Annual Financial Report

RNS Number : 0578A

Mid Wynd Inter Inv Trust PLC

06 September 2018

 

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

Annual Financial Results for the year ended 30 June 2018

This announcement contains regulated information

Financial Highlights

Returns for the year ended 30 June 2018

	Year ended 30 June 2018	Year ended 30 June 2017
Total returns
Share price†	13.4%	27.5%
Net asset value per share†	12.7%	21.0%
MSCI All Country World Index (GBP)	8.9%	22.2%
Revenue and dividends
Revenue earnings per share	7.14p	5.41p
Dividends per share*	5.55p	5.00p
Ongoing charges†	0.7%	0.7%

	As at 30 June 2018	As at 30 June 2017
Capital
Net asset value per share	493.23p	439.75p
Share price	498.00p	441.00p
Gearing†	-	0.3%
Net cash†	1.7%	-

Source: Artemis/Datastream

^†   Alternative Performance Measure.

*   The final dividend for the year to 30 June 2018 of 3.75 pence will, if approved by shareholders, be paid on 30 November 2018 to shareholders on the register at the close of business on 5 October 2018. The Company's Registrar provides a Dividend Reinvestment Plan and the final date for receipt of elections for this dividend is 9 November 2018.

Strategic Report

Chairman's Statement

Performance

For the year ended 30 June 2018 the Company's share price rose by 13.4%, on a total return basis with dividends assumed to be re-invested. This compares to a total return from the MSCI All Country World Index (GBP) of 8.9%.

The Company's net asset value per share increased by 12.2%, in capital only terms, and by 12.7% on a total return basis. Since Artemis' appointment as Investment Manager on 1 May 2014, the net asset value per share has increased by 89.3%, on a total return basis, against the benchmark's increase of 69.7%.

At 30 June 2018, the shares stood at a 1.0% premium to net asset value.

Further details of the performance of the Company during the year are included in the Investment Manager's review.

Earnings and Dividend

The total return for the year ended 30 June 2018 was a gain of 53.34 pence per share, comprising a revenue gain of 7.14 pence per share and a capital gain of 46.20 pence per share. The Board is proposing a final dividend of 3.75 pence per share which, subject to approval by shareholders at the Annual General Meeting ('AGM'), will be paid on 30 November 2018 to those shareholders on the register at the close of business on 5 October 2018. An interim dividend of 1.80 pence per share was paid in April 2018.

In accordance with the Board's aim of paying progressive dividends, the total dividend for the current year of 5.55 pence per share represents an increase of 11.0% on the 5.00 pence per share paid in respect of the year ended 30 June 2017. This year's total dividend has been covered by earnings for the current year and the excess earnings are retained in the Company's revenue reserve. This reserve represents 4.65 pence per share once the final dividend has been taken into account. Whilst the Board aims to grow the dividend progressively over time, it should not be assumed that this rate of growth will be replicated every year; indeed if the Company continues to be successful in issuing new shares, the existing revenue reserves per share will become diluted over time. The ability to retain a certain amount of income each year is a helpful feature of an investment trust and it provides a degree of investment flexibility. This reserve will be used as necessary to support the Company's objective of growing its dividend in future years.

Share capital

Demand for the Company's shares continued to be strong over the year and they have typically traded at a premium to net asset value. The Company's policy is to issue and re-purchase shares, where necessary, to maintain the share price within the 2% band relative to the net asset value. The Board's longer term strategic aim is to continue to increase the net assets of the Company, thereby improving the liquidity in the shares and reducing the 'per share' running cost.

A targeted PR and advertising campaign was undertaken, in pursuit of this aim, in order to seek to raise the profile of the Company and generate further demand for shares. It was well received and a number of share issues ensued.

Another important milestone was met in June 2018 when the Company's shares became a constituent of the FTSE SmallCap Index, part of the FTSE All-Share Index. This has led to further demand for the Company's shares from index-trackers, which are funds that seek to replicate the performance of a stock market index.

