Annual Report, 31 January 2025
The Merchants Trust PLC
UK governance, global reach
UK governance, global reach
United Kingdom United States Rest of the world
Top six holdings share of total revenue by region:
Merchants mainly invests in higher-yielding large
UK companies
A UK listing places these companies under one of
the world’s most rigorous governance frameworks
Many companies in the portfolio have global
exposure, with revenues and profits from markets
outside the UK
A UK-listed investment company
providing a gateway to the
global economy.
TOTAL PORTFOLIO ~£950M
|
40–60 INVESTMENTS
Based on most recent annual reports 2023/2024.
1
UK included in rest of the world as BAT reporting does not specify share.
2
Lloyds Banking
Group reporting does not specify non-UK revenue share.
3
USA figure is for North America as DCC reporting does not disclose USA alone.
Lloyds Banking Group
2
Leading UK retail bank
Shell
Globally-integrated
energy giant
9.9%
22.9%
67.2 %
DCC
3
Energy, healthcare and
technology distribution
company, Europe, USA
32.9%
57. 2%
9.9%
BAT
1
Global tobacco leader,
South America, US, Asia
42.9%
57.1%
BP
Global oil and gas leader
13.0%
31.1%
55.9%
GSK
Multinational
pharma and biotech
2.3%
52.2%
45.5%
100.0%
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
IFC UK governance, global reach
2 Income, diversification, longevity
2 Focused on dividends since 1889
Overview
4 Financial highlights
6 43 years of dividend growth
7 Chairman’s Statement
12 Key Performance Indicators (KPIs)
14 Performance – review of the year
Investment Manager’s Review
16 Portfolio Managers’ report
36 Portfolio ESG risk assessment
36 Proxy voting
37 Active engagement
38 Carbon and climate
40 The Merchants Method
41 Top twenty holdings
46 Portfolio breakdown
48 Distribution of total assets
Strategic Report
50 Our strategy
52 Section 172 report
54 Risk report
Governance
60 Directors
62 Investment Manager and advisers
63 Directors’ Report
69 Corporate Governance Statement
72 Management Engagement Committee Report
73 Nomination Committee Report
74 Remuneration Committee Report
77 Audit Committee Report
80 Statement of directors’ responsibilities in respect
of the financial statements
Financial Statements
82 Independent Auditor’s Report to the members
of The Merchants Trust PLC
88 Income Statement
89 Statement of Changes in Equity
90 Balance Sheet
91 Cash Flow Statement
92 Statement of Accounting Policies
94 Notes to the Financial Statements
Investor Information
110 Investor information
113 Notice of Meeting
117 Glossary
Contents
3
15
49
59
81
109
1
WWW.MERCHANTSTRUST.CO.UK
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
High income returns from
a high-quality portfolio
Merchants aims to provide an above
average level of income and income
growth together with long-term
growth of capital. The trust invests
mainly in higher-yielding large
UK equities.
Stability with
income growth
Merchants has paid increasingly
higher dividends to its shareholders
year-on-year for the last 43 years –
from 2.1p per share in 1982 to 29.1p
proposed in 2025.
Cost effective
Merchants provides a cost-effective
way to access an active and expertly
managed portfolio.
Reliability with longevity
Merchants has been providing active
investment management since 1889.
The trust can draw on reserves to help
smooth dividend payments during
difficult economic conditions.
Liquidity and gearing
With a market capitalisation of
£825m and new issuances, Merchants
provides good liquidity to investors.
Merchants is also able to employ
gearing which can enhance returns.
Spread the risk with
diversification
Merchants invests in companies
across a number of sectors and
markets, many with income
derived internationally. This year
3.6% of the portfolio has been in
international stocks.
Merchants was founded in 1889 by some of
the leading financiers and lawyers of the day.
Its name derives partly from the firm which
set it up, Bensons, who historically had been
merchants themselves.
Left to right: The streets outside the Bank of England, shown here in 1890. The Merchants Trust’s founding Memorandum and Articles of Association
were signed in February 1889 by the trust’s Board of Directors at the offices of Murray, Hutchins and Stirling, Solicitors, perhaps 250 yards to the right
of this scene; Robert (Robin) Benson, founder, shown here in 1887; Merchants was an early investor in the Chicago Great Western Railway, which
linked Chicago, Minneapolis, Omaha, and Kansas; The Merchants Trust Balance Sheet for 1926.
The trust invested internationally at the outset,
putting up money for the building of railways
in North America and Africa, as well as into
other types of commercial ventures such as
breweries. It also held government bonds.
This diversification served it well during some
difficult times including the two World Wars
and the Wall Street crash.
From a very early stage, Merchants also
started doing what it has become so good
at – paying regular, increasing dividends to
its shareholders. During its first 50 years up
to 1939, it paid average annual dividends
of 7.5%. Since the late 1980s the company’s
investment universe has been primarily high
yield, blue chip UK companies in the FTSE
100 Index.
Income, diversification, longevity
FOCUSED ON DIVIDENDS SINCE 1889
The
Merchants
Trust PLC
2
OVERVIEW
3
Overview
4 Financial highlights
6 43 years of dividend growth
7 Chairman’s Statement
12 Key Performance Indicators (KPIs)
14 Performance – review of the year
Automotive components company
Dowlais was a new addition to
the portfolio during the year, and
was subject to a takeover bid
in January.
PHOTO: iSTOCK / FRANCKREPORTER
Harbour Energy was the
biggest purchase during the
year. The largest London-listed
independent oil and gas producer,
the company employs around
3,400 staff across Norway, the
UK, Germany, Argentina, Mexico,
North Africa and Southeast Asia.
PHOTO © HARBOUR ENERGY
Financial highlights
For the year ended 31 January 2025
4
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
OVERVIEW
1 2 1 1 3
1
1
Alternative Performance Measure (APM). APMs are the board’s preferred measures for the most meaningful information for shareholders.
Total return figures include dividends paid at 31 January.
2
Debt at market value.
3
Benchmark is the FTSE All-Share Index.
See Glossary on page 117.
Net Asset Value
Total Return
1 2
+13.5%
2024 -3.1%
Share price
Total Return
1
+7.7%
2024 -3.4%
Benchmark
Total Return
1 3
+17.1%
2024 +1.9%
Net Asset Value
per ordinary share
1 2
582.4p
+8.1%
Share price
556.0p
+2.4%
Dividend yield
1
5.2%
2024 5.2%
Dividend growth
+2.5%
2025 29.1p
2024 28.4p
Revenue earnings
per ordinary share
-3.6%
2025 29.4p
2024 30.5p
700
0
Price (p)
700
0
2021 2022 2023 2024 2025
2021 2022 2023 2024 2025
Price (p)
5
OVERVIEW
2.1p
1982
29.1p
2025
of dividend growth
years
43
Inflation growth of 3.8% over 43 years (rebased to 100). RPI 1982 – 1986, CPI 1987 – 2025.
Total dividend: from 2.1p to 29.1p over the period, representing growth of 6.3% over 43 years.
Reserve accumulation Reserve depletion Special dividend
Merchants has grown its dividend
for 43 years at an annualised
growth rate above inflation.
Dividends can be funded
from revenue profits in the
year and from brought
forward reserves.
Dividend capacity
Revenue reserves brought forward Revenue profit for the year Dividends Source: AllianzGI, as at 31 January each year.
2025
£70.5m
£26.8m
£43.7m
20222021 2023 2024
£67.4m
£22.9m
£44.5m
£31.9m
£53.7m
£22.1m
£53.9m
£59.0m
£20.4m
£21.8m
£31.8m
£38.6m
6
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Chairman’s Statement
UK governance, global reach
Welcome to the Merchants Trust Annual
Report for the financial year ending 31
January 2025.
In a period marked by uncertainty in
capital markets, I would like to take this
opportunity to highlight one of the key
advantages of investing in a portfolio of
UK-listed shares, such as the Merchants
Trust, for the long term.
Many of the businesses in which we
invest have substantial global exposure,
generating significant revenue from
markets around the world, and several
are recognised global leaders in their
respective sectors. While we also hold
some companies with a more domestic
focus, even a considerable number
of mid-cap stocks have multinational
operations or global distribution models.
These companies derive a significant
portion of their revenues – and profits –
from outside the UK.
It is important to remember that being
UK-listed does not mean a company’s
fortunes are tied solely to the UK
economy. This is particularly relevant at
a time, such as now, when international
investors, and sometimes even UK
investors, are gloomy about the domestic
economic outlook.
The global exposure of our holdings is
evident in the examples provided on the
inside front cover of this report. While
consolidated revenue data for the entire
portfolio is not readily available due
to the differing reporting standards of
portfolio companies, the global reach
of our investments is clearly shown in
these examples.
Importantly, a UK listing places these
companies under one of the world’s
most rigorous governance frameworks,
which offers several advantages,
including enhanced transparency,
robust shareholder protection, a lower
risk of corporate failure, and alignment
with ESG (Environmental, Social, and
Governance) principles. As illustrated
on page 24, our investment manager
Allianz Global Investors (AllianzGI)
voted against only 6% of resolutions
at UK general meetings last year,
compared to over 30% in markets like
the US, highlighting the strength of UK
governance standards.
In summary, Merchants’ shareholders
get the benefit of investing in companies
with a UK listing at the same time as
investment exposure to some of the
world’s best companies with revenues
from around the globe.
Optimism shifts to uncertainty
The past year for UK stock market
investors can be characterised as a tale
of two halves. The first half was marked
by optimism, which buoyed market
performance, only for the second half
to see a retreat as investor sentiment
soured due to mounting uncertainties
about the business environment and
global economic outlook.
The election of a new UK Government
in July, which secured a strong mandate,
sparked a renewed sense from
domestic and international investors
that the attractively priced UK market
was ‘investible’ again. However, the
new Labour government faced early
setbacks, grappling with fiscal policy
decisions and a series of unpopular
monetary policies. This, in turn, created
market jitters and reignited concerns.
Furthermore, while the global economic
background had been promising
mid-year, the prospects for growth,
inflation containment, and falling
interest rates became uncertain. As
is often the case, markets had priced
in much of the positive news early in
the year, leaving them vulnerable to
negative developments.
Investment performance
The long-term performance of the
Merchants Trust portfolio has remained
strong, meeting shareholder objectives by
delivering solid capital returns and rising
income. This has been achieved through a
value-based investment approach, where
we seek well-managed companies with
strong prospects, trading at attractive
valuations. Your board is confident that,
over the medium term, this approach will
continue to yield solid returns.
Over the year, the FTSE All-Share Index
delivered an impressive +17.1% total
return. While this was a strong absolute
return when compared to many regional
peers, it lagged significantly behind
the strong performance of the tech-
heavy US market. In particular, the US
technology sector produced nearly twice
the returns of the UK market, albeit with
greater volatility.
Merchants Trust also achieved a positive
and solid return of +13.5% on a total
return basis although it did not match
the very strong UK market performance.
In his detailed commentary starting on
page 16, our lead portfolio manager,
Colin Clark
7
OVERVIEW
Simon Gergel, delves deeper into the
reasons behind this, but in summary,
the UK market’s leadership by large-
cap stocks proved challenging for
our portfolio. The Merchants Trust
portfolio, which is more heavily weighted
towards mid- and small-cap stocks, was
affected by the market’s favouring of
larger companies.
In particular, during the second half of
the year, when inflation and interest
rates did not fall as expected, concerns
over government fiscal policy led UK
investors to shy away from smaller
companies that were seen as more
exposed to domestic economic
fluctuations. Instead, investors were
attracted to larger companies within
the index. Additionally, there was a
continued trend of UK investors shifting
capital out of domestic equities and into
overseas markets, particularly the US.
While Merchants Trust does maintain
a significant exposure to the larger
companies in the index, our investment
philosophy prioritises value. This leads
to a larger allocation in mid- and
small-cap stocks, which tend to be more
domestically focused and cyclical in
nature. As equity markets during this
period were driven by momentum,
growth, and technology stocks, these
smaller companies underperformed.
Income
Income from Merchants’ investment
portfolio saw a modest year-on-year
decline from the record year in 2024,
with revenue earnings per ordinary share
at 29.4p (2024: 30.5p), representing a
3.6% reduction.
Despite this, earnings fully covered the
total proposed and declared dividends
for the year, allowing for a small addition
to revenue reserves, which stood at 18.8p
per ordinary share at year-end.
Shareholders will appreciate that one
of the key advantages of the investment
trust structure is its ability to smooth
income distributions – drawing on
reserves during challenging market
conditions and replenishing them in
stronger periods. It is encouraging to see
that, following the Board’s strategic use
of reserves to sustain dividends through
the COVID-19 period, we have now
been able to rebuild reserves over recent
years. (see chart of reserve accumulation
on page 6.)
43 years of dividend growth
The Board proposes a final dividend of
7.3p per share for shareholder approval
at Merchants’ upcoming AGM on 20 May
2025. If approved, the dividend will be
paid on 29 May 2025 to shareholders on
the register at the close of business on 22
April 2025, with an ex-dividend date of
17 April 2025. A Dividend Reinvestment
Plan (DRIP) is available, with an election
deadline of 7 May 2025.
This brings the total proposed dividend
for the year to 29.1p (2024: 28.4p),
representing a 2.5% increase over
the previous year. Notably, this marks
Merchants’ 43rd consecutive year
of dividend growth, reinforcing our
position as an Association of Investment
Companies’ (AIC) Dividend Hero.
We believe it is essential to highlight
the critical role that income plays in
overall total returns. While this year’s
total return fell short of the benchmark,
we have delivered both a meaningful
capital return and another year of
consecutive dividend growth, providing
shareholders with a competitive level
of income. Looking ahead, we remain
confident that our current positioning
will generate strong total return
above the benchmark. However, our
commitment to delivering a high and
rising income remains a core priority,
as we recognise its importance to
Merchants’ shareholders.
Share price relative to Net Asset
Value (NAV) and the generation
of demand
As shareholders may be aware,
Merchants’ shares have been trading
at a discount to NAV toward the end of
the reporting period and into the new
financial year. This follows an extended
period where the company’s shares
consistently traded at or above NAV,
allowing us to issue additional shares in
response to strong investor demand.
In light of this, we are actively working
with the manager to ensure that
appropriate measures are in place to
promote Merchants through targeted
sales and marketing efforts. The Board is
aware that share buybacks can help to
manage the discount and will continue
to assess these options carefully.
We believe that the emergence of a
discount is primarily due to the portfolio’s
relative short-term underperformance
While Merchants Trust
does maintain a significant
exposure to the larger
companies in the index,
our investment philosophy
prioritises value. This leads
to a larger allocation in
mid- and small-cap stocks,
which tend to be more
domestically focused and
cyclical in nature.
8
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
against the benchmark as outlined
earlier, and a general lack of appetite
for UK Equities. However, the Board
remains confident in the manager’s
established investment approach, which
has delivered strong long-term results
for shareholders. We firmly expect
that relative performance will improve
over time.
Additionally, we encourage shareholders
and investors to stay informed through
regular updates from our Investment
Management team. These include the
A Value View podcast, available on our
website as well as on major platforms
such as Spotify, Apple Podcasts, and
Google Podcasts.
Shareholders will be pleased to note
that the Company’s ongoing expenses
charge has decreased to 0.52% of the
average net asset value over the year
(2024: 0.55%).
Gearings strategy and
refinancing
Merchants employs gearing within
the portfolio, based on the belief that,
as long as the manager is confident
in generating returns above the cost
of debt, it can enhance long-term
performance in both income and
capital growth.
The manager views gearing as a
structural component of the portfolio
management strategy rather than a
tactical tool to respond to short-term
market movements. While gearing
can amplify gains in rising markets,
it can also magnify losses during
market downturns.
Currently, our gearing level stands at
11.9%, placing it in the lower half of
our policy range (10%-25%, see page
50). Gearing is financed through
borrowings, and with our Revolving
Credit Facility (RCF) maturing towards
the end of the financial year under
review, we have successfully completed a
refinancing process.
In December 2024, we announced the
issuance of two £25 million fixed-rate,
15-year secured private placement notes
at a coupon of 5.91%, raising a total of
£50 million. This new borrowing extends
the weighted average duration of our
drawn debt from 10.6 years to 16.4
years, while the overall average cost of
debt is 5.2%.
Board
As shareholders are aware, the board
plays a vital role in overseeing the
governance of the company. This
includes overseeing our investment
manager AllianzGI, ensuring effective
communication with shareholders,
maintaining robust financial processes
and reporting, and fulfilling our
responsibilities related to the stock
exchange listing. The Merchants Trust
has been fortunate over the years
to attract a high calibre of directors
who have contributed significantly to
its success.
In keeping with good governance
practices, our directors typically
serve a maximum of nine years on
the board. Later in 2025, Timon
Drakesmith will reach this milestone,
and he will therefore step down at
the AGM on 20 May 2025. The board
has already initiated the process of
identifying a new director to replace
him and has appointed an independent
executive search firm to assist in this
important task.
I would like to take this opportunity to
express my sincere thanks to Timon for
his valuable contribution over the years.
His excellent leadership Chairman of
the Audit Committee and his guidance
and support to me personally have been
greatly appreciated. Timon’s insightful
and constructive input to the board
will be sorely missed. Mal Patel, who
has served on the board since March
2024, has agreed to become Chairman
of the Audit Committee when Timon
steps down.
2025 Annual General Meeting
The 2025 Annual General Meeting
(AGM) of the Company will be held at
Grocers’ Hall on Tuesday, 20 May. Full
details can be found in the Notice of
Meeting on page 113. This year marks
a significant milestone for Merchants,
as it will be the first AGM where
shareholders can choose to attend either
in person or online. Further details on
the event and how to register for online
participation are available in the Notice
of Meeting on page 116.
As always, I would like to remind
shareholders of their right to vote on key
matters affecting Merchants, such as the
renewal of share issuance authorities
and the appointment of directors.
Shareholder voting is a fundamental
We encourage shareholders
and investors to stay
informed through
regular updates from our
Investment Management
team. These include the
A Value View podcast,
available on our website
as well as on major
platforms such as Spotify,
Apple Podcasts, and
Google Podcasts.
9
OVERVIEW
aspect of an investment trust, and I
strongly encourage all shareholders to
exercise this right and have their voices
heard. Please note that voting at the
AGM will be conducted by poll, and
there will be no live voting functionality
for those attending online. Shareholders
are therefore encouraged to submit
their votes in advance using the proxy
voting process.
There have been ongoing improvements
in how investment platforms facilitate
shareholder voting for nominee
holders. Many platforms now provide
better access to voting information
and have made the process more
straightforward. If you hold your
Merchants shares through a platform
that offers voting opportunities,
we strongly encourage you to take
advantage of this and participate in the
decision-making process.
Additionally, for shareholders investing
via a platform who may be unaware,
it is possible to attend the AGM in
person. To do so, you simply need to
request a ‘Letter of Representation’
from your platform, which will enable
you to register for in-person or
online attendance.
We also commend and fully support the
AIC My Share, My Vote campaign, which
aims to improve voting rights for retail
shareholders holding shares through
investment platforms or nominee
services. The campaign advocates for
changes in company law to enhance
shareholder enfranchisement.
More details can be found
at www.theaic.co.uk/my-share-my-vote.
Outlook
As ever, it remains challenging to predict
when investor interest will return to the
UK stock market, when UK valuations
will re-rate to more ‘normal’ levels, or
where markets will stand in 12 months’
time. In theory, the recent sharp sell-off
in equity markets, led by the high-growth
and technology stocks in the US, could
serve as a catalyst, prompting investors
to broaden their horizons and seek
out quality and value – themes we
believe would benefit our portfolio’s
performance. However, we approach
this possibility with humility, as we have
made similar observations before.
Investing is never straightforward, and it
is rarely predictable.
The new US administration marks
a significant shift, not only in global
geopolitics, with Ukraine and the Middle
East continuing to dominate headlines,
but also in areas requiring the close
attention of our manager. These include
radical changes in trade and tariff
policies, which will have implications
for inflation and interest rate decisions,
and global growth and profit outlooks.
Domestically, following a Labour
government’s first budget, which many
commentators viewed as challenging for
UK businesses, the market will be keenly
focused on the fiscal and monetary
policy actions of the UK Chancellor
throughout 2025.
So, is this the right time to be a patient
contrarian investor? Our manager
believes that many opportunities exist
to invest in well-managed, financially
strong companies on attractive
valuations. This approach lies at the
heart of our investment strategy which
has delivered solid long-term returns
and rising dividends for shareholders
over the years. Your board continues
to believe that Merchants is currently
well placed and we are optimistic
regarding our potential to continue
meeting Merchants’ long-term objectives
for shareholders.
Thank you, as always, for your continued
support. I look forward to seeing many of
you at our AGM in May.
Colin Clark
Chairman
8 April 2025
Our manager believes that many opportunities exist to
invest in well-managed, financially strong companies on
attractive valuations. This approach lies at the heart of
our investment strategy which has delivered solid long-
term returns and rising dividends for shareholders over
the years.
10
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
We added to our investment
in the mining giant Rio Tinto
during the year. The company’s
60,000 employees operate in 35
countries. Its portfolio includes
iron ore, copper, aluminium and
a number of other minerals
and materials.
PHOTO © RIO TINTO
11
OVERVIEW
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
12
Key Performance Indicators (KPIs)
The board uses certain
financial and non-financial
Key Performance Indicators
(KPIs) to monitor and assess
the performance of the
company in achieving its
strategic aims:
Increasing and sustainable dividends
z Provide a high and progressively growing income stream
Earnings per share of 29.4p fully cover the dividends, with a surplus of 0.3p being transferred to
revenue reserves (2024: 1.8p transferred to revenue reserves). Revenue reserves at 31 January 2025
were 18.8p.
z Provide long-term capital growth
z Provide a long-term total return above the benchmark and peers
One year portfolio return of +12.4% was behind the index return of +17.1%. 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 of +37.9%.
Performance was 3rd out of 19 in the peer group over five years, 12th out of 19 over 3 years and
14th out of 19 over one year. The ongoing charge has reduced to 0.52% compared to 0.55% last
year. The board remains focused on reducing fixed costs. Merchants’ costs are below average in the
peer group and the dividend yield is above average.
z Position Merchants to outperform its peers, and to remain relevant and
attractive to new and existing investor groups
z Ensure the costs of running the company remain reasonable and competitive
1 year peer
group ranking
3 year peer
group ranking
5 year peer
group ranking
14th 12th 3rd
5 year
portfolio return
5 year
NAV return
+36.0% +43.0%
Dividend Year-on-year
dividend growth
29.1p +2.5%
Investor appeal
Shareholder returns and performance
12.4
17.1
-8.6
-7.6
28.9
18.9
5.1 5.2
-2.5
1.9
1
At the year end before payment of the third and final quarterly dividends.
2
Source: JP Morgan Cazenove.
3
Source: Morningstar/AllianzGI.
Alternative Performance Measure (APM). See Glossary on page 117.
The board has a policy of paying a progressive
dividend each year, taking into account
inflation and subject to general earnings
growth and dividends received in the portfolio.
Ordinary dividends have risen in every year
since 1982.
Revenue reserves can be used to ensure
dividend payments can be maintained through
difficult market conditions. Income is put aside
in good years and can be used to maintain a
steady increase in dividends when income is
less readily available.
Earnings per share (EPS) shows the income
that the company generates each year which
can be used to fund dividend payments to
shareholders, over time.
Dividend record per share (p)
Peer rankings
2
Revenue reserves per share (p)
1
Ongoing charges (%)
3
Earnings progression (p)
Yield (%)
3
29.1
28.4
27.6
27. 3
27. 2
2021 2022 2023 2024 2025
2021 2022 2023 2024 2025 2015 2020 2025
2021 2022 2023 2024 2025 2021 2022 2023 2024 2025
29.4
30.5
28.7
25.6
18.5
18.1
16.3
16.0
18.3
1 Year 3 Years 5 Years 2021 2022 2023 2024 2025 2021 2022 2023 2024 2025
The board seeks a return that is better than
the benchmark over various time periods. The
benchmark was the FTSE 100 Index until 31
January 2017, but was revised to better reflect
the changing structure of the portfolio over the
preceding decade.
The board uses this KPI to monitor investment
performance. As the company’s policy is to
invest mainly in higher yielding large UK
companies, the FTSE All-Share Index has been
chosen as the benchmark index against which
we measure our performance.
Merchants’ yield has consistently been higher
than the UK Equity Income peer group average.
The board also monitors the performance
relative to a broad range of competitor
investment trusts. The chart shows Merchants’
position in UK Equity Income peer group
quartiles over a range of time periods.
The board has a policy of ensuring that the
company’s running costs are reasonable and
competitive. The ongoing charge is calculated
using the AIC’s recommended methodology
(See Glossary on page 117).
Portfolio total return Benchmark NAV return Benchmark
NAV return vs benchmark (%) Portfolio return vs benchmark (%)
Merchants
Merchants
Peer group average
Merchants
UK Equity Income peer group
100
202
100
187
0.55
0.52
0.56
0.55
0.61
0.85 0.85
0.79
0.82
0.81
5.2
4.1
5.2
4.5
4.7
3.9
4.8
3.7
6.2
28.7
37.9
9.2
-13.1
4.5
67.0
0.3
18.8
13
OVERVIEW
14
Revenue
2025 2024 % change
Income (£’000s) 48,482 49,563 -2.2
Revenue earnings attributable to ordinary shareholders (£’000s) 43,671 44,509 -1.9
Revenue earnings per ordinary share 29.4p 30.5p -3.6
Dividends per ordinary share in respect of the year
1
29.1p 28.4p +2.5
Assets
2025 2024
Capital return
% change
Total return
2
% change
Net asset value per ordinary share with debt at par 572.6p 530.9p +7.9 +13.3
Net asset value per ordinary share with debt at market value (capital) 582.4p 538.6p +8.1 +13.5
Ordinary share price 556.0p 543.0p +2.4 +7.7
FTSE All-Share 4,710.6 4,173.1 +12.9 +17.1
(Discount) premium of ordinary share price to Net Asset Value (debt at par) -2.9% 2.3% n/a n/a
(Discount) premium of ordinary share price to Net Asset Value (debt at market value)
-4.5% 0.8% n/a n/a
Ongoing charges
3
0.52% 0.55% n/a n/a
Performance – review of the year
1
Inclusive of third and final dividends.
2
NAV total return reflects both the change in Net Asset Value per ordinary share and the net ordinary dividends paid.
3
The ongoing charges percentage is calculated in accordance with the explanation given on page 118.
A Glossary of Alternative Performance Measures (APMs) can be found on page 117.
.
14
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Investment
Manager’s
Review
16 Portfolio Managers’ report
36 Portfolio ESG risk assessment
36 Proxy voting
37 Active engagement
38 Carbon and climate
40 The Merchants Method
41 Top twenty holdings
46 Portfolio breakdown
48 Distribution of total assets
Barclays was the portfolio’s largest contributor to
performance. Group profits rose 24% year on year.
PHOTO: iSTOCK / GORDONBELLPHOTOGRAPHY
15
Portfolio Managers’ report
Introduction
It is disappointing to report that after
a positive first half of the year, a
deterioration in the last few months
has led to a second year of portfolio
underperformance against the FTSE
All-Share index. Whilst the portfolio total
return at 12.4% was strong in absolute
terms, and the income generation has
supported a growing dividend and a
rebuilding of reserves, the portfolio total
return was behind the 17.1% return on
the benchmark. Despite the last two
years’ results, long term performance
remains well ahead of the benchmark.
Our value investing style, buying
companies when we believe their share
prices do not reflect the underlying
fundamentals, is susceptible to periods
of underperformance. This is especially
true when markets are led by narrow
themes, such as during the TMT
(Technology Media and Telecoms)
bubble in the late 1990s, or in periods
of extreme fear, such as during the
global financial crisis. In those periods,
the fundamental value of a business
can be overwhelmed by the market
narrative of the time. However, those
periods sow the seeds for future gains, by
creating substantial valuation anomalies
between stocks and sectors. In the last
year or two, we have seen some of
these strong narratives develop. They
have been exacerbated in the UK stock
market, by significant redemptions from
actively managed investment funds.
In this report, we describe this market
environment in detail, explain the
reasons for the underperformance and
discuss how we have responded within
the portfolio. Indiscriminate selling of
shares in the market has enabled us
to invest in some excellent companies
at unusually attractive prices, like
Whitbread, owner of the market leading
Premier Inn hotel chain, and Burberry
the eponymous clothing brand. We
also explain why, despite the recent
market trends, or perhaps because
of them, we are even more optimistic
about the opportunities to deliver
superior total returns in the future, whilst
funding a consistently growing dividend
for shareholders.
Economic and
market background
It is a bit of a cliché to call it a year of
two halves, but there were notable
differences between the beginning of
the year and the end. The start of the
year saw a recovery in the UK economy
from the near stagnation at the end of
2023, with inflation falling back to the
Bank of England’s 2% target, following
the previous inflationary shock. This
allowed most major central banks to
begin cutting interest rates, to support
economic growth.
The UK prime minister, Rishi Sunak,
somewhat unexpectedly called a
general election for 4 July. Labour’s
victory under Sir Keir Starmer’s
leadership was widely anticipated, but
the size of his majority was surprising, as
many people voted tactically to remove
the Conservatives from power. For a
while, it seemed like the UK could be
in for a more settled period, given the
government’s control over parliament
and Labour’s fairly centrist manifesto.
