Annual Report • Jul 31, 2010
Annual Report
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For the year ended 31st July 2010
Manchester & London Investment Trust plc Registered in England No. 01009550
| Directors | 5 |
|---|---|
| Advisers & Administration | 5 |
| Chairman's Statement | 6 |
| Portfolio Investments | 8 |
| Portfolio Sector Analysis | 9 |
| Investment Objective and Policy | 10 |
| Investment Manager's Review | 12 |
| Principal Portfolio Holdings | 14 |
| Investment Record of the Last Ten Years | 16 |
| Report of the Directors | 17 |
| Directors' Responsibilities in Relation to the Annual Report and the Financial Statements | 29 |
| Directors' Remuneration Report | 30 |
| Independent Auditor's Report To The Members of Manchester & London Investment Trust plc | 31 |
| Consolidated Statement of Comprehensive Income | 33 |
| Statement of Changes in Equity | 34 |
| Consolidated Statement of Financial Position | 35 |
| Company Statement of Financial Position | 36 |
| Consolidated Statement of Cash Flows | 37 |
| Notes Forming Part of the Financial Statements | 38 |
| Notice of Annual General Meeting | 53 |
| Form of Proxy | 57 |
| Shareholder Benefits | 58 |
| Ways of Investing in Manchester & London Investment Trust plc | 58 |
If you are in any doubt about the contents of this document or the action you should take, you are recommended to seek immediately your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000.
| Year to 31st July 2010 |
Year to 31st July 2009 |
Percentage increase |
|
|---|---|---|---|
| Total Return (£'000) | 13,151 | 645 | 1,938.9 |
| Return per 25p ordinary share – fully diluted | 71.8p | 4.4p | 1,531.8 |
| Total Revenue Return per 25p ordinary share | 10.6p | 10.5p | 1.0 |
| Cash dividend per 25p ordinary share | 11.5p | 10.5p | 9.5 |
| At 31st July 2010 |
At 31st July 2009 |
Percentage increase |
|
|---|---|---|---|
| Net assets attributable to Equity Shareholders (£'000) | 85,203 | 57,495 | 48.2 |
| Net asset value per 25p ordinary share – fully diluted | 379.4p | 328.4p | 15.5 |
| FTSE All-Share Index | 2,715.4 | 2,353.5 | 15.4 |
| Outperformance versus FTSE All-Share Index | 0.1 |
| Year to 31st July 2010 |
Year to 31st July 2009 |
|
|---|---|---|
| Total expenses as a percentage of average shareholders' funds |
1.23% | 1.52% |
Total Expense Ratio has excluded significant non-recurring items.
| Year ended: | 31st July 2010 |
|---|---|
| Results announced: | 29th October 2010 |
| Report and Accounts made available to Shareholders: | 3rd November 2010 |
| Annual General Meeting to be held in Manchester: | 25th November 2010 |
| Expected final dividend payment: | 30th November 2010 |
** P H A Stanley (77) joined the Board in November 1997 and was appointed Chairman in November 2000. Mr Stanley was Chairman of BWD Securities plc (1995-2000) and has extensive experience in Stock Market related matters.
B S Sheppard (76) is a founder Director of Manchester & London Investment Trust plc and was Chairman until November 2000.
** D Harris (60) was appointed to the board on 26th May 2009 following the acquisition of OSP Limited (formerly Osprey Smaller Companies Income Fund Limited). Mr Harris is the Chief Executive of InvaTrust Consultancy and is a previous winner of the award "Best Investment Adviser in the United Kingdom".
** Independent Director and Member of the Audit Committee
2nd Floor Arthur House Chorlton Street Manchester M1 3FH Tel: 0161 228 1709 Fax: 0161 228 2510
Company website www.manchesterandlondon.co.uk
Investment Manager Midas Investment Management Limited 2nd Floor Arthur House Chorlton Street Manchester M1 3FH Tel: 0161 228 1709 Fax: 0161 228 2510
P Thomas 2nd Floor Arthur House Chorlton Street Manchester M1 3FH
Computershare Investor Services Plc PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH Tel: 0870 702 0003 Fax: 0870 703 6114
National Westminster Bank Plc 11 Spring Gardens Manchester M60 2DB
Auditor CLB Coopers Century House 11 St Peter's Square Manchester M2 3DN
Since writing to shareholders on 12th March 2010 (covering the period from the 15th October 2009), the FTSE All-Share Index has rallied from the low point of 2,485.7 (30th June 2010) and has now reached a current level of over 2,900 (see chart).
This is a powerful rally, driven by a resumption of growth in the developing economies and a number of the better positioned developed economies. Global growth shares have performed among the best and this has been beneficial for our portfolio.
Since our interim results announcement, the market outlook has changed from believing we were within a fast snap back 'V' shaped recovery to acceptance that we may actually be at the beginning of a period of low growth for the developing economies. The wild volatility of financial markets reflects the other possibilities that the developed economies may be entering the early stages of a double dip recession or even a period of inflation. Basically it is very hard to fathom, although it does appear likely that the overriding direction of future global flows of funds looks ever more likely to be from West to East as the western consumer deleverages. Hence, it does appear that global growth stocks are now being rewarded in excess of any UK centric cyclical stock revaluation and we hope that this will reap further rewards for our portfolio in the future. We would again highlight the geographical spread of the fund shown in the pie chart in our monthly factsheets. We continue to believe that the best position in equities is to be invested in cash generative, liquid and global blue chips. Also, it is still our preference to avoid investing in companies which we believe are over-exposed to the UK economy as in our view the prospects for economic growth in the UK, Europe and the US remain weak.
Other areas which remain of interest to us are possible takeover candidates or special situations, with our investment in SSL International plc being a good example, following its acquisition by Reckitt Benckiser Group plc. Stocks such as PZ Cussons plc, Burberry Group plc, BG Group plc and Xstrata plc are regularly tipped by the financial press as takeover candidates.
We remain positive on equities but continue to remain cautious with regard to the prospects for shorter term market movements.
Our net asset per share increased during the year by 15.5 per cent which is a movement in line with the FTSE All-Share which increased by 15.4 per cent.
The Directors have now declared a Final Dividend of 6.5p making a total of 11.5p per share for the year, an increase of 9.5 per cent for the year. This total payment compares with the Total Revenue Return per Ordinary Share for the year of 10.6p. The company has carried forward distributable reserves of £27m representing over £1 per share which puts us in a strong position to pursue a flexible distribution policy, should the Directors believe this to be in shareholders' best interest.
Towards the end of the last financial year, following on from our acquisition of Osprey Smaller Companies Income Fund Ltd in 2009, we completed a further acquisition, being the 100 per cent acquisition of Stakeholders' Momentum Investment Trust plc ("SMIT") which has now become an investment subsidiary. This further acquisition has helped to grow our net assets by 48.2 per cent for the year to 31st July 2010 and increase the Company's portfolio spread as we liquidated some SMIT holdings but have retained an interest in several that we feel have good prospects for growth.
The acquisition of SMIT has also seen us move into the FTSE All-Share and FTSE SmallCap indices. We would like to take this opportunity to welcome all shareholders who have joined the share register following the acquisition.
I look forward to welcoming shareholders to our thirty eighth Annual General Meeting to be held in the Lancaster Suite, The Midland Hotel, Peter Street, Manchester M60 2DS, at 12.45pm on Thursday 25th November 2010.
P H A Stanley Chairman
As at 31st July 2010
| Listed investments | Sector | Valuation £'000 |
% of Portfolio |
|---|---|---|---|
| PZ Cussons plc | Personal Goods | 15,559 | 18.4 |
| SSL International plc* | Household Goods | 7,134 | 8.5 |
| Standard Chartered plc | Banking | 6,438 | 7.6 |
| Rio Tinto plc | Mining | 6,172 | 7.3 |
| Vedanta Resources plc | Mining | 4,552 | 5.4 |
| BG Group plc | Oil & Gas Producers | 4,352 | 5.2 |
| Weir Group plc | Oil Services | 3,870 | 4.6 |
| Diageo plc | Beverages | 3,741 | 4.4 |
| Charter International plc* | Industrial Engineering | 3,581 | 4.2 |
| Syngenta AG | Pharmaceutical and Biotechnical | 3,378 | 4.0 |
| BP plc | Oil & Gas Producers | 2,922 | 3.5 |
| Tesco plc | Food & Drug Retailers | 2,834 | 3.4 |
| Xstrata plc | Mining | 2,613 | 3.1 |
| Unilever plc | Food Producers | 2,505 | 3.0 |
| Burberry Group plc | Personal Goods | 2,365 | 2.8 |
| Aberdeen Asset Management plc | Financial Services | 2,347 | 2.8 |
| Essar Energy plc | Oil & Gas Producers | 2,224 | 2.6 |
| Jardine Matheson Holdings Ltd | General Industrials | 2,131 | 2.5 |
| Britvic plc | Beverages | 2,109 | 2.5 |
| Afren plc | Oil & Gas Producers | 1,494 | 1.8 |
| EIH plc* | General Financial | 805 | 1.0 |
| Rapid Realisations Fund Limited | General Financial | 696 | 0.8 |
| Property Recycling plc | Real Estates Investment & Services | 502 | 0.6 |
| Listed investments | 84,324 | 100.0 | |
| Unlisted at Directors' valuation | 19 | 0.0 | |
| Total investments | 84,343 | 100.0 |
*Holding has now been disposed.
All investments listed above are equity shares (unless otherwise stated), denominated in Sterling (save for Syngenta which is denominated in CHF and Jardine Matheson Holdings and EIH in USD), which have been issued by companies registered in England (save for Syngenta, Jardine Matheson Holdings, Charter International and EIH which are registered in Switzerland, Bermuda, Jersey and the Isle of Man respectively).
As at 31st July 2010
| Sector | % of Portfolio |
|---|---|
| Personal Goods | 21.2 |
| Mining | 15.8 |
| Oil & Gas Producers | 13.1 |
| Household Goods | 8.5 |
| Banking | 7.6 |
| Beverages | 6.9 |
| Oil Services | 4.6 |
| Industrial Engineering | 4.2 |
| Pharmaceutical & Biotechnical | 4.0 |
| Food & Drug Retailers | 3.4 |
| Food Producers | 3.0 |
| Financial Services | 2.8 |
| General Financial | 2.5 |
| General Industrial | 1.8 |
| Real Estates Investment & Services | 0.6 |
| Unlisted Investments | 0.0 |
| 100.0 |
The investment objective of the Company is to achieve capital appreciation together with a reasonable level of income.
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. 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.
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 subject always to other restrictions set out in this investment policy and the Listing Rules.
