Annual Report, 31 January 2026
The Merchants Trust PLC
The benefits of income,
the value of Merchants.
Overview
2 Financial highlights
3 44 years of dividend growth
4 Chairman’s Statement
8 Key Performance Indicators (KPIs)
10 Performance – review of the year
Investment Manager’s Review
11 Portfolio Managers’ report
13 Market evolution over twenty years
23 Active engagement
23 Proxy voting
24 Portfolio breakdown
26 Distribution of total assets
Strategic Report
28 Our strategy
30 Section 172 report
32 Risk report
Governance
38 Directors
40 Investment Manager and advisers
41 Directors’ Report
47 Corporate Governance Statement
50 Management Engagement Committee Report
51 Nomination Committee Report
52 Remuneration Committee Report
55 Audit Committee Report
58 Statement of directors’ responsibilities
in respect of the financial statements
Financial Statements
59 Independent Auditor’s Report to the members
of The Merchants Trust PLC
64 Income Statement
65 Statement of Changes in Equity
66 Balance Sheet
67 Cash Flow Statement
68 Statement of Accounting Policies
70 Notes to the Financial Statements
Investor Information
84 Investor information
87 Notice of Meeting (unaudited)
91 Glossary
Contents
Please visit
tinyurl.com/MRCHar26
or use your tablet or smartphone camera
to scan the QR code.
Please do have a look at our deeper dive
into the year under review in our online
Annual Report.
Readership of hard copy Annual Reports has declined and
the large majority of shareholders and other interested
parties prefer to access them online. The board endeavours
to make as much information as possible available in our
digital format, including video presentations from both
our Chairman and Portfolio Manager; case studies; and a
closer look at the largest investments in our portfolio.
1
WWW.MERCHANTSTRUST.CO.UK
1
Alternative Performance Measure (APM). APMs are the board’s preferred measures for the most meaningful information for shareholders. Total
return figures include dividends paid at 31 January.
2
Debt at fair value.
3
Benchmark is the FTSE All-Share Index. See Glossary on page 91.
Net Asset Value
Total Return
1 2
+18.9%
2025 +13.5%
Share price
Total Return
1
+18.2%
2025 +7.7%
Benchmark
Total Return
1 3
+21.1%
2025 +17.1%
Net Asset Value
per ordinary share
1 2
663.5p
+13.9%
Share price
628.0p
+12.9%
Dividend yield
1
4.7%
2025 5.2%
Dividend growth
+1.4%
2026 29.5p
2025 29.1p
Revenue earnings
per ordinary share
+4.1%
2026 30.6p
2025 29.4p
700
0
Net Asset Value (p)
700
0
2022 2023 2024 2025 2026
2022 2023 2024 2025 2026
Price (p)
Financial highlights
For the year ended 31 January 2026
2
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
2.1p
1982
29.5p
2026
of dividend growth
years
44
Inflation growth of 3.8% over 44 years (rebased to 100). Retail Prices Index 1982 – 1986, Consumer Prices Index 1987 – 2026.
Total dividend: from 2.1p to 29.5p (subject to approval at the 2026 AGM) over the period, representing growth of 6.2% over 44 years.
Reserve accumulation Reserve depletion Special dividend
Merchants has grown its dividend
for 44 years at an annualised
growth rate above inflation.
Dividends can be funded
from revenue profits in the
year and from brought
forward reserves.
Dividend capacity
Revenue reserves brought forward Revenue profit for the year Dividends Source: AllianzGI, as at 31 January each year.
2026
£73.2m
£27.9m
£45.3m
2025
£70.5m
£26.8m
£43.7m
2022 2023 2024
£67.4m
£22.9m
£44.5m
£22.1m
£53.9m
£59.0m
£20.4m
£31.8m
£38.6m
3
Chairman’s Statement
A strong year for UK equities
After a long period of negative
sentiment and underperformance
relative to many markets, during the
Merchants financial year ended January
2026 the UK stock market experienced a
notable resurgence, and delivered a very
strong return of 21.1%. By comparison,
the US market (as exemplified by the
S&P 500 Index) rose a more modest
5.7% in sterling terms. The past year has
provided something of a vindication for
those who have maintained conviction
that the UK market as a whole was
undervalued and that there were well
managed businesses with attractive
valuations listed in the UK which could
offer strong positive returns.
This resurgence in the UK stock market
is welcomed by your board. In various
reports to shareholders over the past
few years, we have emphasised the
need for patience and our manager
has spoken of maintaining discipline
in our investment style, confident that
it would be rewarded in due course by
strong returns. Our portfolio managers’
investing approach is based on the
belief that they can create a portfolio
for shareholders of good companies
which are undervalued and which can
provide sustainable and growing income
alongside capital growth. During this
recent year, we have seen the beginning
of a recognition of the genuine value
available in UK equities, by both
domestic and international investors,
and capital has finally started to identify
at least certain areas of the UK market.
The Board is pleased to report that
against this background Merchants has
benefitted from the renewed interest
in the market and delivered strong
absolute returns while continuing to
grow the dividend – something that has
been central to our appeal to investors
for over four decades.
A twenty-year perspective
It is always valuable to place any single
year’s performance in a longer-term
context. Our investment manager at
Allianz Global Investors, Simon Gergel,
this year celebrates his twentieth as
the lead manager of The Merchants
Trust. A shareholder who invested at the
beginning of his tenure in January 2006
would have seen significant share price
appreciation and consistently growing
dividends, which when combined,
exceeded the value of their initial
investment. In other words, Merchants
shareholders today who have held their
initial shares for twenty years effectively
now have this shareholding for free! You
can read more on this in the Portfolio
Managers’ Report on pages 13 to
14.
Such portfolio manager longevity is
not unique, but it is unusual, and it is
of enormous value in creating stability
and consistency for the Company. The
Board would like to thank Simon for the
past twenty years’ service to Merchants’
shareholders, and recognise his insight,
skill and dedication to managing the
portfolio which has provided such strong
long-term returns for the benefit of
our shareholders.
Strong absolute returns in a
polarised market
Merchants delivered absolute returns
of 18.9% during the financial year
to 31 January 2026, with three-year
cumulative returns of 31.1%.
We acknowledge that in a highly
polarised market environment,
where returns have generally been
concentrated in a narrow band of stocks
such as technology, defence and banks,
Merchants’ relative performance has
lagged the exceptionally strong index
return (21.1% over the year). Whilst we
have to monitor short term performance
against the index and hold the manager
to account, we also expect there will
be periods like this from time to time.
The Board continues to support our
manager’s commitment to a consistent,
value-oriented investment approach
that avoids over concentration,
speculative bubbles or growth or
momentum style runs. The Portfolio
Managers’ Report provides a more
detailed explanation of the drivers of
relative performance against the index,
and the Board remains confident that
this disciplined value-led approach,
generally avoiding highly rated ‘growth’
stocks will deliver sustainable, long-
term capital growth and income to
our shareholders.
Earnings and dividend
Revenue earnings per share for the year
were 30.6p, compared to 29.4p in the
previous year. The Board is proposing a
final dividend of 7.5p per share, payable
on 27 May 2026 to shareholders on
the register on 17 April 2026. The ex
dividend date is 16 April 2026 and the
last date for election for the Dividend
Reinvestment Plan (DRIP) will be 5 May
2026. This final dividend, together with
the interim dividends already paid, will
Colin Clark
4
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
bring the total dividend for the year
to 29.5p per share. This represents an
increase of 1.4% on the previous year
and marks the 44th consecutive year
of dividend growth for Merchants,
which therefore also retains its place
in the AIC’s prestigious list of ‘Dividend
Heroes’ – those investment trusts which
have consistently delivered a rising
dividend stream to shareholders for
over twenty years. The total dividend
for the year is fully covered by revenue
earnings, allowing reserves to be further
rebuilt. At the end of the financial year,
revenue reserves stood at 20.3p per
ordinary share.
Discount/premium and
share buybacks
Shareholders will be aware that, like
all investment trusts, Merchants shares
trade at either a premium or a discount
to its Net Asset Value (NAV). The board
has an active programme to consider
the issuance of new shares when our
shares trade at a premium to NAV and
a programme of share buy backs when
they trade at a discount to NAV.
After many years of issuance, during
this year, Merchants shares traded at an
average discount of 5.7% to the net asset
value per share. The discount ranged
from a high of 8.7% in September 2025
to a low of 1.2% in April 2025. During the
year, the board monitored this situation
closely and Merchants performed a
modest aggregate buyback of 792,017
shares at a total cost of £4.4 million to
help reduce the discount when the UK
market was particularly out of favour.
Merchants ended the financial year
with a discount of 5.4%, which compares
favourably with many of our peers.
The resurgence of the UK market
The UK market’s performance over
the past year should be viewed within
the context of a significant global
rotation in investor sentiment. UK and
European equities led global markets
in early 2025, with the outperformance
in the first calendar quarter marking
the strongest relative performance
in 25 years. International equities in
aggregate significantly outperformed
the United States over the reporting
period, with the MSCI All Country World
ex-USA Index gaining 23.3% compared
to the S&P 500’s 5.7% return, and this
represents a notable shift after years of
US market dominance. This also reflects
a fundamental shift away from the
heavy concentration of returns in a small
number of US technology stocks that has
characterised recent years, as investors
became increasingly nervous about
the lofty valuations and concentrations
of returns in a few companies, largely
around the single central theme of AI.
Importantly though, despite this strong
performance, our manager believes
that the UK market continues to be
significantly cheaper than its US
counterpart. The valuation gap between
the two markets has begun to narrow,
but, as many market observers have
noted, there remains a long way to go.
The rotation towards value-oriented
markets may have further to run, and
this represents a compelling opportunity
for Merchants.
The portfolio manager has long
maintained that concerns about the
UK’s political and economic background
are frequently overstated. In a market
dominated by large multinational
companies generating substantial
revenues overseas, UK-specific issues
often have less impact on underlying
business performance than market
pricing might suggest. This pattern
was evident again over the past year.
Despite the market’s strong overall
performance, sentiment weakened
sharply in the run-up to – and immediate
aftermath of – the UK’s Autumn Budget,
prompting a broad retreat from UK
equities on a scale not seen for some
time. For disciplined value investors
such periods of indiscriminate selling
can create compelling opportunities.
As the portfolio managers highlight
in their review, markets have become
increasingly short-term and momentum-
driven, a dynamic that can give rise
to pronounced valuation anomalies.
Our strategy is specifically designed to
identify and capitalise on this mispricing.
Our portfolio managers have moved
more of the portfolio into mid-cap stocks
than has been the case before (though
Merchants remains predominantly
invested in large cap stocks). This
move reflects his view of “a once in a
generation opportunity”, with the mid-
cap index now yielding more than large
caps, something that hasn’t happened
within the past twenty years, and that is
an unusual scenario given the typically
more growth-oriented business models
of mid-caps vs. more mature large-caps.
In a market dominated
by large multinational
companies generating
substantial revenues
overseas, UK-specific issues
often have less impact
on underlying business
performance than market
pricing might suggest.
5
OVERVIEW
This is an interesting signal of potential
under-valuation. In the short term this
has been an additional headwind
to Merchants’ relative performance
against the index, as these mid-cap
stocks in general have still not gained
substantial investor attention. However,
our manager remains convinced this is
where the most significant value in the
UK market currently lies, and therefore
we are confident that this positioning is
a strong one for the future success of the
Merchants portfolio.
The UK government has taken steps to
make the London Stock Exchange (LSE)
more attractive. Recently introduced
capital market reforms include
simplified listing procedures, faster
Initial Public Offering (IPO) timelines,
and new initiatives to broaden retail
investor participation. These reforms,
described by the LSE as “the biggest in a
generation”, are already showing some
early signs of success. When combined
with the global reassessment of the
appeal of US assets, it suggests that
investor interest in UK equities may be
entering a new, more positive phase.
The Merchants Trust proposition:
a compelling case for income
and growth
The Merchants Trust offers shareholders
a distinctive proposition, built on several
enduring strengths.
The dividend: 44 years of
unbroken growth
At the heart of Merchants’ appeal is our
dividend policy. Subject to shareholder
approval of our proposed final
dividend, we will have now achieved 44
consecutive years of dividend growth
which is a remarkable testament
to the quality and resilience of our
portfolio companies. Merchants’ yield
is substantially higher than the broad
market average, yet the dividend is
typically fully covered by the income
generated by our holdings. This is not
a yield built on capital depletion; it is
backed by genuine earnings growth.
A consistent and
disciplined approach
Merchants’ investment philosophy is built
on consistency and discipline. We adopt
a value-oriented, long-term focused,
and high-conviction approach to stock
selection. The portfolio management
team is highly experienced and backed
by the considerable resources of Allianz
Global Investors, ensuring world-class
investment infrastructure, research, and
risk management.
Scale and liquidity
Merchants’ portfolio now exceeds £1
billion in value, providing the scale
and liquidity necessary to serve even
the largest institutional investors. Our
Ongoing Charge Figure (OCF) of 0.54%
is highly competitive for an actively
managed equity portfolio.
The investment trust advantage
The investment trust structure provides
The Merchants Trust with distinctive
advantages that are particularly suited
to a value-oriented strategy.
A differentiated portfolio
The permanent capital structure allows
us to maintain a portfolio that could
be difficult to fully replicate within an
open-ended fund. Whilst the majority
of our holdings are in large-cap stocks,
Merchants also has a significant
exposure to medium and smaller
companies, which our manager believes
are particularly undervalued. This part
of the market is often overlooked by
global investors and only modestly
invested in by passive funds, creating
opportunities for an active manager
able to benefit from conviction. The
takeovers of portfolio companies
Dowlais and Assura during the year are
clear examples of how this strategy can
unlock value as external parties awaken
to the significant value available.
We also encourage the manager
to invest selectively in international
stocks – allowing access to themes
under-represented in the UK market,
or where there may simply be better
opportunities available.
Enhancing returns and income
Merchants employs gearing – in the
form of long-term, fixed-rate bonds and
loan notes – as a tool to enhance both
returns and income. When deployed
prudently, gearing amplifies the returns
available to shareholders. Merchants
also maintains revenue reserves, which
are used to smooth dividend payments,
providing a predictable income stream
even when underlying portfolio income
fluctuates. Of course, this leverage
can also exacerbate losses in a falling
market but, over the long term, when the
performance from the portfolio exceeds
the cost of debt, the strategy is accretive
to shareholder value.
Subject to shareholder
approval of our
proposed final
dividend, we will
have now achieved
44 consecutive years
of dividend growth
which is a remarkable
testament to the quality
and resilience of our
portfolio companies.
6
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Steady and increasing
dividend stream
As already noted, we approach a 44-
year record of consecutive dividend
increases. This is a record we are proud
of, both for ourselves, but also on behalf
of the Board members, managers and
support teams that have gone before
us and contributed to this substantial
achievement. It is another factor
that would be largely impossible to
replicate in an open-ended fund or
exchange traded fund, particularly
during periods like the pandemic,
when market dividends were slashed.
Investment trusts though can utilise
revenue reserves, squirreling away small
amounts of income in bountiful years, to
enhance income when there is more of
a drought of income from the portfolio’s
investments. It is this mechanism and
a continual balancing act which has
enabled us to achieve this outcome.
Governance and engagement
The Board takes its responsibilities
to shareholders seriously, including
evaluating the performance of
the Manager and the wider AIFM
function. In February 2026, just after
the financial year end, the Board
travelled to Frankfurt to meet with
members of the investment and
infrastructure teams (including the
central trading desk, economics &
strategy research, marketing, cyber
security and AI) at Allianz Global
Investors. This engagement allows the
Board to maintain close oversight of the
investment process and the considerable
resources supporting Merchants.
The Board is also committed to
enhancing shareholder engagement.
The Annual General Meeting will once
again be held in a hybrid format, and
Merchants has expanded its marketing
efforts, including additional webinars,
videos and other activity, with a planned
expansion into a wider set of distribution
channels, aiming to reach a wider
audience of shareholders.
Annual General Meeting (AGM)
The Annual General Meeting will be
held at Grocer’s Hall on 19 May 2026
at 12 noon. The Board encourages all
shareholders to attend and participate.
Held in a hybrid format, shareholders
will be welcome to attend and vote
either in person or to participate and
vote electronically. Further details can be
found in the Notice of Meeting on page
87 of this report.
Outlook: confident in the quality
of the portfolio
Looking ahead to the remainder of
2026 and beyond, the Board remains
confident in the investment approach
and quality of the portfolio and the
prospects for Merchants. The portfolio
managers continue to believe that,
despite the strong performance in
2025, many individual stocks remain
significantly undervalued. The global
reassessment of valuations, the
recognition of the risks inherent in
excessive concentration in a small
number of US technology stocks, and
the supportive policy environment in
the UK all suggest that the conditions
which have created the opportunity
in UK equities may continue, although
we have to be mindful of the potential
impact from the evolving situation in the
Middle East.
For a more detailed discussion of the
market environment and portfolio
positioning, I would refer you to the
Portfolio Managers’ Report starting on
page 11.
2025/6 has been a year of strong
absolute returns and of vindication for
Merchants’ investment philosophy. The
Board is confident that The Merchants
Trust remains an attractive proposition
for investors seeking a combination of
income, growth, and exposure to the
large value opportunity available in the
UK equity market.
We are grateful for the continued
support of our shareholders and for the
dedication of the investment team and
we look forward to the year ahead with
confidence and optimism.
Colin Clark
Chairman
1 April 2026
The Board is confident
that The Merchants Trust
remains an attractive
proposition for investors
seeking a combination
of income, growth, and
exposure to the large value
opportunity available in the
UK equity market.
7
OVERVIEW
Key Performance Indicators (KPIs)
The board uses certain
financial and non-financial
Key Performance Indicators
(KPIs) to monitor and assess
the performance of the
company in achieving its
strategic aims:
Increasing and sustainable dividends
z Provide a high and progressively growing income stream
Earnings per share of 30.6p fully cover the dividends, with a surplus of 1.1p being transferred to
revenue reserves (2025: 0.3p transferred to revenue reserves). Revenue reserves at 31 January 2026
were 20.3p per share.
z Provide long-term capital growth
z Provide a long-term total return above the benchmark and peers
One year portfolio return of 18.3% was behind the index return of 21.1%. The NAV return also
underperformed the benchmark after the impact of gearing (borrowings). Gearing tends to amplify
portfolio returns in both directions. Over the long term, the 5 year NAV return was ahead of the
benchmark return of 80.8%.
Performance was 4th out of 19 in the peer group over five years, 14th out of 19 over 3 years and
12th out of 19 over one year. The ongoing charge has increased to 0.54% compared to 0.52% last
year. The board remains focused on reducing fixed costs. Merchants’ costs are below average in the
peer group and the dividend yield is above average.
z Position Merchants to outperform its peers, and to remain relevant and
attractive to new and existing investor groups
z Ensure the costs of running the company remain reasonable and competitive
1 year peer
group ranking
3 year peer
group ranking
5 year peer
group ranking
12th 14th 4th
5 year
portfolio return
5 year
NAV return
76.3% 94.3%
Dividend Year-on-year
dividend growth
29.5p +1.4%
Investor appeal
Shareholder returns and performance
8
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
1
At the year end before payment of the third and final quarterly dividends.
2
Source: JP Morgan Cazenove.
3
Source: Morningstar/AllianzGI.
Alternative Performance Measure (APM). See Glossary on page 91.
The board has a policy of paying a progressive
dividend each year, taking into account
inflation and subject to general earnings
growth and dividends received in the portfolio.
Ordinary dividends have risen in every year
since 1982.
Revenue reserves can be used to ensure
dividend payments can be maintained through
difficult market conditions. Income is put aside
in good years and can be used to maintain a
steady increase in dividends when income is
less readily available.
Earnings per share (EPS) shows the income
that the company generates each year which
can be used to fund dividend payments to
shareholders, over time.
Dividend record per share (p)
Peer rankings
2
Revenue reserves per share (p)
1
Ongoing charges (%)
3
Earnings progression (p)
Yield (%)
3
29.5
2022 2023 2024 2025 2026
2022 2023 2024 2025 2026 2016 2021 2026
2022 2023 2024 2025 2026 2022 2023 2024 2025 2026
30.6
1 Year: 3 years: 5 years:
2022 2023 2024 2025 2026 2022 2023 2024 2025 2026
The board seeks a return that is better than
the benchmark over various time periods. The
benchmark was the FTSE 100 Index until 31
January 2017, but was revised to better reflect
the changing structure of the portfolio over the
preceding decade.
The board uses this KPI to monitor investment
performance. As the company’s policy is to
invest mainly in higher yielding large UK
companies, the FTSE All-Share Index has been
chosen as the benchmark index against which
we measure our performance.
Merchants’ yield has consistently been higher
than the UK Equity Income peer group average.
The board also monitors the performance
relative to a broad range of competitor
investment trusts. The chart shows Merchants’
position in UK Equity Income peer group
quartiles over a range of time periods.
The board has a policy of ensuring that the
company’s running costs are reasonable and
competitive. The ongoing charge is calculated
using the AIC’s recommended methodology
(See Glossary on page 91).
Portfolio total return Benchmark NAV return Benchmark
NAV return vs benchmark (%) Portfolio return vs benchmark (%)
100
257
100
238
131.8
69.1
35.5
-18.1
-3.9
5.8
20.3
29.1
28.4
27. 6
27. 3
29.4
30.5
28.7
25.6
18.1
16.3
16.0
18.8
18.3
21.1
12.4
17.1
28.9
18.9
5.1 5.2
-2.5
1.9
0.84
4.7
4.1
0.54
4.1
0.55
0.52
0.56
0.55
0.85 0.85
0.79
0.82
5.2
4.1
5.2
4.5
4.7
3.9
4.8
3.7
Merchants
Merchants
Peer group average
Merchants
UK Equity Income peer group
9
OVERVIEW
10
Revenue
2026 2025 % change
Income (£’000s) 50,245 48,482 +3.6
Revenue earnings attributable to ordinary shareholders (£’000s) 45,314 43,671 +3.8
Revenue earnings per ordinary share 30.6p 29.4p +4.1
Dividends per ordinary share in respect of the year
1
29.5p 29.1p +1.4
Assets
2026 2025
Capital return
% change
Total return
2
% change
Net asset value per ordinary share with debt at par 653.3p 572.6p +14.1 +19.2
Net asset value per ordinary share with debt at
fair
value (capital)
663.5p 582.4p +13.9 +18.9
Ordinary share price 628.0p 556.0p +12.9 +18.2
FTSE All-Share Index 5,511.5 4,710.6 +17.0 +21.1
(Discount) premium of ordinary share price to Net Asset Value (debt at par) (3.9%) (2.9%) n/a n/a
(Discount) premium of ordinary share price to Net Asset Value (debt at fair value)
(5.4%) (4.5%) n/a n/a
Ongoing charges
3
0.54% 0.52% n/a n/a
Performance – review of the year
1
Inclusive of third and final dividends.
2
NAV total return reflects both the change in Net Asset Value per ordinary share and the net ordinary dividends paid.
3
The ongoing charges percentage is calculated in accordance with the explanation given on page 92.
A Glossary of Alternative Performance Measures (APMs) can be found on page 91.
10
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Portfolio Managers’ report
This has been my twentieth year as
lead manager of The Merchants Trust
and it has been a fantastic privilege
and a great pleasure to work on behalf
of shareholders and the Board. I have
taken the opportunity below to talk
about this in more detail. Despite the
market ups and downs, returns have
been healthy and Merchants has
continued the long tradition of paying
rising dividends, now for 44 years.
However, I am also very conscious that,
whilst the last three years have seen
strong total returns and continued
steady dividend growth, those returns
have lagged the even stronger gains
of the UK stock market. In this report
I look back at the last year in detail,
describe the broader environment and
explain why we have lagged behind
our benchmark. I also explain why
we remain excited about the huge
opportunities in a highly unusual and
polarised UK equity market, and why we
believe that the portfolio can continue
to deliver further significant gains and a
strong income profile for shareholders
for many years.
The last twenty years
It is only in an investment trust with 137
years of history that we can consider the
last 20 years as the recent period. It has
been eventful, and included the Great
Financial Crisis (GFC), a long period of
austerity, the Covid pandemic and the
war in Ukraine, to name but a few events.
Time provides some perspective. The
share price was 451p at the end of
January 2006. Over the last 20 years,
Merchants has paid 498.5p per share
in dividends, so someone buying shares
back then would have received all
their money back and more, whilst they
would have shares worth 628p this
January. The dividend per share has risen
progressively from 18.9p to a proposed
29.5p, despite two periods of sharp
income contraction within the portfolio
during the GFC and the Covid pandemic.
Also, the average cost of debt has come
down from around 8.5% in 2006 to just
over 5% today. One other aspect has
increased materially. The format and
length of the annual report. Today’s
report is far more extensive, and provides
much more detailed, and hopefully
welcome commentary, as well as
increased mandatory reporting. In 2006,
the annual report had just 47 pages, in
2025 it had 118. In a separate comment
we have also looked at the evolution of
the stock market over the last 20 years.
The market today is very different to that
in the early 2000’s. It provides a different
set of challenges but also opportunities
for the future.
Economic and market background
This was a remarkable year, in terms of
geopolitical developments and financial
markets. Donald Trump became US
president for the second time in January
2025 and wasted no time in making an
impact. He has fundamentally changed
the US approach to international
relations, security, and trade. His
tariff announcements on so-called
“Liberation Day” on 2nd April, since
judged illegal by the US Supreme
Court, rocked financial markets and
threatened major disruption to world
trading relationships. However, after
considerable volatility and spiralling
threats from China in particular, the US
rowed back on the more aggressive
tariffs. President Trump was also active
in securing the hostage releases in
Gaza and a fragile peace treaty, the
abduction of the Venezuelan president
Maduoro, and made threats to take
over Greenland. His administration was
interventionist in the corporate sphere,
seeking and securing agreements with
pharmaceutical companies, as well as
receiving commitments from many other
large companies to make substantial
investments in the USA.
Outside of politics, the dominant theme
in the year was the explosive growth
of generative AI and the race by the so
called “hyperscalers” including Google
parent Alphabet and Microsoft, to
spend hundreds of billions of dollars
building vast data centres to exploit this
potential opportunity. This is creating
massive demand for semiconductors,
electricity, copper and other equipment.
The impact of AI was a powerful theme
during the year. It is clear, that AI will
have a profound impact on society and
many businesses, though it can be hard
to separate the potential winners from
losers, particularly amongst the giant
technology companies.
In the UK there was a sense of déjà vu,
as we spent most of the year waiting
for the (later than normal) budget in
November. There was considerable
uncertainty about how the Chancellor,
Rachel Reeves, would balance the
books. Various potential policy options,
including tax rises, were floated over
Simon Gergel Richard Knight Andrew Koch
11
INVESTMENT MANAGER’S REVIEW
The FTSE All-Share Index
produced a total return,
including dividends, of
approximately 21%, well
ahead of the US market’s
return of around 6% in
sterling terms.
the summer, and almost certainly
constrained activity and investment in
the economy. The UK economy grew
faster in 2025 than 2024, but growth
was still muted and slowed in the second
half of the year. As inflationary pressures
reduced, the Bank of England cut
interest rates four times, after two cuts in
the previous year. Interest rates ended
January at 3.75%. This fall in the cost of
borrowing should gradually feed into the
corporate and consumer sector and help
to stimulate activity.
In the USA, there was a so-called
“K-Shaped” economy. More affluent
consumers, who had benefitted from
rising financial asset prices, and were
less impacted by food and energy cost
inflation, were robust spenders. However,
many less affluent consumers struggled
to deal with inflationary pressures
and had to restrict their spending. This
created a tough demand environment
for food and other basic consumer
products. In the UK the housing market
is central to consumer sentiment,
especially among more affluent
consumers, and recovery here has
been sluggish.
Despite the geopolitical events and
the economic uncertainty, equity
markets had a strong year, even with a
major pull-back in April. Stock markets
became increasingly resilient to policy
and political announcements from the
US president, although the uncertainty
weighed on the currency with the US
dollar falling nearly 10% against sterling.
The FTSE All-Share Index produced
a total return, including dividends, of
approximately 21%, well ahead of the
US market’s return of around 6% in
sterling terms. This was also ahead of the
Eurostoxx 600 index of European shares
which rose around 17%. The standout
performers were precious metals, with
gold, and particularly silver, benefitting
from safe haven buying. Copper also
rallied strongly on the back of tight
supply and rising demand for power
and electrification.
There was also a sense of déjà vu within
the UK stock market last year. Investors
in general rewarded companies
with positive “earnings momentum”,
ie. seeing profits expectations rise,
whilst companies seeing downgraded
expectations were heavily penalised,
almost irrespective of valuation. Large
companies outperformed medium sized
companies. The latter tend to be more
domestically oriented and cyclical, with
fortunes tied more closely to the UK
economy, although there are plenty of
internationally spread, or economically
defensive, mid-caps too. Performance
varied enormously between sectors,
FTSE All-Share Index 31.1.25 – 31.1.26. Source: AllianzGI/Datastream.
FTSE All-Share Index for the year to 31 January 2026
5600
5200
4800
4400
4000
20262025
Last Price 5,511.52
High on 15/1/26 5,518.66
Average 4,941.21
Low on 9/4/25 4,151.42
5,511.52
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
12
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Whilst these trends make
following a value-driven
investment process
more challenging, they
also make the potential
rewards greater.
There have been substantial changes
in financial markets over the last twenty
years: the rise in passive funds has
been inexorable, with the Investment
Association survey showing 35% of all
UK managed assets were passive in
2024; the increase in computer driven
trading and more recently, AI reading
of results statements, leading to almost
instant and sharp market reactions to
news and events; the rise of Exchange
Traded Funds (ETFs) and “basket”
trading, where investors buy or sell a
“basket” of, for example, “growth” stocks
or UK consumer-exposed stocks; and, of
course, the proliferation of information,
including investor presentations,
podcasts, videos, credit card spending
trends, Google search data, consumer
surveys, satellite data etc. Technology
has also enabled much easier access
for retail investors into stock markets, as
can be seen with most shareholders in
The Merchants Trust now owning shares
via platforms.
In many ways, stock markets have
become more efficient. They are quicker
to absorb new company news, as well
as any events affecting related peers
or an industry. However, in other ways
markets have become less efficient. The
shift to passive and “basket” trading has
left fewer investors thinking about the
specific circumstances and attractiveness
of individual companies. This is especially
true at the smaller end of the market,
under the radar of most global investors,
and most impacted by flows out of the
UK stock market in recent years. Investor,
or perhaps more appropriately “trader”,
attention has also generally become
more short term, with a huge focus on
whether quarterly results have “beaten”
or “missed” consensus expectations,
at the expense of considering a
longer-term perspective.
These factors make it very hard to have
an information edge in the short term,
from reading and reacting to news as
it comes out. This environment has also
favoured “momentum” factors within
an investment strategy, such as owning
companies getting earnings upgrades or
where the share price has already risen.
Momentum factors have become widely
used within active funds and particularly
among systematic strategies. However,
momentum can exaggerate any positive
or negative share price movements,
potentially leading to share prices
moving further and further away from
their intrinsic value.
