RNS Announcement

 

Edinburgh Worldwide Investment Trust plc

 

Legal Entity Identifier: 213800JUA8RKIDDLH380

 

Results for the year to 31 October 2022

 

Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws and regulations.

 

The following is the results announcement for the year to 31 October 2022 which was approved by the Board on 20 January 2023.

 

¾  Over the year to 31 October 2022, the Company's net asset value ('NAV') per share, cum income with debt at fair value, decreased by 40.3% and the share price by 46.0%. The comparative index, the S&P Global Small Cap Index* total return, decreased by 6.8% in sterling terms.

¾  Over five years to 31 October 2022, the Company's NAV per share, cum income with debt at fair value, increased by 37.5%, the share price increased by 25.0% and the comparative index* increased by 36.5%.

¾  The Company's portfolio has been managed with a focus on the opportunity set lower down the market capitalisation spectrum since the end of January 2014. Since then to 31 October 2022, the Company's NAV per share, cum income with debt at fair value, increased by 127.3%, the share price increased by 114.2% and the comparative index* increased by 132.9%.

¾  The top detractors to performance over the year were Ocado, an online grocery retailer and technology provider, Codexis, an industrial and pharmaceutical enzyme developer, and Upwork, an online freelancing and recruitment services platform. Among the top contributors to performance over the year were Space Exploration Technologies (SpaceX), which designs, manufactures and launches advanced rockets and spacecraft, ShockWave Medical, a manufacturer of medical devices, and Alnylam Pharmaceuticals, which develops drugs focussed on harnessing gene silencing technology.

¾  No final dividend is being paid. The Company's objective remains that of generating capital growth. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status.

¾  Over the course of the financial year, 550,000 new shares were issued and 13,468,672 shares were bought back for treasury.

¾  Invested equity gearing stood at +12.3% of shareholders' funds at the financial year end (2021 - +2.5%).

¾  As at the year end, the Company held fourteen private companies accounting for 20.1% of total assets (2021 - 10.8% of total assets in twelve companies). In a year in which shareholders approved a limit of 25% of total assets in unlisted investments, measured at time of investment, we added to two existing private company holdings, initiated three new positions and a private company holding listed and is still held.

¾  Despite a stock market that is increasingly impatient and where the supply of capital is restricted, the fundamental opportunity for innovation and tech-led progress are strong. The Board and Managers are of the view that across numerous frontiers entrepreneurs and innovative companies are building solutions that will likely transform societal expectations. These frontiers span a seismic shift in what we can anticipate in diverse areas such as healthcare, communications, computing and how businesses function. The rewards to the brave and patient investor look increasingly attractive.

*Source: Refinitive and relevant underlying index providers. See disclaimer at the end of this announcement.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

 

Edinburgh Worldwide's objective is the achievement of long term capital growth by investing primarily in listed companies throughout the world. The Trust has total assets of £879.4 million (before deduction of loans of £103.8 million) as at 31 October 2022.

Edinburgh Worldwide is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group with over £235 billion under management and advice as at 19 January 2022.

 

Past performance is not a guide to future performance.

 

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 stock markets 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 edinburghworldwide.co.uk^‡

^‡ 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.

23 January 2023

 

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co                                     

Tel: 0131 275 2000                                                                

Jonathan Atkins, Director, Four Communications

Tel: 0203 920 0555 or 07872 495396

 

Chairman's Statement

Performance

In the year to 31 October 2022, the Company's net asset value ('NAV') per share, when calculated by deducting borrowings at fair value, decreased by 40.3% and the share price by 46.0%, both in total return terms. The comparative index, the S&P Global Small Cap Index* total return, decreased by 6.8% in sterling terms during this period. The Company's share price discount/premium to NAV ranged between a 20.1% discount and a 5.5% premium, averaging a discount of 9.9%, and ended the period at a 12.7% discount. Portfolio turnover was 10.8% compared to 7.1% for the Company's financial year to 31 October 2021 and the ongoing charge has decreased to 0.63%.

Whilst disappointing, this set of results should be assessed in the context of the longer term performance, in particular the general volatility experienced during and after the Covid pandemic. The table below shows the very strong outperformance by the Company during the year to 31 October 2020 when it became clear that several of the Company's investments were well-positioned to help address many of the challenges posed by the Covid pandemic. Conversely there was significant underperformance in the year to 31 October 2022 as markets focussed on the potential negative implications of higher interest rates for 'growth stocks'; leading to a shift into 'value stocks'.

 

			Year to
	31.10.18	31.10.19	31.10.20	31.10.21	31.10.22
NAV*	14.9%	7.4%	57.8%	18.3%	(40.3%)
S&P Global Small Cap Index*	0.1%	7.2%	0.4%	35.9%	(6.8%)

 

The Company's portfolio has been managed with a focus on the opportunity set lower down the market capitalisation spectrum since the end of January 2014. The Board remains committed to this and the Managers' approach of investing with a five year plus investment horizon in innovative entrepreneurial immature growth businesses that display the characteristics for being much larger companies in the future, which typically are at the forefront of technology and/or disrupting traditional business models irrespective of sector or industry.

Being able to survive turbulent times is crucial for all businesses and the portfolio managers have been buoyed following a number of positive company meetings with management teams. It is reassuring to note that the majority of companies in the portfolio are financially secure over the near term and that c.61% of the Company's listed portfolio has positive earnings or positive cash flow. The aggregate operational performance of the portfolio has been sound, with many of the holdings growing at attractive rates. As outlined in the Managers' Report, the portfolio managers have put capital to work in a number of new and existing names following the derating of growth companies, many of which now trade at attractive depressed valuations.

Among the top contributors to performance over the year were Space Exploration Technologies (SpaceX), which designs, manufactures and launches advanced rockets and spacecraft, ShockWave Medical, a manufacturer of medical devices, and Alnylam Pharmaceuticals, which develops drugs focussed on harnessing gene silencing technology. The top detractors to performance over the year were Ocado, an online grocery retailer and technology provider, Codexis, an industrial and pharmaceutical enzyme developer, and Upwork, an online freelancing and recruitment services platform. The Managers' Report below provides further background on the investments.

As mentioned, the Company's portfolio has been managed with a focus on the opportunity set lower down the market capitalisation spectrum since the end of January 2014. The chart below shows the distribution of returns for all the stocks held within the portfolio since then; each bar representing the return of each stock whilst held in the portfolio. This cumulative period holding analysis shows the broad distribution of returns achieved by the holdings from time of initial purchase to 31 October 2022 or the date in which the holding was fully sold from the portfolio.

 

http://www.rns-pdf.londonstockexchange.com/rns/4653N_1-2023-1-20.pdf 

Share Buybacks, Treasury and Issuance

Over the course of the last financial year, 550,000 new shares were issued, at a premium to the Company's NAV per share, raising proceeds of £1.7 million. The Company also bought back 13,468,672 shares for treasury, at a discount to the Company's NAV per share, at a cost of £25.3 million. On a net basis, this resulted in the Company's issued share capital reducing by 3.2%.

The Company will once again be seeking to renew its share buyback, issuance and treasury share authorities. The buyback facility is sought to allow the Company to buy back its own shares when the discount is substantial in absolute terms and relative to its peers. Issuance, either from treasury or of new shares, will only be undertaken at a premium to the prevailing NAV, with debt calculated at par, in order to satisfy natural market demand.

Unlisted Investments

At last year's Annual General Meeting, shareholders approved an increase in the permissible limit of investment in unlisted investments from 15% to 25% of total assets, measured at the time of initial investment.

As at the Company's year end, the portfolio weighting in private companies stood at 20.1% of total assets, invested in fourteen companies (2021 - 10.8% of total assets in twelve companies). Three new private company investments were made during the year: BillionToOne, a precision molecular diagnostics company, DNA Script, a synthetic biology company specialising in synthetic DNA and oligos, and Echodyne, a metamaterial radar sensors and software company. Akili Interactive Labs, a digital medicine company, which listed on Nasdaq in August 2022 following its merger with Social Capital Suvretta Holdings Corp is still held in the portfolio.

