Annual Financial Report

RNS Number : 7510Y

Edinburgh Worldwide Inv Trust PLC

08 December 2017

 

RNS Announcement: Preliminary Results

Edinburgh Worldwide Investment Trust plc

Legal Entity Identifier: 213800JUA8RKIDDLH380

The following is the unaudited preliminary statement for the year to 31 October 2017 which was approved by the Board on 7 December 2017.

• Over the year to 31 October 2017, the Company's net asset value per share, cum income with debt at fair value, increased by 31.6% and the share price by 43.0%. The comparative index, the S&P Global Small Cap Index^*, increased by 13.4% in sterling terms.
• The revenue account for 2017 is running at a deficit after the deduction of operating expenses, so once again no final dividend is being paid. The Company's objective remains that of generating capital growth. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status.
• A number of the Company's holdings contributed to the positive performance, notably: Alnylam Pharmaceutical, a gene silencing company; LendingTree, an online loan marketplace; and IPG Photonics, a manufacturer of fibre-lasers used in metal processing. 4D Pharma, a company harnessing bacteria for medicine, was the notable detractor to performance.
• As at the year end, the Company held three unlisted equity investments: Oxford Nanopore Technologies, Unity Biotechnology and Spire Global accounting for 2.1% of total assets (2016 - 2.8% of total assets in four holdings).

Summary

Edinburgh Worldwide aims to achieve long term capital growth by investing in listed companies throughout the world. The Trust has total assets of £387.9 million (before deduction of loans of £35.0 million) as at 31 October 2017.

Edinburgh Worldwide is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group with around £175 billion under management and advice as at 7 December 2017.

Past performance is not a guide to future performance.

The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stockmarkets in which the Company invests and by the supply and demand for the Company's shares. Investment in investment trusts should be regarded as medium to long-term. You can find up to date performance information about Edinburgh Worldwide on the Edinburgh Worldwide page of the Managers' website at http://www.edinburghworldwide.co.uk‡

^*    See disclaimer at the end of this announcement.

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

8 December 2017

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Four Broadgate

Tel: [phone]

Chairman's Statement

Performance

In the year to 31 October 2017 the Company's net asset value ('NAV') per share, when calculated by deducting borrowings at fair value, increased by 31.6% and the share price by 43.0%. The comparative index, the S&P Global Small Cap Index, increased by 13.4% in sterling terms during this period. Over the course of the year the discount to net assets with borrowings deducted at fair value averaged 7.9% and stood at 3.9% as at 31 October 2017. Portfolio turnover was 13.2% compared to 15.6% in 2016 and the ongoing charges have reduced from 0.92% to 0.87%, partly as a consequence of the tiered management fee.

The good relative and absolute performance was driven by a number of holdings, most notably Alnylam Pharmaceuticals, a gene silencing company, LendingTree, an online loan marketplace, and IPG Photonics, a manufacturer of fibre-lasers used in metal processing. All three companies are headquartered in the United States. On balance, the fundamental performance of the holdings in the portfolio continues to be progressing as hoped. Greater detail on this can be found within the Managers' Review below.

For interest, since the broadening of the Company's investment policy, at the end of January 2014, to target less mature entrepreneurial businesses at the time of initial investment, the Company's NAV per share, when calculated by deducting borrowings at fair value, has increased by 65%, the share price by 71% and the comparative index by 59% in sterling terms. Over the fourteen years that Baillie Gifford has been managing the Company's assets, NAV per share has increased by 389%, the share price by 494% and the comparative index^* by 284%, all in total return terms.

Unlisted Investments

The Company is permitted to invest up to 5% of total assets in unlisted equity investments, in aggregate, at time of acquisition. As at the Company's year end, the portfolio weighting in unlisted equity investments stood at 2.1% of total assets, invested in three holdings (2016 - 2.8% of total assets in four holdings). There was one new unlisted purchase during the year, Spire Global, which designs, manufactures and operates a constellation of 'nano satellites'. Further information can be found within the Managers' Review.

We were forced sellers of two of our unlisted holdings, Skyscanner and Souq, which were acquired by Ctrip.com and Amazon respectively. Although these were sold at a profit, this was a disappointing outcome for us as we had hoped that these would be long term holdings with the potential for more significant upside returns. The ability to invest in unlisted equities through a closed ended vehicle is one of the notable benefits of the investment trust structure and a differentiating factor versus open ended peers. The loss of a holding, listed or unlisted, due to a merger or takeover, is usually one of the notable headwinds faced by the Managers in achieving significant returns over the long term.

Borrowings

The extent and range of equity gearing is discussed by the Board and Managers at each Board meeting. Together we agree that the Company should typically be geared to equities to maximise potential returns, with the current parameters set at +5% to +15%. Over the year, the invested equity gearing ranged between 5.5% and 9.0%, and stood at 8.6% at the financial year end (2016 - 8.8%).

