Annual Financial Report

RNS Number : 2441R

Mid Wynd Inter Inv Trust PLC

09 September 2014

 



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

Annual Financial Report for the year ended 30 June 2014

This announcement contains regulated information

Financial Highlights

-     Net asset value total return of 11.7 per cent and share price total return of 8.4 per cent.

-     Proposed final dividend of 2.50 pence per share.

-     Total dividends for the year of 3.80 pence per share.

	30 June 2014	30 June 2013	% return*
Net asset value per share (borrowings at fair value)	279.2p	253.1p	11.7
Net asset value per share (borrowings at par)	279.3p	253.3p	11.6
Share price†	274.5p	256.6p	8.4
FTSE World Index (in Sterling)	810.5	736.8	10.0
(Discount)/premium (borrowings at fair value)	(1.7)%	1.4%
(Discount)/premium (borrowings at par)	(1.7)%	1.3%
Total assets	£67.7m	£71.9m
Bank loans	£4.9m	£5.1m
Shareholders' funds	£62.8m	£66.8m
Dividends paid and proposed**	3.80p	3.40p
Revenue return per share	4.08p	3.11p
Capital return per share	24.27p	23.43p
Total return per share	28.35p	26.54p
Ongoing charges	0.8%	0.9%

Year ended 30 June	2014	2014	2013	2013
	High	Low	High	Low
Share price†	288.0p	252.5p	266.0p	221.5p
Net asset value per share (borrowings at fair value)	294.4p	253.3p	271.7p	223.2p
Net asset value per share (borrowings at par)	294.6p	253.6p	272.0p	223.6p
Premium/(discount) (borrowings at fair value)	2.5%	(5.9)%	5.8%	(4.6)%
Premium/(discount) (borrowings at par)	2.4%	(6.0)%	5.6%	(4.7)%

†    Mid market price.

*     Total return. Includes the reinvestment of dividends during the year.

**    The recommended final dividend for the year to 30 June 2014 of 2.50 pence will, if approved by shareholders, be paid on 31 October 2014 to shareholders on the register at the close of business on 3 October 2014. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for receipt of elections for this dividend is 10 October 2014.

Total returns to 30 June 2014	Since 1 May 2014^	3 years	5 years	10 years
Net asset value per share (borrowings at fair value)	2.1%	15.6%	92.7%	141.0%
Net asset value per share (borrowings at par)	2.1%	15.6%	92.7%	141.5%
Share price	1.7%	12.5%	119.7%	204.9%
FTSE World Index (in Sterling)	2.8%	29.7%	95.0%	132.2%

^     The date Artemis was appointed as investment manager.

Source: Morningstar/Artemis.

Strategic Report

This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, which Mid Wynd International Investment Trust plc (the 'Company') is required to comply with for the first time for the year ended 30 June 2014.

Corporate strategy and operating environment

The Company is incorporated in Scotland and operates as an investment trust company and is an investment company within the meaning of section 833 of the Companies Act 2006 (the 'Act'). Its business as an investment trust is to buy and sell investments with the aim of achieving the investment objective and policy outlined below. The Company has been approved as an investment trust in accordance with the requirements of section 1158 of the Corporation Taxes Act 2010 for the year ended 30 June 2013 and future periods, subject to the Company continuing to meet the eligibility conditions and ongoing requirements of the regulations. The Board will manage the Company so as to continue to meet these conditions.

The Company has no employees and delegates most of its operational functions to service providers.

Objective and investment policy

The objective of the Company is to achieve capital and income growth by investing on a worldwide basis. Investments are selected for their inclusion within the portfolio solely on the basis of the strength of the investment case.

The Company is prepared to move freely between different markets, sectors, industries, market capitalisations and asset classes as investment opportunities dictate. On acquisition, no holding shall exceed 15 per cent of the portfolio. The Company will not invest more than 15 per cent of its gross assets in UK listed investment companies in aggregate. Assets other than equities will be purchased from time to time including but not limited to fixed interest holdings, unquoted securities and derivatives. Subject to prior Board approval, the Company may use derivatives for investment purposes or for efficient portfolio management (including reducing, transferring or eliminating investment risk in its investments and protection against currency risk).

It is an aim of the Company to provide dividend growth over time, although this is subordinate to the primary aim of maximising total returns to shareholders.

While there is a comparative index for the purpose of measuring performance, little attention is paid to the composition of this index when constructing the portfolio and the composition of the portfolio is likely to vary substantially from that of the index. A long term view is taken and there may be periods when the net asset value per share declines in absolute terms and relative to the comparative index. The number of individual holdings will vary over time but to ensure diversification there can be between 40 and 140 holdings and the portfolio is managed on a global basis rather than as a series of regional sub-portfolios.

Company history

The Company can trace its origins to a Dundee-based textile business operated by successive generations of the Scott family since 1797, when premises were first purchased for the business in the lane or 'wynd' from which Company takes its name. The Company obtained a listing of its share capital on the London Stock Exchange in October 1981 and has, since that time, conducted its business as a listed investment trust company. On 1 May 2014, following the retirement of the fund manager, Michael MacPhee, the investment management of the Company was transferred from Baillie Gifford & Co., who had managed the Company since 1965, to Artemis Investment Management LLP. Subsequently, as a result of the Company's adoption of the Alternative Investment Fund Managers Directive (the 'AIFMD') on 15 July 2014, Artemis Fund Managers Limited was appointed as the Investment Manager and Alternative Investment Fund Manager of the Company.

