TIDMMRC
RNS Number : 2222Q
Mercantile Investment Trust(The)PLC
16 October 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
The Mercantile Investment Trust plc
( the 'Company' )
Half Year Report & Accounts for the six months ended 31st
July 2023
Legal Entity Identifier: 549300BGX3CJIHLP2H42
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
Market Background
The six months ended 31st July 2023 remained challenging for
investors. The now familiar theme of high inflation and rising
interest rates continued to play out, albeit at differing paces
across the major developed economies. While inflation pressures in
the US and Europe subsided quite swiftly after last year's energy
and commodity price shocks, UK inflation remained stubbornly high,
prompting the Bank of England ('BoE') to tighten monetary policy
more aggressively than expected. However, with most UK households
on fixed rate mortgage deals that will only expire gradually over
time, the full impact of higher rates is yet to register in
household budgets.
Central bank actions also generated some new and different fears
to keep investors awake at night, at least for a short while.
Rapidly rising rates triggered a funding and liquidity crisis that
brought down several US regional banks and necessitated the
takeover of Credit Suisse by its rival UBS. This fuelled concerns
about the stability of the entire global financial system, although
swift action by the US and Swiss authorities ensured these concerns
were short-lived.
Elsewhere, investors were wrong-footed by developments in China.
The Chinese economy was expected to rebound strongly following its
sudden reopening late last year, but weak export demand, sluggish
domestic consumption and ongoing problems in the property sector
meant the recovery soon lost momentum. Many investors are now
questioning whether China is entering a new era characterised by
much slower growth.
Investors' imagination was captured by the launch of ChatGPT, a
chatbot programme that uses artificial intelligence ('AI') to
answer users' questions and undertake simple tasks. Excitement
about AI's potential to accelerate the pace of technological change
and increase productivity sparked a rally in a select group of
mainly US, tech-driven growth stocks. It also boosted the share
prices of several of the Company's portfolio holdings with exposure
to AI themes, as the Portfolio Managers explain in their report
below.
Performance
In fact, the portfolio as a whole performed relatively well over
the six months to 31st July 2023. The Company produced a net asset
total return, based on debt being valued at fair of +0.9%. With the
debt valued at par, the return was -0.3%. This compares with the
total return of -1.3% from our benchmark index. Over the six
months, the discount of the share price to net asset value (with
debt being valued at fair value) widened, from 12.6% to 14.8%,
resulting in a total return to shareholders for the period of
-1.3%.
When assessing the Company's performance, shareholders should
bear in mind that the Portfolio Managers invest for the long-term,
so it is more meaningful to judge performance over a longer
timeframe. On this basis, the Company continues to do well in
absolute terms and also remains ahead of its benchmark over five
and ten years to 31st July 2023.
Returns and Dividends
The Company's revenue account also remains healthy. The revenue
return in the first half of the Company's current financial year
increased to 5.33 pence per share, up from 3.74 pence per share for
the corresponding period last year, an increase of over 40%. The
large increase in dividend receipts in this half-year period was
primarily due to the resumption of dividend payments from companies
that had previously suspended or reduced them during the pandemic.
This was supplemented by a significant increase in interest income
from cash held in liquidity funds, owing to higher interest rates
in the period relative to the prior year.
A first quarterly interim dividend of 1.45 pence was paid on 1st
August 2023 and a second quarterly interim dividend of 1.45 pence
per share has been declared by the Board, payable on 1st November
2023 to shareholders on the register at the close of business on
29th September 2023. This brings the total dividend for the year to
date to 2.90 pence (2022: 2.70 pence). The Board currently intends
to pay a third quarterly interim dividend of 1.45 pence in early
February 2024.
The level of the fourth quarterly interim dividend will depend
on income received by the Company for the full financial year. As
has been stated previously, the Company aims to provide
shareholders with long term dividend growth at least in line with
the rate of inflation over a five to ten year period.
Discount and Share Repurchases
A continuation of unfavourable market conditions has resulted in
wide discounts remaining a general theme for investment companies
across many asset classes, in particular in the alternative assets
sectors. Over the six-month reporting period, the discount at which
the Company's shares trade to NAV has widened marginally, closing
the half year period at 14.8%.
