TIDMMNL
MANCHESTER AND LONDON INVESTMENT TRUST PLC
(the "Company")
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 JULY 2022
The full Annual Report and Financial Statements for the year ended 31 July 2022
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 Year to Percentage
31 July 31 July increase/
2022 (decrease)
2021
(61,162) 22,222 (375.2%)
Total return (£'000)
(151.62p) 57.10p (365.5%)
Return per Share
(4.13p) (4.77p) 13.4%
Total revenue return per Share?
21.00p 14.00p 50.00%
Dividend per Share
Capital As at As at Percentage
31 31 increase
July July
2022 2021
198,546
Net assets attributable to equity 269,686 (26.4%)
Shareholders(i) (£'000)
493.04p 665.43p
Net asset value ("NAV") per Share (25.9%)
(23.0%) 8.7%
NAV total return(ii)? .
7.3% 26.1%
Benchmark performance - total return basis .
(iii)
389.00p 574.00p
Share price (32.2%)
(21.1%) (13.7%)
Share price (discount)/premium to NAV? .
(i) NAV as at 31 July 2022 includes a net £1,509,000 decrease in respect of
share buybacks (2021: £26,946,000 increase in respect of share issues).
(ii) Total return including dividends reinvested, as sourced from Bloomberg.
(iii) The Company's benchmark is the MSCI UK Investable Market Index ("MXGBIM"
or the "benchmark"), as sourced from Bloomberg.
Ongoing Charges Year to Year to
31 July 31 July
2022 2021
Ongoing charges as a percentage of
average net assets*? 0.67% 0.78%
* Based on total expenses, excluding finance costs and certain non-recurring
items for the year and average monthly NAV.
? Alternative performance measure. Details provided in the Glossary below.
CHAIRMAN'S STATEMENT
Results for the year ended 31 July 2022
The portfolio remains focused on larger capitalisation, intellectual property
rich companies listed in developed markets which are investing for growth.
Manchester and London Investment Trust plc's (the "Company") portfolio
performance for the financial year under review has led to a NAV total return
per Share of -23.0%* (2021: 8.7%*).
The North American Software sector, whose constituents represent a significant
proportion of the Company's portfolio, had a -16.0% total return in GBP over
the period (S&P North American Expanded Technology Software Index). The Company
entered the period with 22.7% of its portfolio listed on the Hong Kong market.
Up to 15 March 2022, the date at which the Company sold its remaining Chinese
exposure, the Hang Seng Tech Index had a total return of -45.8% in GBP hence
the contribution from Chinese Technology positions was -12.3% in GBP (including
costs). The contribution in GBP over the financial year from non-Chinese
Technology positions was -10.7% in GBP (including costs) which is materially
better than the North American Software sector hence our acute disappointment
with our Chinese Technology positions. The Manager's Report sets out in more
detail specific contributions to the overall period performance.
The Company's benchmark had a positive total return of 7.3% over the period,
meaning that the Company has now underperformed the benchmark for the three
years to 31 July 2022 on a total return basis by 14.5%* (2021: 32.2%
outperformance*). It should be noted that in accordance with the variable
management fee arrangements, the Manager has received a lower management fee
percentage of 0.25% since the beginning of April due to this underperformance.
At the year end, the Shares traded at a 21.1% discount to their NAV per Share,
compared to a discount of 13.7% in 2021. A number of the larger technology
focused investments trusts listed in the UK also experienced widening discounts
over this period.
Outlook
Key variables for our next financial year's performance are likely to be
movements in the US sovereign yield curve and inflation & economic
expectations, the movements in energy prices, the functioning of supply chains,
how the Federal Reserve and other Central Banks respond to the aforementioned,
whether there is any further material events in the break down of relations
between the Chinese and US governments, and the regulation of Technology
companies globally.
Dividend
The Directors are proposing a final ordinary dividend of 7.0 pence per Share
for the financial year 2022 (31 July 2021: 7.0 pence per Ordinary Share).
Earlier in the year the Company paid a special dividend of 7.0 pence per
Ordinary Share in celebration of the 50th anniversary of the initial admission
of the Company to the London Stock Exchange which was in addition to an
ordinary interim dividend of 7.0 pence paid in May 2022 (31 January 2021: 7.0
pence per Ordinary Share). Accordingly, on a per Share basis, the dividends
proposed or paid out in respect of the 2022 financial year total 21.0 pence
(financial year 2021: 14.0 pence per Ordinary Share). Excluding the special
dividend, these dividends represent a yield of 3.6% on the Share price as at
the year-end (2021: 2.4%).
Share Buybacks
During the period the Company bought back 258,183 shares into Treasury (2021:
nil).
Board Succession
It was noted that more than 20% of votes were cast against the resolution to
re-elect David Harris as a Director the Company at the last AGM. The UK
Corporate Governance Code requires companies to provide an update within six
months of an AGM where more than 20% of votes were cast against a resolution.
To better understand shareholders' concerns with a view to identifying how such
concerns can be addressed, the Board of the Company reached out to shareholders
to gain an understanding of their concerns. No conclusive response was received
from shareholders of the Company.
David Harris retired from the Board during the period after over 12 years of
service. We are highly appreciative of David's contribution to the company's
growth from a Net Asset Value of approximately £42.1m when he joined the Board
to £285m when he resigned from the Board. Daren Morris joined the Board
following his appointment as Audit Committee Chairman on 10 December 2021.
Daren is a seasoned financial and PLC practitioner and brings a wealth of
knowledge and experience to our Board.
Annual General Meeting
Our fiftieth Annual General Meeting ("AGM") will be held virtually on 21
November 2022 at 12.00 noon. Please do read further details on this year's AGM,
which are contained within the AGM notice.
Daniel Wright
Chairman
20 October 2022
*Source: Bloomberg. See Glossary below.
MANAGER'S REVIEW
The portfolio's NAV total return per Share of -23.0%* represented a 30.3%*
underperformance against the benchmark.
Software, which represents a large percentage of the portfolio, had a tough
year with the North American software sector down 16% in GBP (S&P North
American Expanded Technology Software Index). This negative performance was
predominantly driven by rising yields which led to declines in the valuation of
high duration equities. Whilst we believe that the long-term secular growth
drivers in Technology are still intact, further rate rises from the Federal
Reserve, as it combats persistently high inflation, are likely to remain a
headwind to valuations whilst both the broader macro environment and the
geopolitical tensions between the US and China could also cause further
volatility.
As noted in the Chairman's Statement, we also entered the period with 22.7% of
the Portfolio directly exposed to China. The Chinese Technology sector declined
significantly during the first three quarters of our financial year due to a
broad regulatory clampdown from the Chinese Communist Party which was
compounded by concerns over China's alignment with Russia regarding the war in
Ukraine. The portfolio's Chinese exposure accounted for over half of the
portfolio's GBP negative return for the financial year. In March, we attended
the Morgan Stanley Technology Conference in the USA and it was apparent that
the US digital transformation story still had a long way to run. We believed an
opportunity was being presented to us to "switch horses" from a regulation
beaten and slowing economy driven Chinese Technology sector to a more upbeat US
Technology sector which had also seen material devaluations. We sold all
remaining direct Chinese exposure holdings in March as, regardless of the
potential returns that might be derived from China in the future, we believed
the risk of these positions had crossed a point that put these holdings outside
our preferred risk management boundaries. It is pertinent to note that we held
Tencent Holdings Ltd and Alibaba Group Holding Ltd because we believed that the
growth of Cloud Computing in China would be dramatic and these stocks were the
largest private providers of Cloud Technologies. Since our disposal of these
holdings, it has been reported in the financial press that further government
regulation has seen a shift in the market share from these private operators in
favour of state controlled operators hence our investment thesis for these two
stocks has materially deteriorated.
As we have noted on numerous occasions in Factsheets, during the final quarter
of our financial period we incrementally shifted the portfolio's exposure from
"Soft Technology" stocks to "Hard Technology", as evidenced by the smaller
sector weightings to Communication Services and Consumer Discretionary from the
prior year. This shift has generally been vindicated in recent earnings where
"Hard Technology" positions have broadly shown greater resilience to a
deteriorating macro-economic outlook compared to consumer exposed Technology
stocks.
The 12.5%* decrease in the value of Sterling against the US Dollar over the
year was a tailwind for performance due to the significant level of US Dollar
exposure in the portfolio. Overall, we estimate that the gain in portfolio
performance from Foreign Exchange movements was roughly 10.3%.
