Annual Financial Report

RNS Number : 2736V

Mercantile Investment Trust(The)PLC

05 April 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST JANUARY 2019

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 2019.

Chairman's Statement

Performance

Over the year to 31st January 2019, the Company produced a total return on net assets of -8.0% ¹ against a total return of -6.7% for the benchmark. The share price total return was -8.1%. Whilst it is disappointing to report a negative return and underperformance against the benchmark this year, I believe our Investment Managers have navigated well what have been very difficult markets. I would also emphasise that the Company's impressive long term performance remains intact, with both the net asset value and share price having outperformed the benchmark over three years and significantly outperformed over five and ten years. Not only has the Company outperformed its UK mid and small cap benchmark over those periods, but that benchmark has also significantly outperformed the broader UK market. In fact over the past 20 years the mid and small cap sector has outperformed the large cap sector by more than 6% per annum.

Returns and Dividends

Revenue per share again increased significantly to 7.47p, from 6.12p in 2018 (both figures restated to account for last year's 10 for 1 sub-division of shares), as underlying dividend growth from the portfolio was strong. We have paid three interim dividends of 1.25p per ordinary share in respect of the year to 31st January 2019. The Board has declared a fourth quarterly interim dividend of 2.55p, giving a total dividend of 6.3p per share for the year, an 18.9% increase on last year's total dividend of 5.3p per share.

This is a fabulous result and we remain in a strong dividend paying position. Our aim continues to be to increase the dividend at least in line with the rate of inflation. At the year end, taking account of the payment of the fourth interim dividend, the revenue reserve stood at £54.5 million, which is equivalent to 6.9p per share.

Discount and Share Buybacks

Over the year, the discount on the Company's shares narrowed slightly from 9.5% to 9.3% ². The Board intends to continue to use the share repurchase authority to enhance value and where necessary to manage imbalances between the supply and demand of the Company's shares and thereby reduce the volatility of the discount. We believe 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 Annual General Meeting ('AGM').

During the year a total of 26,508,209³ shares were repurchased into Treasury, amounting to 3.2% of the issued share capital at the beginning of the year, at a total consideration of £56.8 million. Buying those shares back at a discount to net asset value added approximately 0.7p to the net asset value per share for continuing shareholders.

Gearing

The Company ended the year with gearing of 0.1%, lower than the 3.5% position at the previous year end as we took a cautious approach amid continuing macro-economic uncertainties. Gearing is regularly discussed between the Board and the Investment Managers and it remains the Board's current intention to operate within the range of 10% net cash to 20% geared. It is good to have some 'firepower' in uncertain times and we will deploy more gearing when and if opportunities arise.

Board of Directors

Sandy Nairn retired from the Board at the conclusion of the 2018 AGM and Jeremy Tigue has succeeded Sandy as the Board's Senior Independent Director. Ian Russell stepped down from the Board on 31st December 2018, owing to other business commitments. On behalf of the Board and shareholders I would like to thank them for their considerable contribution to the Company.

On 1st July 2018, Heather Hopkins and Graham Kitchen were appointed Directors. Heather has over two decades of experience in data analytics, research, financial services and international business, with expertise in retail distribution. She is Founder and Managing Director of NextWealth Limited which provides research and consultancy to platforms, asset managers and financial advice firms on the future of retail investment distribution. Graham has over 20 years experience managing UK equity funds, including open ended investment companies, investment trusts and pension funds. He was Global Head of Equities at Janus Henderson Investors, having previously been Head of UK Equities at Threadneedle Investments and held various positions at Invesco Asset Management. Each bring a wealth of relevant, complementary and different experience to the Board and I am sure they will add great value to the Company in the years ahead.

All of the Directors 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.

Annual General Meeting

The Company's one hundred and thirty third AGM will be held at Trinity House, Tower Hill, London EC3N 4DH on Thursday 23rd May 2019 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. There will also be an opportunity to meet the Board, the Investment Managers and representatives of J.P. Morgan.

Outlook

We find ourselves in uncertain times both politically and economically. As soon as I sign off this report, the political situation will no doubt change yet again, perhaps with short-term knock-on effects to the area of the market in which we invest. It would be a brave and perhaps foolhardy person to make any predictions at the moment and that is why we are cautiously positioned currently, waiting to take advantage of any opportunities or to deal with any further disruption as appropriate.

As you will read in the Investment Manager's Report however, the economic background is more benign than the political one. Although forecast economic growth is more subdued than in the immediate past, there is still growth expected and your portfolio companies will benefit from that. The portfolio companies tend also to operate later in the cycle and there is a momentum behind them, still to play out.

