The Edinburgh Investment Trust plc (EDIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. A very warm welcome to you all. This is the Edinburgh Investment Trust Annual General Meeting addressing the company's last financial year to the 31st of March 2026. We are delighted that so many of you have taken the trouble to join us here today. In a departure from the norm of beginning these meetings, we are going to start today with a short video. [Presentation]

I hope you all enjoyed that, and we're looking forward to building on those messages and explaining more about what's going on in the portfolio and the company as the meeting rolls on. My name is James Mowat and I'm Head of Investment Companies at Liontrust, the company responsible for the day-to-day management of Edinburgh Investment Trust's assets. I will shortly hand over to Elisabeth Stheeman, Chair of Edinburgh Investment Trust, who is here along with the other four members of your Board. Elisabeth will open the meeting and chair proceedings. Before I do that, I would like to tell you how the rest of the meeting will proceed. After opening the meeting, Elisabeth will make her own introductory comments and then take us through the day's formal business, including the voting resolutions. We will then have an update on the performance of the company and the underlying investments that it holds on your behalf, some of which you saw a sneak preview of in that video. That update will come from your investment management team, Imran Sattar, Emily Barnard and Tom Gilbey. They are looking forward to giving you an insight into their day-to-day work and investment edge. That should take us up until about midday. We will then open the meeting to questions for both the Board of Directors and the investment management team. And after the question-and-answer session has concluded, the meeting will formally close and refreshments and a light lunch will be served back in the room that you all came from just a moment ago. I should add that we also have people watching online. Welcome to you too. They have been able to submit questions as well, and I will sprinkle them in with the Q&A from the floor of the room. But in the meantime, I'm very pleased to hand you across to Elisabeth.

Thank you, James. And ladies and gentlemen, welcome. To add to James' comments, we're delighted that you're able to join us today. As James mentioned, there are also shareholders watching online. So thank you all for your time. Also with me on stage today are my four fellow directors: Aidan Lisser, the company's Senior Independent Director, who also oversees the company's marketing activity; Steve Baldwin at the end, who chairs the company's Audit Committee, which, among other things, oversees the production of the company's annual report and accounts that you have all received today. Patrick Edwardson next to Steve, the Chair of our Management Engagement Committee, which takes charge of the relationship that we have with our key suppliers and in particular, with our investment manager, Liontrust. And Annabel Bannerman, who takes the lead in any of the legal and regulatory matters that concern the company. All the directors have made significant contributions over the last year, and I would like to put on record my thanks to them. The time is now shortly after 11:00 a.m., the time appointed for holding the Annual General Meeting of Edinburgh Investment Trust as convened by the Notice of Meeting to shareholders dated 20th of May 2026. In accordance with the company's articles, I will chair the meeting and represent the proxy votes that have been submitted in advance. I confirm that a quorum of shareholders is present, and I declare the meeting open. Before moving on to the formal business, I would like to take this opportunity to say a few words about your company. The financial year to the end of March was another one of good progress across a range of topics for the company. For example, the directors have recommended that dividends per share increased by 11% this year compared with last. And on the marketing and shareholder engagement front, we continue to implement a range of measures, including this and other shareholder meetings to promote the company and to encourage new shareholders to invest. Indeed, it's super to see so many new faces in the audience today. The main challenge over the last year have been investment returns. Despite positive absolute returns, performance when measured against the FTSE All-Share has been disappointing. The U.K. equity market has actually performed well compared to most major peers in the last two years, but the company's portfolio and returns have not kept pace with the market. While we accept that short-term returns like these can be volatile, as a Board, we recognize the importance of returning longer-term investment results back on track where we would all like to see them. We are engaging robustly with the management team and broader executive and nonexecutive team at Liontrust to ensure that the investment team through their process, identify attractive companies that will drive the strong overall results that we seek to deliver for you. In his presentation today, Imran and his team will set out in detail the factors behind recent performance, how the investment process works in practice and why there is confidence and excitement in the future return potential for the company. With that, we'll now move to the formal business of the meeting. I propose and given the consent of the meeting present that the notice of meeting be taken as read. To reflect the views of shareholders of the company accurately, voting today will be done via a way of a poll on each of the resolutions. This is seen as in the best interest of the company and shareholders as it gives all shareholders the opportunity to participate in the decision-making of the company and have their votes recorded in proportion of the number of shares they hold. The poll will be administered by our registrars, MUFG Corporate Markets. Poll voting cards were distributed when you registered this morning. If you have already lodged a proxy form appointing me as your proxy and you do not wish to change any of your votes, there is no need to complete your poll card. However, if you wish to change any of your votes, you should complete the poll card for every resolution. I will now move to the resolutions. I propose that each separate resolution as set out in the notice of meeting and referred to on your poll card be put to the meeting. You can now see the results of proxy voting on the screen behind me, with all resolutions receiving at least 97% of voting in favor. Are there any questions on the resolutions to be put to the meeting? If you need to, please now complete your poll card by marking how you wish to vote on each resolution and sign it. You can vote in favor of a proposed resolution, against a proposed resolution or you may withhold your vote. Should you require any assistance, our registrars will be pleased to help you. Poll cards should be handed to the company's registrar at the end of the meeting, and the final results of voting on each of the resolutions will be announced through a regulatory news service announcement as soon as practicable following this meeting. Voting will close 10 minutes after the end of the meeting. That concludes the formal business of today's Annual General Meeting. I will now hand over to our investment management team, who will provide a detailed update on the company's performance and the underlying investments managed on your behalf. Thank you.

