Annual Financial Report

RNS Number : 4323Y

Edinburgh Worldwide Inv Trust PLC

22 December 2010

 

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

A copy of the Annual Report and Financial Statements for the year ended 31 October 2010 of Edinburgh Worldwide Investment Trust plc has been submitted electronically to the National Storage Mechanism (which replaced the UKLA's Document Viewing Facility on 1 September 2010) 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 2010 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/85328_Edinburgh_Worldwide_Investment_Trust_Annual_Report_and_Financial_Statements_October_2010.pdf

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 October 2010 which require to be published by DTR 4.1 is set out on the following pages.

Baillie Gifford & Co

Company Secretaries

22 December 2010

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Performance

In the year to 31 October 2010 net asset value per share increased by 21.5% and the share price by 24.6%. The MSCI All Countries World Index (in sterling terms), rose by 15.3% during this period. Equity gearing was maintained throughout the year and was 13.6% at the year end. The Company's discount ended the year at 11.9% having started it at 14.0%.

The strategy continues to be for the Managers to select shares on a global basis, unconstrained by any requirement to match an index, with a concentrated portfolio of approximately 40 equity holdings. The portfolio is comprised of holdings that are believed to have long term attractions, typically over at least five years, and will be geared to maximise the potential returns. Over the seven years that Baillie Gifford & Co has been managing the Company's assets, in total return terms, net asset value per share has increased by 105.5%, the share price by 129.6% and the MSCI All Countries World Index by 71.0%.

Performance Fee

Having outperformed the MSCI All Countries World Index this year and last, the underperformance of two year's ago has been recouped and the relative high water mark passed. Therefore, a performance fee is due to the Managers for the first time in three years. Details of the fee arrangements are shown on page 31 of the Annual Report and Financial Statements.

Earnings and Dividend

The Company's objective remains that of capital growth and any income received from the underlying holdings is subsidiary to this objective. The net revenue return for the year was 1.86p (2009: 3.71p) down 49.9%. As highlighted in last year's report, there was doubt as to whether the high level of income received in 2009 would be maintained; this has proved to be the case. The reduction in revenue return is due to a lower level of dividends received from the Company's underlying holdings and the maturing of the Bay Haven bond. An unchanged final dividend of 1.50p is being recommended, making the total for the year 2.00p. Last year's total dividend of 3.00p included a special dividend of 1.00p due to the high level of income in that year.

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 Background and Outlook

Although markets in aggregate are higher than a year ago, the climb has not been smooth, with notable periods of volatility across asset classes and geographies. Most European banks appear to be in a much healthier state than in recent years, in large part thanks to their respective taxpayers. However, sovereign debt issues in Europe remain, with the parlous state of Ireland's finances and chatter that Portugal might have to depart from the Euro of concern to some. However, it is far from clear that the current travails of the European periphery will have large effects on the larger European or rapidly growing so-called 'Emerging' economies; Germany's economy is five times the size of that of Portugal, Greece and Ireland combined and is a far clearer beneficiary of a weak Euro as evidenced by GDP growth of nearly 10%. Meanwhile elsewhere, GDP growth on an annualised level of 8-9% is being achieved in Brazil, China and India.

 

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT (CTD)

The recent efforts in China to slow certain areas of the economy are sensible, and further incremental tightening measures are likely during the first half of 2011. The US economy, by contrast, despite performing better than anticipated, is deemed by the Federal Reserve to require further stimulus and a second round of quantitative easing has been announced.

The Managers expect ongoing notable disparities in global economic growth, stemming from the misplaced lending practices of many Western nations over recent years. Being able to identify the companies best placed to take advantage of this is the key focus of the Managers. An overview is provided by the Managers on pages 8 and 9 of the Annual Report and Financial Statements while on pages 10 and 11 there is a portfolio review which examines some of our individual holdings in more detail.

