Annual Financial Report

RNS Number : 0402Y

Mid Wynd Inter Inv Trust PLC

26 August 2009

 



MID WYND INTERNATIONAL INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT AND PROPOSED NEW MEMORANDUM

AND ARTICLES OF ASSOCIATION

Copies of the Annual Report and Financial Statements for the year ended 30 June 2009 and the proposed new Memorandum and Articles of Association of Mid Wynd have been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

Tel: [phone]

The Annual Report and Financial Statements for the year ended 30 June 2009 including the Notice of Annual General Meeting is also available on Mid Wynd's page of the Baillie Gifford website at:

http://www.bailliegifford.com/documents/74088_Mid%20Wynd%200609.pdf

At the Annual General Meeting to be held on 29 September 2009, it is proposed that new Memorandum and Articles of Association be adopted in order to update the Company's existing Articles of Association to take account of changes in UK company law brought about by the further implementation of the Companies Act 2006 on 1 October 2009. More detail on the proposed changes to the Memorandum and Articles of Association is set out in the Directors' Report, the Notice of Annual General Meeting and the Appendix to the Notice of Annual General Meeting within the Annual Report and Financial Statements for the year ended 30 June 2009. Copies of the new Memorandum and Articles of Association are available for inspection at One London Wall, London EC2Y 5AB and Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 30 June 2009 which require to be published by DTR 4.1 is set out on the following pages. 

Baillie Gifford & Co

Company Secretaries

26 August 2009

CHAIRMAN'S STATEMENT

Performance

In the year to 30 June 2009, net asset value per share ('NAV') fell by 21.9% to 776.5p per share and the FTSE World Index in sterling terms fell by 16.2%. More than all of the damage to performance was inflicted in the first few months of the year and in the second half NAV rose 1.3% as against a fall of 6.8% in the World Index. The near collapse in the developed world's financial systems late last summer led to a sharp deceleration in real economic activity nearly everywhere. Within the portfolio, too much attention had been paid to the long term opportunities being thrown up by China's strong growth and the prospect of high Eastern savings rates blossoming into rising Eastern consumption. We paid insufficient heed to the shorter term economic risks. 'Slowing Western growth' as envisaged in my statement of last year turned out to be a dramatic collapse in activity all over the world. Even healthy exporting nations with relatively young, debt free populations suffered major shocks as their foreign customers vanished apparently overnight. Food and energy may indeed, as we continue to anticipate, and for the reasons I set out last year, be beneficiaries of long term supply and demand trends. This did little to protect them last autumn, however. Inflationary pressures gave way to deep recession and calendar year 2008 turned out to be the apogee of a very long (and now seemingly extinguished) bull market in government debt.

What was especially disappointing was the failure of our sizeable bond and cash positions to cushion us from the downturn. Aside from our hurricane bonds and government bonds (subsequently sold), both of which did notably better than equities, the balance of our bond holdings did poorly and in one or two individual instances performed dismally. Discussion of specific cases can be found in the Managers' Portfolio Review.

Extreme conditions in markets have thrown up opportunities and allowed us to redeem ourselves partially over the past few months. Seadrill's 2012 convertible is emblematic of the problem of there having been too many leveraged investors in the convertibles market. Forced sellers and an absence of buyers allowed us to buy this at a near 30% yield to redemption, selling out at a healthy profit as the yield fell back to around 12%. Reinet was an initially unloved spin out from the restructuring of the Richemont group which traded for a while at an unwarranted discount to its underlying assets. Adding significantly to depressed emerging markets related stocks on the basis of a steadily reinforced belief in the strength of their underlying earnings prospects was a major positive contribution in the second half of the year. The geographic asset allocation provided in the Annual Report, based upon where companies' shares are listed, does not fully capture the extent of this shift. For example, it is hard to argue that Ocean Wilsons or Trikona Trinity bear anything beyond a passing resemblance to UK equities, being, respectively, a Brazilian ports and tug boat company and an Indian property fund.

Earnings and dividend

As outlined in my last statement, the earnings for the year to 30 June 2008 benefited from the one-off recovery of £166,000 of VAT from HMRC, together with £59,000 of interest thereon. The 19.9% fall in earnings, from 20.29p to 16.26p, is largely attributable to this, but was also affected by lower dividend receipts and negligible interest on deposits, only partly offset by high yields on the enlarged bond portfolio. These are all also likely to be features of the forthcoming year.

A final dividend of 8.5p is recommended, which will take the total for the year to 15.0p, an increase of 7.1% on last year (ignoring the special dividend of 2.3p paid in respect of the VAT recovery). The slow down in earnings growth anticipated in last year's statement is likely to continue and expectations for the near future should be for a steady, rather than increasing, dividend stream.

