Final Results

RNS Number : 1086B

Mid Wynd Inter Inv Trust PLC

12 August 2008

 



MID WYND INTERNATIONAL INVESTMENT TRUST PLC

Results for the year to 30 June 2008

Mid Wynd returned a strong relative performance over the period: net asset value per share fell by 0.5% compared to a 10.8% fall in the FTSE World Index (in sterling terms). 

	The strong relative performance was helped by good stock selection notably in Europe, North America and Emerging Markets and by the allocation to cash and bonds.
	The discount widened slightly over the period and the share price fell by 2.2%.
	Earnings rose from 12.93p to 20.29p and were boosted by a return of VAT of 2.30p per share. A final dividend of 8.50p has been recommended which will bring the total for the year to 14.00p, a 16.7% increase on the previous year. Additionally a special dividend of 2.30p representing the return of VAT has been declared.
	Over 5 years the net asset value total return (capital and income) has been 77.2% compared to 56.2% for the FTSE World Index (in sterling terms).
	Mid Wynd started the financial year with a strong bias away from Western consumers and banks, a continued focus on the immediate beneficiaries of inflationary supply shortages such as in oil services, steel or agriculture and an unusually high margin of cash and bonds.

The objective of Mid Wynd International Investment Trust PLC is to achieve capital and income growth by investing on a worldwide basis. The Trust has total assets of £51.4m (before deduction of the bank loan of £1.4m).

Mid Wynd is managed by Baillie Gifford & Co, the Edinburgh based fund management group with around £51 billion under management and advice at 11 August 2008.

11 August 2008

- ends 

For further information please contact:

Michael MacPhee, Manager    

Mid Wynd International Investment Trust PLC                                                  0131 275 2000

Roland Cross, Director

Broadgate                                                                                                        020 7726 6111

Mid Wynd International Investment Trust PLC

Chairman's Statement

In the year to 30 June 2008 net asset value per share declined by 0.5% and the share price by 2.2%. However, this should be seen in the context of a 10.8% fall in the principal comparative index, the FTSE World Index in sterling terms. 

While it is disappointing to report a slight fall in share price and net asset value, it is gratifying to see that the relative performance against equity markets has been much better than average owing to the positioning of the portfolio. There was also a considerable increase in income received during the year and the total return (capital and income) was positive at 9.44p per share. Over 5 years the record is good in absolute and relative terms: the net asset value total return has been 77.2% compared to a FTSE World Index return (in sterling terms) of 56.2%

Capital account

After some years of strong returns, markets have suffered a setback, particularly over the latter part of the Company's year to June. The alluring portrait of a booming global economy based upon cheap Chinese and other developing world exports, low inflation and interest rates, surging asset prices and a binge in consumption among the more mature (as defined by lapse of time since their industrial revolution) areas of the world has faded fast. A banking crisis, following long years of excess is the trigger for the significant adjustment underway in the pace of Western activity. Growth in the West is slowing after a golden period where house price rises allowed many to feel enriched and behave accordingly. Commercial banks are overstretched and have virtually stopped lending. Financial markets are increasingly reluctant to fund a growing stream of rights issues. The Eastern hemisphere, by contrast, has high savings rates and low levels of gearing to help it adapt to the present challenge of higher food and energy prices. Wage inflation is a far bigger problem there than here.

This combination of factors has not been seen for some decades, but may allow a rebalancing of worldwide growth and a lower but more sustainable pace. Whilst a degree of caution is hard to avoid, some of it at least is now priced into markets. The bifurcation in prospects for individual companies and sectors in a world of Eastern inflation and Western stagnation offers several avenues worth exploring which may offer us worthwhile real returns in coming years.

Growth and Inflation

Global economic growth has been setting records for some time. This has been true relative to modest underlying potential in the West but is also the case in the developing world, and especially in those countries either overtly or covertly tying their currencies to the dollar. Real interest rates remain low or negative in a variety of countries. The jump in food and energy prices has driven inflation beyond target for many economies, including the British. We are seeing the first major test of credibility for a range of inflation-targeting central banks. Much public blame for rising prices is heaped upon speculators and the evils of leverage or hedge funds. The true culprit would seem to be a persistent inability to increase supply adequately in some key areas. Inflation is likely to be blamed in most places, as here, on 'global factors' - there are few signs of faster growing countries prepared to throttle back domestic activity to stamp inflation out. Some discussion of the source of rising prices is necessary.

