TIDMRMMC
RNS Number : 2965C
River & Mercantile UK Micro Cap Inv
17 June 2021
River and Mercantile UK Micro Cap Investment Company Limited
(the "Company")
Publication of the Half-Year Financial Report for the six months
ended 31 March 2021
GENERAL TEXT AMMENT
The following amendment has been made to the Half-year Report
announcement released on 17 June 2021 at 7.00 am under RNS No
1496C.
The link to the Half-Year Financial Report has been amended
to:
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
All other details remain unchanged.
The full amended text is shown below.
17 June 2021
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.
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 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 significant 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 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 192.52% from
inception (net of issue costs), 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 78.17%. 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://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
NAV total return vs Benchmark for the six months ended 31 March
2021
Over the six months ended 31 March 2021, the NAV total return of
the Company outperformed the Benchmark by 5.72%, recording a NAV
total return of 39.25%, which compares with the total return of
33.53% posted by the Benchmark.
NAV and Share price
As at As at
31 March 30 September
2021 2020
NAV per Ordinary Share(3) GBP2.8667 GBP2.0586
Ordinary Share price (bid GBP2.600 GBP1.5800
price)(4)
Discount (9.30%) (23.25%)
Period highs and lows
Six months Six months Year ended Year ended
ended 31 ended 31 30 September 30 September
March 2021 March 2021 2020 2020
High Low High Low
NAV per Ordinary Share(3) GBP2.8679 GBP2.0053 GBP2.1120 GBP1.2860
Ordinary Share price (bid GBP1.7100 GBP0.8450
price)(4) GBP2.6500 GBP1.5700
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://riverandmercantile.com/wp-content/uploads/2021/06/2021.03.31-RAM-Financial-Statements-Draft-5.pdf
]
Capital redemptions
From inception to 31 March 2021, the Company exercised its
capital redemption mechanism on four separate occasions, as
detailed below, redeeming a total of 27,984,157 Ordinary Shares and
returning a total of GBP56,929,380 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
-------------------------------- -------------------------------- --------------------------------
29 January 2021 GBP2.5335 5,921,631 GBP15,002,451
-------------------------------- -------------------------------- --------------------------------
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.
Post period end, the Company redeemed 6,625,458 Ordinary Shares
on 7 May 2021 and paid a further GBP19,994,969 to shareholders on
14 May 2021. Refer to note 14 for further details.
(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 2021. 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 Ordinary Share on the same day. This comparison is expressed as
a percentage.
(6) - Excludes the cost of each redemption, which total
GBP28,346.
Dividend history
In accordance with the Company's stated policy, no dividend was
declared or paid during the period.
chairman's statement
Ronseal: it does exactly what it says on the tin
In 1994 the advertising agency HHCL came up with this slogan for
selling wood varnish. It was workmanlike, not trendy, but it struck
a chord. Little did anyone know that the trademark line would
eventually enter the Oxford Dictionary of English Idioms. In
today's world there is much to be admired in someone that simply
delivers on what they say they are going to do.
At the time of the Company's Initial Public Offering in 2014,
the Prospectus stated that the Directors intended to operate a
share redemption mechanism in the event that the NAV of the Company
exceeded GBP100 million. This was because the Portfolio Manager had
advised that a fund valued in the region of GBP100 million would
best position the Company to profitably exploit a universe of
micro-cap companies. Consequently, the Board was pleased to
announce the completion of the Company's redemption of GBP15
million which was paid in February 2021, evidencing the extremely
strong performance of the portfolio over the period. This was the
fourth time since the Company's launch that we have been able to
action a redemption at NAV to enhance the returns for our
investors. Following the end of the period under review, a fifth
redemption was announced in April 2021. This was for GBP20 million
and meant that a total of GBP76.9 million has now been returned to
investors - a figure that substantially exceeds the total amount
(GBP70.1 million) raised from shareholders. The fifth redemption
was done at a price of 302p which compares most favourably with the
original issue price of 100p. At the time of writing, the Company's
NAV remains above the GBP100 million target portfolio, the Board
and Portfolio Manager will continue to monitor the NAV and evaluate
when there will be further redemptions.
The Company also made clear in the original Prospectus that the
premise for investing in micro-cap companies is that the smaller
the market capitalisation of the company at the point of
investment, the greater the scope, in general, for growth. Since
inception, your Company has returned (to 31st March 2021) 193%
versus the Benchmark which has returned 78%. Over the same period,
the large company FTSE 100 Index returned 27%. Again, your Company
has done what it said it would do. Over the last six month period,
there have been glimmers of light shining through the gloom of the
pandemic as we received news of global vaccines, but these were
dimmed amidst another nationwide lockdown. However, within UK
equity markets, smaller companies have continued to be the beacon
of light shining through the wider UK market, maintaining their
recent levels of outperformance.
George Ensor's commitment to his investment strategy, i.e.
building a high conviction portfolio of micro-cap businesses, has
demonstrated in times like those we have experienced over the last
reporting period that it cannot only survive but flourish. This in
turn has allowed the portfolio to perform so well.
On behalf of the whole Board, I would like to take this
opportunity to congratulate George Ensor on the third anniversary
as our fund manager in February 2021, and his performance more
specifically over the last six months.
I also wish to extend a warm welcome to Stephen Coe who has
joined the Board of the Company. Stephen will take over as Audit
Committee Chairman from Ian Burns, upon his retirement from the
Board on 30 September 2021. Stephen's biography appears below in
this Half-Yearly Financial Report.
As mentioned in my last Chairman's Statement, the Board has been
actively working to reduce the level of the discount to NAV (which
then stood at over 20%). I am pleased to report that the discount
fell to 9.3% in the six months covered by this Report, helped also
by the steep rise in the NAV reminding investors of exactly what
micro cap stocks can do. Your Board believes the Company is a
unique vehicle for investors seeking to access smaller company
stocks since it is the only fund to invest exclusively in AIM
listed companies and for this reason alone I believe its shares
should justifiably be priced at least on a par with the NAV.
Further since the announcement of the fifth redemption, the share
price has hovered around par to NAV.
On behalf of the Board, I would like to thank all our
shareholders for their continued support.
