The Merchants Trust Plc Annual Report 2008

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FY2008 Annual Report · The Merchants Trust Plc

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The Merchants Trust PLC
Annual Financial Report for the year ended 31 January 2008

www.merchantstrust.co.uk.

The Merchants Trust PLC

Contents

Key Facts .........................................................................................................2

Statement of Directors’ Responsibilities..............................................19

Investment Policy...................................................................................2

Corporate Governance...............................................................................24

Financial Summary................................................................................2

Directors’ Remuneration Report.............................................................28

Chairman’s Statement................................................................................3

Independent Auditors’ Report.................................................................29

Historical Record ..........................................................................................4

Income Statement.......................................................................................31

Performance Attribution Analysis ...........................................................4

Reconciliation of Movements in Shareholders’ Funds ..................32

Investment Managers’ Review................................................................5

Balance Sheet ...............................................................................................33

Listed Holdings .............................................................................................9

Cash Flow Statement .................................................................................34

Distribution of Total Assets.......................................................................11

Statement of Accounting Policies ..........................................................35

Performance Graphs...................................................................................13

Notes to the Financial Statements........................................................37

Directors ..........................................................................................................14

Notice of Meeting........................................................................................51

Directors’ Report ..........................................................................................15

Investor Information & Contact Details................................................53

Business Review ..........................................................................................15

The Merchants Trust
The Merchants Trust was incorporated on 16 February 1889. It was launched by Robert Benson & Co., predecessors of the current

Manager, RCM (UK) Ltd, and originally invested mainly in American railroads. The initial capital was £2 million, of which half was

subscribed.

The Merchants Trust PLC

Key Facts

Investment Policy

Investment Objective
To provide an above average level of income and income growth together with long term growth of capital through a policy of

investing mainly in higher yielding UK FTSE 100 companies.

Benchmark
The Company’s investment performance is assessed by comparison with other investment trusts within the UK Growth and

Income sector.

In addition, it is benchmarked against the FTSE 100 Index, reﬂecting the emphasis within the portfolio, as well as the FTSE 350

Higher Yield Index, reﬂecting the Company’s higher yield objective.

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. Historically, gearing has been

in the form of long-term, ﬁxed-rate debentures. The Board monitors the level of gearing and makes decisions on appropriate action

based on the advice of the Manager and the future prospects of the Trust’s portfolio.

The Trust’s authorised borrowing powers set out in the Articles of Association state that the Company’s borrowings may not exceed its

called up share capital and reserves. In normal market conditions, it is unlikely that gearing (borrowings as a percentage of net assets)

will exceed 35%.

Risk Diversification
The Company will aim to achieve a spread of investments, with no single investment representing more than 15% of assets. The

Trust will seek to diversify its portfolio into at least ﬁve industrial sectors, with no one sector comprising more than 35% of the

portfolio.

Financial Summary

for the years ended 31 January

Revenue

Revenue
Revenue excluding special dividends
Available for Ordinary Dividend
Earnings per Ordinary Share
Dividends per Ordinary Share

Assets

Total Net Assets
Net Asset Value per Ordinary Share
Ordinary Share Price
Discount of Ordinary Share Price to Net Asset Value
Discount (Debt at market value)
FTSE 100 Index (Capital Return)
FTSE 350 Higher Yield Index (Capital Return)

2008

2007

% change

£27,750,450
£28,495,032
£27,992,582 £26,448,226
£23,649,820 £22,854,005
22.17p
20.00p

22.86p
21.60p

+2.7
+5.8
+3.5
+3.1
+8.0

2008

2007

% change

£506,187,213 £588,834,675
567.5p
513.0p
9.6%
5.9%

492.3p
425.0p
13.7%
9.6%

–14.0
–13.3
–17.2
n/a
n/a
–5.2
–12.1

The Merchants Trust PLC

Chairman’s Statement

Results
After four successive years in which the net asset value has
risen, in this ﬁnancial year the net asset value per share fell by
13.3% to 492.3p and the total return per share, including
dividends paid, was -9.6%. This compares with the total returns
of -1.9% and -8.3% recorded by the FTSE 100 Index and the
FTSE 350 Higher Yield Index, respectively.

Although the capital performance of the underlying portfolio
exceeded that of the Higher Yield Index by 1.5%, gearing had a
negative effect on the net asset value, reducing the returns to
shareholders by approximately 2.2%. The full performance
breakdown is shown on page 4.

In the twelve months to 31 January 2008, the Trust’s share
price fell by 17.2% from 513.0p to 425.0p. At 11 April 2008,
the Trust’s ordinary shares yielded 5.1% compared with the
yield on the FTSE 100 Index of 3.8%.

Market and Portfolio Background
During the year the stock market became increasingly volatile as
the disruption in credit markets spread to other asset classes.
Volatility of individual sectors was even higher than at the level
of the market as a whole. Higher yielding shares, which
generally comprise Merchants’ portfolio, performed particularly
poorly as higher dividend yields provided little support. This area
of the market is also heavily biased towards ﬁnancials (which
were very weak) and has no mining shares (which rose
signiﬁcantly). Another notable feature was the
underperformance of medium sized companies often more
exposed to the domestic economy.

Earnings per share
In 2007/8 earnings per share rose by 3.1% to 22.86p. This
year’s earnings include special dividends received by the Trust
totalling £0.5m (2007 – £1.3m). Excluding special dividends,
revenues increased by 5.8%.

Dividends
The Board is recommending a ﬁnal dividend of 5.4p per share
giving a total of 21.6p for the year, an increase of 8.0% over the
total for the previous year.

VAT
During the course of the year, JP Morgan Fleming Claverhouse
and the Association of Investment Companies were successful in
their case against HM Revenue and Customs and I am pleased
to report that VAT is no longer payable on management fees
charged to the Trust. An amount of VAT payable in respect of
prior years may also be recoverable but it is not yet possible to
quantify the exact amount pending the conclusion of discussions

with the Manager and no credit for this has been taken in these
accounts.

Investment Policy
New Listing Rules for closed end investment funds have been
published by the UK Listing Authority. These require the
publication of an investment policy for all closed end investment
companies which are listed under Chapter 15 of the Listing Rules.
Our investment policy is set out on page 2.

Repurchase of Shares
During the ﬁnancial year and following an increase in the
discount of the net asset value to the ordinary share price,
946,413 shares were bought back for cancellation, representing
0.91% of the ordinary shares at the beginning of the year. As in
previous years, the Board is proposing to renew the authority to
repurchase shares at the forthcoming AGM on 13 May 2008.

Prospects
Over the coming months the disruption in the banking and
credit markets is likely to shape developments in the wider
economy. US growth is slowing rapidly and the risks of a
signiﬁcant economic slowdown in the UK have increased. Share
prices are likely to remain volatile until a measure of conﬁdence
returns to the ﬁnancial markets.

The Trust’s Board
Sir Bob Reid, who joined the Board in January 1995, will be
retiring from the Board after the AGM in May. During his career
Sir Bob has been Deputy Governor of the Bank of Scotland and
the Chairman of a number of FTSE 100 and other major
companies, including Shell (UK), British Rail, London Electricity
and Sears. He has made a notable contribution to the Trust over
many years and I am sure that all shareholders will join me in
thanking him and in wishing him well.

We will be appointing Michael McKeon and Henry Staunton to
the Board with effect from 1 May 2008. Both of them will bring
long and broad experience of a number of industries in which the
Trust’s funds are invested. Details of their respective careers are
set out on page 14. In accordance with the Trust’s Articles of
Association, both of them will stand for election at the
forthcoming Annual General Meeting.

Annual General Meeting
The Annual General Meeting of the Company will be held on
Tuesday 13 May 2008 at 12.00 noon and we look forward to
seeing as many shareholders then as are able to attend.

Hugh Stevenson
Chairman
14 April 2008

The Merchants Trust PLC

Historical Record

Revenue and Capital
Years ended 31 January

Revenue (£’000s)

1999
20,119(cid:2)

Earnings per Ordinary Share

15.21p

Dividends per Share

Tax Credit per Share

Gross Ordinary Dividend

Total Net Assets attributable to

15.59p†

3.90p§

19.49p

2000

22,590

17.93p

16.00p

1.78p

2001

21,546

16.35p

16.40p

1.82p

2002

21,596

16.70p

16.80p

1.87p

2003

2004

22,101

22,247

17.26p

17.20p

1.91p

17.34p

17.60p

1.96p

2005

22,675

17.58p

18.00p

2.00p

2006

24,714

19.44p

18.90p

2.10p

2007

2008

27,750

28,495

22.17p

20.00p

2.22p

22.86p

21.60p

2.40p

17.78p

18.22p

18.67p

19.11p

19.56p

20.00p

21.00p

22.22p

24.00p

Ordinary Capital (£’000s)

424,859

390,317

473,729

420,983

273,407

357,442 424,511(cid:3)

514,713

588,835

506,187

Net Asset Value per

Ordinary Share

415.2p

381.4p

463.5p

412.3p

267.8p

350.1p

-4.3

+25.8

-7.4

-30.9

+37.3

415.8p(cid:3)
+20.8(cid:3)

504.1p

567.5p

492.3p

+25.6

+16.4

-9.6

+2.1

+1.8

+2.6

+2.7

+2.4

+2.1

+2.3

+4.2

+4.1

NAV Total Return (%)*
Retail Price Index Increases

(%)**

Notes

+4.9

+2.6

(cid:2)

†

(cid:3)

Restated in accordance with Financial Reporting Standard 16 ‘Current Taxation’.

The total distribution for 1999 was 15.59p. This was made up of interim ordinary dividends of 8.86p, an interim FID of 2.98p and a ﬁnal ordinary dividend of 3.75p.
The interim FID was enhanced by 0.59p to ensure no shareholder would be adversely affected by receiving this form of dividend. Excluding this enhancement the
‘normal’ distribution for 1999 was therefore 15.00p.

Inclusive of 0.74p tax credit on the FID which is notional and not repayable.

NAV total return reﬂects both the change in net asset value per ordinary share and the net ordinary dividends paid.

RPIX – excludes the effect of mortgage rates.

Restated in accordance with Financial Reporting Standards 25 ‘Financial Instruments: Disclosure and Presentation’ and 26 ‘Financial Instruments: Recognition and
Measurement’. Years prior to 2005 have not been restated.

Performance Attribution Analysis

for the year ended 31 January 2008

FTSE 350

FTSE 100 Higher Yield

Index %

(5.2)
(5.4)

(10.6)
(2.2)
0.3
(1.3)
0.1
0.4

(13.3)

(12.1)
1.5

(10.6)
(2.2)
0.3
(1.3)
0.1
0.4

(13.3)

Capital return of Index
Relative return from Portfolio

Capital return of Portfolio
Impact of gearing on Portfolio
Retained Revenue
Expenses charged to Capital
Impact of Repurchasing Ordinary Shares
Other

Change in Net Asset Value per Ordinary Share

The Merchants Trust PLC

Investment Managers’ Review

Economic Background
The UK economy grew at a respectable rate during the year
with the latest estimate for GDP growth at around 3%. Inﬂation
rose early in the year and temporarily exceeded the Bank of
England’s upper limit of 3% on the CPI measure before falling
back towards the central rate of 2% again. This inﬂationary
pressure led the Monetary Policy Committee of the Bank to
raise rates in May and June by a total of 0.5% to 5.75% to
restrain growth in consumption.

Conditions in the credit markets changed materially in the
summer as the knock-on effects of problems in US sub-prime
mortgages spread rapidly, leading to a drying up of liquidity in
the wholesale money markets. One notable casualty in the UK
was Northern Rock, the predominantly wholesale funded
mortgage bank, which saw the ﬁrst run on a UK bank for over a
century.

By December, events in credit markets had signiﬁcantly changed
the economic outlook. Consumer conﬁdence, already suffering
from rising energy and food costs, was further dented by higher
borrowing costs and lower availability of credit as banks
tightened lending policies. This led to a sharp fall in housing
transactions. Corporate borrowing costs had also risen as banks’
funding costs rose. The MPC cut interest rates in December by
0.25% and by the same amount again in February, just after the
ﬁnancial year end. Flexibility to respond to the deterioration in
ﬁnancial market conditions was limited however by the
persistence of inﬂation in commodity prices, particularly energy
and food.

Although house prices and retail sales began to reﬂect a tougher
consumer environment by the year end, overall consumption
was solid during the year. The corporate sector in general also
showed resilience with most industries seeing healthy proﬁts
growth and unemployment claims hitting the lowest levels since
the 1970s.

Around the world, the authorities paid close attention to the
growing banking crisis. Western central banks responded with a
huge injection of liquidity into the banking system over the new
year which brought down the wholesale cost of funding. In the
USA interest rates were cut rapidly, notably by 1.25% in two
moves in January to close the period under review at 3%, down
from 5.25% in the summer. This was accompanied by the
announcement of a ﬁscal stimulus package.

Market Trends
The stock market became increasingly volatile as the disruption
in credit markets spread to other asset classes. The FTSE 100
index traded for much of the year between 6000 and 6700 but
fell heavily in January to close the ﬁnancial year at 5878 for a
total return of -1.9%. Volatility of individual sectors was even
higher than at the level of the market as a whole. In this more
uncertain environment investors preferred companies offering

stability and growth and paid less attention to valuation. Sectors
under pressure reﬂected investor concerns about the growing
credit crunch, a peak in the property cycle and the possibility of
a consumer driven slowdown. For example, including dividends,
the banks sector fell 25%, general retailers 32%, life insurers
15%, travel & leisure stocks 27% and real estate companies
25%. On the other hand natural resources companies were
strong, beneﬁting from booming demand for commodities. The
mining sector rose 50% and oil & gas producers were up 12%.
Other strong performing sectors included those seen as
relatively safe havens and those with exposure to emerging
markets where demand remained buoyant. The tobacco sector
gave a total return of 20%, mobile telecoms 23% and food
producers 10%. Looking at the other large sectors, utilities were
broadly unchanged over the year, pharmaceuticals fell 15% on
speciﬁc concerns and ﬁxed line telecoms were down over 9%.

Higher yielding shares performed particularly poorly as higher
dividend yields provided little support. The FTSE 350 High Yield
Index returned -8.3%. Another notable feature was the
underperformance of medium sized companies, often more
exposed to the domestic economy. We commented a year ago
that the mid-cap FTSE 250 Index had consistently outperformed
the FTSE 100 Index but we expected the trend to reverse. This
year, the midcap index underperformed by 7.1%.

Investment Performance
The portfolio return was behind the FTSE 100 index return
during the year, reversing the strong gains made in the previous
year. The bias of the Trust towards higher yielding shares
impacted performance as these companies lagged the broader
index. However the portfolio return was ahead of the FTSE 350
Higher Yield Index.

The table below shows the biggest contributions to relative
performance from individual companies within the equity
portfolio. Looking at the positive stocks, there are three themes
evident. First, two of the “growth” companies in the portfolio
received takeover bids; Reuters and Xansa. Second, the
“megacap” stocks, Vodafone and Royal Dutch Shell performed
well. Third, we avoided several stocks which underperformed
sharply for the reasons described above, including Astrazeneca,
Northern Rock, Wolseley and Marks & Spencer.

On the negative side, there were also three major themes. The
portfolio has had a relatively low exposure to the mining and oil
sectors, mainly because of the low yields on offer. Not owning
BG, BHP Billiton and Xstrata and having an underweight position
in Rio Tinto held back relative performance. Secondly positions
in the banks Bradford & Bingley and Royal Bank of Scotland
were impacted by the growing credit crunch. Thirdly a number
of industrial and consumer cyclical companies performed poorly,
including FKI (where takeover talks were called off) Pendragon,
Persimmon and Rexam.

The Merchants Trust PLC

Investment Managers’ Review

Contribution to Investment Performance Relative to FTSE 100 Index

Positive Contribution

Astrazeneca (not owned)

Reuters Group

Xansa

Northern Rock (not owned)

Vodafone

Wolseley (not owned)

Lloyds TSB

Marks & Spencer (not owned)

British Land (not owned)

Royal Dutch Shell

0.7

0.4

0.3

0.2

Negative Contribution

BG (not owned)

Bradford & Bingley

BHP Billiton (not owned)

Xstrata (not owned)

Royal Bank of Scotland

FKI

Pendragon

Persimmon

Rio Tinto (underweight)

Rexam

-1.0

-0.9

-0.7

-0.6

-0.4

Portfolio Changes
The volatility in individual share price movements was extremely
high, especially in the last six months of the year. Companies
that disappointed expectations were marked down aggressively.
This made it a challenging environment for making investment
decisions. Despite this, our focus remained on the long term
value of businesses and their underlying cashﬂows.

Whilst we took advantage of volatility in the markets to make
selective changes to the portfolio we also maintained basic
portfolio management disciplines. These include diversiﬁcation
in order to avoid the Trust being too exposed to any one theme,
and a phased approach to buying or selling shares, in the

Largest Net Investment

Largest Net Sales

BAE Systems

Aviva

HBOS

Bradford & Bingley

Compass

HSBC

Royal Bank of Scotland

GlaxoSmithKline

Meggitt

£m

14.6

12.7

12.3

9.9

9.1

8.4

7.8

7.2

7.0

6.7

Lloyds TSB

Reuters

Tesco

Royal Dutch Shell

Gallaher

Premier Foods

National Express

Barclays

EMAP

Xansa

£m

16.1

12.8

11.1

10.7

10.3

9.9

8.4

7.3

7.2

recognition that we will not always be able to time investments
perfectly.