The Board is therefore pleased that, during the year ended 30 June 2018, the Company issued 4,680,000 new shares raising £23.3 million. This represented 14.4% of the share capital at the start of the year. The net assets of the Company have almost trebled in four years, through the combination of strong investment performance and share issues.

Since the year end, a further 650,000 shares have been issued raising £3.4 million of new money.

Borrowings

In February 2018 the Company's US$16 million revolving credit facility with Scotiabank expired. Ahead of this the Company undertook a review of its borrowing requirements and invited several banks to quote for the business. The Board approved a three year, US$30 million multi-currency facility with Scotiabank (Ireland) Designated Activity Company on revised terms. Further information on the Company's gearing is included in the Annual Financial Report.

AGM

The AGM will be held on Tuesday, 6 November 2018 at 12 noon at 42 Melville Street, Edinburgh, Midlothian EH3 7HA. The Board welcomes your attendance as it provides shareholders with an opportunity to ask questions of the Board and the Investment Manager. Artemis will make a short presentation at the meeting. For those shareholders who are unable to attend, I would encourage you to make use of your proxy votes by completing and returning the form of proxy enclosed with this report.

Outlook

Much on a geo-political level is unclear. The Turkish financial crisis, the eventual outcome of Brexit, the extent of future interest rate increases in the United States and whether President Trump's tariff policy will lead to a full-blown global trade war are all matters which may concern markets in the coming year. While the Company's Investment Manager has reduced the portfolio's exposure to stocks which would suffer in a global 'trade war' (such as makers of automation equipment), your Investment Manager remains focused on stock-picking and concentrates on companies which, it believes, can continue to grow their cashflows in most conditions.

Of course the bull market that began in March 2009 will not go on forever. Ultimately recessions cause bear markets. Many commentators are predicting a US, and indeed a global, recession in 2020. The catalyst for that will be apparent only in hindsight. In the meantime, we continue to believe that a diversified portfolio of companies exposed to growth around the world, and whose share prices are clearly supported by their underlying cashflows, will continue to serve your Company well over the longer term - come bull or bear.

Contact us

Shareholders can keep up to date with developments between formal reports by visiting midwynd.co.uk where you will find information on the Company including a factsheet which is updated monthly. In addition, the Board is always keen to hear from shareholders. Should you wish to, you can e-mail the Chairman at [e-mail].

Malcolm Scott

6 September 2018

 

 

Investment Manager's Review

Performance

Like the previous year, the past year has been one of steady returns against a background of political turbulence and rising interest rates. Economic growth was excellent around the world and inflation remained low, supporting equity markets. Most of our core investments continue to grow their underlying cashflows and this enabled the Company to produce another year of high real returns for its shareholders.

Over the year, the Company's net asset value, in capital terms, rose 12.2%. This compares with the MSCI All Country World Index (GBP), which rose by 6.9% in capital terms. Again, stocks with consistent growth performed rather better than 'value' stocks, despite these seeming to trade on lower multiples of earnings. Many older 'blue-chip' businesses lack growth and seem challenged by changes in technology and the modern business environment.

Regional performance

Region	Contribution %
North America	6.2
Europe	3.9
Japan	2.5
Emerging Markets	0.4
United Kingdom	0.2
Developed Asia	(0.1)

Thematic performance

Theme	Contribution %
Online Services	3.6
Healthcare Costs	2.0
Automation	1.9
Emerging Market Consumer	1.9
Scientific Equipment	1.4
Tourism	1.1
High Quality Assets	0.7
Bank Regulation	0.5
Media Content	0.2
Frontier Investments	0.0
Retiree Spending Power	(0.3)

Current investment themes

High Quality Assets (16.1% of the portfolio) - We added a number of holdings to this part of the portfolio over the year. We looked for companies which can easily cope with rising inflation, such as US railroads or European property companies, and whose yields seem very attractive, even in the context of higher interest rates worldwide. When conditions in the market become turbulent, we find that these investments give a good balance against the more growth-oriented parts of the portfolio.