Gearing

The Company may use gearing as part of its investment strategy and the Board has agreed that the Company can borrow up to 30 per cent of its net assets. The Company's borrowings at 30 June 2014 and 30 June 2013 were €3 million and £2.5 million 3 year fixed-rate loans with Scotiabank Europe, both of which expire on 20 February 2015. Borrowings are invested in equity and other markets as considered to be appropriate on investment grounds. The Company's gearing is reviewed by the Board and Investment Manager on an ongoing basis. As at 30 June 2014, gearing represented 7 per cent of total assets less all cash.

Current and future developments

A summary of the Company's developments during the year ended 30 June 2014, together with its prospects for the future, is set out in the Chairman's Statement and Investment Manager's Review. The Board's principal focus is the delivery of positive long-term returns for shareholders. This will be dependent on the success of the investment strategy, in the context of both economic and stockmarket conditions. The investment strategy, and factors that may have an influence on it, are discussed regularly by the Board and the Investment Manager. The Board regularly considers the ongoing development and strategic direction of the Company, including its promotion and the effectiveness of communication with shareholders.

Chairman's Statement

Total return

Last year I had to report that Mid Wynd had experienced a disappointing year despite the Net Asset Value ('NAV') reaching an all-time high. I am glad to say that this year's outcome was somewhat better in comparison with stock market indices, although in absolute terms the results were exactly the same as the previous year. The combination of capital appreciation and dividends paid (assuming the reinvestment of those dividends which is known as the 'total return'), was 11.7 per cent which compares to a total return on the FTSE World Index of 10.0 per cent.

Change of Investment Manager

This respectable but unspectacular outcome is not, however, the most important matter on which I have to report to you. Last summer the Board was informed by our then investment manager, Baillie Gifford & Co., of the unexpected news that Michael MacPhee, who had been the partner responsible for our portfolio for over a decade, intended to retire in April 2014. Following receipt of this news, the Board and Baillie Gifford held lengthy discussions as to the Company's future strategy and how the portfolio might be managed. It became clear to the Board that Baillie Gifford's proposals were very far-reaching and that the proper course of action was to consider proposals from other management houses to see how their offerings might compare with what Baillie Gifford were proposing. We consulted with our advisers, JP Morgan Cazenove, and a list of possible alternative investment managers was drawn up and proposals invited. A 'beauty contest' was held in early April, in which Baillie Gifford were one of the participants. After due consideration it was decided that the proposals put forward by Artemis Investment Management LLP offered the best prospects for the Company's future success. Accordingly, our long standing arrangements with Baillie Gifford were terminated and Artemis took over responsibility for portfolio management from 1 May 2014 and for the secretarial and administrative functions from 1 July 2014.

Baillie Gifford had been the investment manager and secretaries of the Company since our shares were listed in October 1981 and had been managing the portfolio of stock market investments which formed the Company's assets since 1965. I hope that shareholders will join me and the Board in heartily thanking Baillie Gifford for their services to the Company and for the excellent results which were achieved by them over a period of many years. It may be of interest to note that the market value of an ordinary share at the time of the Company's listing in 1981 was 12.2 pence compared to 274.5 pence at 30 June 2014.

Capital performance

The NAV per share at 30 June 2014 was 279.2 pence, an increase of 10.3 per cent on the 253.1 pence reported a year earlier. This compares with an increase of 7.3 per cent in the FTSE World Index, and in the Board's view is a satisfactory result considering the costs incurred in the substantial restructuring of the portfolio following the change in investment manager. The thinking behind this restructuring is explained in the Investment Manager's Review. The outperformance of the index was achieved in the first half of the year. As was reported to you in February 2014, the NAV per share in the six months to 31 December 2013 rose by 11.6 per cent against a 5.4 per cent increase in the FTSE World Index. In the second half of the year, the NAV fell by 1.2 per cent while the comparative index gained a further 1.7 per cent. We would have underperformed in the second half, even without the portfolio reconstruction costs referred to above.

Earnings and dividends

Last year I said that we expected a significant increase in earnings in the year ahead, and I am glad to say that this has been achieved. In the first half of the year earnings were up 19.7 per cent, increasing from 1.27 pence per share to 1.52 pence, and the increase in the second half was even sharper, 39.1 per cent, from 1.84 pence to 2.56 pence. For the year as a whole earnings totalled 4.08 pence, up 31.2 per cent on the previous year's 3.11 pence, and are the highest yet achieved in the Company's history.

Prospects for earnings in the coming year seem reasonable and the directors are recommending an increased final dividend of 2.50 pence, which, if approved at the Annual General Meeting (the 'AGM'), would give a total dividend for the year of 3.80 pence, an increase of 11.8 per cent on last year's total of 3.40 pence.

