Manchester&lon. Regulatory News (MNL)

MANCHESTER AND LONDON INVESTMENT TRUST PLC

(the “Company”)

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2023

The full Annual Report and Financial Statements for the year ended 31 July 2023 can be found on the Company’s website at www.mlcapman.com/manchester-london-investment-trust-plc.

STRATEGIC REPORT

Financial Summary

(i) NAV as at 31 July 2023 includes a net £289,000 decrease in respect of share buybacks (2022: £1,509,000).

(ii) Total return including dividends reinvested, as sourced from Bloomberg.

(iii) The Company’s benchmark is the MSCI UK Investable Market Index (“MXGBIM” or the “benchmark”), as sourced from Bloomberg.

* Based on total expenses, excluding finance costs and certain non-recurring items for the year and average monthly NAV.

† Alternative performance measure. Details provided in the Glossary below.

CHAIRMAN’S STATEMENT

Introduction & Performance

After a difficult financial year in 2022 due to the material rerating of long duration growth equities, I am pleased to report a solid performance for this financial year resulting in a NAV total return per Share of 15.3%*. The Manager’s multi-year interest in and studying of Artificial Intelligence put the fund in a good position to capitalise on the change in tide as 2023 dawned. The year in financial market terms can be summarised as a story of inflation, how high will it go, can it be controlled, how sticky will it be? Whilst we have a better feel for these questions, they are in no way fully answered yet.

Discount Management, PDMRs & Buy Backs

At the year end, the Shares traded at a 18.1% discount to their NAV per Share, compared to a discount of 21.1% in 2022. The Company bought 77,037 shares into Treasury during the year. The Board supports the Manager’s subjective view that buying back shares to close discounts is akin to “Canute commanding the tide” and that the discount will only close when 10 year Treasury yields are clearly on a downward path and growth shares are back in vogue. We note that the other Investment Trust Companies that focus on investing in Technology are on similar free float adjusted discounts. The Directors and the Managers bought a net total of 168,298 shares (with a value of £0.7m) during the financial year.

Board Composition

The Company notes that more than 20% of votes were cast against the resolution to re-elect Daniel Wright as a Director of the Company at the last AGM, the results of which were released on 21 November 2022. The UK Corporate Governance Code requires companies to provide an update within six months of an AGM where more than 20% of votes were cast against a resolution.

To better understand shareholders concerns with a view to identifying how such concerns can be addressed, the Board of the Company via the Manager reached out to shareholders to gain an understanding of their concerns. Communication was sent to a number of shareholders including (but not exclusively) Nortrust Nominees Ltd, Vidacos Nominees Ltd, L&G Asset Management and Fidelity Investment Services Limited. Excluding State Street Nominees Ltd (who indicated they may consider altering their voting next year), no conclusive responses were received from the remaining shareholders of the Company.

Following this feedback, the Manager believes that this vote against my re-election is due to the composition of the Board being insufficiently gender diversified. As such, and as noted on page 38 of the full Annual Report, the Manager has invited any interested parties who can diversify the composition of the Board and have some knowledge of investment or Technology operations to indicate their interest in becoming a non-executive director of the Company by emailing them at ir@mlcapman.com. We remain committed to diversifying the board with appropriately talented individuals.

Annual General Meeting

Our fifty first Annual General Meeting (“AGM”) will be held virtually on 1 November 2023 at 12.00 noon.

We are aware that some Shareholders prefer physical AGMs and, although they are materially more expensive, we do see some benefits in undertaking a physical/virtual hybrid every three years or so. However, with our Net Asset Value per Share below its value as at 31st July 2021, we believe that saving costs is a more important consideration.

The notice of AGM will be provided to shareholders and will also be available on the Company’s website. Detailed explanations on the formal business and the resolutions to be proposed at the AGM is contained within the Shareholder Information section of the Annual Report and Accounts as well as the Notice of AGM.

Environmental, Social And Governance Matters (“ESG”)

We continue to keep abreast of ESG developments. The Manager is responsible for considering ESG factors in the investment process, while the Board’s role is supervisory.

The portfolio does not contain any stocks in the following sectors:

1. Energy and Fossil Fuels: The energy sector, particularly companies involved in fossil fuel extraction and production, has been criticised for its environmental impact due to greenhouse gas emissions, oil spills, and other pollution-related issues.

2. Mining and Metals: The mining sector allegedly has significant environmental impacts due to resource extraction, habitat disruption, and waste generation. Concerns also arise regarding labour practices and community displacement in some cases.

3. Tobacco: The tobacco industry is often seen as having negative social impacts due to health risks associated with smoking, marketing practices targeting vulnerable populations, and legal controversies.

4. Heavy Manufacturing: Industries such as heavy manufacturing and heavy chemicals might have higher environmental impacts due to emissions, waste production, and energy consumption.

5. Utilities: While the utilities sector is essential for providing energy, the environmental impact of some energy generation methods (such as coal) and concerns about emissions can impact the sector’s ESG performance.

6. Agriculture: Certain agricultural practices, such as large-scale monoculture farming and excessive pesticide use, can have negative environmental consequences, impacting the agricultural sector’s ESG factors.

