Manchester & London: Half-year Report
21/03/2023 15:30
21 March 2023
MANCHESTER AND LONDON INVESTMENT TRUST PLC
(the “Company”)
The Company today announces its Half-yearly report for the six months ended 31
January 2023. A copy of the Half-Yearly Report can be accessed via the
Company’s website at
www.mlcapman.com/manchester-london-investment-trust-plc or by contacting
the Company Secretary by email on MLITCoSec@linkgroup.co.uk.
Summary of Results
At 31 January 2023 At 31 July 2022 Change
Net assets attributable to Shareholders (£’000) 174,787 198,546 (12.0) %
Net asset value (“NAV”) per Ordinary Share (pence) 434.04 493.04 (12.0) %
Six months to 31 January 2023
Total return to Shareholders* (10.4)%
Benchmark - MSCI UK Investable Market Index (MXGBIM)* 4.7 %
* Total NAV return including dividends reinvested, as sourced from Bloomberg.
Six months to 31 January 2023 Six months to 31 January 2022 Change
Interim dividend per Ordinary Share (pence) 7.00 7.00 0.0%
Special dividend per Ordinary Share (pence) 0.00 7.00 n/a
Dates for the interim dividend
Ex-dividend date 13 April 2023
Record date 14 April 2023
Payment date 4 May 2023
CHAIRMAN’S STATEMENT
Results for the half year ended 31 January 2023
The Technology sector has continued to suffer as central banks tightened
policy in order to slow growth. The world has continued to splinter into Sino
and US spheres with a corresponding re-gauging of supply chains, and fears
grow that inflation has become entrenched at a rate well above the required
Federal Reserve target rate of two per cent. Nonetheless, even during such a
period, it is becoming ever more evident that corporate digitalisation and
automation of the labour force command increasing significance and the
Manager’s three favourite secular growth themes of Cloud Computing,
Artificial Intelligence and Semiconductor use gather further momentum. The
portfolio has remained focused on larger capitalisation, liquid, listed stocks
with profitable and cash generative business models that are aligned with some
of these exciting forward-looking themes.
The Manager’s Report sets out the performance of the portfolio and more
detail on stock specific contributions to this performance.
The Board
There have been no changes to the Board during the period.
Exposure
The Company exited the period with a Portfolio Net Delta Adjusted Equity
Exposure (including Options) of 98.9 per cent which effectively means the
Company was fully invested.
Dividends
With these results, we have announced an ordinary interim dividend of 7.0
pence per Ordinary Share. This is the same level as the prior year (31 January
2022: 7.0 pence per Ordinary Share).
Discount & Share Buy-Backs
The Board monitors the discount at which the Company’s shares trade in
relation to the underlying NAV per Share. The discount has widened over the
last year in line with similarly sector invested funds also listed on the
London Stock Exchange. The Company does not have a target discount level at
which it buys back shares and considers a range of factors before it does so,
including the direction of recent market moves. Whilst the Company did not
buy back any shares during the period, we were approached to buy stock off two
materially sized holders during the period. Sadly, a suitable volume based
transaction price could not be agreed in both instances.
It should be noted that the average discount for the Company for the last two
years sits at ~15.6 per cent which, considering the free float of the Company
is less than £100m, could be argued as in line with expectations (if not
ideal).
Auditor
Deloitte LLP were re-appointed as the Company’s auditor at the AGM held in
November 2022.
Outlook
The principal risks and uncertainties faced by the Company for the remaining
six months of the financial year, which could have a material impact on
performance, remain consistent with those outlined in the Annual Report for
the year ended 31 July 2022. A detailed explanation of the Company’s
principal risks and uncertainties, and how they are managed through mitigation
and controls, can be found in the Annual Report for the year ended 31 July
2022. The Company has a risk management framework that provides a structured
process for identifying, assessing and managing the risks associated with the
Company’s business. The investment portfolio is diversified by geography
which reduces risk but is focused on the technology sector and has a high
proportion of US Dollar investments.
The key variables for our second half performance are likely to be movements
in the US sovereign yield curve and inflation expectations, the price of
hydrocarbons and energy, how the Federal Reserve and other Central Banks
respond to the aforementioned, whether there is any further material shakeout
in certain crowded trades (such as unprofitable Technology stocks,
cryptocurrencies), the performance of Microsoft Corporation, the pace of
growth of our key three themes (as described above) and the regulation of
technology companies globally.
We remain optimistic that our investment exposure, focused on software,
digitalisation, cloud computing, data management, semiconductors and AI,
offers longer-term pricing power to ward off inflationary threats and
significant secular growth opportunities.
Please do not forget to consider the fund for this year’s ISA allowance.
Daniel Wright
Chairman
21 March 2023
Manager's Report
Portfolio management
During the half year under review, the NAV per Share total return was -10.4
per cent, compared to an increase in the benchmark of 4.7 per cent.
The NASDAQ-100 Technology Sector Index (“NDXT”), to which much of the
portfolio is exposed, had a total return of -7.7 per cent in GBP. We
underperformed against NDXT which was predominantly due to a -5.3 per cent
attribution from Alphabet Inc. and a -3.1 per cent attribution from Amazon
inc. Both of these holdings have been significantly reduced.
Large Capitalisation Technology stocks had a tough time during the period with
each of the 4 largest Nasdaq constituents, being Apple Inc, Microsoft Corp,
Alphabet Inc and Tesla Inc, declining by double digits in GBP. As a
result, whilst we benefited from being underweight Tesla and Apple, our
initial overweight positions in Microsoft Corp, Amazon Inc and Alphabet Inc
were a significant headwind to portfolio performance.