The Company has a five year fixed rate multi-currency loan from National Australia Bank Limited, expiring in September 2019. At present, drawings are €9.4 million, US$25.6 million and £7.5 million, with a weighted average interest rate of 2.80%.

Earnings and Dividend

As stated in my predecessor's reports, the Company's objective is that of generating capital growth and investors should not expect any income from this investment. This year the net revenue return per share was a positive 0.30p, due largely to a one-off refund of French withholding tax and associated interest (2016 - deficit of 0.12p). However, the revenue account for 2017 is running at a deficit after the deduction of operating expenses, so the Board is recommending that no final dividend be paid. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status by way of a final dividend.

Investment Approach

The ability to identify the companies that value innovation, and have the capability to develop commercial opportunities around it, is key to unearthing the market leaders of the future and is a key focus for the Managers. Such companies can be expected to thrive regardless of the underlying economic conditions. Nonetheless, the actions of investors often exhibit indiscriminate tendencies and immature growth companies can undergo notable price volatility. The structure of investment trusts permits their managers and discerning long term investors to take positions for the long term when the tide of money or sentiment depresses valuations. Rather than focus on macro economic developments, the Managers will therefore continue to focus their efforts on picking growth companies that create and exploit opportunities and which exhibit excellent long term growth prospects and the potential for positive long term returns.

An overview of the portfolio is provided by the Managers below.

Changes in the portfolio's management

Due to increased responsibilities on Baillie Gifford's Long Term Global Growth Desk, John MacDougall decided to stand down as the Company's Deputy portfolio manager. The Board was supportive of this decision and would like to thank him for his contributions to the success of the Company.

Svetlana Viteva and Luke Ward were appointed Deputy portfolio managers, effective 7 December. Both Svetlana and Luke joined Baillie Gifford in 2012 and work closely with Douglas Brodie as part of Baillie Gifford's Global Discovery investment desk, from which Edinburgh Worldwide is managed. The Board is enthused by their appointment and looks forward to working more closely with them.

Annual General Meeting

The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 12 noon on Wednesday 24 January 2018. The Company will once again be seeking to renew its share buyback, issuance and treasury share powers. The buy back facility is sought to allow the Company to buy back its own shares when the discount is substantial in absolute terms and relative to its peers. Issuance, either from treasury or of new shares, will only be undertaken at a premium to the prevailing cum income NAV, with debt calculated at par, in order to satisfy natural market demand. This would enhance the NAV per share for existing shareholders as well as dilute ongoing costs and help with trading liquidity of the shares of the Company. Further information on these resolutions can be found on page 21 and pages 52 and 53 of the Annual Report and Financial Statements.

Douglas Brodie, Svetlana Viteva and Luke Ward, the portfolio's Manager and Deputy Managers, will give a presentation and take questions. The Board will also be available to respond to any questions that you may have. I hope that you will be able to attend.

Henry CT Strutt

Chairman

7 December 2017

* MSCI All Countries World Index (in sterling terms) until 31 January 2014, thereafter S&P Global Small Cap Index (in sterling terms). The index data has been chain linked to form one comparative index figure. Figures are total return with net asset value at par. See disclaimer at the end of this announcement

For a definition of terms see Glossary of Terms, note 10.

Past performance is not a guide to future performance.
 

Managers' Review

As we postulated in the Interim Report, the current year has seen global stock markets return to a more fundamental approach, displacing the geopolitical shocks and macroeconomic uncertainty that beset much of 2016. The move away from a sentiment-led market backdrop has benefited the absolute and relative performance of the Company's portfolio. We are not particularly surprised by this. Stock market analysis has consistently shown that, in the longer term, company specific fundamentals ultimately prevail, hence our focus on stock selection and structural growth opportunities. Our remit is to unearth what we believe to be the most innovative, forward-thinking young businesses; those companies that are typically below the radar of many investors but which have the ambition to be much larger and the capability to reshape their respective industries. It's a challenge we relish but one that requires patience combined with the ability to craft an investment case over many years, potentially decades. The strong net asset value performance over the past year reflects the substantial progress made by many of our underlying holdings, not just over the past 12 months but arguably over much longer periods of time. Whilst it's pleasing to see many of the holdings grow and garner greater investor attention, we believe that many of the best performing holdings still offer the prospect of very significant future returns. This reflects on many of these businesses being still comparatively small and immature relative to the size of the opportunity that they are looking to address. 

