TIDMRMMC
RNS Number : 4508Z
River & Mercantile UK Micro Cap Inv
17 May 2019
17 MAY 2019
FOR IMMEDIATE RELEASE
THE BOARD OF DIRECTORS OF RIVER AND MERCANTILE UK MICRO CAP
INVESTMENT COMPANY LIMITED ANNOUNCE THE HALF YEARLY FINANCIAL
REPORT FOR THE SIX MONTHSED 31 MARCH 2019
financial highlights AND performance summary
Key Performance Indicators
Net Asset Value ("NAV") total return(1) vs benchmark from
inception
NAV on a total return(2) basis increased by 95.47% from
inception (net of issue cost), outperforming the total return
posted by the benchmark index of 35.38%. Please refer to the chart
below showing the NAV total return versus Numis Smaller Companies
plus Alternative Investment Market ("AIM") (excluding Investment
Companies Index) total return(3) (the "benchmark index") from
inception:
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
NAV total return vs benchmark for the six months ended 31 March
2019
Over the period ended 31 March 2019, the NAV total return of
River and Mercantile UK Micro Cap Investment Company Limited (the
"Company") underperformed the benchmark index by 7.80%, recording a
NAV total return of (16.40%), which compares with the total return
of (8.60%) posted by the benchmark index.
NAV and Share price
As at As at
31 March 30 September
2019 2018
Net asset value per Ordinary GBP1.9156 GBP2.2913
Share
Ordinary Share price (bid GBP1.6350 GBP2.1100
price)(2)
Discount (14.65%) (7.91%)
Period highs and lows
Six months Six months Year ended Year ended
ended 31 ended 31 30 September 30 September
March 2019 March 2019 2018 2018
High Low High Low
Net asset value per Ordinary
Share GBP2.2901 GBP1.7746 GBP2.2913 GBP1.8499
Ordinary Share price (bid
price)(2) GBP2.1100 GBP1.5200 GBP2.3000 GBP1.6400
Market capitalisation as at 31 March 2019
Ordinary Share class: GBP75,937,645
Number of Ordinary Shares in issue as at 31 March 2019
46,445,043 Ordinary Shares
Premium / discount(4)
The premium or discount(2) to share price (bid price) has
increased from a discount of 7.91% compared to NAV as at 30
September 2018, to a discount of 14.65% compared to NAV as at 31
March 2019.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
Capital redemptions
Since inception, the Company has exercised its capital
redemption mechanism on three separate occasions, as detailed
below, redeeming a total of 22,062,526 Ordinary Shares and
returning a total of GBP41,926,929 to Shareholders.
Redemption Date Redemption price per Ordinary Number of Ordinary Shares Amount returned to Shareholders
Share(5) Redeemed
9 June 2017 GBP1.7217 8,712,240 GBP14,999,864
-------------------------------- -------------------------------- --------------------------------
1 December 2017 GBP1.9124 7,843,469 GBP14,999,850
-------------------------------- -------------------------------- --------------------------------
27 July 2018 GBP2.1659 5,506,817 GBP11,927,215
-------------------------------- -------------------------------- --------------------------------
Please refer to note 11 for full details of the Company's
redemption mechanism, including the conditions required for the
Company to be able to operate the capital redemption mechanism.
Dividend history
In accordance with the Company's stated policy, no dividend was
declared or paid during the year.
Please refer to note 16 for further information subsequent to
the reporting period.
(1) - The NAV total return measures how the NAV per Ordinary
Share has performed over a period of time, taking into account of
capital returns. The Company quotes NAV total return as a
percentage change from the initial issuance of Ordinary Shares to
31 March 2019. The Company has not declared a dividend since
inception. The Board monitors the Company NAV total return against
the Numis Smaller Companies plus Alternative Investment Market
("AIM") (excluding Investment Companies Index).
(2) - Source: BNP Paribas Securities Services, Bloomberg
(3) - Source: Bloomberg
(4) - The NAV per share is the value of all the Company's
assets, less any payables it has, divided by the total number of
Ordinary Shares. However, because the Company Ordinary Shares are
traded on the London Stock Exchange's Main Market, the share price
may be higher or lower than the NAV. The difference is known as a
discount or premium. The Company's discount / premium to NAV is
calculated by expressing the difference between the Ordinary Share
price (bid price) and the NAV per share on the same day compared to
the NAV per share on the same day.
(5) - Excludes the cost of each redemption, which total
GBP23,700.
chairman's statement
Metaphorically speaking....
As humans we often tend to think in metaphor or a series of
metaphors. As I am sure you are aware, metaphor is a figure of
speech that describes an object or action in a way that is not
literally true, but helps explain an idea or make a comparison. A
metaphor states that one thing is another thing. It equates those
two things not because they actually are the same, but for the sake
of comparison or symbolism.
We use the concepts associated with metaphors extensively, often
to shape the narrative relating to our daily lives, at least in our
conscious thoughts. This is no more visible than in the political
sphere. So much of our social and political reasoning makes use of
this system of metaphorical concepts; therefore, any adequate
appreciation of even the most basic social and political thought
requires an understanding of this system. This has been most
visible over the last three years in the ongoing marathon political
debate over the intended British withdrawal from the European
Union.
The debate surrounding our withdrawal has become a
multi-metaphored beast because not only is it highly complicated;
it is also a subject that lends itself so perfectly to the use of
metaphors, where politicians are desperately searching for ways to
articulate complex political machinations. As a subject, it bears
no obvious resemblance to any other political situation in modern
history although the constitutional historian Professor David
Starkey, has compared the invocation of Article 50 of the Lisbon
Treaty on 29th March 2017 with King Henry VIII's break with Rome in
the 1530s. Metaphor or comparison?
As Professor Starkey describes in his numerous books, that event
had momentous historical consequences for Britain. Politics in
those days moved more slowly, and had the tendency to be much more
violent; however, the potential impact of Brexit on Britain could
be equally momentous. It depends on your views on the subject as to
whether this is likely to lead to a golden period in our history or
one where we struggle to compete in a fast moving and dynamic
world. This instability or anxiety disrupts society as conflicting
metaphors fly all over the place. The issue of increased
instability and the potential rise in violence resulting from
increased isolation or the abuse of democracy depending on the
outcome is a subject I am sure will be examined in great detail by
future historians.
Political theorists have long been interested in how metaphors
are used as persuasive devices. There is an assumption they do
influence views, and have assisted politicians in communicating
more effectively by addressing latent symbolic themes residing in
segments of the public consciousness. As I mentioned earlier,
metaphors also fit in with the new information-processing models of
political knowledge, in which they collapse complicated issues into
more simplified transmittable bursts of information that can be
easily understood by the public. The current debate has given birth
to an ever increasing cohort of political metaphor, however the
assumed political expertise backing these appear to be absent and
the intellectual rigour and sensible fact based debate we have long
assumed a permanent resident in the great halls of Westminster has
gone absent without leave.
The confluence of this absence and the sequential and
progressive impact on our potential withdrawal from the European
Union has weighed on markets and in particular, those indices that
are dominated by domestically orientated stocks. Our company
invests in precisely these stocks and therefore it has been little
surprise that this has weighed heavily on results. The beginning of
the period was marked by a significant fall in equity markets
driven by a short-term rise in credit spreads as the market reacted
to significant losses in the insurance market. 2018 insurance
losses were larger than in the 2005, which was the year that
Hurricane Katrina hit the Gulf States of the US. This technical
rise in short term rates reversed in early 2019 and we have seen a
strong bounce back in equity markets.
As our Portfolio Manager highlighted in his recent report, the
first quarter of 2019 saw the best performance of global equities
since 2010. The S&P500 closed the period over 13% higher and,
as at time of writing, is less than 2% off its all- time high. UK
stocks and, specifically, small cap stocks have fared less well;
the FTSE250 gained 8% whilst the Numis Smaller Companies plus AIM
(excluding Investment Companies) index, which is the Company's
benchmark, lagged with a gain of 7%. That said there are two
particularly supportive data points for the long-term potential of
the Company. First, UK equities are, on a 20-year basis, cheap
versus all other major equity markets. Second, and of even greater
relevance, within the UK small and micro-cap stocks are
particularly depressed versus their own 20-year history. As was
recently reported in Money Observer, our Company produced the best
three-year investment returns in the UK All Companies and UK
Smaller Companies Sector, including above average returns in all of
those three years.
Notwithstanding the above, the recent widening of the Company's
discount to NAV has been disappointing. But the fall in the NAV (as
explained in the Portfolio Manager's Report) must be seen in the
context of the sharp rise in the NAV since inception. As I have
remarked in previous reports, investment performance rarely
increases in a straight line (unless it's a Madoff Fund). Your
Board regularly reviews its share price rating in light of market
conditions and with reference to its peer group. Although both of
these factors help to explain the situation, the Board watches with
concern the Company's current discount.