Despite the short-term uncertainties, there are some things we can be certain of. The Mercantile invests in an area of the market which has, for structural reasons, outperformed the wider market over the long term and in two years out of every three. In addition, our managers have invested very well, outperforming their benchmark index over three, five and ten years. So, I believe that whatever the immediate future holds, by having an investment in The Mercantile shareholders have 'stacked the deck' in their favour and over the long term, will continue to prosper.

Angus Gordon Lennox

Chairman

5th April 2019

¹ on a cum-income basis with debt at par value.

² on a cum-income basis with debt at fair value.

³ The  number  of  shares  repurchased  before  the  sub-division  of  shares  that  took  place  on  25th May 2018 has been restated.

Investment Managers' Report

Setting the scene: a year dominated by trade tensions and political stalemate

Over the year to 31st January 2019, the UK equity market remained out of favour with international investors, as it has been ever since the UK voted to leave the European Union on 23rd June 2016. Investor sentiment was dominated by expectations of how orderly the UK's exit from the EU would be and these concerns have become more acute as we approach the scheduled leave date. Accordingly, in a disappointing year overall for global equity markets and virtually all asset classes, UK shares - and domestically-exposed UK shares in particular - mostly lagged those of other markets before recovering sharply in January 2019.

The first half of the Company's year (to 31st July 2018) saw volatility increase from historic lows but the market still managed to progress. The second half of the year was altogether more demanding, reflecting generally weaker global economic growth momentum and expectations of further weakness to come. October was particularly challenging, as global equities suffered their worst month since 2012, with market falls triggered by a variety of factors, including upward pressure on bond yields and geopolitical turmoil. Perhaps most significantly of all, anxiety focused on the potential impact of escalating trade conflicts between the US and its global trading partners, particularly China. This 'great unknown' remains unresolved at the time of writing and represents a downside risk to global growth prospects at a time when the global economy has already shifted into a lower gear.

On a more positive note, earnings grew despite these headlines. However, we are at an advanced stage of the economic cycle and investors are concerned about the macro economic outlook. Against the backdrop highlighted above, the performance of medium and smaller UK companies, excluding investment companies (the 'Benchmark') deteriorated year-on-year, with a return of -6.7%. This compared with a -3.6% return from the FTSE 100 Index.

Mercantile's performance

The year to 31st January 2019 was a disappointing period, with the Company's return on net assets falling by 8.0%, underperforming the Benchmark which returned -6.7%.

Spotlight on stocks and sectors

The Company invests in a diversified portfolio of UK companies outside the FTSE 100 Index that we believe have significant headroom for growth. As such, it is our choice of stocks and sectors that determines the relative performance that the Company delivers to its shareholders.

In this section we reflect on some of our stock selection and sectoral decisions, highlighting both winners and losers over the year.

Winners

At a stock level, owning Evraz, the producer of engineered steel products, was a significant contributor to performance. Its exposure to low cost vanadium - a steel alloy ingredient - helped the company beat the market's earning expectations. Steam engineering expert and Cheltenham-headquartered Spirax-Sarco is one the Company's top 10 holdings and its shares performed so well through 2018 that it was promoted into the FTSE 100 Index at the end of the year. Its ongoing success has been driven by excellent execution of its self-generating organic growth model, through investing in its direct sales force. Our holding in Softcat, one of the UK's leading IT value-added resellers, was another success; the business hit the £1 billion revenue milestone in 2018 and continued to take market share in the UK, having delivered 52 quarters of consecutive year-on-year organic growth.

Positive contributions to relative performance also came from not owning stocks that have disappointed. For example, Metro Bank, a challenger high street bank that first opened its doors for business in 2010 and now has more than 65 branches. Metro Bank is a constituent of the FTSE 250 Index, but its shares have been amongst the worst performers over the last year. The bank reported a marked slowdown in lending growth for the fourth quarter of 2018 as well as the discovery of a misclassification of asset risk weightings leading to misrepresentation of capital adequacy. Another banking group under pressure was CYBG (encompassing Clydesdale Bank, Yorkshire Bank and Virgin Money). Its shares fell on concerns over its exposure to UK consumer credit and rising Payment Protection Insurance (PPI) costs. Pharmaceutical company Indivior is another stock whose absence from the portfolio was positive for overall relative performance. It produces opioid addiction treatment drugs and looks increasingly likely to face competitive challenges from rivals in its key US market.

