Annual Financial Report

Manchester & London Investment Trust Plc Announcement of the Audited Group Results For the year ended 31st July 2010 Enquiries: Manchester & London Investment Trust Plc B S Sheppard Tel: 0161 228 1709 Investment Manager: Midas Investment Management Ltd M B Sheppard Tel: 0161 228 1709 ANNOUNCEMENT OF THE AUDITED GROUP RESULTS The Directors Announce the Audited Figures For the year ended 31st July 2010 Company Registered Number: 01009550 Financial Summary Total Return Year to Year to 31st July 31st July Percentage 2010 2009 increase Total Return (Â£'000) 13,151 645 1,938.9 Return per 25p ordinary share - fully diluted 71.8p 4.4p 1,531.8 Total Revenue return per 25p ordinary share 10.6p 10.5p 1.0 Cash dividend per 25p ordinary share 11.5p 10.5p 9.5 Capital Year to Year to 31st July 31st July Percentage 2010 2009 increase Net assets attributable to Equity Shareholders (Â£'000) 85,203 57,495 48.2 Net asset value per 25p ordinary share - fully diluted 379.4p 328.4p 15.5 FTSE All-Share Index 2,715.4 2,353.5 15.4 Outperformance versus FTSE All-Share Index 0.1 Total Expense Ratio Year to Year to 31st July 31st July 2010 2009 Total expenses as a percentage of average shareholders' 1.23% 1.52% funds Total Expense Ratio has excluded significant non-recurring items. Financial Calendar Year ended: 31st July 2010 Results announced: 29th October 2010 Report and Accounts made available to Shareholders: 3rd November 2010 Annual Genral Meeting to be held in Manchester 25th November 2010 Expected final dividend payment: 30th November 2010 Chairman's Statement Results for the year ended 31st July 2010 Since writing to shareholders on 12th March 2010 (covering the period from the 15th October 2009), the FTSE All-Share Index has rallied from the low point of 2,485.7 (30th June 2010) and has now reached a current level of over 2,900. This is a powerful rally, driven by a resumption of growth in the developing economies and a number of the better positioned developed economies. Global growth shares have performed among the best and this has been beneficial for our portfolio. Since our interim results announcement, the market outlook has changed from believing we were within a fast snap back `V' shaped recovery to acceptance that we may actually be at the beginning of a period of low growth for the developing economies. The wild volatility of financial markets reflects the other possibilities that the developed economies may be entering the early stages of a double dip recession or even a period of inflation. Basically it is very hard to fathom, although it does appear likely that the overriding direction of future global flows of funds looks ever more likely to be from West to East as the western consumer deleverages. Hence, it does appear that global growth stocks are now being rewarded in excess of any UK centric cyclical stock revaluation and we hope that this will reap further rewards for our portfolio in the future. We would again highlight the geographical spread of the fund shown in the pie chart in our monthly factsheets. We continue to believe that the best position in equities is to be invested in cash generative, liquid and global blue chips. Also, it is still our preference to avoid investing in companies which we believe are over-exposed to the UK economy as in our view the prospects for economic growth in the UK, Europe and the US remain weak. Other areas which remain of interest to us are possible takeover candidates or special situations, with our investment in SSL International plc being a good example, following its acquisition by Reckitt Benckiser Group plc. Stocks such as PZ Cussons plc, Burberry Group plc, BG Group plc and Xstrata plc are regularly tipped by the financial press as takeover candidates. We remain positive on equities but continue to remain cautious with regard to the prospects for shorter term market movements. Our net asset per share increased during the year by 15.5 per cent which is a movement in line with the FTSE All-Share which increased by 15.4 per cent. The Directors have now declared a Final Dividend of 6.5p making a total of 11.5p per share for the year, an increase of 9.5 per cent for the year. This total payment is comparable with the Total Revenue Return per Ordinary Share for the year of 10.6p. The company has carried forward distributable reserves of Â£27m representing over Â£1 per share which puts us in a strong position to pursue a flexible distribution policy, should the Directors believe this to be in shareholders' best interest. Acquisition Towards the end of the last financial year, following on from our acquisition of Osprey Smaller Companies Income Fund Ltd in 2009, we completed a further acquisition, being the 100 per cent acquisition of Stakeholders' Momentum Investment Trust plc ("SMIT") which has now become an investment subsidiary. This further acquisition has helped to grow our net assets by 48.2 per cent for the year to 31st July 2010 and increase the Company's portfolio spread as we liquidated some SMIT holdings but have retained an interest in several that we feel have good prospects for growth. The acquisition of SMIT has also seen us move into the FTSE All-Share and FTSE SmallCap indices. We would like to take this opportunity to welcome all shareholders who have joined the share register following the acquisition. Annual General Meeting I look forward to welcoming shareholders to our thirty eighth Annual General Meeting to be held in the Lancaster Suite, The Midland Hotel, Peter Street, Manchester M60 2DS, at 12.45pm on Thursday 25th November 2010. P H A Stanley Chairman 29th October 2010 Portfolio Investments As at 31st July 2010 Valuation Listed investments Sector Â£'000 % of Portfolio PZ Cussons plc Personal Goods 15,559 18.4 SSL International plc* Household Goods 7,134 8.5 Standard Chartered plc Banking 6,438 7.6 Rio Tinto plc Mining 6,172 7.3 Vedanta Resources plc Mining 4,552 5.4 BG Group plc Oil & Gas Producers 4,352 5.2 Weir Group plc Oil Services 3,870 4.6 Diageo plc Beverages 3,741 4.4 Charter International plc* Industrial Engineering 3,581 4.2 Syngenta AG Pharmaceutical and 3,378 4.0 Biotechnical BP plc Oil & Gas Producers 2,922 3.5 Tesco plc Food & Drug Retailers 2,834 3.4 Xstrata plc Mining 2,613 3.1 Unilever plc Food Producers 2,505 3.0 Burberry Group plc Personal Goods 2,365 2.8 Aberdeen Asset Management Financial Services 2,347 2.8 plc Essar Energy plc Oil & Gas Producers 2,224 2.6 Jardine Matheson Holdings General Industrials 2,131 2.5 Ltd Britvic plc Beverages 2,109 2.5 Afren plc Oil & Gas Producers 1,494 1.8 EIH plc General Financial 805 1.0 Rapid Realisation Fund General Financial 696 0.8 Limited Property Recycling plc Real Estate Investment & 502 0.6 Services Listed investments 84,324 100.0 Unlisted at Directors' 19 0.0 valuation 84,343 100.0 *Holding has now been disposed. All investments listed above are equity shares (unless otherwise stated), denominated in Sterling (save for Syngenta which is denominated in CHF and Jardine Matheson Holdings and EIH in USD), which have been issued by companies registered in England (save for Syngenta, Jardine Matheson Holdings, Charter International and EIH which are registered in Switzerland, Bermuda, Jersey and the Isle of Man respectively). Portfolio Sector Analysis As at 31st July 2010 Sector % of Portfolio Personal Goods 21.2 Mining 15.8 Oil & Gas Producers 13.1 Household Goods 8.5 Banking 7.6 Beverages 6.9 Oil Services 4.6 Industrial Engineering 4.2 Pharmaceutical & Biotechnical 4.0 Food & Drug Retailers 3.4 Food Producers 3.0 Financial Services 2.8 General Financial 2.5 General Industrial 1.8 Real Estates Investment & Services 0.6 Unlisted Investments 0.0 100.00 Investment Objective and Policy Investment objective The investment objective of the Company is to achieve capital appreciation together with a reasonable level of income. Investment policy Asset allocation and risk diversification The Company's investment objective is sought to be achieved through a policy of actively investing in a diversified portfolio, comprising UK and overseas equities and fixed interest securities. The Company seeks to invest in companies whose shares are admitted to trading on a regulated market. However, it may invest in a small number of equities and fixed interest securities of companies whose capital is not admitted to trading on a regulated market. Investment in overseas equities is utilised by the Company to increase the risk diversification of the Company's portfolio and to reduce dependence on the UK economy in addressing the growth and income elements of the Company's investment objective. There are no maximum exposure limits to any one particular classification of equity or fixed interest security. The Company's investments are not limited to any one industry sector and its current investment portfolio is spread across a range of sectors. The Company has no specific criteria regarding market capitalisation or credit ratings in respect of investee companies. The Company intends to maintain a relatively focused portfolio, seeking capital growth by investing in approximately 20 to 40 