Half-year Report
29/02/2024 07:00
To: PRN
From: Mid Wynd International Investment Trust plc
LEI: 549300D32517C2M3A561
Date: 29 February 2024
Half-Yearly Financial Report (Unaudited) for the six months ended 31 December
2023
Financial Highlights
Total returns Six months ended 31 December 2023 Six months ended 31 December 2022 Year ended 30 June 2023 Three months ended 31 December 2023^
Net asset value per share† 6.8% 2.6% 5.6% 6.8%
Share price† 9.7% 4.0% 1.0% 6.5%
MSCI All Country World Index (GBP) 7.0% 3.3% 11.3% 6.3%
Revenue and dividends
Revenue earnings per share 4.72p 5.64p 10.01p
Dividends per share* 3.85p 3.85p 7.80p
Special dividend per share nil nil 1.70p
Ongoing charges† 0.60% 0.60% 0.62%
Capital As at 31 December 2023 As at 31 December 2022 As at 30 June 2023
Net asset value per share 763.33p 703.40p 719.84p
Share price 750.00p 714.00p 689.00p
Net cash† 1.7% 1.3% 2.7%
(Discount)/premium (1.7)% 1.5% (4.3)%
Source: Lazard/Morningstar
†Alternative Performance Measure
^Performance under Lazard who were appointed as Investment Manager with effect from 1 October 2023.
*The interim dividend for the six months to 31 December 2023 will be paid on 28 March 2024 to shareholders on the register at the close of business on 8 March 2024.
Total returns to 31 December 2023 3 years* 5 years* 10 years*
Net asset value per share† 13.3% 77.6% 204.1%
Share price† 8.6% 70.9% 204.0%
MSCI All Country World Index (GBP) 26.8% 73.9% 178.6%
Source: Lazard/Morningstar
†Alternative Performance Measure
*Total returns over 3, 5 and 10 years cover the period over which Artemis Fund Managers Limited was the Company’s Investment Manager, from 1 May 2014 to 30 September 2023.
Chairman’s Statement
Performance
For the six months ended 31 December 2023 the Company’s share price rose
9.7%, 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
7.0%. The Company’s net asset value (‘NAV’) per share rose 6.8% on a
total-return basis. Our new investment manager, Lazard Asset Management
Limited (‘Lazard’ or ‘Manager’), assumed responsibility for the
management of our assets with effect from 1 October 2023. The approach of the
new Manager is bearing fruit and the total return from our investments has
marginally outperformed our comparator index for the three months ended 31
December 2023, albeit covering a very short period. On a total-return basis,
during this period, the Company’s share price rose 6.5%, compared with a
6.3% rise in the comparator index. The NAV increased by 6.8% during this time.
Further details on the performance of the Company during the period under
review are included in the Investment Manager’s Review.
As at 31 December 2023 the share price stood at a 1.7% discount to NAV. This
compares favourably to the weighted average discount of the ‘Global’
sector per the Association of Investment Companies (‘AIC’), of which the
Company is a member, which stood at 7.2% at the same date. Despite volatile
market conditions during the six-month period under review the Company’s
average discount was 1.4% over the period. 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 NAV. The Company’s
NAV is assessed on a real time basis when buying or selling the Company’s
shares using modelling that updates live prices and exchange rates to provide
the most accurate valuation.
Management and service provider arrangements
As announced in June 2023 and disclosed in the 2023 Annual Report, following a
review of management arrangements, the Board took the decision to appoint
Lazard and in conjunction with this change, Juniper Partners Limited was
appointed as Alternative Investment Fund Manager, Company Secretary and
Administrator, with J.P. Morgan Europe and J.P. Morgan Chase Bank being
appointed as Depositary and Custodian respectively, with effect from 1 October
2023.
The transition to the Company’s new operational state was a successful one
and the Board would like to thank all parties involved, including the previous
investment manager, Artemis Fund Managers Limited (‘Artemis’). All new
service providers are now fully embedded, and operations are functioning well.
Lazard agreed to waive its investment management fee for the first 15 weeks
from appointment, which more than offset the cost of the transition including
the ensuing changes to the portfolio. The total gross cost of the
implementation of the new management and administration arrangements
(including portfolio re-organisation costs of 0.03%) was approximately 0.07%
of the Company’s NAV as at 31 December 2023.
Portfolio re-organisation
The portfolio was extensively rebalanced immediately following Lazard’s
appointment. Six holdings from the legacy portfolio were retained and 35 new
ones added.