The Board and Managers remain of the view that private companies are becoming an increasingly relevant part of the Company's objective and, as highlighted in my statement last year, the Board will keep the matter of the weighting to unlisted investments under review. Details on the process and quantum of valuations of the portfolio's private company holdings undertaken, over the course of the financial year, can be found immediately after the Managers' Review.

Borrowings

The extent and range of equity gearing is discussed by the Board and Managers at each Board meeting. Both parties agree that the Company should typically be geared to equities to maximise potential returns, with the current aspirational parameters set at +5% to +15% of shareholders' funds. Over the year, the invested equity gearing ranged between +2.4% and +13.1%, and stood at +12.3% of shareholders' funds at the financial year end (2021 -+2.5%).

At present, the Company has a five year £100 million multi- currency revolving credit facility, with The Royal Bank of Scotland International Limited, with an expiry date of 9 June 2026. In addition, a five year £25 million multi-currency revolving credit facility, with National Australia Bank Limited, with an expiry date of 29 June 2023 and a five year £36 million multi-currency revolving credit facility, with National Australia Bank Limited, with an expiry date of 30 September 2024. As at 31 October 2022, the Company had drawings of €10,600,000, US$77,150,000 and £27,720,000.

Earnings and Dividend

The Company's objective is that of generating capital growth and investors should not expect any income from this investment.

This year the net revenue return per share was a negative 0.49p per share (2021 - negative 0.62p per share). As the revenue account is running at a deficit, no final dividend is being recommended by the Board. Should the level of underlying income increase in future years, the Board will seek to distribute to shareholders the minimum permissible to maintain investment trust status by way of a final dividend.

Board Composition

Mr Donald Cameron has confirmed that he will not be standing for re-election to the Board at the Company's Annual General Meeting ('AGM') taking place on 7 March 2023. I would like to place on record my and the Board's thanks for his effective Chairing of the Audit and Management Engagement Committee and for his contribution to Company discussions. I'm pleased to report that during the year the Company announced two new appointments to the Board, Ms Jane McCracken, with effect from1 November 2022, and Dr Mary Gunn, with effect from 1 March 2023. Both appointments fall to be ratified by shareholders as part of the 7 March 2023 AGM business.

Jane has spent her career working with high growth technology businesses based in the USA and UK as an entrepreneur, equity investor, board member and advisor. Mary is a scientist, lawyer and C-level executive in life science companies. Further information on their respective backgrounds can be found on page 28 of the Annual Report and Financial Statements.

Investment Outlook

The past year has been marked by notable market volatility, arising from a number of factors, and it is unlikely that there will be an easing of the challenging economic and political backdrop in the immediate future. Business confidence and consumption are likely to remain muted against a backdrop of inflationary pressure, despite the best efforts of some Central Banks and governments to keep it in check. The effects of a slowdown in Chinese economic activity are also being felt, although ironically this is likely to be a deflationary influence for certain industries and sectors.

Whilst markets exhibit volatility, the investment trust structure permits the portfolio managers and discerning long-term investors to take positions in exciting, dynamic and innovative companies for the long term. Companies that can enhance productivity or deliver cost and/or productivity efficiency, should be amongst those able to navigate through the current turbulence; many of these are currently immature but with a scalable business model and ambitious management teams with a vision and desire to succeed.

An overview of the Company's portfolio is provided in the Managers' Review below.

Annual General Meeting

The Company's next Annual General Meeting ('AGM') will be held in person at Baillie Gifford's offices in Edinburgh at 12 noon on Tuesday 7 March 2023. The portfolio managers will be presenting and I and the Board look forward to seeing as many of you there as possible.

Should the situation change and it not be possible to meet in person, further information will be made available through the Company's website at edinburghworldwide.co.uk and the London Stock Exchange regulatory news service. Further information, including the proposed resolutions and information on the deadlines for submitting votes by proxy should you not be able to attend, can be found on pages 69 to 71 of the Annual Report and Financial Statements. Shareholders who hold shares in their own name on the main register will be provided with a Form of Proxy and there are also special arrangements for holders of shares through the abrdn Investment Trusts Share Plan, Individual Savings Account and Investment Plan for Children who are provided with a Form of Direction.

If you hold shares through a share platform or other nominee, the Board would encourage you to contact these organisations directly as soon as possible to arrange for you to submit votes in advance of the AGM.

Henry CT Strutt Chairman

20 January 2023

* Source: Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement

Past performance is not a guide to future performance.

Managers' Review

Investing involves both respecting those things that are constants and navigating the many variables. To the mathematically orientated this might suggest it can be distilled down to a simple equation with neat outputs and defined probabilities. But the repeating pattern of investment return over any sensible time period is that such an algebraic approach is a fallacy - the path of equity markets over the past ten years is testament to this.

The global Covid pandemic and conflict in Europe are recent arrivals into the mix of variables that investors have had to navigate, and they have complicated the landscape considerably. Their unpredictable nature brings with them a host of second order variables straddling supply chain and labour force challenges through to an emerging tussle for a new world order. A decade of low interest rates was mistaken by many as a quasi-constant that has now returned as a dynamic variable as central banks wrestle with high inflation.

The temptation is often to view the individual challenges discussed above as isolated discrete events, but we think there is an underlying connection. Not in a conspiratorial sense but one which highlights that instability in a system tends to create instability elsewhere with rippling out effects.

This instability will ultimately pass but it is sculpting a new investment backdrop, one where capital is less freely available, the hurdle rate for returns is higher and the tolerance of uncertainty is lower. As discussed in the Interim Report, this adjustment phase is shortening the time horizon of many investors and lulling them into a mindset where the near-term resiliency of what they invest in is viewed with higher priority than its long-term relevance.

For an investment strategy such as that pursued by Edinburgh Worldwide, this adjustment in the backdrop has been painful. We are unashamedly long-term growth focused investors; we respect resilience in our holdings but what excites us is their relevance and long-term impact. By pointing our analytical focus lower down the market capitalisation spectrum, we seek to identify high potential growth businesses when they are early in their lifecycle and benefit from the compounding of long-term growth off a low base. Past investments in businesses such as Tesla and Dexcom clearly illustrate the potential returns available through such an approach.

We pursue a growth focus as we believe it aligns with the overarching constant in equity investing of long-term progress being driven by innovation and adoption of technology. While the mix of technologies is always evolving and compounding, it is underwritten by another non-numerical constant, that of human ingenuity and the ability to innovate solutions to problems.

The whims of a stock market can come and go but the legacy of innovation remains and is all around us. We think the fundamental opportunity for innovation and tech-led progress are as strong as we have seen. Across numerous frontiers we see entrepreneurs and innovative companies building solutions that we think will transform what society can expect. These frontiers span a seismic shift in what we can anticipate in diverse areas such as healthcare, communications, computing and how businesses function. While many of these advances are likely to appear in a five to ten year time frame, we are equally excited about the possibilities that sit beyond this.

Although our enthusiasm for what the future offers is undiminished, the share price performance of many of the holdings in the portfolio has been sharply impacted by the changing backdrop discussed above. For many of the companies held, this feels a largely mechanical based valuation reset as interest rates have risen and consequently their future cashflows are deemed to be worth less. More recently, this has been exacerbated as stock markets have begun to price in lower economic growth assumptions.

Our bottom-up, growth-orientated investment style will always leave us at the mercy of fear-driven market sell offs. Simply put, the current areas of angst (volatility in interest rates and economic cyclicality) are not inputs that we think carry much insight when performing long term analysis on a company. Our analysis skews heavily to understanding how the operations of a business might perform over the 10+ year timeframe. For most businesses, and especially younger/smaller ones, that path will be most heavily influenced by both the decision that a company takes and how its industry evolves. We don't seek to duck the topic of valuation, far from it. Rather, we seek to project where a business might get to and what it might be worth at that point. The real unlock in achieving that is not the immediate finessing of complex valuation spreadsheets but it's the passage of time and the delivery of real tangible progress by the companies themselves. In a stock market that is increasingly impatient, we think the rewards to the brave and patient look increasingly attractive.

