Annual Financial Report

RNS Number : 3261C

River & Mercantile UK Micro Cap Inv

19 January 2018

FOR IMMEDIATE RELEASE

RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., GUERNSEY BRANCH - ANNUAL FINANCIAL REPORT RESULTS ANNOUNCEMENT

THE BOARD OF DIRECTORS OF RIVER AND MERCANTILE UK MICRO CAP INVESTMENT COMPANY LIMITED ANNOUNCE ANNUAL FINANCIAL REPORT RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2017

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT CONSTITUTES INSIDE INFORMATION.

STRATEGIC REPORT

financial highlights and performance summary

Financial highlights during the year ended 30 September 2017

On 9 June 2017, 8,712,240 Ordinary Shares were redeemed and cancelled as part of the redemption mechanism at a redemption price of £1.7217 per Ordinary Share, (excluding costs of redemption), returning £14,999,864 to Shareholders.

Number of Ordinary Shares in issue as at 30 September 2017:

59,795,329 Ordinary Shares

Market capitalisation as at 30 September 2017:

Ordinary Share class: £111,219,312

Performance summary
			As at 30 September 2017	As at 30 September 2016

Net asset value per Ordinary Share			£1.8342	£1.2624
Ordinary Share price (bid price)¹			£1.8600	£1.1400
Premium / (discount)			£0.0258	£(0.1224)

Period highs and lows
	Year ended 30 September 2017 High	Year ended 30 September 2017 Low	Year ended 30 September 2016 High	Year ended 30 September 2016 Low


Net asset value per Ordinary Share	£1.8625	£1.2677	£1.2698	£1.0581
Ordinary Share price (bid price)¹	£1.8700	£1.1150	£1.1900	£1.0200
Premium / (discount)	£0.0075	£(0.1527)	£(0.0798)	£(0.0381)

¹ - Source: Bloomberg

Ongoing charges

The ongoing charges reflects those expenses which are likely to recur in the foreseeable future and which relate to the operation of River and Mercantile UK Micro Cap Investment Company Limited (the "Company"). The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs excluding any non-recurring fees in accordance with the Association of Investment Companies ("AIC") methodology. The ongoing charges for the year ended 30 September 2017 were 1.26% (2016: 1.36%).

Dividend history

No dividend was declared or paid during the year.

Key Performance Indicators

Net Asset Value Total Return vs benchmark

Net Asset Value ("NAV") on a total return² basis increased by 87.16% from inception (net of issue cost).

Over the year ended 30 September 2017, the NAV total return of the Company outperformed the benchmark index by 24.04%, recording a NAV total return of 45.30%, which compares with the total return of 21.26% posted by the benchmark index.

Please refer to below for detail regarding Key Performance Indicators.

² - Source: BNP Paribas Securities Services, Bloomberg

CHAIRMAN'S STATEMENT

"Avoiding the Fladdermine"

Kofi Annan described this scourge of our time most appropriately:

"Landmines are amongst the most barbaric weapons of war. Not only do these abominable weapons lie buried in silence and in their millions waiting to kill or maim innocent women and children; but the presence or even the fear of the presence of a single landmine can prevent the cultivation of an entire field, rob a whole village of its livelihood, place yet another obstacle on a country's road to reconstruction and development"

For the uninitiated, "landmines" are typically, but not exclusively, small devices, designed to maim or kill people by some form of initial explosive blast. Most modern landmines are made of plastic and contain about the same amount of metal as the spring in a ballpoint pen, rendering metal detectors almost useless. The use of the landmines we know today became a major military strategy during the First and Second World Wars. At this time, "landmines" were used in a controlled manner and specifically targeted at soldiers; however, it wasn't until the 1960s that the random distribution of "landmines" began. Today, despite the huge outcry against these silent and relentless killers, there are still tens of millions of landmines in the ground and stockpiled in over 60 countries.

The earliest description of a pressure-operated landmine is provided by the German military historian H. Frieherr von Flemming in 1726. In his book he describes what a "Fladdermine" (literally a flying mine) looked like. "It consisted of a ceramic container with glass and metal fragments embedded in the clay containing 0.90 kilos (2 lb) of gunpowder, buried at a shallow depth in the glacis of a fortress and actuated by someone stepping on it or touching a low strung wire." Although this was the first reported pressure-operated mine, it was not until the second half of the 19^th century that these mines became a regular feature of warfare.

The landmine has evolved over the centuries from these brutal yet highly effective tools to the complex and terrifying killing machines that have now reaped so much misery across the world. This blight on the most unprotected of our fellow human beings was famously brought to worldwide attention by the late Diana, Princess of Wales, and whilst there have been huge advances over the years in our ability to deal with this festering legacy of global conflict, there is much work to be done.

We often refer to "dodging landmines" in an investment context and this relates to avoiding those stocks that can often destroy a portfolio, causing lasting damage that no amount of prudent stock selection can repair. We have often heard the adage "run your winners and cut your losers" however it is the failure to identify the investment "landmine" that can often wreak the most damage on a portfolio. These stocks, whose decline is swift and often terminal, can frequently lurk below the calm surface of an apparent benign economic environment and are most common in the more volatile, yet highly rewarding, smaller capitalised end of the market. The ability to recognise and avoid these stocks is the mark of a shrewd and successful investor with a sound and proven investment philosophy and process.

Yet one thing that can't be ruled out is chance. From time to time news emerges that cannot be predicted; a highly competitive product emerges in your sector, the company undertakes an acquisition that is poorly executed or understood or a flood or natural disaster disrupts normal business activity. The list is almost endless and we can all think of the unlimited number of unavoidable circumstances. However, there are probably even more cases of "landmines" that could have been avoided. There are a number of leading indicators that potentially suggest stock vulnerability. Their presence signals the need for increased diligence. In the financial statements, one can often observe deteriorating working capital metrics, declining profitability despite rapid sales growth, and the presence of high levels of debt relative to equity or tangible assets.

A good example of one of these "investment landmines" would be Outsourcery, a company backed by a then member of the 'Dragon's Den', which on the face of it appeared to be an exciting technology firm playing to one of the Portfolio Manager's favoured themes - Digitisation. Outsourcery supported businesses to run everyday applications through its O-Cloud platform and generate attractive recurring revenues. In fact, this business was not too dissimilar to a stock that we currently hold, Nasstar. However, Outsourcery's ambition was its downfall - when the anticipated exponential sales growth failed to materialise the business ultimately failed as costs were far too high. Outsourcery was delisted at zero value. Nasstar, by contrast, is conservatively managed with a strong profit margin delivering strong cash generation and has risen 28% so far since purchase.

A further example is a former successful holding for the Company, K3 Business Technology. Shares of the provider of software (heavily reliant on Microsoft's Dynamics ERP suite) to UK retailers rose over 60% in 2015, most of which was subsequent to purchase. However, it is important to remain continuously vigilant, particularly in K3's case where its customers were potentially going to be affected by Brexit. It was the early signs that customers were delaying evaluation of Microsoft's new cloud version which catalysed the exit from the position. In contrast to initial hopes, these delays outside of K3's control escalated and eventually the firm had to raise additional funding after profit warnings had sent shares down 60% from their peak.

Performance

The ability of our portfolio manager, Philip Rodrigs, to pick the right stocks as well as avoiding the many "fladdermines" that proliferate the Micro-Cap investment universe has resulted in him continuing to perform exceptionally well over the period and I would like to take this opportunity to thank him and the broader investment team at River and Mercantile Asset Management LLP for their endeavours on behalf of the Board and the Company's Shareholders.

The NAV total return of the UK Micro Cap portfolio for the year ended 30 September 2017 was 45.30%, which compares with the total return of 21.26% posted by the benchmark index.

Capital Redemption

The Board is committed to achieving long term capital growth and, where possible, returning such growth to Shareholders throughout the life of the Company. At the time of the original placing, the Portfolio Manager advised the Board that, under normal circumstance, it believed a NAV in the region of £100 million would best position the Company to take advantage of a portfolio of Micro-Cap companies. Accordingly, the Directors stated that they would intend to operate a redemption mechanism, from time to time, pursuant to which shares may be redeemed compulsorily so as to return the NAV back to around £100 million. We undertook the first of these during the current reporting period and a second subsequent to year end, on the 1 December 2017. We are pleased that the capital redemption process operated in line with the original expectations set out in the prospectus. Refer to note 11 for detail regarding the redemption mechanism and redemption during the year and note 16 for the redemption after the reporting period. We continue to monitor the NAV of the portfolio and will undertake further redemptions to protect our investment flexibility which is structured to provide the best returns to Shareholders.

Investment Outlook

After the market volatility last year courtesy of Brexit, another political shock marked the beginning of the period with the election of Donald Trump as the President of the United States. However, contrary to prior fears, markets greeted this result positively, moving to price in the possibility of reflation. The favourable outlooks for many economies around the world contrasts with the subdued outlook for the UK economy as a result of Brexit which formally commenced this period. However, the performance of the Company should be taken as definitive proof that the UK Micro Cap universe provides a wide range of choice allowing the possibility to achieve 'close to zero' exposure to UK domestic cyclicals. As it happens the percentage exposure to UK domestic cyclicals has been further reduced to below 10% of NAV.

Looking ahead, the outlook for the UK consumer continues to look subdued, but British exporters benefit from the lower level of sterling. Aside from the slowing UK economy the majority of global economies are enjoying a synchronised improvement which is providing benign conditions that allow firms to thrive. Budding inflation is motivating corporates to invest in improved productivity. In general, these are proving attractive conditions for many UK listed Micro-Cap firms and investors are increasingly recognising this.

Principal Risks and Uncertainties

Explanations of the Company's principal risks and uncertainties are detailed in the Company's prospectus, which is available on the Manager's website.

Dividend Policy

The dividend policy of the Company is as follows:

"The Board does not expect income from the Portfolio to significantly exceed the anticipated annual running costs of the Company and therefore does not expect that the Company will pay significant, or any, dividends although it reserves the right to do so. "

For the period ending 30 September 2017 the Board confirms that no dividend will be payable.

Going Concern

The financial statements have been prepared on a going concern basis. The Directors consider this to be appropriate as the Company has adequate resources to continue in operational existence for the foreseeable future being twelve months after approval of the financial statements. In reaching this conclusion, the Directors took into account the value of net assets; the Company's Investment Policy; its risk management policies; the diversified portfolio of readily realisable securities which can be used to meet funding commitments; the credit facility and the overdraft which can be used for short-term funding requirements; the liquidity of the investments which could be used to repay the credit facility in the event that the facility could not be renewed or replaced; its revenue; and the ability of the Company in the light of these factors to meet all its liabilities and ongoing expenses.

Summary

This has been another excellent year for the Company and I am honoured to be your Chairman. I look forward to writing to you once again at the time of our interim results, but I would like to take this opportunity on behalf of your Board to thank all our Shareholders for their support over the past twelve months.

Andrew Chapman

Chairman

18 January 2018

executive sUMMARY

This Executive Summary is designed to provide information about the Company's operation and results for the year ended 30 September 2017. It should be read in conjunction with the Chairman's Statement and the Portfolio Manager's report which gives a detailed review of investment activities for the year and an outlook for the future.

Corporate summary

The Company was incorporated on 2 October 2014, with registered number 59106, as a non-cellular company with liability limited by shares. The Company has been registered by the Guernsey Financial Services Commission ("GFSC") as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the Registered Collective Investment Scheme Rules ("RCIS Rules") 2015.

The Company's stated capital is denominated in Sterling and each share carries equal voting rights.

The Company's Ordinary Shares are listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange. As at 30 September 2017, the Company's issued stated capital comprised 59,795,329 Ordinary Shares (30 September 2016: 68,507,569 Ordinary Shares).

The Company has appointed Carne Global AIFM Solutions (C.I.) Limited (the "Manager") to act as the Company's Alternative Investment Fund Manager ("AIFM"). The Manager has delegated portfolio management of the Company's investment portfolio to River and Mercantile Asset Management LLP (the "Portfolio Manager"). The Board will actively and continuously supervises both the Manager and the Portfolio Manager in the performance of their respective functions.

The Company is a member of the AIC.

Significant events during the year ended 30 September 2017

On the 9 December 2016, the Company entered into a Sterling Facility Agreement (the "Facility") for £2,000,000 committed revolving credit facility with BNP Paribas Securities Services S.C.A. (the "Lender") and BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Custodian"). Please refer to note 14 for further details.

On 24 May 2017, the Company announced its intention to implement the Company's first compulsory redemption of Ordinary Shares. On 9 June 2017, (the redemption date), 8,712,240 Ordinary Shares were redeemed and cancelled as part of the redemption mechanism at a redemption price of £1.7217 per Ordinary Share, (excluding costs of redemption of £9,000), returning £14,999,864 to Shareholders.

Refer to note 11 for detail regarding the redemption mechanism.

Company investment objective

The Company aims to achieve long term capital growth from investment in a diversified portfolio of UK Micro Cap companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase.

Company investment policy

The Company invests in a diversified portfolio of UK Micro Cap Companies. It is expected that the majority of the Company's investible universe will comprise companies whose securities are admitted to trading on AIM.

While it is intended that the Company will be fully invested in normal market conditions, the Company may hold cash on deposit or invest on a temporary basis in a range of high quality debt securities and cash equivalent instruments. There is no restriction on the amount of cash or cash equivalent instruments that the Company may hold and there may be times when it is appropriate for the Company to have a significant cash position instead of being fully or near fully invested.

The Company will not be benchmark-driven in its asset allocation.

Diversification

The number of holdings in the portfolio will usually range between 30 and 50.

The portfolio is expected to be broadly diversified across sectors and, while there are no specific limits placed on exposure to any sector, the Company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk.

Investment restrictions

No exposure to any investee company will exceed 10% of NAV at the time of investment.

The Company may from time to time take sizeable positions in portfolio companies. However, in such circumstances, the Company would not normally intend to hold more than 25% of the capital of a single investee company at the time of investment.

Although the Company would not normally expect to hold investments in securities that are unquoted it may do so from time to time but such investments will be limited in aggregate to 10% of NAV.

The Company may invest in other investment funds, including listed closed-ended investment funds, to gain investment exposure to UK Micro Cap companies but such exposure will be limited, in aggregate, to 10% of NAV at the time of investment.

Borrowing and gearing policy

The Company does not normally intend to employ gearing but at certain times it may be opportune to do so, for both investment and working capital purposes. Accordingly, the Company may employ gearing up to a maximum of 20% of NAV at the time of borrowing. Please refer above and to note 14 for further details.

Derivatives

The Company may use derivatives (both long and short) for the purposes of efficient portfolio management only. The Company will not enter into uncovered short positions.

Further information can be found in the Portfolio Manager's report which is incorporated within this Annual Financial Report for informational purposes only.

Investment strategy and approach

The Company's investment strategy is to take advantage of the illiquid risk premium inherent in UK Micro Cap Companies and exploit fully the underlying investment opportunity in the UK Micro Cap market to deliver high and sustainable returns to Shareholders, principally in the form of capital gains in line with the Company investment objective and policy.

