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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Manchester & London Investment Trust Plc | LSE:MNL | London | Ordinary Share | GB0002258472 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 610.00 | 612.00 | 624.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 31.91M | 28.75M | 0.7136 | 8.58 | 246.61M |
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TIDMMNL
MANCHESTER AND LONDON INVESTMENT TRUST PUBLIC LIMITED COMPANY
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 JULY 2016
The full Annual Report and Accounts for the year ended 31 July 2016 can be
found on the Company's website at www.manchesterandlondon.co.uk .
Directors
P.H.A. Stanley (Chairman of the Board and Management Engagement Committee)
D. Harris (Chairman of the Audit and Remuneration Committees and Senior
Independent Director)
B. Miller (Chairman of the Nomination Committee)
STRATEGIC REPORT
Principal Activities
The Company carries on business as an Investment Company. A review of
investment activities for the year ended 31 July 2016 and the outlook for the
coming year is given by the Investment Manager in the Investment Manager's
Review section below.
Financial Summary
Total Return
Year to Year to Percentage
31 July 2016 31 July 2015 (decrease)/
Increase
Total return (GBP'000) 13,424 2,483 440.6
Return per 25p Ordinary Share - 62.50p 11.47p 444.9
fully diluted
Total revenue return per 25p 13.45p 6.00p 124.2
Ordinary Share
Cash dividend per 25p Ordinary 13.36p 6.00p 122.7
Share
Capital
At At Percentage
31 July 31 July 2015 (decrease)/
2016 Increase
Net assets attributable to equity 75,546 63,074 19.8
shareholders* (GBP'000)
Net Asset Value per 25p Ordinary 350.81p 293.35p 19.6
Share - fully diluted
Benchmark performance - Total 6,879 6,616 4.0
Return Basis**
Total Portfolio Return performance 17.3
versus benchmark adjusting for
Shares bought back
* Net Asset Value as at 31 July 2016 includes a net GBP102,000 increase in
respect of own Shares bought back and resold during the year (2015: GBP1.1m
reduction).
** Dow Jones U.K. Total Stock Market Total Return Index (DWGBT).
Ongoing Charges
Year to Year to
31 July 2016 31 July 2015
Ongoing charges as a percentage of
average net assets*** 0.85% 0.78%
*** Calculated in accordance with AIC guidelines.
Financial Calendar
Year ended: 31 July 2016
Results announced: 21 October 2016
Report and Accounts made available to shareholders: 21 October 2016
Annual General Meeting to be held in Manchester: 28 November 2016
Expected final dividend payment: 2 December 2016
Chairman's Statement
Results for the year ended 31 July 2016
The portfolio remains focused on larger capitalisation stocks listed in
developed markets which are seeking global growth.
The Fund's portfolio performance for our financial year has been acceptable
with an increase in Net Asset Value per Share of 19.8 per cent. The new
strategy adopted by the Investment Manager has meant that the outperformance of
the Fund against our benchmark for the three years to the 31 July 2016 on a
total return basis now stands at 1.3 per cent.
The discount the Shares trade at to their Net Asset Value per Share has widened
by 2.2 per cent during the year and was 20.9 per cent at the year end. The
other non-performance related potential reasons for the discount, such as the
smaller size of the fund and the Sheppard family shareholding, all remain but
at least one of these can be rectified in time.
It is also worth noting that the Fund's volatility for the year was 16.2 per
cent which was lower than its benchmark's volatility of 19.9 per cent over the
same period.
Dividends
The Company's income is comprised of both (1) dividend income from investments
(considered ordinary investment income to be paid as ordinary dividends) and
(2) income from trading activity which includes gains and losses on the trading
of Shares and equity derivatives, net of commissions, interest and other costs
expensed (considered trading income to be paid as special dividends).
The Directors are proposing a final ordinary dividend per share of 1.85 pence
and a final special dividend per share of 1.05 pence for the financial year
2016. This means that, on a per share basis, the dividends proposed or paid out
in respect of the 2016 financial year total 2.25 pence as ordinary dividends
and 11.11 pence as special dividends. On a total ordinary and special basis,
these dividends are over 122.7 per cent higher than the total dividends paid in
respect of the 2015 financial year and represent a yield of over 4.8 per cent
on the share price as at the year end.
This returns the total dividend paid per share back to the levels seen in
earlier years, but it should be noted that only the ordinary dividend per share
should be considered as anything remotely possible of being a hopefully
recurring item.
It is also inevitable that as the portfolio has been repositioned to focus on
more forward-looking growth based equities we have seen the dividend income
received drop. We do not see this trend reversing in the near future but we
have been assured that the Investment Manager is constantly striving to
generate as much trading income as possible.
Annual General Meeting
I look forward to welcoming shareholders to our forty-fourth Annual General
Meeting, to be held in The Clarendon Room, St. James's Club, 45 Spring Gardens,
Manchester, M2 2BG at 12.30 pm on Monday 28 November 2016.
P.H.A. Stanley
Chairman
Investment Manager's Review
We remain convinced that a portfolio of stocks that are future focused,
developed market listed and of a larger capitalisation is the right strategy
after a satisfactory year in 2015/16.
The Portfolio
The total return of the underlying portfolio (excluding all costs as calculated
by Bloomberg L.P.) in base currency generated a positive total return of 21.9
per cent over the financial year compared with a return of our benchmark of 4.0
per cent.
Total return of the underlying portfolio (excluding all costs as calculated by
Bloomberg L.P.) in local currency (the currency the shares are denominated in)
generated a positive total return of 11.3 per cent. This means that a material
contributor to performance was the decline in the value of Sterling over the
year, in particular against the US Dollar.
The portfolio segments can be broken down in contribution to base currency
performance terms over the year as follows:
Contribution to performance (based on TR of holdings in base currency)
Technology 12.3%
Consumer Goods 8.2%
Healthcare & Pharmaceuticals 1.9%
Other (0.5%)
21.9%
Technology Investments
We remain convinced that over the next decade we will see dramatic growth in
the following themes: internet of things, electric vehicles, robotics, cloud
computing, internet retailing, wearables and the shared economy. We have
continued to focus on investing within this sector in mega capitalisation
stocks or via specialist funds. We do not believe the sector is overvalued.
This year was yet again good for "FANG", the market mnemonic for high-growth
tech stocks Facebook Inc., Amazon.com Inc, Netflix Inc. and Alphabet Inc.
(previously Google Inc.). Our holdings in Amazon.com Inc., Alphabet Inc. and
Facebook Inc. contributed 3.1 per cent, 2.8 per cent and 1.6 per cent
respectively to performance. These are core holdings and we believe there
remains significant runway in all three investment cases.
We also had solid contributions from other core technology holdings: ARM
Holdings Plc (which was acquired by SoftBank Group) contributed 0.9 per cent to
performance, Microsoft Corp. 0.7 per cent, Paypal Holdings Inc. 0.6 per cent,
Apple Inc. 0.3 per cent, Yahoo Inc. (which was largely driven by their stake in
Alibaba Group) 0.9 per cent and Syngenta AG 0.6 per cent.
Our fund holdings in the sector also made positive contributions with 0.3 per
cent from Scottish Mortgage Investment Trust Plc and 0.7 per cent from Polar
Capital Technology Trust Plc.
