Financial Express (Holdings) Limited (“we”, “our”, “us” and derivatives) are committed to protecting and respecting your privacy. This Privacy Policy, together with our Terms of Use, sets out the basis on which any personal data that we collect from you, or that you provide to us, will be processed by us relating to your use of any of the below websites (“sites”).

  • FEAnalytics.com
  • FEInvest.net
  • FETransmission.com
  • Investegate.co.uk
  • Trustnet.hk
  • Trustnetoffshore.com
  • Trustnetmiddleeast.com

For the purposes of the Data Protection Act 1998, the data controller is Trustnet Limited of 2nd Floor, Golden House, 30 Great Pulteney Street, London, W1F 9NN. Our nominated representative for the purpose of this Act is Kirsty Witter.

WHAT INFORMATION DO WE COLLECT ABOUT YOU?

We collect information about you when you register with us or use any of our websites / services. Part of the registration process may include entering personal details & details of your investments.

We may collect information about your computer, including where available your operating system, browser version, domain name and IP address and details of the website that you came from, in order to improve this site.

You confirm that all information you supply is accurate.

COOKIES

In order to provide personalised services to and analyse site traffic, we may use a cookie file which is stored on your browser or the hard drive of your computer. Some of the cookies we use are essential for the sites to operate and may be used to deliver you different content, depending on the type of investor you are.

You can block cookies by activating the setting on your browser which allows you to refuse the setting of all or some cookies. However, if you use your browser settings to block all cookies (including essential cookies) you may not be able to access all or part of our sites. Unless you have adjusted your browser setting so that it will refuse cookies, our system will issue cookies as soon as you visit our sites.

HOW WE USE INFORMATION

We store and use information you provide as follows:

  • to present content effectively;
  • to provide you with information, products or services that you request from us or which may interest you, tailored to your specific interests, where you have consented to be contacted for such purposes;
  • to carry out our obligations arising from any contracts between you and us;
  • to enable you to participate in interactive features of our service, when you choose to do so;
  • to notify you about changes to our service;
  • to improve our content by tracking group information that describes the habits, usage, patterns and demographics of our customers.

We may also send you emails to provide information and keep you up to date with developments on our sites. It is our policy to have instructions on how to unsubscribe so that you will not receive any future e-mails. You can change your e-mail address at any time.

In order to provide support on the usage of our tools, our support team need access to all information provided in relation to the tool.

We will not disclose your name, email address or postal address or any data that could identify you to any third party without first receiving your permission.

However, you agree that we may disclose to any regulatory authority to which we are subject and to any investment exchange on which we may deal or to its related clearing house (or to investigators, inspectors or agents appointed by them), or to any person empowered to require such information by or under any legal enactment, any information they may request or require relating to you, or if relevant, any of your clients.

You agree that we may pass on information obtained under Money Laundering legislation as we consider necessary to comply with reporting requirements under such legislation.

ACCESS TO YOUR INFORMATION AND CORRECTION

We want to ensure that the personal information we hold about you is accurate and up to date. You may ask us to correct or remove information that is inaccurate.

You have the right under data protection legislation to access information held about you. If you wish to receive a copy of any personal information we hold, please write to us at 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Any access request may be subject to a fee of £10 to meet our costs in providing you with details of the information we hold about you.

WHERE WE STORE YOUR PERSONAL DATA

The data that we collect from you may be transferred to, and stored at, a destination outside the European Economic Area (“EEA”). It may be processed by staff operating outside the EEA who work for us or for one of our suppliers. Such staff may be engaged in, amongst other things, the provision of support services. By submitting your personal data, you agree to this transfer, storing and processing. We will take all steps reasonably necessary, including the use of encryption, to ensure that your data is treated securely and in accordance with this privacy policy.

Unfortunately, the transmission of information via the internet is not completely secure. Although we will do our best to protect your personal data, we cannot guarantee the security of your data transmitted to our sites; any transmission is at your own risk. You will not hold us responsible for any breach of security unless we have been negligent or in wilful default.

CHANGES TO OUR PRIVACY POLICY

Any changes we make to our privacy policy in the future will be posted on this page and, where appropriate, notified to you by e-mail.

OTHER WEBSITES

Our sites contain links to other websites. If you follow a link to any of these websites, please note that these websites have their own privacy policies and that we do not accept any responsibility or liability for these policies. Please check these policies before you submit any personal data to these websites.

CONTACT

If you want more information or have any questions or comments relating to our privacy policy please email [email protected] in the first instance.

 Information  X 
Enter a valid email address

River and Mercantile (RMMC)

  Print      Mail a friend

Friday 19 May, 2017

River and Mercantile

Half-year Report

RNS Number : 6806F
River & Mercantile UK Micro Cap Inv
19 May 2017
 

19 MAY 2017

 

FOR IMMEDIATE RELEASE

 

THE BOARD OF DIRECTORS OF RIVER AND MERCANTILE UK MICRO CAP INVESTMENT COMPANY LIMITED ANNOUNCE THE HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2017

 

INTERIM MANAGEMENT report

financial highlights, performance summary and dividend history

 

Financial highlights

 

Number of Ordinary Shares in issue as at 31 March 2017:

 

68,507,569 Ordinary Shares

 

Market capitalisation as at 31 March 2017:

 

Ordinary Share class: £100,706,126

 

Performance summary








As at

31 March

2017

As at

31 March

2016






Net asset value per Ordinary Share



£1.5514

£1.1785

Ordinary Share price (bid market)1



£1.4700

£1.1300






Period highs and lows






Six months ended 31 March 2017

High

Six months ended 31 March 2017

Low

Six months ended 31 March 2016

High

Six months ended 31 March 2016

Low











Net asset value per Ordinary Share

£1.5742

£1.2677

£1.1799

£1.0534

Ordinary Share price (bid market)1

£1.4925

£1.1150

£1.1900

£1.0650






 

Dividend history

 

No Ordinary Share dividend was declared during the period. 

 

Please refer to note 15 for further information subsequent to the reporting period.

 

1 - Source: Bloomberg

 

chairman's statement

 

Size is no impediment.

 

Sub-Lieutenant Adam Bergius DSC was one of the rare breed of individuals possessing a level of bravery that is often unique to the British.  Adam was born in Glasgow into the Teacher's whisky family and was educated at the renowned Glenalmond College.  He had love and passion for the sea and this naturally led him to join the Royal Navy in 1942.  He undertook his initial seaman training near Ipswich and his officer training at HMS King Alfred and went on to be involved in one of the most daring and exceptional actions in Naval history.  The newly promoted Midshipman Bergius volunteered for "special and hazardous service" without any real idea about the true meaning of what he was volunteering for.  He joined a unit that manned "midget submarines" or "X" craft as they were known in the Second World War.  They were involved in a key strategic mission to cut the underwater telephone cables from Saigon to Singapore and from Hong Kong to Saigon.  Bergius was tasked with cutting the Hong Kong cable and working at extreme depths on pure oxygen, and he and the team achieved what was considered at the time an almost impossible mission.  Bergius was awarded the DSC for his bravery during this action and it was his actions along with his Australian commander, Lieutenant Max Shean DSO, that ensured the Japanese were forced to use wireless communications, which could then be intercepted and deciphered providing a significant strategic advantage to the allies at a critical stage of the war in the Far East.

 

It is further proof that size is no impediment to the task at hand and although the "midget submarines" were scorned by many senior officers, in particular those from the US navy where even in those days size was a material factor, the impact that can be delivered can be very significant.  Adam Bergius went on to Chair the family whisky business and sadly passed away earlier this year.

 

It is now over two years since we launched the Company and it is clear to see the returns of the share price that can be generated for our shareholders are significant.  The Company's share price returned 28.9% in the six months to 31 March 2017 and has now generated a cumulative return of 50.5% since launch in November 2014.

