Mercantile Inv Tst - Half-Year Results - Six months ended 31 July 2023
16/10/2023 09:17
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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 £463,000. 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 £3.85
million perpetual debenture and a £175 million debenture repayable on 25th
February 2030, together with £150 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
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 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 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 2023 31st July 2022 31st January 2023
£'000 £'000 £'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 ended Six months ended Year ended
31st July 2023 31st July 2022(1) 31st January 2023(1)
£'000 £'000 £'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 2023 Cash flows non-cash charges 31st July 2023
£'000 £'000 £'000 £'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 ended Six months ended Year ended
31st July 2023 31st July 2022 31st January 2023
£'000 £'000 £'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 ended Six months ended Year ended
31st July 2023 31st July 2022 31st January 2023
£'000 £'000 £'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 £11,456,000 (2023: £10,677,000) 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 £11,453,000 (2023: £10,669,000), 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
£'000 pence £'000 pence £'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 £175 million 6.125% debenture
stock 25th February 2030 174,355 22.1 174,258 22.1 174,307 22.1
Less: Fair value of £175 million 6.125% debenture
stock 25th February 2030 (189,830) (24.0) (221,403) (28.0) (201,864) (25.5)
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 (3,225) (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
£'000
£'000
£'000
£'000
£'000
£'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
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Level 3
Opening 5,080 94 5,174 5,046 94 5,140 5,046 94 5,140
balance
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
(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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