The total return of the portfolio by sector holdings in local currency
(excluding costs and foreign exchange) is shown below.
Total return of underlying sector holdings in local currency (excluding costs and foreign exchange) 2023
Information Technology (1.9%)
Communication Services (4.0%)
Consumer Discretionary (3.0%)
Other investments (including funds, ETFs and hedges) (0.2%)
Foreign Exchange, operating costs & financing (1.3%)
Total NAV per Share return (10.4%)
A more up to date analysis of our portfolio can be found in our Fund
Factsheets:
https://mlcapman.com/manchester-london-investment-trust-plc/
The 1.2 per cent increase in the value of Sterling against the US Dollar over
the period was a headwind for performance due to the significant level of US
Dollar exposure in the portfolio. Overall, we estimate the decrease in
portfolio performance from Foreign Exchange movements was roughly -1 per cent.
Information Technology
Material positive contributors to the portfolio’s performance from this
sector were ASML Holding NV and Nvidia Corp. Material negative contributors
were Microsoft Corp, Paypal Holdings Inc and Adobe Inc.
The portfolio’s delta-adjusted exposure to this sector at the period end was
around 91.9 per cent of net assets which is a material increase from 48.7 per
cent when we reported last year’s Interims. This increase corresponds to
our strategy of shifting from “Soft Technology” to “Hard Technology”
as articulated in the last Annual Report and in the factsheets and newsletters
since. It is worth noting that whilst this sector is by far our biggest in
terms of exposure, it was not the biggest negative contributor to performance
during the half-year, validating this shift. It can be reverse engineered
that even using the starting weight of this segment of the portfolio the
underlying price decline from this segment of the portfolio was ~4 per cent.
Hence, it could be inferred that had the portfolio entered the period with the
current weight invested in this sub sector, our pro-forma performance would
have exceeded NDXT.
Outlook
We see the Cloud Computing market progressing through a short term
optimisation and consolidation period which will slow growth. Longer term,
we see impressive secular growth with a doubling in the size of the market
over the next decade as “On Premise” can not compete with the enhanced
security, lower costs and deeper functionality offered by the Cloud.
Short term, we see Bing making traction against Google. We have already
detailed in a Newsletter that one potential outcome from the new Bing launch
is: “MSFT start to gain traction with Search activity utilising Edge/Bing
THEN it would be logical for them to apply pressure on GOOG with a view to
making Search zero margin so they crush the "cash cow" that feeds GCP
(GOOG's cloud platform) and hence MSFT becomes the clear No1 in AI. To do
anything less would be negligent for Nadella (CEO of MSFT).” See our
Newsletters for more details. Longer term, we see Artificial Intelligence
being a material positive driver for the Cloud and Semiconductor market. It
is easy to focus on the growth in GPUs from AI but please note networking,
security and compute all benefit too. To be explicit, we are taking the
“picks and shovels” route to capture the gains from the growth of AI.
The semiconductor market will be depressed during 2023 but, longer term, we
see the secular growth in Electric Vehicles, Artificial Intelligence, Cloud
Computing, IoT, Digitalisation and Automation driving the semiconductor market
to double over the next decade.
High Impact Risk events
The Great Hack: We lose sleep imagining a cyber breach of one of the
hyper-scalers causing a loss of faith in the industry and punitive
regulation. In such an event, we would suggest a look to the counter-factual
of whether the situation would have been even worse if the data had been
stored “On Premises”.
China Military: The potentially impending hot conflict in Taiwan initiated by
China has been the primary subject of Academy this year (see
https://mlcapman.com/academy/). A large proportion of our portfolio would
suffer material falls in value should this event be the outturn which is why
sharp-eyed Factsheet readers see we have intermittently hedged these positions
with EWT US. Generally, the “cold war” developing between the US and
China has multiple risks for Technology stocks (which is why we have been
concerned about investing in AAPL for years) and a progression through further
sanctions, closing of markets, IP theft etc. is likely to be a strong headwind
for a number of our holdings. We are very keen on the Semi-Cap sector but
their high exposure to China has always deterred us from owning more of these
names.
China Technology: China is unlikely to accept the US desire to make it a
number 2 player in High Technology and hence it may decide to invest huge
amounts into R&D to break down some of the IP moats that the non-Chinese
semiconductor, semi-cap and EDA software companies maintain, making
competition much tougher in these markets.
Concentration Risk: Whilst the portfolio is now less concentrated in 3
holdings, it is more concentrated in the Information Technology sector. The
fund has a high Active Share Ratio and it is very likely that our performance
will vary markedly from all of the better known technology index performances.
Communication Services
Material positive contributors to the portfolio’s performance from this
sector were Netflix Inc and Meta Platforms Inc (latter was sold during the
year). Alphabet Inc was the largest negative contributor to performance of
all the stocks in the portfolio. We wrote a detailed article on the
company which we published on LinkedIn which set out the Action Points we
needed to see from the company to remain invested. Following no such actions
from Alphabet, we cut the position significantly, entering the year with a
roughly 25.5 per cent exposure to Alphabet and exiting with only 3.6 per cent.
The portfolio’s delta-adjusted exposure to this sector at the period end was
just 3.7 per cent of net assets, materially down from 41.5 per cent last year.
Outlook
After years of stability, Search & Digital Advertising have become disrupted
markets due to IDFA, TikTok and further new entrants such as Apple and Amazon,
and AI. As Nadella said: “from now on the gross margin of Search is going
to drop forever.”