 

Philip Rodrigs, our dedicated portfolio manager at River and Mercantile, has continued to deliver exceptional performance.  The Company's benchmark index rose by 11.3% during the period, while the Company's NAV was up by 22.9%.  The fund's assets are now approaching a level beyond which the board believes the ability of portfolio companies to contribute effectively to returns for shareholders may be constrained.  Accordingly the board is actively considering triggering the first share redemption, consistent with the intention set out in the original prospectus and reiterated in an announcement the board made earlier in the year.  This should have a positive impact on the current discount and the board believes will act as a natural discount control mechanism going forward.

 

Indeed, as was the case for the midget submarines, size can be a positive advantage, if not the only way to go.  We would argue that is the case in this economic and political environment.  The markets, over the first six months of our financial year, have been dramatic from a political perspective, which has naturally led to an unprecedented era of uncertainty.  The UK's EU Referendum was followed by the surprise victory of Donald Trump and clean sweep by the Republican Party.  There was universal concern regarding the likely negative outcome and economists, politicians and market commentators alike predicting a "blood bath" unlike anything we have witnessed previously.  Against this backdrop of increasing nationalism, smaller companies that tend to be focused more locally are likely to have advantages over their larger global counterparts.

 

More generally, whilst we recognise that the path ahead has numerous plausible outcomes, experience would suggest that it is extremely unwise to position portfolios in a monoline direction.  We have a well balanced portfolio of great companies that the manager believes will deliver exciting returns for our shareholders, and as our erstwhile hero Sub-Lieutenant Adam Bergius DSC demonstrated, size is no impediment to achieving a spectacular result.

 

I remain honoured and privileged to act as your Chairman.  Thank you for your continued support.

 

Andrew Chapman

Chairman

 

19 May 2017

 

executive sUMMARY

 

This Executive Summary is designed to provide information about the Company's business and results for the six month period ended 31 March 2017. It should be read in conjunction with the Chairman's Statement and the Portfolio Manager's Report which gives a detailed review of investment activities for the period and an outlook for the future. 

 

Corporate summary

The Company was incorporated in Guernsey on 2 October 2014, with registered number 59106, as a non-cellular company with liability limited by shares. The Company has been registered by the Guernsey Financial Services Commission ("GFSC") as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the Registered Collective Investment Scheme Rules ("RCIS Rules") 2015.

 

The Company's share capital is denominated in Sterling and each Ordinary Share carries equal voting rights.

 

The Company's Ordinary Shares are listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange. As at 31 March 2017, the Company's issued share capital comprised 68,507,569 Ordinary Shares (30 September 2016: 68,507,569 Ordinary Shares).

 

The Company has appointed Carne Global AIFM Solutions (C.I.) Limited (the "Manager") to act as the Company's Alternative Investment Fund Manager ("AIFM"). The Manager has delegated portfolio management of the Company investment portfolio to River and Mercantile Asset Management LLP (the "Portfolio Manager"). The Board will actively and continuously supervise both the Manager and the Portfolio Manager in the performance of their respective functions.

 

The Company is a member of the Association of Investment Companies ("AIC").

 

Significant events during the period ended 31 March 2017

On the 9 December 2016, the Company entered into a Sterling Facility Agreement (the "Facility") for £2,000,000 committed revolving credit facility with BNP Paribas Securities Services S.C.A. (the "Lender") and BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Custodian"). The Facility has not be drawn during the period.

 

Company investment objective

The Company aims to achieve long term capital growth from investment in a diversified portfolio of UK Micro Cap Companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase.

 

Company investment policy

The Company invests in a diversified portfolio of UK Micro Cap Companies. It is expected that the majority of the Company's investible universe will comprise companies whose securities are admitted to trading on the Alternative Investment Market of the London Stock Exchange ("AIM").

 

While it is intended that the Company will be fully invested in normal market conditions, the Company may hold cash on deposit or invest on a temporary basis in a range of high quality debt securities and cash equivalent instruments. There is no restriction on the amount of cash or cash equivalent instruments that the Company may hold and there may be times when it is appropriate for the Company to have a significant cash position instead of being fully or near fully invested.

 

The Company will not be benchmark-driven in its asset allocation.

 

Diversification

The number of holdings in the portfolio will usually range between 30 and 50.

 

The portfolio is expected to be broadly diversified across sectors and, while there are no specific limits placed on exposure to any sector, the Company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk.

 

Investment restrictions

No exposure to any investee company will exceed 10% of NAV at the time of investment.

 

The Company may from time to time take sizeable positions in portfolio companies. However, in such circumstances, the Company would not normally intend to hold more than 25% of the capital of a single investee company at the time of investment.

 

Although the Company would not normally expect to hold investments in securities that are unquoted it may do so from time to time but such investments will be limited in aggregate to 10% of NAV.

 

The Company may invest in other investment funds, including listed closed-ended investment funds, to gain investment exposure to UK Micro Cap Companies but such exposure will be limited, in aggregate, to 10% of NAV at the time of investment.

 

Borrowing and gearing policy

The Company does not normally intend to employ gearing but at certain times it may be opportune to do so, for both investment and working capital purposes. Accordingly, the Company may employ gearing up to a maximum of 20% of NAV at the time of borrowing. On the 9 December 2016, the Company entered into a Sterling Facility Agreement. Please refer to note 14 for further details.

 

Derivatives

The Company may use derivatives (both long and short) for the purposes of efficient portfolio management only. The Company will not enter into uncovered short positions.

 

Director interests

The Board comprises four Directors, three of whom are independent: Andrew Chapman, Ian Burns and Trudi Clark; Mark Hodgson is Managing Director of the Manager and is therefore not regarded as independent. All the independent Directors are also members of the Audit Committee, Management Engagement Committee and Remuneration and Nomination Committee.

 

Information on the Directors' remuneration is detailed in note 5.

 

As at the date of approval of the Half-Yearly Financial Report, Directors held the following number of Ordinary Shares in the Company:

 

Director

Director holdings in the Company Ordinary Shares

Andrew Chapman

20,000

Ian Burns

Nil

Trudi Clark

16,885

Mark Hodgson

Nil

 

No Director has any other interest in any contract to which the Company is a party with the exception of Mark Hodgson who acts as the Managing Director of the Manager. Information of each Director is shown in the Board Members section of this Half-Yearly Financial Report.

 

Principal risks and uncertainties

When considering the total return of the Company, the Board takes account of the risk which has been taken in order to achieve that return. The Board looks at the following risk factors as listed below:

 

·              Investment and liquidity

·              Portfolio concentration and macro-economic risks

 

Information on these risks and how they are managed is given in the Annual Financial Report for the year ended 30 September 2016. In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were in the six months under review.

 

Redemption mechanism

On the basis that the NAV has exceeded £100 million, the Directors intend to operate the redemption mechanism pursuant to which a portion of Shareholders' shareholdings may be redeemed compulsorily so as to return the NAV back to around £100 million. Please refer to note 10 for further detail.

 

Going concern

Under the AIC Code of Corporate Governance ("AIC Code") and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern from date of approval of the condensed financial statements.

 

The Directors are satisfied that, at the time of approving the condensed financial statements, no material uncertainties exist that may cast significant doubt concerning the Company's ability to continue for at least twelve months from the date of approval of the financial statements. The Directors consider it is appropriate to adopt the going concern basis in preparing the condensed financial statements and that it will remain appropriate to continue to adopt this basis over a period of twelve months from the date of approval of this Half-Yearly Financial Report. 

 

Events after the reporting date

The Directors are not aware of any developments that might have a significant effect on the operations of the Company in subsequent financial periods not already disclosed in this report or note 15 of the attached condensed financial statements.

