TIDMMRC
RNS Number : 0270A
Mercantile Investment Trust(The)PLC
23 September 2015
LONDON STOCK EXCHANGE ANNOUNCEMENT
THE MERCANTILE INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST JULY 2015
Chairman's Statement
The Company's net asset value total return in the six months to
31st July 2015 was 15.0%, 3.9% ahead of the return of 11.1% from
our benchmark index, the FTSE All-Share, excluding FTSE 100
constituents and investment trusts. The share price return was
15.6%.
Returns and Dividends
The income from investments in the first half of the Company's
current financial year reflects an increase on that of the half
year ended 31st July 2014, primarily due to growth in ordinary
dividend receipts from portfolio companies.
A second interim dividend of 10.0 pence per share has been
declared by the Board, payable on 2nd November 2015 to shareholders
on the register at close of business on 2nd October 2015. Together
with the first interim dividend of 10.0 pence paid on 31st July
2015 this brings the total dividend for the year to date to 20.0
pence (2014: 16.0 pence). In order to even out the flow of
dividends paid during the year, the Board has increased the level
of the first two dividends to 10.0 pence per ordinary share. This
was a rebalancing exercise and will not necessarily result in an
increased total amount for the year. The Board anticipates that
there will be a third interim dividend of 10.0 pence to be paid in
early February 2016.
The level of the fourth interim dividend will depend on income
received by the Company for the balance of the current financial
year and a prudent view to be adopted by the Board, taking account
of the level of the Company's Revenue Reserve.
Share Buy Backs and Discount
The Board has continued to carry out share repurchases in order
to enhance the asset value and minimise the absolute level and
volatility of the discount on the Company's shares. In the six
months to 31st July 2015, 1,456,094 shares were repurchased for
cancellation at a cost of GBP22,939,000. Against a backdrop of
substantial market volatility, the discount to NAV, at which the
Company's shares have traded during the period from 1st February to
2nd September 2015, has fluctuated between 10.6% and 16.8%. As at
close of business on 22nd September 2015 the discount was 13.4%
(cum income debt at par).
Board Changes
I am pleased to announce the appointment of Angus Gordon Lennox
as a Director of the Company, with effect from today. Angus is
Executive Chairman of two private family businesses. He is also a
Non-Executive Director of Securities Trust of Scotland plc, a role
he has held since 2013. Previously he had a 24 year career as a
corporate broker, first as a Partner of Cazenove & Co, and
later as a Managing Director of JPMorgan Cazenove, which he
resigned from in August 2010.
Outlook
In contrast to many of the global equity indices the market for
UK medium and small sized companies has proved resilient to recent
external headwinds. The domestic economy has been a net beneficiary
of lower oil prices which, coupled with a return to modest wage
inflation, is resulting in improving consumer confidence. Looking
forward, the UK economy is expected to continue to perform well
over the medium term and this is likely to lead to further relative
outperformance by UK medium and small sized companies.
For and on behalf of the Board
Hamish Leslie Melville
Chairman
23rd September 2015
Investment Managers' Report
Market background
The stock market outperformance of small and medium sized
companies relative to their larger counterparts continued in the
first six months of the Company's financial year. This
outperformance reflected investor recognition of the better
relative growth prospects of small and medium sized companies given
their domestic bias and lower commodity exposure.
The EU entering a period of Quantitative Easing has driven
increased demand for higher risk assets in the search for yield,
and the UK market has benefitted from this trend. After an initial
surge in financial markets in the first few months of 2015, the
focus in the UK shifted towards the unusually uncertain outcome of
the General Election. A Conservative majority was unexpected and
whilst the initial reaction from the financial markets has
subsequently been drowned out by increasing concerns over the level
and sustainability of global growth, this result does provide a
more certain environment for the next five years, with a
concomitant increase in business confidence.
