Annual Financial Report

Manchester & London Investment Trust Plc Announcement of the Audited Group Results For the year ended 31st July 2011 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 2011 Company Registered Number: 01009550 Financial Summary Total Return Year to 31st Year to 31st Percentage July 2011 July 2010 increase/ (decrease) Total Return (£'000) 15,691 13,151 19.3 Return per 25p ordinary share - 69.9p 71.8p (2.6) fully diluted Total Revenue Return per 25p 11.1p 10.6p 4.7 ordinary share Cash dividend per 25p ordinary 12.5p 11.5p 8.7 share Capital At 31st July At 31st July Percentage 2011 2010 increase Net assets attributable to Equity 98,267 85,203 15.3 Shareholders (£'000) Net asset value per 25p ordinary share 437.6p 379.4p 15.3 - fully diluted FTSE All-Share Index 3,026.0 2,715.4 11.4 Outperformance versus FTSE All-Share 3.9 Index Total Expense Ratio Year to 31st July Year to 31st 2011 July 2010 Total expenses as a percentage of 1.04% 1.23% average shareholders' funds Total Expense Ratio has excluded significant non-recurring items. Financial Calendar Year ended: 31st July 2011 Results announced: 26th October 2011 Report and Accounts made available to 26th October 2011 shareholders: Annual General Meeting to be held in 23rd November 2011 Manchester: Expected final dividend payment: 1st December 2011 Chairman's Statement Results for the year ended 31st July 2011 Since writing to shareholders on 16th March 2011 (covering the period from 29th October 2010), the FTSE All-Share Index has fallen materially from a high point of 3,160.9 (3rd May 2011) to its current level of 2,845.5, which is a fall of 10.0 per cent. This is a significant fall, driven by fears of a further impending recession in the developing economies, global political and government ineptitude, monetary tightening in the developing economies which always entails the possibility of a hard landing and panic over the ever increasing developed market debt levels. Under these circumstances global growth portfolios have not performed well. Whilst the second half of 2010 saw a further recovery in the global economy and a favourable revaluation of our portfolio, 2011 has seen the opposite. 2011 has seen more tightening by the developing world than we anticipated and even a tightening of monetary conditions by the European Central Bank ("ECB") (now seen as a crassly unintelligent action equal to a similar tightening undertaken by the ECB in 2008). We did not anticipate the latter and neither did we foresee further inertia by Chancellor Angela Merkel to Europe's growing issues and the summer brinksmanship undertaken by the politicians in the USA. It is extremely concerning to live during a period when one reads that Jimmy Carter is receiving plaudits for his leadership relative to the current crop of world leaders. Historically, governments of highly indebted countries have solved the problem by either putting their country through a disciplined process of supply side restructuring or they have allowed higher than medium term average inflation rates to diminish the scale of the mountainous debt levels which have been built up. In our view, the supply side restructurings would be way too painful for the politicians to consider and the electorate to bear. So we have positioned our portfolio to benefit from a period of discrete inflation coupled with low growth in the developed nations combined with reasonable growth rates in the developing nations derived from the benefits of population growth, productivity gains, urbanisation and the growth of their middle classes. If these circumstances prevail, we would expect equities to respond positively over the medium term but we also continue to expect distracting volatility. We would again highlight the geographical spread of the fund shown in the pie chart in our monthly factsheets. We continue to believe that the best position in equities is to be invested in cash generative, liquid and global blue chips. Also, it is still our preference to avoid investing in companies which we believe are over-exposed to the UK and European economies as in our view the prospects for these economies remain weak. Over the last financial year, Manchester & London increased its net asset per share by 15.3 per cent which is a movement in excess of the FTSE All-Share which generated a return of 11.4 per cent. The Directors are proposing a Final Dividend of 7.3p making a total of 12.5p per share for the year, an increase of 8.7 per cent for the year. This total payment compares with the Total Revenue Return per ordinary share for the year of 11.1p. The Company has carried forward distributable reserves of £27m representing over £1 per share which puts us in a strong position to pursue a flexible distribution policy, should the Directors believe this to be in shareholders' best interests. Annual General Meeting I look forward to welcoming shareholders to our thirty ninth Annual General Meeting to be held in the Lancaster Suite, The Midland Hotel, Peter Street, Manchester M60 2DS, at 12.45 pm on Wednesday 23rd November 2011. Mr P H A Stanley Chairman Portfolio Investments As at 31st July 2011 Listed investments Sector Valuation % of Net Assets £'000 PZ Cussons plc Personal Goods 17,074 17.4 Weir Group plc Oil Services 9,335 9.5 Rio Tinto plc Mining 8,063 8.2 Smith & Nephew plc Healthcare Services 7,739 7.9 British Sky Broadcasting Group plc* Media 7,280 7.4 Standard Chartered plc Banking 6,543 6.7 BG Group plc Oil & Gas Producers 6,501 6.6 BP plc Oil & Gas Producers 5,727 5.8 Burberry Group plc Personal Goods 4,960 5.1 Syngenta AG Pharmaceutical & 4,625 4.7 Biotechnical Diageo plc Beverages 4,192 4.3 Jardine Matheson Holdings Ltd General Industrial 4,188 4.3 Unilever plc Food Producers 3,959 4.0 Essar Energy plc Oil & Gas Producers 3,902 4.0 Tesco plc* Food & Drug Retailers 3,641 3.7 Vedanta Resources plc Mining 3,553 3.6 HMS Hydraulic Machines & Systems Industrial Engineering 3,410 3.5 Group plc Xstrata plc Mining 3,316 3.4 Smiths Group plc General Industrial 2,676 2.7 Afren plc Oil & Gas Producers 2,430 2.5 Schroders plc Financial Services 2,207 2.3 Aberdeen Asset Management plc Financial Services 2,203 2.3 Sportingbet plc Travel & Leisure 1,679 1.7 Rolls-Royce Group plc* Aerospace & Defence 1,491 1.5 Millennium & Copthorne Hotels plc Travel & Leisure 1,462 1.4 Glencore International plc Mining 1,072 1.1 Lloyds Banking Group plc Banking 933 1.0 Listed investments 124,161 126.6 Unlisted at Directors' valuation 111 0.1 Cash and net current assets/ (26,005) (26.7) (liabilities) Net Assets 98,267 100.0 *Holding has now been sold. All investments listed above are equities (unless otherwise stated), denominated in Sterling (save for Syngenta which is denominated in CHF and Jardine Matheson and HMS Hydraulic Systems in USD), which have been issued by companies registered in England (save for Syngenta, Jardine Matheson, HMS Hydraulic Systems and Glencore which are registered in Switzerland, Bermuda, Cyprus and Jersey respectively). Portfolio Sector Analysis As at 31st July 2011 Sector % of Portfolio Personal Goods 17.7 Oil & Gas Producers 14.9 Mining 12.9 Oil Services 7.5 Healthcare Services 6.2 Banking 6.0 Media 5.9 General Industrial 5.5 Pharmaceutical & Biotechnical 3.7 Financial Services 3.6 Beverages 3.4 Food Producers 3.2 Food & Drug Retailers 2.9 Industrial Engineering 2.8 Travel & Leisure 2.5 Aerospace & Defence 1.2 Unlisted Investments 0.1 100.0 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. However, the Company may invest up to 50 per cent of the gross assets of the Company at the time of investment in an investment company subsidiary, subject always to other restrictions set out in this investment policy and the Listing Rules. 