Manchester & London Investment Trust Plc - Annual Financial Report

MANCHESTER AND LONDON INVESTMENT TRUST PLC (the “Company”)

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2024

The full Annual Report and Financial Statements for the year ended 31 July 2024 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 2024 includes a net £nil in respect of share buybacks (2023: £289,000).

(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

This was the year that broke through previous all-time highs and set new peaks. The performance for this financial year resulted in a NAV total return per Share of 55.4%*. The Manager’s multi-year interest in and studying of Artificial Intelligence (“Ai”) continues to put the fund in a good position to capitalise on the continuation of the Era of Ai. The conviction of the Manager and Board remains strong that the growth of Ai is in its infancy. The year in financial market terms can be summarised as a story of lowering inflation, slowing economies, geo-political tensions, and the continuing dominance of mega capitalisation equities.

Discount Management, PDMRs & Buy Backs

At the year end, the Shares traded at a 15.3% discount to their NAV per Share, compared to a discount of 18.1% in 2023. This was despite the Company buying no shares into Treasury during the year. The Manager subjectively believes 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 389,272 shares (with a value of £2.5m) during the financial year.

Board Composition

We are committed to attracting the best talent that can lead and challenge the direction of the Company. The Manager & the Board invite any interested parties who believe they can add to the diversity of the Board and have some knowledge of Technology investment or operations to indicate their interest in becoming a non-executive director of the Company by emailing them at ir@mlcapman.com

Annual General Meeting

Our fifty-second Annual General Meeting (“AGM”) will be held virtually on 6 November 2024 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. If appropriate at the time, we will consider holding a physical AGM in 2025.

The notice of AGM for 2024 is below 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 are 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 and the Board assumes a supervisory role in this regard. The Manager is responsible for considering ESG factors in the investment process.

We are led to believe that Nvidia sourced 76% of its energy from renewable sources in FY24, with a commitment to reaching 100%.

Microsoft has committed to become carbon negative, water positive and zero waste by 2030 and has a target to halve its Scope 3 emissions from 2020 to 2030.

The sources for these commitments can be found at:

https://images.nvidia.com/aem-dam/Solutions/documents/FY2024-NVIDIA-Corporate-Sustainability-Report.pdf

https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RW1lMjE

We welcome these initiatives.

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 criticized 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 2024, the portfolio has a Sustainalytics Environment score of 81.8% (where 50% is the median).

Outlook                                               

We look forward with excitement as the Era of Artificial Intelligence develops. This technology is so powerful it is quite possible that its growth can continue to overpower a challenging economic and political backdrop. However, we are of the view that the geopolitical risks that lie ahead and the stress to global networks should not be under-estimated.

Daniel Wright

Chairman

25 September 2024

*Source: Bloomberg. See Glossary below.

MANAGER’S REVIEW

Market Review

H2 2023 and H1 2024 witnessed generally disinflationary data, lower energy prices, and better-than-expected company earnings which provided Equity Markets with further relief. Tech-heavy indices moved higher as the optimists, and also finally the pessimists, saw a forthcoming reduction in rates.

Technology Review

2023/4 saw an ugly unwinding of the performance of Software stocks (to which we were underweight) as expenditure was seen to be redirected to Ai.

As we have written many times in the last year, we had shifted out of “Soft Tech” names into “Hard Tech” names and repositioned with Ai “Core & Central” to our portfolio.

As we have written in earlier Newsletters, we see the Era of Ai developing in four Stages being:

1. Infrastructure Build: the build out of the data centers needed for Ai.

2. Migration of Data to the Cloud: the migration and management of the data

required to train the Ai models.

3. Launch of Applications using AI: the existing and new applications we will use to harness the power of Ai.

4. The Future Use Applications: the new applications that we cannot envisage a use for now that will become wildly popular in the future.

2023/24 was very much a period that saw growth focused within Stages 1 & 2.

Portfolio Review

The portfolio’s NAV total return per Share of 55.4% represented a 41.6% outperformance against the benchmark and compared to a 23.9% return for the Nasdaq Composite (in GBP) and a 21.4% return for the Nasdaq 100 Technology subindex (in GBP).

The 0.2% increase in the value of Sterling against the US Dollar over the year was a minor 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 0.1%.

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

Information Technology

The Information Technology sector delivered 100.4% of the NAV total return per Share.

