TIDMRMMC
RNS Number : 6630N
River & Mercantile UK Micro Cap Inv
22 May 2020
River and Mercantile UK Micro Cap Investment Company Limited
(the "Company")
Publication of the Half-Yearly Financial Report for the six
months ended 31 March 2020
22 May 2020
THE COMPANY AT A GLANCE
Investment objective
River and Mercantile UK Micro Cap Investment Company Limited
(the "Company") aims to achieve long term capital growth from
investment 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.
Investment strategy and policy
The Company's investment strategy is to take advantage of the
illiquidity risk premium inherent in UK micro cap companies and
exploit fully the underlying investment opportunities in that area
of the market to deliver high and sustainable returns to
Shareholders, in the form of capital gains.
It is expected that the majority of the Company's investible
universe will comprise companies whose securities are admitted to
trading on the Alternative Investment Market of the London Stock
Exchange. While it is intended that the Company will be fully
invested in normal market conditions, the Company may hold cash or
similar instruments.
Carne Global AIFM Solutions (C.I.) Limited (the "Manager") is
the Manager of the Company. It delegates Portfolio Management to
River and Mercantile Asset Management LLP (the "Portfolio
Manager").
About the Portfolio Manager
The Portfolio Manager is an active equity manager, specialising
in UK and global equity strategies since its launch in 2006. Since
2014, it has been part of River and Mercantile Group PLC (the
"Group"). The Group is an advisory and investment solutions
business with a broad range of services, from consulting and
advisory to fully delegated fiduciary management, liability driven
investing and fund management.
George Ensor, the appointed portfolio manager, has been
responsible for the Company's portfolio since February 2018. Please
refer below for George Ensor's biography.
Capital redemptions and dividend policy
The Company is committed to achieving long term capital growth
and, where possible, returning such growth to Shareholders
throughout the life of the Company. Furthermore, the Board believes
that a Net Asset Value ("NAV") in normal circumstances in the
region of GBP100 million will position the Company to take
advantage of a portfolio of micro cap companies. Accordingly, the
Directors operate a Capital Redemption Mechanism under which a
portion of the Company's share capital is redeemed compulsorily to
return the NAV 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 Company does not expect to pay dividends.
Management of your Company
The Board of the Company comprises a majority of independent
non-executive directors with extensive knowledge of investment
matters, the regulatory and legal framework within which the
Company operates, as well as the various roles played by investment
companies in shareholders' portfolios.
The Board provides oversight of the Company's activities and
ensures that the appropriate financial resources and controls are
in place to deliver the investment strategy and manage the risks
associated with such activities. The Board actively and
continuously supervises both the Manager and the Portfolio Manager
in the performance of their respective functions. The Portfolio
Manager is authorised and regulated by the Financial Conduct
Authority and the Manager is authorised and regulated by the Jersey
Financial Services Commission.
Covid-19
Please refer below for a statement regarding Covid-19 and its
impact on the Company.
financial highlights AND performance summary
Key Performance Indicators
NAV total return
NAV on a total return (1) basis increased by 48.98% from
inception (net of issue cost), outperforming the total return
posted by the Numis Smaller Companies plus Alternative Investment
Market ("AIM") (excluding Investment Companies Index) (the
"Benchmark") total return (2) of 4.00%. Please refer to the chart
below showing the NAV total return versus the Benchmark from
inception:
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
NAV total return vs Benchmark for the six months ended 31 March
2020
Over the six months ended 31 March 2020, the NAV total return of
the Company outperformed the Benchmark by 1.44%, recording a NAV
total return decline of 22.78%, which compares with the total
return decline of 24.22% posted by the Benchmark.
NAV and Share price
As at As at
31 March 30 September
2020 2019
NAV per Ordinary Share(3) GBP1.4600 GBP1.8908
Ordinary Share price (bid GBP1.0200 GBP1.5700
price)(4)
Discount (30.14%) (16.97%)
Period highs and lows
Six months Six months Year ended Year ended
ended 31 ended 31 30 September 30 September
March 2020 March 2020 2019 2019
High Low High Low
NAV per Ordinary Share(3) GBP2.0172 GBP1.2860 GBP2.2901 GBP1.7746
Ordinary Share price (bid GBP2.1100 GBP1.4800
price)(4) GBP1.7100 GBP0.8450
Premium / discount(5)
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
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(6) 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 9 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 period.
(1) - The NAV total return measures how the NAV per Ordinary
Share has performed over a period of time, taking into account
capital returns. The Company quotes NAV total return as a
percentage change from the initial issuance of Ordinary Shares to
31 March 2020. The Company has not declared a dividend since
inception. The Board monitors the Company NAV total return against
the Benchmark.
(2) - Source: Numis Securities Limited
(3) - The NAV per Ordinary Share is the value of all the
Company's assets, less any liabilities it has, divided by the total
number of Ordinary Shares.
(4) - Source: Bloomberg
(5) - As the Company's Ordinary Shares are traded on the London
Stock Exchange's Main Market, the share price may be higher or
lower than the NAV. The Company's discount / premium to NAV is the
difference between the Ordinary Share price (bid price) and the NAV
per share on the same day in comparison to the NAV per share on the
same day. This comparison is expressed as a percentage.
(6) - Excludes the cost of each redemption, which total
GBP23,700.
chairman's statement
On being nimble in times of crisis
As you are all aware, the outlook for both the UK and Global
economies deteriorated sharply in only a matter of weeks, since
Covid-19 struck around the world. There are a range of estimates
for the expected decline in U.K. GDP in the second quarter of 2020,
but most forecasters expect a strong recovery in the following
quarter. This could well mark the deepest recession since the
financial crisis in 2008 for the UK. Unlike the financial crisis,
it is not just financial pain we are feeling, since we are all
concerned about our families and loved ones too. Therefore, the
human toll of this crisis will be felt in untold ways.
Whilst this is the economic backdrop at the time of writing this
report, I thought it worth considering how small and micro-cap
stocks might be positioned in responding to times of market stress
and what attributes they have that could set them apart from larger
companies. An example of resilience in times of crisis is the
family-owned furniture retailer, the House of Reeves, that suffered
a horrendous fire after the rioting in London during August 2011.
