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

LEI: 549300D32517C2M3A561

Half-Yearly Financial Report (unaudited) for the six months ended 31 December 2022

This announcement contains regulated information

Financial Highlights

Source: Artemis/Datastream.

† Alternative Performance Measure

*The interim dividend for the six months to 31 December 2022 will be paid on 31 March 2023 to shareholders on the register at the close of business on 10 March 2023.

**Look-through costs of underlying investment company holdings not included

Source: Artemis/Datastream/Morningstar.

**The date when Artemis was appointed as Investment Manager.

† Alternative Performance Measure

Chairman's statement                                                              

Performance

For the six months ended 31 December 2022 the Company's share price rose 4.0%, 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 3.3%.

The Company's net asset value ('NAV') per share rose 2.6% on a total-return basis. Since Artemis' appointment, as Investment Manager on 1 May 2014, the net asset value per share has increased by 184.4%, on a total-return basis, against the comparator index increase of 141.3%.

As at 31 December 2022 the share price stood at a 1.5% premium to net asset value. The Company's policy, within normal market conditions, is to issue and repurchase shares where necessary to maintain the share price within a 2% band relative to the net asset value. Our Investment Manager assesses the company's NAV on a real time basis when buying or selling the Company's shares. As highlighted previously, this is not a perfect science and in periods where markets are particularly volatile the share price may lie outside this range for very short periods. The volatile market conditions experienced during the first half of the year are reflective in the average discount to NAV which was 0.2% for the period. Many investment companies have either found their shares trading at a discount in this period and/or have had to buy back their own shares to manage that discount. That the Company's shares traded at a premium to NAV at the end of the period is particularly encouraging and Mid Wynd is one of the few equity focused investment trusts to find itself in such a strong position.

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

Earnings and dividend

The net return for the six months to 31 December 2022 was a gain of 17.65 pence per share, comprising a revenue gain of 5.64 pence per share and a capital gain of 12.01 pence per share. The Board is proposing an interim dividend of 3.85 pence per share which will be paid on 31 March 2023 to those shareholders on the register at the close of business on 10 March 2023. This represents an increase of 10% on last year's interim dividend of 3.50 pence. Net revenue pence per share this period increased by 49% on the equivalent period to December 2021. As noted in the Annual Report to June 2022, the Investment Manager adjusted the portfolio towards investment in higher yielding companies and this period's increase in earnings is a continued reflection of that investment decision. It continues to be the aim of the Board to grow the dividend when revenue levels allow whilst at the same time providing flexibility to the Investment Manager. It is important that the Investment Manager retains the flexibility to invest in the shares of lower yielding companies if this is where the best opportunities arise. Investors should see the growth in their regular dividend as indicative of the level of growth directors believe to be progressive; one that will not compromise the flexibility of our Investment Manager.

Share capital

Despite demand for the Company's shares being affected by the challenging market conditions, a total of 1,133,200 ordinary shares were issued during the period from 1 July 2022 to 31 December 2022. This includes 163,200 ordinary shares which were issued from treasury, having been bought back earlier in the quarter to help manage a period of discount.

The shares issued raised net £8.2 million. The issuances during the period, excluding those from treasury, represent an increase of 1.5% on the share capital balance at the start of the period.

Following the period end, 325,000 ordinary shares were bought back and are held in treasury.

Borrowings

As at 31 December 2022 the Company had drawn funds of US$15.5 million; equating to £12.9 million. This compares with the drawn funds as at 30 June 2022 of US$2 million and €5 million; equating to £6 million. The Company repaid the Euro element of the loan facility during the period.

The Company is in a net cash position of 1.3% at the period end. The level of cash balances versus borrowings changes on a daily basis depending on investment activity. The instant availability of the borrowed funds gives the Investment Manager the ability to react quickly to market opportunities including buying the Company's own shares when at a greater than 2% discount to NAV whilst having the ability to drawdown further funds provides the ongoing flexibility required.

Board succession

As noted in the 2022 Annual Report, Harry Morgan (Senior Independent Director) stepped down from the Board at the 2022 Annual General Meeting in October, having served as a Director since 2012. Hamish Baillie was appointed as an independent non-executive Director with effect from 1 November 2022 and David Kidd assumed the role of Senior Independent Director upon Harry's retirement. Hamish Baillie is an experienced investment practitioner who spent twenty years at Ruffer LLP where he managed an investment trust. His knowledge of investment matters is complemented by an understanding of the savings market and the wealth management industry. I would like to welcome Hamish to the Board.