Thanks, Elisabeth. And good morning, everyone. Delighted to be back here again this morning to talk to you about your portfolio. The plan today is to cover four things. Firstly, an overview of the trust, how it's managed and how it's performed. We'll then take you through a deep dive of the portfolio, and then we'll discuss our investment process. And finally, I'll leave you with my outlook for macroeconomics, the markets and most importantly, your portfolio. And what you'll see today is that this is a Trust that has high conviction, a portfolio full of advantaged businesses well set to deliver attractive returns going forward. Now before I start, let me introduce you to the other members of the team. I'm lead Portfolio Manager, and I'm supported by Emily Barnard as Deputy and two analysts, Tom Gilbey and Gabriel Lever Grecu. And together, we have 50 years of combined investment experience. This is the team that is responsible for looking after your company. And you'll hear from Emily and Tom a little later. So the first section, an overview of the trust, starting with the objective, a reminder, it is to exceed the total return on the FTSE All-Share Index, our benchmark. and then to grow dividends ahead of U.K. inflation. Now we're bottom-up stock pickers with a flexible investment style. And why flexible? Well, just like there are economic cycles, there are stock market cycles and to be able to perform across cycles, one has to have a pragmatic approach. Now that said, we do prefer owning businesses that have powerful economic moats, and I'll come on later and talk about what that means exactly. In the long term, businesses that have structural growth and a barrier around their moats gives us the best chance to produce attractive returns for you as shareholders. And then the tilt to growth or value will depend on the bottom-up opportunity set. This is a portfolio that has a total return approach. And for us, that means the focus is not just on income. We know that income matters to you as shareholders, but so does capital growth. We're trying to optimize such that we're delivering attractive total returns. In a nutshell, we're aiming to build a conviction portfolio of around 40 to 50 stocks, principally invested in the U.K. stock market, but with the flexibility to own up to 20% in non-U.K. listed shares. And then one of the benefits of the investment trust structure is gearing, and we have good long-term structural debt in place of around GBP 120 million, which should also be return accretive for shareholders in the long term. And for those of you that were here last year, you'll recognize that this approach has not changed. So how have we done? Well, since we were appointed to manage the trust just over 6 years ago, you can see returns in terms of the share price and the NAV up triple digits. So very nice returns in absolute terms. And then when you look at the NAV versus the benchmark, the FTSE All-Share modestly ahead. So we've met the first part of the objective of the trust. If we move left to slightly shorter-term performance, you can see respectable absolute returns in the sense of the share price being up 8.5%, the NAV up 7.2%, but we've lagged the benchmark with the FTSE All-Share up 21.5%. So we struggled to keep pace with the market rise. And I'll come back and talk about the drivers of that shortly. To the second part of the objective of the trust, we look at the dividends here. And as Elisabeth mentioned earlier, the dividend for March -- for the year to March '26 was raised by 11% to 32p. And that leaves a CAGR compound annual growth rate over the last four years of 6.6%, thereby meeting the second part of the objective of the trust. Now before we look at the drivers of performance, it's worth providing some context. U.K. market concentration has been extreme. And you can see a narrow group of stocks driving the market, some of which we've been either below the index weight or not owned, principally some of the banks and Rolls-Royce, for example. And then when you look on the right-hand side, you can see 82% of the benchmark return came from just 10 stocks concentrated. Market dynamics have been changing. You've all read about the geopolitical environment that we've been in the last two years. And then when you look on this chart on the left-hand side, you can see a very material derating of capital-light businesses versus capital-heavy businesses. What I mean by that is think of businesses that are capital-light as businesses that generate cash and don't have to spend that cash flow on factories and physical assets, whereas capital-heavy industries do use their cash flow to invest in factories and physical assets. So capital-light businesses, software companies, capital-heavy businesses, utility companies, mining businesses and industrial businesses. And then finally, on the right-hand side, you can see a changing market structure led by value rather than growth. So a tricky market to navigate. So let's break down recent performance. On the positive side, a few stock specifics. Firstly, Anglo American, the mining business benefited from rising commodity prices, principally copper and also the benefits that it will accrue from the proposed Teck Resources merger. And then GSK, that's the GlaxoSmithKline business, global pharma company and Rentokil, the global pest control business, two examples of self-help stories that produced good returns for us. And then Tesco, the leading U.K. supermarket delivered the goods again this year. And lastly, Halma, the industrial business, wonderful business that produced very strong profit growth. Now on the negative side of the ledger, there were three key reasons why we lagged the U.K. stock market. Firstly, several of our data and technology companies were at risk of AI disruption as perceived by the market. Secondly, a small number of holdings disappointed from an operational and financial perspective. And finally, we had low weightings or no holdings in some of the areas of the stock market that performed very strongly. Think of the banks and Rolls-Royce as examples. So I appreciate performance in the last 12 months has been subpar. Our confidence, though, in our investment process and most importantly, in the portfolio holdings that we own on your behalf remains very high. Now we're long-term investors with a longer horizon than most. Our confidence is there, and you will see where that comes from and why in the rest of this presentation. Now given the underperformance, we thought it would be useful to spend a bit more time than usual on addressing the three key reasons why the fund -- the portfolio performed poorly against the benchmark to be completely transparent. I'm going to hand over to Emily before I'll come back and take you through the investment process.