7. Fast Fashion: The fashion industry can have social and environmental issues related to labour practices, waste generation, and resource consumption.

As at 31 July 2023, the portfolio has a Sustainalytics Environment score of 84.4% (where 50% is the median).

Outlook

I also believe that we are in a new era to be defined by Artificial Intelligence (“AI”), and that this technology is so powerful it is quite possible that its growth can continue to overpower a challenging economic and geo-political backdrop. However, the geo-political risks that lie ahead should not be under-estimated.

Daniel Wright

Chairman

27 September 2023

*Source: Bloomberg. See Glossary below.

MANAGER’S REVIEW

Market Review

In 2022, the global market experienced a significant shift as central banks took measures to rein in the economy and address inflation concerns. Contrary to expectations of “transitory inflation”, prices continued to rise, leading to global inflation rates well above pre-pandemic levels. To combat inflation, central banks implemented unprecedented interest rate hikes. The US Federal Reserve raised rates by 450 basis points, including four 75bps hikes, and resumed quantitative tightening. This tightening of monetary policy led to a sharp increase in risk-free rates, negatively impacting asset prices especially for long duration assets. The longer the duration, the worse the return, with even the normally safe ten-year US Treasuries and government bonds in Japan, Europe, and the UK all recording substantial losses. Global equities responded negatively to higher sovereign yields, recession risks, and negative earnings revisions. The Nasdaq 100 Index experienced significant declines, posting its worst performance since 2008.

However, 2023 started on a more positive note as disinflationary data, lower energy prices, and better-than-expected company earnings provided some relief. Tech-heavy indices like the NASDAQ Composite started to recover and we were ready for that event. There were many concerns through 2023 such as the collapse of Signature Bank and Silicon Valley Bank in March and Credit Suisse in the Summer. However, the tech heavy indices kept grinding higher as the optimists saw an end to the period of ever rising rates.

So it was a game of two halves with H2 2022 marked by inflationary pressures, interest rate hikes, and significant market losses and H1 2023 the start of the long road of recovery. This was the period of the Polycrisis.

“The polycrisis emerged as a global phenomenon in 2022-2023. Dozens of environmental, social, technological, and economic stressors are interacting with increasing velocity.”

– The Omega Network.

Technology Review

2022 saw an ugly unwinding of the performance of the perceived “Covid winners” and an exodus from unprofitable technology stocks. Longer-duration assets with limited valuation support, such as Tesla and the ARK Innovation fund faced declines of over 60%. Nonsense assets like alternative coins and their platforms, non-fungible tokens (“NFTs”), and Special Purpose Acquisition Companies (“SPACs”) collapsed.

As we have written many times before, we shifted out of “Soft Tech” names into “Hard Tech” names and repositioned with “AI Core & Central” to our portfolio. Luckily, when the technology sector’s fortunes reversed in the early part of 2023, profitable “Hard Tech” stocks caught the first bid and then Artificial Intelligence (“AI”) came along sending some of our holdings rocketing higher. Large-cap technology companies and Semiconductor stocks saw positive performances due to AI enthusiasm and cloud & datacentre revenues remained relatively resilient even through some optimisation of spend.

“The Global Semiconductors Market reached US$640.6 billion in 2022 and is expected to reach US$1,132.8 billion by 2030, growing with a CAGR of 7.5% during the forecast period 2023-2030.”

– DataM Intelligence.

Portfolio Review

The portfolio’s NAV total return per Share of 15.3%* represented a 10.2%* outperformance against the benchmark and compared to a 10.6%* return for the Nasdaq Composite (in GBP) and a 16.5%* return for the Nasdaq 100 Technology subindex (in GBP).

The 5.7% increase in the value of Sterling against the US Dollar over the year was a headwind for performance due to the significant level of US Dollar exposure in the portfolio. Overall, we estimate that the loss in portfolio performance from Foreign Exchange was roughly 5.5%.

The Total Return of the portfolio broken down by sector holdings in local currency (separating costs and foreign exchange) is shown below:

*Source: Bloomberg.

Information Technology

The Information Technology sector delivered roughly 186.8% of the negative NAV total return per Share.

Material positive performers (>1% contribution to return) included NVIDIA Corp, Microsoft Corp, Advanced Micro Devices Inc, Cadence Designs Systems Inc, ASML Holding NV and Synopsys Inc.

There were no material negative contributors.

The portfolio’s weighting to this sector (including options on a MTM basis) at the year end was 97.3% of the net assets (2022: 58.9%).

Communication Services

The Communication Services sector delivered roughly minus 21.1% of the NAV total return per share.

There were no material positive contributors.

Alphabet Inc was the only material negative contributor. Although the stock ended with a positive return for the year after a significant gain in FY H2 (+33.3% TR), we had materially reduced this position at lower prices earlier in the year. As explained in the interim results, we wrote a detailed article on the Company which we published on LinkedIn which set out the Action Points we needed to see from the Company to remain invested, and following no such actions from Alphabet, we cut the position significantly. It is worth noting that although we missed some of the upside from the stock’s second half rally, some of our “Hard Tech” holdings had an even stronger FY H2, such as NVIDIA Corp (+139.2% TR), Advanced Micro Devices Inc (+52.2% TR) and Microsoft Corp (+35.6% TR).