We can break down new additions to the portfolio into two
categories; ﬁrstly companies with limited exposure to the
economic environment and secondly those in more cyclical
industries like retailing or ﬁnance.

In the ﬁrst category we added several companies to the
portfolio offering solid growth prospects where valuations were
also attractive. We purchased BAE Systems, the UK’s largest
defence company with signiﬁcant operations in the USA and
Saudi Arabia. This company is delivering strong growth and we

were able to buy the shares when they were depressed by
concerns over historic corruption allegations. We also purchased
Meggitt, a diversiﬁed defence and aerospace group when it
made an acquisition cementing a leading position in aircraft
wheels and brakes. The defence activities of both companies
are relatively protected from the economic cycle and we are
optimistic for the outlook for civil aerospace.

We added Compass, the contract catering company which is
being turned around under new management with potential to
become more efﬁcient and increase proﬁt margins. We also
bought Sage, a leading small business software company which
generates the majority of its proﬁts from repeat service and

The Merchants Trust PLC

Investment Managers’ Review

support revenues from their broad customer base. Sage raised
their dividend payout ratio reﬂecting their strong cash
generation, taking the yield to a more attractive level.

Another new addition to the portfolio with low economic
sensitivity was dairy company Dairy Crest. The low valuation
does not adequately reﬂect the gradual transformation of the
business from commodity into branded products which include
the UK’s leading cheese brand Cathedral City.

In the second category, there were also opportunities in the year
to buy more cyclical businesses where valuations fell to levels
that looked attractive on a long term basis. Early in the year we
bought Pendragon, the UK’s leading car dealership which
should beneﬁt from rising proﬁt margins in the medium term as
it leads the consolidation of the industry. In the short term this
investment proved disappointing as trading deteriorated sharply
in a worsening consumer environment.

The other retailer we introduced was Halfords which has a
more resilient record than many of its peers due to its emphasis
on “must buy” products like car maintenance and child safety
equipment as well as the growing categories of bicycles and
electronic equipment such as satellite navigation systems. The
shares were depressed with the sector and looked too cheap.

Elsewhere, we bought Interserve, a company involved in Private
Finance Initiative investments in schools, prisons and hospitals,
and facilities management and construction services with a fast
growing Middle-Eastern business. Close Brothers, a diversiﬁed
ﬁnancial services company was also purchased. Close has a
high quality specialist lending business and strong niche
positions in securities, asset management and corporate ﬁnance.
The value of the business was recognised later in the period
when they were approached by potential acquirers and we sold
part of the holding at a higher price. Subsequent to the year
end the takeover interest subsided.

The banks sector was under pressure in the period. The industry
has witnessed problems including losses on US mortgages and
exotic credit instruments, a liquidity crunch and concerns over
rising bad debts amongst US and UK consumers. As an investor
it has been difﬁcult to evaluate the long term value of banking
franchises with such signiﬁcant short term headwinds, especially
given the banks’ highly leveraged balance sheets. However we
saw some signiﬁcant positive factors too. Valuations of banks
were pushed down to extremely low levels, arguably already
pricing in a UK recession, whilst unemployment - a key driver of
bad debts - remained very low. Competition lessened, pushing
up lending margins materially and the authorities responded
with unprecedented actions (especially in the key US market)
including injections of liquidity and interest rate cuts. A well
functioning banking system is so important to modern
economies that further concerted action is likely to take place, if

necessary, but the impact of such action is almost impossible
for an investor to model accurately.

In our judgement the long term value of many of the UK
banking franchises has not been damaged to the extent implied
by share price declines and we maintained a large exposure
through the year. However we have made several changes to
the portfolio particularly in the second half as credit conditions
tightened.

Relatively high valuations led us to reduce Alliance & Leicester
and Lloyds TSB. The latter’s low dividend cover was also a
concern. We also reduced Barclays which has a signiﬁcant
exposure to troubled ﬁxed income capital markets. Conversely
we switched into HBOS, Bradford & Bingley and Royal Bank
of Scotland as we thought valuations had fallen too far. We also
added to HSBC where the strength of their balance sheet and
their attractive emerging markets operations should compensate
for problematic US operations. We did not hold Northern Rock.

Elsewhere we added to several existing holdings, particularly
larger companies that offer solid prospects and attractive yields
such as GlaxoSmithKline, BT, Reed Elsevier and Aviva
(including a partial switch from Legal & General).

Turning to disposals: several of the companies in the Trust
received bid approaches, mostly from foreign companies.
Gallaher, Xansa, RHM and Scottish Power were taken over
whilst we sold Reuters and most of the Resolution holding
after they received bids. Paper and packaging company Mondi,
demerged from Anglo American, was also sold.

As reported in the interim statement, we sold Tesco, EMAP,
Drax, Premier Foods, Rentokil Initial and National Express. In
the second half of the year we also sold Pearson, the education
and publishing company on concerns that US state education
budgets could come under pressure in the medium term from
slowing tax revenues. The position in DIY company Kingﬁsher
was reduced (and subsequently exited) on fears over trading.
The only other signiﬁcant activity was to take some proﬁts on
the oil companies Royal Dutch Shell and BP after they rose on
the back of higher oil prices.

Future Policy
The economic outlook is more uncertain than for many years.
The problems in the banking sector have restricted liquidity and
credit conditions have tightened materially. Consumers and
companies face lower availability and higher costs of ﬁnance
which could have progressively more serious effects unless
conditions ease. The US is seeing a major housing downturn
and seems to be entering a recession, although many industrial
sectors outside of construction are still robust and exports are
strong. The outlook for the UK is not clear. Housing transactions
and consumer sectors are likely to remain subdued, as credit is
withdrawn and discretionary expenditure remains under

The Merchants Trust PLC

Investment Managers’ Review

pressure. However unemployment is very low and the corporate
sector is generally in strong health. Interest rate reductions in
the USA and the UK will start to have an impact as the year
progresses but will be partly offset by higher bank lending
spreads. Elsewhere emerging markets are likely to continue to
grow strongly, if not at the same rate as last year, but Europe
and Japan may see tougher conditions.

Outside the ﬁnancial and certain consumer sectors most UK
companies have been reporting strong results, whilst dividend
growth has generally been strong across the board. Looking
forward though, the economic and credit picture provides
reason to be more cautious. Developed world stock markets
have not had to deal with a credit induced slowdown for many
years. High volatility in markets reﬂects increased risks with
investors unsure how to react to developments. There is a wide
divergence in market prices between companies with high
perceived risks, such as high debt levels or cyclical exposure,
and companies seen to have more stable growth prospects.
Aggregate market valuations are attractive but they give a slightly
misleading picture given this divergence.

In this environment, we are maintaining the principles of
portfolio diversiﬁcation and we retain our focus on fundamental
research. The portfolio has a large exposure to the very biggest
companies, many of which have strong balance sheets and
modest valuations. We have also invested in a number of
companies with strong market positions offering longer term
growth at sensible prices. However we will look to take
advantage of market volatility on a selective basis. In particular
we are looking for soundly ﬁnanced companies that are
signiﬁcantly undervalued on a long term basis but out of favour
for short term reasons.

FTSE 100 PRICE INDEX
From 31 January 2003 to 11 April 2008

31 Jan
2003

31 Jan
2004

31 Jan
2005

31 Jan
2006

31 Jan
2007

31 Jan
2008

Souce: RCM/Datastream

7000

6500

6000

5500

5000

4500

4000

3500

3000

The Merchants Trust PLC

Listed Holdings

at 31 January 2008

Name

Value (£)

Principal Activities

GlaxoSmithKline

49,531,140

Pharmaceuticals & Biotechnology

Vodafone

48,718,061

Mobile Telecommunications

47,496,252

Oil & Gas Producers

Royal Dutch Shell ‘B’ Shares

46,075,900

Oil & Gas Producers

HSBC

HBOS

43,211,250

Banking

24,008,865

Banking

Royal Bank of Scotland

20,322,400

Banking

Aviva

19,780,800

Life Insurance

Anglo American

18,518,500

Mining

Scottish & Southern Energy

18,106,800

Electricity

Rio Tinto

BAE Systems

Reed Elsevier

17,590,250

Mining

16,407,650

Fixed Line Telecommunications

16,042,212

Aerospace & Defence

15,842,869

Media

British American Tobacco

14,339,262

Tobacco

Bradford & Bingley

13,151,775

Banking

Rexam

Barclays

Centrica

National Grid

Lonmin

Compass

Severn Trent

Diageo

GKN

Meggitt

Smiths

Britvic

Halfords

Close Bros

British Insurance

Marshalls

Friends Provident

Lloyds TSB

Sage

Legal & General

Persimmon

12,395,683

General Industrials

12,166,525

Banking

11,635,650

Gas, Water & Multiutilities

10,332,900

Gas, Water & Multiutilities

10,263,050

Mining

8,848,000

Travel & Leisure

7,204,791

Gas, Water & Multiutilities

7,185,200

Beverages

7,021,875

Automobiles & Parts

6,560,747

Aerospace & Defence

6,217,747

General Industrials

5,887,575

Beverages

5,868,546

General Retailers

5,610,000

General Financial

5,511,219

Non - Life Insurance

5,223,750

Construction & Materials

5,149,480

Life Insurance

4,962,788

Banking

4,867,525

Software & Computer Services

4,742,390

Life Insurance

4,548,900

Household Goods

The Merchants Trust PLC

Listed Holdings

at 31 January 2008

Name

Dairy Crest

FKI

Segro

Resolution

Interserve

Kingﬁsher

Value (£)

Principal Activities

4,031,250

Food Producers

3,899,477

Industrial Engineering

3,489,615

Real Estate

3,328,718

Life Insurance

3,125,625

Support Services

2,735,400

General Retailers

Alliance & Leicester

2,448,750

Banking

International Personal Finance

2,350,000

General Financial

Pendragon

General Retailers

1,666,380
111111

608,423,542
111111

The Merchants Trust PLC

Distribution of Total Assets

at 31 January 2008

Total Assets (less creditors falling due within one year) £619,601,004 (2007 – £702,382,755)

Percentage of Total Assets

2008

2007

Equities
Oil & Gas
Oil & Gas Producers

Basic Materials
Mining

Industrials
Aerospace & Defence
Construction & Materials
General Industrials
Industrial Engineering
Support Services

Consumer Goods
Automobiles & Parts
Beverages
Food Producers
Household Goods
Tobacco

Healthcare
Pharmaceuticals & Biotechnology

Consumer Services
Food & Drug Retailers
General Retailers
Media
Travel & Leisure

Oil & Gas

2008

15.1%

2007

14.7%

Basic Materials

2008

7.5%

2007

5.6%

Industrials

2008

8.6%

2007

6.9%

Consumer Goods

2008

6.9%

2007

7.8%

Healthcare

2008

8.0%

2007

7.1%

Consumer Services

2008

5.7%

2007

8.9%

14.7
111

5.6
111

1.6
2.1
1.5
1.2
0.5
111

6.9
111

1.1
2.3
1.6
–
2.8
111

7.8
111

7.1
111

1.5
1.3
5.0
1.1
111

8.9
111

15.1
111

7.5
111

3.7
0.8
3.0
0.6
0.5
111

8.6
111

1.1
2.1
0.7
0.7
2.3
111

6.9
111

8.0
111

–
1.7
2.6
1.4
111

5.7
111

The Merchants Trust PLC

Distribution of Total Assets

at 31 January 2008

Percentage of Total Assets

2008

2007

2.6
7.9
111

10.5
111

2.9
4.7
111

7.6
111

19.4
1.3
5.3
0.9
0.6
111

27.5
111

0.8
111

98.2
1.8
111

100.0
111

Telecommunications

2008

10.5%

2007

7.4%

Utilities

2008

7.6%

2007

8.0%

Financials

2008

2007

27.5%

32.0%

Information Technology

2008

0.8%

2007

0.7%

1.7
5.7
111

7.4
111

4.6
3.4
111

8.0
111

23.5
0.8
5.5
1.1
1.1
111

32.0
111

0.7
111

99.1
0.9
111

100.0
111

Telecommunications
Fixed Line Telecommunications
Mobile Telecommunications

Utilities
Electricity
Gas, Water & Multiutilities

Financials
Banks
General Financial
Life Insurance
Non-Life Insurance
Real Estate

Information Technology
Software & Computer Services

Total Equities
Net Current Assets

Total Assets

The Merchants Trust PLC

Performance Graphs

10 year record as at 31 January

The Merchants Trust Total Return compared to key UK equity indices

280
260
240
220
200
180
160
140
120
100
80
60

The Merchants Trust share price total return
The Merchants Trust NAV total return
FTSE 100 total return
FTSE 350 Higher Yield total return

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: Mellon

The Merchants Trust Net Dividend Growth compared to inflation
170

160

150

140

130

120

110

100

1998
Source: Mellon

Net Dividend
UK Retail Price Index

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

The Merchants Trust PLC
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14

Discount to Net Asset Value

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: Datastream

The Merchants Trust PLC

Directors

The current Directors’ details are set out below. All Directors are

Mr Michael McKeon and Mr Henry Staunton will be appointed

non-executive and independent of the Manager.

to the Board with effect from 1 May 2008. Both will be standing

Mr H. A. Stevenson (Chairman)

(Born September 1942) joined the Board in September 1999.

for election at the forthcoming Annual General Meeting. Their

biographical details are set out below:

Formerly Chairman of Mercury Asset Management Group plc, he

Mr M. J. E. McKeon

is Chairman of Equitas Limited, Chairman of Standard Life

(Born October 1956) He is Group Finance Director of Severn

Investments, the Senior Independent Director of Standard Life plc,

Trent plc and prior to that, from 2000 until 2005, he was Group

a Non-Executive Director of the Financial Services Authority and a

Finance Director of Novar plc. He held various senior roles at

member of the Investment Committee of the Wellcome Trust.

Rolls-Royce plc from 1997 to 2000. He has extensive

Mr R. A. Barﬁeld

experience in a number of overseas positions, having worked at

CarnaudMetalbox, Elf Atochem and PricewaterhouseCoopers. He

(Born April 1947) joined the Board in May 1999. Formerly Chief

is a Chartered Accountant.

Mr H. E. Staunton

(Born May 1948) He is a non-executive director of Ladbrokes

plc, Legal & General plc and Standard Bank Plc. He was

previously Finance Director at ITV plc and Granada Group plc.

He was also a non-executive director of Emap plc, BSkyB,

Independent Television News Limited, Vector Hospitality plc and

Ashtead Group plc, of which he was also Chairman between

2001 and 2004. He is a Chartered Accountant.

Investment Manager of Standard Life Assurance Company, he is

a Director of The Baillie Gifford Japan Trust PLC, JPMorgan

Fleming Overseas Investment Trust PLC, The Edinburgh

Investment Trust PLC, Standard Life Investments Property

Income Trust Limited and other companies. He is a member of

The Professional Oversight Board.

Sir Bob Reid

(Born May 1934) joined the Board in January 1995. He was

formerly Deputy Governor of the Bank of Scotland, Chairman of

Shell (UK), British Rail, London Electricity plc and Sears PLC. He

is Chairman of ICE Futures (Europe) and Senior Non-Executive

Director of CHC Helicopter Corporation. Sir Bob will be retiring

from the Board at the conclusion of the forthcoming Annual

General Meeting.

Sir James Sassoon (Chairman of the Audit Committee)

(Born September 1955) joined the Board in July 2006. He is

The Chancellor’s Representative for Promotion of the City at

HM Treasury, President of the Financial Action Task Force and a

Director of Nuclear Liabilities Fund Limited. From 2002 to 2006

he was Managing Director of HM Treasury’s Finance and

Industry Directorate and a Member of the Treasury Board. Prior

to that he had worked at UBS Warburg since 1987 where he

held a number of positions, latterly Vice Chairman, Investment

Banking. He is a Chartered Accountant.

Mr P. J. Scott Plummer (Senior Independent Director)

(Born August 1943) joined the Board in May 1997. He is a

Director of Buccleuch Estates Limited. He was until November

2005 Chairman of Martin Currie Limited, and was formerly a

Director of Martin Currie Portfolio Investment Trust PLC and

Candover Investments PLC. He is a Chartered Accountant.

The Merchants Trust PLC

Directors’ Report

The Directors present the annual ﬁnancial report of the

The Company pays quarterly dividends and the Board has a

Company and give their report for the year ended 31 January

policy of making these progressive from year to year, in keeping

2008.

Business Review

Business and Status of the Company
The Company is an investment company as deﬁned in Section

266 of the Companies Act 1985.

The Company carries on business as an investment trust and

was approved by HM Revenue & Customs as an investment

trust in accordance with Section 842 of the Income and

Corporation Taxes Act 1988 for the year ended 31 January

2007. In the opinion of the Directors, the Company has

subsequently conducted its affairs so that it should continue to

qualify. The Company will continue to seek approval under

Section 842 of the Income and Corporation Taxes Act 1988

each year. The Company is not a close company for taxation

purposes.