Streaming Media has always been a competitive market, but it seems to us that
it will remain so until there is material consolidation which will take
years. We may increase our exposure to this sector again after the
afore-mentioned consolidation but after an opportune rebound in NFLX in 2023
we have reduced our holding.
We would also not be surprised if Apple replace the underlying Search Engine
behind Safari from Google and start using their own model. Apple can clearly
see a new market in Search is open for battle.
Consumer Discretionary
There were no positive contributors from this sector. Amazon.com Inc once
again performed badly in the period and was the main driver of sector
performance. Again, we wrote a detailed article on the company which we
published on LinkedIn which set out the Action Points we needed to see from
Amazon to remain invested. Following no such actions from Amazon, and as
communicated in Factsheets and Newsletters over the period, we materially
reduced the holding in Amazon from the 3(rd) largest in the portfolio at the
beginning of the year to below the Top 15 at the period end.
Overall, the portfolio’s delta-adjusted exposure to the sector at the period
end was just 1.5 per cent of net assets, also materially down from 22.2 per
cent last year.
Other investments including hedges
There were no contributors which had an attribution of -/+1% for the portfolio
from these holdings.
The portfolio’s delta-adjusted exposure to equity investments in this sector
at the period end was around 1.8 per cent of net assets, also a reduction from
last year.
Current Investment Tactics
We use a Data Framework to select the universe from which we select stock
candidates for the portfolio.
From this universe, we select stocks whilst keeping the below attributes in
mind:
1. Exposure to “Hard Technology” (high IP, mission critical, recurring,
low churn) rather than “Soft Technology” (social media, easily created
apps such as food delivery);
2. The Management Teams of holdings need to be undertaking realistic and
pragmatic cost cutting;
3. Cash flow per Share and Earnings per Share metrics are more important
than Sales Growth;
4. Once Cash Flow is earned then it must be invested wisely in one of: high
ROIC investment, buy backs or dividends (or divestments);
5. Lowish exposure to a China/Taiwan “hot war”; and
6. Realistic Stock Based Compensation schemes.
Economy & Market
The US economy remains robust which is unsurprising considering its make-up is
driven by consumption and the latter has a high correlation to high employment
and wage growth. Rates will have to be Higher for Longer and Tech shares
hate surprise increases in discount rates. To be specific, our portfolio
has a strong negative correlation to surprise increases in 10-year Treasury
yields. We expect further worries about inflation and oil price shocks
(China reopening, more Wars) over the next couple of years that will cause
volatility in Technology shares. To be explicit, we see a hard road ahead
for equities and various parts of the economy which is why we have
repositioned the portfolio into “Hard Tech” from “Soft Tech”.
We have already discussed the concerns we have regarding the “cold war”
with China not only escalating but turning “hot”. This is the key reason
we divested of our holdings in the Chinese Technology market and we will not
revisit such exposures until there is a clear change in direction by China
that is credible and durable. To be clear, should the relationship between
China and the US improve markedly over the next few years then our current
portfolio will underperform general technology indices. However, we would
guess we would be less concerned with that relative under-performance as the
absolute return from such an event could be very exciting.
This period saw the Inflation Reduction Act and an increasing focus on
investment into Clean Energy. We applaud this move. As we have detailed
above, we are investing for this thematic (as we are also playing the
increased Defence spend thematic) through the growth in semiconductors
supplied into these industries.
General IT spending is likely to continue to remain sluggish through 2023 as
companies focus on optimisation. All those head count losses throughout the
industry punch a hole in SAAS Seat Revenue metrics. Spending is still
being prioritised into AI, Cloud, Digitalisation and Security and these are
the areas we have refocused our new “Hard Technology” portfolio on.
Please: Visit our website: https://mlcapman.com/about/
Follow our Tweets at: https://twitter.com/MLCapMan
Read our previous articles at:
https://www.linkedin.com/company/m-&-l-capitalmanagement-ltd/
Long the Future.
M&L Capital Management Limited
@MLCapMan
21 March 2023
EQUITY EXPOSURES AND PORTFOLIO SECTOR ANALYSIS
Equity exposures (longs)
As at 31 January 2023
Company Sector* Exposure £’000 % of net assets
Microsoft Corporation**
ASML Holding NV CFD **
Cadence Design Systems, Inc.**
Synopsys Inc**
Nvidia Corporation
Advanced Micro Devices, Inc
PayPal Holdings, Inc.
Adobe Systems Inc.**
Alphabet Inc.**
GoDaddy Inc.
ROBO Global Robotics & Automation
Intuit Inc.
Intuitive Surgical, Inc.
NXP Semiconductors N.V.
The Sage Group plc
Ansys, Inc.
Oracle Corporation
Apple Inc.
Amdocs Ltd
Analog Devices, Inc.
Gen Digital Inc .
London Stock Exchange Group plc**
Polar Capital Technology Trust plc
Match Group Inc
Arista Networks Inc
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Communication Serv’s
Information Technology
Fund
Information Technology
Healthcare
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
Financials
Fund
Communication Serv’s
Information Technology
52,274
19,091
14,485
13,754
11,486
9,868
7,781
7,313
4,869
4,732
4,362
4,276
2,955
2,666
2,563
2,467
1,797
1,782
1,688
1,672
1,645
1,629
1,340
924
778
29.9
10.9
8.3
7.9
6.6
5.7
4.5
4.2
2.8
2.7
2.5
2.4
1.7
1.5
1.5
1.4
1.0
1.0
1.0
1.0
0.9
0.9
0.8
0.5
0.4
Total long equities exposure 178,361 102.0
Other net assets and liabilities (3,410) (2.0)
Net assets 174,787 100.0
* GICS – Global Industry Classification Standard.
