Interim Results
Mercury Grosvenor Trust PLC
13 August 2002
13 August 2002
MERCURY GROSVENOR TRUST plc
Interim Results for the six months ended 30 June 2002
- The net asset value per share dropped 4.2% in the six months to 30 June 2002 from 380.3p to 364.4p. The
FTSE All-Share Index fell by 8.9% and the FTSE SmallCap Index by 10.4% in the same period.
- Earnings per share of 4.2p compared with 6.9p for the corresponding period last year.
- Follow-on funding amounted to £3.2 million.
- Since the period-end, the Company has invested £3.7 million in the management buy-in of Castlebeck, a
care homes business.
- Realisations yielded £18.1 million.
- Gilt and cash balances amounted to £33.2 million at 30 June 2002.
The Chairman, David Bucks, comments:
'Equity markets have seen continuing volatility during the period under review. After a time of positive economic news
during the first quarter in 2002, a more mixed picture has developed culminating in the decline in investor confidence
in corporate accounting and governance following irregularities exposed in a number of major world-wide companies.
Market uncertainty is likely to continue for, and possibly beyond, the balance of the second half year.
'During the six months to 30 June 2002, the net asset value per share fell by 4.2% from 380.3p to 364.4p. This
performance compares with a fall in the FTSE All-Share Index of 8.9% and a decrease of 10.4% in the FTSE SmallCap
Index, both in capital-only terms.
'Earnings per share were 4.2p, compared with 6.9p in the same period of 2001, last year's higher figure being due to
the receipt, on listing of Patientline, of interest on its loan stock, a non-recurring item.
'The Company committed £3.2 million to new and follow-on investments and realisations yielded £18.1 million in the half
year. Gilt and cash balances amounted to £33.2 million at
30 June 2002. These reflect the Manager's current cautious attitude to the pricing of new investments, which the Board
fully supports.
'I referred in my last Statement to possible changes to the management contract. Discussions with HgCapital to that
end are continuing.'
Commenting on the outlook for the Company, Ian Armitage of HgCapital, the Fund
Manager, notes:
'The volatility of the capital markets during 2001 has continued into 2002, compounded by weak earnings prospects and
recent corporate governance and accounting scandals. The impact of these scandals on the business environment will be
equally profound. As a consequence, our ability to realise investments has been restricted as markets contract and
potential acquirers divert their attention to running their core business activities. Notwithstanding these challenges,
we have had a notable success with the sale of PII Group to GE Power Systems, which yielded a fourfold return.
'Whilst we have generated a healthy increase in the flow of investment opportunities, we did not make any new
investments in unquoted companies. This can be attributed to our reluctance to agree prices with vendors that we
believed did not reflect current market conditions and prospects for the companies concerned. Indeed, in the first
half of the year, we withdrew from two sizeable buy-out transactions following completion of our due diligence
exercises. We will stay patient and restrained in our negotiations. Our expectation remains that vendors will
eventually adjust their views on the valuations of companies. The pressure to change will come from unreceptive stock
markets, dissatisfied investors and tighter credit conditions.
'The trading environment for some of the companies within the portfolio will continue to be tough, but increases in
Government spending and a weaker pound should directly benefit others. In particular, the 2002 Budget announcement of
the biggest-ever sustained growth in NHS expenditure will eventually provide significant opportunities for private
sector healthcare suppliers, including several companies within the portfolio. However, we do not believe that the
effect will be instant or entirely predictable.
'Against this background, we have taken a prudent view with regard to the valuation of a number of investments within
the portfolio. Those companies that have been adversely affected have tended to suffer from customers postponing
buying decisions, a phenomenon that is particularly acute in the technology sector. In the short term, we do not
expect the economic environment to improve and the focus of our efforts is to exploit the turbulence and uncertainty
that exists by finding investments that offer good long-term value.'