The Board seeks to manage imbalances between the supply and
demand of the Company's shares, with the intention of reducing the
volatility of the discount or premium, in normal market conditions.
The Board oversees the Company's marketing campaign which aims to
generate increased awareness of the Company and subsequent demand
for its shares, therefore benefiting current shareholders by
contributing to a better rating for their shares. Furthermore, the
Board has the authority to repurchase and issue the Company's
shares. Over the review period, the Board utilised the Company's
buy back authority, buying a total of 235,000 shares at a cost of
GBP463,000. These shares were purchased at an average discount to
NAV of 15.2%, producing a modest accretion to the NAV for
continuing shareholders.
Gearing and Debt
The Company ended the six-month reporting period with gearing at
11.3% (compared to 9.5% at end January 2023). Gearing is regularly
discussed by the Board and the Portfolio Managers and is
implemented via the use of long-dated, fixed-rate financing, from
several sources, consistent with the Board's aim to ensure the debt
available to the Company comes from diversified sources, with
different tenures and cost structures. The Company has in place a
GBP3.85 million perpetual debenture and a GBP175 million debenture
repayable on 25th February 2030, together with GBP150 million of
long-term debt raised in September 2021 through the issue of three,
fixed rate, senior unsecured privately placed notes (the 'Notes').
The Notes mature between 2041 and 2061 and were secured at a
blended rate of 1.94%, at a time when interest rates were near
their lows.
With inflation and long-term interest rates significantly higher
than they have been for decades, the Company's borrowing profile is
currently very attractive, and should benefit shareholders, as it
provides ample opportunity to enhance future returns, at relatively
low cost.
Stewardship
Effective investment stewardship can materially contribute to
helping build stronger portfolios over the long term and therefore
enhance returns. The Company's Investment Manager has a
well-established approach to investment stewardship, both to
understand how companies consider issues related to Environmental,
Social and Governance ('ESG') factors and also to seek to influence
their behaviour and encourage best practices. Regular engagement
with investee companies by JPMAM's portfolio managers, research
analysts and investment stewardship specialists and exercising its
voice as a long-term investor through proxy voting have been vital
components of JPMAM's active management heritage. The Board
supports the Investment Manager's approach to investment
stewardship and its commitment to its stewardship
responsibilities.
As part of the evolving regulatory environment which JPMAM sits
within, it has published its first Task Force on Climate-related
Financial Disclosures ('TCFD') Report for the Company in respect of
the 12 months ended 31st December 2022. The report discloses the
portfolio's climate-related risks and opportunities according to
the Financial Conduct Authority's ESG Sourcebook and the TCFD
Recommendations. The report is available on the Company's website
at www.mercantileit.co.uk.
This is the first report under the new guidelines and disclosure
requirements and the Board will continue to monitor the situation
as these requirements evolve.
Stay Informed
The Company delivers email updates on The Mercantile's progress
with regular news and views, as well as the latest performance. If
you have not already signed up to receive these communications, you
can opt in via http://tinyurl.com/MRC-Sign-Up.
Outlook
There are reasons to be optimistic about the UK's economic and
market outlook. Most importantly, inflation pressures are now
clearly abating, and UK rates are also probably at or near their
peak. It seems most likely rates will remain at or near their
current levels, while the Bank of England assesses the medium-term
inflation outlook. However, it is reassuring to consider that the
Bank now has ample scope to loosen the monetary screws if the
anticipated slowdown in economic activity gathers unwanted momentum
and threatens to tip the economy into recession.
The Board shares the Portfolio Managers' view that UK equities,
and UK mid and small cap shares in particular, represent good value
at current levels, both relative to historic levels and compared to
other developed markets. This means there are many attractive
investment opportunities and for the patient investor we should in
time once again see excellent investment returns. The Company's
strong long-term performance track record, combined with the good
operational performance of the portfolio's holdings gives the Board
great confidence in the Portfolio Managers' ability to identify and
capitalise on these opportunities, just as they have done in the
past. This bodes very well for the Company's prospects for capital
and dividend growth for the long-term investor.
Thank you for your ongoing support.