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 ("CFDs"), futures, forwards and options. These investments may be used for hedging positions against movements in, for example, equity markets, currencies and interest rates. In addition, these instruments will only be used for efficient portfolio management purposes. For the avoidance of doubt, the use of such instruments to engage in trading transactions is strictly against the Company's investment policy. Any trading transactions will be carried out through dealing subsidiaries of the Company. The Company would not maintain derivative positions should the total underlying exposure of these positions exceed one times the 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 a slightly geared portfolio representing 104.1 per cent of net assets with equity valuations looking inexpensive against most historic standards. Undervaluation became even more acute as earnings forecasts significantly outpaced the market moves, leaving earnings yields looking particularly attractive against 'risk-free' gilts. As a result, we increased this gearing to 126.4 per cent of net assets as at 31st July 2011. We have positioned our portfolio to benefit from a period of structural inflation, whilst protecting against stagnant growth in the developed nations. We remain more confident over growth rates in the developing nations which are supported by population growth, productivity gains, urbanisation and the growth of the middle classes. We have maintained our portfolio's focus on Growth stocks and Event Driven opportunities. Market bears would argue that one should now be positioned in 'Value' plays and then continue to expound upon the merits of Gold and Treasuries. Yet statistics have regularly shown that value is rarely found in markets when they are at twenty year highs. On the contrary, Growth based investments by most measures are trading at lows only seen four or five times in the last one hundred years. We understand that this is a lonely and volatile place to be but we believe that even with modest global growth rates we could see these investments favourably rerated. We continue to believe that the oil, energy and mining sectors are undervalued and more acutely so after the recent falls in the markets. These sectors now trade at material discounts to their medium-term average valuations and may be subject to greater supply side pressures than many anticipate. The portfolio remains overweight in these sectors, with holdings in BG Group, BP, Afren, Rio Tinto, Xstrata, Vedanta and Essar. We also hold Weir and HMS which are significantly exposed to growth in these sectors. We have always been drawn to investments that have the potential to be acquired by a predator. We believe that over fifty per cent of the portfolio has the potential to become an Event Driven situation over the next five years. In particular, we would highlight PZ Cussons, Burberry, Standard Chartered, London Stock Exchange, Smiths Group, Smith & Nephew, Afren and BG Group as prime takeover targets. We have remained overweight in the consumer goods sector by 19.7 per cent as we continue to be attracted to short working capital cycle cash based businesses that are understandable. In this broad sector we hold Diageo, PZ Cussons, Unilever and Burberry. We also hold Syngenta, which we believe is exposed to the growing global consumption of food. Whilst inflation is likely to be a headwind for the sector, we believe these companies can pass on cost increases far more effectively than most. We remain underweight in Banks, Financials and Insurance by 8.5 per cent which we feel are leveraged sectors and often involve more risks than we are prepared to bear. There are, however, some exceptions to this such as Standard Chartered, which has been a consistent performer throughout many difficult periods. Looking forward, we believe that the Asian economies will continue to be the driving force for growth (hence our exposure to Jardine Matheson and Standard Chartered), with the US and Europe remaining relatively stagnant. We also anticipate persistent but controllable inflation. Our strategy remains focused on global blue chips which are growing, cash generative and liquid in preference to UK/EU centric value stocks. Over the year, market conditions have been particularly volatile with unclear direction. This has made it extremely difficult to manage any form of trading activity. This has resulted in our profits from trading being reduced this year with a profit of £552,000 compared with £706,000 last year. We were particularly badly hit by the mooted News Corp bid for BskyB not proceeding. Investment Manager Midas Investment Management Ltd Principal Portfolio Holdings PZ Cussons plc ("PZ Cussons") PZ Cussons operates in the household personal goods sector manufacturing and distributing cleansing fluids, soaps, detergents, and health & beauty products through their 30 plus brands which include Imperial Leather, Carex, Cussons Baby and Morning Fresh. The company operates from the UK, Africa, Asia, United Arab Emirates, Central Europe and Australia. Other products marketed include electrical goods via a joint venture with the Chinese group Haier, as well as food and nutrition through Nutricima, a joint venture with Glanbia. PZ Cussons is positioning itself as an attractive distributor of personal goods into growth markets across the developing world. Figures showed a robust trading year for PZ Cussons, beating expectations amidst fairly tough market conditions. Full-year revenue growth was aided by continued momentum in Asia, with a strong relaunch of Baby care in Indonesia. Solid European growth and an encouraging H2 performance in Africa were also notable positives, as