267694 EdinburghIT AR 2024 WEB - Flipbook - Page 25
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 23
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 time
frame for a forecast, however, the life of the Company is not
In taking account of these factors and on reviews
conducted as part of the detailed internal controls and
risk management processes set out on pages 19 to 22, the
Directors have undertaken a reverse stress test seeking
to identify the financial circumstances that might result in
the Company becoming unviable. This concluded that the
viability of the Company becomes challenged if the value
of Total Shareholders’ Funds were to fall permanently by
approximately 80% from the level at the year end, a fall that
the Board considers to be near implausible having noted that
since the inception of the Company’s FTSE All-Share Index
intended to be limited to that or any other period.
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).
There are no current plans to amend the investment strategy,
which has delivered long-term good investment performance
above or in line with benchmark 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 conflict
in Israel and Gaza, the continuation of the war in Ukraine
and climate change), as set out on page 22 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 on page 42;
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.
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.