The Company pursues its investment strategy through the appointment of the Manager as AIFM, whereby the Manager has been given responsibility, subject to the supervision of the Board, for the management of the Company in accordance with the Company's investment objective and policy. The Manager has delegated portfolio management to the Portfolio Manager. The Company depends on the diligence, skill, judgment and business contacts of the Portfolio Manager's investment professionals, in particular Philip Rodrigs, in identifying investment opportunities which are in line with the investment objective and policy of the Company. The Portfolio Manager attends all Board meetings at which the investment strategy and performance of the Company is discussed and approved. BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Administrator") have been appointed to provide administration, custodian and company secretarial services.

Key Performance Indicators (KPIs)

The Company's Directors meet regularly to review performance and risk against a number of key measures.

Returns and Net Asset Value total return

The Board reviews and compares, at each meeting, the performance of the portfolio as well as the NAV, income and share price of the Company. The Directors regard the Company's NAV total return as being the overall measure of value delivered to Shareholders over the long term. Total return reflects NAV growth of the Company.

The Board is committed to achieving long term capital growth and, where possible, returning such growth to Shareholders throughout the life of the Company. Furthermore, the Portfolio Manager has advised the Board that it believes that a NAV of £100 million (at current market levels although this may change over time) would best position the Company to take advantage of a portfolio of Micro Cap Companies.

NAV on a total return basis increased by 87.16% from inception. Please refer to the Financial Highlights and Performance Summary for NAV total return analysis and note 11 for further details regarding the redemption mechanism.

During the year ended 30 September 2017, the Company incurred a portfolio management performance fee of £4,341,265 (2016: £797,751), of which £602,506 (2016: £1,223,776) was payable at year end. A portfolio management performance fee of £4,962,535 (2016: £nil) was paid during the year. Please refer to note 4 for further detail.

Concentration

The Board reviews the industry and asset diversification of the investment portfolio to ensure that holdings are in line with the investment restrictions and also to monitor the concentration risk of the investment portfolio.

Please refer to note 8 for further details regarding investment limits and risk diversification policies.

As at 30 September 2017, the Company held 39 (2016: 45) investment holdings of which no exposure in any investee company exceeded 10% of NAV at the time of investment.

Premium / Discount

The Directors review the trading prices of the Company's Ordinary Shares and compare them against their NAV to assess volatility in the discount or premium of the Ordinary Share prices of their NAVs during the year.

Please refer to the Financial Highlights and Performance Summary for further analysis.

Principal risks and uncertainties

When considering the total return of the Company, the Board takes account of the risk which has been taken in order to achieve that return. The Board have carried out a robust assessment of the principal risks facing the Company and have looked at numerous risk factors, an overview of which is set out below:

Investment and liquidity risk

An inappropriate investment strategy may lead to under performance against the Company's benchmark and peer companies resulting in the Company's shares trading on a discount. The Board monitors the implementation and results of the investment process with the Portfolio Manager who attends all Board meetings and reviews data which shows measures of the Company's risk profile.

The Company invests in a diversified portfolio of UK Micro Cap companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase. These securities are likely to have higher volatility and liquidity risk than securities on the London Stock Exchange Official List. The relatively small market capitalisation of Micro Cap Companies could therefore have an adverse effect on the performance of these investments and can make the market in their shares illiquid. On this basis prices of Micro Cap companies are often more volatile than prices of larger capitalisation stocks, and even small cap companies.

The Company may have difficulty in selling its investments which may lead to volatility in the market price of shares in the Company. The Company may not necessarily be able to realise its investments within a reasonable period, and any such realisations that may be achieved may be at a considerably lower price than prevailing indicative market prices. There can therefore be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the valuation of that investment.

Risks are monitored by the Manager, which holds monthly AIFM Risk Committee meetings with the Portfolio Manager. The Manager provides an update of these AIFM Risk Committee meetings to the Board on a quarterly basis and the risks are discussed accordingly. The Board have placed investment restrictions and guidelines to limit these risks.

Portfolio concentration and macro-economic risks

The Company predominantly invests in securities in the UK and has no specific limits placed on its exposure to any industry sector. Changes in economic conditions in the UK, (for example, uncertainties as a result of the referendum vote for the UK to leave the EU, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events and other factors), where the Company predominantly invests, could substantially and adversely affect the Company's prospects, as could changes in global economic conditions. This exposes the Company to concentration of geographical risk and may from time to time lead to the Company having significant exposure to portfolio companies from certain business sectors. Greater concentration of investments in any one geographical and / or industry sector may result in greater volatility in the value of the Company's investments, and consequently its NAV, and may materially and adversely affect the performance of the Company and returns to Shareholders.

While the Company does not include any specific limits placed on exposures to any industry sector, the Company does have investment limits and risk diversification policies in place to mitigate market and concentration risk. Please refer to note 8 for further details.

Environmental and social issues

The Company is a closed-ended investment company and so its own direct environment impact is minimal. The Board notes that the companies in which the Company invests will have a social and environmental impact over which the Company has no control. The Directors, the majority of whom are based in the Channel Islands, have held all of their meetings in Guernsey and therefore the Company's greenhouse gas emissions and environmental footprint are negligible.

Board diversity

The Board has due regard for the benefits of experience and diversity in its membership, including gender, and strives to meet the right balance of individuals who have the knowledge and skillset to maximise Shareholder return while mitigating the risk exposure of the Company. The Board is made up of three male Directors and one female Director. All have held the position of Directors since incorporation. Further information about the Board's policy on diversity is contained within the Directors and Corporate Governance Report.

The Company has no employees and therefore there is nothing further to report in respect of gender representation within the Company.

Voting policy on portfolio investments

The Portfolio Manager, in the absence of explicit instructions from the Board, is empowered to exercise discretion in the use of the Company's voting rights. All shareholdings are voted at all company meetings where practicable in accordance with corporate governance policies, which is to seek to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use its influence as an investor with a principled approach to corporate governance.

Life of the Company

The Company has no fixed life. The Directors shall propose one or more ordinary resolutions at the Annual General Meeting (the "AGM") to be held in 2019 and at every fifth AGM thereafter that the Company continues as a closed-ended investment company (the "Continuation Resolution"). In the event that a Continuation Resolution is not passed, the Directors shall formulate proposals to be put to the Shareholders as soon as is practicable but, in any event, by no later than six months after the Continuation Resolution is not passed, to reorganise or reconstruct the Company or for the Company to be wound up with the aim of enabling the Shareholders to realise their holdings in the Company.

Future Strategy

The Board continues to believe that the investment strategy and policy adopted is appropriate for and is capable of meeting the Company's objectives.

The overall strategy remains unchanged and it is the Board's assessment that the Manager and Portfolio Manager's resources are appropriate to properly manage the Company's investment portfolio in the current and anticipated investment environment.

Please refer to the Portfolio Manager's report for detail regarding performance to date of the investment portfolio and the main trends and factors likely to affect those investments.

Going Concern

Under the AIC Code of Corporate Governance ("AIC Code") and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern from date of approval of the financial statements.

The Directors are satisfied that, at the time of approving the financial statements, no material uncertainties exist that may cast significant doubt concerning the Company's ability to continue for the foreseeable future. The Directors consider it appropriate to adopt the going concern basis in preparing the financial statements.

Viability Statement

Under the AIC Code and LR 9.8.6R under the Listing Rules, the Board is required to make a "viability statement" which considers the Company's current position and principal risks and uncertainties combined with an assessment of the prospects of the Company in order to be able to state that they have a reasonable expectation that the Company will be able to continue in operation over the period of their assessment.

The Company's prospects are driven by its business model and strategy. The Company's aim is to achieve long term capital growth from investment in a diversified portfolio of UK Micro Cap companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase. At the launch of the Company the Directors stated "The Board, advised by the Portfolio Manager, believes that the impact on Micro Cap Companies of a return to economic growth is particularly high because of the knock-on effect of improved market confidence. Over the medium term, the Portfolio Manager expects that confidence and risk appetite amongst investors will grow with improving economic activity. Typically, it would expect that this will result in valuation metrics rising which will enhance returns for investors during this period."

The Directors have and continue to monitor the uncertainties in the political and economic environment as a result of the referendum vote for the UK to leave the EU.

In this context and considering the referendum vote, the Board's central case is that the prospects for economic activity in the UK will remain such that the investment objective, policy and strategy of the Company will be viable for the foreseeable future through a period of at least five years from the balance sheet date.

In making this judgement, the Board has assessed that the main risks to the long term viability of the Company are key global and market uncertainties driven by factors external to the Company which in turn can impact on the liquidity and NAV of the investment portfolio. A simulation has been designed to estimate the impact of these uncertainties on the NAV of the Company at times of stress based on historical performance data of the Company's benchmark, using techniques similar to the sensitivity analysis performed in note 8 - Financial Risk Management.

The Board is required to propose to the members an ordinary resolution that the Company continues its business as a closed-ended investment company (the "Continuation Vote") at the AGM in 2019. Although the outcome of such a Continuation Vote there remains uncertain, having assessed the principal risks to the business and investment model, the Directors' current view is that a Continuation Vote will pass.

Taking account of the Company's current position and principal risks, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of assessment.

The Strategic Report was approved by the Board of Directors on 18 January 2018 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

BOARD MEMBERS

All Directors are non-executive.

CHAIRMAN

Andrew Chapman, (independent). Appointed 2 October 2014.

Andrew holds both a BA and an MPhil in Economic & Social History. He began his career in 1978 as a UK equity fund manager.

In 1984, Andrew was appointed to the in-house investment management team at the British Aerospace Pension Fund, where he had responsibility for directly investing in a number of listed markets. In 1991, Andrew took the position of Investment Manager at United Assurance plc, where he was responsible for asset allocation and leading a team of in-house fund managers managing approximately £12 billion in assets. Andrew was subsequently a director of Teather & Greenwood Investment Management Limited, before joining Hewitt Associates as a Senior Consultant. From 1994 until 2003, Andrew was also a non-executive director of the Hambros Smaller Asian Companies Investment Trust plc (which subsequently became The Asian Technology Trust plc).

In 2003, Andrew was appointed as the first in-house Pension Investment Manager for the John Lewis Partnership Pension Fund, with responsibility for the overall investment strategy as well as the appointment and performance of 27 external fund managers across all asset classes. He retired from that role in 2012 and served as the CIO for The Health Foundation until September 2015.

Since 2012 Andrew has developed a portfolio of roles, including being a member of the investment committees of: Homerton College (Cambridge University); Coller Capital Partners; and the Property Charities Fund. He is also a non-executive director of Steadfast International Limited, Steadfast Long Capital Limited and Kidney Care UK.

Andrew served for several years on the Investment Council of the National Association of Pension Funds and was Chair of the Advisory Board for the Pension Fund Investment Forum.

DIRECTORS

Ian Burns, (independent) - Chairman of the Audit Committee and Senior Independent Director. Appointed 2 October 2014.

Ian is a fellow of both the Institute of Chartered Accountants in England & Wales and a member of Society of Trust and Estate Practitioners. He is the founder and Executive Director of Via Executive Limited, a specialist management consulting company and the managing director of Regent Mercantile Holdings Limited, a privately owned investment company. He is licensed by the Guernsey Financial Services Commission as a personal fiduciary.

Mr. Burns is currently a non-executive director and audit committee chairman of London Stock Exchange listed Twenty Four Income Fund Limited and Finance Director of AIM listed Fast Forward Innovations Limited He is also a non-executive director of Darwin Property Management (Guernsey) Limited, Curlew Capital Guernsey Limited and Premier Asset Management (Guernsey) Ltd.

Trudi Clark, (independent) - Chairman of the Remuneration and Nomination Committee and Management Engagement Committee. Appointed 2 October 2014.

Trudi graduated with a first class honours degree in business studies and is a qualified Chartered Accountant.

Trudi spent 10 years working in chartered accountancy practices in the UK and Guernsey. In 1991, she joined the Bank of Bermuda to head their European internal audit function before moving into private banking in 1993.

Between 1995 and 2005, Trudi worked for Schroders (C.I.) Limited, an offshore private bank and investment manager. She was appointed to the position of banking director in 2000 and managing director in 2003. In 2005, Trudi left Schroders to establish and run a private family office.

In July 2009, Trudi established the Guernsey practice of David Rubin & Partners LLP, an internationally known insolvency and liquidation specialist.

Trudi Clark holds several non-executive directorships in funds which include F & C Commercial Property Trust Limited and NB Private Equity Fund both of which are listed on the London Stock Exchange and Sapphire (PPC) Limited - Sapphire IV Cell which is listed on The International Stock Exchange. She also holds a personal fiduciary license issued by GFSC.

Mark Hodgson. Appointed 2 October 2014.

Mark has over 25 years' financial services experience, with an extensive banking background having spent over 20 years with HSBC where he gained an in-depth knowledge of credit, financial markets and complex lending structures.

Prior to 2006, Mark was regional director for HSBC Invoice Finance (UK) Limited, where he was responsible for running the receivables finance business. In 2006, Mark moved to Jersey to head up HSBC's Commercial Centre, having full operational responsibility for credit and lending within the jurisdiction.

In 2008, Mark moved to Capita Fiduciary Group as managing director of Offshore Registration, a regulated role in which he had responsibility for Jersey, Guernsey and the Isle of Man. Mark also took on the regulated role of managing director of Capita Financial Administrators (Jersey) Limited, together with directorships of regulated and unregulated funds.

In April 2014, Mark joined Carne Global Financial Services (C.I.) Limited as managing director.

PORTFOLIO MANAGER'S REPORT

This Portfolio Manager's Report is compiled with reference to the investment portfolio. Therefore all positions are calculated by reference to their official closing prices (as opposed to the closing bid prices basis within the condensed financial statements). The estimated unaudited NAV referenced below is calculated on a daily basis utilising closing bid prices and is inclusive of all estimated charges and accruals.

Review of performance

The year to 30 September 2017 has been a period of extremely strong performance for the River and Mercantile UK Micro Cap Investment Company, leading to the achievement of the major milestone of exceeding its long term net asset value target of £100m, as communicated on 16 January 2017. Subsequently the growth in net asset value continued and this gave the Company the first opportunity to execute a return of capital to its shareholders - completing a £15m compulsory partial redemption on 9 June 2017. However, ongoing strong growth in the value of the portfolio has resulted in the net asset value of the Company building up again and closing the period at £109.7m. The gain in net asset value inclusive of the capital return has therefore amounted to a very satisfying +45.3% which was very substantially ahead of the benchmark's return of +21.3%. Therefore the NAV per share closed at 183.42p, compared to 126.24p a year ago. It is pleasing to observe that the share price performance over the period was even stronger at +63.1% with the shares reversing a discount at the beginning of the period to achieve a healthy premium at the end. It is impossible to precisely attribute the reasons for this improvement but it may be that the natural feature of the cash return mechanism is influencing the degree of discount. Overall since IPO the NAV performance has accumulated to a total of +87.2% which is very materially ahead of the benchmark's +43.8% return over the same period.

