TIDMRMMC
RNS Number : 6565U
River & Mercantile UK Micro Cap Inv
20 January 2017
20 January 2017
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., GUERNSEY
BRANCH - ANNUAL FINANCIAL REPORT RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF RIVER AND MERCANTILE UK MICRO CAP
INVESTMENT COMPANY LIMITED ANNOUNCE ANNUAL FINANCIAL REPORT RESULTS
FOR THE YEARED 30 SEPTEMBER 2016
STRATEGIC REPORT
financial highlights and performance summary
Financial highlights during the year ended 30 September 2016
On 29 October 2015, 16,679,405 Ordinary Shares were issued at a
price of GBP1.1718, raising gross proceeds of GBP19,544,927.
On 11 November 2015, 1,185,000 Ordinary Shares were issued at a
price of GBP1.1825, raising gross proceeds of GBP1,401,263.
Number of Ordinary Shares in issue as at 30 September 2016:
68,507,569 Ordinary Shares
Market capitalisation as at 30 September 2016:
Ordinary Share class: GBP78,098,629
Performance summary
As at As at
30 September 30 September
2016 2015
Net asset value GBP1.2624
per Ordinary Share GBP1.1036
Ordinary Share GBP1.1400
price (bid market)(1) GBP1.0650
Period highs and
lows
For the For the
period period
from 2 from 2
October October
Year ended Year ended 2014 to 2014 to
30 September 30 September 30 September 30 September
2016 2016 2015 2015
High Low High Low
Net asset value
per Ordinary Share 1.2698 1.0581 GBP1.1076 GBP0.9738
Ordinary Share
price (bid market)(1) 1.1900 1.0200 GBP1.0950 GBP1.0000
(1) - Source: Bloomberg
Ongoing charges
The ongoing charges reflects those expenses which are likely to
recur in the foreseeable future and which relate to the operation
of the Company. The ongoing charges are based on actual costs
incurred in the year as being the best estimate of future costs
excluding any non-recurring fees in accordance with the Association
of Investment Companies ("AIC") methodology. The ongoing charges
for the year ended 30 September 2016 was 1.36% (2015: 1.34%).
Dividend history
No dividend was declared or paid during the year.
Please refer to note 16 for further information subsequent to
the reporting period.
Key Performance Indicators
Net Asset Value Total Return vs benchmark
Net Asset Value ("NAV") on a total return(2) basis increased by
28.82% from inception (net of issue cost).
(2) - Source: BNP Paribas Securities Services, Bloomberg
CHAIRMAN'S STATEMENT
The Challenges of Unexpected Turbulence
Peter Sellers was a renowned comic, actor, author and raconteur.
He is known to many through the varied and magnificent characters
he portrayed during his career. The Pink Panther series is one that
resonates with my youth and I have very fond memories of these
Blake Edwards classics, in particular the depth and subtlety of the
characters that supported Clouseau. Who can forget Cato, who was,
of course, the inspector's manservant. However, his main role was
to provide a series of shocks for the complacent inspector
returning home following a hard day's sleuthing to make sure that
he was kept alert and skilled in the dubious form of martial arts
to which he professed to be the master. Cato and Clouseau had a
love-hate relationship, with their fights being sustained and
ferocious as well as being pretty damaging to their very
surroundings, and always interrupted by the ringing telephone, at
which point both parties would become the model of civility once
more. Cato would put a lot of effort into taking his employer by
surprise, and Clouseau never felt entirely safe or at peace in his
surroundings.
This year, during which we sadly lost Burt Kwok who played Cato,
has been a year during which the stock market has had to deal with
its own series of Cato-like shocks, from the huge slump in global
markets that we saw in January of this year followed by a gradual
return to normality, but with a very cautious and wary eye on the
"attack" that could lead to another significant setback in world
markets. The event that was most likely to cause this was the UK's
vote on membership of the European Union and, although the markets
reacted quite nervously to a series of early polls and odds from
Ladbrokes, it appeared to settle into benign apathy that everyone
else was wrong and it was going to be all right on the night. For
the Remain camp it all seemed to be going so well and there was a
real sense in markets that the status quo surrounding the UK's
membership would be maintained. We woke, however, to a rather
unexpected result. The markets initially fell very significantly as
traders struggled to identify direction or leadership and an
understanding of what this would ultimately mean for our economy.
This shock rippled through world markets and the doomsayers
confirmed that this was indeed the very catalyst that they had
foreseen and a global recession was assured as clearly as night
follows day and very significant and sustained falls in global
markets would ensue. Well, they were of course right for a few
days. However, with an immediate leg down in Sterling and a further
fall in rates, the UK market, along with its global peers,
recovered. These headline number's are impressive. However, they do
hide a myriad of other statistics and hidden challenges that the
British and indeed global economies will face over the coming
years. We are now in unknown territory and whilst there is a
nervous enthusiasm, fear of the "shock" is not far away. The FTSE
100, with its broad exposure to non-Sterling earnings did indeed
recover. However, the smaller cap indices have fared less well as
the impact on our domestic market was more keenly felt. This is, of
course, the area of the market where our company operates and, as a
result, the impact on the NAV was swift. We have seen the smaller
capitalised markets regain ground late in our financial year.
However, it has been frustrating to observe that the net result of
this is that we have begun to trade at a discount for the first
time in our company's short history. This is galling for all
investors and we are working with our brokers to examine ways that
we can look to control this going forward.
2016 has also seen another significant milestone with particular
relevance to our company. The Alternative Investment Market (AIM),
celebrated its 21st birthday. The market has evolved into a vibrant
and healthy exchange, and has left behind those troublesome teenage
years during which it struggled to find its place in the financial
markets. However, the development of the nominated advisor
structure (NOMADS) has meant that costs have been controlled,
attracted new entrants and critically ensured a more disciplined
approach to governance. AIM will always attract some illiquid and
poorly managed businesses capable of providing their own individual
"shocks", but as the market has matured, it is increasingly made up
of exciting, fast growing and well governed businesses. This is not
a market for the passive, naïve or inexperienced investor but does
provide huge opportunity for the disciplined and experienced
investor with a clear investment philosophy and process.
Performance
Our portfolio manager, Philip Rodrigs, has continued to perform
exceptionally well given the circumstances over the last twelve
months and I would like to take this opportunity to thank him for
his endeavours on behalf of the Board and our shareholders. The NAV
total return of the UK Micro Cap portfolio over the period was
14.40%, which compares with the total return of 10.02% posted by
the benchmark index.
Andrew Chapman
Chairman
19 January 2017
executive sUMMARY
This Executive Summary is designed to provide information about
the Company's operation and results for the year ended 30 September
2016. It should be read in conjunction with the Chairman's
Statement and the Portfolio Manager's report which gives a detailed
review of investment activities for the year and an outlook for the
future.
Corporate summary
The Company was incorporated on 2 October 2014, with registered
number 59106, as a non-cellular company with liability limited by
shares. The Company has been registered by the Guernsey Financial
Services Commission ("GFSC") as a registered closed-ended
collective investment scheme pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the
Registered Collective Investment Scheme Rules ("RCIS Rules")
2008.
The Company's stated capital is denominated in Sterling and each
share carries equal voting rights.
The Company's Ordinary Shares are listed on the Official List of
the UK Listing Authority and admitted to trading on the Main Market
of the London Stock Exchange. As at 30 September 2016, the
Company's issued stated capital comprised 68,507,569 Ordinary
Shares.
The Company has appointed Carne Global AIFM Solutions (C.I.)
Limited (the "Manager") to act as the Company's Alternative
Investment Fund Manager ("AIFM"). The Manager has delegated
portfolio management of the Company's investment portfolio to River
and Mercantile Asset Management LLP (the "Portfolio Manager"). The
Board will actively and continuously supervise both the Manager and
the Portfolio Manager in the performance of their respective
functions.
The Company is a member of the AIC and is regulated by the
GFSC.
Significant events during the year ended 30 September 2016
On 29 October 2015, the Company announced the successful placing
of 16,679,405 Ordinary Shares, at an issue price of GBP1.1718 per
Ordinary Share. The placing raised gross proceeds of GBP19,544,927
and 16,679,405 Ordinary Shares were admitted to the Official List
and to trading on the Main Market with effect from 3 November
2015.
On 11 November 2015, the Company announced the successful
placing of 1,185,000 Ordinary Shares, at an issue price of
GBP1.1825 per Ordinary Share. The placing raised gross proceeds of
GBP1,401,263 and 1,185,000 Ordinary Shares were admitted to the
Official List and to trading on the Main Market with effect from 17
November 2015.
Company investment objective
The Company aims to achieve long term capital growth from
investment in a diversified portfolio of UK Micro Cap Companies,
typically comprising companies with a free float market
capitalisation of less than GBP100 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.
Derivatives
The Company may use derivatives (both long and short) for the
purposes of efficient portfolio management only. The Company will
not enter into uncovered short positions.
Further information can be found in the Portfolio Manager's
report which is incorporated within this Annual Financial Report
for informational purposes only.
Investment strategy and approach
The Company's investment strategy is to take advantage of the
illiquid risk premium inherent in UK Micro Cap Companies and
exploit fully the underlying investment opportunity in the UK Micro
Cap market to deliver high and sustainable returns to Shareholders,
principally in the form of capital gains in line with the Company
investment objective and policy.
The Company pursues its investment strategy through the
appointment of the Manager as AIFM, whereby the Manager has been
given responsibility, subject to the supervision of the Board, for
the management of the Company in accordance with the Company's
investment objective and policy. The Manager has delegated
portfolio management to the Portfolio Manager. The Company depends
on the diligence, skill, judgment and business contacts of the
Portfolio Manager's investment professionals, in particular Philip
Rodrigs, in identifying investment opportunities which are in line
with the investment objective and policy of the Company. The
Portfolio Manager attends all Board meetings at which the
investment strategy and performance of the Company is discussed.
BNP Paribas Securities Services S.C.A., Guernsey Branch (the
"Administrator") have been appointed to provide administration,
custodian and company secretarial services.
Key Performance Indicators (KPIs)
The Company's Directors meet regularly to review performance and
risk against a number of key measures.
Returns and Net Asset Value total return
The Board reviews and compares, at each meeting, the performance
of the portfolio as well as the NAV, income and share price of the
Company. The Directors regard the Company's NAV total return as
being the overall measure of value delivered to Shareholders over
the long term. Total return reflects NAV growth of the Company.
The Board is committed to achieving long term capital growth
and, where possible, returning such growth to Shareholders
throughout the life of the Company. Furthermore, the Portfolio
Manager has advised the Board that it believes that a NAV of GBP100
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.
Accordingly, assuming that the NAV grows, the Directors intend
to operate the redemption mechanism pursuant to which a portion of
Shareholders' shareholdings may be redeemed compulsorily so as to
return the NAV back to around GBP100 million.
NAV on a total return basis increased by 28.82% from inception.
Please refer to the Financial Highlights and Performance Summary
for NAV total return analysis and note 12 for further details
regarding the redemption mechanism.
During the year ended 30 September 2016, the Company incurred a
portfolio management performance fee of GBP797,751 (2015:
GBP426,025), of which GBP1,223,776 (2015: GBP426,025) was payable
at year end. The performance fee due will only be paid when the
Company implements the Redemption Mechanism as detailed in the IPO
Prospectus issued on 14 November 2014.
Concentration
The Board reviews the industry and asset diversification of the
investment portfolio to ensure that holdings are in line with the
investment restrictions and also to monitor the concentration risk
of the investment portfolio.
Please refer to note 8 for further details regarding investment
limits and risk diversification policies.
As at 30 September 2016, the Company held 45 (2015: 39)
investment holdings of which no exposure in any investee company
exceeded 10% of NAV at the time of investment.
Premium / Discount
The Board reviews the trading price of the Company's Ordinary
Shares and compare it against the NAVs of the Ordinary Shares of
the Company to assess volatility in the discount or premium to the
share prices during the year.
Please refer to the Financial Highlights and Performance Summary
for further analysis.
Principal risks and uncertainties
When considering the total return of the Company, the Board
takes account of the risk which has been taken in order to achieve
that return. The Board have carried out a robust assessment of the
principal risks facing the Company and have looked at numerous risk
factors, an overview of which is set out below:
Investment and liquidity
An inappropriate investment strategy may lead to under
performance against the Company's benchmark and peer companies
resulting in the Company's shares trading on a discount. The Board
monitors the implementation and results of the investment process
with the Portfolio Manager who attends all Board meetings and
reviews data which shows measures of the Company's risk
profile.
The Company invests in a diversified portfolio of UK Micro Cap
Companies, typically comprising companies with a free float market
capitalisation of less than GBP100 million at the time of purchase.
These securities are likely to have higher volatility and liquidity
risk than securities on the London Stock Exchange Official List.
The relatively small market capitalisation of Micro Cap Companies
could therefore have an adverse effect on the performance of these
investments and can make the market in their shares illiquid. On
this basis prices of Micro Cap Companies are often more volatile
than prices of larger capitalisation stocks, and even small cap
companies.
The Company may have difficulty in selling its investments which
may lead to volatility in the market price of shares in the
Company. The Company may not necessarily be able to realise its
investments within a reasonable period, and any such realisations
that may be achieved may be at a considerably lower price than
prevailing indicative market prices. There can therefore be no
guarantee that any realisation of an investment will be on a basis
which necessarily reflects the valuation of that investment.