When observing the stocks that contribute most to performance over an annual period it's common to identify certain themes. In contrast, performance over the current period is notable for the diverse spread of holdings that contributed positively; encompassing biotechnology companies, online aggregators, e-commerce retailers and companies involved in digital manufacturing and software. The commonalities across these businesses are far from obvious but we believe they do exist. They include being businesses that we have typically owned for several years and which have grown to be amongst our largest positions in the portfolio. They typically have entrepreneurial founder managers still involved with the business and, perhaps most importantly, they share a belief that what they offer, be it drugs, lasers or software code, is substantially superior to what was available before.  This innovative disruptive streak is what distinguishes many of our holdings and we believe it is testament to the current environment being rife with new tools and technologies which can be harnessed by nimble, entrepreneurial companies. The other important attribute that these holdings share is growing evidence that what they offer is inherently scalable. The topic of scalability captures many attributes but at its core is the ability of a business to become stronger and more defensible as it grows. Scalability is what helps bridge an interesting idea into a tangible, successful and differentiated business. Consequently, understanding how a business could scale and evolve forms a key component of how we think about business growth. Getting these aspects of our analysis right often means the difference between identifying a good business versus a truly transformational one.

The longstanding holding in Alnylam Pharmaceuticals made a notable contribution to performance as it revealed a highly positive outcome for its most clinically advanced drug candidate; a significant achievement that paves the way for this drug to be approved in the coming months. This is the first example from its extensive drug pipeline to successfully navigate the clinical trials process and it significantly validates the core gene-silencing technology platform that underpins the business. The initial success has been in an inherited disorder called TTR Amyloidosis, a serious disease that manifests through chronic and often fatal damage to nerve and cardiac tissue. With limited treatment options hitherto available, the evidence that Alnylam's drug reversed the disease offers a profound benefit to this critical patient group. We have written before on the changing landscape of drug development. What has long been a process dominated by serendipity is becoming increasingly rational. The synchronised efforts of science to unlock the molecular basis of disease alongside novel highly targeted intervention will bring profound changes in healthcare. Alnylam embodies much of this change; a technology that explicitly links the growing appreciation of genetics in driving disease with the ability to intervene directly at the genetic level. Novel, high potential therapeutic platforms are comparatively rare, perhaps the drug discovery industry might see a handful of these every decade or so, even rarer still is for one company to have robust proprietary ownership of the technology. The combination of these two observations makes us excited about the ongoing potential of Alnylam, both therapeutically and commercially.

Other notable contributors to performance include LendingTree, the online marketplace for US consumers to efficiently access financial products, and IPG Photonics, manufacturer of fibre-lasers used in various metal processing applications. LendingTree's very robust growth hints at the emerging network effects and scale advantages that are common traits amongst dominant online marketplaces. With an offering that benefits borrowers through choice and transparency, combined with a broad base of lenders  that increasingly recognise the power of targeting borrowers through digital channels, we see significant scope for the business to grow and further strengthen its emerging advantage. IPG Photonics has seen a marked acceleration in growth rates recently as adoption of fibre-lasers, a product category they pioneered, broadens out. This is being driven by the company's success in producing lasers that operate at increasing power levels, a development that has seen the technology move away from comparatively simple applications, such as metal etching, towards mainstream industrial processes such as welding. With a growing range of applications, we see a role for fibre-lasers in helping to drive the automation of production lines around the world, a development that could underpin many years of growth for the business.

Portfolio Update

We acquired several new holdings in the period. The holdings in Teladoc, Mindbody, CEVA, Ambarella and STAAR Surgical were commented on in the Interim Report. New holdings in the second half of the year included Spire Global, Mulesoft, Penumbra, Exact Sciences, Novocure and NuCana. Spire Global is an unlisted company that designs, manufactures and operates a constellation of nano-satellites. These are a fraction of the size, weight, and complexity of traditional satellite hardware, yet offer improved performance and significantly lower costs when used in combination. With its rapidly growing network of orbiting nano-satellites, Spire is attempting to solve large problems in diverse areas such as weather forecasting, aircraft tracking and maritime monitoring.  Mulesoft sells software to corporates that helps them to connect their IT assets through the use of Application Programming Interfaces (APIs). Historically, patching together disparate pieces of software within a business had required costly specialist system integration and cumbersome point-to-point code. In contrast, APIs have the potential to revolutionise how IT departments operate by enabling faster and cheaper IT integration without compromising  integrity and security of the network. The opportunity is large and expanding, driven by the proliferation of software and computing devices, and we believe Mulesoft's technological lead is significant. Penumbra designs and manufactures advanced medical tools for minimally invasive clot removal. Through removing blood clots quickly, the outcomes for stroke victims can be significantly improved compared to conventional drug based treatments. This has the effect of significantly lowering lifetime care costs with the additional benefit of enabling the procedure to be performed in an outpatient setting. 

