Final Results
05/04/2023 07:00
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RNS Number : 3938V Merchants Trust PLC 05 April 2023
THE MERCHANTS TRUST PLC
Final Results for the year ended 31 January 2023
The following comprises extracts from the company's Annual Report for the year
ended 31 January 2023. The full Annual Report is being made available to be
viewed on or downloaded from the company's website at www.merchantstrust.co.uk
(http://www.merchantstrust.co.uk) . Copies will be posted to shareholders
shortly.
MANAGEMENT REPORT
Chairman's Statement
Dear Shareholder
Another positive year against a difficult backdrop
In a year when the macro-economic and geopolitical landscapes have been very
challenging it is comforting to be able to write to shareholders with positive
news of Merchants. We are therefore pleased to report that the Merchants has
continued to deliver for our shareholders, both in terms of a rising dividend
and also capital return.
Merchants' NAV total return for the period was 7.9% which was well ahead of
our benchmark index (the FTSE All-Share index) return of 5.2%. Merchants was
also second in its peer group (a group of twenty one Investment Trusts with
similar objectives) over the year to 31 January 2023, reflecting a strong
comparative year for the underlying investment strategy.
Merchants also traded close to NAV or at a small premium for much of the
period under review, reflecting investor demand as a result of resilient
portfolio performance and strong NAV performance against the benchmark.
2022 in general was a year where positive returns for investors were difficult
to achieve as most equity and bond indices were down. Many listed closed-end
funds found their discounts widening considerably as investor's risk appetite
dropped overall. Indeed during 2022 collective investment vehicles under the
umbrella of UK Equity Income have continued to be out of favour with
investors, with some £1.5bn outflows from open-ended funds in the Investment
Association UK Equity Income sector over the 12 months to 31 January 2023.
Merchants' performance also remains strong over the longer term, reflecting
our consistent strategy and Merchants was also number two in the peer group
over three and five years (as at 31 January 2023).
With the proposed final dividend for the financial year, we will achieve our
41st consecutive year of dividend increases, continuing our focus on striving
to provide a high and rising income for shareholders.
Portfolio income
Shareholders will recall there was a sharp fall in dividends paid by companies
during 2020 because of the difficult economic environment caused by the Covid
pandemic. 2021 showed some signs of recovery and 2022 has continued this
improving trend. While levels have not necessarily recovered to pre-pandemic
levels across the board due to some companies permanently rebasing their
dividend payments to lower levels, we are pleased to report that the recovery
in Merchants earnings from dividends is such that in the 2023 financial year
we have returned to fully covering our own dividend payment. We will therefore
not need to utilise any revenue reserve this year to pay our own dividend to
Merchants' shareholders.
Further details are given in the Investment Management Report on pages •
of the Annual Report. The portfolio revenue earnings per share (EPS) for the
year were up 12% over the corresponding period last year to 28.7p (2022:
25.6p). Revenue reserves per share at the end of the period stood at 16.3p
(2022: 16.0p).
Dividend to shareholders
The board recognises the importance of a growing dividend to shareholders in
line with our objectives. Inflation also remains high which makes a reliable
income stream a priority for many. As noted above the board proposes a 41st
year of consecutive dividend increases and this track record of providing a
reliable and rising income is, we believe, one of the major attractions of our
shares to investors.
We propose a final quarterly dividend for shareholder approval of 7.0p which
means for the full year to January 2023 an increased dividend of 27.6p (2022:
27.3p). The annualised growth rate of the dividend paid by the trust over 41
years stands at 6.6%, well above the rate of inflation over that period which
stands at 3.5% annually as measured by the Consumer Prices Index (CPI). We are
very pleased to retain our AIC Dividend Hero status and continue to provide
one of the highest dividend yields in our peer group as part of an attractive
overall total return for investors.
Subject to a shareholder vote at our AGM on 18 May a final dividend will be
payable on 26 May 2023 to shareholders on the register at close of business on
21 April 2023. A Dividend Reinvestment Plan ('DRIP') is available for this
dividend for which the relevant Election Date is 5 May 2023 and the
ex-dividend date is 20 April 2023.
Issuance of new shares
Merchants' shares traded at a premium for much of the year and during that
time we were able to issue 12.4m new shares, worth £69.3m. The table on page
8 of the Annual Report gives details of the benefits to shareholders and shows
how Merchants has issued new shares over the past four years.
