Final Results

EDINBURGH INCOME AND VALUE TRUST PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 MAY 2002 Investment Objective Edinburgh Income and Value Trust and its subsidiary Edinburgh Value Zeros, managed by Edinburgh Fund Managers, is akin to a split capital investment trust but with no fixed life for the ordinary shares. The Group has investment objectives of providing ordinary shareholders with a high level of income, together with the opportunity for capital and income growth and for its zero dividend preference shareholders with a pre-determined capital entitlement in May 2005 with a competitive yield and capital cover. Investment Policy The Group invests in mainly UK-quoted equities, selected for their potential to provide an attractive dividend yield and capital appreciation. A significant proportion of the Group's portfolio consists of shares in small and medium-sized UK companies. The Group does not invest in shares of other split capital investment trusts. · Net asset value per share rose by 13.8% to 153.13p which compares to a fall in the FTSE All-Share Index of 12.6 % · Share price rose by 3.1% to 141.5p · Total dividend for 12 months to 31 May 2002 is 9.6p · The trust continues to focus on companies in good financial health with the ability to maintain and grow dividends For further information, please contact : Alex Gowans, Director, Edinburgh Fund Managers plc 0131 313 1000 Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested. EDINBURGH INCOME AND VALUE TRUST CHAIRMAN'S STATEMENT Our policy of investing in a portfolio primarily of higher yielding smaller and medium sized companies has again proved to be successful. The stability of many of these investments enabled the Trust to avoid much of the stockmarket volatility which followed the terrorist attacks on the US and the collapse in the value of many high technology, media and telecommunications stocks. Over the period gross assets rose by 9.7%, which compares with a drop in the FTSE All-Share Index of 12.6%. Net asset value per share rose by 13.8% from 134.58p to 153.13p, while the share price rose by a more disappointing 3.1% from 137.25p to 141.5p as the discount widened to 7.6%. The board has declared a fourth interim dividend of 2.4p, which will be paid on 23 August 2002 to shareholders on the register on 26 July 2002. This gives a total and unchanged dividend of 9.6p for the year. On the basis of the year-end share price of 141.5p, the dividend yield was 6.8%, which compares with a yield of 2.7% on the FTSE All-Share Index at that date. Low interest rates on deposits and the fall in bond and equity yields have meant that it has become much more difficult for investors to obtain a reasonable yield on their investments. In this environment, and especially in the light of political and economic risks at the macro level and concerns over the reliability of profits at the company level, the board continues to believe that a diversified portfolio of small and medium sized companies offering an above average yield will appeal to investors looking for a relatively safe source of income. Income During the year the trust generated total income of £3.4m from the following sources: £m % Equities 3.1 91 Bond Portfolio 0.2 6 Deposit Interest 0.1 3 3.4 100 It has been a year in which there has been more than usual uncertainty over the outlook for equity dividend growth. Dividend cuts have been seen from household names such as British Telecommunications and British Airways as they have sought to conserve cash in a difficult trading environment. Our own portfolio did not hold either of these and our holdings experienced modest dividend growth over the year. We held 70 investments at 31 May 2002 of which 44 had increased their dividends, 12 cut their dividends and 14 maintained them at unchanged levels. The average yield on the portfolio at the year-end was 5.2%. Earnings per share for the year were 10.67p, a marginal increase on the previous year. Capital There has been considerable coverage in the press of the difficulties being faced by some trusts in the 'split capital' sector. Trusts, like ours, with a high level of gearing through zero dividend preference shares and bank debt, have a capital structure which is based on the premise that growth in the investment portfolio will not only be positive, but will be enough to meet the loan costs and the costs of the zeros by the time they are due for repayment. Shareholders need to be aware that if this does not happen the equity shareholders funds will be hit disproportionately and, in extremis, can be wiped out completely. The effect can be illustrated in our own capital structure. At 31 