Annual Financial Report

RNS Number : 6762E

Edinburgh Worldwide Inv Trust PLC

23 December 2009

 



EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT AND PROPOSED NEW

ARTICLES OF ASSOCIATION

Copies of the Annual Report and Financial Statements for the year ended 31 October 2009 and the proposed new Articles of Association of Edinburgh Worldwide Investment Trust plc have been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

Tel: [phone]

The Annual Report and Financial Statements for the year ended 31 October 2009 including the Notice of Annual General Meeting is also available on Edinburgh Worldwide's page of the Baillie Gifford website at:

http://www.bailliegifford.com/documents/76808_EWIT%20311009%20(web).pdf 

At the Annual General Meeting to be held on 4 February 2010, it is proposed that new Articles of Association be adopted in order to take account of the implementation on 1 October 2009 of the last parts of the Companies Act 2006. More detail on the proposed changes to the Articles of Association is set out in the Directors' Report, the Notice of Annual General Meeting and the Appendix to the Notice of Annual General Meeting within the Annual Report and Financial Statements for the year ended 31 October 2009. Copies of the new Articles of Association are available for inspection at Royal London House, 22-25 Finsbury Square, London EC2A 1DX and Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 October 2009 which require to be published by DTR 4.1 is set out on the following pages. 

Baillie Gifford & Co

Company Secretaries

23 December 2009

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Performance

It is pleasing to note that the conviction of the Managers, after a period of disappointing performance last year, has born fruit. In the financial year to 31 October 2009 net asset value per share increased by 49.3% and the share price by 56.6%. The MSCI All Countries World Index (in sterling terms), rose by 17.3% during this period. Equity gearing was maintained throughout the year and was 12.7% at the year end. More importantly, long term performance is satisfactory. Over the six years that Baillie Gifford & Co has been managing the Company's assets, net asset value per share has increased by 57.7%, the share price by 69.2% and the MSCI All Countries World Index by 24.7%.

The Board's strategy continues to be for the Managers to select shares globally, unconstrained by the requirement to match any benchmark, with a concentrated portfolio of approximately 40 equity holdings. The portfolio is comprised of holdings that are believed to have long term attractions, typically over at least 5 years. Combined with the effects of gearing, these factors mean that there will always be periods when the portfolio under or outperforms the index significantly in any one year. Performance is therefore better gauged over longer time periods. Performance statistics produced by the Association of Investment Companies (the AIC) show that the Company is ranked 8th out of 26 in the Global Growth Sector over five years in net asset value performance. It is disappointing therefore that the Company's discount is not narrower at present, albeit having come in from 18% as at the previous financial year end. The Managers are continuing their efforts to stimulate demand from investors.

Performance Fee

Although outperforming the MSCI All Countries World Index this year, no performance fee is due to the Managers as the relative high water mark has not been reached. Details of the fee arrangements are shown on page 33 of the Annual Report.

Earnings and Dividend

The net revenue return for the year was 3.71p (2008: 3.48p) up 6.6%, mainly due to reduced borrowing costs. Your Company's objective is that of generating capital growth and any income received from the underlying holdings is a by-product of this. An unchanged final dividend of 1.50p is being recommended. In addition, a special dividend of 1.00p is being proposed as the high level of current income may not recur, making the total for the year 3.00p (2008: 2.70p). 

The Company's registrars operate a Dividend Reinvestment Plan which can be used to buy additional shares. Further details can be found on page 47 of the Annual Report.

Investment Background and Outlook

We are now more than one year on since the failure of Western banking systems due to lax regulation and grossly excessive leverage which led to the collapse of Lehman and the knock-on effects that this had firstly on credit markets, followed by international trade then on domestic economies across the globe. It is possible that this single event will be viewed by historians as the inflection point which marked the shift of economic power from the traditional Western Anglo-Saxon economies of the developed world to those of the so-called Emerging economies, such as China, Brazil and India. 

The economic and financial hubris that has prevailed amongst the political and business elites of the old established order is being swept away seemingly by the realism that the global economic power base has shifted, perhaps irrevocably. While many Western nations continue to struggle out of recession, China, for example, has managed to grow GDP by 8% and Brazil has come full circle and is now lending money to the IMF! Economies that have historically relied on trade with North America and Europe are becoming dependant on trade with so-called Emerging market nations and their rapacious desire for raw materials, consumer goods and services.