The new holdings in Exact Sciences, Novocure and NuCana are all examples of innovative approaches to combat cancer. Exact offers a low cost molecular diagnostic cancer test based on its understanding of epigenetic changes that occur very early as a cancer forms. The initial test, marketed as Cologuard, is focused on colon cancer, the second most prevalent cancer in the US.  The test has been selling extremely well which we believe is testament to the significant value this test confers to the patient and the healthcare system. We expect the very strong growth for Cologuard to continue and we are intrigued by early moves to apply the company's genetic insights to potentially other cancers such as lung, ovarian or prostate. Novocure has pioneered a novel therapeutic modality, known as Tumour Treating Fields. It uses low intensity intermediate frequency alternating electric fields to stop the division of cancer cells. The first application of this new therapeutic approach is for treating patients with glioblastoma, an aggressive form of brain cancer. We are encouraged by the clinical evidence and the early commercial traction which Novocure has seen to date and we believe the mechanism of action could have broad application in treating other solid tumours.  NuCana is an Edinburgh based healthcare company that has developed a proprietary chemistry that improves the potency and duration of action of traditional chemotherapy agents. These chemical modifications should prevent mechanisms of drug resistance often seen in chemotherapy treatment and should avoid many of the toxicity issues that drastically impact on patients. With several clinical trials due to report over the coming years we see great potential for the business to transform the chemotherapy field.

The holdings in AAC Technologies and Abcam were sold following a period of strong share price performance that, in our opinion, resulted in the shares being fairly valued.  Exa, Novadaq exited the portfolio on the back of the companies being acquired. Since the Company's financial year end, Imagination Technologies has also been acquired.

 

Income statement

	For the year ended 31 October 2017 (unaudited)			For the year ended 31 October 2016 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	85,581	85,581	-	46,083	46,083
Currency gains/(losses)	-	824	824	-	(2,740)	(2,740)
Income (note 2)	1,268	-	1,268	1,178	-	1,178
Investment management fee	(535)	(1,606)	(2,141)	(436)	(1,307)	(1,743)
Other administrative expenses	(513)	-	(513)	(483)	-	(483)
Net return before finance costs and taxation	220	84,799	85,019	259	42,036	42,295
Finance costs of borrowings	(250)	(749)	(999)	(239)	(719)	(958)
Net return on ordinary activities before taxation	(30)	84,050	84,020	20	41,317	41,337
Tax on ordinary activities	179	28	207	(81)	-	(81)
Net return on ordinary activities after taxation	149	84,078	84,227	(61)	41,317	41,256
Net return per ordinary share (note 4)	0.30p	171.58p	171.88p	(0.12p)	84.31p	84.19p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as there is no other comprehensive income.

 

Balance sheet

	At 31 October 2017 (unaudited) £'000	At 31 October 2016 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss	383,846	292,799
Current assets
Debtors	102	127
Cash and cash equivalents	4,686	13,244
	4,788	13,371
Creditors
Amounts falling due within one year	(771)	(650)
Net current assets	4,017	12,721
Total assets less current liabilities	387,863	305,520
Creditors
Amounts falling due after more than one year (note 6)	(35,024)	(36,908)
Net assets	352,839	268,612
Capital and reserves
Share capital	2,450	2,450
Share premium account	82,180	82,180
Special reserve	35,220	35,220
Capital reserve	232,020	147,942
Revenue reserve	969	820
Shareholders' funds	352,839	268,612
Net asset value per ordinary share (after deducting borrowings at fair value) (note 6)	718.89p	546.13p
Net asset value per ordinary share (after deducting borrowings at par)	720.02p	548.14p
Ordinary shares in issue	49,004,319	49,004,319

 

Statement of changes in equity

For the year ended 31 October 2017 (unaudited)

	Share  capital £'000	Share premium account £'000	Special reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2016	2,450	82,180	35,220	147,942	820	268,612
Net return on ordinary activities after  taxation	-	-	-	84,078	149	84,227
Shareholders' funds at 31 October 2017	2,450	82,180	35,220	232,020	969	352,839

For the year ended 31 October 2016 (audited)

	Share  capital £'000	Share premium account £'000	Special reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2015	2,450	82,180	35,220	106,625	881	227,356
Net return on ordinary activities after  taxation	-	-	-	41,317	(61)	41,256
Shareholders' funds at 31 October 2016	2,450	82,180	35,220	147,942	820	268,612

*  The capital reserve as at 31 October 2017 includes investment holdings gains of £71,923,000 (2016 - gains of £50,479,000).

 

Cash flow statement

	For the year ended 31 October 2017 (unaudited)		For the year ended 31 October 2016 (audited)
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation*		84,020		41,337
Net gains on investments		(85,581)		(46,083)
Currency (gains)/losses		(824)		2,740
Finance costs of borrowings		999		958
Overseas tax repaid/(incurred)		207		(81)
Changes in debtors and creditors		148		50
Cash from operations		(1,031)		(1,079)
Interest paid		(1,001)		(944)
Net cash outflow from operating activities		(2,032)		(2,023)
Cash flows from investing activities
Acquisitions of investments	(50,072)		(38,768)
Disposal of investments	44,606		47,932
Net cash (outflow)/inflow from investing activities		(5,466)		9,164
(Decrease)/increase in cash and cash equivalents		(7,498)		7,141
Exchange movements		(1,060)		3,369
Cash and cash equivalents at 1 November		13,244		2,734
Cash and cash equivalents at 31 October		4,686		13,244

