Annual Financial Report

RNS Number : 8234B

Mercantile Investment Trust(The)PLC

06 April 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST JANUARY 2017

Legal Entity Identifier: 549300BGX3CJIHLP2H42

Information disclosed in accordance with the DTR 4.1.3

The Directors of The Mercantile Investment Trust plc announce the Company's results for the year ended 31st January 2017.

Chairman's Statement

Performance

Over the year to 31st January 2017, the Company returned 6.1% (cum income, debt at par) against 12.5% for the benchmark. Share price total return was 4.3%. As mentioned in the Half Year Report, the Company underperformed in the first half of the current financial year by being positioned wrongly for the outcome of the EU referendum. In the second half of the year the Company outperformed its benchmark, both in performance and share price total return, but that did not compensate for the loss incurred by the incorrect positioning of the portfolio for the EU referendum in June.

Returns and Dividends

Earnings per share increased from 51.5p to 53.2p, compared with the year ended 31st January 2016. The Company has paid three interim dividends of 10.25p per ordinary share over the year under review and the Board has declared a fourth quarterly interim dividend of 15.25p, giving a total dividend of 46.0p per share for the year, a 7.0% increase on last year's total dividend of 43.0p per share.

The Board intends to declare the first three interim dividends for the current year ending 31st January 2018 at 10.5p per ordinary share. The level of the fourth interim dividend will be determined by the Board following the end of the financial year and will depend on the level of dividends received and anticipated by the Company. The Board recognises the importance to shareholders of a smooth flow of dividends and also of maintaining a strong revenue reserve. At the year end, taking account of the payment of the fourth interim dividend, the revenue reserve stood at £36.7 million, which is the equivalent to 42.2p per share.

Discount and Share Buybacks

Over the year under review, the discount widened from 10.6% to 12.5% on the basis of a cum income net asset value calculation, with debt valued at par. Using a cum income valuation with debt at fair value, the discount has widened from 7.4% to 8.6%. I would urge you to refer to page 20 of the Annual Report where there is an explanation of the calculation methodologies.

During the year a total of 8,976,621 shares were repurchased, amounting to 9.4% of the issued share capital at the beginning of the year, at a total cost of approximately £150 million. Of those, 1,507,822 shares were cancelled and the balance held in Treasury. Share buy backs during the year under review have added approximately 16.13p to the net asset value per share.

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

Gearing

The Company ended the year with gearing of 2.5%. During the year gearing varied between 8.3% net cash and 2.5% geared (using month end data). It is the Board's intention to continue to operate within the range of 10% net cash to 20% geared, under normal market conditions. Gearing is regularly discussed between the Board and the Investment Managers. The Company has long term debenture gearing, details of which are set out on the Features page of the Annual Report.

Board

All Directors other than myself will stand for annual reappointment, in line with the Company's policy. See the Directors' biographies on pages 23 and 24 of the Annual Report for further details.

As announced in last year's Annual Report, I will retire from the Board at the conclusion of the AGM and Angus Gordon Lennox will succeed me as Chairman. Angus Gordon Lennox has very considerable experience in financial services and particularly in the investment trust sector and I am delighted that the Board has chosen him to succeed me as Chairman.

The Board undertakes a formal and rigorous annual evaluation of its performance, and that of its committees, the individual Directors and myself as the Chairman. Further details of this are given in the Corporate Governance Statement within the Annual Report.

Board Apprentice

In 2016 the Board decided once again to participate in the initiative launched by Board Apprentice Limited, a not-for-profit company with the objective of promoting diversity. Our current Board Apprentice, Anjola Adeniyi, is not paid, although the Company does reimburse reasonable expenses.

Investment Managers

The Company's investment management team, which continues to be led by Guy Anderson, had a very good year to 31st January 2016. Last year it was positioned incorrectly for the outcome of the EU referendum. The Board continues to monitor the performance of the Manager on a regular basis.