The industry standard for calculating the total expense ratio changed during the year, to exclude the effects of tax relief on expenses for investment trusts in a tax payable position. The historic ratios have been recalculated and, at 0.77%, the total expense ratio for the year to 30 June 2009 is still lower than the 0.82% for 2008 on the revised basis.

The Board

The Board and Managers wish formally to record their thanks to Micky Ingall, who passed away earlier in the year. Shareholders have much reason to regret the loss of his wise and friendly counsel and to be grateful for his work on their behalf.

On a positive note, I am delighted to welcome Russell Napier to the Board. Russell has extensive experience of financial markets, in particular in the Asia-Pacific region, is an author on financial markets and runs a course on financial markets at the Edinburgh Business School. The Board looks forward to benefiting from his insight in its future deliberations.

Outlook

Too much debt was responsible for getting the world into its present difficult situation. Taking on even more is, however, nearly universally expected to see us through it. This time governments will decide upon which causes are deserving of support. Let us brace ourselves. Politicians love a quick fix. The novel combination of printing money and socialising credit risks is producing short term stability and improvement in the West but at a price of longer term unintended consequences. No one knows the exit strategy and no one can predict the unhelpful distortions that today's excess money will create. 

For now, improvement is underway in economies and in markets, and we expect most kinds of credit instrument to continue to bounce back from the multi-decade low valuations and high spreads we experienced a few months ago. The corporate world, excluding banks, has generally exhibited strong cash flow discipline and cost control. This stands in contrast to governments which are spending more and more even as their revenues decline.

For stock markets, it seems likely that the effects will be good before they may be bad. The good period may even extend for quite a while given how weak economies and government finances now are. Interest rates will remain low for as long as policy makers can keep them there. We must try to remember, however, since we are likely to be reminded of it again at some point, that this is a 'hair of the dog' strategy along a path still leading towards economic cirrhosis. Savers, not borrowers, are carrying the can. Strong well-run businesses are enduring both rising taxes and the use of those taxes to sustain weaker competitors. New problems relating to economic incentives are springing up to add to those within our financial systems that have already caused untold harm. In the meantime, the sun is shining, cash and government bonds seem unattractive, equities and credit look relatively appealing by contrast and we are in the business of making hay. 

Annual General Meeting

At the Annual General Meeting to be held on 29 September 2009, we are asking shareholders to approve a number of amendments to the Company's memorandum and articles of association. Details of the changes are given in the Appendix to the Notice of Meeting in the Annual Report.

Patrick MS Barron

18 August 2009

  MANAGERS' PORTFOLIO REVIEW

We started the year with bonds and cash amounting to 16.6% of total assets and borrowings in the form of a fixed rate yen bank loan comprising 2.8% of total assets. At one point in the year bonds and cash rose above a quarter of assets, with the cash being re-invested as equity valuations began to improve. Cash has been run down to a small working balance but bonds have grown in importance and within bonds credit has steadily assumed a growing weight. All our conventional government bonds have been sold and the only government paper we now hold is US and Japanese long-dated inflation protected stock. The deterioration in fiscal positions across the developed world is of a scale only previously encountered during and after major wars. Such is the dislocation and such is likely to be the consequent supply of new issuance that we can find little attraction in lending to governments at a modest fixed rate of interest. If inflation is simply about excess money as many contend, accelerating inflation is clearly a danger worth guarding against regardless of current depressed economic conditions.

The Chairman points out that most damage was inflicted early in the Company's year. Our very large and hitherto successful positions in oil and oil services stocks proved major detractors to our performance at that point. Schlumberger, Seadrill, Ultra Petroleum, Wood Group, Vallourec, Cameron International all fall into this camp. Exposure to other commodity related investments compounded the problem. These included Xstrata, US Steel, Vale do Rio Doce and ArcelorMittal. These were all problems of a thematic nature. Our view of the world failed to adapt fast enough to very rapidly changing circumstances. 

Added to this thematic setback were a couple of bad stock picks. Aker Kvaerner, also in oil services, suffered largely owing to a failure of execution on the part of the company and some question marks over the position of minority shareholders relative to that of the major owner, Mr Kjell Inge Rocke. Worse still, and as mentioned at the interim stage, has been our investment in the CQS Rig Finance Fund. What started as a mildly geared investment in some attractively yielding oil rig bonds rapidly saw its NAV dwindle as its positions were marked down in conditions of extreme distress and sales were ultimately forced upon the fund by its banking covenants. In contrast to our experience with the Seadrill convertible, CQS found itself on the sharp end of leverage in a market of forced sellers. In the case of CQS, however, we do expect that significant value may be salvaged for shareholders within the framework of a revised banking arrangement as these bonds continue to pay out or get called and gearing is reduced. On this basis, we added modestly to the now small holding when the shares returned from suspension.