There are two key implications from this.
First, company share prices often deviate
materially from a long-term measure
of fundamental or intrinsic value,
creating large valuation anomalies,
particularly if the company is seeing
persistent positive or negative earnings
momentum. Second, exploiting these
valuation anomalies requires patience
and a disciplined investment process, as
it can take a long time or a significant
event for the consensual view on a stock
to change. Or to put it more succinctly,
valuation doesn’t matter in the short
term. This can lead to wild swings in
share prices as companies go from
out of favour to in favour, or vice versa.
Looking at the huge rally in defence
stocks, banks and tobacco in the last
two years shows what can happen when
circumstances change.
Whilst these trends make following
a value-driven investment process
more challenging, they also make the
potential rewards greater. Perhaps
the one constant factor in investment
markets over all of history has been that
markets are ultimately driven by human
nature, by fear and greed. People are
fearful of losing money when asset
prices are going down but they want to
Market evolution over twenty years
“In the short run, the market is a voting machine,
but in the long run, it is a weighing machine”
Benjamin Graham
13
INVESTMENT MANAGER’S REVIEW
be fully involved when prices are going
up. Even professional investors are not
immune to behavioural pressures. It
is not comfortable to explain why we
may still hold in the portfolio a share
that has fallen heavily in the last three
years. But that, alone, is not a good
reason for selling it, assuming it is still
fundamentally sound and cheap.
Whilst passive investing should take
away an investor’s need to worry about
individual share price oscillations, it does
not remove the risk of investors en-masse
over-reacting to major trends. Investors
might take their money out when the
market is down 20%, say, and miss a
long-term rally, or they might put more
money in near a market top. Passive
global investors today will typically have
a very high concentration of their money
in large US technology companies,
which provides a correlated risk that
they may not be fully aware of. If those
companies were to fall back, selling
pressure from passive investors could
amplify the selling pressure of the many
active strategies that are also highly
exposed to this area. The combination of
passive investing and the proliferation of
momentum strategies is compounding
potential volatility in the market.
Our core belief is that, ultimately,
fundamental value will reassert itself in
individual shares. I have heard valuation
being likened to a brick tied to a piece
of elastic, the harder you pull it, the
more stretched the elastic, the faster
and further the brick will travel once
it starts moving. We are often asked if
valuation still works as an investment
factor? We believe it does, and that
the opportunities for value driven
strategies are greatest when dispersion
in the market is highest. Valuation can
influence share prices through different
mechanisms. One of the strongest
performing shares in the portfolio has
been Barclays. The shares tripled in
price (even before counting dividends)
during 2024 and 2025. The valuation
moved from a very depressed price of
less than one third of book value, to
a more normal level of close to book
value today. Two years ago, it was hard
to know when the shares would move
or what might be the catalyst. Whilst
conditions in the sector have improved
somewhat, the reason for the tripling
in the price was the very low starting
valuation. We didn’t know when Barclays
would perform but the magnitude of
the move was determined largely by the
undervaluation at the beginning.
Another way that valuation can work
is when an outside view sees an
opportunity to take advantage of a
clear mispricing. Last year Merchants
performance benefitted from two
companies being bid for. Dowlais and
Assura were both ultimately bought by
industry peers, who could see the true
value of the businesses.
Merchants has certain advantages to
allow us to exploit the increasing long-
term inefficiency of the stock market.
Being an investment trust, Merchants
has permanent capital that can look
through the short-term noise. The trust
is not forced to meet redemptions, so
we can invest in companies without
knowing precisely when the true value
will come through. Also, the board and
shareholder focus on dividend income
is philosophically aligned with a value
strategy. When a share price goes down,
assuming there is no change in business
fundamentals, the company offers better
value and also a higher dividend yield.
We like to enhance the portfolio income
by buying more of attractive shares
when they have fallen in value (with a
higher yield) and selling some of the
position as the shares rally (and the yield
declines). This focus on the true value of
businesses, and particularly their cash
generation or asset value, helps us to
stand back from the heightened day to
day volatility of markets.
Last year Merchants performance benefitted from two
companies being bid for. Dowlais and Assura were both
ultimately bought by industry peers, who could see the true
value of the businesses.
14
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Overweight / underweight (%) Total return (%) Contribution (%)
Best
Relx
Atalaya Mining
Lloyds Banking Group
London Stock Exchange Group
Diageo
Serco Group
Compass Group
Experian
SSE
Unilever
Worst
HSBC
Tate & Lyle
Rolls Royce
WPP
B&M
DCC
Marshalls
Unite Group
Barratt Redrow
BAE Systems
Contribution to investment performance relative to the benchmark
which gave the stock market a K-shape
too. On the upwards arm of the K, the
aerospace & defence sector was up
80%, following a gain of over 30% in
the prior year, on the back of continued
geopolitical tensions and an imperative
for NATO nations to increase defence
spending. The banks sector return of
65%, was even more remarkable as it
followed a 60% return last year, as the
industry saw robust profits growth and
cash generation. Other strong sectors
included metals & mining, electricity,
life insurance and tobacco, which all
returned 40% or more.
On the contrary, on the downward leg
of the K, there was a savage sell off in
the software and computer services
sector, down 33%, on fears that AI
might disrupt those business models.
A number of other sectors fell by more
than 10%, which represents a sharp
underperformance of the broader
market. Finance & credit services,
consumer services and media were all
impacted, as some of their constituents
were seen as potentially vulnerable to
AI disruption fears. The beverages sector
also fell on the back of poor trading and
tariff concerns at Diageo, in particular.
Investment performance
The portfolio produced a total return
of 18.3%. Whilst this was a very healthy
absolute return, and there were many
positive factors that we detail below,
performance was behind the 21.1%
return of the FTSE All-Share Index,
which is Merchants’ benchmark. It is
not unusual to have periods when our
investment approach is out of favour,
particularly when markets are driven
by strong narratives and themes, as has
been the case in the last two or three
years. Sector and stock volatility are
actually healthy as they create the very
mis-pricing opportunities that we aim
to exploit, by taking a longer-term view.
Merchants’ portfolio is very different
from the benchmark composition. The
focus on buying sound companies
which are trading below their intrinsic
value, and offering an attractive income
stream, inevitably leads us to a different,
somewhat contrarian positioning.
The table shows the largest positive
or negative stock contributors to
relative performance. These, in turn,
can be broken down to stocks where
Merchants has a large portfolio position,
“overweight” relative to the benchmark
position, and stocks that are not owned
or which are “underweight” relative to
the benchmark.
A few things stand out from the table.
There have been quite extreme moves
in a number of large companies or
2.7
1.4 95.3 0.8
1.6
1.1
0.9
1.3
102.4
3.1 83.2 1.5
2.5
1.5 202.5 1.7
60.4
1.7
1.4
0.8
1.4
0.8
2.0
1.9 53.4 0.7
64.4
3.5 0.6
-6.6 -2.3
-2.6 -34.9
-40.2 -2.0
-3.2 -1.7
-43.3 -1.4
-2.0 -31.6
-41.1 -1.3
-1.7 -27. 8
-13.4 -1.1
-38.1 -1.0
-1.7 -20.0
-30.8 -0.9
-1.3 -30.3
-10.9 -0.7
-2.1 -0.6
-2.6
15
INVESTMENT MANAGER’S REVIEW
big holdings, in either direction. The K
shaped market is evident. The banks
sector features on both the positive side,
with Lloyds up over 80%, and on the
negative side, with HSBC (not owned)
up 60%. We did not own HSBC, as we
had a preference for domestic banks on
valuation grounds and due to HSBC’s
different risk profile. Because HSBC
is such a big stock, not owning it had
the largest single negative impact on
relative performance. This was partly
offset by owning Lloyds, and two banks
not shown in the table, Barclays and
OneSavingsBank. Other major sector
moves are also evident with the strong
performance from aerospace & defence
companies, and weakness in software,
media and data services businesses, as
well as more idiosyncratic moves.
Looking at the negative contributors
in more detail. In addition to HSBC,
not owning aerospace & defence
stocks Rolls Royce and BAE Systems
held back relative performance. Tate
& Lyle was the largest individual
negative contributor and we explain
the background to this, and why we
retain high conviction, in a separate case
study. WPP was also a major detractor
from performance. As we explained in
the interim report, this media business
had continued to underperform its
industry peers, despite a comprehensive
turnaround strategy under the previous
Chief Executive Officer. We took the
difficult decision to exit the shares in July,
recognising that our previous investment
case had not worked and that the road
ahead was challenging. WPP shares
continued to decline after our sale.
The other negative contributors reflect
stock specific challenges, but we
continue to see significant upside in
each. B&M is a discount retailer that
we bought earlier in the year, seeing
substantial recovery potential. Decisive
action by a new chief executive to
reposition the business has impacted
short-term profitability, and the shares
were also hit by cost accounting issues
when implementing a new IT system.
DCC, which is refocusing the group
on its energy business, saw its shares
underperform. The sale of DCC’s
healthcare division achieved a lower
price than had been expected and the
shares have also derated materially.
Marshalls and Barratt Redrow both
fell back on trading disappointments
and concern about the weaker than
expected housing and building markets.
Finally, student accommodation provider
Unite fell heavily as the company
achieved lower than expected room
occupancy for the current academic
year. The sharp share price fall looks like
an over-reaction, in what has historically
been a very reliable business, but we
continue to monitor industry trends and
company performance.
In terms of the positive contributors,
the largest individual stock was the
information services company Relx,
which was not owned but represented a
large part of the benchmark. The shares
fell by over 30% as investors worried
about the risks from AI disruption to the
business. The extent of the fall partly
reflected the elevated valuation of the
stock a year ago. A similar theme also
affected other large data stocks that
were not owned, specifically London
Stock Exchange Group and Experian,
and to a lesser extent the catering
company Compass.
Atalaya Mining was the strongest stock
that was owned in the portfolio, with
the shares up an astonishing 200%. We
talked about the stock in a case study
in last year’s report and accounts. The
company has clearly benefitted from
a buoyant copper price as industry
supply and demand conditions have
been very favourable. But it has also
materially improved its own operations,
both by lowering its energy costs and by
bringing on developments of existing
and new projects. Serco was another
strong performer, with the shares
nearly doubling since our purchase
earlier in the year. Like Atalaya the
shares benefitted from a low starting
valuation, solid operational performance
and investor enthusiasm for its end
market exposure; in this case the
defence industry.
Elsewhere, the electricity distribution and
renewable generator company SSE rose
by over 50%, as investors welcomed a
fund raising to support rapid growth in
Atalaya Mining was the
strongest stock that was
owned in the portfolio,
with the shares up an
astonishing 200%.
16
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Though the company’s name may still
be associated with a brand of refined
sugar, Tate & Lyle Plc has transformed
itself over many decades into a business
focused on specialty ingredients with a
mission to make food healthier as well
as tastier. Working closely with food
manufacturers, Tate helps take out
calories, put in fibre, and improve flavour
and stability. The business operates
worldwide, with a particular focus on the
US market, which is over half of sales.
Our investment case recognises a little
of the confusion that a supermarket
shopper in the UK might have on seeing
a pack of ‘Tate & Lyle’ sugar – divested
by Tate & Lyle Plc more than 15 years
ago. The market has not realised the
extent of Tate & Lyle’s transformation
away from commodity products and
traditional sweeteners. Especially
much more recently than the disposal
of refined packet sugar carrying the
company’s name in 2010.
Over a series of transactions in the
last five years Tate & Lyle divested of
its remaining traditional sweetener
exposure – high fructose corn syrup
– and added a portfolio of naturally
sourced specialist ingredients through
the acquisition of CP Kelco in 2024.
This transformation makes excellent
strategic sense and positions the
company for higher and more
sustainable long-term growth. But it has
come at an unfortunate time for Tate &
Lyle and helps explain the poor share
price performance we have seen this
year. The shares have fallen more than
a third amid a very strong performance
for the broader stock market. A
disappointing result.
The divestments and acquisitions had
the combined effect of diluting Tate’s
earnings per share and increasing the
company’s debt, making the financial
results quite sensitive to smaller changes
in operational performance, and to
a weaker market context. The share
price meanwhile is more sensitive still
to a changing narrative around food
ingredients, that can be exacerbated by
any hint of deteriorating financials.
The business has been underperforming
its growth potential for the last year,
and this has been caused in part by
economic pressure on the packaged
food sector, particularly in the US,
due to high inflation and cost of living
pressures. Consumers are trading down
and keeping less in their cupboards.
Tate’s sales have weakened, just
as the business was digesting a lot
of organisational change, with the
financials under unusual pressure.
Tate’s execution has not been perfect
in this difficult context, and it is possible
that the transformation has resulted
in a slight lack of commercial focus.
We believe that if this is the case, it is
fixable for a business with such strong
foundations in important areas of
food technology.
We believe that Tate’s share price has
been largely driven by weaker than
expected operational and financial
performance in a stock market that
has very little patience for missed
expectations. The investment case
has also been made more complex by
interaction with emerging impacts of
weight loss drugs on food consumption
and the debate around ultra-processed
foods. We have investigated both
issues in some depth and had many
discussions with management and
have concluded for now that Tate &
Lyle’s business is unlikely to be seriously
negatively impacted. There could even
be benefits. More complexity however is
not helpful for an investment case, and
we keep these emerging themes under
close review.
Whist the Tate & Lyle investment case
has been disappointing this year we
retain high conviction in our position. We
believe the market is over-extrapolating
temporary issues, and that Tate’s
transformation from less healthy
commodity products to more healthy
specialty ingredients will be reflected in
time with better financial performance,
and with this a potential strong rebound
in the shares.
CASE STUDY: PERFORMANCE
Tate & Lyle
Sector: Food Producers
Value of holding: £27.8m
Percentage of portfolio: 2.6%
Benchmark weighting: 0.0%
Contribution: -2.1%%
17
INVESTMENT MANAGER’S REVIEW
Serco was one of the strongest
performers in the portfolio during the
year, with the shares nearly doubling
after our purchases in March and April.
Serco is a government outsourcing
company, operating in over 20 countries
with more than 50,000 employees.
Its main markets are the UK, US and
Australia, and its activities are in areas
such as justice & immigration, transport,
health and increasingly, defence. Serco is
well known for managing contracts such
as accommodation for asylum seekers
and running prisons. Serco met our
criteria of being a strong business, with
supportive end market structural themes,
trading at an attractive valuation.
Serco has been transformed over
the last decade, following a difficult
period around 2014. Since then, the
management team have implemented
tight contract discipline and the business
has delivered steady growth and rising
margins and financial returns, with a
robust balance sheet.
The company benefits from certain
structural themes. Most governments are
highly indebted, making it hard for them
to invest in service transformation. They
have become increasingly dependent
on outsourcing to private companies to
provide the skills to manage complex
activities, often introducing new
technology and delivering a change in
service delivery. Immigration, justice and
particularly defence services are seeing
strong growth, which should continue.
The above factors mean that Serco
has typically been a highly valued
company, not offering sufficient upside
or a high enough dividend yield to meet
Merchants’ investment criteria. However,
a few factors coincided to give us the
opportunity to invest at an opportune
time. The company had benefitted
from some large contracts during the
covid period, such as NHS track & trace
which provided exceptional growth, but
this was not sustainable. Just as these
contracts rolled off, three of Serco’s
largest contracts were either reduced
in scale, or in one case, not renewed.
On top of this, UK employment costs
spiked up, due to budget changes in
late 2024. This left an unusual hiatus in
growth expectations and some earnings
downgrades, in an environment where
investors punished companies seeing
any earnings downgrades. Although
the company had a growing pipeline
of bid activity, particularly in the US
defence area, this did not show up in a
flat order book, due to the technicalities
of accounting for US defence contracts.
So, it appeared as if Serco was no
longer growing.
These factors all led to the company
being significantly de-rated, and trading
at a discount to the market and its
own historic levels. This all happened
as other companies in the defence
sector had appreciated materially,
due to rising geopolitical threats and
government commitments to increase
NATO defence budgets. The stock
market had not appreciated the major
change in the company’s business mix
in the last few years. Serco has made
several acquisitions in the defence sector,
including a large US defence purchase
in 2024. This took defence up to nearly
half of group profits on a pro-forma
basis. Serco’s defence activities also
earn a higher margin than the group
average. So Serco’s business mix has
improved in terms of both growth and
margin potential.
After our purchase, the company
continued to win new contracts and,
later in the year, raised guidance for
2025 profits, as well as forecasting
higher than expected results in 2026.
Serco’s defence profile also became
more evident, as the management
team highlighted their positioning.
This combination of improving short
term earnings expectations and an
appreciation of the company’s attractive
long-term prospects led to a rapid and
considerable re-rating of the shares. In
December 2025 and January 2026 we
reduced the position a little, as much of
our expected upside had been achieved.
CASE STUDY: PERFORMANCE
Serco
Sector: Industrial Support Services
Value of holding: £17.1m
Percentage of portfolio: 1.6%
Benchmark weighting: 0.1%
Contribution: 0.8%
18
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
the electricity network business over the
next five years. Finally, among the top
ten positive contributors, there were two
consumer brands companies. Diageo,
which was not owned, fell heavily on
the back of difficult trading conditions
especially in the USA, exacerbated by
the impact of tariffs. Unilever, where the
portfolio has an underweight position,
underperformed modestly, despite
demerging its ice cream business.
Portfolio changes
The highly polarised, K-shaped stock
market led to considerable changes
in company valuations both upwards
and downwards. This provided
numerous opportunities to take profits
or sell strongly performing shares that
approached our assessment of fair
value. It also created opportunities
to make new investments in strong
companies that were undervalued, and
to increase positions in other holdings at
attractive levels.
In total there were 12 new additions to
the portfolio, and we exited 12 holdings,
leaving the portfolio at 53 holdings at
the year end. This is a higher level of
portfolio activity than we have seen
in recent years, reflecting the extreme
rotation in the market.
Eight of the new purchases were made
in the first half of the year and we
explained the rationale for these in
the interim report. In the second half,
we bought Hikma and MONY, whilst
we received shares in Primary Health
Properties and Magnum Ice Cream
Company following corporate actions.
Hikma is a manufacturer and
distributor of branded and generic
pharmaceuticals, and we have explained
the investment case in a separate case
study. MONY Group, is the company
Largest net purchases and sales within the portfolio
Largest net purchases (£m)
B&M
Reckitt Benckiser Group
Hikma Pharmaceuticals
RS Group
Sodexo
Michelin
Sirius Real Estate
MONY Group
Tate & Lyle
Whitbread
Largest net sales (£m)
British American Tobacco
Drax Group
Imperial Brands
Dowlais Group
WPP
GSK
Bank of Ireland Group
Haleon
Close Brothers Group
Aena
24.6
-22.6
22.6
-20.5
22.6
-19.6
20.1
-16.1
16.8
-16.0
15.9
-13.4
14.1
-12.7
13.6
-12.3
13.2
-11.8
8.4
-11. 2
19
INVESTMENT MANAGER’S REVIEW
which owns the MoneySuperMarket and
MoneySavingExpert websites, amongst
others. MONY is one of four major UK
groups offering price comparisons on
insurance, financial services, energy
and other services. The business has
faced several headwinds in recent years,
such as energy price caps, which have
impacted growth and led to the shares
being heavily de-rated. We believe
the company is an attractive business,
with future growth and efficiency
opportunities. It is backed by a strong
balance sheet, healthy cash generation
and had a 6% dividend yield at the time
of purchase.
Primary Health Properties (PHP) bought
Assura plc in a contested takeover.
These were similar companies, both
with a core portfolio of GP surgeries.
GP surgeries benefit from attractive
dynamics, including structural demand
growth for community healthcare, as
well as an element of inflation linkage
in rents. These are effectively paid by
the NHS, meaning there is little credit
risk. Initially Assura was bid for by a
private equity consortium. Whilst the bid
price reflected a decent premium to the
prevailing share price, we believed that it
significantly undervalued the business on
a medium term view. We were delighted
when PHP made a counter offer, which
we supported, as it allows Merchants’
shareholders to retain exposure to
this real estate sub-sector. The new
group also has greater scale, providing
cost synergies and greater liquidity
for investors.
The Magnum Ice Cream Company
demerged from Unilever, which is
focusing on its other businesses.
Magnum is the clear world leader
in ice cream as well as the biggest
company in most of the large individual
markets. It owns four of the top 5 global
brands – Walls, Magnum, Ben & Jerrys
and Cornetto.
There were nine sales from the
portfolio which were explained in the
interim report. In the second half we
sold two companies Aena and Close
Brothers, and Assura was taken over, as
explained above.
Aena is the owner of most Spanish
airports and others in several countries,
including 50% of Luton. Aena has
benefitted from a tourism recovery in
Spain and its favourable regulatory
structure. The shares had been strong
performers since our purchase and had
also paid a high dividend yield. This
took the shares closer to fair value. In
2025, Aena announced a major increase
in capital spending to fund long term
growth at several of its airports. Whilst
these investments are positive for the
long term, they will reduce cash flow in
the medium term. We decided to exit the
position at this point.
As we explained in a case study last
year, the specialist bank Close Brothers
had been a disappointing investment,
weighed down by several problems,
including compensation claims over
historic motor finance commission
payments. However, we believed the
shares were heavily oversold a year
ago and we had added to the position
at depressed share prices in 2024.
Subsequently, the shares more than
doubled from the low point, in response
to a proposed compensation ruling from
the Financial Conduct Authority. At that
point, we believed the Close Brothers
investment case was more finely
balanced so we sold the position.
As well as these new holdings and total
sales, we added and reduced many
other positions, in response to changing
circumstances, our assessments of
value and our level of confidence. The
biggest additions included Tate & Lyle,
DCC, Marshalls, Whitbread and Unite.
We reduced British American Tobacco,
taking the tobacco exposure down
materially, after selling out of Imperial
Brands earlier in the year. Other large
reductions included GSK, IG, SCOR, SSE,
Atalaya and Burberry.
Income
In general company profitability and
cash generation has been robust,
although there have been exceptions,
particularly in more cyclical industries.
Total income generated increased to
£50.2m (£48.5m), with earnings per
share at 30.6p (29.4p). We have seen
many companies prioritise returning
surplus capital via share buy backs,
rather than through additional ordinary
or special dividends. This is a sensible
capital allocation decision when share
prices are depressed as companies
are investing in cheap assets. However,
where share prices have appreciated
significantly, for example in industries
like banking, we would expect company
boards to review the balance of
distributions between buybacks and
dividends. We will be monitoring the
trends through this financial year. It is
interesting to note that Barclays recently
announced that it plans to pay dividends
of £2bn for the 2026 financial year,
substantially more than the £1.2bn it
declared for 2025.
The earnings per share fully covered
the proposed full year dividends of
29.5p (29.1p), which represents the
44th consecutive year of dividend
increases. Revenue reserves have
increased to 20.3p (18.8p), representing
approximately two thirds of a full
year’s dividends.
Within the total income, approximately
£1.2m (£0.9m) was received from writing
covered call options on shares that we
would be willing to sell at the strike price.
In general company profitability and cash generation has
been robust… Total income generated increased to £50.2m
(£48.5m), with earnings per share at 30.6p (29.4p).
20
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
CASE STUDY: NEW INVESTMENT
Hikma Pharmaceuticals
Sector: Pharmaceuticals & Biotechnology
Value of holding: £21.7m
Percentage of portfolio: 2.0%
Benchmark weighting: 0.1%
Contribution: 0.1%
Hikma Pharmaceuticals was a new
investment in the year. It is a good
example to highlight our investment
process, as we look to buy strong
businesses, with supportive structural
themes, trading on low valuations.
Hikma is a manufacturer of generic,
branded and specialty pharmaceutical
products, operating across North
America, the Middle East, North Africa,
and Europe. The business operates
through three divisions – Injectables,
Branded and Generics (now called
Hikma Rx). The company is vertically
integrated, with manufacturing carried
out largely in house.
Injectables is the main profit contributor
with margins benefitting from this
vertical integration. Products are off
patent but are complex to manufacture
and require a high level of technical
capability and regulatory approval,
which limits competition. Hikma is a top
three manufacturer in the US by volume
and has a strong position in Europe. The
division has historically generated high
margins of well over 30%, although these
are expected to come down towards
30% over the medium term. This reflects
higher investment, increased Research
and Development (R&D) spend and
a greater contribution from the lower
margin regions of Europe and the
Middle East & North Africa.
The Branded division provides exposure
to the Middle East & North Africa,
where Hikma has a strong position,
supported by local manufacturing and
long established distribution networks.
The business sells branded generics and
in-licensed products, and has leading
positions across several markets. The
portfolio has shifted towards treatments
for chronic conditions, which has
supported margins and reduced reliance
on acute therapies.
The third division, Generics (now called
Hikma Rx) operates in the competitive
US generics market. The division has
faced pricing pressure in the past. More
recently, profit margins have begun to
improve, as the business shifted towards
more complex products and increased
contract manufacturing activity. Capacity
utilisation has historically been low, but
management has focused on filling
unused capacity through partnerships,
which are becoming a more meaningful
contributor to earnings. Guidance for
this division has been upgraded, with
margins expected to rise towards 20%
over the medium term.
The company benefits from several
positive structural themes. Pressure on
health budgets is encouraging greater
use of generics, including injectables.
Demand for healthcare is growing as
populations age, novel treatments are
developed and, especially across the
Middle East and Africa, populations are
growing and becoming wealthier.
Historically Hikma has reported strong
growth in sales and profits. The company
has typically traded at a high valuation,
reflecting the strong competitive position
and growth potential. However, several
events brought the valuation down to a
low level.
The pharmaceutical sector had generally
de-rated, with policy uncertainty in the
key US market, in particular. Hikma also
had some specific issues. The company
lowered guidance for the Injectables
division, as it invested into R&D and
new capacity. Partly related to this, the
Group Chief Executive Officer and the
President of the Injectables division both
left the business, raising some questions
over leadership. However, the Chairman,
who is also the former CEO as well as
being a major shareholder, stepped in
to manage the business until a new CEO
is appointed.
We do not believe these developments
materially affect the long term value of
the business. However, they caused the
share price to fall heavily, and provided
an opportunity to buy a strong company,
with good long term growth potential at
an attractive valuation. Hikma continues
to generate strong cash flows, which
support investment and the payment of
a progressive dividend.
21
INVESTMENT MANAGER’S REVIEW
Economic and market outlook
I have talked about the evolution in
the stock market environment over
the last twenty years, but there have
been economic and geopolitical
developments over that period, which
are far more important. Twenty years
ago, the Western world seemed like
a reasonably peaceful place, with a
broad consensus about the benefits
of capitalism, democracy, the rule of
law, independent central banks and
supranational bodies like the UN, NATO
and the EU. Political discourse generally
took place in a narrow range around the
centre, and globalisation seemed like
an unstoppable force to drive efficiency
and higher living standards. Since then,
we have seen the Great Financial Crisis,
the first and second Russian invasions
of Ukraine, Brexit, Covid-19 and the first
and second elections of Donald Trump,
to name a few key events.
Now, according to Mark Carney,
Canadian Prime Minister and former
Bank of England Governor, speaking in
Davos, we are in the midst of a rupture
in the world order. Political debate is
highly polarised, with the centre ground
hollowed out. European governments,
including the UK, are having difficulties
implementing their policies. European
peace is under very real threat and the
USA is redefining its role in the world,
with its new National Security Strategy,
putting enormous strain on NATO. The
independence of the US Central bank is
being called into question. Globalisation
has been put into sharp reverse with US
tariffs being used as a political weapon,
and there are rising trade tensions over
products including Chinese electric
vehicles, AI semiconductors, rare earth
minerals and oil.
Against this background, it is extremely
challenging to predict what is going to
happen over the investment horizon.
We can look at economic trends
and developments in industries and
markets, but we have to be prepared
for events from left-field to challenge
any predictions.
Our central view is that the UK economy
should start to see the benefits
from lower interest rates as the year
progresses. After a long hiatus, the
housing market, which drives a lot of
activity in the UK, should start to recover,
due to cheaper mortgage costs, pent
up demand and government policies
to ease planning constraints. However,
broader economic confidence and
employment trends remain critical and
confidence is fragile. Political risk is also
a factor with the government internally
divided, even though Labour has a large
majority. A change of prime minister
could lead to a different policy agenda,
although the high level of government
borrowing means that the bond market
tends to restrict more radical tax and
spending plans.
The evolving situation in the Middle East,
following US and Israeli bombing in Iran,
has been disrupting economic activity
in the region and threatens significant
disruption to the flow of oil, gas and
other critical products globally. It is likely
to lower economic growth forecasts and
increase inflationary pressures, as well
as raising interest rate expectations, at
least in the short term. The duration and
impact of the conflict are impossible to
predict with any certainty. We continue
to monitor the situation and assess
the implications.
Although the portfolio would benefit
from an improving macro-economic
environment, our investment approach
is predominantly “bottom up”, focusing
on individual businesses and their
valuations, rather than starting “top
down” and constructing the portfolio
around an economic view. Despite the
rally in the UK stock market, we continue
to find many compelling investment
opportunities, particularly among,
medium sized companies. These are
now a larger part of the portfolio. The
K-shaped stock market has left many
sound businesses trading at attractive
levels. Sectors where we have a high
exposure to medium sized companies,
include housebuilding and related
industries, real estate, industrial services
and retail. We also retain substantial
investments in typically large cap sectors
which still offer good value, like banks,
oil & gas and pharmaceuticals. It is also
important to remember that, whilst well
over 90% of the portfolio is invested in
UK listed companies, we estimate that
nearly 60% of the underlying revenues
and profits come from abroad.
Whilst the nature of the stock market
has changed over the last twenty years,
we believe that ultimately share prices
will continue to reflect the fundamental
qualities and intrinsic values of individual
companies, even if over and under-
valuation can persist for long periods.
Merchants Trust owns a diversified
portfolio of companies that trade far
below our assessment of fair value
and pay an above average dividend
stream. We believe the portfolio is well
positioned to deliver strong total returns,
in line with Merchants’ objectives.
Despite the rally in the UK stock market, we continue to find
many compelling investment opportunities, particularly
among, medium sized companies. These are now a larger
part of the portfolio.
22
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
1 February 2025 to 31 January 2026
Vote distribution
Number of votes for: 95%
Number of votes against: 4%
Number of votes abstained: 1%
Number of votes withheld: 0%
Not voted: 0%
Company meeting voting record
Number of meetings
voted 100% in line
with management
recommendation: 59
Number of meetings with
at least one vote against,
withheld or abstained: 1
In the year there were 60 shareholder meetings for companies in
the portfolio and the manager voted on the company’s behalf
at 59 of these.
This represents a total of 1,099 resolutions and the company
voted on 100% of these. Source: AllianzGI.
60
shareholder
meetings
1,099
resolutions
Active engagement
AllianzGI’s engagement activities include:
monitoring strategic developments, providing
feedback, challenging corporate practices and
seeking change.