Andrew Chapman
Chairman
16 June 2021
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's operation and results for the six months ended 31
March 2021. It should be read in conjunction with the Chairman's
Statement and the Portfolio Manager's Report 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 2021, the Company's
issued stated capital comprised 40,523,412 Ordinary Shares (30
September 2020: 46,445,043 Ordinary Shares).
The Company has appointed 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 2021
Capital return
On 21 January 2021, the Company announced its intention to
undertake a compulsory redemption of its Ordinary Shares pursuant
to the Company's redemption mechanism. The redemption mechanism is
used periodically to return capital to shareholders so as to return
the Company's NAV to around GBP100 million, in accordance with the
Company's stated policy in the original Prospectus.
5,921,631 Ordinary Shares were redeemed, amounting to proceeds
of GBP15,002,451 being paid to shareholders on 5 February 2021. A
performance fee of GBP1,224,295 was paid to the Portfolio
Manager.
Appointment of Director
On 21 December 2020, the company announced that Stephen Coe was
appointed as a Non-Executive Director, with effect from 1 January
2021.
Following a period of handover, Mr Coe will take over as Audit
Committee Chairman from Ian Burns, upon his retirement from the
Board on 30 September 2021.
Covid-19
The Company has been well placed to withstand the effects of the
COVID-19 pandemic since it has no gearing or constraints on
liquidity, as at all times it holds sufficient cash reserves to
meet on-going expenditure. The Portfolio Manager continues to
monitor specific COVID-19 risks associated with the underlying
investment portfolio. During the pandemic all service providers
have moved to remote working but without any adverse impact to
services.
Result of Annual General Meeting held on 2 March 2021
The Board has noted the votes against Resolutions 1 (to receive
and consider the Annual Financial Report and Financial Statements
for the year ended 30 September 2020) and 7 (to re-elect Mr Mark
Hodgson as a Director of the Company).
The Board believes that the votes against Resolution 1 relate to
a shareholder advisory group taking issue with a lack of a vote on
dividends and dividends policy. As disclosed in the Company's
Annual Financial Report, the policy is to pay no dividends and the
portfolio is not managed with an objective of income production.
The Board will, in future years, seek shareholder approval of the
policy not to pay a dividend.
The Board believes that the votes against Resolution 7 relate to
the fact that, as disclosed in the Annual Financial Report, Mark
Hodgson is not considered an independent director because he is a
director of the Manager. The Manager is the AIFM of the Company but
is totally unrelated to the Portfolio Manager and the Group. The
opinion of the other Directors is that Mark provides considerable
and complementary expertise to the Board, particularly in the area
of risk management, in which the Manger has a significant
operation. In accordance with the recommendations of the AIC in
relation to non-independent directors, Mark is subject to annual
re-election.
While the Board considers the reasoning behind the advice to
oppose Resolutions 1 and 7 to be inappropriate, it will contact
those shareholders who voted against the resolutions, to better
understand their views, and it remains available to speak with
shareholders.
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 2021, 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 2021 (30 September 2020: none).
Further information can be found in the Portfolio Manager's
Report.
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"). 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 five Directors, four of whom are
independent: Andrew Chapman, Ian Burns, Trudi Clark and Stephen
Coe; 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 15,009
---------------------
Ian Burns 4,015
---------------------
Trudi Clark 8,353
---------------------
Mark Hodgson 7,721
---------------------
Stephen Coe -
---------------------
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. Many businesses are facing additional financial
challenges due to demand fluctuations, and/or additional cost of
supplies currently, due to the COVID-19 pandemic.
The Company may have difficulty in selling its investments which
may lead to volatility in the NAV 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. The Portfolio Manager also undertakes on-going
reviews of the underlying investee companies, particularly those
whose businesses are impacted by the pandemic.
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 2020 for further
details.
Reliance on third party service providers
The Company has no employees and is reliant on the performance
of third-party service providers. Failure by the Portfolio Manager
or any other third-party service provider to perform in accordance
with the terms of its appointment could have a material detrimental
impact on the operation of the Company. This could include failure
of a counterparty on whom the Company is reliant.
The Board considers this a principal risk in light of the
increasing prevalence of cyber related events and the impact of
COVID-19 testing business continuity plans of third party service
providers. The Board monitors and receives reports on the
performance of its key service providers and may in any event
terminate all key contracts on normal commercial terms.
Share price discount
The imbalance of the Company's share price trading at a discount
to NAV may diminish the attractiveness of the Company to existing
investors.
The discount is reported and reviewed at least quarterly. The
Company operates the redemption mechanism to return capital to
investors as outlined in note 9. Discount control mechanisms such
as share buy backs and tender offers are regularly considered with
the Company's brokers. The Board has also appointed a public
relations adviser to widen interest in the Company's shares.
The principal risks and uncertainties detailed above are
consistent with those disclosed in the Annual Financial Report for
the year ended 30 September 2020. In the view of the Board, these
principal risks and uncertainties are as applicable to the
remaining six months of the financial year as they were in the six
months under review.
Going concern
Under the 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 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 2020. 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.
Over his career, Andrew has gained experience investing in every
major asset class. After beginning as a UK equity fund manager,
Andrew was subsequently appointed as the Deputy Investment Manager
for the British Aerospace Pension Fund. In 1991, he took the
position of Investment Manager at United Assurance plc, where
Andrew was responsible for asset allocation and leading a team of
in-house fund managers. Andrew later became a director at 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. Thereafter
Andrew has developed a plural portfolio of roles, initially serving
as the CIO (part-time) for The Health Foundation. His current
portfolio includes membership of the following advisory committees:
the endowment fund for Homerton College (Cambridge University);
Coller Capital Partners; and the Property Charities Fund. Andrew is
also a non-executive director of Steadfast International Limited,
Steadfast Long Capital Limited, GT ERISA Fund, GT Offshore Fund,
and a Trustee of Kidney Care UK.
Key Relevant Skills
-- 42 years investment experience, with an emphasis on equity markets
-- Extensive experience in selecting and managing external fund managers
-- A current member of several fund boards
-- Strong background in governance and risk management
DIRECTORS
Ian Burns, (Independent) - Chairman of the Audit Committee and
Senior Independent Director. Appointed 2 October 2014.
