## The benefits of income, ## the value of Merchants. ## The Merchants Trust PLC ## Annual Report, 31 January 2026 ### WWW.MERCHANTSTRUST.CO.UK ## Contents ### Overview Please do have a look at our deeper dive 2 Financial highlights ### into the year under review in our online 3 44 years of dividend growth ### Annual Report. 4 Chairman’s Statement 8 Key Performance Indicators (KPIs) Readership of hard copy Annual Reports has declined and 10 Performance – review of the year the large majority of shareholders and other interested parties prefer to access them online. The board endeavours Investment Manager’s Review to make as much information as possible available in our 11 Portfolio Managers’ report digital format, including video presentations from both 13 Market evolution over twenty years our Chairman and Portfolio Manager; case studies; and a 23 Active engagement closer look at the largest investments in our portfolio. 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 Please visit 84 Investor information 87 Notice of Meeting (unaudited) ## tinyurl.com/MRCHar26 91 Glossary or use your tablet or smartphone camera to scan the QR code. 1 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Financial highlights For the year ended 31 January 2026 1 Dividend yield Dividend growth Revenue earnings per ordinary share | 4.7% | +1.4% | +4.1% | | --- | --- | --- | | 2025 5.2% | 2026 29.5p | 2026 30.6p | | | 2025 29.1p | 2025 29.4p | | Net Asset Value | | Share price | | Benchmark | | | --- | --- | --- | --- | --- | --- | | | 1 2 | | 1 | | 1 3 | | Total Return | | Total Return | | Total Return | | ## +18.9% +18.2% +21.1% ### 2025 +13.5% 2025 +7.7% 2025 +17.1% 700 Net Asset Value 1 2 per ordinary share ## 663.5p Net Asset Value (p) ### +13.9% 0 2022 2023 2024 2025 2026 700 Share price ## 628.0p Price (p) ### +12.9% 0 2022 2023 2024 2025 2026 1 Alternative Performance Measure (APM). APMs are the board’s preferred measures for the most meaningful information for shareholders. Total 2 3 return figures include dividends paid at 31 January. Debt at fair value. Benchmark is the FTSE All-Share Index. See Glossary on page 91. 2 # 44 years of dividend growth Merchants has grown its dividend for 44 years at an annualised growth rate above inflation. ![img-0.jpeg](img-0.jpeg) 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 ## Dividend capacity Dividends can be funded from revenue profits in the year and from brought forward reserves. ![img-1.jpeg](img-1.jpeg) Revenue reserves brought forward Revenue profit for the year Dividends Source: AllianzGI, as at 31 January each year. 3 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Chairman’s Statement Colin Clark A strong year for UK equities in the market and delivered strong to 31 January 2026, with three-year absolute returns while continuing to cumulative returns of 31.1%. After a long period of negative grow the dividend – something that has sentiment and underperformance We acknowledge that in a highly been central to our appeal to investors relative to many markets, during the polarised market environment, for over four decades. Merchants financial year ended January where returns have generally been 2026 the UK stock market experienced a concentrated in a narrow band of stocks notable resurgence, and delivered a very A twenty-year perspective such as technology, defence and banks, strong return of 21.1%. By comparison, It is always valuable to place any single Merchants’ relative performance has the US market (as exemplified by the year’s performance in a longer-term lagged the exceptionally strong index S&P 500 Index) rose a more modest context. Our investment manager at return (21.1% over the year). Whilst we 5.7% in sterling terms. The past year has Allianz Global Investors, Simon Gergel, have to monitor short term performance provided something of a vindication for this year celebrates his twentieth as against the index and hold the manager those who have maintained conviction the lead manager of The Merchants to account, we also expect there will that the UK market as a whole was Trust. A shareholder who invested at the be periods like this from time to time. undervalued and that there were well beginning of his tenure in January 2006 The Board continues to support our managed businesses with attractive would have seen significant share price manager’s commitment to a consistent, valuations listed in the UK which could appreciation and consistently growing value-oriented investment approach offer strong positive returns. dividends, which when combined, that avoids over concentration, exceeded the value of their initial This resurgence in the UK stock market speculative bubbles or growth or investment. In other words, Merchants is welcomed by your board. In various momentum style runs. The Portfolio shareholders today who have held their reports to shareholders over the past Managers’ Report provides a more initial shares for twenty years effectively few years, we have emphasised the detailed explanation of the drivers of now have this shareholding for free! You need for patience and our manager relative performance against the index, can read more on this in the Portfolio has spoken of maintaining discipline and the Board remains confident that Managers’ Report on pages 13 to in our investment style, confident that this disciplined value-led approach, 14. | it would be rewarded in due course by | | generally avoiding highly rated ‘growth’ | | --- | --- | --- | | strong returns. Our portfolio managers’ | Such portfolio manager longevity is | stocks will deliver sustainable, long- | | investing approach is based on the | not unique, but it is unusual, and it is | term capital growth and income to | | belief that they can create a portfolio | of enormous value in creating stability | our shareholders. | | for shareholders of good companies | and consistency for the Company. The | | | which are undervalued and which can | Board would like to thank Simon for the | Earnings and dividend | | provide sustainable and growing income | past twenty years’ service to Merchants’ | Revenue earnings per share for the year | | alongside capital growth. During this | shareholders, and recognise his insight, | were 30.6p, compared to 29.4p in the | | recent year, we have seen the beginning | skill and dedication to managing the | previous year. The Board is proposing a | | of a recognition of the genuine value | portfolio which has provided such strong | final dividend of 7.5p per share, payable | | available in UK equities, by both | long-term returns for the benefit of | on 27 May 2026 to shareholders on | | domestic and international investors, | our shareholders. | the register on 17 April 2026. The ex | | and capital has finally started to identify | | dividend date is 16 April 2026 and the | | at least certain areas of the UK market. | Strong absolute returns in a | last date for election for the Dividend | | The Board is pleased to report that | polarised market | Reinvestment Plan (DRIP) will be 5 May | | against this background Merchants has | Merchants delivered absolute returns | 2026. This final dividend, together with | | benefitted from the renewed interest | of 18.9% during the financial year | the interim dividends already paid, will | 4 OVERVIEW | bring the total dividend for the year | a fundamental shift away from the | | --- | --- | | to 29.5p per share. This represents an | heavy concentration of returns in a small | | increase of 1.4% on the previous year | number of US technology stocks that has | | and marks the 44th consecutive year | characterised recent years, as investors | | of dividend growth for Merchants, | became increasingly nervous about | | which therefore also retains its place | the lofty valuations and concentrations | | in the AIC’s prestigious list of ‘Dividend | of returns in a few companies, largely | | Heroes’ – those investment trusts which | around the single central theme of AI. | have consistently delivered a rising Importantly though, despite this strong dividend stream to shareholders for performance, our manager believes over twenty years. The total dividend that the UK market continues to be for the year is fully covered by revenue significantly cheaper than its US earnings, allowing reserves to be further counterpart. The valuation gap between rebuilt. At the end of the financial year, the two markets has begun to narrow, revenue reserves stood at 20.3p per but, as many market observers have ordinary share. noted, there remains a long way to go. The rotation towards value-oriented Discount/premium and markets may have further to run, and share buybacks this represents a compelling opportunity Shareholders will be aware that, like for Merchants. ### all investment trusts, Merchants shares In a market dominated trade at either a premium or a discount The portfolio manager has long ### by large multinational to its Net Asset Value (NAV). The board maintained that concerns about the ### companies generating has an active programme to consider UK’s political and economic background ### the issuance of new shares when our are frequently overstated. In a market substantial revenues shares trade at a premium to NAV and dominated by large multinational ### overseas, UK-specific issues a programme of share buy backs when companies generating substantial ### they trade at a discount to NAV. revenues overseas, UK-specific issues often have less impact often have less impact on underlying ### on underlying business After many years of issuance, during business performance than market ### this year, Merchants shares traded at an performance than market pricing might suggest. This pattern average discount of 5.7% to the net asset ### was evident again over the past year. pricing might suggest. value per share. The discount ranged Despite the market’s strong overall from a high of 8.7% in September 2025 performance, sentiment weakened to a low of 1.2% in April 2025. During the sharply in the run-up to – and immediate year, the board monitored this situation aftermath of – the UK’s Autumn Budget, closely and Merchants performed a prompting a broad retreat from UK modest aggregate buyback of 792,017 equities on a scale not seen for some shares at a total cost of £4.4 million to time. For disciplined value investors help reduce the discount when the UK such periods of indiscriminate selling market was particularly out of favour. can create compelling opportunities. Merchants ended the financial year As the portfolio managers highlight with a discount of 5.4%, which compares in their review, markets have become favourably with many of our peers. increasingly short-term and momentum- driven, a dynamic that can give rise The resurgence of the UK market to pronounced valuation anomalies. The UK market’s performance over Our strategy is specifically designed to the past year should be viewed within identify and capitalise on this mispricing. the context of a significant global | rotation in investor sentiment. UK and | Our portfolio managers have moved | | --- | --- | | European equities led global markets | more of the portfolio into mid-cap stocks | | in early 2025, with the outperformance | than has been the case before (though | | in the first calendar quarter marking | Merchants remains predominantly | | the strongest relative performance | invested in large cap stocks). This | | in 25 years. International equities in | move reflects his view of “a once in a | | aggregate significantly outperformed | generation opportunity”, with the mid- | | the United States over the reporting | cap index now yielding more than large | | period, with the MSCI All Country World | caps, something that hasn’t happened | | ex-USA Index gaining 23.3% compared | within the past twenty years, and that is | | to the S&P 500’s 5.7% return, and this | an unusual scenario given the typically | | represents a notable shift after years of | more growth-oriented business models | | US market dominance. This also reflects | of mid-caps vs. more mature large-caps. | 5 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 This is an interesting signal of potential Global Investors, ensuring world-class under-valuation. In the short term this investment infrastructure, research, and has been an additional headwind risk management. to Merchants’ relative performance Scale and liquidity against the index, as these mid-cap Merchants’ portfolio now exceeds £1 stocks in general have still not gained billion in value, providing the scale substantial investor attention. However, and liquidity necessary to serve even our manager remains convinced this is the largest institutional investors. Our where the most significant value in the Ongoing Charge Figure (OCF) of 0.54% UK market currently lies, and therefore is highly competitive for an actively we are confident that this positioning is managed equity portfolio. a strong one for the future success of the Merchants portfolio. The investment trust advantage The UK government has taken steps to The investment trust structure provides make the London Stock Exchange (LSE) The Merchants Trust with distinctive more attractive. Recently introduced advantages that are particularly suited capital market reforms include to a value-oriented strategy. simplified listing procedures, faster A differentiated portfolio Initial Public Offering (IPO) timelines, The permanent capital structure allows and new initiatives to broaden retail us to maintain a portfolio that could investor participation. These reforms, be difficult to fully replicate within an described by the LSE as “the biggest in a open-ended fund. Whilst the majority generation”, are already showing some early signs of success. When combined of our holdings are in large-cap stocks, with the global reassessment of the Merchants also has a significant appeal of US assets, it suggests that exposure to medium and smaller investor interest in UK equities may be companies, which our manager believes entering a new, more positive phase. are particularly undervalued. This part of the market is often overlooked by global investors and only modestly The Merchants Trust proposition: invested in by passive funds, creating a compelling case for income ### Subject to shareholder opportunities for an active manager and growth ### approval of our able to benefit from conviction. The The Merchants Trust offers shareholders takeovers of portfolio companies ### proposed final a distinctive proposition, built on several Dowlais and Assura during the year are enduring strengths. ### dividend, we will clear examples of how this strategy can ### have now achieved The dividend: 44 years of unlock value as external parties awaken unbroken growth to the significant value available. ### 44 consecutive years At the heart of Merchants’ appeal is our We also encourage the manager ### of dividend growth dividend policy. Subject to shareholder to invest selectively in international approval of our proposed final stocks – allowing access to themes ### which is a remarkable dividend, we will have now achieved 44 under-represented in the UK market, ### testament to the quality consecutive years of dividend growth or where there may simply be better ### and resilience of our which is a remarkable testament opportunities available. to the quality and resilience of our ### portfolio companies. Enhancing returns and income portfolio companies. Merchants’ yield Merchants employs gearing – in the is substantially higher than the broad form of long-term, fixed-rate bonds and market average, yet the dividend is loan notes – as a tool to enhance both typically fully covered by the income returns and income. When deployed generated by our holdings. This is not prudently, gearing amplifies the returns a yield built on capital depletion; it is available to shareholders. Merchants backed by genuine earnings growth. also maintains revenue reserves, which A consistent and are used to smooth dividend payments, disciplined approach providing a predictable income stream Merchants’ investment philosophy is built even when underlying portfolio income on consistency and discipline. We adopt fluctuates. Of course, this leverage a value-oriented, long-term focused, can also exacerbate losses in a falling and high-conviction approach to stock market but, over the long term, when the selection. The portfolio management performance from the portfolio exceeds team is highly experienced and backed the cost of debt, the strategy is accretive by the considerable resources of Allianz to shareholder value. 6 OVERVIEW | Steady and increasing | Annual General Meeting (AGM) | | --- | --- | | dividend stream | The Annual General Meeting will be | | As already noted, we approach a 44- | held at Grocer’s Hall on 19 May 2026 | | year record of consecutive dividend | at 12 noon. The Board encourages all | | increases. This is a record we are proud | shareholders to attend and participate. | | of, both for ourselves, but also on behalf | Held in a hybrid format, shareholders | | of the Board members, managers and | will be welcome to attend and vote | | support teams that have gone before | either in person or to participate and | | us and contributed to this substantial | vote electronically. Further details can be | | achievement. It is another factor | found in the Notice of Meeting on page | | that would be largely impossible to | 87 of this report. | ### The Board is confident replicate in an open-ended fund or ### that The Merchants Trust exchange traded fund, particularly Outlook: confident in the quality ### during periods like the pandemic, remains an attractive of the portfolio when market dividends were slashed. ### Looking ahead to the remainder of proposition for investors Investment trusts though can utilise 2026 and beyond, the Board remains ### revenue reserves, squirreling away small seeking a combination confident in the investment approach amounts of income in bountiful years, to ### and quality of the portfolio and the of income, growth, and enhance income when there is more of prospects for Merchants. The portfolio ### exposure to the large value a drought of income from the portfolio’s managers continue to believe that, ### investments. It is this mechanism and opportunity available in the despite the strong performance in a continual balancing act which has ### 2025, many individual stocks remain UK equity market. enabled us to achieve this outcome. significantly undervalued. The global reassessment of valuations, the Governance and engagement recognition of the risks inherent in | The Board takes its responsibilities | excessive concentration in a small | | --- | --- | | to shareholders seriously, including | number of US technology stocks, and | | evaluating the performance of | the supportive policy environment in | | the Manager and the wider AIFM | the UK all suggest that the conditions | | function. In February 2026, just after | which have created the opportunity | | the financial year end, the Board | in UK equities may continue, although | | travelled to Frankfurt to meet with | we have to be mindful of the potential | | members of the investment and | impact from the evolving situation in the | | infrastructure teams (including the | Middle East. | central trading desk, economics & For a more detailed discussion of the strategy research, marketing, cyber market environment and portfolio security and AI) at Allianz Global positioning, I would refer you to the Investors. This engagement allows the Portfolio Managers’ Report starting on Board to maintain close oversight of the page 11. investment process and the considerable resources supporting Merchants. 2025/6 has been a year of strong absolute returns and of vindication for The Board is also committed to Merchants’ investment philosophy. The enhancing shareholder engagement. Board is confident that The Merchants The Annual General Meeting will once Trust remains an attractive proposition again be held in a hybrid format, and for investors seeking a combination of Merchants has expanded its marketing income, growth, and exposure to the efforts, including additional webinars, large value opportunity available in the videos and other activity, with a planned UK equity market. expansion into a wider set of distribution channels, aiming to reach a wider We are grateful for the continued audience of shareholders. 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 7 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 # 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 - Provide a high and progressively growing income stream Dividend 29.5p Year-on-year dividend growth +1.4% 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. ### Shareholder returns and performance - Provide long-term capital growth - Provide a long-term total return above the benchmark and peers 5 year portfolio return 76.3% 5 year NAV return 94.3% 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%. ### Investor appeal - Position Merchants to outperform its peers, and to remain relevant and attractive to new and existing investor groups - Ensure the costs of running the company remain reasonable and competitive 1 year peer group ranking 12th 3 year peer group ranking 14th 5 year peer group ranking 4th 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. 8 OVERVIEW 1 Dividend record per share (p) Earnings progression (p) Revenue reserves per share (p) | | | | | 29.5 | | 30.5 | | 30.6 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 28.4 | 29.1 | | 28.7 | | 29.4 | | | 27. 3 | 27. 6 | | | | | | | | 25.6 20.3 18.1 18.8 16.0 16.3 | 2022 2023 2024 2025 2026 | 2022 2023 2024 2025 2026 2022 2023 2024 2025 2026 | | | --- | --- | --- | | The board has a policy of paying a progressive | Earnings per share (EPS) shows the income | Revenue reserves can be used to ensure | | dividend each year, taking into account | that the company generates each year which | dividend payments can be maintained through | | inflation and subject to general earnings | can be used to fund dividend payments to | difficult market conditions. Income is put aside | | growth and dividends received in the portfolio. | shareholders, over time. | in good years and can be used to maintain a | | Ordinary dividends have risen in every year | | steady increase in dividends when income is | | since 1982. | | less readily available. | NAV return vs benchmark (%) Portfolio return vs benchmark (%) 28.9 257 The board uses this KPI to monitor investment performance. As the company’s policy is to invest mainly in higher yielding large UK 21.1 companies, the FTSE All-Share Index has been 18.9 18.3 chosen as the benchmark index against which 17.1 238 we measure our performance. 12.4 The board seeks a return that is better than | | | 100 | the benchmark over various time periods. The | | --- | --- | --- | --- | | 5.1 5.2 | | | benchmark was the FTSE 100 Index until 31 | | | 1.9 | | January 2017, but was revised to better reflect | | | | 100 | the changing structure of the portfolio over the | preceding decade. -2.5 2022 2023 2024 2025 2026 2016 2021 2026 Portfolio total return Benchmark NAV return Benchmark 2 3 3 Peer rankings Yield (%) Ongoing charges (%) | | | | | | | | | 0.82 | | 0.85 0.85 | | 0.84 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1 Year: 3 years: 5 years: | | | | | | | | | 0.79 | | | | | | | | | | 5.2 | 5.2 | | | | | | | | | | 131.8 | 4.8 | 4.7 | | | 4.7 | | | | | | | | | | | | 4.5 | | | 0.55 | 0.56 | 0.55 | | | | | | | | | | 4.1 | 4.1 4.1 | | | | 0.52 | 0.54 | | | 69.1 | | 3.7 | 3.9 | | | | | | | | | 35.5 5.8 -3.9 2022 2023 2024 2025 2026 2022 2023 2024 2025 2026 -18.1 | Merchants | Merchants | Peer group average | | | Merchants | UK Equity Income peer group | | --- | --- | --- | --- | --- | --- | --- | | The board also monitors the performance | Merchants’ yield has consistently been higher | | | | The board has a policy of ensuring that the | | | relative to a broad range of competitor | than the UK Equity Income peer group average. | | | | company’s running costs are reasonable and | | | investment trusts. The chart shows Merchants’ | | | | | competitive. The ongoing charge is calculated | | | position in UK Equity Income peer group | | | | | using the AIC’s recommended methodology | | | quartiles over a range of time periods. | | | | | (See Glossary on page 91). | | | 1 | | | 2 | 3 | | | | At the year end before payment of the third and final quarterly dividends. | | | Source: JP Morgan Cazenove. | Source: Morningstar/AllianzGI. | | | Alternative Performance Measure (APM). See Glossary on page 91. 