Material positive performers (>1% contribution to return) included Nvidia Corp, Microsoft Corp, Arista Networks Inc, Advanced Micro Devices Inc, ASML Holding NV, Synopsys Inc and Cadence Designs Systems 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 103.2% of the net assets (2023: 97.3%).

Communication Services

The Communication Services sector delivered 2.5% of the NAV total return per share. Material positive performers (>1% contribution to return) included Alphabet Inc.

There were no material negative contributors.

The portfolio’s weighting to this sector (including options on a MTM basis) at year end was 4.0% of the net assets (2023: 5.1%).

Consumer Discretionary

The Consumer discretionary sector delivered 0.2% of the NAV total return per share. There were no material negative nor material positive contributors.

The portfolio’s weighting to this sector (including options on a MTM basis) at year end was 0.0% of the net assets (2023: 0.3%). Should this weighting remain materially the same by next year end, we are likely to show exposure to the Healthcare sector instead next year.

Other (including funds, ETFs and beta hedges)

Other holdings delivered minus 0.2% of the NAV total return per Share.

There were no material negative nor material positive contributors.

The portfolio’s weighting to this sector (including options on a MTM basis) at year end was 2.8% of the net assets (2023: 7.0%).

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, inflation is expected to stay reasonably muted, and interest rate cuts are hoped to be forthcoming which when combined provide optimism for future stock returns. China remains a global deflation engine. We see geopolitical risks remaining between the US and China and continuing de-risking of supply chains.

We do believe that our portfolio of long duration assets may be more interest rate sensitive than it is sensitive to a mild recession. We also believe that if rates fall beyond a certain point (such as 2.75% – 3.00%) we could see investors switch Money Market Fund holdings for Growth Equities. We have also discussed this Fund Flow tsunami in our Newsletters throughout the year.

“It has become appallingly obvious that our technology will exceed our humanity”.

– Albert Einstein

Market Risks

The primary challenges to equities remain inflation, recession, regulation, energy prices and war. 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 from Ai can assist in further reducing inflation. There is the possibility that countries that undertake material Ai investment such as the USA, will be rewarded with a decade or so of both productivity gains and relatively strong economic growth. Should that scenario be combined with contained geopolitical risks, then we could see a period of sustained stock market returns.

In the shorter term, recession risk is always a concern when the Fed has been so active in attempting to slow the economy. 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, hence we have been active at various times during the year at laying on hedges against this risk (via EWT US and MCHI US). We are constantly watching the oil price with anxiety.

“Humans are allergic to change. They love to say, ‘We’ve always done it this way.’ I try to fight that. That’s why I have a clock on my wall that runs counter-clockwise.”

– Grace Hopper

Technology Outlook

IT spending is expected to increase by ~4% over the next 12 months. By 2028, the value of Ai accelerators used in servers may be more than $32.8 billion, up from $14 billion in 2023, growing at a CAGR of 18.5% according to Gartner. The Nasdaq composite is projected to deliver above-market growth in 2025 with projected revenues and earnings progress of 10.7% and 17.7% respectively. Our portfolio holdings are forecast by Bloomberg estimates to see weighted average projected revenues and earnings progress of ~25.3% and 50.9% respectively for their next financial year. Forecasts are mainly useless apart from providing some relative indications, hence the figures provided purely illustrate that our portfolio could be considered relatively faster growth. Technology stocks have seen their valuations more than recover but a lot of the overhyped stocks from 2021/22 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.

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

– Isaac Asimov

AI Outlook

We see continued spending by enterprises on digital transformation and cybersecurity, but we guess that the outliers for the next 12 months may continue to be Ai and Cloud Computing. 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 ENABLERs of Ai” and especially the hyper-scalers 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 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 we believe it to be, the portfolio may 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 and misinformed Luddite braying will continue, mainly dressed up as ethical concerns, but we expect that Ai’s transformative capabilities overpower these headwinds.

We have also repeatedly stated in our Newsletters that we see Quantum Computing as the next era of technological advancement after Ai.

Multiple more general risks exist for our medium-term constructive view on technology. For example, we may have misunderstood how many incumbent Software and Technology companies that Ai will disrupt 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 Computing sooner than expected. China may surpass the USA in technological advancement rendering the US technology companies as disrupted. Valuations are also always a concern in Technology investing. However, contrary to the proclamations of the Bubble Callers (nearly all of whom missed the recent Ai Enablers’ stock gains), we do not see the stocks in our portfolio as overvalued.