Angus Gordon Lennox
Chairman
16th October 2023
PORTFOLIO MANAGERS' REPORT
Setting the scene: Inflation and central banks
Having staged the beginnings of a recovery towards the end of
2022 and into January 2023, the UK market was unable to sustain its
upward momentum through the first six months of the Company's
financial year. Share prices were stable to lower during this
period, and our target market of UK medium and smaller companies
(the 'Benchmark') fared no better, declining by 1.3%.
There have been several drivers of market performance over the
course of the year to date, including March's unwelcome spectre of
a US regional banking crisis. However, the critical factor driving
financial markets has continued to be the path of inflation,
alongside the actions of the Bank of England and other major
central banks, and the impact of these upon expectations of future
economic growth.
The UK has suffered worse than most in this regard, as high
inflation has proven to be stickier than in most countries,
although this has been due in part to delayed transmission
mechanisms into the real economy, which will naturally work through
the system over time. This poses a quandary for the Bank of
England, and thus at least in part explains their recent, if
belated, zeal to re-establish credibility by tightening monetary
policy at the fastest pace since the late 1980s.
Economies around the world have thus far been more resilient
than anticipated at the start of 2023, when an imminent recession
was widely predicted. However, the past year's dramatic monetary
tightening in the UK and other major economies is now beginning to
bite, and recent leading economic indicators have generally been
downbeat, raising valid questions about the outlook for the global
economy.
Mercantile performance
Against this backdrop, for the six months to 31st July 2023, the
Company delivered a return on net assets of -0.3%, with debt valued
at par, and +0.9% with debt at fair value, in both cases ahead of
the Benchmark's -1.3% return. The Company's outperformance was
driven by stock selection. Gearing, which averaged 10.2% over the
review period, had a negligible impact. This recent performance
extends the Company's track record of outperformance over the
long-term. In the ten years to end July 2023, its NAV rose by an
annualised average of +6.4% with debt valued at par, and +6.9% with
debt at fair value, ahead of the benchmark return of +5.1%.
Performance in this half-year was aided by our substantial
holdings in the software and computer services sector, in companies
such as Softcat and Bytes Technology, which have benefitted from
robust corporate demand for IT infrastructure. These companies have
also seen gains in market share and there is scope for revenue to
accelerate further as customers begin to adopt generative AI
solutions. The investment banking and brokerage services sector
also contributed positively to relative performance. For example,
private equity group 3i continued to deliver better than expected
sales growth thanks to its exposure to Action, a retailer that
accounts for c.60% of 3i's NAV, while the fund-raising performance
of Intermediate Capital, an alternative asset manager, remained
strong, despite a well-reported industry-wide softening in demand
for such strategies.
Conversely, the greatest detractors from performance were in the
media and personal goods sectors. Our investment in Future, the
specialist media platform, came under further pressure as audience
figures and thus revenue - particularly in their important consumer
technology products offering - declined, leading to a reduction in
expected earnings. In addition, fears around the potential impact
of AI, combined with a management transition, have placed further
downward pressure on the company's share price. However, we remain
shareholders, and with the new CEO now in place, we are monitoring
progress closely. Our longstanding holding in Watches of
Switzerland, a luxury watch retailer, also detracted from returns.
While operations have remained resilient, the level of growth has
moderated, leading to a debate over its long-range earnings and
growth targets. A recent move by Rolex into distribution, via the
succession-driven acquisition of Bucherer, has further exacerbated
market concerns, and it will take time to rebuild investor
confidence in the growth opportunity ahead.
While there has not been any material change to the overall
shape of the portfolio, or indeed to the level of gearing, through
the first half of this financial year, there have, of course, been
various stock-specific changes. For instance, we have increased the
size of our position in Hill & Smith, an infrastructure
engineer with a significant presence in this sector. This increased
exposure comes in response to the company's improving growth
opportunity, driven primarily by increases to US infrastructure
spending. We also added to our investment in Bytes Technology, the
aforementioned value-added technology reseller. We made new
investments in Bodycote, an industrial engineer which should
benefit from the continued post-pandemic recovery of the aerospace
industry, and in Moneysupermarket.com, a price comparison business
seeing increased demand due to higher insurance prices. These
purchases were partly funded by reductions in the size of positions
in Watches of Switzerland and RS Group, a distributor of
electronics and industrial products. We also exited a longstanding
and profitable investment in Spirax-Sarco, a supplier of specialist
industrial machinery, now a FTSE100 company.
