Annual Financial Report

CHAIRMAN'S STATEMENT

executive sUMMARY

Investment strategy and approach

PORTFOLIO MANAGER'S REPORT

INVESTMENT PORTFOLIO

Investment Portfolio as at 30 September 2019

DIRECTORS' AND CORPORATE GOVERNANCE REPORT

Corporate Governance Statement

REPORT OF THE AUDIT COMMITTEE

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

Key Performance Indicators

Key Performance Indicators (KPIs)

Environmental and social issues

The Company is a closed-ended investment company and so its own direct environmental 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 Board notes that the Portfolio Manager's approach to investing incorporates governance, social and environmental considerations. Details of measures adopted by the Portfolio Manager are detailed within the Corporate Responsibility section of their 2019 Annual Report and Accounts which is available from the Portfolio Manager's website (https://riverandmercantile.com).

The Directors, the majority of whom are based in the Channel Islands, have held the majority of their meetings in Guernsey and therefore the Company's greenhouse gas emissions and environmental footprint are negligible.

Board diversity

Voting policy on portfolio investments

Life of the Company

Viability statement

BOARD MEMBERS

Disclosure of Information to the Auditor

Directors' interests

a) Corporate Governance Codes

c) The Board

Directors

Directors' Duties and Responsibilities

Board and Committees

Audit Committee

Management Engagement Committee

Remuneration and Nomination Committee

Attendance at scheduled meetings of the Board and its committees

Board Independence, Composition and Tenure

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.

Relationship with the Manager and Portfolio Manager

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 AIFM Directive, is set out in note 9 - financial risk management. Please refer above for the Board's assessment of the principal risks and uncertainties facing the Company.

AIFM Remuneration

Appointment and independence

Annual Remuneration Statement

Changes to the Board

Service Contracts and Policy on Payment of Loss of Office

Director Interests

Advisers to the Remuneration and Nomination Committee

Companies

Latest directors dealings

UK 100

RNS Number : 3751A

River & Mercantile UK Micro Cap Inv

21 January 2020

River and Mercantile UK Micro Cap Investment Company Limited (the "Company")

Publication of the Annual Financial Report for the year ended 30 September 2019

21 January 2020

THE COMPANY AT A GLANCE

Investment objective

River and Mercantile UK Micro Cap Investment Company Limited (the "Company") aims to achieve long term capital growth from investment in a diversified portfolio of UK micro cap companies, typically comprising companies with a free float market capitalisation of less than £100 million at the time of purchase.

Investment strategy and policy

The Company's investment strategy is to take advantage of the illiquidity risk premium inherent in UK micro cap companies and exploit fully the underlying investment opportunities in that area of the market to deliver high and sustainable returns to Shareholders, in the form of capital gains.

It is expected that the majority of the Company's investible universe will comprise companies whose securities are admitted to trading on the Alternative Investment Market of the London Stock Exchange. While it is intended that the Company will be fully invested in normal market conditions, the Company may hold cash or similar instruments.

Carne Global AIFM Solutions (C.I.) Limited (the "Manager") is the manager of the Company. It delegates portfolio management to River and Mercantile Asset Management LLP (the "Portfolio Manager").

About the Portfolio Manager

The Portfolio Manager is an active equity manager, specialising in UK and global equity strategies since its launch in 2006. Since 2014, it has been part of River and Mercantile Group PLC (the "Group"). The Group is an advisory and investment solutions business with a broad range of services, from consulting and advisory to fully delegated fiduciary management, liability driven investing and fund management.

George Ensor, the appointed portfolio manager, has been responsible for the Company's portfolio since February 2018. Please refer below for George Ensor's biography.

Capital redemptions and dividend policy

The Company is committed to achieving long term capital growth and, where possible, returning such growth to Shareholders throughout the life of the Company. Furthermore, the Board believes that a Net Asset Value in normal circumstances in the region of £100 million will position the Company to take advantage of a portfolio of micro cap companies. Accordingly, the Directors operate a Capital Redemption Mechanism under which a portion of the Company's share capital is redeemed compulsorily to return the Net Asset Value 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 Company does not expect to pay significant dividends.

Management of your Company

The Board of the Company comprises a majority of independent non-executive directors with extensive knowledge of investment matters, the regulatory and legal framework within which the Company operates, as well as the various roles played by investment companies in shareholders' portfolios.

The Board provides oversight of the Company's activities and ensure that the appropriate financial resources and controls are in place to deliver the Investment Strategy and manage the risks associated with such activities. The Board actively and continuously supervises both the Manager and the Portfolio Manager in the performance of their respective functions. The Portfolio Manager is authorised and regulated by the Financial Conduct Authority and the Manager is authorised and regulated by the Jersey Financial Services Commission

STRATEGIC REPORT

financial highlights and performance summary

Net Asset Value ("NAV") total return¹ vs benchmark from inception

NAV on a total return² basis increased by 92.94% from inception (net of issue costs), outperforming the total return posted by the benchmark index of 37.24%. Please refer to the chart below showing the NAV total return versus Numis Smaller Company plus Alternative Investment Market ("AIM") (excluding Investment Companies Index) total return³ (the "benchmark index") from inception:

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

NAV total return vs benchmark for the year ended 30 September 2019

Over the year ended 30 September 2019, the NAV total return of River and Mercantile UK Micro Cap Investment Company Limited (the "Company") underperformed against the benchmark index by 10.14%, recording a NAV total return of (17.48%), which compares with the total return of (7.34%) posted by the benchmark index.

NAV and Share price
			As at 30 September 2019	As at 30 September 2018
Net Asset Value per Ordinary Share			£1.8908	£2.2913
Ordinary Share price (bid price)³			£1.5700	£2.1100
Discount			(16.97%)	(7.91%)

Period highs and lows
	Year ended 30 September 2019 High	Year ended 30 September 2019 Low	Year ended 30 September 2018 High	Year ended 30 September 2018 Low
Net Asset Value per Ordinary Share	£2.2901	£1.7746	£2.2913	£1.8499
Ordinary Share price (bid price)³	£2.1100	£1.4800	£2.3000	£1.6400

Premium / discount^2,4

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

Capital redemptions

Since inception, the Company has exercised its capital redemption mechanism on three separate occasions, as detailed below, redeeming a total of 22,062,526 Ordinary Shares and returning a total of £41,926,929 to Shareholders.

Redemption Date	Redemption price per Ordinary Share⁵	Number of Ordinary Shares Redeemed	Amount returned to Shareholders
9 June 2017	£1.7217	8,712,240	£14,999,864
1 December 2017	£1.9124	7,843,469	£14,999,850
27 July 2018	£2.1659	5,506,817	£11,927,215

Please refer to note 12 for full details of the Company's redemption mechanism, including the conditions required for the Company to be able to operate the capital redemption mechanism.

Ongoing charges

The ongoing charges reflect those expenses which are likely to recur in the foreseeable future and which relate to the operation of the Company. The ongoing charges are calculated in accordance with the Association of Investment Companies (AIC) methodology and is based on actual costs incurred in the year which are likely to recur in the foreseeable future. The ongoing charges for the year ended 30 September 2019 were 1.30% (2018: 1.25%).

Dividend history

In accordance with the Company's stated policy, no dividend was declared or paid during the year.

For further detail on Key Performance Indicators, refer to the Executive Summary and the Useful Information for Shareholders sections below.

¹ - The NAV total return measures how the NAV per Ordinary Share has performed over a period of time, taking into account of capital returns. The Company quotes NAV total return as a percentage change from the initial issuance of Ordinary Shares to 30 September 2019. The Company has not declared a dividend since inception. The Board monitors the Company NAV total return against the Numis Smaller Companies plus Alternative Investment Market ("AIM") (excluding Investment Companies Index).

² - Source: BNP Paribas Securities Services, Bloomberg

³- Source: Bloomberg

⁴- The NAV per share is the value of all the Company's assets, less any payables it has, divided by the total number of Ordinary Shares. However, because the Company Ordinary Shares are traded on the London Stock Exchange's Main Market, the share price may be higher or lower than the NAV. The difference is known as a discount or premium. The Company's discount / premium to NAV is calculated by expressing the difference between the Ordinary Share price (bid price) and the NAV per share on the same day compared to the NAV per share on the same day.

⁵ - Excludes the cost of each redemption; amounting to a total of £23,700 across all redemptions.

The Mouse That Roared

I am sure that many of you will remember Peter Sellers and some will remember his classic comedy, The Mouse That Roared. However, I am sure many will not remember that this comedy started life as a 1955 Cold War satirical novel by Irish American writer Leonard Wibberley, which subsequently launched a series of satirical books about an imaginary country in Europe called the Duchy of Grand Fenwick.

It was later converted into the classic comedy in which the tiny Grand Duchy of Fenwick declares war on the United States with the aim of glorious defeat and a hefty sum in post-war aid. When the tiny nation of Grand Fenwick's only export, a special wine, begins to be produced in California, their entire economy collapses. Things look dire until Prime Minister Rupert Mountjoy points out that no country that has declared war on the USA has ever gone hungry. When Field Marshall Tully Bascombe and the 23 other men in the Grand Fenwick army invade the United States, their plan to immediately surrender unravels. For those whose memory has just been jogged, I trust the trace of a smile is beginning to develop!

This is no mere Hollywood feat of imagination; micro-nations do exist and indeed are thriving across the world. They may not be recognised as such and none to my knowledge are entitled to a seat at the United Nations. However, they continue to survive and, in many cases, flourish, in spite of often existing within the confines of established and much larger nation states. The most obvious example of this is the Vatican, surrounded by Italy, a tiny state that has held a special place in the world for centuries as the home of the head of the Catholic Church. It has its own army, the Swiss Guard, currency and laws.

The Vatican is often regarded as the smallest state in the world……..or is it? There are, in fact, a raft of independent nations around the world in many cases obscured from view. A prime example, hidden deep in the Nevada desert is one of the smallest republics in the world; Molossia led by its President, Jonathan Thompson. A country so small it consists of only a few acres of desert sand interspersed with a bank and post office and two public phones. It has one export to its neighbouring USA…….rubbish! My favourite however, is the principality of Seborga nestled next to the French border with Italy where the head of the principality is known as "Your Tremendousness"! Perhaps more recognisable to the general public would be states like Andorra, Monte Carlo, Liechtenstein, and San Marino. All very successful entities.

