MANCHESTER AND LONDON INVESTMENT TRUST PUBLIC LIMITED
COMPANY
ANNUAL FINANCIAL REPORT FOR THE YEAR
ENDED 31 JULY 2016
The full Annual Report and Accounts for the year ended
31 July 2016 can be found on the
Company’s website at www.manchesterandlondon.co.uk.
Directors
P.H.A. Stanley (Chairman
of the Board and Management Engagement Committee)
D. Harris (Chairman of the Audit and Remuneration
Committees and Senior Independent Director)
B. Miller (Chairman of the Nomination Committee)
STRATEGIC REPORT
Principal Activities
The Company carries on business as an Investment Company. A
review of investment activities for the year ended 31 July 2016 and the outlook for the coming year
is given by the Investment Manager in the Investment Manager’s
Review section below.
Financial Summary
Total Return
|
Year to
31 July 2016 |
Year to
31 July 2015 |
Percentage
(decrease)/Increase |
Total return
(£’000) |
13,424 |
2,483 |
440.6 |
Return per 25p
Ordinary Share – fully diluted |
62.50p |
11.47p |
444.9 |
Total revenue return
per 25p Ordinary Share |
13.45p |
6.00p |
124.2 |
Cash dividend per 25p
Ordinary Share |
13.36p |
6.00p |
122.7 |
Capital
|
At
31 July 2016 |
At
31 July 2015 |
Percentage
(decrease)/Increase |
Net assets
attributable to equity shareholders* (£’000) |
75,546 |
63,074 |
19.8 |
Net Asset Value per
25p Ordinary Share – fully diluted |
350.81p |
293.35p |
19.6 |
Benchmark performance
- Total Return Basis** |
6,879 |
6,616 |
4.0 |
Total Portfolio Return
performance versus benchmark adjusting for Shares bought back |
|
|
17.3 |
* Net Asset Value as at 31 July 2016 includes a net £102,000 increase in
respect of own Shares bought back and resold during the year (2015:
£1.1m reduction).
** Dow Jones U.K. Total Stock Market
Total Return Index (DWGBT).
Ongoing Charges
|
Year
to
31 July 2016 |
Year
to
31 July 2015 |
Ongoing charges as a percentage of
average net assets*** |
0.85% |
0.78% |
*** Calculated in accordance with AIC
guidelines.
Financial Calendar
Year ended: |
31 July
2016 |
Results
announced: |
21
October 2016 |
Report and Accounts
made available to shareholders: |
21
October 2016 |
Annual General Meeting
to be held in Manchester: |
28
November 2016 |
Expected final
dividend payment: |
2
December 2016 |
Chairman’s Statement
Results for the year ended
31 July 2016
The portfolio remains focused on larger capitalisation stocks
listed in developed markets which are seeking global growth.
The Fund’s portfolio performance for our financial year has been
acceptable with an increase in Net Asset Value per Share of 19.8
per cent. The new strategy adopted by the Investment Manager has
meant that the outperformance of the Fund against our benchmark for
the three years to the 31 July 2016
on a total return basis now stands at 1.3 per cent.
The discount the Shares trade at to their Net Asset Value per
Share has widened by 2.2 per cent during the year and was 20.9 per
cent at the year end. The other non-performance related potential
reasons for the discount, such as the smaller size of the fund and
the Sheppard family shareholding, all remain but at least one of
these can be rectified in time.
It is also worth noting that the Fund’s volatility for the year
was 16.2 per cent which was lower than its benchmark's volatility
of 19.9 per cent over the same period.
Dividends
The Company's income is comprised of both (1) dividend income
from investments (considered ordinary investment income to be paid
as ordinary dividends) and (2) income from trading activity which
includes gains and losses on the trading of Shares and equity
derivatives, net of commissions, interest and other costs expensed
(considered trading income to be paid as special dividends).
The Directors are proposing a final ordinary dividend per share
of 1.85 pence and a final special
dividend per share of 1.05 pence for
the financial year 2016. This means that, on a per share basis, the
dividends proposed or paid out in respect of the 2016 financial
year total 2.25 pence as ordinary
dividends and 11.11 pence as special
dividends. On a total ordinary and special basis, these dividends
are over 122.7 per cent higher than the total dividends paid in
respect of the 2015 financial year and represent a yield of over
4.8 per cent on the share price as at the year end.
This returns the total dividend paid per share back to the
levels seen in earlier years, but it should be noted that only the
ordinary dividend per share should be considered as anything
remotely possible of being a hopefully recurring item.
It is also inevitable that as the portfolio has been
repositioned to focus on more forward-looking growth based equities
we have seen the dividend income received drop. We do not see this
trend reversing in the near future but we have been assured that
the Investment Manager is constantly striving to generate as much
trading income as possible.
Annual General Meeting
I look forward to welcoming shareholders to our forty-fourth
Annual General Meeting, to be held in The Clarendon Room, St.
James’s Club, 45 Spring Gardens, Manchester, M2 2BG at 12.30 pm on Monday 28
November 2016.
P.H.A. Stanley
Chairman
Investment Manager’s Review
We remain convinced that a portfolio of stocks that are future
focused, developed market listed and of a larger capitalisation is
the right strategy after a satisfactory year in 2015/16.
The Portfolio
The total return of the underlying portfolio (excluding all
costs as calculated by Bloomberg L.P.) in base currency generated a
positive total return of 21.9 per cent over the financial year
compared with a return of our benchmark of 4.0 per cent.
Total return of the underlying portfolio (excluding all costs as
calculated by Bloomberg L.P.) in local currency (the currency the
shares are denominated in) generated a positive total return of
11.3 per cent. This means that a material contributor to
performance was the decline in the value of Sterling over the year,
in particular against the US Dollar.
The portfolio segments can be broken down in contribution to
base currency performance terms over the year as follows:
Contribution to performance (based on
TR of holdings in base currency)
Technology |
12.3% |
Consumer Goods |
8.2% |
Healthcare &
Pharmaceuticals |
1.9% |
Other |
(0.5%) |
|
21.9% |
Technology Investments
We remain convinced that over the next decade we will see
dramatic growth in the following themes: internet of things,
electric vehicles, robotics, cloud computing, internet retailing,
wearables and the shared economy. We have continued to focus on
investing within this sector in mega capitalisation stocks or via
specialist funds. We do not believe the sector is overvalued.
This year was yet again good for “FANG”, the market mnemonic for
high-growth tech stocks Facebook Inc., Amazon.com Inc, Netflix Inc.
and Alphabet Inc. (previously Google Inc.). Our holdings in
Amazon.com Inc., Alphabet Inc. and Facebook Inc. contributed 3.1
per cent, 2.8 per cent and 1.6 per cent respectively to
performance. These are core holdings and we believe there remains
significant runway in all three investment cases.
We also had solid contributions from other core technology
holdings: ARM Holdings Plc (which was acquired by SoftBank Group)
contributed 0.9 per cent to performance, Microsoft Corp. 0.7 per
cent, Paypal Holdings Inc. 0.6 per cent, Apple Inc. 0.3 per cent,
Yahoo Inc. (which was largely driven by their stake in Alibaba
Group) 0.9 per cent and Syngenta AG 0.6 per cent.
Our fund holdings in the sector also made positive contributions
with 0.3 per cent from Scottish Mortgage Investment Trust Plc and
0.7 per cent from Polar Capital Technology Trust Plc.
The only material negative contributors were TomTom NV (-0.4 per
cent) and Windeln.de AG (-0.3 per cent); the latter was disposed of
during the year.
Consumer Goods Investments
We wrote last year that the biggest worry for this sector is
that the brand owner’s power is being eroded via the platform power
of the commerce gorillas like Amazon and Alibaba. This may lead to
consolidation in the sector but from a position of weakness not
strength. Our concerns are heightening which, when coupled with
historically high valuation multiples in the sector, make us wary
of adding exposure.
Hence, our strategy continues to be to hold the larger, more
global players that are targets for consolidation with top class
brands like Nivea, Heineken, Dove, Campari etc. and to cover most
positions with short call option strategies.
The main positive contributors to performance were Heineken NV,
which contributed 2.1 per cent to portfolio performance, Davide
Campari-Milano Spa 1.3 per cent, Beiersdorf AG 1.2 per cent and
Unilever Plc 1.0 per cent.
The WhiteWave Foods Co (which was acquired by Nestle SA)
contributed 0.8 per cent. We also had smaller positive
contributions from Pernod Ricard SA, SABMiller Plc and Svenska
Cellulosa AB.
The only material negative contributor was Jimmy Choo Plc (-0.4
per cent), which was disposed of during the year.
Healthcare & Pharmaceutical
Investments
We remain excited by the prospects for health care over the next
decade due to Genomics, Immunology and Biologics. We anticipate
strong public service pricing pressures but we anticipate the
result will be further consolidation to remove duplicated cost
structures. Hence, yet again, our strategy is to hold growth-based,
multi-product companies that are potential consolidation targets.
Of the three segments detailed herein we believe that the
Healthcare sector offers the best prospects in the medium term.
Key positive contributors from the sector included
GlaxoSmithKline Plc, which contributed 1.3 per cent to portfolio
performance, Baxalta Inc. (which was acquired by Shire Plc) 1.0 per
cent, Worldwide Healthcare Trust Plc 0.5 per cent and Smith and
Nephew Plc 0.4 per cent.
Negative contributors included Shire Plc (0.7) per cent,
Mallinckrodt Plc (0.3) per cent (which was disposed of during the
year), AstraZeneca Plc (0.2) per cent and Spire Healthcare Group
Plc (0.3) per cent.