 

Future strategy

The Board continues to believe that the investment strategy and policy adopted by the Company is appropriate for and is capable of meeting the Company's objectives.

 

The overall strategy remains unchanged and it is the Board's assessment that the Portfolio Manager resources are appropriate to properly manage the Company's portfolio in the current and anticipated investment environment.

 

Please refer to the Portfolio Manager's report for detail regarding performance to date of the investment portfolio and the main trends and factors likely to affect those investments.

 

BOARD MEMBERS

 

All Directors are non-executive.

 

CHAIRMAN

 

Andrew Chapman, (independent). Appointed 2 October 2014.

Andrew holds both a BA and an MPhil in Economic & Social History. He began his career in 1978 as a UK equity fund manager.

 

In 1984, Andrew was appointed to the in-house investment management team at the British Aerospace Pension Fund, where he had responsibility for directly investing in a number of listed markets. In 1991, Andrew took the position of Investment Manager at United Assurance plc, where he was responsible for asset allocation and leading a team of in-house fund managers managing approximately £12 billion in assets. Andrew was subsequently a director of Teather & Greenwood Investment Management Limited, before joining Hewitt Associates as a Senior Consultant. From 1994 until 2003, Andrew was also a non-executive director of the Hambros Smaller Asian Companies Investment Trust plc (which subsequently became The Asian Technology Trust plc).

 

In 2003, Andrew was appointed as the first in-house Pension Investment Manager for the John Lewis Partnership Pension Fund, with responsibility for the overall investment strategy as well as the appointment and performance of 27 external fund managers across all asset classes. He retired from that role in 2012 and served as the CIO for The Health Foundation until September 2015.

 

Since 2012 Andrew has developed a portfolio of roles, including being a member of the investment committees of:  Homerton College (Cambridge University); Coller Capital Partners; and the Property Charities Fund. He is also a non-executive director of both Steadfast International Limited and the British Kidney Patients Association.

 

Andrew served for several years on the Investment Council of the National Association of Pension Funds and was Chair of the Advisory Board for the Pension Fund Investment Forum. He is currently chair of the BUNAC Educational Scholarship Trust.

 

Ian Burns, (independent) - Chairman of the Audit Committee and Senior Independent Director. Appointed 2 October 2014.

Ian is a fellow of both the Institute of Chartered Accountants in England and Wales and the Chartered Institute for Securities & Investment.

 

He is the founder and an executive director of Via Executive Limited, a specialist management consulting company, and the managing director of Regent Mercantile Holdings Limited, a privately owned investment company.

 

Ian is currently a non-executive director and audit committee chairman of two LSE listed companies, Phaunos Timber Fund Limited, Twenty Four Income Fund Limited and is the finance director of Fast Forward Innovations Limited, a company listed on the AIM market. He is also a non-executive director of  Montreux Capital Corp which is listed on the Toronto Stock Exchange, Darwin Property Investment Management (Guernsey) Limited, Curlew Capital Guernsey Limited, and Premier Asset Management (Guernsey) Limited. Previously, Ian was also the Finance Director of the AIM listed company, Polo Resources Limited.

 

Trudi Clark, (independent) - Chairman of the Remuneration and Nomination Committee and Management Engagement Committee. Appointed 2 October 2014.

Trudi graduated with a first class honours degree in business studies and is a qualified Chartered Accountant.

 

Trudi spent 10 years working in chartered accountancy practices in the UK and Guernsey. In 1991, she joined the Bank of Bermuda to head their European internal audit function before moving into private banking in 1993.

 

Between 1995 and 2005, Trudi worked for Schroders (C.I.) Limited, an offshore private bank and investment manager. She was appointed to the position of banking director in 2000 and managing director in 2003. In 2005, Trudi left Schroders to establish and run a private family office.

 

In July 2009, Trudi established the Guernsey practice of David Rubin & Partners LLP, an internationally known insolvency and liquidation specialist.

 

Trudi holds several non-executive directorships in funds which include F&C Commercial Property Trust Limited, which is a London Stock Exchange listed fund and Sapphire (PCC) Limited - Sapphire IV Cell which is listed on The International Stock Exchange. She is also a non-executive director of NB Private Equity Partners which is listed on the London Stock Exchange.

 

Mark Hodgson. Appointed 2 October 2014.

Mark has over 25 years' financial services experience, with an extensive banking background having spent over 20 years with HSBC where he gained an in-depth knowledge of credit, financial markets and complex lending structures.

 

Prior to 2006, Mark was regional director for HSBC Invoice Finance (UK) Limited, where he was responsible for running the receivables finance business. In 2006, Mark moved to Jersey to head up HSBC's Commercial Centre, having full operational responsibility for credit and lending within the jurisdiction.

 

In 2008, Mark moved to Capita Fiduciary Group as managing director of Offshore Registration, a regulated role in which he had responsibility for Jersey, Guernsey and the Isle of Man. Mark also took on the regulated role of managing director of Capita Financial Administrators (Jersey) Limited, together with directorships of regulated and unregulated funds.

 

In April 2014, Mark joined Carne Global Financial Services (C.I.) Limited as managing director.

 

PORTFOLIO MANAGER'S REPORT

 

This Portfolio Manager Report is compiled with reference to the investment portfolio. Therefore all positions are calculated by reference to their official closing prices (as opposed to the closing bid prices basis within the condensed financial statements). The estimated unaudited NAV referenced below is calculated on a daily basis utilising closing bid prices and is inclusive of all estimated charges and accruals.

 

Review of performance

The six months to March 2017 has been a period of very strong performance for the River and Mercantile UK Micro Cap Investment Company leading to the achievement of the major milestone of exceeding its long term net asset value target of £100m, as communicated on 16 January 2017. This subsequently improved further over the remainder of the period to finish ahead of £106m. This amounted to a very satisfying gain for the six months of 22.9% which was substantially ahead of the benchmark's return of 11.3%. As a result the NAV per share closed at 155.14p, compared to 126.24p six months ago. Overall since IPO the NAV performance has accumulated to a total of 58.3% which is materially ahead of the benchmark's 31.9% return over the same period.

 

 

After the market volatility last year, courtesy of Brexit, another political shock marked the beginning of this period with the election of Donald Trump as President of the United States. However, contrary to prior fears, markets greeted this result positively, moving to price in the possibility of reflation. The favourable outlooks for many economies around the world contrasts with the subdued outlook for the UK economy as a result of Brexit which formally commenced this period. However the performance of the Company should be taken as definitive proof that the UK Micro Cap universe provides a vast range of choice allowing the possibility to achieve zero exposure to UK domestic cyclicals. As it happens the percentage exposure to UK domestic cyclicals did further reduce to below 15% of NAV, although mainly from outperformance by the portfolio's global firms rather than material divestments. One major divestment was banking a portion of the significant gains from Taptica. The resultant cash balance at the end of the period exceeded 10%, but some of this was already ear-marked for two scheduled investments due to complete in April. 

 

As previously observed, it remains encouraging that the above performance is witnessing theory becoming apparent in practice. The investment objective is to deliver attractive returns from both accessing the beta of the micro cap segment of the UK market but also in applying a disciplined stock selection approach to produce attractive alpha generation. It remains our belief that the contribution of stock-selection alpha is of primary importance over the long term delivered from a high conviction, diversified - yet concentrated - portfolio of typically between 30 and 50 holdings. This concentrated focus means it is easily possible to invest the Company's funds entirely in firms selling their products and services globally. This is because many of Great Britain's most exciting and technologically advanced companies start small (or micro) and use the growth capital by listing on the UK stock market to build their global presence steadily. The focused portfolio allows the selection of the 'cream of the crop', roughly the top 10 percent of the available options in the universe of stocks with a sub £100m free float market cap. Within that top 10 percent there are of course some attractive UK domestic cyclical firms, mostly trading between a 50-75% discount to the wider market.