9 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 # Performance – review of the year ## 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 | $^{1}$ 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 INVESTMENT MANAGER’S REVIEW ## Portfolio Managers’ report Simon Gergel Richard Knight Andrew Koch | This has been my twentieth year as | in dividends, so someone buying shares | trading relationships. However, after | | --- | --- | --- | | lead manager of The Merchants Trust | back then would have received all | considerable volatility and spiralling | | and it has been a fantastic privilege | their money back and more, whilst they | threats from China in particular, the US | | and a great pleasure to work on behalf | would have shares worth 628p this | rowed back on the more aggressive | | of shareholders and the Board. I have | January. The dividend per share has risen | tariffs. President Trump was also active | | taken the opportunity below to talk | progressively from 18.9p to a proposed | in securing the hostage releases in | | about this in more detail. Despite the | 29.5p, despite two periods of sharp | Gaza and a fragile peace treaty, the | | market ups and downs, returns have | income contraction within the portfolio | abduction of the Venezuelan president | | been healthy and Merchants has | during the GFC and the Covid pandemic. | Maduoro, and made threats to take | | continued the long tradition of paying | | over Greenland. His administration was | Also, the average cost of debt has come rising dividends, now for 44 years. interventionist in the corporate sphere, down from around 8.5% in 2006 to just seeking and securing agreements with However, I am also very conscious that, over 5% today. One other aspect has pharmaceutical companies, as well as whilst the last three years have seen increased materially. The format and receiving commitments from many other strong total returns and continued length of the annual report. Today’s large companies to make substantial steady dividend growth, those returns report is far more extensive, and provides investments in the USA. have lagged the even stronger gains much more detailed, and hopefully of the UK stock market. In this report Outside of politics, the dominant theme welcome commentary, as well as I look back at the last year in detail, in the year was the explosive growth increased mandatory reporting. In 2006, describe the broader environment and of generative AI and the race by the so the annual report had just 47 pages, in explain why we have lagged behind called “hyperscalers” including Google 2025 it had 118. In a separate comment our benchmark. I also explain why parent Alphabet and Microsoft, to we have also looked at the evolution of we remain excited about the huge spend hundreds of billions of dollars the stock market over the last 20 years. opportunities in a highly unusual and building vast data centres to exploit this The market today is very different to that polarised UK equity market, and why we potential opportunity. This is creating in the early 2000’s. It provides a different believe that the portfolio can continue massive demand for semiconductors, set of challenges but also opportunities to deliver further significant gains and a electricity, copper and other equipment. for the future. strong income profile for shareholders The impact of AI was a powerful theme for many years. during the year. It is clear, that AI will Economic and market background have a profound impact on society and This was a remarkable year, in terms of The last twenty years many businesses, though it can be hard geopolitical developments and financial It is only in an investment trust with 137 to separate the potential winners from markets. Donald Trump became US years of history that we can consider the losers, particularly amongst the giant president for the second time in January last 20 years as the recent period. It has technology companies. 2025 and wasted no time in making an been eventful, and included the Great impact. He has fundamentally changed In the UK there was a sense of déjà vu, Financial Crisis (GFC), a long period of the US approach to international as we spent most of the year waiting austerity, the Covid pandemic and the relations, security, and trade. His for the (later than normal) budget in war in Ukraine, to name but a few events. | | tariff announcements on so-called | November. There was considerable | | --- | --- | --- | | Time provides some perspective. The | “Liberation Day” on 2nd April, since | uncertainty about how the Chancellor, | | share price was 451p at the end of | judged illegal by the US Supreme | Rachel Reeves, would balance the | | January 2006. Over the last 20 years, | Court, rocked financial markets and | books. Various potential policy options, | | Merchants has paid 498.5p per share | threatened major disruption to world | including tax rises, were floated over | 11 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 | the summer, and almost certainly | became increasingly resilient to policy | | --- | --- | | constrained activity and investment in | and political announcements from the | | the economy. The UK economy grew | US president, although the uncertainty | | faster in 2025 than 2024, but growth | weighed on the currency with the US | | was still muted and slowed in the second | dollar falling nearly 10% against sterling. | | half of the year. As inflationary pressures | The FTSE All-Share Index produced | | reduced, the Bank of England cut | a total return, including dividends, of | | interest rates four times, after two cuts in | approximately 21%, well ahead of the | | the previous year. Interest rates ended | US market’s return of around 6% in | | January at 3.75%. This fall in the cost of | sterling terms. This was also ahead of the | | borrowing should gradually feed into the | Eurostoxx 600 index of European shares | ### The FTSE All-Share Index corporate and consumer sector and help which rose around 17%. The standout ### produced a total return, to stimulate activity. performers were precious metals, with ### including dividends, of gold, and particularly silver, benefitting In the USA, there was a so-called from safe haven buying. Copper also ### approximately 21%, well “K-Shaped” economy. More affluent rallied strongly on the back of tight ### ahead of the US market’s consumers, who had benefitted from supply and rising demand for power rising financial asset prices, and were and electrification. ### return of around 6% in less impacted by food and energy cost ### sterling terms. There was also a sense of déjà vu within inflation, were robust spenders. However, the UK stock market last year. Investors many less affluent consumers struggled in general rewarded companies to deal with inflationary pressures with positive “earnings momentum”, and had to restrict their spending. This ie. seeing profits expectations rise, created a tough demand environment whilst companies seeing downgraded for food and other basic consumer expectations were heavily penalised, products. In the UK the housing market almost irrespective of valuation. Large is central to consumer sentiment, companies outperformed medium sized especially among more affluent companies. The latter tend to be more consumers, and recovery here has domestically oriented and cyclical, with been sluggish. fortunes tied more closely to the UK Despite the geopolitical events and economy, although there are plenty of the economic uncertainty, equity internationally spread, or economically markets had a strong year, even with a defensive, mid-caps too. Performance major pull-back in April. Stock markets varied enormously between sectors, FTSE All-Share Index for the year to 31 January 2026 5600 5,511.52 5200 4800 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 4400 4000 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 20262025 FTSE All-Share Index 31.1.25 – 31.1.26. Source: AllianzGI/Datastream. 12 INVESTMENT MANAGER’S REVIEW ## 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 | There have been substantial changes | These factors make it very hard to have | | | --- | --- | --- | | in financial markets over the last twenty | an information edge in the short term, | | | years: the rise in passive funds has | from reading and reacting to news as | | | been inexorable, with the Investment | it comes out. This environment has also | | | Association survey showing 35% of all | favoured “momentum” factors within | | | UK managed assets were passive in | an investment strategy, such as owning | Whilst these trends make | | 2024; the increase in computer driven | companies getting earnings upgrades or | | ### following a value-driven where the share price has already risen. trading and more recently, AI reading ### Momentum factors have become widely investment process of results statements, leading to almost used within active funds and particularly ### instant and sharp market reactions to more challenging, they among systematic strategies. However, news and events; the rise of Exchange ### also make the potential momentum can exaggerate any positive Traded Funds (ETFs) and “basket” ### or negative share price movements, rewards greater. trading, where investors buy or sell a potentially leading to share prices “basket” of, for example, “growth” stocks moving further and further away from or UK consumer-exposed stocks; and, of their intrinsic value. course, the proliferation of information, including investor presentations, There are two key implications from this. podcasts, videos, credit card spending First, company share prices often deviate trends, Google search data, consumer materially from a long-term measure surveys, satellite data etc. Technology of fundamental or intrinsic value, has also enabled much easier access creating large valuation anomalies, for retail investors into stock markets, as particularly if the company is seeing persistent positive or negative earnings can be seen with most shareholders in momentum. Second, exploiting these The Merchants Trust now owning shares valuation anomalies requires patience via platforms. and a disciplined investment process, as In many ways, stock markets have it can take a long time or a significant become more efficient. They are quicker event for the consensual view on a stock to absorb new company news, as well to change. Or to put it more succinctly, as any events affecting related peers valuation doesn’t matter in the short or an industry. However, in other ways term. This can lead to wild swings in markets have become less efficient. The share prices as companies go from shift to passive and “basket” trading has out of favour to in favour, or vice versa. left fewer investors thinking about the Looking at the huge rally in defence specific circumstances and attractiveness stocks, banks and tobacco in the last of individual companies. This is especially two years shows what can happen when true at the smaller end of the market, circumstances change. under the radar of most global investors, Whilst these trends make following and most impacted by flows out of the a value-driven investment process UK stock market in recent years. Investor, more challenging, they also make the or perhaps more appropriately “trader”, potential rewards greater. Perhaps attention has also generally become the one constant factor in investment more short term, with a huge focus on markets over all of history has been that whether quarterly results have “beaten” markets are ultimately driven by human or “missed” consensus expectations, nature, by fear and greed. People are at the expense of considering a fearful of losing money when asset longer-term perspective. prices are going down but they want to 13 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ### 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. be fully involved when prices are going Our core belief is that, ultimately, Another way that valuation can work up. Even professional investors are not fundamental value will reassert itself in is when an outside view sees an immune to behavioural pressures. It individual shares. I have heard valuation opportunity to take advantage of a is not comfortable to explain why we being likened to a brick tied to a piece clear mispricing. Last year Merchants may still hold in the portfolio a share of elastic, the harder you pull it, the performance benefitted from two that has fallen heavily in the last three more stretched the elastic, the faster companies being bid for. Dowlais and years. But that, alone, is not a good and further the brick will travel once Assura were both ultimately bought by reason for selling it, assuming it is still it starts moving. We are often asked if industry peers, who could see the true fundamentally sound and cheap. valuation still works as an investment value of the businesses. factor? We believe it does, and that Whilst passive investing should take Merchants has certain advantages to the opportunities for value driven away an investor’s need to worry about allow us to exploit the increasing long- strategies are greatest when dispersion individual share price oscillations, it does term inefficiency of the stock market. in the market is highest. Valuation can not remove the risk of investors en-masse Being an investment trust, Merchants influence share prices through different over-reacting to major trends. Investors has permanent capital that can look mechanisms. One of the strongest might take their money out when the through the short-term noise. The trust performing shares in the portfolio has market is down 20%, say, and miss a is not forced to meet redemptions, so been Barclays. The shares tripled in long-term rally, or they might put more we can invest in companies without price (even before counting dividends) money in near a market top. Passive knowing precisely when the true value during 2024 and 2025. The valuation global investors today will typically have will come through. Also, the board and moved from a very depressed price of a very high concentration of their money shareholder focus on dividend income less than one third of book value, to in large US technology companies, is philosophically aligned with a value a more normal level of close to book which provides a correlated risk that strategy. When a share price goes down, value today. Two years ago, it was hard they may not be fully aware of. If those assuming there is no change in business to know when the shares would move companies were to fall back, selling fundamentals, the company offers better or what might be the catalyst. Whilst pressure from passive investors could value and also a higher dividend yield. conditions in the sector have improved amplify the selling pressure of the many We like to enhance the portfolio income somewhat, the reason for the tripling active strategies that are also highly by buying more of attractive shares in the price was the very low starting exposed to this area. The combination of when they have fallen in value (with a valuation. We didn’t know when Barclays passive investing and the proliferation of higher yield) and selling some of the would perform but the magnitude of momentum strategies is compounding position as the shares rally (and the yield the move was determined largely by the potential volatility in the market. declines). This focus on the true value of undervaluation at the beginning. businesses, and particularly their cash generation or asset value, helps us to stand back from the heightened day to day volatility of markets. 14 INVESTMENT MANAGER’S REVIEW | which gave the stock market a K-shape | underperformance of the broader | actually healthy as they create the very | | --- | --- | --- | | too. On the upwards arm of the K, the | market. Finance & credit services, | mis-pricing opportunities that we aim | | aerospace & defence sector was up | consumer services and media were all | to exploit, by taking a longer-term view. | | 80%, following a gain of over 30% in | impacted, as some of their constituents | Merchants’ portfolio is very different | | the prior year, on the back of continued | were seen as potentially vulnerable to | from the benchmark composition. The | | geopolitical tensions and an imperative | AI disruption fears. The beverages sector | focus on buying sound companies | | for NATO nations to increase defence | also fell on the back of poor trading and | which are trading below their intrinsic | | | tariff concerns at Diageo, in particular. | value, and offering an attractive income | spending. The banks sector return of 65%, was even more remarkable as it stream, inevitably leads us to a different, Investment performance somewhat contrarian positioning. followed a 60% return last year, as the industry saw robust profits growth and The portfolio produced a total return The table shows the largest positive cash generation. Other strong sectors of 18.3%. Whilst this was a very healthy or negative stock contributors to absolute return, and there were many included metals & mining, electricity, relative performance. These, in turn, positive factors that we detail below, life insurance and tobacco, which all can be broken down to stocks where performance was behind the 21.1% returned 40% or more. Merchants has a large portfolio position, return of the FTSE All-Share Index, “overweight” relative to the benchmark On the contrary, on the downward leg which is Merchants’ benchmark. It is position, and stocks that are not owned of the K, there was a savage sell off in not unusual to have periods when our or which are “underweight” relative to the software and computer services investment approach is out of favour, the benchmark. | sector, down 33%, on fears that AI | particularly when markets are driven | | | --- | --- | --- | | might disrupt those business models. | by strong narratives and themes, as has | A few things stand out from the table. | | A number of other sectors fell by more | been the case in the last two or three | There have been quite extreme moves | | than 10%, which represents a sharp | years. Sector and stock volatility are | in a number of large companies or | Contribution to investment performance relative to the benchmark Overweight / underweight (%) Total return (%) Contribution (%) Best | Relx | -2.6 -34.9 | | | | | | 1.7 | | --- | --- | --- | --- | --- | --- | --- | --- | | Atalaya Mining | | | 1.5 202.5 1.7 | | | | | | Lloyds Banking Group | | | | 3.1 83.2 1.5 | | | | | London Stock Exchange Group | -2.0 -31.6 | | | | | 1.3 | | | Diageo | | -1.7 -27. 8 | | | | 1.1 | | | Serco Group | | | 1.4 95.3 0.8 | | | | | | Compass Group | | -1.7 -20.0 | | | | 0.8 | | | Experian | | -1.3 -30.3 | | | | 0.8 | | | SSE | | | 1.9 53.4 0.7 | | | | | | Unilever | -2.6 | | | | 3.5 0.6 | | | Worst | HSBC | -6.6 -2.3 | | | | | | | 60.4 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Tate & Lyle | | | | | 2.5 | -40.2 -2.0 | | | | | Rolls Royce | | -3.2 -1.7 | | | | | | | 102.4 | | WPP | | | | 0.9 | | -43.3 -1.4 | | | | | B&M | | | | 1.6 | | -41.1 -1.3 | | | | | DCC | | | | | 2.7 | | -13.4 -1.1 | | | | Marshalls | | | | 1.4 | | -38.1 -1.0 | | | | | Unite Group | | | | 1.4 | | -30.8 -0.9 | | | | | Barratt Redrow | | | | | 2.0 | | -10.9 -0.7 | | | | BAE Systems | | | -2.1 -0.6 | | | | | 64.4 | | 15 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 | big holdings, in either direction. The K | price than had been expected and the | | --- | --- | | shaped market is evident. The banks | shares have also derated materially. | | sector features on both the positive side, | Marshalls and Barratt Redrow both | | with Lloyds up over 80%, and on the | fell back on trading disappointments | | negative side, with HSBC (not owned) | and concern about the weaker than | | up 60%. We did not own HSBC, as we | expected housing and building markets. | | had a preference for domestic banks on | Finally, student accommodation provider | | valuation grounds and due to HSBC’s | Unite fell heavily as the company | | different risk profile. Because HSBC | achieved lower than expected room | | is such a big stock, not owning it had | occupancy for the current academic | | the largest single negative impact on | year. The sharp share price fall looks like | | relative performance. This was partly | an over-reaction, in what has historically | ### Atalaya Mining was the offset by owning Lloyds, and two banks been a very reliable business, but we ### strongest stock that was not shown in the table, Barclays and continue to monitor industry trends and ### owned in the portfolio, OneSavingsBank. Other major sector company performance. moves are also evident with the strong ### with the shares up an In terms of the positive contributors, performance from aerospace & defence the largest individual stock was the ### astonishing 200%. companies, and weakness in software, information services company Relx, media and data services businesses, as which was not owned but represented a well as more idiosyncratic moves. large part of the benchmark. The shares | Looking at the negative contributors | fell by over 30% as investors worried | | --- | --- | | in more detail. In addition to HSBC, | about the risks from AI disruption to the | | not owning aerospace & defence | business. The extent of the fall partly | | stocks Rolls Royce and BAE Systems | reflected the elevated valuation of the | | held back relative performance. Tate | stock a year ago. A similar theme also | | & Lyle was the largest individual | affected other large data stocks that | | negative contributor and we explain | were not owned, specifically London | | the background to this, and why we | Stock Exchange Group and Experian, | | retain high conviction, in a separate case | and to a lesser extent the catering | | study. WPP was also a major detractor | company Compass. | from performance. As we explained in Atalaya Mining was the strongest stock the interim report, this media business that was owned in the portfolio, with had continued to underperform its the shares up an astonishing 200%. We industry peers, despite a comprehensive talked about the stock in a case study turnaround strategy under the previous in last year’s report and accounts. The Chief Executive Officer. We took the company has clearly benefitted from difficult decision to exit the shares in July, a buoyant copper price as industry recognising that our previous investment supply and demand conditions have case had not worked and that the road been very favourable. But it has also ahead was challenging. WPP shares materially improved its own operations, continued to decline after our sale. both by lowering its energy costs and by The other negative contributors reflect bringing on developments of existing stock specific challenges, but we and new projects. Serco was another continue to see significant upside in strong performer, with the shares each. B&M is a discount retailer that nearly doubling since our purchase we bought earlier in the year, seeing earlier in the year. Like Atalaya the substantial recovery potential. Decisive shares benefitted from a low starting action by a new chief executive to