The portfolio’s weighting to this sector (including options on a MTM basis) at the year end was 5.1% of the net assets (2022: 25.3%).

Consumer Discretionary

The Consumer discretionary sector delivered roughly minus 21.3% of the NAV total return per share.

Amazon.com Inc was the only material negative contributor. Like Alphabet, we had materially reduced this position at lower prices in the first half of the year as outlined in the interim results, however, it should be noted that Amazon’s H2 return (29.6%) was inferior to the returns of the three “Hard Tech” holdings named in the section above.

The portfolio’s weighting to this sector (including options on a MTM basis) at the year end was 0.3% of the net assets (2022: 8.3%).

Other (including funds, ETFs and beta hedges)

Other holdings delivered roughly minus 3.2% of the NAV total return per Share.

PayPal Holdings Inc was the only material negative contributor in this sector.

The portfolio’s weighting to this sector (including options on a MTM basis) at the year end was 7.0% of the net assets (2022: -0.4%).

Market Outlook

After more than 525bps of US rate hikes over the past couple of years, the range of potential outcomes for the next 12 months now appears somewhat narrower. Advanced economies are expected to experience slower growth and inflation remains a key factor influencing monetary policy. China has shifted from a growth engine for the world to a deflation engine. We see geopolitical risks remaining between the US and China and continuing de-risking of supply chains.

Most major central banks are near the end of their rate tightening cycles. In the more medium term, inflation is expected to fall, and there are even signs of future disinflation in parts. While risks remain, the possibility of 10 year Treasury yields falling with improving inflation prints provides optimism for stock returns. The US economy’s situation is unique, and while recession risk exists, the outturn may well be much better than previously anticipated. We do believe that our portfolio of long duration assets may be more interest rate sensitive than it is sensitive to a mild recession.

“The only function of economic forecasting is to make astrology look respectable.”

– J K Galbraith.

Market Risks

The primary challenges to equities remain inflation, recession, regulation, energy prices and war. Central banks aim to prevent entrenched price changes, but it is difficult to calibrate monetary policy to prevent transitions to high inflation regimes. The Fed’s preferred measure, the PCE price index, has fallen but history has seen reversals before. We are hopeful that, over time, productivity gains can assist in reducing inflation.

Recession risk is always a concern when the Fed has been so active in attempting to slow the economy but we would remind readers that the areas of technology that we are invested in are often considered more defensive. Geopolitical risks, such as the conflict in Ukraine and US-Sino relations, also pose very material concerns. China, Iran, N Korea and Russia are all bad actors that can cause numerous horrific events that could cause material downside for the markets. The companies in our portfolio have a material exposure to China and Taiwan and hence we have been active at various times during the year at laying on hedges against this risk. We are constantly watching the oil price with anxiety.

“A cynic is a man who knows the price of everything, and the value of nothing.”

– Oscar Wilde

Technology Outlook

IT spending is expected to increase by ~5% over the next 12 months. The technology sector is projected to deliver above-market growth in 2024 with projected revenues and earnings progress of ~8% and ~16% respectively (Source: Bloomberg). Our portfolio is forecast by Bloomberg estimates to see projected revenues and earnings progress of ~16% and ~21% respectively. Forecasts are mainly useless apart from providing some relative indications. Technology stocks have seen their valuations recover but a lot of the over-hyped stocks from 2021/2 are a long way from fully recovered in terms of valuations. We see a lot of these names ultimately being disrupted by AI and hence they look expensive “Value Traps” to us.

The post-pandemic period has led to a challenging demand normalisation with even cloud demand seeing optimisation. Sensible companies are adopting a slower and more sensible growth playbook, focusing on profitability, by undertaking cost-cutting initiatives. Despite the revenue growth slowdown, the best companies are expected to continue growing.

“I do not fear computers. I fear the lack of them.”

– Isaac Asimov

AI Outlook

We see continued strong spending by enterprises on digital transformation, cloud, and cybersecurity but the outlier for the next 12 months will surely be AI. The progress of AI is embryonic compared to its immense era defining potential. As we have said many times before, we are investing in the “picks and shovels providers” and especially the hyper-scalers, EDA providers and the semiconductor designers. The latter is forecast to capture up to 50% of AI’s associated value and we would guess that NVIDIA will get the lion’s share of that. We would predict that in a couple of years many investors will rue their underweight position in NVIDIA today. We have positioned our portfolio so that a vast majority of our holdings have AI “core and central” to their business purpose. If AI is the era defining technology wave we believe it to be, the portfolio should perform very well, and vice versa.

“The only constant is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”

– Isaac Asimov

AI & Technology Risks

Regulatory challenges, misinformed Luddite braying and ethical concerns surround AI, but its transformative capabilities are expected to overpower these headwinds. We would guess that we may also start to hear more about the incredible abilities of non-generative AI over the next 12 months although we would concede that generative AI does now seem to be positioned as the front-end AI user interface model.