The lack of turnover of the portfolio since the reorganisation reflects
Lazard’s approach and we expect portfolio turnover and brokerage commission
to remain low.
Earnings and dividend
The net return for the six months to 31 December 2023 was a gain of 45.64
pence per share, comprising a revenue gain of 4.72 pence per share and a
capital gain of 40.92 pence per share. The Board is proposing an interim
dividend of 3.85 pence per share which will be paid on 28 March 2024 to those
shareholders on the register at the close of business on 8 March 2024. This
represents no increase on last year’s interim dividend of 3.85 pence. Net
revenue return pence per share this period decreased by 16% on the equivalent
period to December 2022, although total net return saw an increase of 159% on
the same period.
The revenue per share of the Company in this financial year will benefit from
the fee holiday which the Board secured from Lazard on its appointment, offset
by additional costs associated with the change of several of our key service
providers. As previously communicated, we expect the Lazard investment
strategy to generate a lower level of income than that generated by the
Company in recent years. After allocating a greater proportion of costs to
capital to reflect the change in investment style, as explained under ‘Cost
allocation’ below, we expect our revenue returns to be lower in the short
term. Until such time as portfolio revenue organically grows to a point where
it can, once again, fully fund the dividend, the Board intends at least to
maintain the dividend, using the revenue reserve and, if required, the capital
reserve, for a short period of time.
The Company has pursued a flexible dividend policy for many years. In the past
two years we have separated our dividend into an ordinary and a special
dividend. This was to recognise that in the last two years of management by
Artemis, the underlying earnings power of our assets was boosted by a
temporary shift in the portfolio to companies with higher dividend yields.
Given our new Manager’s investment style, we do not expect to pay a special
dividend in respect of this financial year nor in the foreseeable future.
The Company has, over many years, not fully distributed all of its income but
has retained a portion of its earnings, usually at near the maximum 15% level
that is compatible with maintaining investment trust status. This revenue
reserve was built up to help to support the Company’s dividend policy during
unforeseen events or during a transition phase to a new investment style. As a
guide to assessing the length of this period of transition, to a time when
dividends are matched or exceeded by revenues, we should note that our
Manager’s Global Quality Growth strategy has produced annual dividend growth
of 7.7% over the past five years.
Cost allocation
Part of the calculation of our revenue return involves the deduction of the
costs of running the Company. A portion of these costs is allocated to the
capital account and the balance is charged to the revenue account.
Historically, the management fee, the company secretary and administration fee
and also the cost of operating our discount control mechanism (which were
previously provided by our investment manager) have been allocated between
capital and revenue. This will continue to be our policy even though these
services will now be provided by other key service providers.
In adopting a cost allocation policy, a company must consider how the policy
best reflects its investment strategy. In 2014 we adopted a new policy of
allocating 75% of certain management, administration and financing charges to
capital and 25% to revenue to reflect Artemis’ investment approach. Lazard
has a long track record for its global quality growth investment style and we
expect that track record to be the best guide as to the balance of future
returns.
A key reason for appointing Lazard as our new Manager is that we expect them
to generate high long-term total returns for shareholders. The Lazard style
focuses on investing in companies that retain a large proportion of their cash
flows to reinvest them at high rates of return, rather than returning cash to
shareholders in the form of dividends. Accordingly, we expect a higher
proportion of future total returns to come from capital appreciation rather
than dividends. To recognise this likely shift, the Company will allocate 90%
of the costs mentioned above to capital and 10% to revenue, and the
Half-Yearly Financial Report has been drawn up on this basis.
Share capital
Despite successfully weathering the market downturn suffered by many of its
peers in the early 2020s, the Company’s discount widened early in 2023 and
it entered a period of buybacks from this point. In order to assist with
discount management, during the six months to 31 December 2023, the Company
bought back 7,445,136 shares at a total cost of £52.7 million and an average
discount of 2.3%. These shares are held in Treasury, bringing the total held
in this account to 11,447,798 as at the period end. It is expected that these
shares will be reissued at such time as market conditions permit the
Company’s return to issuing shares at a premium to NAV and thus at an
advantage to existing shareholders.
Given the heightened buyback activity experienced in the summer of 2023, we
sought early renewal of our share buyback authority from shareholders in
September 2023 to avoid these authorities being fully utilised prior to the
2023 AGM and to enable the continued implementation of the discount management
policy. These buyback authorities were subsequently renewed at the October
2023 AGM for 14.99% of share capital.
Following the period end, 1,504,500 ordinary shares were bought back and are
held in Treasury.