The price of crude oil, having fallen from the peak of $115 per
barrel of Brent crude in June 2014 to the trough of $46 in January,
staged a modest recovery through the first quarter of this fiscal
year, reaching $70 in May. However, a combination of greater than
anticipated supply growth and weaker than expected global demand
has seen this reverse through the second quarter, with crude prices
back towards and since period end, below the levels seen in
January. Other commodity prices have also been weak through this
period.
Portfolio performance and positioning
Against this backdrop, your Company has had a positive six
months; the return on net assets over the period was 15.0%, ahead
of the 11.1% benchmark return for the FTSE All-Share Index
excluding FTSE 100 constituents and Investment Trusts. Reflecting a
slight tightening of the discount, the share price total return was
15.6% for the period.
This positive relative performance has been delivered despite
retaining a conservative overall level of gearing and therefore
exposure to market moves, with the portfolio 2.5% net cash at 31st
July 2015, having been fully invested but ungeared at the start of
the period. As a result, outperformance has been driven by a
combination of sector allocation and stock selection. This has been
achieved across a broad range of sectors and individual stocks,
with the most significant contributions from the beverages sector,
driven by the holding in Fever-Tree, the owner and distributor of
premium brand mixers, and the mining sector, where the fund's
underweight positioning has added value as the companies continue
to struggle with weakening metal prices.
The overall shape and key end market exposures of the portfolio
have remained substantially unchanged through the first half of the
year - in aggregate the portfolio remains overweight in domestic,
consumer exposed stocks whilst being underweight stocks in
resources and resource exposed industries.
Transactions have been stock specific and across a range of
industry sectors; the largest purchases include Betfair Group, the
internet betting exchange, DS Smith, the provider of corrugated
packaging solutions, and Bellway, the house builder. Significant
sales have resulted from takeover situations, such as Catlin Group,
TSB Banking Group and CSR, and from holdings being divested post
promotion into the FTSE 100, such as Inmarsat and Hikma
Pharmaceuticals.
Outlook
The UK economy continues to perform well against a tough global
backdrop, and is expected to be the fastest growing G7 economy for
the second year running. Rising wages and employment combined with
limited inflation continue to lift household spending power, which
has positive implications for consumer facing companies, whilst
continued weakness in commodity prices negatively impacts energy
and related industries. Based upon our view that these changes are
still not fully reflected in share prices, the portfolio remains
positively exposed to such domestic, consumer related stocks whilst
negatively positioned in energy and related industries.
In addition to these factors, other uncertainties such as the
pace of emerging market growth, the timing and magnitude of
interest rate increases and the future of Europe continue to
influence our view on your Company's overall exposure to the
market. The current cash position leaves significant capacity to
deploy further capital into the market in the event of increased
volatility presenting opportunities, as confidence in growth
increases or as other risks unwind.
Despite this somewhat uncertain backdrop, we believe that the
favourable dynamics of investing in small and medium-sized
companies will continue to drive superior returns over the
long-term.
Guy Anderson
Martin Hudson
Anthony Lynch
23rd September 2015
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
2015.
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:
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(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
(ii) the interim management report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the UK Listing
Authority Disclosure and Transparency Rules.