As always the significant growth in value of the portfolio of investments derives from two sources - significant growth in the earnings power of the firms and the rating applied to those earnings. By far the most important source of performance over the long term is the growth in earnings power as micro firms grow into small and, eventually, maybe large firms. Many of our Micro-Cap investments were expected to deliver strong growth but managed to deliver far better than expected earnings as they executed their exciting strategies very well. This led to rapid upward revisions to future earnings power. However, during this past year, and starting to accelerate in the latter part of it, is the contribution from upward re-ratings that the market is willing to apply to Micro-Cap company earnings - particularly those with strong momentum. This is an intriguing sign that perhaps part of the original thesis at IPO is starting to come to pass where the strong earnings growth characteristics of Micro-Cap companies are being upwardly re-rated. It is fair to say the extremely attractive valuations that abounded at IPO are becoming less frequent to observe. However, the closing of the discount to smaller and larger companies that typically occurs as the stock market life cycle matures is much better described as commenced rather than completed. A clutch of exuberant share-price moves late in the period which warranted trimming to bank gains and control risk exposures did result in a cash balance exceeding the 10% threshold which denotes fully invested status as at 30 September. However, this should be seen as a temporary situation as it is best to secure gains whilst they are there and remain patient when evaluating new ideas rather than rush into less attractive investments or decline to sell at rich prices.

Holdings	Contribution to return
Blue Prism	11.00%
Taptica	9.17%
Frontier Developments	6.71%
MaxCyte	4.87%
Microgen	4.07%
Allergy Therapeutics	2.01%
SDX Energy	1.94%
Alpha FX	1.68%
Ideagen	1.60%
Premier Technical Svcs	1.47%
Inspired Energy	1.40%
LoopUp	1.24%
AFH Financial Group	1.12%
D4t4 Solutions	1.08%
Constellation Healthcare	1.01%
Trakm8	-1.44%
Shanta Gold	-4.03%

Source: Factsheet, held stocks contribution

This past year has seen a number of the portfolio's tiny Micro-Cap firms achieve transformational increases in earnings power and market appreciation. Many of these are Unique firms where the product or service is unrivalled. In addition several holdings are benefiting from the inexorable tide of Digitisation including some in the specialist area of Big Data. The top contributor enjoys all three of these features which help to explain Blue Prism's 251.8% increase in value. Very strong accelerating demand propelled the shares during the period as firms rapidly embrace Digitisation of their workforce and are choosing Blue Prism's industry leading 'Software Robots'. In an ideal world all IT systems would be integrated seamlessly, but the daunting technical challenge means that disparate systems need vast armies of staff to perform basic tasks. Advanced artificial intelligence allows a software program to emulate human actions, reducing errors and releasing staff to perform more productive tasks. Whilst early stage, Blue Prism could be at the forefront of a seismic shift in productivity and this is attracting international attention. Closing the period at around £625m market cap Blue Prism is no longer micro. However, it is important to fully realise the potential of the original investment so, whilst significant profits have already been banked and recycled into new Micro-Cap holdings, the position remains significant.

When sizing positions it is pleasing when the largest holding at the beginning of the period under review delivers. Taptica International soared 170.4% as shares continue to keep pace with the very strong growth that the company reported from its global mobile marketing business. Remarkable progress has been achieved since adding to the holding alongside a company buyback at 65p a year ago, but there remains very significant potential even though a 341% gain was banked for a portion of the holding during March. Gains have reached 523% as at the end of this period.

However, the award for the biggest gainer in the portfolio this year goes to Frontier Developments which rocketed a massive 442.6%. This computer game franchise owner teased and finally revealed the identity of its third property to much excitement - Jurassic World Evolution. Fusing already developed specialisms with this huge brand has led to speculation of multi-million unit sales when the game launches coincident with the new movie next summer. Meanwhile the firm's existing Elite Dangerous and Planet Coaster franchises drove stronger than expected performance which attracted a valuable partnership with Chinese giant Tencent.

In fourth place was the star of the first half, MaxCyte Inc, which ended with a gain of 191.2%. This was apparently catalysed by being awarded the deserved accolade of 'Best Technology' at the October 2016 AiM Awards. The firm's patents and knowhow around the ground breaking and Unique science of Flow Electroporation technology led to a major endorsement implied by the licensing of their technology by CRISPR Therapeutics. Flow electroporation allows large scale injection of drugs into human cells - for example a patient's own blood - which could create a whole new class of cures for cancer and other diseases.

Big Data is the key underpinning to Microgen's success as it possesses a globally unrivalled data processing engine which some of the largest firms in the world are requiring to augment the insufficient capability of the likes of Oracle. This converted into repeated announcements of stronger than expected profits. Concentrated exposure to the core themes prompted the exit for gains in period of 104.3% for a broadly 3-fold increase during ownership. Fellow Big Data play D4T4 Solutions remains in the portfolio with pent up potential following a gain of just 15.8% this year.

The micro end of the market is well known for its innovative technology companies and also, less favourably in recent years, its high exposure to commodities. However, great value is apparent in the sector justifying an expansion in the allocation to the oil and gas sector in particular. SDX Energy's fund raise to buy Circle Oil from administration was enthusiastically backed this period for a 73.8% gain as there is significant opportunity to generate cash from fields in Egypt and Morocco. However, even as oil enjoyed a stronger year, gold ended the period lower and this took its toll on Shanta Gold. More important was the collateral damage felt from the dispute between the Tanzanian Government and fellow local producer Acacia. Financial constraints from tax changes and general uncertainty explain the 70% fall in this otherwise attractive high grade gold miner, more than fully reversing its top three contribution last year.

Alongside SDX two other new entrants during the period joined the +1% club. Alpha FX enjoyed a stunning debut, up +144.4%. Their collaborative approach to helping firms manage FX bodes well for growth. Meanwhile LoopUp Group rang up gains of 81.5%. Ongoing strong sales growth of its genuinely simple to use conference calling service finally attracted attention. However, some of this growth is due to favourable currency moves so a stake similar to the initial investment value was sold to moderate the risk that the perception of growth moderates in future. Amongst stocks exiting the portfolio was Constellation Healthcare Technologies for a total gain of around 60% including +26.6% this period which was gratefully secured by selling out shortly after a take-over offer was secured. Similarly it was also good to bank lifetime gains of c.120% for Premier Technical Solutions Group which had rallied to a full valuation thanks to strong growth in tower window cleaning cradles. However, this may prove heavily cyclical as Brexit bites so the period return of 65.8% was secured. This was one of several reductions in UK domestic cyclical exposure during the year to a very low level compared to the benchmark.

Concluding with longer tenured holdings, biotech firm Allergy Therapeutics advanced 69.2% on strong profit growth in Europe and commencement of key drug trials. Compliance software stalwart Ideagen continued its anchor role in the portfolio with another 49.1% leap. Inspired Energy continues to help firms manage their energy costs and expansion into Ireland was met with a 45% gain. Financial planning oriented IFA firm AFH Financial finally executed on its acquisition strategy and was rewarded with a 56.4% pop. Finally the only other faller to detract more than 1% was telematics device maker Trakm8 down 58.5%. Shares have been retained at a modest weight on the premise that the main issue is a hiatus awaiting the culmination of development efforts to launch a significantly enhanced next generation device.

Portfolio statistics

Top 10 holdings

Holdings	Weight (%)
Blue Prism	6.3
Taptica	5.6
Frontier Developments	5.4
MaxCyte	4.7
Ideagen	3.8
SDX Solutions	3.7
D4t4 Solutions	3.6
Allergy Therapeutics	3.4
Inspired Energy	3.4
AFH Financial Group	3.3

Source: River and Mercantile Asset Management LLP

Market environment and outlook

After the market volatility last year courtesy of Brexit, another political shock marked the beginning of the period with the election of Donald Trump as the President of the United States. However, contrary to prior fears, markets greeted this result positively, moving to price in the possibility of reflation. The favourable outlooks for many economies around the world contrasts with the subdued outlook for the UK economy as a result of Brexit which formally commenced this period. However, the performance of the Company should be taken as definitive proof that the UK Micro Cap universe provides a vast range of choice allowing the possibility to achieve zero exposure to UK domestic cyclicals. As it happens the percentage exposure to UK domestic cyclicals did further reduce to below 10% of NAV.

Looking ahead the outlook for the UK consumer continues to look subdued, but British exporters continue to enjoy the lower level of Sterling. Aside from the slowing UK economy the majority of global economies are enjoying a synchronised improvement which is providing benign conditions that allow firms to thrive. Budding inflation is motivating corporates to invest in improved productivity. In general these are proving attractive conditions for many UK listed micro-cap firms and investors are increasingly recognising this.

I trust the founding and incoming shareholders of the River and Mercantile UK Micro Cap Investment Company will share in my pleasure at meeting our long term target net asset value objective of £100m this period and subsequently the execution of the inaugural cash return to shareholders on the auspicious date of 9 June.

Philip Rodrigs

Portfolio Manager

18 January 2018

DIRECTORS' AND CORPORATE GOVERNANCE REPORT

The Directors present the Annual Financial Report of the Company for the year ended 30 September 2017. The results for the year are set out in these accounts.

Disclosure of Information to the Auditor

Each of the Directors who were members of the Board at the time of approving this Report confirms that:

· to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the Auditor was unaware; and

· he or she has taken all steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Auditor was aware of that information.

Directors' interests

Information for each Director is shown in the Board Members section and details of Directors' remuneration and interests in shares can be found within the Directors' Remuneration Report.

Financial risk management objectives and policies

The Board is responsible for the Company's system of risk management and internal control and meets regularly in the form of Board meetings to assess the effectiveness of such controls in managing and mitigating risk.

The key financial risks that the Directors' believe the Company is exposed to include credit risk, liquidity risk, market risk (including price risk and interest rate risk). Please refer to note 8 for reference to financial risk management disclosure, which explains in further detail the above risk exposures and policies and procedures in place to monitor and mitigate these risks.

The Administrator has established an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of these controls is assessed by the Administrator's compliance and risk departments on an on-going basis and by periodic review by external parties. The administrators compliance team present an assessment of their review to the Board in line with the compliance monitoring program on a quarterly basis.

The Board has reviewed the effectiveness of the Company's system of risk management and internal control for the year ended 30 September 2017 and to the date of approval of this Annual Financial Report.

Fair, balanced and understandable

In assessing the overall fairness, balance and understandability of the Annual Financial Report the Board has performed a comprehensive review to ensure consistency and overall balance.

Borrowing limits

The Directors may, if they feel it is in the best interests of the Company, borrow funds up to a maximum of 20% of NAV at the time of borrowing. On the 9 December 2016, the Company entered into a Sterling Facility Agreement. Please refer to note 14 for further details.

Greenhouse gas emissions

Please refer to "Environmental and social issues" for disclosure regarding greenhouse gas emissions.

Acquisition of own shares

To assist the Company in addressing any imbalance between the supply of and demand for Ordinary Shares and thereby assist in controlling the discount to NAV at which the Ordinary Shares may be trading, on 21 March 2017 the Company renewed general authority to purchase in the market up to 14.99% of the Ordinary Shares in issue immediately following admission, (previously granted on 4 March 2016). This authority expires on the date of the 2018 AGM. During the year the Company did not purchase any shares in the market.

The Directors will seek a renewal of this authority from Shareholders at the Company's AGM on 27 February 2018.

Shareholders' interests

As at 30 September 2017, the Company had been notified in accordance with Chapter 5 of the The Listing Rules and the Disclosure Guidance and Transparency Rules ("DTR") of the UK Listing Authority (which covers the acquisition and disposal of major shareholdings and voting rights), of the following Shareholders that had an interest of greater than 5% in the Company's issued stated capital.

		Percentage of total voting rights (%)
Investec Wealth & Investment Limited		14.96
River and Mercantile Asset Management LLP		9.87
City of Bradford Metropolitan District Council		9.69
Bank of Montreal		9.49
Derbyshire Country Council		7.90
Smith & Williamson Holdings Limited		5.29

Between 30 September 2017 and 18 January 2018, the following additional notifications were received.

		Percentage of total voting rights (%)
Bank of Montreal		10.16
Smith & Williamson Holdings Limited		6.20

Independent Auditor

PricewaterhouseCoopers CI LLP, have indicated their willingness to continue in office as auditor and a resolution proposing their re-appointment and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM.

Events after the Reporting Date

The Directors are not aware of any developments that might have a significant effect on the operations of the Company in subsequent financial periods not already disclosed in this report or note 16 of the attached financial statements.

Going concern

Under the AIC Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern from date of approval of the financial statements.

Corporate Governance Statement

a) Corporate Governance Codes

The DTR of the UK Listing Authority requires listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code ("UK Code") as issued by the Financial Reporting Council ("FRC").

The AIC Code provides specific corporate governance guidelines to investment companies. The Board considers that reporting against the principles and recommendations of the AIC Code and by reference to the AIC Guide (which incorporates the UK Code), will enable Shareholders to make a comprehensive assessment of the Company's governance principles.

The FRC has confirmed that AIC member companies who report against the AIC Code and who follow the AIC Guide will be meeting obligations in relation to the UK Code, paragraph 9.8.6 of the Listing Rules and associated disclosure requirements of the DTR.

The Company has delegated to third parties certain administrative and other functions, thus not all of the provisions of the AIC Code are directly applicable to the Company. The Company has no employees.

Copies of the AIC Code, the AIC Guide and the UK Code can be found on the respective organisations' websites which are www.theaic.co.uk and www.frc.org.uk respectively.

b) Statement of compliance

The AIC Code comprises 21 principles and the Directors believe that during the year under review they have complied with the all the recommendations of the AIC Code and the relevant provisions of the UK Code insofar as they apply to the Company's business except as set out below:

· The role of the Chief Executive;

· Executive Directors' remuneration; and

· The need for an internal audit function.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, direct employees or internal operations. The Company has therefore not reported further in respect of these provisions.

The Company complies with the corporate governance statement requirements pursuant to the DTRs by virtue of the information included in the Corporate Governance section of the Annual Financial Report.

c) The Board

Directors

The Board currently consists of four non-executive directors all of whom were appointed on 2 October 2014 (date of incorporation). The Directors are:

· Andrew Chapman (Independent non-executive Chairman)

· Ian Burns (Senior independent non-executive Director)

· Trudi Clark (Independent non-executive Director)

· Mark Hodgson (Non-executive Director)

Please refer to Board Members section for biographies of each Director which demonstrates their professional knowledge and breadth of investment, accounting, banking and professional experience.

The Board is chaired by Andrew Chapman, who is independent of the Manager and Portfolio Manager at the time of his appointment and remains so. The Chairman is responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role.

Ian Burns has been appointed as the Senior Independent Director and provides assistance to the Chairman and serves as an intermediary for the other Directors where necessary.

Directors' Duties and Responsibilities

The Directors have adopted a set of reserved powers, which establish the key purpose of the Board and detail its major duties. These duties cover the following areas of responsibility:

· statutory obligations and public disclosure;

· approval of key investment decisions;

· strategic matters and financial reporting;

· Board composition and accountability to Shareholders;

· risk assessment and management, including reporting, compliance, monitoring, governance and control;

· responsible for financial statements; and

· other matters having material effects on the Company.

These reserved powers of the Board have been adopted by the Directors to demonstrate clearly the importance with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions.

The Board meets at least four times each year and monitors the Company's share price and NAV and regularly considers ways in which future share price and overall performance can be enhanced. The Board is responsible for the safeguarding of the assets of the Company and taking reasonable steps for the prevention and detection of fraud and other irregularities. The Portfolio Manager and Manager together with the Company Secretary also ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information relating to the Company and its portfolio of investments. Directors unable to attend a Board meeting are provided with the Board papers and can discuss issues arising in the meeting with the Chairman or another non-executive Director.

Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties.

Board and Committees

The Board has established three committees, the Audit Committee, the Management Engagement Committee and the Remuneration and Nomination Committee. All the independent directors, namely Andrew Chapman, Ian Burns and Trudi Clark have been appointed to all Committees.

Each committee operates within clearly defined terms of reference and duties. The terms of reference for each Committee have been approved by the Board and are available in full on the Company's website, www.microcap.riverandmercantile.com.

Audit Committee

The Audit Committee membership comprises all of the Directors with the exception of Mark Hodgson. The Chairman is a member of the Committee but he does not chair it. His membership of the Audit Committee is considered appropriate given his extensive knowledge of the financial services industry.

Ian Burns is the Chairman of the Audit Committee.

The report on the role and activities of this Committee and its relationship with the external auditors is set out in the Report of the Audit Committee.

Management Engagement Committee

Trudi Clark is the Chair of the Management Engagement Committee. The Management Engagement Committee membership comprises all of the Directors with the exception of Mark Hodgson.

The Management Engagement Committee carries out its review of the Company's advisers through consideration of a number of objective and subjective criteria and through a review of the terms and conditions of the advisers' appointments with the aim of evaluating performance, identifying any weaknesses and ensuring value for money for the Company's Shareholders. In September 2017, the Management Engagement Committee formally reviewed the performance of the Portfolio Manager and other key service providers to the Company. During this review, no material weaknesses were identified. Overall the Management Engagement Committee confirmed its satisfaction with the services and advice received.

Remuneration and Nomination Committee

Trudi Clark is the Chair of the Remuneration and Nomination Committee. The Remuneration and Nomination Committee membership comprises all of the Directors with the exception of Mark Hodgson.

The Remuneration and Nomination Committee undertake an evaluation of the Board on an annual basis. The performance of each Director is considered as part of a formal review by the Remuneration and Nomination Committee.

The performance of the Board, its Committees and the Directors was reviewed by the Remuneration and Nomination Committee in September 2017. It was concluded that all Directors were independent of the Portfolio Manager, and that Andrew Chapman, Ian Burns and Trudi Clark were independent of the Manager. Mark Hodgson is not regarded as independent.

The Chair of the Committee reviewed and discussed various areas, including investment matters, strategy, Shareholder value, governance, and the process and style of meetings. In addition, the Board reviewed the performance of the Chairman in his role and evaluated all their personal contributions. It was concluded that all Directors had a good understanding of the investments and markets and felt well prepared and able to participate fully at Board meetings. It was agreed that Board meetings were effective and all relevant topics were fully discussed, with the Board having a good range of skills and competency. The Directors confirm that they have devoted sufficient time, as considered necessary, to the matters of the Company.

Attendance at scheduled meetings of the Board and its committees

	Board	Audit Committee	Management Engagement Committee	Remuneration and Nomination Committee
Number of meetings during the year ended 30 September 2017	6	2	1	1
Andrew Chapman	5	2	1	1
Ian Burns	5	2	1	1
Trudi Clark	6	2	1	1
Mark Hodgson	6	2¹	1¹	1¹

¹ - attended with invitation from the Audit Committee, Management Engagement Committee and Remuneration and Nomination Committee, however did not actively participate in the meeting.

Meetings of the Committees generally take place prior to a Board meeting. The Committee reports to the Board as part of a separate agenda item, on the activity of the Committee and matters of particular relevance to the Board in the conduct of their work.

Directors retirement and rotation

The AIC Guide states that all non-executive Directors should be submitted for re-election by Shareholders at the first AGM after their appointment and to re-election thereafter at intervals no more than three years. Non-executive directors serving more than nine years should be subject to annual re-election. Nomination for re-election should not be assumed but be based on disclosed procedures and continued satisfactory performance. The Articles of Association state that at each AGM of the Company, any Director who has been appointed by the Board since the last AGM shall retire from office and may offer himself for election or re-election by the members.

In accordance with best practice under the AIC Code, all Directors will stand for reappointment at the forthcoming AGM to be held on 27 February 2018.

The Board considers that there is a balance of skills and experience within the Board and each of the Directors contributes effectively.

Board Independence, Composition and Tenure

The Chairman and all Directors, with the exception of Mark Hodgson, are considered independent of the Manager and the Portfolio Manager. Mark Hodgson is the Managing Director of the Manager and is therefore not regarded as independent.

The Directors consider that there are no factors, as set out in principle 1 or 2 of the AIC Code, which compromise the Chairman's or other Directors' independence, other than stated above, and that they all contribute to the affairs of the Company in an adequate manner. The Board reviews the independence of all Directors annually. The Company Secretary, BNP Paribas Securities Services S.C.A., Guernsey Branch through its representative acts as Secretary to the Board and Committees and in doing so it: assists the Chairman in ensuring that all Directors have full and timely access to all relevant documentation; organises induction of new Directors; and is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.

The Board is made up of three male Directors and one female Director. The Board supports the recommendations of the Davies Report and believes in and values the importance of diversity, including gender, to the effective functioning of the Board. The Board, however, does not consider it appropriate or in the interest of the Company and its Shareholders to set prescriptive targets for gender or other diversity on the Board.

The Board has adopted a policy on tenure that is considered appropriate for an investment company. The Board does not believe that length of service, by itself, leads to a closer relationship with the Manager and the Portfolio Manager or necessarily affects a Director's independence and effectiveness.

The Board considers that boards of investment companies are more likely to benefit from a long association with a company in that they will experience a number of investment cycles.

The Board's tenure and succession policy seeks to ensure that the Board is well balanced and will be refreshed from time to time by the appointment of new Directors with the skills and experience necessary to replace those lost by Directors' retirements and meet future requirements. The Remuneration and Nomination Committee is committed to ensuring that any vacancies arising are filled by the most qualified candidates who have complementary skills or who possess the skills and experience which fill any gaps in the Board's knowledge or experience. Directors must be able to demonstrate their commitment and fiduciary responsibility to the Company. The Board seeks to encompass relevant past and current experience of various areas relevant to the Company's business.

Directors' remuneration and annual evaluation of the Board and that of its Audit Committee, Management Engagement Committee and Remuneration and Nomination Committee and individual Directors

The Remuneration and Nomination Committee periodically reviews the fees paid to the Directors and compares these with the fees paid by listed companies generally.

An annual evaluation of the Chairman and each individual Director, Audit Committee, Management Engagement Committee and Remuneration and Nomination Committee and Directors is undertaken considering the balance of skills, experience, independence and knowledge, its diversity, including gender, how the Board works together as a unit, and other factors relevant to its effectiveness. This was conducted by the Chairman having a private discussion with each Director. The Directors also met without the Chairman present in order to review the Chairman's performance. It was concluded that each were satisfactory and the Board and Committees had a good balance of skills and experience with each Director making significant contributions in their roles and the Chairman continuing to display effective leadership.

Details of the remuneration arrangements for the Board and Audit Committee can be found in the Directors' Remuneration Report and in note 5 of the financial statements.

Directors' professional development

The Board believes that keeping up-to-date with key investment industry developments is essential for the Directors to maintain and enhance their effectiveness.

Current Directors and newly appointed Directors, if applicable, are given the opportunity to discuss training and development needs and are expected to take responsibility for identifying their training needs and to take steps to ensure that they are adequately informed about the Company and their responsibilities as a Director. The Chairman of the Remuneration and Nomination Committee is responsible for agreeing and reviewing with each Director their training and development needs.

When a new Director is appointed to the Board, they will be provided with all relevant information regarding the Company and their duties and responsibilities as a Director. In addition, a new Director will also spend time with representatives of the Manager and the Portfolio Manager in order to learn more about their processes and procedures. No Directors were appointed during the year.

The Board is confident that all its members have the knowledge, ability and experience to perform the functions required of a director of the Company.

d) Board meetings and relationship with the Manager and Portfolio Manager

Relationship with the Manager and Portfolio Manager

The Board has delegated various duties to external parties including the management of the investment portfolio, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company.

The Board receives and considers reports regularly from both the Portfolio Manager and the Manager, with ad hoc reports and information supplied to the Board as required. The Portfolio Manager complies with the Company investment limits and risk diversification policies and has systems in place to monitor cash flow and the liquidity risk of the Company. The Manager, Portfolio Manager and the Administrator also ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Manager, Portfolio Manager and Administrator attend each Board meeting as required, enabling the Directors to probe further on matters of concern.

The Directors have access to the advice and service of the corporate Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Board, the Manager, Portfolio Manager and the Administrator operate in a supportive, co-operative and open environment and the Board will actively and continuously supervise both the Manager, Portfolio Manager and Administrator in the performance of their respective functions.

Primary focus

The Board meets regularly throughout the year and a representative of the Manager and the Portfolio Manager is in attendance at all times when the Board meets to review the performance of the Company's investments.

The Chairman with assistance from the Manager and the Portfolio Manager is responsible for ensuring that relevant financial information, including investment portfolio analysis and financial plans, including budgets and forecasts, are available to the Board and discussed at Board meetings. The Chairman encourages open debate to foster a supportive and co-operative approach for all participants.

The Board applies its primary focus on the following:

- investment performance, ensuring that investment objectives and strategy of the Company are met;

- ensuring investment holdings are in line with the Company's investment restrictions;

- review and monitoring financial risk management, operating cash flows and budgets of the Company; and

- review and monitoring of the key risks to which the Company is exposed as set out in the Strategic Report.

At each relevant meeting the Board undertakes reviews of key investment and financial data, transactions and performance comparisons, share price and NAV performance, marketing and Shareholder communication strategies, peer group information and industry issues.

Overall strategy

The Board meets regularly to discuss the investment objective, policy and approach of the Company to ensure sufficient attention is given to overall strategy of the Company.

The Board considers the Company's investment objectives, their continuing relevance and whether the investment policy continues to meet those Company's investment objectives.

The Board believes that the overall strategy of the Company remains appropriate.

Monitoring and evaluation of performance of and contractual arrangements with service providers

The Management Engagement Committee is responsible for reviewing on a regular basis the performance of the Manager, Portfolio Manager and the Company's other third party service providers together with their anti-bribery and corruption policies to ensure that they comply with the Bribery Act 2010 and the Prevention of Corruption (Bailiwick of Guernsey) Law, 2003 and ensure their continued competitiveness and effectiveness and ensure that performance is satisfactory and in accordance with the terms and conditions of the respective appointments.

As part of the Committees' evaluation it will also review on an annual basis the contractual arrangements with the Manager, Portfolio Manager and major service suppliers.

During this review, no material weaknesses were identified and overall the Management Engagement Committee confirmed its satisfaction with the services and advice received.

The Directors have adopted a procedure whereby they are required to report any potential acts of bribery and corruption in respect of the Company to BNP Paribas Securities Services S.C.A., Guernsey Branch as the designated manager for Guernsey Financial Services Commission purposes.

Review of NAV and share price of Ordinary Share class

e) Shareholder communications

Shareholder profile and communication

The Board views Shareholder relations and communications as high priority which ensures that the Directors have an understanding of the views of Shareholders about the Company.

The Board believes that the maintenance of good relations with Shareholders is important for the long-term prospects of the Company. It has, since admission, sought engagement with investors. Where appropriate the Chairman or Senior Independent Director, and other Directors are available for discussion about governance and strategy with major Shareholders and the Chairman ensures communication of Shareholders' views to the Board. The Board receives feedback on the views of Shareholders from its Corporate Broker and the Portfolio Manager, and Shareholders are welcome to contact the Directors. Shareholders wishing to communicate with the Chairman, or any Director, may do so by writing to the Company, for the attention of the Company Secretary, at the Registered Office.

The main method of communication with Shareholders is through the Half-Yearly and Annual Financial Report which aims to give Shareholders a clear and transparent understanding of the Company's objectives, strategy and results. This information is supplemented by the publication of the daily NAVs of the Company's Ordinary Shares on the London Stock Exchange via a Regulatory Information Service.

The Company's website, www.microcap.riverandmercantile.com, is regularly updated with quarterly factsheets and provides further information about the Company, including the Company's Financial Reports and announcements. The maintenance and integrity of the Company website is the responsibility of the Directors. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Uncertainty regarding legal requirements is compounded as information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements.

The Board believes that the AGM provides an appropriate forum for investors to communicate with the Board, and encourages participation. The AGM will be attended by at least the Chairman of the Audit Committee. There is an opportunity for individual Shareholders to question the Directors at the AGM. It is the intention of the Board that the Notice of the AGM and related papers will be sent to Shareholders at least 20 working days before that meeting.

The Directors welcome the views of all Shareholders and place considerable importance upon them.

Other communications

All substantive communications regarding any major corporate issues are discussed by the Board taking into account representations from the Manager, Portfolio Manager, the Auditor, legal advisers, Corporate Brokers and the Company Secretary.

Alternative Investment Fund Manager Directive ("AIFMD")

The Company (which is a non-EU Alternative Investment Fund ("AIF") for the purposes of the AIFMD and related regimes in EEA member states) has appointed the Manager to act as its AIFM. The Manager is authorised by the Jersey Financial Services Commission to act as an AIFM on behalf of AIFs in accordance with the Financial Services (Jersey) Law 1998.

The Company is registered with the Guernsey Financial Services Commission, being the Company's competent regulatory authority, as a non-EU AIF, and the AIFM has registered with the UK Financial Conduct Authority, under their relevant National Private Placement Regime ("NPPRs").

The Manager has delegated portfolio management to the Portfolio Manager and the Board actively and continuously supervises both the Manager and the Portfolio Manager in the performance of their respective functions.

As the Company and the AIFM are non-EU domiciled, no depositary has been appointed in line with the AIFM Directive, however BNP Paribas Securities Services S.C.A., Guernsey Branch has been appointed to act as custodian.

Information relating to the current risk profile of the Company and the risk management systems employed by the Manager and Portfolio Manager to manage those risks, as required under paragraph 4(c) of Article 23 of the AIFMD, is set out in note 8 - Financial Risk Management. Please refer to the Executive Summary report for the Board's assessment of the principal risks and uncertainties facing the Company.

AIFM Remuneration

The total fee paid to the AIFM by the Company for the year ended 30 September 2017 is disclosed in note 4.

The AIFM is not subject to the provisions of Article 13 of the AIFM Directive, which require the AIFM to adopt remuneration policies and practices in line with the principles detailed in Annex II of the Directive. However, in accordance with Article 22 of the AIFM Directive and Article 107 of the AIFM Regulations, the AIFM must make certain disclosures in respect of the remuneration paid to its staff.

The AIFM has identified eight staff as falling within the scope of the disclosure requirements (the "Identified Staff"). These Identified Staff are senior management, named as Designated Persons of the AIFM's managerial functions, members of the Board of Directors, and a risk officer as control function. With the exception of one individual, who acted as a non-executive Director, all Identified Staff of the AIFM are part of the Carne Group and as such receive no separate remuneration for their role within the AIFM. Instead they are remunerated as employees of other Carne group companies, with a combination of fixed and variable discretionary remuneration, where the latter is assessed on the basis of their overall individual contribution in their role, with reference to both financial and non-financial criteria and not directly linked to the performance of the staff of specific business units or targets reached. The annualised remuneration amount paid to all of the Identified Staff of the AIFM in respect of their work with the AIFM for the 12 month period to 31 March 2017 was £181,944 (31 March 2016: £108,280). There was no variable component to this remuneration and none of the AIFM's Identified Staff are able to materially impact the risk profile of the Company. The AIFM manages other AIFs and has no staff other than the Identified Staff.

