Annual Financial Report

Manchester & London Investment Trust Plc Announcement of the Audited Group Results For the year ended 31st July 2009 Enquiries: Manchester & London Investment Trust Plc B S Sheppard Tel: 0161 228 1709 Investment Manager: Midas Investment Management Ltd M B Sheppard Tel: 0161 228 1709 ANNOUNCEMENT OF THE AUDITED GROUP RESULTS The Directors Announce the Audited Figures For the year ended 31st July 2009Company Registered Number: 01009550 Financial Summary Total Return Year to Year to Percentage (decrease) / 31st July 31st July increase 2009 2008 Total return (£'000) 622 (3,490) 117.8 Return per 25p ordinary share - fully 4.3p (25.0p) 117.1 diluted Total Revenue Return per 25p ordinary 10.4p 10.4p (0.1) share Cash dividend per 25p ordinary share 10.5p 10.0p 5.0 Capital At At Percentage (decrease) / 31st July 31st July increase 2009 2008 Net assets attributable to Equity 57,635 47,669 20.9 Shareholders (£'000) Net asset value per 25p ordinary share 329.2p 341.8p (3.7) - fully diluted FTSE All-Share Index 2,353.5 2,749.2 (14.4) Outperformance versus FTSE All-Share 10.7 index Total expense ratio Year to Year to 31st July 2009 31st July 2008 As a percentage of average 1.55% 1.56% shareholders' funds Financial Calendar Year ended : 31st July 2009 Results announced : 21st September 2009 Report and Accounts made available to : 21st September 2009 Shareholders Annual General Meeting to be held in : 14th October 2009 Manchester Expected final dividend payment : 27th November 2009 Chairman's Statement Results for the year ended 31st July 2009 Since writing to shareholders on 10th March 2009 (covering the period from the 16th October 2008), the FTSE All-Share Index has rallied from the low point of 1,782 (3rd March 2009) and has now reached a current level of 2,594. This is a strong rally considering the gravity of the crisis and is substantially accounted for by the recovery of cyclical shares which were heavily marked down as the crisis unfolded on fears of collapse. At the interim stage, we explained that we were increasing the dividend from 2.5p to 4.5p in order to achieve a more equally balanced division between the Interim and Final Dividend. Accordingly, the Directors have now declared a Final Dividend of 6.0p making a total of 10.5p per share, an increase of 5 per cent for the year. The total payment is comparable to the Revenue Account per share for the year. The substantial reserves, in relation to our net asset value, puts us in a strong position to pursue a flexible distribution policy, should the Directors believe this to be in shareholders' best interest. A receding crisis? Sentiment has now divided between those who believe that we are witnessing the green shoots of economic recovery, and those who consider that the partial recovery is a rally in a continuing "bear" market. Whilst it is most likely that the prospect of a banking collapse has now receded, this does not necessarily mean that normality has been restored; indeed, far from it. The banks have been, and in some instances still remain, propped up by the Government and remain unwilling to re-lend to the corporate and personal market which is a prerequisite for any return to normal economic conditions. Generally speaking, our equity portfolio consists of international "blue chip" stocks, mostly those that we think are in a good position to cope with the global liquidity problem which is likely to continue for some time. We also believe that the continuance of "quantitative easing" could, in due course, trigger inflationary problems now that the Bank of England has decided to increase the injection of credit into the economy rather than undertaking a withdrawal, as expected by the City. This move seems to clearly indicate that the Bank continues to take the view that there is still starvation of credit in the financial system. Our current investment policy, therefore, is to retain some liquidity and principally invest in quality international stocks which do not have any liquidity problems. The current substantial rally in equity shares is global and, at the time of press, the FTSE All-Share Index has recovered a record breaking 40.9 per cent. The current level of prices seems to be optimistic, to say the least, and probably reflects the element of inflationary fears which may, or may not, be realised. We are also very concerned about the impact of some Government deficits which have been allowed to grow over the last few years by some Western countries, particularly the USA and the UK. The possible economic consequences of eliminating these follies range between inflation and depression, presenting investors with some difficult decisions as events develop. Key Areas The key areas of the global economy which appear to be more insulated against the problems have been the trade surplus countries which have seen a strong resurgence in their domestic markets. This reaffirms our preference for stocks which have global exposure for their products or services. Our current investment policy, therefore, is to retain international stocks which do not have any liquidity problems. Acquisition Towards the end of the last financial year, we completed the acquisition of Osprey Smaller Companies Income Fund Ltd which has now become our dealing subsidiary. This acquisition has helped to grow our net assets by 21 per cent for the year to 31st July 2009 and increase the Company's portfolio spread. We welcome all shareholders who have joined the Register following the acquisition. Board Changes The Board accepted Mr M J Wilbraham's resignation and would like to express its appreciation for his contribution during the period from 1971. He was one of the founder members of the Company, and we wish him well for the future. Mr M J Wilbraham was replaced by Mr D Harris, a former Director of Osprey Smaller Companies Income Fund Limited. The Board welcomes the appointment of Mr Harris and extend their appreciation for the wealth of experience and expertise that he will bring to the Company. Annual General Meeting I look forward to welcoming shareholders to our thirty seventh Annual General Meeting to be held in the Lancaster Suite, The Midland Hotel, Peter Street, Manchester M60 2DS, at 12.45pm on Wednesday 14th October 2009. P H A Stanley Chairman 21st September 2009 Portfolio Investments As at 31st July 2009 Listed investments Sector Valuation % of Portfolio £'000 PZ Cussons plc Personal Goods 10,955 21.1 Premier Oil plc Oil & Gas Producers 4,413 8.5 Vodafone Group plc Mobile Telecommunications 3,484 6.7 Syngenta AG Pharmaceutical & Biotechnical 3,323 6.4 Aberdeen Asset Management plc Financial Services 2,935 5.6 BP plc Oil & Gas Producers 2,603 5.0 Tesco plc Food & Drug Retailers 2,524 4.9 BG Group plc Oil & Gas Producers 2,478 4.8 Yahoo! Inc Software and Computer Services 2,466 4.7 Cable & Wireless plc Fixed Line Telecommunications 2,157 4.1 Friends Provident plc Life Insurance 2,010 3.9 SSL International plc Household Goods 1,680 3.2 Smiths Group plc Aerospace & Defence 1,628 3.1 De La Rue plc Support Services 1,284 2.5 ICAP plc Financial Services 1,279 2.5 BAE Systems plc Aerospace & Defence 1,223 2.4 Weir Group plc Oil Services 993 1.9 Dana Petroleum plc Oil & Gas Producers 964 1.9 Consort Medical plc Health Care 956 1.8 Aveva plc Software and Computer Services 782 1.5 Chloride plc Electronic & Electrical Equipment 713 1.4 Hunting plc Oil Services 682 1.3 Mouchel Group plc Support Services 290 0.6 Listed investments 51,822 99.8 Unlisted at Directors' valuation 102 0.2 Total investments 51,924 100.0 All investments listed above are equity shares (unless otherwise stated), denominated in Sterling (save for Syngenta which is denominated in CHF and Yahoo which is denominated in USD), which have been issued by companies registered in England (save for Syngenta and Yahoo which are registered in Switzerland and Delaware, USA, respectively). Portfolio Sector Analysis As at 31st July 2009 % of Sector Portfolio Personal Goods 21.1 Oil & Gas Producers 20.1 Financial Services 8.1 Mobile Telecommunications 6.7 Pharmaceutical & Biotechnical 6.4 Software and Computer Services 6.3 Aerospace & Defence 5.5 Food & Drug Retailers 4.9 Fixed Line Telecommunications 4.2 Life Insurance 3.9 Household Goods 3.2 Oil Services 3.2 Support Services 3.0 Health Care 1.8 Electronic & Electrical Equipment 1.4 Unlisted Investments 0.2 100.0 Investment Objective and Policy Investment objective The investment objective of the Company is to achieve capital appreciation together with a reasonable level of income. Investment policy Asset allocation and risk diversification The Company's investment objective is sought to be achieved through a policy of actively investing in a diversified portfolio comprising UK and overseas equities and fixed interest securities. The Company seeks to invest in companies whose shares are admitted to trading on a regulated market. However, it