I have written many times over the last five years about smaller entities, from micro Submarines to Ronnie Corbett. The message I am trying to convey, notwithstanding the fun of identifying the vast array of micro subjects, is the simple fact that great things can emerge from small entities. Micro cap companies have delivered far stronger growth characteristics than many of their larger peers through the cycle. This is evidenced by long-term data showing micro cap and smaller UK companies outperforming mid cap and large cap UK companies. Why is this? Not only do you earn a risk premium for the risk associated with less liquid companies, but micro cap companies often have simpler business models, are growing from a much smaller base and demonstrate greater innovation. Also, as the argument over active versus passive funds continues, it is worth pointing out that micro cap investing is an area where active management can be extremely effective. Micro cap companies are less researched than ever before, especially after the introduction of MIFID II, which has enabled the Portfolio Manager to identify strong micro cap opportunities at attractive valuations through their own comprehensive fundamental research. We can see examples in the current portfolio with some fascinating micro businesses thriving under the shadow of their larger competitors and, in many cases, disrupting the landscape and delivering far superior returns. A great example of this is Argentex, a recent IPO and one that is competing head on with the mainstream banks whilst succeeding in delivering a better service to their customers and a superior return to shareholders.

Micro cap investing certainly does not come without risk and we have seen the downside over the last twelve months where, due to macro factors such as Brexit and the associated uncertainty, UK listed stocks and in particular those with a strong domestic focus have suffered. In my opinion, the portfolio continues to be pregnant with opportunity and, as our portfolio manager highlights, once the uncertainty is lifted, regardless of outcome we expect to see demand for these exciting micro cap stocks increase significantly.

Performance

As George explains in his report, the last twelve months have been a challenging. I am very conscious that it has been a frustrating period both for our portfolio manager and for our shareholders. Although I would welcome the opportunity to report on positive performance, there will always be periods where the factors that our manager follows and that sector of the market to which we are, as investors, exposed, are not rewarded and this last year is precisely that.

What is critical during these periods is that portfolio managers remain true to their investment principles. As George writes in his report and we have observed during discussions at the Board, this has been the case. Long term data supports the thesis that micro cap companies outperform and, whilst this hasn't been true for the last 12 months, any return to stability could see the current valuation discount close on both listed micro cap companies in general and the Company in particular. Thus the Board believes it would be wrong to change the current investment approach in reaction to short term macro factors since the Company is committed to investing for the long term.

Your Board is exercised by the widening of the discount to NAV which reached 20% at one point before falling back to c15%. We take this issue very seriously and have held detailed discussions as to the measures we might take to narrow the discount. In particular, the Board has considered and rejected instituting buy backs since we do not judge these actions to be in the best interests of investors as they would reduce the Company's capital base at a time when micro cap companies look cheap. Indeed we already have in place, and have triggered on previous occasions, a redemption mechanism which is designed to operate when micro cap companies rise in value. In summary, your Board believes that the UK micro cap market place remains exciting and one that will deliver very positive returns.

The NAV total return of the UK micro cap portfolio over the period was (17.48%), which compares with the total return of (7.34%) posted by the benchmark index.

Principal Risks and Uncertainties

Explanations of the Company's principal risks and uncertainties are set out on pages 15 to 23 of the Company's prospectus, which is available on the Manager's website.

Dividend Policy

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 2019 the Board confirms that no dividend will be payable.

Summary

We have been through our first difficult period of change as a Company, however our core principles remain intact. We aim to deliver long term capital growth and, where possible, return such growth to shareholders throughout the life of the Company. The capital redemption process that we established at the time of the IPO has functioned very well and we continue to believe that a NAV in the region of £100 million will best position the Company to take profitable advantage of a portfolio of micro cap companies. The fact that the Continuation Vote at the last AGM was passed by an overwhelming majority is evidence that Shareholders support this stance.

I look forward to writing to you once again at the time of our interim results, but I would like to take this opportunity to thank all our Shareholders for their support over the past twelve months.

Andrew Chapman

Chairman

20 January 2020

This Executive Summary is designed to provide information about the Company's operation and results for the year ended 30 September 2019. It should be read in conjunction with the Chairman's Statement above and the Portfolio Manager's report below which provides a detailed review of investment activities for the year and an outlook for the future.

Corporate summary

The Company was incorporated in Guernsey on 2 October 2014, with registered number 59106, as a non-cellular company with liability limited by shares. The Company is registered by the Guernsey Financial Services Commission ("GFSC") as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the Registered Collective Investment Scheme Rules ("RCIS Rules") 2018.

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

The Company's Ordinary Shares are listed on the Official List as maintained by the FCA and admitted to trading on the Main Market of the London Stock Exchange. As at 30 September 2019, the Company's issued stated capital comprised 46,445,043 Ordinary Shares (30 September 2018: 46,445,043 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 the Portfolio Manager. The Board will actively and continuously supervise both the Manager and the Portfolio Manager in the performance of their respective functions.

The Company has appointed BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Administrator") to provide administration, custodian and company secretarial services.

The Company is a member of the Association of Investment Companies ("AIC").

Significant events during the year ended 30 September 2019

On 11 December 2018, the Company signed an Extension Agreement that varied the terms of the Sterling Facility Agreement (the "Facility") entered into on 9 December 2016, as amended on 13 December 2017. With effect from 7 December 2018, the Facility was extended for 364 days to 6 December 2019 and the Company incurred an extension fee of £8,000. The Board decided not to renew the Facility, which subsequently expired on 6 December 2019. Please refer to note 15 for further information.

On 27 February 2019, the Company held its Annual General Meeting ("AGM") where all resolutions, including the Continuation Resolution (refer below), were passed. The Company subsequently announced that a significant number of votes were cast against Resolution 1 and Resolution 6 as detailed in the section below.

Significant vote against AGM resolutions

The Board took note of the votes cast against Resolutions 1 and 6 at the AGM held in February 2019. Resolution 1 related to the receipt and consideration of the Annual Report and Financial Statements for the year ended 30 September 2018, together with the Report of the Directors and Auditors therein and Resolution 6 related to the re-election of Mark Hodgson as a Director of the Company. The Board believes that the votes against Resolution 1 related to the fact that, on 11 February 2019, a shareholder advisory group published a recommendation to vote against Resolution 1 stating that the disclosure of the Portfolio Manager's contract in the Annual Financial Report of the Company did not meet the advisory group's requirements. Following representations by the Company, the advisory group agreed that the required information was indeed included in the Annual Financial Report and, on 13 February 2019, they informed the Company that they had amended their advice on Resolution 1 to a recommendation to vote in favour.

The Board believes that the votes against Resolution 6 relate to the fact that, as disclosed in the Annual Financial Report, Mark Hodgson is not considered an independent director because he is a director of Carne Global AIFM Solutions (C.I) Limited ("Carne"). As explained in our financial statements, Carne is legally the Manager so that the Company can fully comply with the Alternative Investment Fund Managers Directive (AIFMD). Carne has formally delegated portfolio management to the Portfolio Manager. Carne itself undertakes a rigorous risk management function in respect of the portfolio and exercises a robust oversight of River & Mercantile Asset Management LLP, the designated Portfolio Manager. Carne is completely independent of the Portfolio Manager which ensures that there are no conflicts of interest as it performs its oversight functions.

The opinion of the other Directors is that Mark Hodgson provides considerable and complementary expertise to the Board, particularly in the area of risk management, in which Carne has a significant presence. In accordance with the recommendations of the AIC in relation to non-independent directors, Mark is subject to annual re-election; and indeed the independent directors also put themselves forward for annual re-election. The Board has been in touch with shareholders who we are aware voted against both Resolutions and found them to be content. The Board would like to take this opportunity to say that the Chairman is always willing to meet with shareholders to discuss any questions or issues they might have about the Company.

Company investment objective

The Company aims to achieve long term capital growth from investments in a diversified portfolio of UK micro cap companies, typically comprising companies with a free float market capitalisation of less than £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. Refer to note 15 for further details of current borrowing facilities.

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 below for informational purposes only.

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

The Company pursues its investment strategy through the appointment of the Manager as AIFM, whereby the Manager has been given responsibility, subject to the supervision of the Board, for the management of the Company in accordance with the Company's investment objective and policy. The Manager has delegated portfolio management to the Portfolio Manager. The Company depends on the diligence, skill, judgement and business contacts of the Portfolio Manager's investment professionals, in particular George Ensor, in identifying investment opportunities which are in line with the investment objective and policy of the Company. The Portfolio Manager attends all Board meetings at which the investment strategy and performance of the Company is discussed and approved.

The 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 92.94% from inception which outperformed the total return posted by the benchmark index of 37.24%. Please refer to the Financial Highlights and Performance Summary above for NAV total return analysis and note 12 for further details regarding the redemption mechanism.

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 9 for further details regarding investment limits and risk diversification policies.

As at 30 September 2019, the Company held 44 (2018: 46) investment holdings of which no exposure in any investee company exceeded 10% of NAV at the time of investment. A portfolio listing is shown below which demonstrates the spread of investment risk in accordance with the investment policy.

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 to their NAVs during the year. Please refer to the Financial Highlights and Performance Summary above for further analysis.

Please refer below for further information on the calculation methodology applied to these KPIs.

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 has carried out a robust assessment of the principal risks facing the Company and has looked at numerous risk factors, an overview of which is set out below.

Investment and liquidity risk

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

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

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

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 Brexit, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events and other factors), could substantially and adversely affect the Company's prospects, as could changes in global economic conditions. This exposes the Company to concentration of geographical concentration risk and may from time to time lead to the Company having significant exposure to portfolio companies from certain business sectors. Greater concentration of investments in any one geographical and / or industry sector may result in greater volatility in the value of the Company's investments, and consequently its NAV, and may materially and adversely affect the performance of the Company and returns to Shareholders.

While the Company does not include any specific limits on exposures to any industry sector, the Company does have investment limits and risk diversification policies in place to mitigate market and concentration risk. Please refer to note 9 for further details.

Full details of the Company's risk factors are set out on pages 15 to 23 of the Company's prospectus, which is available on the Company's website (https://microcap.riverandmercantile.com).

Modern Slavery

As a closed-ended investment company, the Company has a non-complex structure, no employees and its supply chain is considered to be low risk given that suppliers are typically professional advisers based in either in the Channel Islands or the UK. Furthermore, the Board notes that the Portfolio Manager has published its statement and policy on slavery and human trafficking which is available on their website¹. Based on these factors and that the Company would not fall into the scope of the UK Modern Slavery Act 2015 (as the Company does not have any turnover derived from goods and services) if it was incorporated in the UK, the Board have considered that it is not necessary for the Company to make a slavery and human trafficking statement.

