Manchester & London Investment Trust Plc
Announcement of the Audited Group Results
For the year ended 31st July 2014
The Directors Announce the Audited Results for the year ended 31st July 2014
Company Registered Number: 01009550
Financial Summary
Total Return
Year to Year to Percentage
31st July 31st July (decrease)/
2014 2013 increase
Total return (£'000) (6,295) 2,522 (349.6)
Return per 25p ordinary share - (28.08)p 11.23p (350.0)
fully diluted
Total revenue return per 25p 13.63p 13.76p (0.9)
ordinary share
Cash dividend per 25p ordinary 13.75p 13.75p -
share
Capital
At At Percentage
31st July 31st July (decrease)/
2014 2013 increase
Net assets attributable to equity 64,361 75,050 (14.2)
shareholders* (£'000)
Net asset value per 25p ordinary share 293.20p 334.19p (12.3)
- fully diluted
Benchmark performance 2,953.45 2,897.26 1.9
Performance versus benchmark (14.2)
* Net asset value as at 31st July 2014 includes a £1.3m reduction in respect of
own shares bought back during the year.
Ongoing Charges
Year to Year to
31st July 31st July
2014 2013
Ongoing charges as a percentage of 1.05% 0.89%
average net assets
Financial Calendar
Year ended: 31st July 2014
Results announced: 27th October 2014
Report and Accounts made available to shareholders: 27th October 2014
Annual General Meeting to be held in Manchester: 24th November 2014
Expected final dividend payment: 28th November 2014
Chairman's Statement
Results for the year ended 31st July 2014
The trust's performance for our financial year has been disappointing with a
fall of 12.3 per cent (in net asset value per share) as against an increase of
1.9 per cent for our benchmark but following a modification of tactics we can
report that the fund has performed in line with our benchmark for the last 5
months. The reasons for the underperformance were that we remained
underexposed to U.K. and U.S. centric and smaller capitalisation stocks,
overexposed to commodity price driven companies and stocks exposed to
developing markets whilst, in addition, we were leveraged which accentuated the
underperformance. The investment manager has deleveraged the portfolio and
rebalanced some of the weightings within the portfolio. Historically the fund
has always been attracted to growth overseas and this exposure has not been
reduced. Stocks exposed to developing markets remain out of fashion but the
investment manager believes that, in time, this will change and the fund should
then reap the rewards. In former years, we have been holders of smaller
capitalisation stocks but we have not increased our exposure in this area
during the recovery for liquidity reasons. The board approves this modified
philosophy. We have always been growth-based investors and I hope that when I
next report I shall be able to record that we are back on track.
Dividends
On the 31st July 2014, we announced that it is possible that under the lower
leverage conditions we have chosen to adopt to comply with the partial
exemption, sub threshold regulations within the AIFM directive, the Company may
have less capital with which to generate trading income for financial years
following 2014.
The Company's income is comprised of both (1) dividend income from investments
(considered ordinary investment income) and (2) income from trading activity
which includes gains and losses on the trading of shares, options, futures and
equity swaps, net of commissions, interest and other costs expensed (considered
trading income or special income). In the future, the Directors have decided
to pay ordinary dividends from the more consistent dividend income from
investments less our corporate expenses, and special dividends from any
positive trading income generated. The Directors believe this split makes the
nature of the dividends received by shareholders more transparent.
The Directors are proposing a final ordinary dividend of 1.98 pence for the
financial year 2014 and a second special dividend for the financial year 2014
of 1.27 pence.
Annual General Meeting
I look forward to welcoming shareholders to our forty second Annual General
Meeting to be held at St. Ann's Church, St. Ann Street, Manchester, M2 7LF at
1 p.m. on 24th November 2014.
Mr P H A Stanley.
Chairman
Equity Exposures (Longs)
As at 31st July 2014
Valuation % of Net
Listed investments Sector £'000 Assets
PZ Cussons plc Personal Goods 16,005 24.9
AstraZeneca plc Pharmaceuticals & 4,649 7.2
Biotechnology
Diageo plc Beverages 4,349 6.8
Jardine Matheson Holdings Ltd4 Asian Conglomerate 4,331 6.7
Glencore plc Mining 3,815 5.9
Afren plc Oil & Gas Producers 3,526 5.5
BG Group plc Oil & Gas Producers 3,457 5.4
Shire plc Pharmaceuticals & 3,135 4.9
Biotechnology
Unilever plc Food Producers 2,809 4.4
bioMérieux SA² Medical Technology 2,714 4.2
Syngenta AG Agrisciences 2,644 4.1
KWS SAAT AG² Agrisciences 2,065 3.2
ishares FTSE 100 Ucits (Inc) Equity Instruments 1,971 3.1
Pernod Ricard SA² Beverages 1,888 2.9
Davide Campari-Milano S.p.A.² Beverages 1,854 2.9
Svenska Cellulosa AB³ Household Utilities 1,411 2.2
Euronext NV² Financial Services 1,369 2.1
ishares MSCI World Ucits (Inc) Equity Instruments 975 1.5
Ophir Energy plc Oil & Gas Producers 749 1.2
Adidas AG² Personal Goods 711 1.1
Salamander Energy plc Oil & Gas Producers 472 0.7
Time Warner Inc (4) Media 438 0.7
Spire Healthcare Group plc Healthcare 408 0.6
Cairn Energy plc Oil & Gas Producers 388 0.6
ITV plc Media 250 0.4
lululemon athletica Inc (4) Personal Goods 187 0.3
The Interpublic Group of Media 146 0.2
Companies Inc (4)
British Sky Broadcasting Group Media 88 0.1
plc
Listed investments 66,804 103.8
Unlisted at Directors' valuation 133 0.2
Total long positions 66,937 104.0
Cash and net current assets/ (2,576) (4.0)
(liabilities)
Net assets 64,361 100.0
All investments listed above are equities (unless otherwise stated),
denominated in Sterling (except CHF, ²Euro, ³SEK and 4USD) that have been
issued by companies registered in England (save for Jardine Matheson Holdings
Ltd, Glencore plc, Shire plc, bioMérieux SA, Syngenta AG, KWS SAAT AG, Pernod
Ricard SA, Davide Campari-Milano S.p.A., Svenska Cellulosa AB, Euronext NV,
Adidas AG, Time Warner Inc, lululemon athletica inc and The Interpublic Group
of Companies Inc that are registered in Bermuda, Jersey, Jersey, France,
Switzerland, Germany, France, Italy, Sweden, Holland, Germany, USA, Canada and
USA respectively).
Portfolio Sector Analysis
As at 31st July 2014
Sector % of Net
Assets
Personal Goods 26.3
Oil & Gas Producers 13.4
Beverages 12.6
Pharmaceuticals & Biotechnology 12.1
Agrisciences 7.3
Asian Conglomerate 6.7
Mining 5.9
Equity Instruments 4.6
Food Producers 4.4
Medical Technology 4.2
Household Utilities 2.2
Financial Services 2.1
Media 1.4
Healthcare 0.6
Unlisted Investments 0.2
Cash and net current assets/(liabilities) (4.0)
Net assets 100.0
Investment Manager's Review
Last year we wrote an extensive investment manager's review providing a fuller
explanation of our investment style. We do not intend to replicate this again
as nothing has changed. What we would say is that we have underestimated how
some of the geopolitical, economic and technological changes that have occurred
since the 2008 depression have structurally altered some business models. We
need to be quicker to spot these shifts.
Controlling costs and generating trading income
Other operating expenses have increased marginally from £232,000 to £234,000
since our preceding financial year. This is a reasonable performance but, as
has been highlighted before, we expect these costs to now escalate following
the introduction of AIFMD and further regulation over forthcoming financial
years. We will do our best to control these costs but they are somewhat out of
our control. We will cut all unnecessary expenditure.
The cost of our investment transactions has increased but only in line with
Trading Income which has reached a record of £1,377k for the financial year.
This is a good result but, as has been detailed in the Chairman's Statement and
our announcement of the 31st July 2014, there are several reasons deriving from
AIFMD as to why it will be much harder for us to generate Trading Income in
future financial years. The consequences of lower Trading Income will most
probably lead to lower dividends in future financial periods.
