Interim Results

RNS Number : 5877D

Merchants Trust PLC

16 September 2008

 



    16 September 2008

THE MERCHANTS TRUST PLC

Half-yearly financial report

For the six months ended 31 July 2008

Highlights

• Net dividends declared in the first six months of 2008/09 are 11.1p per share, an increase of 2.8%.
  

• Ordinary shares yield 6.1% at 358.5p, compared with 4.4% on the FTSE 100 Index at the close of business on 15 September 2008.
  

• The Net Asset Value per share fell by 13.2% compared with a fall of 11.2% in the FTSE 350 Higher Yield Index and 8.0% in the FTSE 100 Index. The Net Asset Value was adversely affected by the Trust's gearing over the period.

Interim management report

Net Revenue

In the first six months of the current year, net revenue has risen by 21.0% to 15.47p per share. As in previous years, we expect the increase in dividends from the company's portfolio to have been weighted towards the first half of the current financial year.  

Interim dividends

The Board has declared a second quarterly dividend of 5.6p per share, payable on 13 November 2008 to shareholders on the register at close of business on 10 October 2008. This compares with 5.4p for the equivalent period last year, an increase of 3.7%. The total distribution declared for the first half of 2008/9 is 11.1p net, an increase of 2.8 % when compared with the same period last year.  

Net asset value

The net asset value per ordinary share was 427.1p at 31 July 2008. This represents a decrease of 13.2% when compared with the equivalent figure at 31 January 2008 - the end of the last financial year. Before taking account of the impact of the Trust's borrowings, the underlying fall in the Trust's total assets, excluding expenses allocated to capital, was 9.4%. Over the same period the FTSE 100 Index fell by 8.0%, whilst the FTSE 350 Higher Yield Index fell by 11.2% (Capital Return).  

Material events and transactions

In the six month period ended 31 July 2008 the following material events and transactions have taken place.

At the Annual General Meeting of the Company held on 13 May 2008, all the resolutions put to shareholders were passed. At the conclusion of the AGM, Sir Bob Reid retired from the Board.

The third quarterly dividend of 5.4p per share was paid on 13 February to shareholders on the register on 25 January 2008.

A final dividend of 5.4p per share was paid on 14 May 2008 to shareholders on the register on 11 April 2008. The total payment for the year ended 31 January 2008 was 21.6p.

There were no buy backs of shares and no related party transactions in the period.

Since the period end, the first quarterly dividend for the year ending 31 January 2009 of 5.5p per share was paid on 19 August 2008 to shareholders on the register on 18 July 2008.

  Responsibility statement

The Directors confirm to the best of their knowledge that:

• the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and 
• the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7 R, of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and 
• the interim management report includes a fair review of the information concerning related parties transactions as required by Disclosure and Transparency Rule 4.2.8 R.

The half-yearly financial report was approved by the Board on 16 September 2008 and the above responsibility statement was signed on its behalf by the Chairman.

Principal Risks and Uncertainties 

The principal risks and uncertainties facing the Company over the next six months are broadly unchanged from those described in the Annual Report for the year ended 31 January 2008. These are set out in the Business Review beginning on page 16 of that Report, together with commentary on the Board's approach to mitigating the risks and uncertainties, under the following headings: Investment Activity and Strategy; Portfolio and Market; Accounting, Legal and Regulatory; Corporate Governance and Shareholder Relations; Operational; and Financial.

Continuing stresses in the global financial system, and the resulting contraction in available credit, are likely to have a negative impact on economic growth in the short-term. The likely reduction in economic activity is expected to adversely affect the climate for business investment and consumer expenditure, which may have a negative impact on some companies in the portfolio and on valuations.

Prospects

The combination of the credit crunch and higher commodity costs threatens a serious slowdown or recession in many developed economies. Emerging market growth rates are also likely to slow. In the UK the outlook for consumer spending is weak and unemployment is rising, albeit from a low base. However the corporate sector generally has a strong financial position from which to weather the downturn.  

Whilst the outlook for the economy is challenging, the stock market, acting as a discounting mechanism, has already moved to reflect much of the impending impact on corporate profits. It is also important to differentiate between the performance of the domestic economy and the impact on quoted companies. The FTSE 100 Index has a large exposure to industries ranging from oil and mining to pharmaceuticals and telecommunications that are relatively insulated from the pressures on UK consumers. Valuations in the market are more attractive than for some time, with many higher yielding companies, in particular, offering good long term value. Outside of the financial and consumer sectors, dividends should continue to grow. At the time of writing, the yield on the FTSE 100 Index is not far below the 10 year gilt yield, a level that has historically been supportive for equity investment.