The gyrations of markets, and individual companies, over the past year have been marked. Many companies have disappeared either through bankruptcy or been taken over, others have lost significant market share. However, many of those companies that have survived are emerging stronger and more profitable with a more dominant position in their respective market. Being able to identify the winners is the key focus of the Managers. An overview is provided by the Managers on the following pages while on page 11 of the Annual Report there is a portfolio review which examines some of our individual holdings in more detail.

Annual General Meeting

The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 12 noon on Thursday 4 February. The Company will once again be seeking to renew its share buyback and treasury share powers. Approval is also being sought to amend the Company's Articles of Association. Further information in respect of these resolutions can be found on pages 21 and 22 of the Annual Report.

Mark Urquhart, the Partner at Baillie Gifford who manages your portfolio, will make a presentation and answer any questions. Your Board will also be available to respond to any questions that you may wish to put to it. I hope that you will be able to attend.

David A Coltman

8 December 2009

  EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

MANAGERS' OVERVIEW

We reiterate every year that our objective in managing Edinburgh Worldwide is to run a concentrated portfolio of companies with good growth prospects for the long term. In this context, we think the last two years serve as a perfect example of why performance should be judged over long periods of time. The vagaries of the calendar with the company's year end falling in October and reporting on an annual basis provide a perfect illustration of how short term numbers are often filled with noise. The same growth stocks which fell in the panic of last September and October dragging down net asset value have been responsible for the

recovery seen in the last twelve months. Shareholders should not read too much into either period; rather we would refer to the six year figures outlined in the Chairman's report as a better measure of the Company's performance under Baillie Gifford's management.

The number of equity holdings stood at 41 at the year end which compares to 37 at October 2008 as we have added a number of new holdings discussed below. Portfolio turnover was low at 16.7% - emphasising that the portfolio remained pretty similar to twelve months ago. We pay no heed to country or sector weights in constructing the portfolio - it is comprised purely of companies where we are genuinely enthusiastic about their growth prospects for the next decade. We feature ten of these companies later in the Annual Report and also provide full performance figures for every holding.

We have said in previous annual reports that the global economy was experiencing some pretty radical shifts in the distribution of wealth and composition. The pace of these changes has been exacerbated by greatly differential economic performance during the fall out from the financial crisis. The aggregate consequences are already quite far-reaching - as the Centre for Economic and Business Research put it in an interesting, recent study:

"New forecasts for the world economy show the Western world (US, Canada and Europe) dropping below 50% of world gross domestic product - six years earlier than had originally been expected. We had expected this to happen, but not quite so soon. The West will have to start to get to grips with the fact that we are no longer dominant and cannot expect to have things our own way."

We have no certainty how the global economy will look in ten or twenty years time but think the probabilities are quite high that it will be different to today and that substantial investment opportunities will have been created by these changes. It is hardly surprising that the G20 has suddenly supplanted the G7 or G8 in its political import.

Perhaps the more interesting question as one surveys the last twelve months are these longer term economic impacts of the crash. It is hard to avoid the initial conclusion that those countries who were in the best shape going into the crisis are also those which are emerging most rapidly whether in the developed context with France and Germany or the Emerging area with China, India, Turkey and Brazil. On the flipside, those which were most exposed to the credit boom either through their domestic economies or banking systems are finding recovery much tougher to engineer whilst the long term consequences of the various stimuli packages will be most keenly felt in the most indebted countries such as our own - the recent spats over tax and spending are surely precursors of some of the tough policy choices to be made. 

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

MANAGERS' OVERVIEW (CTD)

The US probably sits somewhere in the middle of this spectrum helped enormously by the fact that many other nations still choose to hold its bonds and currency for now.

In terms of the Company's portfolio, we continue to try to reflect some of the growth opportunities created by these changes. During the year we bought several domestically orientated companies in areas such as China and Brazil. These included New Oriental Education, which provides English language teaching in China; Tencent, which operates the leading internet portal in China; and, ALL America Latina Logistica, which has a very strong competitive position within the Brazilian railway market. However, it is important to emphasise that we think there will continue to be opportunities in many different markets and we bought holdings in companies as diverse as Berkshire Hathaway, which got tarred with other financials during the crisis, and Monsanto, where we think the long term prospects of its seeds business is being underappreciated. Sales made during the year included Zhejiang Expressway - the Chinese toll-road operator; Pool Corp - the US swimming pool supplies company and UBS where we have re-evaluated the long term attractions of the wealth management business.