On behalf of our shareholders I would very much like to thank
George Ensor and the portfolio team at River and Mercantile Asset
Management LLP (the "Portfolio Manager").
Andrew Chapman
Chairman
17 May 2019
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's operation and results for the period ended 31 March
2019. It should be read in conjunction with the Chairman's
Statement above and the Portfolio Manager's Report below which
provides a detailed review of investment activities for the period
and an outlook for the future.
Corporate summary
The Company was incorporated in Guernsey on 2 October 2014, with
registered number 59106, as a non-cellular company with liability
limited by shares. The Company is registered by the Guernsey
Financial Services Commission ("GFSC") as a registered closed-ended
collective investment scheme pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the
Registered Collective Investment Scheme Rules ("RCIS Rules")
2018.
The Company's stated capital is denominated in Sterling and each
share carries equal voting rights.
The Company's Ordinary Shares are listed on the Official List of
the UK Listing Authority and admitted to trading on the Main Market
of the London Stock Exchange. As at 31 March 2019, the Company's
issued stated capital comprised 46,445,043 Ordinary Shares (30
September 2018: 46,445,043 Ordinary Shares).
The Company has appointed Carne Global AIFM Solutions (C.I.)
Limited (the "Manager") to act as the Company's Alternative
Investment Fund Manager ("AIFM"). The Manager has delegated
portfolio management of the Company's investment portfolio to the
Portfolio Manager. The Board will actively and continuously
supervise both the Manager and the Portfolio Manager in the
performance of their respective functions.
The Company has appointed BNP Paribas Securities Services
S.C.A., Guernsey Branch (the "Administrator") to provide
administration, custodian and company secretarial services.
The Company is a member of the Association of Investment
Companies ("AIC").
Significant events during the period ended 31 March 2019
On 11 December 2018, the Company signed an Extension Agreement
that varied the terms of the Sterling Facility Agreement (the
"Facility") entered into on 9 December 2016, as amended on 13
December 2017. With effect from 7 December 2018, the Facility was
extended for 364 days to 6 December 2019 and the Company incurred
an extension fee of GBP8,000.
On 27 February 2019, the Company announced that, at the
Company's Annual General Meeting ("AGM"), held on 27 February 2019,
votes against Resolutions 1 and 6 were received. Please refer below
for further information.
Significant vote against AGM resolutions
The Board took note of the votes cast against Resolutions 1 and
6 at the AGM held in February 2019. The Board believes that the
votes against Resolution 1 related to the fact that, on 11 February
2019, a shareholder advisory group published a recommendation to
vote against Resolution 1 stating that the disclosure of the
Portfolio Manager's contract in the annual report of the Company
did not meet the advisory group's requirements. Following
representations by the Company, the advisory group agreed that the
required information was indeed included in the annual report and,
on 13 February 2019, they informed the Company that they had
amended their advice on Resolution 1 to a recommendation to vote in
favour.
The Board believes that the votes against Resolution 6 relate to
the fact that, as disclosed in the annual report, Mark Hodgson is
not considered an independent director because he is a director of
Carne Global AIFM Solutions (C.I) Limited ("Carne"). As explained
in our financial statements, Carne is legally the Manager so that
the Company can fully comply with the Alternative Investment Fund
Managers Directive (AIFMD). Carne has formally delegated portfolio
management to the Portfolio Manager. Carne itself undertakes a
rigorous risk management function in respect of the portfolio and
exercises a robust oversight of River & Mercantile Asset
Management LLP, the designated Portfolio Manager. Carne is
completely independent of the Portfolio Manager which ensures that
there are no conflicts of interest as it performs its oversight
functions.
The opinion of the other Directors is that Mark Hodgson provides
considerable and complementary expertise to the Board, particularly
in the area of risk management, in which Carne has a significant
presence. In accordance with the recommendations of the Association
of Investment Companies in relation to non-independent directors,
Mark is subject to annual re-election; and indeed the independent
directors also put themselves forward for annual re-election. The
Board has been in touch with shareholders who we are aware voted
against both Resolutions and found them to be content. The Board
would like to take this opportunity to say that the Chairman is
always willing to meet with shareholders to discuss any questions
or issues they might have about the Company.
Company investment objective
The Company aims to achieve long term capital growth from
investments in a diversified portfolio of UK Micro Cap companies,
typically comprising companies with a free float market
capitalisation of less than GBP100 million at the time of
purchase.
The Company invests in a diversified portfolio of UK Micro Cap
companies. It is expected that the majority of the Company's
investible universe will comprise companies whose securities are
admitted to trading on AIM.
While it is intended that the Company will be fully invested in
normal market conditions, the Company may hold cash on deposit or
invest on a temporary basis in a range of high quality debt
securities and cash equivalent instruments. There is no restriction
on the amount of cash or cash equivalent instruments that the
Company may hold and there may be times when it is appropriate for
the Company to have a significant cash position instead of being
fully or near fully invested.
The Company will not be benchmark-driven in its asset
allocation.
Diversification
The number of holdings in the portfolio will usually range
between 30 and 50.
The portfolio is expected to be broadly diversified across
sectors and, while there are no specific limits placed on exposure
to any sector, the Company will at all times invest and manage the
portfolio in a manner consistent with spreading investment
risk.
Investment restrictions
No exposure to any investee company will exceed 10% of NAV at
the time of investment.
The Company may from time to time take sizeable positions in
portfolio companies. However, in such circumstances, the Company
would not normally intend to hold more than 25% of the capital of a
single investee company at the time of investment.
Although the Company would not normally expect to hold
investments in securities that are unquoted, it may do so from time
to time but such investments will be limited in aggregate to 10% of
NAV.
The Company may invest in other investment funds, including
listed closed-ended investment funds, to gain investment exposure
to UK Micro Cap companies but such exposure will be limited, in
aggregate, to 10% of NAV at the time of investment.
Borrowing and gearing policy
The Company does not normally intend to employ gearing but at
certain times it may be opportune to do so, for both investment and
working capital purposes. Accordingly, the Company may employ
gearing up to a maximum of 20% of NAV at the time of borrowing.
Refer to note 14 for further details of current borrowing
facilities.
Derivatives
The Company may use derivatives (both long and short) for the
purposes of efficient portfolio management only. The Company will
not enter into uncovered short positions. Further information can
be found in the Portfolio Manager's Report below which is
incorporated within this Half-Yearly Financial Report for
informational purposes only.
Director interests
The Board comprises four Directors, three of whom are
independent: Andrew Chapman, Ian Burns and Trudi Clark; Mark
Hodgson is Managing Director of the Manager and is therefore not
regarded as independent. All the independent Directors are also
members of the Audit Committee, Management Engagement Committee and
Remuneration and Nomination Committee.
Information on the Directors' remuneration is detailed in note
6.
As at the date of approval of the Half-Yearly Financial Report,
Directors held the following number of Ordinary Shares in the
Company:
Director Ordinary Shares held
Andrew Chapman 13,562
---------------------
Ian Burns 5,500
---------------------
Trudi Clark 11,445
---------------------
Mark Hodgson 22,040
---------------------
Transactions in Ordinary Shares by Directors are outlined in
note 6. Ordinary Shares held by Directors have decreased in line
with each compulsory redemption with the exception of those held by
Ian Burns which were purchased after the last redemption.
No Director has any other interest in any contract to which the
Company is a party with the exception of Mark Hodgson who acts as
the Managing Director of the Manager.
Information on each Director is shown in the Board Members
section of this Half-Yearly Financial Report.
Principal risks and uncertainties
When considering the total return of the Company, the Board
takes account of the risk which has been taken in order to achieve
that return. The Board looks at the following risk factors as
listed below:
-- Investment and liquidity risk
-- Portfolio concentration and macro-economic risks
Information on these risks and how they are managed is given in
the Annual Financial Report for the year ended 30 September 2018 on
pages 9 and 10. In the view of the Board these principal risks and
uncertainties are as applicable to the remaining six months of the
financial year as they were in the six months under review.
Going concern
Under the UK Corporate Governance Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Company is a going concern and
to identify any material uncertainties to the Company's ability to
continue as a going concern for at least 12 months from the date of
approving the condensed financial statements.
The Directors are satisfied that, at the time of approving the
condensed financial statements, no material uncertainties exist
that may cast significant doubt concerning the Company's ability to
continue for the foreseeable future, being 12 months after approval
of the condensed financial statements. In addition, the Company's
holdings of cash and cash equivalents, the liquidity of investments
and the income deriving from those investments, means the Company
has adequate financial resources to meet its liabilities as they
fall due. Therefore, the Directors consider it appropriate to adopt
the going concern basis in preparing the condensed financial
statements.