Exposure to investments may also be achieved through the use of specialist collective investment schemes and products, such as other investment trusts or exchange traded funds, where specialised management skills are necessary or where it would be uneconomic for the Company to invest directly. However, the Company will not invest more than 10 per cent, in aggregate, of the value of its gross assets at the time the investment in other listed investment trusts or listed investment companies, provided that this restriction does not apply to investment in investment trusts or investment companies which themselves have stated investment policies to invest no more than 15 per cent of their gross assets in other listed investment trusts or listed investment companies.
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.
The Company may invest in derivatives, money market instruments and currency instruments including contracts for differences, futures, forwards and options. These investments may be used for hedging positions against movements in, for example, equity markets, currencies and interest rates. In addition, these instruments will only be used for efficient portfolio management purposes. For the avoidance of doubt, the use of such instruments to engage in trading transactions is strictly against the Company's investment policy. Any trading transactions will be carried out through dealing subsidiaries of the Company. The Company would not maintain derivative positions should the total underlying exposure of these positions exceed one times adjusted total capital and reserves.
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.
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 Investment Manager by an announcement issued through a Regulatory Information Service approved by the FSA.
Performance is measured against the FTSE All-Share Index. The Company sources index and price data from Proquote International, which is a division of the London Stock Exchange plc.
We started the accounting year with cash and cash equivalents representing 8.3 per cent of net assets and, having invested the majority, have remained reasonably fully invested throughout the year, with cash and cash equivalents representing 2.4 per cent as at 31st July 2010.
The central banks of the deficit countries are deflating their currencies and encouraging inflation to diminish the scale of the mountainous debt levels that the trade deficit nations have built up and to increase employment through increased exports. In our view, the only way to improve the real competitiveness of the trade deficit countries is painful supply side restructurings but this is way too painful for the politicians to consider and the electorate to bear. This is why the "smart money" is bidding gold higher and higher. We have thought about the positioning of the portfolio in an era of inflation and we believe that the exposure to the food retailing, mining, oil and agrochemical sectors may well benefit from this scenario which represents over 40.9 per cent of the portfolio. We are concerned regarding the effects of inflation upon our consumer goods stocks which represent 21.2 per cent of the portfolio but we feel that potentially inflation may help the demand for PZ Cussons' African products and Burberry's international fashion portfolio.
We have often maintained that we use four strategies in the formation of the composition of the portfolio being Growth; Value; Event Driven and Special Situation scenarios. We would say that apart from the investment in BP we consider all our other positions as Growth stocks. We continue to believe that the oil sector is undervalued and more acutely so after the Macondo disaster. The portfolio remains underweight in this sector and this is an area that may well change in the short to medium term. We believe that BP is an interesting risk adjusted Special Situation which is painful to hold due to the uncertainty and volatility but has the prospects of attractive potential capital gains. We believe over fifty per cent of the portfolio has the potential to become an Event Driven Situation over the next five years. In particular, we would highlight PZ Cussons, Burberry, Afren, Standard Chartered, Britvic and BG Group as often mentioned takeover targets. We remain overweight in the consumer goods sector by 19.7 per cent and we are attracted to short working cycle cash based businesses that are understandable. We remain underweight in Banks, Financials and Insurance by 8.5 per cent which we feel are leveraged sectors which, unless the portfolio is receiving the benefits of international growth, are not worth bearing the risk at this point in the economic cycle.
Reckitt Benckiser's offer for SSL provided attractive returns for the portfolio during the year. However, this is not the only deal within the sector. Unilever has been on the acquisition trail, recently acquiring Alberto-Culver, the maker of VO5 hair products, for \$3.7 billion, a year after its purchase of Sara Lee Corp's personal care division for \$1.72 billion. In addition, Proctor and Gamble's CEO Robert McDonald recently commented that he would be interested in buying Beiersdorf, the maker of Nivea skin cream. The personal healthcare sector appears to be in consolidation mode as the major companies such as Unilever, Proctor and Gamble and Johnson & Johnson strive to obtain emerging market growth to combat the falling sales in the developed economies. In our view (and judging from the movement in its share price over the year, the market's opinion as well) this very much puts PZ Cussons in the sights of its larger rivals.
Looking forward, we believe that the Asian economies will continue to be the driving force for growth, with the US and Europe remaining relatively stagnant. Our strategy continues to remain focused on global blue chips which are cash generative and liquid and we favour growth stocks with good international exposure over UK/EU centric value stocks.
Energy demand and personal consumption plays a large part in any growing economy. India, a growing BRIC country, is vastly short of reliable power and we have invested in Essar Energy to gain exposure to this growth.
The mining stocks within the portfolio have had a volatile year. Whilst the sector had a strong run towards April 2010, it was hit with a double dose of bad news. The proposed Australian mining tax combined with Chinese policy tightening scared the markets, leading to a sharp correction in the sector, almost halving the value of mining stocks. However, since our year end, the proposed Australian mining tax has been watered down and the Chinese growth story is still well on track, which has seen the commodity indices rise.
Our portfolio should take advantage of the changing consumer profile within developing markets through our investments in Tesco, Diageo and Burberry, targeting not only the basic demand for food but also the desire and attraction of western luxury products.
During the period we have taken the opportunity to visit the global operations of some of our holdings including PZ Cussons, Tesco, Burberry and, post year-end, Essar Energy.
In relation to Special Situations, we are always looking for new ideas and themes and the sectors that we believe are the most ripe for consolidation, are personal healthcare, oil services, engineering, luxury goods and certain energy plays. We have positioned the portfolio on these lines and will continue to monitor and look for other suitable opportunities.
Market conditions are highly volatile with unclear direction which means that it is extremely hard to manage any form of trading activity as, contrary to what the press and CFD providers' adverts say, a lack of direction and volatility is difficult to trade.
Investment Manager Midas Investment Management Ltd
PZ Cussons manufactures and distributes cleansing fluids, soaps, detergents, and health & beauty products through their 30 plus brands which include Imperial Leather, Carex, Cussons Baby and Morning Fresh. The company operates from the UK, Africa, Asia, United Arab Emirates, Central Europe and Australia. Other products marketed include electrical goods via a joint venture with the Chinese group Haier, as well as food and nutrition through Nutricima, a joint venture with Glanbia. PZ Cussons is positioning itself as an attractive distributor of personal goods into specific markets across the developing world.
Year-to-date, the company's main markets in Nigeria and the UK are performing as expected and the brand portfolio has been complemented by the recent acquisition of St Tropez Holdings Ltd. In Nigeria, the upgrade of manufacturing facilities and the supply chain are on track and the new national distribution centre is now open. PZ Cussons has a five year compound earnings per share ("EPS") growth rate of 12.3 per cent.
An offer was made for SSL by Reckitt Benckiser Group plc in July 2010 and the holding has now been disposed of.
Standard Chartered is engaged in consumer and wholesale banking globally and has a strong focus on the Asia-Pacific, Middle East and African regions which provide approximately 90 per cent of the group's profit. The bank has been a consistently excellent performer and since 2002 had delivered seven successive years of record operating income and profits, with a five year compound EPS growth rate of 8.2 per cent. As capital continues to flow from West to East, we would expect Asian financial stocks to benefit.
In order for Asia to maintain its GDP growth rate and urbanisation programme, there is a need for the quality iron ore and copper that Rio Tinto produces. Although China can domestically produce iron ore, it is of a lower grade and is difficult to transport around the country.
The company trades on an EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) of 5 times in comparison to its historic multiple of nearer 10 times. Rio Tinto has a five year compounded EPS growth rate of 5 per cent.
Vedanta is India's largest metals and mining company, primarily engaged in copper, zinc, and aluminium, and is well positioned to take advantage of the significant growth in industrial production and investment in infrastructure in India. Vedanta has a five year compound EPS growth rate of 9 per cent.
BG is engaged in exploration, development and production of Natural Gas and Oil. The Group has operations in Australia, Brazil and the United States amongst others.
Part of BG's operations are situated in the exciting Santos Basin which is located offshore Brazil and has been the source of the most recent billion barrel finds. The Santos Basin has benefitted recently from increased media exposure with China's Sinopec paying a full price to buy assets from Repsol. BG has a five year compound EPS growth rate of 12 per cent.
Weir is a global leader in the manufacture of specialised pumps and has operations in the Americas, Australia, Europe, China, India, Africa and the Middle East.
The Minerals division, which manufactures and supplies slurry pump equipment for the global mining industry, accounts for approximately 60 per cent of revenues. The mining capital expenditure cycle is expected to continue to strengthen for the next few years as the developing nations continue to urbanise and Weir is well positioned to take advantage of this. Weir has an attractive five year compound EPS growth rate of 19 per cent.
Diageo produces and distributes a collection of branded premium spirits, beer and wine on a global basis including mega brands Smirnoff, Johnnie Walker, Captain Morgan, J&B and Guinness. As the emerging economies become more developed it is expected that the local populations will seek the luxuries of the western world, such as premium spirits. Diageo has a five year compounded EPS growth rate of 8 per cent and a dividend yield of 3.2 per cent.
This holding has been disposed of post year end.
Syngenta is a global agri-science business engaged in crop protection and seeds. Urbanisation and changing dietary preferences across the middle classes of the developing nations is forcing the agricultural industry to increase yields. Syngenta has a five year compounded EPS growth rate of 17 per cent.
| Dividend Return per per |
Total assets | Net Asset Value | ||||||
|---|---|---|---|---|---|---|---|---|
| Year ended | Total Return £'000 |
Basic p |
ordinary share Fully diluted p |
ordinary share p |
Less Liabilities £'000 |
Basic p |
per 25p share Fully diluted p |
|
| 31 July 2001 | (3,620) | (48.27) | (34.00) | 2.50 | 23,455 | 312.73 | 230.41 | |
| 31 July 2002 | (295) | (3.93) | (2.27) | 8.50 | 22,800 | 304.00 | 224.16 | |
| 31 July 2003 | 2,384 | 31.79 | 23.30 | 9.50 | 24,238 | 323.17 | 237.89 | |
| 31 July 2004 | 5,512 | 73.49 | 53.15 | 9.50 | 28,901 | 385.35 | 282.39 | |
| 31 July 2005 | 5,426 | 72.35 | 52.33 | 9.50 | 33,611 | 448.15 | 327.34 | |
| 31 July 2006 | 3,206 | 42.75 | 31.14 | 9.50 | 36,107 | 481.43 | 351.17 | |
| 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 |
In 2006, the Company adopted International Financial Reporting Standards ("IFRS"). As a result, the data has been restated to reflect the change to IFRS. It is not practical to restate 2003 and prior periods for the effect of transaction costs on total return.
