REG - Mercantile Inv Tst - Half-year Report
17/10/2024 07:00
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RNS Number : 5043I Mercantile Investment Trust(The)PLC 17 October 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
The Mercantile Investment Trust plc
(the 'Company')
Half Year Report & Accounts for the six months ended 31st July 2024
Legal Entity Identifier: 549300BGX3CJIHLP2H42
Information disclosed in accordance with DTR 4.2.2
Highlights:
The Mercantile Investment Trust plc reports strong financial performance for
the half-year ended 31st July 2024. Key financial highlights include:
· Net Asset Value (NAV) Growth: The total return on net assets with
debt at fair value increased by 17.6%, outperforming the benchmark return of
15.0%
· Share Price Performance: The share price total return rose by
25.8%, with the discount to NAV narrowing from 12.6% to 6.8%, as at 31(st)
July 2024.
· Gearing: The Company maintained a gearing level of 13.7% as at
the period end, reflecting confidence in UK mid and small cap companies.
· Dividend Growth: The Company declared a second quarterly interim
dividend of 1.50p per share, continuing its year-on-year track record of
dividend growth.
Angus Gordon Lennox, Chairman, commented:
"It is heartening to see UK equity markets benefiting from a resurgence in
interest. The Company has outperformed, returning +17.6% on net assets, ahead
of the benchmark return of +15.0%. The Board shares the Portfolio Managers'
optimism that the rebound in the UK market is set to continue in 2024 and
beyond. We also share their enthusiasm for the investment opportunities this
is generating amongst mid and small cap companies."
Guy Anderson and Anthony Lynch, Portfolio Managers, commented:
"We believe we are in the early phases of a potential market recovery, with an
improving domestic economic outlook and low valuations of UK-listed assets
providing an exciting investment opportunity. We will maintain our focus on
investing in structurally robust businesses that operate in growing end
markets and possess the ability to invest capital at attractive returns while
being able to adapt to the changing environments in which they operate. We
believe that a portfolio of companies with these characteristics offers the
best prospect of delivering compelling returns and outperformance for our
shareholders over the long-term, just as it has done in the past."
CHAIRMAN'S STATEMENT
Market Background
After a long period of being out of favour with investors both in the UK and
abroad, it is heartening to see UK equity markets benefiting from a resurgence
in interest. This recovery began in late 2023 and has since gathered momentum,
supported by several factors. Investors were relieved that the UK's economic
downturn proved shallow and brief and have welcomed mounting evidence that
activity is now strengthening, supported by real wage growth and an
improvement in business and consumer confidence. Investor sentiment has been
further supported by a steady reduction in inflation pressures, which has
given the Bank of England room to begin easing interest rates. Political
uncertainty has also abated now that the general election is behind us.
UK mid and small cap companies tend to thrive and outperform larger companies
in periods where growth is strengthening and interest rates are declining, and
true to previous form, in the six months ended 31st July 2024, this section
of the market returned +15%, outpacing UK larger capitalised companies. For
instance the FTSE100 returned +12% over the same period.
Performance
I am pleased to report that against this favourable background, your Company
has outperformed and returned +18.0% on net assets, with debt valued at par,
and +17.6% with debt at fair value over the six months to end July 2024,
ahead of the benchmark return of +15.0%.
While this recent performance is certainly pleasing, the Portfolio Managers
adopt a long-term perspective when implementing the investment strategy, so it
is more meaningful, and appropriate, to assess their performance over a longer
timeframe. On this basis, recent outperformance extends the Company's long
track record of outright gains and outperformance of the benchmark. Over the
ten years to end July 2024, it realised an annualised return of +8.5% in NAV
terms (with debt at fair value), versus a benchmark return of +6.1%.
The Investment Manager's Report below provides details of the drivers of
recent returns and portfolio changes implemented during the review period.
They also discuss the market outlook over the remainder of this year and
beyond.
Returns and Dividends
The dividend has increased for more than ten years in succession, and so I am
pleased to report that the Company has been recognised by the AIC as a next
generation dividend hero.
A first quarterly interim dividend of 1.50 pence was paid on 1st August 2024
and a second quarterly interim dividend of 1.50 pence per share has been
declared by the Board, payable on 1st November 2024 to shareholders on the
register at the close of business on 27th September 2024. This brings the
dividend for the year so far to 3.00 pence (2023: 2.90 pence). A third
quarterly interim dividend will be announced in December 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
The Company's discount to NAV at which the Company's shares trade narrowed
from 12.6% at the previous financial year end to 6.8% at the half year end, in
part due to the improvement in sentiment regarding UK equities and in listed
investment trusts more generally.