Share capital

The Company, as I said last year, is distinctive in providing liquidity in its shares by offering continued buy backs or issuance either side of a 2 per cent band relative to NAV. We carried out some modest buying in of shares in the early part of the year, but we were aware that one of the consequences of the change in investment manager would be the selling of a substantial proportion of the shares held in the Baillie Gifford Share Plan or in Baillie Gifford ISAs. Much of this selling was unavoidable as in many cases shareholders who owned shares in the Company in these wrappers also held shares in other Baillie Gifford managed investment trusts in those same wrappers, and as the rules of those schemes dictate that only shares in Baillie Gifford managed trusts are eligible investments, the Company's shares had to be sold if members wished to continue to hold their other investments. This led to substantial selling in May and June and in those months a total of 3,425,369 shares were bought into treasury. Over the year as a whole, 3,863,369 shares have been bought in at a cost of £10,339,000, representing 14.7 per cent of the shares in issue as at 30 June 2013.

The result of all this is that over the year, despite the 10.3 per cent rise in NAV per share I noted earlier, shareholders' funds have fallen by £4 million, to £62.8 million. The question of how this decline can be reversed is a matter to which the Board and our Investment Manager are giving serious attention.

Regulations

You will be aware that all investment trust companies have been required to comply with the AIFMD, a piece of EU legislation which came into force on 22 July this year. As a consequence of the change of investment manager, the (considerable) work which had been done by Baillie Gifford and the Board to prepare for the AIFMD coming into force had to be abandoned. However, Artemis already had a number of clients to which the AIFMD applied, so it has been relatively straightforward to achieve compliance by the deadline. Our Depositary, who is part of the same group as our Custodian, is J.P. Morgan Europe Limited, and our Alternative Investment Fund Manager and Investment Manager is Artemis Fund Managers Limited.

Outlook

You will see from the Investment Manager's Review and from the list of investments that we are now holding a portfolio which is based around a number of themes. I expect that, over time, this approach will deliver growth in terms of both capital and revenue comparable to what was achieved under Baillie Gifford's management. Undoubtedly there will be periods in the future when we do not do as well as we would like compared both to other investment trusts with similar aims to ourselves as well as to stock market indices. This has certainly been the case on occasions in the past. However, given patience, care, skill and determination, I am confident that the outlook for our Company is good.

In the short term, as ever, there are doubts and concerns. These vary every year, but they are always with us. Politically we face acute crises in the Middle East and Eastern Europe. At home there is the potential for constitutional, fiscal and regulatory change following the Scottish Independence referendum on 18 September 2014. At this stage, it is impossible to see what the implications of the result will be. Economically, Western Europe's recovery from the financial crisis is disappointingly sluggish and there is much uncertainty as to how long the current extraordinary low interest rates will be maintained and what the effect will be if and when unconventional monetary stimulus is reduced and eventually withdrawn.

Fixed interest investments are extremely expensive by historical standards, though they may remain so for a long time, and equities only look attractive by comparison - in their own terms they too are expensive, if not to the same degree as bonds. However, we live in a time of innovation and scientific advances in a host of areas, comparable to the periods when railways were being built and the chemical, electrical and automobile industries were being developed. This has created a wealth of opportunities for investors, which our Investment Manager's thematic approach is well placed to capture.

I hope to be able to report another satisfactory result to you next year.

Richard Burns

Chairman

9 September 2014

Investment Manager's Review

Introduction

Over the year to 30 June 2014, global equity markets performed well, giving a total return of 10.0 per cent (FTSE World Index in Sterling) while the Company's net asset value total return was 11.7 per cent.

As set out in the Chairman's Statement, Artemis was appointed as Investment Manager on 1 May 2014, replacing Baillie Gifford & Co. Given the date of our appointment as Investment Manager - and in view of the fact that the Company's investment activities in the first half of the year were discussed in the interim report - the comments below do not address investment activities before 1 May. Instead, they provide an overview of the changes that we have made to re-position the portfolio and describe our approach to investing in global equities.

Artemis' investment approach

Our aim is to identify a number of stable global trends, such as demographic or technological change, that we believe companies can exploit to deliver superior growth to their shareholders. By building a focused portfolio of high-quality companies that will profit from these trends we believe our approach will, in time, deliver superior returns.

While a number of companies may be in a position to exploit these investment themes, our preference is to select high quality companies with records of profitability, high cash generation, strong balance sheets and barriers to entry that will allow them to protect their profitability. Shares of these financially strong companies sometimes lag markets when they rise sharply, but tend to protect capital when conditions become more testing.

Once we have identified an investment opportunity, we will only commit capital when we are able to invest at a reasonable valuation. This valuation discipline is at the heart of our investment decisions.

One of our main valuation criteria compares share prices with the current cash flows that a company generates after the investments necessary to maintain its competitive position. We also analyse the balance sheets of our investments and assess the tangible and intangible assets that would be required to compete with it. This helps us avoid investing in companies where the market already prices the shares highly and also in companies which may be in attractive businesses, but which may face intense competition. Our valuation discipline biases the portfolio towards high quality companies with proven and profitable business models and away from more cyclical sectors of the economy. Over time, we have found this approach gives a framework to deliver attractive returns to investors.

In terms of portfolio construction, the capital we commit to each holding will reflect the extent to which it meets our stringent investment criteria rather than its weighting in our benchmark. We aim to run a well-diversified portfolio, with around 55 to 70 holdings spread across eight to 11 investment themes.