In the period from 1981 to 2000, total assets less liabilities increased from £241,000 to £27,269,000. Net Assets per share increased from 24.1p to 363.59p.
The Directors present their report and financial statements for the year ended 31st July 2010.
The Chairman's Statement on pages 6 and 7 forms part of the report of the Directors.
The purpose of the business review is to provide an overview of the business of the Company by:
The Company is an Investment Company as defined by Section 833 of the Companies Act 2006 and operated as an Investment Trust in accordance with Section 1158 of the Corporation Tax Act 2010.
The Company is also governed by the Listing Rules and Disclosure and Transparency Rules of the Financial Services Authority and the Corporation Tax Act.
The close company provisions of the Corporation Tax Act 2010 do not apply to the Company.
The Company carries on business as an Investment Company. A review of investment activities for the year ended 31st July 2010 and the outlook for the coming year is given by the Investment Manager on page 12. During the year, two subsidiary companies (Manchester & London Securities Limited and Saintclose Limited) which previously carried on business as investment dealing companies, which at times had traded in derivatives, including options and futures, became dormant. The Company's subsidiary OSP Limited (formerly Osprey Smaller Companies Income Fund Limited) ("OSP") carries on business as an investment dealing company which at times trades in derivatives, including options and futures.
The Company acquired Stakeholders' Momentum Investment Trust plc ("SMIT") on 21st May 2010. SMIT was delisted from the London Stock Exchange on 22nd June 2010 and the company renamed as Stakeholders' Momentum Investment Limited.
OSP, a company incorporated in Guernsey, is the sole branch outside the United Kingdom.
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 total expense ratio.
The Board considers the most important key performance indicator to be the comparison with its benchmark index, the FTSE All-Share Index. This is referred to in the Financial Summary on page 4.
Total net assets at 31st July 2010 amounted to £85,203,000 compared with £57,495,000 at 31st July 2009, an increase of 48.2 per cent due to the acquisition of SMIT, whilst the fully diluted net asset value per ordinary share increased from 328.4p to 379.4p. This increase of 15.5 per cent compared with an increase over the period of 15.4 per cent by the FTSE All-Share Index, equated to an outperformance by the Company of 0.1 per cent.
Group net revenue after taxation for the year was £1,949,000, an increase of 27.4 per cent.
The share price during the period under review has been quoted at discounts to net asset value of 4 to 18 per cent which the Directors consider to be satisfactory in the context of the discounts applicable to other investment trusts and was achieved without using the Company's powers to acquire its own shares in the market.
Total expense ratio, which is set out on page 4 is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the total expense ratio and monitors Group expenses.
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:
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 may make the market of the ordinary shares less liquid than would be the case for a larger company.
The Company's policy of charging 65 per cent of the Company's investment advisory fees to the Company's capital account may result in the diminution of the asset value of the 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 value result in the Company breaching the financial covenants applicable to the 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.
The principal risks and the Company's policies for managing these risks and the policies and practices with regards to financial investments are summarised in note 19 to the financial statements. 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 Companies Investment Manager, Registrar and Broker. This type of operational structure is not uncommon with Investment Trust companies.
The Board reviews the internal control procedures of its third party service providers and further details including the Board's risk assessments are detailed in the "Internal Financial Control" under Corporate Governance.
The Company's investment objective and policy is stated on page 10 and has not changed during the year under review, apart from the aforementioned acquisition of SMIT.
Details of the Company's management agreement with Midas Investment Management Limited ("the Investment Manager" or "Midas") are contained in note 3 to the financial statements.
The Company continues to look for strategies to increase shareholders' returns including the dividend and to increase the liquidity of its shares. A commentary on the trends and factors likely to affect the future development, performance and position of the Company, which include market sentiment and the effectiveness of government intervention, is set out in the Chairman's Statement and is released monthly in a fund factsheet published via the Company's website.
The Group's profit for the year, after taxation, amounted to £13,151,000 (2009: £645,000).
In the previous year, the Company acquired OSP Limited (Formerly Osprey Smaller Companies Income Fund Limited). Within the documents published on 5th May 2009 in connection with the offer, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition.
The anticipated cost savings due to the merger of Manchester & London Investment Trust Plc ("MLIT") and OSP were estimated to be £351,000.
The Directors are pleased to announce total cost savings of £447,000 were made following the merger, with the further cost savings of £96,000 as a result of reduction to both investment management and administration costs.
During this year, the Company acquired Stakeholders' Momentum Investment Trust plc.
Following the merger of MLIT and SMIT, the Directors are pleased to announce that the estimated deal costs of the merger of £800,000 were reduced to £642,000, a total saving of £158,000. These savings include reductions in accountants', legal and registrars' fees of £70,000.
Within the documents published on 28th April 2010 in connection with the offer for SMIT, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition. The Listing Rules require the Company to reproduce such unaudited financial information in their next annual report and, if the difference between the unaudited financial information and the actual information is over 10 per cent, to provide an explanation for the difference. The relevant information is set out below and no difference of 10 percent or more arose in relation to the statement in the first paragraph below. However, as the acquisition was only finalised on 28th July 2010 and some of the anticipated savings could not be realised until after the amalgamation of the portfolios on 31st July 2010, it is not practicable to measure the percentage of annual savings achieved in relation to the period remaining prior to the end of the financial year on 31st July 2010. Accordingly, the 2011 annual report will include an explanation if the audited financial information for the year ended 31st July 2011 results in a difference of over 10 per cent.
"Since its appointment as investment manager on 4 December 2009, Midas and the SMIT Board have taken steps to cut SMIT's annual costs by approximately £500,000.
The MLIT Directors also anticipate that the merger of SMIT with MLIT will lead to further annual cost savings of approximately £385,000. The anticipated savings include a £275,000 reduction in investment management, company secretarial, registrar, administration and other fees. Furthermore, the annual costs of maintaining SMIT's independent board and listed status which amount to approximately £110,000 are intended to be saved as a result of the Enlarged Group having a single quoted holding company.
MLIT estimates that termination costs of up to £132,000 will be incurred to cancel various contracts for investment management, administrative and other services in order to achieve these savings."
An interim dividend of 5.0p per ordinary share was paid on 30th April 2010 (2009: 4.5p) and the Directors are recommending a final dividend of 6.5p per ordinary share (2009: 6.0p), a total for the year of 11.5p per ordinary share (2009: 10.5p).
Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 30th November 2010 to shareholders registered on 12th November 2010. The shares will be declared ex-dividend on 10th November 2010.
On 31st July 2010, the middle market quotation and the net asset value per ordinary 25p share were 321.0p and 379.4p, respectively. This indicates that the discount on the Company's shares was 18.1 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 and this discount has narrowed somewhat since the year end.
There have been no significant events since the end of the reporting other than the volatility currently experienced in the stock market.
The Directors attach great importance to ensuring that the Company operates to high ethical and compliance standards. Accordingly, the Board has put in place a framework for Corporate Governance which it believes appropriate for an investment trust and which seeks to observe the principles set out in the Code of Corporate Governance, as published by the Association of Investment Companies (the "AIC Code"), established specifically for investment trust companies and endorsed by the Financial Reporting Council ("FRC") in February 2009. By following the Code, the Company continues to meet its obligations in relation to the FRC's Combined Code on Corporate Governance. The AIC Code provides a guide to best practice in certain areas of governance where the specific characteristics of investment trusts suggest that alternative approaches to those set out in the Combined Code may be preferable.
The Board considers that the Company has complied with the provisions set out in the Combined Code throughout the year to 31st July 2010 except as referred to below. The following statement describes how the Company has applied the relevant principles of Corporate Governance.
The Board currently comprises three non-executive Directors, two of whom are considered to be independent of the Company's Investment Manager. Mr B S Sheppard is a former Director of Midas Investment Management Ltd and, accordingly, offers himself for re-election annually. As the Board is composed entirely of non-executive Directors and executive responsibility for investment management has been delegated to the Company's Investment Manager there is no Chief Executive Officer. The senior independent Director is Mr P H A Stanley.
The Board regularly reviews the independence of its members and considers Mr P H A Stanley and Mr D Harris to be independent in character and judgement within the meaning set out in the Code, having examined each Director against the independence criteria described in the Code.
All the Directors of the Company are resident in the UK and their biographical details on page 5 of this report demonstrate the wide range of skills and experience that they bring to the Board. Non-executive Directors are not appointed for a specific term, as the Board believes that long service does not detract from their independence and that a detailed knowledge of the business has a beneficial impact on the running of the Company. All Directors are subject to re-election by rotation, one-third of their number each year, and their re-election is subject to shareholders' approval. All non-executive Directors stand for election at the Annual General Meeting following their appointment. No Director has been in office for more than three years without having offered himself for reelection.
The Board has established both a nominations and a remuneration committee, comprising the entire Board. The nominations committee is responsible for considering the appointment of new directors, agents and advisers, and evaluating the overall composition of the Board from time to time, taking into account the existing balance of skills and knowledge. Mr B S Sheppard being the only non-independent director of the board is not included in any decisions when appointing any new independent director. There are procedures for a new Director to receive
relevant information on the Company together with appropriate induction. The remuneration committee is responsible for considering all material elements of remuneration policy which is set out in the Directors' Remuneration Report on page 30. Mr P H A Stanley is Chairman of both committees.
It is the responsibility of the full Board to ensure that there is effective stewardship of the Company's affairs and that the Company meets its obligations to shareholders. Strategic issues and all operational matters of a material nature are determined by the Board and in order to enable them to discharge their responsibilities, all Directors have full and timely access to relevant information. The Board meets regularly and at each meeting reviews investment performance and financial results and monitors compliance with the Company's objectives.
A management engagement committee has been established, comprising of Mr P H A Stanley (Chairman of the committee) and Mr D Harris. This management engagement committee is responsible for ensuring that the Investment Manager of the Company complies with the terms of the management agreement entered into with the Company, and that the provisions of the management agreement follow industry practice and remain competitive and in the best interests of shareholders. Being a former director of the Investment Manager, Mr B S Sheppard is excluded from being a member of the management engagement committee which is in accordance with the AIC Code and NAPF Investment Trust policy guidelines. The Directors maintain regular contact with the Investment Manager.
The Board has established a procedure whereby Directors, in the furtherance of their duties, may take independent professional advice at the expense of the Company. The Board also ensures that all Directors continually update the skills and knowledge required to fulfil their role both on the Board and on Board committees. The Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that established Board procedures and applicable rules and regulations are complied with. The performance of individual Directors is evaluated on a regular basis by the Board as a whole.
