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RNS
Miton UK MicroCap Trust plc  -  MINI   

Annual Financial Report

Released 07:00 19-Jul-2017

RNS Number : 4384L
Miton UK MicroCap Trust plc
19 July 2017
 

 

 

MITON UK MICROCAP TRUST PLC

 

REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2017

 

The Directors present the Report and Accounts of Miton UK MicroCap Trust plc ("the Company") for the year ended 30 April 2017. The full Report and Accounts can be accessed shortly via the Company's website, www.mitongroup.com/micro, or by contacting the Company Secretary on 01392 477500.

 

Miton UK MicroCap Trust plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI. It is referred to as the Company or as MINI in the text of this Report. The Company has a Board that is independent of the Investment Manager. The Company was first listed on 30 April 2015 with £50m of capital raised, and additional equity was issued during the initial period to 30 April 2016, including by way of a C share issue.

 

This Report covers the year ended 30 April 2017, a period when market moves were dominated by the UK's decision to withdraw from the EU. The net asset value ("NAV") of the Ordinary shares has risen by 17.0% over the year. An additional £5.5m of new capital was raised over the year via its share issuance programme, whilst £1.2m of shareholders' capital was redeemed under the annual redemption facility following the year end. As at 30 April 2017, the total assets of the Company were £111.4m.

 

STRATEGIC REPORT

 

RESULTS FOR THE YEAR TO 30 APRIL 2017

 

§ Over the year under review, the Ordinary share NAV rose from 54.91p on 30 April 2016 to 64.27p on 30 April 2017, an appreciation of 17.0%. The Ordinary share price moved from 56.75p at the end of April 2016 to 62.25p at the end of April 2017, an increase of 9.7%.

 

§ The Company announced a C share issue towards the end of the previous year and these C shares were converted into 53,927,917 Ordinary shares on 19 July 2016 with the merger of the two fully-invested portfolios.

 

§ During the year, a further 9,168,084 Ordinary shares were also issued, raising £5.5m. Full details of the individual share issues can be found below.

 

§ Investors requested the redemption of 1.9m Ordinary shares in respect of the 28 April 2017 Redemption Point, with 64.13p per share, a total of £1.2m, being returned to these investors following the year end on 15 May 2017.

 

§ The total assets of the Company amounted to £111.4m at the end of April 2017.

 

§ Revenue after costs over the year amounted to £0.8m or 0.53p pence per share. The Board has recommended a final dividend of 0.36p per Ordinary share or £0.6m. The balance, £0.2m, has been credited to revenue reserves and remains available to distribute to shareholders in the future should there be a shortfall of revenue for dividend payments.

 

SUMMARY OF RESULTS

 

 

 

30 April     

 

30 April   

 

 

 

2017     

 

2016   

 

Total Net Assets attributable to equity shareholders (£'000)

 

111,246      

 

60,392   

 

NAV per Ordinary share*

 

64.27p    

 

54.91p 

 

Share price (mid)

 

62.25p    

 

56.75p 

 

(Discount)/premium to NAV*

 

(3.14)%  

 

3.35%

 

Revenue return per Ordinary share

 

0.53p    

 

0.32p 

Total return per Ordinary share*

 

11.77p    

 

5.64p 

Ongoing charges#*

 

    1.47%   

 

1.76%

Ordinary shares in issue

 

173,086,001

 

109,990,000   

 

 

 

 

 

 

 

 

 

† For the period from 26 March 2015 to 30 April 2016.

# The ongoing charges are calculated in accordance with AIC guidelines.

* Details provided in the Glossary of Terms in the full Annual Report.

 

CHAIRMAN'S STATEMENT

 

This is the second Annual Report for Miton UK Microcap Trust plc and covers the year ended 30 April 2017.

 

Equity markets and performance

Over the year, stock market returns were dominated by the initial setback and subsequent recovery of the UK equity market after the UK Referendum result. In the period, some of the top performing shares included a number of the larger quoted companies, since after the fall in Sterling, their US Dollar or Euro earnings rose in value. In fact, many of the larger AIM-listed companies also performed strongly, as increased investor interest in these relatively well-known growth stocks has become more intense given the subdued background for world growth. These factors led the FTSE All-Share Index to rise 20.1% and the FTSE AIM All-Share Index to appreciate by 34.5% over the year to April 2017.

 

Given the changing dynamics of the markets, the underlying attractions of many of the smaller stocks were largely overlooked, and the NAV of the Company only appreciated by 17.3% over the year. However, the Company had a strong period of NAV returns in the previous year. Therefore, the NAV has risen by 31.5% over the two-year period, which compares with a return of only 13.3% on the FTSE All-Share Index and 31.7% on the FTSE AIM All-Share Index over the same period.

 

There was a strong uplift in dividend income over the year. After deducting the Company's running costs, the revenue per share was 0.53p per share. The Board has recommended a dividend of 0.36p for the year, up from 0.14p last year.

 

Share capital

A total of £5.5m of new capital was raised under the Company's share issuance programme during the year. However, redemption requests for 1,934,487 shares were received at the end of March, and these were redeemed at 64.13p each, amounting to £1.24m. This redemption mechanism is in place to ensure that any unsatisfied sellers of the Company's shares are cleared each year, which helps ensure the Company's share price trades close to its NAV. The assets of the Company amounted to £111.4m at the year end.

 

Outlook

Growth was plentiful during the period of globalisation. However, as bond yields have moved down to ultra-low levels, many mainstream corporates have prioritised increasing buy-backs and dividends over long-term capex, while world productivity has stagnated.

 

Miton UK Microcap Trust plc was set up with changing market conditions in mind. The recent election and many unanswered questions arising from the Brexit process have increased levels of uncertainty. In past similarly challenging periods, it has been the greater vibrancy of the smallest quoted companies, with their ability to quickly adapt to changing circumstances and opportunities, that has driven premium returns. Specifically, it is their ability to find more capex opportunities with attractive cash paybacks that will drive the outperformance of these stocks in future.

 

The largest companies may have been at the centre of attention during the year under review as investors digested recent momentous events. But, at a time when dividend growth across the markets is more uncertain, we believe that ongoing earnings and dividend growth of microcaps could lead many of the companies in the portfolio to generate premium returns for an extended period.

 

Andy Pomfret

Chairman

18 July 2017

 

INVESTMENT MANAGER'S REPORT

 

Details of the Investment Manager

The Company's Investment Manager is Miton Trust Managers Limited, a wholly-owned subsidiary of Miton Group plc ("Miton").

 

Miton is itself a smaller quoted company, listed on AIM. The Miton fund managers are a close knit team with an aim to be more agile than others in its thinking. This is important at all times, but following the major changes in economic prospects after Brexit, or political dynamics after the recent general election, market trends could change more significantly over the coming three years than they have for decades. Miton has a team of four fund managers researching UK-quoted stocks. The day-to-day management of the Company's portfolio is carried out by Gervais Williams and Martin Turner, who have a particular focus on researching many of the smaller quoted stocks.

 

Gervais Williams

Gervais joined Miton in March 2011 and is Senior Executive Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was awarded Fund Manager of the Year 2014 by What Investment?

 

Martin Turner

Martin joined Miton in May 2011. Martin and Gervais have had a close working relationship since 2004, and their complementary expertise and skills led to their backing a series of successful companies. Martin qualified as a Chartered Accountant with Arthur Andersen, and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities.

 

Implementation of the overall objective of the Company

During the period of globalisation, many funds adopted the approach of seeking to match the returns of the mainstream indices, or a degree of outperformance of these indices, as their benchmark of success. A very large number of equity funds therefore have sizeable holdings in a relatively limited number of the largest stocks.

 

Miton is distinctive in that many of our funds do not use traditional benchmarks. In particular, we advocate that market participants should be very attentive to the prospect of a change in market trends. For this reason, we often propose investment strategies that anticipate forthcoming investment trends, rather than slavishly following the consensus. Overall, this offers the prospect of attractive returns albeit that the timing of these returns may be less correlated with other strategies. We believe that this is a feature that has been evident over the year under review.

 

Although the dividend yield on the Company is modest at present, we also seek to invest the portfolio so that it generates superior dividend growth over the longer term. In some ways the strategy can be described as that of an early stage income fund.

 

Implementing the investment strategy

In general, we believe that companies with promising productivity improvements are likely to deliver attractive returns. As set out in our investment thesis earlier in the Report, we believe it is productivity improvement that principally funds the growing cashflow and dividend growth. In addition, businesses with strong cashflow can go on to fund yet more productivity improvements, often alongside a stream of growing dividends.

 

We find the following five factors particularly helpful when selecting productive investments with attractive risk/ reward ratios for the Company.

 

Turnover growth - Although some companies can succeed in growing their profits without turnover growth, in general the greatest long-term growth comes from those that expand their turnover.

 

Companies investing in productivity improvement can often increase sales via an innovative new service, or through introducing a superior or improved product.  Even in times of economic stagnation, this type of improvement can generate decent turnover growth.