The Board believes that it is in the interest of the shareholders that the
Company's share price does not differ excessively from the underlying NAV or
at a discount to NAV significantly below its peer group, under normal market
conditions. This was the case at times during the period under review and the
Board purchased 7,256,262 shares, to be held in Treasury, at a cost of £16.1
million. These shares were purchased at an average discount to NAV of 11.9%,
producing a modest accretion to the NAV for continuing shareholders. Since the
end of the review period, the Company has purchased a further 7,950,000
shares. The discount currently stands at 12.6%
Gearing
The Company's gearing policy is to operate within the range between 10% net
cash and 20% gearing under normal market conditions. The Company ended the
six-month reporting period with gearing at 13.7% (compared to 13.4% on 31st
January 2024). This level of gearing remains a reflection of the Portfolio
Managers' confidence in the outlook for UK mid and small cap companies.
The level of portfolio gearing is regularly discussed by the Board and the
Portfolio Managers. Gearing is achieved via the use of long-dated, fixed-rate
financing, from several sources, consistent with the Board's aim to ensure
diversification of the source, tenure and cost of leverage available to the
Company. The Company has in place a £3.85 million 4.25% perpetual debenture
and a £175 million 6.125% debenture repayable on 25th February 2030, together
with £150 million of long-term debt raised in September 2021 via the issuance
of three fixed rate, senior unsecured, privately placed notes (the 'Notes').
These 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.
The Board and Succession planning
After nine years on the Board, and six years as Chairman, it is my intention
to retire at the conclusion of the AGM in May 2025. I am delighted to say that
Rachel Beagles is to be appointed as Chair at that time. Rachel has over
15 years' of experience in the investment company sector, including being
Chair of the Association of Investment Companies (the 'AIC'). She has
consistently been a thoughtful and constructive contributor to the Board and I
am confident that she will provide experienced leadership to the Company
during the years ahead.
Graham Kitchen will assume the role of Senior Independent Director following
Ms. Beagles' appointment as Chair.
Stay Informed
The Company delivers email updates on its 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, or by scanning the QR code in the Half Year
Report.
Outlook
The upturn in UK equity markets is certainly welcome. Perhaps the most
encouraging aspect of recent developments are signs that investors are finally
beginning to recognise the value that UK equities offer, both in historical
terms, and relative to other developed markets. The clearest evidence of this
is the increase in mergers and acquisition activity, driven by both corporate
buyers and private equity investors. With economic conditions brightening and
interest rates trending lower, such activity is likely to increase, providing
further underlying support for the market, and the Board shares the Portfolio
Managers' optimism that the rebound in the UK market is set to continue in
2024 and beyond. We also share their enthusiasm for the investment
opportunities this is generating amongst mid and small cap companies.
While there are always uncertainties to dampen confidence in the investment
outlook, markets have faced many unusual, unique and varied challenges over
recent years. The COVID-19 pandemic, the war in Ukraine and more recently in
the Middle East, resultant increases in energy and commodity prices, ensuing
inflation and aggressive interest rate increases all contributed to
significant levels of market volatility over recent years. The Portfolio
Managers have so far successfully navigated all these challenges, and their
track record over this period, combined with their long experience and
disciplined investment approach, leave the Board confident in their ability to
steer the portfolio through any new, unanticipated bouts of market turbulence.
We believe the Company is therefore well positioned to deliver further capital
and dividend growth to shareholders.
Thank you for your ongoing support.
Angus Gordon Lennox
Chairman
16th October 2024
PORTFOLIO MANAGERS' REPORT
Setting the scene: a change in narrative
The UK market has built further upon the early signs of recovery that we
witnessed in the final quarter of last year, with our target market of UK mid
and small cap companies (the 'Benchmark') delivering a return of 15.0% in the
first half of this financial year.
Having been a widely reviled market for some time, it was pleasing to note
some slight moderation in the narrative, as it was recognised that the
long-expected 2023 recession was not of the scale imagined by many. Indeed, UK
economic output has continued to beat market expectations throughout this year
and has been the fastest growing of the G7 economies, with many of the lead
indicators suggesting that this trend will continue. The UK election came
earlier than anticipated and has resulted in the Labour party returning to
government. While politics is rarely if ever predictable, this has the
potential to provide a more stable operating environment for the years ahead,
although we remain vigilant of the usual plethora of risks.
