Half Yearly Report

RNS Number : 7173G

Edinburgh Worldwide Inv Trust PLC

11 June 2013

 



RNS Announcement

Edinburgh Worldwide Investment Trust plc

Results for the six months to 30 April 2013

Over the six month period the Company's net asset value (NAV) per share, cum income with debt at fair value, increased by 11.8% while the MSCI All Countries World Index (in sterling terms) increased by 16.2%. The share price increased by 14.1%.

¾ Markets have been cheered by factors including the stepping back from the US fiscal cliff, improving global economic growth, encouraging rhetoric from the Chinese Politburo, a decisive Japanese election and signs of normalisation in the Eurozone.

¾ Many businesses continue to do well operationally albeit there is a large dichotomy between the winners and losers.

¾ New ways of accessing the internet are increasing growth rates and mobile looks likely to become a serious revenue generator for many of the Company's holdings.

¾ Revenue earnings per share were 0.86p (six months to 30 April 2012: 0.71p) and the interim dividend is unchanged at 0.50p.

Past performance is not a guide to future performance.

Edinburgh Worldwide aims to achieve long term capital growth by investing in listed companies throughout the world. The Company has total assets of £205.3 million (before deduction of loans of £30.1 million) as at 30 April 2013.

Edinburgh Worldwide is managed by Baillie Gifford & Co, the Edinburgh based fund management group with around £93 billion under management and advice as at 10 June 2013.

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

11 June 2013

For further information please contact:

Mark Urquhart, Manager, Edinburgh Worldwide Investment Trust plc

Tel: [phone]

Anzelm Cydzik, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Broadgate Mainland

Tel: [phone]

The following is the unaudited Half-Yearly Financial Report for the six months to 30 April 2013.

Responsibility statement

We confirm that to the best of our knowledge:

A. the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

B. the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements and a description of principal risks and uncertainties for the remaining six months of the year); and

C. the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

David HL Reid

Chairman

10 June 2013

Half-yearly management report

The aim of the Managers of Edinburgh Worldwide is to run a concentrated portfolio of companies with good growth prospects for the long term. Over the period from 31 October 2012 to 30 April 2013, the Company's net asset value per share rose by 11.8%, which compares to a 16.2% increase in the MSCI All Countries World Index over the same period. The share price over the six months rose by 14.1% to 320.0p representing a discount of 10.2% to the net asset value at 30 April 2013, narrower than the discount of 12.1% at the beginning of the period. Whilst we are pleased with the direction of returns, it is disappointing to be behind the comparative index over this short period, although we judge ourselves over longer periods of time. The Directors have declared an interim dividend of 0.50p per share, unchanged from last year. The interim dividend will be paid on 18 July 2013 to shareholders on the register on 21 June 2013. The final dividend was 1.50p last year and the Directors will consider this year's final payment over the remainder of the financial year.

Quite what has cheered markets so much is, as ever, hard to isolate but contributory factors probably include the stepping back from the US fiscal cliff at just past the twelfth hour; improving global economic growth figures; encouraging rhetoric on growth from the new Chinese Politburo; a decisive Japanese election which has led to explicit inflation targeting; ongoing Quantitative Easing; and signs of normalisation in the Eurozone. Allied to this, from an equity point of view, are the extreme valuations in bond markets and very high levels of cash. These imply that any upturn in optimism appears to be magnified in price moves, which possibly offers some explanation as to why some of the largest moves in markets have come in what are typically seen as more defensive sectors.

More important than all these macro prognostications, the fact remains that many businesses continue to do very well operationally albeit that there is a large dichotomy between the winners and losers of change as the litany of UK retailers throwing in the towel post Christmas 2012 has reminded us (Jessops, Comet, HMV). Some operational highlights from amongst the portfolio's holdings include: Salesforce reporting that the size of its contracts continues to increase and margins continue to move up nicely despite the pace of the company's growth; Hermès' operating margin hitting its highest level, in the twenty years since the company listed in 1993, as sales in Asia grew 25%; HDFC navigating another Indian credit cycle skilfully; and Google seeing its 2012 revenues top $50bn as mobile search explodes. New ways of accessing the internet are increasing growth rates. Mobile was also a feature for eBay: 17% of its gross merchandise volume now comes from mobile, a figure that grew 160% year-on-year, whilst Google saw spending on YouTube by its top 100 advertisers grow by 50%. Mobile looks likely to become a serious revenue generator for many of our holdings. Some businesses, such as Baidu and Facebook, have been performing well operationally but have seen sogginess in their share prices in the short term.