Management changes

Simon Edelsten, lead manager of Mid Wynd, will retire as a partner of Artemis Investment Management LLP ("Artemis") towards the end of 2023. Alex Illingworth is also leaving Artemis. Simon Edelsten and Alex Illingworth have overseen a highly successful period in our Company's history. Since they took control of the portfolio, in May 2014, until 31 December 2022 the total return of Mid Wynd of 184% has been significantly ahead of the MSCI All Country World Index (GBP) return of 141%. The Board would like to thank them both for their service to our shareholders over what have been tumultuous years in global financial markets.

On 1 March 2023 Alex Stanic will join Artemis from JP Morgan Asset Management's international equity group and will be responsible, with his new team, for managing our Company's assets. He spent seven years at JP Morgan, where he led on the global equity funds in the Global Specialist team, including the Global Unconstrained Equity Fund. Prior to that he was head of global equities at River & Mercantile, a division he set up in 2009. In due course Alex Stanic will be joined by two other new members of the global equity team to supplement analysts, Bobby Powar and May Laghzaoui.

It is not expected that the change in management will lead to any significant changes to the Company's investment focus, which is to identify investment themes likely to generate long term growth for shareholders. Simon will work closely with Alex Stanic and the wider team and is likely to hand over fund management responsibilities at the end of September whilst remaining in an advisory capacity until the end of the year.

Outlook

The last six months have seen a return of moderate optimism to equity markets. It is an optimism based upon the start of a decline in inflation which would almost certainly bring with it lower short-term interest rates. It is accompanied by a growing optimism that such a decline in inflation is occurring without the major contraction in economic activity that would be particularly negative for corporate earnings. A decline in inflation and interest rates combined with only a moderate decline in corporate earnings would be a powerful positive combination for equity prices. The key in securing positive real returns from equity investment is to assess whether investors are paying too much to own the corporate income streams that ultimately underpin such returns for investors over the long-term.

The US S&P500 index reached its all-time high in early January 2022 and by the end of the year it had declined by almost 20%. Over the same period the earnings per share of the index increased by 12.5%. Strong earnings growth throughout the past few years, combined with the decline in the index level in 2022, has brought the price earnings ratio for the S&P500 44% lower from its April 2021 level. The price earnings ratio for the S&P500 was 18.5X at the end of 2022 and for the MSCI World ex US index the ratio had declined to just 13.5X. We are entering an age when it will be difficult to protect savings from much higher inflation than we have become used to. These valuations give us confidence that a portfolio of carefully selected equities can provide such protection from inflation. In a highly leveraged world that cannot deal with interest rates materially above current levels the risk to equity valuations comes not primarily through rising interest rates but through an inability to grow corporate earnings. Our Investment Manager focuses on finding the companies that can deliver such earnings growth and investing our capital accordingly.

None of us can know just how painful for citizens and corporate earnings the next recession will be. However, it is worth bearing in mind the huge levels of government support for the private sector that have been put in place to mitigate the impact of higher energy prices and also of higher interest expense. In most of the developed world bankers continue to extend credit and support the private sector which is in great contrast to their actions in the more severe recessions and attendant stock market slumps of this millennium. This support for households and corporations from the government and banks does suggest that the negative impact on corporate earnings from any recession will be more muted than that to which investors have become accustomed. If the path for corporate earnings through the next recession is benign then a portfolio of well selected equities, at current valuations, can likely provide positive real returns for investors.

The key to selecting the right equities to grow real wealth in our new era is flexibility. Our Company has a particularly flexible mandate to seek to grow the real purchasing power of your savings. It can invest in any equity market in the world and given our small size, relative to many pools of capital, there are many thousands of equities offering sufficient liquidity to invest in. While we have a comparator index our Investment Manager pays little heed to it in constructing the portfolio. This provides the freedom to seek out the winners of our new era rather than being tied to the old winners that dominate stockmarket indices. The dividend policy of our Company has been adopted by the Board to ensure that portfolio construction is not constrained by the need to pursue income at the expense of growth in capital. Over many years now our Investment Manager has shown the flexibility to change their minds and change the portfolio in reaction to changing facts and valuations. In their review, our Investment Manager reports that corporate management, the ultimate stewards of our capital, has also remained flexible and in doing so has produced surprisingly positive returns through recent difficulties.