The decade long era of abundant and overly cheap capital has run its course. The premium placed on stable long-term capital will be higher. As the pendulum of power is shifting from the users of capital towards the providers of capital, we think the relevance of Edinburgh Worldwide's structure and philosophy will, once again, come to the fore. A transition period is just that.

With the technology-led opportunity plentiful, yet the supply of capital restricted, we see greater opportunity for our analysis to actively focus on companies that are in a capital consumptive phase of growth.

Portfolio update

With international travel now largely restored, we have embraced the opportunity to check-in in person with many of the holdings and further develop new ideas that intrigue us. Video conferencing aided hugely in the pandemic environment but it skewed management interactions towards a transactional exchange of information. By meeting companies on their own turf, the narrative brings more colour to aspects of long-term strategy, opportunity and threats. These conversations have emboldened our belief that many of the businesses held are in a unique position to radically transform their industries.

The backdrop of instability discussed earlier is widely expected to lead to a near term recessionary environment and a muted outlook for economic growth in the medium term. No equity portfolio can claim to be devoid of economic cyclicality, but our impression is that the portfolio's exposure to highly discretionary consumer or business spending is modest. Moreover, we believe that it's the structural drivers of market adoption and disruption which are usually the most significant determinants of a holding's growth trajectory. The biggest determinants here will be how a company's product/service offering stacks up against alternatives and consequently we aspire for our holdings to rank well on a 'better and cheaper' axis.

Many of the holdings have posted negative returns over the past year but the most acute impact of this on performance came from some of the portfolio's larger positions in companies such as Ocado, Codexis and Upwork. These companies are active in very different business activities, but they do share a commonality of being early enthusiasts of rewiring their respective industries alongside having a degree of discretionary spend attached to how their products/services are used. We see undiminished potential for these companies and have been content with how they continue to navigate a challenging environment. In the case of Ocado, we also note that, following Edinburgh Worldwide's year end, it has announced a sizable partnership with the leading grocery chain in South Korea indicating that forward-thinking grocers are still very much looking to a more automated future.

For a small minority of holdings such as Teladoc and Wayfair, the scars of the pandemic are still to properly heal. But for others, such as Chegg and Zillow, we are pleased to see some of the distortions to business washing through.

Progress in some of our most innovative healthcare companies has been robust and clearly indicates how removed underlying business progress can be from the market's current angst. The long standing holding Alnylam Pharmaceutical, the leading gene silencing company, had a successful readout on its high-profile phase 3 clinical trial in TTR-mediated cardiomyopathy. While the RNAi drug in this trial is the same as Alnylam Pharmaceutical's existing approved drug for polyneuropathy, the opportunity is greater in the cardiac setting given a larger and sicker patient population. Stepping back from the detail, this progress reflects Alnylam's ongoing move from rare inherited diseases into much bigger aspects of chronic medical need. In this regard, we look forward to upcoming clinical trial data in disease areas such as Alzheimer's, Fatty Liver disease, Diabetes and Hypertension.

Other notable contributors throughout the year included ShockWave Medical, where adoption of its calcium cracking technology in arterial plaque removal has been very strong, and Genmab, where its lead drug Daratumumab for Multiple Myeloma is migrating towards a hoped for standard of care and as excitement grows around the company's novel antibody pipeline.

The private market has continued to be a source of promising opportunities, and Edinburgh Worldwide's private company holdings have been making steady progress despite the volatility in financial markets. SpaceX has been pivotal in keeping Ukraine's population online this last year and is now on the cusp of launching the most powerful rocket in history. Growing interest in radiopharmaceuticals and nuclear power has increased the relevance of SHINE Technologies' manufacturing solutions. Relativity Space recently unveiled a transformational 3D printer, capable of horizontally printing huge metal objects up to 120 feet long and 24 feet wide.

We reported on six new holdings in the Interim Report to the end of April 2022 and we detail below a further six names (five listed businesses and one private) purchased over the subsequent six months, funded in part through the use of bank borrowings.

Beam Therapeutics is a biotechnology company focused on precision genetic medicine, specifically the correction of harmful inherited mutations. Through pioneering the use of a heavily adapted form of the CrispR DNA editing system, Beam can precisely and reproducibly switch an individual targeted base in a genome. With around 60% of genes associated with disease being related to a single base pair change there is ample scope to take this system into the clinic. Moreover, the use of this technology in a genetic 'optimise' versus 'fix' manner could take it into areas where other editing technologies would struggle.

Fiverr is an Israeli-based freelancing platform. We are intrigued by the company's efforts to convert knowledge-based work into packages that are easy for companies to purchase. This is known as 'service as a product'. In this way, Fiverr is offering companies access to globally outsourced task-based solutions and provides an avenue for a global talent pool to seamlessly access work. As the world of knowledge work transforms through digital access and deliverance, we believe Fiverr's platform will have a secular appeal, particularly to SMEs, and as a result drive revenue growth in what is an eminently scalable business model.

Twist Biosciences is a leading provider of synthetic DNA for a variety of uses in research, medical and industrial applications. The DNA 'writing' market is at a much earlier stage than the DNA sequencing market, but Twist has built an enviable position as the provider of choice. Through emphasising efficiency and parallel production, Twist has built an offering with market leading price points and rapid-turnaround times. While Twist primarily operates as a supplier of DNA-derived reagents to its customers, we are intrigued by the company's efforts to move into more value-added end applications. Albeit early, the recent moves into generating optimised antibodies for bio-pharma industry are an interesting example of such activity.

Doximity is a US software company that produces tools for doctors to improve their medical awareness, streamline workflow and increase productivity. Doximity has created free-to-use products within a social network of doctors that allows them to communicate better with patients and colleagues and to access information more efficiently. This is monetised by selling hyper-targeted, unobtrusive advertising to pharmaceutical companies. The pharmaceutical industry spends only c.20% of marketing budgets on digital, compared to c.80% for Fortune 100 companies. The inefficiencies of the current in-person sales reps present a remarkable opportunity to disrupt the pharma marketing model whilst also improving access to the best drugs for patients. With a user base consisting of c.80% of all US Doctors and c.90% of US Medical students, we feel Doximity is well positioned to become the dominant player in the space and its critical mass offers additional routes for monetisation.

Echodyne is a private US company that uses metamaterial technology to produce high-performance radar systems at affordable price points. This is a disruptive proposition for the sensing market, making it practical to employ more advanced capabilities in a range of existing and new defence, security and autonomous machine applications. The company has early demand from leading US organisations and is set to expand its reach and product set further.

TransMedics is a medical technology company which has developed and sells a proprietary system which is used in the transportation of donated organs from donors to recipients. The system mimics the conditions of the human body and perfuses the donated organs with nutrient rich oxygenated blood, minimising damage due to oxygen deprivation. This substantially reduces the waste associated with the current standard 'cold- box' approach to transportation. What intrigues us even more is the potential of the technology to unlock the use of organs after circulatory death, which would meaningfully increase the supply of organs available for transplant. At present the company has a regulatory approval for its system for lung, liver and heart.

We exited 15 positions over the year, the most notable of which were Tesla, Seek and iRobot (the complete sale of Galapagos was completed shortly after the period end). In selling Tesla we have closed out one of the most successful investments in the portfolio. We remain fans of the business and the broader adoption of electric vehicles. Our concerns were related to how much of the growth, market share gains and superior margin potential were reflected in the Tesla share price. With numerous holdings elsewhere in the portfolio which we felt were earlier in their lifecycle and with greater valuation upside, we sought to recycle capital.