The Total Return of the portfolio broken down by sector holdings in local
currency (separating costs and foreign exchange) is shown below:
Total return of underlying sector holdings in local
currency 2022
(excluding costs and foreign exchange)
Information Technology (6.4%)
Communication Services (12.8%)
Consumer Discretionary (9.1%)
Other investments (including funds, ETFs and beta (3.3%)
hedges)
Foreign Exchange, operating costs & financing 8.7%
Total NAV per Share return (23.0%)
Total return of underlying sector holdings in local
currency 2021
(excluding costs and foreign exchange)
Information Technology 12.3%
Communication Services
7.9%
Consumer Discretionary (1.8%)
Other investments (including funds, ETFs and beta
hedges) (1.4%)
Foreign Exchange, operating costs & financing
(8.4%)
Total NAV per Share return 8.7%
Source: Bloomberg.
Information Technology
The Information Technology sector delivered 27.8% of the negative NAV total
return per Share for the financial period.
Material positive performers (>1% contribution to return) included Synopsys Inc
and Cadence Designs Systems Inc both of which were added to the portfolio after
the disposal of our Chinese positions (as discussed above).
Material negative contributors included Adobe Inc. and Salesforce.com Inc. (now
divested).
The portfolio's weighting to this sector (including options on a MTM basis) at
the year end was 58.9% of the net assets of the Company (2021: 42.1%).
Communication Services
The Communication Services sector delivered 55.7% of the negative NAV total
return per share for the financial period.
There were no material positive contributors.
Material negative contributors included Alphabet Inc., Meta Platforms Inc.,
Netflix Inc. and Tencent Holdings Ltd (now divested).
The portfolio's weighting to this sector (including options on a MTM basis) at
year end was 25.3% of the net assets of the Company (2021: 44.9%).
Consumer Discretionary
The Consumer discretionary sector delivered 39.6% of the negative NAV total
return per share for the financial period.
Alibaba Group Holding Ltd (now divested) and Amazon.com Inc were the material
negative contributors from this sector. We materially reduced exposure to
Amazon during the year because whilst we remain positive on the long-term
growth potential for AWS (Cloud Computing), the retail business has the
potential to remain a drag in the current macro environment.
The portfolio's weighting to this sector (including options on a MTM basis) at
year end was 8.3% of the net assets of the Company (2021: 25.9%).
Other (including funds, ETFs and beta hedges)
Other holdings delivered 14.3% of the negative NAV total return per Share for
the financial period.
The majority of the losses in this sector came from the CSOP Hang Seng TECH
Index ETF (now divested) outweighing smaller positive returns on short hedges
placed on the Nasdaq and S&P.
The portfolio's weighting to this sector (including options on a MTM basis and
including short equity swap hedges) at year end was -0.4% of the net assets of
the Company (2021: 18.4%).
Foreign Exchange, operating costs and financing delivered an offsetting
positive return of 37.8% of the NAV total return per share for the financial
period that was driven by a 14.1% decline in the value of GBP against USD
during the period.
Outlook
The second quarter (calendar) reporting season provided evidence that global
corporates see digitalisation as paramount to survival. We remain confident
that our investment approach, focused on software, digitalisation, cloud
computing, data management and AI offers more pricing power to ward off
inflationary threats and more significant secular growth than more traditional
sectors. We have repositioned the portfolio towards "Hard Technology" positions
to hedge against a material decline in global economic conditions being the
outturn for the next 12 months. We have reduced geopolitical risk with a
repositioning towards companies domiciled in the "Alliance of Democracy"
countries.
We remain confident in our dynamic investment framework and the quality of the
resultant underlying portfolio. In many ways, the outturn for Equity markets
over the last financial year validates our more cautious and hedged approach
during the "bubble bull" market of the previous financial year. However, we
were too optimistic during this financial year both with regards to China's
shifting political involvement in private enterprise and our increased
Portfolio Net Delta after an initial drop in the markets.
We enter the next period extremely positive on the secular growth drivers for
Technology but we remain wary of the significant risks that persist for Equity
markets. We see the two biggest risks for the forthcoming coming decade as a
geopolitical flashpoint leading to a 'hot' conflict, in the worst circumstance
between China and the US, and the threats of unmitigated Climate Change
provoking widespread social, political and economic upheavals. As such we will
be adding a statistic to our factsheets as follows: Est. weighted ave Sales
exp. to China & Taiwan which is currently 12.9%. We guess that this statistic
will become increasingly relevant for investment fund investors.
Keeping in Touch
May we remind shareholders that the best way to keep abreast of our views and
activities is via the Twitter feed @MLCapMan. In addition, subscription to our
Newsletter can be undertaken at www.mlcapman.com.
M&L Capital Management Limited
Manager
20 October 2022
*Source: Bloomberg. See Glossary below.
Equity exposures and portfolio sector analysis
Equity exposures (longs)
As at 31 July 2022
Company Sector * Exposure % of net
£'000 assets
Microsoft Corporation** Information Technology 59,907 30.3
Alphabet Inc.** Communication services 51,828 26.2
Amazon.com Inc. Consumer Discretionary 17,105 8.6
ASML Holding NV** Information Technology 15,781 7.9
Cadence Design Systems Inc.** Information Technology 14,913 7.5
Synopsys Inc.** Information Technology 12,008 6.0
NVIDIA Corporation Information Technology 6,756 3.4
Polar Capital Technology Trust plc Fund 6,175 3.1
GoDaddy Inc. Information Technology 5,512 2.8
Adobe Inc. Information Technology 3,826 1.9
Meta Platforms Inc. Communication Services 3,152 1.6
Intuitive Surgical Inc.** Health Care 2,800 1.4
Intuit Information Technology 2,062 1.0
Inc.
Total long positions 201,825 101.7
Other net assets and liabilities (3,279) (1.7)
Net assets 198,546 100.0
*GICS - Global Industry Classification Standard.
**Including equity swap exposures as detailed in note 13.
Portfolio sector analysis (excluding options and short equity swap hedges)
As at 31 July 2022
% of net
Sector assets
Information Technology 60.8%
Communication services 27.8%
Consumer Discretionary 8.6%
Fund
3.1%
Health Care 1.4%
Cash and other net assets and liabilities (1.7%)
Net assets 100.0
PRINCIPAL PORTFOLIO EQUITY HOLDINGS
Microsoft Corporation ("Microsoft")
Microsoft is a global enterprise software company and a leader in cloud
computing, business software, operating systems and gaming.
Alphabet Inc. ("Alphabet")
Alphabet is a global technology company with products and platforms across a
wide range of technology verticals, including online advertising, cloud
computing, autonomous vehicles, artificial intelligence and smart phones.
Amazon.com Inc. ("Amazon")
Amazon is the world's largest e-commerce platform. Amazon also provides other
large scale content and services platforms to consumers and businesses such as
Amazon Prime, Amazon Web Services ("AWS") and Amazon Logistics. AWS, which is a
cloud services offering, is arguably the most valuable part of the overall
business and is the main reason for our holding.
ASML Holding NV ("ASML")
ASML is a producer of Semiconductor manufacturing equipment, with a near
monopoly in advanced EUV lithography, which is one of the leading edge
production technologies in the industry's never ending quest to make smaller
and more advanced Semiconductor chips (Integrated Circuits used in a wide
variety of electronic devices).
Cadence Design Systems Inc. ("Cadence")
Cadence is a leading EDA (electronic design automation) company primarily
delivering software and Intellectual Property for electronic design in the
Semiconductor industry. EDA software is mission critical to Semiconductor chip
design, particularly as the demands on Semiconductor chip capabilities
continues to increase. The majority of the EDA market is controlled by three
players; Cadence, Synopsys and Siemens. Unlike the highly cyclical
Semiconductor manufacturers, the EDA software market has a very high degree of
recurring revenue and growth tends to be more correlated to Semiconductor R&D
than Capital or Operational Expenditure within the industry.
Synopsys Inc. ("Synopsys")
Similar to Cadence, Synopsys is an EDA company that focuses on Semiconductor
chip design software and verification tools (such as finding and resolving bugs
in Semiconductor chip designs).
Adobe Inc. ("Adobe")
Adobe is a software as a service company that provides cloud-based creative,
marketing and analytics tools to businesses, professionals and prosumers. Adobe
is perhaps best known for Photoshop - the imaging, design and photo-editing
software.
Meta Platforms Inc. ("Meta")
Meta is the largest global social media company with over 3.8 billion monthly
active users across its family of applications. After the period end, we sold
this position due to a number of transitional challenges facing the company
such as IDFA, a shift to short-video, competition from Tik Tok and an
investment pivot towards the Metaverse.
NVIDIA Corporation ("NVIDIA")
NVIDIA is the market leader in GPUs (Graphics Processing Unit). Whilst
originally created for graphics processing (particularly for gaming),
specialised GPUs are increasingly being used for AI and Datacentre workloads
due to their relative strength in concurrent computations (also known as
parallel processing). The Datacentre division now accounts for around 40% of
NVIDIA's business. As a result, NVIDIA is positively exposed to growth in data,
AI and cloud computing.
GoDaddy Inc. ("GoDaddy")
GoDaddy is a web platform, allowing customers (primarily small businesses and
individuals) to register, create and host websites. GoDaddy is cash generative
and has historically been undertaking material share repurchases.