¹ - (https://riverandmercantile.com/modern_slavery_statement)

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, details of whom are shown below. 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 below.

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

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 seek to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use the Company's influence as an investor with a principled approach to corporate governance.

The Company has no fixed life. The Directors shall propose one or more ordinary resolutions at every fifth AGM that the Company continues as a closed-ended investment company (the "Continuation Resolution"). The last Continuation Resolution was proposed at the AGM on 27 February 2019 and was passed by the Company's Shareholders. The next Continuation Resolution will be proposed at the AGM in 2024. 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 below for details regarding performance to date of the investment portfolio and the main trends and factors likely to affect those investments.

Going concern

Under the 2016 UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern and to identify any material uncertainties to the Company's ability to continue as a going concern for at least 12 months from the date of approving the annual 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.

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.

As the Company is intended to be a long-term investment vehicle and having considered the inherent limitations of estimating the impact of future political and economic conditions, the Directors have determined five years to be an appropriate period of an assessment.

The Company's prospects are driven by its business model and strategy. As explained above, 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. 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 environments in particular the impact as a result of the UK leaving the EU.

In this context, 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 9 - financial risk management.

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 Directors expect the next Continuation Resolution at the AGM in 2024 to be passed.

The Strategic Report was approved by the Board of Directors on 20 January 2020 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

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 for 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. Between 1994 and 2003, Andrew served as a non-executive director of the Hambros Smaller Asian Companies Investment Trust plc (which subsequently became The Asian Technology Trust plc).

In 2003, Andrew was appointed as the first in-house Pension Investment Manager for the John Lewis Partnership Pension Fund, with responsibility for the overall investment strategy as well as the appointment and performance of 27 external fund managers across all asset classes. He retired from that role in 2012 and then 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, GT ERISA Fund, GT Offshore Fund, and Kidney Care UK.

DIRECTORS

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

Ian is a fellow of the Institute of Chartered Accountants in England & Wales. 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.

Ian is currently a non-executive director and audit committee chairman of London Stock Exchange listed Twenty Four Income Fund Limited and a non-executive 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. Since June 2018 she has been a full time non-executive director.

Trudi holds several non-executive directorships which include BMO Commercial Property Trust Limited, NB Private Equity Partners Limited, The Schiehallion Fund Limited and Alcentra European Floating Rate Income Fund which are listed on the London Stock Exchange. She also holds a personal fiduciary licence issued by the 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.

The portfolio manager of the Company is George Ensor. George graduated from Bristol University with an Upper Second Class degree in Chemistry in 2008, before joining Smith & Williamson Investment Management as a graduate trainee where he worked for five years as an analyst and Private Client Investment Manager. George joined River and Mercantile Asset Management LLP in March 2014 as a UK equity analyst. George is a CFA charter holder.

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 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 twelve months to the end of September 2019 was challenging for the Company with the NAV decreasing by 17.48%, underperforming the benchmark by 10.14%, which fell 7.34%. Since inception, the NAV has increased by 92.94%, outperforming the benchmark performance of 37.24% by 55.70%.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

MARKET BACKDROP

Geopolitical wrangling has dominated the market backdrop over the last twelve months. The US-China trade war is now clearly having an impact on the US economy with weak business investment, driven by falling CEO confidence, and the manufacturing sector in recession whereas US stock markets remain sanguine with the S&P 500 just 2.1% from its all-time high at the end of September. Eurozone manufacturing has also been in contraction for much of 2019.

Whilst the result of the General Election does not provide answers to our future trading relationship with the EU, or indeed any other trading partner, the relative political stability of a Conservative government with a large majority should provide encouragement for global investors to return to the market following a prolonged period of underperformance. This underperformance has been particularly acute for small and micro cap indices, with several factors likely contributing. One being the greater exposure within smaller companies to the domestic economy; and so a greater exposure to the uncertainty and a lesser exposure to the benefits of the weakness in sterling which has boosted international earners. A second factor is the increased focus on liquidity in the aftermath of high profile daily dealing funds suspending redemptions which has created an aversion to illiquidity.

The first chart below shows the NAV performance (dark gold) against several different UK equity indices from IPO to the start of the financial year just finished (30 September 2018). The benchmark Numis Smaller Companies index including AIM, excluding Investment Companies is shown in black and represents the bottom 10% of UK listed companies. The Numis 1000 excluding Investment Companies is the smallest 2% of UK main list companies (it does not include AIM listed companies - unfortunately this data is not published by Numis). Finally, the MSCI UK Investable Market Index covers 99% of the free-float adjusted market cap of the UK and so essentially represents all UK listed equities.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

It is clear from the first chart that, in the period from IPO to the 30 September 2018, the very smallest (main list) companies (grey / Numis 1K), outperformed the smallest 10% (black / Numis Small Cap) which in turn outperformed all UK equities (light gold). This environment is supportive for our NAV to outperform as we earn the liquidity premium; an enhanced level of return per annum to compensate us for the risk of holding illiquid assets.

The second chart shows the same three indices for the twelve months to 30 September 2019. It is an inversion of the prior chart and illustrates the underperformance of the smallest listed companies in the UK. The chart above, and indeed longer-term charts, support the outperformance of smaller companies and the long-term performance of the Company's NAV.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

PORTFOLIO POSITIONING

The Style Skyline below illustrates how the portfolio is positioned for key attributes, or factors, when compared to the benchmark. Analysis of these factors best allows us to understand how the portfolio might perform in different environments. For example, the Skyline shows that there is a significant divergence in the average market capitalisation (red bar) of the Company and the benchmark; the Company has a lower average market cap and this is shown as a negative tilt. This tilt exists due to the Company's objective to invest in businesses with a free float market capitalisation of less than £100m, whereas the benchmark includes much larger companies.

The blue value bars show the average valuation of the portfolio compared to the benchmark. For three of the four factors, including the second year (FY2) earnings yield (inverse of the PE ratio), sales to enterprise value (EV) and EBITDA (earnings before interest, depreciation and amortisation) to EV, the portfolio is cheaper than the benchmark. The Portfolio Manager's report in the last year's Annual Financial Report showed that the portfolio was more expensive on three of the four factors. Valuation is a key element of our Potential, Valuations, Timing (PVT) investment philosophy and, all else being equal, the portfolio's valuation style tilt has improved meaningfully over the last twelve months.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

The green bars cover the Growth and Quality factors. The four positive tilts (above the x-axis) are the four Growth factors; historic earnings and sales growth and forecast earnings and sales growth. The positive tilt shows that the portfolio holdings have grown sales and earnings ahead of the benchmark and are forecast to continue to do so. Importantly, we are not overpaying for these higher growth investments as the portfolio is cheaper than the benchmark. Return on equity and net profit margin are Quality factors; the portfolio holdings have, on average, lower returns than the benchmark. It is typical to see low return on equity and net profit margin in Growth businesses as they focus on investment to drive sales as opposed to returns.

Finally, the last two bars, in yellow, illustrate the financial leverage of the portfolio and bias to international or domestic sales. We are invested in less financially geared, better capitalised business and are in-line with the benchmark when considering where companies' sales have originated from the UK or ex-UK.

Shareholders will be aware that we look to invest in different categories of Potential, diversifying the portfolio across Growth, Quality, Recovery and Asset-backed investments. As the Style Skyline data suggests, we continue to have a substantial bias towards Growth investments but it is lower when compared to the portfolio at 30 September 2018 when Growth accounted for 53.9%. As the Portfolio Activity comments will attest, we exited several early stage Growth stocks and reduced exposure to expensive Growth stocks with proceeds largely being reinvested into high Quality businesses.

This is reflected in a higher allocation to Quality (also covered in the Portfolio Activity discussion), up from 27% at the start of the period. Two of our Recovery stocks, WYG and Bonmarche, were bid for, leaving the allocation lower, 4.1% from 6.5%. The allocation to Asset-backed has increased from 7.7% to 13.1% although this is largely a result of the re-categorisation of one holding (from Quality to Asset-backed) plus the performance of the Gold miners in the last few months of the period.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

PERFORMANCE ATTRIBUTION

Portfolio Holdings with a significant contribution:

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

We ran a high conviction position of approximately 5% in Keystone Law through the year which, combined with the 18% gain in the shares, delivered a strong contribution. It remains an attractive, high scoring PVT investment case capable of delivering high growth and improving return on capital (increasing Quality credentials).

The Company's precious metal exposure made a strong contribution with both Shanta Gold and Serabi Gold recovering from depressed levels with the former gaining 76% and the latter 63%.

Alpha FX (AFX) offers unique and disruptive FX services to corporates trading internationally and purchasing currency for commercial purposes. Its business model is highly scalable, and it generates operating margins in excess of 40%. It focuses on FX advisory services paid through execution that puts in place rolling hedging programmes rather than intermittent ad-hoc FX trades with cliff-edge effects driven by directional bets. Realised and continuing rapid market share gains from the established banks that dominate the market underpin strong Growth potential. Management incentives are strong with the founder-CEO and management holding a significant proportion of the group's shares. Earnings delivery has been well above market expectations which, partially offset by modest multiple contraction, has driven strong share price performance (+19%).

Tax Systems is a great example of what happens when public markets fail to recognise the potential of businesses. Having listed at 67p in July 2016, the business was taken private in 2019 via a private equity backed management buyout at 115p. An attractive return from IPO and a valuable 12.5% gain in the period but I expect the management team recognised potential well ahead of that valuation.

Justifying our ownership of the negative contributors, many of which we still own, is important as we believe the way we challenge ourselves when we are wrong is more important than explaining what we have got right.

The extent of the declines in some of the holdings over the twelve month period, whilst disappointing, does convey the risk and illiquidity aversion that has been apparent over the period. For example, MaxCyte, a business which enables some of the leading cell therapy companies, fell 49% despite delivering good growth and announcing several commercial licenses. In our opinion, the progress that has been made by this company in the last two years is far from being reflected in the share price. Boku is another good example; the core business has delivered good growth and is delivering ahead of IPO expectations but the shares lost 42% over the period as the market was concerned over the potential of the acquired Identity business.