Portfolio Activity

In terms of transactions, four new holdings have been bought over the last six months. These include: ARM - the UK-based chip designer which is benefitting from the explosion in smartphones and other devices connected to the internet; and, Lululemon - an upmarket Canadian sportswear brand which we think can replicate its North American success overseas. We have also taken new holdings in TripAdvisor and LinkedIn. We think the former has carved out a very strong network in the travel review market and has many affluent users very close to the point of purchase whilst LinkedIn has become the dominant network for professional contacts, has an opportunity to disrupt markets such as recruitment and offers advertisers targeted access to diverse groups ranging from nurses to engineers. One obvious concern might be that both of these are additional 'internet' businesses, in the sense that they operate through the desktop PC or smartphones/tablets. However, the pools of profits they are going for are very 'old economy', in the form of travel and recruitment, and as such we see them as different from existing holdings.

These new buys were funded by sales of: Vale (CVRD) - a long-time holding which we had already reduced as we think the next ten years for mining companies will not be as lucrative as the last decade; the small holding in Chinese healthcare company, Shandong Weigao, after some further research uncovered business practices with which we are uncomfortable; America Latina Logistica where we feel Brazilian politics has moved against companies in terms of likely future returns; and Straumann, where dental implants have proven more economically sensitive than we had predicted.

Outlook

We are excited by the prospects of the companies held in the portfolio. Many of the changes which are occurring in the world, in terms of how consumers and businesses conduct their affairs, seem truly seismic in proportion - just as the spread of the railways in the nineteenth century allowed huge changes in travel and distribution possibilities. It is our belief that current technology shifts such as ubiquitous mobility and ever faster speeds are creating new opportunities in how to conduct almost every business. At the end of April the portfolio had gearing of 14.4% which reflected our enthusiasm for the growth prospects created by these changes.

Management Fee

With effect from 1 April 2013 the annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated quarterly. Under the new arrangement there is no separate performance fee or secretarial fee. Further information is available in note 3.

The principal risks and uncertainties facing the Company are set out on in note 10.

By order of the Board

Baillie Gifford & Co

10 June 2013

Past performance is not a guide to future performance.

Income statement (unaudited)

	For the six months ended 30 April 2013			For the six months ended 30 April 2012			For the year ended 31 October 2012
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on sales of investments	-	1,120	1,120	-	(3,728)	(3,728)	-	(2,337)	(2,337)
Movements in investment holding gains	-	18,952	18,952	-	14,571	14,571	-	10,017	10,017
Currency (losses)/gains	-	(732)	(732)	-	594	594	-	725	725
Income from investments and interest receivable	1,024	-	1,024	923	-	923	2,414	-	2,414
Investment management fee (note 3)	(156)	(469)	(625)	(135)	(405)	(540)	(269)	(807)	(1,076)
Other administrative expenses	(231)	-	(231)	(249)	-	(249)	(479)	-	(479)
Net return before finance costs and taxation	637	18,871	19,508	539	11,032	11,571	1,666	7,598	9,264
Finance costs of borrowings	(99)	(297)	(396)	(99)	(297)	(396)	(197)	(592)	(789)
Net return on ordinary activities before taxation	538	18,574	19,112	440	10,735	11,175	1,469	7,006	8,475
Tax on ordinary activities	(114)	-	(114)	(91)	-	(91)	(244)	-	(244)
Net return on ordinary activities after taxation	424	18,574	18,998	349	10,735	11,084	1,225	7,006	8,231
Net return per ordinary share (note 4)	0.86p	37.90p	38.76p	0.71p	21.91p	22.62p	2.50p	14.30p	16.80p
Dividends paid and proposed per ordinary share (note 5)	0.50p			0.50p			2.00p

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

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

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.