valuation, solid operational performance reposition the business has impacted and investor enthusiasm for its end short-term profitability, and the shares market exposure; in this case the were also hit by cost accounting issues defence industry. when implementing a new IT system. Elsewhere, the electricity distribution and DCC, which is refocusing the group renewable generator company SSE rose on its energy business, saw its shares by over 50%, as investors welcomed a underperform. The sale of DCC’s fund raising to support rapid growth in healthcare division achieved a lower 16 INVESTMENT MANAGER’S REVIEW 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%% Though the company’s name may still come at an unfortunate time for Tate & fixable for a business with such strong be associated with a brand of refined Lyle and helps explain the poor share foundations in important areas of sugar, Tate & Lyle Plc has transformed price performance we have seen this food technology. itself over many decades into a business year. The shares have fallen more than We believe that Tate’s share price has focused on specialty ingredients with a a third amid a very strong performance been largely driven by weaker than mission to make food healthier as well for the broader stock market. A expected operational and financial as tastier. Working closely with food disappointing result. performance in a stock market that manufacturers, Tate helps take out The divestments and acquisitions had has very little patience for missed calories, put in fibre, and improve flavour the combined effect of diluting Tate’s expectations. The investment case and stability. The business operates earnings per share and increasing the has also been made more complex by worldwide, with a particular focus on the company’s debt, making the financial interaction with emerging impacts of US market, which is over half of sales. | | results quite sensitive to smaller changes | weight loss drugs on food consumption | | --- | --- | --- | | Our investment case recognises a little | in operational performance, and to | and the debate around ultra-processed | | of the confusion that a supermarket | a weaker market context. The share | foods. We have investigated both | | shopper in the UK might have on seeing | price meanwhile is more sensitive still | issues in some depth and had many | | a pack of ‘Tate & Lyle’ sugar – divested | to a changing narrative around food | discussions with management and | | by Tate & Lyle Plc more than 15 years | ingredients, that can be exacerbated by | have concluded for now that Tate & | | ago. The market has not realised the | any hint of deteriorating financials. | Lyle’s business is unlikely to be seriously | | extent of Tate & Lyle’s transformation | | negatively impacted. There could even | The business has been underperforming away from commodity products and be benefits. More complexity however is its growth potential for the last year, traditional sweeteners. Especially not helpful for an investment case, and and this has been caused in part by much more recently than the disposal we keep these emerging themes under economic pressure on the packaged of refined packet sugar carrying the close review. food sector, particularly in the US, company’s name in 2010. | | due to high inflation and cost of living | Whist the Tate & Lyle investment case | | --- | --- | --- | | Over a series of transactions in the | pressures. Consumers are trading down | has been disappointing this year we | | last five years Tate & Lyle divested of | and keeping less in their cupboards. | retain high conviction in our position. We | | its remaining traditional sweetener | Tate’s sales have weakened, just | believe the market is over-extrapolating | | exposure – high fructose corn syrup | as the business was digesting a lot | temporary issues, and that Tate’s | | – and added a portfolio of naturally | of organisational change, with the | transformation from less healthy | | sourced specialist ingredients through | financials under unusual pressure. | commodity products to more healthy | | the acquisition of CP Kelco in 2024. | Tate’s execution has not been perfect | specialty ingredients will be reflected in | | | in this difficult context, and it is possible | time with better financial performance, | This transformation makes excellent that the transformation has resulted and with this a potential strong rebound strategic sense and positions the in a slight lack of commercial focus. in the shares. company for higher and more We believe that if this is the case, it is sustainable long-term growth. But it has 17 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 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% Serco was one of the strongest service delivery. Immigration, justice and at a discount to the market and its performers in the portfolio during the particularly defence services are seeing own historic levels. This all happened year, with the shares nearly doubling strong growth, which should continue. as other companies in the defence after our purchases in March and April. sector had appreciated materially, The above factors mean that Serco due to rising geopolitical threats and Serco is a government outsourcing has typically been a highly valued government commitments to increase company, operating in over 20 countries company, not offering sufficient upside NATO defence budgets. The stock with more than 50,000 employees. or a high enough dividend yield to meet market had not appreciated the major Its main markets are the UK, US and Merchants’ investment criteria. However, change in the company’s business mix Australia, and its activities are in areas a few factors coincided to give us the in the last few years. Serco has made such as justice & immigration, transport, opportunity to invest at an opportune several acquisitions in the defence sector, health and increasingly, defence. Serco is time. The company had benefitted including a large US defence purchase well known for managing contracts such from some large contracts during the in 2024. This took defence up to nearly as accommodation for asylum seekers covid period, such as NHS track & trace half of group profits on a pro-forma and running prisons. Serco met our which provided exceptional growth, but basis. Serco’s defence activities also criteria of being a strong business, with this was not sustainable. Just as these earn a higher margin than the group supportive end market structural themes, contracts rolled off, three of Serco’s average. So Serco’s business mix has trading at an attractive valuation. largest contracts were either reduced improved in terms of both growth and in scale, or in one case, not renewed. Serco has been transformed over margin potential. On top of this, UK employment costs the last decade, following a difficult spiked up, due to budget changes in After our purchase, the company period around 2014. Since then, the late 2024. This left an unusual hiatus in continued to win new contracts and, management team have implemented growth expectations and some earnings later in the year, raised guidance for tight contract discipline and the business downgrades, in an environment where 2025 profits, as well as forecasting has delivered steady growth and rising investors punished companies seeing higher than expected results in 2026. margins and financial returns, with a any earnings downgrades. Although Serco’s defence profile also became robust balance sheet. | | the company had a growing pipeline | more evident, as the management | | --- | --- | --- | | The company benefits from certain | of bid activity, particularly in the US | team highlighted their positioning. | | structural themes. Most governments are | defence area, this did not show up in a | This combination of improving short | | highly indebted, making it hard for them | flat order book, due to the technicalities | term earnings expectations and an | | to invest in service transformation. They | of accounting for US defence contracts. | appreciation of the company’s attractive | | have become increasingly dependent | So, it appeared as if Serco was no | long-term prospects led to a rapid and | | on outsourcing to private companies to | longer growing. | considerable re-rating of the shares. In | | provide the skills to manage complex | | December 2025 and January 2026 we | These factors all led to the company activities, often introducing new reduced the position a little, as much of being significantly de-rated, and trading technology and delivering a change in our expected upside had been achieved. 18 INVESTMENT MANAGER’S REVIEW the electricity network business over the to increase positions in other holdings at next five years. Finally, among the top attractive levels. ten positive contributors, there were two In total there were 12 new additions to consumer brands companies. Diageo, the portfolio, and we exited 12 holdings, which was not owned, fell heavily on leaving the portfolio at 53 holdings at the back of difficult trading conditions the year end. This is a higher level of especially in the USA, exacerbated by portfolio activity than we have seen the impact of tariffs. Unilever, where the in recent years, reflecting the extreme portfolio has an underweight position, rotation in the market. underperformed modestly, despite Eight of the new purchases were made demerging its ice cream business. in the first half of the year and we explained the rationale for these in Portfolio changes the interim report. In the second half, The highly polarised, K-shaped stock we bought Hikma and MONY, whilst market led to considerable changes we received shares in Primary Health in company valuations both upwards Properties and Magnum Ice Cream and downwards. This provided Company following corporate actions. numerous opportunities to take profits Hikma is a manufacturer and or sell strongly performing shares that distributor of branded and generic approached our assessment of fair pharmaceuticals, and we have explained value. It also created opportunities the investment case in a separate case to make new investments in strong study. MONY Group, is the company companies that were undervalued, and Largest net purchases and sales within the portfolio Largest net purchases (£m) | B&M | | | | | | | | 24.6 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Reckitt Benckiser Group | | | | | | | 22.6 | | | Hikma Pharmaceuticals | | | | | | | 22.6 | | | RS Group | | | | | | 20.1 | | | | Sodexo | | | | | 16.8 | | | | | Michelin | | | | 15.9 | | | | | | Sirius Real Estate | | | 14.1 | | | | | | | MONY Group | | 13.6 | | | | | | | | Tate & Lyle | | 13.2 | | | | | | | | Whitbread | 8.4 | | | | | | | | Largest net sales (£m) | British American Tobacco | | | | | | | -22.6 | | --- | --- | --- | --- | --- | --- | --- | --- | | Drax Group | | | | | | -20.5 | | | Imperial Brands | | | | | -19.6 | | | | Dowlais Group | | | | -16.1 | | | | | WPP | | | | -16.0 | | | | | GSK | | | -13.4 | | | | | | Bank of Ireland Group | | -12.7 | | | | | | | Haleon | | -12.3 | | | | | | | Close Brothers Group | -11.8 | | | | | | | | Aena | -11. 2 | | | | | | | 19 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 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). 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. 20 INVESTMENT MANAGER’S REVIEW 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 The Branded division provides exposure Middle East and Africa, populations are investment in the year. It is a good to the Middle East & North Africa, growing and becoming wealthier. example to highlight our investment where Hikma has a strong position, Historically Hikma has reported strong process, as we look to buy strong supported by local manufacturing and growth in sales and profits. The company businesses, with supportive structural long established distribution networks. has typically traded at a high valuation, themes, trading on low valuations. The business sells branded generics and reflecting the strong competitive position in-licensed products, and has leading Hikma is a manufacturer of generic, and growth potential. However, several positions across several markets. The branded and specialty pharmaceutical events brought the valuation down to a portfolio has shifted towards treatments products, operating across North low level. for chronic conditions, which has America, the Middle East, North Africa, supported margins and reduced reliance The pharmaceutical sector had generally and Europe. The business operates on acute therapies. de-rated, with policy uncertainty in the through three divisions – Injectables, key US market, in particular. Hikma also Branded and Generics (now called The third division, Generics (now called had some specific issues. The company Hikma Rx). The company is vertically Hikma Rx) operates in the competitive lowered guidance for the Injectables integrated, with manufacturing carried US generics market. The division has division, as it invested into R&D and out largely in house. faced pricing pressure in the past. More new capacity. Partly related to this, the recently, profit margins have begun to Injectables is the main profit contributor Group Chief Executive Officer and the improve, as the business shifted towards with margins benefitting from this President of the Injectables division both more complex products and increased vertical integration. Products are off left the business, raising some questions contract manufacturing activity. Capacity patent but are complex to manufacture over leadership. However, the Chairman, utilisation has historically been low, but and require a high level of technical who is also the former CEO as well as management has focused on filling capability and regulatory approval, being a major shareholder, stepped in unused capacity through partnerships, which limits competition. Hikma is a top to manage the business until a new CEO which are becoming a more meaningful three manufacturer in the US by volume is appointed. contributor to earnings. Guidance for and has a strong position in Europe. The this division has been upgraded, with We do not believe these developments division has historically generated high margins expected to rise towards 20% materially affect the long term value of margins of well over 30%, although these over the medium term. the business. However, they caused the are expected to come down towards share price to fall heavily, and provided 30% over the medium term. This reflects The company benefits from several an opportunity to buy a strong company, higher investment, increased Research positive structural themes. Pressure on with good long term growth potential at and Development (R&D) spend and health budgets is encouraging greater an attractive valuation. Hikma continues a greater contribution from the lower use of generics, including injectables. to generate strong cash flows, which margin regions of Europe and the Demand for healthcare is growing as support investment and the payment of Middle East & North Africa. populations age, novel treatments are a progressive dividend. developed and, especially across the 21 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ### 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. Economic and market outlook and developments in industries and to find many compelling investment markets, but we have to be prepared opportunities, particularly among, I have talked about the evolution in for events from left-field to challenge medium sized companies. These are the stock market environment over any predictions. now a larger part of the portfolio. The the last twenty years, but there have K-shaped stock market has left many been economic and geopolitical Our central view is that the UK economy sound businesses trading at attractive developments over that period, which should start to see the benefits levels. Sectors where we have a high are far more important. Twenty years from lower interest rates as the year exposure to medium sized companies, ago, the Western world seemed like progresses. After a long hiatus, the include housebuilding and related a reasonably peaceful place, with a housing market, which drives a lot of industries, real estate, industrial services broad consensus about the benefits activity in the UK, should start to recover, and retail. We also retain substantial of capitalism, democracy, the rule of due to cheaper mortgage costs, pent investments in typically large cap sectors law, independent central banks and up demand and government policies which still offer good value, like banks, supranational bodies like the UN, NATO to ease planning constraints. However, oil & gas and pharmaceuticals. It is also and the EU. Political discourse generally broader economic confidence and important to remember that, whilst well took place in a narrow range around the employment trends remain critical and over 90% of the portfolio is invested in centre, and globalisation seemed like confidence is fragile. Political risk is also UK listed companies, we estimate that an unstoppable force to drive efficiency a factor with the government internally nearly 60% of the underlying revenues and higher living standards. Since then, divided, even though Labour has a large and profits come from abroad. we have seen the Great Financial Crisis, majority. A change of prime minister the first and second Russian invasions could lead to a different policy agenda, Whilst the nature of the stock market of Ukraine, Brexit, Covid-19 and the first although the high level of government has changed over the last twenty years, and second elections of Donald Trump, borrowing means that the bond market we believe that ultimately share prices to name a few key events. tends to restrict more radical tax and will continue to reflect the fundamental spending plans. qualities and intrinsic values of individual Now, according to Mark Carney, companies, even if over and under- Canadian Prime Minister and former The evolving situation in the Middle East, valuation can persist for long periods. Bank of England Governor, speaking in following US and Israeli bombing in Iran, Merchants Trust owns a diversified Davos, we are in the midst of a rupture has been disrupting economic activity portfolio of companies that trade far in the world order. Political debate is in the region and threatens significant below our assessment of fair value highly polarised, with the centre ground disruption to the flow of oil, gas and and pay an above average dividend hollowed out. European governments, other critical products globally. It is likely stream. We believe the portfolio is well including the UK, are having difficulties to lower economic growth forecasts and positioned to deliver strong total returns, implementing their policies. European increase inflationary pressures, as well in line with Merchants’ objectives. peace is under very real threat and the as raising interest rate expectations, at USA is redefining its role in the world, least in the short term. The duration and with its new National Security Strategy, impact of the conflict are impossible to putting enormous strain on NATO. The predict with any certainty. We continue independence of the US Central bank is to monitor the situation and assess being called into question. Globalisation the implications. has been put into sharp reverse with US Although the portfolio would benefit tariffs being used as a political weapon, from an improving macro-economic and there are rising trade tensions over environment, our investment approach products including Chinese electric is predominantly “bottom up”, focusing vehicles, AI semiconductors, rare earth on individual businesses and their minerals and oil. valuations, rather than starting “top Against this background, it is extremely down” and constructing the portfolio challenging to predict what is going to around an economic view. Despite the happen over the investment horizon. rally in the UK stock market, we continue We can look at economic trends 22 INVESTMENT MANAGER’S REVIEW ### Active engagement AllianzGI’s engagement activities include: Engagement can take various forms including coordinated by investors, trade associations monitoring strategic developments, providing correspondence; face-to-face meetings and and other organisations, where these seek to feedback, challenging corporate practices and conference calls; proxy voting and – in rare address market or industry-wide concerns. As seeking change. instances – public interventions through an active investment manager, AllianzGI sees filing shareholder resolutions; speaking at engagement as a way to reduce investment shareholder meetings; and commenting in risk, help improve corporate performance and the media. In addition, AllianzGI sees value better assure the long-term business prospects in collaborative engagement initiatives of investee companies. Company engagements by sector and topic Environmental Social Governance 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 ### Proxy voting 1 February 2025 to 31 January 2026 Company meeting voting record Vote distribution Number of votes for: 95% Number of meetings voted 100% in line Number of votes against: 4% with management Number of votes abstained: 1% recommendation: 59 Number of votes withheld: 0% Number of meetings with ## 60 ## 1,099 Not voted: 0% at least one vote against, shareholder withheld or abstained: 1 resolutions meetings In the year there were 60 shareholder meetings for companies in This represents a total of 1,099 resolutions and the company the portfolio and the manager voted on the company’s behalf voted on 100% of these. Source: AllianzGI. at 59 of these. 23 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Portfolio breakdown at 31 January 2026 Value % of listed Benchmark Name Principal activities £’000s holdings 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 1 Atalaya Mining 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 1 Michelin 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 1 Sodexo Travel & Leisure 14,298 1.4 - 24 INVESTMENT MANAGER'S REVIEW | 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: **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). 