may invest in a small number of equities and fixed interest securities of companies whose capital is not admitted to trading on a regulated market. Investment in overseas equities is utilised by the Company to increase the risk diversification of the Company's portfolio and to reduce dependence on the UK economy in addressing the growth and income elements of the Company's investment objective. There are no maximum exposure limits to any one particular classification of equity or fixed interest security. The Company's investments are not limited to any one industry sector and its current investment portfolio is spread across a range of sectors. The Company has no specific criteria regarding market capitalisation or credit ratings in respect of investee companies. The Company intends to maintain a relatively focused portfolio, seeking capital growth by investing in approximately 20 to 40 securities. The Company will not invest more than 15 per cent of the gross assets of the Company at the time of investment in any one security. Exposure to investments may also be achieved through the use of specialist collective investment schemes and products such as other investment trusts or exchange traded funds where specialised management skills are necessary or where it would be uneconomic for the Company to invest directly. However, the Company will not invest more than 10 per cent, in aggregate, of the value of its gross assets at the time of the investment in other listed investment trusts or listed investment companies, provided that this restriction does not apply to investment in investment trusts or investment companies which themselves have stated investment policies to invest no more than 15 per cent of their gross assets in other listed investment trusts or listed investment companies. The Company intends to be fully invested whenever possible. However, during periods in which changes in economic conditions or other factors so warrant, the Investment Manager may reduce the Company's exposure to one or more asset classes and increase the Company's position in cash and/or money market instruments. The Company may invest in derivatives, money market instruments and currency instruments including contracts for differences, futures, forwards and options. These investments may be used for hedging positions against movements in, for example, equity markets, currencies and interest rates. In addition, these instruments will only be used for efficient portfolio management purposes. The use of such instruments to engage in trading transactions is strictly against the Company's investment policy. Any trading transactions will be carried out through dealing subsidiaries of the Company. The Company would not maintain derivative positions should the total underlying exposure of these positions exceed one times adjusted total capital and reserves. Gearing The Company may borrow to gear the Company's returns when the Investment Manager believes it is in Shareholders' interests to do so. The Company's investment policy and the Articles permit the Company to incur borrowing up to a sum equal to two times the adjusted total of capital and reserves. Any change to the Company's borrowing policy will only be made with the approval of Shareholders by special resolution. In addition to the above, the Company will observe the investment restrictions imposed from time to time by the Listing Rules which are applicable to investment companies with shares listed on the Official List of the UKLA under Chapter 15. In accordance with the Listing Rules, the Company will manage and invest its assets in accordance with the Company's investment policy. Any material changes in the principal investment policies and restrictions (as set out above) of the Company will only be made with the approval of Shareholders by ordinary resolution. In the event of any breach of the investment restrictions applicable to the Company, Shareholders will be informed of the remedial actions to be taken by the Board and the Investment Manager by an announcement issued through a Regulatory Information Service approved by the FSA. Benchmark Index Performance is measured against the FTSE All-Share Index. The Company sources index and price data from Proquote International, which is a division of the London Stock Exchange plc. Investment Manager's Review We started the accounting year with cash and cash equivalents representing 33.2 per cent of net assets. By the 31st March 2009, being a fortnight after the lows of the market, we had reinvested a good proportion of this moving our cash and cash equivalents percentage down to 8.2 per cent. Since then we have remained reasonably fully invested. Our strategy has been to remain focused on large and mid-cap stocks with good international exposure that we feel may be able to weather the economic downturn better than others. Our dealing subsidiary strategy remained successful netting an aggregate profit for the year of £248,439. It is tempting for the central banks of the deficit countries to allow some inflation to creep back into the economic system in order to diminish the scale of the mountainous debt levels that the trade deficit nations have built up. Some commentators believe that it is almost inevitable that this will occur as the alternative, which is monetary and fiscal tightening, may kill a recovery. This is a policy decision that no public servant wants to enter the history books as being associated with. If inflation were to occur, the big losers would be the trade surplus countries that are the holders of debt. Therefore, we find it interesting that countries such as China appear to have switched part of their trade surplus investment strategy from buying foreign debt to investing in commodities, oil companies and mining companies. Could the Chinese be hedging out their exposure to future inflation? It is for this reason that, as at the year end, we had 23 per cent of our portfolio invested in the Oil and Oil Services sectors with positions in BP, BG, Premier, Dana, Weir and Hunting. We are attracted to the economics of oil as there are supply side constraints on capacity, reserves and exploration that are increasing the marginal cost of production. In addition, the income elasticity of demand for oil is high for the parts of the world that are growing, whereas the price elasticity of demand for oil is low in the low growth developed world. Overall, oil tends to be a good performer in inflationary conditions, which we do not anticipate in the short term, but do feel that this sector is underpriced in the medium term. Market conditions remain uncertain and there are hundreds of reasons not to hold equities such as high trough valuation multiples, terrifying national debt levels, a required rebalancing across global trade flows etc. However, there are not too many obvious optimistic attractions to alternatives such as cash and gilts which are returning very low real returns. On the one hand, it is important to recognise that from peak to trough, US equities fell 57 per cent which is more than any other bear market since the 1929-32 market. Yet, as at today, valuations are starting to look stretched again if, like ourselves, you are a believer in the U shaped rather than the V shaped recovery. We remain cautiously invested in a selection of reasonably liquid internationally exposed equities which we feel have business models that can defend and enhance shareholder value against any protracted economic stagnation. Principal Portfolio Holdings PZ Cussons plc ("PZ Cussons") PZ Cussons manufactures and distributes cleansing fluids, soaps, detergents, and health & beauty products through their 30 brands including Imperial Leather, Carex, Cussons Baby and Morning Fresh. The company operates from the UK, Africa, Asia, United Arab Emirates, Europe and Australia. Other products marketed include electrical goods via a joint venture with the Chinese group Haier, as well as food and nutrition through Nutricima, a joint venture with Glanbia. Trading performance to 31st May 2009 has been resilient, despite difficult economic conditions, and cash flow from operations has been strong. Further capital expenditure, from free cash flow, is planned to be spent in Nigeria where trading has been very strong due to the country's current lack of exposure to the financial crisis. The dividend has been increased by 12 per cent year on year. PZ Cussons predominantly operates in the UK, Nigeria, Ghana, Kenya, Poland, Malaysia and Australia. Premier Oil plc Premier Oil plc is involved in oil and gas exploration as well as development and production. The company's operations are located in the North Sea, Asia, Middle East, Pakistan and West Africa. During the year ended 31st December 2008, oil and gas proven and probable booked reserves amounted to 228 million barrels of oil equivalent. Average production for 2008 was 36,500 