The only material negative contributors were TomTom NV (-0.4 per cent) and
Windeln.de AG (-0.3 per cent); the latter was disposed of during the year.
Consumer Goods Investments
We wrote last year that the biggest worry for this sector is that the brand
owner's power is being eroded via the platform power of the commerce gorillas
like Amazon and Alibaba. This may lead to consolidation in the sector but from
a position of weakness not strength. Our concerns are heightening which, when
coupled with historically high valuation multiples in the sector, make us wary
of adding exposure.
Hence, our strategy continues to be to hold the larger, more global players
that are targets for consolidation with top class brands like Nivea, Heineken,
Dove, Campari etc. and to cover most positions with short call option
strategies.
The main positive contributors to performance were Heineken NV, which
contributed 2.1 per cent to portfolio performance, Davide Campari-Milano Spa
1.3 per cent, Beiersdorf AG 1.2 per cent and Unilever Plc 1.0 per cent.
The WhiteWave Foods Co (which was acquired by Nestle SA) contributed 0.8 per
cent. We also had smaller positive contributions from Pernod Ricard SA,
SABMiller Plc and Svenska Cellulosa AB.
The only material negative contributor was Jimmy Choo Plc (-0.4 per cent),
which was disposed of during the year.
Healthcare & Pharmaceutical Investments
We remain excited by the prospects for health care over the next decade due to
Genomics, Immunology and Biologics. We anticipate strong public service pricing
pressures but we anticipate the result will be further consolidation to remove
duplicated cost structures. Hence, yet again, our strategy is to hold
growth-based, multi-product companies that are potential consolidation targets.
Of the three segments detailed herein we believe that the Healthcare sector
offers the best prospects in the medium term.
Key positive contributors from the sector included GlaxoSmithKline Plc, which
contributed 1.3 per cent to portfolio performance, Baxalta Inc. (which was
acquired by Shire Plc) 1.0 per cent, Worldwide Healthcare Trust Plc 0.5 per
cent and Smith and Nephew Plc 0.4 per cent.
Negative contributors included Shire Plc (0.7) per cent, Mallinckrodt Plc (0.3)
per cent (which was disposed of during the year), AstraZeneca Plc (0.2) per
cent and Spire Healthcare Group Plc (0.3) per cent.
Other
Following a couple of negative developments in the sector, most notably at
Lending Club and TrustBuddy, discounts on our P2P funds increased although they
had no direct exposure to any of the impacted loans which led to a negative
contribution to portfolio performance from VPC Speciality Lending Investments
Plc of (0.9) per cent and The SME Loan Fund plc of (0.4) per cent.
At various times during the year we had a modest level of short exposure to the
energy sector through options, which contributed a positive 0.3 per cent to
portfolio performance.
Generating Trading Income
We have detailed in previous years why the AIFMD regulations make it harder for
us to generate Trading Income. The consequences of lower Trading Income will
most probably lead to lower dividends in future financial periods.
Despite this, our Trading Income for the financial year increased from GBP971,000
for 2014/15 to GBP2,808,000 for 2015/16. This is a record performance for Trading
Income in the fund's history.
While generating further Trading Income will remain a key priority for the
forthcoming year, the outcome is highly subject to market conditions and cannot
in any way be guaranteed or relied upon. It is for this reason that we split
out the dividends derived from Trading Income into Special Dividends.
Controlling Costs
Other operating expenses (being all costs excluding direct portfolio costs such
as management fee, carry and commission) have increased from GBP180,000 to GBP
224,000 since our preceding financial year. This increase has been highlighted
before and we expect these costs to escalate following the introduction of
AIFMD and anticipated further regulation over forthcoming financial years.
The increases in cost have and will be driven by the following factors:
1. The fund has introduced a new portfolio management software system into our
accounting systems which we believe will give the Investment Manager and
Fund Accountant greater control and analytical ability over the portfolio
and provide the Board with greater clarity of the financial position of the
fund.
2. Custody of the vast proportion of all the Company's assets is now provided
by JP Morgan and Morgan Stanley.
3. The Company has outsourced its Fund Accounting and Company Secretarial
functions to Capita Asset Services Limited; and
4. It is also intended to seek to outsource the AIFM role to an external
supplier over the next few years.
It is anticipated that by investing more in future years to make our systems
even more robust we can protect shareholders' assets more securely.
Brexit
The Company's portfolio is diversified across a range of multinational holdings
and hence any impact of Brexit, whether positive or negative, is likely to be
immaterial in US Dollar terms. The portfolio's weighting towards global
multinationals means that should Brexit have a positive effect on UK companies
it is possible that the portfolio would underperform its benchmark. The Company
does hold a material amount of its cash in Sterling so any future weakening of
Sterling would reduce the value of this holding in Dollar terms. The Company
also holds a material amount of its cash in US Dollar so should Brexit have a
positive effect on Sterling in the future it is possible that the portfolio
would underperform its benchmark.
Investment Manager
M & L Capital Management Limited
Equity Exposures and Principal Portfolio Holdings
Equity Exposures (Longs)
As at 31 July 2016
Listed investments* Sector Valuation % of Net
GBP'000 Assets
Amazon.com, Inc.² Technology 4,474 5.9
AlphaBet Inc.² Technology 4,390 5.8
Heineken N.V.¹ Consumer Goods 3,851 5.1
Facebook Inc.² Technology 3,302 4.4
GlaxoSmithKline plc Healthcare & 3,287 4.3
Pharmaceuticals
Polar Capital Technology Trust plc Technology 2,785 3.7
Smith & Nephew plc Healthcare & 2,735 3.6
Pharmaceuticals
Apple Inc.² Technology 2,694 3.6
Shire plc Healthcare & 2,630 3.5
Pharmaceuticals
Unilever plc Consumer Goods 2,562 3.4
Scottish Mortgage Investment Trust Technology 2,533 3.3
plc
Syngenta AG3 Technology 2,484 3.3
Paypal Holdings Inc.² Technology 2,470 3.3
Microsoft Corporation² Technology 2,463 3.3
Worldwide Healthcare Trust plc Healthcare & 2,412 3.2
Pharmaceuticals
VPC Specialty Lending Investments plc Alternative Finance Funds 2,395 3.2
Yahoo! Inc.² Technology 2,367 3.1
Beiersdorf AG¹ Consumer Goods 2,271 3.0
Pernod Ricard SA¹ Consumer Goods 2,244 3.0
The SME Loan Fund plc Alternative Finance Funds 2,149 2.8
salesforce.com, Inc.² Technology 2,040 2.7
Davide Campari-Milano S.p.A.¹ Consumer Goods 1,950 2.6
Whitbread plc Consumer Goods 1,601 2.1
Barratt Developments plc Consumer Goods 1,050 1.4
The Berkeley Group Holdings plc Consumer Goods 966 1.3
Spire Healthcare Group plc Healthcare & 840 1.1
Pharmaceuticals
easyJet plc Consumer Goods 833 1.1
Other listed investments (each under Various 7,635 10.1
1.0%)
Listed investments 73,413 97.2
Unlisted at Directors' valuation 246 0.3
Total long positions 73,659 97.5
Cash and net current assets 1,887 2.5
Net assets 75,546 100.0
(*Including equity swap exposures as detailed in note 19.)