Fundamentals return (somewhat) to the fore
In some senses 2022 was a turning point for the global economy and for
markets. Since the Global Financial Crisis in 2008 interest rates had remained
exceptionally low, central banks had maintained an easing stance and since
prior to that time, inflation remained low. Much of this changed in 2022 as
inflation returned, partly due to the sharp recovery in economic activity post
pandemic and partly as a consequence of Russia's invasion of Ukraine. As
inflation rose, central banks responded by unwinding a decade-long
quantitative easing programmes and raised interest rates to calm heated
economies.
Rising interest rates had an immediate mathematical effect on the discount
rate used to value future cash flows of companies. Consequently, many Growth
stocks with lower near-term earnings but high valuations fell and, in some
cases, fell dramatically. Having had a stellar decade, Growth stocks had the
furthest to fall and strategies focused solely on high growth stocks struggled
to contain losses. By contrast companies with visible near-term cash flows and
lower valuations (Value stocks) were back in fashion and there was a welcome
boost to some stocks which had been languishing, in many cases in spite of
strong business models and robust cash flows.
A feature of this type of change in sentiment was that markets were extremely
sensitive to news flow and reacted sometimes more on emotion than on rigorous
analysis. A by-product of this environment is that on occasion markets
misprice stocks and that can provide an opportunity for a fundamental
research-based investor such as AllianzGI, the managers of the Merchants
portfolio. Indeed, the fall from grace of some Growth stocks has meant they
have come onto our manager's radar as their valuations become more reasonable.
As he often states, our manager largely eschews the simplistic notion of
Growth vs Value, but rather concentrates on aiming to own the best companies
whilst not overpaying for them.
The UK performs better
The UK itself has had a slightly tumultuous year full of changes with a new
monarch and three prime ministers in close succession, an emerging cost of
living crisis and a winter characterised by strike action across many sectors.
The stock market however fared slightly better.
Against largely lacklustre global stock market returns, the UK was for once a
relative bright spot, with the FTSE All-Share outperforming major global
indices such as the NASDAQ, the S&P500, the MSCI World Index and the FTSE
World ex UK Index. It is perhaps surprising therefore that investors in
collective investment vehicles have in aggregate reduced their exposure to the
UK. The fact that Merchants' shares have remained in demand and at a modest
premium to net asset value is a strong endorsement of our strategy and
performance. Taking advantage of this demand from investors, we have issued
12.4m shares in the year to 31 January 2023 (2022: 6.7m) 9.7% of our share
capital. This issuance was amongst the largest in peer group over the calendar
year and is to the benefit of all shareholders because the fixed costs of
managing and administering the trust is now spread over a wider base, NAV is
enhanced due to shares only being issued at a premium to NAV and the liquidity
in the company's shares is improved. More details are provided in the chart on
page 9 of the Annual Report of the shares issued over the past financial
years.
Environmental, Social & Governance
Consideration ESG factors by investors continues to be a rapidly developing
field, which is to be welcomed. As we have mentioned in previous shareholder
letters it is still a relatively new area for investors and it can be an
incredibly complex landscape with its own language and metrics and sometimes
conflicting narratives. Your board continues a robust dialogue with the
manager AllianzGI about its approach and the part ESG factors play in
research, portfolio construction and voting. We remain confident that our
manager is at the forefront of this important area of investing.
As we have outlined before, Merchants does not exclude sectors on
sustainability grounds, however consideration of ESG risks is an inherent part
of the investment process as is engagement and proxy voting. This year we have
addressed climate risks and opportunities in a discussion between AllianzGI's
Head of Sustainability Research and Stewardship in the UK, Mark Wade, and
Audit Committee Chair, Timon Drakesmith. This narrative follows the framework
of the Taskforce on Climate-related Financial Disclosures (TCFD) reporting and
can be found on page 33 of the Annual Report.
Strategy
As part of an annual process, your board once again met this year to discuss
the strategic direction of the company. In addition to a review of our
manager's long term philosophy and style of investing, our long-term
performance and our ESG approach, a key focus was on our relationship with our
shareholders and the fact that an increasingly large portion of our
shareholders are now investing through platforms rather than direct or through
discretionary third party managers. Your board continues to believe that clear
and informative communications with our shareholders is of paramount
importance, and we will continue to give it the highest priority.
