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16 Mar 2012 09:46
Manchester and London Investment Trust plc ("MLIT" or the "Company")
ANNOUNCEMENT OF THE UNAUDITED INTERIM GROUP RESULTS
For the six months ended 31 January 2012
The Directors announce the unaudited interim group results for the six months ended 31 January 2012. The key results for the period were:
- The Net Asset Value per share has decreased by 14.7 per cent to 373.3p, an underperformance of 11.6 per cent on the performance of our benchmark index;
- The Directors have declared an interim dividend of 5.2p per share to be paid on 30 April 2012, to all shareholders on the Register at the close of business on 13 April 2012.
Chairman's StatementPerformance
The market saw dramatic volatility during the period with a drop in the FTSE All-Share to the nadir of 2,557 and then a recovery with the end result being a fall of 3.1 per cent. The Company's net assets per share declined by 14.7 per cent over the half year period, an under-performance relative to our benchmark of 11.6 per cent. Clearly this is a disappointing performance which is explained in more detail in the Manager's Report.
Dividend
The Board has declared an interim dividend of 5.2p per share payable on 30 April 2012, which is the same interim dividend for the year ended 31 July 2011.
Outlook and Strategy
When central banks are easing the monetary supply, share prices tend to appreciate. We are now in the post Long Term Refinancing Operation ("LTRO") 2 phase combined with the easing in China and Japan so we anticipate that markets should remain buoyant. However, it is also evident that during the current period of deleveraging following the Credit Crisis that markets move violently and erratically on bad news and the US/Iranian impasse, the high price of oil and some disappointing corporate earnings (excluding Apple) could all act as catalysts. Crowning all these concerns are the structural issues of the European Currency Union which cannot be kicked down the road forever.
Let's look at some of the bull drivers of the recent market exuberance in turn:
1. The Greek situation is now solved. Sadly, we very much doubt that this is the case. The base case economic forecast by the Troika for Greece is that GDP grows at about 2.3 per cent over the medium term. If you were to reduce this growth rate by just 1 percentage point per annum then a further bail out becomes a certainty.
2. The US economy is improving strongly. We agree that the US is moving in the right direction as evidenced by the recent job claim numbers reducing. Yet we would point out that the figures for the percentage of the US population in full time employment remains subdued.
3. LTRO 1 and LTRO 2 will provide welcome profits and liquidity to European banks but their liability on Credit Default Swap ("CDS") exposure may use up much of any surplus.
4. US Q4 2012 S&P earnings are strong overall, but take out Apple and AIG and the picture is much less rosy.
In conclusion, in the medium term, we continue to believe that inflation will gradually emerge as the number one driver of financial markets, and our investment policy will continue to be concentrated on liquid global companies with attractive cash generation and growth prospects that can benefit from such an environment. In the shorter term, we see a number of risks of further downside market volatility.
P H A Stanley, Chairman.March 2012.Manager's ReportManager's ReviewPerformance over period
Our underperformance over the period has been very disappointing, but not all together overly surprising considering our positioning going into the material falls in the market at the start of this interim period. Broken down, we would explain our underperformance of 11.6 per cent against the FTSE All-Share Index over the period as follows:
1. We made a mistake in not cutting Essar Energy plc when its issues became more intrinsic than external. We ultimately cut the stock but this loss contributed to an underperformance for the fund of 2.4 per cent.
2. The trust was overweight in the Mining and mid capitalisation Oil Exploration & Production and Oil Services sectors. Our exposure to Afren plc, Rio Tinto plc, HMS Group plc, Xstrata plc and Vedanta Resources plc did not treat us well during this period and this exposure led to an underperformance for the fund of 3.8 per cent. We are pleased to note that all of these stocks have made recoveries post the period end and we retain our confidence in them for the medium term.
