Annual Report and Financial Statements

RNS Number : 6054U

Edinburgh Worldwide Inv Trust PLC

23 December 2011

 

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

A copy of the Annual Report and Financial Statements for the year ended 31 October 2011 of Edinburgh Worldwide Investment Trust plc has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.hemscott.com/nsm.do .

The Annual Report and Financial Statements for the year ended 31 October 2011 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/96148_EWIT_Annual_Report_1011.pdf 

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 October 2011 which require to be published by DTR 4.1 is set out on the following pages.

Baillie Gifford & Co

Company Secretaries

23 December 2011

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Investment Background and Outlook

The past year has been marked by continued market turbulence, largely as a result of European market travails, notably the ongoing saga surrounding European sovereign debt and its concomitant impact on many European banks and beyond, the state of the Euro and consequently European and global trade. Markets were also unsettled in the period by US brinksmanship over funding for its budget deficit while the question of whether China has a 'hard' or 'soft' landing economically was a further unsettling factor. Thrown into the mix, the tragedy that befell Japan in March had a knock-on effect on business supply chains globally.

Whilst not wishing to play down the importance of these issues for others, there appears to be a notable disconnect between market gyrations and the reality of results being reported by many companies across the globe. The Managers have spent much time debating the respective merits of individual companies within the current economic climate since it has been so-called emerging markets that have been weakest of all despite being furthest away from the epicentres of many of the issues. The conclusions remain as before; the shift in economic wealth and influence from the more mature to the so-called developing nations and companies remains unabated. Operationally, if not necessarily in share price terms, many companies, not just those listed in the Far East, are performing very well, particularly those involved in new transformational technologies or those exposed to the growing wealth of Asian consumers. Being able to identify the companies best placed to take advantage of such themes is the key focus of the Managers. An overview is provided by the Managers on page 8 of the Annual Report and Financial Statements while on page 10 there is a portfolio review which examines some of our individual holdings in more detail.

Performance

In the year to 31 October 2011 net asset value per share decreased by 2.5% and the share price fell 4.0%. The MSCI All Countries World Index (in sterling terms) fell 2.7% during this period. The Company's discount ended the year at 13.2% having started it at 11.9%.

The volatility of markets does, and will continue to, have an impact on the Company's short term performance. However, the concentrated nature of the portfolio, which is unconstrained by any requirement to match an index, combined with the Board's belief that the Managers are capable of investing in appropriate investments globally, should result in good returns for the long term shareholder. The portfolio comprises holdings that are believed to have long term attractions, over at least five years, and typically will be geared to maximise the potential returns. Over the eight years that Baillie Gifford & Co has been managing the Company's assets, in total return terms, net asset value per share has increased by 102.0%, the share price by 121.9% and the MSCI All Countries World Index by 71.0%.

Borrowings

Equity gearing was maintained throughout the year and was 14% at the year end. During the period the Company repaid its £30m rolling multi currency facility with Lloyds and replaced it with a three year fixed rate multi currency loan from National Australia Bank.

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT (CTD)

Earnings and Dividend

The net revenue return per share for the year was 2.51p (2010: 1.86p), up 34.9%. The Company's objective is one of capital growth. Any income received from the underlying holdings is subsidiary to this objective. The increase in revenue return over the past year is due to a higher level of dividends received from the Company's underlying holdings. An unchanged final dividend of 1.50p is being recommended, making the total for the year 2.00p.

The Company's registrars operate a Dividend Reinvestment Plan which can be used to buy additional shares. Further details can be found on page 45 of the Annual Report and Financial Statements.

Investment Policy

Since the year end your Board has announced a minor adjustment to the Company's Investment Policy to allow investment in unlisted equity investments. The intention is not to invest in small start-up investments at an early stage but more mature companies planning to undertake an IPO in the foreseeable future and which are believed to have above average prospects for growth. It is not anticipated that such investments will be made regularly and on acquisition the aggregate holdings in unlisted equity investments shall not exceed 1% of total assets.

The Board

I am pleased to report that Mr Henry Strutt was appointed to the Board on 1 November 2011. Henry, a qualified Chartered Accountant, spent over twenty years with the Robert Fleming Group, seventeen of which were in the Far East. Mr Jake Leslie Melville will retire from the Board on 31 December 2011 due to other business constraints on his time. The Board has appreciated his contribution to discussions and wishes him every success.

