Mid Wynd International Investment Trust Regulatory News (MWY)

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

Legal Entity Identifier: 549300D32517C2M3A561

Annual Financial Results for the year ended 30 June 2023

Financial Highlights

Returns for the year ended 30 June 2023

Source: Artemis/Datastream.

* A final dividend, if approved by shareholders, and a special dividend for the year to 30 June 2023 of 3.95 pence and 1.70 pence respectively will be paid on 10 November 2023 to shareholders on the register at the close of business on 29 September 2023.

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

† Alternative Performance Measure.

* The date when Artemis was appointed as Investment Manager.

† Alternative Performance Measure.

Strategic Report

Chairman's Statement

The last twelve months have seen a rise in global equity markets and a rise in the net asset value (“NAV”) of our Company. The rise in the NAV of Mid Wynd has not kept pace with the rise in our comparator index. With major structural changes impacting economies, businesses and geo-politics the global equity markets are seeking to price in what the long-term consequences of these changes are for corporate earnings and equity valuations. In our current financial year they concluded that technology stocks are best placed to profit from these structural changes and there has been excitement around the prospects for earnings from artificial intelligence (AI) which, for some, heralds yet another structural change. Our Company has invested in the technology sector and benefited from some of this excitement but not to the extent that the comparator index has benefited. Accurately reflecting all these major structural changes in the price of equities is something that is likely to be achieved by financial markets only over many years. The role of our managers is to see through the short-term volatility associated with such changes and invest to benefit from the developing longer- term trends.

As I mentioned in the Half-Yearly Financial Report, the past twelve months have seen the announcement of the departure of both our managers from Artemis Fund Managers. While Simon Edelsten remains at Artemis until October, his forthcoming departure led the Board to review our management arrangements. This review has led to the appointment of Lazard Asset Management as our new manager and they are scheduled to take over responsibility for managing our assets in October 2023. You will find further details regarding this appointment later in this Chairman’s Statement.

Performance

For the year ended 30 June 2023 the Company’s share price rose by 1.0% on a total return basis with dividends assumed to be re-invested. The Company’s net asset value per share, on a total return basis, with dividends assumed to be reinvested, rose by 5.6%. This compares with a rise of 11.3% in the Company’s comparator index, the MSCI All Country World Index (GBP).

The share price total return is lower than the NAV return owing to the move from a premium to NAV at the start of the year to a discount at the year end. The discount of 4.3 per cent, seems, on the face of it, to be outside our target range under the Company's discount control policy. The explanation for this apparent anomaly and details of the discount control policy can be found later in this Chairman's Statement. The average NAV discount to share price during the year was 1.0%.

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 2023 was a gain of 36.87 pence per share, comprising a revenue gain of 10.01 pence and a capital gain of 26.86 pence. The Board is proposing a final dividend of 3.95 pence per share which, subject to approval by shareholders at the Annual General Meeting (‘AGM’), will be paid together with a special dividend of 1.70 pence per share on 10 November 2023 to those shareholders on the register at the close of business on 29 September 2023. An interim dividend of 3.85p pence per share was paid in March 2023, and so together with the proposed final dividend (but excluding the special dividend), this gives dividend growth of 8.3% over the year.

The dividend is fully covered by the revenue return for the year. The aim remains to grow the regular dividend progressively.

To maintain our status as an investment trust we are required by HMRC to distribute 85% of our earnings in the form of dividends. Last year we decided to distribute a dividend in two forms. The ‘regular dividend’, which we believe reflects the underlying earnings of our investments, and a ‘special dividend’ which I described last year as reflecting the ‘excess earnings’ of our investments. The aim in so dividing our dividend is to provide the maximum flexibility for our manager to pursue the best total return, in the form of capital gains and dividends, rather than to force the manager to focus on the pursuit of dividend income. I reported last year that the earnings of our Company had increased by 72% year on year and this year they have declined by almost 15%. This is the volatile nature of earnings that one expects when much of our income is derived in foreign currencies, particularly in US dollars, the sterling exchange rate moves materially, and we declare our dividends in sterling. Changes to our holdings also impact the total income of the portfolio depending upon the dividend yield of each investment and a one-off shift to higher yielding stocks materially boosted our earnings in the prior financial year. In recognition that such volatility of earnings will likely continue the Board will again declare a special dividend this year. We can again describe this special dividend as our assessment of the ‘excess earnings’ of our Company. Shareholders should look to the level and growth of the regular dividend for guidance as to the underlying earnings potential and thus dividend potential of our Company.

The growth in the regular dividend this year, of 8.3%, has exceeded the annual rate of inflation. Since the year ended 30 June 2019, before the outbreak of COVID-19 and the surge in inflation that followed, our regular dividend has increased from 5.83p in 2019 to 8.70p in 2023 an increase of 49%. Over the same period the UK Consumer Price Index increased by 22%.

Management changes

In 2014, on the retirement of our fund manager from Baillie Gifford, the Board of Mid Wynd conducted a review of management arrangements and appointed Artemis Fund Managers to manage our assets. The team of three individuals at Artemis who have successfully managed our assets have now all left or will soon leave Artemis. The team led by Simon Edelsten has produced very good performance for our shareholders in often volatile and difficult circumstances. Since their appointment in 2014 they have stewarded our Company’s assets through shocks that include - Brexit, growing volatility in US politics, a hot war in Europe, a growing cold war between the developed world and China and a global pandemic - to name a few! In successfully navigating through these difficult waters they provided better returns, relative to the comparator index, when equity markets were weak while capturing a significant portion of the gains when the prices of equities were rising. Such an achievement is not common even amongst professional investors and the total return of 192.6% from their appointment to our year end in June 2023, compares very favourably with the total return of 160.2% of our comparator index. This excess performance has been recognised by the marketplace and as a consequence our shares have traded at a premium to NAV and we have issued shares and grown the size of the Company. As Chairman of the Company, and a director and shareholder throughout Artemis’s term as manager, I would like to thank Simon and the team for their diligent and very successful stewardship of our assets since 2014.