It is worth emphasising that many existing holdings have been performing well operationally, from Amazon, which continues to grow its e-commerce reach, to Apple, where the iPhone success has been phenomenal; from Banco Santander, whose diverse banking assets from Spain to Brazil via the UK are performing well, to Hermes, whose classic handbags remain in demand. We believe that patient investors will be rewarded for such operational excellence but equity markets will always be volatile, myopic and unpredictable beasts. It is our strong belief that by trying to separate the long term value of businesses from the inevitable short term noise of events we can create a portfolio which rewards our shareholders with outperformance over long term periods of measurement.

Mark A. Urquhart

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE at 31 October 2009
Name	Business	Fair  value £'000	% of total assets	Performance†		Fair value 2008 £'000
				Absolute %	Relative %
Equities
Petrobras	Oil exploration and production	10,149	6.8	76.2	45.6	6,453
Atlas Copco	Industrial compressors and    mining equipment	8,696	5.8	72.8	42.9	5,174
Amazon.com	Online retailer	8,503	5.7	103.5	68.2	4,179
Vale (or CVRD)	Mining	6,395	4.3	98.7	64.2	3,938
Banco Santander	Retail and commercial bank	5,072	3.4	77.7	46.9	2,680
Google	Web-based search engine	5,060	3.4	46.2	20.9	3,461
Sandvik	Tools and mining equipment	4,826	3.2	85.3	53.1	2,735
Gazprom	Gas exploration and production	4,823	3.2	19.2	(1.4)	4,037
BYD	Battery technology and cars	4,658	3.1	321.1*	232.1*	-
Apple	Computing and media equipment	4,414	3.0	71.7	42.0	2,576
L'Oreal	Personal care	3,622	2.4	38.3	14.3	3,491
First Solar	Designs and manufactures solar    modules	3,545	2.4	(18.0)	(32.2)	2,139
Porsche	Luxury automobiles	3,526	2.4	(9.8)	(25.4)	4,192
ABB	Power systems and automation	3,513	2.4	47.5	21.9	2,445
Nintendo	Gaming consoles and software	3,324	2.2	(15.9)	(30.5)	4,121
Straumann	Dental implants	3,304	2.2	44.3	19.3	2,329
Novozymes	Enzyme manufacturer	3,230	2.2	30.6	7.9	1,947
Deere	Farm and construction machinery	3,219	2.2	18.7	(1.9)	2,780
Vestas Windsystems	Wind turbines	2,967	2.0	71.5	41.8	1,731
Whole Foods Market	Organic food stores	2,924	2.0	193.9	142.9	1,645
China Mobile	Cellular telecommunications and    related services	2,889	1.9	10.6	(8.6)	2,700
Tencent	Internet service portal	2,885	1.9	51.4*	34.5*	-
Walgreen	Pharmacy chain	2,850	1.9	47.9	22.3	2,376
Housing Development   Finance Corporation	Indian mortgage provider	2,836	1.9	57.4	30.1	1,832
Teva Pharmaceuticals	Generic drugs manufacturer	2,761	1.8	16.5	(3.7)	2,851
PPR	Luxury brand conglomerate	2,689	1.8	79.0	48.0	1,571
VCA Antech	Animal hospitals and veterinary    diagnostics	2,605	1.7	29.0	6.6	2,021
Iron Mountain	Document management services	2,477	1.7	(1.4)	(18.5)	2,507
SAP	Business software	2,468	1.6	29.4	7.0	3,019
Itau Unibanco	Brazilian retail and commercial   bank	2,257	1.5	92.6	59.2	1,417
eBay	Internet auction	2,192	1.5	41.9	17.3	2,080
Canon	Printers, copiers and cameras	2,126	1.4	17.1	(3.2)	4,448
Monsanto	Agricultural biotechnology	2,035	1.4	(25.2)	(38.2)	2,046
New Oriental Education    and Technology	English-language schools	2,004	1.3	36.8*	4.4*	-
Lukoil	Oil exploration and production	1,933	1.3	52.6	26.1	2,251
All America Latina    Logistica	Brazilian railways	1,658	1.1	26.8*	17.2*	-
Baidu	Chinese online search engine	1,605	1.1	(2.4)*	0.9*	-
Hermes	Luxury goods	1,595	1.1	7.3	(11.3)	1,544
Berkshire Hathaway	Insurance	1,502	1.0	(1.3)*	(25.9)*	-
Inspur International	Software and computer services	1,456	1.0	(9.4)*	(22.0)*	-
Li Ning	Chinese sportswear	1,225	0.8	-*	1.3*	-
Total Equities		141,818	95.0

