Company Announcements

LONDON STOCK EXCHANGE ANNOUNCEMENT

THE MERCANTILE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST JANUARY 2020

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 2020.

Chairman's Statement

As I write, in mid April, the world is in the midst of the COVID-19, Coronavirus crisis. This has reared its very ugly head after the period on which the annual report covers but such is the impact it has had on markets, and is expected to have on economies, it would be remiss of me not to cover this pandemic first. Whatever I write now will likely be out of date tomorrow, but the Company has given up the excellent hard-earned performance over the year the report relates to. As of 8th April the NAV was 183.32p and the share price was 190.4p.

The rest of this statement covers the year to the end of January, as it should, but it is written with a heavy heart knowing how the reaction to, and the effects of, this horrendous virus may impact on all of our stakeholders' lives.

Performance

Before the virus struck the year to 31st January 2020 was a positive one for investors in UK medium and smaller companies, as measured by our benchmark index, the FTSE All-Share Index (excluding constituents of the FTSE 100 Index and investment trusts), which returned +16.7%. It was an even better one for our shareholders. The Company out performed our benchmark, producing a return on net assets of +28.0%. This performance is a great credit to our Investment Managers and once again emphasises the benefit of active investment over passive funds. The return to shareholders was an even more impressive +40.2%, as the discount at which the Company's shares trade narrowed over the year from 9.3% to 1.4% (measured using the cum-income net asset value and with the Company's debentures fair valued).

This continues the Company's outstanding long term performance with both the net asset value and share price also having significantly outperformed the benchmark over two, three, five and ten years. Not only has the Company outperformed its UK mid and small cap benchmark over those periods, but that benchmark has continued to outperform significantly the broader UK market. In fact over the past 20 years the FTSE 250 Index, excluding investment trusts, has outperformed the FTSE 100 Index by more than 2% per annum.

Returns and Dividends

The revenue per share increased to 7.64p, from 7.47p in 2019. We have paid three interim dividends of 1.35p per ordinary share in respect of the year to 31st January 2020. The Board has declared a fourth quarterly interim dividend of 2.55p, giving a total dividend of 6.6p per share for the year, an increase of 4.8% on last year's total dividend of 6.3p per share.

Many companies are cutting or postponing dividends so it is very likely our own income will fall this year. At the year end, taking account of the payment of the fourth interim dividend, the revenue reserve stood at £62.8 million, which is equivalent to 7.9p per share and the Board is very conscious of the importance of dividends to many shareholders. Our aim continues to be to increase the dividend at least in line with the rate of inflation.

Discount, Share Buybacks and Share Issuance

Over the course of the year, the discount on the Company's shares narrowed sharply from 9.3% to 1.4%. This reflects firstly the Company's excellent performance but also a more stable political situation, the "Boris Bounce", and renewed demand for UK companies which had been shunned whilst political instability reigned. The Company bought back significantly fewer shares this year than in past years. However, if required the Board will use the share repurchase authority to enhance value and, where necessary, to manage imbalances between the supply and demand of the Company's shares and thereby reduce the volatility of the discount. We believe that, to date, this mechanism has been helpful and therefore recommend that the powers to repurchase up to 14.99% of the Company's shares, to be cancelled or held in Treasury, be renewed by shareholders at the forthcoming Annual General Meeting ('AGM').

During the year a total of 969,288 shares were repurchased into Treasury, amounting to 0.1% of the issued share capital at the beginning of the year, for a total consideration of £1.9 million.

Resolutions 11 and 12 in the Notice of the AGM seek shareholder approval once again to issue shares and to disapply pre-emption rights on any such issues. We will only reissue shares from Treasury or issue new shares if the Company's shares are trading at a premium to net asset value. Under the current authority we have not yet reissued any shares out of Treasury, but we have recently been trading at a small premium and it may therefore be possible to reissue shares if this is sustained.

Gearing

The Company ended the year with gearing of 4.9%, higher than the 0.1% position at the previous year end as the Investment Managers identified a number of attractive opportunities for investment. Gearing is regularly discussed between the Board and the Investment Managers and it remains the Board's policy to operate within the range of 10% net cash to 20% geared.