Risks are monitored by the Manager, which holds monthly AIFM
Risk Committee meetings with the Portfolio Manager. The Manager
provides an update of these AIFM Risk Committee meetings to the
Board on a quarterly basis and the risks are discussed accordingly.
The Board have placed investment restrictions and guidelines to
limit these risks.
Portfolio concentration and macro-economic risks
The Company predominantly invests in securities in the UK and
has no specific limits placed on its exposure to any industry
sector. Changes in economic conditions in the UK, (for example,
interest rates and rates of inflation, industry conditions,
competition, political and diplomatic events and other factors),
where the Company predominantly invests, could substantially and
adversely affect the Company's prospects, as could changes in
global economic conditions. This exposes the Company to
concentration of geographical risk and may from time to time lead
to the Company having significant exposure to portfolio companies
from certain business sectors. Greater concentration of investments
in any one geographical and / or industry sector may result in
greater volatility in the value of the Company's investments, and
consequently its NAV, and may materially and adversely affect the
performance of the Company and returns to Shareholders.
While the Company does not include any specific limits placed on
exposures to any industry sector, the Company does have investment
limits and risk diversification policies in place to mitigate
market and concentration risk. Please refer to note 8 for further
details.
Environmental and social issues
The Company is a closed-ended investment company and so its own
direct environment impact is minimal. The Board notes that the
companies in which the Company invests will have a social and
environmental impact over which the Company has no control. The
Directors, the majority of whom are based in the Channel Islands,
have held all of their meetings in Guernsey and therefore the
Company's greenhouse gas emissions and environmental footprint are
negligible.
Board diversity
The Board has due regard for the benefits of experience and
diversity in its membership, including gender, and strives to meet
the right balance of individuals who have the knowledge and
skillset to maximise Shareholder return while mitigating the risk
exposure of the Company. The Board is made up of three male
Directors and one female Director. All have held the position of
Directors since incorporation. Further information about the
Board's policy on diversity is contained within the Directors and
Corporate Governance Report.
The Company has no employees and therefore there is nothing
further to report in respect of gender representation within the
Company.
Life of the Company
The Company has no fixed life. The Directors shall propose one
or more ordinary resolutions at the Annual General Meeting (the
"AGM") to be held in 2019 and at every fifth AGM thereafter that
the Company continues as a closed-ended investment company (the
"Continuation Resolution"). In the event that a Continuation
Resolution is not passed, the Directors shall formulate proposals
to be put to the Shareholders as soon as is practicable but, in any
event, by no later than six months after the Continuation
Resolution is not passed, to reorganise or reconstruct the Company
or for the Company to be wound up with the aim of enabling the
Shareholders to realise their holdings in the Company.
Future Strategy
The Board continues to believe that the investment strategy and
policy adopted is appropriate for and is capable of meeting the
Company's objectives.
The overall strategy remains unchanged and it is the Board's
assessment that the Manager and Portfolio Manager's resources are
appropriate to properly manage the Company's investment portfolio
in the current and anticipated investment environment.
Please refer to the Portfolio Manager's report for detail
regarding performance to date of the investment portfolio and the
main trends and factors likely to affect those investments.
Going Concern
Under the AIC Code of Corporate Governance ("AIC Code") and
applicable regulations, the Directors are required to satisfy
themselves that it is reasonable to assume that the Company is a
going concern from date of approval of the financial
statements.
The Directors are satisfied that, at the time of approving the
financial statements, no material uncertainties exist that may cast
significant doubt concerning the Company's ability to continue for
the foreseeable future. The Directors consider it appropriate to
adopt the going concern basis in preparing the financial
statements.
Viability Statement
Under the AIC Code and LR 9.8.6R under the Listing Rules, the
Board is required to make a "viability statement" which considers
the Company's current position and principal risks and
uncertainties combined with an assessment of the prospects of the
Company in order to be able to state that they have a reasonable
expectation that the Company will be able to continue in operation
over the period of their assessment.
The Company's prospects are driven by its business model and
strategy. The Company's aim is to achieve long term capital growth
from investment in a diversified portfolio of UK Micro Cap
Companies, typically comprising companies with a free float market
capitalisation of less than GBP100 million at the time of purchase.
At the launch of the Company the Directors stated "The Board,
advised by the Portfolio Manager, believes that the impact on Micro
Cap Companies of a return to economic growth is particularly high
because of the knock-on effect of improved market confidence. Over
the medium term, the Portfolio Manager expects that confidence and
risk appetite amongst investors will grow with improving economic
activity. Typically, it would expect that this will result in
valuation metrics rising which will enhance returns for investors
during this period."
The Directors have and continue to monitor the uncertainties in
the political and economic environment as a result of the
referendum vote for the UK to leave the EU.
In this context and considering the referendum vote, the Board's
central case is that the prospects for economic activity in the UK
will remain such that the investment objective, policy and strategy
of the Company will be viable for the foreseeable future through a
period of at least five years from the balance sheet date.
In making this judgement, the Board has assessed that the main
risks to the long term viability of the Company are key global and
market uncertainties driven by factors external to the Company
which in turn can impact on the liquidity and NAV of the investment
portfolio. A simulation has been designed to estimate the impact of
these uncertainties on the NAV of the Company at times of stress
based on historical performance data of the Company's benchmark,
using techniques similar to the sensitivity analysis performed in
note 8 - Financial Risk Management.
The Board is required to propose to the members an ordinary
resolution that the Company continues its business as a
closed-ended investment company (the "Continuation Vote") at the
AGM in 2019. Although the outcome of such a Continuation Vote there
remains uncertain, having assessed the principal risks to the
business and investment model, the Directors' current view is that
a Continuation Vote will pass.
Taking account of the Company's current position and principal
risks, the Board has a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they
fall due over the period of assessment.
The Strategic Report was approved by the Board of Directors on
19 January 2017 and signed on its behalf by:
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
BOARD MEMBERS
All directors are non-executive.
CHAIRMAN
Andrew Chapman, (independent). Appointed 2 October 2014.
Andrew holds both a BA and an MPhil in Economic & Social
History. He began his career in 1978 as a UK equity fund
manager.
In 1984, Andrew was appointed to the in-house investment
management team at the British Aerospace Pension Fund, where he had
responsibility for directly investing in a number of listed
markets. In 1991, Andrew took the position of Investment Manager at
United Assurance plc, where he was responsible for asset allocation
and leading a team of in-house fund managers managing approximately
GBP12 billion in assets. Andrew was subsequently a director of
Teather & Greenwood Investment Management Limited, before
joining Hewitt Associates as a Senior Consultant. From 1994 until
2003, Andrew was also a non-executive director of the Hambros
Smaller Asian Companies Investment Trust plc (which subsequently
became The Asian Technology Trust plc).
In 2003, Andrew was appointed as the first in-house Pension
Investment Manager for the John Lewis Partnership Pension Fund,
with responsibility for the overall investment strategy as well as
the appointment and performance of 27 external fund managers across
all asset classes. He retired from that role in 2012 and served as
the CIO for The Health Foundation until September 2015.
Since 2012 Andrew has developed a portfolio of roles, including
being a member of the investment committees of: Homerton College
(Cambridge University); Coller Capital Partners; and the Property
Charities Fund. He is also a non-executive director of Steadfast
International Limited.
Andrew served for several years on the Investment Council of the
National Association of Pension Funds and was Chair of the Advisory
Board for the Pension Fund Investment Forum. He is currently Chair
of the BUNAC Educational Scholarship Trust.
DIRECTORS
Ian Burns, (independent) - Chairman of the Audit Committee and
Senior Independent Director. Appointed 2 October 2014.
Ian is a fellow of both the Institute of Chartered Accountants
in England and Wales and the Chartered Institute for Securities
& Investment.
He is the founder and an 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.
Ian is currently a non-executive director and Audit Committee
chairman of two LSE listed companies, Phaunos Timber Fund Limited,
Twenty Four Income Fund Limited and is the Finance Director of Fast
Forward Innovations Limited, a company listed on the AIM market. He
is also a non-executive director of Montreux Capital Corp which is
listed on the Toronto Stock Exchange, Darwin Property Investment
Management (Guernsey) Limited, Curlew Capital Guernsey Limited, and
Premier Asset Management (Guernsey) Limited. Previously, Ian was
also the Finance Director of the AIM listed company, Polo Resources
Limited.
Trudi Clark, (independent) - Chairman of the Remuneration and
Nomination Committee and Management Engagement Committee. Appointed
2 October 2014.
Trudi graduated with a first class honours degree in business
studies and is a qualified Chartered Accountant.
Trudi spent 10 years working in chartered accountancy practices
in the UK and Guernsey. In 1991, she joined the Bank of Bermuda to
head their European internal audit function before moving into
private banking in 1993.
Between 1995 and 2005, Trudi worked for Schroders (C.I.)
Limited, an offshore private bank and investment manager. She was
appointed to the position of Banking Director in 2000 and Managing
Director in 2003. In 2005, Trudi left Schroders to establish and
run a private family office.
In July 2009, Trudi established the Guernsey practice of David
Rubin & Partners LLP, an internationally known insolvency and
liquidation specialist.
Trudi holds several non-executive directorships in funds which
include F & C Commercial Property Trust Limited,
which is a UK listed fund and Sapphire (PCC) Limited - Sapphire
IV Cell which is listed on the Channel Islands Securities
Exchange.
Mark Hodgson. Appointed 2 October 2014.
Mark has over 25 years' financial services experience, with an
extensive banking background having spent over 20 years with HSBC
where he gained an in-depth knowledge of credit, financial markets
and complex lending structures.
Prior to 2006, Mark was Regional Director for HSBC Invoice
Finance (UK) Limited, where he was responsible for running the
receivables finance business. In 2006, Mark moved to Jersey to head
up HSBC's Commercial Centre, having full operational responsibility
for credit and lending within the jurisdiction.
In 2008, Mark moved to Capita Fiduciary Group as Managing
Director of Offshore Registration, a regulated role in which he had
responsibility for Jersey, Guernsey and the Isle of Man. Mark also
took on the regulated role of Managing Director of Capita Financial
Administrators (Jersey) Limited, together with directorships of
regulated and unregulated funds.
In April 2014, Mark joined Carne Global Financial Services
(C.I.) Limited as Managing Director.
PORTFOLIO MANAGER'S REPORT
This Portfolio Manager 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 Annual Financial Report). The
estimated unaudited NAV referenced below is calculated on a daily
basis utilising closing bid prices and is inclusive of all
estimated charges and accruals.
Review of performance
The year to September 2016 has been an eventful, but ultimately
a satisfactory one for the River and Mercantile UK Micro Cap
Investment Company. The fully invested portfolio delivered a strong
end to the last financial year, and this momentum carried through
from the September reporting season into October, attracting
significant investor interest in both the investments and also for
the Company itself. Strong investor demand supported a fund raise
by the Company which resulted in total proceeds of nearly GBP21m
being raised from two tap issues in the year ended 30 September
2016, which helps take the Company a decisive step closer to the
long term equilibrium target of GBP100m. This additional funding
led to a busy period for investigating additional investment
opportunities but, as ever, there are plenty of attractive options
to choose from, including those already high up the leader board.
The Company returned to a fully invested status (below 10% of
uncommitted cash) swiftly, with the market volatility in the early
part of 2016 assisting in presenting attractive investment
opportunities.
That market volatility in January and February 2016 would
normally be the most memorable of the year but was surpassed by the
result of the United Kingdom's EU Referendum in June. The decision
to leave the EU was an unexpected result for financial markets,
with the shares of most cyclical domestically oriented firms
falling sharply, whilst sterling also fell sharply and encouraged
investors to upwardly value firms with significant foreign
earnings. In the end the market performance in Calendar Q3 was the
strongest of the year.
The NAV performance in the twelve months ended 30 September was
strong at +14.4%, well ahead of the benchmark's return of +10%. As
a result, the NAV per share closed at 126.24p, compared to 110.36p
a year ago. It is noted that given that the benchmark was broadly
unchanged during the period between the fund raising and the
deployment, there has been no cash drag effect on performance
arising from the two tap issues. Overall the NAV performance has
accumulated to a total of +28.8% since IPO which was substantially
ahead of the benchmark's +18.6% return over the same period.
As previously observed, it remains encouraging that the above
performance is witnessing theory becoming apparent in practice. The
investment objective is to deliver attractive returns from both
accessing the beta of the Micro Cap segment of the UK market but
also in applying a disciplined stock selection approach to produce
attractive alpha generation. Turning to beta first, the volatility
amongst global stock market indices has continued to be elevated
over the period. The River and Mercantile UK Micro Cap Investment
Company demonstrated that it is by no means a given that during
heightened periods of overall market volatility shares of Micro Cap
Companies should suffer proportionately more. By the middle of
February, UK markets were down 10-11%, whereas the NAV fell less
than 5%, and subsequently recovered to post gains in that quarter.
Furthermore, it was not an inevitability that the NAV should suffer
proportionately more during a UK domestic shock and so it proved
with the NAV falling less than the wider benchmark's -6.2% return
between 23 June and 30 June. Over the same period the NAV fell
-5.9%, with around 1% of this due to a non-Brexit related
stock-specific event.