This Directors' and Corporate Governance Report was approved by the Board of Directors on 18 January 2018 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

REPORT OF THE AUDIT COMMITTEE

Report of the Audit Committee

The Board has appointed an Audit Committee which operates within clearly defined Terms of Reference.

The Audit Committee includes all of the Directors with the exception of Mark Hodgson. Ian Burns is the Chairman of the Audit Committee and is independent as are all the other Directors that comprise the committee. All of the Audit Committee's members have recent and relevant financial and industry experience and the Chairman of the Audit Committee is a fellow of both the Institute of Chartered Accountants in England & Wales and a member of Society of Trust and Estate Practitioners. The Audit Committee as a whole has competence relevant to the sector in which the Company operates. Biographical information pertaining to the members of the Audit Committee can be found in the section of this Annual Financial Report entitled, "Board Members".

Role of the Committee

The Audit Committee assists the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal financial and operating controls. It also manages the Company's relationship with the external Auditor.

The Audit Committee's main functions are:

- to review and monitor the integrity, fairness and balance of the financial statements of the Company including its Half-Yearly Report and Annual Financial Report to Shareholders and any formal announcements regarding its financial performance, together with any significant financial reporting issues and areas of judgment contained within them;

- to advise the Board on whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, position, business model and strategy;

- To review the adequacy and effectiveness of the Company's financial reporting and internal control policies and procedures with respect to the Company's record keeping, asset management and operations for the identification, assessment and reporting of risks;

- to consider and make recommendations to the Board, to be put to Shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal and the provisions of non-audit services of the external Auditors and to negotiate their remuneration and terms of engagement on audit and non-audit work;

- to meet regularly with the external Auditor in order to review their proposed audit programme and remit of work and the subsequent Audit Report and to assess the effectiveness of the audit process; any issues arising from the audit with respect to accounting or internal controls systems and the level of fees paid in respect of audit and non-audit work; and

- to annually assess the external Auditor's independence, objectivity, effectiveness, resources and expertise;

The Audit Committee's Terms of Reference are published on the Company's website.

Internal controls

The Board is responsible for ensuring that suitable systems of risk management and internal control are implemented by the third-party service providers to the Company. The Directors have reviewed the BNP Paribas Securities Services ISAE 3402 report (on the description of controls placed in operation, their design and operating effectiveness for the period from 1 October 2016 to 30 September 2017) on Fund Administration and Middle Office Outsourcing dated 11 December 2017, and are pleased to note that no significant issues were identified.

In accordance with the FRC's Internal Control: Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, and the FRC's Guidance on Audit Committees, the Board confirms that there is an on-going process for identifying, evaluating and managing the significant internal control risks faced by the Company.

As the Company does not have any employees it does not have a "whistle blowing" policy in place, however as reviewed the whistleblowing procedures of the Portfolio Manager with no issues noted. The Company delegates its main administrative functions to third-party providers who report on their policies and procedures to the Board.

The Board believes that as the Company delegates its day-to-day administrative operations to third-parties (which are monitored by the Board), it does not require an internal audit function.

The Audit Committee met on two occasions and the members' attendance record can be found in the Corporate Governance Statement of this Annual Report.

Significant risks in relation to the financial statements

The Audit Committee views the valuation of the Company's investments as a significant risk.

There is a risk that the AIM listed investments are not valued appropriately in accordance with the requirements set out in IFRS 13 due to the nature of the AIM market and the listed stocks not being highly liquid, or heavily traded.

The Audit Committee reviews the regular reports from the Portfolio Manager and Administrator regarding the valuation of the investments and the Board reviews the NAV of the Company, together with the value and trading volumes of investments on a regular basis.

In addition to the above, Mark Hodgson chairs monthly AIFM Risk Committee meetings where the Company's risk measurement framework is discussed, including market risk, credit risk, counterparty risk, operational risk and liquidity risk, in reference to the investment portfolio and the Company performance therefore. On a regular basis, Mark Hodgson reports findings to the Board and is also asked to attend Audit Committee meetings by the Audit Committee Chairman to assist the Committee to gain assurance as to the appropriateness and robustness of the valuation methodology applied to the investment portfolio.

During the year, the Company exercised its power to compulsorily redeem shares. This was the first occasion that such a redemption had operated and there is a risk that:

- The gross redemption amount is incorrectly calculated;

- The performance fee paid is not calculated in accordance with terms set out in the Investment Management Agreement;

- The amount redeemed is incorrectly allocated across the shareholder base and Shareholders do not receive the correct redemption amount; and

- The processes used to carry out the redemption does not correspond to those set out in the Company's listing statement and articles of association.

The Audit Committee reviewed the issues through discussion with the Manager, Portfolio Manager, Corporate Broker and Administrator to review the processes used to operate the redemption mechanism. It also engaged the Auditor to carry out certain agreed upon limited scope review procedures over the redemption mechanism. The Auditor had no adverse findings arising from the completion of these procedures.

External audit process

The Company's external auditor is PricewaterhouseCoopers CI LLP (the "Auditor") were reappointed on 21 March 2017. The Audit Committee has direct access to the Company's external auditor and provides a forum through which the external auditor reports to the Board. Representatives of the external auditor attend meetings of the Audit Committee at least twice each year.

The Audit Committee met with the Auditor prior to the commencement of the audit and agreed an audit plan that would adopt a risk based approach. The Audit Committee and the Auditor agreed that a portion of the audit effort would include an examination of the title to and the existence of the Company investments and an examination of the procedures in place at the Administrator and the Portfolio Manager in respect of the valuation of the Company's investment portfolio.

Upon completion of the audit, the Audit Committee discussed with the Auditor the effectiveness of the audit and considered the Auditor's independence from the Company since their appointment and throughout the audit process.

The significant risks regarding both fraud risk - management override of controls and valuation of the investment portfolio, were tracked through the period and the Audit Committee challenged the work performed by the Auditor to test management override of controls and in addition the audit work undertaken in respect of valuations of investments held.

For the year ended 30 September 2017, the Audit Committee was satisfied that there had been appropriate focus and challenge on the significant and other key areas of audit risk and assessed the quality of the audit process to be good.

During the year ended 30 September 2017, in addition to the audit services in respect to the audit of the Company's Annual Financial Report, the Auditor provided non-audit services in respect of the review of the Company's Half-Yearly Report for the period ended 31 March 2017 and professional services in relation to the agreed upon procedures over the redemption mechanism model. No other non-audit services were provided during the year ended 30 September 2017.

To safeguard the objectivity and independence of the external Auditor from becoming compromised, the Committee has a formal policy governing the engagement of the external Auditor to provide non-audit services. The external Auditor and the Directors have agreed that all non-audit services require the pre-approval of the Audit Committee prior to commencing any work. Fees for non-audit services will be tabled annually so that the Audit Committee can consider the impact on the Auditor's objectivity.

The fees for the audit services were: £37,000 (year-end audit) and the fees for non-audit services were £17,000 for review of the Company's Half-Yearly Report for the period ended 31 March 2017 and £7,500 for agreed upon procedures over the redemption mechanism model.

The Audit Committee has discussed the report provided by the Auditor and the Audit Committee is satisfied as to the independence of the Auditor.

The Committee has reviewed the Auditor's independence policies and procedures and considers that they are fit for purpose.

Appointment and independence

The Audit Committee considers the reappointment of the external Auditor, including the rotation of the audit engagement leader, and assesses their independence on an annual basis. The external Auditor is required to rotate the engagement leader responsible for the Company's audit every seven years. The current engagement leader has been in place since inception (three years).

The Committee reviews the objectivity and effectiveness of the audit process on an annual basis and considers whether the Company should put the audit engagement out to tender. Having considered the need to tender the position for the current year, the Committee has provided the Board with its recommendation to the Shareholders on the reappointment of PricewaterhouseCoopers CI LLP as external auditor for the year ending 30 September 2018.

Accordingly, a resolution proposing the reappointment of PricewaterhouseCoopers CI LLP as our auditor will be put to the Shareholders at the AGM. There are no contractual obligations restricting the Audit Committee's choice of external auditor and we do not indemnify our external auditor.

The Committee continues to consider the audit tendering provisions outlined in the revised UK Code.

This Report of the Audit Committee was approved by the Board of Directors on 18 January 2018 and signed on its behalf by:

For and on behalf of the Audit Committee

Ian Burns

Audit Committee Chairman

DIRECTORS' STATEMENT OF RESPONSIBILITIES

The Directors are responsible for preparing financial statements in accordance with Companies (Guernsey) Law, 2008, as amended ("Companies Law") and International Financial Reporting Standards ("IFRS's").

Guernsey law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss for the year.

In preparing those financial statements, the Directors are required to:

· select suitable accounting policies and apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

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

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply Companies Law. The Directors 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.

The Directors confirm to the best of their knowledge that:

· they have complied with the above requirements in preparing the financial statements;

· the financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Company;

· the Strategic Report and the Portfolio Manager's Report include a fair review of the information required by DTR 4.1.8 (indication of important events up to 30 September 2017 and a description of principal risks and uncertainties);

· the Strategic Report and the Portfolio Manager's Report include a fair review of the information required by DTR 4.1.9 and 4.1.10 (analysis of the development and performance of the Company and position at year end aided by the use of key performance indicators; and where appropriate information relating to environmental factors);

· the Strategic Report, the Portfolio Manager's Report and the notes to the financial statements include a fair review of the information required by DTR 4.1.11 (disclosure of important events that have occurred post year end; future developments; financial risk management objectives and policies and the Company's exposure to price, credit, liquidly and cash flow risk); and

· the Annual Financial Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's performance, position, business model and strategy.

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

DIRECTORS' REMUNERATION REPORT

Annual Remuneration Statement

Dear Shareholders

This report meets the relevant rules of the Listing Rules of the Financial Conduct Authority and the AIC Code and describes how the Board has applied the principles relating to Directors' remuneration.

Changes to the Board

There were no changes to the Board during the year. In accordance with best practice under the AIC Code, all Directors will stand for reappointment at the forthcoming AGM to be held on 27 February 2018.

Table of Directors Remuneration

Component	Director	Annual Rate¹ (£)	Purpose of reward
Annual fee	All Directors Andrew Chapman (Chairman) Ian Burns Trudi Clark Mark Hodgson	£25,000 £25,000 £25,000 £25,000	For commitments as non-executive Directors
Additional fee	Andrew Chapman (Chairman of the Board) Ian Burns (Chairman of the Audit Committee)	£15,000 £5,000	For additional responsibilities and time commitment
Expenses		Ad hoc	Reimbursement of expenses paid

¹ - With effect from 1 October 2016 the Board resolved to increase the fee payable to non-executive Directors from £20,000 to £25,000 per annum. It further resolved to increase the Chairman's increment from £10,000 to £15,000 per annum. The increment for the Chairman of the Audit Committee remains at £5,000.

No other remuneration or compensation was paid or is payable by the Company during the year to any of the Directors. There has been no change to the Company's remuneration policy as detailed below.

The Company has no employees. Accordingly, there are no differences in policy on the remuneration of Directors and the remuneration of employees.

No Director is entitled to receive any remuneration which is performance-related.

Remuneration policy

The determination of the Directors' fees is a matter for the Remuneration and Nomination Committee. The Remuneration and Nomination Committee considers the remuneration policy annually to ensure that it remains appropriately positioned. Members of this Committee will review the fees paid to the boards of directors of similar companies. No Director is to be involved in decisions relating to his or her own remuneration.

The Company's policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. No Director has any entitlement to a pension, and the Company has not awarded any share options or long-term performance incentives to any of the Directors.

Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties.

The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors and should be sufficient to enable high calibre candidates to be recruited. The policy is for the Chairman of the Board and Chairman of the Audit Committee to be paid a higher fee than the other Directors in recognition of their more onerous roles and more time spent. The Board may amend the level of remuneration paid within the limits of the Company's Articles of Incorporation.

The Company's Articles of Incorporation limits the aggregate fees payable to the Board of Directors to a total of £150,000 per annum.

Service Contracts and Policy on Payment of Loss of Office

Directors are appointed with the expectation that they are initially appointed until the following AGM when it is required that they be re-elected by Shareholders. All Directors have served since incorporation of the Company.

Directors have agreed letters of appointment with the Company. No Director has a service contract with the Company and Directors' appointments may be terminated at any time by one month's written notice with no compensation payable at termination upon leaving office for whatever reason. Directors' appointments are reviewed during the annual board evaluation, which took place in September 2017.

In accordance with best practice and the AIC Code, all Directors will stand for reappointment at the forthcoming AGM to be held on 27 February 2018. The names and biographies of the Directors holding office at the date of this report are listed on 13 and 14.

Copies of the Directors' letters of appointment are available for inspection by Shareholders at the Company's Registered Office, and will be available at the AGM. The dates of their letters of appointments are shown below.

Dates of letters of appointment

Director	Date of letter of appointment	Date of reappointment
Andrew Chapman	21 October 2014	21 March 2017
Ian Burns	21 October 2014	21 March 2017
Trudi Clark	21 October 2014	21 March 2017
Mark Hodgson	21 October 2014	21 March 2017

Director Interests

As at the date of approval of the financial statements, Directors held the following number of Ordinary Shares in the Company:

Director	Ordinary Shares held
Andrew Chapman	15,168
Ian Burns	Nil
Trudi Clark	12,803
Mark Hodgson	17,681

Director interests have decreased in line with the first and second compulsory redemption of Ordinary Shares.

No Director has any other interest in any contract to which the Company is a party with the exception of Mark Hodgson who acts as the Managing Director of the Manager.

Advisers to the Remuneration and Nomination Committee

The Board has not sought the advice or services by any outside person, at this time, in respect of its consideration of the Directors' remuneration.

Statement of consideration of Shareholder views

An ordinary resolution to ratify the Directors' remuneration report will be proposed at the AGM on 27 February 2018.

Trudi Clark

Remuneration and Nomination Committee Chair

18 January 2018

independent auditor's report to THE MEMBERS OF RIVER AND MERCANTILE UK MICRO CAP INVESTMENT COMPANY LIMITED

Report on the audit of the financial statements

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Our opinion

In our opinion, the financial statements give a true and fair view of the financial position of River and Mercantile UK Micro Cap Investment Company Limited (the "Company") as at 30 September 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

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What we have audited

The Company's financial statements comprise:

● the statement of financial position as at 30 September 2017;

● the statement of comprehensive income for the year then ended;

● the statement of changes in shareholders' equity for the year then ended;

● the statement of cash flows for the year then ended; and

● the notes to the financial statements, which include a summary of significant accounting policies.

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Basis for opinion

We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. _________________________________________________________________________

Independence

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

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Our audit approach

Overview

Materiality

● Overall Company materiality was £ 1.6 million which represents 1.5% of Net assets.

Audit scope

● The Company is a closed-ended collective investment scheme, incorporated in Guernsey, whose ordinary shares are listed on the Main Market of the London Stock Exchange.