With the departure of our fund managers from Artemis Fund Managers, announced earlier this year, the Board considered that a full review of management options was necessary. The Board was informed of the change in personnel at Artemis in mid-February and instigated the review of management options in March. A review of global equity managers was conducted by Barnett Waddingham and their brief from the Board was to look for managers successfully pursuing a similar style to our existing managers, whether in managing portfolios for institutions or retail investors. Throughout the process the option of continuing with the new team to be appointed by Artemis was also given due consideration. The Board reviewed a long list of possible managers in May and a short list of managers in June. At the end of June we announced that Lazard Asset Management would be our new investment manager.

Lazard is a very well-known name in the world of finance. The company traces its history back to 1848 when the Lazard brothers, immigrants from France, launched their General Merchandise/dry goods company in New Orleans. The roots of the company are thus not dissimilar to our own as Mid Wynd traces its roots to a textile manufacturer which opened for business in Dundee in 1797. Lazard has been involved in banking and finance since the mid-nineteenth century and as of 2023 manages £166bn for clients in over fifty countries. While well-known to those involved in the institutional fund business, such as pension fund trustees, the company is less well-known to UK retail investors. This lack of awareness of Lazard as a manager of UK retail funds was not a deterrent to the Board in appointing the company as manager of our assets. The Board specifically sought out managers who, while producing excellent performance, were potentially not well known to retail investors. The over-riding priority for the Board was to find the best manager pursing an approach to investment not dissimilar to that familiar to investors in our Company. We have found that in our new team at Lazard Asset Management and are convinced that as wealth managers and retail investors come to understand their approach to investment management that new investors will be attracted to Mid Wynd.

The team at Lazard Asset Management, of Louis Florentin-Lee and Barney Wilson, have produced impressive long-term returns. Since inception in February 2011 to the end of June this year their Lazard Global Quality Growth approach has produced an outperformance of the comparator index (the MSCI ACW Index) of 2.4% per annum even having deducted the management fees the Board has agreed with the company. These returns have been achieved managing institutional funds and the team will now seek to replicate these returns for Mid Wynd thus making their expertise available to all investors. This excess return is a product of a disciplined approach to assessing the sustainability of high returns on capital from quality companies and also of calculating the appropriate price to pay for the shares of such companies. Economic theory asserts that increased competition will attract others to compete in such areas and thus the returns on capital achievable will decline. This ‘fade’ in returns, however, has not always materialised and there are companies which have consistently reported high returns despite the threats from increased competition. One can think of various branded products in the alcohol and luxury goods business, for instance, which have attracted premium prices and high returns for their owners - sometimes for over one hundred years. Our managers are searching the globe, across a wide range of business sectors, to find similar high quality businesses with this form of replicable high return with limited or no ‘fade’ to returns on capital. The Lazard team has outperformed the comparator index since 2011 by identifying those companies where the ‘fade’ of returns has not occurred and by then not paying too much for them. As these companies achieve particularly high returns on their re-invested capital they tend to re-invest and pay low levels of dividends. For investors the compounding effect from re-investing the cash flows from high-returning businesses to secure higher future returns is particularly rewarding.

In their search for such high-quality companies Louis and Barney draw upon the experience of the more than three hundred investment professionals who work for Lazard Asset Management, including a team of approximately 70 analysts. From a wide range of recommendations from Lazard analysts they construct a portfolio, usually of around 40 to 50 stocks, that they believe can sustain high returns on their capital and represent good value for long-term investors. This approach to investment has produced good returns when equity markets have been rising and outperformed the comparator index when equity markets have been falling. The Lazard team has, since inception in 2011, captured 106% of the upside from markets when equity markets have been rising while capturing 92% of the downside while equity markets have been falling and these returns take into account management fees. The team’s long-term focus means that portfolio turnover is low.

The new manager follows a similar approach to stock selection as our previous managers. Both focus on identifying high quality companies with strong sustainable profitability which can compound over the long term. Investors can expect changes in the portfolio but also some similarities in holdings between our new and old investments. Like past managers the Lazard team are free to invest across the globe in pursuit of such investments. In the past I have stressed the importance, particularly at times of structural change, of avoiding investment in stock market indices. These indices tend to be comprised of companies that have benefited from historical long-term trends. The Lazard team, has an active share, the difference between the portfolio and the composition of the comparator index, of almost ninety percent. If we are entering a period of major structural change, as many of us expect, then this willingness to allocate capital without reference to the comparator index is likely to be key to securing good future returns. The Board very much looks forward to working with the Lazard team in the pursuit of the high-quality businesses which can both preserve and grow the purchasing power of our capital, our shareholders’ savings, over the long-term.

The change in investment manager necessitated other changes of service providers for our Company. The Board has conducted a review of other service providers and has selected Juniper Partners and JP Morgan to provide the services previously provided by Artemis and Northern Trust.

Share Capital

Demand for the Company’s shares continued in the first half of the year with 1,133,200 new shares issued up to 31 December 2022. However, with market volatility and the announcement of the change in lead fund managers, the Company entered a period of buybacks. Between 24 February and 30 June 2023, 4,002,662 shares were bought back at a value of £27.6 million and all these buybacks were at a discount to NAV and thus accretive to net asset value for continuing shareholders. After the year end, a further 4,466,418 shares were bought back at a further cost of £31.3 million.