We maintain the view that capital expenditure in energy, in contrast to many other fields, cannot long be postponed in the face of high natural decline rates at the world's primary mature production assets. Mitigating the performance gloom in the resource sector have been the strong contributions from OGX, Imperial Energy and Dragon Oil.

• OGX is a Brazilian oil and gas exploration company that hired away some of Petrobras's best oil exploration staff to help bid on offshore acreage at what have turned out to be very low prices. Its IPO had raised sufficient funds to finance fully all necessary exploration and development work on the licences. We bought into the shares during the most depressed period in markets last autumn and they have subsequently appreciated significantly.

• Imperial Energy was a London listed oil company with assets in the Tomsk region of Russia. Having taken up our rights when the company was unable to raise finance from banks, the company was subsequently taken over at a healthy premium by the Indian oil company ONGC.
  

• Dragon Oil is an oil and gas exploration and production company with the vast bulk of its assets in Turkmenistan and a rapidly rising production profile. Its majority owner is the Emirates National Oil Company which provides welcome elements both of expertise and of political clout. We bought into the shares following a minor scandal that had depressed the price in febrile markets.

Last year we mentioned our investment in the Athena Debt Opportunities fund. This was made in various stages. Despite continuing very low levels of default within the Athena portfolio of securitised debts, prices of the constituent investments fell steadily and yields rose in consequence.  Athena has been one of the worst detractors from performance and alongside the CQS Rig Finance Fund is the explanation for why our bond holdings did not do better in aggregate. The current unpopularity of the asset class is heightened by headlines about abusive practices and suggestions that at least some of the huge amount of the structured debt that has been issued should never have seen the light of day. However, we are attracted more than ever by the low valuation and high levels of protection against default in senior tranches of what we believe to have been sensible loans, which is what we believe the Athena fund holds.

Emerging Markets have become a significant factor in the portfolio. In contrast to the over-indebted nations of the West, this crisis has been a watershed for countries known best for having been among the victims of past crises. Many developing world banking systems are under-leveraged and were not involved in the folly that engulfed their peers elsewhere. The growth shock in places such as China, Brazil and even Turkey enabled interest rates to be cut to levels that are still high in both absolute and real terms but very low by pre-existing local standards. This has a materially positive impact on local consumers' propensity to spend rather than save. Mid Wynd has invested heavily into this development and benefited from doing so. We added to our fledgling holding in China Merchants Bank, a leading provider of retail consumer finance, and to our long standing holding in Brazil's Banco Itau following its merger with rival Unibanco and made new investments in Garanti Bankasi of Turkey and National Bank of Greece, the latter with strong positions domestically and across the Balkans and Turkey. We added to our holding in Chinese travel company Ctrip and to Naspers, a South African media company with a large and very valuable stake in Chinese internet company, Tencent. 

Ocean Wilsons and Trikona Trinity, BM&F Bovespa and China Vanke, Inspur and BIM all fall squarely into the same category. Ocean Wilsons is the majority owner of locally listed Brazilian ports and tug boat company Wilson Sons Ltd, in addition to which it owns a portfolio of other liquid investments in value nearly equal to the market capitalisation of the whole company. Trikona Trinity is a special situation in Indian property. We accumulated our holding at various stages following a strategic review orchestrated by some aggressive large shareholders and prior to the passing of a special resolution to wind the company up and pay out proceeds to shareholders either in cash or in the form of buybacks. It seemed to us that this raid had resulted in Trikona being savagely undervalued. BM&F Bovespa is the fairly recently merged combination of Brazil's stock and derivatives exchanges. The valuation had collapsed from the heady levels of the IPO, yet prospects appear to be attractive and markets, especially in derivatives, highly immature. Vanke is a leading Chinese property developer - at least some part of the colossal stimulus being applied to the Chinese economy will end up both in stock markets and in property there. Inspur is a Hong Kong listed information technology reseller partly owned by Microsoft and BIM a Turkish discount retailer based loosely around the strategy successfully deployed by the privately owned German company Aldi. Last, but not least, to enable us to achieve further exposure to this important long term shift, we took a holding in the Baillie Gifford Greater China fund. As with the other two Baillie Gifford funds to which we have exposure the share class held by the Company suffers no management charges.