Other
Following a couple of negative developments in the sector, most
notably at Lending Club and TrustBuddy, discounts on our P2P funds
increased although they had no direct exposure to any of the
impacted loans which led to a negative contribution to portfolio
performance from VPC Speciality Lending Investments Plc of (0.9)
per cent and The SME Loan Fund plc of (0.4) per cent.
At various times during the year we had a modest level of short
exposure to the energy sector through options, which contributed a
positive 0.3 per cent to portfolio performance.
Generating Trading Income
We have detailed in previous years why the AIFMD regulations
make it harder for us to generate Trading Income. The consequences
of lower Trading Income will most probably lead to lower dividends
in future financial periods.
Despite this, our Trading Income for the financial year
increased from £971,000 for 2014/15 to £2,808,000 for 2015/16. This
is a record performance for Trading Income in the fund’s
history.
While generating further Trading Income will remain a key
priority for the forthcoming year, the outcome is highly subject to
market conditions and cannot in any way be guaranteed or relied
upon. It is for this reason that we split out the dividends derived
from Trading Income into Special Dividends.
Controlling Costs
Other operating expenses (being all costs excluding direct
portfolio costs such as management fee, carry and commission) have
increased from £180,000 to £224,000 since our preceding financial
year. This increase has been highlighted before and we expect these
costs to escalate following the introduction of AIFMD and
anticipated further regulation over forthcoming financial
years.
The increases in cost have and will be driven by the following
factors:
- The fund has introduced a new portfolio management software
system into our accounting systems which we believe will give the
Investment Manager and Fund Accountant greater control and
analytical ability over the portfolio and provide the Board with
greater clarity of the financial position of the fund.
- Custody of the vast proportion of all the Company’s assets is
now provided by JP Morgan and Morgan Stanley.
- The Company has outsourced its Fund Accounting and Company
Secretarial functions to Capita Asset Services Limited; and
- It is also intended to seek to outsource the AIFM role to an
external supplier over the next few years.
It is anticipated that by investing more in future years to make
our systems even more robust we can protect shareholders’ assets
more securely.
Brexit
The Company’s portfolio is diversified across a range of
multinational holdings and hence any impact of Brexit, whether
positive or negative, is likely to be immaterial in US Dollar
terms. The portfolio’s weighting towards global multinationals
means that should Brexit have a positive effect on UK companies it
is possible that the portfolio would underperform its benchmark.
The Company does hold a material amount of its cash in Sterling so
any future weakening of Sterling would reduce the value of this
holding in Dollar terms. The Company also holds a material amount
of its cash in US Dollar so should Brexit have a positive effect on
Sterling in the future it is possible that the portfolio would
underperform its benchmark.
Investment Manager
M & L Capital Management
Limited
Equity Exposures and Principal
Portfolio Holdings
Equity Exposures (Longs)
As at 31 July 2016
Listed investments* |
Sector |
Valuation
£’000 |
% of Net
Assets |
Amazon.com, Inc.² |
Technology |
4,474 |
5.9 |
AlphaBet Inc.² |
Technology |
4,390 |
5.8 |
Heineken N.V.¹ |
Consumer Goods |
3,851 |
5.1 |
Facebook Inc.² |
Technology |
3,302 |
4.4 |
GlaxoSmithKline
plc |
Healthcare &
Pharmaceuticals |
3,287 |
4.3 |
Polar Capital
Technology Trust plc |
Technology |
2,785 |
3.7 |
Smith & Nephew
plc |
Healthcare &
Pharmaceuticals |
2,735 |
3.6 |
Apple Inc.² |
Technology |
2,694 |
3.6 |
Shire plc |
Healthcare &
Pharmaceuticals |
2,630 |
3.5 |
Unilever plc |
Consumer Goods |
2,562 |
3.4 |
Scottish Mortgage
Investment Trust plc |
Technology |
2,533 |
3.3 |
Syngenta
AG3 |
Technology |
2,484 |
3.3 |
Paypal Holdings
Inc.² |
Technology |
2,470 |
3.3 |
Microsoft
Corporation² |
Technology |
2,463 |
3.3 |
Worldwide Healthcare
Trust plc |
Healthcare &
Pharmaceuticals |
2,412 |
3.2 |
VPC Specialty Lending
Investments plc |
Alternative Finance
Funds |
2,395 |
3.2 |
Yahoo! Inc.² |
Technology |
2,367 |
3.1 |
Beiersdorf AG¹ |
Consumer Goods |
2,271 |
3.0 |
Pernod Ricard SA¹ |
Consumer Goods |
2,244 |
3.0 |
The SME Loan Fund
plc |
Alternative Finance
Funds |
2,149 |
2.8 |
salesforce.com,
Inc.² |
Technology |
2,040 |
2.7 |
Davide Campari-Milano
S.p.A.¹ |
Consumer Goods |
1,950 |
2.6 |
Whitbread plc |
Consumer Goods |
1,601 |
2.1 |
Barratt Developments
plc |
Consumer Goods |
1,050 |
1.4 |
The Berkeley Group
Holdings plc |
Consumer Goods |
966 |
1.3 |
Spire Healthcare Group
plc |
Healthcare &
Pharmaceuticals |
840 |
1.1 |
easyJet plc |
Consumer Goods |
833 |
1.1 |
Other listed
investments (each under 1.0%) |
Various |
7,635 |
10.1 |
Listed
investments |
|
73,413 |
97.2 |
Unlisted at Directors’
valuation |
|
246 |
0.3 |
Total long
positions |
|
73,659 |
97.5 |
Cash and net current
assets |
|
1,887 |
2.5 |
Net assets |
|
75,546 |
100.0 |
(*Including equity swap exposures as
detailed in note 19.)
All investments listed above are equities (unless otherwise
stated), denominated in Sterling (except ¹Euro, ²USD and
3Swiss Francs) that have been issued by companies
registered in England (save for
Amazon.com, Inc., AlphaBet Inc., Heineken N.V., Facebook Inc.,
Apple Inc., Syngenta AG, Paypal Holdings Inc., Microsoft
Corporation, Yahoo! Inc., Beiersdorf AG, Pernod Ricard SA,
salesforce.com, Inc. and Davide Campari-Milano S.p.A., which are
registered in the USA, the
USA, Holland, the USA, the USA,
Switzerland, the USA, the USA,
the USA, Germany, France, the USA and Italy
respectively).
Portfolio Sector Analysis
As at 31 July 2016
Sector |
% of
Net Assets |
Technology |
45.5 |
Consumer Goods |
23.7 |
Healthcare &
Pharmaceuticals |
20.2 |
Alternative Finance
Funds |
6.0 |
Other |
1.8 |
Unlisted
Investments |
0.3 |
Cash and net current
assets/(liabilities) |
2.5 |
Net assets |
100.0 |
Principal Portfolio Holdings
Amazon.com Inc (“Amazon”)
Amazon is best known as one of the world’s largest e-commerce
and online retail companies. However, it is increasingly becoming a
much broader content and services platform for both consumers and
businesses. In particular, Amazon Web Services is a leading
provider of public cloud computing and may, in our view, be a key
growth driver for the stock over the next 5 to 10 years. Amazon is
likely to be a core long-term holding.
Alphabet Inc (“Alphabet”)
Alphabet is a global technology company that is at the forefront
of innovation in internet-based services and future technologies.
Current areas of Alphabet’s portfolio include online advertising,
search, YouTube, cloud computing, Nest and Android operating
systems. Future areas of growth for Alphabet may also include
Robotics, internet of things, driverless vehicles and Artificial
Intelligence.
We see Alphabet as offering compelling value on a sum of the
parts basis and possibly becoming a leading player in a number of
emerging technologies that could drive growth for years to come.
Alphabet is likely to be a core long-term holding.
Heineken NV (“Heineken”)
Heineken is a Dutch brewer that produces well-known brands such
as Heineken, Amstel & Strongbow. Heineken is inexpensive
relative to its peer group with relatively stable growth potential.
Though Heineken may not be a particularly willing seller, it could
still attract attention in a sector that is likely to be driven by
M&A over the next few years.
Facebook Inc. (“Facebook”)
Facebook is a social network with over 1bn daily active users.
With such a strong reach and high user engagement, we see it
potentially taking an increasing share of global advertising spend
over the years to come. Beyond this, the Company is building an
interesting portfolio of other social media platforms and
technologies, such as Oculus Rift VR, which may serve to further
strengthen the Facebook ecosystem.
GlaxoSmithKline plc
(“GlaxoSmithKline”)
GlaxoSmithKline is a global healthcare & pharmaceuticals
company. We believe Glaxo has a broad and attractive portfolio and
is innovative enough to continue to compete successfully for global
healthcare spend, which is in itself expected to grow over the next
several years. The company is also inexpensive relative to its risk
and growth profile, which is becoming increasingly uncommon in a
world where predictable yield is so actively hunted.
Polar Capital Technology Trust plc
(“Polar Capital”)
Polar Capital is a technology-focused investment trust. The fund
trades at a modest discount, but has a strong track record in a
sector where superior research resources and focus can be
beneficial to returns. They share a similar outlook and philosophy
on the sector to us, allowing us to leverage on their superior
resources.
Smith & Nephew Plc (“Smith &
Nephew”)
Smith & Nephew is a global medical devices company. It is an
international producer of products used in arthroscopy, advanced
wound management, orthopaedic reconstruction, endoscopy, trauma
extremities, fixation devices and sports medicine.
