THE MERCHANTS TRUST PLC
Half-Yearly Financial Report
For the six months ended 31 July 2025
Chairman’s Statement
I am pleased to present the Merchants Trust half-year report for the six months to 31 July 2025. Strong income growth from our portfolio has once again enabled the Board to raise the dividend, extending an unbroken record of 43 consecutive annual increases.
The UK stock market delivered healthy returns in the first half of the year, with the Company’s net asset value (NAV) total return rising by 5.4%* over the period. This lagged the 7.5% return of the FTSE All-Share Index, for reasons outlined in the Manager’s Report. Shareholder returns were lower at 1.5%, reflecting a widening discount to NAV, against a backdrop of continued outflows from UK equity funds.
While relative performance and the discount widening are disappointing, the Board is monitoring both closely. We continue to promote the Company actively through media engagement and direct shareholder communication. Encouragingly, the portfolio recently temporarily exceeded £1 billion in value for the first time, placing Merchants among the larger and more liquid trusts in its sector, enhancing its appeal to wealth managers. Our Manager continues to find attractive opportunities in a polarised UK market, and both the Board and Manager remain optimistic about prospects for future income and capital growth.
* Debt at fair value
Background
Although Merchants is primarily invested in UK equities, global developments, particularly in the United States, have had a significant influence during the period. Financial markets have been shaped by policy decisions and geopolitical actions during President Trump’s second term, underlining the continuing influence of the US economy and trade policy on global markets.
By contrast, the UK environment was more stable, though persistently high inflation prevented meaningful interest rate cuts. Economic growth, a key priority for the new government, remained modest though better than many large economies, with fiscal challenges weighing on the Chancellor and administration. Despite this, UK equities as a whole posted respectable gains. However, market leadership remained narrow, and investor sentiment was tempered by concerns over domestic growth and global uncertainty.
Performance and portfolio
Merchants delivered a NAV total return of 5.4% over the six-month period, compared with 7.5% for the FTSE All-Share Index. Absolute returns were positive, though relative performance lagged the benchmark and some peers. This was largely due to the narrowness of market leadership: as in the US, certain groups of companies drove the market higher.
Some of these leading stocks did not align with our Manager’s long-term value approach. Instead, greater emphasis has been placed on attractively valued domestic cyclicals, which have underperformed in the recent low-growth environment. While this positioning has weighed on short-term results, we remain convinced that it provides the best foundation for long-term returns. The Board has reviewed the Manager’s strategy in detail and continues to support this disciplined, value-focused approach.
Portfolio activity reflected evolving opportunities, with an unusually high number of new investments compared with a typical half-year. Selective purchases were made where valuations and income prospects were attractive, while holdings with more limited capital growth potential were reduced.
The share price return of 1.5% reflected a widening discount to NAV, in line with a broader trend across UK investment trusts as international investors reduced exposure to UK equities. The Board, together with advisers and the Manager, monitors this closely and retains the option of share buybacks if appropriate. Meanwhile, we remain active in shareholder engagement and marketing to improve awareness and demand.
Earnings and dividends
Total income from the portfolio was £28.8m, 2.5% higher than the £28.1m generated in the first half of last year. Earnings per share rose by 3.5% to 17.7p (2024: 17.1p). This strong income performance provides confidence both in the sustainability of the dividend and in rebuilding revenue reserves.
With the final dividend for the 2025 financial year now approved, Merchants has increased its dividend for 43 consecutive years – earning the Company “Dividend Hero” status from the AIC. The Board has declared a second interim dividend of 7.3p per share, payable on 20 November 2025 to shareholders on the register at 10 October 2025. This brings the total dividend for the first half of the current financial year to 14.6p, compared with 14.5p last year – a year-on-year increase of 0.7%.
Shareholder engagement
In May we held our AGM in a hybrid format, with shareholders able to attend both in person and online. I was delighted to see such strong participation. For those unable to join, a recording of my introduction and our Lead Portfolio Manager Simon Gergel’s update is available on our website under “Videos, Podcasts & Reading.”
We remain committed to clear and regular communication. Our podcast series A Value View and other articles, videos, and interviews are available on our website and through streaming platforms.
