Annual Financial Report

RNS Number : 3666U

Mercantile Investment Trust(The)PLC

06 April 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31ST JANUARY 2016

Chairman's Statement

Over the year to 31st January 2016, your Company outperformed its benchmark with a Net Asset Value return of 12.9% (cum income, debt at par) against 4.7% for the benchmark. Share price total return was 18.6%. This result is good in itself, but to put it in perspective, and no less importantly, your Company has outperformed its benchmark¹ by 11.0% and 6.7% over three and five years respectively.

Measured against the FTSE 100 Index, outperformance is even more marked. The Company has beaten the FTSE 100 performance² by 41.6%, 50.5% and 76.9% over three, five and ten years respectively. Please refer to the graph on page 12 of the Annual Report and Accounts for the year ended 31^st January 2016 (the "Annual Report") for details of performance. The performance of the portfolio is addressed more fully in the Investment Managers' Report below.

Returns and Dividends

Earnings per share increased from 42.1p to 51.5p over the year, compared with the year ended 31st January 2015. The major reason for the increase was the rise in underlying and special dividend receipts.

Your Company has paid three interim dividends of 10.0p per ordinary share over the year under review, and the Board has declared a fourth quarterly interim dividend of 13.0p, giving a total dividend of 43.0p for the year, an increase of 2.0p on last year's total dividend of 41.0p. The yield continues to compare favourably with the Company's peers.

The Board intends to pay the first three interim dividends for the current year ending 31st January 2017 at 10.25p per ordinary share. The level of the fourth interim dividend will be determined by the Board towards the end of the financial year and will depend on the level of dividends received and anticipated by the Company. The Board recognises the importance to shareholders of a smooth flow of dividends over the course of the year, and also of maintaining a strong revenue reserve to protect the dividend flow for shareholders. As at the year end, taking account of the payment of the fourth interim dividend, the revenue reserve stood at £28.8million, which is the equivalent to 30.0p per share.

Discount and Share Buybacks

Over the year under review, the discount narrowed from 14.6% to 10.6% on the basis of a cum income calculation with debt at par. Using a cum income calculation with debt at fair value, the discount would be shown to have narrowed over the course of the year from 10.8% to 7.4%. I would urge you to refer to page 20 of the Annual Report where there is an explanation of the calculation methodologies.

During the year a total of 1,747,595 shares were repurchased for cancellation, amounting to 1.79% of issued share capital at the beginning of the year, at a total cost of £28.0 million. Share buy backs during the year under review have added approximately 4.3p to the net asset value per share.

The Board intends to continue to use the share repurchase authority to enhance value and manage imbalances between the supply and demand of the Company's shares, thereby reducing the volatility of the discount. The Board believes that, to date, this mechanism has been helpful and therefore proposes and recommends that the powers to repurchase up to 14.99% of the Company's shares, be renewed for a further period. It is proposed that the authority permit either that these shares be cancelled or held in treasury.

Gearing

The Company ended the year with net cash of 4.6%. During the year gearing varied between 0.7% geared and 5.0% net cash. 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 regularly discussed between the Board and the Investment Managers. In addition to the Company's debenture gearing, the Company has a three year bank facility, which is currently undrawn, taken out on 6th November 2013, of £50,000,000.

Board

Angus Gordon Lennox joined the Board during the year and he will stand for re-election by the shareholders at the forthcoming Annual General Meeting. All other Directors will stand for annual re-election, in line with the Company's policy. I refer you to the Directors' biographies on pages 22-23 of the Annual Report for further details.

Subject to my re-election at the 2016 AGM, I plan to retire from the Board at the conclusion of the AGM in May 2017. I am delighted that the Board has agreed to appoint Angus Gordon Lennox, subject to re-election as a Director by the shareholders, as Chairman to succeed me.

The Board undertakes a formal and rigorous evaluation of its performance and that of the individual Directors including me as the Chairman.

The Directors conduct an assessment of the structure of the Board and the Board's performance each year, which is compiled into a report to the Nomination Committee which in turn reports its conclusions to the Board. An external facilitator is used every third year, details of which are set out in the Corporate Governance Report of the Annual Report.