** Including equity swap exposures.
Exposure is related to Delta Adjusted Exposure (Glossary).
Interim Management Report
The important events that have occurred during the period under review and the
key factors influencing the financial statements are set out in the
Chairman’s Statement on page 3 and the Manager’s Report on pages 5 to 9.
The principal risks facing the Company are substantially unchanged since the
date of the latest Annual Report and Financial Statements and continue to be
as set out in the Strategic Report and note 16 of that report. Risks faced by
the Company include, but are not limited to, investment performance risk; key
man risk and reputational risk; fund valuation risk; risk associated with
engagement of third-party service providers; regulatory risk; fiduciary risk;
fraud risk; market risk; interest rate risk; liquidity risk; currency rate
risk; and credit and counterparty risk. Details of the Company’s management
of these risks are set out in the Annual Report and Financial Statements.
M&M Investment Company plc is the controlling shareholder of the Company. This
company was controlled throughout the six months ended 31 January 2023, and
continues to be controlled by Mark Sheppard, who forms part of the investment
management team at M&L Capital Management Limited. Details of related party
disclosures are set out in note 7 of this Report.
DIRECTORS’ REPORT
Going Concern
As detailed in the notes to the financial statements and in the Annual Report
for the year ended 31 July 2022, the Board continually monitors the financial
position of the Company and has considered for the six months ended 31 January
2023 an assessment of the Company’s ability to meet its liabilities as they
fall due. The review also included consideration of the level of readily
realisable investments and current cash and debt ratios of the Company and the
ability to repay any outstanding prime broking facilities. In light of the
results of these tests on the Company’s cash balances and liquidity
position, the Directors consider that the Company has adequate financial
resources to enable it to continue in operational existence. Having carried
out the assessment, the Directors are satisfied that it is appropriate to
continue to adopt the going concern basis in preparing the financial results
of the Company. The Directors have not identified any material uncertainties
or events that might cast significant doubt upon the Company’s ability to
continue as a going concern. The assets of the Company comprise mainly of
securities that are readily realisable and accordingly, the Company has
adequate financial resources to meet its liabilities as and when they fall due
and to continue in operational existence for the foreseeable future.
Related Party Transactions
In accordance with DTR 4.2.8R there have been no new related party transaction
agreements during the six-month period to 31 January 2023 and therefore
nothing to report on any material effect by such transactions on the financial
position or performance of the Company during that period. There have
therefore been no changes in any related party transaction agreements
described in the last Annual Report that could have a material effect on the
financial position or performance of the Company in the first six months of
the current financial year or to the date of this report.
Statement of Directors’ Responsibilities
The Directors confirm that to the best of their knowledge:
• the condensed set of financial statements has been prepared in accordance
with International Accounting Standard 34, Interim Financial Reporting; and
gives a true and fair view of the assets, liabilities, financial position and
return of the Company; and
• this Half-Yearly Report includes a fair review of the information required
by:
1. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
1. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the Company during that period; and any changes in
the related party transactions described in the last Annual Report that could
do so.
This Half-Yearly Report was approved by the Board of Directors and the above
responsibility statement was signed on its behalf by:
Daniel Wright
Chairman
21 March 2023
Condensed Statement of Comprehensive Income
For the six months ended 31 January 2023
(Unaudited) Six months ended 31 January 2023 (Unaudited) Six months ended 31 January 2022 (Audited) Year ended 31 July 2022
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Gains / (losses) on investments at fair value through profit or loss 110 (20,870) (20,760) 134 (15,994) (15,860) 275 (58,542) (58,267)
Investment income 232 - 232 116 - 116 265 - 265
Interest income 1,049 - 1,049 - - - - - -
Gross return 1,391 (20,870) (19,479) 250 (15,994) (15,744) 540 (58,542) (58,002)
Expenses
Management fee (250) - (250) (1,057) - (1,057) (1,515) - (1,515)
Other operating expenses (245) - (245) (260) - (260) (598) - (598)
Total expenses (495) - (495) (1,317) - (1,317) (2,113) - (2,113)
Return before finance costs and taxation 896 (20,870) (19,974) (1,067) (15,994) (17,061) (1,573) (58,542) (60,115)
Finance costs (15) (922) (937) (125) (489) (614) (55) (952) (1,007)
Return on ordinary activities before tax 881 (21,792) (20,911) (1,192) (16,483) (17,675) (1,628) (59,494) (61,122)
Taxation (29) - (29) (17) - (17) (40) - (40)
Return on ordinary activities after tax 852 (21,792) (20,940) (1,209) (16,483) (17,692) (1,668) (59,494) (61,162)
Return per Share: Basic and fully diluted (pence) 2.12 (54.12) (52.00) (2.99) (40.79) (43.78) (4.13) (147.49) (151.62)
The total column of this statement represents the Condensed Statement of
Comprehensive Income, prepared in accordance with international accounting
standards in conformity with the requirements of UK IFRS the Companies Act
2006. The supplementary revenue and capital columns are both prepared under
the Statement of Recommended Practice published by the Association of
Investment Companies (“AIC SORP”).
All items in the above statement are derived from continuing operations. No
operations were acquired or discontinued during the period.
There is no other comprehensive income, and therefore the return for the
period after tax is also the total comprehensive income.
The notes on pages 17 to 21 form part of these financial statements.