Board developments
As noted in our Annual Report, Timon Drakesmith retired from the Board at the May AGM. We thank him warmly for his significant contribution. In July, we welcomed Neil Galloway as a new Director. Neil brings over 30 years of experience in banking and finance, including senior leadership roles in listed companies. He is currently a Non-Executive Director and Chair of the Management Engagement Committee at AVI Global Trust PLC. We look forward to his contributions to the Board.
Outlook
UK GDP growth forecasts for 2025 have been revised slightly upwards but remain modest. Inflation is expected to average 3.4%, with energy and labour costs elevated. Further interest rate cuts are anticipated but not assured, while unemployment is forecast to rise gradually. Consumer spending remains cautious, though savings rates are higher and mortgage refinancing pressures appear to be easing.
Globally, geopolitical risks remain high. US trade policy continues to reshape global commerce, while conflicts in Ukraine, Gaza, and elsewhere add to volatility. Meanwhile, advances in AI and automation are reshaping industries and labour markets, with profound implications for productivity and employment.
In such an environment, macroeconomic predictions are fraught with uncertainty. We believe this favours active, bottom-up investors such as our Manager, who focus on the fundamentals of individual businesses rather than short-term macroeconomic noise. UK equities continue to offer compelling value, particularly for income-focused investors, and we believe Merchants is well-positioned to benefit from any broadening of market leadership and improving sentiment.
The Board remains confident in the Trust’s strategy and the Manager’s disciplined approach. We thank shareholders for their continued support and look forward to reporting further progress in our full-year results.
Principal Risks and Uncertainties
As identified in the Annual Report, the principal risks are now considered to be geopolitical risks, followed by investment risks, including those relating to strategy and performance.
The principal risks and uncertainties facing the company, together with the board’s controls and mitigation, are those described in the Annual Report for the year ended 31 January 2025 published in April 2025 and are listed below:
- 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.
Risks such as significant geopolitical risks and climate change risks, have become progressively more prevalent and are no longer classified as ’emerging risks’.
The board’s approach to mitigating these risks and uncertainties is set out in the explanation with the Risk Map in the Annual Report. In the board’s view these will remain the principal risks and uncertainties for the six months to 31 January 2026.
Going Concern
The directors have considered the company’s investment objective and capital structure both in general terms and in the context of the current macro-economic background. Having noted that the portfolio is liquid as it consists mainly of securities which are readily realisable, and through continuous assessment of the company’s financial covenants, the directors have concluded that the company has adequate resources to continue in operational existence for the foreseeable future. The directors have also considered the continuing risks and consequences of macroeconomic and unanticipated shocks on the operational aspects of the company and have concluded that the company has the ability to continue in operation and meet its objectives in the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.
Responsibility Statements
The directors confirm to the best of their knowledge that:
The condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with FRS102 and FRS104, as set out in Note 2, the Accounting Standards Board’s Statement ‘Half-Yearly Financial Reports’; and
The interim management report includes a fair review of the information required by The Financial Conduct Authority’s (FCA) Disclosure Guidance and Transparency Rule 4.2.7 R of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
The interim management report includes a fair review of the information concerning related parties transactions as required by the Disclosure Guidance and Transparency Rule 4.2.8 R.
Performance – half-year review
| Revenue | ||||
| Six months ended 31 July | 2025 | 2024 | % change | |
| Income (£m) | 28.8 | 28.1 | +2.5 | |
| Revenue earnings attributable to ordinary shareholders (£m) | 26.3 | 25.4 | +3.5 | |
| Revenue earnings per ordinary share | 17.7p | 17.1p | +3.5 | |
| Dividends per ordinary share in respect of the period | 14.6p | 14.5p | +0.7 | |
| Assets | ||||
| 31 July 2025 | 31 January 2025 | Capital return % change | Total return1 % change | |
| Net asset value per ordinary share with debt at par | 588.5p | 572.6p | +2.8 | +5.3 |
| Net asset value per ordinary share with debt at market value (capital) | 599.2p | 582.4p | +2.9 | +5.4 |
| Ordinary share price | 550.0p | 556.0p | -1.1 | +1.5 |
| FTSE All-Share | 4,957.2 | 4,710.6 | +5.2 | +7.5 |
| Discount of ordinary share price to net asset value (debt at par) | -6.5% | -2.9% | n/a | n/a |
| Discount of ordinary share price to net asset value (debt at market value) | -8.2% | -4.5% | n/a | n/a |