25 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Distribution of total assets at 31 January 2026 2026 Composite | 2025 | | benchmark | | 2026 | | | --- | --- | --- | --- | --- | --- | | total | | | sector | total | | | | % | weighting | | | % | 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 INVESTMENT MANAGER’S REVIEW 2026 Composite | 2025 | | benchmark | | 2026 | | | --- | --- | --- | --- | --- | --- | | total | | | sector | total | | | | % | weighting | | | % | 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 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Our strategy Business model Strategy review The Merchants Trust carries on business as an investment Every year we hold a strategy meeting outside the regular company and follows the investment policy described below. timetable of board meetings. At the most recent meeting in The company is governed by an independent board of non- November 2025 the topics covered included: executive directors and has no employees or premises of its – Long-term performance review own. Like other investment companies, it outsources investment – Discount management management, accounting, company secretarial and other – Dividend policy and market trends administration services to an investment management company – Allianz Global Investors UK Limited (AllianzGI At the review the board noted evolving shareholder UK) – and other third parties to provide shareholders with preferences and investor sentiment and discussed with advisers an efficient, competitive, cost-effective way to gain wide the best ways to address these and align strategy accordingly. investment exposure through a single investment vehicle. The board also considered the continuing requirement for income and the sources of revenue, aiming as always to The company’s shares are listing on the Main Market of the balance shareholders’ interests with the long-term growth and London Stock Exchange. In addition to annual and half-yearly stability of Merchants Trust. financial reports, the company announces Net Asset Values per share daily and provides more detailed information monthly The board will also continue its engagement with investment to the Association of Investment Companies (AIC), of which platforms in the year ahead to understand its retail investor the company is a member, in order for brokers and investors to audience. This will enable Merchants to promote and stimulate compare its performance with its peer group. retail investor demand through compelling and authentic communications from the company and reaffirm Merchants as A review of the company’s business, activities and prospects is a core income vehicle for investors in UK equities. given in the Chairman’s Statement starting on page 4, and in the Portfolio Managers’ report starting on page 11. Investment Policy | Objective | Gearing | facilities is agreed). Gearing averaged | | --- | --- | --- | | The Merchants Trust aims to provide | The company’s policy is to remain | 14.3% in the year to 31 January 2026 | | an above average level of income and | substantially fully invested. The | (2025: 14.6%). | | income growth together with long- | company has the facility to gear – | | Depending on equity market term capital growth through a policy borrow money – with the objective of conditions, gearing may be outside this of investing mainly in higher-yielding enhancing future returns. Gearing is range from time to time but it is not large UK companies. in the form of a short-term revolving the board’s intention to increase total credit facility and fixed rate longer- Performance is benchmarked against borrowing facilities if gearing is above term borrowings. The board monitors the FTSE All-Share Index, reflecting the range. the level of gearing and makes the emphasis within the portfolio. The decisions on the appropriate action Risk diversification company’s investment performance based on the advice of the manager The company aims to achieve a is also assessed by comparison with and the future prospects of the spread of investments, with no single other investment trusts within the UK company’s portfolio. investment representing more than Equity Income sector. 15% of assets. The company seeks The company’s authorised borrowing to diversify its portfolio into at least powers set out in the Articles state five market sectors, with no one that the company’s borrowings may sector comprising more than 35% of not exceed its called up share capital the portfolio. 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 28 STRATEGIC REPORT Strategic aims Investment strategy The company’s aims, as reflected in the KPIs reporting on page We aim to achieve our objective through a strategy of investing 8, continue to be to: 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 Dividends large UK equities and an above average and rising dividend. – Provide a high and progressively growing income stream. The policy is to reach out to private investors managing The chart on page 3 shows dividend increases every their own investments, as well as to wealth managers and year since 1982 and the KPI chart on page 9 shows the institutional fund managers. The work with our partners to do contribution to dividend reserves in the past five years. 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 Shareholder return interviews and podcasts – available through our website or a – Provide long-term capital growth variety of partner sites such as Citywire and Asset TV. – Provide a long-term total return above the benchmark and peers Discount/premium – The KPI chart on page 9 shows the returns against The discount/premium of the share price to Net Asset Value the benchmark. 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. 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. 29 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ### 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 Engagement with the company’s Below are some examples of the ways by interacting with a wide range stakeholders enables the company to that Merchants has interacted with of stakeholders through meetings, fulfil its strategies and to promote the stakeholders to demonstrate how the seminars, presentations and publications success of the company for the benefit of board and its agents have considered and through contacts made through our the shareholders as a whole. stakeholders in pursuit of the success of suppliers and intermediaries. the company and the promotion of that success for the long term: ## Shareholders Why we engage: How we engage and what we do: Actions: Shareholders receive relevant We communicate through the annual The board discussed and approved information to enable them to evaluate and half-yearly reports, monthly a budget for a marketing and whether their investment interests factsheets, website, press articles, communications programme which are aligned with the strategy of podcasts and LinkedIn posts. Meetings would extend information available the company. are held with professional shareholder to shareholders and potential new groups. The AGM provides a focus for investors. The website was regularly The directors get feedback and views interaction with shareholders. The AGM updated with new podcasts and on shareholder priorities such as is a live hybrid event with the opportunity interviews with the portfolio manager. sustainability of income, risks and for shareholders to meet the board and The company is working with a media gearing levels which inform the board’s managers and for live questions from partner to ensure information about strategy discussions and decisions. shareholders both in person and online, Merchants is easily accessible online. as well as those submitted in advance. 30 STRATEGIC REPORT ## Service providers Why we engage: How we engage and what we do: Actions: The board works with AllianzGI who Our manager maintains regular During the year the board worked with provide investment management, contact and ensures service levels are the manager to oversee and monitor accounting and secretarial services as satisfactory and appropriate controls the improved processes and controls well as expertise in sales and marketing are in place with Merchants’ service at AllianzGI’s outsourced third-party for a competitive management fee. providers. In the past year the manager provider of middle office services and The board has appointed HSBC as has continued to report how it has the board obtains regular updates on depositary and custodian and MUFG adjusted the portfolio in response to due diligence from the manager. Corporate Markets as registrar to the challenges of the geopolitical and provide specialist services. Another economic environment. key service provider is State Street who provide middle office and fund accounting services through a contractual arrangement with AllianzGI. ## Portfolio companies | Why we engage: | How we engage and what we do: | Actions: | | --- | --- | --- | | The board approves the manager’s | On the company’s behalf the manager | Merchants actively votes at portfolio | | active, stock picking approach and | engages with investee companies, | company meetings. Reports on | | believes in good stewardship. | including on ESG matters and exercises | engagement and case studies are in the | | | its votes at company meetings. There are | Portfolio Manager’s Report which starts | | | details of engagement and proxy voting | on page 11. | on page 23 . ## Distribution and media partnerships | Why we engage: | How we engage and what we do: | Actions: | | --- | --- | --- | | To reach a wider audience of investors, | The manager together with our | Merchants participated in events such | | the company works with firms providing | distribution partners arranges | as the AIC Showcase 2025, a Citywire | | access to the underlying clients of | presentations about Merchants at | webinar and an Asset TV conference, as | | investment platforms, and wealth | both virtual and in-person events, | well as publishing podcasts and videos | | managers, as well as public relations | and has employed research and | throughout the year and appearing in | | advisers. The board receives detailed | news publications to reach investors | media interviews. Spikes in website hits | | feedback to confirm the ongoing level of | through share trading platforms, wealth | and new investment in the company | | interest in the company’s shares. | managers and through a variety of | on retail platforms were evident | | | financial industry websites. The board | after press coverage and distribution | | | has reflected on the value of this to | partner events. | the end user and has been focusing resources on partnerships with financial publications and making Merchants more accessible online. 31 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Risk report | Risk policy | Investment and portfolio risks | | | --- | --- | --- | | The board operates a risk management | 1.1 Market decline | | | policy to ensure that the level of risk | Risk: Macro-economic shocks to the | | | taken in pursuit of the board’s objectives | portfolio if the board and manager fail | | | and in implementing its strategy is | to predict changes to the investment | Principal risks | | understood. The principal risks identified | environment; significant market | The principal risks are now | | by the board are listed below, together | movements may adversely impact | considered to be risks relating | | with the actions taken to mitigate | the investments held by the company | to investment strategy and | | them, and set out in the Risk Map on | increasing the risk of loss or challenges | investment performance. Those | | page 33. | to the investment strategy; reduction of | identified as having the highest | | | dividends across the market affecting the | impact and the greatest likelihood | A more detailed version of the chart portfolio yield and the ability to pay in are the following: is reviewed and updated by the audit line with the dividend policy. committee at least twice yearly. This sets | | | 3.9 | Geopolitical | | --- | --- | --- | --- | | out risk types, key risks identified and | Response: Macro-economic and political | | | | their status, the controls and mitigation | risks are taken into account during | | | | | | 3.10 | Climate | | in place to address these risks, together | portfolio construction, although stock | | | | with the evidence of controls and gives | selection is predominantly ‘bottom up’ | | | Some principal risks have been an assessment of the risk using a traffic- driven. The portfolio is diversified across assessed as being as likely to occur light system, as shown at the bottom of industries and stocks to mitigate the as last year. | the chart, to confirm the outcome of the | impact of individual share price volatility. | | | | --- | --- | --- | --- | | assessment of the risk. | Whilst the portfolio is mainly invested | | | | | | 2.2 | Investment strategy: for | in UK listed companies, the end market The board has carried out a robust example, asset allocation exposures of these businesses are spread assessment of the principal and or the level of gearing may around the world. The portfolio is stress- emerging risks facing the company, lead to a failure to meet the tested at least monthly. | including those that would threaten its | | | company’s objectives, such | | --- | --- | --- | --- | | business model, future performance, | 1.2 Market liquidity and pricing | | as income generation and | | solvency or liquidity and emerging risks | Risk: Failure of investments, for example, | | dividend growth. | | and how they monitor and manage them | due to poor oversight and monitoring. | | | | | | 2.3 | Investment performance: | and disclose them in the Annual Report. Response: Detailed reports on stock for example, poor stock The process by which the directors selection and other investment selection for the portfolio monitor risk is described in the Audit management processes are received leads to a decline in the Committee Report on page 55. from the manager by the board. Liquidity rating and attraction of is monitored closely by the manager and the company. 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, 32 STRATEGIC REPORT Risk Map IMPACT | | 2.2 | | 2.3 | | 3.9 | | --- | --- | --- | --- | --- | --- | | Investment | | Investment | | Geopolitical | | | strategy | | performance | | | | 3.10 1.1 3.7 Climate Market decline Reputational | | | | | | 3.2 | | | 3.6 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Outsourcing / | | Financial crime | | | | | | | | Third party | | | and fraud | | | | | | | | 2.6 | | | 3.8 | | | | | | Market demand | | Cyber and AI | | | | | 3.3 | | 3.4 | | | | | | | Regulatory | | Corporate | | | | | | | governance Risk appetite The board identifies risks, 1.2 2.1 considers controls and Market liquidity Shareholder mitigation, the probability 3.5 and pricing relations of the event, and assesses Key person residual risk. It then 3.1 evaluates whether its risk 1.4 appetite is satisfied. The Organisation set up Currency and process board confirms for the year ended 31 January 2026 that its assessment 1.3 2.5 of risk is in line with its risk appetite for all key risks. Counterparty Liquidity and gearing low moderate high very high 2.4 Financial unlikely moderate likely almost certain LIKELIHOOD 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 33 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 but well diversified. Board papers the company against the benchmark and levels, threatening confidence in the monitor the income split by currency to peer group. The board regularly discusses company’s shares. assess risks to the revenue account. composition and succession planning to Response: The board regularly reviews ensure that sufficient board members the level of premium and discount and Business and strategy risks have the appropriate background and new shares can be issued or existing knowledge to evaluate performance. 2.1 Shareholder relations shares bought back by the company at Risk: The investment objectives, or views 2.4 Financial discounts greater than an agreed level on decisions such as gearing, discount Risk: Various factors might include when there is demand to do so. management, dividend policy, of existing poor title to investment holdings, Net shareholders may not coincide with those Asset Values calculated incorrectly, Operational risks of the board leading investors to sell the written options not covered, inaccurate 3.1 Organisation set up and process ordinary shares. revenue forecasts, incorrectly calculated Risk: Failure or other issues in the Response: Reports on shareholder management fees, incorrectly identified operational set up of the company, sentiment are received from the manager expense payments. through people, processes, systems or and brokers and reviewed by the board. external events, examples including Response: A rolling income forecast Shareholders are actively encouraged to changes in management company (including special dividends), balance make their views known. structure, oversight issues, appropriate sheet and expenses are reviewed at governance of processes could result every board meeting. Reporting from the 2.2 Investment strategy in financial loss to the company or its custodian covering internal controls in Risk: Inappropriate investment strategy inability to operate. place over custody of investments and for example asset allocation or the over appointment and monitoring of Response: The manager and the other level of gearing may lead to a failure sub-custodians is produced and reviewed key service providers report on business to meet the company’s objectives, such at least annually. continuity plans and the resilience of their as income generation and dividend growth, and capital growth, or lead response to extreme situations. Third The board’s investment restrictions are to underperformance against the party internal controls reports are also input in trading systems to impose a company’s benchmark index or against received from these service providers. pre-trade check. The manager discusses peer group companies. This may lead derivative activity during a monthly risk 3.2 Outsourcing and third party to the company’s shares trading on a call. Any overdue dividend debtors are Risk: Inadequate procedures for wider discount. monitored by the manager and variance the identification, evaluation and analyses of income from meeting to Response: Board policies restrict the size management of risks at outsourced meeting are provided to the board. The of investments in individual companies providers and roles of the third party are board annually reviews and approves the and sectors. The board closely monitors not clear and gaps in the service appear. accounting policy for the income/capital the income projections for the portfolio, Response: The board receives formal split. and the level of risk and diversification assurance reports from all of its direct of this income, to ensure the company 2.5 Liquidity and gearing service providers and the manager can meet its income objectives. The Risk: Insufficient income generated carries out regular monitoring of board also reviews the suitability of by the portfolio and due to stock outsourced administration functions, the investment strategy and the stock market falls gearing increases to levels this includes compliance visits and risk selection process regularly, and considers unacceptable to shareholders and the reviews where necessary. Results of these its gearing policy frequently. All of these market which in extreme circumstances reviews are supplied to the board. topics are considered in depth at the results in a breach of loan covenants. annual strategy review. 3.3 Regulatory Response: The board meets with the Risk: Failure to be aware of or comply 2.3 Investment performance portfolio managers and considers asset with legal, accounting and regulatory Risk: Persistent poor performance allocation, stock selection and levels of requirements which could result in against benchmark or peers leads to gearing on a regular basis. Investment censure, financial penalty or loss of decline in rating and attraction of the restrictions and guidelines are monitored investment company status. company to investors. and reported on by AllianzGI. Regular Response: The board maintains close compliance information is prepared on Response: The portfolio manager relations with its advisers and makes covenant requirements. attends all board meetings to discuss preparations for mitigation of these risks performance with the directors. The 2.6 Market demand as and when they are known or can board manages these risks by giving Risk: The level of discount of the share be anticipated. investment guidelines which are price to the NAV moves to unacceptable monitored at each meeting. The board reviews the investment performance of 34 STRATEGIC REPORT | 3.4 Corporate governance | and communicates actions being taken | consideration of climate data in the | | --- | --- | --- | | Risk: Weak adherence to best practice | with the board for discussion. | investment process. The manager | | in corporate governance can result in | | engages with investee companies | 3.8 Cyber security and AI shareholder discontent and potential on climate issues and to influence Risk: Increased cyber attacks and from reputational damage to the company. transition pathways. traditional and generative Artificial Response: The board takes regular Intelligence (AI) in respect of malicious Viability Statement advice on best practice. The board is AI, its rapid growth and the lack The Merchants Trust is an investment highly experienced and knowledgeable of regulation. company and has operated as an about corporate governance best Response: The board is alert to the investment vehicle since 1889 with the practice, and the board includes directors threat of and risks from cyber attacks aim of offering a return to investors who are board members of other large and reviews how third party service over the long term. The board has UK plcs and other investment companies. | | providers handle these threats and risks. | confidence in the future of the company. | | --- | --- | --- | | 3.5 Key person | These reports confirm that all systems | Over its 137 year history, the company | | Risk: Departure of the portfolio manager, | are secure and are updated in response | has survived numerous external crises | | certain professional individuals, and/ | to any new threats as they arise. The | and economic events; it has a solid | | or board members, may impact | board asks for and receives assurance | portfolio of blue chip stocks and has | | the management of the portfolio, | from key suppliers on AI developments | built up substantial revenue reserves. | | the achievement of the company’s | and threats. | The directors have formally assessed the | | investment objective and/or disruption to | | company’s prospects for a period longer | 3.9 Geopolitical its operations. than the one year required by the Going Risk: Unpredictable consequences of Concern principle. The directors believe Response: Manager and board political and macro-economic shocks that five years is an appropriate outlook succession plans are in place. Cover such as the repercussions of the invasion period for this review as this is broadly is available for core members of the of Ukraine by Russia, the conflict in Gaza, equivalent to the portfolio’s investment relevant teams of the manager, and the evolving situation in the Middle East, cycle. Whilst acknowledging the difficulty work can be carried out by other team US interventions and tariff impositions, of forecasting prospects for markets members should the need arise. ongoing inflation concerns and the threat beyond a relatively short horizon, the to income and cost of gearing. | 3.6 Financial crime and fraud | | board believes that this should give | | --- | --- | --- | | Risk: That the company and the | Response: The board carries out horizon | investors assurance that there is a | | manager’s firm, its employees, or clients | scanning by keeping informed through | realistic prospect that the company will | | are subject to financial crime or breach | its manager and advisers on the political, | continue to be viable and continue to | | elements of the Bribery Act. | economic and legal landscape, and | seek to achieve its aim to provide an | | | reviews updates received on regulatory | above average level of income and | Response: AllianzGI has anti-fraud, anti- changes that affect the company income growth together with long term bribery policies and robust procedures including industry and manager thematic capital growth. in place. The board is alert to the risks outlook and insights as well as research of financial crime and reviews how third The board has assessed the long-term publications. The board is fully engaged party service providers handle these. viability of the company against the with its management company, AllianzGI, These reports confirm that all systems are principal risks faced by the company, and its other advisers to keep informed secure and are updated in response to outlined in the risk reporting within about ongoing changes and is ready to any new threats as they arise. the Strategic Report. The chief risks adapt its strategies in order to achieve that could pose a threat to the future 3.7 Reputational its objectives. prospects