Source - RNS
RNS Number : 5738K
Mercantile Investment Trust(The)PLC
22 September 2016
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST JULY 2016

Chairman's Statement

The Company's net asset value total return in the six months to 31st July 2016 was -1.0%, compared to a return of +5.7% from our benchmark index, the FTSE All-Share, excluding FTSE 100 constituents and investment trusts. The share price return was -4.0%.

EU Referendum

The Company's portfolio was positioned, in line with the consensus, for a vote to remain. Since the outcome of the EU referendum the Investment Managers have made some changes to the portfolio, which are explained in the Investment Managers' Report.

Returns and Dividends

The income received from investments in the first half of the Company's current financial year is behind that of the half year ended 31st July 2015. This is predominantly due to the timing of special dividends within the year.

A second interim dividend of 10.25 pence per share has been declared by the Board, payable on 1st November 2016 to shareholders on the register at close of business on 7th October 2016. Together with the first interim dividend of 10.25 pence paid on 1st August 2016 this brings the total dividend for the year to date to 20.50 pence (2015: 20.00 pence). The Board anticipates that there will be a third interim dividend of 10.25 pence to be paid in early February 2017.

The level of the fourth interim dividend will depend on income received by the Company for the balance of the current financial year. The Board recognises shareholders' desire for a growing dividend in line with the Company's investment policy, whilst maintaining a prudent view and monitoring closely the level of the Company's Revenue Reserve.

Discount and Share Buy Backs

The Board has continued to use share repurchase authority to enhance value and manage imbalances between the supply and demand of the Company's shares. In the six months to 31st July 2016, 2,057,822 shares were repurchased at a cost of £34,057,000. Of the shares repurchased, 1,507,822 were cancelled and 550,000 are held in treasury.

Gearing

The Company has maintained a conservative position in relation to gearing and ended the period under review with 8.3% net cash.

Board Apprentice

The Board has agreed to participate in this initiative once again, with the appointment of Anjola Adeniyi on the same basis as the previous Board Apprentice.

Management Fee

Following the regular review of management fees, the Board and the Manager have agreed a reduction in fees. The current rate of 0.50% per annum of the Company's market capitalisation will fall by 10% to 0.45% per annum. This will take effect in two equal steps on 1st February 2017 and 1st February 2018.  This will ensure that the Company's ongoing charges ratio remains amongst the lowest in the investment trust market.

Outlook

Since the result of the EU referendum market volatility has increased, although economic data releases and company trading statements have generally shown little change from previous indicators. The economy grew slowly during the first half of the year, and continues to improve, although at a more gradual rate. The Board remains confident in the prospects for small- and medium-sized UK companies and the Investment Managers' ability to take advantage of these, particularly in light of the substantial gearing capacity that is available and currently unutilised.

Hamish Leslie Melville

Chairman                                                                                                                                                                                 22nd September 2016

 

 



Investment Managers' Report

Market Background

The UK equity market experienced a period of increased volatility through the first six months of your Company's financial year. Having recovered from the start of year sell-off that was driven primarily by concerns that the Chinese economy was slowing, as well as the growth outlook more broadly, the UK market generated minor gains up until June, when the focus turned more sharply to the UK referendum. Following the vote to leave the EU there was an immediate and sharp sell-off. This was then recouped through July following a swift political transition to Theresa May as Prime Minister and the actions of the Bank of England to reduce interest rates and introduce a further round of Quantitative Easing.

Market performance FYTD (31st January 2016 - 31st July 2016)

However, underlying this aggregate view of the market there has been notable divergence in performance at a stock and sector level. In the immediate aftermath of the referendum result, stock performance diverged significantly as different assets were re-priced - with the change in FX rates (Sterling depreciated by ~10% against the US Dollar, and by nearly the same against the Euro) and the increased uncertainty on the outlook for the domestic economy being the two most obvious areas of focus. In broad terms this led to significant outperformance of international and defensive earners, and underperformance of domestic and cyclical earners. This was reflected in a stronger relative performance from the FTSE 100, which is more international and has lower exposure to the domestic cyclical sectors.