SDX Energy, the Egyptian and Moroccan oil and gas producer, did disappoint on progress with the two key growth assets (South Disouq and Morocco). The potential from these two opportunities not only remains attractive but risk-adjusted returns also remain unchanged from previous expectations, just later. The 57% fall leaves the shares trading on a 50% discount to book value, despite the strong recovery of more than 50% from the lows in August on the back of delivery by the interim CEO and several insider purchases. The other oil E&P business, Lekoil, also performed poorly, losing 73% as its purchase of an additional stake in one of its prospects from Afren was challenged with the court ruling that it required consent from the Nigerian government which was not forthcoming. Having signed a memorandum of understanding with Schlumberger for financing of its core production asset, it is looking for industry partners to finance appraisal and development activities at the larger prospect, Ogo. Whilst the investment clearly remains high risk, the company trades at a substantial discount to its discovered resources NAV and therefore presents asset backed strategic value.

RA International, the remote locations support services business, was, unfortunately, guilty of setting overly ambitious IPO expectations which were missed, leaving the shares trading at a 30% discount to their June 2018 IPO price. When we consider Growth PVT investment cases, we are looking for businesses that have delivered attractive growth but are forecast to continue doing so at an attractive Valuation and with supportive Timing. RA International has compounded revenue growth of 30% over the three years to December 2018, leaving consensus sell side forecast of 10% per annum achievable. It has a cheap valuation, with a PE ratio of 6x December 2019 consensus earnings which fails to recognise that almost a third of the market cap is held in cash (£22m as at the interims); a substantial discount to the market and peers. If the company can start to deliver on expectations then the third and final leg, Timing, will be in place. The substantial contracted revenue backlog certainly suggests the company has a strong market position.

Tremor International (formerly Taptica), a global leader in digital advertising, has made a strategic shift, aided by two transformational acquisitions (Tremor Video in 2017 and RhythmOne in 2019), to focus on video, data and connected TV (CTV) where there is strong Growth potential given increasing consumption of content through CTV platforms and streaming media. Tremor was the worst contributor during the period, falling 64% primarily on the back of valuation multiple contraction and, to a lesser extent, negative earnings revisions. Mobile advertising underperformance was a key driver of earnings downgrades during the period as the business declined faster than expected; the division now represents less than 30% of sales. Tremor is cash generative with a current net cash position equivalent to over 30% of the group's market capitalisation and a prospective free cash flow yield of around 20%.

ULS Technology's core business connects homebuyers with legal professionals, providing economic benefits to all three parties involved; the consumer, the legal professional and the intermediary (ULS). Supply of such legal services is highly fragmented and we expected the structural growth opportunity to provide some degree of immunity from cyclical trends in residential housing transaction volumes. However, increasing competition coupled with adverse cyclical trends has led to material earnings downgrades compounded by a derating, driving the shares down 60% over the period. Returns remain attractive and we believe a recently launched service, DigitalMove, that significantly streamlines the home moving process by bringing all parties in the transaction together in a fast, convenient and secure environment, will improve the company's market position. This new service differentiates ULS from the competition and should enable it to reaccelerate growth.

Allergy Therapeutics is a specialty pharmaceutical company focused on the research and development of allergy vaccines that deal with the underlying cause and not just the symptoms of allergies. The vaccine, an ultra-short course injection, offers convenience with far fewer injections than the market average, supporting increased adherence, and is the foundation of the group's well-established commercial position in Europe. As part of the process to move the group's vaccine platform to full registration under a new regulatory framework, the company underwent an important phase three trial which, unfortunately, had a negative outcome, causing the shares to decline 48%. The data was inconclusive, in a large part due to the challenges in measuring the efficacy of vaccines when compared to placebos for allergies. Whilst disappointing, we do not believe it is as severe as the market fears, particularly as the regulator is likely to be reluctant in removing a product from the market that has resulted in improved clinical outcomes for allergy sufferers. What remains is a business that has delivered many years of attractive Growth with significant optionality on new markets (US) and vaccines (peanut) and at a depressed valuation.

RedT Energy is a developer of liquid energy storage machines, equivalent to pumped hydro in a box given its long-life and heavy cycling attributes. It enables arbitrage opportunities from energy storage and enhances the efficacy of renewable investments. We expected this to underpin strong Growth potential, however the roll-out of the group's energy storage technology was much slower than expected, primarily due to adverse developments in the UK and German energy markets. As a result, unit production and sales did not reach a level at which the business could become cash generative, resulting in additional capital being raised in October 2018. We supported the capital raise in order to fund short-term working capital to progress delivery of the order pipeline. The group had begun searching for strategic partners to support and finance continued growth of the business however, this did not materialise within the timeframe dictated by the group's financial position. A strategic review was launched in March 2019, resulting in cost cutting and another capital raise which we declined to participate in as we could not see a likely path to realising Growth potential in the near-term. We exited our small remaining position in July 2019. Unfortunately, with the shares down 89%, this is an example of the challenges of investing in poorly funded, early stage, loss making growth companies. Very little exposure to this type of investment remains in the portfolio.

PORTFOLIO ACTIVITY

For the final part of the annual review I am going to comment on trading activity for the financial year. I am only going to comment on new positions and positions which we have exited but, as you would expect for an active manager, we do trade our positions, taking advantage of what we see as attractive prices to add and trim.

There were 11 positions exited. M&A played a role with Tax Systems, WYG and Bonmarche all taken private. As discussed, we have looked to raise capital from expensive Growth stocks and reinvest into cheaper Growth or Quality investment cases; Ideagen, D4T4 Solutions, FairFX and Frontier Developments were all Growth investments that were exited as the shares achieved what we perceived to be at least fair value. We exited a collection of poorly funded, often loss making early stage Growth stocks including TrakM8, RedT Energy and Maistro. Finally, Universe Group was a small (0.4%) Quality position which we exited given a weak balance sheet and ongoing downgrades.

New positions accounted for 19.4% of the NAV as at the end of the period. Details on the specific investment cases follow:

Litigation Capital Management (LCM) (4.07% as at 30 September 2019). Purchased at IPO in December 2018, LCM is a litigation finance business. They have a track record of strong returns going back to 2012 and completed the IPO to fund growth. Importantly, unlike peers who use fair value accounting, LCM use cash accounting so only cash gains are recognised in the P&L. This is a high conviction Quality thesis supported by the strong returns and attractive price to book valuation.

Science in Sport (3.03% as at 30 September 2019). The business owns two leading sports nutrition brands, SiS and PhD. The business has delivered attractive organic growth over the last five years and is, having made substantial investments in sales and marketing, due to deliver maiden profits in the second half of 2019. High growth and improving profitability will generate attractive returns for shareholders and underpins the Growth thesis.

Argentex Group (2.98% as at 30 September 2019). Purchased at IPO in June 2019, the company has a similar investment case to that described previously for Alpha FX; namely disrupting the corporate FX services of traditional banks with higher service levels and lower costs. We took profits in Alpha FX and exited the position in FairFX to fund the purchase.

XLMedia (2.47% as at 30 September 2019). XLMedia owns and develops high content websites to generate users, typically online gamblers, for clients. They typically get paid on a life time share of revenue for the users they introduce. The shares were depressed following a profit warning and strategic review and were purchased at an average price below 50p. The company announced a tender offer for 9.5% of the company at 80p in July and the founder, now non-executive director, has continued to buy shares. High margins and return on capital support the Quality thesis.

Capital Drilling (2.44% as at 30 September 2019). The business provides drilling services to gold miners in Africa. The core business is underpinned by stable, long duration production contracts but there is an opportunity, as evidenced by recent updates to the market, for both shorter cycle exploration contracts and more comprehensive mining services contracts. These will drive higher utilisation of the rigs owned by the company, improving return on capital and underpinning the Quality investment case.

Sylvania Platinum (1.62% as at 30 September 2019). The business produces platinum group metals (PGMs) from chrome tailings. PGMs are typically mined underground in South Africa through old, inefficient mines requiring high labour and electricity costs. By re-treating chrome tailings, Sylvania Platinum is a low cost, high margin producer of PGMs which is likely to remain cash generative at prices well below what underground mines can tolerate. The strong net cash balance sheet also de-risks the attractive Quality investment case.

ULS Technology (1.55% as at 30 September 2019). As detailed in the Portfolio Attribution section above.

Two small positions were initiated in Hummingbird Resources (0.72% as at 30 September 2019) and SmartSpace Software (0.46% as at 30 September 2019). Hummingbird Resources is a Mali based gold producer which was purchased with proceeds from Shanta Gold in order to diversify the singe asset risk that is prevalent with these investments. SmartSpace Software is a small software business that enables better use of corporate real estate through the management of hot-desks and meeting rooms. They have signed some impressive customers but remains early stage, hence the small position.

SUMMARY & OUTLOOK

The last twelve months has been challenging, with performance both negative and behind our benchmark. It has been a frustrating year with strong underlying progress in some stocks not being recognised and any disappointment being punished. It is our opinion, supported by long term trends, that this is cyclical not structural, and the UK micro caps remains a fantastic source of idiosyncratic risk. The portfolio has a strong bias to Growth but is, on average, less expensive than the benchmark and invested in better capitalised companies. The opportunity remains strong with 354 companies with a market capitalisation of between £20m and £100m at the end of September 2019.

This report illustrates that we do stick to our proven PVT investment philosophy of looking to own companies with the Potential to create substantial shareholder value at Valuations that provide a margin of safety and where Timing is supportive. I believe the long term returns of this company are illustrative of the opportunity set.

Thank you for your ongoing support.

George Ensor

Portfolio Manager

20 January 2020

The Investment Portfolio below details 33 of the 44 holdings as at 30 September 2019. This summary excludes portfolio holdings that are individually less than 1%¹ of the Investment Portfolio's total.

[graphs and charts are included in the published Annual Financial Report which is available on the Company's website at https://microcap.riverandmercantile.com/literature/annual-reports]

¹ Portfolio weightings are based on mid-prices

The Directors present the Annual Financial Report of the Company for the year ended 30 September 2019. The results for the year are set out in these accounts.

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.

Information for each Director is shown above and details of Directors' remuneration and interests in shares can be found below.

Financial risk management objectives and policies

The Board is responsible for the Company's system of risk management and internal controls 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 9 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 controls 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 Administrator's compliance team present an assessment of their review to the Board in line with the compliance monitoring programme on a quarterly basis.

The Board has reviewed the effectiveness of the Company's system of risk management and internal controls for the year ended 30 September 2019 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, which was subsequently amended and extended on 13 December 2017, further extended on 11 December 2018 and subsequently expired on 6 December 2019 as the Board decided not to renew the Facility. Please refer to note 15 for further details.