Thank you, Imran. Good morning, everyone. So let's talk through those three buckets of underperformance. The first, the AI underperformers. So, for context, over the last 18 months, we've seen some significant changes in the market, and one of those has been the notable valuation rerating of capital-light businesses -- capital -- sorry, apologies, capital-intensive businesses against capital-light. Now one area where there's been sizable capital spending has been at the U.S. hyperscalers. So Microsoft, Amazon, Google. Those three, together with Meta and Oracle have committed to spending over $650 billion in CapEx just this year in an arms race to build out AI-related infrastructure. Now as we've all been increasingly using the likes of ChatGPT, there has been increasing fear in the market around which companies could be negatively disrupted by AI. Rightmove, AutoTrader and BCG are three Internet platform companies in your Trust, where the market has taken a view that they will be negatively disrupted by AI, and this has contributed to the share prices underperforming over the preceding year. We judge the outcome of AI to be very different for these businesses. So, as most of you will know, Rightmove is the dominant online property portal in the U.K. And for every 100 minutes a U.K. consumer spends on a property portal, about 80 of those are spent on Rightmove. So it has very high consumer mind share. And that consumer mind share is being cemented with innovation and partnerships. And they've recently announced a strategic partnership with NatWest, the U.K. bank, where a consumer on Rightmove will almost instantly be able to get a mortgage in principle decision when applying through Rightmove and then potentially an offer -- mortgage offer within 24 hours. So that consumer mind share and that convenience are very hard to displace by an AI tool. The second factor protecting Rightmove's position is the quality of its data. Now for an AI tool, the context you provide it and the data you provide it are really key in getting a usable and useful answer from an AI tool. And with Rightmove, about 50% of the data it holds on properties on the portal, that data cannot be scraped by an AI tool. So these tools do simply not have the same depth and breadth of data as Rightmove does. Now in Rightmove specific example, rather than AI being direct competition, we think the most likely outcome is it's a new distribution angle for Rightmove. And to that point, they've recently launched the Rightmove app within the ChatGPT environment. It's very early days. There's not yet much direct traffic from ChatGPT to Rightmove. But we do think this points to AI being a distribution angle for these companies rather than direct competition. These same factors protecting Rightmove are also present at AutoTrader, the leading online used car portal in the U.K. and BCG, Baltic Classifieds Group, which is like the Rightmove plus Auto Trader of the Baltics. We think AI presents an opportunity for them to broaden distribution, improve product innovation and also improve internal efficiency. And the other company I'll mention here is Sage. Likewise, the market has viewed Sage is going to be negatively disrupted by AI, and this has contributed to share price underperformance. And again, here, we judge the impact to be different. Sage is a global leader in accounting software for small- and medium-sized companies. And following a period of investment and product innovation, organic growth has accelerated and the company is performing very strongly. Now for any business customer, having reliable software suppliers is important, but this is particularly important for small- and medium-sized companies, which are likely to be less resourced internally and less able to keep up with changing accounting rules and requirements and reporting. And so Sage here as a software supplier, helping companies stay in regulatory compliance is very valuable. Sage is already using AI with its own Sage Copilot as a way to improve pricing power. And we think the likely outcome is an acceleration and expansion of the dynamic we are already seeing, which is AI helping product innovation, which improves pricing power, which long term helps cement and improve customer lifetime value. So that's the first bucket of underperformance, the AI-exposed companies. I'll move on to the second, which is companies which have delivered subpar operating performance. And actually, the unifying factor across all these three companies has been all of them have suffered weak end markets in their respective areas. All of them have seen divisional or higher management change and all of them have had a few hiccups operationally. So these are Marshalls, the U.K. manufacturer of landscaping, building and roofing products. Haleon, the global consumer health company and Dunelm, the U.K. homewares retailer. Now Tom is going to speak to you about Marshalls shortly, so I won't dwell on Marshalls just to say it's been a weak end market. During COVID, consumers spent more on improvement to their homes. And so since then, that spending has been a little bit weaker. In addition, there is a decent chunk of the Marshalls business exposed to the new build housing market. As we know, that has been weak for some time. So a weak market backdrop. In addition, the business was just not executing quickly enough, and they recognize this. There has been a management change and self-help actions are underway. Secondly, Haleon, the global consumer health company. Again, it's been a weaker market backdrop. Principally the U.S. consumer has been weaker. And then in addition, we've had a weak cold and flu season globally, which has impacted a number of the Haleon products, also impacted competitors like Reckitt. And then operationally, they haven't performed where they should be in the U.S. So they've made some changes. The head of the U.S. has changed. She's changing a number of her team. They're working on improved product innovation, working on shelf distribution and shelf positioning with retailers. So again, tough market backdrop, management change, self-help actions underway. And then lastly, Dunelm, the U.K. homewares retailer. The Dunelm hiccups are in the context of very excellent really long-term performance. There's been a weaker U.K. consumer. There's been cost inflationary pressures hitting the business. And in addition, promotional competitors have been somewhat more promotional in recent periods. Now the two slight own goals at Dunelm have been there was a furniture forecasting issue within their system, which resulted in availability issues and some lost revenue. That's now been fixed. And then in addition, less of an own goal, but they have been slightly behind the curve on digital, having only recently just launched an app. Now to be clear, we think digital is a huge opportunity for them. It will require some investment likely, but a huge opportunity. But this has meant competitors have stolen the march a little bit recently on digital advertising. So the subpar operating performance company all under very close watch by us and close interrogation, as you would expect. And lastly, the group of companies where we either hold less than the benchmark in the case of HSBC or we don't hold the stocks at all presently in your portfolio in the case of Rolls-Royce and Glencore. And as these stocks have done well, it's hurt the trust's relative performance against the benchmark, not our absolute performance just relative here. So we'll start with HSBC. Again, a new management team. They've done a fantastic job streamlining the portfolio of businesses, taking structural costs out and growing their Asian wealth business. We did a full investment thesis reappraisal in January of this year and then use the weakness associated with the Middle East war as a good opportunity to increase your position in HSBC. And then Rolls-Royce, a company we don't currently own in the portfolio under close watch for when the valuation becomes a little bit more appealing, like HSBC, the CEO has led a fantastic turnaround there. And then lastly, Glencore. For any of you who were here last year, you may remember we spoke about Anglo American, which has been one of the top contributors to performance over the year. Glencore has had similar factors where it's been helped by rising commodity prices, alongside some Glencore-specific activities. So those three buckets of the AI underperformers, subpar operating performance and then stocks where we have different weightings versus the benchmarks, all very much under review. The AI-exposed companies, we retain conviction but have been shifting the mix of those companies towards the highest conviction names. The subpar operating performers under very close interrogation. And then lastly, the benchmark underweight. I should just highlight that as an actively managed portfolio, we are not restricted by the benchmark weight. So you would expect to see some benchmark underweight and overweight. But clearly, where there are stocks that are doing very well, turnarounds going on track, we, of course, review those. I will now hand back to Imran.