 

Valuing Private Companies

 

We aim to hold our private company investments at 'fair value', i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations committee at Baillie Gifford which takes advice from an independent third party (S&P Global). The valuations committee is independent from the portfolio managers as well as Baillie Gifford's Private Companies Specialist team, with all voting members being from different operational areas of the firm, and the portfolio managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. For Edinburgh Worldwide, and our investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.

Recent market volatility has meant that recent pricing has moved much more frequently than would have been the case with the quarterly valuations cycle.

Beyond the regular cycle, the valuations committee also monitors the portfolio for certain 'trigger events'. These may include changes in fundamentals, a takeover approach, an intention to carry out an Initial Public Offering ('IPO'), company news which is identified by the valuation team or by the portfolio managers, or changes to the valuation of comparable public companies.

The valuations committee also monitors relevant market indices on a weekly basis and update valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate. When market volatility is particularly pronounced the team undertakes these checks daily. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value. There is no delay.

 

Edinburgh Worldwide Investment Trust*
Instruments valued	24
Revaluations performed	124
Percentage of portfolio revalued 4+ times	87.5%
Percentage of portfolio revalued 6+ times	37.5%

*Data reflecting period 1 November 2021 to 31 October 2022 to align with the Company's reporting period end.

 

Year to date, most revaluations have been decreases. The average movement in both valuation and share price for those which have decreased in value is shown below.

	Average movement in investee company valuation	Average movement in investee company share price
Instruments valued*	(26.5%)	(35.4%)

*Data reflecting period 1 November 2021 to 31 October 2022 to align with the Company's reporting period end.

 

Share prices have decreased more than headline valuations, because Edinburgh Worldwide typically holds preference stock, which provides some downside protection.

Four companies have raised capital at an increased valuation reflecting exceptional performance.

The share price movement reflects a probability-weighted average of both the regular valuation, which would be realised in an IPO, and the downside protected valuation, which would normally be triggered in the event of a corporate sale or liquidation.

The following chart quantifies the movements over the year influencing the fair value of the private company investments at 31 October 2022.

 

http://www.rns-pdf.londonstockexchange.com/rns/4653N_2-2023-1-20.pdf

Investment Philosophy

Most small businesses are destined to stay small given their limited scope for both structural growth and meaningful differentiation.Such businesses constitute the bulk of the smaller companies' universe yet are of no appeal to us. However, what is intriguing about the smaller companies' universe is that it contains a subset of immature but potentially high growth companies. By identifying attractive growth companies earlier we seek to benefit from growth at an earlier stage in a company's lifecycle and retain ownership of successful companies as they grow and thrive; we see our role as investing in what are potentially the larger companies of the future as opposed to the smaller companies of today.

We are looking to concentrate on the part of the market where we believe our analytical effort and the pursuit of genuinely transformational growth can be better exploited. The focus at time of initial investment is on younger, more immature companies that are global and exhibiting strong growth.

It is important to remember that big successful ideas typically start out as small, tentative and unproven. Early iterations are easy to dismiss as unworkable but experimentation with, and evolution of, an initially raw concept can, over time, yield huge commercial relevance. Our philosophy involves weighing up what is proven and tangible alongside what has promise and long term potential. Integral to this approach is recognising the role of innovation in business development; it provides the fuel for business creation, growth and long term competitive differentiation. Consequently, identifying companies that value innovation, having both a cultural acceptance of it and a means to develop commercial opportunities around it, is fundamental to our investment approach.

Growth companies, especially those which are young and hard to model, are difficult businesses to value. The wide range of potential outcomes and profitability that is heavily skewed to future years is a combination of uncertainties that many investors struggle with. We do not have all the answers but by approaching the challenge with a genuine long term perspective, accepting a degree of uncertainty, backing robust innovation and entrepreneurial management, we believe we are well positioned to identify the smaller businesses most likely to shape the world in which we live. As technological advancements encroach into an increasing pool of opportunity, the rate and extent of growth that a small business can achieve, in a relatively short period of time, is almost unrecognisable to that of a few years ago. Innovative smaller businesses that are unburdened by the legacy of historic business practices, or those willing to adapt to change, are best positioned to harness this opportunity.

 

Baillie Gifford Statement on Stewardship

Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.

 

Our Stewardship Principles

Prioritisation of Long-Term Value Creation

We encourage our holdings to be ambitious and focus their investments on long-term value creation. We understand that it is easy to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer holdings away from destructive financial engineering towards activities that create genuine economic and stakeholder value over the long run. We are happy that our value will often be in supporting management when others don't.

A Constructive and Purposeful Board

We believe that boards play a key role in supporting corporate success and representing the interests of all capital providers. There is no fixed formula, but it is our expectation that boards have the resources, information, cognitive and experiential diversity they need to fulfil these responsibilities. We believe that good governance works best when there are diverse skillsets and perspectives, paired with an inclusive culture and strong independent representation able to assist, advise and constructively challenge the thinking of management.

Long-Term Focused Remuneration with Stretching Targets

We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create genuine long-term alignment with external capital providers. We are accepting of significant payouts to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.

Fair Treatment of Stakeholders

We believe it is in the long-term interests of all enterprises to maintain strong relationships with all stakeholders - employees, customers, suppliers, regulators and the communities they exist within. We do not believe in one-size-fits-all policies and recognise that operating policies, governance and ownership structures may need to vary according to circumstance. Nonetheless, we believe the principles of fairness, transparency and respect should be prioritised at all times.

Sustainable Business Practices

We believe an entity's long-term success is dependent on maintaining its social licence to operate and look for holdings to work within the spirit and not just the letter of the laws and regulations that govern them. We expect all holdings to consider how their actions impact society, both directly and indirectly, and encourage the development of thoughtful environmental practices and 'net-zero' aligned climate strategies as a matter of priority. Climate change, environmental impact, social inclusion, tax and fair treatment of employees should be addressed at board level, with appropriately stretching policies and targets focused on the relevant material dimensions. Boards and senior management should understand, regularly review and disclose information relevant to such targets publicly, alongside plans for ongoing improvement.

 

Income Statement

For the year ended 31 October

	Notes	2022 Revenue £'000	2022 Capital £'000	2022 Total £000	2021 Revenue £'000	2021 Capital £'000	2021 Total £'000
(Losses)/gains on investments		-	(528,279)	(528,279)	-	178,323	178,323
Currency losses		-	(6,070)	(6,070)	-	(1,631)	(1,631)
Income	2	986	-	986	827	-	827
Investment management fee		(1,277)	(3,830)	(5,107)	(1,952)	(5,857)	(7,809)
Other administrative expenses		(953)	-	(953)	(907)	-	(907)
Net return before finance costs and taxation		(1,244)	(538,179)	(539,423)	(2,032)	170,835	168,803
Finance costs of borrowings		(675)	(2,026)	(2,701)	(340)	(1,019)	(1,359)
Net return before taxation		(1,919)	(540,205)	(542,124)	(2,372)	169,816	167,444
Tax		(57)	-	(57)	(50)	-	(50)
Net return after taxation		(1,976)	(540,205)	(542,181)	(2,422)	169,816	167,394
Net return per ordinary share	4	(0.49p)	(134.82p)	(135.31p)	(0.62p)	43.37p	42.75p

 

The total column of this Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this Statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return after taxation is both the profit and comprehensive income for the year.