The Board

For some time your Board has been considering how to pass the baton to the next generation of Directors at the appropriate time, a process started with the appointment of Jake Leslie Melville. We are now delighted that Helen James and Donald Cameron have agreed to join us, both of whom have all the characteristics we need for a balanced board in the future. It will mean that temporarily we will have seven members, but over the next few years that will reduce as some of us retire.

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 3 February 2011. The Company will again seek to renew its share buyback and treasury share powers. Further information in respect of this resolution 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 A Coltman

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. In this context, whilst it is pleasing that the last year has seen a decent margin of outperformance against our comparative index, it is far more important to us that the performance over the seven years of Baillie Gifford's management of the Company has been satisfactory as highlighted in the Chairman's Statement. Our task over the next year and far beyond remains to continue to attempt to navigate the inevitable short term noise of equity markets towards our focus on providing long term shareholder reward through selecting the best investments.

In this long term context, the last twelve months have felt like a good test of our resolve as the demarcation of prospects following the financial crisis has become starker. Nowhere is this bifurcation more apparent than in Europe - at times it has felt as if the self-imposed debt problems of two of the continent's smallest economies - Greece and Ireland - have mesmerised market participants so much that they ignore the fact Germany - by far Europe's largest and most important economy - is growing at the fastest pace in two decades since reunification. Elsewhere Brazil, India, Turkey and, inevitably, China have shown rates of growth which Western politicians can only dream of but many are dismissed as chimerical by commentators mired in the local difficulties of the UK or US.

The core worry of pessimists lies in the risk of 'double dip' recession where cuts in public spending are not replaced by private demand sending economies back toward recession. This scenario could then be exacerbated by rising interest rates to combat inflationary pressures. As ever, we think that one must be aware of the very different starting points of economies. Our core belief remains 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. For instance, there already have been very tough consequences of the very poor lending decisions made in Dublin and there is undoubtedly more austerity to come with or without a bailout. Whilst hugely depressing for the Irish populace and straining on that nation's finances, there is little obvious connection to the consumption decisions of those in Berlin yet alone Mumbai or Shanghai. Running a global portfolio affords us the great luxury of navigating around those countries and companies with the largest problems.

Away from the macro debates and prognostications, and far more important to us as stock-pickers, there has been good encouragement from the operational results of businesses that we own. Three areas stand out over the last twelve months: technology; luxury goods; and consumption in developing nations. In technology examples of strong growth include Apple - where the recently launched iPad device has seen the company's fastest ever adoption curve; Amazon - which is raising capex to open more fulfilment centres to keep up with booming demand and seeing a huge second business in cloud computing rapidly grow; eBay where the prospects of the payments business - PayPal - continue to brighten; and Baidu where the withdrawal of Google from the Chinese search market has led to a deluge of new clients at lower acquisition costs.

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

MANAGERS' OVERVIEW

Luxury consumption continues to show very strong growth from Hermes, at the very highest end, to PPR's collection of assets including Gucci & Bottega Veneta and Whole Foods Market has staged a very strong recovery in the US.

In terms of strong consumption growth we remain happy to invest in Garanti Bank (a Turkish holding purchased this year during Greek wobbles), HDFC in India and Itau Unibanco in Brazil and avoid those financial institutions closer to the epicentre of the crisis where we fully expect to see further actions on tighter regulation, remuneration and even breaking up of institutions. We also think businesses such as New Oriental and VanceInfo Technologies provide exciting ways of gaining exposure to rising spending in Chinese education and technology outsourcing respectively.

The number of equity holdings stood at 39 at the year end which compares to 41 as at October 2009 and equity portfolio turnover continued to be low at 18.0%. We would again reiterate that we pay no heed to country or sector weights in constructing the portfolio - it is comprised purely of companies where we are genuinely enthusiastic about their growth prospects for the next decade. We feature ten of these companies on pages 10 and 11 of the Annual Report and Financial Statements and also provide full performance figures for every holding.