Automation (15.7% of the portfolio) - Through this new theme, we invest in the new wave of automation available to business. Industrial robots have been replacing humans for many years and have raised the quality of production in many industries such as car making. More recently, as the price of robots has fallen, their applications have improved, allowing automation of many new areas of industry - from agriculture to making clothes to surgery.

The political outcry does rather echo the Luddites of the 18th century. It is worth noting that the number of weavers in Manchester rose steadily after the introduction of the Spinning Jenny and their wages rose sharply as productivity improved. Indeed, as we discuss the current protectionist threats to global trade proposed by the US administration, some companies are planning to increase manufacturing closer to home - but by investing in highly automated plants, not by creating 'blue-collar' work.

This theme drove the performance of the Company strongly through the latter part of 2017. In January 2018, we felt that some stocks had moved onto rather stretched valuations and so we took profits in some areas. Orders have since become sluggish as businesses worry about threats to trade, but we believe the longer-term drivers for this theme remain excellent.

Healthcare Costs (15.3% of the portfolio) - This theme had an excellent year with holdings in both medical equipment and health insurers seeing good growth. We should point out that while we have a large investment in healthcare, we own no drug companies as we find they no longer get the returns they used to, even when they discover new drugs. Instead, we have holdings which should benefit from the growth in immunotherapies and help governments to management healthcare costs, such as companies which make blood plasma and specialists in diagnostics including Sysmex (Japan) and Quidel (USA).

Tourism (13.3% of the portfolio) - This theme also performed well, with numbers of tourists rising strongly, especially in Asia. We saw a hedge fund try to 'bear raid' Samsonite, but the company rebutted many of its claims and the share price has rebounded. Recently, Beijing Capital International Airport has performed poorly as investors worry about competition from the new Daxing airport which is about to open nearby. However, we can see many years of growth in Chinese travel ahead, which will be quite enough to keep both airports busy. We have therefore topped up our investment.

Online Services (12.6% of the portfolio) - Over the year we took profits in many of our holdings in online services as valuations had become too high for comfort. We took good profits in Amazon.com, but felt that its acquisition of Whole Foods, an upmarket grocery chain, indicated a pursuit of sales in areas which tend to be lower-margin, slow-growing and capital-intensive. We also took profits in Facebook and Alphabet (which owns Google and YouTube) as we became concerned they underestimate the cost of managing the content on their sites to avoid greater regulation. We made a modest investment in Netflix, which seems able to keep subscribers while raising subscription costs, allowing us to estimate a longer-term valuation for the company based on cashflows.

Scientific Equipment (10.7% of the portfolio) - This theme had another year of steady growth and good cash generation. We took profits in Shimadzu (Japan) and bought PerkinElmer, which seems to be on a rather more modest valuation.

Emerging Market Consumer (9.1% of the portfolio) - As noted last year, we are maintaining a modest exposure to emerging markets while US monetary policy is tightening. This has proved prudent as emerging-market equities and currencies have come under pressure. Our main investments are developed-market companies, such as Louis Vuitton Moet Hennessy and L'Oreal, whose strongest growth comes from high-end consumers in emerging markets. These investments had another good year though recent currency falls in Turkey, Russia and, more modestly, Asian currencies may make reported growth more modest in the year to come.

Retiree Spending Power (7.2% of the portfolio) - Our main investments are in companies seeing good growth in retirement savings in Asia. In the medium-term, these tend to trade in line with the valuations of their investment funds. That is, Shanghai-quoted stocks in the case of China Life Insurance and UK and US stocks and bonds in the case of Prudential. None of these asset classes had a particularly good year and so this theme was dull.