Borrowings and cash
The US$60 million revolving credit facility with The Bank of Nova Scotia (UK
Branch) was terminated in September 2023 with no amounts drawn down at the
point of termination. The decision to terminate was made by the Board after
taking into consideration the high interest rate environment and the
Company’s level of cash. As at 31 December 2023 the Company is in a net cash
position of 1.7%. The level of cash available enables the Manager to manage
the portfolio and participate in market opportunities as they arise, whilst
also ensuring the Company has the ability to buy its own shares should they
trade at a discount in excess of 2%.
Board succession
As noted in the 2023 Annual Report, I will step down from the Board at the
2024 Annual General Meeting to be held in October, having served as a Director
since 2009 and as Chairman since 2020. It was further announced in October
2023 that David Kidd, the Company’s Senior Independent Director, will
succeed me as Chairman. I and my fellow Directors are delighted that David, a
Board member since 2016, will be assuming this role thereby ensuring a vital
continuity of experience.
In consideration of its future composition, the Board intends to recruit a new
Director in due course, the process for which will commence over the coming
months.
Outlook
We seem to live in a world of the ‘dog that didn’t bark’. That phrase,
used by Sherlock Holmes in a short story called Silver Blaze, rather
accurately sums up the relative silence that has followed the very dramatic
rise in global interest rates. By the summer of 2020 interest rates had
reached a 5,000 year low at a time when debt, relative to GDP, had almost
certainly reached an all-time high. The key global interest rate, set by the
US central bank, has risen from 0.25% in 2022 to 5.5%. Across the globe
interest rates have seen similarly dramatic rises. Rising interest rates bring
rising interest expense, particularly for those who have not locked in
long-term debt at fixed interest rates, and usually credit distress follows.
There have indeed been some instances of distress and the US authorities had
to cope with the demise of its 16th largest bank (Silicon Valley Bank) and
Switzerland had to cope with a similar fate for its second largest bank
(Credit Suisse). So there was some ‘barking’, in the form of credit
distress, but the consequences for investors in equity markets have been very
limited. The S&P500, an index that measures the returns of the world’s
largest stock market, has recently reached a new all-time high. Corporate
earnings in general and the corporate earnings of our investee companies
continue to grow. In the broader economy things are not as bad as one might
have expected given the material rise in interest rates. In the UK, for
instance, the number of employed persons is near an all-time high and the
unemployment rate near an all-time low. Market determined short-term interest
rates are now falling. Does this mean that we can now expect to avoid the type
of credit distress that impacted investors so negatively in the recession of
2008-2009?
Interest expense can continue to rise long after interest rates have peaked.
While many borrowers see their interest expense rise and fall as the level of
short-term interest rates adjust many do not. Some borrowers lock in fixed
interest payments over longer periods and their interest expense only rises
when that debt matures and has to be refinanced. The evidence is that, during
the period of ultra-low interest rates that pervaded from 2009-2022, many
companies, individuals and governments did borrow for longer periods and at
fixed rates of interests. This change in borrowing pattern has been
particularly evident in the US and the UK but is less evident in other
countries such as South Korea, Australia, Canada or Norway where interest
expense has already risen materially. As debt matures and has to be
rolled-over at higher rates of interest borrowers are increasingly likely to
struggle to pay interest on their debts. Thus, while there is a growing sense
of relief that the credit crisis dog will not bark, it is simply too early to
tell particularly for the many countries where debt-to-GDP levels remain near
or above the record highs reached at the advent of the COVID-19 crisis. Given
that interest rates have risen from such remarkably low levels many borrowers
will continue to see rising interest expense through 2024 and beyond as their
debt matures and is refinanced.
Mid Wynd invests in companies and not economies. The balance sheet of any
company can be radically different from that of the economy in which it
operates. It can sell products and/or services the demand for which remains
resilient in even the toughest of economic circumstances. In selecting our
investee companies our Manager looks for companies that can continue to
generate high returns on invested capital even in more difficult economic
climes. As long as they can continue to do so and we have not paid too much to
own the shares these companies are particularly well placed to weather any
coming economic storm and, over the long-term, produce good total returns for
investors. Total returns from global equities have been driven by a rise in
the US stockmarket and from a select band of US listed equities, known to some
as ‘the magnificent seven’, and the rise in our NAV, in-line with the
comparator index, since Lazard re-organised the portfolio is reassuring.