Paying shareholders a dividend
In 2014, the fund will pay a dividend equal to last year on a net asset value
per share that has fallen over twelve per cent. We believe this is a good
result and represents a 2014 dividend yield of 5.4 per cent (using the mid
price at the year end).
Generating capital returns
We have failed shareholders for the third year out of three in generating
positive capital returns and the fund has also underperformed its benchmark for
each of the last three years. During the year, the fund's net asset value per
share dropped by 12.3 per cent. The constituents of this underperformance can
be broken down as follows:
Performance of Mining investments 2.5%
Performance of Energy investments (0.8)%
Performance of Agrisciences investments (1.2)%
Performance of PZ Cussons plc (2.6)%
Performance of Other Consumer Goods investments (3.3)%
Performance of Healthcare & Pharmaceuticals investments 0.2%
Performance of Standard Chartered plc (1.1)%
Performance of Hedge against Leverage (5.1)%
Other factors (0.9)%
Total (12.3)%
As our Chairman has detailed in his report, we have tracked our benchmark for
the last five months to the publishing of this report. In the following
section, we will detail our views on the above underperformance and what we
have done to modify our investment approach.
Our mining investments performed positively for the portfolio. Nonetheless, we
have taken an active view to deleverage and derisk our portfolio and we have
reduced our holdings in the sector materially by selling down our position in
Rio Tinto plc (at a profit). Looking forward, we see supply surpluses in iron
ore for a number of years and hence we believe we will be better positioned in
commodity traders and copper producers hence our remaining material holding in
Glencore plc. We do believe the sector appears relatively inexpensive (as do
all value traps) and should global growth pick up (especially from developing
markets) then we could see the copper price stabilise under deficit supply
conditions even with an appreciating dollar (which normally reduces commodity
prices although this is often partially offset by a cost base in a declining
currency).
Another sector that is looking inexpensive is the Oil & Gas sector which, like
the Mining sector, has started to focus on efficiency and capital returns
rather than volume and "interesting" projects. We are concerned that the Oil &
Gas sector could go the way of the Coal sector so we are concentrating on
future investments in stocks that are either cash generative, producers or are
focused on LNG and gas (which we guess could end up powering a good proportion
of future electric cars). BP plc was actually a positive contributor to
performance during the year but due to the escalation of risks around Russia
and the Macondo litigation case we decided to derisk by removing BP from the
portfolio (at a loss). Afren plc has fallen considerably following corporate
governance issues regarding a number of directors. We had top sliced the
position in a risk reduction exercise before this occurred but nonetheless
Afren suppressed 1.2 per cent from our performance. We estimate the stock is
now trading at close to 50 per cent of its fair value so we will be patient and
hope for an opportunistic bid.
We increased our exposure to the Agrisciences sector with the purchase of KWS
Saat AG shares during the financial year so that we had a more balanced
exposure to both seeds and crop protection. KWS Saat is a family controlled,
mid capitalisation, German company with a history of success and growth. We
intend to hold the stock for the long term. Syngenta AG has been a poor
performer and withdrew 1.2 per cent from our performance. The stock has been
hit by some exogenous factors such as bumper corn crops and some internal
issues with the mis-introduction of new products. We do believe that if
Syngenta doesn't deliver soon then either Monsanto or DuPont could be
interested in rebalancing their portfolio with more crop protection.
PZ Cussons plc has had another poor year due to a tough supermarket environment
in the UK, terrorism and Ebola in Nigeria and a slow down in Indonesia. The
good news is that all these are exogenous and their issues this year have not
been due to poor management. We maintain that the economies of Nigeria and
Indonesia are exciting areas to be exposed to and PZ is one of the few
companies that allows you to gain this undiluted exposure with passable
corporate governance. We are constantly told by shareholders that we should
sell this holding but when we ask what other suggestions they have to gain
exposure to the two aforementioned economies they are yet to come up with any
suggestions.
A selection of other consumer goods companies gave a negative contribution to
our performance including Burberry Group plc and Diageo plc. We have sold
Burberry (at an attractive profit) because we are concerned by the inexperience
of the CEO in matters of corporate stewardship, a potential consensus
forecasting gap with regard to the cessation of the Japanese license and
concerns regarding the effect on the quality of the product with ever expanding
gross margins. We have replaced Burberry with holdings in Tods S.p.A. and
Prada S.p.A. which have a higher leather exposure and are perceived as higher
quality brands. Our guess is that if there are to be M&A targets in the sector
there is a decent chance that one of these latter two names will star before
Burberry. Diageo was overvalued as we entered the period and we were
complacent in not reducing the position, especially as we believe (contrary to
rumours regarding SAB Miller) that it is extremely unlikely that Diageo will be
the subject of M&A activity. Diageo withdrew 0.8 per cent from our overall
performance but we believe that Diageo has very impressive brands and there are
a number of self help measures it can take to continue growing as long as the
global economy does not stall. We have also added to our sector position with
Davide Campari-Milano S.p.A.
Astra Zeneca plc withdrew 0.6 per cent from our overall performance but this
was more than offset by a positive contribution from Smith & Nephew plc. We
believe that Astra Zeneca will perform better in the current financial year
even if Pfizer don't return with an improved bid. We did sell our Smith &
Nephew position (at a profit) on concerns regarding the barriers to entry for
some of the products in the Wound Management division and concerns that the new
CEO was overpaying for acquisitions. Nonetheless, we have revisited Smith &
Nephew on price weakness because we do see a bid from Styrker as a strong
possibility at some point after November 2014.
We have finally "seen the light" with banks, having had a relatively good
financial crisis being under exposed to the sector. We believe the retail
banks will suffer attrition from peer to peer platforms and we are not sure
that Asian based wholesale banks can thrive now that the dollar carry trade has
turned. Basically, there are multiple matters we don't know about banks
(although some of our team have worked in them) and we do not believe in
business models reliant on twenty to thirty times geared books. Banks will
generate outstanding returns at times but the risks are so high that we have
decided we would just rather avoid this sector unless it becomes compellingly
undervalued. We have disposed of Standard Chartered plc (at a loss that more
than cancelled out our previous profit on exiting in 2008) in a derisking
process.
It may seem crazy looking at the end result but the reason we put on the hedge
against our gross leverage position was to derisk our portfolio. In essence,
we wanted to run a long book of potential M&A targets that exceeded our net
asset value but we did not want to be geared in our exposure greater than our
net asset value. The solution, we believed, was to hedge the exposure with
some equal value and opposite direction shorts on stock indexes on the UK and
USA market (the latter as it is the most liquid). Considering the state of the
UK and European economies, we did not anticipate the devaluation of the US
dollar against the British Pound and the Euro to be so pronounced and hence
drive up the S&P 500 so much more than the positions we were attempting to
hedge. We have closed this position whilst closing down equal value long
positions in a deleveraging process.
The year ahead
Our best guesses for 2015 are set out below:
* The best of the bull market has passed - this is galling as we have pretty
much missed it.
* But the bear market won't be back quite yet - whilst there are more worries
than there ever were for financial markets (including hair raising debt
levels and structural stagnation issues) the forces of continuing
accommodative interest rates from the Fed, the global savings glut in
countries that have no further material room to invest it internally and
more quantitative easing from Japan and the ECB mean that we may see stock
markets grinding higher.
* Share buy backs may be replaced by M&A - shareholders may well turn against
CEOs continuing to enhance their remuneration through the escalating value
of option packages via the enhancement of earnings from share buy backs,
and hence the next tactic they may try is to enhance earnings via M&A
synergies.
* The Dollar continues to appreciate - this may result in Dollar earners
performing better than Pound earners so UK centric small capitalisation
stocks may not repeat their returns of the last two financial years.
* The developing markets will slow but should still grow faster than
developed markets - so we continue to favour global companies with exposure
to these markets.
* Demographics in the developed world may make growth structurally slower -
hence our desire to hold stocks in global companies with exposure to
demographic and income per GDP growth in developing markets.
