Interim Results
Merchants Trust PLC
18 September 2006
For immediate release 18 September 2006
THE MERCHANTS TRUST PLC
Announcement of Unaudited Interim Results
For the six months ended 31 July 2006
Highlights
• Dividends of 9.8p per share declared for the first six months, up 5.4%.
• Net Asset Value of 528.1p per share, up 4.8% compared with 2.9% rise in the
FTSE 100 Index.
• Historic dividend yield of 4.0% net at 484p per share.
Interim Results
Earnings per share
In the first six months of the current year, earnings have risen by 6.7% to
11.85p per share. As in previous years, we expect dividend receipts to have been
weighted towards the first half of the current financial year.
Interim Dividends
The Board has declared a second quarterly dividend of 4.90p per share, payable
on 14 November 2006 to shareholders on the register at close of business on 13
October 2006. The total distribution declared for the first half of 2006/7 is
9.80p net, an increase of 5.4% when compared with the same period last year.
Net Asset Value
The net asset value per ordinary share was 528.1p at 31 July 2006. This
represents an increase of 4.8% when compared with the equivalent figure at 31
January 2006 - the end of the last financial year. Before taking account of the
impact of the Trust's borrowings, the underlying rise in the Trust's total
assets, excluding expenses allocated to capital, was 4.5%. Over the same period
the FTSE 100 Index rose by 2.9%, whilst the FTSE 350 Higher Yield Index rose by
1.7% (Capital Return).
New Shares
On 29 June 2006 1,655,941 new ordinary shares were issued to 320 former members
of Allianz Dresdner Income Growth Investment Trust plc, a split capital
investment trust which reached the end of its planned life.
New Director
The Directors are pleased to welcome James Sassoon who was appointed to the
Board on 11 July. James is currently The Chancellor's Representative for
Promotion for the City at HM Treasury. From 2002 to 2006 he was Managing
Director of HM Treasury's Finance and Industry Directorate and a Member of the
Treasury Board. Before that, he had worked at UBS Warburg since 1987 where he
held a number of positions, including Vice Chairman, Investment Banking. He is
a chartered accountant and he will succeed Joe Scott Plummer as Chairman of the
Audit Committee.
Prospects
The direction of future interest rate changes remains uncertain and is likely to
have a significant effect on short term stock market sentiment. The uncertainty
is driven by the opposing forces of rising inflationary pressures and concern
over the sustainability of economic growth. Inflationary pressures seem to be
driven largely by rising energy and commodity costs which might be expected to
moderate over time although the risk is that these flow through to the wider
economy through retail prices or higher wage rises. Set against this is the
risk of slower economic growth which would normally counter inflationary
pressures. The growth threat seems the greater risk at present as consumers
face rising utility bills and taxes and there has been a modest rise in
unemployment. However the UK is also benefiting from rising total employment
and a robust corporate sector. The progress of the housing market, currently
showing some strength, remains key to consumer confidence.
Despite the economic uncertainty, the corporate sector looks robust with
companies generally having strong balance sheets and reporting good profit and
cashflow growth. This is leading to broadly based dividend growth. There are
also a number of companies making 'special dividend' payments, especially in the
natural resources sector, reflecting buoyant trading conditions in their
industries. Although some of these payments may not be sustainable in the
longer term, the overall outlook for market dividend growth looks healthy.
Market valuations also look supportive for long term investment, especially
given the low level of bond yields by historic standards. Takeover activity has
continued at a high level, aided by low interest rates and provides some further
underpinning to the market.