Balance sheet (unaudited)

	At 30 April 2013 £'000	At 30 April 2012 £'000	At 31 October 2012 £'000
Fixed assets
Investments held at fair value through profit or loss	199,931	184,148	183,075
Current assets
Debtors	622	587	235
Cash and short term deposits	4,984	5,059	3,357
	5,606	5,646	3,592
Creditors
Amounts falling due within one year	(222)	(445)	(458)
Net current assets	5,384	5,201	3,134
Total assets less current liabilities	205,315	189,349	186,209
Creditors
Amounts falling due after more than one year (note 6)	(30,161)	(29,360)	(29,318)
Total net assets	175,154	159,989	156,891
Capital and reserves
Called up share capital	2,450	2,450	2,450
Share premium	82,180	82,180	82,180
Special reserve	35,220	35,220	35,220
Capital reserve	52,840	37,995	34,266
Revenue reserve	2,464	2,144	2,775
Shareholders' funds	175,154	159,989	156,891
Net asset value per ordinary share (after deducting borrowings at fair value) (note 6)	356.4p	325.1p	318.9p
Net asset value per ordinary share (after deducting borrowings at par)	357.4p	326.5p	320.2p
Ordinary shares in issue (note 7)	49,004,319	49,004,319	49,004,319

Reconciliation of movements in shareholders' funds (unaudited)

For the six months ended 30 April 2013

	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 2012	2,450	82,180	35,220	34,266	2,775	156,891
Net return on ordinary activities after taxation	-	-	-	18,574	424	18,998
Dividends paid during the period (note 5)	-	-	-	-	(735)	(735)
Shareholders' funds at 30 April 2013	2,450	82,180	35,220	52,840	2,464	175,154

For the six months ended 30 April 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	-	-	-	10,735	349	11,084
Dividends paid during the period (note 5)	-	-	-	-	(735)	(735)
Shareholders' funds at 30 April 2012	2,450	82,180	35,220	37,995	2,144	159,989

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 5)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2012	2,450	82,180	35,220	34,266	2,775	156,891

*      The Capital reserve as at 30 April 2013 includes investment holding gains of £78,253,000 (30 April 2012 - gains of £63,855,000 and 31 October 2012 - gains of £59,300,000).

Condensed cash flow statement (unaudited)

	Six months to 30 April 2013 £'000	Six months to  30 April 2012 £'000	Year to 31 October 2012 £'000
Net cash (outflow)/inflow from operating activities	(264)	(253)	868
Net cash outflow from servicing of finance	(394)	(398)	(787)
Total tax paid	(110)	(61)	(248)
Net cash inflow/(outflow) from financial investment	3,130	(2,616)	(4,618)
Equity dividends paid (note 5)	(735)	(735)	(980)
Increase/(decrease) in cash	1,627	(4,063)	(5,765)
Reconciliation of net cash inflow/(outflow) to movement in net debt
Increase/(decrease) in cash in the period	1,627	(4,063)	(5,765)
Exchange movement on bank loans	(843)	621	663
Movement in net debt in the period	784	(3,442)	(5,102)
Net debt at start of the period	(25,961)	(20,859)	(20,859)
Net debt at end of the period	(25,177)	(24,301)	(25,961)
Reconciliation of net return before finance costs and taxation to net cash (outflow)/inflow from operating activities
Net return before finance costs and taxation	19,508	11,571	9,264
Gains on investments	(20,072)	(10,843)	(7,680)
Currency losses/(gains)	732	(594)	(725)
Changes in debtors and creditors	(432)	(387)	9
Net cash (outflow)/inflow from operating activities	(264)	(253)	868

Portfolio and equity performance at 30 April 2013 (unaudited)

