Annual Financial Report

RNS Number : 1544U

Edinburgh Worldwide Inv Trust PLC

21 December 2012

 

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

A copy of the Annual Report and Financial Statements for the year ended 31 October 2012 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 2012 including the Notice of Annual General Meeting is also available on Edinburgh Worldwide's page of the Baillie Gifford website at:

http://www.edinburghworldwide.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 October 2012 which require to be published by DTR 4.1 is set out on the following pages.

Baillie Gifford & Co

Company Secretaries

21 December 2012

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Investment Background and Outlook

At various points over the past year it has seemed that investor behaviour mirrored symptoms of schizophrenia, with sentiment swinging wildly depending on the latest economic release or interpretation of a government official's or central banker's comments. This has resulted in notable market turbulence across a wide range of asset classes and geographies. Most recently, investor despondency, evident in the summer, appears to have lightened following actions taken by central banks.

The European Central Bank has pledged to do what it can to avert an imminent break-up of the Eurozone through buying unlimited amounts of European government bonds and the US Federal Reserve has begun a further round of quantitative easing in an attempt to stimulate lending. Weakening economic data was in part a catalyst for the actions with central bankers trying to convince investors that they are intent on creating a backdrop that will heal economies and stimulate growth. If successful, this in turn will benefit emerging economies too, which, although in a much healthier position than their counterparts, have been affected by the global deceleration in trade.

Despite the rate of Chinese growth having slowed, it is far above levels witnessed in many western economies. The rebalancing of its economy, from infrastructure investment to consumer driven, is a sensible approach. The change in leadership has cast a shadow of uncertainty, although concerns that a hard economic landing may be imminent have abated recently.

Although Barack Obama has secured a second Presidential term in a hard fought victory over his Republican rival, it is likely that the US fiscal situation will occupy more column inches in coming months. Two issues are pending: the individual tax cuts that are due to expire on 31 December; and, the $600bln worth of spending cuts due to commence on 2 January. The progress of discussions on these will no-doubt ensure a resumption of market turbulence till the situation is resolved.

The uncertain macro outlook notwithstanding, many companies remain in rude health operationally, notably those exposed to themes such as transformational technologies or the growing wealth of Asian consumers. Being able to identify the companies best placed to take advantage of these is the Managers' key focus.

An overview is provided by the Managers below, while in the Annual Report there is a portfolio review which examines some of our individual holdings in more detail.

Performance

In the year to 31 October 2012, the Company's net asset value per share increased by 4.8% and the share price rose 6.3%. The MSCI All Countries World Index (in sterling terms) increased 6.2% during this period. The Company's discount ended the year at 12.1% having started it at 13.2%.

The volatility of markets does, and will continue to, have an impact on the Company's short term performance, as will the uncorrelated nature of the portfolio versus its comparative index and the particular time period over which performance is judged. 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, is expected to result in good returns for the long term shareholder.

Over the nine years that Baillie Gifford & Co has been managing the Company's assets, in total return terms, net asset value per share has increased by 113%, the share price by 138% and the MSCI All Countries World Index by 87%.

Gearing

The portfolio comprises holdings that are believed to have long term attractions, over at least five years, and typically will be geared to maximise potential returns. Equity gearing was maintained throughout the year and was 17% at the year end (2011: 14%).

The Company has a £29m fixed rate multi-currency facility with National Australia Bank which expires in September 2014. Borrowings are drawn in USD, EUR and GBP at an all in rate of 2.63%.

Earnings and Dividend

The net revenue return per share for the year was 2.50p (2011: 2.51p). The Company's objective is one of capital growth and any income received from the underlying holdings is subsidiary to this objective. 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.

The Board

The Honourable Kim Fraser retired from the Board on 31 October 2012. During his 14 year tenure he has made a notable contribution to Board discussions; his insights have been considered and appreciated by colleagues. Mr William Ducas has replaced him as the Senior Independent Director. As highlighted in my report last year, Mr Jake Leslie Melville retired from the Board on 31 December 2011. This means that the Board, following a period of renewal, is back to being five in number.

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 31 January 2013. 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 in the Annual Report.

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

David 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. One of the largest challenges for any investor seeking to have a long-term horizon is trying to separate what is short-term noise from those developments which might have a meaningful impact on the businesses we own. It certainly feels over the last twelve months that this task has been particularly acute - worries have been pronounced over the continued European debt crisis, the pace of Chinese growth accentuated by the recent political succession in that country, the US fiscal cliff especially in the context of a bipartisan Washington and most recently intra-Asian territorial disputes.