Smith & Nephew has reasonably attractive growth prospects
over the next 5 years and is frequently mentioned as an M&A
target. However, the company’s core segments may not be immune to
technological disruption in the long run and we would not be sad to
see it acquired by a US peer.
Apple Inc (“Apple”)
Apple has a history of producing well designed, sleek and
desirable consumer products.
Though the widespread concern is that Apple has now gone
ex-growth, the stock in fact appears to be priced for substantial
profit declines. While we have been disappointed by the lack of
innovation in recent product launches, we believe hardware revenues
can at least be stable, while increasing services revenues can
drive growth.
Shire plc (“Shire”)
Shire is a global specialty biopharmaceutical company focusing
on rare diseases, regenerative medicine and specialised
conditions. We believe Shire is inexpensive relative to its
growth prospects and remains a potential M&A candidate.
Unilever plc (“Unilever”)
Unilever is a multinational consumer goods company, with
recognisable brands in personal goods, household goods and
food. Unilever offers a stable returns profile with some
growth, and although it is not inexpensive, we would expect further
non-core food disposals to drive further multiple expansion.
Investment Record of the Last Ten
Years
|
Total |
Return per
Ordinary Share |
Dividend per
Ordinary |
Total assets less |
Net Asset Value
per 25p share |
Year ended |
return
£’000 |
Basic
p |
Fully
diluted
p |
Share
p |
liabilities
£’000 |
Basic
p |
Fully
diluted
p |
31 July 2007 |
5,799 |
41.58 |
41.58 |
10.00 |
52,554 |
376.80 |
376.80 |
31 July 2008 |
(3,490) |
(25.02) |
(25.02) |
10.00 |
47,669 |
341.80 |
341.80 |
31 July 2009 |
645 |
4.43 |
4.43 |
10.50 |
57,495 |
328.44 |
328.44 |
31 July 2010 |
13,151 |
71.75 |
71.75 |
11.50 |
85,203 |
379.40 |
379.40 |
31 July 2011 |
15,691 |
69.87 |
69.87 |
12.50 |
98,267 |
437.60 |
437.60 |
31 July 2012 |
(19,945) |
(88.81) |
(88.81) |
13.00 |
75,515 |
336.26 |
336.26 |
31 July 2013 |
2,522 |
11.23 |
11.23 |
13.75 |
75,050 |
334.19 |
334.19 |
31 July 2014 |
(6,295) |
(28.08) |
(28.08) |
13.75 |
64,361 |
293.20 |
293.20 |
31 July 2015 |
2,483 |
11.47 |
11.47 |
6.00 |
63,074 |
293.35 |
293.35 |
31 July
2016 |
13,424 |
62.50 |
62.50 |
13.36 |
75,546 |
350.81 |
350.81 |
In the period from 1981 to 2006, total assets less liabilities
increased from £241,000 to £36,107,000. Net Assets per Share
increased from 24.1p to 481.4p.
Corporate Summary
Investment Objective
The investment objective of the Company is to achieve capital
appreciation together with a reasonable level of income.
Investment policy
Asset allocation
The Company’s investment objective is sought to be achieved
through a policy of actively investing in a diversified portfolio,
comprising UK and overseas equities and fixed interest securities.
The Company seeks to invest in companies whose shares are admitted
to trading on a regulated market. However, it may invest in a small
number of equities and fixed interest securities of companies whose
capital is not admitted to trading on a regulated market.
Investment in overseas equities is utilised by the Company to
increase the risk diversification of the Company’s portfolio and to
reduce dependence on the UK economy in addressing the growth and
income elements of the Company’s investment objective.
The Company may invest in derivatives, money market instruments,
currency instruments, contracts for differences (“CFDs”), futures,
forwards and options for the purposes of (i) holding investments
and (ii) hedging positions against movements in, for example,
equity markets, currencies and interest rates.
There are no maximum exposure limits to any one particular
classification of equity or fixed interest security. The Company’s
investments are not limited to any one industry sector and its
current investment portfolio is spread across a range of sectors.
The Company has no specific criteria regarding market
capitalisation or credit ratings in respect of investee
companies.
Risk diversification
The Company intends to maintain a relatively focused portfolio,
seeking capital growth by investing in approximately 20 to 40
securities. The Company will not invest more than 15 per cent of
the gross assets of the Company at the time of investment in any
one security. However, the Company may invest up to 50 per cent of
the gross assets of the Company at the time of investment in an
investment company subsidiary, subject always to other restrictions
set out in this investment policy and the Listing Rules.
The Company intends to be fully invested whenever possible.
However, during periods in which changes in economic conditions or
other factors so warrant, the Investment Manager may reduce the
Company’s exposure to one or more asset classes and increase the
Company’s position in cash and/or money market instruments.
Gearing
The Company may borrow to gear the Company’s returns when the
Investment Manager believes it is in shareholders’ interests to do
so. The Company’s investment policy and the Articles permit the
Company to incur borrowing up to a sum equal to two times the
adjusted total of capital and reserves. Any change to the Company’s
borrowing policy will only be made with the approval of
shareholders by special resolution.
The effect of gearing may be achieved without borrowing by
investing in a range of different types of investments including
derivatives. The Company will not enter into any investments which
have the effect of increasing the Company’s net gearing beyond the
above limit.
General
In addition to the above, the Company will observe the
investment restrictions imposed from time to time by the Listing
Rules which are applicable to investment companies with shares
listed on the Official List of the United Kingdom Listing Authority
under Chapter 15.
In accordance with the Listing Rules, the Company will manage
and invest its assets in accordance with the Company’s investment
policy. Any material changes in the principal investment policies
and restrictions (as set out above) of the Company will only be
made with the approval of shareholders by ordinary resolution.
In the event of any breach of the investment restrictions
applicable to the Company, shareholders will be informed of the
remedial actions to be taken by the Board and the Investment
Manager by an announcement issued through a Regulatory Information
Service approved by the FCA.
Dividend Policy
The Company may declare dividends as justified by funds
available for distribution. The Company will not retain in respect
of any accounting period an amount which is greater than 15 per
cent of revenue profit in that period.
Capital Structure
The Company’s capital structure, including details of the powers
of the Company’s Directors in relation to the issuing or buying
back by the Company of its Shares, of shareholder authority for the
purchase by the Company of its own Shares still valid at the period
end and of acquisitions of own Shares, is summarised in note 17 to
the financial statements.
At the Annual General Meeting held on 30
November 2015, shareholders approved the Board's proposal to
authorise the Company to acquire up to 14.99 per cent of its issued
share capital as at 31 July 2015.
During the year the Company bought back 51,500 (0.2%) of its
Ordinary Shares. Total purchase consideration paid in the year
amounted to £134,000. The Company also sold 85,000 (0.4%) of its
Ordinary Shares from Treasury for a total consideration of
£236,000, generating a surplus of £22,000 which is recognised in
the Share Premium account.
Total Assets and Net Asset Value
The Company had total net assets of £75,546,000 and a Net Asset
Value of 350.81p per Ordinary Share at 31
July 2016.
Business Model
The Company is an Investment Company as defined by Section 833
of the Companies Act 2006 and operated as an Investment Trust in
accordance with Section 1158 of the Corporation Tax Act 2010.
The Company is also governed by the Listing Rules and Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority
and is premium listed on the main market of the London Stock
Exchange under the epic code “MNL”.
The close company provisions of the Corporation Tax Act 2010 do
not apply to the Company.
A review of investment activities for the year ended
31 July 2016 and the outlook for the
coming year are given by the Investment Manager in his Review.
Principal Risks and Uncertainties
The management of the business and the execution of the
Company’s strategy are subject to a number of risks. A robust
assessment of the principal risks of the Company has been carried
out, including those that would threaten its business model, future
performance, solvency and liquidity. A summary of the risk
management and internal control processes can be found in the
Statement of Corporate Governance included in the full Annual
Report.
An investment in the Company is only suitable for financially
sophisticated investors who are capable of evaluating the risks and
merits of such an investment, or other investors who have been
professionally advised with regard to investment and who have
sufficient resources to bear any loss which might result from such
an investment. There can be no guarantee that investors will
recover their initial investment. The investment may employ gearing
and may be subject to sudden and large falls in value. Investors
should be aware that movements in the price of the Company may be
more volatile than movements in the price of the underlying
investments and that there is a risk that investors may lose all
their invested money. Investors considering an investment should
consult their stockbroker, bank manager, solicitor, accountant
and/or other independent financial adviser.
In respect of some of the companies in which the Company may
invest:
-
the Company may be undergoing significant change, or be exposed
to the volatility of emerging or developing markets;
-
they may have less mature businesses, a more restricted depth of
management and accordingly a higher risk profile;
-
the quality of the investments’ management may have been
overestimated;
-
the market value of, and income derived from, such shares can
fluctuate; and
- there may not be a liquid market for their shares. The fact
that a share is traded on a market does not guarantee its
liquidity. Accordingly, such shares may be difficult to realise at
quoted market prices.
Any change in the tax treatment of dividends paid, or income
received by the Company, may reduce the level of yield received by
shareholders. Any change in the Company’s tax status, or in
legislation, could affect the value of the investments held by the
Company and its performance.
Investment in the Company should be regarded as long-term in
nature. There can be no guarantee that any appreciation in the
value of the Company’s investments will occur and investors may not
get back the full value of their investment. There can be no
guarantee that the investment objective of the Company will be
met.
The Company is exposed to a range of economic and market risks,
liquidity, interest rates, exchange rates and general financial
risks.
