Half Yearly Report

RNS Number : 0298F

Mid Wynd Inter Inv Trust PLC

16 February 2015

Mid Wynd International Investment Trust plc (the "Company")

Half-Yearly Financial Report for the six months ended 31 December 2014

This announcement contains regulated information

Chairman's statement

Performance

I am pleased to report strong performance by the Company over the six months, which saw the net asset value and share price both exceed 300 pence for the first time in the Company's history. The net asset value as at 31 December 2014 stood at 308.1 pence per share, an increase of 10.4 per cent, which compares to the capital return on the MSCI All Country World Index (in sterling) of 6.7 per cent. The net asset value total return, based on the combination of capital appreciation and dividends (assuming dividends are re-invested) was 11.3 per cent, compared to the benchmark's total return of 7.6 per cent. Whilst only a six month reporting period, it is, nevertheless, encouraging that the Company has achieved this performance in its first reporting period under Artemis' management, following the portfolio re-structuring in May and June 2014. Further details on the performance and the portfolio are set out in the investment manager's review that follows.

Benchmark

You will note from the paragraph above that the Company's comparative index has changed from the FTSE World Index (in sterling) to the MSCI All Country World Index (in sterling). The reason for this change is that the latter index includes a broader list of constituent markets, particularly in emerging markets. The Board and investment manager agreed that this represents a better comparator, in view of how the portfolio is now managed by Artemis.

Revenue account and dividend

For the six months ended 31 December 2014, the Company had a revenue return of 1.56 pence per share and an interim dividend of 1.35 pence per share (2013: 1.30 pence) will be paid to shareholders on 10 April 2015 to those on the register on 27 February 2015.

Share capital

During the period under review, 554,440 shares were bought back at a cost of £1.5 million and placed in treasury. These shares were purchased at an average discount of 2.6 per cent and added 0.15 pence per share to the net asset value for continuing shareholders. Around 75 per cent of the total shares repurchased were acquired in July and August 2014 and included the remaining sellers from the Baillie Gifford savings plans and ISAs.

I am pleased to record an expansion of the Company's share capital in December 2014, when 1,822,609 shares were re-issued from treasury, raising £5.6 million of new money. The shares were issued to a number of existing and new investors in the Company. The share issue followed a number of presentations on the Company by the investment manager.

The Board and the investment manager remain committed to continuing to grow the Company and will seek to issue further shares to satisfy future demand. In order to be able to meet this demand, the Company is required to have certain authorities from shareholders. At the last annual general meeting, shareholders approved the issue of up to 10 per cent of the Company's share capital without first offering these shares to existing shareholders. The recent issue of shares has used the majority of this authority; and an update of it is now being sought. You will find enclosed with this report a letter setting out further details of this proposal, together with a notice of general meeting and form of proxy.

Borrowings

Another important matter to report to you relates to the borrowings of the Company. The existing facilities, consisting of £2.5 million and €3.0 million fixed rate loans with Scotiabank, are due to expire on 20 February 2015. Work has been carried out on finding a replacement for these and a review of a number of potential lenders and their offerings was undertaken. The outcome of this review is that terms have been agreed in principle, again with Scotiabank, but this time to provide a three-year revolving credit facility of US$16 million. The Board, following discussions with the investment manager, decided on a US dollar denominated facility to act as a natural hedge against the Company holding assets priced in US dollars. As for the increase in the size of the facility, the Board considers this to be far from imprudent in relation to the net assets of the Company (potential gearing of up to 14 per cent); while a revolving credit facility provides the Company with a greater level of flexibility in how these borrowings are utilised. Gearing can be increased or decreased to reflect the investment manager's views on stockmarkets and investment opportunities.