It is with great sadness that I report the death during the summer of David Coltman, the Company's former Chairman. Having been appointed in 1998, David proved to be an excellent Chairman, demonstrating thoughtful and astute decision making. He oversaw the reconstruction of Dunedin Worldwide Investment Trust in 1998, from which the Company was the successor vehicle, and oversaw the appointment of Baillie Gifford as Investment Manager. I think shareholders were fortunate to have had David as Chairman and he will be missed.

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 2 February 2012. The Company will again seek to renew its share buyback and treasury share powers. Further information in respect of these resolutions and others can be found on pages 20 and 21 of the Annual Report and Financial Statements.

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 HL Reid

Past performance is not a guide to future performance.

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. It seems increasingly to us that markets want to do precisely the opposite - every fragment of news or piece of information is exaggerated and turned into a cause of numerous effects. In stockmarket terms such myopia is exacerbated by the number of machines engaged in high frequency trading where the average holding period is reported to be 30 milliseconds (or one-tenth of an average blink). More than ever, we feel that trying to extricate ourselves from the prevailing herd and think long and hard about the next five and ten years should be a profitable way to invest.

In the eight and a bit years since Baillie Gifford were appointed managers of the Trust, there have been financial crises in places as far flung as Dubai, Iceland and Greece whilst almost every economy felt at least a ripple from the collapse of the credit boom. Also during these eight years Amazon has increased its turnover tenfold; Apple has revolutionised three markets with the iPod, iPhone and iPad; Chinese retail sales have more than doubled and Facebook has become the company with the most users worldwide - currently 800m and counting. It remains our firm belief that by investing in companies with opportunities created by such monumental change that we can add long term value to the portfolio and we will continue to seek to be judged over five years plus time periods.

In this long term context, the last twelve months have felt like a good test of our resolve as the machinations of the financial crisis have become more complicated and wider spread. Many millions of column inches have already been spent trying to decipher the almost daily cacophony of noise surrounding macro events and we do not seek to add to them here as we much prefer to concentrate on those companies which are seeing strong growth and revolutionising the way we live our daily lives.

We see nothing in the last year which shifts our core belief as stated in last year's annual report and which is worth restating:

"That the next few years will see some very different macroeconomic outcomes as those economies most exposed to the debt crisis pay for their folly which accelerates many of the tectonic shifts already underway in the global economy. This is not meant to be dismissive of the problems which many indebted nations face but is an attempt to place them in a balanced global context. Running a global portfolio affords us the great luxury of navigating around those countries and companies with the largest problems."

At the company level the last year has been marked by some very strong corporate results - Amazon is growing at its fastest rate in a decade and putting more and more bricks and mortar retailers out of business; Hermès has had its strongest figures in its 170-year history of selling leather goods; Novozymes continues to find more uses for its enzymes and eBay and Google are seeing astonishing growth in their mobile revenues as the smartphone revolution carries on regardless of the macroeconomy.

Notable new holdings purchased during the year include Salesforce.com, which we believe is the dominant force in the move to cloud computing; Illumina - a leader in the nascent and fast-growing world of gene sequencing; BMW which is replicating its European profitability in global markets and iRobot which makes robotic devices spanning from the battlefield to the home.

Of course, we will make investment mistakes - alternative energy has been a painful area of investment for us as Chinese price competition has trumped any notion of competitive advantage and our thesis in buying Banco Santander as a strong survivor in banking has proven

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

MANAGERS' OVERVIEW

incorrect - there has been little to no exit and tougher regulation has affected all players. Other sales included exiting our position in Petrobras, where we think the changes in government stance are good for Brazil but bad for minority shareholders, and Autonomy, where shortly after purchase the shares were bid for by Hewlett Packard at a much higher price.

The number of equity holdings stood at 40 at the year end, which compares to 39 at October 2010, and portfolio turnover was 27.2%. We would again reiterate that we pay no heed to country or sector weights in constructing the portfolio - it is composed 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 remain excited by the prospects of the businesses that we own and believe that patient investors will be rewarded for strong operational performance over the long term. It remains 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