Of course, all of these are important issues but the connection with the businesses we own are at best obtuse and many appear to be unaffected by the macro gloom as they benefit from long-term secular shifts. Notably strong results amongst portfolio holdings have been seen over the last year from very diverse areas: Tencent in China, with spending on their social networks continuing to rise; Salesforce, where the take-up of cloud computing continues to accelerate; Hermès, whose profitability continues to rise on the back of record sales of their luxury goods; Inditex, where sales are continuing to accelerate as Zara's brand expands; and eBay, where not only has PayPal continued to grow rapidly but the core business appears to have been turned around.

A specific example of the battle being staged between strong bottom-up growth and top-down anxiety comes in our investment in Baidu. That company's growth seems to us much more dependent on the number of Chinese companies who move some of their advertising budget online rather than whether the economy grows at 7½% rather than 9%. As an aside, it is notable to us that such a growth rate is perceived by many to be a 'hard landing' for the Chinese economy. The company continues to grow very healthily, with growth over the last year of over 60% at both the top and bottom-lines, but in the short-term the market has decided the glass is half empty rather than half full.

In general, the majority of the companies in the portfolio have been performing very well at the operational level with many seeing sales and earnings growth of over 15% and some considerably faster than this. We believe patient investing in such businesses will be rewarded.

Whilst portfolio turnover has been quite low over the past year at 13% we continue to try to find new areas of future growth in which to invest. New holdings purchased during the period include: Burberry, where we feel the expanded market for luxury goods amongst non-western consumers is a long-term growth opportunity; Aggreko, which has a very strong position in the burgeoning market for temporary power; Rackspace, which is a leader in cloud hosting; Celltrion, which manufactures generic biotech drugs; and Shandong Weigao, which distributes medical consumables in China.

We have also taken a holding in Facebook - the shares fell dramatically after the IPO but we believe a myopic market is fundamentally misunderstanding the company's disruptive power and its opportunity to grow revenues significantly. Most recently, we have bought a holding in Stratasys, the leading player in the nascent industry of 3D printing - this technology is falling rapidly in price and allows a large degree of customisation which we think has radical applications in industries as diverse as healthcare and construction.

Sales were made of: ABB, where we worry that the competitive position is deteriorating and investments in power grids from fiscally-constrained western governments have proven slow; Gazprom, where the shale gas revolution potentially undermines the economics of its large gas reserves; CFAO, where Toyota Tsusho is taking the business private; Teva, where we worry that the strong historic growth rate of the generic drug business is slowing and management are diversifying; and First Solar, where we underestimated the power of Chinese competition.

We remain very excited about the prospects of the companies in the portfolio as evidenced by the level of gearing deployed. These are businesses which are enjoying secular growth opportunities from the many exciting changes occurring in how we and millions of newer consumers live their daily lives. Moreover the macro concerns discussed above mean that we are not being asked to pay very high valuations for companies which appear to us to have sustainable growth opportunities. More than ever, we feel that trying to differentiate ourselves from the prevailing herd and to think long and hard about the next five to ten years through the prism of individual companies should be a profitable way to invest.