Engagement can take various forms including
correspondence; face-to-face meetings and
conference calls; proxy voting and – in rare
instances – public interventions through
filing shareholder resolutions; speaking at
shareholder meetings; and commenting in
the media. In addition, AllianzGI sees value
in collaborative engagement initiatives
coordinated by investors, trade associations
and other organisations, where these seek to
address market or industry-wide concerns. As
an active investment manager, AllianzGI sees
engagement as a way to reduce investment
risk, help improve corporate performance and
better assure the long-term business prospects
of investee companies.
Environmental
risks/ impacts
Social risks/
impacts
Corporate
governance
Strategy/
business model
Transparency
and disclosure
Capital
management
Operational
performance
Financial
performance
Risk
management
Audit and
accounting
Communication services
Consumer discretionary
Consumer staples
Energy
Financials
HealthCare
Industrials
Materials
Real Estate
Utilities
Environmental
Social Governance
Company engagements by sector and topic
Proxy voting
23
INVESTMENT MANAGER’S REVIEW
Portfolio breakdown
at 31 January 2026
Name Principal activities
Value
£’000s
% of listed
holdings
Benchmark
weighting
Lloyds Banking Group Banks 65,643 6.2 2.3
GSK Pharmaceuticals & Biotechnology 47,932 4.5 2.7
Rio Tinto Industrial Metals & Mining 39,411 3.7 2.5
British American Tobacco Tobacco 38,290 3.6 3.3
Shell Oil, Gas & Coal 37,042 3.5 5.7
Barclays Banks 31,360 3.0 2.4
DCC Industrial Support Services 30,621 2.9 0.1
Legal & General Life Insurance 30,515 2.9 0.5
BP Oil, Gas & Coal 29,855 2.8 2.6
National Grid Gas, Water & Multiutilities 29,502 2.8 2.2
Tate & Lyle Food Producers 27,774 2.6 0.0
Whitbread Travel & Leisure 27,094 2.6 0.2
Reckitt Benckiser Group Personal Care, Drug & Grocery Stores 26,826 2.5 1.5
SSE Electricity 26,631 2.5 1.0
Inchcape Retailers 25,026 2.4 0.1
Man Group Investment Banking & Brokerage 23,781 2.3 0.1
IG Group Investment Banking & Brokerage 23,322 2.2 0.2
Barratt Redrow Household Goods & Home Construction 23,238 2.2 0.2
RS Group Industrial Support Services 23,061 2.2 0.1
Primary Health Properties
Real Estate Investment Trusts 22,632 2.1 0.1
Land Securities Group Real Estate Investment Trusts 22,260 2.1 0.2
Unilever Personal Care, Drug & Grocery Stores 21,928 2.1 3.8
Grafton Group Industrial Support Services 21,780 2.1 0.1
Hikma Pharmaceuticals Pharmaceuticals & Biotechnology 21,652 2.0 0.1
Harbour Energy Oil, Gas & Coal 17,759 1.7 0.0
Atalaya Mining
1
Precious Metals & Mining 17,596 1.7 -
Serco Group Industrial Support Services 17,100 1.6 0.1
Sirius Real Estate Real Estate Investment & Services 16,930 1.6 0.1
Unite Group Real Estate Investment Trusts 16,725 1.6 0.1
OSB Group Finance & Credit Services 16,278 1.5 0.1
Energean Oil, Gas & Coal 16,018 1.5 0.0
Michelin
1
Automobiles & Parts 15,628 1.5 -
B&M
Retailers 15,184 1.4 0.1
Bellway Household Goods & Home Construction 14,721 1.4 0.1
Sodexo
1
Travel & Leisure 14,298 1.4 -
24
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Classic value: These are valuation-
driven investments. Typically, the shares
of a company will trade at a substantial
discount to their intrinsic value because
the business is misunderstood or out
of favour with the market. While there
need not be long-term growth, the
business model is structurally sound and
financial risk is limited.
Franchise: These are business model
driven investments. Our investment
cases are always premised on attractive
absolute valuations. However, a
franchise investment has the added
advantage of delivering long-term
growth with the potential to compound
value. These are quality companies with
sustainable advantages where either
the market has lost sight of the fact or
has yet to recognise it.
Special situations: These are catalyst
driven investments. Each business
within this category will face a unique
set of circumstances that has caused
the value of the shares to weaken
significantly. These can include business
turnarounds, spin-offs or balance sheet
restructurings. For us to invest in such
an event, the market’s perception of this
weakness needs to be overstated in the
share price. Conversely, the market is
also likely to be slow in recognising any
ensuing recovery.
Written call options
As at 31 January 2026, the market value of the open option positions was £668,000 (2025: £(238,500)), resulting in an underlying
exposure to 2.6% of the portfolio (valued at strike price).
Name Principal activities
Value
£’000s
% of listed
holdings
Benchmark
weighting
Lancashire Holdings Non-Life Insurance 14,289 1.4 0.1
Morgan Advanced Electronic & Electrical Equipment 14,248 1.3 0.0
Pets at Home Group Retailers 13,920 1.3 0.0
Marshalls Construction & Materials 12,741 1.2 0.0
MONY Group Software & Computer Services 12,539 1.2 0.0
DFS Furniture Retailers 12,514 1.2 0.0
Norcros Construction & Materials 10,199 1.0 0.0
SCOR
1
Non-Life Insurance 9,254 0.9 -
Conduit Holdings Non-Life Insurance 9,077 0.9 -
Entain Travel & Leisure 8,658 0.8 0.1
Burberry Group Personal Goods 8,242 0.8 0.1
PZ Cussons Personal Care, Drug & Grocery Stores 7,897 0.7 0.0
SThree Industrial Support Services 7,302 0.7 0.0
XP Power Electronic & Electrical Equipment 5,783 0.5 0.0
Begbies Traynor Group Investment Banking & Brokerage 4,922 0.5 -
CLS Holdings Real Estate Investment & Services 4,507 0.4 0.0
Duke Royalty Finance & Credit Services 3,902 0.4 -
Magnum Ice Cream Food Producers 959 0.1 -
Total invested funds 1,056,366 100.0
1
International stock
The portfolio has been broken down into three categories to provide shareholders with a greater insight into the investment
rationale for different shareholdings. These are:
25
INVESTMENT MANAGER’S REVIEW
Distribution of total assets
at 31 January 2026
2025
total
%
2026
Composite
benchmark
sector
weighting
2026
total
%
Financials
Banks 8.5
16.1
9.0
Finance & Credit Services 1.7
1.5
1.9
Investment Banking & Brokerage 4.3
3.1
4.9
Life Insurance 2.3
2.6
2.8
Non-Life Insurance 3.5
0.7
3.0
20.3
24.0
21.6
Consumer Discretionary
Automobiles & Parts 1.8
0.1
1.4
Consumer Services -
1.3
-
Household Goods & Home Construction 3.8
0.8
3.5
Leisure Goods -
0.2
-
Media 3.0
0.9
-
Personal Goods 1.5
0.2
0.8
Retailers 6.7
1.4
6.2
Travel & Leisure 3.3
1.8
4.6
20.1
6.7
16.5
Industrials
Aerospace & Defence -
6.5
-
Construction & Materials 2.9
0.5
2.1
Electronic & Electrical Equipment 2.2
0.9
1.8
General Industries -
0.7
-
Industrial Engineering -
0.6
-
Industrial Support Services 5.6
2.5
9.2
Industrial Transportation 1.2
0.8
-
11.9
12.5
13.1
Consumer Staples
Beverages -
2.1
-
Food Producers 2.9
0.5
2.7
Personal Care, Drug & Grocery Stores 3.6
6.8
5.2
Tobacco 6.9
4.1
3.5
13.4
13.5
11.4
Energy
Oil, Gas & Coal 10.5
8.5 9.3
Alternative Energy -
0.0
-
10.5
8.5
9.3
26
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
2025
total
%
2026
Composite
benchmark
sector
weighting
2026
total
%
Real Estate
Real Estate Investment Trusts 5.0
1.8
5.7
Real Estate Investment & Services 0.5
0.3
2.0
5.5
2.1
7.7
Health Care
Pharmaceuticals & Biotechnology 6.0
11.3
6.4
Health Care Providers -
0.0
-
Medical Equipment & Services -
0.5
-
6.0
11.8
6.4
Basic Materials
Chemicals -
0.3
-
Precious Metals & Mining 1.0
6.2
1.6
Industrial Metals & Mining 3.0
0.7
3.7
4.0
7.2
5.3
Utilities
Electricity 4.6
1.2
2.5
Gas, Water & Multiutilities 2.4
3.3
2.7
7.0
4.5
5.2
Technology
Software & Computer Services -
2.5 1.2
Technology Hardware & Equipment -
0.0
-
0.0
2.5
1.2
Telecommunications
Telecommunications Service Providers -
1.3
-
0.0
1.3
0.0
Not classified -
5.4
-
Total investments 98.7
100.0
97.7
Net current assets 1.3
0.0
2.3
Total assets* 100.0
100.0
100.0
The classifications and prior year comparatives have been updated, where required, to reflect recent changes in the Industry
Classification Benchmark (ICB) standard.
* Total assets (less creditors due within one year) £1,081,310,000 (2025: 966,603,000).
27
INVESTMENT MANAGER’S REVIEW
Business model
The Merchants Trust carries on business as an investment
company and follows the investment policy described below.
The company is governed by an independent board of non-
executive directors and has no employees or premises of its
own. Like other investment companies, it outsources investment
management, accounting, company secretarial and other
administration services to an investment management
company – Allianz Global Investors UK Limited (AllianzGI
UK) – and other third parties to provide shareholders with
an efficient, competitive, cost-effective way to gain wide
investment exposure through a single investment vehicle.
The company’s shares are listing on the Main Market of the
London Stock Exchange. In addition to annual and half-yearly
financial reports, the company announces Net Asset Values per
share daily and provides more detailed information monthly
to the Association of Investment Companies (AIC), of which
the company is a member, in order for brokers and investors to
compare its performance with its peer group.
A review of the company’s business, activities and prospects is
given in the Chairman’s Statement starting on page 4, and
in the Portfolio Managers’ report starting on page 11.
Strategy review
Every year we hold a strategy meeting outside the regular
timetable of board meetings. At the most recent meeting in
November 2025 the topics covered included:
– Long-term performance review
– Discount management
– Dividend policy and market trends
At the review the board noted evolving shareholder
preferences and investor sentiment and discussed with advisers
the best ways to address these and align strategy accordingly.
The board also considered the continuing requirement for
income and the sources of revenue, aiming as always to
balance shareholders’ interests with the long-term growth and
stability of Merchants Trust.
The board will also continue its engagement with investment
platforms in the year ahead to understand its retail investor
audience. This will enable Merchants to promote and stimulate
retail investor demand through compelling and authentic
communications from the company and reaffirm Merchants as
a core income vehicle for investors in UK equities.
Our strategy
Investment Policy
Objective
The Merchants Trust aims to provide
an above average level of income and
income growth together with long-
term capital growth through a policy
of investing mainly in higher-yielding
large UK companies.
Performance is benchmarked against
the FTSE All-Share Index, reflecting
the emphasis within the portfolio. The
company’s investment performance
is also assessed by comparison with
other investment trusts within the UK
Equity Income sector.
Gearing
The company’s policy is to remain
substantially fully invested. The
company has the facility to gear –
borrow money – with the objective of
enhancing future returns. Gearing is
in the form of a short-term revolving
credit facility and fixed rate longer-
term borrowings. The board monitors
the level of gearing and makes
decisions on the appropriate action
based on the advice of the manager
and the future prospects of the
company’s portfolio.
The company’s authorised borrowing
powers set out in the Articles state
that the company’s borrowings may
not exceed its called up share capital
and reserves. The board’s policy is to
maintain gearing (borrowings as a
percentage of net assets) in the range
of 10 – 25%, (measured at the time
that any increase in total borrowing
facilities is agreed). Gearing averaged
14.3% in the year to 31 January 2026
(2025: 14.6%).
Depending on equity market
conditions, gearing may be outside this
range from time to time but it is not
the board’s intention to increase total
borrowing facilities if gearing is above
the range.
Risk diversification
The company aims to achieve a
spread of investments, with no single
investment representing more than
15% of assets. The company seeks
to diversify its portfolio into at least
five market sectors, with no one
sector comprising more than 35% of
the portfolio.
28
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Strategic aims
The company’s aims, as reflected in the KPIs reporting on page
8, continue to be to:
Dividends
– Provide a high and progressively growing income stream.
The chart on page 3 shows dividend increases every
year since 1982 and the KPI chart on page 9 shows the
contribution to dividend reserves in the past five years.
Shareholder return
– Provide long-term capital growth
– Provide a long-term total return above the benchmark
and peers
– The KPI chart on page 9 shows the returns against
the benchmark.
Investor appeal
– Position Merchants to outperform peers, ensuring that
the company remains relevant and attractive to new and
existing investor groups
– Manage the costs of running the company so that they
remain reasonable and competitive
– The KPI charts on page 9 include a comparison of
ongoing charges against the peer group.
Investment strategy
We aim to achieve our objective through a strategy of investing
in a portfolio of mainly higher yielding large UK companies and
by using appropriate gearing to enhance returns. This strategy
is designed for those investors who require a single investment
in a diversified and professionally managed portfolio.
Marketing
The company’s marketing activity promotes Merchants to
investors looking for exposure to capital growth from mainly
large UK equities and an above average and rising dividend.
The policy is to reach out to private investors managing
their own investments, as well as to wealth managers and
institutional fund managers. The work with our partners to do
this is discussed in the table of stakeholder engagement on
page 30.
The company undertakes joint marketing initiatives with a
number of market-leading investment industry organisations,
and this has proven to be a highly successful strategy. The
portfolio managers speak at various investor conferences
and events, as well as authoring articles and recording video
interviews and podcasts – available through our website or a
variety of partner sites such as Citywire and Asset TV.
Discount/premium
The discount/premium of the share price to Net Asset Value
is closely monitored. When shares are trading at a premium,
the policy is to be prepared to issue shares to meet natural
demand in the market. Conversely, when shares are trading
at a significant discount, shares may be bought back and
cancelled or held in treasury.
29
STRATEGIC REPORT
Section 172 report
Engagement with key stakeholders
The company’s shareholders are its primary stakeholders. Other stakeholders include service
providers and the portfolio companies in which the company invests.
The board’s strategy is facilitated
by interacting with a wide range
of stakeholders through meetings,
seminars, presentations and publications
and through contacts made through our
suppliers and intermediaries.
Engagement with the company’s
stakeholders enables the company to
fulfil its strategies and to promote the
success of the company for the benefit of
the shareholders as a whole.
Below are some examples of the ways
that Merchants has interacted with
stakeholders to demonstrate how the
board and its agents have considered
stakeholders in pursuit of the success of
the company and the promotion of that
success for the long term:
Why we engage:
Shareholders receive relevant
information to enable them to evaluate
whether their investment interests
are aligned with the strategy of
the company.
The directors get feedback and views
on shareholder priorities such as
sustainability of income, risks and
gearing levels which inform the board’s
strategy discussions and decisions.
How we engage and what we do:
We communicate through the annual
and half-yearly reports, monthly
factsheets, website, press articles,
podcasts and LinkedIn posts. Meetings
are held with professional shareholder
groups. The AGM provides a focus for
interaction with shareholders. The AGM
is a live hybrid event with the opportunity
for shareholders to meet the board and
managers and for live questions from
shareholders both in person and online,
as well as those submitted in advance.
Actions:
The board discussed and approved
a budget for a marketing and
communications programme which
would extend information available
to shareholders and potential new
investors. The website was regularly
updated with new podcasts and
interviews with the portfolio manager.
The company is working with a media
partner to ensure information about
Merchants is easily accessible online.
Shareholders
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Why we engage:
The board works with AllianzGI who
provide investment management,
accounting and secretarial services as
well as expertise in sales and marketing
for a competitive management fee.
The board has appointed HSBC as
depositary and custodian and MUFG
Corporate Markets as registrar to
provide specialist services. Another
key service provider is State Street
who provide middle office and
fund accounting services through a
contractual arrangement with AllianzGI.
How we engage and what we do:
Our manager maintains regular
contact and ensures service levels are
satisfactory and appropriate controls
are in place with Merchants’ service
providers. In the past year the manager
has continued to report how it has
adjusted the portfolio in response to
the challenges of the geopolitical and
economic environment.
Actions:
During the year the board worked with
the manager to oversee and monitor
the improved processes and controls
at AllianzGI’s outsourced third-party
provider of middle office services and
the board obtains regular updates on
due diligence from the manager.
Why we engage:
The board approves the manager’s
active, stock picking approach and
believes in good stewardship.
How we engage and what we do:
On the company’s behalf the manager
engages with investee companies,
including on ESG matters and exercises
its votes at company meetings. There are
details of engagement and proxy voting
on page 23 .
Actions:
Merchants actively votes at portfolio
company meetings. Reports on
engagement and case studies are in the
Portfolio Manager’s Report which starts
on page 11.
Why we engage:
To reach a wider audience of investors,
the company works with firms providing
access to the underlying clients of
investment platforms, and wealth
managers, as well as public relations
advisers. The board receives detailed
feedback to confirm the ongoing level of
interest in the company’s shares.
How we engage and what we do:
The manager together with our
distribution partners arranges
presentations about Merchants at
both virtual and in-person events,
and has employed research and
news publications to reach investors
through share trading platforms, wealth
managers and through a variety of
financial industry websites. The board
has reflected on the value of this to
the end user and has been focusing
resources on partnerships with financial
publications and making Merchants
more accessible online.
Actions:
Merchants participated in events such
as the AIC Showcase 2025, a Citywire
webinar and an Asset TV conference, as
well as publishing podcasts and videos
throughout the year and appearing in
media interviews. Spikes in website hits
and new investment in the company
on retail platforms were evident
after press coverage and distribution
partner events.
Service providers
Portfolio companies
Distribution and media partnerships
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STRATEGIC REPORT
Risk report
Risk policy
The board operates a risk management
policy to ensure that the level of risk
taken in pursuit of the board’s objectives
and in implementing its strategy is
understood. The principal risks identified
by the board are listed below, together
with the actions taken to mitigate
them, and set out in the Risk Map on
page 33.
A more detailed version of the chart
is reviewed and updated by the audit
committee at least twice yearly. This sets
out risk types, key risks identified and
their status, the controls and mitigation
in place to address these risks, together
with the evidence of controls and gives
an assessment of the risk using a traffic-
light system, as shown at the bottom of
the chart, to confirm the outcome of the
assessment of the risk.
The board has carried out a robust
assessment of the principal and
emerging risks facing the company,
including those that would threaten its
business model, future performance,
solvency or liquidity and emerging risks
and how they monitor and manage them
and disclose them in the Annual Report.
The process by which the directors
monitor risk is described in the Audit
Committee Report on page 55.
Investment and portfolio risks
1.1 Market decline
Risk: Macro-economic shocks to the
portfolio if the board and manager fail
to predict changes to the investment
environment; significant market
movements may adversely impact
the investments held by the company
increasing the risk of loss or challenges
to the investment strategy; reduction of
dividends across the market affecting the
portfolio yield and the ability to pay in
line with the dividend policy.
Response: Macro-economic and political
risks are taken into account during
portfolio construction, although stock
selection is predominantly ‘bottom up’
driven. The portfolio is diversified across
industries and stocks to mitigate the
impact of individual share price volatility.
Whilst the portfolio is mainly invested
in UK listed companies, the end market
exposures of these businesses are spread
around the world. The portfolio is stress-
tested at least monthly.
1.2 Market liquidity and pricing
Risk: Failure of investments, for example,
due to poor oversight and monitoring.
Response: Detailed reports on stock
selection and other investment
management processes are received
from the manager by the board. Liquidity
is monitored closely by the manager and
any concerns are raised with the board
for agreed action to be taken.
1.3 Counterparty
Risk: Non-delivery of stock by a
counterparty leading to an interest claim
or buy-in.
Response: The manager operates on a
delivery versus payment system, reducing
the risk of counterparty default. Any
issues or systemic problems would be
discussed with the board and remedial
actions agreed.
1.4 Currency
Risk: Exposure to exchange rate
movements which can affect, for
example, dividend income.
Response: The portfolio is mainly
invested in UK-listed companies, with
shares predominantly priced in sterling.
Exposure is therefore primarily indirect,
Principal risks
The principal risks are now
considered to be risks relating
to investment strategy and
investment performance. Those
identified as having the highest
impact and the greatest likelihood
are the following:
3.9
Geopolitical
3.10
Climate
Some principal risks have been
assessed as being as likely to occur
as last year.
2.2
Investment strategy: for
example, asset allocation
or the level of gearing may
lead to a failure to meet the
company’s objectives, such
as income generation and
dividend growth.
2.3
Investment performance:
for example, poor stock
selection for the portfolio
leads to a decline in the
rating and attraction of
the company.
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
IMPACT
LIKELIHOOD
unlikely moderate likely almost certain
low moderate high very high
1.3
Counterparty
2.4
Financial
1.4
Currency
1.2
Market liquidity
and pricing
3.1
Organisation set up
and process
2.5
Liquidity and
gearing
3.4
Corporate
governance
2.1
Shareholder
relations
2.3
Investment
performance
2.2
Investment
strategy
3.6
Financial crime
and fraud
1.1
Market decline
3.8
Cyber and AI
Risk appetite
The board identifies risks,
considers controls and
mitigation, the probability
of the event, and assesses
residual risk. It then
evaluates whether its risk
appetite is satisfied. The
board confirms for the
year ended 31 January
2026 that its assessment
of risk is in line with its risk
appetite for all key risks.
Risk Map
Risk is acceptable, no additional measures needed
Risk is of concern but sufficient measures are defined and have been or are being implemented
Risk is of concern, sufficient mitigation measures not possible
3.5
Key person
3.7
Reputational
3.2
Outsourcing /
Third party
3.10
Climate
3.9
Geopolitical
3.3
Regulatory
2.6
Market demand
33
STRATEGIC REPORT
but well diversified. Board papers
monitor the income split by currency to
assess risks to the revenue account.
Business and strategy risks
2.1 Shareholder relations
Risk: The investment objectives, or views
on decisions such as gearing, discount
management, dividend policy, of existing
shareholders may not coincide with those
of the board leading investors to sell the
ordinary shares.
Response: Reports on shareholder
sentiment are received from the manager
and brokers and reviewed by the board.
Shareholders are actively encouraged to
make their views known.
2.2 Investment strategy
Risk: Inappropriate investment strategy
for example asset allocation or the
level of gearing may lead to a failure
to meet the company’s objectives, such
as income generation and dividend
growth, and capital growth, or lead
to underperformance against the
company’s benchmark index or against
peer group companies. This may lead
to the company’s shares trading on a
wider discount.
Response: Board policies restrict the size
of investments in individual companies
and sectors. The board closely monitors
the income projections for the portfolio,
and the level of risk and diversification
of this income, to ensure the company
can meet its income objectives. The
board also reviews the suitability of
the investment strategy and the stock
selection process regularly, and considers
its gearing policy frequently. All of these
topics are considered in depth at the
annual strategy review.
2.3 Investment performance
Risk: Persistent poor performance
against benchmark or peers leads to
decline in rating and attraction of the
company to investors.
Response: The portfolio manager
attends all board meetings to discuss
performance with the directors. The
board manages these risks by giving
investment guidelines which are
monitored at each meeting. The board
reviews the investment performance of
the company against the benchmark and
peer group. The board regularly discusses
composition and succession planning to
ensure that sufficient board members
have the appropriate background and
knowledge to evaluate performance.
2.4 Financial
Risk: Various factors might include
poor title to investment holdings, Net
Asset Values calculated incorrectly,
written options not covered, inaccurate
revenue forecasts, incorrectly calculated
management fees, incorrectly identified
expense payments.
Response: A rolling income forecast
(including special dividends), balance
sheet and expenses are reviewed at
every board meeting. Reporting from the
custodian covering internal controls in
place over custody of investments and
over appointment and monitoring of
sub-custodians is produced and reviewed
at least annually.
The board’s investment restrictions are
input in trading systems to impose a
pre-trade check. The manager discusses
derivative activity during a monthly risk
call. Any overdue dividend debtors are
monitored by the manager and variance
analyses of income from meeting to
meeting are provided to the board. The
board annually reviews and approves the
accounting policy for the income/capital
split.
2.5 Liquidity and gearing
Risk: Insufficient income generated
by the portfolio and due to stock
market falls gearing increases to levels
unacceptable to shareholders and the
market which in extreme circumstances
results in a breach of loan covenants.
Response: The board meets with the
portfolio managers and considers asset
allocation, stock selection and levels of
gearing on a regular basis. Investment
restrictions and guidelines are monitored
and reported on by AllianzGI. Regular
compliance information is prepared on
covenant requirements.
2.6 Market demand
Risk: The level of discount of the share
price to the NAV moves to unacceptable
levels, threatening confidence in the
company’s shares.
Response: The board regularly reviews
the level of premium and discount and
new shares can be issued or existing
shares bought back by the company at
discounts greater than an agreed level
when there is demand to do so.
Operational risks
3.1 Organisation set up and process
Risk: Failure or other issues in the
operational set up of the company,
through people, processes, systems or
external events, examples including
changes in management company
structure, oversight issues, appropriate
governance of processes could result
in financial loss to the company or its
inability to operate.
Response: The manager and the other
key service providers report on business
continuity plans and the resilience of their
response to extreme situations. Third
party internal controls reports are also
received from these service providers.
3.2 Outsourcing and third party
Risk: Inadequate procedures for
the identification, evaluation and
management of risks at outsourced
providers and roles of the third party are
not clear and gaps in the service appear.
Response: The board receives formal
assurance reports from all of its direct
service providers and the manager
carries out regular monitoring of
outsourced administration functions,
this includes compliance visits and risk
reviews where necessary. Results of these
reviews are supplied to the board.
3.3 Regulatory
Risk: Failure to be aware of or comply
with legal, accounting and regulatory
requirements which could result in
censure, financial penalty or loss of
investment company status.
Response: The board maintains close
relations with its advisers and makes
preparations for mitigation of these risks
as and when they are known or can
be anticipated.
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
3.4 Corporate governance
Risk: Weak adherence to best practice
in corporate governance can result in
shareholder discontent and potential
reputational damage to the company.
Response: The board takes regular
advice on best practice. The board is
highly experienced and knowledgeable
about corporate governance best
practice, and the board includes directors
who are board members of other large
UK plcs and other investment companies.
3.5 Key person
Risk: Departure of the portfolio manager,
certain professional individuals, and/
or board members, may impact
the management of the portfolio,
the achievement of the company’s
investment objective and/or disruption to
its operations.
Response: Manager and board
succession plans are in place. Cover
is available for core members of the
relevant teams of the manager, and
work can be carried out by other team
members should the need arise.
3.6 Financial crime and fraud
Risk: That the company and the
manager’s firm, its employees, or clients
are subject to financial crime or breach
elements of the Bribery Act.
Response: AllianzGI has anti-fraud, anti-
bribery policies and robust procedures
in place. The board is alert to the risks
of financial crime and reviews how third
party service providers handle these.
These reports confirm that all systems are
secure and are updated in response to
any new threats as they arise.
3.7 Reputational
Risk: Examples include unforeseen
changes, oversight issues, appropriate
governance of processes in the
management company structure;
association with poor governance in
portfolio companies; and operational
issues in service providers, all of which
can affect the reputation of the company.
Response: Service providers are
monitored and the manager provides
oversight and timely and detailed
information on any reputational issues
and communicates actions being taken
with the board for discussion.
3.8 Cyber security and AI
Risk: Increased cyber attacks and from
traditional and generative Artificial
Intelligence (AI) in respect of malicious
AI, its rapid growth and the lack
of regulation.
Response: The board is alert to the
threat of and risks from cyber attacks
and reviews how third party service
providers handle these threats and risks.
These reports confirm that all systems
are secure and are updated in response
to any new threats as they arise. The
board asks for and receives assurance
from key suppliers on AI developments
and threats.
3.9 Geopolitical
Risk: Unpredictable consequences of
political and macro-economic shocks
such as the repercussions of the invasion
of Ukraine by Russia, the conflict in Gaza,
the evolving situation in the Middle East,
US interventions and tariff impositions,
ongoing inflation concerns and the threat
to income and cost of gearing.
Response: The board carries out horizon
scanning by keeping informed through
its manager and advisers on the political,
economic and legal landscape, and
reviews updates received on regulatory
changes that affect the company
including industry and manager thematic
outlook and insights as well as research
publications. The board is fully engaged
with its management company, AllianzGI,
and its other advisers to keep informed
about ongoing changes and is ready to
adapt its strategies in order to achieve
its objectives.
3.10 Climate
Risk: that climate change is not
recognised or understood by the
manager, exposing the portfolio to
stocks not positioned to transition
to decarbonisation.
Response: The manager has a detailed
climate policy which is incorporated
in the investment process, e.g.,
through exclusion policies and other
methodologies. Its Sustainability
Insights Engine (SusIE) facilitates the
consideration of climate data in the
investment process. The manager
engages with investee companies
on climate issues and to influence
transition pathways.
Viability Statement
The Merchants Trust is an investment
company and has operated as an
investment vehicle since 1889 with the
aim of offering a return to investors
over the long term. The board has
confidence in the future of the company.
Over its 137 year history, the company
has survived numerous external crises
and economic events; it has a solid
portfolio of blue chip stocks and has
built up substantial revenue reserves.
The directors have formally assessed the
company’s prospects for a period longer
than the one year required by the Going
Concern principle. The directors believe
that five years is an appropriate outlook
period for this review as this is broadly
equivalent to the portfolio’s investment
cycle. Whilst acknowledging the difficulty
of forecasting prospects for markets
beyond a relatively short horizon, the
board believes that this should give
investors assurance that there is a
realistic prospect that the company will
continue to be viable and continue to
seek to achieve its aim to provide an
above average level of income and
income growth together with long term
capital growth.
The board has assessed the long-term
viability of the company against the
principal risks faced by the company,
outlined in the risk reporting within
the Strategic Report. The chief risks
that could pose a threat to the future
prospects of the company are investment
strategy, investment performance and
market decline, as described in the risk
reporting from page 32.
The board considered the following in
its assessment:
1. The company’s investment strategy
and the long-term performance of the
company, together with the board’s view
that it will continue to provide long-
term returns to shareholders as well as
an attractive income as it has done in
the past.
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STRATEGIC REPORT
(i) The board examines performance
with the investment managers
at each board meeting and
strategy meeting. Performance is
reviewed against the company’s
stated strategy and the continuing
relevance of the company as a
provider of a vehicle for investors
looking for a portfolio invested in
leading companies with strong
balance sheets and the ability to pay
attractive dividends.
(ii) The board receives reports at every
board meeting of the transactions in
the company’s shares. The company
is a member of the FTSE 250 and
there is liquidity in its shares.
2. The financial position of the company,
including the impact of foreseeable
market movements on cash flows - the
board monitors the financial position
in detail at each board meeting and at
least twice each year it stress-tests the
portfolio against significant market falls.
The methods used are:
(i) Loan covenants stress testing
(checking monthly on the decline
in asset values needed to
breach covenants).