Baillie Gifford & Co

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE at 31 October 2011
Name	Business	Fair value 2011 £'000	% of total assets	Performance†		Fair value 2010 £'000
				Absolute %	Relative %
Equities
Amazon	Online retailer	12,685	7.1	28.3	28.3	12,188
Apple	Computing and media equipment	9,680	5.4	33.3	33.3	7,264
Baidu	Chinese online search engine	9,491	5.3	26.2	26.2	10,383
eBay	Internet auction and payments	7,340	4.1	5.8	5.8	6,944
Whole Foods Market	Organic food stores	6,717	3.7	80.7	80.8	3,736
Hermès	Luxury goods	6,320	3.5	61.1	61.1	2,613
PPR	Luxury brand conglomerate	6,319	3.5	0.0	0.0	6,155
Atlas Copco	Industrial compressors and mining equipment	6,306	3.5	10.4	10.4	8,921
Novozymes	Enzyme manufacturer	6,296	3.5	13.3	13.3	4,803
Vale (CVRD)	Mining	6,113	3.4	(13.4)	(13.4)	8,329
Tencent	Chinese social network	6,018	3.3	2.2	2.2	4,783
Intuitive Surgical	Robotic surgery	5,913	3.3	63.0	63.0	3,026
Inditex	Fashion retail	5,859	3.3	11.4	11.4	2,190
Google	Web-based search engine	5,706	3.2	(4.2)	(4.2)	5,965
Salesforce.com	Software	4,767	2.7	3.9*	12.4*	-
Deere	Farm and construction machinery	4,690	2.6	(0.5)	(0.5)	5,595
New Oriental Education and         Technology	English-language schools	4,475	2.5	9.4	9.4	4,086
ABB	Power systems and automation	3,669	2.0	(5.9)	(5.8)	3,998
Gazprom	Gas exploration and production	3,646	2.0	7.1	7.1	3,457
Housing Development Finance Corporation	Indian mortgage provider	3,620	2.0	(8.2)	(8.2)	3,999
Sandvik	Tools and mining equipment	3,308	1.8	(5.9)	(5.9)	5,079
L'Oréal	Personal care	3,116	1.7	(4.3)	(4.2)	3,315
FLIR Systems	Infrared sensors	2,967	1.7	(5.9)	(5.9)	3,165
iRobot	Robots for domestic and military use	2,939	1.6	53.6*	60.0*	-
BMW	Premium car manufacturer	2,698	1.5	(1.0)*	(6.1)*	-
Garanti Bankasi	Turkish bank	2,543	1.4	(42.8)	(42.8)	3,245
Ctrip.com	Travel agent - China	2,535	1.4	(23.5)*	(20.3)*	-
Hengdeli Holdings	Chinese watch retailer	2,482	1.4	(13.9)*	(5.5)*	-
Straumann	Dental implants	2,476	1.4	(14.5)	(14.5)	2,948
CFAO	African distribution	2,315	1.3	(10.4)	(10.4)	2,650
Teva Pharmaceuticals	Generic drugs manufacturer	2,285	1.3	(20.8)	(20.7)	2,930
First Solar	Designs and manufactures solar modules	2,203	1.2	(64.1)	(64.1)	4,236
Illumina	Biotechnology equipment	2,129	1.2	(56.9)*	(53.5)*	-
Seattle Genetics	Biotech cancer drugs	1,847	1.0	2.6*	0.8*	-
Belle International	Footwear - China	1,797	1.0	(1.3)*	5.6*	-
ALL America Latina                 Logistica	Brazilian railways	1,777	1.0	(47.6)	(47.5)	2,605
3SBio	Chinese generic drugs	1,632	0.9	(35.2)*	(30.3)*	-
MIPS Technologies	Mobile phone chips	1,568	0.9	(20.8)*	(13.1)*	-
Noah Holdings	Chinese wealth manager	1,387	0.8	(29.0)*	(23.6)*	-
Vanceinfo	Chinese IT outsourcing	1,081	0.6	(68.4)	(68.4)	3,398
Total Equities		170,715	95.0

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE

at 31 October 2011

 (Ctd)

Name	Business		Fair value 2011 £'000	% of total assets	Performance†		Fair value 2010 £'000
					Absolute %	Relative %
Net Liquid Assets			8,906	5.0
Total Assets at Fair Value (before deduction of loans)			179,621	100.0

† Absolute and relative performance has been calculated on a total return basis over the period 1 November

2010 to 31 October 2011.   For investments held for part of the year the return is for the period they were held.

 

Absolute performance is in sterling terms; relative performance is against MSCI All Countries World Index in  

sterling terms.

 

* 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 22 of the Annual Report and Financial Statements. 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 are employed by the Company as Managers under a management agreement which 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. Out-performance is determined by reference to a high water mark, being the previous level of out-performance. There is no cap on the amount of performance fee payable in any year.