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE

at 31 October 2009

 (Ctd)

Name	Business		Fair value £'000	% of total assets	Performance†		Fair value 2008 £'000
					Absolute %	Relative %
Fixed Interest
US$ denominated bond
Bay Haven C FRN 2009/10	Catastrophe bond		1,837	1.2			1,857
Total Investments			143,655	96.2
Net Liquid Assets			5,657	3.8
Total Assets at Fair Value (before deduction of loan)			149,312	100.0

†	Absolute and relative performance has been calculated on a total return basis over the period 1 November 2008 to 31 October 2009. Absolute performance is in sterling terms; relative performance is against MSCI All Countries World Index in sterling terms. For investments held for part of the year the return is for the period they were held.
*	Figures relate to part-period returns.

Source: Baillie Gifford & Co/StatPro

Past performance is not a guide to future performance.

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 23 of the Annual Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006. 

Baillie Gifford & Co were appointed as Managers and Secretaries with effect from 1 November 2003. The management agreement is terminable on not less than three months' notice. The fee in respect of each quarter is 0.2% of the market value of the Company's shares on each valuation date. In addition, Baillie Gifford are entitled to a performance fee, calculated annually in arrears. The performance fee is based on any out-performance of the net asset value per share by comparison to the MSCI All Countries World Index (in sterling terms) and is calculated as a percentage of the market value of the Company's shares. The fee is 5% of the out-performance between zero and 2%, and 10% of the out-performance thereafter. A relative high water mark with neither cap nor collar will apply. No performance fee is payable for the year to 31 October 2009 (2008 - nil).

In addition to the investment management fee, the Company also pays a secretarial fee to Baillie Gifford which is adjusted annually in line with the Retail Price Index. 

The details of the management fee and secretarial fee are as follows:

	2009 £'000		2008 £'000
Investment management fee	717		860
Secretarial fee	72		69

PRINCIPAL RISKS AND UNCERTAINTIES

As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of achieving long term capital growth. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility. The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis. 

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

(i) Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below. The main changes to net currency exposure during the year were as follows: Exposure to the US dollar decreased when US dollar borrowings were drawn down on 10 December 2008. Exposure to the Euro decreased when Euro borrowings were drawn down on 13 February 2009. Exposure to the Swiss franc and Japanese yen increased when Swiss franc and Japanese yen borrowings were reduced on 10 December 2008 and 13 February 2009.

At 31 October 2009	Investments £'000		Cash and deposits £'000		Loans  £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	75,089		-		(5,520)		(530)		69,039
Euro	18,972		4,245		(6,266)		31		16,982
Swedish krona	13,522		-		-		-		13,522
Swiss franc	6,817		-		(6,219)		2,626		3,224
Danish krone	6,198		-		-		-		6,198
Japanese yen	5,450		-		(5,496)		30		(16)
Hong Kong dollar	13,112		714		-		(1,233)		12,593
Other overseas currencies	4,495		-		-		-		4,495
Total exposure to currency risk	143,655		4,959		(23,501)		924		126,037
Sterling	-		83		-		(309)		(226)
	143,655		5,042		(23,501)		615		125,811

* Includes net non-monetary assets of £9,000.

At 31 October 2008	Investments £'000		Cash and deposits £'000		Loans  £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	52,227		494		-		260		52,981
Euro	18,369		201		-		11		18,581
Swedish krona	7,909		484		-		-		8,393
Swiss franc	7,338		223		(9,643)		20		(2,062)
Danish krone	3,678		-		-		-		3,678
Japanese yen	8,569		-		(11,957)		58		(3,330)
Hong Kong dollar	4,380		-		-		-		4,380
Other overseas currencies	1,832		-		-		-		1,832
Total exposure to currency risk	104,302		1,402		(21,600)		349		84,453
Sterling	-		47		-		(244)		(197)
	104,302		1,449		(21,600)		105		84,256

* Includes net non-monetary assets of £10,000.

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Currency Risk Sensitivity

At 31 October 2009, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2008.

	2009 £'000		2008 £'000
US dollar	3,452		2,649
Euro	849		929
Swedish krona	676		420
Swiss franc	161		(103)
Danish krone	310		184
Japanese yen	(1)		(167)
Hong Kong dollar	630		219
Other overseas currencies	225		92
	6,302		4,223

(ii) Interest Rate Risk

Interest rate movements may affect directly:

• the fair value of investments in fixed interest rate securities;

• the level of income receivable on cash deposits;

• the fair value of any fixed-rate borrowings; and

• the interest payable on variable rate borrowings.