It remains our belief that the contribution of stock-selection
alpha is of primary importance over the long term, delivered from a
high conviction, diversified, yet concentrated portfolio of
typically between 30 and 50 holdings. This concentrated focus means
it is easily possible to invest the Company's funds entirely in
firms selling their products and services globally. This is because
many of UK's most exciting and technologically advanced companies
start small (or micro) and use the growth capital by listing on the
UK stock market to build their global presence steadily. The
focused portfolio allows the selection of the 'cream of the crop',
roughly the top 10 percent of the available options in the universe
of stocks with a sub GBP100m free float market cap. Within that top
10 percent there are of course some attractive UK domestic cyclical
firms, mostly trading between a 50-75% discount to the wider
market. However this component of the portfolio ended that
financial year below 20%, compared to around 40% from
global-leading technology and service companies. The latter group
have delivered the greatest performance to the portfolio as
observed below where stocks contributing more that 1% to the
portfolio outnumber those that detracted more than 1% two to
one:
Holdings Contribution
to return
--------------------------- -------------
Taptica 5.49%
--------------------------- -------------
Blue Prism 4.19%
--------------------------- -------------
Shanta Gold 3.17%
--------------------------- -------------
KBC Advanced Technologies 2.30%
--------------------------- -------------
Keywords Studios 2.14%
--------------------------- -------------
Berkeley Energia 1.66%
--------------------------- -------------
D4t4 Solutions 1.44%
--------------------------- -------------
dotDigital Group 1.28%
--------------------------- -------------
Microgen 1.13%
--------------------------- -------------
Quarto Group 1.10%
--------------------------- -------------
Allergy Therapeutics -1.08%
--------------------------- -------------
Providence Resources -1.22%
--------------------------- -------------
Genedrive -1.50%
--------------------------- -------------
Sprue Aegis -1.76%
--------------------------- -------------
Bonmarche Holdings -1.89%
--------------------------- -------------
Source: FactSet, held stocks contribution
The themes of Digitisation and Big Data powered the performance
for the year. These technology shifts are driving a major
structural change in the way many ordinary businesses conduct
business, enabling transformational growth opportunities for those
firms that enable practical use of these inventions. Accessing
these themes is highly prized by investors globally, and yet
investors are able to find discount opportunities at the micro end
of the UK market. Big Data is the critical underpinning to top
holding Taptica's stunning +141% return for the year. By analysing
billions of interactions, Taptica is able to place mobile adverts
to the most likely interested recipients, significantly enhancing
the performance of an advertising campaign for its big-name
clients. As a result it is growing extremely rapidly, and yet
remains very attractively valued on traditional metrics. Microgen
(+47%) has also been developing its own Big Data platform, applying
this technology to the secure growth market of accountancy. D4T4
Solutions (+42%) (formerly IS Solutions) also utilises Big Data to
improve website design globally.
Digitisation of laborious manual data processing tasks is the
crux of Blue Prism's offering. Shares rocketed an incredible +267%
as this uncompeted leader in Robotic Process Automation enjoys
accelerating adoption by major firms. Artificial Intelligence
allows the software robot to access IT systems as if it were a
human, removing the need to invest billions to join up complex IT
systems. Digitisation is also key for DotDigital as this modest
Croydon-based email-marketing software firm expands beyond email
and goes global. Shares rose +43%. Digitisation can also be fun.
Keywords Studios, up +122%, is by far the leader in providing
audio, art and other services to digital mobile and computer game
makers.
The AIM segment of the UK stock market is often associated with
a high exposure to the commodities sector. This has been a very
challenging area until the nadir seen in February 2016 but a highly
selective approach proved very rewarding for the portfolio. In
January, KBC Advanced Technologies attracted not one but two
suitors. This confirmed the original investment proposition that
despite providing software to the beleaguered oil and gas industry,
it was the focus on the refining segment which defined the company.
The rival bids resulted in a 79% rise in the share price in the
period and therefore a contribution to the overall portfolio of
over 2%. One of the earliest purchases by the Company, the 156%
uplift in value of this high conviction investment has added 4% to
the Company by itself. It is also very satisfying to see the stock
suffering the ignominy of being the worst contributor in last
year's annual report more than redeem itself. Tanzanian gold miner
Shanta Gold rose +125% and twice covered last year's negative
contribution by applying an improved mining plan to boost
production at very keen costs into a rising gold price. Finally
Berkeley Energia exploded +102% as the market digested the
implications of the firm's world class Spanish uranium discovery
and rapid move to production.
As part of a diversified portfolio, not all goes to plan. Within
the commodities sector Irish oil explorer Providence Resources
(-26%) required recapitalisation in order to self-drill an enormous
prospect in a very highly sought after oil province. Genedrive
(formerly Epistem) also needed recapitalisation, although it is
testament to the unique technology that the firm attracted new
management talent as well as supportive shareholders.
Unfortunately, this came at the cost of a -65% return for the
period.
Finally the weak share price performances of Sprue Aegis and
Bonmarche could easily be attributed to the consequences of the EU
Referendum. However this would not reflect the full story. In Sprue
Aegis's case the -61% return until the exit of the position is
primarily due to the firm's very poor management of currency risk.
Ironically, this designer of fire alarms exported into Europe
should have been benefiting from foreign currency moves ahead of
Brexit, but delivering the opposite result led to a loss in
confidence in the firm. Meanwhile Bonmarche (-67%) has ample
opportunity to recover under the stewardship of a new CEO. Being a
clothing retailer to older women, it is the case that performance
is prone to adverse weather conditions. Being the most prompt to
disclose this compared to other retailers hasn't proved helpful to
perception. Meanwhile, a longer than average hedged currency
position has not improved perception, nor has the bankruptcy of its
primary competitor BHS. Shares have been retained as this latter
may prove a significant positive in time.
Portfolio Statistics
Top 10 Holdings(1)
Holdings Weight
(%)
------------------ -------
Taptica 7.6
------------------ -------
Shanta Gold 5.3
------------------ -------
Blue Prism 4.9
------------------ -------
D4t4 Solutions 3.9
------------------ -------
Keywords Studios 3.7
------------------ -------
Microgen 3.5
------------------ -------
Quarto Group 3.1
------------------ -------
Nasstar 3.1
------------------ -------
Lekoil 3.0
------------------ -------
dotDigital Group 2.8
------------------ -------
(1) : Source: River and Mercantile Asset Management LLP
Outlook
Volatility is the friend of the active investor and, as the past
year has shown, not necessarily the foe of the Micro Cap section of
the market. The resilience seen is in part due to the ongoing
discount valuation experienced by many UK Micro Cap Companies.
These low starting valuations entering into a volatile period
naturally provide an element of protection for share price
performance compared to stocks that enter such a period with
over-inflated valuations. Meanwhile the underlying economic
conditions remain relatively stable, thereby allowing individual
companies to continually further their growth or recovery
trajectories. As such we continue to look forward to delivering
attractive long term returns into the future.
I would like to thank all of the investors who supported the
founding of the River and Mercantile UK Micro Cap Investment
Company and those who supported the fund raise activities during
this period.
Philip Rodrigs
Portfolio Manager
19 January 2017
DIRECTORS' AND CORPORATE GOVERNANCE REPORT
The Directors present the Annual Financial Report of the Company
for the year ended 30 September 2016. The results for the year are
set out in these accounts.
Disclosure of Information to the Auditor
Each of the Directors who were members of the Board at the time
of approving this Report confirms that:
-- to the best of his or her knowledge and belief, there is no
information relevant to the preparation of their report of which
the Auditor was unaware; and
-- he or she has taken all steps a Director might reasonably be
expected to have taken to be aware of relevant audit information
and to establish that the Auditor was aware of that
information.
Directors interests
Information for each Director is shown in the Board Members
section and details of Directors' remuneration and interests in
shares can be found within the Directors' Remuneration Report.
Financial risk management objectives and policies
The Board is responsible for the Company's system of risk
management and internal control and meets regularly in the form of
Board meetings to assess the effectiveness of such controls in
managing and mitigating risk.
The key financial risks that the Directors believe the Company
is exposed to include credit risk, liquidity risk, market risk
(including price risk and interest rate risk). Please refer to note
8 for reference to financial risk management disclosure, which
explains in further detail the above risk exposures and policies
and procedures in place to monitor and mitigate these risks.
The Administrator has established an internal control framework
to provide reasonable but not absolute assurance on the
effectiveness of the internal controls operated on behalf of its
clients. The effectiveness of these controls is assessed by the
Administrator's compliance and risk departments on an on-going
basis and by periodic review by external parties. The
administrators compliance team present an assessment of their
review to the Board in line with the compliance monitoring program
on a quarterly basis.
The Board has reviewed the effectiveness of the Company's system
of risk management and internal control for the year ended 30
September 2016 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 Company does not have any external borrowings. 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.
Greenhouse gas emissions
Please refer to "Environmental and social issues" for disclosure
regarding greenhouse gas emissions.
Acquisition of own shares
To assist the Company in addressing any imbalance between the
supply of and demand for Ordinary Shares and thereby assist in
controlling the discount to NAV at which the Ordinary Shares may be
trading, on 4 March 2016 the Company was granted general authority
to purchase in the market up to 14.99% of the Ordinary Shares in
issue immediately following admission. This authority expires on
the date of the 2017 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 21 March 2017.
Shareholders' interests
As at 30 September 2016, the Company had been notified in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (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.
Number of Percentage
Ordinary Shares of total voting
rights (%)
Investec Wealth & Investment
Limited 11,641,448 16.99
City of Bradford Metropolitan
District Council 6,525,000 9.52
F&C Management Limited 6,500,000 9.49
Bank of Montreal 6,500,000 9.49
River and Mercantile
Asset Management LLP 5,000,000 7.30
Derbyshire Country Council 4,000,000 5.84
Between 30 September 2016 and 19 January 2017, no additional
notifications were received.
Independent Auditor
PricewaterhouseCoopers CI LLP, have indicated their willingness
to continue in office as auditor and a resolution proposing their
re-appointment and to authorise the Directors to determine their
remuneration will be proposed at the forthcoming AGM.
Events after the Reporting Date
The Directors are not aware of any developments that might have
a significant effect on the operations of the Company in subsequent
financial periods not already disclosed in this report or note 16
of the attached financial statements.
Going concern
Under the AIC Code and applicable regulations, the Directors are
required to satisfy themselves that it is reasonable to assume that
the Company is a going concern from date of approval of the
financial statements.
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.
Corporate Governance Statement
a) Corporate Governance Codes
The Listing Rules and the Disclosure Guidance and Transparency
Rules ("DTR") of the UK Listing Authority, require listed companies
to disclose how they have applied the principles and complied with
the provisions of the UK Corporate Governance Code ("UK Code") as
issued by the Financial Reporting Council ("FRC").
The AIC Code provides specific corporate governance guidelines
to investment companies.
The Board considers that reporting against the principles and
recommendations of the AIC Code and by reference to the AIC Guide
(which incorporates the UK Code), will enable Shareholders to make
a comprehensive assessment of the Company's governance
principles.
The FRC has confirmed that AIC member companies who report
against the AIC Code and who follow the AIC Guide will be meeting
obligations in relation to the UK Code, paragraph 9.8.6 of the
Listing Rules and associated disclosure requirements of the
DTR.
The Company has delegated to third parties certain
administrative and other functions, thus not all of the provisions
of the AIC Code are directly applicable to the Company. The Company
has no employees.
Copies of the AIC Code, the AIC Guide and the UK Code can be
found on the respective organisations' websites www.theaic.co.uk
and www.frc.org.uk.
b) Statement of compliance
The AIC Code comprises 21 principles and the Directors believe
that during the year under review they have complied with the all
the recommendations of the AIC Code and the relevant provisions of
the UK Code insofar as they apply to the Company's business except
as set out below:
-- The role of the Chief Executive;
-- Executive Directors' remuneration; and
-- The need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers these provisions are not relevant
to the position of the Company, being an externally managed
investment company. In particular, all of the Company's day-to-day
management and administrative functions are outsourced to third
parties. As a result, the Company has no executive directors,
direct employees or internal operations. The Company has therefore
not reported further in respect of these provisions.
The Company complies with the corporate governance statement
requirements pursuant to the DTRs by virtue of the information
included in the Corporate Governance section of the Annual
Financial Report.
c) The Board
Directors
The Board currently consists of four non-executive directors all
of whom were appointed on 2 October 2014 (date of incorporation).
The Directors are:
-- Andrew Chapman (Independent non-executive Chairman)
-- Ian Burns (Senior independent non-executive Director)
-- Trudi Clark (Independent non-executive Director)
-- Mark Hodgson (Non-executive Director)
Please refer to Board Members section for biographies of each
Director which demonstrates their professional knowledge and
breadth of investment, accounting, banking and professional
experience.
The Board is chaired by Andrew Chapman, who is independent of
the Manager and Portfolio Manager at the time of his appointment
and remains so. The Chairman is responsible for the leadership of
the Board and ensuring its effectiveness in all aspects of its
role.
Ian Burns has been appointed as the Senior Independent Director
and provides assistance to the Chairman and serves as an
intermediary for the other Directors where necessary.
Directors' Duties and Responsibilities
The Directors have adopted a set of reserved powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
-- statutory obligations and public disclosure;
-- approval of key investment decisions;
-- strategic matters and financial reporting;
-- Board composition and accountability to Shareholders;
-- risk assessment and management, including reporting,
compliance, monitoring, governance and control;
-- responsible for financial statements; and
-- other matters having material effects on the Company.
These reserved powers of the Board have been adopted by the
Directors to demonstrate clearly the importance with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.