barrels of oil equivalent per day. The company has taken advantage of lower oil prices and the effects on its smaller competitors by acquiring good value smaller oil companies in distress; in May 2009 the company completed an acquisition of Oilexco North Sea Ltd, buying it out of administration. Premier Oil is focused on oil exploration and production in the North Sea and Asia. Vodafone Group plc ("Vodafone") Vodafone operates in 25 markets across 5 continents, providing voice, messaging, data and fixed line telecommunication services. Voice services include the provision of mobile voice communication, for which they are best known. Messaging includes text, picture and video messaging for mobile devices. Fixed lines provide customers with fixed broadband and fixed voice and data solutions. Other services include mobile advertising and business managed services, as well as roaming and wholesale mobile virtual network operators. For the quarter ending 30th June 2009, revenue increased by 9.3 per cent to £10.7bn and free cash flow has increased to £1.9bn, up 21 per cent over the same period last year. In the interim statement, Chief Executive Vittorio Colao was pleased to report on continued strong growth in South Africa and India. Vodafone's principal markets are Germany, Italy, the UK, Spain, South Africa and India. Syngenta AG ("Syngenta") Syngenta is a global agri-business engaged in the crop protection and seeds business. The crop protection business includes the manufacturing of herbicides, insecticides and fungicides to control weeds, insects and bacterial diseases in crops. The seeds business operates in two commercial sectors: seeds for crops, including cereals, oilseeds, and sugar beet; and vegetable and flower seeds. The company's business development and research allows Syngenta to apply biotechnology to areas such as biofuels. The company reported on 24th July 2009 that for the first half of 2009 underlying sales revenues were up 2 per cent and EBITDA (excluding currency movements) was up by 4 per cent to £2bn. Syngenta believes that the increasing global need for food production will result in greater ongoing demand and be a key driver for the company's growth. Syngenta is a truly international business with sales coverage across the globe. Aberdeen Asset Management plc ("AAM") AAM is an independent asset management company. The company is chiefly engaged in equity investment, fixed income and property, for third parties. It operates two business units: asset management and property management. The company has taken advantage of falling asset prices by utilising an acquisitive strategy for growth. AAM completed a closing of its acquisition of certain fund management assets and business from Credit Suisse with £35.3bn of assets under management. As at 30th June 2009 the company had £129.2bn of assets under management. Aberdeen's principal offices are in the UK, Hong Kong and Singapore. BP plc ("BP") BP is a major global oil company with operations spanning from the Canadian Oil Sands to the Gulf of Mexico to the East Indian Coast. The company operates two business segments: Exploration and Production, and Refining and Marketing. A separate business, Alternative Energy, handles low carbon businesses. An announcement on 28th July 2009 has stated that BP's daily production has risen 4 per cent to more than 4 million barrels of oil equivalent. The company also confirmed that the targeted $2bn of costs for 2009 has been exceeded and a further $1bn of costs are expected. BP is also awaiting the results of tenders in Iraq and these opportunities could provide the company with large oilfields with low lifting costs. BP is a truly international business with coverage across the globe. Tesco plc Tesco is an international company engaged in retailing and associated activities in the United Kingdom, Ireland, Hungary, Poland, Turkey, Thailand, Japan, China and the United States. The group, through its subsidiary Tesco Personal Finance, also provides certain retail banking services and has plans to further these offerings. The retailing unit also has online shopping channels tesco.com and Tesco Direct as well as telecoms and Dunnhumby, its consumer research business. Sales for the 13 weeks ending 30th May 2009 increased by 12.6 per cent (excluding petrol). International operations, particularly those in Asia, have delivered another strong start to the year and the non-food business has seen good market share gains and a resumption of like-for-like growth. Tesco's principal operation are based in the UK, Eire, South Korea, Hungary and Thailand. BG Group plc ("BG") BG is engaged in exploration, development, production, transmissions, distribution and supply of Natural Gas and Oil. The Group operates 4 business units: Exploration and Production, Liquefied Natural Gas, Transmission and Distribution, and Power Generation. The Group has operations in the United Kingdom, Italy, Norway, the United States, Thailand, Tunisia, Israel, China and Hong Kong amongst others. During the second quarter of 2009, Exploration and Production volumes increased by 7 per cent year on year and the interim dividend has been increased by 20 per cent year on year. Total operating profit for the first half was £2,246m, a 21 per cent decrease on the same period last year due to lower commodity prices. BG is focused on activities in the UK, the USA, Norway, Brasil, the Caribbean and Australia. Yahoo! Inc. ("Yahoo") Yahoo is a global internet brand offering advertising services and access to internet offerings beyond Yahoo.com through its distribution network of third party entities (affiliates), who have integrated its advertising offerings into their own websites. The group generates revenues by providing marketing services to advertisers across a majority of Yahoo properties and Affiliate Sites, providing services in more than 30 languages. Yahoo has a substantial stake in the Chinese B2B online retailer Alibaba. This, and affiliate Yahoo Japan, provide Yahoo with a useful strategic partnership for the Asian markets. On 25th August 2009, Yahoo signed a deal to acquire Maktoob.com, the leading Middle Eastern online community with over 16.5m users. Key sites are based in the USA, across Europe, Japan and China. Cable & Wireless plc Cable & Wireless is comprised of two business units: CWI and Worldwide. CWI is an owner and operator of leading regional telecoms businesses with its headquarters in London and operates its business through four regional operations: the Caribbean, Panama, Macau and Monaco. CWI is a full service provider offering fixed line and mobile telecommunications services as well as managed service solutions. Worldwide provides managed IP services to the largest users of telecoms services across the UK, USA, Europe and Asia. For the year-ended 31st March 2009, Group revenue was up 16 per cent to £3.6bn and the Group is also now realising the acquisition synergies from Thus Group into its EBITDA figure which was £822m, an increase of 36 per cent. Investment Record of the Last Ten Years Total Return per Dividend per assets Net asset value Total ordinary share ordinary less per 25p share Year ended Return Basic Fully share liabilities Basic Fully diluted diluted £'000 p p p £'000 p p 31 July 2000 (67) (0.89) (0.09) 2.00 27,269 363.59 266.81 31 July 2001 (3,620) (48.27) (34.00) 2.50 23,455 312.73 230.41 31 July 2002 (295) (3.93) (2.27) 8.50 22,800 304.00 224.16 31 July 2003 2,384 31.79 23.30 9.50 24,238 323.17 237.89 31 July 2004 5,512 73.49 53.15 9.50 28,901 385.35 282.39 31 July 2005 5,426 72.35 52.33 9.50 33,611 448.15 327.34 31 July 2006 3,206 42.75 31.14 9.50 36,107 481.43 351.17 31 July 2007 5,799 41.58 41.58 10.00 52,554 376.80 376.80 31 July 2008 (3,490) (25.02) (25.02) 10.00 47,669 341.80 341.80 31 July 2009 622 4.27 4.27 10.50 57,635 329.24 329.24 In 2006, the Company adopted International Financial Reporting Standards ("IFRS"). As a result, the data has been restated to reflect the changes to IFRS. It is not practical to restate 2003 and prior periods for the effect of transaction costs on total return. In the period from 1981 to 1998 total assets less liabilities increased from £241,000 to £37,317,000. Net Assets per share increased from 24.1p to 362.71p. Report of the Directors The Directors present their report and financial statements for the year ended 31st July 2009. Business review The purpose of the business review is to provide an overview of the business of the Company by: - Analysing development and performance using appropriate key performance indicators ("KPIs"). - Outlining the principal risks and uncertainties affecting the Company. - Describing how the Company manages these risks. - Explaining the future business plan of the Company. - Providing information about persons with whom the Company has contractual or other arrangements which are essential to the business of the Company. - Outlining