Half Year Results

RNS Number : 2399N

Mercantile Investment Trust(The)PLC

26 September 2012

 

London Stock Exchange Announcement

THE MERCANTILE Investment Trust PLC

Unaudited Half Year Results
for the six months ended 31^ST JULY 2012

Chairman's Statement

Performance and Market Review

The Company's net asset value total return in the first six months to 31st July 2012 was 6.7% which was 0.8% ahead of the return of our benchmark index, the FTSE All-Share Index, excluding FTSE 100 constituents and investment trusts.

This represents a better result than that of the last full year, fuelled by the recovery in mid and small cap stocks over the period under review. The Managers continue to be proactive in managing the portfolio, taking advantage of market fluctuations and corporate activity.

Revenue

The income received from investments in the first half is marginally above that of the half year ended 31st July 2011, reflecting a gradual increase in dividend income for underlying investments.

Dividends

A second interim dividend of 6.0 pence per share has been declared by the Board, payable on 1st November 2012 to shareholders on the register at close of business on 5th October 2012. Together with the first interim dividend of 6.0 pence paid on 1st August 2012 this brings the total dividend for the year to date to 12.0 pence (2011: 12.0 pence). The Board anticipates that there will be a third dividend of 6.0 pence paid in early February 2013. However, as in previous years, the Board's decision as to the quantum of the fourth interim dividend will depend on the level of revenue received. The Board remains mindful of the substantial revenue reserve position that your Company enjoys.

Share Repurchases

The Board has maintained an active approach towards share repurchases in order to enhance the net asset value per share and minimise the absolute level and volatility of the discount on the Company's shares. In the six months to 31st July 2012, 95,000 shares were repurchased for cancellation at a total cost of £970,373. These purchases added approximately 1.3 pence to the net asset value per share. The discount, with debt at fair value, has ranged between 9.8% and 14.6% in the period from 1st February 2012 to 14th September 2012, with the average discount during the period of 12.9%.

Investment Managers

In the Annual Report and at the Annual General Meeting I made it clear that the Board was holding discussions with the Manager to ensure that the investment management of the trust was strengthened and improved after the trust's less than satisfactory performance over 1,3 and 5 years. I am glad to report that the Manager has acted expeditiously to carry out its commitment to the Board as described in the Manager's report. The Board will be engaged to ensure that the investment performance of the Company continues at its current improved level.

Outlook

Despite the ongoing macroeconomic uncertainty, equity markets have continued to move higher through the first half of the year, albeit on low volumes as investors have lacked conviction ahead of a resolution to the issues in Europe and lower global growth prospects. In this environment of low growth and investor uncertainty the Board feel that there are likely to be opportunities for stock pickers to outperform and are confident that the strengthened management team's approach, which relies heavily on meeting and engaging with company management teams, will be well placed to benefit from such conditions.

The Board continues to believe that UK mid and small cap equities remain attractively valued and will provide investors with solid returns over the long term.

For and on behalf of the Board

Hamish Leslie Melville

Chairman                                                                                                                                             

26th September 2012

Investment Managers' Report

For the six months ended 31st July 2012 your Company's net asset value was ahead of its benchmark with a return of 6.7%. The benchmark, the FTSE All-Share Index excluding FTSE 100 constituents and investment trusts, returned 5.9%.

Although markets continued to be volatile during the first half of your Company's year, the absence of further unexpected bad macro economic news enabled the stockmarket to achieve a positive return. In particular, mid and small sized UK equities performed better than the broader stockmarket with a resurgence of takeover activity demonstrating that acquirers believe that there is real value in the stockmarket at current levels despite the generally subdued prospects for economic growth.

The strongest contributions to Mercantile's performance in the half year came from companies which recommended cash takeover bids at substantial premia. Mercantile benefited from such takeovers for Cove Energy, Cable and Wireless Worldwide, Logica, Misys, Aegis and Nautical Petroleum. That said, those sectors which were able to continue showing some progress despite the difficult economic background also performed well: the portfolio benefited from strong performance in the housebuilding and non-life insurance sectors. The poorest returns in the portfolio in the half year came from the mining sector where our holdings in Aquarius Platinum, African Barrick Gold and Petropavlovsk were hit by rising mining costs and falling platinum and gold prices. Resources and mining companies accounted for nearly half of all the mid 250 index company profit forecast downgrades recently and companies whose profit forecasts are reducing are generally continuing to underperform. Conversely, companies, such as housebuilders, whose profit forecasts are increasing are continuing to perform better than the stockmarket as a whole.

As economic growth has faltered, more companies have seen profit forecasts reduced than increased, but the rate of downgrades is now abating and, generally, the profits which companies have reported for the first half of the year have been better than feared. Stockmarket valuations are relatively low and, with some stability emerging, this has given corporates, and others, confidence to acquire quoted companies to help them achieve their own growth objectives. Acquisition targets often share the same characteristics which we look for in the companies in which we invest: substantial and growing market shares or asset bases, attractive prospects for cash generation and strong balance sheets and management teams.