Images of firefighters being unable to save the store from the
engulfing flames were broadcast and became emblematic of the London
riots. This business had been owned within the same family in
Croydon for over 145 years. The day after the fire the House of
Reeves began its recovery, with staff helping to relocate the
business to a nearby building and they continue trading profitably
to this day.
While smaller firms tend to lack the formalised planning and
resources of larger businesses, they do benefit from agility and
flexibility in times of crisis. A smaller business is unlikely to
have run several disaster recovery exercises and considered what
each response might be to these different scenarios; but then, they
are much more adaptable in being able to react to any scenario.
Rather than having to turn an oil tanker around, the people with
the hands on the tiller have a much more nimble vessel to helm.
Secondly, a lack of an unwieldy infrastructure may afford business
owners the potential to make decisions quickly with an ability to
tap into their close networks at short notice. It will also be
beneficial that those in control of small businesses quite often
are the owners of the key relationships, whether that be with
suppliers, lenders, local authorities or insurers, and can use a
personal touch to make a difference in any negotiation.
Another factor to consider when weighing up the benefits of a
smaller company's agility, is its ability to access finance. We
have seen that the UK Chancellor, Rishi Sunak, has taken
unprecedented steps recently to improve access to finance for
smaller companies, with the provision of the Coronavirus Business
Interruption Loan Scheme. Yet, to what degree this will ensure that
the banks unblock this provision of finance still remains to be
seen.
In times like this, we believe that our Portfolio Manager's
disciplined use of River and Mercantile's proprietary tools to
guide his stock selection and regular meetings with key management
of businesses in the micro-cap universe, allows him to determine
which ones are most likely to survive and flourish. Indeed, a
smaller company with a resourceful management team, access to
finance and proven business model, should also be able to use its
nimbleness and agility to position itself more for both the long
and the short term.
Across the small and micro-cap listed investment company sector
we have seen a widening of discounts to NAV through the current
Covid-19 crisis. The discount to the NAV for our Company widened
from 16.97% at the date of our final results, 30 September 2019, to
30.14% at 31 March 2020. This despite the fact that the NAV total
return of the Company outperformed the Benchmark. This is of course
an issue that your Board is taking very seriously and we are
continuing to hold discussions and explore measures in order to
narrow the discount.
Summary
We are coming through a very difficult period not just in terms
of the financial markets but also through the continued impact of
Covid-19 and the ongoing measures around social distancing.
However, as further commented on in the Executive Summary, our
cautious investment strategy - with an absence of leverage - has
enabled the Company to remain resilient through this period of
crisis and disruption.
On behalf of the Board, I would very much like to thank our
Shareholders for their continued support through this testing
period.
Andrew Chapman
Chairman
21 May 2020
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's operation and results for the six months ended 31
March 2020. 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 2020, the Company's
issued stated capital comprised 46,445,043 Ordinary Shares (30
September 2019: 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 six months ended 31 March 2020
Facility agreement
On 11 December 2018, the Company signed an Extension Agreement
that varied the terms of the Sterling Facility Agreement (the
"Facility") with BNP Paribas Securities Services S.C.A. 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. The Board decided not to renew the Facility, which
subsequently expired on 6 December 2019.
Covid-19
The beginning of 2020 has seen a dramatic increase in the
volatility of global financial markets due to the Covid-19
pandemic, which has resulted in global economic disruption and has
caused the NAV of the Company to decline significantly by 31 March
2020. Whilst the continued impact of Covid-19 is difficult to
estimate, its effects may continue to adversely affect economies
globally and, in particular, underlying portfolio holdings which
may further negatively impact the Company's NAV.
Both the Board and the Manager are actively monitoring the
situation and are in frequent dialogue with the Portfolio Manager,
who continues to diligently manage the Company's assets in line
with the Company's investment strategy. Further to the going
concern statement below, the Board are confident that the Company,
which is unleveraged, has sufficient resources at its disposal and
liquidity in its portfolio to remain a going concern. Both the
Board and the Manager will continue to monitor the situation and
support the Portfolio Manager where necessary in order to guide the
Company through this period of exceptional volatility.
Corporate governance
In February 2019, the AIC released the AIC Code for accounting
periods beginning on or after 1 January 2019 following the release
of the revised UK Code in July 2018. The AIC Code provides specific
corporate governance guidelines to investment companies that
enables the Company to meet its obligations under the UK Code. The
Company will report against the AIC Code, in the Annual Financial
Report for the year ended 30 September 2020, on a comply and
explain basis and will set out the Company's governance
arrangements. The Board believes this will allow shareholders to
make a robust assessment of how the Company has complied with the
principles and provisions of the AIC Code.
Copies of the AIC Code and the UK Code can be found on the
respective organisations' websites (www.theaic.co.uk and
www.frc.org.uk). The AIC Code includes an explanation of how the
AIC Code adapts the principles and provisions set out in the UK
Code to make them relevant for investment companies.
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.
Company investment policy
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. As
at 31 March 2020, the Company had no borrowings, r efer to note 12
for further details.
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. The Company did not use
derivatives during the period under review and held no derivatives
as at 31 March 2020 (30 September 2019: none).
Further information can be found in the Portfolio Manager's
Report which is incorporated within this Half-Yearly Financial
Report below.
Investment strategy and approach
The Company's investment strategy is to take advantage of the
illiquidity risk premium inherent in UK micro cap companies and
exploit fully the underlying investment opportunity in the UK micro
cap market to deliver high and sustainable returns to Shareholders,
principally in the form of capital gains in line with the Company
investment objective and policy.
The Company pursues its investment strategy through the
appointment of the Manager as AIFM, whereby the Manager has been
given responsibility, subject to the supervision of the Board, for
the management of the Company in accordance with the Company's
investment objective and policy. The Manager has delegated
portfolio management to the Portfolio Manager, whose philosophy is
to construct a portfolio of companies that have the Potential to
create shareholder value at attractive Valuations with supportive
Timing ("PVT"), as detailed further below. The Company depends on
the diligence, skill, judgement and business contacts of the
Portfolio Manager's investment professionals, in particular George
Ensor, in identifying investment opportunities which are in line
with the investment objective and policy of the Company.
The Portfolio Manager attends all Board meetings at which the
investment strategy and performance of the Company is discussed and
approved.
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 20,562
---------------------
Ian Burns 5,500
---------------------
Trudi Clark 11,445
---------------------
Mark Hodgson 22,040
---------------------
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
The Company invests 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.