 

Sustained margins - A company that generates extra turnover growth may find it does not grow its cashflow much if its profit margins fall back. The best kinds of productivity improvement should reduce the cost of goods and some can also justify a better market price. Ideally, we are looking for companies that have the potential to sustain or improve their profit margins through outstanding customer service. This may be especially important in the current competitive environment when even sustaining margins could be a good result.

 

Management of risk - All investment carries risks, but often those going for the fastest growth are obliged to take the greatest risks. In general, we aim to moderate portfolio risk by investing in companies where the management team are happy to grow at a steady rate without taking sizeable risks. Such companies still carry plenty of potential to deliver an attractive return for their shareholders over time.

 

Better balance sheets - Many corporates have taken on extra debt over the past decade given the exceptionally low interest rates. However, we prefer investments with net cash balances or those with modest debt relative to the headroom on the facility. In a world that is uncertain, those with under-geared balance sheets can take more advantage of any economic setbacks to disproportionately improve their market position, whereas those fully drawn on their facilities tend to have fewer options.

 

Low entry valuations - The upside potential on an investment is often greater when the valuation on entry is modest. In general, we favour stocks where the overall market capitalisation reflects some of the problems of the past, in preference to those which are already reflecting some of the excitement about the future.

 

With few institutional investors actively researching the smallest quoted companies, there are plenty of UK quoted companies with what we believe are low entry valuations.

 

Progress over the year to April 2017

The major drivers of market return during the period were the UK's decision to withdraw from the EU and strong price appreciation amongst some growth stocks quoted on the AIM exchange.

 

The setback in the Sterling exchange rate boosted the share prices of UK-quoted multinational companies. Those that pay their dividends from income received in overseas currencies or those well positioned for the apparent strong recovery of commodity prices such as UK majors Shell and BP, performed particularly strongly. The FTSE All-Share Index appreciated by 20.1% in the year to 30 April 2017.

 

Meanwhile, the extra uncertainty after Brexit led investors to adopt a more cautious stance to domestically focused stocks. This, alongside a slowdown in world growth, has increased investor enthusiasm for the growth stocks including many of those listed on the AIM exchange, with several moving onto relatively high forward looking valuations.  Over the year, the share price appreciation of just 20 of the largest AIM stocks accounted for more than half of the 34.5% return on the AIM All-Share Index in the year.

 

As the Sterling exchange rate bottomed out and it staged a recovery from January onwards, this has led to many domestic companies enjoying a degree of performance catch-up. The NAV of the Company therefore rose by 17.3% over the year, albeit that was still rather less than the return on the mainstream indices.           

 

The stock that added most to the portfolio return in the year was IQE, which tripled in the year. Towards the end of the year, a part of the IQE holding was sold, given the market capitalisation of the company is now above most others in the portfolio. Other notable outperformers were Fulcrum Utility Services, Fishing Republic and IG Design Group (formerly known as International Greetings), which each contributed more than 1% to the overall return of the Company over the year to April 2017.

 

Inevitably, there were some setbacks as well.  Bilby fell sharply after the loss of their largest customer and a change to their method of accounting for their forward orders. We have retained the holding in the portfolio as the Company continues to offer outstanding service levels and reported new contract wins towards the end of the year. Sepura, also fell back sharply as their recovery plan did not come through as expected. This prompted a bidder, and the management team gave its support to its sale to another business.

 

As previously, the portfolio remains principally invested in less developed income microcap stocks. At the end of April, the Company had 128 holdings. This ensures that stock specific risk is well diversified, and even some of the very smallest quoted companies can be included. We believe that the smallest stocks should not be excluded on account of their size, as sometimes they have particularly attractive risk/reward ratios.   

 

Current market trends and outlook

Whilst the recent general election returned a minority government, the prior policies of working towards a stable, business-friendly environment remain in place. However, the election has added a further degree of uncertainty as the UK negotiates its withdrawal from the EU.

 

The Company's strategy was put together with changing market dynamics in mind. Economic momentum was already more temperate compared with the plentiful growth during the period of globalisation. However, world productivity has stagnated over the last ten years, so it will become all the more important to continue to identify those companies investing in attractive capex opportunities for the Company. Ultimately, we continue to identify plenty of microcap stocks with the prospect of an attractive cashflow from these kinds of investments going forward. These companies should be well positioned to generate a truly sustained rise in earnings and cashflow, from which we expect to deliver ongoing premium returns over time.

 

Gervais Williams and Martin Turner

18 July 2017

 

PORTFOLIO INFORMATION

AS AT 30 APRIL 2017

 

Rank

Company

Sector & main activity

Valuation £'000

% of

net assets

Yield1

%

1

Fulcrum Utility Services

Utilities

3,082

2.8

2.1

2

IQE

Technology

2,824

2.5

0.0

3

Kromek Group

Health Care

2,663

2.4

0.0

4

Cerillion

Technology

2,654

2.4

2.8

5

Crossrider

Consumer Services

2,349

2.1

0.0

6

Atlantis Resources

Oil & Gas

2,141

1.9

0.0

7

YU Group

Utilities

2,113

1.9

0.5

8

Fishing Republic

Consumer Goods

2,042

1.9

0.0

9

Science in Sport

Consumer Goods

1,971

1.8

0.0

10

Totally

Health Care

1,929

1.7

0.0

Top 10 investments

 

23,768

21.4

 

11

IG Design Group

Consumer Goods

1,911

1.7

1.0

12

Cello Group

Consumer Services

1,850

1.7

2.7

13

Amino Technologies

Technology

1,826

1.6

2.9

14

Scientific Digital

Health Care

1,763

1.6

0.0

15

Ingenta

Technology

1,749

1.6

0.5

16

Conygar Investment Company

Financial Services

1,717

1.5

0.0

17

Anglo African Oil

Oil & Gas

1,668

1.5

0.0

18

Autins Group

Consumer Goods

1,643

1.5

0.0

19

Swallowfield

Consumer Goods

1,630

1.5

1.2

20

Frontier IP Group

Industrials

1,603

1.4

0.0

Top 20 investments

 

41,128

37.0

 

21

Distil

Consumer Goods

1,498

1.3

0.0

22

WYG

Industrials

1,488

1.3

1.7

23

Zotefoams

Basic Materials

1,422

1.3

2.0

24

Dekeloil Public

Consumer Goods

1,393

1.2

0.0

25

7Digital Group

Consumer Services

1,359

1.2

0.0

26

Brighton Pier Group

Consumer Services

1,356

1.2

0.0

27

Alpha FX Group

Financial Services

1,316

1.2

0.0

28

CML Microsystems

Technology

1,306

1.2

1.6

29

Wey Education

Industrials

1,300

1.2

0.0

30

Corero Network Security

Technology

1,289

1.2

0.0

Top 30 investments

 

54,855

49.3

 

31

Ideagen

Technology

1,234

1.1

0.2

32

Jaywing

Consumer Services

1,175

1.0

0.0

33

Proactis Holdings

Technology

1,150

1.0

0.7

34

Marlowe

Industrials

1,135

1.0

0.0

35

Park Group

Financial Services

1,118

1.0

3.5

36

Caledonia Mining Corporation

Basic Materials

1,098

1.0

5.4

37

Inspired Energy

Industrials

1,084

1.0

2.7

38

Seeing Machines Limited

Technology

1,067

1.0

0.0

39

Churchill China

Consumer Goods

1,060

1.0

2.0

40

Versarien

Basic Materials

1,057

1.0

0.0

Top 40 investments

 

66,033

59.4

 

Balance held in 88 equity instruments

 

41,946

37.7

 

Total investment portfolio

 

107,979

97.1

 

Other net current assets

 

3,267

2.9

 

Net assets

 

111,246²

100.0

 

 

 

1. Source: Interactive Data. Based on historic dividends and therefore not representative of future yield.

2. As detailed in note 5 to the financial statements.

A copy of the full portfolio of investments as at 30 April 2017 is available on the Company's website, www.mitongroup.com/micro

 

 

Portfolio exposure by sector

%

1

Technology

20.1%

2

Industrials

18.5%

3

Consumer Goods

15.6%

4

Consumer Services

10.9%

5

Financial Services

10.2%

6

Health Care

8.8%

7

Basic Materials

6.1%

8

Utilities

4.9%

9

Oil and Gas

4.9%

 

 

100.0%

 

 

 

Portfolio by asset allocation

%

1

AIM

89.6%

2

FTSE SmallCap Index

4.3%

3

Other UK Equities

3.6%

4

FTSE Fledgling Index

2.5%

 

 

100.0%

 

 

 

Portfolio by spread of investment income to 30 April 2017

 

1

AIM

79.8%

2

FTSE SmallCap Index

10.8%

3

FTSE Fledgling Index

5.7%

4

Other UK Equities

3.7%

 

 

100.0%

 

 

 

Estimated annual income by sector1

%

1

Industrials

31.4%

2

Financial Services

22.9%

3

Technology

15.2%

4

Consumer Goods

9.0%

5

Consumer Services

8.3%

6

Basic Materials

7.1%

7

Utilities

5.8%

8

Health Care

0.3%

9

Oil & Gas

0.0%

 

 

100.0%

 

 

1 Projected income based on portfolio as at 30 April 2017.

Source: Interactive Data.