Events after the reporting date
The Directors are not aware of any developments that might have
a significant effect on the operations of the Company in subsequent
financial periods which are not already disclosed in this report or
note 16 of the attached condensed financial statements.
Future strategy
The Board continues to believe that the investment strategy and
policy adopted is appropriate for and is capable of meeting the
Company's objectives.
The overall strategy remains unchanged and it is the Board's
assessment that the Manager and Portfolio Manager's resources are
appropriate to properly manage the Company's investment portfolio
in the current and anticipated investment environment.
Please refer to the Portfolio Manager's Report below for details
regarding performance to date of the investment portfolio and the
main trends and factors likely to affect those investments.
Related parties
Refer to note 15 for information on related party
transactions.
BOARD MEMBERS
All Directors are non-executive.
CHAIRMAN
Andrew Chapman, (independent).
Appointed 2 October 2014.
Andrew holds both a BA and an MPhil in Economic & Social
History. He began his career in 1978 as a UK equity fund
manager.
In 1984, Andrew was appointed to the in-house investment
management team for the British Aerospace Pension Fund, where he
had responsibility for directly investing in a number of listed
markets. In 1991, Andrew took the position of Investment Manager at
United Assurance plc, where he was responsible for asset allocation
and leading a team of in-house fund managers managing approximately
GBP12 billion in assets. Andrew was subsequently a director of
Teather & Greenwood Investment Management Limited, before
joining Hewitt Associates as a Senior Consultant. Between 1994 and
2003, Andrew served as a non-executive director of the Hambros
Smaller Asian Companies Investment Trust plc (which subsequently
became The Asian Technology Trust plc).
In 2003, Andrew was appointed as the first in-house Pension
Investment Manager for the John Lewis Partnership Pension Fund,
with responsibility for the overall investment strategy as well as
the appointment and performance of 27 external fund managers across
all asset classes. He retired from that role in 2012 and then
served as the CIO for The Health Foundation until September
2015.
Since 2012 Andrew has developed a portfolio of roles, including
being a member of the investment committees of: Homerton College
(Cambridge University); Coller Capital Partners; and the Property
Charities Fund. He is also a non-executive director of Steadfast
International Limited, Steadfast Long Capital Limited, GT ERISA
Fund, GT Offshore Fund, and Kidney Care UK.
DIRECTORS
Ian Burns, (independent) - Chairman of the Audit Committee and
Senior Independent Director.
Appointed 2 October 2014.
Ian is a fellow of the Institute of Chartered Accountants in
England & Wales. He is the founder and Executive Director of
Via Executive Limited, a specialist management consulting company
and the managing director of Regent Mercantile Holdings Limited, a
privately owned investment company. He is licensed by the Guernsey
Financial Services Commission as a personal fiduciary.
Ian is currently a non-executive director and audit committee
chairman of London Stock Exchange listed Twenty Four Income Fund
Limited and Director of AIM listed Fast Forward Innovations
Limited. He is also a non-executive director of Darwin Property
Management (Guernsey) Limited, Curlew Capital Guernsey Limited and
Premier Asset Management (Guernsey) Ltd.
Trudi Clark, (independent) - Chairman of the Remuneration and
Nomination Committee and Management Engagement Committee.
Appointed 2 October 2014.
Trudi graduated with a first class honours degree in business
studies and is a qualified Chartered Accountant.
Trudi spent 10 years working in chartered accountancy practices
in the UK and Guernsey. In 1991, she joined the Bank of Bermuda to
head their European internal audit function before moving into
private banking in 1993.
Between 1995 and 2005, Trudi worked for Schroders (C.I.)
Limited, an offshore private bank and investment manager. She was
appointed to the position of banking director in 2000 and managing
director in 2003. In 2005, Trudi left Schroders to establish and
run a private family office.
In July 2009, Trudi established the Guernsey practice of David
Rubin & Partners LLP, an internationally known insolvency and
liquidation specialist. Since June 2018 she has been a full time
non-executive director.
Trudi holds several non-executive directorships which include F
& C Commercial Property Trust Limited, NB Private Equity
Partners Limited, Alcentra European Floating Rate Income Fund and
the Schiehallion Fund Limited which are listed on the London Stock
Exchange. She also holds a personal fiduciary licence issued by the
GFSC.
Mark Hodgson.
Appointed 2 October 2014.
Mark has over 25 years' financial services experience, with an
extensive banking background having spent over 20 years with HSBC
where he gained an in-depth knowledge of credit, financial markets
and complex lending structures.
Prior to 2006, Mark was regional director for HSBC Invoice
Finance (UK) Limited, where he was responsible for running the
receivables finance business. In 2006, Mark moved to Jersey to head
up HSBC's Commercial Centre, having full operational responsibility
for credit and lending within the jurisdiction.
In 2008, Mark moved to Capita Fiduciary Group as managing
director of Offshore Registration, a regulated role in which he had
responsibility for Jersey, Guernsey and the Isle of Man. Mark also
took on the regulated role of managing director of Capita Financial
Administrators (Jersey) Limited, together with directorships of
regulated and unregulated funds.
In April 2014, Mark joined Carne Global Financial Services
(C.I.) Limited as managing director.
PORTFOLIO MANAGER'S REPORT
This Portfolio Manager's Report is compiled with reference to
the underlying investment portfolio. Therefore, all positions are
calculated by reference to their official closing mid-market prices
(as opposed to the closing bid prices used within the condensed
financial statements). The estimated unaudited NAV referenced below
is calculated on a daily basis utilising closing bid prices and is
inclusive of all estimated charges and accruals.
Review of performance
The six months to 31 March 2019 represented a challenging period
of performance for the River and Mercantile UK Micro Cap Investment
Company with the NAV decreasing by 16.4%, underperforming the
benchmark, which was down 8.6%, by 7.8%. Since inception, the NAV
has increased by 95.5% with the benchmark up 35.4% over the same
period.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
The Company recorded an all-time high NAV on the final day of
September 2018 following a period of strong performance in global
equity indices, particularly for growth stocks and smaller
companies which is an ideal environment for the Company's strategy.
Prompted by a flattening yield curve and softening lead indicators,
fears of a synchronised global growth slowdown undermined investor
confidence and almost all asset classes were significantly
impacted. By the end of the year, market sentiment troughed and a
volte-face from central banks, not least the Federal Reserve and
People's Bank of China, drove a strong rebound in global
markets.
The S&P500, on a total return basis, finished the period
just 0.58% lower, almost flat. This compares to the Company's
benchmark, the Numis Smaller Companies (excluding Investment
Companies) index which, as stated above, fell 8.6%. The charts
overleaf illustrate the fantastic opportunity that the
underperformance of UK equities, specifically small and micro-cap
UK equities, has created over the past two years versus either
their larger counterparts or global equities. Figure 1 shows that,
on a blend of valuation metrics, the UK is trading one standard
deviation cheaper than its own 20-year history, more so than any of
the other regions. Figure 2 illustrates the substantial de-rating
of smaller cap companies. Finally, figure 3 shows where the various
cohorts of equities are trading versus their own 20-year history; a
score of 0.5 would indicate that those stocks were valued in-line
with their 20-year average valuation. The shares of companies with
a market cap of less than GBP500m are trading at a 40% discount to
their 20-year average valuation.
Figure 1: Deviations from 20-year average of major regions
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
Figure 2(L) and 3(R): Valuation opportunity in UK Micro Caps
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
In line with our philosophy, we will continue to construct a
portfolio of companies that have the Potential to create
shareholder value at attractive Valuations with supportive Timing.
Our PVT philosophy has delivered the Company's strong performance
since inception and will continue to be at the heart of everything
we do. The investment universe has a natural bias towards Growth
companies given the focus on sub GBP100m market capitalisation
businesses. As such, we would envisage approximately half of the
NAV being invested in Growth, with the majority of the balance
invested in Quality and the balance split between Recovery and
Asset backed.
Portfolio Holdings with a contribution to return above or below
1%
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
We participated in the December initial public offer of
Litigation Capital Management, which, as the name suggests, is a
funding business. The company has a strong track record of high
returns having operated in Australia since 1998 underpinning a high
conviction Quality investment case. The shares were listed at 52p
and closed the period at 94.6p delivering an attractive 82% return.
Shanta Gold, the Tanzanian gold miner, continues to deliver and,
crucially, de-lever. Despite some gain in the share price during
the period which related to an overhang of stock being removed, the
shares trade on just 2x EV/EBITDA and substantial opportunity
remains.