Interest rate movements may also impact upon the market value of the Company's investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's financial assets and liabilities at 31 October is shown below:

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Financial assets	2009			2008
	Fair value £'000	Weighted average interest rate	Period for which rate is fixed	Fair value £'000	Weighted average interest rate	Period for which rate is fixed
Floating rate:
US bonds (interest rate linked to US dollar LIBOR)	1,837	13.4%	24 days	1,857	16.0%	1 year

The cash deposits generally comprise overnight call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

Financial Liabilities

Financial Liabilities	2009 £'000	2008 £'000
The interest rate risk profile of the Company's financial liabilities at 31 October was:
Floating rate - US$ denominated	5,520	-
- Euro denominated	6,266	-
- Swiss franc denominated	6,219	9,643
- Yen denominated	5,496	11,957
	23,501	21,600
The maturity profile of the Company's financial liabilities at 31 October was:
In one year or less, or on demand	23,501	21,600
	23,501	21,600

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 October 2009 would have decreased total net assets and total return on ordinary activities by £2,000 (2008 - £2,000). A decrease of 100 basis points would have had an equal but opposite effect.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. 

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the comparative index, investments are selected based upon the merit of individual companies and therefore performance may well diverge from the short term fluctuations of the comparative index. 

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given on page 10 of the Annual Report. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector are contained in the Managers' Portfolio Review section of the Annual Report.

112.7% of the Company's net assets are invested in equities. A 10% increase in quoted equity valuations at 31 October 2009 would have increased total assets and total return on ordinary activities by £14,182,000 (2008 - £10,245,000). A decrease of 10% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board monitors the exposure to any one holding.

The Company has the power to take out borrowings, which give it access to additional funding when required.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

• Where the Investment Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question.

• The Board regularly receives information from the Investment Managers on the credit ratings of those bonds and other securities in which the Company has invested.

• The Company's listed investments are held on its behalf by RBC Dexia Investor Services Trust acting as agent, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board.

• Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

• Transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers of the creditworthiness of that counterparty.

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

• Cash is only held at banks that are regularly reviewed by the Managers.

Credit Risk Exposure

The exposure to credit risk at 31 October was:

	2009 £'000	2008 £'000
Fixed Interest investments	1,837	1,857
Cash and short term deposits	5,042	1,449
Debtors and prepayments	2,988	371
	9,867	3,677

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet.

All short term borrowings are stated at fair value, which is considered to be equal to their par value. The Company has no long term borrowings.

Capital Management

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital as detailed in note 13 of the Annual Report. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 16 of the Annual Report. Shares may be issued and/or repurchased as explained on pages 21 and 22 of the Annual Report.

Other Risks

Other risks faced by the Company include the following:

Regulatory Risk

Failure to comply with applicable legal and regulatory requirements could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. Breach of section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains.

Baillie Gifford's Heads of Business Risk & Internal Audit and Regulatory Risk provide regular reports to the Audit and Management Engagement Committee on Baillie Gifford's monitoring programmes. The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 842 are not breached.

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Operational/Financial Risk 

Failure of the Managers' accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. The Board reviews the Managers' Report on Internal Controls and the reports by other key third party providers are reviewed by the Managers on behalf of the Board.

Discount Volatility

The discount at which the Company's shares trade can widen. The Board monitors the level of discount and the Company has authority to buy back its own shares.

Gearing Risk

The Company may borrow money for investment purposes (sometimes known as 'gearing'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. 

All borrowings require the prior approval of the Board and gearing levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT, DIRECTORS' REMUNERATION REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the

Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section on page 6 of the Annual Report, confirm that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), give a true and fair

view of the assets, liabilities, financial position and net return of the Company; and

• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

DAVID COLTMAN

Chairman

8 December 2009

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

INCOME STATEMENT

	For the year ended 31 October 2009				For the year ended 31 October 2008
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains /(losses) on investments	-	43,445	43,445		-	(58,483)	(58,483)
Currency losses	-	(1,825)	(1,825)		-	(6,389)	(6,389)
Income (note 2)	3,088	-	3,088		3,280	-	3,280
Investment management fee	(179)	(538)	(717)		(215)	(645)	(860)
VAT recovered (note 3)	-	-	-		75	182	257
Other administrative expenses	(422)	-	(422)		(429)	-	(429)
Net return before finance costs and taxation	2,487	41,082	43,569		2,711	(65,335)	(62,624)
Finance costs of borrowings	(96)	(286)	(382)		(316)	(954)	(1,270)
Net return on ordinary activities before taxation	2,391	40,796	43,187		2,395	(66,289)	(63,894)
Tax on ordinary activities	(575)	266	(309)		(690)	513	(177)
Net return on ordinary activities after taxation	1,816	41,062	42,878		1,705	(65,776)	(64,071)
Net return per ordinary share (note 4)	3.71p	83.78p	87.49p		3.48p	(134.22p)	(130.74p)

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

BALANCE SHEET

		At 31 October 2009		At 31 October 2008
		£'000		£'000
FIXED ASSETS Investments held at fair value through profit or loss		143,655		104,302
CURRENT ASSETS
Debtors		2,988		371
Cash and short term deposits		5,042		1,449
		8,030		1,820
CREDITORS
Amounts falling due within one year (note 6)		(25,874)		(21,866)
NET CURRENT LIABILITIES		(17,844)		(20,046)
TOTAL NET ASSETS		125,811		84,256
CAPITAL AND RESERVES
Called-up share capital		2,450		2,450
Share premium		82,180		82,180
Special reserve		35,220		35,220
Capital reserve		3,122		(37,940)
Revenue reserve		2,839		2,346
SHAREHOLDERS' FUNDS		125,811		84,256
NET ASSET VALUE PER ORDINARY SHARE		256.73p		171.94p
ORDINARY SHARES IN ISSUE		49,004,319		49,004,319

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 October 2009

	Called-up share capital £'000	Share premium £'000	Special reserve £'000	Capital reserve*  £'000	Revenue reserve £'000	Total  shareholders' funds £'000
Shareholders' funds at 1 November 2008	2,450	82,180	35,220	(37,940)	2,346	84,256
Net return on ordinary activities after taxation	-	-	-	41,062	1,816	42,878
Dividends paid during the year (note 5)	-	-	-	-	(1,323)	(1,323)
Shareholders' funds at 31 October 2009	2,450	82,180	35,220	3,122	2,839	125,811

For the year ended 31 October 2008

	Called-up share capital £'000	Share premium £'000	Special reserve £'000	Capital reserve*  £'000	Revenue reserve £'000	Total  shareholders' funds £'000
Shareholders' funds at 1 November 2007	2,450	82,180	35,220	27,836	1,621	149,307
Net return on ordinary activities after taxation	-	-	-	(65,776)	1,705	(64,071)
Dividends paid during the year (note 5)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2008	2,450	82,180	35,220	(37,940)	2,346	84,256

*The capital reserve includes investment holding gains of £40,879,000 (2008 - losses of £5,112,000) 

  EDINBURGH WORLDWIDE INVESTMENT TRUST plc

CASH FLOW STATEMENT
	For the year ended 31 October 2009			For the year ended 31 October 2008
	£'000	£'000			£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 9)		1,957				1,359
SERVICING OF FINANCE
Interest paid	(364)				(1,669)
NET CASH OUTFLOW FROM SERVICING OF FINANCE		(364)				(1,669)
TAXATION
Overseas tax incurred	(288)				(169)
TOTAL TAX PAID		(288)				(169)
FINANCIAL INVESTMENT
Acquisitions of investments	(14,517)				(47,992)
Disposals of investments	18,052				55,369
Realised currency gain	197				1,514
NET CASH INFLOW FROM FINANCIAL INVESTMENT		3,732				8,891
EQUITY DIVIDENDS PAID (note 5)		(1,323)				(980)
FINANCING
Bank loans repaid	(285,455)				(132,700)
Bank loans drawn down	285,334				122,071
NET CASH OUTFLOW FROM FINANCING		(121)				(10,629)
INCREASE/(DECREASE) IN CASH		3,593				(3,197)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase/(decrease) in cash in the period		3,593				(3,197)
Net cash outflow from bank loans		121				10,629
Exchange movement on bank loans		(2,022)				(7,903)
MOVEMENT IN NET DEBT IN THE YEAR		1,692				(471)
NET DEBT AT 1 NOVEMBER		(20,151)				(19,680)
NET DEBT AT 31 OCTOBER		(18,459)				(20,151)

