Half Yearly Report

RNS Number : 7986O

Mercantile Investment Trust(The)PLC

24 September 2013

 



London Stock Exchange Announcement

THE MERCANTILE Investment Trust PLC

Unaudited Half Year Results
for the six months ended 31^ST JULY 2013

Chairman's Statement

Performance and Market Review

The Company's net asset value total return in the six months to 31st July 2013 was 18.2%, ahead of the return of 17.3% from our benchmark index, the FTSE All-Share, excluding FTSE 100 constituents and investment trusts. The share price total return was 20.6%.

Returns and Dividends

The income received from investments in the first half of the current year was substantially greater than that for the half year ended 31st July 2012. This reflects an increase in dividend income from portfolio companies.

Having reviewed the revenue received to date and taking account of anticipated revenues over the remaining months of the Company's financial year, the Board is pleased to advise shareholders that it expects to pay a fourth dividend of 15.0 pence, making a total dividend for the year of 39.0 pence per share. This would be an increase of 8.3 per cent in the total level of dividends paid compared with the previous financial year. The result of this is that dividend income has increased by l07% over the 10 years to 31^st January 2014, compared with estimated inflation of 34%.

The increase in the level of the first three interim dividends is part of a rebalancing exercise explained in my statement dated 21st March 2013 in the last Annual Report and Accounts.

A second interim dividend of 8.0 pence per share has been declared by the Board, payable on 1st November 2013 to shareholders on the register at close of business on 4th October 2013. Together with the first interim dividend of 8.0 pence paid on 1st August 2013 this brings the total dividend for the year to date to 16.0 pence (2012: 12.0 pence). The Board anticipates that there will be a third interim dividend of 8.0 pence to be paid in early February 2014.

Gearing

The Investment Managers' positive outlook has led to the Company employing a higher level of gearing, averaging 8.1% over the reporting period.

Share Buy Backs

The Board has maintained an active approach towards share repurchases in order to enhance the net asset value per share and minimise the absolute level and volatility of the discount with regard to the Company's shares. In the six months to 31st July 2013, 215,000 shares were repurchased for cancellation at a total cost of £2,739,000. These purchases added approximately 0.4 pence to the net asset value per share. The discount, with debt at fair value, has ranged between 10.1% and 13.8% in the period from 1st February 2013 to 13th September 2013, with the average discount during the period of 12.3%.

Board Changes

Sir Richard Beckett will retire from the Board at the Annual General Meeting in 2014. I would like to thank Sir Richard for his contribution to the Board.

Alternative Investment Fund Managers Directive ('AIFMD')

The final regulations for the AIFMD have now been published and as we move towards compliance we expect to enter into arrangements with our Manager, JPMAM, who will act as the Company's Alternative Investment Fund Manager. The process of appointing a Depositary, as required by the Directive, is underway.  The Board anticipates that there will be no overall additional costs.

Outlook

The UK economy is showing signs of recovery and small and medium sized companies look set to continue to grow their revenues, earnings and dividends. For this reason, we anticipate the gearing of the Company being maintained.

For and on behalf of the Board

Hamish Leslie Melville

Chairman                                                                                                                                             

24th September 2013

Investment Managers' Report

The strong performance of mid and small sized UK quoted equities continued through the first half of the current year with share prices rising against a backdrop of a recovering UK economy, continuing low interest rates and improving investor sentiment. The FTSE All-Share Index excluding FTSE 100 constituents and investment trusts total return was 17.3% for the six months ended 31st July 2013. Your Company's performance was ahead of the benchmark with a total return on net assets of 18.2%.

The key contributor to this performance was the strength of housebuilding shares which responded well to the announcement of a new Government scheme, Help to Buy, which together with a review of planning regulations is designed to increase the number of new houses built. The relative performance of the portfolio also benefited from having sold all of our holdings in the mining sector as weak metal prices continued to weigh heavily on that sector. The oil and gas sector was a negative contributor to performance in the period as weakening oil prices led to a fall in share prices at a time when the wider stock market was rising.

Corporate activity within the quoted sector is beginning to grow and Betfair, HR Owen, Invensys and New Britain Palm Oil received takeover approaches whilst Carphone Warehouse, Lancashire, Phoenix Group, Renovo and Serviced Office have all announced substantial corporate transactions.