 

Balance Sheet

As at 31 October

	Notes	2022 £'000	2022 £'000	2021 £'000	2021 £'000
Fixed assets
Investments held at fair value through profit or loss	6		872,804		1,376,365
Current assets
Debtors		4,882		322
Cash and cash equivalents		11,131		33,127
		16,013		33,449
Creditors
Amounts falling due within one year	8	(113,251)		(68,459)
Net current liabilities			(97,238)		(35,010)
Net assets			775,566		1,341,355
Capital and reserves
Share capital			4,058		4,052
Share premium account			499,723		497,999
Special reserve			35,220		35,220
Capital reserve			242,654		808,197
Revenue reserve			(6,089)		(4,113)
Shareholders' funds			775,566		1,341,355
Net asset value per ordinary share			197.70p		331.03p
Ordinary shares in issue	9		392,285,023		405,203,695

 

Statement of Changes in Equity

For the year ended 31 October 2022

	Notes	Share capital £'000	Share premium account £'000	Special reserve £'000	Capital Reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2021		4,052	497,999	35,220	808,197	(4,113)	1,341,355
Ordinary shares issued	9	6	1,724	-	-	-	1,730
Ordinary shares bought back into treasury		-	-	-	(25,338)	-	(25,338)
Net return after taxation		-	-	-	(540,205)	(1,976)	(542,181)
Shareholders' funds at 31 October 2022		4,058	499,723	35,220	242,654	(6,089)	775,566

 

For the year ended 31 October 2021

	Notes	Share capital £'000	Share premium account £'000	Special reserve £'000	Capital Reserve* £'000	Revenue reserve £'000	Shareholders' funds £000
Shareholders' funds at 1 November 2020		3,543	316,281	35,220	638,381	(1,691)	991,734
Ordinary shares issued	9	509	181,718	-	-	-	182,227
Net return after taxation		-	-	-	169,816	(2,422)	167,394
Shareholders' funds at 31 October 2021		4,052	497,999	35,220	808,197	(4,113)	1,341,355

* The capital reserve balance as at 31 October 2022 includes investment holding losses on fixed asset investments of £3,223,000 (2021 - gains of £591,196,000).

 

Cash Flow Statement

For the year ended 31 October

	Notes	2022 £'000	2022 £'000	2021 £'000	2021 £'000
Cash flows from operating activities
Net return before taxation			(542,124)		167,444
Net losses/(gains) on investments			528,279		(178,323)
Currency losses			6,070		1,631
Finance costs of borrowings			2,701		1,359
Overseas withholding tax incurred			(57)		(50)
Changes in debtors and creditors			(754)		416
Cash from operations*			(5,885)		(7,523)
Interest paid			(1,942)		(1,244)
Net cash outflow from operating activities			(7,827)		(8,767)
Cash flows from investing activities
Acquisitions of investments		(138,189)		(305,256)
Disposals of investments		115,592		108,235
Net cash outflow from investing activities			(22,597)		(197,021)
Cash flows from financing activities
Ordinary shares issued	9	1,730		182,227
Ordinary shares bought back into treasury and stamp duty thereon		(24,906)		-
Bank loans drawn down		335,346		318,406
Bank loans repaid		(306,862)		(299,373)
Net cash inflow from financing activities			5,308		201,260
Decrease in cash and cash equivalents			(25,116)		(4,528)
Exchange movements			3,120		(3,239)
Cash and cash equivalents at 1 November			33,127		40,894
Cash and cash equivalents at 31 October			11,131		33,127

* Cash from operations includes dividends received of £956,000 (2021 - £781,000) and interest received of £100,000 (2021 - nil).

 

Twenty Largest Holdings and Twelve Month Performance at 31 October 2022

 

Name	Business	Country	Fair value 2022 £'000	% of total assets*	Absolute† Performance	Relative† Performance
Alnylam Pharmaceuticals	Drug developer focused on harnessing gene silencing technology	USA	67,286	7.7	54.7	66.1
Space Exploration Technologies# U	Designs, manufactures and launches advanced rockets and spacecraft	USA	62,861	7.2	65.4	77.5
STAAR Surgical	Ophthalmic implants for vision correction	USA	30,984	3.5	(28.7)	(23.4)
PsiQuantum# U	Developer of commercial quantum computing	USA	27,682	3.2	(16.1)	(10.0)
Novocure	Manufacturer of medical devices for cancer treatment	USA	26,862	3.1	(17.6)	(11.6)
MarketAxess	Electronic bond trading platform	USA	23,688	2.7	(28.4)	(23.1)
Ocado	Online grocery retailer and technology provider	UK	20,917	2.4	(73.5)	(71.5)
Genmab	Antibody based drug development	Denmark	18,474	2.1	2.3	9.8
Zillow#	US online real estate portal	USA	18,070	2.1	(64.6)	(62.0)
AeroVironment	Small unmanned aircraft and tactical missile systems	USA	17,521	2.0	22.2	31.2
Oxford Nanopore Technologies P	Novel DNA sequencing technology	UK	17,295	2.0	(53.1)	(49.6)
Axon Enterprise	Law enforcement equipment and software provider	USA	16,712	1.9	(3.8)	3.3
Exact Sciences	Non-invasive molecular tests for early cancer detection	USA	15,663	1.8	(56.5)	(53.3)
Chegg	Online educational company	USA	15,587	1.8	(56.5)	(53.3)
Upwork	Online freelancing and recruitment services platform	USA	15,249	1.7	(66.0)	(63.5)
Kingdee International Software	Enterprise management software provider	China	14,450	1.6	(41.1)	(36.7)
Pacira BioSciences	Opioid free analgesics developer	USA	14,419	1.6	17.9	26.5
ShockWave Medical	Medical devices manufacturer	USA	13,638	1.6	62.0	73.9
BlackLine	Enterprise financial software provider	USA	13,625	1.5	(47.4)	(43.6)
Sprout Social	Cloud based software for social media management	USA	12,883	1.5	(43.6)	(39.5)
			437,033	53.0

 

 

* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.

† Absolute and relative performance has been calculated on a total return basis over the period 1 November 2021 to 31 October 2022. Absolute  

   performance is in sterling terms; relative performance is against S&P Global Small Cap Index (in sterling terms).

# More than one line of stock held. Holding information represents the aggregate of both lines of stock.

^U Denotes unlisted security.

^P Denotes listed security previously held in the portfolio as an unlisted security.

Source: Baillie Gifford/StatPro and relevant underlying index providers. See disclaimer at the end of this announcement

Past performance is not a guide to future performance

 

List of Investments as at 31 October 2022

 

