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Miton UK MicroCap Trust plc   -  MINI   

Replacement: Annual Financial Report

Released 13:12 24-Jul-2019

RNS Number : 6017G
Miton UK MicroCap Trust plc
24 July 2019
 

 

 

The announcement released on 22 July 2019 at 7:00am included incorrect dates in relation to the final dividend to be paid on 27 September 2019.

 

The final dividend will be paid on 27 September 2019 to shareholders who appear on the register on 23 August 2019 and the ex-dividend date will be 22 August 2019.

 

The corrected announcement is set out below.

 

MITON UK MICROCAP TRUST PLC

 

REPLACEMENT: ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 APRIL 2019

 

The Directors present the Annual Financial Report of Miton UK MicroCap Trust plc ("the Company") for the year ended 30 April 2019. 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 )"LSE") under the ticker code MINI. It is referred to as the Company, MINI or the Trust in the text of this Report. The Company's Board (which consists of four independent Directors) appoints the Investment Manager and is responsible for monitoring its performance.

 

This Report covers the year ended 30 April 2019, a difficult year for the Trust when the stock markets were unsettled and, disappointingly, the net asset value ("NAV") of the Ordinary shares fell by 19.0%.  The NAV of the Company had appreciated in earlier years and has therefore increased by 14.5% over the period since launch on 30 April 2015.

 

STRATEGIC REPORT

 

RESULTS FOR THE YEAR TO 30 APRIL 2019

 

·      Over the year, the Ordinary share NAV moved from 69.33p on 30 April 2018 to 56.13p on 30 April 2019, a depreciation of 19.0%. As at close of business on 18 July 2019, the closest date to this Report, the Ordinary share NAV was 52.92p and the share price was 49.00p.

 

·      The Ordinary share price moved from 65.80p at 30 April 2018 to 54.40p at 30 April 2019, a depreciation of 17.3%.

 

·      Revenue after costs was £307,000 over the year to 30 April 2019, which compares with £464,000 last year. As outlined in the previous report, a number of holdings that paid high dividend yields were either sold or acquired prior to the year under review, and the proceeds have been reinvested into stocks that are more overlooked, in anticipation that they will deliver better returns over time.

 

·    The Company offers all investors the redemption of their shareholding each year, which clears any overhanging sellers and hence ensures the market price of the Company does not deviate too far from the underlying NAV. Redemption requests in relation to 14,317,907 Ordinary shares, or 9.4% of the Company's share capital, were received for the 28 June 2019 Redemption Point and are not reflected in the summary below. These will be redeemed in full, subject to the creation of additional distributable reserves following a General Meeting and Court hearings, as announced on 26 June 2019. The redemption mechanism is explained further in the full Annual Report.

 

SUMMARY OF RESULTS

 

 

 

 

 

 

 

 

30 April 2019    

 

30 April 2018    

 

Total net assets attributable to equity shareholders (£'000)3

 

85,679    

 

118,665     

 

NAV per Ordinary share

 

56.13p  

 

69.33p   

 

Share price (mid)

 

54.40p  

 

65.80p   

 

Discount to NAV1

 

(3.08)%

 

(5.09)% 

 

Revenue return per Ordinary share

 

0.20p  

 

0.27p   

 

Total return per Ordinary share1

 

(12.83)p 

 

5.42p   

 

Ongoing charges2,1

 

1.52% 

 

1.41%  

 

Ordinary shares in issue

 

152,653,822    

 

171,151,514     

 

 

 

 

 

 

 

 

 

1 Alternative Performance Measure ('APM'). Details provided in the Glossary below.

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

3 After payment of redemption proceeds and cancellation of shares in June 2018: £12,761,000 (June 2017: £1,241,000).

 

 

CHAIRMAN'S STATEMENT

 

This Annual Report reviews the twelve months to 30 April 2019, a period dominated by changeable stock markets, offset, in part, by the periods of positive momentum in high growth stocks.

 

Returns

Most smallcap stocks fell in the year under review, although the decline of the stock market indices was moderated by the appreciation of some high growth stocks. Over the year, the FTSE AIM All-Share Index fell by 6.7% and the FTSE SmallCap Index (excluding Investment Trusts) Index fell 5.3%.