This combination of improving economic outlook and low valuations of UK-listed
assets provides an exciting investment opportunity - as evidenced by a flurry
of incoming bids for PLCs so far this year - but we are still in the early
phases of the potential market recovery.
Mercantile performance
Against this improving backdrop, for the six months to 31st July 2024, the
Company delivered a return on net assets of +18.0%, with debt valued at par,
and +17.6% with debt at fair value, in both cases ahead of the Benchmark's
+15.0% return. The Company's outperformance was driven by stock selection as
well as gearing, which averaged 15% over the review period, and added 230bps
to performance, net of costs. This recent run extends the Company's track
record of outperformance over the long-term. In the ten years to end July
2024, NAV rose by an annualised average of +7.9% with debt valued at par, and
+8.5% with debt at fair value, comfortably ahead of the benchmark return of
+6.1%.
Performance in this half-year was aided by our holdings in the investment
banking and brokerage services sector, with strong contributions from
longstanding and substantial positions in private equity group 3i and the
alternative asset manager Intermediate Capital, supplemented by a pleasing
performance and contribution from Alpha Group, the institutional brokerage
services provider. The portfolio also benefitted from several other high
returning investments, with four of our top 10 held contributors delivering
over 50% returns during this half-year period: the aforementioned Alpha Group;
Warpaint London, the cosmetics company; Future, the media business, and
Bloomsbury, the publisher.
Conversely, the greatest detractors from performance were in the software and
computer services sector, an area in which we have historically found success.
The key detractor was our holding in Bytes Technology, one of the UK's leading
value-added technology resellers, whose shares came under pressure following
the sudden and unexpected resignation of the CEO, as well as due to the weaker
environment for corporate demand. Our investment in Computacenter, a leading
technology services provider to large corporate and public sector
organisations, was also lacklustre as growth faltered due to this weaker
corporate demand backdrop. Of the top three detractors from relative
performance, two came from companies in which we had no holding, but which
were subject to takeover bids at substantial premia - Hargreaves Lansdown and
Darktrace. While this is frustrating, given the valuation of UK equities, we
expect that this phenomenon will continue, and can be either in our favour,
such as experienced with our holdings in Britvic and Redrow, or to our
detriment as in the above.
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 been various stock-specific changes. In total, we
have added 14 new holdings to the portfolio and exited from six. The largest
new additions include investments in Trainline, the online train ticket
retailer, Plus500, the retail trading platform operator, Volution, the
manufacturer of air ventilation products, and Britvic, the drinks supplier. As
is hopefully evident from this list, we are finding many exciting
opportunities from across the range of sectors and different types of
businesses. These purchases were partly funded with reductions in position
sizes in Tate & Lyle, the ingredient supplier, and Bytes Technology, as
well as exits from investments in Direct Line, the insurance provider, and
Howden Joinery, the UK's leading supplier of fitted kitchens and now a FTSE100
company.
Outlook for the coming months
There are valid concerns around the outlook for global economic growth, with
pockets of weakness evident that must not be overlooked. Furthermore,
geopolitics has the potential to generate unanticipated shocks at any time,
and while this has always been the case, we must manage these the best we can.
Despite this, there is cause for more optimism on the domestic front. The UK
economy has returned to a path of modest growth, which has the potential to
accelerate given the improving health of the UK consumer, supported by robust
wage growth and normalising inflation, combined with strongly recovering
consumer and business confidence. Absent any unwanted shocks from the upcoming
budget, this building economic momentum is likely to be further aided by
monetary easing, with the Bank of England recently cutting interest rates for
the first time in over four years.
Despite the encouraging first half of the year, the valuation of the UK market
remains at a steep discount to both its own history and relative to other
developed markets - a fact that has not gone unnoticed, as we have seen a
pick-up in the number of acquisitions by corporate buyers, while the volume of
share buybacks being executed by management teams has also soared.
As stated earlier, we believe that we are in the early phases of the potential
market recovery, with an improving domestic economic outlook combined with low
valuations of UK-listed assets providing an exciting investment opportunity.
These factors, alongside the generally strong financial performance being
delivered by our portfolio companies and the breadth of new investment ideas,
are the key drivers behind our current elevated level of gearing, sitting at
around 15%.
Looking ahead, we will maintain our focus on investing in structurally robust
businesses that operate in growing end markets and possess the ability to
invest capital at attractive returns while being able to adapt to the changing
environments in which they operate. We believe that a portfolio of companies
with these characteristics offers the best prospect of delivering compelling
returns and outperformance for our shareholders over the long-term, just as it
has done in the past.
