Manchester & London Investment Trust Plc - Annual Financial Report

Date : 10/13/2017 @ 2:00AM
Source : PR Newswire (US)
Stock : Manchester&Lon. (MNL)
Quote : 444.75  0.0 (0.00%) @ 8:30AM

Manchester & London Investment Trust Plc - Annual Financial Report

Manchester & London (LSE:MNL)
Historical Stock Chart

2 Months : From Oct 2017 to Dec 2017

Click Here for more Manchester & London Charts.

MANCHESTER AND LONDON INVESTMENT TRUST PLC 
(the “Company”)

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2017

The full Annual Report and Financial Statements for the year ended 31 July 2017 can be found on the Company’s website at www.mlcapman.com/manchester-london-investment-trust-plc

STRATEGIC REPORT

Financial Summary


Total Return
Year to
31 July 2017
Year to
31 July 2016
Percentage increase/(decrease)
Total return (£’000) 20,055 13,424 49.40% 
Return per Ordinary Share 92.43p 62.50p 47.89% 
Total revenue return per Ordinary Share 7.90p 13.45p (41.26%)
Dividend per Ordinary Share 9.00p 13.36p (32.63%)

   


Capital
As at
31 July 2017
As at
31 July 2016
Percentage 
increase/(decrease)
Net assets attributable to equity Shareholders* (£’000)
94,661

75,546

25.30% 
Net asset value (“NAV”) per Ordinary Share 429.05p 350.81p 22.30% 
NAV total return** 26.91% 21.54% 5.37% 
Benchmark performance - Total return basis***
14.71%

3.91%

10.80% 
Share price 381.00p 277.75p 37.17% 
Share price discount to NAV 11.20% 20.83% (9.63%)

* NAV as at 31 July 2017 includes a net £1,879,000 increase in respect of own Shares bought back and resold during the year (2016: £102,000 increase).

** Total return including dividends reinvested, as sourced from Bloomberg.

*** MSCI UK Investable Market Index (MXGBIM).

Ongoing Charges Year to
31 July 2017
Year to
31 July 2016
Ongoing charges as a percentage of average net assets*
0.95%

0.85%

* Calculated in accordance with the guidelines issued by the Association of Investment Companies (the “AIC”).

See Glossary in the full Annual Report.
 

CHAIRMAN’S STATEMENT

Results for the year ended 31 July 2017

The portfolio remains focused on larger capitalisation stocks listed in developed markets which are seeking global growth.

The Company’s portfolio performance for the financial year has been acceptable with an increase in NAV per Share of 22.3%. The new strategy adopted by M&L Capital Management Limited (the “Manager”) has meant that the outperformance of the Company against our benchmark for the three years to 31 July 2017 on a total return basis now stands at 36.6%*.

The discount the Shares trade at to their NAV per Share has narrowed during the year and was just over 11% at the year end.

It is also worth noting that the Company’s underlying modelled volatility for the year was 14.2%* which was also a reduction from the last year end of 15.3%*.

Dividends

The Directors are proposing a final ordinary dividend per Share of 1.76 pence and a final special dividend per Share of 4.24 pence for the financial year 2017. This means that, on a per Share basis, the dividends proposed or paid out in respect of the 2017 financial year total 3.58 pence as ordinary dividends and 5.42 pence as special dividends. On a total ordinary and special basis, these dividends represent a yield of over 2.4% on the Share price as at the year end.

Annual General Meeting

I look forward to welcoming Shareholders to our forty-fifth Annual General Meeting, to be held in The Dalton & Joule Room, Manchester Museum of Science and Industry, Liverpool Road, Manchester M3 4FP at 12.30 p.m. on Monday, 27 November 2017.

P H A Stanley
Chairman

12 October 2017

* Source: Bloomberg.
See Glossary in the full Annual Report.


MANAGER’S REVIEW

Portfolio management

The portfolio delivered a low double-digit outperformance against the benchmark driven by our sector positioning.

The portfolio segments can be broken down in contribution to base currency performance terms over the year as follows:

Total return of underlying sector holdings in local currency (excluding costs and foreign exchange)

Technology investments 21.5% 
Consumer investments 6.3% 
Healthcare investments 1.9% 
Other (including costs and foreign exchange)
(2.8%)
Total NAV per Share return 26.9% 

Source: Bloomberg.

Technology investments
Technology (under which we include the Information Technology GICS (Global Industry Classification Standard) sector and technology/disruption orientated investments) delivered around 80% of NAV total return per Share.

The five largest holdings in this sector, Alphabet Inc, Facebook Inc, Microsoft Corporation, Alibaba Group Holding Ltd and Tencent Holdings Ltd, accounted for around 50% of the sector return.

Other material positive performers included NVIDIA Corporation, salesforce.com Inc, Polar Capital Technology Trust plc, Scottish Mortgage Investment Trust PLC, PayPal Holdings Inc, Altaba Inc, Apple Inc, Adobe Systems Inc, ROBO Global Robotics and Automation GO UCITS ETF and Electronic Arts Inc. There were no material negative contributors.

We increased our exposure to technology this year. The portfolio’s delta-adjusted exposure to the sector is now just under 60% of net assets.

Consumer investments
Consumer (under which we include both the Consumer Staples and the Consumer Discretionary GICS sectors) delivered around 23% of NAV total return per Share.

More than 50% of this performance was driven by e-commerce stocks Amazon.com Inc, JD.Com Inc and Priceline Group Inc.

Other material positive contributors included Beiersdorf AG, Pernod Ricard SA and Davide Campari-Milano SpA.

The only material negative performer was Amplify Snack Brands Inc, which we disposed of during the year.

Consumer Staples holdings were trimmed due to a relatively poor performance. Overall, the portfolio’s delta-adjusted exposure to the sector is around 20% of net assets.

Healthcare and pharmaceutical investments
Healthcare (under which we include the Healthcare GICS sector and Healthcare orientated investments) delivered around 7% of NAV total return per Share.

Material positive contributors included Align Technology Inc, Worldwide Healthcare Trust PLC, Smith & Nephew plc, Zoetis Inc and Spire Healthcare Group plc (which we sold during the year). There were no material negative contributors.

The portfolio’s delta-adjusted exposure to this sector now represents just under 20% of net assets.

Risk management
The Manager monitors, measures, manages and mitigates risk for the Company on an ongoing basis, including the sensitivity of the Company’s investment portfolio to the most relevant risks to which it is or may be exposed. As the Company invests primarily in equities, its principal risks are market-related and include counterparty and market risks (such as currency, interest rate and other price risks).

The Manager will periodically disclose the current risk profile of the Company to investors. The Company will make this disclosure on its website at the same time as it makes its Annual Report and Financial Statements available to investors or more frequently at its discretion.

A number of methodologies are adopted to manage risk such as:

i.   The Company’s investments are not limited to any one industry sector and its current investment portfolio is spread across a range of sectors. However, it should be noted that the exposure of the portfolio is heavily weighted to the Technology sector.

ii. The Company intends to maintain a relatively focused portfolio, but has nonetheless diversified risk in the portfolio across approximately 45 securities.

iii. The Company hedges its positions using derivatives to reduce delta-adjusted exposures to positions. These positions represented approximately 8% of the portfolio’s value as at the year end.

The Manager employs various risk management systems and processes to manage the risks to which the Company is or may be exposed. These include the production of regular risk analysis of the Company’s investment portfolio and regular stress testing against relevant scenarios.

The Manager undertakes a daily portfolio attribution analysis, which looks at the drivers of portfolio performance to identify stocks that may be underperforming. Risk management processes and procedures are laid out in full in the Manager’s Risk Management Policy which is overseen by the Manager’s Risk Management Committee which meets on a monthly basis. Key risk indicators on operational risks are reported to the Senior Management Committee on a monthly basis. Risk management systems and controls are updated at least on an annual basis.