the main trends and factors likely to affect the future development, performance and position of the Company's business. Status The Company is an Investment Company as defined by Section 833 of the Companies Act 2006 and operated as an Investment Trust in accordance with Section 842 of the Income and Corporation Taxes Act 1988 in previous years. However, due to the acquisition of Osprey Smaller Companies Income Fund Limited ("Osprey") in May 2009, the Company has not operated as an Investment Trust for the year ended 31st July 2009. It is expected that in future periods, the Company will operate in accordance with Section 842 of the Income and Corporation Taxes Act 1988. The Company is also governed by the Listing Rules and Disclosure and Transparency Rules of the FSA and the ICTA. The close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the Company. Principal activities The Company carries on business as an investment company. A review of investment activities for the year ended 31st July 2009 and the outlook for the coming year is given by the Investment Manager. During the year, two subsidiary companies (Manchester & London Securities Limited and Saintclose Limited) carried on business as investment dealing companies which at times traded in derivatives, including options and futures. The Company acquired Osprey Smaller Companies Income Fund Limited ("Osprey") on 26th May 2009. Osprey carries on business as an investment dealing company which at times trades in derivatives, including options and futures. Business previously undertaken by Saintclose Limited and Manchester and London Securities Limited will be undertaken by Osprey in future periods. Osprey, a company incorporated in Guernsey, is the sole branch outside the United Kingdom. Performance and key performance indicator The key measures by which the Board judges the success of the Company, are the share price, the net asset value per share and the Total Expense Ratio. The Board considers the most important key performance indicator to be the comparison with its benchmark index, the FTSE All-Share Index. Total net assets at 31st July 2009 amounted to £57,635,000 compared with £47,669,000 at 31st July 2008, an increase of 20.9 per cent due to the acquisition of Osprey whilst the fully diluted net asset value per ordinary share decreased from 341.8p to 329.2p. This decrease of 3.7 per cent compared with a decrease over the period of 14.4 per cent by the FTSE All-Share Index, equating to an outperformance by the Company of 10.7 per cent. Group net revenue after taxation for the year was £1,507,000, an increase of 4.3 per cent. The Directors are pursuing a policy of actively managing the level of the Company's discount or premium to net asset value and give consideration to making secondary market purchases to enhance shareholder value. The share price during the period under review has been quoted at discounts to net asset value of 18 to (6) per cent which the Directors consider to be satisfactory in the context of the discounts applicable to other Investment Trusts and was achieved without using the Company's powers to acquire its own shares in the market. Total Expense Ratio ("TER"), which is set out in the Financial Summary is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the TER and monitors Company expenses. Principal Risks and Uncertainties Associated with the Company An investment in the Company is only suitable for financially sophisticated investors who are capable of evaluating the risks and merits of such an investment, or other investors who have been professionally advised with regard to investment, and who have sufficient resources to bear any loss which might result from such an investment. There can be no guarantee that investors will recover their initial investment. The investment may employ gearing and may be subject to sudden and large falls in value. You should be aware that movements in the price of the Company may be more volatile than movements in the price of the underlying investments and that there is a risk that you may lose all the money you have invested. Investors considering an investment should consult their stockbroker, bank manager, solicitor, accountant and/or other independent financial adviser. In respect of some of the companies in which the Company may invest: - they may be undergoing significant change. Such businesses are usually exposed to greater risks than those not undergoing such change; - they may have less mature businesses, a more restricted depth of management and accordingly a higher risk profile; - the quality of the investment's management may have been overestimated; - the market value of and income derived from such shares can fluctuate; and - there may not be a liquid market for their shares. The fact that a share is traded on a market does not guarantee its liquidity. Accordingly, such shares may be difficult to realise at quoted market prices. Any change in the tax treatment of dividends paid or income received by the Company may reduce the level of yield received by shareholders. Any change in the Company's tax status or in legislation could affect the value of the investments held by the Company and its performance. Investment in the Company should be regarded as long-term in nature. There can be no guarantee that any appreciation in the value of the Company's investments will occur and investors may not get back the full value of their investment. There can be no guarantee that the investment objective of the Company will be met. The Company is exposed to a range of economic and market risks, liquidity, interest rates, exchange rates and general financial risks. The market capitalisation of the Company may make the market of the ordinary shares less liquid than would be the case for a larger company. The Company's policy of charging 65 per cent of the Company's investment advisory fees to the Company's capital account may result in the diminution of the asset value of the Company. Whilst the use of borrowings by the Company should enhance the net asset value of the ordinary shares when the value of the Company's underlying assets is rising, it will have the opposite effect when the underlying asset value is falling. Furthermore, should any fall in the underlying assets value result in the Company breaching the financial covenants applicable to the borrowings, the Company may be required to repay such borrowing in whole or in part together with any attendant costs. In order to repay such borrowings, the Company may have to sell assets at less than their quoted market values. A positive net asset value for the ordinary shares will be dependent upon the Company's assets being sufficient to meet any debt. On a winding-up of the Company, the ordinary shares rank for repayment of capital after repayment of all other creditors of the Company. Ordinary shares are only appropriate for investors who understand that they may receive an amount less than their original investment. Risk management The principal risks and the Company's policies for managing these risks and the policies and practices with regards to financial investments are summarised in note 19 to the financial statements. The Company manages the risks inherent in portfolio management by investing in approximately 20 to 40 securities of companies operating in a range of industrial sectors and varying the extent of cash holdings or gearing in relation to the Investment Manager's assessment of overall market conditions. The Company does not have any employees and consequently relies upon the services provided by a number of third parties. The Board therefore relies on the control procedures of these third parties which includes the Companies Investment Manager, Registrars and Brokers. This type of operational structure is not uncommon with Investment Trust companies. The Board reviews the internal control procedures of its third party service providers and further details including the Board's risk assessments are detailed in the "Internal Financial Control" under Corporate Governance. Management Details of the Company's management agreement with Midas Investment Management Limited ("the Investment Manager") are contained in note 3 to the financial statements. Future development The Company continues to look for strategies to increase shareholders' returns including the dividend and to increase the liquidity of its shares. A commentary on the trends and factors likely to affect the future development, performance and position of the Company, which include market sentiment and the effectiveness of government intervention is set out in the Chairman's Statement and is released monthly in a fund factsheet published via the Company's website. Results The Group's profit for the year, after taxation, amounted to £622,000 (2008: £3,490,000 loss). Within the documents published on 5th May 2009 in connection with