Name	Business	Country	Fair Value 2022 £'000	% of total assets	Fair value 2021 £'0000
Alnylam Pharmaceuticals	Drug developer focused on harnessing gene silencing technology	USA	67,286	7.7	46,706
Space Exploration Technologies Series N Preferred U	Designs, manufactures and launches advanced rockets and spacecraft	USA	36,028	4.1	21,788
Space Exploration Technologies Series J Preferred U	Designs, manufactures and launches advanced rockets and spacecraft	USA	16,343	1.9	9,884
Space Exploration Technologies Series K Preferred U	Designs, manufactures and launches advanced rockets and spacecraft	USA	7,450	0.8	4,506
Space Exploration Technologies Class A Common U	Designs, manufactures and launches advanced rockets and spacecraft	USA	2,323	0.3	1,405
Space Exploration Technologies Class C Common U	Designs, manufactures and launches advanced rockets and spacecraft	USA	717	0.1	433
			62,861	7.2	38,016
STAAR Surgical	Ophthalmic implants for vision correction	USA	30,984	3.5	39,236
PsiQuantum Series C Preferred U	Developer of commercial quantum computing	USA	14,860	1.7	20,626
PsiQuantum Series D Preferred U	Developer of commercial quantum computing	USA	12,822	1.5	13,131
			27,682	3.2	33,757
Novocure	Manufacturer of medical devices for cancer treatment	USA	26,862	3.1	27,476
MarketAxess	Electronic bond trading platform	USA	23,688	2.7	33,953
Ocado	Online grocery retailer and technology provider	UK	20,917	2.4	45,747
Genmab	Antibody based drug development	Denmark	18,474	2.1	18,001
Zillow Class C U	US online real estate portal	USA	15,632	1.8	44,097
Zillow Class A U	US online real estate portal	USA	2,438	0.3	6,998
			18,070	2.1	51,095
AeroVironment	Small unmanned aircraft and tactical missile systems	USA	17,521	2.0	14,318
Oxford Nanopore Technologies P	Novel DNA sequencing technology	UK	17,295	2.0	25,910
Axon Enterprise	Law enforcement equipment and software provider	USA	16,712	1.9	17,351
Exact Sciences	Non-invasive molecular tests for early cancer detection	USA	15,663	1.8	17,900
Chegg	Online educational company	USA	15,587	1.8	26,259
Upwork	Online freelancing and recruitment services platform	USA	15,249	1.7	41,225
Kingdee International Software	Enterprise management software provider	China	14,450	1.6	24,591
Pacira BioSciences	Opioid free analgesics developer	USA	14,419	1.6	12,235
ShockWave Medical	Medical devices manufacturer	USA	13,638	1.5	13,366
BlackLine	Enterprise financial software provider	USA	13,625	1.6	25,922
Sprout Social	Cloud based software for social media management	USA	12,883	1.5	18,599
SHINE Technologies (Illuminated Holdings) Series C-5 Preferred U	Medical radioisotope production	USA	11,581	1.3	8,754
SHINE Technologies (Illuminated Holdings) Series D-1 Preferred U	Medical radioisotope production	USA	869	0.1	-
			12,450	1.4	8,754
Appian	Enterprise software developer	USA	12,247	1.4	20,944
PureTech Health	IP commercialisation focused on healthcare	UK	11,601	1.3	17,701
Epic Games U	Video game platform and software developer	USA	10,427	1.1	7,911
Astranis Space Technologies Series C Preferred U	Communication satellite manufacturing and operation	USA	9,638	1.1	9,329
AbCellera Biologics	Antibody design and development company	Canada	9,438	1.1	-
CyberArk Software	Cyber security solutions provider	Israel	9,242	1.1	15,115
JFrog	Software development tools and management	Israel	9,128	1.0	9,860
Xero	Cloud based accounting software for small and medium-sized enterprises	New Zealand	9,080	1.0	21,537
Schrödinger	Drug discovery and simulation software	USA	8,793	1.0	-
Fiverr	Freelance services marketplace for businesses	Israel	8,693	1.0	-
Progyny	Fertility benefits management company	USA	8,418	1.0	-
Relativity Space Series D Preferred U	3D printing and aerospace launch company	USA	5,193	0.6	7,812
Relativity Space Series E Preferred U	3D printing and aerospace launch company	USA	3,178	0.3	3,648
			8,371	0.9	11,460
Trupanion	Pet health insurance provider	USA	8,102	0.9	13,790
Codexis	Industrial and pharmaceutical enzyme developer	USA	7,820	0.9	33,953
Twist Bioscience	Biotechnology company	USA	7,770	0.9	-
Teladoc	Telemedicine services provider	USA	7,647	0.8	32,447
M3	Online medical database	Japan	7,274	0.8	12,017
Avacta Group	Affinity based diagnostic reagents and therapeutics	UK	7,100	0.8	6,642
Tandem Diabetes Care	Manufacturer of insulin pumps for diabetic patients	USA	7,236	0.8	14,746
Reaction Engines U	Advanced heat exchange company	UK	7,000	0.8	5,750
IPG Photonics	High-power fibre lasers	USA	6,719	0.8	10,473
Echodyne Corp. Series C-1 Preferred U	Metamaterial radar sensors and software	USA	6,676	0.8	-
QuantumScape P	Solid-state batteries for electric vehicles	USA	6,608	0.8	19,255
Akili Interactive P	Digital medicine company	USA	6,561	0.7	12,369
Snyk Ordinary Shares U	Security software	UK	1,989	0.2	2,736
Snyk Series F Preferred U	Security software	UK	4,394	0.5	4,560
			6,383	0.7	7,296
Zai Lab HK Line	Chinese bio-pharmaceutical development and distribution company	China	6,131	0.7	23,525
Ceres Power Holding	Developer of fuel cells	UK	6,192	0.7	23,497
Lightning Labs Series B Preferred U	Lightning software that enables users to send and receive money	USA	5,972	0.7	7,295
Genus	Livestock breeding and technology services	UK	5,931	0.7	12,842
Adaptimmune Therapeutics ADR	Cell therapies for cancer treatment	UK	5,770	0.6	12,135
DNA Script Series C Preferred U	Synthetic DNA fabricator	France	5,536	0.6	-
Doximity	Online healthcare resource and interactive platform developer	USA	5,534	0.6	-
Graphcore Series D2 Preferred U	Specialised processor chips for machine learning applications	UK	3,945	0.4	5,244
Graphcore Series E Preferred U	Specialised processor chips for machine learning applications	UK	1,437	0.2	1,672
			5,382	0.6	6,916
Splunk	Data diagnostics	USA	5,328	0.6	8,884
Zuora	Enterprise sales management software	USA	5,219	0.6	12,451
Renishaw	Measurement and calibration equipment	UK	4,926	0.6	7,055
Sutro Biopharma	Biotechnology company focused on next generation protein therapeutics	USA	4,779	0.5	11,041
Temenos Group	Banking software provider	Switzerland	4,738	0.5	10,210
LiveRamp	Marketing technology company	USA	4,706	0.5	11,523
Ambarella	Video compression and image processing semiconductors	USA	4,637	0.5	13,232
Sensirion Holding	Cloud based virtual banking solutions provider	Switzerland	4,463	0.5	5,939
Beam Therapeutics	Biotechnology company	USA	4,459	0.5	-
InfoMart	Online platform for restaurant supplies	Japan	4,387	0.5	11,039
MonotaRO	Online business supplies	Japan	4,169	0.5	11,489
KSQ Therapeutics Series C Preferred U	Biotechnology target identification company	USA	4,151	0.5	2,744
BillionToOne Series C Preferred U	Pre-natal diagnostics	USA	3,706	0.4	-
BillionToOne Promissory Note U	Pre-natal diagnostics	USA	434	0.1	-
			4,140	0.5	-
Expensify	Expense management software	USA	4,077	0.5	-
Everbridge	Critical event management software provider	USA	4,040	0.5	17,253
Galapagos	Clinical stage biotechnology company focussing on autoimmune and   fibrosis diseases	Belgium	3,978	0.5	5,187
Rightmove	UK online property portal	UK	3,393	0.4	4,771
Q2 Holdings	Cloud based virtual banking solutions provider	USA	3,284	0.4	6,997
IP Group	Intellectual property commercialisation	UK	3,229	0.4	6,601
American Superconductor	Designs and manufactures power systems and superconducting wire	USA	3,002	0.3	10,292
ITM Power	Hydrogen energy solutions manufacturer	UK	2,880	0.3	13,811
Wayfair	Online furniture and homeware retailer	USA	2,865	0.3	15,783
Oxford Instruments	Advanced instrumentation and equipment provider	UK	2,819	0.3	5,144
LendingTree	Online consumer finance marketplace	USA	2,565	0.3	13,786
TransMedics	Medical device company	USA	2,438	0.3	-
Ilika	Discovery and development of novel materials for mass market applications	UK	2,318	0.3	5,379
LivePerson	Messaging tools for business and customer interactions	USA	2,274	0.3	9,315
C4X Discovery Holdings U	Rational drug design and optimisation	UK	2,273	0.3	2,178
C4X Discovery Warrants U	Software to aid drug design	UK	-	0.0	37
			2,273	0.3	2,215
freee K.K.	Cloud based accounting software for small and medium-sized enterprises	Japan	2,231	0.2	6,833
Chinook Therapeutics (formerly Aduro Biotechnology) U	Immunotherapy drug development	USA	2,212	0.3	917
Chinook Therapeutics (formerly Aduro Biotechnology) CVR Line U	Immunotherapy drug development	USA	0	0.0	0
			2,212	0.3	917
Digimarc	Digital watermarking technology provider	USA	2,186	0.2	5,693
Cardlytics	Digital advertising platform	USA	2,167	0.2	11,770
Victrex	High-performance thermo-plastics	UK	2,101	0.2	2,909
Quanterix	Ultra-sensitive protein analysers	USA	2,014	0.2	7,742
CEVA	Licenses IP to the semiconductor industry	USA	1,980	0.2	2,743
Nanobiotix ADR	Nanomedicine company focused on cancer radiotherapy	France	1,846	0.2	4,066
PeptiDream	Peptide based drug discovery platform	Japan	1,829	0.2	3,377
Stratasys	3D printer manufacturer	USA	1,817	0.2	3,327
Cosmo Pharmaceuticals	Therapies for gastrointestinal diseases	Italy	1,688	0.2	1,846
Morphosys	Antibody based drug discovery platform	Germany	1,641	0.2	3,451
Benefitfocus	Employee benefits software provider	USA	1,386	0.2	1,810
New Horizon Health	Cancer screening company	China	1,365	0.2	1,870
Adicet Bio (formerly resTORbio)	Biotechnology company focused on age related disorders	USA	1,261	0.1	553
EverQuote	Online marketplace for buying insurance	USA	1,221	0.1	2,329
BASE	Commerce platform for small and medium-sized enterprises	Japan	1,087	0.1	3,951
Spire Global	Satellite powered data collection and analysis company	USA	1,083	0.1	3,570
NuCana SPN ADR	Next generation chemotherapy developer	UK	1,065	0.1	2,178
Huya ADR	A live game streaming platform	China	993	0.1	3,725
Catapult Group International	Analytics and data collection technology for sports teams and athletes	Australia	823	0.1	1,752
Tabula Rasa HealthCare	Cloud-based healthcare software developer	USA	810	0.1	4,711
Agora ADR	Voice and video platform technology provider	China	616	0.1	4,056
Cellectis	Genetic engineering for cell based therapies	France	523	0.1	1,915
Berkeley Lights	Biotechnology tools focused on cell characterisation	USA	474	0.1	4,186
Angelalign Technology	Medical devices manufacturer	China	67	0.0	261
Rubius Therapeutics	Developer of novel therapies using engineered red blood cells	USA	45	0.0	1,596
4D Pharma U	Microbiome biology therapeutics	UK	0	0.0	1,105
4D Pharma Warrants U	Microbiome biology therapeutics	UK	0	0.0	0
			0	0.0	1,105
China Lumena New Materials D	Mines, processes and manufactures natural thenardite products	China	0	0.0	0
Total equities			872,804	99.3
Net liquid assets			6,589	0.7
Total assets at fair value*			879,393	100.0