Outlook for the coming months
In the near-term, we expect that financial markets will continue
to be heavily influenced by the inter-connected forces of
inflation, monetary policy, and the impact of these upon economic
growth expectations. These projections have all oscillated even
more than usual in recent months, as economic forecasters have
swung from expecting a UK recession this year, towards predicting a
soft landing. Their assessment has shifted again more recently in
light of the recent deterioration in leading economic indicators.
Consensus forecasts now suggest that the UK will avoid slipping
into recession in 2023, but most foresee a marked slowdown in
economic activity over coming months, and only a shallow recovery
in 2024.
While this may sound gloomy, there are some reasons for cautious
optimism. Through a period of painful inflation and a genuine
squeeze on consumer finances, consumption has remained more
resilient than anticipated. The housing market is certainly a
concern as higher mortgage rates gradually feed through to
borrowers once their fixed rate deals expire, but aggregate debt
levels are not excessively high, and the BoE has scope to reduce
rates if it becomes clear that monetary tightening has been
excessive. Furthermore, with inflation moderating, the average UK
consumer is now experiencing real wage growth for the first time in
nearly two years. If employment levels can be sustained, this
should provide some support to the domestic economy. Furthermore,
the uncertain outlook is evidently reflected in valuations, as the
UK market is trading at a steep discount to both its own history
and relative to other developed markets. Yet portfolio companies
have, for the most part, been performing well at an operational
level, as demonstrated by a gradual, but notable, increase in
earnings estimates over the year-to-date.
The market's historically low valuations, combined with the
solid fundamentals of many UK companies, leave us excited by the
investment opportunities in our market. As an indication of our
relatively positive view of the market's prospects, the portfolio
remains just over 10% geared. It is our intention to maintain our
focus on identifying the best of these opportunities - structurally
robust businesses that operate in growing end markets and possess
the ability to invest capital at high returns - as we believe these
companies continue to offer the surest prospect of delivering
compelling returns and outperformance for our shareholders over the
long-term, just as they have done in the past.
Guy Anderson
Anthony Lynch
Portfolio Managers
16th October 2023
INTERIM MANAGEMENT REPORT
The Company is required to make the following disclosures in its
half year report.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Company fall
into the following broad categories: investment and strategy;
accounting, legal and regulatory; corporate governance and
shareholder relations; operational and cybercrime; and financial.
Information on each of these areas is given in the Directors'
Report within the Annual Report and Financial Statements for the
year ended 31st January 2023.
Related parties transactions
During the first six months of the current financial year, no
transactions with related parties have taken place which have
materially affected the financial position or the performance of
the Company.
Going concern
The Directors believe, having considered the Company's
investment objectives, risk management policies, capital management
policies and procedures, nature of the portfolio and expenditure
projections, that the Company has adequate resources, an
appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the
foreseeable future and, more specifically, that there are no
material uncertainties pertaining to the Company that would prevent
its ability to continue in such operational existence for at least
12 months from the date of the approval of this half year financial
report. For these reasons, they consider there is sufficient
evidence to continue to adopt the going concern basis in preparing
the accounts.
Directors' responsibilities
The Board of Directors confirms that, to the best of its
knowledge:
(i) the condensed set of financial statements contained within
the half year financial report has been prepared in accordance with
FRS 104 'Interim Financial Reporting' and gives a true and fair
view of the state of affairs of the Company, and of the assets,
liabilities, financial position and net return of the Company as at
31st July 2023 as required by the UK Listing Authority Disclosure
Guidance and Transparency Rules ('DTRs') 4.2.4R; and
(ii) the interim management report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the DTRs.
In order to provide these confirmations, and in preparing these
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- notify the Company's shareholders in writing about the use,
if any, of disclosure exemptions in FRS102 in the preparation of
the financial statements;
and the Directors confirm that they have done so.