Regulatory Environment
The Company is listed on the London Stock Exchange and is

subject to UK company law, ﬁnancial reporting standards, listing

rules , tax law and its own Articles of Association. In addition to

annual and half yearly ﬁnancial reports published under these

rules, the Company announces net asset values per share on a

daily basis for the information of investors. It provides more

detailed information on a monthly basis to the Association of

Investment Companies, of which the Company is a member, in

order for brokers and investors to compare its performance with

its peer group. The Board of Directors is charged with ensuring

that the Company complies with its own objectives as well as

these rules. The Board has appointed RCM (UK) Limited to

carry out investment management, accounting, secretarial and

administration services on behalf of the Company. The

Company has no employees or premises of its own.

Investment Objective and Policies
The Company’s objective is to provide an above average level of

income and income growth together with long term growth of

capital through a policy of investing mainly in higher yielding UK

FTSE 100 companies. The Company’s investment performance

is assessed by comparison with other investment trusts within

the UK Growth and Income sector. In addition, it is

benchmarked against the FTSE 100 Index, reﬂecting the

emphasis within the portfolio, as well as the FTSE 350 Higher

Yield Index, reﬂecting the Company’s higher yield objective.

with the Company’s stated objective to provide an above

average level of income and income growth. The dividend has

increased every year for the past twenty ﬁve years and details of

historic dividend payments are set out on page 4.

Performance
In the year to 31 January 2008 the NAV per Share fell by

13.3%. This compares with the capital return on the Company’s

benchmark indices of -5.2% (FTSE 100) and -12.1% (FTSE 350

Higher Yield). At 31 January 2008 the value of the Company’s

investment portfolio was £608.5m. The Investment Managers’

review on pages 5 to 8 includes a review of developments

during the year as well as information on investment activity

within the Company’s portfolio.

Key Performance Indicators (“KPIs”)
The Board uses certain ﬁnancial KPIs to monitor and assess the

performance of the Company. The principal KPIs are:

Performance against the benchmark indices

The Company’s performance is benchmarked against the

FTSE 100 Index and the FTSE 350 Higher Yield Index. These are

the most important KPIs by which performance is judged.

Performance against the Company’s peers

The Board also monitors the Company’s performance with

reference to its investment trust peer group.

Performance Attribution

The performance attribution is considered at each Board Meeting

and enables the Directors to judge how the Company achieved

its performance relative to the benchmark index and to see the

impact on the Company’s relative performance of factors

including stock and sector allocation. A Performance Attribution

Analysis for the year ended 31 January 2008 is given on page 4.

Discount to net asset value (“NAV”)

The Board has a share buy back programme which has a role to

play in enhancing the NAV for existing shareholders, as shares

are bought back at a discount, and in minimising the volatility of

movements in the discount. In the year to 31 January 2008 the

shares traded between a discount of -5% and a discount of

-14% with debt at fair value.

The Merchants Trust PLC

Directors’ Report

Total expense ratio (“TER”)

The most signiﬁcant expense for the Company is the cost of the

management fee and the costs of interest on the Company’s

borrowings. Other expenses include the costs of investment

transactions, directors’ fees and insurance, professional advice and

regulatory fees and the costs of production of the reports to

shareholders. The TER is calculated by dividing operating

expenses by total assets less current liabilities, that is, the

Company’s management fee and all other operating expenses

(including tax relief, where allowable, but excluding interest

payments) as a percentage of assets at the year end. The TER for

the year ended 31 January 2008 was 0.51% (2007 0.46%).

Revenue
The return attributable to Ordinary Shareholders for the year
amounted to £23,649,820 (2007 – £22,854,005).

Principal Risks and Uncertainties
With the assistance of the Managers the Board has drawn up a

risk matrix which identiﬁes the key risks to the Company. These

key risks fall broadly under the following categories:

Investment Activity and Strategy

An inappropriate investment strategy, e.g., asset allocation or the

level of gearing, may lead to under-performance against the

Company’s benchmark index and peer group companies, and

also in the Company’s shares trading on a wider discount. The

Board manages these risks by diversiﬁcation of investments

through its investment restrictions and guidelines which are

monitored and on which the Board receives reports. RCM (UK)

Limited (“RCM”) provides the Directors with management

information including performance data and reports and

shareholder analyses. The Board monitors the implementation

and results of the investment process with the investment

Earnings per ordinary dividend amounted to 22.86p. The ﬁrst

managers, who attend all board meetings, and reviews data

and second interim dividends of 5.4p and 5.4p respectively

which show risk factors and how they affect the portfolio. The

have been paid during the year. Since the year end the third

Board reviews investment strategy at each board meeting.

interim dividend of 5.4p has been paid. The ﬁnal proposed

dividend of 5.4p is payable on 14 May 2008. In accordance

Portfolio and Market

with FRS 21 ‘Events after the Balance Sheet Date’, the third and

Market risk arises from uncertainty about the future prices of the

ﬁnal dividends are not recognised as liabilities within the

Company’s investments. This is commented on in Note 20 on

ﬁnancial statements.

pages 46 to 50. The Board monitors the implementation and

results of the investment process with the investment managers.

Historical Record
The distribution of total assets is shown on pages 11 and 12,

Accounting, Legal and Regulatory

and the historical record of the Company’s revenue, capital and

In order to qualify as an investment trust the Company must

invested funds over the past ten years is shown on page 4.

comply with Section 842 of the Income and Corporation Taxes

Graphs appear on page 13 showing the performance on a total

Act 1988 (“Section 842”), and details are given above under

return basis over the past ten years of the Net Asset Value of

the heading ‘Business of the Company’. A breach of Section

the Company’s Ordinary Shares against the Company’s

842 could result in the Company losing investment trust status

benchmark indices, the growth in net ordinary distributions

and, as a consequence, gains in the Company’s portfolio would

made by the Company against the Retail Price Index, and the

be subject to Corporation Tax. The Section 842 criteria are

Company’s discount to Net Asset Value over the same period.

monitored by RCM and results are reported to the Board at

Invested Funds
Sales of investments during the year resulted in net gains based

on historical costs of £34,315,606 (2007 – £53,443,663).

Provisions contained in the Finance Act 1980 exempt approved

Investment Trusts from corporation tax on their chargeable gains.

Invested funds at 31 January 2008 had a value of

£608,450,967 (2007 – £695,769,971) before deducting net

liabilities of £102,263,754 (2007 – £106,935,296).

each Board Meeting. The Company must comply with the

provisions of the Companies Act 1985, and the Companies Act

2006 as it becomes enacted (“Companies Acts”), and, as the

Company’s shares are listed on the London Stock Exchange, the

Company must comply with the UK Listing Authority’s Listing

Rules and Disclosure Rules (“UKLA Rules”). A breach of the

Companies Acts could result in the Company and/or the

Directors being ﬁned or becoming the subject of criminal

proceedings. Breach of the UKLA Rules could result in the

suspension of the Company’s shares which would in turn lead

to a breach of Section 842. The Board relies on its company

The Merchants Trust PLC

Directors’ Report

secretary and its professional advisers to ensure compliance

business will take place and it is our policy to abide by these

with the Companies Acts and UKLA Rules.

terms. The Company had no trade creditors at the year end

(2007 – £nil).

Corporate Governance and Shareholder Relations

Details of the Company’s compliance with Corporate

Governance best practice, including information on relations

Donations and Subscriptions
There were no charitable donations and subscriptions in respect

with shareholders, are set out in the Corporate Governance

of the year (2007 – £nil). No political donations were made

Statement on page 24 to 27.

during the year.

Operational

Disruption to, or failure of, RCM’s accounting, dealing or payment

Final Dividend
Subject to the ﬁnal dividend being approved by shareholders at

systems or the custodian’s records may prevent accurate

the Annual General Meeting, payment will be made on 14 May

reporting and monitoring of the Company’s ﬁnancial position.

2008 to shareholders on the Register of Members at the close

RCM has contracted operational functions, principally relating to

of business on 11 April 2008 at the rate of 5.4p per Ordinary

trade processing and investment administration, to The Bank of

Share. Further details are provided in Note 6 on page 39.

New York Mellon – London Branch. Details of how the Board

monitors the services provided by RCM and other suppliers and

the key elements designed to provide effective internal control

are included within the Internal Control section of the Corporate

Governance Statement on pages 26 and 27.

Financial

The Directors have reviewed the Manager’s statements on the

risks associated with the Company and concur with their opinion

on these risks. Further analysis of these risks can be found in

Note 20 on pages 46 to 50.

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

investment manager discusses his view of the outlook for the

Company’s portfolio in his report beginning on page 5.

Net Asset Value
The Net Asset Value of the Ordinary Shares of 25p at the year end

was 492.3p as compared with a value of 567.5p at 31 January

2007.

Share Capital
Details of the Company’s share capital are set out in Note 11

on page 43.

Payment Policy
It is the Company’s payment policy for the forthcoming ﬁnancial

year to obtain the best terms for all business and therefore

there is no consistent policy as to the terms used. In general,

the Company agrees with its suppliers the terms on which

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 on page 43.

Voting Rights in the Company’s Shares
The voting rights at 31 December 2007 were:

Share class

Number

Voting

of shares

rights per

issued

Total

voting

rights

Ordinary shares 102,813,464

1 102,813,464

of 25p

3.65% Cumulative 1,178,000

1,178,000

Preference shares

of £1

Total

103,991,464

These ﬁgures remained unchanged at the date of this report.

Substantial Shareholdings
As at 11 April 2008 the following had declared a notiﬁable

interest in the Company’s issued share capital:

Ordinary Shares:

Name

Rensburg Sheppards

Investment Management

Group Limited

Legal & General

Group PLC

Number

Percentage of

of Shares

Voting Rights

4,524,860

3,427,541

4.4%

3.3%

The Merchants Trust PLC

Directors’ Report

3.65% Cumulative Preference Stock:

Biographical details of the current Directors and of Michael

Number

Percentage of

McKeon and Henry Staunton are on page 14.

Name

of Shares

Voting Rights

P. S. & J. M. Allen

Prudential plc

Ecclesiastical Insurance

Ofﬁce plc

F&C Asset Management plc

D. J. Edwards

J. Y. Miller

185,582

176,000

134,690

60,000

50,000

36,000

15.8%

14.9%

11.4%

5.1%

4.2%

3.0%

The rules concerning the appointment and replacement of

directors, amendment of the Articles of Association and powers

to issue or buy back the Company’s shares are contained in the

Articles of Association of the Company and the Companies Acts

1985 and 2006.

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

The current Directors and their beneﬁcial interests in the share

capital of the Company as at 31 January 2008 and 2007 or at

the date of appointment to the Board are listed below:

R. A. Barﬁeld

Sir Bob Reid

Sir James Sassoon

P. J. Scott Plummer

H. A. Stevenson

Ordinary Shares of 25p

2008

2,418

5,000

35,600

16,000

25,000

2007

2,343

5,000

35,600

1,000

25,000

Since the year end, Mr R. A. Barﬁeld has acquired a further

22 Ordinary Shares due to reinvestment of income in a share

plan.

No contracts of signiﬁcance in which Directors are deemed to

have been interested have subsisted during the year under

review.

which the Company is party to that might affect its control

Contracts of service are not entered into with the Directors, who

following a takeover bid; and no agreements between the

hold ofﬁce in accordance with the Articles of Association.

Company and its directors concerning compensation for loss of

ofﬁce.

Directors and Management
All Directors listed below served throughout the ﬁnancial year

under review.

The Directors retiring by rotation at the Annual General Meeting

are Sir Bob Reid, Joe Scott Plummer and Dick Barﬁeld. Joe Scott

Plummer and Dick Barﬁeld each offers himself for re-election

and both have the full support of the Board in doing so. Sir Bob

Reid is retiring from the Board and does not offer himself for

re-election. The Board conﬁrms that, since the year end, the

performances of Joe Scott Plummer and Dick Barﬁeld have

Management Contract and Management Fee
The management contract with RCM (UK) Limited (‘RCM’)

provides for a fee of 0.35% per annum (2007 – 0.35%) of the

value of the assets, calculated quarterly, after deduction of

current liabilities, short term loans under one year and any

funds within the portfolio managed by RCM. The management

contract is terminable at one year’s notice (2007 – one year).

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

been subject to a formal evaluation and that each continues to

the year, the committee met the Manager to review the current

be effective in, and to demonstrate commitment to, his role.

investment framework, including the Trust’s performance,

The Board considers Joe Scott Plummer and Dick Barﬁeld to be

marketing activity and total expense ratio.

independent, notwithstanding their length of service, and

continues to be of the view that their extensive experience and

The committee also reviewed the terms of the management

active knowledge of industry and ﬁnancial services are of great

contract and considered the level of the management fee,

beneﬁt to the Board.

Michael McKeon and Henry Staunton will be appointed to the

Board with effect from 1 May 2008. In accordance with the

Articles, both will retire and each will offer himself for election at

the Annual General Meeting.

which it found to be appropriate. The committee was satisﬁed

with its review and believes that the continuing appointment of

the Managers is in the best interests of shareholders as a whole.

The Merchants Trust PLC

Directors’ Report

Individual Savings Accounts/PEPs
The affairs of the Company are conducted in such a way as to

meet the requirements for an Individual Savings Account and it

Visitors to the website need to be aware that legislation in the

United Kingdom governing the preparation and dissemination of

the ﬁnancial statements may differ from legislation in other

is the intention to continue to do so.

jurisdictions.

Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Financial

Statement under DTR 4.1.12
The Directors at the date of the approval of this Report, each

Report, Directors’ Remuneration Report and the ﬁnancial

conﬁrm to the best of their knowledge that:

statements in accordance with applicable law and United

Kingdom Generally Accepted Accounting Practice. Company law

•

the ﬁnancial statements, prepared in accordance with

requires the Directors to prepare ﬁnancial statements for each

applicable accounting standards, give a true and fair view

ﬁnancial year which give a true and fair view of the state of

of the assets, liabilities, ﬁnancial position and proﬁt or loss

affairs of the company and of the proﬁt or loss of the Company

of the Company; and

for that period. In preparing these ﬁnancial statements, the

Directors are required to:

•

select suitable accounting policies and then apply them

consistently;

make judgements and estimates that are reasonable and

prudent;

state whether applicable accounting standards have been

followed, subject to any material departures disclosed and

explained in the ﬁnancial statements;

prepare the ﬁnancial statements on the going concern

basis unless it is inappropriate to presume that the

Company will continue in business.

The Directors are responsible for keeping proper accounting

records that disclose with reasonable accuracy at any time the

ﬁnancial position of the Company and enable them to ensure

that the Annual Financial Report, Directors’ Remuneration Report

and the ﬁnancial statements comply with the Companies Act

1985. 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 ﬁnancial statements are published on

www.allianzglobalinvestors.co.uk, which is a website maintained

by the Company’s Investment Managers, RCM (UK) Limited.

The Directors are responsible for the maintenance and integrity

of the corporate and ﬁnancial information included on the

Company’s website. The work undertaken by the Auditors does

not involve consideration of the maintenance and integrity of

the website and, accordingly, the Auditors accept no

responsibility for any changes that have occurred to the ﬁnancial

statements since they were initially presented on the website.

•

this Annual Financial 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.

The Merchants Trust PLC

Directors’ Report

Annual General Meeting

Summary of Revised Articles of Association
to take effect from the date of the Annual
General Meeting, conditional on the passing
of Resolution 10
A copy of the proposed new Articles of Association is available

from the Company Secretary on request (contact details are on

page 55).

1 Articles which duplicate statutory provisions

Provisions in the current Articles which have the same effect as

provisions contained in the Companies Act 2006 are to be

amended in the new Articles to bring them into line with the

Companies Act 2006. Some examples include provisions

concerning the form of resolutions, the variation of class rights,

the requirement to keep accounting records and provisions

regarding the period of notice required to convene general

meetings. The main changes made to reﬂect this approach are

detailed below.

2 Form of resolution

The current Articles contain a provision that, where for any

purpose an ordinary resolution is required, a special or

extraordinary resolution is also effective and that, where an

extraordinary resolution is required, a special resolution is also

effective. This provision is being amended as the concept of

extraordinary resolutions has not been retained under the

Companies Act 2006.

3 Transfer of shares

Under the Companies Act 2006, a company must either register

a transfer or give the transferee notice of, and reasons for, its

refusal to register the transfer. Any registration of a transfer or

notice of refusal must be made or given as soon as practicable

and in any event within two months from the date that the

transfer is lodged with the company. The proposed new Articles

reﬂect these requirements.

4 Disclosure of interests

The provisions relating to the disclosure of interests in shares

contained in the Companies Act 1985 (“the 1985 Act”),

including Section 212 on company investigation powers, were

repealed in January 2007. Section 793 and related sections in

Part 22 of the 2006 Act, which contain the corresponding

company investigation powers previously contained in Section

212, were brought into force simultaneously. The proposed new

Articles reﬂect the replacement of Section 212 of the 1985 Act

with Section 793 of the 2006 Act.

5 Convening extraordinary and annual general meetings

The provisions in the current Articles dealing with the convening

of general meetings and the length of notice required to

convene general meetings are being amended to conform to

new provisions in the Companies Act 2006. In particular an

extraordinary general meeting to consider a special resolution

can be convened on 14 days’ notice whereas previously

21 days’ notice was required.