Marketing

The Board believes strongly in the advantages of active management in a closed-ended investment trust structure and believes investment trusts should form part of private investors' portfolios. While it is encouraging to see so many professional investors, including wealth managers and private client stockbrokers owning shares in the Company, your Board has tasked the Manager with increasing direct private individual ownership of the Company, reflecting the growth of this constituency of investors, as individuals increasingly adopt the use of research, trading and investment tools available online.

Alongside the Manager, your Company has invested in an extensive media and marketing campaign which we expect to generate sustained new interest and demand. Shareholders may have already noticed advertisements for the Company in a number of national papers and this has been supported by online advertising. If successful, this campaign should in time generate demand for shares in the Company and therefore benefit current shareholders through a better rating for their shares.

At the same time, the Company continues its established programme of marketing and investor relations to wealth managers, institutions and private client stockbrokers. Alongside video and podcast content and sponsored research, the Investment Managers have recently completed their annual 'roadshow' visiting investors across the UK. Over an 18 day period, they met over 300 investors presenting the case for investing in the Company and addressing questions raised by larger shareholders face to face.

Board Succession

In accordance with corporate governance best practice, Directors continuing in office seek annual reappointment and no Directors, including the Chairman, will seek reappointment after having served for nine years on the Board. Helen James will have served on the Board for nine years in September this year and therefore does not intend to stand for reappointment at the 2021 AGM. The Board will commence the process to recruit her successor later this year, with the intention of making an appointment in early 2021.

The Manager

The Board, through its Management Engagement Committee, monitors the performance of the Manager, J.P.Morgan, on an ongoing basis. It judges investment performance over the longer term and also in terms of risk management and internal control, administration, sales, marketing and compliance. We remain very satisfied with the Manager's overall performance and believe that J.P.Morgan's continuing appointment is in the best interests of all shareholders.

Auditors

Under the Audit Regulations and Guidance that came into effect in April 2017, the Company is required to appoint a new audit firm this year. Accordingly, the Audit Committee has undertaken a tender process and agreed to appoint BDO to succeed PwC immediately following the forthcoming AGM.

PwC were appointed as auditors to the Company in 1885, shortly after the Company's launch (and were reappointed following a formal tender process in 2014). That is a remarkably long partnership and the Company is quite possibly PwC's longest standing client. I would like to record our thanks to PwC for their outstanding professional service to the Company over those many years.

Annual General Meeting

The Company's one hundred and thirty fourth AGM will be held at The Pantiles, 2A Luttrell Avenue, London SW15 6PF on Thursday, 21st May 2020 at 1.00 p.m.

As you would expect, due to the ongoing situation surrounding COVID-19 and the developing advice from the Department of Health, the Board has decided to revise the format of this year's AGM. Only the formal business of the AGM will be considered. There will be no presentation from the Investment Managers and there will be no refreshments provided. The Government has, for the time being, prohibited public gatherings of more than two people and therefore shareholders will not be allowed to attend the AGM in person. Anyone seeking to attend the meeting will be refused entry.

In light of the changed format, the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. This will ensure that the votes are registered.

In the event that the situation changes the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

At some stage, and it is too early to say when, the current COVID-19 crisis will pass and although the world may have changed significantly, a degree of normality will return. So, I find significant comfort in the holdings in the portfolio where our Investment Managers have chosen companies with strong balance sheets, able to ride out the storm, with good business models and operating in exciting industries. We will survive this turmoil and in due course will prosper again.

Angus Gordon Lennox

Chairman

14th April 2020

INVESTMENT MANAGERS' REPORT

Setting the scene: markets defied multiple challenges

For the year to 31st January 2020, equity markets around the world delivered strong returns, despite ongoing geopolitical tensions and a decidedly sluggish global economy. UK medium- and smaller-sized companies participated in these gains, although their progress was dampened at times by ongoing political uncertainty. 2019 was a dramatic year in UK politics, with Brexit vacillations, the appointment of Boris Johnson as Prime Minister in late July, the prorogation of parliament in the autumn and finally, December's General Election. The UK economy demonstrated resilience towards these challenges, but domestically exposed UK shares generally remained out of favour with international investors for most of the year.