Whilst we are maintaining a balanced portfolio approach with significant investments in many large, financially strong and relatively resilient businesses, we are able to use these positions selectively to finance purchases of more cyclical businesses if we can find really attractive opportunities. In particular, we are looking to invest in companies with strong, defendable business franchises, robust financial ratios and good long term prospects where the share price is already pricing in a severe slowdown, leaving significant upside potential. 

The outlook will remain very uncertain until the capital and funding problems in the global banking system are resolved.  

Hugh Stevenson

Chairman

155 Bishopsgate

London EC2M 3AD

THE MERCHANTS TRUST PLC

Twenty Largest Equity Holdings as at 31 July 2008

		Valuation		% of
				Total
		£'000s		Assets*		Sector
Royal Dutch Shell		47,134		8.53		Oil & Gas Producers
GlaxoSmithKline		44,441		8.04		Pharmaceuticals & Biotechnology
BP		41,304		7.48		Oil & Gas Producers
Vodafone		39,156		7.09		Mobile Telecommunications
HSBC		36,905		6.68		Banking
HBOS		23,359		4.23		Banking
BAE Systems		18,540		3.36		Aerospace & Defence
Scottish & Southern Energy		17,302		3.13		Electricity
Aviva		17,128		3.10		Life Insurance
Rio Tinto		16,284		2.95		Mining
Anglo American		15,458		2.80		Mining
Reed Elsevier		15,057		2.73		Media
Royal Bank of Scotland		14,724		2.66		Banking
British American Tobacco		14,611		2.64		Tobacco
BT		14,399		2.61		Fixed Line Telecommunications
Centrica		14,173		2.57		Gas, Water & Multiutilities
National Grid		11,915		2.16		Gas, Water & Multiutilities
Compass Group		10,241		1.85		Travel & Leisure
Barclays		10,208		1.85		Banking
BHP Billiton		9,718		1.76		Mining
		432,057		78.22
* Total Assets include current liabilities

Portfolio Analysis as at 31 July 2008

			UK	Other	Total
			%	%	%
Listed equities			98.9	-	98.9
Net current assets			1.1	-	1.1
Total Assets			100.0	-	100.0

  THE MERCHANTS TRUST PLC

Summary of Unaudited Results

INCOME STATEMENT

For the six months ended 31 July 2008

	2008
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net losses on investments at fair value	-	(68,062)	(68,062)
Income from investments	18,209	-	18,209
Other income	148	-	148
Investment management fee	(376)	(698)	(1,074)
Administration expenses	(394)	(1)	(395)
Net return before finance costs and taxation	17,587	(68,761)	(51,174)
Finance costs: interest payable and similar charges	(1,682)	(3,083)	(4,765)
Net return on ordinary activities before taxation	15,905	(71,844)	(55,939)
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	15,905	(71,844)	(55,939)
Net return per Ordinary Share (Note 1)
(basic and diluted)	15.47p	(69.88)p	(54.41)p
				2008
BALANCE SHEET				£'000s
As at 31 July 2008
Investments held at fair value through profit or loss				546,500
Net current assets				6,015
Total Assets Less Current Liabilities				552,515
Creditors - amounts falling due after one year				(113,371)
Total Net Assets				439,144
Called up Share Capital				25,703
Share Premium Account				7,527
Capital Redemption Reserve				293
Capital Reserves: Realised				436,336
Unrealised				(60,177)
Revenue Reserve				29,462
Equity Shareholders' Funds				439,144
Net Asset Value per Ordinary Share				427.1p

The net asset value is based on 102,813,464 Ordinary Shares in issue at 31 July 2008.