Gearing continues to be utilised. In November the board drew down the
remainder of Merchants' revolving credit facility (RCF) to take gearing back
up to 15%. This was as a result of the manager's view on current opportunities
and general valuation level of the market. We remain comfortable with the
current level of gearing (13.5% as at 31 January 2023) with the level still
falling well within the bounds of our stated policy range of 10 - 25%.
Board
Whereas there have been no changes to the board to report over the period, the
board has been discussing industry guidelines regarding board membership,
diversity and inclusion and the range of the board's skills and experiences
when considering succession planning for the next few years.
Awards
We are proud to report that over the year Merchants received three industry
awards. In the first half of the year we received, for the third year in a
row, the AIC's best Report & Accounts (Generalist) in their Shareholder
Communications Awards. A large amount of work from the board and the manager
goes into producing this document. We aim to ensure that reporting is
considered, appropriate and informative for shareholders and were pleased
therefore to receive this award once again.
In the latter part of the year Merchants received the Winner's award in the UK
Equity Income category of Citywire's 2022 Investment Trust Awards. We were
also nominated in Investment Week's Investment Company of the Year Awards in
the UK Equity Income category. Although we did not win that award, the judges
awarded a 'Highly Commended' recognition which we were also proud to receive.
Alternative Investment Fund Manager
We noted last year that Allianz Global Investors was pursuing an FCA
authorisation for AllianzGI UK as a UK entity and we are pleased to report on
their behalf that the authorisation was granted during the period. The
company's Alternative Investment Fund Manager (AIFM) will therefore become
AllianzGI UK Limited in May 2023 and we continue to view this as being in the
best interests of Merchants shareholders. There will be no change to the
investment process, strategy or the teams involved with managing Merchants.
Annual General Meeting
Last year we were pleased to be able to return to holding a physical AGM and
to welcome shareholders back in person. 2023 will once again be a physical
event with the AGM being held at Grocers' Hall on Thursday 18 May and full
details can be found in the notice of meeting on page 119 of the Annual
Report.
I would like to take the opportunity to remind shareholders that you have the
right to vote on important matters that affect Merchants, such as the proposed
renewal of share issuance authorities and the appointment of directors. It is
an important aspect of an investment trust that shareholders can and are
encouraged to make their voices heard by voting on all business matters, as
detailed in this report. We continue to be pleased to see moves in the
investment platform industry to democratise shareholder access for nominee
holders with information being made more readily available by platforms to
shareholders when companies have votes open and giving the ability for
shareholders to participate in those votes. This past year in December, one of
the largest platforms, Hargreaves Lansdown, joined Interactive Investor in
offering an online voting service for its clients.
Should you be a Merchants shareholder through a platform which offers the
opportunity to vote then we encourage you to take advantage of those
arrangements for casting your votes and thus having your say in the running of
your company.
Outlook
At the time I wrote to shareholders last year, the situation in Ukraine was
rapidly unfolding and the world was coming to terms with the implications,
though collectively we all hoped there would be a rapid end on the horizon.
Unfortunately, over a year on, that hasn't proved to be the case and the
conflict continues. Closer to home we also continue to grapple with the
effects of inflation and associated strain on the cost of living. The world
certainly continues to be unsettled and as investors, our task is to try to
find an effective way to navigate this backdrop.
It is not easy to give any robust predictions on what direction the economy
might take or for that matter what short term challenges may arise, or what
geopolitical issues the coming year may have in store. Whilst the issue
appears to be contained, shareholders will be aware that during the first
quarter of the current financial year the banking sector has come under
pressure due to the collapse of Silicon Valley Bank in the USA and the
takeover of Credit Suisse by UBS. Our investment manager gives a timely
reminder in his investment review, though, that concentration on this type of
issue is not the key focus in the investment process. Rather the concentration
is on finding sound companies with attractive business models and to
understand how those business models might react under different macroeconomic
scenarios. As noted, sentiment-driven market volatility can be a good source
of opportunity for the dedicated stock picker and a genuinely long-term
investor needs to have the (not easy) skill of looking through short term pain
to the potential of the mid- to long-term, whilst understanding where the
risks lie to that potential for each individual business model.