Unsurprisingly to some, we are also starting to study more about Quantum Computing as we see this as the next era of computing after AI. We would note the famous quip by Max Planck:

“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”

Multiple more general risks exist for our medium-term constructive view on technology. We may have misunderstood how AI will disrupt incumbent software and technology companies and we certainly feel some other investors are underestimating this risk. There may be a new technological change that we have not foreseen such as the arrival of Quantum sooner than expected. China may surpass the USA in technological advancement rendering the US technology companies as disrupted. Valuations are also always a concern, as the recent surge in technology stocks has pushed sector valuations back to higher than 5 year average levels.

Regulation remains a key risk, though a divided Congress makes legislation less likely. However, as Europe sees itself fall further and further behind in the AI era then regulation becomes perversely more likely. Souring US-Sino relations are likely to further negatively impact supply chains, especially in semiconductors, and Taiwan’s role as the leading semiconductor producer coupled with China’s territorial ambitions adds a huge risk to world peace.

Concentration Risk

We always seek as diversified a portfolio as we can possibly construct but we must address the concentration risk within our portfolio. Our top two holdings - Microsoft, and Nvidia - represented around 50% of our NAV and our top 5 holdings represent about 75% of our portfolio. Sadly, we do believe the outstanding winners from the AI era may, in time, be counted on the fingers of two hands. So what are we meant to do: diversify to dilute performance? The conclusion to this risk is that our Fund should form part of a wide and diversified portfolio for our shareholders. Please do not over-concentrate on our Fund if you cannot afford to bear potential loss. It is worth noting that according to two of the leading ratings agencies MSFT has a better credit rating than US sovereign debt.

May I remind you of our limits on these metrics:

“No single holding will represent more than 20%. of gross assets at the time of investment. In addition, the Company’s five largest holdings (by value) will not exceed (at the time of investment) more than 75%. of gross assets”

We do prioritise risk reduction in our approach, aiming to partially hedge specific risks that concern us (but hedging requires luck in its timing) and avoiding any holdings that give us nagging doubts.

“Three-quarters of Warren Buffett’s equity portfolio are tied up in just 5 stocks.”

– CNBC headline August 2023.

Conclusion

The risks are varied, numerous and material but the era of AI is just beginning. Technology offers investors a first-class ticket to what could be one of the most exciting investment periods of the century.

Long the Future.

M&L Capital Management Limited

Manager

27 September 2023

*Source: Bloomberg. See Glossary below.

Equity exposures and portfolio sector analysis

Equity exposures (longs)

As at 31 July 2023

*GICS – Global Industry Classification Standard.

**Including equity swap exposures as detailed in note 13.

Portfolio sector analysis (excluding options and short equity swap hedges)

As at 31 July 2023

PRINCIPAL PORTFOLIO EQUITY HOLDINGS

The positions described below have an Exposure that aggregates to 97.8% of Net Assets.

Microsoft Corporation (“Microsoft”)

Microsoft is a global enterprise software company and a leader in cloud computing, business software, operating systems and gaming.

NVIDIA Corporation (“NVIDIA”)

NVIDIA is the market leader in GPUs. Whilst originally created for graphics processing, specialised GPUs are also key in the training and inference of AI models due to their parallel processing capabilities. Following the emergence of Chat GPT, which demonstrated the immense potential of generative AI, NVIDIA has reported surging demand for its AI chips. NVIDIA currently has a dominant position in the AI chip hardware market and has also built a strong position in the wider software ecosystem for AI training and inference (for example with their CUDA platform). As a result, NVIDIA has become the preferred partner for many enterprises seeking to harness the potential of AI.

ASML Holding NV (“ASML”)

ASML is a producer of Semiconductor manufacturing equipment, with a near monopoly in advanced EUV lithography, which is one of the leading edge production technologies in the industry’s never ending quest to make smaller and more advanced Semiconductor chips (Integrated Circuits used in a wide variety of electronic devices).

Advanced Micro Devices Inc. (“AMD”)

AMD is a semiconductor company that designs and manufactures a range of microprocessors, graphics processing units (GPUs), and related technologies. Established in 1969, AMD has played a crucial role in the evolution of computing hardware, providing innovative solutions for both consumer and enterprise markets. Like NVIDIA, AMD has leveraged its GPU technology to make notable strides in the field of AI chips and accelerators. AMD’s entrance into the AI chip market presents a competitive alternative to industry leader Nvidia going forward, offering customers more options when selecting hardware for their AI workloads.

Cadence Design Systems Inc. (“Cadence”)

Cadence is a leading EDA (electronic design automation) company primarily delivering software and Intellectual Property for electronic design in the Semiconductor industry. EDA software is mission critical to Semiconductor chip design, particularly as the demands on Semiconductor chip capabilities continues to increase. The majority of the EDA market is controlled by three players; Cadence, Synopsys and Siemens. Unlike the highly cyclical Semiconductor manufacturers, the EDA software market has a very high degree of recurring revenue and growth tends to be more correlated to Semiconductor R&D than Capital or Operational Expenditure within the industry.

Synopsys Inc (“Synopsys”)

Similar to Cadence, Synopsys is an EDA company that focuses on Semiconductor chip design software and verification tools (such as finding and resolving bugs in Semiconductor chip designs).