Food is an interesting case. Demand for protein, particularly meat and dairy produce, has increased markedly across a third of the planet as living standards have risen. Meeting this demand is a big challenge for the farming sector. Most forms of meat require many kilos of grain to yield one kilo of edible protein. Crop yields in advanced economies are peaking after long decades of stimulus by fertilisers and improving seed technology. Cultivated acreage is falling in many countries through urbanisation or industrialisation on the one hand and desertification on the other. A growing longer term concern about water supply is merited on the basis of what we know about over-exploitation of aquifers in many of the world's key agricultural areas. Also, agriculture has become increasingly energy intensive in recent decades, contributing to rising fuel costs. Last, but not least, inventories of grain have fallen to historically low levels after a couple of bad harvests, reminding us of the topic of climate change and an apparent increase in extremes of weather. Government stimulation of corn ethanol production in America has exacerbated the problem and suggests a confused high level understanding at best.

Energy is little different. Over-reliance on fossil fuels has once more led us into an oil shock. In past episodes, rising prices have stimulated exploration, development and production expenditures. Supply has risen in response. The concern this time around is that supply cannot easily respond. The giant mature oil fields upon which we rely are now depleting quite rapidly. Like for like production volumes are falling at around 5% per annum according to the latest International Energy Association survey. Large new discoveries are required, but are proving hard to find and harder still to exploit. This relates both to the challenge of their location, (often deep water and far below the sea bed), but also to a lack of adequate development resources, including skilled people. Ownership and control of the world's key oil reserves has largely passed from the hands of the major oil companies to producing countries, in contrast to the position during the oil shock of the 1970s. Oil projects everywhere are suffering from delays, deferrals and changing taxation and legal arrangements. While oil prices may well fall back in the short run, beyond that prospects for our energy related holdings remain encouraging.

Revenue Account

Earnings per share of 20.29p were 56.9% higher than last year's figure of 12.93p. A significant factor was the recovery of £166,000 of VAT from HMRC following the success of the challenge at the European Court of Justice to the legality of charging VAT on the management fee of investment trusts. The amount recovered and related interest of £59,000 contributes approximately 2.30p per share (after tax) to the revenue return. The recovery is dealt with in greater detail in note 3. Further factors also boosting income included greater exposure to bonds and good dividend growth from the equity portfolio. This rate of earnings growth is unlikely to be repeated next year. 

A final dividend of 8.50p is recommended which will take the total for the year to 14.00p, a 16.7% increase on last year. As earnings growth is likely to be less next year, the pace of dividend increase enjoyed by our shareholders over the last three years is likely to moderate. An additional special dividend of 2.30p has also been declared representing the return of the VAT.  

The total expense ratio has continued to fall and is now 0.58% (2007 - 0.62%) excluding the impact of the VAT recovery.

Discount

The discount has widened during the period from 15.7% to 17.1%. This is a source of some vexation to the Board and some shareholders. While a wide discount does not necessarily affect long term shareholders who may not be looking to sell their shares, the current level of discount does not really reflect Mid Wynd's much better than average long term track record. Buyback powers were granted last year but were not used. The Company is not large and care has to be taken not to damage liquidity which even as it stands is not abundant. However, renewal of buyback powers is being sought from shareholders as they may yet be of use in addressing the discount. Meanwhile the Board will continue to consider the level of discount and the linked question of liquidity with a view to seeking a solution that addresses the former without damaging the latter. To date a solution to this puzzle has proved elusive. 

AGM

This year, following the introduction of the Companies Act 2006, a number of changes to the Articles of Association are proposed. The Annual General Meeting will take place at the offices of Baillie Gifford & Co on Monday 13 October at 4pm when the Board will be very pleased to meet shareholders.  