 

Portfolio Holdings with a contribution to return above 0.6% or below 0.6%

 


Contribution to Return

Taptica

6.19%

MaxCyte

4.33%

Blue Prism

4.07%

Microgen

1.92%

Providence Resources

1.62%

SDX Energy

1.44%

Premier Technical Svcs

1.20%

Ideagen

1.14%

Allergy Therapeutics

1.08%

Frontier Developments

0.88%

Constellation Healthcare

0.84%

dotDigital Group

0.64%

IBEX Global Solutions

0.63%

Instem

-0.69%

Trakm8

-1.19%

Shanta Gold

-1.22%

 

Source: River and Mercantile Asset Management LLP

 

Very significant advances from a number of the Company's holdings in Unique firms powered the performance leaderboard this half. With a meteoric rise of 217.7% MaxCyte Inc. was by far the largest gainer during the period - apparently catalysed by being awarded the deserved accolade of 'Best Technology' at the 2016 AiM Awards. The firm's patents and knowhow around the ground breaking and Unique science of Flow Electroporation technology led to a major endorsement implied by the licensing of their technology by CRISPR Therapeutics. Flow electroporation allows large scale injection of drugs into human cells - for example a patient's own blood - which could create a whole new class of cures for cancer and other diseases.

 

An even larger contributor this quarter was Taptica International which gained 89.4% as shares kept pace with the very strong growth that the company reported from its global mobile marketing business. Remarkable progress has been achieved since adding to the holding alongside a company buyback at 65p a year ago, but there remains very significant potential even though a 341% gain was banked for a portion of the holding at the end of the period.

 

Very strong accelerating demand propelled Blue Prism's shares a further 72.8% during the period as firms rapidly embrace Digitisation and are choosing Blue Prism's industry leading 'Software Robots'. In an ideal world all IT systems would be integrated seamlessly, but the daunting technical challenge means that disparate systems need vast armies of staff to perform basic tasks. Advanced artificial intelligence allows a software program to emulate human actions, reducing errors and releasing staff to perform more productive tasks. Whilst early stage, Blue Prism could be at the forefront of a seismic shift in productivity. Meanwhile Big Data is the key underpinning to Microgen's success as it possesses a globally unrivalled data processing engine which some of the largest firms in the world are requiring to augment the insufficient capability of the likes of Oracle. This is converting into strong profits growth and a deserved re-rating for a 56.4% return this half.

 

The micro end of the market is well known for its innovative technology companies and also, less favourably in recent years, its high exposure to commodities. However great value is apparent in the sector justifying an expansion in the allocation to the Oil & Gas sector in particular. SDX Energy's fund raise to buy Circle Oil from administration was enthusiastically backed this period as there is significant opportunity to generate cash from fields in Egypt and Morocco. An initial return of 64.2% was earned within two months. Meanwhile major Irish player Providence Resources advanced 89.5% as the market looks forward to a key well in summer 2017.  However, the gold price subsided during a period of lower volatility and Shanta Gold fell 20% having been top 3 last year.

 

Takeovers have been a regular feature and this period was no exception. There was a disappointing denial of the opportunity to maintain exposure to Ibex Global Solutions as the majority shareholder bought back the firm for a 32.9% premium just ahead of the firm reaping the benefits of its improved strategy. On the other hand a 60% total return from Constellation Healthcare Technologies including 26.6% this period was gratefully secured by selling out. This offset the drag from a 42.5% decline by fellow healthcare software firm Instem which suffered a profit warning. However, Allergy Therapeutics made up most of its detraction from last year with a 39.7% rebound as European growth accelerates. Meanwhile growth in demand for rooftop window cleaning cradles drove PTSG's 70.2% return whilst original stalwart Ideagen continues to deliver, adding a further 45.4% on accelerating demand for its governance software thanks to the Digitisation trend.

 

I trust the founding and incoming shareholders of the River and Mercantile UK Micro Cap Investment Company will share in my pleasure at meeting our long term target net asset value objective of £100m this period.

 

Portfolio statistics

 

Top 10 Holdings1

 


Weight (%)

Blue Prism

6.8

MaxCyte

5.2

Microgen

5.1

Taptica

4.0

Ideagen

3.9

SDX Energy

3.5

Shanta Gold

3.4

D4t4 Solutions

3.2

Allergy Therapeutics

3.1

Tax Systems

2.8

 

Outlook

The official commencement of the Brexit process in March 2017 confirms a prolonged period of uncertainty for the UK economy. Investors are well used to European political wrangling continuing until the 11th hour. Even then there will be a prolonged transition period thereafter. The short term consequences are becoming clearer - UK consumers have enjoyed a purple patch for rising discretionary income as prices for essentials declined in the last three years but this is now reversing with the early signs evident in Q1. Fortunately investors in the River and Mercantile UK Micro Cap Investment Company should no longer be in any doubt that the micro end of the UK market offers a diverse range of investment opportunities including great British businesses exporting unique propositions globally. With a generally favourable global economic backdrop, conditions remain good for growing firms.

 

Since the period end Prime Minister May has called a snap General Election. Riding high in the polls, it is understandable that Mrs May seeks an enhanced majority in order to strengthen her negotiating platform, whilst also elongating the post-Brexit period before the next election is due. This latter reduces risk at the margin, albeit there is no getting away from the fact that such seismic change can only be disruptive for the UK economy. When considering the potential effect on your Company, investors will note the proven track record of the portfolio in being resilient during periods of volatility and there is nothing to suggest otherwise for future developments in the Brexit saga.

 

 

 

Philip Rodrigs

Portfolio Manager

 

2 - Source: River and Mercantile Asset Management LLP

 

Directors' Statement of Responsibilities

 

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable Guernsey law and regulations.

 

The Directors confirm to the best of their knowledge that:

 

·      the condensed financial statements contained within the Half-Yearly Financial Report have been prepared in accordance with IAS 34 - "Interim Financial Reporting" and gives a fair, balanced and understandable view of the affairs of the Company as at 31 March 2017, as required by the Financial Conduct Authority ("FCA") through the Disclosure Guidance and Transparency Rule ("DTR") 4.2.4R;

 

·      the combination of the Chairman's Statement, the Portfolio Manager's Report, the Executive Summary and the notes to the condensed financial statements includes a fair review of the information required by:

 

a) DTR 4.2.7R, being an indication of important events that have occurred during the period up to 31 March 2017 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 year; and

 

b) DTR 4.2.8R, being related party transactions that have taken place during the period since inception to 31 March 2017 and that have materially affected the financial position or performance of the Company during that period; and any changes in the related parties transactions in the annual report that could have a material impact on the financial position or financial performance of the Company in the first six months of the current financial year.

 

 

 

Andrew Chapman                                                                                        Ian Burns

Chairman                                                                                                        Audit Committee Chairman

 

19 May 2017

 

independent review report to RIVER AND MERCANTILE UK MICRO CAP INVESTMENT COMPANY LIMITED

 

Our conclusion

We have reviewed the accompanying condensed interim financial information of River and Mercantile UK Micro Cap Investment Company Limited (the "Company") as of 31 March 2017. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The accompanying condensed interim financial information comprise:

·      the condensed statement of financial position as of 31 March 2017;

·      the condensed  statement of comprehensive income for the  six month period then ended;

·      the condensed  statement of changes in equity for the six month period then ended;

·      the condensed  statement of cash flows for the six month period then ended; and

·      the notes, comprising a summary of significant accounting policies and other explanatory information.

