Half Yearly Report

RNS Number : 6725O

Mercantile Investment Trust(The)PLC

21 September 2011

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST JULY 2011

Chairman's Statement

Performance and Market Review

The Company's net asset value total return in the first six months to 31st July 2011 was -0.3% which was 2.5% behind the return of 2.2% from our benchmark index, the FTSE All-Share, excluding FTSE 100 constituents and investment trusts.

Whilst this is a disappointing result, it has to be viewed against the backdrop of economic and political uncertainty, which has resulted in the portfolio underperforming against the Managers' expectations. This is explained in the Investment Managers' Report. The use of gearing at times during the period was also a factor in the loss of value against the Company's benchmark.

Revenue

The income received from investments in the first half is above that of the half year ended 31st July 2010, showing a small increase overall in dividend payments.

Dividends

A second interim dividend of 6.0 pence per share has been declared by the Board, payable on 1st November 2011 to shareholders on the register at close of business on 30th September 2011. Together with the first interim dividend of 6.0 pence paid on 1st August 2011 this brings the total dividend for the year to date to 12.0 pence (2010: 12.0 pence) and the Board expects that there will be a third dividend of 6.0 pence paid in early February 2012. As ever, the Board's decision as to the quantum of the fourth interim dividend will depend on the progress of the portfolio's dividend receipts for the balance of the year. The extent to which the Board may feel able to pay a partially uncovered fourth dividend will also depend on the outlook for the future dividend receipts by the Company as well as the Company's existing revenue reserves.

Share Repurchases

During the period under review, the Board made no share repurchases. However, it continues to maintain its active monitoring of the conditions for buybacks, in order to enhance the asset value per share and minimise the absolute level and volatility of the discount on the Company's shares. The discount, with debt at fair value, has ranged between 9.73% and 13.75% in the period from 1st February 2011 to 16th September 2011, with the average discount during the period of 11.58%.

Board Appointment

I am pleased to announce the appointment of Helen James as a Director of the Company with effect from today. As a founder of Investis, in 2000, and previously Head of Pan-European Equity Sales at Paribas, she brings a wealth of complimentary experience to the Board.

Outlook

With global growth slowing, markets volatile and the European Sovereign debt problem still unresolved, we remain cautious and as at the date of this report the Company is not fully invested, taking into account amounts receivable as proceeds from cash bids for companies in the portfolio. However, the valuations of many stocks look attractive on a medium term view; generally companies' balance sheets are now strong and dividend yields attractive. The Company is well placed to take advantage of opportunities as they present themselves.

For and on behalf of the Board

Hamish Leslie Melville

Chairman                                                                                                             21st September 2011

Investment Managers' Report

After two years of strong recovery for small and mid cap stocks, macro-economic and geo-political uncertainties began to sap stock market confidence in the six months ended 31st July 2011. The Company's net asset value total return for the period was -0.3%, underperforming the Company's benchmark index, the FTSE All-Share excluding FTSE 100 constituents and investment trusts, which returned 2.2%. Reflecting the likelihood of markets being more volatile in response to reduced economic growth prospects and seemingly intractable Sovereign debt problems, your Company's gearing level was reduced from 109% at the year end to 106% at 31st July, but with 6% of cash due from agreed takeover bids, the effective gearing level was 100%.

The underperformance in the first half was stock specific, with Renovo, which we flagged in the Annual Report and Accounts, falling substantially in price as its lead drug failed in Phase III clinical trials, Cable and Wireless Worldwide and Cable and Wireless Communications underperforming on profit downgrades and Cove Energy underperforming as it entered a quiet period for newsflow whilst further drilling for gas got underway offshore East Africa.

During the half year, takeover approaches were received by several companies within the portfolio and cash bids at substantial premia have now been agreed by the Boards of Northumbrian Water and Hansen Transmissions.

Since the half year end, stockmarket volatility has increased substantially and in August small and mid cap stocks fell back to their level of a year ago. This reflected doubts regarding politicans' willingness and ability to tackle large budget deficits in Europe and the USA and a realisation that the austerity measures necessary will constrain growth for years to come. This downgrading of growth prospects and therefore profits estimates for companies led to a flight from equities. Your portfolio is positioned in some defensive sectors such as gold miners, utilities, household goods and non-life insurance companies to mitigate the risk of lower economic growth and your Company's gearing level has been reduced further since the half year end. This puts us in a good position to take advantage of opportunities in a volatile market, recognising that, whilst near term growth prospects have reduced, generally companies' balance sheets are now strong and dividend yields attractive.