3. Our concentrated exposure to PZ Cussons plc led to an underperformance for the fund of 2.9 per cent. Unfortunately we can not report that PZ Cussons' share price has recovered as the market currently anticipates that the 2012 outlook for the UK consumer is weak, the Australian operations are continuing to suffer and the risk of further Nigerian civil unrest is considerable. However, on a medium term outlook, the company is well positioned for future growth through its Nigerian and Indonesian operations and its developed markets Beauty division. Investing in companies exposed to emerging markets and then complaining about travel turbulence is missing the point. There are no guarantees that we will be right in our longer term view but after over a decade of holding the stock, we don't see the logic of cutting and running at the first sign of trouble.
4. The remaining underperformance of 2.5 per cent is due to the combined factors that we entered the period geared whereby gross investments represented over 125 per cent of net assets and we have consistently been positioned to gain exposure to the growth of the global economy rather than just the UK economy. This positioning has meant that we have tended to be more exposed to cyclical stocks (excluding financials) and consumer goods stocks which have higher than average betas. The "risk off" movement during the interim period affected higher beta names which meant a number of our holdings such as Smiths Group plc, Millennium & Copthorne Hotels plc, Burberry plc and Schroders plc were all down more than 10 per cent.
We did have some good performers during the period with Diageo plc, Unilever plc and Syngenta AG outperforming the market by double digit percentage points.
Current positioning
The portfolio has remained largely unchanged over the period and since the period end, and we would expect it to remain so over the next half-year period. We are not enamoured of churning portfolios when there is no medium term requirement to do so. Our preference is to adjust our gearing to the market by utilising index based contracts for difference which do not incur stamp duty.
During the period we disposed of Essar Energy plc (as described above), Rolls-Royce Holdings plc ("Rolls-Royce") and BSkyB plc. We remain very much enamoured with Rolls-Royce but after a spectacular performance over the period we felt that the stock was up with events. We concede that we could well be wrong in this opinion as it is rarely sensible to sell quality stocks.
However, on that note we also sold Tesco plc ("Tesco") at the beginning of the period and repurchased the stock at a materially lower price at the end of the period. We don't view Tesco plc as being of the same quality threshold as Rolls-Royce and this is evidenced by the fact that personally I am always a loyal consumer of the products or services of our holdings (if possible) but I can't currently say I have switched back to Tesco from Waitrose. What we do favour with Tesco is that the new CEO appears to be fully aware of what needs to be done and the valuation is currently compelling if you believe he can turn performance around.
The main acquisition to the portfolio in the period has been a new investment in London Stock Exchange Group plc.
Investors will know that we tend to invest using four strategies and, at the period end, the portfolio had the following weightings to each strategy:
Affordable Growth: 87.3 per cent;
Value: 4.7 per cent (represented by Tesco plc, Charter European Trust plc, Lloyds Banking Group plc and HSBC Holdings plc);Event Driven: 2.6 per cent (represented by Xstrata plc); and
Special Situations: 5.4 per cent (represented by BP plc).
Gearing
By the interim period end, the portfolio gearing had been reduced to a level whereby gross investments represented 94 per cent of net assets.
Post the period end, we have been hedging our market exposure further on the basis that we are concerned that the market may be somewhat over buoyant on a short term basis due to the reasons detailed at the commencement of this section.
In conclusion, we remain focused on investing in equities which are liquid and are participating in global growth via investment in cash generative enterprises. We prefer companies with short working capital cycles, strong market positions with an understandable business model, open information flow and long development cycles.
