Half Yearly Report

RNS Number : 5525Z

Mercantile Investment Trust(The)PLC

23 September 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 

31ST JULY 2009

Chairman's Statement

Performance and Market Review

The Company's net asset value total return in the first six months to 31st July 2009 was +40.8% which was +6.9% ahead of the return of +33.9% from our benchmark index, the FTSE All Share excluding FTSE 100 constituents and investment trusts.

This represents a strong recovery in mid and small cap stocks which reached a low point in November 2008 following the precipitous fall in stockmarkets which began in July 2007.

The subsequent unprecedented co-ordinated intervention by Central Banks has steadied the global financial system. Recent data indicate the rate of decline in economic activity is moderating and, in addition, some company earnings have beaten market expectations. At the stockmarket levels seen in November 2008, which were revisited again in March this year, small and mid cap stocks had become extreme value. Having held net cash in the Company's portfolio since July 2007 in order to preserve value in a falling market, from the beginning of the year, the managers invested borrowings in the stockmarket, ending the period with gearing of 10%. This contributed to performance in a rising market, as did stock selection which concentrated on companies which had been hit too hard in the stockmarket and whose businesses had the potential to recover.

Revenue

The income received from investments for the first half is significantly lower as a result of a substantial number of companies either reducing or passing their dividends because of the economic uncertainty. We expect the level of income to increase as companies begin to restore their profitability.

Interest received on bank deposits was substantially lower, owing to the sharp reduction in deposit interest rates and the level of cash held on deposit.

Dividends

A second interim dividend of 6.0 pence per share has been declared by the Board, payable on 30th October 2009 to shareholders on the register as at the close of business on 2nd October 2009. Together with the first interim dividend of 6.0 pence paid on 31st July 2009, this brings the total dividend for the year to date to 12.0 pence (2008: 12.0 pence). This follows the Board's stated intention, in the Annual Report for the year ended 31st January 2009, of paying three dividends of 6.0 pence during the current financial year, followed by a fourth dividend based on the level of income received by the Company during the year and with regard to the Company's very strong revenue reserve.

Share Repurchases

The Board has not made any share repurchases during the period under review. The discount, with debt at fair value, has ranged between 3.0% and 12.8% in the period from 1st February 2009 to 3rd September 2009, with the average discount during the period 6.9%.

Board

As announced at the Annual General Meeting, it is with great regret that I must report the sad and untimely death of Richard Hambro, who, in his role as a Director, provided very considerable guidance and insight on all matters concerning the Company.

Sir Richard Beckett QC has joined the Board as a Director with effect from 1st September 2009.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into five broad categories: investment and strategy; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st January 2009.

Related Parties' Transactions

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

Directors' Responsibilities

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

• the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the UK Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

• the interim management report includes a fair review of the information required by DTR 4.2.7R and 4.2.8R.

Outlook

Although the stockmarket has recovered from its lows the outlook remains difficult: the first quarter saw the worst economic performance in the UK for 50 years with a year on year contraction in GDP of 4.9%; unemployment is still rising; public sector spending will have to be cut; the high levels of indebtedness in both the public and private sectors will have to be reduced. Nevertheless, investors are right to be searching for companies which will benefit from stability or an improvement in the economic outlook and these are the sorts of stocks that the managers are concentrating on, within their balanced portfolio structure.

Hamish Leslie Melville

Chairman 

23rd September 2009

For further information, please contact:

