MANCHESTER AND LONDON INVESTMENT TRUST PLC
(the “Company”)
ANNUAL FINANCIAL REPORT FOR THE YEAR
ENDED 31 JULY 2017
The full Annual Report and Financial Statements for the year
ended 31 July 2017 can be found on
the Company’s website at
www.mlcapman.com/manchester-london-investment-trust-plc
STRATEGIC REPORT
Financial Summary
Total Return |
Year to
31 July 2017 |
Year to
31 July 2016 |
Percentage
increase/(decrease) |
Total return
(£’000) |
20,055 |
13,424 |
49.40% |
Return per Ordinary
Share |
92.43p |
62.50p |
47.89% |
Total revenue return
per Ordinary Share |
7.90p |
13.45p |
(41.26%) |
Dividend per Ordinary
Share |
9.00p |
13.36p |
(32.63%) |
Capital |
As at
31 July 2017 |
As at
31 July 2016 |
Percentage
increase/(decrease) |
Net assets
attributable to equity Shareholders* (£’000) |
94,661 |
75,546 |
25.30% |
Net asset value
(“NAV”) per Ordinary Share |
429.05p |
350.81p |
22.30% |
NAV total
return**† |
26.91% |
21.54% |
5.37% |
Benchmark performance
- Total return basis*** |
14.71% |
3.91% |
10.80% |
Share price |
381.00p |
277.75p |
37.17% |
Share price discount
to NAV† |
11.20% |
20.83% |
(9.63%) |
* NAV as at 31 July 2017 includes
a net £1,879,000 increase in respect of own Shares bought back and
resold during the year (2016: £102,000 increase).
** Total return including dividends reinvested, as sourced from
Bloomberg.
*** MSCI UK Investable Market Index (MXGBIM).
Ongoing
Charges |
Year
to
31 July 2017 |
Year
to
31 July 2016 |
Ongoing charges as a percentage of
average net assets*† |
0.95% |
0.85% |
* Calculated in accordance with the guidelines issued by the
Association of Investment Companies (the “AIC”).
† See Glossary in the full Annual Report.
CHAIRMAN’S STATEMENT
Results for the year ended
31 July 2017
The portfolio remains focused on larger capitalisation stocks
listed in developed markets which are seeking global growth.
The Company’s portfolio performance for the financial year has
been acceptable with an increase in NAV per Share of 22.3%. The new
strategy adopted by M&L Capital Management Limited (the
“Manager”) has meant that the outperformance of the Company against
our benchmark for the three years to 31 July
2017 on a total return basis now stands at 36.6%*.
The discount the Shares trade at to their NAV per Share has
narrowed during the year and was just over 11% at the year end.
It is also worth noting that the Company’s underlying modelled
volatility† for the year was 14.2%* which was also a
reduction from the last year end of 15.3%*.
Dividends
The Directors are proposing a final ordinary dividend per Share
of 1.76 pence and a final special
dividend per Share of 4.24 pence for
the financial year 2017. This means that, on a per Share basis, the
dividends proposed or paid out in respect of the 2017 financial
year total 3.58 pence as ordinary
dividends and 5.42 pence as special
dividends. On a total ordinary and special basis, these dividends
represent a yield of over 2.4% on the Share price as at the year
end.
Annual General Meeting
I look forward to welcoming Shareholders to our forty-fifth
Annual General Meeting, to be held in The Dalton & Joule Room,
Manchester Museum of Science and Industry, Liverpool Road,
Manchester M3 4FP at 12.30 p.m. on Monday, 27
November 2017.
P H A Stanley
Chairman
12 October 2017
* Source: Bloomberg.
† See Glossary in the full Annual Report.
MANAGER’S REVIEW
Portfolio management
The portfolio delivered a low double-digit outperformance
against the benchmark driven by our sector positioning.
The portfolio segments can be broken down in contribution to
base currency performance terms over the year as follows:
Total return of underlying sector holdings in local currency
(excluding costs and foreign exchange)
Technology
investments |
21.5% |
Consumer
investments |
6.3% |
Healthcare
investments |
1.9% |
Other (including costs
and foreign exchange) |
(2.8%) |
Total NAV per Share
return |
26.9% |
Source: Bloomberg.
Technology investments
Technology (under which we include the Information Technology GICS
(Global Industry Classification Standard) sector and
technology/disruption orientated investments) delivered around 80%
of NAV total return per Share.
The five largest holdings in this sector, Alphabet Inc, Facebook
Inc, Microsoft Corporation, Alibaba Group Holding Ltd and
Tencent Holdings Ltd, accounted for
around 50% of the sector return.
Other material positive performers included NVIDIA Corporation,
salesforce.com Inc, Polar Capital Technology Trust plc, Scottish
Mortgage Investment Trust PLC, PayPal Holdings Inc, Altaba Inc,
Apple Inc, Adobe Systems Inc, ROBO Global Robotics and Automation
GO UCITS ETF and Electronic Arts Inc. There were no material
negative contributors.
We increased our exposure to technology this year. The
portfolio’s delta-adjusted exposure to the sector is now just under
60% of net assets.
Consumer investments
Consumer (under which we include both the Consumer Staples and the
Consumer Discretionary GICS sectors) delivered around 23% of NAV
total return per Share.
More than 50% of this performance was driven by e-commerce
stocks Amazon.com Inc, JD.Com Inc and Priceline Group Inc.
Other material positive contributors included Beiersdorf AG,
Pernod Ricard SA and Davide Campari-Milano SpA.
The only material negative performer was Amplify Snack Brands
Inc, which we disposed of during the year.
Consumer Staples holdings were trimmed due to a relatively poor
performance. Overall, the portfolio’s delta-adjusted exposure to
the sector is around 20% of net assets.
Healthcare and pharmaceutical investments
Healthcare (under which we include the Healthcare GICS sector and
Healthcare orientated investments) delivered around 7% of NAV total
return per Share.
Material positive contributors included Align Technology Inc,
Worldwide Healthcare Trust PLC, Smith & Nephew plc, Zoetis Inc
and Spire Healthcare Group plc (which we sold during the year).
There were no material negative contributors.
The portfolio’s delta-adjusted exposure to this sector now
represents just under 20% of net assets.
Risk management
The Manager monitors, measures, manages and mitigates risk for the
Company on an ongoing basis, including the sensitivity of the
Company’s investment portfolio to the most relevant risks to which
it is or may be exposed. As the Company invests primarily in
equities, its principal risks are market-related and include
counterparty and market risks (such as currency, interest rate and
other price risks).
The Manager will periodically disclose the current risk profile
of the Company to investors. The Company will make this disclosure
on its website at the same time as it makes its Annual Report and
Financial Statements available to investors or more frequently at
its discretion.
A number of methodologies are adopted to manage risk such
as:
i. The Company’s investments are not limited to any one
industry sector and its current investment portfolio is spread
across a range of sectors. However, it should be noted that the
exposure of the portfolio is heavily weighted to the Technology
sector.
ii. The Company intends to maintain a relatively focused
portfolio, but has nonetheless diversified risk in the portfolio
across approximately 45 securities.
iii. The Company hedges its positions using derivatives to
reduce delta-adjusted exposures to positions. These positions
represented approximately 8% of the portfolio’s value as at the
year end.
The Manager employs various risk management systems and
processes to manage the risks to which the Company is or may be
exposed. These include the production of regular risk analysis of
the Company’s investment portfolio and regular stress testing
against relevant scenarios.
The Manager undertakes a daily portfolio attribution analysis,
which looks at the drivers of portfolio performance to identify
stocks that may be underperforming. Risk management processes and
procedures are laid out in full in the Manager’s Risk Management
Policy which is overseen by the Manager’s Risk Management Committee
which meets on a monthly basis. Key risk indicators on operational
risks are reported to the Senior Management Committee on a monthly
basis. Risk management systems and controls are updated at least on
an annual basis.
Liquidity risk management
Liquidity risk is the risk that the Company could encounter
difficulty in meeting its obligations associated with financial
liabilities, due to an inability to realise assets when needed.
The Manager has a liquidity management policy which is intended
to ensure that the Company’s investment portfolio maintains a level
of liquidity which is appropriate to the Company’s obligations.
However, the majority of the Company’s investment portfolio
comprises quoted equities, which are readily realisable. Liquidity
is not therefore considered to be a significant risk for the
Company. The liquidity of the equity portfolio is reviewed
regularly and subjected to regular stress tests to verify that
liquidity risk remains low. The Manager’s regular analysis
calculates the percentage of the portfolio that could be liquidated
within various timeframes, the overall time to liquidate the
portfolio and the price impact of liquidating the portfolio. This
analysis is stress tested using various alternative assumptions
with regards to percentage of average daily volume that the Company
would be able to capture.
The Manager also considers Prime Broker* margin requirements and
potential obligations relating to the sale of options within their
liquidity analysis.
The Manager will notify investors, by way of a disclosure on the
Company’s website, where it makes any material changes to its
liquidity management systems and procedures or introduces any new
arrangements for managing the Company’s liquidity.
The Company does not currently hold any assets which are subject
to special arrangements arising from their illiquid nature. The
Company would disclose the percentage of its assets subject to such
arrangements, if applicable, on its website at the same time as it
makes its Annual Report and Financial Statements available to
investors, or more frequently at its discretion.
Professional negligence liability risks
The Manager maintains professional indemnity insurance to cover the
potential liability risks arising from professional negligence. The
Manager does not hold specific additional funds of the Manager
against liability arising from its own professional negligence.
Valuation
The Manager has overall responsibility and oversight on how the
Company’s assets are priced and valued. In addition, the Manager
consults with the Board of the Company in determining the various
methodologies and procedures applied when pricing and valuing the
securities of the Company.