For and on behalf of the Board
Angus Gordon Lennox
Chairman
16th October 2023
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2023 31st July 2022 31st January 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Losses on
investments
held at
fair value
through
profit or loss - (43,465) (43,465) - (311,635) (311,635) - (317,548) (317,548)
Net foreign
currency
gains - 1 1 - 1 1 - 64 64
Income from
investments 43,140 - 43,140 33,460 - 33,460 61,589 - 61,589
Interest
receivable
and similar
income 3,017 - 3,017 588 - 588 3,149 - 3,149
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Gross
return/(loss) 46,157 (43,464) 2,693 34,048 (311,634) (277,586) 64,738 (317,484) (252,746)
Management fee (1,042) (2,430) (3,472) (1,101) (2,568) (3,669) (2,072) (4,835) (6,907)
Other
administrative
expenses (785) - (785) (632) - (632) (1,413) - (1,413)
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Net
return/(loss)
before
finance costs
and taxation 44,330 (45,894) (1,564) 32,315 (314,202) (281,887) 61,253 (322,319) (261,066)
Finance costs (2,088) (4,873) (6,961) (2,595) (6,056) (8,651) (4,245) (9,906) (14,151)
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Net
return/(loss)
before
taxation 42,242 (50,767) (8,525) 29,720 (320,258) (290,538) 57,008 (332,225) (275,217)
Taxation charge
(note 3) (154) - (154) (140) - (140) (128) - (128)
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Net
return/(loss)
after taxation 42,088 (50,767) (8,679) 29,580 (320,258) (290,678) 56,880 (332,225) (275,345)
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
Return/(loss)
per share
(note
4) 5.33p (6.43)p (1.10)p 3.74p (40.47)p (36.73)p 7.19p (42.02)p (34.83)p
---------------- -------- --------- --------- --------- ----------- ----------- -------- ----------- ----------
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the period.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies.
The return/(loss) per share represents the profit/(loss) per
share for the year and also the total comprehensive income per
share.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Called Capital
up
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- ----------- ------------ ----------- -----------
Six months ended 31st
July 2023 (Unaudited)
At 31st January 2023 23,612 23,459 13,158 1,741,531 63,916 1,865,676
Repurchase of shares into
Treasury - - - (463) - (463)
Net (loss)/return - - - (50,767) 42,088 (8,679)
Dividends paid in the
period (note 5) - - - - (35,949) (35,949)
--------------------------- -------- -------- ----------- ------------ ----------- -----------
At 31st July 2023 23,612 23,459 13,158 1,690,301 70,055 1,820,585
--------------------------- -------- -------- ----------- ------------ ----------- -----------
Six months ended 31st
July 2022 (Unaudited)
At 31st January 2022 23,612 23,459 13,158 2,076,379 61,603 2,198,211
Repurchase of shares into
Treasury - - - (2,287) - (2,287)
Net (loss)/return - - - (320,258) 29,580 (290,678)
Dividends paid in the
period (note 5) - - - - (33,235) (33,235)
--------------------------- -------- -------- ----------- ------------ ----------- -----------
At 31st July 2022 23,612 23,459 13,158 1,753,834 57,948 1,872,011
--------------------------- -------- -------- ----------- ------------ ----------- -----------
Year ended 31st January
2023 (audited)
At 31st January 2022 23,612 23,459 13,158 2,076,379 61,603 2,198,211
Repurchase of shares into
Treasury - - - (2,623) - (2,623)
Net (loss)/return - - - (332,225) 56,880 (275,345)
Dividends paid in the
year (note 5) - - - - (54,567) (54,567)
--------------------------- -------- -------- ----------- ------------ ----------- -----------
At 31st January 2023 23,612 23,459 13,158 1,741,531 63,916 1,865,676
--------------------------- -------- -------- ----------- ------------ ----------- -----------
(1) These reserves form the distributable reserves of the
Company and can be used to fund distributions to investors via
dividend payments.
