## ANNUAL FINANCIAL REPORT ## FOR THE YEAR ENDED 31 MARCH 2023 ## TRUST IN A STYLE TO LAST THROUGH THE AGES ### THE EDINBURGH INVESTMENT TRUST PUBLIC LIMITED COMPANY ### REGISTERED IN SCOTLAND SC001836 ## CONTENTS STRATEGY OVERVIEW Financial Information and Performance Statistics 2 Chair’s Statement 5 STRATEGIC REPORT Portfolio Manager’s Report 9 Portfolio Manager’s Core Investment Beliefs 13 Business Review 14 Investments in Order of Valuation 16 Portfolio Analysis 17 Principal Risks and Uncertainties 18 Viability Statement 22 Section 172 Statement, Company Sustainability and Stakeholders 23 GOVERNANCE The Directors 29 The Company’s Corporate Governance Framework 31 Corporate Governance Statement 32 Audit Committee Report 33 Directors’ Report 36 Statement of Directors’ Responsibilities 44 Directors’ Remuneration Report 45 FINANCIAL REVIEW Independent Auditor’s Report 50 Income Statement 57 Balance Sheet 58 Statement of Changes in Equity 59 Cash Flow Statement 60 Notes to the Financial Statements 61 OTHER INFORMATION FOR SHAREHOLDERS Notice of Annual General Meeting 77 Shareholder Information 81 Advisors and Principal Service Providers 82 Glossary of Terms and Alternative Performance Measures 83 Alternative Investment Fund Managers Directive Disclosures 87 If you wish to contact members of the Edinburgh Investment Trust Board then please The Company is a The Company is a get in touch with the Company Secretary on +44 (0)20 3327 9720. If you have any member of enquiries for the Manager, please contact them on +44 (0)20 7412 1700 www.edinburgh-investment-trust.co.uk THE EDINBURGH INVESTMENT TRUST PLC / OVERVIEW / 1 # OVERVIEW £1,139m NET ASSETS (2022: £1,176m) 660.00p SHARE PRICE (2022: 634.00p) 4.0% DIVIDEND YIELD (2022: 3.9%) (7.5)% DISCOUNT* (2022: (7.7)%) 0.53% ONGOING CHARGES RATIO* (2022: 0.52%) 4.7% GEARING (NET)* (2022: 4.4%) *Alternative Performance Measures as defined on pages 83 to 86 # INVESTMENT OBJECTIVES The Edinburgh Investment Trust plc ('The Company') is an investment trust whose investment objective is to invest 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. 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 portfolio in securities listed on stock exchanges outside the UK. The portfolio is selected on the basis of assessment of fundamental value of individual securities and is not structured on the basis of industry weightings. # NATURE OF THE COMPANY The Company is a public listed Investment Company whose shares are traded on the London Stock Exchange. The business of the Company consists of investing the pooled funds of its shareholders, according to a specified investment objective and policy (set out on page 14), with the aim of spreading investment risk and generating a return for shareholders. The Company uses borrowing to enhance returns to shareholders. This increases the risk to shareholders should the value of investments fall. The Company has contracted an external manager, Liontrust Fund Partners LLP, ('LFP' or 'the Manager' or 'Portfolio Manager' as Alternative Investment Fund Manager ('AIFM')) to manage its investments. Other administrative functions are contracted to external services providers. The Company has a Board of non-executive directors who oversee and monitor the activities of the Manager and other service providers on behalf of shareholders and ensure that the investment objective and policy are adhered to. The Company has no employees. 2 / OVERVIEW / THE EDINBURGH INVESTMENT TRUST PLC ## FINANCIAL INFORMATION AND PERFORMANCE STATISTICS | Total Return^{(1)(3)(4)} (all with dividends reinvested) | Year Ended 31 March 2023 | Year Ended 31 March 2022 | | --- | --- | --- | | Net asset value^{(1)} (NAV) - debt at fair value | +7.9% | +14.1% | | Share price^{(2)} | +8.4% | +10.6% | | FTSE All-Share Index^{(2)} | +2.9% | +13.0% | The Company's benchmark is the FTSE All-Share Index. | Capital Return^{(1)(4)} | At 31 March 2023 | At 31 March 2022 | Change % | | --- | --- | --- | --- | | Net asset value - debt at fair value | 713.75p | 686.69p | +3.9 | | Share price^{(2)} | 660.00p | 634.00p | +4.1 | | FTSE All-Share Index^{(2)} | 4,157.88 | 4,187.78 | -0.7 | | **Discount^{(1)(3)(4)}** - debt at fair value | (7.5)% | (7.7)% | | | **Gearing** (debt at fair value)^{(1)(3)(4)} | | | | | - gross gearing | 6.6% | 10.3% | | | - net gearing | 4.7% | 4.4% | | | Revenue and Dividends^{(3)} | Year Ended 31 March 2023 | Year Ended 31 March 2022 | Change % | | --- | --- | --- | --- | | Revenue return per ordinary share | 25.99p | 22.41p | +15.6 | | Dividends | | | | | - first interim | 6.40p | 6.00p | | | - second interim | 6.40p | 6.00p | | | - third interim | 6.70p | 6.40p | | | - proposed final | 6.70p | 6.40p | | | **- total dividends** | **26.20p** | **24.80p** | **+5.6** | | **Consumer Price Index^{(2)(4)}** - annual change | 10.2% | 7.0% | | | **Dividend Yield^{(1)(3)(4)}** | 4.0% | 3.9% | | | **Ongoing Charges Ratio^{(1)(3)(4)}** | 0.53% | 0.52% | | ### Notes: 1. (1) These terms are defined in the Glossary of Terms and Alternative Performance Measures, including reconciliations, on pages 83 to 86. NAV with debt at fair value is widely used by the investment company sector for the reporting of performance, premium or discount, gearing and ongoing charges. 2. (2) Source: Refinitiv. 3. (3) Key Performance Indicator. 4. (4) Alternative Performance Measures. THE EDINBURGH INVESTMENT TRUST PLC / OVERVIEW / 3 ## TEN YEAR HISTORICAL ## INFORMATION Per ordinary share | | | | | | | | | | | | Net asset | | | | | | | | | Gross | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary | | Shares | | | | | | | | | value | | | | Discount | | | gearing | | | Net gearing | | | | | sharehold- | | (bought | | | | | | | | (debt at | | | | | (debt at | | | (debt at | | | | (debt at | | | | | ers’ | back)/ | | Revenue | | | Dividend | | | | | fair | Share | | | | fair | | | fair | | | fair | | Year ended | | funds | issued | | | return | | | rate | | | value) | | price | | | value) | | | value) | | | value) | | | 31 March | | £m | | m | | | p | | | p | | | p | | p | | | % | | | % | | | % | 2014 1,228 – 23.18 23.50 613.25 594.00 (3.1) 19.1 18.6 2015 1,376 – 24.83 23.85 686.07 662.00 (3.5) 13.9 13.8 2016 1,392 0.55 26.66 24.35 695.30 665.00 (4.4) 15.5 15.3 2017 1,535 – 27.94 25.35 768.81 713.50 (7.2) 15.9 15.7 2018 1,400 – 29.25 26.60 703.34 642.00 (8.7) 12.1 11.8 2019 1,382 (0.19) 28.66 28.00 696.91 644.00 (7.6) 11.0 10.8 2020 872 (20.80) 27.83 28.65 490.40 434.00 (11.5) 13.4 8.3 (1) 2021 1,091 (2.50) 16.21 28.65 628.29 600.00 (4.5) 10.1 7.1 2022 1,176 (1.10) 22.41 24.80 686.89 634.00 (7.7) 10.3 4.4 2023 1,139 (5.60) 25.99 26.20 713.75 660.00 (7.5) 6.6 4.7 (1) including special dividend of 4.65p Capital Returns (excluding dividends paid) to 31 March 2023 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 3yr 5yr 10yr NAV (debt at fair 9.7 11.9 1.3 10.6 -8.5 -0.9 -29.6 28.1 9.3 3.9 45.5 1.5 27.7 value) (%) Share Price (%) 3.8 11.4 0.5 7.3 -10.0 0.3 -32.6 38.2 5.7 4.1 52.1 2.8 15.4 FTSE All-Share Index (%) 5.2 3.0 -7.3 17.5 -2.4 2.2 -21.9 23.3 9.3 -0.7 33.8 6.8 23.0 Source: Refinitiv. Total Returns (with dividends reinvested) to 31 March 2023 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 3yr 5yr 10yr NAV (debt at fair 14.3 16.2 5.0 14.7 -5.9 2.9 -26.7 34.8 14.1 7.9 65.9 25.3 88.8 value) (%) Share Price (%) 8.0 15.7 4.0 11.2 -6.7 4.6 -29.4 46.4 10.6 8.4 75.5 29.6 74.8 FTSE All-Share Index (%) 8.8 6.6 -3.9 22.0 1.2 6.4 -18.5 26.7 13.0 2.9 47.4 27.8 75.9 Source: Refinitiv. 4 / OVERVIEW / THE EDINBURGH INVESTMENT TRUST PLC # TEN YEAR HISTORICAL INFORMATION / CONTINUED Total Returns Over Ten Years Rebased to 100 at 31 March 2013 ![img-0.jpeg](img-0.jpeg) Source: Refinitiv. Cumulative Dividend Growth to 31 March 2023 ![img-1.jpeg](img-1.jpeg) Source: Refinitiv. Source: Consumer Price Inflation - Office for National Statistics Capital Returns Over Ten Years Rebased to 100 at 31 March 2013 ![img-2.jpeg](img-2.jpeg) Source: Refinitiv. THE EDINBURGH INVESTMENT TRUST PLC / OVERVIEW / 5 ## CHAIR’S STATEMENT DEAR SHAREHOLDER ## It has been a great pleasure to lead your Company in ## my first year as the Chair of the Board. Together with ## my fellow Directors, and the Company’s Manager, we ## have continued to build on the strengthening investment ## ELISABETH STHEEMAN track record to position the Company as a core holding CHAIR ## for long-term savers. I would particularly like to thank my predecessor, portfolio. Echoing this, some of the major Glen Suarez, who stood down as planned at last drivers of returns over the year included the year’s Annual General Meeting after nine years holdings in BAE Systems, NatWest, Centrica on the Board. In recent years he oversaw a and Greggs. To a lesser extent there were transition of the Company with a new Manager offsetting negative returns from some of the and supporting team, a sustainable and rising mining stocks held, including Anglo American dividend, very attractively priced long-term and Newmont. Other factors that contributed debt financing and the initiation of a new to the overall return were: marketing strategy, which has been further l UK equities continue to rebound, refined in the past year. This is an excellent outperforming global equities. After an position from which the rest of the Board and I extended period of dull returns for UK look forward to building further. equities, extending to before the Brexit referendum of 2016, a combination of PERFORMANCE strong fundamentals and attractive starting It has been another encouraging twelve valuations have come to the fore; months for the Company’s investment returns. Growth in both the Net Asset Value (NAV) l The positive returns have been despite the and the share price comfortably exceeded the challenging geopolitical situation, including benchmark index, the FTSE All-Share Index. the war between Russia and Ukraine; The NAV return was 7.9% against the index l Another headwind for elements of the return of 2.9%. These are in total return terms equity market has been inflation. Here in (i.e. the combination of capital appreciation the UK there is hope that this might start plus income received). We are therefore to recede and that the cost of living crisis building a track record under the new Manager might in turn abate; that meets the Company’s first investment objective – a long-term increase of the NAV l The UK equity market appears to have taken per share in excess of the index. the recent concerns about some banks in the US and Switzerland in its stride. The Manager The Company’s share price total return was 8.4% is alert to how this may affect bank lending over the year: the share price itself moved from appetites, including in the UK, which could in 634p to 660p, a rise of 4.1%, with the balance turn impact the economic outlook; coming from the dividends paid to shareholders. | The share price return differs from the NAV | l The effect of marking the Company’s new | | | --- | --- | --- | | return because of the changing share price | | loan notes to fair value, reflecting the fall in | | discount to NAV. For this year the discount | | value of the debt that the Company issued in | | narrowed marginally from 7.7% to 7.5%. | | 2021/2 due to the rise in government bonds | yields. As I wrote in the interim report, this There are a number of investment factors that boosted the NAV by c.4% during the year and have influenced the Company’s returns over the is explained in more detail below. year. Most important are the performance of It is also important to consider longer term the businesses held in the Company’s portfolio. returns: it has now been three years since the Your Manager takes mainly a ‘bottom-up’ change of Manager to James de Uphaugh and approach, seeking to construct a diversified 6 / OVERVIEW / THE EDINBURGH INVESTMENT TRUST PLC # CHAIR'S STATEMENT / CONTINUED his team. It is gratifying to see that the Company's growth in NAV has exceeded that of the FTSE All-Share Index in each of the three successive 12-month periods. Taken as a whole, over the three years to 31 March 2023, the Company's cumulative NAV total return has been 65.9%, with the Company's benchmark index returning 47.4% over the same period. Over the past five years, the Company's NAV return has been 25.2% cumulatively, compared with the Company's benchmark index returning 27.9% over the same period. In all these cases, the NAV is stated after deducting debt at fair values. In our view, three years is the minimum period over which investment success can be properly assessed. It is clearly positive that the Company has had such encouraging returns over this period. Growth in the share price has been more volatile, outperforming the index in two of these three years. Further, the discount has narrowed from 11.5% in March 2020 to 7.5% at the end of March 2023. This results in an overall share price return (which is ultimately what shareholders experience – as distinct from the NAV) of 75.5%, which exceeds the NAV return. I will come back to the approach we have taken towards the discount below. ## ENVIRONMENTAL, SOCIAL AND GOVERNANCE INVESTMENT FACTORS We believe an important component of profitable investment decisions is the consideration of Environmental, Social and Governance (ESG) factors. Well managed and governed companies tend to make successful long-term investments. The Manager therefore considers such issues as an integral part of their research and investment process. The Manager's report describes this in more detail, as does the summary of the Manager's voting activities in respect of each investee company. This is the first time that we have included the detail of how we have exercised the Company's voting rights as a shareholder. You will also see that we have included some examples of the engagement the Manager had with investee companies on some of the more contentious issues. I encourage you to read these interesting examples. ## DIVIDENDS We have announced three interim dividends so far this year, totalling 19.5 pence per share. For the final dividend, the Board is proposing a payment of 6.7p per share, taking the total to 26.2p per share. This final figure is a 5.6% increase on last year. When divided by the year end share price of 660p, it results in a dividend yield of 4.0%. This compares with the dividend yield on the FTSE All-Share Index of 3.5% on average. The dividend increase of 5.6% is behind the level of UK inflation over the same period. As is evident from the bar chart of longer-term dividend growth rates on page 4, we are not currently meeting the second of the Company's two objectives: to grow dividends per share in excess of UK inflation. We used these reserves to maintain the dividend initially, but it became apparent that the natural level of income generated by the portfolio was not going to be sufficient, in the long run, to maintain the dividend and, after much deliberation, decided to reduce it in the financial year to March 2021. Looking forward, with expectations for inflation coming down and noting our confidence in the ability of our portfolio companies to grow their distributions, we anticipate a return to the dividend rising above normalised inflation. For this last financial year, I am pleased to report that dividends received by the portfolio have continued to rise and in conjunction with our lower costs of debt the P&L is in better shape. This means that the dividends in respect of this financial year are almost entirely covered by earnings: as the table on page 2 shows, dividends for the year of 26.2p compare with revenues of 26.0p. Another important feature to note is that many of the stocks held in the Company's portfolio are buying back their own shares for cancellation. The Manager explores this in more detail in his report later in this document but suffice to say, share buybacks are another form of redistribution to shareholders, but in the form of capital rather than income. Sometimes these buybacks complement dividends paid to shareholders, other times they replace them. Either way, the returns to shareholders of capital or income support the broader concept of total returns which I used when reporting performance at the beginning of this statement. ## BORROWINGS An element of borrowings, sensibly managed, should enhance long-term returns to shareholders. For investment companies this requires the returns from the equity portfolio to exceed the cost of the debt. This year has marked a major change in the borrowing costs of the Company. The last of the Company's debentures, a £100m issue dating back to 1997 and costing 7.75% per annum, matured last September. The debt that has replaced it costs an average of 2.44%: an immediate interest saving of over £5m a year. You may ask how such an attractive rate of interest has been achieved, given the much higher interest rates that have become prevalent of late. The answer is that the Company contracted this interest rate with its lenders in September 2021, a year in advance of the debenture maturing. With hindsight, this proved extremely fortuitous timing. To reiterate an earlier point, the fall in government bond prices (and rise in their yields) has contributed to a reduction in the fair value of the outstanding loans. This does not affect the balance sheet presented later in this report, where loans are stated at par. But this does effect the level of reported gearing (and investment returns) for which our long-standing practice – and that of the Investment Trust sector generally – is to deduct loans at fair value. Gearing calculations on this basis are set out in full in the Glossary on page 84. Net gearing was 4.7% at the year end. THE EDINBURGH INVESTMENT TRUST PLC / OVERVIEW / 7 The Board monitors the level of gearing against various We will all miss Vicky’s hugely valuable insights and her conservative thresholds. The stated policy is that it should infectious enthusiasm, and we wish her all the very best with not exceed 25%. The current level of gearing is therefore her other corporate and charitable board responsibilities. significantly below this threshold. But, in the event of Aidan Lisser has kindly agreed to take on Vicky’s role as Senior unhelpful market moves that drive up the level of gearing, Independent Director after the conclusion of the Annual the portfolio is highly liquid. None of the NAV is attributed to General Meeting in July. unlisted, unquoted, or private investments, and we have no In February we welcomed Annabel Tagoe-Bannerman as plans to go down that route. a non-executive Director to the Board. She brings particular Overall, the borrowings have positively enhanced shareholder operational, legal and governance experience to the Board. returns in the last financial year – this is quantified in the table With Annabel’s appointment, it means that we are in the on page 15 – and we are optimistic that this should also apply fortunate position of having five directors going forward over the next three years and beyond. each bringing different skills and expertise to the boardroom discussions. These are in a range of relevant fields for your SHARE PRICE DISCOUNT TO NET ASSET VALUE Company, including equity portfolio management, marketing, The discount varied from a low of 12.0% to a high of 4.8%. accounting, risk management and regulation. We also have a It finished the year at 7.5%. We consider this an acceptable board that meets or exceeds all the recommended diversity performance as discounts across the investment trust guidelines. I thank all my fellow directors for their hard work on universe as a whole have generally widened. But we are behalf of shareholders over the last year. not complacent. We would like to see the discount narrow further as more investors are attracted to the Company as a ANNUAL GENERAL MEETING reliable long-term savings vehicle. The marketing initiatives This year’s Annual General Meeting will take place on I describe below are designed to help narrow the discount. Wednesday 19 July 2023 at 11.00am at the Balmoral Hotel in While the discount is at current levels, we will continue with Edinburgh. Please note the change of venue from last year. our policy of periodic share buy backs. Over the year we The whole Board and I look forward to meeting as many of have bought back 3% of the Company’s shares which we you as possible. For those unable to attend in person, the have retained in Treasury. These buybacks modestly enhance AGM will also be streamed online, with the ability to post net asset value for shareholders (see table on page 15) and questions live into the meeting. The link for electronic access we are continuing with our policy of actively buying back will be displayed prominently on the Company’s website and shares while the discount persists. A further 655,000 (0.33% it will not require a passcode. Please see page 77 for the of the issued share capital) of the Company’s shares have Notice of AGM for more information. been repurchased since the end of the financial year. There will also be a shareholder presentation and update in MARKETING central London on 27 September. All members of the Board, As mentioned earlier we have embarked on a range of new or the Manager and members of his team will attend. Further enhanced promotional activities. You may have seen our new details will be posted on the Company’s website from next website, press advertisements, or noticed our greater digital month. promotion through avenues such as Twitter and LinkedIn. OUTLOOK The clear intention here is to raise the profile of the Company As you will see from the Portfolio Manager’s report, there is and generate increased buying of shares, whether from new enthusiasm about the underlying prospects for the stocks in or existing shareholders. The Board is monitoring a series of the Company’s portfolio. Set against this is the ever-uncertain Key Performance Indicators to assess the effectiveness of economic outlook. The Manager’s approach of maintaining this promotional spend and would encourage you to sign up a diversified portfolio is therefore an important feature that on our website to receive monthly updates. should help protect shareholders’ capital over time. Meanwhile, BOARD AND GOVERNANCE many UK equity market constituents in the portfolio stand at At this year’s Annual General Meeting, Vicky Hastings will a valuation discount to their international peers. Over time, not be standing for re-election. The board has been very if these companies deliver the operational results that we fortunate to have had Vicky’s wise counsel and exceptional believe they can, it seems reasonable to expect this valuation attention to detail for ten years. The last twelve months differential to close. Combined with a dividend yield of 4.0%, were an extension to the normal nine years, in order to we believe this leaves the Company well positioned to deliver avoid having the Chair and the Senior Independent Director to shareholders attractive total returns. standing down at the same time last year. ELISABETH STHEEMAN / Chair / 26 May 2023 ## STRATEGIC REPORT THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 9 ## PORTFOLIO MANAGER’S REPORT FOR THE YEAR ENDED 31 MARCH 2023 ## As we review the twelve months to the end of March ## 2023 and consider what may be ahead for stock markets ## and economies, it is worth beginning with a reminder of ## how we manage your Company: | | • We manage the Company’s investments by | | contractor, a UK bank and a domestic energy | | --- | --- | --- | --- | | JAMES DE UPHAUGH | | constructing a portfolio of 40-50 stocks. | distribution company. Other contributions | | PORTFOLIO MANAGER | | While this is a relatively concentrated | came from food-on-the-go retailer Greggs, the | | | | portfolio by many standards, we also | international bank Standard Chartered and the | | | | manage it with the aim of ensuring an | mining technology group Weir. The portfolio | | | | adequate level of diversification across | had exposure to mining stocks and two of the | | | | industries and economic themes. | three biggest negatives were Anglo American | and Newmont. The third notable negative was • In order to meet the Company’s two from not holding BP for most of the period, as investment objectives, we manage the its share price recovered (we bought shares portfolio with a ‘total return’ approach, in BP towards the end of the period, as we with ESG factors considered throughout describe below). CHRIS FIELD the investment process. DEPUTY PORTFOLIO The discount of the shares to NAV narrowed MANAGER • Most holdings are UK-listed, and we have slightly, hence the modestly higher return in the flexibility to hold up to 20% in overseas the shares than in the NAV. stocks. TRANSACTIONS OVER THE LAST • Our aim is to construct a portfolio that has TWELVE MONTHS the potential to outperform the UK equity We have made fewer than average transactions index return over rolling three-year periods. over the year, with portfolio turnover of 21%. This means the holding period is equivalent to • We take the view that returns in excess just under five years on average. of the UK equity index should, over the long term, provide a satisfactory return for The biggest change to the portfolio was the savers when compared with other equity purchase of a holding in BP. The shares were strategies and asset classes. acquired following its latest results, in which the group increased its investment plans in high • An adequate degree of leverage, return energy transition growth engines such appropriately managed, should further as Bioenergy and EV Charging. In addition, it enhance long-term shareholder returns. also announced new investment plans in high- | TOTAL RETURNS OVER THE LAST | return upstream assets, which will help to meet | | --- | --- | | TWELVE MONTHS | the global requirement for greater energy | | Net Asset Value (NAV) per share rose 7.9%, | security post the war in Ukraine. Consequently, | | while the share price rose 8.4%. Both figures | the projected medium-term return on | | exceed the UK equity index return of 2.9%. As | investment should improve through to 2030. | | the Chair’s statement has described, the NAV’s | Capex on energy transition related projects | | outperformance of the index came primarily | will still represent 45% of mid-term capex. We | | through superior stock selection as well as | funded the purchase of BP with a sale of the | | through the revaluation of the Company’s | French energy group Total Energies, which is | | long-term debt. | more exposed to fluctuations in the LNG and | gas price. In terms of the main stock contributors, the top three were BAE Systems, NatWest Other significant purchases included and Centrica. These stocks encapsulate the GlaxoSmithKline and its de-merged consumer diversified nature of the portfolio, a defence goods unit, Haleon. Both stand at attractive 10 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC # PORTFOLIO MANAGER'S REPORT / CONTINUED valuations and should have the additional benefit of refocused management teams. Elsewhere, among the more stable growth stocks in the portfolio, we sold Diageo and Reckitt Benckiser: where we view their share prices as fully capturing their future prospects. More recently, we have added selectively to our holdings in UK cyclicals with strong market positions such as easyJet, Dunelm, Travis Perkins and Marks & Spencer. The UK economic pulse has been stronger than the consensus expected, with energy bills coming down from the highs of last summer. This takes some pressure off the consumer. These additions to the portfolio were funded by reductions of a number of the more internationally focussed companies such as KPN and Smith & Nephew. These changes leave the portfolio sensibly diversified, in our view. In addition to diversification by industry and sector, which is evident from the portfolio listing on pages 16 to 17, we also think about the broader drivers of future investment returns. Again, we believe there is suitable diversification that should provide sources of portfolio outperformance, whatever the economic development or condition. These drivers of returns, and the holdings that should benefit, include: - Supply chain resilience – Tesco, Compass and Intel; - Capitalising on data analytics technology – WPP, Dunelm & Weir; - The revenge of the incumbent – NatWest, Marks & Spencer and Centrica; - Businesses becoming stronger through corporate Darwinism – Whitbread, Serco, RS Group; - Profitability edge through cost curve positioning – Howdens, Mondi and Anglo American. # ESG CONSIDERATIONS We take careful account of the ESG considerations of any investment case. Taking account of such things are essential for good investment performance and we do not place any major restrictions on what we can invest in. For this reason, as we note above, stocks like BP and BAE Systems, which might not make it into other investors' portfolios, are acceptable to us. The acceptability comes with the important caveat that we have to be able to assure ourselves, to the best extent possible, that they are behaving responsibly and making positive change for the future. To illustrate the kind of interactions we undertake when assessing investments, the team engaged with Dunelm, the British home furnishings retailer, in April and February 2023 and in September 2022: - During the meeting in April 2023, the team engaged on the group's proposed remuneration policy ahead of Dunelm's 2023 AGM. The proposal included a new maximum opportunity for the CEO of 375% of salary (up from 325%) which the team felt was reasonable. - In a subsequent meeting, the group asked for our input on what we consider to be Dunelm's most material issues, such as the sourcing of their goods and relationship with suppliers. We also fed back that we appreciate the company's clear efforts to demonstrate connectivity between the group's strategy, material issues, and executive pay in its reporting. - At the meeting in February 2023, the team discussed the group's near-term earnings and strategy. Dunelm aims to develop product excellence across all price points and effective marketing. It has increased efforts to develop product mastery across more nascent categories where market shares are lower, with the ultimate goal of becoming the one-stop for home spend. The group is also introducing credit to facilitate more spend in bigger-ticket group sections, like Furniture, which is an area in the market that is growing substantially. - In September 2022, the team met with Dunelm to discuss how it is controlling costs. The group reported that it was seeing a high percentage of incremental UK homeware spend which could fuel EPS growth through 2023. This engagement work reinforces our view of Dunelm's business model resiliency. In turn this should support its ability to deliver dividend growth in excess of inflation over the long-term. This is the rationale for it being one of the larger positions in the portfolio. There are further examples of our ESG engagement with companies on pages 25 to 26. # BORROWINGS We were pleased to see the successful completion of the Company's long-term refinancing of its debt last September. The new debt, with an average interest coupon of 2.44% per annum, means a significantly reduced cost of borrowings, leading in practice to a future saving of over £5m per annum compared with the previous arrangements. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 11 We utilise this favourable financing by maintaining a fully invested portfolio. The nature of the borrowings, with an average maturity of 25 years, means that they are essentially permanent in nature. We therefore tend to manage the portfolio with the borrowings fully invested. When the portfolio's value rises, the gearing should enhance returns, and the converse also applies: when underlying returns are negative, the borrowings make the losses greater. With this in mind, we take a tactical view of the economic and market backdrop and can introduce a cash position to reduce this impact by lowering 'net' gearing. For example, we may allow the cash position to build up if we are struggling to find attractively priced investment opportunities and fear the market might be ripe for correction. However, shareholders should think of us as investing the vast majority of the borrowings under normal circumstances. Our gross gearing (borrowings) total would amount to 6.6% as at year end with an offsetting cash balance reducing the net gearing to 4.7%. # DIVIDENDS RECEIVED Actual revenue per share for the 12 months to 31 March 2023 was 26.0p. This compares with 22.4p in the previous year – a rise of 15.9%. Clearly this is a very satisfactory outcome. For context, top line portfolio income was £49.0m (+10.8% on 2022), which was split between ordinary dividends of £41.6m (+11.0%) and special dividends of £7.4m (+10.0%). The reason for the revenue per share rise of 15.9% exceeding underlying income growth of 10.8% is that revenues are calculated after deducting costs including debt interest. The new borrowing arrangements, as noted above, have resulted in a significant fall in interest expense. Looking ahead, we forecast more modest revenue per share growth. Some of this is in part due to a mix effect in the portfolio, with the sale of some higher yielding stocks including Total Energies and Direct Line. Dividend generation nonetheless is robust across the portfolio. Furthermore, the ordinary and special dividends being received understate the shareholder distributions made by investee companies which also include share buybacks. These remain significant: there are ongoing share buybacks by BP, Shell, Unilever and NatWest, plus from many other portfolio holdings. Overall, c40% of portfolio holdings have declared some form of ongoing share buyback. This is supportive of the 'total return' ethos that should underpin returns to the Company's shareholders – whether income or capital growth – in the years ahead. The Directors' decision to recommend total dividends for the year of 26.2p mean that dividends are almost entirely covered by revenues for the year: a welcome position to be in. # THREE-YEAR REFLECTIONS It is now just over three years since we became the Manager of your Company. We took over in the midst of the market sell-off in March 2020, as the full implications of the COVID-19 pandemic began to dawn. Since then, our investment approach has helped us deal with an at times rapidly changing economic and market backdrop. The roll-out of COVID-19 vaccines, the "mini-budget" crisis, rising interest rates, a falling sterling currency and the tech sector sell-off have all had to be navigated. A key advantage throughout this period has been the diversified portfolio. As it turns out, we became stewards of your portfolio towards the lowest levels of the market. Absolute returns have been strong since then. The end result is, as the Chair has already noted, a cumulative total return of the Company's Net Asset Value (NAV) per share of 65.9%. The share price, thanks to a narrowing of its discount to NAV, has risen 75.5%. These returns compare with a FTSE All-Share Index return of 47.4%. In keeping with the stock-driven investment approach, when we analyse the key drivers of returns over the period, we look at the key stock contributors. For the last three years, the big winners also reflect the flexible investment style we take. To illustrate, the top five stock contributors to the outperformance were Ashtead (industrial equipment hire), NatWest (banking), BAE Systems (defence), Centrica (gas utility) and Anglo American (mining). Hence clearly a bias towards a mix of cyclical companies – benefitting from the recovery in the economy over the period compared with expectations at the depths of the pandemic. Inevitably there have been some less successful decisions along the way. Interestingly, the biggest factor was having little or no exposure to two large commodity groups – BP and Glencore. An important part of the portfolio construction (and risk oversight) process is managing these larger risks. A (very) small number of holdings disappointed in their results, but in each case the holding size had been calibrated to take account of the greater downside risk. In terms of the income generated over the last three years, revenue per share has been disappointing for shareholders, moving from 27.8p in 2020 to 26.0p in the last financial year. The portfolio was overly dependent on unsustainable dividend income prior to March 2020. We believe it is on a more sustainable and progressive footing now. Our view is that underlying fundamentals of the portfolio's holdings ultimately drive the Company's total returns. We therefore prefer to hold stocks for sufficient time to allow those fundamentals to come through. We have long held the 12 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC PORTFOLIO MANAGER’S REPORT / CONTINUED view that this means a three-year period, and this does in Therefore, a balanced, diversified portfolio is as important fact coincide with the average holding period since we were as ever. In market terms, we may have entered a new and appointed in 2020. different investing environment from that which has prevailed since the financial crisis of 2008. For much of the period Overall, we believe the last three years demonstrate the merits since then, it often seemed that an investment style that of a flexible, long-term total return investment approach. focused on buying and holding growth stocks – sometimes with little regard to valuation or how durable the growth OUTLOOK would be – was all that was required. Now, we have a return While we are cautious about the outlook for equity markets to an investment environment in which an understanding in general, the better recent returns from UK equities strike of company fundamentals matters, as does an appreciation us as being the early stages of a recovery in the market. This of how the valuation paid for a stock ultimately determines recovery is rooted in the undervaluation of UK equities that investment returns. has built up over time for a variety of well-rehearsed reasons such as Brexit and final-salary pension funds reducing equity exposures. Just as these headwinds appear to be waning, we remain optimistic about the specific prospects for the Company’s holdings. JAMES DE UPHAUGH We are cautious about markets because inflation remains a PORTFOLIO MANAGER challenge. It will naturally come down to a degree, helped by CHRIS FIELD some inputs such as gas prices being markedly lower than DEPUTY PORTFOLIO MANAGER a year ago. But consumer expectations have ratcheted up. Economic history tells us that it is much harder to squeeze 26 MAY 2023 inflation back into the bottle, once the inflation genie is out. At the market level, this economic slowdown is likely to be different from those we have experienced since the turn of the millennium. They may be more reminiscent of those of the 1980s and 1990s: more typical slowdowns when inflation has been too high and interest rates have been raised to choke it off. At the same time, bank lending criteria are likely to tighten in the US because of the recent set of banking failures and near failures in the US and Switzerland, which could present downside risk to economic growth. On a more positive note, at the corporate level, the current elevated rate of inflation means nominal revenue growth should be tolerable even if real GDP falters. Another help is that China has ‘reopened’. Overall, 2023 could see lower inflation, peaking interest rates and perhaps a slightly better tenor from the consumer. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 13 ## PORTFOLIO MANAGER’S CORE ## INVESTMENT BELIEFS Our competitive edge rests on the combination of our Global TOTAL RETURN STRATEGY Fundamental team’s structure within Liontrust and our flexible A focus on both capital growth and income. We take a total investment style. Liontrust provides a stable environment in return approach: investor returns should derive over the long which our Portfolio Manager operates, and our investment term from both capital appreciation and dividend income. We approach produces portfolios that aim to deliver long-term often prefer companies with organic investment opportunities: outperformance on a repeatable basis. as such, we normally expect companies with growing profits – and share prices – to contribute to returns. We view income ACTIVE MANAGEMENT as an important component rather than the primary driver Stock-driven. Share prices follow fundamentals over the long of investment return. This aligns with the Company’s twin term. Through our proven investment approach, we expect to objectives. outperform over the long term, net of fees. LONG TERM High conviction portfolio. We expect the portfolio to contain Typical holding period of 3-5 years. This is an appropriate around 40 to 50 stocks. Holdings sizes reflect the conviction period to ensure that underlying corporate fundamentals we have in each company and our assessment of the upside drive investment returns. It is therefore also a sensible period and downside potential of its share price. over which to measure an active manager. Risk. We think of risk as permanent capital loss. To mitigate Gearing should enhance shareholder returns. One of the this, our analysis of a company’s valuation is the first line of advantages of an investment trust is the ability to borrow to defence. Our risk management process combines our depth of enhance equity returns. We therefore expect gearing to boost knowledge of the stocks in the portfolio, plus separate oversight investment returns over time. by Liontrust’s Portfolio Risk Committee. CAPACITY MANAGEMENT FLEXIBLE INVESTMENT STYLE Scale diseconomies. In our view, investment performance can Open-minded approach. We do not have dogmatic style rapidly suffer if assets under management become too large. biases, such as ‘growth’ or ‘value’. We are also prepared to invest We carefully manage capacity to ensure that the interests in companies that we identify as having scope for recovery of existing clients take precedence over new clients. The through management change, business transformation or an approach ensures we retain a size advantage. It enables us to improving business environment. We expect the profile of the reposition the portfolio – and those of all our other clients – portfolio to evolve depending on our assessment of individual quickly and efficiently when required. companies and our reading of the economic and market background. DEEP INVESTMENT RESOURCE WITH GLOBAL PERSPECTIVE Disciplined, rigorous, fundamental research. In keeping A close-knit investment team. Average experience for with the stock-driven nature of the portfolio, approximately each member of the team is 15 years. The team has been three quarters of our effort takes the form of in-depth stock stress-tested across various market cycles. research. The remainder is spent on macroeconomic and geopolitical analysis. Challenge and debate. This is encouraged within a structured risk control environment, with robust oversight processes. Full Environmental, Social and Governance (‘ESG’) integration. Team members own Liontrust equity and co-invest in ESG-related considerations have financial implications for the the team’s investment strategies, which in turn underpins portfolio’s holdings. We prioritise and engage our holdings on teamwork and collaboration. 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. 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 Apex Listed Companies Services (UK) Limited, (formerly Sanne Fund Services (UK) Limited) to act as Company Secretary. ## INVESTMENT OBJECTIVE AND POLICY 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 ### 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 660.0p per ordinary share (2022: 634.00p). The net asset value (debt at fair value) per ordinary share was 713.73p (2022: 686.69p). The Directors declared a third interim dividend for the year ended 31 March 2023 of 6.70 pence per ordinary share (2022: 6.40 pence), an increase of 4.7% compared with each of the first two interim dividends. This dividend is payable on 26 May 2023 to ordinary shareholders on the register on 5 May 2023. The shares were quoted ex-divided on 4 May 2023. The Board is recommending a final dividend of 6.70p per share which is the same as the third interim dividend declared last month, implying a full year payout of 26.20 pence per share. This represents an increase of 5.6% compared with the total underlying ordinary dividends paid for the financial year to 31 March 2022. ## 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 Chair'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 EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 15 The ongoing charges figure is calculated in accordance with Performance Attribution – analyses the performance of the AIC methodology and is reviewed by the Board annually the Company relative to its benchmark index. The Analysis in comparison to peers. of Relative Performance estimate the quantum of relative performance that is attributable to each of the factors set The Board also regularly reviews the performance of the out in this table. The table is intended to be indicative rather Company in relation to the 23 investment trusts in the UK than precise; the accuracy of each estimate is determined Equity Income sector (including the Company). As at 31 March by a variety of factors such as the volatility of investment 2023 the Company was ranked 2nd by NAV performance in returns over the year and intra-month, and the timing of this sector over one year, 5th over three years and 10th over income receipts and expenditure payments. five years (source: Morningstar). Relative performance – represents the arithmetic difference OUTLOOK, INCLUDING THE FUTURE OF THE between the NAV and benchmark returns. COMPANY The main trends and factors likely to affect the future Portfolio total return – represents the return of the holdings development, performance and position of the Company’s in the portfolio including transaction costs, cash and income business can be found in the Portfolio Manager’s Report. received, but excluding expenses incurred by the Company. Details of the principal risks affecting the Company can be found on pages 18 to 21. Net gearing effect – measures the impact of the unsecured senior loan notes and cash on the Company’s relative FINANCIAL POSITION AND BORROWINGS performance. This will be positive if the portfolio has positive The Company’s balance sheet on page 58 shows the assets capital performance, total return is positive and negative if and liabilities at the year end. Borrowings at the year end capital performance total return is negative. comprised of £120 million of Unsecured Senior Loan Notes (2022: £20 million and £100m Debenture). Interest – the debenture stock, unsecured senior loan notes and bank facility interest paid has a negative impact on PERFORMANCE ATTRIBUTION for year performance. ended 31 March 2023 Market value movement – represents the change in market % value of the Company’s borrowings, measured to the end of (1) the financial year or maturity from the start of the financial Total Return Basis year or issuance, each as appropriate. NAV (debt at fair value) 7.9 Benchmark 2.9 Management fee – the base fee reduces the Company’s net Relative performance 5.0 assets and decreases returns. Analysis of Relative Performance Other expenses and tax – reduce the level of assets and Portfolio total return 4.5 therefore result in a negative effect on relative performance. (1) Benchmark total return 2.9 Share buybacks – measures the effect of ordinary shares Portfolio outperformance [A] 1.6 bought back at a discount to net asset value on the Borrowings: Company’s relative performance. | Net gearing effect | 0.4 | | --- | --- | | Interest | (0.5) | | Market value movement | 3.8 | Management fee (0.4) Other expenses (0.1) Tax (0.1) Share buybacks 0.3 Subtotal [B] 3.4 Relative performance [A+B] 5.0 (1) Source: Refinitiv. 16 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC # INVESTMENTS IN ORDER OF VALUATION AT 31 MARCH 2023 ## UK LISTED ORDINARY SHARES UNLESS OTHERWISE STATED | Company | Sector | Value £'000 | % of Portfolio | | --- | --- | --- | --- | | Shell | Oil, Gas and Coal | 89,645 | 7.3 | | BAE Systems | Aerospace and Defence | 69,124 | 5.6 | | Unilever | Personal Care, Drug and Grocery Stores | 62,430 | 5.1 | | Tesco | Personal Care, Drug and Grocery Stores | 61,692 | 5.0 | | NatWest | Banks | 56,746 | 4.6 | | AstraZeneca | Pharmaceuticals and Biotechnology | 54,874 | 4.5 | | Centrica | Gas, Water and Multi-Utilities | 47,470 | 3.9 | | Ashtead | Industrial Transportation | 43,275 | 3.5 | | Anglo American | Industrial Metals and Mining | 41,372 | 3.4 | | HSBC | Banks | 39,037 | 3.2 | | **TEN TOP HOLDINGS** | | **565,665** | **46.1** | | Weir | Industrial Engineering | 37,609 | 3.1 | | RS Group | Industrial Support Services | 33,579 | 2.7 | | Dunelm | Retailers | 32,802 | 2.7 | | WPP | Media | 32,583 | 2.7 | | Standard Chartered | Banks | 31,345 | 2.5 | | Hays | Industrial Support Services | 28,750 | 2.3 | | Compass | Consumer Services | 27,658 | 2.3 | | GlaxoSmithKline | Pharmaceuticals and Biotechnology | 26,696 | 2.2 | | Novartis - Swiss Listed | Pharmaceuticals and Biotechnology | 24,125 | 2.0 | | Greggs | Personal Care, Drug and Grocery Stores | 23,961 | 1.9 | | **TWENTY TOP HOLDINGS** | | **864,773** | **70.5** | | Serco | Industrial Support Services | 22,259 | 1.8 | | Haleon | Pharmaceuticals and Biotechnology | 22,175 | 1.8 | | Marks & Spencer | Retailers | 22,107 | 1.8 | | Convatec | Medical Equipment and Services | 20,939 | 1.7 | | Mondi | General Industrials | 20,069 | 1.6 | | Admiral | Non-Life Insurance | 19,666 | 1.6 | | BP | Oil, Gas and Coal | 19,309 | 1.6 | | Whitbread | Travel and Leisure | 17,881 | 1.5 | | Smith & Nephew | Medical Equipment and Services | 17,222 | 1.4 | | easyJet | Travel and Leisure | 16,689 | 1.4 | | **THIRTY TOP HOLDINGS** | | **1,063,089** | **86.7** | | Newmont - US Listed | Precious Metals and Mining | 15,951 | 1.3 | | KPN - Dutch Listed | Telecommunications Service Providers | 15,653 | 1.3 | | Thales - French Listed | Aerospace and Defence | 15,644 | 1.3 | | CSH Industrial | Industrial Engineering | 13,780 | 1.1 | | Bellway | Household Goods and Home Construction | 12,638 | 1.0 | | Ascential | Software and Computer Services | 12,627 | 1.0 | | Travis Perkins | Industrial Support Services | 11,863 | 1.0 | | Redrow | Household Goods and Home Construction | 11,712 | 0.9 | | Howden Joinery | Retailers | 9,828 | 0.8 | | QinetiQ | Aerospace and Defence | 8,618 | 0.7 | | **FORTY TOP HOLDINGS** | | **1,191,403** | **97.1** | | Roche - Swiss Listed | Pharmaceuticals and Biotechnology | 8,424 | 0.7 | | Genuit | Construction and Materials | 6,812 | 0.6 | | Intel - US Listed | Technology Hardware and Equipment | 6,405 | 0.5 | | Marshalls | Construction and Materials | 6,014 | 0.5 | | Siemens - German Listed | General Industrials | 3,884 | 0.3 | | Publicis - French Listed | Media | 3,707 | 0.3 | | Raven Property(S) - Preference shares | Real Estate Investment Services | – | – | | Eurovestech(UQ) | Investment Banking and Brokerage Services | – | – | | **TOTAL HOLDINGS 46 (2022: 50)** | | **1,226,649** | **100.0** | S - Delisted UQ - Unquoted investment THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 17 ## PORTFOLIO ANALYSIS Analysis of Portfolio by Industry At 31 March 2023 and 2022 30% 2023 2022 25% 20% 15% 10% 5% 0% Technology Tele- Health Financials Utilities Consumer Consumer IndustrialsBasic Energy communications Care Discretionary Staples Materials Comparison of Portfolio to FTSE All-Share Index by Industry At 31 March 2023 30% Portfolio FTSE All-Share Index 25% 20% 15% 10% 5% 0% Technology Tele- Health Financials Real Consumer Consumer Industrials Basic Energy Utilities communications Care Estate Discretionary Staples Materials 18 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC ## PRINCIPAL RISKS AND ## UNCERTAINTIES RISK MANAGEMENT AND MITIGATION MARKET RISK The Manager (AIFM) is responsible for the portfolio A great majority of the Company’s investments are traded on management of the Company and for exercising the risk recognised stock exchanges. The principal risk for investors management function in respect of the Company. As part of in the Company is a significant fall and/or a prolonged period this risk management function, the AIFM maintains a register of decline in those markets. The Company’s investments of identified risks including emerging risks likely to impact and the income derived from them are influenced by many the Company. This is updated regularly, following discussions factors such as general economic conditions, interest rates, with the Manager and highlighted to the Board. inflation, a recurrence of a pandemic, geopolitical events, the war in Ukraine and government policies as well as by supply The Board, through the Audit Committee and with the and demand reflecting investor sentiment. Such factors are assistance of the Manager, regularly reviews a report of outside the control of the Board and Manager and may give potential risks to the Company in the form of a risk control rise to high levels of volatility in the prices of investments held summary. The document includes a description of each by the Company. The asset value and price of the Company’s identified risk, the mitigating action taken, reporting and shares and its earnings and dividends may consequently also disclosure to the Board and an impact and probability risk experience volatility and may decline. rating. The rating is given both prior to and after the Board’s mitigation of each risk. The information is then displayed in Fluctuations in interest rates and exchange rates could matrix form which allows the Board to identify the Company’s reduce returns and lead to depreciation of the Company’s key risks. As the changing risk environment in which the net asset value. Company operates has evolved, the total number of risks has Market risk is included in the risk control summary report that fluctuated, with certain risks having been removed and new is prepared by the Manager and reviewed by the Board at risks added with emerging risks actively discussed as part of each meeting. Additionally, the Board receives reports on the this process and, so far as practicable, mitigated. performance of the portfolio at each meeting. The portfolio is The composition of the Board is regularly reviewed to ensure positioned by the Manager for medium to long-term returns. its members offer sufficient knowledge and experience to INVESTMENT PERFORMANCE RISK assess, anticipate and mitigate these risks, as far as possible. The Board sets investment policy and risk guidelines, together The Company’s key long-term investment objectives are with investment limits, and monitors adherence to these at an increase in the net asset value per share in excess of the each Board meeting. All individual investment decisions are growth in the FTSE All-Share Index (the ‘benchmark’) and delegated to the Portfolio Manager. The Portfolio Manager’s an increase in dividends in excess of the annual rate of UK approach is to construct a portfolio which should benefit inflation. The principal risks and uncertainties facing the from expected future trends in the UK and global economies. Company are an integral consideration when assessing the The Portfolio Manager is a long-term investor, prepared to operations in place to meet these objectives, including the take substantial positions in securities and sectors across a performance of the portfolio, share price and dividends. The range of different types of stock. This reflects the Portfolio Board is ultimately responsible for the risk control systems Manager’s high conviction, stock-driven investment process but the day-to-day operation and monitoring are delegated to and total return approach. Strategy, asset allocation and the Manager. The Board has carried out a robust assessment stock selection decisions by the Portfolio Manager can of the principal and emerging risks facing the Company, lead to underperformance of the portfolio relative to the including those that would threaten its business model, benchmark and/or income targets. future performance, solvency or liquidity. The following sets The Portfolio Manager’s style may result in a concentrated out a description of the principal and emerging risks and how portfolio with significant overweight or underweight they are being managed or mitigated. 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 THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 19 stocks under certain scenarios and market conditions. the Board considers the level of income at each meeting. However, the Board and Portfolio Manager believe that the Revenue estimates are presented at each Board meeting and investment process and policy outlined above should, over Board committee meeting which determine the three interim the long term, meet the Company’s objectives of Net Asset dividends and propose the final dividend. Value per share growth in excess of the benchmark and real The Board also takes into account the size of the Company’s dividend per share growth. Investment selection is delegated accumulated income and capital reserves which can be used to the Portfolio Manager. The Board does not specify asset to supplement dividends for a period where income levels allocations. Information on the Company’s performance alone do not cover the proposed dividend payments. against the benchmark and peer group is provided to the Board at each Board meeting. The Board uses this to review SHARE PRICE RISK the performance of the Company, taking into account how There is a risk that the Company’s prospects and NAV may performance relates to the Company’s objectives. The not be fully reflected in the share price from time-to-time Portfolio Manager is responsible for monitoring the portfolio and that the Company’s objectives are no longer meeting selected and seeks to ensure that individual stocks meet an investors’ expectations. acceptable risk-reward profile. The share price is monitored on a daily basis and, at the As described in the investment policy, derivatives may be request of the Board, the Company is empowered to used provided that the market exposure arising is less than repurchase shares within agreed parameters which are 25% of the value of the portfolio. regularly reviewed with the Company’s broker. The discount at which the shares trade to NAV can be influenced by share Investment Performance risk is included in the risk control repurchases. During the year, the Company repurchased summary report that is prepared by the Manager and 5,601,604shares for holding in treasury (2022: 1,104,800). reviewed by the Board at each meeting. The Board also receives reports on the performance of the portfolio and on Risk management activity includes systematic reviews of the compliance with the Company’s investment policy guidelines investment objective and investment strategy and regular from the Manager at each meeting. As part of the annual dialogue with major shareholders and marketing activities. assessment, the Board reviews the performance of the Share price risk is included in the risk control summary Manager and the management contract at the Management report that is prepared by the Manager and reviewed by Engagement Committee meeting. the Board at each meeting. In addition, the Board monitors The Board also reviews the annual depository report and the Company’s investment performance against its stated report from the compliance department of the Manager and objectives and peer group and reviews the marketing report any breaches of the investment policy, limits or guidelines at every Board meeting. are reported immediately to the Board and Audit Committee CORPORATE GOVERNANCE AND INTERNAL Chairs. CONTROLS RISK Investment risk is increased through the Company’s The Board has delegated to third-party service providers borrowing, namely the £120m Unsecured Senior Loan Notes. the management of the investment portfolio, depositary This facilitates additional investment exposure than would be and custody services (which include the safeguarding of the case for an unleveraged portfolio; if the investments fall in the assets), registration services, accounting and company value, this will increase the adverse impact on performance. secretarial services. On a routine basis the Board monitors the appropriateness The principal risks arising from the above contracts relate of gross and net gearing levels, and the amount of headroom to the performance of the Manager, the performance of above minimum NAV levels as agreed with the lenders. administrative, registration, depositary, custodial and banking INCOME/DIVIDEND RISK services, and the failure of information technology systems The Company is subject to the risk that income generation used by third-party service providers. These risk areas could from its investments fails to reach the level of income lead to the loss or impairment of the Company’s assets, required to meet its objectives. inadequate returns to shareholders and loss of investment trust status. Consequently, in respect of these activities the The Board monitors this risk through the review of detailed Company is dependent on the Manager’s control systems income and dividend forecasts and comparison against and those of its administrator, depositary, custodian and budget. These are contained within the Board papers and registrar. 