These securities are likely to have higher volatility and liquidity
risk than securities on the Main Market of the London Stock
Exchange or the Financial Conduct Authority's Official List. The
relatively small market capitalisation of micro cap companies could
therefore have an adverse effect on the performance of these
investments and can make the market in their shares illiquid. On
this basis prices of micro cap companies are often more volatile
than prices of larger capitalisation stocks, and even small cap
companies.
The Company may have difficulty in selling its investments which
may lead to volatility in the Net Asset Value and, consequently,
market price of shares in the Company. The Company may not
necessarily be able to realise its investments within a reasonable
period, and any such realisations that may be achieved may be at a
considerably lower price than prevailing indicative market prices.
There can therefore be no guarantee that any realisation of an
investment will be on a basis which necessarily reflects the
valuation of that investment.
Risks are monitored by the Manager, which holds monthly AIFM
Risk Committee meetings with the Portfolio Manager. The Manager
provides an update of these AIFM Risk Committee meetings to the
Board on a quarterly basis and the risks are discussed accordingly.
The Board has introduced investment restrictions and guidelines to
limit these risks.
Portfolio concentration and macro-economic risks
The Company predominantly invests in securities in the UK and
has no specific limits placed on its exposure to any industry
sector. Changes in economic conditions in the UK, (for example,
uncertainties as a result of Covid-19, Brexit, interest rates and
rates of inflation, industry conditions, competition, political and
diplomatic events and other factors), could substantially and
adversely affect the Company's prospects, as could changes in
global economic conditions. This exposes the Company to
geographical concentration risk and may from time to time lead to
the Company having significant exposure to portfolio companies from
certain business sectors. Greater concentration of investments in
any one geographical and / or industry sector may result in greater
volatility in the value of the Company's investments, and
consequently its NAV, and may materially and adversely affect the
performance of the Company and returns to Shareholders.
While the Company does not include any specific limits on
exposures to any industry sector, the Company does have investment
limits and risk diversification policies in place to mitigate
market and concentration risk. Please refer to note 9 of the Annual
Financial Report for the year ended 30 September 2019 for further
details.
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.
The Board has commented in further detail on Covid-19 and its
impact on the Company above.
Going concern
Under the AIC 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 Board is 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 Board consider it appropriate to adopt the
going concern basis in preparing the condensed financial
statements.
In making this assessment, the Board has considered the impact
of Covid-19 on the Company, a statement on which can be found
above, and are confident that it remains appropriate to adopt the
going concern basis.
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 14 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
There have been no material changes to related party
transactions as described in the Annual Financial Report for the
year ended 30 September 2019. Refer to note 13 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 a non-executive 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
BMO Commercial Property Trust Limited, NB Private Equity Partners
Limited, The Schiehallion Fund Limited and Alcentra European
Floating Rate Income Fund 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
The portfolio manager of the Company is George Ensor. George
graduated from Bristol University with an Upper Second Class degree
in Chemistry in 2008, before joining Smith & Williamson
Investment Management as a graduate trainee where he worked for
five years as an analyst and Private Client Investment Manager.
George joined River and Mercantile Asset Management LLP in March
2014 as a UK equity analyst. George is a CFA charter holder.
This Portfolio Manager's Report is compiled with reference to
the investment portfolio. Therefore, all positions are calculated
by reference to their official closing prices (as opposed to the
closing bid prices basis 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 2020 was a challenging period for
investing in equities, especially so for micro-cap companies. The
closing NAV for the Company was 146.0p, a six month decline of
22.78%. The Benchmark declined 24.22% over the same period, leaving
positive relative performance, after all fees, of 1.44%.
The long-term performance remains strong. Since inception, the
NAV has increased by 48.98% with the Benchmark up just 4.00% to the
end of March 2020.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
MARKET BACKDROP
To define the last six months as a challenging period would be
an understatement. The rout which started in February has set
unfortunate new records for the pace and extent of equity declines.
Almost the entire performance of the Company's Benchmark since IPO
has been eradicated, with the Benchmark closing the period just 4%
higher than it was on 2 December 2014.
The world has found itself in a health crisis and there will
undoubtedly be long-term implications from the Covid-19 virus
pandemic. Our thoughts are with the doctors, nurses and all other
essential workers who are going above and beyond to help us all
through this.
Central Banks moved quickly and aggressively to ensure
sufficient liquidity; evidence of lessons learnt from the global
financial crisis, with mandates to do 'whatever it takes'
encouraged by the modest outlook for inflation. Fiscal actions have
also been unprecedented with large percentages of global gross
domestic product promised, attempting to bridge the economic
declines and so maintain productive capacity and, importantly,
jobs.
Whilst the number of active cases seems to be stabilising in
most geographies, there is still much we do not know, and the
outlook remains uncertain. The exit debate, on when and how
countries will attempt to exit lockdowns, will likely dominate the
next few months.
In truth, given the recent aversion to illiquidity and depressed
capital markets activity, despite markets making new highs in early
2020, it has been a challenging period for micro-cap investing,
with the Company's NAV failing to get within 10% of the September
2018 high of 229.1p. Whilst the performance for the six months
looks in-line with the Benchmark, we underperformed in the final
three months of 2019 as the large Conservative majority drove
inflows into UK equities and markets rallied. A combination of
factors supported relative performance in the first quarter of 2020
including exposure to companies with strong balance sheets,
outperformance of growth and positive sector exposure.
In time, risk appetite will return and with it the potential for
smaller company equities to outperform the wider market, supporting
the Company's NAV growth. As you will see from the review of
portfolio activity, we have already added new positions at
attractive valuations and will continue to do so. We are not
attempting to call the bottom but will gradually increase risk as
valuations and extreme sentiment allow.
PORTFOLIO POSITIONING
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.
Investors will be aware that within our PVT Philosophy there are
four forms of Potential: Growth, Quality, Recovery and
Asset-backed. The portfolio continues to have a bias to Growth;
that is investing in companies that have the potential to grow
revenues, profits and cash flows at a higher rate than average.
Quality, companies that have high and improving return on capital,
remains the second largest category.
Recovery and Asset-backed opportunities, and cash, make up the
balance of the portfolio. When we invest in Recovery stocks, we are
looking to buy into companies where margins are depressed when
compared to the last ten years but have begun to improve. And with
Asset-backed, confidence in the value of the assets is key and we
look for asset value upgrades to drive the share price
performance.