Discontinued themes - Our analysis of Netflix made us very concerned about traditional television businesses. We therefore took our remaining profits in Disney and Worldwide Wrestling Entertainment (where we were also concerned about governance). We believe some of these programme-makers will succeed in building a subscription business rather than relying on television advertising, but these transitions can be painful for shareholders. We also sold a number of bank holdings during the year as valuations no longer seemed attractive and demand for loans remains lacklustre even in the booming US economy. We continue to hold no oil or mining shares, which has been a modest drag in our performance against the benchmark in recent months - offset by our low weighting in banks.

Five largest stock contributors to performance

Company	Theme	Contribution %
Mastercard	Online Services	1.1
Yaskawa Electric	Automation	1.1
Daifuku	Automation	1.0
Louis Vuitton Moet Hennessy	Emerging Market Consumer	0.9
UnitedHealth Group	Healthcare Costs	0.7

Five largest stock detractors from performance

Company	Theme	Contribution %
Teradyne	Automation	(0.3)
Equifax	Online Services	(0.3)
Beijing Capital International Airport	Tourism	(0.3)
Mitsubishi UFJ Financial Group	High Quality Assets	(0.3)
China Life Insurance	Retiree Spending Power	(0.3)

Outlook

The first few years of Artemis managing the Company were mainly set against a background of European troubles, including Brexit. The last year has been the first full year of Trump's presidency and this has introduced a number of new threats, principally - for international investors - to global trade. In 1930, the US introduced a range of protectionist measures known as the Smoot-Hawley Tariff Act. The economic slump which followed is a core part of US economic history and well understood by members of the Federal Reserve, if less well read in the White House.

At the same time, however, damage to business confidence can come from brinkmanship alone and we retain our cautious stance. Our themes do not lead us to have much direct exposure to international manufacturing businesses and our low exposure to cyclical parts of the equity market give the portfolio some resilience against falling markets. As noted above, we suspect that current disputes over trade may prove beneficial to our automation theme over the longer term and, as we are currently only modestly using the Company's loan facility, we have scope to increase the size of our investments were markets to fall.

The cashflows of most of our core holdings seem to be growing very well this year, bolstered by low corporate tax rates in the US. It seems likely that this rate of growth will moderate and perhaps inflationary pressures will increase. However, the companies we hold tend to be well financed and not very cyclical. Our concerns therefore focus more on the effect of US trade policy on Emerging Markets. We reduced our direct exposure in 2015 and remain wary of economic and political pressures in countries as diverse as Turkey, Mexico, Russia and South Africa. Although increasing numbers of economists seem to be predicting a US recession next year, evidence of anything more than a slowdown seems scarce: consumer debt levels are modest; corporate investment in capital has only recently increased; and the US consumer is still quiet. Similarly in Europe, consumers are still guarded despite better job security and improved wages in some areas.

As long as valuations remain reasonable and inflation under control, we do not believe equity markets are expensive. We remain vigilant towards political developments, especially on trade, but to date, we do not see these issues affecting the cashflows of our major investments. Until then we believe growth in these cashflows will continue to underpin further gains for our shareholders.

Artemis' investment approach

Our aim is to identify reliable commercial trends around the world which are likely to deliver superior growth to our investments. By focusing the portfolio around trends, such as the rise of the consumer in emerging markets, the growth in demand for healthcare in developed markets and technological change on the internet, we believe our thematic-based approach can deliver superior returns over time.

Within each investment theme's universe of companies, there may be many quoted equities which could be attractive investments. Our preference is to select high-quality companies with records of profitability, high cash generation, strong balance sheets and which have established barriers to entry to their industries. Such companies sometimes lag equity markets when they recover vigorously, but they protect capital well when economic conditions become more testing.

Once an investment opportunity has been identified, we will commit capital to it only when the price offers the chance to invest at a reasonable valuation. This valuation discipline is at the heart of all of our investment decisions. In terms of portfolio construction, this will reflect opportunities that meet our investment criteria and will not be weighted to a benchmark. We aim to run a diversified portfolio, with around 55-70 holdings spread across eight to 10 different themes.

Over time we have found this investment approach gives a framework to deliver very attractive returns to investors.

Further information on our investment approach can be found on our website at artemisfunds.com.