Condensed Statement of Changes in Equity
For the six months ended 31 January 2023
For the six months from 1 August 2022 to 31 January 2023 (unaudited) Share capital £’000 Share premium £’000 Special reserve* £’000 Capital reserve* £’000 Retained earnings* £’000 Total £’000
Balance at 1 August 2022 10,132 25,888 98,780 63,746 - 198,546
Ordinary shares bought back and held in treasury - - - - - -
Total comprehensive (loss)/profit - - - (21,792) 852 (20,940)
Dividends paid - - (1,967) - (852) (2,819)
Balance at 31 January 2023 10,132 25,888 96,813 41,954 - 174,787
For the six months from 1 August 2021 to 31 January 2022 (unaudited) Share capital £’000 Share premium £’000 Special reserve* £’000 Capital reserve* £’000 Retained earnings* £’000 Total £’000
Balance at 1 August 2021 10,132 25,888 107,188 123,240 3,238 269,686
Ordinary shares bought back and held in treasury - - (1,379) - - (1,379)
Total comprehensive loss - - - (16,483) (1,209) (17,692)
Dividends paid - - (803) - (2,029) (2,832)
Balance at 31 January 2022 10,132 25,888 105,006 106,757 - 247,783
For the year from 1 August 2021 to 31 July 2022 (audited) Share capital £’000 Share premium £’000 Special reserve* £’000 Capital reserve* £’000 Retained earnings* £’000 Total £’000
Balance at 1 August 2021 10,132 25,888 107,188 123,240 3,238 269,686
Ordinary shares bought back and held in treasury - - (1,509) - - (1,509)
Total comprehensive loss - - - (59,494) (1,668) (61,162)
Dividends paid - - (6,899) - (1,570) (8,469)
Balance at 31 July 2022 10,132 25,888 98,780 63,746 - 198,546
* These reserves are distributable, excluding any unrealised capital reserve.
The notes on pages 17 to 21 form part of these financial statements.
Condensed Statement of Financial Position
As at 31 January 2023
Notes (Unaudited) 31 January 2023 £’000 (Unaudited) 31 January 2022 Restated* £’000 (Audited) 31 July 2022 £’000
Non-current assets
Investments held at fair value through profit and loss 124,849 153,271 128,111
Current assets
Unrealised derivative assets 1,237 7,318 2,548
Trade and other receivables 237 48 29
Cash and cash equivalents 36,021 49,283 48,840
Cash collateral receivable from brokers 17,346 60,806 36,394
54,841 117,455 87,811
Creditors – amounts falling due within one year
Unrealised derivative liabilities (3,840) (22,677) (14,284)
Trade and other payables (1,063) (266) (1,107)
Cash collateral payable to brokers - - (1,985)
(4,903) (22,943) (17,376)
Net current assets/(liabilities) 49,938 94,512 70,435
Net assets 174,787 247,783 198,546
Equity attributable to equity holders
Ordinary Share capital 10,132 10,132 10,132
Share premium 25,888 25,888 25,888
Special reserves 96,813 105,006 98,780
Capital reserves 41,954 106,757 63,746
Retained earnings - - -
Total equity Shareholders’ funds 174,787 247,783 198,546
Net asset value per Ordinary Share – basic and diluted (pence) 434.04 614.92 493.04
Number of shares in issue excluding Treasury 3 40,270,055 40,295,055 40,270,055
* Please refer to note 1 restatement of 31 January 2022 for more details.
The notes on pages 17 to 21 form part of these financial statements.
Condensed Statement of Cash Flows
For the six months ended 31 January 2023
Six months to 31 January 2023 (Unaudited) £’000 Six months to 31 January 2022 restated* (Unaudited) £’000 Year ended 31 July 2022 (Audited) £’000
Cash flow from operating activities
Return on operating activities before tax (20,911) (17,675) (61,122)
Interest expense 937 614 968
Losses on investments held at fair value through profit or loss 22,776 17,528 64,501
(Increase)/decrease in receivables (208) (11) 2
(Decrease)/increase in payables (16) (1) (92)
Exchange gains on currency balances (1,902) (1,766) (5,815)
Tax (29) (17) (40)
Net cash generated/(used in) from operating activities 647 (1,328) (1,598)
Cash flow from investing activities
Purchase of investments (70,222) (28,157) (86,419)
Sale of investments 49,012 29,708 105,030
Derivative instrument cashflows 9,556 15,104 (71)
Net cash (used)/generated in investing activities (11,654) 16,655 18,540
Cash flow from financing activities
Ordinary shares bought back and held in treasury - (1,379) (1,509)
Equity dividends paid (2,819) (2,832) (8,469)
Interest paid (895) (620) (960)
Net cash (used)/generated in financing activities (3,714) (4,831) (10,938)
Net (decrease)/ increase in cash and cash equivalents (14,721) 10,496 6,004
Exchange gains on currency balances 1,902 1,766 5,815
Cash and cash equivalents at the beginning of the period 48,840 37,021 37,021
Cash and cash equivalents at the end of the period 36,021 49,283 48,840
* Please refer to note 1 restatement of 31 January 2022 for more details.
The notes on pages 17 to 21 form part of these financial statements.
Notes to the Condensed Financial Statements
1. Significant accounting policies
Basis of preparation
The condensed financial statements of the Company have been prepared in
accordance with international accounting standards, International Accounting
Standard 34 “Interim Financial Reporting”, in conformity with the
requirements of the Companies Act 2006.
In the current period, the Company has applied amendments to IFRS. These
include annual improvements to IFRS, changes in standards, legislative and
regulatory amendments, changes in disclosure and presentation requirements
including updates relating to COVID-19. The adoption of these has not had any
material impact on these financial statements and the accounting policies used
by the Company followed in these half-year financial statements are consistent
with the most recent Annual Report for the year ended 31 July 2022.