All Equity & Debt portfolio holdings
As at 31 July 2022
Stocks Gross Net Delta
(Underlying (inc Net Delta
Only) % of exposure of
NAV options) % of
NAV
Microsoft Corporation 30.3% 30.2%
Alphabet Inc. 26.2% 25.5%
Amazon.com, Inc. 8.6% 9.0%
ASML Holding NV 7.9% 8.2%
Cadence Design Systems Inc. 7.5% 7.5%
Synopsys Inc. 6.0% 6.0%
Adobe Inc. 1.9% 5.1%
Meta Platforms Inc. 1.6% 4.4%
NVIDIA Corporation 3.4% 4.3%
Polar Capital Technology Trust 3.1% 3.1%
plc
Invesco QQQ Trust Series 1 (2.9%) (2.9%)
GoDaddy Inc. 2.8% 2.8%
SPDR S&P 500 ETF TRUST (1.9%) (1.9%)
Advanced Micro Devices Inc. 1.4%
Netflix Inc. 1.4%
Intuitive Surgical Inc. 1.4% 1.1%
Intuit Inc. 1.0% 1.0%
Total 96.9% 106.1%
For an explanation of why we report exposures on a Delta Adjusted basis please
read our FAQ at https://mlcapman.com/faq/
Investment record of the last ten years
Year ended Total Return per Dividend per Net NAV per
return Share* Share assets Share*
(£ (p) (p) (£'000) (p)
'000)
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
31 July 2018 26,792 115.27 12.00 130,388 532.81
31 July 2019 15,900 58.75 14.00 166,981 568.66
31 July 2020 24,037 74.74 14.00 225,933 625.23
31 July 2021 22,222 57.10 14.00 269,686 665.43
31 July 2022 (61,162) (151.62) 21.00 198,546 493.04
* Basic and fully diluted.
Business model
The Company is an investment company as defined by Section 833 of the Companies
Act 2006 and operates 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 the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority (the "FCA") and is
listed on the Premium Segment of the Main Market of the London Stock Exchange.
A review of investment activities for the year ended 31 July 2022 is detailed
in the Manager's review above.
Investment objective
The investment objective of the Company is to achieve capital appreciation.
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 any of global
equities and/or fixed interest securities and/or derivatives.
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.
The Company seeks investment exposure to companies whose shares are listed,
quoted or admitted to trading. However, it may invest up to 10% of gross assets
(at the time of investment) in the equities and/or fixed interest securities of
companies whose shares are not listed, quoted or admitted to trading.
Risk diversification
The Company intends to maintain a diversified portfolio and it is expected that
the portfolio will have between approximately 20 to 100 holdings. No single
holding will represent more than 20% of gross assets at the time of investment.
In addition, the Company's five largest holdings (by value) will not exceed (at
the time of investment) more than 75% of gross assets.
Although there are no restrictions on the constituents of the Company's
portfolio by geography, industry sector or asset class, it is intended that the
Company will hold investments across a number of geographies and industry
sectors. During periods in which changes in economic, political or market
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.
The Company will not invest more than 15% of its total assets in other listed
closed- ended investment funds. However, the Company may invest up to 50% of
gross assets (at the time of investment) in an investment company subsidiary,
subject always to the other restrictions set out in this investment policy and
the Listing Rules.
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 Articles of
Association ("Articles") restrict the level of borrowings that the Company may
incur up to a sum equal to two times the net asset value of the Company as
shown by the then latest audited balance sheet of the Company.
The effect of gearing may be achieved without borrowing by investing in a range
of different types of investments including derivatives. Save with the approval
of Shareholders, the Company will not enter into any investments which have the
effect of increasing the Company's net gearing beyond the limit on borrowings
stated in the Articles.
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 FCA.
No material change will be made to the investment policy without 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.
Investment Strategy and Style
The fund's portfolio is constructed with flexibility but is primarily focused
on stocks that
exhibit the attributes of growth.
Target Benchmark
The Company was originally set up by Brian Sheppard as a vehicle for British
retail investors to invest in with the hope that total returns would exceed the
total returns on the UK equity market. Hence, the benchmark the Company uses to
assess performance is one of the many available UK equity indices being the
MSCI UK Investable Market Index (MXGBIM). The Company has used this benchmark
to assess performance for over five years but is not set on using this
particular UK Equity index forever into the future and currently uses this
particular UK Equity index because at the current time it is viewed as the most
cost advantageous of the currently available UK Equity indices (which have a
high degree of correlation and hence substitutability). However, once the
Company announces the use of an index, then this index will be used across all
of the Company's documentation.
Investments for the portfolio are not selected from constituents of this index
and hence the investment remit is in no way constrained by the index, although
the Manager's management fee is varied depending on performance against the
benchmark. It is suggested that Shareholders review the Company's Active Share
Ratio that is on the fund factsheets as this illustrates to what degree the
holdings in the portfolio vary from the underlying benchmark.
Environmental, Social, Community and Governance
The Company considers that it does not fall within the scope of the Modern
Slavery Act 2015 and it is not, therefore, obliged to make a slavery and human
trafficking statement. In any event, the Company considers its supply chains to
be of low risk as its suppliers are typically professional advisers.
In its oversight of the Manager and the Company's other service providers, the
Board seeks assurances that they have regard to the benefits of diversity and
promote these within their respective organisations. The Company has given
discretionary voting powers to the Manager. The Manager votes against
resolutions they consider may damage Shareholders' rights or economic interests
and reports their actions to the Board. The Company believes it is in the
Shareholders' interests to consider environmental, social, community and
governance factors when selecting and retaining investments and has asked the
Manager to take these issues into account. The Manager does not exclude
companies from their investment universe purely on the grounds of these factors
but adopts a positive approach towards companies which promote these factors.
The portfolio's Sustainalytic's Environmental Percentile was 85.8% per cent as
at the Latest Factsheet date.
As an investment trust the Company is exempt from complying with the Task Force
on Climate-related Financial Disclosures; however, the Company fully recognises
the impact climate change has on the environment and society, and information
on the Manager's endeavours on ESG can be found in the full Annual Report. The
Manager continues to work with the investee companies to raise awareness on
climate change risks, carbon emission and energy efficiency.
Stakeholder Engagement
The Company's s172 Statement can be found in the Corporate Governance Statement
in the full Annual Report and is incorporated into this Strategic Report by
reference.
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 net revenue in that period.
Recurring income from dividends on underlying holdings is paid out as ordinary
dividends.
Results and dividends
The results for the year are set out in the Statement of Comprehensive Income
and in the Statement of Changes in Equity below.
For the year ended 31 July 2022, the net revenue return attributable to
Shareholders was negative £1,668,000 (2021: negative £1,857,000) and the net
capital return attributable to Shareholders was negative £59,494,000 (2021:
positive £24,079,000). Total Shareholders' funds decreased by 26% to £
198,546,000 (2021: £269,686,000).
The dividends paid/proposed by the Board for 2021 and 2022 are set out below:
Year ended 31 Year ended
July 2022 31 July 2021
(pence per (pence per
Share) Share)
Interim dividend 7.00 7.00
Special dividend 7.00 -
Proposed final dividend 7.00 7.00
21.00 14.00
Subject to the approval of Shareholders at the forthcoming AGM, the proposed
final ordinary dividend will be payable on 25 November 2022 to Shareholders on
the register at the close of business on 4 November 2022. The ex-dividend date
will be 3 November 2022.
Further details of the dividends paid in respect of the years ended 31 July
2022 and 31 July 2021 are set out in note 7 below.
Principal risks and uncertainties
The Board considers that the following are the principal risks and
uncertainties facing the Company. The actions taken to manage each of these are
set out below. If one or more of these risks materialised, it could potentially
have a significant impact upon the Company's ability to achieve its investment
objective. These risks are formalised within the risk matrix maintained by the
Company's Manager.
Risk How the risk is managed
Investment Performance Risk Investment performance is monitored and
The performance of the reviewed daily by M&L Capital Management
Company may not be in line Limited ("MLCM") as AIFM through:
with its investment . Intra-day portfolio statistics; and
objectives. . Daily Risk reports.
The metrics and statistics within these reports
may be used (in combination with other factors)
to help inform investment decisions.
The AIFM also provides the Board with monthly
performance updates, key portfolio stats
(including performance attribution, valuation
metrics, VaR and liquidity analysis) and
performance charts of top portfolio holdings.
It should be noted that none of the above steps
guarantee that Company performance will meet
its stated objectives.
Key Man Risk and The Manager has a remuneration policy that
Reputational Risk incentivises key staff to take a long-term view
The Company may be unable to as variable rewards are spread over a five-year
fulfil its investment period. MLCM also has documented policies and
objectives following the procedures, including a business continuity
departure of key staff at plan, to ensure continuity of operations in the
the Manager. unlikely event of a departure.