Simon Edelsten, Alex Illingworth & Rosanna Burcheri

Fund Managers

6 September 2018

 

Strategy and Business Review

This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

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 objective and investment policy outlined below.

Objective and investment policy

The objective of the Company is to achieve capital and income growth by investing on a worldwide basis.

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% of the portfolio. The Company will not invest more than 15% of its gross assets in UK listed investment companies. 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).

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.

It is an aim of the Company to provide dividend growth over time, although the primary aim is 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.

Gearing

The Company may use borrowings to support its investment strategy and the Company's Articles of Association (the 'Articles') allow the Company to borrow up to 30% of its net assets. During the reporting period, the Company held a revolving credit facility with Scotiabank (Ireland) Plc which expired on 19 February 2018. On 15 February 2018, the Company agreed new terms with Scotiabank (Ireland) Designated Activity Company for a US$30 million multi-currency credit facility which will expire on 19 February 2021. As at 30 June 2018, €1.2m, ¥95.6m and US$3.6m (£4.4 million) was drawn down from this facility.

The Company's gearing is reviewed by the Board and Investment Manager on an ongoing basis.

Operating environment

The Company has been approved as an investment trust in accordance with the requirements of section 1158 of the Corporation Taxes Act 2010. This approval remains 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 a number of service providers details of which are set out in the Annual Financial Report.

Current and future developments

A summary of the Company's developments during the year ended 30 June 2018, together with its prospects for the future, is set out in the Chairman's Statement and the Investment Manager's Review in the Annual Financial Report. 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 stock market 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.

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.

-        Net asset value performance compared to the MSCI All Country World Index  (GBP)

The Board monitors the performance of the net asset value per share against that of the MSCI All Country World Index (GBP).

-        Share price performance

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

Discrete annual total returns

Year ended 30 June	Net asset value†	Share price†	MSCI All Country World Index (GBP)
2014	11.7%	8.4%	9.1%
2015	17.2%	21.7%	9.5%
2016	16.0%	8.1%	13.3%
2017	21.0%	27.5%	22.2%
2018	12.7%	13.4%	8.9%

^†   Alternative Performance Measure.

-        Share price (discount)/premium to net asset value

The Board recognises that it is in the interests of shareholders to maintain a share price as close as possible to the net asset value per share. The policy of the Board is to limit the discount to a maximum of 2% in normal circumstances. The Company may issue shares at such times as demand is not being met by liquidity in the market and buy back shares when there is excess supply. Further details of the shares issued and bought back during the year are set out in the Share Capital section on page 14 of the Annual Financial Report.

-        Ongoing charges

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 0.7% (2017: 0.7%) (alternative performance measure).

-        Dividends per share

The Board aims to grow 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. Subject to approval of the final dividend by shareholders, total dividends of 5.55 pence per share (2017: 5.00 pence per share) will be paid in respect of the year ended 30 June 2018. This represents an increase of 11.0%.

Principal risks and risk management

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. Further information on the Company's internal controls is set out in the corporate governance section of the Annual Financial Report. 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 and counterparty risk and liquidity risk.

A summary of the key areas of risk and uncertainties are set out below along with the controls in place to manage these which are highlighted for each risk.

-        Strategic: the suitability of the Board's strategy for the development of the Company in the current market place and the effectiveness of the Board to deliver it. The Board meets regularly and considers the ongoing suitability of the Company's strategy as part of its review of the Company's performance. The Nomination Committee reviews the effectiveness of the Board annually.

-        Investment: the management of the portfolio of the Company to achieve its investment objective and policy. 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 MSCI All Country World Index (GBP)). The Board believes this approach will continue to generate good long-term returns for shareholders. Risk is 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.

          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. The utilisation of borrowing facilities has been delegated to the Investment Manager and is discussed by the Board and 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.

