Annual Financial Report

RNS Number : 6269K

Mercantile Investment Trust(The)PLC

12 April 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

(the 'Company)

FINAL RESULTS FOR THE YEAR ENDED 31ST JANUARY 2018

Legal Entity Identifier: 549300BGX3CJIHLP2H42

Information disclosed in accordance with the DTR 4.1.3

The Directors of The Mercantile Investment Trust plc announce the Company's results for the year ended 31st January 2018.

CHAIRMAN'S STATEMENT

Performance

I am delighted to present my first annual statement as Chairman of the Company and very pleased to report on a year in which we have achieved an excellent return for shareholders.

Over the year to 31st January 2018, the Company produced a return on net assets of +25.5% against a return of +14.6% for the benchmark. The share price total return was also +25.5%.

The Company's long term performance has also been very strong, with both the net asset value and share price having outperformed the benchmark over three, five and ten years as well. Not only has the Company outperformed its UK mid and small cap benchmark over those periods, but that benchmark has also outperformed the broader UK market over the same periods and in seven of the last ten calendar years.

Share Split

As a consequence of the Company's strong performance, the share price has risen sharply in recent years. Indeed, over the last ten years, it has more than doubled. Whilst this is excellent for our existing shareholders, the Board believes that the high share price may be unhelpful for those investing smaller amounts, monthly savers and dividend re-investment programmes and therefore it is proposing to sub-divide the shares on a 10 for 1 basis. This is known as a 'share split'. Following the share split each shareholder will hold ten new ordinary shares for each share held immediately prior to the share split. We hope that sub-dividing the Company's ordinary shares will make buying the shares more attractive to new investors and increase market liquidity. I would like to reassure existing shareholders that the splitting of the shares will not affect the overall value of their holdings in the Company as the reduction in the price per share will be offset by a commensurate increase in the number of shares they hold. By way of example, taking the price as at 31st January 2018 of 2,150.0p per share, following the sub-division each holder of one ordinary share would receive ten new shares which would be priced at 215.0p per share immediately after the share split. Shareholders will have the opportunity to vote on this proposal at the forthcoming AGM and more details are set out on pages 26 and 27 of the annual report.

Returns and Dividends

Earnings per share increased significantly to 61.2p, from 53.2p in 2016, as underlying dividend growth from the portfolio was very strong. The Company has paid three interim dividends of 10.50p per ordinary share in respect of the year to 31st January 2018. The Board has declared a fourth quarterly interim dividend of 21.5p, giving a total dividend of 53.0p per share for the year, a 15.2% increase on last year's total dividend of 46.0p per share.

The Board intends to spread out the payment of the total dividend more evenly in the current financial year ending 31st January 2019. Therefore it will increase the level of the first three interim dividends, the first of which will be paid in August, to 12.5p per share (pre the share split). As per usual practice, the Board will determine the level of the fourth interim dividend following the end of the financial year and it will depend on the level of dividends received by the Company. If the Company's shareholders approve the Board's proposal for a share split (see above) the first three quarterly interim dividends will be paid at the rate of 1.25p per share. I would emphasise that the total amount of cash to be received by shareholders in the form of dividends will be the same whether or not the share split is approved. We aim for dividend increases at least in line with inflation, and also to continue to build our revenue reserves for any downturn. At the year end, taking account of the payment of the fourth interim dividend, the revenue reserve stood at £44.5 million, which is the equivalent to 54.3p per share.

Discount and Share Buybacks

Over the year, the discount widened marginally from 12.5% to 12.8% on the basis of a cum income calculation with debt at par. Using the cum income valuation with debt at fair value, the discount moved from 8.6% to 9.5%. There is an explanation of the calculation methodologies on page 20 of the annual report.

The Board intends to continue to use the share repurchase authority to enhance value, to manage imbalances between the supply and demand of the Company's shares and thereby reduce the volatility of the discount. It believes that, to date, this mechanism has been helpful and therefore recommends that the powers to repurchase up to 14.99% of the Company's shares, to be cancelled or held in Treasury, be renewed by shareholders at the forthcoming AGM.