Outlook

The outlook in the short-term is uncertain. Both the UK and US continue to grow their economies, but by contrast many economies across Europe are struggling to generate any growth and are experiencing recessionary and deflationary pressures. The European Central Bank has decided (since the end of the reporting period) to pump money into the system via quantitative easing to try and stimulate growth, but the success or otherwise of this is difficult to predict at this stage. China and a number of other emerging markets, whilst still growing, are doing so at slower rates than in the past, although the sharp decline in the oil price should help companies and economies that have a high dependency on oil and significant energy costs.

The investment manager's thematic and value bias aims to create a resilient portfolio that provides a degree of downside protection, should markets fall; but also reward shareholders should markets rise.

Contact us

I look forward to reporting further in the annual report on the performance of your Company and its portfolio. Until then, shareholders can keep up to date with developments between formal reports by visiting midwynd.co.uk, where you will find information on the Company and a factsheet which is updated monthly. In addition, the Board is always keen to hear from shareholders. Should you wish to, you can e-mail me at richard.burns@artemisfunds.com.

Richard Burns

Chairman

16 February 2015

Investment manager's review

Review of the period

This was a busy but rewarding six months for the Company. Having largely completed re-structuring the portfolio by the end of June, we let the Company's new holdings go to work in the market over the last six months of the year.

The Company's net asset value increased by 11.3 per cent during the second half of 2014. And while some of that was due to stock-picking and our well-timed decision to increase gearing during October, the portfolio's increased exposure to the US (and by extension, to the US dollar) also played a considerable part.

Two major issues dominated returns. The first was the slide in the value of sterling relative to the US dollar. Such was the divergence between the two currencies that the Company's benchmark index ended the period lower in US dollar terms - but produced a positive return in sterling. Happily, the Company was a beneficiary of this. One of our first actions when we assumed responsibility for the portfolio was to increase its geographical diversity. That resulted in a much smaller position in the UK market and a significant increase in exposure to the US.

The second principal issue at work was the sharp fall in the price of oil. That was dramatic and accelerated into the final quarter of the year. One of our investment themes at the start of the period was 'Energy in a Gas Glut'. This focussed our attention on those companies which are beneficiaries of cheap gas, such as pipeline companies.

The other group of companies which formed part of this theme were US onshore oil producers, who are using new technologies - such as 'fracking' - to tap new sources of energy. For a time, these onshore producers produced phenomenal returns. The Company made money on its holdings in such companies earlier in the period. With the oil price falling, however, we felt that one of the supports for these companies' cashflows was ebbing away with alarming rapidity. At the same time, we became concerned by weakening demand in emerging markets. Taken together, this prompted us to cut all of our positions in US onshore oil companies at a relatively early stage. Investment themes seldom die; they tend to shift and change over time. 'Energy in a Gas Glut', however, seems to be the exception. It has, in our view, largely played out.

Our value bias, in combination with our thematic approach, often directs us towards Japanese companies. Unfortunately, an increase in the consumption tax appears to have had a dampening effect on that country's fragile economic recovery. This was confirmed by a research trip to Japan, where all the evidence was that the domestic economy is merely 'chugging along'. And although the Prime Minister has received a renewed mandate from Japanese voters for his reform program, we have grown more cautious on Japan.

Overall, the contributors to the Company's pleasing performance over the six months have been quite varied. In our 'Media Content' theme, our faith in Time Warner continues to be rewarded. We also saw good returns from our US railroad stocks and from some of the 'Retiree Spending Power' holdings, and in particular, VF (owner of the North Face brand of outdoor clothing) performed well. Unsurprisingly, the main negative contributors were our oil positions. As mentioned above, however, we enjoyed good returns on those holdings earlier in the year and we are pleased that we cut our positions when we did, thereby avoiding the worst of the falls in the oil price. The portfolio now has no direct exposure to oil companies. Instead, we prefer to own those companies that will be the beneficiaries of lower hydrocarbon prices.