The Board meets at least four times each year and monitors the
Company's share price and NAV and regularly considers ways in which
future share price and overall performance can be enhanced. The
Board is responsible for the safeguarding of the assets of the
Company and taking reasonable steps for the prevention and
detection of fraud and other irregularities. The Portfolio Manager
and Manager together with the Company Secretary also ensure that
all Directors receive, in a timely manner, all relevant management,
regulatory and financial information relating to the Company and
its portfolio of investments. Directors unable to attend a Board
meeting are provided with the Board papers and can discuss issues
arising in the meeting with the Chairman or another non-executive
Director.
Individual Directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns them in
the furtherance of their duties.
Board and Committees
The Board has established three committees, the Audit Committee,
the Management Engagement Committee and the Remuneration and
Nomination Committee. All the independent directors, namely Andrew
Chapman, Ian Burns and Trudi Clark have been appointed to all
Committees.
Each committee operates within clearly defined terms of
reference and duties. The terms of reference for each Committee
have been approved by the Board and are available in full on the
Company's website.
Audit Committee
The Audit Committee membership comprises all of the Directors
with the exception of Mark Hodgson. The Chairman is a member of the
Committee but he does not chair it. His membership of the Audit
Committee is considered appropriate given his extensive knowledge
of the financial services industry.
Ian Burns is the Chairman of the Audit Committee.
The report on the role and activities of this Committee and its
relationship with the external auditors is set out in the Report of
the Audit Committee Report.
Management Engagement Committee
Trudi Clark is the Chair of the Management Engagement Committee.
The Management Engagement Committee membership comprises all of the
Directors with the exception of Mark Hodgson.
The Management Engagement Committee carries out its review of
the Company's advisers through consideration of a number of
objective and subjective criteria and through a review of the terms
and conditions of the advisers' appointments with the aim of
evaluating performance, identifying any weaknesses and ensuring
value for money for the Company's Shareholders. In September 2016,
the Management Engagement Committee formally reviewed the
performance of the Portfolio Manager and other key service
providers to the Company. During this review, no material
weaknesses were identified. Overall the Management Engagement
Committee confirmed its satisfaction with the services and advice
received.
Remuneration and Nomination Committee
Trudi Clark is the Chair of the Remuneration and Nomination
Committee.
The Remuneration and Nomination Committee undertake an
evaluation of the Board on an annual basis. The performance of each
Director is considered as part of a formal review by the
Remuneration and Nomination Committee.
The performance of the Board, its Committees and the Directors
was reviewed by the Remuneration and Nomination Committee in
September 2016. It was concluded that all Directors were
independent of the Portfolio Manager, and that Andrew Chapman, Ian
Burns and Trudi Clark were independent of the Manager. Mark Hodgson
is not regarded as independent.
The Chair of the Committee reviewed and discussed various areas,
including investment matters, strategy, Shareholder value,
governance, and the process and style of meetings. In addition, the
Board reviewed the performance of the Chairman in his role and
evaluated all their personal contributions. It was concluded that
all Directors had a good understanding of the investments and
markets and felt well prepared and able to participate fully at
Board meetings. It was agreed that Board meetings were effective
and all relevant topics were fully discussed, with the Board having
a good range of skills and competency. The Directors confirm that
they have devoted sufficient time, as considered necessary, to the
matters of the Company.
Attendance at scheduled meetings of the Board and its
committees
Board Audit Management Remuneration
Committee Engagement and Nomination
Committee Committee
--------------------- ------ ----------- ------------ ----------------
Number of meetings
during the year
ended 30 September
2016 4 3 1 1
--------------------- ------ ----------- ------------ ----------------
Andrew Chapman 4 3 1 1
--------------------- ------ ----------- ------------ ----------------
Ian Burns 4 3 1 1
--------------------- ------ ----------- ------------ ----------------
Trudi Clark 4 3 1 1
--------------------- ------ ----------- ------------ ----------------
Mark Hodgson 4 3(1) 1(1) 1
--------------------- ------ ----------- ------------ ----------------
(1) - attended with invitation from the Audit Committee and
Management Engagement Committee, however did not actively
participate in the meeting.
Meetings of the Committees generally take place prior to a Board
meeting. The Committee reports to the Board as part of a separate
agenda item, on the activity of the Committee and matters of
particular relevance to the Board in the conduct of their work.
Directors retirement and rotation
The AIC Guide states that all non-executive Directors should be
submitted for re-election by Shareholders at the first AGM after
their appointment and to re-election thereafter at intervals no
more than three years. Non-executive directors serving more than
nine years should be subject to annual re-election. Nomination for
re-election should not be assumed but be based on disclosed
procedures and continued satisfactory performance. The Articles of
Association state that at each AGM of the Company, any Director who
has been appointed by the Board since the last AGM shall retire
from office and may offer himself for election or re-election by
the members.
In accordance with best practice under the AIC Code, all
Directors will stand for reappointment at the forthcoming AGM to be
held on 21 March 2017.
The Board considers that there is a balance of skills and
experience within the Board and each of the Directors contributes
effectively.
Board Independence, Composition and Tenure
The Chairman and all Directors, with the exception of Mark
Hodgson, are considered independent of the Manager and the
Portfolio Manager. Mark Hodgson is the Managing Director of the
Manager and is therefore not regarded as independent.
The Directors consider that there are no factors, as set out in
principle 1 or 2 of the AIC Code, which compromise the Chairman's
or other Directors' independence, other than stated above, and that
they all contribute to the affairs of the Company in an adequate
manner. The Board reviews the independence of all Directors
annually. The Company Secretary, BNP Paribas Securities Services
S.C.A., Guernsey Branch through its representative acts as
Secretary to the Board and Committees and in doing so it: assists
the Chairman in ensuring that all Directors have full and timely
access to all relevant documentation; organises induction of new
Directors; and is responsible for ensuring that the correct Board
procedures are followed and advises the Board on corporate
governance matters.
The Board is made up of three male Directors and one female
Director. The Board supports the recommendations of the Davies
Report (available at www.gov.uk) 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.
The Board shall, at least once every three years, engage a third
party to perform an external review of the Board's performance,
consultation and terms of reference to ensure that it is operating
effectively and to recommend any changes it considers
necessary.
An annual evaluation of the Chairman and each individual
Director, Audit Committee, Management Engagement Committee and
Remuneration and Nomination Committee and Directors is undertaken
considering the balance of skills, experience, independence and
knowledge, its diversity, including gender, how the Board works
together as a unit, and other factors relevant to its
effectiveness. This was conducted by the Chairman having a private
discussion with each Director. The Directors also met without the
Chairman present in order to review the Chairman's performance. It
was concluded that each were satisfactory and the Board and
Committees had a good balance of skills and experience with each
Director making significant contributions in their roles and the
Chairman continuing to display effective leadership.
Details of the remuneration arrangements for the Board and Audit
Committee can be found in the Directors' Remuneration Report and in
note 5 of the financial statements.
Directors' professional development
The Board believes that keeping up-to-date with key investment
industry developments is essential for the Directors to maintain
and enhance their effectiveness.
Current Directors and newly appointed Directors, if applicable,
are given the opportunity to discuss training and development needs
and are expected to take responsibility for identifying their
training needs and to take steps to ensure that they are adequately
informed about the Company and their responsibilities as a
Director. The Chairman of the Remuneration and Nomination Committee
is responsible for agreeing and reviewing with each Director their
training and development needs.
When a new Director is appointed to the Board, they will be
provided with all relevant information regarding the Company and
their duties and responsibilities as a Director. In addition, a new
Director will also spend time with representatives of the Manager
and the Portfolio Manager in order to learn more about their
processes and procedures. No Directors (other than those appointed
at inception) were appointed during the year.
The Board is confident that all its members have the knowledge,
ability and experience to perform the functions required of a
director of the Company.
d) Board meetings and relationship with the Manager and Portfolio Manager
Relationship with the Manager and Portfolio Manager
The Board has delegated various duties to external parties
including the management of the investment portfolio, the custodial
services (including the safeguarding of assets), the registration
services and the day-to-day company secretarial, administration and
accounting services. Each of these contracts was entered into after
full and proper consideration by the Board of the quality and cost
of services offered, including the control systems in operation in
so far as they relate to the affairs of the Company.
The Board receives and considers reports regularly from both the
Portfolio Manager and the Manager, with ad hoc reports and
information supplied to the Board as required. The Portfolio
Manager complies with the Company investment limits and risk
diversification policies and has systems in place to monitor cash
flow and the liquidity risk of the Company. The Manager, Portfolio
Manager and the Administrator also ensure that all Directors
receive, in a timely manner, all relevant management, regulatory
and financial information. Representatives of the Manager,
Portfolio Manager and Administrator attend each Board meeting as
required, enabling the Directors to probe further on matters of
concern.
The Directors have access to the advice and service of the
corporate Company Secretary through its appointed representative
who is responsible to the Board for ensuring that Board procedures
are followed and that applicable rules and regulations are complied
with. The Board, the Manager, Portfolio Manager and the
Administrator operate in a supportive, co-operative and open
environment and the Board will actively and continuously supervise
both the Manager, Portfolio Manager and Administrator in the
performance of their respective functions.
Primary focus
The Board meets regularly throughout the year and a
representative of the Manager and the Portfolio Manager is in
attendance at all times when the Board meets to review the
performance of the Company's investments.
The Chairman with assistance from the Manager and the Portfolio
Manager is responsible for ensuring that relevant financial
information, including investment portfolio analysis and financial
plans, including budgets and forecasts, are available to the Board
and discussed at Board meetings. The Chairman encourages open
debate to foster a supportive and co-operative approach for all
participants.
The Board applies its primary focus on the following:
- investment performance, ensuring that investment objectives
and strategy of the Company are met;
- ensuring investment holdings are in line with the Company's investment restrictions;
- review and monitoring financial risk management and operating
cash flows, including cash flow forecasts and budgets of the
Company; and
- review and monitoring of the key risks to which the Company is
exposed as set out in the Strategic Report.
At each relevant meeting the Board undertakes reviews of key
investment and financial data, transactions and performance
comparisons, share price and NAV performance, marketing and
Shareholder communication strategies, peer group information and
industry issues.
Overall strategy
The Board meets regularly to discuss the investment objective,
policy and approach of the Company to ensure sufficient attention
is given to overall strategy of the Company.
The Board considers the Company's investment objectives, their
continuing relevance and whether the investment policy continues to
meet those Company's investment objectives.
The Board believes that the overall strategy of the Company
remains appropriate.
Monitoring and evaluation of performance of and contractual
arrangements with service providers
The Management Engagement Committee is responsible for reviewing
on a regular basis the performance of the Manager, Portfolio
Manager and the Company's other third party service providers
together with their anti-bribery and corruption policies to ensure
that they comply with the Bribery Act 2010 and the Prevention of
Corruption (Bailiwick of Guernsey) Law, 2003 and ensure their
continued competitiveness and effectiveness and ensure that
performance is satisfactory and in accordance with the terms and
conditions of the respective appointments.
As part of the Committees' evaluation it will also review on an
annual basis the contractual arrangements with the Manager,
Portfolio Manager and major service suppliers.
Please refer to the Corporate Governance Statement for findings
of review performed in September 2016. 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
The Directors review the trading price of the Company's Ordinary
Shares and compare them against the NAV of the Company's shares to
assess volatility in the discount or premium to the share prices
during the year.
e) Shareholder communications
Shareholder profile and communication
The Board views Shareholder relations and communications as high
priority which ensures that the Directors have an understanding of
the views of Shareholders about the Company.
The Board believes that the maintenance of good relations with
Shareholders is important for the long-term prospects of the
Company. It has, since admission, sought engagement with investors.
Where appropriate the Chairman or Senior Independent Director, and
other Directors are available for discussion about governance and
strategy with major Shareholders and the Chairman ensures
communication of Shareholders' views to the Board. The Board
receives feedback on the views of Shareholders from its Corporate
Broker and the Portfolio Manager, and Shareholders are welcome to
contact the Directors. Shareholders wishing to communicate with the
Chairman, or any Director, may do so by writing to the Company, for
the attention of the Company Secretary, at the Registered
Office.
The main method of communication with Shareholders is through
the Half-Year 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 Regulatory Information
Service.
The Company's website - microcap.riverandmercantile.com, is
regularly updated with quarterly factsheets and provides further
information about the Company, including the Company's Financial
Reports and announcements. The maintenance and integrity of the
Company website is the responsibility of the Directors. Legislation
in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Uncertainty regarding legal requirements is compounded as
information published on the internet is accessible in many
countries with different legal requirements relating to the
preparation and dissemination of financial statements.
The Board believes that the AGM provides an appropriate forum
for investors to communicate with the Board, and encourages
participation. The AGM will be attended by at least the Chairman of
the Audit Committee. There is an opportunity for individual
Shareholders to question the Directors at the AGM. It is the
intention of the Board that the Notice of the AGM and related
papers will be sent to Shareholders at least 20 working days before
that meeting.
The Directors welcome the views of all Shareholders and place
considerable importance upon them.
Other communications
All substantive communications regarding any major corporate
issues are discussed by the Board taking into account
representations from the Manager, Portfolio Manager, the Auditor,
legal advisers, Corporate Brokers and the Company Secretary.
Alternative Investment Fund Manager Directive ("AIFMD")
The Company (which is a non-EU AIF for the purposes of the AIFMD
and related regimes in EEA member states) has appointed the Manager
to act as its Alternative Investment 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.
During 2014, the Company 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 ("NPPRs").
The Manager has delegated portfolio management to the Portfolio
Manager and the Board actively and continuously supervises both the
Manager and the Portfolio Manager in the performance of their
respective functions.