This was in sharp contrast to the trend
in other countries. France saw President
Macron call a surprise election to try to
stem the rise of the far-right National
Rally party. In the USA, democrat Joe
Biden dropped out of the race for
president, leaving Kamala Harris to
fight and ultimately lose the election
to Donald Trump, who returned to
office for a second term in January. The
US election was highly polarised and
divisive. President Trump came into
office with a slew of executive orders,
shaking up the status quo in areas like
Despite the recent market trends, or perhaps because of
them, we are even more optimistic about the opportunities
to deliver superior total returns in the future, whilst funding
a consistently growing dividend for shareholders.
Simon Gergel Richard Knight Andrew Koch
16
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
immigration, environmental and foreign
policy. The rise of populism was seen in
other European countries too, including
Italy and Germany.
In the UK, the Labour government’s
honeymoon period proved short lived.
Chancellor Rachel Reeves spent several
months talking about how bad the
economic situation was, before her
first budget on 5 November. There she
unveiled large tax increases to fund
significant spending increases. Overall,
policies announced in the budget,
along with increases in the minimum
wage, added inflationary pressure to
the economy and did little to stimulate
growth in the short term. It became
clear that economic growth was slowing
in the last few months of the year, as
a result of the period of uncertainty
around the budget, and some of the tax
raising measures.
Financial markets reflected the changing
environment through the year. In the first
half, the UK stock market made strong
progress. Rising economic expectations
and falling inflationary pressures lifted
the FTSE All-Share Index by 12.3%. The
equity market was supported by falling
Gilt (UK government bond) yields which
gradually declined from October 2023
to September 2024, as inflation fell
back. The Bank of England made its first
interest rate cut of this cycle, at the start
of August.
However, the equity market was more
subdued in the second half of the year.
As often happens, the equity market
followed bond markets. Bond prices fell,
as government bond yields rose later in
the year. This was partly due to concerns
about the impact of the UK budget
but also reflected trends in the USA.
The election of Donald Trump raised
hopes of higher US economic growth,
but also fears of higher inflation, due
to the potential introduction of tariffs,
and other policies. US 10-year bond
yields rose from a low of around 3.6% in
September, to a peak of 4.8% in January.
UK gilts followed a very similar path. In
the end, the pace of UK interest rate cuts
proved to be much slower than expected
at the beginning of the year, with only
two 0.25% cuts from 5.25% to 4.75%. After
a period of sideways movement, the UK
stock market rose again towards the
year end, as bond yields rolled off their
high point.
Over the full year, the UK stock market
produced a strong total return of 17.1%.
This was better than the return on
most European markets but lagged
well behind the returns of the US stock
market. Like last year, the US was led
by the high growth technology sector
and a group of giant companies. This
‘Magnificent Seven’, including such
companies as Microsoft, Apple and
Nvidia, had exceptional performance
on the back of hopes for Artificial
Intelligence (AI). Over the year, the
Nasdaq Composite index of technology
stocks was up nearly 30% in local
currency terms.
Although the overall stock market
returns were healthy in the UK, there was
an underlying nervousness. There were
large flows out of mutual funds which
led to forced selling of stocks by fund
managers. This particularly impacted
medium and smaller sized companies.
This was partly for fundamental reasons,
as medium and smaller companies
tend to be more domestically focused
and more cyclical than the larger
FTSE 100 companies, which are more
internationally diversified. But it also
reflected the fact that most actively
managed funds have large positions
outside of the FTSE 100, so fund
outflows exacerbated selling pressure
on these stocks. The stock market
became increasingly polarised, with
earnings disappointments leading to
selling pressure, and few buyers able
to stop shares becoming over-sold. In
contrast, there were a few sectors and
individual stocks that were favoured by
domestic and international investors.
These were typically high growth, less
cyclical companies, which generally
re-rated upwards.
The depressed valuations of many stocks
encouraged a large number of takeover
bids, with Panmure Liberum reporting 37
bids for companies worth over £100m
each in the year. But the bids seemed
to do little to raise the rating on the
remaining companies.
For the year as a whole, medium and
smaller sized companies lagged the
larger stocks. Selling pressure was
strongest in the latter months, when
gilt yields rose after the budget. At the
sector level, banks led the market, as
higher than expected interest rates
boosted profitability and supported
large dividends and buybacks. The
The depressed valuations
of many stocks encouraged
a large number of takeover
bids, with Panmure
Liberum reporting 37 bids
for companies worth over
£100m each in the year.
17
INVESTMENT MANAGER’S REVIEW
sector returned over 60%, with NatWest
and Barclays producing a total return
of over 100%. The tobacco sector
produced a 50% return and there were
returns of over 30% from aerospace &
defence and finance & credit services,
amongst others. On the other hand, the
household goods & home construction
sector fell by over 10%, on concerns
that higher mortgage rates would hold
back the housing market recovery. The
beverages sector was down by 8% as
the spirits giant Diageo disappointed.
Other interest rates sensitive sectors also
underperformed, including real estate,
retailers and utilities.
Investment performance
After a solid first half of the year, relative
performance was disappointing in
the second half. Overall, the portfolio
return of 12.4% was significantly behind
the index return of 17.1%. As normal,
there were some notable strong
points, including several takeover
approaches for portfolio holdings, as
well as some specific idiosyncratic issues,
but there were two main reasons for
the underperformance.
Firstly, market movements in the second
half did not favour the way we had
positioned the portfolio. For some time,
we have been increasing exposure to
medium sized companies, where we see
many compelling value opportunities.
Many of these companies are in cyclical
industries like retail and housing related
industries, or interest rate sensitive areas
like real estate. As described above,
these parts of the stock market were sold
down heavily, as expectations for interest
rate cuts were pushed back, despite the
economic outlook weakening, which is
an unusual combination of events.
The second major reason for
underperformance, was stock selection
within the banking sector. Although
the portfolio has a reasonably large
exposure to banks, and large banks
generally posted strong gains, several
of the portfolio investments were
impacted by legacy issues concerning
commissions for motor finance policies.
We explain this issue in some detail in a
case study on Close Brothers, which was
the most affected. However, both Lloyds
and Bank of Ireland also have some
exposure to motor finance, and their
shares lagged the sector materially. We
believe that share prices over-reacted to
the issue, but to put it into perspective,
NatWest and Barclays shares had a total
return of over 100%, but Lloyds was ‘only’
up about 55%. A 50% performance gap
between NatWest and Lloyds is highly
unusual. Close Brothers was particularly
affected and lost just over 40% of
its value.
The table on page 19 shows the
biggest individual stock contributors to
relative performance. There are several
banks in the table. On the negative side,
not owning HSBC and NatWest held
back performance, with HSBC being the
biggest detractor as it is such a large
part of the benchmark, even though
it did not gain as much as the large
domestic banks. Close Brothers was also
a significant detractor. On the positive
side, Barclays was the largest single
contributor and Lloyds also featured.
Not owning Rolls Royce was also a
detractor to relative performance.
Rolls’ recovery gained pace and the
shares doubled, boosting the index.
Shares in PZ Cussons fell sharply, as
the manufacturer of Carex soap and
other consumer brands warned about
the impact of a further devaluation of
the Nigerian currency. The company
announced a strategic review of its
Nigerian business and is looking to
sell its St Tropez tanning brand, which
should realise significant shareholder
value. Recruitment company SThree
FTSE All-Share 31.1.24 – 31.1.25. Source: AllianzGI/Datastream.
FTSE All-Share Index for the year to 31 January 2025
4800
4600
4400
4200
4000
20252024
Last Price 4,710.58
High on 31/1/25 4,710.58
Average 4,446.70
Low on 13/2/24 4,104.81
4,710.58
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
18
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Overweight / underweight (%) Total return (%) Contribution (%)
Best
Barclays
Keller
IG Group
Diageo
Glencore
British American Tobacco
Burberry Group
Astrazeneca
Lloyds Banking Group
Redrow
Worst
HSBC
Rolls Royce
PZ Cussons
SThree
Pets at Home
Close Brothers
GSK
Barratt Redrow
NatWest Group
Harbour Energy
Contribution to investment performance relative to the benchmark
fell towards the end of the year, as a
weaker employment market impacted
profits forecasts. Pets at Home
also underperformed, due to some
operational and trading issues in the
retail pet care business and due to
ongoing uncertainty from a competition
review into the veterinary market.
Despite this review, the vet business
performed extremely strongly and this
division underpins the value of the group.
The Pharmaceutical sector featured
among both the best and worst
contributors. GSK shares were weak,
primarily due to some disappointment
in the vaccine business. Ironically, the
company’s new RSV vaccine is so
effective, that people need less frequent
boosters than some analysts had
expected. There were also concerns
about the implications from political
change in Washington. However,
the company has generally been
performing well and twice upgraded
long term revenue expectations. On the
positive side, not owning AstraZeneca
helped relative performance as it
underperformed the index, with some
pipeline disappointments and conduct
issues in the Chinese business.
Housebuilders also featured among
both the best and worst performers
and also serve to highlight the
difference between the first half and
second half of the year. Redrow was
taken over by Barrat Developments,
in a deal with strong strategic logic.
This led to a gain in Redrow shares
in the first half. However, the new
Barratt Redrow shares subsequently
underperformed in the second half,
largely on macro-economic concerns.
This broadly cancelled out Redrow’s
earlier performance contribution. The
last major negative contributor was
Harbour Energy, a new investment in the
portfolio, which underperformed at the
year-end, on slightly disappointing cash
flow guidance.
As well as the takeover of Redrow,
there were three other takeover bids
launched for portfolio companies last
year, all from US industry peers. Building
products company Tyman was bid for by
peer Quanex Building products, in a cash
and shares offer which we accepted.
Tyman’s performance was just outside
the top 10 contributors. In a similar vein,
at the end of the year, Dowlais was
bid for by American Axle, although the
premium was modest. Finally, XP Power
was also bid for by Advanced Energy,
with a takeover offer of £19.50 in cash,
109
53
53
-13
-15
50
35
10
55
30
51
101
-39
-35
-16
-41
-7
-15
105
-15
2.7
1.8
1.4
-2.4
-2.1
2.1
0.5
-7.1
1.6
1.4
-5.4
-1.7
1.1
1.3
2.0
0.8
2.2
0.8
-0.9
0.7
1.3
0.9
0.9
0.8
0.8
0.7
0.6
0.5
0.5
0.5
-1.6
-1.0
-0.9
-0.8
-0.7
-0.7
-0.6
-0.5
-0.5
-0.5
19
INVESTMENT MANAGER’S REVIEW
Ground engineering specialist
Keller was a top contributor
to performance. The company
benefits from US infrastructure
spending, such as the East Side
Coastal Resiliency project shown
here by the Williamsburg Bridge
in New York City.
PHOTO © KELLER
at a near 70% premium to the prevailing
price of around £11.65. This bid was
rejected by the board of XP Power,
as they believed it undervalued the
business. We agreed with this decision.
The shares finished the year at £12.42,
well below the offer price.
Looking at the top positive contributors,
there were some notable bright spots,
in addition to those already mentioned.
The ground engineering business Keller
rose by over 60% as the company
significantly raised guidance for the
profits outlook in its large US business,
benefitting from infrastructure spending
and operational improvements. IG
Group was the fifth largest holding at
the start of the year and the share price
rose by more than 50%. The shares
were boosted by the recruitment of a
new Chief Executive, Breon Cocoran,
who is well regarded from his time
at Paddy Power Betfair. He has set
about transforming the culture and
effectiveness of the business, with
multiple new hires and operational
changes. The shares responded well to
this change, as well as a better trading
environment, rising from a very low
valuation at the start of the year.
British American Tobacco shares also
rallied by 50%. Here there was less real
news, but investors have warmed to the
sector. In particular, investors seem to be
appreciating BAT’s attractive portfolio
of less harmful, next generation tobacco
20
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
products, like vaping and oral products.
Burberry, the eponymous and long-
established clothing brand, was a new
holding. The shares delivered a strong
return, as new management initiated
a turnaround strategy. We include a
separate case study on the investment
case for Burberry.
The remaining top ten positive
contributors, Diageo and Glencore,
were stocks that were not owned in the
portfolio. As they underperformed, they
held back the benchmark return.
Portfolio changes
The polarised market trends and
high dispersion of stock movements
created opportunities. We were able to
buy into strong businesses, often with
leading market positions, but offering
exceptional value, and to reduce or
sell companies where share prices
had performed well, bringing them
closer to fair value. We added six new
companies to the portfolio and sold four
completely, setting aside the Barratt
takeover of Redrow. The purchases
were heavily biased to two areas of the
market. Firstly, sectors that are sensitive
to interest rate movements, like real
estate, which underperformed as bond
yields rose. Secondly cyclical consumer
and industrial sectors, like hotels, retail
and automotive components. Sales
were more broadly spread but included
some economically defensive businesses
in food retail and tobacco, companies
21
INVESTMENT MANAGER’S REVIEW
exposed to a strong US construction
market and some idiosyncratic situations.
In the first half of the year, we added
four new companies as explained in
the interim report. The new purchases
were the luxury fashion brand Burberry,
student accommodation provider
Unite Group, automotive components
company Dowlais and Bank of
Ireland. The complete sales were
building materials company CRH, and
insurer Admiral.
In the second half, we added new
investments in Whitbread and Harbour
Energy. Whitbread owns the UK’s
largest hotel chain, Premier Inn, which
has 85,000 rooms in the UK and over
10,000 in Germany. The business has an
excellent long term growth record. It has
key competitive advantages, such as a
low-cost operating model, ownership
of the freeholds on half its hotels and its
direct selling model to consumers in the
UK, cutting out the online travel agents.
After a strong recovery in Whitbread’s
shares after the pandemic, the share
price fell back. This partly reflected
British holiday makers favouring foreign
holidays during 2024, which we saw as
a one-off normalisation of activity. But
it also reflected Whitbread’s decision to
restructure its restaurant estate which
has a short-term cost for a longer-term
benefit. We believed the stock market
was not recognising the benefits of
this restructuring, or the value of the
company’s rapidly growing position
in the large and fragmented German
market, which is just turning profitable.
Another new purchase was Harbour
Energy, an oil & gas company that has
been transformed by a major acquisition
from BASF. This deal created a large
business with hydrocarbon production
around 20% of the size of Shell or BP.
Although historically Harbour was
primarily a UK North Sea producer,
where taxation policy is increasingly
harsh, it now has producing assets in
attractive countries like Norway and
Germany, as well as considerable
resources in Latin America and
elsewhere. These can earn the company
substantial cash flows, and pay healthy
dividends, for well over a decade into the
future. The terms of the deal with BASF
were particularly attractive.
As well as these purchases, we added
to many other portfolio companies.
Assura, the owner of primary care
properties, such as GP surgeries, was one
of several real estate companies where
we increased exposure. Like Unite, it has
Largest net purchases and sales within the portfolio
Largest net purchases (£m)
Harbour Energy
Whitbread
Barratt Redrow
Dowlais Group
Unite Group Plc
Bank of Ireland Group
Burberry Group
Assura
Pets At Home Group
Rio Tinto
Largest net sales (£m)
Redrow
Tyman
Barclays
Keller Group
IG Group
CRH
Tesco
Imperial Brands
Drax Group
Admiral Group
20.9
-22.3
19.7
-21.3
19.1
-20.3
17. 3
-15.6
16.3
-14.4
9.8
-10.6
9.6
-10. 3
8.2
-9.5
8.2
-9.1
7.4
-7.5
22
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
We added student
accommodation provider Unite
Group to the portfolio in the first
half of the year. The company
owns 153 high-quality properties
across 23 cities in the UK, housing
68,000 students.
23
INVESTMENT MANAGER’S REVIEW
12%
18%
18%
Taiwan
Japan
29%
Hong Kong
China
a growing income stream, funding an
attractive dividend yield, derived from
well let assets, with the shares trading
at a discount to the asset value of the
business. We added to Pets at Home,
where we believe the veterinary business
is significantly undervalued, as described
above. We also increased the holding
in the mining giant Rio Tinto, which
has attractive assets in copper and
aluminium, two elements critical to the
energy transition.
Complete sales in the second half of
the year were Tyman and Diversified
Energy. Tyman was taken over by
Quanex Building products, partly in the
form of equity. We held onto the shares
in Quanex for a short period before
selling to fund other investments. Whilst
Diversified Energy has an attractive
asset base of gas wells in the USA,
we had some concerns about the
company’s capital allocation strategy.
After several meetings with executives
and engagements with the company
chairman, we decided to exit the shares
and reinvest elsewhere, where we had
higher conviction.
Apart from complete sales, the largest
reductions to positions, Barclays, Keller,
IG Group, Tesco, Imperial Brands
and Drax were all strong performers.
Outperformance of shares has two
consequences. Firstly, as shares rally,
they normally move closer to fair value.
We regularly review our assessment of
fair value as well as the risk profile of
a company, both of which can change.
But, all things equal, if there is less
upside it is logical to hold a smaller
position. Secondly, as shares appreciate,
the position size naturally builds in the
portfolio. Again, if our assessment of
fair value and risk has not changed it is
sensible to scale back the position. These
sales also provide cash to fund more
compelling investments elsewhere. In
the case of Barclays, the proceeds were
partly switched into Bank of Ireland,
within the banks sector.
Our approach to ESG
and sustainability
We integrate the analysis of
Environmental, Social and Governance
(ESG) issues into our investment process.
This follows AllianzGI’s proprietary
methodology and is designed
to enhance risk management by
adding another dimension to existing
investment processes; an assessment
of the financially material ESG risks
and opportunities within a broader
investment case. Our approach also
fosters and supports active engagement
with company management.
Many ESG issues have the potential
to become structural challenges if not
addressed. Conversely, if harnessed
to the company’s advantage, they
can become long-term opportunities
that act as meaningful tailwinds for
the business. Understanding how a
company manages ESG issues therefore,
as well as how external stakeholders
like regulators and customers perceive
them, is an essential part of the
valuation discipline.
Our investment professionals have
access to MSCI ESG scores and
qualitative research on our Global
Collaboration Platform (Investment
Chatter, SusIE). The level of ESG risk
at a company is expressed through a
numerical score for each of the E, S and
G pillars on a scale of 0–10, whereby
a score of 0–3 indicates potentially
meaningful tail risk. Portfolio managers
are free in their decision to initiate,
continue to hold, or divest any relatively
low scoring issuer in the portfolio.
However, they are required to document
the rationale for any investment with
a potential tail risk. Our investment
professionals often closely follow
companies over long periods of time.
Total percentage votes against resolutions proposals by location
17%
14%
14%
13%
33%
30%
USA
Netherlands
Spain
France
Sweden
21%
Switzerland
18%
20%
Germany
Belgium
6%
UK
Italy
Strong governance standards:
AllianzGI voted against fewer resolutions
in the UK than in any other country in 2024.
24
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
They are therefore in a unique position to
actively engage with the companies that
need it most, as we seek to reduce the
level of ESG risk.
AllianzGI reviews its proxy voting
guidelines annually to reflect evolving
expectations for companies. For 2025,
the firm has implemented several
new rules, further emphasising the
importance of minority shareholder
rights and enhancing its approach to
sustainability in proxy voting.
The UK continues to show strong
standards in terms of governance; it is
the country where AllianzGI has voted
against fewer resolutions than any other
country in 2024.
At group level, AllianzGI is implementing
a rule requiring ESG-related KPIs for
executive remuneration for small- and
mid-cap companies in developed
markets in 2025, following a similar rule
for large companies in 2024. AllianzGI
will also increasingly hold directors
accountable if a company lacks a
credible net-zero strategy. Starting in
2025, voting decisions will be based
on its proprietary Net-Zero Alignment
Share Methodology, which provides a
standardised way to assess companies’
progress on net-zero goals across sectors
and markets.
AllianzGI has also extended its gender
diversity guidelines to small- and mid-
cap companies in developed markets,
expecting no more than 70% of any
board to be of one gender.
Active engagement
As investors, we have an important
duty to engage with the boards and
executive management teams of our
investee companies.
We see the value of engagement to
be in sharing our knowledge, views
and perspectives with boards and
management of investee companies
with the aim of helping to improve
performance and to better assure their
long-term business prospects, ultimately
in the interest of our clients.
We also find that exposure to a
broader range of leadership at
investee companies, particularly non-
executive board members, enhances
our understanding of the business, its
strategy and value drivers, as well as our
knowledge of the governance, culture
and sustainability approach of the
companies we invest in, which enriches
our investment analysis. Critically, it
helps to assess the degree and quality of
oversight, and to build confidence and
trust in the board and management.
Over the course of the trust’s financial
year, AllianzGI has conducted 35
meetings with portfolio companies
dedicated to furthering our
understanding of ESG issues and
encouraging management to take
action. These engagements are
separate and in addition to both our
implementation of proxy votes and our
more regular strategy and financials
focused meetings.
Our engagements rest clearly on two
approaches. Our risk-based approach
focuses on the material ESG risks that
we identify. The focus of engagements
is determined by considerations such
as significant votes against company
management at past general meetings
and sustainability issues that we identify
as below market practice.
Engagements can also be triggered by
controversies connected to sustainability
or governance. Engagement activities
typically relate to an investee company’s
strategy, operational or financial
performance, capital management,
corporate governance and ESG risks
and impacts. We also lead themed
engagement projects.
Income
After a strong year for income last year,
the income generation of the trust was
approximately 2% lower in 2025. With
an increase in the number of shares in
issue, the earnings per share were 3.6%
lower at 29.4p (30.5p). Interestingly, the
Financial Times has reported that across
the entire UK stock market, aggregate
UK dividends paid in 2024 were down
0.4%, although this may also reflect some
companies leaving the stock market.
There have only been a few dividend
cuts in the portfolio, for example among
the housebuilders and at Close Brothers
and Burberry. We do not see significant
cyclical pressure on dividends generally,
although a few companies have
been favouring share buybacks over
higher dividends.
Whilst we aim to buy companies with
a reasonable dividend yield, the prime
investment case is always based
AllianzGI conducted 35
meetings with portfolio
companies dedicated
to furthering our
understanding of ESG
issues and encouraging
management to take action.
25
INVESTMENT MANAGER’S REVIEW
upon generating a good total return
(capital and income combined) so we
are prepared to retain some low or no
yielders in the portfolio, if we believe this
will enhance long-term returns.
The earnings fully covered the total
dividends declared and proposed
of 29.1p (28.4p), marking the 43rd
consecutive year of dividend growth.
At the year end, revenue reserves per
share were up 3.9% at 18.8p (18.1p).
It is encouraging to note that total
revenue reserves, at £27.9m, have built
considerably from £20.4m in 2022, the
low point in the pandemic. Reserves now
stand just 12% below the pre-pandemic
high of £31.8m in 2020.
Derivatives
Over the full year, Merchants generated
an additional income of £0.9m (2024:
£0.9m) approximately 0.6p (0.6p) per
share, from writing covered call options,
on shares that we were willing to sell
at specific strike prices. There were a
number of option exercises. Taking these
into account and any movements in
options value, there was an overall net
loss (opportunity cost) from the strategy
of £0.4m (last year net profit of £0.1m).
Economic and market outlook
The economic outlook is particularly
uncertain, especially in the USA,
where the impact of Donald Trump’s
second presidency is hard to call. His
recent, radical changes in tariff policy
risk upsetting the global order and
causing economic shocks in the USA
and elsewhere. However, even with
heightened risks, the polarisation of
the UK stock market is so extreme, that
we are able to find many compelling
investment opportunities. We believe
these should produce superior returns
over the medium term, in most realistic
scenarios. We started this report by
explaining how our value-oriented
style of investing can have periods
of underperformance, especially if
markets are led by strong themes. But
these periods often create the very
opportunities which can be exploited by
disciplined investors. We believe we are
in one of these periods now, and we set
out below some of the key investment
views we are taking within the portfolio,
and our rationale for these.
Just like a year ago, the start of 2025
has seen a broad stagnation in the UK
economy, with hopes that falling interest
rates will help to revive growth. However,
there are some important differences.
We now have greater political stability,
the Labour government’s first budget
is out of the way, and we have had
several interest rate cuts from the Bank
of England. Overseas, the picture is
very complex. Donald Trump wants to
stimulate the US economy and bring
down inflation, but his tariffs and other
policies could have the opposite effect.
Ultimately, bond markets may determine
how radical his economic policies can
be, but there is a wide range of potential
outcomes over the next year or two.
European countries are generally
struggling with low growth, high
debt levels and a polarising political
environment, with the rise of populist
parties. There is also a need to step up
spending significantly on defence across
much of the Western world, at a time
when budgets are already stretched.
Equity markets reflect differing outlooks.
The US stock market was until recently
trading on high valuations compared to
history and is extremely concentrated
on a small band of technology stocks,
known as the Magnificent Seven. These
have benefitted from hopes around
the growth of artificial intelligence,
and they are spending huge sums on
data centres and related hardware. It
is not clear if the big winners will be the
providers of the technology or the users,
but the tech giants do not want to risk
missing out. How this ends is hard to
call, but optimism last year sucked in
substantial investor flows. There have
been signs of even greater excess in
certain speculative assets like crypto
currencies, such as Bitcoin. These do not
generate any income and are thus hard
to ascribe any fundamental value to
them, yet they have drawn in huge sums
of investor money.
These assets stand in sharp contrast
to the UK stock market. Although the
market did rally last year, it remains
modestly valued on a long-term basis.
Furthermore, the spread between
valuations is unusually wide. To take
one simple measure, we can look at
the price to earnings ratio (p/e), how
much an investor pays for a pound of
earnings. At the year end, around 30%
of the stock market was on a p/e of 16x
or over, and 44% was on a p/e below
10x, with little in the middle. This is a very
unusual distribution for the market which
Even with heightened
risks, the polarisation of
the UK stock market is so
extreme, that we are able
to find many compelling
investment opportunities.
We believe these should
produce superior returns
over the medium term, in
most realistic scenarios.
26
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Tesco was a strong performer.
We adjusted our position as
its share price appreciated
and the relative size of the
investment grew.
PHOTO: iSTOCK / GEORGECLERK
27
INVESTMENT MANAGER’S REVIEW
normally would have most valuations
spread around the centre. It reflects
on the one hand, a market driven at
the top end by investment themes and
narratives such as technology growth
and AI. On the other hand, at the bottom
end, it reflects economic uncertainty and
nervousness about the prospects for the
domestic UK economy. These concerns,
combined with persistent outflows from
actively managed UK equity funds,
have exacerbated the undervaluation
of many medium and smaller sized
companies. Such businesses tend to be
less well followed by global investors
and generally more dependent upon the
UK economy.
We have gradually invested more into
this area as opportunities have opened
up. At the year-end 39% of the portfolio
was invested in medium or small sized
companies, outside the FTSE 100 Index,
compared to a benchmark weighting of
15%. The average p/e of the portfolio at
the year-end was 9x*, at a large discount
to the UK market valuation of 11.9x*.
We are cognisant of the risks to both the
UK and global economies, so we have
diversified the portfolio across many
different industries and end geographic
markets. But there are many compelling
situations, which we describe below.
The two largest sector exposures are
energy and banks, which are also both
large sectors of the UK stock market.
There are some similarities in these
industries and our positioning. In both
industries there is a reasonable case to
make that after many years of cyclical
challenges, the big companies are now
very profitable and returns look more
sustainable than they have often looked
historically. Companies are generating
strong cash flows and paying growing
dividends, supplemented with large
buybacks. Although valuations have
risen, especially for banks last year, they
do not look stretched on most metrics.
In the case of energy, profitability
looks sustainable, as global supply of
hydrocarbons has been restrained by
disciplined capital investment levels,
despite reasonably favourable oil & gas
prices. As for banks, a normalisation of
interest rates, much stronger balance
sheets and tighter leverage controls
since the financial crisis, along with
modest bad debts, is supporting
profitability. So, in both industries, we
have retained reasonable positions in
the large companies. But we are also
finding much better value in the smaller
companies, such as Harbour Energy and
Energean within energy, and OSB and
Close Brothers amongst banks.
Another large part of the portfolio
is related to housebuilding and
construction, including two
housebuilders, distributors of building
materials like Grafton, manufacturers
of building products, such as Marshalls,
and suppliers of bathroom fixtures
and fittings like Norcros. A key plank
of government policy is to increase
housebuilding. Whilst this will take time
to come through, there are already signs
of a change of attitude to planning
at local authorities. Meanwhile lower
interest rates will bring down mortgage
costs, improving affordability. These
companies have potential to significantly
increase profitability as the industry
recovers from depressed levels of activity.
However, because industry conditions
have been tough for longer than
expected, earnings expectations have
been downgraded, and shares have
often fallen to depressed valuations. In
a stock market with little new money to
buy cheap shares, earnings ‘momentum’
has been a major driver of share price
moves, almost independent of any
valuation support. Valuations in these
sectors are generally very attractive
on any reasonable recovery in profits.
For example, at the year end the
housebuilders Barratt Redrow and
Bellway both traded on valuations well
below the value of their assets. Not only
is this highly unusual, it also does not
reflect the ability of these companies
to earn strong returns on those assets
over the cycle, nor their balance sheet
strength. In the case of Barratt Redrow, it
also largely ignores the strategic benefits
and costs synergies that the recent
merger should bring.