          Failure to comply with appropriate accounting standards could result in a reporting error or breach of regulations or legislation. The Company relies on the services of the Company Secretary and Investment Manager to monitor and report on any changes in accounting standards. The Company's Independent Auditor also provides an annual update on any accounting changes that affect the Company.

-        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.

Further information on risks and uncertainties and the management of them are set out in the Annual Financial Report.

Other matters

Viability statement

In accordance with the AIC Code of Corporate Governance, the Board has considered the longer term prospects for the Company. The period assessed is the five years to 30 June 2023. This has been deemed appropriate for the Company given the nature of its business, its current size and the longer term view taken by the Investment Manager when managing the portfolio.

As part of its assessment of the viability of the Company, the Board has considered each of the principal risks above and the impact on the Company's portfolio of a significant fall in global markets. The Board has also considered the liquidity of the Company's portfolio to ensure that it will be able to meet its liabilities as they fall due.

The conclusion of this review is that the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 June 2023.

Share capital

During the year ended 30 June 2018 the Company issued 4,680,000 new shares to satisfy continued demand for the Company's shares. All of these were issued at a premium to the prevailing net asset value on the date of issue.

During the year the Company did not buy back any ordinary shares (2017: nil).

The Directors' authorities to issue and buy back shares will expire at the end of the AGM on Tuesday 6 November 2018. The Directors intend to seek approval from the shareholders to renew these authorities at the 2018 AGM in order to allow the Directors to continue to manage the liquidity of the Company's shares.

Directors

The Directors of the Company and their biographical details are set out in the Annual Financial Report. 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 will be made on merit with due regard to the benefits of diversity, including gender. The priority in appointing a new director 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.

Modern Slavery Act 2015

The Company does not fall within the scope of the Modern Slavery Act 2015 as its turnover is less than £36 million. Therefore no slavery and human trafficking statement is included in the Annual Financial Report.

Social and environmental matters

The Company has no employees and 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 policy 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 will 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.

Leverage

Leverage is defined in the Alternative Investment Fund Managers Directive ('AIFMD') as any method by which the Company can increase its exposure by borrowing cash or securities, or from leverage that is embedded in derivative positions. The Company is permitted by its Articles to borrow up to 30% of its net assets (determined as 130% under the commitment and gross ratios). The Company is permitted to have additional leverage of up to 100% of its net assets, which results in permitted total leverage of 230% under both ratios. The Alternative Investment Fund Manager (the 'AIFM') monitors leverage values on a daily basis and reviews the limits annually. No changes have been made to these limits during the period. At 30 June 2018, the Company's leverage was 104.8% as determined using the commitment method and 103.2% using the gross method.

Malcolm Scott

Chairman

6 September 2018

 

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

Management Report

Listed companies are required by the Financial Conduct Authority's Disclosure Guidance 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 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 that complies with that law and those regulations.

The financial statements are published on a website, midwynd.co.uk, maintained by the Company's Investment Manager, Artemis Fund Managers Limited. Responsibility for the maintenance and integrity of the corporate and financial information relating to the Company on this website has been delegated to the Investment Manager by the Directors. 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 2018 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.

Malcolm Scott

Chairman

6 September 2018

 

Statement of Comprehensive Income                                                     For the year ended 30 June

		2018 Revenue £'000	2018 Capital £'000	2018 Total £'000	2017 Revenue £'000	2017 Capital £'000	2017 Total £'000
Gains on investments		-	15,885	15,885	-	22,932	22,932
Currency gains/(losses)		-	384	384	-	(496)	(496)
Income		3,144	-	3,144	2,230	-	2,230
Investment management fee		(200)	(600)	(800)	(160)	(480)	(640)
Other expenses		(254)	(14)	(268)	(195)	(12)	(207)
Net return before finance costs and taxation		2,690	15,655	18,345	1,875	21,944	23,819
Finance costs of borrowings		(36)	(109)	(145)	(29)	(89)	(118)
Net return on ordinary activities before taxation		2,654	15,546	18,200	1,846	21,855	23,701
Taxation on ordinary activities		(253)	-	( 253)	(193)	-	(193)
Net return on ordinary activities after taxation		2,401	15,546	17,947	1,653	21,855	23,508
Net return per ordinary share		7.14p	46.20p	53.34p	5.41p	71.56p	76.97p

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.