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES

1.	The financial statements for the year to 31 October 2009 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 October 2009, which are unchanged from the prior year and have been applied consistently.
		31 October 2009 £'000		31 October  2008  £'000
2.	Income
	Income from investments and interest receivable	3,088		3,260
	Other income	-		20
		3,088		3,280
3.	VAT recovered
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. HMRC accepted the Managers' repayment claims for the periods from 2003 to 2007. £257,000 of VAT together with £22,000 of interest was received by the Managers on behalf of the Company in respect of these periods and was recognised in the year to 31 October 2008.   Discussions are ongoing with Aberdeen Asset Management regarding the recovery of VAT suffered over the period to 2003. The amount and timing of any recovery remains uncertain and accordingly no amount has been provided for in the financial statements.
		31 October 2009 £'000		31 October 2008  £'000
4.	Net return per ordinary share
	Revenue return	3.71p		3.48p
	Capital return	83.78p		(134.22p)
	Total return	87.49p		(130.74p)
	Revenue return per ordinary share is based on the net return on ordinary activities after taxation of £1,816,000 (2008 - £1,705,000), and on 49,004,319 ordinary shares, being the weighted average number of ordinary shares in issue during each year. Capital return per ordinary share is based on the net capital gain for the financial year of £41,062,000 (2008 - loss of £65,776,000), and on 49,004,319 ordinary shares, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.

  EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES (Ctd)

			2009			2008		2009 £'000		2008 £'000
5.	Ordinary Dividends
	Amounts recognised as distributions in the period:
	Previous year's final (paid 2 February 2009)		1.50p			1.50p		735		735
	Previous year's special (paid 2 February 2009)		0.70p			-		343		-
	Interim (paid 23 July 2009)		0.50p			0.50p		245		245
			2.70p			2.00p		1,323		980
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £1,816,000 (2008 - £1,705,000).
		2009				2008		2009 £'000		2008 £'000
	Ordinary Dividends
	Dividends paid and proposed in the period:
	Interim dividend per ordinary share  (paid 23 July 2009)	0.50p				0.50p		245		245
	Proposed final dividend per ordinary share (payable 9 February 2010)	1.50p				1.50p		735		735
		2.00p				2.00p		980		980
	Proposed special dividend per ordinary share# (payable 9 February 2010)	1.00p				0.70p		490		343
		3.00p				2.70p		1,470		1,323
	#   The special dividend of 1.00p is proposed as the high level of income received during the year may not recur. If approved the final and special dividends will be paid on 9 February 2010 to all shareholders on the register at the close of business on 15 January 2010. The ex-dividend date is 13 January 2010. The registrars, Computershare Investor Services plc, offer a dividend reinvestment plan. The final date for the receipt of elections for the dividend reinvestment plan is 25 January 2010.
6.	Creditors include US$9,100,000, €7,000,000, CHF10,500,000 and ¥820,000,000 drawn down under a 1 year multi-currency facility with Lloyds TSB Scotland plc (2008 - CHF18,200,000 and ¥1,900,000,000 drawn down under a 1 year multi-currency loan facility with The Royal Bank of Scotland plc).

  EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES (Ctd)

7.	The Company incurred transaction costs on purchases of £23,000 (2008 - £36,000) and on sales of £23,000 (2008 - £79,000).
8.	At the Annual General Meeting on 26 January 2009 the Company renewed its authority to purchase shares in the market, in respect of 7,345,747 ordinary shares (equivalent to 14.99% of its issued share capital at that date). No shares were bought back during the year to 31 October 2009 or 2008. At 31 October 2009 the Company had authority to buy back 7,345,747 ordinary shares.
9.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	2009 £'000		2008 £'000
	Net return on ordinary activities before finance costs and taxation	43,569		(62,624)
	(Gains)/losses on investments	(43,445)		58,483
	Currency losses	1,825		6,389
	Other non cash movements	(44)		(138)
	Decrease in accrued income	6		49
	(Increase)/decrease in debtors	(21)		35
	Increase/(decrease) in creditors	67		(835)
	Net cash inflow from operating activities	1,957		1,359
10.	The Annual Report and Financial Statements including the Notice of Annual General Meeting will be available at www.edinburghworldwide.co.uk on or around 23 December 2009.
11.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2009. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2008 and 2009 accounts; their reports for both years were unqualified and, for the 2008 accounts, did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and, for the 2009 accounts, did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
12.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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