The Audit Committee, which consists of the entire board and is chaired by Mr D Harris, has specific terms of reference. Its primary role is to review the accounting policies and the contents of the Annual Report, the adequacy and scope of the external audit and compliance with regulatory and financial reporting requirements. The Committee regularly monitors and reviews the auditor's independence (including the provision of non-audit services), objectivity and effectiveness. The Audit Committee is also responsible to the Board for making recommendations in relation to the appointment of the external auditor. Details of the membership are set out on page 5 and the committee members are regarded as having recent and relevant financial experience. The Audit Committee has direct access to the external auditor and they are invited to attend the Board Meeting at which the Annual Reports and Financial Statements are approved. All reports received from the auditor are given full consideration.
The Audit Committee has considered the need for an internal audit function and has recommended that, in view of the size of the Company and the internal controls in place, this is not necessary at present.
Attendance and frequency details of Board and Committee meetings held during the year are as follows:
| Board | Nomination | Remuneration | Management | Audit | Board | |
|---|---|---|---|---|---|---|
| Meetings | Committee | Committee | Committee | Committee | Committee | |
| Number of meetings during the year |
9 | 1 | 1 | 1 | 1 | 3 |
| P H A Stanley | 8 | 1 | 1 | 1 | 1 | 3 |
| B S Sheppard | 9 | 1 | 1 | N/A | 1 | 3 |
| D Harris | 9 | 1 | 1 | 1 | 1 | 3 |
| Membership summary: P H A Stanley B S Sheppard D Harris |
● ●¹ ● |
● ● ● |
● ● |
● ● ● |
¹Mr B S Sheppard being the only non-independent Director of the board is not included in any decisions when appointing any new independent director.
The Directors' Statement of Responsibilities in respect of the financial statements is set out on page 29. The Report of the Independent Auditor is on pages 31 to 32.
The Directors acknowledge that their responsibility to present a balanced and understandable assessment extends to interim and other price sensitive public reports and reports to regulators as well as to information required to be presented by statutory requirements.
The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process is subject to regular review by the Board and is in accordance with the FRC guidance 'Internal Control: Revised Guidance for Directors on the Combined Code'. The process was fully in place throughout the year and up to the date of approval of the financial statements.
The Board is responsible for ensuring that the Company has in place an effective system of internal financial controls designed to ensure the maintenance of proper accounting records and safeguarding the Company's assets. These systems are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. The Board recognises its responsibility for regular review of all aspects of internal financial control.
The Board has established a series of parameters which are designed to limit the inherent risk in managing a portfolio of investments and the Board receives regular reports from the Investment Manager which are reviewed in detail.
The Board has contractually delegated responsibility for management of the investment portfolio and the provision of accounting services to external agencies. This is after full and proper consideration by the Board of the quality and cost of services offered including the financial control systems in operation insofar as they relate to the affairs of the Company. As such, the Board believes that there is no necessity for an internal audit function. This matter is subject to regular review.
The key procedures, which have been established to provide effective internal control, are as follows:
The Board has carried out a review of the system of internal controls as it has operated throughout the year. The Directors confirm that actions are taken, where appropriate, to remedy any significant failings or weaknesses identified.
The Company has a management agreement with Midas under which 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 with Midas are disclosed in note 3 to the financial statements. Midas is authorised and regulated by the FSA.
The Board regularly considers the appointment of the Investment Manager and, in particular, reviews the investment performance and the quality of the personnel employed. The Directors consider that the continuing appointment of Midas on the agreed terms is in the interests of the shareholders as a whole.
The Company has approved a Corporate Governance voting policy which, in summary, is based on the governance recommendations of the Combined Code with the intention of voting in accordance with best practice whilst maintaining a primary focus on financial returns.
The Company's capital structure is summarised in notes 15 and 16 to the financial statements.
There are:
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.
Communications with shareholders are given a high priority, with information provided regularly in interim and annual accounts. The information contained therein is supplemented by regular net asset value announcements and a monthly fact sheet available on the Company's website. In addition, any issues of concern can be addressed to the Board by any shareholder.
All shareholders are encouraged to attend the Annual General Meeting, where they are given an opportunity to question the Chairman and the Board. Separate resolutions are proposed on each issue including a resolution to adopt the annual report and accounts. The Company ensures that all proxy votes are counted and announces the level of proxies lodged on each resolution.
The Company does not have a formal Social, Environmental and Ethical Policy ("SEE"). However, the Company recognises its obligations to all those with whom it has dealings. Its reputation, trust and confidence of those with whom it deals are amongst its most vital resources.
At 27th October 2010, the Company had been notified of the following beneficial interests of 3 per cent and over in the Company's ordinary share capital carrying unrestricted voting rights:
| Number | % | |
|---|---|---|
| Pershing Nominees Ltd | 7,556,766* | 33.7 |
| Manchester & Metropolitan Investment Limited | 4,656,260 | 20.7 |
| Vidacos Nominees Ltd | 1,055,808 | 4.7 |
| Rathbone Nominees Ltd | 1,034,439 | 4.6 |
| N W Brown Nominees Ltd | 899,525 | 4.0 |
* This holding includes 6,641,254 (29.6%) shares of which Manchester & Metropolitan Investment Limited is the beneficial owner.
Manchester & Metropolitan Investment Limited is controlled by Mr B S Sheppard and his immediate family.
The members of the Board who served during the year to 31st July 2010, together with their biographical details, are listed on page 5.
Mr P H A Stanley, in accordance with the recommendation of the AIC Corporate Code of Governance regarding directors with service in excess of 9 years, retires and being eligible, offers himself for re-election.
Mr B S Sheppard is a former director of the Company's Investment Manager. In accordance with the Listing Rules of the UK Listing Authority of the Financial Services Authority, he retires at the forthcoming Annual General Meeting and, being eligible, offers himself for re-election.
Mr D Harris, who was elected to the Board in October 2009 will remain on the Board and does not offer himself for re-election, which is in accordance with the AIC recommended Code.
The interests of the Directors in the ordinary shares of the Company are:
| 31st July 2010 Ordinary shares of 25p |
31st July 2009 Ordinary shares of 25p |
|
|---|---|---|
| Beneficial interests Mr P H A Stanley (Chairman) Mr B S Sheppard Mr D Harris |
8,250 - - |
6,250 - - |
| Non-beneficial interests Mr B S Sheppard |
243,117 | 4,430 |
No other changes in the above interests occurred between 31st July 2010 and 28th October 2010.
The interests of Mr B S Sheppard in the ultimate holding company Manchester & Metropolitan Investment Limited are detailed in the financial statements and report of that company.
Details of contracts of significance during the year in which Mr B S Sheppard had a material interest are disclosed in notes 3 and 20 to the financial statements.
It is the Group's policy to obtain the best terms for all business, including purchases of investments and to abide by those agreed terms.
The Group had trade payables of £127,000 (2009: £122,000) at the year end. Trade payables are settled by the due date for payment. Payables in respect of investment purchases are settled in accordance with Stock Exchange regulations.
The Company is authorised to purchase its own shares and any such transactions are detailed in note 16 to the financial statements.
The resolutions stated below are important and require your immediate attention. If you are in any doubt as to what action you should take, you should consult an appropriate independent adviser.
If you have sold or otherwise transferred all of your shares in Manchester & London Investment Trust plc ("MLIT") you should pass this document to the person through whom the sale or transfer was effected for transmission to the purchaser or transferee.
The notice for the thirty eighth Annual General Meeting of the Company can be found on pages 53 to 55. There are three items of special business to be considered:
Resolution 7, which will be put as a special resolution would, if passed, permit the Company to allot up to 11,228,543 ordinary shares, which is an authority to allot up to approximately 50 per cent of the total ordinary share capital in issue at the date of this report.
The Directors consider it to be in the Company's best interests that they would have the authority to be able to issue new ordinary shares as consideration should investment opportunities arise. The power to allot shares would only be used by the Directors if they believe that to do so would be advantageous to the Company.
The Directors have no present intention of using the authority. Shareholders should note that UK Listing Rules require that the issue of further shares at a price which is at a discount to the net asset value per share would require a further approval from shareholders.
Resolution 8, which will be put as a special resolution would, if passed, permit the Directors to allot up to 1,122,854 of such shares (a nominal amount of £280,714) for cash without offering them first to shareholders in proportion to their existing holdings of shares ("Section 561 Authority") which would be an authority for up to 5 per cent of the total ordinary share capital in issue at the date of this report.
The proposed level of Section 561 Authority is within Investor Protection Committee guidelines. The Section 561 Authority would also permit the Directors to sell treasury shares for cash without first offering them to existing shareholders in proportion to their holding.
The power to allot shares for cash on a non pre-emptive basis would only be used by the Directors if they believe that to do so would be advantageous to the Company. The Directors have no present intention of using the authority.
The authority contained in resolution 8 will continue, if granted, until the next Annual General Meeting of the Company after the passing of this resolution or for 15 months, whichever is the sooner, when the Directors intend seeking further renewal of the authority.
The Directors are seeking shareholders' authority to be able to purchase up to 3,366,317 of the Company's own ordinary shares (representing 14.99 per cent of the issued ordinary share capital at the date of this report) in the market at a minimum price of 25p and a maximum price (exclusive of expenses) of the higher of: 5 per cent above the average of the middle market quotations for an ordinary share (as derived from the London Stock Exchange daily official list) for the 5 business days before the relevant purchase was made and; the price of the last independent trade and the highest current independent bid for an ordinary share on the London Stock Exchange prior to the purchase.
This authority will, if granted, expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, or 15 months from the date of this resolution, whichever is earlier.
The Directors would use this authority with the objective of enhancing shareholder value. Purchases would only be made, within guidelines established from time to time by the Board, through the market for cash at prices below the prevailing net asset value per ordinary share. The main purpose of any share buy-back would be to enhance the net asset value of the remaining ordinary shares, but purchases would also provide liquidity for shareholders wishing to sell their ordinary shares.
The Directors' current intention would be to hold any bought back shares in treasury. If the Company subsequently wished to sell such treasury shares for cash, special resolution number 8 would permit the disapplication of preemption rights on such shares up to the limits referred to in that resolution. Last year, no use was made of this authority.
The Directors consider that it would be advantageous to shareholders that they have the authority to make such purchases as and when they consider the timing to be favourable. However, use of this authority, if given, would depend upon market conditions and the Board's judgement as to its likely effectiveness in increasing net asset value per share and/or reducing the discount.
It is proposed that any purchase of ordinary shares would be funded from the Company's own cash resources or, if appropriate, from short term borrowings.