*  Dividends received in the year amounted to £1,159,000 (2016 - £1,173,000)

 

Portfolio and equity performance as at 31 October 2017 (unaudited)

Name	Business	Country	Fair value 2017 £'000	% of total assets	Performance†		Fair value 2016 £'000
					Absolute %	Relative %
Anylam   Pharmaceuticals	Therapeutic gene silencing	USA	22,449	5.8	214.4	172.1	6,552
MarketAxess	Electronic bond trading platform	USA	21,640	5.6	6.7	(7.6)	20,394
LendingTree	Online loan marketplace	USA	17,178	4.4	207.8	166.4	4,582
IPG Photonics	High-power fibre lasers	USA	14,208	3.7	101.7	74.6	7,770
Tesla Inc	Electric cars, autonomous driving and    solar energy	USA	11,209	2.9	54.2	33.4	7,271
iRobot	Domestic and military robots	USA	9,244	2.4	21.8	5.4	7,585
Wayfair	Online furniture and homeware retailer	USA	8,964	2.3	92.8	66.9	4,652
IP Group	Intellectual property commercialisation	UK	8,079	2.1	(1.7)	(14.9)	8,238
Temenos Group	Banking software	Switzerland	7,955	2.1	65.6	43.3	4,834
Renishaw	Measurement and calibration   equipment	UK	6,963	1.8	94.2	68.1	3,629
AeroVironment	Small unmanned aircraft systems	USA	6,774	1.7	96.1	69.7	3,456
Yoox Net-A-Porter	Online luxury fashion retailer	Italy	6,564	1.7	20.7	4.5	2,192
GrubHub	Online and mobile platform for   restaurant pick-up and delivery   orders	USA	6,432	1.7	47.2	27.4	4,371
Ocado	Online food retailer	UK	5,676	1.5	4.6	(9.5)	5,431
Zillow Class C	US online real estate portal	USA	5,646	1.5	13.8	(1.6)	4,961
Galapagos	Clinical stage biotechnology company	Belgium	5,640	1.5	46.3	26.6	3,855
Genus	Animal breeding services	UK	5,180	1.3	26.8	9.7	4,133
Financial Engines	Investment advisory firm	USA	5,165	1.3	20.8	4.5	4,295
Start Today	Internet fashion retailer	Japan	5,083	1.3	43.8	24.4	4,286
Cellectis	Biotech focused on genetic   engineering	France	4,942	1.3	79.2	55.1	2,177
Baozun SPN ADR	Chinese e-commerce solution provider	USA	4,569	1.2	98.6*	88.1*	-
Exact Sciences	Provides of non-invasive molecular   test for early cancer detection	USA	4,552	1.2	31.2*	27.4*	-
InfoMart Corp	Internet platform for restaurant   supplies	Japan	4,388	1.1	17.0	1.3	3,777
Xero	Cloud-based accounting software	New Zealand	4,255	1.1	70.5	47.6	2,439
Faro Technologies	Designs and develops measurement   devices	USA	4,204	1.1	42.0	22.8	2,951
Mulesoft 'A'	Enterprise software developer	USA	4,192	1.1	9.7*	6.5*	-
Morphosys	Therapeutic antibodies	Germany	4,180	1.1	80.6	56.3	2,315
Oxford Nanopore   Technologies‡	Novel DNA sequencing technology	UK	4,176	1.1	16.2	0.6	3,306
Puretech Health	IP commercialisation focused on   health care	UK	4,154	1.1	(8.3)	(20.6)	3,608
Novocure	Manufacturer of medical devices for   cancer treatment	USA	4,136	1.1	22.3*	22.3*	-
Dialog Semiconductor	Analogue chips for mobile phones	Germany	3,992	1.0	16.6	0.9	3,432
Seattle Genetics	Antibody conjugates based   biotechnology	USA	3,947	1.0	9.0	(5.7)	3,620
Trupanion	Pet health insurance provider	USA	3,923	1.0	59.9	38.4	2,452
Chegg	Online educational company	USA	3,899	1.0	3.0*	2.9*	-
Stamps.com	Website for postage services	USA	3,884	1.0	111.3	82.8	3,379
ASOS	Online fashion retailer	UK	3,874	1.0	8.4	(6.2)	3,570
4D Pharma	Bacteria derived novel therapeutics	UK	3,748	1.0	(51.3)	(57.9)	7,930
Xeros Technology   Group	Commercial laundry manufacturer	UK	3,733	1.0	8.3	(6.3)	3,479

 

Portfolio and equity performance as at 31 October 2017 (unaudited) (Ctd)