Perhaps Yogi Berra, the famous baseball player, did actually say 'The future ain't what it used to be.' If he did then perhaps he had in mind periods like today when major structural change is underway and the future is particularly unpredictable. In this period of major change our Company retains the flexibility to adapt and seize the opportunities that change almost always brings. The winds will change and we have the flexibility to adjust our sails accordingly.

The pessimist complains about the wind.

The optimist expects it to change.

The realist adjusts the sails.

William Arthur Ward: To Risk

Contact us

Shareholders can keep up to date with developments between formal reports by visiting midwynd.com where you will find information on the Company and a factsheet which is updated monthly; along with quarterly briefings and Manager presentations. In addition, the Board is always keen to hear from shareholders.

Should you wish, you can e-mail me at midwyndchairman@artemisfunds.com.

Russell Napier

Chairman

28 February 2023

Investment Manager's review

Review of period

The period saw more stable equity and bond markets as investors welcomed lower energy prices, but also recognised the persistence of inflation in wages. The US Federal Reserve guided markets towards higher interest rates which they expect will keep inflation under control, the Bank of England and European Central Bank followed behind and, late in the year, even the Bank of Japan showed signs of allowing higher interest rates. These higher rates seem likely to lead to recessions in major economies, but with employment levels high, the impact of these on equity valuations should be modest as long as companies with pricing power are selected.

Performance

Global equity markets recovered modestly in the period rising 3.3% in sterling terms and the Mid Wynd net asset value increased by 2.6%. In share price terms the Company kept up with the index during the interim period, helped by a strong December where the portfolio held up well in a risk-off environment. Importantly during this time there was pressure on investment trust premiums. As a result Mid Wynd traded to a discount mid period but regained its premium by mid-November. 

Five largest stock contributors

Five largest stock detractors

† Alternative Performance Measure

Artemis investment process

Our aim is to identify areas of commercial growth around the world and invest in companies that trade on attractive valuations and give the Company exposure to this growth. We select high quality companies, with proven profitability and high levels of cash generation, preferring businesses with strong balance sheets and those that have established high barriers to entry. Such companies sometimes lag equity markets when they recover, but they tend to protect capital well when economic conditions become more testing. Over time, we have found this investment approach generally gives a solid framework to deliver consistent returns to investors.

Current investment themes

Over the last six months our most successful themes were Digital Finance, Low Carbon World and Healthcare Costs.

Digital Finance - the last year has been one where macroeconomic factors have played a large role in equity markets. Inflation has eroded the margins of companies which lack competitive advantages, many technology companies have seen lower growth and found they have hired too many people, interest rates have risen to keep inflation under control. Banks in countries likely to tip into recession have performed poorly, but Asian banks and especially Japanese banks have welcomed rising interest rates as offering the prospect of higher interest margins in a recovering economy. However, we have seen such signs before only to be disappointed, so we are waiting to see how the economy fares.

Low Carbon World - our investments in this theme include large US oil service companies. As Europe has looked to replace Russian gas supplies, these companies have seen demand to help improve supply from existing fields, reduce methane leaks and catch up after years of low capital investment. We have avoided the traditional investments in this area, such as wind farm companies, as valuations seemed high and competition increasing.

Healthcare Costs - again this theme performed well, led by US health insurers. High employment levels help keep membership numbers buoyant and Americans seem wary of visiting hospitals if they can avoid it, keeping medical claim expenses low.

Our worst performing themes were Online Services, Automation and Screen Time. Although the portfolio has modest holdings in technology shares compared with the index, the few remaining holdings performed poorly as growth expectations disappointed and, in the case of Adobe, when the management overpaid for a large acquisition. Our automation stocks again saw delayed demand as China remained under covid lockdown - however longer-term prospects still seem very good.

Thematic attribution

Regional attribution

† Alternative Performance Measure

Outlook

We feel that investors are more realistic now about prospects than they were a year ago. The inflation which started to appear after the pandemic became more worrying when Russia invaded Ukraine, but economies have adjusted well. Headline inflation is now retreating as energy prices drop and employment remains strong. Meanwhile, after a significant fall both in equity markets and the US dollar, better value for money has started to appear for investors.