Outlook

Lately, we have witnessed what has been described as a 'decoupling' of growth between East and West. Western economies are facing much lower growth, perhaps even a protracted period of it. It remains to be seen whether there will simply be a lagged effect on the East, or whether, as seems plausible in some instances, high savings rates and under-leveraged banking systems can form the basis for burgeoning consumer societies to replace demand lost from exports. China remains key to this question. Not all emerging economies enter this period with such obvious strengths, however. Some countries will suffer reversals of investment flows and boast fewer options if weaned off export dependence. It is clear that there has been a shift of global economic leadership to the East as well as a wealth transfer from consumers of commodities to their suppliers.

Mid Wynd starts its financial year with a strong bias away from Western consumers and banks, a continued focus on the immediate beneficiaries of inflationary supply shortages such as in oil services, steel or agriculture and an unusually high margin of cash and bonds. Our cash is invested predominantly in Swiss francs, a currency whose long term history reflects its monetary authority's steadfast record of prudent economic management.

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

The following is the unaudited preliminary statement for the year to 30 June 2008 which was approved by the Board on 11 August 2008. The Directors of Mid Wynd International Investment Trust PLC are recommending to the Annual General Meeting of the Company to be held on 13 October 2008 the payment of a final dividend of 8.50p net (7.50p net last year) per ordinary share, making a total of 14.00p net (12.00p net last year) per ordinary share for the year ended 30 June 2008. The Directors are also proposing an additional special dividend of 2.30p net per ordinary share. 

INCOME STATEMENT

(unaudited)

	For the year ended 30 June 2008				For the year ended 30 June 2007
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(547)	(547)		-	4,959	4,959
Currency gains	-	89	89		-	175	175
Income (note 2)	1,561	-	1,561		1,113	-	1,113
Investment management fee	(129)	(129)	(258)		(131)	(131)	(262)
Recoverable VAT (note 3)	111	55	166		-	-	-
Other administrative expenses	(153)	-	(153)		(139)	-	(139)
Net return before finance costs and taxation	1,390	(532)	858		843	5,003	5,846
Finance costs of borrowings	(22)	(52)	(74)		(24)	(24)	(48)
Net return on ordinary activities before taxation	1,368	(584)	784		819	4,979	5,798
Tax on ordinary activities	(348)	39	(309)		(170)	48	(122)
Net return on ordinary activities after taxation	1,020	(545)	475		649	5,027	5,676
Net return per ordinary share (note 4)	20.29p	(10.85p)	9.44p		12.93p	99.98p	112.91p
Dividends paid and proposed per ordinary share (note 5)	14.00p				12.00p
Special dividend proposed per ordinary share (note 5)	2.30p				-

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

All revenue and capital items in the above statement derive from continuing operations.

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

  MID WYND INTERNATIONAL INVESTMENT TRUST PLC

BALANCE SHEET

 (unaudited)

30 June 2008 £'000		30 June 2007 £'000
Fixed Assets
Investments	46,896		52,480
Current Assets
Debtors	511		675
Cash and deposits	4,299		142
	4,810		817
Creditors Amounts falling due within one year	(291)		(703)
Net current assets	4,519		114
Total assets less current liabilities	51,415		52,594
Creditors Amounts falling due after more than one year	(1,422)		(2,422)
Provisions for liabilities and charges
Deferred taxation	(4)		(4)
Total net assets	49,989		50,168
Capital and reserves
Called-up share capital	1,257		1,257
Share premium	20		20
Capital reserve - realised	39,276		36,890
Capital reserve - unrealised	7,987		10,918
Revenue reserve	1,449		1,083
Equity shareholders' funds	49,989		50,168
Net asset value per ordinary share (after deducting borrowings at fair value)	994.4p		998.9p
Net asset value per ordinary share (after deducting borrowings at par)	994.3p		997.8p

DISTRIBUTION OF ASSETS

 (unaudited)

			30 June 2008 %		30 June 2007 %
Equities:	United Kingdom		13.9		17.3
	Continental Europe		29.3		29.7
	North America		17.7		25.5
	Japan		3.4		8.9
	Asia Pacific		6.0		6.5
	Emerging Markets		13.1		6.5
Total Equities			83.4		94.4
Fixed interest			7.8		5.4
Net liquid assets			8.8		0.2
Total assets (before deduction of bank loan)			100.0		100.0

