REG-Manchester & London Investment Trust Plc: Half-year Report
13/03/2024 18:45
13 March 2024
MANCHESTER AND LONDON INVESTMENT TRUST PLC
(the “Company”)
The Company today announces its Half-yearly Report for the six months ended 31
January 2024. 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 2024 At 31 July 2023 Change
Net assets attributable to Shareholders (£’000) 272,871 221,379 23.3%
Net asset value (“NAV”) per Ordinary Share (pence) 678.90 550.79 23.3%
Six months to 31 January 2024
Total return to Shareholders* 24.9%
Benchmark - MSCI UK Investable Market Index (MXGBIM)* 1.5%
* Total NAV return including dividends reinvested, as sourced from Bloomberg.
Six months to 31 January 2024 Six months to 31 January 2023 Change
Interim dividend per Ordinary Share (pence) 7.00 7.00 0.0%
Dates for the interim dividend
Ex-dividend date 11 April 2024
Record date 12 April 2024
Payment date 7 May 2024
CHAIRMAN’S STATEMENT
Results for the half year ended 31 January 2024
The Global Technology sector has continued to rally on Ai excitement, the hope
that inflation is in retreat and the perception the US may pull off a rare
soft landing for its economy. 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 academic studies undertaken by Mark and Richard into
Artificial Intelligence over the last three years look prescient in the
context of markets today. The Manager’s Report sets out the performance of
the portfolio in more detail including stock specific contributions to this
performance but a total return on Net Asset value per Share of 24.9 per cent
is a great result for Shareholders.
In summary, the portfolio remains focused on larger capitalisation, liquid,
listed stocks with profitable and cash generative business models that are
aligned with some of the most exciting forward-looking themes of the day.
The Company exited the period with a Portfolio Net Delta Adjusted Equity
Exposure (including Options) of 107 per cent which effectively means the
Company had portfolio exposure gearing of around 7 per cent of Net Assets.
The Board
There have been no changes to the Board during the period. Biographical
details of all the directors can be found in the latest AGM notice and the
latest Annual Report.
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
2023: 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 narrowed over the
period in line with similar 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, the reasons for any discounts
and whether they are short term or long term in nature and the overall benefit
to Shareholders of any buy backs considering the onerous reporting
requirements of such buy backs and the ongoing cost per Share implications.
It should be noted that the average discount for the Company for the last 5
years sits at ~10.8 per cent (Source: Bloomberg) which, considering the free
float of the Company is less than £150m, could be argued as ‘in line’
with expectations (if not ideal). The number of shares now in treasury is
335,220 representing ~1 per cent of the issued share capital.
Auditor
Deloitte LLP were re-appointed as the Company’s auditor at the AGM held in
2023.
Outlook & Risks
The world has continued to splinter into Sino and US spheres with a
corresponding re-gauging of supply chains, and inflation continues to print
above the required Federal Reserve target rate of two per cent. 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 2023. 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
2023. 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 US technology sector and has a high proportion of US Dollar
investments. The concentration of investment in the two largest holdings is
material and all shareholders should consider whether they are comfortable
with this concentration risk when deciding whether to continue to invest in
the Company.
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 the expectations for the monetisation
of Ai meets expectations, the performance of Microsoft Corporation and Nvidia
Inc., the pace of growth of our key three themes (as described above), further
conflict in the Middle East, further aggressive action by Russia, and the
regulation of technology companies globally. We remain optimistic that our
investment exposure, focused on software, digitalisation, cloud computing,
data management, semiconductors, semiconductor capital equipment 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
13 March 2024
MANAGER'S REPORT
Portfolio management
During the half year under review, the NAV per Share total return was
24.9 per cent, compared to an increase in the benchmark of 1.5 per cent.
The NASDAQ-100 Technology Sector Index (“NDXT”), to which some of the
portfolio is exposed, had a total return of 15.7 per cent in GBP.