Mercantile is currently 9.8% geared, reflecting our positive view of prospects for the stockmarket. The political imperative is to support economic growth and improving trends in economic data releases continue to sustain investors' appetite for risk. Mid and small sized UK equities are attractive at current valuations. There are good opportunities for stock picking particularly amongst companies with leading market positions and strong balance sheets, which have the ability to invest for growth or to increase distributions to shareholders.

Martin Hudson 

Guy Anderson

Anthony Lynch                                                                                                                                 

24th September 2013

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 Business Review within the Annual Report and Accounts for the year ended 31st January 2013.

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. 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 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                                                                                                                              

24^th September 2013

For further information, please contact:

Juliet Dearlove

For and on behalf of

JPMorgan Asset Management (UK) 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.mercantileit.co.uk

Income Statement

for the six months ended 31st July 2013

	(Unaudited)				(Unaudited)			(Audited)
	Six months ended				Six months ended			Year ended
	31st July 2013				31st July 2012			31st January 2013
	Revenue	Capital	Total	Revenue		Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit or loss	-	221,244	221,244	-		62,354	62,354	-	269,028	269,028
Net foreign currency losses	-	(13)	(13)	-		(163)	(163)	-	(136)	(136)
Income from investments	31,611	-	31,611	20,155		-	20,155	36,200	-	36,200
Other interest receivable and
similar income	697	-	697	494		-	494	1,247	-	1,247
Gross return	32,308	221,231	253,539	20,649		62,191	82,840	37,447	268,892	306,339
Management fee	(922)	(2,150)	(3,072)	(723)		(1,687)	(2,410)	(1,494)	(3,485)	(4,979)
Other administrative expenses	(383)	-	(383)	(412)		-	(412)	(985)	-	(985)
Net return on ordinary activities
before finance costs and taxation	31,003	219,081	250,084	19,514		60,504	80,018	34,968	265,407	300,375
Finance costs	(1,647)	(3,843)	(5,490)	(1,646)		(3,843)	(5,489)	(3,293)	(7,685)	(10,978)
Net return on ordinary
activities before taxation	29,356	215,238	244,594	17,868		56,661	74,529	31,675	257,722	289,397
Taxation (note 4)	(17)	-	(17)	-		-	-	(32)	-	(32)
Net return on ordinary activities
after taxation	29,339	215,238	244,577	17,868		56,661	74,529	31,643	257,722	289,365
Return per share (note 5)	29.84p	218.93p	248.77p	18.11p		57.44p	75.55p	32.09p	261.34p	293.43p

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 2013 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2013	24,614	23,459	12,156	1,271,741	29,463	1,361,433
Repurchase and cancellation of
the Company's own shares	(54)	-	54	(2,739)	-	(2,739)
Net return on ordinary activities	-	-	-	215,238	29,339	244,577
Dividends appropriated in the period	-	-	-	-	(25,561)	(25,561)
At 31st July 2013	24,560	23,459	12,210	1,484,240	33,241	1,577,710
Six months ended 31st July 2012 (unaudited)
	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2012	24,678	23,459	12,092	1,016,809	33,323	1,110,361
Repurchase and cancellation of
the Company's own shares	(24)	-	24	(980)	-	(980)
Net return on ordinary activities	-	-	-	56,661	17,868	74,529
Dividends appropriated in the period	-	-	-	-	(23,673)	(23,673)
At 31st July 2012	24,654	23,459	12,116	1,072,490	27,518	1,160,237
Year ended 31st January 2013 (audited)
	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2012	24,678	23,459	12,092	1,016,809	33,323	1,110,361
Repurchase and cancellation of
the Company's own shares	(64)	-	64	(2,790)	-	(2,790)
Net return on ordinary activities	-	-	-	257,722	31,643	289,365
Dividends appropriated in the year	-	-	-	-	(35,503)	(35,503)
At 31st January 2013	24,614	23,459	12,156	1,271,741	29,463	1,361,433