securities. The Company will not invest more than 15 per cent of the gross assets of the Company at the time of investment in any one security. However, the Company may invest up to 50 per cent of the gross assets of the Company at the time of investment in an investment company subject always to other restrictions set out in this investment policy and the Listing Rules. Exposure to investments may also be achieved through the use of specialist collective investment schemes and products, such as other investment trusts or exchange traded funds, where specialised management skills are necessary or where it would be uneconomic for the Company to invest directly. However, the Company will not invest more than 10 per cent, in aggregate, of the value of its gross assets at the time the investment in other listed investment trusts or listed investment companies, provided that this restriction does not apply to investment in investment trusts or investment companies which themselves have stated investment policies to invest no more than 15 per cent of their gross assets in other listed investment trusts or listed investment companies. The Company intends to be fully invested whenever possible. However, during periods in which changes in economic conditions or other factors so warrant, the Investment Manager may reduce the Company's exposure to one or more asset classes and increase the Company's position in cash and/or money market instruments. The Company may invest in derivatives, money market instruments and currency instruments including contracts for differences, futures, forwards and options. These investments may be used for hedging positions against movements in, for example, equity markets, currencies and interest rates. In addition, these instruments will only be used for efficient portfolio management purposes. For the avoidance of doubt, the use of such instruments to engage in trading transactions is strictly against the Company's investment policy. Any trading transactions will be carried out through dealing subsidiaries of the Company. The Company would not maintain derivative positions should the total underlying exposure of these positions exceed one times adjusted total capital and reserves. Gearing The Company may borrow to gear the Company's returns when the Investment Manager believes it is in Shareholders' interests to do so. The Company's investment policy and the Articles permit the Company to incur borrowing up to a sum equal to two times the adjusted total of capital and reserves. Any change to the Company's borrowing policy will only be made with the approval of Shareholders by special resolution. In addition to the above, the Company will observe the investment restrictions imposed from time to time by the Listing Rules which are applicable to investment companies with shares listed on the Official List of the UKLA under Chapter 15. In accordance with the Listing Rules, the Company will manage and invest its assets in accordance with the Company's investment policy. Any material changes in the principal investment policies and restrictions (as set out above) of the Company will only be made with the approval of Shareholders by ordinary resolution. In the event of any breach of the investment restrictions applicable to the Company, Shareholders will be informed of the remedial actions to be taken by the Board and the Investment Manager by an announcement issued through a Regulatory Information Service approved by the FSA. Benchmark Index Performance is measured against the FTSE All-Share Index. The Company sources index and price data from Proquote International, which is a division of the London Stock Exchange plc. Investment Manager's Review We started the accounting year with cash and cash equivalents representing 8.3 per cent of net assets and, having invested the majority, have remained reasonably fully invested throughout the year, with cash and cash equivalents representing 2.4 per cent as at 31st July 2010. The central banks of the deficit countries are deflating their currencies and encouraging inflation to diminish the scale of the mountainous debt levels that the trade deficit nations have built up and to increase employment through increased exports. In our view, the only way to improve the real competitiveness of the trade deficit countries is painful supply side restructurings but this is way too painful for the politicians to consider and the electorate to bear. This is why the "smart money" is bidding gold higher and higher. We have thought about the positioning of the portfolio in an era of inflation and we believe that the exposure to the food retailing, mining, oil and agrochemical sectors may well benefit from this scenario which represents over 40.9 per cent of the portfolio. We are concerned regarding the effects of inflation upon our consumer goods stocks which represent 21.2 per cent of the portfolio but we feel that potentially inflation may help the demand for PZ Cussons' African products and Burberry's international fashion portfolio. We have often maintained that we use four strategies in the formation of the composition of the portfolio being Growth; Value; Event Driven and Special Situation scenarios. We would say that apart from the investment in BP we consider all our other positions as Growth stocks. We continue to believe that the oil sector is undervalued and more acutely so after the Macondo disaster. The portfolio remains underweight in this sector and this is an area that may well change in the short to medium term. We believe that BP is an interesting risk adjusted Special Situation which is painful to hold due to the uncertainty and volatility but has the prospects of attractive potential capital gains. We believe over fifty per cent of the portfolio has the potential to become an Event Driven Situation over the next five years. In particular, we would highlight PZ Cussons, Burberry, Afren, Standard Chartered, Britvic and BG Group as often mentioned takeover targets. We remain overweight in the consumer goods sector by 19.7 per cent and we are attracted to short working cycle cash based businesses that are understandable. We remain underweight in Banks, Financials and Insurance by 8.5 per cent which we feel are leveraged sectors which, unless the portfolio is receiving the benefits of international growth, are not worth bearing the risk at this point in the economic cycle. Reckitt Benckiser's offer for SSL provided attractive returns for the portfolio during the year. However, this is not the only deal within the sector. Unilever has been on the acquisition trail, recently acquiring Alberto-Culver, the maker of VO5 hair products, for $3.7 billion, a year after its purchase of Sara Lee Corp's personal care division for $1.72 billion. In addition, Proctor and Gamble's CEO Robert McDonald recently commented that he would be interested in buying Beiersdorf, the maker of Nivea skin cream. The personal healthcare sector appears to be in consolidation mode as the major companies such as Unilever, Proctor and Gamble and Johnson & Johnson strive to obtain emerging market growth to combat the falling sales in the developed economies. In our view (and judging from the movement in its share price over the year, the market's opinion as well) this very much puts PZ Cussons in the sights of its larger rivals. Looking forward, we believe that the Asian economies will continue to be the driving force for growth, with the US and Europe remaining relatively stagnant. Our strategy continues to remain focused on global blue chips which are cash generative and liquid and we favour growth stocks with good international exposure over UK/EU centric value stocks. Energy demand and personal consumption plays a large part in any growing economy. India, a growing BRIC country, is vastly short of reliable power and we have invested in Essar Energy to gain exposure to this growth. The mining stocks within the portfolio have had a volatile year. Whilst the sector had a strong run towards April 2010, it was hit with a double dose of bad news. The proposed Australian mining tax combined with Chinese policy tightening scared the markets, leading to a sharp correction in the sector, almost halving the value of mining stocks. However, since our year end, the proposed Australian mining tax has been watered down and the Chinese growth story is still well on track, which has seen the commodity indices rise. Our portfolio should take advantage of the changing consumer profile within developing markets through our investments in Tesco, Diageo and Burberry, targeting not only the basic demand for food but also the desire and attraction of western luxury products. During the period we have taken the opportunity to visit the global operations of some of our holdings including PZ Cussons, Tesco, Burberry and, post year-end, Essar Energy. In relation to Special Situations, we are always looking for new ideas and themes and the sectors that we believe are the most ripe for consolidation, are personal healthcare, oil services, engineering, luxury goods and certain energy plays. We have positioned the