During the year a total of 5,080,380 shares were repurchased into Treasury, amounting to 5.8% of the issued share capital at the beginning of the year, at a total cost of £98.6 million. Buying those shares back at a discount to net asset value added approximately 11.0p to the net asset value per share for continuing shareholders.

Gearing

The Company ended the year with gearing of 3.5%. During the year the level of gearing ranged between 0% and 6% geared. It is the Board's intention to continue to operate within the range of 10% net cash to 20% geared, under normal market conditions. Gearing is facilitated by two long term debentures and is regularly discussed between the Board and the Investment Managers.

Board

Sandy Nairn will retire from the Board at the conclusion of the Company's AGM on 23rd May 2018. Sandy has been a Director since 2003 and the Board's Senior Independent Director since 2014. His considerable investment management experience has been very valuable and on behalf of the Board, I would like to thank him for his contribution over the past 15 years. We have commenced the process to recruit a new Director using an external agency and we will announce their appointment in due course. Jeremy Tigue will succeed Sandy as the Board's Senior Independent Director.

All of the Directors, with the exception of Sandy Nairn, will stand for annual reappointment at the forthcoming AGM, in accordance with the Board's policy and corporate governance best practice.

The Manager

The Board monitors the performance of the Manager, J.P. Morgan, on an ongoing basis. It judges investment performance over the longer term and also in terms of risk management and internal control, administration, sales, marketing and compliance. We remain satisfied with the Manager's overall performance and believe that J.P. Morgan's continuing appointment is in the best interests of all shareholders.

Management Fee Change

As I have reported previously, the Board agreed with the Manager that the management fee be reduced to 0.45% on the Company's market capitalisation with effect from 1st February 2018, having already been reduced to 0.475% from 1st February 2017. As a result, the Company's ongoing charges ratio fell to 0.45% for the year. This level is significantly lower than the average for our investment trust peer group and represents outstanding value for an actively managed portfolio with such a strong long term performance record.

Annual General Meeting

The Company's one hundred and thirty second Annual General Meeting will be held at Trinity House, Tower Hill, London EC3N 4DH on Wednesday 23rd May 2018 at 12.00 noon. In addition to the formal part of the meeting, there will be a presentation from the Investment Managers who will answer questions on the portfolio and performance. The meeting will be followed by a buffet lunch which will give shareholders an opportunity to meet the Board, the Investment Managers and representatives of J.P. Morgan.

Outlook

The Investment Managers in their report highlight a positive economic backdrop for the companies we are invested in, but also identify some potential risks. The Company is well placed to prosper in normal market conditions but also has the wherewithal to take advantage of opportunities should they arise. As I said at the beginning of this report, mid and smaller UK companies have historically outperformed their larger counterparts and we see no reason for this to be different in the future. As a long term investment, we look forward to the years ahead, confident that we have the right investment vehicle and the right Investment Managers investing in the right area of the market.

This year celebrates the 150th year of investment trusts as collective investment vehicles. For good reasons the investment trust sector is in rude health and increasingly popular with individuals and advisors alike. The benefits of an independent board, the ability to gear, the use of revenue reserves to underpin dividends and the enhancement of net asset value through share repurchases are advantages unavailable for open ended alternatives. As far as the Company is concerned, we can add significant revenue reserves, low ongoing charges, sheer scale and an historically attractive asset class managed by experts in their field to the list of attractions.

Angus Gordon Lennox

Chairman                                                                                                                                        

12th April 2018

INVESTMENT MANAGERS' REPORT

Market background: a surprisingly calm year

The UK equity market delivered a positive performance last year despite remaining firmly out of favour with most international investors. The FTSE All-Share generated a total return of +11.3% for the twelve months ending 31st January 2018 as the market was encouraged by the combination of a relatively resilient domestic economy, versus fairly low expectations, and improving international economic growth prospects. Following the gyrations of the previous year - most keenly felt in the immediate aftermath of the UK's vote to leave the EU - this was a year of calm for the market as it absorbed in relaxed fashion the various geopolitical events and associated risks, including the Conservatives' misjudged calling of a General Election and the uncertainty emanating on a virtually daily basis from the Brexit negotiations. Having lagged the FTSE 100 in the prior year, the performance of medium and smaller companies, excluding investment companies, (the 'Benchmark') improved, with a return of +14.6% compared to the +10.4% return from the FTSE 100. This higher return was driven by a combination of better earnings growth and a small increase in valuations being applied by the market to smaller companies.