The portfolio also has a large exposure
to the more cyclical consumer sectors.
We own retailers like Next, Tesco, Pets at
Home, Burberry and DFS, hotel company
Whitbread, car distributor Inchcape
and gambling company Entain. Whilst
Tesco and Next (and Burberry recently)
have been strong performers, and
we have taken some profits, the other
shares have quite different drivers. All
trade well below our assessment of fair
value, due to tricky trading conditions or
At the year-end 39% of
the portfolio was invested
in medium or small sized
companies, outside the
FTSE 100 Index, compared
to a benchmark weighting
of 15%.
28
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
operational issues that we believe are
largely temporary.
One final area to focus on is real
estate, which made up over 5% of the
portfolio at year end. With real estate,
it is important to understand the health
of the underlying property markets
as well as how the stock market is
valuing those assets. Both aspects
look very supportive for the investment
case. Unite and Assura are exposed to
student accommodation and healthcare
properties, respectively, both of which
benefit from strong demand and limited
supply and are seeing steady rental
growth underpinning a rising income
stream. LandSec is exposed to major
retail destinations and prime offices. We
are seeing a polarisation in both areas
with the best locations and strong assets
attracting tenants and seeing rising
rents. Landsec reported 98% occupancy
of its London portfolio at end September
and 96% in its major retail destinations,
with both areas seeing rising rents. CLS
is a smaller office property company,
spread between London, Paris and
several German cities. Whilst the
company has higher vacancies than
the other companies, it has an excellent
record of asset management, and over
half its income stream is index linked.
Overall, therefore, we believe the
assets of these property companies are
attractive. What makes the investment
case so interesting is the way these
assets are valued. Rising bond yields
have pushed up property yields and
depressed property valuations. This
means there is potential for the asset
valuations to rise significantly, as and
when bond yields decline. In addition,
the share prices of all the companies
were trading well below the asset
value at the year end, despite this
recovery potential (although Assura has
subsequently received an unsolicited bid
approach from a private equity fund).
So, in summary, all of these companies
have the potential to benefit from rising
rents, falling yields (rising values) and a
narrowing of the discount that the shares
trade at. This is in addition to healthy
dividend yields on all four companies.
It is also worth saying a little about the
domestic and international exposure
of the portfolio. One of the features
of the UK stock market is its broad
geographic spread of earnings. Whilst
the portfolio is more heavily exposed
to domestic stocks than the broader
market, the companies still earn the
majority of their revenues internationally.
It is surprisingly hard to calculate the
exact end geographic exposure of the
portfolio, not least because disclosure is
not standardised and also, for example,
a service company may earn revenue
in the UK but from clients located in
another country. We categorise every
stock as either domestic, international
or hybrid, and using this categorisation
we estimate the underlying domestic
exposure of portfolio companies is only
around 36%. For the stock market as
a whole, considering the largest 350
companies, Goldman Sachs estimate
a domestic exposure of 25%. Therefore,
when we say that the portfolio is heavily
exposed to the domestic economy this
is more of a relative statement than an
absolute one.
We have gone into some detail on the
attractions of many of the portfolio
stocks, to explain our level of confidence
in the potential for the portfolio to
deliver superior returns to shareholders.
We are often asked what will change
the UK market focus? What will be the
catalyst? In our experience, catalysts are
only easy to spot in hindsight. A catalyst
for investors to get more excited about
the UK stock market, and particularly
medium sized companies, could be
falling bond yields, or a reversal of
the enthusiasm for US tech stocks. But
it could simply be an end to selling
pressure. There are already two very
large groups of ‘buyers’ in the UK stock
market. The first group is acquisition
vehicles. As reported above, we are
seeing a large number of takeover offers
for UK companies, as competitors and
private equity funds exploit the low
valuations on offer. The second group of
‘buyers’ are the companies themselves,
as they also take advantage of low
valuations to carry out substantial
buybacks and invest surplus cash in
their own businesses. According to
Goldman Sachs research, buybacks
have been running at an annual rate of
£40bn-£45bn in recent months. This is
equivalent to a buyer of around 1.5%-2%
of the entire UK stock market each year.
With these two significant buyers of
stock, any general recovery of investor
interest in the UK market could led to
a significant re-rating. Such a re-rating
is likely to be most acute where selling
pressure has been highest, and where
valuations are the most depressed.
Stock market history shows that stocks
on low valuations tend to outperform
those on high valuations over the
long term. With the current extreme
polarisation in the market, there is the
potential for a major rotation at some
point in the future. Many fundamentally
sound businesses are trading well below
our assessment of their underlying
value. Merchants owns a diversified
portfolio of such companies. We
believe this will benefit shareholders,
and lead to the portfolio delivering
both an attractive income stream and
superior capital returns, in line with the
company’s objective.
*Source, Allianz Global Investors,
Bloomberg for 12 month forward price to
earnings (as of January 31, 2025. P/E is
calculated from bottom-up member
earnings and may not match top-down
market estimates. Benchmark excludes all
holdings with negative or nil P/E data (c.9%
of the index)
We categorise every stock as either domestic, international
or hybrid, and using this categorisation we estimate the
underlying domestic exposure of portfolio companies is
only around 36%.
29
INVESTMENT MANAGER’S REVIEW
Atalaya Mining is an example of our
Integrated Environment, Social, and
Governance (IESG) process in action: to
identify and mitigate these important
risks to our investment cases.
Atalaya is a European copper mining
company listed on the London Stock
Exchange. The main asset is in southern
Spain near Seville – the original Rio Tinto
copper mine that gave its name to the
FTSE 100 conglomerate. The historic
copper-rich deposit – which has been
mined intermittently since the Bronze
Age – was sold by Rio Tinto Plc in 1954.
After laying idle since 2000, the site
was acquired by Atalaya and restarted
production in 2016. Today, Proyecto
Riotinto is Atalaya’s sole producing asset,
and around 50,000 tonnes of copper is
mined on site per year.
We like the investment case because
we see Atalaya as a producer of a
structurally well positioned metal that
is crucial for both the energy transition
away from fossil fuels and well-aligned
to the increasing electrification of the
economy. Perhaps unsurprisingly for
a mine that has been in operation for
centuries, the concentration of copper
is relatively low, and because of this
Atalaya has reasonably high costs per
kilo produced. This drawback for us is
more than offset by a safe and stable
jurisdiction, a prudent net cash balance
sheet, good management, and a
considerable opportunity for growth via
accessing higher grade ore.
The mining industry is a highly sensitive
area for ESG analysis, with heightened
risks around governance, community
relations, safety, and significant
environmental impacts. As part of our
IESG process, we use a third-party
research organisation to help us identify
tail risks to investigate. Our research
provider gives a score for each pillar
of ESG, and we investigate any higher
risks flagged. The aim first and foremost
is to be aware of the ESG risks we are
taking in the portfolio, to mitigate them
where we can through engagement, and
where they cannot be fully explained or
mitigated that they are justified in the
context of the investment case.
Our third-party research shows Atalaya
scores poorly on ‘Environmental Risk’,
due largely to water use intensity, but
also on toxic waste and biodiversity
metrics. The ‘Social Risk’ score is
also relatively poor on community
relations measures.
Our own investigations have helped to
clarify these issues and given us greater
comfort in the investment case.
Copper mining is a water intensive form
of mining due to the need for flotation
tanks and tailings pools in modern
production processes. Whilst Southern
Spain is an area of water stress, water
is less scarce here than in the global
benchmark for copper mining, and
largest producing country globally –
Chile, where the problem is particularly
acute. Atalaya’s sustainability reports
disclose a high and rising rate of water
recycling, and water management is a
clear area of focus for management.
Many of the other issues cited by
our third-party research provider
seem to stem from a combination of
misunderstanding Atalaya’s asset base,
or from the lack of precisely specified
disclosure in the expected format, that
can be hard for a smaller company to
provide. For example, there is apparently
no evidence of environmental audits
across all separate locations. Atalaya
only has one producing mine, and the
sustainability reports are thorough audits
in themselves. Our research provider
gives a low score for no evidence of a
policy towards indigenous communities,
and no violence and conflict
management policy. These requirements
are of more relevance to geographies
outside of the European Union.
Copper is essential to decarbonising
the global economy, but Atalaya
is also making significant progress
decarbonising its own operations.
Atalaya has recently commissioned a
solar plant that provides for more than
20% of the mine’s electricity needs.
Atalaya is also working on an innovative
new solution to process ore in a novel
and energy-efficient process called
‘ELIX’ that could materially increase
saleable metal recovery at a lower per
unit energy cost. These developments
are driven by both economic and
environmental sustainability incentives
in harmony.
Atalaya’s unusualness is part of its
strength as an investment case. It is in a
safe jurisdiction, with high governance
standards, mining a critical resource
with strategic importance for the
country in which it operates. Many of
the risks associated with mining apply
differently to Atalaya than they do to
global peers. As a smaller company
with an unusual asset base, we have
engaged with the company to help
improve its disclosures and especially to
highlight the relevant data to research
providers and so promote a greater
understanding of this company’s
material risks and how to mitigate them.
The fundamental investment case of
a well located company, supplying a
strategically important metal, trading at
a modest valuation, is supported by this
environmental and social review.
CASE STUDY: ENGAGEMENT
Atalaya Mining
Sector: Precious metals and mining
Value of holding: £10,062,000
Percentage of portfolio: 1.1%
Benchmark weighting: 0.0%
Contribution: -0.2%
30
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Atalaya Mining’s Proyecto
Riotinto operation, with the San
Dionisio pit in front and the Cerro
Colorado pit behind.
PHOTO © ATALAYA MINING
31
INVESTMENT MANAGER’S REVIEW
One of the most disappointing holdings
in the portfolio in recent years has been
Close Brothers, which has fallen in value
by around 40% this financial year after
falling heavily in the closing weeks of the
last financial year. We think a lot about
the risk of loss on a position and aim to
buy robust and growing businesses on
low valuations. Though banks are often
volatile, this kind of decline is unusual
and warrants some soul searching on
our part. Close Brothers’ performance is
especially notable given the very strong
performance of other UK banks over the
period, most notably Barclays, which we
own, but also NatWest, which we do not
(though we have in the past).
Close Brothers is a bank with strong
franchises in niche areas. Most of Close’s
business is asset-backed business-
to-business lending. Close has many
decades of underwriting experience
in assets such as commercial vehicles,
machinery, and even beer kegs. Good
market positions and longstanding
relationships have allowed the bank
to earn good margins and returns on
shareholder equity. The bank is also
traditionally very defensive, with the
bank’s loans of a shorter length on
average than its fixed deposits. This
defensiveness has been shown over
time through Close’s ability to grow
during periods of market weakness
and macroeconomic uncertainty, as
competitors tend to retrench.
Around a fifth of Close Brothers’ loan
book is motor finance, generally lending
to consumers through brokers and
dealerships to buy second-hand cars.
The broader motor finance industry has
been subject to a major new litigation
risk that emerged in January of 2024.
Rulings by the Financial Ombudsman
Service alongside various court
judgements against motor finance
lenders prompted the Financial Conduct
Authority to announce a market-wide
review into historic commission and
charging practices in the industry. In
October of 2024 a Court of Appeal
judgement significantly widened
the potential scope of any redress
payments. The final implications are
highly uncertain, as even relatively
small potential claim amounts are
magnified by high complaints-related
and administrative costs, as well as
the long history of loans potentially in
scope. Comparisons have been made
in the press to other large issues of
historic financial malpractice, such as
payment protection insurance (PPI) in
the last decade.
We find the comparisons to PPI
overblown – that scandal involved
much greater sums and the product
of much more questionable use
than sales commissions on car loans.
We also believe that a particularly
punitive approach to lending banks is
increasingly at odds with political and
regulatory priorities. Most importantly
of all, we believe Close Brothers has
more than adequate capital reserves
to suffer even a ‘reasonable worst
case’ outcome. Capital reserves have
been strengthened throughout the
year, with Close Brothers withholding
the dividend, slowing down capital
consumptive growth, and selling its asset
management division. Through these
difficult decisions Close management
plans on having a contingency of at least
£400m to cover any liability. This is a sum
that represents a very high proportion of
the current market capitalisation of the
business, and beyond what we regard
as a reasonable worst-case scenario. In
short, we believe the shares have been
too deeply discounted for uncertainty.
They trade at a material discount to an
even punitively adjusted asset value, and
the strengths of the core business that
we appraised in our original investment
case remain.
Though the higher risk and the dent
to our original investment case has
caused us to maintain a smaller position
in Close Brothers shares than in the
past, we have nonetheless taken the
opportunity to add to the position at
very depressed prices. It is important that
we are aware of and try to avoid two
very human biases in making these kinds
of investment decisions: first the impulse
to ‘double down’ and stubbornly hold
to our previous appraisal of fair value
when the facts have changed; second
the impulse to ‘cut and run’ from a poorly
performing position. With Close Brothers
we are recognising the value on offer at
this point whilst accepting that the facts
have changed. We have conviction that
our modest position in Close Brothers
can deliver a good return from here,
offsetting some of the disappointing
performance of this investment case in
the past two financial years.
CASE STUDY: PERFORMANCE
Close Brothers
Sector: Banks
Value of holding: £8,704,000
Percentage of portfolio: 0.9%
Benchmark weighting: 0.1%
Contribution: -0.7%
32
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Close Brothers’ London headquarters.
PHOTO: ROBERT EVANS / ALAMY STOCK PHOTO
33
INVESTMENT MANAGER’S REVIEW
CASE STUDY: NEW INVESTMENT
Burberry
Sector: Personal goods
Value of holding: £14,900,000
Percentage of portfolio: 1.6%
Benchmark weighting: 0.2%
Contribution: +0.6%
Burberry is a British luxury goods
business older than The Merchants
Trust. Founded in 1856, the business is
best known for trench coats, scarves
and certain check patterned fabrics.
In 1879, the founder, Thomas Burberry
invented Gabardine, a lightweight
breathable and waterproof cloth, used
for waterproof clothing worn by early
polar explorers and British soldiers.
Nowadays, Burberry operates from
over 400 stores in some of the prime
destination shopping sites around
the world. For many years it was a
consistently profitable business, earnings
high gross margins and growing
sales steadily. However, in recent
times the business has struggled. The
management team tried to move further
up market into higher priced accessories,
such as leather handbags, whilst also
incorporating a greater proportion
of high-fashion ‘runway’ lines into the
stores. This alienated some of Burberry’s
traditional customers, just as the whole
luxury goods industry was seeing
a slowdown.
This culminated in a drop in profits in
the year to March 2024, followed by a
collapse in sales in the first half of the
2025 year, which would eventually lead
to a loss for the period. Meanwhile the
share price had fallen from over £25 in
2023 to well below £10 in the middle
of 2024. We had been tracking the
company for some time and met the
management team on several occasions.
The company met two of our three
investment criteria. Firstly, Burberry
has attractive fundamentals. A unique
brand, a well invested store base, a
strong balance sheet and a record of
profitability and growth, albeit under
severe short-term pressure. Secondly, it
has exposure to some powerful long-
term themes. A rising mass affluent
population that wants to buy luxury
brands, an emerging middle class in
developing markets and the rise of
social media and influencers who can
showcase brands to a growing audience.
The third and key criteria is valuation.
By the middle of 2024, the company’s
valuation had fallen to around £3bn,
close to the value of its sales in 2024,
with a dividend yield of over 6%. This
valuation level was very attractive if the
business could return to its previous level
of sales and profits. The key questions
were how bad could conditions get,
could the business be turned around and
how long would this take?
From our analysis, we believed the
company did have a credible strategy to
return the business to profitable growth:
to move the focus back to its traditional
products in stores and regain its core
customers. Whilst acknowledging there
were risks, the balance sheet was strong
enough to cope with a prolonged period
of difficult trading. Therefore, we made a
first investment in July at just under £9.
Soon afterwards, the company
announced a major management
change, bringing in a very experienced
chief executive, Joshua Shulman, to
accelerate the turnaround. The company
also warned about deteriorating sales
trends and cancelled the dividend, to
conserve cash through a difficult time.
We had further meetings with the new
Chief Executive and the Chairman of
the company, which gave us added
confidence in the turnaround strategy
and the clear sense of urgency. As the
share price fell further, we added to
the position at share prices down to
under £6, where the shares bottomed in
September.
Subsequently, the shares started to
recover, as investors began to buy into
the recovery potential, even with the
business reporting in November a 20%
drop in underlying sales and first half
loss. By January, it was clear that the
turnaround strategy was having some
success. The third quarter trading update
showed a sharp improvement, with
underlying sales only down 4%, and
actually growing again in the Americas
region. The share price continued to rally
and ended the year at nearly £12, more
than double the low point. Burberry
made a useful contribution to investment
performance for the year.
There is still a long way to go for
Burberry to make a full return to being
a growing and highly profitable brand,
but it has made a promising start. We
took some profits on the position as the
shares rallied, but we continue to see
further upside.
This investment case highlights one
important feature of our investment
process. Whilst we generally buy
companies with high dividend yields,
we do not buy companies because of
the yield. We buy companies where
we think we can make money, or total
return. Therefore, even if a dividend
is cut, as at Burberry, we have the
flexibility to continue to add to the
position if we retain conviction in the
value opportunity. A stricter discipline on
income investing could have prevented
us from adding to the shareholding at
the most opportune time. Whilst we did
not expect an immediate dividend cut,
it was a possibility we had considered
before investing.
34
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Burberry’s ‘It’s Always Burberry
Weather’ campaign launched
in October 2024 featuring seven
key styles reimagined: the trench,
the Harrington, the quilt, the
puffer, the parka, the aviator and
the duffle.
PHOTO © BURBERRY
35
INVESTMENT MANAGER’S REVIEW
Portfolio ESG risk assessment
Proxy voting
1 February 2024 to 31 January 2025
ESG risk scores are not targeted as part of
the investment objective. Instead, we use ESG
scores as a means of monitoring underlying
risk exposure, and providing transparency
to clients. Ultimately, it is down to the
discretion of individual portfolio managers to
calculate the risk/reward trade-offs for each
individual holding.
This chart displays the portfolio’s exposure to
ESG risk. The underlying data are risk scores
for corporate issuers according to the ratings
company MSCI. These scores aim to assess the
potential financial risks arising from exposure
and management of ESG issues.
The risk scale spans from 0 (material risk)
to 10 (low risk). We have built three risk
scoring clusters:
Low: >7 to 10
Moderate: >3.1 to 6.9
Material: 0 to 3
AllianzGI has chosen MSCI risk scores as
research information input since they aim to
measure financially material ESG risks. There
were 53 stocks with MSCI risk scores in the
portfolio at 31 January 2025 and the chart
above shows how the risks for each are scored
against E,S and G factors.
Vote distribution
Number of votes for: 93%
Number of votes against: 4%
Number of votes abstained: <1%
Number of votes withheld:<1%
Not voted: 0%
Company meeting voting record
Number of meetings
voted 100% in line
with management
recommendation: 59
Number of meetings with
at least one vote against,
withheld or abstained: 1
In the year there were 60 shareholder meetings for companies in
the portfolio and the manager voted on the company’s behalf
at 59 of these.
This represents a total of 1,086 resolutions and the company
voted on 98% of these. Source: AllianzGI.
60
shareholder
meetings
1,086
resolutions
Environment Social Governance
Low riskModerate riskMaterial risk
7
41
31
4
41
5
12
18
36
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Active engagement
AllianzGI’s engagement activities include:
monitoring strategic developments, providing
feedback, challenging corporate practices and
seeking change.
Engagement can take various forms, including
correspondence; face-to-face meetings and
conference calls, as well as proxy voting and –
in rare instances – public interventions through
filing shareholder resolutions, speaking at
shareholder meetings, and commenting in
the media. In addition, AllianzGI sees value
in collaborative engagement initiatives
coordinated by investors, trade associations
and other organisations, where these seek to
address market or industry-wide concerns. As
an active investment manager, AllianzGI sees
engagement as a way to reduce investment
risk, help improve corporate performance and
better assure the long-term business prospects
of investee companies.
Environmental
risks/ impacts
Social risks/
impacts
Corporate
governance
Strategy/
business model
Transparency
and disclosure
Capital
management
Business
conduct and
culture
Operational
performance
Financial
performance
Risk
management
Consumer discretionary
Consumer staples
Energy
Financials
HealthCare
Industrials
Materials
Real Estate
Utilities
Environmental
Social Governance
Company engagements by sector and topic
A state of the art sustainability tool: SuSIE
Our engagement reporting templates also
enable the investment and stewardship teams
to evaluate the status of the engagement
in terms of the specific discussions. We are
also able to record concrete actions taken by
companies which align to our engagement
objectives and which we consider to be a direct
stewardship outcome. These outcomes are
tangible measures of engagement success and
allow us to track the effectiveness of our activity
over time.
Engagement notes and outcomes are available
on SusIE, thus facilitating their incorporation in
investment decisions. Whenever appropriate,
engagement outcomes are also reflected in our
proxy voting activities.
Our Sustainability Insight Engine (SusIE), our
digital ESG platform, allows stewardship
analysts, portfolio managers and investment
analysts from each asset class to centralise
the recording of our engagement activity.
Information, such as general context, corporate
executives contacted, topics discussed with
the companies and documents related to
the engagement, is all made available for
each engagement discussion. The ability to
link different engagements and follow-up
discussions allows efficient tracking. In addition,
SusIE offers internal report functionality for our
portfolio managers, displaying metrics related
to engaged investee companies and enabling
users to filter between themes discussed
and dates.
37
INVESTMENT MANAGER’S REVIEW
GICS Level 1 Sector Weight (%) Carbon Emissions (tCO
2
e)
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Others
Real Estate
Utilities
Carbon and climate
Reporting on climate risks
Merchants is not required to report its carbon
footprint or provide other climate related
financial disclosures under current legislation
(see page 66). AllianzGI UK, the company’s
manager, has published its own TCFD
statement and Merchants provides a link to this
from its own website.
Carbon footprint
Carbon emissions by sector
Insights
There are no climate-related targets for
Merchants; the board and the portfolio
managers do not make any claims about
the carbon emissions status of the portfolio.
However, the board and manager recognise
that carbon is one of several significant
factors in long-term company and share
price performance.
AllianzGI has its own internal sustainability
insights platform SusIE (see page 37).
Purpose of climate data
– Assists active engagement with
portfolio companies
– Identifies investment risks and opportunities
– Provides feedback and helps monitor
progress towards climate goals and carbon
reduction targets
– Supports portfolio managers’ influence to
achieve positive future outcomes
– Consistent reporting shows year-on-year
trends.
Some of these metrics, as last year, are shown
below for Merchants’ year to 31 January 2025.
Coverage
(%)
Relative carbon footprint
Scope 2
Scope 1
Weighted average
carbon intensity
Carbon emissions
(tCO
2
e)
Relative emissions exposure
(tCO
2
e / mn invested)
Relative emissions exposure
(tCO
2
e / mn sales)
Portfolio Benchmark Portfolio Benchmark Portfolio Benchmark Portfolio Benchmark
95.3
65.1
107.7
93.5
74.1
93.4
63,064.8
0 025 40,000
71,735.9
Portfolio = top bar, benchmark = bottom bar.
38
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
We added to our position in Assura, the owner
of 625 primary care properties, such as the GP
surgery pictured, during the year. The company
began building work on its new net zero carbon
Altrincham head office towards the end of 2024.
Assura subsequently received an unsolicited bid
from a private equity fund.
PHOTO: ANDY MARSHALL PHOTOGRAPHY – ASSURA PLC
39
INVESTMENT MANAGER’S REVIEW
At the heart of our investment philosophy is a belief that stock markets are inefficient. By focusing on
the fundamental qualities of businesses and identifying situations where those qualities are under-
priced in the stock market, it is possible to deliver a high and rising income stream and superior long-
term returns for investors.
A robust and repeatable investment process:
The Merchants Method
c. 1000+ stock universe, FTSE All-Share and AIM
Idea generation
Stock selection
Portfolio construction
Sell discipline
– UK-listed income-generating equities with select overseas holdings
– Primary and secondary research
– 40-60 stocks
– High active share
– Risk management
– Change of investment case
– Valuation
– Better opportunities
Fundamentals Themes
Valuations
The
Merchants
Trust
Portfolio
40
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Shell is a globally integrated energy company. By reallocating
part of the profits from its legacy oil and gas activities
towards lower carbon solutions – gas and liquefied natural
gas in particular – Shell is playing a key role in delivering the
energy transition. Our investment case has been based upon
Shell’s improving efficiency and profitability, a sound capital
allocation strategy, which includes both financial returns and
carbon emission criteria, and a modest valuation.
Sector: Tobacco
Headquarters: United Kingdom
Value of holding: £47.3m
Percentage of portfolio: 4.9%
Sector: Oil, Gas & Coal
Headquarters: United Kingdom
Value of holding: £35.6m
Percentage of portfolio: 3.7%
Sector: Pharmaceuticals & Biotechnology
Headquarters: United Kingdom
Value of holding: £46.6m
Percentage of portfolio: 4.9%
Sector: Banks
Headquarters: United Kingdom
Value of holding: £35.5m
Percentage of portfolio: 3.7%
Lloyds is a leading UK retail bank, with a broad branch network
and market share of around 20% in most retail products.
Lloyds is focusing on digital transformation to reduce costs
and improve service and efficiency. The bank has traditionally
earned a premium return on equity by prioritising margin
over volumes and through economies of scale. As profits
have recovered, Lloyds has been increasing its cash returns to
shareholders through higher dividends and a share buyback.
GSK
Lloyds Banking Group
British American Tobacco
Shell
1
3
2
4
British American Tobacco (BAT) is one of the world’s largest
tobacco companies. The majority of its profits come from
traditional cigarettes, but 17.5% of revenues in 2024 came from
next-generation, non-combustible products which potentially
offer reduced risk to consumers. BAT has prioritised investment
in this area and these fast-growing products have achieved
a profit contribution two years ahead of the original target.
Strong cashflow and a high yield underpin the investment case.
Top twenty holdings
GSK is a global bio-pharmaceutical company focused on
vaccines, speciality medicines in areas such as HIV, respiratory
illnesses and oncology, and some general medicines. We see
an underappreciated improvement in performance, with GSK
twice increasing its beyond 2030 sales projection, and some
promising product developments including new HIV treatments
and prevention therapies and a promising new treatment for
multiple myeloma, a cancer of the bone marrow.
41
INVESTMENT MANAGER’S REVIEW
WPP is a leading advertising and media agency group with
a broad span of businesses covering creative work and
communications. The company has been restructured from
a conglomerate into a smaller number of more integrated
businesses. This is increasing the focus on higher growth sectors
of technology, e-commerce, and experiences, to address an
evolving marketplace. WPP’s modest valuation does not reflect
the repositioning of the business.
Sector: Oil, Gas & Coal
Headquarters: United Kingdom
Value of holding: £32.4m
Percentage of portfolio: 3.4%
Sector: Media
Headquarters: United Kingdom
Value of holding: £28.8m
Percentage of portfolio: 3.0%
Sector: Industrial Support Services
Headquarters: Ireland
Value of holding: £30.4m
Percentage of portfolio: 3.2%
Sector: Industrial Metals & Mining
Headquarters: United Kingdom
Value of holding: £28.6m
Percentage of portfolio: 3.0%
Rio Tinto is a leading global metals and mining company, with
activities spanning iron ore, aluminium, copper, and minerals.
Rio has world-class, low-cost assets capable of generating
strong financial returns. Our investment case is based on
attractive long-term industry fundamentals, strong financial
returns, and high dividends. Rio has exposure to critical
elements, that are well positioned to benefit from demand as
the world electrifies.
DCC
Rio Tinto
BP
WPP
5
7
6
8
The investment case in BP is similar to Shell. BP is one of
the global ‘Oil Majors’ – the largest and most influential
multinational energy producers, with a blend of traditional
and renewable energy assets. BP’s robust oil and gas portfolio
provides strong cash flow generation and a solid financial
foundation. BP recently announced a welcome reset in its
strategy, to allocate capital to higher returning businesses,
pursue performance improvements and drive cost efficiencies.
DCC is a distribution operating in energy, healthcare and
technology. Having started in Ireland and the UK, DCC acts as
a consolidator in fragmented markets in Europe and the USA,
reducing inefficiencies and boosting margins. The valuation
is modest for a company with such an excellent track record
of growth and the company is seeking to improve its value,
initially by selling its healthcare division. This should achieve a
good price and demonstrate the value in the group.
42
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Barclays’ financial services include retail banking, wealth
management, credit cards and one of the best investment
banking franchises of any European bank, all of which provide
diversification benefits. Its balance sheet is strong in line with
tightened banking regulations since the financial crisis. A strong
rise in profits has seen Barclays increase dividend payments
and undertake large share buybacks, which the market has
rewarded with recent share price growth.
Sector: Food Producers
Headquarters: United Kingdom
Value of holding: £28.1m
Percentage of portfolio: 2.9%
Sector: Banks
Headquarters: United Kingdom
Value of holding: £25.7m
Percentage of portfolio: 2.7%
Sector: Retailers
Headquarters: United Kingdom
Value of holding: £27.0m
Percentage of portfolio: 2.8%
Sector: Electricity
Headquarters: United Kingdom
Value of holding: £25.4m
Percentage of portfolio: 2.7%
Inchcape is the world’s largest independent car distribution
company, consolidating a fragmented market and growing
rapidly through acquisitions. Car manufacturers increasingly
need stronger partners in smaller markets to provide digital
capabilities and industry best practice. We see additional
earnings opportunities from services over the lifecycle of the
vehicle, such as spare parts and financial services. Inchcape
generates high financial returns and strong cash flows.