Name	Business	Value £'000	% of total assets	Performance†
				Absolute %	Relative %
Amazon.com	Online retailer	15,638	7.6	12.8	(4.2)
Apple	Computing and media equipment	10,979	5.4	(22.3)	(34.0)
PPR	Luxury brand conglomerate	10,461	5.1	30.7	11.0
Google	Web-based search engine	9,403	4.6	25.6	6.6
Tencent	Chinese social network	9,117	4.4	0.4	(14.7)
eBay	Internet auction & payments	8,174	4.0	12.4	(4.6)
Inditex	Fashion retail	7,656	3.7	10.0	(6.6)
Whole Foods Market	Organic food stores	7,475	3.6	(1.3)	(16.2)
Illumina	Biotechnology equipment	7,219	3.5	40.9	19.6
Salesforce	Software	7,066	3.4	16.6	(1.0)
Intuitive Surgical	Robotic surgery	6,959	3.4	(6.0)	(20.2)
Novozymes	Enzyme manufacturer	6,475	3.2	30.9	11.1
Hermès	Luxury goods	6,460	3.2	28.7	9.3
Baidu	Chinese online search engine	6,034	2.9	(16.7)	(29.2)
Atlas Copco	Industrial compressors and mining equipment	5,814	2.8	14.1	(3.1)
Facebook	Social networking site	5,559	2.7	36.1	15.6
L'Oréal	Personal care	4,258	2.1	45.4	23.5
Housing Development     Finance Corporation	Indian mortgage provider	4,175	2.0	14.9	(2.4)
LinkedIn Corp	Business related social networking site	4,104	2.0	70.3*	54.9*
Lululemon Athletica	Athletics clothing	4,023	2.0	9.7*	7.3*
Rackspace Hosting	Cloud computing	3,856	1.9	(22.2)	(34.0)
Aggreko	Power equipment rental	3,847	1.9	(16.3)	(29.0)
TripAdvisor	Travel advice website	3,733	1.8	24.4*	12.8*
Deere	Farm and construction machinery	3,708	1.8	9.2	(7.3)
Seattle Genetics	Biotech cancer drugs	3,216	1.6	52.0	29.1
BMW	Premium car manufacturer	3,135	1.5	20.0	1.9
New Oriental Education and     Technology	English-language schools	2,992	1.5	17.5	(0.3)
Stratasys	3D printing	2,828	1.4	28.9	9.5
Burberry	Luxury Fashion	2,742	1.3	15.3	(2.1)
Sandvik	Tools and mining equipment	2,738	1.3	9.7	(6.8)
ARM Holdings	Semiconductors and software design	2,669	1.3	41.2*	19.0*
iRobot	Robots for domestic and military use	2,621	1.3	67.6	42.3
Sanrio	Hello Kitty and Mr Men franchise owner	2,610	1.3	57.8	34.0
3SBio	Chinese generic drugs	2,426	1.2	27.4	8.2
FLIR Systems	Infrared sensors	2,296	1.1	30.3	10.6
Belle International	Footwear - China	2,207	1.1	(9.4)	(23.0)
Ctrip	Travel agent - China	1,657	0.8	13.7	(3.5)
Gree	Online gaming	1,643	0.8	(24.0)	(35.5)
Celltrion	Biopharmaceuticals	1,487	0.7	(30.7)	(41.2)
Tesla Motors	Premium electric vehicles	471	0.2	11.2*	9.3*
Total equities		199,931	97.4
Net liquid assets		5,384	2.6
Total assets at fair value (before deduction of loans)		205,315	100.0

†      Absolute and relative performance has been calculated on a total return basis over the period 1 November 2012 to 30 April 2013. Absolute performance is in sterling terms; relative performance is against MSCI All Countries World Index (in sterling terms).

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

Source: Baillie Gifford & Co, StatPro.

Distribution of assets (unaudited)

		30 April 2013 %		31 October 2012 %
Equities:	Information Technology	37.7		36.1
	Consumer Discretionary	30.6		27.0
	Health Care	10.4		11.9
	Industrials	7.8		9.3
	Consumer Staples	5.7		6.1
	Materials	3.2		5.6
	Financials	2.0		2.3
Total equities		97.4		98.3
Net liquid assets		2.6		1.7
Total assets (before deduction of bank loans)		100.0		100.0

		30 April 2013 %		31 October 2012 %
Equities:	USA	53.3		47.8
	China	11.9		16.3
	France	10.4		8.9
	UK	4.5		2.8
	Sweden	4.1		5.1
	Spain	3.7		3.8
	Denmark	3.2		3.1
	Japan	2.1		1.8
	India	2.0		1.9
	Germany	1.5		1.4
	South Korea	0.7		1.1
	Brazil	-		3.4
	Switzerland	-		0.9
Total equities		97.4		98.3
Net liquid assets		2.6		1.7
Total assets (before deduction of bank loans)		100.0		100.0