Hugh Stevenson
Chairman
155 Bishopsgate
London EC2M 3AD
THE MERCHANTS TRUST PLC
Summary of Unaudited Results
INCOME STATEMENT
For the six months ended 31 July 2006
2006
Revenue Capital Total Return
£'000s £'000s £'000s
(Note 2)
Net gains on investments held at fair value - 27,002 27,002
Income from investments 14,446 - 14,446
Other income 142 - 142
Investment management fee (468) (869) (1,337)
Expenses of administration (291) (3) (294)
Net return before finance costs and taxation 13,829 26,130 39,959
Finance costs: interest payable and similar charges (1,699) (3,116) (4,815)
Return on ordinary activities before taxation 12,130 23,014 35,144
Taxation - - -
Return attributable to Ordinary Shareholders 12,130 23,014 35,144
Return per Ordinary Share (Note 1)
(basic and diluted) 11.85p 22.47p 34.32p
2006
BALANCE SHEET as at 31 July 2006 £'000s
Investments held at fair value through profit or loss 662,034
Net current liabilities (697)
Total Assets Less Current Liabilities 661,337
Creditors - amounts falling due after more than one year (113,375)
Total Net Assets 547,962
Called up Share Capital 25,940
Share Premium Account 7,527
Capital Redemption Reserve 56
Capital Reserves: Realised 376,269
Unrealised 115,958
Revenue Reserve 22,212
Equity Shareholders' Funds 547,962
Net Asset Value per Ordinary Share 528.1p
The net asset value is based on 103,759,877 Ordinary Shares in issue at 31 July
2006.
THE MERCHANTS TRUST PLC
Summary of Unaudited Results
INCOME STATEMENT
For the six months ended 31 July 2005
2005
Revenue Capital Total Return
£'000s £'000s £'000s
(Note 2)
Net gains on investments held at fair value - 36,873 36,873
Income from investments 13,586 - 13,586
Other income 90 - 90
Investment management fee (391) (726) (1,117)
Expenses of administration (272) - (272)
Net return before finance costs and taxation 13,013 36,147 49,160
Finance costs: interest payable and similar charges (1,682) (3,124) (4,806)
Return on ordinary activities before taxation 11,331 33,023 44,354
Taxation - - -
Return attributable to Ordinary Shareholders 11,331 33,023 44,354
Return per Ordinary Share (Note 1)
(basic and diluted) 11.10p 32.34p 43.44p
2005
BALANCE SHEET as at 31 July 2005 £'000s
Investments held at fair value through profit or loss 564,290
Net current assets 8,722
Total Assets Less Current Liabilities 573,012
Creditors - amounts falling due after more than one year (113,336)
Total Net Assets 459,676
Called up Share Capital 25,526
Share Premium Account 40
Capital Redemption Reserve 56
Capital Reserves: Realised 335,254
Unrealised 77,972
Revenue Reserve 20,828
Equity Shareholders' Funds 459,676
Net Asset Value per Ordinary Share 450.2p
The net asset value is based on 102,103,936 Ordinary Shares in issue at 31 July
2005.
THE MERCHANTS TRUST PLC
INCOME STATEMENT
for the year ended 31 January 2006
2006
Revenue Capital Total Return
£'000s £'000s £'000s
(Note 2)
Net gains on investments held at fair value - 96,792 96,792
Income from investments 24,358 - 24,358
Other income 356 - 356
Investment management fee (824) (1,530) (2,354)
Expenses of administration (622) (6) (628)
Net return before finance costs and taxation 23,268 95,256 118,524
Finance costs: interest payable and similar charges (3,414) (6,219) (9,633)
Return on ordinary activities before taxation 19,854 89,037 108,891
Taxation - - -
Return attributable to Ordinary Shareholders 19,854 89,037 108,891
Return per Ordinary Share (Note 1)
(basic and diluted) 19.44p 87.20p 106.64p
2006
BALANCE SHEET as at 31 January 2006 £'000s
Investments held at fair value through profit or loss 621,948
Net current assets 6,118
Total Assets Less Current Liabilities 628,066
Creditors - amounts falling due after more than one year (113,353)
514,713
Total Net Assets
Called up Share Capital 25,526
Share Premium Account 40
Capital Redemption Reserve 56
Capital Reserves: Realised 351,107
Unrealised 118,105
Revenue Reserve 19,879
Equity Shareholders' Funds 514,713
Net Asset Value per Ordinary Share 504.1p
The net asset value is based on 102,103,936 Ordinary Shares in issue at 31
January 2006.