All investments listed above are equities (unless otherwise stated),
denominated in Sterling (except ¹Euro, ²USD and 3Swiss Francs) that have been
issued by companies registered in England (save for Amazon.com, Inc., AlphaBet
Inc., Heineken N.V., Facebook Inc., Apple Inc., Syngenta AG, Paypal Holdings
Inc., Microsoft Corporation, Yahoo! Inc., Beiersdorf AG, Pernod Ricard SA,
salesforce.com, Inc. and Davide Campari-Milano S.p.A., which are registered in
the USA, the USA, Holland, the USA, the USA, Switzerland, the USA, the USA, the
USA, Germany, France, the USA and Italy respectively).
Portfolio Sector Analysis
As at 31 July 2016
Sector % of Net
Assets
Technology 45.5
Consumer Goods 23.7
Healthcare & Pharmaceuticals 20.2
Alternative Finance Funds 6.0
Other 1.8
Unlisted Investments 0.3
Cash and net current assets/(liabilities) 2.5
Net assets 100.0
Principal Portfolio Holdings
Amazon.com Inc ("Amazon")
Amazon is best known as one of the world's largest e-commerce and online retail
companies. However, it is 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 and may, in our view,
be a key growth driver for the stock over the next 5 to 10 years. Amazon is
likely to be a core long-term holding.
Alphabet Inc ("Alphabet")
Alphabet is a global technology company that is at the forefront of innovation
in internet-based services and future technologies. Current areas of Alphabet's
portfolio include online advertising, search, YouTube, cloud computing, Nest
and Android operating systems. Future areas of growth for Alphabet may also
include Robotics, internet of things, driverless vehicles and Artificial
Intelligence.
We see Alphabet as offering compelling value on a sum of the parts basis and
possibly becoming a leading player in a number of emerging technologies that
could drive growth for years to come. Alphabet is likely to be a core long-term
holding.
Heineken NV ("Heineken")
Heineken is a Dutch brewer that produces well-known brands such as Heineken,
Amstel & Strongbow. Heineken is inexpensive relative to its peer group with
relatively stable growth potential. Though Heineken may not be a particularly
willing seller, it could still attract attention in a sector that is likely to
be driven by M&A over the next few years.
Facebook Inc. ("Facebook")
Facebook is a social network with over 1bn daily active users. With such a
strong reach and high user engagement, we see it potentially taking an
increasing share of global advertising spend over the years to come. Beyond
this, the Company is building an interesting portfolio of other social media
platforms and technologies, such as Oculus Rift VR, which may serve to further
strengthen the Facebook ecosystem.
GlaxoSmithKline plc ("GlaxoSmithKline")
GlaxoSmithKline is a global healthcare & pharmaceuticals company. We believe
Glaxo has a broad and attractive portfolio and is innovative enough to continue
to compete successfully for global healthcare spend, which is in itself
expected to grow over the next several years. The company is also inexpensive
relative to its risk and growth profile, which is becoming increasingly
uncommon in a world where predictable yield is so actively hunted.
Polar Capital Technology Trust plc ("Polar Capital")
Polar Capital is a technology-focused investment trust. The fund trades at a
modest discount, but has a strong track record in a sector where superior
research resources and focus can be beneficial to returns. They share a similar
outlook and philosophy on the sector to us, allowing us to leverage on their
superior resources.
Smith & Nephew Plc ("Smith & Nephew")
Smith & Nephew is a global medical devices company. It is an international
producer of products used in arthroscopy, advanced wound management,
orthopaedic reconstruction, endoscopy, trauma extremities, fixation devices and
sports medicine.
Smith & Nephew has reasonably attractive growth prospects over the next 5 years
and is frequently mentioned as an M&A target. However, the company's core
segments may not be immune to technological disruption in the long run and we
would not be sad to see it acquired by a US peer.
Apple Inc ("Apple")
Apple has a history of producing well designed, sleek and desirable consumer
products.
Though the widespread concern is that Apple has now gone ex-growth, the stock
in fact appears to be priced for substantial profit declines. While we have
been disappointed by the lack of innovation in recent product launches, we
believe hardware revenues can at least be stable, while increasing services
revenues can drive growth.
Shire plc ("Shire")
Shire is a global specialty biopharmaceutical company focusing on rare
diseases, regenerative medicine and specialised conditions. We believe Shire is
inexpensive relative to its growth prospects and remains a potential M&A
candidate.
Unilever plc ("Unilever")
Unilever is a multinational consumer goods company, with recognisable brands in
personal goods, household goods and food. Unilever offers a stable returns
profile with some growth, and although it is not inexpensive, we would expect
further non-core food disposals to drive further multiple expansion.
Investment Record of the Last Ten Years
Dividend
Return per per Total Net Asset Value
Total Ordinary Share Ordinary assets less per 25p share
Year ended return Basic Fully Share liabilities Basic Fully
GBP'000 p diluted p GBP'000 p diluted
p p
31 July 2007 5,799 41.58 41.58 10.00 52,554 376.80 376.80
31 July 2008 (3,490) (25.02) (25.02) 10.00 47,669 341.80 341.80
31 July 2009 645 4.43 4.43 10.50 57,495 328.44 328.44
31 July 2010 13,151 71.75 71.75 11.50 85,203 379.40 379.40
31 July 2011 15,691 69.87 69.87 12.50 98,267 437.60 437.60
31 July 2012 (19,945) (88.81) (88.81) 13.00 75,515 336.26 336.26
31 July 2013 2,522 11.23 11.23 13.75 75,050 334.19 334.19
31 July 2014 (6,295) (28.08) (28.08) 13.75 64,361 293.20 293.20
31 July 2015 2,483 11.47 11.47 6.00 63,074 293.35 293.35
31 July 2016 13,424 62.50 62.50 13.36 75,546 350.81 350.81
In the period from 1981 to 2006, total assets less liabilities increased from GBP
241,000 to GBP36,107,000. Net Assets per Share increased from 24.1p to 481.4p.
Corporate Summary
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 per cent of the gross assets of the Company at the time of
investment in any one security. However, the Company may invest up to 50 per
cent 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 Investment 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 Investment
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 United
Kingdom Listing Authority 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 Investment 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 per cent of revenue profit in that period.
Capital Structure
The Company's capital structure, including details of the powers of the
Company's Directors in relation to the issuing or buying back by the Company of
its Shares, of shareholder authority for the purchase by the Company of its own
Shares still valid at the period end and of acquisitions of own Shares, is
summarised in note 17 to the financial statements.
At the Annual General Meeting held on 30 November 2015, shareholders approved
the Board's proposal to authorise the Company to acquire up to 14.99 per cent
of its issued share capital as at 31 July 2015.
During the year the Company bought back 51,500 (0.2%) of its Ordinary Shares.
Total purchase consideration paid in the year amounted to GBP134,000. The Company
also sold 85,000 (0.4%) of its Ordinary Shares from Treasury for a total
consideration of GBP236,000, generating a surplus of GBP22,000 which is recognised
in the Share Premium account.
Total Assets and Net Asset Value
The Company had total net assets of GBP75,546,000 and a Net Asset Value of
350.81p per Ordinary Share at 31 July 2016.
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 and is premium listed on
the main market of the London Stock Exchange under the epic code "MNL".
The close company provisions of the Corporation Tax Act 2010 do not apply to
the Company.