Old favourites and large holdings Kone and Schindler, the elevator companies, have continued to deliver strong operating results and relative share price performance. As new orders have declined in many parts of the world, the strength of the recurring service and modernisation business is coming through in rising margins and free cash generation. China represents around a third of new orders for Kone. Chinese stimulus is aimed, in part, at increasing urbanisation - the need for elevators to be built and subsequently serviced seems well underpinned in the decades ahead. Valuations look unchallenging in return for decent growth and exceptional returns on capital. Essilor, in prescription eyewear, falls into a similar category, weathering the storm well despite weakness in European volumes, and taking advantage of weaker asset prices to make a series of bolt-on acquisitions. Medco Health Services is a new holding in a company we have long admired and which was founded with the aim of providing high quality, low cost service in the convoluted and complex world of American prescription healthcare. Valuation remains modest relative to cash generation and a pristine balance sheet and the advantage of both scale and having been created to master complexity from the outset rather than adapt to it is not to be under-estimated.

Goldman Sachs and the Chicago Mercantile Exchange are both strong businesses that have made us money on the basis that they were (and still are) reasonably priced, disliked by the market and beneficiaries both of consolidation in their industries and of favourable trends that have tended to be overlooked. Goldman has emerged even more pre-eminent as the employer of choice for ambitious finance professionals and looks likely to profit from a long wave of refinancing among its clients and trading opportunities and high spreads in many markets. We were unfortunately a little early in buying our initial holding (one week prior to the Lehman bankruptcy) but have added to it on various occasions since as our contentions were holding up and the price had fallen. The Chicago Mercantile Exchange (CME) may well succeed in bringing a range of currently opaque and counterparty-risk-laden off-exchange derivative transactions onto its exchange and through a central clearing system, in which case there should be attractive growth ahead. The company's flawless operational performance through the crisis certainly argues for the merits of such a model.

The portfolio has seen a fairly high degree of turnover this year. This reflects the highly unusual degree of change we are all experiencing. As ever, there remains a core bias to strong, growing and cash generative companies though we are ready to take advantage of individual opportunities as they are thrown up by the present extraordinary circumstances. Risk currently seems attractively priced by markets. We have therefore taken advantage of our ability, as a small closed ended fund, to invest in small or illiquid stocks where there is investment appeal.

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS  at 30 June 2009
Name	Region		Business		2009			2008
					Value £'000	% of total assets			Value £'000
Baillie Gifford Developed Asia Pacific Fund		Asia Pacific including  Japan		Investment fund	2,037	5.0	3,087
Baillie Gifford Japanese Smaller Companies Fund		Asia Pacific including Japan		Investment fund	1,688	4.1	1,756
Kone		Continental Europe		Elevators	1,069	2.6	880
Baillie Gifford Greater China Fund		Emerging Markets		Investment fund - China	876	2.2	-
Essilor		Continental Europe		Ophthalmology	753	1.8	799
Seadrill		Continental Europe		Deep water oil rigs	735	1.8	1,387
China Merchants Bank		Emerging Markets		Banking - China	707	1.7	343
Reinet Investments		Continental Europe		Investment holding company - Luxembourg	692	1.7	-
Goldman Sachs Group		North America		Investment bank	666	1.6	-
Pride International		North America		Offshore drilling contractor	636	1.6	-
OGX Petróleo e Gás Participacoes		Emerging Markets		Oil and gas exploration and production - Brazil	618	1.5	-
Proshares Ultrashort Lehman 20+ Year Treasury		North America		Exchange traded fund	578	1.4	-
Ocean Wilsons Holdings		United Kingdom		Tugboats and port terminals - Brazil	553	1.3	-
Schindler		Continental Europe		Elevators	528	1.3	528
Petrobras		Emerging Markets		Integrated oil - Brazil	521	1.3	939
Dragon Oil		Emerging Markets		Oil and gas exploration and production - Turkmenistan	508	1.2	-
Medco Health Solutions		North America		Prescription management and health information	499	1.2	-
Walgreen		North America		Pharmacy chain	493	1.2	450
Cameron International		North America		Oilfield equipment manufacturer	474	1.2	768
Novozymes		Continental Europe		Enzyme producer	427	1.1	393
Schlumberger		North America		Oil services	427	1.1	1,674
Monsanto		North America		Agricultural biotechnology	420	1.0	-
Marine Harvest		Continental Europe		Fish farming	407	1.0	307
Juridica Investments		United Kingdom		A fund of lawsuits	398	1.0	-
Naspers		Emerging Markets		Media company - South Africa and China	398	1.0	328
Geberit		Continental Europe		Building materials	394	1.0	393
Pepsico		North America		Soft drink and food	384	0.9	531
Atlas Copco		Continental Europe		Industrial compressors and mining equipment	381	0.9	884
Imperial Tobacco		United Kingdom		Tobacco	380	0.9	299
Walmex		Emerging Markets		General retailer - Mexico	343	0.8	384
					18,990	46.4	16,130