For enquiries:
Manchester and London Investment Trust plc
Peter ThomasCompany SecretaryTel: 0161 228 2389
Midas Investment Management Limited
Mark SheppardTel: 0161 228 1709Trust Performance At At Percentage 31 January 2012 31 July 2011 ChangeNet assets attributable to EquityShareholders (£'000) 83,825 98,267 (14.7)Net asset value per Ordinary Share (p) 373.3 437.6 (14.7)FTSE All-Share Index 2,932.9 3,026.0 (3.1)Interim Dividend declared per ordinaryshare 5.2p 5.2p (0)Ex-dividend date 11 April 2012Record date 13 April 2012Payment date 30 April 2012The price and net asset value is published in the Investment Companies Sectorof the Financial Times.Investment PortfolioAs at 31 January 2012Company Sector Value £'000 % of AssetsPZ Cussons plc Personal Goods 13,844 16.5Weir Group plc Industrial Engineering 8,584 10.2Smith and Nephew plc Health Care Equipment & Services 7,173 8.6Rio Tinto plc Mining 7,106 8.5Standard Chartered plc Banks 6,455 7.7BG Group plc Oil & Gas Producers 6,391 7.6BP plc Oil & Gas Producers 5,861 7.0Diageo plc Beverages 4,721 5.6Syngenta International AG Chemicals 4,612 5.5Burberry Group plc Personal Goods 4,458 5.3Unilever plc Food Producers & Processors 4,154 5.0Jardine Matheson Holdings Ltd General Industrials 3,943 4.7Smiths Group plc General Industrials 3,809 4.5Tesco plc Food & Drug Retailers 3,276 3.9Xstrata plc Mining 2,750 3.3Schroders plc* Financial Services 2,677 3.2Aberdeen Asset Management plc Financial Services 2,409 2.9Vedanta Resources plc Mining 2,396 2.9Afren plc Oil & Gas Producers 2,269 2.7HMS Group plc Industrial Engineering 2,192 2.6London Stock Exchange Group plc* Financial Services 1,930 2.3Sportingbet plc Travel & Leisure 1,580 1.9Millenium & Copthorne Hotels plc Travel & Leisure 1,255 1.5Glencore International plc* Mining 1,228 1.4Charter European Trust plc Equity Investment Instruments 979 1.2Reckitt Benckiser Group plc* Household Goods & Home Construction 809 1.0Lloyds Banking Group plc Banks 658 0.8HSBC Holdings plc* Banks 159 0.2Tod's SpA* Personal Goods 114 0.1Listed Investments 107,792 128.6Other Investments 126 0.1Cash and Net Current Assets (24,093) (28.7)Total Investments 83,825 100.0 * position now disposed or partially disposed.Consolidated Statement of Comprehensive Income
For the six months ended 31 January 2012
(Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31 January 2012 31 January 2011 31 July 2011 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains/(losses)oninvestmentsat fair value - (13,331) (13,331) - 13,961 13,961 - 13,809 13,809 Trading income - - - 598 - 598 552 - 552 Investmentincome 1,085 - 1,085 752 - 752 1,984 - 1,984 Gross Return 1,085 (13,331) (12,246) 1,350 13,961 15,311 2,536 13,809 16,345 Expenses Management fee (76) (141) (217) (82) (152) (234) (171) (318) (489)Transactioncosts - (31) (31) - (77) (77) - (138) (138)Other expenses (124) - (124) (12) - (12) 135 - 135Total expenses (200) (172) (372) (94) (229) (323) (36) (456) (492) Finance costs (1) (184) (185) (1) - (1) (1) (161) (162) Profit/(loss)beforetax 884 (13,687) (12,803) 1,255 13,732 14,987 2,499 13,192 15,691 Taxation - - - - - - - - - Profit/(loss)attributableto equityshareholders 884 (13,687) (12,803) 1,255 13,732 14,987 2,499 13,192 15,691 Earnings/(loss)pershare (p) 3.94 (60.95) (57.01) 5.59 61.15 66.74 11.13 58.74 69.87
The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All items in the above statement are derived from continuing operations.