MLCM has a comprehensive compliance framework
to ensure strict adherence to relevant
governance rules and requirements.
Fund Valuation Risk NAVs are produced independently by the
The Company's valuation is Administrator, based on the Company's valuation
not accurately represented policy.
to investors.
Valuation is overseen and reviewed by the
AIFM's valuation committee which reconciles and
checks NAV reports prior to publication.
It should be noted that the vast majority of
the portfolio consists of quoted equities,
whose prices are provided by independent market
sources; hence material input into the
valuation process is rarely required from the
valuation committee.
Third-Party Service All outsourced relationships are subject to an
Providers extensive dual-directional due diligence
Failure of outsourced process and to ongoing monitoring. Where
service providers in possible, the Company appoints a diversified
performing their contractual pool of outsourced providers to ensure
duties. continuity of operations should a service
provider fail.
The cyber security of third-party service
providers is a key risk that is monitored on an
ongoing basis. The safe custody of the
Company's assets may be compromised through
control failures by the Depositary or
Custodian, including cyber security incidents.
To mitigate this risk, the AIFM receives
monthly reports from the Depositary confirming
safe custody of the Company's assets held by
the Custodian.
Regulatory Risk The AIFM adopts a series of pre-trade and
A breach of regulatory rules post-trade controls to minimise breaches. MLCM
/ other legislation uses a fully integrated order management
resulting in the Company not system, electronic execution system, portfolio
meeting its objectives or management system and risk system developed by
investors' loss. Bloomberg. These systems include automated
compliance checks, both pre- and
post-execution, in addition to manual checks by
the investment team. The AIFM undertakes
ongoing compliance monitoring of the portfolio
through a system of daily reporting.
Furthermore, there is additional oversight from
the Depositary, which ensures that there are
three distinct layers of independent
monitoring.
Fiduciary Risk The Company has a clear documented investment
The Company may not be policy and risk profile. The AIFM employs
managed to the agreed various controls and monitoring processes to
guidelines. ensure guidelines are adhered to (including
pre- and post- execution checks as mentioned
above and monthly Risk meetings). Additional
oversight is also provided by the Company's
Depositary.
Fraud Risk The AIFM has extensive fraud prevention
Fraudulent actions may cause controls and adopts a zero tolerance approach
loss. towards fraudulent behaviour and breaches of
protocol surrounding fraud prevention. The
transfer of cash or securities involve the use
of dual authorisation and two-factor
authentication to ensure fraud prevention, such
that only authorised personnel are able to
access the core systems and submit transfers.
The Administrator has access to core systems to
ensure complete oversight of all transactions.
In addition to the above, the Board considers the following to be the principal
financial risks associated with investing in the Company: market risk, interest
rate risk, liquidity risk, currency rate risk and credit and counterparty risk.
An explanation of these risks and how they are managed along with the Company's
capital management policies are contained in note 16 of the Financial
Statements below.
The Board, through the Audit Committee, has undertaken a robust assessment and
review of all the risks stated above and in note 16 of the Financial
Statements, together with a review of any emerging or new risks which may have
arisen during the year, including those that would threaten the Company's
business model, future performance, solvency or liquidity. Whilst reviewing the
principal risks and uncertainties, the Board considered the impact of the
COVID-19 pandemic and the implications of the Russia conflict on the Company,
concluding that these events did not materially affect the operations of the
business.
In accordance with guidance issued to directors of listed companies, the
Directors confirm that they have carried out a review of the effectiveness of
the systems of internal financial control during the year ended 31 July 2022,
as set out in the full Annual Report. There were no matters arising from this
review that required further investigation and no significant failings or
weaknesses were identified.
Further discussion about risk considerations can be found in the Company's
latest prospectus available at https://mlcapman.com/
manchester-london-investment-trust-plc/
Year-end gearing
At the year end, gross long equity exposure represented 101.65% (2021: 136.65%)
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.
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 2022 amounted to £198,546,000 compared with £
269,686,000 at 31 July 2021, a decrease of 26.4%, whilst the fully diluted NAV
per Share decreased to 493.04p from 665.43p. During the year, Ordinary Shares
were bought back and held in treasury at a cost of £1,509,000.
Net revenue return after taxation for the year was a negative £1,668,000 (2021:
negative £1,857,000).
The quoted Share price during the period under review has ranged from a
discount of 11.4% to 23.7%.
Ongoing charges, which are set out above, are 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. As the majority of the Company's
equity investments are denominated in US Dollar, any currency volatility may
have an impact (either positive or negative) on the Company's NAV per Share,
which is denominated in Sterling.
Management arrangements
Under the terms of the management agreement, MLCM manages the Company's
portfolio in accordance with the investment policy determined by the Board. The
management agreement has a termination period of three months. In line with the
management agreement, the Manager receives a variable portfolio management fee.
Details of the fee arrangements and the fees 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 Limited ("MMIC"), which is controlled by Mr Mark
Sheppard who forms part of the Manager's 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 Company permanently exceeded the sub-threshold limit under the AIFMD in
2017 and MLCM was appointed as the Company's AIFM with effect from 17 January
2018. Following their appointment as the AIFM, MLCM receives an annual risk
management and valuation fee of £59,000 to undertake its duties as the AIFM in
addition to the portfolio management fees set out above.
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.
Remuneration
In the year to 31 July 2022, the total remuneration paid to the employees of
the Manager was £465,000 (2021: £486,000), payable to an average employee
number throughout the year of four (2021: four).
The management of MLCM is undertaken by Mr Mark Sheppard and Mr Richard Morgan,
to whom a combined total of £392,000 (2021: £401,000) 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 five-year period.
Leverage
The leverage policy has been approved by the Company and the AIFM. The policy
limits the leverage ratio that can be deployed by the Company at any one time
to 275% (gross method) and 250% (commitment method). This includes any gearing
created by its investment policy. This is a maximum figure as required for
disclosure by the AIFMD regulation and not necessarily the amount of leverage
that is actually used. The leverage ratio as at 31 July 2022 measured by the
gross method was 153.8% and that measured by the commitment method was 148.9%.
Leverage is defined in the Glossary below.
Risk profile
The risk profile of the Company as measured through the Summary Risk Indicator
("SRI") score, is currently at a 5 on a scale of 1 to 7 as at 31 July 2022.
This score is calculated on past performance data using prescribed PRIIPS
methodology. Liquidity, counterparty and currency risks are not captured on the
scale. 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.
For further information on SRI - including key risk disclaimers - please read
the Fund Key Information Document available at https://mlcapman.com/
manchester-london-investment-trust-plc/
Liquidity arrangements
The Company currently holds no assets that are subject to special arrangements
arising from their illiquid nature. If applicable, the Company would disclose
the percentage of its assets subject to such arrangements 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.
Continuing appointment of the Manager
The Board keeps the performance of MLCM, in its capacity as the Company's
Manager, under continual review. It has 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 is 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 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 and of the Company's Board composition and related diversity
considerations can be found in the Statement of Corporate Governance in the
full Annual Report.
Gender diversity
At 31 July 2022, the Board comprised four male Directors. As stated in the
Statement of Corporate Governance, the appointment of any new Director is made
on the basis of merit.
Approval
This Strategic Report has been approved by the Board and signed on its behalf
by:
Daniel Wright
Chairman
20 October 2022
DIRECTORS
Daren Morris (Chairman of the Audit Committee)
Brett Miller
Sir James Waterlow
Daniel Wright (Chairman of the Board and Senior Independent Director)
All the Directors are non-executive. Mr Morris, Sir James Waterlow and Mr
Wright are independent of the Company's Manager.
EXTRACTS FROM THE DIRECTORS' REPORT
Share capital
As at 31 July 2022, the Company's issued share capital comprised 40,528,238
Shares of 25 pence each, of which 258,183 were held in Treasury.
At general meetings of the Company, Shareholders are entitled to one vote on a
show of hands and on a poll, to one vote for every Share held. Shares held in
Treasury do not carry voting rights.
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 MMIC, the
controlling Shareholder, shall not vote on any matter where conflicted and the
Directors will act independently from MMIC and have due regard to their
fiduciary duties.
Issue of Shares
At the Annual General Meeting held on 3 November 2021, Shareholders approved
the Board's proposal to authorise the Company to allot Shares up to an
aggregate nominal amount of £3,375,070.25. In addition, the Directors were
authorised to issue Shares and sell Shares from Treasury up to an aggregate
nominal value of £1,012,521 on a non-pre-emptive basis. This authority is due
to expire at the Company's forthcoming AGM on 21 November 2022.
There were no share issues during the year.
As at the date of this report, the total voting rights were 40,270,055.
Purchase of Shares
At the Annual General Meeting held on 3 November 2021, 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 6,071,076 Shares.
This authority is due to expire at the Company's forthcoming AGM on 21 November
2022.