 

 

BUSINESS MODEL

 

Business and Status of the Company

MINI was incorporated on 26 March 2015 and its Ordinary shares were listed on the London Stock Exchange on 30 April 2015. It is registered in England as a public limited company and is an investment company in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006.

 

The principal activity of the Company is to carry on business as an investment trust. The Company intends at all times to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Sections 1158/1159 of the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any change in this activity in the foreseeable future.

 

The Company has been granted approval from HM Revenue & Customs ("HMRC") as an investment trust under S1158/1159 and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval.

 

The principal conditions that must be met for continuing approval by HMRC as an investment trust are that the Company's business should consist of "investing in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results" and the Company may only retain 15% of its investment income without distributing it as dividend payments. The Company must also not be a close company. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 April 2017 so as to be able to continue to qualify as an investment trust.

 

The Company's status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments and all other net capital gains. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at lower cost and the ability to hold illiquid positions in uncertain market conditions.

 

Investment Objective

The investment objective of the Company is to provide shareholders with capital growth over the long term.

 

Investment Policy

The Company invests primarily in the smallest companies, measured by their market capitalisation, quoted or traded on an exchange in the United Kingdom at the time of investment. It is likely that the majority of the microcap companies held in the Company's portfolio will be quoted on AIM and will typically have a market capitalisation of less than £150 million at the time of investment. The Company may also invest in debt, warrants or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies.

 

The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions.

 

If companies in the portfolio achieve organic growth or grow through corporate activity such as acquisitions, and consequently have a market capitalisation that would place them outside the investable universe, the Investment Manager will not be obliged to sell those holdings, but the proportion of the portfolio in such companies will be carefully monitored by the Investment Manager and the Board so that the overall investment policy to invest in the smallest quoted or traded companies is not materially altered.

 

The Company's portfolio is expected to be diversified by industry and market of activity. No single holding will represent more than 15% of Gross Assets at the time of investment and, when fully invested, the portfolio is expected to have over 120 holdings although there is no guarantee that will be the case and it may contain a lesser number of holdings at any time.

 

The Company will have the flexibility to invest up to 10% of its Gross Assets at the time of investment in unquoted or untraded companies, or in any one unquoted or untraded company.

 

The Company will invest no more than 10% of Gross Assets at the time of investment in other investment funds.

 

Borrowing

The Company may deploy borrowing to enhance long-term capital growth. Gearing will be deployed flexibly up to 15% of the Net Asset Value, at the time of borrowing. In the event this limit is breached as a result of market movements, and the Board considers that borrowing should be reduced, the Investment Manager shall be permitted to realise investments in an orderly manner so as not to prejudice shareholders.

 

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

 

PERFORMANCE AND RISKS

 

Key Performance Indicators

 

The Board reviews the Company's performance by reference to a number of key performance indicators ("KPIs") and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole.

 

The Board and the Investment Manager monitor the following KPIs:

 

§ NAV performance, relative to the AIM All-Share Index and other comparable investment trusts and open-ended funds

The Ordinary share NAV at 30 April 2017 was 64.27p per share (30 April 2016: 54.91p), giving a total return of 17.3% (30 April 2016: 12.1%) over the year. This compares with the UK Investment Trust Smaller Companies sector, where the average was a 27.9% increase in total return terms over the same period. By comparison, the total return on the FTSE AIM All-Share Index was 34.5% over the year.

 

§ NAV correlation to mainstream indices

The Company has an objective to deliver a low NAV correlation with the FTSE 100 and FTSE All-Share Indices. Correlation data is presented in the full Annual Report.

 

§ Movements in the Company's share price

The Company's Ordinary share price increased by 9.7% (30 April 2016: 13.5%) over the year on a capital return basis.         

 

§ The discount/premium of the share price in relation to the NAV

The Company has an objective to keep the discount to NAV at a minimum. Over the year to 30 April 2017, the Company has maintained an average discount to Ordinary share NAV of 1.4%. The share price has ranged from a premium of 4.9% to a discount of 8.0% to the Ordinary share NAV during the period.

 

§ Ongoing charges

The ongoing charges on the Ordinary shares for the period to 30 April 2017 amounted to 1.47% (30 April 2016: 1.76%) of total assets.

 

Principal Risks and Uncertainties

 

The Company is exposed to a variety of risks and uncertainties that could cause its asset price or the income from the investment portfolio to reduce, possibly by a sizeable percentage in the most adverse circumstances. The principal financial risks and the Company's policies for managing these risks and the policy and practice with regard to the portfolio are summarised in note 18 to the financial statements.

 

The Board, through delegation to the Audit Committee, undertakes a robust annual assessment and review of the principal risks facing the Company, together with a review of any new risks which may have arisen during the year, including those that would threaten its business model, future performance, solvency or liquidity. These risks are formalised within the Company's risk matrix. Information regarding the Company's internal control and risk management procedures can be found in the Corporate Governance Statement in the full Annual Report.

 

Listed below is a summary of the principal risks identified by the Board and actions taken to mitigate those risks.

 

Risk

Mitigation

Investment and strategy

There can be no guarantee that the investment objective of the Company will be achieved.

 

The Company will invest primarily in the smallest UK quoted or traded companies by market capitalisation. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile.

 

These companies may be less liquid and, when aggregated with holdings in other client funds of the Investment Manager, the combined funds may have a significant percentage ownership of investee companies.

The Company is reliant on its Investment Manager's investment process. The Board reviews and discusses the investment approach at each Board meeting. The Investment Manager has long experience of managing portfolios of this nature, including dealing in smaller capitalisation companies, and deploying an approach that is designed to maximise the chances of the investment objective being achieved over longer-term time horizons.

 

The Board looks to mitigate the higher risk profile of individual smaller companies by ensuring the Company holds a well-diversified portfolio, both by number of companies and areas of operation. This is monitored at each Board meeting.

 

The Company is structured as a closed ended fund, which means that it is not subject to daily inflows and outflows.

 

Reliance on third parties

The Company has no employees and is reliant on the performance of third party service providers. Failure by the Investment Manager or any other third party service provider to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company. This could include failure of a counterparty on whom the Company is reliant.

 

The Board monitors and receives reports, where appropriate, on the performance of its key service providers. In relation to the risk of counterparty failure, the Board undertakes regular reviews of the controls applied by the Depositary.

 

The Board may in any event terminate all key contracts on normal market terms.

 

Share price volatility and liquidity/marketability risk

The market price of the Ordinary shares, as with shares in all investment trusts, may fluctuate independently of their underlying NAV and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary shares, market conditions and general investor sentiment. The Company becomes too small to be attractive to a wide audience and liquidity decreases and the discount widens.

The Company has in place an annual redemption facility whereby shareholders can voluntarily tender their shares. The Board monitors the relationship between the share price and the NAV. The Company has powers to repurchase shares should there be an imbalance in the supply and demand leading to a persistent and excessive discount. The Investment Manager maintains regular dialogue with shareholders through monthly factsheets and regular face-to-face meetings.

 

Costs of operation

 

As stated, the Company relies on external service providers. Many of these are paid on a basis where their fees are related to the size of the Company (an "ad valorem" basis). Others are for fixed monetary amounts. Therefore, if the Company were to shrink, through redemptions, buybacks or asset performance, the cost per share of running the Company would increase. This could make it harder to achieve the investment objective.

 

The Board monitors the costs of all service providers. The Board is also committed to the controlled growth of the Company which would spread the fixed costs over a larger asset base. In the event that the Company were to decrease in size from its current level, the Board has capped the total costs at no more than 2% of the aggregate market capitalisation. 

Regulatory risk/change in tax status

 

The Company is subject to laws and regulations enacted by national and local governments. Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy.

The Board receives regular updates from its Secretary, industry representatives and its Investment Manager on significant regulatory changes that may impact the Company. The Company's ability to determine the shape of regulatory or tax changes is limited and therefore the Board aims to ensure that it is well informed and prepared to respond to changes as required.

 

 

 

SHARE CAPITAL

 

Share Issues

At the Annual General Meeting held on 29 September 2016, the Directors were granted the authority to allot up to 250 million Ordinary shares of £0.001 each and/or C shares of £0.01 each, to an aggregate nominal amount of £250,000 in Ordinary shares or £2,500,000 in C shares on a non pre-emptive basis. This authority is due to expire at the Company's Annual General Meeting to be held on 14 September 2017. Proposals for the renewal of the authority are set out in the Report of the Directors in the full Annual Report. The allotments made by the Directors under this authority are detailed below.

 

C share issue and conversion

On 19 July 2016, the 56,000,000 C shares of £0.01 issued on 19 February 2016 converted into Ordinary shares at the ratio of 0.9630 Ordinary shares for every C share, calculated in line with the Prospectus dated 4 February 2016. This resulted in the issue of 53,927,917 new Ordinary shares on 20 July 2016. The Ordinary shares were allotted to the holders of C shares, which comprised institutional investors, discretionary private wealth managers and UK retail investors.