Valuations in the UK market ultimately remain low compared to their own
history and relative to other markets, giving our investment manager added
confidence in the potential for generating long-term returns for Merchants
shareholders. While Merchants' investment strategy is not dependent on any
outperformance of the 'value' investment style, should we see structurally
higher interest rates persisting over the coming year, that should provide a
welcome tailwind for the portfolio as investors will continue to favour
nearer-term tangible cash flows from companies over future potential cash
flows from higher growth companies.
The board thanks our investment manager for presiding over another positive
year for shareholders, while having a firm view out to the future and a
staunch focus on maintaining Merchants' tried and tested investment approach.
Colin Clark
Chairman
4 April 2023
Risk policy
The board operates a risk management policy to ensure that the level of risk
taken in pursuit of the board's objectives and in implementing its strategy is
understood. The principal risks identified by the board are listed below,
together with the actions taken to mitigate them, and set out in the Risk Map
on page 57 of the Annual Report.
A more detailed version of the chart is reviewed and updated by the audit
committee at least twice yearly. This sets out risk types, key risks
identified and their status, the controls and mitigation in place to address
these risks, together with the evidence of controls and gives an assessment of
the risk using a traffic-light system, as shown at the bottom of the chart, to
confirm the outcome of the assessment of the risk.
The board has carried out a robust assessment of the principal and emerging
risks facing the company, including those that would threaten its business
model, future performance, solvency or liquidity and emerging risks and how
they monitor and manage them and disclose them in the annual report. The
process by which the directors monitor risk is described in the Audit
Committee Report on page 81 of the Annual Report.
Principal risks
The principal risks are now considered to be emerging risks, followed by the
risks of market decline. During the year these risks had eased but they have
now become the major risks faced and so have held their position in the risk
map, with emerging risks now seen as likely to have a higher impact. Those
identified as having the highest impact and the greatest likelihood are the
following:
· Emerging risks, such as significant geopolitical risks and virus
variant threats.
Some principal risks have been assessed as being as likely to occur as last
year.
· Market decline adversely affecting investments and returns.
· Investment strategy: for example, asset allocation or the level
of gearing may lead to a failure to meet the company's objectives, such as
income generation and dividend growth.
· Investment performance: for example, poor stock selection for the
portfolio leads to decline in the rating and attraction of the company.
Risk appetite
The board identifies risks, considers controls and mitigation, the probability
of the event, and assesses residual risk. It then evaluates whether its risk
appetite is satisfied. The board confirms for the year ended 31 January 2023
that its assessment of risk is in line with its risk appetite for all key
risks.
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice including FRS 102 "The Financial Reporting Standard applicable in the
UK and Republic of Ireland" (United Kingdom Accounting Standards and
applicable law). Under company law the directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the company and of the profit of the company
for that period. In preparing these financial statements, the directors are
required to:
- select suitable accounting policies and then apply them
consistently;
- state whether applicable UK Accounting Standards have been
followed, comprising FRS 102, subject to any material departures disclosed and
explained in the financial statements;
- make judgements and accounting estimates that are reasonable and
prudent; and
- prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in business.
The directors confirm that they have complied with the above requirements in
preparing the financial statements.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The directors each have a duty to make themselves aware of any "relevant audit
information" and ensure that the auditors have been made aware of that
information. A disclosure stating that each director has complied with that
duty is given in the Directors' Report on page 68 of the Annual Report.
The directors are responsible for ensuring that the Annual Report, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the company's position and performance,
business model and strategy.
The financial statements are published on www.merchantstrust.co.uk, which is a
website maintained by the company's investment manager, AllianzGI. The
directors are responsible for the maintenance and integrity of the company's
website. The work undertaken by the auditors does not involve consideration of
the maintenance and integrity of the website and, accordingly, the auditors
accept no responsibility for any changes that have occurred to the financial
statements since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Statement under Disclosure and Transparency Rule 4.1.12
The directors at the date of approval of this report, each confirm to the best
of their knowledge that:
- the financial statements, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the company;
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the company, together with a
description of the principal risks and uncertainties that they face; and
- the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the company's position and performance, business model
and strategy.