CONDENSED STATEMENT OF FINANCIAL POSITION
(Unaudited) (Unaudited) (Audited)
31st July 31st July 31st January
2023 2022 2023
GBP'000 GBP'000 GBP'000
---------------------------------------- ------------ ------------ -------------
Fixed assets
Investments held at fair value through
profit or loss 2,025,766 2,019,988 2,042,758
---------------------------------------- ------------ ------------ -------------
Current assets
Debtors 20,692 30,360 2,737
Cash and short term deposits 252 251 386
Cash equivalents: liquidity fund 113,883 165,810 157,220
---------------------------------------- ------------ ------------ -------------
134,827 196,421 160,343
Current liabilities
Creditors: amounts falling due within
one year (12,119) (16,621) (9,599)
---------------------------------------- ------------ ------------ -------------
Net current assets 122,708 179,800 150,744
---------------------------------------- ------------ ------------ -------------
Total assets less current liabilities 2,148,474 2,199,788 2,193,502
Creditors: amounts falling due after
more than one year (327,889) (327,777) (327,826)
---------------------------------------- ------------ ------------ -------------
Net assets 1,820,585 1,872,011 1,865,676
---------------------------------------- ------------ ------------ -------------
Capital and reserves
Called up share capital 23,612 23,612 23,612
Share premium 23,459 23,459 23,459
Capital redemption reserve 13,158 13,158 13,158
Capital reserves 1,690,301 1,753,834 1,741,531
Revenue reserve 70,055 57,948 63,916
---------------------------------------- ------------ ------------ -------------
Total shareholders' funds 1,820,585 1,872,011 1,865,676
---------------------------------------- ------------ ------------ -------------
Net asset value per share (note 6) 230.5p 236.9p 236.1p
---------------------------------------- ------------ ------------ -------------
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31st July 31st July 31st January
2023 2022(1) 2023(1)
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ ------------ -------------
Cash flows from operating activities
Net loss before finance costs and taxation (1,564) (281,887) (261,066)
Adjustment for:
Net losses on investments held at
fair value through
profit or loss 43,465 311,635 317,548
Net foreign currency gains (1) (1) (64)
Dividend income (43,140) (33,460) (61,589)
Interest income (3,017) (588) (3,149)
Realised loss/(gain) on foreign exchange
transactions 2 (2) 46
Decrease/(increase) in accrued income
and other debtors 44 (25) 9
Increase in accrued expenses 71 27 93
-------------------------------------------- ------------ ------------ -------------
(4,140) (4,301) (8,172)
-------------------------------------------- ------------ ------------ -------------
Dividends received 36,503 29,687 62,063
Interest received 3,017 420 3,149
Overseas tax recovered 55 84 604
-------------------------------------------- ------------ ------------ -------------
Net cash inflow from operating activities 35,435 25,890 57,644
-------------------------------------------- ------------ ------------ -------------
Purchases of investments (202,081) (237,596) (507,308)
Sales of investments 166,486 354,694 612,839
Settlement of foreign currency contracts - 3 -
-------------------------------------------- ------------ ------------ -------------
Net cash (outflow)/inflow from investing
activities (35,595) 117,101 105,531
-------------------------------------------- ------------ ------------ -------------
Dividends paid (35,949) (33,235) (54,567)
Repurchase of shares into Treasury (462) (2,285) (2,623)
Interest paid (6,900) (7,071) (14,058)
-------------------------------------------- ------------ ------------ -------------
Net cash outflow from financing activities (43,311) (42,591) (71,248)
-------------------------------------------- ------------ ------------ -------------
(Decrease)/increase in cash and cash
equivalents (43,471) 100,400 91,927
-------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents at start
of period/year 157,606 65,661 65,661
Unrealised gain on foreign currency
cash and cash equivalents - - 18
-------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents at end of
period/year 114,135 166,061 157,606
-------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents consist
of:
Cash and short term deposits 252 251 386
Cash held in JPMorgan Sterling Liquidity
Fund 113,883 165,810 157,220
-------------------------------------------- ------------ ------------ -------------
Total 114,135 166,061 157,606
-------------------------------------------- ------------ ------------ -------------
(1) The presentation of the Cash Flow Statement, as permitted
under FRS 102, has been changed so as to present the reconciliation
of 'net return/(loss) before finance costs and taxation' to 'net
cash inflow from operating activities' on the face of the Cash Flow
Statement. Previously, this was shown by way of a note. Other than
consequential changes in presentation of certain cash flow items,
there is no change to the cash flows as presented in previous
periods.