Arista Networks Inc. (“Arista”)

Arista is a technology company that specialises in providing networking solutions for data centres and cloud environments. The company’s products encompass a range of switches, routers, and software-defined networking (SDN) solutions, designed to meet the demands of modern data-intensive applications and the dynamic requirements of cloud computing. Arista’s solutions often emphasise low-latency, high- speed data transmission, making it a key player in the networking industry, particularly for enterprises seeking advanced infrastructure solutions. As a result, Arista is heavily exposed to cloud capex from the hyperscale cloud providers.

Alphabet Inc. (“Alphabet”)

Alphabet is a global technology company with products and platforms across a wide range of technology verticals, including online advertising, cloud computing, autonomous vehicles, artificial intelligence and smart phones.

Oracle Corporation (“Oracle”)

Oracle Corporation is a multinational technology company that specialises in providing a wide range of software, hardware, and cloud-based services to businesses and organisations. Founded in 1977, Oracle is best known for its robust database management systems, which are widely used to store, retrieve, and manage large volumes of structured and unstructured data. The company’s extensive portfolio includes enterprise software applications for various functions like customer relationship management (CRM), enterprise resource planning (ERP), human capital management (HCM), and more. Oracle also offers cloud services that encompass infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS), enabling clients to leverage cloud computing for enhanced scalability, efficiency, and flexibility. With a significant presence in both hardware and software markets, Oracle plays a critical role in supporting modern business operations and digital transformation efforts across industries.

PayPal Inc. (“PayPal”)

PayPal is an online payments platform that enables individuals and businesses to send and receive money securely over the internet. Founded in 1998, PayPal revolutionised the way electronic transactions were conducted by offering a convenient and widely accepted alternative to traditional methods.

All Equity & Debt portfolio holdings

As at 31 July 2023

For an explanation of why we report exposures on a Delta Adjusted basis please read our FAQ at https://mlcapman.com/faq/

Investment record of the last ten years

* Basic and fully diluted.

Business model

The Company is an investment company as defined by Section 833 of the Companies Act 2006 and operates 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 the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (the “FCA”) and is listed on the Premium Segment of the Main Market of the London Stock Exchange.

A review of investment activities for the year ended 31 July 2023 is detailed in the Manager’s review on pages 7 to 11 of the full Annual Report.

Investment objective

The investment objective of the Company is to achieve capital appreciation.

Investment policy

Asset allocation

The Company’s investment objective is sought to be achieved through a policy of actively investing in a diversified portfolio, comprising any of global equities and/or fixed interest securities and/or derivatives.

The Company may invest in derivatives, money market instruments, currency instruments, contracts for differences (“CFDs”), futures, forwards and options for the purposes of (i) holding investments and (ii) hedging positions against movements in, for example, equity markets, currencies and interest rates.

The Company seeks investment exposure to companies whose shares are listed, quoted or admitted to trading. However, it may invest up to 10% of gross assets (at the time of investment) in the equities and/or fixed interest securities of companies whose shares are not listed, quoted or admitted to trading.

Risk diversification

The Company intends to maintain a diversified portfolio and it is expected that the portfolio will have between approximately 20 to 100 holdings. No single holding will represent more than 20% of gross assets at the time of investment. In addition, the Company’s five largest holdings (by value) will not exceed (at the time of investment) more than 75% of gross assets.

Although there are no restrictions on the constituents of the Company’s portfolio by geography, industry sector or asset class, it is intended that the Company will hold investments across a number of geographies and industry sectors. During periods in which changes in economic, political or market conditions or other factors so warrant, the Manager may reduce the Company’s exposure to one or more asset classes and increase the Company’s position in cash and/or money market instruments.

The Company will not invest more than 15% of its total assets in other listed closed-ended investment funds. However, the Company may invest up to 50% of gross assets (at the time of investment) in an investment company subsidiary, subject always to the other restrictions set out in this investment policy and the Listing Rules.

Gearing

The Company may borrow to gear the Company’s returns when the Manager believes it is in Shareholders’ interests to do so. The Company’s Articles of Association (“Articles”) restrict the level of borrowings that the Company may incur up to a sum equal to two times the net asset value of the Company as shown by the then latest audited balance sheet of the Company.

The effect of gearing may be achieved without borrowing by investing in a range of different types of investments including derivatives. Save with the approval of Shareholders, the Company will not enter into any investments which have the effect of increasing the Company’s net gearing beyond the limit on borrowings stated in the Articles.

General

In addition to the above, the Company will observe the investment restrictions imposed from time to time by the Listing Rules which are applicable to investment companies with shares listed on the Official List of the FCA.

No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.

In the event of any breach of the investment restrictions applicable to the Company, Shareholders will be informed of the remedial actions to be taken by the Board and the Manager by an announcement issued through a regulatory information service approved by the FCA.

Investment Strategy and Style

The fund’s portfolio is constructed with flexibility but is primarily focused on stocks that exhibit the attributes of growth.

Target Benchmark

The Company was originally set up by Brian Sheppard as a vehicle for British retail investors to invest in with the hope that total returns would exceed the total returns on the UK equity market. Hence, the benchmark the Company uses to assess performance is one of the many available UK equity indices being the MSCI UK Investable Market Index (MXGBIM). The Company has used this benchmark to assess performance for over five years but is not set on using this particular UK Equity index forever into the future and currently uses this particular UK Equity index because at the current time it is viewed as the most cost advantageous of the currently available UK Equity indices (which have a high degree of correlation and hence substitutability). However, once the Company announces the use of an index, then this index should be used across all of the Company’s documentation.