During the year, 258,183 Shares have been bought back and at the date of this
report there were 40,528,238 Shares in issue of which 258,183 were held in
treasury. The total amount paid for these Shares was £1,509,000 at an average
price of 584 pence per Share.
Sale of Shares from Treasury
At the Annual General Meeting held on 3 November 2021, Shareholders approved
the Board's proposal to authorise the Company to waive pre-emption rights in
respect of Treasury Shares up to an aggregate amount of £1,012,521 and to
permit the allotment or sale of Shares from Treasury at a discount to a price
at or above the prevailing NAV. This authority is due to expire at the
Company's forthcoming AGM on 21 November 2022.
No Shares were sold from Treasury during the year. As at the date of this
report, 258,183 Shares are held in Treasury.
Going concern
The Directors consider that it is appropriate to adopt the going concern basis
in preparing the Financial Statements. After making enquiries, and considering
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. In making this assessment, the
Directors have considered any likely impact of the current COVID-19 pandemic on
the Company, its operations and the investment portfolio. The Directors
consider that the COVID-19 pandemic has not materially impacted the operations
of the Company.
Cashflow projections have been reviewed and provide evidence that the Company
has sufficient funds to meet both its contracted expenditure and its
discretionary cash outflows in the form of the dividend policy. Additionally,
Value at Risk scenario analyses to demonstrate that the company has sufficient
capital headroom to withstand market volatility are performed periodically.
Viability statement
The Directors have assessed the prospects of the Company over a five-year
period. The Directors consider five years to be a reasonable time horizon to
consider the continuing viability of the Company, however they also consider
viability for the longer-term foreseeable future.
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. On that basis, the Board considers
that five years is an appropriate time period to assess continuing viability of
the Company.
In forming their assessment of viability, the Directors have also considered:
* internal processes for monitoring costs;
* expected levels of investment income;
* the performance of the Manager;
* portfolio risk profile;
* liquidity risk;
* gearing limits;
* counterparty exposure; and
* financial controls and procedures operated by the Company.
The Board has reviewed the influence of the COVID-19 pandemic on its service
providers and is satisfied with the ongoing services provided to 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 five-year period.
By order of the Board
Link Company Matters Limited
Company Secretary
20 October 2022
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") as adopted by the European Union. 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;
* make judgements and estimates that are reasonable and prudent; and
* prepare 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 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, 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,
business model and strategy.
On behalf of the Board
Daniel Wright
Chairman
20 October 2022
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2022
2021
2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains
Gains on investments at 9 275 (58,542) (58,267) 25,117 25,367
fair value through 250
profit or loss
Investment income 2 265 - 265 823 - 823
Gross return 1,073 25,117 26,190
540 (58,542) (58,002)
Expenses
Management fee 3 (1,515) - (1,515) (1,958) - (1,958)
Other operating expenses 4 (598) - (598) (725) - (725)
Total expenses (2,113) - (2,113) (2,683) - (2,683)
Return before finance (1,573) (58,542) (60,115) (1,610) 25,117 23,507
costs and tax
Finance costs 5 (55) (952) (1,007) (205) (1,038) (1,243)
Return on ordinary (1,628) (59,494) (61,122) (1,815) 24,079 22,264
activities before tax
Taxation 6 (40) - (40) (42) - (42)
Return on ordinary (1,668) (59,494) (61,162) (1,857) 24,079 22,222
activities after tax
Return per Share pence pence pence pence pence pence
Basic and fully diluted 8 (4.13) (147,49) (151.62) (4.77) 61.87 57.10
The total column of this statement is the Income Statement of the Company
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. The supplementary revenue
return and capital return columns are presented in accordance with the
Statement of Recommended Practice issued by the Association of Investment
Companies ("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 return 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 2022
Share Share Special Capital Retained
capital premium reserve** reserve* earnings** Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 August 2021 10,132 25,888 107,188 123,240 3,238 269,686
Changes in equity for 2022
Ordinary shares bought back and 14 - - (1,509) - - (1,509)
held in treasury
Total comprehensive (loss) - - (59,494) (1,668) (61,162)
-
Dividends paid 7 - - (6,899) - (1,570) (8,469)
Balance at 31 July 2022 10,132 25,888 98,780 63,746 - 198,546
Balance at 1 August 2020 9,034 107,188 - 99,161 10,550 225,933
Changes in equity for 2021
Shares issued 14 1,098 25,888 - - - 26,986
Cancellation of share premium - (107,188) 107,188 - - -
account
Total comprehensive income/(loss) - - - 24,079 (1,857) 22,222
Dividends paid 7 - - - - (5,455) (5,455)
Balance at 31 July 2021 10,132 25,888 107,188 123,240 3,238 269,686
* Within the balance of the capital reserve, £15,871,000 relates to realised
gains (2021: £35,863,000). Realised gains are distributable by way of a
dividend. The remaining £47,875,000 relates to unrealised gains on financial
instruments (2021: £87,377,000) and is non-distributable.
** Fully distributable.
The notes below form part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
As at 31 July 2022
2021 2020
2022 (Restated) (Restated)
1 1
Notes £'000 £'000 £'000
Non-current assets
Investments at fair value through 9 128,111 156,919 137,333
profit or loss
Current assets
Unrealised derivative assets 13 2,548 14,917 4,837
Trade and other receivables 10 29 42 18
Cash and cash equivalents 11 48,840 37,021 30,477
Cash collateral receivable from 13 36,394 80,174 79,352
brokers
87,811 132,154 114,684
Creditors - amounts falling due
within one year
Unrealised derivative liabilities 13 (14,284) (19,110) (23,538)
Trade and other payables 12 (1,107) (277) (2,546)
Cash collateral payable to brokers 13 (1,985) - -
(17,376) (19,387) (26,084)
Net current assets/(liabilities) 70,435 112,767 88,600
Net assets 198,546 269,686 225,933
Capital and reserves
Ordinary Share Capital 14 10,132 10,132 9,034
Share premium 25,888 25,888 107,188
Special Reserves 98,780 107,188 -
Capital reserve 63,746 123,240 99,161
Retained earnings - 3,238 10,550
Total equity 198,546 269,686 225,933
Basic and fully diluted NAV per 15 493.04p 665.43p 625.23p
Share
Number of Shares in issue 14 40,270,055 40,528,238 36,135,738
excluding treasury
1 Please refer to note 1 restatement of 2021 and 2020 comparatives.
The Financial Statements were approved by the Board of Directors and authorised
for issue on 20 October 2022 and are signed on its behalf by:
Daniel Wright
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 2022
2022 2021
£'000 (Restated)
£'000
Cash flow from operating activities
Return on operating activities before tax (61,122) 22,264
Interest expense 968 1,075
Losses on investments held at fair value through 64,501 (26,633)
profit or loss
Decrease/(increase) in receivables 2 (10)
Increase/(decrease) in payables (92) (92)
Exchange Gains/Losses on Currency Balances (5,815) 1,446
Tax (40) (42)
Net cash (used in)/generated from operating (1,598) (1,992)
activities
Cash flow from investing activities
Purchases of investments (86,419) (82,898)
Sales of investments 105,030 84,370
Derivative instrument cashflows (71) (11,953)
Net cash inflow/(outflow) from investing activities 18.540
(10,481)
Cash flow from financing activities
Issue of shares - 26,986
Ordinary shares bought back and held in treasury (1,509) -
Equity dividends paid (8,469) (5,455)
Interest paid (960) (1,068)
Net cash generated in financing activities (10,938) 20,463
6,004 7,990
Net increase/(decrease) in cash and cash equivalents
Exchange gains/losses on Currency Balances 5,815
(1,446)
Cash and cash equivalents at beginning of year 37,021 30,477
Cash and cash equivalents at end of year 48,840 37,021
The notes below form part of these Financial Statements.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 July 2022
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 Company's Financial Statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006. The Financial Statements have also been prepared in
accordance with the AIC SORP for the financial statements of investment trust
companies and venture capital trusts.
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 £'000, except where otherwise indicated.
Going concern
The financial statements have been prepared on a going concern basis 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 a period of at least 12 months from the
date when these financial statements were approved.
In making the assessment, the Directors of the Company have considered the
likely impacts of international and economic uncertainties on the Company,
operations and the investment portfolio. These include, but are not limited to,
the impact of COVID-19, the war in Ukraine, political instability in the UK,
supply shortages and inflationary pressures.
The Directors noted that the Company, with the current cash balance and holding
a portfolio of listed investments, is able to meet the obligations of the
Company as they fall due. The current cash balance, enables the Company to meet
any funding requirements and finance future additional investments. The Company
is a closed-end fund, where assets are not required to be liquidated to meet
day to day redemptions.