THE MERCHANTS TRUST PLC
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Called Up Share Capital Capital Capital
Share Premium Redemption Reserve Reserve Revenue
Capital Account Reserve Realised Unrealised Reserve Total
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Six months ended 31 July 2006
Net Assets at 31 January 2006 25,526 40 56 351,107 118,105 19,879 514,713
Revenue Return - - - - - 12,130 12,130
Dividends on Ordinary Shares - - - - - (9,797) (9,797)
Capital Return - - - 25,161 (2,147) - 23,014
Shares issued during the year 414 7,487 - 1 - - 7,902
Net Assets at 31 July 2006 25,940 7,527 56 376,269 115,958 22,212 547,962
Six months ended 31 July 2005
Net Assets at 31 January 2005 25,526 40 56 322,240 57,963 18,686 424,511
Revenue Return - - - - - 11,331 11,331
Dividends on Ordinary Shares - - - - - (9,189) (9,189)
Capital Return - - - 13,014 20,009 - 33,023
Net Assets at 31 July 2005 25,526 40 56 335,254 77,972 20,828 459,676
Year ended 31 January 2006
Net Assets at 31 January 2006 25,526 40 56 322,240 57,963 18,686 424,511
Adjustment to record - - - - (28) - (28)
investments at bid value
Revenue Return - - - - - 19,854 19,854
Dividends on Ordinary Shares - - - - - (18,661) (18,661)
Capital Return - - - 28,867 60,170 - 89,037
Net Assets at 31 January 2006 25,526 40 56 351,107 118,105 19,879 514,713
THE MERCHANTS TRUST PLC
CASH FLOW STATEMENT
for the six months ended 31 July 2006 and comparative periods
Six Months to 31 Six Months to 31 Year to
July 2006 July 2005 31 January 2006
£'000s £'000s £'000s
Net cash inflow from operating activities 11,789 11,966 22,806
Servicing of finance
Interest paid (4,780) (4,774) (9,557)
Dividends paid on Preference Stock (21) (21) (64)
Net cash outflow on servicing of finance (4,801) (4,795) (9,621)
Financial investment
Purchase of fixed asset investments (128,364) (79,751) (139,141)
Sale of fixed asset investments 87,429 146,799
124,557
Net cash (outflow) inflow from investing (3,807) 7,678 7,658
activities
Equity dividends paid (9,797) (9,189) (18,661)
Net cash (outflow) inflow before financing (6,616) 5,660 2,182
Financing
Cash transferred from Allianz Dresdner Income 909 - -
Growth Investment Trust plc
(Decrease) increase in cash (5,707) 5,660 2,182
THE MERCHANTS TRUST PLC
TWENTY LARGEST EQUITY HOLDINGS AS AT 31 JULY 2006
Valuation % of
Total
£'000s Assets* Principal Activities
Royal Dutch Shell 62,548 9.46 Oil and Gas Production
BP 51,600 7.80 Oil and Gas Production
HSBC Holdings 46,996 7.11 Banking
GlaxoSmithKline 39,395 5.96 Pharmaceuticals
Vodafone 27,110 4.10 Telecommunications
Royal Bank of Scotland 26,637 4.03 Banking
Barclays 22,922 3.47 Banking
HBOS 22,414 3.39 Banking
Lloyds TSB 21,782 3.29 Banking
BT 19,614 2.97 Telecommunications
Anglo American 16,539 2.50 Mining
Scottish Power 13,640 2.06 Electricity
Scottish & Southern Energy 12,997 1.97 Electricity
Lonmin 13,437 2.03 Mining
Legal & General 11,185 1.69 Life and General Insurance
Tesco 10,390 1.57 Food & Drug Retailer
Reed Elsevier 10,003 1.51 Media
Rio Tinto 9,818 1.48 Mining
Smiths Group 9,776 1.48 Aerospace & Defence
Drax 9,029 1.37 Electricity
457,832 69.24
* Total Assets include current liabilities
PORTFOLIO ANALYSIS AS AT 31 JULY 2006
UK Other Total
% % %
Listed equities 100.1 - 100.1
Net current liabilities (0.1) - (0.1)
Total Assets 100.0 - 100.0
THE MERCHANTS TRUST PLC
NOTES
Note 1
The return per Ordinary Share is based on a weighted average number of shares in
issue during the period of 102,396,699 shares. (31 July 2005 - 102,103,936
shares; 31 January 2006 - 102,103,936 shares).