Overall, we continue to believe that the stockmarket will tend to rise in response to looser monetary policy from central banks but will be prone to fall in response to bad news from the Eurozone or to deteriorating macro economic data. Having the flexibility to operate within a gearing range of 90% to 120% invested is a great advantage in volatile market conditions, enabling the investment managers to take the opportunity to increase their investment in the stockmarket when pessimism is high and valuations are low. Mercantile's gearing level is currently 105% invested reflecting a positive outlook for equity valuations but some caution that the structural issues within the Eurozone are still not resolved.

In August 2012 Guy Anderson joined the team, reporting to Martin Hudson, with specific responsibility for the General Retailers, Media, Financial Services and Technology sectors of the portfolio, as well as a shared oversight of the entire portfolio. Anthony Lynch, formerly the team's analyst, was promoted to the position of portfolio manager. We are confident that this is a strong team that is well placed to meet the Company's investment management requirements.

Martin Hudson 

Guy Anderson

Anthony Lynch                                                                                                                                  

26th September 2012

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; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational and financial. Information on each of these areas is given in the Directors' Report within the Annual Report and Accounts for the year ended 31st January 2012.

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. 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 the Accounting Standards Board's Statement 'Half Year Financial Reports'; and

(ii)     the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

For and on behalf of the Board.

Hamish Leslie Melville

Chairman

26th September 2012

For further information, please contact:

Juliet Dearlove

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.mercantileit.co.uk

Income Statement

for the six months ended 31st July 2012

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st July 2012			31st July 2011			31st January 2012
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held
at fair value through profit or loss	-	62,354	62,354	-	(25,646)	(25,646)	-	(108,508)	(108,508)
Net foreign currency losses	-	(163)	(163)	-	(6)	(6)	-	(6)	(6)
Income from investments	20,155	-	20,155	18,285	-	18,285	36,700	-	36,700
Other interest receivable and
similar income	494	-	494	496	-	496	684	-	684
Gross return/(loss)	20,649	62,191	82,840	18,781	(25,652)	(6,871)	37,384	(108,514)	(71,130)
Management fee	(723)	(1,687)	(2,410)	(813)	(1,897)	(2,710)	(1,496)	(3,492)	(4,988)
Other administrative expenses	(412)	-	(412)	(387)	-	(387)	(900)	-	(900)
Net return/(loss) on ordinary
activities before finance costs
and taxation	19,514	60,504	80,018	17,581	(27,549)	(9,968)	34,988	(112,006)	(77,018)
Finance costs	(1,646)	(3,843)	(5,489)	(1,697)	(3,962)	(5,659)	(3,389)	(7,907)	(11,296)
Net return/(loss) on ordinary
activities before taxation	17,868	56,661	74,529	15,884	(31,511)	(15,627)	31,599	(119,913)	(88,314)
Taxation (note 4)	-	-	-	(61)	-	(61)	(44)	-	(44)
Net return/(loss) on ordinary
activities after taxation	17,868	56,661	74,529	15,823	(31,511)	(15,688)	31,555	(119,913)	(88,358)
Return/(loss) per share (note 5)	18.11p	57.44p	75.55p	15.98p	(31.82)p	(15.84)p	31.88p	(121.13)p	(89.25)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 Total column represents all the information that is required to be disclosed in a 'Statement of Total Recognised Gains and Losses' ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

for the six months ended 31st July 2012 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2012	24,678	23,459	12,092	1,016,809	33,323	1,110,361
Repurchase and cancellation of
the Company's own shares	(24)	-	24	(980)	-	(980)
Net return on ordinary activities	-	-	-	56,661	17,868	74,529
Dividends appropriated in the period	-	-	-	-	(23,673)	(23,673)
At 31st July 2012	24,654	23,459	12,116	1,072,490	27,518	1,160,237

Six months ended 31st July 2011 (unaudited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2011	24,759	23,459	12,011	1,139,698	37,339	1,237,266
Net (loss)/return on ordinary activities	-	-	-	(31,511)	15,823	(15,688)
Dividends appropriated in the period	-	-	-	-	(23,698)	(23,698)
At 31st July 2011	24,759	23,459	12,011	1,108,187	29,464	1,197,880

Year ended 31st January 2012 (audited)

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2011	24,759	23,459	12,011	1,139,698	37,339	1,237,266
Repurchase and cancellation of
the Company's own shares	(81)	-	81	(2,976)	-	(2,976)
Net (loss)/return on ordinary activities	-	-	-	(119,913)	31,555	(88,358)
Dividends appropriated in the year	-	-	-	-	(35,571)	(35,571)
At 31st January 2012	24,678	23,459	12,092	1,016,809	33,323	1,110,361