Mercantile performance: an encouraging year

Against this positive market backdrop, the Company had an encouraging twelve months; the return on net assets was +25.5%, well ahead of the +14.6% return from the Benchmark. The return to shareholders was also +25.5%, reflecting a stable discount versus the prior year. Furthermore, this was a very strong year for income in the portfolio, which has supported the sizeable increase in dividend payable as announced.

This positive relative performance has been delivered from a combination of stock selection and sector allocation. The charts in the annual report show the relative contributions to performance for the best and worst ten stocks and sectors within the portfolio. The positive contribution from both stock selection and sector allocation has been achieved across an extremely diverse range of individual stocks and sectors, as opposed to a limited number of significant wins. The greatest contributing sector was financial services with success across a large number of holdings including most notably our position in Intermediate Capital, the debt investor. The company generated strong returns as its fundraising momentum increased alongside better than forecast results from its proprietary investment portfolio. The support services sector was also a significant contributor, with our avoidance of Capita, the outsourced services provider, adding significantly to our relative performance as the company's woes continued. At an individual stock level Sophos, the IT security software provider that we invested in through its initial public offering in 2015, yielded a strong return. It continued to deliver excellent billings growth and various high profile cyber breaches, including 'WannaCry', alerted the market to the tremendous long term growth potential in this area.

Detractors from performance are inevitable. While at a sector level there were very few, at a stock level there were several holdings, including Domino's Pizza and Saga, where operational and financial performance did not meet either our or the market's expectations. We have limited tolerance of such investments and neither of these feature in the portfolio today.

Having increased the level of gearing through the latter part of 2016, the portfolio benefited from the rising market and gearing peaked at 6% in March, before being reduced to 3.5% at the year end, having been at least fully invested (i.e.  0% geared), throughout the year. The benefit from being geared broadly offset the cost of the Company's debenture through the year.

Portfolio positioning and the year ahead - where are the opportunities?

While we focus primarily on company specific analysis and stock selection, we remain mindful of the broader macro-economic conditions and trends that influence the relative attractiveness of different industries over time. From that perspective this was a year of relative continuity, as changes in the aggregate shape and key end market exposures of the portfolio followed a consistent theme of increasing exposure to what we view to be improving industrial end markets, given the acceleration experienced in global economic growth. This has been funded by reduced exposure to the consumer, who in our view has been stretched through a period of negative real wage growth and pressure on savings rates. These changes can be seen in the charts in the annual report, which show the change in make-up of the top and bottom ten sectors relative to benchmark through the year: there is a now greater preponderance of industrial sectors at the top of the list, while exposure to travel & leisure has been substantially reduced. In tandem with this, the level of international relative to domestic exposure has also increased such that around 52% of revenue generated by companies in the portfolio is sourced internationally, up from around 49% a year ago.

At a stock level, additions to the portfolio have reflected specific opportunities. For example, one of our largest new investments was in Electrocomponents, the international distributor of electronic components used by engineers across a hugely diverse set of applications. The management team's restructuring work has translated into substantial improvements within the business, which are now driving a combination of improving growth, profitability and cash generation. Another of our more material new investments was in Vesuvius, a provider of engineering products and services to the steel and foundry industries, which are inherently cyclical end markets, but where the outlook was improving from the cyclical trough. The leadership team had managed the cost base very well through the down cycle, while positioning the business to benefit from any potential improvement in the end markets, which should result in a significant uplift in profit.