20 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC PRINCIPAL RISKS AND UNCERTAINTIES / CONTINUED An annual review of the control environments of all service – The day-to-day management of the portfolio is the providers is carried out by the Company Secretary who responsibility of the named Portfolio Manager, James provides an assessment of these risks and the operation of de Uphaugh, Head of the Liontrust Global Fundamental the controls for consideration by the Audit Committee and is team. James joined Liontrust in April 2022 as part of the formally reported to and considered by the Board. acquisition of Majedie Asset Management Limited where he was Chief Investment Officer. He is a Fund Manager Investment trust status is assessed by the Manager, reviewed and Analyst with 34 years’ investment experience in UK at every Board meeting and confirmed by the Audit and international equity markets. James is responsible Committee and HMRC annually. Taxation matters are dealt for co-managing the UK Equity Fund of Liontrust and with by independent accountants. managing The Edinburgh Investment Trust plc. RELIANCE ON THE MANAGER AND OTHER – The risk that the Portfolio Manager might be incapacitated THIRD-PARTY PROVIDERS RISK or otherwise unavailable is mitigated by the fact that he The Company is reliant upon the performance of third-party works within, and is supported by, the wider Liontrust service providers for its executive function and other service team. Moreover, Chris Field, as Deputy Portfolio Manager, provisions. The Company’s most significant contract is with would be able to manage the portfolio if James de the Manager, to whom responsibility for the management Uphaugh was unable to do so for any reason. of the Company’s portfolio is delegated. The Company has other contractual arrangements with third parties to act as – The Board has set guidelines within which the Portfolio administrator, company secretary, registrar, depositary and Manager is permitted wide discretion. Any proposed broker. The Company’s operational structure means that all variation outside these guidelines is referred to the Board cyber risk (information and physical security) arises at its and compliance with the guidelines and the guidelines third-party service providers, including fraud, sabotage or themselves are reviewed at every Board meeting. crime against the Company. Failure by any service provider PHYSICAL AND TRANSITIONAL CLIMATE CHANGE to carry out its obligations to the Company in accordance Globally, climate change effects are already emerging in the with the terms of its appointment could have a materially form of changing weather patterns. Extreme weather events detrimental impact on the operation of the Company and could potentially impair the operations of individual investee could affect the ability of the Company to pursue successfully companies, potential investee companies, their supply its investment policy and expose the Company to risk of loss chains and their customers. Legislative changes are driving or to reputational risk. an economic adjustment towards a low-carbon economy. In particular, the Manager performs services which are There are considerable risks to the value, business model and integral to the operation of the Company. The Manager may operations of investee and potential investee companies due be exposed to the risk that litigation, misconduct, operational to stranded assets and how investors, financial regulators failures, negative publicity and press speculation, whether or and policymakers respond to climate concerns. The Portfolio not it is valid, will harm its reputation. Any damage to the Manager takes such risks into account, along with the downside reputation of the Manager could result in counterparties and risk to any company – whether in the form of its business third parties being unwilling to deal with the Manager and by prospects, market valuation or sustainability of dividends – extension the Company. This could have an adverse impact that is perceived to be making a detrimental contribution to on the ability of the Company to pursue its investment policy. climate change. Further details on the Portfolio Manager’s process for considering climate risk relating to each portfolio The Board seeks to manage these risks in a number of ways: holding are supplied in the s.172 statement on page 23. The – The Company Secretary reviews the performance and Company invests in a broad portfolio of businesses with the service organisation control reports of third-party operations spread geographically, which should limit the service providers and reports to the Board on an annual impact of location-specific weather events. basis at the Audit Committee meeting. Climate change related risks are regularly monitored by the – The Board reviews the performance of the Manager at Manager and reviewed by the Board at every meeting as every Board meeting and otherwise as appropriate. The required, together with any new guidance. Board has the power to replace the Manager and reviews the management contract formally once a year. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 21 OTHER RISKS EMERGING RISKS The Board has put in place robust procedures to assist with The Company is subject to laws and regulations by virtue of identifying emerging risks that arise from existing risks or its status as an investment trust and is required to comply from new situations. The Board is kept informed through its with certain regulatory requirements that are applicable to advisors and Manager regarding any political, economic, legal listed closed-ended investment companies. The Company or regulatory changes that it is anticipated may significantly is subject to the continuing obligations imposed by the UK affect the Company. Listing Authority on all companies whose shares are listed on the Official List. For example, there are currently a growing number of risks as a result of emerging geopolitical factors that may translate The Manager reviews compliance with investment trust tax into greater stock market risk, as well as heightened macro- conditions and other financial and regulatory requirements economic changes in inflation, interest rates and energy costs, on a daily basis with any issues being immediately brought the ever-evolving global regulatory and trade environments to the attention of the Board. and a risk of re-emergence of a global pandemic. Geopolitical The Company may be exposed to other business, strategic factors include the war in Ukraine, Scottish independence and and political risks in the future, as well as regulatory risks global supply chain issues. Whilst these risks currently exist, (such as an adverse change in the tax treatment of investment their extent and long-term impact are yet to emerge but they companies), credit, liquidity and concentration risks. are regularly assessed by the Manager and the Board. The risk control summary report allows the Board to consider 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 Chair and the Audit Committee Chair if needed during the year. Please see note 16 on page 70 to read more about risk management and financial instruments. 22 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC ## VIABILITY STATEMENT The Directors’ view of the Company’s viability has not In taking account of these factors and on reviews conducted changed since last year. The Company, as an investment trust, as part of the detailed internal controls and risk management is a collective investment vehicle rather than a commercial processes set out on page 40, the Directors have undertaken business venture and is designed and managed for long-term a reverse stress test seeking to identify the financial investment. The Company’s investment objective clearly sets circumstances that might result in the Company becoming this out. ‘Long-term’ for this purpose is considered by the unviable. This concluded that the viability of the Company Directors to be at least five years, a timeframe in which the may start to be challenged if the value of Total Shareholders accuracy of estimates and assumptions is deemed to be Funds were to fall permanently by approximately 80% from reasonable. The Company’s viability has thus been assessed the level at the year end, a fall that the Board considers to over that period. Five years is considered a reasonable time be near implausible having noted that since the inception of frame for a forecast, however, the life of the Company is not the Company’s All-Share Index Total Return benchmark in intended to be limited to that or any other period. December 1985, the largest fall over any calendar year has been 29.9%, the largest fall over any rolling five year period There are no current plans to amend the investment strategy, was 28.8% and the largest fall over any period was 42.9% (all which has delivered long-term good investment performance based on benchmark calendar month end values). above or in line with benchmark for shareholders and, the Directors believe, should continue to do so. The investment Based on the above, and assuming there is no adverse strategy and its associated risks are kept under constant change to the regulatory environment and tax treatment of review by the board. UK investment trusts to the extent that would challenge the viability of the UK investment trust industry as a whole, the In assessing the viability of the Company under various Directors have a reasonable expectation that the Company scenarios, the Directors undertook a robust assessment will be able to continue in operation and meet its liabilities as of the risks to which it is exposed (including the issues they fall due over the five year period of assessment. arising from the COVID-19 pandemic, Russia’s invasion of Ukraine and climate change), as set out on page 18 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41; 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. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 23 ## SECTION 172 STATEMENT, COMPANY ## SUSTAINABILITY AND STAKEHOLDERS BOARD RESPONSIBILITIES SECTION 172 STATEMENT The responsibilities of the Board include setting the Company’s During the year under review, the Board believes that it has strategic aims, providing the leadership to put them into acted in good faith and discharged its duties under Section effect, supervising the Manager and reporting to shareholders 172 of the Companies Act 2006 to promote the success of on their stewardship. The Board is ultimately responsible the Company for the benefit of its members as a whole and for the direction, management, performance and long-term having regard to the interest of stakeholders and the factors sustainable success of the Company. set out in s172. The Board performed its role as outlined in the schedule of matters reserved for the Board and taking The Board sets the Company’s strategy and objectives, taking into account the interest of the key stakeholders during the into account the interests of all its stakeholders. However, the decision-making process. Company has no employees and no customers in the traditional sense. Consistent with the Company’s nature as an investment The following sections include examples of how the trust, the Board’s principal concern has been, and continues to Company’s stakeholders were considered during the key be, the interests of the Company’s shareholders taken as a whole. Board decisions. Key Board decisions include payment of dividends, liquidity management via share issuance and buy- COMPANY SUSTAINABILITY AND STAKEHOLDERS backs, marketing, performance evaluation, negotiation on A good understanding of the Company’s stakeholders enables debt and re-appointment of the Investment Manager and the Board to consider the potential impact of strategic decisions other key service providers, ESG integration into investment on each stakeholder group during the decision-making decisions and Board succession planning. Please see the process. By considering the Company’s purpose, vision and table below for a reference to where this information can be values, together with its strategic priorities, the Board aims for found: its decisions to be fair and take account of the interests of the key stakeholder groups. 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. Section 172 statement area Reference The likely consequences of any See Chair’s Statement on page 5, The Portfolio Manager’s Report, Core Investment decision in the long-term Beliefs and Business Review on pages 9 to 15, Going Concern and Viability Statements on pages 41 and 22 and Stakeholder Engagement section below. The interests of the Company’s As a closed-ended investment company, the Company has no employees. Stewardship employees section on page 25 refers to how the Company assesses its impact on the social issues. The need to foster the As a closed-ended investment company, the Company has no customers in the Company’s business relationships traditional sense. See Stakeholder Engagement section below Principal Risks and with suppliers, customers and Uncertainties on page 18 and Stewardship section on page 25 on how the Company others assesses its impact on and engages with its key stakeholders. The impact of the Company’s See Principal Risks and Uncertainties on page 18, Stewardship section on page 25 operations on the community and ESG matters disclosure below on how the Company assesses its impact on the | and environment | community and environment of its investee companies. | | --- | --- | | The desirability of the Company | See Stakeholder Engagement section on page 24, Anti-Bribery and Corruption and | | maintaining a reputation for high | Modern Slavery disclosures on pages 26-27. | standards of business conduct The need to act fairly as between See Stakeholder Engagement section on page 24 and Corporate Governance Report members of the Company on pages 29 to 44. 24 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC SECTION 172 STATEMENT, COMPANY SUSTAINABILITY AND STAKEHOLDERS / CONTINUED ENGAGEMENT WITH SHAREHOLDERS There is a clear channel of communication between the Shareholder relations are given high priority by both the Board Board and the Company’s Shareholders via the Company and the Manager and the Board welcomes feedback from Secretary. The Company Secretary passes to the Chair all shareholders throughout the year. The prime medium by which correspondence addressed to the Board of the Company. the Company communicates with shareholders is through the The strategy of the Company is reviewed by the Board on half-yearly and annual financial reports, which aim to provide an annual basis. At the strategy day in September 2022 shareholders with a full understanding of the Company’s the Board discussed discount management, marketing and activities and results. This information is supplemented by the board recruitment. Whilst feedback from shareholders is daily publication of the net asset value, monthly factsheets as sought regularly, shareholders’ feedback provided by the well as dividend and other announcements. Company’s Broker and Manager is a major consideration at this meeting. Feedback from shareholders forms part of the discussion at all Board meetings and at the Board’s annual strategy ENGAGEMENT WITH THE MANAGER meeting which involves consideration of how the Company The Board has regular dialogue with and reports from is meeting shareholder expectations. the Manager on the portfolio of investments, including performance against set objectives and risk management Shareholders can also visit the Company’s website and the Manager attends each Board meeting to provide www.edinburgh-investment-trust.co.uk in order to access updates and answer questions from the Board. The Board has copies of the annual and half-yearly financial reports, also discussed the AIFM’s responsibility under the Consumer pre-investment information, Key Information Documents Duty Act with the Manager and received comfort as to how (KIDs), proxy voting results, factsheets and stock exchange those responsibilities will be met. announcements. The Company’s website also hosts videos and other applicable written materials by the Manager to ENGAGEMENT WITH SERVICE PROVIDERS enhance the information available. Shareholders can send As an externally managed investment trust, the Company their questions using a dedicated section of the Company’s conducts all its business through its key service providers. website. The Board believes that maintaining a collaborative relationship with each of the Company’s service providers Typically, at each AGM, a presentation is made by the Is essential to the Board’s decision-making and the ongoing Manager following the formal business of the meeting and success of the Company. At least annually the Board reviews shareholders have the opportunity to attend, vote and most the performance and services of its key service providers importantly to communicate directly with the Manager and including the Manager and receives and considers the Board. Presentations to both institutional shareholders and internal control reports on a quarterly basis covering their analysts also follow the publication of the annual results. operations, policies and control environments. The Company held a physical AGM with virtual attendance on 21 July 2022 which allowed shareholders to join via a The Board reviews the quarterly reports of the service live weblink and to submit questions during the meeting. providers and whether the services meet the requirements In addition to the AGM and presentations, the Board of the Company, represent value for money and are therefore and Manager hosted a shareholder event in London on in the best interests of shareholders. We expect to conduct 22September 2022. The Chair uses these events to lead the ourselves fairly with all service providers, to maintain a Company’s engagement with its shareholders. Please see reputation as a trusted, fair and reliable partner. The Board page 77 for the notice of 2023 Annual General Meeting and and/or delegates of the Board engage with key providers page 7 for details of the 2023 shareholder event. on a periodic basis through service review meetings or, by invitation, attendance at Board or committee meetings. Such Regular dialogue is maintained between the Manager and engagement gives opportunity to both parties to discuss major institutional shareholders throughout the year to any challenges being experienced and potential solutions discuss aspects of investment performance, governance thereon, and to identify planned developments at the and strategy and to listen to shareholder views in order to Company or the service provider. We aim to pay promptly help develop an understanding of their issues and concerns. and if in dispute, to engage openly to resolve matters in a All meetings between the Manager and shareholders are timely manner. reported to the Board. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 25 Following the COVID-19 pandemic, the Board continues to The Board recognises that the most material way in which ensure that service providers are as prepared as possible for the Company can have an impact is through responsible all such eventualities which could disrupt the performance of ownership of its investments. See below how the Manager their respective functions. engages with the management of investee companies to encourage that high standards of ESG practice are adopted. ENGAGEMENT WITH INVESTEE COMPANIES The Manager is a long-term investor and develops strong The Company made no political donations during the year relationships with both investee and potential investee in review. companies and reports their conversations back to the Board. STEWARDSHIP CODE AND EXERCISE OF Both the Board and the Manager believe that engagement VOTING POWERS with investee companies is positive, beneficial and welcomed. The Board considers that the Company has a responsibility as a Voting is a key activity in the dialogue with investee shareholder to ensure that high ESG standards are maintained companies and these decisions are reported to the Board on in the companies in which it invests. One of the principal means a quarterly basis. Voting is undertaken by the same team that of putting shareholder respons bility into practice is through manages the portfolio assets rather than it being delegated the exercise of voting rights. The Company aims to provide to an independent third party. investment specific active stewardship and the Company’s voting rights are exercised on an informed and independent The Board supports the Manager’s approach to ESG in the basis. The Manager has adopted a clear and considered context of its management of the portfolio, please see below policy towards its stewardship responsibility on behalf of the on ESG matters and stewardship of investee companies. Company. The Manager takes steps to satisfy itself about the extent to which investee companies protect shareholder value ENVIRONMENTAL SOCIAL AND GOVERNANCE and comply with local recommendations and practices, such as (“ESG”) MATTERS the UK Corporate Governance Code. TheManager’s approach As an investment company with no employees, property to corporate governance and the UK Stewardship Code can or activities outside investment, environmental policy has be found on the Manager’s website at www.liontrust.co.uk limited application, yet the Board is committed to taking together with a copy of the Manager’s Stewardship Policy and a responsible approach to ESG matters. The Company’s the Manager’s global proxy voting policy. compliance with the AIC Code of Corporate Governance is detailed in the Corporate Governance Statement on page 32, Members of the Manager’s investment team are responsible for which demonstrates the Company’s own responsibilities on overseeing all aspects of the Stewardship process, including matters such as governance. voting on all resolutions at all Annual General Meetings and Extraordinary General Meetings in the UK and overseas. The In respect of the Company’s investments, the Manager and Manager assesses corporate governance, remuneration policies the other members of the investment team integrate ESG and, if deemed necessary, will challenge management where it risks and opportunities (including climate change related is felt that the best interests of shareholders are not being met. risks) as part of a material assessment undertaken for all holdings. Consistent with the Manager’s investment approach, The Board reviews the Manager’s voting record at each meeting. this analysis is undertaken on a bottom-up, stock basis. The table below demonstrates how the Manager voted during The risks and opportunities that each holding faces over a the year in review. The Manager voted at all meetings, except for three-to-five-year period are then identified and prioritised. an unlisted legacy holding in Raven Property. 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 on holdings with the investee companies. These frequently include issues related to global warming, including those focused on transitional risks, legislation risks, 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. 26 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC SECTION 172 STATEMENT, COMPANY SUSTAINABILITY AND STAKEHOLDERS / CONTINUED – Shell Group. Resolution summary: this was a | | Total | | % | | | --- | --- | --- | --- | --- | | For Against | Items | Against | | shareholder-filed resolution, which requested Shell | | Audit Related 84 0 84 0.0% | | | | to set and publish targets for greenhouse gas (GHG) | | Capitalisation 186 5 191 2.6% | | | | emissions. The Manager voted against this proposal | | Company Articles 9 1 10 10.0% | | | | as it was considered unnecessary, because a separate | | Compensation 73 11 84 13.1% | | | | management-filed proposal at the same meeting, to | | Corporate Governance 1 0 1 0.0% | | | | approve the Shell energy transition progress update, | | Director Election 436 13 449 2.9% | | | | showed good progress with the plan. The shareholder- | | Director Related 7 0 7 0.0% | | | | filed resolution was therefore redundant as Shell had | | Environmental 6 2 8 25.0% | | | | already disclosed those targets. The resolution was not | | Miscellaneous 2 0 2 0.0% | | | | passed, with 80% of votes against. | Non-Routine Business 4 0 4 0.0% – Ashtead Group. Resolution summary: to approve the Routine Business 87 1 88 1.1% 1 company’s remuneration report. The Manager voted Social 4 21 25 84.0% against this management proposal. This was because Strategic Transactions 4 0 4 0.0% the actions taken by the Remuneration Committee in Takeover Related 37 0 37 0.0% response to the significant levels of dissent recorded Total 940 54 994 5.4% against the remuneration-related resolutions at the 2021 AGM were not considered sufficient to address the The Managers’ policy is to invest in well managed companies underlying concerns raised. The resolution was passed, with robust ESG policies. The examples below demonstrate with 33% of votes against the report. We will continue to how the Manager voted on certain ESG issues and its engage with the management on this issue. rationale behind it. In addition, the Manager publishes an annual Responsible – NatWest Group. Resolution summary: to re-elect Frank Capitalism report, providing cumulative voting statistics, full Dangeard as Director. The Manager voted against this disclosure on voting policy and extracts of engagement for proposal because, in addition to his role as NED of the the year. The Manager publishes a quarterly voting record on Company, Frank Dangeard serves on the boards of three its website www.liontrust.co.uk. other publicly listed companies. Furthermore, he is the Chair of the Board in two of those companies. This could MODERN SLAVERY DISCLOSURE potentially compromise his ability to commit sufficient The Company aims to adopt the highest standards of time to his role at NatWest Group. The outcome of the conduct and is committed to integrating responsible vote was that the resolution was passed, albeit with 20% business practices throughout its operations. The prevention of votes against. We will continue to engage with the of modern slavery is an important part of corporate good management on this issue. governance. – RS Group. Resolution summary: to approve the company’s The Company is an investment vehicle and does not provide remuneration policy. Although it was a contentious goods or services in the normal course of its business or have policy, with some third-party advisors recommending customers or employees. Accordingly, the Directors consider their clients to vote against it, the Manager supported the that the Company is not required to make any slavery or resolution. The Manager believe the CEO and Financial human trafficking statement under the Modern Slavery Act Director have done an outstanding job in reversing the 2015. fortunes of the company and positioning the business for long term success. It is important for the remuneration to be competitive. Moreover, the award targets are extremely stretching and have the strong underpinning 2 of the 20% ROCE condition. The resolution was passed, albeit with over 39% of votes against. 1 The large number of against votes relates to a policy of voting against UK Political Donations and Expenditure. 2 The term return on capital employed (ROCE) refers to a financial ratio that can be used to assess a company’s profitability and capital efficiency. THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 27 ANTI-BRIBERY AND CORRUPTION It is the Company’s policy to conduct 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. 