(ii) Stress testing the portfolio (reviewing
the time it would take to sell
portfolio stocks).
(iii) The assessment of future portfolio
income and the impact of the
payment of dividends on reserves
(reviewing rolling forecasts of income
based on the current portfolio at
every meeting).
3. The company’s ability to meet interest
payments and debt redemptions as they
fall due.
The board continues to consider its
gearing strategy on an ongoing basis.
The next scheduled repayment of debt
is in 2029 and the board continues to
monitor how and when is best to fund
this repayment.
4. The liquidity of the portfolio, and
the company’s ability to pay growing
dividends and to meet the budgeted
expenses of running the company, which
is examined at each board meeting.
(i) Liquidity testing is carried out on
Merchants’ portfolio by AllianzGI on
an ongoing basis. Stocks are listed
on major exchanges. There are no
unlisted investments in the portfolio.
(ii) Portfolio income is reviewed by
the board at each meeting and
conservative assumptions are made
in estimated revenue accounts in
the board meeting papers (based
on historic portfolios, assuming no
dividend increases).
(iii) Ongoing charges are operating
expenses incurred in the running of
the company (excluding financing
costs). The ongoing charges figure
is calculated by dividing operating
expenses, i.e., the management fee
and all administration expenses, by
the company’s Net Asset Value. This
calculation is carried out formally
each year and published in the
Annual Report (in accordance with
the AIC’s recommendations). The
expenses of running the company
have been calculated at 0.54% of net
assets in the latest year (2025: 0.52%).
These charges are low and should be
met by the company without difficulty
over the five year time horizon
considered for the review of viability.
5. The company’s resilience in facing the
risks and consequences of unanticipated
macroeconomic shocks and grave
geopolitical events and its ability to
continue to maintain its objectives and
provide the required shareholder returns.
The board has received detailed reports
and periodic updates from AllianzGI
and its other key service providers on the
resilience of their controls environment
and ability to continue to deliver their
services when necessary, with usage of
remote access capabilities, including
for portfolio management activities.
The board has received assurances
that AllianzGI operates to standards
for business continuity management
and resilience which reflect market
standards, such as ISO22301. This
resulted in minimum disruption
through the pandemic and in the
post-pandemic environment.
The portfolio manager has provided
forecasts to demonstrate the reasonable
prospect of, having utilised revenue
reserves previously, maintaining
a covered dividend and building
reserves against future requirements.
This supports the continuation of the
company’s objectives to provide a high
level of income and income growth
together with long-term capital growth
for its shareholders and which supports
the viability of the company for the five-
year period contemplated.
The directors have evaluated the risks
and consequences of global events and
have considered the company’s ability
to maintain its objectives and provide
shareholder returns in the five year
horizon for viability and believe that the
company is well placed to be able to
achieve this.
Based on the results of this assessment
and on the assumption that the risks
above are managed or mitigated
effectively, the directors have a
reasonable expectation that the
company will be able to continue in
operation and meet its liabilities as they
fall due over the five year period of
their review.
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Going Concern
Following all the investigations made in
the Viability review above, the directors
have concluded that the company
has adequate resources to continue
in operational existence. The directors
have also considered the risks and
consequences of macroeconomic and
other unanticipated shocks on the
company and have concluded that the
company has the ability to continue in
operation and meet its objectives for at
least twelve months after the approval
of the Annual Report. For this reason
the directors continue to adopt the
going concern basis in preparing the
financial statements.
The future
As set out in my Chairman’s Statement
on page 6, there are many reasons to
invest and stay invested in The Merchants
Trust. Merchants has experience
of providing active investment
management through many difficult
environments and over time provides
long-term capital growth and an above
average income and income growth to
investors.
Some of the trends likely to affect the
company in the future are common to
many investment companies, such as
the future attractiveness of investment
companies as investment vehicles. The
outlook for economic growth, interest
rates, inflation and asset returns will also
be important factors. In particular for
Merchants, the availability of attractive
income producing UK equities and
their future returns are central to the
investment proposition. The board
continues to believe that the continuing
evolution of the investment platforms
market offers many opportunities for the
self-directed investor. The longevity of the
company and its importance to investors
continues to be a key focus of the board.
I give my view of the outlook in my
Chairman’s Statement on page 7 and
the portfolio manager discusses his view
of the outlook for the company’s portfolio
in his review on page 11.
On behalf of the board.
Colin Clark
Chairman
1 April 2026
37
STRATEGIC REPORT
Directors
Colin Clark
Chairman
Joined the board in June 2019 and
became Chairman in September
2019. Colin is Chairman of the board
of BNP PAM UK and a non-executive
director of BNP PAM Holdings SA. He is
also Chairman of Aveni Plc, a leading
provider of AI solutions for financial
services organisations. Colin has had
a 40 year career in asset and wealth
management. His most recent executive
roles were from 2010 at Standard Life
Investments and as an executive director
of Standard Life Plc. Prior to this he
was with Mercury Asset Management,
Merrill Lynch Investment Managers and
S.G.Warburg & Co.
Experience:
Senior leadership roles in the asset
management industry and an
experienced chairman.
Reasons for the recommendation
for re-election:
Colin’s senior expertise and asset
management knowledge are valued for
their input into the board’s governance
and the response by the board to
challenging external events.
Karen McKellar
Senior Independent Director
Joined the board in May 2020. Karen
is a non-executive director and Chair
of the Management Engagement
Committee of JPMorgan European
Investment Trust PLC. Karen has had a
long career as an investment manager
at Standard Life, managing the
Standard Life Equity Income Investment
Trust as well as several large UK equity
open-ended funds.
Experience:
An asset management professional
with senior management, money
management and investment trust
board experience.
Reasons for the recommendation
for re-election:
Karen brings to the board a deep
understanding of portfolio management
and current working knowledge of
investment trusts.
Mal Patel
Chair of the Audit Committee
Joined the board in March 2024. Mal
is Head of Investor Relations at Spirax
Group plc and has held senior roles in IR
and corporate development in a number
of large UK companies. His early career
was as an equities analyst in investment
banking. He is a chartered accountant.
Experience:
A senior leader in a wide range
of investor relations, corporate
development and finance roles across a
variety of businesses.
Reasons for the recommendation
for re-election:
With a strong corporate background
and financial expertise, Mal brings
experience and skills in many areas
including transactions, corporate
finance and treasury, debt and equity
raising and also external reporting and
investor relations.
38
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Lisa Edgar
Joined the board in January 2024. Lisa is
the founder and Chief Executive of Big
Window Consulting, an international
consumer and B2B insight and
marketing agency, specialising in
financial services.
Until January 2024, Lisa was Chief
Customer Officer on the Executive
Leadership Team at Saga PLC with a
speciality in longevity and realising the
commercial value in older consumers.
Lisa’s career began as a brand planner
and market research analyst at Nestle
before spending the last 25 years
founding and building customer
insight agencies.
Experience:
A financial services consumer expert,
with decades of experience of working
at a senior level with large clients in
the sector.
Reasons for the recommendation
for re-election:
Lisa brings a wealth of retail and direct
consumer experience to the board’s
understanding and direction of the
marketing strategy and execution as
well as articulation of the company’s
investment proposition.
Neil Galloway
Joined the board in July 2025. Neil is a
Non-Executive Director of AVI Global
Trust PLC.
He has extensive experience of
leadership roles in large, listed
multinational companies and was
most recently CFO of Pepco Group
N.V. Previous roles included Executive
Vice President of IWG PLC, CFO of DFI
Retail Group, a Commissioner of DFI
Nusantara, and CFO of The Hongkong
and Shanghai Hotels Limited. Prior to
this he spent 18 years in a variety of
investment banking roles with ABN
AMRO and HSBC.
Experience:
Following a successful investment
banking career, he has held senior
finance and management roles across
the hospitality, retail and services
sectors and has current investment
trust experience.
Reasons for the recommendation
for re-election:
Neil has deep industry knowledge and
skills from banking and finance roles
and current working knowledge of
investment trusts.
Committee memberships
All directors are non-executive
and independent of the manager.
All directors are members of the
Management Engagement Committee.
All directors, with the exception of the
Chairman, Colin Clark, are members of
the Audit and Risk Committee. Further
details can be found from page 50.
39
GOVERNANCE
Investment Manager and advisers
The Manager or Alternative Investment Fund
Manager (AIFM)
Allianz Global Investors UK Limited (AllianzGI UK) is
incorporated in the UK and its registered office is at 199
Bishopsgate, London EC2M 3TY. It is authorised by the
Financial Conduct Authority (FCA). AllianzGI UK delegates
some functions to Allianz Global Investors GmbH (AllianzGI).
AllianzGI is an active asset manager operating across nineteen
markets with specialised in-house research teams around
the globe, managing assets for individuals, families and
institutions worldwide.
As at 30 September 2025, AllianzGI had €580 billion of assets
under management worldwide.
Through its predecessors, AllianzGI has a heritage of
investment trust management expertise in the UK reaching
back to the nineteenth century and as at 31 December 2025
had £3.8 billion assets under management in a range of
investment trusts.
Website: www.allianzgi.co.uk
Head of Investment Trusts
Stephanie Carbonneil
Email: stephanie.carbonneil@allianzgi.com
Investment Manager
Simon Gergel, Lead Portfolio Manager,
Richard Knight, Portfolio Manager,
Andrew Koch, Portfolio Manager.
Representing Allianz Global Investors UK Limited,
199 Bishopsgate, London EC2M 3TY (the manager).
Company Secretary and Registered Office
Nira Mistry and Kirsten Salt
199 Bishopsgate, London EC2M 3TY
Telephone: 0800 389 4696
Email: investment-trusts@allianzgi.com
Registered number
28276
Bankers and Custodian
HSBC Bank plc
Depositary
HSBC Securities Services
Solicitors
Dickson Minto W.S.
Custodian
HSBC Bank plc
Independent Auditor
BDO LLP
Registrar
MUFG Corporate Markets (full details on page 86)
Stockbrokers
J.P. Morgan Securities Limited
Depositary
HSBC Securities
40
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Directors’ Report
Statement of the Depositary’s Responsibilities in Respect of the Company
‘The Depositary must ensure that the
company is managed in accordance
with the Financial Conduct Authority’s
Investment Funds Sourcebook,
(‘the Sourcebook’), the Alternative
Investment Fund Managers Directive
(AIFMD) (together ‘the Regulations’)
and the company’s Articles of
Association.
The Depositary must in the context
of its role act honestly, fairly,
professionally, independently and in
the interests of the company and its
investors.
The Depositary is responsible for
the safekeeping of the assets of the
company in accordance with the
Regulations.
The Depositary must ensure that:
– the company’s cash flows are
properly monitored and that cash of
the company is booked into the cash
accounts in accordance with the
Regulations;
– the sale, issue, repurchase,
redemption and cancellation of
shares are carried out in accordance
with the Regulations;
– the assets under management
and the Net Asset Value per share
of the company are calculated in
accordance with the Regulations;
– any consideration relating to
transactions in the company’s assets
is remitted to the company within the
usual time limits;
– that the company’s income is applied
in accordance with the Regulations;
and
– the instructions of the Alternative
Investment Fund Manager (‘the
AIFM’) are carried out (unless they
conflict with the Regulations).
The Depositary also has a duty to take
reasonable care to ensure that the
company is managed in accordance
with the Articles of Association
in relation to the investment and
borrowing powers applicable to
the company.
Report of the Depositary to the
Shareholders of The Merchants
Trust PLC (the company) for the
year ended 31 January 2026.
Having carried out such procedures
as we consider necessary to discharge
our responsibilities as Depositary of
the company, it is our opinion, based
on the information available to us and
the explanations provided, that in all
material respects the company, acting
through the AIFM, has been managed
in accordance with the rules in the
Sourcebook, the Articles of Association
of the company and as required by
the AIFMD.’
HSBC Bank plc
13 February 2026
Further information about the
relationship with the Depositary is on
page 84.
The directors present their report and the audited financial statements of the company for the year ended 31 January 2026.
Revenue
The revenue earnings attributable to ordinary shareholders for the year amounted to £45,314,000 or 30.6p per share (2025:
£43,671,000, 29.4p per share).
The first quarterly dividend of £10,835,000, or 7.3p per share, and the second quarterly dividend of £10,835,000, or 7.3p per
share, were paid during the year. Since the year end the third quarterly dividend of £10,925,000, or 7.4p per share, was paid on
19 March 2026. A proposed final dividend of 7.5p will be paid on 27 May 2026 to shareholders on the register on 17 April 2026. In
accordance with FRS 102 Section 32: ‘Events after the end of the reporting period’, the third and final quarterly dividends are not
recognised as liabilities within the financial statements on the basis that at the year end the third and final quarterly dividends had
not been paid.
Invested funds
Sales of investments during the year resulted in net gains based on historical costs of £35,507,000* (2025: gains of £39,889,000).
Provisions contained in the Finance Act 2010 exempt approved investment trusts from corporation tax on their chargeable gains.
Share issuance and buy back
During the year no shares were issued and 792,017 shares were repurchased to be held in treasury. No further shares have been
issued or brought back since the year end. Further details are on page 76.
*
Alternative Performance Measure (APM). A Glossary of APMs can be found on page 91.
41
GOVERNANCE
Future development
The future development of the company is dependent on the success of the company’s investment strategy against the economic
environment and market developments. The Chairman’s Statement starting on page 4 sets out the outlook for the company
and the Portfolio Managers also discuss their view of the outlook for the company’s portfolio in their report starting on page 11.
The future is also discussed in the Strategic Report on page 37.
Section 992 of the Companies Act 2006
The following information is disclosed in accordance with Section 992 of the Companies Act 2006.
Capital structure
The company’s capital structure is summarised in Note 12 on page 76. The details of the 4% Perpetual Debenture Stock and the
3.65% Cumulative Preference Stock are provided in Notes 11(ii) and 11(iii) respectively on page 75.
Voting rights in the company’s shares
The voting rights at 30 March 2026 were:
Share class
Number of
shares issued
Voting rights
per share
Total
voting rights
Ordinary shares of 25p 147,632,870 1 147,632,870
3.65% Cumulative Preference Stock of £1 1,178,000 1 1,178,000
Total 148,810,870 148,810,870
Every member on a show of hands has one vote. On a poll every member who is present in person or by proxy or representative
has one vote for every £1 in nominal amount of preference stock or one vote for every ordinary share of 25p. The Perpetual
Debenture Stock and Bonds carry no voting rights.
Interests in the company’s share capital
As at 30 March 2026 the company has received no declarations of notifiable interests in the company’s issued share capital.
Common Reporting Standards (CRS)
CRS is a global standard for the automatic exchange of information commissioned by the Organisation for Economic Cooperation
and Development and incorporated into UK law by the International Tax Compliance Regulations 2015. CRS requires the
company to provide certain additional details to HMRC in relation to UK resident foreign investment holders. The registrar, MUFG
Corporate Markets, has been engaged to collate such information and file the reports with HMRC on behalf of the company.
The board and gender diversity reporting
The board is supportive of the FCA’s updated UK Listing Rules (UKLR 6.6.6) to encourage greater diversity on listed company
boards and has implemented the FCA’s disclosure requirements. The board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge represented on the board. The board will continue to ensure that all
appointments are made on the basis of merit against the specification prepared for each appointment. The board has chosen
to align its diversity reporting reference date with the company’s financial year end and proposes to maintain this alignment
for future reporting periods. The company has met two of the targets on board diversity and at its chosen reference date, 31
January 2026 at least 40% of the individuals on its board of directors are women and one of its directors is from a minority ethnic
background. Further details on the company’s appointment process can be found under ‘The board’ and ‘Board composition’ on
page 1. Further detail required by UKLR 6.6.6 in respect of the targets outlined above as at 31 January 2026 is disclosed in the
table below.
As an externally managed investment company, the company has no executive directors, employees or internal operations.
Therefore columns relating to executive management have been removed from the tables below. The roles of chief executive and
chief financial officer are not applicable to the company, however, the company considers the roles of the Senior Independent
Director and Chair of the Audit Committee to be senior board positions and the following disclosure is made on this basis.
42
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
As at 31 January 2026:
Number of
board members
Percentage
of the board
Number of
Senior Positions
on the board
(CEO, CFO, SID
and chair)*
Men 3 60% 2
Women 2 40% 1
Other - - -
Not specified/prefer not to say - - -
Number of
board members
Percentage
of the board
Number of
Senior Positions
on the board
(CEO, CFO, SID
and chair)*
White British or other White (including minority-white groups) 4 80% 2
Mixed/Multiple Ethnic Groups - - -
Asian/Asian British 1 20% 1
Black/African/Caribbean/Black British - - -
Other ethnic group - - -
Not specified/prefer not to say - - -
Since the reference date and up to the date that the Annual Report was approved there have been no further changes.
* The company only has two of the senior roles specified by the UK Listing Rules, that is the position of chair and SID. One of these roles is
occupied by a man and one by a woman. However, the company considers that the chair of the audit committee, nomination committee and
remuneration committee is a senior position. Of these three senior roles, two are performed by a man and one by a woman.
Directors
Biographical details of the current directors at the date of the signing of this report are shown on pages 38 and 39.
All of the directors will retire at the Annual General Meeting and each offers themself for re-election. The board considers each
director to be independent of the manager and each has the full support of the board in standing for re-election.
Related party transactions
During the financial year no transactions with related parties, other than directors’ fees payments, have taken place which would
materially affect the financial position or the performance of the company.
Management contract and management fee
The management contract with Allianz Global Investors UK Limited (AllianzGI UK) provides for a fee of 0.35% per annum (2025:
0.35%) of the value of the assets, calculated quarterly, after deduction of current liabilities, short term loans with an initial duration
of less than one year and any funds within the portfolio managed by AllianzGI. The management contract is terminable at
one year’s notice (2025: one year). Under the contract, other than a year’s fees which may be paid in lieu of notice, there are no
compensation payments due on termination.
The manager’s performance under the contract and the contract terms are reviewed at least annually by the Management
Engagement Committee. This committee consists of the directors not employed by the management company in the past five
years and therefore includes the entire board. During the year, the committee met the manager to review the current investment
framework, including the company’s performance, marketing activity and ongoing charge.
The committee also reviewed the terms of the management contract and considered the level of the management fee. The
committee was satisfied with its review and believes that the continuing appointment of the manager is in the best interests of
shareholders as a whole.
43
GOVERNANCE
Special rights disclosure
There are no restrictions concerning the
transfer of securities in the company;
no special rights with regard to control
attached to securities; no agreements
between holders of securities regarding
their transfer known to the company; no
agreements which the company is party
to that might affect its control following
a takeover bid; and no agreements
between the company and its directors
concerning compensation for loss
of office.
The company is not aware of any
agreements between holders of
securities with regard to control of the
company which may result in restrictions
on voting rights.
Financial reporting
The Statement of Directors’
Responsibilities in respect of the financial
statements is on page 58. The
Independent Auditor’s Report begins on
page 59.
Auditor’s information
Each of the persons who is a director
at the date of approval of this report
confirms that:
(a) in so far as the director is aware,
there is no relevant audit information
of which the company’s Auditor is
unaware; and
(b) the director has taken all the steps
he or she ought to have taken as a
director in order to make himself/herself
aware of any relevant audit information
and to establish that the company’s
Auditor is aware of that information.
This confirmation is given and should
be interpreted in accordance with
the provisions of section 418 of the
Companies Act 2006.
Relations with shareholders
The board strongly believes that the
Annual General Meeting should be
an event which private shareholders
are encouraged to attend. The Annual
General Meeting is attended by the
Chairman of the board, the Chairmen
of the board’s committees and the
directors, and the Investment Manager
makes a presentation at the Meeting.
The number of proxy votes cast in
respect of each resolution will be made
available shortly after the conclusion of
the Annual General Meeting.
The manager meets with institutional
shareholders on a regular basis and
reports to the board on matters raised
at these meetings. The Chairman and,
where appropriate, other directors, are
available to meet with shareholders to
discuss governance and strategy and to
understand their issues and concerns.
All correspondence with shareholders is
reviewed by the board.
Shareholders who wish to communicate
directly with the Chairman, the Senior
Independent Director or other directors
may write care of the Company
Secretary, The Merchants Trust PLC, 199
Bishopsgate, London EC2M 3TY.
The Notice of Meeting sets out the
business of the Meeting and special
resolutions are explained more fully
later in the Directors’ Report. Separate
resolutions are proposed for each
substantive issue.
Social, community and human
rights issues
As an investment trust, the company
has no direct social or community
responsibilities. However, the board
shares the manager’s view that it is in
shareholders’ interests to be aware
of and consider human rights issues,
together with environmental, social and
governance factors when selecting and
retaining investments. Details of the
company’s policy on socially responsible
investment are set out above.
Criminal Finances Act 2017
The company has a commitment to
zero tolerance towards the criminal
facilitation of tax evasion.
Modern Slavery Act 2015
The company does not provide goods or
services in the normal course of business,
and as a financial investment vehicle
does not have customers. The directors
therefore consider that the company is
not required to make a statement under
the Modern Slavery Act 2015 in relation
to slavery or human trafficking.
Bribery Act 2010
The board has a zero tolerance policy in
relation to bribery and corruption and
has received assurance through internal
controls reporting from the company’s
main third party service providers that
adequate safeguards are in place to
protect against any such potentially
illegal behaviour by employees
or agents.
Stewardship and exercise of
voting powers
The company’s investments are held
in a nominee name. The board has
delegated discretion to discharge its
responsibilities in respect of investments,
including the exercise of voting powers
on its behalf to the manager, AllianzGI.
AllianzGI monitors our portfolio holdings
and proactively engages with investee
companies in line with the principles
set out in the UK Stewardship Code
and consistent with our investment
objectives. AllianzGI subscribes to the ISS
Proxy Voting Services. ISS manages the
voting process and recommends actions
based on AllianzGI’s global proxy voting
policy guidelines.
Where directors hold directorships
on the boards of companies in which
the company is invested, they do not
participate in decisions made concerning
those investments.
ESG and Climate-related
reporting
The integration of ESG into the portfolio
management process is covered in the
Investment Manager’s review in detail.
As an investment company with all of
its activities outsourced to third parties,
the company’s own direct environmental
impact is minimal. The company has
no greenhouse gas emissions to report
from its operations, nor does it have
responsibility for any other emissions
producing sources under the Companies
Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013. For the
same reasons, the company considers
itself to be a low energy user under the
Streamlined Energy & Carbon Reporting
(SECR) regulations and therefore is
not required to disclose energy and
carbon information.
As a listed investment company,
Merchants is not required to provide a
report under the Task Force on Climate-
related Financial Disclosures (TCFD).
In accordance with the requirements
of the TCFD, AllianzGI UK has issued a
product level report which is available
on the company’s website www.
merchantstrust.co.uk. The board receives
a detailed report on ESG matters at
every board meeting and discusses
activities in the investment process:
44
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
interactions with the companies in the
portfolio and the outcome of these
engagements; proxy voting; and
performance against industry data.
Sustainability disclosure
requirements
The Financial Conduct Authority (FCA)
has introduced sustainability disclosure
requirements and investment labels
regime (SDR) to address concerns about
misleading environmental claims. The
SDR has several dimensions, including
an ‘anti-greenwashing’ rule, designed
to increase trust and confidence in the
sustainable investment market and to
combat providers exploiting demand
for sustainable products by making
unsupported environmental claims.
The company’s website https://www.
merchantstrust.co.uk/en-gb/about-us/
esg notes that Merchants’ investment
process only includes consideration of
ESG factors, not Socially Responsible
Investment (SRI) (i.e., building
sustainable portfolios by delivering
sustainable financial returns based on
the assessment of ESG practices) nor
impact aspects (i.e., promoting social
and environmental goals and/or/
outcomes alongside financial returns).
Annual General Meeting
As the Chairman explains in his
Statement on page 7, the Annual
General Meeting (AGM) of the Company
will be held at 12 noon on 19 May
2026 at Grocers’ Hall, Princes Street,
London, EC2R 8AD. This meeting will be
held as a hybrid meeting. This means
that there will be an in person meeting
as well as it being streamed live for
those shareholders who cannot attend
in person. The formal Notice of AGM,
including instructions on how to join
online, starts on page 87.
Shareholders may and are strongly
encouraged to participate in the
business of the AGM by exercising their
votes in advance of the meeting by
completing and returning the form of
proxy. Shareholders may also submit
their proxy electronically through the
website of the company’s registrar at
https://uk.investorcentre.mpms.mufg.
com/ or via the Investor Centre app..
Further details are contained within the
Notice of Meeting Notes on page 88.
The deadline for you to submit your
proxy votes to the registrar is 12 noon on
Friday 15 May 2026.
Shareholders are invited to send any
questions for the board and manager
care of the company secretary at
investment-trusts@allianzgi.com or
in writing to the registered office,
199 Bishopsgate, London EC2M 3TY.
Questions and answers will be published
on the website.
At the AGM resolutions will be put
to shareholders to cover ordinary
business including the re-election and
remuneration of the directors and the re-
appointment of the Auditor, and special
business such as the authority for the
allotment and buyback of shares.
AGM special business
1. Allotment of new shares
Approval is sought in Resolution 12 for
the renewal of the directors’ authority to
allot relevant securities, in accordance
with section 551 of the Companies Act
2006, up to a maximum number of
49,474,962 ordinary shares, representing
approximately one third of the existing
ordinary share capital. This authority is
renewable annually and will expire at
the conclusion of the AGM in 2027.
2. Disapplication of
pre-emption rights
A resolution was passed at the AGM
held on 20 May 2025 in accordance
with section 570 of the Companies Act
2006, to authorise the directors to allot
ordinary shares for cash other than
pro rata to existing shareholders. The
authority is renewable annually and
expires at the conclusion of the AGM in
2026. Special Resolution 13 is therefore
proposed under special business at
the forthcoming AGM to renew this
authority until the conclusion of the AGM
in 2027 or 18 August 2027 if earlier.
This power is limited to a maximum
number of 14,842,488 ordinary shares,
being approximately 10% of the issued
ordinary share capital of the company
as at the date of this report, provided
that there is no change in the issued
share capital between the date of this
report and the AGM to be held on 19
May 2026.
Authority will also be sought in
Resolution 13, which will be proposed
as a Special Resolution, to disapply
pre-emption rights in respect of the
allotment of shares by the sale and
reissue of shares held by the company
as treasury shares. The directors may
allot shares under these authorities to
take advantage of opportunities in the
market as they arise but only if they
believe it would be advantageous to
the company’s existing shareholders
to do so. The directors confirm that no
allotment of new shares will be made
unless the lowest market offer price
of the ordinary shares is at least at a
premium to Net Asset Value, valuing
debt at fair value.
3. Purchase of own shares
The board is proposing that the
company should be given renewed
authority to purchase ordinary shares
in the market to hold in treasury or
for cancellation. The board believes
that such purchases in the market
at appropriate times and prices are
a suitable method of enhancing
shareholder value. The company would
make either a single purchase or a series
of purchases, when market conditions
are suitable, with the aim of maximising
the benefits to shareholders and within
guidelines set from time to time by
the board.
Under the Companies Act 2006, the
company is allowed to hold its own
shares in treasury following a buyback,
instead of having to cancel them.
This gives the company the ability to
reissue treasury shares quickly and
cost effectively (including pursuant to
the authority under Resolution 13, see
above) and provides the company with
additional flexibility in the management
of its capital base. Such shares may be
resold for cash but all rights attaching
to them, including voting rights and any
right to receive dividends are suspended
whilst they are in the treasury. If the
board exercises the authority conferred
by Resolution 14, which will be proposed
as a Special Resolution, the company
will have the option of either holding in
treasury or of cancelling any of its shares
purchased pursuant to this authority and
will decide at the time of purchase which
option to pursue.
Where purchases are made at prices
below the prevailing Net Asset Value
of the ordinary shares, this will enhance
Net Asset Value for the remaining
shareholders. It is therefore intended
that purchases would only be made at
prices below the prevailing Net Asset
Value at the time of purchase, with
45
GOVERNANCE
the purchases to be funded from the
capital reserves of the company (which
are currently in excess of £668 million).
The rules of the UK Listing Authority (UK
Listing Rules) limit the price which may
be paid by the company to 105% of the
average middle-market quotation for an
ordinary share on the five business days
immediately preceding the date of the
relevant purchase. The minimum price to
be paid will be 25p per ordinary share
(being the nominal value). Overall, this
proposed share buyback authority, if
used, could help to reduce the discount
to Net Asset Value when the company’s
shares trade at a discount.
The board considers that it will be most
advantageous to shareholders for
the company to be able to continue
to make such purchases as and when
it considers the timing to be most
favourable and therefore does not
propose to set a timetable for making
any such purchases.
Under the UK Listing Rules, the maximum
number of its own shares which a listed
company may purchase through the
market pursuant to a general authority
such as this is equivalent to 14.99% of its
issued share capital. For this reason, the
company is limiting its renewed authority
to make such purchases to 22,248,890
ordinary shares, representing 14.99%
of the issued share capital, provided
that there is no change in the issued
share capital between the date of this
report and the AGM to be held on 19
May 2026.
In addition to renewing its powers to buy
back and cancel shares, the board is
seeking shareholder authority to reissue
shares from treasury.
The authority in accordance with section
701 of the Companies Act 2006, will last
until the AGM of the company to be held
in 2027 or the expiry of 15 months from
the date of the passing of this resolution,
whichever is the earlier. The authority will
be subject to renewal by shareholders at
subsequent AGMs.
The board and the Annual Report
The board reviewed the entire Annual
Report and noted all the supporting
information received. It then considered
whether the Annual Report satisfactorily
reflected a true picture of the company
and its activities and performance in
the year, with a clear link between the
relevant sections of the report. The
directors were then able to confirm that
the Annual Report, taken as a whole, is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the company’s
position and performance, business
model and strategy.
By order of the board
Nira Mistry
Company Secretary
1 April 2026
46
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Corporate Governance Statement
The directors are responsible for good
and effective governance and our
approach is to ensure that we abide
by the principles of the governance
framework for investment companies
and check these are embedded in our
culture to give our stakeholders and
the wider community confidence in our
decision making and communications.
In particular, the board believes in
providing as much transparency for
investors as is reasonably possible to
ensure investors can clearly understand
the prospects of the business.
The board has considered the Principles
and Provisions of the AIC Code of
Corporate Governance (AIC Code)
issued in August 2024. The AIC Code
addresses the Principles and Provisions
set out in the UK Corporate Governance
Code (the UK Code), as well as setting
out additional Provisions on issues that
are of specific relevance to the company.
The board considers that reporting
against the AIC Code, which has been
endorsed by the Financial Reporting
Council (FRC), provides more relevant
information to shareholders.
The company has complied with
the Principles and Provisions of the
AIC Code.
The AIC Code is available on the AIC
website (www.theaic.co.uk). It includes an
explanation of how the AIC Code adapts
the Principles and Provisions set out in
the UK Code to make them relevant for
investment companies.