Regulation remains a key risk and as Europe falls further and further behind in the Ai era then regulation becomes perversely more likely there. The disrupted and the establishment will fight very hard to maintain the status quo. Developing US-Sino relations will continue to 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.

“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.”

– Max Planck.

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 59% of our NAV at the period end and our top 5 holdings represent about 78% 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? Punish our winners for proving they are elite? The logical conclusion to this risk for shareholders that are Retail Investors is that our Fund should form part of a diversified portfolio. Please do not over-concentrate on our Fund if you cannot afford to bear potential loss. However, 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 that the limits on portfolio concentration per our Investment Policy are as follows:

“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 prioritize risk reduction in our approach, aiming to partially hedge specific risks that concern us (but hedging requires luck in its timing) and, in addition, 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 in its youth. Ai offers investors a first-class ticket to what could be one of the most exciting investment and economic periods of the century.

Long the Future.

M&L Capital Management Limited

Manager

25 September 2024

Equity exposures and portfolio sector analysis

Equity exposures (longs)

As at 31 July 2024

*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 2024

PRINCIPAL PORTFOLIO EQUITY HOLDINGS

The positions described below have an Exposure that aggregates to 99.2% 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.

Synopsys Inc (“Synopsys”)

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

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.

Micron Technology Inc (“Micron”)

Micron Technology is a leading global manufacturer of memory and storage solutions, including DRAM, NAND flash memory, and other semiconductor components. These products are critical for a wide range of computing devices, from smartphones and PCs to data centers and cloud infrastructure. As artificial intelligence (AI) continues to advance, the demand for high-performance memory is growing rapidly. AI applications, such as machine learning and deep learning, require vast amounts of data to be processed and analysed quickly. This drives the need for more memory capacity and faster data access speeds, making Micron’s memory solutions increasingly vital in supporting AI workloads.

Broadcom Inc (“Broadcom”)

Broadcom is a global technology leader known for designing and manufacturing a wide range of semiconductor and infrastructure software products. One of Broadcom’s key areas of growth is its AI ASIC (Application-Specific Integrated Circuit) business. These AI ASICs are custom-designed chips optimised for specific AI workloads, enabling faster and more efficient processing of complex algorithms used in machine learning, data analytics, and AI-driven applications. Broadcom’s AI ASICs are critical in powering high-performance data centers and cloud environments, where the demand for specialised hardware to support AI workloads is rapidly increasing.

All Equity & Debt portfolio holdings

As at 31 July 2024

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 Closed-ended investment funds Category of the London Stock Exchange.

A review of investment activities for the year ended 31 July 2024 is detailed in the Manager’s review above.

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 81.8% as at 31 July 2024.

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 above. 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 43 and 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 and in the Statement of Changes in Equity below.

For the year ended 31 July 2024, the net revenue return attributable to Shareholders was £570,000 (2023: £1,479,000) and the net capital return attributable to Shareholders was £120,590,000 (2023: £27,275,000). Total Shareholders’ funds increased by 50.9% to £334,099,000 (2023: £221,379,000).

The dividends paid/proposed by the Board for 2023 and 2024 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 2024 to Shareholders on the register at the close of business on 4 October 2024. The ex-dividend date will be 3 October 2024.

Further details of the dividends paid in respect of the years ended 31 July 2024 and 31 July 2023 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 below.

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 2024, as set out on pages 41 and 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 112.3% (2023: 112.4%) 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 2024 amounted to £334,099,000 compared with £221,379,000 at 31 July 2023, an increase of 50.9%, whilst the fully diluted NAV per Share increased to 831.24p from 550.79p. During the year, no Ordinary Shares were bought back and held in treasury.

Net revenue return after taxation for the year was a positive £570,000 (2023: positive £1,479,000).

The quoted Share price during the period under review has ranged from a discount of 9.08% to 24.65%.

Ongoing charges, which are set out above, 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 2024, the total remuneration paid to the employees of the Manager was £460,000 (2023: £420,000), payable to an average employee number throughout the year of three (2023: three).