The Directors have completed stress tests assessing the impact of changes in
market value and income with associated cash flows. In making this assessment,
they have considered plausible downside scenarios. These tests were driven by
the possible effects of continuation of the COVID-19 pandemic but, as an
arithmetic exercise, apply equally to any other set of circumstances in which
asset value and income are significantly impaired. The conclusion was that in a
plausible downside scenario the Company could continue to meet its liabilities.
Whilst the economic future is uncertain, and the Directors believe that it is
possible the Company could experience further reductions in income and/or
market value, the opinion of the Directors is that this should not be to a
level which would threaten the Company's ability to continue as a going
concern.
The Directors, the Manager and other service providers have put in place
contingency plans to minimise disruption. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt on 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). Therefore, the financial
statements have been prepared on the going concern basis.
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 on recognised international exchanges.
Accounting developments
In the year under review, the Company has applied amendments to IFRS issued by
the IASB adopted in conformity with UK adopted international accounting
standards. These include annual improvements to IFRS, changes in standards,
legislative and regulatory amendments, changes in disclosure and presentation
requirements. This incorporated:
* Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS
39 and IFRS 7);
* Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);
* IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors (Amendment - Disclosure
initiative - Definition of Material); and
* Revisions to the Conceptual Framework for Financial Reporting.
The adoption of the changes to accounting standards has had no material impact
on these or prior years' financial statements. There are amendments to IAS/IFRS
that will apply from 1 August 2022 as follows:
* Classification of liabilities as current or non-current (Amendments to IAS
1);
* Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2);
* Definition of Accounting Estimates (Amendments to IAS 8);
* Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes; and
* Annual improvements to IFRS Standards.
The Directors do not anticipate the adoption of these will have a material
impact on the financial statements.
Restatement of 2021 and 2020 Comparatives
In assessing the Company's current asset and current liability positions as
part of the annual financial statement process, a classification error has been
identified relating to the presentation of current assets and liabilities
within the Unrealised derivative assets/liabilities and Cash and cash
equivalents account lines. Cash received from the Company's brokers on the
periodic reset of the contract for difference positions was previously
presented as part of the derivative asset/liability balances and collateral
cash held in margin/collateral accounts at the Company's brokers was previously
presented with cash and cash equivalents. These amounts have been reclassified
because cash received from the periodic reset of contracts for difference is
considered to be a realisation and the cash held in margin/collateral accounts
does not meet the definition of cash under IAS 7 and so have been presented
separately as Cash collateral receivable from, or payable to, brokers on the
statement of financial position.
The correction of this classification error has no impact on the Company's net
assets (and the resulting net asset value per share figure) nor on the
Company's Statement of Comprehensive Income. The balances within the Company's
Statement of Financial Position as at 31 July 2021 and 31 July 2020 have been
restated for consistency as shown in the following table. In addition, the
Derivative instrument cashflows in the Statement of Cash Flows for the year
ended 31 July 2021 has been restated from a cash outflow of £21,704,000 to a
cash outflow of £11,953,000.
2021 2021 2020
Original (Restated) Original 2020
£'000 £'000 £'000 (Restated)
£'000
Unrealised derivative assets 14,917
44,903 29,229 4,837
Cash and cash equivalents 82,970 37,021
86,177 30,477
Cash collateral receivable 80,174
from brokers - 79,352
-
Unrealised derivative liabilities (14,871)
(19,110) (24,278) (23,538)
The net assets of the Company are stated below.
2021 2021 2020 2020
(Restated)
Original Original (Restated)
£ £
£'000 '000 '000 £'000
Net assets 269,686 225,933
269,686 225,933
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 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 areas requiring the greatest level of judgement and estimation in the
preparation of the Financial Statements are: valuation of derivatives; and
accounting for revenue and expenses in relation to equity swaps. The policies
for these are set out in the notes to the Financial Statements.
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 through profit and loss, and derecognised at trade date where a purchase
or sale is under a contract whose terms require delivery within the timeframe
of the relevant market. For listed equity investments, this is deemed to be
closing prices.
Changes in fair value of investments are recognised in the Statement of
Comprehensive Income as a capital item. On disposal, realised gains and losses
are also recognised in the Statement of Comprehensive Income as capital items.
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 recognised in the
Statement of Comprehensive Income as revenue. Interest expenses on open long
positions are allocated to capital. All remaining interest or financing charges
on derivative contracts are allocated to the revenue account.
Unrealised changes to the value of securities in relation to derivatives are
recognised in the Statement of Comprehensive Income as capital items.
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 translated at the Statement of Financial
Position 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 in nature.
Cash and cash equivalents
Cash comprises cash in hand and overdrafts. 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.
Cash held in margin/collateral accounts at the Company's brokers is presented
as Cash collateral receivable from brokers in the financial statements. Any
cash collateral owed back to the brokers on marked to market gains of Equity
Swaps is shown in the financial statements as Cash collateral payable to
brokers.
Trade receivables, trade payables and short-term borrowings
Trade receivables, trade payables and short-term borrowings are measured at
amortised cost.
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.
All other income is accounted for on a time-apportioned basis and recognised in
the Statement of Comprehensive Income.
Expenses
All expenses are accounted for on an accruals basis and are charged to revenue.
All other administrative expenses are charged through the revenue column in the
Statement of Comprehensive Income.
Finance costs
Finance costs are accounted for on an accruals basis.
Financing charged by the Prime Brokers on open long positions are allocated to
capital, with other finance costs being allocated to revenue.
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 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 Statement of Financial
Position date have not been recognised as a liability of the Company at the
Statement of Financial Position date.
Share capital
The share capital is the nominal value of issued ordinary shares and is not
distributable.
Share premium
The Share premium account represents the accumulated premium paid for Shares
issued in previous periods above their nominal 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.
Special Reserve
The special reserve was created by a cancellation of the share premium account
increasing the distributable reserves of the Company. The special reserve is
distributable, and the following items are taken to this reserve:
* costs of share buy-backs, including related stamp duty and transaction
costs; and
* dividends.
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;
* cost of share buy backs;
* 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 revenue account profits and losses.
The surplus accumulated profits are distributable by way of dividends.
2. Income
2022 2021
£'000 £'000
Dividends from listed 815
investments 265
Sundry income - 8
265 823
3. Management fee
2022 2021
£'000 £'000
Base fee 1,022 1,266
Variable fee 434 633
Risk management and valuation fee 59 59
1,515 1,958
The Management Fee payable to the Manager is equal to 0.5% per annum of the
Company's NAV (the "Base Fee"), calculated as at the last business day of each
calendar month (the "Calculation Date"), and is paid monthly arrears. An uplift
of 0.25% of the NAV will be applied to the fee, should the performance of the
Company over the 36-month period to the Calculation Date be above that of the
Company's benchmark. Should the performance of the Company over the 36-month
period to the Calculation Date be below that of the Company's benchmark, a
downward adjustment of 0.25% of the NAV will be applied to the fee.
In addition, a Risk Management and Valuation fee equating to £59,000 on an
annualised basis is charged by the AIFM. The Manager is also reimbursed any
expenses incurred by it on behalf of the Company.
4. Other operating expenses
2022 2021
£'000 £'000
Directors' fees 94 97
Auditors' remuneration 34 32
Registrar fees 27 31
Depositary fees 83 92
Other expenses 336 473
574 725
Other operating expenses include irrecoverable VAT where appropriate, excluding
the Auditors' and Directors' remuneration which have been shown net of VAT.
No non-audit services were provided by Deloitte LLP in the year to 31 July
2022.
5. Finance costs
2022 2021
£'000 £'000
Charged to revenue 55 205
Charged to capital 952 1,038
1,007 1,243
6. Taxation
a) Analysis of charge in year
Year to 31 July 2022 Year to 31 July 2021
Revenue Capital Total Revenue Capital £ Total
£'000 £'000 £'000 £'000 '000 £'000
Current tax:
Overseas tax not recoverable 40 - 40 42 - 42
40 - 40 42 - 42
b) The current taxation charge for the year is lower than the standard rate of
Corporation Tax in the UK of 19% (2021: 19%).
The differences are explained below:
Net return before taxation (1,628) (59,494) (61,122) (1,815) 24,079 22,264
Theoretical tax at UK (345) 4,575 4,230
corporation tax rate of 19% (309) (11,304) (11,613)
(2021: 19%)
Effects of:
Foreign dividends that are not (56) - (56)
taxable (51) - (51)
Accrued income exempt on (2) - (2)
receipt - - -
Non- taxable investment losses - (4,772) (4,772)
/(gains) - 11,123 11,123
Offshore income gains 5 - - -
- 5
Irrecoverable overseas tax 40 - 40 42 - 42
Unrelieved excess expenses 355 181 536 403 197 600
Total tax charge 40 - 40 42 - 42
c) Factors that may affect future tax charges.