portfolio on these lines and will continue to monitor and look for other suitable opportunities. Market conditions are highly volatile with unclear direction which means that it is extremely hard to manage any form of trading activity as, contrary to what the press and CFD providers' adverts say, a lack of direction and volatility is difficult to trade. Investment Manager Midas Investment Management Ltd Principal Portfolio Holdings PZ Cussons plc ("PZ Cussons") PZ Cussons manufactures and distributes cleansing fluids, soaps, detergents, and health & beauty products through their 30 plus brands which include Imperial Leather, Carex, Cussons Baby and Morning Fresh. The company operates from the UK, Africa, Asia, United Arab Emirates, Central Europe and Australia. Other products marketed include electrical goods via a joint venture with the Chinese group Haier, as well as food and nutrition through Nutricima, a joint venture with Glanbia. PZ Cussons is positioning itself as an attractive distributor of personal goods into specific markets across the developing world. Year-to-date, the company's main markets in Nigeria and the UK are performing as expected and the brand portfolio has been complemented by the recent acquisition of St Tropez Holdings Ltd. In Nigeria, the upgrade of manufacturing facilities and the supply chain are on track and the new national distribution centre is now open. PZ Cussons has a five year compound earnings per share ("EPS")growth rate of 12.3 per cent. SSL International plc ("SSL") An offer was made for SSL by Reckitt Benckiser Group plc in July 2010 and the holding has now been disposed of. Standard Chartered plc ("Standard Chartered") Standard Chartered is engaged in consumer and wholesale banking globally and has a strong focus on the Asia-Pacific, Middle East and African regions which provide approximately 90 per cent of the group's profit. The bank has been a consistently excellent performer and since 2002 had delivered seven successive years of record operating income and profits, with a five year compound EPS growth rate of 8.2 per cent. As capital continues to flow from West to East, we would expect Asian financial stocks to benefit. Rio Tinto plc ("Rio Tinto") In order for Asia to maintain its GDP growth rate and urbanisation programme, there is a need for the quality iron ore and copper that Rio Tinto produces. Although China can domestically produce iron ore, it is of a lower grade and is difficult to transport around the country. The company trades on an EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) of 5 times in comparison to its historic multiple of nearer 10 times. Rio Tinto has a five year compounded EPS growth rate of 5 per cent. Vedanta Resources plc ("Vedanta") Vedanta is India's largest metals and mining company, primarily engaged in copper, zinc, and aluminium, and is well positioned to take advantage of the significant growth in industrial production and investment in infrastructure in India. Vedanta has a five year compound EPS growth rate of 9 per cent. BG Group plc ("BG") BG is engaged in exploration, development and production of Natural Gas and Oil. The Group has operations in Australia, Brazil and the United States amongst others. Part of BG's operations are situated in the exciting Santos Basin which is located offshore Brazil and has been the source of the most recent billion barrel finds. The Santos Basin has benefitted recently from increased media exposure with China's Sinopec paying a full price to buy assets from Repsol. BG has a five year compound EPS growth rate of 12 per cent. Weir Group plc ("Weir") Weir is a global leader in the manufacture of specialised pumps and has operations in the Americas, Australia, Europe, China, India, Africa and the Middle East. The Minerals division, which manufactures and supplies slurry pump equipment for the global mining industry, accounts for approximately 60 per cent of revenues. The mining capital expenditure cycle is expected to continue to strengthen for the next few years as the developing nations continue to urbanise and Weir is well positioned to take advantage of this. Weir has an attractive five year compound EPS growth rate of 19 per cent. Diageo plc ("Diageo") Diageo produces and distributes a collection of branded premium spirits, beer and wine on a global basis including mega brands Smirnoff, Johnnie Walker, Captain Morgan, J&B and Guinness. As the emerging economies become more developed it is expected that the local populations will seek the luxuries of the western world, such as premium spirits. Diageo has a five year compounded EPS growth rate of 8 per cent and a dividend yield of 3.2 per cent. Charter International plc ("Charter") This holding has been disposed of post year end. Syngenta AG ("Syngenta") Syngenta is a global agri-science business engaged in crop protection and seeds. Urbanisation and changing dietary preferences across the middle classes of the developing nations is forcing the agricultural industry to increase yields. Syngenta has a five year compounded EPS growth rate of 17 per cent. Investment Record of the Last Ten Years Dividend per Return per ordinary Total assets Net Asset Value Total ordinary share Less per 25p share Year ended Return Basic Fully share Liabilities Basic Fully diluted diluted Â£'000 p p p Â£'000 p p 31 July 2001 (3,620) (48.27) (34.00) 2.50 23,455 312.73 230.41 31 July 2002 (295) (3.93) (2.27) 8.50 22,800 304.00 224.16 31 July 2003 2,384 31.79 23.30 9.50 24,238 323.17 237.89 31 July 2004 5,512 73.49 53.15 9.50 28,901 385.35 282.39 31 July 2005 5,426 72.35 52.33 9.50 33,611 448.15 327.34 31 July 2006 3,206 42.75 31.14 9.50 36,107 481.43 351.17 31 July 2007 5,799 41.58 41.58 10.00 52,554 376.80 376.80 31 July 2008 (3,490) (25.02) (25.02) 10.00 47,669 341.80 341.80 31 July 2009 645 4.43 4.43 10.50 57,495 328.44 328.44 31 July 2010 13,151 71.75 71.75 11.50 85,203 379.40 379.40 In 2006, the Company adopted International Financial Reporting Standards ("IFRS"). As a result, the data has been restated to reflect the change to IFRS. It is not practical to restate 2003 and prior periods for the effect of transaction costs on total return. In the period from 1981 to 2000, total assets less liabilities increased from Â£241,000 to Â£27,269,000. Net Assets per share increased from 24.1p to 363.59p. Report of the Directors The Directors present their report and financial statements for the year ended 31st July 2010. Business Review The purpose of the business review is to provide an overview of the business of the Company by: - Analysing development and performance using appropriate key performance indicators ("KPIs"). - Outlining the principal risks and uncertainties affecting the Company. - Describing how the Company manages these risks. - Explaining the future business plan of the Company. - Providing information about persons with whom the Company has contractual or other arrangements which are essential to the business of the Company. - Outlining the main trends and factors likely to affect the future development, performance and position of the Company's business. Status The Company is an Investment Company as defined by Section 833 of the Companies Act 2006 and operated as an Investment Trust in accordance with Section 1158 of the Corporation Tax Act 2010. The Company is also governed by the Listing Rules and Disclosure and Transparency Rules of the Financial Services Authority and the Corporation Tax Act. The close company provisions of the Corporation Tax Act 2010 do not apply to the Company. Principal activities The Company carries on business as an Investment Company. A review of investment activities for the year ended 31st July 2010 and the outlook for the coming year is given by the Investment Manager. During the year, two subsidiary companies (Manchester & London Securities Limited and Saintclose Limited) which previously carried on business as investment dealing companies, which at times had traded in derivatives, including options and futures, became dormant. The Company's subsidiary OSP Limited (formerly Osprey Smaller Companies Income Fund Limited) ("OSP") carries on business as an investment dealing company which at times trades in derivatives, including options and futures. The Company acquired Stakeholders' Momentum Investment Trust plc ("SMIT") on 21st May 2010. SMIT was delisted from the London Stock Exchange on 22nd June 2010 and the company renamed as Stakeholders' Momentum Investment Limited. OSP, a company incorporated in Guernsey, is the sole branch outside the United Kingdom. Performance and key performance indicators The key measures by which the Board judges the success of the Company, are the share price, the net asset value per share and the total expense ratio. The Board considers the most important key performance indicator to be the comparison with its benchmark index, the FTSE All-Share Index. Total net assets at 31st July 2010 amounted to Â£85,203,000 compared with Â£57,495,000 at 31st July 2009, an increase of 48.2 per cent due to the acquisition of SMIT, whilst the fully diluted net asset value per ordinary share increased