The management of MLCM is undertaken by Mr Mark Sheppard and Mr Richard Morgan, to whom a combined total of £421,000 (2023: £388,000) 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 2024 measured by the gross method was 122.4% and that measured by the commitment method was 117.5%.

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 2024 (31 July 2023: 6). 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 2024, 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 Wright
Chairman

25 September 2024

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 2024, 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 1 November 2023, Shareholders approved the Board’s proposal to authorise the Company to allot Shares up to an aggregate nominal amount of £2,512,064. In addition, the Directors were authorised to issue Shares and sell Shares from Treasury up to an aggregate nominal value of £1,004,826 on a non-pre-emptive basis. This authority is due to expire at the Company’s forthcoming AGM on 6 November 2024.

There were no share issues during the year.

As at the latest practicable date of 20 September 2024, the total voting rights were 40,127,018.

Purchase of Shares

At the Annual General Meeting held on 1 November 2023, 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 6,024,933 Shares. This authority is due to expire at the Company’s forthcoming AGM on 6 November 2024. Since September 2021, the highest price the Company has paid for shares held in Treasury was 666 pence. The average cost per share of the shares held in Treasury was 549 pence. As at 31 July 2024, the share price was 704 pence.

During the year, 0 Shares have been bought back and at 31 July 2024 there were 40,528,238 Shares in issue of which 335,220 were held in treasury. After the year end, 66,000 shares were bought back into Treasury, at an average price of 625p, increasing the number of shares held in Treasury to 401,220.

Sale of Shares from Treasury

At the Annual General Meeting held on 1 November 2023, 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 £1,004,826 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 6 November 2024. No Shares were sold from Treasury during the year. As at the latest practicable date of 20 September 2024, 401,220 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 above 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:

• internal processes for monitoring costs;

• expected levels of investment income;

• the performance of the Manager;

• portfolio risk profile;

• liquidity risk;

• gearing limits;

• counterparty exposure; and

• financial controls and procedures operated by the Company.

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

25 September 2024

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:

• select suitable accounting policies in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosure when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance;

• state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the Financial Statements;

• make judgements and estimates that are reasonable and prudent; and

• prepare Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

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:

i. the Financial Statements, prepared in accordance with the IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

ii. the Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

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

25 September 2024

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company’s statutory accounts for the years ended 31 July 2024 and 31 July 2023 but is derived from those accounts. Statutory accounts for the year ended 31 July 2023 have been delivered to the Registrar of Companies and statutory accounts for the year ended 31 July 2024 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 pages 56 to 67 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 2024

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 2024

* Within the balance of the capital reserve, £50,175,000 relates to realised gains (2023: £33,340,000). Realised gains are distributable by way of a dividend. The remaining £161,436,000 relates to unrealised gains on financial instruments (2023: £57,681,000) and is non-distributable.

** Fully distributable

STATEMENT OF FINANCIAL POSITION

As at 31 July 2024

The Financial Statements on pages 68 to 89 of the full Annual Report were approved by the Board of Directors and authorised for issue on 25 September 2024 and are signed on its behalf by:

Daniel Wright

Chairman

Manchester and London Investment Trust Public Limited Company

Company Number: 01009550

STATEMENT OF CASH FLOWS

For the year ended 31 July 2024

The notes below form part of these Financial Statements.

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended 31 July 2024

1. General information and accounting policies

Manchester and London Investment Trust plc is a public limited company incorporated in the UK and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment approach is detailed in the Strategic Report.

The Company’s Financial Statements have been prepared in accordance with United Kingdom adopted international accounting standards in conformity with the requirements of the Companies Act 2006. The Financial Statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts.

Basis of preparation

In order to better reflect the activities of an investment trust company and in accordance with the AIC SORP, supplementary information which analyses the Statement of Comprehensive Income between items of revenue and capital nature has been prepared alongside the Statement of Comprehensive Income.

The Financial Statements are presented in Sterling, which is the Company’s functional currency as the UK is the primary environment in which it operates, rounded to the nearest £’000, except where otherwise indicated.

Going concern

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date when these financial statements were approved.

In making the assessment, the Directors of the Company have considered the likely impacts of international and economic uncertainties on the Company, operations and the investment portfolio. These include, but are not limited to, the impact of another pandemic, the war in Ukraine, political instability across Europe, supply shortages and inflationary pressures.