You can find more information about our investment approach on midwynd.co.uk.

Reorganisation of the portfolio

Over the final two months of the Company's accounting period, we substantially completed the process of restructuring the portfolio to reflect the new investment approach. The major changes that this produced were twofold. First, there was a reduction in the Company's weighting to the UK, principally through a reduced level of exposure to IP Group and the companies spun out from it. Second, we reduced the portfolio's exposure to companies that had yet to show a profitable business model, especially in biotechnology and internet services. We have increased the number of holdings in frontier markets, adding investments exposed to the long-term growth potential of emerging economies such as Myanmar and Laos.

Two of the themes that we have introduced to the portfolio have already worked well. The first, 'media content', has seen us investing in a number of television programme makers. These included Time Warner (which did attract takeover interest from Rupert Murdoch's 21st Century Fox) and ITV (where media group Liberty Global's purchase of BSkyB's stake has prompted takeover speculation). A second profitable theme has been 'energy in a gas glut'. We have increased the Company's exposure to the oil sector by buying a number of US oil companies that use hydraulic fracturing ('fracking') technologies. These have already shown good production growth.

At the regional level, the largest change was a substantial increase to the Company's exposure to Japan through investments in stocks such as Kyocera, Japan Airport Terminal and Suntory Beverage & Food. As investors with a tilt towards value, we often find good investment opportunities in Japan. A number of Japanese stocks also fit with the thematic trends we have identified. Since the end of May, confidence has returned to the Japanese market and the share prices of many Japanese companies have performed better than those elsewhere. The Company has been a beneficiary of this trend. We have also increased the Company's exposure to China by investing in Bank of China, which trades on a low valuation due to fears of a Chinese property collapse, and China Merchants Holdings (International), the country's main port operator.

The portfolio no longer has any exposure to sovereign debt and is now almost fully comprised of equities. Following these changes, we believe that the Company is well positioned to benefit - in both capital and income terms - from the long-term growth that our investment themes will generate.

Current investment themes

Healthcare (14.2 per cent of the portfolio). We invest in companies that can help healthcare providers to offset rising costs. While it is easy to focus on the extraordinary advances that medical science is making it is, in our view, equally important to monitor the rising costs of treatment. Our portfolio includes generic drug makers and pharmaceutical wholesalers, who make more money from supplying generic drugs than they do from patented medicines. In effect, these wholesalers work with medical insurers or healthcare providers such as the NHS to reduce costs while maintaining standards of clinical care. And while it is to be hoped that research-driven pharmaceutical companies will continue to devise new treatments, they may receive more modest returns on their successes in future while continuing to absorb losses when drugs prove ineffective. The Company's holdings in this area include: Actavis, a leading manufacturer of generic pharmaceuticals; AmerisourceBergen and Medipal Holdings, pharmaceutical wholesalers in the US and Japan respectively; Bayer, which makes over-the-counter medicines; and Premier Class, a leader in the analysis of clinical data from hospitals.

Mobile data and e-commerce (11.9 per cent of the portfolio). New database technologies are allowing companies to analyse data in new ways, delivering new business opportunities for the small number of companies that own huge amounts of data. We also hold companies providing web-based services, such as mobile search engines and electronic payment systems, whose global reach is expanding with the spread of internet-enabled smartphones. Holdings here include: Google; Visa; Rakuten, an e-commerce leader in Japan; Experian, the global leader in credit and identity checking; and Singapore Telecom, which, in addition to its dominant position in Singapore, holds controlling interests in the largest mobile-telecoms businesses in India and Indonesia.

Emerging and frontier markets (12.4 per cent of the portfolio). Consumption of consumer goods in emerging and frontier markets is growing rapidly, as their young populations become increasingly healthy and better educated. Emerging market stocks have performed poorly over the last few years as their currencies have weakened, reducing the dollar purchasing power of consumers. Longer-term demographic trends, however, remain supportive and we are expanding the Company's exposure to this theme. In particular, we have been expecting growth in China to slow for some time. Given the size of its economy, the combination of high growth without inflation always seemed unlikely to persist indefinitely. We believe the new government is taking sensible measures to moderate property speculation. Speculative bubbles were inevitable given that savings are trapped inside an economy with an under-developed savings market. We therefore view recent losses in the credit market as a necessary part of the learning curve that China is following as it adopts market disciplines. Holdings in this area include: Richemont, owner of Cartier, the jeweller; SATS, which provides flight services at Changi airport in Singapore; and Japan Airport Terminal, which owns Haneda airport and which is a beneficiary of increased tourism from China.

Energy in a gas glut (13.5 per cent of the portfolio). Unconventional energy production techniques (such as 'fracking' for shale oil) have disrupted the economics of the conventional oil industry. The resulting 'glut' of gas has made developing hydrocarbon resources in deep water or other challenging regions, such as the Arctic, less attractive. We hold a portfolio of the most successful US shale producers, whose production growth contrasts with falling production by conventional oil majors. Our holdings include: EOG Resources and Concho Resources, oil producers whose assets are principally in the Eagle Ford, Bakken and Permian basins in the US. We also invest in engineering companies that are beneficiaries of changes to the energy supply chain, particularly from growing global demand for liquefied natural gas ('LNG'), which is now being traded in a global spot market, like crude oil. In many emerging economies, imported LNG is an attractive fuel source for electricity producers, compared with coal or nuclear power. Holdings include: Spectra Energy, a US pipeline company; and Ebara, the Japanese leader in pumps for LNG plants.