For and on behalf of the board
Colin Clark
Chairman
4 April 2023
LISTED EQUITY HOLDINGS as at 31 January 2023
% of listed
Name Value (£'000) holdings Principal Activities
Shell 39,487 4.3 Oil, Gas & Coal
Rio Tinto 34,755 3.8 Industrial Metals & Mining
GSK 33,598 3.7 Pharmaceuticals And Biotechnology
British American Tobacco 32,038 3.5 Tobacco
BP 30,883 3.4 Oil, Gas & Coal
Imperial Brands 30,668 3.4 Tobacco
DCC 29,926 3.3 Industrial Support Services
IG Group 25,287 2.8 Investment Banking & Brokerage
SSE 24,905 2.7 Electricity
WPP 24,052 2.6 Media
Top Ten Holdings 305,599 33.5
St. James's Place 23,636 2.6 Investment Banking & Brokerage
Tate & Lyle 23,611 2.6 Food Producers
CRH 23,084 2.5 Construction & Materials
Unilever 21,816 2.4 Personal Care, Drug And Grocer
Redrow 21,611 2.4 Household Goods & Home Construction
BAE Systems 21,200 2.3 Aerospace & Defence
Barclays 20,535 2.3 Banks
Next 19,523 2.1 Retailers
Landsec 18,923 2.1 Real Estate Investment Trusts
Grafton Group 18,554 2.0 Industrial Support Services
Tesco 17,705 1.9 Personal Care, Drug & Grocery Stores
National Grid 16,144 1.8 Gas, Water & Multiutilities
Natwest 16,473 1.8 Banks
Energean 16,063 1.8 Oil, Gas And Coal
Man Group 16,031 1.8 Investment Banking & Brokerage
Legal & General 15,240 1.7 Life Insurance
Pets At Home Group 14,792 1.6 Retailers
PZ Cussons 13,888 1.5 Personal Care, Drug & Grocery Stores
Bellway 13,809 1.5 Household Goods & Home Construction
SThree 13,707 1.5 Industrial Support Services
Haleon 13,294 1.5 Pharmaceuticals And Biotechnology
Close Brothers Group 13,130 1.4 Banks
Morgan Advanced 13,094 1.4 Electronic & Electrical Equipment
Keller 12,935 1.4 Construction & Materials
Swiss Re 12,837 1.4 Non-Life Insurance
Tyman 12,815 1.4 Construction & Materials
Drax Group 12,469 1.4 Electricity
Conduit Holdings 11,883 1.3 Non-Life Insurance
Bayerische Motoren Werke 11,756 1.3 Automobiles And Parts
Entain 11,680 1.3 Travel & Leisure
Admiral Group 11,453 1.3 Non-Life Insurance
OSB Group 11,319 1.2 Finance And Credit Services
Sanofi 11,075 1.2 Pharmaceuticals & Biotechnology
National Express Group 10,322 1.1 Travel & Leisure
Diversified Energy Company 10,074 1.1 Oil, Gas & Coal
Vodafone Group 9,721 1.1 Telecommunications Service Providers
SCOR 9,578 1.1 Non-Life Insurance
CLS Holdings 8,645 1.0 Real Estate Investment And Services
DFS Furniture 8,436 0.9 Retailers
Norcros 6,262 0.7 Construction & Materials
Ashmore Group 5,683 0.6 Investment Banking & Brokerage
Atalaya Mining 5,305 0.8 Precious Metals And Mining
Duke Royalty 3,928 0.4 Investment Banking & Brokerage
Total Listed Equities 909,638 100.0
Written Call Options
As at 31 January 2023, the market value of the open option positions was
£(20,000) (2022: £(615,000)), resulting in an underlying exposure to 2.5% of
the portfolio (valued at strike price).