The Manager’s valuation policy sets out its approach to the
valuation of the Company’s portfolio of assets. Oversight of the
policy, and determination of the valuation of assets which are
unlisted or for which published prices are not available, is the
responsibility of the Manager’s Valuation Committee, which operates
independently of the Manager’s portfolio management function.
The Valuation Committee meets at least on a monthly basis and
reports to the Company’s Board on all issues relating to the
valuation of the Company.
The valuation policy has been prepared to clarify the
methodology used in valuing all of the securities that constitute
the portfolio of the Company and explains the generic methodology
or protocol used for valuing different types of securities,
valuation methodologies and procedures for each security that is
part of the portfolio of the Company. The values of those
securities are an integral part of the Company’s NAV and NAV per
Share calculation. The NAV of the portfolio is calculated by the
Administrator to the nearest two decimal places in Sterling, which
is the base currency of the portfolio, as at the valuation point.
The NAV is calculated weekly.
The vast majority of the portfolio consists of quoted equities,
whose prices are published by independent sources.
The valuation policy specifies how the Company’s securities will
be priced. It should, however, be noted that financial reporting
requirements oblige the Board to ensure that the audited financial
statements of the Company are prepared such that all securities are
measured at ‘Fair Value’.
Quoted equities, forming the vast majority of the Company’s
investment portfolio, are valued daily. The valuation intervals of
other assets vary according to their nature but all assets are
re-valued at least annually.
M & L Capital Management Limited
Manager
12 October 2017
* See Glossary in the full Annual Report.
Equity exposures and portfolio sector analysis
Equity exposures (longs)
As at 31 July 2017
Company |
Sector * |
Valuation
£’000 |
% of
net assets |
Amazon.com, Inc. |
Consumer
Discretionary |
9,036 |
9.55 |
AlphaBet Inc. |
Information
Technology |
8,759 |
9.25 |
Facebook Inc. |
Information
Technology |
8,428 |
8.90 |
Microsoft
Corporation |
Information
Technology |
6,546 |
6.92 |
Tencent Holdings
Ltd** |
Information
Technology |
6,148 |
6.49 |
Alibaba Group Holding
Ltd** |
Information
Technology |
5,571 |
5.89 |
Polar Capital
Technology Trust plc |
Funds |
3,914 |
4.13 |
Apple Inc. |
Information
Technology |
3,858 |
4.08 |
Scottish Mortgage
Investment Trust PLC |
Funds |
3,444 |
3.64 |
salesforce.com,
Inc. |
Information
Technology |
3,203 |
3.38 |
Altaba Inc.** |
Information
Technology |
3,189 |
3.37 |
GlaxoSmithKline
plc** |
Health Care |
2,949 |
3.12 |
Worldwide Healthcare
Trust PLC |
Funds |
2,888 |
3.05 |
Smith & Nephew
plc** |
Health Care |
2,798 |
2.96 |
Davide Campari Milano
SpA** |
Consumer Staples |
2,797 |
2.95 |
JD.Com, Inc.** |
Consumer
Discretionary |
2,703 |
2.86 |
Bayer AG** |
Health Care |
2,568 |
2.71 |
ROBO Global Robotics
and Automation |
Funds |
2,519 |
2.66 |
NVIDIA
Corporation |
Information
Technology |
2,404 |
2.54 |
PayPal Holdings
Inc. |
Information
Technology |
2,110 |
2.23 |
Heineken NV** |
Consumer Staples |
2,066 |
2.18 |
Pernod Ricard
SA** |
Consumer Staples |
2,048 |
2.16 |
Beiersdorf AG** |
Consumer Staples |
1,990 |
2.10 |
Zoetis Inc. |
Health Care |
1,738 |
1.84 |
AstraZeneca Plc** |
Health Care |
1,042 |
1.10 |
Actvision
Blizzar.com |
Information
Technology |
1,008 |
1.06 |
|
|
95,724 |
101.12 |
Balance held in 16
other positions |
|
8,377 |
8.85 |
Total long equities
exposure |
|
104,101 |
109.97 |
Unlisted
Debentures |
|
229 |
0.24 |
Total long
positions |
|
104,330 |
110.21 |
Other net assets |
|
(9,669) |
(10.21) |
Net assets |
|
94,661 |
100.00 |
* GICS – Global Industry Classification Standard.
** Including equity swap exposures as detailed in note 13.
Portfolio sector analysis
As at 31 July 2017
Sector |
% of net
assets |
A |
Information
Technology |
55.9 |
B |
Health Care |
16.9 |
C |
Funds |
15.0 |
D |
Consumer Staples |
11.2 |
E |
Consumer
Discretionary |
11.0 |
F |
Unlisted
Debentures |
0.2 |
G |
Cash and net current
assets and liabilities |
(10.2) |
Net
assets |
100.0 |
PRINCIPAL PORTFOLIO HOLDINGS (BASED ON
NET DELTA-ADJUSTED EXPOSURE)
Alphabet Inc. (“Alphabet”)
Alphabet is a global technology company that is at the forefront of
innovation of internet-based services and future technologies.
Current areas of Alphabet’s portfolio include online advertising,
Google search, YouTube, cloud computing, Nest and Android operating
systems. Future areas of growth for Alphabet may also include
Internet of Things, driverless vehicles, healthcare and artificial
intelligence.
Amazon.com Inc. (“Amazon”)
Amazon is best known as one of the world’s largest e-commerce
companies and is a major disruptive force in the retail market.
Amazon is also increasingly becoming a much broader content and
services platform for both consumers and businesses. In particular,
Amazon Web Services is a leading provider of public cloud
computing.
Facebook Inc. (“Facebook”)
Facebook is a social media platform with around two billion monthly
active users which dominates the online global advertising spend.
The company is building an interesting portfolio of other social
media platforms and technologies, such as WhatsApp, Messenger and
Oculus Rift VR to strengthen the Facebook ecosystem.
Microsoft Corporation (“Microsoft”)
Microsoft is best known for the Windows operating system and Office
products. Longer-term focus for Microsoft lies in the public cloud
market where it is building a strong platform to compete against
Amazon and Alphabet.
Alibaba Group Holding Ltd (“Alibaba”)
Alibaba is China’s largest e-commerce platform. We expect
e-commerce to drive further share gains from traditional retail
channels. Like Amazon, Alibaba is also extending its platform in
new directions, with payments, media, entertainment and cloud
offerings.
Tencent Holdings Ltd
(“Tencent”)
Tencent is a Chinese internet
company, well known for its ubiquitous WeChat social media
platform. Tencent is expected to take
an increasing share of the Chinese advertising pie as marketing
budgets continue to move from traditional to digital channels.
Tencent is also exposed to the high
growth online gaming and digital entertainment markets.
Polar Capital Technology Trust plc (“Polar Capital”)
Polar Capital is a technology-focused investment trust. They share
a similar outlook and philosophy on the sector to us, allowing us
to leverage on their more extensive research resources.
JD.Com, Inc. (“JD.Com”)
JD.Com is China’s number two e-commerce company. Its business model
is different to Alibaba’s and is more similar to Amazon’s. We
expect JD.Com to be a key beneficiary of the shift of retail
consumption to online.
Scottish Mortgage Investment Trust PLC (“Scottish
Mortgage”)
Scottish Mortgage is a disruption orientated investment trust
managed by Baillie Gifford. They share a similar philosophy to us
and allow us to get exposure to a number of non-listed fast growth
companies such as Uber and Airbnb.
Worldwide Healthcare Trust PLC (“Worldwide Healthcare
Trust”)
Worldwide Healthcare Trust is a global healthcare focused
investment trust managed by OrbiMed Capital. The fund has an
excellent track record and provides exposure to many niche emerging
themes such as Immuno-Oncology & Genomics. Although these are
themes we understand at a high level, we recognise the benefit of
the specialist knowledge that OrbiMed has accumulated in these
nascent fields.
Percentage of portfolio by holding at the year end *:
Alphabet |
9.3 |
Amazon |
8.6 |
Facebook |
7.6 |
Microsoft |
7.6 |
Alibaba |
6.1 |
Tencent |
5.9 |
Polar Capital |
5.6 |
JD.Com |
4.1 |
Scottish Mortgage |
3.6 |
Worldwide Healthcare Trust |
3.1 |
* Based on net delta-adjusted exposure.
Investment record of the last ten years
Year ended |
Total return £’000 |
Return per
Ordinary Share*
(p) |
Dividend per
Ordinary
Share
(p) |
Total assets
less liabilities
£’000 |
NAV per
Share*
(p) |
31 July 2008 |
(3,490) |
(25.02) |
10.00 |
47,669 |
341.80 |
31 July 2009 |
645 |
4.43 |
10.50 |
57,495 |
328.44 |
31 July 2010 |
13,151 |
71.75 |
11.50 |
85,203 |
379.40 |
31 July 2011 |
15,691 |
69.87 |
12.50 |
98,267 |
437.60 |
31 July 2012 |
(19,945) |
(88.81) |
13.00 |
75,515 |
336.26 |
31 July 2013 |
2,522 |
11.23 |
13.75 |
75,050 |
334.19 |
31 July 2014 |
(6,295) |
(28.08) |
13.75 |
64,361 |
293.20 |
31 July 2015 |
2,483 |
11.47 |
6.00 |
63,074 |
293.35 |
31 July 2016 |
13,424 |
62.50 |
13.36 |
75,546 |
350.81 |
31 July
2017 |
20,055 |
92.43 |
9.00 |
94,661 |
429.05 |
* Basic and fully diluted.
Business model
The Company is an investment company as defined by Section 833 of
the Companies Act 2006 and operated as an investment trust in
accordance with Section 1158 of the Corporation Tax Act 2010.