were margins, which remained strong despite obvious pricing headwinds. PZ Cussons has a five year compound earnings per share ("EPS") growth rate of 12.7 per cent. Weir Group plc ("Weir") Weir is a global leader in the manufacture of specialised pumps. The Minerals division which manufactures and supplies slurry pump equipment (pumps, valves, cyclones) for most of the major mining companies is the largest, accounting for about 54 per cent of revenues. The Oil & Gas division manufactures and supplies pumps and safety-critical equipment and has grown significantly in the past two to three years through acquisition. Weir has continued its enviable track record of beating expectations. Whilst the company has cautioned on extrapolating the impressive sales growth too far into the future, the outlook for Weir remains favourable. The market for Hydraulic Pumps shows no sign of slowing and should continue to drive growth even if mining capex starts to abate. We should also remember the company's robust performance during the recent recession when considering the impact of a double-dip in the global economy. Weir has increased its exposure to emerging markets and has an attractive five year compound EPS growth rate of 16.7 per cent. Rio Tinto plc ("Rio Tinto") In order for Asia to maintain its GDP growth rate and urbanisation programme, there is a need for the quality iron ore and copper that Rio Tinto produces. Although China can domestically produce iron ore, it is of a lower grade and is difficult to transport around the country. The company trades on an enterprise value/earnings before interest, tax, depreciation and amortisation ("EV/EBITDA") of 6 times in comparison to its historic multiple of nearer 10 times. Rio Tinto has a five year compound EPS growth rate of 14.5 per cent. Smith & Nephew plc ("Smith & Nephew") Smith & Nephew is a global medical devices business operating in three main Global Business Units - orthopaedics, endoscopy and advanced wound management. The company operates on a worldwide basis and has distribution channels in over 90 countries, generating annual sales of $4 billion. Smith & Nephew remains attractively placed to benefit from the changing demographics and personal activity levels across the world. The stock is inexpensive and with further consolidation expected for the sector it is a prime takeover candidate. Smith & Nephew has a five year compound EPS growth rate of 11.7 per cent. British Sky Broadcasting Group plc ("BSkyB") BSkyB provides television, broadband and telephone services to the United Kingdom and Ireland. Whilst the company's impressive sales growth, dominant market position and strong cash generation make a compelling standalone investment case, the failed bid by Rupert Murdoch's News Corp was a notable disappointment for us. That said, the company remains underpinned by solid fundamentals, and we would not be surprised if other predators looked to acquire BSkyB in the future. The company has a five year compound EPS growth rate of 6.3 per cent. This position has now been divested. Standard Chartered plc ("Standard Chartered") Standard Chartered is engaged in consumer and wholesale banking globally and has a strong focus on the Asia-Pacific, Middle East and African regions which provide approximately 90 per cent of the group's profit. The bank has been a strong historic performer and since 2002 had delivered successive years of record income and profits, with a five year compound profit growth rate of 17.2 per cent. The momentum has continued into 2011 with the bank's recent results showing solid growth in both deposits and loans. BG Group plc ("BG") BG is engaged in exploration, development and production of Natural Gas and Oil. The group has operations in Australia, Brazil and the United States amongst others. BG's multi-billion barrel assets in the Santos Basin deserve particular note as some of the most exciting prospects currently being developed by any E&P globally. The group's burgeoning LNG arm is also performing well, capitalising on large global price differences by transporting gas in liquid form from producing nations to the developing world. BG Group has an impressive track record with a five year compound EPS growth rate of 25.4 per cent over the last five years and trades at a significant discount to its NAV. BP plc ("BP") BP is an international oil and gas company operating in over 80 different countries. The Macondo oil spill in 2010 (which could cost BP up to $20bn) followed by the recent set of disappointing results have left dark clouds looming over the BP share price and could continue to do so until we receive notification of the court's confirmation of responsibility in 2012. Yet despite this, BP remains attractive on an EV to BOE of $9 and we see the company as a good value play, particularly if it becomes a bid target or responds to shareholder pressure and agrees to a breakup. Burberry Group plc ("Burberry") Burberry is a luxury goods retailer, focusing on high-end apparel. The company has a rapidly expanding global presence, with a particularly strong foothold in Asia. The company's meteoric rise has been impressive, with recent results highlighting their continued ability to capitalise on Asia's seemingly endless demand for fashion. A quality global company with an incremental and credible growth strategy, Burberry trades at a premium valuation, and the recent market falls have left the stock looking attractive again. Burberry has a five year compounded EPS growth rate of 15.2 per cent. Syngenta AG ("Syngenta") Syngenta is a global agri-science business engaged in crop protection and seeds. Urbanisation and changing dietary preferences across the middle classes of the developing nations is forcing the agricultural industry to increase yields. The strong sector outlook, the group's technological edge and their enviable product pipeline suggest the shares are attractively valued, particularly if Syngenta achieve their target to double key crop sales over the next several years. Syngenta has a five year compounded EPS growth rate of 19.6 per cent. Investment Record of the Last Ten Years Total Return per ordinary Dividend Total Net Asset Value share per assets Less per 25p share ordinary Liabilities share Year ended Return Basic Fully Basic Fully diluted diluted £'000 p p p £'000 p p 31st July (295) (3.93) (2.27) 8.50 22,800 304.00 224.16 2002 31st July 2,384 31.79 23.30 9.50 24,238 323.17 237.89 2003 31st July 5,512 73.49 53.15 9.50 28,901 385.35 282.39 2004 31st July 5,426 72.35 52.33 9.50 33,611 448.15 327.34 2005 31st July 3,206 42.75 31.14 9.50 36,107 481.43 351.17 2006 31st July 5,799 41.58 41.58 10.00 52,554 376.80 376.80 2007 31st July (3,490) (25.02) (25.02) 10.00 47,669 341.80 341.80 2008 31st July 645 4.43 4.43 10.50 57,495 328.44 328.44 2009 31st July 13,151 71.75 71.75 11.50 85,203 379.40 379.40 2010 31st July 15,691 69.87 69.87 12.50 98,267 437.60 437.60 2011 In 2006, the Company adopted International Financial Reporting Standards ("IFRS"). As a result, the data has been restated to reflect the change to IFRS. It is not practical to restate 2003 and prior periods for the effect of transaction costs on total return. In the period from 1981 to 2001, total assets less liabilities increased from £ 241,000 to £23,455,000. Net Assets per share increased from 24.1p to 312.73p. Report of the Directors The Directors present their report and financial statements for the year ended 31st July 2011. 