  MID WYND INTERNATIONAL INVESTMENT TRUST PLC

SUMMARISED CASH FLOW STATEMENT (unaudited)
	For the year ended 30 June 2008			For the year ended 30 June 2007
	£'000	£'000			£'000	£'000
Net cash inflow from operating activities		860				626
Net cash outflow from servicing of finance		(76)				(59)
Taxation
Corporation tax paid	(43)				(24)
Total tax paid		(43)				(24)
Financial investment
Acquisitions of investments	(18,635)				(17,709)
Disposals of investments	23,616				14,796
Realised currency profit/(loss)	259				(27)
Net cash inflow/(outflow) from financial investment		5,240				(2,940)
Equity dividends paid		(654)				(558)
Net cash inflow/(outflow) before use of liquid resources and financing		5,327				(2,955)
Liquid resources
Increase in short term deposits	(1,380)				-
Net cash outflow from use of liquid resources		(1,380)				-
Financing
Bank loans repaid	(1,443)				(1,534)
Bank loans drawn down	-				2,536
Net cash (outflow)/inflow from financing		(1,443)				1,002
Increase/(decrease) in cash		2,504				(1,953)
Reconciliation of net cash flow to movement in net funds/(debt)
Increase/(decrease) in cash in the year		2,504				(1,953)
Increase in short term deposits		1,380				-
Net cash inflow/(outflow) from bank loans		1,443				(1,002)
Exchange movement on short term deposits		273				-
Exchange movement on bank loans		(443)				202
Movement in net funds/(debt) in the year		5,157				(2,753)
Net (debt)/funds at 1 July		(2,280)				473
Net funds/(debt) at 30 June		2,877				(2,280)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		858				5,846
Gains on investments		547				(4,959)
Currency gains		(89)				(175)
Amortisation of fixed interest book cost		(49)				(44)
Decrease in accrued income		(168)				35
Increase in debtors		(147)				(5)
Increase in creditors		5				11
Overseas tax suffered		(89)				(71)
Income tax suffered		(8)				(12)
Net cash inflow from operating activities		860				626

  MID WYND INTERNATIONAL INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the year ended 30 June 2008

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

For the year ended 30 June 2007

	Share capital £'000	Share premium £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at  1 July 2006	1,257	20	31,943	10,838	992	45,050
Net return on ordinary activities after taxation	-	-	4,947	80	649	5,676
Dividends paid during the year	-	-	-	-	(558)	(558)
Shareholders' funds at 30 June 2007	1,257	20	36,890	10,918	1,083	50,168

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS  at 30 June 2008 (unaudited)
Name	Region		Business		2008				2007
					Value £'000	% of total assets	Value £'000
Baillie Gifford Developed Asia Pacific Fund		Asia Pacific		Investment fund	3,087	6.0		3,428
Baillie Gifford Japanese Smaller Companies Fund		Japan		Investment fund	1,756	3.4		-
Schlumberger		North America		Oil services	1,674	3.3		1,313
Seadrill		Continental Europe		Oil and gas services - Norway	1,387	2.7		534
Petrobras		Other Emerging Markets		Integrated oil - Brazil	939	1.8		290
Ultra Petroleum		North America		Gas exploration and production	929	1.8		518
Atlas Copco		Continental Europe		Industrial compressors and mining equipment - Sweden	884	1.7		1,036
Kone		Continental Europe		Elevators - Finland	880	1.7		787
Essilor		Continental Europe		Ophthalmology - France	799	1.6		774
Cameron International		North America		Oilfield equipment manufacturer	768	1.5		-
Nestlé		Continental Europe		Food products - Switzerland	760	1.5		635
Vodafone		United Kingdom		Mobile telecommunications operator	749	1.5		410
Diamond Offshore Drilling		North America		Oil and gas drilling	677	1.3		-
Wood Group		United Kingdom		Oil services	672	1.3		461
BG Group		United Kingdom		Oil and gas exploration and production	665	1.3		418
GBL		Continental Europe		Investment company - Belgium	606	1.2		633
Xstrata		United Kingdom		Iron ore and nickel mining	563	1.1		-
Vallourec		Continental Europe		Speciality steel pipe manufacturer - France	532	1.0		-
Pepsico		North America		Soft drink and food	531	1.0		463
Schindler		Continental Europe		Elevators - Switzerland	528	1.0		465
Aker Solutions		Continental Europe		Oil and construction services - Norway	518	1.0		-
GlaxoSmithKline		United Kingdom		Pharmaceuticals	510	1.0		598
TSMC		Other Emerging Markets		Semiconductor manufacturer - Taiwan	483	0.9		214
Investor		Continental Europe		Industrial holding company - Sweden	476	0.9		-
Vale (CVRD)		Other Emerging Markets		Iron ore miner - Brazil	460	0.9		122
Walgreen		North America		Pharmacy chain	450	0.9		598
A P Moller - Maersk		Continental Europe		Marine transportation - Denmark	449	0.9		439
L'Oréal		Continental Europe		Personal care - France	447	0.9		483
Cairn Energy		United Kingdom		Oil and gas exploration and production	446	0.9		293
Heineken		Continental Europe		Brewer - Netherlands	424	0.8		474
					24,049	46.8		15,386