 

The condensed interim financial information has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibilities and those of the directors

The Directors are responsible for the preparation and presentation of this condensed interim financial information in accordance with Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on this condensed interim financial information based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements  2410, 'Review of interim financial information performed by the independent auditor of the entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

19 May 2017

 

CONDENSED Statement of comprehensive income

For the six months ended 31 March 2017

 

 

 




Six months ended

31 March 2017

Six months ended

31 March 2016





(Unaudited)

(Unaudited)




Notes

£

£

Income






Investment income



3

383,387

628,350

Net gain on financial assets designated at fair value through

profit or loss

7

22,421,165

4,741,923

Total Income




22,804,552

5,370,273







Expenses






Operating expenses



4

(3,003,990)

(1,236,544)

Profit before taxation




19,800,562

4,133,729

Taxation




-

-

Profit after taxation and total comprehensive income


19,800,562

4,133,729



















Basic and diluted earnings per Ordinary Share

11

0.2890

0.0629







 

The Company has no items of other comprehensive income, and therefore the profit for the period is also the total comprehensive income.

 

All items in the above statement are derived from continuing operations. No operations were acquired or discontinued during the period.

 

The notes form an integral part of these condensed financial statements.

 

CONDENSED statement of financial position

As at 31 March 2017

 




31 March

2017

30 September 2016




(Unaudited)

(Audited)



Notes

£

£

Non-current assets





Financial assets designated at fair value through profit or loss

7

97,405,028

85,978,933






Current assets





Cash and cash equivalents



13,668,972

1,635,861

Trade receivables - securities sold awaiting settlement


606,909

11,533

Other receivables


6

46,134

248,385

Total current assets



14,322,015

1,895,779






Total assets



111,727,043

87,874,712






Current liabilities





Trade payables - securities purchased awaiting settlement


(1,705,405)

-

Other payables


8

(3,737,224)

(1,390,860)

Total current liabilities



(5,442,629)

(1,390,860)






Total liabilities



(5,442,629)

(1,390,860)





Net assets


106,284,414

86,483,852






Capital and reserves





Stated capital


10

-

-

Share premium


10

70,342,481

70,342,481

Retained earnings



35,941,933

16,141,371

Equity Shareholders' funds



106,284,414

86,483,852






 

The condensed financial statements were approved and authorised for issue by the Board of Directors on 19 May 2017 and signed on its behalf by:

 

Andrew Chapman                                                                                        Ian Burns

Chairman                                                                                                        Audit Committee Chairman

 

The notes form an integral part of these condensed financial statements.

 

CONDENSED statement of changes in SHAREHOLDERS' EQUITY

 

For the six months ended 31 March 2017 (Unaudited)

 



Stated

capital

Share

premium

Retained earnings

Total


Note

£

£

£

£


-

70,342,481

16,141,371

86,483,852

Total comprehensive income for the period


-

-

19,800,562

19,800,562

Transactions with owners, recorded directly to equity






Proceeds from issuance of Ordinary Shares

10

-

-

-

-

Share issue costs

10

-

-

-

-

Closing equity Shareholders' funds at 31 March 2016


-

70,342,481

35,941,933

106,284,414

 

 

For the six months ended 31 March 2016 (Unaudited)

 



Stated

capital

Share

premium

Retained earnings

Total


Note

£

£

£

£

Opening equity Shareholders' funds at 1 October 2015


-

49,630,301

6,260,652

55,890,953

Total comprehensive income for the period


-

-

4,133,729

4,133,729

Transactions with owners, recorded directly to equity






Proceeds from issuance of Ordinary Shares

10

-

20,946,190

-

20,946,190

Share issue costs

10

-

(234,010)

-

(234,010)

Closing equity Shareholders' funds at 31 March 2016


-

70,342,481

10,394,381

80,736,862

 

 

The notes form an integral part of these condensed financial statements.

 

CONDENSED statement of cash flows 

For the six months ended 31 March 2017

 




Six months ended

31 March 2017

Six months ended

31 March 2016




(Unaudited)

(Unaudited)



Notes

£

£

Cash inflow from operating activities










Profit after taxation and total comprehensive income for the period


19,800,562

4,133,729





Adjustments to reconcile profit after tax to net cash flows:









-       Realised gain on financial assets designated at fair value through profit or loss

7

(10,324,614)

(2,355,083)

-       Unrealised gain on financial assets designated at fair value through profit or loss

7

(12,096,551)

(2,386,840)






Purchase of financial assets designated at fair value through profit or loss

7

(17,037,445)

(31,481,344)

Proceeds from sale of financial assets designated at fair value through profit or loss

7

28,032,515

10,823,704






Changes in working capital





Decrease / (increase) in other receivables



202,251

(53,123)

(Increase) / decrease in trade receivables



(595,376)

1,138,260

Increase in trade payables                                                                             



1,705,405

-

Increase in other payables



2,346,364

633,625






Net cash used in operating activities



12,033,111

(19,547,072)






Cash inflow from financing activities





Proceeds from issuance of Ordinary Shares


10

-

20,946,190

Ordinary Share issue costs paid



-

(234,010)

Net cash from financing activities



-

20,712,180






Net increase in cash and cash equivalents in the period



12,033,111

1,165,108






Cash and cash equivalents at beginning of the period


1,635,861

1,268,358






Cash and cash equivalents at the end of the period


13,668,972

2,433,466






 

 

The notes form an integral part of these condensed financial statements.

 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

 

1. General information

The Company was incorporated as a non-cellular company with liability limited by shares in Guernsey under The Companies (Guernsey) Law 2008 on 2 October 2014. It listed its Ordinary Shares on the Premium Segment of the  Official List of the UK Listing Authority and was admitted to trading on the Main Market of the London Stock Exchange on 2 December 2014.

 

The Company has been registered by the GFSC as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the RCIS Rules 2015. The Company registered number is 59106.

 

The Company's registered address is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.

 

2. Accounting policies

2.1 Basis of preparation

The Half-Yearly and Annual Financial Report has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the FCA and with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and interpretations issued by the International Financial Reporting Standards Interpretations Committee ("IFRIC") as approved by the International Accounting Standards Committee ("IASC") which remain in effect. The Half-Yearly Financial Report has been prepared in accordance with International Accounting Standards (IAS) 34 - 'Interim Financial Reporting'. They have also been prepared using the same accounting policies applied for the year ended 30 September 2016 Annual Financial Report and corresponding interim reporting period, which was prepared in accordance with IFRS.

 

The Half-Yearly Financial Report has been prepared on the going concern basis. After reviewing the Company's budget and cash flow forecast for the next financial period, the Directors are satisfied that, at the time of approving the condensed financial statements, it is appropriate to adopt the going concern basis in preparing the condensed financial statements. 

 

There have been no changes in accounting policies during the period. The accounting policies in respect of financial instruments are set out below at 2.3 due to the significance of financial instruments to the Company.

 

During the period amendments to IAS 7 - "Statement of Cash Flows" and IAS 1 - "Presentation of Financial Statements"  became applicable for the current reporting period. However, the Company did not have to change its accounting policies or make respective adjustments as a result of adopting these amendments.

 

2.2 Segmental reporting

The Directors view the operations of the Company as one operating segment, being investment in UK Micro Cap Companies. All significant operating decisions are based upon analysis of the Company's investments as one segment. The financial results from this segment are equivalent to the financial results of the Company as a whole, which are evaluated regularly by the chief operating decision-maker (the Board with insight from the Portfolio Manager).

 

2.3 Financial instruments

Financial assets

a)    Classification

The Company classifies its investments in equity securities as financial assets designated at fair value through profit or loss. These financial instruments are held for investment purposes. Financial assets also include cash and cash equivalents as well as trade receivables and other receivables which are measured at amortised cost using the effective interest rate method.