Balance Sheet

at 31st July 2012

	(Unaudited)	(Unaudited)	(Audited)
	31st July	31st July	31st January
	2012	2011	2012
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,197,892	1,274,196	1,276,856
Current assets
Debtors	21,884	28,173	2,115
Cash and short term deposits	125,464	91,563	18,447
	147,348	119,736	20,562
Creditors: amounts falling due within one year	(7,861)	(19,006)	(9,963)
Net current assets	139,487	100,730	10,599
Total assets less current liabilities	1,337,379	1,374,926	1,287,455
Creditors: amounts falling due after more than
one year	(177,142)	(177,046)	(177,094)
Net assets	1,160,237	1,197,880	1,110,361
Capital and reserves
Called up share capital	24,654	24,759	24,678
Share premium	23,459	23,459	23,459
Capital redemption reserve	12,116	12,011	12,092
Capital reserves	1,072,490	1,108,187	1,016,809
Revenue reserve	27,518	29,464	33,323
Shareholders' funds	1,160,237	1,197,880	1,110,361
Net asset value per share (note 6)	1,176.5p	1,209.5p	1,124.9p

Company registration number 20537

Cash Flow Statement

for the six months ended 31st July 2012

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July	31st July	31st January
	2012	2011	2012
	£'000	£'000	£'000
Net cash inflow from operating
activities (note 7)	13,849	10,951	30,632
Net cash outflow from servicing of finance	(5,441)	(5,627)	(11,216)
Taxation recovered	8	9	30
Net cash inflow/(outflow) from capital
expenditure and financial investment	124,405	35,404	(37,962)
Dividends paid	(23,673)	(23,698)	(35,571)
Net cash outflow from financing	(1,968)	(15,000)	(16,990)
Increase/(decrease) in cash in the period	107,180	2,039	(71,077)
Reconciliation of net cash flow to movement in
net funds/debt
Increase/(decrease) in cash in the period	107,180	2,039	(71,077)
Bank loans repaid in the period	-	15,000	15,000
Exchange movements	(163)	(7)	(6)
Other movements	(48)	(48)	(97)
Changes in net funds/debt arising from
cash flows	106,969	16,984	(56,180)
Net debt at the beginning of the period	(158,647)	(102,467)	(102,467)
Net debt at the end of the period	(51,678)	(85,483)	(158,647)
Represented by:
Cash and short term deposits	125,464	91,563	18,447
Debentures falling due after more than
five years	(177,142)	(177,046)	(177,094)
Net debt	(51,678)	(85,483)	(158,647)

Notes to the Accounts

for the six months ended 31st July 2012

1.   Financial Statements

      The information contained within the accounts 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 2012 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included 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 accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommend Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

      All of the Company's operations are of a continuing nature.

      The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 31st January 2012.

3.   Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2012	31st July 2011	31st January 2012
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	-	(70)	(70)
Fourth quarterly dividend of 18.0p (2011: 18.0p)
paid to shareholders in April	17,756	17,826	17,826
First quarterly dividend of 6.0p (2011: 6.0p) paid
to shareholders in July	5,917	5,942	5,942
Second quarterly dividend of 6.0p paid to
shareholders in November	n/a	n/a	5,942
Third quarterly dividend of 6.0p paid to
shareholders in February	n/a	n/a	5,931
	23,673	23,698	35,571

      A second quarterly dividend of 6.0p (2011: 6.0p) per share, amounting to £5,917,000 (2011: £5,942,000), has been declared payable in respect of the six months ended 31st July 2012.

4.   Taxation

      The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. The tax charge comprises overseas withholding tax.

5.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2012	31st July 2011	31st January 2012
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	17,868	15,823	31,555
Capital return/(loss)	56,661	(31,511)	(119,913)
Total return/(loss)	74,529	(15,688)	(88,358)
Weighted average number of shares in issue	98,647,972	99,035,719	98,998,335
Revenue return per share	18.11p	15.98p	31.88p
Capital return/(loss) per share	57.44p	(31.82)p	(121.13)p
Total return/(loss) per share	75.55p	(15.84)p	(89.25)p

6.   Net asset value per share

      Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31st July 2012 of 98,615,719 (31st July 2011: 99,035,719 and 31st January 2012: 98,710,719).

7.   Reconciliation of net return/(loss) on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st July 2012	31st July 2011	31st January 2012
	£'000	£'000	£'000
Total return/(loss) on ordinary activities before
finance costs and taxation	80,018	(9,968)	(77,018)
Less capital (return)/loss on ordinary activities
before finance costs and taxation	(60,504)	27,549	112,006
Scrip dividends included in income	(352)	(678)	(1,440)
(Increase)/decrease in net debtors and
accrued income	(3,178)	(3,965)	196
(Decrease)/increase in accrued expenses	(448)	(68)	403
Management fee charged to capital	(1,687)	(1,897)	(3,492)
Overseas withholding tax	-	(22)	(23)
Net cash inflow from operating activities	13,849	10,951	30,632

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 has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

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.

 

END

 

 

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