Name	Business	Country	Fair value 2017 £'000	% of total assets	Performance†		Fair value 2016 £'000
					Absolute %	Relative %
National Instruments   Corp	Instrumentation equipment used in   research and testing	USA	3,706	1.0	50.4	30.2	2,516
Cosmos   Pharmaceuticals	Therapies for gastrointestinal   diseases	Italy	3,643	0.9	(7.5)	(19.9)	3,977
Genmab	Therapeutic antibody company	Denmark	3,636	0.9	12.7	(2.5)	3,241
MonotaRO	Online business supplies	Japan	3,586	0.9	3.9	(10.1)	3,475
SEEK	Online recruitment portal	Australia	3,461	0.9	19.0	2.9	3,647
Lifull (formerly Next)	Provides online property information	Japan	3,438	0.9	(15.9)	(27.2)	4,113
Foundation Medicine	Develops cancer diagnostic   technology	USA	3,389	0.9	82.3	57.7	1,859
STAAR Surgical	Develops and manufactures high   margin visual implants	USA	3,142	0.8	47.8*	23.4*	-
M3	Online medical database	Japan	3,131	0.8	(10.0)	(22.2)	3,492
Ambarella	Video compression and image   processing semiconductors	USA	3,124	0.8	(3.4)*	(8.5)*	-
Kingdee International     Software	Enterprise management software	China	3,081	0.8	21.3	4.9	2,541
Victrex	High-performance thermo-plastics	UK	3,048	0.8	40.4	21.5	2,227
CEVA	Licenses DSP-based platforms   applications to the semiconductor   industry	USA	2,998	0.8	29.0*	22.3*	-
Peptidream	Drug discovery platform	Japan	2,998	0.8	12.6	(2.5)	2,661
Splunk	Data diagnostics	USA	2,913	0.8	2.8	(11.0)	3,819
Teladoc	Telemedicine services provider	USA	2,912	0.7	46.8*	36.8*	-
Digital Garage	Internet business incubator	Japan	2,902	0.7	4.9	(9.2)	2,788
Suss Mocrotec	Fabrication and inspection equipment	Germany	2,875	0.7	152.5	118.5	1,146
Rightmove	UK online property portal	UK	2,865	0.7	12.7	(2.5)	2,577
Zillow Class A	US online real estate portal	USA	2,825	0.7	15.0	(0.5)	2,458
Xaar	Ink jet printing technology	UK	2,794	0.7	19.6	3.5	2,410
Imagination   Technologies	Graphics semiconductor designer	UK	2,743	0.7	(20.1)	(30.9)	3,435
Horizon Discovery	Customised cell lines to aid drug   discovery	UK	2,596	0.7	98.4	71.7	1,303
SDL	Language translation services	UK	2,591	0.7	25.3	8.5	2,093
Basware	Software solutions for financial   transactions	Finland	2,477	0.6	23.4	6.8	2,405
Dexcom	Real time blood glucose monitoring	USA	2,470	0.6	(47.2)	(54.3)	4,676
Stratasys	3D Printer manufacturer	USA	2,451	0.6	8.5	(6.1)	1,794
Pacira Pharmaceuticals	Development, commercialisation and   manufacturing of proprietary   pharmaceutical products	USA	2,414	0.6	(7.3)	(19.8)	2,605
Mindbody CL	Business management software for   the wellness sector	USA	2,308	0.6	9.0*	(0.1)*	-
Codexis	Manufacturer of custom industrial   enzymes	USA	2,295	0.6	12.0	(3.1)	2,067
Spire Global‡	Manufacturer of small, low cost   satellites	USA	2,259	0.6	(3.6)*	(6.6)*	-
Digimarc	Digital watermarking technology	USA	2,188	0.6	3.9	(10.1)	2,109
Adaptimmune   Therapeutics ADR	Clinical stage biopharmaceutical   company	UK	2,186	0.6	65.9	43.6	1,321
NuCana SPN ADR	An oncology-focused biotechnology   company	UK	2,156	0.6	(23.7)*	(26.0)*	-
Penumbra	Manufacturer of a novel blood clot   extraction technology	USA	2,130	0.5	9.5*	6.3*	-
Oxford Instruments	Produces advanced instrumentation   equipment	UK	2,121	0.5	42.6	23.4	1,509

 

Portfolio and equity performance as at 31 October 2017 (unaudited) (Ctd)