The Directors noted that the Company, with the current cash balance and holding a portfolio of listed investments, is able to meet the obligations of the Company as they fall due. The current cash balance, enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day to day redemptions.

The Directors have completed stress tests assessing the impact of changes in market value and income with associated cash flows. In making this assessment, they have considered plausible downside scenarios. These tests were driven by the possible effects of continuation of the COVID-19 pandemic but, as an arithmetic exercise, apply equally to any other set of circumstances in which asset value and income are significantly impaired. The conclusion was that in a plausible downside scenario the Company could continue to meet its liabilities. Whilst the economic future is uncertain, and the Directors believe that it is possible the Company could experience further reductions in income and/or market value, the opinion of the Directors is that this should not be to a level which would threaten the Company’s ability to continue as a going concern.

The Directors, the Manager and other service providers have put in place contingency plans to minimise disruption. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt on the Company’s ability to continue as a going concern, having taken into account the liquidity of the Company’s investment portfolio and the Company’s financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company primarily invests in companies listed on recognised international exchanges.

Accounting developments

In the year under review, the Company has applied amendments to IFRS issued by the IASB adopted in conformity with UK adopted international accounting standards. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. This incorporated:

• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

• Definition of Accounting Estimates (Amendments to IAS 8);

• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes; and

The adoption of the changes to accounting standards has had no material impact on these or prior years’ financial statements. There are amendments to IAS/IFRS that will apply from 1 August 2024 as follows:

• Classification of liabilities as current or non-current (Amendments to IAS 1);

• Non-current liabilities with Covenants (Amendments to IAS1;

• Supplier Finance Arrangements – Amendments to IAS7 and IFRS7; and

• Annual improvements to IFRS Standards.

The Directors do not anticipate the adoption of these will have a material impact on the financial statements.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

There were no significant accounting estimates or critical accounting judgements in the year.

Investments

Investments are measured initially, and at subsequent reporting dates, at fair value through profit and loss, and derecognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe of the relevant market. For listed equity investments, this is deemed to be closing prices.

Changes in fair value of investments are recognised in the Statement of Comprehensive Income as a capital item. On disposal, realised gains and losses are also recognised in the Statement of Comprehensive Income as capital items.

All investments for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value hierarchy in note 9.

Financial instruments

The Company may use a variety of derivative instruments, including equity swaps (also referred to as contracts for differences), futures, forwards and options under master agreements with the Company’s derivative counterparties to enable the Company to gain long and short exposure on individual securities.

The Company recognises financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. Listed options and futures contracts are recognised at fair value through profit or loss valued by reference to the underlying market value of the corresponding security, traded prices and/or third party information.

Notional dividend income arising on long positions is recognised in the Statement of Comprehensive Income as revenue. Interest expenses on open long positions are allocated to capital. All remaining interest or financing charges on derivative contracts are allocated to the revenue account.

Unrealised changes to the value of securities in relation to derivatives are recognised in the Statement of Comprehensive Income as capital items.

Foreign currency

Transactions denominated in foreign currencies are converted to Sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies at the year end are translated at the Statement of Financial Position date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is capital or revenue in nature.

Cash and cash equivalents

Cash comprises cash in hand and overdrafts. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

For the purposes of the Statement of Financial Position and the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

Cash held in margin/collateral accounts at the Company’s brokers is presented as Cash collateral receivable from brokers in the financial statements. Any cash collateral owed back to the brokers on marked to market gains of Equity Swaps is shown in the financial statements as Cash collateral payable to brokers.

Trade receivables, trade payables and short-term borrowings

Trade receivables, trade payables and short-term borrowings are measured at amortised cost.

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.

Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are disclosed separately in the Statement of Comprehensive Income.

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company’s right to receive payment is established.

All other income is accounted for on a time-apportioned basis and recognised in the Statement of Comprehensive Income.

Expenses

All expenses are accounted for on an accruals basis and are charged to revenue. All other administrative expenses are charged through the revenue column in the Statement of Comprehensive Income.

Finance costs

Finance costs are accounted for on an accruals basis.

Financing charged by the Prime Brokers on open long positions are allocated to capital, with other finance costs being allocated to revenue.