Liquidity risk management
Liquidity risk is the risk that the Company could encounter difficulty in meeting its obligations associated with financial liabilities, due to an inability to realise assets when needed.

The Manager has a liquidity management policy which is intended to ensure that the Company’s investment portfolio maintains a level of liquidity which is appropriate to the Company’s obligations.

However, the majority of the Company’s investment portfolio comprises quoted equities, which are readily realisable. Liquidity is not therefore considered to be a significant risk for the Company. The liquidity of the equity portfolio is reviewed regularly and subjected to regular stress tests to verify that liquidity risk remains low. The Manager’s regular analysis calculates the percentage of the portfolio that could be liquidated within various timeframes, the overall time to liquidate the portfolio and the price impact of liquidating the portfolio. This analysis is stress tested using various alternative assumptions with regards to percentage of average daily volume that the Company would be able to capture.

The Manager also considers Prime Broker* margin requirements and potential obligations relating to the sale of options within their liquidity analysis.

The Manager will notify investors, by way of a disclosure on the Company’s website, where it makes any material changes to its liquidity management systems and procedures or introduces any new arrangements for managing the Company’s liquidity.

The Company does not currently hold any assets which are subject to special arrangements arising from their illiquid nature. The Company would disclose the percentage of its assets subject to such arrangements, if applicable, on its website at the same time as it makes its Annual Report and Financial Statements available to investors, or more frequently at its discretion.

Professional negligence liability risks
The Manager maintains professional indemnity insurance to cover the potential liability risks arising from professional negligence. The Manager does not hold specific additional funds of the Manager against liability arising from its own professional negligence.

Valuation
The Manager has overall responsibility and oversight on how the Company’s assets are priced and valued. In addition, the Manager consults with the Board of the Company in determining the various methodologies and procedures applied when pricing and valuing the securities of the Company.

The Manager’s valuation policy sets out its approach to the valuation of the Company’s portfolio of assets. Oversight of the policy, and determination of the valuation of assets which are unlisted or for which published prices are not available, is the responsibility of the Manager’s Valuation Committee, which operates independently of the Manager’s portfolio management function.

The Valuation Committee meets at least on a monthly basis and reports to the Company’s Board on all issues relating to the valuation of the Company.

The valuation policy has been prepared to clarify the methodology used in valuing all of the securities that constitute the portfolio of the Company and explains the generic methodology or protocol used for valuing different types of securities, valuation methodologies and procedures for each security that is part of the portfolio of the Company. The values of those securities are an integral part of the Company’s NAV and NAV per Share calculation. The NAV of the portfolio is calculated by the Administrator to the nearest two decimal places in Sterling, which is the base currency of the portfolio, as at the valuation point. The NAV is calculated weekly.

The vast majority of the portfolio consists of quoted equities, whose prices are published by independent sources.

The valuation policy specifies how the Company’s securities will be priced. It should, however, be noted that financial reporting requirements oblige the Board to ensure that the audited financial statements of the Company are prepared such that all securities are measured at ‘Fair Value’.

Quoted equities, forming the vast majority of the Company’s investment portfolio, are valued daily. The valuation intervals of other assets vary according to their nature but all assets are re-valued at least annually.

M & L Capital Management Limited
Manager

12 October 2017

* See Glossary in the full Annual Report.


Equity exposures and portfolio sector analysis

Equity exposures (longs)

As at 31 July 2017


Company

Sector *
Valuation
£’000
% of net assets
Amazon.com, Inc. Consumer Discretionary 9,036  9.55 
AlphaBet Inc. Information Technology 8,759  9.25 
Facebook Inc. Information Technology 8,428  8.90 
Microsoft Corporation Information Technology 6,546  6.92 
Tencent Holdings Ltd** Information Technology 6,148  6.49 
Alibaba Group Holding Ltd** Information Technology 5,571  5.89 
Polar Capital Technology Trust plc Funds 3,914  4.13 
Apple Inc. Information Technology 3,858  4.08 
Scottish Mortgage Investment Trust PLC Funds 3,444  3.64 
salesforce.com, Inc. Information Technology 3,203  3.38 
Altaba Inc.** Information Technology 3,189  3.37 
GlaxoSmithKline plc** Health Care 2,949  3.12 
Worldwide Healthcare Trust PLC Funds 2,888  3.05 
Smith & Nephew plc** Health Care 2,798  2.96 
Davide Campari Milano SpA** Consumer Staples 2,797  2.95 
JD.Com, Inc.** Consumer Discretionary 2,703  2.86 
Bayer AG** Health Care 2,568  2.71 
ROBO Global Robotics and Automation Funds 2,519  2.66 
NVIDIA Corporation Information Technology 2,404  2.54 
PayPal Holdings Inc. Information Technology 2,110  2.23 
Heineken NV** Consumer Staples 2,066  2.18 
Pernod Ricard SA** Consumer Staples 2,048  2.16 
Beiersdorf AG** Consumer Staples 1,990  2.10 
Zoetis Inc. Health Care 1,738  1.84 
AstraZeneca Plc** Health Care 1,042  1.10 
Actvision Blizzar.com Information Technology 1,008  1.06 
95,724  101.12 
Balance held in 16 other positions 8,377  8.85 
Total long equities exposure 104,101  109.97 
Unlisted Debentures 229  0.24 
Total long positions 104,330  110.21 
Other net assets (9,669) (10.21)
Net assets 94,661  100.00 

* GICS – Global Industry Classification Standard.

** Including equity swap exposures as detailed in note 13.


Portfolio sector analysis

As at 31 July 2017


Sector
% of net assets
A Information Technology 55.9 
B Health Care 16.9 
C Funds 15.0 
D Consumer Staples 11.2 
E Consumer Discretionary 11.0 
F Unlisted Debentures 0.2 
G Cash and net current assets and liabilities (10.2)
Net assets 100.0 

PRINCIPAL PORTFOLIO HOLDINGS (BASED ON NET DELTA-ADJUSTED EXPOSURE)

Alphabet Inc. (“Alphabet”)
Alphabet is a global technology company that is at the forefront of innovation of internet-based services and future technologies. Current areas of Alphabet’s portfolio include online advertising, Google search, YouTube, cloud computing, Nest and Android operating systems. Future areas of growth for Alphabet may also include Internet of Things, driverless vehicles, healthcare and artificial intelligence.

Amazon.com Inc. (“Amazon”)
Amazon is best known as one of the world’s largest e-commerce companies and is a major disruptive force in the retail market. Amazon is also increasingly becoming a much broader content and services platform for both consumers and businesses. In particular, Amazon Web Services is a leading provider of public cloud computing.

Facebook Inc. (“Facebook”)
Facebook is a social media platform with around two billion monthly active users which dominates the online global advertising spend. The company is building an interesting portfolio of other social media platforms and technologies, such as WhatsApp, Messenger and Oculus Rift VR to strengthen the Facebook ecosystem.

Microsoft Corporation (“Microsoft”)
Microsoft is best known for the Windows operating system and Office products. Longer-term focus for Microsoft lies in the public cloud market where it is building a strong platform to compete against Amazon and Alphabet.

Alibaba Group Holding Ltd (“Alibaba”)
Alibaba is China’s largest e-commerce platform. We expect e-commerce to drive further share gains from traditional retail channels. Like Amazon, Alibaba is also extending its platform in new directions, with payments, media, entertainment and cloud offerings.

Tencent Holdings Ltd (“Tencent”)
Tencent is a Chinese internet company, well known for its ubiquitous WeChat social media platform. Tencent is expected to take an increasing share of the Chinese advertising pie as marketing budgets continue to move from traditional to digital channels. Tencent is also exposed to the high growth online gaming and digital entertainment markets.

Polar Capital Technology Trust plc (“Polar Capital”)
Polar Capital is a technology-focused investment trust. They share a similar outlook and philosophy on the sector to us, allowing us to leverage on their more extensive research resources.