Name	Business	Country	Fair value 2017 £'000	% of total assets	Performance†		Fair value 2016 £'000
					Absolute %	Relative %
Ellie Mae	Provides technology solutions to   automate mortgage origination   process	USA	2,032	0.5	(21.9)	(32.4)	2,602
Ceres Power Holding	Developer of fuel cells	UK	1,995	0.5	29.8	12.3	1,506
Catapult Group    International	Sports analytics focused on   optimising athlete performance	Australia	1,961	0.5	8.1*	4.5*	-
Benefitfocus	Cloud-based benefits software   provider	USA	1,947	0.5	(23.6)*	(26.8)*	-
Unity Biotechnology Inc   Series B Pref. ‡	Biotechnology company seeking to   develop anti ageing therapies	USA	1,506	0.4	(8.1)	(20.4)	1,638
Tissue Regenix	Regenerative medical devices	UK	1,430	0.4	(48.0)	(55.0)	1,770
Zumtobel	Commercial lighting	Austria	1,350	0.3	(9.3)	(21.5)	1,499
Aduro Biotechnology	Immunotherapy services provider	USA	1,302	0.3	(32.2)	(41.3)	1,145
China Financial Services	Small and medium-sized enterprises   lending in China	China	1,276	0.3	(1.1)	(14.4)	1,334
Ricardo	Automotive engineer	UK	1,123	0.3	(9.6)	(21.8)	1,261
Avacta Group	Analytical reagents and   instrumentation	UK	1,087	0.3	(25.7)	(35.7)	1,465
Summit Therapeutics	Drug discovery and development	UK	1,065	0.3	(22.5)	(32.9)	799
C4X Discovery Holdings	Rational drug design and   optimisation	UK	851	0.2	(31.1)	(40.4)	891
Acacia Research	Patent licenser	USA	745	0.2	(29.3)	(38.8)	1,065
Nanoco	Quantum dot manufacturer	UK	732	0.2	(45.6)	(52.9)	1,365
Thin Film Electronics	Develops printed, rewritable memory   media	Norway	519	0.1	(45.8)	(53.1)	960
Foamix Pharmaceuticals	Drug reformulation technology	Israel	510	0.1	(29.3)	(38.9)	724
Ilika	Discovery and development of   materials for mass market     applications	UK	466	0.1	(53.6)	(59.9)	1,007
Sarine Technologies	Systems for diamond grading and   cutting	Singapore	462	0.1	(42.1)	(49.9)	820
hVIVO (formerly   Retroscreen Virology)	Outsourced pre-clinical analytical   services	UK	400	0.1	(67.7)	(72.1)	1,284
Applied Graphene   Materials	Manufactures graphene nanoplatelets	UK	242	0.1	(76.4)	(79.6)	516
Velocys	Gas to liquid technology	UK	162	0.0	2.2	(11.6)	162
GI Dynamics	Develops and markets medical   devices	Australia	34	0.0	94.1	68.0	18
China Lumena New   Material	Mines, processes and manufactures   natural thenardite products	China	0	0.0	0.0	(15.6)	0
Ensogo	South East Asian e-commerce	Australia	0	0.0	0.0	(15.6)	0
Total equities			383,846	99.0
Net liquid assets			4,017	1.0
Total assets at fair value#			387,863	100.0

†      Absolute and relative performance has been calculated on a total return basis over the period 1 November 2016 to 31 October 2017 (performance figures for investments bought during the period are part-period returns - see note below). Absolute performance is in sterling terms; relative performance is against S&P Global Small Cap Index (in sterling terms).

*     Figures relate to part-period returns where equity has been purchased during the period.

#    Before deduction of loan.

‡    Denotes unlisted security.

Source: Baillie Gifford/StatPro and relevant underlying index providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

 

Distribution of total assets* by industry (unaudited)

		Industry Analysis 31 October 2017 % of total assets*		Portfolio Weightings (relative to comparative index†) at 31 October 2017 % points overweight/(underweight)
Equities:	Biotechnology	18.4		15.4
	Internet Software and Services	10.1		7.9
	Capital Markets	9.0		6.4
	Electronic Equipment, Instruments and Components	8.6		5.2
	Software	7.8		4.8
	Internet and Direct Marketing Retail	7.8		7.3
	Thrifts and Mortgage Finance	4.4		3.6
	Semiconductors and Semiconductor Equipment	4.2		1.7
	Health Care Equipment and Supplies	3.3		1.1
	Life Sciences Tools and Services	3.0		2.1
	Automobiles	2.9		2.8
	Pharmaceuticals	2.6		1.0
	Household Durables	2.4		0.6
	Aerospace and Defence	1.7		0.3
	Chemicals	1.5		(2.0)
	Technology Hardware, Storage and Peripherals	1.4		1.0
	Professional Services	1.4		0.0
	Machinery	1.1		(3.6)
	Health Care Technology	1.0		0.6
	Diversified Consumer Services	1.0		0.3
	Insurance	1.0		(1.9)
	Trading Companies and Distributors	0.9		(0.6)
	Media	0.9		(1.1)
	Electrical Equipment	0.9		0.0
	Health Care Providers and Services	0.7		(0.8)
	IT Services	0.7		(1.8)
	Consumer Finance	0.3		(0.4)
	Energy Equipment and Services	0.0		(1.2)
	Net Liquid Assets	1.0
Total assets*		100.0
* Total assets before deduction of bank loan.
† S&P Global Small Cap Index (in sterling terms). Weightings exclude industries where the Company has no exposure.
See disclaimer at the end of this announcement.