* Trading income strategies of selling mega cap call options and buying
arbitrage positions in sensible targets may be the best tactics for us.
Conclusion
We see a slower appreciation in markets as the bull market grows longer in the
tooth so we have deleveraged and have changed our positioning to concentrate on
M&A activity for global businesses that offer synergies to the larger global
mega capitalisation stocks. We intend to position further to reap the
benefits of this strategy should it prove successful throughout the year.
We are all fully aware of the consequences of a rising dollar on the developing
markets carry trade but we hope that this is now reflected within the price of
such stocks exposed to developing markets. In time, we believe that the growth
differential between developed market centric stocks and stocks exposed to
developing markets will lead to a rerating of the latter. We have always been
growth based investors.
We should understand that by holding less small capitalisation stocks we may
underperform as we are theoretically taking less risk. Nonetheless, the
portfolio has been partly repositioned away from over $10bn market
capitalisation stocks to stocks capitalised in the $1bn to $10bn range
(examples being bioMérieux SA, KWS Saat AG, Davide Campari-Milano S.p.A.) but
we have no intention of gaining material exposure to companies smaller than
this due to liquidity risks.
We will do our best to generate Trading Income which can be paid out to long
suffering shareholders as dividend income.
Investment Manager
Midas Investment Management Limited.
Principal Portfolio Holdings
PZ Cussons plc ("PZ Cussons")
PZ Cussons is a global personal goods manufacturer, with a portfolio of more
than 30 leading brands, including Imperial Leather, Carex, Cussons Baby and
Morning Fresh. The company operates in a variety of selected mature and
emerging markets including the UK, Africa, Asia, Central Europe and Australia.
PZ Cussons has a five year compound earnings per share ("EPS") growth rate of
6.1 per cent.
PZ Cussons is exposed to developing markets and the volatility that incurs. We
believe medium term prospects are encouraging and we have no intention of
reducing our stake in the short term. PZ Cussons' geographic footprints and
distribution network should be attractive to a major.
AstraZeneca plc ("AstraZeneca')
AstraZeneca is a global innovation-driven biopharmaceutical company.
AstraZeneca has a wide portfolio of products with a primary focus on three
important areas of healthcare: Cardiovascular and Metabolic disease, Oncology
and Autoimmunity.
While we were disappointed to see AstraZeneca turn down the approach from
Pfizer, we believe that the Net Present Value of the new product/drug pipeline
supports a higher valuation than is currently recognised by the market. We are
likely to sell down the position if this valuation discount closes.
Diageo plc ("Diageo")
Diageo is a global alcoholic beverages company, and the world's largest
producer of spirits. The company holds a portfolio of iconic brands such as
Johnnie Walker, Smirnoff, Baileys and Guinness. With a large footprint in
emerging markets, Diageo should benefit from the growth of the middle classes
in these economies over time. The company has a five year compound EPS growth
rate of 6.4 per cent.
We believe that Beverages is an attractive sector over the long term but we may
continue to shift exposure from Diageo to other stocks in the sector that are
more obvious takeover targets. We are also holders of Pernod Ricard SA and
Davide Campari-Milano S.p.A.
Jardine Matheson Holdings Ltd ("Jardine Matheson")
Jardine Matheson is an Asian focused conglomerate, with interests in sectors
such as engineering and construction, motor vehicles, insurance broking,
property investment and retailing. The company has a five year compound EPS
growth rate of 7.6 per cent.
Jardine Matheson should offer exposure to growing markets over the medium term,
though we may reduce the position if the estimated discount to net asset value
("NAV") closed significantly.
Glencore plc ("Glencore")
Glencore is a leading global mining & trading group, covering a wide range of
essential commodities from copper to oil to grain. Glencore is forecast to
generate significant free cash flow over the next few years, which we hope may
lead to further capital returns.
We believe Glencore is undervalued, but we have reduced the holding and would
continue to do so should valuations become more optimistic.
Afren plc ("Afren")
Afren is an African focused E&P company with a balanced portfolio of
cash-generative producing assets and high-impact exploration and appraisal
opportunities. Afren has a four year compound EPS growth rate of over 15 per
cent.
Afren has performed poorly this year predominantly due to lapses in corporate
governance. However, we believe the stock now trades at a significant discount
to the value of its assets, which in our view remain attractive. Afren is a
long term play on Africa's emerging hydrocarbon basins, but we may reduce our
position sooner if the estimated discount to NAV materially reduced. We view
Afren as an uncomfortably high risk position.
BG Group plc ("BG")
BG is a global diversified oil & gas E&P company, with assets in the Santos
Basin (Brazil), Australia and the North Sea. The group also has an LNG arm,
capitalising on global price differences by transporting gas in liquid form
from producing nations to high demand regions such as Asia.
BG has a five year compound EPS growth rate of 6.7 per cent and we believe it
trades at a significant discount to its NAV. As production in Brazil and
Australia increases, we would anticipate this discount closing in time.
Shire plc ("Shire")
Shire is a global specialty biopharmaceutical company focusing on rare and
specialized conditions.
Shire was primarily an event driven investment and we divested the position
post the year end once our price target had been reached. Post year end, we
have begun to rebuild the position post a material drop in the share price.
Unilever plc ("Unilever")
Unilever is a multinational consumer goods company, with recognisable brands in
personal goods, household goods and food. It has a high exposure to developing
markets and has a compound annual EPS growth rate of 7.2 per cent over the last
5 years. Unilever has been slowly divesting non core food brands and we look
for further disposals to drive a re-rating.
bioMérieux SA ("bioMérieux")
bioMérieux is a multinational biotechnology company. It is a leader in the
field of in vitro diagnostics, providing diagnostic solutions (reagents,
instruments, software) with a core focus on infectious diseases, cardiovascular
diseases and targeted cancers.
We believe bioMérieux has an attractive medium term outlook and we are holding
it with a longer term investment horizon in mind.
Investment Record of the Last Ten Years
Dividend Total
Return per per assets Net asset value
Total ordinary share ordinary less Per 25p share
Year ended return Basic Fully share liabilities Basic Fully
diluted diluted
£'000 p p p £'000 p p
31st July 2005 5,426 72.35 52.33 9.50 33,611 448.15 327.34
31st July 2006 3,206 42.75 31.14 9.50 36,107 481.43 351.17
31st July 2007 5,799 41.58 41.58 10.00 52,554 376.80 376.80
31st July 2008 (3,490) (25.02) (25.02) 10.00 47,669 341.80 341.80
31st July 2009 645 4.43 4.43 10.50 57,495 328.44 328.44
31st July 2010 13,151 71.75 71.75 11.50 85,203 379.40 379.40
31st July 2011 15,691 69.87 69.87 12.50 98,267 437.60 437.60
31st July 2012 (19,945) (88.81) (88.81) 13.00 75,515 336.26 336.26
31st July 2013 2,522 11.23 11.23 13.75 75,050 334.19 334.19
31st July 2014 (6,295) (28.08) (28.08) 13.75 64,361 293.20 293.20
In 2006, the Company adopted International Financial Reporting Standards
("IFRS"). As a result, the data has been restated to reflect the change to
IFRS.
In the period from 1981 to 2004, total assets less liabilities increased from £
241,000 to £28,900,000. Net assets per share increased from 24.1p to 385.4p.
Strategic Report
The Directors present their annual report and financial statements for the year
ended 31st July 2014.
The Chairman's Statement forms part of the Directors' Report.
Business Review
The purpose of the strategic report is to provide an overview of the business
of the Company by:
* Analysing development and performance using appropriate key performance
indicators ("KPIs").
* Outlining the principal risks and uncertainties affecting the Company.
* Describing how the Company manages these risks.
* Explaining the future business plan of the Company.
* Providing information about persons with whom the Company has contractual
or other arrangements which are essential to the business of the Company.
* Outlining the main trends and factors likely to affect the future
development, performance and position of the Company's business.
Status
The Company is an Investment Company as defined by Section 833 of the Companies
Act 2006 and operated as an Investment Trust in accordance with Section 1158 of
the Corporation Tax Act 2010.