Notable new holdings purchased during the year include CFAO - an African distribution business; Intuitive Surgical which makes surgical robots; FLIR Systems where we think its infra-red military technology has many potential commercial applications and Inditex - the Spanish-based retailer which we think has tremendous global potential. These purchases were funded by sales which included Berkshire Hathaway, Canon, Iron Mountain, Lukoil, Porsche and Walgreen.

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

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE at 31 October 2010
Name	Business	Fair value 2010 £'000	% of total assets	Performance†		Fair value 2009 £'000
				Absolute %	Relative %
Equities
Amazon.com	Online Retailer	12,188	6.9	43.3	21.2	8,503
Baidu	Chinese online search engine	10,383	5.8	201.8	155.3	1,605
Atlas Copco	Industrial compressors and   mining equipment	8,921	5.0	59.2	34.6	8,696
Vale (or CVRD)	Mining	8,329	4.7	30.1	10.1	6,395
Petrobras	Oil exploration and production	7,725	4.3	(22.2)	(34.2)	10,149
Apple	Computing and media   equipment	7,264	4.1	64.6	39.2	4,414
eBay	Internet auction and payments	6,944	3.9	38.2	16.9	2,192
PPR	Luxury brand conglomerate	6,155	3.5	58.0	33.7	2,689
Google	Web-based search engine	5,965	3.4	17.9	(0.3)	5,060
Deere	Farm and construction  machinery	5,595	3.1	76.6	49.4	3,219
Sandvik	Tools and mining equipment	5,079	2.9	37.0	15.9	4,826
Novozymes	Enzyme manufacturer	4,803	2.7	49.9	26.8	3,230
Tencent	Chinese social network	4,783	2.7	34.0	13.3	2,885
Banco Santander	Retail and commercial bank	4,621	2.6	(13.9)	(27.2)	5,072
First Solar	Designs and manufactures solar   modules	4,236	2.4	16.4	(1.6)	3,545
New Oriental Education and   Technology	English-language schools	4,086	2.3	58.3	33.9	2,004
Housing Development   Finance Corporation	Indian mortgage provider	3,999	2.3	42.7	20.7	2,836
ABB	Power systems and automation	3,998	2.2	16.8	(1.2)	3,513
Whole Foods Market	Organic food stores	3,736	2.1	27.8	8.1	2,924
Nintendo	Gaming consoles and software	3,465	1.9	6.2	(10.1)	3,324
Gazprom	Gas exploration and production	3,457	1.9	(5.3)	(19.9)	4,823
VanceInfo	Chinese IT outsourcing	3,398	1.9	36.0*	26.2*	-
L'Oréal	Personal care	3,315	1.9	19.7	1.2	3,622
Garanti Bankasi	Turkish bank	3,245	1.8	26.3*	24.5*	-
FLIR Systems	Infrared sensors	3,165	1.8	(8.8)*	(15.0)*	-
Intuitive Surgical	Robotic surgery	3,026	1.7	(11.7)*	(17.7)*	-
Itau Unibanco	Brazilian retail and commercial   bank	2,985	1.7	35.2	14.4	2,257
Straumann	Dental implants	2,948	1.7	(9.8)	(23.7)	3,304
Teva Pharmaceuticals	Generic drugs manufacturer	2,930	1.6	7.2	(9.3)	2,761
CFAO	African distribution	2,650	1.5	16.0*	4.3*	-
BYD	Battery technology and cars	2,639	1.5	(32.3)	(42.8)	4,658
Hermès	Luxury goods	2,613	1.5	57.9	33.6	1,595
ALL America Latina   Logistica	Brazilian railroads	2,605	1.5	0.3*	2.3*	1,658
Monsanto	Agricultural biotechnology	2,533	1.4	(7.3)	(21.5)	2,035
VCA Antech	Animal hospitals and veterinary   diagnostics	2,332	1.3	(10.5)	(24.3)	2,605
Inditex	Fashion retail	2,190	1.2	22.8*	13.2*	-
Medassets	Hospital management software	2,127	1.2	(10.4)*	(19.1)*	-
Li Ning	Chinese sportswear	1,957	1.1	9.1	(7.7)	1,225
Vestas Windsystems	Wind turbines	1,373	0.8	(53.8)	(60.9)	2,967
Total Equities		173,763	97.8