The market capitalisation of the Company will make the market of
the Ordinary Shares less liquid than would be the case for a larger
company.
Whilst the use of borrowings by the Company should enhance the
Net Asset Value of the Ordinary Shares when the value of the
Company’s underlying assets is rising, it will have the opposite
effect when the underlying asset value is falling. Furthermore,
should any fall in the underlying assets’ values result in the
Company breaching the financial covenants applicable to borrowings,
the Company may be required to repay such borrowing in whole or in
part together with any attendant costs. In order to repay such
borrowings, the Company may have to sell assets at less than their
quoted market values. A positive Net Asset Value for the Ordinary
Shares will be dependent upon the Company’s assets being sufficient
to meet any debt.
On a winding-up of the Company, the Ordinary Shares rank for
repayment of capital after repayment of all other creditors of the
Company. Ordinary Shares are only appropriate for investors who
understand that they may receive an amount less than their original
investment.
Risk Management
The risks with regards to financial instruments, and the
Company’s policies for management of these risks, are detailed in
note 19 to the financial statements - “Risks – Investments,
derivatives and other risks”. The Company manages the risks
inherent in portfolio management by investing in approximately 20
to 40 securities of companies operating in a range of industrial
sectors and varying the extent of cash holdings or gearing in
relation to the Investment Manager’s assessment of overall market
conditions.
The Company does not have any employees and consequently relies
upon the services provided by a number of third parties. The Board
therefore relies on the control procedures of these third parties
which include the Company’s Investment Manager, Registrar,
Custodians and Broker. This type of operational structure is not
uncommon with investment trust companies.
Via reports from the Administrator, the Board reviews the
internal control procedures of its third party service providers
and assesses the reliability of these procedures as part of its
risk management strategy. The Risk Management function is a
responsibility of the Administrator, M&M Investment Services,
which is a division of M&M Investment Company plc and operates
as a standalone unit, comprised of individuals who are not members
of the Board or the Sheppard family. Further details with regards
to the Board’s risk management procedures are detailed in the
“Internal Financial Control” section of the Statement of Corporate
Governance included in the Full Annual Report.
Year-End Gearing
By the year end gross long equity exposure represented 97.5 per
cent of net assets.
Key Performance Indicators
(“KPIs”)
The key measures by which the Board judges the success of the
Company are the share price, the Net Asset Value per Share and the
ongoing charges measure.
The Board considers the most important key performance indicator
to be the comparison with its benchmark index. This is referred to
in the Financial Summary above.
Total net assets at 31 July 2016
amounted to £75,546,000 compared with £63,074,000 at 31 July 2015, an increase of 19.8 per cent (net
of own share buybacks as disclosed in note 18), whilst the fully
diluted Net Asset Value per Ordinary Share increased to 350.8p from
293.4p.
Net revenue return after taxation for the year was £2,889,000
(2015: £1,300,000), an increase of 122.2 per cent.
The share price during the period under review has been quoted
at discounts to Net Asset Value of 13.6 to 25.1 per cent.
Ongoing charges set out in the Financial Summary is a measure of
the total expenses (including those charged to capital) expressed
as a percentage of the average net assets over the year. The Board
regularly reviews the ongoing charges measure and monitors Company
expenses.
Future Development
A commentary on the trends and factors likely to affect the
future development, performance and position of the Company, which
includes an assessment of market sentiment and the effectiveness of
government intervention, is set out in the Chairman’s Statement and
the Investment Manager’s Review and is also released monthly in a
fund fact sheet published via the Company’s website.
Management Arrangements
Details of the Company's management agreement with M & L
Capital Management Limited ("the Investment Manager") are contained
in note 3 to the financial statements.
Under the terms of the management agreement the Investment
Manager will manage the Company's portfolio in accordance with the
investment policy determined by the Board. The management agreement
has a termination period of three months. Details of the fee
arrangements are disclosed in note 3 to the financial statements.
The Investment Manager is authorised and regulated by the FCA.
In the year to 31 July 2016 the
total remuneration paid to the entire staff of the Investment
Manager was £189,000 (2015: £182,000), payable to an average staff
number throughout the year of 2 (2015: 2).
The investment management of MLIT is solely undertaken by Mr
M. Sheppard and Mr R. Morgan, to whom a combined total of £189,000
(2015: £182,000) was paid by the Investment Manager during the
year.
The Investment Manager was paid no performance fee or carried
interest in the Company.
The remuneration policy of the Investment Manager is to pay
fixed annual salaries, with non-guaranteed bonuses, dependent upon
performance only. These bonuses are generally paid in MLIT stock,
released over a three-year period.
The fund requires that the fund manager does not give
preferential treatment to any single or class of shareholder. To
this end, all Ordinary Shares carry equal voting rights and are
traded on a public market, the only exception being that Shares
held by the majority investment holding company and its related
parties are not included in the annual draw for Wimbledon
tickets.
The Company has in place a continuing, written and legally
binding relationship agreement with its controlling shareholder,
M&M Investment Company plc, and their associates, ensuring
compliance with independence provisions set out in LR 6.1.4D.
Since entering the relationship agreement, the Company has fully
complied with the independence provisions included within this
agreement and, so far as the Company is aware, the independence
provisions included in this agreement have also been complied with
during the period under review by the controlling shareholder and
their associates.
Alternative Investment Fund Managers
Directive
AIFMD is applicable to all Alternative Investment Funds
including ourselves. In conjunction with our Investment Manager,
the Board has chosen to comply with the partial exemption, sub
threshold regulations with the AIFM directive, by ensuring our
gross assets do not exceed the Euro
100m threshold. This is not a long-term solution to this
regulation and it is anticipated that the Board may appoint a
Manager and Depositary once a suitably priced solution becomes
available.
Environmental, Human Rights, Employee,
Social and Community Issues
The Board consists entirely of non-executive Directors.
Day-to-day management of the business is delegated to the Manager.
As an investment trust, the Company has no direct impact on the
community or the environment, and as such has no environmental,
human rights, social or community policies. In carrying out its
investment activities and in relationships with suppliers, the
Company aims to conduct itself responsibly, ethically and fairly.
Further details of our Environmental, Social and Governance policy
can be found in the Directors’ Report. In addition, details of the
Company’s Board composition and related gender diversity
considerations can be found in the Statement of Corporate
Governance included in the full Annual Report.
On behalf of the Board of Directors
Mr P.H.A. Stanley
Chairman
21 October 2016
DIRECTORS’ REPORT
The Directors present their report and financial statements for
the year ended 31 July 2016.
Results
The Company’s total comprehensive profit for the year, after
taxation, amounted to £13,424,000 (2015: £2,483,000 total
comprehensive profit).
After own share buybacks as disclosed in note 17, total net
assets at 31 July 2016 amounted to
£75,546,000 compared with £63,074,000 at 31
July 2015, whilst the fully diluted Net Asset Value per
Ordinary Share increased to 350.8p from 293.4p.
Dividends
A final ordinary dividend for the year ended 31 July 2015 of 1.70p (2014: 1.98p) and a final
special dividend for the year ended 31 July
2015 of 0.25p per share (2014: 1.27p) were paid on
3 December 2015. An interim ordinary
dividend of 0.40p, a first special dividend of 0.46p and a second
special dividend of 2.10p per Ordinary Share were paid on
29 April 2016 (2015: 1.50p interim
ordinary, 2.30p first special and 0.25p second special). Further to
these, a first final special dividend for the year ended
31 July 2016 of 7.50p (2015: nil) was
paid on 26 August 2016.
The Directors are recommending a final ordinary dividend of
1.85p per Ordinary Share (2015: 1.70p final ordinary) and a final
special dividend of 1.05p per Ordinary Share (2015: 0.25p final
special), giving a total for the year of 13.36p per Ordinary Share
(2015: 6.00p).
It is our current intention that the final ordinary dividend
will be paid on 2 December 2016 to
shareholders registered on 18 November
2016. The Shares will be declared ex-dividend on
17 November 2016.
Share Valuations
On 31 July 2016, the middle market
quotation and the Net Asset Value per Ordinary 25p Share were
277.4p and 350.8p, respectively. This indicates that the discount
on the Company’s Shares was 20.9 per cent. This is not uncommon as
the share prices of closed-end funds are often traded at a discount
to their Net Asset Values.
Events after the Reporting Period
There have been no significant events since the end of the
reporting period other than the volatility currently experienced in
the stock market.
Going Concern
After making enquiries, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
financial statements.
Viability Statement
The Directors have assessed the prospects of the Company over
the three year period to the Annual General Meeting in 2019. The
Directors consider three years to be a reasonable time horizon to
consider the continuing viability of the Company, although they do
consider viability for the longer term foreseeable future also.
In their assessment of the viability of the Company, the
Directors have considered each of the Company’s principal risks and
uncertainties as set out in the Strategic Report and in particular
have considered the potential impact of a significant fall in
Global equity markets on the value of the Company’s investment
portfolio overall. The Directors have also considered the Company’s
income and expenditure projections and the fact that the Company’s
investments mainly comprise readily realisable securities which
could be sold to meet funding requirements if necessary, and on
that basis consider that three years is an appropriate time period
to assess continuing viability.
In forming their assessment of viability the Directors have also
considered:
- the internal processes for monitoring costs;
- expected levels of investment income;
- the performance of the Investment Manager;
- portfolio risk profile;
- liquidity risk;
- gearing limits;
- counterparty exposure; and
- financial controls and procedures operated by the Company.
Based upon these considerations the Directors have concluded
that there is a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period to the Annual General Meeting in 2019.