Management Fee Change

During the year the Board was very pleased to reach agreement with JPMorgan on a reduction in the management fee. With effect from 1st February 2017 the fee has been reduced from 0.5% of the Company's market capitalisation to 0.475% and it will further reduce to 0.45% with effect from 1st February 2018. This agreement recognises the changing conditions within the fund management industry and it ensures that the Company's shareholders benefit from an ongoing charges ratio that remains amongst the most competitive in the investment trust market.

Changes to the Company's Articles of Association

The Board is recommending to shareholders that the Company adopt new Articles of Association to update the investment restriction provisions (which are set out in the Investment Restrictions and Guidelines in any event). Although the total fees paid to Directors will fall by £36,000 this year following the retirement of the Chairman, the Board is also proposing an increase in the maximum aggregate annual limit on Directors' fees from £300,000 to £400,000. This will provide scope for future recruitment and fee increases. Further, there are some minor revisions which accommodate changes to the Alternative Investment Fund Managers Directive ('AIFMD') and to international tax regimes. Please refer to the Appendix to the Notice of AGM in the Annual Report.

Annual General Meeting

The Company's one hundred and thirty first AGM will be held at Trinity House, Tower Hill, London EC3N 4DH on Wednesday 24th May 2017 at 12.00 noon. In addition to the formal part of the meeting, there will be a presentation from the Investment Managers who will answer questions on the portfolio and performance. The meeting will be followed by a buffet lunch which will give shareholders an opportunity to meet the Board, the Investment Managers and representatives of JPMorgan. I look forward to seeing as many shareholders as possible at the meeting.

Outlook

We entered 2017 with a positive macroeconomic backdrop. Industrial lead indicators suggest that global economic growth is accelerating and this growth appears to be broadly based by region and industry.

However, economic growth will not be without its challenges. The fall in the value of sterling, combined with an increase in global commodity prices, will lead to imported inflation in the UK this year. This inflation will need to be absorbed either by the margins of businesses, through higher prices for consumers, or both. With time this may also result in a rising interest rate environment from which there will be a number of winners and losers.

To date the effects of the EU referendum have had a limited impact on company results. The fall in the value of sterling has been a net beneficiary to some businesses with UK operations but internationally diverse revenues. The Board and our Investment Managers remain positive that the UK market is positioned to perform strongly in the long term and that attractively valued medium and small sized companies are well placed to continue to perform well.

Hamish Leslie Melville

Chairman                                                                                                                                             

6th April 2017

Investment Managers' Report

Market background: a year of change

The UK equity market delivered a resilient performance last year, with the FTSE All-Share generating a total return of 20.1% for the twelve months ended 31st January 2017. However, the trajectory was far from smooth. Having recovered from the start of year sell-off that was driven primarily by concerns over the pace of Chinese economic growth, the market generated minor gains up until June when the focus turned to the EU referendum. Following the vote to leave the EU there was an immediate and sharp sell-off. This was then recouped through July following a swift political transition to Theresa May as Prime Minister and the actions of the Bank of England to reduce interest rates and introduce a further round of quantitative easing. The market then entered somewhat of a holding pattern through the third quarter, before regaining momentum in the final quarter, as the UK economy proved itself to be more resilient than had been expected and as international growth showed signs of acceleration.

However, underlying this aggregate view there was a notable difference between the different components of the market, with the FTSE 100 returning 21.5% compared to 12.5% for those companies outside of the FTSE 100, as represented by the FTSE All-Share Index excluding FTSE 100 constituents and investment trusts (the 'Benchmark'). This divergence was particularly notable in the week that followed the EU referendum as the more internationally focused FTSE 100, buoyed by the depreciation of sterling, outperformed the more domestically oriented Benchmark by nearly ten percentage points.

Mercantile performance: a challenging year

Following a strong performance in the previous year, the Company had a more difficult twelve months; the return on net assets was 6.1%, behind the 12.5% return from the Benchmark. The share price total return was 4.3%, reflecting the widening of the discount experienced early in the year that did not fully reverse. Pleasingly however, this was another robust year for income in the portfolio, which has supported the 7.0% increase in dividend payable as announced.