the offer for Osprey Smaller Companies Income Fund Limited, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition. The Listing Rules require the Company to reproduce such unaudited financial information in their next annual report and, if the difference between the unaudited financial information and the actual information is over 10 per cent, to provide an explanation for the difference. The relevant information is set out below and no difference of 10 per cent or more arose in relation to the statement in the first paragraph below. However, as the acquisition was only finalised on 2nd July 2009 and some of the anticipated savings could not be realised until after the amalgamation of the portfolios on 22nd July 2009, it is not practicable to measure the percentage of annual savings achieved in relation to the few days remaining prior to the end of the financial year on 31st July 2009. Accordingly the 2010 annual report will include an explanation if the audited financial information for the year ended 31st July 2010 results in a difference of over 10 per cent. "Midas has been integral to a cost reduction programme and comparable expenses are currently running at an estimated annual rate of approximately £360,000, a reduction of 33.3 per cent over the annualised rate for the half year to 28th February 2009. The MLIT Directors anticipate that the merger of Osprey with MLIT will lead to further annual cost savings of £351,000. This excludes some potential further savings in the costs of dealing in investments and on the potential amalgamation of Osprey's and MLIT's portfolios. These anticipated savings comprise a £136,000 reduction in administration fees and other costs, estimated annual tax savings of £127,000 arising from Osprey acting as an offshore dealing subsidiary; and a net saving of £40,000 arising from the resignation of two directors. The costs of maintaining Osprey's listed status (listing and broker's fees) which were £43,000 for the year ended 31st August 2008 and currently amount to approximately £48,000 per annum are intended to be saved as a result of the Enlarged Group having a single quoted holding company. Termination costs of £195,000 will be incurred to cancel various contracts for administrative and other services in order to achieve these savings". Ordinary dividends An interim dividend of 4.5p per ordinary share was paid on 24th April 2009 (2008: 2.5p) and the Directors are recommending a final dividend of 6.0p per ordinary share (2008: 7.5p), a total for the year of 10.5p per ordinary share (2008: 10.0p). Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 27th November 2009 to shareholders registered on 23rd October 2009. The shares will be declared ex-dividend on 21st October 2009. Share valuations On 31st July 2009, the middle market quotation and the net asset value per ordinary 25p share were 300.0p and 329.2p, respectively. This indicates that the discount on the Company's share was 9.7 per cent. This is not uncommon as the share prices of closed-end funds are often traded at a discount to their net asset values. Subsequent events Saintclose Limited and Manchester and London Securities Limited ceased trading on 31st July 2009. There have been no other significant events since the balance sheet date other than the volatility currently being experienced in the stock market. Directors' Responsibilities in Relation to the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report, the Directors Remuneration Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and the Group and of the profit or loss of the Company and Group for that period. In preparing those financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; - provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; - state that the Group and Parent Company financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that show and explain the Company's transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IASB Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. To the best of the knowledge of each of the Directors: (a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and (b) the management report (comprising the Chairman's Statement, Directors' Report and Investment Manager's Review) includes a fair review of the development and performance of the fund and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Each of the Directors accepts responsibility accordingly. On behalf of the Board of Directors P H Stanley Chairman 21st September 2009 Independent Auditors' report The Company's financial statements for the year ended 31st July 2009 have been audited by CLB Coopers. The entire Auditor's report, which is unqualified, can be found in the Company's Annual Report and Financial Statement on at www.manchesterand london.co.uk. Consolidated Income Statement For the year ended 31st July 2009 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 Losses Losses on investments at fair 10 - (376) (376) - (4,407) (4,407) value through profit and loss Trading income 2 281 - 281 576 - 576 Investment income 2 1,556 - 1,556 1,244 - 1,244 Gross return 1,837 (376) 1,461 1,820 (4,407) (2,587) Expenses Investment management fee 3 (79) (147) (226) (78) (146) (224) Cost of investment transactions - (362) (362) - (382) (382) Other operating expenses 4 (230) - (230) (175) - (175) Total expenses (309) (509) (818) (253) (528) (781) Return before finance costs and tax 1,528 (885) 643 1,567 (4,935) (3,368) Finance costs 6 (5) - (5) (5) - (5) Return on ordinary activities before tax 1,523 (885) 638 1,562 (4,935) (3,373) Taxation on ordinary activities 7 (16) - (16) (117) - (117) Return on ordinary activities after tax 1,507 (885) 622 1,445 (4,935) (3,490) Earnings/(loss) per ordinary share (pence) Basic 9 10.35 (6.08) 4.27 10.36 (35.38) (25.02) Fully diluted 9 10.35 (6.08) 4.27 10.36 (35.38) (25.02) The total column of this statement represents the Income Statement of the Group prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. Statement of Changes in Equity For the year ended 31st July 2009 Capital Capital Share Share Own Other reserve reserve Retained capital premium shares reserves (unrealised) (realised) earnings Total Group £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1st August 2007 3,487 9,921 - (79) 12,485 23,169 3,571 52,554 Changes in equity for 2008 Loss for the year - - - - - - (3,490) (3,490) Transfer of capital profits - - - - (5,801) 866 4,935 - Ordinary dividend paid (note 8) - - - - - - (1,395) (1,395) Issue of share capital - - - - - - - - Balance at 31st July 2008 3,487 9,921 - (79) 24,035 3,621 6,684 Changes in equity for 2009 47,669 Profit for the year - - - - - 622 622 Transfer of capital profits - - - - - (1,839) 885 - Ordinary dividend paid (note 8) - - - - 954 - (1,674) (1,674) Issue of share capital 889 10,129 - - - - - 11,018 Balance at 31st July 2009 4,376 20,050 - (79) 7,638 22,196 3,454 57,635 Capital Capital Share Share Own Other reserve reserve Retained capital premium shares reserves (unrealised) (realised) earnings Total Company £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1st August 2007 3,487 9,921 - (79) 12,485 (496) 27,236 52,554 Changes in equity for 2008 Loss for the year - - - - - - (3,517) Transfer of capital profits - - - - (5,801) 866 4,935 (3,517) Ordinary dividend paid (note 8) - - - - - - (1,395) - Issue of share capital - - - - - - - (1,395) Balance at 31st July 2008 3,487 9,921 - (79) 6,684 370 27,259 47,642 Changes in equity for 2009 Profit for the year - - - - - - 668 668 Transfer of capital profits - - - - 972 (1,800) 828 - Ordinary dividend paid (note 8) - - - - - - (1,674) (1,674) Issue of share capital 889 10,129 - - - - - 11,018 Balance at 31st July 2009 4,376 20,050 - (79) 7,656 (1,430) 27,081 57,654 The cost of the issue of shares in May 2009, charged to the share premium account, amounted to £473,000. Consolidated Balance Sheet At 31st July 2009 Note 2009 2008 £'000 £'000 £'000 £'000 Non-current assets Investments at fair value through profit or loss 10 51,924 31,246 Intangible assets 12 25 - Current assets Trade and other receivables 13 411 812 Derivative financial instruments 19 4,571 - Cash and cash equivalents 4,747 51,949 15,836 31,246 9,729 16,648 Gross Assets 61,678 47,894 Current liabilities Trade and other payables 14 (175) (225) Derivative financial instruments 19 (3,868) - Net assets 57,635 47,669 Equity attributable to equity holders Ordinary share capital 15 4,376 3,487 Share premium 20,050 9,921 Own shares 16 - - Other reserves Capital reserve - realised 22,196 24,035 Capital reserve - unrealised 7,638 6,684 Goodwill reserve (79) (79) Retained earnings 3,454 3,621 Total equity 57,635 47,669 Net asset value per share Ordinary shares - basic 17 329.2p 341.8p Ordinary shares - fully diluted 17 329.2p 341.8p The financial statements were approved by the Board of Directors on 21st September 2009 and are signed on their behalf by: P H A Stanley (Chairman) B S Sheppard Directors Consolidated Cash Flow Statement For the year ended 31st July 2009 2009 2008 £'000 £'000 Operating activities Profit/(loss) after tax 622 (3,490) Losses on investments 376 4,407 Financing costs 5 5 Decrease/(increase) in receivables 504 (704) Increase in payables (160) (512) Increase in derivative financial instruments (703) - Net cash inflow/(outflow) from operating activities 644 (294) Investing activities Purchase of investments (85,715) (48,939) Sale of investments 74,340 62,800 Returns on covered calls 1,267 - Goodwill on acquisition (25) - Net cash acquired on acquisition of subsidiary (see note 552 - 18) Subsidiary acquisition costs (473) - Net cash (outflow)/inflow from investing activities (10,054) 13,861 Financing activities Interest paid on borrowings (5) (5) Equity dividends paid (1,674) (1,395) Net cash outflow from financing activities (1,679) (1,400) Net (decrease)/increase in cash and cash equivalents (11,089) 12,167 Cash and cash equivalents at beginning of year 15,836 3,669 Cash and cash equivalents at end of year 4,747 15,836 Included in cash and cash equivalents at the year end are equity linked cash deposits of £798,000 (2008: £nil). Notes Forming Part of the Financial Statements For the year ended 31st July 2009 1. Accounting policies A summary of the principal accounting policies is set out below. Manchester & London Investment Trust plc is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company for the year ended 31st July 2009 comprise the Company and its subsidiaries (together referred to as the `Group' and individually as `Group entities'). a) Basis of preparation and statement of compliance In accordance with European Union regulations, these financial statements have been prepared in accordance with IFRS issued by the International Accounting Standards Board ("IASB"), as adopted for use in the EU effective at 31st July 2009. The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment. The principal variations from the historical cost basis relate to financial instruments (IAS 39). Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts revised by the Association of Investment Companies ("AIC") is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The Group's principal accounting policies are set out below. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements. b) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31st July each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intra-group balances are eliminated on consolidation. As permitted by Section 408 of the Companies Act 2006, the parent Company's income statement has not been included in these financial statements. The parent Company's profit after tax for the year was £668,000 (2008: £3,517,000 loss). The results of subsidiaries or businesses acquired or disposed of during the year are included in the consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal as appropriate. c) Presentation of income statement In order to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Section 842 Income and Corporation Taxes Act 1988. d) Intangible assets - goodwill Goodwill arising on the acquisition of subsidiary undertakings, representing any excess of the fair value of the consideration given over the fair value of the verifiable assets and liabilities acquired, is capitalised and reviewed annually for impairment. Goodwill arising on consolidation prior to 1st August 1998 has been written off against reserves on acquisition as a matter of accounting policy. e) Valuation of investments Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment. e) Valuation of investments (continued) After initial recognition, investments, which are classified as at fair value through profit or loss, are measured at fair value. Gains or losses on investments designated as at fair value through profit or loss are recognised in the income statement as a capital item, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. Unlisted investments are valued at the Directors' estimate of fair value by reference to the following valuation guidelines - asset values, earnings, dividends and any other relevant factors. All purchases and sales of investments are recognised on the trade date i.e. the date that the Group commits to purchase or sell an asset. f) Revenue recognition Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company and the revenue can be reliably measured. Trading income includes gains and losses on the trading of options and futures in financial markets, net of commissions expensed. Open positions are carried at fair value and gains and losses arising on this valuation are recognised in revenue as well as gains and losses realised on positions that have closed. Dividend income from investments is recognised when the shareholders' right to receive payment has been established, normally the ex-dividend date. Special dividends representing a return of capital are credited to capital reserves. Fixed returns on non-equity shares are recognised on a time apportionment basis so as to reflect the effective yield on the shares. Where the Group has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised in capital reserves. Income from Contracts for Differences is recognised at fair value through profit or loss. g) Expenses All expenses are accounted for on the accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows: - material transaction costs which are incurred on the purchase or sale of an investment designated as fair value through profit or loss are expensed and included in the capital column of the income statement; and - expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management charge and related costs have been allocated 35 per cent (2008: 35 per cent) to revenue and 65 per cent (2008: 65 per cent) to capital reserve-realised in order to reflect the Directors' long-term view of the nature of the expected investment returns. h) Finance costs Finance costs are accrued at the effective interest rate. Finance costs of debt, insofar as they relate to the financing of the Group's investments or to financing activities aimed at maintaining or enhancing the value of the Group's investments, are allocated in line with the Directors' expected long-term split of returns, in the form of capital gains and income, attributable to the Group's investment portfolio as follows: Capital Revenue reserve-realised Equity portfolio 65% 35% Fixed interest portfolio 20% 80% i) Taxation The tax charge represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment Trusts which have approval under Section 842 Income and Corporation Taxes Act 1988 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. j) Dividends payable to shareholders No equity dividend is accrued unless the shareholders' right to receive payment is established in the period. Dividends proposed after the balance sheet date are disclosed in note 8. k) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank, short-term deposits with an original maturity of three months or less and cash held in highly liquid investment accounts. l) Capital reserve Capital reserve - realised The following are accounted for in this reserve: - gains and losses on the realisation of investments; and - expenses and finance costs, together with the related taxation effect, are charged to this reserve in accordance with the above policies. Capital reserve - unrealised The following are accounted for in this reserve: - increases and decreases in the valuation of investments held at the year end. m) Foreign currencies In preparing the financial statements, transactions in currencies other than pounds sterling are recorded at the actual rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the balance sheet date. Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities in foreign currencies are recognised in the income statement. n) Financial instruments and derivatives used for trading purposes Derivatives entered into for trading purposes include futures, options and a combination of these. Derivatives used for trading purposes are measured at fair value and any gains or losses are included in the income statement. Fair values are based on quoted market prices in active market. o) Contracts for Differences Contracts for Differences are valued with reference to the investment's underlying bid price at the balance sheet dates and are held at fair value through profit or loss. 2. Income 2009 2008 £'000 £'000 Trading income 281 576 Income from investments UK dividends 1,393 983 Other income Deposit interest 163 261 Investment income 1,556 1,244 Total income 1,837 1,820 Total income comprises Trading income 281 576 Dividends 1,393 983 Interest 163 261 1,837 1,820 Income from investments Listed 1,393 983 1,393 983 3. Investment management fee 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 79 147 226 109 204 313 Recoverable VAT - - - (31) (58) (89) 79 147 226 78 146 224 Midas provides investment services to the Company under a management agreement with a termination period of three months. The annual fee is 0.5 per cent of the total portfolio value including cash and short term deposits, payable quarterly in arrears. The fee is not subject to Value Added Tax ("VAT"). The investment management fee is chargeable 35 per cent to revenue and 65 per cent to capital. A European Courts of Justice decision regarding VAT charged on investment company management fees has resulted in a refund of VAT to the Company of £89,000 being made in the year ended 31st July 2008. No VAT was charged on management fees in the current year. 4. Other operating expenses 2009 2008 £'000 £'000 Directors' fees 65 39 Staff costs (note 5) - 11 Auditors' remuneration Registrar fees 23 24 Exchange rate variances 7 4 Other expenses (7) 15 142 82 230 175 Directors' fees - Group 24 - Directors' fees - Company 41 39 65 39 Fees payable to the company's auditor for the audit of the parent company and consolidated financial statements 18 19 Fees payable to the company's auditor for other services: - the audit of the company's subsidiaries pursuant to legislation 5 5 23 24 - services relating to corporate finance transactions 17 - 40 24 Other operating expenses include irrecoverable VAT where appropriate. 5. Staff numbers and costs 2009 2008 £'000 £'000 Wages and salaries - 7 Social security costs - 4 - 11 Excluding Directors, the Group employs no members of staff (2008: one). Included in Directors' fees above (note 4) are the emoluments paid to the Chairman as follows: 2009 2008 £'000 £'000 P H A Stanley (Chairman) 15 15 6. Finance costs 2009 2008 £'000 £'000 Interest paid 5 5 7. Taxation 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Current UK corporation tax 19 (12) 7 117 - 117 Adjustment for under provision in prior years 9 - 9 - - - Current UK corporation tax 28 (12) 16 117 - 117 The charge for the year can be reconciled to the profit per the income statement as follows: Profit/(loss) before tax 1,523 (885) 638 1,562 (4,935) (3,373) Tax at the UK corporation tax rate of 28% (2008: 29.33%) 426 (249) 177 458 (1,448) (990) Tax effect of non-taxable UK dividends (362) - (362) (288) - (288) Income not subject to UK corporation tax (14) - (14) - - - Disallowed management expenses (1) - (1) - - - Unrelieved capital losses - 196 196 - - - Gains and losses on investments that are not taxable - - - - 1,395 1,395 Group relief not paid for (41) 41 - (53) 53 - Taxable overseas dividend eliminated on consolidation 12 - 12 - - - Under provision relating to prior years 9 - 9 - - - Rate differences (1) - (1) - - - Current year tax charge 28 (12) 16 117 - 117 Taxation The Company's taxable income is exceeded by its management expenses, which include the capital and revenue elements of the management fee. The Company has surplus management expenses at 31st July 2009 of £2,337,000 (2008: £2,337,000). Excess management expenses for the period have been fully group relieved to Saintclose Limited which is a trading subsidiary. At 31st July 2009 there is an unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of £654,000 (2008: £654,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Group will generate sufficient taxable profits in the future to recover these amounts and thus the asset has not been recognised in the year, or prior years. As at 31st July 2009 the Company has unrelieved capital losses of £8,674,000 (2008: £7,050,000). There is thus a related unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of £2,429,000 (2008: £1,974,000). These capital losses can only be utilised to the extent that the Company does not qualify as an investment trust in the future and, as such, the asset has not been recognised. 8. Dividends 2009 2008 £'000 £'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31st July 2008 of 7.5p 1,046 1,046 (2007: 7.5p) per share Interim dividend for the year ended 31st July 2009 of 628 349 4.5p (2008: 2.5p) per share 1,674 1,395 A final dividend in respect of 2009 of 6.0p per share which, together with the interim dividend, amounts to a total dividend of £1,702,000, is to be proposed at the Annual General Meeting on 14th October 2009 and has not been included as a liability in these financial statements in accordance with IFRS. We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of section 842 Income and Corporation Taxes Act 1988 are considered. 2009 2008 £'000 £'000 Interim dividend for the year ended 31st July 2009 of 628 349 4.5p (2008: 2.5p) per share Proposed final dividend for the year ended 31st July 2009 1,074 1,046 of 6.0p (2008: 7.5p) per share 1,702 1,395 9. Return per ordinary share The calculation of the basic and fully diluted earnings per ordinary share is based on the following: 2009 2009 2009 2008 2008 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Return: Basic and fully diluted 1,507 (885) 622 1,445 (4,935) (3,490) Basic revenue, capital and total return per ordinary share is based on the net revenue, capital and total return for the period and on the weighted average number of ordinary shares in issue of 14,562,431 (2008: 13,946,338). 10. Investments at fair value through profit or loss Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Investments as below 51,924 31,246 51,924 31,246 Group Group Group Company Company Company Listed Unlisted Total Listed Unlisted Total £'000 £'000 £'000 £'000 £'000 £'000 Opening cost at 1st August 2008 24,490 72 24,562 24,490 72 24,562 Opening unrealised appreciation at 1st August 2008 6,621 63 6,684 6,621 63 6,684 Opening fair value at 1st August 2008 31,111 135 31,246 31,111 135 31,246 Purchases at cost 96,661 - 96,661 81,812 - 81,812 Sales proceeds (74,340) - (74,340) (59,431) - (59,431) Realised gains on sales (2,597) - (2,597) (2,657) - (2,657) Increase/(Decrease) in unrealised appreciation 987 (33) 954 987 (33) 954 Closing fair value at 31st July 2009 51,822 102 51,924 51,822 102 51,924 Closing cost at 31st July 2009 44,214 72 44,286 44,214 72 44,286 Closing unrealised appreciation at 31st July 2009 7,608 30 7,638 7,608 30 7,638 Closing fair value at 31st July 2009 51,822 102 51,924 51,822 102 51,924 Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Realised (loss)/gains on disposals (2,597) 1,394 (2,657) 866 Increase/(decrease) in unrealised 954 (5,801) 954 (5,801) appreciation Return on covered calls 1,267 - 1,267 - (376) (4,407) (436) (4,935) 11. Subsidiary undertakings Company 2009 2008 £'000 £'000 Shares at fair value 1,286 17 In the opinion of the Directors, there is no material difference between the cost and fair value of these investments. The company has investments in the following subsidiary undertakings: Principal % of shares Name of undertaking Activity Country of held incorporation Ordinary Preference and operation shares shares Osprey Smaller Companies Income Investment Fund Limited company Guernsey 100 - Manchester & London Securities Investment Limited company England 100 - Saintclose Limited Investment England 100 - company Beacontree Plaza Limited Dormant England 100 100 Beaconbranch Limited Dormant England 100 - Darethrift Limited Dormant England 100 - Fileglow Limited Dormant England 100 - Zealgate Limited Dormant England 100 - All these subsidiary undertakings are included in the consolidation. Beaconbranch Limited is 100 per cent owned by Becontree Plaza Limited. Osprey Smaller Companies Income Fund Limited was acquired on 26th May 2009. The acquisition is disclosed under business combinations note 18. 12. Intangible Assets Group & Company £'000 At 1st August 2007 and 2008 - Goodwill arising on the acquisition of 25 subsidiary At 31st July 2009 25 See note 18 business combinations. 13. Trade and other receivables Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Receivables from subsidiary undertakings - - 375 395 Investment debtor 41 41 41 41 Prepayments 12 8 12 8 Other receivables 358 763 474 214 411 812 902 658 14. Trade and other payables Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Payables to subsidiary undertakings - - 91 7 Trade payables and accruals 172 101 118 101 Other payables 2 7 2 7 Corporation tax 1 117 - - 175 225 211 115 15. Share Capital Ordinary share capital No. 2009 No. 2008 (`000) £'000 (`000) £'000 Authorised Ordinary shares of 25p each 28,000 7,000 20,000 5,000 Non-voting Convertible Preference shares of £1 each 1,000 1,000 1,000 1,000 29,000 8,000 21,000 6,000 Ordinary shares of 25p each issued and fully paid Balance as at 1st August 13,946 3,487 13,946 3,487 Issue of shares 3,559 889 - - Balance as at 31st July 17,505 4,376 13,946 3,487 There were no issued non-convertible preference shares in issue during the years to 31st July 2008 and 2009. On 29th May 2009 the offer by the Company for Osprey Smaller Company Income Fund Limited ("Osprey") was declared wholly unconditional leading to the issue of 3,558,617 ordinary 25p shares at an issue price £3.23 each as consideration over the period until 2nd July 2009 when the remaining Osprey shares held by third parties were compulsorily acquired. Details of the acquisition are stated in note 18. On 28th May 2009 the Company increased its authorised ordinary share capital by £2,000,000. This action now creates a further 8,000,000 25p ordinary share ranking pari passu to the existing issued share capital. 