Board Apprentice

Last year the Board decided to participate in an initiative launched by Board Apprentice Limited, a not-for-profit company with the objective of promoting diversity. The Board agreed to invite Anthea Simmons to be the Company's Board Apprentice for 12 months from the date of the AGM in May 2015. The appointment is intended to give Anthea further experience in the operation of a public company board and it is not intended to lead to a Directorship of the Company. During her tenure as Board Apprentice, Anthea has had access to Board papers and has attended all Board meetings as an observer. While she is not paid, the Company reimburses reasonable expenses.

Investment Managers

Guy Anderson has now assumed the leadership of the J.P. Morgan investment management team responsible for managing the Company's portfolio. The team comprises Guy Anderson, Martin Hudson and Anthony Lynch. They are supported by Tim Lewis, an analyst, as well as the J.P. Morgan Asset Management European Equity Group.

The Board will continue to monitor the performance of the Manager on a regular basis.

Annual General Meeting

Your Company's one hundred and thirtieth Annual General Meeting will be held at Trinity House, Tower Hill, London EC3N 4DH on Wednesday, 25th May 2016 at 12 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. I look forward to seeing as many of you as possible at the meeting.

Outlook

In last year's review of performance I commented that geopolitical events had taken centre stage, increasing market volatility and overshadowing what had been the UK economy's strongest year since the recession. In many respects this year has been much the same, with political events dominating once again. No sooner had we navigated the General Election than market focus switched to Britain's future within the European Union and the upcoming referendum. The uncertainty surrounding a possible exit is likely to remain the key focus point for investors in the UK market over the coming few months. More broadly, the path for global economic growth and monetary policy has become more uncertain as we enter a period of economic adjustment and expected central bank divergence in the major global economies.

In spite of this, UK GDP continued to grow at an estimated 2.3% in 2015, and the economy is forecast to grow 2.0% in 2016, providing opportunities for earnings growth for medium and small sized companies. Given the considerable market volatility expected in the lead up to the June referendum, the Company has retained a net cash position since the year end. However, the Investment Managers remain confident in the long term growth prospects of medium and small sized companies and expect the coming twelve months to provide opportunities to reinvest the Company's gearing facilities.

Hamish Leslie Melville

Chairman

6th April 2016

¹Source: J.P. Morgan, using net asset value per share, cum income, with debt at par value.

²Source: Bloomberg.

Investment Managers' Report

Market Background

The UK equity market, alongside many others, generated lacklustre returns last year with the FTSE-All Share delivering a total return of -4.4% for the year ending 31st January 2016. However, this number masks the divergent performance of different pockets of the market, and particularly important for our shareholders was the continued trend of outperformance of companies outside the FTSE100 relative to their larger counterparts. They rose +4.7%, as can be seen in the chart on page 6 of the Annual Report.

This outperformance reflected investor recognition of the better relative growth prospects of medium and small sized companies given their domestic bias and lower commodity exposure. This was demonstrated in profits: for the 2015 calendar year the FTSE All-Share delivered an aggregate decline in profits of 16%, driven predominantly by the FTSE 100 where they fell 17%, compared with a more moderate 3% decline for the FTSE 250.

Such divergence in growth was also evident between industries - for example profits in the oil & gas and basic materials sectors fell over 50% while consumer goods and consumer services managed to deliver a small rise. We maintain that this underlines the importance of active management, where the manager has the freedom to target companies with attractive growth prospects while avoiding those areas under the most pressure.

UK companies were not alone in experiencing weakening profits as economic growth across the world has been below trend. If anything, the UK economy has continued to demonstrate resilience, delivering in 2015 real GDP growth of 2.3%, the second highest of the G7 group of major economies, behind the US. However, we should differentiate between the UK stock market and the UK economy, as the companies in the FTSE 100 derive the majority of their revenue from international markets, as shown in the pie charts on page 7 of the Annual Report, while those companies outside of the FTSE 100 - where we focus - are more heavily weighted to domestically sourced revenue and thus more representative of the UK economic performance.

Mercantile Performance: a year of significant excess returns

Against this market backdrop, your Company had a positive year; the return on net assets was 12.9%, ahead of the 4.7% return from the benchmark, the FTSE All-Share Index excluding constituents of the FTSE 100 Index and investment trusts with net dividends reinvested. The share price total return was 18.6%, reflecting a further tightening of the discount.

Our positive relative performance for the year was largely driven by a combination of sector allocation and stock selection, with only a small contribution from gearing. The graph on page 8 of the Annual Report shows the ten largest contributors to, and detractors from, relative performance, at both a stock and sector level. It includes the impact of stock selection, for example, not holding a stock that performed worse than the benchmark would add to the overall relative performance. As the data show, the performance has been achieved across a broad range of sectors and stocks, rather than concentrated in a few specific holdings, and the distribution is clearly positively skewed.