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) 2024
Information Technology 24.6%
Communication Services 0.4%
Consumer Discretionary 0.1%
Other investments (including funds, ETFs and hedges) (0.5%)
Foreign Exchange, operating costs & financing 0.3%
Total NAV per Share return 24.9%
It should be noted that the data and views in this report are now dated and
potentially stale. A more up to date analysis of our portfolio can be found
in our Fund Factsheets:
https://mlcapman.com/manchester-london-investment-trust-plc/ and more current
views can be found in our Tweets (https://twitter.com/MLCapMan) & Newsletters
(https://mlcapman.com/). The 1.0 per cent decrease in the value of Sterling
against the US Dollar over the period was a small tailwind for performance due
to the significant level of US Dollar exposure in the portfolio. Overall, we
estimate the increase in portfolio performance from Foreign Exchange movements
was roughly +0.9 per cent.
Information Technology Material positive contributors to the portfolio’s
performance from this sector were Nvidia Corp, Microsoft Corp, Advanced Micro
Devices Inc, Arista Networks Inc, Cadence Design Systems Inc, ASML Holding NV
and Synopsys Inc. Of these, Nvidia Corp and Microsoft Corp, which are the
fund’s largest holdings, delivered roughly half of the sector’s total
return. This performance validates our strategy of shifting from “Soft
Technology” to “Hard Technology” as articulated in the Annual Report,
factsheets and newsletters over the last 12 months. There will come a time,
if interest rates fall more sharply, when short duration assets will be the
alpha generator of choice. We would guess that such a shift will not occur
in calendar H1 2024.
There were no material negative contributors.
The portfolio’s weighting to this sector (including options on a MTM basis)
at the period end was 105.2 per cent of net assets, up from 97.3 per cent at
the end of the previous financial year.
Outlook
We see the Cloud Computing market progressing through the ongoing, short-term
optimisation and consolidation period towards secular growth. We estimate a
doubling in the size of the market over the next decade as “On Premise”
cannot compete with the enhanced security, lower costs and deeper
functionality offered by the Cloud. Most importantly, it has become clear
that in order to extract value from your data using tools such as Ai you need
the data managed and on the Cloud.
Longer term, we see Artificial Intelligence ("Ai") being a material positive
driver for the Cloud and Semiconductor markets. 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 still taking the “picks and shovels”
route to capture the gains from the growth of Ai. The semiconductor market
will likely be resurgent during 2024 and, 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 looking to the counter-factual of
whether the situation would have been even worse if the data had been stored
“On Premises”.
China: The potentially impending hot conflict in Taiwan initiated by China has
been the primary subject of Academy (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 is unlikely to
accept the US desire to make it a number two 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. We are
already seeing China dominate the solar energy market and the EV market, and
we expect more encroachment in the less advanced semiconductor space. We
expect further restrictions on US technology exports and, should we see Trump
as President, we could see material reductions in sales for some of our
holdings.
Concentration Risk: The portfolio is now materially concentrated in just 2
holdings; it is also highly 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. Should either Nvidia or Microsoft have materially
adverse events, or the monetisation of Ai by the sector in general be slower
than expected, then the fund will suffer material losses. Humans have a
tendency to want everything now! Shareholders should consider if this
totality of risk fits with their risk profile. The consensus solution to
concentration risk is diversification but so often when one does diversify,
one has to diversify into lower quality holdings.
Communication ServicesThere were no contributors which had an attribution of
-/+1% for the portfolio from this sector. The portfolio’s weighting to this
sector (including options on a MTM basis) at the period end was 4.5 per cent
of net assets, down from 5.1 per cent at the end of the previous financial
year. The only holding in this sector is Alphabet Inc. which we joke is our
“Value investment” holding. Like all Value investments, Alphabet has
issues (Search being disrupted by LLM Ai, weak management, over-woke corporate
ethos, vanity other-Bets projects, inefficient cost structures,
ineffectiveness to move R&D to commercial application) that we have written
extensively about in Tweets and Newsletters. However, if Alphabet took some
simple logical steps forward the valuation has material upside
potential. Consumer Discretionary
There were no contributors which had an attribution of -/+1% for the portfolio
from this sector.
The portfolio’s weighting to this sector (including options on a MTM basis)
at the period end was 0.0 per cent of net assets, down from 0.3 per cent at
the end of the previous financial year.