Note 2
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items derive from continuing operations. No operations
were acquired or discontinued in the period.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the Income Statement.
Included in the cost of investments are transaction costs on purchases which
amounted to £866,297 (31 July 2005 - £492,649; 31 January 2006 - £888,492) and
transaction costs on sales which amounted to £203,769 (31 July 2005 - £176,898;
31 January 2006 - £302,257).
On 30 June 2006 investments and cash amounting to £7.0m and £0.9m respectively
were transferred into the Company following the reconstruction of Allianz
Dresdner Income Growth Investment Trust plc, as consideration for 1,655,941 new
Ordinary Shares issued at 477.1p
Note 3
In accordance with FRS 21 'Events after the Balance Sheet date', the final
dividend payable on Ordinary Shares is recognised as a liability when approved
by shareholders. Interim dividends are recognised only when paid.
Dividends paid on Ordinary Shares in respect of earnings for each period are as
follows:
Six months to Six months to Year to
31 July 31 July 31 January
2006 2005 2006
£'000s £'000s £'000s
Third Interim dividend 4.50p paid 17 February 2005 - 4,594 4,594
Final dividend 4.50p paid 11 May 2005 - 4,595 4,595
First Interim dividend 4.60p paid 18 August 2005 - - 4,697
Second Interim dividend 4.70p paid 10 November 2005 - - 4,799
Third Interim dividend 4.80p paid 17 February 2006 4,901 - -
Final dividend 4.80p paid 10 May 2006 4,901 - -
Uncollected dividends from prior years (5) - (24)
9,797 9,189 18,661
THE MERCHANTS TRUST PLC
NOTES CONTINUED
Dividends payable at the period end are not recognised as a liability under FRS
21 'Events after the Balance Sheet date'. Details of these dividends are set
out below.
Six months to Six months to Year to
31 July 31 July 31 January
2006 2005 2006
£'000s £'000s £'000s
Third Interim dividend 4.80p paid 17 February 2006 - - 4,901
Final dividend 4.80p paid 10 May 2006 - - 4,901
First Interim dividend 4.90p payable 16
August 2006 (2005 - 4.60p) 5,084 4,697 -
Second Interim dividend 4.90p payable 14
November 2006 (2005 - 4.70p) 5,804 4,799 -
The second interim dividend noted above is based on the number of shares at
period end. However, the dividend subsequently paid will be based on the number
of shares in issue on the record date and will reflect any purchase or
cancellations of shares by the Company settled subsequent to the period end.
Note 4
The interim statement has been neither audited nor reviewed by the Company's
auditors. The financial information for the year ended 31 January 2006 has been
extracted from the statutory accounts for that year which have been delivered to
the Registrar of Companies. The auditors' report on those accounts was
unqualified and did not contain a statement under either Section 237(2) or
Section 237(3) of the Companies Act 1985.
The Interim Report, which will include a Fund Managers' Report, will be sent to
Shareholders shortly and made available to the public at the Registered Office
of the Company, 155 Bishopsgate, London, EC2M 3AD.
For further information, please contact:
RCM (UK) Limited
Simon White, Head of Investment Trusts
Tel: 020 7065 1539
or
RCM (UK) Limited
Simon Gergel, Fund Manager
Tel: 020 7065 1431
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