The most significant contributions came from the beverages sector with our holding in the premium mixer brand Fever-Tree performing particularly well. In the leisure sector our holdings in Betfair, the online betting exchange, and Domino's Pizza, the market leading pizza delivery business, were notable contributors.

At a sector level, the largest detractor from performance was the Software & Computer Services sector, as the fund did not hold Telecity, which outperformed following bid approaches from two of its peers. The largest individual detractor at a stock level was the holding in Poundland, where a Phase II competition review delayed the proposed acquisition of 99p stores and underlying trading was impacted by lower footfall on the high street.

Investment Case Study - what we look for in investments

Our investment philosophy seeks to uncover stocks with some combination of the following characteristics: attractively valued; enjoying sustainable competitive advantages while operating in growing end markets; and either approaching or undergoing a period of positive change.

In addition to these, we aim to invest where the companies are appropriately funded and run by management teams that are seeking to maximise long-term shareholder value. A further dimension that must then be overlaid is the balancing of expectations for a company versus the likely outcome: shares tend to be priced based upon current market expectations and if this is materially different to our view on the likely outcome, an opportunity may exist.

Betfair, the online bookmaker, was one of our most successful investments in 2015, and serves as an interesting case study. It has a differentiated product in the growing market of online betting. The business is highly cash generative, and has a strong balance sheet.

In 2013 the new CEO set out a strategy to make the group leaner and return it to revenue growth by attracting more casual players. Having met him at this time, we saw the management team on three further occasions before investing while we tracked the progress of a number of key performance indicators, including first time depositors, which provided evidence of progress in attracting casual players to the site. As these indicators ticked up it gave us confidence that the company could outperform market expectations, a factor that was not reflected in the valuation.

Through the course of 2015 Betfair repeatedly exceeded the market's revenue expectations, which prompted a significant rise in the share price. In August 2015 the company announced a possible merger with Paddy Power. Among other benefits, this deal offered the potential to accelerate the transition of 'bricks and mortar' only players into multi-channel users with higher expected lifetime values. Following the completion of the merger the company has been promoted into the FTSE 100 index and is no longer held in the portfolio.

Portfolio Positioning and the year ahead - where are the current and future opportunities?

Our investment approach is primarily focused on company specific analysis and stock selection, but we remain cognisant of the broader macro-economic conditions and trends that may influence the relative attractiveness of different industries over time. At an aggregate level, the key end market exposures of the portfolio remained largely unchanged through the year - overweight in domestic, consumer exposed stocks while being underweight stocks in resources and resource exposed industries. This positioning served our investors well in 2015 and we believe it will continue to do so.

Outlook/Key themes for the year-ahead

In our outlook statement last year, we explained our positive view of the domestic consumer, driven in part by the dramatic fall in commodity prices during the second half of 2014, and how this would lead to 'consumers experiencing real wage growth for the first time in the last five years'. This view has been reinforced over the past year, as the slight uptick in earnings combined with negligible inflation has ushered forth a period of sustained real wage growth.

This relatively small increase in real wages feeds through to a significant increase in disposable income (i.e. income available for discretionary spending after the basic cost of living). The bar chart below shows the ASDA income tracker data, a measure of the weekly disposable income available to the average UK household (in nominal terms), and which has been growing in mid to high single digit percentage terms for the past year. This leads us to remain positive on those companies that were already hold in the portfolio, such as retailers and leisure companies, which should benefit directly from an increase in consumer spending, and where we view that this is not yet reflected in their share price.

The collapse in the price of crude oil and other commodities is clearly negative for those companies that either extract them or service the extractors. Share prices in many of these companies have seen significant pressure, and while we remain negatively positioned in energy, resources and related industries, believing that the risks are not yet fully reflected in share prices or market expectations, we continue to monitor these companies closely. The timing of any action is hard to predict, but we still expect that the next major shift for the portfolio will be to reduce or even reverse this negative positioning, albeit selectively.

In terms of aggregate market exposure, we view the coming months with a certain amount of trepidation due to the uncertainty surrounding the EU referendum - irrespective of the advantages or disadvantages of an exit, it is clear that such a journey would be fraught with uncertainty and therefore market volatility. Reflecting this and a host of other exogenous risks, the portfolio currently holds 4% net cash, leaving us with plenty of capacity and poised to take advantage of any market driven opportunities for reinvestment. Furthermore, we believe that the favourable dynamics of investing in medium and small sized companies will continue to drive superior returns for shareholders over the long-term.