 

Ordinary share issues

On 28 July 2016, the Company announced it had made an application for a block listing of 15,000,000 Ordinary shares. Any Ordinary shares issued pursuant to the block listing facility would be issued subject to the terms and conditions of the Company's share issuance programme set out in the Prospectus dated 4 February 2016. On 2 August 2016, the Company issued 850,000 Ordinary shares pursuant to its block listing. The Ordinary shares were issued at a price of 53.75 pence per Ordinary share, raising £0.46 million before expenses.

 

On 31 January 2017, the Company announced its intention to raise funds through the issue of Ordinary shares of £0.001 each in the Company on a non pre-emptive basis pursuant to the share issuance programme set out in the Company's prospectus dated 4 February 2016, as updated by the supplementary prospectus dated 30 September 2016. Applications were received under the issue for 8,318,084 Ordinary shares at a price of 60.11 pence per Ordinary share and these shares commenced trading on the London Stock Exchange on 3 February 2017. The Ordinary shares were allotted to institutional investors, discretionary private wealth managers and UK retail investors.

 

Share Redemptions

Valid redemption requests were received under the Company's redemption facility for the 28 April 2017 Redemption Point in relation to 1,934,487 Ordinary shares, representing 1.12% of the issued share capital. All of these shares were redeemed and cancelled by the Company following the year end on 15 May 2017. All shareholders who validly applied to have shares redeemed received a calculated Redemption Price of 64.13p per share.

 

Purchase of Own Shares

At the Annual General Meeting of the Company held on 29 September 2016, the Directors were granted the authority to buy back up to 24,698,710 Ordinary shares. No Ordinary shares have been bought back under this authority. The authority will expire at the forthcoming Annual General Meeting, when a resolution for its renewal will be proposed (see the Report of the Directors in the full Annual Report for further information).

 

Treasury Shares

Shares bought back by the Company may, at the Board's discretion, be held in treasury, from where they could be re-issued at a premium to NAV quickly and cost effectively. This provides the Company with additional flexibility in the management of its capital base. No shares were purchased for, or held in, treasury during the year or since the year end.

 

Current Share Capital

As at the year end, there were 173,086,001 Ordinary shares and 50,000 Management shares (see note 4 to the financial statements) in issue. Subsequent to the year end, 1,934,487 Ordinary shares were redeemed and cancelled in respect of the 28 April 2017 Redemption Point. As at the date of this Report, there were 171,151,514 Ordinary shares and 50,000 Management shares in issue.

 

The rights attached to each share class are set out in the full Annual Report.

 

There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.

 

MANAGEMENT, SOCIAL, ENVIRONMENTAL AND DIVERSITY MATTERS

 

Management Arrangements

The Company's investment manager is Miton Trust Managers Limited (the ''Investment Manager''). The Investment Manager is responsible for the management of the Company's portfolio in accordance with the Company's investment policy and the terms of the Management Agreement dated 8 April 2015. The Investment Manager has delegated investment management to Miton Asset Management Limited. Both the Investment Manager and Miton Asset Management Limited are authorised and regulated by the FCA.

 

The Board has appointed Miton Trust Managers Limited as the alternative investment fund manager ("AIFM") of the Company.

 

Under the terms of the Management Agreement, the Investment Manager is entitled to a management fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The management fee is payable monthly in arrears and is at the rate of 1% per annum, calculated in respect of each calendar month, of the market capitalisation at the relevant calculation date.

 

In addition to the basic management fee, and for so long as a Redemption Pool (see full Annual Report for details) is in existence, the Investment Manager is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month.

 

The Investment Manager has agreed that, for so long as it remains the Company's investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower.

 

In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.

 

The Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including the insolvency or in the event of a material breach by the Investment Manager of the Management Agreement which is not remedied within thirty days of the receipt of notice.

 

The Company has given certain market standard indemnities in favour of the Investment Manager in respect of the Investment Manager's potential losses in carrying on its responsibilities under the Management Agreement.

 

The Board appointed Bank of New York Mellon as its Depositary and Custodian under an agreement dated 8 April 2015. The annual fee for depositary services due to Bank of New York Mellon is 0.025% per annum of gross assets, subject to a minimum fee of £15,000. The Company and the Depositary may terminate the Depositary Agreement with three months' written notice.

 

Company secretarial services are provided by Capita Company Secretarial Services Limited, under an agreement dated 8 April 2015 between the Company and Capita Registrars Limited, for a current annual fee of £57,276 per annum, increasing annually in line with the UK Retail Prices Index. The Company Secretarial Services Agreement was for an initial period of 12 months and thereafter automatically renews for successive periods of six months unless or until terminated by either party on at least six months' written notice.

 

Administrative Services are provided by Capita Sinclair Henderson Limited under an agreement dated 8 April 2015 for a fee of £87,000 for the second year of the agreement. The Administration Agreement may be terminated by either party on at least six months' prior written notice.

 

Continuing Appointment of the Investment Manager

The Board, through the Management Engagement Committee, keeps the performance of the Investment Manager under continual review, and the Management Engagement Committee conducts an annual appraisal of the Investment Manager's performance, and makes a recommendation to the Board about the continuing appointment of the Investment Manager. It is the opinion of the Directors that the continuing appointment of the Investment Manager is in the interests of shareholders as a whole. The Board believes that the Investment Manager has executed the investment strategy in line with the Prospectus.

 

The Directors also believe that by paying the management fee calculated on a market capitalisation basis, rather than a percentage of assets basis, the interests of the Investment Manager are more closely aligned with those of shareholders.

 

Environmental, Human Rights, Employee, Social and Community Issues

The Company does not have any employees and the Board consists entirely of non-executive Directors. Day-to-day management of the business is delegated to the Investment Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly.

 

Modern Slavery Act

The Company is not within the scope of the Modern Slavery Act 2015 because it has insufficient turnover and is therefore not obliged to make a human trafficking statement.

 

Gender Diversity

The Board of Directors of the Company comprises one female and three male Directors.

 

The Board adopted a Diversity Policy in March 2017 and acknowledges the benefits of greater diversity, including gender diversity, and remains committed to ensuring that the Company's Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives.

 

On behalf of the Board

 

 

Andy Pomfret

Chairman

18 July 2017

 

GOING CONCERN

 

The Directors consider that it is appropriate to adopt the going concern basis. Cashflow projections have been reviewed and show that the Company has sufficient funds to meet its contracted expenditure. On the basis of the review and as the majority of net assets are securities which are traded on recognised stock exchanges, after making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved.

 

VIABILITY STATEMENT

 

In accordance with the AIC Code of Corporate Governance, the Board has considered the prospects for the Company.

 

The period assessed is the three years to July 2020. The Company is intended to be a long-term investment vehicle. It was launched two years ago, and due to the limitations and uncertainties inherent in predicting market and political conditions, the Directors have determined that three years is the appropriate period over which to make this assessment.

 

As part of its assessment of the viability of the Company, the Board has considered the principal risks and uncertainties and the impact on the Company's portfolio of a significant fall in UK markets.

 

To provide this assessment, the Board has considered the Company's financial position and its ability to liquidate its portfolio to meet its expenses or other liabilities as they fall due:

 

§ The Company invests largely in companies listed and traded on stock exchanges. These are actively traded and, whilst perhaps less liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and industry sector;

 

§ The expenses of the Company are predictable and modest in comparison with the assets in the portfolio. There are no commitments that would change that position;

 

§ The Company has no employees; and

 

§ The Company has an annual redemption facility whereby shareholders may request that their shares are redeemed at NAV. The Board has considered the possibility that shareholders holding a significant percentage of the Company's shares request redemption. Firstly, the Board has flexibility over the method and date of redemption so can avoid disruption to the overall operation of the Company in this situation. Secondly, the Company has an arrangement with the Manager to rebate fees should total costs exceed 2% of aggregate market capitalisation, such that were there to be significant redemption, or a significant fall in the value of the portfolio, the expenses of operation would be manageable. In addition, many of the expenses vary in line with the size of the Company.

 

In addition to considering the principal risks above and the financial position of the Company as described above, the Board has also considered the following further factors:

 

§ the continuing relevance of the Company's investment objective in the current environment and the continued satisfactory performance of the Company;

 

§ the level of demand for the Company's shares and that since launch the Company has been able to issue further shares;

 

§ the gearing policy of the Company; and

 

§ that regulation will not increase to such an extent that the costs of running the Company become uneconomical.

 

Accordingly, the Directors have formed the reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the Company's financial statements in accordance with applicable United Kingdom law and International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with IFRS. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

 

In preparing the Company's financial statements, the Directors are required to:

 

§ select suitable accounting policies in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;

 

§ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

 

§ provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;

 

§ state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

 

§ make judgements and estimates that are reasonable and prudent.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Company's financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes the information required by the Listing Rules of the Financial Conduct Authority.

 

The financial statements are published on the Company's website, www.mitongroup.com/micro, which is maintained on behalf of the Company by the Investment Manager. Under the Management Agreement, the Investment Manager has agreed to maintain, host, manage and operate the Company's website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

 

We confirm that to the best of our knowledge:

 

§ the Company's financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

 

§ this 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 it faces.