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PORTFOLIO AND EQUITY PERFORMANCE

at 31 October 2010

 (Ctd)

Name	Business		Fair value 2010 £'000	% of total assets	Performance†		Fair value 2009 £'000
					Absolute %	Relative %
Net Liquid Assets			3,953	2.2
Total Assets at Fair Value (before deduction of loan)			177,716	100.0

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

2009 to 31 October 2010.   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 were appointed as Managers and Secretaries with effect from 1 November 2003. The management agreement 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:

	2010 £'000		2009 £'000
Investment management fee	998		717
Investment performance fee	36		-
Secretarial fee	72		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 US dollar increased due to net purchases and the appreciation in value of US dollar denominated equities, although the reduction in US dollar borrowings during the year partially offset the exposure. Exposure to the Euro decreased due to net sales of Euro denominated equities and the increase in Euro borrowings during the year. Exposure to the Hong Kong dollar decreased due to net sales of Hong Kong dollar denominated equities.

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.

At 31 October 2009	Investments £'000		Cash and deposits £'000		Loans £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	75,089		-		(5,520)		(530)		69,039
Euro	18,972		4,245		(6,266)		31		16,982
Swedish krona	13,522		-		-		-		13,522
Swiss franc	6,817		-		(6,219)		2,626		3,224
Danish krone	6,198		-		-		-		6,198
Japanese yen	5,450		-		(5,496)		30		(16)
Hong Kong dollar	13,112		714		-		(1,233)		12,593
Other overseas currencies	4,495		-		-		-		4,495
Total exposure to currency risk	143,655		4,959		(23,501)		924		126,037
Sterling	-		83		-		(309)		(226)
	143,655		5,042		(23,501)		615		125,811

*          Includes net non-monetary assets of £9,000.

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Currency Risk Sensitivity

At 31 October 2010, 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 2009.

	2010 £'000		2009 £'000
US dollar	4,807		3,452
Euro	735		849
Swedish krona	700		676
Swiss franc	14		161
Danish krone	309		310
Japanese yen	(1)		(1)
Hong Kong dollar	469		630
Other overseas currencies	492		225
	7,525		6,302

(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	2010			2009
	Fair value £'000	Weighted average interest rate	Period for which rate is fixed	Fair value £'000	Weighted average interest rate	Period for which rate is fixed
Floating rate:
US bonds (interest rate linked to US dollar LIBOR)	-	-	-	1,837	13.4%	24 days

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	2010 £'000	2009 £'000
The interest rate risk profile of the Company's financial liabilities at 31 October was:
Floating rate - US$ denominated	7,068	5,520
- Euro denominated	7,564	6,266
- Swiss franc denominated	6,677	6,219
- Yen denominated	3,494	5,496
	24,803	23,501

The maturity profile of the Company's financial liabilities at 31 October was:
In one year or less, or on demand	24,803	23,501
	24,803	23,501

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 October 2010 would have decreased total net assets and total return on ordinary activities by nil (2009 - £2,000). A decrease of 100 basis points would have had an equal but opposite effect.

(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.

113.6% of the Company's net assets are invested in equities. A 10% increase in quoted equity valuations at 31 October 2010 would have increased total assets and total return on ordinary activities by £17,376,000 (2009 - £14,182,000). 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.

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

PRINCIPAL RISKS AND UNCERTAINTIES (Ctd)

Credit Risk Exposure

The exposure to credit risk at 31 October was:

	2010 £'000	2009 £'000
Fixed interest investments	-	1,837
Cash and short term deposits	4,053	5,042
Debtors and prepayments	314	2,988
	4,367	9,867

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 page 20 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 Taxes Act 2010 (formerly section 842 ICTA1988) 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.