Thank you, Emily. So what have we been doing in portfolios, and this is just in the kind of last six months or so. We've talked consistently about our flexible investment style. And whilst we've had a quality growth bias over the last couple of years and retain a modest quality growth bias, we have found more opportunities in the value part of the equity market, principally through our bottom-up research. And you can see flexibility in action here with many of the recent purchases in the value part of the market. As Emily just mentioned, we found an interesting opportunity to add to the banks, which included HSBC, but also Lloyds and NatWest at the time of the Iran war, which kicked off at the end of February, beginning of March. And the shares were derated and we've been looking for an opportunity, and that provided us a great opportunity. And then below that, you can see purchases of Ibstock. That's the U.K. brick manufacturer. And then SigmaRoc, the lime materials business, both examples of businesses in the construction and housebuilding area where volumes have been depressed and therefore, their profits constrained. Now we see lot of value in both of those names as we do in Marshalls, which we also hold. The opportunity is, is that if there's a recovery in housebuilding volumes and construction activity, both of these businesses will benefit very materially in their profit. But over and above that, you're also likely to see a re-rating. So we're very excited about those names, but recognize that construction activity remains constrained today. And then in the data tech area, which Emily talked about just now, we found an opportunity to add to Softcat. Softcat is a value-added reseller that helps medium-sized corporates to spend their IT and tech budget. So think about spending on AI, cybersecurity and cloud services. Now Softcat has been an incredible success story for the last two decades. It's been a consistent market share winner, but it's got caught up in the crosshairs of AI disruption that we've just talked about. And we found a great opportunity to add to the position back in February at the peak of AI disruption risk. And this is a great example of how fickle the market is around this issue, because last year, Softcat was an incredible business. It's got an incredible track record, and it's very much a loved share by the stock market. And then in February, it gets derated very, very materially and the stock market doesn't like it and the shares decline rapidly. But as bottom-up stock pickers, we see that as an opportunity and so we added to the position. And what we've seen since February is the shares have bounced of the order of 50% or 60%. And so a great example of how fickle the market is. Yesterday, it's a great business. In February, it was a really bad business, and now it's a great business again, opportunity for us as stock pickers. And then we added to BAE Systems, the defense contractor. The sector had been weak. The shares have been weak, and we found a good opportunity to buy some shares in BAE. And then finally, to the discussion we had earlier about capital-light and capital-heavy businesses, we found a good opportunity to buy -- rather add to the position in Shell, the oil major. Clearly, the higher oil price means that this business is generating a huge amount of extra cash flow and capital discipline, by the way, we've been very impressed with, and it remains an attractive holding for the trust. And lastly, Weir, that's the oil -- sorry, mining equipment and parts business. Again, a great example of a high-quality business. Shares have been weak on the back of modest earnings weakness, we found a great opportunity to buy an excellent business with an excellent long-term future. Moving to the sales side of the ledger. We've reduced some positions in the consumer area, principally through Whitbread. That's the owner of Premier Inn. Now to be fair to the company, it's done a really good job in navigating what has been a tough consumer environment. It's been taking market share in the U.K. It has a small German business, which was loss-making is now being turned around very close to being nicely profitable. Now all of that said, the investment case got torpedoed by the last budget when the chancellor raised business rates for companies like Whitbread, and it just meant that profit growth is going to be very, very hard to come by. And as we've said earlier, we're flexible investors. The investment case has changed, and we've sold the position down. We also trimmed the position in Greggs. Again, whilst we like the business and we think the business is well set for the long term, short-term dynamics remain constrained and profit growth will be hard to come by. So we've trimmed the position. And then if you look at the next batch of stocks, AJ Bell, Diploma and Halma, we've reduced all of these positions on the back of significant share price strength and the re-rating of their profits. And it's just a good example of valuation discipline because all three are wonderful, wonderful businesses, but valuations have increased materially, and we've trimmed the positions back. And then going back to the data tech area, we've sold the position in Trainline and reduced the position in MONY Group significantly on the back of higher conviction in the names that Emily mentioned earlier. So the likes of Softcat, Sage, RELX. Now these examples demonstrate flexibility of our investment process and our focus on bottom-up stock picking. The process hasn't changed, but the opportunity set has and the portfolio has adapted. We've added selectively to value and cyclical areas of the market while still keeping exposure to the high-quality businesses that we believe in, in the long term. So let's move on to the next section of the presentation, which covers a deep dive of the portfolio. Now we aim to ensure the portfolio is well diversified across themes and the economic pie. And for those of you that were here last year, you know that we have two lenses with which we look at the portfolio. Here's the first one, a thematic lens. These are the key themes that run through your portfolio. And we're aiming to construct a portfolio that is driven by multiple themes rather than just reliant on one or two. It's very much deliberate to have multiple themes driving the portfolio. Let's have a look at some of them. So market champions there on the left-hand side in orange, take Tesco as an example, its advantaged market leadership position is making the business stronger and stronger. That scale is improving its supplier position, which gives it better pricing, which allows it to win more and more customers. So it's really pressing that competitive edge. Top right, in Turquoise, we talked about GSK and Rentokil. Those are two really good examples of businesses that have internal plans that are driving their profit growth. And then bottom middle, what is that salmon, data and analytics, about 11% of the portfolio. It still remains a key theme in the portfolio even if we've actively reduced the size of that theme, concentrating our positioning on the ones that we really believe in, the likes of RELX as an example. And RELX is a fabulous business with very powerful data sets that, if anything, is getting stronger and stronger with analytics and AI overlays. Now as I said, there's a second lens with which we look at the portfolio. And that is how well is the portfolio diversified from an economic pie perspective. For us, this is really important rather than simply looking at what the portfolio looks like versus the benchmark. And you can see that there's a very broad spread, and that's very much deliberate. Starting from the left, you can see exposure to defensive positions in companies like National Grid and Compass. And as you move right, you can see exposure to some of the structural growth areas in health care and technology. So, in health care, the likes of AstraZeneca, GSK and Haleon. In technology, it's the likes of Softcat and RELX. And as you move further right to some of the more cyclical areas of the market, you can see exposure to commodities, that's the Anglo Americans and Shells of this world. In financials, it's the banks plus Admiral Group. And then as you move further right, industrials, Rotork, Halma and Weir. Rotork, by the way, received a very nice bid approach last week at a 7% premium to the undisturbed price, which we are delighted by. And then finally, consumer, Howdens, Dunelm, Greggs. You can see this is a very well-diversified portfolio across a range of sectors, and that's very much deliberate. Right at the beginning, I talked about building a conviction portfolio, full of advantaged businesses and one that aims to perform across market cycles. By looking at these two lenses, you can see that we have an exciting portfolio that's well set to deliver attractive returns going forward. So, on to the third section, the investment process. I talked earlier about our flexible approach. And that's why we look at a wide range of opportunities, growth, value, cyclicals, defensive businesses, self-help stories. Now that said, over the medium to long term, high-return companies with an economic moat are best positioned to deliver attractive returns. And just as a reminder, for those of you that weren't here last year, what we mean by an economic moat is how a company can maintain its structural advantage. If you've got high returns and an attractive business, there will be capital that tries to compete against you. And so therefore, having some sort of barrier around your business is your best chance of protecting those returns. So we spend a lot of time thinking about the economic moat of a business. It's important that said, to be pragmatic, and we find interesting investment opportunities across the spectrum. Some will be growth companies with an economic moat, others will be deep value companies. Moving to the right, portfolio construction plays an incredibly important role in how we run the trust. And for us, that means a number of things. Firstly, it's about ensuring the portfolio is economically diversified and thematically diversified, as you've just seen. It also means thinking about macro considerations because companies don't operate in a vacuum. And for us, we think about macro from the micro being the principal way about how we learn about what's going on at the macro level. And what I mean by that is we tend to meet lots and lots of companies, and they're very close to the ground, so they know what's going on, and we build a picture. It's almost like building a jigsaw puzzle to work out what's going on in the economy. And then another important factor in delivering good portfolio construction outcomes is making sure that the team is debating portfolio positioning. and having that constructive criticism and challenge from the whole team. So the team not only spends time thinking about stock specifics, but also the shape of the portfolio. Careful risk management guardrails are in place, and that comes from a number of things. Firstly, it's my experience of looking after portfolios for nearly three decades. It's quite scary when you say it that way. Secondly, it's about that portfolio team debate and challenge. Thirdly, it's from the risk team internally at Liontrust. And finally, and this is an advantage of the investment trust structure, it's the Board oversight that we have that also looks at risk. And then finally, valuation. It's an important part of the process, but it deliberately comes at the end of the investment process, not the beginning. That in a nutshell is our investment process in running the trust. And this is a process that's unchanged since we started to look after the trust just over six years ago. But like all good teams, we look to iterate and hone the investment process and make it better and better. Now here's a bit more detail, but I'm sure you're all glad that I'm not going to spend the next two hours taking you through all of this detail. Now that said, what we do like to do is zone in on one aspect of the investment process. And this year, we've decided to talk about how we think about self-help. So Emily and Tom will take you through the detail and bring it to life with some examples before I come back and finish on the outlook for the portfolio. Emily?