For further information please contact:
Ian Armitage - Chief Executive, HgCapital
Tel: 020 7089 7979
Nigel Webb - Corporate Communications, Merrill Lynch Investment Managers
Tel: 020 7743 5938
Trevor Phillips - Holborn Public Relations
Tel: 020 7929 5599
REVENUE STATEMENT
for the six months ended 30 June 2002
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
Note (unaudited) (unaudited) (audited)
Income 5 1,852 2,885 3,893
Investment management fee 6 (206) (233) (449)
Other expenses 7 (174) (162) (329)
Net return before finance costs and taxation 1,472 2,490 3,115
Interest payable and similar charges (11) (11) (22)
Return on ordinary activities before taxation 1,461 2,479 3,093
Taxation on ordinary activities (398) (741) (673)
Return on ordinary activities after taxation 1,063 1,738 2,420
Dividend in respect of equity shares 3 - - (2,015)
Transfer to reserves 1,063 1,738 405
Return per ordinary share
Calculated on weighted average shares 4.22p 6.90p 9.61p
Calculated on actual shares 4.22p 6.90p 9.61p
Dividend per ordinary share - - 8.00p
STATEMENT OF TOTAL RETURN PER ORDINARY SHARE
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
(unaudited) (unaudited) (audited)
Earnings per ordinary share 4.22p 6.90p 9.61p
Capital return per ordinary share (20.20p) (7.67p) (32.28p)
Total return per ordinary share (15.98p) (0.77p) (22.67p)
BALANCE SHEET
as at 30 June 2002
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Fixed assets
Investments at valuation 55,603 72,621 75,208
Current assets
Debtors 3,531 4,616 4,371
Government securities 33,135 25,090 18,548
Cash 108 1,905 313
36,774 31,611 23,232
Creditors - amounts falling due within one year (607) (904) (2,645)
Net current assets 36,167 30,707 20,587
Net assets 91,770 103,328 95,795
Capital and reserves
Called up share capital 6,296 6,296 6,296
Share premium account 14,123 14,123 14,123
Capital reserves
Capital redemption reserve 1,248 1,248 1,248
Capital reserve - realised 80,599 68,769 68,723
Capital reserve - unrealised (14,576) 8,542 2,388
Revenue reserve 4,080 4,350 3,017
Total equity shareholders' funds 91,770 103,328 95,795
Net asset value per ordinary share 364.4p 410.2p 380.3p
CASH FLOW STATEMENT
for the six months to 30 June 2002
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash flow from operating activities 1,821 1,557 2,043
Returns on investment and servicing of finance 9 93 104
Taxation received/(paid) 82 (186) (493)
Capital expenditure and financial investment
Purchase of fixed asset investments (3,212) (10,900) (22,696)
Proceeds from the sale of fixed asset investments 18,069 15,715 19,470
Equity dividends paid (2,015) (3,652) (3,652)
Financing (14,959) (9,761) (3,502)
Decrease in cash (205) (7,134) (8,726)
Reconciliation of net return before finance costs and taxation to net cash flow from operating activities
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 1,472 2,490 3,115
Investment management fee and finance costs
capitalised (651) (731) (1,412)
Interest receivable (9) (93) (104)
Decrease in accrued income 1,027 214 687
(Decrease)/increase in creditors (24) 6 (67)
Effective yield adjustment 486 174 462
Tax on investment income included within gross
income (480)
(503) (638)
Net cash flow from operating activities 1,821 1,557 2,043
NOTES TO THE INTERIM ANNOUNCEMENT
1. Principal activity
The principal activity of the Company is that of an investment company within the meaning of section
266 of the Companies Act 1985.
2. Basis of preparation
The interim financial statements have been prepared on the basis of the accounting policies set out in
the Company's financial statements at 31 December 2001. Income and operating expenses have been
recognised in accordance with the same principles used in the preparation of the annual financial
statements. The taxation charge has been calculated by applying an estimate of the annual effective tax
rate to the profit for the period.
3. Dividend
It is intended that dividends will be declared and paid annually in respect of each accounting period.
A dividend of 8.00p per share, declared as a final dividend, was paid on 23 April 2002 in respect of
the year ended 31 December 2001.
4. Issued share capital
There were 25,186,755 ordinary shares in issue for the six months to 30 June 2002
(31 December 2001: 25,186,755).
5. Income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Income from investments:
UK dividends 128 10 205
UK unfranked investment income 1,235 2,355 2,622
Overseas dividends 14 - 6
1,377 2,365 2,833
Other income:
Gilt interest 465 426 954
Deposit interest 9 93 104
Other fees 1 1 2
475 520 1,060
Total income 1,852 2,885 3,893
6. Investment management fee
Revenue Capital
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30.06.02 30.06.01 31.12.01 30.06.02 30.06.01 31.12.01
£'000 £'000 £'000 £'000 £'000 £'000
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Investment management
fee 175 198 382 526 594 1,146
Irrecoverable VAT
thereon 31 35 67 93 105 200
206 233 449 619 699 1,346
7. Other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Custodian and administration fees 60 63 126
Other administration costs 114 99 203
174 162 329
8. Capital commitments
As at 30 June 2002 the Company was committed to further investments of £5,349,000
(31 December 2001: £6,262,000).
9. Publication of non-statutory accounts
The financial information contained in this interim report does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The financial information for the six months
ended 30 June 2001 and 2002 has not been audited.
The information for the year ended 31 December 2001 has been extracted from the latest published
audited financial statements, which have been filed with the Registrar of Companies. The report of
the auditors on those accounts contained no qualification or statement under sections 237(2) or (3)
of the Companies Act 1985.
10. Annual results
The Board expects to announce the results for the year ending 31 December 2002 at the end of
February 2003; copies of the preliminary announcement can be obtained from the Secretary on 020 7743
3000. The annual report should be available by mid-March 2003, with the Annual General Meeting
being held in mid-April 2003.
33 King William Street
London
EC4R 9AS
13 August 2002
KR/ms/grosvenor/interim/intann-jun 2002
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