At a time of great uncertainty, the certainty of high returns on invested
capital, where we can find it and buy it at a good price, is likely to be a
port in a storm for investors. Sherlock Holmes was able to solve the murder
mystery by deducing that the dog did not bark because the intruder was known
to the dog. Perhaps the risks ahead similarly lie in plain sight be they
credit distress, liquidity, geopolitical or concentration risks. As long as
our investee companies continue to maintain solid balance sheets and invest at
high rates of return with a long-term time horizon, then the outlook for our
Company will remain positive.
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.
In addition, the Board is always keen to hear from shareholders and, should
you wish, you can contact me via the Company Secretary at
cosec@junipartners.com.
Russell Napier
Chairman
28 February 2024
Investment Manager’s Review
Investment Manager’s Report
Artemis Fund Managers Limited was the Investment Manager of the Company for
the first quarter of the financial year. Following the announcement in June
2023 of the decision to appoint Lazard Asset Management Limited, investment
management responsibility transferred with effect from 1 October 2023. The
period under review is therefore split by Investment Manager and total returns
over the respective periods are noted below.
Total returns Six months ended 31 December 2023 Three months ended 31 December 2023 Three months ended 30 September 2023
Net asset value per share 6.8% 6.8% 0.1%
Share price 9.7% 6.5% 3.0%
MSCI All Country World Index (GBP) 7.0% 6.3% 0.6%
Market Review
Over the three-month period since Lazard became Investment Manager to the
Company, global equities rose sharply, as investor optimism shifted amid
encouraging inflation data and a changing outlook for interest rates. US
stocks rallied as a sustained slowdown in inflation sparked hopes that the US
Federal Reserve (‘the Fed’) would end its rate-hiking campaign and perhaps
even begin cutting rates. Many investors cheered when the Fed hinted that its
rate-hiking campaign had reached its conclusion and forecast that it could
reduce interest rates three times in 2024. Additionally, the US economy
continued to show resilience, with a revised reading of third-quarter gross
domestic product (‘GDP’) coming in higher than initially anticipated at
5.2% and the country continuing to add more jobs than expected. In Europe, the
European Central Bank (‘ECB’) left interest rates unchanged, amid signs
that its efforts to reduce inflation had made significant progress. Despite
the ECB’s vow to maintain a restrictive monetary policy for a sustained
period of time, many investors nevertheless anticipated it would reduce rates
this year. Similarly, with price pressure in the UK easing materially, the
Bank of England (‘BOE’) kept its interest rates steady. However, data
suggesting that the UK was headed for a period of economic stagnation sparked
speculation that the BOE would cut rates in the first half of 2024.
Equity markets in both the developed and developing worlds advanced, with
developed markets outperforming developing markets. The US market outperformed
while European equities performed in line with the broader global market. In
Japan, equities gained but underperformed, as a stronger yen sapped some of
the momentum from the Japanese stock market rally. Meanwhile, in China,
equities declined due to concerns over property companies and the country’s
slower-than-expected economic recovery.
Investment Process
We manage the Company’s portfolio in accordance with our Global Quality
Growth strategy, aiming to invest in businesses we consider to be
“Compounders”. Compounders, in our view, are companies we believe will
generate consistently high returns on capital and that can reinvest in their
business to drive future growth. In doing so, investors can share in the
economic wealth created by these businesses. The investment approach is
reinforced by empirical research covering 25 years of markets and supported by
Lazard’s extensive fundamental research team of 70 global sector
specialists.
We believe the market undervalues Compounders because it adheres to the
economic law of competition. This theory prescribes that high returns on
capital attract competition, which results in an erosion of these returns
towards a cost of capital. However, we see plenty of examples that show this
theory may not always work. We believe Compounders have sustainable
competitive advantages, and they can outperform when they can deliver
consistently high financial productivity for longer than the market expects
– when they “beat the fade” they can “beat the market”. These types
of exceptional businesses can often be inefficiently valued by market
participants, who can be focused more on near-term multiples rather than the
long-term earnings power of the company. Our investment philosophy therefore
encourages us to own Compounders for a long period of time, to allow the
Compounding Cycle to drive cash flows and share prices higher. Over the last
five years, portfolio turnover has averaged 10-15% annually – this low level
of turnover also helps to ensure trading costs are at a relatively low level.
The portfolio is constructed through stock selection, based on our proprietary
fundamental research. We aim to deliver a portfolio that is broadly
diversified across sectors, regions and competitive advantages, in order to
generate attractive total returns for investors.
Performance
Lazard was appointed Investment Manager with effect from 1 October 2023.