What do we mean by self-help? Self-help refers to companies going through a turnaround, where perhaps there were operational or strategic missteps, and now those missteps of the past are being corrected. Self-help strategies are usually designed to improve growth, margins and returns of the company and can sometimes also include balance sheet repair. Whilst clearly, every self-help turnaround is unique, there are some common elements we see in self-help turnarounds across industries. They usually start with an identification of the issues and usually a profit warning, a cut to numbers and a reset of expectations. Quite often, they can follow with a few more profit warnings as the true depth and breadth of the issues facing the company are uncovered. You can quite often see management change. Perhaps the management change is the catalyst for the issues being uncovered as the old management team leaves, new management team come in and find problems. And sometimes, the existing management team can run into some missteps and be determined not to be the best placed people to then deliver on the turnaround. The new management team will come in, set out their store for recovery for the business and the share price. And then ideally, you get to a point of share price and underlying company recovery and improvement. Now self-help stories can be very powerful as you can have both an earnings inflection and a valuation re-rating when they work. They can also be nice idiosyncratic sources of upside for a portfolio, and that can be nicely diversifying. Now Rentokil is a great example of a self-help stock in your portfolio, and it's been one of the top contributors to performance over the last 12 months. Rentokil is the global leader in pest control. And up until 2022 had a great track record of compounding earnings and free cash flow. And as such, it was pretty handsomely rated by the market. Rentokil had delivered on both excellent organic growth and also consistent bolt-on M&A. Now pest control is really about what's called route density, getting as many customers as you can in the same set of geographic locations and then having the same group of engineers and technicians service those companies. Route density is a great way to improve margins. And so in that context, bolt-on M&A, buying up small family-owned businesses and brands has been very accretive for Rentokil, and they've executed on it really fantastically. So what happened in 2022? Well, at the end of '21, Rentokil embarked on its largest ever M&A deal, spending just shy of $7 billion to buy one of their competitors, Terminix in the U.S. This was a strategic deal and much larger than the bolt-on M&A the management team had built their track record on. This would take Rentokil from the third largest player in the U.S. to the first with 30% market share. And we'll focus on the U.S. because it's about half the global market in pest control and the largest single market. This transaction was not just about bringing branches together, getting synergies. It was about taking Rentokil's execution playbook and applying that to a Terminix business, which had been underperforming peers. Unfortunately, the integration has been more difficult, complicated and costly than was initially envisaged. So let's take a look at the Rentokil share price over the last five years to see how the turnaround has unfolded. We start in mid-'21, excellent track record, shares have done very well. And then in late '21, the announcement of the Terminix deal. This was a strategic shift for the business, and it was not taken well by the market, principally around valuation, paying just shy of $7 billion for the deal. We then go through to October '23 and the first major profit warning. Issues were uncovered, new customer acquisition had been weaker than expected, and there was a cut to numbers and a reset to expectations. We then started to build your position around January '24 through to October '24 with the main purchases. The second profit warning comes towards the end of '24 around September. There was a further uncovering of issues and a further cut to numbers and expectations. And these issues were really in four categories: continued weak new customer acquisition, that planned branch integration between Terminix and Rentokil was not going to plan, and it was causing disruption to operations. There were some cost overruns. And then as to be expected, there were some personnel issues bringing two sizable organizations together. Around this time, an activist investor had also built a stake in Rentokil. They had a representative appointed to the Board. And then a short two months later, the CFO announced his retirement. So this was the first major change in that bucket of management and strategy change. We then have a further disappointing update to the market, where there was a further identification of issues this time around branding. And so they changed their approach to branch integration and branding. We then have a further management change. So there's a lot going on at Rentokil. And this management change was the long-standing CEO announced his retirement. And importantly, there was additional brand and marketing expertise added to the Board as this has been a core problem for Rentokil over the last couple of years. The share price and the business then entered a period of recovery. And the situation today is we have a new CEO in situ. He's been in situ for around four months. We have a new Chair joining towards the end of this year and a new Head of the U.S. is also joining in a few months' time. Now the next time we will hear from the new CEO will be next week when they report half year results. And one of the key questions is, as new CEOs can sometimes do, will there be a tweak, an update to the strategy? Could there be a further cut to expectations and numbers? Now the prior slide almost showed a turnaround as a straight-line process. Clearly, that's not how it works in practice. And turnarounds can often be more like a spiral where certain stages are repeated. So we see multiple periods where issues are identified, multiple periods of strategy tweaks and management changes. So recovery is more like a spiral and less like a straight line. For Rentokil specifically, we think a lot of the hard yards have already been taken by the business, and we remain excited about the further recovery potential in both the business and the shares. Rentokil has a great market position, operating in a growing industry with attractive long-term drivers, but clearly, where most recent execution has been much weaker. So we're excited, but recognize it can be more like a spiral and less like a straight line. And those self-help turnarounds, as you can see, do require patience and good timing, both for company management teams and for investors. There are a number of other really exciting turnarounds in your portfolio, which I will hand over to Tom to speak about.