Juliet Dearlove

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

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.mercantileit.co.uk

Income Statement

	(Unaudited) Six months ended 31st July 2009			(Unaudited) Six months ended 31st July 2008			(Audited) Year ended 31st January 2009
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	253,126	253,126	-	(158,315)	(158,315)	-	(488,753)	(488,753)
Net foreign currency losses	-	(113)	(113)	-	(21)	(21)	-	(26)	(26)
Income from investments	14,828	-	14,828	22,829	-	22,829	39,601	-	39,601
Other interest receivable and similar income	3,228	-	3,228	6,105	-	6,105	12,149	-	12,149
Gross return/(loss)	18,056	253,013	271,069	28,934	(158,336)	(129,402)	51,750	(488,779)	(437,029)
Management fee	(859)	(859)	(1,718)	(1,260)	(1,260)	(2,520)	(2,187)	(2,187)	(4,374)
VAT recovered	-	-	-	-	-	-	1,130	1,069	2,199
Other administrative expenses	(434)	-	(434)	(397)	-	(397)	(2,144)	-	(2,144)
Net return/(loss) on ordinary activities before finance costs and taxation	16,763	252,154	268,917	27,277	(159,596)	(132,319)	48,549	(489,897)	(441,348)
Finance costs	(2,745)	(2,745)	(5,490)	(2,756)	(2,756)	(5,512)	(5,502)	(5,502)	(11,004)
Net return/(loss) on ordinary activities before taxation	14,018	249,409	263,427	24,521	(162,352)	(137,831)	43,047	(495,399)	(452,352)
Taxation	(48)	-	(48)	(21)	-	(21)	(19)	-	(19)
Net return/(loss) on ordinary activities after taxation	13,970	249,409	263,379	24,500	(162,352)	(137,852)	43,028	(495,399)	(452,371)
Return/(loss) per share (note 4)	13.65p	243.75p	257.40p	23.60p	(156.41)p	(132.81)p	41.73p	(480.45)p	(438.72)p

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 Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up share capital	Share premium	Capital redemption reserve	Capital reserves	Revenue reserve	Total
Six months ended
31st July 2009
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2009	25,580	23,459	11,190	577,602	59,467	697,298
Repurchase and cancellation of shares	-	-	-	(1)	-	(1)
Total return on ordinary activities	-	-	-	249,409	13,970	263,379
Dividends appropriated in the period	-	-	-	-	(24,557)	(24,557)
At 31st July 2009	25,580	23,459	11,190	827,010	48,880	936,119
	Called up share capital	Share premium	Capital redemption reserve	Capital reserves	Revenue reserve	Total
Six months ended
31st July 2008
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2008	26,075	23,459	10,695	1,090,587	57,334	1,208,150
Repurchase and cancellation of shares	(422)	-	422	(15,438)	-	(15,438)
Total (loss)/return on ordinary activities	-	-	-	(162,352)	24,500	(137,852)
Dividends appropriated in the period	-	-	-	-	(28,601)	(28,601)
At 31st July 2008	25,653	23,459	11,117	912,797	53,233	1,026,259
	Called up share capital	Share premium	Capital redemption reserve	Capital reserves	Revenue reserve	Total
Year ended
31st January 2009
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2008	26,079	23,459	10,695	1,090,587	57,334	1,208,150
Repurchase and cancellation of shares	(495)	-	495	(17,586)	-	(17,586)
Total (loss)/return on ordinary activities	-	-	-	(495,399)	43,028	(452,371)
Dividends appropriated in the year	-	-	-	-	(40,895)	(40,895)
At 31st January 2009	25,580	23,489	11,190	577,602	59,467	697,298

Balance Sheet

	(Unaudited)	(Unaudited)	(Audited)
	31st July 2009	31st July 2008	31st January 2009
As at 31st July 2009	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,047,151	903,758	716,891
Current assets
Debtors	10,445	40,127	1,786
Derivative financial instruments	-	3,064	-
Cash and short term deposits	72,114	263,619	171,392
	82,559	306,810	173,178
Creditors: amounts falling due within one year	(16,737)	(7,542)	(15,966)
Net current assets	65,822	299,268	157,212
Total assets less current liabilities	1,112,973	1,203,016	874,103
Creditors: amounts falling due after more than one year	(176,854)	(176,757)	(176,805)
Total net assets	936,119	1,026,259	697,298
Capital and reserves
Called up share capital	25,580	25,653	25,580
Share premium	23,459	23,459	23,459
Capital redemption reserve	11,190	11,117	11,190
Capital reserves	827,010	912,797	577,602
Revenue reserve	48,880	53,233	59,467
Shareholders' funds	936,119	1,026,259	697,298
Net asset value per share (note 5)	914.9p	1,000.1p	681.5p