 

Concern about the terms of the UK's imminent withdrawal from the EU became increasingly pressing over the year. The absence of specific detail, and slippage to the exit program, weighed particularly heavily on the share prices of UK microcaps later in the period, with many persistently falling even as the mainstream markets staged a recovery. Therefore, over the year to April 2019, the Trust's NAV was down 19.0%.

 

The revenue return per share was 0.20p per share over the year, which compares with 0.27p per share last year. The Board is recommending a final dividend of 0.20p, which compares with a dividend of 0.36p last year. It has always been anticipated that capital appreciation would be the principal contributor of the Trust's return.

 

Over the four years since the Trust was first listed, the long-term appreciation of UK microcaps has been impeded by the ongoing uncertainty ahead of Brexit. The Trust has offset this headwind through adding value via stock selection, with its NAV up by 14.5% over the four year period. Meanwhile, momentum within growth stocks, especially larger growth stocks, has been strong. Since these form a major proportion of the FTSE AIM All-Share Index, it has appreciated by 36.0% over this period. However, the FTSE SmallCap Index (excluding Investment Trusts) has greater weightings in smallcaps, and fewer growth stocks, so it was up 27.6%.

 

Share Redemptions

The Trust's share price reflects the balance of buyers and sellers on the exchange. Hence, when there is an imbalance, the share price can diverge from the NAV. In order to ensure any imbalances do not persist, the Trust offers all shareholders the option to redeem their shares each year.

 

In March 2018, 18,497,692 shares were offered for redemption, which represented around 10.8% of the share capital. These were all redeemed for cash at the end of April 2018.

 

This year, the redemption notice coincided with the UK's then planned date for EU exit, so the period for redemption was moved to the end of June 2019, with a redemption point at 28 June 2019. A total of 14,317,907 shares were offered for redemption this year, amounting to 9.4% of the Company's share capital. These will be redeemed in full, subject to the creation of additional distributable reserves following a General Meeting of the Company and Court hearings, as announced on 26 June 2019. Given the size of the redemption and the impact on distributable reserves of the portfolio valuations at the end of the year, the Company did not have sufficient reserves at the redemption point.

 

Strategy

The Trust principally invests in small quoted companies with market capitalisations below £150m. These kinds of businesses typically have real corporate agility and, importantly, the means to put it to work via access to external capital. Over time, as they identify promising projects and raise new capital, they can go on to generate a transformational difference in their returns. Importantly, we believe this explains why quoted microcaps over the long term have a history of outperforming the mainstream indices.

 

The Trust also selects companies with overlooked prospects, which tend to stand on undemanding valuations. In the past, UK quoted companies that are also microcaps and stand on overlooked valuations, have outperformed the comparative indices by a wide margin. Currently growth stocks are standing on demanding valuations, but as markets move on, we believe that microcaps will resume their prior trend of outperformance, thus re-establishing the longer-term pattern.

 

At the end of the year under review, share prices of growth stocks appeared to reach a peak. Several very large, loss-making US stocks with high growth expectations came to market in the early part of 2019, and this appears to have marked something of a high-water mark. At this stage, we do not know if growth stocks are now starting a long period of underperformance, but if this happens, we anticipate the Miton UK MicroCap Trust's strategy of focusing on UK listed microcaps, especially those that have overlooked valuations, will come into its own.

 

Prospects

The Trust has a wide-ranging investment universe. Its opportunity set extends over an unusually wide range of industry sectors. Furthermore, the balance sheets of many microcap stocks are often prudently positioned, with net cash balances and pension liabilities that are fixed. In contrast, many of the UK largest listed stocks have geared balance sheets and pension fund liabilities that are often more open-ended. Finally, anxiety about the UK's withdrawal from the EU means many microcaps are currently standing on undemanding valuations at present.

 

We believe these features will be especially helpful in the context of the current seismic change in the global economy. In past decades, there was a broad political consensus favouring globalisation. Over recent years, the absence of productivity improvement and wage growth has hardened the attitude of the electorate, and they are increasingly demanding change. Nationalistic policies, trade wars and the slowdown in world growth imply many of the past norms are vulnerable. In this changing market environment, we believe that agile and well-capitalised microcaps ultimately will generate disproportionate returns. Hence, despite the unsettled nature of markets, we continue to believe the Trust's microcap strategy remains well-placed for the future

 

Andy Pomfret

Chairman

19 July 2019

 

 

INVESTMENT MANAGER'S REPORT

 

Who are Miton?