Thanks, Emily. So to continue the self-help theme, I'm going to talk to you about Spirax. Spirax is an industrial engineering business operating across three divisions: one focused on steam, one on electric heating and one on specialist pumps and tubing. These areas might sound niche, but they are vital to the customer. So, like Rentokil, Spirax has historically been a high-quality compounder with a long-term track record of organic growth and consistent cash returns. But over recent years, Spirax has lost its way a bit. Importantly, we don't believe the underlying quality of the business has changed. Instead, management are addressing these issues in order to return Spirax to the high-quality business that it has been. Before having a look at the individual divisional changes that management have made, it is worth addressing the cultural change that's happened across the whole organization. Management have reduced layers, changed sales incentives, shortened decision-making time, and this has really made the business more focused and more agile. So within the divisions, the biggest self-help opportunity exists in Electric Thermal Solutions, which provides electric heating systems and temperature management solutions for industrial applications. In recent years, legacy projects and operational issues have weighed on profitability. But these legacy projects are now largely phased out and the operational issues have been addressed. Additionally, lead times have been reduced. execution has improved and a dedicated sales force has been introduced. Together, these changes will result in better volumes, which when complemented by a pricing opportunity and the resolve legacy issues will result in profitability growth in this division. The next division to discuss is Watson-Marlow, which provides specialist pumps and tubing. So this business has also suffered a profit fall in recent years as biopharma customers have worked through excess inventory, which was built up during the pandemic. But we don't think the long-term drivers have changed at all and they remain attractive. Instead, we think this is a temporary issue. Management have used this time to reorganize the sales force, invest in new products and add new capacity. So when inventory levels do normalize, Watson-Marlow will be in an even better position to grow. And then the final division is Steam Thermal Solutions, which helps customers use and manage steam more efficiently. There have been some leadership changes within this division as well, and the U.S. distribution model has also been adjusted. The aim is to really make the business able to generate more of its own growth through customer relationships and solution selling rather than just relying on industrial production. So alongside these operational improvements, the balance sheet is also in a better position. Leverage is back within its target range. Cash generation is improving and the management focus on small bolt-on acquisitions rather than large transformational deals. As investors, Spirax has many traits that we like, niche products that are key to the customer, strong customer relationships and an exposure to energy efficiency and electrification. We believe the current valuation does not fully reflect Spirax's potential to return to being a high-quality compounder. As these internal changes that management have made come through, we think the company is well placed to deliver consistent organic growth, margin expansion and attractive free cash flow generation. And if industrial production also improves, then Spirax will do even better. So the second company I want to talk to you about is Marshalls, which, as Imran has already mentioned, is exposed to the U.K. construction market and is a recent addition to the portfolio. It is one of the U.K.'s leading manufacturers of building materials, and some of you may know the brand for paving, patios and driveways. Like Spirax, it also has three divisions: landscaping, roofing and building products. Across these three divisions, Marshalls is exposed to U.K. construction, housebuilding and repair and maintenance activity. The market backdrop has clearly been tougher. Housing volumes are weak and consumer confidence is low. But what we think makes Marshalls interesting is that this is not just a market recovery story, it is also a self-help one. The core issue has really been in the landscaping division. Historically, this was a significant contributor to group profits and was perceived as a high-quality division. But in recent years, pricing became too aggressive, the product range too complex and customer relationships worsened. This, alongside the tough market backdrop has resulted in profits falling from around GBP 60 million to essentially zero. But a new CEO has been appointed and management are addressing these issues directly in three main ways. First, they're simplifying the business. Reporting lines have been streamlined, accountability is clearer and decision-making more focused. Second, they're improving commercial execution. Marshalls is focused on rebuilding customer relationships with merchants and contractors and pricing is becoming more balanced, competitive while still maintaining margin. And third, they're improving efficiency. In landscaping, management have removed around GBP 11 million of annualized costs, reduced the product range by around 30% and are focusing CapEx on nearer-term returns. This means that the landscaping division does not need a strong market recovery in order to restore profits in this division. If volumes simply stabilize, then cost savings, better pricing, a simpler product range and stronger customer relationships will result in profit growth in this division. So what about the other two divisions? Roofing is performing well, driven by strong demand for solar products. The Building Products division remains a good business, but it is more reliant on a market recovery to drive profit growth from here. So the upside really comes in two stages. First, you have the internal self-help opportunity within landscaping, and this should drive profit growth within that division. Then if the U.K. construction market eventually improves, then the wider group will benefit from strong operational gearing and subsequent profit growth. We believe the business is trading on a low multiple applied to what is a cyclically depressed earnings number. We think this gives a very little credit for the internal changes that management are making, let alone the potential benefit from an eventual market recovery. So, in summary, we think both Marshalls and Spirax are attractive self-help stories but in slightly different ways. With Spirax, the opportunity is to restore a high-quality business to the level of performance it has historically delivered. With Marshalls, it is a more value-orientated idea, where earnings are depressed and little credit is being given to the internal improvements underway. In both cases, management are taking clear actions in order to improve profitability. And if their end markets do improve, then this will provide an additional tailwind to earnings and returns. Thank you, and I'll hand it back to Imran.