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 directly to its key stakeholders. Work of the Board and its Committees is described in the Governance Report on pages29 to 44. This Strategic Report was approved by the Board on 26 May 2023 Signed by order of the Board of Directors APEX LISTED COMPANIES SERVICES (UK) LIMITED COMPANY SECRETARY / 26 MAY 2023 ## GOVERNANCE THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 29 ## THE DIRECTORS ## All Directors are non-executive and considered independent. | ELISABETH STHEEMAN | VICKY HASTINGS | AIDAN LISSER | | --- | --- | --- | | Chair of the Board | Senior Independent Director | Non-Executive Director | | Date of appointment: | Date of appointment: | Date of appointment: | | 23 May 2019, became Chair on | 23 May 2013, SID from 25 July 2019. | 27 May 2022 | 21July2022 | Committees: | | Committees: | | Committees: | | | --- | --- | --- | --- | --- | --- | | M | Management Engagement | M | Management Engagement | M | Management Engagement | | N | Nomination Chair | N | Nomination | N | Nomination | | A | Audit | A | Audit | A | Audit | | Elisabeth is currently an External | | Victoria (Vicky) has over 30 years’ | | Aidan is the Chair of JPMorgan | | | Member of the Financial Policy | | experience in the investment | | Emerging Markets Investment Trust | | | Committee (FPC) and Financial | | management industry. Vicky is Chair | | plc, a non-executive director of | | | Markets Infrastructure (FMI) Board | | of Henderson European Focus Trust | | Henderson International Income Trust | | | of the Bank of England. She is an | | plc and a non-executive director | | plc and a board member of Chapter | | | independent member of the board of | | of Alliance Trust plc. She is also a | | Zero UK, an organisation to assist non- | | | US REIT W.P. Carey Inc, a member of | | trustee of Moorfields Eye Charity. | | executive directors with the impact of | | | the Supervisory Board of German REIT | | In her executive career, she was a | | climate change. He is also a marketing | | | alstria AG and an External Member | | European Equity fund manager and | | ambassador for the Association | | | of the Audit and Risk Committee of | | then held investment leadership roles | | of Investment Companies. He was | | | The Asian Infrastructure Investment | | at Merrill Lynch Investment Managers | | formerly chief marketing officer and | | | Bank. She is also a member of Council | | and JOHambro Capital Management. | | subsequently head of strategy for | | | of the London School of Economics | | Previously held non-executive | | Investec Wealth & Investment. Before | | | and a member of Council of the | | directorships include Investment | | this he held senior marketing roles | | | German British Chamber of Industry | | Trusts as well as JPMorgan Asset | | at Allianz Global Investors, Standard | | | and Commerce. Previously, she was a | | Management UK Ltd and JPMorgan | | Chartered Bank and Unilever. | | | senior advisor to the Bank of England’s | | Asset Management International Ltd. | | | | Prudential Regulation Authority and a member of the Supervisory Board of Aareal Bank AG. 30 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC THE DIRECTORS / CONTINUED | ANNABEL TAGOE-BANNERMAN | PATRICK EDWARDSON | STEVE BALDWIN | | --- | --- | --- | | Non-Executive Director | Non-Executive Director | Non-Executive Director | | Date of appointment: | Date of appointment: | Date of appointment: | | 7 February 2023 | 11 February 2021 | 10 September 2018 | | Committees: | | Committees: | | Committees: | | | --- | --- | --- | --- | --- | --- | | M | Management Engagement | M | Management Engagement Chair | M | Management Engagement | | N | Nomination | N | Nomination | N | Nomination | | A | Audit | A | Audit | A | Audit Chair | | Annabel has considerable experience in | | Patrick joined Baillie Gifford in 1993 and | | Steve is a Chartered Accountant. He | | | senior roles within quoted UK operating | | became a partner in 2005. In a wide- | | is currently Chairman of TruFin plc, a | | | companies within the retail, leisure, | | ranging investment career, he managed | | non-executive director at Plus500 Ltd | | | food and beverage sectors. Annabel is | | bond, equity and multi-asset portfolios, | | and a Trustee at Howard de Walden | | | currently Group General Counsel and | | was manager of the Scottish American | | Estates Limited. He was formerly a | | | Company Secretary of Bakkavor Group | | Investment Company plc between | | non-executive director of Elegant | | | plc, the FTSE 250 listed producer | | 2004 and 2014 and led Baillie Gifford’s | | Hotels Group plc and Panmure Gordon | | | of freshly prepared food, where she | | multi-asset investment team until his | | & Co plc. He was the Head of European | | | also chairs the Diversity & Inclusion | | retirement in 2020. He is currently | | Equity Capital Markets and Corporate | | | Forum. She was previously at Britvic | | managing director of Atheian Ltd, a | | Broking at Macquarie Capital until | | | plc and formerly General Counsel and | | family investment office and of CMH | | February 2015. Prior to this Steve was | | | a member of the Executive Committee | | Hope Limited, a property investment | | a Director at JPMorgan Cazenove for | | | of Ladbrokes plc. Prior to this Annabel | | company, a non-executive director of | | ten years and was a Vice President | | | trained and practised as a solicitor | | two other investment trusts (JPMorgan | | of Corporate Finance at UBS from | | | at SJ Berwin LLP (now King & Wood | | Multi Asset Growth and Income plc and | | 1995-1998. | | | Mallesons). | | North American Income Trust plc) and | | | | also a non-executive director at Tillit, the retail investment platform. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 31 ## THE COMPANY’S CORPORATE GOVERNANCE ## FRAMEWORK THE BOARD AND COMMITTEES The Board is ultimately responsible to shareholders for the direction, governance, management, performance and long-term sustainable success of the Company. The responsibilities of the Board include setting the Company’s strategic aims, providing the leadership to put them into effect, supervising the Investment Manager and reporting to shareholders on their stewardship. In doing so, the Directors comply with their duties under section 172 of the Companies Act 2006. The Board has established certain principal committees to assist it in fulfilling its oversight responsibilities, providing a dedicated focus on particular areas, as set out below. Terms of reference of the Board Committees are available on the Company’s website at www.edinburgh-investment-trust.co.uk The Company’s corporate governance framework is designed to support a closed-end externally managed investment company, where all of the Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive Directors, employees or internal operations. The Board Chair Elisabeth Stheeman, Senior Independent Director Vicky Hastings, Four additional non-executive directors (NEDs) Chair Key responsibilities: – to provide leadership of the Board, ensuring its effectiveness in all aspects of its role; – to set up agenda and ensure that adequate time is available for discussion; – to promote a culture of openness ensuring that each Board member’s views are considered; – to ensure that Directors receive accurate, timely and clear information; – to ensure the Board as a whole has a clear understanding of the views of shareholders; – to ensure that the Board complies with its obligations under section 172 Companies Act 2006, by taking into account the needs of the Company’s wider stakeholders; – to ensure oversight of the Investment Manager and other external service providers; and – to encourage constructive challenge and scrutiny of the performance of all outsourced activities. Senior Independent Director (SID) Key responsibilities: – to provide a sounding board for the Chair; – to serve as an intermediary for the other directors and shareholders; and – to lead annual appraisal of the Chair’s performance and recruitment process for the position of the Chair. Management Engagement Remuneration Committee Audit Committee Committee Nomination Committee Function All NEDs All NEDs All NEDs The Board as a whole performs this function Chair: Steve Baldwin Chair: Patrick Edwardson Chair: Elisabeth Stheeman Key responsibilities: Key responsibilities: Key responsibilities: Key responsibilities: – to oversee the control – to review regularly the – to review regularly – to set the remuneration environment and financial management contract and the Board’s structure, policy of the Company. reporting; the performance of the composition and – to make a recommendation Manager. performance; and for the appointment of the – to make recommendations auditor; and for any changes or new – to review the performance appointments. of other service providers, including the auditor. 32 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC ## CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2023 COMPLIANCE WITH THE AIC CODE these provisions not relevant to the position of the Company, This Corporate Governance statement forms part of the being an externally managed investment company with no Directors’ Report. The Board is committed to maintaining executive Directors, employees, or internal operations. It high standards of Corporate Governance and is accountable further considers an internal audit function unnecessary as to shareholders for the governance of the Company’s affairs. the relevant issues are addressed through the Manager’s own control environment which itself is subject to routine external The Board of the Company has considered reporting against independent review. the principles and provisions of the AIC Code of Corporate Governance (the “AIC Code”). The AIC Code adapts the Information on how the Company has applied the principles principles and provisions set out in the UK Corporate of the AIC Code is provided in the Governance Section, Governance Code (the “UK Code”) to make them relevant for including the Directors’ Report as follows: investment companies and includes supplementary guidance – the composition and operation of the Board and its on issues that are of specific relevance to the Company. committees are summarised on pages 31, and page 33 in The Board considers that reporting against the principles respect of the Audit Committee; and provisions of the AIC Code, which has been endorsed – the Company’s approach to internal control and risk by the Financial Reporting Council provides more relevant management is summarised on page 40; information to shareholders. This enables boards to make a statement that, by reporting against the AIC Code, they are – the contractual arrangements with, and assessment of, meeting their obligations under the UK Code and associated the Manager are summarised on page 41: disclosure requirements under paragraph 9.8.6 of the FCA’s – the Company’s capital structure and voting rights are Listing Rules. summarised on page 42; The AIC Code is available on the AIC website (www.theaic.co.uk) – the substantial shareholders in the Company are listed on and the UK Corporate Governance Code can be found on the page 42; Financial Reporting Council’s website (www.frc.org.uk) – the rules concerning the appointment and replacement Throughout the year ended 31 March 2023, the Company of directors are contained in the Company’s Articles complied with the principles and provisions of the AIC of Association and are discussed on pages 38 and 39. Code, except for one provision regarding the remuneration There are no agreements between the Company and its committee as explained below. directors concerning compensation for loss of office; Provision 37 states that the board should establish a – the annual powers to issue or buy back the Company’s remuneration committee of independent non-executive shares are explained in the notice of AGM on page 77; directors with a minimum membership of three, or in the and case of smaller companies, two. The Board has resolved that a remuneration committee is not appropriate for a – any amendments to the Company’s Articles of Association company of this size and nature. Remuneration is therefore require a resolution to be passed by shareholders. regarded as part of the Board’s responsibilities to be By order of the Board addressed regularly. The Board as a whole, comprising of independent non-executive directors, performs the function APEX LISTED COMPANIES SERVICES (UK) LIMITED of the remuneration committee with the key responsibility COMPANY SECRETARY to set the remuneration policy of the Company. Please see Directors Report on page 36 for the Board’s responsibilities. 26 MAY 2023 The UK Corporate Governance Code includes provisions relating to the role of the chief executive, executive directors’ remuneration and the need for an internal audit function. For reasons set out in the AIC Code, the Board considers THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 33 ## AUDIT COMMITTEE REPORT FOR THE YEAR ENDED 31 MARCH 2023 COMMITTEE COMPOSITION AND ROLE – developing and implementing policy on the engagement The Audit Committee comprises all the Directors and the of the external auditor to supply non-audit services; and Committee has written terms of reference which clearly – considering annually whether there is a need for the define its objective, authority, composition, roles, duties and Company to have its own internal audit function. responsibilities, including reporting. These were reviewed during the year, to ensure good practice and compliance with AUDIT COMMITTEE ACTIVITIES the latest AIC Code. They can be inspected at the registered The Committee meets at least three times a year to review office of the Company or viewed on the Company’s website. the internal financial and non-financial controls and the contents of the half-yearly and annual financial reports, AUDIT COMMITTEE RESPONSIBILITIES including accounting policies and financial judgements. In The responsibilities of the Audit Committee include: addition, the Committee reviews the auditor’s independence, – consideration of the integrity of the annual and objectivity and effectiveness, the quality of the services half-yearly financial reports prepared by the Manager, the provided to the Company and, together with the Manager, appropriateness of the accounting policies applied and reviews the Company’s compliance with financial reporting any financial judgements and key assumptions, together and regulatory requirements as well as risk management with ensuring compliance with relevant statutory and processes. Representatives of the Manager’s Compliance listing requirements; Department attend at least two meetings each year. Representatives of the auditor attend the Committee – at the Board’s request, advising it on whether the meetings at which the draft half-yearly and annual financial Committee believes the annual financial report taken as a reports are reviewed and are given the opportunity to speak whole is fair, balanced and understandable and provides to Committee members in the absence of representatives of the necessary information for shareholders to assess the the Manager. Company’s position and performance, business model and strategy; The external audit programme and timetable are drawn up and agreed with the auditor in advance of the end of the – evaluation of the effectiveness of the internal control financial year and matters for audit focus are discussed and systems and risk management systems, including reports agreed. The auditor ensures that these matters are given received on the operational controls of the Company’s particular attention during the audit process and reports service providers and the Manager’s whistleblowing on them, and other matters as required, in its report to the arrangements; Committee. In addition, the Committee reviews any material – consideration of the scope of work undertaken by the issues raised by the auditor. There have been no such Manager’s compliance department, monitoring and issues raised during the year. The auditor’s report, together reviewing the effectiveness of the Manager’s and the with reports from the Manager, the Manager’s Compliance Company’s procedures for detecting fraud; Department and the depositary, form the basis of the Committee’s consideration and discussions with the various – management of the relationship with the external auditor, parties and any recommendations to the Board, including including evaluation of their reports and the scope, the Committee’s recommendation to sign the 2023 financial effectiveness, independence and objectivity of their statements. audit, as well as making recommendations to the Board in respect of their appointment, re-appointment and removal and for the terms of their audit engagement; 34 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC AUDIT COMMITTEE REPORT / CONTINUED ACCOUNTING MATTERS AND SIGNIFICANT AREAS For the year-end, the following accounting matters were identified for specific consideration by the Committee: Significant area How addressed Accuracy of the portfolio valuation and controls related to Actively traded listed investments are valued using stock the valuation process. exchange prices provided by third-party pricing vendors. Investments that are unlisted or not actively traded are valued using a variety of techniques to determine their fair value. This is set out in accounting policies note 1C(v). Any such valuations are carefully considered by the Manager’s pricing committee and the Committee. Proof of the existence of portfolio holdings. The Manager and the depositary confirmed that the holdings shown in the accounting records agreed with the custodianrecords. Recognition of investment income and the treatment of Investment income is recognised in accordance with special dividends. accounting policies note 1F. The Manager provides detailed revenue estimates for the Board’s review, and income is assessed to ensure it is complete and accounted for correctly. Careful consideration is given to special dividends. These are allocated to revenue or capital according to the nature of the payment by the underlying company and the allocation is also reviewed by the auditor. The allocation of management fees and finance costs The allocation is reviewed by the Committee annually between revenue and capital. taking into account the long-term split of returns from the portfolio both historic and projected, yield, the objectives of the Company, and the latest market practice of peers. The Committee last reviewed the allocation at its meeting in May 2023. These matters were discussed with the Manager and the auditor. The Committee also considered the independence auditor in pre-year-end audit planning and were satisfactorily of PricewaterhouseCoopers LLP (PwC) and the objectivity of addressed through consideration of reports provided by, the audit process. No significant modifications were required and discussed with, the Manager and the auditor at the to the external audit approach. Combining the output of all the conclusion of the audit process. As detailed below, the above, and the Audit Committee Chair’s and the Committee’s Company operates within a robust control environment and direct interaction with PwC, the Committee concluded that it the Committee oversees the effectiveness of the controls of continued to be satisfied with the performance of PwC and the Manager, custodian and administrator. that the auditor continued to display the necessary attributes of objectivity and independence. Consequently, and following a thorough review process of the 2023 annual financial report, the Audit Committee Prior to any engagement for non-audit services, the Audit advised the Board that the report taken as a whole is fair, Committee considers whether the skills and experience of the balanced and understandable and provides the information auditor make them a suitable supplier of such services and necessary for shareholders to assess the Company’s position ensures there is no threat to objectivity and independence and performance, business model and strategy. in the conduct of the audit as a result. Excluding VAT and any expenses, the annual audit fee was £48,000 REVIEW OF THE EXTERNAL AUDITOR, INCLUDING (2022: £41,000) and the non-audit fee was £nil (2022: £nil), NON-AUDIT SERVICES see note 4 on page 64. The Committee does not believe that The Committee evaluated the performance and effectiveness this has impaired the auditor’s independence and objectivity. of the external auditor and their audit process. This included a Non-audit services up to £5,000 do not require approval in review of the audit planning, execution and reporting and the advance of the Audit Committee; amounts in excess of this quality of the audit work, results and audit team. This review require the approval of the Audit Committee. sought the view of the Manager in their dealings with the THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 35 AUDITOR INTERNAL AUDIT PwC were appointed as the Company’s Auditors at the AGM The Company, being an externally managed investment on 25 July 2019 and were re-appointed on 21 July 2022. company with no employees, does not require its own After due consideration, the Committee recommends the specific internal audit function. Instead, it relies on the re-appointment of PwC and their re-appointment will be put control environment of the Manager. An external firm, forward to the Company’s shareholders at the 2023 AGM. Grant Thornton, is engaged by the Manager to provide an independent review of its control environment. The Manager INTERNAL CONTROLS AND RISK MANAGEMENT has been transparent with the Board in sharing the results of The Committee undertakes a robust assessment of the risks the review. to which the Company is exposed by reference to a risk control summary, which maps the risks, mitigating controls COMMITTEE EVALUATION in place and relevant information reported to the Directors, The Committee’s activities fell within the scope of the review throughout the year. The resultant ratings of the mitigated of Board effectiveness performed in the year. Details of this risks allow the Directors to concentrate on those risks that process can be found under ‘Board, Committee and Directors’ are most significant and also form the basis of the list of Performance Appraisal’ on page 39. principal risks and uncertainties set out in the Strategic Signed on behalf of the Board of Directors Report on pages 18 to 21. The Committee, on behalf of the Board, is responsible for ensuring that the Company maintains a sound system of STEVE BALDWIN internal control to mitigate risk and safeguard the Company’s CHAIR OF THE AUDIT COMMITTEE assets. The effectiveness of the Company’s system of internal 26 MAY 2023 controls, including financial, operational and compliance and risk management systems, is reviewed at least annually. Appropriate action is taken to remedy any significant failings or weaknesses identified from these reviews. No significant items were identified in the year. As part of this, the Committee receives and considers, together with representatives of the Manager, reports in relation to the operational controls of the Manager, accounting administrator, custodian, company secretary and registrar. These reviews identified no issues of significance during the year. 36 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC ## DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2023 BUSINESS AND STATUS Statement on Board Diversity – Gender and Ethnic The Company was incorporated and registered in Scotland Background on 1 March 1889 as a public limited company, registered According to new requirements of the Listing Rules LR 9.8.6 number SC1836. It is an investment company as defined by R(9) and (11) (applicable for periods from 1 April 2022), the section 833 of the Companies Act 2006 and operates as an Company is required to include a statement in the annual investment trust within the meaning of the Corporation Tax financial report setting out whether it has met the following Act 2010 and the Investment Trust (Approved Company) targets on board diversity as at 31 March 2023: (Tax) Regulations 2011. HM Revenue & Customs have 1) At least 40% of individuals on its board are women; approved the Company’s status as an investment trust and, in the opinion of the Directors, the Company has conducted 2) At least one of the senior board positions* is held by a its affairs so as to enable it to maintain such approval. woman; and CORPORATE GOVERNANCE 3) At least one individual on its board is from a minority The Corporate Governance Statement set out on page 32 is ethnic background. included in this Directors’ Report by reference. The following tables set out the prescribed format for THE BOARD information in accordance with the requirements of LR 9 At the year end the Board comprised six independent Annex 2. non-executive Directors. The Company’s Corporate (a) Table for reporting on gender identity or sex Governance Framework is set out on page 31. This shows the key objectives of the Board and also the membership Number and key objectives of the Board’s committees which deal of senior with specific aspects of the Company’s affairs: the Audit, positions Number Percentage on the Management Engagement and Nomination Committees. of board of the board (SID The Board regards all the Directors to be wholly independent members board and Chair) of the Company’s Manager. Men 3 50% - Chair Women 3 50% 2 The Chair of the Company is Elisabeth Stheeman. She has Not specified/ been a member of the Board since 2019 and was appointed - - - prefer not to say Chair on 21 July 2022. (b) Table for reporting on ethnic background Senior Independent Director | The Company’s Senior Independent Director is Vicky Hastings | | | Number | | --- | --- | --- | --- | | who was appointed to the role on 25 July 2019. Vicky will be | | | of senior | | retiring at the end of the forthcoming AGM of the Company | | | positions | | | Number | Percentage | on the | to be held on 19 July 2023 and will be succeeded by Aidan of board of the board (SID Lisser. members board and Chair) Board Balance and Diversity White British The Board’s policy for the appointment of non-executive or other White 5 83% 2 directors is based on its belief in the benefits of having a (including minority diverse range of experience, skills, length of service and white groups) backgrounds, including but not limited to gender diversity. The Mixed Multiple - - - Board has considered the recommendations of the Davies and Ethnic Groups Hampton-Alexander reviews as well as the Parker review but Asian/Asian British - - - does not consider it appropriate to establish targets or quotas Black/African/ in these regards. The policy is always to appoint the best Caribbean/Black 1 17% - person for the job and there will be no discrimination on the grounds of gender, race, ethnicity, religion, sexual orientation, British age or physical ability. The overriding aim of the policy is to Other ethnic group, - - - ensure that the Board is composed of a combination of people including Arab with a range of business, financial or asset management skills Not specified/ and experience relevant to the direction and control of the - - - prefer not to say Company for ensuring effective oversight of the Company and constructive support and challenge to the Manager. * The Company considers the positions of the Chair and Senior Independent Director (SID) to be senior positions of the Board. The Board comprises six non-executive directors of which, atpresent, three are female. Summary biographical details of the Directors are set out on pages 29 and 30. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 37 The prescribed format includes provisions relating to the role – approving accounting policies and dividend policy; of the chief executive officer (CEO), chief financial officer – determining dividends payable; (CFO) and executive management. The Board considers these provisions are not relevant to the Company as it is an – managing the capital structure; externally managed investment company. In particular, all of – reviewing investment performance; the Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the – assessing risk; Company has no CEO, CFO or executive management. – approving borrowing; The Listing Rules require to include an explanation of the – and reviewing, and, if agreed, approving recommendations Company’s approach to collecting the data used for the made by the Board’s committees. purposes of making the disclosures in LR 9.8.6 R(9) and (10). The Company Secretary circulated the above tables to each The schedule of matters reserved for the Board will be director to complete individually and collated the responses available for inspection at the AGM and is otherwise for inclusion in the annual financial report. available at the registered office of the Company and on the Company’s website. The Company has met the targets on board diversity as required by the Listing Rules as at 31 March 2023. The Board ensures that shareholders are provided with sufficient information in order to understand the risk-reward BOARD RESPONSIBILITIES balance to which they are exposed by holding their shares, The Board has overall responsibility for the Company’s through the portfolio details given in the half-yearly and affairs. The Directors are equally responsible under UK law annual financial reports, factsheets and daily NAV disclosures. for promoting the success of the Company and for the proper conduct of the Company’s affairs taking into consideration: The Board meets at least five times each year. Additional meetings are arranged as necessary. Regular contact is – the likely consequences of any decision in the long-term; maintained by the Manager with the Board between formal – the need to foster business relationships with its Manager, meetings. Board meetings follow a formal agenda, which other service providers and advisors; includes a review of the investment portfolio with a report from the Manager on the current investment position and – the impact of the Company’s operations on the outlook, strategic direction, performance against stock community and the environment; market indices and the Company’s peer group, asset – the desirability of the Company maintaining a reputation allocation, gearing policy, cash management, revenue for high standards of business conduct; and forecasts for the financial year, investment policy guidelines, marketing and shareholder relations, corporate governance, – the need to act fairly between shareholders of the regulatory changes and industry and other issues. Company. To enable the Directors of the Board to fulfil their roles, the This is reported in the Section 172 Statement in the Strategic Manager and Company Secretary ensure that all Directors Report on page 23. The Board is committed to the prevention have timely access to all relevant management, financial of corruption in the conduct of the Company’s affairs and, and regulatory information. All directors have access to the taking account of the nature of the Company’s business and advice of the Company Secretary, who is responsible for operations, has put in place procedures for and on behalf of advising the Board on all governance matters. the Company that the Board considers adequate to prevent persons associated with it from engaging in bribery. It has a There is an agreed procedure for the Directors, in the zero tolerance approach towards the criminal facilitation of tax furtherance of their duties, to take legal advice at the evasion. In addition, the Directors are responsible for ensuring Company’s expense up to an initial cost of £10,000, having that their policies and operations are in the interest of all of first consulted with the Chair. the Company’s shareholders and that the interests of creditors Finally, the Board as a whole undertakes the responsibilities and suppliers to the Company are properly considered. which would otherwise be assumed by a remuneration The Board has established a schedule of matters reserved committee, determining the Company’s remuneration for its consideration, which clearly define the Directors’ policy. The Board takes into account all factors which are responsibilities. The main responsibilities include: deemed necessary in order to ensure that members of the Board are provided with appropriate compensation and – setting long-term strategy; are, in a fair and responsible manner, rewarded for their – setting the Company’s objectives, policies and standards; individual contributions to the success of the Company. The remuneration of Directors is reviewed periodically and – ensuring that the Company’s obligations to shareholders reported on in more detail in the Directors’ Remuneration and others are understood and met; Report. – selecting an appropriate Manager; 38 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC DIRECTORS’ REPORT / CONTINUED AUDIT INFORMATION The Nomination Committee The Directors confirm that, so far as they are aware, there All Directors are members of the Nomination Committee is no relevant audit information of which the Company’s which is chaired by Elisabeth Stheeman. The Committee auditor is unaware and each Director has taken steps meets at least annually to review the composition of the that he or she ought to have taken as a director to make Board and its committees and evaluate whether they have the himself/herself aware of any relevant audit information appropriate balance of skills, experience, independence, and and to establish that the Company’s auditor is aware of knowledge of the Company and make recommendations to that information. This confirmation is given and should be the Board for the re-election of directors at AGMs. Additional interpreted in accordance with the provisions of section 418 meetings are arranged as necessary. of the Companies Act 2006. The Committee is also responsible for the succession THE COMMITTEES planning and identifying and nominating to the Board The Board has three committees: the Audit Committee, the suitable candidates, taking into consideration the balance of Management Engagement Committee, and the Nomination skills, knowledge, experience and independence of the Board Committee. Each committee has written terms of reference, and having regard for the benefits of diversity and the ability which clearly define each committee’s responsibilities of any new director to devote sufficient time to the Company and duties. The terms of reference of each committee are to carry out his or her duties effectively. See page 36 for available for inspection at the AGM, at the registered office of Board’s statement on ethnic and gender diversity. the Company and also available on the Company’s website. ar the Committee led the process for the appointment of The Audit Committee two new non-executive directors. The Committee requested The composition and activities of the Audit Committee are tenders from four executive recruitment specialists and summarised in the Audit Committee Report on pages33to35, after careful assessment of recruitment methodology and which is included in this Directors’ Report by reference. terms of service, Odgers Berndtson were engaged. The Company and the Directors have no other connection with The Management Engagement Committee Odgers Berndtson. The recruitment process included long The Management Engagement Committee comprises and shortlist interviews involving all the existing directors all directors and is chaired by Patrick Edwardson. The and choice of a candidate leading to the appointment. As Committee meets at least annually to review the investment previously announced, Aidan Lisser joined the Board on 27 management agreement and to review the services provided May 2022 and (as mentioned in the Chair’s statement on by the Manager and other key service providers. Additional page 7) Annabel Tagoe-Bannerman joined on 7 February meetings are arranged as necessary. 