 

The Directors consider that the Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

On behalf of the Board

 

 

Andy Pomfret

Chairman

18 July 2017

 

 

NON-STATUTORY ACCOUNTS

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 April 2017 but is derived from those accounts. Statutory accounts for the year ended 30 April 2017 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report at: www.mitongroup.com/micro.

 

 

INCOME STATEMENT

of the Company for the year ended 30 April 2017

 

 

Year ended

30 April 2017

For the period

26 March 2015 to 30 April 2016

 

 

Revenue

Capital

 

Revenue

  Capital

 

 

 

return

return

Total

return

   return

 Total

 

Note

 £'000 

 £'000 

£'000 

 £'000 

£'000 

£'000 

Gains on investments held at fair value through profit or loss

12

16,113 

16,113 

8,174 

8,174 

Foreign exchange gains

 

20 

20 

Income

2

1,531 

1,531 

955 

955 

Management fee

7

(235)

(705)

(940)

(161)

(484)

(645)

Other expenses

8

(471)

(471)

(428)

(428)

Return on ordinary activities before finance costs and taxation

 

825 

15,428 

16,253 

 

366 

 

7,690 

 

8,056 

Finance costs

9

1,969 

1,969 

(15)

(1,988)

(2,003)

Return on ordinary activities before taxation

 

825 

17,397 

18,222 

351 

5,702 

6,053 

Taxation

10

(3)

(3)

(4)

(4)

Return on ordinary activities after taxation

 

822 

17,397 

18,219 

347 

5,702 

6,049 

Return on ordinary activities for the period analysed as follows:

 

 

 

 

 

 

 

Attributable to Ordinary shares

 

822 

17,397 

18,219 

347 

5,702 

6,049 

Return per Ordinary share (pence)

3

0.53 

11.24 

11.77 

0.32 

5.32 

5.64 

 

 

 

 

 

 

 

 

For information

 

 

 

 

 

 

 

Attributable to C shares

 

N/A

N/A

N/A

15 

1,460 

1,475 

Return per C share (pence)

3

N/A

N/A

N/A

0.03 

2.61 

2.63 

 

 

The total column of this statement is the Income Statement of the Company prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. The supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

 

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

 

There is no other comprehensive income and, therefore, the profit for the year after tax is also the total comprehensive income.

 

 

STATEMENT OF CHANGES IN EQUITY

of the Company for the year ended 30 April 2017

 

 

 

Share

 

 

 

 

Share

premium

Capital

Revenue

 

 

capital

account

reserve

reserve

Total

For the year ended 30 April 2017

Note

£'000

   £'000 

£'000

£'000

£'000 

As at 30 April 2016

 

160

54,183 

5,702

347

60,392 

Total comprehensive income:

 

 

 

 

 

 

     Net return for the period

 

-

17,397

822

18,219 

Transactions with shareholders recorded directly to equity:

 

 

 

 

 

 

 

Issue of Ordinary shares

4

9

5,448 

-

-

5,457 

 

Expenses of share issues*

 

-

(75)

-

-

(75)

 

Conversion of C shares

4

54

27,430 

-

-

27,484 

 

Equity dividends paid

11

-

-

     (231)

(231)

As at 30 April 2017

 

223

86,986 

23,099

938

111,246 

                 

 

 

*Costs directly attributable to issue of Ordinary shares.

 

 

 

 

 

Share

 

 

 

 

 

Share

premium

Capital

Revenue

 

 

 

capital

account

reserve

reserve

Total

For the period 26 March 2015 to 30 April 2016

£'000

 £'000 

£'000

£'000

£'000 

As at 26 March 2015

 

-

-

-

Total comprehensive income:

 

 

 

 

 

 

     Net return for the period

 

-

5,702

347

6,049 

Transactions with shareholders recorded directly to equity:

 

 

 

 

 

 

 

Issue of Ordinary shares

 

110

55,240 

-

-

55,350 

 

Expenses of share issue

 

-

(1,057)

-

-

(1,057)

 

Issue of Management shares

 

50

-

-

50 

As at 30 April 2016

 

160

54,183 

5,702

347

60,392 

 

 

BALANCE SHEET

of the Company as at 30 April 2017

 

 

 

Note

2017

£'000

26 March 2015

to 30 April

2016

£'000

Non-current assets:

 

 

 

        Investments held at fair value through profit or loss

12

107,979

75,700

Current assets:

 

 

 

 

Trade and other receivables

14

178

232

 

Cash at bank and cash equivalents

 

3,245

14,708

Total assets

 

111,402

90,640

Liabilities and equity

 

 

 

Liabilities

 

 

 

 

Trade and other payables

15

156

773

 

Financial liabilities (C shares)

13

-

29,475

Total liabilities

 

156

30,248

Equity

 

 

 

 

Share capital

4

223

160

 

Share premium account

 

86,986

54,183

 

Capital reserve

 

23,099

5,702

 

Revenue reserve

 

938

347

Total equity

 

111,246

60,392

Total liabilities and equity

 

111,402

90,640

 

 

pence

pence

Net asset value attributable per Ordinary share

5

64.27

54.91

Net asset value attributable per C share

5

 

52.63

 

 

These financial statements were approved by the Board of Miton UK MicroCap Trust plc on 18 July 2017 and were signed on its behalf by:

 

Andy Pomfret

Chairman

 

Company No: 09511015

 

The notes below form part of these financial statements.

 

STATEMENT OF CASH FLOWS

for the Company for the year ended 30 April 2017

 

 

 

 

2017 

£'000 

26 March 2015 

to 30 April 

2016 

£'000 

Operating activities:

 

 

 

Net return before taxation

18,222 

6,053 

 

Gain on investments held at fair value through profit or loss

(16,113)

(8,174)

 

Purchase of investments

(39,339)

(71,973)

 

Sale of investments

22,694 

4,447 

 

Increase in trade and other receivables

(12)

(232)

 

(Decrease)/increase in trade and other payables

(78)

773 

 

Add back finance costs

(1,969)

2,003 

 

Witholding tax paid

(3)

(4)

Net cash outflows from operating activities

(16,598)

(67,107)

 

 

 

 

 

 

Financing activities

 

 

 

Ordinary shares issued

5,457 

55,350 

 

Expenses of Ordinary share issues

(72)

(1,057)

 

Equity dividends paid

(231)

 

C shares issued

28,000 

 

Expenses of C share issue

(19)

(528)

 

Management shares issued

50 

Net cash inflows from financing activities

5,135 

81,815 

(Decrease)/increase in cash and cash equivalents

(11,463)

14,708 

 

 

 

Reconciliation of net cash flow movement in funds:

 

 

 

Cash and cash equivalents at the start of the period

14,708 

 

Net cash (outflow)/inflow from cash and cash equivalents

(11,463)

14,708 

Cash at the end of the period

3,245 

14,708 

 

 

 

 

 

 

 

 

2017 

2016 

 

 

 

£'000 

£'000 

Cash received during the period includes:

 

 

 

Dividends received

1,511 

817 

 

 

*For the period 26 March 2015 to 30 April 2016.

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1 Accounting Policies

Miton UK MicroCap Trust plc is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010.

 

The Company's financial statements for the year ended 30 April 2017 have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the provisions of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

 

Basis of Preparation

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement.

 

The financial statements are presented in Sterling, which is the Company's functional currency as the UK is the primary environment in which it operates, rounded to the nearest £'000, except where otherwise indicated.

 

Going Concern

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

 

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of 12 months from the date these financial statements were approved. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

 

Segmental Reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company primarily invests in companies listed in the UK.

 

Accounting Developments

The accounting policies are consistent with those of the previous financial year. The following accounting standards and their amendments were in issue at the period end but will not be in effect until after this financial year end. The Directors are considering the impact these accounting standards will have on the financial statements.

 

International Financial Reporting Standards

Effective date

IAS 7 Statement of Cash Flows

1 January 2017

IFRS 7 Financial Instruments (IFRS 9 Disclosures)

1 January 2018

IFRS 9 Financial Instruments

1 January 2018

IFRS 15 Revenue from Contracts with Customer

1 January 2018

IFRS 16 Leases

1 January 2019

 

Critical Accounting Judgements and Key Sources of Estimation Uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There were no significant accounting estimates or judgements in the current period.

 

Share Capital

The Company is a closed-ended investment company with an unlimited life. As defined in the Articles of Association, redemption of Ordinary shares is at the sole discretion of the Directors, therefore the Ordinary shares have been classified as equity.

 

The issuance, acquisition and resale of Ordinary shares are accounted for as equity transactions and no gain or loss is recognised in the Income Statement.

 

In accordance with paragraph 11 of IAS 32 (Financial Instruments: Presentation), when the Company has C shares in issue, these C shares are required to be classified as a financial liability prior to conversion due to the inherent variability of the number of Ordinary shares attributable to C shareholders on conversion. The income, expenses and capital gains or losses generated by the C share pool of assets during the period they are in existence, are included in the Income Statement in their respective categories and the total is charged or credited back within finance costs in the capital column of the Income Statement. The issue costs of the C shares are also recognised as a finance cost and charged to the capital column of the Income Statement.