Consolidated Statement of Changes in Equity
For the six months ended 31 January 2012
Unaudited Six months ended 31 January 2012 Capital Capital Share Share Other Reserve Reserve Retained Capital Premium Reserves Unrealised Realised Earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 August2011 5,614 35,132 (79) 27,171 27,057 3,372 98,267Profit for theperiod - - - - - (12,803) (12,803)Transfer of capitalprofits - - - (9,984) (3,703) 13,687 -Ordinary dividendpaid - - - - - (1,639) (1,639) 5,614 35,132 (79) 17,187 23,354 2,617 83,825 Unaudited Six months ended 31 January 2011 Capital Capital Share Share Other Reserve Reserve Retained Capital Premium Reserves Unrealised Realised Earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 August2010 5,614 35,132 (79) 17,280 23,756 3,500 85,203Profit for the - - - - - 14,987 14,987periodTransfer of capitalprofits - - - 9,878 3,854 (13,732) -Ordinary dividendpaid - - - - - (1,460) (1,460) 5,614 35,132 (79) 27,158 27,610 3,295 98,730 Audited Year ended 31 July 2011 Capital Capital Share Share Other Reserve Reserve Retained Capital Premium Reserves Unrealised Realised Earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 August2010 5,614 35,132 (79) 17,280 23,756 3,500 85,203Profit for the period - - - - - 15,691 15,691Transfer of capitalprofits - - - 9,891 3,301 (13,192) -Ordinary dividend paid - - - - - (2,627) (2,627) 5,614 35,132 (79) 27,171 27,057 3,372 98,267
Consolidated Statement of Financial Position
As at 31 January 2012 (Unaudited) (Unaudited) (Audited) 31 January 31 January 31 July 2012 2011 2011 £'000 £'000 £'000 Non-current AssetsInvestments held at fair value throughprofit and loss 86,511 95,509 102,198 Current AssetsTrade and other receivables 18 131 203Derivative financial asset - longs 21,407 15,893 22,074Derivative financial asset - shorts 28,618 - -Cash and cash equivalents 8,365 5,073 7,693 58,408 21,097 29,970Gross Assets 144,919 116,606 132,168Current LiabilitiesBorrowings (8,920) - (10,868)Trade and other payables (161) (2,085) (317)Provisions - (645) -Derivative financial instruments (52,013) (15,146) (22,716) (61,094) (17,876) (33,901)Net Assets 83,825 98,730 98,267 Equity attributable to equity holdersOrdinary share capital 5,614 5,614 5,614Share premium 35,132 35,132 35,132Capital reserve - realised 23,354 27,610 27,057Capital reserve - unrealised 17,187 27,158 27,171Goodwill reserve (79) (79) (79)Retained earnings 2,617 3,295 3,372Total equity shareholders' funds 83,825 98,730 98,267Net asset value per share (p) 373.3 439.6 437.6
Consolidated Statement of Cash Flows
For the six months ended 31 January 2012
(Unaudited) (Unaudited) (Audited) 31 January 31 January 31 July 2012 2011 2011 £'000 £'000 £'000Cash flow from operating activities(Loss)/Profit after tax (12,803) 14,987 15,691Loss/(Gains) on investments 12,472 (13,587) (14,509)Decrease in receivables 185 166 137Decrease in payables (62) (930) (1,508)Decrease/(Increase) in derivativefinancial instruments 1,346 (521) 868Net cash generated from operating 1,138 115 679
activities
Cash flow from investing activitiesPurchase of investments (6,005) (15,085) (30,886)Sale of investments 9,220 17,549 27,540Net cash generated from/(used in) 3,215 2,464 (3,346)
investing activities
Cash flow from financing activitiesEquity dividends paid (1,639) (1,460) (2,627)(Repaid)/Drawn from loan facility (1,948) - 10,868Net cash (used in)/generated from (3,587) (1,460) 8,241
financing activities
Net increase in cash and cash equivalents 766 1,119 5,574 Cash and cash equivalents at the beginning of the period
7,599 2,029 2,025Cash and cash equivalents at the end ofthe period 8,365 3,148 7,599Notes to the Group Results1. Accounting policies
The interim report has been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies are consistent with the preceding annual accounts.
The results are based on unaudited Group consolidated accounts prepared under the historical cost basis except where IFRS require an alternative treatment.