Distribution of total assets (unaudited)

Geographical Analysis

		31 October 2017 %	31 October 2016 %
North America		56.1	45.5
	USA	56.1	45.5
Europe		32.6	37.2
	United Kingdom	20.3	25.4
	Eurozone	9.1	8.5
	Developed Europe (non euro)	3.2	3.3
Africa and Middle East		-	0.5
	UAE	-	0.5
Asia		7.8	10.6
	Japan	6.6	8.3
	China	1.1	1.3
	Hong Kong	-	0.7
	Singapore	0.1	0.3
Australasia		2.5	2.0
	Australia	1.4	1.2
	New Zealand	1.1	0.8
Total equities			95.8
Net liquid assets		1.0	4.2
Total assets*		100.0	100.0

Sectoral Analysis

		31 October 2017 %		31 October 2016 %
Consumer Discretionary		15.0		15.2
Energy		0.0		0.1
Financials		14.7		13.9
Health Care		29.0		26.1
Industrials		6.0		7.0
Information Technology		32.8		31.5
Materials		1.5		2.0
Net Liquid Assets		1.0		4.2
Total assets*		100.0		100.0

 * Total assets before deduction of loans

Notes (unaudited)

1.	The unaudited financial statements for the year to 31 October 2017 have been prepared in accordance with FRS102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' The accounting policies adopted are consistent with those of the previous financial year. In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. An explanation of the Company's principal risks and how they are managed is set out on pages 7 and 8 and contained in note 17 to the Financial Statements. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement in the Annual Report and Financial Statements, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of the Financial Statements. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company and its investment manager, who are subject to the UK's regulatory environment, are also UK based.
2.	Income	2017 £'000	2016 £'000
	Income from investments	1,166	1,178
	Deposit interest	102	-
		1,268	1,178
3.	Baillie Gifford & Co Limited are appointed as Managers and Secretaries. With effect from 1 September 2016 the annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Prior to 1 September 2016 the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets. Management fees are calculated and payable quarterly.
4.	Net return per ordinary share Revenue 2017  Capital Total Revenue 2016 Capital Total Net return on ordinary activities after     taxation 0.30p 171.58p 171.88p (0.12p) 84.31p 84.19p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £149,000 (2016 - net revenue loss of £61,000) 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 £84,078,000 (2016 - net capital gain of £41,317,000) 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.

 

Notes (unaudited) (Ctd)

5.	There are no dividends paid and proposed in respect of the financial year. The revenue available for distribution by way of dividend for the year is £149,000 (2016 - revenue loss £61,000) which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered.
6.	The five year fixed rate facility with National Australia Bank Limited of €9.4m, US$25.6m and £7.5m, expires on 30 September 2019. The drawings were as follows: At 31 October 2017 and 31 October 2016 National Australia Bank Limited: ¾    €9,400,000 at an interest rate of 1.59% per annum. ¾    US$25,600,000 at an interest rate of 3.14% per annum. ¾    £7,500,000 at an interest rate of 3.12% per annum. The main covenants relating to the loan facility with National Australia Bank Limited are: total borrowings shall not exceed 35% of the Company's adjusted gross assets and the minimum adjusted gross assets shall be £110m. The fair value of borrowings at 31 October 2017 was £35,574,000 (2016 - £37,895,000). Net asset value per share (after deducting borrowings at fair value) was 718.89p (2016 - 546.13p).
7.	The Company incurred transaction costs on purchases of £23,000 (2016 - £26,000) and on sales of £23,000 (2016 - £17,000).
8.	At the Annual General Meeting on 24 January 2017 the Company renewed its authority to purchase shares in the market, in respect of 7,345,747 ordinary shares (equivalent to approximately 14.99% of its issued share capital at that date). No shares were bought back during the years to 31 October 2017 or 2016. At 31 October 2017 the Company had authority to buy back 7,345,747 ordinary shares.
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2017. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2016 accounts, their report was unqualified and did not contain a statement under section 495,496 and 497 of the Companies Act 2006. The statutory accounts for 2017 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
10.	Glossary of Terms Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Also described as shareholders' funds, Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Asset Value (Borrowings at Fair Value) Borrowings are valued at an estimate of their market worth. Net Asset Value (Borrowings at Par Value) Borrowings are valued at their nominal par value. Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings.

 

Notes (unaudited) (Ctd)

11.	Glossary of Terms (Ctd)
	Discount/Premium As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. Ongoing Charges The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing is the Company's borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Leverage For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. Active Share Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.
12.	The Annual Report and Financial Statements will be available on the Edinburgh Worldwide page of the Managers' website http://www.edinburghworldwide.co.uk †on or around 18 December 2017.

† Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the

Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

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- Ends -

 

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