Investments for the portfolio are not selected from constituents of this index and hence the investment remit is in no way constrained by the index, although the Manager’s management fee is varied depending on performance against the benchmark. It is suggested that Shareholders review the Company’s Active Share Ratio that is on the fund factsheets as this illustrates to what degree the holdings in the portfolio vary from the underlying benchmark.

Environmental, Social, Community and Governance

The Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is not, therefore, obliged to make a slavery and human trafficking statement. In any event, the Company considers its supply chains to be of low risk as its suppliers are typically professional advisers.

In its oversight of the Manager and the Company’s other service providers, the Board seeks assurances that they have regard to the benefits of diversity and promote these within their respective organisations. The Company has given discretionary voting powers to the Manager. The Manager votes against resolutions they consider may damage Shareholders’ rights or economic interests and reports their actions to the Board. The Company believes it is in the Shareholders’ interests to consider environmental, social, community and governance factors when selecting and retaining investments and has asked the Manager to take these issues into account. The Manager does not exclude companies from their investment universe purely on the grounds of these factors but adopts a positive approach towards companies which promote these factors. The portfolio’s Sustainalytic’s Environmental Percentile was 84.4% as at 31 July 2023.

The Company notes the Task Force on Climate-related Financial Disclosures (‘TCFD’) reporting recommendations. However, as a listed investment company, the Company is not subject to the Listing Rule requirement to report against the framework. The Company fully recognises the impact climate change has on the environment and society, and information on the Manager’s endeavours on ESG can be found on page 42 of the full Annual Report. The Manager continues to work with the investee companies to raise awareness on climate change risks, carbon emission and energy efficiency.

Stakeholder Engagement

The Company’s s172 Statement can be found in the Corporate Governance Statement on pages 35 to 44 of the full Annual Report and is incorporated into this Strategic Report by reference.

Dividend policy

The Company may declare dividends as justified by funds available for distribution. The Company will not retain in respect of any accounting period an amount which is greater than 15% of net revenue in that period.

Recurring income from dividends on underlying holdings is paid out as ordinary dividends.

Results and dividends

The results for the year are set out in the Statement of Comprehensive Income on page 68 of the full Annual Report and in the Statement of Changes in Equity on page 69 of the full Annual Report.

For the year ended 31 July 2023, the net revenue return attributable to Shareholders was £1,479,000 (2022: negative £1,668,000) and the net capital return attributable to Shareholders was £27,275,000 (2022: negative £59,494,000). Total Shareholders’ funds increased by 11.5% to £221,379,000 (2022: £198,546,000).

The dividends paid/proposed by the Board for 2022 and 2023 are set out below:

Subject to the approval of Shareholders at the forthcoming AGM, the proposed final ordinary dividend will be payable on 8 November 2023 to Shareholders on the register at the close of business on 6 October 2023. The ex-dividend date will be 5 October 2023.

Further details of the dividends paid in respect of the years ended 31 July 2023 and 31 July 2022 are set out in note 7 below.

Principal risks and uncertainties

The Board considers that the following are the principal risks and uncertainties facing the Company. The actions taken to manage each of these are set out below. If one or more of these risks materialised, it could potentially have a significant impact upon the Company’s ability to achieve its investment objective. These risks are formalised within the risk matrix maintained by the Company’s Manager.

In addition to the above, the Board considers the following to be the principal financial risks associated with investing in the Company: market risk, interest rate risk, liquidity risk, currency rate risk and credit and counterparty risk. An explanation of these risks and how they are managed along with the Company’s capital management policies are contained in note 16 of the Financial Statements.

The Board, through the Audit Committee, has undertaken a robust assessment and review of all the risks stated above and in note 16 of the Financial Statements, together with a review of any emerging or new risks which may have arisen during the year, including those that would threaten the Company’s business model, future performance, solvency or liquidity. Whilst reviewing the principal risks and uncertainties, the Board considered the impact of the COVID-19 pandemic and the implications of the Russia conflict on the Company, concluding that these events did not materially affect the operations of the business.

In accordance with guidance issued to directors of listed companies, the Directors confirm that they have carried out a review of the effectiveness of the systems of internal financial control during the year ended 31 July 2023, as set out on pages 41 to 42 of the full Annual Report. There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.

Further discussion about risk considerations can be found in the Company’s latest prospectus available at https://mlcapman.com/manchester-london-investment- trust-plc/

Year-end gearing

At the year end, gross long equity exposure represented 112.4% (2022: 101.65%) of net assets.

Key performance indicators

The Board considers the most important key performance indicator to be the comparison with its benchmark index. This is referred to in the Financial Summary above.

Other key measures by which the Board judges the success of the Company are the Share price, the NAV per Share and the ongoing charges measure.

Total net assets at 31 July 2023 amounted to £221,379,000 compared with £198,546,000 at 31 July 2022, an increase of 11.5%, whilst the fully diluted NAV per Share increased to 550.79p from 493.04p. During the year, Ordinary Shares were bought back and held in treasury at a cost of £289,000.