Greenhouse gas emissions

Please refer to Strategic Report - "Environmental and social issues" above for disclosure regarding greenhouse gas emissions.

Share capital

As at 30 September 2019, the Company had 46,445,043 Ordinary Shares (30 September 2018: 46,445,043) in issue.

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 27 February 2019 the Company renewed general authority to purchase in the market up to 14.99% of the Ordinary Shares in issue as at 27 February 2019, (previously granted on 27 February 2018). This authority expires on the date of the 2020 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 4 March 2020.

Shareholders' interests

As at 30 September 2019, the Company had been notified in accordance with the Disclosure Guidance and Transparency Rules ("DTR") of the Financial Conduct 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		16.19
City of Bradford Metropolitan District Council		9.81
River and Mercantile Asset Management LLP		8.85
Smith & Williamson Holdings Limited		6.90
Derbyshire County Council		6.25

Between 30 September 2019 and 20 January 2020 the Company received the following additional notifications:

		Percentage of total voting rights (%)
Investec Wealth & Investment Limited		15.96

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 17 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.

The Code of Corporate Governance issued by the Association of Investment Companies ("AIC") in July 2016 ("AIC Code") provides specific corporate governance guidelines to investment companies.

During February 2019, the AIC released an updated AIC Code of Corporate Governance for accounting periods beginning on or after 1 January 2019. The Company has reported against the AIC Code issued in July 2016 and will report against the revised the AIC Code in the Annual Financial Report for the year ended 30 September 2020.

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 AIC Code 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 Report Council ("FRC").

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. 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 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.

There is no information that is required to be disclosed under Listing Rule 9.8.4.

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 and Chairman of the Audit Committee)

· Trudi Clark (Independent non-executive Director, Chairman of the Remuneration and Nomination Committee and Management Engagement Committee)

· Mark Hodgson (Non-executive Director)

Please refer above 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.

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 the investment policy;

· 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.

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, https://microcap.riverandmercantile.com.

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 below.

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 October 2019, 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.

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 October 2019. 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 as detailed below.

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 Committee reviewed the performance of the Chairman in his role and evaluated all the Directors' 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.

	Board	Audit Committee	Management Engagement Committee	Remuneration and Nomination Committee
Number of meetings during the year ended 30 September 2019¹	5	3	1	1
Andrew Chapman	5	3	1	1
Ian Burns	5	3	1	1
Trudi Clark	5	3	1	1
Mark Hodgson	5	2²	1²	1²

¹- Includes a quarterly Board meeting, an Audit Committee meeting, a Management Engagement Committee meeting and a Remuneration and Nomination Committee meeting held on 8 October 2019.

²- Attended with the 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 Incorporation 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 stand for re-election by Shareholders annually, the next occasion being at the AGM to be held on 4 March 2020.

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

The Chairman and all Directors, with the exception of Mark Hodgson, are considered independent of the Manager and the Portfolio Manager. Mark Hodgson, who is independent of the Portfolio Manager, 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.

Details of the remuneration arrangements for the Board and Audit Committee can be found in the Directors' Remuneration Report below and in note 6 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

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.

Performance of the Portfolio Manager

The Board reviews on an ongoing basis the performance of the Portfolio Manager and considers whether the investment strategy adopted is likely to achieve the Company's investment objective.

Having formally appraised the performance, investment strategy and resources of the Portfolio Manager, the Board has unanimously agreed that the interests of the Shareholders as a whole are best served by the continuing appointment of the Portfolio Manager on the terms agreed.

The Board believes that the portfolio management fees are competitive with other investment companies with similar investment mandates. The key terms of the Investment Management agreement and the portfolio management fee charged by the Portfolio Manager are set out in note 4.

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 Committee's evaluation it reviews 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

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, https://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, which has been delegated to the Portfolio Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements and users of the Company's website are responsible for informing themselves of how the requirements in their own countries may differ from those of Guernsey.

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.

f) Internal Control and Risk Management Systems

A description of the main features of internal controls and risk management systems in relation to the financial reporting process can be found below.

Alternative Investment Fund Manager Directive ("AIFMD")

The Company (which is a non-EU AIF for the purposes of the AIFMD and related regimes in EEA member states) has appointed the Manager to act as its Alternative Fund Manager ("AIFM"). The Manager is authorised by the Jersey Financial Services Commission to act as an AIFM on behalf of alternative investment funds ("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 Alternative Investment Fund (AIF), and the AIFM has registered with the UK Financial Conduct Authority, under their relevant national private placement regime.

The Manager has delegated portfolio management of the Company's investment portfolio 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.

The total fee paid to the AIFM by the Company for the year ended 30 September 2019 is disclosed in note 5.

The AIFM is not subject to the provisions of Article 13 of the AIFMD, 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 ten 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 of the AIFM, and a risk officer as control function. All Identified Staff of the AIFM are employees 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 for the AIF for the 12 month period to 31 March 2019 was £31,095 (31 March 2018: £30,845). There was no variable component to this remuneration and none of the AIFM's Identified Staff is 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 20 January 2020 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

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 who attends following invitation from the Audit Committee but does not actively participate in the meetings. Ian Burns is the Chairman of the Audit Committee and is independent of the Manager and Portfolio Manager 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 the Institute of Chartered Accountants in England & Wales. 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 judgement contained within them;

- to advise the Board on whether the Annual Financial Report, 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 Auditor 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, which will be updated for changes resulting from the new UK Corporate Governance code effective from the period beginning 1 October 2019.

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 2018 to 30 September 2019) on Fund Administration dated 17 December 2019, 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 the Board has 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 three occasions and the members' attendance record can be found above.

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 thereof. 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.

External audit process

The Company's external auditor, PricewaterhouseCoopers CI LLP (the "Auditor"), were reappointed on 27 February 2019. 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 2019, 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 2019, 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 2019. No other non-audit services were provided during the year ended 30 September 2019.

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: £45,000 (year-end audit) and the fees for non-audit services were £18,400 for review of the Company's Half-Yearly Report for the period ended 31 March 2019.

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.

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 five years. John Luff has overseen the audit of the Company for the five financial years since inception to 30 September 2019 and therefore Tony Corbin will take over as engagement leader for the year ending 30 September 2020.

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 2020.

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 above was approved by the Board of Directors on 20 January 2020 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 The Companies (Guernsey) Law, 2008, as amended ("Companies Law") and International Financial Reporting Standards ("IFRS").

Companies 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;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

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 with 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.

In accordance with DTR 4.1.12, the Directors confirm to the best of their knowledge that:

· 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; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

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

20 January 2020 20 January 2020

DIRECTORS' REMUNERATION REPORT

This report describes how the Board has applied the principles of the AIC Code relating to Directors' remuneration.

There were no changes to the Board during the year. All Directors will stand for reappointment at the forthcoming AGM to be held on 4 March 2020.

Table of Directors Remuneration

Component	Director	Annual Rate (£)	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 annual 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

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. Each director recuses themselves from participating 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 Remuneration and Nomination Committee may recommend the amendments to 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.

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 last took place in October 2019.

All Directors stand for re-election by Shareholders annually, the next occasion being at the AGM to be held on 4 March 2020. The names and biographies of the Directors holding office at the date of this report are listed above.

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 last election
Andrew Chapman	21 October 2014	27 February 2019
Ian Burns	21 October 2014	27 February 2019
Trudi Clark	21 October 2014	27 February 2019
Mark Hodgson	21 October 2014	27 February 2019

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	20,562
Ian Burns	5,500
Trudi Clark	11,445
Mark Hodgson	22,040

Transactions in Ordinary Shares by Directors are outlined in note 6. Ordinary Shares held by Directors have decreased in line with each compulsory redemption.

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.

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 4 March 2020.

Trudi Clark

Remuneration and Nomination Committee Chair

20 January 2020

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

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 2019, 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.

What we have audited

The Company's financial statements comprise:

● the statement of financial position as at 30 September 2019;

● 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.

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 ethical requirements that are relevant to our audit of the financial statements of the Company, as required by the Crown Dependencies' Audit Rules and Guidance. We have fulfilled our other ethical responsibilities in accordance with these requirements.

Our audit approach

Overview

Materiality

● Overall Company materiality was £0.9 million which represents 1% of net assets.

Audit scope

● The Company is a closed-ended collective investment scheme, incorporated in Guernsey, whose ordinary shares are admitted to trading 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"), River and Mercantile Asset Management LLP (the "Portfolio Manager") and Carne Global AIFM Solutions (C.I.) Limited, the Alternative Investment Fund Manager ("AIFM") all to whom the board of directors has delegated the provision of certain functions.

● 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 Financial Assets designated at fair value through profit or loss ("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.

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	£0.9 million (2018: £1.1 million)
How we determined it	1% 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 of the Company 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 £43,900, 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 £81.4 million (Note 8) held at fair value through profit or loss consist mainly of investments in companies whose securities are admitted to trading on the AIM. Investments are the main driver for the Company's performance and are considered to be a key area of focus for members of the Company. There is a risk that the AIM listed investments are not valued appropriately in accordance with the requirement set out in IFRS 13 for the price to be quoted in an active market in order to be an appropriate measure of fair value.

IFRS 13 defines an active market as a market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

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

· 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 the asset selection and monitoring process with the Portfolio Manager.

· We independently obtained the Investments custody confirmation and reconciled to the Company's accounting records, without exception.

· We tested the valuation of the Investments portfolio by independently agreeing 100% of the prices used in the valuation to a third party pricing provider and recalculated the total valuation as at 30 September 2019.

· We obtained the AIFM's monthly liquidity analysis for the Company's investments and also considered the results presented to the AIFM Risk Committee as at 30 September 2019. For securities the AIFM identified as having low trading volumes relative to the Company's holdings, inquiries were made with the Portfolio Manager to challenge their assessment of the liquidity of those investments. We corroborated the results of these inquiries to supporting documentation such as trades at or about the quoted year-end prices. We concluded that the quoted prices used in the 30 September 2019 valuation were representative of their fair value.

· 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 all the information included in the Annual Financial Report for the year ended 30 September 2019 but does not include the financial statements and our auditor's report thereon.

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.

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of 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.

Auditor's responsibilities for the audit of the 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. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Company and the wider economy.

· 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.