Sigma Capital, the leading UK private rented sector (PRS)
investor closed the period 26% lower with the shares falling from
an all-time high post their interim results in late September. The
company announced a strong full year trading update in January.
Lekoil and SDX Energy, down 54% and 38% respectively, failed to
move with the oil price which bounced 27% (Brent) in the first
quarter. Whilst both are E&P companies, there is little to no
spend on exploration for either company and both have attractive
netbacks and cash generation at current (and lower) oil prices.
ULS Technology, the conveyancing comparison business, was
purchased in September. It was a poorly timed purchase ahead of a
profit warning resulting from a depressed level of housing
transactions in the UK. Consensus expectations moved down 7% whilst
the shares finished the period 37% lower, an unjustified de-rating
of a business that is growing market share from a low base.
Boku, the leader in direct carrier billing, reported phenomenal
growth in 2018, beating raised expectations and generating
substantial cash. We had been profit taking throughout the summer
before the shares were aggressively sold; they closed the period
39% lower, and we bought the stock back at attractive levels. It
remains a high conviction Growth investment case.
Taptica, which is soon to be renamed Tremor International, has
had a particularly challenging six months; the shares lost 45% over
the period. The company acquires users on behalf of its customers
and is typically paid when a user downloads and uses a customer's
mobile app. The company delivered to upgraded profit expectations
despite a slow-down in this market given concerns on the quality of
users acquired. The merger with RhythmOne is sensible and should
generate significant shareholder value over the next three
years.
Retailers success or otherwise increasingly comes down to a few
very important trading periods. Bonmarche, which had strong trading
results in its first quarter, suffered from falling high street
footfall before failing to discount heavily enough for Black
Friday. Following several profit warnings in the period, the shares
lost 78%, an equivalent 1.06% fall in the value of the Company's
portfolio.
RedT Energy are commercialising an energy storage solution, an
increasingly integral part of energy distribution given it is not
necessarily sunny or windy at the same time as consumers require
it. A low cost, efficient and versatile solution, like that of
RedT, is a huge opportunity. Unfortunately, as is often the case,
it has taken longer and cost more than expected which culminated in
a deeply discounted cash raise earlier in the year.
RA International provide project management and logistics
services in remote locations, predominantly in Africa, for
intergovernmental (the UN) and governmental clients. Whilst the
company has just reported a record six month performance, it was
below (by 11%) expectations for the business that were set at IPO.
The shares lost 46% in the period and closed the period 36% below
their IPO price. Whilst it is disappointing, it is another example
of the market's obsession with short term EPS momentum.
Finally, and most frustratingly, Allergy Therapeutics reported a
negative phase-three trial and the shares, which we considered to
be significantly depressed before the news, fell further.
Astonishingly, given the percentage of sales that this particular
trial relates to, the shares lost 62% in the period and were, by
some margin, the worst contributor to performance at -2.44%. Our
prior work around the consequences of a negative result leaves us
convinced that there is material value supported by the company's
excellent track record of innovation and growth since it was spun
out of GlaxoSmithKline.
Portfolio Statistics
Top 10 Holdings
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
Industrial Sector Weightings
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
Market Capitalisation Breakdown
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
at
https://microcap.riverandmercantile.com/literature/interim-reports
from 20 May 2019]
Outlook
The opportunity within both the current portfolio and the
investable universe remains as attractive as ever. As I have
previously commented, the reversal in sentiment towards micro-cap
stocks in the period was extreme and remains depressed but,
crucially, this supports the medium term return prospects. The
combination of a robust philosophy and process, a diversified
portfolio and the long term outperformance of micro-cap stocks
underpins the strong investment proposition on offer to
shareholders. We remain focused on delivering strong NAV
performance.
I would like to take this opportunity to thank the Company's
Shareholders and Board for their ongoing support.
George Ensor
Portfolio Manager
17 May 2019
Directors' Statement of Responsibilities
The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with applicable Guernsey law and
regulations.
The Directors confirm to the best of their knowledge that:
-- the condensed financial statements contained within the
Half-Yearly Financial Report have been prepared in accordance with
IAS 34 - "Interim Financial Reporting" and provides a fair,
balanced and understandable view of the affairs of the Company as
at 31 March 2019, as required by the Financial Conduct Authority
("FCA") through the Disclosure Guidance and Transparency Rule
("DTR") 4.2.4R;
-- the combination of the Chairman's Statement, the Portfolio
Manager's Report, the Executive Summary and the notes to the
condensed financial statements includes a fair review of the
information required by:
a) DTR 4.2.7R, being an indication of important events that have
occurred during the period up to 31 March 2019 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 year; and
b) DTR 4.2.8R, being related party transactions that have taken
place during the period up to 31 March 2019 and that have
materially affected the financial position or performance of the
Company during that period; and any changes in the related parties
transactions in the annual report that could have a material impact
on the financial position or financial performance of the Company
in the first six months of the current financial year.
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
17 May 2019
independent review report to RIVER AND MERCANTILE UK MICRO CAP
INVESTMENT COMPANY LIMITED
Our conclusion
We have reviewed the accompanying condensed interim financial
information of River and Mercantile UK Micro Cap Investment Company
Limited (the "Company") as of 31 March 2019. Based on our review,
nothing has come to our attention that causes us to believe that
the accompanying condensed interim financial information is not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The accompanying condensed interim financial information
comprise:
-- the condensed statement of financial position as of 31 March 2019;
-- the condensed statement of comprehensive income for the six-month period then ended;
-- the condensed statement of changes in equity for the six-month period then ended;
-- the condensed statement of cash flows for the six-month period then ended; and
-- the notes, comprising a summary of significant accounting
policies and other explanatory information.
The condensed interim financial information has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Our responsibilities and those of the directors
The Directors are responsible for the preparation and
presentation of this condensed interim financial information in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on this condensed
interim financial information based on our review. This report,
including the conclusion, has been prepared for and only for the
Company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410, 'Review of interim financial
information performed by the independent auditor of the entity'
issued by the International Auditing and Assurance Standards Board.
A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Half-Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
17 May 2019
(a) The maintenance and integrity of the River and Mercantile UK
Micro Cap Investment Company Limited website is the responsibility
of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially
presented on the website.
(b) Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
CONDENSED Statement of comprehensive income
For the six months ended 31 March 2019
Six months Six months
ended ended
31 March 31 March
2019 2018
(Unaudited) (Unaudited)
Notes GBP GBP
Income
Investment income 3 452,357 289,613
Net (loss)/gain on financial assets
designated at fair value through profit
or loss 8 (18,485,204) 6,597,381
Total income (18,032,847) 6,886,994
-------------------------------------------------------- ------ ------------- ------------
Expenses
Portfolio performance fees recovery/(expense) 4 1,210,297 (1,160,610)
Portfolio management
fees 4 (328,644) (399,528)
Operating expenses 5 (278,539) (314,805)
Finance costs 14 (20,055) (16,851)
Foreign exchange
loss (224) (4,113)
-------------------------------------------------------- ------ ------------- ------------
Total expenses 582,835 (1,895,907)
-------------------------------------------------------- ------ ------------- ------------
(Loss)/profit before
taxation (17,450,012) 4,991,087
Taxation - -
-------------------------- -------------- ------------ ------ ------------- ------------
(Loss)/profit after taxation and total
comprehensive (loss)/ income (17,450,012) 4,991,087
Basic and diluted (loss)/earnings
per Ordinary Share 12 (0.3757) 0.0914
The Company has no items of other comprehensive income, and
therefore the (loss)/profit for the period is also the total
comprehensive (loss)/income.
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
period.
The notes below form an integral part of these condensed
financial statements.
CONDENSED statement of financial position
As at 31 March 2019
31 March 30 September
2019 2018
(Unaudited) (Audited)
Notes GBP GBP
------------------------------------- ------ ------------ -------------
Non-current assets
Financial assets designated at fair
value through profit or loss 8 80,411,364 102,227,116
Current assets
Cash and cash equivalents 3,820,137 4,674,315
Trade receivables - securities sold
awaiting settlement 5,290,000 819,559
Other receivables 7 91,344 121,637
Total current assets 9,201,481 5,615,511
-------------------------------------- ------ ------------ -------------
Total assets 89,612,845 107,842,627
-------------------------------------- ------ ------------ -------------
Current liabilities
Trade payables - securities
purchased awaiting settlement (385,789) -
Other payables 9 (257,741) (1,423,300)
-------------------------------------- ------ ------------ -------------
Total current liabilities (643,530) (1,423,300)
-------------------------------------- ------ ------------ -------------
Total liabilities (643,530) (1,423,300)
-------------------------------------- ------ ------------ -------------
Net assets 88,969,315 106,419,327
-------------------------------------- ------ ------------ -------------
Capital and reserves
Stated capital 11 - -
Share premium 11 28,391,852 28,391,852
Retained earnings 60,577,463 78,027,475
-------------------------------------- ------ ------------ -------------
Equity Shareholders' funds 88,969,315 106,419,327
-------------------------------------- ------ ------------ -------------
The condensed financial statements were approved and authorised
for issue by the Board of Directors on 17 May 2019 and signed on
its behalf by:
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
The notes below form an integral part of these condensed
financial statements.