Mercantile Performance

Our negative relative performance was driven by stock selection as well as the conservative level of market exposure, where holding a net cash position proved to be a drag on returns in what was ultimately a positive market environment. While this latter component is of course disappointing, we believe that through periods of heightened risk the preservation of capital does merit a greater focus.

While there are of course a myriad of performance drivers, last year there were two significant negative factors that had the greatest impact on relative performance. The first and lesser of those was Mining, which at a sector level was the largest detractor. The portfolio had benefitted from not holding any miners in the previous year as the sector was under tremendous pressure due to industry over-capacity and the subsequent weakness of commodity prices. However, 2016 marked a turning point with commodity prices recovering and the stocks that benefit from this more than doubling in aggregate over the course of the year, and thus driving relative underperformance. In our outlook piece last year we highlighted that it would be hard to judge the exact timing of our move into this sector, but it is nevertheless disappointing to have been slow in this regard.

The second and more significant driver of performance was an event rather than a single stock or sector: the portfolio suffered significant negative relative performance in the week that followed the outcome of the referendum on EU membership. In the immediate aftermath of the referendum share price performance at a stock and sector level diverged sharply. This was due to a combination of the different currency exposures of those companies and the increase in perceived risks for the domestic economy. In broad terms this led to outperformance of international and defensive earners and the underperformance of domestic and cyclical earners. As the portfolio was overweight domestic consumer and underweight international, this led to significant underperformance through that week. Pleasingly, performance has improved since July and the portfolio outperformed the Benchmark in the second half of the year.

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

While our investment approach is primarily focused on company specific analysis and stock selection, we remain aware of the broader macro-economic conditions and trends that may influence the relative attractiveness of different industries over time and this year was a year of adjustment in that regard. The most material changes to the portfolio positioning occurred after the EU referendum and reflected two factors: on the one hand the increased level of uncertainty over the outlook for the UK economy and therefore domestic consumption, and on the other hand the potentially improving outlook for industrial markets, most of which are more international in nature. Reflecting these two factors the portfolio has increased its exposure to more internationally facing and industrial companies at the expense of more domestically facing and consumer exposed companies. For example, we made new investments in Spirax-Sarco Engineering and Fenner, while exiting from holdings in Dixons Carphone, Greggs and Halfords.

Last year we explained our positive view of the domestic consumer, as 'the slight uptick in earnings combined with negligible inflation has ushered forth a period of sustained real wage growth'. While disposable income has increased and encouragingly consumption has thus far remained robust, this is no longer a prominent theme for the portfolio, given the increasing evidence of inflation and therefore risks to real wage growth and future consumption. In contrast to this and as highlighted above, we have increased our exposure to industrial companies, where the combination of an improving outlook for global industrial production and increasing inflation should provide a positive operating environment after an extended period of limited activity and minimal growth.

Fundamentally, we remain confident about the investment opportunities that can be found in our market and the structural advantages of investing in medium- and small-sized companies. Across the portfolio we remain excited about the prospects of our holdings in a broad range of industry sectors, but perhaps none more so than the disruptive business models that are thriving from a host of structural changes underway in the industries that they serve. Examples would include the online marketplaces such as Just Eat and Auto Trader - two companies that we have held since their Initial Public Offerings - and companies that are using technology to increase both their efficiency and the attractiveness of their customer offerings, such as Rentokil and Marshalls.

In terms of aggregate market exposure, the portfolio ended the year 2.5% geared which, while modest, was the highest level of gearing reached in the year. This reflected several factors: for the past few months global economic growth has shown signs of improvement, forecasts for UK economic growth have been revised upwards from very low levels and there are signs of increasing but crucially still moderate levels of inflation. These factors combined should provide a positive backdrop for equities. Counterbalancing this somewhat, there remain a whole host of domestic and international political uncertainties that must be faced in the year ahead and which will inevitably cause periods of increased market volatility. Reflecting these factors, we believe that it is appropriate to be modestly but positively geared and are 5.8% geared at the time of writing, leaving us with plenty of capacity to take advantage of any market driven or company specific opportunities for further reinvestment.