SSE is a diversified energy company largely focused on
electricity transmission and distribution networks in Scotland
and England, and electricity generation assets. The company
has built a leading UK portfolio of renewable power
assets which has created significant shareholder value.
The investment case for SSE is based upon the long-term
growth opportunities in both of its main businesses and a
modest valuation.
Inchcape
SSE
Tate & Lyle
Barclays
9
11
10
12
Tate & Lyle has undergone a transition, divesting most of its
more commoditised operations and focusing instead on higher-
value food and beverage ingredients and solutions designed
to reduce calories, add dietary fibre, or improve nutritional
qualities and taste. It also acquired a US company with
complementary assets, and the synergies from this should soon
feed into profits. Tate’s improving returns profile and growth
prospects are not recognised in the company’s valuation.
43
INVESTMENT MANAGER’S REVIEW
Legal & General is one of the UK’s largest life insurance
companies, a market-leading asset manager and provider
of pension solutions. The company is also a major investor in
UK infrastructure, and urban regeneration projects. L&G has
achieved significant growth in areas such as individual and
bulk annuities. It has sold non-core assets and will use some
of the proceeds to buy back its lowly valued shares. Its cash
generation underpins a rising dividend and an attractive yield.
Sector: Gas, Water & Multiutilities
Headquarters: United Kingdom
Value of holding: £23.4m
Percentage of portfolio: 2.5%
Sector: Life Insurance
Headquarters: United Kingdom
Value of holding: £22.0m
Percentage of portfolio: 2.3%
Sector: Investment Banking & Brokerage
Headquarters: United Kingdom
Value of holding: £23.4m
Percentage of portfolio: 2.5%
Sector: Household Goods & Home Construction
Headquarters: United Kingdom
Value of holding: £22.0m
Percentage of portfolio: 2.3%
IG is a global leader in financial derivatives for the retail
market. A new CEO brought an increased growth focus
to a high-return digital business serving the demands of
sophisticated investors and offering exposure to a broad
selection of assets. IG benefits from market volatility, and is
exposed to positive themes such as rising wealth and increased
investible disposable income, and digital trends that see more
people trade in more assets, in more places and more often.
Barratt Redrow is a housebuilder formed from a 2024 merger.
It covers a large spread within the UK market, and gains
synergies from operating its sites with multiple brands and
price points. There is long-term structural growth in demand
for housing, a shortage of supply and favourable competitive
industry dynamics as the new government seeks to encourage
more house building. With limited technological risk, this is an
attractive, though cyclical, industry.
IG Group
Barratt Redrow
National Grid
Legal & General
13
15
14
16
National Grid is a British multinational electricity and gas utility
company. National Grid has pivoted its portfolio away from gas
towards electricity, aligning towards the global shift towards
electrification of the energy supply, capitalising on growth in
the UK and US electricity transmission networks. With a very
defensive business model, National Grid benefits from inflation
protection in revenues and offers a steady dividend yield.
44
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Total value of top twenty holdings: £561.8m Percentage of portfolio: 58.9%
Whitbread is a long-established company which owns the
Premier Inn hotel chain. It has a leading position in the UK
market and is investing in an exciting opportunity to grow into
a similar position in Germany. Its large UK market share and
strong freehold property base are strategic advantages. The
company is modestly valued considering its long-term potential
and growth drivers such as Germany and the repositioning of
some of its restaurant space into additional rooms.
Sector: Retailers
Headquarters: United Kingdom
Value of holding: £21.7m
Percentage of portfolio: 2.3%
Sector: Travel & Leisure
Headquarters: United Kingdom
Value of holding: £19.4m
Percentage of portfolio: 2.0%
Sector: Electricity
Headquarters: United Kingdom
Value of holding: £19.6m
Percentage of portfolio: 2.1%
Sector: Tobacco
Headquarters: United Kingdom
Value of holding: £18.9m
Percentage of portfolio: 2.0%
UK-based renewable energy company Drax Group produces
sustainable biomass which it uses to create electricity to sell
to businesses and consumers. Shares are cheaply valued in
the context of current profitability, particularly as demand for
clean energy grows. Drax has recently secured a contract in
the UK to extend its electricity generation beyond 2027. Longer
term, bioenergy carbon capture and storage technology could
become a meaningful growth driver for the company.
Imperial Brands is a major global producer of cigarettes,
tobacco, and nicotine products. The investment case is
similar to British American Tobacco, although Imperial is
further behind in next generation products. Under the current
management team, the business has delivered improved
operational performance. Having reduced its debt, it has been
buying back shares, helping the shares’ performance.
Drax Group
Imperial Brands
Pets At Home Group
Whitbread
17
19
18
20
Pets at Home combines a market leading pet store chain with a
growing and highly attractive veterinary joint venture business.
The shares have been weak due to a lull in sales after the
Covid driven expansion in UK pet ownership and a competition
and markets review into the veterinary industry. We believe
the company’s exposure to this review is limited and see the
valuation as very attractive for a market leading business.
45
INVESTMENT MANAGER’S REVIEW
Portfolio breakdown
at 31 January 2025
Name Principal activities
Value
£’000s
% of listed
holdings
Benchmark
weighting
British American Tobacco Tobacco 47,284 4.9 2.6
GSK Pharmaceuticals & Biotechnology 46,576 4.9 2.3
Shell Oil, Gas & Coal 35,644 3.7 6.7
Lloyds Banking Group Banks 35,522 3.7 1.5
BP Oil, Gas & Coal 32,372 3.4 2.7
DCC Industrial Support Services 30,380 3.2 0.2
WPP Media 28,770 3.0 0.3
Rio Tinto Industrial Metals & Mining 28,612 3.0 2.1
Tate & Lyle Food Producers 28,120 2.9 0.1
Inchcape Retailers 27,000 2.8 0.1
Barclays Banks 25,691 2.7 1.7
SSE Electricity 25,362 2.7 0.7
National Grid Gas, Water & Multiutilities 23,425 2.5 1.9
IG Group Investment Banking & Brokerage 23,386 2.5 0.1
Legal & General Life Insurance 22,037 2.3 0.6
Barratt Redrow Household Goods & Home Construction 22,006 2.3 0.2
Pets At Home Group Retailers 21,677 2.3 0.0
Drax Group Electricity 19,637 2.1 0.1
Whitbread Travel & Leisure 19,410 2.0 0.2
Imperial Brands
Tobacco 18,904 2.0 0.9
Man Group Investment Banking & Brokerage 18,488 1.9 0.1
Land Securities Group Real Estate Investment Trusts 17,910 1.9 0.2
Dowlais Group Automobiles & Parts 17,278 1.8 0.0
Harbour Energy Oil, Gas & Coal 17,176 1.8 0.1
Energean Oil, Gas & Coal 16,926 1.8 0.1
Unilever Personal Care, Drug & Grocery Stores 16,675 1.7 4.6
Morgan Advanced Electronic & Electrical Equipment 16,411 1.7 0.0
Grafton Group Industrial Support Services 15,841 1.7 0.1
Assura Real Estate Investment Trusts 15,725 1.6 0.0
Unite Group Real Estate Investment Trusts 15,032 1.6 0.1
Burberry Group Personal Goods 14,900 1.6 0.2
Bellway Household Goods & Home Construction 14,462 1.5 0.1
OSB Group
Finance & Credit Services 12,747 1.3 0.1
Marshalls Construction & Materials 12,570 1.3 0.0
Entain Travel & Leisure 12,390 1.3 0.2
46
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
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 2025, the market value of the open option positions was £(238,500) (2024: £(56,825)), resulting in an underlying
exposure to 1.48% of the portfolio (valued at strike price).
Name Principal activities
Value
£’000s
% of listed
holdings
Benchmark
weighting
Aena
1
Industrial Transportation 11,333 1.2 -
SCOR
1
Non-Life Insurance 11,309 1.2 -
Bank of Ireland Group
1
Banks 11,277 1.2 -
Haleon Pharmaceuticals & Biotechnology 11,238 1.2 1.2
Lancashire Holdings Non-Life Insurance 11,176 1.2 0.1
Conduit Holdings Non-Life Insurance 10,783 1.1 -
Atalaya Mining Precious Metals & Mining 10,062 1.1 -
PZ Cussons Personal Care, Drug & Grocery Stores 9,327 1.0 0.0
Next Retailers 8,957 0.9 0.5
Tesco Personal Care, Drug & Grocery Stores 8,747 0.9 1.0
Close Brothers Group Banks 8,704 0.9 0.0
Keller Construction & Materials 8,546 0.9 0.0
SThree Industrial Support Services 8,312 0.9 0.0
DFS Furniture Retailers 7,395 0.8 0.0
Norcros Construction & Materials 6,675 0.7 0.0
CLS Holdings Real Estate Investment & Services 5,184 0.5 0.0
XP Power Electronic & Electrical Equipment 4,917 0.5 0.0
Duke Royalty Finance & Credit Services 4,226 0.4 -
Total invested funds 954,514 100.0
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:
47
INVESTMENT MANAGER’S REVIEW
Distribution of total assets
at 31 January 2025
2024
total
%
2025
Composite
benchmark
sector
weighting
2025
total
%
Financials
Banks 6.8
11.8
8.5
Finance & Credit Services 1.6
2.6
1.7
Investment Banking & Brokerage 5.5
3.6
4.3
Life Insurance 2.2
2.1
2.3
Non-Life Insurance 5.0
0.9
3.5
21.1
21.0
20.3
Consumer Discretionary
Automobiles & Parts -
0.1
1.8
Consumer Services -
1.9
-
Household Goods & Home Construction 4.2
1.0
3.8
Leisure Goods -
0.2
-
Media 3.0
4.4
3.0
Personal Goods -
0.2
1.5
Retailers 4.5
1.5
6.7
Travel & Leisure 1.1
2.3
3.3
12.8
11.6
20.1
Consumer Staples
Beverages -
2.4
-
Food Producers 2.8
0.6
2.9
Personal Care, Drug & Grocery Stores 5.7
7.7
3.6
Tobacco 6.4
3.5
6.9
14.9
14.2
13.4
Industrials
Aerospace & Defence -
4.1
-
Construction & Materials 6.5
0.5
2.9
Electronic & Electrical Equipment 2.5
1.1
2.2
General Industries -
1.4
-
Industrial Engineering -
0.6
-
Industrial Support Services 9.8
3.3
5.6
Industrial Transportation 1.3
1.2
1.2
20.1
12.2
11.9
2024
total
%
2025
Composite
benchmark
sector
weighting
2025
total
%
Energy
Oil, Gas & Coal 10.6
9.6
10.5
10.6
9.6
10.5
Utilities
Electricity 5.9
0.9
4.6
Gas, Water & Multiutilities 2.5
2.8
2.4
8.4
3.7
7.0
Health Care
Pharmaceuticals & Biotechnology 6.7
10.6
6.0
Health Care Providers -
0.0
-
Medical Equipment & Services -
0.5
-
6.7
11.1
6.0
Real Estate
Real Estate Investment Trusts 3.3
2.0
5.0
Real Estate Investment & Services 0.8
0.4
0.5
4.1
2.4
5.5
Basic Materials
Chemicals -
0.4
-
Precious Metals & Mining 0.9
0.2
1.0
Industrial Metals & Mining 2.8
5.3
3.0
3.7
5.9
4.0
Technology
Software & Computer Services -
1.3
-
0.0
1.3
0.0
Telecommunications
Telecommunications Service Providers -
1.0
-
0.0
1.0
0.0
Not classified -
6.0
-
Total investments 102.4
100.0
98.7
Net current liabilities (2.4)
-
1.3
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) £966,603,000 (2024: £854,388,000).
48
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
50 Our strategy
52 Section 172 report
54 Risk report
Strategic
Report
We added to our position in pet
retailer Pets at Home, where we
believe the veterinary business is
significantly undervalued.
49
Business model
The Merchants Trust carries on business as an investment
company and follows the investment policy described below.
The company is governed by an independent board of non-
executive directors and has no employees or premises of its
own. Like other investment companies, it outsources investment
management, accounting, company secretarial and other
administration services to an investment management
company – Allianz Global Investors UK Limited (AllianzGI
UK) – and other third parties to provide shareholders with
an efficient, competitive, cost-effective way to gain wide
investment exposure through a single investment vehicle.
The company’s shares are listing on the Main Market of the
London Stock Exchange. In addition to annual and half-yearly
financial reports, the company announces Net Asset Values per
share daily and provides more detailed information monthly
to the Association of Investment Companies (AIC), of which
the company is a member, in order for brokers and investors to
compare its performance with its peer group.
A review of the company’s business, activities and prospects is
given in the Chairman’s Statement starting on page 7, and
in the Investment Manager’s Review starting on page 15.
Strategy review
Every year we hold a strategy meeting outside the regular
timetable of board meetings. At the most recent meeting in
November 2024 the topics covered included:
– Market background and Merchants’ positioning
– UK equities long-term views
– Marketing and industry perspectives
– Gearing and a refinancing review
At the review it was agreed that the refinancing of borrowings
would take place before the maturity of the Revolving Credit
Facility in January 2025 and gearing would continue to be kept
under review to ensure the financing structure was appropriate
and to manage debt maturities.
The board would also continue its engagement with
investment platforms in the year ahead to understand its retail
investor audience. This would enable Merchants to promote
and stimulate retail investor demand through compelling and
authentic communications from the company and reaffirm
Merchants as a core income vehicle for investors in UK equities.
Our strategy
Investment Policy
Objective
The Merchants Trust aims to provide
an above average level of income and
income growth together with long-
term capital growth through a policy
of investing mainly in higher-yielding
large UK companies.
Performance is benchmarked against
the FTSE All-Share Index, reflecting
the emphasis within the portfolio. The
company’s investment performance
is also assessed by comparison with
other investment trusts within the UK
Equity Income sector.
Gearing
The company’s policy is to remain
substantially fully invested. The
company has the facility to gear –
borrow money – with the objective of
enhancing future returns. Gearing is
in the form of a short-term revolving
credit facility and fixed rate longer-
term borrowings. The board monitors
the level of gearing and makes
decisions on the appropriate action
based on the advice of the manager
and the future prospects of the
company’s portfolio.
The company’s authorised borrowing
powers set out in the Articles state
that the company’s borrowings may
not exceed its called up share capital
and reserves. The board’s policy is to
maintain gearing (borrowings as a
percentage of net assets) in the range
of 10 - 25%, (measured at the time
that any increase in total borrowing
facilities is agreed). Gearing averaged
14.6% in the year to 31 January 2025
(2024: 13.8%).
Depending on equity market
conditions, gearing may be outside this
range from time to time but it is not
the board’s intention to increase total
borrowing facilities if gearing is above
the range.
Risk diversification
The company aims to achieve a
spread of investments, with no single
investment representing more than
15% of assets. The company seeks
to diversify its portfolio into at least
five market sectors, with no one
sector comprising more than 35% of
the portfolio.
50
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Strategic aims
The company’s aims, as reflected in the KPIs reporting on page
12, continue to be to:
Dividends
– Provide a high and progressively growing income stream.
The chart on page 6 shows dividend increases every
year since 1982 and the KPI chart on page 13 shows the
contribution to dividend reserves in the past five years.
Shareholder return
– Provide long-term capital growth
– Provide a long-term total return above the benchmark
and peers
– The KPI chart on page 13 shows the returns against
the benchmark.
Investor appeal
– Position Merchants to outperform peers, ensuring that
the company remains relevant and attractive to new and
existing investor groups
– Manage the costs of running the company so that they
remain reasonable and competitive
– The KPI charts on page 13 include a comparison of
ongoing charges against the peer group.
Investment strategy
We aim to achieve our objective through a strategy of investing
in a portfolio of mainly higher yielding large UK companies and
by using appropriate gearing to enhance returns. This strategy
is designed for those investors who require a single investment
in a diversified and professionally managed portfolio.
More detail on the investment philosophy and stock selection
process is set out in the investment manager’s review from
page 40, which will help shareholders understand how
and why the manager invests the way he does and sets the
background for individual investment decisions.
Marketing
The company’s marketing activity promotes Merchants to
investors looking for exposure to capital growth in large
UK equities and an above average level of dividend. The
policy is to reach out to private investors managing their own
investments as well as wealth managers and institutional fund
managers. The work with our partners to do this is discussed in
the table of stakeholder engagement on page 52.
The company undertakes joint marketing initiatives with a
number of market-leading investment platforms and this
has proved to be a highly successful strategy. The portfolio
manager, Simon Gergel, speaks at investor conferences and
events and records interviews and podcasts available through
our website.
Discount/premium
The discount/premium of the share price to Net Asset Value
is closely monitored. When shares are trading at a premium,
the policy is to be prepared to issue shares to meet natural
demand in the market. Conversely, when shares are trading
at a significant discount, shares may be bought back and
cancelled or held in treasury.
51
STRATEGIC REPORT
Section 172 report
Engagement with key stakeholders
The company’s shareholders are its primary stakeholders. Other stakeholders include service
providers and the portfolio companies in which the company invests.
The board’s strategy is facilitated
by interacting with a wide range
of stakeholders through meetings,
seminars, presentations and publications
and through contacts made through our
suppliers and intermediaries.
Engagement with the company’s
stakeholders enables the company to
fulfil its strategies and to promote the
success of the company for the benefit of
the shareholders as a whole.
Below are some examples of the ways
that Merchants has interacted with
stakeholders to demonstrate how the
board and its agents have considered
stakeholders in pursuit of the success of
the company and the promotion of that
success for the long term:
Why we engage:
Shareholders receive relevant
information to enable them to evaluate
whether their investment interests
are aligned with the strategy of
the company.
The directors get feedback and
views on shareholder priorities such
as sustainability of income, risks and
gearing levels which inform the board’s
strategy discussions and decisions.
How we engage and what we do:
We communicate through the annual
and half-yearly reports, monthly
factsheets, website, press articles,
podcasts and LinkedIn posts. Meetings
are held with professional shareholder
groups. The AGM provides a focus for
interaction with shareholders. The AGM
is a live event, and this year for the first
time it will be run as a hybrid event,
with the opportunity for shareholders to
meet the board and managers and for
live questions from shareholders both
in person and online, as well as those
submitted in advance.
Actions:
The board discussed and approved
a budget for a marketing and
communications programme which
would extend information available
to shareholders and potential new
investors. The website was regularly
updated with new podcasts and
interviews with the portfolio manager.
The company is working with a media
partner to ensure Merchants and
information about the company is easily
accessible online.
Shareholders
52
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Why we engage:
The board works with AllianzGI who
provide investment management,
accounting and secretarial services as
well as expertise in sales and marketing
for a competitive management fee.
The board has appointed HSBC as
depositary and custodian and MUFG,
formerly Link Group, as registrar to
provide specialist services. Another
key service provider is State Street
who provide middle office and
fund accounting services through a
contractual arrangement with AllianzGI.
How we engage and what we do:
Our manager maintains regular
contact and ensures service levels are
satisfactory and appropriate controls
are in place with Merchants’ service
providers. In the past year the manager
has continued to report how it has
adjusted the portfolio in response to
the challenges of the geopolitical and
economic environment.
Actions:
During the year the board worked with
the manager to oversee and monitor
the improved processes and controls
at AllianzGI’s outsourced third-party
provider of middle office services and
the board obtains regular updates on
due diligence from the manager.
Why we engage:
The board approves the manager’s
active, stock picking approach and
believes in good stewardship.
How we engage and what we do:
On the company’s behalf the manager
engages with investee companies,
including on ESG matters and exercises
its votes at company meetings. There are
details of engagement and proxy voting
on pages 36 and 37.
Actions:
Merchants actively votes at portfolio
company meetings. Reports on
engagement and case studies are in the
Portfolio Manager’s Report which starts
on page 16.
Why we engage:
To reach a wider audience of investors,
the company works with firms providing
access to platforms and wealth
managers, as well as public relations
advisers. The board receives detailed
feedback to confirm wide and growing
interest in the company’s shares.
How we engage and what we do:
The manager together with our
distribution partners arranges
presentations about Merchants at virtual
and real-life events and has employed
research publications to reach investors
through share trading platforms, wealth
managers and through websites. The
board has reflected on the value of this
to the end user and has been focusing
resources on partnerships with financial
publications and making Merchants
more accessible online.
Actions:
Merchants participated in events such
as the AIC Showcase 2024 , a Citywire
webinar and a recent in person and
online AJ Bell conference. Spikes in
website hits and new investment in
the company on retail platforms after
press coverage and distribution partner
events. Shares were added to the
holdings across direct-to-consumer
platforms in the year.
Service providers
Portfolio companies
Distribution and media partnerships
53
STRATEGIC REPORT
Risk report
Risk policy
The board operates a risk management
policy to ensure that the level of risk
taken in pursuit of the board’s objectives
and in implementing its strategy is
understood. The principal risks identified
by the board are listed below, together
with the actions taken to mitigate
them, and set out in the Risk Map on
page 55.
A more detailed version of the chart
is reviewed and updated by the audit
committee at least twice yearly. This sets
out risk types, key risks identified and
their status, the controls and mitigation
in place to address these risks, together
with the evidence of controls and gives
an assessment of the risk using a traffic-
light system, as shown at the bottom of
the chart, to confirm the outcome of the
assessment of the risk.
The board has carried out a robust
assessment of the principal and
emerging risks facing the company,
including those that would threaten its
business model, future performance,
solvency or liquidity and emerging risks
and how they monitor and manage
them and disclose them in the Annual
Report. The process by which the
directors monitor risk is described in the
Audit Committee Report on page 77.
Investment and portfolio risks
1.1 Market decline
Risk: Macro-economic shocks to the
portfolio if the board and manager fail
to predict changes to the investment
environment; significant market
movements may adversely impact
the investments held by the company
increasing the risk of loss or challenges
to the investment strategy; reduction of
dividends across the market affecting
the portfolio yield and the ability to pay
in line with dividend policy.
Response: Macro-economic and political
risks are taken into account during
portfolio construction, although stock
selection is predominantly ‘bottom up’
driven. The portfolio is diversified across
industries and stocks to mitigate the
impact of individual share price volatility.
Whilst the portfolio is mainly invested
in UK listed companies, the end market
exposures of these businesses are spread
around the world. The portfolio is stress-
tested at least monthly.
1.2 Market liquidity and pricing
Risk: Failure of investments, for example,
due to poor oversight and monitoring.
Response: Detailed reports on stock
selection and other investment
management processes are received
from the manager by the board. Liquidity
is monitored closely by the manager and
any concerns are raised with the board
for agreed action to be taken.
1.3 Counterparty
Risk: Non-delivery of stock by a
counterparty leading to an interest claim
or buy-in.
Response: The manager operates
on a delivery versus payment system,
reducing the risk of counterparty
default. Any issues or systemic problems
would be discussed with the board and
remedial actions agreed.
1.4 Currency
Risk: Exposure to exchange rate
movements which can affect, for
example, dividend income.
Response: The portfolio is mainly
invested in UK-listed companies, with
shares predominantly priced in sterling.
Exposure is therefore primarily indirect,
but well diversified. Board papers
monitor the income split by currency to
assess risks to the revenue account.
Business and strategy risks
2.1 Shareholder relations
Risk: The investment objectives, or views
on decisions such as gearing, discount
management, dividend policy, of existing
shareholders may not coincide with
those of the board leading investors to
sell the ordinary shares.
Response: Reports on shareholder
sentiment are received from the
manager and brokers and reviewed by
the board. Shareholders are actively
encouraged to make their views known.
2.2 Investment strategy
Risk: Inappropriate investment strategy
for example asset allocation or the
Principal risks
The principal risks are now
considered to be emerging
risks, followed by risks relating
to investment strategy and
investment performance. Those
identified as having the highest
impact and the greatest likelihood
are the following:
3.9
Geopolitical.
3.10
Climate.
Some principal risks have been
assessed as being as likely to occur
as last year.
2.2
Investment strategy: for
example, asset allocation
or the level of gearing may
lead to a failure to meet the
company’s objectives, such
as income generation and
dividend growth.
2.3
Investment performance:
for example, poor stock
selection for the portfolio
leads to decline in the
rating and attraction of
the company.
ESG risks
ESG risks are covered and
described in the Portfolio ESG risk
assessment on page 36. SuSIE
provides a tool to identify risks in
ESG engagements and how they
fit in the investment process - see
page 37.
54
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
IMPACT
LIKELIHOOD
unlikely moderate likely almost certain
low moderate high very high
1.3
Counterparty
2.4
Financial
1.4
Currency
1.2
Market liquidity
and pricing
3.1
Organisation set up
and process
2.5
Liquidity and
gearing
3.4
Corporate
governance
2.1
Shareholder
relations
2.3
Investment
performance
2.2
Investment
strategy
3.6
Financial crime
and fraud
1.1
Market decline
3.8
Cyber and AI
Risk appetite
The board identifies risks,
considers controls and
mitigation, the probability
of the event, and assesses
residual risk. It then
evaluates whether its risk
appetite is satisfied. The
board confirms for the
year ended 31 January
2025 that its assessment
of risk is in line with its risk
appetite for all key risks.
Risk Map
Risk is acceptable, no additional measures needed
Risk is of concern but sufficient measures are defined and have been or are being implemented
Risk is of concern, sufficient mitigation measures not possible
3.5
Key person
3.7
Reputational
3.2
Outsourcing /
Third party
3.10
Climate
3.9
Geopolitical
3.3
Regulatory
2.6
Market demand
55
STRATEGIC REPORT
level of gearing may lead to a failure
to meet the company’s objectives, such
as income generation and dividend
growth, and capital growth, or lead
to underperformance against the
company’s benchmark index or against
peer group companies. This may lead
to the company’s shares trading on a
wider discount.
Response: Board policies restrict the size
of investments in individual companies
and sectors. The board closely monitors
the income projections for the portfolio,
and the level of risk and diversification
of this income, to ensure the company
can meet its income objectives. The
board also reviews the suitability
of the investment strategy and the
stock selection process regularly, and
considers its gearing policy frequently. All
of these topics are considered in depth
at the annual strategy review.
2.3 Investment performance
Risk: Persistent poor performance
against benchmark or peers leads to
decline in rating and attraction of the
company to investors.
Response: The Investment Manager
attends all board meetings to discuss
performance with the directors. The
board manages these risks by giving
investment guidelines which are
monitored at each meeting. The board
reviews the investment performance of
the company against the benchmark
and peer group. The board regularly
discusses composition and succession
planning to ensure that sufficient
board members have the appropriate
background and knowledge to
evaluate performance.
2.4 Financial
Risk: Various factors might include
poor title to investment holdings, Net
Asset Values calculated incorrectly,
written options not covered, inaccurate
revenue forecasts, incorrectly calculated
management fees, incorrectly identified
expense payments.
Response: A rolling income forecast
(including special dividends), balance
sheet and expenses are reviewed at
every board meeting. Reporting from
the custodian covering internal controls
in place over custody of investments
and over appointment and monitoring
of sub-custodians is produced and
reviewed at least annually.
The board’s investment restrictions are
input in trading systems to impose a
pre-trade check. The manager discusses
derivative activity during a monthly risk
call. Any overdue dividend debtors are
monitored by the manager and variance
analyses of income from meeting to
meeting are provided to the board. The
board annually reviews and approves
the accounting policy for the income/
capital split.
2.5 Liquidity and gearing
Risk: Insufficient income generated
by the portfolio and due to stock
market falls gearing increases to levels
unacceptable to shareholders and the
market which in extreme circumstances
results in a breach of loan covenants.
Response: The board meets with the
portfolio managers and considers asset
allocation, stock selection and levels of
gearing on a regular basis. Investment
restrictions and guidelines are monitored
and reported on by AllianzGI. Regular
compliance information is prepared on
covenant requirements.
2.6 Market demand
Risk: The level of discount of the share
price to the NAV moves to unacceptable
levels, threatening confidence in the
company’s shares.
Response: The board regularly reviews
the level of premium and discount and
new shares can be issued or existing
shares bought back by the company at
discounts greater than an agreed level
when there is demand to do so.
Operational risks
3.1 Organisation set up and process
Risk: Failure or other issues in the
operational set up of the company,
through people, processes, systems or
external events, examples including
changes in management company
structure, oversight issues, appropriate
governance of processes could result
in financial loss to the company or its
inability to operate.
Response: The manager and the
other key service providers report
on business continuity plans and the
resilience of their response to extreme
situations. Third party internal controls
reports are also received from these
service providers.
3.2 Outsourcing and third party
Risk: Inadequate procedures for
the identification, evaluation and
management of risks at outsourced
providers and roles of the third party are
not clear and gaps in the service appear.
Response: The board receives formal
assurance reports from all of its direct
service providers and the manager
carries out regular monitoring of
outsourced administration functions,
this includes compliance visits and risk
reviews where necessary. Results of these
reviews are supplied to the board.
3.3 Regulatory
Risk: Failure to be aware of or comply
with legal, accounting and regulatory
requirements which could result in
censure, financial penalty or loss of
investment company status.