JD.Com, Inc. (“JD.Com”)
JD.Com is China’s number two e-commerce company. Its business model is different to Alibaba’s and is more similar to Amazon’s. We expect JD.Com to be a key beneficiary of the shift of retail consumption to online.

Scottish Mortgage Investment Trust PLC (“Scottish Mortgage”)
Scottish Mortgage is a disruption orientated investment trust managed by Baillie Gifford. They share a similar philosophy to us and allow us to get exposure to a number of non-listed fast growth companies such as Uber and Airbnb.

Worldwide Healthcare Trust PLC (“Worldwide Healthcare Trust”)
Worldwide Healthcare Trust is a global healthcare focused investment trust managed by OrbiMed Capital. The fund has an excellent track record and provides exposure to many niche emerging themes such as Immuno-Oncology & Genomics. Although these are themes we understand at a high level, we recognise the benefit of the specialist knowledge that OrbiMed has accumulated in these nascent fields.

Percentage of portfolio by holding at the year end *:

Alphabet 9.3
Amazon 8.6
Facebook 7.6
Microsoft 7.6
Alibaba 6.1
Tencent 5.9
Polar Capital 5.6
JD.Com 4.1
Scottish Mortgage 3.6
Worldwide Healthcare Trust 3.1

* Based on net delta-adjusted exposure.


Investment record of the last ten years




Year ended

Total  return  £’000 
Return per 
Ordinary  Share*
(p)
Dividend per 
Ordinary 
Share 
(p)

Total assets
less liabilities
£’000

NAV per 
Share*
(p)
31 July 2008 (3,490) (25.02) 10.00  47,669 341.80
31 July 2009 645  4.43  10.50  57,495 328.44
31 July 2010 13,151  71.75  11.50  85,203 379.40
31 July 2011 15,691  69.87  12.50  98,267 437.60
31 July 2012 (19,945) (88.81) 13.00  75,515 336.26
31 July 2013 2,522  11.23  13.75  75,050 334.19
31 July 2014 (6,295) (28.08) 13.75  64,361 293.20
31 July 2015 2,483  11.47  6.00  63,074 293.35
31 July 2016 13,424  62.50  13.36  75,546 350.81
31 July 2017 20,055  92.43  9.00  94,661 429.05

* Basic and fully diluted.
 

Business model
The Company is an investment company as defined by Section 833 of the Companies Act 2006 and operated as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010.

The Company is also governed by the Listing Rules and Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (the “FCA”) and is premium listed on the Main Market of the London Stock Exchange under the EPIC code “MNL”.

A review of investment activities for the year ended 31 July 2017 and the outlook for the coming year is detailed in the Manager’s Review above.

Investment objective
The investment objective of the Company is to achieve capital appreciation together with a reasonable level of income.

Investment policy
Asset allocation

The Company’s investment objective is sought to be achieved through a policy of actively investing in a diversified portfolio, comprising UK and overseas equities and fixed interest securities. The Company seeks to invest in companies whose shares are admitted to trading on a regulated market. However, it may invest in a small number of equities and fixed interest securities of companies whose capital is not admitted to trading on a regulated market. Investment in overseas equities is utilised by the Company to increase the risk diversification of the Company’s portfolio and to reduce dependence on the UK economy in addressing the growth and income elements of the Company’s investment objective.

The Company may invest in derivatives, money market instruments, currency instruments, contracts for differences (“CFDs”), futures, forwards and options for the purposes of (i) holding investments and (ii) hedging positions against movements in, for example, equity markets, currencies and interest rates.

There are no maximum exposure limits to any one particular classification of equity or fixed interest security. The Company’s investments are not limited to any one industry sector and its current investment portfolio is spread across a range of sectors. The Company has no specific criteria regarding market capitalisation or credit ratings in respect of investee companies.

Risk diversification

The Company intends to maintain a relatively focused portfolio, seeking capital growth by investing in approximately 20 to 40 securities. The Company will not invest more than 15% of the gross assets of the Company at the time of investment in any one security. However, the Company may invest up to 50% of the gross assets of the Company at the time of investment in an investment company subsidiary, subject always to other restrictions set out in this investment policy and the Listing Rules.

The Company intends to be fully invested whenever possible. However, during periods in which changes in economic conditions or other factors so warrant, the Manager may reduce the Company’s exposure to one or more asset classes and increase the Company’s position in cash and/or money market instruments.

Gearing

The Company may borrow to gear the Company’s returns when the Manager believes it is in Shareholders’ interests to do so. The Company’s investment policy and the Articles permit the Company to incur borrowing up to a sum equal to two times the adjusted total of capital and reserves. Any change to the Company’s borrowing policy will only be made with the approval of Shareholders by special resolution.

The effect of gearing may be achieved without borrowing by investing in a range of different types of investments including derivatives. The Company will not enter into any investments which have the effect of increasing the Company’s net gearing beyond the above limit.

General

In addition to the above, the Company will observe the investment restrictions imposed from time to time by the Listing Rules which are applicable to investment companies with Shares listed on the Official List of the UKLA under Chapter 15.

In accordance with the Listing Rules, the Company will manage and invest its assets in accordance with the Company’s investment policy. Any material changes in the principal investment policies and restrictions (as set out above) of the Company will only be made with the approval of Shareholders by ordinary resolution.

In the event of any breach of the investment restrictions applicable to the Company, Shareholders will be informed of the remedial actions to be taken by the Board and the Manager by an announcement issued through a regulatory information service approved by the FCA.

Dividend policy
The Company may declare dividends as justified by funds available for distribution. The Company will not retain in respect of any accounting period an amount which is greater than 15% of revenue profit in that period.

The dividend payments are split in order to better reflect the sources of the Company’s income. Recurring income from dividends on underlying holdings is paid out as ordinary dividends, whilst non-recurring (other investment) income is paid out as special dividends.

Results and dividends
The results for the year are set out in the Income Statement and in the Statement of Changes in Equity below.

For the year ended 31 July 2017, the net revenue return attributable to Shareholders was £1,714,000 (2016: £2,889,000) and the net capital return attributable to Shareholders was £18,341,000 (2016: £10,535,000). Total Shareholders’ funds increased by 25.3% to £94,661,000 (2016: £75,546,000).

The dividends paid/proposed by the Board for 2016 and 2017 are set out below:

Year ended
31 July 2017

pence per Share
Year ended 31 July 2016
pence per
Share
Interim ordinary dividend 1.82 0.40
First special dividend 1.18 0.46
Second special dividend - 2.10
First final special dividend - 7.50
Proposed final ordinary dividend 1.76 1.85
Proposed final special dividend 4.24 1.05
9.00 13.36

Subject to the approval of Shareholders at the forthcoming Annual General Meeting, the proposed final ordinary and final special dividends will be payable on 4 December 2017 to Shareholders on the register at the close of business on 10 November 2017. The ex-dividend date will be 9 November 2017.

Further details of the dividends paid in respect of the years ended 31 July 2017 and 31 July 2016 are set out in note 7 below.

Principal risks and uncertainties
The management of the business and the execution of the Company’s strategy are subject to a number of risks. A robust assessment of the principal risks of the Company has been carried out, including those that would threaten its business model, future performance, solvency and liquidity.

An investment in the Company is only suitable for financially sophisticated investors who are capable of evaluating the risks and merits of such an investment, or other investors who have been professionally advised with regard to investment and who have sufficient resources to bear any loss which might result from such an investment. There can be no guarantee that investors will recover their initial investment. The Company may employ gearing and may be subject to sudden and large falls in value. Investors should be aware that movements in the price of the Company may be more volatile than movements in the price of the underlying investments and that there is a risk that investors may lose all their invested money. Investors considering an investment should consult their stockbroker, bank manager, solicitor, accountant and/or other independent financial adviser.

Investment in the Company should be regarded as long term in nature. There can be no guarantee that any appreciation in the value of the Company’s investments will occur and investors may not get back the full value of their investment. There can be no guarantee that the investment objective of the Company will be met.