The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken steps that ought to have been taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
By Order of the Board P Thomas Secretary
29th October 2010
The Directors are responsible for preparing the Annual Report, the Directors Remuneration Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union. Under Company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and the Group and of the profit or loss of the Company and Group for that period.
In preparing those financial statements, the Directors are required to:
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 of the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IASB 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 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 Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.
To the best of the knowledge of each of the Directors, whose names are set out on page 5:
Each of the Directors accepts responsibility accordingly.
On behalf of the Board of Directors P H A Stanley Chairman
29th October 2010
This report has been prepared by the Board in accordance with the requirements of the Companies Act 2006 in respect of the year ended 31st July 2010. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting.
Company law requires the Company's Auditor to audit certain information set out in this report. Where information has been audited it is indicated as such. The Auditor's opinion is included in their report on pages 31 to 32.
The Board as a whole reviews and sets the level of remuneration payable to each Director annually.
The Company's Articles of Association limit the aggregate fees payable to the Directors to a total of £200,000 per annum. Subject to this overall limit, it is the Board's policy that the remuneration of Directors should be set at a level that is commensurate with the duties and responsibilities of the role. The Board also takes into account remuneration levels elsewhere in the investment trust industry and all other relevant information when considering Directors' fees. The Board considers that the current policy to remunerate the Directors by way of fixed fees is appropriate to the Company's present circumstances and there are no plans to introduce any alternative remuneration schemes.
Non-executive Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits.
All Directors hold service contracts with the Company requiring six months' notice of termination (under normal circumstances).
There are no agreements between the Company and its Directors concerning compensation for loss of office.
The Directors who served during the year received the following emoluments in the form of fees:
| Fees 2010 £ |
Fees 2009 £ |
|
|---|---|---|
| P H A Stanley (Chairman) B S Sheppard M J Wilbraham D Harris |
15,000 12,000 - 12,000 |
15,000 12,000 12,000 2,203 |
| 39,000 | 41,203 |
The Directors' Remuneration Report was approved by the Board of Directors on 29th October 2010 and signed on its behalf by:
P H A Stanley Chairman
We have audited the Group and Parent Company financial statements (the "financial statements") of Manchester & London Investment Trust plc for the year ended 31st July 2010 on pages 33 to 52. The financial reporting framework that has been applied is applicable law and International Financial Reporting Standards ("IFRS") as adopted by the European Union. We have also audited the information in the Directors' Remuneration Report that is described as having been audited.
This Report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this Report, or for the opinions we have formed.
As explained more fully in the Directors responsibility statement, the Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Group and Parent financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with applicable law and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 2006 and, as regards the Group financial information, Article 4 of the IASB Regulation. We also report to you whether, in our opinion, the information given in the Directors' Report is consistent with the financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors' remuneration and other transactions are not disclosed.
We review whether the Corporate Governance Statement reflects the Company's compliance with the 2008 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group's corporate governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises the Financial Summary, Chairman's Statement, Portfolio Investments, Investment Objective and Policy, Investment Manager's Review, Record of the last Ten Years, Report of the Directors, the unaudited part of the Director's Remuneration Report, Corporate Governance and the other information contained on pages 53 to 57. We consider the implications for our report if we become aware of any apparent mis-statements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material mis-statement, whether caused by fraud or other irregularity or error. This includes an assessment of:
In our opinion the financial statements:
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
Philip Whiteway (Senior Statutory Auditor)
For and on behalf of CLB Coopers Statutory Auditor Manchester
29th October 2010
For the year ended 31st July 2010
| Note | 2010 Revenue £'000 |
2010 Capital £'000 |
2010 Total £'000 |
Restated 2009 Revenue £'000 |
Restated 2009 Capital £'000 |
Restated 2009 Total £'000 |
|
|---|---|---|---|---|---|---|---|
| Gains/(losses) Gains/(losses) on investments at fair value through profit and loss |
10 | - | 11,384 | 11,384 | - | (376) | (376) |
| Trading income | 2 | 706 | - | 706 | 281 | - | 281 |
| Investment income | 2 | 1,392 | - | 1,392 | 1,556 | - | 1,556 |
| Gross return/(loss) | 2,098 | 11,384 | 13,482 | 1,837 | (376) | 1,461 | |
| Expenses Investment management fee |
3 | (123) | (229) | (352) | (79) | (147) | (226) |
| Cost of investment transactions | - | (291) | (291) | - | (362) | (362) | |
| Other operating expenses | 4 | (20) | 338 | 318 | (207) | - | (207) |
| Total expenses | (143) | (182) | (325) | (286) | (509) | (795) | |
| Return before finance costs and tax |
1,955 | 11,202 | 13,157 | 1,551 | (885) | 666 | |
| Finance costs | 6 | (6) | - | (6) | (5) | - | (5) |
| Return on ordinary activities before tax |
1,949 | 11,202 | 13,151 | 1,546 | (885) | 661 | |
| Tax expense | 7 | - | - | - | (16) | - | (16) |
| Return on ordinary activities after tax |
1,949 | 11,202 | 13,151 | 1,530 | (885) | 645 | |
| Earnings/(loss) per ordinary share (pence) |
|||||||
| Basic | 9 | 10.63 | 61.12 | 71.75 | 10.51 | (6.08) | 4.43 |
| Fully diluted | 9 | 10.63 | 61.12 | 71.75 | 10.51 | (6.08) | 4.43 |
The total column of this statement represents the Income Statement of the Group prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
For the year ended 31st July 2010
| Group | Share capital £'000 |
Share premium £'000 |
Own shares £'000 |
Other reserves £'000 |
Capital reserve (unrealised) £'000 |
Capital reserve (realised) £'000 |
Retained earnings £'000 |
Total £'000 |
|---|---|---|---|---|---|---|---|---|
| Balance at 1st August 2008 | 3,487 | 9,921 | - | (79) | 6,684 | 24,035 | 3,621 | 47,669 |
| Changes in equity for 2009 | ||||||||
| Profit for the year | - | - | - | - | - | - | 645 | 645 |
| Transfer of capital profits | - | - | - | - | 954 | (1,839) | 885 | - |
| Ordinary dividend paid (note 8) | - | - | - | - | - | - | (1,674) | (1,674) |
| Issue of share capital | 889 | 9,966 | - | - | - | - | - | 10,855 |
| Balance at 31st July 2009 (Restated) |
4,376 | 19,887 | - | (79) | 7,638 | 22,196 | 3,477 | 57,495 |
| Changes in equity for 2010 | ||||||||
| Profit for the year | - | - | - | - | - | - | 13,151 | 13,151 |
| Transfer of capital profits | - | - | - | - | 9,642 | 1,560 | (11,202) | - |
| Ordinary dividend paid (note 8) | - | - | - | - | - | - | (1,926) | (1,926) |
| Issue of share capital | 1,238 | 15,245 | - | - | - | - | - | 16,483 |
| Balance at 31st July 2010 | 5,614 | 35,132 | - | (79) | 17,280 | 23,756 | 3,500 | 85,203 |
| Company | Share capital |
Share premium |
Own shares |
Other reserves |
Capital reserve |
Capital reserve |
Retained |
| (unrealised) | (realised) | earnings | Total | |||||
|---|---|---|---|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance at 1st August 2008 | 3,487 | 9,921 | - | (79) | 6,684 | 370 | 27,259 | 47,642 |
| Changes in equity for 2009 | ||||||||
| Profit for the year | - | - | - | - | - | - | 643 | 643 |
| Transfer of capital profits | - | - | - | - | 972 | (1,800) | 828 | - |
| Ordinary dividend paid (note 8) | - | - | - | - | - | - | (1,674) | (1,674) |
| Issue of share capital | 889 | 10,129 | - | - | - | - | - | 11,018 |
| Balance at 31st July 2009 (Restated) |
4,376 | 20,050 | - | (79) | 7,656 | (1,430) | 27,056 | 57,629 |
| Changes in equity for 2010 | ||||||||
| Profit for the year | - | - | - | - | - | - | 13,187 | 13,187 |
| Transfer of capital profits | - | - | - | - | 9,085 | 2,251 | (11,336) | - |
| Ordinary dividend paid (note 8) | - | - | - | - | - | - | (1,926) | (1,926) |
| Issue of share capital | 1,238 | 15,245 | - | - | - | - | - | 16,483 |
| Balance at 31st July 2010 | 5,614 | 35,295 | - | (79) | 16,741 | 821 | 26,981 | 85,373 |
At 31st July 2010
| Note | 2010 | Restated 2009 |
|
|---|---|---|---|
| £'000 £'000 |
£'000 £'000 |
||
| Non-current assets Investments at fair value through profit or loss |
10 | 84,343 | 51,924 |
| Current assets Trade and other receivables Derivative financial instruments Cash and cash equivalents |
12 19 |
340 4,394 2,029 |
411 4,571 4,747 |
| 6,763 | 9,729 | ||
| Gross Assets | 91,106 | 61,653 | |
| Current liabilities Trade and other payables Provisions Derivative financial instruments |
13 14 19 |
(319) (1,416) (4,168) |
(290) - (3,868) |
| Net assets | 85,203 | 57,495 | |
| Equity attributable to equity holders Ordinary share capital Share premium Own shares Other reserves Capital reserve – realised Capital reserve – unrealised Goodwill reserve Retained earnings Total equity |
15 16 |
5,614 35,132 - 23,756 17,280 (79) 3,500 85,203 |
4,376 19,887 - 22,196 7,638 (79) 3,477 57,495 |
| Net asset value per share | |||
| Ordinary shares – basic Ordinary shares – fully diluted |
17 17 |
379.4p 379.4p |
328.4p 328.4p |
The financial statements on pages 33 to 52 were approved by the Board of Directors on 29th October 2010 and are signed on their behalf by:
P H A Stanley (Chairman) B S Sheppard Directors
At 31st July 2010
| Note | 2010 | Restated 2009 |
|||
|---|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | ||
| Non-current assets | |||||
| Investments at fair value through profit or loss | 10 | 82,340 | 51,924 | ||
| Subsidiary undertakings | 11 | 2,180 | 1,286 | ||
| 84,520 | 53,210 | ||||
| Current assets | |||||
| Trade and other receivables | 12 | 379 | 902 | ||
| Derivative financial instruments | 19 | 2,317 | 3,676 | ||
| Cash and cash equivalents | 1,009 | 3,083 | |||
| 3,705 | 7,661 | ||||
| Gross Assets | 88,225 | 60,871 | |||
| Current liabilities | |||||
| Trade and other payables | 13 | (673) | (211) | ||
| Derivative financial instruments | 19 | (2,179) | (3,031) | ||
| Net assets | 85,373 | 57,629 | |||
| Equity attributable to equity holders | |||||
| Ordinary share capital | 15 | 5,614 | 4,376 | ||
| Share premium | 35,295 | 20,050 | |||
| Own shares | 16 | - | - | ||
| Other reserves | |||||
| Capital reserve – realised | 821 | (1,430) | |||
| Capital reserve – unrealised | 16,741 | 7,656 | |||
| Goodwill reserve | (79) | (79) | |||
| Retained earnings | 26,981 | 27,056 | |||
| Total equity | 85,373 | 57,629 |
The financial statements on pages 33 to 52 were approved by the Board of Directors 29th October 2010 and are signed on their behalf by:
P H A Stanley (Chairman) B S Sheppard Directors
For the year ended 31st July 2010
| 2010 £'000 |
Restated 2009 £'000 |
|
|---|---|---|
| Cash flows from operating activities | ||
| Profit before taxation | 13,151 | 645 |
| (Profit)/losses on investments | (12,453) | 376 |
| Decrease in receivables | 201 | 504 |
| Increase in payables | (726) | (160) |
| Decrease/(increase) in derivative financial instruments | 477 | (703) |
| Net cash inflow from operating activities | 650 | 662 |
| Cash flows from investing activities | ||
| Purchase of investments | (61,830) | (85,763) |
| Sale of investments | 60,967 | 74,340 |
| Returns on covered calls Net cash acquired on acquisition of subsidiary (see note 18) |
- 345 |
1,267 552 |
| Subsidiary acquisition costs | (924) | (473) |
| Net cash outflow from investing activities | (1,442) | (10,077) |
| Cash flows from financing activities | ||
| Equity dividends paid | (1,926) | (1,674) |
| Net cash outflow from financing activities | (1,926) | (1,674) |
| Net (decrease)/increase in cash and cash equivalents | (2,718) | (11,089) |
| Cash and cash equivalents at beginning of year | 4,747 | 15,836 |
| Cash and cash equivalents at end of year | 2,029 | 4,747 |
For the year ended 31st July 2010
A summary of the principal accounting policies is set out below.