 

Financial assets designated at fair value through profit or loss at inception

Financial assets designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Company's documented investment strategy.

 

The Company's policy requires the Portfolio Manager and the Board of Directors to evaluate the information about these financial assets on a fair value basis together with other related financial information.

 

b)    Recognition, measurement and derecognition

Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Financial assets designated at fair value through profit or loss are measured initially at fair value. Transaction costs are expensed as incurred and movements in fair value are recorded in the Statement of Comprehensive Income. Subsequent to initial recognition, all financial assets designated at fair value through profit or loss are measured at fair value.

 

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

 

c)    Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

As at 31 March 2017, the Company held investments in a diversified portfolio of UK Micro Cap Companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase, whose securities are admitted to trading on AIM.

 

Investments are valued at fair value, which are quoted bid prices for investments traded in active markets.

 

For investments which are not traded in active markets, unlisted and restricted investments, the Board in determining its assessment of fair value takes into account the latest traded prices, other observable market data and

asset values based on the latest available and relevant information for that investment.

 

As all the Company's financial assets are quoted securities which are traded in active markets, in the opinion of the Directors, the fair value of the financial assets is not subject to significant judgments, estimates or assumptions.

 

d)    Valuation process

The Directors are in ongoing communications with the Portfolio Manager and hold meetings on a timely basis to discuss performance of the investment portfolio and the valuation methodology and in addition review monthly investment performance reports.

 

The Directors analyse the investment portfolio in terms of both investment mix and fair value hierarchy and consider the impact of general credit conditions and/or events that occur in the global corporate environments which may impact the economic conditions in the UK and ultimately on the valuation of the investment portfolio.

 

Financial liabilities

e)    Classification

Amounts due to brokers represent payables for investments that have been contracted for but not yet settled or delivered on 31 March 2017. Financial liabilities include amounts due to brokers and other payables which are held at amortised cost using the effective interest rate method.

 

f)     Recognition, measurement and derecognition

Financial liabilities are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at amortised cost using the effective interest rate method. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

 

3. Investment income









Six months ended

31 March 2017

Six months ended

31 March 2016




(Unaudited)

(Unaudited)




£

£

Investment income



381,617

616,731

Bank interest



1,770

11,619

Total investment income



383,387

628,350

 

4. Operating expenses









Six months ended

31 March 2017

Six months ended

31 March 2016




(Unaudited)

(Unaudited)




£

£

Portfolio management fees



368,363

287,093

Portfolio management performance fee



2,321,256

648,120

Directors' fees



60,692

47,176

AIFM fees



27,088

26,962

Audit fees



17,505

17,404

Non-audit fees - interim review services



17,000

16,000

Administration fees



50,044

46,966

Broker fees



24,911

25,660

Custody fees



9,474

6,227

Company secretariat fees



17,500

17,597

Registrar fees



9,603

12,737

Transaction fees



47,812

75,455

Sundry expenses



20,297

3,505

Legal and professional fees



12,445

5,642

Total operating expenses



3,003,990

1,236,544

 

On 21 October 2014, the Company signed an AIFM agreement with the Manager to act as the Company's AIFM. Under the agreement, the Manager is entitled to an annual fixed fee of £54,000. The annual fixed fee is paid quarterly in arrears. AIFM fees payable as at 31 March 2017: £13,199 (30 September 2016: £13,647).

 

On 21 October 2014, the Company signed an agreement with BNP Paribas Securities Services S.C.A., Guernsey Branch, (the "Administrator") to provide administrative, compliance oversight and company secretarial services to the Company. Under the administration agreement, the Administrator is entitled to a minimum annual fixed fee of £85,000 with a cap of £115,000 for fund administration services and £35,000 annual fixed fee for company secretarial and compliance services. These fees are paid monthly in arrears. Ad hoc other administration services are chargeable on a time cost basis. In addition, the Company will reimburse the Administrator for any out of pocket expenses.

 

On 21 October 2014, the Company signed a Global Custody Agreement with the Manager and the Administrator, whereby the Company appointed the Administrator to carry out custodian services. In its role as Custodian, the Administrator is entitled to a fee payable by the Company on a transaction by transaction and ad-valorem fee basis.

 

On 3 November 2014, the Company signed an Investment Management agreement with the Manager and the Portfolio Manager, whereby the Manager delegated to the Portfolio Manager overall responsibility for the discretionary management of the Company assets in accordance with the Company's investment objective and policy.

 

Under the agreement, the Portfolio Manager is entitled to receive a base fee and performance fee. The portfolio manager base fee is payable monthly in arrears at a rate of one-twelfth of 0.75% of NAV. A performance fee equal to 15% of the amount by which the Company's NAV outperforms the total return on the benchmark, (being Numis Smaller Companies plus AIM (excluding investment companies) total return index), will be payable to the Portfolio Manager over a performance period.

 

The performance period is the period between two redemptions, being the first business day after the calculation date, (referable to the earlier redemption (opening date)), and the end day of the calculation date (referable to the later redemption (closing date)). The first opening date is the date of admission and in circumstances in which a performance fee may be payable upon termination of this Agreement, the final closing date shall be the date in which the agreement is terminated. The calculation date is the date determined by the Board for the calculation of the price to be paid on any particular exercise of the redemption mechanism. Please refer to note 10 for further detail regarding the redemption mechanism. During the period ended 31 March 2017, the Company accrued a performance fee of £2,321,256 (31 March 2016: £648,120), which increased the amount payable at period end to £3,545,032 (30 September 2016: £1,223,776). The performance fee due will only be paid when the Company implements the Redemption Mechanism as detailed in the IPO Prospectus issued on 14 November 2014.

 

On 20 January 2015, the Company signed a Corporate Stockbroker and Financial Adviser agreement with Winterflood Investment Trusts (a division of Winterflood Securities Limited) (the "Corporate Broker"), to provide corporate stockbroker and financial adviser services to the Company. Under the agreement, the Corporate Broker is entitled to a fee payable by the Company of £50,000 per annum payable half yearly in arrears. Broker fees payable as at 31 March 2017 were £16,565 (30 September 2016: £16,667).

 

5. Directors' fees and interests

With effect from 1 October 2016, the Director fees were increased to £25,000 per annum (£40,000 for the Chairman). The Chairman of the Audit Committee continues to receive an additional £5,000 for his service in this role as stated above.

 

For the period ended 30 September 2016, the Directors of the Company were remunerated for their services at a fee of £20,000 per annum (£30,000 for the Chairman) and the Chairman of the Audit Committee received an additional £5,000 for his services in this role.

 

The Company has no employees other than the Directors. Directors' fees payable as at 31 March 2017 were £30,822 (30 September 2016: £23,880).

 

As at the date of approval of these condensed financial statements, Andrew Chapman and Trudi Clark held 20,000 and 16,885 Ordinary Shares in the Company respectively. No other Director holds shares in the Company. No pension contributions were payable in respect of any of the Directors.

 

6. Other receivables









31 March

2017

30 September 2016




(Unaudited)

(Audited)




£

£

Dividend receivable



36,735

242,716

Prepayments



9,398

5,665

Interest receivable



-

3

Ordinary Share receivable



1

1

Total other receivables



46,134

248,385






The Directors believe that these balances are fully recoverable.

 

7. Financial assets designated at fair value through profit or loss







31 March

2017

30 September 2016




(Unaudited)

(Audited)





£






Financial assets designated at fair value through profit or loss

97,405,028

85,978,933






The Company has invested the proceeds raised from the initial Ordinary Share issue and subsequent Ordinary Share tap issues in a portfolio of UK Micro Cap Companies in line with its investment strategy. These investments are predominantly comprised of companies whose securities are admitted to trading on the AIM, with a free float market capitalisation of less than £100 million at the time of purchase.

