TIDMMNL
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 At
31 January 31 July Change
2023 2022
Net assets attributable to Shareholders (£ 174,787 198,546 (12.0) %
'000)
Net asset value ("NAV") per Ordinary Share 434.04 493.04 (12.0) %
(pence)
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 Six months
to to Change
31 January 31 January
2023 2022
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 2023
(excluding costs and foreign exchange)
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 3rd 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 % of net
£'000 assets
Microsoft Corporation** Information 29.9
Technology 52,274
ASML Holding NV CFD ** 10.9
Information
Cadence Design Systems, Inc.** Technology 19,091 8.3
Synopsys Inc** Information 7.9
Technology 14,485
Nvidia Corporation 6.6
Information
Advanced Micro Devices, Inc Technology 13,754 5.7
PayPal Holdings, Inc. Information 4.5
Technology 11,486
Adobe Systems Inc.** 4.2
Information 9,868
Alphabet Inc.** Technology 2.8
GoDaddy Inc. Information 7,781 2.7
Technology
ROBO Global Robotics & Automation 2.5
Information 7,313
Intuit Inc. Technology 2.4
Intuitive Surgical, Inc. Communication Serv's 4,869 1.7
NXP Semiconductors N.V. Information 1.5
Technology 4,732
The Sage Group plc 1.5
Fund
Ansys, Inc. 4,362 1.4
Information
Oracle Corporation Technology 1.0
4,276
Apple Inc. Healthcare 1.0
Amdocs Ltd Information 2,955 1.0
Technology
Analog Devices, Inc. 1.0
Information 2,666
Gen Digital Inc. Technology 0.9
London Stock Exchange Group plc** Information 2,563 0.9
Technology
Polar Capital Technology Trust plc
Information 2,467 0.8
Match Group Inc Technology
0.5
Arista Networks Inc Information 1,797
Technology
0.4
Information 1,782
Technology
Information 1,688
Technology
Information 1,672
Technology
Financials 1,645
Fund
1,629
Communication Serv's
Information 1,340
Technology
924
778
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:
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
a. 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) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31 January 2023 31 January 2022 31 July 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains / (losses) on 110 (20,870) (20,760) 134 (15,994) (15,860) 275 (58,542) (58,267)
investments at fair
value through profit
or loss
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 (245) - (245) (260) - (260) (598) - (598)
expenses
Total expenses (495) - (495) (1,317) - (1,317) (2,113) - (2,113)
Return before 896 (20,870) (19,974) (1,067) (15,994) (17,061) (1,573) (58,542) (60,115)
finance costs and
taxation
Finance costs (15) (922) (937) (125) (489) (614) (55) (952) (1,007)
Return on ordinary (21,792) (20,911) (1,192) (16,483) (17,675) (1,628) (59,494) (61,122)
activities before 881
tax
Taxation (29) - (29) (17) - (17) (40) - (40)
Return on ordinary 852 (21,792) (20,940) (1,209) (16,483) (17,692) (1,668) (59,494) (61,162)
activities after tax
Return per Share: 2.12 (54.12) (52.00) (2.99) (40.79) (43.78) (4.13) (147.49) (151.62)
Basic and fully
diluted (pence)
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 Share Share Special Capital Retained Total
August 2022 to capital premium reserve* reserve* earnings £'000
31 January 2023 (unaudited) £'000 £'000 £'000 *
£'000 £'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)/ - - - (21,792) 852 (20,940)
profit
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 Share Share Special Capital Retained Total
August 2021 to capital premium reserve* reserve* earnings £'000
31 January 2022 (unaudited) £'000 £'000 £'000 £'000 *
£'000
Balance at 1 August 2021 10,132 25,888 107,188 123,240 3,238 269,686
Ordinary shares bought back and - - (1,379) - - (1,379)
held in treasury
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 Share Share Special Capital Retained Total
to capital premium reserve* reserve* earnings £'000
31 July 2022 (audited) £'000 £'000 £'000 £'000 *
£'000
Balance at 1 August 2021 10,132 25,888 107,188 123,240 3,238 269,686
Ordinary shares bought back and - - (1,509) - - (1,509)
held in treasury
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
(Unaudited) (Unaudited) (Audited)
31 January 31 January 31 July
2023 2022 2022
Restated*
£'000 £'000 £'000
Notes
Non-current assets
Investments held at fair value 124,849 153,271 128,111
through profit and loss
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 17,346 60,806 36,394
brokers