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:

· the directors' statement set out above in relation to going concern. 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

20 January 2020

For the year from 1 October 2018 to 30 September 2019

		Year ended 30 September 2019	Year ended 30 September 2018
	Notes	£	£
Income
Investment income	3	1,177,507	997,614
Net (loss)/gain on financial assets designated at fair value through profit or loss	8	(19,739,019)	27,755,470
Foreign exchange gains		10,026	7,692
Total (loss)/income		(18,551,486)	28,760,776

Expenses
Portfolio performance fees recovery/(expense)	4	1,210,297	(3,620,612)
Portfolio management fees	4	(668,888)	(795,033)
Operating expenses	5	(566,330)	(639,994)
Finance costs	15	(24,726)	(21,246)
Total expenses		(49,647)	(5,076,885)

(Loss)/Profit before taxation		(18,601,133)	23,683,891
Taxation		-	-
(Loss)/Profit after taxation and total comprehensive (loss)/income		(18,601,133)	23,683,891
Basic and diluted (loss)/earnings per Ordinary Share	13	(0.4005)	0.4527

The Company has no items of other comprehensive income, and therefore the (loss)/profit after taxation for the year is also the total comprehensive (loss)/income.

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

The notes below form an integral part of these financial statements.

As at 30 September 2019

		30 September 2019	30 September 2018
	Notes	£	£
Non-current assets
Financial assets designated at fair value through profit or loss	8	81,386,681	102,227,116

Current assets
Cash and cash equivalents		6,543,864	4,674,315
Trade receivables - securities sold awaiting settlement		36,862	819,559
Other receivables	7	202,078	121,637
Total current assets		6,782,804	5,615,511

Total assets		88,169,485	107,842,627

Current liabilities
Trade payables - securities purchased awaiting settlement		(108,088)	-
Other payables	10	(243,203)	(1,423,300)
Total current liabilities		(351,291)	(1,423,300)

Total liabilities		(351,291)	(1,423,300)

Net assets		87,818,194	106,419,327

Capital and reserves
Stated capital	12	-	-
Share premium	12	28,391,852	28,391,852
Retained earnings		59,426,342	78,027,475
Equity Shareholders' funds		87,818,194	106,419,327

The financial statements were approved and authorised for issue by the Board of Directors on 20 January 2020 and signed on its behalf by:

Andrew Chapman Ian Burns

Chairman Audit Committee Chairman

The notes below form an integral part of these financial statements.

For the year ended 30 September 2019

		Stated capital	Share premium	Retained earnings	Total
	Note	£	£	£	£
Opening equity Shareholders' funds at 1 October 2018		-	28,391,852	78,027,475	106,419,327
Total comprehensive loss for the year		-	-	(18,601,133)	(18,601,133)
Closing equity Shareholders' funds at 30 September 2019		-	28,391,852	59,426,342	87,818,194

For the year ended 30 September 2018

		Stated capital	Share premium	Retained earnings	Total
	Note	£	£	£	£
Opening equity Shareholders' funds at 1 October 2017		-	55,333,617	54,343,584	109,677,201
Total comprehensive income for the year		-	-	23,683,891	23,683,891
Transactions with owners, recorded directly in equity
Redemption of Ordinary Shares	12	-	(26,927,065)	-	(26,927,065)
Ordinary Share redemption costs	12	-	(14,700)	-	(14,700)
Closing equity Shareholders' funds at 30 September 2018		-	28,391,852	78,027,475	106,419,327

The notes below form an integral part of these financial statements.

For the year ended 30 September 2019

		Year ended 30 September 2019	Year ended 30 September 2018
	Notes	£	£
Cash flow from operating activities

(Loss)/Profit after taxation and total comprehensive (loss)/income for the year		(18,601,133)	23,683,891

Adjustments to reconcile (loss)/profit after taxation to net cash flows:

- Realised gain on financial assets designated at fair value through profit or loss	8	(3,689,629)	(25,702,170)
- Unrealised loss/(gain) on financial assets designated at fair value through profit or loss	8	23,428,648	(2,053,300)

Purchase of financial assets designated at fair value through profit or loss¹	8	(26,431,000)	(21,826,770)
Proceeds from sale of financial assets designated at fair value through profit or loss²	8	28,423,201	44,141,957

Changes in working capital
Increase in other receivables and prepayments	7	(80,441)	(25,229)
(Decrease)/Increase in other payables	10	(1,180,097)	613,522
Net cash from operating activities		1,869,549	18,831,901

Cash flows from financing activities
Redemption of Ordinary Shares	12	-	(26,927,065)
Ordinary Share redemption costs paid	12	-	(14,700)
Net cash used in financing activities		-	(26,941,765)

Net increase/(decrease) in cash and cash equivalents in the year		1,869,549	(8,109,864)

Cash and cash equivalents at the beginning of the year		4,674,315	12,784,179
Cash and cash equivalents at the end of the year		6,543,864	4,674,315

¹ - Payables outstanding at 30 September 2019 relating to purchases of financial assets designated at fair value through profit amounted to £108,088 (30 September 2018: £nil).

² - Receivables outstanding at 30 September 2019 relating to sales of financial assets designated at fair value through profit amounted to £36,862 (30 September 2018: £819,559).

The notes below form an integral part of these financial statements.

1. General information

The Company was incorporated as a non-cellular company with liability limited by shares in Guernsey under The Companies (Guernsey) Law, 2008 (the "Companies Law") on 2 October 2014. It listed its Ordinary Shares on the Premium Segment of the Official List as maintained by the FCA and was admitted to trading on the Main Market of the London Stock Exchange on 2 December 2014.

The Company has been registered by the GFSC as a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the RCIS Rules 2018. The Company registered number is 59106.

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

2. Accounting policies

The 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.

c) Functional and presentation currency

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 judgements

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.

The Directors have used their judgement to determine that the functional currency is Pounds Sterling (refer to note 2.1 (c) above) and that all financial assets designated at fair value through profit or loss are traded within an active market (note 2.3(c) below).

e) New standards, amendments and interpretations

The Company applied IFRS 9 - Financial Instruments ("IFRS 9") which became effective for the Company from 1 October 2018. This did not result in a restatement of previous financial statements. The nature and effect of this change is disclosed below.

IFRS 9 replaced IAS 39 - Financial Instruments: Recognition and Measurement

IFRS 9 introduced a new approach to the classification of financial assets which is driven by the business model in which the asset is held and their cash flow characteristics. A new business model approach was introduced which does allow certain financial assets to be categorised as "amortised cost" or "fair value through other comprehensive income" in certain circumstances; in other circumstances those assets are measured as "fair value through profit or loss". IFRS 9 carries forward the derecognition requirements of financial assets and liabilities from IAS 39. The Directors have undertaken an assessment of the impact of IFRS 9 on the Company's financial statements and concluded that there is no impact to the recognition and measurement of the Company's financial assets and liabilities.

During the year, a number of other new standards, amendments and interpretations became applicable for the current reporting period which are not relevant to the Company's operations.

There are a number of new standards, amendments and interpretations to existing standards that will become effective in future accounting periods that have not been adopted by the Company.

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 year end exchange rates to Pounds Sterling are recognised in the Statement of Comprehensive Income as foreign exchange 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 2019 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 as they are held for investment purposes. These financial assets 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. Furthermore, these financial assets do not possess contractual cash flows.

Financial assets also include cash and cash equivalents as well as trade receivables and other receivables which are classified at amortised cost using the effective interest rate method.

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 2019, 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 or the main market of the London Stock Exchange. Investments are valued at fair value, which are quoted bid prices for investments traded in active markets.

The Directors determined that an active market exists based on the frequency and volume of transactions of each asset. As all the Company's financial assets are quoted securities which are traded in active markets as at 30 September 2019, in the opinion of the Directors, the quoted price for the financial assets as at 30 September 2019 is representative of fair value.

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

a) Classification

Securities purchased awaiting settlement represent payables for investments that have been contracted for but not yet settled or delivered on 30 September 2019. Financial liabilities include amounts due to brokers and other payables which are held at amortised cost using the effective interest rate method.

b) 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 Dividend 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 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 trade payables

Trade receivables and payables represent securities sold and securities purchased, respectively, that have been contracted for but not yet settled or delivered on the Statement of Financial Position date.

These amounts are recognised initially at fair value and subsequently measured at amortised cost. At each period end, the Company measures the loss allowance on trade receivables at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition. If, the credit risk has not increased significantly since initial recognition, the Company will measure the loss allowance at an amount equal to 12-month expected credit losses.

Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation and default in payments are all considered indicators that a loss allowance may be required. A significant increase in credit risk is defined by the Directors as any contractual payment which is more than 30 days past due.

2.8 Segmental reporting

The Directors view the operations of the Company as one operating segment, being investment in UK micro cap companies. All significant operating decisions are based upon analysis of the Company's investments as one segment. The financial results from this segment are equivalent to the financial results of the Company as a whole, which are evaluated regularly by the chief operating decision-maker (the Board with insight from the Portfolio Manager).

2.9 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 and redemption of existing Ordinary Shares are shown in equity as a deduction from the proceeds.

Please refer to note 12 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 2019 comprises its stated capital, share premium and retained earnings at a total of £87,818,194 (2018: £106,419,327).

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 all three of the Company's objectives regarding capital management have been met. The Company has no imposed capital requirements.

3. Investment income

	Year ended 30 September 2019	Year ended 30 September 2018
	£	£
Dividend income	1,156,888	966,527
Bank interest	20,619	31,087
Total investment income	1,177,507	997,614

4. Portfolio management and performance fees

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

The Manager or the Portfolio Manager may voluntarily terminate the Investment Management agreement by providing six months' notice in writing. The Manager's power to terminate the appointment of the Portfolio Manager under the Investment Management agreement may only be exercised under the direction of the Board and the Manager has agreed to comply with the instructions of the Board as regards to any proposed termination of the Portfolio Manager's appointment.

Under the agreement, the Portfolio Manager is entitled to receive a base fee and performance fee. The Portfolio Manager base fee is payable monthly in arrears at a rate of one-twelfth of 0.75% of NAV. A performance fee equal to 15% of the amount by which the Company's NAV outperforms the total return on the benchmark, (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 was the date of admission and in circumstances in which a performance fee may be payable upon termination of this Agreement, the final closing date shall be the date in which the agreement is terminated. The calculation date is the date determined by the Board for the calculation of the price to be paid on any particular exercise of the redemption mechanism.

The performance fee is only paid when the Company implements the redemption mechanism as detailed in note 12.