Ian qualified as a Chartered Accountant with Ernst & Young.
He spent 20 years working in private client fiduciary businesses,
ending up as managing director of Investec Trust globally. He then
spent two years with one of Guernsey's leading privately owned fund
administration companies.
Subsequently, Ian founded Via Executive Limited, a specialist
management consulting company and was appointed 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 also holds a number of appointments as a non executive
director of companies engaged in a diverse range of investment
activities and is a non-executive director of the following public
companies: Twenty Four Income Fund Limited (Audit Committee
Chairman) and Fast Forward Innovations Limited (Chairman).
Key Relevant Skills
-- Extensive operational and risk management knowledge
-- Qualified chartered accountant with extensive financial
experience including chairing audit committees of listed funds
-- Working in financial services since 1988
-- Providing strategic consulting advice to financial services companies
-- Advising on modern corporate governance standards and
developing risk management measurement and mitigation
frameworks
-- Family office, inheritance and private client trustee experience
-- Supervising technical accounting issues including specialist disclosure of risk
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 Taylor Maritime
Investments Limited, which are listed on the London Stock Exchange.
She also holds a personal fiduciary licence issued by the GFSC.
Key Relevant Skills
-- Qualified chartered accountant with extensive financial experience
-- Working in financial services since 1987
-- Strong background in risk and corporate governance
-- Experience of several Investment Company Boards
Mark Hodgson, Appointed 2 October 2014.
Mark Hodgson is a Channel Islands fund director based in Jersey,
with considerable experience in the administration of Channel
Islands funds. He has a broad fund expertise covering a wide range
of differing asset classes, including real estate, infrastructure,
credit and private equity.
Mark joined Carne in April 2014. He has over 25 years of
financial services experience, with an extensive banking
background. Mark spent over 20 years with HSBC Global Bank where he
gained in depth knowledge of credit, financial markets and complex
Real Estate structures. Prior to moving to Jersey Mark was Regional
Director for HSBC Invoice Finance (UK) running their receivables
finance business.
Mark moved to Jersey in 2006 to Head up HSBC's Commercial Centre
having full operational responsibility for credit and lending
within the jurisdiction. In 2008 he moved to Capita Fiduciary Group
as managing director Offshore Registration (a regulated role) with
responsibility for Jersey, Guernsey and the Isle of Man. Mark also
took on the responsibility as managing director of Capita Financial
Administrators (Jersey) Limited (regulated role) together with
directorship appointments of regulated and unregulated funds
boards.
Mark sits on a number of very high-profile real estate boards
including: Kennedy Wilson Investment Management Limited, Aviva
Jersey Investors Jersey Unit Trust Management Ltd and LaSalle
Investment Management (Jersey) Ltd. He has a broad range of funds
experience covering a range of debt and credit funds.
Key Relevant skills
-- 25 years financial services experience, 15 years of being the member of various boards
-- Extensive fund risk management experience across multiple asset classes
-- A strong background in board governance
Stephen Coe, (Independent). Appointed 1 January 2021.
Stephen is currently a director of the following listed
entities: Chrysalis Investments Limited and Weiss Korean
Opportunities Fund Limited. He is Chairman of the Audit Committee
for these companies.
He has been involved with offshore investment funds and managers
since 1990 with significant exposure to property, debt, emerging
markets and private equity investments.
He qualified as a Chartered Accountant with Price Waterhouse
Bristol in 1990 and remained in audit practice, specialising in
financial services, until 1997. From 1997 to 2003 he was a director
of the Bachmann Group of fiduciary companies and Managing Director
of Bachmann Fund Administration Limited, a specialist third party
fund administration company. From 2003 to 2006 Stephen was a
director with Investec in Guernsey and Managing Director of
Investec Trust (Guernsey) Limited and Investec Administration
Services Limited. He became self employed in August 2006 providing
executive and non-executive services to financial services
clients.
Key Relevant skills
-- Over 30 years in the finance sector with an emphasis on investment funds
-- Has held many Audit Chair positions covering companies
investing in equities, land and property, mining and alternative
asset classes
-- Specialisms in risk management and valuations
-- Fellow of the Institute of Chartered Accountants in England & Wales
PORTFOLIO MANAGER'S REPORT
This Portfolio Manager 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
In contrast to the first six months of the prior year, the six
months to 31 March 2021 have been a rewarding period for investing
in equities, particularly so for micro caps. The closing NAV for
the Company was 286.7p, a six month gain of 39.3%. We have
delivered a gain of 96.4% since the end of March 2020 which was
close to the recent market low (19 March 2020). The benchmark
gained 33.5% over the six-month period, leaving positive relative
performance, after all fees, of 5.7%.
The long-term performance, net of all fees, remains strong.
Since inception, the NAV has increased by 192.5% with the benchmark
up 78.2% over the same period.
PERFORMANCE
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
MARKET BACKDROP
I will start by stating the obvious; it has been an exceptional
period for equity returns. Global equity indices, as measured by
the MSCI ACWI Index, delivered a six month return of 20.2%. UK
equities, as measured by the MSCI UK IMI Index, slightly
underperformed with a return of 18.2%. UK Smaller Companies, as
measured by the Numis Smaller Companies Index, delivered a
phenomenal 33.5%, no doubt supported by the success of the UK
vaccination programme.
Another notable dynamic has been the steepening of the US yield
curve. Short term rates are being held low, punishing savers,
whilst accelerating global growth and fiscal spending plans that
seek to deliver higher nominal growth as a tool for societal
levelling up have pushed the US ten-year yield higher. Having
bottomed in August at 0.5%, the US ten-year yield finished the
period a touch below 1.75%. This has clear consequences for equity
investors with shorter duration assets, typically cyclicals and
Value, outperforming long duration Quality and Growth assets.
The charts overleaf show the valuation dispersion, a composite
of Price/Book, Price/Sales, Cash Flow Yield and Dividend Yield, on
a sector neutral basis. When dispersions are high, as they were in
late September 2020 (top chart), there is a significant gap between
the cheapest and most expensive stocks in each sector. The
equivalent data for the 11 March 2021 (bottom chart) shows
valuation dispersions have narrowed but still remain higher than
normal. Essentially, the recent outperformance of short duration
cyclicals has offset the outperformance of long duration Growth
stocks that we saw through the first half of 2020, with valuation
dispersions returning to pre-crisis levels.