As the Company and the AIFM are Non-EU domiciled, no depositary
has been appointed in line with the AIFM Directive, however BNP
Paribas Securities Services S.C.A., Guernsey Branch has been
appointed to act as custodian.
Information relating to the current risk profile of the Company
and the risk management systems employed by the Manager and
Portfolio Manager to manage those risks, as required under
paragraph 4(c) of Article 23 of the AIFMD, is set out in note 8 -
Financial Risk Management. Please refer to the Executive Summary
report for the Board's assessment of the principal risks and
uncertainties facing the Company.
AIFM Remuneration
The total fee paid to the AIFM by the Company for the year ended
30 September 2016 is disclosed in note 4.
The AIFM is not subject to the provisions of Article 13 of the
AIFM Directive, which require the AIFM to adopt remuneration
policies and practices in line with the principles detailed in
Annex II of the Directive. However, in accordance with Article 22
of the AIFM Directive and Article 107 of the AIFM Regulations, the
AIFM must make certain disclosures in respect of the remuneration
paid to its staff.
The AIFM has identified 8 staff as falling within the scope of
the disclosure requirements (the "Identified Staff"). These
Identified Staff are senior management, named as Designated Persons
of the AIFM's managerial functions, members of the Board of
Directors, and a risk officer as control function. With the
exception of 2 individuals, one acting as a non-executive Director
and the other as compliance officer, both of whom are external to
the Carne group of companies, all Identified Staff of the AIFM are
part of the Carne Group and as such receive no separate
remuneration for their role within the AIFM. Instead they are
remunerated as employees of other Carne group companies with a
combination of fixed and variable discretionary remuneration where
the latter is assessed on the basis of their overall individual
contribution to the group with reference to both financial and
non-financial criteria and not directly linked to the performance
of the staff of specific business units or targets reached. The
annualised remuneration amount paid to all of the Identified Staff
of the AIFM in respect of their work with the AIFM for the 12 month
period to 31 March 2016 was GBP108,280. There was no variable
component to this remuneration and none of the AIFM's Identified
Staff are in a position to materially impact the risk profile of
the Company. The AIFM manages other AIFs. The AIFM has no staff
other than the Identified Staff.
This Directors' and Corporate Governance Report was approved by
the Board of Directors on 19 January 2017 and signed on its behalf
by:
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
REPORT OF THE AUDIT COMMITTEE
Report of the Audit Committee
The Board has appointed an Audit Committee which operates within
clearly defined Terms of Reference.
The Audit Committee includes all of the Directors with the
exception of Mark Hodgson. Ian Burns is the Chairman of the Audit
Committee and is independent as are all the other Directors that
comprise the committee. All of the Audit Committee's members have
recent and relevant financial experience. 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 consider and make recommendations to the Board, to be put
to Shareholders for approval at the AGM, in relation to the
appointment, re-appointment and removal and the provisions of
non-audit services of the external Auditors and to negotiate their
remuneration and terms of engagement on audit and non-audit
work;
- to meet regularly with the external Auditor in order to review
their proposed audit programme and remit of work and the subsequent
Audit Report and to assess the effectiveness of the audit process;
any issues arising from the audit with respect to accounting or
internal controls systems and the level of fees paid in respect of
audit and non-audit work;
- to annually assess the external Auditor's independence,
objectivity, effectiveness, resources and expertise;
- 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;
- advising the Board on whether the Committee believes the
annual report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company's performance, position,
business model and strategy; and
- 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.
The Audit Committee's Terms of Reference are published on the
Company's website.
Internal controls
The Board is responsible for ensuring that suitable systems of
risk management and internal control are implemented by the
third-party service providers to the Company. The Directors have
reviewed the BNP Paribas Securities Services ISAE 3402 report (on
the description of controls placed in operation, their design and
operating effectiveness for the period from 1 October 2015 to 30
September 2016) on Fund Administration and Middle Office
Outsourcing dated 16 December 2016, and are pleased to note that no
significant issues were identified.
In accordance with the FRC's Internal Control: Guidance to
Directors, 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 Audit Committee has
reviewed the whistleblowing procedures of the Administrator and
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 in the Corporate Governance
Statement of this Annual Report.
Significant risks in relation to the financial statements
The Audit Committee views the valuation of the Company
investments as significant risks.
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 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 risk measurement framework is
discussed, including market risk, credit risk, counterparty risk,
operational risk and liquidity risk, in reference to the investment
portfolio and the Company performance therefore. On a monthly
basis, Mark Hodgson will report 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 is PricewaterhouseCoopers CI LLP
(the "Auditor") who were reappointed on the 4 March 2016.
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
investments 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 investment portfolio was
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 2016, 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 2016, 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 2016. No other non-audit services were
provided during the year ended 30 September 2016.
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: GBP35,300 (year-end audit)
and the fees for non-audit services were GBP17,000 for review of
the Company's Half-Yearly Report for the period ended 31 March
2016.
The Audit Committee has discussed the report provided by the
Auditor and the Audit Committee is satisfied as to the independence
of the Auditor.
The Committee has reviewed the Auditor's independence policies
and procedures and considers that they are fit for purpose.
Appointment and independence
The Audit Committee considers the reappointment of the external
Auditor, including the rotation of the audit engagement leader, and
assesses their independence on an annual basis. The external
Auditor is required to rotate the engagement leader responsible for
the Company's audit every five years. The current engagement leader
has been in place since inception (two years).
The Committee reviews the objectivity and effectiveness of the
audit process on an annual basis and considers whether the Company
should put the audit engagement out to tender. Having considered
the need to tender the position for the current year, the Committee
has provided the Board with its recommendation to the Shareholders
on the reappointment PricewaterhouseCoopers CI LLP as external
auditor for the year ending 30 September 2017.
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 Committee's choice of external auditor and we do
not indemnify our external auditor.
The Committee continues to consider the audit tendering
provisions outlined in the revised UK Code.
This Report of the Audit Committee was approved by the Board of
Directors on 19 January 2017 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 Annual Financial
Report and Financial Statements in accordance with applicable
Guernsey law and International Financial Reporting Standards
("IFRS's").
Guernsey law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss
for the year.
In preparing those financial statements, the Directors are
required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008, as amended ("Companies Law"). The Directors are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors confirm to the best of their knowledge that:
-- the financial statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Company;
-- the Strategic Report and the Portfolio Manager's Report
include a fair review of the information required by DTR 4.1.8
(indication of important events up to 30 September 2016 and a
description of principal risks and uncertainties);
-- the Strategic Report and the Portfolio Manager's Report
include a fair review of the information required by DTR 4.1.9 and
4.1.10 (analysis of the development and performance of the Company
and position at year end aided by the use of key performance
indicators; and where appropriate information relating to
environmental factors);
-- the Strategic Report, the Portfolio Manager's Report and the
notes to the financial statements include a fair review of the
information required by DTR 4.1.11 (disclosure of important events
that have occurred post year end; future developments; financial
risk management objectives and policies and the Company's exposure
to price, credit, liquidly and cash flow risk); and
-- the Annual Financial Report and financial statements, taken
as a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company's
performance, position, business model and strategy.
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
DIRECTORS' REMUNERATION REPORT
Annual Remuneration Statement
Dear Shareholders
This report meets the relevant rules of the Listing Rules of the
Financial Conduct Authority and the AIC Code and describes how the
Board has applied the principles relating to Directors'
remuneration.
An ordinary resolution to ratify this report will be proposed at
the AGM on 21 March 2017.
Changes to the Board
There were no changes to the Board during the year. In
accordance with best practice under the AIC Code, all Directors
will stand for reappointment at the forthcoming AGM to be held on
21 March 2017.
Table of Directors Remuneration
Component Director Annual Purpose of reward
Rate(1)
(GBP)
----------- ------------------------- ------------ ---------------------
Annual All Directors For commitments
fee Andrew Chapman GBP20,000 as non-executive
(Chairman) GBP20,000 Directors
Ian Burns GBP20,000
Trudi Clark GBP20,000
Mark Hodgson
----------- ------------------------- ------------ ---------------------
Additional Andrew Chapman GBP10,000 For additional
fee (Chairman of the responsibilities
Board) GBP5,000 and time commitment
Ian Burns (Chairman
of the Audit Committee)
----------- ------------------------- ------------ ---------------------
Expenses Ad hoc Reimbursement of
expenses paid
----------- ------------------------- ------------ ---------------------
(1) - With effect from 1 October 2016 the Board resolved to
increase the fee payable to non-executive Directors from GBP20,000
to GBP25,000 per annum. It further resolved to increase the
Chairman's increment from GBP10,000 to GBP15,000 per annum. The
increment for the Chairman of the Audit Committee remains at
GBP5,000.
No other remuneration or compensation was paid or is payable by
the Company during the year to any of the Directors. There has been
no change to the Company's remuneration policy as detailed
below.
The Company has no employees. Accordingly, there are no
differences in policy on the remuneration of Directors and the
remuneration of employees.
No Director is entitled to receive any remuneration which is
performance-related.
Remuneration policy
The determination of the Directors' fees is a matter for the
Remuneration and Nomination Committee. The Remuneration and
Nomination Committee considers the remuneration policy annually to
ensure that it remains appropriately positioned. Members of the
Committee will review the fees paid to the boards of directors of
similar companies. No Director is to be involved in decisions
relating to his or her own remuneration.
The Company's policy is for the Directors to be remunerated in
the form of fees, payable quarterly in arrears. No Director has any
entitlement to a pension, and the Company has not awarded any share
options or long-term performance incentives to any of the
Directors.
Directors are authorised to claim reasonable expenses from the
Company in relation to the performance of their duties.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs
and the responsibilities borne by the Directors and should be
sufficient to enable high calibre candidates to be recruited. The
policy is for the Chairman of the Board and Chairman of the Audit
Committee to be paid a higher fee than the other Directors in
recognition of their more onerous roles and more time spent. The
Board may amend the level of remuneration paid within the limits of
the Company's Articles of Association.
The Company's Articles of Incorporation limits the aggregate
fees payable to the Board of Directors to a total of GBP150,000 per
annum.
Service Contracts and Policy on Payment of Loss of Office
Directors are appointed with the expectation that they are
initially appointed until the following AGM when it is required
that they be re-elected by Shareholders. All Directors have served
since incorporation of the Company.
Directors have agreed letters of appointment with the Company.
No Director has a service contract with the Company and Directors'
appointments may be terminated at any time by one month's written
notice with no compensation payable at termination upon leaving
office for whatever reason. Directors' appointments are reviewed
during the annual board evaluation, which took place in September
2016.
In accordance with best practice and the AIC Code, all Directors
will stand for reappointment at the forthcoming AGM to be held on
21 March 2017. The names and biographies of the Directors holding
office at the date of this report are listed on 10 and 11.
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 Date of reappointment
of appointment
------------- ---------------- ----------------------
Andrew 21 October 2014 4 March 2016
Chapman
------------- ---------------- ----------------------
Ian Burns 21 October 2014 4 March 2016
------------- ---------------- ----------------------
Trudi Clark 21 October 2014 4 March 2016
------------- ---------------- ----------------------
Mark Hodgson 21 October 2014 4 March 2016
------------- ---------------- ----------------------
Director Interests
As at the date of approval of the financial statements,
Directors held the following number of Ordinary Shares in the
Company:
Director Ordinary Shares
held
-------------- ----------------
Andrew
Chapman 20,000
-------------- ----------------
Ian Burns Nil
-------------- ----------------
Trudi Clark 16,885
-------------- ----------------
Mark Hodgson Nil
-------------- ----------------
No Director has any other interest in any contract to which the
Company is a party with the exception of Mark Hodgson who acts as
the Managing Director of the Manager.
Advisers to the Remuneration and Nomination Committee
The Board has not sought the advice or services by any outside
person, at this time, in respect of its consideration of the
Directors' remuneration.
Statement of consideration of Shareholder views
An ordinary resolution to ratify the Directors' remuneration
report will be proposed at the AGM on 21 March 2017.
Trudi Clark
Remuneration and Nomination Committee Chair
19 January 2017
independent auditors' report to THE MEMBERS OF RIVER AND
MERCANTILE UK MICRO CAP INVESTMENT COMPANY LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of River
and Mercantile UK Micro Cap Investment Company Limited ("the
Company") which comprise the Statement of Financial Position as of
30 September 2016 and the Statement of Comprehensive Income, the
Statement of Changes in Shareholders' Equity and the Statement of
Cash Flows for the year then ended and a summary of significant
accounting policies and other explanatory information.
Directors' Responsibility 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 and with the
requirements of Guernsey law. The directors are also responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors' judgement, including
the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the
financial statements 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 entity's internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair
view of the financial position of the Company as of 30 September
2016, 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.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. The other information comprises only the
Strategic Report, Board Members, Portfolio Manager's Report,
Directors' and Corporate Governance Report, Report of the Audit
Committee, Directors' Statement of Responsibilities, Directors'
Remuneration Report and Company Information.
In our opinion the information given in the Directors' and
Corporate Governance Report is consistent with the financial
statements.
This report, including the opinion, has been prepared for and
only for the Company's 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.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
which we are required to review under the Listing Rules:
-- the directors' statement set out in the Directors' and
Corporate Governance Report 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;
-- 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; and
-- certain elements of the report to shareholders by the Board on directors' remuneration.