The net return for the year disclosed above represents the Company's total comprehensive income.

Statement of Financial Position                                                                                             As at 30 June                                                              

		2018 £'000	2018 £'000	2017 £'000	2017 £'000
Non-current assets
Investments held at fair value through profit or loss			179,699		142,655
Current assets
Debtors		772		900
Cash and cash equivalents		9,350		3,819
		10,122		4,719
Creditors
Amounts falling due within one year		(6,284)		(4,316)
Net current assets			3,838		403
Total net assets			183,537		143,058
Capital and reserves
Called up share capital			1,861		1,627
Capital redemption reserve			16		16
Share premium			52,173		29,144
Capital reserve			126,361		110,815
Revenue reserve			3,126		1,456
Shareholders' funds			183,537		143,058
Net asset value per ordinary share			493.23p		439.75p

These financial statements were approved by the Board of Directors and signed on its behalf on 6 September 2018.

Malcolm Scott

Chairman

 

Statement of Changes in Equity                                                           For the year ended 30 June

 

	Share capital £'000	Capital redemption reserve £'000	Share premium £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 July 2017	1,627	16	29,144	110,815	1,456	143,058
Net return on ordinary activities after taxation	-	-	-	15,546	2,401	17,947
Issue of new shares	234	-	23,039	-	-	23,273
Expenses related to placing and issue of new shares	-	-	(10)	-	-	(10)
Dividends paid	-	-	-	-	(731)	(731)
Shareholders' funds at 30 June 2018	1,861	16	52,173	126,361	3,126	183,537

For the year ended 30 June 2017

	Share capital £'000	Capital redemption reserve £'000	Share premium £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 July 2016	1,456	16	15,205	88,851	2,098	107,626
Net return on ordinary activities after taxation	-	-	-	21,855	1,653	23,508
Issue of new shares	171	-	14,313	-	-	14,484
Transfer of prior year expenses related to issue of the prospectus	-	-	(109)	109	-	-
Expenses related to listing of shares	-	-	(23)	-	-	(23)
Expenses related to placing and issue of new shares	-	-	(242)	-	-	(242)
Dividends paid	-	-	-	-	(2,295)	(2,295)
Shareholders' funds at 30 June 2017	1,627	16	29,144	110,815	1,456	143,058

 

Statement of Cash Flows                                                                      For the year ended 30 June

		2018 £'000	2018 £'000	2017 £'000	2017 £'000
Cash used in operations			1,610		1,494
Interest received		39		32
Interest paid		(144)		(118)
Net cash generated from operating activities			(105)		(86)
Cash flow from investing activities
Purchase of investments		(192,944)		(188,105)
Sale of investments		174,063		176,013
Realised currency gains/(losses)		146		(250)
Net cash used in investing activities			(18,735)		(12,342)
Cash flow from financing activities
Issue of new shares		22,898		14,484
Expenses related to issue of the prospectus		(230)		(5)
Expenses related to listing of shares		-		(23)
Dividends paid		(731)		(2,295)
Net drawdown/(repayment) of credit facility		808		(1,835)
Credit facility renewal fee		(7)		-
Net cash generated from financing activities			22,738		10,326
Net increase/(decrease) in cash and cash equivalents			5,508		(608)
Cash and cash equivalents at start of the year			3,819		4,427
Increase/(decrease) in cash in the year			5,508		(608)
Unrealised currency gains on cash and cash equivalents			23		-
Cash and cash equivalents at end of the year			9,350		3,819

 

Notes to the Financial Statements

1. Accounting policies

The financial statements are prepared on a going concern basis under the historical cost convention modified to include the revaluation of investments. The financial statements have been prepared in accordance with the Companies Act 2006, applicable United Kingdom accounting standards, including Financial Reporting Standard ('FRS') 102, and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued in November 2014 and updated in February 2018 by the Association of Investment Companies (the 'AIC').