INCOME STATEMENT
for the year ended 31 January 2023
Revenue Capital Total Return
£'000s £'000s £'000s
Note C
Gains on investments held at fair value through profit or loss - 6,037 6,037
Losses on foreign currencies - (64) (64)
Income 42,821 - 42,821
Investment management fee (1,031) (1,915) (2,946)
Administration expenses (1,171) (3) (1,174)
Profit before finance costs and taxation 40,619 4,055 44,674
Finance costs: interest payable and similar charges (1,388) (2,495) (3,883)
Profit on ordinary activities before taxation 39,231 1,560 40,791
Taxation (605) - (605)
Profit after taxation attributable to ordinary shareholders 38,626 1,560 40,186
Earnings per ordinary share (basic and diluted) 28.70p 1.16p 29.86p
BALANCE SHEET
at 31 January 2023
£'000s £'000s
Fixed assets
Investments held at fair value through profit or loss 909,638
Current assets
Other receivables 1,899
Cash and cash equivalents 11,465
13,364
Current liabilities
Other payables (43,798)
Derivative financial instruments (20)
(43,818)
Net current liabilities (30,454)
Total assets less current liabilities 879,184
Creditors: amounts falling due after more than one year (66,809)
Total net assets 812,375
Capital and Reserves
Called up share capital 35,034
Share premium account 184,239
Capital redemption reserve 293
Capital reserve 569,912
Revenue reserve 22,897
Equity shareholders' funds 812,375
Net asset value per ordinary share 579.7p
INCOME STATEMENT
for the year ended 31 January 2022
Revenue Capital Total Return
£'000s £'000s £'000s
Note C
Gains on investments held at fair value through profit or loss - 154,247 154,247
(Losses) on foreign currencies - (2) (2)
Income 35,292 - 35,292
Investment management fee (931) (1,728) (2,659)
Administration expenses (933) (2) (935)
Profit before finance costs and taxation 33,428 152,515 185,943
Finance costs: interest payable and similar charges (1,183) (2,102) (3,285)
Profit on ordinary activities before taxation 32,245 150,413 182,658
Taxation (410) - (410)
Profit after taxation attributable to ordinary shareholders 31,835 150,413 182,248
Earnings per ordinary share (basic and diluted) 25.64p 121.15p 146.79p
BALANCE SHEET
at 31 January 2022
£'000s £'000s
Fixed assets
Investments held at fair value through profit or loss 814,895
Current assets
Other receivables 2,993
Cash and cash equivalents 18,626
21,619
Current liabilities
Other payables (30,095)
Derivative financial instruments (615)
(30,710)
Net current liabilities (9,091)
Total assets less current liabilities 805,804
Creditors: amounts falling due after more than one year (66,754)
Total net assets 739,050
Capital and Reserves
Called up share capital 31,926
Share premium account 118,047
Capital redemption reserve 293
Capital reserve 568,352
Revenue reserve 20,432
Equity shareholders' funds 739,050
Net asset value per ordinary share 578.7p
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 January 2023
Called up Share Premium Account Capital Redemption Reserve Total
Share £'000 £'000 Capital Revenue £'000
Capital Reserve Reserve
£'000 £'000 £'000
Net assets at 1 February 2022 31,926 118,047 293 568,352 20,432 739,050
Revenue profit - - - - 38,626 38,626
Dividends on ordinary shares - - - - (36,248) (36,248)
Unclaimed dividends - - - - 87 87
Capital profit - - - 1,560 - 1,560
Shares issued during the year 3,108 66,192 - - - 69,300
Net assets at 31 January 2023 35,034 184,239 293 569,912 22,897 812,375
Net assets at 1 February 2021 30,246 84,137 293 417,939 22,102 554,717
Revenue profit - - - - 31,835 31,835
Dividends on ordinary shares - - - - (33,505) (33,505)
Capital profit - - - 150,413 - 150,413
Shares issued during the year 1,680 33,910 - - - 35,590
Net assets at 31 January 2022 31,926 118,047 293 568,352 20,432 739,050
CASH FLOW STATEMENT
For the year ended 31 January 2023
2023 2022
£'000 £'000
Operating activities
Profit before finance costs and taxation* 44,674 185,943
Less: Gains on investments held at fair value (7,843) (155,443)
Add: Special dividends credited to capital** 3,472 -
Add: Losses on foreign currency 64 2
Purchase of fixed asset investments held at fair value through profit or loss (300,664) (230,959)
Sales of fixed asset investments held at fair value through profit or loss 208,995 215,351
Transaction costs (1,806) (1,196)
Decrease in other receivables 383 419
Increase in other payables 67 196
Less: Overseas tax suffered (605) (410)
Net cash (outflow) from operating activities (53,263) 13,903
Financing activities
Interest paid (3,641) (3,229)
Drawdown on Revolving Credit Facility 16,000 -
Dividends paid on cumulative preference stock (43) (43)
Dividends paid on ordinary shares (36,248) (33,505)
Unclaimed dividends over 12 years 87 -
Share issue proceeds 70,011 34,879
Net cash inflow (outflow) from financing activities 46,166 (1,898)
(Decrease) increase in cash and cash equivalents (7,097) 12,005
Cash and cash equivalents at the start of the year 18,626 6,623
Effect of foreign exchange rates (64) (2)
Cash and cash equivalents at the end of the year 11,465 18,626
Comprising:
Cash and cash equivalents 11,465 18,626
* Cash inflow from dividends was £40,877,000 (2022: £33,412,000) and cash
inflow from interest was £90,240 (2022: £nil).