Top ten contributors to performance

Name	Contribution (%)
Walgreens Boots Alliance	0.7
Eastern Tobacco	0.6
Bank of China	0.6
Time Warner	0.5
Visa	0.5
AmerisourceBergen	0.5
Rakuten	0.5
Abbvie	0.5
Union Pacific	0.4
VF	0.4

Bottom ten contributors to performance

Name	Contribution (%)
Ebara	(0.3)
Continental Resources	(0.2)
Google	(0.2)
Global Logistic Properties	(0.2)
Dreamworks Animation	(0.2)
Discovery Communications	(0.2)
Marfin Investment Group Holdings	(0.1)
EOG Resources	(0.1)
Cabela's	(0.1)
Sumitomo Mitsui Financial Group	(0.1)

Outlook

Although the last six months have seen a number of dips in global equity markets, investors have typically returned to the market as buyers after a short hiatus. Valuations have risen, but there are few attractive alternatives to equities - so we believe that companies with strong and visible cashflows will do well. This does not, however, feel like the right time to be over-ambitious. As such, we are backing companies that can provide consistent cashflows. Our themes focus our investment selection on growing industries. We expect the portfolio overall to continue to deliver attractive returns.

Simon Edelsten, Alex Illingworth &

Rosanna Burcheri

Fund managers

Responsibility statement of the directors in respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge, in respect of the Half-Yearly Financial Report for the six months ended 31 December 2014:

• the condensed set of financial statements has been prepared in accordance with the Financial Reporting Council's statement 'Half-Yearly Financial Reports';

• the Chairman's statement to shareholders and investment manager's review includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The Half-Yearly Financial Report for the six months ended 31 December 2014 was approved by the Board and the above responsibility statement has been signed on its behalf by:

Richard Burns

Chairman

16 February 2015

Income statement

	For the six months ended 31 December 2014 (unaudited)			For the six months ended 31 December 2013 (unaudited)			For the year ended 30 June 2014 (audited)
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	-	6,153	6,153	-	7,999	7,999	-	6,601	6,601
Currency gains/(losses)	-	603	603	-	(65)	(65)	-	(5)	(5)
Income	565	-	565	661	-	661	1,603	-	1,603
Investment management fee	(41)	(123)	(164)	(90)	(90)	(180)	(178)	(178)	(356)
Other administrative expenses	(121)	(8)	(129)	(123)	-	(123)	(230)	(120)	(350)
Net return before finance costs and taxation	403	6,625	7,028	448	7,844	8,292	1,195	6,298	7,493
Finance costs of borrowings	(16)	(48)	(64)	(33)	(33)	(66)	(65)	(65)	(130)
Net return on ordinary activities before taxation	387	6,577	6,964	415	7,811	8,226	1,130	6,233	7,363
Tax on ordinary activities	(38)	-	(38)	(18)	-	(18)	(82)	-	(82)
Net return on ordinary activities after taxation	349	6,577	6,926	397	7,811	8,208	1,048	6,233	7,281
Net return per ordinary share	1.56p	29.43p	30.99p	1.52p	29.88p	31.40p	4.08p	24.27p	28.35p

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 period.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance sheet

	As at 31 December 2014 (unaudited) £'000	As at 31 December 2013 (unaudited) £'000	As at 30 June 2014 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss	74,441	76,642	66,328
Current assets
Financial assets: derivative financial instruments	50	-	-
Debtors	1,421	167	643
Cash and cash equivalents	2,482	1,761	1,288
	3,953	1,928	1,931
Creditors
Amounts falling due within one year	(5,159)	(206)	(5,417)
Net current (liabilities)/assets	(1,206)	1,722	(3,486)
Total assets less current liabilities	73,235	78,364	62,842
Creditors
Amounts falling due after more than one year
Bank loans	-	(4,996)	-
Total net assets	73,235	73,368	62,842
Capital and reserves
Called up share capital	1,343	1,343	1,343
Capital redemption reserve	16	16	16
Share premium	5,698	4,983	4,983
Capital reserve	64,782	65,745	54,904
Revenue reserve	1,396	1,281	1,596
Shareholders' funds	73,235	73,368	62,842
Net asset value per ordinary share (after deducting borrowings at fair value)	308.1p	282.5p	279.2p
Net asset value per ordinary share (after deducting borrowings at par)	308.1p	282.6p	279.3p