Distribution (9.6 per cent of the portfolio). Here, we invest in companies that are building the infrastructure to supply western consumer goods to emerging markets. Some of these companies are also building automated warehouses designed to facilitate e-commerce. Holdings include: Mapletree Logistics Trust, which operates warehouses in South East Asia; and Nippon Prologis, which owns automated warehouses in Japan.

Retiree spending power (10.2 per cent of the portfolio). These are companies that profit from the growing spending power of wealthy, older consumers in developed markets. They include: VF, which owns the North Face and Timberland clothing brands; Shimano, the world leader in bicycle brakes and gears; Pernod Ricard, which makes whisky and cognac; and Cabela's, a US retailer that sells hunting and fishing goods.

Media content (4.1 per cent of the portfolio). Producers of high-quality television programs and films are benefitting from increasing affiliate fees and growing overseas sales. Holdings here include Time Warner and ITV.

Asset growth (17.4 per cent of the portfolio). We hold a variety of companies in recognition of their ability to improve the value of their assets over time, rather than for the current earnings power of those assets. Holdings in this theme include: Hutchison Whampoa, an industrial conglomerate based in Hong Kong; Unibail-Rodamco, Europe's largest listed property company; and St. Joe, a real estate company on Florida's Gulf Coast.

Outlook

Global equity markets have recovered their poise since the panic selling of 2009. Valuations are quite high compared with historical levels, but are supported by central banks, who are keeping interest rates - and government bond yields - low. Indeed, while many equities trade on high earnings multiples, they often have attractive dividend yields and have sufficient spare cash to buy back shares. Since the global financial crisis, a range of companies have 'put their houses in order' and now have healthy cash flows and strong balance sheets even if sales growth remains modest. By making these companies the core of our portfolio, we intend to provide investors with an exposure to high quality businesses that can profit from growth in the global economy without taking excessive risks. Such exposure should continue to deliver superior returns to those available from other asset classes, such as bonds or cash.

Around this core, we believe that our investment themes give shareholders exposure to growth trends in the global economy, such as increasing spending on internet advertising (Google) or shale energy production in the US (EOG Resources). These investment opportunities are often only available outside the UK and our global mandate provides us with a rich universe of stocks in which we can invest.

Because we find valuations to be stretched, the Company currently has a modest level of exposure to companies that are seeing higher rates of earnings growth. We will, however, seek to increase this exposure should there be any market setbacks. At current levels, we are wary of holding stocks whose valuations seem to reflect a hope that we will see a vigorous recovery in the global economy (particularly where share prices seem to be discounting a strong rebound in Europe).

While we will inevitably make changes to the portfolio, we invest for the long run and do not engage in short-term trading. Our investment style is to identify investments based on real-world trends rather than responding to short-lived market or economic cycles. Overall, our aim is to provide the Company's shareholders with exposure to a select list of high-quality businesses which are set to benefit from longer-term growth trends worldwide.

Simon Edelsten, Alex Illingworth and Rosanna Burcheri

Fund managers

Key Performance Indicators ('KPIs')

The performance of the Company is reviewed regularly by the Board and it uses a number of KPIs to assess the Company's success in meeting its objective. The KPIs which have been established for this purpose are set out below.

-     The movement in net asset value per share compared to the FTSE World Index (in Sterling)

The Board monitors the performance of the net asset value per share against that of the FTSE World Index (in Sterling).

-     The movement in the share price

The Board monitors the performance of the share price of the Company to ensure that it reflects the performance of the net asset value.

-     The premium/discount

The Board recognises that it is in the long term interests of shareholders to maintain a share price as close as possible to the net asset value per share and believes that the prime driver of the premium/discount over the longer term is performance. The Company issues shares at such times as the premium indicates that demand is not being met by natural liquidity in the market, and buys back when there is excess supply of the Company's shares which may cause the discount to widen. In October 2012 the Board confirmed its intention to limit the discount to a maximum of 2 per cent in normal circumstances. Further details of the shares purchased during the year are set out in the Share Capital Management section.

-     The ongoing charges ratio

The Board is mindful of the ongoing costs to shareholders of running the Company and monitors operating expenses on a regular basis. The Company's current ongoing charges ratio is 0.8 per cent.

-     The dividend per share

The Board is committed to growing the dividends paid to shareholders, in addition to capital growth. It monitors the revenue returns generated by the Company during the year and against this determines the dividends to be paid to shareholders.

Other matters

Principal risks and uncertainties

The Board, in conjunction with the Investment Manager, has developed a risk map which sets out the principal risks faced by the Company. It is used to monitor these risks and to review the effectiveness of the controls established to mitigate them. As an investment company the main risks relate to the nature of the individual investments and the investment activities generally. These include market price risk, foreign currency risk, interest rate risk, credit risk and liquidity risk.

A summary of the key areas of risk and uncertainties are set out below.