Guy Anderson
Anthony Lynch
Portfolio Managers
16th October 2024
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 include, but are
not limited to, investment under-performance, geopolitical instability, cyber
crime, discount control, legal and regulatory change, corporate strategy and
mid and small cap company investment (liquidity risk). Information on each of
these is given in the Strategic Report within the Annual Report and Financial
Statements for the year ended 31st January 2024.
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review.
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 2024 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 2024
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2024 31st July 2023 31st January 2024
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 - 293,772 293,772 - (43,465) (43,465) - 18,706 18,706
Net foreign currency gains - 39 39 - 1 1 - 2 2
Income from investments 45,420 - 45,420 43,140 - 43,140 73,269 - 73,269
Interest receivable and similar
income 802 - 802 3,017 - 3,017 5,717 - 5,717
Gross return/(loss) 46,222 293,811 340,033 46,157 (43,464) 2,693 78,986 18,708 97,694
Management fee (1,156) (2,699) (3,855) (1,042) (2,430) (3,472) (2,071) (4,832) (6,903)
Other administrative expenses (768) - (768) (785) - (785) (1,536) - (1,536)
Net return/(loss) before
finance costs and taxation 44,298 291,112 335,410 44,330 (45,894) (1,564) 75,379 13,876 89,255
Finance costs (2,086) (4,864) (6,950) (2,088) (4,873) (6,961) (4,172) (9,734) (13,906)
Net return/(loss) before
taxation 42,212 286,248 328,460 42,242 (50,767) (8,525) 71,207 4,142 75,349
Taxation (note 3) (558) - (558) (154) - (154) (141) - (141)
Net return/(loss) after taxation 41,654 286,248 327,902 42,088 (50,767) (8,679) 71,066 4,142 75,208
Return/(loss) per share (note 4) 5.36p 36.86p 42.22p 5.33p (6.43)p (1.10)p 9.01p 0.53p 9.54p
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
period/year and also the total comprehensive income per share.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Called up Capital
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
£'000 £'000 £'000 £'000 £'000 £'000
Six months ended 31st July 2024 (Unaudited)
At 31st January 2024 23,612 23,459 13,158 1,729,199 76,191 1,865,619
Repurchase of shares into Treasury - - - (16,148) - (16,148)
Proceeds from share forfeiture(2) - - - 616 - 616
Net return - - - 286,248 41,654 327,902
Dividends paid in the period (note 5) - - - - (37,254) (37,254)
Forfeiture of unclaimed dividends(2) (note 5) - - - - 276 276
At 31st July 2024 23,612 23,459 13,158 1,999,915 80,867 2,141,011
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 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
Year ended 31st January 2024 (Audited)
At 31st January 2023 23,612 23,459 13,158 1,741,531 63,916 1,865,676
Repurchase of shares into Treasury - - - (16,474) - (16,474)
Net (loss)/return - - - 4,142 71,066 75,208
Dividends paid in the year (note 5) - - - - (58,791) (58,791)
At 31st January 2024 23,612 23,459 13,158 1,729,199 76,191 1,865,619
(1) These reserves form the distributable reserves of the Company and
can be used to fund distributions to investors via dividend payments.
(2) During the period, the Company undertook an Asset Reunification
Programme to reunite inactive shareholders with their shares and unclaimed
dividends. Pursuant to the Company's Articles of Association, the Company has
exercised its right to reclaim the shares of shareholders whom the Company,
through its previous Registrar, has been unable to locate for a period of 12
years or more. These forfeited shares were sold in the open market by the
Registrar and the proceeds, net of costs, were returned to the Company. In
addition, any unclaimed dividends older than 12 years from the date of payment
of such dividends were also forfeited and returned to the Company.