The Company is also governed by the Listing Rules and Disclosure and
Transparency Rules of the Financial Conduct Authority and is listed on the main
market of the London Stock Exchange under the epic code "MNL".
The close company provisions of the Corporation Tax Act 2010 do not apply to
the Company.
Company registered number: 01009550.
Principal activities
The Company carries on business as an Investment Company. A review of
investment activities for the year ended 31st July 2014 and the outlook for the
coming year is given by the Investment Manager.
Performance and key performance indicators
The key measures by which the Board judges the success of the Company are the
share price, the net asset value per share and the ongoing charges measure.
The Board considers the most important key performance indicator to be the
comparison with its benchmark index. This is referred to in the Financial
Summary.
Total net assets at 31st July 2014 amounted to £64,361,000 compared with £
75,050,000 at 31st July 2013, a decrease of 14.2 per cent (net of own share
buybacks as disclosed in note 18), whilst the fully diluted net asset value per
ordinary share decreased to 293.2p from 334.2p. This decrease of 12.3 per cent
compared with an increase over the period of 1.9 per cent by our benchmark
index, equated to an underperformance by the Group of 14.2 per cent.
Group net revenue return after taxation for the year was £3,055,000, a decrease
of 1.1 per cent.
The share price during the period under review has been quoted at discounts to
net asset value of 8.7 to 16.2 per cent.
Ongoing charges is a measure of the total expenses (including those charged to
capital) expressed as a percentage of the average net assets over the year. The
Board regularly reviews the ongoing charges measure and monitors Group
expenses.
Going concern
After making enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the financial statements.
Principal risks and uncertainties associated with the Company
An investment in the Company is only suitable for financially sophisticated
investors who are capable of evaluating the risks and merits of such an
investment, or other investors who have been professionally advised with regard
to investment and who have sufficient resources to bear any loss which might
result from such an investment. There can be no guarantee that investors will
recover their initial investment. The investment may employ gearing and may be
subject to sudden and large falls in value. Investors should be aware that
movements in the price of the Company may be more volatile than movements in
the price of the underlying investments and that there is a risk that investors
may lose all their invested money. Investors considering an investment should
consult their stockbroker, bank manager, solicitor, accountant and/or other
independent financial adviser.
In respect of some of the companies in which the Company may invest:
* the company may be undergoing significant change, or be exposed to the
volatility of emerging or developing markets;
* they may have less mature businesses, a more restricted depth of management
and accordingly a higher risk profile;
* the quality of the investments' management may have been overestimated;
* the market value of, and income derived from, such shares can fluctuate;
and
* there may not be a liquid market for their shares. The fact that a share is
traded on a market does not guarantee its liquidity. Accordingly, such
shares may be difficult to realise at quoted market prices.
Any change in the tax treatment of dividends paid, or income received by the
Company, may reduce the level of yield received by shareholders. Any change in
the Company's tax status, or in legislation, could affect the value of the
investments held by the Company and its performance.
Investment in the Company should be regarded as long-term in nature. There can
be no guarantee that any appreciation in the value of the Company's investments
will occur and investors may not get back the full value of their investment.
There can be no guarantee that the investment objective of the Company will be
met.
The Company is exposed to a range of economic and market risks, liquidity,
interest rates, exchange rates and general financial risks.
The market capitalisation of the Company will make the market of the ordinary
shares less liquid than would be the case for a larger company.
Whilst the use of borrowings by the Company should enhance the net asset value
of the ordinary shares when the value of the Company's underlying assets is
rising, it will have the opposite effect when the underlying asset value is
falling. Furthermore, should any fall in the underlying assets' values result
in the Company breaching the financial covenants applicable to borrowings, the
Company may be required to repay such borrowing in whole or in part together
with any attendant costs. In order to repay such borrowings, the Company may
have to sell assets at less than their quoted market values. A positive net
asset value for the ordinary shares will be dependent upon the Company's assets
being sufficient to meet any debt.
On a winding-up of the Company, the ordinary shares rank for repayment of
capital after repayment of all other creditors of the Company. Ordinary shares
are only appropriate for investors who understand that they may receive an
amount less than their original investment.
Risk management
The risks with regards to financial instruments, and the Company's policies for
management of these risks, are detailed in note 20 to the financial statements
- "Risks - Investments, derivatives and other risks". The Company manages the
risks inherent in portfolio management by investing in approximately 20 to 40
securities of companies operating in a range of industrial sectors and varying
the extent of cash holdings or gearing in relation to the Investment Manager's
assessment of overall market conditions.
The Company does not have any employees and consequently relies upon the
services provided by a number of third parties. The Board therefore relies on
the control procedures of these third parties which include the Company's
Investment Manager, Registrar, Custodians and Broker. This type of operational
structure is not uncommon with Investment Trust companies.
The Board via reports from the Administrator reviews the internal control
procedures of its third party service providers and assesses the reliability of
these procedures as part of its risk management strategy. The Risk Management
function is a responsibility of the Administrator, M&M Investment Services,
which is a division of M&M Investment Company plc* and operates as a standalone
unit, comprised of individuals who are not members of the Board or the Sheppard
family. Further details with regards to the Board's risk management procedures
are detailed in the "Internal Financial Control" section of the Statement of
Corporate Governance.
(* formerly Manchester & Metropolitan Investment Limited)
Gearing
By the year end gross long equity exposure represented 104.0 per cent of net
assets.
Management
Details of the Company's management agreement with Midas Investment Management
Limited ("the Investment Manager") are contained in note 3 to the financial
statements.
Future development
A commentary on the trends and factors likely to affect the future development,
performance and position of the Company, which includes an assessment of market
sentiment and the effectiveness of government intervention, is set out in the
Chairman's Statement and the Investment Manager's Report and is also released
monthly in a fund factsheet published via the Company's website.
By Order of the Board
Mr M K Camp
Secretary
27th October 2013
Directors' Report
Results
The Group's total comprehensive loss for the year, after taxation, amounted to
£6,295,000 (2013: £2,522,000 total comprehensive profit).
After own share buybacks as disclosed in note 18, total net assets at 31st July
2014 amounted to £64,361,000 compared with £75,050,000 at 31st July 2013,
whilst the fully diluted net asset value per ordinary share decreased to 293.2p
from 334.2p.
Dividends
An interim ordinary and a first special dividend of 5.5p and 5.0p per ordinary
share were paid on 30th April 2014 and 22nd August 2014 respectively (2013:
5.5p interim ordinary, nil special dividend). The Directors are recommending a
final ordinary dividend of 1.98p per ordinary share (2013: 8.25p) and a second
special dividend of 1.27p per ordinary share (2013: nil), giving a total for
the year of 13.75p per ordinary share (2013: 13.75p).
It is our current intention that the final ordinary and second special dividend
will be paid on 28th November 2014 to shareholders registered on 21st November
2014. The shares will be declared ex-dividend on 20th November 2014.
Share valuations
On 31st July 2014, the middle market quotation and the net asset value per
ordinary 25p share were 256.3p and 293.2p, respectively. This indicates that
the discount on the Company's shares was 12.6 per cent. This is not uncommon as
the share prices of closed-end funds are often traded at a discount to their
net asset values.
Prior year restatement
In 2014 the Group amended its presentation of derivatives to improve reporting
alignment to industry standards. The effects of this restatement are shown in
the Group and Company balance sheets and in notes 15 and 16.
Events after the reporting period
Since the end of the reporting period the Company has bought back 166,885 of
its own ordinary 25p shares for an aggregate cost of £407,000. These shares are
all currently held in treasury.
Supplier terms
It is the Group's policy to obtain the best terms for all business, including
purchases of investments and to abide by those agreed terms.
The Group had trade payables of £96,000 (2013: £99,000) at the year end. Trade
payables are settled by the due date for payment. Payables in respect of
investment purchases are settled in accordance with Stock Exchange regulations.
Relationship agreement with controlling shareholder
Post the period end, the Company has, as required by LR 9.2.2A, entered into a
written and legally binding relationship agreement with its controlling
shareholder, M&M Investment Company plc, and their associates. The purpose of
this agreement is to formally ensure compliance with independence provisions
set out in LR 6.1.4D.