of the company are investment Risk: Examples include unforeseen 3.10 Climate strategy, investment performance and changes, oversight issues, appropriate Risk: that climate change is not market decline, as described in the risk governance of processes in the recognised or understood by the reporting from page 32. management company structure; manager, exposing the portfolio to association with poor governance in The board considered the following in stocks not positioned to transition portfolio companies; and operational its assessment: to decarbonisation. issues in service providers, all of which 1. The company’s investment strategy can affect the reputation of the company. Response: The manager has a detailed and the long-term performance of the climate policy which is incorporated Response: Service providers are company, together with the board’s view in the investment process, e.g., monitored and the manager provides that it will continue to provide long- through exclusion policies and other oversight and timely and detailed term returns to shareholders as well as methodologies. Its Sustainability information on any reputational issues an attractive income as it has done in Insights Engine (SusIE) facilitates the the past. 35 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 (i) The board examines performance an ongoing basis. Stocks are listed a covered dividend and building with the investment managers on major exchanges. There are no reserves against future requirements. at each board meeting and unlisted investments in the portfolio. This supports the continuation of the strategy meeting. Performance is (ii) Portfolio income is reviewed by company’s objectives to provide a high reviewed against the company’s the board at each meeting and level of income and income growth stated strategy and the continuing conservative assumptions are made together with long-term capital growth relevance of the company as a in estimated revenue accounts in for its shareholders and which supports provider of a vehicle for investors the board meeting papers (based the viability of the company for the five- looking for a portfolio invested in on historic portfolios, assuming no year period contemplated. leading companies with strong dividend increases). The directors have evaluated the risks balance sheets and the ability to pay (iii) Ongoing charges are operating and consequences of global events and attractive dividends. expenses incurred in the running of have considered the company’s ability (ii) The board receives reports at every the company (excluding financing to maintain its objectives and provide board meeting of the transactions in costs). The ongoing charges figure shareholder returns in the five year the company’s shares. The company is calculated by dividing operating horizon for viability and believe that the is a member of the FTSE 250 and expenses, i.e., the management fee company is well placed to be able to there is liquidity in its shares. and all administration expenses, by achieve this. the company’s Net Asset Value. This 2. The financial position of the company, calculation is carried out formally Based on the results of this assessment including the impact of foreseeable each year and published in the and on the assumption that the risks market movements on cash flows - the Annual Report (in accordance with above are managed or mitigated board monitors the financial position the AIC’s recommendations). The effectively, the directors have a in detail at each board meeting and at expenses of running the company reasonable expectation that the least twice each year it stress-tests the have been calculated at 0.54% of net company will be able to continue in portfolio against significant market falls. assets in the latest year (2025: 0.52%). operation and meet its liabilities as they The methods used are: These charges are low and should be fall due over the five year period of (i) Loan covenants stress testing met by the company without difficulty their review. (checking monthly on the decline over the five year time horizon in asset values needed to considered for the review of viability. breach covenants). | (ii) Stress testing the portfolio (reviewing | | 5. The company’s resilience in facing the | | --- | --- | --- | | | the time it would take to sell | risks and consequences of unanticipated | | | portfolio stocks). | macroeconomic shocks and grave | | (iii) The assessment of future portfolio | | geopolitical events and its ability to | | | income and the impact of the | continue to maintain its objectives and | | | payment of dividends on reserves | provide the required shareholder returns. | (reviewing rolling forecasts of income The board has received detailed reports based on the current portfolio at and periodic updates from AllianzGI every meeting). and its other key service providers on the | 3. The company’s ability to meet interest | resilience of their controls environment | | --- | --- | | payments and debt redemptions as they | and ability to continue to deliver their | | fall due. | services when necessary, with usage of | remote access capabilities, including The board continues to consider its for portfolio management activities. gearing strategy on an ongoing basis. The board has received assurances The next scheduled repayment of debt that AllianzGI operates to standards is in 2029 and the board continues to for business continuity management monitor how and when is best to fund and resilience which reflect market this repayment. standards, such as ISO22301. This | 4. The liquidity of the portfolio, and | resulted in minimum disruption | | --- | --- | | the company’s ability to pay growing | through the pandemic and in the | | dividends and to meet the budgeted | post-pandemic environment. | expenses of running the company, which The portfolio manager has provided is examined at each board meeting. forecasts to demonstrate the reasonable (i) Liquidity testing is carried out on prospect of, having utilised revenue Merchants’ portfolio by AllianzGI on reserves previously, maintaining 36 STRATEGIC REPORT Going Concern The future Some of the trends likely to affect the company in the future are common to Following all the investigations made in As set out in my Chairman’s Statement many investment companies, such as the Viability review above, the directors on page 6, there are many reasons to the future attractiveness of investment have concluded that the company invest and stay invested in The Merchants companies as investment vehicles. The has adequate resources to continue Trust. Merchants has experience outlook for economic growth, interest in operational existence. The directors of providing active investment rates, inflation and asset returns will also have also considered the risks and management through many difficult be important factors. In particular for consequences of macroeconomic and environments and over time provides Merchants, the availability of attractive other unanticipated shocks on the long-term capital growth and an above income producing UK equities and company and have concluded that the average income and income growth to their future returns are central to the company has the ability to continue in investors. investment proposition. The board operation and meet its objectives for at continues to believe that the continuing least twelve months after the approval evolution of the investment platforms of the Annual Report. For this reason market offers many opportunities for the the directors continue to adopt the self-directed investor. The longevity of the going concern basis in preparing the company and its importance to investors financial statements. 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 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Directors | Colin Clark | Karen McKellar | Mal Patel | | --- | --- | --- | | Chairman | Senior Independent Director | Chair of the Audit Committee | | Joined the board in June 2019 and | Joined the board in May 2020. Karen | Joined the board in March 2024. Mal | | became Chairman in September | is a non-executive director and Chair | is Head of Investor Relations at Spirax | | 2019. Colin is Chairman of the board | of the Management Engagement | Group plc and has held senior roles in IR | | of BNP PAM UK and a non-executive | Committee of JPMorgan European | and corporate development in a number | | director of BNP PAM Holdings SA. He is | Investment Trust PLC. Karen has had a | of large UK companies. His early career | | also Chairman of Aveni Plc, a leading | long career as an investment manager | was as an equities analyst in investment | | provider of AI solutions for financial | at Standard Life, managing the | banking. He is a chartered accountant. | | services organisations. Colin has had | Standard Life Equity Income Investment | | Experience: a 40 year career in asset and wealth Trust as well as several large UK equity A senior leader in a wide range management. His most recent executive open-ended funds. of investor relations, corporate roles were from 2010 at Standard Life Experience: development and finance roles across a Investments and as an executive director An asset management professional variety of businesses. of Standard Life Plc. Prior to this he with senior management, money was with Mercury Asset Management, Reasons for the recommendation management and investment trust Merrill Lynch Investment Managers and for re-election: board experience. S.G.Warburg & Co. With a strong corporate background Reasons for the recommendation and financial expertise, Mal brings Experience: for re-election: experience and skills in many areas Senior leadership roles in the asset Karen brings to the board a deep including transactions, corporate management industry and an understanding of portfolio management finance and treasury, debt and equity experienced chairman. and current working knowledge of raising and also external reporting and Reasons for the recommendation investment trusts. investor relations. 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. 38 GOVERNANCE Lisa Edgar Neil Galloway | Joined the board in January 2024. Lisa is | Joined the board in July 2025. Neil is a | Committee memberships | | --- | --- | --- | | the founder and Chief Executive of Big | Non-Executive Director of AVI Global | All directors are non-executive | | Window Consulting, an international | Trust PLC. | and independent of the manager. | | consumer and B2B insight and | | All directors are members of the | He has extensive experience of marketing agency, specialising in Management Engagement Committee. leadership roles in large, listed financial services. All directors, with the exception of the multinational companies and was Chairman, Colin Clark, are members of Until January 2024, Lisa was Chief most recently CFO of Pepco Group the Audit and Risk Committee. Further Customer Officer on the Executive N.V. Previous roles included Executive details can be found from page 50. Leadership Team at Saga PLC with a Vice President of IWG PLC, CFO of DFI speciality in longevity and realising the Retail Group, a Commissioner of DFI commercial value in older consumers. Nusantara, and CFO of The Hongkong and Shanghai Hotels Limited. Prior to Lisa’s career began as a brand planner this he spent 18 years in a variety of and market research analyst at Nestle investment banking roles with ABN before spending the last 25 years AMRO and HSBC. founding and building customer insight agencies. Experience: Following a successful investment Experience: banking career, he has held senior A financial services consumer expert, finance and management roles across with decades of experience of working the hospitality, retail and services at a senior level with large clients in sectors and has current investment the sector. trust experience. Reasons for the recommendation Reasons for the recommendation for re-election: for re-election: Lisa brings a wealth of retail and direct Neil has deep industry knowledge and consumer experience to the board’s skills from banking and finance roles understanding and direction of the and current working knowledge of marketing strategy and execution as investment trusts. well as articulation of the company’s investment proposition. 39 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Investment Manager and advisers The Manager or Alternative Investment Fund Head of Investment Trusts Manager (AIFM) Stephanie Carbonneil Allianz Global Investors UK Limited (AllianzGI UK) is Email: stephanie.carbonneil@allianzgi.com incorporated in the UK and its registered office is at 199 Bishopsgate, London EC2M 3TY. It is authorised by the Investment Manager Financial Conduct Authority (FCA). AllianzGI UK delegates Simon Gergel, Lead Portfolio Manager, some functions to Allianz Global Investors GmbH (AllianzGI). Richard Knight, Portfolio Manager, Andrew Koch, Portfolio Manager. AllianzGI is an active asset manager operating across nineteen Representing Allianz Global Investors UK Limited, markets with specialised in-house research teams around 199 Bishopsgate, London EC2M 3TY (the manager). the globe, managing assets for individuals, families and institutions worldwide. Company Secretary and Registered Office As at 30 September 2025, AllianzGI had €580 billion of assets Nira Mistry and Kirsten Salt under management worldwide. 199 Bishopsgate, London EC2M 3TY Through its predecessors, AllianzGI has a heritage of Telephone: 0800 389 4696 investment trust management expertise in the UK reaching Email: investment-trusts@allianzgi.com back to the nineteenth century and as at 31 December 2025 had £3.8 billion assets under management in a range of Registered number investment trusts. 28276 Website: www.allianzgi.co.uk 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 GOVERNANCE ## Directors’ Report 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. Statement of the Depositary’s Responsibilities in Respect of the Company | ‘The Depositary must ensure that the | – the sale, issue, repurchase, | Report of the Depositary to the | | --- | --- | --- | | company is managed in accordance | redemption and cancellation of | Shareholders of The Merchants | | with the Financial Conduct Authority’s | shares are carried out in accordance | Trust PLC (the company) for the | | Investment Funds Sourcebook, | with the Regulations; | year ended 31 January 2026. | | (‘the Sourcebook’), the Alternative | – the assets under management | Having carried out such procedures | | Investment Fund Managers Directive | and the Net Asset Value per share | as we consider necessary to discharge | | (AIFMD) (together ‘the Regulations’) | of the company are calculated in | our responsibilities as Depositary of | | and the company’s Articles of | accordance with the Regulations; | the company, it is our opinion, based | | Association. | – any consideration relating to | on the information available to us and | | | transactions in the company’s assets | the explanations provided, that in all | The Depositary must in the context is remitted to the company within the material respects the company, acting of its role act honestly, fairly, usual time limits; through the AIFM, has been managed professionally, independently and in – that the company’s income is applied in accordance with the rules in the the interests of the company and its in accordance with the Regulations; Sourcebook, the Articles of Association investors. and of the company and as required by The Depositary is responsible for – the instructions of the Alternative the AIFMD.’ the safekeeping of the assets of the Investment Fund Manager (‘the HSBC Bank plc company in accordance with the AIFM’) are carried out (unless they 13 February 2026 Regulations. conflict with the Regulations). Further information about the The Depositary must ensure that: The Depositary also has a duty to take relationship with the Depositary is on reasonable care to ensure that the – the company’s cash flows are page 84. company is managed in accordance properly monitored and that cash of with the Articles of Association the company is booked into the cash in relation to the investment and accounts in accordance with the borrowing powers applicable to Regulations; the company. 41 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## 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 GOVERNANCE As at 31 January 2026: Number of Senior Positions Number of on the board board members Percentage (CEO, CFO, SID of the board and chair)* Men 3 60% 2 Women 2 40% 1 Other - - - Not specified/prefer not to say - - - Number of Senior Positions Number of on the board board members Percentage (CEO, CFO, SID of the board 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 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## 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 GOVERNANCE | interactions with the companies in the | proxy votes to the registrar is 12 noon on | reissue of shares held by the company | | --- | --- | --- | | portfolio and the outcome of these | Friday 15 May 2026. | as treasury shares. The directors may | | engagements; proxy voting; and | | allot shares under these authorities to | Shareholders are invited to send any performance against industry data. take advantage of opportunities in the questions for the board and manager market as they arise but only if they care of the company secretary at Sustainability disclosure believe it would be advantageous to investment-trusts@allianzgi.com or requirements the company’s existing shareholders in writing to the registered office, to do so. The directors confirm that no The Financial Conduct Authority (FCA) 199 Bishopsgate, London EC2M 3TY. allotment of new shares will be made has introduced sustainability disclosure Questions and answers will be published unless the lowest market offer price requirements and investment labels on the website. of the ordinary shares is at least at a regime (SDR) to address concerns about At the AGM resolutions will be put premium to Net Asset Value, valuing misleading environmental claims. The to shareholders to cover ordinary debt at fair value. SDR has several dimensions, including an ‘anti-greenwashing’ rule, designed business including the re-election and 3. Purchase of own shares to increase trust and confidence in the remuneration of the directors and the re- The board is proposing that the sustainable investment market and to appointment of the Auditor, and special company should be given renewed combat providers exploiting demand business such as the authority for the authority to purchase ordinary shares for sustainable products by making allotment and buyback of shares. in the market to hold in treasury or unsupported environmental claims. for cancellation. The board believes AGM special business The company’s website https://www. that such purchases in the market 1. Allotment of new shares merchantstrust.co.uk/en-gb/about-us/ at appropriate times and prices are Approval is sought in Resolution 12 for esg notes that Merchants’ investment a suitable method of enhancing the renewal of the directors’ authority to process only includes consideration of shareholder value. The company would allot relevant securities, in accordance ESG factors, not Socially Responsible make either a single purchase or a series with section 551 of the Companies Act Investment (SRI) (i.e., building of purchases, when market conditions 2006, up to a maximum number of sustainable portfolios by delivering are suitable, with the aim of maximising 49,474,962 ordinary shares, representing sustainable financial returns based on the benefits to shareholders and within approximately one third of the existing the assessment of ESG practices) nor guidelines set from time to time by ordinary share capital. This authority is impact aspects (i.e., promoting social the board. renewable annually and will expire at and environmental goals and/or/ Under the Companies Act 2006, the the conclusion of the AGM in 2027. outcomes alongside financial returns). company is allowed to hold its own 2. Disapplication of shares in treasury following a buyback, Annual General Meeting pre-emption rights instead of having to cancel them. | As the Chairman explains in his | A resolution was passed at the AGM | This gives the company the ability to | | --- | --- | --- | | Statement on page 7, the Annual | held on 20 May 2025 in accordance | reissue treasury shares quickly and | | General Meeting (AGM) of the Company | with section 570 of the Companies Act | cost effectively (including pursuant to | | will be held at 12 noon on 19 May | 2006, to authorise the directors to allot | the authority under Resolution 13, see | | 2026 at Grocers’ Hall, Princes Street, | ordinary shares for cash other than | above) and provides the company with | | London, EC2R 8AD. This meeting will be | pro rata to existing shareholders. The | additional flexibility in the management | | held as a hybrid meeting. This means | authority is renewable annually and | of its capital base. Such shares may be | | that there will be an in person meeting | expires at the conclusion of the AGM in | resold for cash but all rights attaching | | as well as it being streamed live for | 2026. Special Resolution 13 is therefore | to them, including voting rights and any | | those shareholders who cannot attend | proposed under special business at | right to receive dividends are suspended | | in person. The formal Notice of AGM, | the forthcoming AGM to renew this | whilst they are in the treasury. If the | | including instructions on how to join | authority until the conclusion of the AGM | board exercises the authority conferred | | online, starts on page 87. | in 2027 or 18 August 2027 if earlier. | by Resolution 14, which will be proposed | | | This power is limited to a maximum | as a Special Resolution, the company | Shareholders may and are strongly number of 14,842,488 ordinary shares, will have the option of either holding in encouraged to participate in the being approximately 10% of the issued treasury or of cancelling any of its shares business of the AGM by exercising their ordinary share capital of the company purchased pursuant to this authority and votes in advance of the meeting by as at the date of this report, provided will decide at the time of purchase which completing and returning the form of that there is no change in the issued option to pursue. proxy. Shareholders may also submit share capital between the date of this their proxy electronically through the Where purchases are made at prices report and the AGM to be held on 19 website of the company’s registrar at below the prevailing Net Asset Value May 2026. | https://uk.investorcentre.mpms.mufg. | | of the ordinary shares, this will enhance | | --- | --- | --- | | com/ or via the Investor Centre app.. | Authority will also be sought in | Net Asset Value for the remaining | | Further details are contained within the | Resolution 13, which will be proposed | shareholders. It is therefore intended | | Notice of Meeting Notes on page 88. | as a Special Resolution, to disapply | that purchases would only be made at | | The deadline for you to submit your | pre-emption rights in respect of the | prices below the prevailing Net Asset | | | allotment of shares by the sale and | Value at the time of purchase, with | 45 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 the purchases to be funded from the company may purchase through the The board and the Annual Report capital reserves of the company (which market pursuant to a general authority The board reviewed the entire Annual are currently in excess of £668 million). such as this is equivalent to 14.99% of its Report and noted all the supporting The rules of the UK Listing Authority (UK issued share capital. For this reason, the information received. It