● We conducted our audit of the financial statements in Guernsey, using information provided by BNP Paribas Securities S.C.A, Guernsey Branch (the "Administrator") and River and Mercantile Asset Management LLP (the "Portfolio Manager").

● We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of third parties referred to above, the accounting processes and controls, and the industry in which the company operates.

Key audit matters

● Valuation of Investments

Audit scope

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates.

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Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall Company materiality	£ 1.6 million
How we determined it	1.5% of net assets
Rationale for the materiality benchmark	We believe net assets to be the most appropriate basis for determining materiality since this is a key consideration for members when assessing financial performance. It is also a generally accepted measure used for companies in this industry

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £82,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

How our audit addressed the Key audit matter

Valuation of Financial assets designated at fair value through profit or loss ("Investments")

Investments of £97.6 million, held at fair value through profit or loss, consist of investments in companies whose securities are admitted to trading on the AIM. Investments are the main driver for the Company and are considered to be a key area of focus for its Shareholders and the Board of Directors. There is a risk that the AIM listed investments are not valued appropriately in accordance with the requirements set out in IFRS 13 due the nature of the AIM market and the listed stocks potentially not being highly liquid.

· We understood and evaluated the internal control environment in place at the Administrator over the valuation of the investment portfolio and the production of the net asset value for the Company. We also discussed with the Portfolio Manager, the asset selection and monitoring process.

· We assessed the accounting policy for the Investments, as set out in note 2.3, for compliance with IFRS.

· We obtained and reconciled an independent Investment custody confirmation, without exception.

· We tested the valuation of the Investment portfolio by independently agreeing 100% of the prices used in the valuation to a third party provider and recalculated the total valuation as at 30 September 2017.

· We obtained and analysed the trading volume pre and post 30 September 2017. For securities identified as having low trading volumes, inquiries were made with the Portfolio Manager to understand their assessment of the liquidity of those investments. We concluded that the quoted prices used in the 30 September 2017 valuation were representative of their fair value. We corroborated the results of these inquiries to supporting information such as subsequent trades.

· We did not identify any differences or issues required to be reported to those charged with governance from our testing.

Other information

The directors are responsible for the other information. The other information comprises the Strategic Report, Board Members, Portfolio Manager's Report, Directors' and Corporate Governance Report, Report of the Audit Committee, Directors' Statement of Responsibilities, Directors' Remuneration Report and Company Information (but does not include the financial statements and our auditor's report thereon).

Other than as specified in our report, our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

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Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

● Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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Report on other legal and regulatory requirements

Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

● we have not received all the information and explanations we require for our audit;

● proper accounting records have not been kept; or

● the financial statements are not in agreement with the accounting records.

We have no exceptions to report arising from this responsibility.

We have nothing to report in respect of the following matters which we have reviewed:

● As noted in the directors' statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Company has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Company's ability to continue as a going concern;

● the directors' statement that they have carried out a robust assessment of the principal risks facing the Company and the directors' statement in relation to the longer-term viability of the Company. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and

● the part of the Corporate Governance Statement relating to the Company's compliance with the ten further provisions of the UK Corporate Governance Code specified for our review.

This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

John Luff

For and on behalf of PricewaterhouseCoopers CI LLP

Chartered Accountants and Recognised Auditor

Guernsey, Channel Islands

18 January 2018

STATEMENT OF COMPREHENSIVE INCOME

For the year from 1 October 2016 to 30 September 2017

		Year ended 30 September 2017	Year ended 30 September 2016

	Notes	£	£
Income
Investment income	3	1,056,697	1,428,098
Net gain on financial assets designated at fair value through profit or loss	7	42,900,096	10,401,026
		43,956,793	11,829,124
Expenses
Operating expenses	4	(5,734,983)	(1,948,405)
Finance costs	14	(19,597)	-
Profit before taxation		38,202,213	9,880,719
Taxation		-	-
Profit after taxation and total comprehensive income		38,202,213	9,880,719


Basic and diluted earnings per Ordinary Share	12	0.5807	0.1473

The Company has no items of other comprehensive income, and therefore the profit for the year is also the total comprehensive income.

All items in the above statement are derived from continuing operations. No operations were acquired or discontinued during the year.

The notes form an integral part of these financial statements.

STATEMENT OF FINANCIAL POSITION

As at 30 September 2017

		30 September 2017	30 September 2016
	Notes	£	£
Non-current assets
Financial assets designated at fair value through profit or loss	7	97,606,392	85,978,933

Current assets
Cash and cash equivalents		12,784,179	1,635,861
Trade receivables - securities sold awaiting settlement		-	11,533
Other receivables	6	96,408	248,385
Total current assets		12,880,587	1,895,779

Total assets		110,486,979	87,874,712

Current liabilities
Other payables	9	(809,778)	(1,390,860)
Total current liabilities		(809,778)	(1,390,860)

Total liabilities		(809,778)	(1,390,860)

Net assets		109,677,201	86,483,852

Capital and reserves
Stated capital	11	-	-
Share premium	11	55,333,617	70,342,481
Retained earnings		54,343,584	16,141,371
Equity Shareholders' funds		109,677,201	86,483,852

The financial statements were approved and authorised for issue by the Board of Directors on 18 January 2018 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

The notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 30 September 2017

		Stated capital	Share premium	Retained earnings	Total
	Note	£	£	£	£
Opening equity Shareholders' funds at 1 October 2016		-	70,342,481	16,141,371	86,483,852
Total comprehensive income for the year		-	-	38,202,213	38,202,213
Transactions with owners, recorded directly in equity
Redemption of Ordinary Shares	11	-	(14,999,864)	-	(14,999,864)
Ordinary Share redemption costs	11	-	(9,000)	-	(9,000)
Closing equity Shareholders' funds at 30 September 2017		-	55,333,617	54,343,584	109,677,201

For the year ended 30 September 2016

		Stated capital	Share premium	Retained earnings	Total
	Note	£	£	£	£
Opening equity Shareholders' funds at 1 October 2015		-	49,630,301	6,260,652	55,890,953
Total comprehensive income for the year		-	-	9,880,719	9,880,719
Transactions with owners, recorded directly in equity
Proceeds from issuance of Ordinary Shares	11	-	20,946,190	-	20,946,190
Ordinary Share issue costs	11	-	(234,010)	-	(234,010)
Closing equity Shareholders' funds at 30 September 2016		-	70,342,481	16,141,371	86,483,852

The notes form an integral part of these financial statements.

STATEMENT OF CASH FLOWS

For the year ended 30 September 2017

		Year ended 30 September 2017	Year ended 30 September 2016
	Notes	£	£
Cash inflow from operating activities

Profit after taxation and total comprehensive income for the year		38,202,213	9,880,719

Adjustments to reconcile profit after tax to net cash flows:

- Realised gain on financial assets designated at fair value through profit or loss	7	(26,224,732)	(4,545,264)
- Unrealised gain on financial assets designated at fair value through profit or loss	7	(16,675,364)	(5,855,762)

Purchase of financial assets designated at fair value through profit or loss	7	(26,002,113)	(43,497,573)
Proceeds from sale of financial assets designated at fair value through profit or loss	7	57,274,750	21,973,309

Changes in working capital
Decrease in trade receivables		11,533	1,126,727
Decrease / (increase) in other receivables	6	151,977	(219,888)
(Decrease) / Increase in other payables	9	(581,082)	793,055

Net cash used in operating activities		26,157,182	(20,344,677)

Cash inflow from financing activities
Proceeds from issuance of Ordinary Shares	11	-	20,946,190
Ordinary Share issue costs paid	11	-	(234,010)
Redemption of Ordinary Shares	11	(14,999,864)	-
Ordinary Share redemption costs paid	11	(9,000)	-
Net cash from financing activities		(15,008,864)	20,712,180

Net increase in cash and cash equivalents in the year		11,148,318	367,503

Cash and cash equivalents at the beginning of the year		1,635,861	1,268,358

Cash and cash equivalents at the end of the year		12,784,179	1,635,861

The notes form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

1. General information

The Company was incorporated as a non-cellular company with liability limited by shares in Guernsey under the Companies Law on 2 October 2014. It listed its Ordinary Shares on the Premium Segment of the Official List of the UK Listing Authority and was admitted to trading on the Main Market of the London Stock Exchange on 2 December 2014.

The Company has been registered by the GFSC as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the RCIS Rules 2015. The Company registered number is 59106.

The Company's registered address is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.

2. Accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

(a) Statement of Compliance

The financial statements have been prepared in accordance with the Companies Law and with International Financial Reporting Standards ("IFRS") which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee ("IFRIC") as approved by the International Accounting Standards Committee ("IASC") which remain in effect. The financial statements give a true and fair view of the Company's affairs and comply with the requirements of the Companies Law.

The financial statements have been prepared under a going concern basis. The Directors are satisfied that, at the time of approving the financial statements, no material uncertainties exist that may cast significant doubt concerning the Company's ability to continue for the foreseeable future. The Directors consider it appropriate to adopt the going concern basis in preparing the financial statements.

(b) Basis of measurement

These financial statements have been prepared on a historical cost basis adjusted to take account of the revaluation of financial assets designated at fair value through profit or loss.

The Company's functional currency is Pounds Sterling, which is the currency of the primary economic environment in which it operates. The Company's performance is evaluated and its liquidity is managed in Pounds Sterling. Pounds Sterling is therefore considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in Pounds Sterling.

(d) Critical accounting assumptions, estimates and judgments

The preparation of the financial statements in conformity with IFRS, requires the Company to make judgements, estimates and assumptions that affect items reported in the Statement of Financial Position and Statement of Comprehensive Income and the disclosure of contingent assets and liabilities at the date of the financial statements. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

As outlined in above in Note 2.1(c) the Directors have used their judgement to determine that the Company's presentational and functional currency is Pounds Sterling.

(e) New standards, amendments and interpretations

During the year amendment to IAS 1 - Presentation of Financial Statements - amendments as a result of the Disclosure initiative, became applicable for the current reporting period, however, the Company did not have to change its accounting policies or make respective adjustments as a result of adopting this amendment.

New standards, amendments and interpretations to existing standards that become effective in future accounting periods and have not been adopted by the Company;

International Financial Reporting Standards (IFRS)	Effective for annual periods beginning on or after
· IFRS 9 - Financial Instruments	1 January 2018
· Amendment to IAS 7 - Statement of Cash Flows - amendments as a result of the Disclosure initiative	1 January 2017

The Directors have not yet fully assessed the impact these new standards will have on the financial statements but their initial opinion is that it will not be significant.

2.2 Foreign currency translations

Foreign exchange gains and losses resulting from the settlement of transactions in foreign currencies and from the translation of monetary assets and liabilities at period end exchange rates to Pounds Sterling are recognised in the Statement of Comprehensive Income as foreign exchange translation gains/losses.

Non-monetary items such as financial assets designated at fair value through profit or loss measured at fair value in a foreign currency, are translated using exchange rates at the Statement of Financial Position date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value on a foreign currency are recorded as part of the fair value gain or loss.

As at 30 September 2017 all financial assets designated at fair value through profit or loss are held in Pounds Sterling.

2.3 Financial instruments

Financial assets

a) Classification

The Company classifies its investments in equity securities as financial assets designated at fair value through profit or loss. These financial instruments are held for investment purposes. Financial assets also include cash and cash equivalents as well as other receivables which are measured at amortised cost using the effective interest rate method.

Financial assets designated at fair value through profit or loss at inception

Financial assets designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Company's documented investment strategy.

The Company's policy requires the Portfolio Manager and the Board of Directors to evaluate the information about these financial assets on a fair value basis together with other related financial information.

b) Recognition, measurement and derecognition

Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Financial assets designated at fair value through profit or loss are measured initially at fair value. Transaction costs are expensed as incurred and movements in fair value are recorded in the Statement of Comprehensive Income. Subsequent to initial recognition, all financial assets designated at fair value through profit or loss are measured at fair value.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

c) Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As at 30 September 2017, the Company held investments in a diversified portfolio of UK Micro Cap Companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase, whose securities are admitted to trading on AIM.

Investments are valued at fair value, which are quoted bid prices for investments traded in active markets.

For investments which are not traded in active markets, unlisted and restricted investments, the Board in determining its assessment of fair value takes into account the latest traded prices, other observable market data and

asset values based on the latest available and relevant information for that investment.

As all the Company's financial assets are quoted securities which are traded in active markets, in the opinion of the Directors, the fair value of the financial assets is not subject to significant judgments, estimates or assumptions.

d) Valuation process

The Directors are in ongoing communications with the Portfolio Manager and hold meetings on a timely basis to discuss performance of the investment portfolio and the valuation methodology and in addition review monthly investment performance reports.

The Directors analyse the investment portfolio in terms of both investment mix and fair value hierarchy and consider the impact of general credit conditions and/or events that occur in the global corporate environments which may impact the economic conditions in the UK and ultimately on the valuation of the investment portfolio.

Financial liabilities

e) Classification

Amounts due to brokers represent payables for investments that have been contracted for but not yet settled or delivered on 30 September 2017. Financial liabilities include trade payables and other payables which are held at amortised cost using the effective interest rate method.

f) Recognition, measurement and derecognition

Financial liabilities are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at amortised cost using the effective interest rate method. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

2.4 Investment income, interest income and expenses

Dividends receivable on equity shares are recognised as revenue for the period on an ex-dividend basis. Interest income and expenses are recognised in the Statement of Comprehensive Income on an accruals basis using the effective interest rate method.

2.5 Operating expenses

Operating expenses are recognised on an accruals basis and are recognised in the Statement of Comprehensive Income.

2.6 Cash and cash equivalents

Cash includes cash at bank. Cash equivalents are short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

2.7 Trade receivables and payables

Amounts due from and to brokers represent trade receivables for securities sold and trade payables for securities purchased that have been contracted for but not yet settled or delivered on the Statement of Financial Position date respectively.

These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of trade receivables due from brokers is established when there is objective evidence that the Company will not be able to collect all amounts due from the relevant broker.

Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

2.8 Segmental reporting

In accordance with IFRS 8, the Board as a whole has been determined as constituting "the chief operating decision maker" of the Company. The Directors view the operations of the Company as one operating segment, being investment in UK Micro Cap Companies. All significant operating decisions are based upon analysis of the Company's investments as one segment. The financial results from this segment are equivalent to the financial results of the Company as a whole, which are evaluated regularly by the chief operating decision-maker (the Board with insight from the Portfolio Manager).

2.9 Contingent liabilities and provisions

A contingent liability is a possible obligation depending on whether some uncertain future event occurs; or a present obligation but payment is not probable or the amount cannot be measured reliably. A provision is recognised when:

- the Company has a present legal or constructive obligation as a result of past events;

- it is probable that an outflow of resources will be required to settle the obligation; and

- the amount has been reliably estimated.

2.10 Taxation

The Company has applied for and been granted exemption from liability to income tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 as amended by the Director of Income Tax in Guernsey for the current period. Exemption must be applied for annually and will be granted, subject to the payment of an annual fee, which is currently fixed at £1,200 per applicant, provided the Company qualifies under the applicable legislation for exemption.

It is the intention of the Directors to conduct the affairs of the Company so as to ensure that it continues to qualify for exempt company status for the purposes of Guernsey taxation.