Going concern
The financial statements have been prepared on a going concern basis and on
the basis that approval as an investment trust company will continue to be
met.
The Directors have made an assessment of the Company’s ability to continue
as a going concern and are satisfied that the Company has adequate resources
to continue in business for the foreseeable future, being a period of at least
12 months from the date these financial statements were approved. In making
the assessment, the Directors have considered the likely impacts of
international and economic uncertainties on the Company, operations and the
investment portfolio. These include, but are not limited to, the impact of
COVID-19, the war in Ukraine, political and economic instability in the UK,
supply shortages and inflationary pressures.
The Directors noted that the cash balance exceeds any short-term liabilities,
the Company holds a portfolio of liquid listed investments and is able to meet
the obligations of the Company as they fall due. The current cash enables the
Company to meet any funding requirements and finance future additional
investments. The Company is a closed end fund, where assets are not required
to be liquidated to meet day to day redemptions.
The Directors have completed stress tests assessing the impact of changes in
market value and income with associated cash flows. In making this assessment,
they have considered severe but plausible downside scenarios. These tests were
driven by the possible effects of continuation of the COVID–19 pandemic but,
as an arithmetic exercise, apply equally to any other set of circumstances in
which asset value and income are significantly impaired. The conclusion was
that in a plausible downside scenario the Company could continue to meet its
liabilities. Whilst the economic future is uncertain, and the Directors
believe that it is possible the Company could experience further reductions in
income and/or market value, and changes in expenses, the opinion of the
Directors is that this should not be to a level which would threaten the
Company’s ability to continue as a going concern.
The Directors also regularly assess the resilience of key third party service
providers, most notably the Investment Manager and Fund Administrator. The
Directors do not have any concerns about the financial viability of the
Company’s third party service providers. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt upon the
Company’s ability to continue as a going concern, having taken into account
the liquidity of the Company’s investment portfolio and the Company’s
financial position in respect of its cash flows, borrowing facilities and
investment commitments (of which there are none of significance). Therefore,
the financial statements have been prepared on the going concern basis.
Comparative information
The financial information contained in this Half-Yearly Report does not
constitute statutory accounts as defined by the Companies Act 2006. The
financial information for the periods ended 31 January 2023 and 31 January
2022 have not been audited or reviewed by the Company’s Auditors.
The comparative figures for the year ended 31 July 2022 are an extract from
the latest published audited statements and do not constitute the Company’s
statutory accounts for that financial year. Those accounts have been reported
on by the Company’s Auditor and delivered to the Registrar of Companies. The
report of the Auditor was unqualified, did not include a reference to any
matters to which the Auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
Restatement of 31 January 2022 Comparatives
Following the restatement detailed in the 31 July 2022 annual report (please
see page 69 of the Annual Report for further details), the 31 January 2022
figures have been restated. The restatement reclassifies the presentation of
current assets and liabilities within the Unrealised derivatives
assets/liabilities and Cash and cash equivalents account lines. The
restatement has no impact on the Company’s net assets nor the Condensed
Statement of Comprehensive Income. In addition, the Derivative instrument
cashflows in the Condensed Statement of Cash Flow have also been restated.
2. Return per Ordinary Share
Returns per Ordinary Share are based on the weighted average number of Shares
in issue during the period. Normal and diluted return per Share are the same
as there are no dilutive elements of share capital.
Six months to 31 January 2023 (unaudited) Six months to 31 January 2022 (unaudited) Year ended 31 July 2022 (audited)
Net return £’000 Per Share pence Net return £’000 Per Share Pence Net Return £’000 Per Share Pence
Return on ordinary activities after tax
Revenue 852 2.12 (1,209) (2.99) (1,668) (4.13)
Capital (21,792) (54.12) (16,483) (40.79) (59,494) (147.49)
Total return on ordinary activities (20,940) (52.00) (17,692) (43.78) (61,162) (151.62)
Weighted average number of Ordinary Shares 40,270,055 40,405,648 40,338,477
3. Share capital
Six months to 31 January 2023 (unaudited) Six months to 31 January 2022 (unaudited) Year ended 31 July 2022 (audited)
25p Ordinary Shares Number £’000 Number £’000 Number £’000
Opening Ordinary Shares in issue 40,528,238 10,132 40,528,238 10,132 40,528,238 10,132
Shares issued - - - - - -
Closing Ordinary Shares in issue 40,528,238 10,132 40,528,238 10,132 40,528,238 10,132
Treasury shares:
Balance at beginning of the period/year 258,183 - -
Buyback of Ordinary shares into treasury - 233,183 258,183
Balance at end of period/year 258,183 233,183 258,183
Total Ordinary Share capital excluding treasury shares 40,270,055 40,295,055 40,270,055
The Company’s Share capital comprises Ordinary Shares of 25p each with one
vote per Share.
During the six months to 31 January 2023, the Company issued no Ordinary
Shares (six months to 31 January 2022: nil; year ended 31 July 2022: nil),
with net consideration of £nil (six months to 31 January 2022: £nil; year
ended 31 July 2022: £nil).
The Company during the six months to 31 January 2023, bought back and placed
in treasury nil Ordinary Shares with a nominal value of £nil for an aggregate
consideration of £nil (six months to 31 January 2022: 233,183; year ended 31
July 2022: 258,183).