DIRECTORS’ RESPONSIBILITIES IN
RELATION TO THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the Company financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the Company financial statements in accordance with International
Financial Reporting Standards (IFRS) adopted by the European Union
and Article 4 of the EU IAS Regulation. Under Company law, the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of the
affairs of the Company and of the profit or loss of the Company for
that period. In preparing those financial statements, the Directors
are required to:
-
properly select suitable accounting policies in accordance with
IAS 8 – Accounting Policies, Changes in Accounting Estimates and
Errors, and apply them consistently;
-
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
-
make judgements and accounting estimates that are
reasonable;
-
provide additional disclosure when compliance with the specific
requirements of IFRS are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company financial position and financial performance;
-
state that the Company financial statements have been prepared
in accordance with IFRS, subject to any material departures
disclosed and explained in the financial statements;
-
present fairly the Company financial position, financial
performance and cashflows; and
-
prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that show and explain the Company’s transactions and
disclose with reasonable accuracy, at any time, the financial
position of the Company and to enable them to ensure that the
financial statements comply with the Companies Act 2006 and Article
4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors' Report
and a Statement of Corporate Governance (included in the full
Annual Report) that comply with that law and those regulations.
To the best of the knowledge of each of the Directors, whose
names are set out above:
(a) the
financial statements, prepared in accordance with the IFRS adopted
by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit
or loss of the
Company; and
(b) the Annual
Report includes a fair review of the development and performance of
the fund and the position of the Company, together with a
description of the principal risks
and uncertainties
that it faces.
The Board confirms that the annual report and accounts, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the performance,
strategy and business model of the Company. This statement is
underpinned by the comprehensive review process of the annual
report by the Audit Committee and Directors. Each of the Directors
accepts responsibility accordingly.
On behalf of the Board of Directors
Mr P.H.A. Stanley
Chairman
21 October 2016
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company’s statutory accounts for the years ended 31 July 2016 or 31 July
2015 but is derived from those accounts. Statutory accounts
for the year ended 31 July 2015 have
been delivered to the Registrar of Companies and statutory accounts
for the year ended 31 July 2016 will
be delivered to the Registrar of Companies in due course. The
Auditor has reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The text of the
Auditor’s report can be found in the Company’s full Report and
Accounts at www.manchesterandlondon.co.uk.
Statement of Comprehensive Income
For the year ended 31 July 2016
|
|
2016 |
2016 |
2016 |
|
2015 |
2015 |
2015 |
|
Note |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Gains |
|
|
|
|
|
|
|
|
Gains/(losses) on investments at
fair value through profit or loss |
|
- |
10,712 |
10,712 |
|
- |
1,402 |
1,402 |
Trading
income |
2 |
2,808 |
- |
2,808 |
|
971 |
- |
971 |
Investment
income |
2 |
897 |
- |
897 |
|
1,185 |
- |
1,185 |
Gross return |
|
3,705 |
10,712 |
14,417 |
|
2,156 |
1,402 |
3,558 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Investment management
fee |
3 |
(334) |
- |
(334) |
|
(311) |
- |
(311) |
Cost of investment
transactions |
|
(223) |
- |
(223) |
|
(303) |
- |
(303) |
Other operating
expenses |
4 |
(224) |
- |
(224) |
|
(180) |
- |
(180) |
Total expenses |
|
(781) |
- |
(781) |
|
(794) |
- |
(794) |
|
|
|
|
|
|
|
|
|
Return before finance costs and
tax |
|
2,924 |
10,712 |
13,636 |
|
1,362 |
1,402 |
2,764 |
Finance costs |
6 |
(35) |
(177) |
(212) |
|
(62) |
(219) |
(281) |
Return on ordinary
activities before tax |
|
2,889 |
10,535 |
13,424 |
|
1,300 |
1,183 |
2,483 |
Tax expense |
7 |
- |
- |
- |
|
- |
- |
- |
Return on ordinary
activities after tax |
|
2,889 |
10,535 |
13,424 |
|
1,300 |
1,183 |
2,483 |
Earnings per Ordinary Share
(pence) |
|
|
|
|
|
|
|
|
Basic |
9 |
13.45 |
49.05 |
62.50 |
|
6.00 |
5.47 |
11.47 |
Fully diluted |
9 |
13.45 |
49.05 |
62.50 |
|
6.00 |
5.47 |
11.47 |
The total column of this statement
represents the Statement of Comprehensive Income of the Company
prepared in accordance with IFRS. The supplementary revenue return
and capital return columns are both prepared under guidance
published by the Association of Investment Companies.
The Company does not have any Other Comprehensive
Income and hence the return on ordinary activities after tax, as
disclosed above, is the same as the Company’s Total Comprehensive
(Loss)/Income.
All items in the above statement
derive from continuing operations.
Statements of Changes in Equity
For the year ended 31 July 2016
|
Share
capital
£’000 |
Share
premium
£’000 |
Treasury
Shares
£’000 |
Other
reserves
£’000 |
Capital
reserve
(unrealised)
£’000 |
Capital
reserve
(realised)
£’000 |
Retained
earnings
£’000 |
Total
£’000 |
Balance at 1 August
2014 |
5,614 |
35,295 |
(1,306) |
(79) |
15,239 |
(17,463) |
27,061 |
64,361 |
Changes in equity
for 2015 |
|
|
|
|
|
|
|
|
Total comprehensive
loss |
- |
- |
- |
- |
- |
- |
2,483 |
2,483 |
Buybacks of Ordinary
Shares |
- |
- |
(1,089) |
- |
- |
- |
- |
(1,089) |
Transfer of
capital |
- |
- |
- |
- |
(10,088) |
11,271 |
(1,183) |
- |
Equity dividends
paid |
- |
- |
- |
- |
- |
- |
(2,681) |
(2,681) |
Balance at 31 July
2015 |
5,614 |
35,295 |
(2,395) |
(79) |
5,151 |
(6,192) |
25,680 |
63,074 |
Changes in equity
for 2016 |
|
|
|
|
|
|
|
|
Total comprehensive
income |
- |
- |
- |
- |
- |
- |
13,424 |
13,424 |
Buybacks of Ordinary
Shares |
- |
- |
(134) |
- |
- |
- |
- |
(134) |
Sale of Ordinary
Shares from Treasury |
- |
22 |
214 |
- |
- |
- |
- |
236 |
Transfer of
capital |
- |
- |
- |
- |
4,881 |
5,654 |
(10,535) |
- |
Equity dividends
paid |
- |
- |
- |
- |
- |
- |
(1,054) |
(1,054) |
Balance at 31 July
2016 |
5,614 |
35,317 |
(2,315) |
(79) |
10,032 |
(538) |
27,515 |
75,546 |
Statement of Financial Position
At 31 July
2016
|
|
|
2016 |
|
2015 |
|
Note |
|
£’000 |
|
£’000 |
Non-current
assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
10 |
|
38,999 |
|
28,040 |
|
|
|
38,999 |
|
28,040 |
Current
assets |
|
|
|
|
|
Unrealised derivative
assets |
15 |
|
3,269 |
|
2,387 |
Trade and other
receivables |
11 |
|
22 |
|
24 |
Cash and cash
equivalents |
12 |
|
35,252 |
|
34,233 |
|
|
|
38,543 |
|
36,644 |
Gross
assets |
|
|
77,542 |
|
64,684 |
Current
liabilities |
|
|
|
|
|
Unrealised derivative
liabilities |
15 |
|
(1,746) |
|
(1,410) |
Trade and other
payables |
14 |
|
(250) |
|
(200) |
|
|
|
(1,996) |
|
(1,610) |
Net assets |
|
|
75,546 |
|
63,074 |
Equity attributable
to equity holders |
|
|
|
|
|
Ordinary Share
Capital |
16 |
|
5,614 |
|
5,614 |
Shares held in
Treasury |
17 |
|
(2,315) |
|
(2,395) |
Share premium |
|
|
35,317 |
|
35,295 |
Other reserves |
|
|
|
|
|
Capital reserve – realised |
|
|
(538) |
|
(6,192) |
Capital reserve – unrealised |
|
|
10,032 |
|
5,151 |
Goodwill reserve |
|
|
(79) |
|
(79) |
Retained earnings |
|
|
27,515 |
|
25,680 |
Total
equity |
|
|
75,546 |
|
63,074 |
The financial statements were approved by the Board of Directors
and authorised for issue on 21 October
2016 and are signed on their behalf by:
Mr D. Harris |
Mr P.H.A. Stanley (Chairman) |
Directors |
|
Manchester and London
Investment Trust Public Limited Company
Company Number: 01009550
Statement of Cash Flows
For the year ended 31 July 2016
|
2016
£’000 |
|
2015
£’000 |
Cash flow from
operating activities |
|
|
|
Return on operating
activities before taxation |
13,424 |
|
2,483 |
Interest paid |
383 |
|
54 |
(Gain)/Loss on
investments |
(7,941) |
|
1,215 |
Decrease in
receivables |
2 |
|
76 |
Increase/(decrease) in
payables |
50 |
|
66 |
Increase in
derivatives |
(546) |
|
(1,871) |
Net cash generated
from/(used in) operating activities |
5,372 |
|
2,023 |
Cash flow from
investing activities |
|
|
|
Purchases of
investments |
(39,450) |
|
(47,247) |
Sales of
investments |
36,432 |
|
63,656 |
Net cash generated
from investing activities |
(3,018) |
|
16,409 |
Cash flow from
financing activities |
|
|
|
Equity dividends
paid |
(1,054) |
|
(2,681) |
Buybacks of Ordinary
Shares |
(134) |
|
(1,089) |
Resale of Ordinary
Shares |
236 |
|
- |
Interest paid |
(383) |
|
(54) |
Net cash used in
financing activities |
(1,335) |
|
(3,824) |
Net
increase/(decrease) in cash and cash equivalents |
1,019 |
|
14,608 |
Cash and cash
equivalents at beginning of year |
34,233 |
|
19,625 |
Cash and cash
equivalents at end of year |
35,252 |
|
34,233 |
The notes form part of these
financial statements.