In respect of some of the companies in which the Company may invest: the company may be undergoing significant change, or be exposed to the volatility of emerging or developing markets; they may have less mature businesses, a more restricted depth of management and accordingly a higher risk profile; the quality of the investments’ management may have been overestimated; the market value of, and income derived from, such shares can fluctuate; and there may not be a liquid market for their shares. The fact that a share is traded on a market does not guarantee its liquidity. Accordingly, such shares may be difficult to realise at quoted market prices.

The Company is exposed to a range of economic and market risks, liquidity, interest rates, exchange rates and general financial risks.

The market capitalisation of the Company will make the market of the Ordinary Shares less liquid than would be the case for a larger company.

Any change in the tax treatment of dividends paid, or income received by the Company, may reduce the level of yield received by Shareholders. Any change in the Company’s tax status, or in legislation, could affect the value of the investments held by the Company and its performance.

Whilst the use of borrowings by the Company should enhance the NAV of the Ordinary Shares when the value of the Company’s underlying assets is rising, it will have the opposite effect when the underlying asset value is falling. Furthermore, should any fall in the underlying assets result in the Company breaching the financial covenants applicable to borrowings, the Company may be required to repay such borrowing in whole or in part together with any attendant costs. In order to repay such borrowings, the Company may have to sell assets at less than their quoted market values. A positive NAV for the Ordinary Shares will be dependent upon the Company’s assets being sufficient to meet any debt.

On a winding-up of the Company, the Ordinary Shares rank for repayment of capital after repayment of all other creditors of the Company. Ordinary Shares are only appropriate for investors who understand that they may receive an amount less than their original investment.

Risk management
The risks with regards to financial instruments and the Company’s policies for management of these risks are detailed in note 17 to the financial statements.

Further details regarding the Board’s risk management procedures are detailed in the Manager’s Review above and in the “Internal Control Review” section of the Statement of Corporate Governance included in the full Annual Report.

Year-end gearing
By the year end, gross long equity exposure represented 109.97% (2016: 97.50%) of net assets.

Key performance indicators
The Board considers the most important key performance indicator to be the comparison with its benchmark index. This is referred to in the Financial Summary above.

The other key measures by which the Board judges the success of the Company are the Share price, the NAV per Share and the ongoing charges measure.

Total net assets at 31 July 2017 amounted to £94,661,000 compared with £75,546,000 at 31 July 2016, an increase of 25.3% (net of own Share buybacks as disclosed in note 15 below), whilst the fully diluted NAV per Ordinary Share increased to 429.1p from 350.8p.

Net revenue return after taxation for the year was £1,714,000 (2016: £2,889,000), a decrease of 40.7%.

The Share price during the period under review has been quoted at discounts to NAV ranging from 8.8% to 25.1%.

Ongoing charges set out above is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average net assets over the year. The Board regularly reviews the ongoing charges measure and monitors Company expenses.

Future development
The Board and the Manager do not currently foresee any material changes to the business of the Company in the near future.

Management arrangements
Under the terms of the management agreement, the Manager will manage the Company's portfolio in accordance with the investment policy determined by the Board. The management agreement has a termination period of three months. The Manager shall be entitled to receive from the Company an amount equal to 0.5% of the Company’s NAV, calculated and payable quarterly in arrears. Further details of the fee paid to the Manager during the year are disclosed in note 3 to the financial statements. The Manager is authorised and regulated by the FCA.

M&M Investment Company plc, controlled by Mr M Sheppard who forms part of the Manager’s investment management team, is the controlling Shareholder of the Company. Further details regarding this are set out in the Directors’ Report in the full Annual Report.

Alternative Investment Fund Managers’ Directive (the “AIFMD”)
The AIFMD is applicable to all Alternative Investment Funds including the Company. The Company’s Sub-Threshold Manager, M&L Capital Management Limited, submitted a notice to the FCA that their assets under management from managing the Company had permanently exceeded the sub-threshold limit under the AIFMD on 26 July 2017. In the forthcoming months, if the Company wishes to continue to be able to use leverage in its investment strategy, then both a full scope approved Alternative Investment Fund Manager and a Depositary will need to be appointed. Any such appointments, if made, will be notified via a regulatory information service.

The AIFMD requires certain information to be made available to investors before they invest and requires that material changes to this information be disclosed in the Annual Report.

In the year to 31 July 2017, the total remuneration paid to the entire staff of the Manager was £327,000 (2016: £189,000), payable to an average staff number throughout the year of 2 (2016: 2).

The management of the Company is solely undertaken by Mr M Sheppard and Mr R Morgan, to whom a combined total of £325,000 (2016: £189,000) was paid by the Manager during the year.

The remuneration policy of the Manager is to pay fixed annual salaries, with non-guaranteed bonuses, dependent upon performance only. These bonuses are generally paid in the Company’s Shares, released over a three-year period.

Continuing appointment of the Manager
The Board noted the good long-term performance record and commitment, quality and continuity of the team employed by the Manager.  As a result, the Board concluded that it was in the best interests of the Shareholders as a whole that the appointment of the Manager on the agreed terms should continue.

Human rights, employee, social and community Issues
The Board consists entirely of non-executive Directors. The Company has no employees and day-to-day management of the business is delegated to the Manager and other service providers. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Further details of the Environmental, Social and Governance policy can be found in the Directors’ Report in the full Annual Report. Details of the Company’s Board composition and related gender diversity considerations can be found in the Statement of Corporate Governance in the full Annual Report.

Gender diversity
At 31 July 2017, the Board comprised three male Directors. As stated in the Corporate Governance Statement, the appointment of any new Director is made on the basis of merit.

This Strategic Report has been approved by the Board and signed on its behalf by

P H A Stanley
Chairman

12 October 2017


DIRECTORS

P H A Stanley (Chairman)

D Harris (Chairman of the Audit Committee and Senior Independent Director)

B Miller

EXTRACTS FROM THE DIRECTORS’ REPORT

Share capital
At 31 July 2017, the Company’s issued Share capital comprised 22,457,042 Ordinary Shares of 25 pence each, of which 394,254 were held in Treasury.

At general meetings of the Company, Ordinary Shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every Ordinary Share held. Shares held in Treasury do not carry voting rights. At 31 July 2017, the total voting rights of the Company were 22,062,788 and as at the date of this report, are 22,162,788.

In circumstances where Chapter 11 of the Listing Rules would require a proposed transaction to be approved by Shareholders, the controlling Shareholder (see the full Annual Report for further details) shall not vote its Shares on that resolution. In addition, any Director of the Company appointed by M&M Investment Company plc, the controlling Shareholder, shall not vote on any matter where conflicted and they will act independently from M&M Investment Company plc and have due regard to their fiduciary duties.

Issue of Shares
At the 2016 Annual General Meeting, Shareholders approved the Board’s proposal to authorise the Company to allot Ordinary Shares up to a maximum nominal amount of £1,616,395.

No Shares were issued during the year or since the year end.

Purchase of Shares
At the Annual General Meeting held on 28 November 2016, Shareholders approved the Board’s proposal to authorise the Company to acquire up to 14.99% of its issued Share capital (excluding Treasury Shares) amounting to 3,228,009 Shares.

The Company did not purchase any of its own Shares during the year or since the year end.

Sale of Shares from Treasury
At the Annual General Meeting held on 28 November 2016, Shareholders approved the Board’s proposal to authorise the Company to waive pre-emption rights in respect of up to 1,076,721 Treasury Shares and to permit the allotment or sale of Shares from Treasury at a discount to NAV.

During the year, the Company sold 528,368 (with a nominal value of £132,092) of its Ordinary Shares from Treasury for a net consideration (after costs) of £1,879,000, generating a surplus of £548,000 which is recognised in the Share Premium account. The number of Shares sold out of Treasury during the year represented 2.5% of the issued Share capital at 31 July 2016.