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

DISTRIBUTION OF ASSETS

			30 June 2009 %		30 June 2008 %
Equities:	United Kingdom		7.7		13.9
	Continental Europe		22.1		29.3
	North America		19.6		17.7
	Asia Pacific including Japan		11.4		9.4
	Emerging Markets		21.0		13.1
Total Equities			81.8		83.4
Fixed interest			17.8		7.8
Net liquid assets			0.4		8.8
Total assets (before deduction of bank loan)			100.0		100.0

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006, other than Mr RRJ Burns, a Director of the Company, having been a partner of Baillie Gifford & Co, until his retiral on 30 April 2006. Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less than one year's notice, or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.125% of the net assets of the Company attributable to its shareholders on the last day of that quarter. The management fee is levied on all assets, including holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co, however, the OEICs' share classes held by the Company do not incur management fees. The details of the management fee are as follows:

	2009 £'000		2008 £'000
Investment management fee	194		252
VAT suffered	-		6
	194		258

PRINCIPAL RISKS AND UNCERTAINTIES

As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of achieving capital and income growth by investing on a worldwide basis. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.

The Company may enter into derivatives transactions as explained in the Investment Policy on page 21 of the Annual Report. No such transactions were undertaken in the period under review.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.

 (i) Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items. 

The Investment Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below. The exposure of the Company's OEIC investments managed by Baillie Gifford & Co has been included in the analysis as sterling, being their currency of quotation. The main changes to net currency exposure during the year are as follows: Exposure to the US dollar increased, mainly reflecting purchases of US bonds. Exposure to the Japanese yen increased, despite the negative exchange movement on the yen loan, owing to the purchase of a Japanese bond. Exposure to the Norwegian krona decreased through sales of Norwegian equity investments and exposure to the Swiss franc decreased through sales of Swiss equities and a decrease in Swiss franc cash deposits. Explanations of the changes in asset allocation can be found in the Chairman's Statement and Managers' Portfolio Review.

At 30 June 2009	Investments £'000		Cash and deposits £'000		Bank loans  £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	14,111		4		-		45		14,160
Euro	5,570		28		-		65		5,663
Danish krone	627		-		-		-		627
Norwegian krona	1,142		-		-		-		1,142
Swedish krona	684		-		-		-		684
Swiss franc	1,830		53		-		-		1,883
Japanese yen	1,590		54		(1,888)		(3)		(247)
South African rand	1,049		-		-		-		1,049
Other overseas currencies	4,384		2		-		4		4,390
Total exposure to currency risk	30,987		141		(1,888)		111		29,351
Sterling	9,789		2		-		(77)		9,714
	40,776		143		(1,888)		34		39,065

* Includes net non-monetary assets of £10,000.

At 30 June 2008	Investments £'000		Cash and deposits £'000		Bank loans  £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	13,734		-		-		42		13,776
Canadian dollar	1,249		-		-		-		1,249
Euro	7,255		-		-		10		7,265
Danish krone	842		-		-		1		843
Norwegian krona	2,212		-		-		-		2,212
Swedish krona	1,783		-		-		-		1,783
Swiss franc	3,326		3,794		-		26		7,146
Japanese yen	-		-		(1,422)		40		(1,382)
South African rand	897		-		-		-		897
Other overseas currencies	1,994		2		-		9		2,005
Total exposure to currency risk	33,292		3,796		(1,422)		128		35,794
Sterling	13,604		503		-		88		14,195
	46,896		4,299		(1,422)		216		49,989

* Includes net non-monetary assets of £6,000.

Currency Risk Sensitivity

At 30 June 2009, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2008.

	2009 £'000		2008 £'000
US dollar	708		689
Canadian dollar	-		62
Euro	283		363
Danish krone	31		42
Norwegian krona	57		111
Swedish krona	34		89
Swiss franc	94		357
Japanese yen	(12)		(69)
South African rand	52		45
Other overseas currencies	221		101
	1,468		1,790

(ii) Interest Rate Risk

Interest rate movements may affect directly:

• the fair value of the investments in fixed interest rate securities;

• the level of income receivable on cash deposits;

• the fair value of the Company's fixed-rate borrowings; and

• the interest payable on any variable rate borrowings which the Company may take out.

Interest rate movements may also impact upon the market value of the Company's investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments. The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value. 