The Company’s policy, within normal market conditions, is to issue and re-purchase shares where necessary to maintain the share price within a band, plus or minus 2%, 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 while the price of purchases or issuance are always reported relative to the NAV reported at a set time of the day. The result can be that some purchases or issuances appear to be out-with the 2% band established by the Board but the practice of utilising a live NAV is necessary to ensure that all of our issuance and buybacks are accretive to NAV for continuing shareholders.

Shares were issued and bought back during the year using the existing authorities given at the 2022 AGM. The recent months have seen considerable pressure on investment trust share prices and discounts generally and Simon Edelsten’s departure and the ensuing change of investment manager may well have caused some investors to sell their shares in the Company. The Board believes that it is not unusual for there to be higher levels of turnover in a company’s shares during a period of a transition of managers. The Board convened a general meeting to be held on 8 September 2023 to increase the Company’s flexibility to buy back shares. We have changed our manager before, in 2014, and witnessed significant selling of shares at that time which we bought to ensure that our shares did not trade out-with the band established by our discount control mechanism. The Board will continue to operate the discount control mechanism, and this will include issuing shares at a two percent premium – something we were doing until fairly recently. This discount control mechanism has operated to the benefit of our shareholders over many years and the current small discount to NAV of our share price is in marked contrast to the large discount to NAV of many other investment trusts with similar mandates. At the forthcoming AGM, the Board will seek new authorities to issue and buy back shares to continue to implement its discount and premium management policy.

Borrowings

At 30 June 2023 the Company had no amounts drawn down on its US$60m facility with the Bank of Nova Scotia (2022: €5m; US$2m). The Company pays a small fee for the right to access these additional funds and only when amounts are drawn down is interest expense incurred. Further information on the Company’s gearing can be found within the Strategy and Business Review.

The Company’s revolving credit facility with The Bank of Nova Scotia (UK Branch) needed to be amended to take account of Lazard’s appointment as our new manager. Taking account of the current high interest environment, the Board has resolved to terminate the current facility with The Bank of Nova Scotia.

Board Succession

As discussed in the December 2022 Half-Yearly Report, Hamish Baillie joined the Board on 1 November 2022. The process of refreshing the Board continues. As part of this process I will step down from the Board of the Company at the 2024 AGM. The Board has been very busy assessing management options for the Company and also arranging the transition in managers. When that process is completed, we expect in October 2023, we will focus on future Board composition and the changes necessary in preparation for my departure from the Board in Q4 2024.

AGM

The AGM will be held in person on 26 October 2023 at 12.00 noon at the offices of Dickson Minto, 16 Charlotte Square, Edinburgh, EH2 4DF.

As Simon Edelsten will have retired before this meeting, it is not intended that he will present at the forthcoming AGM. However, the new Lazard management team and the CEO of Lazard Asset Management will present in person or via video-link after which they and the Board will be available to answer shareholder questions.

We encourage those shareholders not attending to e-mail any questions in advance to cosec@junipartners.com.

As always, I would encourage you to make use of your proxy votes by completing and returning the form of proxy enclosed with this report.

Outlook

The savers who own the shares of our Company are seeking to both protect and grow the purchasing power of their wealth. This involves securing positive nominal returns but also, over the long-term, securing returns higher than the rate of inflation. Over the very long-term equities have provided such returns but sometimes it has taken more than a decade for the initial investment in equity indices to result in positive real total returns. If, as Mr Buffet famously said, ‘price is what you pay, value is what you get’, then it is possible to pay too much even for the highest quality companies. Assessing the sustainability of corporate returns and the correct price to pay for future returns is the skill and partially the art of investment. Our shareholders have benefited from the skills of our previous managers in selecting high quality companies that can produce sustainably high returns and in investing in those companies at what proved to be attractive valuations. Our Company will continue to pursue such an investment policy under our new managers.

Investing in companies that can both produce high returns on capital and also reinvest their cash flows at similarly high returns is an approach that is likely to be particularly attractive in an age of higher inflation. While none of us can forecast the peak level that inflation might reach in any business cycle, the structural changes underway in the world do seem to augur a materially higher level of inflation than we have been used to over the past decades. To defend savings from the erosion of purchasing power that comes with higher inflation one approach will be to invest in companies that can invest and reinvest their cash flows for returns that very significantly exceed the rate of inflation. Our new manager, Lazard Asset Management, will invest in such companies. Their skill, demonstrated since they began this High Quality Growth strategy, will be in accurately forecasting where corporate returns can remain sustainably high and of course in not paying too much for such high returns. It is a skill they have been deploying for over a decade and since the inception of this approach, in February 2011, that has produced a net outperformance relative to our comparator index of 2.4% per annum. The shares of companies that can invest and reinvest at rates of return well above the rate of inflation are likely to remain in strong demand in an era of high inflation.

