (the 'bank facility'), details of which are shown in note 11. The Company uses the bank facility when required at levels monitored by the Board. At the maximum possible bank facility gearing of £25 million (2021: £50 million), the effect of a 1% increase/decrease in the interest rate would result in a decrease/increase to the Company's income of £250,000 (2021: £500,000) per annum.

The Company also has an uncommitted bank overdraft facility which it uses for settlement purposes and the interest rate is dependent on the base rate as determined by the custodian. At the year end, no amounts were overdrawn (2021: none).

The Company's debt of £120 million (2021: £100 million) of debenture stock and Unsecured Senior Loan Notes is fixed which exposes the Company to changes in market value in the event that the debt is repaid before maturity. Details of the debenture stock interest is shown in note 12, with details of its market value and the affect on net asset value in note 15(b).

The Company held one fixed income security during the year (2021: nil), being a short-term zero coupon government bond which matures on the 30 May 2022. As at 31 March 2022 this government bond was 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.

	2022				2021
	Within	Between	After		Within	Between
	one	one and	five		one	one and
	year	five years	years	Total	year	five years	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Exposure to floating interest rates:
Cash and cash equivalents	48,748	-	-	48,748	32,570	-	32,570
Exposure to fixed interest rates:
UK Government Treasury Bill	19,980	-	-	19,980	-	-	-
Debenture stock - debt at par value	(100,000)	-	-	(100,000)	-	(100,000)	(100,000)
Unsecured Senior Loan Notes - debt at par value	-	-	(20,000)	(20,000)	-	-	-
Total exposure to interest rates	(31,272)	-	(20,000)	(51,272)	32,570	(100,000)	(67,430)

16.1.3 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 £121.9 million (2021: £115.1 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. In addition, the Company has a bank facility which it can use to provide short-term funding flexibility.

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
	months	less than	More than
	or less	one year	one year	Total
2022	£'000	£'000	£'000	£'000
Debenture stock - debt at par value	-	100,000	-	100,000
Loan note - debt at par value	-	-	20,000	20,000
Interest on debenture stock	-	3,875	-	3,875
Interest on loan note	-	506	14,421	14,927
Amounts due to brokers	1,316	-	-	1,316
Share buybacks awaiting settlement	448	-	-	448
Accruals	802	-	-	802
	2,566	104,381	34,421	141,368

		More
		than three
		months
	Three	but
	months	less than	More than
	or less	one year	one year	Total
2021	£'000	£'000	£'000	£'000
Debenture stock - debt at par value	-	-	100,000	100,000
Interest on debenture stock	-	7,750	3,875	11,625
Accruals	698	-	-	698
	698	7,750	103,875	112,323

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 above.

17. FAIR VALUE

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, cash and any drawings on the bank facility) or at amortised cost (debenture).

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.

	2022
	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	1,218,419	-	-	1,218,419
Unquoted and suspended investments	-	-	306	306
Total for financial assets	1,218,419	-	306	1,218,725

	2021
	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	1,150,903	-	-	1,150,903
Unquoted investments	-	-	105	105
Total for financial assets	1,150,903	-	105	1,151,008

The valuation techniques used by the Company are explained in the accounting policies note. At the end of the financial year there were no Level 2 investments. There were two investments in Level 3 at the year end (2021: one investment) totalling £306,000 (2021: £105,000).

The holding in Eurovestech did not change during the year, but the fair value was £69,000 (2021: reduced to £105,000).

Raven Property is the other unquoted investment. Their issued preference shares of Raven Property were suspended on 2 March 2022 due to sanctions on the company's Russian businesses. At the date of suspension the quoted price was 20p share, however the Directors' revalued the shares to 10p per share resulting in a fair value of £237,000. On 17 March 2022 Raven Property announced their intention to de-list their issued ordinary and preference shares, a process which is still underway.

The book cost and fair value of the debenture stock, based on the offer value at the balance sheet date, are as follows:

	2022		2021
	Book	Fair	Book	Fair
	Value	Value	Value	Value
	£'000	£'000	£'000	£'000
Debenture stock repayable within one year:
7 ¾% Debenture Stock 30 September 2022	100,000	102,734	100,000	109,041
Discount on issue of debenture stock	(126)	-	(377)	-
Loan notes repayable after five year:
Unsecured Senior Loan Notes	20,000	18,204	-	-
	119,874	120,938	99,623	109,041

Incorporating the fair value of the debt, results in the reduction of the net asset value per ordinary share to 686.69p (2021: 628.29p).

18. CAPITAL MANAGEMENT

The Company's total capital employed at 31 March 2022 was £1,295,711,000 (2021: £1,190,854,000) comprising borrowings of £119,874,000 (2021: £99,623,000) and equity share capital and other reserves of £1,175,837,000 (2021: £1,091,231,000).

The Company's total capital employed is managed to achieve the Company's objective and investment policy as set out above, 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 4.4% (2021: 7.1%) 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 above. 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 buy-back 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, and with respect to the availability of the bank facility by the terms imposed by the lender. 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, borrowings comprise the debenture stock and unsecured senior loan notes, a bank facility and an uncommitted overdraft facility which may be used for short-term funding requirements.

19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS

This note would show any liabilities the Company is committed to honour, and which are dependent on future circumstances or events occurring.

There are no contingencies, guarantees or financial commitments of the Company at the year end (2021: £nil).

20. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE 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 above 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 above, and in note 3.

21. POST BALANCE SHEET EVENTS

On 1 April 2022 Majedie Asset Management Limited, the Company's AIFM since its appointment on 4 March 2020, was acquired by Liontrust Asset Management PLC. Liontrust Fund Partners LLP became the Company's AIFM. The responsibility for the-day-today investment management activities of the Company has been delegated to Liontrust Investment Partners LLP. The Company's portfolio management team, with James de Uphaugh as the portfolio manager and Chris Field as the deputy manager, remains unchanged. The Majedie investment team will continue to be led by James de Uphaugh and will operate as the Liontrust Global Fundamental team.

There are no other significant events or adjustment to the financial statements after the end of the reporting year requiring disclosure.

The Annual Financial Report will be available from the Company's website: www.edinburghinvestmenttrust.com

The Annual Financial Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: National Storage Mechanism | FCA

The Audited Annual Financial Report will be posted to shareholders shortly.  Copies may be obtained during normal business hours from the Company's registered office, Quartermile One, 15 Lauriston Place, Edinburgh EH3 9EP.

A copy of the Annual Financial Report will be available from the Company's website: www.edinburghinvestmenttrust.com

The Annual General Meeting of the Company will be held at 11am on 21 July 2022 at The Hawthorden Lecture Theatre, The National Galleries of Scotland, Weston Link, The Mound, Edinburgh EH2 2EL.

By order of the Board

Sanne Fund Services (UK) Limited

Company Secretary

25 May 2022

Enquiries:

Edinburgh Investment Trust plc

Glen Suarez (Chairman)                         via Liontrust below

Liontrust Fund Partners LLP 

James Mowat                                          + 44 20 3908 8822

Investec Bank plc
Tom Skinner                                            + 44 20 7597 4000

Sanne Fund Services (UK) Limited (Company Secretary)        

Brian Smith                                            [phone] 

Montfort Communications

Gay Collins                                           [phone]

Shireen Farhana                                  [phone]

Ella Henderson      [phone]

 

END

 

 

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