CONDENSED STATEMENT OF FINANCIAL POSITION
(Unaudited) (Unaudited) (Audited)
31st July 2024 31st July 2023 31st January 2024
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 2,434,904 2,025,766 2,115,714
Current assets
Debtors 12,362 20,692 7,557
Cash and cash equivalents 32,018 114,135 89,530
44,380 134,827 97,087
Current liabilities
Creditors: amounts falling due within one year (10,286) (12,119) (19,248)
Net current assets 34,094 122,708 77,839
Total assets less current liabilities 2,468,998 2,148,474 2,193,553
Creditors: amounts falling due after more than one year (327,987) (327,889) (327,934)
Net assets 2,141,011 1,820,585 1,865,619
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 1,999,915 1,690,301 1,729,199
Revenue reserve 80,867 70,055 76,191
Total shareholders' funds 2,141,011 1,820,585 1,865,619
Net asset value per share (note 6) 276.3p 230.5p 238.6p
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2024 31st July 2023 31st January 2024
£'000 £'000 £'000
Cash flows from operating activities
Net return/(loss) before finance costs and taxation 335,410 (1,564) 89,255
Adjustment for:
Net (gains)/losses on investments held at fair value through
profit or loss (293,772) 43,465 (18,706)
Net foreign currency gains (39) (1) (2)
Dividend income (45,420) (43,140) (73,269)
Interest income (802) (3,017) (5,717)
Realised loss on foreign exchange transactions - 2 2
(Increase)/decrease in accrued income and other debtors (46) 44 36
Increase in accrued expenses 2 71 116
Net cash outflow from operations before dividends and interest (4,667) (4,140) (8,285)
Dividends received 40,382 36,503 72,142
Interest received 802 3,017 5,717
Overseas withholding tax recovered 161 55 129
Net cash inflow from operating activities 36,678 35,435 69,703
Purchases of investments (257,266) (202,081) (428,193)
Sales of investments 223,137 166,486 378,822
Net cash outflow from investing activities (34,129) (35,595) (49,371)
Equity dividends paid (37,254) (35,949) (58,791)
Forfeiture of unclaimed dividends(1) (note 5) 276 - -
Repurchase of shares into Treasury (16,802) (462) (15,819)
Proceeds from share forfeiture(1) 616 - -
Loan interest paid (6,897) (6,900) (13,798)
Net cash outflow from financing activities (60,061) (43,311) (88,408)
Decrease in cash and cash equivalents (57,512) (43,471) (68,076)
Cash and cash equivalents at start of period/year 89,530 157,606 157,606
Cash and cash equivalents at end of period/year 32,018 114,135 89,530
Cash and cash equivalents consist of:
Cash and short term deposits 250 252 351
Cash held in JPMorgan GBP Liquidity Fund 31,768 113,883 89,179
Total 32,018 114,135 89,530
(1) During the period, the Company undertook an Asset Reunification
Programme to reunite inactive shareholders with their shares and unclaimed
dividends. Pursuant to the Company's Articles of Association, the Company has
exercised its right to reclaim the shares of shareholders whom the Company,
through its previous Registrar, has been unable to locate for a period of 12
years or more. These forfeited shares were sold in the open market by the
Registrar and the proceeds, net of costs, were returned to the Company. In
addition, any unclaimed dividends older than 12 years from the date of payment
of such dividends were also forfeited and returned to the Company.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the six months ended 31st July 2024
1. Financial statements
The information contained within these condensed 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 2024 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 2024.
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 2024.
3. Taxation
The Company's effective corporation tax rate is 25%, however as the current
period deductible expenses exceed taxable income, no income tax is payable.
Furthermore, the Company does not pay tax on capital gains due to its status
as an investment trust company. The tax charge recognised in the period
comprises overseas withholding tax.
4. Return/(loss) per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2024 31st July 2023 31st January 2024
£'000 £'000 £'000
Return/(loss) per share is based on the following:
Revenue return 41,654 42,088 71,066
Capital return/(loss) 286,248 (50,767) 4,142
Total return/(loss) 327,902 (8,679) 75,208
Weighted average number of shares in issue 776,683,471 790,059,889 788,846,061
Revenue return per share 5.36p 5.33p 9.01p
Capital return/(loss) per share 36.86p (6.43)p 0.53p
Total return/(loss) per share 42.22p (1.10)p 9.54p
5. Dividends paid
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2024 31st July 2023 31st January 2024
Pence £'000 Pence £'000 Pence £'000
Dividend paid
Fourth quarterly dividend paid to shareholders in May 3.30 25,626 3.10 24,493 3.10 24,493
First quarterly dividend paid to shareholders in August(1) 1.50 11,628 1.45 11,456 1.45 11,456
Second quarterly dividend paid to shareholders in November n/a - n/a - 1.45 11,451
Third quarterly dividend paid to shareholders in February(1) n/a - n/a - 1.45 11,391
Total dividends paid in the period 4.80 37,254 4.55 35,949 7.45 58,791
Forfeiture of unclaimed dividends over 12 years old(2) (276) - -
Net dividends paid in the period 36,978 35,949 58,791
(1 ) The Company irrevocably transfers the funds to its Registrar
in the month prior to which the dividend is paid to shareholders.
(2 ) The unclaimed dividends were forfeited following an
extensive exercise which attempted to reunite the dividends with owners.