Response: The board maintains close
relations with its advisers and makes
preparations for mitigation of these risks
as and when they are known or can
be anticipated.
3.4 Corporate governance
Risk: Weak adherence to best practice
in corporate governance can result in
shareholder discontent and potential
reputational damage to the company.
Response: The board takes regular
advice on best practice. The board is
highly experienced and knowledgeable
about corporate governance best
practice, and the board includes
directors who are board members
of other large UK plcs and other
investment companies.
3.5 Key person
Risk: Departure of the portfolio
manager, certain professional
individuals, and/or board members, may
impact the management of the portfolio,
the achievement of the company’s
investment objective and/or disruption to
its operations.
Response: Manager and board
succession plans are in place. Cover
is available for core members of the
relevant teams of the manager, and
work can be carried out by other team
members should the need arise.
3.6 Financial crime and fraud
Risk: That the company and the
manager’s firm, its employees, or clients
are subject to financial crime or breach
elements of the Bribery Act.
56
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Response: AllianzGI has anti-fraud, anti-
bribery policies and robust procedures
in place. The board is alert to the risks
of financial crime and reviews how third
party service providers handle these.
These reports confirm that all systems
are secure and are updated in response
to any new threats as they arise.
3.7 Reputational
Risk: Examples include unforeseen
changes, oversight issues, appropriate
governance of processes in the
management company structure;
association with poor governance in
portfolio companies; and operational
issues in service providers, all of
which can affect the reputation of
the company.
Response: Service providers are
monitored and the manager provides
oversight and timely and detailed
information on any reputational issues
and communicates actions being taken
with the board for discussion.
3.8 Cyber security and AI
Risk: Increased cyber attacks and from
traditional and generative Artificial
Intelligence (AI) in respect of malicious
AI, its rapid growth and the lack
of regulation.
Response: The board is alert to the
threat of and risks from cyber attacks
and reviews how third party service
providers handle these threats and risks.
These reports confirm that all systems
are secure and are updated in response
to any new threats as they arise. The
board asks for and receives assurance
from key suppliers on AI developments
and threats.
3.9 Geopolitical
Risk: Unpredictable consequences of
political and macro-economic shocks
such as the repercussions of the invasion
of Ukraine by Russia and the conflict
in Gaza, US interventions and tariff
impositions, ongoing inflation concerns
and the threat to income and cost
of gearing.
Response: The board carries out
horizon scanning by keeping informed
through its manager and advisers on the
political, economic and legal landscape,
and reviews updates received on
regulatory changes that affect the
company including industry and
manager thematic outlook and insights
research publications. The board is fully
engaged with its management company,
AllianzGI, and its other advisers to keep
informed about ongoing changes and is
ready to adapt its strategies in order to
achieve its objectives.
3.10 Climate
Risk: that climate change is not
recognised or understood by the
manager, exposing the portfolio to
stocks not positioned to transition
to decarbonisation.
Response: The manager has a detailed
climate policy which is incorporated
in the investment process, e.g.,
through exclusion policies and other
methodologies. Its Sustainability
Insights Engine (SusIE) facilitates the
consideration of climate data in the
investment process. The manager
engages with investee companies
on climate issues and to influence
transition pathways.
Viability Statement
The Merchants Trust is an investment
company and has operated as an
investment vehicle since 1889 with the
aim of offering a return to investors
over the long term. The board has
confidence in the future of the company.
Over its 136 year history, the company
has survived numerous external crises
and economic events; it has a solid
portfolio of blue chip stocks and has
built up substantial revenue reserves.
The directors have formally assessed the
company’s prospects for a period longer
than the one year required by the Going
Concern principle. The directors believe
that five years is an appropriate outlook
period for this review as this is broadly
equivalent to the portfolio’s investment
cycle. Whilst acknowledging the difficulty
of forecasting prospects for markets
beyond a relatively short horizon, the
board believes that this should give
investors assurance that there is a
realistic prospect that the company will
continue to be viable and continue to
seek to achieve its aim to provide an
above average level of income and
income growth together with long term
capital growth.
The board has assessed the long-term
viability of the company against the
principal risks faced by the company,
outlined in the risk reporting within
the Strategic Report. The chief risks
that could pose a threat to the
future prospects of the company
are investment strategy, investment
performance, emerging risks and market
decline, as described in the risk reporting
from page 54.
The board considered the following in
its assessment:
1. The company’s investment strategy
and the long-term performance of the
company, together with the board’s view
that it will continue to provide long-
term returns to shareholders as well as
an attractive income as it has done in
the past.
(i) The board examines performance
with the investment managers
at each board meeting and
strategy meeting. Performance is
reviewed against the company’s
stated strategy and the continuing
relevance of the company as a
provider of a vehicle for investors
looking for a portfolio invested in
leading companies with strong
balance sheets and the ability to pay
attractive dividends.
(ii) The board receives reports at every
board meeting of the transactions in
the company’s shares. The company
is a member of the FTSE 250 and
there is liquidity in its shares.
2. The financial position of the company,
including the impact of foreseeable
market movements on cash flows - the
board monitors the financial position
in detail at each board meeting and at
least twice each year it stress-tests the
portfolio against significant market falls.
The methods used are:
(i) Loan covenants stress testing
(checking monthly on the decline
in asset values needed to
breach covenants).
(ii) Stress testing the portfolio (reviewing
the time it would take to sell
portfolio stocks).
(iii) The assessment of future portfolio
income and the impact of the
payment of dividends on reserves
(reviewing rolling forecasts of income
based on the current portfolio at
every meeting).
3. The company’s ability to meet interest
payments and debt redemptions as they
fall due. The RCF was repaid in January
2025 with new Private Placement Notes
which are due to mature in 2040.
The board continues to consider its
gearing strategy on an ongoing basis.
The next scheduled repayment of debt
57
STRATEGIC REPORT
is in 2029 and the board continues to
monitor how and when is best to fund
this repayment.
4. The liquidity of the portfolio, and
the company’s ability to pay growing
dividends and to meet the budgeted
expenses of running the company, which
is examined at each board meeting.
(i) Liquidity testing is carried out on
Merchants’ portfolio by AllianzGI on
an ongoing basis. Stocks are listed
on major exchanges. There are no
unlisted investments in the portfolio.
(ii) Portfolio income is reviewed by
the board at each meeting and
conservative assumptions are made
in estimated revenue accounts in
the board meeting papers (based
on historic portfolios, assuming no
dividend increases).
(iii) Ongoing charges are operating
expenses incurred in the running of
the company (excluding financing
costs). The ongoing charges figure
is calculated by dividing operating
expenses, i.e., the management fee
and all administration expenses, by
the company’s Net Asset Value. This
calculation is carried out formally
each year and published in the
Annual Report (in accordance with
the AIC’s recommendations). The
expenses of running the company
have been calculated at 0.52% of
net assets in the latest year (2024:
0.55%). These charges are low and
should be met by the company
without difficulty in each of the five
years under review.
5. The company’s resilience in facing
the risks and consequences of an
unanticipated macroeconomic shocks
and grave geopolitical events and
its ability to continue to maintain its
objectives and provide the required
shareholder returns.
The board has received detailed reports
and periodic updates from AllianzGI
and its other key service providers on the
resilience of their controls environment
and ability to continue to deliver their
services when necessary, with usage of
remote access capabilities, including
for portfolio management activities.
The board has received assurances
that AllianzGI operates to standards
for business continuity management
and resilience which reflect market
standards, such as ISO22301. This
resulted in minimum disruption
through the pandemic and in the
post-pandemic environment.
The portfolio manager has provided
forecasts to demonstrate the reasonable
prospect of, having utilised revenue
reserves previously, maintaining a
covered dividend and building
reserves against future requirements.
This supports the continuation of the
company’s objectives to provide a high
level of income and income growth
together with long-term capital growth
for its shareholders and which supports
the viability of the company for the five-
year period contemplated.
The directors have evaluated the risks
and consequences of global events and
have considered the company’s ability
to maintain its objectives and provide
shareholder returns in the five year
horizon for viability and believe that the
company is well placed to be able to
achieve this.
Based on the results of this assessment
and on the assumption that the risks
above are managed or mitigated
effectively, the directors have a
reasonable expectation that the
company will be able to continue in
operation and meet its liabilities as they
fall due over the five year period of
their review.
Going Concern
Following all the investigations made in
the Viability review above, the directors
have concluded that the company
has adequate resources to continue
in operational existence. The directors
have also considered the risks and
consequences of macroeconomic and
other unanticipated shocks on the
company and have concluded that the
company has the ability to continue
in operation and meet its objectives
for twelve months after the approval
of the Annual Report. For this reason
the directors continue to adopt the
going concern basis in preparing the
financial statements.
The future
As we set out on page 2, there are
many reasons to invest and stay invested
in The Merchants Trust. Merchants
has experience of providing active
investment management through many
difficult environments and over time
provides long-term capital growth and
an above average income and income
growth to investors.
Some of the trends likely to affect the
company in the future are common to
many investment companies, such as
the future attractiveness of investment
companies as investment vehicles. The
outlook for economic growth, interest
rates, inflation and asset returns will also
be important factors. In particular for
Merchants, the availability of attractive
income producing UK equities and
their future returns are central to the
investment proposition. The board
continues to believe that the continuing
evolution of the investment platforms
market offer many opportunities for
the self-directed investor. The longevity
of the company and its importance to
investors continues to be a key concern
of the board. I give my view of the
outlook in my Chairman’s Statement on
page 10 and the portfolio manager
discusses his view of the outlook for the
company’s portfolio in his review on
page 16.
On behalf of the board.
Colin Clark
Chairman
8 April 2025
58
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Governance
60 Directors
62 Investment Manager and advisers
63 Directors’ Report
69 Corporate Governance Statement
72 Management Engagement Committee
Report
73 Nomination Committee Report
74 Remuneration Committee Report
77 Audit Committee Report
80 Statement of directors’ responsibilities
in respect of the financial statements
Housebuilder Redrow was taken
over by Barrat Developments,
and we initiated a new
position in the merged Barratt
Redrow company.
PHOTO © BARRATT REDROW
59
Directors
Colin Clark
Chairman
Joined the board in June 2019 and
became Chairman in September 2019.
Colin is Chairman of the board of AXA
Investment Managers UK Ltd and a non-
executive director of AXA IM SA global
board. He is also Chairman of Aveni
Plc, a leading provider of AI solutions
for financial services organisations.
Colin has had a 40 year career in asset
and wealth management. His most
recent executive roles were from 2010
at Standard Life Investments and as an
executive director of Standard Life Plc.
Prior to this he was with Mercury Asset
Management, Merrill Lynch Investment
Managers and S.G.Warburg & Co.
Experience:
Senior leadership roles in the asset
management industry and an
experienced chairman.
Reasons for the recommendation
for re-election:
Colin’s senior expertise and asset
management knowledge are valued for
their input into the board’s governance
and the response by the board to
challenging external events.
Karen McKellar
Senior Independent Director
Joined the board in May 2020. Karen is a
non-executive director and Chair of the
Management Engagement Committee
of JPMorgan European Investment Trust
PLC. Karen has had a long career as
an investment manager at Standard
Life, managing the Standard Life Equity
Income Investment Trust as well as
several large UK equity open-ended
funds. Karen was appointed as Senior
Independent Director following the
retirement of Sybella Stanley on 21
March 2024.
Experience:
An asset management professional
with senior management, money
management and investment trust
board experience.
Reasons for the recommendation
for re-election:
Karen brings to the board
a deep understanding of
portfolio management.
Timon Drakesmith
Chair of the Audit Committee
Joined the board in November 2016.
Timon is Chief Financial Officer of ZSL
(Zoological Society of London). Timon
was formerly the Chief Financial Officer
of Carbon Trust. Prior to that he was
Chief Financial Officer of Hammerson
plc, and before that the Finance Director
of Great Portland Estates plc and Group
Director of Financial Operations of
Novar plc. He is a Chartered Accountant
and has held previous financial roles
at Credit Suisse, Barclays and Deloitte
Haskins and Sells.
Experience:
Finance Director of large UK corporates
and a chartered accountant.
60
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Lisa Edgar
Joined the board in January 2024. Lisa is
the founder and Chief Executive of Big
Window Consulting, a consumer and
B2B insight agency and until January
2024 was Chief Customer Officer on the
Executive Leadership Team at Saga PLC.
Lisa’s career began as a brand planner
and market research analyst and she
developed customer insight agencies
and her own companies in this field over
the past twenty years.
Experience:
A market research expert, with
experience of working at a senior
level with large clients in the financial
services sector.
Reasons for the recommendation
for re-election:
Lisa’s brings a wealth of retail market
research experience to the board’s
understanding and direction of the
marketing and distribution of the
company’s investment proposition.
Mal Patel
Joined the board in March 2024. Mal
is Head of Investor Relations at Spirax
Group plc and has held senior roles in IR
and corporate development in a number
of large UK companies. His early career
was as an equities analyst in investment
banking. He is a chartered accountant.
Experience:
A senior leader in a wide range
of investor relations, corporate
development and finance roles across a
variety of businesses.
Reasons for the recommendation
for re-election:
With a strong corporate background
and financial expertise, Mal brings
experience and skills in many areas
including transactions, corporate
finance and treasury, debt and equity
raising and also external reporting and
investor relations.
Committee memberships
All directors are non-executive
and independent of the manager.
All directors are members of the
Management Engagement Committee.
All directors, with the exception of the
Chairman, Colin Clark, are members of
the Audit Committee. Further details can
be found from page 72.
61
GOVERNANCE
Investment Manager and advisers
The Manager or Alternative Investment Fund
Manager (AIFM)
Allianz Global Investors UK Limited (AllianzGI UK) is
incorporated in the UK and its registered office is at 199
Bishopsgate, London EC2M 3TY. It is authorised by the
Financial Conduct Authority (FCA). AllianzGI UK delegates
some functions to Allianz Global Investors GmbH (AllianzGI).
AllianzGI is an active asset manager operating across nineteen
markets with specialised in-house research teams around
the globe, managing assets for individuals, families and
institutions worldwide.
As at 30 September 2024, AllianzGI had €560 billion of assets
under management worldwide.
Through its predecessors, AllianzGI has a heritage of
investment trust management expertise in the UK reaching
back to the nineteenth century and as at 31 December 2024
had £3.3 billion assets under management in a range of
investment trusts.
Website: allianzgi.co.uk
Head of Investment Trusts
Stephanie Carbonneil
Email: stephanie.carbonneil@allianzgi.com
Investment Manager
Simon Gergel, Lead Portfolio Manager,
Richard Knight, Portfolio Manager,
Andrew Koch, Portfolio Manager.
Representing Allianz Global Investors UK Limited,
199 Bishopsgate, London EC2M 3TY (the manager).
Company Secretary and Registered Office
Kelly Nice and Kirsten Salt
199 Bishopsgate, London EC2M 3TY
Telephone: 0800 389 4696
Email: investment-trusts@allianzgi.com
Registered number
28276
Bankers and Custodian
HSBC Bank plc
Depositary
HSBC Securities Services
Solicitors
Dickson Minto W.S.
Custodian
HSBC Bank plc
Independent Auditor
BDO LLP
Registrar
MUFG Corporate Markets, formerly Link Group (full details on
page 112)
Stockbrokers
J.P. Morgan Securities Limited
Depositary
HSBC Securities
62
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Directors’ Report
Statement of the Depositary’s Responsibilities in Respect of the Company
‘The Depositary must ensure that the
company is managed in accordance
with the Financial Conduct Authority’s
Investment Funds Sourcebook,
(‘the Sourcebook’), the Alternative
Investment Fund Managers Directive
(AIFMD) (together ‘the Regulations’)
and the company’s Articles of
Association.
The Depositary must in the context
of its role act honestly, fairly,
professionally, independently and in
the interests of the company and its
investors.
The Depositary is responsible for
the safekeeping of the assets of the
company in accordance with the
Regulations.
The Depositary must ensure that:
– the company’s cash flows are
properly monitored and that cash
of the company is booked into the
cash accounts in accordance with the
Regulations;
– the sale, issue, repurchase,
redemption and cancellation of
shares are carried out in accordance
with the Regulations;
– the assets under management
and the Net Asset Value per share
of the company are calculated in
accordance with the Regulations;
– any consideration relating to
transactions in the company’s assets
is remitted to the company within the
usual time limits;
– that the company’s income is applied
in accordance with the Regulations;
and
– the instructions of the Alternative
Investment Fund Manager (‘the
AIFM’) are carried out (unless they
conflict with the Regulations).
The Depositary also has a duty to take
reasonable care to ensure that the
company is managed in accordance
with the Articles of Association
in relation to the investment and
borrowing powers applicable to
the company.
Report of the Depositary to the
Shareholders of The Merchants
Trust PLC (the company) for the
year ended 31 January 2025.
Having carried out such procedures
as we consider necessary to discharge
our responsibilities as Depositary of
the company, it is our opinion, based
on the information available to us and
the explanations provided, that in all
material respects the company, acting
through the AIFM has been managed
in accordance with the rules in the
Sourcebook, the Articles of Association
of the company and as required by
the AIFMD.’
HSBC Bank plc
14 February 2025
Further information about the
relationship with the Depositary is on
page 110.
The directors present their report and the audited financial statements of the company for the year ended 31 January 2025.
Revenue
The revenue earnings attributable to ordinary shareholders for the year amounted to £43,671,000 or 29.4p per share (2024:
£44,509,000, 30.5p per share).
The first quarterly dividend of £10,679,000, or 7.2p per share, and the second quarterly dividend of £10,835,000, or 7.3p per share,
have been paid during the year. Since the year end the third quarterly dividend of £10,835,000, or 7.3p per share, was paid on 19
March 2025. A proposed final dividend of 7.3p will be paid on 29 May 2025 to shareholders on the register on 22 April 2025. 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 £39,889,000* (2024: gains of £536,000).
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 there were share issuances totalling 100,000 shares and no share buybacks. No further shares have been issued
since the year end. Further details are on page 100.
*
Alternative Performance Measure (APM). A Glossary of APMs can be found on page 117.
63
GOVERNANCE
Future development
The future development of the company is dependent on the success of the company’s investment strategy against the economic
environment and market developments. The Chairman’s Statement on page 7 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 on page 16. The future is
also discussed in the Strategic Report on page 58.
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 11 on page 100. The details of the 4% Perpetual Debenture Stock and the
3.65% Cumulative Preference Stock are provided in Notes 10(ii) and 10(iii) respectively on page 100.
Voting rights in the company’s shares
The voting rights to 3 April 2025 were:
Share class
Number of
shares issued
Voting rights
per share
Total
voting rights
Ordinary shares of 25p 148,424,887 1 148,424,887
3.65% Cumulative Preference Stock of £1 1,178,000 1 1,178,000
Total 149,602,887 149,602,887
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 31 March 2025 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, formerly Link Group, 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 2025 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 2025 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.
64
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
As at 31 January 2025:
Number of
board members
Percentage
of the board
Number of
Senior Positions
on the board
(CEO, CFO, SID
and chair)*
Men 3 60% 2
Women 2 40% 1
Other - - -
Not specified/prefer not to say - - -
Number of
board members
Percentage
of the board
Number of
Senior Positions
on the board
(CEO, CFO, SID
and chair)*
White British or other White (including minority-white groups) 4 80% 3
Mixed/Multiple Ethnic Groups - - -
Asian/Asian British 1 20% -
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 60 and 61.
All of the directors are retiring at the Annual General Meeting and each offers themself for re-election with the exception of Timon
Drakesmith who will stand down as Director at the conclusion of the AGM. 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 (2024:
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 (2024: 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.
65
GOVERNANCE
Special rights disclosure
There are no restrictions concerning the
transfer of securities in the company;
no special rights with regard to control
attached to securities; no agreements
between holders of securities regarding
their transfer known to the company; no
agreements which the company is party
to that might affect its control following
a takeover bid; and no agreements
between the company and its directors
concerning compensation for loss
of office.
The company is not aware of any
agreements between holders of
securities with regard to control of the
company which may result in restrictions
on voting rights.
Financial reporting
The Statement of Directors’
Responsibilities in respect of the financial
statements is on page 80. The
Independent Auditor’s Report begins on
page 82.
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
upon 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:
66
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
interactions with the companies in the
portfolio and the outcome of these
engagements; proxy voting; and
performance against industry data. The
portfolio managers give an account of
the engagement activities in the year on
page 25, with many examples.
Sustainability disclosure
requirements
The Financial Conduct Authority (FCA)
has introduced sustainability disclosure
requirements and investment labels
regime (SDR) to address concerns about
misleading environmental claims. The
SDR has several dimensions, including
an ‘anti-greenwashing’ rule, designed
to increase trust and confidence in the
sustainable investment market and to
combat providers exploiting demand
for sustainable products by making
unsupported environmental claims.
The company’s website https://www.
merchantstrust.co.uk/en-gb/about-us/
esg notes that Merchants’ investment
process only includes consideration of
ESG factors, not Socially Responsible
Investment (SRI) (i.e., building
sustainable portfolios by delivering
sustainable financial returns based on
the assessment of ESG practices) nor
impact aspects (i.e., promoting social
and environmental goals and/or/
outcomes alongside financial returns).
Annual General Meeting
As the Chairman explains in his
Statement on page 9, the Annual
General Meeting (AGM) of the Company
will be held at 12 noon on Tuesday
20 May 2025 at Grocers’ Hall, Princes
Street, London, EC2R 8AD. This meeting
will be held as a hybrid meeting. This
means that there will be an in person
meeting as well as it being streamed
live for those shareholders who cannot
attend in person. The formal Notice of
AGM, including instructions on how to
join online, starts on page 113.
Shareholders may and are strongly
encouraged to participate in the
business of the AGM by exercising their
votes in advance of the meeting by
completing and returning the form of
proxy. Shareholders may also submit
their proxy electronically using the share
portal service at www.signalshares.com
or via the registrar’s VOTE+ shareholder
App. Further details on voting via the
VOTE+ App or online through the
registrar’s share portal are contained
within the Notice of Meeting Notes on
page 114. The deadline for you to
submit your proxy votes to the registrar is
12 noon on Friday 16 May 2025.
Shareholders are invited to send any
questions for the board and manager
care of the company secretary at
investment-trusts@allianzgi.com or
in writing to the registered office,
199 Bishopsgate, London EC2M 3TY.
Questions and answers will be published
on the website.
At the AGM resolutions will be put
to shareholders to cover ordinary
business including the re-election and
remuneration of the directors and the re-
appointment of the Auditor, and special
business such as the authority for the
allotment and buyback of shares.
AGM special business
1. Allotment of new shares
Approval is sought in Resolution 10 for
the renewal of the directors’ authority to
allot relevant securities, in accordance
with section 551 of the Companies Act
2006, up to a maximum number of
49,474,962 ordinary shares, representing
approximately one third of the existing
ordinary share capital. This authority is
renewable annually and will expire at
the conclusion of the AGM in 2026.
2. Disapplication of
pre-emption rights
A resolution was passed at the AGM
held on 16 May 2024 in accordance
with section 570 of the Companies Act
2006, to authorise the directors to allot
ordinary shares for cash other than
pro rata to existing shareholders. The
authority is renewable annually and
expires at the conclusion of the AGM in
2025. Special Resolution 11 is therefore
proposed under special business at
the forthcoming AGM to renew this
authority until the conclusion of the AGM
in 2026 or 19 August 2026 if earlier.
This power is limited to a maximum
number of 14,842,488 ordinary shares,
being approximately 10% of the issued
ordinary share capital of the company
as at the date of this report, provided
that there is no change in the issued
share capital between the date of this
report and the AGM to be held on 20
May 2025.
Authority will also be sought in
Resolution 11, which will be proposed
as a Special Resolution, to disapply
pre-emption rights in respect of the
allotment of shares by the sale and
reissue of shares held by the company
as treasury shares. The directors may
allot shares under these authorities to
take advantage of opportunities in the
market as they arise but only if they
believe it would be advantageous to
the company’s existing shareholders
to do so. The directors confirm that no
allotment of new shares will be made
unless the lowest market offer price
of the ordinary shares is at least at a
premium to Net Asset Value , valuing
debt at market value.
3. Purchase of own shares
The board is proposing that the
company should be given renewed
authority to purchase ordinary shares
in the market to hold in treasury or
for cancellation. The board believes
that such purchases in the market
at appropriate times and prices are
a suitable method of enhancing
shareholder value. The company would
make either a single purchase or a series
of purchases, when market conditions
are suitable, with the aim of maximising
the benefits to shareholders and within
guidelines set from time to time by
the board.
Under the Companies Act 2006, the
company is allowed to hold its own
shares in treasury following a buyback,
instead of having to cancel them.
This gives the company the ability to
reissue treasury shares quickly and
cost effectively (including pursuant to
the authority under Resolution 11, see
above) and provides the company with
additional flexibility in the management
of its capital base. Such shares may be
resold for cash but all rights attaching
to them, including voting rights and any
right to receive dividends are suspended
whilst they are in the treasury. If the
board exercises the authority conferred
by Resolution 12, which will be proposed
as a Special Resolution, the company
will have the option of either holding in
treasury or of cancelling any of its shares
purchased pursuant to this authority and
will decide at the time of purchase which
option to pursue.
Where purchases are made at prices
below the prevailing Net Asset Value
of the ordinary shares, this will enhance
Net Asset Value for the remaining
shareholders. It is therefore intended
67
GOVERNANCE
that purchases would only be made
at prices below Net Asset Value , with
the purchases to be funded from the
capital reserves of the company (which
are currently in excess of £555 million).
The rules of the UK Listing Authority (UK
Listing Rules) limit the price which may
be paid by the company to 105% of the
average middle-market quotation for an
ordinary share on the five business days
immediately preceding the date of the
relevant purchase. The minimum price to
be paid will be 25p per ordinary share
(being the nominal value). Overall, this
proposed share buyback authority, if
used, could help to reduce the discount
to Net Asset Value when the company’s
shares trade at a discount.
The board considers that it will be most
advantageous to shareholders for
the company to be able to continue
to make such purchases as and when
it considers the timing to be most
favourable and therefore does not
propose to set a timetable for making
any such purchases.
Under the UK Listing Rules, the maximum
number of its own shares which a listed
company may purchase through the
market pursuant to a general authority
such as this is equivalent to 14.99% of its
issued share capital. For this reason, the
company is limiting its renewed authority
to make such purchases to 22,248,891
ordinary shares, representing 14.99%
of the issued share capital, provided
that there is no change in the issued
share capital between the date of this
report and the AGM to be held on 20
May 2025.
In addition to renewing its powers to buy
back and cancel shares, the board will
seek shareholder authority to reissue
shares from treasury.
The authority in accordance with section
701 of the Companies Act 2006, will last
until the AGM of the company to be held
in 2026 or the expiry of 15 months from
the date of the passing of this resolution,
whichever is the earlier. The authority will
be subject to renewal by shareholders at
subsequent AGMs.
The board and the Annual Report
The board reviewed the entire Annual
Report and noted all the supporting
information received. It then considered
whether the Annual Report satisfactorily
reflected a true picture of the company
and its activities and performance in
the year, with a clear link between the
relevant sections of the report. The
directors were then able to confirm that
the Annual Report, taken as a whole, is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the company’s
position and performance, business
model and strategy.
By order of the board
Kelly Nice
Company Secretary
8 April 2025
68
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Corporate Governance Statement
The directors are responsible for good
and effective governance and our
approach is to ensure that we abide
by the principles of the governance
framework for investment companies
and check these are embedded in our
culture to give our stakeholders and
the wider community confidence in our
decision making and communications.
In particular, the board believes in
providing as much transparency for
investors as is reasonably possible to
ensure investors can clearly understand
the prospects of the business.
The board has considered the Principles
and Provisions of the AIC Code of
Corporate Governance (AIC Code)
issued in February 2019. The AIC Code
addresses the Principles and Provisions
set out in the UK Corporate Governance
Code (the UK Code), as well as setting
out additional Provisions on issues that
are of specific relevance to the company.
The board considers that reporting
against the AIC Code, which has been
endorsed by the Financial Reporting
Council (FRC), provides more relevant
information to shareholders.
The company has complied with
the Principles and Provisions of the
AIC Code.
The AIC Code is available on the AIC
website (www.theaic.co.uk). It includes an
explanation of how the AIC Code adapts
the Principles and Provisions set out in
the UK Code to make them relevant for
investment companies.
The board
The board is responsible for the effective
stewardship of the company’s affairs
and aims to provide effective leadership
so that the company has the platform
from which it can achieve its investment
objective. Its role is to guide the overall
business strategy to achieve long-term
success and value for the benefit of
shareholders. A fuller description of the
company’s strategy can be found on
pages 50 and 51. Strategic issues
and all operational matters of a material
nature are considered at its meetings.
Board composition
Both at the year end and at the date
of signing this report there were five
directors on the board. The optimum
number of directors is five, but the
number could fall to four and go as high
as six to cover periods of recruitment and
retirement.
The board’s policy is for the Chairman to
serve on the board for up to nine years,
and if beyond then the company will
explain why this continued appointment
is in the best interests of shareholders.
The chairman is to be independent and
the other directors, led by the Senior
Independent Director, discuss and report
back on the performance and continuing
independence of the Chairman on an
annual basis.