Analysis of changes in net debt
As at Other As at
31st January Cash flows non-cash 31st July
2023 charges 2023
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------------- ----------- --------- ----------
Cash 386 (134) - 252
Cash equivalents 157,220 (43,337) - 113,883
------------------------------ ------------- ----------- --------- ----------
157,606 (43,471) - 114,135
Borrowings
Debentures falling due after
more than
five years (178,157) - (48) (178,205)
Private Placement due after
more than
five years (149,669) - (15) (149,684)
------------------------------ ------------- ----------- --------- ----------
(327,826) - (63) (327,889)
------------------------------ ------------- ----------- --------- ----------
Total net debt (170,220) (43,471) (63) (213,754)
------------------------------ ------------- ----------- --------- ----------
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the six months ended 31st July 2023
1. Financial statements
The information contained within the financial statements in
this half year report has not been audited or reviewed by the
Company's auditors.
The figures and financial information for the year ended 31st
January 2023 are extracted from the latest published financial
statements of the Company and do not constitute statutory accounts
for that year. Those financial statements have been delivered to
the Registrar of Companies and include the report of the auditors
which was unqualified and did not contain a statement under either
section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
The condensed financial statements have been prepared in
accordance with the Companies Act 2006, FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland' of
the United Kingdom Generally Accepted Accounting Practice ('UK
GAAP') and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' (the revised 'SORP') issued by the Association of
Investment Companies in July 2022.
FRS 104, 'Interim Financial Reporting', issued by the Financial
Reporting Council ('FRC') in March 2015 has been applied in
preparing this condensed set of financial statements for the six
months ended 31st July 2023.
All of the Company's operations are of a continuing nature.
The accounting policies applied to this condensed set of
financial statements are consistent with those applied in the
financial statements for the year ended 31st January 2023.
3. Taxation
The Company's effective corporation tax rate is nil, as
deductible expenses exceed taxable income. The tax charge comprises
overseas withholding tax.
4. Return/(loss) per share
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31st July 2023 31st July 31st January
2022 2023
GBP'000 GBP'000 GBP'000
---------------------------- --------------- ------------- -------------
Return/(loss) per share is
based on the following:
Revenue return 42,088 29,580 56,880
Capital loss (50,767) (320,258) (332,225)
---------------------------- --------------- ------------- -------------
Total loss (8,679) (290,678) (275,345)
---------------------------- --------------- ------------- -------------
Weighted average number of
shares in issue 790,059,889 791,268,518 790,696,064
Revenue return per share 5.33p 3.74p 7.19p
Capital loss per share (6.43)p (40.47)p (42.02)p
---------------------------- --------------- ------------- -------------
Total loss per share (1.10)p (36.73)p (34.83)p
---------------------------- --------------- ------------- -------------
5. Dividends paid
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31st July 2023 31st July 2022 31st January
2023
GBP'000 GBP'000 GBP'000
-------------------------------- --------------- --------------- -------------
2023 fourth quarterly dividend
of 3.10p (2022: 2.85p)
paid to shareholders in
May 24,493 22,558 22,558
2024 first quarterly dividend
of 1.45p (2023: 1.35p)
paid to shareholders in
August(1) 11,456 10,677 10,677
2023 second quarterly dividend
of 1.45p
paid to shareholders in
November n/a n/a 10,666
2023 third quarterly dividend
of 1.45p
paid to shareholders in
February n/a n/a 10,666
-------------------------------- --------------- --------------- -------------
Total dividends paid in
the period 35,949 33,235 54,567
-------------------------------- --------------- --------------- -------------
(1) The Company irrevocably transfers the funds to its Registrar
in the month prior to which the dividend is paid to
shareholders.
All dividends paid in the period/year have been funded from the
revenue reserve.
The first 2024 quarterly dividend of 1.45p (2023: 1.35p) per
share, amounting to GBP11,456,000 (2023: GBP10,677,000) was paid on
1st August 2023 in respect of the six months ended 31st July
2023.