-     Investment: the Company's investments are selected on their individual merits and the performance of the portfolio is not likely to track the wider market (represented by the FTSE World Index in Sterling). The Board believes this approach will continue to generate good long-term returns for shareholders. Risk will be diversified through a broad range of investments being held. The Board discusses the investment portfolio and its performance with the Investment Manager at each Board meeting.

-     Regulatory: failure to comply with the requirements of a framework of regulation and legislation, within which the Company operates. The Company relies on the services of the Company Secretary and Investment Manager to monitor ongoing compliance with relevant regulations and legislation.

-     Operational: failure of the Investment Manager's and/or any third party service providers' systems which could result in an inability to report accurately and monitor the Company's financial position. The Investment Manager has established a business continuity plan to facilitate continued operation in the event of a major service disruption or disaster and carries out oversight and monitoring of third party service providers.

-     Financial: any failings in the Investment Manager's and/or third party service providers' controls which could lead to the Company's assets being misappropriated. Failure to comply with appropriate accounting standards could result in a reporting error or breach of regulations or legislation.

-     Gearing: the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of the losses. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. All borrowing arrangements entered into require the prior approval of the Board and gearing levels are discussed by the Board and Investment Manager at every meeting. The majority of the Company's investments are in listed securities that are readily realisable.

Share capital management

During the year the Company bought back 3,863,369 ordinary shares which increased the net asset value per share by 1.5 pence. All of the shares purchased are held in treasury. No shares were issued during the year.

At the last annual general meeting, held on 7 October 2013, shareholders granted the Board authority to make market purchases of up to 14.99 per cent of the Company's shares. A number of investors held shares in the Company through certain savings plans administered by Baillie Gifford Savings Management Limited ('BGSM'), the terms of which did not allow participants to hold shares in companies which are not managed by Baillie Gifford & Co. Following the change in Investment Manager, a number of investors decided to sell their shares. In order to ensure that the increased availability of shares did not result in a widening of the discount to net asset value at which the shares trade, the Board exercised its power to purchase these shares. This resulted in the use of the majority of the authority granted to the Board. On 17 June 2014, the Board sent a Circular to shareholders seeking a renewal of this authority to cover the period up to the next annual general meeting. Shareholders approved this at a general meeting on 14 July 2014. A further resolution to renew the Company's buy back authority will be put to shareholders at the AGM on 27 October 2014.

Directors

Each of the Directors held office throughout the year under review.

No Director has a contract of service with the Company.

Appointments to the Board are made on merit with due regard to the benefits of diversity, including gender. The priority in appointing new directors is to identify the candidate with the best range of skills and experience to complement existing directors.

The Board is currently comprised of five male Directors. The Company does not have any employees.

Social and environmental matters

The Company has delegated the management of the Company's investments to Artemis which, in its capacity as Investment Manager, has a Corporate Governance and Shareholder Engagement document which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders. Artemis undertakes extensive evaluation and engagement with company managements on a variety of matters such as strategy, performance, risk, dividend policy, governance and remuneration. All risks and opportunities are considered as part of the investment process in the context of enhancing the long-term value of shareholders' investments. This will include matters relating to material environmental, human rights and social considerations that may, ultimately, impact the profitability of a company or its stock market rating and hence these matters are an integral part of Artemis' thinking as institutional investors.

As the Company has delegated the investment management and administration of the Company to third party service providers, and has no fixed premises, there are no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within the underlying investment portfolio.

For and on behalf of the Board

Richard Burns

Chairman

9 September 2014

Investments at 30 June 2014

Investment	Region	Sector	Market value £'000	% of total assets
Equities
Google	North America	Information Technology	1,667	2.7
Unibail-Rodamco	Europe	Financials	1,614	2.6
Mapletree Logistics Trust	Developed Asia	Financials	1,592	2.5
Ebara	Japan	Industrials	1,589	2.5
Time Warner	North America	Consumer Discretionary	1,579	2.5
Capital One Financial	North America	Financials	1,504	2.4
GlaxoSmithKline	UK	Healthcare	1,452	2.3
Deutsche Post	Europe	Industrials	1,447	2.3
Union Pacific	North America	Industrials	1,419	2.3
St. Joe	North America	Financials	1,392	2.2
Pernod Ricard	Europe	Consumer Staples	1,368	2.2
Perrigo	North America	Healthcare	1,323	2.1
East African Breweries	Emerging	Consumer Staples	1,293	2.1
Spectra Energy	North America	Energy	1,265	2.0
Cabela's	North America	Consumer Discretionary	1,265	2.0
Singapore Telecom	Developed Asia	Telecommunication Services	1,228	2.0
Experian	UK	Industrials	1,216	1.9
China Merchants Holdings (International)	Developed Asia	Industrials	1,184	1.9
Reinet Investments	Europe	Financials	1,183	1.9
AmerisourceBergen	North America	Healthcare	1,167	1.9
Nippon Prologis (REIT)	Japan	Financials	1,151	1.8
Medipal Holdings	Japan	Healthcare	1,132	1.8
Walgreen	North America	Consumer Staples	1,116	1.8
ITV	UK	Consumer Discretionary	1,110	1.8
Suntory Beverage & Food	Japan	Consumer Staples	1,108	1.8
Bank of China	Developed Asia	Financials	1,107	1.7
Actavis	North America	Healthcare	1,101	1.7
Rakuten	Japan	Consumer Discretionary	1,092	1.7
Deutsche Annington	Europe	Financials	1,085	1.7
Richemont	Europe	Consumer Discretionary	1,083	1.7
VF	North America	Consumer Discretionary	1,079	1.7
Hutchison Whampoa	Developed Asia	Industrials	1,079	1.7
Bayer	Europe	Healthcare	1,078	1.7
Shimano	Japan	Consumer Discretionary	1,077	1.7
Visa	North America	Information Technology	1,042	1.7
Continental Resources	North America	Energy	1,012	1.6
Premier Class	North America	Healthcare	1,011	1.6
Laredo Petroleum	North America	Energy	997	1.6
IP Group	UK	Financials	995	1.6
DKSH Holding	Europe	Industrials	966	1.5
Cheung Kong Infrastructure Holdings	Developed Asia	Utilities	954	1.5
Concho Resources	North America	Energy	951	1.5
Kyocera	Japan	Information Technology	941	1.5
Informatica	North America	Information Technology	940	1.5
Japan Airport Terminal	Japan	Industrials	933	1.5
FLIR Systems	North America	Information Technology	915	1.5