The steep rise in interest rates since 2020 has not produced the scale of economic deceleration and perhaps even financial distress that might have been expected. Such a reaction to higher interest rates in 2008 caused a contraction in economic activity, bank collapses and huge losses for equity investors. Despite record high levels of debt, relative to GDP, both the public and the private sector have, so far, been able to service their debts and debt defaults have remained constrained compared to other economic downturns this millennium. This resilience probably primarily reflects a move by many debtors to extend the duration of their borrowing and lock in low interest rates in the period of very low interest rates that pertained up to 2020. Even so debt is always maturing and as it is refinanced the higher costs of servicing that debt will lead to greater strains for those seeking to service their debts. The clock is thus ticking for debtors as their debts are refinanced at higher rates of interest. The data on private sector debt service ratios, which show the proportion of private sector income currently needed to service debts, indicate that many countries, are at a level where historically their private sectors have defaulted on their debt obligations and these ratios will continue to deteriorate as debt is refinanced. Perhaps surprisingly the private sector debt service ratios of the United States, United Kingdom and Japan are reasonable but for some large and important countries, such as France and China, a dangerously high level of private sector income is being diverted to service debts. The impact from rising interest rates on economic growth, financial stability and equity prices has been benign but as time ticks on and debts are refinanced at higher interest rates this is likely to change. Investing in those corporate cash flows that can remain robust even in such circumstances can protect investors from the worst effects of any economic contraction that may come as the impact from higher interest rates hits the private sector. Companies with high returns on capital and low debt levels should be better placed to weather economic contractions when they come.

It is not easy to discern the major trends that are developing during a period of rapid short-term changes and general volatility. One trend though is becoming more apparent. That is that governments are intervening to create outcomes that they believe should not be left to market forces. That is a trend that involves both the socialisation of private sector risk, as we saw with the significant government support for the private sector during the COVID-19 crisis, but also in the form of governments co-opting or cajoling corporations to assist in delivering their political goals. This is a trend that is very likely to continue as governments react to what are the growing list of ‘crises’ confronting the electorate - climate change, war in Europe, a cold war with China, higher cost of living etc. While such intervention may mitigate the extremes of the business cycle it comes at a price for savers in the form of greater government interference in the allocation or private capital / savings. History suggests that such government interference rarely results in higher returns on capital for the companies so co-opted by governments. A well-chosen portfolio of equities may be one of the few places for investors to hide in such a world particularly by investing in the high-quality companies that can continue to produce high returns on capital even during such shifts in the balance between markets and governments.

Savers face new challenges but rarely are they unique challenges. History provides some guidance to the future and it suggests that well managed companies, producing high returns on capital and bought at good valuations will provide positive real total returns. Our managers have the freedom to seek out those companies wherever they may be in the world and we expect this ability to find those companies to benefit our investors.

Contact us

Shareholders can keep up to date with Company performance by visiting www.midwynd.com where you will find information on the Company, a monthly factsheet and regular updates from the Investment Manager. In addition, the Board is always keen to hear from shareholders.

Should you wish to, you can e-mail me at cosec@junipartners.com.

Russell Napier

5 September 2023

Investment Manager's Review

Introduction

Global equity indices rose over the past year, driven predominately by US technology shares. While the Company held a number of investments in this area, it did not have as high a weighting in such shares as our comparator index (MSCI ACWI). The Company’s net asset value rose by 5.6% compared with an 11.3% rise in the comparator index in sterling terms.

Global inflation fell over the year as energy prices returned to the levels pertaining before Russia invaded Ukraine. However, core inflation – especially wage inflation – persists and so interest rates have risen, especially in the UK. The companies we invest in have handled these pressures very well and most have grown cash flows significantly through this challenging period.

As shareholders will have read, this will be my last report as the fund manager of your Company and so I will provide a short report on the past year and also some observations on managing the portfolio over the past nine years.

Regional Performance

Thematic performance

Performance over the past year

Online Services (17% of the portfolio): The investments we hold in this area performed very well, especially Microsoft, Alphabet, Ansys, Adobe and Amazon. Having no exposure to just two stocks, Apple and Nvidia, accounted for nearly half the year’s underperformance relative to the comparator index. Our view is that this shows the benchmark has become worryingly concentrated with just a few very large companies dominating total returns. We prefer to keep the portfolio more balanced than the comparator index.

Automation (20% of the portfolio): This theme performed well as China slowly reopened and companies around the world resumed capital investment.

Digital Finance (7% of the portfolio): Our small allocation to Japanese banks performed well. These companies benefit from persistent – and in Japan’s case, reasonably modest – inflation. Even the modest rises in long-term interest rates have allowed banks to lend at higher rates while their average cost of deposits has not been rising as rapidly. This improvement in banks’ margins on lending is very positive for profits. This theme, which focuses on more lowly-valued equities, acts within the portfolio as a good balance to more expensive portions, such as US technology shares. Avoiding other developed world bank stocks during the period also boosted performance relative to the comparator index.

Healthcare Costs (10% of the portfolio): After a strong year in 2022, this theme performed poorly. The US medical insurance companies are seeing a rise in claims from their customers. Few people willingly went near a hospital during the pandemic, so there seems to be a backlog of the population who need medical care. The short-term impact for the companies is that claims from their customers have risen as the backlog of postponed medical treatment clears.

Five largest stock contributors

Five largest stock detractors

Transactions

Buying Japanese banks, buying Rockwell Automation and selling Elevance, one of the larger holdings in US medical insurance, boosted our returns over the year.

Observations on managing the Mid Wynd investment portfolio

In 2014 the Artemis Global Select team was privileged to be appointed to manage the Mid Wynd portfolio. Alex Illingworth, Rosanna Burcheri and I set about managing the investments to benefit from fair equity market conditions, but also to avoid giving up gains too easily when conditions worsened. For most of the past nine years market conditions have been very good indeed and in the one moment of panic – the Covid outbreak in March 2020 – the portfolio’s resilience became apparent.

The Company had assets of £67m in May 2014 and by the end of that year, after some shareholders had sold, the Company held 13% of its shares in Treasury. As at 30 June 2023, the Company had assets of £449m, no gearing and a year’s dividends available as reserves.