May gross assets were £66.9m and, after deducting the bank loan and the accrued value of the zero dividend preference shares, ordinary shareholders funds were £36m. It is clear that any change in the value of the gross assets will result in an identical absolute change in the value of the shareholders funds, but the percentage change in the value of the shareholders funds will be very much greater. High levels of gearing enhance the net asset value performance when the value of the portfolio is rising the opposite occurs if values are fall and the fall in the net asset value is exacerbated. Gearing has been an important element of the group's capital structure since it was launched in April 1999 and shareholders have benefited from it. Total assets have increased by 35% and the effect of gearing has turned this into a 53% rise in the net asset value. Over the same period the FTSE All-Share Index has fallen by 16.1%. Allocations to Capital The group has a policy of charging 50% of the annual management fee payable to Edinburgh Fund Managers and the interest on servicing the bank loan against capital reserves. In addition all of the annual accrual on the zero dividend preference shares is also allocated against capital reserves. The allocation of allowable expenses between capital and income reflects the board's longer-term expectation of returns. During the past year the amount of expenses and income charged against capital reserves was £0.6m and the accrual on the zero dividend preference shares was £1.4m. One of the benefits of allocating these to capital is that significantly more revenue is available to meet the objective of providing ordinary shareholders with a high level of income. However, as a direct consequence of reducing capital reserves, gross assets must grow by approximately 3.5% per annum until 31 May 2005 to maintain the current asset value of the ordinary shares. The table below shows the likely impact on the net asset value (153.13p at 31 May 2002) based on various rates of growth in total assets between 31 May 2002 and 31 May 2005: Annual Growth Rate (%) -10.0 -7.5 -5.0 -2.5 0 +2.5 +5.0 +7.5 +10.0 Net Asset per Ordinary Share (p) 47 65 83 102 123 144 166 190 215 Banking Covenant At launch the trust borrowed £11.18m from The Chase Manhattan Bank. The effective annual rate of interest on the loan is 5.97% and the loan is repayable on 31 May 2005. The bank stipulates various covenants on the loan. During the year I can confirm that the trust did not breach any of these covenants. The key covenant is that total borrowings, as a percentage of net assets, must not exceed 55%. The ratio was 20% at 31 May 2002. Marketing The board continues to promote the company through the Edinburgh Fund Managers Investment Trust Initiative which provides a range of savings schemes through which investors can invest in the ordinary and zero dividend preference shares of the group in a low cost and effective manner. Shareholders can also receive up to date information on the group, including recent performance and strategy on the manager's website, www.edfd.com. Outlook Since 31 May 2002 stockmarkets have fallen and the trust's gross assets have decreased by 8.5% as at the date of this report. The net asset value fell by 16.1%. By comparison the FTSE All-Share Index has fallen by 8.9%. This illustrates the adverse effect of gearing in falling markets. Concerns range from conflict in India and Pakistan and further terrorist threats, to uncertainty about the sustainability of economic recovery without stronger signs of a pick-up in business investment, but particularly damaging have been recent revelations of accounting scandals surrounding Enron and WorldCom. There is a very real sense in which investors, particularly in the USA, are questioning the very reliability and credibility of the corporate profits that are being reported. Inevitably in a global financial market, these concerns are affecting sentiment in the UK and it may take time for this to run its course. However, more encouraging signs are emerging that global economic activity is gradually beginning to improve. It remains poorly balanced, but it is clear that monetary authorities everywhere are very sensitive to the need to tread a careful line between tightening enough to cool an overheating consumer and housing sector, while at the same time avoiding threatening any nascent corporate recovery. A rather more defensive stance has been taken with the portfolio through the purchase of the bond holdings and the levels of cash, but we take encouragement from the prospects for the stocks in our portfolio and the attractive valuations on which they stand. David