For the first quarter of the period markets recovered strongly from the sell-off experienced in the final quarter of 2018. The second and third quarters were more turbulent as the ongoing trade dispute between the United States and China affected global economic growth, with a material slowdown in both manufacturing output and corporate earnings around the world. However, a policy about-turn by the US Federal Reserve and other central banks aided investor sentiment: instead of raising interest rates to normalise monetary policy and tighten liquidity, policy makers cut rates in order to make credit more easily accessible. Markets responded favourably.

In the Company's final quarter, the UK's decisive General Election result buoyed domestic markets: UK equities rallied, with domestic-focused and smaller companies back in favour. Investors were relieved that some semblance of political stability had been restored and that the threat of a hard-left-wing government waiting in the wings had been removed.

Against this challenging backdrop, the performance of medium and smaller UK companies, excluding investment trusts, (the 'Benchmark') was robust year-on-year, with a return of +16.7%. This substantially outpaced the +9.3% return from the FTSE 100 Index.

Since the end of January, however, the escalation of the global public health crisis caused by the COVID-19 virus has engulfed economic, political and public affairs whilst weighing extremely heavily on stock markets. The spread of the disease and its effects on companies and markets is at present our primary focus.

A year of significant out-performance for Mercantile

The year to 31st January 2020 saw Mercantile outperform the Benchmark by some distance. The Company's investment strategy delivered a return on net assets of +28.0% versus a return of +16.7% for the Benchmark.

Spotlight on stocks and sectors

We focus on identifying tomorrow's market leaders, targeting UK companies outside the FTSE 100 Index that have significant opportunities for growth often overlooked by other investors. We choose stocks that we believe possess the characteristics that may facilitate this growth, be this the ability to innovate and disrupt their industries, to operate with nimble business models, or companies that occupy prime positions in rapidly growing markets.

In this section we reflect on how our stock selection and sectoral decisions impacted the Company's outperformance over the period.

Winners

One of the Company's largest holdings is our long standing investment in alternative asset manager Intermediate Capital Group whose shares continued their rise as it maintained its impressive asset raising performance following strong investor demand. It has broadened its range of investment strategies and as at the end of December 2019 it managed more than €42 billion of assets.

AVEVA, the global leader in engineering and industrial software, is a top ten holding whose shares continued their ascent. The company delivered both improving recurring revenue and increasing profitability with the earlier business integration of Schneider Electric's industrial software business yielding results. Also in the Technology arena, our holding in Softcat, one of the UK's leading IT value-added resellers, was another big success for us; this profitable, growing company has boosted its public sector business whilst delivering year-on-year growth in both revenues and profits.

Our holding in JD Sports was a significant contributor to performance. The business increased sales and profitability, despite the widely reported headwinds facing retail stores in JD's core UK market. Established in 1981 with a single shop in Bury, Greater Manchester, the business now has over 2,400 stores across 18 countries.

Another significant performer was Nottingham-based Games Workshop, a manufacturer of miniature wargame figurines and a company that dominates its niche market. Its share price soared over the period as investors acknowledged its continued sales and profits growth across trade, retail and online channels.

Losers

Pleasingly, there were very few losers over the year. The most significant detractor from returns was Vesuvius, the metal flow engineering company, which faced a backdrop of deteriorating end-market conditions throughout 2019. Exposure to the company - and to the steel industry more broadly - was reduced in the period, although it is still held in the portfolio owing to the cyclical, rather than structural, nature of the issues that led to poor share price performance. Loans provider Amigo was the only other significant detractor. It is the UK's largest guarantor loans company, but its share price plunged over the year amidst a challenging operating environment and a substantial rise in customer complaints. Given the structural nature of the company's problems, it is no longer held in the portfolio.

PERFORMANCE ATTRIBUTION

FOR THE YEAR ENDED 31ST JANUARY 2020 

Source: JPMAM and Morningstar

The table provides a breakdown, relative to the benchmark, of the contributions to total return.