Since entering the relationship agreement, the Company has fully complied with
the independence provisions included within this agreement and, so far as the
Company is aware, the independence provisions included in this agreement have
also been complied with during the period under review by the controlling
shareholder and their associates.
Directors' Responsibilities in Relation to the Annual Report and the Financial
Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and Parent
Company financial statements in accordance with International Financial
Reporting Standards (IFRS) adopted by the European Union and Article 4 of the
EU IAS Regulation. Under Company law, the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of the affairs of the Company and the Group and of the profit
or loss of the Company and Group for that period.
In preparing those financial statements, the Directors are required to:
* properly select suitable accounting policies and apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and accounting estimates that are reasonable;
* provide additional disclosure when compliance with the specific
requirements of IFRS are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Company and Group financial position and financial performance;
* state that the Company and Group financial statements have been prepared in
accordance with IFRS, subject to any material departures disclosed and
explained in the financial statements; and
* make an assessment of the ability of the Company and Group to continue on a
going concern basis.
The Directors are responsible for keeping adequate accounting records that show
and explain the Company's and Group's transactions and disclose with reasonable
accuracy, at any time, the financial position of the Company and of the Group
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 Group and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors' Report and Statement of Corporate
Governance that comply with that law and those regulations.
To the best of the knowledge of each of the Directors:
a. the financial statements, prepared in accordance with the IFRS adopted by
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
b. the Annual Report includes a fair review of the development and performance
of the fund and the position of the Company and the undertakings included
in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
The board confirms that the annual report and accounts, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the performance, strategy and business model of the
Group. This statement is underpinned by the comprehensive review process of the
annual report by the audit committee and directors. Each of the Directors
accepts responsibility accordingly.
On behalf of the Board of Directors
Mr P H A Stanley
Chairman
27th October 2014
Independent Auditor's Report To The Members of Manchester & London Investment Trust plc
The Company's financial statements for the year ended 31st July 2014 have been
audited by CLB Coopers. The entire Auditor's report, which is unqualified, can
be found in the Company's Annual Report and Financial Statement at
www.manchesterandlondon.co.uk.
Consolidated Statement of Comprehensive Income
For the year ended 31st July 2014
2014 2014 2014 2013 2013 2013
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains
Losses on investments at - (9,052) (9,052) - (240) (240)
fair value through
profit or loss
Trading income 2 1,377 - 1,377 627 - 627
Investment income 2 2,431 - 2,431 3,189 - 3,189
Gross return 3,808 (9,052) (5,244) 3,816 (240) 3,576
Expenses
Investment management 3 (348) - (348) (411) - (411)
fee
Cost of investment (170) - (170) (82) - (82)
transactions
Other operating expenses 4 (234) - (234) (232) - (232)
Total expenses (752) - (752) (725) - (725)
Return before finance 3,056 (9,052) (5,996) 3,091 (240) 2,851
costs and tax
Finance costs 6 (1) (298) (299) (2) (327) (329)
Return on ordinary 3,055 (9,350) (6,295) 3,089 (567) 2,522
activities before tax
Tax expense 7 - - - - - -
Return on ordinary 3,055 (9,350) (6,295) 3,089 (567) 2,522
activities after tax
Earnings per ordinary
share (pence)
Basic 9 13.63 (41.71) (28.08) 13.76 (2.53) 11.23
Fully diluted 9 13.63 (41.71) (28.08) 13.76 (2.53) 11.23
The total column of this statement represents the Statement of Comprehensive
Income of the Group prepared in accordance with IFRS. The supplementary revenue
return and capital return columns are both prepared under guidance published by
the Association of Investment Companies.
The Group does not have any Other Comprehensive Income and hence the return on
ordinary activities after tax, as disclosed above, is the same as the Group's
Total Comprehensive (Loss)/Income.
All items in the above statement derive from continuing operations.
Consolidated and Company Statements of Changes in Equity
For the year ended 31st July 2014
Group Capital Capital
Share Share Treasury Other reserve reserve Retained
capital premium shares reserves (unrealised) (realised) earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1st 5,614 35,132 - (79) 8,146 22,916 3,786 75,515
August 2012
Changes in equity
for 2013
Total - - - - - - 2,522 2,522
comprehensive
income
Transfer of - - - - (2,550) 1,983 567 -
capital loss
Ordinary dividend - - - - - - (2,987) (2,987)
paid
Balance at 31st 5,614 35,132 - (79) 5,596 24,899 3,888 75,050
July 2013
Changes in equity
for 2014
Total - - - - - - (6,295) (6,295)
comprehensive loss
Buybacks of - - (1,306) - - - - (1,306)
ordinary shares
Transfer of - - - - 9,643 (18,993) 9,350 -
capital loss
Ordinary dividend - - - - - - (3,088) (3,088)
paid
Balance at 31st 5,614 35,132 (1,306) (79) 15,239 5,906 3,855 64,361
July 2014
Company Capital Capital
Share Share Treasury Other reserve reserve Retained
capital premium shares reserves (unrealised) (realised) earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1st 5,614 35,295 - (79) 8,079 (889) 27,160 75,180
August 2012
Changes in equity
for 2013
Total - - - - - - 2,865 2,865
comprehensive
income
Transfer of - - - - (2,483) 2,419 64 -
capital loss
Ordinary dividend - - - - - - (2,987) (2,987)
paid
Balance at 31st 5,614 35,295 - (79) 5,596 1,530 27,102 75,058
July 2013
Changes in equity
for 2014
Total - - - - - - (6,303) (6,303)
comprehensive
income
Buybacks of - - (1,306) - - - - (1,306)
ordinary shares
Transfer of - - - - 9,643 (18,993) 9,350 -
capital loss
Ordinary dividend - - - - - - (3,088) (3,088)
paid
Balance at 31st 5,614 35,295 (1,306) (79) 15,239 (17,463) 27,061 64,361
July 2014
Consolidated Statement of Financial Position
At 31st July 2014
Restated Restated
2014 2013 2012
Note £'000 £'000 £'000
Non-current assets
Investments at fair value 10 45,664 75,689 79,966
through profit or loss
45,664 75,689 79,966
Current assets
Unrealised derivative assets 16 291 5,748 1,883
Trade and other receivables 12 100 190 81
Cash and cash equivalents 13 19,625 21,802 11,432
20,016 27,740 13,396
Gross assets 65,680 103,429 93,362
Current liabilities
Unrealised derivative 16 (1,185) (17,229) (7,772)
liabilities
Borrowings 14 - (10,967) (9,899)
Trade and other payables 15 (134) (183) (176)
(1,319) (28,379) (17,847)
Net assets 64,361 75,050 75,515
Equity attributable to equity
holders
Ordinary share capital 17 5,614 5,614 5,614
Shares held in treasury 18 (1,306) - -
Share premium 35,132 35,132 35,132
Other reserves
Capital reserve - realised 5,906 24,899 22,916
Capital reserve - unrealised 15,239 5,596 8,146
Goodwill reserve (79) (79) (79)
Retained earnings 3,855 3,888 3,786
Total equity 64,361 75,050 75,515
Net asset value per share
Ordinary shares - basic 19 293.2p 334.2p 336.3p
Ordinary shares - fully diluted 19 293.2p 334.2p 336.3p
The financial statements were approved by the Board of Directors and authorised
for issue on 27th October 2014 and are signed on their behalf by:
Mr P H A Stanley (Chairman)
Mr D Harris
Directors
Company Statement of Financial Position
At 31st July 2014
Restated Restated
2014 2013 2012
Note £'000 £'000 £'000
Non-current assets
Investments at fair value 10 45,664 75,689 79,009
through profit or loss
Investment in subsidiaries 11 - 17 2,180
45,664 75,706 81,189
Current assets
Unrealised derivative assets 16 291 5,012 1,883
Trade and other receivables 12 100 2,761 83
Cash and cash equivalents 13 19,625 14,134 11,336
20,016 21,907 13,302
Gross assets 65,680 97,613 94,491
Current liabilities
Unrealised derivative 16 (1,185) (11,388) (5,896)
liabilities
Borrowings 14 - (10,967) (9,899)