Mark A. Urquhart

Baillie Gifford & Co

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE at 31 October 2012
Name	Business	Fair value 2012 £'000	% of total assets	Performance†		Fair value 2011 £'000
				Absolute %	Relative %
Equities
Apple	Computing and media equipment	14,258	7.7	47.8	35.2	9,680
Amazon.com	Online retailer	13,870	7.4	9.2	(0.1)	12,685
eBay	Internet auction and payments	9,472	5.1	51.7	38.7	7,340
Tencent	Chinese social network	9,085	4.9	50.7	37.8	6,018
PPR	Luxury brand conglomerate	8,068	4.3	14.5	4.7	6,319
Whole Foods Market	Organic food stores	7,746	4.2	32.4	21.0	6,717
Google	Web-based search engine	7,495	4.0	14.8	5.0	5,706
Intuitive Surgical	Robotic surgery	7,404	4.0	25.2	14.5	5,913
Baidu	Chinese online search engine	7,240	3.9	(23.8)	(30.3)	9,491
Inditex	Fashion retail	7,047	3.8	42.4	30.2	5,859
Atlas Copco	Industrial compressors and mining equipment	6,129	3.3	14.8	5.0	6,306
Salesforce.com	Software	6,059	3.2	9.6	0.2	4,767
Novozymes	Enzyme manufacturer	5,762	3.1	(7.5)	(15.4)	6,296
Hermès	Luxury goods	5,044	2.7	(18.5)	(25.4)	6,320
Vale (CVRD)	Mining	4,602	2.5	(20.8)	(27.6)	6,113
Illumina	Biotechnology equipment	4,577	2.5	58.4	44.9	2,129
Facebook	Social networking site	4,084	2.2	(44.7)*	(49.4)*	-
Housing Development Finance Corporation	Indian mortgage provider	3,633	1.9	2.2	(6.6)	3,620
L'Oréal	Personal care	3,572	1.9	16.7	6.7	3,116
Deere	Farm and construction machinery	3,429	1.8	15.1	5.2	4,690
Sandvik	Tools and mining equipment	3,296	1.8	2.6	(6.2)	3,308
Aggreko	Power equipment rental	2,803	1.5	24.6*	13.9*	-
BMW	Premium car manufacturer	2,613	1.4	(0.2)	(8.7)	2,698
Rackspace Hosting	Cloud computing and hosting	2,573	1.4	24.5*	13.8*	-
New Oriental Education and Technology	English-language schools	2,548	1.4	(41.8)	(46.8)	4,475
Belle International	Footwear - China	2,436	1.3	(5.5)	(13.6)	1,797
Burberry	Luxury fashion	2,395	1.3	(8.3)*	(16.1)*	-
Shandong Weigo	Chinese medical equipment	2,365	1.3	27.0*	16.1*	-
FLIR Systems	Infrared sensors	2,196	1.2	(25.2)	(31.6)	2,967
Stratasys	3D printing	2,193	1.2	14.6*	4.8*	-
Celltrion	Biopharmaceuticals	2,143	1.1	11.0*	1.5*	-
Seattle Genetics	Biotech cancer drugs	2,115	1.1	14.6	4.8	1,847
3SBio	Chinese generic drugs	1,896	1.0	16.7	6.7	1,632
Gree	Online gaming	1,732	0.9	(35.9)*	(41.4)*	-
Straumann	Dental implants	1,722	0.9	(29.0)	(35.0)	2,476
Hengdeli Holdings	Chinese watch retailer	1,715	0.9	(28.9)	(35.0)	2,482
Sanrio	Hello Kitty and Mr Men franchise owner	1,654	0.9	(13.3)*	(20.8)*	-
ALL America Latina Logistica	Brazilian railways	1,595	0.9	(8.8)	(16.6)	1,777
iRobot	Robots for domestic and military use	1,565	0.8	(46.8)	(51.4)	2,939
Ctrip.com	Travel agent - China	1,456	0.8	(42.5)	(47.4)	2,535
Noah Holdings	Chinese wealth manager	781	0.4	(41.7)	(46.7)	1,387
Vanceinfo	Chinese IT outsourcing	707	0.4	(34.2)	(39.9)	1,081
Total equities		183,075	98.3
Net liquid assets		3,134	1.7
Total assets at fair value (before deduction of loans)		186,209	100.0

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

2011 to 31 October 2012.   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.

 

 

DISTRIBUTION OF ASSETS

 

		At 31 October 2012              %				At 31 October 2011 %
Equities:
	USA	47.8			39.7
	China	16.3			17.2
	France	8.9			10.0
	Sweden	5.1			5.3
	Spain	3.8			3.3
	Brazil	3.4			4.4
	Denmark	3.1			3.5
	UK	2.8			-
	India	1.9			2.0
	Japan	1.8			-
	Germany	1.4			1.5
	South Korea	1.1			-
	Switzerland	0.9			3.4
	Russia	-			2.0
	Turkey	-			1.4
	Israel	-			1.3
Total equities		98.3			95.0
Net liquid assets		1.7			5.0
Total assets (before deduction of loan)		100.0			100.0

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 is 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 is 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:

	2012 £'000		2011 £'000
Investment management fee	1,076		1,133
Secretarial fee	78		74

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.

(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 Swiss franc decreased due to net sales of Swiss franc denominated equities; exposure to the Hong Kong dollar increased due to net purchases of Hong Kong dollar denominated equities.