then considered Listing Rules) limit the price which may company is limiting its renewed authority whether the Annual Report satisfactorily be paid by the company to 105% of the to make such purchases to 22,248,890 reflected a true picture of the company average middle-market quotation for an ordinary shares, representing 14.99% and its activities and performance in ordinary share on the five business days of the issued share capital, provided the year, with a clear link between the immediately preceding the date of the that there is no change in the issued relevant sections of the report. The relevant purchase. The minimum price to share capital between the date of this directors were then able to confirm that be paid will be 25p per ordinary share report and the AGM to be held on 19 the Annual Report, taken as a whole, is (being the nominal value). Overall, this May 2026. fair, balanced and understandable and proposed share buyback authority, if provides the information necessary for In addition to renewing its powers to buy used, could help to reduce the discount shareholders to assess the company’s back and cancel shares, the board is to Net Asset Value when the company’s position and performance, business seeking shareholder authority to reissue shares trade at a discount. model and strategy. shares from treasury. The board considers that it will be most By order of the board The authority in accordance with section advantageous to shareholders for 701 of the Companies Act 2006, will last the company to be able to continue until the AGM of the company to be held to make such purchases as and when Nira Mistry in 2027 or the expiry of 15 months from it considers the timing to be most Company Secretary the date of the passing of this resolution, favourable and therefore does not 1 April 2026 whichever is the earlier. The authority will propose to set a timetable for making be subject to renewal by shareholders at any such purchases. subsequent AGMs. Under the UK Listing Rules, the maximum number of its own shares which a listed 46 GOVERNANCE ## Corporate Governance Statement The directors are responsible for good Board composition an internally facilitated report compiled and effective governance and our by the Chairman and the Company Both at the year end and at the date approach is to ensure that we abide Secretary were reviewed by the of signing this report there were five by the principles of the governance nomination committee and the outcome directors on the board. The optimum framework for investment companies of the exercise was discussed by the number of directors is five, but the and check these are embedded in our board. Some themes for 2026 included number could fall to four and go as high culture to give our stakeholders and development of the conversations as six to cover periods of recruitment the wider community confidence in our about risk and peer group analysis. The and retirement. decision making and communications. Senior Independent Director received The board’s policy is for the Chairman to In particular, the board believes in the results of the survey relating to serve on the board for up to nine years, providing as much transparency for the evaluation of the effectiveness of and if beyond then the company will investors as is reasonably possible to the Chairman and reported this to the explain why this continued appointment ensure investors can clearly understand Nomination Committee. Upon receiving is in the best interests of shareholders. the prospects of the business. the reports, the board’s Nomination The chairman is to be independent and Committee recommended to the board The board has considered the Principles the other directors, led by the Senior that each of the directors be nominated and Provisions of the AIC Code of Independent Director, discuss and report for re-election at the forthcoming Annual Corporate Governance (AIC Code) back on the performance and continuing General Meeting. issued in August 2024. The AIC Code independence of the Chairman on an addresses the Principles and Provisions annual basis. Training and development set out in the UK Corporate Governance The board has a plan for the tenure On joining the board new directors Code (the UK Code), as well as setting and retirement of directors to ensure receive a comprehensive programme of out additional Provisions on issues that that an orderly process of recruitment induction. During the year, the directors are of specific relevance to the company. can take place and that the board’s received periodic guidance and updates The board considers that reporting on regulatory and compliance changes. balance of skills and relevant experience against the AIC Code, which has been is maintained. The biographies of the endorsed by the Financial Reporting directors are set out on pages 38 Board diversity Council (FRC), provides more relevant and 39 together with the skills and At the year end three of the directors information to shareholders. experience each director brings to the were male, two were female and there board for the long-term sustainable was one director with an ethnic minority The company has complied with success of the company. No contracts background. This was unchanged at the the Principles and Provisions of the of significance in which directors are date of the signing of this report. There is AIC Code. deemed to have been interested more information in the tables on page The AIC Code is available on the AIC have subsisted during the year under 43. As the company is an investment website (www.theaic.co.uk). It includes an review. Contracts of employment are trust, all of its activities are outsourced explanation of how the AIC Code adapts not entered into with the directors, and it does not have any employees. In the Principles and Provisions set out in who hold office in accordance with the its brief on board succession the board the UK Code to make them relevant for company’s Articles. looks to add to the diversity of approach investment companies. and thinking as well as taking other All directors attended all board and factors into account. relevant committee meetings during The board the year, as set out in the table on The board has noted the Parker review The board is responsible for the effective page 49. which looked at how to improve the stewardship of the company’s affairs ethnic and cultural diversity of UK and aims to provide effective leadership Directors’ and Officers’ Liability insurance boards. As a FTSE-250 company, so that the company has the platform cover is held by the company. As Merchants responded to the request from which it can achieve its investment permitted by the company’s Articles, the for voluntary information on its objective. Its role is to guide the overall company has granted indemnities to current board membership from BEIS business strategy to achieve long-term the directors. (Department for Business, Energy, and success and value for the benefit of Industrial Strategy). As an investment shareholders. A fuller description of the Board effectiveness review company Merchants does not have company’s strategy can be found on The board was subject to an internally any employees, therefore it has nothing pages 28 and 29. Strategic issues facilitated formal board effectiveness further to report in respect of gender and all operational matters of a material review after the year end. This was and ethnic representation within nature are considered at its meetings. conducted by means of a series of the company. questionnaires completed by each director. The results of these surveys in 47 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 | Conflicts of interest | Procedure for assessing conflicts | Board committees | | --- | --- | --- | | The Companies Act 2006 provides | and potential conflicts | Audit committee | | that a director must avoid a situation | A director with a potential conflict might | The audit committee meets at least | | where he or she has, or can have, a | be asked to step out of the meeting | twice each year and is chaired by Mal | | direct or indirect interest that conflicts, | room or be permitted to remain in | Patel. The committee assists the board | | or possibly may conflict, with the | the room but not participate in the | in relation to the reporting of financial | | company’s interests. Directors are able | discussion or take part in a vote on a | information, the review of financial | | to authorise these conflicts and potential | course of action. The Merchants board | controls and the management of risk. | | conflicts. The board reports annually | composition has from time to time | The Audit Committee Report starts on | | to shareholders on the company’s | included directors who sit on the boards | page 55. | | procedures for ensuring that its powers | of trading companies in which the | | Nomination committee of authorisation of conflicts are operated portfolio manager may be invested, and The nomination committee meets effectively and that the procedures have also may include directors who sit on the as needed – and at least once each been followed. boards of public bodies. year – and makes recommendations The board has agreed that only directors on board succession planning and Statements by the directors who have no interest in the matter the appointment of new directors and Each of the directors provides a being considered will be able to take considers the composition and balance statement of all conflicts of interest and the relevant decision on approval of of the board. The committee is chaired potential conflicts of interest relating any conflicts or potential conflicts, and by Colin Clark, the Chairman of the to the company on appointment and that in taking the decision the directors board, and met once in the last year subsequently in the event of any change will act in a way they consider, in good when it considered the contribution or potential change to this statement. faith, will be most likely to promote the and effectiveness of the board and The statements made by each director company’s success. formally considered the proposal for are considered and approved by the election or re-election of each director board. The directors have undertaken The board is able to impose limits or at the Annual General Meeting and to notify the Chairman and Company conditions when giving authorisation noted the progress on the board’s Secretary of any proposed new if it thinks this is appropriate, such as succession plans. All directors serve on appointments and new conflicts or ensuring that a director who also serves the nomination committee and consider potential conflicts for consideration, if on the board of a company in the nominations made in accordance with necessary, by the board. portfolio does not participate in any an agreed procedure. discussions on the investment decision. The Merchants board follows good It is the board’s policy to use external practice by having directors’ interests Directors’ interests register agencies to draw up lists of candidates as an agenda item at every scheduled The Merchants directors’ interests as part of any recruitment of new board meeting, and a report of register covers directors’ outside directors. The brief to any recruitment all directors’ interests is tabled for interests (e.g., directorships or significant consultant includes the instruction that consideration by the board. This means holdings) and where the directors use the shortlist should include a diverse that any changes to the directors’ the services of suppliers to the company range of candidates. interests can be noted and recorded, (e.g., accountancy firms) in their own and any potential conflicts identified and The Nomination Committee Report is on capacity. The register also contains notes dealt with by the board. page 51. of any hospitality and gifts received from service providers, including the Management management company. engagement committee The management engagement Confirmation to shareholders committee met once in the year to review the Management and The board confirms that the detailed Administration Agreement and the procedures have been followed manager’s performance and a report during the year and that its powers of on management fees. It has defined authorisation are operating effectively. 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 GOVERNANCE Remuneration committee fully in place throughout the year under revenue against projections and The remuneration committee met once review and up to the date of the signing performance comparisons. in the year. The committee consists of all of this Annual Report. – Authorisation and exposure limits are the directors and during the year was set and maintained by the board. The key elements of the process are chaired by Karen McKellar. All directors – The board meets with senior as follows: | serve on the committee and the Chair | | representatives of AllianzGI and also | | --- | --- | --- | | of the board’s remuneration and the | – In addition to the review of the key | receives an internal controls report | | additional sum payable to the Chair | risks (see page 32), the directors | from the manager, together with | | of the audit committee are discussed | regularly review all the risks on the | a report on compliance with the | | without the involvement of the directors | Risk Map and every six months the | manager’s anti-bribery policy. | | concerned. The committee determines | board receives from the manager a | – The audit committee on behalf | | the company’s remuneration policy and | formal report which details any known | of the board reviews the internal | | determines the remuneration of each | internal control failures, including | controls reports of other third party | | director within the terms of that policy. | those that are not directly the | service providers, including those of | | The Directors’ Remuneration Report | responsibility of the manager. | AllianzGI and all other providers of | | starts on page 52. | – Allianz Global Investors UK Limited | administrative and custodian services | | | (AllianzGI UK), as the appointed | to AllianzGI or directly to the company. | The terms of reference for each of manager, provides investment the committees may be viewed The directors confirm that the management, accounting and by shareholders on request and audit committee has reviewed the company secretarial services to the are published on the company’s effectiveness of the system of internal company. The manager therefore website www.merchantstrust.co.uk. control, which it has found to be maintains the internal controls appropriate. During the course of its associated with the day-to-day Internal control review of the system of internal control, operation of the company. These the board has not identified nor been The directors have overall responsibility responsibilities are included in the advised of any failings or weaknesses for the company’s system of internal Management and Administration which it has determined to be significant. control. Whilst acknowledging their Agreement between the company and responsibility for the system of internal the manager. The manager’s systems In the Annual Report for the year control, the directors are aware that of internal control are regularly commencing 1 February 2027 the such a system is designed to manage evaluated by its management and board will be required to report on rather than eliminate the risk of failure monitored by the manager’s internal the effectiveness of material controls. to achieve business objectives and audit function. There is no expectation that making this can provide only reasonable but not – There is a regular review by the declaration will require any significant absolute assurance against material board of asset allocation and any risk change to the processes or procedures misstatement or loss. implications. There are also regular already performed by the board. and comprehensive reviews by the The board has established an ongoing board of management accounting process for identifying, evaluating and information, including revenue and managing the significant risks faced expenditure projections, actual by the company. This process has been Board attendance Attendance by the directors at formal board and committee meetings during the year was as follows: Board Management strategy Audit Remuneration Nomination engagement Director Board meeting committee committee committee committee 1 Colin Clark 6/6 1/1 2/2 1/1 1/1 1/1 2 Timon Drakesmith 2/6 - 1/2 1/1 1/1 - Lisa Edgar 5/6 1/1 2/2 1/1 1/1 1/1 3 Neil Galloway 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 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Management Engagement Committee Report AIFM The board then met and concluded that in its opinion the continuing appointment Details of the current AIFM, Allianz of the manager on the terms agreed Global Investors UK Limited (‘AllianzGI was in the interests of shareholders UK’), are on page 84. AllianzGI UK as a whole and recommended this to is authorised and regulated by the the board. Financial Conduct Authority, with its Colin Clark registered office at 199 Bishopsgate, Note 2 on page 70 provides London EC2M 3TY. detailed information in relation to the management fee. Role of the committee Manager reappointment The management engagement The annual evaluation that took place Committee evaluation committee reviews the investment in March 2026 included the noting of management agreement and monitors The activities of the management a presentation from AllianzGI’s Head the performance of the manager for engagement committee were of Investment Trusts and the portfolio the investment, secretarial, financial, considered as part of the board manager. This covered the work done administration, marketing and support evaluation process completed in with the board on strategy and the services that it provides under that accordance with standard governance integrated sales and marketing activity, agreement. It also reviews the terms of arrangements as summarised on page including the work with investment the agreement including the level and 47. The conclusion from the process platforms and wealth managers. During structure of fees payable, the length was that the committee was operating the year the manager also provided of notice period and best practice effectively, with the right balance of information on its succession plans. provisions generally. membership and skills. The evaluation of the management arrangements also considered the Composition of the committee manager’s fee in relation to the Colin Clark All the directors are members of the peer group. Chair of the management committee. The terms of reference engagement committee can be found on the website The results of a detailed questionnaire 1 April 2026 at www.merchantstrust.co.uk. evaluating the manager completed by the directors was also reviewed by the Manager evaluation process committee. The committee concluded that the manager was performing well The committee met once during the year against the requirements set by the for the purpose of the formal evaluation board and that it was satisfied with the of the manager’s performance. For the performance of the investment manager, purposes of its ongoing monitoring, the the support from the management board receives detailed reports and company and the interaction of the views from the portfolio manager on management company with the board. investment policy and strategies, asset The committee noted that a visit by the allocation, stock selection, attributions, board to AllianzGI’s office in Frankfurt portfolio characteristics, gearing had been a valuable exercise to meet and risk. The board also assesses the AllianzGI senior management and useful manager’s performance against the for due diligence. investment controls set by the board. Portfolio performance information is set out on page 15. 50 GOVERNANCE ## Nomination Committee Report Activities of the committee The latest board effectiveness review exercise took place in March 2026 The committee met during the year and was internally facilitated by the and considered, in accordance with its Chair and Company Secretary. An terms of reference, the structure, size and effectiveness review was last conducted composition of the board and satisfied in March 2025. In March 2026, detailed itself regarding succession planning, Colin Clark surveys covering a wide number of topics making recommendations to the board. relating to the board, the Chairman, The committee also discussed the results the directors individually and the board of the board and committee evaluation Role of the committee committees were completed by each of exercise, which covered the structure and The nomination committee leads the the directors and the outcome reported size of the board and its composition process for board appointments and to the committee by the Chairman, particularly in terms of succession makes nomination recommendations except for the report relating to the planning and the experience and skills to the board. The committee reviews Chairman which was conducted by of the individual directors and the topic and makes recommendations on board the Senior Independent Director and of board diversity. structure, size and composition, the reported to the committee by her. The balance of knowledge, experience, The committee notes that all the exercise also covered a review of the skill ranges and diversity and considers directors are independent of the relationship and interaction with the succession planning and tenure policy. manager. In the opinion of the board, manager, AllianzGI UK. The results of this each of the directors is independent in review were that the board, its directors Composition of the committee character and judgement and there and its committees are effective. are no relationships or circumstances All directors are members of the The review identified the continuing relating to the company that are likely to committee, and its terms of reference importance of focusing on marketing affect their judgement. can be found on the website at www. challenges. The results of the review merchantstrust.co.uk. Individual directors of the Chairman were reported to the Recruitment of new directors follows are not involved in decisions connected committee, and this concluded that the procedures for board succession with their own appointments. Chairman continued to be highly rated. including the appointment of external consultants and a specification to draw as wide a shortlist as possible Colin Clark taking account of the wish to retain a Chair of the nomination committee diverse and balanced board. One new 1 April 2026 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. 51 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 # Remuneration Committee Report ![img-2.jpeg](img-2.jpeg) **Karen McKellar** I am pleased to present the report of the remuneration committee for the year ended 31 January 2026. ## 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. 