The Edinburgh Investment Trust Plc Annual Financial Report 2022 - Flipbook - Page 16
14 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC
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 on
page 2. 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 on pages 5 to 7 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.