The proposed new Articles also deal with situations where,

because of a postal strike or similar situation beyond the control

of the Company, a notice of meeting is not received by a

shareholder. The amendment will ensure that such failure does

not invalidate proceedings at the meeting in question.

6 Quorum

The proposed new Articles have been amended to make it clear

that two persons who are proxies for the same member or

representatives of the same body corporate can constitute a

quorum.

7 Attending and speaking at meetings

The proposed new Articles now provide that the chairman of

the meeting may permit non-members or persons who are not

entitled to exercise the rights of members to attend and, at the

chairman’s discretion, speak at a general meeting.

8 Polls

The proposed new Articles have been amended to clarify that a

poll may be demanded before a show of hands, as well as

immediately after the result of a show of hands, and to give the

directors the right to demand a poll as well as the Chairman of

the meeting.

9 Votes of members

Under the Companies Act 2006 proxies are entitled to vote on

a show of hands as well as a poll, and members may appoint a

proxy to exercise all or any of their rights to attend, speak and

vote at meetings. Multiple proxies may be appointed provided

that each proxy is appointed to exercise the rights attached to a

different share or shares held by the shareholder and multiple

corporate representatives may be appointed. The proposed new

Articles reﬂect all of these new provisions and also take account

of the ICSA’s concerns in relation to Section 323 of the

Companies Act 2006.

The Merchants Trust PLC

Directors’ Report

10 Receipt of appointments of proxy and termination of proxy

document or information has been placed on the website.

authority

A member who has consented or is deemed to have consented

The proposed new Articles provide that proxies for a poll to be

to receive communications via the website can request a hard

taken after the date of a meeting or adjourned meeting must be

copy of any document at any time. Members can also revoke

received not less than 24 hours, or such shorter time as the

their consent to receive electronic communications at any time.

directors may determine, before the time of the poll. The

deadlines for receipt of termination of proxy authority have been

brought into line with the deadlines for receipt of proxies. They

also permit the directors to specify, in a notice of meeting, that

in determining the time for delivery of proxies, no account shall

be taken of non-working days.

11 Notices and other communications

The Companies Act 2006 enables companies to communicate

with their members by electronic communication to a greater

extent than previously permitted. The proposed new articles will

provide the Company with a general power to send or supply

any notice, document or information to any member by a

variety of methods – in person, by post or in electronic form

(such as by email), or by making it available on the Company’s

website. In addition to any notice, document or information

which is speciﬁcally required to be sent or supplied under the

2006 Act, the Company will also be able to send any other

document or information to members using this variety of

methods.

The proposed new Articles allow proxies to be sent or supplied

in electronic form and, where the Company gives an electronic

address in a form of proxy, shareholders may send the

appointment of proxy to that electronic address, subject to any

conditions or limitations speciﬁed in the relevant notice of

meeting.

In relation to joint holders of shares, the amended Articles

provide that the agreement of the ﬁrst-named holder on the

information electronically or via a website shall be binding on

the other joint holders. The new Articles would also permit the

Company not to send or supply any notice, document or

information to a member whose registered address is not in the

United Kingdom unless that member gives a non-electronic

address in the United Kingdom.

There are new provisions that cater for situations where the

provision of corporate information in electronic form or via a

website may amount to a breach of securities laws of another

jurisdiction. The Company may send hard copies if it needs to

restrict the circulation of information in certain circumstances,

such as for US securities law reasons.

The proposed new Articles also deal with notices, documents or

information sent by the Company to a member which have

been returned undelivered on three consecutive occasions. The

member will only be entitled to be sent further communications

upon provision of a new postal or electronic address to the

Company.

Further proposed provisions are included to deal with the

validation of documents in electronic form by members where

required by the Articles. In the case of notices of meetings or

proxies, any validation requirements must be speciﬁed in the

There is no present intention to implement electronic

notice.

communication with shareholders but general powers are being

sought in accordance with changing market practice.

12 Directors’ indemnities and loans to fund expenditure

The proposed new Articles contain provisions which take

The Company may ask each member for his or her consent to

advantage of changes to the law relating to the Company’s

receive communications from the Company via its website. If

ability to give indemnities to the Directors and others. The

the member does not respond to the request for consent within

changes allow the Company to provide its Directors with funds

28 days, the Company may take that as consent by the

to cover the costs of defending legal proceedings brought

member to receive communications in this way. If the Company

against any director/directors or the directors collectively on an

sends or supplies any notice, document or information to

“as incurred” basis. Previously, a company could only fund a

members by making it available on the Company’s website, it

director’s defence costs once ﬁnal judgement in his/her favour

must notify each member who has consented (or is deemed to

had been reached. It is therefore proposed that the Company’s

have consented) to receive documents via the website, either

Articles be amended so that the Company may fund the

by post or by email (if the member has speciﬁcally agreed to

defence costs of current or former directors or other ofﬁcers if

receive communications in electronic form), that the notice,

an action were to be brought against them.

The Merchants Trust PLC

Directors’ Report

13 Conﬂict of Interest Duties

himself for the purposes of this article have been deleted. There

The Companies Act 2006 sets out directors’ general duties. The

is no requirement in the Companies Act 2006 to include such a

provisions largely codify the existing law, but with some changes.

provision and this Act contains a much wider deﬁnition of

Under the Companies Act 2006, from 1 October 2008 a

“connected person” of a director. The director and the Company

director must avoid a situation where he has, or can have, a

must still take a view each time a matter is being considered as

direct or indirect interest that conﬂicts, or possibly may conﬂict

to whether the interests of the director’s connected persons

with the Company’s interests. The requirement is very broad

mean that the director should be treated as interested for the

and could apply, in some cases, if a director becomes a director

purposes of this article.

of another company or a trustee of another organisation. The

Companies Act 2006 allows directors of public companies to

15 Removal of age limit for directors

authorise conﬂicts and potential conﬂicts where the articles of

The provision requiring a director’s age to be disclosed, in a

association contain a provision to this effect. The Companies Act

notice of meeting at which that director is to be appointed or

2006 also allows the articles to contain other provisions for

reappointed, if that director has attained the age of 70 years or

dealing with directors’ conﬂicts of interest to avoid a breach of

more, has been removed from the proposed new Articles to

duty. The Articles have been amended so that they conﬁrm that

reﬂect the repeal of the previous provisions regarding directors

such interests, ofﬁces or employment will not infringe the

over 70 from the Companies Act 1985.

conﬂicts duty as codiﬁed in the Companies Act 2006.

The proposed new Articles give the directors authority to

The proposed new Articles provides that instruments (other

approve conﬂict situations including other directorships held by

than share certiﬁcates) to which the seal is afﬁxed shall be

the company’s directors and include other provisions to allow

signed by two authorised persons or by a director in the

conﬂicts of interest to be dealt with in a similar way to the

current position.

presence of a witness, whereas previously the requirement

was for signature by either the director and secretary or two

16 The seal

There are safeguards which will apply when directors decide

whether to authorise a conﬂict or potential conﬂict. First, only

directors who have no interest in the matter being considered

will be able to take the relevant decision, and secondly, in taking

the decision the directors must act in a way they consider, in

good faith, will be most likely to promote the Company’s

success. The directors will be able to impose limits or conditions

when giving authorisation if they think this is appropriate. It is

also proposed that the amended Articles should contain

provisions relating to conﬁdential information, attendance at

board meetings and availability of board papers to protect a

director being in breach of duty if a conﬂict of interest or

potential conﬂict of interest arises. These provisions will only

apply where the position giving rise to the potential conﬂict has

previously been authorised by the directors.

It is the board’s intention to report annually on the Company’s

procedures for ensuring that the board’s powers of authorisation

of conﬂicts are operated effectively and that the procedures
have been followed.

14 Permitted interests and voting

The provisions which previously deemed certain interests of a

director’s connected persons to be the interests of the director

directors.

Purchase of Own Shares
The Board is proposing that the Company should be given

renewed authority to purchase Ordinary Shares in the market 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.

Where purchases are made at prices below the prevailing net

asset value of the Ordinary Shares, this will enhance net asset

value for the remaining shareholders. It is therefore intended

that purchases would only be made at prices below net asset

value, with the purchases to be funded from the realised capital

proﬁts of the Company (which are currently in excess of £400

million). The rules of the UK Listing Authority (‘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

The Merchants Trust PLC

Directors’ Report

per Ordinary Share (being the nominal value). Overall, this

The power to allot new Ordinary Shares for cash, other than pro

proposed share buy-back authority, if used, should help to

rata to existing shareholders, is limited to the aggregate nominal

reduce the discount to net asset value at which the Company’s

amount of £1,285,168 Ordinary Share capital, being

shares currently trade.

approximately ﬁve per cent of the issued Ordinary Share capital

of the Company as at the date of this report, provided that there

The Board considers that it will be most advantageous to

is no change in the issued share capital between the date of

shareholders for the Company to be able to continue to make

this report and the Annual General Meeting to be held on

such purchases as and when it considers the timing to be most

13 May 2008.

favourable and therefore does not propose to set a timetable

for making any such purchases.

The Directors do not currently intend to allot shares under these

authorities other than to take advantage of opportunities in the

The Company’s Articles of Association permit the Company to

market as they arise and only if they believe it would be

redeem or purchase its own shares out of capital proﬁts. Under

advantageous to the Company’s existing shareholders to do so.

the Listing Rules, the maximum number of shares which a listed

The Directors conﬁrm that no allotment of new shares will be

company may purchase through the market pursuant to a

made unless the lowest market offer price of the Ordinary

general authority such as this is equivalent to 14.99% of its

Shares is at least at a premium to net asset value, valuing debt

issued share capital. For this reason, the Company is limiting its

at market value.

Auditors

The Directors will place a resolution before the Annual General

Meeting to re-appoint PricewaterhouseCoopers LLP as Auditors

for the ensuing year. A resolution to authorise the Directors to

determine the Auditors’ remuneration will also be proposed at

the Annual General Meeting.

By Order of the Board

K. J. Salt

Secretary

14 April 2008

renewed authority to make such purchases to 15,411,738

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 Annual General

Meeting to be held on 13 May 2008.

The authority will last until the Annual General Meeting of the

Company to be held in 2009 or the expiry of 18 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 annual general meetings.

Allotment of New Shares and Disapplication of
Pre-emption Rights
Approval is sought for the renewal of the Directors’ authority to

allot relevant securities, in accordance with Section 80 of the

Companies Act 1985, up to a maximum aggregate nominal

amount of £8,567,788, representing approximately 33% of the

existing Ordinary Share capital. This authority would expire ﬁve

years from the date of renewal, if not previously revoked or

varied.

A resolution was passed at the Annual General Meeting held on

14 May 2007 to authorise the Directors to allot the unissued

Ordinary Share capital for cash. The authority is renewable

annually and expires at the conclusion of the Annual General

Meeting in 2008. A Special Resolution is therefore proposed

under special business at the forthcoming Annual General

Meeting to renew this authority for a further year.

The Merchants Trust PLC

Corporate Governance

The Board has considered the principles and recommendations

which external recruitment consultants were appointed to draw

of the AIC Code of Corporate Governance (“AIC Code”) by

up a shortlist of candidates.

reference to the AIC Corporate Governance Guide for

Investment Companies (“AIC Guide”). The AIC Code, as

explained by the AIC Guide, addresses all the principles set out

in Section 1 of the Combined Code which was issued by the

Financial Reporting Council in June 2006, as well as setting out

additional principles and recommendations on issues that are of

speciﬁc relevance to the Company. The Board considers that

reporting against the principles and recommendations of the AIC

Code, and by reference to the AIC Guide, will provide better

information to shareholders. The Company has complied with

the recommendations of the AIC Code and the relevant

provisions of Section 1 of the Combined Code, except in

relation to the Combined Code provisions relating to:

•

the role of the chief executive

executive directors’ remuneration

the need for an internal audit function

For the reasons set out in the AIC Guide, and in the preamble

to the Combined Code, the Board considers these provisions

are not relevant to the Company as it is an externally managed

investment company. The Company has therefore not reported

further in respect of these provisions.

The Board
The Board currently consists of ﬁve Directors, all of whom are

non-executive and independent of the Company’s investment

manager. It is intended that there will be six directors after the

Annual General Meeting. Their biographies, on page 14,

demonstrate a breadth of investment, industrial, commercial and

professional experience.

The Chairman of the Company is a non-executive Director and

Joe Scott Plummer was appointed as the Senior Independent

Director in March 2005.

The Board follows the AIC Code and considers Joe Scott

Plummer and Dick Barﬁeld, to be independent, notwithstanding

that each has served on the Board for more than nine years.

The Board does not consider that length of service has

diminished the independence of these directors and continues

to be of the view that their extensive experience and active

knowledge of the industry is of great beneﬁt to the Board.

The Board’s tenure policy is that new Directors stand for

election at the ﬁrst Annual General Meeting following their

appointment and then at least one third of Directors retire by

rotation at each Annual General Meeting. Every Director is

required to seek re-election at least every three years and

annually after nine years’ service. The names of the Directors

retiring by rotation and those other Directors retiring in

accordance with the Articles of Association at this year’s Annual

General Meeting are given on page 18.

The Board meets at least six times a year and convenes other

meetings as and when required. Between meetings, regular

contact with the investment managers is maintained. The Board

has a schedule of matters reserved for its approval to ensure it

has full and effective control over appropriate issues. These

issues include approval of the Company’s investment policy,

capital structure, share price and discount, committee

membership and terms of reference, ﬁnancial reporting, risk

management, board appointments and removals, corporate

governance, internal controls and contracts. A procedure has

been adopted for Directors, in the furtherance of their duties, to

take independent professional advice at the expense of the

Company. The Directors have access to the advice and services

of the Company Secretary, who is responsible to the Board for

ensuring that Board procedures are followed and that the

Company complies with applicable rules and regulations. When

a new Director is appointed there is an induction process

carried out by the investment manager. Directors are provided,

on a regular basis, with key information on the Company’s

regulatory and statutory requirements and internal ﬁnancial

controls. Changes affecting Directors’ responsibilities are advised

to the Board as they arise.

During the year, the effectiveness of the Board was assessed

through interviews conducted by the Chairman with each

Director. In addition, the performance of the Directors was

evaluated by each Director, followed by a discussion with the

Chairman. The Chairman’s own performance was evaluated by

the other Directors, who met under the chairmanship of Joe

Scott Plummer as Senior Independent Director. The results of

the effectiveness assessment and performance evaluation have

been presented to the Nomination Committee.

The composition of the Board is reviewed regularly. Two new

directors will be appointed with effect from 1 May 2008,

Michael McKeon and Henry Staunton. This follows an exercise in

The effectiveness assessment determined that with the planned

recruitment of new Directors the balance of the Board was

satisfactory.

The Merchants Trust PLC

Corporate Governance

The Board has contractually delegated to the investment

remuneration. It meets representatives of the Managers twice-

manager the management of the investment portfolio, and the

yearly and receives reports on the internal controls maintained

day to day accounting and company secretarial requirements.

on behalf of the Company and reviews the effectiveness of

This contract was entered into after full and proper consideration

these controls. The Audit Committee continues to believe that

by the Board of the quality and cost of services offered,

the Company does not require an internal audit function of its

including the ﬁnancial control systems in operation, in so far as

own as it delegates its day to day operations to third parties

they relate to the affairs of the Company. The Board receives

from whom it receives internal controls reports.

and considers reports regularly from the investment manager

and ad hoc reports and information are supplied to the Board

as required. The Board’s statement on its review of the

management contract appears on page 18.

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

Attendance by Directors at formal Board and committee

Committee has, however, received and noted the Manager’s

meetings during the year was as follows:

policy on this matter.

Director

Board Committee Committee Committee

makes recommendations on the appointment of new Directors

Audit Nomination Engagement

The Nomination Committee meets at least once each year and

Management

Nomination Committee

No. of meetings

H. A. Stevenson
Sir John Banham#
R. A. Barﬁeld

Sir Bob Reid

Sir James Sassoon

P. J. Scott Plummer

6
–

2*
–

–

*Invited to attend meetings, although not a committee member.

#Retired from the board in May 2007.

–

Board Committees
Audit Committee

The Audit Committee consists of all of the independent non-

executive Directors, with the exception of the Chairman, and has

deﬁned terms of reference and duties. The role of the Audit

Committee is to assist the Board in relation to the reporting of

ﬁnancial information. The Audit Committee is chaired by

Sir James Sassoon. The committee considers that, collectively, its

members have sufﬁcient recent and relevant ﬁnancial

experience to discharge their responsibilities fully. The

committee meets at least twice each year and reviews the

annual and half yearly ﬁnancial statements and considers the

Auditors’ report on the annual accounts, the planning and the

process of the audit and the Auditors’ independence and

objectivity. It has also considered the non-audit services
provided by the Auditors and determined that they have had no

impact on the Auditors’ independence and objectivity. The Audit

Committee reviews the Company’s accounting policies and

considers their appropriateness. The Committee also reviews

the terms of appointment of the Auditors together with their

and the re-election of existing Directors by shareholders. The

committee also determines the process for the annual

evaluation of the Board. The Committee is chaired by Hugh

Stevenson, the Chairman of the Board. All Directors serve on

the committee and consider nominations made in accordance

with an agreed procedure.