Guy Anderson

Martin Hudson

Anthony Lynch

Investment Managers

6th April 2017

PRINCIPAL RISKS

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

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

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

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

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

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

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

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

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

•   select suitable accounting policies and then apply them consistently;

•   make judgements and estimates that are reasonable and prudent;

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

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

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

and the Directors confirm that they have done so.

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

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

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

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

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

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

For and on behalf of the Board

Hamish Leslie Melville

Chairman

6th April 2017

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST JANUARY 2017

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through
profit or loss	-	45,220	45,220	-	177,274	177,274
Net foreign currency (losses)/gains	-	(2)	(2)	-	85	85
Income from investments	55,112	-	55,112	55,783	-	55,783
Interest receivable and similar income	1,257	-	1,257	1,065	-	1,065
Gross return	56,369	45,218	101,587	56,848	177,359	234,207
Management fee	(2,173)	(5,071)	(7,244)	(2,279)	(5,317)	(7,596)
Other administrative expenses	(1,382)	-	(1,382)	(1,362)	-	(1,362)
Net return on ordinary activities before finance
costs and taxation	52,814	40,147	92,961	53,207	172,042	225,249
Finance costs	(3,335)	(7,783)	(11,118)	(3,345)	(7,806)	(11,151)
Net return on ordinary activities before taxation	49,479	32,364	81,843	49,862	164,236	214,098
Taxation	(183)	-	(183)	(282)	-	(282)
Net return on ordinary activities after taxation	49,296	32,364	81,660	49,580	164,236	213,816
Return per share (note 3)	53.20p	34.93p	88.13p	51.46p	170.47p	221.93p

Dividends declared in respect of the financial year ended 31st January 2017 total 46.0p (2016: 43.0p) per share amounting to £41,433,000 (2016: £41,320,000).

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

The 'Total' column of this statement is the profit and loss account of the Company, and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return on ordinary activities after taxation represents the profit for the year and also Total Comprehensive Income.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST JANUARY 2017

	Called up	Share	Capital
	share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserves	reserve 1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st January 2015	24,426	23,459	12,344	1,615,974	36,893	1,713,096
Repurchase and cancellation of
the Company's own shares	(437)	-	437	(27,955)	-	(27,955)
Net return on ordinary activities	-	-	-	164,236	49,580	213,816
Dividends paid in the year	-	-	-	-	(45,227)	(45,227)
At 31st January 2016	23,989	23,459	12,781	1,752,255	41,246	1,853,730
Repurchase and cancellation of Company's
own shares	(377)	-	377	(25,073)	-	(25,073)
Repurchase of shares into Treasury	-	-	-	(125,610)	-	(125,610)
Net return on ordinary activities	-	-	-	32,364	49,296	81,660
Dividends paid in the year	-	-	-	-	(40,564)	(40,564)
At 31st January 2017	23,612	23,459	13,158	1,633,936	49,978	1,744,143

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

STATEMENT OF FINANCIAL POSITION AT 31ST JANUARY 2017

	2017	2016
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,787,131	1,775,622
Current assets
Debtors	10,945	6,185
Cash and short term deposits	38,295	162,719
Cash equivalents: liquidity funds	99,763	99,925
	149,003	268,829
Creditors: amounts falling due within one year	(14,415)	(13,242)
Net current assets	134,588	255,587
Total assets less current liabilities	1,921,719	2,031,209
Creditors: amounts falling due after more than one year	(177,576)	(177,479)
Net assets	1,744,143	1,853,730
Capital and reserves
Called up share capital	23,612	23,989
Share premium	23,459	23,459
Capital redemption reserve	13,158	12,781
Capital reserves	1,633,936	1,752,255
Revenue reserve	49,978	41,246
Total shareholders' funds	1,744,143	1,853,730
Net asset value per share (note 4)	2,005.2p	1,931.8p