The board
The board is responsible for the effective
stewardship of the company’s affairs
and aims to provide effective leadership
so that the company has the platform
from which it can achieve its investment
objective. Its role is to guide the overall
business strategy to achieve long-term
success and value for the benefit of
shareholders. A fuller description of the
company’s strategy can be found on
pages 28 and 29. Strategic issues
and all operational matters of a material
nature are considered at its meetings.
Board composition
Both at the year end and at the date
of signing this report there were five
directors on the board. The optimum
number of directors is five, but the
number could fall to four and go as high
as six to cover periods of recruitment
and retirement.
The board’s policy is for the Chairman to
serve on the board for up to nine years,
and if beyond then the company will
explain why this continued appointment
is in the best interests of shareholders.
The chairman is to be independent and
the other directors, led by the Senior
Independent Director, discuss and report
back on the performance and continuing
independence of the Chairman on an
annual basis.
The board has a plan for the tenure
and retirement of directors to ensure
that an orderly process of recruitment
can take place and that the board’s
balance of skills and relevant experience
is maintained. The biographies of the
directors are set out on pages 38
and 39 together with the skills and
experience each director brings to the
board for the long-term sustainable
success of the company. No contracts
of significance in which directors are
deemed to have been interested
have subsisted during the year under
review. Contracts of employment are
not entered into with the directors,
who hold office in accordance with the
company’s Articles.
All directors attended all board and
relevant committee meetings during
the year, as set out in the table on
page 49.
Directors’ and Officers’ Liability insurance
cover is held by the company. As
permitted by the company’s Articles, the
company has granted indemnities to
the directors.
Board effectiveness review
The board was subject to an internally
facilitated formal board effectiveness
review after the year end. This was
conducted by means of a series of
questionnaires completed by each
director. The results of these surveys in
an internally facilitated report compiled
by the Chairman and the Company
Secretary were reviewed by the
nomination committee and the outcome
of the exercise was discussed by the
board. Some themes for 2026 included
development of the conversations
about risk and peer group analysis. The
Senior Independent Director received
the results of the survey relating to
the evaluation of the effectiveness of
the Chairman and reported this to the
Nomination Committee. Upon receiving
the reports, the board’s Nomination
Committee recommended to the board
that each of the directors be nominated
for re-election at the forthcoming Annual
General Meeting.
Training and development
On joining the board new directors
receive a comprehensive programme of
induction. During the year, the directors
received periodic guidance and updates
on regulatory and compliance changes.
Board diversity
At the year end three of the directors
were male, two were female and there
was one director with an ethnic minority
background. This was unchanged at the
date of the signing of this report. There is
more information in the tables on page
43. As the company is an investment
trust, all of its activities are outsourced
and it does not have any employees. In
its brief on board succession the board
looks to add to the diversity of approach
and thinking as well as taking other
factors into account.
The board has noted the Parker review
which looked at how to improve the
ethnic and cultural diversity of UK
boards. As a FTSE-250 company,
Merchants responded to the request
for voluntary information on its
current board membership from BEIS
(Department for Business, Energy, and
Industrial Strategy). As an investment
company Merchants does not have
any employees, therefore it has nothing
further to report in respect of gender
and ethnic representation within
the company.
47
GOVERNANCE
Conflicts of interest
The Companies Act 2006 provides
that a director must avoid a situation
where he or she has, or can have, a
direct or indirect interest that conflicts,
or possibly may conflict, with the
company’s interests. Directors are able
to authorise these conflicts and potential
conflicts. The board reports annually
to shareholders on the company’s
procedures for ensuring that its powers
of authorisation of conflicts are operated
effectively and that the procedures have
been followed.
Statements by the directors
Each of the directors provides a
statement of all conflicts of interest and
potential conflicts of interest relating
to the company on appointment and
subsequently in the event of any change
or potential change to this statement.
The statements made by each director
are considered and approved by the
board. The directors have undertaken
to notify the Chairman and Company
Secretary of any proposed new
appointments and new conflicts or
potential conflicts for consideration, if
necessary, by the board.
The Merchants board follows good
practice by having directors’ interests
as an agenda item at every scheduled
board meeting, and a report of
all directors’ interests is tabled for
consideration by the board. This means
that any changes to the directors’
interests can be noted and recorded,
and any potential conflicts identified and
dealt with by the board.
Procedure for assessing conflicts
and potential conflicts
A director with a potential conflict might
be asked to step out of the meeting
room or be permitted to remain in
the room but not participate in the
discussion or take part in a vote on a
course of action. The Merchants board
composition has from time to time
included directors who sit on the boards
of trading companies in which the
portfolio manager may be invested, and
also may include directors who sit on the
boards of public bodies.
The board has agreed that only directors
who have no interest in the matter
being considered will be able to take
the relevant decision on approval of
any conflicts or potential conflicts, and
that in taking the decision the directors
will act in a way they consider, in good
faith, will be most likely to promote the
company’s success.
The board is able to impose limits or
conditions when giving authorisation
if it thinks this is appropriate, such as
ensuring that a director who also serves
on the board of a company in the
portfolio does not participate in any
discussions on the investment decision.
Directors’ interests register
The Merchants directors’ interests
register covers directors’ outside
interests (e.g., directorships or significant
holdings) and where the directors use
the services of suppliers to the company
(e.g., accountancy firms) in their own
capacity. The register also contains notes
of any hospitality and gifts received
from service providers, including the
management company.
Confirmation to shareholders
The board confirms that the detailed
procedures have been followed
during the year and that its powers of
authorisation are operating effectively.
Board committees
Audit committee
The audit committee meets at least
twice each year and is chaired by Mal
Patel. The committee assists the board
in relation to the reporting of financial
information, the review of financial
controls and the management of risk.
The Audit Committee Report starts on
page 55.
Nomination committee
The nomination committee meets
as needed – and at least once each
year – and makes recommendations
on board succession planning and
the appointment of new directors and
considers the composition and balance
of the board. The committee is chaired
by Colin Clark, the Chairman of the
board, and met once in the last year
when it considered the contribution
and effectiveness of the board and
formally considered the proposal for
election or re-election of each director
at the Annual General Meeting and
noted the progress on the board’s
succession plans. All directors serve on
the nomination committee and consider
nominations made in accordance with
an agreed procedure.
It is the board’s policy to use external
agencies to draw up lists of candidates
as part of any recruitment of new
directors. The brief to any recruitment
consultant includes the instruction that
the shortlist should include a diverse
range of candidates.
The Nomination Committee Report is on
page 51.
Management
engagement committee
The management engagement
committee met once in the year
to review the Management and
Administration Agreement and the
manager’s performance and a report
on management fees. It has defined
terms of reference and consists of all the
directors. It is chaired by Colin Clark the
Chairman of the board.
The Management Engagement
Committee Report is on page 50.
48
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Remuneration committee
The remuneration committee met once
in the year. The committee consists of all
the directors and during the year was
chaired by Karen McKellar. All directors
serve on the committee and the Chair
of the board’s remuneration and the
additional sum payable to the Chair
of the audit committee are discussed
without the involvement of the directors
concerned. The committee determines
the company’s remuneration policy and
determines the remuneration of each
director within the terms of that policy.
The Directors’ Remuneration Report
starts on page 52.
The terms of reference for each of
the committees may be viewed
by shareholders on request and
are published on the company’s
website www.merchantstrust.co.uk.
Internal control
The directors have overall responsibility
for the company’s system of internal
control. Whilst acknowledging their
responsibility for the system of internal
control, the directors are aware that
such a system is designed to manage
rather than eliminate the risk of failure
to achieve business objectives and
can provide only reasonable but not
absolute assurance against material
misstatement or loss.
The board has established an ongoing
process for identifying, evaluating and
managing the significant risks faced
by the company. This process has been
fully in place throughout the year under
review and up to the date of the signing
of this Annual Report.
The key elements of the process are
as follows:
– In addition to the review of the key
risks (see page 32), the directors
regularly review all the risks on the
Risk Map and every six months the
board receives from the manager a
formal report which details any known
internal control failures, including
those that are not directly the
responsibility of the manager.
– Allianz Global Investors UK Limited
(AllianzGI UK), as the appointed
manager, provides investment
management, accounting and
company secretarial services to the
company. The manager therefore
maintains the internal controls
associated with the day-to-day
operation of the company. These
responsibilities are included in the
Management and Administration
Agreement between the company and
the manager. The manager’s systems
of internal control are regularly
evaluated by its management and
monitored by the manager’s internal
audit function.
– There is a regular review by the
board of asset allocation and any risk
implications. There are also regular
and comprehensive reviews by the
board of management accounting
information, including revenue and
expenditure projections, actual
revenue against projections and
performance comparisons.
– Authorisation and exposure limits are
set and maintained by the board.
– The board meets with senior
representatives of AllianzGI and also
receives an internal controls report
from the manager, together with
a report on compliance with the
manager’s anti-bribery policy.
– The audit committee on behalf
of the board reviews the internal
controls reports of other third party
service providers, including those of
AllianzGI and all other providers of
administrative and custodian services
to AllianzGI or directly to the company.
The directors confirm that the
audit committee has reviewed the
effectiveness of the system of internal
control, which it has found to be
appropriate. During the course of its
review of the system of internal control,
the board has not identified nor been
advised of any failings or weaknesses
which it has determined to be significant.
In the Annual Report for the year
commencing 1 February 2027 the
board will be required to report on
the effectiveness of material controls.
There is no expectation that making this
declaration will require any significant
change to the processes or procedures
already performed by the board.
Board attendance
Attendance by the directors at formal board and committee meetings during the year was as follows:
Director Board
Board
strategy
meeting
Audit
committee
Remuneration
committee
Nomination
committee
Management
engagement
committee
Colin Clark 6/6 1/1 2/2
1
1/1 1/1 1/1
Timon Drakesmith
2
2/6 - 1/2 1/1 1/1 -
Lisa Edgar 5/6 1/1 2/2 1/1 1/1 1/1
Neil Galloway
3
4/6 1/1 1/2 - - 1/1
Karen McKellar 6/6 1/1 2/2 1/1 1/1 1/1
Mal Patel 6/6 1/1 2/2 1/1 1/1 1/1
1
Invited to attend meetings, although not a committee member.
2
Retired from the board on 20 May 2025.
3
Appointed to the board 1 July 2025.
49
GOVERNANCE
Role of the committee
The management engagement
committee reviews the investment
management agreement and monitors
the performance of the manager for
the investment, secretarial, financial,
administration, marketing and support
services that it provides under that
agreement. It also reviews the terms of
the agreement including the level and
structure of fees payable, the length
of notice period and best practice
provisions generally.
Composition of the committee
All the directors are members of the
committee. The terms of reference
can be found on the website
at www.merchantstrust.co.uk.
Manager evaluation process
The committee met once during the year
for the purpose of the formal evaluation
of the manager’s performance. For the
purposes of its ongoing monitoring, the
board receives detailed reports and
views from the portfolio manager on
investment policy and strategies, asset
allocation, stock selection, attributions,
portfolio characteristics, gearing
and risk. The board also assesses the
manager’s performance against the
investment controls set by the board.
Portfolio performance information is set
out on page 15.
AIFM
Details of the current AIFM, Allianz
Global Investors UK Limited (‘AllianzGI
UK’), are on page 84. AllianzGI UK
is authorised and regulated by the
Financial Conduct Authority, with its
registered office at 199 Bishopsgate,
London EC2M 3TY.
Manager reappointment
The annual evaluation that took place
in March 2026 included the noting of
a presentation from AllianzGI’s Head
of Investment Trusts and the portfolio
manager. This covered the work done
with the board on strategy and the
integrated sales and marketing activity,
including the work with investment
platforms and wealth managers. During
the year the manager also provided
information on its succession plans.
The evaluation of the management
arrangements also considered the
manager’s fee in relation to the
peer group.
The results of a detailed questionnaire
evaluating the manager completed by
the directors was also reviewed by the
committee. The committee concluded
that the manager was performing well
against the requirements set by the
board and that it was satisfied with the
performance of the investment manager,
the support from the management
company and the interaction of the
management company with the board.
The committee noted that a visit by the
board to AllianzGI’s office in Frankfurt
had been a valuable exercise to meet
AllianzGI senior management and useful
for due diligence.
The board then met and concluded that
in its opinion the continuing appointment
of the manager on the terms agreed
was in the interests of shareholders
as a whole and recommended this to
the board.
Note 2 on page 70 provides
detailed information in relation to the
management fee.
Committee evaluation
The activities of the management
engagement committee were
considered as part of the board
evaluation process completed in
accordance with standard governance
arrangements as summarised on page
47. The conclusion from the process
was that the committee was operating
effectively, with the right balance of
membership and skills.
Colin Clark
Chair of the management
engagement committee
1 April 2026
Management Engagement Committee Report
Colin Clark
50
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Activities of the committee
The committee met during the year
and considered, in accordance with its
terms of reference, the structure, size and
composition of the board and satisfied
itself regarding succession planning,
making recommendations to the board.
The committee also discussed the results
of the board and committee evaluation
exercise, which covered the structure and
size of the board and its composition
particularly in terms of succession
planning and the experience and skills
of the individual directors and the topic
of board diversity.
The committee notes that all the
directors are independent of the
manager. In the opinion of the board,
each of the directors is independent in
character and judgement and there
are no relationships or circumstances
relating to the company that are likely to
affect their judgement.
Recruitment of new directors follows
procedures for board succession
including the appointment of external
consultants and a specification to
draw as wide a shortlist as possible
taking account of the wish to retain a
diverse and balanced board. One new
appointment was made to replace a
director who retired from the board
in May 2025. Sapphire Partners was
appointed to conduct the search and
Neil Galloway was appointed on
1 July 2025. New directors follow a
detailed induction programme run by
the manager.
The latest board effectiveness review
exercise took place in March 2026
and was internally facilitated by the
Chair and Company Secretary. An
effectiveness review was last conducted
in March 2025. In March 2026, detailed
surveys covering a wide number of topics
relating to the board, the Chairman,
the directors individually and the board
committees were completed by each of
the directors and the outcome reported
to the committee by the Chairman,
except for the report relating to the
Chairman which was conducted by
the Senior Independent Director and
reported to the committee by her. The
exercise also covered a review of the
relationship and interaction with the
manager, AllianzGI UK. The results of this
review were that the board, its directors
and its committees are effective.
The review identified the continuing
importance of focusing on marketing
challenges. The results of the review
of the Chairman were reported to the
committee, and this concluded that the
Chairman continued to be highly rated.
Colin Clark
Chair of the nomination committee
1 April 2026
Role of the committee
The nomination committee leads the
process for board appointments and
makes nomination recommendations
to the board. The committee reviews
and makes recommendations on board
structure, size and composition, the
balance of knowledge, experience,
skill ranges and diversity and considers
succession planning and tenure policy.
Composition of the committee
All directors are members of the
committee, and its terms of reference
can be found on the website at www.
merchantstrust.co.uk. Individual directors
are not involved in decisions connected
with their own appointments.
Nomination Committee Report
Colin Clark
51
GOVERNANCE
Remuneration Committee Report
Composition
All the independent directors are members of the committee and its terms of
reference can be found on the website at www.merchantstrust.co.uk.
Role
The committee leads the process for fixing directors’ remuneration and makes
recommendations to the board.
Activities
The committee’s activities are set out in the report from the committee which follows.
The Directors’ Remuneration Report
This is the Directors’ Remuneration Report for the year. The report is submitted in
accordance with the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 for the year ended 31 January 2026.
An ordinary resolution for the approval of the Directors’ Remuneration Policy Report
was first put to a binding shareholder vote at the Annual General Meeting (AGM) in
2014 and was placed before shareholders for approval at the AGMs in 2017, 2020
and 2023. It will next be put to shareholders at the AGM in 2026.
The results of the vote at the 2023 AGM for this resolution were: In favour 98.52%,
against 1.48% and 95,270 shares were withheld (in aggregate, 14,421,950 votes).
The results of the advisory vote at the 2025 AGM for the resolution to approve the
Implementation Report were as follows: In favour 98.28%, against 1.72% and 268,478
shares were noted as votes withheld (in aggregate 18,202,240 votes). The Directors’
Remuneration Implementation Report is to be put to the AGM, annually, as an
advisory shareholder vote.
The information provided in this part of the Directors’ Remuneration Report is not
subject to audit unless specified below.
The board
The board of directors is composed solely of non-executive directors and the
determination of the directors’ fees is guided by the remuneration policy (see below)
and the recommendations of the remuneration committee which is made up of the
independent directors. The board has not been provided with advice or services by
any person to assist it to make its remuneration decisions, although the directors carry
out reviews from time to time of the fees paid to the directors of other investment
companies in the peer group and review annual data on non-executive directors’ pay
in the investment trust industry.
Directors’ shareholdings and share interests (audited)
The interest of the directors at the year end in the ordinary share capital of the
company are set out below:
2026 2025
Colin Clark 10,000 10,000
Timon Drakesmith
1
- 15,000
Lisa Edgar 998 998
Neil Galloway
2
8,000 -
Karen McKellar 8,000 8,000
Mal Patel 400 400
1
Retired from the board 20 May 2025.
2
Appointed to the board 1 July 2025.
I am pleased to present
the report of the
remuneration committee
for the year ended 31
January 2026.
Karen McKellar
52
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
The company’s Articles provide for directors to hold qualifying shares in the nominal amount of £100, i.e., currently 400 shares.
Directors’ remuneration policy
No director has a service contract with the company. The company’s policy is for the directors to be remunerated in the form of
fees, payable monthly in arrears. There are no long-term incentive schemes, bonuses, pension benefits, share options or other
benefits and fees are not related to the individual director’s performance, nor to the performance of the board as a whole.
The company’s Articles limit the aggregate fees payable to the board of directors to a total of £250,000 per annum. Subject to
this overall limit, it is the board’s policy to determine the level of directors’ fees having regard to the level of fees payable to non-
executive directors in the investment trust industry generally, the roles that individual directors fulfil, and the time committed to the
company’s affairs. The board believes that levels of remuneration should be sufficient to attract and retain non-executive directors
with the requisite knowledge and experience to oversee the company.
Directors are entitled to be reimbursed for any reasonable expenses properly incurred by them in connection with the performance
of their duties and attendance at meetings. There are no agreements between the company and its directors concerning
compensation for loss of office.
The company’s Articles also provide that additional discretionary payments can be made for services which in the opinion of the
directors are outside the scope of the ordinary duties of a director. In the year under review no such payments were made.
This directors’ remuneration policy is the same in all material respects as that currently followed by the board and summarised in
the last Directors’ Remuneration Report and approved by the shareholders at the Annual General Meeting held on 18 May 2023.
The company has no employees and consequently has no policy on the remuneration of employees.
The board will consider, where raised, shareholders’ views on directors’ remuneration. No comments have been received on this
subject in the past year.
Annual Statement and Directors’ Remuneration Implementation Report
Directors’ emoluments (audited)
The policy is to review directors’ fee rates from time to time, but reviews will not necessarily result in a change to the rates.
In the year under review the directors were paid at a rate of £30,000 per annum, with an additional £7,000 for the Chair of the Audit
Committee, and the Chairman was paid at a rate of £45,000 per annum. The current fees have applied since 1 February 2025.
The fees were reviewed in March 2026. In the context of industry data reviewed, the committee considered the current level of
directors’ fees and the work undertaken during the year by the directors. Having considered these factors, the committee agreed
that a modest increase would be appropriate and it has been agreed to increase the fees with effect from 1 February 2026. The
Chairman will be paid £47,500 p.a., the directors will be paid £32,000 p.a., and an additional fee of £7,000 p.a. will be paid to the
Chair of the Audit Committee.
The directors’ emoluments during the year and in the previous year, all of which were in the form of fixed remuneration with no
additional variable pay in 2026 or 2025, and were in the form of fees, were as follows:
2026
Directors’ fees
£
2026
Expenses
£
2026
1
Total
£
2025
Directors’ fees
£
2025
Expenses
£
2025
1
Total
£
Colin Clark 45,000 - 45,000 42,500 - 42,500
Timon Drakesmith
2
11,242 - 11,242 35,000 - 35,000
Lisa Edgar 30,000 1,739 31,739 28,500 1,904 30,404
Neil Galloway
3
17,500 - 17,500 - - -
Karen McKellar 30,000 194 30,194 28,500 - 28,500
Mal Patel 34,920 - 34,920 26,125 - 26,125
Sybella Stanley
4
- - - 4,019 - 4,019
168,662 1,933 170,595 164,644 1,904 166,548
1
Travel and subsistence expenses incurred in attending board and committee meetings.
2
Retired from the board 20 May 2025.
3
Appointed to the board 1 July 2025.
4
Retired from the board 21 March 2024.
53
GOVERNANCE
2026
£
% change
from
2025 to
2026
2025
£
% change
from
2024 to
2025
2024
£
% change
from
2023 to
2024
2023
£
% change
from
2022 to
2023
2022
£
% change
from
2021 to
2022
2021
£
Chairman 45,000 5.9 42,500 1.2 42,000 3.7 40,500 1.9 39,750 0.0 39,750
Audit Chair 37,000 5.7 35,000 2.9 34,000 3.0 33,000 2.3 32,250 0.0 32,250
Independent Director 30,000 5.3 28,500 1.8 28,000 3.7 27,000 1.9 26,500 0.0 26,500
Any increase in pay was effective from 1 February in any given year.
There are no other benefits to report.
Analysis of pay against distributions
A table showing actual expenditure by the company on remuneration and distributions to shareholders for the year and the prior
year is below:
Expenditure by the company on remuneration and distributions to the shareholders
2026
£
2025
£
Remuneration paid to all directors 168,662 164,644
Distributions to shareholders 43,340,000 42,576,000
The disclosure is a statutory requirement, however the directors do not consider that the comparison of directors’ remuneration
with distributions to shareholders is a meaningful measure of the company’s overall performance.
Performance graph
The graph below measures the company’s share price and Net Asset Value performance against its benchmark index of the FTSE
All-Share Index and is re-based to 100.
The company’s performance is measured against the FTSE All-Share Index as this is the most appropriate comparator in respect
of its asset allocation. An explanation of the company’s performance is given in the Chairman’s Statement and the Investment
Manager’s Review.
Total shareholder return for the ten years to 31 January 2026
Signed on behalf of the board
Karen McKellar
Chair of the remuneration committee
1 April 2026
Source: AllianzGI / Datastream in GBP. Figures have been rebased to 100 as at January 2016.
The Merchants Trust
(NAV Total Return with
debt at fair value)
The Merchants Trust
(Share Price Total Return)
FTSE 100 until January
2017 and FTSE All-Share
thereafter (Total Return)
300
200
100
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
%
54
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Composition
I succeeded Timon Drakesmith as audit committee chair on 21 May 2025 and I would
like to thank Timon for his previous leadership of the committee. Timon retired from
the board and the committee at the AGM on 20 May 2025. Neil Galloway joined the
committee on his appointment to the board on 1 July 2025. The audit committee
consists of all of the independent non-executive directors, with the exception of the
Chairman of the board. The committee considers that, collectively, its members have
sufficient recent and relevant financial experience to discharge their responsibilities
fully. I am a chartered accountant and have held senior finance roles across a variety
of businesses.
Role
The principal role of the audit committee is to assist the board in relation to
the reporting of financial information, the review of financial controls and the
management of risk. The committee has defined terms of reference and duties and
the terms of reference are published on the company’s website. These include:
– responsibility for the review of the Annual Report and the Half-yearly Report;
– consideration of the nature and scope of the external audit and the findings
therefrom; and
– consideration of the terms of appointment of the Auditor, including their
remuneration and the provision of any non-audit services by them.
Activities
During the year the committee had two regular meetings during which the Annual
Report and the Half-yearly Report respectively were reviewed in detail. The regular
meetings were attended by representatives of the manager, including its compliance
and risk departments. At each regular meeting the committee received reports on the
operation of financial controls relating to the company and the proper conduct of its
business in accordance with the regulatory environment in which both the company
and the manager operate. At the meeting following the year end the committee also
considered the Auditor’s report on the audit findings, the process of the audit and the
Auditor’s independence and objectivity. The audit committee reviews the company’s
accounting policies with the manager and considers their appropriateness. The
committee also reviews the terms of appointment of the Auditor together with
their remuneration.
Matters considered by the audit committee in the year
Controls oversight
In the prior year we reported on the monitoring of the NAV calculations performed
by a third-party service provider and the actions taken to prevent errors. During the
last year AllianzGI, continued to report to the board and audit committee on the due
diligence performed with the service provider. The audit committee will continue to
monitor this progress closely.
The risk that income from the portfolio of investments was not correctly recognised
and accounted for
The committee noted that the board receives income forecasts throughout the year
and is able to compare these against actual income received. The committee has also
received assurances from the manager that the company’s stated accounting policies,
which are set out on pages 68 and 69, were noted and adhered to. For example,
each special dividend received is considered by the board at its meetings and is
treated as a capital or revenue item depending on the facts or circumstances of each
dividend. The board also receives reports on the impact of currency movements on
the portfolio revenue.
I am pleased to present
the report of the audit
committee for the year
ended 31 January 2026.
Audit Committee Report
Mal Patel
55
GOVERNANCE
Risks around the valuation and the
ownership of investments and risks of
management override
The company’s assets are principally
invested in UK listed equities traded on
major exchanges. The committee notes
that investments are valued using stock
exchange prices provided by third party
financial data vendors. During the year
the committee reviewed internal controls
reports from the manager concerning
the systems and controls around the
pricing and valuation of securities.
Risk
Although the board has ultimate
responsibility for the management
of risk, the audit committee assists by
monitoring the formal reports from
the manager and third party service
providers’ reports on internal controls.
The committee reviewed its approach
to the risk management process and
concluded that existing processes
were adequate to ensure that its
assessment of risk is robust and of
sufficient frequency.
A Risk Map is reviewed at each of the
committee’s meetings. We consider
whether new risks should be added
or existing risks removed, assess their
likelihood of occurring and potential
scale, review the mitigating actions and
assess the residual risk against what we
regard as acceptable ‘risk appetite’.
Assurance over mitigating actions in
relation to these risks is provided in a
series of reports from all the third party
service providers.
Resulting from the work of the audit
committee, certain key risks are
identified for disclosure and discussion
in our Annual Report. We have also
assessed residual risks after controls and
mitigating actions have been applied
and have evaluated if our risk appetite
has been satisfactorily addressed. The
principal risks are in relation to portfolio,
business and operational matters. The
risks identified together with mitigating
actions are set out in the Strategic
Report from page 32.
Viability Statement
Based on the above review of risk,
including the chief risks around
investment performance and market
volatility and the arrangements in place
to manage and mitigate these risks,
the committee reviewed a paper that
supported the board’s conclusion, set
out on page 35 in the strategic report,
of their reasonable expectation that the
company is viable in the longer term,
assessed as the next five years.
Internal audit and
internal controls
The audit committee continues to
believe that the company does not
require an internal audit function of
its own as it delegates its day to day
operations to third parties from whom it
receives internal controls reports.
AllianzGI will be transitioning its back
office services to a new service provider.
The committee will be receiving regular
additional reporting from AllianzGI on
the management and controls of the
transition to gain additional assurance
during this change.
Assessment of fair, balanced
and understandable
The audit committee and then the whole
board reviewed the entire Annual Report
and noted all the supporting information
received. It then considered whether the
Annual Report satisfactorily reflected
a true picture of the company and its
activities and performance in the year,
with a clear link between the relevant
sections of the report and concluded
that it did so. The directors were then
able to confirm that the Annual Report,
taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the company’s position
and performance, business model
and strategy.
Review of disclosure
and communication
At our meetings the audit committee
reviews whether we are following best
practice in our disclosure and whether
we believe we are communicating
clearly. In order to assist us we receive
reports on current and future changes
to regulatory and accounting reporting
from the manager and Auditor.
During the year we carried out further
reviews of the format and content to
refresh and invigorate the Annual Report
to continue to ensure it is appealing and
informative to readers.
Whistleblowing
As the company has no employees
it does not have a formal policy
concerning the raising, in confidence,
of any concerns about improprieties,
whether in matters of financial
reporting or otherwise, for appropriate
independent investigation. The
audit committee has, however,
received and noted the manager’s
policy on this matter. Any matters
concerning the company may be
raised with the Chairman or the Senior
Independent Director.
Financial Report and review
with Auditor
The audit committee met with the
Auditor at the half-year point to discuss
the audit plan for the year and identify
the significant issues to be dealt with in
the review of the year end results. The
committee then met with the Auditor
following the year end to discuss the
results of the audit.
These and other matters, identified as
posing lesser risk, were considered and
discussed with the manager and the
Auditor as part of the year end process.
We also agreed the degree of
materiality that the Auditor would
apply in their work, which is £9.6 million,
or about 1% of net assets, although
the Auditor would bring to the audit
committee’s attention any significant
misstatements below that level.
56
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Auditor tenure and
Auditor reappointment
This is BDO LLP’s eighth year as the
company’s independent Auditor. The
company is subject to mandatory
Auditor rotation requirements and so
will put the external audit out to tender
at least every ten years and change
Auditor at least every twenty years. The
next tender will therefore be required no
later than 2028. The Auditor is required
to rotate partners every five years and
Chris Meyrick has led the audit for three
years as Audit Partner.
Change of Auditor
Due to the regulatory requirement for
the Company to carry out an audit
tender no later than 2028, the Board
took the decision to undertake an
audit tender process during 2025. The
Committee invited four firms to tender
for the audit and received presentations
from three of these. These firms all
had the required skills and resources.
Each presented and was evaluated on
a number of criteria. All members of
the Audit Committee and Colin Clark
were present when the audit firms
presented their tender and were in
agreement with regards to the choice
of company to be recommended
to the Board for approval. The
Board subsequently approved the
Committee’s recommendation, and
PricewaterhouseCoopers LLP will be
proposed at the forthcoming AGM to be
appointed as auditors of the Company
for the 2027 audit.
The audit and its effectiveness
The committee reviewed the terms of
appointment of the Auditor, monitored
the audit process, assessed the Auditor’s
independence, objectivity and the
effectiveness of the audit process,
including the provision of non-audit
services by the firm, and determined that
they have had no impact on the Auditor’s
independence and objectivity.
As part of the review of the Auditor, the
members of the committee and those
representatives of the manager involved
in the audit process reviewed and
considered a number of areas including:
the reputation and standing of the
audit firm; the audit processes, evidence
of partner oversight and external
information about the firm; the skills,
experience and specialist knowledge of
the audit team, particularly relating to
investment trusts; audit communication
including details of planning, information
on relevant accounting and regulatory
developments, and recommendations on
corporate reporting; the reasonableness
of audit fees; and the Financial
Reporting Council’s Audit Quality Report
on BDO LLP for 2024/25.
The committee was satisfied that the
audit process was effective for the year
under review.
The committee considered the
representations made by the
Auditor and sought comments from
representatives of the manager on
the provision of services by the Auditor
and the effectiveness of the external
audit. The audit committee believes
that the performance of the Auditor
was satisfactory.
Non-audit services
Non-audit services relate to reporting
in connection with the covenants
under the bond trust deeds and the
audit committee agreed that it was
appropriate that the company’s
Auditor should be asked to provide
these services.