Manchester & London Investment Trust plc is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company for the year ended 31st July 2010 comprise the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities').
In accordance with European Union regulations, these financial statements have been prepared in accordance with IFRS issued by the International Accounting Standards Board ("IASB"), as adopted for use in the EU effective at 31st July 2010.
The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment.
Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts revised by the Association of Investment Companies ("AIC") is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The Group's principal accounting policies are set out below. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements.
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31st July each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intra-group balances are eliminated on consolidation.
As permitted by Section 408 of the Companies Act 2006, the parent Company's statement of comprehensive income has not been included in these financial statements. The parent Company's profit after tax for the year was £13,187,000 (2009: £643,000).
The results of subsidiaries or businesses acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal as appropriate.
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 income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Section 1162 Corporation Tax Act 2010.
For the year ended 31st July 2010
Goodwill arising on the acquisition of subsidiary undertakings, representing any excess of the fair value of the consideration given over the fair value of the verifiable assets and liabilities acquired, is capitalised and reviewed annually for impairment.
Goodwill arising on consolidation prior to 1st August 1998 has been written off against reserves on acquisition as a matter of accounting policy.
Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and 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, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the statement of comprehensive income. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date.
Unlisted investments are valued at the Directors' estimate of fair value by reference to the following valuation guidelines – asset values, earnings, dividends and any other relevant factors.
All purchases and sales of investments are recognised on the trade date i.e. the date that the Group commits to purchase or sell an asset.
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.
Trading income includes gains and losses on the trading of options and futures in financial markets, net of commissions expensed. Open positions are carried at fair value and gains and losses arising on this valuation are recognised in revenue as well as gains and losses realised on positions that have closed.
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 Group 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. Any excess in the value of shares received over the amount of cash dividend foregone is recognised in capital reserves.
Income from Contracts for Differences is recognised at fair value through profit or loss.
All expenses are accounted for on the accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows:
material transaction costs which are incurred on the purchase or sale of an investment designated as fair value through profit or loss are expensed and included in the capital column of the statement of comprehensive income; and
For the year ended 31st July 2010
expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management charge and related costs have been allocated 35 per cent (2009: 35 per cent) to revenue and 65 per cent (2009: 65 per cent) to capital reserve-realised in order to reflect the Directors' long-term view of the nature of the expected investment returns.
Finance costs are accrued at the effective interest rate.
Finance costs of debt, insofar as they relate to the financing of the Group's investments or to financing activities aimed at maintaining or enhancing the value of the Group's investments, are allocated in line with the Directors' expected long-term split of returns, in the form of capital gains and income, attributable to the Group's investment portfolio as follows:
| Capital reserve realised |
Revenue | |
|---|---|---|
| Equity portfolio | 65% | 35% |
| Fixed interest portfolio | 20% | 80% |
The tax charge represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement 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 Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
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.
Investment Trusts which have approval under Section 1158 Corporation Tax Act 2010 are not liable for taxation on capital 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.
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.
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 and cash held in highly liquid investment accounts.
For the year ended 31st July 2010
Capital reserve - realised The following are accounted for in this reserve:
Capital reserve - unrealised
The following are accounted for in this reserve:
increases and decreases in the valuation of investments held at the year end.
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.
Derivatives entered into for trading purposes include futures, options and a combination of these. Derivatives used for trading purposes are measured at fair value and any gains or losses are included in the statement of comprehensive income through profit or loss. Fair values are based on quoted market prices in active market.
Contracts for Differences are valued with reference to the investment's underlying bid price at the end of the reporting period and are held at fair value through profit or loss.
The IASB and IFRIC have issued the following standards and interpretations with an effective date of adoption after the date of these financial statements:
| Accounting Standards | |||||
|---|---|---|---|---|---|
| ----------------------------- | -- | -- | -- | -- | -- |
| Accounting Standards | Effective date | |
|---|---|---|
| IFRS 1 | First time adoption of International Financial Reporting Standards | 1st July 2010 |
| IFRS 2 | Share Based Payments | 1st January 2010 |
| IFRS 3 | Business Combinations | 1st July 2010 |
| IFRS 5 | Non-Current Assets Held For Sale and Discontinued Operations | 1st January 2010 |
| IFRS 7 | Financial Instruments : Disclosures | 1st January 2011 |
| IFRS 8 | Operating Segments | 1st January 2010 |
| IAS 1 | Presentation of Financial Statements | 1st January 2010 |
| IAS 7 | Statement of Cash Flows | 1st January 2010 |
| IAS 17 | Leases | 1st January 2010 |
| IAS 24 | Related Party Disclosures | 1st January 2011 |
| IAS 27 | Consolidated and Separate Financial Statements | 1st February 2010 |
| IAS 32 | Financial Instruments: Presentation | 1st January 2011 |
| IAS 34 | Interim Financial Reporting | 1st January 2010 |
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.
For the year ended 31st July 2010
| 2. | Income | ||||||
|---|---|---|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
||||||
| Trading income | 706 | 281 | |||||
| Income from investments UK dividends |
1,338 | 1,393 | |||||
| Other income Deposit interest |
54 | 163 | |||||
| Investment income | 1,392 | 1,556 | |||||
| Total income | 2,098 | 1,837 | |||||
| Total income comprises Trading income Dividends Interest |
706 1,338 54 2,098 |
281 1,393 163 1,837 |
|||||
| Income from investments Listed |
1,338 1,338 |
1,393 1,393 |
|||||
| 3. | Investment management fee | ||||||
| 2010 Revenue £'000 |
2010 Capital £'000 |
2010 Total £'000 |
2009 Revenue £'000 |
2009 Capital £'000 |
2009 Total £'000 |
||
| Investment management fee | 123 | 229 | 352 | 79 | 147 | 226 |
Midas provides investment services to the Company under a management agreement with a termination period of three months. The annual fee is 0.5 per cent of the total portfolio value including cash and short term deposits, payable quarterly in arrears. The fee is not subject to Value Added Tax ("VAT").
The investment management fee is chargeable 35 per cent to revenue and 65 per cent to capital.
For the year ended 31st July 2010
| 2010 £'000 |
2009 £'000 |
|
|---|---|---|
| Directors' fees | 68 | 65 |
| Staff costs (note 5) | - | - |
| Auditors' remuneration | (1) | 23 |
| Registrar fees | (20) | 7 |
| Exchange rate variances | 20 | (7) |
| Other expenses | (47) | 119 |
| 20 | 207 | |
| Directors' fees – Group | 29 | 24 |
| Directors' fees – Company | 39 | 41 |
| 68 | 65 | |
| Fees payable to the company's auditor for the audit of the parent company | ||
| and consolidated financial statements | 23 | 18 |
| Fees payable to the company's auditor for other services : | ||
| the audit of the company's subsidiaries pursuant to legislation* |
(24) | 5 |
| (1) | 23 | |
| services relating to corporate finance transactions |
- | 17 |
| (1) | 40 | |
*During the year, the Company acquired Stakeholders' Momentum Investment Trust Plc ("SMIT"). The Statement of Financial Position of SMIT at the date of acquisition included an accrual for audit fees, which was over and above those accrued at the end of the reporting period.
Other operating expenses include irrecoverable VAT where appropriate.
Excluding Directors, the Group employs no members of staff.
Included in Directors' fees above (note 4) are the emoluments paid to the Chairman as follows:
| 2010 £'000 |
2009 £'000 |
|
|---|---|---|
| P H A Stanley (Chairman) | 15 | 15 |
| Finance costs 6. |
2010 £'000 |
2009 £'000 |
| Interest paid | 6 | 5 |
For the year ended 31st July 2010
| 2010 Revenue £'000 |
2010 Capital £'000 |
2010 Total £'000 |
Restated 2009 Revenue £'000 |
Restated 2009 Capital £'000 |
Restated 2009 Total £'000 |
|
|---|---|---|---|---|---|---|
| Current UK corporation tax | - | - | - | 19 | (12) | 7 |
| Adjustment for under provision in prior years |
- | - | - | 9 | - | 9 |
| Current UK corporation tax | - | - | - | 28 | (12) | 16 |
The charge for the year can be reconciled to the profit per the income statement as follows:
| Profit/(loss) before tax | 1,949 | 11,202 | 13,151 | 1,546 | (885) | 661 |
|---|---|---|---|---|---|---|
| Tax at the UK corporation tax rate of 28% (2009: 28%) |
546 | 3,137 | 3,683 | 433 | (249) | 184 |
| Tax effect of non-taxable UK dividends/unrealised profits |
(471) | - | (471) | (362) | - | (362) |
| Income not subject to UK corporation tax |
(180) | (5) | (185) | (14) | - | (14) |
| Disallowed management expenses | 405 | 97 | 502 | (1) | - | (1) |
| Unrelieved capital losses | - | - | - | - | 196 | 196 |
| Brought forward management expenses utilised during the period |
(171) | 64 | (107) | - | - | - |
| Gains and losses on investments that are not taxable |
- | (3,857) | (3,857) | - | - | - |
| Excess management expenses | 138 | 49 | 187 | (41) | 41 | - |
| Taxable overseas dividend eliminated on consolidation |
- | - | - | 12 | - | 12 |
| Impairment | 140 | - | 140 | - | - | - |
| Relief for losses on capital account | (37) | 37 | - | 9 | - | 9 |
| Reserves adjustment | (370) | 478 | 108 | (8) | - | (8) |
| Current year tax charge | - | - | - | 28 | (12) | 16 |
The Company's taxable income exceeded its management expenses, which include the capital and revenue elements of the management fee. The Company has surplus management expenses at 31st July 2010 of £2,324,000 (2009: £2,337,000).