Management Engagement Committee

The Management Engagement Committee meets at least once

each year to review the Management Agreement and the

Manager’s performance. It has deﬁned terms of reference and

consists of the non-executive Directors and excludes any

Directors previously employed by the Managers. It is chaired by

Hugh Stevenson, the Chairman of the Board.

The Board has not constituted a Remuneration Committee; all

Directors are non-executive and remuneration matters are dealt

with by the whole Board.

The Terms of Reference for each of the committees may be

viewed by shareholders on request and are published on the

website www.merchantstrust.co.uk.

Financial Reporting
The Statement of Directors’ Responsibilities in respect of the

ﬁnancial statements is on page 19.

The Independent Auditors’ Report can be found on pages 29

and 30.

The Merchants Trust PLC

Corporate Governance

Auditors’ Information
Each of the persons who is a Director at the date of approval of

•

The Board, assisted by the Manager, undertook a full review

of the Company’s business risks and these are analysed and

this report conﬁrms that:

(a) in so far as the Director is aware, there is no relevant audit

information of which the Company’s auditors are unaware;

and

(b) the Director has taken all the steps he ought to have taken

as a Director in order to make himself aware of any relevant

audit information and to establish that the Company’s

auditors are aware of that information.

This conﬁrmation is given and should be interpreted in

accordance with the provisions of Section 234ZA of the

Companies Act 1985.

Going Concern
After making enquiries, the Directors have a reasonable

expectation that the Company has adequate resources to

continue in operational existence for the foreseeable future.

For this reason, they continue to adopt the going concern basis

in preparing the ﬁnancial statements.

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 a 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 is subject to review by the Board and

accords with the Internal Control Guidance for Directors in the

Combined Code published in September 1999 and revised in

October 2005 (“the Turnbull guidance”). The process has been

fully in place throughout the year under review and up to the

date of signing of this Annual Financial Report.

The key elements of the procedures that the Directors have

established and which are designed to provide effective internal

control are as follows:

recorded in a risk matrix. 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. The Board

continues to check that good systems of internal control and

risk management are embedded in the operations and

culture of the Company and its key suppliers.

•

The appointment of RCM (UK) Limited (‘RCM’) as the

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 Agreement between the

Company and the Manager. The Manager’s system of

internal control includes organisation arrangements with

clearly deﬁned lines of responsibility and delegated authority

as well as control procedures and systems which are

regularly evaluated by management and monitored by its

internal audit department. RCM is regulated by the Financial

Services Authority (‘FSA’) and its compliance department

regularly monitors compliance with FSA rules. The Company

receives reports at least annually from the manager on its

internal controls. The Company, in common with other

investment trusts, has no internal audit department, but the

effectiveness of the Manager’s internal controls is monitored

by Allianz Global Investors’ internal audit function.

•

There is a regular review by the Board of asset allocation

and any risk implications. There is also regular and

comprehensive review 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 Audit Committee assesses the Manager’s and

Custodian’s systems of controls and approves the

appointment of any sub-custodians. The Audit Committee

also receives reports from the Manager’s and Custodian’s

internal auditors, compliance department and independent

Auditors.

The Merchants Trust PLC

Corporate Governance

•

The Board reviews the Internal Control reports of the

“We believe that good corporate governance includes the

Managers and third party service providers, including those

management of the company’s impacts on society and the

of the Company’s Registrars, Capita Registrars, and

environment, as these are increasingly becoming a factor in

Custodian, HSBC Bank plc.

contributing towards maximising long term shareholder

value.”

The Directors conﬁrm that the Audit Committee has reviewed

the effectiveness of the system of internal control. 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.

Relations with Shareholders
The Board strongly believes that the annual general meeting

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.

The Board has noted the Manager’s statement of its corporate

should be an event which private shareholders are encouraged

governance aims and objectives, summarised as:

to attend. The annual general meeting is attended by the

Chairman of the Board and the Chairman of the Audit

Committee, 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 at the annual general

meeting.

The Manager meets with institutional shareholders on a regular

basis and report to the Board on matters raised at these

meetings.

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 at 155 Bishopsgate,

London EC2M 3AD.

The Notice of Meeting sets out the business of the meeting and

special resolutions are explained more fully in the Directors’

Report. Separate resolutions are proposed for each substantive

issue.

Corporate Social Responsibility and
Environmental Policy
The Investment Managers have been directed by the Board to

“Our primary corporate aim is to maximise shareholder value

through the securing of corporate performance whilst

protecting this value through operating within established

rules of conformance.

Our primary investment management aim is to meet or

exceed our clients’ expectations through generating ﬁrst class

returns within the constraint of their risk tolerance.

RCM votes in all markets wherever possible, and strives

actively to encourage both improved levels of disclosure

among companies and proper voting infrastructure among

custodians and agents globally.“

In the UK, RCM is a member of the National Association of

Pension Funds (NAPF) and the International Corporate

Governance Network (ICGN), and abides by these organisations’

founding principles. These guidelines also take into account

international codes of corporate governance from a number of

sources, including Employment Retirement Income Security Act

(ERISA) legislation and Department of Labor recommendations

in the U.S. where appropriate.

Where Directors hold directorships on the boards of companies

in which the Company is invested, they do not participate in

take account of companies’ corporate social responsibility and

decisions made concerning those investments.

environmental performance when taking investment decisions.

The Board has noted the Manager’s views on Social

An extract from the Trust’s voting record in the previous

calendar year will be available for inspection at the annual

Responsibility that it adheres to in engaging with the underlying

general meeting each year.

investee companies and in exercising its delegated

responsibilities in voting. These are that:

The Merchants Trust PLC

Directors’ Remuneration Report

This report is submitted in accordance with Schedule 7A of the

an additional £3,000, and £27,500 per annum for the Chairman

Companies Act 1985 for the year ended 31 January 2008.

of the Board.

The Board
The Board of Directors is composed solely of non-executive

Directors’ Emoluments (Audited)
The following disclosures on Directors’ remuneration have been

Directors and the determination of the Directors’ fees is a

audited as required by Part 3 of Schedule 7A of the Companies

matter dealt with by the whole Board. The Board has not been

Act 1985.

provided with advice or services by any person to assist it to

make its remuneration decisions, although the Directors carry

The Directors’ Emoluments during the year and in the previous

out reviews from time to time of the fees paid to the directors

year are as follows:

of other investment trusts.

Policy on Directors’ Remuneration
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 quarterly 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.

H. A. Stevenson

Sir John Banham

R. A. Barﬁeld

Sir Bob Reid

Sir James Sassoon

P. J. Scott Plummer

Totals

Directors’ fees

2008

2007

25,000

4,327

15,000

17,000

15,000
111

23,334

14,000

9,062

15,554
111

91,327
111

89,950
111

The Company’s Articles of Association limit the aggregate fees

payable to the Board of Directors to a total of £150,000 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

Performance Graph
The graph below measures the Company’s share price and net

asset value performance against its benchmark index of the

of fees payable to non-executive Directors in the investment trust

FTSE 100 Index.

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’ and ofﬁcers’ liability insurance cover is held by the

Company. Following the approval of the proposal at last year’s

Annual General Meeting to change the Company’s Articles of

Association to enable the Company to grant indemnities to the

Directors individually, deeds of indemnity have been entered

into with the Directors.

Remuneration
The policy is to review Directors’ fees from time to time, but

reviews will not necessarily result in a change to the rates. As

disclosed in last year’s report, in the year under review the

The Company’s performance is measured against the FTSE 100

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

Managers’ Review.

290

)

(
n
r
u
t
e
R
e
v
i
t
a
u
m
u
C

250

210

170

130

2003

2004

2005

2006

2007

2008

The Merchants Trust Share Price

The Merchants Trust NAV

FTSE 100

Directors were paid at a rate unchanged since June 2006 of

Source: Mellon

£15,000 per annum, with an additional £2,000 payable to the
Audit Committee Chairman. The Chairman of the Board was

paid at a rate of £25,000 per annum. These rates will be

increased with effect from 1 June 2008 to £18,000 per annum

for the Directors, with the Audit Committee Chairman receiving

By Order of the Board

K. J. Salt

Secretary

14 April 2008

The Merchants Trust PLC

Independent Auditors’ Report

Independent Auditors’ Report to the Members
of The Merchants Trust PLC
We have audited the ﬁnancial statements of The Merchants

Trust PLC for the year ended 31 January 2008 which comprise

the Income Statement, the Reconciliation of Movements in

Shareholders’ Funds, the Balance Sheet, the Cash Flow

Statement, and the related notes. These ﬁnancial statements

have been prepared under the accounting policies set out

therein. We have also audited the information in the Directors’

Remuneration Report that is described as having been audited.

Respective responsibilities of directors and
auditors
The directors’ responsibilities for preparing the Annual Financial

Report, Directors’ Remuneration Report and the ﬁnancial

statements in accordance with applicable law and United

Kingdom Accounting Standards (United Kingdom Generally

Accepted Accounting Practice) are set out in the Statement of

Directors’ Responsibilities.

Our responsibility is to audit the ﬁnancial statements and the

part of the Directors’ Remuneration Report to be audited in

accordance with relevant legal and regulatory requirements and

International Standards on Auditing (UK and Ireland). This

report, including the opinion, has been prepared for and only for

the company’s members as a body in accordance with Section

235 of the Companies Act 1985 and for no other purpose. We

do not, in giving this opinion, accept or assume responsibility for

any other purpose or to any other person to whom this report is

shown or into whose hands it may come save where expressly

agreed by our prior consent in writing. The information given in

the Directors’ Report includes that speciﬁc information

presented in the Investment Managers’ Report and other

sections of the Annual Financial Report that is cross-referred

from the Business Review section of the Directors’ Report.

We report to you our opinion as to whether the ﬁnancial

statements give a true and fair view and whether the ﬁnancial

statements and the part of the Directors’ Remuneration Report

to be audited have been properly prepared in accordance with

the Companies Act 1985. We also report to you whether in our

opinion the information given in the Directors’ Report is

consistent with the ﬁnancial statements.

In addition we report to you if, in our opinion, the company has

not kept proper accounting records, if we have not received all

the information and explanations we require for our audit, or if

information speciﬁed by law regarding directors’ remuneration

and other transactions is not disclosed.

We review whether the Corporate Governance Statement

reﬂects the company’s compliance with the nine provisions of

the Combined Code 2006 speciﬁed for our review by the

Listing Rules of the Financial Services Authority, and we report if

it does not. We are not required to consider whether the

Board’s statements on internal control cover all risks and

controls, or form an opinion on the effectiveness of the

company’s corporate governance procedures or its risk and

control procedures.

We read other information contained in the Annual Financial

Report and consider whether it is consistent with the audited

ﬁnancial statements. The other information comprises only the

Key Facts, Performance Attribution Analysis, Chairman’s

Statement, Historical Record, Investment Managers’ Review,

Listed Holdings, Distribution of Total Assets, Performance

Graphs, the Directors’ Report, the Corporate Governance

Statement and the unaudited part of the Directors’

Remuneration Report. We consider the implications for our

report if we become aware of any apparent misstatements or

material inconsistencies with the ﬁnancial statements. Our

responsibilities do not extend to any other information.

Basis of audit opinion
We conducted our audit in accordance with International

Standards on Auditing (UK and Ireland) issued by the Auditing

Practices Board. An audit includes examination, on a test basis,

of evidence relevant to the amounts and disclosures in the

ﬁnancial statements and the part of the Directors’ Remuneration

Report to be audited. It also includes an assessment of the

signiﬁcant estimates and judgments made by the directors in

the preparation of the ﬁnancial statements, and of whether the

accounting policies are appropriate to the company’s

circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the

information and explanations which we considered necessary in

order to provide us with sufﬁcient evidence to give reasonable

assurance that the ﬁnancial statements and the part of the

Directors’ Remuneration Report to be audited are free from

material misstatement, whether caused by fraud or other

irregularity or error. In forming our opinion we also evaluated the

overall adequacy of the presentation of information in the

ﬁnancial statements and the part of the Directors’ Remuneration

Report to be audited.

The Merchants Trust PLC

Independent Auditors’ Report

Opinion
In our opinion:

•

the ﬁnancial statements give a true and fair view, in

accordance with United Kingdom Generally Accepted

Accounting Practice, of the state of the company’s affairs as

at 31 January 2008 and of its net return and cash ﬂows for

the year then ended;

•

the ﬁnancial statements and the part of the Directors’

Remuneration Report to be audited have been properly

prepared in accordance with the Companies Act 1985; and

•

the information given in the Directors’ Report is consistent

with the ﬁnancial statements.

PricewaterhouseCoopers LLP

Chartered Accountants and Registered Auditors

London

14 April 2008

The Merchants Trust PLC

Income Statement

for the year ended 31 January 2008

2008
Revenue
Return
£

2008
Capital
Return
£

2008
Total
Return
£

2007
Revenue
Return
£

2007
Capital
Return
£

2007
Total
Return
£

Note

Net (losses) gains on investments
at fair value
Income
Investment management fee
Administration expenses

Net return before ﬁnance costs
and taxation
Finance costs: interest payable and
similar charges

Net return on ordinary activities
before taxation
Taxation on ordinary activities

Net return on ordinary activities
attributable to Ordinary Shareholders

Return per Ordinary Share
(basic and diluted)

8
1
2
3

71,440,601 71,440,601
27,750,450
(2,747,571)
(491,159)
11111 11111 11111 11111 11111 11111

– (72,106,540) (72,106,540)
28,495,032
–
(2,568,696)
(1,669,652)
(588,399)
(2,560)

–
27,750,450
(961,650)
(488,138)

28,495,032
(899,044)
(585,839)

–
(1,785,921)
(3,021)

27,010,149 (73,778,752) (46,768,603) 26,300,662

69,651,659 95,952,321

(3,342,277)
(9,767,741)
11111 11111 11111 11111 11111 11111

(3,446,657)

(6,321,084)

(9,459,013)

(6,116,736)

23,667,872 (79,895,488) (56,227,616) 22,854,005
–

63,330,575 86,184,580
–
11111 11111 11111 11111 11111 11111

(18,052)

–

23,649,820 (79,895,488) (56,245,668) 22,854,005
63,330,575 86,184,580
11111 11111 11111 11111 11111 11111

83.61p
11111 11111 11111 11111 11111 11111

(54.37p)

(77.23p)

22.86p

61.44p

22.17p

Dividends in respect of the ﬁnancial year ended 31 January 2008 total 21.60p (2007 – 20.00p), costing £22,278,168 (2007 –

£20,745,854). Details are set out in Note 6 on page 39.

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.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reﬂected in the

above statement.

The Notes on pages 35 to 50 form an integral part of these Financial Statements.

The Merchants Trust PLC

Reconciliation of Movements in
Shareholders’ Funds

for the year ended 31 January 2008

Called up
Share
Capital
£

Capital
Premium Redemption
Reserve
Account
£
£

Capital
Reserve
Realised
£

Capital
Reserve
Unrealised
£

Revenue
Reserve
£

Total
£

Net Assets at 31 January 2006
Revenue Return
Dividends on Ordinary Shares
Capital Return
Shares issued during the year

Net Assets at 31 January 2007

Note

25,525,984
–
–
–
413,985

56,250 351,107,802 118,104,550 19,878,801 514,713,196
– 22,854,005 22,854,005
– (19,964,324)(19,964,324)
– 63,330,575
7,901,223
–
11111 11111 11111 11111 11111 11111 11111

–
–
–
–
– 50,187,850 13,142,725
–
–
–

39,809
–
–
–
7,487,238

11 25,939,969

56,250 401,295,652 131,247,275 22,768,482 588,834,675
22222 22222 22222 22222 22222 22222 22222

7,527,047

Net Assets at 31 January 2007
Revenue Return
Dividends on Ordinary Shares
Capital Return
Shares repurchased during the year 11

25,939,969
–
–
–
(236,603)

56,250 401,295,652 131,247,275 22,768,482 588,834,675
– 23,649,820 23,649,820
– (21,757,822) (21,757,822)
– (79,895,488)
– (4,643,972)
11111 11111 11111 11111 11111 11111 11111

–
–
–
–
– 34,707,261(114,602,749)

7,527,047
–
–
–
–

236,603 (4,643,972)

–

Net Assets at 31 January 2008

25,703,366
292,853 431,358,941 16,644,526 24,660,480 506,187,213
22222 22222 22222 22222 22222 22222 22222

7,527,047

The Notes on pages 35 to 50 form an integral part of these Financial Statements.

The Merchants Trust PLC

Balance Sheet

as at 31 January 2008

Fixed Assets
Investments held at fair value through proﬁt or loss
Current Assets
Debtors
Cash at bank

Creditors: Amounts falling due within one year
Net Current Assets

Total Assets Less Current Liabilities
Creditors: Amounts falling due after more than one year

Total Net Assets

Capital and Reserves
Called up Share Capital
Share Premium Account
Capital Redemption Reserve
Capital Reserves: Realised

Unrealised

Revenue Reserve

Equity Shareholders’ Funds

Net Asset Value per Ordinary Share

2008
£

2007
£

7,333,938
5,945,385
111111

13,279,323
(2,129,286)
111111

431,358,941
16,644,526
111111

608,450,967

695,769,971

2,836,903
7,003,101

9,840,004
(3,227,220)
11,150,037
6,612,784
11111 111111

702,382,755
619,601,004
(113,413,791) (113,548,080)
111111 111111

506,187,213

588,834,675
111111 111111

25,703,366
7,527,047
292,853

25,939,969
7,527,047
56,250
401,295,652
131,247,275

448,003,467
24,660,480

532,542,927
22,768,482
111111 111111

506,187,213

588,834,675
222222 222222

492.3p

567.5p

Note

10
10

12
13
13

The ﬁnancial statements on pages 31 to 50 were approved and authorised for issue by the Board of Directors on 14 April 2008 and

signed on its behalf by

Hugh Stevenson

Chairman

The Notes on pages 35 to 50 form an integral part of these Financial Statements.

