Annual Financial Report

Edinburgh Worldwide Inv Trust PLC

02 February 2024

 

Edinburgh Worldwide Investment Trust plc ('EWI')

Legal Entity Identifier: 213800JUA8RKIDDLH380

Regulated Information Classification: Annual Financial and Audit Reports

Annual Report and Financial Statements

Further to the preliminary statement of audited annual results announced to the Stock Exchange on 18 January 2024, Edinburgh Worldwide Investment Trust plc ("the Company") announces that the Company's Annual Report and Financial Statements for the year ended 31 October 2023, including the Notice of Annual General Meeting, has been posted to shareholders and submitted electronically to the National Storage Mechanism where it will shortly be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism

It is also available on the Company page of the Baillie Gifford website at edinburghworldwide.co.uk (as is the preliminary statement of audited annual results announced by the Company on 18 January 2024).

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

Each of the Directors, who were in office at the date of approval of the Financial Statements, confirm that, to the best of their knowledge:

¾    the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom  Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾    the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

¾    the Strategic 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 (as also set out below).

Principal and Emerging Risks relating to the Company

As explained on pages 74 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks, including emerging risks, faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. There have been some changes to the principal risks during the year reflecting the volatility of markets, economic conditions and heightened geopolitical tensions which have increased risk levels in some key areas. A description of these risks and how they are being managed or mitigated is set out below.