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
23rd September 2015
Statement of Comprehensive Income
for the six months ended 31st July 2015
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2015 31st July 2014 31st January 2015
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- -------- --------- --------- -------- -------- ---------
Gains/(losses) from
investments held at
fair value through
profit or loss - 225,998 225,998 - (24,696) (24,696) - 43,822 43,822
Net foreign currency
gains - 15 15 - 5 5 - 41 41
Income from investments 32,565 - 32,565 28,781 - 28,781 47,091 - 47,091
Other interest
receivable and similar
income 522 - 522 305 - 305 1,045 - 1,045
------------------------- -------- -------- -------- -------- --------- --------- -------- -------- ---------
Gross return/(loss) 33,087 226,013 259,100 29,086 (24,691) 4,395 48,136 43,863 91,999
Management fee (1,097) (2,560) (3,657) (1,139) (2,658) (3,797) (2,132) (4,975) (7,107)
Other administrative
expenses (661) - (661) (439) - (439) (1,180) - (1,180)
------------------------- -------- -------- -------- -------- --------- --------- -------- -------- ---------
Net return/(loss) on
ordinary activities
before finance costs
and taxation 31,329 223,453 254,782 27,508 (27,349) 159 44,824 38,888 83,712
Finance costs (1,671) (3,903) (5,574) (1,685) (3,925) (5,610) (3,359) (7,838) (11,197)
------------------------- -------- -------- -------- -------- --------- --------- -------- -------- ---------
Net return/(loss) on
ordinary activities
before taxation 29,658 219,550 249,208 25,823 (31,274) (5,451) 41,465 31,050 72,515
Taxation (note 4) (162) - (162) (15) - (15) (113) - (113)
Net return/(loss) on
ordinary activities
after taxation 29,496 219,550 249,046 25,808 (31,274) (5,466) 41,352 31,050 72,402
------------------------- -------- -------- -------- -------- --------- --------- -------- -------- ---------
Return/(loss) per share
(note 5) 30.54p 227.30p 257.84p 26.27p (31.83)p (5.56)p 42.10p 31.61p 73.71p
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.
Statement of Changes in Equity
for the six months ended 31st July 2015
Called up Capital
share Share redemption Capital Revenue
capital premium reserve reserves reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
At 31st January 2015 24,426 23,459 12,344 1,615,974 36,893 1,713,096
Repurchased 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
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
Six months ended 31st July 2014 (unaudited)
Called up Capital
share Share redemption Capital Revenue(1)
capital premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
At 31st January 2014 24,560 23,459 12,210 1,592,851 34,830 1,687,910
Net return on ordinary activities - - - (31,274) 25,808 (5,466)
Dividends appropriated in the period - - - - (23,571) (23,571)
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
At 31st July 2014 24,560 23,459 12,210 1,561,577 37,067 1,658,873
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
Year ended 31st January 2015 (audited)
Called up Capital
share Share redemption Capital Revenue(1)
capital premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
At 31st January 2014 24,560 23,459 12,210 1,592,851 34,830 1,687,910
Repurchase and cancellation of the Company's
own shares (134) - 134 (7,927) - (7,927)
Net return on ordinary activities - - - 31,050 41,352 72,402
Dividends paid in the year - - - - (39,289) (39,289)
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
At 31st January 2015 24,426 23,459 12,344 1,615,974 36,893 1,713,096
---------------------------------------------- ---------- -------- ----------- ---------- ----------- ----------
(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 2015
(Unaudited) (Unaudited) (Audited)
30th June 2015 30th June 2014 31st December 2014
GBP'000 GBP'000 GBP'000
------------------------------------------------------- --------------- --------------- -------------------
Fixed assets
Investments held at fair value through profit or loss 1,864,253 1,606,981 1,722,405
Current assets
Debtors 13,108 28,540 2,573
Cash and short term deposits 229,600 220,594 193,167
------------------------------------------------------- --------------- --------------- -------------------
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242,708 249,134 195,740
Creditors: amounts falling due within one year (16,345) (19,907) (27,666)
Net current assets 226,363 229,227 168,074
------------------------------------------------------- --------------- --------------- -------------------
Total assets less current liabilities 2,090,616 1,836,208 1,890,479
Creditors: amounts falling due after more
than one year (177,432) (177,335) (177,383)
Net assets 1,913,184 1,658,873 1,713,096
------------------------------------------------------- --------------- --------------- -------------------
Capital and reserves
Called up share capital 24,062 24,560 24,426
Share premium 23,459 23,459 23,459
Capital redemption reserve 12,708 12,210 12,344
Capital reserves 1,812,585 1,561,577 1,615,974
Revenue reserve 40,370 37,067 36,893
------------------------------------------------------- --------------- --------------- -------------------