Investment	Region	Sector	Market value £'000	% of total assets
Eastern Tobacco	Emerging	Consumer Staples	911	1.4
SATS	Developed Asia	Industrials	896	1.4
Lawson	Japan	Consumer Staples	891	1.4
Fujitec	Japan	Industrials	854	1.4
Better Capital	UK	Financials	825	1.3
Ülker Bisküvi Sanayi	Emerging	Consumer Staples	822	1.3
World Duty Free	Europe	Consumer Discretionary	788	1.2
First Republic Bank San Francisco	North America	Financials	788	1.2
EOG Resources	North America	Energy	775	1.2
Baidu	North America	Information Technology	731	1.2
Kolao Holdings	Emerging	Consumer Discretionary	681	1.1
Doric Nimrod Air One	UK	Industrials	669	1.1
Letshego	Emerging	Financials	624	1.0
Yoma Strategic	Developed Asia	Industrials	620	1.0
Applied Graphene Materials	UK	Materials	362	0.6
HaloSource	UK	Industrials	21	-
Ferro Alloy Resources †	Emerging	Materials	8	-
Total equity investments			66,068	105.0
Bonds
US dollar denominated
K1 Life Settlements
0% 10/08/2016 †	Europe	Financials	164	0.3
Euro denominated
Marfin 5% 19/03/2015 (convertible)	Europe	Financials	96	0.2
Total bond investments			260	0.5
Total investments			66,328	105.5
Net current assets			1,416	2.3
Bank loans			(4,902)	(7.8)
Total net assets			62,842	100.0

†  Denotes an unlisted security.

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

Management Report

Listed companies are required by the Financial Conduct Authority's Disclosure and Transparency Rules (the 'Rules') to include a management report in their annual financial statements. The information required to be in the management report for the purpose of the Rules is included in the Strategic Report. Therefore no separate management report has been included.

Statement of Directors' Responsibilities

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing each of the financial statements, the Directors are required to:

-     select suitable accounting policies and then apply them consistently;

-     make judgements and estimates that are reasonable and prudent;

-     state whether applicable UK Accounting Standards have been followed, subject to any material departures being disclosed and explained in the financial statements; 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 its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement.

The financial statements are published on a website, midwynd.co.uk, maintained by the Company's Investment Manager, Artemis Fund Managers Limited. The maintenance and integrity of the corporate and financial information relating to the Company is the responsibility of the Investment Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

(a)   the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities and financial position of the Company as at 30 June 2014 and of the profit for the year then ended; and

(b)   the Strategic 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.

For and on behalf of the Board

Richard Burns

Chairman

9 September 2014

Income Statement

For the year ended 30 June

		2014 Revenue £'000	2014 Capital £'000	2014 Total £'000	2013 Revenue £'000	2013 Capital £'000	2013 Total £'000
Gains on investments		-	6,601	6,601	-	7,725	7,725
Losses on futures contracts		-	-	-	-	(1,058)	(1,058)
Currency losses		-	(5)	(5)	-	(172)	(172)
Income		1,603	-	1,603	1,347	-	1,347
Investment management fee		(178)	(178)	(356)	(161)	(161)	(322)
Other administrative expenses		(230)	(120)	(350)	(246)	-	(246)
Net return before finance costs and taxation		1,195	6,298	7,493	940	6,334	7,274
Finance costs of borrowings		(65)	(65)	(130)	(64)	(64)	(128)
Net return on ordinary activities before taxation		1,130	6,233	7,363	876	6,270	7,146
Tax on ordinary activities		(82)	-	(82)	(45)	-	(45)
Net return on ordinary activities after taxation		1,048	6,233	7,281	831	6,270	7,101
Net return per ordinary share		4.08p	24.27p	28.35p	3.11p	23.43p	26.54p

A final dividend for the year of 2.50 pence per share is proposed (2013 - 2.10 pence), making a total of 3.80 pence for the year (2013 - 3.40 pence).