A review of investment activities for the year ended 31 July 2016 and the
outlook for the coming year are given by the Investment Manager in his Review.
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. A summary of the risk
management and internal control processes can be found in the Statement of
Corporate Governance included in the full Annual Report.
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 investment 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.
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.
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.
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.
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.
Whilst the use of borrowings by the Company should enhance the Net Asset Value
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' values 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 Net
Asset Value 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 19 to the financial statements
- "Risks - Investments, derivatives and other risks". The Company manages the
risks inherent in portfolio management by investing in approximately 20 to 40
securities of companies operating in a range of industrial sectors and varying
the extent of cash holdings or gearing in relation to the Investment Manager's
assessment of overall market conditions.
The Company does not have any employees and consequently relies upon the
services provided by a number of third parties. The Board therefore relies on
the control procedures of these third parties which include the Company's
Investment Manager, Registrar, Custodians and Broker. This type of operational
structure is not uncommon with investment trust companies.
Via reports from the Administrator, the Board reviews the internal control
procedures of its third party service providers and assesses the reliability of
these procedures as part of its risk management strategy. The Risk Management
function is a responsibility of the Administrator, M&M Investment Services,
which is a division of M&M Investment Company plc and operates as a standalone
unit, comprised of individuals who are not members of the Board or the Sheppard
family. Further details with regards to the Board's risk management procedures
are detailed in the "Internal Financial Control" 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 97.5 per cent of net
assets.
Key Performance Indicators ("KPIs")
The key measures by which the Board judges the success of the Company are the
share price, the Net Asset Value per Share and the ongoing charges measure.
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.
Total net assets at 31 July 2016 amounted to GBP75,546,000 compared with GBP
63,074,000 at 31 July 2015, an increase of 19.8 per cent (net of own share
buybacks as disclosed in note 18), whilst the fully diluted Net Asset Value per
Ordinary Share increased to 350.8p from 293.4p.
Net revenue return after taxation for the year was GBP2,889,000 (2015: GBP
1,300,000), an increase of 122.2 per cent.
The share price during the period under review has been quoted at discounts to
Net Asset Value of 13.6 to 25.1 per cent.
Ongoing charges set out in the Financial Summary 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
A commentary on the trends and factors likely to affect the future development,
performance and position of the Company, which includes an assessment of market
sentiment and the effectiveness of government intervention, is set out in the
Chairman's Statement and the Investment Manager's Review and is also released
monthly in a fund fact sheet published via the Company's website.
Management Arrangements
Details of the Company's management agreement with M & L Capital Management
Limited ("the Investment Manager") are contained in note 3 to the financial
statements.
Under the terms of the management agreement the Investment 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.
Details of the fee arrangements are disclosed in note 3 to the financial
statements. The Investment Manager is authorised and regulated by the FCA.
In the year to 31 July 2016 the total remuneration paid to the entire staff of
the Investment Manager was GBP189,000 (2015: GBP182,000), payable to an average
staff number throughout the year of 2 (2015: 2).
The investment management of MLIT is solely undertaken by Mr M. Sheppard and Mr
R. Morgan, to whom a combined total of GBP189,000 (2015: GBP182,000) was paid by
the Investment Manager during the year.
The Investment Manager was paid no performance fee or carried interest in the
Company.
The remuneration policy of the Investment Manager is to pay fixed annual
salaries, with non-guaranteed bonuses, dependent upon performance only. These
bonuses are generally paid in MLIT stock, released over a three-year period.
The fund requires that the fund manager does not give preferential treatment to
any single or class of shareholder. To this end, all Ordinary Shares carry
equal voting rights and are traded on a public market, the only exception being
that Shares held by the majority investment holding company and its related
parties are not included in the annual draw for Wimbledon tickets.
The Company has in place a continuing, written and legally binding relationship
agreement with its controlling shareholder, M&M Investment Company plc, and
their associates, ensuring compliance with independence provisions set out in
LR 6.1.4D.
Since entering the relationship agreement, the Company has fully complied with
the independence provisions included within this agreement and, so far as the
Company is aware, the independence provisions included in this agreement have
also been complied with during the period under review by the controlling
shareholder and their associates.
Alternative Investment Fund Managers Directive
AIFMD is applicable to all Alternative Investment Funds including ourselves. In
conjunction with our Investment Manager, the Board has chosen to comply with
the partial exemption, sub threshold regulations with the AIFM directive, by
ensuring our gross assets do not exceed the Euro 100m threshold. This is not a
long-term solution to this regulation and it is anticipated that the Board may
appoint a Manager and Depositary once a suitably priced solution becomes
available.
Environmental, Human Rights, Employee, Social and Community Issues
The Board consists entirely of non-executive Directors. Day-to-day management
of the business is delegated to the Manager. As an investment trust, the
Company has no direct impact on the community or the environment, and as such
has no environmental, 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
our Environmental, Social and Governance policy can be found in the Directors'
Report. In addition, details of the Company's Board composition and related
gender diversity considerations can be found in the Statement of Corporate
Governance included in the full Annual Report.
On behalf of the Board of Directors
Mr P.H.A. Stanley
Chairman
21 October 2016
DIRECTORS' REPORT
The Directors present their report and financial statements for the year ended
31 July 2016.
Results
The Company's total comprehensive profit for the year, after taxation, amounted
to GBP13,424,000 (2015: GBP2,483,000 total comprehensive profit).
After own share buybacks as disclosed in note 17, total net assets at 31 July
2016 amounted to GBP75,546,000 compared with GBP63,074,000 at 31 July 2015, whilst
the fully diluted Net Asset Value per Ordinary Share increased to 350.8p from
293.4p.
Dividends
A final ordinary dividend for the year ended 31 July 2015 of 1.70p (2014:
1.98p) and a final special dividend for the year ended 31 July 2015 of 0.25p
per share (2014: 1.27p) were paid on 3 December 2015. An interim ordinary
dividend of 0.40p, a first special dividend of 0.46p and a second special
dividend of 2.10p per Ordinary Share were paid on 29 April 2016 (2015: 1.50p
interim ordinary, 2.30p first special and 0.25p second special). Further to
these, a first final special dividend for the year ended 31 July 2016 of 7.50p
(2015: nil) was paid on 26 August 2016.
The Directors are recommending a final ordinary dividend of 1.85p per Ordinary
Share (2015: 1.70p final ordinary) and a final special dividend of 1.05p per
Ordinary Share (2015: 0.25p final special), giving a total for the year of
13.36p per Ordinary Share (2015: 6.00p).
It is our current intention that the final ordinary dividend will be paid on 2
December 2016 to shareholders registered on 18 November 2016. The Shares will
be declared ex-dividend on 17 November 2016.
Share Valuations
On 31 July 2016, the middle market quotation and the Net Asset Value per
Ordinary 25p Share were 277.4p and 350.8p, respectively. This indicates that
the discount on the Company's Shares was 20.9 per cent. This is not uncommon as
the share prices of closed-end funds are often traded at a discount to their
Net Asset Values.
Events after the Reporting Period
There have been no significant events since the end of the reporting period
other than the volatility currently experienced in the stock market.
Going Concern
After making enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the financial statements.
Viability Statement
The Directors have assessed the prospects of the Company over the three year
period to the Annual General Meeting in 2019. 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 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:
* the internal processes for monitoring costs;
* expected levels of investment income;
* the performance of the Investment 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 2019.