All dividends paid in the period/year have been funded from the revenue
reserve.
The first 2025 quarterly dividend of 1.50p (2024: 1.45p) per share, amounting
to £11,628,000 (2024: £11,456,000) was paid on 1st August 2024 in respect
of the six months ended 31st July 2024.
A second 2025 quarterly dividend of 1.50p (2024: 1.45p) per share, amounting
to £11,622,000 (2024: £11,451,000), has been declared payable in respect of
the six months ended 31st July 2024.
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 774,800,303 (July 2023: 789,845,662; January 2024:
782,056,565) 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 2024 31st July 2023 31st January 2024
Net asset value Net asset value Net asset value
attributable attributable attributable
£'000 pence £'000 pence £'000 pence
Net asset value - debt at par 2,141,011 276.3 1,820,585 230.5 1,865,619 238.6
Add: amortised cost of £175 million 6.125% debenture stock 25th February 2030 174,452 22.5 174,355 22.1 174,404 22.3
Less: Fair value of £175 million 6.125% debenture stock 25th February 2030 (191,929) (24.8) (189,830) (24.0) (193,665) (24.7)
Add: amortised cost of £3.85 million 4.25% perpetual debenture stock 3,850 0.5 3,850 0.5 3,850 0.5
Less: fair value of £3.85 million 4.25% perpetual debenture stock (3,119) (0.4) (3,225) (0.4) (3,150) (0.4)
Add: amortised cost of senior unsecured privately placed loan notes 149,685 19.3 149,684 18.9 149,680 19.1
Less: fair value of senior unsecured privately placed loan notes (83,341) (10.7) (82,592) (10.5) (82,601) (10.6)
Net asset value - debt at fair value 2,190,609 282.7 1,872,827 237.1 1,914,137 244.8
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 2024 31st July 2023 31st January 2024
Assets Liabilities Assets Liabilities Assets Liabilities
£'000 £'000 £'000 £'000 £'000 £'000
Level 1 2,428,522 - 2,019,556 - 2,109,504 -
Level 3(1) 6,382 - 6,210 - 6,210 -
Total 2,434,904 - 2,025,766 - 2,115,714 -
(1) Consists only of holdings in Tennants Consolidated Limited
(ordinary shares, A shares and preference shares) unquoted stocks, which are
still held as at 31st July 2024.
A reconciliation of the fair value measurements using valuation techniques
using non-observable data (Level 3) is set out below.
Six month ended Six month ended Year ended
31st July 2024 (Unaudited) 31st July 2023 (Unaudited) 31st January 2024 (Audited)
Fixed Fixed Fixed
Equity Interest Equity Interest Equity Interest
Investments Investment Total Investments Investment Total Investments Investment Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Level 3
Opening balance 6,116 94 6,210 5,080 94 5,174 5,080 94 5,174
Change in fair value
of unquoted
investment during
the period/year 172 - 172 1,036 - 1,036 1,036 - 1,036
Closing balance 6,288 94 6,382 6,116 94 6,210 6,116 94 6,210
8. Analysis of changes in net debt
Interest and
As at amortisation As at
31st January 2024 Cash flows charges 31st July 2024
£'000 £'000 £'000 £'000
Cash 351 (101) - 250
Cash held in JPMorgan GBP Liquidity Fund 89,179 (57,411) - 31,768
89,530 (57,512) - 32,018
Borrowings
Debentures falling due after more than
five years (178,254) 5,442 (5,490) (178,302)
Private Placement due after more than
five years (149,680) 1,455 (1,460) (149,685)
(327,934) 6,897 (6,950) (327,987)
Total net debt (238,404) (50,615) (6,950) (295,969)
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 FUNDS LIMITED
For further information, please contact:
Divya Amin / Sachu Saji
For and on behalf of
JPMorgan Funds Limited
Telephone: 0800 20 40 20 or +44 1268 44 44 70
ENDS
A copy of the Half Year Report 2024 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
(https://secureweb.jpmchase.net/readonly/https:/lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDIsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMDA0MDUuMTk3NzA4MDEiLCJ1cmwiOiJodHRwczovL2RhdGEuZmNhLm9yZy51ay8jL25zbS9uYXRpb25hbHN0b3JhZ2VtZWNoYW5pc20ifQ.b7Q7NXHGRA8MjB_Ugl8Tv4JxhiU28TbcoNb04FTTMiY/br/77057565556-l)
The half year will also shortly be available on the Company's website at
www.mercantileit.co.uk (http://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.
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