Subsequent to the year end and up to the date of signing this report, the Company sold 100,000 Ordinary Shares from Treasury for a net consideration (after costs) of £384,000, generating a surplus of £133,000.

Going concern
The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. After making enquiries, and bearing in mind the nature of the Company’s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company’s ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved.

Cashflow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the dividend policy.

Viability statement
The Directors have assessed the prospects of the Company over the three-year period to the Annual General Meeting in 2020. The Directors consider three years to be a reasonable time horizon to consider the continuing viability of the Company, although they do consider viability for the longer-term foreseeable future also.

In their assessment of the viability of the Company, the Directors have considered each of the Company’s principal risks and uncertainties as set out in the Strategic Report above and in particular, have considered the potential impact of a significant fall in global equity markets on the value of the Company’s investment portfolio overall. The Directors have also considered the Company’s income and expenditure projections and the fact that the Company’s investments mainly comprise readily realisable securities which could be sold to meet funding requirements if necessary, and on that basis consider that three years is an appropriate time period to assess continuing viability.

In forming their assessment of viability, the Directors have also considered:

• internal processes for monitoring costs;

• expected levels of investment income;

• performance of the Manager;

• portfolio risk profile;

• liquidity risk;

• gearing limits;

• counterparty exposure; and

• financial controls and procedures operated by the Company.

Based upon these considerations, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to the Annual General Meeting in 2020.
 

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Company’s Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial period. Under that law, they have elected to prepare the financial statements in accordance with International Financial Reporting Standards (“IFRS”). 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 the financial statements, the Directors are required to:

  • select suitable accounting policies in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, and then apply them consistently;
  • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
  • provide additional disclosure when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance;
  • state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and
  • make judgements and estimates that are reasonable and prudent.

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 to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and ensuring that the Annual Report includes information required by the Listing Rules and Disclosure Guidance and Transparency Rules of the FCA.

The financial statements are published on the Company’s website, www.mlcapman.com/manchester-london-investment-trust-plc, which is maintained on behalf of the Company by the Manager. The Manager has agreed to maintain, host, manage and operate the Company’s website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

i.   the financial statements, prepared in accordance with the IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

ii.  the Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, strategy and business model.

On behalf of the Board of Directors

P H A Stanley
Chairman

12 October 2017
 

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 July 2017 and 31 July 2016 but is derived from those accounts. Statutory accounts for the year ended 31 July 2016 have been delivered to the Registrar of Companies and statutory accounts for the year ended 31 July 2017 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor’s report can be found in the Company’s full Annual Report at www.mlcapman.com/manchester-london-investment-trust-plc.


STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 July 2017

        2017 2016 

Notes
Revenue 
£’000 
Capital  £’000  Total 
£’000 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Gains
Gains on investments at fair value through profit or loss



18,532 


18,532 




10,712 


10,712 
Other investment income 2 1,532  1,532  2,808  2,808 
Investment income 2 1,053  1,053  897  897 
Gross return 2,585  18,532  21,117  3,705  10,712  14,417 
Expenses
Management fee 3 (424) (424) (334) (334)
Other operating expenses 4 (365) (89) (454) (447) (447)
Total expenses (789) (89) (878) (781) (781)
Return before finance costs and tax
1,796 

18,443 

20,239 

2,924 

10,712 

13,636 
Finance costs 5 (35) (102) (137) (35) (177) (212)
Return on ordinary activities before tax
1,761 

18,341 

20,102 

2,889 

10,535 

13,424 
Taxation 6 (47) (47)
Return on ordinary activities after tax
1,714 

18,341 

20,055 

2,889 

10,535 

13,424 
Return per Ordinary Share: Basic and fully diluted (pence) 8

7.90 


84.53 


92.43 


13.45 


49.05 


62.50 

The total column of this statement is the Income Statement of the Company prepared in accordance with IFRS, as adopted by the European Union. The supplementary revenue and capital columns are presented in accordance with the Statement of Recommended Practice issued by the AIC in November 2014 (“AIC SORP”).

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

There is no other comprehensive income, and therefore the profit for the year after tax is also the total comprehensive income.

The notes below form part of these financial statements.
 

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 July 2017



Notes
Share
capital
£’000
Share
premium
£’000
Treasury 
Shares 
£’000 
Capital  
    reserve*
£’000 
Retained   
    earnings**
£’000   

Total 
£’000 
Balance at 1 August 2016 5,614 35,317 (2,315) 9,415  27,515    75,546 

Changes in equity for 2017
Total comprehensive income - - 18,341  1,714    20,134 
Goodwill written back - -  79  -   
Buybacks of Ordinary Shares 15 - - -   
Sale of Ordinary Shares from Treasury
15

-

548

1,331 


-   

1,879 
Transfer of capital - - -   
Equity dividends paid 7 - - (2,898)  (2,898)
Balance at 31 July 2017 5,614 35,865 (984) 27,835  26,331   94,661 
Balance at 1 August 2015 5,614 35,295 (2,395) (1,120) 25,680   63,074 
Changes in equity for 2016
Total comprehensive income - - 13,424   13,424 
Buybacks of Ordinary Shares 15 - - (134) -   (134)
Sale of Ordinary Shares from Treasury
15

-

22

214 


-  

236 
Transfer of capital - - 10,535  (10,535)
Equity dividends paid 7 - - (1,054) (1,054)
Balance at 31 July 2016 5,614 35,317 (2,315) 9,415  27,515  75,546 

* Within the balance of the Capital reserve, £867,000 relates to realised gains (2016: losses of £538,000) and are distributable by way of a dividend. The remaining £26,968,000 relates to unrealised gains and losses on financial instruments (2016: £10,032,000 relating to unrealised gains and losses on financial instruments and negative £79,000 relating to write-off of goodwill) and are non-distributable.

** Fully distributable by way of a dividend.

The notes below form part of these financial statements.
 

STATEMENT OF FINANCIAL POSITION

As at 31 July 2017

2017  2016 
Notes £’000  £’000 
Non-current assets
Investments at fair value through profit or loss
9

76,106 

38,999 
Current assets
Unrealised derivative assets 13 5,173  3,269 
Trade and other receivables 10 4,486  22 
Cash and cash equivalents 11 11,205  35,252 
20,864  38,543 
Current liabilities
Unrealised derivative liabilities 13 (2,046) (1,746)
Trade and other payables 12 (263) (250)
(2,309) (1,996)
Net current assets 18,555  36,547 
Net assets 94,661  75,546 
Capital and reserves
Ordinary Share Capital 14 5,614  5,614 
Shares held in Treasury 15 (984) (2,315)
Share premium 35,865  35,317 
Capital reserve 27,835  9,415 
Retained earnings 26,331  27,515 
Total equity 94,661  75,546 
Net asset value per Ordinary Share 16 429.05p 350.81p

The financial statements were approved by the Board of Directors and authorised for issue on 12 October 2017 and are signed on their behalf by:

P H A Stanley
Chairman

Manchester and London Investment Trust Public Limited Company
Company Number: 01009550

The notes below form part of these financial statements.


STATEMENT OF CASH FLOWS

For the year ended 31 July 2017

2017 
£’000 
2016 
£’000 
Cash flow from operating activities
Return on operating activities before tax 20,102  13,424 
Interest expense 137  383 
Gain on investments held at fair value through profit or loss (16,736) (7,941)
(Increase)/decrease in receivables (55)
(Decrease)/increase in payables (75) 50 
Increase in fair value of derivative financial instruments (1,585) (546)
Non-cash expenses 79 
Taxation (57)
Net cash generated from operating activities 1,810  5,372

Cash flow from investing activities
Purchases of investments (38,162) (39,450)
Sales of investments 13,422  36,432
Net cash outflow from investing activities (24,740) (3,018)

Cash flow from financing activities
Equity dividends paid (2,898) (1,054)
Resale of Ordinary Shares 1,879  236
Buybacks of Ordinary Shares (134)
Interest paid (98) (383)
Net cash used in financing activities (1,117) (1,335)

Net (decrease)/increase in cash and cash equivalents

(24,047)

1,019
Cash and cash equivalents at beginning of the year 35,252  34,233
Cash and cash equivalents at end of the year 11,205  35,252

The notes below form part of these financial statements.