from 328.4p to 379.4p. This increase of 15.5 per cent compared with an increase over the period of 15.4 per cent by the FTSE All-Share Index, equated to an outperformance by the Company of 0.1 per cent. Group net revenue after taxation for the year was Â£1,949,000, an increase of 27.4 per cent. The share price during the period under review has been quoted at discounts to net asset value of 4 to 18 per cent which the Directors consider to be satisfactory in the context of the discounts applicable to other investment trusts and was achieved without using the Company's powers to acquire its own shares in the market. Total expense ratio, is a measure of the total expenses (including those charged to capital) expressed as a percentage of the average shareholders' funds over the year. The Board regularly reviews the total expense ratio and monitors Group expenses. Principal risks and uncertainties associated with the Company An investment in the Company is only suitable for financially sophisticated investors who are capable of evaluating the risks and merits of such an investment, or other investors who have been professionally advised with regard to investment and who have sufficient resources to bear any loss which might result from such an investment. There can be no guarantee that investors will recover their initial investment. The investment may employ gearing and may be subject to sudden and large falls in value. Investors should be aware that movements in the price of the Company may be more volatile than movements in the price of the underlying investments and that there is a risk that investors may lose all their invested money. Investors considering an investment should consult their stockbroker, bank manager, solicitor, accountant and/or other independent financial adviser. In respect of some of the companies in which the Company may invest: - the company may be undergoing significant change. Such businesses are usually exposed to greater risks than those not undergoing such change; - they may have less mature businesses, a more restricted depth of management and accordingly a higher risk profile; - the quality of the investment's management may have been overestimated; - the market value of, and income derived from, such shares can fluctuate; and - there may not be a liquid market for their shares. The fact that a share is traded on a market does not guarantee its liquidity. Accordingly, such shares may be difficult to realise at quoted market prices. Any change in the tax treatment of dividends paid, or income received by the Company, may reduce the level of yield received by shareholders. Any change in the Company's tax status, or in legislation, could affect the value of the investments held by the Company and its performance. Investment in the Company should be regarded as long-term in nature. There can be no guarantee that any appreciation in the value of the Company's investments will occur and investors may not get back the full value of their investment. There can be no guarantee that the investment objective of the Company will be met. The Company is exposed to a range of economic and market risks, liquidity, interest rates, exchange rates and general financial risks. The market capitalisation of the Company may make the market of the ordinary shares less liquid than would be the case for a larger company. The Company's policy of charging 65 per cent of the Company's investment advisory fees to the Company's capital account may result in the diminution of the asset value of the Company. Whilst the use of borrowings by the Company should enhance the net asset value of the ordinary shares when the value of the Company's underlying assets is rising, it will have the opposite effect when the underlying asset value is falling. Furthermore, should any fall in the underlying assets value result in the Company breaching the financial covenants applicable to the borrowings, the Company may be required to repay such borrowing in whole or in part together with any attendant costs. In order to repay such borrowings, the Company may have to sell assets at less than their quoted market values. A positive net asset value for the ordinary shares will be dependent upon the Company's assets being sufficient to meet any debt. On a winding-up of the Company, the ordinary shares rank for repayment of capital after repayment of all other creditors of the Company. Ordinary shares are only appropriate for investors who understand that they may receive an amount less than their original investment. Risk management The principal risks and the Company's policies for managing these risks and the policies and practices with regards to financial investments are summarised in note 19 to the financial statements. The Company manages the risks inherent in portfolio management by investing in approximately 20 to 40 securities of companies operating in a range of industrial sectors and varying the extent of cash holdings or gearing in relation to the Investment Manager's assessment of overall market conditions. The Company does not have any employees and consequently relies upon the services provided by a number of third parties. The Board therefore relies on the control procedures of these third parties which include the Companies Investment Manager, Registrar and Broker. This type of operational structure is not uncommon with Investment Trust companies. The Board reviews the internal control procedures of its third party service providers and further details including the Board's risk assessments are detailed in the "Internal Financial Control" under Corporate Governance. Management Details of the Company's management agreement with Midas Investment Management Limited ("the Investment Manager" or "Midas") are contained in note 3 to the financial statements. Future development The Company continues to look for strategies to increase shareholders' returns including the dividend and to increase the liquidity of its shares. A commentary on the trends and factors likely to affect the future development, performance and position of the Company, which include market sentiment and the effectiveness of government intervention, is set out in the Chairman's Statement and is released monthly in a fund factsheet published via the Company's website. Results The Group's profit for the year, after taxation, amounted to Â£13,151,000 (2009: Â£645,000). In the previous year, the Company acquired OSP Limited (Formerly Osprey Smaller Companies Income Fund Limited). Within the documents published on 5th May 2009 in connection with the offer, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition. The anticipated cost savings due to the merger of Manchester & London Investment Trust Plc ("MLIT") and OSP were estimated to be Â£351,000. The Directors are pleased to announce total cost savings of Â£447,000 were made following the merger, with the further cost savings of Â£96,000 as a result of reduction to both investment management and administration costs. During this year, the Company acquired Stakeholders' Momentum Investment Trust plc. Following the merger of MLIT and SMIT, the Directors are pleased to announce that the estimated deal costs of the merger of Â£800,000 were reduced to Â£642,000, a total saving of Â£158,000. These savings include reductions in accountants', legal and registrars' fees of Â£70,000. Within the documents published on 28th April 2010 in connection with the offer for SMIT, the Company included some unaudited financial information comprising some estimates relating to cost savings resulting from that acquisition. The Listing Rules require the Company to reproduce such unaudited financial information in their next annual report and, if the difference between the unaudited financial information and the actual information is over 10 per cent, to provide an explanation for the difference. The relevant information is set out below and no difference of 10 percent or more arose in relation to the statement in the first paragraph below. However, as the acquisition was only finalised on 28th July 2010 and some of the anticipated savings could not be realised until after the amalgamation of the portfolios on 31st July 2010, it is not practicable to measure the percentage of annual savings achieved in relation to the period remaining prior to the end of the financial year on 31st July 2010. Accordingly, the 2011 annual report will include an explanation if the audited financial information for the year ended 31st July 2011 results in a difference of over 10 per cent. "Since its appointment as investment manager on 4 December 2009, Midas and the SMIT Board have taken steps to cut SMIT's annual costs by approximately Â£500,000. The MLIT Directors also anticipate that the merger of SMIT with MLIT will lead to further annual cost savings of approximately Â£385,000. The anticipated savings include a Â£275,000 reduction in investment management, company secretarial, registrar, administration and other fees. Furthermore, the annual costs of maintaining SMIT's independent board and listed status which amount to approximately Â£110,000 are intended to be saved as a result of the Enlarged Group having a single quoted holding company. MLIT estimates that termination costs of up to Â£132,000 will be incurred to cancel various contracts for investment management, administrative and other services in order to achieve these savings." Ordinary dividends An interim dividend of 5.0p per ordinary share was paid on 30th April 2010 (2009: 4.5p) and the Directors are recommending a final dividend of 6.5p per ordinary share (2009: 6.0p), a total for the year of 11.5p per ordinary share (2009: 10.5p). Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 30th November 2010 to shareholders registered on 12th November 2010. The shares will be declared ex-dividend on 10th November 2010. Share valuations On 31st July 2010, the middle market quotation and the net asset value per ordinary 25p share were 321.0p and 379.4p, respectively. This indicates that the discount on the Company's shares was 18.1 per cent. This is not uncommon as the share prices of closed-end funds are often traded at a discount to their net asset values and this discount has narrowed somewhat since the year end. Subsequent events There have been no significant events since the end of the reporting other than the volatility currently experienced in the stock market. Directors' Responsibilities in Relation to the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report, the Directors Remuneration Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union. Under Company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and the Group and of the profit or loss of the Company and Group for that period. In preparing those financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state that the Group and Parent Company financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that show and explain the Company's transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IASB Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. To the best of the knowledge of each of the Directors: (a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and (b) the management report (comprising the Chairman's Statement, Directors' Report and Investment Manager's Review) includes a fair review of the development and performance of the fund and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Each of the Directors accepts responsibility accordingly. On behalf of the Board of Directors P H A Stanley Chairman 29th October 2010 Independent Auditors' report The Company's financial statements for the year ended 31st July 2010 have been audited by CLB Coopers. The entire Auditor's report, which is unqualified, can be found in the Company's Annual Report and Financial Statement on at www.manchesterand london.co.uk. Consolidated Statement of Comprehensive Income For the year ended 31st July 2010 Note 2010 2010 2010 Restated Restated Restated Revenue Capital Total 2009 2009 2009 Â£'000 Â£'000 Â£'000 Revenue Capital Total Â£'000 Â£'000 Â£'000 Gains/(losses Gains/(losses) on investments at fair value through profit and loss 10 - 11,384 11,384 - (376) (376) Trading income 2 706 - 706 281 - 281 Investment income 2 1,392 - 1,392 1,556 - 1,556 Gross return/(loss) 2,098 11,334 13,482 1,837 (376) 1,461 Expenses Investment management fee 3 (123) (229) (352) (79) (147) (226) Cost of investment - (291) (291) - (362) (362) transactions Other operating expenses 4 (20) 338 318 (207) - (207) Total expenses (143) (182) (325) (286) (509) (795) Return before finance costs 1,955 11,202 13,157 1,551 (885) 666 and tax Finance costs 6 (6) - (6) (5) - (5) Return on ordinary activities before tax 1,949 11,202 13,151 1,546 (885) 661 Tax expenses 7 - - - (16) - (16) Return on ordinary 1,949 11,202 13,151 1,530 (885) 645 activities after tax Earnings/(loss) per ordinary share (pence) Basic 9 10.63 61.12 71.75 10.51 (6.08) 4.43 Fully diluted 9 10.63 61.12 71.75 10.51 (6.08) 4.43 The total column of this statement represents the Income Statement of the Group prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. Statement of Changes in Equity For the year ended 31st July 2010 Group Share Share Own Other Capital Capital Retained Total capital premium shares reserves Reserve Reserve Earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (unrealised) (realised) Â£'000 Â£'000 Â£'000 Balance at 1st 3,487 9,921 - (79) 6,684 24,035 3,621 47,669 August 2008 Changes in equity for 2009 Profit for the year - - - - - - 645 645 Transfer of capital - - - - 954 (1,839) 885 - profits Ordinary dividend - - - - - - (1,674) (1,674) paid Issue of share 889 9,966 - - - - - 10,855 capital Balance at 31st July 2009 (Restated) 4,376 19,887 - (79) 7,638 22,196 3,477 57,495 Changes in equity for 2010 Profit for the year - - - - - - 13,151 13,151 Transfer of capital - - - - 9,642 1,560 (11,202) - profits Ordinary dividend - - - - - - (1,926) (1,926) paid Issue of share 1,238 15,245 - - - - - 16,483 capital Balance at 31st 5,614 35,132 - (79) 17,280 23,756 3,500 85,203 July 2010 Company Share Share Own Other Capital Capital Retained Total capital premium shares reserves Reserve Reserve Earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 (unrealised) (realised) Â£'000 Â£'000 Â£'000 Balance at 1st 3,487 9,921 - (79) 6,684 370 27,259 47,642 August 2008 Changes in equity for 2009 Profit for the year - - - - - - 643 643 Transfer of capital - - - - 972 (1,800) 828 - profits Ordinary dividend - - - - - - (1,674) (1,674) paid Issue of share 889 10,129 - - - - - 11,018 capital Balance at 31st July 2009 (Restated) 4,376 20,050 - (79) 7,656 (1,430) 27,056 57,629 Changes in equity for 2010 Profit for the year - - - - - - 13,187 13,187 Transfer of capital - - - - 9,085 2,251 (11,336) - profits Ordinary dividend - - - - - - (1,926) (1,926) paid Issue of share 1,238 15,245 - - - - - 16,483 capital Balance at 31st 5,614 32,295 - (79) 16,741 821 26,981 85,373 July 2010 Consolidated Statement of Financial Position At 31st July 2010 Restated Note 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Investments at fair value through 10 84,343 51,924 profit or loss Current assets Trade and other receivables 12 340 411 Derivative financial instruments 19 4,394 4,571 Cash and cash equivalents 2,029 4,747 6,763 9,729 Gross Assets 91,106 61,653 Current liabilities Trade and other payables 13 (319) (290) Provisions 14 (1,416) - Derivative financial instruments 19 (4,168) (3,868) Net assets 85,203 57,495 Equity attributable to equity holders Ordinary share capital 15 5,614 4,376 Share premium 35,132 19,887 Other reserves: Capital reserve - realised 23,756 22,196 Capital reserve - unrealised 17,280 7,638 Goodwill reserve (79) (79) Retained earnings 3,500 3,477 Total equity 85,203 57,495 Net asset value per share Ordinary shares - basic 17 379.4p 328.4p Ordinary shares - fully diluted 17 379.4p 328.4p The financial statements were approved by the Board of Directors on 29th October 2010 and are signed on their behalf by: P H A Stanley (Chairman) B S Sheppard Directors Company Statement of Financial Position At 31st July 2010 Restated Note 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Investments at fair value through 10 82,340 51,924 profit or loss Subsidiary undertakings 11 2,180 1,286 84,520 53,210 Current assets Trade and other receivables 12 379 902 Derivative financial instruments 19 2,317 3,676 Cash and cash equivalents 1,009 3,083 3,705 7,661 Gross Assets 88,225 60,871 Current liabilities Trade and other payables 13 (673) (211) Derivative financial instruments 19 (2,179) (3,031) Net assets 85,373 57,629 Equity attributable to equity holders Ordinary share capital 15 5,614 4,376 Share premium 35,295 20,050 Other reserves: Capital reserve - realised 821 (1,430) Capital reserve - unrealised 16,741 7,656 Goodwill reserve (79) (79) Retained earnings 26,981 27,056 Total equity 85,373 57,629 The financial statements were approved by the Board of Directors 29th October 2010 and are signed on their behalf by: P H A Stanley (Chairman) B S Sheppard Directors Consolidated Statement of Cash Flows For the year ended 31st July 2010 Restated 2010 2009 Â£'000 Â£'000 Cash flows from operating activities Profit before taxation 13,151 645 (Profit)/losses on investments (12,453) 376 Decreased in receivables 201 504 Increase in payables (726) (160) Decrease/(increase) in derivative financial 477 (703) instruments Net cash inflow from operating activities 650 662 Cash flows from investing activities Purchase of investments (61,830) (85,763) Sale of investments 60,967 74,340 Returns on covered calls - 1,267 Net cash acquired on acquisition of subsidiary 345 552 Subsidiary acquisition costs (924) (473) Net cash outflow from investing activities (1,442) (10,077) Cash from financing activities Equity dividends paid (1,926) (1,674) Net cash outflow from financing activities (1,926) (1,674) Net (decrease)/increase in cash and cash equivalents (2,718) (11,089) Cash and cash equivalents at beginning of year 4,747 15,836 Cash and cash equivalent at end of year 2,029 4,747 Notes Forming Part of the Financial Statements For the year ended 31st July 2010 1. Accounting policies A summary of the principal accounting policies is set out below. Manchester & London Investment Trust plc is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company for the year ended 31st July 2010 comprise the Company and its subsidiaries (together referred to as the `Group' and individually as `Group entities'). a) Basis of preparation and statement of compliance In accordance with European Union regulations, these financial statements have been prepared in accordance with IFRS issued by the International Accounting Standards Board ("IASB"), as adopted for use in the EU effective at 31st July 2010. The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment. Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts revised by the Association of Investment Companies ("AIC") is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The Group's principal accounting policies are set out below. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements. b) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31st July each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intra-group balances are eliminated on consolidation. As permitted by Section 408 of the Companies Act 2006, the parent Company's statement of comprehensive income has not been included in these financial statements. The parent Company's profit after tax for the year was Â£13,187,000 (2009: Â£643,000). The results of subsidiaries or businesses acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal as appropriate. c) Presentation of income statement In order to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Section 1162 Corporation Tax Act 2010. d) Intangible assets - goodwill Goodwill arising on the acquisition of subsidiary undertakings, representing any excess of the fair value of the consideration given over the fair value of the verifiable assets and liabilities acquired, is capitalised and reviewed annually for impairment. Goodwill arising on consolidation prior to 1st August 1998 has been written off against reserves on acquisition as a matter of accounting policy. e) Valuation of investments Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment. After initial recognition, investments, which are classified as at fair value through profit or loss, are measured at fair value. Gains or losses on investments designated as at fair value through profit or loss are recognised as a capital item, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the statement of comprehensive income. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. Unlisted investments are valued at the Directors' estimate of fair value by reference to the following valuation guidelines - asset values, earnings, dividends and any other relevant factors. All purchases and sales of investments are recognised on the trade date i.e. the date that the Group commits to purchase or sell an asset. f) Revenue recognition Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company and the revenue can be reliably measured. Trading income includes gains and losses on the trading of options and futures in financial markets, net of commissions expensed. Open positions are carried at fair value and gains and losses arising on this valuation are recognised in revenue as well as gains and losses realised on positions that have closed. Dividend income from investments is recognised when the shareholders' right to receive payment has been established, normally the ex-dividend date. Special dividends representing a return of capital are credited to capital reserves. Fixed returns on non-equity shares are recognised on a time apportionment basis so as to reflect the effective yield on the shares. Where the Group has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised in capital reserves. Income from Contracts for Differences is recognised at fair value through profit or loss. g) Expenses All expenses are accounted for on the accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows: - material transaction costs which are incurred on the purchase or sale of an investment designated as fair value through profit or loss are expensed and included in the capital column of the statement of comprehensive income; and - expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management charge and related costs have been allocated 35 per cent (2009: 35 per cent) to revenue and 65 per cent (2009: 65 per cent) to capital reserve-realised in order to reflect the Directors' long-term view of the nature of the expected investment returns. h) Finance costs Finance costs are accrued at the effective interest rate. Finance costs of debt, insofar as they relate to the financing of the Group's investments or to financing activities aimed at maintaining or enhancing the value of the Group's investments, are allocated in line with the Directors' expected long-term split of returns, in the form of capital gains and income, attributable to the Group's investment portfolio as follows: Capital reserve- realised Revenue Equity portfolio 65% 35% Fixed interest portfolio 20% 80% i) Taxation The tax charge represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment Trusts which have approval under Section 1158 Corporation Tax Act 2010 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited through profit and loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. j) Dividends payable to shareholders No equity dividend is accrued unless the shareholders' right to receive payment is established in the period. Dividends proposed after the end of the reporting period are disclosed in note 8. k) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank, short-term deposits with an original maturity of three months or less and cash held in highly liquid investment accounts. l) Capital reserve Capital reserve - realised The following are accounted for in this reserve: - gains and losses on the realisation of investments; and - expenses and finance costs, together with the related taxation effect, are charged to this reserve in accordance with the above policies. Capital reserve - unrealised The following are accounted for in this reserve: - increases and decreases in the valuation of investments held at the year end. m) Foreign currencies In preparing the financial statements, transactions in currencies other than pounds sterling are recorded at the actual rate of exchange prevailing on the dates of the transactions. At each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the end of the reporting period. Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities in foreign currencies are recognised through profit or loss. n) Financial instruments and derivatives used for trading purposes Derivatives entered into for trading purposes include futures, options and a combination of these. Derivatives used for trading purposes are measured at fair value and any gains or losses are included in the statement of comprehensive income through profit or loss. Fair values are based on quoted market prices in active market. o) Contracts for Differences Contracts for Differences are valued with reference to the investment's underlying bid price at the end of the reporting period and are held at fair value through profit or loss. 2. Income 2010 2009 Â£'000 Â£'000 Trading income 706 281 Income from investments UK dividends 1,338 1,393 Other income Deposit interest 54 163 Investment income 1,392 1,556 Total income 2,098 1,837 Total income comprises Trading income 706 281 Dividends 1,338 1,393 Interest 54 163 2,098 1,837 Income from investments Listed 1,338 1,393 1,338 1,393 3. Investment management fee 2010 2010 2010 2009 2009 2009 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management 123 229 352 79 147 226 fee Midas provides investment services to the Company under a management agreement with a termination period of three months. The annual fee is 0.5 per cent of the total portfolio value including cash and short term deposits, payable quarterly in arrears. The fee is not subject to Value Added Tax ("VAT"). The investment management fee is chargeable 35 per cent to revenue and 65 per cent to capital. 4. Other operating expenses 2010 2009 Â£'000 Â£'000 Directors' fees 68 65 Auditors remuneration (1) 23 Registrar fees (20) 7 Exchange rate variances 20 (7) Other expenses (47) 119 20 207 Directors' fees - Group 29 24 Directors' fees - Company 39 41 68 65 Fees payable to the company's auditor for the audit of the parent company 23 18 And consolidated financial statements Fees payable to the company's auditor for other services: - the audit of the company's subsidiaries pursuant to (24) 5 legislation* (1) 23 - services relating to corporate finance transactions - 17 (1) 40 *During the year, the Company acquired Stakeholders' Momentum Investment Trust Plc ("SMIT"). The Statement of Financial Position of SMIT at the date of acquisition included an accrual for audit fees, which was over and above those accrued at the end of the reporting period. Other operating expenses include irrecoverable VAT where appropriate. 