Martin Hudson

Jane Lennard                                                                                                      21st September 2011

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 2011.

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.

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 the Accounting Standards Board's Statement 'Half Year Financial Reports'; 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.

For and on behalf of the Board.

Hamish Leslie Melville

Chairman

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

for the six months ended 31st July 2011

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st July 2011			31st July 2010			31st January 2011
	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	-	(25,646)	(25,646)	-	80,313	80,313	-	249,190	249,190
Net foreign currency (losses)/gains	-	(6)	(6)	-	18	18	-	26	26
Income from investments	18,285	-	18,285	16,628	-	16,628	30,631	-	30,631
Other interest receivable and   similar income	496	-	496	333	-	333	1,606	-	1,606
Gross return/(loss)	18,781	(25,652)	(6,871)	16,961	80,331	97,292	32,237	249,216	281,453
Management fee	(813)	(1,897)	(2,710)	(676)	(1,578)	(2,254)	(1,407)	(3,282)	(4,689)
Other administrative expenses	(387)	-	(387)	(370)	-	(370)	(723)	-	(723)
Net return/(loss) on ordinary   activities before finance        costs and taxation	17,581	(27,549)	(9,968)	15,915	78,753	94,668	30,107	245,934	276,041
Finance costs	(1,697)	(3,962)	(5,659)	(1,647)	(3,842)	(5,489)	(3,320)	(7,748)	(11,068)
Net return/(loss) on ordinary   activities before taxation	15,884	(31,511)	(15,627)	14,268	74,911	89,179	26,787	238,186	264,973
Taxation (note 4)	(61)	-	(61)	(15)	-	(15)	(18)	-	(18)
Net return/(loss) on ordinary   activities after taxation	15,823	(31,511)	(15,688)	14,253	74,911	89,164	26,769	238,186	264,955
Return/(loss) per share (note 5)	15.98p	(31.82)p	(15.84)p	14.27p	74.99p	89.26p	26.91p	239.48p	266.39p

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

for the six months ended 31st July 2011 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2011	24,759	23,459	12,011	1,139,698	37,339	1,237,266
Net (loss)/return on ordinary activities	-	-	-	(31,511)	15,823	(15,688)
Dividends appropriated in the period	-	-	-	-	(23,698)	(23,698)
At 31st July 2011	24,759	23,459	12,011	1,108,187	29,464	1,197,880

Six months ended 31st July 2010 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2010	25,487	23,459	11,283	928,785	46,362	1,035,376
Repurchase and cancellation of the   Company's own shares	(723)	-	723	(27,072)	-	(27,072)
Net return on ordinary activities	-	-	-	74,911	14,253	89,164
Dividends appropriated in the period	-	-	-	-	(23,906)	(23,906)
At 31st July 2010	24,764	23,459	12,006	976,624	36,709	1,073,562

Year ended 31st January 2011 (audited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2010	25,487	23,459	11,283	928,785	46,362	1,035,376
Repurchase and cancellation of the   Company's own shares	(728)	-	728	(27,273)	-	(27,273)
Net return on ordinary activities	-	-	-	238,186	26,769	264,955
Dividends appropriated in the year	-	-	-	-	(35,792)	(35,792)
At 31st January 2011	24,759	23,459	12,011	1,139,698	37,339	1,237,266

Balance Sheet

at 31st July 2011

	(Unaudited)	(Unaudited)	(Audited)
	31st July	31st July	31st January
	2011	2010	2011
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,274,196	1,059,103	1,347,562
Current assets
Debtors	28,173	20,553	4,030
Cash and short term deposits	91,563	183,193	89,530
	119,736	203,746	93,560
Creditors: amounts falling due within one year	(19,006)	(12,338)	(26,859)
Net current assets	100,730	191,408	66,701
Total assets less current liabilities	1,374,926	1,250,511	1,414,263
Creditors: amounts falling due after more than   one year	(177,046)	(176,949)	(176,997)
Net assets	1,197,880	1,073,562	1,237,266
Capital and reserves
Called up share capital	24,759	24,764	24,759
Share premium	23,459	23,459	23,459
Capital redemption reserve	12,011	12,006	12,011
Capital reserves	1,108,187	976,624	1,139,698
Revenue reserve	29,464	36,709	37,339
Shareholders' funds	1,197,880	1,073,562	1,237,266
Net asset value per share (note 6)	1,209.5p	1,083.8p	1,249.3p