We aim to grow our investors' real wealth over time. Clearly the last year has not been one in which hoping to beat inflation has been realistic. However, persistent inflation of around, say, 4% is not at all unusual for investors.  The companies which cope best with such inflation are the sort favoured in our investment approach: decent (though not necessarily very high) growth prospects, good barriers to entry, pricing power and strong balance sheets. Also, the spread of investments between different sectors and geographic regions avoids regional pockets of inflation or sharp currency movements playing too large a role in the overall investment outcome.

Over the last six months we have been impressed by how well our investments have coped with the economic challenges and have continued to grow their per share cash earnings - the foundation on which higher share prices are built. We believe our selected investments should continue to grow in value ahead of inflation and that their valuations today are more attractive than a year ago. For these reasons we remain confident that our portfolio is well positioned to grow investors' real wealth in the years to come. 

Simon Edelsten & Alex Illingworth

Fund Managers

Bobby Powar & May Laghzaoui

Analysts

28 February 2023

Interim Management Report and Responsibility Statement

Principal Risks and Uncertainties

Pursuant to DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, the principal risks and uncertainties faced by the Company include strategic risk, market risks, legal and regulatory risk and operational risks including reliance on third-party service providers, reliance on key personnel and borrowing. External factors such as geopolitical risk also bring risk and uncertainty to the Company.

The Directors have assessed these risks and are of the opinion the nature of the risks and the way in which they are managed have not materially changed as described in the previous Annual Financial Report. These risks remain applicable to the six months under review and the remaining six months in the financial year. Details of the risks and their management is described in more detail in the Annual Financial Report 30 June 2022 which is available at midwynd.com.

Related Party Transactions

During the six months ended 31 December 2022, no transactions with related parties have taken place which have materially impacted the Company.

Going Concern

The Directors have considered the Company's principal risks and uncertainties together with its current financial position, assets and liabilities, projected revenue and expenses and the Company's dividend policy. The Directors also considered the impact on the Company of recent market volatility due to the war in Ukraine and the inflationary pressures currently being felt. It is the Directors' opinion that the Company has adequate resources to continue in operational existence for the foreseeable future, a period of at least 12 months from the approval of this Half-Yearly Financial Report. For this reason, the going concern basis of accounting continues to be used in the preparation of these financial statements.

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

The Directors confirm that to the best of their knowledge, in respect of the Half-Yearly Financial Report for the six months ended 31 December 2022:

•         the condensed set of financial statements has been prepared in accordance with Financial Reporting Standard ('FRS') 104: 'Interim Financial Reporting';

•         the Half-Yearly Financial Report includes a fair review of the information required by:

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

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

The Half-Yearly Financial Report for the six months ended 31 December 2022 was approved by the Board and the above responsibility statement has been signed on its behalf by:

Russell Napier

Chairman

28 February 2023

Condensed statement of comprehensive income

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

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

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

Condensed statement of financial position

Condensed statement of changes in equity

¹   Capital reserve as at 31 December 2022 includes realised gains of £178,504,000 (31 December 2021: £207,896,000; 30 June 2022: £191,640,000).

²   The Company may pay dividends from both capital and revenue reserves.

Condensed statement of cash flows

Notes to the Half-Yearly Financial Report

1        Accounting policies

The financial statements have been prepared in accordance with the Company's accounting policies as set out in the Annual Financial Report for the year ended 30 June 2022 and are presented in accordance with the Companies Act 2006 (the 'Act'), FRS 104 and the requirements of the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') issued by the Association of Investment Companies (the 'AIC') in July 2022.

The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Act. The financial information for the year ended 30 June 2022 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain statements under sections 498(2) or (3) of the Act.

The unaudited condensed financial statements for the six months ended 31 December 2022 have been prepared on a going concern basis.

2        Return per share

Return per share has been calculated based on the weighted average number of ordinary shares in issue for the six months ended 31 December 2022 being 65,786,856 (31 December 2021: 60,944,418; 30 June 2022: 62,652,936).