We proceeded to reshape the Company’s assets to align with the Lazard Global
Quality Growth strategy. Our trading team aimed to transition the portfolio
quickly while seeking natural liquidity, seeking to reduce market impact and
not apply unnecessary pressure on share prices in either the buy direction or
the sell direction. The transition of the portfolio went very smoothly, with
trades 93% complete on day one and 99.7% complete by day four. Estimated
trading costs were less than 0.03%, which was very pleasing to see.
The portfolio was invested in 41 names. We retained the six names that were
consistent with our investment philosophy and held in our institutional
strategy, and we invested in 35 new names. Broad portfolio exposures changed
as a result. Between 1 October 2023 and 31 December 2023, there was an
increase in portfolio exposure to Financials, Industrials, and Information
Technology, while there was a decrease in Health Care and Consumer Staples
exposure. Regionally, exposure to US names increased while exposure to
European and UK names decreased.
For the fourth quarter of 2023, the Company’s NAV appreciated by 6.8% (all
returns are stated in GBP). In share price terms, the Company rose by 6.5%,
outperforming the MSCI All Country World Index which gained 6.3% over the same
period. The Company traded at a discount over the period, ending the period at
a discount of 1.7% compared with a discount of 7.2% for its Association of
Investment Companies (‘AIC’) Global Sector peer group.
The portfolio is constructed through stock selection, based on our proprietary
fundamental research. At the stock level, key contributors to absolute returns
included:
* Microsoft, US software and cloud computing provider, has seen the cloud
become a significant driver of returns, as its clients implement cloud-based
processes to improve marketing and costs. Microsoft has reinvested into
Artificial Intelligence (‘AI’) and gaming to access emerging technologies
and to expand its total addressable market.
* S&P Global offers financial ratings, benchmarks, data, and analytics.
Services are typically critical to its clients’ underlying business – for
example, bond ratings for fixed income investment – so subscriptions are
generally renewed and the company enjoys a high degree of recurring revenue.
* Japan’s Toei Animation generates proprietary animation content which can
be leveraged across formats (e.g., television, film, games, toys). Voiceovers
make animation more easily portable to different regions, and the company
appears attractive as a place to work for leading animators.
* Hexagon is a leader in measurement systems that help to improve
manufacturing efficiency. Its shares have been recovering from lows in October
2023 following a negative research report in July of last year. We believe the
company fundamentals are sound and senior management has embraced governance
changes.
* Partners Group is a Swiss asset manager specialising in private markets
investing. The company has restarted booking performance fees, which it does
only when it exits an investment.
Key detractors to absolute returns included:
* Aon is a global insurance broker and consultant. Its shares fell after the
company announced plans to acquire NFP, a US-centric risk and benefits broker,
for $14.3 billion in December 2023. We believe the price is full but it may
not account for the positives of consolidating a fragmented market and where
Aon expands its database of risk information.
* BRP is a Canadian manufacturer of power sports equipment such as jet skis
and snowmobiles. Its management has lowered guidance amidst softening retail
demand given macroeconomic conditions, and this put pressure on the shares.
The company operates in a duopoly, and we believe that BRP has superior
product development and distributor relationships, which positions the company
well as the economy improves.
* Toyota Industries, the Japanese auto parts supplier, fell with the Japanese
stock market at the beginning of October. The position was sold as the
portfolio was transitioned to the new strategy. Our Global Quality Growth
strategy typically does not invest in auto makers or auto parts suppliers as
they may not generate the level of return on capital that we prefer.
* Shares of Verisk Analytics, a risk data and analytics provider, saw profit
taking in Q4 after a strong run through Q3, 2023.
* Estee Lauder, the premium cosmetics brand, reported a slowdown in their
China sales. We believe the company’s competitive position remains intact
and expect margins to recover with growth in travel retail.
Our region and sector exposures are driven by stock selection. At the region
and sector level, contribution in the fourth quarter was led by North America
and Information Technology. Regionally, Europe ex-UK, Japan, and Emerging
Markets also contributed positively, whilst the Financials, Health Care,
Industrials, and Communication Services sectors also performed well. Asia
ex-Japan and Energy had slight negative contributions.
Top five contributors
Contribution
Company %
Microsoft 0.72
S&P Global 0.64
Toei Animation 0.63
Hexagon 0.52
Partners Group 0.48
Bottom five detractors
Contribution
Company %
Aon (0.58)
BRP (0.17)
Toyota Industries (0.16)
Verisk Analytics (0.15)
Estee Lauder (0.13)
As of 31 December 2023. Shows top and bottom five stocks by contribution since 1 October 2023, the date upon which Lazard became Investment Manager to the Company.