2. Comparative information
The financial information contained in this interim report does not constitute statutory accounts and, in addition, those relating to the six month periods to 31 January 2011 and 31 January 2012 have not been audited.
The financial information for the year ended 31 July 2011 has been extracted from the latest published audited accounts which have been filed with the Registrar of Companies and prepared under IFRS. The report of the auditors on those accounts contained no qualification or statement under the provisions of the Companies Act 2006.
3. Significant accounting policies
Investments held at fair value through profit or loss are initially recognised at fair value. As the entity's business is investing in financial assets with a view to profiting from their total return in the form of interest dividends or increases in fair value, listed equities and fixed income securities are designated as at fair value through profit or loss on initial recognition. The entity manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the group is provided internally on this basis to the entity's key management personnel.
After initial recognition, investments which are classified as fair value through profit and loss are measured at fair value. Gains or losses on investments designated as fair value through profit or loss are included in net profit or loss as a capital item, and material transaction costs on acquisition and disposal of investments are expensed and included in the capital column of the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to the Stock Exchange quoted market bid prices or last traded prices, depending upon the convention of the exchange on which the investment is quoted, at the close of business at the end of the reporting period.
In respect of unquoted investments, or where the market for a financial investment is not active, fair value is established by using an appropriate valuation technique. Where a reliable fair value cannot be estimated for such unquoted equity instruments, they are carried at cost, subject to any provision for impairment.
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.
Dividend income from investments is recognised as income when the shareholders' rights to receive payment has been established, normally the ex-dividend date. When special dividends are received, the underlying circumstances are reviewed on a case by case basis in determining whether the amount is capital, or income, or a mixture of both, in nature. Amounts recognised as income will form part of the company's distribution.
4. Principal Risks and Uncertainties
The principal risks and uncertainties associated with the Company's business fall into the following categories: financial risk; strategic risk; and accounting, legal and regulatory risk. A detailed explanation of the risks and uncertainties in each of these categories can be found in the Company's published Annual Report and Accounts for the year ended 31 July 2011.
5. Directors' Responsibilities
The Directors (Peter Stanley, Brian Sheppard and David Harris) are of the opinion that it is appropriate to continue to adopt the going concern basis in accordance with the FRCs "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009" in the preparation of the accounts as the assets of the Company consist predominantly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future.
The Directors confirm that, to the best of their knowledge, this set of condensed financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting".
Where presentational guidance, set out in the Statement of Recommended Practice ("SORP") for investment trusts revised by the Association of Investment Companies ("AIC"), is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The Interim Management Report, in the form of the Chairman's Statement and Investment Manager's Review, includes a fair review of the information required by DTR 4.2.7 and 4.2.8 of the FSA's Disclosure and Transparency Rules.
6. Related Party
Midas Investment Management Limited (`Midas'), a company of which B S Sheppard is a shareholder, acts as Investment Manager to the Company. Details of the fee arrangements are given in note 7. There are no other related party transactions.
7. Related Party Transactions
The management fee charged by Midas is payable quarterly in arrears and is equal to 0.5 per cent of the Net Asset Value of the Group on an annualised basis.
Investment management fees are allocated 35 per cent to revenue and 65 per cent to capital.
Additional fees charged by Midas include a monthly financial advisory fee and commissions on the purchase and sale of investments.
This Half Yearly Report was approved by the Board on 15 March 2012.
In accordance with DTR 4.2.9(2) of the UK Disclosure and Transparency Rules (DTRs), it is confirmed that this publication has not been audited by auditors pursuant to the Auditing Practices Board (APB) guidance on Review of Interim Financial Information, but has been reviewed by the auditors pursuant to the APB's guidance on Review of Interim Financial Information.
Copies of the Half-Yearly Financial Report for the six months ended 31 January 2012 will be available from the Company's registered office at 2nd Floor, Arthur House, Chorlton Street, Manchester, M1 3FH, as well as on the Company's website at www.manchesterandlondon.co.uk.
XLON