Fees accrued in the year that related to
non-audit services were £6,000 (2025:
£5,000). Non-audit services of £5,000
were accrued in the prior year in relation
to the issue of the 2040 Loan Notes.
Mal Patel
Chair of the audit committee
1 April 2026
57
GOVERNANCE
Statement of directors’ responsibilities
in respect of the financial statements
The directors are responsible for
preparing the Annual Report, the
Directors’ Remuneration Report and the
financial statements in accordance with
applicable law and regulations.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law the
directors have prepared the financial
statements in accordance with United
Kingdom Generally Accepted Accounting
Practice including FRS 102 ‘The Financial
Reporting Standard applicable in the UK
and Republic of Ireland’ (UK Accounting
Standards and applicable law). Under
company law the directors must not
approve the financial statements unless
they are satisfied that they give a true
and fair view of the state of affairs of
the company and of the profit of the
company for that period. In preparing
these financial statements, the directors
are required to:
– select suitable accounting policies and
then apply them consistently;
– state whether applicable UK
Accounting Standards have been
followed, comprising FRS 102,
subject to any material departures
disclosed and explained in the
financial statements;
– make judgements and accounting
estimates that are reasonable and
prudent; 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 confirm that they have
complied with the above requirements in
preparing the financial statements.
The directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the company
and enable them to ensure that the
financial statements and the Directors’
Remuneration Report comply with
the Companies Act 2006. They are
also responsible for safeguarding the
assets of the company and hence
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The directors each have a duty to make
themselves aware of any ‘relevant
audit information’ and ensure that the
Auditor has been made aware of that
information. A disclosure stating that
each director has complied with that
duty is given in the Directors’ Report on
page 44.
The directors are responsible for
ensuring that the Annual Report,
taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the company’s position
and performance, business model
and strategy.
The financial statements are published
on www.merchantstrust.co.uk, which
is a website maintained by the
company’s investment manager,
AllianzGI. The directors are responsible
for the maintenance and integrity
of the company’s website. The work
undertaken by the Auditor does
not involve consideration of the
maintenance and integrity of the website
and, accordingly, the Auditor accepts no
responsibility for any changes that have
occurred to the financial statements
since they were initially presented on the
website. Visitors to the website need to
be aware that legislation in the United
Kingdom governing the preparation
and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Statement under Disclosure and
Transparency Rule 4.1.12
The directors at the date of approval of
this report, each confirm to the best of
their knowledge that:
– the financial statements, prepared
in accordance with applicable
accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit of
the company;
– the Strategic Report includes a fair
review of the development and
performance of the business and the
position of the company, together with
a description of the principal risks and
uncertainties that they face; and
– the Annual 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
position and performance, business
model and strategy.
For and on behalf of the board
Colin Clark
Chairman
1 April 2026
58
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026
Independent Auditor’s Report to the members of
The Merchants Trust PLC
Opinion
In our opinion the financial statements:
– give a true and fair view of the state of the Company’s affairs as
at 31 January 2026 and of its profit and cash flows for the year
then ended;
– have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
– have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of The Merchants
Trust PLC (the ‘Company’) for the year ended 31 January 2026
which comprise Income Statement, Statement of Changes
in Equity, Balance Sheet, Cash Flow Statement and Notes to
the Financial Statements, including Statement of Accounting
Policies. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard
102 The Financial Reporting Standard applicable in the UK
and Republic of Ireland (United Kingdom Generally Accepted
Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remain independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services prohibited by FRC’s Ethical
Standard were not provided to the Company and we remain
independent of the Company in conducting our audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the Directors’ assessment of the Company’s ability to
continue to adopt the going concern basis of accounting included:
– Evaluating the appropriateness of the Directors’ method of
assessing the going concern in light of economic and market
conditions by reviewing the information used by the Directors in
completing their assessment;
– Evaluating the sensitivity analysis applied by the Directors
in their going concern assessment including the impact of a
significant reduction in the fair value of investments;
– Assessing the appropriateness of the Directors’ assumptions
and judgements made in their base case and stress tested
forecasts including consideration of the available cash
and liquid assets relative to forecast expenditure and
other commitments;
– Challenging the Directors’ assumptions and judgements made
in their forecasts by performing an independent analysis of the
liquidity of the portfolio; and
– Reviewing the disclosures in the financial statements relating
to going concern to assess whether they are consistent with the
Company’s circumstances.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s ability to continue as a going concern for a period of
at least twelve months from when the financial statements are
authorised for issue. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company’s ability to continue as a going concern.
In relation to the Company’s reporting on how it has applied the
UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the Directors’ statement in
the financial statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of
this report.
Overview
Key audit matters 2026 2025
Valuation and ownership of investments ✓ ✓
Revenue recognition ✓ ✓
Materiality
Company financial statements as a whole
£9.64m (2025: £8.49m) based on 1% (2025: 1%) of net assets
59
FINANCIAL STATEMENTS
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its environment, the applicable financial reporting
framework and the system of internal control. We identified and assessed the risks of material misstatement of the financial statements.
We then applied professional judgement to focus our audit procedures on the areas that posed the greatest risk of material
misstatement to the financial statements. We continually assessed risks throughout our audit, revising the risks where necessary, with the
aim of reducing the risk of material misstatement to an acceptable level, to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit,
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How the scope of our audit addressed the key
audit matter
Income recognition – Dividend income from
investments
(Note 1 on page 70)
Revenue is a key indicator of performance of the
Company. A significant portion of the Company’s
income relates to dividend income from investments.
Judgement may be required by management in
determining the allocation of dividend income to
revenue or capital for certain corporate actions or
special dividends.
Taking the above into account, there may be an
incentive to recognise dividend income as revenue
where it is more appropriately of a capital nature.
For this reason, we considered income recognition
– dividend income from investments to be a Key
Audit Matter.
We responded to this matter by considering corporate actions
and special dividends identified and challenged whether these
had been appropriately accounted for as revenue or capital
by discussing with management and reviewing the underlying
supporting documentation for the issue of the dividend and
whether it could be driven by a capital event.
We analysed the population of dividend receipts to identify
any unusual items that could indicate a capital distribution, for
example where a dividend represents a particularly high yield.
In these instances, we performed a combination of enquiry of
management and our own independent research, including
inspection of financial statements and dividend announcements
of investee companies, to ascertain whether the underlying event
may be of a capital nature.
Key observations:
Based on our procedures performed we found the judgements
made by management in determining the allocation of dividend
income to revenue or capital to be appropriate.
Valuation and ownership of investments
(Note 8 on page 74)
The investment portfolio at the year-end comprised
quoted equity.
We considered the valuation and ownership
of investments to be a significant audit area as
investments represent the most significant balance in
the financial statements and underpins the principal
activity of the Company.
While we do not consider the valuation of quoted
investments to involve a significant degree of
estimation or judgement, there is a risk that the prices
used for the quoted investments held by the Company
may not reflect their fair value at the year end.
Additionally, in relation to ownership and recording,
there is a risk of error in the recording of quoted
investment holdings which could result in the incorrect
recognition of investments by the Company.
For these reasons, and due to the materiality of the
balance in the context of the financial statements as a
whole, we consider this to be a Key Audit Matter.
We responded to this mater by testing the valuation and
ownership of 100% of the quoted investments by performing the
following procedures:
– Checked that the year-end bid price has been used by
agreeing to externally quoted prices;
– Recalculated the valuation by multiplying the number of
shares held (as per the statement independently obtained
from the custodian), by the price per share;
– Recalculated the valuation of the fixed interest instruments by
multiplying the units held (as per the statement independently
obtained from the custodian), by the price per unit;
– Assessed whether there were any contra indicators, such as
liquidity considerations, that could suggest the bid price was
not the most appropriate measure of fair value by considering
the realisation period for individual holdings; and
– Obtained direct confirmation of the number of equity shares
and fixed interest units held from the custodian.
Key observations:
Based on our procedures performed, we did not identify any
matters to suggest that the valuation or ownership of the quoted
equity and fixed income investments were not appropriate.
60
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality
as follows:
Company financial statements: 2026 2025
Materiality £9.64m £8.49m
Basis for determining materiality 1% of Net assets
Rationale for the benchmark applied As an investment trust, the net asset value is the key measure of
performance for users of the financial statements
Performance materiality £7.23m £6.37m
Basis for determining performance materiality 75% of materiality
Rationale for the percentage applied for
performance materiality
The level of performance materiality applied was set after having
considered a number of factors including the expected total value of
known and likely misstatements and the level of transactions in the year.
Specific materiality
We also determined that for Revenue return before taxation, a misstatement of less than materiality for the financial statements as a
whole, specific materiality, could influence the economic decisions of users as it is a measure of the Company’s performance of income
generated from its investments after expenses. As a result, we determined materiality for these items to be £2.51m (2025: £2.24m),
based on 5% of ‘Revenue return before taxation’ (2025: 5% of ‘Revenue return before taxation’). We further applied a performance
materiality level of 75% (2025: 75%) of specific materiality to ensure that the risk of errors exceeding specific materiality was
appropriately mitigated.
Reporting threshold
We agreed with the Audit and Risk Committee that we would report to them individual audit differences in excess of £482,000 (2025:
£424,000). In addition, for items impacting ‘Revenue return before taxation’, we agreed that we would report individual audit differences
in excess of £125,000 (2025: £112,000). We also agreed to report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The UK Listing Rules sourcebook requires us to review the Directors’ statement in relation to going concern, longer-term viability and
that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.
61
FINANCIAL STATEMENTS
Going concern and longer-term viability
– The Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 37;
– The Directors’ explanation as to their assessment of the
Company’s prospects, the period this assessment covers and
why the period is appropriate set out on page 35; and
– The Directors’ statement on whether they have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities set out on page 37.
Other Code provisions
– Directors’ statement on fair, balanced and understandable set
out on page 56;
– Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 56;
– The section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 49; and
– The section describing the work of the audit committee set out
on page 55.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions
and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of
the audit:
– the information given in the Strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the Strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the strategic report or the
Directors’ report.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
– adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches
not visited by us; or
– the financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with
the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
However, the primary responsibility for the prevention and
detection of fraud rests with both Those Charged with
Governance of the Company and management.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below:
Non-compliance with laws and regulations
Based on:
– Our understanding of the Company and the industry in which
it operates;
– Discussion with the Investment Manager and Those Charged
with Governance; and
– Obtaining an understanding of the Company’s policies and
procedures regarding compliance with laws and regulations
we considered the significant laws and regulations to be the
Companies Act 2006, the FCA’s UK Listing and Disclosure
Guidance and Transparency Rules, the principles of the AIC
Code of Corporate Governance, industry practice represented
by the AIC SORP, the applicable accounting framework, and
qualification as an Investment Trust under UK tax legislation as
any non-compliance of this would lead to the Company losing
various deductions and exemptions from corporation tax.
62
Our procedures in respect of the above included:
– Agreement of the financial statement disclosures to underlying
supporting documentation;
– Enquiries of the Investment Manager, Administrator and Those
Charged with Governance relating to the existence of any non-
compliance with laws and regulations;
– Reviewing minutes of meetings of Those Charged with
Governance throughout the period for instances of non-
compliance with laws and regulations; and
– Reviewing the calculation in relation to Investment Trust
compliance to check that the Company was meeting its
requirements to retain their Investment Trust status.
Fraud
We assessed the susceptibility of the financial statements to
material misstatement including fraud.
Our risk assessment procedures included:
– Enquiry with the Investment Manager, Administrator and Those
Charged with Governance regarding any known or suspected
instances of fraud;
– Obtaining an understanding of the Company’s policies and
procedures relating to:
– Detecting and responding to the risks of fraud; and
– Internal controls established to mitigate risks related to fraud.
– Review of minutes of meetings of Those Charged with
Governance for any known or suspected instances of fraud; and
– Discussion amongst the engagement team as to how and
where fraud might occur in the financial statements.
Based on our risk assessment, we considered the areas most
susceptible to fraud to be income recognition – dividend income
from investments and management override of controls.
Our procedures in respect of the above included:
– In addressing the risk of income recognition – dividend income
from investments, the procedures set out in the Key Audit
Matters section in our report were performed;
– In addressing the risk of management override of controls, we:
– Performed a review of estimates and judgements applied
by the Directors in the financial statements to assess their
appropriateness and the existence of any systematic bias;
– Considered the opportunity and incentive to manipulate
accounting entries and assessed the appropriateness of any
post-closing adjustments made in the period end financial
reporting process;
– Reviewed for significant transactions outside the normal
course of business; and
– Performed a review of unadjusted audit differences, if any, for
indications of bias or deliberate misstatement.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members
who were all deemed to have appropriate competence and
capabilities and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising
that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery, misrepresentations or through collusion. There
are inherent limitations in the audit procedures performed and
the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
auditor’s report.
Other matters which we are required to address
We were appointed by the Board of Directors on 16 May 2018
to audit the financial statements for the year ended 31 January
2019.Our total uninterrupted period of engagement is eight years,
covering the years ended 31 January 2019 to 31 January 2026.
Our audit opinion is consistent with the additional report to the
Audit and Risk Committee.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
In due course, as required by the Financial Conduct Authority
Disclosure Guidance and Transparency Rule 4.1.15R - 4.1.18R,
these financial statements will form part of the Electronic
Format Annual Financial Report filed on the National Storage
Mechanism of the FCA in accordance with DTR 4.1.15R – DTR
4.1.18R. This auditor’s report provides no assurance over whether
the Electronic Format Annual Financial Report has been prepared
in compliance with DTR 4.1.15R – DTR 4.1.18R.
Chris Meyrick (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
30 Semple Street
Edinburgh, UK
1 April 2025
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
63
FINANCIAL STATEMENTS
Income Statement
for the year ended 31 January 2026
Notes
2026
Revenue
£’000s
2026
Capital
£’000s
2026
Total Return
£’000s
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total Return
£’000s
Gains on investments held at fair value through
profit or loss
8 - 123,695 123,695 - 66,566 66,566
Losses on derivatives 9 - (438) (438) - (202) (202)
(Losses) gains on foreign currencies - (91) (91) - 43 43
Income 1 50,245 - 50,245 48,482 - 48,482
Investment management fee 2 (1,212) (2,251) (3,463) (1,160) (2,153) (3,313)
Administration expenses 3 (1,240) (5) (1,245) (1,108) (4) (1,112)
Profit before finance costs and taxation 47,793 120,910 168,703 46,214 64,250 110,464
Finance costs: interest payable and similar charges 4 (2,098) (3,816) (5,914) (2,009) (3,648) (5,657)
Profit on ordinary activities before taxation 45,695 117,094 162,789 44,205 60,602 104,807
Taxation 5 (381) - (381) (534) - (534)
Profit after taxation attributable to ordinary
shareholders
45,314 117,094 162,408 43,671 60,602 104,273
Earnings per ordinary share (basic and diluted) 7 30.58p 79.01p 109.59p 29.43p 40.84p 70.27p
Dividends in respect of the financial year ended 31 January 2026 total 29.50p (2025: 29.10p), amounting to £43,667,000 (2025:
£43,184,000). Details are set out in Note 6 on page 73.
The total return column of this statement is the profit and loss account of the company. The supplementary revenue return and
capital return columns are both prepared under the guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or
discontinued in the year.
The net profit for the year disclosed above represents the company’s total comprehensive income.
The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements.
64
Statement of Changes in Equity
for the year ended 31 January 2026
Notes
Called up
share
capital
£’000s
Share
premium
account
£’000s
Capital
redemption
reserve
£’000s
Capital
reserve
£’000s
Revenue
reserve
£’000s
Total
£’000s
Net assets at 1 February 2025 37,106 228,726 293 555,757 27,940 849,822
Revenue profit - - - - 45,314 45,314
Dividends on ordinary shares 6 - - - - (43,340) (43,340)
Capital profit - - - 117,094 - 117,094
Shares repurchased into treasury during the year 12 - - - (4,426) - (4,426)
Net assets at 31 January 2026 37,106 228,726 293 668,425 29,914 964,464
Net assets at 1 February 2024 37,081 228,174 293 495,155 26,819 787,522
Revenue profit - - - - 43,671 43,671
Dividends on ordinary shares 6 - - - - (42,576) (42,576)
Unclaimed dividends - - - - 26 26
Capital profit - - - 60,602 - 60,602
Shares issued during the year 12 25 552 - - - 577
Net assets at 31 January 2025 37,106 228,726 293 555,757 27,940 849,822
The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements.
65
FINANCIAL STATEMENTS
Notes
2026
£’000s
2026
£’000s
2025
£’000s
Fixed assets
Investments held at fair value through profit or loss 8 1,056,366 954,514
Current assets
Other receivables 10 1,463 1,891
Cash at bank and in hand 26,079 15,604
27,542 17,495
Current liabilities
Other payables 10 (1,930) (5,167)
Derivative financial instruments 9 (668) (239)
(2,598) (5,406)
Net current assets 24,944 12,089
Total assets less current liabilities 1,081,310 966,603
Creditors: amounts falling due after more than one year 11 (116,846) (116,781)
Total net assets 964,464 849,822
Capital and reserves
Called up share capital 12 37,106 37,106
Share premium account 13 228,726 228,726
Capital redemption reserve 13 293 293
Capital reserve 13 668,425 555,757
Revenue reserve 13 29,914 27,940
Equity shareholders’ funds 14 964,464 849,822
Net asset value per ordinary share 14 653.3p 572.6p
The financial statements of The Merchants Trust PLC on pages 64 to 67 were approved and authorised for issue by the board
of directors on 1 April 2026 and signed on its behalf by:
Colin Clark
Chairman
Balance Sheet
at 31 January 2026
The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements.
66
Notes
2026
£’000s
2025
£’000s
Operating activities
Profit before finance costs and taxation
1
168,703 110,464
Less: gains on investments held at fair value (123,695) (67,746)
Add: losses on derivatives 429 182
Proceeds from special dividend credited to capital
2
- 565
Add (less): losses (gains) on foreign currency 91
(43)
Purchase of fixed asset investments held at fair value through profit or loss (287,031) (221,421)
Sales of fixed asset investments held at fair value through profit or loss 306,614 212,511
Transaction costs (1,319) (1,180)
Decrease in other receivables 388 72
Increase (decrease) in other payables 382 (184)
Less: overseas tax suffered (381) (534)
Net cash inflow from operating activities 64,181 32,686
Financing activities
Interest paid (5,806) (5,845)
Issue costs in relation to the 5.91% Fixed Rate Notes 2040 - (150)
Proceeds from 5.91% Fixed Rate Notes 2040 A - 25,000
Proceeds from 5.91% Fixed Rate Notes 2040 B - 25,000
Repayment of Revolving Credit Facility - (42,000)
Dividend paid on cumulative preference stock (43) (43)
Dividends paid on ordinary shares 6 (43,340) (42,576)
Unclaimed dividends over 12 years - 26
Shares repurchased into treasury during the year (4,426) -
Share issue proceeds - 577
Net cash outflow from financing activities (53,615) (40,011)
Increase (decrease) in cash and cash equivalents 10,566 (7,325)
Cash and cash equivalents at the start of the year 15,604 22,886
Effect of changes in foreign exchange rates (91) 43
Cash and cash equivalents at the end of the year 26,079 15,604
Comprising:
Cash at bank and in hand 26,079 15,604
1
Cash inflow from dividends was £47,898,000 (2025: £46,700,000) and cash inflow from interest was £403,515 (2025: £280,000).
2
Tyman dividend paid in relation to the acquisition by Quanex Building Products.
Cash Flow Statement
for the year ended 31 January 2026
The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements.
67
FINANCIAL STATEMENTS
Statement of Accounting Policies
for the year ended 31 January 2026
The company is incorporated in the United Kingdom under the
Companies Act 2006.
The company is a public company limited by shares and
is registered in England and Wales. The address of the
company’s registered office is shown on page 40. The
company is an investment company as defined in section 833
of the Companies Act 2006.
The principal activity of the company and the nature of its
operations are set out in the Strategic Report starting on page
28. The company conducts its business so as to qualify as an
investment trust company within the meaning of sub-section
1158 of the Corporation Tax Act 2010.
The principal accounting policies are summarised below. They
have all been applied consistently throughout the year and to
the preceding year.
1 Basis of preparation – The financial statements have been
prepared under the historical cost convention, except for the
revaluation of financial instruments held at fair value through
profit or loss and in accordance with applicable United
Kingdom law and UK Accounting Standards (UK GAAP),
including Financial Reporting Standard 102 – the Financial
Reporting Standard applicable in the United Kingdom and
Republic of Ireland (FRS 102) and in line with the Statement of
Recommended Practice ‘Financial Statements of Investment
Trust Companies and Venture Capital Trusts’ issued by the
Association of Investment Companies (AIC SORP) in July 2022.
Investments and derivative financial instruments are
designated as held at fair value through profit or loss in
accordance with FRS 102 sections 11 and 12.
In order to better reflect the activities of an investment trust
company, and in accordance with guidance issued by the
AIC, supplementary information which analyses the Income
Statement between items of revenue and capital nature
has been presented alongside the Income Statement. In
accordance with the company’s Articles of Association, net
capital returns may be distributed by way of dividend.
Going concern
The directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements as the assets of the company consist mainly
of securities, which are readily realisable and significantly
exceed liabilities. Accordingly, the directors believe that the
company has adequate financial resources, to continue
in operational existence for the foreseeable future. The
directors have also considered the risks and consequences of
unanticipated shocks on the company, including geopolitical
and macroeconomic events and have concluded that the
company has the ability to continue in operation and meet
its objectives for twelve months after the approval of the
financial statements.
2 Income – Dividends received on equity shares are accounted
for on an ex-dividend basis. Foreign dividends are grossed up
at the appropriate rate of withholding tax.
Special dividends are recognised on an ex-dividend basis and
treated as a capital or revenue item depending on the facts
and circumstances of each dividend. The board reviews special
dividends and their treatment at each meeting.
Where the company has elected to receive its dividends in the
form of additional shares rather than in cash, the equivalent
of the cash dividend is recognised as income. Any excess in
the value of the shares received over the amount of the cash
dividend is recognised in capital reserves.
Deposit interest receivable is accounted for on an
accruals basis.
3 Investment management fees and administrative expenses
– The investment management fee is calculated on the
basis set out in Note 2 to the financial statements and is
charged to capital and revenue in the ratio 65:35 to reflect
the board’s investment policy and prospective split of capital
and revenue returns. The split is reviewed annually. Other
administration expenses are charged in full to revenue, except
custodian handling charges on investment transactions which
are charged to capital. All expenses are recognised on an
accrual basis.
4 Investments – As the company’s business is investing in
financial assets with a view to profiting from their total
return in the form of increases in fair value, financial assets
are designated as held at fair value through profit or loss
in accordance with FRS 102 Section 11: ‘Basic Financial
Instruments’ and Section 12: ‘Other Financial Instruments’.
The company manages and evaluates the performance of
these investments on a fair value basis in accordance with its
investment strategy, and information about the investments is
provided on this basis to the board.
Investments held at fair value through profit or loss are initially
recognised at fair value. After initial recognition, these continue
to be measured at fair value, which for quoted investments is
either the bid price or the last traded price depending on the
convention of the exchange on which the investment is listed.
Gains or losses on investments are recognised in the capital
column of the Income Statement. Purchases and sales of
the financial assets are recognised on the trade date, being
the date which the company commits to purchase or sell
the assets.
Unlisted investments are valued by the Directors based on
the latest dealing prices, stockbrokers’ valuations, net asset
values, earnings and other known accounting information in
accordance with the principles set out by the International
Private Equity and Venture Capital Valuation Guidelines issued
in December 2025.
68
5 Transaction costs – In accordance with FRS 102 section 12.7,
transaction costs are immediately expensed to the profit and
loss account and are not included in the carrying value of
investments as these are measured at fair value through the
profit and loss account.
6 Derivatives – Options may be purchased or written over
securities held in the portfolio for generating or protecting
capital returns, or for generating or maintaining revenue
returns. Where the purpose of the option is the maintenance
of capital the premium is treated as a capital item. In
accordance with FRS 102 Section 12: ‘Other Financial
Instruments’, options are valued at fair value and are
included in current assets or current liabilities in the balance
sheet. When an option is closed out or exercised the gain or
loss is accounted for as capital.
Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Premiums received
on written options are amortised to revenue over the
period to expiry. If an option is exercised early unamortised
premiums are taken to capital.
7 Finance costs – In accordance with the FRS 102 Section
11: ‘Basic Financial Instruments’ and Section 12 ‘Other
Financial Instruments’, long-term borrowings are stated at
the amortised cost, being the amount of net proceeds on
issue plus accrued finance costs to date. Finance costs are
calculated over the term of the debt on the effective interest
rate basis.
Where debt is issued at a premium, the premium is amortised
over the term of the debt on the effective interest rate basis.
Finance costs net of amortised premiums are charged to
capital and revenue in the ratio 65:35 to reflect the board’s
investment policy and the prospective split of capital and
revenue returns.
Dividends payable on the 3.65% cumulative preference stock
are classified as an interest expense and are charged in full
to revenue.
8 Taxation – Where expenses are allocated between capital
and revenue, any tax relief obtained in respect of those
expenses is allocated between capital and revenue on
the marginal basis using the company’s effective rate of
corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the
balance sheet date, where transactions or events that result
in an obligation to pay more tax or a right to pay less tax in
the future have occurred. Timing differences are differences
between the company’s taxable profits and its results as
stated in the financial statements.
A deferred tax asset is recognised when it is more likely
than not that the asset will be recoverable. Deferred tax
is measured on a non-discounted basis at the rate of
corporation tax that is expected to apply when the timing
differences are expected to reverse.
9 Foreign currency – In accordance with FRS 102 Section
30: ‘Foreign Currency Translation’, the company is required
to nominate a functional currency, being the currency in
which the company predominately operates and in which
its expenses are generally paid. The functional and reporting
currency is pounds sterling. Transactions in foreign currencies
are translated into pounds sterling at the rates of exchange
ruling on the date of the transaction. Foreign currency
monetary assets and liabilities are translated into sterling at
the rates of exchange ruling at the balance sheet date. Profits
and losses thereon are recognised in the capital column of the
income statement and taken to the capital reserve.
10 Dividends – In accordance with FRS 102 Section 32: ‘Events
After the End of the Reporting Period’, any final dividend
proposed on ordinary shares is recognised as a liability when
approved by shareholders. Interim dividends are recognised
only when paid. Dividends are paid from the revenue reserve.
11 Cash and cash equivalents – Cash comprises cash in hand
and on demand deposits. Cash equivalents include bank
overdrafts repayable on demand and short-term, highly liquid
investments, that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes
in value.
12 Shares repurchased for cancellation and for holding in
treasury – Share capital is reduced by the nominal value of
the shares repurchased, and the capital redemption reserve
is correspondingly increased in accordance with section
733 Companies Act 2006. The full cost of the repurchase is
charged to the capital reserve within gains (losses) on sales
of investments.
For shares repurchased for holding in treasury, the full cost is
charged to the capital reserve.
13 Shares sold (reissued) from treasury – Proceeds received
from the sale of shares held in treasury are treated as realised
profits in accordance with Section 731 of the Companies Act
2006. Proceeds equivalent to the original cost, calculated by
applying a weighted average price, are credited to the capital
reserve to replenish the profits available for distribution;
proceeds in excess of the original cost are credited to the share
premium account.
14 Shares issued – Share capital is increased by the nominal
value of shares issued. The proceeds in excess of the nominal
value of shares net of expenses are allocated to the share
premium account.
15 Significant judgements, estimates and assumptions – In
the application of the company’s accounting policies, which
are described above, the directors are required to make
judgements, estimates, and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources.
There are no significant judgements, estimates, and
assumptions. The investment portfolio currently consists of
listed investments and therefore no significant estimates have
been made in valuing those securities.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and
future periods.
69
FINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 31 January 2026
1. Income
2026
£’000s
2025
£’000s
Income from investments*
Equity dividends from UK investments
#
34,758 36,041
Unfranked dividends from UK investments 3,493 2,054
Equity dividends from overseas investments 10,264 9,159
48,515 47,254
Other income
Deposit interest 486 337
Premiums on derivative contracts 1,244 891
1,730 1,228
Total income 50,245 48,482
* All equity income is derived from listed investments.
#
Includes special dividends of £1,819,000 (2025: £2,062,000.)
During the year, the company received premiums totalling £1,256,000 (2025 £884,000) for writing covered call options for
the purpose of revenue generation. Premium income of £1,244,000 was amortised to income (2025: £891,000). All derivatives
transactions were based on FTSE 100 stocks or the related index. At the year end there were three open positions with a net
liability value of £668,000 (2025: £239,000).
2. Investment management fee
2026
Revenue
£’000s
2026
Capital
£’000s
2026
Total
£’000s
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
Investment management fee 1,212 2,251 3,463 1,160 2,153 3,313
Under the terms of the Management and Administration Agreement the company’s manager is Allianz Global Investors UK
Limited. On 30 May 2024 the Agreement was novated from Allianz Global Investors GmbH to Allianz Global Investors UK Limited
(AllianzGI UK). The agreement was restated in July 2014, with the appointment of AllianzGI as the Alternative Investment Fund
Manager. In both cases the terms of the Agreement were unchanged: it provides for a management fee based on 0.35% (2025:
0.35%) per annum of the value of the assets after deduction of current liabilities, short-term loans with an initial duration of
less than one year and other funds managed by AllianzGI. Under the contract, AllianzGI provides the company with investment
management, accounting, company secretarial and administration services.
70
3. Administration expenses
2026
£’000s
2025
£’000s
Auditor’s remuneration
For audit services 51 48
Non-audit services – agreed upon procedures relating to loan covenants 6 5
VAT on Auditor's remuneration 11 11
68 64
Directors' fees 161 162
Directors' NI contributions 28 21
Marketing costs 426 387
Registrars' fees 123 116
Depositary fees 53 53
Professional and advisory fees 59 32
Printing and postage 96 75
Stock exchange fees 59 52
Custody fees 32 32
Other administration expenses 135 114
1,240 1,108
(i) The above expenses include value added tax where applicable.
(ii) Directors’ fees are set out in the Directors’ Remuneration Report on page 53.
(iii) Custody handling charges of £5,000 were charged to capital (2025: £4,000).
(iv) AllianzGI received fees for the provision of marketing activities of £nil (2025: £371,000) during the year. At 31 January 2026
marketing costs payable were £377,000 (2025: £nil).
(v) Non-audit services paid in the year were £6,000 (2025: £5,000).