Taxation

The charge for taxation is based on the net revenue for the year and any deferred tax.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with recommendations of the AIC SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the “marginal” basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

No taxation liability arises on gains from sales of investments by the Company by virtue of its investment trust status. However, the net revenue (excluding investment income) accruing to the Company is liable to corporation tax at prevailing rates.

Dividends payable to Shareholders

Dividends to Shareholders are recognised as a liability in the period in which they are approved and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Statement of Financial Position date have not been recognised as a liability of the Company at the Statement of Financial Position date.

Share capital

The share capital is the nominal value of issued ordinary shares and is not distributable.

Share premium

The Share premium account represents the accumulated premium paid for Shares issued in previous periods above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve:

• costs associated with the issue of equity;
• premium on the issue of Shares; and
• premium on the sales of Shares held in Treasury over the market value.

Special Reserve

The special reserve was created by a cancellation of the share premium account increasing the distributable reserves of the Company. The special reserve is distributable, and the following items are taken to this reserve:

• costs of share buy-backs, including related stamp duty and transaction costs; and
• dividends.

Capital reserve

The following are taken to capital reserve:

• gains and losses on the realisation of investments;
• increases and decreases in the valuation of the investments held at the year end;
• cost of share buy backs;
• exchange differences of a capital nature; and
• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Retained earnings

The revenue reserve represents accumulated revenue account profits and losses. The surplus accumulated profits are distributable by way of dividends.

2. Income

3. Management fee

The Management Fee payable to the Manager is equal to 0.5% per annum of the Company’s NAV (the “Base Fee”), calculated as at the last business day of each calendar month (the “Calculation Date”), and is paid monthly arrears. An uplift of 0.25% of the NAV will be applied to the fee, should the performance of the Company over the 36-month period to the Calculation Date be above that of the Company’s benchmark. Should the performance of the Company over the 36-month period to the Calculation Date be below that of the Company’s benchmark, a downward adjustment of 0.25% of the NAV will be applied to the fee.

It was announced on 2 September 2024, that with effect 1 September 2024, the Board agreed with the Manager a new tiered management fee replacing the current fee arrangements.

Tiered Management Fee:

• 0.7% per annum of the NAV up to and including £750 million;

• 0.5% per annum of the NAV between £750 million and £1.5 billion; and

• 0.3% per annum of the NAV above £1.5 billion.

There will be no performance fee payable to the Manager.

Risk Management and Valuation fee:

There will be no change to the Risk Management and Valuation fee, however, the fee will be adjusted annually in January by the UK Consumer Prices Index (“CPI”) with the first increase being in January 2026 on the basis of the January 2026 CPI (percentage change over 12 months) figure.

The Board believes that the new fee structure offers a simpler and more predictable arrangement, removes the unnecessary volatility in ongoing charges for shareholders and allows the Manager to better plan for the future and broaden the expertise of the management team supporting the Company. It also addresses concerns raised by proxy advisors and compliance departments over the variability of the fee arrangements.

Also, the Board believes that the changes have the potential to generate cost savings for shareholders in both the short and long-term, in particular, if the Company were to see a material increase in NAV.

In addition, a Risk Management and Valuation fee equating to £59,000 on an annualised basis is charged by the AIFM. The Manager is also reimbursed any expenses incurred by it on behalf of the Company.

4. Other operating expenses

Other operating expenses include irrecoverable VAT where appropriate, excluding the Auditors’ and Directors’ remuneration which have been shown net of VAT.

No non-audit services were provided by Deloitte LLP in the year to 31 July 2024.

5. Finance costs

6. Taxation 

a) Analysis of charge in year

\* The theoretical tax rate is calculated using a blended tax rate over the year.

c) Factors that may affect future tax charges.

At 31 July 2024, there is an unrecognised deferred tax asset, measured at the latest enacted tax rate of 25%, of £4,775,000 (2023: £4,070,000). This deferred tax asset relates to surplus management expenses and non trade loan relationship debits. It is unlikely that the company will generate sufficient taxable profits in the foreseeable future to recover these amounts and therefore the asset has not been recognised in the year, or in prior years.

As at 31 July 2024, the company has unrelieved capital losses of £9,329,000 (2023: £9,329,000). There is therefore, a related unrecognised deferred tax asset, measured at the latest enacted rate of 25%, of £2,332,000 (2023: £2,332,000). 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.