Managing an investment trust is different from managing a unit trust. Investment trusts tend to have much longer lives and are often used to pass down wealth through generations. Unit trusts are more often used to manage savings through an individual’s lifetime. The Mid Wynd International Investment Trust is, of course, named after the street in Dundee where the Scott family made a fortune in jute. Many members of that family remain shareholders, illustrating how the Company has been effective over the long term. It has also been a pleasure to have previous investment managers on the shareholder list.

When we took over the management markets had recovered from the 2008 banking crisis, most equities were reasonably priced, inflation was subdued, and interest rates were held down by central banks. The portfolio we constructed was balanced between companies that generated strong growth and others that offered cheaper valuations. The former dominated performance. Over the nine years our best investments, which should be familiar to shareholders as we will have talked about them in great detail in previous reports, have been Louis Vuitton, Boston Scientific, Mastercard, Freeport McMoRan and Thermo Fisher Scientific.

The list of stocks that have reduced the relative performance over the period has just one dominant constituent: Apple. Owning none of its shares (most of the time) has cost around 5% of relative performance during our stewardship of the Company’s capital.

All in all, over the last nine years, the Company’s assets have grown faster than the global equity index. These excess returns have come principally from stock selection. Allocations to particular countries have had little effect though being sceptical about European prospects saved us a little money. By theme, Online Services and Sustainable Consumer contributed the most, followed by Healthcare, Scientific Equipment and being sceptical about banks.

Between 2014 and 2020 economic conditions were reasonably benign and equity funds made very strong returns. Now that inflation has returned, many are looking for ways to defend the value of their savings. With UK inflation currently over 7%, holding cash or UK government debt guarantees a slow loss of purchasing power. Equities offer a way to invest one’s savings in the real economy, in businesses that can adjust to inflation as it ebbs and flows and whose cash flows should grow in real terms over time. Historically, equities have proven to be the best performing asset class during times of high inflation, especially between 1978 and 1983. However, current valuations are much higher.

With the current high valuations for equities in mind, the transition from a low to higher inflation environment means we feel attention must be paid to the value for money in equities, especially value for money in companies like technology companies whose growing cash earnings are sometimes many years in the future.

Over the past nine years the returns we have enjoyed in Louis Vuitton, Boston Scientific, Mastercard and others show that healthy investment returns can come from the steady earnings growth of well-established businesses. The Company’s returns have not relied on a small number of stocks making very high returns. They have come from most of our investments doing quite nicely and thankfully very few proving troublesome. It may mean that we have fewer ‘elephant-hunter’ tales, but it has worked.

We are pleased to be able to hand over the Company in rude health and would like to take the opportunity to thank the management and marketing team at Artemis, Martin Stott at Bulletin PR and the Mid Wynd Board for their support over this time.

We wish the Company and its shareholders all the best for the future.

Simon Edelsten

Fund Manager

Bobby Powar & May Laghzaoui

Analysts

5 September 2023

Introduction to the Company’s new Investment Manager

Lazard Asset Management will be replacing Artemis as Investment Manager in October 2023. Lazard is one of the world’s pre-eminent financial institutions, and celebrates its 175th Anniversary this year. Lazard Asset Management manages approximately £166 billion of assets for a very diverse array of clients – with 24 offices across 17 countries, and with equity expertise at its core, the firm is very well positioned to deliver strong investment outcomes.

Lazard Asset Management’s global equity managers, Louis Florentin-Lee and Barnaby Wilson will be responsible for managing the Company, and will do so in accordance with the Lazard Global Quality Growth strategy, which launched in 2011.

Louis and Barnaby have worked together at Lazard Asset Management since 2004 and have managed the Lazard Global Quality Growth strategy together for the last decade – in the 10 years to 30 June 2023 the strategy has generated a gross return of 262%, compared with the MSCI All Country World Index (GBP) (MSCI ACWI) return of 176%. Louis and Barnaby began working in the investment industry in 1996 and 1998, respectively.

The Lazard Global Quality Growth strategy aims to invest in what the team considers to be some of the best businesses in the world – companies with sustainable competitive advantages that are expected to generate consistently high returns on capital and that can reinvest in their business to drive future growth. In identifying and investing in such businesses investors see the cash flows generated on their behalf re-invested at much higher returns than available elsewhere. The investment approach is reinforced by 25 years of empirical research and supported by Lazard’s extensive fundamental research team of global sector analysts.

Given Lazard’s focus on future financial productivity, the investment team fully integrates ESG analysis into its fundamental research. The companies selected for the portfolio tend to be asset light and well-managed with good governance, so the portfolio tends to have an attractive ESG profile, with significantly lower carbon footprint, lower carbon intensity, and lower ESG risk exposure than the MSCI ACWI. This is an outcome of stock selection, not a target objective. Details of the approach to stewardship, sustainability and the investment process will be published in the Company’s ESG section of the AIC website.

Full details on the investment approach that Lazard will bring to Mid Wynd can be accessed via: the Research & Insights/Investment Research/Quality investing section of the main website: www.lazardassetmanagement.com

Strategy and Business Review

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

Purpose

Our purpose is to increase the real wealth and prosperity of our shareholders, thus helping them meet their long-term savings needs.

Mid Wynd International Investment Trust plc can trace its heritage back to 1797, when the founder of the Company set up a textiles business in Dundee. Its origins as an investment company date from 1949, when the Board began to manage the financial reserves as a separate entity from the main trading business. In September 1981, the shares of Mid Wynd International Investment Trust plc were floated on the London Stock Exchange. At that time, the Board was entrusted by shareholders to manage their wealth, with a focus on investing in global companies with strong growth prospects and sustainable businesses. This focus remains as true for the Board and its appointed investment manager today as it did back then.