CONDENSED statement of changes in SHAREHOLDERS' EQUITY
For the six months ended 31 March 2019 (Unaudited)
Stated Share Retained
capital premium earnings Total
Note GBP GBP GBP GBP
------------------------------- ------ ---------- ----------- ------------- -------------
Opening equity Shareholders'
funds at
1 October 2018 - 28,391,852 78,027,475 106,419,327
--------------------------------------- --------- ----------- ------------- -------------
Total comprehensive loss
for the period - - (17,450,012) (17,450,012)
Transactions with owners,
recorded directly to equity
Redemption of Ordinary Shares 11 - - - -
Ordinary Share redemption
costs 11 - - - -
------------------------------- ------ ---------- ----------- ------------- -------------
Closing equity Shareholders'
funds at
31 March 2019 - 28,391,852 60,577,463 88,969,315
--------------------------------------- --------- ----------- ------------- -------------
For the six months ended 31 March 2018 (Unaudited)
Stated Share Retained
capital premium earnings Total
Note GBP GBP GBP GBP
------------------------------- ----- --------- ------------- ----------- -------------
Opening equity Shareholders'
funds at
1 October 2017 - 55,333,617 54,343,584 109,677,201
------------------------------- ----- --------- ------------- ----------- -------------
Total comprehensive income
for the period - - 4,991,087 4,991,087
Transactions with owners,
recorded directly to equity
Redemption of Ordinary Shares 11 - (14,999,850) - (14,999,850)
Ordinary Share redemption
costs 11 - (9,000) - (9,000)
------------------------------- ----- --------- ------------- ----------- -------------
Closing equity Shareholders'
funds at
31 March 2018 - 40,324,767 59,334,671 99,659,438
------------------------------- ----- --------- ------------- ----------- -------------
The notes below form an integral part of these condensed
financial statements.
CONDENSED statement of cash flows
For the six months ended 31 March 2019
Six months Six months
ended ended
31 March 31 March
2019 2018
(Unaudited) (Unaudited)
Notes GBP GBP
------------------------------------------------------------------ ------ ------------- -------------
Cash flows from operating
activities
(Loss)/profit before taxation for the
period (17,450,012) 4,991,087
Adjustments to reconcile (loss)/profit
before tax to net cash flows:
* Realised gain on financial assets designated at fair
value through profit or loss 8 (5,098,321) (13,470,678)
* Unrealised loss on financial assets designated at
fair value through profit or loss 8 23,583,525 6,873,297
Purchase of financial assets designated
at fair value through profit or loss(1) 8 (14,433,023) (8,413,365)
Proceeds from sale of financial assets
designated at fair value through profit
or loss(2) 8 13,678,919 19,547,060
Changes in working capital
Decrease in other receivables
and prepayments 30,293 47,151
(Decrease)/increase in other
payables (1,165,559) 134,886
Net cash (used in)/from operating
activities (854,178) 9,709,438
------------------------------------------------------------------- ------ ------------- -------------
Cash flows from financing
activities
Redemption of Ordinary Shares 11 - (14,999,850)
Ordinary Share redemption
costs paid - (9,000)
Net cash used in financing
activities - (15,008,850)
------------------------------------------------------------------- ------ ------------- -------------
Net decrease in cash and cash equivalents
in the period (854,178) (5,299,412)
------------------------------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at beginning
of the period 4,674,315 12,784,179
------------------------------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at the end
of the period 3,820,137 7,484,767
------------------------------------------------------------------- ------ ------------- -------------
(1) - Payables relating to purchases of financial assets
designated at fair value through profit or loss at 31 March 2019
amounted to GBP385,789 (31 March 2018: GBP1,500,401).
(2) - Proceeds outstanding at 31 March 2019 relating to sales of
financial assets designated at fair value through profit amounted
to GBP5,290,000 (31 March 2018: GBP243,045).
The notes below form an integral part of these condensed
financial statements.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. General information
The Company was incorporated as a non-cellular company with
liability limited by shares in Guernsey under The Companies
(Guernsey) Law 2008 (the "Companies Law") on 2 October 2014. It
listed its Ordinary Shares on the Premium Segment of the Official
List of the UK Listing Authority and was admitted to trading on the
Main Market of the London Stock Exchange on 2 December 2014.
The Company has been registered by the GFSC as a registered
closed-ended collective investment scheme pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended, and the RCIS Rules 2018. The Company registered number is
59106.
The Company's registered address is BNP Paribas House, St
Julian's Avenue, St Peter Port, Guernsey, GY1 1WA
2. Accounting policies
The Half-Yearly Financial Report has been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the FCA and
with International Accounting Standard (IAS) 34 - 'Interim
Financial Reporting'. The condensed financial statements do not
include all the notes of the type normally included in an Annual
Financial Report. Accordingly, this report is to be read in
conjunction with the Annual Financial Report for the year ended 30
September 2018. The Half-Yearly Financial Report has also been
prepared using the same accounting policies applied for the year
ended 30 September 2018 Annual Financial Report, which was prepared
in accordance with International Financial Reporting Standards
("IFRS"), except for new standards adopted by the Company as set
out below.
The Company applied, for the first time, IFRS 9 - Financial
Instruments ("IFRS 9") which became effective for the Company from
1 October 2018. This did not result in a restatement of previous
financial statements. As required by IAS 34, the nature and effect
of these changes are disclosed below.
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and
Measurement
IFRS 9 introduced a new approach to the classification of
financial assets which is driven by the business model in which the
asset is held and their cash flow characteristics. A new business
model approach was introduced which does allow certain financial
assets to be categorised as "amortised cost" or "fair value through
other comprehensive income" in certain circumstances; in other
circumstances those assets are measured as "fair value through
profit or loss". IFRS 9 carries forward the derecognition
requirements of financial assets and liabilities from IAS 39.
Trade and other receivables are subsequently measured at
amortised cost using the effective interest rate method less
expected credit losses.
The accounting policies in respect of financial instruments are
set out below at 2.3 due to the significance of financial
instruments to the Company. Policies in respect of financial
instruments have been consistently applied to all the periods
presented with exception for changes arising from the adoption of
IFRS 9 explained above. The Directors have undertaken an assessment
of the impact of IFRS 9 on the Company's financial statements and
concluded that there is no impact to the recognition and
measurement of the Company's financial assets.
All other accounting policies have been consistently applied to
all periods presented.
2.1 Going Concern
The Directors consider it is appropriate to adopt the going
concern basis in preparing the condensed financial statements as no
material uncertainties exist that may cast significant doubt
concerning the Company's ability to continue for 12 months after
the date of approval of the condensed financial statements.
2.2 Segmental reporting
The Directors view the operations of the Company as one
operating segment, being investment in UK Micro Cap Companies. All
significant operating decisions are based upon analysis of the
Company's investments as one segment. The financial results from
this segment are equivalent to the financial results of the Company
as a whole, which are evaluated regularly by the chief operating
decision-maker (the Board with insight from the Portfolio
Manager).
2.3 Financial instruments
Financial Assets
a) Classification
The Company classifies its investments in equity securities as
financial assets designated at fair value through profit or loss as
they are held for investment purposes. These financial assets are
managed, and their performance is evaluated on a fair value basis
in accordance with the Company's documented investment strategy.
The Company's policy requires the Portfolio Manager and the Board
of Directors to evaluate the information about these financial
assets on a fair value basis together with other related financial
information. Furthermore, these financial assets do not possess
contractual cash flows.
Financial assets also include cash and cash equivalents as well
as trade receivables and other receivables which are classified as
amortised cost using the effective interest rate method.
b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment. Financial assets designated at fair value through
profit or loss are measured initially at fair value. Transaction
costs are expensed as incurred and movements in fair value are
recorded in the Statement of Comprehensive Income. Subsequent to
initial recognition, all financial assets designated at fair value
through profit or loss are measured at fair value.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
c) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 31 March 2019, the Company held investments in a
diversified portfolio of UK Micro Cap Companies, typically
comprising companies with a free float market capitalisation of
less than GBP100 million at the time of purchase, whose securities
are admitted to trading on AIM.
Investments are valued at fair value, which are quoted bid
prices for investments traded in active markets.