Losers

Our holding in IT security software provider Sophos held back performance. We invested in the stock through its initial public offering in 2015 and it had delivered a strong return for us, as we reported a year ago. However, it has been unable to sustain its excellent 2017 billings growth partly because there were fewer high-profile cyber breaches stoking demand. Owning Jupiter Fund Management was also detrimental to performance and we have now exited our position entirely. Jupiter's share price spiralled downwards during the year, driven by concerns over fund outflows. The business is looking to grow assets outside its traditional UK heartland, but struggled to match revenues and profits of previous years, faced with broader cost and regulatory pressures. Finally, not owning the loss-making online supermarket Ocado hurt the Company's relative performance as the group signed several deals to develop customer fulfilment centres in partnership with international grocers such as Groupe Casino in France and Kroger in the US.

Positioning the portfolio for future success

Against the backdrop of heightened political risk in the UK and abroad, combined with a notable slowdown in global economic growth, seeing beyond the uncertainty can be challenging. However, because we focus on the attributes of individual businesses, we can still unearth and invest in companies that are both fundamentally robust and have the potential to be long-term future winners, even if the immediate geopolitical and economic climate is tough. We are always poised to take advantage of strategic opportunities as they arise and the current market environment is generating opportunities to buy potential long-term winners at attractive prices.

The UK is home to both domestically-focused businesses as well as those that are more global in nature. Within the first category, valuations have been depressed ever since the June 2016 EU referendum result - but we still believe there will be long-term winners once the Brexit fog lifts. The portfolio's domestic vs. international exposure has remained relatively static over the last year, with around half of the revenue generated by companies being sourced by each, which is approximately in line with the Benchmark.

We continue to work hard to identify winners and losers. In the IT Software & Services sector, we have recently built up a new position in AVEVA, the industrial software business, which we believe is a potential winner that could experience a step-change in growth as industrial customers begin to embrace the fourth industrial revolution, an era of smart technologies that will create massive change across industries.

Within builders' merchanting, we have increased our position size in Grafton, offsetting it with an underweight exposure to Travis Perkins. Our positioning plays to the trend of DIY being replaced by 'do it for me' and Grafton is able to take advantage of this with Selco, its trade-only builders' warehouse format that has ambitious growth plans. Travis Perkins, on the other hand, is struggling to restructure its dated IT systems and inappropriate real estate footprint.

We also remain invested in large holdings in several companies that have successfully delivered over time. These include our large holdings in companies such as the aforementioned Spirax-Sarco, specialist asset manager Intermediate Capital Group (ICG) and Bellway, one of the UK's largest house builders. All three companies are examples of stocks where we continue to believe that prospects for growth remain well underpinned.

Outlook for the coming year

The short-term outlook for the UK economy remains mixed, with Brexit uncertainties a negative factor and official Bank of England forecasts for UK economic growth becoming more subdued. On the positive side, UK unemployment dipped to 4% in late 2018 and is near to a 44-year low. Combined with an employment rate of 76%, this has driven wages up, increasing consumer spending power. Whilst political uncertainty has certainly been suppressing consumer confidence, as and when this dissipates confidence could improve and thus provide a platform for an upturn in domestic economic growth.

The prospect of generally weaker economic momentum and unpredictable trade politics are likely to be factors this year: we are already seeing slower estimates for global growth, driven in part by the risk of a trade war between the US and China. Only time will tell how this saga plays out but right now it is at least a 'low growth rather than no growth' environment. This provides a sufficiently robust backdrop for earnings growth in companies outside of the FTSE 100, many of which are at earlier stages of their business lifecycles.

Expectations for earnings growth remain positive and, with the market having de-rated, lower company valuations provide us with opportunities - as identified by our rigorous research process - to uncover attractive investment opportunities. The Company can hold up to 10% in cash or utilise gearing of up to 20% of net assets where appropriate. At the present time, the portfolio is fully invested but ungeared. This allows the Company to benefit from future increases in the stock market while providing us with plenty of capacity to invest further as and when suitable opportunities arise.

We maintain our view that, regardless of UK and European politics and the testing macro backdrop, the favourable dynamics of medium- and small-sized companies will continue to drive superior returns over the long-term. The Company's long-term performance record is compelling in this respect and history supports our confidence: looking back over the last 60 years or so, mid and small cap stocks in aggregate have outperformed the overall market in two years out of three. Over the last 20 years, the Benchmark has outperformed the FTSE 100 by more than 6% per annum.