NOTES FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 July 2017

1. General information and accounting policies
Manchester and London Investment Trust plc is a public limited company incorporated in the UK and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment approach is detailed in the Strategic Report.

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”), and as applied in accordance with the provisions of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

Basis of preparation
In order to better reflect the activities of an investment trust company and in accordance with the AIC SORP, supplementary information which analyses the Statement of Comprehensive Income between items of revenue and capital nature has been prepared alongside the Statement of Comprehensive Income.

The financial statements are presented in Sterling, which is the Company’s functional currency as the UK is the primary environment in which it operates, rounded to the nearest £’000s, except where otherwise indicated.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain investments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

Going concern
The financial statements have been prepared on the going concern basis, being a period of at least 12 months from the date these financial statements were approved, and on the basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern, having taken into account the liquidity of the Company’s investment portfolio and the Company’s financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance).

Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company primarily invests in companies listed in the UK and other recognised international exchanges.

Accounting developments
The accounting policies are consistent with those of the previous financial year. The following accounting standards and their amendments were in issue at the period end but will not be in effect until after this financial year end. The Company is still considering the impact these Accounting Standards will have on the financial statements.

International Financial Reporting Standards Effective date
IFRS 7 Financial Instruments (IFRS9 Disclosures amendments) 1 January 2018
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from Contracts with Customers 1 January 2018

Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Statement of Financial Position, the Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods.

There were no significant accounting estimates or critical accounting judgements in the year.

Investments
Investments are measured initially, and at subsequent reporting dates, at fair value, and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time-frame of the relevant market. For listed investments, this is deemed to be bid market prices or closing prices for Stock Exchange Electronic Trading Service – quotes and crosses (“SETSqx”).

Changes in fair value of investments are recognised in the Income Statement as a capital item. On disposal, realised gains and losses are also recognised in the Income Statement as capital or revenue dependent on their nature. A position is deemed to be revenue rather than capital if the position has been opened and closed and the duration that the position was open is less than twelve months. Changes to core holdings will not be classified as revenue regardless of their duration. Positions opened but not yet closed are deemed to be capital investments in nature until closed, at which point their duration determines if they are classified as revenue rather than capital.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 9.

Financial instruments
The Company may use a variety of derivative instruments, including equity swaps, futures, forwards and options under master agreements with the Company’s derivative counterparties to enable the Company to gain long and short exposure on individual securities.

The Company recognises financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. Listed options and futures contracts are recognised at fair value through profit or loss valued by reference to the underlying market value of the corresponding security, traded prices and/or third party information.

Notional dividend income arising on long positions is apportioned wholly to the revenue account.

Notional interest expense on long positions is initially allocated 100% to capital whilst the position is unrealised, however, upon realisation these costs are expensed through the Income Statement as revenue or capital in accordance with the Company’s revenue recognition accounting policy.

Unrealised changes to the value of securities in relation to derivatives are allocated initially to capital, until realisation where they are allocated to either revenue or capital dependent upon their nature.

Foreign currency
Transactions denominated in foreign currencies are converted to Sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies at the year end are reported at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is capital or revenue nature.

Cash and cash equivalents
Cash comprises cash in hand, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

For the purposes of the Statement of Financial Position and the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

Trade receivables, trade payables and short-term borrowings
Trade receivables, trade payables and short-term borrowings are measured at amortised cost or approximate fair value.

Revenue recognition
Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company and the revenue can be reliably measured.

Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are disclosed separately in the Statement of Comprehensive Income.

Dividends receivable on quoted equity Shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity Shares where no ex-dividend date is quoted are brought into account when the Company’s right to receive payment is established. Fixed returns on non-equity Shares are recognised on a time-apportioned basis using the effective interest method.

Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case by case basis.

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

Other investment income includes gains and losses on the trading of Shares, equity swaps and futures, net of commissions, interest and other costs.

All other income is accounted for on a time-apportioned basis and recognised in the Statement of Comprehensive Income.

Expenses and finance cost
All expenses are accounted for on an accruals basis and with the exception of capital interest are charged to revenue. All other administrative expenses are charged through the revenue column in the Income Statement.

Expenses incurred in issuing or the buyback of Shares to be held in Treasury are charged to the capital reserve.

Taxation
The charge for taxation is based on the net revenue for the year and any deferred tax.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with recommendations of the AIC SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the “marginal” basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

No taxation liability arises on gains from sales of fixed asset investments by the Company by virtue of its investment trust status. However, the net revenue (excluding investment income) accruing to the Company is liable to corporation tax at prevailing rates.

Dividends payable to Shareholders
Dividends to Shareholders are recognised as a liability in the period in which they are approved and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

Ordinary Share capital
Nominal value of total Ordinary Shares issued.

Shares held in Treasury
Consideration paid for the purchase of Shares held in Treasury.

Share premium
The Share premium account represents the accumulated premium paid for Shares issued in previous periods above their normal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve:

• costs associated with the issue of equity;
• premium on the issue of Shares; and
• premium on the sales of Shares held in Treasury over the market value.

Capital reserve
The following are taken to capital reserve:

• gains and losses on the realisation of investments
• increases and decreases in the valuation of the investments held at the year end;
• write-off of goodwill;
• exchange differences of a capital nature; and
• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Retained earnings
The revenue reserve represents accumulated profits and losses and any surplus profits. The surplus accumulated profits are distributable by way of dividends.

2. Income

2017
£’000
2016
£’000
Other investment income 1,532 2,808
Dividends from listed investments 996 839
Interest 57 58
2,585 3,705

3. Management fee


2017

2016
£’000 £’000
Management fee 424 334

The Manager provides investment services to the Company under a management agreement with a termination period of three months. The annual fee is 0.5% of the NAV calculated and payable quarterly in arrears. The fee is not subject to Value Added Tax (“VAT”). Also payable to the Manager are expenses incurred on behalf of the Company. Transactions with the Manager during the year are disclosed in note 18.

The management fee is chargeable to revenue.

4. Other operating expenses

2017 2016
Revenue
£’000
Capital
£’000
Revenue
£’000
Capital
£’000
Directors’ fees 48 - 48 -
Auditors’ remuneration 33 - 25 -
Registrar fees 14 - 10 -
Goodwill written off - 79 - -
Other expenses 270 10 364 -
365 89 447 -
Fees payable to the Company’s Auditor for the audit of the Company financial statements

33


-


25


-
Fees payable to the Company’s Auditor for other services*:
Services relating to taxation - - 7 -
Other services - - 3 -
33 - 35 -

Other operating expenses include irrecoverable VAT where appropriate.

* No non-audit services were provided by Deloitte LLP in the year to 31 July 2017.

5. Finance costs

2017
£’000
2016
£’000
Charged to revenue 35 35
Charged to capital 102 177
137 212

Finance costs include financing charged by the Prime Brokers on open long positions and are allocated to revenue or capital on the basis disclosed in note 1.

6. Taxation

       2017         2016
Revenue 
£’000 
Capital  £’000  Total 
£’000 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Current UK corporation tax -   
Overseas tax not recoverable 61  61 
Overseas tax refunds (14) (14)
47  47 
The charge for the year can be reconciled to the profit per the Income Statement as follows:
Profit/(loss) before tax 1,761  18,341  20,102  2,889  10,535  13,424 
Tax at the UK corporation tax rate of 19.67% (2016: 20.00%)
346 

3,608 

3,954 

578 

2,107 

2,685 
Tax effect of non-taxable dividends/unrealised profits
(21)


(21)

(168)


(168)
Income not subject to UK corporation tax
(49)


(49)

(307)


(307)
Brought forward losses utilised during the period
(114)


(114)

(115)


(115)
Profits on investment appreciation not taxable

(3,588)

(3,588)


(2,142)

(2,142)
Current year losses utilised (162) (20) (182)
Other non-taxable income less expenses not deductible for tax









35 


42 
Unrelieved tax losses and other deductions arising in the period











Overseas tax not recoverable 61  61 
Overseas tax refunds (14) (14)
Current year tax charge 47  47 

At 31 July 2017, there was an unrecognised deferred tax asset, measured at the substantively enacted rate of 17%, of £243,000 (2016: £340,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Company will generate sufficient taxable profits in the foreseeable future to recover these amounts and therefore the asset has not been recognised in the year, or in prior years.