As all the Company's financial assets are quoted securities
which are traded in active markets as at 31 March 2019, in the
opinion of the Directors, the fair value of the financial assets
for the six months ended 31 March 2019 are not subject to
significant judgments, estimates or assumptions.
d) Valuation process
The Directors are in ongoing communications with the Portfolio
Manager and hold meetings on a timely basis to discuss performance
of the investment portfolio and the valuation methodology and in
addition review monthly investment performance reports.
The Directors analyse the investment portfolio in terms of both
investment mix and fair value hierarchy and consider the impact of
general credit conditions and/or events that occur in the global
corporate environments which may impact the economic conditions in
the UK and ultimately on the valuation of the investment
portfolio.
Financial liabilities
a) Classification
Securities purchased awaiting settlement represent payables for
investments that have been contracted for but not yet settled or
delivered on 31 March 2019. Financial liabilities include amounts
due to brokers and other payables which are held at amortised cost
using the effective interest rate method.
b) Recognition, measurement and derecognition
Financial liabilities are recognised initially at fair value,
net of transaction costs incurred and are subsequently carried at
amortised cost using the effective interest rate method. Financial
liabilities are derecognised when the obligation specified in the
contract is discharged, cancelled or expires.
3. Investment income
Six months Six months
ended ended
31 March 31 March
2019 2018
(Unaudited) (Unaudited)
GBP GBP
Investment income 440,910 273,362
Bank interest 11,447 16,251
Total investment income 452,357 289,613
--------------------------- ------------ ------------
4. Portfolio management and performance fees
On 3 November 2014, the Company signed an Investment Management
agreement with the Manager and the Portfolio Manager, whereby the
Manager delegated to the Portfolio Manager overall responsibility
for the discretionary management of the Company assets in
accordance with the Company's investment objective and policy.
The Manager or the Portfolio Manager may voluntarily terminate
the Investment Management agreement by providing six months' notice
in writing. The Manager's power to terminate the appointment of the
Portfolio Manager under the Investment Management agreement may
only be exercised under the direction of the Board and the Manager
has agreed to comply with the instructions of the Board as regards
to any proposed termination of the Portfolio Manager's
appointment.
Under the agreement, the Portfolio Manager is entitled to
receive a base fee and performance fee. The Portfolio Manager base
fee is payable monthly in arrears at a rate of one-twelfth of 0.75%
of NAV. A performance fee equal to 15% of the amount by which the
Company's NAV outperforms the total return on the benchmark, (being
Numis Smaller companies plus AIM (excluding Investment Companies)
total return index), will be payable to the Portfolio Manager over
a performance period.
The performance period is the period between two redemptions,
being the first business day after the calculation date, (referable
to the earlier redemption (opening date)), and the end day of the
calculation date (referable to the later redemption (closing
date)). The first opening date was the date of admission and in
circumstances in which a performance fee may be payable upon
termination of this Agreement, the final closing date shall be the
date in which the agreement is terminated. The calculation date is
the date determined by the Board for the calculation of the price
to be paid on any particular exercise of the redemption mechanism.
The performance fee is only paid when the Company implements the
redemption mechanism as detailed in note 11.
During the six months ended 31 March 2019, the Company
recognised the reversal of the performance fees accrued as at 30
September 2018 of GBP1,210,297 (31 March 2018: the Company
recognised performance fees expense of GBP1,160,610). As at 31
March 2019, no performance fees were accrued (30 September 2018:
GBP1,210,297) and no performance fees were paid during the period
(31 March 2018: GBP1,026,823). Please refer to the Financial
Highlights and Performance Summary for details of the Company's
previous redemptions.
5. Operating expenses
Six months Six months
ended ended
31 March 31 March
2019 2018
(Unaudited) (Unaudited)
GBP GBP
Directors' fees 59,836 58,520
AIFM fees 26,372 27,055
Audit fees 19,055 18,500
Non-audit fees 17,500 17,000
Administration fees 61,271 74,249
Broker fees 19,945 25,006
Custody fees 8,495 9,010
Registrar fees 8,855 17,520
Transaction fees 18,680 25,088
Sundry expenses 31,200 41,443
Legal and professional fees 7,330 1,414
------------------------------- ------------ ------------
Total operating expenses 278,539 314,805
------------------------------- ------------ ------------
Non-audit fees
Non-audit fees incurred during the period ended 31 March 2019
relating to interim review services amounted to GBP17,500. For the
period ended 31 March 2018, non-audit fees related to interim
review services amounting to GBP17,000. Non-audit fees payable as
at 31 March 2019 were GBP17,500 (30 September 2018: GBPnil).
AIFM fee
On 21 October 2014, the Company signed an AIFM agreement with
the Manager to act as the Company's AIFM. Under the agreement, the
Manager is entitled to an annual fixed fee of GBP54,000. The annual
fixed fee is paid quarterly in arrears. AIFM fees payable as at 31
March 2019 were nil (30 September 2018: nil). The AIFM agreement
can be terminated by either the Company or the Manager by giving
the other not less than ninety days' written notice or on immediate
notice on the occurrence of certain "cause" events.
Custody fee
On 21 October 2014, the Company signed a Global Custody
Agreement with the Manager and the Administrator, whereby the
Company appointed the Administrator to carry out custodian
services. In its role as custodian, the Administrator is entitled
to a fee payable by the Company on a transaction by transaction and
ad-valorem fee basis. Custody fees payable as at 31 March 2019 were
GBP913 (30 September 2018: GBP1,101).
Administration fee
On 21 October 2014, the Company signed an agreement with the
Administrator to provide administrative, compliance oversight and
company secretarial services to the Company. Under the
administration agreement, the Administrator will be entitled to a
minimum annual fixed fee for fund administration services, company
secretarial and compliance services. These fees are paid monthly in
arrears. Ad hoc other administration services are chargeable on a
time cost basis. In addition, the Company will reimburse the
Administrator for any out of pocket expenses. Administration fees
payable as at 31 March 2019 were GBP7,557 (30 September 2018:
GBP8,162).
Broker fee
On 20 January 2015, the Company signed a Corporate Stockbroker
and Financial Adviser agreement with Winterflood Investment Trusts
(a division of Winterflood Securities Limited) ("Winterflood"), to
provide corporate stockbroker and financial adviser services to the
Company. Under the agreement, Winterflood was entitled to a fee
payable by the Company of GBP50,000 per annum payable half yearly
in arrears.
On 1 August 2018, the Company announced it had replaced
Winterflood with Cantor Fitzgerald Europe ("Cantor Fitzgerald"), to
provide corporate stockbroker and financial adviser services to the
Company as the Company's sole broker. Under the agreement, Cantor
Fitzgerald is entitled to a fee payable by the Company of GBP40,000
per annum payable quarterly in arrears.
Total broker fees incurred during the six months were GBP19,945
(31 March 2018: GBP25,006). Broker fees payable as at 31 March 2019
were GBP3,397 (30 September 2018: GBP11,467).
6. Directors' fees and interests
The Directors of the Company were remunerated for their services
at a fee of GBP25,000 per annum (GBP40,000 for the Chairman) and
the Chairman of the Audit Committee received an additional GBP5,000
for his services in this role.
The Company has no employees other than the Directors.
Directors' fees payable as at 31 March 2019 were GBP29,589 (30
September 2018: GBP29,589).
On 2 October 2018, Ian Burns purchased 5,500 Ordinary Shares at
a price of GBP2.1250 per share, with a total market value of
GBP11,688.
As at the date of approval of the Half-Yearly Financial Report,
Andrew Chapman, Trudi Clark, Mark Hodgson and Ian Burns held
13,562, 11,445, 22,040 and 5,500 Ordinary Shares in the Company
respectively. No pension contributions were payable in respect of
any of the Directors.
7. Other receivables
31 March 30 September
2019 2018
(Unaudited) (Audited)
GBP GBP
Dividend receivable 85,860 113,889
Prepayments 5,450 7,705
Bank interest receivable 33 42
Ordinary Share receivable 1 1
------------------------------- ------------------- ------------ -------------
Total other receivables 91,344 121,637
------------------------------- ------------------- ------------ -------------
The Directors believe that these balances are fully recoverable
and therefore have not recognised any expected credit losses.
8. Financial assets designated at fair value through profit or
loss
31 March 30 September
2019 2018
(Unaudited) (Audited)
GBP GBP
Financial assets designated at fair value
through profit or loss 80,411,364 102,227,116
-------------------------------------------------------- ------------ -------------
The Company has invested the proceeds raised from the initial
Ordinary Share issue and subsequent Ordinary Share tap issues in a
portfolio of UK Micro Cap Companies in line with its investment
strategy. These investments are predominantly comprised of
companies whose securities are admitted to trading on the AIM, with
a free float market capitalisation of less than GBP100 million at
the time of purchase.
