THE MERCANTILE INVESTMENT TRUST PLC
( the 'Company' )
HALF YEAR REPORT & ACCOUNTS FOR THE SIX MONTHS ENDED 31ST JULY 2020
Legal Entity Identifier: 549300BGX3CJIHLP2H42
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
When I signed my statement for last year's Annual Report, in mid April, we were in the midst of the COVID-19 pandemic and the UK had gone into full lockdown. At that stage no one was sure what the immediate future held but we remained convinced of the quality of our portfolio and that the Mercantile was well placed to ride out the coming storm. This report covers both the initial shock to markets brought about by COVID and also the partial rally in equity markets which followed. Since then, although volatile, markets stabilised somewhat and Government restrictions were progressively eased. The economy seemed to be on the mend. However, as I write, the rate of infection is increasing again and some restrictions are being reintroduced. As we enter winter we are once again facing challenging times, but this time we are in a more robust position as we continue to identify tomorrow's market leaders.
Performance
In the six months to 31st July 2020 the Company produced a return on net assets of -22.1%. This compares with the return of -23.2% from our benchmark index. Although such negative returns are always distressing, for our Investment Managers to outperform our benchmark index is a highly creditable achievement especially given the circumstances, the market volatility and the fact that the portfolio has been geared for most of the period.
The return to shareholders was -28.5%, as the discount at which the Company's shares trade widened from 1.4% to 8.1% (calculated with debt at fair value) over the half year, consistent with a general widening of discounts across the investment trust sector.
Returns and Dividends
The Company's revenue account has been severely impacted by the consequences of COVID-19 as many portfolio companies either cut or cancelled their dividends. The revenue return in the first half of the Company's current financial year decreased from 4.32 pence per share for the corresponding period last year to 1.40 pence per share, a decrease of 67.6%.
A first quarterly interim dividend of 1.35 pence was paid on 3rd August 2020 and a second quarterly interim dividend of 1.35 pence per share has been declared by the Board, payable on 2nd November 2020 to shareholders on the register at close of business on 25th September 2020. This brings the total dividend for the year to date to 2.70 pence (2019: 2.70 pence). The Board intends to pay a third quarterly interim dividend of 1.35 pence in early February 2021.
One of the structural advantages of a closed end investment trust is the ability to use revenue reserves to smooth dividend payments in more difficult times and the Board confirms that its current intention is at least to maintain last year's total dividend of 6.60p per share for this financial year.
Discount and Share Buy Backs
At the end of the last financial year, the Company's shares traded at a narrow discount, closing the year at 1.4%, but it widened rapidly during the period as market volatility increased sharply following the onset of COVID-19. The Board continues to monitor closely the discount at which the Company's shares trade however, given the volatile nature of the market, it did not use its authority to buy back any shares in the six months to 31st July 2020.
Marketing
Shareholders may notice a different image on the cover of the half year report than in previous years. The Board approved a refresh to the Company's branding in conjunction with an advertising and PR campaign. Our goal is to increase demand for our Company's shares among retail investors. Early signs are that the campaign is having an impact and we will continue to monitor the shareholder register closely.
Outlook
It would be a brave Chairman who predicts the future in such extraordinary and challenging times. I have already said that COVID-19 is rearing its ugly head again and the immediate future remains uncertain. However, we can but continue to do what we do best, in the knowledge that things will eventually return to something approaching normal or be managed in such a way that it allows companies and the economy to flourish once again. Such difficulties also present new opportunities and our Investment Managers have adopted a positive stance, which we fully endorse, especially when they can identify and invest in robust businesses at reasonable, even cheap, valuations. By investing in companies which have positioned themselves well to take advantage of the massive and accelerated changes that have occurred in markets, I am highly confident that when sustained recovery is upon us, we will again thrive and prosper for our shareholders.