We have outperformed the Company's Benchmark over 3, 5, 10 and 25 years and are resolute in our commitment to carry on delivering capital growth and growing dividends. Above all, we are focused on investing in good quality, structurally robust companies that have the potential to deliver over the long-term. That means companies that can generate earnings growth and can adapt to the environments in which they operate, as we believe that these are the stocks that will continue to be the longer-term winners - and tomorrow's market leaders.

Guy Anderson

Martin Hudson

Anthony Lynch

Investment Managers

5th April 2019

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' in the annual report. 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 within the annual report.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report within the annual report. The management fee payable to the Manager for the year was £7,256,000 (2018: £7,546,000) of which £nil (2018: £nil) was outstanding at the year end.

During the year £118,000 (2018: £119,000) was payable to the Manager for the administration of savings scheme products, of which £8,000 (2018: £8,000) was outstanding at the year end. 

Included in administration expenses in note 6 within the annual report are safe custody fees amounting to £31,000 (2018: £32,000) payable to JPMorgan Chase of which £4,000 (2018: £8,000) was outstanding at the year end.

During the year, brokerage commission on dealing transactions amounted to £4,000 (2018: £74,000) was payable to JPMorgan subsidiaries of which £nil (2018: £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 £100.0 million (2018: £99.9 million). Income amounting to £664,000 (2018: £336,000) was receivable during the year of which £nil (2018: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £15,000 (2018: £13,000) were payable to JPMorgan Chase during the year of which £2,000 (2018: £2,000) was outstanding at the year end.

At the year end, total cash of £347,000 (2018: £636,000) was held with JPMorgan Chase. A net amount of interest of £nil (2018: £2,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2018: £nil) was outstanding at the year end.

Details of the Directors' shareholdings and the remuneration payable to Directors are given in the Directors' Remuneration Report within 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 21 and 22 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

5th April 2019

 

Statement of Comprehensive Income

for the year ended 31st January 2019

		2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(208,880)	(208,880)	-	374,818	374,818
Net foreign currency gains	-	42	42	-	15	15
Income from investments	65,363	-	65,363	57,652	-	57,652
Interest receivable and similar income	995	-	995	640	-	640
Gross return/(loss)	66,358	(208,838)	(142,480)	58,292	374,833	433,125
Management fee	(2,177)	(5,079)	(7,256)	(2,264)	(5,282)	(7,546)
Other administrative expenses	(1,212)	-	(1,212)	(1,151)	-	(1,151)
Net return/(loss) on ordinary activities before finance costs and taxation	62,969	(213,917)	(150,948)	54,877	369,551	424,428
Finance costs	(3,294)	(7,685)	(10,979)	(3,293)	(7,685)	(10,978)
Net return/(loss) on ordinary activities before taxation	59,675	(221,602)	(161,927)	51,584	361,866	413,450
Taxation refund/(charge)	75	-	75	(292)	-	(292)
Net return/(loss) on ordinary activities after taxation	59,750	(221,602)	(161,852)	51,292	361,866	413,158
Return/(loss) per share1 (note 2)	7.47p	(27.69)p	(20.22)p	6.12p	43.18p	49.30p

¹ Comparative figures for the year ended 31st January 2018 have been restated following the sub-division of each existing ordinary share of 25p into ten ordinary shares of 2.5p each on 25th May 2018.

Statement of Changes in Equity

for the year ended 31st January 2019

	Called up		Capital			Total
	share	Share	redemption	Capital	Revenue	shareholders'
	capital	premium	reserve	reserves	reserve1	funds
	£'000	£'000	£'000	£'000	£'000	£'000
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 3)	-	-	-	-	(39,149)	(39,149)
At 31st January 2018	23,612	23,459	13,158	1,897,243	62,121	2,019,593
Repurchase of shares into Treasury	-	-	-	(56,804)	-	(56,804)
Net return on ordinary activities	-	-	-	(221,602)	59,750	(161,852)
Dividends paid in the year (note 3)	-	-	-	-	(47,193)	(47,193)
At 31st January 2019	23,612	23,459	13,158	1,618,837	74,678	1,753,744

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

 

Statement of Financial Position

at 31st January 2019

	2019	2018
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,754,994	2,090,612
Current assets
Debtors	7,783	13,836
Cash and short term deposits	83,047	6,636
Cash equivalents: liquidity fund	99,974	99,895
	190,804	120,367
Creditors: amounts falling due within one year	(14,285)	(13,713)
Net current assets	176,519	106,654
Total assets less current liabilities	1,931,513	2,197,266
Creditors: amounts falling due after more than one year	(177,769)	(177,673)
Net assets	1,753,744	2,019,593
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	1,618,837	1,897,243
Revenue reserve	74,678	62,121
Total shareholders' funds	1,753,744	2,019,593
Net asset value per share1 (note 4)	221.3p	246.6p

¹  Comparative figures for the year ended 31st January 2018 have been restated following the sub-division of each existing ordinary share of 25p into ten ordinary shares of 2.5p each on 25th May 2018.