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, performance fee and secretarial fee are as follows:

	2011 £'000		2010 £'000
Investment management fee	1,133		998
Investment performance fee	-		36
Secretarial fee	74		72

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 Euro increased due to net purchases of Euro denominated equities; exposure to the Swedish krona decreased due to sales of Swedish krona denominated equities; exposure to the Swiss franc increased due to repayment of Swiss franc borrowings when the loan was refinanced; exposure to the Hong Kong dollar increased due to net purchases of Hong Kong dollar denominated equities.

At 31 October 2011	Investments £'000		Cash and deposits £'000		Loans £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	103,796		3,099		(10,130)		142		96,907
Euro	26,627		-		(9,851)		1		16,777
Swedish krona	9,614		-		-		-		9,614
Swiss franc	6,145		-		-		6		6,151
Danish krone	6,296		-		-		-		6,296
Hong Kong dollar	10,297		10		-		-		10,307
Other overseas currencies	7,940		-		-		-		7,940
Total exposure to currency risk	170,715		3,109		(19,981)		149		153,992
Sterling	-		6,013		(10,000)		(365)		(4,352)
	170,715		9,122		(29,981)		(216)		149,640

* Includes net non-monetary assets of £12,000.

At 31 October 2010	Investments £'000		Cash and deposits £'000		Loans £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	102,405		647		(7,068)		153		96,137
Euro	21,544		700		(7,564)		16		14,696
Swedish krona	14,000		-		-		-		14,000
Swiss franc	6,945		-		(6,677)		9		277
Danish krone	6,176		-		-		-		6,176
Japanese yen	3,465		-		(3,494)		21		(8)
Hong Kong dollar	9,379		-		-		-		9,379
Other overseas currencies	9,849		-		-		-		9,849
Total exposure to currency risk	173,763		1,347		(24,803)		199		150,506
Sterling	-		2,706		-		(299)		2,407
	173,763		4,053		(24,803)		(100)		152,913

*          Includes net non-monetary assets of £12,000.

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Currency Risk Sensitivity

At 31 October 2011, 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 2010.

	2011 £'000		2010 £'000
US dollar	4,845		4,807
Euro	839		735
Swedish krona	481		700
Swiss franc	308		14
Danish krone	315		309
Japanese yen	-		(1)
Hong Kong dollar	515		469
Other overseas currencies	397		492
	7,700		7,525

(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

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	2011 £'000	2010 £'000
The interest rate risk profile of the Company's financial liabilities at 31 October was:
Fixed rate      - Sterling denominated	10,000	-
- US$ denominated	10,130	-
- Euro denominated	9,851	-
Floating rate - US$ denominated	-	7,068
- Euro denominated	-	7,564
- Swiss franc denominated	-	6,677
- Yen denominated		3,494
	29,981	24,803

The maturity profile of the Company's financial liabilities at 31 October was:
In one year or less, or on demand	-	24,803
In more than two years, but not more than five years	29,981	-
	29,981	24,803

Interest Rate Risk Sensitivity

An interest rate risk sensitivity analysis has not been performed as the Company does not hold bonds and has borrowed funds at a fixed rate of interest.

(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 Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 10 of the Annual Report and Financial Statements.

 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 12 of the Annual Report and Financial Statements. 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 and Financial Statements.

114.1% (2010 - 113.6%) of the Company's net assets are invested in equities. A 10% increase in quoted equity valuations at 31 October 2011 would have increased total assets and total return on ordinary activities by £17,072,000 (2010 - £17,376,000). 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. The Company's borrowing facilities are detailed in note 13 of the Annual Report and Financial Statements.

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.

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

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Credit Risk Exposure

The exposure to credit risk at 31 October was:

	2011 £'000	2010 £'000
Cash and short term deposits	9,122	4,053
Debtors and prepayments	209	314
	9,331	4,367

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 and Financial Statements. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 15 of the Annual Report and Financial Statements. Shares may be issued and/or repurchased as explained on pages 20 and 21 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

Fair values are measured using the following fair value hierarchy:

Level 1:            reflects financial instruments quoted in an active market.

Level 2:            reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets.

Level 3:            reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.

The valuation techniques used by the Company are explained in the accounting policies on page 30 of the Annual Report and Financial Statements.

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy.  None of the financial liabilities are designated at fair value through profit or loss in the financial statements.

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 1159 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.  The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 1159 are not breached.

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.

 Major regulatory change could impose unnecessary compliance burdens on the Company or threaten the viability of the investment company structure. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised.