** Tate and Lyle Special dividend paid following the sale of a subsidiary,
Notes
Note A
The financial statements have been prepared prepared under the historical cost
convention, except for the revaluation of financial instruments held at fair
value through profit or loss and in accordance with applicable United Kingdom
law and UK Accounting Standards (UK GAAP), including Financial Reporting
Standard 102 - the Financial Reporting Standard applicable in the United
Kingdom and Republic of Ireland (FRS 102) and in line with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" issued by the Association of Investment Companies (AIC
SORP) in April 2022.
Note B
The earnings per ordinary share is based on a weighted number of shares
134,599,189 (2022 : 124,156,079) ordinary shares in issue.
Note C
The total return column of this statement is the profit and loss account of
the company. The supplementary revenue return and capital return columns are
both prepared under the guidance published by the Association of Investment
Companies.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The net profit for the year disclosed above represents the company's total
comprehensive income.
Note D
As the company's business is investing in financial assets with a view to
profiting from their total return in the form of increases in fair value,
financial assets are designated as held at fair value through profit or loss
in accordance with FRS 102 Section 11: 'Basic Financial Instruments' and
Section 12: 'Other Financial Instruments'. The company manages and evaluates
the performance of these investments on a fair value basis in accordance with
its investment strategy, and information about the investments is provided on
this basis to the board.
Investments held at fair value through profit or loss are initially recognised
at fair value. After initial recognition, these continue to be measured at
fair value, which for quoted investments is either the bid price or the last
traded price depending on the convention of the exchange on which the
investment is listed. Gains or losses on investments are recognised in the
capital column of the Income Statement. Purchases and sales of the financial
assets are recognised on the trade date, being the date which the company
commits to purchase or sell the assets.
Unlisted investments are valued by the Directors based upon the latest dealing
prices, stockbrokers' valuations, net asset values, earnings and other known
accounting informationin accordance with the principles set out by the
International Private Equity and Venture Capital Valuation Guidelines issued
in December 2018.
After initial recognition unquoted stocks are valued by the board on an annual
basis.
Note E
2023 2022
£ £
Dividends paid on ordinary shares of 25p:
Third interim dividend 6.85p paid 15 March 2022 (2021 - 6.8p) 8,758 8,227
Fourth quarterly dividend 6.85p paid 24 May 2022 (2021 - 6.8p) 8,950 8,345
First quarterly dividend 6.85p paid 24 August 2022 (2021 - 6.8p) 9,208 8,451
Second quarterly dividend 6.85p paid 10 November 2022 (2021 - 6.8p) 9,332 8,482
36,248 33,505
Dividends payable at the year end are not recognised as a liability under FRS
102 Section 32 'Events After the End of the Reporting Period' (see page 98 of
the Annual Report - Statement of Accounting Policies). Details of these
dividends are set out below.
2023 2022
£ £
Third interim dividend 6.85p paid 15 March 2023 (2022: 6.85p) 9,669 8,748
Final proposed dividend 7.0p payable 26 May 2023 (2022: 6.85p) 9,809 8,748
19,478 17,496
The declared final dividend accrued is based on the number of shares in issue
at the year end. However, the dividend payable will be based on the numbers of
shares in issue on the record date and will reflect any changes in the share
capital between the year end and the record date.
All dividends disclosed in the tables above have been paid or are payable from
the revenue reserves.
Note F
Post Balance Sheet events:
Since the year end a further 2,515,000 shares have been issued, as at 31 March
2023
Note G
The full annual report will shortly be available to be viewed or downloaded
from the company's website at www.merchantstrust.co.uk
(http://www.merchantstrust.co.uk) . 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.
The financial information for the year ended 31 January 2023 has been
extracted from the statutory accounts for that year. The auditor's report on
these accounts was unqualified and did not contain a statement under either
Section 498(2) or (3) of the Companies Act 2006. The annual report has not yet
been delivered to the Registrar of Companies.
The financial information for the year ended 31 January 2022 has been
extracted from the statutory accounts for that year which have been delivered
to the Registrar of Companies. The auditor's report on these accounts was
unqualified and did not contain a statement under either Section 498(2) or (3)
of the Companies Act 2006.
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