The board has a plan for the tenure
and retirement of directors to ensure
that an orderly process of recruitment
can take place and that the board’s
balance of skills and relevant experience
is maintained. The biographies of the
directors are set out on pages 60
and 61 together with the skills and
experience each director brings to the
board for the long-term sustainable
success of the company. No contracts
of significance in which directors are
deemed to have been interested
have subsisted during the year under
review. Contracts of employment are
not entered into with the directors,
who hold office in accordance with the
company’s Articles.
All directors attended all board and
relevant committee meetings during
the year, as set out in the table on
page 71.
Directors’ and Officers’ Liability insurance
cover is held by the company. As
permitted by the company’s Articles, the
company has granted indemnities to
the directors.
Board effectiveness review
The board was subject to an internally
facilitated formal board effectiveness
review after the year end. This was
conducted by means of a series of
questionnaires completed by each
director. The results of these surveys in
an internally facilitated report compiled
by the Chairman and the Company
Secretary were reviewed by the
nomination committee and the outcome
of the exercise was discussed by the
board. The review did not identify any
concerns but did identify some areas
to work on in 2025 including continued
focus on marketing activities. Succession
is considered on an ongoing basis but
was also identified as a particular item in
the board evaluation exercise which took
place in March 2024 and there is more
information on board succession in the
Nomination Committee Report on page
73. The Senior Independent Director
received the results of the survey relating
to the evaluation of the effectiveness of
the Chairman and reported this to the
Nomination Committee. Upon receiving
the reports, the board’s Nomination
Committee recommended to the board
that each of the directors be nominated
for re-election at the forthcoming Annual
General Meeting.
Training and development
On joining the board new directors
receive a comprehensive programme of
induction. During the year, the directors
received periodic guidance and updates
on regulatory and compliance changes.
Board diversity
At the year end three of the directors
were male and two were female
and this was unchanged at the date
of the signing of this report. The
ethnicity composition of the board
has changed during the year with the
addition of a director with an ethnic
minority background and there is more
information in the tables on page 65.
As the company is an investment trust,
all of its activities are outsourced and it
does not have any employees. In its brief
on board succession the board looks to
add to the diversity of approach and
thinking as well as taking other factors
into account.
The board has noted the Parker review
which looked at how to improve the
ethnic and cultural diversity of UK
boards. As a FTSE-250 company,
Merchants responded to the request
for voluntary information on its
69
GOVERNANCE
current board membership from BEIS
(Department for Business, Energy, and
Industrial Strategy). As an investment
company Merchants does not have
any employees, therefore it has nothing
further to report in respect of gender
and ethnic representation within
the company.
Conflicts of interest
The Companies Act 2006 provides
that a director must avoid a situation
where he or she has, or can have, a
direct or indirect interest that conflicts,
or possibly may conflict, with the
company’s interests. Directors are able
to authorise these conflicts and potential
conflicts. The board reports annually
to shareholders on the company’s
procedures for ensuring that its powers
of authorisation of conflicts are operated
effectively and that the procedures have
been followed.
Statements by the directors
Each of the directors provides a
statement of all conflicts of interest and
potential conflicts of interest relating
to the company on appointment and
subsequently in the event of any change
or potential change to this statement.
The statements made by each director
are considered and approved by the
board. The directors have undertaken
to notify the Chairman and Company
Secretary of any proposed new
appointments and new conflicts or
potential conflicts for consideration, if
necessary, by the board.
The Merchants board follows good
practice by having directors’ interests
as an agenda item at every scheduled
board meeting, and a report of
all directors’ interests is tabled for
consideration by the board. This means
that any changes to the directors’
interests can be noted and recorded,
and any potential conflicts identified and
dealt with by the board.
Procedure for assessing conflicts
and potential conflicts
A director with a potential conflict might
be asked to step out of the meeting
room or be permitted to remain in
the room but not participate in the
discussion or take part in a vote on a
course of action. The Merchants board
composition has from time to time
included directors who sit on the boards
of trading companies in which the
portfolio manager may be invested, and
also may include from directors who sit
on the boards of public bodies.
The board has agreed that only directors
who have no interest in the matter
being considered will be able to take
the relevant decision on approval of
any conflicts or potential conflicts, and
that in taking the decision the directors
will act in a way they consider, in good
faith, will be most likely to promote the
company’s success.
The board is able to impose limits or
conditions when giving authorisation
if it thinks this is appropriate, such as
ensuring that a director who also serves
on the board of a company in the
portfolio does not participate in any
discussions on the investment decision.
Directors’ interests register
The Merchants directors’ interests
register covers directors’ outside
interests (e.g., directorships, significant
holdings) and where the directors use
the services of suppliers to the company
(e.g., accountancy firms) in their own
capacity. The register also contains notes
of any hospitality and gifts received
from service providers, including the
management company.
Confirmation to shareholders
The board confirms that the detailed
procedures have been followed
during the year and that its powers of
authorisation are operating effectively.
Board committees
Audit committee
The audit committee meets at least
twice each year and is chaired by Timon
Drakesmith. The committee assists
the board in relation to the reporting
of financial information, the review of
financial controls and the management
of risk. The Audit Committee Report
starts on page 77.
Nomination committee
The nomination committee meets
as needed – at least once each year
– and makes recommendations on
board succession planning and the
appointment of new directors and
considers the composition and balance
of the board. The committee is chaired
by Colin Clark, the Chairman of the
board, and met once in the last year
when it considered the contribution and
effectiveness of the board and formally
considered the proposal for re-election
of each director at the Annual General
Meeting and noted the progress on the
board’s succession plans. All directors
serve on the nomination committee
and consider nominations made in
accordance with an agreed procedure.
It is the board’s policy to use external
agencies to draw up lists of candidates
as part of the recruitment of new
directors. The brief to the recruitment
consultant includes the request that the
shortlist should include a diverse range
of candidates.
The Nomination Committee Report is on
page 73.
Management engagement
committee
The management engagement
committee met once in the year
to review the Management and
Administration Agreement and the
manager’s performance and a report
of management fees. It has defined
terms of reference and consists of all the
directors. It is chaired by Colin Clark the
Chairman of the board.
The Management Engagement
Committee Report is on page 72.
70
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Remuneration committee
The remuneration committee met once
in the year. The committee consists of
all the directors and during the year
was chaired by Sybella Stanley until her
retirement from the board on 21 March
2024, and thereafter by Karen McKellar.
All directors serve on the committee and
the Chair of the board’s remuneration
and the additional sum payable to
the Chair of the audit committee are
discussed without the involvement of
the directors concerned. The committee
determines the company’s remuneration
policy and determines the remuneration
of each director within the terms of that
policy. The Directors’ Remuneration
Report starts on page 74.
The terms of reference for each of
the committees may be viewed
by shareholders on request and
are published on the company’s
website merchantstrust.co.uk.
Internal control
The directors have overall responsibility
for the company’s system of internal
control. Whilst acknowledging their
responsibility for the system of internal
control, the directors are aware that
such a system is designed to manage
rather than eliminate the risk of failure
to achieve business objectives and
can provide only reasonable but not
absolute assurance against material
misstatement or loss.
The board has established an ongoing
process for identifying, evaluating and
managing the significant risks faced
by the company. This process has been
fully in place throughout the year under
review and up to the date of the signing
of this Annual Report.
The key elements of the process are
as follows:
– In addition to the review of the key
risks (see page 54), the directors
regularly review all the risks on the
Risk Map and every six months the
board receives from the manager a
formal report which details any known
internal controls failures, including
those that are not directly the
responsibility of the manager.
– Allianz Global Investors UK Limited
(AllianzGI UK), as the appointed
manager, provides investment
management, accounting and
company secretarial services to the
company. The manager therefore
maintains the internal controls
associated with the day-to-day
operation of the company. These
responsibilities are included in the
Management and Administration
Agreement between the company and
the manager. The manager’s systems
of internal control are regularly
evaluated by its management and
monitored by the manager’s internal
audit function.
– There is a regular review by the
board of asset allocation and any risk
implications. There are also regular
and comprehensive reviews by the
board of management accounting
information, including revenue and
expenditure projections, actual
revenue against projections and
performance comparisons.
– Authorisation and exposure limits are
set and maintained by the board.
– The board meets with senior
representatives of AllianzGI and also
receives an internal controls report
from the manager, together with
a report on compliance with the
manager’s anti-bribery policy.
– The audit committee on behalf
of the board reviews the internal
controls reports of other third party
service providers, including those of
AllianzGI and all other providers of
administrative and custodian services
to AllianzGI or directly to the company.
The directors confirm that the
audit committee has reviewed the
effectiveness of the system of internal
control, which it has found to be
appropriate. During the course of its
review of the system of internal control,
the board has not identified nor been
advised of any failings or weaknesses
which it has determined to be significant.
Board attendance
Attendance by the directors at formal board and committee meetings during the year was as follows:
Director Board
Board
strategy
meeting
Audit
committee
Remuneration
committee
Nomination
committee
Management
engagement
committee
Colin Clark 6/6 1/1 2/2
1
1/1 1/1 1/1
Timon Drakesmith 6/6 1/1 2/2 1/1 1/1 1/1
Lisa Edgar
3
5/6 1/1 2/2 1/1 1/1 1/1
Karen McKellar 6/6 1/1 2/2 1/1 1/1 1/1
Sybella Stanley
2
1/1 - 1/1 1/1 1/1 -
Mal Patel
3
5/6 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 21 March 2024.
3
Both Lisa Edgar, appointed 1 January 2024, and Mal Patel, appointed 1 March 2024, had prior commitments on appointment and it had
not been possible to move the dates of the meetings they were unable to attend and neither had been able to attend the meetings
virtually. Both had reviewed board papers and submitted their comments ahead of the meeting in each case..
71
GOVERNANCE
Role of the committee
The management engagement
committee reviews the investment
management agreement and monitors
the performance of the manager for
the investment, secretarial, financial,
administration, marketing and support
services that it provides under that
agreement. It also reviews the terms of
the agreement including the level and
structure of fees payable, the length
of notice period and best practice
provisions generally.
Composition of the committee
All the directors are members of the
committee. The terms of reference
can be found on the website
at merchantstrust.co.uk.
Manager evaluation process
The committee met once during the year
for the purpose of the formal evaluation
of the manager’s performance. For the
purposes of its ongoing monitoring, the
board receives detailed reports and
views from the portfolio manager on
investment policy and strategies, asset
allocation, stock selection, attributions,
portfolio characteristics, gearing
and risk. The board also assesses the
manager’s performance against the
investment controls set by the board.
Portfolio performance information is set
out on page 18.
AIFM
Details of the current AIFM, Allianz
Global Investors UK Limited (‘AllianzGI
UK’), are on page 110. AllianzGI UK
is authorised and regulated by the
Financial Conduct Authority, with its
registered office at 199 Bishopsgate,
London EC2M 3TY.
Manager reappointment
The annual evaluation that took place
in January 2025 included the noting of
a presentation from AllianzGI’s Head
of Investment Trusts and the portfolio
manager. This covered the work done
with the board on strategy and the
integrated sales and marketing activity,
including the work with investment
platforms and wealth managers. During
the year the manager had also provided
information on its succession plans.
The evaluation of the management
arrangements had also considered
the manager’s fee in relation to the
peer group.
The result of a detailed questionnaire
evaluating the manager completed
by the directors was also reviewed by
the board. The board concluded that
the manager was performing well
against the requirements set by the
board and that it was satisfied with the
performance of the investment manager,
the support from the management
company and the interaction of the
management company with the board.
Actions agreed for 2025 included
meeting more senior management
at AllianzGI as well as continuing
to work closely with the sales and
marketing team..
The board then met and concluded that
in its opinion the continuing appointment
of the manager on the terms agreed
was in the interests of shareholders
as a whole and recommended this to
the board.
Note 2 on page 94 provides
detailed information in relation to the
management fee.
Committee evaluation
The activities of the management
engagement committee were
considered as part of the board
evaluation process completed in
accordance with standard governance
arrangements as summarised on page
69. The conclusion from the process
was that the committee was operating
effectively, with the right balance of
membership and skills.
Colin Clark
Chair of the management
engagement committee
8 April 2025
Management Engagement Committee Report
Colin Clark
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
The committee notes that all the
directors are independent of the
manager. In the opinion of the board,
each of the directors is independent in
character and judgement and there
are no relationships or circumstances
relating to the company that are likely to
affect their judgement.
Recruitment of new directors follows
procedures for board succession
including the appointment of external
consultants and a specification to draw
as wide a shortlist as possible taking
account of the wish to retain a diverse
and balanced board. The board was
refreshed with new appointments to
replace directors retiring from the board
in January and March 2024. Spencer
Stuart had been appointed to conduct
the search. New directors follow a
detailed induction programme run by
the manager.
The latest board effectiveness review
exercise took place in March 2025
and was internally facilitated by the
Chair and Company Secretary. An
effectiveness review was last previously
conducted through an external service
provider in 2024. In March 2025, detailed
surveys covering a wide number of topics
relating to the board, the Chairman,
the directors individually and the board
committees were completed by each
of the directors and the outcome was
and reported to the committee by the
Chairman, except for the report relating
to the Chairman which was conducted
by the Senior Independent Director and
reported to the committee by her. The
exercise also covered a review of the
relationship and interaction with the
manager, AllianzGI UK. The results of this
review were that the board, its directors
and its committees are effective.
The review identified the continuing
importance of focusing on marketing
challenges. The results of the review
of the Chairman were reported to the
committee, and this concluded that the
Chairman continued to be highly rated.
Succession planning: retirements
and recruitment
As observed above, last year the
committee had noted the planned
retirements of Mary Ann Sieghart and
Sybella Stanley and the appointment
of two new directors, Lisa Edgar and
Mal Patel.
Timon Drakesmith will reach his nine
year tenure later in 2025 and has
indicated a wish to retire from the
board at the forthcoming AGM and
will therefore not seek re-election. The
board has appointed an independent
executive search firm, Sapphire Partners,
to assist in identifying a new director.
Mal Patel will be appointed Chairman
of the Audit Committee when Timon
steps down.
Colin Clark
Chair of the nomination committee
8 April 2025
Role of the committee
The nomination committee leads the
process for board appointments and
makes nomination recommendations
to the board. The committee reviews
and makes recommendations on board
structure, size and composition, the
balance of knowledge, experience,
skill ranges and diversity and considers
succession planning and tenure policy.
Composition of the committee
All directors are members of the
committee, and its terms of reference
can be found on the website at
merchantstrust.co.uk. Individual directors
are not involved in decisions connected
with their own appointments.
Activities of the committee
The committee met during the year
and considered, in accordance with its
terms of reference the structure, size and
composition of the board and satisfied
itself regarding succession planning,
making recommendations to the board.
The committee also discussed the results
of the board and committee evaluation
exercise, which covered the structure and
size of the board and its composition
particularly in terms of succession
planning and the experience and skills
of the individual directors and the topic
of board diversity.
Nomination Committee Report
Colin Clark
73
GOVERNANCE
Remuneration Committee Report
Composition
All the independent directors are members of the committee and its terms of
reference can be found on the website at www.merchantstrust.co.uk.
Role
The committee leads the process for fixing directors’ remuneration and makes
recommendations to the board.
Activities
The committee’s activities are set out in the report from the committee which follows.
The Directors’ Remuneration Report
This is the Directors’ Remuneration Report for the year. The report is submitted in
accordance with the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 for the year ended 31 January 2025.
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 2024 AGM for the resolution to approve the
Implementation Report were as follows: In favour 98.32%, against 1.68% and 203,980
shares were noted as votes withheld (in aggregate 16,421,668 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 and was chaired by Sybella Stanley until her retirement
from the board on 21 March 2024. 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:
2025 2024
Colin Clark 10,000 10,000
Timon Drakesmith 15,000 15,000
Lisa Edgar
1
998 998
Karen McKellar 8,000 8,000
Mal Patel
2
400 -
Mary Ann Sieghart
3
- 1,000
Sybella Stanley
4
- 3,114
1
Appointed to the board 1 January 2024.
2
Appointed to the board 1 March 2024.
3
Retired from the board 25 January 2024.
4
Retired from the board 21 March 2024.
I am pleased to present
the report of the
remuneration committee
for the year ended 31
January 2025.
Karen McKellar
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THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
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 role 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
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 £28,500 per annum, with an additional £6,500 for the Chair of the Audit
Committee, and the Chairman was paid at a rate of £42,500 per annum. The current fees have applied since 1 February 2024.
The fees were reviewed in March 2025. 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 2025. The
Chairman will be paid £45,000 p.a., the directors will be paid £30,000 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 2025 or 2024, and were in the form of fees, were as follows:
2025
Directors’ fees
£
2025
Expenses
£
2025
1
Total
£
2024
Directors’ fees
£
2024
Expenses
£
2024
1
Total
£
Colin Clark 42,500 - 42,500 42,000 - 42,000
Timon Drakesmith 35,000 - 35,000 34,000 - 34,000
Lisa Edgar 28,500 1,904 30,404 2,333 - 2,333
Karen McKellar 28,500 - 28,500 28,000 - 28,000
Mal Patel 26,125 - 26,125 - - -
Mary Ann Sieghart - - - 27,713 - 27,713
Sybella Stanley 4,019 - 4,019 28,000 - 28,000
164,644 1,904 166,548 162,046 - 162,046
1
Travel and subsistence expenses incurred in attending board and committee meetings.
75
GOVERNANCE
2025
£
% change
from
2024 to
2025
2024
£
% change
from
2023 to
2024
2023
£
% change
from
2022 to
2023
2022
£
% change
from
2021 to
2022
2021
£
% change
from
2020 to
2021
2020
£
Chairman 42,500 1.2 42,000 3.7 40,500 1.9 39,750 0.0 39,750 3.9 38,250
Audit Chair 35,000 2.9 34,000 3.0 33,000 2.3 32,250 0.0 32,250 4.0 31,000
Independent Director 28,500 1.8 28,000 3.7 27,000 1.9 26,500 0.0 26,500 3.9 25,500
Any increase in pay was effective from 1 February in any given year.
There are no other benefits requiring reporting.
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
2025
£
2024
£
Remuneration paid to all directors 164,644 162,046
Distributions to shareholders 42,576,000 40,638,000
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 2025
Signed on behalf of the board
Karen McKellar
Chair of the remuneration committee
8 April 2025
The Merchants Trust
(NAV Total Return with
debt at market value)
The Merchants Trust
(Share Price Total Return)
FTSE 100 until January
2017 and FTSE All-Share
thereafter (Total Return)
Source: AllianzGI / Datastream in GBP. Figures have been rebased to 100 as at January 2015.
250
200
150
100
50
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
%
76
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Composition
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 recent
previous experience as Chief Financial Officer of a large public company as well as
holding positions of a similar capacity in other large companies. I will be retiring as a
director at the forthcoming AGM. Upon my retirement, Mal Patel will be appointed as
Chairman of the Audit Committee. Mal is a chartered accountant and has held senior
finance roles across a variety of businesses.
Role
The principal role of the audit committee is to assist the board in relation to
the reporting of financial information, the review of financial controls and the
management of risk. The committee has defined terms of reference and duties and
the terms of reference are published on the company’s website. These include:
– responsibility for the review of the Annual Report and the Half-yearly Report;
– consideration of the nature and scope of the external audit and the findings
therefrom; and
– consideration of the terms of appointment of the Auditor, including their
remuneration and the provision of any non-audit services by them.
Activities
During the year the committee had two regular meetings during which the Annual
Report and the Half-yearly Report respectively were reviewed in detail. The regular
meetings were attended by representatives of the manager, including its compliance
and risk departments. At each regular meeting the committee received reports on the
operation of financial controls relating to the company and the proper conduct of its
business in accordance with the regulatory environment in which both the company
and the manager operate. At the meeting following the year end the committee also
considered the Auditor’s report on the audit findings, the process of the audit and the
Auditor’s independence and objectivity. The audit committee reviews the company’s
accounting policies with the manager and considers their appropriateness. The
committee also reviews the terms of appointment of the Auditor together with
their remuneration.
Significant issues considered by the audit committee in the year
Controls oversight
In the prior year we reported on NAV errors calculated by a third-party service
provider and the corrective actions taken to prevent recurrence. During the last
year AllianzGI, has reported to the board and audit committee on the due diligence
performed with the service provider, the corrective actions taken and the service
enhancements that resulted from this. The audit committee will continue to monitor
this progress closely.
Cyber and artificial intelligence (AI) risks
As part of our risk management responsibilities we have worked with AllianzGI and
our other key suppliers such as HSBC, State Street and MUFG to assess continuing
business resilience from cyber attacks and data breaches and also from AI threats
including malicious AI, its rapid growth and the lack of regulation.
Capital structure assessment
The audit committee constantly monitors Merchants’ equity and debt capital structure
to ensure that returns are optimised whilst retaining flexibility and resilience. We
continue to analyse different capital management scenarios in the context of market
movements and the company’s appetite for gearing.
I am pleased to present
the report of the audit
committee for the year
ended 31 January 2025.
Audit Committee Report
Timon Drakesmith
77
GOVERNANCE
Gearing levels remained in the lower
half of the policy range of 10 – 25%
throughout the year and the investment
managers continued to be confident
that returns in excess of the cost of
debt could be generated. Therefore,
the decision was made to refinance the
revolving credit facility (RCF) that was
due to mature on 31 January 2025.
Throughout the year we reviewed
possible refinancing options and it was
concluded that medium term financing
in the form of private placement notes
was the most beneficial option.
In December 2024 the board announced
that Merchants had agreed an issue of
two £25m fixed rate 15 year secured
private placement notes at a coupon
of 5.91%, raising total proceeds of
£50m. The £50m proceeds received on
21 January 2025 were used to repay
the £42m RCF on the same day, with
the additional funds being used for
investment opportunities. Following the
refinancing the weighted average cost of
debt was 5.2%.
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 102 and
103, 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.
Risks around the valuation and the
ownership of investments and risks of
management override
The company’s assets are principally
invested in large UK listed equities
traded on major exchanges. The
committee notes that investments are
valued using stock exchange prices
provided by third party financial data
vendors. During the year the committee
reviewed internal controls reports from
the manager concerning the systems
and controls around the pricing and
valuation of securities.
Risk
Although the board has ultimate
responsibility for the management
of risk, the audit committee assists by
monitoring the formal reports from
the manager and third party service
providers’ reports on internal controls.
The committee reviewed its approach
to the risk management process and
concluded that existing processes
were adequate to ensure that its
assessment of risk is robust and of
sufficient frequency.
A Risk Map is reviewed at each of the
committee’s meetings. We consider
whether new risks should be added
or existing risks removed, assess their
likelihood of occurring and potential
scale, review the mitigating actions and
assess the residual risk against what we
regard as acceptable ‘risk appetite’.
Assurance over mitigating actions in
relation to these risks is provided in a
series of reports from all the third party
service providers.
Resulting from the work of the audit
committee, certain key risks are
identified for disclosure and discussion
in our Annual Report. We have also
assessed residual risks after controls and
mitigating actions have been applied
and have evaluated if our risk appetite
has been satisfactorily addressed. The
principal risks are in relation to portfolio,
business and operational matters. The
risks identified together with mitigating
actions are set out in the Strategic
Report from page 54.
Viability Statement
Based on the above review of risk,
including the chief risks around
investment performance and market
volatility and the arrangements in place
to manage and mitigate these risks,
the committee reviewed a paper that
supported the board’s conclusion, set
out on page 57 in the strategic report,
of their reasonable expectation that the
company is viable in the longer term,
assessed as the next five years.
Internal audit
The audit committee continues to believe
that the company does not require an
internal audit function of its own as it
delegates its day to day operations
to third parties from whom it receives
internal controls reports.
Assessment of fair, balanced
and understandable
The audit committee and then the whole
board reviewed the entire Annual Report
and noted all the supporting information
received. It then considered whether the
Annual Report satisfactorily reflected
a true picture of the company and its
activities and performance in the year,
with a clear link between the relevant
sections of the report and concluded
that it did so. The directors were then
able to confirm that the Annual Report,
taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the company’s position
and performance, business model
and strategy.
Review of disclosure
and communication
At our meetings the audit committee
reviews whether we are following best
practice in our disclosure and whether
we believe we are communicating
clearly. In order to assist us we receive
reports on current and future changes
to regulatory and accounting reporting
from the manager and Auditor.
During the year we carried out further
reviews of the format and content to
refresh and invigorate the Annual Report
to continue to ensure it is appealing and
informative to readers.
Whistleblowing
As the company has no employees
it does not have a formal policy
concerning the raising, in confidence,
of any concerns about improprieties,
whether in matters of financial
reporting or otherwise, for appropriate
independent investigation. The
audit committee has, however,
received and noted the manager’s
policy on this matter. Any matters
concerning the company may be
raised with the Chairman or the Senior
Independent Director.
Financial Report and review
with Auditor
The audit committee met with the
Auditor at the half-year point to discuss
the audit plan for the year and identify
the significant issues to be dealt with in
the review of the year end results. The
committee then met with the Auditor
following the year end to discuss the
results of the audit.
78
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
These and other matters, identified as
posing lesser risk, were considered and
discussed with the manager and the
Auditor as part of the year end process.
We also agreed the degree of
materiality that the Auditor would apply
in their work, which is £8.49 million,
or about 1% of net assets, although
the Auditor would bring to the audit
committee’s attention any significant
misstatements below that level.
Auditor tenure and
Auditor reappointment
This is BDO LLP’s seventh year as the
company’s independent Auditor. The
company is subject to mandatory
Auditor rotation requirements and so
will put the external audit out to tender
at least every ten years and change
Auditor at least every twenty years. The
next tender will therefore be required no
later than 2028. The Auditor is required
to rotate partners every five years and
Chris Meyrick has led the audit for two
years as Audit Partner.
The audit and its effectiveness
The committee reviewed the terms of
appointment of the Auditor, monitored
the audit process, assessed the Auditor’s
independence, objectivity and the
effectiveness of the audit process,
including the provision of non-audit
services by the firm, and determined that
they have had no impact on the Auditor’s
independence and objectivity.
As part of the review of the Auditor, the
members of the committee and those
representatives of the manager involved
in the audit process reviewed and
considered a number of areas including:
the reputation and standing of the
audit firm; the audit processes, evidence
of partner oversight and external
information about the firm; the skills,
experience and specialist knowledge of
the audit team, particularly relating to
investment trusts; audit communication
including details of planning, information
on relevant accounting and regulatory
developments, and recommendations on
corporate reporting; the reasonableness
of audit fees; and the Financial
Reporting Council’s Audit Quality Report
on BDO LLP for 2023/24.
The committee was satisfied that the
audit process was effective for the year
under review.
The committee considered the
representations made by the
Auditor and sought comments from
representatives of the manager on
the provision of services by the Auditor
and the effectiveness of the external
audit. The audit committee believes
that the performance of the Auditor
was satisfactory.
Non-audit services
Non-audit services relate to reporting
in connection with the covenants
under the debenture trust deeds and
the audit committee agreed that it
was appropriate that the company’s
Auditor should be asked to provide
these services.
Fees accrued in the year that related
to non-audit services were £5,000
(2024: £5,000) and £5,000 for non-audit
services in relation to issue of the 2040
Loan Notes (2024: nil).
Timon Drakesmith
Chair of the audit committee
8 April 2025
79
GOVERNANCE
Statement of directors’ responsibilities
in respect of the financial statements
The directors are responsible for
preparing the Annual Report, the
Directors’ Remuneration Report and the
financial statements in accordance with
applicable law and regulations.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law the
directors have prepared the financial
statements in accordance with United
Kingdom Generally Accepted Accounting
Practice including FRS 102 ‘The Financial
Reporting Standard applicable in the UK
and Republic of Ireland’ (UK Accounting
Standards and applicable law). Under
company law the directors must not
approve the financial statements unless
they are satisfied that they give a true
and fair view of the state of affairs of
the company and of the profit of the
company for that period. In preparing
these financial statements, the directors
are required to:
– select suitable accounting policies and
then apply them consistently;
– state whether applicable UK
Accounting Standards have been
followed, comprising FRS 102,
subject to any material departures
disclosed and explained in the
financial statements;
– make judgements and accounting
estimates that are reasonable and
prudent; and
– prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
The directors confirm that they have
complied with the above requirements in
preparing the financial statements.
The directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the company
and enable them to ensure that the
financial statements and the Directors’
Remuneration Report comply with
the Companies Act 2006. They are
also responsible for safeguarding the
assets of the company and hence
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The directors each have a duty to make
themselves aware of any ‘relevant
audit information’ and ensure that the
Auditor has been made aware of that
information. A disclosure stating that
each director has complied with that
duty is given in the Directors’ Report on
page 66.
The directors are responsible for
ensuring that the Annual Report,
taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the company’s position
and performance, business model
and strategy.
The financial statements are published
on www.merchantstrust.co.uk, which
is a website maintained by the
company’s investment manager,
AllianzGI. The directors are responsible
for the maintenance and integrity
of the company’s website. The work
undertaken by the Auditor does
not involve consideration of the
maintenance and integrity of the website
and, accordingly, the Auditor accepts no
responsibility for any changes that have
occurred to the financial statements
since they were initially presented on the
website. Visitors to the website need to
be aware that legislation in the United
Kingdom governing the preparation
and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Statement under Disclosure and
Transparency Rule 4.1.12
The directors at the date of approval of
this report, each confirm to the best of
their knowledge that:
– the financial statements, prepared
in accordance with applicable
accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit of
the company;
– the Strategic Report includes a fair
review of the development and
performance of the business and the
position of the company, together with
a description of the principal risks and
uncertainties that they face; and
– the Annual Report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the company’s
position and performance, business
model and strategy.