5. Staff numbers and costs Excluding Directors, the Group employs no members of staff. Included in Directors' fees above (note 4) are the emoluments paid to the Chairman as follows: 2010 2009 Â£'000 Â£'000 P H A Stanley (Chairman) 15 15 6. Finance costs 2010 2009 Â£'000 Â£'000 Interest paid 6 5 7. Taxation Restated Restated Restated 2010 2010 2010 2009 2009 2009 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current UK corporation tax - - - 19 (12) 7 Adjustment for under provision in prior years - - - 9 - 9 Current UK corporation tax - - - 28 (12) 16 The charge for the year can be reconciled to the profit per the income statement as follows: Profit/(loss) before tax 1,949 11,202 13,151 1,546 (885) 661 Tax at the UK corporation tax rate of 28% (2009: 28%) 546 3,137 3,683 433 (249) 184 Tax effect of non-taxable UK dividends/unrealised profits (471) - (471) (362) - (362) Income not subject to UK corporation tax (180) (5) (185) (14) - (14) Disallowed management expenses 405 97 502 (1) - (1) Unrelieved capital losses - - - - 196 196 Brought forward management expenses utilised during the period (171) 64 (107) - - - Gains and losses on investments that are not taxable - (3,857) (3,857) - - - Excess management expenses 138 49 187 (41) 41 - Taxable overseas dividend - - - 12 - 12 eliminated on consolidation Impairment 140 - 140 - - - Relief for losses on capital (37) 37 - 9 - 9 account Reserves adjustment (370) 478 108 (8) - (8) Current year tax charge - - - 28 (12) 16 The Company's taxable income exceeded its management expenses, which include the capital and revenue elements of the management fee. The Company has surplus management expenses at 31st July 2010 of Â£2,324,000 (2009: Â£2,337,000). At 31st July 2010 there is an unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of Â£651,000 (2009: Â£654,000). This deferred tax asset relates to surplus management expenses. It is unlikely that the Group will generate sufficient taxable profits in the future to recover these amounts and therefore the asset has not been recognised in the year, or prior years. As at 31st July 2010 the Company has unrelieved capital losses of Â£9,330,000 (2009: Â£8,674,000). There is therefore, a related unrecognised deferred tax asset, measured at the standard rate of 28 per cent, of Â£2,612,000 (2009: Â£2,429,000). These capital losses can only be utilised to the extent that the Company does not qualify as an investment trust in the future and, as such, the asset has not been recognised. 8. Dividends 2010 2009 Â£'000 Â£'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31st July 2009 of 6p (2008: 1,051 1,046 7.5p) per share Interim dividend for the year ended 31st July 2010 of 5p 875 628 (2009: 4.5p) per share 1,926 1,674 A final dividend in respect of 2010 of 6.5p per share which, together with the interim dividend, amounts to a total dividend of Â£1,460,000, is to be proposed at the Annual General Meeting on 25th November 2010 and has not been included as a liability in these financial statements in accordance with IFRS. We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of section 1158 Corporation Tax Act 2010 are considered. 2010 2009 Â£'000 Â£'000 Interim dividend for the year ended 31st July 2010 of 5p 875 628 (2009: 4.5p) per share Proposed final dividend for the year ended 31st July 2010 of 6.5p (2009: 6p) per share 1,460 1,074 2,335 1,702 9. Return per ordinary share The calculation of the basic and fully diluted earnings per ordinary share is based on the following: 2010 2010 2010 2009 2009 2009 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Return: Basic and fully diluted 1,949 11,202 13,151 1,530 (885) 645 Basic revenue, capital and total return per ordinary share is based on the net revenue, capital and total return for the period and on the weighted average number of ordinary shares in issue of 18,328,238 (2009: 14,562,431). 10. Investments at fair value through profit or loss Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Investments as below 84,343 51,924 82,340 51,924 Group Group Group Company Company Company Listed Unlisted Total Listed Unlisted Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Opening cost at 1st 44,214 72 44,286 44,214 72 44,286 August 2009 Opening unrealised appreciation at 1st August 2009 7,608 30 7,638 7,608 30 7,638 Opening fair value at 1st August 2009 51,822 102 51,924 51,822 102 51,924 Purchases at cost 80,931 - 80,931 57,924 - 57,924 Sales proceeds (60,963) (4) (60,967) (56,944) (4) (56,948) Capital Dividend - - - 19,267 - 19,267 Realised gains on sales 2,855 (42) 2,813 1,113 (42) 1,071 Increase/(Decrease) in unrealised appreciation 9,679 (37) 9,642 9,139 (37) 9,102 Closing fair value at 31st July 2010 84,324 19 84,343 82,321 19 82,340 Closing cost at 31st 67,038 25 67,063 65,574 25 65,599 July 2010 Closing unrealised appreciation at 31st July 2010 17,286 (6) 17,280 16,747 (6) 16,741 Closing fair value at 31st July 2010 84,324 19 84,343 82,321 19 82,340 Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Realised (loss)/gains on disposals 2,813 (2,597) 1,071 (2,657) Increase/(decrease) in unrealised 9,642 954 9,083 954 appreciation Return on covered calls (1,071) 1,267 (1,071) 1,267 11,384 (376) 9,083 (436) 11. Subsidiary undertakings Company 2010 2009 Â£'000 Â£'000 Shares at fair value 2,180 1,286 In the opinion of the Directors, there is no material difference between the cost and fair value of these investments. The company has investments in the following subsidiary undertakings: Name of undertaking Principal Country of % of shares held Activity incorporation Ordinary Preference and operation shares shares OSP Limited Trading company Guernsey 100 - Stakeholders' Momentum Investment England 100 - Investment Ltd company Manchester & London Securities Dormant England 100 - Limited Saintclose Limited Dormant England 100 - Beacontree Plaza Limited Dormant England 100 100 Beaconbranch Limited Dormant England 100 - Darethrift Limited Dormant England 100 - Fileglow Limited Dormant England 100 - Zealgate Limited Dormant England 100 - All these subsidiary undertakings are included in the consolidation. Beaconbranch Limited is 100 per cent owned by Beacontree Plaza Limited. Stakeholders' Momentum Investment Ltd ("SMIT") was acquired on 21st May 2010 and OSP Limited acquired on 26th May 2009. The acquisition of SMIT is disclosed under business combinations note 18. 12. Trade and other receivables Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Receivables from subsidiary undertakings - - 256 375 Investment debtor 41 41 41 41 Prepayments 14 12 13 12 Other receivables 285 358 69 474 340 411 379 902 13. Trade and other payables Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Payables to subsidiary undertakings - - 479 91 Trade payables and accruals 319 287 194 118 Other payables - 2 - 2 Corporation tax - 1 - - 319 290 673 211 14. Provisions 2010 2009 Â£'000 'Â£000 Balance as at 1st August - - 2009 Provided in the year 1,416 - Balance as at 31st July 1,416 - 2010 At the date of acquisition, Stakeholders' Momentum Investment Trust Plc had a provision of Â£1,499,000 for potential litigation claims. At the 31st July 2010, the provision was estimated at Â£1,416,000. Further details are disclosed in note 18. 15. Share Capital Ordinary share capital 2010 2009 No. (`000) Â£'000 No. (`000) Â£'000 Authorised Ordinary shares of 25p each 28,000 7,000 28,000 7,000 Non-voting Convertible Preference shares of 1,000 1,000 1,000 1,000 Â£1 each Ordinary shares of 25p each issued and fully paid Balance as at 1st August 17,505 4,376 13,946 3,487 Issue of shares 4,952 1,238 3,559 889 Balance as at 31st July 22,457 5,614 17,505 4,376 There were no issued non-convertible preference shares in issue during the years to 31st July 2010 and 2009. On 21st May 2010 the offer by the Company for Stakeholders' Momentum Investment Trust Plc was declared wholly unconditional leading to the issue of 4,952,131 ordinary 25p shares at an issue price Â£3.41 each as consideration over the period until 28th July 2010 when the remaining shares held by third parties were compulsorily acquired. Details of the acquisition are stated in note 18. 16. Own shares Following the acquisition of Stakeholders' Momentum Investment Trust Plc, the Company was issued shares in itself as a result of SMIT shareholders' entitlements to partial shares. At 31st July 2010, the Company held 52 shares at a book value of Â£177. These shares were disposed of following the year end. 17. Net asset value per share Net asset value Net assets per share Attributable 2010 2009 2010 2009 p p Â£'000 Â£'000 Ordinary shares: basic and fully diluted 379.4 328.4 85,203 57,495 The basic net asset value per ordinary share is based on net assets at the year end and 22,457,086 (2009: 17,504,955) ordinary shares in issue, adjusted for any shares held in treasury. 