At 31 July 2022, there is an unrecognised deferred tax asset, measured at the
latest enacted tax rate of 25%, of £3,813,000 (2021: £2,392,000). This deferred
tax asset relates to surplus management expenses and non trade loan
relationship debits. 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 2022, the company has unrelieved capital losses of £9,329,000
(2021: £9,329,000). There is therefore, a related unrecognised deferred tax
asset, measured at the latest enacted rate of 25%, of £2,332,000 (2021: £
1,773,000). 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
2022 2021
Amounts recognised as distributions to equity holders in £'000 £'000
the year:
Final ordinary dividend for the year ended 31 July 2021 2,618
of 7.0p (2020: 7.0p) per share
2,831
Interim ordinary dividend for the year ended 31 July 2022 2,837
of 7.0p (2021: 7.0p) per share 2,819
Special dividend for the year ended 31 July 2022 of 7.0p 2,819 -
8,469 5,455
The Directors are proposing a final dividend of 7.0p for the financial year
2022.
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.
Included in the dividend distributions to equity holders in the year includes £
6,899,000 (2021: nil) paid from special reserve.
2022 2021
£'000 £'000
Interim ordinary dividend for the year ended 31 July 2022 2,837
of 7.0p (2021: 7.0p) per Share 2,819
Special dividend for the year ended 31 July 2022 of 7.0p -
(2021: nil) per share 2,819
Proposed final ordinary dividend* for the year ended 31 2,819* 2,835
July 2022 of 7.0p (2021: 7.0p) per Share
8,457 5,672
*Based on Shares in circulation on 20 October 2022 (excluding Shares held in
treasury).
8. Return per Share
2022 2021
Net Weighted Total Net Weighted Total
Return Average (p) Return Average (p)
£'000 Shares £'000 Shares
Basic and fully
diluted return:
Net revenue return (1,668) 40,338,477 (4.13) (1,857) 38,917,758 (4.77)
after taxation
Net capital return (59,494) 40,338,477 (147.49) 24,079 38,917,758 61.87
after taxation
Total (61,162) 40,338,477 (151.62) 22,222 38,917,758 57.10
Basic revenue, capital and total return per Share is based on the net revenue,
capital and total return for the period and on the weighted average number of
Shares in issue of 40,338,477 (2021: 38,917,758).
9. Investments at fair value through profit or loss
2022 2021
Total Total
£'000 £'000
Analysis of investment portfolio movements
Opening cost at 1 August 80,793 69,228
Opening unrealised appreciation at 76,126 68,105
1 August
Opening fair value at 1 August 156,919 137,333
Movements in the year
Purchases at cost 87,343 80,696
Sales proceeds (105,030) (84,365)
Realised profit on sales 19,394 15,234
(Decrease)/increase in unrealised (30,515) 8,021
appreciation
Closing fair value at 31 July 128,111 156,919
Closing cost at 31 July 82,500 80,793
Closing unrealised appreciation at 45,611 76,126
31 July
Closing fair value at 31 July 128,111 156,919
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.
For the purposes of the Statement of Financial Position and the Statement of
Cash Flows, cash and cash equivalents consist of cash and cash.
Financial assets/liabilities at fair value through profit or loss at 31 July
2022
Level 1 Level 2 Total
£'000 £'000 £'000
Investments 128,111 - 128,111
Unrealised Derivative Assets - 2,548 2,548
Unrealised Derivative - (14,284) (14,284)
Liability
Total 128,111 116,385
(11,736)
Financial assets/liabilities at fair value through profit or loss at 31 July
2021 (restated)
Level 1 Level 2 Total
£'000 £'000 £'000
Investments 156,919 - 156,919
Unrealised Derivative Assets - 14,917 14,917
Unrealised Derivate Liability - (19,110) (19,110)
Total 156,919 (4,193) 152,726
There have been no transfers during the year between Level 1 and 2 fair value
measurements.
Transaction costs
During the year, the Company incurred transaction costs of £194,000 (2021: £
44,000) on the purchase and disposal of investments.
Analysis of capital gains and losses
2022 2021
£'000 £'000
Gains on sales of investments 15,234
19,394
Investment holding (losses)/gains 8,021
(30,515)
Realised (losses)/gains on derivatives (4,783)
(44,396)
Unrealised (losses)/gains on derivatives
(8,984) 8,161
26,633
(64,501)
Realised gains/(losses) on currency balances and 5,959 (1,516)
trade settlements
Dividend income in respect of contracts for 275 250
difference
(58,267) 25,367
10. Trade and other receivables
2022 2021
£'000 £'000
Prepayments 29 42
29 42
11. Cash and cash equivalents
2022 2021
£'000 £'000
Cash and cash equivalents 48,840 37,021
48,840 37,021
As at the balance sheet date, the Company held shares valued at £6,741,000
(2021: £11,845,000) in the Morgan Stanley Sterling Liquidity fund, which has
been classified as a Cash equivalent (see Note 1).
12. Trade and other payables
2022 2021
£'000 £'000
Due to Brokers 924 -
Accruals 183 277
1,107 277
13. Derivatives
The Company may use a variety of derivative contracts under master agreements
with the Company's derivative counterparties to enable it to gain long and
short exposure, including Options and Equity Swaps (which are synthetic
equities), and are valued by reference to the market values of the investments'
underlying securities.
The sources of the return under the Equity Swap contracts (e.g. notional
dividends, financing costs, interest returns and realised and unrealised gains
and losses) are allocated to the revenue and capital accounts in alignment with
the nature of the underlying source of income.
* Notional dividend income or expense arising on long or short positions is
apportioned wholly to the revenue account.
* Notional interest or financing charges on open long positions are
apportioned wholly to the capital account. All remaining interest or
financing charges on derivative contracts are allocated to the revenue
account.
* Changes in value relating to underlying price movements of securities in
relation to Equity Swap exposures are allocated to capital.
The fair values of derivative financial assets are set out in the table below:
2022 2021 2020
Original (Restated) (Restated)
£'000 £'000 £'000
Unrealised derivative assets 2,548 14,917 4,837
Cash collateral receivable from 36,394 80,174 79,352
brokers
Unrealised derivative liabilities (14,284) (19,110) (23,538)
Cash collateral payable to (1,985) - -
brokers
The corresponding gross exposure on long equity swaps as at 31 July 2022 was £
73,714,000 (2021: £211,603,000) and the total gross exposure of short equity
swaps was £9,695,000 (2021:£nil). The net marked to market futures and options
total value as at 31 July 2022 was negative £9,369,000 (2021: negative £
14,871,000).
As at 31 July 2022, the Company held cash and cash equivalent balances of £
48,840,000 (2021: £37,021,000). The Company also pledged cash of £36,394,000
(2021: £80,174,000) on collateral accounts with counterparty brokers
specifically for derivatives (including exchange traded derivatives positions
and non-exchange traded swap positions). This cash represents collateral posted
to broker deposit accounts in relation to amounts due to brokers in order to
maintain open positions and constitute a number of types of margin required
(such as initial, marked to market variation etc).
The nature of the Company's portfolio means that the Company gains significant
exposure to a number of markets through Equity Swaps. The Company may use
Equity Swaps to manage gearing. However, to the extent the Manager has elected
not to be geared, the Company will generally hold a level of cash (or
equivalent holding in the Cash Fund) on its balance sheet representative of the
difference between the cost of purchasing investments directly and the lower
initial cost of making a margin payment on an Equity Swap contract.
As at 31 July 2022, the Company also owed £1,985,000 (2021: £Nil) to brokers in
respect of cash collateral received relating to amounts owed by these brokers
to cover unrealised gains on open Equity Swaps on the Statement of Financial
Position. To the extent there are unrealised losses on Equity Swap contracts
uncovered by balances held at the broker, the Company will transfer deposit
monies across to these broker margin deposit accounts. The Manager monitors
margin positions on a daily basis to ensure any margin deposit balances are as
expected and any amounts owed to the Company are transferred on a timely basis.
In the event of default, a proportion of the monies held in the collateral
accounts resides with the counterparty broker.
14. Share capital
2022 2021
Share capital Number of Nominal Number of Nominal
Shares value £ Shares value £
'000 '000
Shares of 25p each issued and
fully paid
Balance as at 1 August 40,528,238 10,132 36,135,738 9,034
Shares issued - - 4,392,500 1,098
Balance as at 31 July 40,528,238 10,132 40,528,238 10,132
Treasury shares
Buyback of Ordinary Shares into 258,183 -
Treasury
Balance at end of year 258,183 -
Total Ordinary Share capital
excluding 40,270,055 40,528,238
Treasury shares
No shares were issued during the year (2021: 4,392,500).
During the year, 258,183 Ordinary Shares (2021: nil) were bought back and held
in treasury for total cost of £1,509,000.
15. NAV per Share
NAV per Share Net assets
attributable
2022 2021 2022 2021
(p) (p) £'000 £'000
Shares: basic and fully diluted 493.04 665.43 198,546 269,686
The basic NAV per Share is based on net assets at the year end and 40,270,055
(2021: 40,528,238) Shares in issue, adjusted for any Shares held in Treasury.