Trade and other payables 15 (134) (200) (3,516)
(1,319) (22,555) (19,311)
Net assets 64,361 75,058 75,180
Equity attributable to equity
holders
Ordinary share capital 17 5,614 5,614 5,614
Shares held in treasury 18 (1,306) - -
Share premium 35,295 35,295 35,295
Other reserves
Capital reserve - realised (17,463) 1,530 (889)
Capital reserve - unrealised 15,239 5,596 8,079
Goodwill reserve (79) (79) (79)
Retained earnings 27,061 27,102 27,160
Total equity 64,361 75,058 75,180
The financial statements were approved by the Board of Directors and authorised
for issue on 27th October 2014 and are signed on their behalf by:
Mr P H A Stanley (Chairman)
Mr D Harris
Directors
Consolidated Statement of Cash Flows
For the year ended 31st July 2014
2014 2013
£'000 £'000
Cash flow from operating activities
Return on operating activities before taxation (6,295) 2,522
Interest paid 299 329
Loss/(profit) on investments 2,208 (9,106)
Decrease/(increase) in receivables 90 (109)
(Decrease)/increase in payables (49) 7
(Increase)/decrease in derivatives (10,587) 5,592
Net cash used in operating activities (14,334) (765)
Cash flow from investing activities
Purchases of investments (35,015) (16,548)
Sales of investments 62,832 29,931
Net cash generated from investing activities 27,817 13,383
Cash flow from financing activities
Equity dividends paid (3,088) (2,987)
Buybacks of ordinary shares (1,306) -
(Repaid to)/drawn from loan facility (10,967) 1,068
Interest paid (299) (329)
Net cash used in financing activities (15,660) (2,248)
Net (decrease)/increase in cash and cash (2,177) 10,370
equivalents
Cash and cash equivalents at beginning of year 21,802 11,432
Cash and cash equivalents at end of year 19,625 21,802
Company Statement of Cash Flows
For the year ended 31st July 2014
2014 2013
£'000 £'000
Cash flow from operating activities
Return on operating activities before taxation (6,303) 2,865
Interest paid 299 329
Loss/(profit) on investments 2,225 (9,605)
Decrease/(increase) in receivables 2,661 (2,678)
(Decrease)/increase in payables (66) (518)
(Increase)/decrease in derivatives (5,482) 2,363
Net cash used in operating activities (6,666) (7,244)
Cash flow from investing activities
Purchases of investments (35,015) (16,368)
Sales of investments 62,832 28,658
Net cash generated from investing activities 27,817 12,290
Cash flow from financing activities
Equity dividends paid (3,088) (2,987)
Buybacks of ordinary shares (1,306) -
(Repaid to)/drawn from loan facility (10,967) 1,068
Interest paid (299) (329)
Net cash used in financing activities (15,660) (2,248)
Net increase in cash and cash equivalents 5,491 2,798
Cash and cash equivalents at beginning of year 14,134 11,336
Cash and cash equivalents at end of year 19,625 14,134
Notes Forming Part of the Financial Statements
For the year ended 31st July 2014
1. Accounting policies
A summary of the principal accounting policies is set out below.
Manchester & London Investment Trust plc ("MLIT") is a public limited company,
which is listed on the London Stock Exchange and is incorporated and domiciled
in the United Kingdom. The consolidated financial statements of the Company for
the year ended 31st July 2014 comprise the Company and its subsidiaries
(together referred to as the 'Group' and individually as 'Group entities').
a) Basis of preparation and statement of compliance
In accordance with European Union regulations, these financial statements have
been prepared in accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board ("IASB"), as
adopted for use in the EU effective at 31st July 2014.
The financial statements have been prepared on the historical cost basis except
where IFRS require an alternative treatment.
To the extent that presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts revised by the Association
of Investment Companies ("AIC") is inconsistent with the requirements of IFRS,
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP.
The Group's principal accounting policies are set out below. These accounting
policies have been applied consistently to all periods presented in these
consolidated financial statements.
b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31st July each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities. All intra-group balances are eliminated on
consolidation.
As permitted by Section 408 of the Companies Act 2006, the parent Company's
statement of comprehensive income has not been included in these financial
statements. The parent Company's comprehensive loss after tax for the year was
£6,303,000 (2013: £2,865,000 comprehensive profit).
The results of subsidiaries or businesses acquired or disposed of during the
year are included in the consolidated Statement of Comprehensive Income from
the effective date of acquisition or up to the effective date of disposal as
appropriate.
2. Income
2014 2013
£'000 £'000
Total income comprises
Trading income 1,377 627
Dividends from listed investments 2,428 3,181
Interest 3 8
3,808 3,816
Finance, commission and other costs (including stamp duty) deducted in the
calculation of Trading income are not disclosed separately.
3. Investment management fee
2014 2014 2014 2013 2013 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 348 - 348 411 - 411
fee
Midas provides investment services to the Company under a management agreement
with a termination period of three months. The annual fee is 0.5 per cent of
the total portfolio value including cash and short term deposits, payable
quarterly in arrears. The fee is not subject to Value Added Tax ("VAT").
Transactions with Midas during the year are disclosed in note 21.
The investment management fee is chargeable 100 per cent to revenue.
4. Other operating expenses
2014 2013
£'000 £'000
Directors' fees 48 57
Auditors' remuneration - audit 23 28
Registrar fees 11 10
Exchange rate variances 45 3
Other expenses 107 134
234 232
Directors' fees - Subsidiaries - 12
Directors' fees - Company 48 45
48 57
Fees payable to the Company's auditor for the audit 23 25
of the parent company and consolidated financial
statements
Fees payable to the Company's auditor for other
services:
* the audit of the Company's subsidiaries pursuant - 3
to legislation
* other services relating to taxation 7 7
30 35
Other operating expenses include irrecoverable VAT where appropriate.
5. Staff numbers and costs
Excluding Directors, the Group employs no members of staff.
Included in Directors' fees above (note 4) are the emoluments paid to the
Chairman as follows:
2014 2013
£'000 £'000
P H A Stanley (Chairman) 18 18
6. Finance costs
2014 2013
£'000 £'000
Charged to revenue 1 2
Charged to capital 298 327
299 329
The finance costs attributable to closed positions defined as Trading Income
are deducted in the calculation of Trading Income along with commission costs
and neither are disclosed separately.
7. Taxation
2014 2014 2014 2013 2013 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current UK corporation tax - - - - - -
The charge for the year can be reconciled to the profit per the income
statement as follows:
Profit/(loss) before tax 3,055 (9,350) (6,295) 3,089 (567) 2,522
Tax at the UK corporation 682 (2,088) (1,406) 731 (134) 597
tax rate of 22.33% (2013:
23.67%)
Tax effect of non-taxable (489) - (489) (727) - (727)
dividends/unrealised
profits
Income not subject to UK (308) - (308) (32) - (32)
corporation tax
Brought forward losses - - - - (30) (30)
utilised during the period
Losses on investments not - 2,022 2,022 - 165 165
relieved
Other non-taxable income - 66 66 (112) - (112)
less expenses not
deductible for tax
Excess management expenses 115 - 115 140 (1) 139
Current year tax charge - - - - - -
The Company has surplus management expenses at 31st July 2014 of £3,053,000
(2013: £2,538,000).
At 31st July 2014, there is an unrecognised deferred tax asset, measured at the
standard rate of 21 per cent, of £641,000 (2013: £584,000). This deferred tax
asset relates to surplus management expenses. It is unlikely that the Group
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 31st July 2014, the Company has unrelieved capital losses of £9,330,000
(2013: £9,330,000). There is therefore, a related unrecognised deferred tax
asset, measured at the standard rate of 21 per cent, of £1,959,000 (2013: £
2,146,000). These capital losses can only be utilised to the extent that the
Company does not qualify as an investment trust in the future and, as such, the
asset has not been recognised.