Our single holding in the sector was LVMH SE which we felt had derated too
extensively during 2023. We sold our holding in Amazon Inc. which we see as
two businesses: one being an excellent cloud computing business that is
nonetheless being out-competed by Microsoft; and a low margin e-commerce
business that could become highly unionised and out-competed by new Chinese
entrants to its market. Other investments including hedges
There were no contributors which had an attribution of -/+1% for the portfolio
from these holdings.
The portfolio’s weighting to this sector (including options on a MTM basis)
at the period end was 2.6 per cent of net assets (please note this includes
2.2 per cent of net assets held in a US money market ETF which effectively
operates as a cash alternative rather than an equity exposure). This sector
weighting is down from 7.0 per cent at the end of the previous financial year.
During the period, we paired traded one semiconductor stock (Long position)
against another semiconductor stock (as a Short position) based on valuation
differences. You may see our hedge positions increase and similar positions
becoming more common if we see the market rise further and faster.
Current Focus of Investment Process
We use a Data Framework to select the stock universe from which we select
specific stock candidates for the portfolio.
From this stock universe, we select stocks whilst keeping the following
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. Exposure to the Ai revolution within the Information Technology sphere as
an Enabler rather than just a Beneficiary (pseudo-Ai exposure);
3. The Management Teams of holdings should be undertaking pragmatic cost
cutting or productivity drives;
4. Cash flow per Share and Earnings per Share metrics are considered more
important than Sales Growth;
5. Once Cash Flow is earned then it should be invested wisely in one of: high
ROIC investment, buy backs or dividends (or divesting non-core, capital hungry
activities);
6. Manageable exposure to a China/Taiwan “hot war”; and
7. Realistic Stock Based Compensation schemes.
We have noticed a divergence across the Information Technology sector in the
way companies are forecasting their future Ai opportunities. Some companies
are offering very optimistic prognostications which is reminiscent of the daft
additions of the postfix “.com” in the 2000’s. We would suggest that
Investors view this as a Red Flag. The true enablers of Ai will be pragmatic
and patient and view themselves as Era-long winners from Ai. Many software
companies will be disrupted by Ai, making investing in Technology a dangerous
landscape to navigate.
Economy, Market & Technology
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. We have consistently said that US Interest Rates will have
to be ‘Higher for Longer’ and Technology 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. There are many
forecasts for an impending recession in the USA because that is what happened
historically each time rates were raised so steeply. We believe that
“every time is different”. We are not so convinced that the recession
outturn is already written but we do worry about escalating global debt
levels.
When/if interest rates do come down there may be a wave of funds that exit
Money Market Funds and look for a new home in Equities which could drive
Equity markets materially higher.
General IT spending is likely to pick up through 2024 as companies focus on
optimisation and automation. Spending is being prioritised into Ai, Cloud,
Digitalisation and Security and these are the areas we have refocused our
“Hard Technology” portfolio on. Spending will likely focus on platforms
that can offer a wide spectrum of services including the management of your
data. The era of the networked desktop has moved to the data centre
connected end point and this means that those with the scale and resources to
invest will win. For the minnows, we have further bad news, which is that in
a few further years we may start to see Quantum Computing applications become
more prevalent and these will require even greater scale.
We have entered the Era of Ai. We believe that we still have a long way to
travel down this road and that those that bank quick profits now will rue the
day they did so. We are Era-long investors, and our portfolio is firmly
focused on Ai Enablers not “.ai show-boaters”. Having said that, we have
sold down one holding post the period end that we felt had become overvalued
on Ai hype. We will be pragmatic.
The Inflation Reduction Act & CHIPS Act have changed the geopolitical
landscape of trade. Relations with China are unlikely to improve. The
world is a far more dangerous place which could drive further funds to dollar
assets.
The regulation and statis of the Eurozone surely lead to a slow and withering
aging of Europe as it is outcompeted on either side by the USA and China.
We have no idea what the future holds but we believe that since 1771 there has
been a glacial shift in the utility as economic units from Man to the
Machine. Those that have backed the technological advancement of the Machine
over this period have quite commonly made excess investment returns. We
believe that Ai is, in part, just an extension of software, albeit with
non-sequential processing and non-deterministic outcomes. Hence, we feel
that expecting the Era of Ai to develop along the same rough path as the Era
of Software is not irrational and offers investors some comfort and
guidance. The next decade could be one of the most interesting eras for
technology investing ever.