The Merchants Trust PLC

Cash Flow Statement

for the year ended 31 January 2008

Net cash inﬂow from operating activities

Returns on investment and servicing of ﬁnance
Interest paid
Dividends on Preference Stock

Net cash outﬂow from servicing of ﬁnance

Capital expenditure and fﬁnancial investment
Purchases of ﬁxed asset investments
Sales of ﬁxed asset investments

2008
£

2007
£

33,677,949

28,262,666

Note
18

(9,553,292)
(42,997)
111111

(9,530,065)
(42,997)

(9,596,289)

(9,573,062)

(188,448,230)
189,710,648
111111

(236,518,625)
238,513,660

Net cash inﬂow from capital expenditure and ﬁnancial investment

1,262,418

1,995,035

Equity dividends paid

Net cash inﬂow before ﬁnancing

Financing
Purchase of Ordinary Shares for cancellation
Cash transferred from Allianz Dresdner Income Growth Investment Trust plc
in connection with the issue of Ordinary Shares

(Decrease) Increase in cash

(21,757,822)
11111

(19,964,324)
11111

3,586,256

720,315

(4,643,972)

–

–
11111

907,990
11111

(1,057,716)
22222

1,628,305
22222

The Notes on pages 35 to 50 form an integral part of these Financial Statements.

The Merchants Trust PLC

Statement of Accounting Policies

for the year ended 31 January 2008

1. The ﬁnancial statements have been prepared under the historical cost convention, modiﬁed to include the revaluation of

investments, and in accordance with the United Kingdom law, United Kingdom Generally Accepted Accounting Practice (UK

GAAP) and the Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies’ (SORP) revised in

December 2005 by the Association of Investment Companies.

In order better to 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 a revenue and capital nature has been

presented alongside the Income Statement. In accordance with the Company’s status as a UK investment company under

section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend.

2. Revenue – Dividends on equity shares are accounted for on an ex-dividend basis. UK dividends are shown net of tax credits.

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.

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 and stocklending fees are accounted for on an accruals basis. Underwriting commission is recognised

when the issue underwritten closes.

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 income returns. Other administrative expenses are charged in full to revenue, except

handling charges which are charged to capital. All expenses are recognised on an accrual basis.

4. Valuation – 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, investments are designated as held at fair value through proﬁt or loss on initial recognition in accordance

with FRS 26 ‘Financial Instruments: Recognition and Measurement’. 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 of Directors.

Investments held at fair value through proﬁt and 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. The unrealised Capital Reserve reﬂects differences between fair

value and book cost. Net gains and losses on the realisation of investments are recognised in the capital column of the Income

Statement and are taken to the realised Capital Reserve.

5. Finance costs – In accordance with the Financial Reporting Standard 25 ‘Financial Instruments: Disclosure and Presentation’ and

FRS 26 ‘Financial Instruments: Recognition and Measurement’, long term borrowings are stated at 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.

The Merchants Trust PLC

Statement of Accounting Policies

for the year ended 31 January 2008

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.

6. 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.

7. Foreign currency – In accordance with FRS 23 ‘The effect of changes in Foreign Currency Exchange Rates’, the Company is

required to nominate a functional currency, being the currency in which the Company predominately operates. The functional and

reporting currency is pound sterling, reﬂecting the primary economic environment in which the Company operates. Transactions in

foreign currencies are translated into sterling at the rates of exchange ruling on the date of the transaction. Foreign currency 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 Capital Reserves.

8. Dividends – In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the ﬁnal dividend payable on Ordinary Shares is

recognised as a liability when approved by shareholders. Interim dividends are recognised only when paid.

9. Preference Stock – Following the introduction of FRS 25 ‘Financial Instruments: Disclosure and Presentation’, the 3.65%

Cumulative Preference Stock is classiﬁed as a liability as the rights of the stockholders to receive dividend payments are not

calculated by reference to the Company’s proﬁts.

10. Shares repurchased and subsequently cancelled – Share Capital is reduced by the nominal value of the shares repurchased, and

the Capital Redemption Reserve is correspondingly increased in accordance with Section 170 Companies Act 1985. The full cost

of the repurchase is charged to the realised Capital Reserve.

11. FRS 29 ‘Financial Instruments: Disclosures introduces additional disclosures relating to ﬁnancial instruments. This standard does

not have any impact on the classiﬁcation and/or valuation of the Company’s ﬁnancial instruments. The additional disclosures

provided in accordance with the requirements of the standard are set out in Note 20 to the ﬁnancial statements.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

Income

Income from investments:*
Franked income:
Equity income from UK investments†
Income from ﬁxed interest securities
Unfranked income:
Equity income from UK investments

Other income:
Deposit interest
Underwriting commission
Stocklending fees

Total income

*All equity income is derived from listed investments.
† Includes special dividends of £502,450 (2007 – £1,302,224).

Investment Management Fee

2008
£

2007
£

28,043,754
–

27,334,101
7,325

–
11111 11111

77,388

28,121,142

27,341,426

350,513
–
23,377
11111

274,898
124,962
9,164

409,024
11111 11111

373,890

28,495,032
27,750,450
11111 11111

Investment management fee

2007
£
Total
2,747,571
11111 11111 11111 11111 11111 11111

2008
£
Capital
1,669,652

2008
£
Total
2,568,696

2007
£
Capital
1,785,921

2008
£
Revenue
899,044

2007
£
Revenue
961,650

The management contract with RCM (UK) Limited (‘RCM’), terminable at one year’s notice, provides for a management fee based on

0.35% (2007 – 0.35%) per annum of the value of the Company’s assets calculated monthly after deduction of current liabilities,

short term loans under one year and any funds within the portfolio managed by RCM. The amounts stated include VAT of £108,856

(2007 – £409,213). Due to the ECJ ruling in the VAT case brought by JP Morgan Fleming Claverhouse Trust plc in conjunction with

the AIC on 28 June 2007, VAT has not been charged on management fees since 1 May 2007. Under the contract, RCM provides the

Company with investment management, accounting, secretarial and administration services.

3. Administration Expenses

Auditors’ remuneration:
for audit services
for non-audit services

Directors’ fees
Marketing costs of Share Plan
Other administrative expenses

2008
£

2007
£

24,087
3,525
1111

27,612
91,327
165,276
301,624
1111

585,839
1111

21,626
3,525
1111

25,151
89,950
76,907
296,130
1111

488,138
1111

The above expenses include value added tax where applicable.

(i)
(ii) Directors’ fees are set out in the Directors’ Remuneration Report on page 28.
(iii) Auditors’ remuneration includes VAT of £4,113 (2007 – £3,763). Auditors’ remuneration for non-audit services represents fees for reviewing compliance with loan

covenants.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

4. Finance Costs: Interest Payable and Similar Charges
2008
£
Capital

2008
£
Revenue

On Stepped Rate Interest Loan repayable

2008
£
Total

2007
£
Revenue

2007
£
Capital

2007
£
Total

after more than ﬁve years

1,338,486

2,485,760

3,824,246

1,445,140

2,683,832

4,128,972

On Fixed Rate Interest Loan repayable after

more than ﬁve years

1,312,402

2,437,318

3,749,720

1,315,731

2,443,501

3,759,232

On 4% Perpetual Debenture Stock repayable

after more than ﬁve years

19,250

35,750

55,000

19,250

35,750

55,000

On 5.875% Secured Bonds repayable after

more than ﬁve years

623,489

1,157,908

1,781,397

623,539

1,158,001

1,781,540

On 3.65% Cumulative Preference Stock
repayable after more than ﬁve years

On Sterling overdraft

5. Taxation

(a) Analysis of tax charge for the year:
Overseas taxation

Current tax charge

(b) Factors affecting the current tax

charge for the year:

42,997
–
11111 11111 11111 11111 11111 11111

42,997
5,653

42,997
–

42,997
5,653

–
–

3,342,277
9,767,741
11111 11111 11111 11111 11111 11111

3,446,657

6,321,084

9,459,013

6,116,736

2008
£
Revenue

2008
£
Capital

2008
£
Total

2007
£
Revenue

2007
£
Capital

2007
£
Total

–
11111 11111 11111 11111 11111 11111

18,052

–

–
11111 11111 11111 11111 11111 11111

18,052

–

Return on ordinary activities before taxation

23,667,872 (79,895,488) (56,227,616) 22,854,005
86,184,580
11111 11111 11111 11111 11111 11111

63,330,575

Tax on return on ordinary activities

at 30% (2007 – 30%)

7,100,362 (23,968,646) (16,868,284)

6,856,201

18,999,173

25,855,374

Reconciling factors:
Non taxable income
Non taxable capital losses (gains)
Disallowable expenses
Excess of allowable expenses over

taxable income
Overseas tax suffered

Current tax charge

(8,413,126)
–
62,629

–
21,631,962
492

(8,413,126)
21,631,962
63,121

(8,200,230)

(8,200,230)
–
– (21,432,180) (21,432,180)
132,945

63,350

69,595

1,250,135
18,052

3,644,091
–
11111 11111 11111 11111 11111 11111

2,369,657
–

3,586,327
18,052

1,274,434
–

2,336,192
–

–
11111 11111 11111 11111 11111 11111

18,052

–

The Company’s taxable income is exceeded by its tax allowable expenses, which include both the capital and revenue elements of

the management fee and ﬁnance costs of borrowings. The Company has surplus expenses carried forward of £114.2m (2007 –

£102.2m). Given the Company’s current investment strategy, it is unlikely to generate sufﬁcient UK taxable proﬁts to relieve these

expenses.

As at 31 January 2008 there is an unrecognised deferred tax asset of £32.0m (2007 – £30.7m). This deferred tax asset relates to

the current and prior year unutilised expenses. It is considered unlikely that there will be a liability in the future against which the

deferred tax asset can be offset. Therefore, the tax asset has not been recognised.

Due to the Company’s status as an investment trust and the intention to continue meeting the conditions to obtain approval in the

foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the disposal of investments.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

6. Dividends on Ordinary Shares

Dividends on Ordinary Shares of 25p each:
Third interim dividend 5.1p paid 16 February 2007 (2006 – 4.8p)
Final dividend 5.1p paid 16 May 2007 (2006 – 4.8p)
First interim dividend 5.4p paid 16 August 2007 (2006 – 4.9p)
Second interim dividend 5.4p paid 15 November 2007 (2006 – 4.9p)
Prior period uncollected dividends

2008
£

2007
£

5,291,754
5,291,754
5,596,931
5,577,383
–

4,900,989
4,900,989
5,084,234
5,084,234
(6,122)
11111 11111

21,757,822
19,964,324
11111 11111

Dividends payable at the year end are not recognised as a liability under FRS 21 ‘Events after the Balance Sheet Date’ (see pages 35

and 36 Statement of Accounting Policies). Details of these dividends are set out below.

Third interim dividend 5.4p payable 13 February 2008 (2007 – 5.1p)
Final proposed dividend 5.4p payable 14 May 2008 (2007 – 5.1p)

2008
£
5,551,927
5,551,927

2007
£
5,291,754
5,291,754
11111 11111

11,103,854
10,583,508
11111 11111

The proposed ﬁnal dividend accrued is based on the number of shares in issue at the year end. However, the dividend payable will

be based on the number of shares in issue on the record date and will reﬂect any purchases and cancellations of shares by the

Company settled subsequent to the year end.

Ordinary dividends paid by the Company carry a tax credit at a rate of 10%. The credit discharges the tax liability of shareholders

subject to income tax at less than the higher rate. Shareholders liable to pay tax at the higher rate will have further tax to pay.

7. Return per Ordinary Share

2007
£
Revenue
Return attributable to Ordinary Shareholders 23,649,820 (79,895,488) (56,245,658) 22,854,005

2007
£
Total Return
86,184,580
111111 111111 111111 111111 111111 111111

2007
£
Capital
63,330,575

2008
£
Total Return

2008
£
Revenue

2008
£
Capital

Return per Ordinary Share

22.86p

(77.23p)

(54.37p)

22.17p

61.44p

83.61p

The weighted average number of shares in issue during the year was 103,451,633 (2007 – 103,083,890).

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

8. Fixed Asset Investments

Listed on The London Stock Exchange at market valuation
Unlisted at fair value

Total ﬁxed asset investments

Market value of investments brought forward
Unrealised gains brought forward

Cost of investments held brought forward
Additions at cost
Disposals at cost

Cost of investments held at 31 January
Unrealised gains at 31 January

Market value of investments held at 31 January

Net (losses) gains on investments
Net realised gains based on historical costs
Adjustment for net unrealised gains recognised in previous years

Net realised (losses) gains based on carrying value at previous balance sheet date
Net unrealised (losses) gains arising in the year

Net (losses) gains on investments before special dividends
Special dividends credited to capital

Net (losses) gains on investments

2008
£
608,423,542
27,425

2007
£
695,742,546
27,425
111111 111111

608,450,967
695,769,971
111111 111111

621,948,270
695,769,971
(131,247,275)
(118,104,550)
111111 111111

503,843,720
564,522,696
244,541,594
187,418,494
(160,134,749)
(183,862,618)
111111 111111

591,806,441
16,644,526

564,522,696
131,247,275
111111 111111

608,450,967
695,769,971
111111 111111

53,443,663
34,315,606
(42,276,719)
(37,189,607)
111111 111111

16,254,056
(7,961,113)
(72,326,030)
50,332,332
111111 111111

(80,287,143)
8,180,603

66,586,388
4,854,213
111111 111111

(72,106,540)
71,440,601
111111 111111

Transaction costs on purchases amounted to £1,176,671 (2007 – £1,502,518) and transaction costs on sales amounted to

£291,295 (2007 – £369,855).

Stocklending

Aggregate value of securities on loan at year-end
Maximum aggregate value of securities on loan during the year
Fee income from stocklending during the year

2008

2007

£0m
£72.0m
£9,164
111111 111111

£14.6m
£62.3m
£23,377

In respect of securities on loan at the year-end, the Company held £15.3m (2007 – £Nil) as collateral, the value of which exceeded

the value of the loan securities by £0.7m (2007 – £Nil).

In respect of the maximum aggregate value of securities on loan during the year, the Company held £64.8m (2007 – £75.6m) as

collateral, the value of which exceeded the value of securities on loan by £2.5m (2007 – £3.6m).

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

Investments in Other Companies

The Company held more than 10% of the share capital of the following companies, both of which are incorporated in Great Britain

and registered in England and Wales:

Company
First Debenture Finance PLC (‘FDF’)

Total
Net Assets*

(4,750,170)

Class of
£ Shares held
‘A’ Shares
‘B’ Shares
‘C’ Shares
‘D’ Shares

% of
Class held
39.2
59.2
45.6
53.3

% Equity

49.2

Fintrust Debenture PLC (‘Fintrust’)

15,760

Ordinary

50.0

In the opinion of the Directors, the Company is not in a position to exert signiﬁcant inﬂuence over the ﬁnancial or operating policies

of FDF or Fintrust, either through voting rights or through agreement with those companies’ other shareholders, due to provisions in

FDF and Fintrust’s Articles of Association and in certain contracts between the Company and each of FDF and Fintrust. The aggregate

share capital, reserves and results are immaterial to the Company’s ﬁnancial statements. FDF and Fintrust are the lenders of the

Company’s Stepped Rate Loan and Fixed Rate Interest Loan, as detailed in Notes 10(i) and 10(ii), respectively. Apart from the

ﬁnance costs, there were no other transactions between FDF, Fintrust and the Company during the year.

* As at the date of the latest published ﬁnancial statements of FDF or Fintrust, as appropriate.

10. Current Assets and Creditors

Debtors:
Sales for future settlement
Accrued income
Other debtors

Cash at bank:
Current account

2008
£

2007
£

5,784,892
1,493,835
55,211

1,045,185
1,693,069
98,649
11111 11111

2,836,903
11111 11111

7,333,938

5,945,385

7,003,101
11111 11111

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

10. Current Assets and Creditors (continued)

Creditors: Amounts falling due within one year –
Purchases for future settlement
Other creditors
Interest on borrowings

Creditors: Amounts falling due after more than one year –
Stepped Rate Interest Loan
Fixed Rate Interest Loan
5.875% Secured Bonds 2029
4% Perpetual Debenture Stock
3.65% Cumulative Preference Stock

Note

10(vi)

2008
£

2007
£

–
813,007
1,316,279

1,029,736
878,218
1,319,266
11111 11111

2,129,286

3,227,220
11111 11111

10(i)
10(ii)
10(iii)
10(iv)
10(v)

35,825,047
45,962,363
29,073,381
1,375,000
1,178,000

35,829,571
46,111,863
29,053,646
1,375,000
1,178,000
11111 11111

113,413,791 113,548,080
11111 11111

(i) The effective interest rate on the Stepped Rate Interest Loan over its terms is 11.28% per annum.