Regional contribution
Contribution
Region %
North America 3.62
Europe ex-UK 1.42
Japan 1.05
Emerging Markets 0.79
UK 0.17
Asia ex-Japan (0.23)
As of 31 December 2023. Shows contribution by region based on country of listing since 1 October 2023, the date upon which Lazard became Investment Manager to the Company.
Outlook
We expect to see continued volatility as the Fed and other central banks seek
to balance the goals of maintaining financial stability and controlling
inflation. We believe that Compounders have fundamental advantages that can
provide resilience across different macro scenarios, and this can be important
in navigating potential uncertainties in equity markets. For example, should
interest rates rise, Compounders should benefit as their “economic moats”
widen and they continue to generate cash flow into the future. Should
inflation persist, the competitive advantages of Compounders should offer
pricing power, allowing Compounders to pass through higher costs and maintain
margins.
While AI has the potential to transform companies over the long-term, we are
cautious that the exuberance surrounding AI has the potential to drive
valuations in certain stocks to unsustainable levels in the short term.
Towards the end of the 2023, this concentration of equity returns began to
broaden from a smaller set of names to the wider market, presenting a better
environment for quality investing should this continue.
We firmly believe that investing in the highest quality companies is the best
way to deliver outperformance over the long-term.
Louis Florentin-Lee & Barnaby Wilson
Fund Managers
28 February 2024
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 and reliance on key personnel.
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
from the description provided on pages 19 to 21 of the previous Annual
Financial Report for the year ended 30 June 2023 which is available at
midwynd.com. These risks remain applicable to the six months under review and
the remaining six months in the financial year.
Related Party Transactions
During the six months ended 31 December 2023, no transactions with related
parties have taken place which have materially impacted the Company.
As disclosed in the Annual Financial Report for the year ended 30 June 2023,
Russell Napier supplies investment research to Lazard Asset Management. The
Board has confirmed that there continues to be no conflict of interest. The
supply of services is monitored as a potential conflict.
Going Concern
The Directors have considered the Company’s principal risks and
uncertainties together with its current financial position, the liquid nature
of its investments, assets and liabilities, projected revenue and expenses and
the Company’s dividend policy and share buyback programme. The Directors
also considered the impact on the Company of recent market volatility due to
the conflicts in Ukraine and the Middle East and continuing inflationary
pressures. 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 2023:
• 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 2023 was
approved by the Board and the above Responsibility Statement has been signed
on its behalf by:
Russell Napier
Chairman
28 February 2024
Condensed Statement of Comprehensive Income
For the six months ended 31 December 2023 (unaudited) For the six months ended 31 December 2022 (unaudited) For the year ended 30 June 2023 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gains on investments held at fair value - 24,097 24,097 - 8,509 8,509 - 19,123 19,123
Currency gains - 100 100 - 427 427 - 636 636
Income 3,291 - 3,291 4,894 - 4,894 8,725 - 8,725
Investment management fee (69) (622) (691) (287) (862) (1,149) (575) (1,726) (2,301)
Other expenses (466) (69) (535) (306) (3) (309) (572) (8) (580)
Net return before finance costs and taxation 2,756 23,506 26,262 4,301 8,071 12,372 7,578 18,025 25,603
Finance costs of borrowings (4) (34) (38) (56) (168) (224) (167) (506) (673)
Net return on ordinary activities before taxation 2,752 23,472 26,224 4,245 7,903 12,148 7,411 17,519 24,930
Taxation on ordinary activities (47) - (47) (535) - (535) (884) - (884)
Net return on ordinary activities after taxation 2,705 23,472 26,177 3,710 7,903 11,613 6,527 17,519 24,046
Net return per ordinary share 4.72p 40.92p 45.64p 5.64p 12.01p 17.65p 10.01p 26.86p 36.87p
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
As at 31 December 2023 (unaudited) As at 31 December 2022 (unaudited) As at 30 June 2023 (audited)
£’000 £’000 £’000
Non current assets
Investments held at fair value through profit or loss 412,360 460,466 438,938
Current assets
Debtors 543 1,254 675
Cash and cash equivalents 6,969 18,904 12,243
7,512 20,158 12,918
Creditors
Amounts falling due within one year (550) (13,700) (2,830)
Net current assets 6,962 6,458 10,088
Total net assets 419,322 466,924 449,026