 

Fair value hierarchy

IFRS 13 'Fair Value Measurement' requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value.

 

The Company categorises its financial assets according to the following fair value hierarchy detailed in IFRS 13, that reflects the significance of the inputs used in determining their fair values;

 

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

 

Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes  instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

 

Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable variable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

 

 


Level 1

Level 2

Level 3

31 March

2017

Total


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


£

£

£

£

Financial assets





Financial assets designated at fair value through profit and loss

97,405,028

-

-

97,405,028






 


Level 1

Level 2

Level 3

30 September

2016

Total


(Audited)

(Audited)

(Audited)

(Audited)


£

£

£

£

Financial assets





Financial assets designated at fair value through profit and loss

85,978,933

-

-

85,978,933






 

Financial assets designated at fair value through profit or loss reconciliation

 

The following table shows a reconciliation of all movements in the fair value of financial assets categorised within Level 1 to 3 between the beginning and the end of the reporting period.

 

31 March 2017

Level 1

Level 2

Level 3

Total


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)


£

£

£

£

Opening valuation

85,978,933

-

-

85,978,933

Movements in the period:





Purchases during the period

17,037,445

-

-

17,037,445

Sales - proceeds during the period

(28,032,515)

-

-

(28,032,515)

Realised gain on financial assets designated at fair value through profit or loss1

10,324,614

-

-

10,324,614

Unrealised gain on financial assets designated at fair value through profit or loss2

12,096,551

-

-

12,096,551

Closing valuation

97,405,028

-

-

97,405,028






Total gains on financial assets for the period ended 31 March 2017

22,421,165

-

-

22,421,165

 

1Realised gain on financial assets designated at fair value through profit and loss is made up of £11,724,244 gain and £(1,399,630) loss.

2Unrealised gain on financial assets designated at fair value through profit and loss is made up of £19,828,531 gain and £(7,731,980) loss.

 

During the period ended 31 March 2017, there were no reclassifications between levels of the fair value hierarchy.

 

30 September 2016

Level 1

Level 2

Level 3

Total


(Audited)

(Audited)

(Audited)

(Audited)


£

£

£

£

Opening valuation

54,053,643

-

-

54,053,643

Movements in the year:





Purchases during the year

43,497,573

-

-

43,497,573

Sales - proceeds during the year

(21,973,309)

-

-

(21,973,309)

Realised gain on financial assets designated at fair value through profit or loss3

4,545,264

-

-

4,545,264

Unrealised gain on financial assets designated at fair value through profit or loss4

5,855,762

-

-

5,855,762

Closing valuation

85,978,933

-

-

85,978,933






Total gains on financial assets for the year ended 30 September 2016

10,401,026

-

-

10,401,026

 

 

3Realised gain on financial assets designated at fair value through profit and loss is made up of £6,470,008 gain and £(1,924,744) loss.

4Unrealised gain on financial assets designated at fair value through profit and loss is made up of £18,977,876 gain and £(13,122,114) loss.

 

As at the year ended 30 September 2016, there were no reclassifications between levels of the fair value hierarchy.

 

 

Please refer to note 2.3 for valuation methodology of financial assets designated at fair value through profit or loss. As at 31 March 2017, none of the investments held are deemed to be illiquid in nature and on this basis are not subject to any special arrangements. 

 

8. Other payables




31 March

2017

30 September 2016




(Unaudited)

(Audited)




£

£

Portfolio management fees



70,004

53,952

Portfolio management performance fees



3,545,032

1,223,776

Administration fees



8,769

7,150

AIFM fees



13,199

13,647

Audit fees



34,429

35,300

Broker fees



16,565

16,667

Company Secretariat fees



2,917

2,917

Custody fees



1,205

988

Directors' fees



30,822

23,880

Registrar fees



625

625

Sundry expenses



13,657

11,958

Total other payables



3,737,224

1,390,860

 

9. Contingent liabilities and commitments

As at 31 March 2017, the Company had no contingent liabilities or commitments (30 September 2016: nil).

 

10. Stated capital and share premium

 

Authorised

The authorised share capital of the Company is represented by an unlimited number of redeemable Ordinary Shares at no par value.

 

Allotted, called up and fully-paid

 

Ordinary Shares

Number of shares             

Stated

capital

        £

Share

premium

£

Total issued share capital as at 1 October 2016

 

68,507,569

-

70,342,481

Ordinary Shares issued during the period

 

-

-

-

Total issued share capital as at 31 March 2017

 

68,507,569

-

70,342,481







 

Ordinary Shares



Number of shares             

Stated

capital

        £

Share

premium

£

Total issued stated capital as at 1 October 2015

 

50,643,164

-

49,630,301

Ordinary Shares issued during the year

 

17,864,405

-

20,712,180

Total issued stated capital as at 30 September 2016

 

68,507,569

-

70,342,481







 

Ordinary Shares

On 29 October 2015, 16,679,405 Ordinary Shares were issued at a price of £1.1718, raising gross proceeds of £19,544,927 (net proceeds of £19,328,692). The newly issued 16,679,405 Ordinary Shares were admitted to the Official List and to trading on the Main Market with effect from 3 November 2015. The costs and expenses of the placing of 16,679,405 Ordinary Shares attributable to the Company amounted to a total of £216,235.

 

On 11 November 2015, 1,185,000 Ordinary Shares were issued at a price of £1.1825, raising gross proceeds of £1,401,263 (net proceeds of £1,383,488). The newly issued 1,185,000 Ordinary Shares were admitted to the Official List and to trading on the Main Market with effect from 17 November 2015. The costs and expenses of the placing of 1,185,000 Ordinary Shares attributable to the Company amounted to a total of £17,775.

 

As at 31 March 2017, the Company had 68,507,569 Ordinary Shares (30 September 2016: 68,507,569).

 

Each holder of Ordinary Shares is entitled to attend and vote at all general meetings that are held by the Company. Each holder is also entitled to receive payment of a dividend should the Company declare such a dividend payment. Any dividends payable by the Company will be distributed to the holders of the Company Ordinary Shares, and on the winding-up of the Company or other return of capital (other than by way of a repurchase or redemption of shares in accordance with the provisions of the Articles and the Companies Law), the Company's surplus assets, after payment of all creditors, will be distributed among the holders of the Company Ordinary Shares.

 

The Board does not expect income from the investment portfolio to significantly exceed the anticipated annual running costs of the Company and therefore does not expect that the Company will pay significant, or any, dividends, although it reserves the right to do so.

 

No dividends have been declared or paid during the period.

 

Redemption mechanism

As the Company has been established as a closed-ended collective investment scheme, there is no right or entitlement attaching to the Ordinary Shares that allows them to be redeemed or repurchased by the Company at the option of the Shareholder.

 

The redemption mechanism allows the Board to redeem any number of shares at the prevailing NAV per share at the calculation date, (being the date determined by the Board for the calculation of the price to be paid on any particular exercise of the redemption mechanism), less the cost of redemption. This right will only be exercised in specific circumstances and for the purpose of returning capital growth.

 

On the basis that the NAV has exceeded £100 million, the Directors intend to operate the redemption mechanism to return the net asset value back to around £100 million in order to:

 

·      enable the Company to exploit fully the underlying investment opportunity and to deliver high and sustainable     returns to Shareholders, principally in the form of capital gains;

·      enable portfolio holdings to have a meaningful impact on the Company's performance, which might otherwise be marginal within the context of a larger fund; and

·      ensure that the Company can continually take advantage of the illiquidity risk premium inherent in Micro Cap Companies.