2.11 Stated capital

Ordinary Shares are classified as equity in accordance with IAS 32 - "Financial Instruments: Presentation" as these instruments include no contractual obligation to deliver cash and the redemption mechanism is not mandatory.

Costs directly attributable to the issue of new Ordinary Shares are shown in equity as a deduction from the proceeds.

Please refer to note 11 for details regarding the redemption mechanism of Ordinary Shares.

2.12 Capital risk management

The Board defines capital as financial resources available to the Company. The Company's capital as at 30 September 2017 comprises its stated capital and share premium at a total of £55,333,617 (2016: £70,342,481).

The Company's objectives when managing capital are to:

- safeguard the Company's ability to continue as a going concern;

- provide returns for Shareholders; and

- maintain an optimal capital structure to minimise the cost of capital.

The Board monitors the capital adequacy of the Company on an on-going basis and both the Company's objectives regarding capital management have been met. The Company has no imposed capital requirements.

3. Investment income

	Year ended 30 September 2017	Year ended 30 September 2016
	£	£
Investment income	1,049,960	1,410,875
Bank interest	6,737	17,223
Total income	1,056,697	1,428,098

4. Operating expenses

	Year ended 30 September 2017	Year ended 30 September 2016
	£	£
Portfolio management fees	776,254	588,322
Portfolio management performance fees	4,341,265	797,751
Directors' fees	121,347	94,935
AIFM fees	54,983	54,036
Audit fees	37,000	35,300
Non-audit fees (interim review services and share redemption AUP)	24,700	17,000
Administration fees	140,827	128,027
Broker fees	49,922	51,246
Custody fees	18,771	13,859
Registrar fees	22,227	21,893
Transaction fees	78,526	96,967
Legal and professional fees	16,481	9,360
Sundry expenses	52,680	39,709
Total	5,734,983	1,948,405

AIFM fee

On 21 October 2014, the Company signed an AIFM agreement with the Manager to act as the Company's AIFM. Under the agreement, the Manager is entitled to an annual fixed fee of £54,000. The annual fixed fee is paid quarterly in arrears. AIFM fees payable as at 30 September 2017 were £nil (2016: £13,647).

Administration fee

On 21 October 2014, the Company signed an agreement with the Administrator to provide administrative, compliance oversight and company secretarial services to the Company. Under the administration agreement, the Administrator will be entitled to a minimum annual fixed fee for fund administration services and company secretarial and compliance services. These fees are paid monthly in arrears. Ad hoc other administration services are chargeable on a time cost basis. In addition, the Company will reimburse the Administrator for any out of pocket expenses.

Custody fee

On 21 October 2014, the Company signed a Global Custody Agreement with the Manager and the Administrator, whereby the Company appointed the Administrator to carry out custodian services. In its role as custodian, the Administrator is entitled to a fee payable by the Company on a transaction by transaction and ad-valorem fee basis.

Portfolio management and portfolio management performance fee

On 3 November 2014, the Company signed an Investment Management agreement with the Manager and the Portfolio Manager, whereby the Manager delegated to the Portfolio Manager overall responsibility for the discretionary management of the Company assets in accordance with the Company's investment objective and policy.

Under the agreement, the Portfolio Manager is entitled to receive a base fee and performance fee. The Portfolio Manager base fee is payable monthly in arrears at a rate of one-twelfth of 0.75% of NAV. A performance fee equal to 15% of the amount by which the Company's NAV outperforms the total return on the benchmark, (being Numis Smaller companies plus AIM (excluding investment companies) total return index), will be payable to the Portfolio Manager over a performance period.

The performance period is the period between two redemptions, being the first business day after the calculation date, (referable to the earlier redemption (opening date)), and the end day of the calculation date (referable to the later redemption (closing date)). The first opening date is the date of admission and in circumstances in which a performance fee may be payable upon termination of this Agreement, the final closing date shall be the date in which the agreement is terminated. The calculation date is the date determined by the Board for the calculation of the price to be paid on any particular exercise of the redemption mechanism. The performance fee is only paid when the Company implements the redemption mechanism as detailed in the IPO Prospectus issued on 14 November 2014. Please refer to note 11 for further detail regarding the redemption mechanism.

During the year ended 30 September 2017, the Company incurred a performance fee of £4,341,265 (2016: £797,751), of which £602,506 (2016: £1,223,776) was payable at year end. Performance fee of £4,962,535 (2016: £nil) was paid during the year as a result of the Company's compulsory redemption. Please refer to note 11.

On 20 January 2015, the Company signed a Corporate Stockbroker and Financial Adviser agreement with Winterflood Investment Trusts (a division of Winterflood Securities Limited) (the "Corporate Broker"), to provide corporate stockbroker and financial adviser services to the Company. Under the agreement, the Corporate Broker will be entitled to a fee payable by the Company of £50,000 per annum payable half yearly in arrears. Broker fees payable as at 30 September 2017 were £16,576 (2016: £16,667).

5. Directors' fees and interests

With effect from 1 October 2016, the Director fees were increased to £25,000 per annum (£40,000 for the Chairman). The Chairman of the Audit Committee continues to receive an additional £5,000 for his service in this role as stated above.

For the year ended 30 September 2016, the Directors of the Company were remunerated for their services at a fee of £20,000 per annum (£30,000 for the Chairman) and the Chairman of the Audit Committee received an additional £5,000 for his services in this role.

The Company has no employees other than the Directors. Directors' fees payable as at 30 September 2017 were £31,164 (2016: £23,880).

As at the date of approval of the Annual Financial Report, Andrew Chapman, Trudi Clark and Mark Hodgson held 15,168, 12,803 and 17,681 Ordinary Shares in the Company respectively. Ian Burns did not hold any shares in the Company. No pension contributions were payable in respect of any of the Directors.

6. Other receivables

	30 September 2017	30 September 2016
	£	£
Dividend receivable	87,209	242,716
Prepayments	7,803	5,665
Interest and other receivable	1,395	3
Ordinary Share receivable	1	1
Total other receivables	96,408	248,385

The Directors believe that these balances are fully recoverable.

7. Financial assets designated at fair value through profit or loss


	30 September 2017	30 September 2016
	£	£

Financial assets designated at fair value through profit or loss	97,606,392	85,978,933

The Company has invested the proceeds raised from the initial Ordinary Share issue and subsequent Ordinary Share tap issues in a portfolio of UK Micro Cap Companies in line with its investment strategy. These investments are predominantly comprised of companies whose securities are admitted to trading on the AIM, with a free float market capitalisation of less than £100 million at the time of purchase.

Fair value hierarchy

IFRS 13 'Fair Value Measurement' requires an analysis of investments valued at fair value based on the reliability and significance of information used to measure their fair value.

The Company categorises its financial assets according to the following fair value hierarchy detailed in IFRS 13, that reflects the significance of the inputs used in determining their fair values;

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable variable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

	Level 1	Level 2	Level 3	30 September 2017
	£	£	£	£
Financial assets
Financial assets designated at fair value through profit or loss	97,606,392	-	-	97,606,392

	Level 1	Level 2	Level 3	30 September 2016
	£	£	£	£
Financial assets
Financial assets designated at fair value through profit or loss	85,978,933	-	-	85,978,933

Financial assets designated at fair value through profit or loss reconciliation

The following table shows a reconciliation of all movements in the fair value of financial assets categorised within Level 1 to 3 between the beginning and the end of the reporting year.

	Level 1	Level 2	Level 3	30 September 2017 Total
	£	£	£	£
Opening valuation	85,978,933			85,978,933
Movements in the year:		-
Purchases during the year	26,002,113	-	-	26,002,113
Sales - proceeds during the year	(57,274,750)	-	-	(57,274,750)
Realised gain on financial assets designated at fair value through profit or loss¹	26,224,732	-	-	26,224,732
Unrealised gain on financial assets designated at fair value through profit or loss²	16,675,364	-	-	16,675,364
Closing valuation	97,606,392			97,606,392

Total gains on financial assets for the year ended 30 September 2017	42,900,096	-	-	42,900,096

¹Realised gain on financial assets designated at fair value through profit or loss is made up of £27,869,691 gain and £(1,644,959) loss.

²Unrealised gain on financial assets designated at fair value through profit or loss is made up of £18,398,086 gain and £(1,722,722) loss.

During the year ended 30 September 2017, there were no reclassifications between levels of the fair value hierarchy.

	Level 1	Level 2	Level 3	30 September 2016 Total
	£	£	£	£
Opening valuation	54,053,643	-	-	54,053,643
Movements in the year:		-
Purchases during the year	43,497,573	-	-	43,497,573
Sales - proceeds during the year	(21,973,309)	-	-	(21,973,309)
Realised gain on financial assets designated at fair value through profit or loss³	4,545,264	-	-	4,545,264
Unrealised gain on financial assets designated at fair value through profit or loss⁴	5,855,762	-	-	5,855,762
Closing valuation	85,978,933			85,978,933

Total gains on financial assets for the year ended 30 September 2016	10,401,026	-	-	10,401,026

³Realised gain on financial assets designated at fair value through profit or loss is made up of £6,470,008 gain and £(1,924,744) loss.

⁴Unrealised gain on financial assets designated at fair value through profit or loss is made up of £18,977,876 gain and £(13,122,114) loss.

During the year ended 30 September 2016, there were no reclassifications between levels of the fair value hierarchy.

Please refer to note 2.3 for valuation methodology of financial assets designated at fair value through profit or loss.

As at 30 September 2017, none of the investments held are deemed to be illiquid in nature and on this basis are not subject to any special arrangements.

8. Financial risk management

The Company's activities expose it to a variety of financial risks; market risk (including price risk, interest rate risk and foreign exchange risk), credit risk and liquidity risk.

8.1 Market risk

a) Price risk

Price risk is the risk that the Company's performance will be adversely affected by changes in the markets in which it invests.

As at 30 September 2017, the Company held investments in a diversified portfolio of UK Micro Cap Companies, comprising companies with a free float market capitalisation of less than £100 million at the time of purchase.

The relatively small market capitalisation of Micro Cap Companies can make the market in their shares illiquid. Therefore prices of UK Micro Cap Companies are often more volatile than prices of larger capitalisation stocks, and even small cap companies.

· the number of holdings in the investment portfolio will usually range from 30 to 50.

· no exposure in any investee company will exceed 10% of NAV at the time of the investment.

However, any significant event which affects a specific industry sector in which the investment portfolio has a significant holding could materially and adversely affect the performance of the Company. To mitigate market risk, the Board and Portfolio Manager actively monitor market prices throughout the financial period and meet regularly in order to consider investment strategy.

Please refer below for sensitivity analysis on the impact on the Statement of Comprehensive Income and NAV of the Company, if the fair value of the investments designated at fair value through profit or loss at the year end increased or decreased by 20% (2016:15%):

Current value	30 September 2017		Increase by 20%	Decrease by 20%
		£
Financial assets designated at fair value through profit or loss		97,606,392	19,521,278	(19,521,278)

Current value	30 September 2016		Increase by 15%	Decrease by 15%
		£
Financial assets designated at fair value through profit or loss		85,978,933	12,896,840	(12,896,840)

The Directors consider a 20% (2016: 15%) movement to be reasonable given their assessment of the volatility of the AIM market during the year ended 30 September 2017. The above calculations are based on the investment valuation at the Statement of Financial Position date and are not representative of the period as a whole, and may not be reflective of future market conditions.

b) Interest rate risk

Interest rate risk is the risk that the fair value of financial instruments and related income from cash and cash equivalents will fluctuate due to changes in market interest rates.

The majority of the Company's interest rate exposure arises on the level of income receivable on cash deposits. Financial assets designated at fair value through profit or loss are equity investments and therefore the valuation of these investments and income receivable is not directly exposed to interest rate risk.

The following table details the Company's exposure to interest rate risks:

	30 September 2017	30 September 2017	30 September 2017
	Interest bearing (*)	Non-interest bearing	Total
	£	£	£
Assets
Financial assets designated at fair value through profit or loss	-	97,606,392	97,606,392
Cash and cash equivalents	12,784,179	-	12,784,179
Trade receivable - securities sold awaiting settlement	-	-	-
Other receivables (excluding prepayments)	-	88,605	88,605
Total assets	12,784,179	97,694,997	110,479,176

Liabilities
Other payables	-	(809,778)	(809,778)
Total liabilities	-	(809,778)	(809,778)
Total interest sensitivity gap	12,784,179	96,885,219	109,669,398

* - floating rate and due within 1 month

	30 September 2016	30 September 2016	30 September 2016
	Interest bearing (*)	Non-interest bearing	Total
	£	£	£
Assets
Financial assets designated at fair value through profit or loss	-	85,978,933	85,978,933
Cash and cash equivalents	1,635,861	-	1,635,861
Trade receivable - securities sold awaiting settlement	-	11,533	11,533
Other receivables (excluding prepayments)	-	242,720	242,720
Total assets	1,635,861	86,233,186	87,869,047

Liabilities
Other payables	-	(1,390,860)	(1,390,860)
Total liabilities	-	(1,390,860)	(1,390,860)
Total interest sensitivity gap	1,635,861	84,842,326	86,478,187

* - floating rate and due within 1 month

Interest rate sensitivity analysis

If interest rates had changed by 50 basis points, (considered to be a reasonable illustration based on observation of current market conditions), with all other variables remaining constant, the effect on the net profit for the year would be as detailed below:

	30 September 2017	30 September 2016
	£	£
Increase of 50 basis points	63,921	8,179
Decrease of 50 basis points	(63,921)	(8,179)

c) Foreign currency risk

Foreign currency risk is the risk that the values of the Company's assets and liabilities are adversely affected by changes in the values of foreign currencies by reference to the Company's functional currency, being Pounds Sterling.

During the year ended 30 September 2017 and 30 September 2016, all transactions were in Pounds Sterling, with the exception of several dividend income and cash transactions which were in USD. Although the Company does not pursue a policy of hedging such currencies back to Pounds Sterling, it may do so from time to time, depending on market conditions. During the year ended 30 September 2017, the Company entered into two (2016: one) currency purchase spot contracts to mitigate the foreign currency exposure.

As at 30 September 2017, USD cash position of $4 (2016: $nil) and income receivable of $nil (2016: $243,811) were held. Any reasonable change in foreign exchange rates will have an immaterial impact and therefore no sensitivity analysis has been provided.

The Company has not been exposed to any material foreign currency risk during the year.

8.2 Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board of Directors has in place monitoring procedures in respect of counterparty risk which is reviewed on an ongoing basis.

The Company's credit risk is attributable to its financial assets designated at fair value through profit or loss, cash and cash equivalents and interest and other receivables.

In the opinion of the Board of Directors, the carrying amounts of financial assets best represent the maximum credit risk exposure at the Statement of Financial Position date. At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:


	30 September 2017	30 September 2016
	£	£
Financial assets designated at fair value through profit or loss	97,606,392	85,978,933
Cash and cash equivalents	12,784,179	1,635,861
Trade receivable - securities sold awaiting settlement	-	11,533
Other receivables (excluding prepayments)	88,605	242,720
Total assets	110,479,176	87,869,047

The Company's main credit risk exposure is in its investment in UK Micro Cap Companies shown as financial assets designated at fair value through profit or loss. All investments held are admitted to trading on AIM.