 

Investments

The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors.

 

Upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). When a purchase or sale is made under a contract, the terms of which require delivery within the time-frame of the relevant market, the investments concerned are recognised or derecognised on the trade date. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments this is deemed to be bid market prices or closing prices for Stock Exchange Electronic Trading Service - quotes and crosses ('SETSqx'). Changes in fair value of investments are recognised in the Income Statement as a capital item. On disposal, realised gains and losses are also recognised in the Income Statement as capital items.

 

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 13.

 

Financial liabilities

In accordance with IAS 32, at 30 April 2016, any financial assets attributable to the Company's C shares were designated as a financial liability, due to the obligation to convert the C shares to Ordinary shares and the inherent variability of the number of Ordinary shares that was attributable to the C shareholders on conversion.

 

The liability to the C shareholders was recognised at amortised costs, being the net value of assets and liabilities attributable to the C class shareholders at the Balance Sheet date of the C shares.

 

The C Shares were converted to Ordinary Shares on 19 July 2016.

 

Foreign currency

The Financial Statements have been prepared in Sterling, rounded to the nearest £'000, which is the functional and reporting currency of the Company.

 

Transactions denominated in foreign currencies are converted to Sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature.

 

Cash and Cash Equivalents

For the purposes of the Balance Sheet, cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly-liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

 

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

 

Trade receivables, trade payables and short term borrowings

Trade receivables and payables are measured at amortised cost.

 

Income

Dividends received from UK-registered companies are accounted for net of imputed tax credits. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes, which are presented separately in the Income Statement.

 

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis.

 

Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case by case basis.

 

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

 

Expenses and Finance Costs

All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns the Company charges 75% of its management fee to capital.

 

Expenses incurred directly in relation to placings and offers for subscription of shares are deducted from equity and charged to the share premium account.

 

Finance costs of any C shares issued by the Company during the period, (which were classified as a liability) would be recognised as an expense and shown in the capital column of the Income Statement.

 

Taxation

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date based on tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the AIC SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

 

The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes.

 

The actual charge for taxation in the Income Statement relates to irrecoverable withholding tax on overseas dividends received during the year.

 

Dividends Payable to Shareholders

Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

 

Revenue Reserves

The revenue reserve represents the surplus of accumulated profits and can be distributed.

 

Capital Reserve

Capital Reserve - other

The following are taken to this reserve:

§ gains and losses on the disposal of investments;

§ exchange difference of a capital nature; and

§ expenses together with the related taxation effect, allocated to this reserve in accordance with the above policies.

 

Capital Reserve - investment holding gains

The following are taken to this reserve:

§ increase and decrease in the valuation of investments held at the year end.

 

Share Premium

The share premium account represents the accumulated premium paid for shares issued in current and previous periods above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve:

§ costs associated with the issue of equity; and

§ premium on the issue of shares.

 

2 Income

 

 

 

 

Period to 30 April 2016

 

 

Year ended

30 April 2017

Total

£'000

 

Ordinary

share

£'000

 

C

 share £'000

 

 

Total

£'000

Income from investments

 

 

 

 

 

UK dividends

1,244

723

55

778

 

Unfranked dividend income

283

177

177

 

Underwriting commission

4

Total income

1,531

900

55

955

 

 

3 Return per Share

 

Returns per share are based on the weighted average number of shares in issue during the period. Basic and diluted return per share are the same as there are no dilutive elements on share capital. There was no dilutive effect as a result of the conversion of the C shares on 19 July 2016.

 

 

 

 

Year ended 30 April 2017

                               Ordinary shares                                     

 

Revenue

Capital

Total

 

£'000

£'000

£'000

Net profit

822

17,397

18,219

Weighted average number of shares in issue

 

 

154,839,150

Return per share (pence)

0.53

11.24

11.77

 

 

 

 

 

Period ended 30 April 2016

 

                 Ordinary Shares                         

C Shares

 

  Revenue Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Net profit

347

5,702

6,049

15

1,460

1,475

Weighted average number of shares in issue

 

 

107,273,065

 

 

56,000,000

Return per share (pence)

0.32

5.32

5.64

0.03

2.61

2.63

 

The C shares were classified as a financial liability prior to conversion and, as such, the return on ordinary activities of the C shares was charged back within finance costs (see note 9).

 

4 Share Capital

 

 

 

Number of

Ordinary

shares


£'000

Ordinary shares of £0.001 each

 

 

 

At beginning of period

                         109,990,000 

                                   110   

 

C share conversion

53,927,917 

54

 

Subscriptions

9,168,084 

 

Redemptions

-  

-  

 At end of period

173,086,001 

173 

 

 

The Company was incorporated on 26 March 2015 with an issued share capital of £50,000 represented by 50,000 Management shares of £1.00 each.

 

On 28 July 2016, the Company announced it had made an application for a block listing of 15,000,000 Ordinary shares. Any Ordinary shares issued pursuant to the block listing facility would be issued subject to the terms and conditions of the Company's share issuance programme set out in the Prospectus dated 4 February 2016.

 

On 2 August 2016, the Company issued 850,000 Ordinary shares pursuant to its block listing. The Ordinary shares were issued at a price of 53.75 pence per Ordinary share, raising £0.46 million before expenses.

 

On 3 February 2017, the Company issued 8,318,084 Ordinary shares at a price of 60.11 pence per Ordinary Share raising £5 million before expenses. These shares were issued under the Company's share issuance programme as described by the supplementary prospectus published on 30 September 2016.

 

The rights attaching to each share class are set out in the full Annual Report.

 

Redemption of Ordinary Shares

The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of Ordinary shares on an annual basis on 30 April in each year. As set out in the Articles of Association, the Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. Accordingly, the Ordinary shares have been classified as equity.

 

In the year to 30 April 2017, valid redemption requests for 1,934,487 (2016: 337,231) Ordinary shares, representing 1.12% (2016: 0.20%) of the issued share capital, were made. All of the 1,934,487 shares were cancelled on 15 May 2017 (2016: 337,231 shares were matched with buyers and sold on the main market). All shareholders who validly applied to have shares redeemed received a calculated Redemption Price of 64.13p (2016: 55.10p) per share being the NAV per Ordinary share at the Redemption Point.

 

C Shares

On 2 February 2016, the Board announced the proposed issue of up to 250 million new Ordinary and/or C shares resulting in the issue of 56,000,000 C shares on 19 February 2016.

 

On 19 July 2016, the C shares were converted into Ordinary shares at the ratio of 0.9630 Ordinary shares for every C share resulting in the issue of 53,927,917 new Ordinary shares.

 

As the rates at which the C shares were convertible to Ordinary shares was variable per the terms of the prospectus the C shares were required to be classified as a financial liability in the Balance Sheet as at 30 April 2016. This is in line with the provisions of IAS 32.

 

Management Shares

50,000 Management shares with a nominal value of £1 each were allotted to Miton Trust Managers Limited on the date of incorporation. These shares have been fully paid up.

 

The Management shares are non-voting and non-redeemable and, upon a winding-up or on a return of capital of the Company, shall only receive the fixed amount of capital paid up on such shares and shall confer no right to any surplus capital or assets of the Company.

 

5 Net Asset Value

 

The NAVs per Ordinary share and C share and the NAVs attributable at the period end were as follows:

 

 

 

30 April 2017

30 April 2016

 

 

Ordinary share

Ordinary share

C share

 

 

Net asset

value

per share

pence

Net assets

attributable £'000

Net asset

value

per share

pence

Net assets attributable

£'000

Net asset

value

per share

pence

Net assets attributable

£'000

Basic and diluted

64.27

111,246

54.91

60,392

52.63

29,475

 

 

NAV per Ordinary share is based on net assets at the year end and 173,086,001 Ordinary shares (2016: 109,990,000), being the number of Ordinary shares in issue at the year end.

 

NAV per C share is based on net assets at the year end and on nil C shares (2016: 56,000,000), being the number of C shares in issue at the year end.

 

Net assets of £1.00 per Management share is based on net assets at the year end of £50,000 (2016: £50,000) and attributable to 50,000 Management shares at the year end. The shareholders have no right to any surplus capital or assets of the Company.

 

6 Transaction Costs

 

During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

 

 

 

 

 

 

 

 

 

30 April 2016

 

 

30 April

2017

Ordinary share

C share

 

 

 £'000

£'000

£'000

Costs on acquisitions

38

107

18

Costs on disposals

28

5

-

 

 

 66

112

18

 

 

These transaction costs are dealing commissions paid to stockbrokers and stamp duty, a government tax paid on transactions (which is zero when dealing on the AIM/ISDX exchanges). A breakdown of these costs is set out below:

 

 

 

 

30 April 2017

30 April 2016

 

 

 

 

 

Ordinary

share

£'000

% of

average monthly

net assets

in the year

 

 

Ordinary

share

£'000

% of

average monthly

net assets

in the year

 

 

 

C share

£'000

% of

average monthly net assets in the year

Costs paid in dealing commissions

56

0.06

75

0.13

13

0.05

Costs of stamp duty

 

10

0.01

37

0.07

5

0.02

 

 

 

66

0.07

112

0.20

18

0.07

 

 

The average monthly net assets of the Ordinary shares for the year to 30 April 2017 was £95,965,401 (2016: £56,282,312).