 

 

* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.

^U Denotes unlisted security.

^P Denotes listed security previously held in the portfolio as an unlisted security.

^D Denotes delisted security.

 

	Listed equities %	Unlisted securities† %	Net liquid assets %	Total assets %
31 October 2022	79.2	20.1	0.7	100.0
31 October 2021	87.0	10.8	2.2	100.0

Figures represent percentage of total assets.

† Includes holdings in preference shares, ordinary shares and convertible promissory note

 

Distribution of total assets* by industry

	Industry Analysis 31 October 2022 % of total assets*		Portfolio Weightings (% points overweight/(underweight)  relative to comparative index†) at 31 October 2022
Biotechnology	20.3		16.8
Software	16.3		12.0
Aerospace and Defence	12.8		11.6
Healthcare Equipment and Supplies	9.2		6.9
Life Sciences Tools and Services	4.5		3.4
Healthcare Technology	4.2		3.9
Technology Hardware, Storage and Peripherals	4.0		3.4
Pharmaceuticals	3.2		1.4
Capital Markets	3.1		0.3
Electronic Equipment, Instruments and Components	3.0		0.7
Electrical Equipment	2.7		1.1
Food and Staples Retailing	2.4		1.3
Real Estate Management and Development	2.1		0.4
Professional Services	1.9		0.1
Diversified Consumer Services	1.8		1.1
Healthcare Providers and Services	1.6		(0.5)
Internet and Direct Marketing Retail	1.3		0.8
Insurance	0.9		(2.0)
Semiconductors and Semiconductor Equipment	0.8		(1.5)
Auto Components	0.8		(0.7)
IT Services	0.6		(1.9)
Interactive Media and Services	0.5		(0.1)
Trading Companies and Distributors	0.5		(0.9)
Consumer Finance	0.3		(0.5)
Media	0.2		(1.2)
Chemicals	0.2		(3.0)
Entertainment	0.1		(0.6)
Net Liquid Assets	0.7
Total assets*	100.0

* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.

† S&P Global Small Cap Index (in sterling terms). Weightings exclude industries where the Company has no exposure. See disclaimer at the end of this announcement.

 

Distribution of total assets

Geographical Analysis

		31 October 2022 %	31 October 2021 %
North America		71.7	66.9
	USA	70.6	66.9
	Canada	1.1	-
Europe		21.5	20.9
	United Kingdom	13.5	15.6
	Eurozone	1.8	1.1
	Developed Europe (non-euro)	6.2	4.2
Asia		5.0	8.0
	Japan	2.3	3.5
	China	2.7	4.5
Australasia		1.1	2.0
	Australia	0.1	0.5
	New Zealand	1.0	1.5
Total equities		99.3	97.8
Net liquid assets		0.7	2.2
Total assets*		100.0	100.0

 

Sectoral Analysis

		31 October 2022 %	31 October 2021 %
Communication Services		2.9	5.6
Consumer Discretionary		6.3	15.0
Financials		4.3	4.9
Healthcare		43.2	32.3
Industrials		17.7	14.2
Information Technology		24.7	25.6
Materials		0.2	0.2
Net Liquid Assets		0.7	2.2
Total assets*		100.0	100.0

* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.

 

Notes to the condensed Financial Statements (unaudited)

1.  Basis of Accounting

The Financial Statements for the year to 31 October 2022 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies set out below which are unchanged from the prior year and have been applied consistently.

2.   Income

	2022 £'000	2021 £'000
Income from Investments
UK dividends	410	411
Overseas dividends	472	402
Overseas interest	4	14
	886	827
Other Income
Deposit interest	100	-
Total income	986	827
Total income comprises
Dividends from financial assets designated at fair value through profit or loss	882	813
Interest from financial assets designated at fair value through profit or loss	4	14
Interest from financial assets not at fair value through profit or loss	100	-
	986	827

3.   Investment Manager

The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to

Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to Baillie Gifford Overseas Limited

and Baillie Gifford Asia (Hong Kong) Limited. The Management Agreement can be terminated on three months' notice.

The annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly.

4.  Net Return Per Ordinary Share

	Revenue	2022 Capital	Total	Revenue	2021 Capital	Total
Net return per ordinary share	(0.49p)	(134.82p)	(135.31p)	(0.62p)	43.37p	42.75p

Revenue return per ordinary share is based on the net revenue loss after taxation of £1,976,000 (2021 - net revenue loss of £2,422,000) and on 400,679,723 (2021 - 391,579,802) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

Capital return per ordinary share is based on the net capital loss for the financial year of £540,205,000 (2021 - net capital gain of

£169,816,000) and on 400,679,723 (2021 - 391,579,802) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

There are no dilutive or potentially dilutive shares in issue.

5.   Dividends

There are no dividends paid and proposed in respect of the financial year. There is no revenue available for distribution by way of dividend for the year to 31 October 2022, revenue loss of £1,976,000 (2021 - revenue loss of £2,442,000) which is the basis on which the requirements of section 1158 of the Corporation Tax Act are considered.

6.  Fair Value Hierarchy

 

As at 31 October 2022	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	696,135	-	-	696,135
Unlisted ordinary shares	-	-	22,456	22,456
Unlisted preference shares*	-	-	153,779	153,779
Unlisted convertible promissory note	-	-	434	434
Total financial asset investments	696,135	-	176,669	872,804

 

As at 31 October 2021	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	1,224,768	-	-	1,224,768
Unlisted ordinary shares	-	-	18,235	18,235
Unlisted preference shares*	-	-	133,362	133,362
Unlisted convertible promissory note	-	-	-	-
Total financial asset investments	1,224,768	-	151,597	1,376,365

 

* The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.