A second 2024 quarterly dividend of 1.45p (2023: 1.35p) per
share, amounting to GBP11,453,000 (2023: GBP10,669,000), has been
declared payable in respect of the six months ended 31st July
2023.
6. Net asset value per share
The net asset value per Ordinary share and the net asset value
attributable to the Ordinary shares at the period/year end are
shown below. These were calculated using 789,845,662 (July 2022:
790,270,662, January 2023: 790,080,662) Ordinary shares in issue at
the period/year end (excluding Treasury shares).
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2023 31st July 2022 31st January
2023
Net asset value Net asset value Net asset value
attributable attributable attributable
GBP'000 pence GBP'000 pence GBP'000 pence
----------------------------- ----------- -------- ----------- -------- ----------- --------
Net asset value - debt
at par 1,820,585 230.5 1,872,011 236.9 1,865,676 236.1
Add: amortised cost of
GBP175 million 6.125%
debenture
stock 25th February 2030 174,355 22.1 174,258 22.1 174,307 22.1
Less: Fair value of GBP175
million 6.125% debenture
stock 25th February 2030 (189,830) (24.0) (221,403) (28.0) (201,864) (25.5)
Add: amortised cost of
GBP3.85 million 4.25%
perpetual
debenture stock 3,850 0.5 3,850 0.5 3,850 0.5
Less: fair value of GBP3.85
million 4.25% perpetual
debenture stock (3,225) (0.4) (5,336) (0.7) (3,791) (0.5)
Add: amortised cost of
senior unsecured privately
placed loan notes 149,684 18.9 149,669 18.9 149,669 18.9
Less: fair value of senior
unsecured privately placed
loan notes (82,592) (10.5) (116,867) (14.8) (93,602) (11.8)
----------------------------- ----------- -------- ----------- -------- ----------- --------
Net asset value - debt
at fair value 1,872,827 237.1 1,856,182 234.9 1,894,245 239.8
----------------------------- ----------- -------- ----------- -------- ----------- --------
7. Fair valuation of investments
The fair value hierarchy analysis for investments held at fair
value at the period end is as follows:
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2023 31st July 2022 31st January
2023
Assets Liabilities Assets Liabilities Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ----------- ------------ ----------- ------------ ---------- ------------
Level 1 2,019,556 - 2,014,848 - 2,037,584 -
Level 3(1) 6,210 - 5,140 - 5,174 -
------------ ----------- ------------ ----------- ------------ ---------- ------------
Total 2,025,766 - 2,019,988 - 2,042,758 -
------------ ----------- ------------ ----------- ------------ ---------- ------------
(1) Consists only of the holding of unquoted stock and fixed
income preference shares in Tennants Consolidated.
A reconciliation of the fair value measurements using valuation
techniques using non-observable data is set out below.
Six months ended Six months ended Year ended
31st July 2023 (Unaudited) 31st July 2022 (Unaudited) 31st January 2023
(Audited)
Fixed Fixed Fixed
Equity Interest Equity Interest Equity Interest
Investments Investment Total Investments Investment Total Investments Investment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------ ----------- -------- ------------ ----------- -------- ------------ ----------- --------
Level
3
Opening
balance 5,080 94 5,174 5,046 94 5,140 5,046 94 5,140
Change
in fair
value of
unquoted
investment
during
the
period/year
-------------
1,036 - 1,036 - - - 34 - 34
------------- ------------ ----------- -------- ------------ ----------- -------- ------------ ----------- --------
Closing
balance 6,116 94 6,210 5,046 94 5,140 5,080 94 5,174
------------- ------------ ----------- -------- ------------ ----------- -------- ------------ ----------- ----------
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
ENDS
A copy of the Half Year Report 2023 will shortly be submitted to
the FCA's National Storage Mechanism and will be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The half year will also shortly be available on the Company's
website at www.mercantileit.co.uk where up to date information on
the Company, including daily NAV and share prices, factsheets and
portfolio information can also be found.
This information is provided by RNS, the news service of the
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END
IR MZMMGRVFGFZG
(END) Dow Jones Newswires
October 16, 2023 04:17 ET (08:17 GMT)
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