Through our investment company structure, we enable shareholders, large or small, to invest in an actively-managed diversified portfolio of securities in a cost-effective way, giving them access to the growth opportunities offered by world markets.

Strategy

As stated above, the Company’s purpose is to increase the real wealth and prosperity of our shareholders, thus helping them meet their long-term savings needs. To achieve this goal, the Company has adopted a number of policies which are set out below.

Objective and investment policy

The objective of the Company is to achieve capital and income growth by investing on a worldwide basis. Although the Company aims to provide dividend growth over time, its primary aim is to maximise total returns to shareholders.

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 may 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. To ensure diversification of opportunity and management of risk, the Company is permitted by its policy to hold between 40 and 140 holdings; however, the portfolio will generally hold a portfolio of shares at the lower end of this range. The portfolio will be managed on a global basis rather than as a series of regional sub-portfolios. As at 30 June 2023 there were 53 holdings in the portfolio.

The Board assesses investment performance with reference to the MSCI All Country World Index (GBP). However, the Directors expect the appointed investment manager to pay little attention 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 comparator index.

Business model

The Company is incorporated in Scotland and operates as an Investment Trust Company. It is an investment company within the meaning of section 833 of the Companies Act 2006 (the “Act”) and is approved as an investment trust by HM Revenue and Customs subject to the Company continuing to comply with the requirements of section 1158 of the Corporation Tax Act 2010. The Company has a premium listing on the London Stock Exchange. The Company is also an Alternative Investment Fund whose investment manager is regulated by the Financial Conduct Authority.

The Company has no employees and the Board, which comprises solely of non-executive Directors, has delegated most of the Company’s operational functions to a number of key service providers. All key service providers are appointed under rolling contracts which are periodically reviewed, at which time the appropriateness of the continuing appointment of such service providers is considered. Details of the key service providers are set out later in this Annual Financial Report.

Dividend policy

The Company’s main focus is on growing shareholders’ capital. Nevertheless, the Company does have a progressive dividend policy which is not solely determined by the requirements of s1158 of the Corporation Tax Act 2010 to retain no more than 15% of revenue earnings in any financial year. The Board intends to grow dividends, subject to the availability of distributable reserves. Where appropriate, the Board may declare a special dividend.

Gearing and leverage

The Company may use borrowings to support its investment strategy and can borrow up to 30% of its net assets. The Company has a USD60m multicurrency revolving credit facility with the Bank of Nova Scotia (London Branch) which is available to the Company until 19 February 2024. As at 30 June 2023, no amounts were drawn down from this facility.

 The Company’s gearing is reviewed by the Board and Investment Manager on an ongoing basis. Given the current environment of high interest rates and the need for amendments to the current facility to take account of the new investment management arrangements, the Company has decided to terminate the facility due to expire in February 2024. The use of gearing will be reviewed in due course.

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 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 year. At 30 June 2023, the Company’s leverage was 99.95% as determined using the Commitment method and 100.13% using the Gross method. Further details can be found in the Glossary within the Annual Financial Report.

Current and future developments

A summary of the Company’s developments during the year ended 30 June 2023 together with its prospects for the future, is set out in the Chairman’s Statement and the Investment Manager’s Review. The Board’s principal focus is the delivery of positive long-term returns for shareholders. This will be dependent on the success of the investment strategy, in the context of both economic and 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 furthermore considers the ongoing development and strategic direction of the Company, as well as any risks which could impact on the Company’s ability to achieve its strategic objective.

Culture and values

Culture

Corporate culture for an externally-managed investment trust like Mid Wynd International Investment Trust plc, refers to the beliefs and behaviours that determine how the Directors interact with one another and how the Board manages relationships with shareholders and key service providers, such as the appointed investment manager. The culture is defined by the values which are set out below. The s172 report included in this Strategy and Business Review provides further details of how the Board has operated in this regard.

 Values

The Board is mindful that it is overseeing the management of a substantial investment portfolio on behalf of investors. In many cases, the investment in the Company may represent a large proportion of an individual’s savings. As all the Directors are invested in the Company, the Directors’ interests are aligned with those of fellow shareholders in this regard.

Our approach to governing the Company is therefore underpinned by our determination to do the right thing for our shareholders. Key to this is having a constructive relationship with them, through monthly updates, half-yearly and annual financial reports, and the opportunity to meet with them at the Annual General Meeting, when this is held under normal circumstances. We also believe in having strong relationships with our key service providers, one based on mutual trust and respect, with constructive challenge when required. Below is a summary of the Board’s most important values:

Sustainability, Stewardship and Environmental, Social & Governance Matters (“ESG”)

The Board recognises that sustainability and ESG matters are important cornerstones to responsible investment; the Board is committed to taking a responsible approach with the Company’s own governance matters and, more materially, a responsible approach to the impact the Company has through the investment decisions made by its appointed investment manager.

The Board delegates authority to its appointed investment manager to invest responsibly; engaging actively with investee companies to understand their management ethos and to seek sustainable returns.

Given Lazard’s focus on future financial productivity, the investment team integrates ESG analysis into its fundamental research. The companies selected for the portfolio tend to be asset light and well-managed with good governance, so the portfolio tends to have an attractive ESG profile, with significantly lower carbon footprint, lower carbon intensity, and lower ESG risk exposure than the MSCI ACWI Index. This is an outcome of stock selection, not a target objective.

Portfolio carbon emissions

The challenges around climate change are of increasing concern. The Board has placed greater importance on considering the issue separately from other ESG issues.

The portfolio’s carbon emissions have remained consistently below its benchmark, the MSCI All Country World Index (GBP).