 

The average monthly net assets of the C shares from their launch in February 2016 to 30 April 2016 was £28,351,661.

 

Investments are valued at fair value which is bid value for listed securities.

 

7 Management Fee

 

The AIFM is entitled to receive from the Company in respect of its services provided under the Management Agreement a management fee for both the Ordinary share and C share classes (when in issue), payable monthly in arrears and calculated at the rate of 1% per annum of the market capitalisation of each share class as at the relevant calculation date.

 

In addition to the basic management fee, and when a Redemption Pool is in existence, the AIFM is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month.

 

The AIFM has agreed that, for so long as it remains the Company's investment manager, it will not charge such part of any management fee payable to it so that the Company can maintain an ongoing charges ratio of 2% or lower. The ongoing charges ratio for the period is 1.47% (2016: 1.76%) for the Ordinary shares, and as such is below 2%. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.

 

 

 

 

 

 

 

 

 

30 April 2017

30 April 2016

 

 

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Management fee

 

 

 

 

235

705

940

161

484

645

 

 

At 30 April 2017, an amount of £87,000 was outstanding and due to Miton Trust Managers Limited in respect of management fees (30 April 2016: £104,000 for the Ordinary share pool and £49,000 for the C share pool).                                                                       

 

8 Other Expenses

 

 

 

30 April 2017

30 April 2016

 

 

Ordinary

Ordinary

C

 

 

 

share

share

share

Consolidated

 

 

£'000

£'000

£'000

£'000

Secretarial services

142

122

-

122

Auditor's remuneration for:

 

 

 

 

 

Audit of the Company's financial statements

23

25

-

25

 

Half year review

8

-

-

-

Directors' fees

114

119

-

119

Other expenses

184

136

26

162

 

 

471

402

26

428

 

 

During the year ended 30 April 2017, in addition to the Auditor's remuneration shown above, £10,000 was charged on the C share conversion. This cost was charged to capital in line with the prospectus. Therefore audit remuneration for audit services was £23,000 and non audit services was £18,000 excluding VAT.

 

In the year ended 30 April 2016 in addition to the Auditor's remuneration shown above £25,000 was charged on the Ordinary share issue and £34,000 was charged on the C share issue. These costs were charged to capital in line with the prospectus. In respect of the C shares issue, a £34,000 fee was incurred and was charged through finance costs. Therefore, audit remuneration for audit services was £25,000 and non audit services was £59,000 excluding VAT. 

 

9 Finance Costs

 

 

 

 

30 April 2017

Ordinary share

 

 

 

Capital 

Total 

 

 

 

£'000

£'000 

£'000 

Finance costs:

 

 

-

(1,969)

(1,969)

Net loss allocated to C shares

 

 

-

(1,969)

(1,969)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 April 2016

 

 

Ordinary share

C share

Consolidated

 

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital 

Total 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000 

£'000 

Finance costs:

Net Gain allocated to C shares

                              -  

                              -  

                              -  

               -  

                -  

                -  

              15

         1,460  

         1,475 

Expenses of  C share issue

                              -  

                              -  

                              -  

               -  

            528

            528

               -  

            528  

            528 

 

                              -  

                              -  

                              -  

               -  

            528

            528

              15

         1,988 

         2,003 

                       

 

 

10 Taxation

 

 

 

 

 

30 April 2017

30 April 2016

 

 

 

 

Total

Total

 

 

 

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Overseas withholding tax suffered

 

 

 

 

3

-

3

4

-

4

 

 

The current taxation charge for the year differs from the standard rate of corporation tax in the UK of 19%. The differences are explained below:

 

 

 

 

30 April 2017

Total

30 April 2016

Total

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

 

£'000 

£'000 

£'000 

£'000 

£'000 

  £'000 

Return on ordinary activities before taxation

 

825 

17,397 

18,222 

366 

7,162 

7,528 

Theoretical tax at UK corporation tax rate of 19.92%

    (2016: 20%)

 

164 

3,465 

3,629 

73 

1,432 

1,505 

 

 

 

 

 

 

 

 

 

Effects of:

 

 

 

 

 

 

 

 

 - UK dividends that are not taxable

 

(248)

(248)

(156)

(156)

 

 - Overseas dividends that are not taxable

 

(53)

(53)

(35)

(35)

 

 - Realised dealing gains

 

 

 - Non-taxable capital gains

 

(3,606)

(3,606)

(1,530)

(1,530)

 

 - Overseas taxation suffered

 

 

 - Disallowed expenses

 

 

 - Unrelieved expenses

 

137 

141 

278 

116 

98 

214 

Actual current tax charge

 

-

                     

 

 

Factors that may affect future tax charges

At 30 April 2017, the Company had no unprovided deferred tax liabilities (2016: nil). At that date, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £2,458,000 (2016: £1,062,000), that are available to offset future taxable revenue. A deferred tax asset of £418,000 (2016: £212,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

 

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments.

 

11 Dividends

 

30 April 2017

30 April 2016

 

 

£'000

pence

£'000

pence

Amounts recognised as distributions to equity holders in the year:

 

 

 

 

Final dividend for the period ended 30 April 2016

231

0.14

-

-

 

 

231

0.14

-

-

 

 

The Directors have recommended a final dividend in respect of the year ended 30 April 2017 of 0.36p per Ordinary share payable on 22 September 2017 to all shareholders on the register at close of business on 25 August 2017. The ex-dividend date will be 24 August 2017.

 

12 Investments

 

 

 

 

30 April 2017

 

 

30 April 2016

 

 

 

Ordinary

share

C

share

 

Ordinary

share

C

share

 

 

 

£'000 

£'000 

£'000 

£'000 

£'000 

£'000 

Investment portfolio summary:

 

 

 

 

 

 

 

Opening book cost

52,010 

14,536 

66,546 

 

Opening unrealised gains

7,185 

1,969 

9,154 

Total investments designated at fair value

59,195 

16,505 

75,700 

 

 

 

 

 

 

 

 

Analysis of investment portfolio movements

 

 

 

 

 

 

Opening valuation

59,195 

16,505 

75,700 

 

 

 

 

 

 

 

 

Movements in the period:

 

 

 

 

 

 

 

C share transfer

25,591 

(25,591)

                     - 

 

Purchases at cost

27,671 

11,123 

38,794 

57,269 

14,704 

71,973 

 

Sales - proceeds

(22,560)

(68)

(22,628)

(4,217)

(230)

(4,447)

 

          - gains/(losses) on sales

5,150 

5,150 

(1,042)

62 

(980)

Increase/(decrease) in unrealised gains

12,932 

(1,969)

10,963 

7,185 

1,969 

9,154 

Closing valuation

107,979 

107,979 

59,195 

16,505 

75,700 

Closing book cost

87,862 

87,862 

52,010 

14,536 

66,546 

Closing unrealised gains

20,117 

20,117 

7,185 

1,969 

9,154 

 

 

107,979 

107,979 

59,195 

16,505 

75,700 

 

 

 

 

 

 

 

 

 

 

 

 

30 April

 

30 April 2016

 

 

 

 

 

2017

Ordinary share

C share

 

 

 

 

 

£'000

£'000 

£'000

£'000 

Analysis of capital gains

 

 

 

 

 

 

Gains/(losses) on sales of investments

 

 

5,150

(1,042)

62

(980)

Movement in unrealised gains

 

 

10,963

7,185 

1,969

9,154 

 

 

 

 

16,113

6,143 

2,031

8,174 

 

 

A list of the largest portfolio holdings by their fair value is shown above.

 

13 Fair Value Hierarchy

 

Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

 

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

 

Level 1 - Valued using quoted prices, unadjusted in active markets for identical assets and liabilities.

 

Level 2 - Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1.

 

Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

 

The table below sets out the fair value measurement of financial assets and liabilities in accordance with the fair value hierarchy.

 

Financial assets at fair value through profit or loss at 30 April 2017

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000 

Equity investments

107,618

332

29

107,979 

 

 

 

 

 

Reconciliation of level 3 movements - financial assets

 

 

 

As at

30 April 2017

Level 3

£'000 

Opening fair value investments

 

 

 

 

Purchase at cost

 

 

 

 

Transfer from level 2*

 

 

 

 

62 

Sale proceeds

 

 

 

 

(33)

Movement in investment holdings gains movement in unrealised

 

 

 

 

Closing fair value of investments

 

 

 

 

29  

             

 

 

* Pure Wafer is considered a Level 3 investment at 30 April 2017 as the fair value of this investment is based on anticipated future cash returns.

 

 

 

Level 1

Level 3

Total

Financial assets at fair value through profit or loss at 30 April 2016

 

£'000

£'000

£'000

£'000

Equity investments

 

 

 

 

 

   Ordinary share portfolio

59,133

-

59,195

   C share portfolio

16,505

-

16,505

 

75,638

62

-

75,700

 

 

* Pure Wafer was considered a Level 2 investment at 30 April 2016 as the fair value of this investment was based on the latest observable price.