The exposure to different categories as at the 31 March 2020 is
shown below - it is largely unchanged from the end of September
2019.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
The following table illustrates some of the key factor
characteristics of the portfolio and the equivalent data for the
Benchmark.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
The Growth bias is evident in the portfolio data. We are looking
to invest in companies that have delivered higher than average
sales and earnings growth. The data shows that at a portfolio
level, the three-year historic sales and earnings growth for the
portfolio is 25.4% and 44.1% respectively, which compares to the
Benchmark at 13.3% and 17.3% respectively. The data also shows that
the forecast sales and earnings growth is lower than what has
historically been realised.
Moving on to V aluation, you can see that the portfolio is at a
small premium on a one-year forward earnings yield but, due to the
higher forecast growth, higher earnings yield (lower PE ratio) on a
two-year view. Whilst not shown in the data, when the enterprise
value (as opposed to just the market cap) of a company is
considered, the portfolio is a little cheaper than the Benchmark.
Portfolio holdings are, on average, less indebted/better
capitalised than the Benchmark.
As a growth company matures it will typically reduce investment
in growth, driving an improvement in margins, free cash generation
and returns. Quality stocks demonstrate higher return on capital,
higher margins and free cash generation. The bias to Growth is
again apparent in that the portfolio net profit margin and free
cash flow yield is lower than the Benchmark.
On T iming, we can see that the portfolio's current year
earnings forecasts are unchanged over the last three months,
whereas the Benchmark has seen net downgrades of close to 5%.
When considering sector exposure, it should be noted that this
is largely a result of the bottom-up stock picking. We are not
attempting to select sectors that we expect to outperform and then
find investments within those sectors. However, we will take
conviction if several stocks in the same sector are all high
scoring PVT stocks, for example gold producers in 2019.
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
Whilst we have an overweight position in energy, the exposure to
oil is very low. Both SDX Energy and Diversified Gas and Oil are
predominantly exposed to natural gas with the former exposed to
fixed price contracts. Tekmar Energy has a dominant market position
in the supply chain to offshore wind farms but has recently been
diversifying into oil and gas services, albeit focused on the more
resilient production side. A rally in oil prices should be
considered a risk to relative performance.
The materials exposure is entirely in precious metals, both gold
and platinum group metals. There is no exposure in the portfolio to
industrial metals which tend to be more highly correlated with
global GDP. Whilst the investments in precious metal producers is
driven by their PVT fundamentals, the outlook appears positive
given negative global real yields which have historically been
negatively correlated with gold prices.
As I commented in both the December and March quarterly updates,
we have a large underweight position to the UK consumer,
particularly so in consumer discretionary stocks. We have often
found more compelling ideas elsewhere, but you will see in the
portfolio transactions review that we have recently found some
interesting opportunities in this sector.
PORTFOLIO HOLDINGS WITH A CONTRIBUTION TO RELATIVE RETURN OF
GREATER THAN +/- 0.75%
[graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
It was pleasing to see some of the Company's highest conviction
positions perform well. I have already mentioned the exposure to
precious metals and the two larger positions: Shanta Gold
(contribution to relative return of 1.64 percentage points
("ppts")) and Sylvania Platinum (0.8 ppts), delivered positive
absolute returns in the period closing 9% and 6% higher
respectively. Whilst exposed to different commodities, both have
low production costs which support attractive margins and free cash
generation. Given the lockdown imposed in South Africa, Sylvania
Platinum has currently suspended production but has significant
cash balances, while operations are currently continuing in
Tanzania (Shanta Gold).
Diversified Gas and Oil (1.07 ppts) had, despite a low risk
model which relies on high levels of commodity price hedging,
underperformed in the weak natural gas environment in the US.
Growth in US shale oil production, of which natural gas is a
bi-product, and a mild winter had left both the US and global gas
market in a position of oversupply that was likely to take a year
or two to clear. A combination of the equity price reaching an
oversold level in March, a twice covered 20% dividend yield, and
the rapid decline in the oil price, reducing investment in US
shale, drove a near 50% bounce in the shares. The company sees the
depressed gas price environment as an opportunity to progress their
acquisition strategy, building scale in long life, low decline
assets.
Litigation Capital Management (1.33 ppts) provided two market
updates in March. Interim results showed a strong first half
performance; the company continues to deliver strong returns on
litigation cases which converted into a strong six-month revenue
and profit performance. The company also closed a third-party fund
for $150m, reducing the reliance on their own balance sheet to fund
cases. Despite a resilient business model, the shares were down as
much as 65% from their 2019 highs by mid-March but rallied strongly
into the end of the month. We added to our position as the shares
returned to, and briefly dropped below, their 2018 IPO price.
MaxCyte (0.9 ppts) was another company to deliver a positive
absolute performance, finishing the period 9% higher. The company
has a clear strategy to license its technology to leading biotech
companies and benefit from long-term recurring revenues plus
milestone payments if the underlying drugs progress. The company
has twice upgraded revenue guidance for 2020 in the last three
months and appears very well positioned.
Two companies that are potential beneficiaries of the current
severe restriction on the movement of people are Wey Education
(1.04 ppts) and Boku (0.81 ppts). Wey Education is the UK leading
provider of online primary, secondary and sixth form schooling.
Whilst demand could peak in in the short term, I expect that the
medium-term outlook for organic growth has also improved from an
already attractive level. The shares gained 115% in the period.
Boku, the leading direct carrier billing company, has reported on
higher transactions volumes as countries have entered lockdown.
The position in XL Media was the most significant negative
contributor in the period, costing 1.22 ppts of relative
performance. The position was purchased in the second quarter of
2019 as a top scoring Quality and Growth stock. We paid an average
price of 49p with the large net cash position, providing downside
protection for what has been a highly cash generative business. The
shares initially performed well, first on the announcement of a
share buyback and then on news of a tender offer at 80p. Having
previously taken profits, we sold a quarter of the remaining
position through the tender offer. The business has disappointed
since December with a new strategy requiring investment followed by
the most recent warning on the poor performance of existing
publishing assets (search engine demotions). By the period end we
had reduced the position to just 0.5%.