The interest rate risk profile of the Company's financial assets and liabilities at 30 June is shown below. The main changes to the interest rate risk profile of the Company's financial assets during the year has been a net investment of £4,448,000 in UK and Overseas bonds.

Financial assets	2009			2008
	Fair value £'000	Weighted average interest rate	Weighted average period until maturity	Fair value £'000	Weighted average interest rate	Weighted average period until maturity
Fixed rate:
UK bonds	682	6.5%	15 years	466	7.5%	41 years
US dollar bonds	663	5.6%	15 years	1,374	10.8%	3 months
Euro bonds	878	6.8%	14 years	-	-	-
Floating rate:
UK bonds (interest rate linked to LIBOR)	396	2.0%	1 year	-	-	-
US dollar bonds (interest rate linked to US LIBOR)	1,299	8.9%	1 year	503	15.7%	1 year
US dollar bonds (interest rate linked to US CPI)	1,519	1.8%	19 years	-	-	-
Euro bonds (interest rate linked to Euro LIBOR)	127	9.5%	6 years	367	15.2%	7 years
Brazilian bond (interest rate linked to Brazilian CPI)	-	-	-	518	6.6%	37 years
Japanese bond (interest rate linked to Japanese CPI)	1,145	1.4%	9 years	-	-	-
Fixed interest collective investment schemes:
CQS Rig Finance Fund	47	-	n/a	645	7.9%	n/a
Athena Debt Opportunities Fund	434	4.4%	28 years	147	6.0%	29 years

The cash deposits generally comprise call deposits or short term money market deposits with original maturities of less than three months, which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

Financial Liabilities	2009 £'000	2008 £'000
The interest rate risk profile of the Company's financial liabilities at 30 June was:
Fixed rate - Yen denominated	1,888	1,422

The maturity profile of the Company's financial liabilities at 30 June was:
In two to five years (Yen bank loan matures in 2 years 8 months)	1,888	1,422
	1,888	1,422

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 30 June 2009 would have decreased total net assets and total return on ordinary activities by £396,000 (2008 - £88,000). A decrease of 100 basis points would have had an equal but opposite effect.

An increase of 100 basis points in bond yields as at 30 June 2009 would have decreased the net asset value per share (with borrowings at fair value) by 7.88p (2008 - 1.8p). A decrease of 100 basis points would have had an equal but opposite effect.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index, investments are selected based upon the merit of individual companies and therefore performance may well diverge from the short term fluctuations of the comparative index.

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given on pages 17 to 20 of the Annual Report. In addition, a geographical analysis of the portfolio (shown above), an analysis of the portfolio by broad industrial or commercial sector and a list of the 30 largest equity investments by their aggregate market value (shown above) is given on page 11 of the Annual Report. 86.0% (2008 - 85.8%) of the Company's net assets are invested in equities. A 3% increase in quoted equity valuations at 30 June 2009 would have increased total assets and total return on ordinary activities by £1,008,000 (2008 - £1,286,000). A decrease of 3% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board monitors the exposure to any one holding. The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's borrowing facilities are detailed below and the maturity profile of its borrowings is set out above.

			2009 £'000	2008 £'000
Bank loan			1,888	1,422

A US$5 million loan facility has been arranged with Lloyds TSB Scotland plc, expiring on 27 February 2012. At 30 June 2009 drawings were ¥300 million at an interest rate of 1.905% per annum (2008 - ¥300 million at 1.905%).

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

• Where the Investment Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question.

• The Board regularly receives information from the Investment Managers on the credit ratings of those bonds and other securities in which the Company has invested.

• The Company's listed investments are held on its behalf by The Bank of New York Mellon, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board.

• Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

• Transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers of the creditworthiness of that counterparty.

• Cash is only held at banks that are regularly reviewed by the Managers.

Credit Risk Exposure

The exposure to credit risk at 30 June was:

	2009 £'000	2008 £'000
Fixed interest investments	7,190	4,020
Cash and deposits	143	4,299
Debtors and prepayments	274	511
	7,607	8,830

None of the Company's financial assets are past due or impaired.

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet with the exception of long term borrowings which are stated in accordance with FRS 26. 

	2009				2008
	Book £'000	Fair £'000				Book £'000	Fair £'000
Fixed rate yen loan	1,888	1,913				1,422	1,416
Total long term borrowings	1,888	1,913				1,422	1,416

Gains and losses on hedges

At 30 June 2009 there were no unrecognised gains/losses on hedges (2008 - nil).

Realised currency gains/losses are taken to the capital reserve and are not reflected in the revenue account unless they are of a revenue nature.