Positioning the portfolio for future success

Although stock markets surpassed our expectations during the year, the prevailing geopolitical and economic climate was challenging, with the global economy seemingly in reverse gear. This was a period dominated by concerns over declining manufacturing and service sectors, a collapse in corporate earnings growth and continuing tensions in international trade relations. The UK market progressed but remained out of favour with international investors unable to see through the prolonged Brexit fog. At the time of writing, the spread of COVID-19 has forced many of the world's largest economies to grind to a halt and forced central banks and governments to respond with extreme policy measures. Stock markets globally have experienced dramatic sell-offs. The near-term outlook remains challenging with many uncertainties to navigate in the coming months.

Our bottom-up strategy of focusing on the attributes of individual stocks has enabled us to uncover companies that are fundamentally robust and have the potential to be long-term winners. Despite the fiscal stimulus that has so far underpinned the Johnson government's economic strategy and the strong labour market and improving consumer confidence that characterised the immediate post-election period, the spectre of escalating public health crisis in recent weeks has significantly damaged the prospects for near-term economic growth. However this will not last forever, so our focus through these challenging times remains identifying and investing in robust businesses that can weather this storm and be potential champions of the future.

By sector, our largest overweight position is in IT Software and Services where we have uncovered some compelling opportunities. We have overweight positions in the aforementioned AVEVA and Softcat, as well as in Computacenter, the independent provider of IT infrastructure services headquartered in Hertfordshire.

Within consumer goods, we have large holdings - and large overweight positions - in house builders Bellway and Countryside Properties. Bellway has evolved over 70 years from a local family business to one of the UK's largest house builders whilst Countryside is looking to expand further its Partnership division, which focuses on delivering urban regeneration by working alongside local authorities and housing associations. Both companies are examples of stocks where we continue to believe that prospects for growth remain positive in the long-term.

Early last year we began to build up a new position in Dunelm, the UK's leading home furnishings retailer with a design-led focus, which has achieved 40 consecutive years of growth in sales. Dunelm has more than 170 stores as well as a significant online presence. The retailer's differentiated and attractively priced offering has stimulated strong customer demand, both in-store and online. This has driven growth ahead of expectations, so that the company was one of the best-performing stocks in the index this year.

Environmental, Social and Governance

Our investment approach sees us focus on identifying companies that possess a sustainable competitive advantage, have a durable business model and are overseen by a competent management team with a track record of success. In recent years there has been an increasing focus on environmental, social and governance ('ESG') issues when it comes to investing. We have always felt that these are important components in determining the sustainability of any business. When we talk about our investment process, we do not explicitly talk about ESG considerations even though these are things we consider in terms of how they impact a company's future earnings and cash flow streams. For a number of years, we have excluded from our investment universe companies that have been identified by an independent third party provider as being involved in the manufacture, production or supply of cluster munitions, depleted uranium ammunition and armour and/or anti-personnel mines. More recently, we have started to articulate how we think about ESG in our investment approach and how we partner with our Stewardship specialists when engaging with companies on these issues. An example of our ESG engagement would be the case of the UK bookmakers, where our engagements with the UK Gambling Commission highlighted the extent of problem gambling losses in the UK. On the back of these engagements we exited holdings in some of the stocks we believed to be most at risk from potential regulatory changes.

Outlook for the coming year: a cloud hangs over the global economy

The COVID-19 virus originated in China and has, at the time of writing, spread rapidly across much of the globe including Western Europe and the United States. This presently escalating crisis has drastically impacted both the global economy and market sentiment. A number of countries have enforced public lockdowns and either closed or tightened borders. Central banks have responded by cutting interest rates and introducing significant monetary stimulus, while governments have begun outlining plans for unprecedented fiscal stimulus. Furthermore, a collapse in the oil price, driven by reduced demand and a dispute between major producers including Saudi Arabia and Russia, has introduced another dimension of volatility and uncertainty. Share prices globally have tumbled.

As economic activity is currently so limited - with vast swathes of the global economy either no longer active or operating well below capacity - our immediate focus has shifted towards identifying potential liquidity risks in portfolio companies and positioning the portfolio with an emphasis on those companies that are more likely to demonstrate operational and financial resilience in these testing times. Despite the ongoing public health crisis and geopolitical developments, including Brexit negotiations and this year's US presidential election, we maintain our view that the favourable dynamics of medium- and small-sized companies will continue to drive superior returns over the long-term.