Thank you, Tom. The final section of the presentation covers our outlook for the macro economy, the market and most importantly, your portfolio. It's fair to say there's a lot going on. And you can see that from the headlines on the left-hand side. We've had more than our fair share of Prime Ministers in the last decade with a new one yesterday. Sentiment around the U.K. has been poor. And then when you look on the right-hand side, you can see GDP growth stubbornly below trend for a period if you ex out the COVID period. Now if you look at U.K. real GDP versus the G7, actually, we're in the pack. And so the weak below-trend growth is not specific to the U.K. It's a function of relatively mature economies. On the right-hand side, you can see in the context of what is high total debt as a percentage of GDP amongst the G7, actually, we fare really well. We've got the second lowest level of total GDP, what -- total debt rather. What total debt means is government debt plus corporate debt plus household debt. And the real driver, which I think is very impressive, is that reduction has come principally from consumer and corporate, where balance sheets are very strong. So growth is in the pack. And we have a relatively strong balance sheet position, at least at the corporate and consumer level. That's a good starting point for U.K. equities, particularly given the low starting valuation, which we've talked about previously. Perhaps with a stable political environment, the U.K. stock market might be a favored one going forward. Now it's not dissimilar across the globe. You can see on the left-hand side here, U.S. consumer sentiment is poor. So the weak consumer environment is not specific to the U.K. And remember, the U.S. economy is growing faster than the U.K. And you can see the inflationary impact from memory and chip prices on the right-hand side. Again, that will put pressure on the U.S. consumer. So the tough U.S. consumer environment is not that dissimilar to what we see in the U.K. Let's have a look at some more charts. Emily talked about this earlier, the hyperscaler CapEx. This is a positive large amount of cash flows from the likes of Meta, Google, Amazon and Microsoft being spent on compute and data centers. And on the right-hand side, you can see a U.S. economic cycle that is now in its seventh year of expansion, sixth longest in history. So the picture is mixed. The U.K. economy is not booming nor is it uniquely weak. Against that backdrop, we think U.K. equities are really well positioned, particularly given the valuation. So yes, we've had a tougher 12 months, but our confidence going forward comes from the companies that we own on your behalf, 77% by weight that have been at least meeting or beating profit expectations and a portfolio where the premium valuation has shrunk from about 5 points to about 2 points in terms of P/E ratio. And yet the portfolio returns and growth remain very attractive, as I'll show you in a moment. So the economic weather may change. Our confidence comes from the portfolio holdings that we own on your behalf, the majority of which are absolutely delivering financially, operationally and strategically. Some of these are domestic nature. We talked about the banks and Softcat, for example. Some are global in nature. That's the likes of Spirax, Rentokil and Weir. In this context, our focus remains firmly on the bottom-up stock picking. So, to conclude, the Edinburgh Investment Trust is a high-conviction portfolio. Firstly, the trust owns advantaged businesses, and you can see that in terms of the return on equity and the margins versus the benchmark, the FTSE All-Share. Secondly, portfolio holdings are delivering attractive profit growth nicely ahead of the market. And thirdly, the portfolio demonstrates resilience, look at the leverage versus the market and also from the thematic and economic diversification that I talked about earlier. The valuation of the portfolio is attractive. Yes, it trades on a premium, as I referenced earlier. But actually, when you look at on a cash flow basis, free cash flow yield, the valuation metric is broadly on par with the benchmark. And that just means that the companies we own on your behalf are converting profits into cash flows much more effectively than average. So in owning shares of the trust, you're owning a high conviction portfolio trading at around an 8% discount to net assets and a portfolio that's well set to deliver attractive returns going forward. That concludes the formal part of the presentation. And I'll hand over to James to host questions that you may have.