As at 31 July 2017, the Company had unrelieved capital losses of £9,330,000 (2016: £9,330,000). There is therefore, a related unrecognised deferred tax asset, measured at the substantively enacted rate of 17%, of £1,586,000 (2016: £1,679,000). These capital losses can only be utilised to the extent that the Company does not qualify as an investment trust in the future and, as such, the asset has not been recognised.

7. Dividends


Amounts recognised as distributions to equity holders in the period:

2017
£’000

2016
£’000
Final ordinary dividend for the year ended 31 July 2016 of 1.85p (2015: 1.70p) per Share
398

365
First final special dividend for the year ended 31 July 2016 of 7.5p (2015: nil) per Share
1,615

-
Final special dividend for the year ended 31 July 2016 of 1.05p (2015: 0.25p) per Share
226

54
Interim ordinary dividend for the year ended 31 July 2017 of 1.82p (2016: 0.40p) per Share
400

86
First special dividend for the year ended 31 July 2017 of 1.18p (2016: 0.46p) per Share
259

99
Second special dividend for the year ended 31 July 2017 of nil (2016: 2.10p) per Share
-

450
2,898 1,054

The Directors are proposing a final ordinary dividend of 1.76p and a final special dividend of 4.24p for the financial year 2017. These proposed dividends have been excluded as a liability in these financial statements in accordance with IFRS.

We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered.

2017
£’000
2016
£’000
Interim ordinary dividend for the year ended 31 July 2017 of 1.82p
(2016: 0.40p) per Share

400

86
Proposed final ordinary dividend for the year ended 31 July 2017 of 1.76p (2016: 1.85p) per Share*
390

398
First special dividend for the year ended 31 July 2017 of 1.18p (2016: 0.46p) per Share
259

99
Second special dividend for the year ended 31 July 2017 of nil (2016: 2.10p) per Share
-

450
First final special dividend for the year ended 31 July 2017 of nil (2016: 7.50p) per Share
-

1,615
Proposed final special dividend for the year ended 31 July 2017 of 4.24p
(2016: 1.05p) per Share*

940

226
1,989 2,874

*Based on the total Shares eligible to receive dividend as at 12 October 2017.

8. Return per Ordinary Share

            2017          2016
Revenue
£’000
Capital £’000 Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Return:
Basic and fully diluted 1,714 18,341 20,055 2,889 10,535 13,424

Basic revenue, capital and total return per Ordinary Share is based on the net revenue, capital and total return for the period and on the weighted average number of Ordinary Shares in issue (excluding those Shares held in Treasury per note 15) of 21,697,085 (2016: 21,477,042).

9. Investments at fair value through profit or loss

2017
£’000
2016
£’000
Investments:
Listed investments 75,877 38,753
Unlisted investments 229 246
76,106 38,999

   

               2017 2016
Listed
£’000
Unlisted
£’000
Total
£’000
Total
£’000
Analysis of investment portfolio movements:
Opening cost at 1 August 31,780  100  31,880  24,982
Opening unrealised appreciation at
1 August

6,973 

146 

7,119 

3,058 
Opening fair value at 1 August 38,753  246  38,999  28,040 
Movements in the year:
Purchases at cost 38,162  38,162  39,450 
Sales proceeds (17,792) (17,792) (36,432)
Realised profit on sales 1,410  1,410  3,880 
Increase/(decrease) in unrealised appreciation
15,344 

(17)

15,327 

4,061 
Closing fair value at 31 July 75,877  229  76,106  38,999 
Closing cost at 31 July 53,560  100  53,660  31,880 
Closing unrealised appreciation at
31 July

22,317 

129 

22,446 

7,119 
Closing fair value at 31 July 75,877  229  76,106  38,999 

Fair value hierarchy
Financial assets of the Company are carried in the Statement of Financial Position at fair value. The fair value is the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

  • Level 1 – valued using quoted prices unadjusted in an active market.

  • Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1.

  • Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

The tables below set out fair value measurements of financial instruments as at the year end, by their category in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at 31 July 2017

Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Equity investments 75,877 - - 75,877
Debentures - 229 - 229
Derivatives – assets - 5,173 - 5,173
Total 75,877 5,402 - 81,279

Financial assets at fair value through profit or loss at 31 July 2016

Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Equity investments 38,753 - - 38,753
Debentures - 246 - 246
Derivatives – assets - 3,269 - 3,269
Total 38,753 3,515 - 42,268

There have been no transfers during the period between level 1 and 2 fair value measurements and no transfers into or out of level 3 fair value measurement.

Financial liabilities at 31 July 2017

Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Derivatives - liabilities - 2,046 - 2,046

Financial liabilities at 31 July 2016

Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Derivatives - liabilities - 1,746 - 1,746

Transaction costs
During the year, the Company incurred transaction costs of £138,000 (2016: £223,000) on the purchase and disposal of investments.

10. Trade and other receivables

2017
£’000
2016
£’000
Dividend receivables 92 7
Due from brokers 4,370 -
Other receivables 13 4
Prepayments 11 11
4,486 22

11. Cash and cash equivalents

2017
£’000
2016
£’000
Cash and cash equivalents 11,205 32,252
11,205 32,252

Details of what comprises cash and cash equivalents can be found in note 1.

12. Trade and other payables

2017
£’000
2016
£’000
Trade payables 88 198
Accruals 175 52
263 250

13. Derivatives

The Company may use a variety of derivative contracts, including equity swaps, futures, forwards and options under master agreements with the Company’s derivative counterparties to enable the Company to gain long and short exposure on individual securities. Derivatives are valued by reference to the underlying market value of the corresponding security.

The net fair value of derivatives at 31 July 2017 was a positive £3,127,000 (2016: positive £1,523,000). The corresponding gross exposure on equity swaps as at 31 July 2017 was £28,223,000 (2016: £34,660,000). The net marked to market futures and options total value as at 31 July 2017 was negative £1,807,000 (2016: negative £647,000).

2017
£’000
2016
£’000
Assets
Unrealised derivative assets 5,173 3,269
Current liabilities
Unrealised derivative liabilities 2,046 1,746

The above liabilities are secured against assets held with the Prime Brokers.

The current levels of collateral as at 31 July 2017 are:

• Morgan Stanley & Co. International plc £32.4m (2016: £29.4m)
• JP Morgan Chase & Co. £54.7m (2016: £47.3m)

14. Share capital

2017 2016

Ordinary Share capital
Number (’000)
£’000
Number (’000)
£’000
Ordinary Shares of 25p each issued and fully paid
Balance as at 1 August 22,457 5,614 22,457 5,614
Balance as at 31 July 22,457 5,614 22,457 5,614

15. Shares held in Treasury

2017 2016
Number
(’000)

£’000 
Number
(’000)

£’000 
Balance as at 1 August 923  2,315  956 2,395 
Shares bought back during the year 52 134 
Shares sold during the year (529) (1,331) (85) (214)
Balance as at 31 July 394  984  923 2,315 

During the year, the Company bought back none of its Ordinary Shares (2016: 51,500 (0.2%) of its Ordinary Shares for a total purchase consideration of £134,000). The Company sold 528,368 (2.5%) (2016: 85,000 (0.4%)) of its Ordinary Shares from Treasury for a net consideration (after costs) of £1,879,000 (2016: £236,000), generating a surplus of £548,000 (2016: £22,000) which is recognised in the Share Premium account.