Investments in securities are financial assets designated at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

7.   Transaction Costs

The purchases and sales proceeds figures above include transaction costs of £155,000 (2021 - £129,000) and £25,000 (2021 - £32,000) respectively.

8.  Bank Loans

The Company has a five year £100 million multi-currency revolving credit facility, with The Royal Bank of Scotland International Limited, with an expiry date of 9 June 2026, a five year £25 million multi-currency revolving credit facility, with National Australia Bank Limited, with an expiry date of 29 June 2023 and a five year £36 million multi-currency revolving credit facility, with National Australia Bank Limited, with an expiry date of 30 September 2024. As at 31 October 2022, the Company had drawings of €10,600,000, US$77,150,000 and £27,720,000 (2021 - . €7,200,000, US$53,150,000 and £21,300,000) under the £100 million multi- currency revolving credit facility, with The Royal Bank of Scotland International Limited. At 31 October 2022 and 2021 there were no drawings under the £25 million and £36 million multi-currency revolving credit facilities with National Australia Bank Limited.

 

All short term floating rate borrowings are stated at book cost which is considered to be equal to their fair value given the facilities are revolving credit facilities and as at 31 October 2022 amounted to £103,827,000 (2021 - £66,153,000).

 

9.  Share Capital

The Company has authority to allot shares under section 551 of the Companies Act 2006. The Board has authorised use of this authority to issue new shares at a premium to net asset value in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. In the year to 31 October 2022 the Company issued a total of 550,000 shares on a non pre-emptive basis (nominal value of £6,000, representing 0.1% of the issued share capital at 31 October 2021) at a premium to net asset value (on the basis of debt valued at book value) raising net proceeds of £1,730,000 (in the year to 31 October 2021 - 50,885,000 shares with a nominal value of £509,000, representing 14.4% of the issued share capital at 31 October 2020 raising net proceeds of £182,227,000).

Over the period from 31 October 2022 to 19 January 2023 the Company has issued no further shares.

The Company also has authority to buy back shares. In the year to 31 October 2022 13,468,672 shares with a nominal value of £135,000 were bought back at a total cost of £25,338,000 and held in treasury (2021 - none). At 31 October 2022 the Company had authority to buy back a further 47,316,331 ordinary shares.

Over the period from 31 October 2022 to 19 January 2023 the Company has bought back a further 1,215,382 shares at a total cost of £2,181,000.

 

10. Analysis of Change in Debt

	At 31 October 2021 £'000	Cash flows £'000	Exchange movement £'000	At 31 October 2022 £'000
Cash and cash equivalents	33,127	(25,116)	3,120	11,131
Loans due within one year	(66,153)	(28,484)	(9,190)	(103,827)
	(33,026)	(53,600)	(6,070)	(92,696)

 

11. Financial Information

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2022 or the year ended 31 October 2021 but is derived from those accounts. Statutory accounts for the period to 31 October 2021 have been delivered to the Registrar of Companies, and those for the year to 31 October 2022 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

Glossary of Terms and Alternative Performance Measures ('APM')

Total Assets

This is the Company' definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Net Asset Value ('NAV')

Also described as shareholders' funds, net asset value is the value of total assets less liabilities (including borrowings). Net asset value can be calculated on the basis of borrowings stated at book value and fair value. An explanation of each basis is provided below. The net asset value per share is calculated by dividing this amount by the number of ordinary shares in issue excluding any shares held in treasury.

Net Asset Value (Borrowings at Book Value) Borrowings are valued at their nominal book value. The value of the borrowings at book and fair value are set out on in note 8 above.

Net Asset Value (Borrowings at Fair Value) (APM) Borrowings are valued at an estimate of their market worth. The value of the borrowings at book and fair value are set out in note 8 above.

Net Asset Value (Reconciliation of NAV at Book Value to NAV at Fair Value)

 

	31 October 2022	31 October 2021
Net Asset Value per ordinary share (borrowings at book value)	197.70p	331.03p
Shareholders' funds (borrowings at book value)	£775,566,000	£1,341,355,000
Add: book value of borrowings	£103,827,000	£66,153,000
Less: fair value of borrowings	(£103,827,000)	(£66,153,000)
Shareholders' funds (borrowings at fair value)	£775,566,000	£1,341,355,000
Number of shares in issue	392,285,023	405,203,695
Net Asset Value per ordinary share (borrowings at fair value)	197.70p	331.03p

 

At 31 October 2022 and 31 October 2021 all borrowings are in the form of short term floating rate borrowings and their fair value is considered equal to their book value, hence there is no difference in the net asset value at book value and fair value.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities, excluding borrowings.

Discount/Premium (APM)

As stock markets and share prices vary, an investment trust's share price is rarely the same as its net asset value. When the share price is lower than the net asset value per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage of the net asset value per share. If the share price is higher than the net asset value per share, this situation is called a premium.

		31 October 2022	31 October 2021
Net asset value per share	(a)	197.70p	331.03p
Share price	(b)	172.60p	319.50p
(Discount)/premium	((b) - (a)) ÷ (a)	(12.7%)	(3.5%)

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

Compound Annual Return (APM)

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year.

Ongoing Charges (APM)

The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies.

Ongoing Charges Calculation

 

	31 October 2022	31 October 2021
Investment management fee	£5,107,000	£7,809,000
Other administrative expenses	£953,000	£907,000
Total expenses (a)	£6,060,000	£8,716,000
Average daily cum-income net asset value (with debt at fair value) (b)	£959,272,000	£1,324,089,000
Ongoing charges (a) as a percentage of (b)	0.63%	0.66%

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing is the Company's borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds.

 

	31 October 2022	31 October 2021
Borrowings (at book value)	£103,827,000	£66,153,000
Less: cash and cash equivalents	(£11,131,000)	(£33,127,000)
Less: sales for subsequent settlement	(£4,598,000)	-
Add: purchases for subsequent settlement	£6,719,000	-
Add: buy-backs awaiting settlement	£433,000	-
Adjusted borrowings (a)	£95,250,000	£33,026,000
Shareholders' funds (b)	£775,566,000	£1,341,355,000
Gearing: (a) as a percentage of (b)	12%	2%

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

	31 October 2022	31 October 2021
Borrowings (at book value) (a)	£103,827,000	£66,153,000
Shareholders' funds (b)	£775,566,000	£1,341,355,000
Potential gearing (a) as a percentage of (b)	13%	5%

 

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers Regulations, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements.

Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Share Split

A share split (or stock split) is the process by which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases, the total value of the shares remains the same with respect to the pre-split value.

Unlisted Company

An unlisted company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.

Third Party Data Provider Disclaimer

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

S&P Index Data

The S&P Global Small Cap Index ('Index') is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates ('SPDJI'). Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC, a division of S&P Global ('S&P'); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ('Dow Jones'). Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions,or interruptions of any index or the data included therein.

Sustainable Finance Disclosure Regulation ('SFDR')

The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Edinburgh Worldwide Investment Trust is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime 'NPPR' the following disclosures have been provided to comply with the high-level requirements of SFDR.

The AIFM has adopted Baillie Gifford & Co's Governance and Sustainable Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.

Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/ or governance matters) which it believes will positively or negatively influence the financial returns of an investment.

More detail on the Managers' approach to sustainability can be found in the Governance and Sustainability Principles and Guidelines document, available publicly on the Baillie Gifford website (bailliegifford.com/en/uk/about-us/ literature-library/ corporate-governance/our-stewardshipapproach-esg- principles-and-guidelines-2022/).

Taxonomy Regulation

The Taxonomy Regulation establishes an EU-wide framework of criteria for environmentally sustainable economic activities in respect of six environmental objectives. It builds on the disclosure requirements under SFDR by introducing additional disclosure obligations in respect of alternative investment funds that invest in an economic activity that contributes to an environmental objective.

The Company does not commit to make sustainable investments as defined under SFDR. As such, the underlying investments do not take into account the EU criteria for environmentally sustainable economic activities.