DIRECTORS' RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the Company financial statements in accordance with
applicable law and regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law the Directors have
prepared the Company financial statements in accordance with International
Financial Reporting Standards (IFRS) adopted by the European Union and Article
4 of the EU IAS Regulation. 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 the affairs of the Company and of the profit or loss
of the Company for that period. In preparing those financial statements, the
Directors are required to:
* properly select suitable accounting policies in accordance with IAS 8 -
Accounting Policies, Changes in Accounting Estimates and Errors, and apply
them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and accounting estimates that are reasonable;
* provide additional disclosure when compliance with the specific
requirements of IFRS are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Company financial position and financial performance;
* state that the Company financial statements have been prepared in
accordance with IFRS, subject to any material departures disclosed and
explained in the financial statements;
* present fairly the Company financial position, financial performance and
cashflows; and
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that 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.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors' Report and a Statement of Corporate
Governance (included in the full Annual Report) that comply with that law and
those regulations.
To the best of the knowledge of each of the Directors, whose names are set out
above:
(a) the financial statements, prepared in accordance with the IFRS
adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
(b) the Annual Report includes a fair review of the development and
performance of the fund and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The Board confirms that the annual report and accounts, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the performance, strategy and business model of the
Company. This statement is underpinned by the comprehensive review process of
the annual report by the Audit Committee and Directors. Each of the Directors
accepts responsibility accordingly.
On behalf of the Board of Directors
Mr P.H.A. Stanley
Chairman
21 October 2016
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 July 2016 or 31 July 2015 but is
derived from those accounts. Statutory accounts for the year ended 31 July 2015
have been delivered to the Registrar of Companies and statutory accounts for
the year ended 31 July 2016 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
Report and Accounts at www.manchesterandlondon.co.uk.
Statement of Comprehensive Income
For the year ended 31 July 2016
2016 2016 2016 2015 2015 2015
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains
Gains/(losses) on - 10,712 10,712 - 1,402 1,402
investments at fair value
through profit or loss
Trading income 2 2,808 - 2,808 971 - 971
Investment income 2 897 - 897 1,185 - 1,185
Gross return 3,705 10,712 14,417 2,156 1,402 3,558
Expenses
Investment management fee 3 (334) - (334) (311) - (311)
Cost of investment (223) - (223) (303) - (303)
transactions
Other operating expenses 4 (224) - (224) (180) - (180)
Total expenses (781) - (781) (794) - (794)
Return before finance costs 2,924 10,712 13,636 1,362 1,402 2,764
and tax
Finance costs 6 (35) (177) (212) (62) (219) (281)
Return on ordinary 2,889 10,535 13,424 1,300 1,183 2,483
activities before tax
Tax expense 7 - - - - - -
Return on ordinary 2,889 10,535 13,424 1,300 1,183 2,483
activities after tax
Earnings per Ordinary Share
(pence)
Basic 9 13.45 49.05 62.50 6.00 5.47 11.47
Fully diluted 9 13.45 49.05 62.50 6.00 5.47 11.47
The total column of this statement represents the Statement of Comprehensive
Income of the Company prepared in accordance with IFRS. The supplementary
revenue return and capital return columns are both prepared under guidance
published by the Association of Investment Companies.
The Company does not have any Other Comprehensive Income and hence the return
on ordinary activities after tax, as disclosed above, is the same as the
Company's Total Comprehensive (Loss)/Income.
All items in the above statement derive from continuing operations.
Statements of Changes in Equity
For the year ended 31 July 2016
Capital Capital
Share Share Treasury Other reserve reserve Retained
capital premium Shares reserves (unrealised) (realised) earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 August 5,614 35,295 (1,306) (79) 15,239 (17,463) 27,061 64,361
2014
Changes in equity for
2015
Total comprehensive - - - - - - 2,483 2,483
loss
Buybacks of Ordinary - - (1,089) - - - - (1,089)
Shares
Transfer of capital - - - - (10,088) 11,271 (1,183) -
Equity dividends paid - - - - - - (2,681) (2,681)
Balance at 31 July 5,614 35,295 (2,395) (79) 5,151 (6,192) 25,680 63,074
2015
Changes in equity for
2016
Total comprehensive - - - - - - 13,424 13,424
income
Buybacks of Ordinary - - (134) - - - - (134)
Shares
Sale of Ordinary - 22 214 - - - - 236
Shares from Treasury
Transfer of capital - - - - 4,881 5,654 (10,535) -
Equity dividends paid - - - - - - (1,054) (1,054)
Balance at 31 July 5,614 35,317 (2,315) (79) 10,032 (538) 27,515 75,546
2016
Statement of Financial Position
At 31 July 2016
2016 2015
Note GBP'000 GBP'000
Non-current assets
Investments at fair value through 10 38,999 28,040
profit or loss
38,999 28,040
Current assets
Unrealised derivative assets 15 3,269 2,387
Trade and other receivables 11 22 24
Cash and cash equivalents 12 35,252 34,233
38,543 36,644
Gross assets 77,542 64,684
Current liabilities
Unrealised derivative liabilities 15 (1,746) (1,410)
Trade and other payables 14 (250) (200)
(1,996) (1,610)
Net assets 75,546 63,074
Equity attributable to equity
holders
Ordinary Share Capital 16 5,614 5,614
Shares held in Treasury 17 (2,315) (2,395)
Share premium 35,317 35,295
Other reserves
Capital reserve - realised (538) (6,192)
Capital reserve - unrealised 10,032 5,151
Goodwill reserve (79) (79)
Retained earnings 27,515 25,680
Total equity 75,546 63,074
The financial statements were approved by the Board of Directors and authorised
for issue on 21 October 2016 and are signed on their behalf by:
Mr D. Harris Mr P.H.A. Stanley (Chairman)
Directors
Manchester and London Investment Trust Public Limited Company
Company Number: 01009550
Statement of Cash Flows
For the year ended 31 July 2016
2016 2015
GBP'000 GBP'000
Cash flow from operating activities
Return on operating activities before taxation 13,424 2,483
Interest paid 383 54
(Gain)/Loss on investments (7,941) 1,215
Decrease in receivables 2 76
Increase/(decrease) in payables 50 66
Increase in derivatives (546) (1,871)
Net cash generated from/(used in) operating 5,372 2,023
activities
Cash flow from investing activities
Purchases of investments (39,450) (47,247)
Sales of investments 36,432 63,656
Net cash generated from investing activities (3,018) 16,409
Cash flow from financing activities
Equity dividends paid (1,054) (2,681)
Buybacks of Ordinary Shares (134) (1,089)
Resale of Ordinary Shares 236 -
Interest paid (383) (54)
Net cash used in financing activities (1,335) (3,824)
Net increase/(decrease) in cash and cash equivalents 1,019 14,608
Cash and cash equivalents at beginning of year 34,233 19,625
Cash and cash equivalents at end of year 35,252 34,233
The notes form part of these financial statements.
Notes Forming Part of the Financial Statements
For the year ended 31 July 2016
1. Accounting policies
A summary of the principal accounting policies is set out below.
Manchester and London Investment Trust plc ("MLIT") is a public limited
company, which is listed on the London Stock Exchange and is incorporated and
domiciled in the United Kingdom.
a) Basis of preparation and statement of compliance
In accordance with European Union regulations, these financial statements have
been prepared in accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board ("IASB"), as
adopted for use in the EU effective at 31 July 2016.