John Luff
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
19 January 2017
STATEMENT OF COMPREHENSIVE INCOME
For the year from 1 October 2015 to 30 September 2016
For the
Year ended period
30 September from 2
2016 October
2014 to
30 September
2015
Notes GBP GBP
------------------------------ ------ --------------- --------------
Income
Investment income 3 1,428,098 489,040
Net gain on financial assets
designated at fair value
through profit or loss 7 10,401,026 6,983,977
-------------------------------- ------ --------------- --------------
11,829,124 7,473,017
------------------------------ ------ --------------- --------------
Expenses
Operating expenses 4 (1,948,405) (1,212,365)
-------------------------------- ------ --------------- --------------
Profit before taxation 9,880,719 6,260,652
-------------------------------- ------ --------------- --------------
Taxation - -
------------------------------ ------ --------------- --------------
Profit after taxation and
total comprehensive income 9,880,719 6,260,652
Basic and diluted earnings
per Ordinary Share 13 0.1473 0.1461
The Company has no items of other comprehensive income, and
therefore the profit for the year is also the total comprehensive
income.
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
year.
The notes form an integral part of these financial
statements.
STATEMENT OF FINANCIAL POSITION
As at 30 September 2016
30 September 30 September
2016 2015
Notes GBP GBP
-------------------------------- ------ ------------- -------------
Non-current assets
Financial assets designated
at fair value through profit
or loss 7 85,978,933 54,053,643
Current assets
Cash and cash equivalents 9 1,635,861 1,268,358
Trade receivables - securities
sold awaiting settlement 11,533 1,138,260
Other receivables 6 248,385 28,497
Total current assets 1,895,779 2,435,115
-------------------------------- ------ ------------- -------------
Total assets 87,874,712 56,488,758
-------------------------------- ------ ------------- -------------
Current liabilities
Other payables 10 (1,390,860) (597,805)
-------------------------------- ------ ------------- -------------
Total current liabilities (1,390,860) (597,805)
-------------------------------- ------ ------------- -------------
Total liabilities (1,390,860) (597,805)
-------------------------------- ------ ------------- -------------
Net assets 86,483,852 55,890,953
-------------------------------- ------ ------------- -------------
Capital and reserves
Stated capital 12 - -
Share premium 12 70,342,481 49,630,301
Retained earnings 16,141,371 6,260,652
-------------------------------- ------ ------------- -------------
Equity Shareholders' funds 86,483,852 55,890,953
-------------------------------- ------ ------------- -------------
The financial statements were approved and authorised for issue
by the Board of Directors on 19 January 2017 and signed on its
behalf by:
Andrew Chapman Ian Burns
Chairman Audit Committee Chairman
The notes form an integral part of these financial
statements.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 30 September 2016
Stated Share Retained
capital Premium earnings Total
Note GBP GBP GBP GBP
------------------------------ ----- ---------- ----------- ----------- -----------
Opening equity Shareholders'
funds at 1 October
2015 - 49,630,301 6,260,652 55,890,953
------------------------------ ----- ---------- ----------- ----------- -----------
Total comprehensive
income for the year - - 9,880,719 9,880,719
Transactions with
owners, recorded
directly to equity
Proceeds from issuance
of Ordinary Shares 12 - 20,946,190 - 20,946,190
Share issue costs 12 - (234,010) - (234,010)
------------------------------ ----- ---------- ----------- ----------- -----------
Closing equity Shareholders'
funds at 30 September
2016 - 70,342,481 16,141,371 86,483,852
------------------------------ ----- ---------- ----------- ----------- -----------
For the period from 2 October 2014 (incorporation) to 30
September 2015
Stated Share Retained
capital premium earnings Total
Note GBP GBP GBP GBP
------------------------------ ----- --------- ------------ ---------- ------------
Opening equity Shareholders' - - - -
funds at 2 October
2014
------------------------------ ----- --------- ------------ ---------- ------------
Total comprehensive
income for the period - - 6,260,652 6,260,652
Transactions with
owners, recorded
directly to equity
Proceeds from issuance
of Ordinary Shares 12 - 50,643,164 - 50,643,164
Share issue costs 12 - (1,012,863) - (1,012,863)
------------------------------ ----- --------- ------------ ---------- ------------
Closing equity Shareholders'
funds at 30 September
2015 - 49,630,301 6,260,652 55,890,953
------------------------------ ----- --------- ------------ ---------- ------------
The notes form an integral part of these financial
statements.
STATEMENT OF CASH FLOWS
For the year ended 30 September 2016
For the
period
from 2
October
2014 to
Year ended 30
30 September September
2016 2015
Notes GBP
------------------------------------------------------------- ------ -------------- -------------
Cash inflow from operating
activities
Profit after taxation and
total comprehensive income
for the year / period 9,880,719 6,260,652
Adjustments to reconcile
profit after tax to net cash
flows:
* Realised gain on financial assets designated at fair
value through profit or loss 7 (4,545,264) (2,835,275)
* Unrealised gain on financial assets designated at
fair value through profit or loss 7 (5,855,762) (4,148,702)
Purchase of financial assets
designated at fair value
through profit or loss 7 (43,497,573) (58,630,422)
Proceeds from sale of financial
assets designated at fair
value through profit or loss 7 21,973,309 11,560,756
Changes in working capital
Decrease / (increase) in
trade receivables 1,126,727 (1,138,260)
Increase in other receivables 6 (219,888) (28,497)
Increase in other payables 10 793,055 597,805
Net cash used in operating
activities (20,344,677) (48,361,943)
------------------------------------------------------------- ------ -------------- -------------
Cash inflow from financing
activities
Proceeds from issuance of
Ordinary Shares 12 20,946,190 50,643,164
Ordinary Share issue costs
paid 12 (234,010) (1,012,863)
Net cash from financing activities 20,712,180 49,630,301
------------------------------------------------------------- ------ -------------- -------------
Net increase in cash and
cash equivalents in the year
/ period 367,503 1,268,358
------------------------------------------------------------- ------ -------------- -------------
Cash and cash equivalents
at the beginning of the year
/ period 9 1,268,358 -
Cash and cash equivalents
at the end of the year /
period 9 1,635,861 1,268,358
------------------------------------------------------------- ------ -------------- -------------
The notes form an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The Company was incorporated as a non-cellular company with
liability limited by shares in Guernsey under The Companies
(Guernsey) Law 2008 on 2 October 2014. It listed its Ordinary
Shares on the Premium Segment of the Official List of the UK
Listing Authority and was admitted to trading on the Main Market of
the London Stock Exchange on 2 December 2014.
The Company has been registered by the GFSC as a registered
closed-ended collective investment scheme pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended, and the RCIS Rules 2008. 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 throughout the year presented.
2.1 Basis of preparation
(a) Statement of Compliance
The financial statements have been prepared in accordance with
the Disclosure Guidance and Transparency Rules of the FCA 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 International Financial Reporting Standards 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 Company (Guernsey) Law 2008, as
amended.
The financial statements have been prepared under a going
concern basis. The Directors are satisfied that, at the time of
approving the financial statements, it is 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 judgments
The preparation of the financial statements in conformity with
IFRS, requires the Company to make judgements, estimates and
assumptions that affect items reported in the Statement of
Financial Position and Statement of Comprehensive Income and the
disclosure of contingent assets and liabilities at the date of the
financial statements. It also requires management to exercise its
judgement in the process of applying the Company's accounting
policies. Uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future
periods.
As outlined in above in Note 2.1(c) the Directors have used
their judgement to determine that the Company's presentational and
functional currency is Pounds Sterling.
(e) New standards, amendments and interpretations
New standards, amendments and interpretations to existing
standards that become effective in future accounting periods and
have not been adopted by the Company;
Effective
for annual
International Financial Reporting Standards periods beginning
(IFRS) on or after
------------------------------------------------------------- -------------------
1 January
* IFRS 9 - Financial Instruments: Classification and 2018
Measurement
1 January
* IFRS 15 - Revenue from Contracts with Customers 2018
1 January
* Amendment to IAS 7 - Statement of Cash Flows - 2017
amendments as a result of the Disclosure initiative
1 January
* Amendment to IAS 1 - Presentation of Financial 2016
Statements - amendments as a result of the Disclosure
initiative
The Directors have not yet fully assessed the impact these new
standards will have on the financial statements but their initial
opinion is that it will not be significant.
2.2 Foreign currency translations
Foreign exchange gains and losses resulting from the settlement
of transactions in foreign currencies and from the translation of
monetary assets and liabilities at period end exchange rates to
Pounds Sterling are recognised in the Statement of Comprehensive
Income as foreign exchange translation gains/losses.
Non-monetary items such as financial assets designated at fair
value through profit or loss measured at fair value in a foreign
currency, are translated using exchange rates at the balance sheet
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 2016 all financial assets designated at fair
value through profit and loss are held in Pounds Sterling.
2.3 Financial instruments
Financial assets
a) Classification
The Company classifies its investments in equity securities as
financial assets designated at fair value through profit or loss.
These financial instruments are held for investment purposes.
Financial assets also include cash and cash equivalents as well as
other receivables which are measured at amortised cost using the
effective interest rate method.
Financial assets designated at fair value through profit or loss
at inception
Financial assets designated at fair value through profit or loss
at inception are financial instruments that are not classified as
held for trading but are managed, and their performance is
evaluated on a fair value basis in accordance with the Company's
documented investment strategy.
The Company's policy requires the Portfolio Manager and the
Board of Directors to evaluate the information about these
financial assets on a fair value basis together with other related
financial information.
b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment. Financial assets designated at fair value through
profit or loss are measured initially at fair value. Transaction
costs are expensed as incurred and movements in fair value are
recorded in the Statement of Comprehensive Income. Subsequent to
initial recognition, all financial assets designated at fair value
through profit or loss are measured at fair value.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
c) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
As at 30 September 2016, 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 GBP100 million at the time of purchase, whose securities
are admitted to trading on AIM.
Investments are valued at fair value, which are quoted bid
prices for investments traded in active markets.
For investments which are not traded in active markets, unlisted
and restricted investments, the Board in determining its assessment
of fair value takes into account the latest traded prices, other
observable market data and
asset values based on the latest available and relevant
information for that investment.
As all the Company's financial assets are quoted securities
which are traded in active markets, in the opinion of the
Directors, the fair value of the financial assets is not subject to
significant judgments, estimates or assumptions.
d) Valuation process
The Directors are in ongoing communications with the Portfolio
Manager and hold meetings on a timely basis to discuss performance
of the investment portfolio and the valuation methodology and in
addition review monthly investment performance reports.
The Directors analyse the investment portfolio in terms of both
investment mix and fair value hierarchy and consider the impact of
general credit conditions and/or events that occur in the global
corporate environments which may impact the economic conditions in
the UK and ultimately on the valuation of the investment
portfolio.
Financial liabilities
e) Classification
Amounts due to brokers represent payables for investments that
have been contracted for but not yet settled or delivered on 30
September 2016. Financial liabilities include trade payables and
other payables which are held at amortised cost using the effective
interest rate method.
f) Recognition, measurement and derecognition
Financial liabilities are recognised initially at fair value,
net of transaction costs incurred and are subsequently carried at
amortised cost using the effective interest rate method. Financial
liabilities are derecognised when the obligation specified in the
contract is discharged, cancelled or expires.
2.4 Investment income, interest income and expenses
Dividends receivable on equity shares are recognised as revenue
for the period on an ex-dividend basis. Interest income and
expenses are recognised in the Statement of Comprehensive Income on
an accruals basis using the effective interest rate method.
2.5 Operating expenses
Operating expenses are recognised on an accruals basis and are
recognised in the Statement of Comprehensive Income.
2.6 Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks. Cash equivalents are short term, highly liquid
investments with original maturities of three month or less that
are readily convertible to known amounts of cash and are subject to
an insignificant risk of changes in value.
2.7 Trade receivables and payables
Amounts due from and to brokers represent trade receivables for
securities sold and trade payables for securities purchased that
have been contracted for but not yet settled or delivered on the
Statement of Financial Position date respectively.
These amounts are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment for amounts due from
brokers. A provision for impairment of trade receivables due from
brokers is established when there is objective evidence that the
Company will not be able to collect all amounts due from the
relevant broker.
Significant financial difficulties of the broker, probability
that the broker will enter bankruptcy or financial reorganisation,
and default in payments are considered indicators that the amount
due from brokers is impaired. Once a financial asset or a group of
similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of
interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
The effective interest method is a method of calculating the
amortised cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument, or, when
appropriate, a shorter period, to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instrument but
does not consider future credit losses. The calculation includes
all fees and points paid or received between parties to the
contract that are an integral part of the effective interest rate,
transaction costs and all other premiums or discounts.
2.8 Segmental reporting
In accordance with IFRS 8, the Board as a whole has been
determined as constituting "the chief operating decision maker" of
the Company. The Directors view the operations of the Company as
one operating segment, being investment in UK Micro Cap Companies.
All significant operating decisions are based upon analysis of the
Company's investments as one segment. The financial results from
this segment are equivalent to the financial results of the Company
as a whole, which are evaluated regularly by the chief operating
decision-maker (the Board with insight from the Portfolio
Manager).
2.9 Contingent liabilities and provisions
A contingent liability is a possible obligation depending on
whether some uncertain future event occurs; or a present obligation
but payment is not probable or the amount cannot be measured
reliably. A provision is recognised when:
- the Company has a present legal or constructive obligation as a result of past events;
- it is probable that an outflow of resources will be required to settle the obligation; and
- the amount has been reliably estimated.
2.10 Taxation
The Company has applied for and been granted exemption from
liability to income tax in Guernsey under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 as amended by the Director of
Income Tax in Guernsey for the current period. Exemption must be
applied for annually and will be granted, subject to the payment of
an annual fee, which is currently fixed at GBP1,200 per applicant,
provided the Company qualifies under the applicable legislation for
exemption.