The Company is also governed by the Listing Rules and Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority
(the “FCA”) and is premium listed on the Main Market of the London
Stock Exchange under the EPIC code “MNL”.
A review of investment activities for the year ended
31 July 2017 and the outlook for the
coming year is detailed in the Manager’s Review above.
Investment objective
The investment objective of the Company is to achieve capital
appreciation together with a reasonable level of income.
Investment policy
Asset allocation
The Company’s investment objective is sought to be achieved
through a policy of actively investing in a diversified portfolio,
comprising UK and overseas equities and fixed interest securities.
The Company seeks to invest in companies whose shares are admitted
to trading on a regulated market. However, it may invest in a small
number of equities and fixed interest securities of companies whose
capital is not admitted to trading on a regulated market.
Investment in overseas equities is utilised by the Company to
increase the risk diversification of the Company’s portfolio and to
reduce dependence on the UK economy in addressing the growth and
income elements of the Company’s investment objective.
The Company may invest in derivatives, money market instruments,
currency instruments, contracts for differences (“CFDs”), futures,
forwards and options for the purposes of (i) holding investments
and (ii) hedging positions against movements in, for example,
equity markets, currencies and interest rates.
There are no maximum exposure limits to any one particular
classification of equity or fixed interest security. The Company’s
investments are not limited to any one industry sector and its
current investment portfolio is spread across a range of sectors.
The Company has no specific criteria regarding market
capitalisation or credit ratings in respect of investee
companies.
Risk diversification
The Company intends to maintain a relatively focused portfolio,
seeking capital growth by investing in approximately 20 to 40
securities. The Company will not invest more than 15% of the gross
assets of the Company at the time of investment in any one
security. However, the Company may invest up to 50% of the gross
assets of the Company at the time of investment in an investment
company subsidiary, subject always to other restrictions set out in
this investment policy and the Listing Rules.
The Company intends to be fully invested whenever possible.
However, during periods in which changes in economic conditions or
other factors so warrant, the Manager may reduce the Company’s
exposure to one or more asset classes and increase the Company’s
position in cash and/or money market instruments.
Gearing
The Company may borrow to gear the Company’s returns when the
Manager believes it is in Shareholders’ interests to do so. The
Company’s investment policy and the Articles permit the Company to
incur borrowing up to a sum equal to two times the adjusted total
of capital and reserves. Any change to the Company’s borrowing
policy will only be made with the approval of Shareholders by
special resolution.
The effect of gearing may be achieved without borrowing by
investing in a range of different types of investments including
derivatives. The Company will not enter into any investments which
have the effect of increasing the Company’s net gearing beyond the
above limit.
General
In addition to the above, the Company will observe the
investment restrictions imposed from time to time by the Listing
Rules which are applicable to investment companies with Shares
listed on the Official List of the UKLA under Chapter 15.
In accordance with the Listing Rules, the Company will manage
and invest its assets in accordance with the Company’s investment
policy. Any material changes in the principal investment policies
and restrictions (as set out above) of the Company will only be
made with the approval of Shareholders by ordinary resolution.
In the event of any breach of the investment restrictions
applicable to the Company, Shareholders will be informed of the
remedial actions to be taken by the Board and the Manager by an
announcement issued through a regulatory information service
approved by the FCA.
Dividend policy
The Company may declare dividends as justified by funds available
for distribution. The Company will not retain in respect of any
accounting period an amount which is greater than 15% of revenue
profit in that period.
The dividend payments are split in order to better reflect the
sources of the Company’s income. Recurring income from dividends on
underlying holdings is paid out as ordinary dividends, whilst
non-recurring (other investment) income is paid out as special
dividends.
Results and dividends
The results for the year are set out in the Income Statement and in
the Statement of Changes in Equity below.
For the year ended 31 July 2017,
the net revenue return attributable to Shareholders was £1,714,000
(2016: £2,889,000) and the net capital return attributable to
Shareholders was £18,341,000 (2016: £10,535,000). Total
Shareholders’ funds increased by 25.3% to £94,661,000 (2016:
£75,546,000).
The dividends paid/proposed by the Board for 2016 and 2017 are
set out below:
|
Year ended
31 July 2017
pence per Share |
Year ended
31 July 2016
pence per
Share |
Interim ordinary dividend |
1.82 |
0.40 |
First special dividend |
1.18 |
0.46 |
Second special dividend |
- |
2.10 |
First final special dividend |
- |
7.50 |
Proposed final ordinary
dividend |
1.76 |
1.85 |
Proposed final special dividend |
4.24 |
1.05 |
|
9.00 |
13.36 |
Subject to the approval of Shareholders at the forthcoming
Annual General Meeting, the proposed final ordinary and final
special dividends will be payable on 4
December 2017 to Shareholders on the register at the close
of business on 10 November 2017. The
ex-dividend date will be 9 November
2017.
Further details of the dividends paid in respect of the years
ended 31 July 2017 and 31 July 2016 are set out in note 7 below.
Principal risks and uncertainties
The management of the business and the execution of the Company’s
strategy are subject to a number of risks. A robust assessment of
the principal risks of the Company has been carried out, including
those that would threaten its business model, future performance,
solvency and liquidity.
An investment in the Company is only suitable for financially
sophisticated investors who are capable of evaluating the risks and
merits of such an investment, or other investors who have been
professionally advised with regard to investment and who have
sufficient resources to bear any loss which might result from such
an investment. There can be no guarantee that investors will
recover their initial investment. The Company may employ gearing
and may be subject to sudden and large falls in value. Investors
should be aware that movements in the price of the Company may be
more volatile than movements in the price of the underlying
investments and that there is a risk that investors may lose all
their invested money. Investors considering an investment should
consult their stockbroker, bank manager, solicitor, accountant
and/or other independent financial adviser.
Investment in the Company should be regarded as long term in
nature. There can be no guarantee that any appreciation in the
value of the Company’s investments will occur and investors may not
get back the full value of their investment. There can be no
guarantee that the investment objective of the Company will be
met.
In respect of some of the companies in which the Company may
invest: the company may be undergoing significant change, or be
exposed to the volatility of emerging or developing markets; they
may have less mature businesses, a more restricted depth of
management and accordingly a higher risk profile; the quality of
the investments’ management may have been overestimated; the market
value of, and income derived from, such shares can fluctuate; and
there may not be a liquid market for their shares. The fact that a
share is traded on a market does not guarantee its liquidity.
Accordingly, such shares may be difficult to realise at quoted
market prices.
The Company is exposed to a range of economic and market risks,
liquidity, interest rates, exchange rates and general financial
risks.
The market capitalisation of the Company will make the market of
the Ordinary Shares less liquid than would be the case for a larger
company.
Any change in the tax treatment of dividends paid, or income
received by the Company, may reduce the level of yield received by
Shareholders. Any change in the Company’s tax status, or in
legislation, could affect the value of the investments held by the
Company and its performance.
Whilst the use of borrowings by the Company should enhance the
NAV of the Ordinary Shares when the value of the Company’s
underlying assets is rising, it will have the opposite effect when
the underlying asset value is falling. Furthermore, should any fall
in the underlying assets result in the Company breaching the
financial covenants applicable to borrowings, the Company may be
required to repay such borrowing in whole or in part together with
any attendant costs. In order to repay such borrowings, the Company
may have to sell assets at less than their quoted market values. A
positive NAV for the Ordinary Shares will be dependent upon the
Company’s assets being sufficient to meet any debt.
On a winding-up of the Company, the Ordinary Shares rank for
repayment of capital after repayment of all other creditors of the
Company. Ordinary Shares are only appropriate for investors who
understand that they may receive an amount less than their original
investment.
Risk management
The risks with regards to financial instruments and the Company’s
policies for management of these risks are detailed in note 17 to
the financial statements.
Further details regarding the Board’s risk management procedures
are detailed in the Manager’s Review above and in the “Internal
Control Review” section of the Statement of Corporate Governance
included in the full Annual Report.
Year-end gearing
By the year end, gross long equity exposure represented 109.97%
(2016: 97.50%) of net assets.
Key performance indicators
The Board considers the most important key performance indicator to
be the comparison with its benchmark index. This is referred to in
the Financial Summary above.
The other key measures by which the Board judges the success of
the Company are the Share price, the NAV per Share and the ongoing
charges measure.
Total net assets at 31 July 2017
amounted to £94,661,000 compared with £75,546,000 at 31 July 2016, an increase of 25.3% (net of own
Share buybacks as disclosed in note 15 below), whilst the fully
diluted NAV per Ordinary Share increased to 429.1p from 350.8p.
Net revenue return after taxation for the year was £1,714,000
(2016: £2,889,000), a decrease of 40.7%.
The Share price during the period under review has been quoted
at discounts to NAV ranging from 8.8% to 25.1%.
Ongoing charges set out above is a measure of the total expenses
(including those charged to capital) expressed as a percentage of
the average net assets over the year. The Board regularly reviews
the ongoing charges measure and monitors Company expenses.
Future development
The Board and the Manager do not currently foresee any material
changes to the business of the Company in the near future.
Management arrangements
Under the terms of the management agreement, the Manager will
manage the Company's portfolio in accordance with the investment
policy determined by the Board. The management agreement has a
termination period of three months. The Manager shall be entitled
to receive from the Company an amount equal to 0.5% of the
Company’s NAV, calculated and payable quarterly in arrears. Further
details of the fee paid to the Manager during the year are
disclosed in note 3 to the financial statements. The Manager is
authorised and regulated by the FCA.
M&M Investment Company plc, controlled by Mr M Sheppard who
forms part of the Manager’s investment management team, is the
controlling Shareholder of the Company. Further details regarding
this are set out in the Directors’ Report in the full Annual
Report.