One of the greatest challenges in the market through the past year has been to avoid those companies, for example Capita, Dixons Carphone and Provident Financial, that fail to meet our or the market's expectations - due to either internal or external factors - and the market's response to such stocks is punitive. While we fared well in this regard through 2017 and it added substantially to our relative performance, this may increase yet further in importance through the coming year.

Economic growth has displayed improving momentum across the globe for well over a year now, and while this is not being uniformly experienced, it has been translating into an improving backdrop for many companies in our investment universe. In the UK specifically, growth has been less impressive, but has proved to be more resilient than feared by most commentators. While this should provide a positive backdrop for equities, the markets will also have to grapple with a number of counterbalancing factors, not least of which may be the gradual removal of monetary stimulus as well as the implications of any potential increase in inflation.

Furthermore, the geopolitical landscape presents a host of risks, some of which could generate far-reaching challenges in the future but which have not yet caused a discernible impact. The lack of volatility in financial markets has been a surprise, but will not last forever, as we were reminded with the market correction through the second half of January and early February this year. At this stage the portfolio remains modestly geared, which leaves us with plenty of capacity to take advantage of any market driven or company specific opportunities for further reinvestment.

We remain committed to identifying and investing in those companies that have strong business models, are suitably financed and are well placed to succeed. The portfolio includes many innovative companies that are using advances in technology to both drive and profit from structural changes in their markets and we anticipate that the favourable dynamics of medium- and small-sized companies will continue to drive superior returns over the long-term.

Guy Anderson

Martin Hudson

Anthony Lynch

Investment Managers                                                                                                                     

12th April 2018

PRINCIPAL RISKS

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, viability, solvency or liquidity.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

•   Investment and Strategy: An inappropriate investment strategy, for example sector allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing tactically, within a strategic range set by the Board.

•   Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Structure of the Company' on page 19. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are monitored continually by JPMF and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMF, to ensure compliance with The Companies Act and the UKLA Listing Rules and DTRs.

•   Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement in the annual report.

•   Operational and Cyber Crime: Disruption to, or failure of, JPMF's accounting, dealing or payments systems or the custodian's records could prevent accurate reporting and monitoring of the Company's financial position. This includes the risk of cybercrime and the consequent potential threat to security and business continuity. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Control section of the Corporate Governance statement in the annual report.

     The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent reporting accountants and reported on every six months against the Audit and Assurance Faculty ('AAF') standard.

•   Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Bank counterparties are subject to regular credit analysis by the Manager and regular consideration at meetings of the Board. In addition the Board receives regular reports on the Manager's monitoring and mitigation of credit risks on share transactions carried out by the Company. Further details are disclosed in note 24 in the annual report.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the annual report. The management fee payable to the Manager for the year was £7,546,000 (2017: £7,244,000) of which £nil (2017: £nil) was outstanding at the year end.

During the year £119,000 (2017: £118,000) was payable to the Manager for the administration of savings scheme products, of which £8,000 (2017: £8,000) was outstanding at the year end.

Included in administration expenses in note 6 to the accounts are safe custody fees amounting to £32,000 (2017: £27,000) payable to JPMorgan Chase Bank N.A. of which £8,000 (2017: £4,000) was outstanding at the year end.

During the year, brokerage commission on dealing transactions amounted to £74,000 (2017: £101,000) was payable to JPMorgan subsidiaries of which £nil (2017: £nil) was outstanding at the year end.

The Company also holds cash in JPMorgan Sterling Liquidity Fund, managed by JPMorgan. At the year end this was valued at £99.9 million (2017: £99.8 million). Income amounting to £336,000 (2017: £494,000) was receivable during the year of which £nil (2017: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £13,000 (2017: £23,000) were payable to JPMorgan Chase Bank N.A. during the year of which £2,000 (2017: £4,000) was outstanding at the year end.