2023. The Committee carries out a thorough review of the performance of the Manager including key metrics such as No Director has a contract of employment with the Company. overall investment performance, investment process, risk Directors’ terms and conditions of appointment are set out management, individual stock performance, team resources, in letters of appointment which are available for inspection notice period, the Managers fees level, marketing strategy at the registered office of the Company and will also be and relative fees. available at the AGM. A Director can be removed from office without notice or compensation upon being served with a During the year the Committee met twice to review and written notice signed by all the other Directors. consider the performance and continued appointment of the Manager and other key service providers. The Committee APPOINTMENT, RE-ELECTION AND TENURE scrutinised both the Manager’s fee rate and all admin fees New Directors are appointed by the Board following in comparison with similar income-generating UK equity recommendation by the Nominations Committee. The products, in both the closed and open-ended sectors and is Articles of Association require that a Director shall be subject confident that the fees are appropriate. to election at the first AGM after their appointment and This year sees the introduction of the Financial Conduct re-election at least every three years thereafter. However, in Authority’s Consumer Duty regulation, which seeks to accordance with the UK Code of Corporate Governance, the improve the quality of products and services to retail Board has resolved that all Directors shall stand for annual investors. Whilst the Company is not directly within the re-election at the AGM. scope of the regulation, the Manager is through its roles as AIFM and distributor. The Committee has routinely liaised with the Manager during the year on its preparedness and developments with regards the consumer outcomes that cover products and services, price and value, consumer understanding, and consumer support, and will continue to do so into the future. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 39 On being appointed to the Board, Directors are fully briefed The Board effectiveness review was externally facilitated by as to their responsibilities and are continually updated Lintstock Limited and tailored to the needs of the Company throughout their term in office on industry and regulatory through a scoping exercise between a Lintstock Limited matters. The Company Secretary and the Board have partner and Company’s representatives. As part of the formulated a programme of induction training for newly evaluation, key governance enablers of Board and Committee appointed Directors. They have also put arrangements in performance were reviewed, with a particular focus on the place to address ongoing training requirements of Directors Company’s strategic priorities, succession planning, and which include briefings from the Company Secretary and engagement with the Manager. The Board effectiveness the Company’s auditors which ensure that Directors are well review report and recommendations were presented to briefed on new legislation and the changing risk environment. the Nomination Committee meeting by a Lintstock Limited partner in May 2023. The review was positive, and no critical The Board has noted the implication of the provisions in the issues were identified. The recommendations from the UK Corporate Governance Code that non-executive directors report were agreed by the Board. Key priorities identified who have served for more than nine years should be presumed for the year ahead include executing the agreed marketing not to be independent. The AIC does not believe that this strategy, long-term succession planning, and developing and presumption is appropriate for investment companies and broadening relationships with the Manager’s wider team. therefore does not recommend that long-serving directors be prevented from forming part of the independent majority In addition to a self-assessment, the Chair conducted of an investment trust board. It is the Board’s policy that telephone meetings with each Director individually to all Directors, including the Chair, shall normally have tenure discuss their performance and development needs. The Chair limited to nine years from their first appointment to the evaluated the skills and performance of each Director and Board, except that the Board may determine otherwise if it is concluded to take appropriate action when development considered that the continued participation on the Board of needs arise and that each Director is making a positive an individual Director, or the Chair, is in the best interests of contribution. Lintstock Limited also undertook a Chair the Company and its shareholders. This is also subject to the appraisal which was highly satisfactory - the SID relayed Director’s re-election annually by shareholders. The Board back to the Chair privately and shared the highlights with considers that this policy encourages regular refreshment the Board. and is conducive to fostering diversity. As we highlighted last ATTENDANCE AT BOARD AND COMMITTEE year, whilst Vicky Hastings reached the tenth anniversary of her appointment to the Board during the year she was asked MEETINGS to stay on to smooth the transition for the new Chair but as All Directors are considered to have a good attendance expected will be retiring at the AGM on 19July 2023 and is record at Board and Committee meetings of the Company. therefore not standing for re-election. The table below sets out the number of scheduled Directors’ meetings held during the year and the number of meetings BOARD, COMMITTEE AND DIRECTORS’ attended by each Director. In addition, Directors attended a PERFORMANCE APPRAISAL number of ad hoc meetings during the year. The Directors recognise the importance of the AIC Code’s The number of scheduled meetings held during the year to recommendation in respect of evaluating the performance 31 March 2023 and the attendance of individual Directors are of the Board as a whole, the Committees of the Board and shown in the table below: individual Directors. In 2023 the Board appointed Lintstock Limited, an external consultant, to undertake a review of the Board and its Committees. The Company and the individual Directors have no other connection with Lintstock Limited. 40 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC DIRECTORS’ REPORT / CONTINUED Management Audit Engagement Nominations Board Committee Committee Committee Number of meetings 5 3 2 2 (total possible/individual attendance) Elisabeth Stheeman 5/5 3/3 2/2 2/2 Steve Baldwin 5/5 3/3 2/2 2/2 Patrick Edwardson 5/5 3/3 2/2 2/2 Vicky Hastings 5/5 3/3 2/2 2/2 1 Annabel Bannerman 1/1 1/1 1/1 1/1 2 Aidan Lisser 4/4 2/2 1/1 1/1 3 Glen Suarez 2/2 1/1 1/1 1/1 1 Annabel Bannerman was appointed on 7 February 2023 The Directors have declared any potential conflicts of 2 Aidan Lisser was appointed on 27 May 2022 interest to the Company. The register of potential conflicts 3 Glen Suarez retired from the Board with effect from 21 July 2022 of interests is kept at the registered office of the Company. During the year in review, the individual Directors attended It is reviewed regularly by the Board and Directors know 100% of possible meetings of the Board and Committees. to advise the Company Secretary as soon as they become aware of any potential conflicts of interest. DIRECTORS STREAMLINED ENERGY & CARBON REPORTING Directors’ Interests in Shares The Directors’ interests in the ordinary share capital of the ‘SECR’ Company are disclosed in the Directors’ Remuneration The Company’s disclosure with respect to SECR reporting is Report on page 45. given in the Strategic Report on page 27. Disclosable Interests PROPOSED DIVIDENDS No Director was a party to, or had any interests in, any The Directors propose payment of a final dividend to contract or arrangement with the Company at any time shareholders, the details of this are given on page 14 of the during the year or at the year end. Strategic Report. Director’s Indemnities and Insurance INTERNAL CONTROLS AND RISK MANAGEMENT The Company maintains Directors’ and Officers’ liability The AIC Code requires the Board to oversee the effectiveness insurance which provides appropriate cover for any legal of the Company’s system of internal controls. The Board action brought against its Directors. In addition, individual assumes its ultimate responsibility for the Company’s system deeds of indemnity have been executed on behalf of the of internal controls and for monitoring its effectiveness. Company for each of the Directors under the Company’s The Company’s system of internal controls is designed to Articles of Association. Subject to the provisions of UK manage rather than eliminate risk of failure to achieve the legislation, these deeds provide that the Directors may be Company’s investment objective and/ or adhere to the indemnified out of the assets of the Company in respect of Company’s investment policy and/or investment limits. liabilities they may sustain or incur in connection with their This system can therefore provide only reasonable and not appointment. absolute assurance against material misstatement or loss. The Board has undertaken a review of the aspects covered by CONFLICTS OF INTEREST the guidance and has identified risk management controls in A Director must avoid a situation where he or she has, or the key areas of business objectives, accounting, compliance, can have, a direct or indirect interest that conflicts, or has operations and secretarial as being matters of particular the potential to conflict with the Company’s interests. The importance upon which it requires reports. Articles of Association of the Company give the Directors The Board believes that the existing arrangements, set out authority to authorise potential conflicts of interest and below, represent an appropriate framework to meet the there are safeguards which apply when Directors decide internal control requirements. By these procedures the whether to do so. First, only Directors who have no interest Directors have kept under review the effectiveness of the in the matter being considered are able to take the relevant internal control system throughout the year and up to the decision, and second, in taking the decision the Directors date of this report. must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The Directors can The Company’s internal controls and risk management impose limits or conditions when giving authorisation if they systems have been reviewed with the Manager against risk think this is appropriate. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 41 parameters approved by the Board. The Board reviews a risk control summary at its quarterly Board meetings and an annual formal review of the risk procedures and controls in place at the Manager and other key service providers is performed. The Audit Committee reviews and makes recommendations to the Board, at least annually, the effectiveness of the Company's system of internal controls, including financial, operational and compliance and risk management systems. The Board confirms that necessary actions would be taken to remedy any significant failings or weaknesses identified from their review and that no significant failings or weaknesses occurred throughout the year ended 31 March 2023 and up to the date of this annual financial report. The Board reviews financial reports and performance against forecasts, relevant stock market criteria and the Company's peer group. In addition, the Manager and custodian maintain their own systems of internal controls and risk management and the Board and Audit Committee receive regular reports from the Compliance Department of the Manager. Formal reports are also produced annually on the internal controls and procedures in place for the operation of secretarial, administrative, custodial, investment management and accounting activities. ## GOING CONCERN The financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, being taken as at least twelve months after the signing of the balance sheet, for the same reasons as set out in the Viability Statement on page 22. In considering this, the Directors took into account both ongoing expenses and any obligations under the Company's borrowing (unsecured notes). In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. As at 31 March 2023, the Company held £22.4m (2022: £68.7m) in cash and cash equivalents and £1,226.7m (2022: £1,218.7m) in quoted investments. The Company's audited net assets as at 31 March 2023 were £1,139.3m (2022: £1,175.8m). Given the level of market volatility experienced due to the impact of the COVID-19 pandemic and Russia's invasion of Ukraine, the Manager has performed stress tests on the Company's portfolio of investments under current conditions and the Board remains comfortable with the liquidity of the portfolio. It is estimated that over 99% by value of the quoted investments held at the year-end could be realised in one month under normal market conditions. The Board also considered the Company's obligations with respect to the Company's borrowing. On 30 September 2021, the Company announced an issue of £120m of long-term fixed rate Unsecured Senior Loan Notes with a weighted average cost of 2.44% of which £20m was drawn in October 2021. The other £100m was drawn in September 2022 to repay the £100m 7.75% debenture on its maturity. These notes require the Net Assets of the Company to remain not less than £300m. The Board, which routinely monitors borrowing restrictions, does not anticipate difficulties in meeting this. The Company previously had a £25m revolving credit facility in place with The Bank of New York Mellon. This facility had not been utilised for a number of years and was not renewed when it matured in June 2022. The total ongoing charges (excluding taxation, non-recurring legal and professional fees and finance costs) for the year ended 31 March 2023 were £6.1 million (2022: £6.0 million) or 0.53% of Net assets (2022: 0.52%). ## THE MANAGER On 4 March 2020, the Board appointed Majedie Asset Management Limited ('Majedie') as its Alternative Investment Fund Manager. As disclosed last year with effect from 1 April 2022, Liontrust Fund Partners LLP was appointed the Manager following completion of the acquisition of Majedie by Liontrust Asset Management Plc. The responsibility for the day-to-day investment management activities of the Company has been delegated to Liontrust Investment Partners LLP. ## Investment Management Agreement ('IMA') The Manager provides investment and administration services to the Company under an investment management agreement dated 3 March 2020. The agreement is terminable by either party by giving not less than three months' notice. The monthly management fee is calculated on 0.04000% on the first £500 million and 0.03875% on the remainder of the market capitalisation of the Company's ordinary shares at each month end and paid monthly in arrears (equivalent to an annualised fee of 0.480% on the first £500m and 0.465% on the remainder). There is no performance fee. In 2023 the Ongoing Charges ratio was 0.53%. ## Assessment of the Manager The Management Engagement Committee has carried out a review of the Manager and following recommendation from the Committee, the Board considers that the continuing appointment of Liontrust Fund Partners LLP as Manager is in the best interests of the Company and its shareholders. ## COMPANY SECRETARY The Board appointed Apex Listed Companies Services (UK) Limited (formerly Sanne Fund Services (UK) Limited) as a company secretary to the Company. The Board has continuous direct access to the advice and services of the corporate Company Secretary, who are responsible for ensuring that the Board and Committee procedures are followed, and that applicable rules and regulations are complied with. The Company Secretary provides full company secretarial services to the Company, ensuring 42 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC # DIRECTORS' REPORT / CONTINUED that the Company complies with all legal, regulatory and corporate governance requirements and officiating at Board meetings and shareholders' meetings. The Company Secretary is also responsible to the Board for ensuring timely delivery of information and reports and that the statutory obligations of the Company are met. Finally, the Company Secretary is responsible for advising the Board through the Chair on all governance matters. During the year, Apex Group plc acquired Sanne Fund Services (UK) Limited and subsequently the name of the Company's Company Secretary changed from Sanne Fund Services (UK) Limited to Apex Listed Companies Services (UK) Limited. # **SHARE CAPITAL** # **Capital Structure** At the year end, the Company's allotted and fully paid share capital consisted of 195,666,734 ordinary and treasury shares of 25p each of which 30,190,209 shares are held in treasury. To enable the Board to take action to deal with any significant overhang or shortage of shares in the market, it seeks approval from shareholders every year to buy back and sell shares. No shares were issued in the year. During the year 5,601,604 ordinary shares were repurchased for holding in treasury at an average price of 632.40p per share (including costs). Since the year end up until 22 May 2023, being the latest practicable date before the printing of this report, 655,000 ordinary shares have been bought back for holding in treasury. # **SUBSTANTIAL HOLDINGS IN THE COMPANY** The Company has received notifications, or has otherwise been made aware, in accordance with the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 5 of the following interests (% as at the date of notification): | | Shares | % | | --- | --- | --- | | Rathbone Investment Management | 11,970,957 | 7.23 | # **RESTRICTIONS** There are no restrictions concerning the transfer of securities in the Company, no special rights with regard to control attached to securities, no agreements between holders of securities regarding their transfer known to the Company, no restrictions on the distribution of dividends and the repayment of capital, and no agreements to which the Company is party that might affect its control following a successful takeover bid. # **Voting** At a general meeting of the Company, every shareholder has one vote on a show of hands and, on a poll, one vote for each share held. The notice of general meeting specifies deadlines for exercising voting rights either by proxy or present in person in relation to resolutions to be passed at a general meeting. # **Repurchase Powers** The Board's current powers to repurchase shares and proposals for their renewal are disclosed on page 43. # **DISCLOSURES REQUIRED BY UKLA LISTING RULE 9.8.4** The above rule requires listed companies to report certain information in a single identifiable section of their annual financial reports. None of the prescribed information is applicable to the Company for the year under review. # **INDIVIDUAL SAVINGS ACCOUNT (ISA)** The ordinary shares of the Company are qualifying investments under applicable ISA regulations. # **BUSINESS OF THE ANNUAL GENERAL MEETING (AGM)** The following summarises the business of the forthcoming AGM of the Company, which is to be held on 19 July 2023 at 11.00am. The notice of the AGM and related notes can be found on pages 77 to 80. All resolutions are ordinary resolutions unless otherwise identified. Resolution 1 is for members to receive and consider this Annual Financial Report (AFR), including the financial statements and auditor's report. Resolution 2 is for members to approve the Annual Statement and Report on Remuneration for the year ended 31 March 2023. Resolution 3 is to declare a final dividend for the year. Resolutions 4 to 7 are to re-elect the Directors. Biographies of the Directors can be found on pages 29 and 30. Resolution 8 is to elect Annabel Tagoe-Bannerman as a Director. Annabel's biography can be found in the Chair's Statement on page 5 and on page 30. Vicky Hastings will not be offering herself for re-election at the AGM having completed a ten-year term as a director of the Company. All other Directors will stand for re-election by shareholders at the AGM. The Board has determined that each of the Directors is independent, continues to perform effectively and demonstrates commitment to their role. Their balance of knowledge and skills combined with their diversity and business experience makes a major contribution to the functions of the Board and its Committees. Elisabeth Stheeman has extensive executive and non-executive experience in financial services and real estate and governance that bring highly relevant and valuable skills to the Board. Steven Baldwin is a Chartered Accountant and his experience in a range of industries brings a breadth of experience to the meetings. Patrick Edwardson has many years of investment experience as a fund manager and deep knowledge of the UK equity market and investment companies. Aidan Lisser has considerable experience as an investment trust non-executive director and is also a member of the Association of Investment Companies' Marketing THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 43 Committee. Annabel Tagoe-Bannerman has considerable The Company will finance the purchase of ordinary shares by experience in senior roles in commercial operations, law, using its existing cash balance or borrowing facilities or by governance as well as in diversity, equity and inclusion within selling securities in the Company’s portfolio. quoted UK operating companies within the retail, leisure, The Directors might consider holding repurchased shares as food and beverage sectors. treasury shares with a view to possible resale. Resolutions 9 and 10 are to re-appoint Special Resolution 14: Notice Period for General Meetings. PricewaterhouseCoopers LLP as auditor and to authorise The Shareholder Rights Directive increased the notice period the Audit Committee to determine their remuneration. for general meetings of companies to 21 days unless certain Special Business conditions are met in which case it may be 14 days’ notice. Resolution 11: Authority to Allot Shares is an Ordinary A shareholders’ resolution is required to ensure that the Resolution seeking renewal of the current authority for Company’s general meetings (other than Annual General the Directors to allot up to 10% of the issued ordinary Meetings) may be held on 14 days’ notice. Accordingly, share capital, this being an aggregate nominal amount of Special Resolution 14 will propose that the period of notice £4,891,668 as at 22 May 2023, (being the last practicable day for general meetings of the Company (other than AGMs) prior to the publication of this Notice). shall not be less than 14 days’ notice. It is intended that Special Resolution 12: Authority to Allot Shares is a Special this flexibility will be used only where the Board believes it Resolution which seeks renewal of the current authority to is in the best interests of shareholders as a whole, and an allot equity securities pursuant to a rights issue or to issue explanation will be provided. up to 10% of the issued ordinary share capital otherwise than The Directors have carefully considered all the resolutions in connection with a rights issue, dis-applying pre-emption proposed in the Notice of the AGM and, in their opinion, rights. This will allow shares to be issued to new shareholders, consider them all to be in the best interests of shareholders within the prescribed limits, without having to be offered to as a whole. The Directors therefore recommend that existing shareholders first, thus broadening the shareholder shareholders vote in favour of each resolution as they intend base of the Company. The Directors will not dilute the to do in respect of their own beneficial holdings. interests of existing shareholders by using the authority to issue shares at a price which is less than the Net Asset Value By order of the Board (calculated with debt at fair value) of the existing shares in issue at that time. These authorities will expire at the next APEX LISTED COMPANIES SERVICES (UK) LIMITED AGM of the Company or fifteen months after the passing of the resolutions, whichever is the earlier. COMPANY SECRETARY / 26 MAY 2023 Special Resolution 13: Authority to Buy Back Shares. This resolution seeks to renew the Directors’ authority to purchase up to 14.99% of the Company’s issued share capital, this being 29,330,443 ordinary shares as at 22 May 2023, (being the last practicable day prior to the publication of this Notice). The authority will expire at the Company’s next AGM or 15 months following the passing of this resolution, if earlier. The principal purpose of share buy-backs is to enhance the net asset value for remaining shareholders and purchases will only be made if they do so. In accordance with the UK Listing Rules, the maximum price which may be paid for a share must not be more than the higher of: (i) 5% above the average of the mid-market values of the shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade in the shares and the highest then current independent bid for the shares on the London Stock Exchange. The minimum price which may be paid will be 25p per share, this being the nominal value of a share. In making purchases, the Company will deal only with member firms of the London Stock Exchange. 44 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC ## STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT The Directors are responsible for preparing the annual Under applicable law and regulations, the Directors are financial report and financial statements in accordance with also responsible for preparing a Strategic Report, Directors’ applicable law and regulations. Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and Company law requires the Directors to prepare financial thoseregulations. statements for each financial year. Under that law they are required to prepare the financial statements in accordance The Directors are responsible for the maintenance and with UK accounting standards, including FRS 102 The integrity of the corporate and financial information included Financial Reporting Standard applicable in the UK and on the Company’s website, which is maintained by the Republic of Ireland. Company’s Manager. Legislation in the UK governing the preparation and dissemination of financial statements may Under company law the Directors must not approve the differ from legislation in other jurisdictions. financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and RESPONSIBILITY STATEMENT OF THE DIRECTORS of its profit or loss for that period. IN RESPECT OF THE ANNUAL FINANCIAL REPORT We confirm that to the best of our knowledge: In preparing these financial statements, the Directors are required to: – the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and – select suitable accounting policies and then apply them fair view of the assets, liabilities, financial position and consistently; profit or loss of the Company; and – make judgements and estimates that are reasonable and – the Strategic Report includes a fair review of the prudent; development and performance of the business and the – state whether applicable UK accounting standards position of the Company, together with a description of have been followed, subject to any material departures the principal risks and uncertainties that it faces. disclosed and explained in the financial statements; We consider the annual financial report, taken as a whole, – assess the Company’s ability to continue as a going is fair, balanced and understandable and provides the concern, disclosing, as applicable, matters related to information necessary for shareholders to assess the going concern; and Company’s position and performance, business model and strategy. – use the going concern basis of accounting unless they either intend to liquidate the Company or to cease Signed on behalf of the Board of Directors operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate ELISABETH STHEEMAN accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable CHAIR accuracy at any time the financial position of the Company 26 MAY 2023 and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal controls as they determine are 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. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 45 ## DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2023 This report has been prepared under the requirements of The performance of their duties. Directors are not eligible for Large and Medium-sized Companies and Group (Accounts bonuses, pension benefits, share options or other incentives and Reports) (Amendment) Regulations 2013. or benefits. There are no agreements between the Company and its Directors concerning compensation for loss of office. The Company’s auditor is required to audit certain of the disclosures provided in this Report. Where disclosures Notwithstanding the above, the Company’s Articles also have been audited, they are indicated in this Report. The provide that additional discretionary payments can be made independent auditor’s opinion is included on pages 50 to 56. for services which, in the opinion of the Directors, are outside the scope of the ordinary duties of a Director. REMUNERATION RESPONSIBILITIES The Board has resolved that a remuneration committee The level of Directors’ remuneration is reviewed annually, is not appropriate for a company of this size and nature. although such review will not automatically result in any Remuneration is therefore regarded as part of the Board’s changes. This Directors’ Remuneration Policy will apply to any responsibilities to be addressed regularly. All Directors are new directors, who will be paid the appropriate fee based on non-executive and they all participate in meetings of the the Directors’ fees level in place at the date of appointment. Board at which Directors’ remuneration is considered. The Board will consider, where raised, shareholders’ views on Directors’ remuneration. DIRECTORS’ REMUNERATION POLICY The Board may amend the level of remuneration paid The Directors’ Remuneration Policy (the ‘Policy’) is put to Directors within the parameters of the Directors’ before shareholders for approval every three years and was Remuneration Policy. This Directors’ Remuneration Policy is approved by shareholders at the AGM on 21 July 2022 and the same as that currently followed by the Board as disclosed became effective on that date. in last year’s Directors’ Remuneration Report. The policy is that the remuneration of Directors should be fair The Company has no employees and consequently has no and reasonable in relation to that of other investment trusts policy on the remuneration of employees. and to the time commitment and responsibilities undertaken. It should also be reviewed relative to movements in the Retail ANNUAL STATEMENT ON DIRECTORS’ Price Index and be sufficient and motivate appointees, as well REMUNERATION as ensure that candidates of a high calibre are recruited to For the year ended 31 March 2023, fees paid to the Directors the Board but not be more than necessary for the purpose; per annum were: and take into consideration any committee memberships and chairing duties. | | | Current fee | | | | Previous | | | Percentage | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Fees for the Directors are determined by the Board within | | | from | | fee before | | | | | increase | | | | the limits stated in the Company’s Articles of Association | | 1 December | | | 1 December | | | | during the | | | | | (’Articles’). The maximum currently is £250,000 in aggregate | | | 2022 | | | | 2022 | | | | year | | | | Role | | | £ | | | | £ | | | | % | per annum. The remuneration of the Directors is approved by the Board under The Matters Reserved for the Board Chair 44,000 44,000 – document, which can be found, together with the Company’s Senior Independent Articles or Association, in section Insights and Literature on 31,500 31,500 – Director the Company’s website at www.edinburgh-investment-trust. Audit Committee co.uk 35,000 35,000 – Chair Directors do not have service contracts. Directors are Director 28,500 28,500 – appointed under letters of appointment, copies of which There has been no change to the Board’s fees during the year are available for inspection at the registered office of the under review. Company. Directors are entitled to be reimbursed for any reasonable expenses properly incurred by them in the 46 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC DIRECTORS’ REMUNERATION REPORT / CONTINUED REMUNERATION FOR THE YEAR ENDED 31 MARCH 2023 THE COMPANY’S PERFORMANCE The following graph plots, in annual increments, the net asset value total return and share price total return to ordinary shareholders compared to the total return of the FTSE All-Share Index over the ten years to 31 March 2023. This index is the benchmark adopted by the Company for comparison purposes. Total Return Graph 200 Share Price Net Asset Value - debt at fair value FTSE All-Share Index 150 100 50 2013 20222014 2015 2016 2017 2018 2019 2020 2021 2023 Source: Refinitiv. Figures have been rebased to 100 at 31 March 2013. SINGLE TOTAL FIGURE OF REMUNERATION FOR THE YEAR (AUDITED) The single total figure of remuneration for each Director is detailed below, together with the prior year comparative: | | | | Year | | | | | | | Year | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | ended | | | | | | | ended | | | | | | | 31 March | | | | | | | 31 March | | | | | | | | | 2023 | | | | | | | 2022 | | | | | | | Taxable | | | | | | | Taxable | | | | | | | | | | (1) | | | | | | | (1) | | | | Fees | | Benefits | | | Total | | Fees | | Benefits | | | Total | | | | £ | | | £ | | £ | | £ | | | £ | | £ | Elisabeth Stheeman 40,063 901 40,964 27,167 228 27,395 (Chair from 21 July 2022) Vicky Hastings 31,500 465 31,965 30,667 320 30,987 Steve Baldwin 35,000 785 35,785 31,720 – 31,720 Patrick Edwardson 28,500 1,620 30,120 27,167 1,226 28,393 Aidan Lisser 24,140 741 24,881 – – – Tot l Return G a h (Fi ures have be (appointed 27 May 2022) At 31 Marc 2013 Annabel Tagoe-Bannerman 4,421 – 4,421 – – – (appointed 7 February 2023) Glen Suarez (retired 21 July 2022) 14,307 6,819 21,126 44,000 4,887 48,887 Gordon McQueen – – – 10,239 289 10,528 (retired 22 July 2021) Maxwell Ward – – – 8,222 – 8,222 (retired 22 July 2021) Total 177,931 11,331 189,262 179,182 6,950 186,132 (1) Taxable benefits relate to grossed up costs of travel. THE EDINBURGH INVESTMENT TRUST PLC / GOVERNANCE / 47 In accordance with The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, this table has been included to show the annual percentage change over the preceding financial year by comparison to the current financial year in respect of each Director. The Board will publish this annual percentage change cumulatively each year going forward until there is an annual percentage change over the five financial years preceding the relevant financial year in accordance with the new regulation. These fees exclude taxable benefits which could vary substantially as they reflect expenses incurred whilst carrying out the boards duties. The single total figure of remuneration for each Director is detailed below, with year on year changes since year ended 31 March 2020. | | | | | | Year | | | | | Year | | | | | Year | | | | | Year | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | ended | | | | | ended | | | | | ended | | | | | ended | | | | | | | 31 March | | | | | 31 March | | | | | 31 March | | | | | 31 March | | | | | | | | | 2023 | | | | | 2022 | | | | | 2021 | | | | | 2020 | | | | | Fees | | Benefits | | | Fees | | Benefits | | | Fees | | Benefits | | | Fees | | Benefits | | | | Non–executive directors | | | £ | | | £ | | £ | | | £ | | £ | | | £ | | £ | | | £ | | Elisabeth Stheeman | Total 40,063 901 27,167 228 24,967 0 20,763 0 | | | | | | | | | | | | | | | | | | | | | (Chair from 21 July 2022) % change 47% 295% 9% -% 20% -% -% -% Vicky Hastings(1) Total 31,500 465 30,667 320 33,416 0 26,502 0 % change 3% 45% (8)% -% 26% -% -% -% Steve Baldwin Total 35,000 785 31,720 0 24,967 0 24,200 0 % change 10% -% 27% -% 3% -% -% -% Patrick Edwardson Total 28,500 1,620 27,167 1,226 3,515 – – – % change 5% 32% 673% -% -% -% -% -% Aidan Lisser Total 24,140 741 – – – – – – (appointed 27 May 2022) % change -% -% -% -% -% -% -% -% Annabel Tagoe- Bannerman (appointed Total 4,421 – – – – – – – 7February 2023) % change -% -% -% -% -% -% -% -% Glen Suarez Total 14,307 6,819 44,000 4,887 44,000 0 44,000 9,327 (retired 21 July 2022) % change (67)% 40% 0% -% 0% (100)% -% -% Former directors Gordon McQueen Total – – 10,239 289 31,000 0 30,000 3,109 (retired 22 July 2021) % change -% -% (67)% -% 3% (100)% -% -% Maxwell Ward Total – – 8,222 0 24,967 0 24,200 2,552 (retired 22 July 2021) % change -% -% (67)% -% 3% (100)% -% -% Sir Nigel Wicks Total – – – – – – 8,759 – (retired 25 July 2019) % change -% -% -% -% -% -% -% -% Total 177,931 11,331 179,182 6,950 186,832 – 178,424 14,988 Total % change (1)% 63% (4)% -% 5% -% – – Notes (1) In 2021 Vicky Hastings received a one-off discretionary payment of £5,000 in recognition of her work on the change of manager in the previous year. 48 / GOVERNANCE / THE EDINBURGH INVESTMENT TRUST PLC DIRECTORS’ REMUNERATION REPORT / CONTINUED DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS (AUDITED) Save as here stated, no Director had any interests, beneficial or otherwise, in the ordinary shares or debenture stock of the Company during the year. No changes to these holdings have been notified since the year end, except as notified on 13 April 2023, Elisabeth Stheeman’s holdings increased by 2,950 shares resulting in 11,900 total interest as at 22 May 2023, (being the last practicable day prior to the publication of this report). No connected person interests have been notified. Directors hold shares in the Company at their discretion. Share ownership is encouraged, but no guidelines have been set. Thebeneficial interests of the Directors in the ordinary share capital of the Company are set out below: 31 March 31 March 2023 2022 Elisabeth Stheeman 8,950 6,000 Vicky Hastings 9,000 9,000 Steve Baldwin – – 1 Patrick Edwardson 60,000 60,000 Aidan Lisser 3,900 n/a Annabel Tagoe-Bannerman – n/a 2 | Glen Suarez | 37,000 37,000 | | --- | --- | | 1 Patrick Edwardson’s holding includes 13,000 shares which are being held by a connected person. | | | 2 Retired 21 July 2022. | | RELATIVE IMPORTANCE OF SPEND ON PAY The following table compares the remuneration paid to the non-executive Directors with aggregate distributions to shareholders in respect of the year to 31 March 2023 and the prior year: 2023 2022 Change £’000 £’000 £’000 Aggregate Directors’ Remuneration 189 185 4 Aggregate Shareholder Distributions 43,626 42,512 1,114 VOTING AT LAST ANNUAL GENERAL MEETING At the Annual General Meeting of the Company held on 21 July 2022 a resolution approving the Chair’s Annual Statement and Report on Remuneration were passed. The votes cast (including votes cast at the Chair’s discretion) were as follows. Votes Votes Votes For % Against % Withheld Annual Statement and Report on Remuneration 52,038,494 99.39 320,648 0.61 117,994 APPROVAL This Directors’ Remuneration Report was approved by the Board of Directors on 26 May 2023. ELISABETH STHEEMAN CHAIR 26 MAY 2023 Signed on behalf of the Board of Directors ## FINANCIAL REVIEW 50 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC ## INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE EDINBURGH INVESTMENT TRUST PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion In our opinion, The Edinburgh Investment Trust plc’s financial statements: – give a true and fair view of the state of the Company’s affairs as at 31 March 2023 and of its return and cash flows for the year then ended; – have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and – have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Financial Report (the “Annual Report”), which comprise: the Balance Sheet as at 31 March 2023; the Income Statement, the Statement of Changes in Equity and the Cash Flow Statement for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided. We have provided no non-audit services to the Company in the period under audit. OUR AUDIT APPROACH Context The Company is a standalone Investment Trust Company and engages Liontrust Fund Partners LLP (the “Manager”) to manage its assets. Overview Audit scope – We conducted our audit of the financial statements using information from Bank of New York Mellon (International) Limited (the “Administrator” and the “Custodian”) and Apex Listed Company Services (UK) Limited (the “Company Secretary”) to whom the Manager has, with the consent of the Directors, delegated the provision of certain administrative functions. – We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the third parties referred to above, the accounting processes and controls, and the industry in which the Company operates. – We obtained an understanding of the control environment in place at both the Manager and the Administrator, and adopted a fully substantive testing approach using reports obtained from the Administrator. Key audit matters – Valuation and existence of investments – Accuracy, completeness and occurrence of income Materiality – Overall materiality: £11,392,000 (2022: £11,758,000) based on 1% of Net Assets. – Performance materiality: £8,544,000 (2022: £8,818,000). THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 51 The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. The key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Valuation and existence of investments Refer to the Audit Committee Report, the Accounting Policies and Notes to the Financial Statements. The investment portfolio at the year end comprised We tested the valuation of the quoted equity investments by quoted equity investments valued at £1,227 million. agreeing the prices used in the valuation to independent third- party sources. No material misstatements were identified from We focused on the valuation and existence of this testing. investments because investments represent the principal element of the net asset value as disclosed We tested the existence of the quoted equity investment portfolio on the Balance Sheet in the Financial Statements. by agreeing investment holdings to an independent custodian confirmation. No material misstatements were identified from this testing. Accuracy, completeness and occurrence of income Refer to the Audit Committee Report, the Accounting Policies and Notes to the Financial Statements. We focused on the accuracy, completeness and We assessed the accounting policy for investment income occurrence of investment income recognition as recognition for compliance with accounting standards and the incomplete or inaccurate income could have a material AIC SORP and performed testing to verify that income from impact on the Company’s net asset value. investments had been accounted for in accordance with this stated accounting policy. We also focused on the accounting policy for investment income recognition and the presentation We found that the accounting policies implemented were in of investment income in the Income Statement accordance with accounting standards and the AIC SORP, for compliance with the requirements of The and that income from investments has been accounted for in Association of Investment Companies Statement of accordance with the stated accounting policy. Recommended Practice (the “AIC SORP”), as incorrect We tested accuracy of dividend receipts by agreeing the dividend application could indicate a misstatement in income rates from investments to independent market data. recognition. To test for completeness, we tested, for all investment holdings in the portfolio, that all dividends declared in the market for investment holdings had been recorded. We tested occurrence by tracing a sample of dividends received to bank statements. We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Income Statement in line with the requirements set out in the AIC SORP by determining reasons behind dividend distributions. No material misstatements were identified from this testing. 52 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC INDEPENDENT AUDITOR’S REPORT / CONTINUED How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which it operates. The Company’s accounting is delegated to the Administrator who maintains the Company’s accounting records and who has implemented controls over those accounting records. We obtained our audit evidence from substantive tests. However, as part of our risk assessment, we understood and assessed the internal controls in place at both the Manager and the Administrator to the extent relevant to our audit. This assessment of the operating and accounting structure in place at both organisations involved obtaining and analysing the relevant controls reports issued by the independent service auditor of the Manager and the Administrator in accordance with generally accepted assurance standards for such work. Following this assessment, we applied professional judgement to determine the extent of testing required over each balance in the financial statements. The impact of climate risk on our audit In conducting our audit, we made enquiries of the Directors and the Investment Manager to understand the extent of the potential impact of climate change risk on the Company’s financial statements. The Directors and Investment Manager concluded that the impact on the measurement and disclosures within the financial statements is not material because the majority of the Company’s investment portfolio is made up of level 1 quoted securities which are valued at fair value based on market prices. We found this to be consistent with our understanding of the Company’s investment activities. We also considered the consistency of the climate change disclosures included in the Strategic Report and Investment Manager Report with the financial statements and our knowledge from our audit. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Company materiality £11,392,000 (2022: £11,758,000). How we determined it 1% of Net Assets Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice for investment trust audits. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £8,544,000 (2022: £8,818,000) for the Company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £569,000 (2022: £587,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 53 CONCLUSIONS RELATING TO GOING CONCERN Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included: – evaluating the Directors’ updated risk assessment and considering whether it addressed relevant threats; – evaluating the Directors’ assessment of potential operational impacts, considering their consistency with other available information and our understanding of the business and assessed the potential impact on the financial statements; – reviewing the Directors’ assessment of the Company’s financial position in the context of its ability to meet future expected operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and oversight of key third-party service providers; – assessing the premium/discount the Company’s share price trades as compared to the net asset value per share; and – assessing the implication of significant reductions in NAV as a result of market performance on the ongoing ability of the Company to operate. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Company’s ability to continue as a going concern. In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. REPORTING ON OTHER INFORMATION The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 March 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. 54 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC INDEPENDENT AUDITOR’S REPORT / CONTINUED CORPORATE GOVERNANCE STATEMENT The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: – The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks; – The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; – The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; – The Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate; and – The Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the Directors’ statement regarding the longer-term viability of the Company was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the Company and its environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: – The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Company’s position, performance, business model and strategy; – The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and – The section of the Annual Report describing the work of the Audit Committee. We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 55 RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Responsibilities of the Directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also 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. In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of Chapter 4 of Part 24 of the Corporation Tax Act 2010, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue (investment income and capital gains) or to increase net asset value. Audit procedures performed by the engagement team included: – Enquiries with management, including consideration of known or suspected instances of non-compliance with laws and regulations and fraud; – Understanding the controls implemented by Liontrust Fund Partners LLP (the “Manager”) and The Bank of New York Mellon (International) Limited (the “Depository” and “Custodian”) designed to prevent and detect irregularities; – Assessment of the Company’s compliance with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act 2010, including recalculation of numerical aspects of the eligibility conditions; – Identifying and testing journal entries, in particular year end journal entries posted by the Fund Accountant during the preparation of the financial statements; – Reviewing relevant meeting minutes, including those of the Audit Committee; and – Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www. frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. 56 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC INDEPENDENT AUDITOR’S REPORT / CONTINUED Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. OTHER REQUIRED REPORTING Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: – we have not obtained all the information and explanations we require for our audit; or – adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or – certain disclosures of Directors’ remuneration specified by law are not made; or – the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the Audit Committee, we were appointed by the Directors on 25 July 2019 to audit the financial statements for the year ended 31 March 2020 and subsequent financial years. The period of total uninterrupted engagement is 4 years, covering the years ended 31 March 2020 to 31 March 2023. OTHER MATTER As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. Jeremy Jensen (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 26 May 2023 THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 57 ## INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH | | | | 2023 | | | | 2022 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Revenue | | Capital | Total | Revenue | | Capital | Total | | Notes | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Gains on investments held at fair 9(b) – 6,023 6,023 – 101,815 101,815 value Losses on foreign exchange – (191) (191) – (148) (148) Income 2 48,998 – 48,998 44,211 10,036 54,247 Investment management fee 3 (1,492) (3,482) (4,974) (1,512) (3,528) (5,040) Other expenses 4 (1,092) (7) (1,099) (977) (9) (986) Net return before finance costs 46,414 2,343 48,757 41,722 108,166 149,888 and taxation Finance costs 5 (1,718) (4,015) (5,733) (2,492) (5,815) (8,307) Return/(loss) on ordinary 44,696 (1,672) 43,024 39,230 102,351 141,581 activities before taxation Tax on ordinary activities 6 (781) – (781) (663) – (663) Return/(loss) on ordinary activities after taxation for the 43,915 (1,672) 42,243 38,567 102,351 140,918 financial year Return/(loss) per ordinary share: Basic and diluted 7 25.99p (0.99)p 25.00p 22.41p 59.47p 81.88p 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. The accompanying notes are an integral part of these financial statements. 58 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC ## BALANCE SHEET AT 31 MARCH 2023 2023 2022 Notes £’000 £’000 Non current assets Investments held at fair value 9(a) 1,226,649 1,218,725 Current assets Debtors 10 12,392 10,824 Cash and cash equivalents 22,362 68,728 Total assets 1,261,403 1,298,277 Non current liabilities Unsecured Senior Loan Notes 12 (120,000) (20,000) Current liabilities Other payables 11 (2,059) (2,566) 7.75% Debenture Stock 30 Sep 2022 11 – (99,874) Total liabilities (122,059) (122,440) Net assets 1,139,344 1,175,837 Equity | Called up share capital | 13 48,917 48,917 | | --- | --- | | Share premium account | 14 10,394 10,394 | | Capital redemption reserve | 14 24,676 24,676 | | Capital reserve | 14 1,003,989 1,041,086 | Revenue reserve 14 51,368 50,764 Total equity 1,139,344 1,175,837 Net asset value per ordinary share: Basic and diluted - debt at par value 688.52p 687.24p Basic and diluted - debt at fair value 713.75p 686.69p The financial statements on pages 57 to 75 were approved and authorised for issue by the Board of Directors on 26 May 2023. ELISABETH STHEEMAN CHAIR Signed on behalf of the Board of Directors The accompanying notes are an integral part of these financial statements. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 59 ## STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH Capital | | Share | | Share | Redemption | | Capital | | Revenue | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | 1 | | | 1 | | | | Capital | Premium | | | Reserve | Reserve | | Reserve | | | Total | | Notes | £’000 | | £’000 | | £’000 | £’000 | | | £’000 | | £’000 | 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 2 13 – – – (6,993) – (6,993) in treasury At 1 April 2022 48,917 10,394 24,676 1,041,086 50,764 1,175,837 (Loss)/return on ordinary – – – (1,672) 43,915 42,243 activities Dividends paid 8 – – – – (43,311) (43,311) Shares bought back and held 2 13 – – – (35,425) – (35,425) in treasury At 31 March 2023 48,917 10,394 24,676 1,003,989 51,368 1,139,344 1 The revenue reserve and certain amounts of the capital reserve are distributable by way of dividend. 2 Shares bought back and held in treasury includes transaction costs. The accompanying notes are an integral part of these financial statements. 60 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC ## CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2023 2022 Notes £’000 £’000 Cash flow from operating activities Net return before finance costs and taxation 48,757 149,888 Tax on overseas income 6 (781) (663) Adjustments for: | Purchase of investments | (254,040) (426,367) | | | | --- | --- | --- | --- | | Sale of investments | | 251,961 462,132 | | | Gains on investments held at fair value | | (6,023) (101,815) | | | Increase in debtors | | (2,706) (3,201) | | | Increase in creditors | | | 37 128 | Net cash inflow from operating activities 37,205 80,102 Cash flow from financing activities | Interest paid on overdraft | | (3) (1) | | --- | --- | --- | | Interest and commitment fees paid on bank facility | | (12) (85) | | Interest paid on unsecured senior loan notes/debenture stocks | (4,372) (7,994) | | Issue of unsecured senior loan notes 100,000 20,000 Redemption of debenture loan stock (100,000) – Shares bought back and held in treasury (35,873) (6,545) Dividends paid 8 (43,311) (49,319) Net cash outflow from financing activities (83,571) (43,944) Net (decrease)/increase in cash and cash equivalents (46,366) 36,158 Cash and cash equivalents at start of the year 68,728 32,570 Cash and cash equivalents at the end of the year 22,362 68,728 Cash and cash equivalent comprises: | Cash held at custodian | 1,093 1,021 | | | --- | --- | --- | | Goldman Sachs Liquidity Reserve International Fund - Money Market Fund | 21,269 47,727 | | | UK Government Treasury Bill | | – 19,980 | Cash and cash equivalents 22,362 68,728 Cash flow from operating activities includes: | Dividends received | | | | | | 45,820 50,447 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Interest received | | | | | | | 6 – | | | | | At 1 April | | | | Non-cash | | | At 31 March | | | | | 2022 | Cash flow | | movement | | | | 2023 | | | | £’000 | | £’000 | | £’000 | | | £’000 | Reconciliation of net debt: Cash and cash equivalents 68,728 (46,366) – 22,362 Debenture Stock 7 3 / % 30 September 2022 (99,874) 100,000 (126) – 4 Unsecured Senior Loan Notes (20,000) (100,000) – (120,000) Total (51,146) (46,366) (126) (97,638) The accompanying notes are an integral part of these financial statements. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 61 ## 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 the Companies Act 2006, 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 (as amended in July 2022). 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 on page 41. 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 to present additional relevant information to readers of the financial statements. 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. 