Ritchie, Chairman 10 July 2002 EDINBURGH INCOME AND VALUE TRUST PLC GROUP STATEMENT OF TOTAL RETURN (audited) For the year to 31 May 2002 Revenue Capital Total £000 £000 £000 Gains on investments - 6,259 6,259 Investment income 3,299 - 3,299 Interest receivable 82 - 82 Other income 1 - 1 Investment management fee (272) (272) (544) Administrative expenses (250) - (250) NET RETURN BEFORE FINANCE COSTS AND TAXATION 2,860 5,987 8,847 Interest payable (333) (333) (666) RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION 2,527 5,654 8,181 Taxation - - - RETURN ON ORDINARY SHARES AFTER TAXATION 2,527 5,654 8,181 Non equity minority interest - (1,443) (1,443) RETURN ATTRIBUTABLE TO EQUITY SHAREHOLDERS 2,527 4,211 6,738 Dividends in respect of equity shares (2,275) - (2,275) 252 4,211 4,463 RETURN PER ORDINARY SHARE 10.67p 17.77p 28.44p For the year to 31 May 2001 Revenue Capital Total £000 £000 £000 Gains on investments - 11,472 11,472 Investment income 3,242 - 3,242 Interest receivable 91 - 91 Other income 1 - 1 Investment management fee (252) (252) (504) Administrative expenses (227) - (227) NET RETURN BEFORE FINANCE COSTS AND TAXATION 2,855 11,220 14,075 Interest payable (334) (334) (668) RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION 2,521 10,886 13,407 Taxation - - - RETURN ON ORDINARY SHARES AFTER TAXATION 2,521 10,886 13,407 Non equity minority interest - (1,338) (1,338) RETURN ATTRIBUTABLE TO EQUITY SHAREHOLDERS 2,521 9,548 12,069 Dividends in respect of equity shares (2,275) - (2,275) 246 9,548 9,794 RETURN PER ORDINARY SHARE 10.64p 40.30p 50.94p The revenue column of this statement represents the profit and loss account of the group All revenue and capital items in the above statement derive from continuing operations BALANCE SHEETS (audited) Group Company Group Company At 31 May At 31 At 31 At 31 May May May 2002 2002 2001 2001 £000 £000 £000 £000 FIXED ASSETS Investments 65,484 65,466 59,565 59,546 CURRENT ASSETS Debtors 1,489 1,541 869 900 Cash and short term deposits 911 911 1,449 1,448 2,400 2,452 2,318 2,348 CREDITORS Amounts falling due within one year 996 20,854 901 19,249 NET CURRENT ASSETS/(LIABILITIES) 1,404 (18,402) 1,417 (16,901) TOTAL ASSETS LESS CURRENT 66,888 47,064 60,982 42,645 LIABILITIES CREDITORS Amounts falling due after more than 11,180 11,180 11,180 11,180 one year 55,708 35,884 49,802 31,465 CAPITAL AND RESERVES Ordinary share capital 237 237 237 237 Reserves 35,754 35,647 31,291 31,228 EQUITY SHAREHOLDERS' FUNDS 35,991 35,884 31,528 31,465 NON EQUITY MINORITY INTERESTS 19,717 18,274 55,708 49,802 Adjusted net asset value per equity 153.13p 134.58p share GROUP CASHFLOW STATEMENT (audited) Year to Year to 31 May 2002 31 May 2001 £000 £000 Net cash inflow from operating activities 2,571 2,929 Return on investment and servicing of finance Interest paid (662) (669) Taxation - - Capital expenditure and financial investment (172) (1,172) Equity dividends paid (2,275) (2,559) Net cash outflow before financing (538) (1,471) Net cash outflow from financing - (35) Decrease in cash (538) (1,506) Notes : 1.The directors have declared a fourth interim dividend of 2.4p per ordinary share, making a total of 9.6p for the year to 31 May 2002. The fourth interim dividend will be paid on 23 August 2002 to shareholders on the register on 26 July 2002. The ex dividend date is 24 July 2002. 2.The statement of total return (incorporating the revenue account), balance sheet and cashflow statements set out above do not represent full accounts in accordance with Section 240 of the Companies Act 1985. The financial information for the year ended 31 May 2001 has been extracted from the Annual Report and Accounts of the company which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified. The statutory accounts for 2002 contain an unqualified auditors' report and will be delivered to the Registrar of Companies following the company's Annual General Meeting which will be held at Donaldson House, 97 Haymarket Terrace, Edinburgh on Wednesday, 2 October 2002 at 12.00 noon. 3. The accounts have been prepared in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies'. The accounts are prepared under the same accounting policies used for the year to 31 May 2001. 4.The annual report will be posted to shareholders on 26 July 2002 and copies will be available at the registered office of the company - Donaldson House, 97 Haymarket Terrace, Edinburgh EH12 5HD. For Edinburgh Income and Value Trust plc Edinburgh Fund Managers plc, SECRETARY ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/07/10/20020710BIT00480/wkr0001.doc http://www.waymaker.net/bitonline/2002/07/10/20020710BIT00480/wkr0002.pdf