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST JANUARY 2017

	2017	2016
	£'000	£'000
Net cash outflow from operations before dividends and interest	(8,427)	(9,076)
Dividends received	55,055	53,827
Interest received	944	840
Overseas tax recovered	412	-
Interest paid	(11,060)	(11,058)
Net cash inflow from operating activities	36,924	34,533
Purchases of investments	(732,866)	(726,385)
Sales of investments	755,321	838,773
Settlement of foreign currency contracts	15	(21)
Net cash inflow from investing activities	22,470	112,367
Dividends paid	(40,564)	(45,227)
Repurchase and cancellation of the Company's own shares	(25,073)	(32,201)
Repurchase of shares into Treasury	(118,356)	-
Net cash outflow from financing activities	(183,993)	(77,428)
(Decrease)/increase in cash and cash equivalents	(124,599)	69,472
Cash and cash equivalents at start of year	262,644	193,167
Exchange movements	13	5
Cash and cash equivalents at end of year	138,058	262,644
(Decrease)/increase in cash and cash equivalents	(124,599)	69,472
Cash and cash equivalents consist of:
Cash and short term deposits	38,295	162,719
Cash held in JPMorgan Sterling Liquidity Fund	99,763	99,925
Total	138,058	262,644

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST JANUARY 2017

1. Accounting Policies

     Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'Financial Reporting Standard applicable in the UK and Republic of Ireland' and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014.

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

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

The policies applied in these financial statements are consistent with those applied in the preceding year, except for the following matters:

In March 2016, the FRC published amendments to FRS 102 concerning the fair value hierarchy disclosures. These amendments are effective for accounting periods beginning on or after 1st January 2017. Full disclosure is given in note 23 to the Financial Statements.

2. Dividends

(a)     Dividends paid and proposed

	2017	2016
	£'000	£'000
Dividends paid
Unclaimed dividends refunded to the Company1	(26)	(14)
2016 fourth quarterly dividend of 13.0p (2015: 17.0p) paid to shareholders in May	12,422	16,395
First quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders in August	9,648	9,625
Second quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders
in November	9,471	9,625
Third quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders in February	9,049	9,596
Total dividends paid in the year	40,564	45,227
	2017	2016
	£'000	£'000
Dividends proposed
Fourth quarterly dividend declared of 15.25p (2016: 13.0p) payable to
shareholders in May	13,265	12,474
Total proposed dividend	13,265	12,474

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

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

The fourth quarterly dividend declared in respect of the year ended 31st January 2016 amounted to £12,474,000. However, the amount paid amounted to £12,422,000 due to share repurchases after the balance sheet date but prior to the share register record date.

The fourth quarterly dividend has been declared in respect of the year ended 31st January 2017. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st January 2018.

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

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £49,296,000 (2016: £49,580,000). The maximum amount of income that the Company is permitted to retain under Section 1158 is £8,455,000 (2015: £8,527,000), calculated as 15% of total income. Therefore the minimum distribution required by way of dividend is £40,841,000 (2015: £41,053,000).

	2017	2016
	£'000	£'000
First quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders in August	9,648	9,625
Second quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders in November	9,471	9,625
Third quarterly dividend of 10.25p (2016: 10.0p) paid to shareholders in February	9,049	9,596
Fourth quarterly dividend of 15.25p (2016: 13.0p) payable in May	13,265	12,474
	41,433	41,320

3.  Return per share

	2017	2016
	£'000	£'000
Revenue return	49,296	49,580
Capital return	32,364	164,236
Total return	81,660	213,816
Weighted average number of shares in issue during the year	92,666,092	96,340,857
Revenue return per share	53.20p	51.46p
Capital return per share	34.93p	170.47p
Total return per share	88.13p	221.93p

4.  Net asset value per share

	2017	2016
Net assets (£'000)	1,744,143	1,853,730
Number of shares in issue	86,980,419	95,957,040
Net asset value per share	2,005.2p	1,931.8p

5.     Status of results announcement

2016 Financial Information

The figures and financial information for 2016 are extracted from the Annual Report and Accounts for the year ended 31st January 2016 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2017 Financial Information

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

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

JPMORGAN FUNDS LIMITED             

ENDS

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

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

JPMORGAN FUNDS LIMITED

 

END

 

 

FR UNUARBKASRAR