Our rigorous research process will continue to uncover attractive investment opportunities. The Company can hold up to 10% in cash or utilise gearing of up to 20% of net assets where appropriate. We started the last financial year fully invested but ungeared, whereas the portfolio today is about 6% geared. Importantly, our present position still provides us with plenty of capacity to invest further as and when suitable opportunities arise.

Whilst we are pleased to have delivered robust returns to investors over the review period, the Company's long-term performance record is equally compelling and our careful, active selection of stocks has enabled us to outperform the Company's Benchmark over 1, 2, 3, 5 and 10 years.

We are resolute in our commitment to investing in high quality, structurally robust companies. We are confident that our search for companies that can generate earnings growth over medium- and long-term horizons and that can adapt to the environments in which they operate, will enable us to deliver outperformance in future, just as we have demonstrated in the past.

Guy Anderson

Anthony Lynch

Investment Managers

14th April 2020

Principal Risks

The Directors confirm that they have carried out a robust assessment of the emerging and 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 emerging and principal risks to the Company. These risks are reviewed and discussed on a regular basis and 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' within 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 FCA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the FCA 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 FCA 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 within the annual report.

•   Operational and Cyber Crime: Disruption to, or failure of, JPMF's accounting, dealing or payments systems or the custodian's records could prevent accurate reporting and monitoring of the Company's financial position. This includes the failure of the Manager's continuity plans in the face of systems outage, office disruption or a pandemic and the risk of cyber crime 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 within the annual report.

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

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

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report within the annual report. The management fee payable to the Manager for the year was £7,355,000 (2019: £7,256,000) of which £nil (2019: £nil) was outstanding at the year end.

During the year £59,000 (2019: £118,000) was payable to the Manager for the marketing and administration of savings scheme products, of which £nil (2019: £8,000) was outstanding at the year end.

Included in administration expenses in note 6 to the accounts are safe custody fees amounting to £31,000 (2019: £31,000) payable to JPMorgan Chase of which £8,000 (2019: £4,000) was outstanding at the year end.

During the year, brokerage commission on dealing transactions amounted to £7,000 (2019: £4,000) was payable to JPMorgan subsidiaries of which £nil (2019: £nil) was outstanding at the year end.

The Company also holds cash in JPMorgan Sterling Liquidity Fund, managed by JPMorgan. At the year end this was valued at £72.0 million (2019: £100.0 million). Income amounting to £1,181,000 (2019: 664,000) was receivable during the year of which £nil (2019: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £15,000 (2019: £15,000) were payable to JPMorgan Chase during the year of which £2,000 (2019: £2,000) was outstanding at the year end.

At the year end, total cash of £299,000 (2019: £347,000) was held with JPMorgan Chase. A net amount of interest of £88,000 (2019: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2019: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report within the annual report.

Statement of Directors' Responsibilities

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

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

•   select suitable accounting policies and then apply them consistently;

•   make judgements and estimates that are reasonable and prudent;

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

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

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

and the Directors confirm that they have done so.

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

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

Each of the Directors, whose names and functions are listed within 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
Angus Gordon Lennox
Chairman

14th April 2020

statement of comprehensive income

for the year ended 31st January 2020

statement of changes in equity

for the year ended 31st January 2020

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

statement of financial position

at 31st January 2020

statement of cash flows

for the year ended 31st January 2020

Notes to the financial statements

for the year ended 31st January 2020

1.     Accounting policies

(a)   Basis of accounting

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

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 within the annual report form part of these financial statements.

The policies applied in these accounts are consistent with those applied in the preceding year.

2.     Return/(loss) per share

3.     Dividends

(a)   Dividends paid and declared

¹ Represents dividends which remain unclaimed after a period of 12 years and thereby become the property of the Company.

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

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

The fourth quarterly dividend has been declared in respect of the year ended 31st January 2020. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st January 2021.

4.     Net asset value per share

Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 31st January 2019 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Financial Statements for the year ended 31st January 2020 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

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

JPMORGAN FUNDS LIMITED

ENDS

A copy of the annual report will shortly be submitted to the FCA's Electronic Submission System and will be available for inspection at www.fca.org.uk

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