Notes Forming Part of the Financial
Statements
For the year ended 31 July 2016
1. Accounting policies
A summary of the principal accounting policies is set out
below.
Manchester and London
Investment Trust plc (“MLIT”) is a public limited company, which is
listed on the London Stock Exchange and is incorporated and
domiciled in the United
Kingdom.
a) Basis of preparation and statement
of compliance
In accordance with European Union regulations, these financial
statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (“IASB”), as adopted for use in the EU
effective at 31 July 2016.
As permitted by section 406(2) of the Companies Act 2006
consolidated accounts have not been prepared as the inclusion of
the Company’s dormant subsidiaries is not material for the purpose
of giving a true and fair view.
The financial statements have been prepared on the historical
cost basis except where IFRS require an alternative treatment.
To the extent that presentational guidance set out in the
Statement of Recommended Practice (“SORP”) for investment trusts
revised by the Association of Investment Companies (“AIC”) is
inconsistent with the requirements of IFRS, the Directors have
sought to prepare the financial statements on a basis compliant
with the recommendations of the SORP, whilst fully complying with
IFRS.
The Company's principal accounting policies are set out below.
These accounting policies have been applied consistently to all
periods presented in these financial statements.
b) Presentation of Statement of
Comprehensive Income
In order to reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the statement of
comprehensive income between items of a revenue and capital nature
has been presented alongside the statement of comprehensive income.
The updated Investment Trusts (Approved Company) (Tax) Regulations
2011 has removed the previous Section 833 restriction of the
Companies Act 2006 that prohibited the distribution of dividends
from net capital returns. However, the net revenue is also the
measure the Directors believe appropriate in assessing the
Company's compliance with certain requirements set out in Section
1159 Corporation Tax Act 2010.
c) Valuation of investments
Investments held at fair value through profit or loss are
initially recognised at fair value, being the consideration given,
excluding transaction or other dealing costs associated with the
investment.
After initial recognition, investments, which are classified as
at fair value through profit or loss, are measured at fair value.
Gains or losses on investments designated as at fair value through
profit or loss are recognised as a capital item. For investments
that are actively traded in organised financial markets, fair value
for longs/shorts are determined by reference to Stock Exchange
quoted market bid/offer prices respectively, as at the close of
business at the end of the reporting period.
Unlisted investments are valued at the Directors' estimate of
fair value by reference to the following valuation guidelines –
asset values, earnings, dividends, last trade values and any other
relevant factors.
All purchases and sales of investments are recognised on the
trade date, i.e. the date that the Company commits to purchase or
sell an asset.
Investments in subsidiaries are valued at cost in accordance
with IAS 27 and reviewed annually for impairment.
d) Revenue recognition
Revenue is recognised when it is probable that economic benefits
associated with a transaction will flow to the Company and the
revenue can be reliably measured.
Income from trading activity includes gains and losses on the
trading of shares, equity swaps and futures, net of commissions,
interest and other costs expensed.
A position is deemed to be trading activity rather than
investment if the position has been opened and closed and the
duration that the position was open is less than twelve months.
Changes to core holdings will not be classified as trading
activities regardless of their duration. Positions opened but not
yet closed are deemed to be investments in nature until closed at
which point their duration determines if they are classified as
trading rather than investment.
Listed options and futures contracts are recognised at fair
value through profit or loss and fall within the classification of
held for trading under FRS 26. The fair value is the applicable
closing price of the underlying option or contract.
Dividend income from investments is recognised when the
shareholders' right to receive payment has been established,
normally the ex-dividend date. Special dividends representing a
return of capital are credited to capital reserves.
Fixed returns on non-equity shares are recognised on a time
apportionment basis so as to reflect the effective yield on the
shares.
Where the Company has elected to receive its dividends in the
form of additional shares rather than cash, the amount of cash
dividend foregone is recognised as income.
e) Derivatives
Derivatives include equity swaps, futures and options. The
Company recognises financial assets and financial liabilities when
it becomes a party to the contractual provisions of the
instrument.
Derivatives are held at fair value based upon traded prices
and/or third party information provided and are recognised in the
Statement of Comprehensive Income. They are recognised as capital
and are shown in the capital column of the Statement of
Comprehensive Income if they are of a capital nature, and are
recognised as revenue and shown in the revenue column of the
Statement of Comprehensive Income if they are of a revenue
nature.
Equity swap positions are only accounted for as realised when
closed. They are not accounted for as realised when a counterparty
collateral reset occurs.
f) Expenses
All expenses are accounted for on the accruals basis and with
the exception of capital interest are charged to revenue.
g) Finance costs
Finance costs are accrued at the effective interest rate.
h) Taxation
The tax charge represents the sum of the tax currently payable
and any deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from return on operating activities
before tax as reported in the statement of comprehensive income
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. Deferred tax balances are
not discounted.
Investment Trusts which have approval under Section 1158
Corporation Tax Act 2010 are not liable for taxation on capital or
revenue gains.
The carrying amount of deferred tax assets is reviewed at each
reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited through profit and
loss, except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in
equity.
i) Dividends payable to
shareholders
No equity dividend is accrued unless the shareholders' right to
receive payment is established in the period. Dividends proposed
after the end of the reporting period are disclosed in note 8.
j) Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash
at bank, short-term deposits with an original maturity of three
months or less, cash held in highly liquid investment accounts or
cash held as collateral on open equity swap and derivative
positions.
k) Reserves
Reserves comprise:
Ordinary Share
Capital
Nominal value of total Ordinary Shares issued.
Shares held in
Treasury
Consideration paid for the purchase of Shares held in
Treasury.
Share Premium
Excess consideration of price paid for Shares issued over
nominal value.
Capital Reserve -
realised
Gains and losses on the realisation of investments; and expenses
and finance costs, together with the related taxation effect, are
charged to this reserve in accordance with the above policies.
Capital Reserve -
unrealised
Increases and decreases in the valuation of investments held at
the year end.
Goodwill
Reserve
Goodwill arising on consolidation prior to 1 August 1998 has been written off against
reserves on acquisition as a matter of accounting policy.
Retained
Earnings
Net income not yet distributed to shareholders.
l) Foreign currencies
In preparing the financial statements, transactions in
currencies other than pounds sterling are recorded at the actual
rate of exchange prevailing on the dates of the transactions. At
each reporting period, monetary assets and liabilities that are
denominated in foreign currencies are translated at the rates
prevailing at the end of the reporting period.
Foreign exchange gains and losses arising from the settlement of
foreign currency transactions and from the translation of monetary
assets and liabilities in foreign currencies are recognised through
profit or loss or capital dependent upon their duration.
m) New standards and significant
amendments not applied
The IASB and IFRIC have issued the following standards and
interpretations with a date of adoption for annual periods
beginning on or after the effective date shown:
Accounting Standards |
Effective date |
IFRS 2 |
Share-based
Payment |
1
January 2018 |
IFRS 5 |
Non-current assets
held for sale and discontinued operations |
1
January 2016 |
IFRS 7 |
Financial Instruments:
Disclosures |
1
January 2016 |
IFRS 9 |
Financial
Instruments |
1
January 2018 |
IFRS 10 |
Consolidated Financial
Statements |
1
January 2016 |
IFRS 11 |
Joint
arrangements |
1
January 2016 |
IFRS 12 |
Disclosure of
interests in other entities |
1
January 2016 |
IFRS 14 |
Regulatory Deferral
Accounts |
1
January 2016 |
IFRS 15 |
Revenue from contracts
with customers |
1
January 2018 |
IFRS 16 |
Leases |
1
January 2019 |
IAS 1 |
Presentation of
Financial Statements |
1
January 2016 |
IAS 7 |
Statement of Cash
Flows |
1
January 2017 |
IAS 12 |
Income Taxes |
1
January 2017 |
IAS 16 |
Property, plant and
equipment |
1
January 2016 |
IAS 19 |
Employee benefits |
1
January 2016 |
IAS 27 |
Separate Financial
Statements |
1
January 2016 |
IAS 28 |
Investments in
Associates and Joint Ventures |
1
January 2016 |
IAS 34 |
Interim Financial
Reporting |
1
January 2016 |
IAS 38 |
Intangible assets |
1
January 2016 |
IAS 41 |
Agriculture |
1
January 2016 |
The Directors have chosen not to early adopt the above standards
and interpretations and they do not anticipate that they would have
a material impact on the Company’s financial statements in the
period of initial application.
2. Income
|
2016
£’000 |
|
2015
£’000 |
Total
income comprises |
|
|
|
Trading income |
2,808 |
|
971 |
Dividends from listed
investments |
839 |
|
1,140 |
Interest |
58 |
|
45 |
|
3,705 |
|
2,156 |
Finance, commission and other costs (including stamp duty)
deducted in the calculation of trading income are not disclosed
separately.