16. 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, hedging 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 2022 are shown above.
If the price of these investments and equity swaps had increased by 5% 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 £9,607,000.
A 5% decrease in share prices would have resulted in an equal and opposite
effect of £9,607,000, 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
2022 2021
£'000 £'000
Equity long exposures
Investments held in equity form 128,111 156,919
Long exposure held in equity swap hedges 73,714 211,603
201,825 368,522
Short exposure held in equity swap hedges (9,695) -
192,130 368,522
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. No sensitivity analysis is presented because, as at the
financial year end, the Company held zero balances invested in bonds or fixed
interest securities. The Company is charged interest on its Equity Swap
positions but these charges are not currently material once netted with
interest received on cash, collateral and cash equivalent balances.
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 deposits with UK banking institutions.
As at 31 July 2022, the financial liabilities comprised:
Company
2022 2021
£'000 (Restated)
£'000
Unrealised derivative liabilities 14,284 19,110
Trade payables and accruals 1,107 277
Cash collateral payable to brokers 1,985 -
17,376
19,387
The above liabilities are stated at amortised cost or 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 5% 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, assuming the Company held no balances in
Sterling, would have decreased by £9,927,000. If Sterling had weakened by 5%
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 Total
Dollar
£'000 £'000 £'000 £'000 £'000
Investments 6,174 121,937 - - 128,111
Unrealised - 2,080 468 - 2,548
derivative
assets
Cash and cash 10,046 36,065 2,688 41 48,840
equivalents
Cash collateral 9,120 26,970 304 - 36,394
receivable from
brokers
Unrealised
derivative (12,689) (1,595) - (14,284)
liabilities -
Cash collateral (1,985) - - - (1,985)
payable to
brokers
Other net (154) (924) - - (1,078)
liabilities
23,201 173,439 1,865 41 198,546
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 2022 was £80,911,000 (2021: £
136,049,000). The calculation is based on the Company's credit risk exposure as
at 31 July 2022 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. The Manager
and the Board monitor the Company's risk and exposures.
Where the Manager makes an investment in a bond, corporate or otherwise, the
credit worthiness of the issuer is taken into account so as to minimise the
risk to the Company of default. The credit standing and other associated risks
are reviewed by the Manager.
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. The Manager reviews these on a continual basis with
regular updates to the Board.
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.
A sensitivity analysis has not been prepared for interest risk, as the Company
is not materially exposed to interest rates.
17. Related party transactions
MLCM, a company controlled by Mr Mark Sheppard, is the Manager and AIFM of the
Company. Mr Sheppard is also a director of MMIC, which is the controlling
Shareholder of the Company.
The Manager receives a monthly management fee for these services which in the
year under review amounted to a total of £1,515,000 (2021: £1,958,000)
excluding VAT. The balance owing to the Manager as at 31 July 2022 was £47,000
(2021: £177,000). Also payable to the Manager during the year were expenses
incurred on behalf of the Company of £3,000 (2021: £2,000).
Details relating to the Directors' emoluments are found in the Directors'
Remuneration Report in the full Annual Report.
18. Ultimate control
The ultimate controlling Shareholder throughout the year and the previous year
was MMIC, 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
Mark Sheppard and his immediate family.
A copy of the financial statements of MMIC can be obtained from the Company's
website: www.mlcapman.com/manchester-london-investment-trust-plc.
19. Post Statement of Financial Position events
There are no post balance sheet events to report.
GLOSSARY
Active share
Active share is a measure of the percentage of stock holdings in a manager's
portfolio that differ from the comparative benchmark index. It is calculated by
summing the absolute differences between benchmark and portfolio holdings'
weights, then dividing by two (to eliminate double counting). An active share
of 100 indicates no overlap with the index and an active share of zero
indicates a portfolio that tracks the index (when using leverage, maximum
active share levels can exceed 100%).
Alternative Performance Measure ('APM')
An APM is a numerical measure of the Company's current, historical or future
financial performance, financial position or cash flows, other than a financial
measure defined or specified in the applicable financial framework. In
selecting these Alternative Performance Measures, the Directors considered the
key objectives and expectations of typical investors in an investment trust
such as the Company.
Delta
Delta measures the degree to which an option is exposed to shifts in the price
of the underlying asset (i.e. stock) or commodity (i.e. futures contract).
Values range from 1.0 to -1.0 (or 100 to -100, depending on the convention
employed). See website link for further details: https://mlcapman.com/faq/
Delta Adjusted Exposure
Delta times the underlying security's notional exposure for options. For all
other instruments, the notional exposure of the security. At the sector and
portfolio levels, this is the sum of the individual security delta adjusted
exposures. See website link for further details: https://mlcapman.com/faq/
Discount/premium
If the Share price is lower than the NAV per Share it is said to be trading at
a discount. The size of the discount is calculated by subtracting the Share
price from the NAV per Share and is usually expressed as a percentage of the
NAV per Share. If the Share price is higher than the NAV per Share, this
situation is called a premium.
Gearing
Gearing refers to the level of the Company's debt to its equity capital. The
Company may borrow money to invest in additional investments for its portfolio.
If the Company's assets grow, the Shareholders' assets grow proportionately
more because the debt remains the same. But if the value of the Company's
assets falls, the situation is reversed. Gearing can therefore enhance
performance in rising markets but can adversely impact performance in falling
markets.
Gearing represents borrowings at par less cash and cash equivalents (including
any outstanding trade or foreign exchange settlements) expressed as a
percentage of Shareholders' funds.
Potential gearing is the Company's borrowings expressed as a percentage of
Shareholders' funds.
Leverage
Under the AIFMD it is necessary for AIFs to disclose their leverage in
accordance with the prescribed calculations of the Directive. Leverage is often
used as another term for gearing which is included within the Strategic Report.
Under the AIFMD there are two types of leverage that the AIF is required to set
limits for, monitor and periodically disclose to investors. The two types of
leverage calculations defined are the gross and commitment methods. These
methods summarily express leverage as a ratio of the exposure of debt,
non-sterling currency, equity or currency hedging and derivatives exposure
against the net asset value. The difference between the two methods is that the
commitment method nets off derivative instruments and the gross method
aggregates them.
Net asset value ("NAV")
The NAV is Shareholders' funds expressed as an amount per individual Share.
Shareholders' funds are the total value of all the Company's assets, at a
current market value, having deducted all liabilities and prior charges at
their par value (or at their asset value). The total NAV per Share is
calculated by dividing the NAV by the number of Shares in issue excluding
Treasury Shares.
Prime Broker
Prime brokerage is the bundling of services by investment banks enabling the
Company to borrow securities and cash in order to be able to invest on a netted
basis and achieve an absolute return. The Prime Broker provides custody and a
centralised securities clearing facility for the Company so the Company's
collateral requirements are netted across all deals handled by the Prime
Broker.
Ongoing charges ratio
As recommended by the AIC, ongoing charges are the Company's annualised
expenses including (excluding finance costs, variable management fee and
certain non-recurring items) expressed as a percentage of the average monthly
net assets of £235,137,000. The ongoing charges ratio is 0.67%.
Total assets
Total assets include investments, cash, current assets and all other assets. An
asset is an economic resource, being anything tangible or intangible that can
be owned or controlled to produce value and to produce positive economic value.
Assets represent the value of ownership that can be converted into cash. The
total assets less all liabilities will be equivalent to total Shareholders'
funds.
Total return
Total return statistics enable the investor to make performance comparisons
between investment trusts with different dividend policies. The total return
measures the combined effect of any dividends paid, together with the rise or
fall in the Share price or NAV. This is calculated by the movement in the NAV
or Share price plus dividend income reinvested by the Company at the prevailing
NAV or Share price.
NAV Total Return Page** 31 July 2022 31 July 2021
Closing NAV per Share (p) 3 493.04 665.43 a
Total dividends paid in the year ended 14.00
31 July 2022 (2021) (p) 21.00
Adjusted closing NAV (p) 514.04 679.43
Opening NAV per Share (p) 3 665.43 625.23 b
NAV total return unadjusted (c=((a-b)/ (22.75) 8.67 c
b)) (%)
NAV total return adjusted (%)* 3/4 (23.00) 8.70
* Based on NAV price movements and dividends reinvested at the relevant cum
dividend NAV value during the period. Where the dividend is invested and the
NAV value falls this will further reduce the return or, if it rises, any
increase will be greater. The source is Bloomberg who have calculated the
return on an industry comparative basis.
** Page numbers refer to those in the full Annual Report
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Manchester and London
Investment Trust plc will be held by means of an Electronic Facility on Monday,
21 November 2022 at 12.00 noon.
The notice of this meeting, which includes an explanation of the items of
business to be considered at the meeting and restrictions on attendance in
person, will be circulated to Shareholders 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
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
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.
END
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