STATEMENT OF CASH FLOWS

for the year ended 31st January 2019

	2019	2018
	£'000	£'000
Net cash outflow from operations before dividends and interest	(8,370)	(8,384)
Dividends received	63,984	56,647
Interest received	958	404
Overseas tax recovered/(paid)	315	(1)
Interest paid	(10,883)	(10,881)
Net cash inflow from operating activities	46,004	37,785
Purchases of investments	(592,224)	(699,483)
Sales of investments	728,000	773,842
Settlement of foreign currency contracts	-	(2)
Net cash inflow from investing activities	135,776	74,357
Dividends paid	(47,193)	(39,149)
Repurchase of shares into Treasury	(58,097)	(104,520)
Net cash outflow from financing activities	(105,290)	(143,669)
Increase/(decrease) in cash and cash equivalents	76,490	(31,527)
Cash and cash equivalents at start of year	106,531	138,058
Cash and cash equivalents at end of year	183,021	106,531
Increase/(decrease) in cash and cash equivalents	76,490	(31,527)
Cash and cash equivalents consist of:
Cash and short term deposits	83,047	6,636
Cash held in JPMorgan Sterling Liquidity Fund	99,974	99,895
Total	183,021	106,531

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31st January 2019

1.    Accounting Policies

       Basis of accounting

The financial statements have been prepared under the historical cost convention, modified to include fixed asset investments at fair value, in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in February 2018.

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 29 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.    Return/(loss) per share

		2019	2018
		£'000	£'000
	Revenue return	59,750	51,292
	Capital (loss)/return	(221,602)	361,866
	Total (loss)/return per share	(161,852)	413,158
	Weighted average number of shares in issue during the year1	800,340,427	838,079,040
	Revenue return per share1	7.47p	6.12p
	Capital (loss)/return per share1	(27.69)p	43.18p
	Total (loss)/return per share1	(20.22)p	49.30p

¹  Comparative figures for the year ended 31st January 2018 have been restated following the sub-division of each existing ordinary shares of 25p into ten ordinary shares of 2.5p each on 25th May 2018.

3.    Dividends

       Dividends paid and declared

		2019	2018
		£'000	£'000
	Dividends paid
	Unclaimed dividends refunded to the Company1	(11)	(19)
	2018 fourth quarterly dividend of 2.15p2 (2017: 1.525p2) paid to shareholders in May	17,334	12,987
	First quarterly dividend of 1.25p (2018: 1.05p2) paid to shareholders in August	10,041	8,830
	Second quarterly dividend of 1.25p (2018: 1.05p2) paid to shareholders in November	9,923	8,719
	Third quarterly dividend of 1.25p (2018: 1.05p2) paid to shareholders in February	9,906	8,632
	Total dividends paid in the year	47,193	39,149
		2019	2018
		£'000	£'000
	Dividend declared
	Fourth quarterly dividend of 2.55p (2018: 2.15p2) payable to shareholders in May	20,209	17,609

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

²  The dividend rate has been restated following the sub-division of each existing ordinary share of 25p into ten ordinary shares of 2.5p each on 25th May 2018.

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

The fourth quarterly dividend declared in respect of the year ended 31st January 2018 amounted to £17,609,000. However, the actual payment amounted to £17,334,000 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 2019. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st January 2020.

4.    Net asset value per share

		2019	2018
	Net assets (£'000)	1,753,744	2,019,593
	Number of shares in issue1	792,492,181	819,000,390
	Net asset value per share1	221.3p	246.6p

¹  Comparative figures for the year ended 31st January 2018 have been restated following the sub-division of each existing ordinary share of 25p into ten ordinary shares of 2.5p each on 25th May 2018.

        Status of results announcement

2018 Financial Information

The figures and financial information for 2018 are extracted from the Annual Report and Financial Statements for the year ended 31st January 2018 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements 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.

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Accounts for the year ended 31st January 2019 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include the Report of the Independent Auditors which is 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

 

 

FR UVAWRKAASRRR