Capital and reserves
Called up share capital 3,320 3,320 3,320
Capital redemption reserve 16 16 16
Share premium account 242,115 242,122 242,115
Capital reserve 167,545 214,882 196,730
Revenue reserve 6,326 6,584 6,845
Shareholders’ funds 419,322 466,924 449,026
Net asset value per ordinary share 763.33p 703.40p 719.84p
Condensed Statement of Changes in Equity
For the six months ended 31 December 2023 (unaudited)
Share capital Capital redemption reserve Share premium Capital reserve 1,2 Revenue reserve 2 Shareholders’ funds
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 July 2023 3,320 16 242,115 196,730 6,845 449,026
Net return on ordinary activities after taxation - - - 23,472 2,705 26,177
Repurchase of shares into Treasury - - - (52,657) - (52,657)
Dividends paid - - - - (3,224) (3,224)
Shareholders’ funds at 31 December 2023 3,320 16 242,115 167,545 6,326 419,322
For the six months ended 31 December 2022 (unaudited)
Share capital Capital redemption reserve Share premium Capital reserve 1,2 Revenue reserve 2 Shareholders’ funds
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 July 2022 3,271 16 235,110 206,979 7,277 452,653
Net return on ordinary activities after taxation - - - 7,903 3,710 11,613
Issue of shares from Treasury - - 59 1,116 - 1,175
Repurchase of shares into Treasury - - - (1,116) - (1,116)
Issue of new shares (net of costs) 49 - 6,953 - - 7,002
Dividends paid - - - - (4,403) (4,403)
Shareholders’ funds at 31 December 2022 3,320 16 242,122 214,882 6,584 466,924
For the year ended 30 June 2023 (audited)
Share capital Capital redemption reserve Share premium Capital reserve 1,2 Revenue reserve 2 Shareholders’ funds
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 July 2022 3,271 16 235,110 206,979 7,277 452,653
Net return on ordinary activities after taxation - - - 17,519 6,527 24,046
Issue of shares from Treasury - - 59 1,116 - 1,175
Repurchase of shares into Treasury - - - (28,884) - (28,884)
Issue of new shares (net of costs) 49 - 6,946 - - 6,995
Dividends paid - - - - (6,959) (6,959)
Shareholders’ funds at 30 June 2023 3,320 16 242,115 196,730 6,845 449,026
1 Capital reserve as at 31 December 2023 includes realised gains of £133,904,000 (31 December 2022: £178,504,000; 30 June 2023: £155,914,000).
2 The Company may pay dividends from both capital and revenue reserves.
Condensed Statement of Cash Flows
For the six months ended 31 December 2023 (unaudited) For the six months ended 31 December 2022 (unaudited) For the year ended 30 June 2023 (unaudited)
£’000 £’000 £’000
Cash generated from operations 1,755 3,283 5,486
Interest received 113 146 286
Interest paid (39) (224) (704)
Net cash generated from operating activities 1,829 3,205 5,068
Cash flow from investing activities
Purchase of investments (388,873) (308,156) (554,175)
Sale of investments 439,638 306,740 585,162
Realised currency gains 98 353 28
Net cash generated from/ (used in) investing activities 50,863 (1,063) 31,015
Cash flow from financing activities
Issue of new shares, net of costs - 7,002 6,995
Issue of shares from Treasury - 1,175 1,175
Repurchase of shares into Treasury (54,737) (1,116) (26,804)
Net drawdown/(repayment) of credit facility - 6,982 (5,292)
Dividends paid (3,224) (4,403) (6,959)
Net cash (used in)/generated from financing activities (57,961) 9,640 (30,885)
Net (decrease)/increase in cash and cash equivalents (5,269) 11,782 5,198
Cash and cash equivalents at start of the period 12,243 7,096 7,096
(Decrease)/increase in cash in the period (5,269) 11,782 5,198
Currency (losses)/gains on cash and cash equivalents (5) 26 (51)
Cash and cash equivalents at end of the period 6,969 18,904 12,243
Notes to the Half-Yearly Financial Report
1.(a) 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 2023 (except for the allocation of expenses between capital and revenue) 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 2023 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors’ 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 2023 have been prepared on a going concern basis.
1.(b) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue reserve except where they relate directly to the acquisition or disposal of an investment, in which case they are added to the cost of the investment or deducted from the sale proceeds, and where they are connected with the maintenance or the enhancement of the value of investments are charged to the capital reserve. From 1 July 2023, management fees, company secretarial and administration fees, the cost of
operating the discount control mechanism and finance costs are allocated 90% to capital and 10% to revenue. Until 30 June 2023, these costs were allocated 75% to capital and 25% to revenue.
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 2023 being 57,362,785 (31 December 2022: 65,786,856; 30 June 2023: 65,211,820).