The other three holdings that contributed to negative relative
performance greater than 0.75% were Adept Technology (0.83 ppts),
SDX Energy (0.86 ppts) and Ince Group (0.88 ppts). In each case, it
is not clear that there is a reasonable justification for the
underperformance. Ince Group was a new position in the first
quarter of 2019 and so I will cover it off in the comments on
portfolio transactions below. Despite over 90% of SDX's cash flows
being linked to fixed price gas contracts, and so having almost no
exposure to oil price volatility, the shares fell by 56% between
January and March as oil prices collapsed. Operational performance
has been ahead of expectations since Mark Reid, the new CEO, took
over last year.
Finally, Adept Technology shares fell by 54% despite a business
model premised on recurring revenues and cash flow generation. I
expect the combination of an equity placing to raise cash for
future M&A opportunities and a meaningful level of balance
sheet gearing impacted sentiment. As a managed services provider,
the company's services are in high demand as we all adapt to
working from home and the recent trading update confirmed that they
delivered a solid financial performance for the year to March.
Including one new position that was purchased post period end,
we initiated seven new positions since 30 September 2019.
PORTFOLIO ACTIVITY - NEW POSITIONS AND EXITS
Ten Lifestyle is a technology led concierge business that
reduces customer churn (the loss of customers) for clients and so
improves lifetime customer value. Clients, including Visa,
Mastercard and HSBC, offer their customers access to Ten's
services, driving greater customer loyalty. Given significant
investment in technology, revenue growth supported by recent
contract wins is expected to drive improving returns.
Flowtech Fluidpower is a specialist distributor of fluid power
products in the UK. The business has demonstrated consistently
attractive gross margins. This is a self-help, Recovery investment
case as cost savings and working capital synergies can improve
margins and returns. The position was also acquired at an
attractive valuation, despite our view that the business is
under-earning, providing the prospect of material share price
gains.
We participated in the deeply discounted fund raise for The Ince
Group, a legal services business with a buy and build strategy that
failed to put appropriate funding in place ahead of an ambitious
acquisition. Legal services businesses demonstrate attractive
returns, but growth is working capital intensive. Despite the
placing price of 45p valuing the company at less than half forecast
revenue, the shares have been very weak since. Recent announcements
show that Fidelity, who were at one stage a 9% shareholder, have
been selling down and I expect the share price weakness is a result
of this selling pressure.
GetBusy provides document management solutions, primarily to
accountants, though SmartVault and Virtual Cabinet. The company was
spun out of an Australian accountancy software business, Reckon,
and, as with other software businesses that we have invested in,
targets a niche where vertical knowledge is paramount to creating
the right user experience. The company has demonstrated a strong
track record of Growth supported by investment in customer
acquisition spend, and, whilst loss making, would be profitable
were it not for the investment in a new, recently launched
product.
Three of the seven new positions were acquired later in the
period, post the outbreak of the Covid-19 virus. One of these,
Manolete Partners, is a business we considered at IPO but decided
against investing in on valuation grounds. That proved to be a
mistake and the company has performed well since IPO. We made an
opportunistic purchase in March but, unfortunately, could only
acquire a small position (less than 0.3%). The shares have bounced
83% since the purchase but the position size remains small.
Both The City Pub Group and Joules Group were purchased though
fundraises, which re-built balance sheet strength for the companies
and reduced our consumer discretionary underweight at attractive
valuations.
City Pubs own a portfolio of largely freehold pubs in cathedral
cities. Previous strategies, including those carried out by the
current CEO, of building a pub estate and exiting to a larger pub
company, have created significant shareholder value. The fundraise,
completed at more than a 50% discount to the net book value,
creates an attractive Asset-backed investment and the business will
likely exit the current crisis in a stronger position than it
entered it.
The same can also be said for Joules; a strong brand has
supported impressive long-term growth in sales and profits.
However, an inventory error for the all-important Christmas trading
period and a large capex program on a new head office, delivering a
40% return on investment, left the balance sheet unable to cater
for the extreme working capital cycle that clothes retailers will
be exposed to as a result of prolonged store closures. This
presented the opportunity to invest in a growing franchise at a
depressed valuation.
Over the six month period, we exited 8 of our positions and the
most substantial portfolio exit was Cello Health. The company has
improved cash generation over recent years and its exposure to
large pharmaceutical companies means it remains well exposed. The
outperformance, given the significant market decline, left the
shares looking relatively expensive and we exited the position. We
also received the takeover proceeds from Nasstar, which was
acquired, and exited the holding in Tremor International in early
April given concerns over disclosure and the outlook for marketing
spend.
In line with maintaining a high conviction portfolio of 30-50
holdings, we exited five small positions. Each represented less
than 0.5% of the portfolio at the start of the period and had
materially underperformed in prior periods as expectations had not
been delivered and funding was precarious. The positions exited
were Berkeley Energia, Dekeloil, Altitude, Cyanconnode and
Genedrive. The most noteworthy of these would be Genedrive whose
shares, despite a profit warning, increased 330% on news that they
were developing a Covid-19 assay. Whilst clearly an opportunity, it
was not part of the original investment case and I would argue
impossible, for me at least, to have any insight into the chances
of this being commercialised. We used the elevated volume in what
is a very illiquid company to exit.
The final position exited was Lekoil which was also a low
conviction position, representing 80 basis points at the start of
the period. The fall in global oil prices will make finding a
funding partner for the appraisal drilling of their offshore
Nigeria prospect even more challenging than it already was.
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
shortly at
https://microcap.riverandmercantile.com/literature/interim-reports
]
OUTLOOK
I am not going to profess to having any great insight in to how
the next month or three months will unfold. But I can say that
investor sentiment has flipped from bullish to bearish, and
economic surveys are either already at, or soon to be at, record
lows. These can continue to deteriorate but, at some stage, they
will improve. Will we re-test the March lows? Nobody knows. How
individual companies trade through the consumer recession is
impossible to forecast but I am constantly reminded of the
ingenuity and adaptability of management teams.
We have an investment process that is premised on bottom up
stock picking. Given the uncertainty around future revenue streams
for many businesses, there has been a focus on liquidity and
solvency of both existing holdings and potential new holdings. For
most Growth and Quality investment cases, the historic earnings are
a good basis for valuation in these times. We are conscious that
there will be a wide range of outcomes with some businesses likely
to take many years, if ever, to return to peak profits whilst some
will deliver growth this year. Fortunately, as discussed, I believe
the Company's exposure to the former is very limited.