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
13 March 2024
Equity Exposures AND PORTFOLIO SECTOR ANALYSIS
Equity exposures (longs)
As at 31 January 2024
Company Sector* Exposure £’000 % of net assets
Microsoft Corporation** Information Technology 79,685 29.2
NVIDIA Corporation** Information Technology 60,387 22.1
Advanced Micro Devices Inc Information Technology 26,339 9.7
ASML Holding NV** Information Technology 23,012 8.4
Cadence Design Systems Inc Information Technology 20,683 7.6
Synopsys Inc Information Technology 18,661 6.8
Arista Networks Inc Information Technology 15,968 5.9
Alphabet Inc** Communication services 12,384 4.5
ANSYS Inc** Information Technology 10,563 3.9
Oracle Corporation Information Technology 8,053 3.0
Micron Technology Inc Information Technology 5,792 2.1
Broadcom Inc Information Technology 5,607 2.1
Intuitive Surgical Inc Health Care 5,258 1.9
Motorola Solutions Inc Information Technology 3,488 1.3
Applied Materials Inc** Information Technology 3,006 1.1
Cisco Systems Inc Information Technology 2,286 0.8
Rambus Inc** Information Technology 1,991 0.7
Polar Capital Technology Trust Plc Fund 1,903 0.7
Super Micro Computer Inc Information Technology 1,040 0.4
Jenoptik AG Information Technology 632 0.2
Dell Technologies Inc Information Technology 91 0.0
Total Long Equity exposure 306,829 112.4
Other net assets and liabilities*** (33,958) (12.4)
Net assets 272,871 100.0
* GICS – Global Industry Classification Standard.
** Including equity swap exposures.
***Includes Short Equity exposures and Options valued at marked to market.
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 and the Manager’s Report.
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 2024,
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 2023, the Board continually monitors the financial
position of the Company and has considered for the six months ended 31 January
2024 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 2024 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:
a) 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
b) 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
13 March 2024
Condensed Statement of Comprehensive Income
For the six months ended 31 January 2024
(Unaudited) Six months ended 31 January 2024 (Unaudited) Six months ended 31 January 2023 (Audited) Year ended 31 July 2023
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 155 54,995 55,150 110 (20,870) (20,760) 296 29,284 29,580
Investment income 526 - 526 232 - 232 575 - 575
Interest income 659 - 659 1,049 - 1,049 1,754 - 1,754
Gross return 1,340 54,995 56,335 1,391 (20,870) (19,479) 2,625 29,284 31,909
Expenses
Management fee (327) - (327) (250) - (250) (532) - (532)
Other operating expenses (270) - (270) (245) - (245) (499) - (499)
Total expenses (597) - (597) (495) - (495) (1,031) - (1,031)
Return before finance costs and taxation 743 54,995 55,738 896 (20,870) (19,974) 1,594 29,284 30,878
Finance costs (36) (1,319) (1,355) (15) (922) (937) (38) (2,009) (2,047)
Return on ordinary activities before tax 707 53,676 54,383 881 (21,792) (20,911) 1,556 27,275 28,831
Taxation (77) - (77) (29) - (29) (77) - (77)
Return on ordinary activities after tax 630 53,676 54,306 852 (21,792) (20,940) 1,479 27,275 28,754
Return per Share: Basic and fully diluted (pence) 1.57 133.54 135.11 2.12 (54.12) (52.00) 3.67 67.78 71.45
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 form part of these financial statements.
Condensed Statement of Changes in Equity
For the six months ended 31 January 2024
For the six months from 1 August 2023 to 31 January 2024 (unaudited) Share capital £’000 Share premium £’000 Special reserve* £’000 Capital reserve* £’000 Retained earnings* £’000 Total £’000
Balance at 1 August 2023 10,132 25,888 94,338 91,021 - 221,379
Ordinary shares bought back and held in treasury - - - - - -
Total comprehensive income - - - 53,676 630 54,306
Dividends paid - - (2,184) - (630) (2,814)
Balance at 31 January 2024 10,132 25,888 92,154 144,697 - 272,871
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 income/(loss) - - - (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 year from 1 August 2022 to 31 July 2023 (audited) 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 - - (289) - - (289)
Total comprehensive income - - - 27,275 1,479 28,754
Dividends paid - - (4,153) - (1,479) (5,632)
Balance at 31 July 2023 10,132 25,888 94,338 91,021 - 221,379
* These reserves are distributable, excluding any unrealised capital reserve.