As permitted by section 406(2) of the Companies Act 2006 consolidated accounts
have not been prepared as the inclusion of the Company's dormant subsidiaries
is not material for the purpose of giving a true and fair view.
The financial statements have been prepared on the historical cost basis except
where IFRS require an alternative treatment.
To the extent that presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts revised by the Association
of Investment Companies ("AIC") is inconsistent with the requirements of IFRS,
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP, whilst fully complying with
IFRS.
The Company's principal accounting policies are set out below. These accounting
policies have been applied consistently to all periods presented in these
financial statements.
b) Presentation of Statement of Comprehensive Income
In order to reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the statement of comprehensive income between items of a revenue and
capital nature has been presented alongside the statement of comprehensive
income. The updated Investment Trusts (Approved Company) (Tax) Regulations 2011
has removed the previous Section 833 restriction of the Companies Act 2006 that
prohibited the distribution of dividends from net capital returns. However, the
net revenue is also the measure the Directors believe appropriate in assessing
the Company's compliance with certain requirements set out in Section 1159
Corporation Tax Act 2010.
c) Valuation of investments
Investments held at fair value through profit or loss are initially recognised
at fair value, being the consideration given, excluding transaction or other
dealing costs associated with the investment.
After initial recognition, investments, which are classified as at fair value
through profit or loss, are measured at fair value. Gains or losses on
investments designated as at fair value through profit or loss are recognised
as a capital item. For investments that are actively traded in organised
financial markets, fair value for longs/shorts are determined by reference to
Stock Exchange quoted market bid/offer prices respectively, as at the close of
business at the end of the reporting period.
Unlisted investments are valued at the Directors' estimate of fair value by
reference to the following valuation guidelines - asset values, earnings,
dividends, last trade values and any other relevant factors.
All purchases and sales of investments are recognised on the trade date, i.e.
the date that the Company commits to purchase or sell an asset.
Investments in subsidiaries are valued at cost in accordance with IAS 27 and
reviewed annually for impairment.
d) 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.
Income from trading activity includes gains and losses on the trading of
shares, equity swaps and futures, net of commissions, interest and other costs
expensed.
A position is deemed to be trading activity rather than investment 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
trading activities regardless of their duration. Positions opened but not yet
closed are deemed to be investments in nature until closed at which point their
duration determines if they are classified as trading rather than investment.
Listed options and futures contracts are recognised at fair value through
profit or loss and fall within the classification of held for trading under FRS
26. The fair value is the applicable closing price of the underlying option or
contract.
Dividend income from investments is recognised when the shareholders' right to
receive payment has been established, normally the ex-dividend date. Special
dividends representing a return of capital are credited to capital reserves.
Fixed returns on non-equity shares are recognised on a time apportionment basis
so as to reflect the effective yield on the shares.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash, the amount of cash dividend foregone is
recognised as income.
e) Derivatives
Derivatives include equity swaps, futures and options. The Company recognises
financial assets and financial liabilities when it becomes a party to the
contractual provisions of the instrument.
Derivatives are held at fair value based upon traded prices and/or third party
information provided and are recognised in the Statement of Comprehensive
Income. They are recognised as capital and are shown in the capital column of
the Statement of Comprehensive Income if they are of a capital nature, and are
recognised as revenue and shown in the revenue column of the Statement of
Comprehensive Income if they are of a revenue nature.
Equity swap positions are only accounted for as realised when closed. They are
not accounted for as realised when a counterparty collateral reset occurs.
f) Expenses
All expenses are accounted for on the accruals basis and with the exception of
capital interest are charged to revenue.
g) Finance costs
Finance costs are accrued at the effective interest rate.
h) Taxation
The tax charge represents the sum of the tax currently payable and any deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from return on operating activities before tax as reported in
the statement of comprehensive income because it excludes items of income or
expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Company's liability for current
tax is calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Deferred tax balances are not discounted.
Investment Trusts which have approval under Section 1158 Corporation Tax Act
2010 are not liable for taxation on capital or revenue gains.
The carrying amount of deferred tax assets is reviewed at each reporting period
and reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited through profit and loss, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
i) Dividends payable to shareholders
No equity dividend is accrued unless the shareholders' right to receive payment
is established in the period. Dividends proposed after the end of the reporting
period are disclosed in note 8.
j) Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank,
short-term deposits with an original maturity of three months or less, cash
held in highly liquid investment accounts or cash held as collateral on open
equity swap and derivative positions.
k) Reserves
Reserves comprise:
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
Excess consideration of price paid for Shares issued over nominal value.
Capital Reserve - realised
Gains and losses on the realisation of investments; and expenses and finance
costs, together with the related taxation effect, are charged to this reserve
in accordance with the above policies.
Capital Reserve - unrealised
Increases and decreases in the valuation of investments held at the year end.
Goodwill Reserve
Goodwill arising on consolidation prior to 1 August 1998 has been written off
against reserves on acquisition as a matter of accounting policy.
Retained Earnings
Net income not yet distributed to shareholders.
l) Foreign currencies
In preparing the financial statements, transactions in currencies other than
pounds sterling are recorded at the actual rate of exchange prevailing on the
dates of the transactions. At each reporting period, monetary assets and
liabilities that are denominated in foreign currencies are translated at the
rates prevailing at the end of the reporting period.
Foreign exchange gains and losses arising from the settlement of foreign
currency transactions and from the translation of monetary assets and
liabilities in foreign currencies are recognised through profit or loss or
capital dependent upon their duration.
m) New standards and significant amendments not applied
The IASB and IFRIC have issued the following standards and interpretations with
a date of adoption for annual periods beginning on or after the effective date
shown:
Accounting Standards Effective
date
IFRS 2 Share-based Payment 1 January
2018
IFRS 5 Non-current assets held for sale and discontinued 1 January
operations 2016
IFRS 7 Financial Instruments: Disclosures 1 January
2016
IFRS 9 Financial Instruments 1 January
2018
IFRS 10 Consolidated Financial Statements 1 January
2016
IFRS 11 Joint arrangements 1 January
2016
IFRS 12 Disclosure of interests in other entities 1 January
2016
IFRS 14 Regulatory Deferral Accounts 1 January
2016
IFRS 15 Revenue from contracts with customers 1 January
2018
IFRS 16 Leases 1 January
2019
IAS 1 Presentation of Financial Statements 1 January
2016
IAS 7 Statement of Cash Flows 1 January
2017
IAS 12 Income Taxes 1 January
2017
IAS 16 Property, plant and equipment 1 January
2016
IAS 19 Employee benefits 1 January
2016
IAS 27 Separate Financial Statements 1 January
2016
IAS 28 Investments in Associates and Joint Ventures 1 January
2016
IAS 34 Interim Financial Reporting 1 January
2016
IAS 38 Intangible assets 1 January
2016
IAS 41 Agriculture 1 January
2016
The Directors have chosen not to early adopt the above standards and
interpretations and they do not anticipate that they would have a material
impact on the Company's financial statements in the period of initial
application.