At the year end, total cash of £636,000 (2017: £1,095,000) was held with JPMorgan Chase. A net amount of interest of £2,000 (2017: £nil) was receivable by the Company during the year of which £nil (2017: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report in the annual report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and the accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') and applicable law). Under Company law the Directors must not approve the financial statements unless they are satisfied that taken as a whole, the annual report and accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and estimates that are reasonable and prudent;

•   state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

•   prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business; and

•   notify the Company's shareholders in writing about the use, if any, of disclosure exemptions in FRS 102 in the preparation of the financial statements

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed on pages 23 and 24 of the annual report confirms that, to the best of his/her knowledge, the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return or loss of the Company.

The Board confirms that it is satisfied that the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the Company, together with a description of the principal risks and uncertainties that it faces.

The Financial Statements are published on the www.mercantileit.co.uk website, which is maintained by the Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented to the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

For and on behalf of the Board

Angus Gordon Lennox

Chairman

12th April 2018

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST JANUARY 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through
profit or loss	-	374,818	374,818	-	45,220	45,220
Net foreign currency gains/(losses)	-	15	15	-	(2)	(2)
Income from investments	57,652	-	57,652	55,112	-	55,112
Interest receivable and similar income	640	-	640	1,257	-	1,257
Gross return	58,292	374,833	433,125	56,369	45,218	101,587
Management fee	(2,264)	(5,282)	(7,546)	(2,173)	(5,071)	(7,244)
Other administrative expenses	(1,151)	-	(1,151)	(1,382)	-	(1,382)
Net return on ordinary activities before finance
costs and taxation	54,877	369,551	424,428	52,814	40,147	92,961
Finance costs	(3,293)	(7,685)	(10,978)	(3,335)	(7,783)	(11,118)
Net return on ordinary activities before taxation	51,584	361,866	413,450	49,479	32,364	81,843
Taxation	(292)	-	(292)	(183)	-	(183)
Net return on ordinary activities after taxation	51,292	361,866	413,158	49,296	32,364	81,660
Return per share (note 3)	61.20p	431.78p	492.98p	53.20p	34.93p	88.13p

Dividends declared in respect of the financial year ended 31st January 2018 total 53.0p (2017: 46.0p) per share amounting to £43,790,000 (2017: £41,433,000). Further information on dividends is given in note 10 to the accounts within the annual report.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST JANUARY 2018

	Called up	Share	Capital
	share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserves	Reserve 1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2016	23,989	23,459	12,781	1,752,255	41,246	1,853,730
Repurchase and cancellation of the Company's
own shares	(377)	-	377	(25,073)	-	(25,073)
Repurchase of shares into Treasury	-	-	-	(125,610)	-	(125,610)
Net return on ordinary activities	-	-	-	32,364	49,296	81,660
Dividends paid in the year (note 2)	-	-	-	-	(40,564)	(40,564)
At 31st January 2017	23,612	23,459	13,158	1,633,936	49,978	1,744,143
Repurchase of shares into Treasury	-	-	-	(98,559)	-	(98,559)
Net return on ordinary activities	-	-	-	361,866	51,292	413,158
Dividends paid in the year (note 2)	-	-	-	-	(39,149)	(39,149)
At 31st January 2018	23,612	23,459	13,158	1,897,243	62,121	2,019,593

¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION AT 31ST JANUARY 2018

	2018	2017
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	2,090,612	1,787,131
Current assets
Debtors	13,836	10,945
Cash and short term deposits	6,636	38,295
Cash Equivalents: liquidity fund	99,895	99,763
	120,367	149,003
Creditors: amounts falling due within one year	(13,713)	(14,415)
Net current assets	106,654	134,588
Total assets less current liabilities	2,197,266	1,921,719
Creditors: amounts falling due after more than one year	(177,673)	(177,576)
Net assets	2,019,593	1,744,143
Capital and reserves
Called up share capital	23,612	23,612
Share premium	23,459	23,459
Capital redemption reserve	13,158	13,158
Capital reserves	1,897,243	1,633,936
Revenue reserve	62,121	49,978
Total shareholders' funds	2,019,593	1,744,143
Net asset value per share	2,465.9p	2,005.2p