Alternative Investment Fund Managers’ Directive (the
“AIFMD”)
The AIFMD is applicable to all Alternative Investment Funds
including the Company. The Company’s Sub-Threshold Manager, M&L
Capital Management Limited, submitted a notice to the FCA that
their assets under management from managing the Company had
permanently exceeded the sub-threshold limit under the AIFMD on
26 July 2017. In the forthcoming
months, if the Company wishes to continue to be able to use
leverage in its investment strategy, then both a full scope
approved Alternative Investment Fund Manager and a Depositary will
need to be appointed. Any such appointments, if made, will be
notified via a regulatory information service.
The AIFMD requires certain information to be made available to
investors before they invest and requires that material changes to
this information be disclosed in the Annual Report.
In the year to 31 July 2017, the
total remuneration paid to the entire staff of the Manager was
£327,000 (2016: £189,000), payable to an average staff number
throughout the year of 2 (2016: 2).
The management of the Company is solely undertaken by Mr M
Sheppard and Mr R Morgan, to whom a combined total of £325,000
(2016: £189,000) was paid by the Manager during the year.
The remuneration policy of the Manager is to pay fixed annual
salaries, with non-guaranteed bonuses, dependent upon performance
only. These bonuses are generally paid in the Company’s Shares,
released over a three-year period.
Continuing appointment of the Manager
The Board noted the good long-term performance record and
commitment, quality and continuity of the team employed by the
Manager. As a result, the Board concluded that it was in the
best interests of the Shareholders as a whole that the appointment
of the Manager on the agreed terms should continue.
Human rights, employee, social and community Issues
The Board consists entirely of non-executive Directors. The Company
has no employees and day-to-day management of the business is
delegated to the Manager and other service providers. As an
investment trust, the Company has no direct impact on the community
or the environment, and as such has no human rights, social or
community policies. In carrying out its investment activities and
in relationships with suppliers, the Company aims to conduct itself
responsibly, ethically and fairly. Further details of the
Environmental, Social and Governance policy can be found in the
Directors’ Report in the full Annual Report. Details of the
Company’s Board composition and related gender diversity
considerations can be found in the Statement of Corporate
Governance in the full Annual Report.
Gender diversity
At 31 July 2017, the Board comprised
three male Directors. As stated in the Corporate Governance
Statement, the appointment of any new Director is made on the basis
of merit.
This Strategic Report has been approved by the Board and signed
on its behalf by
P H A Stanley
Chairman
12 October 2017
DIRECTORS
P H A Stanley (Chairman)
D Harris (Chairman of the Audit Committee and Senior Independent
Director)
B Miller
EXTRACTS FROM THE DIRECTORS’
REPORT
Share capital
At 31 July 2017, the Company’s issued
Share capital comprised 22,457,042 Ordinary Shares of 25 pence each, of which 394,254 were held in
Treasury.
At general meetings of the Company, Ordinary Shareholders are
entitled to one vote on a show of hands and on a poll, to one vote
for every Ordinary Share held. Shares held in Treasury do not carry
voting rights. At 31 July 2017, the
total voting rights of the Company were 22,062,788 and as at the
date of this report, are 22,162,788.
In circumstances where Chapter 11 of the Listing Rules would
require a proposed transaction to be approved by Shareholders, the
controlling Shareholder (see the full Annual Report for further
details) shall not vote its Shares on that resolution. In addition,
any Director of the Company appointed by M&M Investment Company
plc, the controlling Shareholder, shall not vote on any matter
where conflicted and they will act independently from M&M
Investment Company plc and have due regard to their fiduciary
duties.
Issue of Shares
At the 2016 Annual General Meeting, Shareholders approved the
Board’s proposal to authorise the Company to allot Ordinary Shares
up to a maximum nominal amount of £1,616,395.
No Shares were issued during the year or since the year end.
Purchase of Shares
At the Annual General Meeting held on 28
November 2016, Shareholders approved the Board’s proposal to
authorise the Company to acquire up to 14.99% of its issued Share
capital (excluding Treasury Shares) amounting to 3,228,009
Shares.
The Company did not purchase any of its own Shares during the
year or since the year end.
Sale of Shares from Treasury
At the Annual General Meeting held on 28
November 2016, Shareholders approved the Board’s proposal to
authorise the Company to waive pre-emption rights in respect of up
to 1,076,721 Treasury Shares and to permit the allotment or sale of
Shares from Treasury at a discount to NAV.
During the year, the Company sold 528,368 (with a nominal value
of £132,092) of its Ordinary Shares from Treasury for a net
consideration (after costs) of £1,879,000, generating a surplus of
£548,000 which is recognised in the Share Premium account. The
number of Shares sold out of Treasury during the year represented
2.5% of the issued Share capital at 31 July
2016.
Subsequent to the year end and up to the date of signing this
report, the Company sold 100,000 Ordinary Shares from Treasury for
a net consideration (after costs) of £384,000, generating a surplus
of £133,000.
Going concern
The Directors consider that it is appropriate to adopt the going
concern basis in preparing the financial statements. After making
enquiries, and bearing in mind the nature of the Company’s business
and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for the foreseeable
future. In arriving at this conclusion, the Directors have
considered the liquidity of the portfolio and the Company’s ability
to meet obligations as they fall due for a period of at least 12
months from the date that these financial statements were
approved.
Cashflow projections have been reviewed and show that the
Company has sufficient funds to meet both its contracted
expenditure and its discretionary cash outflows in the form of the
dividend policy.
Viability statement
The Directors have assessed the prospects of the Company over the
three-year period to the Annual General Meeting in 2020. The
Directors consider three years to be a reasonable time horizon to
consider the continuing viability of the Company, although they do
consider viability for the longer-term foreseeable future also.
In their assessment of the viability of the Company, the
Directors have considered each of the Company’s principal risks and
uncertainties as set out in the Strategic Report above and in
particular, have considered the potential impact of a significant
fall in global equity markets on the value of the Company’s
investment portfolio overall. The Directors have also considered
the Company’s income and expenditure projections and the fact that
the Company’s investments mainly comprise readily realisable
securities which could be sold to meet funding requirements if
necessary, and on that basis consider that three years is an
appropriate time period to assess continuing viability.
In forming their assessment of viability, the Directors have
also considered:
• internal processes for monitoring costs;
• expected levels of investment income;
• performance of the Manager;
• portfolio risk profile;
• liquidity risk;
• gearing limits;
• counterparty exposure; and
• financial controls and procedures operated by the Company.
Based upon these considerations, the Directors have concluded
that there is a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period to the Annual General Meeting in 2020.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Company’s Annual
Report and Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards (“IFRS”). Under Company
law, the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing the financial statements, the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors’,
and then apply them consistently;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- provide additional disclosure when compliance with specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company’s financial position and financial performance;
- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements; and
- make judgements and estimates that are reasonable and
prudent.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and to enable them to ensure
that the financial statements comply with the Companies Act 2006
and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors’ Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations, and ensuring that
the Annual Report includes information required by the Listing
Rules and Disclosure Guidance and Transparency Rules of the
FCA.
The financial statements are published on the Company’s website,
www.mlcapman.com/manchester-london-investment-trust-plc,
which is maintained on behalf of the Company by the Manager. The
Manager has agreed to maintain, host, manage and operate the
Company’s website and to ensure that it is accurate and up-to-date
and operated in accordance with applicable law. The work carried
out by the Auditor does not involve consideration of the
maintenance and integrity of this website and accordingly, the
Auditor accepts no responsibility for any changes that have
occurred to the financial statements since they were initially
presented on the website. Visitors to the website need to be aware
that legislation in the United
Kingdom covering the preparation and dissemination of the
financial statements may differ from legislation in their
jurisdiction.
We confirm that to the best of our knowledge:
i. the financial statements, prepared in accordance
with the IFRS as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and profit
of the Company; and
ii. the Annual Report includes a fair review of the
development and performance of the business and position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for Shareholders to assess
the Company’s position and performance, strategy and business
model.
On behalf of the Board of Directors
P H A Stanley
Chairman
12 October 2017
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company’s statutory accounts for the years ended 31 July 2017 and 31 July
2016 but is derived from those accounts. Statutory accounts
for the year ended 31 July 2016 have
been delivered to the Registrar of Companies and statutory accounts
for the year ended 31 July 2017 will
be delivered to the Registrar of Companies in due course. The
Auditor has reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The text of the
Auditor’s report can be found in the Company’s full Annual Report
at
www.mlcapman.com/manchester-london-investment-trust-plc.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July
2017
|
|
2017 |
|
|
2016 |
|
|
Notes |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Gains |
|
|
|
|
|
|
|
|
Gains on investments at fair value
through profit or loss |
|
- |
18,532 |
18,532 |
|
- |
10,712 |
10,712 |
Other investment
income |
2 |
1,532 |
- |
1,532 |
|
2,808 |
- |
2,808 |
Investment income |
2 |
1,053 |
- |
1,053 |
|
897 |
- |
897 |
Gross return |
|
2,585 |
18,532 |
21,117 |
|
3,705 |
10,712 |
14,417 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Management fee |
3 |
(424) |
- |
(424) |
|
(334) |
- |
(334) |
Other operating
expenses |
4 |
(365) |
(89) |
(454) |
|
(447) |
- |
(447) |
Total expenses |
|
(789) |
(89) |
(878) |
|
(781) |
- |
(781) |
|
|
|
|
|
|
|
|
|
Return before
finance costs and tax |
|
1,796 |
18,443 |
20,239 |
|
2,924 |
10,712 |
13,636 |
Finance costs |
5 |
(35) |
(102) |
(137) |
|
(35) |
(177) |
(212) |
Return on ordinary
activities before tax |
|
1,761 |
18,341 |
20,102 |
|
2,889 |
10,535 |
13,424 |
Taxation |
6 |
(47) |
- |
(47) |
|
- |
- |
- |
Return on ordinary
activities after tax |
|
1,714 |
18,341 |
20,055 |
|
2,889 |
10,535 |
13,424 |
Return per Ordinary
Share: Basic and fully diluted (pence) |
8 |
7.90 |
84.53 |
92.43 |
|
13.45 |
49.05 |
62.50 |
The total column of this statement is the Income Statement of
the Company prepared in accordance with IFRS, as adopted by the
European Union. The supplementary revenue and capital columns are
presented in accordance with the Statement of Recommended Practice
issued by the AIC in November 2014
(“AIC SORP”).