Notes to the condensed financial statements (unaudited)

1.	The condensed financial statements have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 October 2012 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. 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.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 October 2012 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on those accounts was not qualified and did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are appointed as Managers and Secretaries. The management agreement is terminable on not less than three months' notice. With effect from 1 April 2013 the annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated quarterly. The fee previously was 0.8% per annum of the market value of the Company's shares, calculated quarterly, plus a performance fee. No performance fee was payable for the period to 31 March 2013 and none is payable under the new arrangements. Until 31 March 2013, the Company paid a secretarial fee to Baillie Gifford which was adjusted annually in line with the Retail Price Index. The secretarial fee for the five months to 31 March 2013 was £34,000 (six months to 30 April 2012 - £39,000; year to 31 October 2012 - £78,000).
4.	Net return per ordinary share	Six months to 30 April 2013 £'000	Six months to 30 April 2012 £'000	Year to 31 October 2012 £'000
	Revenue return on ordinary activities after taxation	424	349	1,225
	Capital return on ordinary activities after taxation	18,574	10,735	7,006
	Total return	18,998	11,084	8,231
	Net return per ordinary share is based on the above totals of revenue and capital and on 49,004,319 ordinary shares, being the number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.

Notes to the condensed financial statements (unaudited) (ctd)

5.	Dividends Amounts recognised as distributions in the period:	Six months to 30 April 2013 £'000	Six months to 30 April 2012 £'000	Year to 31 October 2012 £'000
	Previous year's final dividend of 1.50p (2011 - 1.50p), paid 6 February 2013	735	735	735
	Interim dividend for the year ended 31 October 2012 paid 19 July 2012	-	-	245
		735	735	980
	Paid and proposed in respect of the financial period:
	Interim dividend for the year ending 31 October 2013 of 0.50p (2012 - 0.50p)	245	245	245
	Final dividend (31 October 2012 - 1.50p)	-	-	735
		245	245	980
	The interim dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 18 July 2013 to shareholders on the register at the close of business on 21 June 2013. The ex-dividend date is 19 June 2013. The registrars offer a dividend reinvestment plan. The final date for the receipt of elections for the dividend reinvestment plan is 27 June 2013.
6.	Creditors include borrowings of £30,161,000 (30 April 2012 - £29,360,000; 31 October 2012 - £29,318,000) drawn down under a three year fixed rate loan facility expiring on 30 September 2014 in loans of €11.4m, US$16.35m and £10.0m (30 April 2012 - same; 31 October 2012 - same). The fair value of the bank loans at 30 April 2013 was £30,647,000 (30 April 2012 - £30,046,000; 31 October 2012 - £29,918,000).
7.	The Company has authority to buy back its ordinary shares. In the six months to 30 April 2013 no ordinary shares were bought back therefore the Company's authority remains unchanged at 7,345,747 ordinary shares.
8.	During the period the Company incurred transaction costs on purchases of investments of £27,000 (30 April 2012 - £35,000; 31 October 2012 - £43,000) and transaction costs on sales of £21,000 (30 April 2012 - £7,000; 31 October 2012 - £13,000).
9.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Notes to the condensed financial statements (unaudited) (ctd)

10.

Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 19 of the Company's Annual Report and Financial Statements for the year to 31 October 2012. The principal risks and uncertainties have not changed since the publication of the Annual Report which can be obtained free of charge from Baillie Gifford & Co: www.bailliegifford.com‡ and is available on the Edinburgh Worldwide page of the Managers' website: www.edinburghworldwide.co.uk‡. Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of the UKLA Listing Rules could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss), the risk that the discount can widen and gearing risk (the use of borrowing can magnify the impact of falling markets). Further information can be found on page 16 of the Annual Report.

11.

The Half-Yearly Financial Report will be available on www.edinburghworldwide.co.uk‡ and will be posted to shareholders on or around 19 June 2013.

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

- Ends -

 

END

 

 

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