The Stepped Rate Interest Loan comprises adjustable Stepped Rate Interest Loan Notes of £5,133,520 and Stepped Rate Interest

Bonds of £20,534,079 issued at 97.4%. These amounts are repayable on 2 January 2018 exclusive of any redemption expenses,

together with a premium of £8,366,513.

The initial interest rate in 1987 on the Loan Notes and Bonds was 7.16% per annum. This increased annually by 7.5%

compound until January 1998 when it reached its current rate of 14.75%. However, the combined effect of this interest charge

and the accrual of the premium referred to above results in an effective interest rate of 11.28% per annum. Interest is payable in

January and July each year.

Interest on the Loan Notes is variable in accordance with the terms of the agreement with the lender, First Debenture Finance

PLC (‘FDF’).

The Company has guaranteed the repayment of £34,012,852, being its proportionate share (65.15%) of the required amount to

enable FDF to meet all of its liabilities to repay principal and interest on its £52.2 million of 11.125% Severally Guaranteed

Debenture Stock 2018. There is a ﬂoating charge on all the Company’s present and future assets to secure this obligation. The

Company has also agreed to meet its proportionate share of any expenses incurred by FDF, including any tax liability which may

accrue to FDF generally or as a result of the redemption or earlier transfer of the Stepped Rate Loan Notes and Bonds held by

FDF. The accounting treatment adopted in respect of the stepped rate interest and redemption premiums is set out in the

Statement of Accounting Policies.

(ii) The Fixed Rate Interest Loan of £42,000,000 is due to Fintrust Debenture PLC (‘Fintrust’). This loan is repayable in 2023 and

carries interest at the rate of 9.25125% per annum on the principal amount payable in arrears by equal half yearly instalments in

May and November in each year. As security for this loan, the Company has granted a ﬂoating charge over all its undertakings,
property and assets in favour of the lender. This charge ranks pari passu with the ﬂoating charge noted in 10(i) above.

The original loan from Fintrust is stated at net proceeds (being the principal amount of £30,000,000 less issue costs of

£141,053) plus accrued ﬁnance costs.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

10. Current Assets and Creditors (continued)

Following the liquidation of Kleinwort Overseas Investment Trust plc (‘KOIT’) in March 1998, the Company assumed £12,000,000

of KOIT’s obligations to Fintrust. Both the interest cost and repayment terms of this additional borrowing were identical to the

Company’s existing loan of £30,000,000. In order that the ﬁnance costs on this new borrowing be comparable to existing market

rates at that time, the Company also received a premium payment from KOIT of £5,286,564. This premium is being amortised over

the remaining life of the loan, as set out in the Statement of Accounting Policies. At 31 January 2008, the unamortised premium

included within the Fixed Rate Interest Loan balance of greater than one year amounted to £4,077,022 (2007 – £4,229,629).

(iii) The £30,000,000 5.875% Secured Bonds, repayable on 20 December 2029, carry interest at the rate of 5.875% per annum on

the principal amount payable in arrears by equal half yearly instalments in June and December each year. As security for this loan
the Company has granted a ﬂoating charge ranking pari passu with the ﬂoating charges referred to in Note 10(i) and 10(ii)
above over the whole of the present and future undertakings, property, assets and rights of the Company.

The accounting treatment adopted in respect of the Bonds is set out in the Statement of Accounting Policies.

(iv) The 4% Perpetual Debenture Stock is secured by a ﬂoating charge on the assets of the Company, which ranks prior to any other

ﬂoating charge. Interest is repayable in arrears by equal half yearly instalments in May and November.

(v) The 3.65% Cumulative Preference Stock is recognised as a creditor due after more than one year under the provisions of FRS25

‘Financial Instruments: Disclosure and Presentation’. The right of the Stock to receive payments is not calculated by reference to

the Company’s proﬁts and, in the event of a return of capital are limited to a speciﬁc amount, being £1,178,000. Dividends on

the Preference Stock are payable half yearly on 1 August and 1 February.

(vi) Interest on outstanding borrowings consists of:

Bank overdraft interest
Stepped Rate Interest Loan
Fixed Rate Interest Loan
5.875% Secured Bonds 2029
4% Perpetual Debenture Stock

11. Called up Share Capital

Authorised
150,403,747 Ordinary Shares of 25p (2007 – 150,403,747)

Allotted and fully paid
102,813,464 Ordinary Shares of 25p (2007 – 103,759,877)

2007
£
–
313,728
783,545
208,243
13,750
11111 11111

2008
£
4,180
312,004
779,240
207,105
13,750

1,316,279

1,319,266
11111 11111

2008
£

2007
£

37,600,936
37,600,936
11111 11111

25,703,366
25,939,969
11111 11111

The directors are authorised by an ordinary resolution passed on 14 May 2007 to allot relevant securities, in accordance with Section

80 of the Companies Act 1985, up to a maximum of 15,553,605 Ordinary Shares of 25p each. This authority expires on 13 May

2008 and accordingly a renewed authority will be sought at the Annual General Meeting on 13 May 2008.

During the year the Company repurchased and cancelled 946,413 Ordinary Shares at a cost of £4,643,972. The nominal value of

the Ordinary Shares repurchased was £236,603 and represented 0.91% of the Company’s share capital at the beginning of the

ﬁnancial year.

No further ordinary shares have been repurchased since the year end.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

12. Capital Redemption Reserve

Balance at 1 February 2007
Movement in the year

Balance at 31 January 2008

£
56,250
236,603
11111

292,853
11111

The balance on this account was increased by the increased by the transfer of £236,603 in respect of 946,413 Ordinary Shares
purchased by the Company and cancelled.

13.Capital Reserves

Balance at 1 February 2007
Net losses on realisation of investments
Special dividends
Transfer on disposal of investments
Net unrealised losses arising in year
Purchase of Ordinary Shares for cancellation
Investment management fee
Finance costs: interest payable and similar charges
Other capital charges

Balance at 31 January 2008

Realised
£

Unrealised
£

–
(7,961,113)
8,180,603
–
42,276,719 (42,276,719)

Total
£
401,295,652 131,247,275 532,542,927
(7,961,113)
8,180,603
–
– (72,326,030) (72,326,030)
(4,643,972)
–
(1,669,652)
–
(6,116,736)
–
(2,560)
–
111111 111111 111111

(4,643,972)
(1,669,652)
(6,116,736)
(2,560)

431,358,941
16,644,526 448,003,467
111111 111111 111111

The Institute of Accountants in England and Wales, has issued guidance (TECH 01/08), stating that proﬁts arising out of a change in
fair value of assets, recognised in accordance with Accounting Standards, may be distributed, provided the relevant assets can be
readily converted into cash. Securities listed on a recognised stock exchange are generally regarded as being readily convertible into
cash and hence unrealised proﬁts amounting to £16,644,526 in respect of such securities, currently included within the Capital
Reserve - Unrealised, may be regarded as distributable under Company Law.

However, under the terms of the Company’s Articles of Association, Capital Reserves are available for distribution only by way of
redemption or purchase of any of the Company’s own shares and not for any other purpose. The Company may therefore only
distribute, by way of dividend, accumulated amounts credited to the Revenue Reserve.

14.Revenue Reserve

Balance at 1 February 2007
Revenue return for the year
Ordinary dividends paid during the year

Balance at 31 January 2008

15.Net Asset Value per Share

The Net Asset Value per share was as follows:

Ordinary Shares of 25p

£
22,768,482
23,649,820
(21,757,822)
11111

24,660,480
11111

Net Asset Value per Share attributable

2007
567.5p
111111 111111

2008
492.3p

Net Asset Value attributable

2008

2007
£506,187,213 £588,834,675
111111 111111

The Net Asset Value per Ordinary Share is based on 102,813,464 Ordinary Shares in issue at the year end (2007 – 103,759,877).

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

16. Contingent Assets

The Company has a contingent asset as at the balance sheet date relating to VAT recoverable. The contingent asset has arisen as a

result of the European Court of Justice ruling on 28 June 2007 in the VAT case, brought by JP Morgan Fleming Claverhouse Trust plc

in conjunction with the Association of Investment Companies concerning VAT exemption on management expenses for investment

trusts. An amount of VAT payable in previous years may be recoverable but it is not yet possible to quantify an amount pending the

conclusion of discussions with the Manager.

17. Contingent Liabilities and Commitments

At 31 January 2008 there were no outstanding contingent liabilities (2007 – £nil) in respect of underwriting commitments and calls

on partly paid investments.

Details of the guarantee provided by the Company as part of the terms of the Stepped Rate Loan are provided in Note 10(i) ‘Current

Assets and Creditors’ on page 42.

18.Reconciliation of Return on Ordinary Activities before Taxation to Net Cash Flow from

Operating Activities

Total return before ﬁnance costs and taxation
Add: Special dividends credited to capital
Less: Net losses (gains) on investments at fair value

Decrease (increase) in debtors
Decrease in creditors

Net cash inﬂow from operating activities

19.Reconciliation of Net Cash Flow to Movement in Net Debt

(i) Analysis of changes in net debt

2008
£

2007
£
(46,768,603) 95,952,321
4,854,213
72,106,540 (71,440,601)
11111 11111

8,180,603

33,518,540
224,620
(65,211)

29,365,933
(457,602)
(645,665)
11111 11111

33,677,949
28,262,666
11111 11111

At 1 February 2007
Movement in year

At 31 January 2008

Cash

Stepped
and Fixed
Rate
loans
£

5.875%
Secured
Bonds
2029
£
7,003,101 (81,941,434) (29,053,646)
(19,735)
154,024
(1,057,716)

£
(1,375,000) (1,178,000) (106,544,979)
(923,427)
111111 111111 111111 111111111111 111111

–

4%
Perpetual
Debenture
Stock
£

3.65%
Cumulative
Preference
Stock
£

Net
Debt

(1,375,000) (1,178,000) (107,468,406)
111111 111111 111111 111111111111 111111

(81,787,410) (29,073,381)

5,945,385

(ii) Reconciliation of net cash ﬂow to movement in net debt

Net cash (outﬂow) inﬂow
Decrease (increase) in long term loans

Movement in net funds
Net debt brought forward

Net debt carried forward

2008
£
(1,057,716)
134,289
11111

2007
£
1,628,305
(194,679)
11111

(923,427)
(106,544,979)
11111

1,433,626
(107,978,605)
11111

(107,468,406)
11111

(106,544,979)
11111

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

20.Financial Risk Management policies and procedures
The Company invests in equities and other investments in accordance with its investment objective as stated on page 2. In pursuing

its investment objective, 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, 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

Investment Manager, in close cooperation with the Board of Directors, coordinates the Company’s risk management. The Board

determines the objectives and agrees policies for managing each of these risks, as set out below. These policies have remained

substantially unchanged during the current and preceding period.

Market Risk
The fair value and/or future cash ﬂows of a ﬁnancial instrument held by the Company may ﬂuctuate due to changes in market prices.

Market risk comprises market price risk, currency risk and interest rate risk. The Investment Manager assesses the exposure to market

risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on

an ongoing basis.

(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. The Company’s investment portfolio is

based wholly in the United Kingdom and hence is chieﬂy exposed to economic conditions in that country. An analysis of the

Company’s portfolio is shown on pages 9 and 10.

Management of market price risk
The Board meets regularly to monitor the diversiﬁcation of assets within the portfolio and the investment performance, in order to

evaluate 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 seeks to ensure that individual stocks meet

an acceptable risk reward proﬁle.

The value of the Company’s listed investments which were exposed to market price risk as at 31 January was as follows:

Investments held at fair value through proﬁt or loss

2008
£000s
608,424
11111

2007
£000s
695,743
11111

Market price risk sensitivity
The following illustrates the sensitivity of the return after taxation for the year and the net assets to an increase or decrease of 20%

(2007: 20%) in the fair values of the Company’s quoted equities. This level of change is considered to be reasonably possible based

on observation of market conditions in the year. The sensitivity analysis on the net return after taxation and net assets is based on the

impact of a 20% increase or decrease in the value of the Company’s investments at each closing balance sheet date and the

consequent impact on the investment management fees for the year, with all other variables held constant.

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

20. Financial Risk Management policies and procedures (continued)

2008

2007
20% Increase 20% Decrease 20% Increase 20% Decrease
in fair value
£000s

in fair value
£000s

2007

Income statement – net return after tax
Revenue return
Capital return

Change in net return on ordinary activities attributable

to Ordinary Shareholders

Change in total net assets

192
(138,791)
11111 11111 11111 11111

180
(121,351)

(180)
121,351

(192)
138,791

(138,599)
11111 11111 11111 11111

(121,171)

138,599

121,171

(138,599)
11111 11111 11111 11111

(121,171)

138,599

121,171

(ii) Foreign Currency Risk
Foreign currency risk is the risk of movement in the values of overseas ﬁnancial instruments as a result of ﬂuctuations in exchange

rates. A number of the investments have global operations and therefore proﬁts received from them can be affected by currency

movements, both on a transactional and transitional basis. This is incorporated within the market price of each investment.

Management of currency risk
The Company invests predominantly in UK listed securities with the effect that the total net assets and the total return are not

materially affected by currency movements.

Any income denominated in foreign currencies is converted into sterling on receipt (e.g. as a result of a corporate action). The

Company does not use ﬁnancial instruments to mitigate the currency exposure in the period between the time that income is

included in the ﬁnancial statements and its receipt.

(iii) 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.

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. Therefore there is minimal exposure to interest rate risk. In the year to 31 January 2008, 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 Company ﬁnances its operations through a mixture of share capital, retained earnings and long term borrowings. Movement in

interest rates will not affect the ﬁnance costs and ﬁnancial liabilities and net assets of the Company as all the borrowings of the

Company carry ﬁxed rates of interest and were issued as a planned level of gearing. The borrowings are carried in the balance sheet

at amortised cost rather than fair value. Therefore the impact of sensitivity to interest rate risk is not material and accordingly the

Company’s net assets and total return are not materially affected.

Interest rate exposure
The Company’s exposure to ﬂoating rate interest on assets as at 31 January 2008 was £5,945,000 (2007 – £7,003,000).

The Company’s exposure to ﬁxed interest rates on liabilities as at 31 January 2008 was £113,414,000 (2007 – £113,548,000).

Interest rates received on cash balances, or paid on bank overdrafts respectively, is approximate to 5.00% and 6.35% per annum

(2007: 5.25% and 6.10% per annum).

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

20. Financial Risk Management policies and procedures (continued)

The ﬁxed rate interest bearing liabilities bear the following coupon and effective rates as at 31 January 2008 and 31 January 2007

Stepped Rate Interest Loan

Fixed Rate Interest Loan – original loan

Fixed Rate Interest Loan – additional loan

5.875% Secured Bonds 2029

4% Perpetual Debenture Stock

3.65% Cumulative Preference Stock

Maturity
date
2/1/2018

20/11/2023

20/12/2029

n/a

Amount
borrowed
£000s
25,668

30,000

12,000

30,000

1.375

1,178

Coupon
Rate
14.75%

9.25125%

5.875%

4.00%

3.65%

Effective
rate since
Inception*
11.28%

9.51%

6.00%

6.23%

4.00%

3.65%

*The effective rates are calculated in accordance with FRS 26 ‘Financial Instruments: Recognition and Measurement’ as detailed in the

Statement of Accounting Policies.

The weighted average effective rate of the Company’s ﬁxed interest bearing liabilities (excluding the 4% Perpetual Debenture Stock

and the 5% Cumulative Preference Stock is 8.54% (2007 – 8.54%) and the weighted average period to maturity of these liabilities

is 16.2 years (2007 – 17.2 years).

The above year end amounts are reasonably representative of the exposure to interest rates during the year, as the level of exposure

does not change materially. Therefore the Company’s net return and net assets are not materially affected by changes in interest rates.

Liquidity risk
Liquidity risk relates to the capacity to meet liabilities.

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. The Board gives guidance to the Investment Manager as to the maximum amount of the Company’s

resources that should be invested in any one company. The Company’s policy is to remain substantially fully invested. Short term

ﬂexibility can be achieved through the use of overdraft facilities, where necessary. The Company has an undrawn committed

borrowing facility of £10 million (2007: £10 million).

The maturity proﬁle of the Company’s ﬁnancial liabilities at 31 January 2008, (being the borrowings from the Stepped Rate Interest

Loan, the Fixed Rate Interest Loan, the 5.875% Secured Bonds, the 4% Perpetual Debenture Stock and the 3.65% Preference

Stock), is detailed in Note 10 ‘Current Assets and Creditors on pages 42 and 43.