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
I mentioned in the equivalent section in the Annual Financial
Report that we had, given the then recent outperformance of Growth,
built positions in Recovery and Asset-backed investment cases. As
you will see from the performance attribution, those additions
contributed to the strong relative performance in the period. We
also started the period with a portfolio that was, despite a strong
Growth bias, cheaper than the benchmark and this factor bias has
also supported performance.
SUSTAINABILITY
"A sustainable business compounds value for all stakeholders
over the long term.
It is a responsible steward of capital with a culture of
longevity.
We evaluate sustainability through the pillars of People,
Innovation and the Environment, including companies undergoing
change leading to positive long-term outcomes."
The latest evolution of our philosophy and process is our
approach to sustainable investing. As investors, we believe we can
play an important role in driving the sustainable agenda forward.
This is particularly relevant for investing in microcaps as we
typically take meaningful stakes in the businesses we invest in.
Not only is it the right thing to do, but it is also in the
interest of long-term shareholders that companies are managed for
the long-term to the benefit of all stakeholders. Simply put, a
business that does not consider the outcome of its actions on its
customers or employees or the relationship it has with the
regulator or environment, is unlikely to succeed in compounding
attractive returns over the medium to long term.
Some managers' approach to ESG is to screen out companies based
on their business activities or third party ESG rating. Our
emphasis is on two things: firstly, as is the case for our
fundamental research, we do not rely on third party research for
our sustainability analysis; and second, we believe that through
engagement, as opposed to exclusion, we can drive improvement which
should benefit all stakeholders. Whilst we have always considered
the wider stakeholder analysis, this is now part of our formal
process and, as part of that, we are allocating sustainability
ratings (from S1 to S4) to portfolio companies. The detail of these
can be found below:
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
As at mid-April, on an ex cash basis, c.55% of the portfolio is
invested in companies with an S2 rating, 35% is invested in
companies rated S1 and the balance, 10%, is invested in companies
rated S3. There are no S4 rated companies in the portfolio. One of
the important outcomes of this rating system is that it allows us
to focus our engagement on the companies where the potential for
improvement is high. I will report in more detail at the end of the
year on these specific companies.
Whilst we aim, in a similar way to how we use data for our
fundamental analysis, to incorporate the use of data into both our
analysis and reporting, we are not in a position to do this yet. It
will take time for microcap companies to provide the necessary
disclosure, but this is already improving and is something that we
can play a role in developing.
For more detail, our Sustainable PVT report can be found on the
River and Mercantile website ( https://riverandmercantile.com/
).
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 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
history but have begun to improve. And with Asset-backing,
confidence in the value of the assets is key and we look for
changes in the asset scarcity (e.g. supply side consolidation),
driving asset value upgrades and share price performance.
The exposure to different categories at the end of the period,
which is broadly unchanged from prior periods, is shown below. The
allocation to Recovery and Asset-backed investments has increased
slightly, from 21% to 24%, on the back of strong performance in
these names. Within that, Recovery exposure is 5% higher and
Asset-backed exposure is 2% lower. We hold our gold E&P
holdings, which were one of the largest detractors from performance
in the period, in the Asset-backed category which explains the
change between the two categories.
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
The following table illustrates some of the key factor
characteristics of the portfolio and the equivalent data for the
benchmark for both the start and end of the period being
reported.
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
We are looking to invest in companies that have delivered higher
than average growth in sales and earnings. The data shows that at a
portfolio level, the realised three-year historic sales and
earnings growth was 20% and 23% respectively which compares to the
benchmark at 10% and 7%. Both the portfolio and benchmark data were
lower at the end of the period than they were at the start,
understandable given the Covid-19 circumstances. One data point
that we have typically had a positive tilt to is the 1-year
forecast earnings growth rate. The data shows that the forecast
earnings growth for the portfolio is lower than the market (22%
compares to 27.5%). It is hard to draw any firm conclusions from
this but it is comforting to see that the earnings growth forecast
for our portfolio is in line with the realised rate over the last
three years (22% versus 23%) whilst the forecast market growth is
materially higher than the historic rate for the market (27.5%
versus 6.5%).
The portfolio trades on a modest premium when considering price
to earnings ratios but in line on enterprise value to EBITDA
(earnings before interest, tax, depreciation and amortisation)
which is indicative of the portfolio holdings being better
capitalised/less indebted. The cash flow yield is the only trailing
valuation measure (i.e. based on historic results as opposed to
forecasts) and I would argue the absolute number for both the
market and the portfolio has been flattered by companies being
managed for cash through the crisis. Despite the absolute number
being potentially misleading, the portfolio scores better than the
benchmark which supports our value credentials.
We have seen a lower level of upgrades, as illustrated by the
three-month earnings revisions, than the benchmark. This is likely
a result of our lack of exposure to oil and other industrial
commodities where higher prices have driven upgrades.
In summary, the portfolio has maintained the growth bias that
has supported long term returns whilst remaining broadly neutral on
valuation.
PORTFOLIO ATTRIBUTION: HOLDINGS WITH A CONTRIBUTION TO RELATIVE
RETURN OF GREATER THAN +/- 1%.
It will come as no surprise to shareholders that the most
significant contributor in the six month period was MaxCyte
(+4.7ppts), the US based pioneer in non-viral cell engineering
technology that enables many of the world's largest gene therapy
companies. The company announced a further placing to introduce
five new crossover funds to the shareholder register ahead of their
imminent Nasdaq listing which was oversubscribed and at a premium
to the prevailing share price. Whilst the company remains
exceptionally well placed given the licensing agreements already in
place, we did reduce our position given the share price performance
(+136%).
A few of the investments which we initiated in 2020 in the UK
consumer cyclicals sector also performed very well. We ran large
positions in both City Pub Group (+2.1ppts) and Joules (+2ppts),
and a smaller position in Revolution Bars Group (+1ppt); each
performed well, +129% for both Joules and City Pubs and +204% for
Revolution Bars, on the back of the excellent progress made in the
UK vaccination programme and the clear pathway out of lockdown.