Company engagement

The Board expects its appointed investment manager to influence through engagement. This is not always feasible given the small percentage of any company’s stock which the Company generally holds. The Board favours a policy of engagement over divestment. However, if attempts to influence companies show little evidence of success and they are failing to make their businesses more sustainable we expect our appointed investment manager to sell holdings.

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 reflects the performance of the net asset value.

Further details of the 2023 returns can be found within the Chairman’s Statement and Investment Manager’s Review.

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 (“NAV”) per share. The policy of the Board is to limit the discount or premium to a maximum of 2 per cent of NAV 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. This policy has proved consistently effective in generating value within the Company and protecting shareholders’ liquidity requirements. This current year has continued to bring volatility from geopolitical events in Ukraine/Russia as well as inflationary pressures. The Company’s shares, which were trading at a premium of 0.1% to NAV at the start of the year, moved to a discount of 4.3% of NAV at the year end. At all times the Company sought to manage the discount and premium within the target parameters and achieved an average discount of 1% over the year. While the Company declares its NAV daily, markets are open almost twenty four hours per day and this accounts for the wider range in premium and discount in 2023 shown on the following chart. During the year the Company issued 1,133,200 shares raising £8.1m net of costs (representing 1.7% of the issued share capital at the start of the year) and bought back 4,002,662 shares (representing 6.1% of the issued share capital at the start of the year) at a cost of £28,729,744. As the Company has utilised a significant proportion of the authorities granted by shareholders at the last AGM to undertake buybacks, the Company convened a special meeting on 8 September 2023 to apply for additional authorities up until the next AGM. The reason for doing this was to ensure the Company would be able to continue to operate its discount control programme efficiently up until the next AGM.

Although the Company incurs modest costs for operating the policy and when renewing shareholder authority, issuance at a premium and buying back at a discount under the policy more than compensates and is consistently accretive to NAV.

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 decrease in average funds under management during the year and certain one-off charges have led to an increase in the Company’s current ongoing charges ratio to 0.62% (2022: 0.60%).

Dividend per share

The Board, in addition to capital growth, continues to pursue its policy of growing dividends. It monitors the revenue returns generated by the Company during the year, its historic revenue reserves and expected future revenue and then determines the dividends to be paid. Revenue earnings during the year decreased by 15% on what was a very strong 2022 return. Revenue earnings will vary depending on macro economic factors affecting investee companies and the composition of the portfolio. As the majority of the Company’s revenues are earned in foreign currencies changes in exchange rates can also materially impact the GBP value of the Company’s earnings. The earnings per share still allow the Board to increase the interim and final dividends payable to shareholders along with the addition of a special dividend of 1.70p. Subject to approval of the final dividend by shareholders, a total regular dividend of 7.80 pence per share (2022: 7.20 pence per share) will be paid in respect of the year ended 30 June 2023. This represents an increase of 8.3%.

Total dividends payable for the year ended 30 June 2023, including the special dividend, amount to 9.50 pence per share.

Dividends payable/paid in respect of the years ended June 2022 and June 2023 were fully covered by their respective current year earnings.

Principal risks and risk management

The Board has carried out a robust assessment of the principal and emerging risks facing the Company. Following consideration of the principal risks, the Board has concluded that there are no emerging risks facing the Company that should be added to the current principal risks.

The Board, has developed a risk map which sets out the principal risks faced by the Company and the controls established to mitigate these risks. This is an ongoing process and the risk map, including any emerging risks, is formally reviewed at least every six months. The Board pays particular attention to those risks that might threaten the long-term performance or viability of the Company. Further information on the Company’s risk management process is set out in the corporate governance section within the Annual Financial Report.

A summary of the key areas of risk, their movement during the year and their mitigation is set out below:

Long-term Viability

Viability statement

In accordance with the Association of Investment Companies (the “AIC”) Code of Corporate Governance, the Board has considered the longer-term prospects for the Company beyond the twelve months required by the going concern basis of accounting. The period of assessment, in line with our Key Information Document, is five years to 30 June 2028. The Board has concluded that this period is appropriate, taking into account the Company’s investment objective and policy and the long-term investor outlook.

In reviewing the Company’s viability, the Board considered the Company’s business model, the principal risks and uncertainties, including geo-political risks, current high inflation and interest rates and the ensuing market volatility as well as emerging risks such as climate change risks. The Company invests in listed securities and has a liquid portfolio.

Following the publication of this Annual Financial Report, the Company’s investment management arrangements will change with Lazard taking over responsibility for managing the Company’s investments in October following Simon Edelsten’s retirement from the Artemis partnership. In considering the Company’s prospects over the next five years, the Directors have assumed that Lazard will, on behalf of the Company, continue to follow the Company’s investment objective, that the Company’s performance will continue to be attractive to shareholders, and that the Company will continue to meet the requirements to retain its status as an investment trust.

The Company is authorised to trade as an investment company and has the associated tax benefits. Any change to the Company’s tax arrangements could affect the Company’s viability as an effective investment vehicle.

The Board considered a five year forecast and a number of stress test scenarios in connection with a sustained fall in markets. The Board also considered the Company’s ongoing income and expenses and the liquidity of the Company’s portfolio to ensure that the Company 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 next five years.

Duty to Promote the Success of the Company

How the Directors discharge their duties under s172 of the Companies Act

Under section 172 of the Companies Act 2006, the Directors have a duty to act in good faith and to promote the success of the Company for the benefit of its shareholders as a whole, and in doing so have regard to:

a) the likely consequences of any decision in the long term,

b) the interests of the company’s employees,

c) the need to foster the company’s business relationships with suppliers, customers and others,

d) the impact of the company’s operations on the community and the environment,

e) the desirability of the company maintaining a reputation for high standards of business conduct, and

f) the need to act fairly as between members of the company.