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
There is no other comprehensive income, and therefore the profit
for the year after tax is also the total comprehensive income.
The notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July
2017
|
Notes |
Share
capital
£’000 |
Share
premium
£’000 |
Treasury
Shares
£’000 |
Capital
reserve*
£’000 |
Retained
earnings**
£’000 |
Total
£’000 |
Balance at 1 August
2016 |
|
5,614 |
35,317 |
(2,315) |
9,415 |
27,515 |
75,546 |
Changes in equity for 2017 |
|
|
|
|
|
|
|
Total comprehensive
income |
|
- |
- |
- |
18,341 |
1,714 |
20,134 |
Goodwill written
back |
|
- |
- |
- |
79 |
- |
- |
Buybacks of Ordinary
Shares |
15 |
- |
- |
- |
- |
- |
- |
Sale of Ordinary
Shares from Treasury |
15 |
- |
548 |
1,331 |
- |
- |
1,879 |
Transfer of
capital |
|
- |
- |
- |
- |
- |
- |
Equity dividends
paid |
7 |
- |
- |
- |
- |
(2,898) |
(2,898) |
Balance at 31 July
2017 |
|
5,614 |
35,865 |
(984) |
27,835 |
26,331 |
94,661 |
|
|
|
|
|
|
|
|
Balance at 1 August
2015 |
|
5,614 |
35,295 |
(2,395) |
(1,120) |
25,680 |
63,074 |
|
|
|
|
|
|
|
|
Changes in equity
for 2016 |
|
|
|
|
|
|
|
Total comprehensive
income |
|
- |
- |
- |
- |
13,424 |
13,424 |
Buybacks of Ordinary
Shares |
15 |
- |
- |
(134) |
- |
- |
(134) |
Sale of Ordinary
Shares from Treasury |
15 |
- |
22 |
214 |
- |
- |
236 |
Transfer of
capital |
|
- |
- |
- |
10,535 |
(10,535) |
- |
Equity dividends
paid |
7 |
- |
- |
- |
- |
(1,054) |
(1,054) |
Balance at 31 July
2016 |
|
5,614 |
35,317 |
(2,315) |
9,415 |
27,515 |
75,546 |
* Within the balance of the Capital reserve, £867,000 relates to
realised gains (2016: losses of £538,000) and are distributable by
way of a dividend. The remaining £26,968,000 relates to unrealised
gains and losses on financial instruments (2016: £10,032,000
relating to unrealised gains and losses on financial instruments
and negative £79,000 relating to write-off of goodwill) and are
non-distributable.
** Fully distributable by way of a dividend.
The notes below form part of these financial statements.
STATEMENT OF FINANCIAL POSITION
As at 31 July 2017
|
|
|
2017 |
|
2016 |
|
Notes |
|
£’000 |
|
£’000 |
Non-current
assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
9 |
|
76,106 |
|
38,999 |
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
Unrealised derivative
assets |
13 |
|
5,173 |
|
3,269 |
Trade and other
receivables |
10 |
|
4,486 |
|
22 |
Cash and cash
equivalents |
11 |
|
11,205 |
|
35,252 |
|
|
|
20,864 |
|
38,543 |
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Unrealised derivative
liabilities |
13 |
|
(2,046) |
|
(1,746) |
Trade and other
payables |
12 |
|
(263) |
|
(250) |
|
|
|
(2,309) |
|
(1,996) |
Net current
assets |
|
|
18,555 |
|
36,547 |
Net assets |
|
|
94,661 |
|
75,546 |
Capital and
reserves |
|
|
|
|
|
Ordinary Share
Capital |
14 |
|
5,614 |
|
5,614 |
Shares held in
Treasury |
15 |
|
(984) |
|
(2,315) |
Share premium |
|
|
35,865 |
|
35,317 |
Capital reserve |
|
|
27,835 |
|
9,415 |
Retained earnings |
|
|
26,331 |
|
27,515 |
Total
equity |
|
|
94,661 |
|
75,546 |
|
|
|
|
|
|
Net asset value per
Ordinary Share |
16 |
|
429.05p |
|
350.81p |
The financial statements were approved by the Board of Directors
and authorised for issue on 12 October 2017 and are signed on
their behalf by:
P H A Stanley
Chairman
Manchester and London
Investment Trust Public Limited Company
Company Number: 01009550
The notes below form part of these financial statements.
STATEMENT OF CASH FLOWS
For the year ended 31 July
2017
|
2017
£’000 |
|
2016
£’000 |
Cash flow from
operating activities |
|
|
|
Return on operating
activities before tax |
20,102 |
|
13,424 |
Interest expense |
137 |
|
383 |
Gain on investments
held at fair value through profit or loss |
(16,736) |
|
(7,941) |
(Increase)/decrease in
receivables |
(55) |
|
2 |
(Decrease)/increase in
payables |
(75) |
|
50 |
Increase in fair value
of derivative financial instruments |
(1,585) |
|
(546) |
Non-cash expenses |
79 |
|
- |
Taxation |
(57) |
|
- |
Net cash generated
from operating activities |
1,810 |
|
5,372 |
Cash flow from investing activities |
|
|
|
Purchases of
investments |
(38,162) |
|
(39,450) |
Sales of
investments |
13,422 |
|
36,432 |
Net cash outflow from
investing activities |
(24,740) |
|
(3,018) |
Cash flow from financing activities |
|
|
|
Equity dividends
paid |
(2,898) |
|
(1,054) |
Resale of Ordinary
Shares |
1,879 |
|
236 |
Buybacks of Ordinary
Shares |
- |
|
(134) |
Interest paid |
(98) |
|
(383) |
Net cash used in
financing activities |
(1,117) |
|
(1,335) |
Net (decrease)/increase in cash and cash equivalents |
(24,047) |
|
1,019 |
Cash and cash
equivalents at beginning of the year |
35,252 |
|
34,233 |
Cash and cash
equivalents at end of the year |
11,205 |
|
35,252 |
The notes below form part of these financial statements.
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 July 2017
1. General information and accounting policies
Manchester and London Investment
Trust plc is a public limited company incorporated in the UK and
registered in England and
Wales. The principal activity of
the Company is that of an investment trust company within the
meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and
its investment approach is detailed in the Strategic Report.
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union, which comprise standards
and interpretations approved by the International Accounting
Standards Board (“IASB”), and as applied in accordance with the
provisions of the Companies Act 2006. The annual financial
statements have also been prepared in accordance with the AIC SORP
for the financial statements of investment trust companies and
venture capital trusts, except to any extent where it is not
consistent with the requirements of IFRS.
Basis of preparation
In order to better reflect the activities of an investment trust
company and in accordance with the AIC SORP, supplementary
information which analyses the Statement of Comprehensive Income
between items of revenue and capital nature has been prepared
alongside the Statement of Comprehensive Income.
The financial statements are presented in Sterling, which is the
Company’s functional currency as the UK is the primary environment
in which it operates, rounded to the nearest £’000s, except where
otherwise indicated.
The financial statements have been prepared on the historical
cost basis, except for the revaluation of certain investments that
are measured at revalued amounts or fair values at the end of each
reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date.
Going concern
The financial statements have been prepared on the going concern
basis, being a period of at least 12 months from the date these
financial statements were approved, and on the basis that approval
as an investment trust company will continue to be met.
The Directors have made an assessment of the Company’s ability
to continue as a going concern and are satisfied that the Company
has adequate resources to continue in operational existence for the
foreseeable future. Furthermore, the Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company’s ability to continue as a going concern, having taken into
account the liquidity of the Company’s investment portfolio and the
Company’s financial position in respect of its cash flows,
borrowing facilities and investment commitments (of which there are
none of significance).
Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single segment of business, being investment business. The Company
primarily invests in companies listed in the UK and other
recognised international exchanges.
Accounting developments
The accounting policies are consistent with those of the previous
financial year. The following accounting standards and their
amendments were in issue at the period end but will not be in
effect until after this financial year end. The Company is still
considering the impact these Accounting Standards will have on the
financial statements.
International Financial Reporting Standards |
Effective date |
IFRS 7 |
Financial Instruments
(IFRS9 Disclosures amendments) |
1
January 2018 |
IFRS 9 |
Financial
Instruments |
1
January 2018 |
IFRS 15 |
Revenue from Contracts
with Customers |
1
January 2018 |
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts in
the Statement of Financial Position, the Statement of Comprehensive
Income and the disclosure of contingent assets and liabilities at
the date of the financial statements. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
period if the revision affects both current and future periods.
There were no significant accounting estimates or critical
accounting judgements in the year.
Investments
Investments are measured initially, and at subsequent reporting
dates, at fair value, and derecognised at trade date where a
purchase or sale is under a contract whose terms require delivery
within the time-frame of the relevant market. For listed
investments, this is deemed to be bid market prices or closing
prices for Stock Exchange Electronic Trading Service – quotes and
crosses (“SETSqx”).