MID WYND INTERNATIONAL INVESTMENT TRUST PLC

NOTES

(unaudited)

	The financial information within this preliminary announcement has been extracted from the unaudited financial statements for the year to 30 June 2008 and has been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 June 2007.
					30 June 2008 £'000							30 June 2007 £'000
2.	Income
	Income from investments and interest receivable				1,491							1,105
	Interest on VAT recovery				59							-
	Other income				11							8
					1,561							1,113
3.	Recoverable VAT
	In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. Since then HMRC has accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007. Subsequent to the year end, £166,000 of VAT together with £59,000 of interest was received by the Managers on behalf of the Company in respect of these periods. These amounts have therefore been recognised in the current year.
4.	Net return per ordinary share
	Revenue return				20.29p							12.93p
	Capital return				(10.85p)							99.98p
	Total return				9.44p							112.91p
	Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £1,020,000 (2007 - £649,000) and on 5,027,766 ordinary shares, being the number of ordinary shares in issue throughout each year. Capital return per ordinary share is based on the net capital loss for the financial year of £545,000 (2007 - net capital gain of £5,027,000) and on 5,027,766 ordinary shares, being the number of ordinary shares in issue throughout each year. There are no dilutive or potentially dilutive shares in issue.
				2008				2007			2008 £'000			2007 £'000
5.		Ordinary Dividends
		Amounts recognised as distributions in the period:
		Previous year's final (paid 5 October 2007)		7.50p				6.60p			377			332
		Interim (paid 7 April 2008)		5.50p				4.50p			277			226
				13.00p				11.10p			654			558
		We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £1,020,000 (2007 - £649,000).
MID WYND INTERNATIONAL INVESTMENT TRUST PLC NOTES (CTD) (unaudited)
			2008					2007			2008 £'000			2007 £'000
5.		Ordinary Dividends (Ctd)
		Dividends paid and proposed in the period:
		Interim dividend per ordinary share  (paid 7 April 2008)	5.50p					4.50p			277			226
		Proposed final dividend per ordinary share (payable 16 October 2008)	8.50p					7.50p			427			377
			14.00p					12.00p			704			603
		Proposed special dividend per ordinary share (payable 16 October 2008)	2.30p					-			116			-
			16.30p					12.00p			820			603
		If approved the final and special dividends will be paid on 16 October 2008 to all shareholders on the register at the close of business on 19 September 2008.
6.		Creditors include a bank loan of ¥300 million which is repayable on 27 February 2012  (2007 - ¥600 million).
7.		The Report and Accounts will be available on the Managers' website www.bailliegifford.com  on or around 4 September 2008.
8.		The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2008. The financial information for 2007 is derived from the statutory accounts for 2007 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2007 accounts, their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2008 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
9.		None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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