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 1158 of the Corporation Tax Act 2010. The Company is also governed by the Listing Rules and Disclosure and Transparency Rules of the Financial Services Authority. The close company provisions of the Corporation Tax Act 2010 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 2011 and the outlook for the coming year is given by the Investment Manager. The Company's subsidiaries, OSP Limited (formerly Osprey Smaller Companies Income Fund Limited) ("OSP") and Stakeholders' Momentum Investment Limited (formerly Stakeholders' Momentum Investment Trust plc) ("SMIL") carry on business as a dealing subsidiary and as an investment subsidiary, respectively. . OSP, a company incorporated in Guernsey, is the sole branch outside of the United Kingdom. Performance and key performance indicators 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 2011 amounted to £98,267,000 compared with £ 85,203,000 at 31st July 2010, an increase of 15.3 per cent, whilst the fully diluted net asset value per ordinary share increased to 437.6p from 379.4p. This increase of 15.3 per cent compared with an increase over the period of 11.4 per cent by the FTSE All-Share Index, equated to an outperformance by the Company of 3.9 per cent. Group net revenue after taxation for the year was £2,499,000, an increase of 28.2 per cent. The share price during the period under review has been quoted at discounts to net asset value of 4 to 17 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 is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the total expense ratio and monitors Group expenses. 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. Investors should be aware that movements in the price of the Company may be more volatile than movements in the price of the underlying investments and that there is a risk that investors may lose all their invested money. Investors considering an investment should consult their stockbroker, bank manager, solicitor, accountant and/or other independent financial adviser. In respect of some of the companies in which the Company may invest: * the company 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 risks with regards to financial instruments, and the Company's policies for management of these risks, are detailed in note 20 to the financial statements - "Risks - Derivatives, other financial instruments and other risks". The Company manages the risks inherent in portfolio management by investing in approximately 20 to 40 securities of companies operating in a range of industrial sectors and varying the extent of cash holdings or gearing in relation to the Investment Manager's assessment of overall market conditions. The Company does not have any employees and consequently relies upon the services provided by a number of third parties. The Board therefore relies on the control procedures of these third parties which include the Companies Investment Manager, Registrar and Broker. This type of operational structure is not uncommon with Investment Trust companies. Gearing During the period, the Company arranged a Flexible Revolving Loan Facility with a limit of £11m with Pershing Securities Limited, a subsidiary of The Bank of New York Mellon Corporation. No arrangement fee is payable on this facility and interest is charged at the Bank of England Base Rate plus three per cent per annum on drawdowns. By the year end, the portfolio had been geared, using this facility and CFDs, to a level whereby gross investments represented 126.4 per cent of net assets. In addition, the weighted average percentage of gearing (calculated as net debt divided by market capitalisation) held by the individual companies in the portfolio on their own balance sheets was 13.7 per cent, resulting in a combined see through gearing in the portfolio of 40.1 per cent. 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 £15,691,000 (2010: £13,151,000). In the previous year, the Company acquired Stakeholders' Momentum Investment Limited (formerly Stakeholders' Momentum Investment Trust plc ("SMIT")). Within the documents published on 28th April 2010 in connection with the offer for SMIT, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition. "Since its appointment as investment manager on 4th December 2009, Midas and the SMIT Board have taken steps to cut SMIT's annual costs by approximately £ 500,000. The MLIT Directors also anticipated that the merger of SMIT with MLIT would lead to further annual cost savings of approximately £385,000. The anticipated savings include a £275,000 reduction in investment management, company secretarial, registrar, administration and other fees. Furthermore, the annual costs of maintaining SMIT's independent board and listed status which amount to approximately £110,000 are intended to be saved as a result of the Enlarged Group having a single quoted holding company. MLIT estimates that termination costs of up to £132,000 will be incurred to cancel various contracts for investment management, administrative and other services in order to achieve these savings." The Directors are pleased to announce that total savings of £531,000 were made to SMIL's annual costs, in comparison with estimated savings of £385,000. The additional savings of £146,000 were as a result of reductions to investment management fees and investment transaction costs. The Directors are also pleased to announce that the estimated termination costs of £132,000 were reduced to actual costs of £39,000. The savings of £93,000 were due to the reduction in administration costs, registrar's fees and other expenses. Ordinary dividends An interim dividend of 5.2p per ordinary share was paid on 30 April 2011 (2010: 5.0p) and the Directors are recommending a final dividend of 7.3p per ordinary share (2010: 6.5p), a total for the year of 12.5p per ordinary share (2010: 11.5p). Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 1st December 2011 to shareholders registered on 11th November 2011. The shares will be declared ex-dividend on 9th November 2011. Share valuations On 31st July 2011, the middle market quotation and the net asset value per ordinary 25p share were 396.4p and 437.6p, respectively. This indicates that the discount on the Company's shares was 9.4 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. Events after the reporting period There have been no significant events since the end of the reporting period other than the volatility currently experienced in the stock market. Directors' responsibilities in relation to the Company's Auditor The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken steps that ought to have been taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. 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 IFRS adopted by the European Union and Article 4 of the EU IAS Regulation. 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: * properly select and apply suitable accounting policies; * present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * provide additional disclosure when compliance with the specific requirements of IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and * make an assessment of the ability of the Group and Company to continue on a going concern basis. 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 IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. To the best of the knowledge of each of the Directors: a. the financial statements, prepared in accordance with the IFRS adopted by the European Union, 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 Directors' Report 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 Mr P H A Stanley Chairman 26th October 2011 Independent Auditors' report The Company's financial statements for the year ended 31st July 2011 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 at www.manchesterand london.co.uk. Consolidated Statement of Comprehensive Income For the year ended 31st July 2011 2011 2011 2011 2010 2010 2010 Note Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains Gains on investments at 10 - 13,809 13,809 - 11,384 11,384 fair value through profit or loss Trading income 2 552 - 552 706 - 706 Investment income 2 1,984 - 1,984 1,392 - 1,392 Gross return 2,536 13,809 16,345 2,098 11,384 13,482 Expenses Investment management fee 3 (171) (318) (489) (123) (229) (352) Cost of investment - (138) (138) - (291) (291) transactions Other operating expenses 4 135 - 135 (20) 338 318 Total expenses (36) (456) (492) (143) (182) (325) Return before finance costs 2,500 13,353 15,853 1,955 11,202 13,157 and tax Finance costs 6 (1) (161) (162) (6) - (6) Return on ordinary 2,499 13,192 15,691 1,949 11,202 13,151 activities before tax Tax expense 7 - - - - - - Return on ordinary 2,499 13,192 15,691 1,949 11,202 13,151 activities after tax Earnings per ordinary share (pence) Basic 9 11.13 58.74 69.87 10.63 61.12 71.75 Fully diluted 9 11.13 58.74 69.87 10.63 61.12 71.75 The total column of this statement represents the Statement of Comprehensive Income 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. The Group does not have any Other Comprehensive Income and hence the net return, as disclosed above, is the same as the Group's Total Comprehensive Income. All items in the above statement derive from continuing operations. Consolidated and Company Statements of Changes in Equity For the year ended 31st July 2011 Group Share Share Own Other Capital Capital Retained Total capital premium shares reserves reserve reserve earnings (unrealised) (realised) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 4,376 19,887 - (79) 7,638 22,196 3,477 57,495 st August 200 9 Changes in equity for 2010 Total - - - - - - 13,151 13,151 Comprehensive Income Transfer of - - - - 9,642 1,560 (11,202) - capital profits Ordinary - - - - - - (1,926) (1,926) dividend paid (note 8) Issue of 1,238 15,245 - - - - - 16,483 share capital Balance at 31 5,614 35,132 (79) 17,280 23,756 3,500 85,203 st July 2010 Changes in equity for 2011 Total - - - - - - 15,691 15,691 Comprehensive Income Transfer of - - - - 9,891 3,301 (13,192) - capital profits Ordinary - - - - - - (2,627) (2,627) dividend paid (note 8) Balance at 31 5,614 35,132 - (79) 27,171 27,057 3,372 98,267 st July 2011 Company Share Share Own Other Capital Capital Retained Total capital premium shares reserves reserve reserve earnings (unrealised) (realised) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 4,376 20,050 - (79) 7,656 (1,430) 27,056 57,629 st August 200 9 Changes in equity for 2010 Total - - - - - - 13,187 13,187 Comprehensive Income Transfer of - - - - 9,085 2,251 (11,336) - capital profits Ordinary - - - - - - (1,926) (1,926) dividend paid (note 8) Issue of 1,238 15,245 - - - - - 16,483 share capital Balance at 31 5,614 35,295 - (79) 16,741 821 26,981 85,373 st July 2010 Changes in equity for 2011 Total - - - - - - 15,092 15,092 Comprehensive Income Transfer of - - - - 10,430 2,435 (12,865) - capital profits Ordinary - - - - - - (2,627) (2,627) dividend paid (note 8) Balance at 31 5,614 35,295 - (79) 27,171 3,256 26,581 97,838 st July 2011 Consolidated Statement of Financial Position At 31st July 2011 Note 2011 2010 £'000 £'000 £'000 £'000 Non-current assets Investments at fair value through 10 102,198 84,343 profit or loss Current assets Trade and other receivables 12 203 340 Derivative financial instruments 20 22,074 4,394 Cash and cash equivalents 13 7,693 2,029 29,970 6,763 Gross Assets 132,168 91,106 Current liabilities Borrowings 14 (10,868) - Trade and other payables 15 (317) (319) Provisions 16 - (1,416) Derivative financial instruments 20 (22,716) (4,168) Net assets 98,267 85,203 Equity attributable to equity holders Ordinary share capital 17 5,614 5,614 Share premium 35,132 35,132 Own shares 18 - - Other reserves Capital reserve - realised 27,057 23,756 Capital reserve - unrealised 27,171 17,280 Goodwill reserve (79) (79) Retained earnings 3,372 3,500 Total equity 98,267 85,203 Net asset value per share Ordinary shares - basic 19 437.6p 379.4p Ordinary shares - fully diluted 19 437.6p 379.4p The financial statements were approved by the Board of Directors on 26th October 2011 and are signed on their behalf by: Mr P H A Stanley (Chairman) Mr B S Sheppard Directors Company Statement of Financial Position At 31st July 2011 Note 2011 2010 £'000 £'000 £'000 £'000 Non-current assets Investments at fair value through 10 102,198 82,340 profit or loss Investments in subsidiaries 11 2,180 2,180 104,378 84,520 Current assets Trade and other receivables 12 1,433 379 Derivative financial instruments 20 14,937 2,317 Cash and cash equivalents 13 4,823 1,009 21,193 3,705 Gross Assets 125,571 88,225 Current liabilities Borrowings 14 (10,868) - Trade and other payables 15 (1,552) (673) Derivative financial instruments 20 (15,313) (2,179) Net assets 97,838 85,373 Equity attributable to equity holders Ordinary share capital 17 5,614 5,614 Share premium 35,295 35,295 Own shares 18 - - Other reserves Capital reserve - realised 3,256 821 Capital reserve - unrealised 27,171 16,741 Goodwill reserve (79) (79) Retained earnings 26,581 26,981 Total equity 97,838 85,373 The financial statements were approved by the Board of Directors on 26th October 2011 and are signed on their behalf by: Mr P H A Stanley (Chairman) Mr B S Sheppard Directors Consolidated Statement of Cash Flows For the year ended 31st July 2011 2011 2010 £'000 £'000 Cash flow from operating activities Return on operating activities before taxation 15,691 13,151 Profit on investments (14,509) (12,453) Decrease in receivables 137 201 Decrease in payables (1,508) (730) Decrease in derivative financial instruments 868 477 Net cash generated from operating activities 679 646 Cash flow from investing activities Purchase of investments (30,886) (61,830) Sale of investments 27,540 60,967 Net cash acquired on acquisition of subsidiary - 345 Subsidiary acquisition costs - (924) Net cash used in investing activities (3,346) (1,442) Cash flow from financing activities Equity dividends paid (2,627) (1,926) Drawn from loan facility 10,868 - Net cash generated from/(used in) financing 8,241 (1,926) activities Net increase/(decrease) in cash and cash 5,574 (2,722) equivalents Cash and cash equivalents at beginning of year 2,025 4,747 Cash and cash equivalents at end of year 7,599 2,025 Company Statement of Cash Flows For the year ended 31st July 2011 2011 2010 £'000 £'000 Cash flow from operating activities Return on operating activities before taxation 15,092 13,187 Profit on investments (14,185) (10,149) (Increase)/decrease in receivables (1,053) 523 Increase in payables 879 462 Decrease in derivative financial instruments 514 507 Net cash generated from operating activities 1,247 4,530 Cash flow from investing activities Purchase of investments (29,889) (78,109) Sale of investments 24,215 56,948 Net cash used in investing activities (5,674) (21,161) Cash flow from financing activities Equity shares issued - 16,483 Equity dividends paid (2,627) (1,926) Drawn from loan facility 10,868 - Net cash generated from financing activities 8,241 14,557 Net increase/(decrease) in cash and cash 3,814 (2,074) equivalents Cash and cash equivalents at beginning of year 1,009 3,083 Cash and cash equivalents at end of year 4,823 1,009 Notes Forming Part of the Financial Statements For the year ended 31st July 2011 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 2011 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 2011. The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment. To the extent that 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 statement of comprehensive income has not been included in these financial statements. The parent Company's profit after tax for the year was £15,092,000 (2010: £13,187,000). The results of subsidiaries or businesses acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal as appropriate. c) Presentation of Statement of Comprehensive Income 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 statement of comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Section 1162 Corporation Tax Act 2010. d) Intangible assets - goodwill 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. After initial recognition, investments, which are classified as at fair value through profit or loss, are measured at fair value. Gains or losses on investments designated as at fair value through profit or loss are recognised as a capital item, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the statement of comprehensive income. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business at the end of the reporting period. 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. Investments in subsidiaries are valued at cost in accordance with IAS 27 and reviewed annually for impairment. 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 statement of comprehensive income, all expenses have been presented as revenue items except as follows: * material transaction costs which are incurred on the purchase or sale of an investment designated as fair value through profit or loss are expensed and included in the capital column of the statement of comprehensive income; and * 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 (2010: 35 per cent) to revenue and 65 per cent (2010: 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. 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 return on operating activities before tax as reported in the statement of comprehensive income 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 end of the reporting period. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment Trusts which have approval under Section 1158 Corporation Tax Act 2010 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited through profit and loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 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 end of the reporting period 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 reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the end of the reporting period. Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities in foreign currencies are recognised through profit or loss. 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 statement of comprehensive income. Fair values are based on quoted market prices in an active market. o) Contracts for Differences Contracts for Differences are valued with reference to the investment's underlying bid price at the end of the reporting period and are held at fair value through profit or loss. p) New standards and interpretations not applied The IASB and IFRIC have issued the following standards and interpretations with an effective date of adoption after the date of these financial statements: Accounting Standards Effective date IFRS 7 Financial Instruments: Disclosures 1st July 2011 IFRS 9 Financial Instruments: Classification and Measurement 1st January 2013 IFRS Consolidated Financial Statements 1st January 2013 10 IFRS Disclosure of Interest in Other Entities 1st January 2013 12 IAS 1 Presentation of Financial Statements 1st July 2012 IAS 27 Consolidated and Separate Financial Statements 1st January 2013 IAS 34 Interim Financial Reporting 1st January 2011 The Directors have chosen not to early adopt the above standards and interpretations and they do not anticipate that they would have a material impact on the Company's financial statements in the period of initial application. 