During the year ended 30 September 2019, the Company recognised the reversal of the performance fees accrued as at 30 September 2018 of £1,210,297 (during the year ended 30 September 2018 the Company recognised performance fees expense of £3,620,612). As at 30 September 2019, no performance fees were accrued (30 September 2018: £1,210,297) as the Company's NAV total return underperformed the benchmark and no performance fees were paid during the period (30 September 2018: £3,012,821). Please refer to the Financial Highlights and Performance Summary for details of the Company's previous redemptions above.

5. Operating expenses

	Year ended 30 September 2019	Year ended 30 September 2018
	£	£
Administration fees	128,417	165,382
Directors' fees	120,000	120,000
AIFM fees	54,000	54,000
Audit fees	45,000	38,110
Broker fees	40,000	48,231
Transaction fees	32,852	48,016
Non-audit fees	18,400	17,800
Registrar fees	18,214	20,937
Custody fees	17,953	18,968
Legal and professional fees	13,359	29,162
Sundry expenses	78,135	79,388
Total operating expenses	566,330	639,994

Non-audit fees

Non-audit fees incurred during the year ended 30 September 2019 relating to interim review services amounted to £18,400 (2018: £17,800). Non-audit fees payable as at 30 September 2019 were £nil (30 September 2018: £nil).

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 2019 were £13,611 (30 September 2018: nil). The AIFM agreement can be terminated by either the Company or the Manager by giving the other not less than ninety days' written notice or on immediate notice on the occurrence of certain "cause" events.

Custody fee

On 21 October 2014, the Company signed a Global Custody Agreement with the Manager and the Administrator, whereby the Company appointed the Administrator to carry out custodian services. In its role as custodian, the Administrator is entitled to a fee payable by the Company on a transaction by transaction and ad-valorem fee basis. Custody fees payable as at 30 September 2019 were £955 (30 September 2018: £1,101).

Registrar fee

With effect from 19 March 2018, the Company's Registrar has been Computershare Investor Services (Guernsey) Limited. The registrar is entitled to an annual maintenance fee plus disbursements.

Administration fee

On 21 October 2014, the Company signed an agreement with the Administrator to provide administrative, compliance oversight and company secretarial services to the Company. Under the administration agreement, the Administrator will be entitled to a minimum annual fixed fee for fund administration services, company secretarial and compliance services. These fees are paid monthly in arrears. Ad hoc other administration services are chargeable on a time cost basis. In addition, the Company will reimburse the Administrator for any out of pocket expenses. Administration fees payable as at 30 September 2019 were £20,706 (30 September 2018: £10,884).

Broker fee

On 20 January 2015, the Company signed a Corporate Stockbroker and Financial Adviser agreement with Winterflood Investment Trusts (a division of Winterflood Securities Limited) ("Winterflood"), to provide corporate stockbroker and financial adviser services to the Company. Under the agreement, Winterflood was entitled to a fee payable by the Company of £50,000 per annum payable half yearly in arrears.

On 1 August 2018, the Company announced it had replaced Winterflood with Cantor Fitzgerald Europe ("Cantor Fitzgerald"), to provide corporate stockbroker and financial adviser services to the Company as the Company's sole broker. Under the agreement, Cantor Fitzgerald is entitled to a fee payable by the Company of £40,000 per annum payable quarterly in arrears. Total broker fees incurred during the year were £40,000 (30 September 2018: £48,231). Broker fees payable as at 30 September 2019 were £3,333 (30 September 2018: £11,467).

6. Directors' fees and interests

The Directors of the Company were remunerated for their services at a fee of £25,000 per annum (£40,000 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 2019 were £30,000 (2018: £29,589).

On 2 October 2018, Ian Burns purchased 5,500 Ordinary Shares at a price of £2.1250 per share, with a total market value of £11,688.

On 15 July 2019, Andrew Chapman purchased 7,000 Ordinary Shares at a price of £1.6588 per share, with a total market value of £11,612.

As at the date of approval of the Annual Financial Report, Andrew Chapman, Trudi Clark, Mark Hodgson and Ian Burns held 20,562, 11,445, 22,040 and 5,500 Ordinary Shares in the Company respectively. No pension contributions were payable in respect of any of the Directors.

7. Other receivables


	30 September 2019	30 September 2018
	£	£
Dividend receivable	194,378	113,889
Prepayments	6,334	7,705
Bank interest receivable	1,365	42
Ordinary Share receivable	1	1
Total other receivables	202,078	121,637

The Directors believe that these balances are fully recoverable and therefore have not recognised any expected credit losses.

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

The Company has invested the proceeds raised from the initial Ordinary Share issue and subsequent Ordinary Share tap issues in a portfolio of UK micro cap companies in line with its investment strategy. These investments are predominantly comprised of companies whose securities are admitted to trading on the AIM, with a free float market capitalisation of less than £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 2019 Total
Financial assets	£	£	£	£
Financial assets designated at fair value through profit or loss	81,386,681	-	-	81,386,681

	Level 1	Level 2	Level 3	30 September 2018 Total
Financial assets	£	£	£	£
Financial assets designated at fair value through profit or loss	102,227,116	-	-	102,227,116

Financial assets designated at fair value through profit or loss reconciliation

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

30 September 2019	Level 1	Level 2	Level 3	Total
	£	£	£	£
Opening valuation	102,227,116	-	-	102,227,116
Purchases during the year	26,539,088	-	-	26,539,088
Sales - proceeds during the year	(27,640,504)	-	-	(27,640,504)
Realised gain on financial assets designated at fair value through profit or loss¹	3,689,629	-	-	3,689,629
Unrealised loss on financial assets designated at fair value through profit or loss²	(23,428,648)	-	-	(23,428,648)
Closing valuation	81,386,681	-	-	81,386,681

Total net loss on financial assets for the year ended 30 September 2019	(19,739,019)	-	-	(19,739,019)

¹Realised gain on financial assets designated at fair value through profit or loss is made up of £11,956,166 gain and £(8,266,537) loss.

²Unrealised loss on financial assets designated at fair value through profit or loss is made up of £11,314,680 gain and £(34,743,328) loss.

During the year ended 30 September 2019, there were no reclassifications between levels of the fair value hierarchy.

30 September 2018	Level 1	Level 2	Level 3	Total
	£	£	£	£
Opening valuation	97,606,392	-	-	97,606,392
Purchases during the year	21,826,770	-	-	21,826,770
Sales - proceeds during the year	(44,961,516)	-	-	(44,961,516)
Realised gain on financial assets designated at fair value through profit or loss³	25,702,170	-	-	25,702,170
Unrealised gain on financial assets designated at fair value through profit or loss⁴	2,053,300	-	-	2,053,300
Closing valuation	102,227,116	-	-	102,227,116

Total net gain on financial assets for the year ended 30 September 2018	27,755,470	-	-	27,755,470

³Realised gain on financial assets designated at fair value through profit or loss is made up of £28,254,645 gain and £(2,552,475) loss.

⁴Unrealised gain on financial assets designated at fair value through profit or loss is made up of £22,948,843 gain and £(20,895,543) loss.

During the year ended 30 September 2018, 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 2019, none of the investments held are deemed to be illiquid in nature and on this basis are not subject to any special arrangements.

9. 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 currency risk), credit risk and liquidity risk.

9.1 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 2019, 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.

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. Investments limits in place include:

· 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 15% (2018: 15%):

	30 September 2019		Increase by 15%	Decrease by 15%
Financial assets		£	£	£
Financial assets designated at fair value through profit or loss		81,386,681	12,208,002	(12,208,002)

	30 September 2018		Increase by 15%	Decrease by 15%
Financial assets		£	£	£
Financial assets designated at fair value through profit or loss		102,227,116	15,334,067	(15,334,067)

The Directors consider a 15% (2018: 15%) movement to be reasonable given their assessment of the volatility of the AIM market during the year ended 30 September 2019. 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. Furthermore, the Company would be exposed to interest rate risk on any amounts drawn down under the facility detailed in note 15.

The Company has not had any borrowings during the year (2018: £nil). The table below details the Company's exposure to interest rate risks:

	30 September 2019	30 September 2019	30 September 2019
	Interest bearing (*)	Non-interest bearing	Total
	£	£	£
Assets
Financial assets designated at fair value through profit or loss	-	81,386,681	81,386,681
Cash and cash equivalents	6,543,864	-	6,543,864
Trade receivables - securities sold awaiting settlement	-	36,862	36,862
Other receivables (excluding prepayments)	-	195,744	195,744
Total assets	6,543,864	81,619,287	88,163,151

Liabilities
Trade payables - securities purchased awaiting settlement	-	(108,088)	(108,088)
Other payables	-	(243,203)	(243,203)
Total liabilities	-	(351,291)	(351,291)
Total interest sensitivity gap	6,543,864	81,267,996	87,811,860

^*- floating rate and due within 1 month

	30 September 2018	30 September 2018	30 September 2018
	Interest bearing (*)	Non-interest bearing	Total
	£	£	£
Assets
Financial assets designated at fair value through profit or loss	-	102,227,116	102,227,116
Cash and cash equivalents	4,674,315	-	4,674,315
Trade receivables - securities sold awaiting settlement	-	819,559	819,559
Other receivables (excluding prepayments)	-	113,932	113,932
Total assets	4,674,315	103,160,607	107,834,922

Liabilities
Other payables	-	(1,423,300)	(1,423,300)
Total liabilities	-	(1,423,300)	(1,423,300)
Total interest sensitivity gap	4,674,315	101,737,307	106,411,622

^*- 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 2019	30 September 2018
	£	£
Increase of 50 basis points	32,719	23,372
Decrease of 50 basis points	(32,719)	(23,372)

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.

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

During the year ended 30 September 2019 and 30 September 2018, 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 2019, the Company entered into nil (2018: nil) currency purchase spot contracts to mitigate the foreign currency exposure.

As at 30 September 2019, USD cash of $131,279 (2018: $77,738) and income receivable of $nil (2018: $31,978) were held. Any reasonable change in foreign exchange rates will have an immaterial impact and therefore no sensitivity analysis has been provided.

9.2 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 cash and cash equivalents, trade receivables - securities sold awaiting settlement and other receivables.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

	30 September 2019	30 September 2018
	£	£
Cash and cash equivalents	6,543,864	4,674,315
Trade receivables - securities sold awaiting settlement	36,862	819,559
Other receivables (excluding prepayments)	195,744	113,932
Total assets	6,776,470	5,607,806

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 with a credit rating of A+ (2018: A) 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.

All transactions in listed securities are settled for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation.

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. The Company did not participate in stock lending during the year.