Cash Flow Statement

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
For the six months	31st July 2009	31st July 2008	31st January 2009
ended 31st July 2009	£'000	£'000	£'000
Net cash inflow from operating activities (note 7)	13,054	23,971	54,483
Net cash outflow from servicing of finance	(5,441)	(5,457)	(10,898)
Taxation recovered	-	16	16
Net cash (outflow)/inflow from capital expenditure and financial investment	(82,220)	574	(101,687)
Dividends paid	(24,557)	(28,601)	(40,895)
Net cash outflow from financing	(1)	(14,844)	(17,586)
Decrease in cash for the period	(99,165)	(24,341)	(116,567)
Reconciliation of net cash flow to movement in net (debt)/funds
Decrease in cash for the period	(99,165)	(24,341)	(116,567)
Exchange movements	(113)	(25)	(26)
Other movements	(49)	(48)	(96)
Changes in net (debt)/funds arising from cash flows	(99,327)	(24,414)	(116,689)
Net (debt)/funds at the beginning of the period	(5,413)	111,276	111,276
Net (debt)/funds at the end of the period	(104,740)	86,862	(5,413)
Represented by:
Cash and short term deposits	72,114	263,619	171,392
Debt falling due after more than five years	(176,854)	(176,757)	(176,805)
Net (debt)/funds	(104,740)	86,862	(5,413)

Notes to the Accounts

for the six months ended 31st July 2009

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 2009 are extracted from the latest published  accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included 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 accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' issued in January 2009.

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

The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 31st January 2009.

3.    Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2009	31st July 2008	31st January 2009
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	-	(10)	(10)
Fourth quarterly dividend of 18.0p (2008: 17.50p) paid to shareholders in May	18,418	18,253	18,253
Special dividend of nil (2008: 4.0p) paid to shareholders in May	-	4,172	4,172
First quarterly dividend of 6.0p (2008: 6.0p) paid to shareholders in August	6,139	6,186	6,186
Second quarterly dividend of 6.0p paid to shareholders in November	n/a	n/a	6,147
Third quarterly dividend of 6.0p paid to shareholders in February	n/a	n/a	6,147
	24,557	28,601	40,895

A second quarterly dividend of 6.0p (2008: 6.0p) per share, amounting to £6,136,000 (2008: £6,147,000), has been declared payable in respect of the six months ended 31st July 2009.

4.    Effective Tax Rate

The Company's effective tax rate is nil, as deductible expenses exceed taxable income.

5. Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2009	31st July 2008	31st January 2009
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	13,970	24,500	43,028
Capital return/(loss)	249,409	(162,352)	(495,399)
Total return/(loss)	263,379	(137,852)	(452,371)
Weighted average number of shares in issue	102,321,968	103,793,098	103,110,703
Revenue return per share	13.65p	23.60p	41.73p
Capital return/(loss) per share	243.75p	(156.41)p	(480.45)p
Total return/(loss) per share	257.40p	(132.81)p	(438.72)p

6.     Net asset value per share

Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31st July 2009 of 102,321,968 (31st July 2008: 102,610,765 and 31st January 2009: 102,321,968).

7.    Reconciliation of net return/(loss) on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2009	31st July 2008	31st January 2009
	£'000	£'000	£'000
Net return/(loss) before finance costs and taxation	268,917	(132,319)	(441,348)
Add back capital (return)/loss before finance costs and taxation	(252,154)	159,596	489,897
(Increase)/decrease in net debtors and accrued income	(1,303)	(1,541)	150
Decrease in VAT recoverable	-	-	5,843
(Decrease)/increase in accrued expenses	(1,499)	(505)	1,059
Expenses charged to capital	(859)	(1,260)	(1,118)
Tax on unfranked investment income	(48)	-	-
Net cash inflow from operating activities	13,054	23,971	54,483

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

www.mercantileit.co.uk

 

END

 

 

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