Fair value hierarchy
IFRS 13 'Fair Value Measurement' requires an analysis of
investments valued at fair value based on the reliability and
significance of information used to measure their fair value.
The Company categorises its financial assets according to the
following fair value hierarchy detailed in IFRS 13, that reflects
the significance of the inputs used in determining their fair
values:
Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly (i.e., as prices) or indirectly (i.e., derived from
prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted
prices for identical or similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
31 March
2019
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial assets GBP GBP GBP GBP
Financial assets designated
at fair value through profit
or loss 80,411,364 - - 80,411,364
------------------------------- ------------ ------------ ------------ -------------
30 September
2018
Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
Financial assets GBP GBP GBP GBP
Financial assets designated
at fair value through profit
or loss 102,227,116 - - 102,227,116
------------------------------- ------------ ------------ ------------ -------------
Financial assets designated at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 1 to 3
between the beginning and the end of the reporting period.
31 March 2019 Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP GBP
---------------------------------- ------------- ------------ ------------ -------------
Opening valuation 102,227,116 - - 102,227,116
---------------------------------- ------------- ------------ ------------ -------------
Purchases during the period 14,818,812 - - 14,818,812
Sales - proceeds during the
period (18,149,360) - - (18,149,360)
Realised gain on financial
assets designated at fair
value through profit or loss(1) 5,098,321 - - 5,098,321
Unrealised loss on financial
assets designated at fair
value through profit or loss(2) (23,583,525) - - (23,583,525)
Closing valuation 80,411,364 - - 80,411,364
Total net gain on financial
assets for the period ended
31 March 2019 (18,485,204) - - (18,485,204)
---------------------------------- ------------- ------------ ------------ -------------
(1) Realised gain on financial assets designated at fair value
through profit or loss is made up of GBP8,377,558 gain and
GBP(3,279,237) loss.
(2) Unrealised gain on financial assets designated at fair value
through profit or loss is made up of GBP7,647,904 gain and
GBP(31,231,429) loss.
During the period ended 31 March 2019, there were no
reclassifications between levels of the fair value hierarchy.
30 September 2018 Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
GBP GBP GBP GBP
---------------------------------- ------------- ---------- ---------- -------------
Opening valuation 97,606,392 - - 97,606,392
---------------------------------- ------------- ---------- ---------- -------------
Purchases during the year 21,826,770 - - 21,826,770
Sales - proceeds during the
year (44,961,516) - - (44,961,516)
Realised gain on financial
assets designated at fair
value through profit or loss(3) 25,702,170 - - 25,702,170
Unrealised gain on financial
assets designated at fair
value through profit or loss(4) 2,053,300 - - 2,053,300
Closing valuation 102,227,116 - - 102,227,116
Total gain on financial assets
for the year ended 30 September
2018 27,755,470 - - 27,755,470
---------------------------------- ------------- ---------- ---------- -------------
(3) Realised gain on financial assets designated at fair value
through profit or loss is made up of GBP28,254,645 gain and
GBP(2,552,475) loss.
(4) Unrealised gain on financial assets designated at fair value
through profit or loss is made up of GBP22,948,843 gain and
GBP(20,895,543) loss.
During the year ended 30 September 2018, there were no
reclassifications between levels of the fair value hierarchy.
Please refer to note 2.3 for valuation methodology of financial
assets designated at fair value through profit or loss. As at 31
March 2019, none of the investments held are deemed to be illiquid
in nature and on this basis are not subject to any special
arrangements.
9. Other payables
31 March 30 September
2019 2018
(Unaudited) (Audited)
GBP GBP
Portfolio management fees 110,936 66,512
Portfolio performance fees - 1,210,297
Administration fees 13,099 10,884
Audit fees 18,955 38,110
Non-audit fees 17,500 -
Broker fees 3,397 11,467
Custody fees 913 1,101
Directors' fees 29,589 29,589
Registrar fees 1,187 583
Sundry expenses 62,165 54,757
Total other payables 257,741 1,423,300
------------------------------ ------------ -------------
10. Contingent liabilities and commitments
As at 31 March 2019, the Company had no contingent liabilities
or commitments (30 September 2018: nil).
11. Stated capital and share premium
Authorised
The authorised share capital of the Company is represented by an
unlimited number of redeemable Ordinary Shares at no par value.
Allotted, called up and fully-paid
Ordinary Shares Number of Stated Share
shares capital premium
GBP GBP
---------------------------------------- ----------- --------- -----------
Total issued share capital as at
1 October 2018 46,445,043 - 28,391,852
---------------------------------------- ----------- --------- -----------
Ordinary Shares redeemed during - - -
the period
---------------------------------------- ----------- --------- -----------
Total issued share capital as at
31 March 2019 46,445,043 - 28,391,852
---------------------------------------- ----------- --------- -----------
Ordinary Shares Number of Stated Share
shares capital premium
GBP GBP
---------------------------------- ------------- --------- -------------
Total issued share capital as at
1 October 2017 59,795,329 - 55,333,617
------------------------------------ ------------- --------- -------------
Ordinary Shares redeemed during
the year (13,350,286) - (26,941,765)
------------------------------------ ------------- --------- -------------
Total issued share capital as at
30 September 2018 46,445,043 - 28,391,852
------------------------------------ ------------- --------- -------------
Ordinary Shares
As at 31 March 2019, the Company had 46,445,043 Ordinary Shares
(30 September 2018: 46,445,043) in issue.
Each holder of Ordinary Shares is entitled to attend and vote at
all general meetings that are held by the Company. Each holder is
also entitled to receive payment of a dividend should the Company
declare such a dividend payment. Any dividends payable by the
Company will be distributed to the holders of the Company Ordinary
Shares, and on the winding-up of the Company or other return of
capital (other than by way of a repurchase or redemption of shares
in accordance with the provisions of the Articles and the Companies
Law), the Company's surplus assets, after payment of all creditors,
will be distributed among the holders of the Company Ordinary
Shares.
The Board anticipates that returns to Shareholders will be made
through the Company's redemption mechanism and therefore does not
expect that the Company will pay any dividends.
No dividends have been declared or paid during the period (2018:
nil).
Issuance of Ordinary Shares
No Ordinary Shares were issued during the six months ended 31
March 2019 (30 September 2018: nil Ordinary Shares issued).
Redemption mechanism
As the Company has been established as a closed-ended collective
investment scheme, there is no right or entitlement attaching to
the Ordinary Shares that allows them to be redeemed or repurchased
by the Company at the option of the Shareholder.
The redemption mechanism allows the Board to redeem any number
of shares at the prevailing NAV per share at the calculation date,
(being the date determined by the Board for the calculation of the
price to be paid on any particular exercise of the redemption
mechanism), less the cost of redemption. This right will only be
exercised in specific circumstances and for the purpose of
returning capital growth.
On the basis that the NAV has exceeded GBP100 million, the
Directors intend to operate the redemption mechanism to return the
net asset value back to around GBP100 million in order to:
-- enable the Company to exploit fully the underlying investment
opportunity and to deliver high and
sustainable returns to Shareholders, principally in the form of capital gains;
-- enable portfolio holdings to have a meaningful impact on the
Company's performance, which might otherwise be marginal within the
context of a larger fund; and
-- ensure that the Company can continually take advantage of the
illiquidity risk premium inherent in Micro Cap Companies.
The Directors are not obliged to operate the redemption
mechanism and will not do so if:
-- calculation and publication of the NAV has been suspended; or
-- the Directors are unable to make the solvency statement required by Guernsey law; or
-- other circumstances exist that the Board believes make the
operation of the redemption mechanism undesirable or
impracticable.
Redemptions will, subject to compliance with all applicable law
and regulation, be carried out pro rata to a Shareholder's holding
of Ordinary Shares, but all redemptions will normally be subject to
a de minimis value to be returned of approximately GBP10 million
(before costs). The Company will not redeem fractions of
shares.
The price at which any Ordinary Shares are redeemed under the
redemption mechanism will be calculated by reference to unaudited
NAV calculations. To the extent that any redemption takes place at
a time when the Ordinary Shares are trading at a significant
premium to the prevailing unaudited NAV, Shareholders may receive
an amount in respect of their redeemed Ordinary Shares that is
materially below the market value of those shares prior to
redemption.
In order to facilitate any redemptions, the Company may be
required to dispose of assets within the investment portfolio.
There is no certainty of the price that can be achieved on such
sales and any sale price could be materially different from the
carrying value of those assets. Consequently, the value received in
respect of redeemed Ordinary Shares may be adversely affected where
the Company is not able to realise assets at their carrying values.