The balance of the unrealised capital reserve at 31 January 2024 was
£114,428,000 (31 January 2023: £11,187,000; 31 July 2023: £57,681,000).
The notes form part of these financial statements.
Condensed Statement of Financial Position
As at 31 January 2024
Notes (Unaudited) 31 January 2024 £’000 (Unaudited) 31 January 2023 £’000 (Audited) 31 July 2023 £’000
Non-current assets
Investments held at fair value through profit and loss 244,388 124,849 188,264
Current assets
Unrealised derivative assets 11,894 1,237 5,680
Trade and other receivables 124 237 147
Cash and cash equivalents 6,711 36,021 17,049
Cash collateral receivable from brokers 13,755 17,346 12,186
32,484 54,841 35,062
Creditors – amounts falling due within one year
Unrealised derivative liabilities (1,858) (3,840) (1,411)
Trade and other payables (274) (1,063) (277)
Cash collateral payable to brokers (1,869) - (259)
(4,001) (4,903) (1,947)
Net current assets/(liabilities) 28,483 49,938 33,115
Net assets 272,871 174,787 221,379
Equity attributable to equity holders
Ordinary Share capital 10,132 10,132 10,132
Share premium 25,888 25,888 25,888
Special reserves 92,154 96,813 94,338
Capital reserves 144,697 41,954 91,021
Retained earnings - - -
Total equity Shareholders’ funds 272,871 174,787 221,379
Net asset value per Ordinary Share – basic and diluted (pence) 678.90 434.04 550.79
Number of shares in issue excluding Treasury 3 40,193,018 40,270,055 40,193,018
The notes form part of these financial statements.
Condensed Statement of Cash Flows
For the six months ended 31 January 2024
Six months to 31 January 2024 (Unaudited) £’000 Six months to 31 January 2023 (Unaudited) £’000 Year ended 31 July 2023 (Audited) £’000
Cash flow from operating activities
Return on operating activities before tax 54,383 (20,911) 28,831
Interest expense 1,355 937 2,047
Losses on investments held at fair value through profit or loss (54,753) 22,776 (27,810)
(Increase)/decrease in receivables 23 (208) (116)
(Decrease)/increase in payables (32) (16) 26
Exchange gains on currency balances (240) (1,902) (1,473)
Tax (77) (29) (77)
Net cash generated/(used in) from operating activities 659 647 1,428
Cash flow from investing activities
Purchase of investments (45,084) (70,222) (116,934)
Sale of investments 33,376 49,012 73,120
Derivative instrument cashflows 4,611 9,556 17,023
Net cash (used)/generated in investing activities (7,097) (11,654) (26,791)
Cash flow from financing activities
Ordinary shares bought back and held in treasury - - (289)
Equity dividends paid (2,814) (2,819) (5,632)
Interest paid (1,326) (895) (1,980)
Net cash (used)/generated in financing activities (4,140) (3,714) (7,901)
Net (decrease)/ increase in cash and cash equivalents (10,578) (14,721) (33,264)
Exchange gains on currency balances 240 1,902 1,473
Cash and cash equivalents at the beginning of the period 17,049 48,840 48,840
Cash and cash equivalents at the end of the period 6,711 36,021 17,049
The notes 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.
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 2023.
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 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 apply equally to any 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 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 2024 and 31 January
2023 have not been audited or reviewed by the Company’s Auditors.
The comparative figures for the year ended 31 July 2023 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.
1. 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 2024 (unaudited) Six months to 31 January 2023 (unaudited) Year ended 31 July 2023 (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 630 1.57 852 2.12 1,479 3.67
Capital 53,676 133.54 (21,792) (54.12) 27,275 67.78
Total return on ordinary activities 54,306 135.11 (20,940) (52.00) 28,754 71.45
Weighted average number of Ordinary Shares 40,193,018 40,270,055 40,242,768
1. Share capital
Six months to 31 January 2024 (unaudited) Six months to 31 January 2023 (unaudited) Year ended 31 July 2023 (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 335,220 258,183 258,183
Buyback of Ordinary shares into treasury - - 77,037
Balance at end of period/year 335,220 258,183 335,220
Total Ordinary Share capital excluding treasury shares 40,193,018 40,270,055 40,193,018
The Company’s Share capital comprises Ordinary Shares of 25p each with one
vote per Share.