Portfolio performance and positioning

Against this backdrop, your Company had a challenging six months; the return on net assets over the period was -1.0%, behind the 5.7% return from the benchmark, the FTSE All-Share Index excluding FTSE 100 constituents and Investment Trusts. Reflecting a widening of the discount, the share price total return was -4.0% for the period.

Given the portfolio positioning prior to the vote - overweight domestic consumer and underweight international - this negative relative performance was suffered in the final week of June after the referendum vote, during the period of market dislocation.

Since the referendum on the 23rd June and reflecting the increased level of uncertainty on the outlook for the UK economy, we have made some changes to the positioning of the portfolio. This has resulted in a somewhat more concentrated portfolio (99 holdings from 114 the week of the vote) and an increase in the level of net cash from 4.4% net cash at the start of the year to 8.3% at the period end (and 5.2% net cash at the time of writing). The aim of this repositioning has been to focus on those companies where the investment case is less dependent upon a favourable UK macroeconomic environment, or where the valuation remains compelling.

As a result of these changes, the portfolio is now more evenly balanced between domestically and internationally derived revenue and from a sector perspective has slightly lower exposure to the domestic consumer in favour of greater exposure to industrials.

Outlook

Global economic growth remains positive but muted, and Central Bank policies, including those of The Bank of England, continue to support asset prices but do not diminish the longer term risks. The vote to leave the EU has also introduced uncertainty into the outlook for the UK economy, and while initial economic indicators have been encouraging, it is too early to understand fully the ramifications of this process.

Against this backdrop, we have maintained our conservative view on the aggregate level of market exposure and the portfolio currently holds 5.2% net cash, leaving us as before with plenty of capacity (from the net cash and the gearing facilities) to take advantage of any investment opportunities that result from market- or company-specific events. We believe that the key is to focus on investing in those companies that have strong business models, are suitably financed and are well placed to succeed.

We remain committed to this approach and are confident about the investment opportunities that can be found in our market, and we expect that the favourable dynamics of investing in medium- and small-sized companies will continue to drive superior returns over the long-term.

Guy Anderson

Martin Hudson

Anthony Lynch

Investment Managers

22nd September 2016



Interim Management Report

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational and financial. Information on each of these areas is given in the Directors' Report within the Annual Report and Accounts for the year ended 31st January 2016.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is sufficient evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)      the condensed set of financial statements contained within the half year financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company, and of the assets, liabilities, financial position and net return of the Company as at 31st July 2016 as required by the UK Listing Authority Disclosure Guidance and Transparency Rules ('DTRs') 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the DTRs.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•       select suitable accounting policies and then apply them consistently;

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

•       state whether applicable UK Accounting Standards have been followed, 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 Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board.

Hamish Leslie Melville

Chairman

22nd September 2016

 



Financial Statements

Statement of Comprehensive Income for the six months ended 31st July 2016


(Unaudited)

Six months ended

31st July 2016

(Unaudited)

Six months ended

31st July 2015

(Audited)

Year ended

31st January 2016




Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

(Losses)/gains on investments held at fair value through profit or loss

-

 (41,344)

 (41,344)

-

225,998

225,998

-

177,274

177,274

Net foreign currency (losses)/gains

-

(9)

(9)

-

15

15

-

85

85

Income from investments

29,443

-

29,443

32,565

-

32,565

55,783

-

55,783

Interest receivable and similar income

337

-

337

522

-

522

1,065

-

1,065

Gross return/(loss)

29,780

 (41,353)

 (11,573)

33,087

226,013

259,100

56,848

177,359

234,207

Management fee

(1,101)

(2,570)

(3,671)

(1,097)

(2,560)

(3,657)

(2,279)

(5,317)

(7,596)

Other administrative expenses

(759)

-

(759)

(661)

-

(661)

(1,362)

-

(1,362)

Net return/(loss) on ordinary activities before finance costs and taxation

27,920

 (43,923)

 (16,003)

31,329

223,453

254,782

53,207

172,042

225,249

Finance costs

(1,674)

(3,905)

(5,579)

(1,671)

(3,903)

(5,574)

(3,345)

(7,806)

(11,151)

Net return/(loss) on ordinary activities before taxation

26,246

 (47,828)

 (21,582)

29,658

219,550

249,208

49,862

164,236

214,098

Taxation

(421)

-

(421)

(162)

-

(162)

(282)

-

(282)

Net return/(loss) on ordinary activities after taxation

25,825

 (47,828)

 (22,003)

29,496

219,550

249,046

49,580

164,236

213,816

Return/(loss) per share
(note 4)

27.19p

(50.36)p

(23.17)p

30.54p

227.30p

257.84p

51.46p

170.47p

221.93p

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

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The return/(loss) per share represents the profit/(loss) per share for the year and also the total comprehensive income per share.