9.3 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 to ensure that the Company maintains sufficient working capital in cash or near cash form 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 a going concern. The Company's investments all comprise of investments in companies whose securities are admitted to trading on AIM. The Company would expect to be able to liquidate a sufficient number of 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 2019:

Maturity analysis of financial liabilities

	Less than 3 months	3 to 12 months	More than 1 year	Total
	£	£	£	£
Financial liabilities
Other payables¹	(225,203)	(18,000)	-	(243,203)
Total undiscounted financial liabilities	(225,203)	(18,000)	-	(243,203)

The table below shows the residual contractual maturity of the financial liabilities as at 30 September 2018:

	Less than 3 months	3 to 12 months	More than 1 year	Total
	£	£	£	£
Financial liabilities
Other payables¹	(197,702)	(1,225,598)	-	(1,423,300)
Total undiscounted financial liabilities	(197,702)	(1,225,598)	-	(1,423,300)

¹- Included in other payables is a performance fee payable of £nil (2018: £1,210,297). 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.

10. Other payables

	30 September 2019	30 September 2018
	£	£
Portfolio management fees	54,886	66,512
Audit fees	45,000	38,110
Directors' fees	30,000	29,589
Administration fees	20,706	10,884
AIFM fees	13,611	-
Broker fees	3,333	11,467
Registrar fees	1,000	583
Custody fees	955	1,101
Portfolio performance fees	-	1,210,297
Sundry expenses	73,712	54,757
Total other payables	243,203	1,423,300

11. Contingent liabilities and commitments

As at 30 September 2019, the Company had no contingent liabilities or commitments (2018: nil).

12. Stated capital and share premium

Authorised

The authorised share 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 share capital as at 1 October 2018	46,445,043	-	28,391,852
Ordinary Shares redeemed during the year	-	-	-
Total issued share capital as at 30 September 2019	46,445,043	-	28,391,852

	Number of shares	Stated capital £	Share premium £
Total issued share capital as at 1 October 2017	59,795,329	-	55,333,617
Ordinary Shares redeemed during the year	(13,350,286)	-	(26,941,765)
Total issued share capital as at 30 September 2018	46,445,043	-	28,391,852

As at 30 September 2019, the Company had 46,445,043 Ordinary Shares (2018: 46,445,043) in issue.

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

The Board anticipates that returns to Shareholders will be made through the Company's redemption mechanism and therefore does not expect that the Company will pay any dividends.

No dividends have been declared or paid during the year (2018: nil).

Issuance of Ordinary Shares

No Ordinary Shares were issued during the year ended 30 September 2019 (2018: nil Ordinary Shares issued).

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

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

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

On 1 December 2017, the Company completed its second compulsory redemption of Ordinary Shares where 7,843,469 Ordinary Shares were redeemed and cancelled at a redemption price of £1.9124 per Ordinary Share, (which excludes costs of redemption of £9,000), returning £14,999,850 to Shareholders.

On 27 July 2018, the Company completed its third compulsory redemption of Ordinary Shares where 5,506,817 Ordinary Shares were redeemed and cancelled at a redemption price of £2.1659 per Ordinary Share (which excludes costs of redemption of £5,700), returning £11,927,215 to Shareholders.

13. Basic and diluted earnings per Ordinary Share


	Year ended 30 September 2019	Year ended 30 September 2018
	£	£
Total comprehensive (loss)/income for the year	(18,601,133)	23,683,891
Weighted average number of Ordinary Shares during the year	46,445,043	52,312,195
Basic and diluted (loss)/earnings per Ordinary Share	(0.4005)	0.4527

14. Net Asset Value per Ordinary share


	30 September 2019	30 September 2018
	£	£
Net Asset Value	87,818,194	106,419,327
Number of Ordinary Shares at year end	46,445,043	46,445,043
Net Asset Value per Ordinary Share	1.8908	2.2913

15. Finance costs

On 9 December 2016, the Company entered into a Sterling Facility Agreement (the "Facility") 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.

Loan interest of 2.05% per annum over LIBOR would have been paid on any outstanding loan amounts and a loan commitment fee of 0.50% per annum was payable on the available commitment, being £2,000,000 less the amount of any outstanding loan, during the availability period. In addition, a loan arrangement fee of £8,000 was paid on the date of the facility agreement.

The Company agreed to adhere to the following covenants under the terms of the Facility at all times during the availability period:

· any amounts drawn down did not exceed 20% of the NAV of the Company;

· that the gross value of the Company's investment assets quoted on the London Stock Exchange's Main and Alternative Investment Markets (and any additional assets subject to prior approval by all parties) exceeded any amounts drawn down by three times; and

· that the NAV of the Company was not less than £30,000,000.

On 13 December 2017, the Company signed an Extension and Amendment Agreement that varied the terms of the Facility entered into on 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. A loan extension fee of £8,000 was paid, on the date of the Extension and Amendment Agreement. The termination date was amended to be 7 December 2018.

On 11 December 2018, the Company signed an Extension Agreement that varied the terms of the Facility entered into on 9 December 2016, as amended on 13 December 2017. With effect from 7 December 2018, the Facility was extended for 364 days to 6 December 2019 and the Company incurred an extension fee of £8,000. There was no change to the loan commitment, loan commitment fee or interest rate.

The Board decided not to renew the Facility, which subsequently expired on 6 December 2019.

16. 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.

As at 30 September 2019, the Portfolio Manager held 4,110,768 (2018: 4,310,768) voting rights in the Company.

George Ensor 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 20,170 (2018: 20,170) Ordinary Shares in the Company.

The Directors are entitled to remuneration for their services. Please refer to note 6 for further detail of Ordinary Shares held in the Company by Andrew Chapman, Ian Burns, Trudi Clark and Mark Hodgson. Mark Hodgson is the Managing Director of the Manager.

For Directors' fees, portfolio management fees and AIFM fees payable as at 30 September 2019 please refer to note 10.

17. 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 annual financial statements, which would have a material impact on the annual financial statements of the Company as at 30 September 2019.

During the period 30 September 2019 to 14 January 2020, the NAV per share increased by 4.10% from £1.8908 to £1.9684.

18. Controlling party

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

USEFUL INFORMATION FOR SHAREHOLDERS

Alternative performance measures disclosure

In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs") the Board has considered what APMs are included in the Annual Financial Report and financial statements which require further clarification. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the financial statements, which are unaudited and outside the scope of IFRS, are deemed to be as follows:

NAV total return vs benchmark

The NAV total return measures how the NAV per Ordinary Share has performed over a period of time, taking into account of capital returns. The Company quotes NAV total return as a percentage change from the initial issuance of Ordinary Shares to 30 September 2019. The Company has not declared a dividend since inception.

The Board monitors the Company NAV total return against the Numis Smaller Company plus Alternative Investment Market ("AIM") (excluding Investment Companies) Index.

Please refer to Financial Highlights and Performance Summary section above for NAV total return vs benchmark analysis.

NAV to market price discount / premium

The NAV per share is the value of all the Company's assets, less any payables it has, divided by the total number of Ordinary Shares. However, because the Company's Ordinary Shares are traded on the London Stock Exchange's Main Market, the share price may be higher or lower than the NAV. The difference is known as a discount or premium. The Company's discount / premium to NAV is calculated by expressing the difference between the Ordinary Share price (bid price)¹ and the NAV per share on the same day compared to the NAV per share on the same day.

At 30 September 2019, the Company's Ordinary Shares traded at £1.5700 (2018: £2.1100), reflecting a discount of 16.97% (2018: discount of 7.91%) to the NAV per Ordinary Share of £1.8908 (2018: £2.2913).

Ongoing charges

The ongoing charges ratio for the year ended 30 September 2019 was 1.30% (2018: 1.25%). The AIC's methodology for calculating an ongoing charges figure is based on annualised ongoing charges of £1,188,439 (2018: £1,330,301) divided by average NAV in the period of £89,980,648 (2018: £106,044,349).

Calculating ongoing charges

The ongoing charges are based on actual costs incurred in the year excluding any non-recurring fees in accordance with the AIC methodology. Expense items have been excluded in the calculation of the ongoing charges figure when they are not deemed to meet the following AIC definition:

"Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the investment company as a collective fund, excluding the costs of acquisition/disposal of investments, financing charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs."

Please refer below for ongoing charges reconciliation for the years ended 30 September 2019 and 30 September 2018:

	30 September 2019 £	30 September 2018 £
Total expenses for the year:	49,647	5,076,885
Expenses excluded from the calculation of ongoing charges figures, in accordance with AIC's methodology:
Portfolio Performance fees recovery/(expense)	1,210,297	(3,620,612)
Legal and professional fees	(5,928)	(21,191)
Sundry expenses	(30,684)	(35,519)
Transaction fees	(32,852)	(48,016)
Finance costs	(24,726)	(21,246)
Total ongoing charges for the year	1,165,754	1,330,301

Calculating an average NAV

The AIC's methodology for calculating average NAV for the purposes of the ongoing charges figure is to use the average of NAV at each NAV calculation date. On this basis the average NAV figure has been calculated using the daily NAVs over the years ended 30 September 2019 and 30 September 2018.

¹ - Source: Bloomberg

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 Branch¹
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 Branch¹
Green Street St Helier Jersey JE2 4UH		BNP Paribas House St Julian's Avenue St Peter Port Guernsey GY1 1WA
Corporate Broker		Registrar
Cantor Fitzgerald Europe One Churchill Place Canary Wharf		Computershare Investor Services (Guernsey) Limited 1^st Floor, Tudor House
London E14 5RB		Le Bordage St Peter Port Guernsey GY1 1DB
Solicitors to the Company
(as to English law) CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place 78 Cannon Street London EC4N 6AF

¹ - BNP Paribas Securities Services S.C.A. Guernsey Branch is regulated by the Guernsey Financial Services Commission.

The Company has published the Annual Financial Report for the year ended 30 September 2019 on its website (https://microcap.riverandmercantile.com/literature/annual-reports). The 2019 Annual Financial Report includes the Company's results for the year ended 30 September 2019.

Enquiries:

Cantor Fitzgerald Europe

Robert Peel

Tel: +44 (0) 20 7894 7719

River and Mercantile Asset Management LLP

James Barham

Tel: +44 (0) 20 7601 6262

Camarco

PR Agency

Rebecca Noonan

Tel: +44 (0) 20 3757 4981

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

Jasper Cross

Tel: +44 (0) 1481 750859

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

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

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

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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River UK Micro Cap Limited (RMMC)

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