Changes in fair value of investments are recognised in the
Income Statement as a capital item. On disposal, realised gains and
losses are also recognised in the Income Statement as capital or
revenue dependent on their nature. A position is deemed to be
revenue rather than capital if the position has been opened and
closed and the duration that the position was open is less than
twelve months. Changes to core holdings will not be classified as
revenue regardless of their duration. Positions opened but not yet
closed are deemed to be capital investments in nature until closed,
at which point their duration determines if they are classified as
revenue rather than capital.
All investments for which fair value is measured or disclosed in
the financial statements are categorised within the fair value
hierarchy in note 9.
Financial instruments
The Company may use a variety of derivative instruments, including
equity swaps, futures, forwards and options under master agreements
with the Company’s derivative counterparties to enable the Company
to gain long and short exposure on individual securities.
The Company recognises financial assets and financial
liabilities when it becomes a party to the contractual provisions
of the instrument. Listed options and futures contracts are
recognised at fair value through profit or loss valued by reference
to the underlying market value of the corresponding security,
traded prices and/or third party information.
Notional dividend income arising on long positions is
apportioned wholly to the revenue account.
Notional interest expense on long positions is initially
allocated 100% to capital whilst the position is unrealised,
however, upon realisation these costs are expensed through the
Income Statement as revenue or capital in accordance with the
Company’s revenue recognition accounting policy.
Unrealised changes to the value of securities in relation to
derivatives are allocated initially to capital, until realisation
where they are allocated to either revenue or capital dependent
upon their nature.
Foreign currency
Transactions denominated in foreign currencies are converted to
Sterling at the actual exchange rate as at the date of the
transaction. Monetary assets and liabilities and non-monetary
assets held at fair value denominated in foreign currencies at the
year end are reported at the Balance Sheet date. Any gain or loss
arising from a change in exchange rate subsequent to the date of
the transaction is included as an exchange gain or loss in the
capital reserve or the revenue account depending on whether the
gain or loss is capital or revenue nature.
Cash and cash equivalents
Cash comprises cash in hand, overdrafts and demand deposits. Cash
equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to insignificant risk of changes in value.
For the purposes of the Statement of Financial Position and the
Statement of Cash Flows, cash and cash equivalents consist of cash
and cash equivalents as defined above, net of outstanding bank
overdrafts when applicable.
Trade receivables, trade payables and short-term
borrowings
Trade receivables, trade payables and short-term borrowings are
measured at amortised cost or approximate fair value.
Revenue recognition
Revenue is recognised when it is probable that economic benefits
associated with a transaction will flow to the Company and the
revenue can be reliably measured.
Dividends from overseas companies are shown gross of any
non-recoverable withholding taxes which are disclosed separately in
the Statement of Comprehensive Income.
Dividends receivable on quoted equity Shares are taken to
revenue on an ex-dividend basis. Dividends receivable on equity
Shares where no ex-dividend date is quoted are brought into account
when the Company’s right to receive payment is established. Fixed
returns on non-equity Shares are recognised on a time-apportioned
basis using the effective interest method.
Special dividends are taken to revenue or capital account
depending on their nature. In deciding whether a dividend should be
regarded as a capital or revenue receipt, the Board reviews all
relevant information as to the reasons for the sources of the
dividend on a case by case basis.
When the Company has elected to receive scrip dividends in the
form of additional shares rather than in cash, the amount of the
cash dividend forgone is recognised as income. Any excess in the
value of the cash dividend is recognised in the capital column.
Other investment income includes gains and losses on the trading
of Shares, equity swaps and futures, net of commissions, interest
and other costs.
All other income is accounted for on a time-apportioned basis
and recognised in the Statement of Comprehensive Income.
Expenses and finance cost
All expenses are accounted for on an accruals basis and with the
exception of capital interest are charged to revenue. All other
administrative expenses are charged through the revenue column in
the Income Statement.
Expenses incurred in issuing or the buyback of Shares to be held
in Treasury are charged to the capital reserve.
Taxation
The charge for taxation is based on the net revenue for the year
and any deferred tax.
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes at the
reporting date. Deferred tax assets are only recognised if it is
considered more likely than not that there will be suitable profits
from which the future reversal of timing differences can be
deducted. In line with recommendations of the AIC SORP, the
allocation method used to calculate the tax relief on expenses
charged to capital is the “marginal” basis. Under this basis, if
taxable income is capable of being offset entirely by expenses
charged through the revenue account, then no tax relief is
transferred to the capital account.
No taxation liability arises on gains from sales of fixed asset
investments by the Company by virtue of its investment trust
status. However, the net revenue (excluding investment income)
accruing to the Company is liable to corporation tax at prevailing
rates.
Dividends payable to Shareholders
Dividends to Shareholders are recognised as a liability in the
period in which they are approved and are taken to the Statement of
Changes in Equity. Dividends declared and approved by the Company
after the Balance Sheet date have not been recognised as a
liability of the Company at the Balance Sheet date.
Ordinary Share capital
Nominal value of total Ordinary Shares issued.
Shares held in Treasury
Consideration paid for the purchase of Shares held in Treasury.
Share premium
The Share premium account represents the accumulated premium paid
for Shares issued in previous periods above their normal value less
issue expenses. This is a reserve forming part of the
non-distributable reserves. The following items are taken to this
reserve:
• costs associated with the issue of equity;
• premium on the issue of Shares; and
• premium on the sales of Shares held in Treasury over the market
value.
Capital reserve
The following are taken to capital reserve:
• gains and losses on the realisation of investments
• increases and decreases in the valuation of the investments held
at the year end;
• write-off of goodwill;
• exchange differences of a capital nature; and
• expenses, together with the related taxation effect, allocated to
this reserve in accordance with the above policies.
Retained earnings
The revenue reserve represents accumulated profits and losses and
any surplus profits. The surplus accumulated profits are
distributable by way of dividends.
2. Income
|
2017
£’000 |
|
2016
£’000 |
Other investment
income |
1,532 |
|
2,808 |
Dividends from listed
investments |
996 |
|
839 |
Interest |
57 |
|
58 |
|
2,585 |
|
3,705 |
3. Management fee
|
2017 |
2016 |
|
£’000 |
£’000 |
Management fee |
424 |
334 |
The Manager provides investment services to the Company under a
management agreement with a termination period of three months. The
annual fee is 0.5% of the NAV calculated and payable quarterly in
arrears. The fee is not subject to Value Added Tax (“VAT”). Also
payable to the Manager are expenses incurred on behalf of the
Company. Transactions with the Manager during the year are
disclosed in note 18.
The management fee is chargeable to revenue.
4. Other operating expenses
|
2017 |
|
2016 |
|
Revenue
£’000 |
|
Capital
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Directors’ fees |
48 |
|
- |
|
48 |
- |
Auditors’
remuneration |
33 |
|
- |
|
25 |
- |
Registrar fees |
14 |
|
- |
|
10 |
- |
Goodwill written
off |
- |
|
79 |
|
- |
- |
Other expenses |
270 |
|
10 |
|
364 |
- |
|
365 |
|
89 |
|
447 |
- |
Fees payable to the
Company’s Auditor for the audit of the Company financial
statements |
33 |
|
- |
|
25 |
- |
Fees payable to the
Company’s Auditor for other services*: |
|
|
|
|
|
|
Services relating to
taxation |
- |
|
- |
|
7 |
- |
Other services |
- |
|
- |
|
3 |
- |
|
33 |
|
- |
|
35 |
- |
Other operating expenses include irrecoverable VAT where
appropriate.
* No non-audit services were provided by Deloitte LLP in the
year to 31 July 2017.
5. Finance costs
|
2017
£’000 |
|
2016
£’000 |
Charged to
revenue |
35 |
|
35 |
Charged to
capital |
102 |
|
177 |
|
137 |
|
212 |
Finance costs include financing charged by the Prime Brokers on
open long positions and are allocated to revenue or capital on the
basis disclosed in note 1.
6. Taxation
|
2017 |
2016 |
|
Revenue
£’000 |
Capital £’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Current UK corporation
tax |
- |
- |
- |
- |
- |
- |
Overseas tax not
recoverable |
61 |
- |
61 |
- |
- |
- |
Overseas tax
refunds |
(14) |
- |
(14) |
- |
- |
- |
|
47 |
- |
47 |
- |
- |
- |
|
|
|
|
|
|
|
The charge for the year can be reconciled to the profit per the
Income Statement as follows: |
Profit/(loss) before
tax |
1,761 |
18,341 |
20,102 |
2,889 |
10,535 |
13,424 |
|
|
|
|
|
|
|
Tax at the UK
corporation tax rate of 19.67% (2016: 20.00%) |
346 |
3,608 |
3,954 |
578 |
2,107 |
2,685 |
Tax effect of
non-taxable dividends/unrealised profits |
(21) |
- |
(21) |
(168) |
- |
(168) |
Income not subject to
UK corporation tax |
(49) |
- |
(49) |
(307) |
- |
(307) |
Brought forward losses
utilised during the period |
(114) |
- |
(114) |
(115) |
- |
(115) |
Profits on investment
appreciation not taxable |
- |
(3,588) |
(3,588) |
- |
(2,142) |
(2,142) |
Current year losses
utilised |
(162) |
(20) |
(182) |
- |
- |
- |
Other non-taxable
income less expenses not deductible for tax |
- |
- |
- |
7 |
35 |
42 |
Unrelieved tax losses
and other deductions arising in the period |
- |
- |
- |
5 |
- |
5 |
Overseas tax not
recoverable |
61 |
- |
61 |
- |
- |
- |
Overseas tax
refunds |
(14) |
- |
(14) |
- |
- |
- |
Current year tax
charge |
47 |
- |
47 |
- |
- |
- |
At 31 July 2017, there was an
unrecognised deferred tax asset, measured at the substantively
enacted rate of 17%, of £243,000 (2016: £340,000). This deferred
tax asset relates to surplus management expenses. It is unlikely
that the Company will generate sufficient taxable profits in the
foreseeable future to recover these amounts and therefore the asset
has not been recognised in the year, or in prior years.