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 Managers have a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. 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. 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 Company's investments are in quoted securities that are readily realisable.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL 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 have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' 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 of the Annual Report and Financial Statements, 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 HL REID

Chairman

 8 December 2011

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

INCOME STATEMENT

	For the year ended 31 October 2011				For the year ended 31 October 2010
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(855)	(855)		-	29,831	29,831
Currency losses	-	(1,344)	(1,344)		-	(1,122)	(1,122)
Income (note 2)	2,412	-	2,412		1,931	-	1,931
Investment management fee	(283)	(850)	(1,133)		(250)	(784)	(1,034)
VAT recovered (note 3)	-	-	-		25	127	152
Other administrative expenses	(498)	-	(498)		(440)	-	(440)
Net return before finance costs and taxation	1,631	(3,049)	(1,418)		1,266	28,052	29,318
Finance costs of borrowings	(158)	(475)	(633)		(130)	(390)	(520)
Net return on ordinary activities before taxation	1,473	(3,524)	(2,051)		1,136	27,662	28,798
Tax on ordinary activities	(242)	-	(242)		(226)	-	(226)
Net return on ordinary activities after taxation	1,231	(3,524)	(2,293)		910	27,662	28,572
Net return per ordinary share (note 4)	2.51p	(7.19p)	(4.68p)		1.86p	56.45p	58.31p

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 2011		At 31 October 2010
		£'000		£'000
FIXED ASSETS Investments held at fair value through profit or loss		170,715		173,763
CURRENT ASSETS
Debtors		209		314
Cash and short term deposits		9,122		4,053
		9,331		4,367
CREDITORS
Amounts falling due within one year (note 6)		(425)		(25,217)
NET CURRENT ASSETS/(LIABILITIES)		8,906		(20,850)
TOTAL ASSETS LESS CURRENT LIABILITIES		179,621		152,913
CREDITORS
Amounts falling after more than one year (note 6)		(29,981)		-
TOTAL NET ASSETS		149,640		152,913
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		27,260		30,784
Revenue reserve		2,530		2,279
SHAREHOLDERS' FUNDS		149,640		152,913
NET ASSET VALUE PER ORDINARY SHARE		304.24p		312.04p
(after deducting borrowings at fair value)
NET ASSET VALUE PER ORDINARY SHARE		305.36p		312.04p
(after deducting borrowings at par)
ORDINARY SHARES IN ISSUE		49,004,319		49,004,319

 

 

DISTRIBUTION OF ASSETS

 

		At 31 October 2011              %				At 31 October 2010 %
Equities:
	USA	39.7			33.3
	China	17.2			15.3
	France	10.0			8.4
	Sweden	5.3			7.9
	Brazil	4.4			12.2
	Denmark	3.5			3.5
	Switzerland	3.4			3.9
	Spain	3.3			3.8
	India	2.0			2.3
	Russia	2.0			1.9
	Germany	1.5			-
	Turkey	1.4			1.8
	Israel	1.3			1.6
	Japan	-			1.9
Total equities		95.0			97.8
Net liquid assets		5.0			2.2
Total assets (before deduction of loan)		100.0			100.0

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 October 2011

	Called-up share capital £'000	Share premium £'000	Special reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2010	2,450	82,180	35,220	30,784	2,279	152,913
Net return on ordinary activities after taxation	-	-	-	(3,524)	1,231	(2,293)
Dividends paid during the year (note 5)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2011	2,450	82,180	35,220	27,260	2,530	149,640

For the year ended 31 October 2010

	Called-up share capital £'000	Share premium £'000	Special reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2009	2,450	82,180	35,220	3,122	2,839	125,811
Net return on ordinary activities after taxation	-	-	-	27,662	910	28,572
Dividends paid during the year (note 5)	-	-	-	-	(1,470)	(1,470)
Shareholders' funds at 31 October 2010	2,450	82,180	35,220	30,784	2,279	152,913

*The capital reserve balance at 31 October 2011 includes investment holding gains of £49,283,000 (2010 - gains of £63,964,000).