18. Business combinations On 21st May 2010 the Company acquired control of Stakeholders' Momentum Investment Trust Plc ("SMIT"), and subsequently acquired the remaining shares over the period until 28th July 2010. The Company acquired the whole of the issued share capital of SMIT comprising 5,818,645 ordinary 25p shares for Â£17,263,940. This was funded by the issue of 4,952,131 ordinary 25p shares at an issue price of Â£3.41 each totalling Â£16,886,767, and cash payment of Â£377,173. The Board believes that the proposed merger will result in the Enlarged Group enjoying an increased scale which in turn should lead to the following benefits: - a larger net asset base for the Enlarged Group which may provide more liquidity in MLIT Shares under normal market circumstances; - while the terms of the Offer provide for the issue of new MLIT Shares in exchange for SMIT Shares valued at 100 per cent of Formula Asset Value ("FAV") under the Basic Offer, the Cash Alternative Offer is at a discount to FAV. To the extent that any SMIT Shareholders elect to receive the Cash Alternative Offer, there would be an enhancement in net asset value per MLIT Share (after providing for the costs of the Offer); - costs reductions across the Enlarged Group of approximately Â£385,000 per annum through economies of scale and having one quoted holding company rather than two; and - the potential utilisation of SMIT as an investment subsidiary of MLIT which may allow for the utilisation of brought forward surplus management expenses and non trade deficits in SMIT against investment income. The net assets of the acquired company were as follows: 2010 Â£'000 Non-current assets Investment at fair value 19,103 Current assets Trade and other receivables 130 Cash and cash equivalents 345 Current liabilities Trade and other payables (672) Provisions (1,499) Net assets acquired 17,407 Net cash acquired on acquisition was: Â£'000 Cash and cash equivalents 345 345 The net assets used to determine the fair value were considered equal to the open market value. At the date of acquisition and at 31st July 2010, SMIT was involved in legal disputes with Unicorn Asset Management Limited and Knox D'Arcy Asset Management Limited, who were both previous investment managers to SMIT. The aggregate of these claims was Â£711,125 at 31st July 2010, with potential associated legal costs amounting to Â£705,000. SMIT disputes these claims and has received legal advice that the claims would be unlikely to succeed. However, the quantum and date of any resolution cannot be measured with absolute certainty. On 31st July 2010 the Company completed the transfer of selected assets from SMIT. This was funded through a capital distribution of Â£3.31 per ordinary 25p shares declared and paid to the Company on 31st July 2010. Â£'000 Non-current assets Investment at fair value through the profit or loss 19,267 Immediately following the asset transfer the Company recognised the following: Â£'000 Non-current assets Investments at fair value through the profit or loss 19,267 Â£'000 The results if SMIT had been acquired on 1st August 2009: Revenue for the 13 month period ended 31st July 2010 5,777 Profit for the 13 month period ended 31st July 2010 3,183 The result of SMIT from the date of acquisition: Revenue for the period 26th May 2009 to 31st July 2009 2,391 Profit for the period 26th May 2009 to 31st July 2009 2,933 19. Derivatives and other financial instruments In order to manage its portfolio efficiently and to enable the Investment Manager to pursue the investment objectives, the Company holds derivatives and other financial instruments. All derivative transactions and financial instruments are included in the balance sheet at fair value and comprise securities, cash balances, trade receivables and trade payables arising directly from financial operations. The main risks arising from the Group's investment strategy is market price risk. There is also exposure to liquidity risk, interest rate risk and currency rate risk. The Board regularly reviews and agrees policies for managing these risks as summarised below: Market price risk Market price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Group might suffer through holding market positions in the face of price movements. The Investment Manager actively monitors market prices throughout the year and reports to the Board which meets regularly to review investment strategy. Details of the investments held at 31st July 2010 are shown in the 'Portfolio Investments' table. If the price of these investments and the derivative financial instruments had increased by 3 per cent at the reporting date with all other variables remaining constant, the capital return in the income statement and the net assets attributable to equity holders of the Company would increase by Â£2,662,000. A 3 per cent decrease in share prices would have resulted in an equal and opposite effect of Â£2,662,000, on the basis that all other variables remain constant. At the year end the Group's assets exposed to market price risk were as follows: Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Investments at fair value through profit and 84,343 51,924 82,340 51,924 loss Current assets Derivative financial instruments 4,394 4,571 2,317 3,676 88,737 56,495 84,657 55,600 During the year the Company transacted in CFDs and covered calls, and its subsidiaries traded in various derivatives investments. As at the year end, there were no open positions in options which were not call positions sold against underlying holdings. The position held in CFDs as at the year end is as follows: Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Current assets Derivative financial instruments 4,394 4,571 2,317 3,676 Current liabilities Derivative financial liabilities (4,168) (3,868) (2,179) (3,031) 226 703 138 645 Interest rate risk The Group is not subject to a material level of interest rate risk as there were no interest bearing borrowings for an extended period of time throughout the year. At 31st July 2010, there are no fixed rate borrowings within the Group. Liquidity risk The Directors have minimised liquidity risk by investing in a portfolio of quoted companies that are readily realisable. The Company's un-invested funds are held almost entirely on interest bearing deposits with UK banking institutions. As at 31st July 2010 the financial liabilities comprised: Group Company 2010 2009 2010 2009 Â£'000 Â£'000 Â£'000 Â£'000 Balance due to brokers 4,168 3,868 2,179 3,031 Provisions 1,416 - - - Trade creditors and accruals 319 290 194 118 5,903 4,158 2,373 3,149 All the above liabilities are stated at fair value and are due within 1 month. The Group manages liquidity risk through constant monitoring of the Group's gearing position to ensure the Group is able to satisfy any and all debts within the agreed credit terms. Currency rate risk At 31st July 2010, all the Group's financial instruments were mainly denominated in sterling and so there was no significant currency risk. Only Jardine Matheson stock and EIH plc stock with market values of Â£2,131,000 and Â£805,000 respectively, are denominated in US Dollars, and only Syngenta stock with a market value of Â£3,378,000 is denominated in Swiss Francs. The combined value represents 7.5 per cent of the Group's portfolio. The Group manages currency rate risk through maintenance of foreign currency accounts, enabling the Group to translate balances as and when exchange rates are favourable to the Group. 20. Related party transactions The Investment Manager of the Company is Midas Investment Management Limited ("Midas"), a company controlled by Mr B S Sheppard and his immediate family. Midas receives a quarterly investment management fee for these services which in the year under review amounted to a total of Â£352,000 (2009: Â£226,000) excluding VAT, together with a corporate fee for acting as financial adviser amounting to Â£30,000 (2009: Â£30,000) excluding VAT and commission fees of Â£259,000 (2009: Â£217,000). The balance owing at 31 July 2010 was Â£109,000 (2009: Â£58,000). On 31st July 2010 the Company transferred stock to the value of Â£19,267,000 from Stakeholders' Momentum Investment Ltd, its subsidiary acquired on the 21st May 2010. The transfer was completed through a dividend in specie. 21. Ultimate control The holding company and ultimate parent throughout the year and the previous year was Manchester & Metropolitan Investment Limited, a company incorporated in England and Wales. This company was controlled throughout the year and the previous year by Mr B S Sheppard and his immediate family. A copy of the consolidated financial statements of Manchester & Metropolitan Investment Limited can be obtained by writing to The Company Secretary, 2nd Floor, Arthur House, Chorlton Street, Manchester M1 3FH. 22. Prior period adjustment Intangible Assets, Share Premium, Accruals and Operating Expenses have been restated in the prior period. Group Company Â£'000 Â£'000 Intangible Assets (25) (25) Share Premium 163 - Accruals (115) - Operating Expenses (23) 25 These adjustments have been made due to a prior period in OSP Limited, a subsidiary, with regard to costs attributable to its acquisition. Annual General Meeting The Company's thirty eight Annual General Meeting will be held at The Midland Hotel, Peter Street, Manchester M60 2DS, on Thursday, 25 November 2010 12.45pm. The notice of this meeting can be found in the full Annual Report and Financial Statements on the Company's website www.manchesterandlondon.co.uk.

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