At 31st July 2010 there is an unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of £651,000 (2009: £654,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Group will generate sufficient taxable profits in the future to recover these amounts and therefore the asset has not been recognised in the year, or prior years.
As at 31st July 2010 the Company has unrelieved capital losses of £9,330,000 (2009: £8,674,000). There is therefore, a related unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of £2,612,000 (2009: £2,429,000). 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.
For the year ended 31st July 2010
| Amounts recognised as distributions to equity holders in the period: | 2010 £'000 |
2009 £'000 |
|---|---|---|
| Final dividend for the year ended 31st July 2009 of 6p (2008: 7.5p) per share Interim dividend for the year ended 31st July 2010 of 5p (2009: 4.5p) per share |
1,051 875 |
1,046 628 |
| 1,926 | 1,674 |
A final dividend in respect of 2010 of 6.5p per share which, together with the interim dividend, amounts to a total dividend of £1,460,000, is to be proposed at the Annual General Meeting on 25th November 2010 and has not been included 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 Corporation Tax Act 2010 are considered.
| Interim dividend for the year ended 31st July 2010 of 5p (2009: 4.5p) per share |
2010 £'000 875 |
2009 £'000 628 |
|---|---|---|
| Proposed final dividend for the year ended 31st July 2010 of 6.5p (2009: 6p) per | ||
| share | 1,460 | 1,074 |
| 2,335 | 1,702 |
The calculation of the basic and fully diluted earnings per ordinary share is based on the following:
| 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | |
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Return: Basic and fully diluted |
1,949 | 11,202 | 13,151 | 1,530 | (885) | 645 |
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 of 18,328,238 (2009: 14,562,431).
For the year ended 31st July 2010
| 2010 | Group 2009 |
2010 | Company 2009 |
|||
|---|---|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |||
| Investments as below | 84,343 | 51,924 | 82,340 | 51,924 | ||
| Group Listed £'000 |
Group Unlisted £'000 |
Group Total £'000 |
Company Listed £'000 |
Company Unlisted £'000 |
Company Total £'000 |
|
| Opening cost at 1st August 2009 | 44,214 | 72 | 44,286 | 44,214 | 72 | 44,286 |
| Opening unrealised appreciation at 1st August 2009 |
7,608 | 30 | 7,638 | 7,608 | 30 | 7,638 |
| Opening fair value at 1st August 2009 |
51,822 | 102 | 51,924 | 51,822 | 102 | 51,924 |
| Purchases at cost | 80,931 | - | 80,931 | 57,924 | - | 57,924 |
| Sales proceeds | (60,963) | (4) | (60,967) | (56,944) | (4) | (56,948) |
| Capital Dividend | - | - | - | 19,267 | - | 19,267 |
| Realised gains on sales | 2,855 | (42) | 2,813 | 1,113 | (42) | 1,071 |
| Increase/(Decrease) in unrealised appreciation Closing fair value at 31st July |
9,679 | (37) | 9,642 | 9,139 | (37) | 9,102 |
| 2010 | 84,324 | 19 | 84,343 | 82,321 | 19 | 82,340 |
| Closing cost at 31st July 2010 | 67,038 | 25 | 67,063 | 65,574 | 25 | 65,599 |
| Closing unrealised appreciation at 31st July 2010 |
17,286 | (6) | 17,280 | 16,747 | (6) | 16,741 |
| Closing fair value at 31st July 2010 |
84,324 | 19 | 84,343 | 82,321 | 19 | 82,340 |
| Group | Company | |||||
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
|||
| Realised (loss)/gains on disposals Increase/(decrease) in unrealised appreciation Return on covered calls |
2,813 9,642 (1,071) |
(2,597) 954 1,267 |
1,071 9,083 (1,071) |
(2,657) 954 1,267 |
||
| 11,384 | (376) | 9,083 | (436) | |||
| 11. Subsidiary undertakings | Company | |||||
| 2010 | 2009 | |||||
| £'000 | £'000 | |||||
| Shares at fair value | 2,180 | 1,286 |
In the opinion of the Directors, there is no material difference between the cost and fair value of these investments.
For the year ended 31st July 2010
The company has investments in the following subsidiary undertakings:
| Name of undertaking | Principal Activity | Country of | % of shares held | |
|---|---|---|---|---|
| incorporation and operation |
Ordinary shares |
Preference shares |
||
| OSP Limited | Trading company | Guernsey | 100 | - |
| Stakeholders' Momentum Investment Ltd | Investment company | England | 100 | - |
| Manchester & London Securities Limited | Dormant | England | 100 | - |
| Saintclose Limited | Dormant | England | 100 | - |
| Beacontree Plaza Limited | Dormant | England | 100 | 100 |
| Beaconbranch Limited | Dormant | England | 100 | - |
| Darethrift Limited | Dormant | England | 100 | - |
| Fileglow Limited | Dormant | England | 100 | - |
| Zealgate Limited | Dormant | England | 100 | - |
All these subsidiary undertakings are included in the consolidation.
Beaconbranch Limited is 100 per cent owned by Beacontree Plaza Limited.
Stakeholders' Momentum Investment Ltd ("SMIT") was acquired on 21st May 2010 and OSP Limited acquired on 26th May 2009. The acquisition of SMIT is disclosed under business combinations note 18.
| Group | Company | |||
|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
|
| Receivables from subsidiary undertakings | - | - | 256 | 375 |
| Investment debtor | 41 | 41 | 41 | 41 |
| Prepayments | 14 | 12 | 13 | 12 |
| Other receivables | 285 | 358 | 69 | 474 |
| 340 | 411 | 379 | 902 |
| Group | Company | ||||
|---|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
||
| Payables to subsidiary undertakings | - | - | 479 | 91 | |
| Trade payables and accruals | 319 | 287 | 194 | 118 | |
| Other payables | - | 2 | - | 2 | |
| Corporation tax | - | 1 | - | - | |
| 319 | 290 | 673 | 211 |
For the year ended 31st July 2010
| 2010 £'000 |
2009 '£000 |
|
|---|---|---|
| Balance as at 1st August 2009 | - | - |
| Provided in the year | 1,416 | - |
| Balance as at 31st July 2010 | 1,416 | - |
At the date of acquisition, Stakeholders' Momentum Investment Trust Plc had a provision of £1,499,000 for potential litigation claims. At the 31st July 2010, the provision was estimated at £1,416,000.
Further details are disclosed in note 18.
| Ordinary share capital | 2010 | 2009 | ||
|---|---|---|---|---|
| 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 1st August |
17,505 | 4,376 | 13,946 | 3,487 |
| Issue of shares | 4,952 | 1,238 | 3,559 | 889 |
| Balance as at 31st July | 22,457 | 5,614 | 17,505 | 4,376 |
There were no issued non-convertible preference shares in issue during the years to 31st July 2010 and 2009.
On 21st May 2010 the offer by the Company for Stakeholders' Momentum Investment Trust Plc was declared wholly unconditional leading to the issue of 4,952,131 ordinary 25p shares at an issue price £3.41 each as consideration over the period until 28th July 2010 when the remaining shares held by third parties were compulsorily acquired. Details of the acquisition are stated in note 18.
Following the acquisition of Stakeholders' Momentum Investment Trust Plc, the Company was issued shares in itself as a result of SMIT shareholders' entitlements to partial shares.
At 31st July 2010, the Company held 52 shares at a book value of £177. These shares were disposed of following the year end.
| Net asset value per share |
Net assets Attributable |
|||
|---|---|---|---|---|
| 2010 p |
2009 p |
2010 £'000 |
2009 £'000 |
|
| Ordinary shares: basic and fully diluted | 379.4 | 328.4 | 85,203 | 57,495 |
The basic net asset value per ordinary share is based on net assets at the year end and 22,457,086 (2009: 17,504,955) ordinary shares in issue, adjusted for any shares held in treasury.
For the year ended 31st July 2010
On 21st May 2010 the Company acquired control of Stakeholders' Momentum Investment Trust Plc ("SMIT"), and subsequently acquired the remaining shares over the period until 28th July 2010. The Company acquired the whole of the issued share capital of SMIT comprising 5,818,645 ordinary 25p shares for £17,263,940. This was funded by the issue of 4,952,131 ordinary 25p shares at an issue price of £3.41 each totalling £16,886,767, and cash payment of £377,173.
The Board believes that the proposed merger will result in the Enlarged Group enjoying an increased scale which in turn should lead to the following benefits:
The net assets of the acquired company were as follows:
| 2010 £'000 |
|
|---|---|
| Non-current assets | |
| Investment at fair value | 19,103 |
| Current assets | |
| Trade and other receivables | 130 |
| Cash and cash equivalents | 345 |
| Current liabilities | |
| Trade and other payables | (672) |
| Provisions | (1,499) |
| Net assets acquired | 17,407 |
| Net cash acquired on acquisition was: | |
| £'000 | |
| Cash and cash equivalents | 345 |
| 345 | |
The net assets used to determine the fair value were considered equal to the open market value.
At the date of acquisition and at 31st July 2010, SMIT was involved in legal disputes with Unicorn Asset Management Limited and Knox D'Arcy Asset Management Limited, who were both previous investment managers to SMIT. The aggregate of these claims was £711,125 at 31st July 2010, with potential associated legal costs amounting to £705,000. SMIT disputes these claims and has received legal advice that the claims would be unlikely to succeed. However, the quantum and date of any resolution cannot be measured with absolute certainty.