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 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 (sometimes known as 'gearing'). 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 responsiblity 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

Director

 13 December 2010

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

INCOME STATEMENT

	For the year ended 31 October 2010				For the year ended 31 October 2009
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	29,831	29,831		-	43,445	43,445
Currency losses	-	(1,122)	(1,122)		-	(1,825)	(1,825)
Income (note 2)	1,931	-	1,931		3,088	-	3,088
Investment management fee	(250)	(784)	(1,034)		(179)	(538)	(717)
VAT recovered (note 3)	25	127	152		-	-	-
Other administrative expenses	(440)	-	(440)		(422)	-	(422)
Net return before finance costs and taxation	1,266	28,052	29,318		2,487	41,082	43,569
Finance costs of borrowings	(130)	(390)	(520)		(96)	(286)	(382)
Net return on ordinary activities before taxation	1,136	27,662	28,798		2,391	40,796	43,187
Tax on ordinary activities	(226)	-	(226)		(575)	266	(309)
Net return on ordinary activities after taxation	910	27,662	28,572		1,816	41,062	42,878
Net return per ordinary share (note 4)	1.86p	56.45p	58.31p		3.71p	83.78p	87.49p

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 2010		At 31 October 2009
		£'000		£'000
FIXED ASSETS Investments held at fair value through profit or loss		173,763		143,655
CURRENT ASSETS
Debtors		314		2,988
Cash and short term deposits		4,053		5,042
		4,367		8,030
CREDITORS
Amounts falling due within one year (note 6)		(25,217)		(25,874)
NET CURRENT LIABILITIES		(20,850)		(17,844)
TOTAL NET ASSETS		152,913		125,811
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		30,784		3,122
Revenue reserve		2,279		2,839
SHAREHOLDERS' FUNDS		152,913		125,811
NET ASSET VALUE PER ORDINARY SHARE		312.04p		256.73p
ORDINARY SHARES IN ISSUE		49,004,319		49,004,319

 

 

DISTRIBUTION OF ASSETS

 

		At 31 October 2010              %				At 31 October 2009 %
Equities:	Continental Europe	27.5			30.5
	North America	33.3			27.9
	Japan	1.9			3.6
	Asia Pacific	17.6			13.0
	Emerging Markets	17.5			20.0
Total equities		97.8			95.0
US$ denominated bonds		-			1.2
Net liquid assets		2.2			3.8
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 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

For the year ended 31 October 2009

	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 2008	2,450	82,180	35,220	(37,940)	2,346	84,256
Net return on ordinary activities after taxation	-	-	-	41,062	1,816	42,878
Dividends paid during the year (note 5)	-	-	-	-	(1,323)	(1,323)
Shareholders' funds at 31 October 2009	2,450	82,180	35,220	3,122	2,839	125,811

*The capital reserve balance at 31 October 2010 includes investment holding gains of £63,964,000 (2009 - gains of £40,879,000).

EDINBURGH WORLDWIDE INVESTMENT TRUST plc

 

CASH FLOW STATEMENT
	For the year ended 31 October 2010			For the year ended 31 October 2009
	£'000	£'000		£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 9)		716			1,957
SERVICING OF FINANCE
Interest paid	(547)			(364)
NET CASH OUTFLOW FROM SERVICING OF FINANCE		(547)			(364)
TAXATION
Overseas tax incurred	(238)			(288)
TOTAL TAX PAID		(238)			(288)
FINANCIAL INVESTMENT
Acquisitions of investments	(32,507)			(14,517)
Disposals of investments	32,877			18,052
Realised currency gain	157			197
NET CASH INFLOW FROM FINANCIAL INVESTMENT		527			3,732
EQUITY DIVIDENDS PAID (note 5)		(1,470)			(1,323)
FINANCING
Bank loans repaid	(292,651)			(285,455)
Bank loans drawn down	292,674			285,334
NET CASH INFLOW/(OUTFLOW) FROM FINANCING		23			(121)
(DECREASE)/INCREASE IN CASH		(989)			3,593
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period		(989)			3,593
Net cash (inflow)/outflow from bank loans		(23)			121
Exchange movement on bank loans		(1,279)			(2,022)
MOVEMENT IN NET DEBT IN THE YEAR		(2,291)			1,692
NET DEBT AT 1 NOVEMBER		(18,459)			(20,151)
NET DEBT AT 31 OCTOBER		(20,750)			(18,459)