3. Dividends
An interim dividend for the six months ended 31 December 2023 of 3.85 pence per ordinary share (31 December 2022: 3.85 pence) has been declared. This dividend will be paid on 28 March 2024 to those shareholders on the register at close of business on 8 March 2024.
4. Borrowing facilities
On 19 February 2021, the Company entered into a three year agreement with The Bank of Nova Scotia (UK Branch) for a US$60 million multi-currency revolving credit facility. Following a review, the Company terminated the agreement on 11 September 2023.
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).
31 December 2023 31 December 2022 30 June 2023
£’000 £’000 £’000
(unaudited) (unaudited) (audited)
Level 1 412,360 460,466 438,938
Total value of investments 412,360 460,466 438,938
6. Reconciliation of net return before finance costs and taxation to cash from operations
For the six months ended 31 December 2023 For the six months ended 31 December 2022 For the year ended 30 June 2023
£’000 £’000 £’000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 26,262 12,372 25,603
Gains on investments (24,097) (8,509) (19,123)
Currency gains (100) (427) (636)
Decrease in accrued income and other debtors 87 450 768
Interest received (113) (146) (286)
(Decrease)/increase in creditors (237) 78 44
Overseas tax suffered (322) (535) (884)
Corporation tax refunded 275 - -
Cash generated from operations 1,755 3,283 5,486
7. Analysis of changes in net cash
At 30 June 2023 Cashflow Exchange movements At 31 December 2023
£’000 £’000 £’000 £’000
(audited) (unaudited) (unaudited) (unaudited)
Cash and cash equivalents 12,243 (5,374) 100 6,969
Total 12,243 (5,374) 100 6,969
8. Share capital
In the six months ended 31 December 2023, 7,445,136 ordinary shares were purchased into Treasury at a total cost of £52,657,000 (six months ended 31 December 2022: 163,200 ordinary shares at a total cost of £1,116,000 and year ended 30 June 2023: 4,002,662 ordinary shares at a total cost of £28,884,000). In the six months ended 31 December 2023, no ordinary shares were sold from Treasury (six months ended 31 December 2022 and year ended 30 June 2023: 163,200 ordinary shares were sold from Treasury with net
proceeds of £1,175,000). In the six months ended 31 December 2023, no new ordinary shares were allotted (six months ended 31 December 2022 and year ended 30 June 2023: 970,000 new ordinary shares were allotted with net proceeds of £6,995,000). As at 31 December 2023, 11,447,798 ordinary shares were held in Treasury (31 December 2022: nil; 30 June 2023: 4,002,662).
9. Net asset value per ordinary share
The calculation of the net asset value per ordinary share is based on the following:
31 December 2023 31 December 2022 30 June 2023
(unaudited) (unaudited) (audited)
Shareholders’ funds (£’000) 419,322 466,924 449,026
Number of ordinary shares in issue at period end 54,933,316 66,381,114 62,378,452
Net asset value per ordinary share 763.33p 703.40p 719.84p
10. 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 ended 31 December 2023, £82,000 was paid to Directors (six months ended 31 December 2022: £75,000 and year ended 30 June 2023: £149,000) of which £nil was outstanding at the period end (31 December 2022: outstanding £nil; 30 June 2023: outstanding £nil).
11. Transactions with the Investment Manager
The investment management fee payable to Artemis Fund Managers Limited for the three months ended 30 September 2023 was £525,000 (six months ended 31 December 2022: £1,149,000 and year ended 30 June 2023: £2,301,000) of which £nil was outstanding at the period end (31 December 2022: £573,000; 30 June 2023: £561,000). Lazard Asset Management Limited was appointed as Investment Manager with effect from 1 October 2023. As part of the Investment Management Agreement, Lazard agreed to waive the management fee
for the first 15 weeks from appointment, and fees due to Lazard will start to accrue with effect from 13 January 2024. The 15 week management fee waived is being amortised over six months from 1 October 2023, being the minimum notice period that the Company is required to provide to Lazard.
12. Post Balance Sheet Events
Following the period end and up to 27 February 2024, 1,504,500 ordinary shares were bought back to be held in Treasury at a total cost of £11,453,000.
13. Status of this report
These are not full statutory accounts for the purposes of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 30 June 2023, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after 30 June 2023 have been reported on by the Company’s auditors or delivered to the Registrar of Companies. A copy
of the Half-Yearly Financial Report will be sent to shareholders and is available on the Company’s website at midwynd.com (http://www.patplc.co.uk). Shareholders are encouraged to visit the website for further information on the Company. For further information please contact: Juniper Partners Limited Company Secretary email: cosec@junipartners.com 29 February 2024
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