Capital Management

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 21 of the Annual Report. Shares may be repurchased as explained on page 27 of the Annual Report.

Other Risks

Other risks faced by the Company include the following:

Regulatory Risk - failure to comply with applicable legal and regulatory requirements could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. Breach of section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains. Baillie Gifford's Heads of Business Risk & Internal Audit and Regulatory Risk provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 842 are not breached.

Operational/Financial Risk - failure of the Managers' accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. The Board reviews the Managers' Report on Internal Controls and the reports by other key third party providers are reviewed by the Managers on behalf of the Board.

Gearing Risk - the Company may borrow money for investment purposes (sometimes known as gearing). If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. All borrowings require the prior approval of the Board and gearing levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable.

Discount Volatility - the discount at which the Company's shares trade can widen. The Board monitors the level of discount and the Company has authority to buyback its own shares.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that, to the best of our knowledge:

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and loss of the Company; and

• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

Richard RJ Burns

18 August 2009

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

INCOME STATEMENT

	For the year ended 30 June 2009				For the year ended 30 June 2008
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Losses on investments	-	(10,777)	(10,777)		-	(547)	(547)
Currency (losses)/gains	-	(12)	(12)		-	89	89
Income (note 2)	1,336	-	1,336		1,561	-	1,561
Investment management fee	(97)	(97)	(194)		(129)	(129)	(258)
VAT recovered (note 3)	-	-	-		111	55	166
Other administrative expenses	(150)	-	(150)		(153)	-	(153)
Net return before finance costs and taxation	1,089	(10,886)	(9,797)		1,390	(532)	858
Finance costs of borrowings	(20)	(20)	(40)		(22)	(52)	(74)
Net return on ordinary activities before taxation	1,069	(10,906)	(9,837)		1,368	(584)	784
Tax on ordinary activities	(251)	34	(217)		(348)	39	(309)
Net return on ordinary activities after taxation	818	(10,872)	(10,054)		1,020	(545)	475
Net return per ordinary share (note 4)	16.26p	(216.24p)	(199.98p)		20.29p	(10.85p)	9.44p
Dividends paid and proposed per ordinary share (note 5)	15.00p				14.00p
Special dividend per ordinary share (note 5)	-				2.30p

The total column of the Income Statement is the profit and loss account of the Company.

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

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

  MID WYND INTERNATIONAL INVESTMENT TRUST PLC

BALANCE SHEET

30 June 2009 £'000		30 June 2008 £'000
Fixed Assets
Investments	40,776		46,896
Current Assets
Debtors	274		511
Cash and deposits	143		4,299
	417		4,810
Creditors Amounts falling due within one year	(240)		(291)
Net current assets	177		4,519
Total assets less current liabilities	40,953		51,415
Creditors Amounts falling due after more than one year (note 6)	(1,888)		(1,422)
Provisions for liabilities and charges
Deferred taxation	-		(4)
Total net assets	39,065		49,989
Capital and reserves
Called-up share capital	1,257		1,257
Share premium	20		20
Capital reserve - realised	35,437		39,276
Capital reserve - unrealised	954		7,987
Revenue reserve	1,397		1,449
Shareholders' funds	39,065		49,989
Net asset value per ordinary share (after deducting borrowings at fair value)	776.5p		994.4p
Net asset value per ordinary share (after deducting borrowings at par)	777.0p		994.3p

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 June 2009

	Share capital £'000	Share premium £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at   1 July 2008	1,257	20	39,276	7,987	1,449	49,989
Net return on ordinary activities after taxation	-	-	(3,839)	(7,033)	818	(10,054)
Dividends paid during the year (note 5)	-	-	-	-	(870)	(870)
Shareholders' funds at 30 June 2009	1,257	20	35,437	954	1,397	39,065

For the year ended 30 June 2008

	Share capital £'000	Share premium £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at   1 July 2007	1,257	20	36,890	10,918	1,083	50,168
Net return on ordinary activities after taxation	-	-	2,386	(2,931)	1,020	475
Dividends paid during the year (note 5)	-	-	-	-	(654)	(654)
Shareholders' funds at 30 June 2008	1,257	20	39,276	7,987	1,449	49,989