Reconciliation of movements in shareholders' funds

	For the six months ended 31 December 2014 (unaudited)
		Capital
	Share	redemption	Share	Capital	Revenue	Shareholders'
	capital	reserve	premium	reserve*	reserve	funds
	£'000	£'000	£'000	£'000	£'000	£'000
Shareholders' funds at 1 July 2014	1,343	16	4,983	54,904	1,596	62,842
Net return on ordinary activities after taxation	-	-	-	6,577	349	6,926
Issue of shares from treasury	-	-	715	4,839	-	5,554
Repurchase of shares	-	-	-	(1,538)	-	(1,538)
Dividends paid	-	-	-	-	(549)	(549)
Shareholders' funds at 31 December 2014	1,343	16	5,698	64,782	1,396	73,235

	For the six months ended 31 December 2013 (unaudited)
		Capital
	Share	redemption	Share	Capital	Revenue	Shareholders'
	capital	reserve	premium	reserve*	reserve	funds
	£'000	£'000	£'000	£'000	£'000	£'000
Shareholders' funds at 1 July 2013	1,343	16	4,983	59,010	1,435	66,787
Net return on ordinary activities after taxation	-	-	-	7,811	397	8,208
Repurchase of shares	-	-	-	(1,076)	-	(1,076)
Dividends paid	-	-	-	-	(551)	(551)
Shareholders' funds at 31 December 2013	1,343	16	4,983	65,745	1,281	73,368

	For the year ended 30 June 2014 (audited)
		Capital
	Share	redemption	Share	Capital	Revenue	Shareholders'
	capital	reserve	premium	reserve*	reserve	funds
	£'000	£'000	£'000	£'000	£'000	£'000
Shareholders' funds at 1 July 2013	1,343	16	4,983	59,010	1,435	66,787
Net return on ordinary activities after taxation	-	-	-	6,233	1,048	7,281
Repurchase of shares	-	-	-	(10,339)	-	(10,339)
Dividends paid	-	-	-	-	(887)	(887)
Shareholders' funds at 30 June 2014	1,343	16	4,983	54,904	1,596	62,842

* Capital reserve as at 31 December 2014 includes unrealised gains of £6,184,000 (31 December 2013 - £24,449,000; 30 June 2014 - £3,075,000).

Cash flow statement

	Six months to 31 December 2014 (unaudited) £'000	Six months to 31 December 2013 (unaudited) £'000	Year to 30 June 2014 (audited) £'000
Net cash inflow from operating activities	235	308	763
Net cash outflow from servicing of finance	(64)	(65)	(130)
Net cash (outflow)/inflow from financial investments	(2,452)	1,859	10,671
Dividends paid	(549)	(551)	(887)
Net cash (outflow)/inflow before use of liquid resources and financing	(2,830)	1,551	10,417
Financing
Issue of shares from treasury	5,554	-	-
Repurchase of shares	(1,530)	(993)	(10,332)
Net cash inflow/(outflow) from financing	4,024	(993)	(10,332)
Increase in cash	1,194	558	85
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period	1,194	558	85
Exchange movement on bank loans	74	75	169
Movement in net debt in the period	1,268	633	254
Net debt at start of the period	(3,614)	(3,868)	(3,868)
Net debt at end of the period	(2,346)	(3,235)	(3,614)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	7,028	8,292	7,493
Net gains on investments	(6,153)	(7,999)	(6,601)
Currency (gains)/losses	(603)	65	5
Amortisation of fixed income book cost	1	(16)	(19)
Changes in debtors and creditors	-	(18)	(33)
Overseas tax	(38)	(16)	(82)
Net cash inflow from operating activities	235	308	763

Notes to the Half-Yearly Financial Report

1. Accounting policies

The condensed financial statements for the six months to 31 December 2014 have been prepared on the basis of the accounting policies as set out in the Company's Annual Financial Report for the year ended 30 June 2014 and in accordance with the Financial Reporting Council's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditor's pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly.