 



Statement of Changes in Equity for the six months ended 31st July 2016 (unaudited)


Called up


Capital





share

Share

redemption

Capital

Revenue



capital

premium

reserve

reserves

reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

At 31st January 2016

23,989

23,459

12,781

1,752,255

41,246

1,853,730

Repurchase and cancellation of the Company's own shares

(377)

-

377

(25,073)

-

(25,073)

Repurchase of shares into Treasury

-

-

-

(8,984)

-

(8,984)

Net (loss)/return on ordinary activities

-

-

-

 (47,828)

25,825

 (22,003)

Dividends paid in the period

-

-

-

-

(22,044)

(22,044)

At 31st July 2016

23,612

23,459

13,158

 1,670,370

45,027

 1,775,626

 

For the six months ended 31st July 2015 (unaudited)


Called up


Capital





share

Share

redemption

Capital

Revenue



capital

premium

reserve

reserves

reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

At 31st January 2015

24,426

23,459

12,344

1,615,974

36,893

1,713,096

Repurchase and cancellation of the Company's own shares

(364)

-

364

(22,939)

-

(22,939)

Net return on ordinary activities

-

-

-

219,550

29,496

249,046

Dividends paid in the period

-

-

-

-

(26,019)

(26,019)

At 31st July 2015

24,062

23,459

12,708

1,812,585

40,370

1,913,184

 

Year ended 31st January 2016 (audited)


Called up


Capital





share

Share

redemption

Capital

Revenue



capital

premium

reserve

reserves

reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

At 31st January 2015

24,426

23,459

12,344

1,615,974

36,893

1,713,096

Repurchase and cancellation of the Company's own shares

(437)

-

437

(27,955)

-

(27,955)

Net return on ordinary activities

-

-

-

164,236

49,580

213,816

Dividends paid in the year

-

-

-

-

(45,227)

(45,227)

At 31st January 2016

23,989

23,459

12,781

1,752,255

41,246

1,853,730

 

1 This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

 



 

Statement of Financial Position at 31st July 2016


(Unaudited)

(Unaudited)

(Audited)


31st July

31st July

31st January


2016

2015

2016


£'000

£'000

£'000

Fixed assets




Investments held at fair value through profit or loss

 1,629,102

1,864,253

1,775,622

Current assets




Debtors

3,760

13,108

6,185

Cash and cash equivalents

329,596

229,600

262,644


333,356

242,708

268,829

Current liabilities




Creditors: amounts falling due within one year

(9,304)

(16,345)

(13,242)

Net current assets

324,052

226,363

255,587

Total assets less current liabilities

 1,953,154

2,090,616

2,031,209

Creditors: amounts falling due after more than one year

(177,528)

(177,432)

(177,479)

Net assets

 1,775,626

1,913,184

1,853,730

Capital and reserves




Called up share capital

23,612

24,062

23,989

Share premium

23,459

23,459

23,459

Capital redemption reserve

13,158

12,708

12,781

Capital reserves

 1,670,370

1,812,585

1,752,255

Revenue reserve

45,027

40,370

41,246

Total equity shareholders' funds

 1,775,626

1,913,184

1,853,730

Net asset value per share (note 5)

 1,891.0p

1,987.8p

1,931.8p

 

Company registration number 20537

 



 

Statement of Cash Flows for the six months ended 31st July 2016


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


31st July 2016

31st July 2015

31st January 2016


£'000

£'000

£'000

Net cash outflow from operations before dividends and interest

 (4,562)

 (4,689)

 (9,076)

Dividends received

 28,008

 31,132

 53,827

Interest received

 581

 341

 840

Overseas tax recovered

 116

-

-

Interest paid

 (5,530)

 (5,528)

 (11,058)

Net cash inflow from operating activities

 18,613

 21,256

 34,533

Purchases of investments

 (385,858)