  MID WYND INTERNATIONAL INVESTMENT TRUST PLC

CASH FLOW STATEMENT
	For the year ended 30 June 2009			For the year ended 30 June 2008
	£'000	£'000			£'000	£'000
Net cash inflow from operating activities		982				860
Servicing of finance
Interest and breakage costs paid	(37)				(76)
Net cash outflow from servicing of finance		(37)				(76)
Taxation
Corporation tax paid	(198)				(43)
Total tax paid		(198)				(43)
Financial investment
Acquisitions of investments	(29,282)				(18,635)
Disposals of investments	24,795				23,616
Realised currency profit	336				259
Net cash (outflow)/inflow from financial investment		(4,151)				5,240
Equity dividends paid (note 5)		(870)				(654)
Net cash (outflow)/inflow before use of liquid resources and financing		(4,274)				5,327
Liquid resources
Decrease/(increase) in short term deposits	1,771				(1,380)
Net cash inflow/(outflow) from use of liquid resources		1,771				(1,380)
Financing
Bank loans repaid	-				(1,443)
Net cash outflow from financing		-				(1,443)
(Decrease)/increase in cash		(2,503)				2,504
Reconciliation of net cash flow to movement in net funds/(debt)
(Decrease)/increase in cash in the year		(2,503)				2,504
(Decrease)/increase in short term deposits		(1,771)				1,380
Net cash outflow from bank loans		-				1,443
Exchange movement on short term deposits		118				273
Exchange movement on bank loans		(466)				(443)
Movement in net funds/(debt) in the year		(4,622)				5,157
Net funds/(debt) at 1 July		2,877				(2,280)
Net (debt)/funds at 30 June		(1,745)				2,877
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		(9,797)				858
Losses on investments		10,777				547
Currency losses/(gains)		12				(89)
Amortisation of fixed interest book cost		(128)				(49)
Decrease/(increase) in accrued income		32				(168)
Decrease/(increase) in debtors		162				(147)
(Decrease)/increase in creditors		(11)				5
Overseas tax suffered		(43)				(89)
Income tax suffered		(22)				(8)
Net cash inflow from operating activities		982				860

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

NOTES

	The financial statements for the year to 30 June 2009 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 June 2009, which are unchanged from the prior year and have been applied consistently.
					30 June 2009 £'000							30 June 2008£'000
2.	Income
	Income from investments and interest receivable				1,330							1,491
	Interest on VAT recovery				-							59
	Other income				6							11
					1,336							1,561
3.	VAT recovered
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. HMRC accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007 and repaid £166,000 of VAT together with £59,000 of interest, received by the Managers on behalf of the Company, which was recognised in the year to 30 June 2008, allocated to revenue and capital on the same basis as the VAT expense was originally charged.
					30 June 2009 £'000							30 June 2008 £'000
4.	Net return per ordinary share
	Revenue return				16.26p							20.29p
	Capital return				(216.24p)							(10.85p)
	Total return				(199.98p)							9.44p
	Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £818,000 (2008 - £1,020,000) and on 5,027,766 ordinary shares, being the number of ordinary shares in issue throughout each year. Capital return per ordinary share is based on the net capital loss for the financial year of £10,872,000 (2008 - net capital loss of £545,000) and on 5,027,766 ordinary shares, being the number of ordinary shares in issue throughout each year. There are no dilutive or potentially dilutive shares in issue.
				2009				2008			2009 £'000			2008 £'000
5.		Ordinary Dividends
		Amounts recognised as distributions in the period:
		Previous year's final (paid 16 October 2008)		8.50p				7.50p			427			377
		Previous year's special (paid 16 October 2008)		2.30p				-			116			-
		Interim (paid 7 April 2009)		6.50p				5.50p			327			277
				17.30p				13.00p			870			654
		We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £818,000 (2008 - £1,020,000).
			2009					2008			2009 £'000			2008 £'000
		Ordinary Dividends (Ctd)
		Dividends paid and proposed in the period:
		Interim dividend per ordinary share	6.50p					5.50p			327			277
		Proposed final dividend per ordinary share (payable 8 October 2009)	8.50p					8.50p			427			427
			15.00p					14.00p			754			704
		Special dividend per ordinary share (paid 16 October 2008)	-					2.30p			-			116
			15.00p					16.30p			754			820
		If approved the final dividend will be paid on 8 October 2009 to all shareholders on the register at the close of business on 11 September 2009.
6.		Creditors include a bank loan of ¥300 million which is repayable on 27 February 2012  (2008 - ¥300 million). On 14 August 2009 the Company drew down €1,320,000 under the US$5 million multi-currency facility with Lloyds TSB Scotland described in note 12 in the Annual Report.
7.		The Annual Report and Financial Statements including the Notice of Annual General Meeting will be available on the Managers' website www.bailliegifford.com  on or around 26 August 2009.
8.		The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2009. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2008 and 2009 accounts; their reports for both years were unqualified and, for the 2008 accounts, did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and, for the 2009 accounts, did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
9.		None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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