4. Dividends per Ordinary Share
The Board has declared an interim dividend of 7p per Ordinary Share (2022:
interim dividend of 7p per Ordinary Share and special dividend of 7p per
Ordinary Share) which will be paid on 4 May 2023 to Shareholders registered at
the close of business on 14 April 2023 (ex-dividend 13 April 2023).
This dividend has not been included as a liability in these financial
statements.
5. Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets of £174,787,000 (31
January 2022: £247,783,000; 31 July 2022: £198,546,000) at the period end
and 40,270,055 (31 January 2022: 40,295,055; 31 July 2022: 40,270,055) being
the number of Ordinary Shares excluding Treasury Shares in issue at the period
end.
6. Fair value hierarchy
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements.
The fair value is the amount at which the asset could be sold in an ordinary
transaction between market participants, at the measurement date, other than a
forced or liquidation sale.
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements. Categorisation
within the hierarchy has been determined on the basis of the lowest level
input that is significant to the fair value measurement of the relevant asset
as follows:
* Level 1 – valued using quoted prices, unadjusted in active markets for
identical assets and liabilities.
* Level 2 – valued by reference to valuation techniques using observable
inputs for the asset or liability other than quoted prices included in Level
1.
* Level 3 – valued by reference to valuation techniques using inputs that
are not based on observable market data for the asset or liability.
The tables below set out fair value measurement of financial instruments, by
the level in the fair value hierarchy into which the fair value measurement is
categorised.
Financial assets/liabilities at fair value through profit or loss at 31
January 2023
Level 1 Level 2 Level 3 Total £’000
Investments 124,849 - - 124,849
Unrealised derivatives assets - 1,237 - 1,237
Unrealised derivative liability - (3,840) - (3,840)
Total 124,849 (2,603) - 122,246
Financial assets/liabilities at fair value through profit or loss at 31
January 2022
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments 153,271 - - 153,271
Unrealised derivatives assets - 7,318 - 7,318
Unrealised derivative liability - (22,677) - (22,677)
Total 153,271 (15,359) - 137,912
Financial assets/liabilities at fair value through profit or loss at 31 July
2022
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments 128,111 - - 128,111
Unrealised derivatives assets - 2,548 - 2,548
Unrealised derivative liability - (14,284) - (14,284)
Total 128,111 (11,736) - 116,375
7. Transactions with the Manager and related parties
M&L Capital Management Limited (“MLCM”), a company controlled by Mark
Sheppard, acts as Manager to the Company. Mark Sheppard is also a director of
M&M Investment Company plc (“MMIC”) which is the controlling Shareholder
of the Company.
During the six months to 31 January 2023, MMIC (including connected parties)
purchased 10,274 Ordinary shares, with net consideration
of £34,943.41. As at 31 January 2023, MMIC (including connected parties)
was interested in a total of 22,897,479 Ordinary Shares of 25 pence each in
the Company, representing 56.9% of the issued share capital.
Total fees charged by the Manager for the six months to 31 January 2023 were
£250,000 (six months to 31 January 2022: £1,057,000; year ended 31 July
2022: £1,515,000), of which £42,000 was outstanding as at 31 January 2023
(31 January 2022: £163,000; 31 July 2022: £47,000).
The fees payable to Directors are set out in the 2022 Annual Report.
There were no other related party transactions in the period.
8. Post Statement of Financial Position event
There were no other significant events since the end of the reporting period.
9. Glossary
Reference should be made to the Glossary in our Annual Report for the year
ended 31 July 2022 (pages 85 to 87) for a definition of key Terms and
Alternative Performance Measures (such as NAV, NAV per Share and Total
Return).
Investment Objective
The investment objective of the Company is to achieve capital appreciation.
Investment Policy
Asset allocation
The Company’s investment objective is sought to be achieved through a policy
of actively investing in a diversified portfolio, comprising any of global
equities and/or fixed interest securities and/or derivatives.
The Company may invest in derivatives, money market instruments, currency
instruments, contracts for differences (“CFDs”), futures, forwards and
options for the purposes of (i) holding investments and (ii) hedging positions
against movements in, for example, equity markets, currencies and interest
rates.
The Company seeks investment exposure to companies whose shares are listed,
quoted or admitted to trading. However, it may invest up to 10% of gross
assets (at the time of investment) in the equities and/or fixed interest
securities of companies whose shares are not listed, quoted or admitted to
trading.
Risk diversification
The Company intends to maintain a diversified portfolio and it is expected
that the portfolio will have between approximately 20 to 100 holdings. No
single holding will represent more than 20% of gross assets at the time of
investment. In addition, the Company’s five largest holdings (by value) will
not exceed (at the time of investment) more than 75% of gross assets.
Although there are no restrictions on the constituents of the Company’s
portfolio by geography, industry sector or asset class, it is intended that
the Company will hold investments across a number of geographies and industry
sectors. During periods in which changes in economic, political or market
conditions or other factors so warrant, the Manager may reduce the Company’s
exposure to one or more asset classes and increase the Company’s position in
cash and/or money market instruments.
The Company will not invest more than 15% of its total assets in other listed
closed-ended investment funds. However, the Company may invest up to 50% of
gross assets (at the time of investment) in an investment company subsidiary,
subject always to the other restrictions set out in this investment policy and
the Listing Rules.
Gearing
The Company may borrow to gear the Company’s returns when the Manager
believes it is in Shareholders’ interests to do so. The Company’s Articles
of Association (“Articles”) restrict the level of borrowings that the
Company may incur up to a sum equal to two times the net asset value of the
Company as shown by the then latest audited balance sheet of the Company.