 

The Directors are not obliged to operate the redemption mechanism and will not do so if:

 

·      calculation and publication of the NAV has been suspended; or

·      the Directors are unable to make the solvency statement required by Guernsey law; or

·      other circumstances exist that the Board believes make the operation of the redemption mechanism undesirable or impracticable.

 

As at 31 March 2017, the NAV of the Company is in excess of £100 million. The Directors continue to monitor the NAV on an ongoing basis and as at date of approving the condensed financial statements have not activated the redemption mechanism as detailed in the Articles of Incorporation of the Company dated 31 October 2014.

 

Redemptions will, subject to compliance with all applicable law and regulation, be carried out pro rata to a Shareholder's holding of Ordinary Shares, but all redemptions will normally be subject to a de minimis value to be returned of approximately £10 million (before costs). The Company will not redeem fractions of shares.

 

The price at which any Ordinary Shares are redeemed under the redemption mechanism will be calculated by reference to unaudited NAV calculations. To the extent that any redemption takes place at a time when the Ordinary Shares are trading at a significant premium to the prevailing unaudited NAV, Shareholders may receive an amount in respect of their redeemed Ordinary Shares that is materially below the market value of those shares prior to redemption.

 

In order to facilitate any redemptions, the Company may be required to dispose of assets within the investment portfolio. There is no certainty of the price that can be achieved on such sales and any sale price could be materially different from the carrying value of those assets. Consequently, the value received in respect of redeemed Ordinary Shares may be adversely affected where the Company is not able to realise assets at their carrying values. In addition, during any period when the Company is undertaking investment portfolio realisations, it may hold the sale proceeds (which could, in aggregate, be a material amount) in cash, which could impact the Company's returns, until the redemption is implemented and the cash is distributed to Shareholders.

 

Investors should note that the redemption mechanism has a specific and limited purpose, and no expectation or reliance should be placed on the redemption mechanism being operated on any one or more occasions or as to the proportion of Ordinary Shares that may be redeemed or as to the price at which they will be redeemed. The redemption mechanism may also lead to a more concentrated and less liquid portfolio, which may adversely affect the Company's performance and value.

 

In the absence of the availability of the redemption mechanism, Shareholders wishing to realise their investment in the Company will be required to dispose of their shares on the stock market. Accordingly, Shareholders' ability to realise their investment at any particular price and/or time may be dependent on the existence of a liquid market in the shares.

 

11. Basic and diluted earnings per Ordinary Share













Six months ended

31 March 2017

Six months ended

31 March 2016






(Unaudited)

(Unaudited)






£

£

Total comprehensive income for the period



19,800,562

4,133,729

Weighted average number of shares during the period



68,507,569

65,690,037

Basic and diluted earnings per share




0.2890

0.0629















 

12. Net asset value per Ordinary share













31 March

2017

30 September

2016






(Unaudited)

(Audited)






£

£

Net asset value





106,284,414

86,483,852

Number of shares at period end




68,507,569

68,507,569

Net asset value per share




1.5514

1.2624








 

13.  Related party disclosure

The Manager and Portfolio Manager are deemed related parties and all transactions between these related parties were conducted on terms equivalent to those prevailing in an arm's length transaction. Please refer to note 4 for further detail.

 

Philip Rodrigs is deemed to be a related party as he is the Fund Manager of the Portfolio Manager. As at the date of approval of the Half-Yearly Financial Report, he held 280,338 Ordinary Shares in the Company.

 

The Directors are entitled to remuneration for their services. Please refer to note 5 for further detail. Mark Hodgson is the Managing Director of the Manager.

 

For Directors' fees, portfolio management fees and AIFM fees payable as at 31 March 2017, please refer to note 8.

 

14. Borrowing facility

On the 9 December 2016, the Company entered into a Sterling Facility Agreement for a £2,000,000 revolving credit facility with BNP Paribas Securities Services S.C.A. (the "Lender") and BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Custodian"); and Security Interest Agreement between the Company, the Lender and Custodian. The Facility was not drawn upon during the period ended 31 March 2017.

 

Under the terms of the Facility the Company will repay any loan drawdown on the last day of the Company's availability period, being the period from the 9 December 2016 and including one month before the Facility termination date which is 364 calendar days from the signing of the Facility, unless an extension is agreed between the Company and the Lender. As at the date of approval of these condensed financial statements no extension date has been agreed between the Company and the Lender.

 

The interest of 2.05% per annum over LIBOR will be paid on any outstanding loan amounts. 

 

15. Material events after the Condensed Statement of Financial Position date

There were no events which occurred subsequent to the period end until the date of approval of the condensed financial statements, which would have a material impact on the condensed financial statements of the Company as at 31 March 2017.

 

16. Controlling party

In the Directors' opinion, the Company has no ultimate controlling party.

 

 

 

Company information

 

Board members


Advocates to the Company

Andrew Chapman (Chairman)


(as to Guernsey law)

Ian Burns (Chairman of the Audit Committee and   Senior Independent Director)

Trudi Clark (Chairman of the Remuneration and Nomination Committee and Management Engagement Committee)

Mark Hodgson

 


Carey Olsen

P.O. Box 98

Carey House

Les Banques

St Peter Port

Guernsey

GY1 4BZ




Registered Office


Custodian

BNP Paribas House

St Julian's Avenue


BNP Paribas Securities Services S.C.A., Guernsey Branch

St Peter Port

Guernsey

GY1 1WA

 

 


BNP Paribas House

St Julian's Avenue

St Peter Port

Guernsey

GY1 1WA




Portfolio Manager


Independent Auditor

River and Mercantile Asset Management LLP

30 Coleman Street

London

EC2R 5AL

 

 

 


PricewaterhouseCoopers CI LLP

PO Box 321

Royal Bank Place

1 Glategny Esplanade

St Peter Port

Guernsey

GY1 4ND




Manager


Administrator and Company Secretary

Carne Global AIFM Solutions (C.I.) Limited

8th Floor


BNP Paribas Securities Services S.C.A., Guernsey Branch

Union House

Union Street

St Helier

Jersey

JE2 3RF


BNP Paribas House

St Julian's Avenue

St Peter Port

Guernsey

GY1 1WA



 

BNP Paribas Securities Services S.C.A. Guernsey Branch is regulated by the Guernsey Financial Services Commission.

 

Corporate Broker


Registrar

Winterflood Securities Limited

The Atrium Building


Capita Registrars (Guernsey) Limited

Longue Hougue House

Cannon Bridge House

25 Dowgate Hill

London

EC4R 2GA


St Sampson

Guernsey

GY2 4JN




Solicitors to the Company



(as to English law)

CMS Cameron McKenna Nabarro Olswang LLP



Mitre House

160 Aldersgate Street

London

EC1A 4DD



 

 

 

Enquiries:

River and Mercantile UK Micro Cap Investment Company Limited

Andrew Chapman

Tel: +44 (0) 1481 750855

 

River and Mercantile Asset Management LLP

Mark Thomas

James Barham

Andrew Bollon

Tel: +44 (0) 20 7601 6262

 

BNP Paribas Securities Services S.C.A., Guernsey Branch - Company Secretary

Jasper Cross

Tel: +44 (0) 1481 750859 

 

A copy of the Company's Half Yearly Financial Report will be available shortly from the Company Secretary, (BNP Paribas Securities Services S.C.A., Guernsey Branch, BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA), or on the Company's website (microcap.riverandmercantile.com)

 

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.

 

 

River and Mercantile UK Micro Cap Investment Company Limited is regulated by the Guernsey Financial Services Commission

 

A copy of this announcement is and will be available, subject to certain restrictions relating to persons resident in restricted jurisdictions for inspection on the Company's website at microcap.riverandmercantile.com

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR BGGDUBUBBGRC

a d v e r t i s e m e n t