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

 

CASH FLOW STATEMENT
	For the year ended 31 October 2011			For the year ended 31 October 2010
	£'000	£'000		£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 9)		864			716
SERVICING OF FINANCE
Interest paid	(589)			(547)
NET CASH OUTFLOW FROM SERVICING OF FINANCE		(589)			(547)
TAXATION
Overseas tax incurred	(253)			(238)
TOTAL TAX PAID		(253)			(238)
FINANCIAL INVESTMENT
Acquisitions of investments	(44,650)			(32,507)
Disposals of investments	46,843			32,877
Realised currency (loss)/gain	(23)			157
NET CASH INFLOW FROM FINANCIAL INVESTMENT		2,170			527
EQUITY DIVIDENDS PAID (note 5)		(980)			(1,470)
FINANCING
Bank loans repaid	(235,952)			(292,651)
Bank loans drawn down	239,809			292,674
NET CASH INFLOW FROM FINANCING		3,857			23
INCREASE/(DECREASE) IN CASH		5,069			(989)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase/(decrease) in cash in the period		5,069			(989)
Net cash inflow from bank loans		(3,857)			(23)
Exchange movement on bank loans		(1,321)			(1,279)
MOVEMENT IN NET DEBT IN THE YEAR		(109)			(2,291)
NET DEBT AT 1 NOVEMBER		(20,750)			(18,459)
NET DEBT AT 31 OCTOBER		(20,859)			(20,750)

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES

1.	The financial statements for the year to 31 October 2011 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 October 2010. 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. 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 that the Company will continue in operational existence for the foreseeable future. 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 is subject to the UK's regulatory environment.
		31 October 2011 £'000		31 October  2010  £'000
2.      2	Income
	Income from investments	2,356		1,919
	Deposit interest	56		12
		2,412		1,931
3.	VAT recovered
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. During the year to 31 October 2011, interest of £37,000 was received in respect of the £152,000 of VAT recovered in the year to 31 October 2010. VAT of £257,000 together with interest of £22,000 was recovered in the year to 31 October 2008. In accordance with AIC guidance, recovered VAT has been allocated between revenue and capital on the same basis as the VAT expense was originally charged.
		31 October 2011 £'000		31 October 2010  £'000
4.	Net return per ordinary share
	Revenue return	2.51p		1.86p
	Capital return	(7.19p)		56.45p
	Total return	(4.68p)		58.31p
	Revenue return per ordinary share is based on the net return on ordinary activities after taxation of £1,231,000 (2010 - £910,000) 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 loss for the financial year of £3,524,000 (2010 - gain of £27,662,000) 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)

			2011			2010		2011 £'000		2010 £'000
5.	Ordinary Dividends
	Amounts recognised as distributions in the period:
	Previous year's final (paid 9 February 2011)		1.50p			1.50p		735		735
	Previous year's special (paid 9 February 2010)		-			1.00p		-		490
	Interim (paid 21 July 2010)		0.50p			0.50p		245		245
			2.00p			3.00p		980		1,470
	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 1158 of the Corporation Tax Act 2010 are considered.  The revenue available for distribution by way of dividend for the year is £1,231,000 (2010 - £910,000).
		2011				2010		2011 £'000		2010 £'000
	Ordinary Dividends
	Dividends paid and payable in respect of the year:
	Interim dividend per ordinary share (paid 21 July 2011)	0.50p				0.50p		245		245
	Proposed final dividend per ordinary share (payable 8 February 2012)	1.50p				1.50p		735		735
		2.00p				2.00p		980		980
	If approved the final dividend will be paid on 8 February 2012 to all shareholders on the register at the close of business on 13 January 2012.  The ex-dividend date is 11 January 2012. 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 20 January 2012.
6.	The £30 million, 1 year multi-currency facility with Lloyds TSB Scotland plc was repaid on 30 September 2011. A new 3 year fixed rate facility with National Australia Bank Limited for €11.4m, US$16.35m and £10.0m was arranged, expiring on 30 September 2014.

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES (Ctd)

7.	The Company incurred transaction costs on purchases of £61,000 (2010 - £23,000) and on sales of £43,000 (2010 - £27,000).
8.	At the Annual General Meeting on 3 February 2011 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 2011 or 2010.  At 31 October 2011 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	2011 £'000		2010 £'000
	Net return on ordinary activities before finance costs and taxation	(1,418)		29,318
	Losses/(gains) on investments	855		(29,831)
	Currency losses	1,344		1,122
	Other non cash movements	-		(48)
	Decrease in accrued income	22		138
	Decrease/(increase) in debtors	94		(75)
	(Decrease)/increase in creditors	(33)		92
	Net cash inflow from operating activities	864		716
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2011.  The financial information for 2010 is derived from the financial statements for 2010 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2010 and 2011 accounts; their reports for both years were unqualified and did not contain a statement under sections 495 to 497 of the Companies Act 2006.  The statutory accounts for 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at 12 noon on Thursday 2 February 2012.
11.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

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.

- ends -

 

END

 

 

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