Whilst Joules and Revolution Bars are Recovery investment cases
with margin understandably depressed, City Pubs has freehold
backing, supporting the Asset-backed investment case.
I wrote in the prior Portfolio Manager's Report that I thought
that the significant share price weakness we had seen in Ince Group
(+2.1ppts) was unjustified. The shares gained 233% from a very
depressed valuation on the back of their resilient interim results
which importantly included free cash generation and net debt
paydown. The shares remain undervalued and can re-rate further as
the company continues to deliver on the Recovery investment
case.
DX Group (+1.3ppts). The Recovery investment case we invested in
during the summer of 2018 gained 81% as the company executed on the
turnaround plan. The move in the share price met our base case
scenario for the level to which margins could return to and so we
exited the position, in part funding the return of capital that was
completed in February.
Boku (+1.6ppts) is a Growth company we have owned since the IPO
(at 59p) in November 2017. The shares originally performed very
well, moving up to c.180p in September 2018. They then, like many
other smaller companies, underperformed with the shares falling
back below the IPO price to a low of 49p in March 2020. I think it
is an interesting example of the volatility we can see, and take
advantage of, in micro caps. There have been two acquisitions (one
successful, one less successful) between the peaks, but, beyond
that, the business has largely delivered or outperformed
expectations. We did add to our position around the lows and have
again, on the back of the strong share price (+93% in the period)
and re-rating, reduced our exposure.
Finally, Sylvania Platinum (+1.5ppts) the platinum group metals
producer gained 89%, broadly in line with the gain in the rhodium
price which rose 93%. Whilst I cannot admit to this increase being
part of the original investment case, it has played out very nicely
and we have recently completed our exit at c.120p, a 200% gain on
our average purchase cost of c.40p and a higher total return, which
will have benefitted from the yield which included one special
dividend.
In a period where the benchmark performance was +33.5%, clearly
any share price weakness delivered a material relative
underperformance. Our exposure to gold was the single largest
detractor to performance with Shanta Gold (-1.7ppts), Serabi Gold
(-1.0ppt), Hummingbird (-1.2ppts) and Capital Limited (-1.3ppts)
all making negative contributions of more than 1%. Unsurprisingly,
the falls of 31%, 36%, 37% and 15% respectively were driven in part
by the gold price which fell 9% in USD and 16% in GBP. There were
some additional operational disappointments at Hummingbird and
Serabi, as discussed in the trading activity section, and we
consolidated our gold E&P exposure to two investments with the
sale of Hummingbird. Capital announced several encouraging contract
updates including their largest ever to date, a new mining services
contract at Centamin's Sukari mine. They have also recently, post
period end, announced a strong Q1 trading update and look well set
for 2021.
Argentex (-1.0ppt) finished the period 7% lower; they reported a
fall in trading volumes which have since recovered. RA
International (-1.2ppts) also saw trading impacted by the pandemic
and, more recently, the unrest in Mozambique which will delay
projects. The shares lost 14%.
Finally, Venture Life (-1.5ppts) lost 10% following an
exceptional share price performance in 2020. The company completed
a large fundraising to continue their buy and build strategy which
has driven excellent results since our original investment. As with
RA International and Argentex, this hasn't been a period of perfect
execution for Venture Life with a large impairment made against
debt owed by their Chinese partner. As with the other two
companies, we believe Timing can improve from here.
PORTFOLIO ACTIVITY - NEW POSITIONS AND EXITS
New Positions - in order of position size at the end of the
period:
ActiveOps - 2.6%: an early stage Growth business which has a
first mover advantage in a large market, providing a data driven
approach to organising work and managing capacity for large,
globally distributed back offices. ActiveOps' software typically
delivers a 15% productivity improvement, something the company are
willing to risk their training and implementation (T&I)
revenues for (i.e. clients can choose not to pay T&I costs if
the productivity improvements are not delivered), which delivers a
return on investment of c.100% for the customer. The position was
purchased through the IPO in late March.
Distribution Finance Capital - 1.8%: a specialist lender
providing "pay as sold" finance to dealers and Original Equipment
Manufacturers ("OEMs") to finance their forecourt inventory. The
company provides finance on a range of products, typically
vehicles, with over half the loan book currently lent to finance
caravans and motorhomes. The business has been transformed by the
recent award of a banking license, enabling the business to fund
through low cost retail deposits. The position was purchased
through a fund raise to provide the business with the necessary
capital to grow the loan book.
Supreme - 1.4%: a business with a history as a distributor of
licensed products, Supreme is building a portfolio of value brands
that leverage the businesses' strong route to market with discount
retailers. The company has built the market leading (by volume)
vaping brand in the UK, 88vape. A high returns business model that
has a strong track record of delivering organic growth. The company
came to market via IPO on an attractive valuation, in part due to
the uncertainty around vaping regulation. Public Health England see
vaping as one of the key contributors to the delivery on their
ambition for England to be smokefree by 2030.
Virgin Wine - 1.3%: a direct to consumer wine merchant which
also came to market via IPO in the period. The company has a low
cost partnership approach to acquiring members and excellent
retention which delivers a good LTV:CAC ratio (a ratio of more than
1 implies that users contribute more value to the business than
they cost to acquire, a prerequisite for a successful ecommerce
business, Virgin Wines have a ratio of 4.5x). Trading over the last
18 months has benefitted materially from the Covid-19 pandemic, and
we expect that they should retain a good portion of the excess
customers that have been acquired.
Exits:
We exited seven positions in the period, with a further position
exited post period end. The most significant exits were DX Group
and AFH Financial. DX Group was purchased as a Recovery thesis in
May 2018 and whilst there is a compelling case for further margin
upside in the business, with the shares having re-rated from less
than 0.2x EV/Sales at the time of purchase to over 0.6x EV/Sales,
this is arguably allowed for in the current valuation. AFH
Financial was bid for by private equity and is another example of
what happens when the market fails to recognise the quality of
earnings of particularly listed businesses.