It is the intention of the Directors to conduct the affairs of
the Company so as to ensure that it continues to qualify for exempt
company status for the purposes of Guernsey taxation.
2.11 Stated capital
Ordinary Shares are classified as equity in accordance with IAS
32 - "Financial Instruments: Presentation" as these instruments
include no contractual obligation to deliver cash and the
redemption mechanism is not mandatory.
Costs directly attributable to the issue of new Ordinary Shares
are shown in equity as a deduction from the proceeds.
Please refer to note 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 2016
comprises its stated capital and share premium at a total of
GBP70,342,481 (2015: GBP49,630,301).
The Company's objectives when managing capital are to:
- safeguard the Company's ability to continue as a going concern;
- provide returns for Shareholders; and
- maintain an optimal capital structure to minimise the cost of capital.
The Board monitors the capital adequacy of the Company on an
on-going basis and both the Company's objectives regarding capital
management have been met. The Company has no imposed capital
requirements.
3. Investment income
For the
period from
2 October
Year ended 2014 to
30 September 30 September
2016 2015
GBP GBP
Investment income 1,410,875 441,704
Other income - 17,843
Bank interest 17,223 29,493
Total income 1,428,098 489,040
-------------------- -------------- --------------
4. Operating expenses
For the
period
from 2
October
Year ended 2014 to
30 September 30 September
2016 2015
GBP GBP
Portfolio management fees 588,322 331,036
Portfolio management performance
fees 797,751 426,025
Directors' fees 94,935 90,184
AIFM fees 54,036 52,839
Audit fees 35,300 35,000
Non-audit fees - interim
review services 17,000 16,000
Administration fees 93,027 72,500
Broker fees 51,246 41,507
Custody fees 13,859 7,371
Company secretariat fees 35,000 29,807
Registrar fees 21,893 7,833
Transaction fees 96,967 66,336
Legal and professional
fees 9,360 -
Sundry expenses 39,709 35,927
Total 1,948,405 1,212,365
------------------------------------ -------------- --------------
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 upfront set up fee of GBP20,000 and
annual fixed fee of GBP54,000. The annual fixed fee is paid
quarterly in arrears. Please note that the upfront set up fee is
included as part of initial placing of Ordinary Shares share issue
costs. Please refer to note 12 for further detail. AIFM fees
payable as at 30 September 2016 were GBP13,647 (2015:
GBP13,611).
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 of GBP85,000 with a cap of GBP115,000 for
fund administration services and GBP35,000 annual fixed fee for
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.
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.
On 3 November 2014, the Company signed an Investment Management
agreement with the Manager and the Portfolio Manager, whereby the
Manager delegated to the Portfolio Manager overall responsibility
for the discretionary management of the Company assets in
accordance with the Company's investment objective and policy.
Under the agreement, the Portfolio Manager is entitled to
receive a base fee and performance fee. The portfolio manager base
fee is payable monthly in arrears at a rate of one-twelfth of 0.75%
of NAV. A performance fee equal to 15% of the amount by which the
Company's NAV outperforms the total return on the benchmark, (being
Numis Smaller companies plus AIM (excluding investment companies)
total return index), will be payable to the Portfolio Manager over
a performance period.
The performance period is the period between two redemptions,
being the first business day after the calculation date, (referable
to the earlier redemption (opening date)), and the end day of the
calculation date (referable to the later redemption (closing
date)). The first opening date is the date of admission and in
circumstances in which a performance fee may be payable upon
termination of this Agreement, the final closing date shall be the
date in which the agreement is terminated. The calculation date is
the date determined by the Board for the calculation of the price
to be paid on any particular exercise of the redemption mechanism.
Please refer to note 12 for further detail regarding the redemption
mechanism. During the year ended 30 September 2016, the Company
incurred a performance fee of GBP797,751 (2015: GBP426,025), of
which GBP1,223,776 (2015: GBP426,025) was payable at year end. The
performance fee due will only be paid when the Company implements
the Redemption Mechanism as detailed in the IPO Prospectus issued
on 14 November 2014.
On 20 January 2015, the Company signed a Corporate Stockbroker
and Financial Adviser agreement with Winterflood Investment Trusts
(a division of Winterflood Securities Limited) (the "Corporate
Broker"), to provide corporate stockbroker and financial adviser
services to the Company. Under the agreement, the Corporate Broker
will be entitled to a fee payable by the Company of GBP50,000 per
annum payable half yearly in arrears. Broker fees payable as at 30
September 2016 were GBP16,667 (2015: GBP41,507).
5. Directors' fees and interests
The Directors of the Company are remunerated for their services
at a fee of GBP20,000 per annum (GBP30,000 for the Chairman). The
Chairman of the Audit Committee receives an additional GBP5,000 for
his services in this role.
With effect from 1 October 2016, the Director fees were
increased to GBP25,000 per annum (GBP40,000 for the Chairman). The
Chairman of the Audit Committee continues to receive an additional
GBP5,000 for his service in this role as stated above.
The Company has no employees other than the Directors.
Directors' fees payable as at 30 September 2016 were GBP23,880
(2015: GBP23,944).
As at the date of approval of these financial statements, Andrew
Chapman and Trudi Clark held 20,000 and 16,885 Ordinary Shares in
the Company respectively. No other Director holds shares in the
Company.
No pension contributions were payable in respect of any of the
Directors.
6. Other receivables
30 September 30 September
2016 2015
GBP GBP
Dividend receivable 242,716 27,250
Prepayments 5,665 1,238
Interest receivable 3 8
Ordinary Share receivable 1 1
----------------------------- ------------- -------------
Total other receivables 248,385 28,497
----------------------------- ------------- -------------
The Directors believe that these balances are fully
recoverable.
7. Financial assets designated at fair value through profit or
loss
30 September 30 September
2016 2015
GBP GBP
Financial assets designated
at fair value through profit
or loss 85,978,933 54,053,643
--------------------------------- ------------- -------------
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 GBP100 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.
30 September
Level Level Level 2016
1 2 3 Total
GBP GBP GBP GBP
Financial assets
----------------------------- ----------- ------ ------ -------------
Financial assets designated
at fair value through
profit and loss 85,978,933 - - 85,978,933
----------------------------- ----------- ------ ------ -------------
30 September
Level Level Level 2015
1 2 3 Total
GBP GBP GBP GBP
Financial assets
----------------------------- ----------- ------ ------ -------------
Financial assets designated
at fair value through
profit and loss 54,053,643 - - 54,053,643
----------------------------- ----------- ------ ------ -------------
Financial assets designated at fair value through profit or loss
reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets categorised within Level 1 to 3
between the beginning and the end of the reporting year.
30 September
Level Level Level 2016
1 2 3 Total
GBP GBP GBP GBP
------------------------------ ------------- ------ ------ -------------
Opening valuation 54,053,643 - - 54,053,643
------------------------------ ------------- ------ ------ -------------
Movements in the year: -
Purchases during the
year 43,497,573 - - 43,497,573
Sales - proceeds during
the year (21,973,309) - - (21,973,309)
Realised gain on financial
assets designated
at fair value through
profit or loss(1) 4,545,264 - - 4,545,264
Unrealised gain on
financial assets designated
at fair value through
profit or loss(2) 5,855,762 - - 5,855,762
Closing valuation 85,978,933 85,978,933
Total gains on financial
assets for the year
ended 30 September
2016 10,401,026 - - 10,401,026
------------------------------ ------------- ------ ------ -------------
(1) Realised gain on financial assets designated at fair value
through profit and loss is made up of GBP6,470,008 gain and
GBP(1,924,744) loss.
(2) Unrealised gain on financial assets designated at fair value
through profit and loss is made up of GBP18,977,876 gain and
GBP(13,122,114) loss.
During the year ended 30 September 2016, there were no
reclassifications between levels of the fair value hierarchy.
30 September
Level Level Level 2015
1 2 3 Total
GBP GBP GBP GBP
------------------------------ ------------- ------ ------ -------------
Opening valuation - - - -
------------------------------ ------------- ------ ------ -------------
Movements in the period: -
Purchases during the
period 58,630,422 - - 58,630,422
Sales - proceeds during
the period (11,560,756) - - (11,560,756)
Realised gain on financial
assets designated
at fair value through
profit or loss(3) 2,835,275 - - 2,835,275
Unrealised gain on
financial assets designated
at fair value through
profit or loss(4) 4,148,702 - - 4,148,702
Closing valuation 54,053,643 54,053,643
Total gains on financial
assets for the period
ended 30 September
2015 6,983,977 - - 6,983,977
------------------------------ ------------- ------ ------ -------------
(3) Realised gain on financial assets designated at fair value
through profit and loss is made up of GBP2,847,351 gain and
GBP(12,076) loss.
(4) Unrealised gain on financial assets designated at fair value
through profit and loss is made up of GBP7,706,875 gain and
GBP(3,558,173) loss.
During the period ended 30 September 2015, 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 2016, none of the investments held are deemed to be
illiquid in nature and on this basis are not subject to any special
arrangements.
8. Financial risk management
The Company's activities expose it to a variety of financial
risks; market risk (including price risk, interest rate risk and
foreign exchange risk), credit risk and liquidity risk.
8.1a 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 2016, the Company held investments in a
diversified portfolio of UK Micro Cap Companies, comprising
companies with a free float market capitalisation of less than
GBP100 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%:
Current value 30 September Increase Decrease
2016 by 15% by 15%
GBP
----------------------------- ------------- ----------- -------------
Financial assets designated
at fair value through
profit or loss 85,978,933 12,896,840 (12,896,840)
------------------------------ ------------- ----------- -------------
Current value 30 September Increase Decrease
2015 by 5% by 5%
GBP
----------------------------- ------------- ---------- ------------
Financial assets designated
at fair value through
profit or loss 54,053,643 2,702,682 (2,702,682)
------------------------------ ------------- ---------- ------------
The Directors consider a 15% movement to be reasonable given
their assessment of the volatility of the AIM market during the
year ended 30 September 2016. 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.
8.1b 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 and loss are equity
investments and therefore the valuation of these investments and
income receivable is not directly exposed to interest rate
risk.
The following table details the Company's exposure to interest
rate risks:
30 September 30 September 30 September
2016 2016 2016
Interest Non-interest Total
Bearing bearing
(*)
GBP GBP GBP
------------------------------ ------------- ------------- -------------
Assets
Financial assets designated
at fair value through
profit or loss - 85,978,933 85,978,933
Cash and cash
equivalents 1,635,861 - 1,635,861
Trade receivable
- securities
sold awaiting
settlement - 11,533 11,533
Other receivables (excluding
prepayments) - 242,720 242,720
------------------------------- ------------- ------------- -------------
Total assets 1,635,861 86,233,186 87,869,047
------------------------------- ------------- ------------- -------------
Liabilities
Other payables - (1,390,860) (1,390,860)
Total liabilities - (1,390,860) (1,390,860)
----------------------------- ---------- ------------ ------------
Total interest sensitivity
gap 1,635,861 84,842,326 86,478,187
----------------------------- ---------- ------------ ------------
* - floating rate and due within 1 month
30 September 30 September 30 September
2015 2015 2015
Interest Non-interest Total
Bearing bearing
(*)
GBP GBP GBP
------------------------------ ------------- ------------- -------------
Assets
Financial assets designated
at fair value through
profit or loss - 54,053,643 54,053,643
Cash and cash
equivalents 1,268,358 - 1,268,358
Trade receivable
- securities
sold awaiting
settlement - 1,138,260 1,138,260
Other receivables (excluding
prepayments) - 27,259 27,259
------------------------------- ------------- ------------- -------------
Total assets 1,268,358 55,219,162 56,487,520
------------------------------- ------------- ------------- -------------
Liabilities
Other payables - (597,805) (597,805)
Total liabilities - (597,805) (597,805)
----------------------------- ---------- ----------- -----------
Total interest sensitivity
gap 1,268,358 54,621,357 55,889,715
----------------------------- ---------- ----------- -----------
* - 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 / period would be as detailed
below:
30 September 30 September
2016 2015
GBP GBP
----------------------------- ------------- -------------
Increase of 50 basis points 8,179 6,342
Decrease of 50 basis points (8,179) (6,342)
----------------------------- ------------- -------------
8.1c 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
base currency. The functional currency of the Company is Pounds
Sterling.
Throughout the year ended 30 September 2016, all transactions
were in Pounds Sterling, with the exception of two transactions
which were in USD. As at 30 September 2016, income receivable of
$243,811 was held.
The following analysis demonstrates the impact of a 15% movement
in the exchange rate against USD on the net assets, with all other
variables held constant.
Effect on net
Change in assets attributable
exchange to ordinary
rate shareholders
30 September Increase/(decrease) Increase/(decrease)
2016
EUR
-------------- -------------------- ---------------------
(24,780) /
USD 15% / (15%)(4) 33,519
--------------- -------------------- ---------------------
(4) 15% has been assessed at 30 September 2016 as a reasonably
possible movement in currency rate sensitivity over the year. It is
not intended to illustrate a remote, worst case or stress test
scenario.
The Company has not been exposed to any material foreign
currency risk during the year.
8.2 Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company. The Board of Directors has in
place monitoring procedures in respect of counterparty risk which
is reviewed on an ongoing basis.
The Company's credit risk is attributable to its financial
assets designated at fair value through profit or loss, cash and
cash equivalents and interest and other receivables.