  THE MERCHANTS TRUST PLC

Summary of Unaudited Results

INCOME STATEMENT

For the six months ended 31 July 2007

	2007
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net gains on investments at fair value	-	3,849	3,849
Income from investments	15,560	-	15,560
Other income	228	-	228
Investment management fee	(517)	(961)	(1,478)
Administration expenses	(335)	(1)	(336)
Net return before finance costs and taxation	14,936	2,887	17,823
Finance costs: interest payable and similar charges	(1,681)	(3,081)	(4,762)
Net return on ordinary activities before taxation	13,255	(194)	13,061
Taxation	-	-	-
Net return attributable to Ordinary Shareholders	13,255	(194)	13,061
Net return per Ordinary Share (Note 1)
(basic and diluted)	12.78p	(0.19)p	12.59p
				2007
BALANCE SHEET				£'000s
As at 31 July 2007
Investments held at fair value through profit or loss				696,876
Net current assets				5,808
Total Assets Less Current Liabilities				702,684
Creditors - amounts falling due after one year				(113,513)
Total Net Assets				589,171
Called up Share Capital				25,837
Share Premium Account				7,527
Capital Redemption Reserve				159
Capital Reserves: Realised				420,713
Unrealised				109,495
Revenue Reserve				25,440
Equity Shareholders' Funds				589,171
Net Asset Value per Ordinary Share				570.1p

The net asset value is based on 103,346,877 Ordinary Shares in issue at 31 July 2007.

THE MERCHANTS TRUST PLC

INCOME STATEMENT

for the year ended 31 January 2008

	2008
	Revenue	Capital	Total Return
	£'000s	£'000s	£'000s
			(Note 2)
Net losses on investments at fair value	-	(72,107)	(72,107)
Income from investments	28,121	-	28,121
Other income	374	-	374
Investment management fee	(899)	(1,670)	(2,569)
Administration expenses	(586)	(2)	(588)
Net return before finance costs and taxation	27,010	(73,779)	(46,769)
Finance costs: interest payable and similar charges	(3,342)	(6,117)	(9,459)
Net return on ordinary activities before taxation	23,668	(79,896)	(56,228)
Taxation	(18)	-	(18)
Net return attributable to Ordinary Shareholders	23,650	(79,896)	(56,246)
Net return per Ordinary Share (Note 1)
(basic and diluted)	22.86p	(77.23)p	(54.37)p
				2008
BALANCE SHEET				£'000s
As at 31 January 2008
Investments held at fair value through profit or loss				608,451
Net current assets				11,150
Total Assets Less Current Liabilities				619,601
Creditors - amounts falling due after one year				(113,414)
				506,187
Total Net Assets
Called up Share Capital				25,703
Share Premium Account				7,527
Capital Redemption Reserve				293
Capital Reserves: Realised				431,359
Unrealised				16,644
Revenue Reserve				24,661
Equity Shareholders' Funds				506,187
Net Asset Value per Ordinary Share				492.3p

The net asset value is based on 102,813,464 Ordinary Shares in issue at 31 January 2008.

THE MERCHANTS TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Called Up Share Capital £'000s	Share Premium  Account    £'000s	Capital Redemption Reserve £'000s	Capital Reserve Realised £'000s	Capital Reserve Unrealised £'000s	Revenue Reserve £'000s	Total £'000s
Six months ended 31 July 2008
Net Assets at 31 January 2008	25,703	7,527	293	431,359	16,644	24,661	506,187
Revenue Return	-	-	-	-	-	15,905	15,905
Dividends on Ordinary Shares	-	-	-	-	-	(11,104)	(11,104)
Capital Return	-	-	-	4,977	(76,821)	-	(71,844)
Net Assets at 31 July 2008	25,703	7,527	293	436,336	(60,177)	29,462	439,144
Six months ended 31 July 2007
Net Assets at 31 January 2007	25,940	7,527	56	401,296	131,247	22,769	588,835
Revenue Return	-	-	-	-	-	13,255	13,255
Dividends on Ordinary Shares	-	-	-	-	-	(10,584)	(10,584)
Capital Return	-	-	-	21,558	(21,752)	-	(194)
Shares repurchased during the period	(103)	-	103	(2,141)	-	-	(2,141)
Net Assets at 31 July 2007	25,837	7,527	159	420,713	109,495	25,440	589,171
Year ended 31 January 2008
Net Assets at 31 January 2007	25,940	7,527	56	401,296	131,247	22,769	588,835
Revenue Return	-	-	-	-	-	23,650	23,650
Dividends on Ordinary Shares	-	-	-	-	-	(21,758)	(21,758)
Capital Return	-	-	-	34,707	(114,603)	-	(79,896)
Shares repurchased during the year	(237)	-	237	(4,644)	-	-	(4,644)
Net Assets at 31 January 2008	25,703	7,527	293	431,359	16,644	24,661	506,187