Guy Anderson

Martin Hudson

Anthony Lynch

Investment Managers

6th April 2016

Principal Risks

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 asset 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 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' above. 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 continually monitored 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 & 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 report on pages 26 to 30 of the Annual Report.

•   Operational: 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 report on pages 29 and 30 of the Annual Report.

•   Going concern: Boards are advised to consider going concern as a potential risk, whether or not there is an apparent issue arising in relation thereto. Going concern is considered rigorously on an ongoing basis and the Board's statement on going concern is detailed on page 24 of the Annual Report.

•   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 on pages 55 to 59 of 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 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 have been followed, subject to any material departures disclosed and explained in the financial statements; and

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

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 22 and 23 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 strategy and business model of the Company.

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 other legislation.

For and on behalf of the Board

Hamish Leslie Melville

Chairman

6th April 2016

Statement of Comprehensive Income

for the year ended 31st January 2016

	2016			2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	177,274	177,274	-	43,822	43,822
Net foreign currency gains	-	85	85	-	41	41
Income from investments	55,783	-	55,783	47,091	-	47,091
Other interest receivable and similar income	1,065	-	1,065	1,045	-	1,045
Gross return	56,848	177,359	234,207	48,136	43,863	91,999
Management fee	(2,279)	(5,317)	(7,596)	(2,132)	(4,975)	(7,107)
Other administrative expenses	(1,362)	-	(1,362)	(1,180)	-	(1,180)
Net return on ordinary activities before finance costs and taxation	53,207	172,042	225,249	44,824	38,888	83,712
Finance costs	(3,345)	(7,806)	(11,151)	(3,359)	(7,838)	(11,197)
Net return on ordinary activities before taxation	49,862	164,236	214,098	41,465	31,050	72,515
Taxation	(282)	-	(282)	(113)	-	(113)
Net return on ordinary activities after taxation	49,580	164,236	213,816	41,352	31,050	72,402
Return per share (Note 3)	51.46p	170.47p	221.93p	42.10p	31.61p	73.71p

Dividends declared in respect of the financial year ended 31st January 2016 total 43.0p (2015: 41.0p) per share amounting to £41,320,000 (2015: £40,187,000). Further information on dividends is given in note 9 on page 49 of the Annual Report.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The 'total' column of this statement is the profit and loss account of the Company, and the 'revenue' and 'capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

Statement of Changes in Equity

for the year ended 31st January 2016

	Called up Share Capital
	share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2014	24,560	23,459	12,210	1,592,851	34,830	1,687,910
Repurchase and cancellation of the Company's own shares	(134)	-	134	(7,927)	-	(7,927)
Net return on ordinary activities	-	-	-	31,050	41,352	72,402
Dividends paid in the year (note 2)	-	-	-	-	(39,289)	(39,289)
At 31st January 2015	24,426	23,459	12,344	1,615,974	36,893	1,713,096
Repurchase and cancellation of the Company's own shares	(437)	-	437	(27,955)	-	(27,955)
Net return on ordinary activities	-	-	-	164,236	49,580	213,816
Dividends paid in the year (note 2)	-	-	-	-	(45,227)	(45,227)
At 31st January 2016	23,989	23,459	12,781	1,752,255	41,246	1,853,730

¹This 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 2016

	2016	2015
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,775,622	1,722,405
Current assets
Debtors	6,185	2,573
Cash and short term deposits	162,719	193,167
Cash equivalents: liquidity fund	99,925	-
	268,829	195,740
Creditors: amounts falling due within one year	(13,242)	(27,666)
Net current assets	255,587	168,074
Total assets less current liabilities	2,031,209	1,890,479
Creditors: amounts falling due after more than one year	(177,479)	(177,383)
Net assets	1,853,730	1,713,096
Capital and reserves
Called up share capital	23,989	24,426
Share premium account	23,459	23,459
Capital redemption reserve	12,781	12,344
Capital reserves	1,752,255	1,615,974
Revenue reserve	41,246	36,893
Total equity shareholders' funds	1,853,730	1,713,096
Net asset value per share (Note 4)	1,931.8p	1,753.3p