For and on behalf of the board
Colin Clark
Chairman
8 April 2025
80
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
82 Independent Auditor’s Report to the
members of The Merchants Trust PLC
88 Income Statement
89 Statement of Changes in Equity
90 Balance Sheet
91 Cash Flow Statement
92 Statement of Accounting Policies
94 Notes to the Financial Statements
Financial
Statements
British American Tobacco was
the portfolio’s largest holding
at year end. The shares rallied
by 50% as investors appreciated
the company’s portfolio of
less harmful, next generation
tobacco products.
81
Independent Auditor’s Report to the members of
The Merchants Trust PLC
Opinion on the financial statements
In our opinion the financial statements:
– give a true and fair view of the state of the Company’s
affairs as at 31 January 2025 and of its profit for the year
then ended;
– have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
– have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements of The Merchants
Trust PLC (the ‘Company’) for the year ended 31 January 2025
which comprise Income Statement, Statement of Changes
in Equity, Balance Sheet, Cash Flow Statement and Notes to
the Financial Statements, including Statement of Accounting
Policies. The financial reporting framework that has been
applied in their preparation is applicable law and United
Kingdom Accounting Standards, including Financial Reporting
Standard 102 The Financial Reporting Standard applicable
in the UK and Republic of Ireland (United Kingdom Generally
Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion. Our audit opinion is consistent
with the additional report to the audit committee.
Independence
Following the recommendation of the audit committee, we
were appointed by shareholders on 16 May 2018 to audit the
financial statements for the year ended 31 January 2019 and
subsequent financial periods. The period of total uninterrupted
engagement including retenders and reappointments is seven
years, covering the years ended 31 January 2019 to 31 January
2025. We remain independent of the Company in accordance
with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements. The non-audit services prohibited by
that standard were not provided to the Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Company’s
ability to continue to adopt the going concern basis of
accounting included:
– Evaluating the appropriateness of the Directors’ method of
assessing the going concern in light of economic and market
conditions by reviewing the information used by the Directors
in completing their assessment;
– Assessing the appropriateness of the Directors’ assumptions
and judgements made by comparing the prior year
forecasted costs to the actual costs incurred to check that the
projected costs are reasonable;
– Assessing the projected management fees for the year
to check that it was in line with the current assets under
management levels and the projected market growth
forecasts for the following year;
– Assessing the appropriateness of the Directors’ assumptions
and judgements made in their base case and stress tested
forecasts including consideration of the available cash
resources relative to forecast expenditure and commitments;
– Challenging the Directors’ assumptions and judgements
made in their forecasts by performing an independent
analysis of the liquidity of the portfolio; and
– Reviewing the loan agreements to identify the covenants
and assessing the likelihood of them being breached based
on the Directors’ forecasts and our sensitivity analyses.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s ability to continue as a going concern for a period
of at least twelve months from when the financial statements
are authorised for issue.
In relation to the Company’s reporting on how it has applied
the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’
statement in the financial statements about whether the
Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report.
82
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Overview
Key audit matters 2025 2024
Valuation and ownership of investments ✓ ✓
Revenue recognition ✓ ✓
Materiality
Company financial statements as a whole
£8.49m (2024: £7.87m) based on 1% (2024: 1%) of Net assets
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How the scope of our audit addressed the key
audit matter
Valuation and ownership of investments
(Note 8 on Page 98)
The investment portfolio at the year-end comprised of listed
equity investments held at fair value through profit or loss.
We considered the valuation and ownership of investments
to be a significant audit area as investments represent the
most significant balance in the financial statements and
underpins the principal activity of the entity.
There is a risk that the bid price used as a proxy for fair value
of investments held at the reporting date is inappropriate.
Given the nature of the portfolio is such that it comprises
solely of listed investments, we do not consider the use of bid
price to be subject to significant estimation uncertainty.
There is also a risk of error in the recording of investment
holdings such that those recording do not appropriate
reflect the property of the Company.
For these reasons and the materiality of the balance in
relation to the financial statements as a whole, they are
considered to be a key area of our overall audit strategy and
allocation of our resources and hence a key audit matter.
We responded to this matter by testing the valuation
and ownership of the whole portfolio of listed equity
investments. We performed the following procedures:
– Confirmed the year-end bid price was used by agreeing
to externally quoted prices;
– Assessed if there were contra indicators, such as liquidity
considerations, to suggest bid price is not the most
appropriate indication of fair value by considering the
realisation period for individual holdings;
– Recalculated the valuation by multiplying the number
of shares held per the statement obtained from the
custodian by the valuation per share; and
– Obtained direct confirmation of the number of shares
held per equity investment from the custodian regarding
all investments held at the balance sheet date.
Key observations:
Based on our procedures performed we are satisfied the
valuation or ownership of the listed equity investments are
not materially misstated.
83
FINANCIAL STATEMENTS
Revenue recognition
(Page 92 and Note 1 on Page 94)
Revenue is a key indicator of performance of the Company,
as such there may be an incentive to recognise income as
revenue where it is more appropriately of a capital nature.
Additionally, judgement may be required by management in
determining the allocation of dividend income to revenue or
capital for certain corporate actions or special dividends.
For this reason we considered revenue recognition to be a
Key Audit Matter.
We responded to this matter by performing the
following procedures:
– We performed walkthroughs of the internal process
and obtained an understanding of the design and
implementation of controls in place in relation to
allocation of dividend revenue recognised as revenue or
capital for dividend.
– We assessed the treatment of dividend income from
corporate actions and special dividends and challenged
if these had been appropriately accounted for as income
or capital by reviewing the underlying reason for issue of
the dividend and whether it could be driven by a capital
event.
– We analysed the whole population of dividend receipts to
identify items for further investigation that could indicate
a capital distribution, for example where a dividend
represents a particularly high yield. In these instances we
performed a combination of inquiry with management
and our own independent research, including inspection
of financial statements and public information of investee
companies, to ascertain whether the underlying event
was indeed of a capital nature.
In addition, we formed our own expectation of dividend
income for the whole portfolio using the entity’s investment
holdings and dividend announcements from independent
sources. We vouched a sample of dividend receipts to bank.
Key observations:
Based on our procedures performed we are satisfied that
revenue recognised is not materially misstated.
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: 2025 2024
Materiality £8.49m £7.87m
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 £6.37m £5.90m
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.
84
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Specific materiality
We also determined that for items impacting revenue return,
a misstatement of less than materiality for the financial
statements as a whole, specific materiality, could influence
the economic decisions of users. As a result, we determined
materiality for these items to be £2.24m (2024: £2.26m), based
on 5% (2024: 5%) of revenue return before tax. We further
applied a performance materiality level of 75% (2024: 75%) of
specific materiality to ensure that the risk of errors exceeding
specific materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to
them all individual audit differences in excess of £424,000 or
£112,000 for items impacting revenue return (2024: £113,000).
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 Listing Rules require 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.
Going concern and longer-term viability
– The Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified; and
– The Directors’ explanation as to their assessment of the
Company’s prospects, the period this assessment covers and
why the period is appropriate.
Other Code provisions
– Directors’ statement on fair, balanced and understandable;
– Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks;
– The section of the annual report that describes the review
of effectiveness of risk management and internal control
systems; and
– The section describing the work of the Audit Committee.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by
the Companies Act 2006 and ISAs (UK) to report on certain
opinions and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of
the audit:
– the information given in the Strategic report and the
Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
– the Strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the
Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the
strategic report or the Directors’ report.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
In our opinion, based on the work undertaken in the course
of the audit the information about internal control and
risk management systems in relation to financial reporting
processes and about share capital structures, given in
compliance with rules 7.2.5 and 7.2.6 in the Disclosure
Guidance and Transparency Rules sourcebook made by the
Financial Conduct Authority (the FCA Rules), is consistent with
the financial statements and has been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the
Company and its environment obtained in the course of
the audit, we have not identified material misstatements in
this information.
In our opinion, based on the work undertaken in the course
of the audit information about the Company’s corporate
governance code and practices and about its administrative,
management and supervisory bodies and their committees
complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
We have nothing to report arising from our responsibility to
report if a corporate governance statement has not been
prepared by the Company.
85
FINANCIAL STATEMENTS
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
– adequate accounting records have not been kept, or
returns adequate for our audit have not been received from
branches not visited by us; or
– the financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with
the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by
law are not made; or
– we have not received all the information and explanations
we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the Directors either intend to liquidate the Company
or to cease operations, or have no realistic alternative but to
do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory
framework applicable to the Company and the industry
in which it operates, and considered the risk of acts by the
Company which were contrary to applicable laws and
regulations, including fraud. We considered the significant laws
and regulations to be the Companies Act 2006, the FCA listing
and DTR rules, the principles of the AIC Code of Corporate
Governance, industry practice represented by the AIC SORP,
the applicable accounting framework, and qualification as
an Investment Trust under UK tax legislation as any non-
compliance of this would lead to the Company losing various
deductions and exemptions from corporation tax.
Non-compliance with laws and regulations
We focused on laws and regulations that could give rise to a
material misstatement in the Company financial statements.
Our tests included, but were not limited to:
– agreement of the financial statement disclosures to
underlying supporting documentation;
– enquiries of management and those charged with
governance relating to any instances of any non-compliance
with laws and regulations;
– reviewing minutes of meeting of those charged with
governance throughout the period for instances of non-
compliance with laws and regulations; and
– reviewing the calculation in relation to Investment Trust
compliance to check that the Company was meeting its
requirements to retain their Investment Trust Status.
Fraud
We assessed the susceptibility of the financial statement to
material misstatement including fraud.
Our risk assessment procedures included:
– Enquiry with the Investment Manager, the Administrator and
those charged with governance regarding any known or
suspected instances of fraud;
– Obtaining an understanding of the Company’s risk
management policies relating to:
– Detecting and responding to the risks of fraud; and
– Internal controls established to mitigate risks related
to fraud.
– Review of minutes of meeting of those charged with
governance for any known or suspected instances of
fraud; and
– Discussion amongst the engagement team as to how and
where fraud might occur in the financial statements.
Based on our risk assessment, we considered the areas
most susceptible to be management override of controls
and revenue recognition as outlined in the Key Audit
Matters section.
Our procedures in respect of the above included:
– In addressing the risk of management override of
control, we:
– Performed a review of estimates and judgements applied
by management in the financial statements to assess their
appropriateness and the existence of any systematic bias;
– Considered the opportunity and incentive to manipulate
accounting entries and target tested relevant adjustments
made in the period end financial reporting process; and
– Reviewed for significant transactions outside the normal
course of business; and
– Performed a review of unadjusted audit differences, if any,
for indications of bias or deliberate misstatement.
We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement
team members who were all deemed to have appropriate
86
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
competence and capabilities and remained alert to any
indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising
that the risk of not detecting a material misstatement due
to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment
by, for example, forgery, misrepresentations or through
collusion. There are inherent limitations in the audit procedures
performed and the further removed non-compliance with laws
and regulations is from the events and transactions reflected
in the financial statements, the less likely we are to become
aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the Company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Chris Meyrick (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Edinburgh, UK
8 April 2025
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
87
FINANCIAL STATEMENTS
Income Statement
for the year ended 31 January 2025
Notes
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total Return
£’000s
2024
Revenue
£’000s
2024
Capital
£’000s
2024
Total Return
£’000s
Gains (losses) on investments held at fair value
through profit or loss
8 - 66,566 66,566 - (69,095) (69,095)
Losses on derivatives 8 - (202) (202) - (20) (20)
Gains (losses) on foreign currencies - 43 43 - (58) (58)
Income 1 48,482 - 48,482 49,563 - 49,563
Investment management fee 2 (1,160) (2,153) (3,313) (1,093) (2,031) (3,124)
Administration expenses 3 (1,108) (4) (1,112) (1,229) (4) (1,233)
Profit (loss) before finance costs and taxation 46,214 64,250 110,464 47,241 (71,208) (23,967)
Finance costs: interest payable and similar charges 4 (2,009) (3,648) (5,657) (1,954) (3,549) (5,503)
Profit (loss) on ordinary activities before taxation 44,205 60,602 104,807 45,287 (74,757) (29,470)
Taxation 5 (534) - (534) (778) - (778)
Profit (loss) after taxation attributable to ordinary
shareholders
43,671 60,602 104,273 44,509 (74,757) (30,248)
Earnings (loss) per ordinary share (basic and
diluted)
7 29.43p 40.84p 70.27p 30.53p (51.28p) (20.75p)
Dividends in respect of the financial year ended 31 January 2025 total 29.10p (2024: 28.40p), amounting to £43,184,000 (2024:
£41,916,000). Details are set out in Note 6 on page 97.
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 92 to 108 form an integral part of these Financial Statements.
88
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Statement of Changes in Equity
for the year ended 31 January 2025
Notes
Called up
share
capital
£’000s
Share
premium
account
£’000s
Capital
redemption
reserve
£’000s
Capital
reserve
£’000s
Revenue
reserve
£’000s
Total
£’000s
Net assets at 1 February 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 11 25 552 - - - 577
Net assets at 31 January 2025 37,106 228,726 293 555,757 27,940 849,822
Net assets at 1 February 2023 35,034 184,239 293 569,912 22,897 812,375
Revenue profit - - - - 44,509 44,509
Dividends on ordinary shares 6 - - - - (40,638) (40,638)
Unclaimed dividends - - - - 51 51
Capital loss - - - (74,757) - (74,757)
Shares issued during the year 11 2,047 43,935 - - - 45,982
Net assets at 31 January 2024 37,081 228,174 293 495,155 26,819 787,522
The Statement of Accounting Policies and Notes on pages 92 to 108 form an integral part of these Financial Statements.
89
FINANCIAL STATEMENTS
Notes
2025
£’000s
2025
£’000s
2024
£’000s
Fixed assets
Investments held at fair value through profit or loss 8 954,514 874,668
Current assets
Other receivables 9 1,891 1,923
Cash at bank and in hand 15,604 22,886
17,495 24,809
Current liabilities
Other payables 9 (5,167) (45,032)
Derivative financial instruments 8 (239) (57)
(5,406) (45,089)
Net current assets (liabilities) 12,089 (20,280)
Total assets less current liabilities 966,603 854,388
Creditors: amounts falling due after more than one year 10 (116,781) (66,866)
Total net assets 849,822 787,522
Capital and reserves
Called up share capital 11 37,106 37,081
Share premium account 12 228,726 228,174
Capital redemption reserve 12 293 293
Capital reserve 12 555,757 495,155
Revenue reserve 12 27,940 26,819
Equity shareholders’ funds 13 849,822 787,522
Net asset value per ordinary share 13 572.6p 530.9p
The financial statements of The Merchants Trust PLC on pages 88 to 91 were approved and authorised for issue by the board
of directors on 8 April 2025 and signed on its behalf by:
Colin Clark
Chairman
Balance Sheet
at 31 January 2025
The Statement of Accounting Policies and Notes on pages 92 to 108 form an integral part of these Financial Statements.
90
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
Notes
2025
£’000s
2024
£’000s
Operating activities
Profit (loss) before finance costs and taxation
1
110,464 (23,967)
(Less) add: (gains) losses on investments held at fair value (67,746) 67,949
Add: losses on derivatives 182 20
(Less) add: (gains) losses on foreign currency (43) 58
Proceeds from special dividend credited to capital
2
565
-
Purchase of fixed asset investments held at fair value through profit or loss (221,421) (242,189)
Sales of fixed asset investments held at fair value through profit or loss 212,511 211,377
Transaction costs (1,180) (1,146)
Decrease (increase) in other receivables 72 (24)
(Decrease) increase in other payables (184) 60
Less: overseas tax suffered (534) (778)
Net cash inflow from operating activities 32,686 11,360
Financing activities
Interest paid (5,845) (5,233)
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
3
(42,000) -
Dividend paid on cumulative preference stock (43) (43)
Dividends paid on ordinary shares 6 (42,576) (40,638)
Unclaimed dividends over 12 years 26 51
Share issue proceeds 577 45,982
Net cash (outflow) inflow from financing activities (40,011) 119
(Decrease) increase in cash and cash equivalents (7,325) 11,479
Cash and cash equivalents at the start of the year 22,886 11,465
Effect of foreign exchange rates 43 (58)
Cash and cash equivalents at the end of the year 15,604 22,886
Comprising:
Cash at bank and in hand 15,604 22,886
1
Cash inflow from dividends was £46,700,000 (2024: £47,137,000) and cash inflow from interest was £280,000 (2024: £409,000).
2
Tyman dividend paid in relation to the acquisition by Quanex Building Products.
3
Revolving Credit Facility drawdowns and repayments are presented on a net basis.
Cash Flow Statement
for the year ended 31 January 2025
The Statement of Accounting Policies and Notes on pages 92 to 108 form an integral part of these Financial Statements.
91
FINANCIAL STATEMENTS
Statement of Accounting Policies
for the year ended 31 January 2025
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 62. 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
50. The company conducts its business so as to qualify as an
investment trust company within the meaning of sub-section
1158 of the Corporation Tax Act 2010.
The principal accounting policies are summarised below. They
have all been applied consistently throughout the year and to
the preceding year.
1 Basis of preparation – The financial statements have been
prepared under the historical cost convention, except for the
revaluation of financial instruments held at fair value through
profit or loss and in accordance with applicable United
Kingdom law and UK Accounting Standards (UK GAAP),
including Financial Reporting Standard 102 – the Financial
Reporting Standard applicable in the United Kingdom and
Republic of Ireland (FRS 102) and in line with the Statement of
Recommended Practice ‘Financial Statements of Investment
Trust Companies and Venture Capital Trusts’ issued by the
Association of Investment Companies (AIC SORP) in July 2022.
Investments and derivative financial instruments are
designated as held at fair value through profit or loss in
accordance with FRS 102 sections 11 and 12.
In order to better reflect the activities of an investment trust
company, and in accordance with guidance issued by the
AIC, supplementary information which analyses the Income
Statement between items of revenue and capital nature
has been presented alongside the Income Statement. In
accordance with the company’s Articles of Association, net
capital returns may be distributed by way of dividend.
Going concern
The directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements as the assets of the company consist mainly
of securities, which are readily realisable and significantly
exceed liabilities. Accordingly, the directors believe that the
company has adequate financial resources, to continue
in operational existence for the foreseeable future. The
directors have also considered the risks and consequences of
unanticipated shocks on the company, including geopolitical
and macroeconomic events and have concluded that the
company has the ability to continue in operation and meet
its objectives for twelve months after the approval of the
financial statements.
2 Income – Dividends received on equity shares are accounted
for on an ex-dividend basis. Foreign dividends are grossed up
at the appropriate rate of withholding tax.
Special dividends are recognised on an ex-dividend basis and
treated as a capital or revenue item depending on the facts
and circumstances of each dividend. The board reviews special
dividends and their treatment at each meeting.
Where the company has elected to receive its dividends in the
form of additional shares rather than in cash, the equivalent
of the cash dividend is recognised as income. Any excess in
the value of the shares received over the amount of the cash
dividend is recognised in capital reserves.
Deposit interest receivable is accounted for on an
accruals basis.
3 Investment management fees and administrative expenses
– The investment management fee is calculated on the
basis set out in Note 2 to the financial statements and is
charged to capital and revenue in the ratio 65:35 to reflect
the board’s investment policy and prospective split of capital
and revenue returns. The split is reviewed annually. Other
administration expenses are charged in full to revenue, except
custodian handling charges on investment transactions which
are charged to capital. All expenses are recognised on an
accrual basis.
4 Investments – As the company’s business is investing in
financial assets with a view to profiting from their total
return in the form of increases in fair value, financial assets
are designated as held at fair value through profit or loss
in accordance with FRS 102 Section 11: ‘Basic Financial
Instruments’ and Section 12: ‘Other Financial Instruments’.
The company manages and evaluates the performance of
these investments on a fair value basis in accordance with its
investment strategy, and information about the investments is
provided on this basis to the board.
Investments held at fair value through profit or loss are initially
recognised at fair value. After initial recognition, these continue
to be measured at fair value, which for quoted investments is
either the bid price or the last traded price depending on the
convention of the exchange on which the investment is listed.
Gains or losses on investments are recognised in the capital
column of the Income Statement. Purchases and sales of
the financial assets are recognised on the trade date, being
the date which the company commits to purchase or sell
the assets.
Unlisted investments are valued by the Directors based upon
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 2022.
After initial recognition unquoted stocks are valued by the
board on an annual basis.
92
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
5 Transaction costs – In accordance with FRS 102 section 12.7,
transaction costs are immediately expensed to the profit and
loss account and are not included in the carrying value of
investments as these are measured at fair value through the
profit and loss account.
6 Derivatives – Options may be purchased or written over
securities held in the portfolio for generating or protecting
capital returns, or for generating or maintaining revenue
returns. Where the purpose of the option is the maintenance
of capital the premium is treated as a capital item. In
accordance with FRS 102 Section 12: ‘Other Financial
Instruments’, options are valued at fair value and are
included in current assets or current liabilities in the balance
sheet. When an option is closed out or exercised the gain or
loss is accounted for as capital.
Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Premiums received
on written options are amortised to revenue over the
period to expiry. If an option is exercised early unamortised
premiums are taken to capital.
7 Finance costs – In accordance with the FRS 102 Section
11: ‘Basic Financial Instruments’ and Section 12 ‘Other
Financial Instruments’, long-term borrowings are stated at
the amortised cost being the amount of net proceeds on
issue plus accrued finance costs to date. Finance costs are
calculated over the term of the debt on the effective interest
rate basis.
Where debt is issued at a premium, the premium is amortised
over the term of the debt on the effective interest rate basis.
Finance costs net of amortised premiums are charged to
capital and revenue in the ratio 65:35 to reflect the board’s
investment policy and prospective split of capital and
revenue returns.
Dividends payable on the 3.65% cumulative preference stock
are classified as an interest expense and are charged in full
to revenue.
8 Taxation – Where expenses are allocated between capital
and revenue, any tax relief obtained in respect of those
expenses is allocated between capital and revenue on
the marginal basis using the company’s effective rate of
corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the
balance sheet date, where transactions or events that result
in an obligation to pay more tax or a right to pay less tax in
the future have occurred. Timing differences are differences
between the company’s taxable profits and its results as
stated in the financial statements.
A deferred tax asset is recognised when it is more likely
than not that the asset will be recoverable. Deferred tax
is measured on a non-discounted basis at the rate of
corporation tax that is expected to apply when the timing
differences are expected to reverse.
9 Foreign currency – In accordance with FRS 102 Section
30: ‘Foreign Currency Translation’, the company is required
to nominate a functional currency, being the currency in
which the company predominately operates and in which
its expenses are generally paid. The functional and reporting
currency is pounds sterling. Transactions in foreign currencies
are translated into pounds sterling at the rates of exchange
ruling on the date of the transaction. Foreign currency
monetary assets and liabilities are translated into sterling at
the rates of exchange ruling at the balance sheet date. Profits
and losses thereon are recognised in the capital column of the
income statement and taken to the capital reserve.
10 Dividends – In accordance with FRS 102 Section 32: ‘Events
After the End of the Reporting Period’, any final dividend
proposed on ordinary shares is recognised as a liability when
approved by shareholders. Interim dividends are recognised
only when paid. Dividends are paid from the revenue reserve.
11 Cash and cash equivalents – Cash comprises cash in hand
and on demand deposits. Cash equivalents include bank
overdrafts repayable on demand and short-term, highly liquid
investments, that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes
in value.
12 Shares repurchased for cancellation and for holding in
treasury – Share capital is reduced by the nominal value of
the shares repurchased, and the capital redemption reserve
is correspondingly increased in accordance with section
733 Companies Act 2006. The full cost of the repurchase is
charged to the capital reserve within gains (losses) on sales
of investments.
For shares repurchased for holding in treasury, the full cost is
charged to the capital reserve.
13 Shares sold (reissued) from treasury – Proceeds received
from the sale of shares held in treasury are treated as realised
profits in accordance with Section 731 of the Companies Act
2006. Proceeds equivalent to the original cost, calculated by
applying a weighted average price, are credited to the capital
reserve to replenish the profits available for distribution;
proceeds in excess of the original cost are credited to the share
premium account.
14 Shares issued – Share capital is increased by the nominal
value of shares issued. The proceeds in excess of the nominal
value of shares net of expenses are allocated to the share
premium account.
15 Significant judgements, estimates and assumptions – In
the application of the company’s accounting policies, which
are described above, the directors are required to make
judgements, estimates, and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources.
There are no significant judgements, estimates, and
assumptions. The investment portfolio currently consists of
listed investments and therefore no significant estimates have
been made in valuing those securities.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and
future periods.
93
FINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 31 January 2025
1. Income
2025
£’000s
2024
£’000s
Income from investments*
Equity dividends from UK investments
#
36,041 36,628
Unfranked dividends from UK investments 2,054 1,238
Equity dividends from overseas investments 9,159 10,364
47,254 48,230
Other income
Deposit interest 337 446
Premiums on derivative contracts 891 887
1,228 1,333
Total income 48,482 49,563
* All equity income is derived from listed investments
#
Includes special dividends of £2,062,000 (2024: £1,379,000)
During the year, the company received premiums totalling £884,000 (2024: £911,000) for writing covered call options for
the purpose of revenue generation. Premium income of £891,000 was amortised to income (2024: £887,000). 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 £239,000 (2024: £57,000).
2. Investment management fee
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
2024
Revenue
£’000s
2024
Capital
£’000s
2024
Total
£’000s
Investment management fee 1,160 2,153 3,313 1,093 2,031 3,124
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% (2024:
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 UK provides the company with investment
management, accounting, company secretarial and administration services.
94
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
3. Administration expenses
2025
£’000s
2024
£’000s
Auditor’s remuneration
For audit services 48 43
Non-audit services - agreed upon procedures relating to loan covenants 5 5
VAT on Auditor's remuneration 11 10
64 58
Directors' fees 162 162
Directors' NI contributions 21 15
Marketing costs 387 428
Registrars' fees 116 153
Depositary fees 53 51
Professional and advisory fees 32 116
Printing and postage 75 58
Stock exchange fees 52 40
Custody fees 32 29
Other administration expenses 114 119
1,108 1,229
(i) The above expenses include value added tax where applicable.
(ii) Directors’ fees are set out in the Directors’ Remuneration Report on page 75.
(iii) Custody handling charges of £4,000 were charged to capital (2024: £4,000).
(iv) AllianzGI received fees for the provision of marketing activities of £371,000 (2024: £341,000) during the year. At 31 January
2025 marketing costs payable were £nil (2024: £291,000).
(v) Non-audit services paid in the year were £5,000 (2024: £5,000). An additional £5,000 for auditors certificates was capitalised
as part of issue costs in relation to the issue of the 2040 Loan Notes.
(vi) Professional and advisory fees includes directors’ search fees of £nil (2024: £86,000).
4. Finance costs: interest payable and similar charges
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
2024
Revenue
£’000s
2024
Capital
£’000s
2024
Total
£’000s
On 4% Perpetual Debenture Stock repayable after
more than five years
19 36 55 19 36 55
On 5.875% Secured Bonds repayable after more
than five years
637 1,182 1,819 635 1,179 1,814
On 3.65% Preference Stock repayable after more
than five years
43 - 43 43 - 43
On 2.96% Fixed Rate Notes repayable after more
than five years
365 678 1,043 365 677 1,042
On Revolving Credit Facility 913 1,694 2,607 892 1,657 2,549
On 5.91% Fixed Rate Notes A repayable after
more than five years
16 29 45 - - -
On 5.91% Fixed Rate Notes B repayable after
more than five years
16 29 45 - - -
2,009 3,648 5,657 1,954 3,549 5,503
95
FINANCIAL STATEMENTS
5. Taxation
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
2024
Revenue
£’000s
2024
Capital
£’000s
2024
Total
£’000s
Overseas taxation* 534 - 534 778 - 778
Total tax 534 - 534 778 - 778
Reconciliation of tax charge
Profit (loss) before taxation 44,205 60,602 104,807 45,287 (74,757) (29,470)
Tax on profit (loss) at 25.00% (2024: 24.03%) 11,051 15,151 26,202 10,882 (17,964) (7,082)
Effects of
Non taxable income (11,300) - (11,300) (11,292) - (11,292)
Non taxable capital (gains) losses - (16,591) (16,591) - 16,608 16,608
Irrecoverable overseas tax 534 - 534 778 - 778
(Losses) gains on foreign currencies - (11) (11) - 14 14
Disallowable expenses 106 494 600 82 441 523
Excess of allowable expenses over taxable income 143 957 1,100 328 901 1,229
Total tax 534 - 534 778 - 778
* Irrecoverable overseas tax on Aena, BMW, CRH, Diversified Energy Company, Grafton Group, Quanex Building Products, SCOR and Swiss Re.
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 2025, the company had accumulated surplus expenses of £242.9 million
(2024: £238.5 million).
The company has not recognised a deferred tax asset of £60.7 million (2024: £59.6 million) in respect of these expenses, based on
a prospective corporation tax rate of 25% (2024: 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
at 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 do so on an annual basis..