THE MERCHANTS TRUST PLC

CASH FLOW STATEMENT

for the six months ended 31 July 2008 and comparative periods

	Six Months to 31 July 2008			Six Months to 31 July 2007			Year to 31 January 2008
	£’000s			£’000s			£’000s
Net cash inflow from operating activities	15,496			13,820			33,678
Return on investment and servicing of finance
Interest paid	(4,797)			(4,793)			(9,553)
Dividends paid on Preference Stock	(21)			(21)			(43)
Net cash outflow on servicing of finance	(4,818)			(4,814)			(9,596)
Capital expenditure and financial investment
Purchase of fixed asset investments	(89,801)			(99,124)			(188,448)
Sale of fixed asset investments	91,090			99,873			189,711
Net cash inflow from capital expenditure and financial investment	1,289			749			1,263
Equity dividends paid	(11,104)			(10,584)			(21,758)
Net cash inflow (outflow) before financing	863			(829)			3,587
Purchase of Ordinary Shares for cancellation	-			(2,144)			(4,644)
Net cash outflow from financing	-			(2,144)			(4,644)
Increase (Decrease) in cash	863			(2,973)			(1,057)
Reconciliation of Return on Ordinary Activities before Taxation to Net Cash Flow from Operating Activities
Total return before finance costs and taxation	(51,174)			17,823			(46,769)
Special dividends credited to capital	-			-			8,181
Net losses (gains) on investments at fair value	68,062			(3,849)			72,107
	16,888			13,974			33,519
(Increase) Decrease in debtors	(1,369)			(200)			224
(Decrease) Increase in creditors	(23)			46			(65)
Net cash inflow from operating activities	15,496			13,820			33,678
Reconciliation of net cash flow to movement in net debt
Net cash inflow (outflow)	863			(2,973)			(1057)
Decrease in long term loans	42			35			134
Movement in net funds	905			(2,938)			923
Net debt brought forward	(107,468)			(106,545)			(106,545)
Net debt carried forward	(106,563)			(109,483)			(107,468)

THE MERCHANTS TRUST PLC

NOTES

Note 1

The returns per Ordinary Share are based on a weighted average number of shares in issue during the period of 102,813,464 shares (31 July 2007 - 103,739,616 shares; 31 January 2008 - 103,451,633 shares).

Note 2

The total return 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 £520,561 (31 July 2007 - £611,882; 31 January 2008 - £1,176,671) and transaction costs on sales which amounted to £125,291 (31 July 2007 - £147,407; 31 January 2008 - £291,295).

Note 3

Investments are designated as held at fair value through profit or loss in accordance with FRS 26 'Financial Instruments : Recognition and Measurement'. Listed investments are valued at bid market prices.

Note 4

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
	2008		2007		2008
	£'000s		£'000s		£'000s
First Interim dividend 5.40p paid 16 August 2007	-		-		5,597
Second Interim dividend 5.40p paid 15 November 2007	-		-		5,577
Third Interim dividend 5.40p paid 13 February 2008 (2007 - 5.10p)	5,552		5,292		5,292
Final dividend 5.40p paid 14 May 2008 (2007 - 5.10p)	5,552		5,292		5,292
	11,104		10,584		21,758

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
	2008		2007		2008
	£'000s		£'000s		£'000s
Third Interim dividend 5.40p paid 13 February 2008	-		-		5,552
Final dividend 5.40p paid 14 May 2008	-		-		5,552
First Interim dividend 5.50p paid 19 August 2008 (2007 - 5.40p)	5,654		5,603		-
Second Interim dividend 5.60p payable 13 November 2008 (2007 - 5.40p)	5,758		5,581		-
	11,412		11,184		11,104

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 5

The half-yearly report has been neither audited nor reviewed by the Company's auditors. The financial information for the year ended 31 January 2008 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The accounting policies and presentation are consistent with those applied in the latest published annual financial report. The auditors' report on those financial statements was unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985.

In accordance with recently introduced changes to the UK's disclosure requirements for listed companies, the Company is now required to make limited additional and updated disclosures, mainly relating to the first and third quarters of the financial year. These Interim Management Statements are released via the Regulatory News Service and posted on the Company's website  www.merchantstrust.co.uk  before 19 June and 19 December each year.

This half-yearly financial 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: [phone]

or

RCM (UK) Limited

Simon Gergel, Fund Manager

Tel: [phone]

 

END

 

 

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