 (435,209)

 (726,385)

Sales of investments

 489,166

 499,949

 838,773

Settlement of forward currency contracts

-

 2

 (21)

Net cash inflow from investing activities

 103,308

 64,742

 112,367

Dividends paid

 (22,044)

 (26,019)

 (45,227)

Repurchase and cancellation of the Company's own shares

 (25,073)

 (27,184)

 (32,201)

Repurchase of shares into Treasury

 (7,840)

-

-

Net cash outflow from financing activities

 (54,957)

 (53,203)

 (77,428)

Increase in cash and cash equivalents

 66,964

 32,795

 69,472

Cash and cash equivalents at start of period

 262,644

 193,167

 193,167

Exchange movements

 (12)

-

 5

Cash and cash equivalents at end of period

 329,596

 225,962

 262,644

Increase in cash and cash equivalents

 66,964

 32,795

 69,472

Cash and cash equivalents consist of:




Cash and short term deposits

 229,834

 229,600

 162,719

Bank overdraft

-

 (3,638)

-

Cash held in JPMorgan Sterling Liquidity Fund

 99,762

-

 99,925

Total

 329,596

 225,962

 262,644

 

 



 

Notes to the Financial Statements for the six months ended 31st July 2016

1.    Financial Statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st January 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.    Accounting Policies

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014.

FRS 104 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st July 2016.

In March 2016, the FRC published amendments to FRS 102 concerning fair value hierarchy disclosures. These amendments are effective for accounting periods beginning on or after 1st January 2017. The Company has elected to adopt these amendments early in these interim financial statements.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st January 2016.

3.    Dividends paid1



(Unaudited)

(Unaudited)

(Audited)



Six months ended

Six months ended

Year ended



31st July 2016

31st July 2015

31st January 2016



£'000

£'000

£'000


Unclaimed dividends refunded to the Company²

(26)

(1)

(14)


Fourth quarterly dividend of 13.0p (2015: 17.0p) paid to shareholders in May

12,422

16,395

16,395


First quarterly dividend of 10.25p (2015: 10.0p) paid to shareholders in August (2015: July)

9,648

9,625

9,625


Second quarterly dividend of 10.0p (2015: 8.0p) paid to shareholders in November

n/a

n/a

9,625


Third quarterly dividend of 10.0p (2015: 8.0p) paid to shareholders in February

n/a

n/a

9,596


Total dividends paid in the period

22,044

26,019

45,227

 

1 All dividends paid in the period have been funded from the Revenue Reserve.

2 Represents dividends which remain unclaimed after a period of twelve years and thereby become the property of the Company.

A second quarterly dividend of 10.25p (2015: 10.0p) per share, amounting to £9,625,000 (2015: £9,625,000), has been declared payable in respect of the six months ended 31st July 2016.

4.    Return/(loss) per share



(Unaudited)

(Unaudited)

(Audited)



Six months ended

Six months ended

Year ended



31st July 2016

31st July 2015

31st January 2016



£'000

£'000

£'000


Return/(loss) per share is based on the following:





Revenue return

25,825

29,496

49,580


Capital (loss)/return

 (47,828)

219,550

164,236


Total (loss)/return

 (22,003)

249,046

213,816


Weighted average number of shares in issue

94,976,088

96,589,828

96,340,857


Revenue return per share

27.19p

30.54p

51.46p


Capital (loss)/return per share

(50.36)p

227.30p

170.47p


Total (loss)/return per share

(23.17)p

257.84p

221.93p

 

5.    Net asset value per share



(Unaudited)

(Unaudited)

(Audited)



Six months ended

Six months ended

Year ended



31st July 2016

31st July 2015

31st January 2016


Net assets (£'000)

 1,775,626

1,913,184

1,853,730


Number of shares in issue

93,899,218

96,248,541

95,957,040


Net asset value per share

 1,891.0p

1,987.8p

1,931.8p

 

For further information, please contact:

Juliet Dearlove

For and on behalf of

JPMorgan Funds Limited, Secretary

020 7742 4000

 

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.mercantileitco.uk

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

JPMORGAN FUNDS LIMITED

 

ENDS

 

A copy of the half year has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

 

The half year will also shortly be available on the Company's website at www.mercantileit.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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