Balance Sheet

at 31st July 2013

	(Unaudited)	(Unaudited)	(Audited)
	31st July	31st July	31st January
	2013	2012	2013
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit
or loss	1,753,615	1,197,892	1,417,228
Current assets
Debtors	9,936	21,884	2,723
Cash and short term deposits	5,320	125,464	139,879
	15,256	147,348	142,602
Creditors: amounts falling due within one year	(13,923)	(7,861)	(21,207)
Net current assets	1,333	139,487	121,395
Total assets less current liabilities	1,754,948	1,337,379	1,538,623
Creditors: amounts falling due after more than
one year	(177,238)	(177,142)	(177,190)
Net assets	1,577,710	1,160,237	1,361,433
Capital and reserves
Called up share capital	24,560	24,654	24,614
Share premium	23,459	23,459	23,459
Capital redemption reserve	12,210	12,116	12,156
Capital reserves	1,484,240	1,072,490	1,271,741
Revenue reserve	33,241	27,518	29,463
Shareholders' funds	1,577,710	1,160,237	1,361,433
Net asset value per share (note 6)	1,606.0p	1,176.5p	1,382.8p

Company registration number 20537

Cash Flow Statement

for the six months ended 31st July 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July	31st July	31st January
	2013	2012	2013
	£'000	£'000	£'000
Net cash inflow from operating
activities (note 7)	25,357	13,849	31,897
Net cash outflow from servicing of finance	(5,425)	(5,441)	(10,882)
Taxation recovered	-	8	52
Net cash (outflow)/inflow from capital
expenditure and financial investment	(124,719)	124,405	138,323
Dividends paid	(25,561)	(23,673)	(35,503)
Net cash outflow from financing	(4,198)	(1,968)	(2,319)
(Decrease)/increase in cash in the period	(134,546)	107,180	121,568
Reconciliation of net cash flow to movement in
net debt/funds
(Decrease)/increase in cash in the period	(134,546)	107,180	121,568
Exchange movements	(13)	(163)	(136)
Other movements	(48)	(48)	(96)
Changes in net debt/funds arising from
cash flows	(134,607)	106,969	121,336
Net debt at the beginning of the period	(37,311)	(158,647)	(158,647)
Net debt at the end of the period	(171,918)	(51,678)	(37,311)
Represented by:
Cash and short term deposits	5,320	125,464	139,879
Debentures falling due after more than
five years	(177,238)	(177,142)	(177,190)
Net debt	(171,918)	(51,678)	(37,311)

Notes to the Accounts

for the six months ended 31st July 2013

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 2013 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 2013.

3.   Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2013	31st July 2012	31st January 2013
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	(8)	-	(6)
Fourth quarterly dividend of 18.0p (2012: 18.0p)
paid to shareholders in May	17,710	17,756	17,762
First quarterly dividend of 8.0p (2012: 6.0p) paid
to shareholders in August	7,859	5,917	5,917
Second quarterly dividend of 6.0p paid to
shareholders in November	n/a	n/a	5,915
Third quarterly dividend of 6.0p paid to
shareholders in February	n/a	n/a	5,915
	25,561	23,673	35,503

      A second quarterly dividend of 8.0p (2012: 6.0p) per share, amounting to £7,859,000 (2012: £5,917,000), has been declared payable in respect of the six months ended 31st July 2013.

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 per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2013	31st July 2012	31st January 2013
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	29,339	17,868	31,643
Capital return	215,238	56,661	257,722
Total return	244,577	74,529	289,365
Weighted average number of shares in issue	98,314,946	98,647,972	98,614,681
Revenue return per share	29.84p	18.11p	32.09p
Capital return per share	218.93p	57.44p	261.34p
Total return per share	248.77p	75.55p	293.43p

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 2013 of 98,240,719 (31st July 2012: 98,615,719 and 31st January 2013: 98,455,719).

7.   Reconciliation of net 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 2013	31st July 2012	31st January 2013
	£'000	£'000	£'000
Total return on ordinary activities before
finance costs and taxation	250,084	80,018	300,375
Less capital return on ordinary activities
before finance costs and taxation	(219,081)	(60,504)	(265,407)
Scrip dividends included in income	-	(352)	(352)
(Increase)/decrease in net debtors and
accrued income	(2,679)	(3,178)	749
Decrease in accrued expenses	(243)	(448)	(209)
Management fee charged to capital	(2,470)	(1,687)	(3,165)
Overseas withholding tax	(254)	-	(94)
Net cash inflow from operating activities	25,357	13,849	31,897

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 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.

 

END

 

 

IR BUGDCGSDBGXS