On 31st July 2010 the Company completed the transfer of selected assets from SMIT. This was funded through a capital distribution of £3.31 per ordinary 25p shares declared and paid to the Company on 31st July 2010.
| Notes Forming Part of the Financial Statements (continued) For the year ended 31st July 2010 |
|
|---|---|
| Business combinations (continued) | |
| £'000 | |
| Non-current assets | |
| Investment at fair value through the profit or loss | 19,267 |
| Immediately following the asset transfer the Company recognised the following: | |
| £'000 | |
| Non-current assets | |
| Investments at fair value through the profit or loss | 19,267 |
| The results if SMIT had been acquired on 1st August 2009: | £'000 |
| Revenue for the 13 month period ended 31st July 2010 | |
| 5,777 | |
| Profit for the 13 month period ended 31st July 2010 | 3,183 |
| The result of SMIT from the date of acquisition | |
| Revenue for the period 26th May 2009 to 31st July 2009 | 2,391 |
| Profit for the period 26th May 2009 to 31st July 2009 | 2,933 |
In order to manage its portfolio efficiently and to enable the Investment Manager to pursue the investment objectives as set out on page 10, the Company holds derivatives and other financial instruments. All derivative transactions and financial instruments are included in the balance sheet at fair value and comprise securities, cash balances, trade receivables and trade payables arising directly from financial operations.
The main risks arising from the Group's investment strategy is market price risk. There is also exposure to liquidity risk, interest rate risk and currency rate risk.
The Board regularly reviews and agrees policies for managing these risks as summarised below:
Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Group might suffer through holding market positions in the face of price movements. The Investment Manager actively monitors market prices throughout the year and reports to the Board which meets regularly to review investment strategy.
Details of the investments held at 31st July 2010 are shown in the 'Portfolio Investments' table on page 8.
If the price of these investments and the derivative financial instruments had increased by 3 per cent at the reporting date with all other variables remaining constant, the capital return in the income statement and the net assets attributable to equity holders of the Company would increase by £2,662,000.
A 3 per cent decrease in share prices would have resulted in an equal and opposite effect of £2,662,000, on the basis that all other variables remain constant.
For the year ended 31st July 2010
At the year end the Group's assets exposed to market price risk were as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
||
| Non-current assets | |||||
| Investments at fair value through profit and loss | 84,343 | 51,924 | 82,340 | 51,924 | |
| Current assets | |||||
| Derivative financial instruments | 4,394 | 4,571 | 2,317 | 3,676 | |
| 88,737 | 56,495 | 84,657 | 55,600 |
During the year the Company transacted in CFDs and covered calls, and its subsidiaries traded in various derivatives investments. As at the year end, there were no open positions in options which were not call positions sold against underlying holdings.
The position held in CFDs as at the year end is as follows:
| Group | Company | |||
|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
|
| Current assets Derivative financial instruments |
4,394 | 4,571 | 2,317 | 3,676 |
| Current liabilities | ||||
| Derivative financial liabilities | (4,168) | (3,868) | (2,179) | (3,031) |
| 226 | 703 | 138 | 645 |
The Group is not subject to a material level of interest rate risk as there were no interest bearing borrowings for an extended period of time throughout the year.
At 31st July 2010, there are no fixed rate borrowings within the Group.
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 on interest bearing deposits with UK banking institutions.
As at 31st July 2010 the financial liabilities comprised:
| Group | Company | |||
|---|---|---|---|---|
| 2010 £'000 |
2009 £'000 |
2010 £'000 |
2009 £'000 |
|
| Balance due to brokers | 4,168 | 3,868 | 2,179 | 3,031 |
| Provisions | 1,416 | - | - | - |
| Trade creditors and accruals | 319 | 290 | 194 | 118 |
| 5,903 | 4,158 | 2,373 | 3,149 |
All the above liabilities are stated at fair value and are due within 1 month.
For the year ended 31st July 2010
The Group manages liquidity risk through constant monitoring of the Group's gearing position to ensure the Group is able to satisfy any and all debts within the agreed credit terms.
At 31st July 2010, all the Group's financial instruments were mainly denominated in sterling and so there was no significant currency risk. Only Jardine Matheson stock and EIH plc stock with market values of £2,131,000 and £805,000 respectively, are denominated in US Dollars, and only Syngenta stock with a market value of £3,378,000 is denominated in Swiss Francs.
The combined value represents 7.5 per cent of the Group's portfolio.
The Group manages currency rate risk through maintenance of foreign currency accounts, enabling the Group to translate balances as and when exchange rates are favourable to the Group.
The Investment Manager of the Company is Midas Investment Management Limited ("Midas"), a company controlled by Mr B S Sheppard and his immediate family. Midas receives a quarterly investment management fee for these services which in the year under review amounted to a total of £352,000 (2009: £226,000) excluding VAT, together with a corporate fee for acting as financial adviser amounting to £30,000 (2009: £30,000) excluding VAT and commission fees of £259,000 (2009: £217,000). The balance owing at 31 July 2010 was £109,000 (2009: £58,000).
On 31st July 2010 the Company transferred stock to the value of £19,267,000 from Stakeholders' Momentum Investment Ltd, its subsidiary acquired on the 21st May 2010. The transfer was completed through a dividend in specie.
The holding company and ultimate parent throughout the year and the previous year was Manchester & Metropolitan Investment Limited, a company incorporated in England and Wales. This company was controlled throughout the year and the previous year by Mr B S Sheppard and his immediate family.
A copy of the consolidated financial statements of Manchester & Metropolitan Investment Limited can be obtained by writing to The Company Secretary, 2nd Floor, Arthur House, Chorlton Street, Manchester M1 3FH.
Intangible Assets, Share Premium, Accruals and Operating Expenses have been restated in the prior period.
| Group £'000 |
Company £'000 |
|
|---|---|---|
| Intangible Assets | (25) | (25) |
| Share Premium | 163 | - |
| Accruals | (115) | - |
| Operating Expenses | (23) | 25 |
These adjustments have been made due to a prior period in OSP Limited, a subsidiary, with regard to costs attributable to its acquisition.
Notice is hereby given that the thirty eighth Annual General Meeting of Manchester & London Investment Trust plc will be held at The Midland Hotel, Peter Street, Manchester M60 2DS, on Thursday, 25th November 2010 at 12.45pm for the following purposes:
To consider and, if thought fit, pass the following resolutions all of which will be proposed as special resolutions.
Registered Office 2nd Floor Arthur House Chorlton Street Manchester M1 3FH
By Order of the Board P Thomas Secretary
28th October 2010
Notes:
(BLOCK LETTERS PLEASE)
I / We
Of
being (a) member(s) of the above named Company, hereby appoint the Chairman of the Meeting *
as my/our proxy to attend and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at The Midland Hotel, Peter Street, Manchester M60 2DS, on 25th November 2010 and at any adjournment thereof.
* If you wish to appoint as proxy any person other than the Chairman of the Meeting, please delete Chairman of the Meeting and insert the name and address of the person you wish to appoint as proxy in the space provided.
I/We direct my/our proxy to vote as follows at the Annual General Meeting.
| Ordinary Resolutions | For | Against | Withheld | |
|---|---|---|---|---|
| 1. | To adopt the Report and Accounts for the year ended 31st July 2010. | |||
| 2. | To approve the Directors' Remuneration Report. | |||
| 3. | To declare a Dividend of 6.5 pence per Ordinary share. | |||
| 4. | Te re-elect Mr P H A Stanley as a Director of the Company. | |||
| 5. | To re-elect Mr B S Sheppard as a Director of the Company. | |||
| 6. | To reappoint CLB Coopers as Auditor and to authorise the Directors to determine their remuneration. |
|||
| Special Resolutions | ||||
| 7. | To grant authority to issue 11,228,543 ordinary shares. | |||
| 8. | To grant authority to issue up to 1,122,854 shares for cash on a non pre-emptive basis. |
|||
| 9. | To renew the authority to acquire up to 14.99 per cent of the issued Ordinary shares. |
Please indicate with an "X" in the appropriate spaces how you wish your votes to be cast. Unless instructed, the proxy will vote or abstain from voting at his/her discretion.
Dated this day of 2010
Signature
Notes:
All shareholders with 2,500 shares (excluding the officers of the Company) are qualified to participate in a draw undertaken by the Directors before the Annual General Meeting in respect of The All England Lawn Tennis Ground Ltd Debentures listed below. Once a party's holding exceeds 2,500 shares, the probability of success in this draw will increase for every additional share held. The investment policy of the Company may result in some or all of the Debentures being sold in which event the benefit would cease.
The Company owns two Debentures entitling it to two Centre Court seats (together with two badges admitting entry to the Debentures Holders' Lounge) for the thirteen days play of the Championships. There will be thirteen draws, each draw entitling the successful shareholder to one pair of adjacent seats for one day's play.
The Company owns two Debentures entitling it to two No. 1 Court seats (together with two badges admitting entry to the No.1 Court Debentures Holders' Lounge) for the ten days play of the Championships. There will be ten draws, each draw entitling the successful shareholder to one pair of adjacent seats for one day's play.
The shares of Manchester & London Investment Trust plc ("MLIT" or "the Company") are listed on the Official List and traded on the London Stock Exchange. Private investors can buy or sell shares by placing an order either directly with a stockbroker or through an Independent Financial Adviser. Alternatively, investments can be made through the Company's Share Savings Plan or the MLIT Individual Savings Account ("ISA").
MLIT operates a zero-charge Savings Plan and all cash (whether from subscriptions or dividends) is reinvested in the Company's shares on the earliest dealing day. Investors have the option of making a lump sum payment to the Plan or regular payments, on a monthly or quarterly basis, whichever is preferred. The Plan can be held jointly or be set up for the benefit of children and there is no upper limit on the amount which can be invested.
Like the Savings Plan, the MLIT zero-charge ISA consists solely of MLIT shares and all cash (whether from subscriptions or dividends) is reinvested in the Company's shares on the earliest dealing day. There are no commissions or annual administration charges on the ISA. Subscriptions may be made either by lump sum or by monthly payments. The current lump sum minimum payment is £1,500 with the maximum subscription per year of £10,200.
Equity ISAs and cash ISAs which are currently held by other managers may be transferred into an MLIT ISA free of charge. The costs of selling the existing holdings and purchasing the MLIT shares will also be free of charge.
MLIT offers a facility whereby holders may sell any of their existing shares without incurring any stockbroking costs as long as the full proceeds are reinvested into MLIT shares. The purchases will also be undertaken free of commission.
Please contact Midas on 0161 228 1709 should you require further details on these savings plans and for our full terms and conditions.
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