3. Investment management fee
|
2016 |
2016 |
2016 |
|
2015 |
2015 |
2015 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Investment management
fee |
334 |
- |
334 |
|
311 |
- |
311 |
The Investment Manager provides investment services to the
Company under a management agreement with a termination period of
three months. The annual fee is 0.5 per cent of the total portfolio
value including cash and short term deposits, payable quarterly in
arrears. The fee is not subject to Value Added Tax (“VAT”).
Transactions with the Investment Manager during the year are
disclosed in note 20.
The investment management fee is chargeable to revenue.
4. Other operating expenses
|
2016
£’000 |
|
2015
£’000 |
Directors’ fees |
48 |
|
48 |
Auditors’
remuneration |
25 |
|
23 |
Registrar fees |
10 |
|
10 |
Other expenses |
141 |
|
99 |
|
224 |
|
180 |
Fees payable to the
Company’s auditor for the audit of the Company financial
statements |
25 |
|
23 |
Fees payable to the
Company’s auditor for other services: |
|
|
|
- services relating to taxation
|
7 |
|
7 |
|
3 |
|
3 |
|
35 |
|
33 |
Other operating expenses include irrecoverable VAT where
appropriate.
5. Staff numbers and costs
Excluding Directors, the Company employs no members of
staff.
Included in Directors' fees above (note 4) are the emoluments
paid to the Chairman as follows:
|
2016
£’000 |
|
2015
£’000 |
P.H.A. Stanley
(Chairman) |
18 |
|
18 |
6. Finance costs
|
2016
£’000 |
|
2015
£’000 |
Charged to
revenue |
35 |
|
62 |
Charged to
capital |
177 |
|
219 |
|
212 |
|
281 |
The finance costs attributable to closed positions defined as
trading income are deducted in the calculation of trading income
along with commission costs. The split between the commission
charged for trading and capital items is not disclosed
separately.
7. Taxation
|
2016 |
2016 |
2016 |
2015 |
2015 |
2015 |
|
Revenue
£’000 |
Capital £’000 |
Total
£’000 |
Revenue
£’000 |
Capital £’000 |
Total
£’000 |
Current UK corporation
tax |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
The charge for the year can be reconciled to the profit per the
income statement as follows: |
Profit/(loss) before
tax |
2,889 |
10,535 |
13,424 |
1,300 |
1,183 |
2,483 |
|
|
|
|
|
|
|
Tax at the UK
corporation tax rate of 20.00% (2015: 20.67%) |
578 |
2,107 |
2,685 |
269 |
245 |
514 |
Tax effect of
non-taxable dividends/unrealised profits |
(168) |
- |
(168) |
(228) |
- |
(228) |
Income not subject to
UK corporation tax |
(307) |
- |
(307) |
(17) |
- |
(17) |
Brought forward losses
utilised during the period |
(115) |
- |
(115) |
(28) |
- |
(28) |
Profits on investment
appreciation not taxable |
- |
(2,142) |
(2,142) |
- |
(290) |
(290) |
Other non-taxable
income less expenses not deductible for tax |
7 |
35 |
42 |
- |
45 |
45 |
Unrelieved tax losses
and other deductions arising in the period |
5 |
- |
5 |
4 |
- |
4 |
Excess management
expenses |
- |
- |
- |
- |
- |
- |
Current year tax
charge |
- |
- |
- |
- |
- |
- |
The Company has surplus management expenses at 31 July 2016 of £1,888,000 (2015:
£2,372,000).
At 31 July 2016, there is an
unrecognised deferred tax asset, measured at the standard rate of
18 per cent, of £340,000 (2015: £490,000). This deferred tax asset
relates to surplus management expenses. It is unlikely that the
Company will generate sufficient taxable profits in the foreseeable
future to recover these amounts and therefore the asset has not
been recognised in the year, or in prior years.
As at 31 July 2016, the Company
has unrelieved capital losses of £9,330,000 (2015: £9,330,000).
There is, therefore, a related unrecognised deferred tax asset,
measured at the standard rate of 18 per cent, of £1,679,000 (2015:
£1,928,000). These capital losses can only be utilised to the
extent that the Company does not qualify as an investment trust in
the future and, as such, the asset has not been recognised.
8. Dividends
Amounts recognised as distributions to equity holders in the
period: |
2016
£’000 |
|
2015
£’000 |
Final ordinary
dividend for the year ended 31 July 2015 of 1.70p (2014: 1.98p) per
share |
365 |
|
431 |
Interim special
dividend for the year ended 31 July 2015 of nil (2014: 5.00p) per
share |
- |
|
1,098 |
Final special dividend
for the year ended 31 July 2015 of 0.25p (2014: 1.27p) per
share |
54 |
|
276 |
Interim
ordinary dividend for the year ended 31 July 2016 of 0.40p (2015:
1.50p) per share |
86 |
|
322 |
First special dividend
for the year ended 31 July 2016 of 0.46p (2015: 2.30p) per
share |
99 |
|
500 |
Second special
dividend for the year ended 31 July 2016 of 2.10p (2015: 0.25p) per
share |
450 |
|
54 |
|
1,054 |
|
2,681 |
A first final special dividend was of 7.50p for the financial
year 2016 was paid on 26 August 2016.
The Directors are proposing a final ordinary dividend of 1.85p and
a final special dividend of 1.05p for the financial year 2016.
These proposed dividends have been excluded as a liability in these
financial statements in accordance with IFRS.
We also set out below the total dividend payable in respect of
the financial year, which is the basis on which the requirements of
section 1158 of the Corporation Tax Act 2010 are considered.
|
2016
£’000 |
|
2015
£’000 |
Interim ordinary
dividend for the year ended 31 July 2016 of 0.40p (2015: 1.50p) per
share |
86 |
|
322 |
Proposed final
ordinary dividend for the year ended 31 July 2016 of 1.85p (2015:
1.70p) per share* |
398 |
|
365 |
First special dividend
for the year ended 31 July 2016 of 0.46p (2015: 2.30p) per
share |
99 |
|
500 |
Second special
dividend for the year ended 31 July 2016 of 2.10p (2015: 0.25p) per
share |
450 |
|
54 |
First final special
dividend for the year ended 31 July 2016 of 7.50p (2015: nil) per
share |
1,615 |
|
- |
Proposed final special
dividend for the year ended 31 July 2016 of 1.05p (2015: 0.25p) per
share* |
226 |
|
54 |
|
2,874 |
|
1,295 |
*Based on the total Shares eligible to receive dividend as at
21 October 2016.
9. Return per Ordinary Share
The calculation of the basic and fully diluted earnings per
Ordinary Share is based on the following:
|
2016 |
2016 |
2016 |
|
2015 |
2015 |
2015 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Return: |
|
|
|
|
|
|
|
Basic and fully
diluted |
2,889 |
10,535 |
13,424 |
|
1,300 |
1,183 |
2,483 |
Basic revenue, capital and total return per Ordinary Share is
based on the net revenue, capital and total return for the period
and on the weighted average number of Ordinary Shares in issue
(excluding those Shares held in Treasury per note 17) of 21,477,042
(2015: 21,645,499).
10. Investments at fair value through
profit or loss
|
Company |
|
2016
£’000 |
2015
£’000 |
Investments as
below |
38,999 |
28,040 |
|
Listed
£’000 |
Unlisted
£’000 |
Total
£’000 |
Opening cost at 1
August |
24,862 |
120 |
24,982 |
Opening unrealised
appreciation at 1 August |
2,977 |
81 |
3,058 |
Opening fair value at
1 August |
27,839 |
201 |
28,040 |
Purchases at cost |
39,414 |
36 |
39,450 |
Sales proceeds |
(36,428) |
(4) |
(36,432) |
Realised profit on
sales |
3,932 |
(52) |
3,880 |
Increase in unrealised
appreciation |
3,996 |
65 |
4,061 |
Closing fair value at
31 July |
38,753 |
246 |
38,999 |
|
|
|
|
Closing cost at 31
July |
31,780 |
100 |
31,880 |
Closing unrealised
appreciation at 31 July |
6,973 |
146 |
7,119 |
Closing fair value at
31 July |
38,753 |
246 |
38,999 |
11. Trade and other receivables
|
Company |
|
2016
£’000 |
2015
£’000 |
Dividend receivables |
7 |
- |
Other receivables |
4 |
16 |
Prepayments |
11 |
8 |
|
22 |
24 |
12. Cash and cash equivalents
|
Company |
|
2016
£’000 |
|
2015
£’000 |
Cash & cash
equivalents |
35,252 |
|
34,233 |
Cash & cash equivalents include £35.1m (2015: £33.3m) held
in investment accounts as collateral against open equity swap and
derivative exposures which are detailed in note 19.
13. Securities
As part of custodian relationships, assets held with both Morgan
Stanley & Co. International plc and JP Morgan Chase & Co.
are subject to a first fixed charge with full title guarantee as
continuing security.
£29.4m of collateral was held with Morgan Stanley & Co.
International plc as at 31 July 2016
(2015: £25.3m).
£47.3m of collateral was held with JP Morgan Chase & Co. as
at 31 July 2016 (2015: £36.0m).
14. Trade and other payables
|
Company |
|
|
2016
£’000 |
|
2015
£’000 |
|
|
|
|
Trade
payables |
198 |
|
156 |
Accruals |
52 |
|
44 |
|
250 |
|
200 |
15. Derivatives
The Company may use a variety of derivative contracts, including
equity swaps, futures, forwards and options under master agreements
with the Company’s derivative counterparties to enable the Company
to gain long and short exposure on individual securities.
Derivatives are valued by reference to the underlying market value
of the corresponding security.