2. Income 2011 2010 £'000 £'000 Trading income 552 706 Income from investments UK dividends 1,975 1,338 Other income Deposit interest 9 54 Investment income 1,984 1,392 Total income 2,536 2,098 Total income comprises Trading income 552 706 Dividends 1,975 1,338 Interest 9 54 2,536 2,098 Income from investments Listed 1,975 1,338 1,975 1,338 3. Investment management fee 2011 2011 2011 2010 2010 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 171 318 489 123 229 352 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. 4. Other operating expenses 2011 2010 £'000 £'000 Directors' fees 68 68 Staff costs (note 5) - - Auditors' remuneration - audit 33 (1) Registrar fees 6 (20) Exchange rate variances 10 20 Other expenses (252) (47) (135) 20 Directors' fees - subsidiaries 25 29 Directors' fees - Company 43 39 68 68 Fees payable to the Company's auditor for the audit of 25 23 the parent company and consolidated financial statements Fees payable to the Company's auditor for other services : * the audit of the Company's subsidiaries pursuant to 8 (24) legislation * other services relating to taxation 7 - 40 (1) Other operating expenses include irrecoverable VAT where appropriate. 5. Staff numbers and costs Excluding Directors, the Group employs no members of staff. Included in Directors' fees above (note 4) are the emoluments paid to the Chairman as follows: 2011 2010 £'000 £'000 P H A Stanley (Chairman) 17 15 6. Finance costs 2011 2010 £'000 £'000 Interest paid 162 6 7. Taxation 2011 2011 2011 2010 2010 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Current UK corporation tax - - - - - - The charge for the year can be reconciled to the profit per the income statement as follows: Profit/(loss) before tax 2,499 13,192 15,691 1,949 11,202 13,151 Tax at the UK corporation 683 3,605 4,288 546 3,137 3,683 tax rate of 27.33% (2010: 28%) Tax effect of non-taxable UK (540) - (540) (471) - (471) dividends/unrealised profits Income not subject to UK (146) - (146) (180) (5) (185) corporation tax Disallowed management - - - 405 97 502 expenses Brought forward management 6 - 6 (171) 64 (107) expenses utilised during the period Gains and losses on - (3,692) (3,692) - (3,857) (3,857) investments that are not taxable Excess management expenses (3) 87 84 278 49 327 Relief for losses on capital - - - (37) 37 - account Reserves adjustment - - - (370) 478 108 Current year tax charge - - - - - - The Company's taxable income exceeded its management expenses, which include the capital and revenue elements of the management fee. The Company has surplus management expenses at 31st July 2011 of £2,395,000 (2010: £2,324,000). At 31st July 2011, there is an unrecognised deferred tax asset, measured at the standard rate of 26 per cent, of £623,000 (2010: £651,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Group will generate sufficient taxable profits in the future to recover these amounts and therefore the asset has not been recognised in the year, or prior years. As at 31st July 2011, the Company has unrelieved capital losses of £9,330,000 (2010: £9,330,000). There is therefore, a related unrecognised deferred tax asset, measured at the standard rate of 26 per cent, of £2,426,000 (2010: £ 2,612,000). 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 2011 2010 £'000 £'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31st July 2010 of 6.5p 1,460 1,051 (2009: 6p) per share Interim dividend for the year ended 31st July 2011 of 5.2p 1,167 875 (2010: 5p) per share 2,627 1,926 A final dividend in respect of 2011 of 7.3p per share which, together with the interim dividend, amounts to a total dividend of £2,806,000, is to be proposed at the Annual General Meeting on 23rd November 2011 and has been excluded as a liability in these financial statements in accordance with IFRS. We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. 2011 2010 £'000 £'000 Interim dividend for the year ended 31st July 2011 of 5.2p 1,167 875 (2010: 5p) per share Proposed final dividend for the year ended 31st July 2011 1,639 1,460 of 7.3p (2010: 6.5p) per share 2,806 2,335 9. Return per ordinary share The calculation of the basic and fully diluted earnings per ordinary share is based on the following: 2011 2011 2011 2010 2010 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Return: Basic and fully diluted 2,499 13,192 15,691 1,949 11,202 13,151 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 22,457,042 (2010: 18,328,238). 10. Investments at fair value through profit or loss Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Investments as below 102,198 84,343 102,198 82,340 Group Group Group Company Company Company Listed Unlisted Total Listed Unlisted Total £'000 £'000 £'000 £'000 £'000 £'000 Opening cost at 1st 67,038 25 67,063 65,574 25 65,599 August 2010 Opening unrealised 17,286 (6) 17,280 16,747 (6) 16,741 appreciation at 1st August 2010 Opening fair value at 84,324 19 84,343 82,321 19 82,340 1st August 2010 Purchases at cost 30,830 56 30,886 29,833 56 29,889 Sales proceeds (27,539) (1) (27,540) (24,214) (1) (24,215) Realised gains on sales 4,642 (24) 4,618 3,778 (24) 3,754 Increase in unrealised 9,830 61 9,891 10,369 61 10,430 appreciation Closing fair value at 102,087 111 102,198 102,087 111 102,198 31st July 2011 Closing cost at 31st 74,971 56 75,027 74,971 56 75,027 July 2011 Closing unrealised 27,116 55 27,171 27,116 55 27,171 appreciation at 31st July 2011 Closing fair value at 102,087 111 102,198 102,087 111 102,198 31st July 2011 Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Realised gains on disposals 4,618 2,813 3,754 1,071 Increase in unrealised appreciation 9,891 9,642 10,430 9,083 Return on risk management strategies (700) (1,071) (700) (1,071) 13,809 11,384 13,484 9,083 11. Subsidiary undertakings Company 2011 2010 £'000 £'000 Shares at fair value 2,180 2,180 In the opinion of the Directors, there is no material difference between the book value and fair value of these investments. The Company has investments in the following subsidiary undertakings: Name of undertaking Principal Country of % of shares held Activity incorporation Ordinary Preference and operation shares shares OSP Limited Trading company Guernsey 100 - Stakeholders' Momentum Investment England 100 - Investment Ltd company Manchester & London Securities Dormant England 100 - Limited Saintclose Limited Dormant England 100 - Beacontree Plaza Limited Dormant England 100 100 Beaconbranch Limited Dormant England 100* - Darethrift Limited Dormant England 100 - Fileglow Limited Dormant England 100 - Zealgate Limited Dormant England 100 - All these subsidiary undertakings are included in the consolidation. *Beaconbranch Limited is 100 per cent owned by Beacontree Plaza Limited. 