 

 

 

 

 

Financial liabilities as at 30 April 2016

 

 

 

 

 

C shares

 

-

-

29,475

29,475

 

-

-

29,475

29,475

 

As at 30 April 2017, there were no financial liabilities.

 

14 Trade and Other Receivables

 

 

 

 

 

 

 

 

 

 

 

 

30 April

2017

£'000

Ordinary share

£'000

30 April 2016

C share

£'000

Total

£'000

Amount due from brokers

-

67

-

67

Dividends receivable

154

105

33

138

Prepayment and other debtors

23

27

-

27

Taxation recoverable

1

-

-

-

C share class fee rebate

-

22

-

-

 

178

221

33

232

 

 

As at 30 April 2016 £22,000 was due from the C share class to the Ordinary share class in respect of expenses recharged (2017: £nil).

 

15 Trade and Other Payables

 

 

 

 

 

 

 

 

 

 

 

 

30 April

2017

£'000

Ordinary share

£'000

30 April 2016

C share

£'000

£'000

         

Amount due to brokers

-

-

546

546

Other creditors

156

176

51

227

C share class fee rebate

-

-

22

-

 

156

176

619

773

 

 

As at 30 April 2016, £22,000 was payable by the C share class to the Ordinary share class in respect of expenses recharged (2017: nil). This has been excluded from the Company's Balance Sheet as at 30 April 2016.

 

16 Capital Management Policies

 

The Company's capital management objectives are:

§ to ensure that it will be able to continue as a going concern; and

§ to maximise the income and capital return over the long term to its equity shareholders through an appropriate balance of equity capital and debt.

 

As stated in the investment policy, the Company has authority to borrow up to 15% of net asset value through a mixture of bank facilities and certain derivative instruments. There were no borrowings as at 30 April 2017 or throughout the year (2016: nil). Also, as a public company, the minimum share capital is £50,000.

 

The Company's capital at 30 April comprised:

 

 

30 April

2017

£'000

30 April

2016

£'000

Current liabilities:

 

 

 

Trade and other payables

156

773

 

C shares

-

29,475

Equity:

 

 

 

Equity share capital

223

160

 

Retained earnings and other reserves

111,023

60,232

Total shareholders' funds

111,402

90,640

 

Debt as a % of net assets

0.00%

0.00%

 

 

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:

 

§ the planned level of gearing, which takes into account the Investment Manager's view of the market;

§ the buy back of shares for cancellation or treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium);

§ new issues of equity shares; and

§ the extent to which revenue in excess of that which is required to be distributed should be retained.

 

The Company's objectives, policies and processes for managing capital have remained unchanged since its launch.

 

17 Reserves

 

 

Share

Capital

Capital

 

 

premium

reserve

reserve

Revenue

 

account

realised

unrealised

reserve

Ordinary shares to 30 April 2017

 £'000 

£'000 

£'000 

£'000 

Opening balance

54,183 

(1,483)

7,185 

347 

Issue of Ordinary shares (tap Issue)

5,448 

-

-

-

Expenses of Ordinary share issue (tap Issue)

(75)

-

-

-

Conversion of C shares

27,430 

-

-

-

Net loss allocated to C shares

-

-

1,969 

-

Net gain on realisation of investments

-

5,150 

-

-

Unrealised net increase in value of investments

-

-

10,963 

-

Management fee charged to capital

-

(705)

-

-

Equity dividends paid

-

-

-

(231)

Foreign currency gains

-

-

20 

-

Revenue return on ordinary activities after tax

-

-

-

822 

Closing balance

86,986 

2,962 

20,137 

938 

 

 

 

 

 

 

 

 

 

Ordinary shares to 30 April 2016

Share

Premium

Account

£'000 

Capital reserve realised

£'000 

Capital reserve unrealised £'000 

Revenue reserve

£'000 

Opening balance

Issue of Ordinary share at launch

49,900 

Expenses of Ordinary share issue at launch

(1,000)

Issue of Ordinary share (tap Issue)

5,340 

                  -  

Expenses of Ordinary share issue (tap Issue)

(57)

Net loss on realisation of investments

(1,042)

Unrealised net increase in value of investments

7,185 

Management fee charged to capital

(441)

Revenue return on ordinary activities after tax

347 

Closing balance

54,183 

(1,483)

7,185 

347 

 

The distributable reserves of the Company are £3,900,000 (2016: £347,000).

 

18 Analysis of Financial Assets and Liabilities

 

Investment Objective and Policy

The Company's investment objective and policy are detailed above.

 

The Company's investing activities in pursuit of its investment objective involve certain inherent risks.

 

The Company's financial instruments can comprise:

§ shares and debt securities held in accordance with the Company's investment objective and policies;

§ derivative instruments for efficient portfolio management, gearing and investment purposes; and

§ cash, liquid resources and short-term debtors and creditors that arise from its operations.

 

The risks identified arising from the Company's financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

 

These policies have remained unchanged since the beginning of the accounting period.

 

Market Risk

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager.

 

Market price risk

Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.

 

The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance and exposure are reviewed at each Board meeting.

 

The Company's exposure to changes in market prices as at 30 April 2017 on its equity investments held at fair value through profit or loss was £107,979,000 (2016: £75,700,000).

 

A 10% increase in the fair value of its investments at 30 April 2017 would have increased net assets attributable to shareholders by £10,798,000 (2016: £7,570,000). An equal change in the opposite direction would have decreased the net assets and net profit available to shareholders by an equal and opposite amount. The analysis is based on closing balances only and is not representative of the year as a whole.

 

Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits. The Company's financial assets and liabilities, excluding short-term debtors and creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair value may be affected by movements in interest rates. The majority of the Company's financial assets and liabilities, however, are non-interest bearing. As a result, the Company's financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. There was no exposure to interest bearing liabilities during the year ended 30 April 2017 (2016: nil).

 

The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions.

 

The interest rate profile of the Company (excluding short-term debtors and creditors) was as follows:

 

 

 

 

30 April 2017

Floating rate

£'000

30 April 2016

Floating rate

£'000

Assets and Liabilities:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

3,245

14,708

 

 

3,245

14,708

 

 

If the above level of cash was maintained for a year, a 1% increase in LIBOR would increase the revenue return and net assets by £32,000 (2016: £147,000). If there was a fall by 1% in LIBOR it would potentially impact the Company by a revenue reduction of £32,000 (2016: £147,000).

 

Foreign currency risk

Although the Company's performance is measured in Sterling, a proportion of the Company's assets may be either denominated in other currencies or in investments with currency exposure. Any income denominated in a foreign currency is converted into Sterling upon receipt. At the Balance Sheet date, all the Company's assets were denominated in Sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies.

 

Liquidity Risk

Liquidity risk is not significant as the Company is a closed ended investment trust and the majority of the Company's assets are investments in quoted equities and other quoted securities that are readily realisable.

 

The Company's liquidity risk is managed on a daily basis by the Investment Manager in accordance with established policies and procedures in place. The Investment Manager reviews daily forward-looking cash reports which project cash obligations. These reports allow it to manage its obligations. A maturity analysis is not presented as the Investment Manager does not consider this to be a material risk.

 

Credit and Counterparty Risk

Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.

 

The maximum exposure to credit risk as at 30 April 2017 was £3,423,000 (2016:£14,940,000). The calculation is based on the Company's credit risk exposure as at 30 April 2017 and this may not be representative for the whole period.

 

The Company's quoted investments are held on its behalf by Bank of New York Mellon acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls report.

 

Where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default.

 

Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

 

Cash is only held at banks that have been identified by the Board as reputable and of high credit quality.

 

None of the Company's assets are past due or impaired.

 

19 Related Parties

 

The Directors who served in the year were entitled to the following emoluments in the form of fees:

 

Directors Fees

 

Directors

 Fees per

Annum

£'000

Directors

Fees paid

for the

period

£'000

Outstanding as at

30 April 2017

£'000

 

Directors

 Fees per

Annum

£'000

Directors

Fees paid

for the

period

£'000

 

Outstanding as at

30 April 2016

£'000

Andrew Pomfret (Chairman)

35

35

-

35

38

-

Peter Dicks

30

30

-

25

27

-

Jan Etherden

25

25

-

25

27

-

Ashe Windham

25

25

-

25

27

-

 

 

The related party transaction pursuant to the Investment Management Agreement with Miton Trust Managers Limited is set out in the Strategic Report above. Details of the Management fee are set out in Note 7.

 

20 Post Balance Sheet Events

 

On 15 May 2017, 1,934,487 Ordinary shares were redeemed and cancelled at a price of 64.13 pence per share, amounting to £1,241,000, in respect of the April 2017 redemption. As a result of this, there are 171,151,514 Ordinary shares in issue.

 

ANNUAL GENERAL MEETING

 

The Company's Annual General Meeting will be held on 14 September 2017 at 11.00am at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.

 

NATIONAL STORAGE MECHANISM

 

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm

 

ENDS

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Annual Financial Report - RNS