In addition, during any period when the Company is undertaking
investment portfolio realisations, it may hold the sale proceeds
(which could, in aggregate, be a material amount) in cash, which
could impact the Company's returns, until the redemption is
implemented and the cash is distributed to Shareholders.
Investors should note that the redemption mechanism has a
specific and limited purpose, and no expectation or reliance should
be placed on the redemption mechanism being operated on any one or
more occasions or as to the proportion of Ordinary Shares that may
be redeemed or as to the price at which they will be redeemed. The
redemption mechanism may also lead to a more concentrated and less
liquid portfolio, which may adversely affect the Company's
performance and value.
In the absence of the availability of the redemption mechanism,
Shareholders wishing to realise their investment in the Company
will be required to dispose of their shares on the stock market.
Accordingly, Shareholders' ability to realise their investment at
any particular price and/or time may be dependent on the existence
of a liquid market in the shares.
On 1 December 2017, the Company completed its second compulsory
redemption of Ordinary Shares where 7,843,469 Ordinary Shares were
redeemed and cancelled as part of the redemption mechanism at a
redemption price of GBP1.9124 per Ordinary Share, (which excludes
costs of redemption of GBP9,000), returning GBP14,999,850 to
Shareholders.
On 27 July 2018, the Company completed its third compulsory
redemption of Ordinary Shares where 5,506,817 Ordinary Shares were
redeemed and cancelled as part of the redemption mechanism at a
redemption price of GBP2.1659 per Ordinary Share (which excludes
costs of redemption of GBP5,700), returning GBP11,927,215 to
Shareholders.
12. Basic and diluted earnings per Ordinary Share
Six months Six months
ended ended
31 March 31 March
2019 2018
(Unaudited) (Unaudited)
GBP GBP
Total comprehensive (loss)/income
for the period (17,450,012) 4,991,087
Weighted average number of Ordinary Shares
during the period 46,445,043 54,580,715
Basic and diluted (loss)/earnings
per Ordinary Share (0.3757) 0.0914
13. Net asset value per Ordinary share
31 March 30 September
2019 2018
(Unaudited) (Audited)
GBP GBP
Net asset value 88,969,315 106,419,327
Number of Ordinary Shares at
period end 46,445,043 46,445,043
Net asset value per Ordinary
Share 1.9156 2.2913
14. Finance costs
On 9 December 2016, the Company entered into a Sterling Facility
Agreement (the "Facility") for a GBP2,000,000 revolving credit
facility with BNP Paribas Securities Services S.C.A. (the "Lender")
and BNP Paribas Securities Services S.C.A., Guernsey Branch (the
"Custodian"); and Security Interest Agreement between the Company,
the Lender and Custodian.
Loan interest of 2.05% per annum over LIBOR will be paid on any
outstanding loan amounts and a loan commitment fee of 0.50% per
annum is payable on the available commitment, being GBP2,000,000
less the amount of any outstanding loan, for the availability
period. In addition, a loan arrangement fee of GBP8,000 was paid on
the date of the facility agreement.
The Company has agreed to adhere to the following covenants
under the terms of the Facility at all times:
-- any amounts drawn down do not exceed 20% of the NAV of the Company;
-- that the gross value of the Company's investment assets
quoted on the London Stock Exchange's Main and Alternative
Investment Markets (and any additional assets subject to prior
approval by all parties) shall exceed any amounts drawn down by
three times; and
-- that the NAV of the Company is not less than GBP30,000,000.
On 13 December 2017, the Company signed an Extension and
Amendment Agreement that varied the terms of the Facility entered
into on 9 December 2016. With effect from the 20 December 2017, the
loan commitment was increased to GBP5,000,000 and the loan interest
amended to 1.75% per annum over LIBOR. A loan extension fee of
GBP8,000 was paid, on the date of the Extension and Amendment
Agreement. The termination date was amended to be 7 December
2018.
On 11 December 2018, the Company signed an Extension Agreement
that varied the terms of the Facility entered into on 9 December
2016, as amended on 13 December 2017. With effect from 7 December
2018, the Facility was extended for 364 days to 6 December 2019 and
the Company incurred an extension fee of GBP8,000. There was no
change to the loan commitment, loan commitment fee or interest
rate.
The Facility was not drawn upon as at 31 March 2019.
15. Related party disclosure
The Manager and Portfolio Manager are deemed related parties and
all transactions between these related parties were conducted on
terms equivalent to those prevailing in an arm's length
transaction. Please refer to note 4 for further detail.
As at 31 March 2019, the Portfolio Manager held 4,310,768 (30
September 2018: 4,310,768) Ordinary Shares in the Company.
George Ensor is deemed to be a related party as he is the Fund
Manager of the Portfolio Manager. As at the date of approval of the
Half-Yearly Financial Report, he held 20,170 (30 September 2018:
20,170) Ordinary Shares in the Company.
The Directors are entitled to remuneration for their services.
Please refer to note 6 for further detail. Mark Hodgson is the
Managing Director of the Manager.
For Directors' fees and portfolio management fees payable as at
31 March 2019 please refer to note 9.
16. Material events after the Condensed Statement of Financial
Position date
There were no events which occurred subsequent to the period end
until the date of approval of the condensed financial statements,
which would have a material impact on the condensed financial
statements of the Company as at 31 March 2019.
17. Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
Company information
Board members Advocates to the Company
Andrew Chapman (Chairman) (as to Guernsey law)
Ian Burns (Chairman of the Audit Carey Olsen
Committee and Senior Independent P.O. Box 98
Director) Carey House
Trudi Clark (Chairman of the Les Banques
Remuneration and Nomination St Peter Port
Committee and Management Engagement Guernsey
Committee) GY1 4BZ
Mark Hodgson
Registered Office Custodian
BNP Paribas House BNP Paribas Securities Services
St Julian's Avenue S.C.A., Guernsey Branch
BNP Paribas House
St Julian's Avenue
St Peter Port St Peter Port
Guernsey Guernsey
GY1 1WA GY1 1WA
Portfolio Manager Independent Auditor
PricewaterhouseCoopers CI LLP
PO Box 321
River and Mercantile Asset Management Royal Bank Place
LLP 1 Glategny Esplanade
30 Coleman Street St Peter Port
London Guernsey
EC2R 5AL GY1 4ND
Manager Administrator and Company Secretary
Carne Global AIFM Solutions
(C.I.) Limited BNP Paribas Securities Services
Channel House S.C.A., Guernsey Branch(1)
BNP Paribas House
Green Street St Julian's Avenue
St Helier St Peter Port
Jersey Guernsey
JE2 4UH GY1 1WA
Corporate Broker(2) Registrar(3)
Cantor Fitzgerald Europe Computershare Investor Services
One Churchill Place (Guernsey) Limited
Canary Wharf 1(st) Floor, Tudor House
London Le Bordage
E14 5RB St Peter Port
Guernsey
GY1 1DB
Solicitors to the Company
(as to English law)
CMS Cameron McKenna Nabarro
Olswang LLP
Cannon Place
78 Cannon Street
London
EC4N 6AF
(1) BNP Paribas Securities Services S.C.A. Guernsey Branch is
regulated by the Guernsey Financial Services Commission.
(2) From 1 August 2018, the Company appointed Cantor Fitzgerald
Europe to act as the Company's Corporate Broker, replacing
Winterflood Securities Limited.
(3) From 6 March 2018, the Company appointed Computershare
Investor Services (Guernsey) Limited to act as the Company's
registrar, replacing Link Asset Services (formerly Capita
Registrars (Guernsey) Limited).
Enquiries:
Cantor Fitzgerald Europe
Robert Peel
Tel: +44 (0) 20 7894 7719
River and Mercantile Asset Management LLP
Mark Thomas
James Barham
Tel: +44 (0) 20 7601 6262
BNP Paribas Securities Services S.C.A., Guernsey Branch -
Company Secretary
Jasper Cross
Tel: +44 (0) 1481 750859
A copy of the Company's Annual Financial Report will be
available shortly from the Company Secretary, (BNP Paribas
Securities Services S.C.A., Guernsey Branch, BNP Paribas House, St
Julian's Avenue, St Peter Port, Guernsey, GY1 1WA).
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.
River and Mercantile UK Micro Cap Investment Company Limited is
regulated by the Guernsey Financial Services Commission
A copy of this announcement is and will be available, subject to
certain restrictions relating to persons resident in restricted
jurisdictions for inspection on the Company's website at
microcap.riverandmercantile.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BXGDUSSBBGCR
(END) Dow Jones Newswires
May 17, 2019 09:48 ET (13:48 GMT)
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