As an externally managed investment trust, the Company has no employees or physical assets. Our shareholders, our investee companies, our key external service provider, the investment manager, and other professional service providers, such as the administrator, depositary, registrar, auditor, corporate broker, tax adviser and lenders are all considered to fall within the scope of section 172.

During the year ended 30 June 2023, Artemis acted as the Company’s Investment Manager, Fund Administrator and Company Secretary. JP Morgan Europe Limited was the Company’s Depositary until 3 March 2023 when this service was moved to Northern Trust as part of a wider project initiated by Artemis and approved by the Board. As announced previously, the Board has appointed Lazard to replace Artemis Fund Managers as Investment Manager with effect from October 2023. Following this change, the Board has also appointed Juniper Partners Limited as Company Secretary and Fund Administrator in place of Artemis Fund Managers; JP Morgan Europe Limited will additionally resume depositary services.

Whilst certain responsibilities are delegated, the Board retains responsibility for promoting the success of the Company; the Directors’ responsibilities are set out in the schedule of matters reserved for the Board and the terms of reference of its committees, all of which are reviewed regularly by the Board.

The Company’s culture and values, as described within the Annual Financial Report, have been established by the Board to manage its key business relationships. The Company’s approach on anti-bribery and prevention of tax evasion can also be found within the Annual Financial Report and on the Company’s website at midwynd.com.

Engagement with key stakeholders

Board discussions and decisions

Key discussions and decisions made by the Board since the last annual financial report:

The Board’s primary focus is to promote the long-term success of the Company for the benefit of the Company’s shareholders. In doing so, the Board has regard to the impact of its actions on other stakeholders as described above.

Directors & diversity

The Directors of the Company and their biographical details are set out within the Annual Financial Report.

No Director has a contract of service with the Company.

The Board supports the recommendations of the Hampton-Alexander Review on gender diversity and the Parker Review on ethnic representation on Boards.

The Board recognises the principles of diversity in the boardroom and acknowledges the benefits of having greater diversity, including gender, social and ethnic backgrounds, and cognitive and personal strengths. When setting a new appointment brief, the Nomination Committee considers diversity alongside seeking to ensure that the overall balance of skills and knowledge that the Board has remains appropriate, so that it can continue to operate effectively. The Board’s Director selection policy will, first and foremost, seek to identify the person best qualified to become a Director of the Company, based on merit and objective criteria.

The Board is currently comprised of four male Directors and one female Director.

 The FCA announced a new policy statement on diversity and inclusion on company boards in April 2022. Companies are required to comply with the targets or explain the reasons for non-compliance. Outlined below is an overview of the targets and the Company’s compliance as at 30 June 2023 in accordance with Listing Rule 9.8.6R(9):

The Board does not currently meet the targets described above for the following reasons:

For future director appointments, the Board will seek to meet the guidelines on diversity targets.

The following tables set out the data on the diversity of the Directors on the Company’s Board in accordance with Listing Rule 9.8.6R(10) as at 30 June 2023. This data has been collected through consultation with the Board. There have been no changes in the below data since 30 June 2023.

1 Russell Napier is the Chairman of the Board, a senior position as defined by the Listing Rules.

2 Diana Dyer Bartlett is the Chairman of the Audit Committee. Although this is not a senior position as defined by the Listing Rules, in the absence of executive roles, the Company considers this role to be a senior position.

3 Not applicable as the Company does not have an executive management team.

1 The Chairman of the Board is a senior position as defined by the Listing Rules. In the absence of executive roles, the Company also considers the Chairman of the Audit Committee to be a senior position.

2 Not applicable as the Company does not have an executive management team.

Modern Slavery Act 2015

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

Sustainability and environmental, social and governance (‘ESG’) matters

The Board recognises that the most material way in which the Company can have an impact on ESG is through responsible ownership of its investments. The Company’s appointed investment manager is expected to engage actively with investee companies undertaking extensive evaluation and engagement 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 includes matters relating to material environmental, human rights and social considerations that will ultimately impact the profitability of a company or its stock market rating.

For and on behalf of the Board,

Russell Napier

Chairman

5 September 2023

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

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 the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 ‘The Financial Reporting Standard Applicable in the UK and Republic of Ireland’.

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, a Directors’ Report and Corporate Governance Statement, and a Directors’ Remuneration Report that complies with that law and those regulations.

The financial statements are published on a website, midwynd.com, maintained by the Company’s Investment Manage. 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 2023 and of the profit for the year then ended;

(b) in the opinion of the Directors, the Annual Financial Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company’s position and performance, business model and strategy; and

(c) 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.

Russell Napier

Chairman

5 September 2023

Statement of Comprehensive Income for the year ended 30 June 2023      

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.

The net return/(loss) for the year disclosed above represents the Company’s total comprehensive income.

Statement of Financial Position as at 30 June 2023

These financial statements were approved by the Board of Directors and signed on its behalf on 5 September 2023.

Russell Napier

Chairman

Statement of Changes in Equity

For the year ended 30 June 2023

For the year ended 30 June 2022

1 Capital reserve as at 30 June 2023 includes realised gains of £155,914,000 (30 June 2022: £191,640,000).

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

Statement of Cash Flows for the year ended 30 June 2023

Notes to the Financial Statements

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 by the Association of Investment Companies (the ‘AIC’) in July 2022.

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.

Set out below are the total dividends paid and payable in respect of the financial year. The revenue available for distribution by way of dividend for the year is £6,527,000 (2022: £7,343,000).