2. Income
2016 2015
GBP'000 GBP'000
Total income comprises
Trading income 2,808 971
Dividends from listed 839 1,140
investments
Interest 58 45
3,705 2,156
Finance, commission and other costs (including stamp duty) deducted in the
calculation of trading income are not disclosed separately.
3. Investment management fee
2016 2016 2016 2015 2015 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 334 - 334 311 - 311
The Investment Manager provides investment services to the Company under a
management agreement with a termination period of three months. The annual fee
is 0.5 per cent of the total portfolio value including cash and short term
deposits, payable quarterly in arrears. The fee is not subject to Value Added
Tax ("VAT"). Transactions with the Investment Manager during the year are
disclosed in note 20.
The investment management fee is chargeable to revenue.
4. Other operating expenses
2016 2015
GBP'000 GBP'000
Directors' fees 48 48
Auditors' remuneration 25 23
Registrar fees 10 10
Other expenses 141 99
224 180
Fees payable to the Company's auditor for the audit of
the Company financial statements 25 23
Fees payable to the Company's auditor for other services:
* services relating to taxation 7 7
* other services 3 3
35 33
Other operating expenses include irrecoverable VAT where appropriate.
5. Staff numbers and costs
Excluding Directors, the Company employs no members of staff.
Included in Directors' fees above (note 4) are the emoluments paid to the
Chairman as follows:
2016 2015
GBP'000 GBP'000
P.H.A. Stanley (Chairman) 18 18
6. Finance costs
2016 2015
GBP'000 GBP'000
Charged to revenue 35 62
Charged to capital 177 219
212 281
The finance costs attributable to closed positions defined as trading income
are deducted in the calculation of trading income along with commission costs.
The split between the commission charged for trading and capital items is not
disclosed separately.
7. Taxation
2016 2016 2016 2015 2015 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Current UK corporation tax - - - - - -
The charge for the year can be reconciled to the profit per the income
statement as follows:
Profit/(loss) before tax 2,889 10,535 13,424 1,300 1,183 2,483
Tax at the UK corporation tax 578 2,107 2,685 269 245 514
rate of 20.00% (2015: 20.67%)
Tax effect of non-taxable (168) - (168) (228) - (228)
dividends/unrealised profits
Income not subject to UK (307) - (307) (17) - (17)
corporation tax
Brought forward losses utilised (115) - (115) (28) - (28)
during the period
Profits on investment - (2,142) (2,142) - (290) (290)
appreciation not taxable
Other non-taxable income less 7 35 42 - 45 45
expenses not deductible for tax
Unrelieved tax losses and other 5 - 5 4 - 4
deductions arising in the
period
Excess management expenses - - - - - -
Current year tax charge - - - - - -
The Company has surplus management expenses at 31 July 2016 of GBP1,888,000
(2015: GBP2,372,000).
At 31 July 2016, there is an unrecognised deferred tax asset, measured at the
standard rate of 18 per cent, of GBP340,000 (2015: GBP490,000). 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 2016, the Company has unrelieved capital losses of GBP9,330,000
(2015: GBP9,330,000). There is, therefore, a related unrecognised deferred tax
asset, measured at the standard rate of 18 per cent, of GBP1,679,000 (2015: GBP
1,928,000). 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.
8. Dividends
2016 2015
Amounts recognised as distributions to equity GBP'000 GBP'000
holders in the period:
Final ordinary dividend for the year ended 31 July 365 431
2015 of 1.70p (2014: 1.98p) per share
Interim special dividend for the year ended 31 July - 1,098
2015 of nil (2014: 5.00p) per share
Final special dividend for the year ended 31 July 54 276
2015 of 0.25p (2014: 1.27p) per share
Interim ordinary dividend for the year ended 31 July 86 322
2016 of 0.40p (2015: 1.50p) per share
First special dividend for the year ended 31 July 99 500
2016 of 0.46p (2015: 2.30p) per share
Second special dividend for the year ended 31 July 450 54
2016 of 2.10p (2015: 0.25p) per share
1,054 2,681
A first final special dividend was of 7.50p for the financial year 2016 was
paid on 26 August 2016. The Directors are proposing a final ordinary dividend
of 1.85p and a final special dividend of 1.05p for the financial year 2016.
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.
2016 2015
GBP'000 GBP'000
Interim ordinary dividend for the year ended 31 July 2016 of 86 322
0.40p (2015: 1.50p) per share
Proposed final ordinary dividend for the year ended 31 July 398 365
2016 of 1.85p (2015: 1.70p) per share*
First special dividend for the year ended 31 July 2016 of 99 500
0.46p (2015: 2.30p) per share
Second special dividend for the year ended 31 July 2016 of 450 54
2.10p (2015: 0.25p) per share
First final special dividend for the year ended 31 July 2016 1,615 -
of 7.50p (2015: nil) per share
Proposed final special dividend for the year ended 31 July 226 54
2016 of 1.05p (2015: 0.25p) per share*
2,874 1,295
*Based on the total Shares eligible to receive dividend as at 21 October 2016.
9. Return per Ordinary Share
The calculation of the basic and fully diluted earnings per Ordinary Share is
based on the following:
2016 2016 2016 2015 2015 2015
Revenue Capital GBP Total Revenue Capital Total
GBP'000 '000 GBP'000 GBP'000 GBP'000 GBP'000
Return:
Basic and fully diluted 2,889 10,535 13,424 1,300 1,183 2,483
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 17) of 21,477,042 (2015: 21,645,499).
10. Investments at fair value through profit or loss
Company
2016 2015
GBP'000 GBP'000
Investments as below 38,999 28,040
Listed Unlisted Total
GBP'000 GBP'000 GBP'000
Opening cost at 1 August 24,862 120 24,982
Opening unrealised appreciation at 1 2,977 81 3,058
August
Opening fair value at 1 August 27,839 201 28,040
Purchases at cost 39,414 36 39,450
Sales proceeds (36,428) (4) (36,432)
Realised profit on sales 3,932 (52) 3,880
Increase in unrealised appreciation 3,996 65 4,061
Closing fair value at 31 July 38,753 246 38,999
Closing cost at 31 July 31,780 100 31,880
Closing unrealised appreciation at 31 6,973 146 7,119
July
Closing fair value at 31 July 38,753 246 38,999
11. Trade and other receivables
Company
2016 2015
GBP'000 GBP'000
Dividend receivables 7 -
Other receivables 4 16
Prepayments 11 8
22 24
12. Cash and cash equivalents
Company
2016 2015
GBP'000 GBP'000
Cash & cash equivalents 35,252 34,233
Cash & cash equivalents include GBP35.1m (2015: GBP33.3m) held in investment
accounts as collateral against open equity swap and derivative exposures which
are detailed in note 19.
13. Securities
As part of custodian relationships, assets held with both Morgan Stanley & Co.
International plc and JP Morgan Chase & Co. are subject to a first fixed charge
with full title guarantee as continuing security.
GBP29.4m of collateral was held with Morgan Stanley & Co. International plc as at
31 July 2016 (2015: GBP25.3m).
GBP47.3m of collateral was held with JP Morgan Chase & Co. as at 31 July 2016
(2015: GBP36.0m).