Shareholders' funds 1,913,184 1,658,873 1,713,096
------------------------------------------------------- --------------- --------------- -------------------
Net asset value per share (note 6) 1,987.8p 1,688.6p 1,753.3p
Company registration number 20537
Statement of Cash Flows
for the six months ended 31st July 2015
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2015 31st July 2014 31st January 2015
GBP'000 GBP'000 GBP'000
------------------------------------------------------ ----------------- ----------------- ------------------
Cash inflow from operations (note 7) 26,771 23,074 39,852
Interest paid (5,528) (5,528) (11,057)
Overseas tax recovered - 27 62
------------------------------------------------------ ----------------- ----------------- ------------------
Net cash inflow from operating activities 21,243 17,573 28,857
------------------------------------------------------ ----------------- ----------------- ------------------
Purchases of investments (435,209) (524,302) (1,148,222)
Sales of investments 499,967 723,692 1,328,276
Other capital charges (18) (13) (27)
------------------------------------------------------ ----------------- ----------------- ------------------
Net cash inflow from investing activities 64,740 199,377 180,027
------------------------------------------------------ ----------------- ----------------- ------------------
Dividends paid (26,019) (23,571) (39,289)
Shares repurchased (27,184) - (3,681)
Net cash outflow from financing activities (53,203) (23,571) (42,970)
------------------------------------------------------ ----------------- ----------------- ------------------
Increase in cash and cash equivalents 32,780 193,379 165,914
------------------------------------------------------ ----------------- ----------------- ------------------
Cash and cash equivalents at the start of the period 193,167 27,211 27,211
Exchange movements 15 4 42
Cash and cash equivalents at the end of the period 225,962 220,594 193,167
------------------------------------------------------ ----------------- ----------------- ------------------
Increase in cash and cash equivalents 32,780 193,379 165,914
------------------------------------------------------ ----------------- ----------------- ------------------
Cash and cash equivalents consist of (note 9):
Cash at bank and in hand - 394 367
Bank overdraft (3,638) - -
Short term deposits 229,600 220,200 192,800
------------------------------------------------------ ----------------- ----------------- ------------------
225,962 220,594 193,167
------------------------------------------------------ ----------------- ----------------- ------------------
Notes to the Financial Statements
for the six months ended 31st July 2015
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 2015 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 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 have been prepared in accordance with
the Companies Act 2006, FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland' of the United Kingdom
Generally Accepted Accounting Practice ('UK GAAP') and with the
Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (the revised
'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 2015.
As a result of the first time adoption of FRS 102 and the
revised SORP, comparative numbers and presentational formats have
been restated where required.
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 2015 with the
following exceptions and amendments:
Finance costs
Finance costs are accounted for on an accruals basis using the
effective interest method and in accordance with the provisions of
FRS 102.
Financial instruments
Cash and cash equivalents may comprise cash (including demand
deposits which are readily convertible to a known amount of cash
and are subject to an insignificant risk of change in value) as
well as cash equivalents (in accordance with the requirements of
the Alternative Investment Fund Managers Directive regulations,
investments are regarded as cash equivalents if they meet all of
the following criteria; highly liquid investments held in the
sub-fund's base currency that are readily convertible to a known
amount of cash, are subject to an insignificant risk of change in
value and provide a return no greater than the rate of a
three-month high quality government bond).
Taxation
Current tax is provided at the amounts expected to be received
or paid.
Deferred tax is accounted for in accordance with FRS 102.
Foreign currency
In accordance with FRS 102 the Company is required to identify
its functional currency, being the currency of the primary economic
environment in which the Company operates. The Board, having regard
to the currency of the Company's share capital and the predominant
currency in which its shareholders operate, has determined that
Sterling is the functional currency. Sterling is also the currency
in which the accounts are presented.
Repurchases of ordinary shares for cancellation
The cost of repurchasing ordinary shares including the related
stamp duty and transactions costs is charged to capital reserves
and dealt with in the Statement of Changes in Equity.
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