At 31 October 2012	Investments £'000		Cash and deposits £'000		Loans £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	108,267		52		(10,149)		136		98,306
Euro	26,344		2,428		(9,169)		15		19,618
Swedish krona	9,425		-		-		-		9,425
Swiss franc	1,722		-		-		7		1,729
Danish krone	5,762		-		-		-		5,762
Hong Kong dollar	15,601		17		-		-		15,618
Other overseas currencies	10,756		-		-		20		10,776
Total exposure to currency risk	177,877		2,497		(19,318)		178		161,234
Sterling	5,198		860		(10,000)		(401)		(4,343)
	183,075		3,357		(29,318)		(223)		156,891

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

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.

Currency Risk Sensitivity

At 31 October 2012, 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 2011.

	2012 £'000		2011 £'000
US dollar	4,915		4,845
Euro	981		839
Swedish krona	471		481
Swiss franc	87		308
Danish krone	288		315
Hong Kong dollar	781		515
Other overseas currencies	539		397
	8,062		7,700

(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:

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	2012 £'000	2011 £'000
The interest rate risk profile of the Company's financial liabilities at 31 October was:
Fixed rate      - Sterling denominated	10,000	10,000
- US$ denominated	10,149	10,130
- Euro denominated	9,169	9,851
	29,318	29,981

The maturity profile of the Company's financial liabilities at 31 October was:
In more than one year, but not more than five years	29,318	29,981
	29,318	29,981

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 9 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 Managers. 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.

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.

116.7% (2011 - 114.1%) of the Company's net assets are invested in equities. A 10% increase in quoted equity valuations at 31 October 2012 would have increased total assets and total return on ordinary activities by £18,308,000 (2011 - £17,072,000). 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 12 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.

Credit Risk Exposure

The exposure to credit risk at 31 October was:

	2012 £'000	2011 £'000
Cash and short term deposits	3,357	9,122
Debtors and prepayments	235	209
	3,592	9,331

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 with the exception of long term borrowings which are stated at amortised cost in accordance with FRS26.

	2012	2012		2011	2011
	Book £'000	Fair* £'000		Book £'000	Fair* £'000
Fixed rate loan	29,318	29,918		29,981	30,531
Total long term borrowings	29,318	29,918		29,981	30,531

*The fair value of the bank loan is calculated with reference to government bonds of comparable yield and maturity.

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 disproportionate compliance burdens on the Company. 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. Covenant levels are reviewed regularly. 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 current 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

 10 December 2012

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

INCOME STATEMENT

	For the year ended 31 October 2012				For the year ended 31 October 2011
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments	-	7,680	7,680		-	(855)	(855)
Currency gains/(losses)	-	725	725		-	(1,344)	(1,344)
Income (note 2)	2,414	-	2,414		2,412	-	2,412
Investment management fee	(269)	(807)	(1,076)		(283)	(850)	(1,133)
Other administrative expenses	(479)	-	(479)		(498)	-	(498)
Net return before finance costs and taxation	1,666	7,598	9,264		1,631	(3,049)	(1,418)
Finance costs of borrowings	(197)	(592)	(789)		(158)	(475)	(633)
Net return on ordinary activities before taxation	1,469	7,006	8,475		1,473	(3,524)	(2,051)
Tax on ordinary activities	(244)	-	(244)		(242)	-	(242)
Net return on ordinary activities after taxation	1,225	7,006	8,231		1,231	(3,524)	(2,293)
Net return per ordinary share (note 3)	2.50p	14.30p	16.80p		2.51p	(7.19p)	(4.68p)

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 2012		At 31 October 2011
		£'000		£'000
FIXED ASSETS Investments held at fair value through profit or loss		183,075		170,715
CURRENT ASSETS
Debtors		235		209
Cash and short term deposits		3,357		9,122
		3,592		9,331
CREDITORS
Amounts falling due within one year		(458)		(425)
NET CURRENT ASSETS		3,134		8,906
TOTAL ASSETS LESS CURRENT LIABILITIES		186,209		179,621
CREDITORS
Amounts falling after more than one year (note 5)		(29,318)		(29,981)
TOTAL NET ASSETS		156,891		149,640
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		34,266		27,260
Revenue reserve		2,775		2,530
SHAREHOLDERS' FUNDS		156,891		149,640
NET ASSET VALUE PER ORDINARY SHARE		318.93p		304.24p
(after deducting borrowings at fair value)
NET ASSET VALUE PER ORDINARY SHARE		320.16p		305.36p
(after deducting borrowings at par)
ORDINARY SHARES IN ISSUE		49,004,319		49,004,319

 

 

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 October 2012

	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 2011	2,450	82,180	35,220	27,260	2,530	149,640
Net return on ordinary activities after taxation	-	-	-	7,006	1,225	8,231
Dividends paid during the year (note 4)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2012	2,450	82,180	35,220	34,266	2,775	156,891

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 4)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2011	2,450	82,180	35,220	27,260	2,530	149,640

*The capital reserve balance at 31 October 2012 includes investment holding gains of £59,300,000 (2011 - gains of £49,283,000).

