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 31st 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
|
reserves1
|
reserve1
|
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
forfeiture2
|
-
|
-
|
-
|
616
|
-
|
616
|
Net return
|
-
|
-
|
-
|
286,248
|
41,654
|
327,902
|
Dividends paid in the period (note
5)
|
-
|
-
|
-
|
-
|
(37,254)
|
(37,254)
|
Forfeiture of unclaimed
dividends2 (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
dividends1 (note 5)
|
276
|
-
|
-
|
Repurchase of shares into
Treasury
|
(16,802)
|
(462)
|
(15,819)
|
Proceeds from share
forfeiture1
|
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 August1
|
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 February1
|
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 old2
|
|
(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 31
|
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
The half year will also shortly be
available on the Company's website at www.mercantileit.co.uk
where up to date information on the Company,
including daily NAV and share prices, factsheets and portfolio
information can also be found.