As at 31 July 2017, the Company
had unrelieved capital losses of £9,330,000 (2016: £9,330,000).
There is therefore, a related unrecognised deferred tax asset,
measured at the substantively enacted rate of 17%, of £1,586,000
(2016: £1,679,000). These capital losses can only be utilised to
the extent that the Company does not qualify as an investment trust
in the future and, as such, the asset has not been recognised.
7. Dividends
Amounts recognised as distributions to equity holders in the
period: |
2017
£’000 |
|
2016
£’000 |
Final ordinary
dividend for the year ended 31 July 2016 of 1.85p (2015: 1.70p) per
Share |
398 |
|
365 |
First final special
dividend for the year ended 31 July 2016 of 7.5p (2015: nil) per
Share |
1,615 |
|
- |
Final special dividend
for the year ended 31 July 2016 of 1.05p (2015: 0.25p) per
Share |
226 |
|
54 |
Interim
ordinary dividend for the year ended 31 July 2017 of 1.82p (2016:
0.40p) per Share |
400 |
|
86 |
First special dividend
for the year ended 31 July 2017 of 1.18p (2016: 0.46p) per
Share |
259 |
|
99 |
Second special
dividend for the year ended 31 July 2017 of nil (2016: 2.10p) per
Share |
- |
|
450 |
|
2,898 |
|
1,054 |
The Directors are proposing a final ordinary dividend of 1.76p
and a final special dividend of 4.24p for the financial year 2017.
These proposed dividends have been excluded as a liability in these
financial statements in accordance with IFRS.
We also set out below the total dividend payable in respect of
the financial year, which is the basis on which the requirements of
Section 1158 of the Corporation Tax Act 2010 are considered.
|
2017
£’000 |
|
2016
£’000 |
Interim
ordinary dividend for the year ended 31 July 2017 of 1.82p
(2016: 0.40p) per Share |
400 |
|
86 |
Proposed final
ordinary dividend for the year ended 31 July 2017 of 1.76p (2016:
1.85p) per Share* |
390 |
|
398 |
First special dividend
for the year ended 31 July 2017 of 1.18p (2016: 0.46p) per
Share |
259 |
|
99 |
Second special
dividend for the year ended 31 July 2017 of nil (2016: 2.10p) per
Share |
- |
|
450 |
First final special
dividend for the year ended 31 July 2017 of nil (2016: 7.50p) per
Share |
- |
|
1,615 |
Proposed
final special dividend for the year ended 31 July 2017 of 4.24p
(2016: 1.05p) per Share* |
940 |
|
226 |
|
1,989 |
|
2,874 |
*Based on the total Shares eligible to receive dividend as at
12 October 2017.
8. Return per Ordinary Share
|
2017 |
|
2016 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Return: |
|
|
|
|
|
|
|
Basic and fully
diluted |
1,714 |
18,341 |
20,055 |
|
2,889 |
10,535 |
13,424 |
Basic revenue, capital and total return per Ordinary Share is
based on the net revenue, capital and total return for the period
and on the weighted average number of Ordinary Shares in issue
(excluding those Shares held in Treasury per note 15) of 21,697,085
(2016: 21,477,042).
9. Investments at fair value through
profit or loss
|
2017
£’000 |
2016
£’000 |
Investments: |
|
|
Listed
investments |
75,877 |
38,753 |
Unlisted
investments |
229 |
246 |
|
76,106 |
38,999 |
|
2017 |
2016 |
|
Listed
£’000 |
Unlisted
£’000 |
Total
£’000 |
Total
£’000 |
Analysis of investment
portfolio movements: |
|
|
|
|
Opening cost at 1
August |
31,780 |
100 |
31,880 |
24,982 |
Opening
unrealised appreciation at
1 August |
6,973 |
146 |
7,119 |
3,058 |
Opening fair value at
1 August |
38,753 |
246 |
38,999 |
28,040 |
|
|
|
|
|
Movements in the
year: |
|
|
|
|
Purchases at cost |
38,162 |
- |
38,162 |
39,450 |
Sales proceeds |
(17,792) |
- |
(17,792) |
(36,432) |
Realised profit on
sales |
1,410 |
- |
1,410 |
3,880 |
Increase/(decrease) in
unrealised appreciation |
15,344 |
(17) |
15,327 |
4,061 |
Closing fair value at
31 July |
75,877 |
229 |
76,106 |
38,999 |
|
|
|
|
|
Closing cost at 31
July |
53,560 |
100 |
53,660 |
31,880 |
Closing
unrealised appreciation at
31 July |
22,317 |
129 |
22,446 |
7,119 |
Closing fair value at
31 July |
75,877 |
229 |
76,106 |
38,999 |
Fair value hierarchy
Financial assets of the Company are carried in the Statement of
Financial Position at fair value. The fair value is the amount at
which the asset could be sold or the liability transferred in an
orderly transaction between market participants, at the measurement
date, other than a forced or liquidation sale. The Company measures
fair values using the following hierarchy that reflects the
significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant assets as follows:
-
Level 1 – valued using quoted prices unadjusted in an active
market.
-
Level 2 – valued by reference to valuation techniques using
observable inputs for the asset or liability other than quoted
prices included in Level 1.
-
Level 3 – valued by reference to valuation techniques using
inputs that are not based on observable market data for the asset
or liability.
The tables below set out fair value measurements of financial
instruments as at the year end, by their category in the fair value
hierarchy into which the fair value measurement is categorised.
Financial assets at fair value through profit or loss at
31 July 2017
|
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
|
|
|
|
|
Equity investments |
75,877 |
- |
- |
75,877 |
Debentures |
- |
229 |
- |
229 |
Derivatives – assets |
- |
5,173 |
- |
5,173 |
Total |
75,877 |
5,402 |
- |
81,279 |
|
|
|
|
|
Financial assets at fair value through profit or loss at
31 July 2016
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
Equity investments |
38,753 |
- |
- |
38,753 |
Debentures |
- |
246 |
- |
246 |
Derivatives – assets |
- |
3,269 |
- |
3,269 |
Total |
38,753 |
3,515 |
- |
42,268 |
|
|
|
|
|
There have been no transfers during the period between level 1
and 2 fair value measurements and no transfers into or out of level
3 fair value measurement.
Financial liabilities at 31 July
2017
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
Derivatives - liabilities |
- |
2,046 |
- |
2,046 |
Financial liabilities at 31 July
2016
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
Derivatives - liabilities |
- |
1,746 |
- |
1,746 |
Transaction costs
During the year, the Company incurred transaction costs of £138,000
(2016: £223,000) on the purchase and disposal of investments.
10. Trade and other receivables
|
|
|
2017
£’000 |
2016
£’000 |
Dividend receivables |
92 |
7 |
Due from brokers |
4,370 |
- |
Other receivables |
13 |
4 |
Prepayments |
11 |
11 |
|
4,486 |
22 |
11. Cash and cash equivalents
|
2017
£’000 |
|
2016
£’000 |
Cash and cash
equivalents |
11,205 |
|
32,252 |
|
11,205 |
|
32,252 |
Details of what comprises cash and cash equivalents can be found
in note 1.
12. Trade and other payables
|
2017
£’000 |
|
2016
£’000 |
Trade
payables |
88 |
|
198 |
Accruals |
175 |
|
52 |
|
263 |
|
250 |
13. Derivatives
The Company may use a variety of derivative contracts, including
equity swaps, futures, forwards and options under master agreements
with the Company’s derivative counterparties to enable the Company
to gain long and short exposure on individual securities.
Derivatives are valued by reference to the underlying market value
of the corresponding security.
The net fair value of derivatives at 31
July 2017 was a positive £3,127,000 (2016: positive
£1,523,000). The corresponding gross exposure on equity swaps as at
31 July 2017 was £28,223,000 (2016:
£34,660,000). The net marked to market futures and options total
value as at 31 July 2017 was negative
£1,807,000 (2016: negative £647,000).
|
2017
£’000 |
2016
£’000 |
Assets |
|
|
Unrealised derivative
assets |
5,173 |
3,269 |
|
|
|
Current
liabilities |
|
|
Unrealised derivative
liabilities |
2,046 |
1,746 |
The above liabilities are secured against assets held with the
Prime Brokers.
The current levels of collateral as at 31
July 2017 are:
• Morgan Stanley & Co. International plc £32.4m (2016:
£29.4m)
• JP Morgan Chase & Co. £54.7m (2016: £47.3m)
14. Share capital
|
2017 |
|
2016 |
Ordinary Share capital |
Number
(’000) |
£’000 |
|
Number (’000) |
£’000 |
Ordinary Shares of 25p each
issued and fully paid |
|
|
|
|
|
Balance as at 1 August |
22,457 |
5,614 |
|
22,457 |
5,614 |
Balance as at 31
July |
22,457 |
5,614 |
|
22,457 |
5,614 |
15. Shares held in Treasury
|
2017 |
|
2016 |
|
Number
(’000) |
£’000 |
|
Number
(’000) |
£’000 |
|
|
|
|
|
|
Balance as at 1
August |
923 |
2,315 |
|
956 |
2,395 |
Shares bought back
during the year |
- |
- |
|
52 |
134 |
Shares sold during the
year |
(529) |
(1,331) |
|
(85) |
(214) |
Balance as at 31
July |
394 |
984 |
|
923 |
2,315 |
During the year, the Company bought back none of its Ordinary
Shares (2016: 51,500 (0.2%) of its Ordinary Shares for a total
purchase consideration of £134,000). The Company sold 528,368
(2.5%) (2016: 85,000 (0.4%)) of its Ordinary Shares from Treasury
for a net consideration (after costs) of £1,879,000 (2016:
£236,000), generating a surplus of £548,000 (2016: £22,000) which
is recognised in the Share Premium account.