During the period no Ordinary Shares were issued (six months to 31 January
2023: nil; year ended 31 July 2023: nil), with net consideration of £nil (six
months to 31 January 2023: £nil; year ended 31 July 2023: £nil).
During the period no Ordinary Shares were bought back and placed in treasury
(six months to 31 January 2023: nil; year ended 31 July 2023: 77,037).
1. Dividends per Ordinary Share
The Board has declared an interim dividend of 7p per Ordinary Share (2023:
interim dividend of 7p per Ordinary Share) which will be paid on 7 May 2024 to
Shareholders registered at the close of business on 12 April 2024 (ex-dividend
11 April 2024).
This dividend has not been included as a liability in these financial
statements.
1. Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets of £272,871,000 (31
January 2023: £174,787,000; 31 July 2023: £221,379,000) at the period end
and 40,193,018 (31 January 2023: 40,270,055; 31 July 2023: 40,193,018) being
the number of Ordinary Shares excluding Treasury Shares in issue at the period
end.
1. 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 2024
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments 244,388 - - 244,388
Unrealised derivatives assets - 11,894 - 11,894
Unrealised derivative liability - (1,858) - (1,858)
Total 244,388 10,036 - 254,424
Financial assets/liabilities at fair value through profit or loss at 31
January 2023
Level 1 £’000 Level 2 £’000 Level 3 £’000 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 July
2023
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments 188,264 - - 188,264
Unrealised derivatives assets - 5,680 - 5,680
Unrealised derivative liability - (1,411) - (1,411)
Total 188,264 4,269 - 192,533
1. 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 2024, MMIC (including connected parties)
purchased 93,140 Ordinary shares, with net consideration of £444,289.93.
As at 31 January 2024, MMIC (including connected parties) was interested in a
total of 23,031,354 Ordinary Shares of 25 pence each in the Company,
representing 57.3% of the issued share capital.
Total fees charged by the Manager for the six months to 31 January 2024 were
£327,000 (six months to 31 January 2023: £250,000; year ended 31 July 2023:
£532,000), of which £63,000 was outstanding as at 31 January 2024 (31
January 2023: £42,000; 31 July 2023: £52,000).
The fees payable to Directors are set out in the 2023 Annual Report.
There were no other related party transactions in the period.
1. Post Statement of Financial Position event
There were no other significant events since the end of the reporting period.
1. Glossary
Reference should be made to the Glossary in our Annual Report for the year
ended 31 July 2023 (pages 89 to 91) 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 primarily
focused on stocks 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 has used
this benchmark to assess performance for over five years but is not set on
using this particular UK Equity index forever into the future and currently
uses this particular UK Equity index because at the current time it is viewed
as the most cost advantageous of the currently available UK Equity indices
(which have a high degree of correlation and hence substitutability).
However, once the Company announces the use of an index, then this index
should 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 Sustainalytics Environmental Percentile was 81.8
per cent as at 31 January 2024.
The Company notes the Task Force on Climate-related Financial Disclosures
(‘TCFD’) reporting recommendations. However, as a listed investment
company, the Company is not subject to the Listing Rule requirement to report
against the framework. The Company fully recognises the impact climate
change has on the environment and society, and the Manager continues to work
with the investee companies to raise awareness on climate change risks, carbon
emission and energy efficiency.
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 are
charged at the standard geographic rate and will vary by provider. 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 – shareholderenquiries@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 110 Queen Street Glasgow G1 3BX
Manager and Alternative Investment Fund Manager M&L Capital Management Limited 12a Princes Gate Mews London SW7 2PS 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 6th Floor 65 Gresham Street London EC2V 7NQ Registrar Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Tel: 0371 664 0300 Email: shareholderenquiries@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
Legal Entity Identifier 213800HMBZXULR2EEO10
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