96
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
6. Dividends on ordinary shares
2025
£’000s
2024
£’000s
Dividends paid on ordinary shares
Third interim dividend 7.1p paid 14 March 2024 (2023: 6.9p) 10,531 9,669
Final dividend 7.1p paid 22 May 2024 (2023: 7.0p) 10,531 10,115
First interim dividend 7.2p paid 22 August 2024 (2023: 7.1p) 10,679 10,412
Second interim dividend 7.3p paid 15 November 2024 (2023: 7.1p) 10,835 10,442
42,576 40,638
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 93 - Statement of Accounting Policies). Details of these dividends are set out below.
2025
£’000s
2024
£’000s
Third interim dividend 7.3p paid 19 March 2025 (2024: 7.1p) 10,835 10,531
Final proposed dividend 7.3p payable 29 May 2025 (2024: 7.1p) 10,835 10,531
21,670 21,062
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 numbers 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
2025
Revenue
£’000s
2025
Capital
£’000s
2025
Total
£’000s
2024
Revenue
£’000s
2024
Capital
£’000s
2024
Total
£’000s
Profit (loss) after taxation attributable to ordinary
shareholders
43,671 60,602 104,273 44,509 (74,757) (30,248)
Earnings (loss) after taxation attributable to
ordinary shareholders
29.43p 40.84p 70.27p 30.53p (51.28p) (20.75p)
The earnings per ordinary share is based on the weighted average number of shares in issue of 148,372,564 (2024: 145,769,940).
Basis and diluted earnings per share are the same as the company has no dilutive instruments.
97
FINANCIAL STATEMENTS
8. Fixed asset investments
2025
£’000s
2024
£’000s
Opening book cost 878,851 847,052
Opening book cost: derivative financial instruments (42) (201)
Opening investment holding (losses) gains (4,183) 62,586
Opening investment holding (losses) gains: derivative financial instruments (15) 181
Opening market value 874,611 909,618
Additions at cost 225,171 244,339
Disposals proceeds received* (213,071) (211,360)
Premiums recognised in current year (787) (808)
Realised gains on investments 40,454 589
Realised gains on derivative financial instruments 765 967
Movement in unrealised gains (losses) 27,292 (68,538)
Movement in unrealised losses on derivative financial instruments (160) (196)
Market value of investments held at 31 January 954,275 874,611
Closing book cost 932,498 878,851
Closing book cost: derivative financial instruments (64) (42)
Closing investment holding gains (losses) 22,016 (4,183)
Closing investment holding losses: derivative financial instruments (175) (15)
Closing market value 954,275 874,611
* This includes Tyman special dividend of £565,000 credited to capital.
The company received £222,887,000 (2024: £211,307,000) from investments sold in the year. The book cost of these investments
when they were purchased was £183,040,000 (2024: £210,771,000). 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 £1,135,000 (2024: £1,093,000) and transaction costs on sales
amounted to £45,000 (2024: £53,000).
2025
£’000s
2024
£’000s
Gains (losses) on investments
Gains (losses) on investment held at fair value through profit or loss 67,181 (67,949)
Transaction costs (1,180) (1,146)
Special dividend credited to capital 565 -
66,566 (69,095)
Losses on derivatives
Gains on derivative financial instruments 605 771
Option premiums and fees (807) (791)
(202) (20)
Total gains (losses) 66,364 (69,115)
98
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
9. Other receivables and other payables
2025
£’000s
2024
£’000s
Other receivables
Sales for future settlement 40 -
Prepayments 36 38
Accrued income 1,815 1,885
1,891 1,923
Other payables: amounts falling due within one year
Purchases for future settlement 3,619 1,004
Other payables 1,109 1,293
Interest on borrowings 439 350
Revolving Credit Facility (i) - 42,385
5,167 45,032
Interest on outstanding borrowing consists of:
5.875% Secured Bonds 2029 207 208
4% Perpetual Debenture Stock 14 14
2.96% Fixed Rate Notes 2052 128 128
5.91% Fixed Rate Notes 2040 A 45 -
5.91% Fixed Rate Notes 2040 B 45 -
439 350
(i) On 31 January 2022 the company renegotiated the revolving credit facility agreement of £42m, to extend it for another three
years. Under this agreement £21m was drawndown on 25 July 2024 and £21m was drawndown on 25 October 2024. The
facility was repaid on 21 January 2025 and subsequently cancelled.
10. Creditors: amounts falling due after more than one year
2025
£’000s
2024
£’000s
5.875% Secured Bonds 2029 (i) 29,678 29,621
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) 34,700 34,692
5.91% Fixed Rate Notes 2040 A (v) 24,925 -
5.91% Fixed Rate Notes 2040 B (vi) 24,925 -
116,781 66,866
99
FINANCIAL STATEMENTS
(i) The £30,000,000 of 5.875% Secured Bonds is stated at £29,678,000 (2024: £29,621,000), being the net proceeds of £28,943,000
plus accrued finance costs of £735,000 (2024: £678,000). 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 £34,700,000 (2024: £34,692,000), being the net proceeds of £34,656,000
plus finance costs of £44,000 (2024: £36,000). 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 £24,925,000 plus finance
costs of £nil (2024: £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 6.03% 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 (2024: £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 6.07%
per annum.
The two Private Placements of £25m each, 5.91% Fixed Rate Notes 2040 were funded on 21 January 2025. The funds were used to
repay the £42m Revolving Credit Facility on the same day.
11. Called up share capital
2025
£’000s
2024
£’000s
Allotted and fully paid
148,424,887 ordinary shares of 25p (2024: 148,324,887) 37,106 37,081
2025
Number
2025
£’000s
2024
Number
2024
£’000s
Allotted 25p ordinary shares
Brought forward 148,324,887 37,081 140,134,887 35,034
Shares issued during the year 100,000 25 8,190,000 2,047
Carried forward 148,424,887 37,106 148,324,887 37,081
During the year 100,000 shares were issued (2024: 8,190,000) for a total consideration of £577,000 (2024: £45,982,000), net of issues
costs of £1,000 (2024: £83,000). The directors are seeking authority at the Annual General Meeting on 20 May 2025 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.
100
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
12. Reserves
Capital Reserve
Share
premium
account
£’000s
Capital
redemption
reserve
£’000s
Gains (losses)
on sales of
investments
£’000s
Investment
holding
gains (losses)
£’000s
Revenue
reserve
£’000s
Balance at 1 February 2024 228,174 293 505,875 (10,720) 26,819
Gains on sales of fixed asset investments - - 39,889 - -
Losses on derivative financial instruments - - (42) - -
Net movement in fixed asset investment holding gains - - - 27,292 -
Movement in derivative holding losses - - - (160) -
Special dividends - - 565 - -
Transaction costs - - - (1,180) -
Unclaimed dividends - - - - 26
Losses on foreign currencies - - - 43 -
Transfer on sale of investments - - (76,072) 76,072
Issue of ordinary shares 552 - - - -
Investment management fee - - (2,153) - -
Finance costs of borrowings - - (3,648) - -
Other capital expenses - - (4) - -
Dividends appropriated in the year - - - - (42,576)
Profit retained for the year - - - - 43,671
Balance at 31 January 2025 228,726 293 464,410 91,347 27,940
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 (Gains (losses) on sales of investments). All paid or payable dividends for the year are payable from the revenue
reserve (2024: same).
13. 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 2024
to the net asset value, on a total return basis as at 31 January 2025. The net asset value total return with debt at market value is
+13.5% (2024: -3.1%) and the net asset value total return with debt at par is +13.3% (2024: -3.6%).
The net asset value per ordinary share is based on 148,424,887 ordinary shares in issue at the year end (2024: 148,324,887). The
method of calculation of the Net Asset Value with debt at market value is described in Note 15(c) on page 106.
The Net Asset Value per ordinary share was as follows:
Debt at
fair value
2025
Debt
at par
2025
Debt at
fair value
2024
Debt
at par
2024
Net Asset Value per ordinary share attributable 582.4p 572.6p 538.6p 530.9p
Dividends paid in the year 28.7p 28.7p 28.4p 28.4p
Net Asset Value Total Return 611.1p 601.3p 567.0p 559.3p
Net Asset Value attributable £'000s 864,485 849,822 798,854 787,522
14. Contingent liabilities, capital commitments and guarantees
At 31 January 2025 there were no contingent liabilities, capital commitments or guarantees (2024: £nil).
101
FINANCIAL STATEMENTS
15. 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 50. 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,
are 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 46 and 47.
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 16 on page 107. 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) and derivative financial
instruments which were exposed to market price risk as at 31 January 2025 was as follows:
2025
£’000s
2024
£’000s
Listed investments held at fair value through profit or loss 954,514 874,668
Derivative financial instruments – written call options (239) (57)
Total listed investments 954,275 874,611
The following illustrates the sensitivity of the return and the net assets to an increase or decrease of 20% and 50% (2024: 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.
2025
20%
increase in
fair value
£’000s
2025
20%
decrease in
fair value
£’000s
2025
50%
increase in
fair value
£’000s
2025
50%
decrease in
fair value
£’000s
2024
20%
increase in
fair value
£’000s
2024
20%
decrease in
fair value
£’000s
2024
50%
increase in
fair value
£’000s
2024
50%
decrease in
fair value
£’000s
Revenue earnings
Investment management fees
(234) 234 (585) 585 (214) 214 (536) 536
Capital earnings
Gains (losses) on investments at fair value
190,855 (190,855) 477,138 (477,138) 174,922 (174,922) 437,306 (437,306)
Investment management fees
(434) 434 (1,086) 1,086 (398) 398 (995) 995
Change in net earnings and net assets
190,187 (190,187) 475,467 (475,467) 174,310 (174,310) 435,775 (435,775)
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 stock owned within the portfolio with a maximum exposure of 15% of gross assets at the time of writing the call.
102
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
(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 46 and 47. 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 94 for detail of income received).
Further explanation of the derivatives strategy is included in the Glossary on page 117.
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 the 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 there is implicit exposure as some
of the companies in the portfolio generate income and cashflows in foreign currencies. (2024: same).
Any income denominated in 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.
2025
Fixed
rate
interest
£’000s
2025
Floating
rate
interest
£’000s
2025
Nil
interest
£’000s
2025
Total
£’000s
2024
Fixed
rate
interest
£’000s
2024
Floating
rate
interest
£’000s
2024
Nil
interest
£’000s
2024
Total
£’000s
Financial assets - 15,604 956,405 972,009 - 22,886 876,591 899,477
Financial liabilities (116,781) - (5,406) (122,187) (66,866) (42,385) (2,704) (111,955)
Net financial (liabilities) assets (116,781) 15,604 950,999 849,822 (66,866) (19,499) 873,887 787,522
As at 31 January 2025, the interest rates received on cash balances or paid on bank overdrafts, was 2.55% and 5.75% per annum
respectively (2024: 2.75% and 6.25% per annum).
The fixed rate interest bearing liabilities bear the following coupon and effective rates as at 31 January 2025 and 31 January 2024.
Maturity
date
Amount
borrowed
£’000s
Coupon
rate
Effective
rate since
inception*
5.875% Secured Bonds 2029 20/12/2029 30,000 5.875% 6.23%
Fixed Rate Notes 2052 18/12/2052 35,000 2.96% 3.03%
4% Perpetual Debenture Stock n/a 1,375 4.00% 4.00%
3.65% Cumulative Preference Stock n/a 1,178 3.65% 3.65%
5.91% Fixed Rate Notes 2040 A 21/01/2040 25,000 5.91% 6.03%
5.91% Fixed Rate Notes 2040 B 21/01/2040 25,000 5.91% 6.07%
117,553
* The effective rates are calculated in accordance with FRS 102 Section 12: ‘Other Financial Instruments’ as detailed in the Statement of
Accounting Policies on page 93.
103
FINANCIAL STATEMENTS
On 21 January 2025, £50m was funded by the two £25m, 5.91% Fixed Rate Notes 2040. This was used to repay the £42m Revolving
Credit Facility on the same day. Details in respect of the other loans remains unchanged since the previous accounting period.
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% (2024: 4.51%) and the weighted average period to maturity of these liabilities
is 16.2 years (2024: 18.3 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 2025, 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 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 2040 and 5.875% Secured Bonds
2029 reflect the maturity dates as set out in Notes 9 and 10 on pages 99 and 99. 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.
Three
months
or less
£’000s
Between
three months
and one year
£’000s
Between
one and
five years
£’000s
More than
five years
£’000s
Total
£’000s
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 cost of borrowings - - 23,407 54,862 78,269
5,358 5,461 53,407 142,415 206,641
2024
Other payables
Finance costs of borrowing 336 3,605 - - 3,941
Revolving Credit Facility 21,000 21,000 - - 42,000
Other payables 2,297 - - - 2,297
Derivative financial instruments 57 - - - 57
Creditors: amounts falling due after more than one year
Amounts payable on maturity of borrowings - - - 67,553 67,553
Finance costs of borrowing - - 11,587 28,132 39,719
23,690 24,605 11,587 95,685 155,567
104
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
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 the
31 January 2025, the company had an undrawn committed borrowing facility of £nil (2024: £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 2025 (2024: nil). The counterparties 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 the
counterparties 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:
2025
£’000s
2024
£’000s
Other receivables:
Accrued income 1,815 1,885
Cash and cash equivalents 15,604 22,886
17,419 24,771
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:*
2025
Book value
£’000s
2025
Fair value
£’000s
2024
Book value
£’000s
2024
Fair value
£’000s
Revolving Credit Facility - - 42,385 42,385
5.875% Secured Bonds 2029 29,885 31,353 29,829 31,739
4% Perpetual Debenture Stock 1,389 1,067 1,389 1,162
3.65% Cumulative Preference Stock 1,178 845 1,178 920
2.96% Fixed Rate Notes 2052 34,828 19,999 34,820 22,063
5.91% Fixed Rate Notes 2040 A 24,970 24,648 - -
5.91% Fixed Rate Notes 2040 B 24,970 24,645 - -
117,220 102,557 109,601 98,269
105
FINANCIAL STATEMENTS
The Net Asset Value per ordinary share, with debt at fair value is calculated as follows:
2025
£’000s
2024
£’000s
Net assets per balance sheet 849,822 787,522
Add: financial liabilities at book value
#
117,220 109,601
Less: financial liabilities at fair value* (102,557) (98,269)
Net assets (debt at fair value) 864,485 798,854
Net Asset Value per ordinary share (debt at fair value) 582.4p 538.6p
#
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 2025 and 31 January 2024. 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 148,424,887 ordinary shares in issue at 31 January 2025 (2024: 148,324,887).
The company’s investments and derivatives 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.
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
2025
Financial assets 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
2024
Financial assets at fair value through profit or loss
Equity investments 874,668 - - 874,668
Derivative financial instruments: written call options - (57) - (57)
874,668 (57) - 874,611
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 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 2025 and 31 January 2024.
106
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
16. 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:
2025
£’000s
2024
£’000s
Debt
Creditors: amounts falling due after more than one year 116,781 66,866
116,781 66,866
Equity
Called up share capital 37,106 37,081
Share premium account and other reserves 812,716 750,441
849,822 787,522
Total capital 966,603 854,388
Debt as a percentage of total capital 12.1% 7.8%
Debt at par Debt at fair value
2025
£’000s
2024
£’000s
2025
£’000s
2024
£’000s
Debt
Revolving Credit Facility - 42,385 - 42,385
Creditors: amounts falling due after more than one year 117,220 67,216 102,557 55,884
Gross debt 117,220 109,601 102,557 98,269
Total net assets 849,822 787,522 864,485 798,854
Gross gearing 13.8% 13.9% 11.9% 12.3%
Gross debt 117,220 109,601 102,557 98,269
Less: cash (15,604) (22,886) (15,604) (22,886)
Net debt 101,616 86,715 86,953 75,383
Total net assets 849,822 787,522 864,485 798,854
Net gearing 12.0% 11.0% 10.1% 9.4%
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 Revolving Credit Facility and the Fixed Rate
Loan Notes 2040 and 2052 can be found in Notes 9 and 10.
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.
The terms of the debenture 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.
107
FINANCIAL STATEMENTS
17. 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 94. 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 75.
There are no other identifiable related parties at the year end, and as of 8 April 2025.
18. Post Balance Sheet events
As at 8 April 2025, no further shares have been issued since the year end.
108
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
110 Investor information
113 Notice of Meeting
117 Glossary
Investor
Information
In the second half of the year, we
started a position in Whitbread,
owner of market leader Premier
Inn, the UK’s largest hotel chain.
PHOTO © WHITBREAD / PREMIER INN
109
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 94).
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 that total amount of remuneration granted to the employees of Allianz Global Investors UK Ltd
(AllianzGI UK) 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: 310
All employees
thereof
Material
Risk Takers
thereof
Board Members/
SMF
thereof
Other Material
Risk Takers
Fixed compensation 38,208,950 3,773,014 3,773,014 N/A
Variable compensation 35,897,533 8,614,518 8,614,518 N/A
Total compensation 74,106,484 12,387,532 12,387,532 N/A
Note: All Material Risk Takers are performing a Senior Management Function.
The information on employee remuneration does not include remuneration paid by delegated managers to their employees.
AllianzGI UK does not pay remuneration to employees of delegated companies directly from the fund.
Setting the remuneration
AllianzGI UK is subject to certain requirements applicable to investment management companies with regard to structuring the
remuneration system. The board of directors of AllianzGI UK 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 the management, the human resources department has developed
AllianzGI UK’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 AllianzGI UK 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 the variable remuneration. Half of the deferred amount is linked to the performance of
AllianzGI UK, and the other half is invested in the funds managed by AllianzGI UK. 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 Carried Interest Grant which is awarded in the fiscal year for the previous
performance year.
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
110
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 our 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 within 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: 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: 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 7.3p payable on 29
May 2025 to shareholders on the Register of Members at the
close of business on 22 April 2025, making a total distribution
of 29.1p per share for the year ended 31 January 2025, an
increase of 2.5% over last year’s distribution. The ex-dividend
date is 17 April 2025. A Dividend Reinvestment Plan (DRIP) is
available for this dividend and the relevant Election Date is
7 May 2025. 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 in this way are paid
via Bankers’ Automated Clearing Services (BACS).
INVESTOR INFORMATION
111
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, formerly Link Group, operate
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: www.
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.
Share Portal
MUFG Corporate Markets offer shareholders a free online
service called Share Portal, enabling shareholders to access
a comprehensive range of shareholder related information.
Through Share Portal, shareholders can: view their current and
historical shareholding details; obtain an indicative share price
and valuation; amend address details; view details of dividend
payments; and apply for dividends to be paid directly to a bank
or change existing bank details.
Shareholders can access these services at www.signalshares.
com. Shareholders will need to register for a Share Portal
account by completing an on-screen registration form. An email
address is required.
International payment services
MUFG Corporate Markets operate 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
Share Portal service at www.signalshares.com. Or via the
registrar’s VOTE+ shareholder App. Further details on voting
via the VOTE+ App, online through the registrar’s Share Portal,
or by post using the personalised proxy card provided, are
contained within the Notice of Meeting Notes on page 114.
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 114.
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.
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
112
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 20 May 2025 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. Detail of how
to vote, either electronically by proxy form or through CREST or
Proxymity, can be found on pages 114 to 115.
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 2025
together with the Auditor’s Report thereon.
2. To declare a final dividend of 7.3p per ordinary share.
3. To re-elect Colin Clark as a director.
4. To re-elect Karen McKellar as a director.
5. To elect Lisa Edgar as a director.
6. To elect Mal Patel as a director.
7. To approve the Directors’ Remuneration
Implementation Report.
8. To reappoint BDO 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.
9. 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 10 will be proposed as an ordinary resolution and
Resolutions 11 and 12 as special resolutions:
10. 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 one year from the date
upon which this resolution is passed but may be revoked
or varied by the company in general meeting and may be
renewed by the company in general meeting for a further
period not exceeding one year; 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.
11. 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 10 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 19 August 2026 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.
12. 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
middle-market quotations for an ordinary share taken
from the London Stock Exchange Official List for the five
Notice of Meeting
INVESTOR INFORMATION
113
business days immediately preceding the day on which
the ordinary share is purchased or such other amount as
may be specified by the London Stock Exchange from time
to time;
(iv) the authority hereby conferred shall expire at the
conclusion of the Annual General Meeting of the company
in 2025 or, if earlier, on the expiry of 15 months from the
passing of this resolution, unless such authority is renewed
prior to such time; and
(v) the company may make a contract to purchase ordinary
shares under the authority hereby conferred prior to the
expiry of such authority which will or may be executed
wholly or partly after the expiration of such authority and
may make a purchase of ordinary shares pursuant to any
such contract.
By order of the board
Kelly Nice
Company Secretary
199 Bishopsgate, London, EC2M 3TY
8 April 2025
Notes:
The following notes explain your general rights as a
shareholder and your right to attend and vote at this Meeting
or to appoint someone else to vote on your behalf.
1. To be entitled to attend and vote at the Meeting (and for
the purpose of the determination by the company of the
number of votes they may cast), shareholders must be
registered in the Register of Members of the company at
close of trading on Friday 16 May 2025 (the record date).
Changes to the Register of Members after the relevant
deadline shall be disregarded in determining the rights of
any person to attend and vote at the Meeting.
2. Shareholders are entitled to appoint another person as
a proxy to exercise all or part of their rights to attend
and to speak and vote on their behalf at the Meeting. A
shareholder may appoint more than one proxy in relation
to the Meeting provided that each proxy is appointed to
exercise the rights attached to a different ordinary share or
ordinary shares held by that shareholder. A proxy need not
be a shareholder of the company.
3. A personalised form of proxy which may be used to make
such appointment and give proxy instructions accompanies
this Notice. If you do not have a form of proxy and believe
that you should have one, or if you require additional forms,
please contact the registrar of the company whose contact
details are provided in note 6 below.
4. In the case of joint holders, where more than one of
the joint holders purports to appoint a proxy, only the
appointment submitted by the most senior holder will be
accepted. Seniority is determined by the order in which
the names of the joint holders appear in the company’s
Register of Members in respect of the joint holding (the first
named being the most senior).
5. A vote withheld is not a vote in law, which means that the
vote will not be counted in the calculation of votes for
or against the resolution. If no voting indication is given,
your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as
he or she thinks fit in relation to any other matter which is
put before the Meeting.
6. To be valid, any form of proxy or other instrument
appointing a proxy, must be returned by no later than
12 noon on Friday 16 May 2025 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, PXS1, Central Square, 29 Wellington Street, Leeds,
LS1 4DL
(ii) electronically through the website of the Company’s
registrar at www.signalshares.com (see note 8 below).
(iii) via VOTE+ (see note 9 below).
(iv) via Proxymity (see note 10 below).
(v) 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
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
114
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. To submit your proxy instructions electronically through
the company’s registrar, please complete the online
form of proxy by logging on to www.signalshares.com.
If you have not previously registered for the share portal
you will need your investor code (IVC) which is detailed
on your share certificate or is available by emailing
shareholderenquiries@cm.mpms.mufg.com or by calling
our registrar, MUFG Corporate Markets on 0371 664 0300
or, if calling from overseas, on +44 (0) 371 664 0300. Calls
are charged at the standard geographic rate and will
vary by provider. Calls outside the United Kingdom will be
charged at the applicable international rate. The registrar
is open between 9.00 am and 5:30 pm, Monday to Friday
excluding public holidays in England and Wales.
9. VOTE+ is a free app for smartphones and tablets
provided by MUFG Corporate Markets (the company’s
registrar). It offers shareholders the option to submit a
proxy appointment quickly and easily online, as well as
real-time access to their shareholding records. The app is
available to download on both the Apple App Store and
Google Play. QR codes to facilitate this are shown below.
Your vote must be lodged by 12 noon on Friday 16 May
2025 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.
Apple App Store GooglePlay
10. If you are an institutional investor, you may be able to
appoint a proxy electronically via the Proxymity platform,
a process which has been agreed by the company and
approved by the registrar. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must
be lodged by 12 noon on Friday 16 May 2025 in order to
be considered valid or, if the Meeting is adjourned, by the
time which is 48 hours before the time of the adjourned
Meeting. Before you can appoint a proxy via this process
you will need to have agreed to Proxymity’s associated
terms and conditions. It is important that you read these
carefully as you will be bound by them and they will govern
the electronic appointment of your proxy. An electronic
proxy appointment via the Proxymity platform may be
revoked completely by sending an authenticated message
via the platform instructing the removal of your proxy vote.
11. The return of a completed form of proxy, electronic voting
on the Share Portal or via the VOTE+ app or any CREST
Proxy Instruction (as described in note 13 below) or the
appointment of a proxy via Proxymity will not prevent a
shareholder from attending the Meeting and voting in
person if he/she wishes to do so.
12. 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.
13. 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 Tuesday 14 May 2025. 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.
14. 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.
15. 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.
16. 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 they
are voting in respect of different shares.
17. 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
INVESTOR INFORMATION
115
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.
18. 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.
Any such statement must also be sent to the company’s
Auditor no later than the time it is made available on
the website and must be included in the business of
the Meeting.
19. As at 3 April 2025, 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
148,324,887 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 149,502,887.
20. 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.
21. 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/mrch-
25agm/, 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.
Your IVC can be found on your share certificate, or Signal
Shares users (www.signalshares.com) will find this under
‘Manage your account’ when logged in to the Signal Shares
portal. You can also obtain this by contacting MUFG Corporate
Markets, our Registrar, by calling +44 (0) 371 277 1020.*
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 within 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.
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
116
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 2025 earnings per ordinary share was 29.4p (2024: 30.5p), calculated by taking the profit after tax
of £43,671,000 (2024: £44,509,000), divided by the weighted average shares in issue of 148,372,564 (2024: 145,769,940).
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 2025, the NAV with debt at par
value was £849,822,000 (2024: £787,522,000) and the NAV per share was 572.6p (2024: 530.9p).
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 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. It 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 at the time their shares were quoted ex dividend (see page 5).
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 market value, per ordinary share. The discount/premium is
normally expressed as a percentage of the NAV per ordinary share (see page 14).
Dividend yield represents dividends declared in the past year as a percentage of the share price. This is shown as 5.2% at 31
January 2025 in the highlights on page 5.
2025 2024
Dividends declared for the year 29.1p 28.4p
Share price at year end 556.0p 543.0p
Annual dividend as a percentage of share price 5.2% 5.2%
Gearing is the amount of debt as a percentage of the net assets (see Note 16 on page 107).
Net Asset Value, debt at market value is the value of total assets less all liabilities, with the company’s debt measured at the
market value at the time of calculation. The Net Asset Value, or NAV, per ordinary share with debt at market value is calculated
by dividing this amount by the total number of ordinary shares in issue (see page 106). As at 31 January 2025, the NAV with debt
at market value was £864,485,000 (2024: £798,854,000) and the NAV per share with debt at market value was 582.4p (2024:
538.6p). (Further details can be found in Note 15(c) on page 105).
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 day the shares were
quoted ex dividend (see Note 13 on page 101).
Net gains/losses based on historical costs are gains/losses from sales of investments of £39,889,000 (2024: £589,000) less
transaction costs on sales of £45,000 (2024: £53,000).
Glossary
INVESTOR INFORMATION
117
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 13).
2025
£’000s
2024
£’000s
Management fee 3,313 3,124
Administration expenses 1,108 1,229
Total expenses (A) 4,421 4,353
Average Net Asset Value with debt at market value (B) 844,251 792,739
Ongoing charge (A/B) 0.52% 0.55%
Revenue reserve per ordinary share of 18.8p (2024: 18.1p) is the revenue reserve per the balance sheet of £27,940,000 (2024:
£26,819,00) divided by the total number of ordinary shares in issue of 148,424,887 (2024: 148,324,887).
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 day
the shares were quoted ex dividend (see page 5). The share price as at 31 January 2025 was 556.0p, an increase of 13.0p
from the price of 543.0p as at 31 January 2024. The change in share price of 13.0p plus the dividends paid in the year of 28.7p are
divided by the opening share price of 543.0p to arrive at the share price total return for the year ended 31 January 2025 of +7.7%
(2024: -3.4%).
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
118
Clockwise from top-left: Memorandum of Association, 1889; The American Telephone and Telegraph Company (AT&T) was another early Merchants
Trust investment, made in 1906; Aside from his directorship of the trust and other business interests Arthur, Lord Kinnaird (1847-1923) was described
as ‘the first Lord of football’; The Castlemaine Brewery in Newcastle, New South Wales was one of The Merchants Trust’s first equity investments;
From the 1958 Annual Report: the changing shape of the trust’s portfolio in the post-World War Two era as the ‘age of the equity’ developed; Violet
‘Floss’ Lincoln, shown here in 1965, was only one of three women employees when she joined the firm in 1927. Future Merchants Trust Chairman
Constantine (Con) Benson was awarded the DSO at the age of 22 for his actions at Passchendaele during Haig’s Flanders offensive in 1917.
FOCUSED ON DIVIDENDS SINCE 1889
THE MERCHANTS TRUST PLC ANNUAL REPORT 31 JANUARY 2025
4
The Merchants Trust PLC
199 Bishopsgate
London
EC2M 3TY
+44 (0)203 246 7000
www.merchantstrust.co.uk