8. Dividends
2014 2013
£'000 £'000
Amounts recognised as distributions to equity holders in
the period:
Final dividend for the year ended 31st July 2013 of 8.25p 1,853 1,752
(2012: 7.80p) per share
Interim dividend for the year ended 31st July 2014 of 1,235 1,235
5.50p (2013: 5.50p) per share
3,088 2,987
A further interim special dividend of 5.00p per share was paid 22nd August
2014.
The Directors are proposing a final ordinary dividend of 1.98p for the
financial year 2014 and a second special dividend for the financial year 2014
of 1.27p. These proposed dividends have been excluded as a liability in these
financial statements in accordance with IFRS.
We also set out below the total dividend payable in respect of the financial
year, which is the basis on which the requirements of section 1158 of the
Corporation Tax Act 2010 are considered.
2014 2013
£'000 £'000
Interim ordinary dividend for the year ended 31st July 1,235 1,235
2014 of 5.50p (2013: 5.50p) per share
Proposed final ordinary dividend for the year ended 31st 431 1,853
July 2014 of 1.98p (2013: 8.25p) per share*
Interim special dividend for the year ended 31st July 2014 1,098 -
of 5.00p (2013: Nil) per share
Proposed second special dividend for the year ended 31st 277 -
July 2014 of 1.27p (2013: Nil) per share*
3,041 3,088
*Based on the total shares eligible to receive dividend as at 27th October
2014.
9. Return per ordinary share
The calculation of the basic and fully diluted earnings per ordinary share is
based on the following:
2014 2014 2014 2013 2013 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return:
Basic and fully diluted 3,055 (9,350) (6,295) 3,089 (567) 2,522
Basic revenue, capital and total return per ordinary share is based on the net
revenue, capital and total return for the period and on the weighted average
number of ordinary shares in issue (excluding those shares held in treasury per
note 18) of 22,417,547 (2013: 22,457,042).
10. Investments at fair value through profit or loss
Group & Company
2014 2013
£'000 £'000
Investments as below 45,664 75,689
Listed Unlisted Total
£'000 £'000 £'000
Opening cost at 1st August 60,129 56 60,185
Opening unrealised appreciation at 1st 15,436 68 15,504
August
Opening fair value at 1st August 75,565 124 75,689
Purchases at cost 35,015 - 35,015
Sales proceeds (62,832) - (62,832)
Realised profit on sales (1,649) - (1,649)
(Decrease)/increase in unrealised (568) 9 (559)
appreciation
Closing fair value at 31st July 45,531 133 45,664
Closing cost at 31st July 30,663 56 30,719
Closing unrealised appreciation at 31st July 14,868 77 14,945
Closing fair value at 31st July 45,531 133 45,664
11. Subsidiary undertakings
Company
2014 2013
£'000 £'000
Opening cost at 1st August 17 2,180
Subsidiaries purchase of - (2,163)
own shares
Write down of subsidiaries (17) -
Closing cost at 31st July - 17
The Company has investments in the following subsidiary undertakings:
Name of undertaking Principal Activity Country of % of shares held
incorporation Ordinary Preference
and operation shares shares
OSP Limited Non-Trading Guernsey 100 -
Manchester & London Dormant England 100 -
Securities Limited
Saintclose Limited Dormant England 100 -
Beacontree Plaza Limited Dormant England 100 100
Beaconbranch Limited Dormant England 100* -
Darethrift Limited Dormant England 100 -
Fileglow Limited Dormant England 100 -
Zealgate Limited Dormant England 100 -
All these subsidiary undertakings are included in the consolidation.
*Beaconbranch Limited is 100 per cent owned by Beacontree Plaza Limited.
In the opinion of the Directors, there is no material difference between the
book value and fair value of these investments.
12. Trade and other receivables
Group Company
2014 2013 2014 2013
£'000 £'000 £'000 £'000
Receivables from subsidiary undertakings - - - 2,571
Dividend receivables 51 49 51 49
Other receivables 10 133 10 133
Prepayments 39 8 39 8
100 190 100 2,761
13. Cash and cash equivalents
Group Company
2014 2013 2014 2013
£'000 £'000 £'000 £'000
Cash & cash equivalents 19,625 21,802 19,625 14,134
14. Borrowings and securities
During the current and preceding period, the Company operated a Flexible
Revolving Loan Facility with a maximum limit of £11m with Pershing Securities
Limited, a subsidiary of The Bank of New York Mellon Corporation.
During the year this loan was repaid in full and the facility cancelled. As at
31st July 2014, the balance on the loan facility was £Nil (2013: £10,967,000).
As part of custodian relationships, assets held with both Morgan Stanley & Co.
International plc and JP Morgan Chase & Co. are subject to a first fixed charge
with full title guarantee as continuing security.
15. Trade and other payables
Group
Effect of Restated
2014 2013 Restatement 2013
£'000 £'000 £'000 £'000
Trade payables 96 99 - 99
Accruals 38 1,764 (1,680) 84
134 1,863 (1,680) 183
Company
Effect of Restated
2014 2013 Restatement 2013
£'000 £'000 £'000 £'000
Trade payables 96 99 - 99
Payables to subsidiary - 17 - 17
undertakings
Accruals 38 1,764 (1,680) 84
134 1,880 (1,680) 200
The above restatement reflects the revised grouping of derivatives and related
liabilities in the Group and Company balance sheets (see note 16).
16. Derivatives
The Company may use a variety of derivative contracts, including equity swaps,
futures, forwards and options under master agreements with the Company's
derivative counterparties to enable the Company to gain long and short exposure
on individual securities. Derivatives are valued by reference to the underlying
market value of the corresponding security.
The sources of the return under the derivative contract (e.g. notional
dividends, financing costs, interest returns and capital changes) are allocated
to the revenue and capital accounts in accordance with the nature of the
underlying source of income and in accordance with the guidance given in the
AIC SORP. Notional dividend income arising on long positions is apportioned
wholly to the revenue account. Notional interest expense on long positions is
initially allocated 100% to capital whilst the position is unrealised, however,
upon realisation these costs are expensed through the income statement as
revenue or capital in accordance with the Company's revenue recognition
accounting policy. Unrealised changes in value relating to underlying price
movements of securities in relation to derivatives are allocated to revenue or
capital, dependent upon their nature.
The total fair value of the derivatives at 31st July 2014 was negative £894,000
(2013: negative £11,481,000). The corresponding gross exposure on equity swaps
as at 31st July 2014 was £21,273,000 (2013: £105,130,000). The net marked to
market futures and options total value as at 31st July 2014 was negative £
290,000 (2013: negative £1,680,000).
In 2014, the Group amended its presentation of derivatives. Previously equity
swaps had been shown in the balance sheet at the full notional exposure with
the corresponding liability also grossed up and shown in liabilities. This
policy was amended to aggregating equity swap assets with other derivative
assets within current assets, and to grouping equity swap liabilities with
other derivative liabilities within current liabilities in order to align with
industry norm. The effects of this restatement can be seen below and in note
15.
Group
Effect of Restated
2014 2013 Restatement 2013
£'000 £'000 £'000 £'000
Assets
Equity swaps - longs - 49,457 (49,457) -
Unrealised derivatives assets 291 - 5,748 5,748
Equity swaps - shorts - 55,673 (55,673) -
291 105,130 (99,382) 5,748
Current liabilities
Unrealised derivative 1,185 - 17,229 17,229
liabilities
Equity swaps - liability - 114,931 (114,931) -
1,185 114,931 (97,702) 17,229
Company
Effect of Restated
2014 2013 Restatement 2013
£'000 £'000 £'000 £'000
Assets
Equity swaps - longs - 31,027 (31,027) -
Unrealised derivatives assets 291 - 5,012 5,012
Equity swaps - shorts - 34,180 (34,180) -
291 65,207 (60,195) 5,012
Current liabilities
Unrealised derivative 1,185 - 11,388 11,388
liabilities
Equity swaps - liability - 69,903 (69,903) -
1,185 69,903 (58,515) 11,388
The net impact of the restatements in notes 15 and 16 to total shareholder
funds for both Group and Company is £nil.