14. Trade and other payables
Company
2016 2015
GBP'000 GBP'000
Trade payables 198 156
Accruals 52 44
250 200
15. 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 sources of the return under the derivative contract (e.g. notional
dividends, financing costs, interest returns and capital changes) are allocated
to the revenue and capital accounts in accordance with the nature of the
underlying source of income and in accordance with the guidance given in the
AIC SORP. 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 in value relating to underlying price
movements of securities in relation to derivatives are allocated to revenue or
capital, dependent upon their nature.
The net fair value of derivatives at 31 July 2016 was a positive GBP1,523,000
(2015: positive GBP977,000). The corresponding gross exposure on equity swaps as
at 31 July 2016 was GBP34,660,000 (2015: GBP28,761,000). The net marked to market
futures and options total value as at 31 July 2016 was negative GBP647,000 (2015:
negative GBP406,000).
Company
2016 2015
GBP'000 GBP'000
Assets
Unrealised derivative assets 3,269 2,387
3,269 2,387
Current liabilities
Unrealised derivative liabilities 1,746 1,410
1,746 1,410
16. Share capital
Ordinary share capital 2016 2015
No. GBP'000 No. GBP'000
('000) ('000)
Authorised
Ordinary Shares of 25p each 28,000 7,000 28,000 7,000
Non-voting Convertible Preference 1,000 1,000 1,000 1,000
Shares of GBP1 each
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
Ordinary shares carry the right to one vote and the right to dividends.
17. Shares held in Treasury
No. 2016 No. GBP2015
('000) GBP'000 ('000) '000
Balance as at 1 August 956 2,395 506 1,306
Shares bought back during year 52 134 450 1,089
Shares sold back during year (85) (214) - -
Balance as at 31 July 923 2,315 956 2,395
At the annual general meeting held on 30 November 2015, shareholders approved
the Board's proposal to authorise the Company to acquire up to 14.99 per cent
of its issued share capital as at 31 July 2015.
During the year the Company bought back 51,500 (0.2%) of its Ordinary Shares.
Total purchase consideration paid in the year amounted to GBP134,000. The Company
also sold 85,000 (0.4%) of its Ordinary Shares from Treasury for a total
consideration of GBP236,000, generating a surplus of GBP22,000 which is recognised
in the Share Premium account.
18. Net Asset Value per Share
Net Asset Value per Net Assets
share Attributable
2016 2015 2016 2015
p p GBP'000 GBP'000
Ordinary Shares: basic and fully 350.8 293.4 75,546 63,074
diluted
The basic Net Asset Value per Ordinary Share is based on net assets at the year
end and 21,534,420 (2015: 21,500,920) Ordinary Shares in issue, adjusted for
any Shares held in Treasury.
19. Risks - Investments, derivatives and other risks
In order to manage its portfolio efficiently and to enable the Investment
Manager to pursue the investment objectives as set out in the Equity Exposures
and Principal Portfolio Holdings section of the Strategic Report, the Company
holds equity swaps, derivatives and other financial instruments. All equity
swaps, derivative transactions and financial instruments are accounted for at
fair value and comprise securities, cash balances, trade receivables and trade
payables arising directly from financial operations.
The main risk arising from the Company's investment strategy is market price
risk. There is also exposure to liquidity risk, interest rate risk and currency
rate risk.
The Board regularly reviews and agrees policies for managing these risks, which
are monitored by the Administrator, as summarised below.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments held. It represents the potential loss the Company might
suffer through holding market positions in the face of price movements. Both
the Investment Manager and the Administrator actively monitor market prices
throughout the year and report to the Board, which meets regularly to review
investment strategy.
Details of the long equity exposures held at 31 July 2016 are shown in the
Equity Exposures and Principal Portfolio Holdings section of the Strategic
Report.
If the price of these investments and equity swaps had increased by 3 per cent
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 GBP2,210,000.
A 3 per cent decrease in share prices would have resulted in an equal and
opposite effect of GBP2,210,000, on the basis that all other variables remain
constant.
At the year end the Company's direct equity exposure to market price risk was
as follows:
Company
2016 2015
GBP'000 GBP'000
Equity long exposures
Investments held in equity form 38,999 28,040
Long exposure held in equity swaps 34,660 28,761
73,659 56,801
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 Investment 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 un-invested funds are held almost entirely with the Custodians or
on interest bearing deposits with UK banking institutions.
As at 31 July 2016 the financial liabilities comprised:
Company
2016 2015
GBP'000 GBP'000
Unrealised derivative liabilities 1,746 1,410
Trade payables and accruals 250 200
1,996 1,610
All of the above liabilities are due within one month and are stated at 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.
The only material foreign currency exposures are Syngenta AG with a market
value of GBP2,484,000, denominated in Swiss Francs; Heineken N.V., Beiersdorf AG,
Pernod Ricard SA and Davide Campari-Milano S.p.A., with a market value of GBP
10,316,000, denominated in Euros; and Amazon.com, Inc., Alphabet Inc., Facebook
Inc., Apple Inc., Paypal Holdings Inc., Microsoft Corporation, Yahoo! Inc., and
Salesforce.com Inc., denominated in US Dollars with a market value of GBP
24,100,000.
In addition, the Company held cash exposure to US Dollars of GBP12,939,000 at the
year end.
The Company constantly monitors currency rate risk to ensure balances wherever
possible are translated at rates favourable to the Company.
20. Related party transactions
The Investment Manager of the Company since 17 September 2015 is M & L Capital
Management Limited (the former Investment Manager was Midas Investment
Management Limited). Both companies are controlled by Mr M. Sheppard.
The Investment Manager receives a quarterly investment management fee for these
services which in the year under review amounted to a total of GBP334,000 (2015:
GBP311,000) excluding VAT. The balance owing to the Investment Manager as at 31
July 2016 was GBP175,000 (2015: GBP127,000).
Also payable in the year to Midas Investment Management Limited was a corporate
fee for acting as financial adviser amounting to GBP5,000 (2015: GBP30,000)
excluding VAT and commission fees of GBP5,000 (2015: GBP16,000) excluding VAT to
the Company. The balance owing to Midas Investment Management Limited at 31
July 2016 was GBP1,000 (2015: GBPnil).
During the year the Company paid service, administration and secretarial
charges totalling GBP19,000 (2015: GBP18,000) to its majority shareholder, M&M
Investment Company plc. The balance owing to M&M Investment Company plc as at
31 July 2016 was GBP7,000 (2015: GBP28,000).
21. Capital management
There are no externally imposed capital requirements. The capital managed is
noted in the Statements of Changes in Equity set out in the Corporate Summary
above and managed in accordance with the Investment Policies and Objectives
also set out in the Corporate Summary.
22. 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
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 The Company Secretary, 2nd Floor, Arthur House, Chorlton
Street, Manchester M1 3FH.
23. Post balance sheet events
There have been no significant events since the end of the reporting period
other than the volatility currently experienced in the stock market.
The financial statements were authorised for issue by the Directors on 21
October 2016. The Directors have the power to amend and reissue the financial
statements.
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Manchester and London
Investment Trust plc will be held at St James's Club, 45 Spring Gardens,
Manchester, M2 2BG on Monday 28 November 2016 at 12.30 pm. Full details of the
AGM can be found in the letter to shareholders available on the Company's
website at www.manchesterandlondon.co.uk.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will available for inspection at the
NSM, which is situated at www.morningstar.co.uk/uk/nsm .
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.
END
(END) Dow Jones Newswires
October 21, 2016 02:00 ET (06:00 GMT)
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