4. Finance costs: interest payable and similar charges
2026
Revenue
£’000s
2026
Capital
£’000s
2026
Total
£’000s
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
On 4% Perpetual Debenture Stock repayable after
more than five years
19 36 55 19 36 55
On 5.875% Secured Bonds repayable after more
than one year
637 1,184 1,821 637 1,182 1,819
On 3.65% Preference Stock repayable after more
than five years
43 - 43 43 - 43
On 2.96% Fixed Rate Notes repayable after more
than five years
365 678 1,043 365 678 1,043
On Revolving Credit Facility - - - 913 1,694 2,607
On 5.91% Fixed Rate Notes A repayable after
more than five years
517 959 1,476 16 29 45
On 5.91% Fixed Rate Notes B repayable after
more than five years
517 959 1,476 16 29 45
2,098 3,816 5,914 2,009 3,648 5,657
71
FINANCIAL STATEMENTS
5. Taxation
2026
Revenue
£’000s
2026
Capital
£’000s
2026
Total
£’000s
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
Overseas taxation* 381 - 381 534 - 534
Total tax 381 - 381 534 - 534
Reconciliation of tax charge
Profit (loss) before taxation 45,695 117,094 162,789 44,205 60,602 104,807
Tax on profit at 25.00% (2025: 25.00%) 11,424 29,274 40,698 11,051 15,151 26,202
Effects of
Non taxable income (11,256) - (11,256) (11,300) - (11,300)
Non taxable capital losses - (30,814) (30,814) - (16,591) (16,591)
Irrecoverable overseas tax 381 - 381 534 - 534
Gains (losses) on foreign currencies - 23 23 - (11) (11)
Disallowable expenses 54 495 549 106 494 600
Excess of allowable expenses over taxable income (222) 1,022 800 143 957 1,100
Total tax 381 - 381 534 - 534
* Irrecoverable overseas tax on dividends received from Aena, Atalaya Mining Copper, Michelin, SCOR and Sodexo.
The company’s taxable income is exceeded by its tax allowable expenses, which include both the revenue and capital elements of
the management fee and finance costs. As at 31 January 2026, the company had accumulated surplus expenses of £246.0 million
(2025: £242.9 million).
The company has not recognised a deferred tax asset of £61.5 million (2025: £60.7 million) in respect of these expenses, based on
a prospective corporation tax rate of 25% (2025: 25%) because there is no reasonable prospect of recovery. Provided the company
continues to maintain its current investment profile, it is unlikely that these expenses will be utilised and that the company will
obtain any benefit from this asset.
In May 2013 the company received confirmation from HM Revenue & Customs of its status as an approved investment trust
for accounting periods commencing on or after 1 February 2012, subject to the company continuing to meet the eligibility
conditions in Section 1158 Corporation Tax Act 2010 and the ongoing requirements for approved companies in Chapter 3 of
Part 2 Investment Trust (Approved Company) Tax Regulations 2011 (Statutory Instrument 2011/2999). The company intends to
retain this approval and self-assesses compliance with the relevant conditions and requirements and will continue to do so on an
annual basis.
72
6. Dividends on ordinary shares
2026
£’000s
2025
£’000s
Dividends paid on ordinary shares
Third interim dividend 7.3p paid 19 March 2025 (2024: 7.1p) 10,835 10,531
Final dividend 7.3p paid 29 May 2025 (2024: 7.1p) 10,835 10,531
First interim dividend 7.3p paid 22 August 2025 (2024: 7.2p) 10,835 10,679
Second interim dividend 7.3p paid 20 November 2025 (2024: 7.3p) 10,835 10,835
43,340 42,576
Dividends payable at the year end are not recognised as a liability under FRS 102 Section 32 ‘Events After the End of the
Reporting Period’ (see page 69 – Statement of Accounting Policies). Details of these dividends are set out below.
2026
£’000s
2025
£’000s
Third interim dividend 7.4p paid 19 March 2026 (2025: 7.3p) 10,925 10,835
Final proposed dividend 7.5p payable 27 May 2026 (2025: 7.3p) 11,072 10,835
21,997 21,670
The declared final dividend accrued is based on the number of shares in issue at the year end. However, the dividend payable will
be based on the number of shares in issue on the record date and will reflect any changes in the share capital between the year
end and the record date.
All dividends disclosed in the tables above have been paid or are payable from the revenue reserves.
7. Earnings per ordinary share
2026
Revenue
£’000s
2026
Capital
£’000s
2026
Total
£’000s
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
Profit after taxation attributable to ordinary
shareholders
45,314 117,094 162,408 43,671 60,602 104,273
Earnings after taxation attributable to ordinary
shareholders
30.58p 79.01p 109.59p 29.43p 40.84p 70.27p
The earnings per ordinary share is based on the weighted average number of shares in issue of 148,198,321 (2025: 148,372,564).
Basic and diluted earnings per share are the same as the company has no dilutive instruments.
73
FINANCIAL STATEMENTS
8. Fixed asset investments
2026
£’000s
2025
£’000s
Opening book cost 932,498 878,851
Opening investment holding gains (losses) 22,016 (4,183)
Opening market value 954,514 874,668
Additions at cost 283,412 225,171
Disposals proceeds received* (306,574) (213,071)
Realised gains on investments 35,507 40,454
Movement in unrealised gains 89,507 27,292
Market value of investments held at 31 January 1,056,366 954,514
Closing book cost 945,977 932,498
Closing investment holding gains 110,389 22,016
Closing market value 1,056,366 954,514
* Prior year figure includes Tyman special dividend of £565,000 credited to capital.
The company received £307,060,000 (2025: £222,887,000) from investments sold in the year. The book cost of these investments
when they were purchased was £271,067,000 (2025: £183,040,000). These investments have been revalued over time and until
they were sold any unrealised gains/losses were included in the fair value of the investments.
Transaction costs and stamp duty on purchases amounted to £1,240,000 (2025: £1,135,000) and transaction costs on sales
amounted to £80,000 (2025: £45,000).
2026
£’000s
2025
£’000s
Gains on investments
Gains on investments held at fair value through profit or loss 125,014 67,181
Transaction costs (1,319) (1,180)
Special dividends credited to capital - 565
123,695 66,566
9. Derivatives financial instruments
2026
£’000s
2025
£’000s
Opening book cost: derivative financial instruments (64) (42)
Opening investment holding losses: derivative financial instruments (175) (15)
Opening market value (239) (57)
Premiums recognised in current year (1,146) (787)
Realised gains on derivative financial instruments 961 765
Movement in unrealised losses on derivative financial instruments (244) (160)
Market value of investments held at 31 January (668) (239)
Closing book cost: derivative financial instruments (249) (64)
Closing investment holding losses: derivative financial instruments (419) (175)
Closing market value (668) (239)
Losses on derivatives
Gains on derivative financial instruments 717 605
Option premiums and fees (1,155) (807)
(438) (202)
74
10. Other receivables and other payables
2026
£’000s
2025
£’000s
Other receivables
Sales for future settlement - 40
Prepayments 54 36
Accrued income 1,409 1,815
1,463 1,891
Other payables: amounts falling due within one year
Purchases for future settlement - 3,619
Other payables 1,491 1,109
Interest on borrowings 439 439
1,930 5,167
Interest on outstanding borrowing consists of:
5.875% Secured Bonds 2029 207 207
4% Perpetual Debenture Stock 14 14
2.96% Fixed Rate Notes 2052 128 128
5.91% Fixed Rate Notes 2040 A 45 45
5.91% Fixed Rate Notes 2040 B 45 45
439 439
11. Creditors: amounts falling due after more than one year
2026
£’000s
2025
£’000s
5.875% Secured Bonds 2029 (i) 29,736 29,678
4% Perpetual Debenture Stock (ii) 1,375 1,375
3.65% Cumulative Preference Stock (iii) 1,178 1,178
2.96% Fixed Rate Notes 2052 (iv) 34,707 34,700
5.91% Fixed Rate Notes 2040 A (v) 24,925 24,925
5.91% Fixed Rate Notes 2040 B (vi) 24,925 24,925
116,846 116,781
(i) The £30,000,000 of 5.875% Secured Bonds is stated at £29,736,000 (2025: £29,678,000), being the net proceeds of £28,943,000 plus
accrued finance costs of £793,000 (2025: £735,000). The Bonds are repayable on 20 December 2029 and carry interest at 5.875% per
annum on the principal amount. Interest is payable in June and December each year. The effective interest rate of this loan is 6.23% per
annum.
(ii) The 4% perpetual debenture stock of £1,375,000 is secured by a floating charge on the assets of the company, which ranks prior to any
other floating charge. Interest is payable on 1 May and 1 November each year.
(iii) The 3.65% Cumulative Preference Stock is recognised as a creditor due after more than one year under the provisions of FRS 102 Section
11: ‘Basic Financial Instruments’ and Section 12: ‘Other Financial Instruments’. The right of the preference stock holders to receive
payments is not calculated by reference to the company’s net return and, in the event of a return of capital is limited to a specific amount,
being £1,178,000. Dividends on the preference stock are payable on 1 February and 1 August each year. The preference stock is
non-redeemable.
(iv) The £35,000,000 of Fixed Rate Notes is stated at £34,707,000 (2025: £34,700,000), being the net proceeds of £34,656,000 plus finance
costs of £51,000 (2025: £44,000). The Bonds are repayable on 18 December 2052 and carry interest at 2.96% per annum on the principal
amount. Interest is payable in June and December each year. The effective interest rate of this loan is 3.03% per annum.
(v) The £25,000,000 of Fixed Rate Notes is stated at £24,925,000 (2024: £nil), being the net proceeds of £24,295,000 plus finance costs of
£nil (2025: £nil). The Bonds are repayable on 21 January 2040 and carry interest at 5.91% per annum on the principal amount. Interest is
payable in January and July each year. The effective interest rate of this loan is 5.91% per annum.
(vi) The £25,000,000 of Fixed Rate Notes is stated at £24,925,000 (2024: £nil), being the net proceeds of £24,925,000 plus finance costs of
£nil (2025: £nil). The Bonds are repayable on 21 January 2040 and carry interest at 5.91% per annum on the principal amount. Interest is
payable in January, April, July and October each year. The effective interest rate of this loan is 5.91% per annum.
75
FINANCIAL STATEMENTS
12. Called up share capital
2026
£’000s
2025
£’000s
Allotted and fully paid*
148,424,887 ordinary shares of 25p (2025: 148,424,887) 37,106 37,106
* Including 792,017 (2025: nil) Ordinary shares held in treasury for reissuance into the market or cancellation at a future date. Shares
held in treasury are non-voting and not eligible for receipt of dividend.
During the year 792,017 Ordinary shares were repurchased to be held in treasury (2025: nil). The aggregate purchase price of the shares
amounting to £4,426,000 (2025: £nil) was charged to the capital reserve within gains on sales of investments (see note 13). During the
year no Ordinary Shares were reissued from treasury (2025: nil). Since the year end no further shares have been bought back up to and
including 30 March 2026.
2026
Number
2026
£’000s
2025
Number
2025
£’000s
Allotted 25p ordinary shares
Brought forward 148,424,887 37,106 148,324,887 37,081
Shares issued during the year - - 100,000 25
Shares repurchased into treasury during the year (792,017) (198) - -
Carried forward 147,632,870 36,908 148,424,887 37,106
Treasury shares
Brought forward - -
Shares repurchased into treasury during the year 792,017 -
Carried forward 792,017 -
Total ordinary shares in issue and in treasury at the end of the period 148,424,887 148,424,887
During the year no shares were issued (2025: 100,000) for a total consideration of £nil (2025: £577,000), net of issues costs of £nil
(2025: £1,000). The directors are seeking authority at the AGM on 19 May 2026 for an ordinary resolution to be passed to allot relevant
securities, in accordance with section 551 on the Companies Act 2006, up to a maximum of 49,474,962 ordinary shares of 25p each.
13. Reserves
Capital Reserve
Share
premium
account
£’000s
Capital
redemption
reserve
£’000s
Gains (losses)
on sales of
investments
£’000s
Investment
holding
gains (losses)
£’000s
Revenue
reserve
£’000s
Balance at 1 February 2025 228,726 293 464,410 91,347 27,940
Gains on sales of fixed asset investments - - 35,507 - -
Losses on derivative financial instruments - - (194) - -
Net movement in fixed asset investment holding losses - - - 89,507 -
Movement in derivative holding losses - - - (244) -
Transaction costs - - - (1,319) -
Losses on foreign currencies - - - (91) -
Transfer on sale of investments - - (111,615) 111,615
Shares repurchased into treasury during the year - - (4,426) -
Investment management fee - - (2,251) - -
Finance costs of borrowings - - (3,816) - -
Other capital expenses - - (5) - -
Dividends appropriated in the year - - - - (43,340)
Profit retained for the year - - - - 45,314
Balance at 31 January 2026 228,726 293 377,610 290,815 29,914
76
The share premium and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance
with the Articles of Association, distributions can be made from both the revenue reserve and capital reserves to the extent they
are realised. All paid or payable dividends for the year are payable from the revenue reserve (2025: same).
14. Net Asset Value per share
The net asset value total return for the year is the percentage movement from the capital net asset value as at 31 January 2025 to
the net asset value, on a total return basis as at 31 January 2026. The net asset value total return with debt at fair value is 18.9%
(2025: 13.5%) and the net asset value total return with debt at par is 19.2% (2025: 13.3%).
The net asset value per ordinary share is based on 147,632,870 ordinary shares in issue at the year end (2025: 148,424,887). The
method of calculation of the Net Asset Value with debt at fair value is described in Note 16(c) on page 81.
The Net Asset Value per ordinary share was as follows:
Debt at
fair value
2026
Debt
at par
2026
Debt at
fair value
2025
Debt
at par
2025
Net Asset Value per ordinary share attributable 663.5p 653.3p 582.4p 572.6p
Dividends paid in the year 29.2p 29.2p 28.7p 28.7p
Net Asset Value total return 692.7p 682.5p 611.1p 601.3p
Net Asset Value attributable £'000s 979,476 964,464 864,485 849,822
15. Contingent liabilities, capital commitments and guarantees
At 31 January 2026 there were no contingent liabilities, capital commitments or guarantees (2025: £nil).
16. Financial risk management policies and procedures
The company invests in equities and other investments in accordance with its investment objective as stated in the Strategic Report
on page 28. In pursuing its investment policy, the company is exposed to certain inherent risks that could result in either a
reduction in the company’s net assets or a reduction in the profits available for distribution by way of dividends.
The main risks arising from the company’s financial instruments are: market risk (comprising market price risk, market yield risk,
foreign currency risk and interest rate risk), liquidity risk and credit risk. The directors’ approach to the management of these risks
is set out below. The directors determine the objectives and agree policies for managing each of these risks, as set out below. The
manager, in close cooperation with the directors, implements the company’s risk management policies. The company’s policy
allows the use of derivative financial instruments to moderate risk exposure and to generate additional revenue. These policies
have remained substantially unchanged during the current and preceding period.
(a) Market risk
The manager assesses the exposure to market risk when making each investment decision, and monitors the risk on the investment
portfolio on an ongoing basis. Market risk comprises market price risk (price and yield), foreign currency risk and interest rate risk.
(i) Market price risk
Market price risk arises mainly from the uncertainty about future prices of financial instruments held. It represents the potential loss
the company might suffer through holding market positions in the face of price movements. An analysis of the company’s portfolio
is shown on pages 24 and 25.
Changes in stock market valuations lead to changes in gearing ratios. The board’s procedure for monitoring the gearing of the
company is set out in Note 17 on page 82. This takes into account the investment manager’s view on the market, covenant
requirements and the future prospects of the company’s performance.
Market price risk sensitivity
The value of the company’s listed investments (i.e., fixed asset investments, excluding unlisted equities) which were exposed to
market price risk as at 31 January 2026 was as follows:
2026
£’000s
2025
£’000s
Listed investments held at fair value through profit or loss 1,056,366 954,514
Derivative financial instruments – written call options (668) (239)
Total listed investments 1,055,698 954,275
77
FINANCIAL STATEMENTS
The following illustrates the sensitivity of the return and the net assets to an increase or decrease of 20% and 50% (2025: 20% and
50%) in the fair values of the company’s listed investments. The 20% level of change is considered to be reasonably possible based
on observation of market conditions in recent years. The 50% level demonstrates the impact in extreme conditions. The sensitivity
analysis on the net return after tax is based on the impact of a 20% and 50% increase or decrease in the value of the company’s
listed equity investments at each balance sheet date and the consequent impact on the investment management fees for the year,
with all other variables held constant.
2026
20%
increase in
fair value
£’000s
2026
20%
decrease in
fair value
£’000s
2026
50%
increase in
fair value
£’000s
2026
50%
decrease in
fair value
£’000s
2025
20%
increase in
fair value
£’000s
2025
20%
decrease in
fair value
£’000s
2025
50%
increase in
fair value
£’000s
2025
50%
decrease in
fair value
£’000s
Revenue earnings
Investment management fees
(259) 259 (647) 647 (234) 234 (585) 585
Capital earnings
Gains (losses) on investments at fair value
211,140 (211,140) 527,849 (527,849) 190,855 (190,855) 477,138 (477,138)
Investment management fees
(481) 481 (1,202) 1,202 (434) 434 (1,086) 1,086
Change in net earnings and net assets
210,400 (210,400) 526,000 (526,000) 190,187 (190,187) 475,467 (475,467)
Management of market price risk
The directors meet regularly to consider the asset allocation of the portfolio in order to minimise the risk associated with particular
industry sectors. A dedicated fund manager has the responsibility for monitoring the existing portfolio selection in accordance with
the company’s investment objectives and to ensure that individual stocks meet an acceptable risk reward profile. Call options are
only written on stocks owned by the company within the portfolio with a maximum exposure of 15% of gross assets at the time of
writing the call option.
(ii) Market yield risk
Market yield risk arises from the uncertainty about the company’s ability to maintain its income objectives due to systematic
decline in corporate dividend levels.
Where call options are sold (written), in all cases a sufficient position is maintained in the underlying equity to cover any potential
option exercise. Whilst the option value can be volatile, price movements should to some extent be offset by opposing movements
in the value of the underlying equity. If options are retained until expiry they will either expire worthless or be exercised. The effect
of any option exercise is to sell the underlying shares at the strike price of the option. A schedule of the company’s listed holdings
is shown on pages 24 and 25. Where put options are purchased, the market value of such options can be volatile but the
maximum loss on any contract is limited to the original investment cost. No put options were purchased in the year (see Note 1 on
page 70 for details of income received).
Further explanation of the derivatives strategy is included in the Glossary on page 91.
Management of market yield risk
The directors regularly review the current and projected yield of the investment portfolio, and discuss with the manager the extent
to which it will enable the company to meet its investment income objective.
(iii) Foreign currency risk
Foreign currency risk is the risk of movement in the values of overseas financial instruments as a result of fluctuations in
exchange rates.
Management of foreign currency risk
The company invests predominantly in UK listed equities and although there is no direct impact from changes in exchange
rates, there is implicit exposure as some of the companies in the portfolio generate income and cashflows in foreign currencies.
(2025: same).
Any income denominated in a foreign currency is converted into sterling on receipt. The company does not hedge against foreign
currency exposure.
(iv) Interest rate risk
Interest rate risk is the risk of movements in the value of financial instruments as a result of fluctuations in interest rates.
Interest rate exposure
The table below summarises in sterling terms the financial assets and financial liabilities whose values are directly affected by
changes in interest rates.
78
2026
Fixed
rate
interest
£’000s
2026
Floating
rate
interest
£’000s
2026
Nil
interest
£’000s
2026
Total
£’000s
2025
Fixed
rate
interest
£’000s
2025
Floating
rate
interest
£’000s
2025
Nil
interest
£’000s
2025
Total
£’000s
Financial assets - 26,079 1,057,829 1,083,908 - 15,604 956,405 972,009
Financial liabilities (116,846) - (2,598) (119,444) (116,781) - (5,406) (122,187)
Net financial (liabilities) assets (116,846) 26,079 1,055,231 964,464 (116,781) 15,604 950,999 849,822
As at 31 January 2026, the interest rates received on cash balances or paid on bank overdrafts, was 2.60% and 5.00% per annum
respectively (2025: 2.55% and 5.75% per annum).
The fixed rate interest bearing liabilities bear the following coupon and effective rates as at 31 January 2026 and 31 January 2025:
Maturity
date
Amount
borrowed
£’000s
Coupon
rate
Effective
rate since
inception*
5.875% Secured Bonds 2029 20/12/2029 30,000 5.875% 6.23%
Fixed Rate Notes 2052 18/12/2052 35,000 2.96% 3.03%
4% Perpetual Debenture Stock n/a 1,375 4.00% 4.00%
3.65% Cumulative Preference Stock n/a 1,178 3.65% 3.65%
5.91% Fixed Rate Notes 2040 A 21/01/2040 25,000 5.91% 6.03%
5.91% Fixed Rate Notes 2040 B 21/01/2040 25,000 5.91% 6.07%
117,553
* The effective rates are calculated in accordance with FRS 102 Section 12: ‘Other Financial Instruments’ as detailed in the Statement of
Accounting Policies on page 69.
The weighted average effective rate of the company’s fixed interest bearing liabilities (excluding the 3.65% Cumulative Preference
Stock and the 4% Perpetual Debenture Stock) is 5.18% (2025: 5.18%) and the weighted average period to maturity of these liabilities
is 15.2 years (2025: 16.2 years).
The above year end amounts are reasonably representative of the exposure to interest rates during the year, as the level of
exposure does not change materially. Therefore, the company’s net return and net assets are not significantly affected by changes in
interest rates.
Management of interest rate risk
The company invests predominantly in equities, the values of which are not directly affected by changes in prevailing market interest
rates. In the year to 31 January 2026, the company held no fixed interest securities. The company’s policy is to remain substantially
fully invested and thus does not expect to hold significant cash balances. The financial assets have minimal exposure to interest
rate risk.
The company finances its operations through a mixture of share capital, retained earnings and long-term borrowings which are
subject to fixed rates. Movement in interest rates will not have a material effect on the finance costs and financial liabilities of the
company as all of the borrowings of the company are subject to fixed rates of interest.
(b) Liquidity risk
Liquidity risk relates to the capacity to meet liabilities as they fall due and is dependent on the liquidity of the underlying assets.
Maturity of financial liabilities
The table below presents the future cash flows payable by the company in respect of its financial liabilities.
Cash flows in respect of the principal and interest on the Fixed Rate Notes 2052, Fixed Rate Notes 2024 and 5.875% Secured Bonds
2029 reflect the maturity dates as set out in Notes 10 and 11 on page 75. The loans are each governed by a trust deed. Only if the
covenants are breached would early repayment be enforced. Therefore, their repayment is not considered to be a likely short term
liquidity issue. Cash flows in respect of the 4% Perpetual Debenture Stock and 3.65% Cumulative Preference Stock, which have no
fixed repayment date, assumes maturity of 20 years from the balance sheet date. Cash flows have not been discounted.
79
FINANCIAL STATEMENTS
Three
months
or less
£’000s
Between
three months
and one year
£’000s
Between
one and
five years
£’000s
More than
five years
£’000s
Total
£’000s
2026
Other payables
Finance costs of borrowing 391 5,461 - - 5,852
Other payables 1,491 - - - 1,491
Derivative financial instruments 668 - - - 668
Creditors: amounts falling due after more than one year
Amounts payable on maturity of borrowings - - 30,000 87,553 117,553
Finance cost of borrowings - - 21,644 50,871 72,515
2,550 5,461 51,644 138,424 198,079
2025
Other payables
Finance costs of borrowing 391 5,461 - - 5,852
Other payables 4,728 - - - 4,728
Derivative financial instruments 239 - - - 239
Creditors: amounts falling due after more than one year
Amounts payable on maturity of borrowings - - 30,000 87,553 117,553
Finance costs of borrowing - - 23,407 54,862 78,269
5,358 5,461 53,407 142,415 206,641
Management of liquidity risk
Liquidity risk is not significant as the company’s assets mainly comprise realisable securities, which can be sold to meet funding
requirements if necessary. Short term flexibility can be achieved through the use of overdraft facilities, where necessary. As at 31
January 2026, the company had an undrawn committed borrowing facility of £nil (2025: £nil).
(c) Credit risk
Credit risk is the risk of default by a counterparty in discharging its obligations under transactions that could result in the company
suffering a loss. There were no impaired assets as of 31 January 2026 (2025: nil). The counterparties that the company engages
with are regulated entities and are of high credit quality.
Management of credit risk
Outstanding settlements are subject to credit risk. Credit risk is mitigated by the company through its decision to transact with
counterparties of high credit quality. The company only buys and sells investments through brokers which are approved counterparties,
thus minimising the risk of default during settlement. The credit ratings of brokers are reviewed quarterly by the manager.
The company is also exposed to credit risk through the use of banks for its cash position. Bankruptcy or insolvency of banks may
cause the company’s rights with respect to cash held by banks to be delayed or limited. The company’s cash balances are held
by HSBC Bank PLC, rated A1 by Moody’s rating agency and UBS, rated A3 by Moody’s rating agency. The directors believe that
the counterparties which the company has chosen to transact with are of high credit quality, therefore the company has minimal
exposure to credit risk.
The table below summarises the credit risk exposure of the company as at 31 January:
2026
£’000s
2025
£’000s
Other receivables:
Outstanding settlements - 40
Accrued income 1,409 1,815
Cash and cash equivalents 26,079 15,604
27,488 17,459
80
Fair values of financial assets and financial liabilities
With the exception of those financial liabilities measured at amortised cost, the financial assets and financial liabilities are either
carried at their fair value, or the balance sheet amount is a reasonable approximation of their fair value. The financial liabilities
measured at amortised cost, including interest on outstanding borrowings due within one year, have the following fair values:*
2026
Book value
£’000s
2026
Fair value
£’000s
2025
Book value
£’000s
2025
Fair value
£’000s
5.875% Secured Bonds 2029 29,943 31,704 29,885 31,353
4% Perpetual Debenture Stock 1,389 1,011 1,389 1,067
3.65% Cumulative Preference Stock 1,178 801 1,178 845
2.96% Fixed Rate Notes 2052 34,835 19,719 34,828 19,999
5.91% Fixed Rate Notes 2040 A 24,970 24,520 24,970 24,648
5.91% Fixed Rate Notes 2040 B 24,970 24,518 24,970 24,645
117,285 102,273 117,220 102,557
The Net Asset Value per ordinary share, with debt at fair value is calculated as follows:
2026
£’000s
2025
£’000s
Net assets per balance sheet 964,464 849,822
Add: financial liabilities at book value
#
117,285 117,220
Less: financial liabilities at fair value* (102,273) (102,557)
Net assets (debt at fair value) 979,476 864,485
Net Asset Value per ordinary share (debt at fair value) 663.5p 582.4p
#
Book value, par value and amortised cost are used interchangeably throughout the Annual Report.
* The fair value has been derived from the closing market value as at 31 January 2026 and 31 January 2025. Fair value and market value are
used interchangeably throughout the Annual Report.
The fair value of the long-term debt is calculated with reference to the nearest relevant gilt based on repayment date. A margin is
added to the yield of the relevant reference gilt to calculate the fair value. This margin is derived from the excess of UK corporate
bond yields over gilt yields.
The Net Asset Value per ordinary share is based on 147,632,870 ordinary shares in issue at 31 January 2026 (2025: 148,424,887).
The company’s investments and derivative financial instruments, as disclosed in the company’s Balance Sheet, are valued at
fair value.
The company has chosen to adopt sections 10 and 11 from FRS 102 to account for its financial instruments.
Investments are designated as held at fair value through profit or loss in accordance with FRS 102 sections 10 and 11.
FRS 102 sets out three fair value levels.
Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the
measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e., developed using market data) for the
asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable (i.e., for which market data is unavailable) for the asset or liability.
With the exception of those financial liabilities measured at amortised cost, all other financial assets and financial liabilities are
either carried at their fair value or the balance sheet amount is a reasonable approximation of their fair value.
81
FINANCIAL STATEMENTS
As at 31 January the financial assets at fair value through profit and loss are categorised as follows:
Level 1
£’000s
Level 2
£’000s
Level 3
£’000s
Total
£’000s
2026
Financial instruments at fair value through profit or loss
Equity investments 1,056,366 - - 1,056,366
Derivative financial instruments: written call options - (668) - (668)
1,056,366 (668) - 1,055,698
2025
Financial instruments at fair value through profit or loss
Equity investments 954,514 - - 954,514
Derivative financial instruments: written call options - (239) - (239)
954,514 (239) - 954,275
For exchange listed equity investments the quoted price is either the bid price or the last traded price depending on the convention
of the relevant exchange. For written options the value of the option is marked to market based on traded prices. Financial
instruments valued using valuation techniques in level 3 have, in the absence of relevant trading prices or market data, been
valued based on the directors’ best estimate.
There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31
January 2026 and 31 January 2025.
17. Capital management policies and procedures
The company’s objective is to provide an above average level of income and income growth together with long-term capital
growth. It invests in high yielding stocks and receives premium income from options.
The company’s capital at 31 January comprises:
2026
£’000s
2025
£’000s
Debt
Creditors: amounts falling due after more than one year 116,846 116,781
116,846 116,781
Equity
Called up share capital 37,106 37,106
Share premium account and other reserves 927,358 812,716
964,464 849,822
Total capital 1,081,310 966,603
Debt as a percentage of total capital 10.8% 12.1%
82
Debt at par Debt at fair value
2026
£’000s
2025
£’000s
2026
£’000s
2025
£’000s
Debt
Creditors: amounts falling due after more than one year 117,285 117,220 102,273 102,557
Gross debt 117,285 117,220 102,273 102,557
Total net assets 964,464 849,822 979,476 864,485
Gross gearing 12.2% 13.8% 10.4% 11.9%
Gross debt 117,285 117,220 102,273 102,557
Less: cash (26,079) (15,604) (26,079) (15,604)
Net debt 91,206 101,616 76,194 86,953
Total net assets 964,464 849,822 979,476 864,485
Net gearing 9.5% 12.0% 7.8% 10.1%
The board, with the assistance of the investment manager, monitors and reviews the broad structure of the company’s capital on
an ongoing basis. The level of gearing is monitored, taking into account the investment manager’s view on the market and the
future prospects of the company’s performance. Capital management also involves reviewing the difference between the Net
Asset Value per share and the share price (i.e. the level of share price discount or premium) to assess whether to issue shares or
repurchase shares for cancellation or for holding in treasury. Further details on the Fixed Rate Loan Notes 2040 and 2052 can be
found in Notes 10 and 11.
The company is subject to several externally imposed capital requirements; the bank borrowings under the overdraft facility
are not to exceed £10m, and as a public company the minimum share capital is £50,000. The company’s objective, policies and
processes for managing capital are unchanged from the preceding accounting period, and the company has complied with them
throughout the year under review and intends to continue to do so. The terms of the loan trust deeds have various covenants
which prescribe that moneys borrowed should not exceed the adjusted total value of the capital and reserves. These are
measured in accordance with the policies used in the Annual Report. The company has complied with these.
18. Transactions with the Investment Manager and related parties
The amounts paid to the Investment Manager together with details of the investment management contract are disclosed in Note
2 on page 70. The existence of an independent board of directors demonstrates that the company is free to pursue its own
financial and operating policies and therefore, under FRS102 Section 33: Related Party Disclosures, the Investment Manager is not
considered to be a related party.
The company’s related parties are its directors. Fees paid to the company’s board are disclosed in the Directors’ Remuneration
Report on page 53.
There are no other identifiable related parties at the year end, and as of 30 March 2026.