In the main, portfolio holdings are well capitalised and we have
minimal exposure to the types of businesses hardest hit; capital
intensive travel and leisure companies, retailers and oil stocks,
to name a few. I am mindful that we will likely underperform on big
market rallies, and this is a consideration when investigating new
ideas.
This is a great time to be on the front foot, searching for new
opportunities and the two latest fundraises are great examples of
this. We will maintain a bias to Growth and stick to our tried and
tested PVT philosophy and process. The fantastic alpha and beta
opportunity in micro-caps remains and will support attractive
returns on a multi-year view.
Thank you for your ongoing support.
George Ensor
Portfolio Manager
21 May 2020
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 provide a fair, balanced
and understandable view of the affairs of the Company as at 31
March 2020, 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 and the Executive Summary 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 2020 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 2020 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
21 May 2020 21 May 2020
independent review report to RIVER AND MERCANTILE UK MICRO CAP
INVESTMENT COMPANY LIMITED
Report on the condensed financial statements
Our conclusion
We have reviewed River and Mercantile UK Micro Cap Investment
Company Limited's (the "Company") condensed financial statements
(the "interim financial statements") in the Half-Yearly Financial
Report of the Company for the 6-month period ended 31 March 2020.
Based on our review, nothing has come to our attention that causes
us to believe that the interim financial statements are 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 interim financial statements comprise:
-- the condensed statement of financial position as at 31 March 2020;
-- the condensed statement of comprehensive income for the period then ended;
-- the condensed statement of cash flows for the period then ended;
-- the condensed statement of changes in shareholders' equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Yearly
Financial Report have 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.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Company
is The Companies (Guernsey) Law, 2008 and International Financial
Reporting Standards (IFRSs).
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Half-Yearly Financial Report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-Yearly Financial Report 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 responsibility is to express a conclusion on the interim
financial statements in the Half-Yearly Financial Report 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.
What a review of interim financial statements involves
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
enquiries, 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
21 May 2020
(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 2020
Six months Six months
ended ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
Notes GBP GBP
Income
Investment income 3 736,217 452,357
Net loss on financial assets designated
at fair value through profit or loss 7 (20,196,674) (18,485,204)
Total income (19,460,457) (18,032,847)
-------------------------------------------------------- ------ ------------- -------------
Expenses
Portfolio performance fees recovery 4 - 1,210,297
Portfolio management
fees 4 (318,497) (328,644)
Operating expenses 5 (215,943) (278,539)
Finance costs 12 (4,589) (20,055)
Foreign exchange
loss (9,254) (224)
-------------------------------------------------------- ------ ------------- -------------
Total expenses (548,283) 582,835
-------------------------------------------------------- ------ ------------- -------------
Loss before taxation (20,008,740) (17,450,012)
Taxation - -
--------------------------------------------- ---- --- ------ ------------- -------------
Loss after taxation and total comprehensive
loss (20,008,740) (17,450,012)
Basic and diluted loss per Ordinary
Share 10 (0.4308) (0.3757)
The Company has no items of other comprehensive income, and
therefore the loss for the period is also the total comprehensive
loss.
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 2020
31 March 30 September
2020 2019
(Unaudited) (Audited)
Notes GBP GBP
--------------------------------------- ------ ------------ ----------------
Non-current assets
Financial assets designated at fair
value through profit or loss 7 64,448,083 81,386,681
Current assets
Cash and cash equivalents 3,444,349 6,543,864
Trade receivables - securities sold
awaiting settlement 957,007 36,862
Other receivables 177,294 202,078
Total current assets 4,578,650 6,782,804
---------------------------------------- ------ ------------ ----------------
Total assets 69,026,733 88,169,485
---------------------------------------- ------ ------------ ----------------
Current liabilities
Trade payables - securities purchased
awaiting settlement (1,004,715) (108,088)
Other payables (212,564) (243,203)
---------------------------------------- ------ ------------ ----------------
Total current liabilities (1,217,279) (351,291)
---------------------------------------- ------ ------------ ----------------
Total liabilities (1,217,279) (351,291)
---------------------------------------- ------ ------------ ----------------
Net assets 67,809,454 87,818,194
---------------------------------------- ------ ------------ ----------------
Capital and reserves
Stated capital 9 - -
Share premium 28,391,852 28,391,852
Retained earnings 39,417,602 59,426,342
---------------------------------------- ------ ------------ ----------------
Equity Shareholders' funds 67,809,454 87,818,194
---------------------------------------- ------ ------------ ----------------
The condensed financial statements were approved and authorised
for issue by the Board of Directors on 21 May 2020 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 2020 (Unaudited)
Stated Share Retained
capital premium earnings Total
GBP GBP GBP GBP
------------------------------ ---------- ----------- ------------- -------------
Opening equity Shareholders'
funds at
1 October 2019 - 28,391,852 59,426,342 87,818,194
------------------------------- --------- ----------- ------------- -------------
Total comprehensive loss
for the period - - (20,008,740) (20,008,740)
Closing equity Shareholders'
funds at
31 March 2020 - 28,391,852 39,417,602 67,809,454
------------------------------- --------- ----------- ------------- -------------
For the six months ended 31 March 2019 (Unaudited)
Stated Share Retained
capital premium earnings Total
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)
Closing equity Shareholders'
funds at
31 March 2019 - 28,391,852 60,577,463 88,969,315
------------------------------- --------- ----------- ------------- -------------
The notes below form an integral part of these condensed
financial statements.
CONDENSED statement of cash flows
For the six months ended 31 March 2020
Six months Six months
ended ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
Note GBP GBP
----------------------------------------------------------------- ----- ------------- -------------
Cash flow from operating activities
Loss after taxation and total comprehensive
loss for the period (20,008,740) (17,450,012)
Adjustments to reconcile loss after
taxation to net cash flows:
* Realised loss/(gain) on financial assets designated
at fair value through profit or loss 7 2,766,944 (5,098,321)
* Unrealised loss on financial assets designated at
fair value through profit or loss 7 17,429,730 23,583,525
Purchase of financial assets designated
at fair value through profit or loss(1) 7 (14,305,819) (14,433,023)
Proceeds from sale of financial assets
designated at fair value through profit
or loss(2) 7 11,024,225 13,678,919
Changes in working capital
Decrease in other receivables
and prepayments 24,784 30,293
Decrease in other payables (30,639) (1,165,559)
Net cash from operating activities (3,099,515) (854,178)
------------------------------------------------------------------ ----- ------------- -------------
Net decrease in cash and cash equivalents
in the period (3,099,515) (854,178)
------------------------------------------------------------------ ----- ------------- -------------
Cash and cash equivalents at beginning
of the period 6,543,864 4,674,315
------------------------------------------------------------------ ----- ------------- -------------
Cash and cash equivalents at the end
of the period 3,444,349 3,820,137
------------------------------------------------------------------ ----- ------------- -------------
(1) - Payables relating to purchases of financial assets
designated at fair value through profit or loss at 31 March 2020
amounted to GBP1,004,715 (31 March 2019: GBP385,789).