52 GOVERNANCE 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 | | | 2026 | | 2026 | | | 2025 | | | 2025 | | 2025 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 1 | | | | | | | | 1 | | | | Directors’ fees | | | Expenses | | Total | | | Directors’ fees | | | Expenses | | Total | | | | | | £ | | | £ | | £ | | | £ | | | £ | | £ | Colin Clark 45,000 - 45,000 42,500 - 42,500 2 Timon Drakesmith 11,242 - 11,242 35,000 - 35,000 Lisa Edgar 30,000 1,739 31,739 28,500 1,904 30,404 3 Neil Galloway 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 4 Sybella Stanley - - - 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 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 | | % change | | | % change | | | % change | | | % change | | | % change | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | from | | | from | | | from | | | from | | | from | | | | 2026 | 2025 to | | 2025 | 2024 to | | 2024 | 2023 to | | 2023 | 2022 to | | 2022 | 2021 to | | 2021 | | | | £ | 2026 | | £ | 2025 | | £ | 2024 | | £ | 2023 | | £ | 2022 | | £ | 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 300 The Merchants Trust (NAV Total Return with debt at fair value) The Merchants Trust (Share Price Total Return) 200 FTSE 100 until January 2017 and FTSE All-Share % thereafter (Total Return) 100 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: AllianzGI / Datastream in GBP. Figures have been rebased to 100 as at January 2016. Signed on behalf of the board Karen McKellar Chair of the remuneration committee 1 April 2026 54 GOVERNANCE ## Audit Committee Report 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. Mal Patel Role The principal role of the audit committee is to assist the board in relation to ### I am pleased to present the reporting of financial information, the review of financial controls and the ### the report of the audit 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: ### committee for the year – responsibility for the review of the Annual Report and the Half-yearly Report; ### ended 31 January 2026. – 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. 55 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 Risks around the valuation and the Viability Statement Review of disclosure ownership of investments and risks of and communication Based on the above review of risk, management override including the chief risks around At our meetings the audit committee The company’s assets are principally investment performance and market reviews whether we are following best invested in UK listed equities traded on volatility and the arrangements in place practice in our disclosure and whether major exchanges. The committee notes to manage and mitigate these risks, we believe we are communicating that investments are valued using stock the committee reviewed a paper that clearly. In order to assist us we receive exchange prices provided by third party supported the board’s conclusion, set reports on current and future changes financial data vendors. During the year out on page 35 in the strategic report, to regulatory and accounting reporting the committee reviewed internal controls of their reasonable expectation that the from the manager and Auditor. reports from the manager concerning company is viable in the longer term, the systems and controls around the During the year we carried out further assessed as the next five years. pricing and valuation of securities. reviews of the format and content to refresh and invigorate the Annual Report Internal audit and to continue to ensure it is appealing and Risk internal controls informative to readers. Although the board has ultimate The audit committee continues to responsibility for the management believe that the company does not Whistleblowing of risk, the audit committee assists by require an internal audit function of monitoring the formal reports from As the company has no employees its own as it delegates its day to day the manager and third party service it does not have a formal policy operations to third parties from whom it providers’ reports on internal controls. concerning the raising, in confidence, receives internal controls reports. of any concerns about improprieties, The committee reviewed its approach AllianzGI will be transitioning its back whether in matters of financial to the risk management process and office services to a new service provider. reporting or otherwise, for appropriate concluded that existing processes The committee will be receiving regular independent investigation. The were adequate to ensure that its additional reporting from AllianzGI on audit committee has, however, assessment of risk is robust and of the management and controls of the received and noted the manager’s sufficient frequency. transition to gain additional assurance policy on this matter. Any matters during this change. concerning the company may be A Risk Map is reviewed at each of the raised with the Chairman or the Senior committee’s meetings. We consider Assessment of fair, balanced Independent Director. whether new risks should be added or existing risks removed, assess their and understandable likelihood of occurring and potential The audit committee and then the whole Financial Report and review scale, review the mitigating actions and board reviewed the entire Annual Report with Auditor assess the residual risk against what we and noted all the supporting information The audit committee met with the regard as acceptable ‘risk appetite’. received. It then considered whether the Auditor at the half-year point to discuss Annual Report satisfactorily reflected the audit plan for the year and identify Assurance over mitigating actions in a true picture of the company and its the significant issues to be dealt with in relation to these risks is provided in a activities and performance in the year, the review of the year end results. The series of reports from all the third party with a clear link between the relevant committee then met with the Auditor service providers. sections of the report and concluded following the year end to discuss the Resulting from the work of the audit that it did so. The directors were then results of the audit. committee, certain key risks are able to confirm that the Annual Report, These and other matters, identified as identified for disclosure and discussion taken as a whole, is fair, balanced posing lesser risk, were considered and in our Annual Report. We have also and understandable and provides the discussed with the manager and the assessed residual risks after controls and information necessary for shareholders Auditor as part of the year end process. | mitigating actions have been applied | to assess the company’s position | | | --- | --- | --- | | and have evaluated if our risk appetite | and performance, business model | We also agreed the degree of | | has been satisfactorily addressed. The | and strategy. | materiality that the Auditor would | | principal risks are in relation to portfolio, | | apply in their work, which is £9.6 million, | | business and operational matters. The | | or about 1% of net assets, although | | risks identified together with mitigating | | the Auditor would bring to the audit | | actions are set out in the Strategic | | committee’s attention any significant | | Report from page 32. | | misstatements below that level. | 56 GOVERNANCE Auditor tenure and The audit and its effectiveness Non-audit services Auditor reappointment The committee reviewed the terms of Non-audit services relate to reporting This is BDO LLP’s eighth year as the appointment of the Auditor, monitored in connection with the covenants company’s independent Auditor. The the audit process, assessed the Auditor’s under the bond trust deeds and the company is subject to mandatory independence, objectivity and the audit committee agreed that it was Auditor rotation requirements and so effectiveness of the audit process, appropriate that the company’s will put the external audit out to tender including the provision of non-audit Auditor should be asked to provide at least every ten years and change services by the firm, and determined that these services. Auditor at least every twenty years. The they have had no impact on the Auditor’s Fees accrued in the year that related to next tender will therefore be required no independence and objectivity. non-audit services were £6,000 (2025: later than 2028. The Auditor is required As part of the review of the Auditor, the £5,000). Non-audit services of £5,000 to rotate partners every five years and members of the committee and those were accrued in the prior year in relation Chris Meyrick has led the audit for three representatives of the manager involved to the issue of the 2040 Loan Notes. years as Audit Partner. in the audit process reviewed and considered a number of areas including: Change of Auditor the reputation and standing of the Mal Patel Due to the regulatory requirement for audit firm; the audit processes, evidence Chair of the audit committee the Company to carry out an audit of partner oversight and external 1 April 2026 tender no later than 2028, the Board information about the firm; the skills, took the decision to undertake an experience and specialist knowledge of audit tender process during 2025. The the audit team, particularly relating to Committee invited four firms to tender investment trusts; audit communication for the audit and received presentations including details of planning, information from three of these. These firms all on relevant accounting and regulatory had the required skills and resources. developments, and recommendations on Each presented and was evaluated on corporate reporting; the reasonableness a number of criteria. All members of of audit fees; and the Financial the Audit Committee and Colin Clark Reporting Council’s Audit Quality Report were present when the audit firms on BDO LLP for 2024/25. presented their tender and were in agreement with regards to the choice The committee was satisfied that the of company to be recommended audit process was effective for the year to the Board for approval. The under review. Board subsequently approved the The committee considered the Committee’s recommendation, and representations made by the PricewaterhouseCoopers LLP will be Auditor and sought comments from proposed at the forthcoming AGM to be representatives of the manager on appointed as auditors of the Company the provision of services by the Auditor for the 2027 audit. and the effectiveness of the external audit. The audit committee believes that the performance of the Auditor was satisfactory. 57 THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2026 ## Statement of directors’ responsibilities ## in respect of the financial statements | The directors are responsible for | The directors are responsible for keeping | Statement under Disclosure and | | --- | --- | --- | | preparing the Annual Report, the | adequate accounting records that | Transparency Rule 4.1.12 | | Directors’ Remuneration Report and the | are sufficient to show and explain the | | The directors at the date of approval of financial statements in accordance with company’s transactions and disclose this report, each confirm to the best of applicable law and regulations. with reasonable accuracy at any time their knowledge that: the financial position of the company Company law requires the directors – the financial statements, prepared and enable them to ensure that the to prepare financial statements for in accordance with applicable financial statements and the Directors’ each financial year. Under that law the accounting standards, give a true Remuneration Report comply with directors have prepared the financial and fair view of the assets, liabilities, the Companies Act 2006. They are statements in accordance with United financial position and profit of also responsible for safeguarding the Kingdom Generally Accepted Accounting the company; assets of the company and hence Practice including FRS 102 ‘The Financial – the Strategic Report includes a fair for taking reasonable steps for the Reporting Standard applicable in the UK review of the development and prevention and detection of fraud and and Republic of Ireland’ (UK Accounting performance of the business and the other irregularities. Standards and applicable law). Under position of the company, together with company law the directors must not The directors each have a duty to make a description of the principal risks and approve the financial statements unless themselves aware of any ‘relevant uncertainties that they face; and they are satisfied that they give a true audit information’ and ensure that the – the Annual Report and financial and fair view of the state of affairs of Auditor has been made aware of that statements, taken as a whole, are fair, the company and of the profit of the information. A disclosure stating that balanced and understandable and company for that period. In preparing each director has complied with that provide the information necessary for these financial statements, the directors duty is given in the Directors’ Report on shareholders to assess the company’s are required to: page 44. position and performance, business model and strategy. – select suitable accounting policies and The directors are responsible for then apply them consistently; ensuring that the Annual Report, For and on behalf of the board | – state whether applicable UK | taken as a whole, is fair, balanced | | --- | --- | | Accounting Standards have been | and understandable and provides the | | followed, comprising FRS 102, | information necessary for shareholders | Colin Clark subject to any material departures to assess the company’s position Chairman disclosed and explained in the and performance, business model 1 April 2026 financial statements; and strategy. – make judgements and accounting The financial statements are published estimates that are reasonable and on www.merchantstrust.co.uk, which prudent; and is a website maintained by the – prepare the financial statements on company’s investment manager, the going concern basis unless it is AllianzGI. The directors are responsible inappropriate to presume that the for the maintenance and integrity company will continue in business. of the company’s website. The work The directors confirm that they have undertaken by the Auditor does complied with the above requirements in not involve consideration of the preparing the financial statements. 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. 58 FINANCIAL STATEMENTS ## Independent Auditor’s Report to the members of ## The Merchants Trust PLC Opinion Conclusions relating to going concern In our opinion the financial statements: In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in – give a true and fair view of the state of the Company’s affairs as the preparation of the financial statements is appropriate. Our at 31 January 2026 and of its profit and cash flows for the year evaluation of the Directors’ assessment of the Company’s ability to then ended; continue to adopt the going concern basis of accounting included: – have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and – Evaluating the appropriateness of the Directors’ method of – have been prepared in accordance with the requirements of the assessing the going concern in light of economic and market Companies Act 2006. conditions by reviewing the information used by the Directors in completing their assessment; We have audited the financial statements of The Merchants – Evaluating the sensitivity analysis applied by the Directors Trust PLC (the ‘Company’) for the year ended 31 January 2026 in their going concern assessment including the impact of a which comprise Income Statement, Statement of Changes significant reduction in the fair value of investments; in Equity, Balance Sheet, Cash Flow Statement and Notes to – Assessing the appropriateness of the Directors’ assumptions the Financial Statements, including Statement of Accounting and judgements made in their base case and stress tested Policies. The financial reporting framework that has been applied forecasts including consideration of the available cash in their preparation is applicable law and United Kingdom and liquid assets relative to forecast expenditure and Accounting Standards, including Financial Reporting Standard other commitments; 102 The Financial Reporting Standard applicable in the UK – Challenging the Directors’ assumptions and judgements made and Republic of Ireland (United Kingdom Generally Accepted in their forecasts by performing an independent analysis of the Accounting Practice). liquidity of the portfolio; and – Reviewing the disclosures in the financial statements relating Basis for opinion to going concern to assess whether they are consistent with the We conducted our audit in accordance with International Company’s circumstances. Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our Based on the work we have performed, we have not identified responsibilities under those standards are further described in the any material uncertainties relating to events or conditions that, Auditor’s responsibilities for the audit of the financial statements individually or collectively, may cast significant doubt on the section of our report. We believe that the audit evidence we Company’s ability to continue as a going concern for a period of have obtained is sufficient and appropriate to provide a basis for at least twelve months from when the financial statements are our opinion. authorised for issue. However, because not all future events or Independence conditions can be predicted, this statement is not a guarantee as We remain independent of the Company in accordance with the to the Company’s ability to continue as a going concern. ethical requirements that are relevant to our audit of the financial In relation to the Company’s reporting on how it has applied the statements in the UK, including the FRC’s Ethical Standard as UK Corporate Governance Code, we have nothing material to applied to listed public interest entities, and we have fulfilled add or draw attention to in relation to the Directors’ statement in our other ethical responsibilities in accordance with these the financial statements about whether the Directors considered requirements. The non-audit services prohibited by FRC’s Ethical it appropriate to adopt the going concern basis of accounting in Standard were not provided to the Company and we remain preparing the financial statements. independent of the Company in conducting our audit. 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 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. How the scope of our audit addressed the key Key audit matter audit matter Income recognition – Dividend income from We responded to this matter by considering corporate actions investments and special dividends identified and challenged whether these (Note 1 on page 70) had been appropriately accounted for as revenue or capital by discussing with management and reviewing the underlying Revenue is a key indicator of performance of the supporting documentation for the issue of the dividend and Company. A significant portion of the Company’s whether it could be driven by a capital event. income relates to dividend income from investments. We analysed the population of dividend receipts to identify Judgement may be required by management in any unusual items that could indicate a capital distribution, for determining the allocation of dividend income to example where a dividend represents a particularly high yield. revenue or capital for certain corporate actions or In these instances, we performed a combination of enquiry of special dividends. management and our own independent research, including Taking the above into account, there may be an inspection of financial statements and dividend announcements incentive to recognise dividend income as revenue of investee companies, to ascertain whether the underlying event where it is more appropriately of a capital nature. may be of a capital nature. For this reason, we considered income recognition Key observations: – dividend income from investments to be a Key Based on our procedures performed we found the judgements Audit Matter. made by management in determining the allocation of dividend income to revenue or capital to be appropriate. Valuation and ownership of investments We responded to this mater by testing the valuation and (Note 8 on page 74) ownership of 100% of the quoted investments by performing the following procedures: The investment portfolio at the year-end comprised quoted equity. – Checked that the year-end bid price has been used by agreeing to externally quoted prices; We considered the valuation and ownership – Recalculated the valuation by multiplying the number of of investments to be a significant audit area as shares held (as per the statement independently obtained investments represent the most significant balance in from the custodian), by the price per share; the financial statements and underpins the principal – Recalculated the valuation of the fixed interest instruments by activity of the Company. multiplying the units held (as per the statement independently While we do not consider the valuation of quoted obtained from the custodian), by the price per unit; investments to involve a significant degree of – Assessed whether there were any contra indicators, such as estimation or judgement, there is a risk that the prices liquidity considerations, that could suggest the bid price was used for the quoted investments held by the Company not the most appropriate measure of fair value by considering may not reflect their fair value at the year end. the realisation period for individual holdings; and Additionally, in relation to ownership and recording, – Obtained direct confirmation of the number of equity shares there is a risk of error in the recording of quoted and fixed interest units held from the custodian. investment holdings which could result in the incorrect Key observations: recognition of investments by the Company. Based on our procedures performed, we did not identify any For these reasons, and due to the materiality of the matters to suggest that the valuation or ownership of the quoted balance in the context of the financial statements as a equity and fixed income investments were not appropriate. whole, we consider this to be a Key Audit Matter. 