16. Net asset value per Share
|
Net
asset value per Share |
|
Net
assets
attributable |
|
2017
(p) |
2016
(p) |
|
2017
£’000 |
2016
£’000 |
Ordinary Shares: basic and fully diluted |
429.05 |
350.81 |
|
94,661 |
75,546 |
The basic NAV per Ordinary Share is based on net assets at the
year end and 22,062,788 (2016: 21,534,420) Ordinary Shares in
issue, adjusted for any Shares held in Treasury.
17. Risks – investments, financial
instruments and other risks
Investment objective and policy
The Company’s investment objective and policy are detailed
above.
The investing activities in pursuit of its investment objective
involve certain inherent risks.
The Company’s financial instruments can comprise:
• Shares and debt securities held in accordance with the
Company’s investment objective and policy;
• Derivative instruments for trading and investment purposes;
• Cash, liquid resources and short-term debtors and creditors that
arise from its operations; and
• Current asset investments and trading.
Risks
The risks identified arising from the Company’s financial
instruments are market risk (which comprises market price risk and
interest rate risk), liquidity risk and credit and counterparty
risk. The Company may enter into derivative contracts to manage
risk. The Board reviews and agrees policies for managing each of
these risks, which are summarised below.
These policies remained unchanged since the beginning of the
accounting period.
Market risk
Market risk arises mainly from uncertainty about future prices of
financial instruments used in the Company’s business. It represents
the potential loss the Company might suffer through holding market
positions by way of price movements, interest rate movements and
exchange rate movements. The Company assesses the exposure to
market risk when making each investment decision and these risks
are monitored by the Manager on a regular basis and the Board at
quarterly meetings with the Manager.
Details of the long equity exposures held at 31 July 2017 are shown above.
If the price of these investments and equity swaps had increased
by 3% at the reporting date with all other variables remaining
constant, the capital return in the Statement of Comprehensive
Income and the net assets attributable to equity holders of the
Company would increase by £3,130,000.
A 3% decrease in share prices would have resulted in an equal
and opposite effect of £3,130,000, on the basis that all other
variables remain constant. This level of change is considered to be
reasonable based on observation of current market conditions.
At the year end, the Company’s direct equity exposure to market
risk was as follows:
|
Company |
|
2017 |
2016 |
|
£’000 |
£’000 |
Equity long exposures |
|
|
Investments held in equity form |
76,106 |
38,999 |
Long exposure held in equity
swaps |
28,224 |
34,660 |
|
104,330 |
73,659 |
Interest rate risk
Interest rate risk arises from uncertainty over the interest rates
charged by financial institutions. It represents the potential
increased costs of financing for the Company. The Manager actively
monitors interest rates and the Company’s ability to meet its
financing requirements throughout the year and reports to the
Board.
Liquidity risk
Liquidity risk reflects the risk that the Company will have
insufficient funds to meet its financial obligations as they fall
due. The Directors have minimised liquidity risk by investing in a
portfolio of quoted companies that are readily realisable.
The Company's uninvested funds are held almost entirely with the
Prime Brokers or on interest-bearing deposits with UK banking
institutions.
As at 31 July 2017, the financial
liabilities comprised:
|
Company |
|
2017
£’000 |
2016
£’000 |
Unrealised derivative
liabilities |
2,046 |
1,746 |
Trade payables and
accruals |
263 |
250 |
|
2,309 |
1,996 |
The above liabilities are stated at amortised cost or
approximate fair value.
The Company manages liquidity risk through constant monitoring
of the Company’s gearing position to ensure the Company is able to
satisfy any and all debts within the agreed credit terms.
Currency rate risk
Currency risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in
foreign exchange rates. If Sterling had strengthened by 3% against
all other currencies at the reporting date, with all other
variables remaining constant, the total return in the Statement of
Comprehensive Income and the net assets attributable to equity
holders of the Company would have increased by £2,366,000. If the
Sterling had weakened by 3% against all currencies, there would
have been an equal and opposite effect. This level of change is
considered to be reasonable based on observation of current market
conditions.
The Company’s material foreign currency exposures are laid out
below.
|
Sterling |
US Dollar |
Euro |
Hong Kong
Dollar |
Other |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Equity exposure |
12,942 |
63,164 |
- |
- |
- |
76,106 |
Derivative assets |
819 |
567 |
2,291 |
1,496 |
- |
5,173 |
Derivative liabilities |
(205) |
(1,318) |
(351) |
(167) |
(5) |
(2,046) |
Cash |
2,387 |
8,229 |
226 |
65 |
298 |
11,205 |
Other net assets |
(150) |
4,353 |
10 |
(17) |
27 |
4,223 |
|
15,793 |
74,995 |
2,176 |
1,377 |
320 |
94,661 |
The Company constantly monitors currency rate risk to ensure
balances, wherever possible, are translated at rates favourable to
the Company.
Credit and counterparty risk
Credit risk is the risk of financial loss to the Company if the
contractual party to a financial instrument fails to meet its
contractual obligations.
The maximum exposure to credit risk as at 31 July 2017 was £20,864,000 (2016: £36,547,000).
The calculation is based on the Company’s credit risk exposure as
at 31 July 2017 and this may not be
representative for the whole year.
The Company’s quoted investments are held on its behalf by the
Prime Brokers. Bankruptcy or insolvency of the Prime Brokers may
cause the Company’s rights with respect to securities held by the
Prime Brokers to be delayed.
Where the Manager makes an investment in a bond, corporate or
otherwise, the credit rating of the issuer is taken into account so
as to minimise the risk to the Company of default.
Investment transactions are carried out with a number of brokers
where creditworthiness is reviewed by the Manager.
Cash is only held at banks that have been identified by the
Board as reputable and of high credit quality.
Capital management policies
The structure of the Company’s capital is noted in the Statement of
Changes in Equity and managed in accordance with the investment
objective and policy set out in the Strategic Report.
The Company’s capital management objectives are to maximise the
return to Shareholders while maintaining a capital base to allow
the Company to operate effectively and meet obligations as they
fall due.
The Board, with the assistance of the Manager, monitors and
reviews the capital on an ongoing basis.
The Company is subject to externally imposed capital
requirements:
- As a public company, the Company is required to have a minimum
Share capital of £50,000; and
- In accordance with the provisions of Sections 832 and 833 of
the Companies Act 2006, the Company, as an investment company:
-
is only able to make a dividend distribution to the extent that
the assets of the Company are equal to at least one and a half
times its liabilities after the dividend payment has been made;
and
-
is required to make a dividend distribution each year such that
it does not retain more than 15% of the income that it derives from
Shares and securities.
These requirements are unchanged since last year and the Company
has complied with them at all times.
18. Related party transactions
M & L Capital Management Limited has been the Manager of the
Company since 17 September 2015 (the
former Manager was Midas Investment Management Limited). Both
companies are controlled by Mr M Sheppard.
The Manager receives a quarterly management fee for these
services which in the year under review amounted to a total of
£424,000 (2016: £334,000) excluding VAT. The balance owing to the
Manager as at 31 July 2017 was
£119,000 (2016: £175,000). Also payable to the Manager during the
year were expenses incurred on behalf of the Company of £26,000 (of
which £12,000 related to expenses incurred in 2016). The balance
owing to M&L Capital Management Limited for the recharge of
expenses incurred in the year was £3,000 (2016: £nil).
A corporate fee was payable in the year to Midas Investment
Management Limited for acting as financial adviser amounting to
£3,000 (2016: £5,000) excluding VAT and commission fees of £5,000
(2016: £5,000) excluding VAT to the Company. The balance owing to
Midas Investment Management Limited at 31
July 2017 was £1,000 (2016: £1,000).
During the year, the Company paid service, administration and
secretarial charges to its controlling shareholder, M&M
Investment Company plc, of £nil (2016: £19,000). The balance owing
to M&M Investment Company plc as at 31
July 2017 was £nil (2016: £7,000).
Details relating to the Directors’ emoluments are found in the
Directors’ Remuneration Report in the full Annual Report.
19. Ultimate control
The holding company and ultimate controlling Shareholder
throughout the year and the previous year was M&M Investment
Company plc, a company incorporated in the UK and registered in
England and Wales. This company was controlled throughout
the year and the previous year by Mr M Sheppard and his immediate
family.
A copy of the financial statements of M&M Investment Company
plc can be obtained by writing to its company secretary at 12a
Princess Gate Mews, London SW7 2PS.
20. Post Balance Sheet events
As disclosed in the Directors’ Report on page 22, subsequent to
the year end and up to the date of signing this report, the Company
sold 100,000 Ordinary Shares from Treasury for a net consideration
(after costs) of £384,000, generating a surplus of £133,000.
There were no other significant events since the end of the
reporting period.
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Manchester and London Investment
Trust plc will be held at The Dalton & Joule Room, Manchester
Museum of Science and Industry, Liverpool Road, Manchester M3 4FP on Monday, 27 November 2017 at 12.30
p.m.
The notice of this meeting will be circulated to Shareholders
with the full Annual Report and will also be available at
www.mlcapman.com/manchester-london-investment-trust-plc.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements and Notice
of Annual General Meeting will be submitted shortly to the National
Storage Mechanism (“NSM”) and will be available for inspection at
the NSM, which is situated at www.morningstar.co.uk/uk/nsm.
LEI: 213800HMBZXULR2EEO10
ENDS
Neither the contents of the Company’s website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.