Net revenue return after taxation for the year was a positive £1,479,000 (2022: negative £1,668,000).

The quoted Share price during the period under review has ranged from a discount of 25.3% to 11.6%.

Ongoing charges, which are set out below, are a measure of the total expenses (including those charged to capital) expressed as a percentage of the average net assets over the year. The Board regularly reviews the ongoing charges measure and monitors Company expenses.

Future development

The Board and the Manager do not currently foresee any material changes to the business of the Company in the near future. As the majority of the Company’s equity investments are denominated in US Dollar, any currency volatility may have an impact (either positive or negative) on the Company’s NAV per Share, which is denominated in Sterling.

Management arrangements

Under the terms of the management agreement, MLCM manages the Company’s portfolio in accordance with the investment policy determined by the Board. The management agreement has a termination period of three months. In line with the management agreement, the Manager receives a variable portfolio management fee. Details of the fee arrangements and the fees paid to the Manager during the year are disclosed in note 3 to the Financial Statements.

The Manager is authorised and regulated by the FCA.

M&M Investment Company Limited (“MMIC”), which is controlled by Mr Mark Sheppard who forms part of the Manager’s management team, is the controlling Shareholder of the Company. Further details regarding this are set out in the Directors’ Report on page 31 of the full Annual Report.

Alternative Investment Fund Managers Directive (the “AIFMD”)

The Company permanently exceeded the sub-threshold limit under the AIFMD in 2017 and MLCM was appointed as the Company’s AIFM with effect from 17 January 2018. Following their appointment as the AIFM, MLCM receives an annual risk management and valuation fee of £59,000 to undertake its duties as the AIFM in addition to the portfolio management fees set out above.

The AIFMD requires certain information to be made available to investors before they invest and requires that material changes to this information be disclosed in the Annual Report.

Remuneration

In the year to 31 July 2023, the total remuneration paid to the employees of the Manager was £420,000 (2022: £465,000), payable to an average employee number throughout the year of three (2022: four).

The management of MLCM is undertaken by Mr Mark Sheppard and Mr Richard Morgan, to whom a combined total of £388,000 (2022: £392,000) was paid by the Manager during the year.

The remuneration policy of the Manager is to pay fixed annual salaries, with non-guaranteed bonuses, dependent upon performance only. These bonuses are generally paid in the Company’s Shares, released over a five-year period.

Leverage

The leverage policy has been approved by the Company and the AIFM. The policy limits the leverage ratio that can be deployed by the Company at any one time to 275% (gross method) and 250% (commitment method). This includes any gearing created by its investment policy. This is a maximum figure as required for disclosure by the AIFMD regulation and not necessarily the amount of leverage that is actually used. The leverage ratio as at 31 July 2023 measured by the gross method was 126.8% and that measured by the commitment method was 120.6%.

Leverage is defined in the Glossary below.

Risk profile

The risk profile of the Company as measured through the Summary Risk Indicator (“SRI”) score, is currently at a 6 on a scale of 1 to 7 as at 31 July 2023 (31 July 2022: 5). This score is calculated on past performance data using prescribed PRIIPS methodology. Liquidity, counterparty and currency risks are not captured on the scale. The Manager will periodically disclose the current risk profile of the Company to investors. The Company will make this disclosure on its website at the same time as it makes its Annual Report and Financial Statements available to investors or more frequently at its discretion.

For further information on SRI – including key risk disclaimers – please read the Fund Key Information Document available at https://mlcapman.com/manchester-london- investment-trust-plc/

Liquidity arrangements

The Company currently holds no assets that are subject to special arrangements arising from their illiquid nature. If applicable, the Company would disclose the percentage of its assets subject to such arrangements on its website at the same time as it makes its Annual Report and Financial Statements available to investors, or more frequently at its discretion.

Continuing appointment of the Manager

The Board keeps the performance of MLCM, in its capacity as the Company’s Manager, under continual review. It has noted the good long-term performance record and commitment, quality and continuity of the team employed by the Manager. As a result, the Board concluded that it is in the best interests of the Shareholders as a whole that the appointment of the Manager on the agreed terms should continue.

Human rights, employee, social and community issues

The Board consists entirely of non-executive Directors. The Company has no employees and day-to-day management of the business is delegated to the Manager and other service providers. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no human rights or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Further details of the Environmental, Social and Governance policy can be found in the Statement of Corporate Governance on pages 42 and 43 of the full Annual Report. Details of the Company’s Board composition and related diversity considerations can be found in the Statement of Corporate Governance on page 38 of the full Annual Report.

Gender diversity

At 31 July 2023, the Board comprised four male Directors. As stated in the Statement of Corporate Governance, the appointment of any new Director is made on the basis of merit.

Approval

This Strategic Report has been approved by the Board and signed on its behalf by:

Daniel WrightChairman

27 September 2023

DIRECTORS

The current Directors of the Company are:

Daniel Wright (Chairman of the Board)

Brett Miller

Sir James Waterlow

Daren Morris (Chairman of the Audit Committee and Senior Independent Director)

All the Directors are non-executive. Mr Morris, Sir James Waterlow and Mr Wright are independent of the Company’s Manager.