The sources of the return under the derivative contract (e.g.
notional dividends, financing costs, interest returns and capital
changes) are allocated to the revenue and capital accounts in
accordance with the nature of the underlying source of income and
in accordance with the guidance given in the AIC SORP. Notional
dividend income arising on long positions is apportioned wholly to
the revenue account. Notional interest expense on long positions is
initially allocated 100% to capital whilst the position is
unrealised, however, upon realisation these costs are expensed
through the income statement as revenue or capital in accordance
with the Company’s revenue recognition accounting policy.
Unrealised changes in value relating to underlying price movements
of securities in relation to derivatives are allocated to revenue
or capital, dependent upon their nature.
The net fair value of derivatives at 31
July 2016 was a positive £1,523,000 (2015: positive
£977,000). The corresponding gross exposure on equity swaps as at
31 July 2016 was £34,660,000 (2015:
£28,761,000). The net marked to market futures and options total
value as at 31 July 2016 was negative
£647,000 (2015: negative £406,000).
|
Company |
|
2016
£’000 |
|
2015
£’000 |
Assets |
|
|
|
Unrealised derivative
assets |
3,269 |
|
2,387 |
|
3,269 |
|
2,387 |
Current
liabilities |
|
|
|
Unrealised derivative
liabilities |
1,746 |
|
1,410 |
|
1,746 |
|
1,410 |
16. Share capital
Ordinary share capital |
|
2016 |
|
|
2015 |
|
No. (‘000) |
£’000 |
|
No. (‘000) |
£’000 |
Authorised |
|
|
|
|
|
Ordinary Shares of 25p each |
28,000 |
7,000 |
|
28,000 |
7,000 |
Non-voting Convertible
Preference Shares of £1 each |
1,000 |
1,000 |
|
1,000 |
1,000 |
Ordinary Shares of 25p each
issued and fully paid |
|
|
|
|
|
Balance as at 1 August |
22,457 |
5,614 |
|
22,457 |
5,614 |
Balance as at 31
July |
22,457 |
5,614 |
|
22,457 |
5,614 |
|
|
|
|
|
|
|
Ordinary shares carry the right to one vote and the right to
dividends.
17. Shares held in Treasury
|
No.
(‘000) |
2016
£’000 |
|
No.
(‘000) |
£2015
’000 |
|
|
|
|
|
|
Balance as at 1
August |
956 |
2,395 |
|
506 |
1,306 |
Shares bought back
during year |
52 |
134 |
|
450 |
1,089 |
Shares sold back
during year |
(85) |
(214) |
|
- |
- |
Balance as at 31
July |
923 |
2,315 |
|
956 |
2,395 |
At the annual general meeting held on 30
November 2015, shareholders approved the Board's proposal to
authorise the Company to acquire up to 14.99 per cent of its issued
share capital as at 31 July 2015.
During the year the Company bought back 51,500 (0.2%) of its
Ordinary Shares. Total purchase consideration paid in the year
amounted to £134,000. The Company also sold 85,000 (0.4%) of its
Ordinary Shares from Treasury for a total consideration of
£236,000, generating a surplus of £22,000 which is recognised in
the Share Premium account.
18. Net Asset Value per Share
|
Net
Asset Value per share |
|
Net
Assets
Attributable |
|
2016
p |
2015
p |
|
2016
£’000 |
2015
£’000 |
Ordinary Shares: basic and fully diluted |
350.8 |
293.4 |
|
75,546 |
63,074 |
The basic Net Asset Value per Ordinary Share is based on net
assets at the year end and 21,534,420 (2015: 21,500,920) Ordinary
Shares in issue, adjusted for any Shares held in Treasury.
19. Risks – Investments, derivatives
and other risks
In order to manage its portfolio efficiently and to enable the
Investment Manager to pursue the investment objectives as set out
in the Equity Exposures and Principal Portfolio Holdings section of
the Strategic Report, the Company holds equity swaps, derivatives
and other financial instruments. All equity swaps, derivative
transactions and financial instruments are accounted for at fair
value and comprise securities, cash balances, trade receivables and
trade payables arising directly from financial operations.
The main risk arising from the Company's investment strategy is
market price risk. There is also exposure to liquidity risk,
interest rate risk and currency rate risk.
The Board regularly reviews and agrees policies for managing
these risks, which are monitored by the Administrator, as
summarised below.
Market price
risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss the Company might suffer through holding market positions in
the face of price movements. Both the Investment Manager and the
Administrator actively monitor market prices throughout the year
and report to the Board, which meets regularly to review investment
strategy.
Details of the long equity exposures held at 31 July 2016 are shown in the Equity Exposures
and Principal Portfolio Holdings section of the Strategic
Report.
If the price of these investments and equity swaps had increased
by 3 per cent at the reporting date with all other variables
remaining constant, the capital return in the statement of
comprehensive income and the net assets attributable to equity
holders of the Company would increase by £2,210,000.
A 3 per cent decrease in share prices would have resulted in an
equal and opposite effect of £2,210,000, on the basis that all
other variables remain constant.
At the year end the Company’s direct equity exposure to market
price risk was as follows:
|
Company |
|
2016 |
2015 |
|
£’000 |
£’000 |
Equity long exposures |
|
|
Investments held in equity form |
38,999 |
28,040 |
Long exposure held in equity
swaps |
34,660 |
28,761 |
|
73,659 |
56,801 |
Interest rate
risk
Interest rate risk arises from uncertainty over the interest
rates charged by financial institutions. It represents the
potential increased costs of financing for the Company. The
Investment Manager actively monitors interest rates and the
Company’s ability to meet its financing requirements throughout the
year and reports to the Board.
Liquidity risk
Liquidity risk reflects the risk that the Company will have
insufficient funds to meet its financial obligations as they fall
due. The Directors have minimised liquidity risk by investing in a
portfolio of quoted companies that are readily realisable.
The Company's un-invested funds are held almost entirely with
the Custodians or on interest bearing deposits with UK banking
institutions.
As at 31 July 2016 the financial
liabilities comprised:
|
Company |
|
2016 |
2015 |
|
£’000 |
£’000 |
Unrealised derivative
liabilities |
1,746 |
1,410 |
Trade payables and
accruals |
250 |
200 |
|
1,996 |
1,610 |
All of the above liabilities are due within one month and are
stated at fair value.
The Company manages liquidity risk through constant monitoring
of the Company’s gearing position to ensure the Company is able to
satisfy any and all debts within the agreed credit terms.
Currency rate
risk
Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
The only material foreign currency exposures are Syngenta AG
with a market value of £2,484,000, denominated in Swiss Francs;
Heineken N.V., Beiersdorf AG, Pernod Ricard SA and Davide
Campari-Milano S.p.A., with a market value of £10,316,000,
denominated in Euros; and Amazon.com, Inc., Alphabet Inc., Facebook
Inc., Apple Inc., Paypal Holdings Inc., Microsoft Corporation,
Yahoo! Inc., and Salesforce.com Inc., denominated in US Dollars
with a market value of £24,100,000.
In addition, the Company held cash exposure to US Dollars of
£12,939,000 at the year end.
The Company constantly monitors currency rate risk to ensure
balances wherever possible are translated at rates favourable to
the Company.
20. Related party transactions
The Investment Manager of the Company since 17 September 2015 is M & L Capital Management
Limited (the former Investment Manager was Midas Investment
Management Limited). Both companies are controlled by Mr
M. Sheppard.
The Investment Manager receives a quarterly investment
management fee for these services which in the year under review
amounted to a total of £334,000 (2015: £311,000) excluding VAT. The
balance owing to the Investment Manager as at 31 July 2016 was £175,000 (2015: £127,000).
Also payable in the year to Midas Investment Management Limited
was a corporate fee for acting as financial adviser amounting to
£5,000 (2015: £30,000) excluding VAT and commission fees of £5,000
(2015: £16,000) excluding VAT to the Company. The balance owing to
Midas Investment Management Limited at 31
July 2016 was £1,000 (2015: £nil).
During the year the Company paid service, administration and
secretarial charges totalling £19,000 (2015: £18,000) to its
majority shareholder, M&M Investment Company plc. The balance
owing to M&M Investment Company plc as at 31 July 2016 was £7,000 (2015: £28,000).
21. Capital management
There are no externally imposed capital requirements. The
capital managed is noted in the Statements of Changes in Equity set
out in the Corporate Summary above and managed in accordance with
the Investment Policies and Objectives also set out in the
Corporate Summary.
22. Ultimate control
The holding company and ultimate controlling shareholder
throughout the year and the previous year was M&M Investment
Company plc, a company incorporated in England and Wales. This company was controlled throughout
the year and the previous year by Mr M.
Sheppard and his immediate family.
A copy of the financial statements of M&M Investment Company
plc can be obtained by writing to The Company Secretary,
2nd Floor, Arthur House,
Chorlton Street, Manchester M1
3FH.
23. Post balance sheet events
There have been no significant events since the end of the
reporting period other than the volatility currently experienced in
the stock market.
The financial statements were authorised for issue by the
Directors on 21 October 2016. The
Directors have the power to amend and reissue the financial
statements.
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Manchester and London Investment
Trust plc will be held at St James’s Club, 45 Spring Gardens,
Manchester, M2 2BG on Monday
28 November 2016 at 12.30 pm. Full details of the AGM can be found in
the letter to shareholders available on the Company’s website at
www.manchesterandlondon.co.uk.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted
shortly to the National Storage Mechanism (“NSM”) and will
available for inspection at the NSM, which is situated at
www.morningstar.co.uk/uk/nsm.
ENDS
Neither the contents of the Company’s website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.