The effect of gearing may be achieved without borrowing by investing in a
range of different types of investments including derivatives. Save with the
approval of Shareholders, the Company will not enter into any investments
which have the effect of increasing the Company’s net gearing beyond the
limit on borrowings stated in the Articles.
General
In addition to the above, the Company will observe the investment restrictions
imposed from time to time by the Listing Rules which are applicable to
investment companies with shares listed on the Official List of the Financial
Conduct Authority (“FCA”).
No material change will be made to the investment policy without the approval
of Shareholders by ordinary resolution.
In the event of any breach of the investment restrictions applicable to the
Company, Shareholders will be informed of the remedial actions to be taken by
the Board and the Manager by an announcement issued through a regulatory
information service approved by the FCA.
Investment Strategy and Style
The fund’s portfolio is constructed with flexibility but is more often than
not focused on stock that exhibit the attributes of growth.
Target Benchmark
The Company was originally set up by Brian Sheppard as a vehicle for British
retail investors to invest in with the hope that total returns would exceed
the total returns on the UK equity market. Hence, the benchmark the Company
uses to assess performance is one of the many available UK equity indices
being the MSCI UK Investable Market Index (MXGBIM). The Company is not set on
just using this index and currently uses this particular UK index amongst a
number of highly correlated and hence substitutable UK Equity indices because
at the current time it is viewed as the most cost advantageous. However,
once the Company announces the use of an index, then this index will be used
across all of the Company’s documentation.
Investments for the portfolio are not selected from constituents of this index
and hence the investment remit is in no way constrained by the index, although
the Manager’s management fee is varied depending on performance against the
benchmark. It is suggested that Shareholders review the Company’s Active
Share Ratio that is on the fund factsheets as this illustrates to what degree
the holdings in the portfolio vary from the underlying benchmark.
Environmental, Social, Community and Governance
The Company considers that it does not fall within the scope of the Modern
Slavery Act 2015 and it is not, therefore, obliged to make a slavery and human
trafficking statement. In any event, the Company considers its supply chains
to be of low risk as its suppliers are typically professional advisers.
In its oversight of the Manager and the Company’s other service providers,
the Board seeks assurances that they have regard to the benefits of diversity
and promote these within their respective organisations. The Company has given
discretionary voting powers to the Manager. The Manager votes against
resolutions they consider may damage Shareholders’ rights or economic
interests and report their actions to the Board. The Company believes it is
in the Shareholders’ interests to consider environmental, social, community
and governance factors when selecting and retaining investments and has asked
the Manager to take these issues into account. The Manager does not exclude
companies from their investment universe purely on the grounds of these
factors but adopts a positive approach towards companies which promote these
factors. The portfolio’s Sustainalytic’s Environmental Percentile was 85.8
per cent as at the Latest Factsheet date.
Shareholder Information
Investing in the Company
The Shares of the Company are listed on the Official List of the FCA 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.
Electronic communications from the Company
Shareholders now have the opportunity to be notified by email when the
Company’s Annual Report, Half-Yearly Report and other formal communications
are available on the Company’s website, instead of receiving printed copies
by post. This reduces the cost to the Company as well as having an
environmental benefit in the reduction of paper, printing, energy and water
usage. If you have not already elected to receive electronic communications
from the Company and now wish to do so, visit www.signalshares.com. All you
need to register is your investor code, which can be found on your Share
certificate or your dividend confirmation statement.
Alternatively, you can contact Link’s Customer Support Centre which is
available to answer any queries you have in relation to your shareholding:
By phone: 0371 664 0300 (from overseas call +44 (0) 371 664 0300). Calls cost
12p per minute plus your phone company’s access charge. Calls outside the
United Kingdom will be charged at the applicable international rate. Lines are
open between 09:00 - 17:30, Monday to Friday excluding public holidays in
England and Wales.
By email – shareholder.enquiries@linkgroup.co.uk
By post – Link Group, 10th Floor, Central Square, 29 Wellington Street,
Leeds, LS1 4DL.
Frequency of NAV publication
The Company’s NAV is released to the London Stock Exchange on a weekly
basis.
Sources of further information
Copies of the Company’s Annual and Half-Yearly Reports, factsheets and
further information on the Company can be obtained from its website:
www.mlcapman.com/manchester-london-investment-trust-plc.
Key dates
Half-Yearly results announced March
Interim dividend payment May
Company’s year end 31 July
Annual results announced September
Annual General Meeting November
Expected final dividend payment November
Company’s half-year end 31 January
Corporate Information
Directors and advisers
Directors Daniel Wright (Chairman) Brett Miller Sir James Waterlow Daren Morris Auditor Deloitte LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2DB
Manager and Alternative Investment Fund Manager M&L Capital Management Limited 12a Princes Gate Mews London SW7 2PS Tel: 0207 584 5733 ir@mlcapman.com www.mlcapman.com Administrator Link Alternative Fund Administrators Limited Broadwalk House Southernhay West Exeter EX1 1TS
Company Secretary Link Company Matters Limited Broadwalk House Southernhay West Exeter EX1 1TS Registrar Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Tel: 0871 664 0300 Email: shareholder.enquiries@linkgroup.co.uk
Depositary Indos Financial Limited The Scalpel 18 (th)Floor 52 Lime Street London EC3M 7AF Bank National Westminster Bank plc 11 Spring Gardens Manchester M60 2DB
COMPANY DETAILS
Registered office 12a Princes Gate Mews London SW7 2PS Country of incorporation Registered in England and Wales Company Number: 01009550
Company website www.mlcapman.com/manchester-london-investment-trust-plc
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