Company registration number 20537

Statement of Cash Flows

for the year ended 31st January 2016

	2016	2015
	£'000	£'000
Net cash outflow from operations before dividends and interest	(9,076)	(6,558)
Dividends received	53,827	45,968
Interest received	840	487
Taxation	-	62
Interest paid	(11,058)	(11,057)
Net cash inflow from operating activities	34,533	28,902
Purchases of investments	(726,385)	(1,148,222)
Sales of investments	838,773	1,328,249
Settlement of foreign currency contracts	(21)	(3)
Net cash inflow from investing activities	112,367	180,024
Dividends paid (Note 2)	(45,227)	(39,289)
Repurchase of ordinary shares and cancellation of the Company's own shares	(32,201)	(3,681)
Net cash outflow from financing activities	(77,428)	(42,970)
Increase in cash and cash equivalents	69,472	165,956
Cash and cash equivalents at start of year	193,167	27,211
Exchange movements	5	-
Cash and cash equivalents at end of year	262,644	193,167
Increase in cash and cash equivalents	69,472	165,956
Cash and cash equivalents consist of:
Cash and short term deposits	162,719	193,167
Cash equivalents: liquidity fund	99,925	-
Total	262,644	193,167

Notes to the Financial Statements

for the year ended 31st January 2016

1.  Accounting Policies

(a)     Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') including FRS 102 'Financial Reporting Standard applicable in the UK and Republic of Ireland' and 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.

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

The financial statements have been prepared on a going concern basis. The disclosure on going concern on page 24 of the Directors' Report in the Annual Report form part of these financial statements.

2.  Dividends

(a)     Dividends paid and declared

	2016	2015
	£'000	£'000
Unclaimed dividends refunded to the Company1	(14)	(7)
2015 fourth quarterly dividend of 17.0p (2014: 16.0p) paid to shareholders in May	16,395	15,719
First quarterly dividend of 10.0p (2015: 8.0p) paid to shareholders in July	9,625	7,859
Second quarterly dividend of 10.0p (2015: 8.0p) paid to shareholders in November	9,625	7,859
Third quarterly dividend of 10.0p (2015: 8.0p) paid to shareholders in February2	9,596	7,859
Total dividends paid in the year	45,227	39,289

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

²Paid to the Registrars in December 2015.

	2016	2015
	£'000	£'000
Fourth quarterly dividend declared of 13.0p (2015: 17.0p) payable to shareholders in May	12,474	16,610
Total proposed dividend	12,474	16,610

The fourth quarterly dividend declared in respect of the year ended 31st January 2015 amounted to £16,610,000. However the amount paid amounted to £16,395,000 due to shares repurchased 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 2016. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st January 2017.

(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 £49,580,000 (2015: £41,352,000).

	2016	2015
	£'000	£'000
First quarterly dividend of 10.0p (2015: 8.0p) paid in July	9,625	7,859
Second quarterly dividend of 10.0p (2015: 8.0p) paid in November	9,625	7,859
Third quarterly dividend of 10.0p (2015: 8.0p) paid in February	9,596	7,859
Fourth quarterly dividend of 13.0p (2015: 17.0p) payable in May	12,474	16,610
	41,320	40,187

3.  Return per share

The revenue return per share is based on the revenue earnings attributable to the ordinary shares of £49,580,000 (2015: £41,352,000) and on the weighted average number of ordinary shares in issue during the year of 96,340,857 (2015: 98,228,869).

The capital gain per share is based on the capital gain attributable to the ordinary shares of £164,236,000 (2015: £31,050,000) and on the weighted average number of ordinary shares in issue during the year of 96,340,857 (2015: 98,228,869).

The total gain per share is based on the total gain attributable to the ordinary shares of £213,816,000 (2015: £72,402,000) and on the weighted average number of ordinary shares in issue during the year of 96,340,857 (2015: 98,228,869).

4.  Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £1,853,730,000 (2015: £1,713,096,000) and on the 95,957,040 (2015: 97,704,635) shares in issue at the year end.

5. Status of announcement

2015 Financial Information

The figures and financial information for 2015 are extracted from the published Annual Report and Accounts for the year ended 31st January 2015 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included 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.

2016 Financial Information

         The figures and financial information for 2016 are extracted from the Annual Report and Accounts for the year ended 31st January 2016 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does 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 Registrar 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

6^th April 2016

For further information:

Juliet Dearlove

JPMorgan Funds Limited                                                                                                   020 7742 4000

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 also 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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