The financial assets designated at fair value through profit or loss are held by BNP Paribas Securities Services S.C.A, Guernsey branch, the Company's custodian, in a segregated account. In the event of bankruptcy or insolvency of the Administrator, the Company's rights with respect to the securities held by the custodian may be delayed or limited.

All cash is placed with BNP Paribas Securities Services S.C.A., Guernsey Branch.

BNP Paribas Securities Services S.C.A, is a wholly owned subsidiary of BNP Paribas Securities Services S.A. which is publicly traded and a constituent of the S&P 500 Index with a long standing credit rating of Aa3 (2016: A1) from Standard & Poor's.

Credit risk of cash and custodian is mitigated by the Company's policy to only undertake significant transactions with leading commercial counterparties.

8.3 Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments as and when these fall due for payment.

Liquidity risk is monitored on an ongoing basis by the Board of Directors and Portfolio Manager so as to ensure that the Company maintains sufficient working capital in cash or near cash form so as to be able to meet the Company's ongoing requirements to pay accounts payable and accrued expenses.

In addition, the Company's liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to ensure the Company remains as a going concern. The Company's investments are considered readily realisable, as they all comprise of investments in companies whose securities are admitted to trading on AIM. The Company would expect to be able to liquidate investments within 7 days or less in the event cash was required to cover expenses.

The table below shows the residual contractual maturity of the financial liabilities as at 30 September 2017:

Maturity analysis of financial liabilities

	Less than 3 months	3 to 12 months	More than 1 year	Total
	£	£	£	£
Financial liabilities
Other payables⁵	(207,272)	(602,506)	-	(809,778)
Total undiscounted financial liabilities	(207,272)	(602,506)	-	(809,778)

The table below shows the residual contractual maturity of the financial liabilities as at 30 September 2016:

	Less than 3 months	3 to 12 months	More than 1 year	Total
	£	£	£	£
Financial liabilities
Other payables⁵	(167,084)	(1,223,776)	-	(1,390,860)
Total undiscounted financial liabilities	(167,084)	(1,223,776)	-	(1,390,860)

⁵ - Included in other payables is a performance fee payable of £602,506 (2016: £1,223,776). Please refer to note 4 for further details regarding calculation of performance fee and when this sum will be payable.

In accordance with Article 23(4)(a) and (b) of AIFMD Directive, the AIFM has assessed that the financial assets designated at fair value through profit or loss held by the Company are not deemed to be illiquid in nature, and as such, are not subject to any special liquidity arrangements and that the AIF has no new arrangements in place for managing liquidity.

9. Other payables

	30 September 2017	30 September 2016
	£	£
Portfolio management fees	65,754	53,952
Portfolio management performance fees	602,506	1,223,776
Administration fees	8,803	7,150
AIFM fees	-	13,647
Audit fees	37,000	35,300
Broker fees	16,576	16,667
Company Secretariat fees	2,819	2,917
Custody fees	1,113	988
Directors' fees	31,164	23,880
Registrar fees	625	625
Sundry expense payables	43,418	11,958
Total other payables	809,778	1,390,860

10. Contingent liabilities and commitments

As at 30 September 2017, the Company had no contingent liabilities or commitments (2016: £nil).

11. Stated capital and share premium

Authorised

The authorised stated capital of the Company is represented by an unlimited number of redeemable Ordinary Shares at no par value.

Allotted, called up and fully-paid

Ordinary Shares	Number of shares	Stated capital £	Share premium £
Total issued stated capital as at 1 October 2016	68,507,569	-	70,342,481
Ordinary Shares redeemed during the year	(8,712,240)	-	(15,008,864)
Total issued stated capital as at 30 September 2017	59,795,329	-	55,333,617

Ordinary Shares	Number of shares	Stated capital £	Share premium £
Total issued stated capital as at 1 October 2015	50,643,164	-	49,630,301
Ordinary Shares issued during the year	17,864,405	-	20,712,180
Total issued stated capital as at 30 September 2016	68,507,569	-	70,342,481

Ordinary Shares

As at 30 September 2017, the Company had 59,795,329 Ordinary Shares (2016: 68,507,569).

Each holder of Ordinary Shares is entitled to attend and vote at all general meetings that are held by the Company.

Each holder is also entitled to receive payment of a dividend should the Company declare such a dividend payment. Any dividends payable by the Company will be distributed to Ordinary Shareholders, and on the winding-up of the Company or other return of capital (other than by way of a repurchase or redemption of shares in accordance with the provisions of the Articles and the Companies Law), the Company's surplus assets, after payment of all creditors, will be distributed among Ordinary Shareholders.

The Board does not expect income from the investment portfolio to significantly exceed the anticipated annual running costs of the Company and therefore does not expect that the Company will pay significant, or any, dividends, although it reserves the right to do so.

No dividends have been declared or paid during the year (2016: nil).

Issuance of Ordinary Shares

No Ordinary Shares were issued during the year ended 30 September 2017 (2016: 17,864,405 Ordinary Shares issued).

On 29 October 2015, 16,679,405 Ordinary Shares were issued at a price of £1.1718 per Ordinary Share, raising gross proceeds of £19,544,927 (net proceeds of £19,328,692). The newly issued 16,679,405 Ordinary Shares were admitted to the Official List and to trading on the Main Market with effect from 3 November 2015. The costs and expenses of the placing of 16,679,405 Ordinary Shares amounted to a total of £216,235.

On 11 November 2015, 1,185,000 Ordinary Shares were issued at a price of £1.1825 per Ordinary Share, raising gross proceeds of £1,401,263 (net proceeds of £1,383,488). The newly issued 1,185,000 Ordinary Shares were admitted to the Official List and to trading on the Main Market with effect from 17 November 2015. The costs and expenses of the placing of 1,185,000 Ordinary Shares amounted to a total of £17,775.

Redemption mechanism

As the Company has been established as a closed-ended collective investment scheme, there is no right or entitlement attaching to the Ordinary Shares that allows them to be redeemed or repurchased by the Company at the option of the Shareholder.

The redemption mechanism allows the Board to redeem any number of shares at the prevailing NAV per share at the calculation date, (being the date determined by the Board for the calculation of the price to be paid on any particular exercise of the redemption mechanism), less the cost of redemption. This right will only be exercised in specific circumstances and for the purpose of returning capital growth.

Accordingly, assuming that the NAV exceeds £100 million, the Directors intend to operate the redemption mechanism to return the NAV back to around £100 million in order to:

· enable the Company to exploit fully the underlying investment opportunity and to deliver high and sustainable returns to Shareholders, principally in the form of capital gains;

· enable portfolio holdings to have a meaningful impact on the Company's performance, which might otherwise be marginal within the context of a larger fund; and

· ensure that the Company can continually take advantage of the illiquidity risk premium inherent in Micro Cap Companies.

The Directors are not obliged to operate the redemption mechanism and will not do so if:

· calculation and publication of the NAV has been suspended; or

· the Directors are unable to make the solvency statement required by Guernsey law; or

· other circumstances exist that the Board believes make the operation of the redemption mechanism undesirable or impracticable.

Redemptions will, subject to compliance with all applicable law and regulation, be carried out pro rata to a Shareholder's holding of Ordinary Shares, but all redemptions will normally be subject to a de minimis value to be returned of approximately £10 million (before costs). The Company will not redeem fractions of shares.

The price at which any Ordinary Shares are redeemed under the redemption mechanism will be calculated by reference to unaudited NAV calculations. To the extent that any redemption takes place at a time when the Ordinary Shares are trading at a significant premium to the prevailing unaudited NAV, Shareholders may receive an amount in respect of their redeemed Ordinary Shares that is materially below the market value of those shares prior to redemption.

In order to facilitate any redemption, the Company may be required to dispose of assets within the investment portfolio. There is no certainty of the price that can be achieved on such sales and any sale price could be materially different from the carrying value of those assets. Consequently, the value received in respect of redeemed Ordinary Shares may be adversely affected where the Company is not able to realise assets at their carrying values. In addition, during any period when the Company is undertaking investment portfolio realisations, it may hold the sale proceeds (which could, in aggregate, be a material amount) in cash, which could impact the Company's returns, until the redemption is implemented and the cash is distributed to Shareholders.

Investors should note that the redemption mechanism has a specific and limited purpose, and no expectation or reliance should be placed on the redemption mechanism being operated on any one or more occasions or as to the proportion of Ordinary Shares that may be redeemed or as to the price at which they will be redeemed. The redemption mechanism may also lead to a more concentrated and less liquid portfolio, which may adversely affect the Company's performance and value.

In the absence of the availability of the redemption mechanism, Shareholders wishing to realise their investment in the Company will be required to dispose of their shares on the stock market. Accordingly, Shareholders' ability to realise their investment at any particular price and/or time may be dependent on the existence of a liquid market in the shares.

During the year ended 30 September 2017, the Company completed its first compulsory redemption of Ordinary Shares where 8,712,240 Ordinary Shares were redeemed and cancelled as part of the redemption mechanism at a redemption price of £1.7217 per Ordinary Share, (which excludes costs of redemption of £9,000), returning £14,999,864 to Shareholders.

Please refer to note 16 for details relating to the Company's second compulsory redemption of Ordinary Shares, which took place subsequent to the reporting period.

12. Basic and diluted earnings per Ordinary Share


	Year ended 30 September 2017	Year ended 30 September 2016
	£	£
Total comprehensive income for the year	38,193,213	9,880,719
Weighted average number of shares during the year	65,786,486	67,098,803
Basic and diluted earnings per share	0.5807	0.1473

13. Net asset value per share


	30 September 2017	30 September 2016
	£	£
Net asset value	109,677,201	86,483,852
Number of shares at year end	59,795,329	68,507,569
Net asset value per share	1.8342	1.2624

14. Finance costs

On the 9 December 2016, the Company entered into a Sterling Facility Agreement for a £2,000,000 revolving credit facility with BNP Paribas Securities Services S.C.A. (the "Lender") and BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Custodian"); and Security Interest Agreement between the Company, the Lender and Custodian.

The Facility was not drawn upon as at 30 September 2017.

Under the terms of the Facility the Company will repay any loan drawdown on the last day of the Company's availability period, being the period from the 9 December 2016 and including one month before the Facility termination date which is 364 calendar days from the signing of the Facility, unless an extension is agreed between the Company and the Lender. As at the date of approval of the Annual Financial Report no extension date has been agreed between the Company and the Lender.

Loan interest of 2.05% per annum over LIBOR will be paid on any outstanding loan amounts and a loan commitment fee is payable on the available commitment, being £2,000,000 less the amount of any outstanding loan, for the availability period.

A loan arrangement fee of £8,000 was paid on the date of the facility agreement, payable upfront.

Subsequent to the 30 September 2017, the Company signed an Extension and Amendment Agreement that varied the terms of the Facility entered into on the 9 December 2016. Please refer to note 16 for further information.

15. Related party disclosure

The Manager and Portfolio Manager are deemed related parties and all transactions between these related parties were conducted on terms equivalent to those prevailing in an arm's length transaction. Please refer to note 4 for further detail.

Philip Rodrigs is deemed to be a related party as he is the Fund Manager of the Portfolio Manager. As at the date of approval of the Annual Financial Report, he held 212,591 (2016: 280,338) Ordinary Shares in the Company.

The Directors are entitled to remuneration for their services. Please refer to note 5 for further detail regarding remuneration and detail of Ordinary Shares held in the Company by Andrew Chapman, Trudi Clark and Mark Hodgson. Mark Hodgson is the Managing Director of the Manager.

For Director fees, portfolio management fees and AIFM fees payable as at 30 September 2017, please refer to note 9.

16. Material events after the Statement of Financial Position date

There were no events which occurred subsequent to the year-end until the date of approval of the financial statements, which would have a material impact on the financial statements of the Company as at 30 September 2017, except as set out below:

On 15 November 2017, the Company announced its intention to implement the Company's second compulsory redemption of Ordinary Shares. On 1 December 2017, (the redemption date), 7,843,469 Ordinary Shares were redeemed and cancelled as part of the redemption mechanism at a redemption price of £1.9124 per Ordinary Share, (after reduction for expenses), returning £14,999,844 to Shareholders.

On 13 December 2017, the Company signed an Extension and Amendment Agreement that varied the terms of the Facility entered into on the 9 December 2016. With effect from the 20 December 2017, the loan commitment was increased to £5,000,000 and the loan interest amended to 1.75% per annum over LIBOR.

17. Controlling party

In the Directors' opinion, the Company has no ultimate controlling party.

Company information
Board members		Advocates to the Company
Andrew Chapman (Chairman)		(as to Guernsey law)
Ian Burns (Chairman of the Audit Committee and Senior Independent Director) Trudi Clark (Chairman of the Remuneration and Nomination Committee and Management Engagement Committee) Mark Hodgson		Carey Olsen P.O. Box 98 Carey House Les Banques St Peter Port Guernsey GY1 4BZ
Registered Office		Custodian
BNP Paribas House St Julian's Avenue		BNP Paribas Securities Services S.C.A., Guernsey Branch
St Peter Port Guernsey GY1 1WA		BNP Paribas House St Julian's Avenue St Peter Port Guernsey GY1 1WA

Portfolio Manager		Independent Auditor
River and Mercantile Asset Management LLP 30 Coleman Street London EC2R 5AL		PricewaterhouseCoopers CI LLP PO Box 321 Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4ND

Manager		Administrator and Company Secretary
Carne Global AIFM Solutions (C.I.) Limited Channel House		BNP Paribas Securities Services S.C.A., Guernsey Branch
Green Street St Helier Jersey JE2 4UH		BNP Paribas House St Julian's Avenue St Peter Port Guernsey GY1 1WA
		BNP Paribas Securities Services S.C.A. Guernsey Branch is regulated by the Guernsey Financial Services Commission.
Corporate Broker		Registrar
Winterflood Securities Limited The Atrium Building		Link Market Services (Guernsey) Limited Mont Crevelt House
Cannon Bridge House 25 Dowgate Hill London EC4R 2GA		Bulwer Avenue St Sampson Guernsey GY2 4JN

Solicitors to the Company
(as to English law) CMS Cameron McKenna Nabarro Olswang LLP
Mitre House 160 Aldersgate Street London EC1A 4DD

- ENDS -

Enquiries:

River and Mercantile UK Micro Cap Investment Company Limited

Andrew Chapman

Tel: +44 (0) 1481 750855

River and Mercantile Asset Management LLP

Mark Thomas

James Barham

Andrew Bollon

Tel: +44 (0) 20 7601 6262

BNP Paribas Securities Services S.C.A., Guernsey Branch, Company Secretary

Jasper Cross

Tel: +44 (0) 1481 750859

The person responsible for arranging the release of this announcement on behalf of the Company is Jasper Cross of BNP Paribas Securities Services S.C.A., Guernsey Branch, Company Secretary.

A copy of the Company's Annual Financial Report will be available shortly on the Company's website (microcap.riverandmercantile.com) or from the Company Secretary, (BNP Paribas Securities Services S.C.A., Guernsey Branch, BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA),

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

River and Mercantile UK Micro Cap Investment Company Limited is regulated by the Guernsey Financial Services Commission

A copy of this announcement is and will be available, subject to certain restrictions relating to persons resident in restricted jurisdictions for inspection on the Company's website at microcap.riverandmercantile.com

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SFLESAFASEFF

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