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

 

CASH FLOW STATEMENT
	For the year ended 31 October 2012			For the year ended 31 October 2011
	£'000	£'000		£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 8)		868			864
SERVICING OF FINANCE
Interest paid	(787)			(589)
NET CASH OUTFLOW FROM SERVICING OF FINANCE		(787)			(589)
TAXATION
Overseas tax incurred	(248)			(253)
TOTAL TAX PAID		(248)			(253)
FINANCIAL INVESTMENT
Acquisitions of investments	(27,653)			(44,650)
Disposals of investments	22,973			46,843
Realised currency gain/(loss)	62			(23)
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT		(4,618)			2,170
EQUITY DIVIDENDS PAID (note 4)		(980)			(980)
FINANCING
Bank loans repaid	-			(235,952)
Bank loans drawn down	-			239,809
NET CASH INFLOW FROM FINANCING		-			3,857
(DECREASE)/INCREASE IN CASH		(5,765)			5,069
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period		(5,765)			5,069
Net cash inflow from bank loans		-			(3,857)
Exchange movement on bank loans		663			(1,321)
MOVEMENT IN NET DEBT IN THE YEAR		(5,102)			(109)
NET DEBT AT 1 NOVEMBER		(20,859)			(20,750)
NET DEBT AT 31 OCTOBER		(25,961)			(20,859)

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES

1.	The financial statements for the year to 31 October 2012 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 October 2011. 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 2012 £'000							31 October  2011  £'000
2.      2	Income
	Income from investments				2,398							2,356
	Deposit interest				16							56
					2,414							2,412
					31 October 2012 £'000							31 October 2011  £'000
3.	Net return per ordinary share
	Revenue return				2.50p							2.51p
	Capital return				14.30p							(7.19p)
	Total return				16.80p							(4.68p)
	Revenue return per ordinary share is based on the net return on ordinary activities after taxation of £1,225,000 (2011 - £1,231,000) 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 £7,006,000 (2011 - loss of £3,524,000) 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.
				2012				2011			2012 £'000				2011 £'000
4.		Ordinary Dividends
		Amounts recognised as distributions in the period:
		Previous year's final (paid 8 February 2012)		1.50p				1.50p			735				735
		Interim (paid 19 July 2012)		0.50p				0.50p			245				245
				2.00p				2.00p			980				980
		We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered.  The revenue available for distribution by way of dividend for the year is £1,225,000 (2011 - £1,231,000).
			2012					2011			2012 £'000				2011 £'000
		Ordinary Dividends
		Dividends paid and payable in respect of the year:
		Interim dividend per ordinary share (paid 19 July 2012)	0.50p					0.50p			245				245
		Proposed final dividend per ordinary share (payable 6 February 2013)	1.50p					1.50p			735				735
			2.00p					2.00p			980				980
		If approved the final dividend will be paid on 6 February 2013 to all shareholders on the register at the close of business on 11 January 2013.  The ex-dividend date is 9 January 2013. 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 18 January 2013.
5.		The fixed rate facility with National Australia Bank Limited for €11.4m, US$16.35m and £10.0m expires on 30 September 2014.
6.		The Company incurred transaction costs on purchases of £43,000 (2011 - £61,000) and on sales of £13,000 (2011 - £43,000).
7.		At the Annual General Meeting on 2 February 2012 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 2012 or 2011.  At 31 October 2012 the Company had authority to buy back 7,345,747 ordinary shares.
8.		Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities				2012 £'000							2011 £'000
		Net return on ordinary activities before finance costs and taxation				9,264							(1,418)
		(Gains)/losses on investments				(7,680)							855
		Currency (gains)/losses				(725)							1,344
		(Increase)/decrease in accrued income				(8)							22
		(Increase)/decrease in debtors				(14)							94
		Increase/(decrease) in creditors				31							(33)
		Net cash inflow from operating activities				868							864
10.		The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2012.  The financial information for 2011 is derived from the financial statements for 2011 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2011 and 2012 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 2012 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at 12 noon on Thursday 31 January 2013.
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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