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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