What is the risk?	How is it managed?		Current assessment of risk
Investment Strategy Risk: Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value.	To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its absolute and relative performance; the level of discount/premium to net asset value at which the shares trade; and movements in the share register and raises any matters of concern with the Managers.		The risk is increasing as the markets appetite for growth stocks, typically held by the Company, has decreased during the recent period of heightened macroeconomic and geopolitical concern.
What is the risk?	How is it managed?		Current assessment of risk
Financial Risk: The Company's assets are listed and unlisted securities and its principal and emerging financial risks therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 17 to the Financial Statements on pages 110 to 116.	The Board has, in particular, considered the impact of heightened market volatility during recent months due to macroeconomic factors such as higher inflation and interest rates and geopolitical concerns. In order to oversee this risk the Board considers at each meeting various metrics including the composition and diversification of the portfolio by geographies, sectors and capitalisation, along with the sales and purchases of investments. Individual investments are discussed with the portfolio manager together with general views on the various investment markets and sectors. A strategy meeting is held annually.		This risk is seen as increasing due to increased market volatility as a result of heightened macroeconomic and geopolitical concerns.
What is the risk?	How is it managed?		Current assessment of risk
Smaller Company Risk: The Company has investments in smaller, immature companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller, immature companies may do less well in periods of unfavourable economic conditions.	To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the merits and characteristics of individual investments with the Managers. A spread of risk is achieved by holding stocks classified across at least fifteen industries and six countries.		Due to increased market volatility resulting from macroeconomic factors, share prices may be subject to greater volatility. Smaller companies have been more significantly affected by macro economic factors and market sentiment.
What is the risk?	How is it managed?		Current assessment of risk
Private Company (Unlisted Investments Risk: The Company's risk is increased by its investment in private company securities. These investments may be more difficult to buy or sell, assessment of their value is more subjective than for investments listed on a recognised stock exchange and their valuations may be perceived to be more volatile or out of date.	To mitigate this risk, the Board considers the private company securities in the context of the overall investment strategy and provides guidance to the Managers on the maximum exposure to unlisted investments. Valuations of private companies are carried out on a frequent basis by the manager and updated regularly for identified changes in operational developments or recent transactions in shares. The Board reviews the valuations in detail which are carried out by a third party valuation specialist, subject to the Managers' private company valuation specialist input and is also subject to external audit scrutiny annually.		Private company investment valuation risk increases in volatile markets and the more difficult fundraising environment and IPO conditions increase overall investment risk conditions for private companies.
What is the risk?	How is it managed?		Current assessment of risk
Discount Risk: The discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company.	The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares or issue shares (including authority to sell shares held in treasury), when deemed by the Board to be in the best interests of the Company and its shareholders.		The Company's discount widened during the year. The Company has been buying back shares for treasury throughout the financial year 2023.
What is the risk?	How is it managed?		Current assessment of risk
Political and Associated Economic Risk: The Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company.	Political developments are closely monitored and considered by the Board. It monitors portfolio diversification by investee companies' primary location and considers the potential for negative impacts arising from military action, trade barriers or other political factors.		This risk is increasing as governments and consumers around the world continue to assess the impact of heightened geopolitical tensions and conflicts as well as volatile macroeconomic conditions.
What is the risk?	How is it managed?		Current assessment of risk
Climate and Governance Risk: Perceived problems on environmental, social and governance ('ESG') matters in an investee company could lead to that company's shares being less attractive to investors, adversely affecting its share price, in addition to potential valuation issues arising from any direct impact of the failure to address the ESG weakness on the operations or management of the investee company (for example in the event of an industrial accident of spillage). Repeated failure by the Managers to identify ESG weaknesses in investee companies could lead to the Company's own shares being less attractive to investors, adversely affecting its own share price.	This is mitigated by the Investment Manager's ESG stewardship and engagement policies application, which is integrated into the investment process which includes the risk inherent in climate change (see page 57 of the Annual Report and Financial Statements) and discussed regularly by the Board and with the Managers. Further details of the Managers' approach are set out on pages 36 and 37 of the Annual Report and Financial Statements and are also on the Managers' website bailliegifford.com/esg. The Directors have considered the impact of climate change on the Financial Statements of the Company and this is included in note 1a to the Financial Statements on page 98 of the Annual Report and Financial Statements.		The Investment Manager continues to employ strong ESG stewardship and engagement policies.
What is the risk?	How is it managed?		Current assessment of risk
Regulatory Risk: Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the FCA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. Changes to the regulatory environment could negatively impact the Company.	To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit 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. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information.		All control procedures are working effectively. There have been no material regulatory changes that have impacted the Company during the year.
What is the risk?	How is it managed?		Current assessment of risk
Custody and Depositary Risk: Safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security.	To mitigate this risk, the Audit and Management Engagement Committee receives six monthly reports from the depositary confirming safe custody of the Company's assets held by the custodian. Cash and portfolio holdings are independently reconciled to the custodian's records by the Managers who also agree uncertificated unlisted portfolio holdings to confirmations from investee companies. In addition, the existence of assets is subject to annual external audit and the custodian's assured internal controls reports are reviewed by Baillie Gifford's business risk department and a summary of the key points is reported to the Audit and Management Engagement Committee and any concerns investigated.		All control procedures are working effectively.
What is the risk?	How is it managed?		Current assessment of risk
Operational Risk: Failure of Baillie Gifford's 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.	To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Audit and Management Engagement Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board and a summary of the key points is reported to the Audit and Management Engagement Committee and any concerns investigated. The other key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company.		All control procedures are working effectively.
What is the risk?	How is it managed?		Current assessment of risk
Leverage Risk: The Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). 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.	To mitigate this risk. all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. Details of the Company's current borrowing facilities and drawings can be found in note 10 on page 107 of the Annual Report and Financial Statements. The majority of the Company's investments are in quoted securities that are readily realizable. Further information on leverage can be found on page 116 of the Annual Report and Financial Statements and in the Glossary of terms and Alternative Performance Measures on pages 130 to 132 of the Annual Report and Financial Statements.		No significant change in risk level. The Company continues to deploy gearing and has two revolving credit facility loans in place which expire in 2024 and 2026.
What is the risk?	How is it managed?		Current assessment of risk
Cyber Security Risk:  A cyber attack on Baillie Gifford's network or that of a third party service provider could impact the confidentiality, integrity or availability of data and systems.	To mitigate this risk, the Audit and Management Engagement Committee review reports on Internal Controls published by Baillie Gifford and other third party service providers. Baillie Gifford's Business Risk Department reports to the Audit and Management Engagement Committee on the effectiveness of information security controls in place at Baillie Gifford and its business continuity framework. Cyber security due diligence is performed by Baillie Gifford on third party service providers which includes a review of crisis management and business continuity frameworks.		This risk is seen as Increasing due to recent indications that the continuation of geopolitical tensions could lead to cyber attacks. Emerging technologies, including AI, could potentially increase information security risks. In addition, service providers operate a hybrid approach of remote and office working, thereby increasing the potential of a cyber security threat.
Emerging risks
As explained on page 74 of the Annual Report and Financial Statements, the Board has regular discussions on principal risks and uncertainties, including any risks which are not an immediate threat but could arise in the longer term.

Increasing risk      Decreasing risk    No change

Baillie Gifford & Co Limited

Company Secretaries

2 February 2024

 

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