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST JANUARY 2018

	2018	2017
	£'000	£'000
Net cash outflow from operations before dividends and interest	(8,384)	(8,427)
Dividends received	56,647	55,055
Interest received	404	944
Overseas tax (paid)/recovered	(1)	412
Interest paid	(10,881)	(11,060)
Net cash inflow from operating activities	37,785	36,924
Purchases of investments	(699,483)	(732,866)
Sales of investments	773,842	755,321
Settlement of foreign currency contracts	(2)	15
Net cash inflow from investing activities	74,357	22,470
Dividends paid	(39,149)	(40,564)
Repurchase and cancellation of the Company's own shares	-	(25,073)
Repurchase of shares into Treasury	(104,520)	(118,356)
Net cash outflow from financing activities	(143,669)	(183,993)
Decrease in cash and cash equivalents	(31,527)	(124,599)
Cash and cash equivalents at start of year	138,058	262,644
Exchange movements	-	13
Cash and cash equivalents at end of year	106,531	138,058
Decrease in cash and cash equivalents	(31,527)	(124,599)
Cash and cash equivalents consist of:
Cash and short term deposits	6,636	38,295
Cash held in JPMorgan Sterling Liquidity Fund	99,895	99,763
Total	106,531	138,058

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST JANUARY 2018

1.       Accounting Policies

(a)     Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014 and updated in January 2017.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 31 of the Directors' Report of the Annual Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.       Dividends

(a)     Dividends paid and declared

	2018	2017
	£'000	£'000
Dividends paid
Unclaimed dividends refunded to the Company1	(19)	(26)
2017 fourth quarterly dividend of 15.25p (2016: 13.0p) paid to shareholders in May	12,987	12,422
First quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders in August	8,830	9,648
Second quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders
in November	8,719	9,471
Third quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders in February	8,632	9,049
Total dividends paid in the year	39,149	40,564
	2018	2017
	£'000	£'000
Dividends declared
Fourth quarterly dividend declared of 21.5p (2017: 15.25p) payable to
shareholders in May	17,609	13,265
Total declared dividend	17,609	13,265

¹ Represents dividends which remain unclaimed after a period of twelve years and thereby become the property of the Company.

All dividends paid and proposed in the year have been funded from the revenue reserve.

The fourth quarterly dividend declared in respect of the year ended 31st January 2017 amounted to £13,265,000. However, the actual payment amounted to £12,987,000 due to share repurchases after the balance sheet date but prior to the share register record date.

The fourth quarterly dividend has been declared in respect of the year ended 31st January 2018. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 31st January 2019.

(b)    Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £51,292,000 (2017: £49,296,000).

The maximum amount of income that the Company is permitted to retain under Section 1158 is £8,744,000 (2017: £8,455,000), calculated as 15% of total income. Therefore the minimum distribution required by way of dividend is £42,548,000 (2017: £40,841,000).

	2018	2017
	£'000	£'000
First quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders in August	8,830	9,648
Second quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders  in November	8,719	9,471
Third quarterly dividend of 10.5p (2017: 10.25p) paid to shareholders in February	8,632	9,049
Fourth quarterly dividend payable of 21.5p (2017: 15.25p) payable in May	17,609	12,987
	43,790	41,155

3.       Return per share

	2018	2017
	£'000	£'000
Revenue return	51,292	49,296
Capital return	361,866	32,364
Total return	413,158	81,660
Weighted average number of shares in issue during the year	83,807,904	92,666,092
Revenue return per share	61.20p	53.20p
Capital return per share	431.78p	34.93p
Total return per share	492.98p	88.13p

4.       Net asset value per share

	2018	2017
Net assets (£'000)	2,019,593	1,744,143
Number of shares in issue	81,900,039	86,980,419
Net asset value per share	2,465.9p	2,005.2p

5.     Status of results announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 31st January 2017 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Accounts for the year ended 31st January 2018 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

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.

JPMORGAN FUNDS LIMITED             

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will shortly be available on the Company's website at www.mercantileit.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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