Adept Technology, Harvest Minerals, STM Group and Tekmar were
all exited in the process of raising funds for our fourth return of
capital which was completed in February. Of the four, the most
disappointing was Tekmar which had previously been one of our
largest holdings, and was sold at a lower price than when the
Company purchased it. Whilst the attractive growth opportunity in
offshore wind remains, it appears that competition is increasing
for the company's core products.
Within the precious metals space, we exited Hummingbird
Resources, consolidating our gold E&P exposure into our two
remaining names, Shanta Gold and Serabi Gold. Hummingbird has, from
an operational perspective, been the least consistent. Due to their
relatively high cost of production, it is also the most geared to
the gold price. Finally, post period end, we completed the exit of
Sylvania Platinum; the investment case is now heavily exposed to
the price of rhodium, a commodity which is trading at very elevated
levels and not something we have a huge amount of insight on.
PORTFOLIO STATISTICS
Top 10 Holdings
The ten largest positions by weight held in the portfolio .
[Graphs and charts are included in the published Half-Yearly
Financial Report which will be available on the Company's website
shortly at
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
]
OUTLOOK
Whilst we have seen a rapid recovery in both prospects for
economic growth and equity valuations, UK equities remain
unpopular. This is particularly true when considering the relative
valuation either against other regional equities but also other
asset classes. I would also point to the long-term track record
which, over more than 6 years, illustrates the structural not
cyclical opportunity for delivering attractive shareholder returns.
In fact, one of the many lessons from the pandemic has been the
benefits of the easy access to capital that listed businesses have,
which should continue to underpin the structural opportunity.
The debate around a regime change to a higher level of inflation
fueled by accommodative monetary conditions alongside expansive
fiscal policy will continue. We are going to see inflation return
in the short term and central banks have been clear that they will
be slow to react to this. This creates a compelling case for higher
medium-term inflation, but many of the influences that have
depressed inflation over the previous cycle (demographics,
technology and debt to name three) remain. We will continue to run
a portfolio that seeks to invest in business that can deliver
attractive levels of Growth but without having to pay a
premium.
As I wrote in a recent monthly update, February marked the third
anniversary of my management of the fund and I wanted to take this
opportunity to thank shareholders again for their support over the
last three years. The team remains committed to the same strategy
that was put in place at the IPO; to build a high conviction
portfolio exploiting opportunities in a part of the market that, in
general, has greater scope for growth and is often overlooked by
larger funds and the investment broking community.
Thank you for your ongoing support.
George Ensor
Portfolio Manager
16 June 2021
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 2021, 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 2021 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 2021 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 Financial 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
16 June 2021 16 June 2021
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 2021.
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 2021;
-- 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
16 June 2021
(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 2021
Six months Six months
ended ended
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
Notes GBP GBP
Income
Investment income 3 476,726 736,217
Net gain/(loss) on financial assets
designated at fair value through profit
or loss 7 36,903,150 (20,196,674)
Total income/(loss) 37,379,876 (19,460,457)
--------------------------------------------------- ------ ------------ -------------
Expenses
Portfolio performance fees 4 (1,083,852) -
Portfolio management
fees 4 (412,761) (318,497)
Operating expenses 5 (317,770) (215,943)
Finance costs 12 - (4,589)
Foreign exchange
loss (1,729) (9,254)
--------------------------------------------------- ------ ------------ -------------
Total expenses (1,816,112) (548,283)
--------------------------------------------------- ------ ------------ -------------
Profit/(loss) before
taxation 35,563,764 (20,008,740)
Taxation - -
------------------------ ------------ ----------- ------ ------------ -------------
Total comprehensive income/(loss) 35,563,764 (20,008,740)
Basic and diluted earnings/(loss)
per Ordinary Share 10 0.7987 (0.4308)
The Company has no items of other comprehensive income, and
therefore the income/(loss) for the period is also the total
comprehensive income/(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 2021
31 March 30 September
2021 2020
(Unaudited) (Audited)
Notes GBP GBP
--------------------------------------- ------ ------------ ----------------
Non-current assets
Financial assets designated at fair
value through profit or loss 7 110,991,483 92,934,986
Current assets
Cash and cash equivalents 5,773,233 3,929,910
Trade receivables - securities sold
awaiting settlement 387,126 73,663
Other receivables 93,867 73,083
Total current assets 6,254,226 4,076,656
---------------------------------------- ------ ------------ ----------------
Total assets 117,245,709 97,011,642
---------------------------------------- ------ ------------ ----------------
Current liabilities
Trade payables - securities purchased
awaiting settlement - (104,945)
Other payables (1,076,129) (1,293,784)
---------------------------------------- ------ ------------ ----------------
Total current liabilities (1,076,129) (1,398,729)
---------------------------------------- ------ ------------ ----------------
Net assets 116,169,580 95,612,913
---------------------------------------- ------ ------------ ----------------
Capital and reserves
Stated capital 9 - -
Share premium 9 13,384,755 28,391,852
Retained earnings 102,784,825 67,221,061
---------------------------------------- ------ ------------ ----------------
Equity shareholders' funds 116,169,580 95,612,913
---------------------------------------- ------ ------------ ----------------
The condensed financial statements were approved and authorised
for issue by the Board of Directors on 16 June 2021 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 2021 (Unaudited)
Stated Share Retained
capital premium earnings Total
GBP GBP GBP GBP
------------------------------- ---------- ------------- ------------ -------------
Opening equity shareholders'
funds at
1 October 2020 - 28,391,852 67,221,061 95,612,913
-------------------------------- --------- ------------- ------------ -------------
Total comprehensive income
for the period - - 35,563,764 35,563,764
Redemption of ordinary shares - (15,002,451) - (15,002,451)
Ordinary share redemption
costs - (4,646) - (4,646)
Closing equity shareholders'
funds at
31 March 2021 - 13,384,755 102,784,825 116,169,580
-------------------------------- --------- ------------- ------------ -------------
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
------------------------------- --------- ----------- ------------- -------------
The notes below form an integral part of these condensed
financial statements.