In order to better reflect the activities of the Company and in accordance with guidance issued by the AIC, supplementary information which analyses the profit and loss account between items of a revenue and capital nature has been presented in the Statement of Comprehensive Income.

Financial assets and financial liabilities are recognised in the Company's Statement of Financial Position when it becomes a party to the contractual provisions of the instrument.

No significant estimates or judgements have been made in the preparation of the financial statements.

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. Income

	2018	2017
	£'000	£'000
Income from investments
Overseas dividends	2,767	1,935
UK dividends	290	208
Property income distribution	48	55
	3,105	2,198
Other income
Bank interest	39	32
Total income	3,144	2,230
Total income comprises:
Dividends from financial assets designated at fair value through profit or loss	3,105	2,198
Other income	39	32
Total income	3,144	2,230

3. Dividends paid and proposed

			2018	2017
	2018	2017	£'000	£'000
Amounts recognised as distributions in the year:
Previous year's final dividend	0.38p	2.85p	124	857
First interim dividend	1.80p	1.70p	607	526
Second interim dividend	-	2.92p	-	912
Total dividends	2.18p	7.47p	731	2,295

Set out below are the total dividends paid and payable in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £2,401,000 (2016: £1,653,000).

			2018	2017
	2018	2017	£'000	£'000
Dividends paid and payable in respect of the year:
First interim dividend	1.80p	1.70p	607	526
Second interim dividend	-	2.92p	-	912
Proposed final dividend	3.75p	0.38p	1,395	124
Total dividends	5.55p	5.00p	2,002	1,562

 

4. Net return per ordinary share

	2018	2018	2018	2017	2017	2017
	Revenue	Capital	Total	Revenue	Capital	Total
Net return on ordinary activities after taxation	7.14p	46.20p	53.34p	5.41p	71.56p	76.97p

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation for the financial year of £2,401,000 (2017: £1,653,000), and on 33,647,608 (2017: 30,542,647) 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 return on ordinary activities after taxation for the financial year of £15,546,000 (2017: £21,855,000), and on 33,647,608 (2017: 30,542,647) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

5. 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:

	2018 Net asset value	2018 Net assets £'000	2017 Net asset value	2017 Net assets £'000
Ordinary shares	493.23p	183,537	439.75p	143,058

During the year the movements in the assets attributable to the ordinary shares were as follows:

	2018 £'000	2017 £'000
Total net assets at 1 July	143,058	107,626
Total recognised gains for the year	17,947	23,508
Issue of new shares	23,273	14,484
Expenses related to listing of shares	-	(23)
Expenses related to placing and issue of new shares	(10)	(242)
Dividends paid	(731)	(2,295)
Total net assets at 30 June	183,537	143,058

Net asset value per ordinary share is based on net assets as shown above and on 37,211,416 (2017: 32,531,416) ordinary shares, being the number of ordinary shares in issue at the year end.

6. Transactions with the Investment Manager and related parties

The amounts paid to the Investment Manager and amounts outstanding at the year end are disclosed in note 4 of the Annual Financial Report. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore the Investment Manager is not considered to be a related party.

This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 June 2018 and 30 June 2017 but is derived from those accounts. Statutory accounts for the year ended 30 June 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2017 and the year ended 30 June 2018 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 2018 will be delivered to the Registrar of Companies shortly.

The audited Annual Financial Report for the year ended 30 June 2018 will be posted to shareholders shortly. Copies may be obtained from the Company's registered office at 42 Melville Street, Edinburgh, Midlothian EH3 7HA or at midwynd.co.uk.

The Annual General Meeting of the Company will be held on Tuesday, 6 November 2018.

For further information, please contact:

Company Secretary

Tel: [phone]

Artemis Fund Managers Limited

6 September 2018

 

 

END

 

 

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