60 FINANCIAL STATEMENTS ## 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 Going concern and longer-term viability Responsibilities of Directors – The Directors’ statement with regards to the appropriateness As explained more fully in the Statement of Directors’ of adopting the going concern basis of accounting and any Responsibilities, the Directors are responsible for the preparation material uncertainties identified set out on page 37; of the financial statements and for being satisfied that they give – The Directors’ explanation as to their assessment of the a true and fair view, and for such internal control as the Directors Company’s prospects, the period this assessment covers and determine is necessary to enable the preparation of financial why the period is appropriate set out on page 35; and statements that are free from material misstatement, whether due – The Directors’ statement on whether they have a reasonable to fraud or error. expectation that the Company will be able to continue in In preparing the financial statements, the Directors are operation and meet its liabilities set out on page 37. responsible for assessing the Company’s ability to continue as a Other Code provisions going concern, disclosing, as applicable, matters related to going – Directors’ statement on fair, balanced and understandable set concern and using the going concern basis of accounting unless out on page 56; the Directors either intend to liquidate the Company or to cease – Board’s confirmation that it has carried out a robust assessment operations, or have no realistic alternative but to do so. of the emerging and principal risks set out on page 56; – The section of the annual report that describes the review of Auditor’s responsibilities for the audit of the effectiveness of risk management and internal control systems financial statements set out on page 49; and Our objectives are to obtain reasonable assurance about whether – The section describing the work of the audit committee set out the financial statements as a whole are free from material on page 55. misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance Other Companies Act 2006 reporting is a high level of assurance, but is not a guarantee that an audit Based on the responsibilities described below and our work conducted in accordance with ISAs (UK) will always detect a performed during the course of the audit, we are required by the material misstatement when it exists. Misstatements can arise Companies Act 2006 and ISAs (UK) to report on certain opinions from fraud or error and are considered material if, individually or and matters as described below. in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Strategic report and Directors’ report financial statements. In our opinion, based on the work undertaken in the course of the audit: However, the primary responsibility for the prevention and detection of fraud rests with both Those Charged with – the information given in the Strategic report and the Directors’ Governance of the Company and management. report for the financial year for which the financial statements are prepared is consistent with the financial statements; and Extent to which the audit was capable of detecting – the Strategic report and the Directors’ report have been irregularities, including fraud prepared in accordance with applicable legal requirements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our In the light of the knowledge and understanding of the Company responsibilities, outlined above, to detect material misstatements and its environment obtained in the course of the audit, we have in respect of irregularities, including fraud. The extent to which our not identified material misstatements in the strategic report or the procedures are capable of detecting irregularities, including fraud Directors’ report. is detailed below: Directors’ remuneration Non-compliance with laws and regulations In our opinion, the part of the Directors’ remuneration report to Based on: be audited has been properly prepared in accordance with the Companies Act 2006. – Our understanding of the Company and the industry in which it operates; Matters on which we are required to report by exception – Discussion with the Investment Manager and Those Charged We have nothing to report in respect of the following matters in with Governance; and relation to which the Companies Act 2006 requires us to report to – Obtaining an understanding of the Company’s policies and you if, in our opinion: procedures regarding compliance with laws and regulations – adequate accounting records have not been kept, or returns we considered the significant laws and regulations to be the adequate for our audit have not been received from branches Companies Act 2006, the FCA’s UK Listing and Disclosure not visited by us; or Guidance and Transparency Rules, the principles of the AIC – the financial statements and the part of the Directors’ Code of Corporate Governance, industry practice represented remuneration report to be audited are not in agreement with by the AIC SORP, the applicable accounting framework, and the accounting records and returns; or qualification as an Investment Trust under UK tax legislation as – certain disclosures of Directors’ remuneration specified by law any non-compliance of this would lead to the Company losing are not made; or various deductions and exemptions from corporation tax. – we have not received all the information and explanations we require for our audit. 62 FINANCIAL STATEMENTS Our procedures in respect of the above included: are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations – Agreement of the financial statement disclosures to underlying is from the events and transactions reflected in the financial supporting documentation; statements, the less likely we are to become aware of it. – Enquiries of the Investment Manager, Administrator and Those Charged with Governance relating to the existence of any non- A further description of our responsibilities is available on compliance with laws and regulations; the Financial Reporting Council’s website at: www.frc.org.uk/ – Reviewing minutes of meetings of Those Charged with auditorsresponsibilities. This description forms part of our Governance throughout the period for instances of non- auditor’s report. compliance with laws and regulations; and – Reviewing the calculation in relation to Investment Trust Other matters which we are required to address compliance to check that the Company was meeting its We were appointed by the Board of Directors on 16 May 2018 requirements to retain their Investment Trust status. to audit the financial statements for the year ended 31 January 2019.Our total uninterrupted period of engagement is eight years, Fraud covering the years ended 31 January 2019 to 31 January 2026. We assessed the susceptibility of the financial statements to material misstatement including fraud. Our audit opinion is consistent with the additional report to the Audit and Risk Committee. Our risk assessment procedures included: – Enquiry with the Investment Manager, Administrator and Those Use of our report Charged with Governance regarding any known or suspected This report is made solely to the Company’s members, as a body, instances of fraud; in accordance with Chapter 3 of Part 16 of the Companies Act – Obtaining an understanding of the Company’s policies and 2006. Our audit work has been undertaken so that we might procedures relating to: state to the Company’s members those matters we are required – Detecting and responding to the risks of fraud; and to state to them in an auditor’s report and for no other purpose. – Internal controls established to mitigate risks related to fraud. To the fullest extent permitted by law, we do not accept or – Review of minutes of meetings of Those Charged with assume responsibility to anyone other than the Company and the Governance for any known or suspected instances of fraud; and Company’s members as a body, for our audit work, for this report, – Discussion amongst the engagement team as to how and or for the opinions we have formed. where fraud might occur in the financial statements. In due course, as required by the Financial Conduct Authority Based on our risk assessment, we considered the areas most Disclosure Guidance and Transparency Rule 4.1.15R - 4.1.18R, susceptible to fraud to be income recognition – dividend income these financial statements will form part of the Electronic from investments and management override of controls. Format Annual Financial Report filed on the National Storage Mechanism of the FCA in accordance with DTR 4.1.15R – DTR Our procedures in respect of the above included: 4.1.18R. This auditor’s report provides no assurance over whether – In addressing the risk of income recognition – dividend income the Electronic Format Annual Financial Report has been prepared from investments, the procedures set out in the Key Audit in compliance with DTR 4.1.15R – DTR 4.1.18R. 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; Chris Meyrick (Senior Statutory Auditor) – Considered the opportunity and incentive to manipulate For and on behalf of BDO LLP, Statutory Auditor | accounting entries and assessed the appropriateness of any | 30 Semple Street | | --- | --- | | post-closing adjustments made in the period end financial | Edinburgh, UK | | reporting process; | 1 April 2025 | – Reviewed for significant transactions outside the normal course of business; and BDO LLP is a limited liability partnership registered in England – Performed a review of unadjusted audit differences, if any, for and Wales (with registered number OC305127). 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 63 ## Income Statement for the year ended 31 January 2026 | | | 2026 | 2026 | | 2026 | | 2025 | 2025 | | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Revenue | | Capital | Total Return | | Revenue | | Capital | Total Return | | | Notes | | £’000s | £’000s | | £’000s | | £’000s | £’000s | | £’000s | Gains on investments held at fair value through 8 - 123,695 123,695 - 66,566 66,566 profit or loss 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 45,314 117,094 162,408 43,671 60,602 104,273 shareholders 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 FINANCIAL STATEMENTS ## Statement of Changes in Equity for the year ended 31 January 2026 | | Called up | | | Share | | Capital | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | share | premium | | redemption | | Capital | Revenue | | | | | capital | account | | | reserve | reserve | reserve | Total | | Notes | | £’000s | | £’000s | | £’000s | £’000s | £’000s | £’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 # Balance Sheet at 31 January 2026 | | 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 The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements. 66 FINANCIAL STATEMENTS # Cash Flow Statement for the year ended 31 January 2026 | | 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. The Statement of Accounting Policies and Notes on pages 68 to 83 form an integral part of these Financial Statements. 67 # 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 lost 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 FINANCIAL STATEMENTS 5 Transaction costs – In accordance with FRS 102 section 12.7, its expenses are generally paid. The functional and reporting transaction costs are immediately expensed to the profit and currency is pounds sterling. Transactions in foreign currencies loss account and are not included in the carrying value of are translated into pounds sterling at the rates of exchange investments as these are measured at fair value through the ruling on the date of the transaction. Foreign currency profit and loss account. monetary assets and liabilities are translated into sterling at the rates of exchange ruling at the balance sheet date. Profits 6 Derivatives – Options may be purchased or written over and losses thereon are recognised in the capital column of the securities held in the portfolio for generating or protecting income statement and taken to the capital reserve. capital returns, or for generating or maintaining revenue returns. Where the purpose of the option is the maintenance 10 Dividends – In accordance with FRS 102 Section 32: ‘Events of capital the premium is treated as a capital item. In After the End of the Reporting Period’, any final dividend accordance with FRS 102 Section 12: ‘Other Financial proposed on ordinary shares is recognised as a liability when Instruments’, options are valued at fair value and are approved by shareholders. Interim dividends are recognised included in current assets or current liabilities in the balance only when paid. Dividends are paid from the revenue reserve. sheet. When an option is closed out or exercised the gain or 11 Cash and cash equivalents – Cash comprises cash in hand loss is accounted for as capital. and on demand deposits. Cash equivalents include bank Where the purpose of the option is the generation of income, overdrafts repayable on demand and short-term, highly liquid the premium is treated as a revenue item. Premiums received investments, that are readily convertible to known amounts on written options are amortised to revenue over the of cash and that are subject to an insignificant risk of changes period to expiry. If an option is exercised early unamortised in value. premiums are taken to capital. 12 Shares repurchased for cancellation and for holding in 7 Finance costs – In accordance with the FRS 102 Section treasury – Share capital is reduced by the nominal value of 11: ‘Basic Financial Instruments’ and Section 12 ‘Other the shares repurchased, and the capital redemption reserve Financial Instruments’, long-term borrowings are stated at is correspondingly increased in accordance with section the amortised cost, being the amount of net proceeds on 733 Companies Act 2006. The full cost of the repurchase is issue plus accrued finance costs to date. Finance costs are charged to the capital reserve within gains (losses) on sales calculated over the term of the debt on the effective interest of investments. rate basis. For shares repurchased for holding in treasury, the full cost is Where debt is issued at a premium, the premium is amortised charged to the capital reserve. over the term of the debt on the effective interest rate basis. 13 Shares sold (reissued) from treasury – Proceeds received Finance costs net of amortised premiums are charged to from the sale of shares held in treasury are treated as realised capital and revenue in the ratio 65:35 to reflect the board’s profits in accordance with Section 731 of the Companies Act investment policy and the prospective split of capital and 2006. Proceeds equivalent to the original cost, calculated by revenue returns. applying a weighted average price, are credited to the capital Dividends payable on the 3.65% cumulative preference stock reserve to replenish the profits available for distribution; are classified as an interest expense and are charged in full proceeds in excess of the original cost are credited to the share to revenue. premium account. 8 Taxation – Where expenses are allocated between capital 14 Shares issued – Share capital is increased by the nominal and revenue, any tax relief obtained in respect of those value of shares issued. The proceeds in excess of the nominal expenses is allocated between capital and revenue on value of shares net of expenses are allocated to the share the marginal basis using the company’s effective rate of premium account. corporation tax for the accounting period. 15 Significant judgements, estimates and assumptions – In Deferred taxation is recognised in respect of all timing the application of the company’s accounting policies, which differences that have originated but not reversed at the are described above, the directors are required to make balance sheet date, where transactions or events that result judgements, estimates, and assumptions about the carrying in an obligation to pay more tax or a right to pay less tax in amounts of assets and liabilities that are not readily apparent the future have occurred. Timing differences are differences from other sources. between the company’s taxable profits and its results as stated in the financial statements. There are no significant judgements, estimates, and assumptions. The investment portfolio currently consists of A deferred tax asset is recognised when it is more likely listed investments and therefore no significant estimates have than not that the asset will be recoverable. Deferred tax been made in valuing those securities. is measured on a non-discounted basis at the rate of corporation tax that is expected to apply when the timing Estimates and underlying assumptions are reviewed on differences are expected to reverse. an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the 9 Foreign currency – In accordance with FRS 102 Section revision affects only that period, or in the period of the revision 30: ‘Foreign Currency Translation’, the company is required and future periods if the revision affects both current and to nominate a functional currency, being the currency in future periods. which the company predominately operates and in which 69 ## Notes to the Financial Statements for the year ended 31 January 2026 ### 1. Income 2026 2025 £’000s £’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 | 2026 | 2026 | | 2025 | 2025 | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | | Revenue | | Capital | Total | Revenue | | Capital | Total | | | £’000s | £’000s | £’000s | | £’000s | £’000s | £’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 FINANCIAL STATEMENTS ### 3. Administration expenses 2026 2025 £’000s £’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 | 2026 | 2026 | | 2025 | 2025 | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | | Revenue | | Capital | Total | Revenue | | Capital | Total | | | £’000s | £’000s | £’000s | | £’000s | £’000s | £’000s | On 4% Perpetual Debenture Stock repayable after 19 36 55 19 36 55 more than five years On 5.875% Secured Bonds repayable after more 637 1,184 1,821 637 1,182 1,819 than one year On 3.65% Preference Stock repayable after more 43 - 43 43 - 43 than five years On 2.96% Fixed Rate Notes repayable after more 365 678 1,043 365 678 1,043 than five years On Revolving Credit Facility - - - 913 1,694 2,607 On 5.91% Fixed Rate Notes A repayable after 517 959 1,476 16 29 45 more than five years On 5.91% Fixed Rate Notes B repayable after 517 959 1,476 16 29 45 more than five years 2,098 3,816 5,914 2,009 3,648 5,657 71 ### 5. Taxation | | 2026 | 2026 | 2026 | | 2025 | 2025 | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | | Revenue | | Capital | Total | Revenue | | Capital | Total | | | £’000s | £’000s | £’000s | | £’000s | £’000s | £’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 FINANCIAL STATEMENTS ### 6. Dividends on ordinary shares 2026 2025 £’000s £’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 2025 £’000s £’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 | 2026 | 2026 | | 2025 | 2025 | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | | Revenue | | Capital | Total | Revenue | | Capital | Total | | | £’000s | £’000s | £’000s | | £’000s | £’000s | £’000s | Profit after taxation attributable to ordinary 45,314 117,094 162,408 43,671 60,602 104,273 shareholders Earnings after taxation attributable to ordinary 30.58p 79.01p 109.59p 29.43p 40.84p 70.27p shareholders 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 ## 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 FINANCIAL STATEMENTS ## 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 ### 12. Called up share capital 2026 2025 £’000s £’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 2026 2025 2025 Number £’000s Number £’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 | | Capital | Gains (losses) | | | Investment | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | premium | | redemption | | | on sales of | | | holding | Revenue | | account | | | reserve | | investments | | gains (losses) | | reserve | | | £’000s | | £’000s | | | £’000s | | £’000s | £’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 FINANCIAL STATEMENTS 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 | Debt | Debt at | Debt | | --- | --- | --- | --- | | fair value | at par | fair value | at par | | 2026 | 2026 | 2025 | 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 2025 £’000s £’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 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 | | 2026 | | 2026 | | 2026 | | 2025 | | 2025 | | 2025 | | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 20% | | 20% | | 50% | | 50% | | 20% | | 20% | | 50% | | 50% | | increase in | | decrease in | | increase in | | decrease in | | increase in | | decrease in | | increase in | | decrease in | | | fair value | | fair value | | fair value | | fair value | | fair value | | fair value | | fair value | | fair value | | | | £’000s | | £’000s | | £’000s | | £’000s | | £’000s | | £’000s | | £’000s | | £’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 FINANCIAL STATEMENTS | 2026 | | 2026 | 2026 | 2026 | 2025 | | 2025 | 2025 | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Fixed | Floating | | | | Fixed | Floating | | | | | rate | | rate | Nil | | rate | | rate | Nil | | | interest | interest | | interest | Total | interest | interest | | interest | Total | | £’000s | | £’000s | £’000s | £’000s | £’000s | | £’000s | £’000s | £’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: | | | Amount | | | Effective | | --- | --- | --- | --- | --- | --- | | Maturity | | borrowed | Coupon | | rate since | | | date | £’000s | | rate | 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 | Three | | Between | Between | | | | | --- | --- | --- | --- | --- | --- | --- | | months | three months | | one and | More than | | | | or less | and one year | | five years | five years | | Total | | £’000s | | £’000s | £’000s | | £’000s | £’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 2025 £’000s £’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 FINANCIAL STATEMENTS 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 | | 2026 | | 2025 | | 2025 | | --- | --- | --- | --- | --- | --- | --- | --- | | Book value | | Fair value | | Book value | | Fair value | | | | £’000s | | £’000s | | £’000s | | £’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 2025 £’000s £’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 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 FINANCIAL STATEMENTS | | 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 # 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 INVESTOR INFORMATION ## 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 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 INVESTOR INFORMATION # Notice of Meeting (unaudited) 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 87 middle-market quotations for an ordinary share taken Notes: from the London Stock Exchange Official List for the five The following notes explain your general rights as a business days immediately preceding the day on which shareholder and your right to attend and vote at this Meeting the ordinary share is purchased or such other amount as or to appoint someone else to vote on your behalf. may be specified by the London Stock Exchange from time 1. To be entitled to attend and vote at the Meeting (and for to time; the purpose of the determination by the company of the (iv) the authority hereby conferred shall expire at the number of votes that they may cast), shareholders must be conclusion of the Annual General Meeting of the company registered in the Register of Members of the company at in 2027 or, if earlier, on the expiry of 15 months from the close of trading on Friday 15 May 2026 (the record date). passing of this resolution, unless such authority is renewed Changes to the Register of Members after the relevant prior to such time; and deadline shall be disregarded in determining the rights of (v) the company may make a contract to purchase ordinary any person to attend and vote at the Meeting. shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed 2. Shareholders are entitled to appoint another person as wholly or partly after the expiry of such authority and a proxy to exercise all or part of their rights to attend may make a purchase of ordinary shares pursuant to any and to speak and vote on their behalf at the Meeting. A such contract. shareholder may appoint more than one proxy in relation to the Meeting provided that each proxy is appointed to By order of the board exercise the rights attached to a different ordinary share or Nira Mistry ordinary shares held by that shareholder. A proxy need not Company Secretary be a shareholder of the company. 199 Bishopsgate, London, EC2M 3TY 3. A personalised form of proxy which may be used to make 1 April 2026 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 INVESTOR INFORMATION 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/. ![img-3.jpeg](img-3.jpeg) Download on the App Store ![img-4.jpeg](img-4.jpeg) GET IT ON Google Play 9. If you are an institutional investor, you may be able to appoint a proxy electronically via the Proximity platform, a process which has been agreed by the company and approved by the registrar. For further information regarding Proximity, please go to www.proximity.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 Proximity'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 Proximity 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 Proximity 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, Proximity 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. 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. 90 INVESTOR INFORMATION # Glossary ## 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). 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%). 92 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