CONDENSED statement of cash flows
For the six months ended 31 March 2021
Six months Six months
ended ended
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
Note GBP GBP
------------------------------------------------------------------- ----- ------------- -------------
Cash flow from operating activities
Profit/(loss) after taxation and total
comprehensive income/(loss) for the period 35,563,764 (20,008,740)
Adjustments to reconcile profit/(loss)
after taxation to net cash flows:
* Realised (gain)/loss on financial assets designated
at fair value through profit or loss 7 (15,169,162) 2,766,944
* Unrealised (gain)/loss on financial assets designated
at fair value through profit or loss 7 (21,733,988) 17,429,730
Purchase of financial assets designated
at fair value through profit or loss(1) 7 (15,187,961) (14,305,819)
Proceeds from sale of financial assets
designated at fair value through profit
or loss(2) 7 33,616,206 11,024,225
Changes in working capital
(Increase)/decrease in other
receivables and prepayments (20,784) 24,784
Decrease in other payables (217,655) (30,639)
Net cash from/(used in) operating
activities 16,850,420 (3,099,515)
Cash inflow from financing
activities
Redemption of ordinary shares (15,002,451) -
Ordinary share issue costs
paid (4,646) -
------------------------------------------------------------------- ----- ------------- -------------
Net cash used in financing
activities (15,007,097) -
Net increase/(decrease) in cash and cash
equivalents in the period 1,843,323 (3,099,515)
-------------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at beginning
of the period 3,929,910 6,543,864
-------------------------------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the end
of the period 5,773,233 3,444,349
-------------------------------------------------------------------- ----- ------------- -------------
(1) - Payables relating to purchases of financial assets
designated at fair value through profit or loss at 31 March 2021
amounted to GBPnil (31 March 2020: GBP1,004,715).
(2) - Proceeds outstanding at 31 March 2021 relating to sales of
financial assets designated at fair value through profit amounted
to GBP387,126 (31 March 2020: GBP957,007).
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 International Accounting Standard 34, "Interim Financial
Reporting", and the Disclosure Guidance and Transparency Rules
sourcebook of the FCA. 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 2020. The Half-Yearly Financial Report has also been
prepared using the same accounting policies applied for the year
ended 30 September 2020 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 and the Companies Law.
New standards, amendments and interpretations issued and
effective for the financial year beginning 1 October 2020
Definition of material (amendments to IAS 1 - Presentation of
Financial Statements and IAS 8 - Accounting Policies, Changes in
Accounting Estimates and Errors)
The International Accounting Standards Board has redefined its
definition of material, issued practical guidance on applying the
concept of materiality and issued proposals focused on the
application of materiality to disclosure of other accounting
policies. The amendments are not expected to have a material impact
on the Company's condensed financial statements.
During the period, a number of other new standards, amendments
and interpretations became applicable for the current reporting
period which are not relevant to the Company's operations.
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
2021 2020
(Unaudited) (Unaudited)
GBP GBP
Dividend income 476,726 731,701
Bank interest - 4,516
Total investment income 476,726 736,217
--------------------------- ------------ ------------
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 2021, the Company
recognised performance fees of GBP1,083,852 (31 March 2020:
GBPnil). As at 31 March 2021, performance fees accrued amounted to
GBP905,986 (30 September 2020: GBP1,046,428) as the Company's NAV
total return performed favourably against the Benchmark during the
performance period and performance fees of GBP1,224,295 were paid
during the period (30 September 2020: GBPnil). Please refer to the
Financial Highlights and Performance Summary for details of the
Company's previous redemptions.
5. Operating expenses
Six months Six months
ended ended
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
GBP GBP
Administration fees 74,351 64,597
Directors' fees 66,082 60,000
AIFM fees 29,099 27,000
Audit fees 24,756 22,500
Broker fees 20,000 20,000
Transaction fees 32,127 16,755
Non-audit fees 19,135 18,400
Custody fees 12,051 8,879
Registrar fees 10,469 7,452
Legal and professional fees 2,411 3,334
Sundry expenses 27,289 (32,974)
Total operating expenses 317,770 215,943
------------------------------- ------------ ------------
Non-audit fees
Non-audit fees incurred during the six months ended 31 March
2021 relating to interim review services amounted to GBP19,135 (31
March 2020: GBP18,400).
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 GBP58,000 (increased
from GBP54,000 effective 1 September 2020). 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
The Company's registrar is 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 July 2020, the Company appointed Nplus1 Singer Advisory LLP
("N+1 Singer"), to provide corporate stockbroker and financial
adviser services to the Company, as the Company's sole broker.
Under the agreement, N+1 Singer is entitled to a fee payable by the
Company of GBP40,000 per annum payable quarterly in advance.
In addition, N+1 Singer is entitled to a one-off bonus fee
contingent upon the average daily discount over the three months to
31 December 2021. The bonus will be payable to N+1 Singer only if
the Company's average daily discount will be no greater than 8%
during this period; with a maximum bonus payable to N+1 Singer of
GBP11,800 per annum, should the Company's shares be trading at a
premium during this period, reduced accordingly if the average
daily discount lies between 8% and 0% during this period.
Total broker fees incurred during the six months ended 31 March
2021 were GBP 20,000 (six months ended 31 March 2020:
GBP20,000).
6. Directors' fees and interests
The Directors of the Company were remunerated for their services
at a fee of GBP25,000 per annum from 1 October 2020 to 31 December
2020, increasing to GBP27,000 per annum effective 1 January 2021,
with the Chairman of the Board and the Chairman of the Audit
Committee receiving an additional GBP15,000 and GBP5,000
respectively.
The Company has no employees other than the Directors.
Directors' fees incurred for the six months ended 31 March 2021
were GBP66,082 (six months ended 31 March 2020: GBP60,000 ).
Directors' fees payable as at 31 March 2021 were GBP36,246 (30
September 2020: GBP30,165).
As at 31 March 2021, Andrew Chapman, Trudi Clark, Mark Hodgson,
Ian Burns and Stephen Coe held 17,941, 9,985, 9,230, 4,798 and nil
Ordinary Shares in the Company respectively. No pension
contributions were payable in respect of any of the Directors.
7. Financial assets designated at fair value through profit or
loss
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 2021 (30 September 2020: 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 2021, in the opinion of the
Directors, the quoted price for the financial assets as at 31 March
2021 is representative of fair value.