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES

1.	The financial statements for the year to 31 October 2010 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 October 2009. In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk issued in 2009, 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. After making enquiries, 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 2010 £'000		31 October  2009  £'000
2.      2	Income
	Income from investments	1,919		3,070
	Deposit interest	12		18
		1,931		3,088
3.	VAT recovered
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. HMRC accepted the Managers' repayment claims for the periods from 2003 to 2007. £257,000 of VAT together with £22,000 of interest was received by the Managers on behalf of the Company in respect of these periods and was recognised in the year to 31 October 2008.  During the year £152,000 of VAT was recovered relating to the periods from 2001 to 2003. 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 2010 £'000		31 October 2009  £'000
4.	Net return per ordinary share
	Revenue return	1.86p		3.71p
	Capital return	56.45p		83.78p
	Total return	58.31p		87.49p

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES (Ctd)

			2010			2009		2010 £'000		2009 £'000
5.	Ordinary Dividends
	Amounts recognised as distributions in the period:
	Previous year's final (paid 9 February 2010)		1.50p			1.50p		735		735
	Previous year's special (paid 9 February 2010)		1.00p			0.70p		490		343
	Interim (paid 22 July 2010)		0.50p			0.50p		245		245
			3.00p			2.70p		1,470		1,323
	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 Taxes Act 2010 (formerly section 842 of ICTA 1988) are considered.  The revenue available for distribution by way of dividend for the year is £910,000 (2009 - £1,816,000).
		2010				2009		2010 £'000		2009 £'000
	Ordinary Dividends
	Dividends paid and proposed in the period:
	Interim dividend per ordinary share (paid 22 July 2010)	0.50p				0.50p		245		245
	Proposed final dividend per ordinary share (payable 9 February 2011)	1.50p				1.50p		735		735
		2.00p				2.00p		980		980
	Proposed special dividend per ordinary share#	-				1.00p		-		490
		2.00p				3.00p		980		1,470
	#   The special dividend of 1.00p in respect of the year to 31 October 2009 was paid as the Board expected the high level of income received in that year may not recur. If approved the final dividend will be paid on 9 February 2011 to all shareholders on the register at the close of business on 14 January 2011.  The ex-dividend date is 12 January 2011. 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 21 January 2011.
6.	Creditors include US$11.3m, €8.7m, CHF10.5m and ¥450m drawn down under a 1 year multi-currency facility with Lloyds TSB Scotland plc (2009 - US$9.1m, €7.0m, CHF10.5m and ¥820m)

EDINBURGH WORLDWIDE INVESTMENT TRUST PLC

NOTES (Ctd)

7.	The Company incurred transaction costs on purchases of £23,000 (2009 - £23,000) and on sales of £27,000 (2009 - £23,000).
8.	At the Annual General Meeting on 4 February 2010 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 2010 or 2009.  At 31 October 2010 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	2010 £'000		2009 £'000
	Net return on ordinary activities before finance costs and taxation	29,318		43,569
	Gains on investments	(29,831)		(43,445)
	Currency losses	1,122		1,825
	Other non cash movements	(48)		(44)
	Decrease in accrued income	138		6
	Increase in debtors	(75)		(21)
	Increase in creditors	92		67
	Net cash inflow from operating activities	716		1,957
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2010.  The financial information for 2009 is derived from the financial statements for 2009 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2009 and 2010 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 2010 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at 12 noon on Thursday 3 February 2011.
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

 

 

FR KKBDKKBDDOBB