19. Post Balance Sheet events
As at 30 March 2026, no further shares have been issued or brought back since the year end. The escalating conflict in the Middle
East has impacted global economies and heightened stock market volatility. Since the year end, Merchants’ NAV has decreased
by 7.9% as at close of business on 30 March 2026.
83
FINANCIAL STATEMENTS
Investor information
AIFM and Depositary
Allianz Global Investors UK Limited (AllianzGI UK) is designated the Alternative Investment Fund Manager (AIFM). AllianzGI UK is
authorised to act as an AIFM and to conduct its activities by the Financial Conduct Authority (FCA) in accordance with AIFMD and
FCA requirements. The management fee and the notice period are unchanged in the restated management and administration
agreement (details in Note 2 on page 70).
The company appointed HSBC Bank PLC as its depositary and custodian in accordance with AIFMD under an agreement
between the company, AllianzGI and HSBC. Depositary fees are charged in addition to custody fees and are calculated on the
basis of net assets.
Leverage and risk policies under AIFMD
Details of leverage and risk policies required under AIFMD are published on the website www.merchantstrust.co.uk under
Literature/Trust Documents/Disclosures to Investors under AIFMD. These policies represent no change to the board’s policies in
existence prior to AIFMD and are in place to ensure that these limits would not be breached under any foreseeable circumstances.
Remuneration Disclosure of the AIFM
The following table shows the total amount of remuneration granted to the employees of Allianz Global Investors UK Ltd
(‘Management Company’ or also called ‘AllianzGI’) for the past financial year divided into fixed and variable components. It is also
broken down by members of management/Senior Management Function holders and other risk takers.
Number of employees: 291
All employees
thereof
Material
Risk Takers
thereof
Board Members/
SMF
thereof
Other Material
Risk Takers
Fixed compensation 36,580,256 3,801,890 1,942,667 1,859,223
Variable compensation 44,330,753 9,632,797 2,790,518 6,842,280
Total compensation 80,911,010 13,434,688 4,733,185 8,701,503
Note: Risk Takers are assigned to the specific category based on the classification on 31 December 2025 or the last active working
day. The information on employee remuneration does not include remuneration paid by delegated managers to their employees.
The Management Company does not pay remuneration to employees of delegated companies directly from the fund it manages.
Setting the remuneration
Allianz Global Investors UK Ltd is subject to certain requirements applicable to investment management companies with regard to
structuring the remuneration system.
The Board of Directors of the Management Company has set up a remuneration committee. It has the overall responsibility for
overseeing the implementation of the Remuneration Policy and practices. Working in close cooperation with Control Functions
as well as with external advisers and in conjunction with management, the Human Resources department has developed the
Management Company’s remuneration policy. The Remuneration Committee ensures that on a regular basis the implementation
of the Remuneration Policy is subject to a central and independent internal review.
Remuneration structure
The primary components of monetary remuneration are the basic salary, which typically reflects the scope, responsibilities and
experience required in a particular role, and an annual variable remuneration. The total amount of the variable remuneration
payable throughout the Management Company depends on the performance of the business and on the company’s risk position
and will therefore vary every year. In this respect, the allocation of specific amounts to particular employees will depend on the
performance of the employee and their departments during the period under review. Variable remuneration includes an annual
bonus paid in cash following the end of the financial year. In the case of employees whose variable remuneration exceeds a
certain threshold, a substantial portion of the annual variable remuneration is deferred for a period of three years. The deferred
portions increase in line with the level of variable remuneration. Half of the deferred amount is linked to the performance of
AllianzGI, and the other half is invested in certain funds managed by AllianzGI. The amounts ultimately distributed depend on
the company’s business performance or the performance of shares in certain investment funds over several years. In addition, the
deferred remuneration elements may be withheld under the terms of the plan. Certain employees are also eligible for a Carried
Interest Award. The remuneration overview includes the Carried Interest grant which is awarded in the fiscal year for the previous
performance year.
84
Performance evaluation
The level of pay awarded to employees is linked to both
quantitative and qualitative performance indicators. For
investment managers, whose decisions make a real difference
in achieving our clients’ investment goals, quantitative
indicators are geared towards sustainable investment
performance. For portfolio managers in particular, the
quantitative element is aligned with the benchmark of the
client portfolios they manage or with the client’s expected
return, measured over a period of one year and three years. For
client-facing employees, goals also include client satisfaction,
which is measured independently. The remuneration of
employees in controlling functions is not directly linked to the
business performance of individual departments monitored by
the controlling function.
Risk takers
The following groups of employees were qualified as risk
takers: members of management/Senior Management
Function holders and other risk takers.
Risk avoidance
AllianzGI UK has comprehensive risk reporting in place,
which covers both current and future risks of its business
activities. Risks which exceed the organisation’s risk appetite
are presented to the global remuneration committee, which
will decide, if necessary, on the adjustments to the total
remuneration pool. Individual variable compensation may
also be reduced or withheld in full if employees violate our
compliance policies or take excessive risks on behalf of
AllianzGI UK.
Annual review and material changes to the
remuneration system
The board of AllianzGI UK approved the remuneration
policy which had been implemented in accordance with the
remuneration regulations.
Key Information Document (KID)
The Key Information Document (KID) is a standardised pan-
European document that contains product, risk, charges and
other information. It is a regulatory requirement that you are
provided with a KID before you invest, and you will be required
to declare that you have seen the latest KID when you make
your investment.
Merchants’ KID is available from the Information/Documents
pages at www.merchantstrust.co.uk. However, your chosen
platform provider or stockbroker should provide you with
a copy before accepting your investment instructions.
Please note that existing investors do not need to review
the KID unless planning to add to an investment. The KID’s
standardised format is intended to allow potential investors to
compare funds easily, on a like-for-like basis.
The KID now includes the same ongoing charge figure as
we disclose in this report (in line with the AIC methodology
described in the Glossary at the back of this document). There
is also now a narrative statement within that document, as
well as on our monthly factsheets, which reminds prospective
investors and shareholders that the ‘charges’ disclosed are
already accounted for in the NAV and therefore also the price
paid – investors do not have to pay any further charges to their
investment trust or its manager after purchasing shares.
Financial calendar
Year end 31 January.
Full year results announced and Annual Report posted to
shareholders in April.
Annual General Meeting held in May.
Half-Yearly Report posted to shareholders in September.
Ordinary dividends
It is anticipated that dividends will be paid as follows:
1st interim August
2nd interim November
3rd interim March
Final May
Preference dividends
Payable half-yearly 1 February and 1 August.
Benchmark
The company’s benchmark is the FTSE All-Share Index.
Market and portfolio information
The company’s ordinary shares are listed on the London
Stock Exchange. The market price range, gross yield and Net
Asset Value are shown daily in the Financial Times and The
Daily Telegraph under the headings ‘Investment Companies’
and ‘Investment Trusts’, respectively. The Net Asset Value of
the ordinary shares is calculated daily and published on the
London Stock Exchange Regulatory News Service. The ten
largest holdings are published monthly on the London Stock
Exchange Regulatory News Service. They are also available
from the manager’s Investors’ Helpline on 0800 389 4696 or via
the company’s website: www.merchantstrust.co.uk.
Website
Further information about The Merchants Trust PLC, including
monthly factsheets, daily share price and performance, is
available on the company’s website: www.merchantstrust.co.uk.
How to invest
Information is available from Allianz Global Investors either
via Investor Services on 0800 389 4696 or on the company’s
website: www.merchantstrust.co.uk.
A list of providers can be found at the company’s website: www.
merchantstrust.co.uk/about-us/how-to-invest.
Dividend
The board is proposing a final dividend of 7.5p per ordinary
share payable on 27 May 2026 to shareholders on the
Register of Members at the close of business on 17 April 2026,
making a total distribution of 29.5p per share for the year
ended 31 January 2026, an increase of 1.4% over last year’s
distribution. The ex-dividend date is 16 May 2026. A Dividend
Reinvestment Plan (DRIP) is available for this dividend and the
relevant Election Date is 5 May 2026. Cash dividends will be
sent by cheque to first-named shareholders at their registered
address. Dividends may be paid directly into shareholders’
bank accounts. Details of how this may be arranged can be
obtained from MUFG Corporate Markets. Dividends mandated
INVESTOR INFORMATION
85
in this way are paid via Bankers’ Automated Clearing
Services (BACS).
Registrar
MUFG Corporate Markets, Central Square, 29 Wellington
Street, Leeds, LS1 4DL. Lines are open 9.00 am to 5.30 pm (UK
time) Monday to Friday.
Website: https://eu.mpms.mufg.com
Email: shareholderenquiries@cm.mpms.mufg.com
Telephone: 0371 664 0300.
Shareholder enquiries
In the event of queries regarding their holdings of shares,
lost certificates, dividend payments, registered details,
etc., shareholders should contact the registrar by email at
shareholderenquiries@cm.mpms.mufg.com or by calling
0371 664 0300. Lines are open 9.00 am to 5.30 pm (UK time)
Monday to Friday. Calls to the helpline number from outside
the UK are charged at applicable international rates. Different
charges may apply to calls made from mobile telephones and
calls may be recorded and monitored randomly for security
and training purposes.
Changes of name and address must be notified to the registrar
in writing. Any general enquiries about the company should
be directed to the Company Secretary, The Merchants Trust
PLC, 199 Bishopsgate, London EC2M 3TY. Telephone: 020
3246 7513.
Dividend Reinvestment Plan for ordinary
shareholders (DRIP)
The registrar offers a DRIP which gives ordinary shareholders
the opportunity to use their cash dividend to buy further shares
in the company under a low-cost dealing arrangement. Terms
and Conditions and an application form are enclosed with
each dividend payment. For more information please email
shares@cm.mpms.mufg.com or call 0371 664 0381.
Share dealing services
MUFG Corporate Markets operates an online and telephone
dealing facility for UK resident shareholders with share
certificates. Stamp duty and commission may be payable
on transactions.
For further information on these services please contact:
sharedeal@cm.mpms.mufg.com for online dealing or 0371 664
0445 for telephone dealing. Lines are open 8.00 am to 4.30
pm Monday to Friday (UK time). Calls to the helpline number
from outside the UK are charged at applicable international
rates. Different charges may apply to calls made from mobile
telephones and calls may be recorded and monitored
randomly for security and training purposes.
Investor Centre
Shareholders can vote electronically via the Investor Centre,
a free app for smartphone and tablet provided by MUFG
Corporate Markets (the company’s registrar). It allows you
to securely manage and monitor your shareholdings in
real time, take part in online voting, keep your details up
to date, access a range of information including payment
history and much more. The app is available to download
on both the Apple App Store and Google Play, or by
scanning the relevant QR code on page 89. Alternatively,
you may access the Investor Centre via a web browser
at: https://uk.investorcentre.mpms.mufg.com/.
International payment services
MUFG Corporate Markets operates an international payment
service for shareholders, whereby they can elect either for
their dividend to be paid by foreign currency draft or they can
request an international bank mandate. This service is only
available for dividend payments of £10 or more and a small
administration fee per dividend payment applies.
For further information on these services please contact: 0371
664 0300. Lines are open between 9.00 am and 5.30 pm, (UK
time) Monday to Friday.
Shareholder proxy voting
Shareholders may submit their proxy electronically using the
Investor Centre app or at https://uk.investorcentre.mpms.mufg.
com/. Further details on voting via the Investor Centre or by
post using the personalised proxy card provided, are contained
within the Notice of Meeting Notes on page 88.
CREST proxy voting
Shares held in uncertificated form (i.e., in CREST) may be
voted through the CREST proxy voting service in accordance
with the procedures set out in the CREST manual. Voting
via the Proxymity platform is also available to institutional
shareholders. Further details are contained within the Notice of
Meeting Notes on page 88.
Association of Investment Companies (AIC)
The company is a member of the AIC, the trade body of the
investment trust industry, which provides a range of literature
including fact sheets and a monthly statistical service. Copies of
these publications can be obtained from the AIC, 9th Floor, 24
Chiswell Street, London, EC1Y 4YY, or at www.theaic.co.uk.
AIC Category: UK Equity Income.
86
Notice is hereby given that the Annual General Meeting of
The Merchants Trust PLC will be held at Grocers’ Hall, Princes
Street, London, EC2R 8AD, on Tuesday 19 May 2026 at 12 noon
to transact the following business.
The AGM will be held in person and voting will be conducted
on a poll. However, shareholders will be able to view and
listen to a live webcast of the AGM and submit questions to
the meeting electronically. Those attending virtually will not
be able to vote for the purposes of the business transacted at
the AGM and are therefore encouraged to vote ahead of the
meeting. Instructions on how to join the meeting virtually are
contained on page 116.
AGM Voting
Shareholders are encouraged to vote by proxy. Details of how
to vote, either electronically by proxy form or through CREST or
Proxymity, can be found on pages 88 and 89.
The results of the AGM will be announced via the London Stock
Exchange and placed on the Company’s website as soon as
practicable after the conclusion of the AGM.
Ordinary business
1. To receive and adopt the Directors’ Report and the
Financial Statements for the year ended 31 January 2026
together with the Auditor’s Report thereon.
2. To declare a final dividend of 7.5p per ordinary share.
3. To re-elect Colin Clark as a director.
4. To re-elect Lisa Edgar as a director.
5. To elect Neil Galloway as a director.
6. To re-elect Karen McKellar as a director.
7. To re-elect Mal Patel as a director.
8. To approve the Directors’ Remuneration Policy.
9. To approve the Directors’ Remuneration
Implementation Report.
10. To appoint PricewaterhouseCoopers LLP as Auditor of the
company, to hold office until the conclusion of the next
general meeting at which financial statements are laid
before the company.
11. To authorise the directors to determine the remuneration of
the Auditor.
Special business
To consider and, if thought fit, to pass the following resolutions.
Resolution 12 will be proposed as an ordinary resolution and
Resolutions 13 and 14 as special resolutions:
12. That for the purposes of section 551 of the Companies
Act 2006 the directors be generally and unconditionally
authorised to exercise all the powers of the company to
allot relevant securities (within the meaning of the said
section) up to a maximum number of 49,474,962 ordinary
shares provided that:
(i) the authority granted shall expire at the conclusion of the
next Annual General Meeting of the company after this
resolution is passed, or 18 August 2027 if earlier, but may
be revoked or varied by the company in a general meeting
and may be renewed by the company in a general meeting
for a further period not exceeding fifteen months; and
(ii) the authority shall allow and enable the directors to
make an offer or agreement before the expiry of that
authority which would or might require relevant securities
to be allotted after such expiry and the directors may
allot relevant securities in pursuance of any such offer or
agreement as if that authority had not expired.
13. That the directors be empowered in accordance with
section 570 of the Companies Act 2006 (the Act) to allot
equity securities (within the meaning of section 560 of the
Act) either for cash pursuant to the authority conferred by
Resolution 12 or by way of a sale of treasury shares as if
sub-section (1) of section 561 of the Act did not apply to
any such allotment provided that:
(i) the power granted shall be limited to the allotment of
equity securities wholly for cash up to a maximum number
of 14,842,488 ordinary shares;
(ii) the power granted shall (unless previously revoked or
renewed) expire at the conclusion of the next Annual
General Meeting of the company after this resolution is
passed, or 18 August 2027 if earlier; and
(iii) the said power shall allow and enable the directors to
make an offer or agreement before the expiry of that
power which would or might require equity securities to be
allotted after such expiry and the directors may allot equity
securities in pursuance of such offer or agreement as if that
power had not expired.
14. That the company be and is hereby generally and
unconditionally authorised in accordance with section
701 of the Companies Act 2006 (the Act) to make market
purchases (within the meaning of section 693(4) of the
Act) of ordinary shares of 25p each in the capital of the
company (ordinary shares), either for retention as treasury
shares or for cancellation provided that:
(i) the maximum number of ordinary shares hereby authorised
to be purchased shall be 22,248,891;
(ii) the minimum price which may be paid for an ordinary
share is 25p;
(iii) the maximum price which may be paid for an ordinary
share is an amount equal to 105% of the average of the
Notice of Meeting (unaudited)
INVESTOR INFORMATION
87
middle-market quotations for an ordinary share taken
from the London Stock Exchange Official List for the five
business days immediately preceding the day on which
the ordinary share is purchased or such other amount as
may be specified by the London Stock Exchange from time
to time;
(iv) the authority hereby conferred shall expire at the
conclusion of the Annual General Meeting of the company
in 2027 or, if earlier, on the expiry of 15 months from the
passing of this resolution, unless such authority is renewed
prior to such time; and
(v) the company may make a contract to purchase ordinary
shares under the authority hereby conferred prior to the
expiry of such authority which will or may be executed
wholly or partly after the expiry of such authority and
may make a purchase of ordinary shares pursuant to any
such contract.
By order of the board
Nira Mistry
Company Secretary
199 Bishopsgate, London, EC2M 3TY
1 April 2026
Notes:
The following notes explain your general rights as a
shareholder and your right to attend and vote at this Meeting
or to appoint someone else to vote on your behalf.
1. To be entitled to attend and vote at the Meeting (and for
the purpose of the determination by the company of the
number of votes that they may cast), shareholders must be
registered in the Register of Members of the company at
close of trading on Friday 15 May 2026 (the record date).
Changes to the Register of Members after the relevant
deadline shall be disregarded in determining the rights of
any person to attend and vote at the Meeting.
2. Shareholders are entitled to appoint another person as
a proxy to exercise all or part of their rights to attend
and to speak and vote on their behalf at the Meeting. A
shareholder may appoint more than one proxy in relation
to the Meeting provided that each proxy is appointed to
exercise the rights attached to a different ordinary share or
ordinary shares held by that shareholder. A proxy need not
be a shareholder of the company.
3. A personalised form of proxy which may be used to make
such appointment and give proxy instructions accompanies
this Notice. If you do not have a form of proxy and believe
that you should have one, or if you require additional forms,
please contact the registrar of the company whose contact
details are provided in note 6 below.
4. In the case of joint holders, where more than one of
the joint holders purports to appoint a proxy, only the
appointment submitted by the most senior holder will be
accepted. Seniority is determined by the order in which
the names of the joint holders appear in the company’s
Register of Members in respect of the joint holding (the first
named being the most senior).
5. A vote withheld is not a vote in law, which means that the
vote will not be counted in the calculation of votes for
or against the resolution. If no voting indication is given,
your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as
he or she thinks fit in relation to any other matter which is
put before the Meeting.
6. To be valid, any form of proxy or other instrument
appointing a proxy, must be returned by no later than
12 noon on Friday 15 May 2026 through any one of the
following methods:
(i) by post, courier or (during normal business hours only)
hand to the Company’s registrar at: MUFG Corporate
Markets, PXS 1, Central Square, 29 Wellington Street,
Leeds, LS1 4DL
(ii) electronically through the website of the Company’s
registrar at https://uk.investorcentre.mpms.mufg.com/ (see
note 8 below).
(iii) via Proxymity (see note 10 below).
(iv) in the case of shares held through CREST, via the CREST
system (see note 13 below).
7. If you return more than one proxy appointment, either
by paper or electronic communication, the appointment
received last by the registrar before the latest time for the
receipt of proxies will take precedence. You are advised to
88
read the terms and conditions of use carefully. Electronic
communication facilities are open to all shareholders and
those who use them will not be disadvantaged.
8. Shareholders can vote electronically via the Investor
Centre, a free app for smartphone and tablet provided
by MUFG Corporate Markets (the company’s registrar).
It allows you to securely manage and monitor your
shareholdings in real time, take part in online voting, keep
your details up to date, access a range of information
including payment history and much more. The app is
available to download on both the Apple App Store and
Google Play, or by scanning the relevant QR code below.
Alternatively, you may access the Investor Centre via a web
browser at: https://uk.investorcentre.mpms.mufg.com/.
9. If you are an institutional investor, you may be able to
appoint a proxy electronically via the Proxymity platform,
a process which has been agreed by the company and
approved by the registrar. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must
be lodged by 12 noon on Friday 15 May 2026 in order to
be considered valid or, if the Meeting is adjourned, by the
time which is 48 hours before the time of the adjourned
Meeting. Before you can appoint a proxy via this process
you will need to have agreed to Proxymity’s associated
terms and conditions. It is important that you read these
carefully as you will be bound by them and they will govern
the electronic appointment of your proxy. An electronic
proxy appointment via the Proxymity platform may be
revoked completely by sending an authenticated message
via the platform instructing the removal of your proxy vote.
10. The return of a completed form of proxy, electronic voting
on the Investor Centre or any CREST Proxy Instruction (as
described in note 13 below) or the appointment of a proxy
via Proxymity will not prevent a shareholder from attending
the Meeting and voting in person if he/she wishes to do so.
11. CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service
may do so for the Meeting (and any adjournment of the
Meeting) by using the procedures described in the CREST
manual (available from www.euroclear.com). CREST
personal members or other CREST sponsored members,
and those CREST members who have appointed a service
provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate
action on their behalf.
12. In order for a proxy appointment or instruction made
by means of CREST to be valid, the appropriate CREST
message (a ‘CREST proxy instruction’) must be properly
authenticated in accordance with Euroclear UK &
International Limited’s specifications and must contain the
information required for such instructions, as described
in the CREST manual. The message must be transmitted
so as to be received by the issuer’s agent (ID RA10) by 12
noon on Friday 15 May 2026. For this purpose, the time
of receipt will be taken to mean the time (as determined
by the timestamp applied to the message by the CREST
application host) from which the issuer’s agent is able to
retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time, any change of
instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
13. CREST members and, where applicable, their CREST
sponsors or voting service providers should note that
Euroclear UK & International Limited does not make
available special procedures in CREST for any particular
message. Normal system timings and limitations will,
therefore, apply in relation to the input of CREST proxy
instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST
personal member, or sponsored member, or has appointed
a voting service provider(s), to procure that the CREST
sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In
this connection, CREST members and, where applicable,
their CREST sponsors or voting system providers are
referred, in particular, to those sections of the CREST
manual concerning practical limitations of the CREST
system and timings. The company may treat as invalid
a CREST proxy instruction in the circumstances set out
in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. Unless otherwise indicated on the form of proxy, CREST
voting, Proxymity or any other electronic voting channel
instruction, the proxy will vote as they think fit or, at their
discretion, withhold from voting.
15. Corporate representatives are entitled to vote on behalf
of the corporate member in accordance with section 323
of the Companies Act 2006. Pursuant to the Companies
(Shareholders’ Rights) Regulations 2009 (SI 2009/1632),
multiple corporate representatives appointed by the same
corporate member can vote in different ways provided that
they are voting in respect of different shares.
16. Members have a right under section 319A of the
Companies Act 2006 to require the company to answer any
question raised by a member at the Meeting, which relates
to the business being dealt with at the Meeting, although
no answer need be given (a) if to do so would interfere
unduly with the preparation of the Meeting or involve
disclosure of confidential information; (b) if the answer
has already been given on the company’s website; or (c) it
is undesirable in the best interests of the company or the
good order of the Meeting.
17. Members satisfying the thresholds in section 527 of the
Companies Act 2006 can require the company, at its
expense, to publish a statement on the company website
setting out any matter which relates to the audit of the
company’s accounts that are to be laid before the Meeting.
INVESTOR INFORMATION
89
Any such statement must also be sent to the company’s
Auditor no later than the time when it is made available
on the website and must be included in the business of
the Meeting.
18. As at 31 March 2026, the latest practicable date before
this notice is given, the total number of ordinary shares
and preference stock in the company in respect of which
members are entitled to exercise voting rights was
147,632,870 ordinary shares of 25p each and 1,178,000
3.65% cumulative preference stock of £1 each. Each carries
the right to one vote and therefore, the total number of
voting rights in the company is 148,810,870.
19. Further information regarding the Meeting which the
company is required by section 311A of the Companies
Act 2006 to publish on a website in advance of the
Meeting (including this notice), can be accessed
at www.merchantstrust.co.uk.
20. Contracts of service are not entered into with the directors,
who hold office in accordance with the company’s Articles.
Instructions for electronic attendance at the Annual
General Meeting
We are pleased to be able to provide a facility for shareholders
to follow the AGM remotely and submit questions to the Board
on the business of the Meeting.
How to join the virtual meeting
You will need to visit https://webcast.openbriefing.com/
mrchtrst-26agm/ using your smartphone, tablet or computer.
You will then be prompted to enter your unique 11 digit
Investor Code (IVC) including any leading zeros and ‘PIN’. Your
PIN is the last 4 digits of your IVC. This will authenticate you as
a shareholder.
You will need to log into your Investor Centre account or
register if you have not previously done so. Once you have
setup your account you will need to add your shareholding by
clicking ‘Add Holding’ in the ‘Portfolio’ section and following the
on-screen instructions. You will require your Investor Code (IVC)
to add your shareholding. You can find your IVC on your share
certificate or by contacting our Registrar, MUFG Corporate
Markets. Access to the AGM will be available from 30 minutes
before the start of the event, although you will not be able to
submit questions until you are logged in.
If you wish to appoint someone to attend the virtual meeting
on your behalf, please contact MUFG Corporate Markets on
+44 (0) 371 277 1020* in order to obtain their IVC and PIN. It is
suggested that you do this as soon as possible and at least 48
hours (excluding non-business days) before the meeting.
If your shares are held by a nominee and you wish to attend
the electronic meeting, you will need to contact your nominee
as soon as possible. Your nominee will need to present a
corporate letter of representation to MUFG Corporate Markets,
our registrar, as soon as possible and at least 72 hours
(excluding non-business days) before the meeting, in order that
they can obtain for you your unique IVC and PIN to enable you
to attend the electronic meeting.
* Lines are open from 9.00 a.m. to 5.30 p.m. Monday to Friday,
calls are charged at the standard geographic rate and will
vary by provider. Calls outside the UK will be charged at the
applicable international rate.
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UK GAAP performance measures
Earnings per ordinary share is the profit after taxation, divided by the weighted average number of shares in issue for the period.
For the year ended 31 January 2026 earnings per ordinary share was 30.6p (2025: 29.4p), calculated by taking the profit after tax
of £45,314,000 (2025: £43,671,000), divided by the weighted average shares in issue of 148,198,321 (2025: 148,372,564).
Net Asset Value is the value of total assets less all liabilities. The Net Asset Value, or NAV, per ordinary share is calculated by
dividing this amount by the total number of ordinary shares in issue. The debt in the company used in the calculation is measured
at par value, that is, the net proceeds on issue plus accrued finance costs to date. As at 31 January 2026, the NAV with debt at par
value was £964,464,000 (2025: £849,822,000) and the NAV per share was 653.3p (2025: 572.6p).
Derivatives
The company operates a covered call overwriting strategy on a limited proportion of the portfolio to generate additional
income. In ‘writing’ or selling an option, Merchants gives the purchaser the right to buy a specific number of shares in a company
at an agreed ‘strike’ price within a fixed period. In exchange Merchants receives an option premium, which is taken to the
revenue account.
Merchants gets the full benefit of any move in the share price up to the strike price but not beyond. If the share price rises above
the strike price, there is a potential ‘opportunity’ (but not cash) cost, as the option holder can exercise their option to buy the shares
at the strike price.
Merchants’ selective approach to option writing is driven by the investment fundamentals on each stock we hold, rather than by
a separate derivatives rationale. We write calls on portions of shareholdings that we are happy to sell at the strike price, provided
that the premium income received is sufficiently attractive. The options written are typically short dated with most being less than
four months duration. The total exposure is closely monitored and is limited to 15% of the portfolio value with all option positions
‘covered’ by shares owned. From a holistic view, it can be argued that the overall strategy slightly reduces the company’s gearing
to the equity market, neutralising a small part of the financial leverage. The technique of covered option writing tends to be more
profitable in sideways or downwards markets but less profitable in rising markets.
Alternative Performance Measures (APMs)
Benchmark Total Return is the return on the benchmark, on a closing market price basis, assuming that all dividends received
were reinvested into the shares of the underlying companies on the days on which their shares were quoted ex dividend (see
page 2).
Discount or premium is the amount by which the stock market price per ordinary share is lower (discount) or higher (premium)
than the Net Asset Value, or NAV, with either debt at par or debt at fair value, per ordinary share. The discount/premium is
normally expressed as a percentage of the NAV per ordinary share (see page 10).
Dividend yield represents dividends declared in the past year as a percentage of the share price. This is shown as 4.7% at 31
January 2026 in the highlights on page 2.
2026 2025
Dividends declared for the year 29.5p 29.1p
Share price at year end 628.0p 556.0p
Annual dividend as a percentage of share price 4.7% 5.2%
Gearing is the amount of debt as a percentage of the net assets (see Note 16 on page 82).
Net Asset Value, debt at fair value is the value of total assets less all liabilities, with the company’s debt measured at fair value
at the time of calculation. The Net Asset Value, or NAV, per ordinary share with debt at fair value is calculated by dividing this
amount by the total number of ordinary shares in issue (see page 81). As at 31 January 2026, the NAV with debt at fair value
was £979,476,000 (2025: £864,485,000) and the NAV per share with debt at fair value was 663.5p (2025: 582.4p). (Further details
can be found in Note 16(c) on page 80).
Net Asset Value per ordinary share, total return represents the theoretical return on NAV per ordinary share, assuming that
dividends paid to shareholders were reinvested at the NAV per ordinary share at the close of business on the days on which the
shares were quoted ex dividend (see Note 14 on page 77).
Glossary
INVESTOR INFORMATION
91
Net gains/losses based on historical costs are gains/losses from sales of investments of £35,507,000 (2025: £39,889,000) less
transaction costs on sales of £80,000 (2025: £45,000).
Ongoing charges are operating expenses incurred in the running of the company, whether charged to revenue or capital, but
excluding financing costs. These are expressed as a percentage of the average Net Asset Value during the year and this is
calculated in accordance with guidance issued by the Association of Investment Companies (see page 9).
2026
£’000s
2025
£’000s
Management fee 3,463 3,313
Administration expenses 1,240 1,108
Total expenses (A) 4,703 4,421
Average Net Asset Value with debt at fair value (B) 863,263 844,251
Ongoing charge (A/B) 0.54% 0.52%
Revenue reserve per ordinary share of 20.3p (2025: 18.8p) is the revenue reserve per the balance sheet of £29,914,000 (2025:
£27,940,000) divided by the total number of ordinary shares in issue of 147,632,870 (2025: 148,424,887).
Share price Total Return is the theoretical return to a shareholder, on a closing market price basis, assuming that all dividends
received were reinvested, without transaction costs, into the ordinary shares of the company at the close of business on the days
on which the shares were quoted ex dividend (see page 2). The share price as at 31 January 2026 was 628.0p, an increase of
72.0p from the price of 556.0p as at 31 January 2025. The change in share price of 72.0p plus the dividends paid in the year of
29.2p are divided by the opening share price of 628.0p to arrive at the share price total return for the year ended 31 January 2026
of +18.2% (2025: +7.7%).
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The Merchants Trust PLC
199 Bishopsgate
London
EC2M 3TY
Freephone (UK calls only): 0800 389 4696
Email: investment-trusts@allianzgi.com
www.merchantstrust.co.uk
www.linkedin.com/company/the-merchants-trust-plc