31 March 2021 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 110,991,483 - - 110,991,483
------------------------------- -------------- ------------ ------------ --------------
30 September 2020 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 92,934,986 - - 92,934,986
------------------------------- -------------- ------------ ------------ --------------
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 2021 Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP GBP GBP GBP
---------------------------------- ------------- ------------ ------------ -------------
Opening valuation as at 1
October 2020 92,934,986 - - 92,934,986
---------------------------------- ------------- ------------ ------------ -------------
Purchases during the period 15,083,016 - - 15,083,016
Sales - proceeds during the
period (33,929,669) - - (33,929,669)
Realised gain on financial
assets designated at fair
value through profit or loss(1) 15,169,162 - - 15,169,162
Unrealised gain on financial
assets designated at fair
value through profit or loss(2) 21,733,988 - - 21,733,988
Closing valuation as at 31
March 2021 110,991,483 - - 110,991,483
Total net gain on financial
assets for the period ended
31 March 2021 36,903,150 - - 36,903,150
---------------------------------- ------------- ------------ ------------ -------------
(1) Realised gain on financial assets designated at fair value
through profit or loss is made up of GBP18,910,415 g ain and
GBP(3,741,253) loss.
(2) Unrealised gain on financial assets designated at fair value
through profit or loss is made up of GBP 30,885,196 gain and
GBP(9,151,208) loss.
30 September 2020 Level 1 Level 2 Level 3 Total
(Audited) (Audited) (Audited) (Audited)
---------------------------------- ------------- ---------- ---------- -------------
GBP GBP GBP GBP
---------------------------------- ------------- ---------- ---------- -------------
Opening valuation as at 1
October 2019 81,386,681 - - 81,386,681
---------------------------------- ------------- ---------- ---------- -------------
Purchases during the year 32,218,190 - - 32,218,190
Sales - proceeds during the
year (29,574,088) - - (29,574,088)
Realised gain on financial
assets designated at fair
value through profit or loss(1) 2,344,487 - - 2,344,487
Unrealised gain on financial
assets designated at fair
value through profit or loss(2) 6,559,716 - - 6,559,716
Closing valuation as at 30
September 2020 92,934,986 - - 92,934,986
Total net gain on financial
assets for the year ended
30 September 2020 8,904,203 - - 8,904,203
---------------------------------- ------------- ---------- ---------- -------------
(1) Realised gain on financial assets designated at fair value
through profit or loss is made up of GBP10,898,127 gain and
GBP(8,553,640) loss.
(2) Unrealised gain on financial assets designated at fair value
through profit or loss is made up of GBP20,669,693 gain and
GBP(14,109,977) loss.
During the six months ended 31 March 2021, there were no
transfers between levels of the fair value hierarchy (30 September
2020: no transfers).
As at 31 March 2021, none of the investments held are illiquid
in nature and on this basis are not subject to any special
arrangements.
The carrying amount of the trade and other receivables/payables
is a reasonable approximation of fair value.
8. Contingent liabilities and commitments
As at 31 March 2021, the Company had no contingent liabilities
or commitments (30 September 2020: 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 2021, the Company had 40,523,412 Ordinary Shares
(30 September 2020: 46,445,043) in issue. 5,921,631 Ordinary Shares
were redeemed on 29 January 2021 utilising the Company's redemption
mechanism (30 September 2020: 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's
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 (30
September 2020: 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 for details of the Company's historical redemptions.
10. Basic and diluted earnings/(loss) per Ordinary Share
Six months Six months
ended ended
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
GBP GBP
Total comprehensive income/(loss)
for the period 35,563,764 (20,008,740)
Weighted average number of Ordinary Shares
during the period 44,525,393 46,445,043
Basic and diluted earnings/(loss)
per Ordinary Share 0.7987 (0.4308)
11. Net asset value per Ordinary share
31 March 30 September
2021 2020
(Unaudited) (Audited)
GBP GBP
Net asset value 116,169,580 95,612,913
Number of Ordinary Shares at
period/year end 40,523,412 46,445,043
Net asset value per Ordinary
Share 2.8667 2.0586
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.
As at 31 March 2021, the Portfolio Manager and George Ensor held
the following voting rights in the Company:
31 March 2021 30 September
2020
Portfolio Manager 3,586,646 4,110,768
-------------- -------------
George Ensor 52,350 60,000
-------------- -------------
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 2021.
Capital return
On 28 April 2021, the Company announced its intention to
undertake a compulsory redemption of its Ordinary Shares pursuant
to the Company's redemption mechanism. The redemption mechanism is
used periodically to return capital to shareholders so as to return
the Company's NAV to around GBP100 million, in accordance with the
Company's stated policy in the original Prospectus.
6,625,458 Ordinary Shares were redeemed on 7 May 2021, with
proceeds of GBP20 million being paid to shareholders on 14 May
2021.
Following the redemption, 33,897,954 Ordinary Shares remain in
issue.
NAV per share
During the period from 31 March 2021 to 14 June 2021, the NAV
per share increased by 12.83% from GBP2.8667 to GBP3.2345.
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
Stephen Coe (appointed 1 January
2021)
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
N+1 Singer Advisory LLP Computershare Investor Services
One Bartholomew Lane (Guernsey) Limited
London 1(st) Floor, Tudor House
EC2N 2AX Le Bordage
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-Year Financial Report for the
six months period ended 31 March 2021 on its website shortly (
https://riverandmercantile.com/wp-content/uploads/2021/06/RMMC-Half-Yearly-Report-2021.pdf
). The 2021 Half-Year Financial Report includes the Company's
results for the six months ended 31 March 2021.
Enquiries:
River and Mercantile Asset Management LLP
James Barham
Tel: +44 (0) 20 7601 6262
Camarco
Jake Thomas
+44 (0)20 3781 8337
N+1 Singer
Robert Peel (investment banking), Paul Glover (sales)
Tel +44 (0)20 7496 3000
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-Year 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
https://riverandmercantile.com/funds/rm-uk-micro-cap-investment-company/
.
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END
IR FRMITMTABBTB
(END) Dow Jones Newswires
June 17, 2021 10:55 ET (14:55 GMT)
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