(2) - Proceeds outstanding at 31 March 2020 relating to sales of
financial assets designated at fair value through profit amounted
to GBP957,007 (31 March 2019: GBP5,290,000).
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 Share s 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 Companies Law, 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 2019. The Half-Yearly Financial Report has
also been prepared using the same accounting policies applied for
the year ended 30 September 2019 Annual Financial Report, which was
prepared in accordance with International Financial Reporting
Standards ("IFRS"), except for new standards and interpretations
adopted by the Company as set out below.
New standards, amendments and interpretations issued and
effective for the financial year beginning 1 October 2019
The Company applied, for the first time, IFRS 16 - Leases and
IFRIC 23 - Uncertainty over Income Tax Treatments, which became
effective on 1 January 2019. The Company does not participate in
leasing arrangements and the Directors have determined that, as at
31 March 2020, the Company has no uncertain tax positions that
would be disclosed under IFRIC 23 - Uncertainty over Income Tax
Treatments. Accordingly, the application of IFRS 16 - Leases and
IFRIC 23 - Uncertainty over Income Tax Treatments, respectively, do
not have an impact on the Company's financial statements.
Several other amendments and interpretations apply for the first
time in 2019, but these do not have an impact on the condensed
financial statements.
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 Seasonality
The Company's business is not subject to seasonal
fluctuations.
3. Investment income
Six months Six months
ended ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
GBP GBP
Dividend income 731,701 440,910
Bank interest 4,516 11,447
Total investment income 736,217 452,357
--------------------------- ------------ ------------
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 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 9.
During the six month period ended 31 March 2020, the Company
recognised performance fees of GBPnil (31 March 2019: the Company
recognised the reversal of the performance fees accrued as at 30
September 2018 of GBP1,210,297). As at 31 March 2020, no
performance fees were accrued (30 September 2019: GBPnil) as the
Company's NAV total return underperformed the Benchmark during the
performance period and no performance fees were paid during the
period (30 September 2019: GBPnil). Please refer to the Financial
Highlights and Performance Summary for details of the Company's
previous redemptions above.
5. Operating expenses
Six months Six months
ended ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
GBP GBP
Administration fees 64,597 61,271
Directors' fees 60,000 59,836
AIFM fees 27,000 26,372
Audit fees 22,500 19,055
Broker fees 20,000 19,945
Transaction fees 16,755 18,680
Non-audit fees 18,400 17,500
Custody fees 8,879 8,495
Registrar fees 7,452 8,855
Legal and professional fees 3,334 7,330
Sundry expenses (32,974) 31,200
Total operating expenses 215,943 278,539
------------------------------- ------------ ------------
Non-audit fees
Non-audit fees incurred during the six months ended 31 March
2020 relating to interim review services amounted to GBP18,400. For
the period ended 31 March 2019, non-audit fees related to interim
review services amounting to GBP17,500. Non-audit fees payable as
at 31 March 2020 were GBP18,400 (30 September 2019: 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. 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.
Registrar fee
With effect from 19 March 2018, the Company's Registrar has been
Computershare Investor Services (Guernsey) Limited. The Registrar
is entitled to an annual maintenance fee plus disbursements.
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 is 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.
Broker fee
On 1 August 2018, the Company engaged 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 ended 31 March
2020 were GBP 20,000 (six months ended 31 March 2019:
GBP19,945).
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 incurred for six months ended 31 March 2020 were
GBP60,000 (six months ended 31 March 2019: GBP59,836 ). Directors'
fees payable as at 31 March 2020 were GBP30,000 (30 September 2019:
GBP30,000).
As at the period end and the date of approval of the Half-Yearly
Financial Report, the Directors held the following Ordinary Shares
in the Company:
Director Ordinary Shares held
Andrew Chapman 20,562
---------------------
Ian Burns 5,500
---------------------
Trudi Clark 11,445
---------------------
Mark Hodgson 22,040
---------------------
No pension contributions were payable in respect of any of the
Directors.
7. Financial assets designated at fair value through profit or
loss
31 March 30 September
2020 2019
(Unaudited) (Audited)
GBP GBP
Financial assets designated at fair value
through profit or loss 64,448,083 81,386,681
------------------------------------------------------- ------------ -------------
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. The Company does not hold any unlisted
investments as at 31 March 2020 (30 September 2019: nil).
Fair value hierarchy
IFRS 13 'Fair Value Measurement' ("IFRS 13") 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.
The Directors determined that an active market exists based on
the frequency and volume of transactions of each asset. As all the
Company's financial assets are quoted securities which are traded
in active markets as at 31 March 2020, in the opinion of the
Directors, the quoted price for the financial assets as at 31 March
2020 is representative of fair value.
31 March
2020
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 64,448,083 - - 64,448,083
------------------------------- ------------ ------------ ------------ -------------
30 September
2019
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 81,386,681 - - 81,386,681
------------------------------- ------------ ------------ ------------ -------------
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 2020 Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP GBP
---------------------------------- ------------- ------------ ------------ -------------
Opening valuation as at 1
October 2019 81,386,681 - - 81,386,681
---------------------------------- ------------- ------------ ------------ -------------
Purchases during the period 15,202,446 - - 15,202,446
Sales - proceeds during the
period (11,944,370) - - (11,944,370)
Realised loss on financial
assets designated at fair
value through profit or loss(1) (2,766,944) - - (2,766,944)
Unrealised loss on financial
assets designated at fair
value through profit or loss(2) (17,429,730) - - (17,429,730)
Closing valuation as at 31
March 2020 64,448,083 - - 64,448,083
Total net loss on financial
assets for the period ended
31 March 2020 (20,196,674) - - (20,196,674)
---------------------------------- ------------- ------------ ------------ -------------
(1) Realised loss on financial assets designated at fair value
through profit or loss is made up of GBP 4,180,052 g ain and GBP(
6,946,996 ) loss.