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

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year. A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance Sheet

As at 30 June

		2014 £'000	2014 £'000	2013 £'000	2013 £'000
Fixed assets
Investments held at fair value through profit or loss			66,328		71,570
Current assets
Debtors		643		76
Cash and deposits		1,288		1,203
		1,931		1,279
Creditors
Amounts falling due within one year		(5,417)		(991)
Net current (liabilities)/assets			(3,486)		288
Total assets less current liabilities			62,842		71,858
Creditors
Amounts falling due after more than one year			-		(5,071)
Total net assets			62,842		66,787
Capital and reserves
Called up share capital			1,343		1,343
Capital redemption reserve			16		16
Share premium			4,983		4,983
Capital reserve			54,904		59,010
Revenue reserve			1,596		1,435
Shareholders' funds			62,842		66,787
Net asset value per ordinary share (borrowings at fair value)			279.2p		253.1p
Net asset value per ordinary share (borrowings at par)			279.3p		253.3p

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 June 2014

		Share capital £'000	Capital redemption reserve £'000	Share premium £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'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
Shares purchased and held in treasury		-	-	-	(10,339)	-	(10,339)
Dividends paid during the year		-	-	-	-	(887)	(887)
Shareholders' funds at 30 June 2014		1,343	16	4,983	54,904	1,596	62,842

For the year ended 30 June 2013

		Share capital £'000	Capital redemption reserve £'000	Share premium £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 July 2012		1,343	16	4,983	54,004	1,490	61,836
Net return on ordinary activities after taxation		-	-	-	6,270	831	7,101
Shares purchased and held in treasury		-	-	-	(1,264)	-	(1,264)
Dividends paid during the year		-	-	-	-	(886)	(886)
Shareholders' funds at 30 June 2013		1,343	16	4,983	59,010	1,435	66,787

Cash Flow Statement

For the year ended 30 June

		2014 £'000	2014 £'000	2013 £'000	2013 £'000
Net cash inflow from operating activities			763		744
Servicing of finance
Interest paid		(130)		(129)
Net cash outflow from servicing of finance			(130)		(129)
Financial investment
Acquisitions of investments		(77,153)		(24,073)
Disposals of investments		87,998		26,243
Futures contracts		-		(643)
Realised currency loss		(174)		(28)
Net cash inflow from financial investment			10,671		1,499
Equity dividends paid			(887)		(886)
Net cash inflow before financing			10,417		1,228
Financing
Shares purchased and held in treasury		(10,332)		(1,264)
Net cash outflow from financing			(10,332)		(1,264)
Increase/(decrease) in cash			85		(36)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year			85		(36)
Exchange movement on bank loans			169		(144)
Movement in net debt in the year			254		(180)
Net debt at 1 July			(3,868)		(3,688)
Net debt at 30 June			(3,614)		(3,868)

Notes:

1. Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, applicable United Kingdom accounting standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

The Directors consider the Company's functional currency to be Sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.

2. Net return per ordinary share

Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £1,048,000 (2013: £831,000), and on 25,684,721 (2013: 26,754,925) 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 gain for the financial year of £6,233,000 (2013: £6,270,000), and on 25,684,721 (2013: 26,754,925) 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.

3. Dividend

The Directors are recommending the payment of a final dividend of 2.50 pence per ordinary share. If approved at the AGM the dividend will be paid on 31 October 2014, to shareholders on the register at the close of business on 3 October 2014.

4. Net asset value per ordinary share

The net asset value per ordinary share and the net assets attributable to the ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:

	2014		2013
	Net asset value	Net assets £'000	Net asset value	Net assets £'000
Ordinary shares	279.3p	62,842	253.3p	66,787

Net asset value per ordinary share is based on net assets as shown above and on 22,500,461 (2013: 26,363,830) ordinary shares, being the number of ordinary shares in issue (excluding treasury shares) at the year end.

Deducting borrowings at fair value would have had the effect of decreasing the net asset value per ordinary share from 279.3 pence to 279.2 pence. Taking the market price of the ordinary shares at 30 June 2014 of 274.5 pence, this would have given a discount to net asset value of 1.7 per cent, the same discount as the net asset value with debt valued at par.

5. Transactions with the Investment Manager and related parties

The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under FRS 8 'Related Party Disclosures' the Investment Manager is not considered to be a related party.

6.This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 June 2014 and 30 June 2013 but is derived from those accounts. Statutory accounts for the year ended 30 June 2013 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2013 and the year ended 30 June 2014 both received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not include statements under Section 498 of the Companies Act 2006 respectively. The statutory accounts for the year ended 30 June 2014 have not yet been delivered to the Registrar of Companies and will be delivered following the AGM.

The audited Annual Financial Report for the year ended 30 June 2014 will be posted to shareholders shortly. Copies may be obtained from the Company's registered office at 42 Melville Street, Edinburgh EH3 7HA or at the Investment Manager's website, midwynd.co.uk.

The Annual General Meeting of the Company will be held on Monday, 27 October 2014.

For further information, please contact:

Company Secretary

Tel: [phone]

Artemis Fund Managers Limited

9 September 2014

 

END

 

 

ACSUKUNRSOAKRAR