The contractual maturities of the ﬁnancial liabilities at 31 January, based on the earliest date on which payment can be required to be

made was as follows:

2008
Creditors: Amounts falling due within one year
Debt interest due within one year
Bank overdraft interest
Other creditors

Creditors: Amounts falling due after more than one year
Debt due after more than one year

More than 3 months

3 months
or less
£000s

–
4
813

Not more
than one
year
£000s

1,312
–
–

Between
one year
and ﬁve
years
£000s

–
–
–

More than
ﬁve years
£000s

–
–
–

Total
£000s

1,312
4
813

–
1111

817
1111

–
1111

1,312
1111

–
1111

113,414
1111

115,543
1111

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

20. Financial Risk Management policies and procedures (continued)

2007
Creditors: Amounts falling due within one year
Debt interest due within one year
Bank overdraft interest
Other creditors

Creditors: Amounts falling due after more than one year
Debt due after more than one year

More than 3 months

3 months
or less
£000s

–
–
1,908

Not more
than one
year
£000s

1,320
–
–

Between
one year
and ﬁve
years
£000s

–
–
–

More than
ﬁve years
£000s

–
–
–

Total
£000s

1,320
–
1,908

–
1111

1,908
1111

–
1111

1,320
1111

–
1111

113,548
1111

116,776
1111

Credit Risk
Credit risk is the risk of default by a counterparty.
Management of credit risk
The risk is not signiﬁcant. Credit risk is managed by ensuring that transactions are carried out with approved brokers. The credit ratings
of brokers counterparties are reviewed quarterly by the Investment Manager to mitigate the risk. In February 2000 the Company
commenced stock lending in order to generate additional income. The risk of default is managed by holding collateral, in the form of
letters of credit and FTSE 100 equities, amounting to 105% of the mid market value of the stock on loan. The level of collateral is
recalculated on a daily basis. Further details on stock lending can be found in Note 8 on page 40.

In summary, the exposure to credit risk at 31 January was as follows:

Current Assets
Debtors:

Outstanding settlements
Accrued income
Other debtors

Cash at bank

2008
£000s

2007
£000s

5,785
1,494
55
5,945
11111

1,045
1,693
99
7,003
11111

13,279
11111

9,840
11111

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 in the Balance Sheet at their fair value (investments) or the balance sheet amount is a reasonable approximation of fair value
(due to/from brokers, dividends and interest receivable, accruals, cash at bank and bank overdrafts).

The Merchants Trust PLC

Notes to the Financial Statements

for the year ended 31 January 2008

20 Financial Risk Management policies and procedures (continued)

Financial liabilities measured at amortised cost:

Stepped Rate Interest Loan

Fixed Rate Interest Loan

5.875% Secured Bonds 2029

4% Perpetual Debenture Stock

3.65% Cumulative Preference Stock

2008
Book value
£000s

2008
Fair value
£000s

2007
Book value
£000s

35,825

45,962

29,073

1,375

1,178

48,390

57,710

30,813

1,112

787

35,830

46,112

29,054

1,375

1,178

2007
Fair value
£000s

48,354

57,741

31,130

1,130

787

The fair value is derived from the closing market value as at 31 January 2008 and 31 January 2007.

Hedging Instruments
At the year end the Company had no hedging arrangements in place (2007 – Nil).

21. 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.

The Company’s capital at 31 January comprises:

Debt
Creditors: Amounts falling due within one year
Creditors: Amounts falling due after more than one year

Equity
Called up Share Capital
Share Premium Account and Other Reserves

Total Capital
Debt as a percentage of total capital

2008
£000s

2007
£000s

1,316
113,414
11111

1,320
113,548
11111

114,730
11111

114,868
11111

25,703
480,484
11111

25,940
562,895
11111

506,187
11111

588,835
11111

620,917
18.5%

703,703
16.3%

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 Managers’ view on the market and the future

prospects of the trust’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 the need to repurchase shares for cancellation.

The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The

Company is subject to several externally imposed capital requirements; the bank borrowings under the overdraft facility are not to

exceed £10m, as a public company the minimum share capital is £50,000.

These requirements are unchanged from last year, and the Company has complied with them.

The Merchants Trust PLC

Notice of Meeting

Notice is hereby given that the Annual General Meeting of

(i) the maximum number of Ordinary Shares hereby

The Merchants Trust PLC will be held at 20 Moorgate, London

authorised to be purchased shall be 15,411,738;

EC2R 6DA, on 13 May 2008 at 12.00 noon to transact the

following business.

Routine Business
1 To receive and adopt the Report of the Directors and the

Financial Statements for the year ended 31 January 2008

together with the Auditors’ Report thereon.

2 To declare a ﬁnal dividend of 5.4p per Ordinary Share.

3 To re-elect Mr P. J. Scott Plummer as a Director.

4 To re-elect Mr R. A. Barﬁeld as a Director.

5 To elect Mr M. J. E. McKeon as a Director.

6 To elect Mr H. E. Staunton as a Director.

7 To approve the Directors’ Remuneration Report.

8 To re-appoint PricewaterhouseCoopers LLP as Auditors of

the Company, to hold ofﬁce until the conclusion of the next

general meeting at which ﬁnancial statements are laid

before the Company.

(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 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 2008 or, if earlier, on the expiry of

18 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

9 To authorise the Directors to determine the remuneration of

any such contract.

the Auditors.

Special Business
To consider and if thought ﬁt to pass the following resolutions.

Resolution 12 will be proposed as an Ordinary Resolution and

Resolutions 10, 11 and 13 as Special Resolutions:

10 That the regulations contained in the printed document

produced to the meeting and marked “A” (and for the

purposes of identiﬁcation initialled by the Chairman of the

meeting) be hereby approved and adopted as the Articles of

Association of the Company in substitution for and for the

exclusion of all existing Articles of Association.

11 That the Company be and is hereby generally and

unconditionally authorised in accordance with Section 166

of the Companies Act 1985 (the ‘Act’) to make market
purchases (within the meaning of Section 163 of the Act) of

Ordinary Shares of 25p each in the capital of the Company

(‘Ordinary Shares’), provided that:

12 That for the purposes of Section 80 of the Companies Act

1985 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 an aggregate nominal amount of £8,567,788

provided that:

(i) the authority granted shall expire ﬁve years 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 ﬁve years;

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.

Persons nominated to receive information rights under Section 146 of the Act
who have been sent a copy of this notice of meeting are hereby informed, in
accordance with Section 149(2) of the Act, that they may have a right under an
agreement with the registered member by whom they were nominated to be
appointed, or to have someone else appointed, as a proxy for this meeting. If
they have no such right, or do not wish to exercise it, they may have a right
under such an agreement to give instructions to the member as to the exercise
of voting rights.

Nominated persons should contact the registered member by whom they
were nominated in respect of these arrangements.

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.

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),
Members must be entered on the Company’s Register of Members at 6p.m.
on 11 May 2008 (‘the speciﬁed time’). If the Meeting is adjourned to a time
not more than 48 hours after the speciﬁed time applicable to the original
Meeting, that time will also apply for the purpose of determining the
entitlement of Members to attend and vote (and for the purpose of
determining the number of votes they may cast) at the adjourned Meeting. If,
however, the Meeting is adjourned for a longer period then, to be so entitled,
Members must be entered on the Company’s Register of Members at the
time which is 48 hours before the time ﬁxed for the adjourned Meeting or, if
the Company gives notice of the adjourned Meeting, at the time speciﬁed in
that notice.

Contracts of service are not entered into with the Directors, who hold ofﬁce in
accordance with the Articles of Association.

Annual General Meeting Venue

The Merchants Trust PLC

Notice of Meeting

13 That the Directors be empowered in accordance with

Section 95 of the Companies Act 1985 to allot equity

securities (within the meaning of Section 94 of the Act) for

cash pursuant to the authority conferred by Resolution 10 as

if sub-section (1) of Section 89 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 an aggregate

nominal amount of £1,285,168;

(ii) the power granted shall (unless previously revoked or

renewed) expire at the conclusion of the next Annual

General Meeting of the Company after the passing of

this resolution; 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.

155 Bishopsgate

London EC2M 3AD

14 April 2008

Notes:

By Order of the Board

K. J. Salt

Secretary

1. Members entitled to attend and vote at this Meeting may appoint one or

more proxies to attend and, on a poll, vote in their stead. The proxy need not
be a Member of the Company. Duly completed forms of proxy must reach
the ofﬁce of the Registrars at least 48 hours before the Meeting. A form of
proxy is provided with the Annual Financial Report. Completion of the
enclosed form of proxy does not preclude a Member from attending the
Meeting and voting in person.

In order to facilitate voting by corporate representatives at the meeting,
arrangements will be put in place at the meeting so that (i) if a corporate
shareholder has appointed the Chairman of the meeting as its corporate
representative with instructions to vote on a poll in accordance with the
directions of all of the other corporate representatives for that shareholder at
the meeting, then on a poll those corporate representatives will give voting
directions to the Chairman and the Chairman will vote (or withhold a vote) as
corporate representative in accordance with those directions; and (ii) if more
than one corporate representative for the same corporate shareholder attends
the meeting but the corporate shareholder has not appointed the Chairman
of the meeting as its corporate representative, a designated corporate
representative will be nominated, from those corporate representatives who
attend, who will vote on a poll and the other corporate representatives will
give voting directions to that designated corporate representative. Corporate
shareholders are referred to the guidance issued by the Institute of Chartered
Secretaries and Administrators on proxies and corporate representatives
(www.icsa.org.uk) for further details of this procedure. The guidance includes
a sample form of representation letter if the Chairman is being appointed as
described in (i) above.

The Merchants Trust PLC

Investor Information & Contact Details

The Managers
Allianz Global Investors is the marketing name of RCM (UK)
Limited, Allianz Group’s regulated UK fund management
company, which is authorised and regulated by the Financial
Services Authority.

Allianz Global Investors is one of the largest fund managers in
the World, and as at 31 December 2007, had combined assets
of £561.9 billion under management. Through its predecessors,
it has a heritage of investment trust management expertise in
the UK stretching back to the nineteenth century and had
£1.3 billion assets under management in a range of investment
trusts as at 31 December 2007.

Results
Half-year announced in September
Full-year announced in March
Annual Financial Report posted to shareholders in April
Annual General Meeting held in May

Ordinary Dividends
First quarterly paid in August
Second quarterly paid in November
Third quarterly paid in February
Final usually paid in May

Preference Dividends
Payable half-yearly on 1 August and 1 February

Payment of Dividends Direct to Bank Accounts
Cash dividends will be sent by cheque to ﬁrst-named
shareholders at their registered address together with a tax
voucher. Dividends may be paid directly into shareholders’ bank
accounts. Details of how this may be arranged can be obtained
from the Registrars, Capita Registrars, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU. Dividends mandated in this
way are paid via BACS (Bankers’ Automated Clearing Service). Tax
vouchers will then be sent directly to shareholders at their
registered address unless other instructions have been given.

Dividend Reinvestment Plan for Ordinary
Shareholders
A Dividend Reinvestment Plan is operated by the Company’s
Registrars, Capita Registrars. The Plan offers Ordinary
Shareholders the opportunity to use their cash dividend to buy
further shares in the Company under a special low-cost dealing
arrangement. Capita will enclose a copy of the Terms and
Conditions and a personalised application form with each future
dividend payment.

Market and Portfolio Information
The Company’s Ordinary Shares are listed on the London Stock
Exchange. The market price, price range, gross yield and net

asset value are shown daily in The Financial Times and The
Daily Telegraph. The net asset value of the Ordinary Shares is
calculated weekly and published by the London Stock Exchange
Regulatory News Service. The geographical spread of
investments and ten largest holdings are also published monthly
by the London Stock Exchange Regulatory News Service. They
are also available to any enquirer of Allianz Global Investors,
either via Investor Services on 0800 317 573 or on the
Manager’s website: www.allianzglobalinvestors.co.uk.

Share Prices
The share prices quoted in the London Stock Exchange Daily
Ofﬁcial List for 31 January 2008 were 424.75p – 425.25p.

For CGT indexation purposes, at 31 March 1982 the share price,
after adjustment for bonus issues, was 48.75p.

Website
Further information about the The Merchants Trust PLC is
available on the Manager’s website:
www.allianzglobalinvestors.co.uk.

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 Growth and Income.

Investment Trust Share Plan and ISA
Following a strategic review of services provided for Investment
Trust investors, Allianz Global Investors as announced that it will
no longer act as Share Plan manager or PEP/ISA manager from
29 February 2008. Since that date, however, a share plan and
ISA have been available from Alliance Trust Savings (ATS). ATS
offer a comprehensive range of products and services –
including Share Plans, ISAs and PEPs as well as pension
products. They also invest in and maintain online and
telephone-based dealing facilities and online valuations. Existing
Allianz Global Investors Investment Trust ISA, PEP and Share
Plan wrapper investors have had the opportunity to transfer at
no cost to ATS. More information is available from the Allianz
Global Investors Helpline on 08457 127 128 or from the
Manager’s website: www.allianzglobalinvestors.co.uk, or after
1 March 2008 from Alliance Trust Savings Customer Services
Department on 01382 326323 or e-mail:
contact@alliancetrust.co.uk.

The Merchants Trust PLC

Investor Information & Contact Details

Capita Registrars – Share Dealing Services
Capita Registrars, the Company’s Registrars, operate an on-line
and telephone dealing facility for UK resident shareholders with
share certiﬁcates. Stamp duty may also be payable on
purchases.

Capita Registrars have provided the following details of the
current charges for these services:

On-line
1% of the value of the deal
(Minimum £20,
maximum £50)

Telephone
1.5% of the value of the deal
(Minimum £25,
maximum £100)

There is no need to pre-register and there are no forms to ﬁll in.
The on-line and telephone dealing services allow shareholders
to trade “real time” at a known price which will be given to you
at the time you give your instruction.

To deal on-line or by telephone you need to supply your
surname, shareholder reference number, share certiﬁcate, full
postcode and your date of birth. Your shareholder reference
number can be found on your share certiﬁcate where it is
shown as an “investor code”. Please have the appropriate
documents to hand when you log on or call, as this information
will be needed before you can buy or sell shares.

Through The 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

Apply for dividends to be paid directly to a bank or to
change existing bank details.

Shareholders can access these services at
www.capitaregistrars.com and selecting Share Portal
(Shareholders) from the drop down menu, or alternatively via
the Portals: Quick Links, and selecting Share Portal.

Shareholders will need to register for a Share Portal Account by
completing an on-screen registration form. An email address is
required.

Shareholders’ Enquiries
Capita Registrars are the Company’s registrars and maintain the
share register. In the event of queries regarding their holdings of
shares, lost certiﬁcates, dividend cheques, registered details, etc.,
shareholders should contact them on 0871 664 0300 (calls
cost 10p per minute plus network charges) or, if telephoning
from overseas, +44 20 8639 3399. Changes of name and
address must be notiﬁed to the Registrars in writing.

For further information on these services please contact:
www.capitadeal.com (on-line dealing) or 0871 664 0454
(telephone dealing) (Calls cost 10p per minute plus network
extras).

Any general enquiries about the Company should be directed
to the Company Secretary, The Merchants Trust PLC,
155 Bishopsgate, London EC2M 3AD.
Telephone: 020 7065 1513. Email: kirsten.salt@uk.rcm.com

Shareholder Portal
The Company’s Registrars, Capita Registrars, are now able to
offer shareholders a free on-line service called The Share Portal,
enabling shareholders to access a comprehensive range of
shareholder related information.

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.

Analysis of Share Register

Private holders
Nominees
Limited Companies
Investment Trusts and Funds
Bank and Bank Nominees
Insurance Companies
Pension Funds
Other holders

2008
7,860
3,973
164
51
9
12
4
70
111
12,143
222

Shareholder Accounts

Number

Ordinary Shares held

000’s

2007
7,980
3,820
173
104
11
12
5
163
111
12,268
222

2008
64.7
32.7
1.4
0.4
0.1
0.1
0.0
0.6
111
100.0
222

2007
65.0
31.1
1.4
1.0
0.1
0.1
0.0
1.3
100.0

2007
2008
20,756
20,580
77,613
77,267
2,537
2,195
752
559
1,274
1,778
67
65
23
20
737
349
111 1111 1111
103,759
102,813
222 2222 2222

2008
20.0
75.2
2.1
0.5
1.7
0.1
0.0
0.4
111
100.0
222

2007
20.0
74.8
2.5
0.7
1.2
0.1
0.0
0.7
111
100.0
222

Based on an analysis of the Ordinary Share register at 31 March 2008 (2007 – 2 April).

The Merchants Trust PLC

Investor Information & Contact Details

Managers and Advisers

Fund Manager
RCM (UK) Limited

Represented by Simon Gergel, Portfolio Manager, and

Simon White, Head of Investment Trusts

Secretary and Registered Office
Kirsten Salt BA (Hons) ACIS

155 Bishopsgate

London EC2M 3AD

Telephone: 020 7065 1513

Email: kirsten.salt@uk.rcm.com

Registered Number 28276

Registrars and Transfer Office
Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Telephone (if calling from within the UK): 0871 664 0300

(Calls cost 10p per minute plus network charges)

Telephone (if calling from overseas): +44 20 8639 3399

Email: ssd@capitaregistrars.com

Independent Auditors
PricewaterhouseCoopers LLP

Hay’s Galleria

1 Hay’s Lane

London SE1 2RD

Bankers
HSBC Bank

Barclays Bank

Stockbroker
JPMorgan Cazenove

Legal Advisers
Herbert Smith LLP

Allianz Global Investors
Telephone: 0800 317 573 or

www.allianzglobalinvestors.co.uk.

sterling greenaways 98818

Allianz Global Investors
Phone 0800 317 573
Fax 020 7638 3508
www.allianzglobalinvestors.co.uk