Thank you, Imran. Thank you, Elisabeth, for the first part of the meeting and to Imran, Emily and Tom for the presentation that follows.

So we have time for questions from the floor. There are some roving microphones ready. So if you have a question, please wait for the microphone to come to you. As I say, the questions can be for both the Board of Directors and for the investment management team or me or any other of the company's representatives and advisers here in the room today. So the floor is open. I think we have one in the front right. Thank you. Yes.

Right. Well, last year, I congratulated the Board possibly because it was the first time I was invited in 20-year membership to come to the AGM. But this year, it's very much a mixed bag. I think the Board would agree with that. The pluses are the dividend increase, welcome. The discount slightly narrowed, welcome. I do scrip dividend. So the share price personally doesn't affect me a lot. I might be picking up a bargain this year, who knows. But I have to say, for other people, the share price is an issue. That is the negative part of this.

Excuse me, could you just speak into the microphone?

The share price is not great. I think you would agree the last year. And I can live with it. As I say, I do scrip dividend and maybe other people are not so happy. But I would suggest next year, if we're facing the same situation that I think it's a matter of concern for the Board. I heard you had a vigorous discussion with your pickers, but I think it's a mixed bag this year in all honesty.

Elisabeth?

Yes, I'll just briefly comment on that. Thank you very much for raising that. As you will appreciate as a Board, as I mentioned earlier, we will very regularly engage with the manager, in particular, given the performance in the last 12, 18 months. We've had both inboard meetings and in between sessions with them because we feel, obviously, it's in shareholders' interest to make sure that returns come back to what we've been seeing over the last six years. So the good news is that over the last three months, performance has stabilized. So obviously, we hope we will continue that way. You've heard what Imran and team have done in order to adjust the portfolio. So I might ask Patrick just to very briefly comment, he chairs the Management Engagement Committee.

Yes. I'm not sure there's a great deal to add there. I mean I'm speaking now as a shareholder as well as a director, and I agree with you. But I think the managers would agree with you as well. To some extent, it's going to come with the territory. There's going to be good years and there's going to be bad years. And particularly over what is a short time period, just 12 months, we don't have -- none of us have great control on exactly how things are going to be delivered. But we are very aware of it, and I come back to opening comments, I agree with the point you've made.

Okay. Thank you. We have a question on the front -- third way back. Thank you.

Yes. It's Winston Collinge. What it is, I'm a bit concerned about the U.K. market and in particular, investment trust being out of fashion. And I did notice when you do the research, the number of U.K. companies in the FTSE Index has come down in 10 years from 2,300 to 1,500. And I'm concerned that with that, as U.K. investment trusts have gone out of fashion, and we're not in the market, as you might say, compared with global trust. I'm also concerned that there's -- that AstraZeneca are delisting possibly in the next couple of years. and also Unilever. And perhaps instead of being a U.K. dominated, which probably always will be, but to market as a European investment trust rather than a U.K. and whether the U.K. all share index is particularly relevant.

Okay. Thank you. I think that one could go both in the direction of the Board and the manager. I might suggest, Imran, you comment first. And then if anyone would like to come in on the Board afterwards, we'll go in that order. Imran?

So there's a number of points in that question. I guess the first thing is you're absolutely right. The number of companies listed in the U.K. have been declining. That's not specific to the U.K. If you look at the U.S., it's exactly the same chart. So it's a global phenomenon, not a U.K. specific one. And then in terms of AstraZeneca and Unilever, a lot of companies are thinking about where the optimal structure is and where their listing is. But as we stand today, both retain their primary listing in the U.K. And we think that the U.K. stock market is a first class to have your listing given the accounting standards, given the open nature of the stock exchange, the great corporate governance that comes with being listed in the U.K. So there's some big advantages of being listed in the U.K. The one that I would accept is the more challenging one is the valuation because you can clearly get higher valuations if you list in the U.S.

Would anyone from the Board like to add anything further to that?