17. Share capital
Ordinary share capital
No. 2014 No. 2013
('000) £'000 ('000) £'000
Authorised
Ordinary shares of 25p each 28,000 7,000 28,000 7,000
Non-voting Convertible Preference shares 1,000 1,000 1,000 1,000
of £1 each
Ordinary shares of 25p each issued and
fully paid
Balance as at 1st August 22,457 5,614 22,457 5,614
Balance as at 31st July 22,457 5,614 22,457 5,614
Ordinary shares carry the right to one vote and the right to dividends.
18. Shares held in treasury
No. 2014 No. 2013
('000) £'000 ('000) £'000
Shares bought back during year 506 1,306 - -
Balance as at 31st July 506 1,306 - -
At the annual general meeting held on 2nd December 2013, shareholders approved
the Board's proposal to authorise the Company to acquire up to 14.99 per cent
of its issued share capital as at 31 July 2013.
During the year the Company bought back 505,851 (2.3%) of its Ordinary Shares
for a total consideration of £1,306,000. These shares were held in Treasury
throughout the period.
See note 24 for details of transactions in the Company's own shares since the
year end.
19. Net asset value per share
Net asset value Net assets
per share attributable
2014 2013 2014 2013
p p £'000 £'000
Ordinary shares: 293.2 334.2 64,361 75,050
basic and fully diluted
The basic net asset value per ordinary share is based on net assets at the year
end and 21,951,191 (2013: 22,457,042) ordinary shares in issue, adjusted for
any shares held in treasury.
20. Risks - Investments, derivatives and other risks
In order to manage its portfolio efficiently and to enable the Investment
Manager to pursue the investment objectives, the Group holds equity swaps,
derivatives and other financial instruments. All equity swaps, derivative
transactions and financial instruments are accounted for at fair value and
comprise securities, cash balances, trade receivables and trade payables
arising directly from financial operations.
The main risk arising from the Group's investment strategy is market price
risk. There is also exposure to liquidity risk, interest rate risk and currency
rate risk.
The Board regularly reviews and agrees policies for managing these risks, which
are monitored by the Administrator, as summarised below.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments held. It represents the potential loss the Group might
suffer through holding market positions in the face of price movements. Both
the Investment Manager and the Administrator actively monitor market prices
throughout the year and report to the Board which meets regularly to review
investment strategy.
If the price of these investments and equity swaps had increased by 3 per cent
at the reporting date with all other variables remaining constant, the capital
return in the statement of comprehensive income and the net assets attributable
to equity holders of the Group would increase by £2,008,000.
A 3 per cent decrease in share prices would have resulted in an equal and
opposite effect of £2,008,000, on the basis that all other variables remain
constant.
At the year end the Group's assets exposed to market price risk were as
follows:
Group Company
Restated Restated
2014 2013 2014 2013
£'000 £'000 £'000 £'000
Equity long exposures
Investments held in equity form 45,664 75,689 45,664 75,706
Long exposure held in equity swaps 21,273 49,457 21,273 31,027
66,937 125,146 66,937 106,733
Derivatives
Unrealised derivative assets 291 5,748 291 5,012
67,228 130,894 67,228 111,745
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 Group. The Investment Manager actively monitors interest
rates and the Group's ability to meet its financing requirements throughout the
year and reports to the Board.
Liquidity risk
The Directors have minimised liquidity risk by investing in a portfolio of
quoted companies that are readily realisable.
The Group's un-invested funds are held almost entirely with the Custodians or
on interest bearing deposits with UK banking institutions.
As at 31st July 2014 the financial liabilities comprised:
Group Company
2014 2013 2014 2013
£'000 £'000 £'000 £'000
Unrealised derivative liabilities 1,185 17,229 1,185 11,388
Loan facility - 10,967 - 10,967
Trade payables and accruals 134 183 134 200
1,319 28,379 1,319 22,555
All of the above liabilities are due within one month and are stated at fair
value.
The Group manages liquidity risk through constant monitoring of the Group's
gearing position to ensure the Group is able to satisfy any and all debts
within the agreed credit terms.
Currency rate risk
The only material foreign currency exposures are Syngenta AG with a market
value of £2,644,000, denominated in Swiss Francs, bioMérieux SA, KWS SAAT AG,
Pernod Ricard SA, Davide Campari-Milano S.p.A. and Euronext NV denominated in
Euros with a combined market value of £9,890,000, Svenska Cellulosa AB
denominated in SEK with a market value of £1,411,000 and Jardine Matheson
Holdings Ltd denominated in US Dollars with a market value of £4,331,000.
In addition the group held cash exposure to US Dollars of £2,400,000 at the
year end.
The Group constantly monitors currency rate risk to ensure balances wherever
possible are translated at rates favourable to the group.
21. Related party transactions
The Investment Manager of the Company is Midas Investment Management Limited, a
Company controlled by Mr M Sheppard. Midas receives a quarterly investment
management fee for these services which in the year under review amounted to a
total of £348,000 (2013: £411,000) excluding VAT, together with a corporate fee
for acting as financial adviser amounting to £30,000 (2013: £30,000) excluding
VAT to the Company and commission fees of £293,000 (2013: £141,000) excluding
VAT to the Group. The balance owing to Midas at 31st July 2014 was £82,000
(2013: £96,000).
During the year the Company paid service, administration and secretarial
charges totalling £18,000 (2013:£Nil) to its parent company, M&M Investment
Company plc. There were no amounts outstanding in respect of these charges as
at 31 July 2014 (2013: £Nil).
The Company's subsidiaries are listed in note 11.
As at 31st July 2014, the Company had the following outstanding interest free
loans:
I. £Nil due from OSP Limited (2013: £2,563,000).
II. £Nil due to Saintclose Limited (2013: £10,000).
III. £Nil due from Manchester & London Securities Limited (2013: £8,000).
IV. £Nil due to Beacontree Plaza Limited (2013: £7,000).
22. Capital management
There are no externally imposed capital requirements. The capital managed is
noted in the Statements of Changes in Equit and managed in accordance with the
Investment Policies and Objectives.
23. Ultimate control
The holding company and ultimate parent throughout the year and the previous
year was M&M Investment Company plc (formerly Manchester & Metropolitan
Investment Limited), a company incorporated in England and Wales. This company
was controlled throughout the year and the previous year by Mr M Sheppard and
his immediate family.
A copy of the consolidated financial statements of M&M Investment Company plc
can be obtained by writing to The Company Secretary, 2nd Floor, Arthur House,
Chorlton Street, Manchester M1 3FH.
24. Post balance sheet events
Since the end of the reporting period the Company has bought back 166,885 of
its own ordinary 25p shares for an aggregate cost of £407,000. These shares are
all currently held in treasury.
25. Annual General Meeting
The Company's forty second Annual General Meeting will be held at St. Ann's
Church, St. Ann Street, Manchester M2 7LF, on Monday 24th November 2014 at 1p.m.
The notice of this meeting can be found along with the full Annual Report and
Financial Statements on the Company's website www.manchesterandlondon.co.uk.
For further information, please contact:
Manchester & London Investment Trust plc
Tel: 0161 228 2389
Midas Investment Management Limited
Tel: 0161 228 1709MANCHESTER & LONDON INVESTMENT TRUST PLC - Annual Financial Report
© 2014 PR Newswire
Sie erhalten auf FinanzNachrichten.de kostenlose Realtime-Aktienkurse von und
Werbehinweise: Die Billigung des Basisprospekts durch die BaFin ist nicht als ihre Befürwortung der angebotenen Wertpapiere zu verstehen.
Wir empfehlen Interessenten und potenziellen Anlegern den Basisprospekt und die Endgültigen Bedingungen zu lesen,
bevor sie eine Anlageentscheidung treffen, um sich möglichst umfassend zu informieren, insbesondere über die potenziellen
Risiken und Chancen des Wertpapiers. Sie sind im Begriff, ein Produkt zu erwerben, das nicht einfach ist und schwer zu
verstehen sein kann.