The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 30 June 2014 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

2. Return per ordinary share

	Six months to 31 December 2014 (unaudited) £'000	Six months to 31 December 2013 (unaudited) £'000	Year to 30 June 2014 (audited) £'000
Net return per ordinary share
Revenue return on ordinary activities after taxation	349	397	1,048
Capital return on ordinary activities after taxation	6,577	7,811	6,233
Total net return	6,926	8,208	7,281

The net return per ordinary share has been calculated based on 22,351,284 (31 December 2013 - 26,142,498; 30 June 2014 - 25,684,721) ordinary shares, being the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.

3. Dividends

	Six months to 31 December 2014 (unaudited) £'000	Six months to 31 December 2013 (unaudited) £'000	Year to 30 June 2014 (audited) £'000
Amounts recognised as distributions in the period:
Final dividend for the year ended 30 June 2014 of 2.50 pence, paid 31 October 2014 (2013 - 2.10 pence, paid 11 October 2013)	549	551	550
Interim dividend for the year ended 30 June 2014 of 1.30 pence, paid 3 April 2014	-	-	337
	549	551	887
Amounts paid and payable in respect of the period:
Interim dividend for the year ending 30 June 2015 of 1.35 pence (2014: 1.30 pence)	321	337	337
Final dividend for the year ended 30 June 2014 of 2.50 pence	-	-	549
Adjustment to provision for previous year's final dividend	-	(3)	-
	321	334	886

An interim dividend of 1.35 pence per share was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 10 April 2015 to shareholders on the register at the close of business on 27 February 2015. The ex-dividend date is 26 February 2015. The Company operates a dividend reinvestment plan and the final date for elections for this dividend is 18 March 2015.

4. Share capital

	At 31 December 2014 (unaudited) No. of shares	At 31 December 2013 (unaudited) No. of shares	At 30 June 2014 (audited) No. of shares
Allotted, called up and fully paid (ordinary shares of 5 pence each)	23,768,630	25,958,830	22,500,461
Treasury shares (ordinary shares of 5 pence each)	3,095,200	905,000	4,363,369
	26,863,830	26,863,830	26,863,830

In the six months to 31 December 2014 a total of 554,440 ordinary shares with a nominal value of £27,722 were bought back at a total cost of £1,538,000 and held in treasury (31 December 2013 - 405,000 ordinary shares with a nominal value of £20,250 at a total cost of £1,076,000; 30 June 2014 - 3,863,369 ordinary shares with a nominal value of £193,000 at a total cost of £10,339,000).

In addition, in the six months to 31 December 2014 a total of 1,822,609 ordinary shares with a nominal value of £91,130 were re-issued from treasury for total proceeds of £5,554,000, of which £715,000 was credited to share premium, and £4,839,000 was credited to the capital reserve. The Company did not allot or issue any shares during the year ended
30 June 2014.

5. Related party transactions

There were no related party transactions during the period.

6. Transactions with the investment manager

The investment management fee payable for the six months ended 31 December 2014 was £164,000 (six months ended 31 December 2013 - £180,000; year ended 30 June 2014 - £356,000) of which £85,000 (31 December 2013 - £92,000; 30 June 2014 - £54,000) was outstanding at the period end.

7. Principal risks and uncertainties

Pursuant to DTR 4.2.7R of the Disclosure and Transparency Rules, the principal risks faced by the Company include general market risk, regulatory, operational, financial and gearing risks.

These risks, which have not materially changed since the Annual Financial Report for the year ended 30 June 2014, and the way in which they are managed, are described in more detail in the Annual Financial Report which is available at midwynd.co.uk.