62 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC NOTES TO THE FINANCIAL STATEMENTS / CONTINUED (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 transaction price, being the fair value. For liabilities issued at a discount or with significant associated transaction costs, such discount and costs 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 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 THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 63 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 financial statements 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 No critical accounting judgements or estimates were made during the 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. L. Shares repurchased and held in treasury The cost of repurchasing ordinary shares (for cancellation or to hold in treasury) including the related stamp duty and transaction cost is charged to the capital reserve and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Where shares are cancelled (or are subsequently cancelled having previously been held in treasury), the nominal value of those shares is transferred out of Called up share capital and into the Capital redemption reserve. Should shares held in treasury be reissued, the sales proceeds will be treated as a realised capital profit up to the amount of the purchase price of those shares and will be transferred to capital reserves. The excess of the sales proceeds over the purchase price will be transferred to Share premium. 2. INCOME This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source. 2023 2022 £’000 £’000 Income from investments: | UK zero coupon bond income | | 148 11 | | --- | --- | --- | | UK dividends | 35,807 32,253 | | | UK special dividends | 6,999 6,689 | | | Overseas dividends | 5,287 5,193 | | | Overseas special dividends | | 358 – | Interest from money market funds 393 28 48,992 44,174 Other income: Deposit interest 6 – Underwriting commission – 37 6 37 Total income 48,998 44,211 No special dividends have been recognised in capital during the year (2022: £10,036,000). 64 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC # NOTES TO THE FINANCIAL STATEMENTS / CONTINUED # **3. INVESTMENT MANAGEMENT FEE** This note shows the fee due to the Manager. This is calculated and paid monthly. | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Investment management fee | 1,492 | 3,482 | 4,974 | 1,512 | 3,528 | 5,040 | | | 1,492 | 3,482 | 4,974 | 1,512 | 3,528 | 5,040 | Details of the investment management agreement is disclosed on page 41 in the Directors' Report. At 31 March 2023 investment management fees of £429,000 (2022: £427,000) were accrued. # **4. OTHER EXPENSES** The other expenses$^{(i)}$ of the Company are presented below, those paid to the Directors and the auditors are separately identified. | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | **Other expenses** | 1,092 | 7 | 1,099 | 977 | 9 | 986 | | Other expenses include the following: | | | | | | | | Directors' remuneration^{(ii)} | 189 | - | 189 | 184 | - | 184 | | Auditors' fees^{(iii)} | | | | | | | | - for audit of the Company's annual financial statements | 48 | - | 48 | 41 | - | 41 | The maximum Directors' fees authorised by the Articles of Association are £250,000 per annum. (i) Other expenses include: - £18,000 (2022: £17,000) of employer's National Insurance payable on Directors' remuneration. As at 31 March 2023, the amounts outstanding on Directors' remuneration and employer's National Insurance was £64,000 (2022: £nil); and - custodian transaction charges of £7,000 (2022: £9,000). These are charged to capital. (ii) There were seven directors for a period during the year and the Director's Remuneration Report on page 45 provides further information on Directors' fees. (iii) Auditor's fees include expenses but exclude VAT. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 65 5. FINANCE COSTS Finance costs arise on any borrowing facilities the Company has used. Borrowing facilities are the £120m notes (2022 £100m debenture stock, £20m notes and a £25m bank revolving credit facility). Please see note 12 for additional details of the Unsecured Senior Loan Note terms. 2023 2022 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 | | 4 8 12 18 42 60 | | --- | --- | --- | | – Interest on overdraft facility | | 1 2 3 – 1 1 | | – Debenture stock repayable within 1 year | 1,235 2,883 4,118 2,325 5,425 7,750 | | – Unsecured Senior Loan notes repayable after 5 years 442 1,032 1,474 73 171 244 Amortised debenture stock discount and issue costs 36 90 126 76 176 252 1,718 4,015 5,733 2,492 5,815 8,307 6. TAXATION 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 2023 2022 £’000 £’000 Overseas taxation 781 663 (b) Reconciliation of tax charge | | 2023 | 2022 | | --- | --- | --- | | | £’000 | £’000 | | Return on ordinary activities before taxation | 43,024 141,581 | | Theoretical tax at the current UK Corporation Tax rate of 19% (2022: 19%) 8,175 26,900 Effects of: | – Non-taxable UK dividends | (6,803) (6,128) | | | --- | --- | --- | | – Non-taxable UK special dividends | (1,398) (972) | | | – Non-taxable overseas dividends | | (982) (3,178) | | – Non-taxable gains on investments | (1,145) (19,345) | | | – Non-taxable losses on foreign exchange | | 36 28 | | – Excess of allowable expenses over taxable income | | 2,116 2,693 | | – Disallowable expenses | | 1 2 | – Overseas taxation 781 663 Tax charge for the year 781 663 66 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC NOTES TO THE FINANCIAL STATEMENTS / CONTINUED (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 £502,750,000 (2022: £491,547,000) that are available to offset future taxable revenue. A deferred tax asset of £125,687,483 (2022: £122,886,688) at 25% (2022: 25%) 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 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 168,985,796 (2022: 172,100,486) 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. 2023 2022 pence £’000 pence £’000 Dividends paid and recognised in the year: | – third interim paid in respect of previous year | 6.40 10,934 6.00 10,331 | | | --- | --- | --- | | – final paid in respect of previous year | 6.40 10,925 6.00 10,331 | | | – special dividend paid in respect of previous year | | – – 4.65 8,006 | | – first interim paid | 6.40 10,783 6.00 10,331 | | – second interim paid 6.40 10,669 6.00 10,320 25.60 43,311 28.65 49,319 2023 2022 pence £’000 pence £’000 Dividends payable in respect of the year: | – first interim | 6.40 10,783 6.00 10,331 | | --- | --- | | – second interim | 6.40 10,669 6.00 10,320 | | – third interim | 6.70 11,087 6.40 10,934 | – proposed final 6.70 11,087 6.40 10,927 26.20 43,626 24.80 42,512 The proposed final dividend is subject to approval by ordinary shareholders at the AGM. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 67 9. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT AND LOSS 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 2023 2022 £’000 £’000 Investments listed on a recognised investment exchange 1,226,649 1,218,419 Unlisted or not regularly traded investments at Directors' valuation – 306 1,226,649 1,218,725 (b) Analysis of investment gains: | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £’000 | £’000 | | Opening book cost | 1,048,510 1,026,675 | | | | Opening investment holding gains | | 170,215 124,333 | | | Opening fair value | 1,218,725 1,151,008 | | | Movements in year: | Purchases at cost | 252,724 427,683 | | --- | --- | | Sales - proceeds | (250,823) (461,781) | | Gains on investments in the year | 6,023 101,815 | Closing fair value 1,226,649 1,218,725 | Closing book cost | 1,040,163 1,048,510 | | --- | --- | | Closing investment holding gains | 186,486 170,215 | | Closing fair value | 1,226,649 1,218,725 | The Company received £250,823,000 (2022: £461,781,000) from investments sold in the year. The book cost of these investments when they were purchased was £261,072,000 (2022: £405,848,000) realising a loss of £10,249,000 (2022: gain of £55,933,000). 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 £1,162,000 (2022: £1,698,000) on purchases and £99,000 (2022: £152,000) 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. | | 2023 | | 2022 | | --- | --- | --- | --- | | | £’000 | | £’000 | | Amounts due from brokers | | – 1,138 | | | Overseas withholding tax recoverable | 2,316 1,897 | | | Prepayments and accrued income 10,076 7,789 12,392 10,824 68 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC NOTES TO THE FINANCIAL STATEMENTS / CONTINUED 11. OTHER PAYABLES: 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 sheetdate and those payable after that time. The main creditors have historically been the debenture and bank borrowings. The other creditors include any amounts due to brokers for the purchase of investments, amounts owing on share buy backs awaiting settlement or amounts owed to suppliers (accruals) such as the Manager and auditors. | | | 2023 | | 2022 | | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | | | 3 / | | | | | Debenture Stock 7 | 4 % redeemable 30 September 2022 | | – 99,874 | | | Amounts due to brokers | | | – 1,316 | | | Share buybacks awaiting settlement | | | – 448 | | Accruals 2,059 802 2,059 102,440 The debenture was redeemed at par on 30 September 2022. The effect on the net asset value of deducting the debenture stock at fair value, rather than at par, is disclosed in the Alternative Performance Measures on page 85. As at 31 March 2022 the Company had a 364 day committed revolving credit facility (the ‘bank facility’) of £25 million with The Bank of New York Mellon. The facility had not been utilised for a number of years, and a decision was taken that it would not be renewed when it matured on 15 June 2022. The Company has arranged refinancing for the debenture as previously noted. 12. UNSECURED SENIOR LOAN NOTES: 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. 2023 2022 Loan Notes £’000 £’000 Unsecured Senior Loan Notes – 2.26% interest rate, maturity 30 September 2037 35,000 – Unsecured Senior Loan Notes – 2.49% interest rate, maturity 30 September 2047 35,000 – Unsecured Senior Loan Notes – 2.53% interest rate, maturity 30 September 2051 20,000 20,000 Unsecured Senior Loan Notes – 2.53% interest rate, maturity 30 September 2057 30,000 – 120,000 20,000 The Unsecured Senior Loan Notes comprise four separate notes. As shown above, each has a fixed interest rate and contracted maturity date when the par value must be repaid. Interest is payable on a semi-annual basis, with equal amounts payable on each of 31 March and 30 September each year. These notes require the Net Assets of the Company to remain not less than £300m. This requirement was met throughout the year. 13. CALLED UP SHARE CAPITAL Share capital represents the total number of shares in issue, including treasury shares. 2023 2022 £’000 £’000 Share capital: Ordinary shares of 25p each 41,369 42,770 Treasury shares of 25p each 7,548 6,147 48,917 48,917 THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 69 2023 2022 Number of ordinary shares in issue: Brought forward 171,078,129 172,182,929 Shares bought back and held in treasury (5,601,604) (1,104,800) Carried forward 165,476,525 171,078,129 Number of shares held in treasury: Brought forward 24,588,605 23,483,805 Shares bought back into treasury 5,601,604 1,104,800 Carried forward 30,190,209 24,588,605 Total ordinary shares 195,666,734 195,666,734 During the year the Company bought back, into treasury, 5,601,604 (2022: 1,104,800) ordinary shares at an average price of 632.40p (2022: 632.95p) (including costs). Since the year end until 22 May 2023, (being the last practicable day prior to the publication of this report), 655,000 shares have been bought back into treasury Note 1L on page 63 explains the policy on the transaction costs related to the shares repurchased and held in treasury. The Directors’ Report on pages 36 and 43 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 (excluding treasury shares). NAV - debt at par value The shareholders funds in the balance sheet are accounted for in accordance with accounting standards. Prior to the redemption of the £100m debenture stock on 30 September 2022 this did not reflect the rights of shareholders on a return of assets under the Articles of Association. Those rights were reflected in the net assets with debt at par and the corresponding NAV per share. A reconciliation between the two sets of figures follows. As the £120m Unsecured Senior Loan Notes were issued at and being recorded at par, a reconciliation is not required. 2023 2022 | | | NAV | Shareholders’ | | | NAV | Shareholders’ | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | per share | | | funds | per share | | | funds | | | | pence | | £’000 | | pence | | £’000 | | Shareholders’ funds | | 688.52 1,139,344 687.31 1,175,837 | | | | | | | Less: Unamortised discount and expenses arising from debenture – – (0.07) (126) issue NAV - debt at par 688.52 1,139,344 687.24 1,175,711 A reconciliation showing the NAV per share and Shareholders funds using debt at fair value is shown in the Alternative Performance Measures on page 85. 70 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC NOTES TO THE FINANCIAL STATEMENTS / CONTINUED 16. RISK MANAGEMENT, FINANCIAL ASSETS AND LIABILITIES 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 on pages 16 and 17), 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 on pages 35 and 36. 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 £120 million Unsecured Senior Loan Notes. 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. 16.1.2 Inflation risk The Company has no assets or liabilities that have direct inflation link properties. 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 (2022: none). THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 71 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 £93.8 million (2022: £144.3 million) representing 7.7% (2022: 12.0%) 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. | Currency exposure | 2023 | | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | USD £'000 | DKK £'000 | CHF £'000 | EUR £'000 | USD £'000 | CHF £'000 | EUR £'000 | | Foreign currency exposure on net monetary items | 3,137 | 40 | 1,420 | 1,495 | 3,793 | 1,106 | 2,389 | | Investments at fair value through profit or loss that are equities | 22,356 | - | 32,549 | 52,668 | 46,641 | 27,635 | 70,032 | | **Total net foreign currency exposure** | **25,493** | **40** | **33,969** | **54,163** | **50,434** | **28,741** | **72,421** | 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 3.9% (2022: 2.0%) for the US dollar, 3.5% (2022: 1.5%) for the Swiss franc, 2.0% (2022: 1.2%) for the Euro, and for the Danish Krone, 2.0% (2022: £nil) during the year, the capital return and net assets of the Company would have increased for all currency exposures by £3.2 million (2022: £2.3 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. #### 16.1.3 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 (International) Limited. The Company has Unsecured Senior Loan Notes of £120 million (2022: £20 million). The Unsecured Senior Loan Notes have a fixed interest rate which only exposes the Company to changes in market value in the event that the debt is repaid before maturity. Specifics of the Unsecured Senior Loan Notes are shown in note 12. The details of their fair value and the effect on net asset value within the Net Asset Value (NAV) – Debt at Fair Value reconciliation within the Alternative Performance Measures on page 85. The Company held two fixed income securities during the year (2022: one), both being short-term zero coupon government bonds which matured during the financial year. As at 31 March 2023 no government bonds (2022: one) to the value of £nil (2022: £19.98m) were 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. 72 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC NOTES TO THE FINANCIAL STATEMENTS / CONTINUED 2023 2022 | | Between | | | | | Between | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | one | After | | | | | one | After | | | Within | and five | | five | | Within | and five | | | five | | | one year | | years | years | Total | one year | | years | | years | Total | | £’000 | | £’000 | £’000 | £’000 | £’000 | | £’000 | | £’000 | £’000 | Exposure to floating interest rates: – Cash and cash equivalents 22,488 – 22,488 48,748 – 48,748 – Exposure to fixed interest – rates: – UK Government Treasury – – – 19,980 – 19,980 Bill – Debenture stock - debt at – – – (100,000) (100,000) par value – Unsecured Senior Loan – – (120,000) (120,000) – – (20,000) (20,000) Notes - debt at par value Total exposure to interest 22,488 – (120,000) (97,512) (31,272) – (20,000) (51,272) rates 16.1.4 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 £122.7 million (2022: £121.9 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. THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 73 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 less | | More than | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | months | | | than | | | one | | | | or less | | one year | | | | year | Total | | 2023 | £’000 | | | £’000 | | £’000 | | £’000 | | Loan note - debt at par value | | – – 120,000 120,000 | | | | | | | | Interest on loan notes | | – 2,928 70,500 73,428 | | | | | | | | Accruals | 2,059 – – 2,059 | | | | | | | | 2,059 2,928 190,500 195,487 More than three months | | Three | | but less | | More than | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | months | | | than | | | one | | | | or less | | one year | | | | 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 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 on page 59. 16.4 Custody risk All investment assets are held in custody by The Bank of New York Mellon (International) Limited in accounts segregated from the bank’s own assets. 17. Classification Under Fair Value Hierarchy 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). 74 / FINANCIAL REVIEW / THE EDINBURGH INVESTMENT TRUST PLC # NOTES TO THE FINANCIAL STATEMENTS / CONTINUED # **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. | | 2023 | | | | | --- | --- | --- | --- | --- | | | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | Financial assets designated at fair value through profit or loss: | | | | | | Quoted investments: | | | | | | Equities and preference shares | 1,226,649 | - | - | 1,226,649 | | Unquoted and suspended investments | - | - | - | - | | **Total for financial assets** | **1,226,649** | **-** | **-** | **1,226,649** | | | 2022 | | | | | --- | --- | --- | --- | --- | | | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | Financial assets designated at fair value through profit or loss: | | | | | | Quoted investments: | | | | | | Equities and preference shares | 1,218,419 | - | - | 1,218,419 | | Unquoted investments | - | - | 306 | 306 | | **Total for financial assets** | **1,218,419** | **-** | **306** | **1,218,725** | 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 (2022: no Level 2 investments). There were two Level 3 investments at the year end totalling £nil (2022: two investments totalling: £306,000). The holding in Eurovestech did not change during the year, but the fair value was reduced to £nil (2022: £69,000). Raven Property is the other unquoted investment. Their issued preference shares were suspended on 2 March 2022 due to sanctions on the company's Russian businesses. At the balance sheet date the shares have been de-listed and recorded a fair value of £nil (2022: £237,000). THE EDINBURGH INVESTMENT TRUST PLC / FINANCIAL REVIEW / 75 The book cost and fair value of the debenture stock, based on the offer value at the balance sheet date, are as follows: 2023 2022 | Book | | Fair | Book | Fair | | --- | --- | --- | --- | --- | | Value | Value | | Value | Value | | £’000 | £’000 | | £’000 | £’000 | Debenture stock repayable within one year: 3 7 /4% Debenture Stock 30 September 2022 – – 100,000 102,734 Discount on issue of debenture stock – – (126) – Loan notes repayable after five year: Unsecured Senior Loan Notes 120,000 78,253 20,000 18,204 120,000 78,253 119,874 120,938 Please refer to page 85 which describes the fair valuation process of the Company’s loan notes. 18. CAPITAL MANAGEMENT The Company’s total capital employed at 31 March 2023 was £1,259,276,000 (2022: £1,259,314,000) comprising borrowings of £120,000,000 (2022: £119,874,000) and equity share capital and other reserves of £1,139,344,000 (2022: £1,175,837,000). The Company’s total capital employed is managed to achieve the Company’s objective and investment policy as set out on page 14, 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 4.7% (2022: 4.4%) 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 on pages 18 to 21. 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, current borrowings comprise the unsecured senior loan notes. 19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS There were no contingencies, guarantees or other financial commitments of the Company as at 31 March 2023 (2022: nil). 20. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH 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 in pages 45 and 48 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 on page 41, and in note 3. 21. POST BALANCE SHEET EVENTS There are no significant events after the end of the reporting period requiring disclosure. ## OTHER INFORMATION ## FOR SHAREHOLDERS THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 77 # NOTICE OF ANNUAL GENERAL MEETING THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional advisor authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in The Edinburgh Investment Trust plc, please forward this document and the accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee. NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the one hundred and thirty third Annual General Meeting of The Edinburgh Investment Trust plc will be held at The Balmoral Hotel, Edinburgh, EH2 2EQ, at 11am on 19 July 2023. The 2023 AGM will be held in person and voting will be on a show of hands. In addition, shareholders may follow the proceedings virtually using a smartphone, tablet or computer. Shareholders will be able to view and listen to a webcast of the 2023 AGM and submit questions to the Directors in writing. Those following proceedings virtually will not be able to vote on-line and are encouraged to vote ahead of the meeting. To join the 2023 AGM virtually, please visit www.edinburgh-investment-trust.co.uk from your device. The recording of the 2023 AGM will be available on the Company's website as soon as practicable after the conclusion of the AGM. Virtual access to the Annual General Meeting will be available from 10.30 a.m. on 19 July 2023 although you will not be able to submit questions until the Annual General Meeting is declared open. If you wish to appoint a proxy and for them to attend the Annual General Meeting on your behalf, please contact Link Group on telephone number +44 (0) 371 277 1020*. *Lines are open from 9.00 a.m. to 5.30 p.m. Monday to Friday, calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. AGM VOTING Shareholders are encouraged to vote by proxy and to appoint the "Chair of the Meeting" as their proxy. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of AGM on pages 79 to 80. The results of the AGM will be announced to the London Stock Exchange and placed on the Company's website, as soon as practicable after the conclusion of the AGM. ORDINARY BUSINESS To consider and, if thought fit, to pass the following resolutions all of which will be proposed as Ordinary Resolutions. 1. To receive and consider the Annual Financial Report for the year ended 31 March 2023; 2. To approve the Annual Statement and Report on Remuneration for the year ended 31 March 2023; 3. To declare a final dividend on the ordinary shares; 4. To re-elect Steven Baldwin as a Director of the Company; 5. To re-elect Elisabeth Stheeman as a Director of the Company; 6. To re-elect Patrick Edwardson as a Director of the Company; 7. To re-elect Aidan Lisser as a Director of the Company; 8. To elect Annabel Tagoe-Bannerman as a Director of the Company 9. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company; and 10. To authorise the Audit Committee to determine the remuneration of the auditors. SPECIAL BUSINESS To consider and, if thought fit, to pass the following resolutions of which resolution 11 will be proposed as an Ordinary Resolution and resolutions 12, 13 and 14 as Special Resolutions: 11. That: in substitution for any existing authority under section 551 of the Companies Act 2006 (the 'Act') but without prejudice to the exercise of any such authority prior to the date of this resolution the Directors of the Company be generally and unconditionally authorised in accordance with section 551 of the Act as amended from time to time prior to the date of the passing of this resolution, to exercise all powers of the Company to allot shares and grant rights to subscribe for, or convert any securities into, shares up to an aggregate nominal amount within the meaning of sections 551(3) and (6) of the Act) of £4,891,668 this being 10% of the Company's issued ordinary share capital as at 22 May 2023, such authority to expire at the conclusion of the next Annual General Meeting of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require shares to be allotted, or rights to be granted, after such expiry as if the authority conferred by this resolution had not expired. 78 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC # NOTICE OF ANNUAL GENERAL MEETING / CONTINUED 12. That: subject to the passing of resolution number 11 set out in the notice of this meeting (the 'Section 551 Resolution') and in substitution for any existing authority under sections 570 and 573 of the Companies Act 2006 (the 'Act') but without prejudice to the exercise of any such authority prior to the date of this resolution, the Directors be and are hereby empowered, in accordance with sections 570 and 573 of the Act as amended from time to time prior to the date of the passing of this resolution to allot equity securities (within the meaning of section 560(1), (2) and (3) of the Act) for cash, either pursuant to the authority given by the Section 551 Resolution or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if section 561 of the Act did not apply to any such allotment, provided that this power shall be limited: - (a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal, regulatory or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise); and - (b) to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £4,891,668 this being 10% of the Company's issued ordinary share capital as at 22 May 2022. and this power shall expire at the conclusion of the next Annual General Meeting of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier, unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this power shall allow the Company to make offers or agreements before the expiry of this power which would or might require equity securities to be allotted after such expiry as if the power conferred by this resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution. 13. That: the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with section 701 of the Companies Act 2006 (the 'Act') to make market purchases (within the meaning of section 693(4) of the Act) of the issued ordinary shares of 25p each in the capital of the Company ('Shares') Provided always that: - (a) the maximum number of Shares hereby authorised to be purchased shall be 29,330,443 ordinary shares (being 14.99% of the issued ordinary share capital of the Company as at 22 May 2023); - (b) the minimum price which may be paid for a Share shall be 25p; - (c) the maximum price which may be paid for a Share must not be more than the higher of: (i) 5 per cent. above the average of the mid-market values of the Shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade in the Shares and the highest then current independent bid for the Shares on the London Stock Exchange; - (d) any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors); - (e) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier, unless the authority is renewed or revoked at any other general meeting prior to such time; - (f) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and - (g) any shares so purchased shall be cancelled, or, if the Directors so determine and subject to the provisions of section 724 to 731 of the Companies Act 2006 and any applicable regulations of the United Kingdom Listing Authority, be held (or otherwise dealt with in accordance with section 727 or 729 of the Companies Act 2006) as treasury shares. 14. That: the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 days. The resolutions are explained further in the Directors' Report on pages 42 and 43. THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 79 Notes must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10) by the latest 1. The 2023 AGM will be held in person and voting will be time(s) for receipt of proxy appointments specified on a show of hands, however, shareholders may follow in this document. For this purpose, the time of receipt the proceedings virtually using a smartphone, tablet will be taken to be the time (as determined by the time or computer. Shareholders should continue to monitor stamp applied to the message by the CREST Applications the Company’s website at https://www.edinburgh- Host) from which the issuer’s agent is able to retrieve the investment-trust.co.uk/ and our announcements for any message by enquiry to CREST in the manner prescribed updates in relation to the meeting. by CREST. After this time any changes of instructions to 2. A member entitled to attend and vote at the AGM is proxies through CREST should be communicated to the entitled to appoint one or more proxies to attend, speak appointee through other means. and vote in his stead. A proxy need not be a member The Company may treat as invalid a CREST Proxy of the Company. In order to be valid an appointment of Instruction in the circumstances set out in Regulation proxy must be returned by one of the following methods: 35(5)(a) of the Uncertificated Securities Regulations – via The Link Group website www.signalshares.com; or 2001. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that – in hard copy form by post, by courier or by hand to Euroclear UK & Ireland Limited does not make available the Company’s Registrars, Link Group, PXS 1, Central special procedures in CREST for any particular messages. Square, 29, Wellington Street, Leeds, LS1 4DL; or Normal system timings and limitations will therefore – in the case of CREST members, by utilising the CREST apply in relation to the input of CREST Proxy Instructions. electronic proxy appointment service in accordance It is the responsibility of the CREST member concerned with the procedures set out below and in each case, to take or, if the CREST member is a CREST personal to be received by the Company not less than 48 hours member or sponsored member or has appointed a voting before the time of the meeting. Any amended proxy service provider(s), to procure that his CREST sponsor appointment must be received by this time. or voting service provider(s) take(s), such action as shall be necessary to ensure that a message is transmitted by If you are an institutional investor you may be able to means of the CREST system by any particular time. In appoint a proxy electronically via the Proxymity platform, this connection, CREST members and, where applicable, a process which has been agreed by the Company and their CREST sponsors or voting service providers are approved by the Registrar. For further information referred, in particular, to those sections of the CREST regarding Proxymity, please go to www.proxymity.io. Manual concerning practical limitations of the CREST Your proxy must be lodged by 11.00 am on 17 July 2023 system and timings. The CREST Manual can be reviewed in order to be considered valid. Before you can appoint at www.euroclear.com/CREST. a proxy via this process, you will need to have agreed to Proxymity’s associated terms and conditions. It is 4. A form of appointment of proxy is enclosed. important that you read these carefully as you will To be effective, the form of appointment of proxy, duly be bound by them and they will govern the electronic completed and executed, together with any power of appointment of your proxy. attorney or other authority under which it is signed (or a 3. CREST members who wish to appoint a proxy by utilising notarially certified copy thereof) must be lodged at the the CREST electronic proxy appointment service may do office of the Company’s Registrars, Link Group, PXS 1, so by utilising the procedures described in the CREST Central Square, 29, Wellington Street, Leeds, LS1 4DL by Manual. CREST Personal Members or other CREST no later than 11am on 17 July 2023. sponsored members, and those CREST members who 5. A person entered on the Register of Members at close have appointed a voting service provider(s), should refer of business on 17 July 2023 (a ‘member’) is entitled to to their CREST sponsor or voting service provider(s) vote at the Meeting pursuant to Regulation 41 of the who will be able to take the appropriate action on Uncertificated Securities Regulations 2001. Any changes their behalf. In order for a proxy appointment made by to the Register of Members after such time and date shall means of CREST to be valid, the appropriate CREST be disregarded in determining the rights of any person message (a ‘CREST Proxy Instruction’) must be properly to vote at the Meeting. If the Meeting is adjourned, authenticated in accordance with Euroclear UK & Ireland entitlement to vote at the adjourned meeting, and the Limited’s specifications and must contain the information number of votes which may be cast thereat, will be required for such instructions, as described in the CREST determined by reference to the Company’s register of Manual. The message, regardless of whether it relates members 48 hours before the time fixed for the adjourned to the appointment of a proxy or to an amendment to meeting. the instruction given to a previously appointed proxy 80 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC # NOTICE OF ANNUAL GENERAL MEETING / CONTINUED 6. The Terms of Reference of the Audit, Management Engagement and Nominations Committees and the Letters of Appointment for Directors will be available for inspection at the website of the Company at www.edinburgh-investment-trust.co.uk. 7. A copy of the Company's Articles of Association is available for inspection at the website of the Company at https://www.edinburgh-investment-trust.co.uk/ 8. Any person to whom this Notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') may have a right, under an agreement between him/her and the shareholder by whom he/she was nominated, to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may have a right, under such an agreement, to give instructions to the shareholder as to the exercise of voting rights. The statement of the above rights of the shareholders in relation to the appointment of proxies does not apply to Nominated Persons. Those rights can only be exercised by shareholders of the Company. 9. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 10. You may not use any electronic address (within the meaning of section 333(4) of the Companies Act 2006) provided in this Notice (or in any related documents including the proxy form) to communicate with the Company for any purposes other than those expressly stated. 11. As at 22 May 2023 (being the last practicable day prior to the publication of this Notice) the Company's issued share capital consists of 195,666,734 ordinary shares of 25p each carrying one vote each. 30,845,209 ordinary shares held in treasury, therefore, the total voting rights in the Company as at that date are 164,821,525. 12. A copy of this notice (which is at the back of the annual financial report), and other information required by section 311A of the Companies Act 2006, can be found at https://www.edinburgh-investment-trust.co.uk/ 13. Shareholders should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to: (i) the audit of the Company's financial statements (including the auditor's report and the conduct of the audit) that are to be laid before the AGM for the financial year beginning on 1 April 2022; or (ii) any circumstance connected with an auditors of the Company appointed for the financial year beginning on 1 April 2022 ceasing to hold office since the previous meeting at which the annual financial report was laid in accordance with section 437 of the Companies Act 2006 (in each case) that the members propose to raise at the relevant AGM. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company's auditors not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website. THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 81 ## SHAREHOLDER INFORMATION HOW TO INVEST IN THE EDINBURGH INVESTMENT ANNOUNCEMENTS TRUST PLC (THE COMPANY) Annual financial report May The Company’s shares are quoted on the London Stock Half-yearly financial report November Exchange. There are a variety of ways by which investors can buy the shares. Shares may be purchased through LONDON SHAREHOLDER PRESENTATION discretionary wealth managers, banks, independent financial The Company intends to invite Shareholders to a presentation advisors and via a large number of execution-only trading by the portfolio manager, James de Uphaugh and to meet platforms. The Manager’s website contains a list of some of with Directors in September. the larger dealing platforms as well as a link to unbiased.co.uk, Please note this is a non-voting meeting. for those seeking financial advice, and to the AIC’s website at www.theaic.co.uk for detailed information on investment DIVIDEND PAYABLE TIMETABLE companies. 1st interim November 2nd interim February SHARE PRICE The price of your ordinary shares can be found in the Financial 3rd interim May Times, Daily Telegraph, The Scotsman and The Times. Final July In addition, share price information can be found at the ANNUAL GENERAL MEETING London Stock Exchange website using the EDIN ticker code, July on the website of most share dealing platforms and on the Company’s own website https://www.edinburgh-investment- YEAR END trust.co.uk/ 31 March NAV PUBLICATION LOCATION OF AGM The NAV of the Company’s ordinary shares is calculated by The one hundred and thirty third Annual General Meeting of the Manager on a daily basis and is notified to the Stock the Company will be held at The Balmoral Hotel, Edinburgh, Exchange on the next business day. It is published daily in EH2 2EQ on 19 July 2023 at 11am. the newspapers detailed above. UK GENERAL DATA PROTECTION REGULATION COMPANY’S WEBSITE (UKGDPR) Information relating to the Company including investment UK GDPR is a positive step towards individuals knowing objective, supporting philosophy and investment how their personal data is used and also having more performance along with news, opinions, disclosures, results control over how it is used. The Company has a privacy and key information documents can be found on the notice which sets out what personal data is collected, and Company’s website https://www.edinburgh-investment- how and why it is used. The latest privacy notice can be trust.co.uk/. found at www.edinburgh-investment-trust.co.uk under the ‘Other Documents’ section, or a copy can be obtained from The contents of websites referred to in this document, the Company Secretary whose correspondence address is or accessible from links within those websites, are not shown on the next page. incorporated in to, nor do they form part of this annual financial report. FINANCIAL CALENDAR In addition, the Company publishes information according to the following calendar: 82 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC ## ADVISORS AND PRINCIPAL ## SERVICE PROVIDERS | REGISTERED OFFICE | LEGAL ADVISOR | | --- | --- | | From 9 May 2023 | Dentons UK and Middle East LLP | | First Floor | From 9 May 2023 | | 9 Haymarket Square, | First Floor | | Edinburgh EH3 8RY | 9 Haymarket Square, | Edinburgh EH3 8RY Before 9 May 2023 Quartermile One 15 Lauriston Place Before 9 May 2023 Edinburgh EH3 9EP Quartermile One 15 Lauriston Place Edinburgh EH3 9EP COMPANY NUMBER Registered in Scotland. REGISTRAR Number: SC1836 Link Group 10th Floor ALTERNATIVE INVESTMENT FUND MANAGER Central Square (MANAGER) 29 Wellington Street Liontrust Fund Partners LLP Leeds 2 Savoy Court LS1 4DL London WC2R 0EZ 020 7412 1700 If you hold your shares direct and not through a Savings Scheme or ISA and have queries relating to your shareholding, COMPANY SECRETARY you should contact the Registrars on: Apex Listed Companies Services (UK) Limited th 0371 664 0300. 6 Floor, 125 London Wall Street London EC2Y 5AY Calls are charged at the standard geographic rate and will 020 3327 9720 vary by provider. INDEPENDENT AUDITORS From outside the UK: +44 371 664 0300. Calls from outside PricewaterhouseCoopers LLP the United Kingdom will be charged at the applicable 7 More London Riverside international rate. Lines are open from 9.00am to 5.30pm, London SE1 2RT Monday to Friday (excluding UK Public Holidays). DEPOSITARY AND CUSTODIAN Shareholders can also access their holding details via Link’s The Bank of New York Mellon (International) Limited website: 160 Queen Victoria Street London EC4V 4LA www.signalshares.com. Link Group provide an on-line and telephone share dealing BANKER service to existing shareholders who are not seeking The Bank of New York Mellon advice on buying or selling. This service is available at 160 Queen Victoria Street www.linksharedeal.com or London EC4V 4LA 0371 664 0445. CORPORATE BROKER Investec Bank plc Calls are charged at the standard geographic rate and will 30 Gresham Street vary by provider. London EC2V 7QP From outside the UK: +44 371 664 0445. Calls from outside THE ASSOCIATION OF INVESTMENT COMPANIES the UK will be charged at the applicable international rate. The Company is a member of the Association of Investment Lines are open from 8.00am to 5.30pm, Monday to Friday Companies. Contact details are as follows: (excluding UK Public Holidays). 020 7282 5555 Email: enquiries@theaic.co.uk Link Group is the business name of Link Market Services Limited. Website: www.theaic.co.uk THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 83 # GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES ## ALTERNATIVE PERFORMANCE MEASURE (APM) An APM is a measure of performance or financial position that is not defined in applicable accounting standards and cannot be directly derived from the financial statements. The calculations shown in the corresponding tables are for the financial years ended 31 March 2023 and 31 March 2022. The APMs listed here are widely used in reporting within the investment company sector and consequently aid comparability, providing useful additional information. ## BENCHMARK (OR BENCHMARK INDEX) A standard against which performance can be measured, usually an index that averages the performance of companies in a stock market or a segment of the market. The benchmark most often referred to in this interim financial report is the FTSE All-Share Index. ## BENCHMARK RETURN Total return on the benchmark is on a mid-market value basis, assuming all dividends received were reinvested, without transaction costs, into the shares of the underlying companies at the time the shares were quoted ex-dividend. ## DISCOUNT OR PREMIUM (APM) Discount is a measure of the amount by which the mid-market price of an investment company share is lower than the underlying net asset value of that share. Conversely, Premium is a measure of the amount by which the mid-market price of an investment company share is higher than the underlying net asset value of that share. In this annual financial report the discount is expressed as a percentage of the NAV per share with debt at fair value (see reconciliation of NAV per share with debt at fair value within the Net Asset Value (NAV) Debt at Fair Value reconciliation within the Alternative Performance Measures on page 85) and is calculated according to the formula set out below. If the shares are trading at a premium the result of the below calculation will be positive and if they are trading at a discount it will be negative. | | Page | | 2023 | 2022 | | --- | --- | --- | --- | --- | | Share price | 2 | a | 660.00p | 634.00p | | Net asset value per share – debt at fair value APM | 85 | b | 713.75p | 686.69p | | **Discount** | c = (a-b)/b | | (7.5)% | (7.7)% | ## DIVIDEND YIELD The annual dividend payable expressed as a percentage of the year end share price. | | Page | | 2023 | 2022 | | --- | --- | --- | --- | --- | | Dividends per share payable in respect of the year (note 8) | 2 | a | 26.20p | 24.80p | | Share price | 2 | b | 660.00p | 634.00p | | **Dividend yield** | c = a/b | | 4.0% | 3.9% | ## GEARING The gearing percentage reflects the amount of borrowings that a company has invested. This figure indicates the extra amount by which net assets, or shareholders' funds, would move if the value of a company's investments were to rise or fall. A positive percentage indicates the extent to which net assets are geared; a nil gearing percentage, or 'nil', shows a company is ungeared. A negative percentage indicates that a company is not fully invested and is holding net cash as described below. There are several methods of calculating gearing and the following has been used in this report: 84 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES / CONTINUED GROSS GEARING (APM) This reflects the amount of gross borrowings in use by a company and takes no account of any cash balances. It is based on gross borrowings as a percentage of net assets. | | | 2023 | 2022 | | --- | --- | --- | --- | | | Page | £’000 | £’000 | | Unsecured Senior Loan Notes – debt at fair value | 75 78,253 18,204 | | | Debenture stock – debt at fair value APM 75 – 102,734 Gross borrowings a 78,253 120,938 Net asset value – debt at fair value APM 85 b 1,181,091 1,174,773 Gross gearing c = a/b 6.6% 10.3% NET GEARING OR NET CASH (APM) Net gearing reflects the amount of net borrowings invested, i.e. borrowings less cash and cash equivalents (incl. investments in money market funds). It is based on net borrowings as a percentage of net assets. Net cash reflects the net exposure to cash and cash equivalents, as a percentage of net assets, after any offset against total borrowings. | | | 2023 | 2022 | | --- | --- | --- | --- | | | Page | £’000 | £’000 | | Unsecured Senior Loan Notes – debt at fair value | | 78,253 18,204 | | Debenture stock – debt at fair value 75 – 102,734 Less: cash and cash equivalents 58 (22,362) (68,728) Net borrowings a 55,891 52,210 Net asset value – debt at fair value APM 85 b 1,181,091 1,174,773 Net gearing c = a/b 4.7% 4.4% LEVERAGE Leverage, for the purposes of the UK AIFM Directive is not synonymous with gearing as defined above. In addition to borrowings, it encompasses anything that increases the Company’s exposure, including foreign currency and exposure gained through derivatives. Leverage expresses the Company’s exposure as a ratio of the Company’s net asset value. Accordingly, if a Company’s exposure was equal to its net assets it would have leverage of 100%. Two methods of calculating such exposure are set out in the AIFMD, gross and commitment. Under the gross method, exposure represents the aggregate of all the Company’s exposures other than cash balances held in base currency and without any offsetting. The commitment method takes into account hedging and other netting arrangements designed to limit risk, offsetting them against the underlying exposure. NET ASSET VALUE (NAV) Also described as shareholders funds, the NAV is the aggregate value of all assets less all liabilities. Liabilities for this purpose include debt, deducted at either par value or fair value as described in more detail below. The NAV per share is calculated by dividing the net asset value by the number of ordinary shares in issue (excluding shares held in treasury). NET ASSET VALUE (NAV) – DEBT AT PAR The NAV with debt at par recognises the value of the debt liability as the nominal amount that will be repaid at maturity. For the £120m Unsecured Senior Loan Notes, this recognises a liability of £120m. This is the basis used in the preparation of the Balance Sheet on page 58. THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 85 NET ASSET VALUE (NAV) – DEBT AT FAIR VALUE The fair value of each tranche of the £120m Unsecured Senior Loan Notes is ascertained by the administrator by aggregating the discounted value of future cashflows, being the contractual interest payments and the repayment of capital at maturity as each falls due. The discount factor used for each tranche is based on the market yield of UK Treasuries with similar maturity dates adjusted to incorporate a credit spread. The £100m debenture stock was redeemed in full on 30 September 2022. Prior to its redemption, its fair value was determined by reference to the daily closing price. The net asset value per share adjusted to include the Unsecured Senior Loan Notes (and in 2022 the debenture stock) at fair value rather than at par is as follows: | | | NAV | | | | NAV | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | per share | | | | per share | | | | | | | pence | Shareholders’ | | | pence | Shareholders’ | | | | | 2023 | | funds | | 2022 | | funds | | | | £’000 | | £’000 | | £’000 | | £’000 | | NAV - debt at par | | 688.52 1,139,344 687.24 1,175,711 | | | | | | | Debenture stock and Unsecured Senior Loan Notes 72.52 120,000 70.14 120,000 - debt at fair value (47.29) (78,253) (70.69) (120,938) NAV - debt at fair value 713.75 1,181,091 686.69 1,174,773 ONGOING CHARGES RATIO (APM) The ongoing administrative costs of operating the Company are encapsulated in the ongoing charges ratio, which is calculated in accordance with guidance issued by the AIC. The calculation incorporates charges allocated to capital in the financial statements as well as those allocated to revenue, but excludes non-recurring costs, transaction costs of investments, finance costs, taxation, and the costs of buying back or issuing shares. The ongoing charges ratio is the aggregate of these costs expressed as a percentage of the daily average net asset value reported in the year. | | | 2023 | 2022 | | --- | --- | --- | --- | | | Page | £’000 | £’000 | | Investment management fee | 57 4,974 5,040 | | | Other expenses 57 1,099 986 Less: costs in relation to custody dealing charges and one off – (34) legalcosts Total recurring expenses a 6,073 5,992 Average daily net assets b 1,137,946 1,157,887 Ongoing charges ratio % c = a/b 0.53% 0.52% RETURN The return generated in a period from the investments. CAPITAL RETURN Reflects the return on NAV, excluding any dividends reinvested. TOTAL RETURN Total return is the theoretical return to shareholders that measures the combined effect of any dividends paid together with the rise or fall in the share price or NAV. In this annual financial report these return figures have been sourced from Refinitiv who calculate returns on an industry comparative basis. TREASURY SHARES Shares previously issued by a Company that have been bought back from shareholders to be held by the Company for potential sale or cancellation at a later date. Such shares are not capable of voting and carry no rights to dividends. 86 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES / CONTINUED NET ASSET VALUE TOTAL RETURN (APM) Total return on net asset value per share, with debt at fair value, assuming dividends paid by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend. SHARE PRICE TOTAL RETURN (APM) Total return to shareholders, on a mid-market price basis, assuming all dividends received were re-invested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend. | | | Net Asset | | Share | | --- | --- | --- | --- | --- | | 2023 Page | | | Value | Price | | As at 31 March 2023 | 58 713.75p 660.00p | | | | As at 31 March 2022 58 686.69p 634.00p Change in year a 3.9% 4.1% (1) Impact of dividend reinvestments b 4.0% 4.3% Total return for the year c = a+b 7.9% 8.4% | | | Net Asset | | Share | | --- | --- | --- | --- | --- | | 2022 Page | | | Value | Price | | As at 31 March 2022 | 58 686.69p 634.00p | | | | As at 31 March 2021 58 628.29p 600.00p Change in year a 9.3% 5.7% (1) Impact of dividend reinvestments b 4.8% 4.9% Total return for the year c = a+b 14.1% 10.6% (1) Total dividends paid during the year of 25.60p (2022: 28.65p) reinvested at the NAV or share price on the ex-dividend date. NAV or share price falls subsequent to the reinvestment date consequently further reduce the returns, vice versa if the NAV or share price rises. COMPANY NAME The Edinburgh Investment Trust plc is registered at Companies House as The Edinburgh Investment Trust Public Limited Company. THE EDINBURGH INVESTMENT TRUST PLC / OTHER INFORMATION FOR SHAREHOLDERS / 87 # ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE DISCLOSURE ## ALTERNATIVE INVESTMENT FUND MANAGER AND UK AIFM DIRECTIVE ### UK AIFM DIRECTIVE (the UK AIFMD, the Directive) The UK's implementation of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers, together with Commission Delegated Regulation (EU) No. 231/2013 which forms part of UK law by virtue of the European Union (Withdrawal) Act 2018, and any transposing legislation incorporating the same into UK law (including, but not limited to, the UK Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773), as amended by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019), all as may be amended or supplemented from time to time. ### ALTERNATIVE INVESTMENT FUND MANAGER (AIFM, the Manager, the Portfolio Manager) The Company falls within the definition of an Alternative Investment Fund (AIF) under the Directive and, as such, is required to have (or be) an authorised AIFM. On 1 April 2022 the Company appointed Liontrust Fund Partners LLP (Liontrust) as AIFM following the acquisition of Majedie Asset Management Ltd by Liontrust Asset Management PLC. Liontrust is authorised and regulated by the FCA as a full-scope AIFM. The responsibility for the day-to-day investment management activities of the Company has been delegated by AIFM to Liontrust Investment Partners LLP. Amongst other things, regulations implementing the UK AIFMD require certain information to be provided to prospective investors. This information can be found in the Company's page of the Manager's website (www.liontrust.co.uk) in a downloadable document titled 'AIFMD Investor Information'. There has been no material change to this document in the year except that relating to the change in Manager from Majedie to Liontrust. Any information requiring immediate disclosure pursuant to the Directive will be disclosed through a primary information provider. In addition, the Directive requires information in relation to the Company's leverage (both 'gross' and 'commitment' - see the Glossary of Terms and Alternative Performance Measures on pages 83 to 86) and the remuneration of the Company's AIFM to be made available to investors. Accordingly: - the leverage calculated for the Company at its year end was 107% for gross and 104% for commitment (2022: 110% gross and 104% commitment). The limits the AIFM has set for the Company remain unchanged at 250% and 200% respectively; - the AIFM summary remuneration policy is available from the corporate policies page of the Manager's website (www.liontrust.co.uk) and from the Company's company secretary, on request (see contact details on page 82); and - the AIFM remuneration paid for the year to 31 March 2023 is described below. ### AIFM REMUNERATION REMUNERATION POLICY As AIFM, Liontrust Fund Partners LLP is required to maintain a remuneration policy (the "Remuneration Policy" or the "Policy") that meets the requirements of the AIFM Remuneration Code. The Policy governs the remuneration of the AIFM's key senior personnel, risk takers and control functions (the "Code Staff"). The table below provides an overview of the total remuneration paid to the staff of the Management Company for the year ended 31 March 2023: - Aggregate total remuneration paid by the Manager to its staff (employees and members). - Aggregate total remuneration paid by the Manager to all relevant code staff. 88 / OTHER INFORMATION FOR SHAREHOLDERS / THE EDINBURGH INVESTMENT TRUST PLC ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE DISCLOSURE / CONTINUED Total Remuneration Headcount (£’000) 1 Manager UK Staff of which 83 18,744 Fixed Remuneration 83 8,116 Variable Remuneration 83 10,628 AIFM Remuneration Code Staff of which 5 399 2 Senior Management 2 185 Other control functions: Other code staff / risk takers 3 214 1 The Manager’s UK Staff costs have been incurred by another Group entity and allocated to the AIFM. The most appropriate measure of staff costs are those staff who are members of Liontrust Fund Partners LLP or Group staff who are employed by Liontrust Asset Management Plc but have theirs costs apportioned to the LLP. The information has been disclosed on an annualised basis. 2 AIFM Aggregate Remuneration Code Staff applies only in respect of services to the AIFM funds rather than their total remuneration in the year. For senior management and control function staff, remuneration is apportioned on the basis of assets under management for AIFM funds versus the total Group assets under management. Remuneration is made up of fixed pay (i.e. salary and These remuneration policies apply also to other entities in benefits such as pension contributions) and variable pay the Liontrust Group to which investment management of (annual performance based or linked directly to investment the Company has been delegated, and those delegates are management revenues). Annual incentives are designed subject to contractual arrangements to ensure that policies to reward performance in line with the business strategy, which are regarded as equivalent are applied. objectives, values and long term interests of the AIFM The Board adopts, and reviews annually, the general and Liontrust Asset Management PLC (LAM) Group. The principles of the applicable remuneration policies, and the annual incentive earned by an individual is dependent on implementation of the remuneration policies is, at least the achievement of financial and non-financial objectives, annually, subject to central and independent internal review by including adherence to effective risk management practices. the Committee for compliance with policies and procedures. The AIFM provides long-term incentives which are designed to link reward with long-term success and recognise the SCOPE OF THE POLICY responsibility participants have in driving future success and The AIFM is subject to the requirements of the AIFM delivering value. Long-term incentive awards are conditional Remuneration Code (SYSC 19B) (the “Code”). on the satisfaction of corporate performance measures. The The requirements of the Code are applicable to the structure of remuneration packages is such that the fixed remuneration arrangements of individuals who fall within element is sufficiently large to enable a flexible incentive the definition of Code staff under the Code and this policy policy to be operated. sets out the basis on which the rules contained within the Staff are eligible for an annual incentive based on their Code will be applied to Code Staff. The Committee itself individual performance, and depending on their role, the sets the remuneration and has oversight if remuneration performance of their business unit and/or the group. These arrangements for all other Code Staff together with such incentives are managed within a strict risk framework, and other senior employees as the Committee may determine the Directors of LAM retain ultimate discretion to reduce from time to time. annual incentive outcomes where appropriate. The Committee also reviews the remuneration arrangements The AIFM actively manages risks associated with delivering of other employees and the operation of the incentive plans and measuring performance. All our activities are carefully to ensure that remuneration arrangements have regard to pay managed within our risk appetite, and individual incentive and employment conditions. However, decisions on individual outcomes are reviewed and may be reduced in light of any remuneration arrangements are made by management in the associated risk management issues. area, with oversight by the Human Resources Director. The Liontrust Group operates a Remuneration Committee No hedging or other mitigation arrangements may be (the “Committee”). The Committee reports to the Board. The entered into by employees as that would undermine risk Committee reviews risk and compliance issues in relation alignment effects. to the vesting of deferred awards for all employees and members. Compliance is monitored throughout the vesting period by the Committee. The paper stock used in this report is manufactured at a mill that is FSC accredited. The manufacture of the paper in this report has been Carbon Balanced. The print factory is FSC accredited and has the Environmental ISO 14001 accreditation. Vegetable based inks were used in the printing process. CBP019051 Edinburgh Investment Trust plc First Floor 9 Haymarket Square Edinburgh EH3 8RY Telephone +44 (0)20 7412 1700 MANAGED BY Email LionTA@liontrust.co.uk ### edinburgh-investment-trust.co.uk