Company registration number 20537

Cash Flow Statement

for the six months ended 31st July 2011

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July	31st July	31st January
	2011	2010	2011
	£'000	£'000	£'000
Net cash inflow from operating activities (note 7)	10,951	11,870	26,671
Net cash outflow from servicing of finance	(5,627)	(5,441)	(10,954)
Taxation recovered	9	-	-
Net cash inflow from capital expenditure   and financial investment	35,404	188,435	82,564
Dividends paid	(23,698)	(23,894)	(35,780)
Net cash outflow from financing	(15,000)	(28,020)	(13,222)
Increase in cash in the period	2,039	142,950	49,279
Reconciliation of net cash flow to movement in   net funds/debt
Increase in cash in the period	2,039	142,950	49,279
Bank loans repaid/(drawn down) in the period	15,000	-	(15,000)
Exchange movements	(7)	18	26
Other movements	(48)	(48)	(96)
Changes in net funds/debt arising from cash flows	16,984	142,920	34,209
Net debt at the beginning of the period	(102,467)	(136,676)	(136,676)
Net (debt)/funds at the end of the period	(85,483)	6,244	(102,467)
Represented by:
Cash and short term deposits	91,563	183,193	89,530
Bank loans falling due within one year	-	-	(15,000)
Debentures falling due after more than five years	(177,046)	(176,949)	(176,997)
Net (debt)/funds	(85,483)	6,244	(102,467)

Notes to the Accounts

for the six months ended 31st July 2011

1.             Financial Statements

                The information contained within the accounts 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 2011 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 and with the Statement of Recommend Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

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

                The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 31st January 2011.

3.             Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2011	31st July 2010	31st January 2011
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	(70)	-	-
Fourth quarterly dividend of 18.0p (2010: 18.0p)   paid to shareholders in May	17,826	17,961	17,961
First quarterly dividend of 6.0p (2010: 6.0p) paid   to shareholders in August	5,942	5,945	5,945
Second quarterly dividend of 6.0p paid to   shareholders in November	n/a	n/a	5,944
Third quarterly dividend of 6.0p paid to   shareholders in February	n/a	n/a	5,942
	23,698	23,906	35,792

                A second quarterly dividend of 6.0p (2010: 6.0p) per share, amounting to £5,942,000 (2010: £5,943,000), has been declared payable in respect of the six months ended 31st July 2011.

4.             Taxation

                The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. The tax charge comprises overseas withholding tax.

5.             Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2011	31st July 2010	31st January 2011
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	15,823	14,253	26,769
Capital (loss)/return	(31,511)	74,911	238,186
Total (loss)/return	(15,688)	89,164	264,955
Weighted average number of shares in issue	99,035,719	99,892,469	99,461,672
Revenue return per share	15.98p	14.27p	26.91p
Capital (loss)/return per share	(31.82)p	74.99p	239,48p
Total (loss)/return per share	(15.84)p	89.26p	266.39p

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 2011 of 99,035,719 (31st July 2010: 99,055,719 and 31st January 2011: 99,035,719).

7.             Reconciliation of net (loss)/return 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 2011	31st July 2010	31st January 2011
	£'000	£'000	£'000
Total (loss)/return on ordinary activities before   finance costs and taxation	(9,968)	94,668	276,041
Less capital loss/(return) on ordinary activities   before finance costs and taxation	27,549	(78,753)	(245,934)
Scrip dividends included in income	(678)	(442)	(56)
Increase in net debtors and accrued income	(3,965)	(1,941)	(32)
Decrease in accrued expenses	(68)	(53)	(34)
Management fee charged to capital	(1,897)	(1,578)	(3,282)
Overseas withholding tax	(22)	(31)	(32)
Net cash inflow from operating activities	10,951	11,870	26,671

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the half year report and accounts has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The half year report and accounts 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.

 

END

 

 

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