12. Trade and other receivables Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Receivables from subsidiary undertakings - - 1,300 256 Investment debtor 26 41 26 41 Prepayments 17 14 17 13 Other receivables 160 285 90 69 203 340 1,433 379 13. Cash and cash equivalents Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Cash & cash equivalents 7,693 2,029 4,823 1,009 For the purposes for the statement of cash flows, cash and cash equivalents are stated net of overdrafts and other bank borrowings. Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Cash & cash equivalents 7,693 2,029 4,823 1,009 Overdrafts and other bank borrowings (94) (4) (94) (4) 7,599 2,025 4,729 1,005 14. Borrowings During the period, the Company arranged a Flexible Revolving Loan Facility with a limit of £11m with Pershing Securities Limited, a subsidiary of The Bank of New York Mellon Corporation. No arrangement fee is payable on this facility and interest is charged at the Bank of England Base Rate plus three per cent per annum on drawdowns. This facility is secured against the Company's investments. As at 31st July 2011, the balance on the Loan facility was £10,868,000 (2010: £ nil). 15. Trade and other payables Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Bank overdrafts 94 4 94 4 Trade payables and accruals 223 315 140 190 Payables to subsidiary undertakings - - 1,318 479 317 319 1,552 673 16. Provisions 2011 2010 £'000 £'000 Balance as at 1st August 1,416 - Net payment (958) - Provisions (released)/made (458) 1,416 in year Balance as at 31st July - 1,416 As at 31st July 2010, SMIL was involved in legal disputes with Unicorn Asset Management Limited and Knox D'Arcy Asset Management Limited ("KDAM"), who were both previous investment managers to SMIT. These claims were settled during the year. 17. Share Capital Ordinary share capital 2011 2010 No. No. (`000) £'000 (`000) £'000 Authorised Ordinary shares of 25p each 28,000 7,000 28,000 7,000 Non-voting Convertible Preference shares 1,000 1,000 1,000 1,000 of £1 each Ordinary shares of 25p each issued and fully paid Balance as at 1st August 22,457 5,614 17,505 4,376 Issue of shares - - 4,952 1,238 Balance as at 31st July 22,457 5,614 22,457 5,614 There were no issued non-convertible preference shares in issue during the years to 31st July 2011 and 2010. 18. Own shares At 31st July 2010, the Company held 52 shares at a book value of £177. These shares were disposed of during the year. 19. Net asset value per share Net asset value Net assets per share Attributable 2011 2010 2011 2010 p p £'000 £'000 Ordinary shares: basic and fully 437.6 379.4 98,267 85,203 diluted The basic net asset value per ordinary share is based on net assets at the year end and 22,457,042 (2010: 22,457,042) ordinary shares in issue, adjusted for any shares held in treasury. 20. Risks - Derivatives, other financial instruments and other risks 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 2011 are shown in the 'Portfolio Investments' table. 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 statement of comprehensive income and the net assets attributable to equity holders of the Company would increase by £3,725,000. A 3 per cent decrease in share prices would have resulted in an equal and opposite effect of £3,725,000, 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 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Non-current assets Investments at fair value through 102,198 84,343 102,198 82,340 profit and loss Current assets Derivative financial instruments 22,074 4,394 14,937 2,317 124,272 88,737 117,135 84,657 During the year the Company transacted in CFDs, and its subsidiaries traded in various derivative 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 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Current assets Derivative financial instruments 22,074 4,394 14,937 2,317 Current liabilities Derivative financial liabilities (22,716) (4,168) (15,313) (2,179) (642) 226 (376) 138 Interest rate risk Interest rate risk arises from uncertainty over the interest rates charges by financial institutions. It represents the potential increased costs of financing for the Group. The Investment Manager actively monitors interest rates and the Group's ability to meet its financing requirements throughout the year and reports to the Board. At 31st July 2011, there is a flexible loan facility within the Group. See note 14 for further details. 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 2011 the financial liabilities comprised: Group Company 2011 2010 2011 2010 £'000 £'000 £'000 £'000 Balance due to brokers 22,716 4,168 15,313 2,179 Loan facility 10,868 - 10,868 - Provisions - 1,416 - - Trade payables and accruals 317 319 234 194 33,901 5,903 26,415 2,373 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 2011, all the Group's financial instruments were mainly denominated in sterling and so there was no significant currency risk. Only Jardine Matheson stock and HMS Hydraulics stock with market values of £ 4,188,000 and £3,410,000 respectively, are denominated in US Dollars, and only Syngenta stock with a market value of £4,625,000 is denominated in Swiss Francs. The combined value represents 9.8 per cent of the Group's investments. 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. 21. Related party transactions The Investment Manager of the Company is Midas Investment Management Limited ("Midas"), a company controlled by Mr B S Sheppard and his immediate family. Midas receives a quarterly investment management fee for these services which in the year under review amounted to a total of £489,000 (2010: £352,000) excluding VAT, together with a corporate fee for acting as financial adviser amounting to £30,000 (2010: £30,000) excluding VAT and commission fees of £ 132,000 (2010: £259,000). The balance owing at 31 July 2011 was £67,000 (2010: £109,000). As at 31st July 2011, the Company had the following outstanding interest free loans: i. £1,292,000 due from OSP (2010: £462,000 due to OSP). ii. £1,301,000 due to SMIL (2010: £248,000 due from SMIL). iii. £10,000 due from Saintclose Limited (2010: £10,000). iv. £8,000 due to Manchester & London Securities Limited (2010: £8,000). v. £7,000 due from Beacontree Plaza Limited (2010: £7,000). 22. Capital Management There are no externally imposed capital requirements. The capital managed is noted in the Statements of Changes in Equity and managed in accordance with the Investment Policies and Objectives. 23. 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. 24. Annual General Meeting The Company's thirty ninth Annual General Meeting will be held at The Midland Hotel, Peter Street, Manchester M60 2DS, on Wednesday 23rd November 2011 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.

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