7. Dividends

The Directors are proposing a final dividend of 7.0p for the financial year 2024.

These proposed dividends have 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.

Included in the dividend distributions to equity holders in the year is £7,870,000 (2023: £4,153,000) paid from special reserve.

*Based on Shares in circulation on 31 July 2024 (excluding Shares held in treasury).

8. Return per Share

Basic revenue, capital and total return per Share is based on the net revenue, capital and total return for the period and on the weighted average number of Shares in issue of 40,193,018 (2023: 40,242,768).

9. Investments at fair value through profit or loss

Fair value hierarchy

Financial assets of the Company are carried in the Statement of Financial Position at fair value. The fair value is the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

• Level 1 – valued using quoted prices unadjusted in an active market.
• Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1.
• Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.The tables below set out fair value measurements of financial instruments as at the year end, by their category in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets/liabilities at fair value through profit or loss at 31 July 2024

Financial assets/liabilities at fair value through profit or loss at 31 July 2023

There have been no transfers during the year between Level 1 and 2 fair value measurements.

Transaction costs

During the year, the Company incurred transaction costs of £154,000 (2023: £176,000) on the purchase and disposal of investments.

Analysis of capital gains and losses

10. Trade and other receivables

11. Cash and cash equivalents

As at the balance sheet date, the Company held shares valued at £11,000 (2023: £3,852,000) in the Morgan Stanley Sterling Liquidity fund, which has been classified as a Cash equivalent (see Note 1).

12. Trade and other payables

13. Derivatives

The Company may use a variety of derivative contracts under master agreements with the Company’s derivative counterparties to enable it to gain long and short exposure, including Options and Equity Swaps (which are synthetic equities), and are valued by reference to the market values of the investments’ underlying securities.

The sources of the return under the Equity Swap contracts (e.g. notional dividends, financing costs, interest returns and realised and unrealised gains and losses) are allocated to the revenue and capital accounts in alignment with the nature of the underlying source of income.

• Notional dividend income or expense arising on long or short positions is apportioned wholly to the revenue account.
• Notional interest or financing charges on open long positions are apportioned wholly to the capital account. All remaining interest or financing charges on derivative contracts are allocated to the revenue account.
• Changes in value relating to underlying price movements of securities in relation to Equity Swap exposures are allocated to capital.

The fair values of derivative financial assets are set out in the table below:

The corresponding gross exposure on long equity swaps as at 31 July 2024 was £65,982,000 (2023: £60,756,000) and the total gross exposure of short equity swaps was £5,272,000 (2023: £5,203,000). The net marked-to-market futures and options total value as at 31 July 2024 was negative £1,697,000 (2023: negative £1,064,000).

As at 31 July 2024, the Company held cash and cash equivalent balances of £7,187,000 (2023: £17,049,000). The Company also pledged cash of £16,371,000 (2023: £12,186,000) on collateral accounts with counterparty brokers specifically for derivatives (including exchange traded derivatives positions and non-exchange traded swap positions). This cash represents collateral posted to broker deposit accounts in relation to amounts due to brokers in order to maintain open positions and constitute a number of types of margin required (such as initial, marked to market variation etc).

The nature of the Company’s portfolio means that the Company gains significant exposure to a number of markets through Equity Swaps. The Company may use Equity Swaps to manage gearing. However, to the extent the Manager has elected not to be geared, the Company will generally hold a level of cash (or equivalent holding in the Cash Fund) on its balance sheet representative of the difference between the cost of purchasing investments directly and the lower initial cost of making a margin payment on an Equity Swap contract.

As at 31 July 2024, the Company also owed £nil (2023: £259,000) to brokers in respect of cash collateral received relating to amounts owed by these brokers to cover unrealised gains on open Equity Swaps on the Statement of Financial Position. To the extent there are unrealised losses on Equity Swap contracts uncovered by balances held at the broker, the Company will transfer deposit monies across to these broker margin deposit accounts. The Manager monitors margin positions on a daily basis to ensure any margin deposit balances are as expected and any amounts owed to the Company are transferred on a timely basis. In the event of default, a proportion of the monies held in the collateral accounts resides with the counterparty broker.

14. Share capital

No shares were issued during the year (2023: nil).

During the year, nil Ordinary Shares (2023: 77,037) were bought back and held in treasury for total

cost of £nil.

15. NAV per Share