(2) Unrealised loss on financial assets designated at fair value
through profit or loss is made up of GBP 7,134,631 gain and GBP(
24,564,361 ) loss.
30 September 2019 Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
---------------------------------- ------------- ---------- ---------- -------------
GBP GBP GBP GBP
---------------------------------- ------------- ---------- ---------- -------------
Opening valuation as at 1
October 2018 102,227,116 - - 102,227,116
---------------------------------- ------------- ---------- ---------- -------------
Purchases during the year 26,539,088 - - 26,539,088
Sales - proceeds during the
year (27,640,504) - - (27,640,504)
Realised gain on financial
assets designated at fair
value through profit or loss(1) 3,689,629 - - 3,689,629
Unrealised loss on financial
assets designated at fair
value through profit or loss(2) (23,428,648) - - (23,428,648)
Closing valuation as at 30
September 2019 81,386,681 - - 81,386,681
Total net loss on financial
assets for the year ended
30 September 2019 (19,739,019) - - (19,739,019)
---------------------------------- ------------- ---------- ---------- -------------
(1) Realised gain on financial assets designated at fair value
through profit or loss is made up of GBP11,956,166 gain and
GBP(8,266,537) loss.
(2) Unrealised loss on financial assets designated at fair value
through profit or loss is made up of GBP11,314,680 gain and
GBP(34,743,328) loss.
During the six months ended 31 March 2020, there were no
transfers between levels of the fair value hierarchy (30 September
2019: no transfers).
As at 31 March 2020, none of the investments held are illiquid
in nature and on this basis are not subject to any special
arrangements.
8. Contingent liabilities and commitments
As at 31 March 2020, the Company had no contingent liabilities
or commitments (30 September 2019: nil).
9. Stated capital
Authorised
The authorised share capital of the Company is represented by an
unlimited number of redeemable Ordinary Shares at no par value.
Ordinary Shares
As at 31 March 2020, the Company had 46,445,043 Ordinary Shares
(30 September 2019: 46,445,043) in issue. No shares were issued or
redeemed during the six months ended 31 March 2020 (year ended 30
September 2019: nil).
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:
GBPnil).
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. T his right will only be
exercised in specific circumstances and for the purpose of
returning capital growth.
Accordingly, assuming that the NAV exceeds GBP100 million, the
Directors intend to operate the redemption mechanism to return the
NAV 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.
Please refer to the Financial Highlights and Performance Summary
section above for details of the Company's historical
redemptions.
10. Basic and diluted loss per Ordinary Share
Six months Six months
ended ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
GBP GBP
Total comprehensive loss for
the period (20,008,740) (17,450,012)
Weighted average number of Ordinary Shares
during the period 46,445,043 46,445,043
Basic and diluted loss per Ordinary
Share (0.4308) (0.3757)
11. Net asset value per Ordinary share
31 March 30 September
2020 2019
(Unaudited) (Audited)
GBP GBP
Net asset value 67,809,454 87,818,194
Number of Ordinary Shares at
period/year end 46,445,043 46,445,043
Net asset value per Ordinary
Share 1.4600 1.8908
12. 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 a Security Interest Agreement between the Company,
the Lender and Custodian. Any amount drawn under the Facility was
subject to interest of 2.05% per annum over LIBOR.
In addition, a loan commitment of 0.50% per annum was payable on
any undrawn amounts. The Facility was subject to an original
arrangement fee of GBP8,000 and subsequent annual extensions were
subject to an extension fee of GBP8,000 per annum.
The Facility was extended and amended on 13 December 2017, with
an increased facility amount of GBP5,000,000 and the loan interest
was amended to 1.75% per annum over LIBOR. The Facility was further
extended on 11 December 2018 to 6 December 2019 and it expired on
this date, as the Board decided not to renew the Facility
further.
13. Related party disclosure
The Manager
The Manager is a related party and is entitled to an annual
fixed fee as disclosed in note 5. Mark Hodgson is the Managing
Director of the Manager.
The Portfolio Manager
The Portfolio Manager is a related party and is entitled to
management and performance fees as disclosed in note 4.
George Ensor is also a related party as he is the Fund Manager
of the Portfolio Manager. On 23 January 2020, he purchased 19,830
Ordinary Shares at a price of GBP1.6422 per share and on 23 March
2020, he purchased 20,000 Ordinary Shares at a price of GBP0.9717
per share.
As at 31 March 2020, the Portfolio Manager and George Ensor held
the following voting rights in the Company:
31 March 2020 30 September
2019
Portfolio Manager 4,110,768 4,110,768
-------------- -------------
George Ensor 60,000 20,170
-------------- -------------
The Directors
The Directors are entitled to remuneration for their services
and also hold Ordinary Shares in the Company as disclosed in note
6.
All transactions between these related parties and the Company
were conducted on terms equivalent to those prevailing in an arm's
length transaction.
14. 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 2020.
Covid-19
Please refer above for a statement regarding Covid-19 and the
Company.
NAV per share
During the period from 31 March 2020 to 18 May 2020, the NAV per
share increased by 18.60% from GBP1.4600 to GBP1.7315.
15. 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(1)
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 Registrar
Cantor Fitzgerald Europe Computershare Investor Services
5 Churchill Place (Guernsey) Limited
Canary Wharf 1(st) Floor, Tudor House
London Le Bordage
E14 5HU 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.
The Company will publish the Half-Yearly Financial Report for
the six months period ended 31 March 2020 on its website shortly (
https://microcap.riverandmercantile.com/literature/interim-reports
). The 2020 Half-Year Financial Report includes the Company's
results for the six months ended 31 March 2020.
Enquiries:
River and Mercantile Asset Management LLP
James Barham
Tel: +44 (0) 20 7601 6262
Camarco
Rebecca Noonan
Tel: +44 (0) 20 3757 4981
BNP Paribas Securities Services S.C.A., Guernsey Branch -
Company Secretary
Jasper Cross
Tel: +44 (0) 1481 750859
A copy of the Company's Half-Yearly 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
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