3        Dividends

An interim dividend for the six months ended 31 December 2022 of 3.85 pence per ordinary share (31 December 2021: 3.50 pence) has been declared. This dividend will be paid on 31 March 2023 to those shareholders on the register at close of business on 10 March 2023.

4        Borrowing facilities

The Company has entered into a three year agreement with The Bank of Nova Scotia (UK Branch) for a US$60 million multi-currency revolving credit facility terminating on 19 February 2024, of which US$15.5 million (£12.9 million) was drawn down at 31 December 2022 (31 December 2021: US$14.0 million (£10.3 million); 30 June 2022: US$2.0 million (£1.6 million)) and €nil (£nil) was drawn down at 31 December 2022 (31 December 2021: €10.0 million (£8.4 million); 30 June 2022: €5.0 million (£4.3 million)). These amounts are recognised in amounts falling due within one year in the condensed statement of financial position.

The Company pays interest separately on each currency drawn down. Interest is charged on each currency at variable rates. Sterling is calculated with reference to RFR (Risk-free rate); US dollar with reference to SOFR RFR and Japanese yen with reference to TONAR RFR. The US$ interest rate applied as at 31 December 2022 was 5.36% (31 December 2021: 1.53%; 30 June 2022: 2.36%). The € interest rate applied as at 31 December 2022 was nil% (31 December 2021: 1.30%; 30 June 2022: 1.30%).

The main covenants relating to the revolving credit facility are:

(i)         Total borrowing shall not exceed 33.33% of net asset value.

(ii)         The Company's minimum net asset value shall be £170 million.

5        Fair value hierarchy

All investments are designated at fair value through profit or loss on initial recognition in accordance with FRS 102. The following table provides an analysis of these investments based on the fair value hierarchy as described below which reflects the reliability and significance of the information used to measure their fair value.

The disclosure is split into the following categories:

Level 1 - Investments with unadjusted quoted prices in an active market;

Level 2 - Investments whose fair value is based on inputs other than quoted prices that are either directly or indirectly observable;

Level 3 - Investments whose fair value is based on inputs that are unobservable (i.e. for which market data is unavailable).

6        Reconciliation of net return/(loss) before finance costs and taxation to cash from operations

7        Analysis of changes in net cash

8        Share capital

In the six months ended 31 December 2022, 163,200 ordinary shares were purchased into treasury with net costs of £1,116,000 (six months ended 31 December 2021 and year ended 30 June 2022: the Company made no purchases into treasury).

In the six months ended 31 December 2022, 163,200 ordinary shares were subsequently sold from treasury with net proceeds of £1,175,000 (six months ended 31 December 2021 and year ended 30 June 2022: the Company had no sales from treasury).

In the six months ended 31 December 2022, 970,000 new ordinary shares were allotted with net proceeds of £706,000 (six months ended 31 December 2021; 2,668,000 new ordinary shares were allotted with net proceeds of £22,022,000, year ended 30 June 2022: 5,486,000 new ordinary shares were allotted with net proceeds of £44,197,000).

There were no ordinary shares held in treasury at the period end or prior year end.

9        Related party transactions

The Directors are considered to be related parties. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Company.

The Directors receive fees for their services. During the six months to 31 December 2022, £75,000 was paid to Directors (31 December 2021: £70,000; 30 June 2022: £140,000) of which £nil was outstanding at the period end (31 December 2021: outstanding £nil; 30 June 2022: outstanding £nil).

10       Transactions with the Investment Manager

The investment management fee payable to Artemis Fund Managers Limited for the six months ended 31 December 2022 was £1,149,000 (31 December 2021 £1,231,000; 30 June 2022 £2,437,000) of which £573,000 was outstanding at the period end (31 December 2021 £633,000; 30 June 2022 £597,000).

11.      Post Balance Sheet Events

Following the period end and up to 28 February 2023, 325,000 ordinary shares were bought back to be held in treasury.

Availability of Half-Yearly Financial Report

Copies of the Half-Yearly Financial Report for the six months ended 31 December 2022 will be sent to shareholders shortly and will also be available on request from the registered office at 6^th Floor, Exchange Plaza, 50 Lothian Road, Edinburgh, EH3 9BY as well as on the Company's website midwynd.com.

A copy of the Half-Yearly Financial Report will also be submitted to the FCA's National Storage Mechanism and will soon be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone number: 0131 225 7300

1 March 2023