267694 EdinburghIT AR 2024 WEB - Flipbook - Page 8
6 / OVERVIEW / THE EDINBURGH INVESTMENT TRUST PLC
CHAIR’S STATEMENT / CONTINUED
about this change, the investment process for the Company
– with its focus on total returns from capital and dividends
– remains unchanged. There have been modest changes to
the portfolio since the formal handover in February and this,
along with more colour on the portfolio and outlook, is set
out in the Portfolio Manager’s report.
DIVIDENDS
The Board recommends a final dividend of 6.9p per share:
shareholders will be able to vote on this at our Annual
General Meeting in July. If approved, this will result in total
dividends for the year of 27.2p per share. This figure, divided
by the year end share price of 690p, means a dividend yield
to shareholders of 3.9% – in-line with the index yield.
Underpinning the Company’s dividend payments are the
revenues generated by the portfolio. This year this figure is
23.9p per share, which is lower than 2023 primarily because of
a reduction in some ‘special’ dividend payments – particularly
from the banking sector. With a dividend of 27.2p due to be
paid, it means the dividend is ‘uncovered’ by 3.3p per share.
One of the advantages of an investment trust is the flexibility
to draw on ‘revenue reserves’ to smooth dividend payments
and support attractive distributions. We have used these
‘revenue reserves’ to varying degrees over the last five years,
particularly in the immediate aftermath of the pandemic.
Revenue reserves remain in a healthy position at 30.7 pence per
share. The Portfolio Manager sets out thoughts about dividend
generation from the portfolio in his report. In particular, they
explore the recent pressures on dividends being paid and
the extent to which this is explained by investee companies’
preference for buying back shares instead.
BORROWINGS
The Company has long-term borrowings via four tranches
of debt which mature between 2037 and 2057. This helped
boost investment returns over the year, as the table on page 2
illustrates. The face value of the debt (debt at ‘par’) is £120m,
and at the year end the ‘fair value’ was £73m. The difference
between the two numbers is due to changes in reference gilt
yields, which are significantly higher than when the debt was
arranged in 2021. The fair value of the debt a year ago was
£78m. As we always quote investment returns after deducting
debt at fair value (not at par), the reduction in the value of
the debt has been a small positive performance tailwind. As
the Portfolio Manager notes in their report, we are content
with the current level of debt and have no immediate plans to
borrow more.
SHARE PRICE DISCOUNT TO NET ASSET VALUE
In common with many other equity investment trusts, the
Company’s discount widened over the year. As a Board
we have sought to turn this to the Company’s advantage,
and have authorised the Company’s broker to repurchase
shares in the open market. The permission of shareholders
for repurchases is sought annually at our Annual General
Meeting. The buyback process enhances the NAV per share
for remaining shareholders. Over the year, the Company
returned £92m to shareholders through buybacks – or 8.5%
of shares in circulation at the beginning of the period (2023:
£35m and 3.5%). This boosted NAV by 0.8%, as is set out
in the table on page 3. This return of capital is significantly
more than the £42m that is due to be paid in dividends and is
therefore the single largest allocation of capital over the year.
FEES
Following discussions with the Manager, we have agreed a
new lower fee scale as follows:
l First £500m of market capitalisation at 0.45% per annum
l Next £500m of market capitalisation at 0.40% per annum
l Balance of market capitalisation at 0.35% per annum
This new fee scale applies from the start of the new financial
year, i.e. 1 April 2024. Based on the Company’s market
capitalisation at the year end, it will reduce the pro-forma
management fee by 11%. This will position the Company as
one of the most competitively priced investment trusts in its
sector, and should further support the role of the Company
as a natural home for long-term equity investors.
MARKETING
We are continuing with a range of promotional activities.
These include regular market updates (video and
written articles) on the Company’s website, events, press
advertisements, and digital promotion through avenues
such as LinkedIn and X, formerly Twitter. We also take part
in various media events on investment platforms. The Board
is monitoring the effectiveness of marketing expenditure via
a series of Key Performance Indicators and I am pleased to
report that the scorecard is in good shape.
BOARD AND GOVERNANCE
Since the retirement from the Board of Vicky Hastings at last
year’s AGM, the membership of the Board has been stable at
five Directors including myself. The Board continues to meet
the FCA Listing Rules targets on gender diversity, female
representation in senior roles and ethnic representation on
the Board. All Directors also conform with the UK Corporate
Governance Code’s guidance on board tenure. I thank all my
fellow directors for their hard work on behalf of shareholders
over the last year.
During the year we reviewed Directors’ fees. After reviewing
reports from two remuneration consultants, and taking
account of the fact that Directors’ remuneration has not been
changed since 2021, the Board approved a 7% increase in
fees for the year to 31 March 2024.