EXTRACTS FROM THE DIRECTORS’ REPORT

Share capital

As at 31 July 2023, the Company’s issued share capital comprised 40,528,238 Shares of 25 pence each, of which 335,220 were held in Treasury.

At general meetings of the Company, Shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every Share held. Shares held in Treasury do not carry voting rights.

In circumstances where Chapter 11 of the Listing Rules would require a proposed transaction to be approved by Shareholders, the controlling Shareholder (see page 31 of the full Annual Report for further details) shall not vote its Shares on that resolution. In addition, any Director of the Company appointed by MMIC, the controlling Shareholder, shall not vote on any matter where conflicted and the Directors will act independently from MMIC and have due regard to their fiduciary duties.

Issue of Shares

At the Annual General Meeting held on 21 November 2022, Shareholders approved the Board’s proposal to authorise the Company to allot Shares up to an aggregate nominal amount of £2,516,875. In addition, the Directors were authorised to issue Shares and sell Shares from Treasury up to an aggregate nominal value of £1,006,751 on a non-pre-emptive basis. This authority is due to expire at the Company’s forthcoming AGM on 1 November 2023.

There were no share issues during the year.

As at the date of this report, the total voting rights were 40,193,018.

Purchase of Shares

At the Annual General Meeting held on 21 November 2022, Shareholders approved the Board’s proposal to authorise the Company to acquire up to 14.99% of its issued Share capital (excluding Treasury Shares) amounting to 6,036,481 Shares. This authority is due to expire at the Company’s forthcoming AGM on 1 November 2023.

During the year, 77,037 Shares have been bought back and at the date of this report there were 40,528,238 Shares in issue of which 335,220 were held in treasury. The total amount paid for these Shares was £289,000 at an average price of 375 pence per Share.

Sale of Shares from Treasury

At the Annual General Meeting held on 21 November 2022, Shareholders approved the Board’s proposal to authorise the Company to waive pre-emption rights in respect of Treasury Shares up to an aggregate amount of £1,006,751 and to permit the allotment or sale of Shares from Treasury at a discount to a price at or above the prevailing NAV. This authority is due to expire at the Company’s forthcoming AGM on 1 November 2023.

No Shares were sold from Treasury during the year. As at the date of this report, 335,220 Shares are held in Treasury.

Going concern

The Directors consider that it is appropriate to adopt the going concern basis in preparing the Financial Statements. After making enquiries, and considering the nature of the Company’s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company’s ability to meet obligations as they fall due for a period of at least 12 months from the date that these Financial Statements were approved.

Cashflow projections have been reviewed and provide evidence that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the dividend policy. Additionally, Value at Risk scenario analyses to demonstrate that the company has sufficient capital headroom to withstand market volatility are performed periodically.

Viability statement

The Directors have assessed the prospects of the Company over a five-year period. The Directors consider five years to be a reasonable time horizon to consider the continuing viability of the Company, however they also consider viability for the longer-term foreseeable future.

In their assessment of the viability of the Company, the Directors have considered each of the Company’s principal risks and uncertainties as set out in the Strategic Report on pages 21 to 23 of the full Annual Report and in particular, have considered the potential impact of a significant fall in global equity markets on the value of the Company’s investment portfolio overall. The Directors have also considered the Company’s income and expenditure projections and the fact that the Company’s investments mainly comprise readily realisable securities which could be sold to meet funding requirements if necessary. On that basis, the Board considers that five years is an appropriate time period to assess continuing viability of the Company.

In forming their assessment of viability, the Directors have also considered:

The Board has reviewed the influence of the COVID-19 pandemic on its service providers and is satisfied with the ongoing services provided to the Company.

Based upon these considerations, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period.

By order of the Board

Link Company Matters Limited

Company Secretary

27 September 2023

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Company’s Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial period. Under that law, they have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as 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 affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Financial Statements, the Directors are required to:

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Company 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.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and ensuring that the Annual Report includes information required by the Listing Rules and Disclosure Guidance and Transparency Rules of the FCA.

The Financial Statements are published on the Company’s website,www.mlcapman.com/manchester-london-investment-trust-plc, which is maintained on behalf of the Company by the Manager. The Manager has agreed to maintain, host, manage and operate the Company’s website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the Financial Statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the Financial Statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, business model and strategy.

On behalf of the Board

Daniel Wright

Chairman

27 September 2023

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 July 2023 and 31 July 2022 but is derived from those accounts. Statutory accounts for the year ended 31 July 2022 have been delivered to the Registrar of Companies and statutory accounts for the year ended 31 July 2023 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor’s report can be found on page 56 and further of the Company’s full Annual Report at www.mlcapman.com/manchester-london-investment-trust-plc.

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 July 2023

The total column of this statement is the Income Statement of the Company prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies (“AIC SORP”).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

There is no other comprehensive income, and therefore the return for the year after tax is also the total comprehensive income.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 July 2023

* Within the balance of the capital reserve, £33,340,000 relates to realised gains (2022: £15,871,000). Realised gains are distributable by way of a dividend. The remaining £57,681,000 relates to unrealised gains on financial instruments (2022: £47,875,000) and is non-distributable.

** Fully distributable.

STATEMENT OF FINANCIAL POSITION

As at 31 July 2023