In the opinion of the Board of Directors, the carrying amounts
of financial assets best represent the maximum credit risk exposure
at the Statement of Financial Position date. At the reporting date,
the Company's financial assets exposed to credit risk amounted to
the following:
30 September 30 September
2016 2015
GBP GBP
Financial assets designated
at fair value through profit
or loss 85,978,933 54,053,643
Cash and cash equivalents 1,635,861 1,268,358
Trade receivable -
securities sold awaiting
settlement 11,533 1,138,260
Other receivables
(excluding prepayments) 242,720 27,259
--------------------------------- ------------- -------------
Total assets 87,869,047 56,487,520
--------------------------------- ------------- -------------
The Company's main credit risk exposure is in its investment in
UK Micro Cap Companies shown as financial assets designated at fair
value through profit or loss. All investments held are admitted to
trading on AIM.
The financial assets designated at fair value through profit or
loss are held by BNP Paribas Securities Services S.C.A, Guernsey
branch, the Company's custodian, in a segregated account. In the
event of bankruptcy or insolvency of the Administrator, the
Company's rights with respect to the securities held by the
custodian may be delayed or limited.
All cash is placed with BNP Paribas Securities Services S.C.A.,
Guernsey Branch.
BNP Paribas Securities Services S.C.A, is a wholly owned
subsidiary of BNP Paribas Securities Services S.A. which is
publicly traded and a constituent of the S&P 500 Index with a
long standing credit rating of A-1 from Standard & Poor's.
Credit risk of cash and custodian is mitigated by the Company's
policy to only undertake significant transactions with leading
commercial counterparties.
8.3 Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments as and when these fall due for payment.
Liquidity risk is monitored on an ongoing basis by the Board of
Directors and Portfolio Manager so as to ensure that the Company
maintains sufficient working capital in cash or near cash form so
as to be able to meet the Company's ongoing requirements to pay
accounts payable and accrued expenses.
In addition, the Company's liquidity management policy involves
projecting cash flows and considering the level of liquid assets
necessary to ensure the Company remains as a going concern. The
Company's investments are considered readily realisable, as they
all comprise of investments in companies whose securities are
admitted to trading on AIM. The Company would expect to be able to
liquidate investments within 7 days or less in the event cash was
required to cover expenses.
The table below shows the residual contractual maturity of the
financial liabilities as at 30 September 2016:
Maturity analysis of financial liabilities
Less than 3 to 12 More than
3 months months 1 year Total
GBP GBP GBP GBP
Financial liabilities
Other payables(5) (167,084) (1,223,776) - (1,390,860)
Total undiscounted
financial liabilities (167,084) (1,223,776) - (1,390,860)
------------------------ ---------- ------------ ---------- ------------
The table below shows the residual contractual maturity of the
financial liabilities as at 30 September 2015:
Less than 3 to 12 More than
3 months months 1 year Total
GBP GBP GBP GBP
Financial liabilities
Other payables(5) (171,780) (426,025) - (597,805)
Total undiscounted
financial liabilities (171,780) (426,025) - (597,805)
------------------------ ---------- ---------- ---------- ----------
(5) - Included in other payables is a performance fee payable of
GBP1,223,776 (2015: GBP426,025). Please refer to note 4 for further
details regarding calculation of performance fee and when this sum
will be payable.
In accordance with Article 23(4)(a) and (b) of AIFMD Directive,
the AIFM has assessed that the financial assets designated at fair
value through profit or loss held by the Company are not deemed to
be illiquid in nature, and as such, are not subject to any special
liquidity arrangements and that the AIF has no new arrangements in
place for managing liquidity.
9. Cash and cash equivalents
30 September 30 September
2016 2015
GBP GBP
Total cash and cash
equivalents 1,635,861 1,268,358
----------------------- ------------- -------------
10. Other payables
30 September 30 September
2016 2015
GBP GBP
Portfolio management
fees 53,952 34,737
Portfolio management
performance fees 1,223,776 426,025
Administration fees 7,150 7,083
AIFM fees 13,647 13,611
Audit fees 35,300 33,000
Broker fees 16,667 41,507
Company Secretariat
fees 2,917 2,917
Custody fees 988 642
Directors' fees 23,880 23,944
Registrar fees 625 625
Sundry expenses 11,958 13,714
Total other payables 1,390,860 597,805
------------------------ ------------- -------------
11. Contingent liabilities and commitments
As at 30 September 2016, the Company had no contingent
liabilities or commitments (2015: GBPnil).
12. Stated capital and share premium
Authorised
The authorised stated capital of the Company is represented by
an unlimited number of redeemable Ordinary Shares at no par
value.
Allotted, called up and fully-paid
Ordinary Shares Number Stated Share
of shares capital premium
GBP GBP
--------------------- ----------- --------- -----------
Total issued stated
capital as at 1
October 2015 50,643,164 - 50,643,164
----------------------- ----------- --------- -----------
Ordinary Shares
issued during the
year 17,864,405 - 20,946,190
----------------------- ----------- --------- -----------
Total issued stated
capital as at 30
September 2016 68,507,569 - 71,589,354
----------------------- ----------- --------- -----------
Ordinary Shares Number Stated Share
of shares capital premium
GBP GBP
--------------------- ----------- --------- -----------
Total issued stated - - -
capital as at 2
October 2014
--------------------- ----------- --------- -----------
Ordinary Shares
issued during the
period 50,643,164 - 50,643,164
----------------------- ----------- --------- -----------
Total issued stated
capital as at 30
September 2015 50,643,164 - 50,643,164
----------------------- ----------- --------- -----------
Ordinary Shares
On incorporation, the Company issued one Ordinary Share at a
price of GBP1.
On 27 November 2014, the Company issued a further 50,643,163
Ordinary Shares at a price of GBP1 per Ordinary Share, raising
gross proceeds of GBP50,643,163 (net proceeds of GBP49,630,301).
The costs and expenses of the initial placing of Ordinary Shares
attributable to the Company amounted to a total of
GBP1,012,863.
On 29 October 2015, 16,679,405 Ordinary Shares were issued at a
price of GBP1.1718, raising gross proceeds of GBP19,544,927 (net
proceeds of GBP19,328,692). The newly issued 16,679,405 Ordinary
Shares were admitted to the Official List and to trading on the
Main Market with effect from 3 November 2015. The costs and
expenses of the placing of 16,679,405 Ordinary Shares attributable
to the Company amounted to a total of GBP216,235.
On 11 November 2015, 1,185,000 Ordinary Shares were issued at a
price of GBP1.1825, raising gross proceeds of GBP1,401,263 (net
proceeds of GBP1,383,488). The newly issued 1,185,000 Ordinary
Shares were admitted to the Official List and to trading on the
Main Market with effect from 17 November 2015. The costs and
expenses of the placing of 1,185,000 Ordinary Shares attributable
to the Company amounted to a total of GBP17,775.
As at 30 September 2016, the Company had 68,507,569 Ordinary
Shares (2015: 50,643,164).
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 does not expect income from the investment portfolio
to significantly exceed the anticipated annual running costs of the
Company and therefore does not expect that the Company will pay
significant, or any, dividends, although it reserves the right to
do so.
No dividends have been declared or paid during the year.
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 GBP100 million, the
Directors intend to operate the redemption mechanism to return the
NAV back to around GBP100 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 GBP10 million
(before costs). The Company will not redeem fractions of
shares.
The price at which any Ordinary Shares are redeemed under the
redemption mechanism will be calculated by reference to unaudited
NAV calculations. To the extent that any redemption takes place at
a time when the Ordinary Shares are trading at a significant
premium to the prevailing unaudited NAV, Shareholders may receive
an amount in respect of their redeemed Ordinary Shares that is
materially below the market value of those shares prior to
redemption.
In order to facilitate any redemption, the Company may be
required to dispose of assets within the investment portfolio.
There is no certainty of the price that can be achieved on such
sales and any sale price could be materially different from the
carrying value of those assets. Consequently, the value received in
respect of redeemed Ordinary Shares may be adversely affected where
the Company is not able to realise assets at their carrying values.
In addition, during any period when the Company is undertaking
investment portfolio realisations, it may hold the sale proceeds
(which could, in aggregate, be a material amount) in cash, which
could impact the Company's returns, until the redemption is
implemented and the cash is distributed to Shareholders.
Investors should note that the redemption mechanism has a
specific and limited purpose, and no expectation or reliance should
be placed on the redemption mechanism being operated on any one or
more occasions or as to the proportion of Ordinary Shares that may
be redeemed or as to the price at which they will be redeemed. The
redemption mechanism may also lead to a more concentrated and less
liquid portfolio, which may adversely affect the Company's
performance and value.
In the absence of the availability of the redemption mechanism,
Shareholders wishing to realise their investment in the Company
will be required to dispose of their shares on the stock market.
Accordingly, Shareholders' ability to realise their investment at
any particular price and/or time may be dependent on the existence
of a liquid market in the shares.
13. Basic and diluted earnings per Ordinary Share
For the
period
from 2
October
Year ended 2014 to
30 September 30 September
2016 2015
GBP GBP
Total comprehensive income
for the year / period 9,880,719 6,260,652
Weighted average number
of shares during the year
/ period 67,098,803 42,851,908
Basic and diluted
earnings per share 0.1473 0.1461
14. Net asset value per share
30 September 30 September
2016 2015
GBP GBP
Net asset
value 86,483,852 55,890,953
Number of shares
at year / period
end 68,507,569 50,643,164
Net asset value
per share 1.2624 1.1036
15. Related party disclosure
The Manager and Portfolio Manager are deemed related parties and
all transactions between these related parties were conducted on
terms equivalent to those prevailing in an arm's length
transaction. Please refer to note 4 for further detail.
Philip Rodrigs is deemed to be a related party as he is the Fund
Manager of the Portfolio Manager. As at the date of approval of the
Annual Financial Report, he held 280,338 Ordinary Shares in the
Company.
The Directors are entitled to remuneration for their services.
Please refer to note 5 for further detail. Mark Hodgson is the
Managing Director of the Manager.
For Director fees, portfolio management fees and AIFM fees
payable as at 30 September 2016, please refer to note 10.
16. Material events after the Statement of Financial Position
date
On the 9 December 2016, the Company entered into a Sterling
Facility Agreement for GBP2,000,000 committed revolving credit
facility (the "bank loan") with BNP Paribas Securities Services
S.C.A. (the "Lender") and BNP Paribas Securities Services S.C.A.,
Guernsey Branch (the "Custodian").
There were no other events which occurred subsequent to the
year-end until the date of approval of the financial statements,
which would have a material impact on the financial statements of
the Company as at 30 September 2016.
17. Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party.
Company information
Board members Advocates to the Company
Andrew Chapman (Chairman) (as to Guernsey law)
Ian Burns (Chairman Carey Olsen
of the Audit Committee P.O. Box 98
and Senior Independent Carey House
Director) Les Banques
Trudi Clark (Chairman St Peter Port
of the Remuneration Guernsey
and Nomination Committee GY1 4BZ
and Management Engagement
Committee)
Mark Hodgson
All Directors were appointed
on the 2 October 2014.
Registered Office Custodian
BNP Paribas Securities
BNP Paribas House Services S.C.A., Guernsey
St Julian's Avenue Branch
BNP Paribas House
St Julian's Avenue
St Peter Port St Peter Port
Guernsey Guernsey
GY1 1WA GY1 1WA
Portfolio Manager Independent Auditor
PricewaterhouseCoopers
CI LLP
PO Box 321
River and Mercantile Royal Bank Place
Asset Management LLP 1 Glategny Esplanade
30 Coleman Street St Peter Port
London Guernsey
EC2R 5AL GY1 4ND
Administrator and Company
Manager Secretary
Carne Global AIFM Solutions BNP Paribas Securities
(C.I.) Limited Services S.C.A., Guernsey
8th Floor Branch
Union House BNP Paribas House
Union Street St Julian's Avenue
St Helier St Peter Port
Jersey Guernsey
JE2 3RF GY1 1WA
BNP Paribas Securities
Services S.C.A. Guernsey
Branch is regulated
by the Guernsey Financial
Services Commission.
Corporate Broker Registrar
Winterflood Securities Capita Registrars (Guernsey)
Limited Limited
The Atrium Building Longue Hougue House
Cannon Bridge House St Sampson
25 Dowgate Hill Guernsey
London GY2 4JN
EC4R 2GA
Solicitors to the Company Receiving Agent
(as to English law) Capita Registrars Limited
CMS Cameron McKenna (trading as Capita
LLP Asset Services)
Mitre House The Registry, 34 Beckenham
160 Aldersgate Street Road
London Beckenham, Kent
EC1A 4DD BR3 4TU
- ENDS -
Enquiries:
River and Mercantile UK Micro Cap Investment Company Limited
Andrew Chapman
Tel: +44 (0) 1481 750855
River and Mercantile Asset Management LLP
Mark Thomas
James Barham
Andrew Bollon
Tel: +44 (0) 20 7601 6262
BNP Paribas Securities Services S.C.A., Guernsey Branch, Company
Secretary
Jasper Cross
Tel: +44 (0) 1481 750859
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), or will be
circulated on the Company's website
(microcap.riverandmercantile.com)
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
River and Mercantile UK Micro Cap Investment Company Limited is
regulated by the Guernsey Financial Services Commission
A copy of this announcement is and will be available, subject to
certain restrictions relating to persons resident in restricted
jurisdictions for inspection on the Company's website at
microcap.riverandmercantile.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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