16. Net asset value per Share

Net asset value per Share Net assets
attributable
2017
(p)
2016
(p)
2017
£’000
2016
£’000

Ordinary Shares: basic and fully diluted

429.05

350.81

94,661

75,546

The basic NAV per Ordinary Share is based on net assets at the year end and 22,062,788 (2016: 21,534,420) Ordinary Shares in issue, adjusted for any Shares held in Treasury.

17. Risks – investments, financial instruments and other risks

Investment objective and policy
The Company’s investment objective and policy are detailed above.

The investing activities in pursuit of its investment objective involve certain inherent risks.

The Company’s financial instruments can comprise:

• Shares and debt securities held in accordance with the Company’s investment objective and policy;
• Derivative instruments for trading and investment purposes;
• Cash, liquid resources and short-term debtors and creditors that arise from its operations; and
• Current asset investments and trading.

Risks
The risks identified arising from the Company’s financial instruments are market risk (which comprises market price risk and interest rate risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

These policies remained unchanged since the beginning of the accounting period.

Market risk
Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Company assesses the exposure to market risk when making each investment decision and these risks are monitored by the Manager on a regular basis and the Board at quarterly meetings with the Manager.

Details of the long equity exposures held at 31 July 2017 are shown above.

If the price of these investments and equity swaps had increased by 3% at the reporting date with all other variables remaining constant, the capital return in the Statement of Comprehensive Income and the net assets attributable to equity holders of the Company would increase by £3,130,000.

A 3% decrease in share prices would have resulted in an equal and opposite effect of £3,130,000, on the basis that all other variables remain constant. This level of change is considered to be reasonable based on observation of current market conditions.

At the year end, the Company’s direct equity exposure to market risk was as follows:

Company
2017 2016
£’000 £’000
Equity long exposures
Investments held in equity form 76,106 38,999
Long exposure held in equity swaps 28,224 34,660
104,330 73,659

Interest rate risk
Interest rate risk arises from uncertainty over the interest rates charged by financial institutions. It represents the potential increased costs of financing for the Company. The Manager actively monitors interest rates and the Company’s ability to meet its financing requirements throughout the year and reports to the Board.

Liquidity risk
Liquidity risk reflects the risk that the Company will have insufficient funds to meet its financial obligations as they fall due. The Directors have minimised liquidity risk by investing in a portfolio of quoted companies that are readily realisable.

The Company's uninvested funds are held almost entirely with the Prime Brokers or on interest-bearing deposits with UK banking institutions.

As at 31 July 2017, the financial liabilities comprised:

Company
2017
£’000
2016
£’000
Unrealised derivative liabilities 2,046 1,746
Trade payables and accruals 263 250
2,309 1,996

The above liabilities are stated at amortised cost or approximate fair value.

The Company manages liquidity risk through constant monitoring of the Company’s gearing position to ensure the Company is able to satisfy any and all debts within the agreed credit terms.

Currency rate risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. If Sterling had strengthened by 3% against all other currencies at the reporting date, with all other variables remaining constant, the total return in the Statement of Comprehensive Income and the net assets attributable to equity holders of the Company would have increased by £2,366,000. If the Sterling had weakened by 3% against all currencies, there would have been an equal and opposite effect. This level of change is considered to be reasonable based on observation of current market conditions.

The Company’s material foreign currency exposures are laid out below.


Sterling 

US Dollar 

Euro 
Hong Kong Dollar 
Other 

Total 
£’000  £’000  £’000  £’000  £’000  £’000 
Equity exposure 12,942  63,164  76,106 
Derivative assets 819  567  2,291  1,496  5,173 
Derivative liabilities (205) (1,318) (351) (167) (5) (2,046)
Cash 2,387  8,229  226  65  298  11,205 
Other net assets (150) 4,353  10  (17) 27  4,223 
15,793  74,995  2,176  1,377  320  94,661 

The Company constantly monitors currency rate risk to ensure balances, wherever possible, are translated at rates favourable to the Company.

Credit and counterparty risk
Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.

The maximum exposure to credit risk as at 31 July 2017 was £20,864,000 (2016: £36,547,000). The calculation is based on the Company’s credit risk exposure as at 31 July 2017 and this may not be representative for the whole year.

The Company’s quoted investments are held on its behalf by the Prime Brokers. Bankruptcy or insolvency of the Prime Brokers may cause the Company’s rights with respect to securities held by the Prime Brokers to be delayed.

Where the Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default.

Investment transactions are carried out with a number of brokers where creditworthiness is reviewed by the Manager.

Cash is only held at banks that have been identified by the Board as reputable and of high credit quality.

Capital management policies
The structure of the Company’s capital is noted in the Statement of Changes in Equity and managed in accordance with the investment objective and policy set out in the Strategic Report.

The Company’s capital management objectives are to maximise the return to Shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they fall due.

The Board, with the assistance of the Manager, monitors and reviews the capital on an ongoing basis.

The Company is subject to externally imposed capital requirements:

- As a public company, the Company is required to have a minimum Share capital of £50,000; and

- In accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:

  • is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and

  • is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from Shares and securities.

These requirements are unchanged since last year and the Company has complied with them at all times.

18. Related party transactions

M & L Capital Management Limited has been the Manager of the Company since 17 September 2015 (the former Manager was Midas Investment Management Limited). Both companies are controlled by Mr M Sheppard.

The Manager receives a quarterly management fee for these services which in the year under review amounted to a total of £424,000 (2016: £334,000) excluding VAT. The balance owing to the Manager as at 31 July 2017 was £119,000 (2016: £175,000). Also payable to the Manager during the year were expenses incurred on behalf of the Company of £26,000 (of which £12,000 related to expenses incurred in 2016). The balance owing to M&L Capital Management Limited for the recharge of expenses incurred in the year was £3,000 (2016: £nil).

A corporate fee was payable in the year to Midas Investment Management Limited for acting as financial adviser amounting to £3,000 (2016: £5,000) excluding VAT and commission fees of £5,000 (2016: £5,000) excluding VAT to the Company. The balance owing to Midas Investment Management Limited at 31 July 2017 was £1,000 (2016: £1,000).

During the year, the Company paid service, administration and secretarial charges to its controlling shareholder, M&M Investment Company plc, of £nil (2016: £19,000). The balance owing to M&M Investment Company plc as at 31 July 2017 was £nil (2016: £7,000).

Details relating to the Directors’ emoluments are found in the Directors’ Remuneration Report in the full Annual Report.

19. Ultimate control

The holding company and ultimate controlling Shareholder throughout the year and the previous year was M&M Investment Company plc, a company incorporated in the UK and registered in England and Wales. This company was controlled throughout the year and the previous year by Mr M Sheppard and his immediate family.

A copy of the financial statements of M&M Investment Company plc can be obtained by writing to its company secretary at 12a Princess Gate Mews, London SW7 2PS.

20. Post Balance Sheet events

As disclosed in the Directors’ Report on page 22, subsequent to the year end and up to the date of signing this report, the Company sold 100,000 Ordinary Shares from Treasury for a net consideration (after costs) of £384,000, generating a surplus of £133,000.

There were no other significant events since the end of the reporting period.

ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of Manchester and London Investment Trust plc will be held at The Dalton & Joule Room, Manchester Museum of Science and Industry, Liverpool Road, Manchester M3 4FP on Monday, 27 November 2017 at 12.30 p.m.

The notice of this meeting will be circulated to Shareholders with the full Annual Report and will also be available at www.mlcapman.com/manchester-london-investment-trust-plc.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Financial Statements and Notice of Annual General Meeting will be submitted shortly to the National Storage Mechanism (“NSM”) and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/nsm.

LEI: 213800HMBZXULR2EEO10

ENDS

Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

Copyright r 11 PR Newswire



Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.