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 - 434.04 614.92 493.04
basic and diluted (pence)
Number of shares in issue excluding 3 40,270,055 40,295,055 40,270,055
Treasury
* 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 Six months to Year ended
31 January 31 January 31 July
2023 2022 2022
restated*
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'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 22,776 17,528 64,501
through profit or loss
(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 647 (1,328) (1,598)
operating activities
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 (11,654) 16,655 18,540
activities
Cash flow from financing activities
Ordinary shares bought back and held in - (1,379) (1,509)
treasury
Equity dividends paid (2,819) (2,832) (8,469)
Interest paid (895) (620) (960)
Net cash (used)/generated in financing (3,714) (4,831) (10,938)
activities
Net (decrease)/ increase in cash and cash (14,721) 10,496 6,004
equivalents
Exchange gains on currency balances 1,902 1,766 5,815
Cash and cash equivalents at the beginning 48,840 37,021 37,021
of the period
Cash and cash equivalents at the end of 36,021 49,283 48,840
the period
* 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 Six months to Year ended
31 January 2023 31 January 2022 31 July 2022
(unaudited) (unaudited) (audited)
Net Net Net
return Per Share return Per Share Return Per Share
£'000 pence £'000 Pence £'000 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 (20,940) (52.00) (17,692) (43.78) (61,162) (151.62)
ordinary activities
Weighted average 40,270,055 40,405,648 40,338,477
number of Ordinary
Shares
3. Share capital
Six months to Six months to Year ended
31 January 31 January 31 July
2023 2022 2022
(unaudited) (unaudited) (audited)
25p Ordinary Shares Number £'000 Number £'000 Number £'000
Opening Ordinary Shares in 40,528,238 10,132 40,528,238 10,132 40,528,238 10,132
issue
Shares issued - - - - - -
Closing Ordinary Shares in 40,528,238 10,132 40,528,238 10,132 40,528,238 10,132
issue
Treasury shares:
Balance at beginning of the 258,183 - -
period/year
Buyback of Ordinary shares - 233,183 258,183
into treasury
Balance at end of period/ 258,183 233,183 258,183
year
Total Ordinary Share 40,270,055 40,295,055 40,270,055
capital excluding treasury
shares
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 - 1,237 - 1,237
assets
Unrealised derivative - (3,840) - (3,840)
liability
Total 124,849 (2,603) - 122,246
Financial assets/liabilities at fair value through profit or loss at 31 January
2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments 153,271 - - 153,271
Unrealised derivatives - 7,318 - 7,318
assets
Unrealised derivative - (22,677) - (22,677)
liability
Total 153,271 (15,359) - 137,912
Financial assets/liabilities at fair value through profit or loss at 31 July
2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments 128,111 - - 128,111
Unrealised derivatives - 2,548 - 2,548
assets
Unrealised derivative - (14,284) - (14,284)
liability
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 March
announced
Interim dividend payment May
Company's year end 31 July
Annual results announced September
Annual General Meeting November
Expected final dividend November
payment
Company's half-year end 31 January
Corporate Information
Directors and advisers
Directors Auditor
Daniel Wright (Chairman) Deloitte LLP
Brett Miller Saltire Court
Sir James Waterlow 20 Castle Terrace
Daren Morris Edinburgh EH1 2DB
Manager and Alternative Investment Fund Administrator
Manager Link Alternative Fund Administrators
M&L Capital Management Limited Limited
12a Princes Gate Mews Broadwalk House
London SW7 2PS Southernhay West
Tel: 0207 584 5733 Exeter EX1 1TS
ir@mlcapman.com
www.mlcapman.com
Company Secretary Registrar
Link Company Matters Limited Link Group
Broadwalk House 10th Floor
Southernhay West Central Square
Exeter EX1 1TS 29 Wellington Street
Leeds LS1 4DL
Tel: 0871 664 0300
Email:
shareholder.enquiries@linkgroup.co.uk
Depositary Bank
Indos Financial Limited National Westminster Bank plc
The Scalpel 11 Spring Gardens
18th Floor Manchester M60 2DB
52 Lime Street
London EC3M 7AF
COMPANY DETAILS
Registered office Country of incorporation
12a Princes Gate Mews Registered in England and Wales
London SW7 2PS Company Number: 01009550
Company website
www.mlcapman.com/manchester-london-investment-trust-plc
END
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