16. Own shares On 14th August 2006 the Company, in accordance with the authority conferred at the Annual General Meeting held on 24th November 2005, purchased 44 of its own ordinary shares for a consideration of £141 and these were held in treasury at the balance sheet date. 17. Net asset value per share Net asset value Net assets per share Attributable 2009 2008 2009 2008 p p £'000 £'000 Ordinary shares: basic and fully diluted 329.2 341.8 57,635 47,669 The basic net asset value per ordinary share is based on net assets at the year end and 17,504,955 (2008: 13,946,338) ordinary shares in issue, adjusted for any shares held in treasury. 18. Business combinations On 29th May 2009 the Company acquired control of Osprey, a Guernsey registered fund and subsequently acquired the remaining Osprey shares over the period until 2nd July 2009. The Company acquired the whole of the issued share capital of Osprey comprising 10,554,612 ordinary 10p shares through the issue of 3,558,617 ordinary 25p shares at an issue price of £3.23 each totalling £11,492,385. The net assets of the acquired company were as follows: £'000 Non-current assets Investment at fair value 10,946 Current assets Trade and other receivables 102 Cash and cash equivalents 8,052 Current liabilities Trade and other payables (108) Non-current liabilities Bank loan (7,500) Net assets acquired 11,492 Net cash acquired on acquisition was: £'000 Cash and cash equivalents 8,052 Bank loan (repaid on acquisition) (7,500) 552 The net assets used to determine the fair value were considered equal to the open market value. On 22nd July 2009 the Company completed the transfer of selected assets from Osprey. Subsequently, Osprey purchased, and cancelled, 9,389,123 ordinary 10p shares reducing the intra-group loan which arose from the transfer of assets. £'000 Non-current assets Investment at fair value through the profit or loss 9,897 Current assets Cash and cash equivalents 256 10,153 Immediately following the asset transfer the Company recognised the following: £'000 Non-current assets Investments at fair value through the profit or loss 9,897 Investment in subsidiary 1,250 Intangible assets - Goodwill 25 Current assets Cash and cash equivalents 256 11,428 £'000 The results if Osprey had been acquired on 1st August 2008: Revenue for the 11 month period ended 31st July 2009 (3,474) Loss for the 11 month period ended 31st July 2009 (4,688) The result of Osprey from the date of acquisition Revenue for the period 26th May 2009 to 31st July 2009 210 Profit for the period 26th May 2009 to 31st July 2009 99 19. Derivatives and other financial instruments In order to manage its portfolio efficiently and to enable the Investment Manager to pursue the investment objectives, the Company holds derivatives and other financial instruments. All derivative transactions and financial instruments are included in the balance sheet at fair value and comprise securities, cash balances, trade receivables and trade payables arising directly from financial operations. The main risks arising from the Group's investment strategy is market price risk. There is also exposure to liquidity risk, interest rate risk and currency rate risk. The Board regularly reviews and agrees policies for managing these risks as summarised below: Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Group might suffer through holding market positions in the face of price movements. The Investment Manager actively monitors market prices throughout the year and reports to the Board which meets regularly to review investment strategy. Details of the investments held at 31st July 2009 are shown in the 'Portfolio Investments'. If the price of these investments and the derivative financial instruments had increased by 3 per cent at the reporting date with all other variables remaining constant, the capital return in the income statement and the net assets attributable to equity holders of the Company would increase by £1,694,000. A 3 per cent decrease in share prices would have resulted in an equal and opposite effect of £1,694,000, on the basis that all other variables remain constant. At the year end the Group's assets exposed to market price risk were as follows: Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Non-current assets Investments at fair value through profit and loss 51,924 31,246 51,924 31,246 Current assets Derivative financial instruments 4,571 - 3,676 - 56,495 31,246 55,600 31,246 During the year the Company transacted in CFDs and covered calls, and its subsidiaries traded in various derivatives investments. As at the year end, there were no open positions in options which were not call positions sold against underlying holdings. The position held in CFDs as at the year end is as follows: Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Current assets Derivative financial instruments 4,571 - 3,676 - Current liabilities Investments held for trading (3,868) - (3,031) - 703 - 645 - Derivatives and other financial instruments (continued) Interest rate risk The Group is not subject to a material level of interest rate risk as there were no interest bearing borrowings for an extended period of time throughout the year. At 31st July 2009, there are no fixed rate borrowings and the Group no longer had an undrawn bank borrowing facility (2008: £7,500,000). Liquidity risk The Directors have minimised liquidity risk by investing in a portfolio of quoted companies that are readily realisable. The Company's un-invested funds are held almost entirely on interest bearing deposits with UK banking institutions. As at 31st July 2009 the financial liabilities comprised: Group Company 2009 2008 2009 2008 £'000 £'000 £'000 £'000 Balance due to brokers 3,868 - 3,031 - Trade creditors and accruals 172 101 118 101 4,040 101 3,149 101 All the above liabilities are stated at fair value and are due within 1 month. The Group manages liquidity risk through constant monitoring of the Group's gearing position to ensure the Group is able to satisfy any and all debts within the agreed credit terms. Currency rate risk At 31st July 2009, all the Group's financial instruments were mainly denominated in sterling and so there was no significant currency risk. Only Yahoo! Inc. stock with a market value of £2,466,000 is denominated in US Dollars, and only Syngenta stock with a market value of £3,323,000 is denominated in Swiss Francs. The combined value represents 11 per cent of the Group's portfolio. The Group manages currency rate risk through maintenance of foreign currency accounts, enabling the Group to translate balances as and when exchange rates are favourable to the Group. 20. Related party transactions The Investment Manager of the Company is Midas, a company controlled by Mr B S Sheppard and his immediate family. Midas receives a quarterly investment management fee for these services which in the year under review amounted to a total of £226,000 (2008: £265,000) excluding VAT, together with a corporate fee for acting as financial advisor amounting to £30,000 (2008: £30,000) excluding VAT and commission fees of £217,000 (2008: £186,000). The balance owing at 31st July 2009 was £58,000 (2008: £60,000). On 22nd July 2009 the Company transferred stock and cash to the value of £10,153,000 from Osprey Smaller Companies Income Fund Limited, its Guernsey trading subsidiary. The transfer was completed through an in specie distribution via both companies' inter-company loan accounts. As part of the transfer, the subsidiary purchased and cancelled 9,389,123 of its ordinary 10p shares. 21. Ultimate control The holding company and ultimate parent throughout the year and the previous year was Manchester & Metropolitan Investment Limited, a company incorporated in England and Wales. This company was controlled throughout the year and the previous year by Mr B S Sheppard and his immediate family. A copy of the consolidated financial statements of Manchester & Metropolitan Investment Limited can be obtained by writing to The Company Secretary, 2nd Floor, Arthur House, Chorlton Street, Manchester M1 3FH. Annual General Meeting The Company's thirty seventh Annual General Meeting will be held at The Midland Hotel, Peter Street, Manchester M60 2DS, on Wednesday, 14th October 2009 at 12.45pm. The notice of this meeting can be found in the full Annual Report and Financial Statements on the Company's website www.manchesterandlondon.co.uk ND

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