Miton Group plc is an independent company that focuses entirely on generating premium returns through genuinely actively selecting stocks for investment portfolios. It is listed on the AIM exchange, in common with most of the stocks in the Miton UK MicroCap Trust plc portfolio.

 

The day-to-day management of the Trust's portfolio is carried out by Gervais Williams and Martin Turner, who have worked together on this Trust since it first listed in April 2015.

 

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 was Fund Manager of the Year 2014 according to What Investment? He is a board member of the Investment Association, Chairman of the Quoted Companies Alliance and also a member of the AIM Advisory Council.

 

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 Anderson, and 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.

 

Gervais and Martin are part of a team of four Miton fund managers principally researching UK-quoted stocks, with each manager having a record of delivering premium returns. They are a close-knit and agile team, open-minded in their thinking. This is important at all times, but at the current time of changing political and economic dynamics, this aspect is likely to be particularly relevant.

 

What's the Trust's investment strategy?

The returns of stock markets around the world are generally dominated by the share price changes of a limited number of very large stocks. Whilst these will always have a place in investment portfolios, we at Miton believe that diversifying across a wider range of stocks is advantageous. For this reason, the Miton UK MicroCap Trust plc was formed.

 

Quoted microcaps differ from larger businesses in terms of their greater ability to grow and adapt to changing circumstances. Furthermore, they can put this advantage to work by raising additional capital from external shareholders when they spot an attractive opportunity. So, whilst the prospects of larger companies tend to be intertwined with that of the general economy, it is the individual circumstances of microcaps that tend to have a bigger influence on their prospects. In short, at times when the world economy stagnates, quoted microcaps have a better chance of sustaining growth. We believe this is one reason why, regardless of the wider economic circumstances, quoted microcaps have a long history of outperforming the mainstream indices. For the avoidance of doubt, the Company does not hold any unquoted companies.

 

Where are the best returns to be found in the microcap universe?

Generally there is an assumption that those with the best share price growth prospects will end up generating the best long-term returns. However, this is not always the case, since investors can get over enthused with a good growth story. Remember, in the late 1990s, the dot.com prospects were so good that investors cheerfully paid inflated valuations for them. In the end, many delivered very poor investment returns.

 

In aggregate, listed companies standing on low valuations relative to their prospects usually end up delivering the best investment returns. Whilst some disappoint, and others may collapse, there are more than enough that deliver on the upside. For this reason, the Trust principally selects stocks standing on undemanding valuations, where their prospects are overlooked.

 

Overall, it is anticipated that mixing the long-term outperformance of microcaps with the selection of those with overlooked potential, will generate premium returns.

 

What if the UK economy is not especially successful in future?

Even though majors are defined by their giant scale, microcaps often have international market positions as well, albeit they often operate in certain niche sectors. Furthermore, given the well-developed nature of the UK AIM market, some overseas microcaps choose to list here. For both reasons, the principal drivers of the returns of UK listed microcaps are not especially related to the success or otherwise of the UK economy.

 

Even without globalisation, there would have been some periods of good economic growth over recent decades. However, the reduction of trade barriers has greatly boosted world growth and made it easier for all companies to grow. Hence, during the period of globalisation, when most larger companies were growing well, most investment strategies have become aligned with them. Meanwhile, interest in quoted microcaps has tended to die away. The UK is almost unique in retaining a vibrant stock exchange of listed microcaps over this period.

 

MINI principally invests in UK-listed microcaps for two reasons. First, the UK-listed stocks operate both in the UK and internationally, and second, there just are not many opportunities elsewhere to access the advantages of a microcap strategy.

 

Why were the Trust's returns so disappointing over the year to April 2019?

There are two reasons why the Trust's returns over the year to April 2019 were particularly disappointing.

 

·      First, over the year under review, the date for Brexit has become increasingly imminent and, as the final details of Brexit remained unknown, it became harder to determine which UK stocks had the better prospects. Mainstream investors, for example, were able to participate in the general recovery of markets, via index instruments. However, Index ETFs are not available for those investing in smallcaps. So as the year has progressed, there has been an increasing absence of smallcap buyers, which weighed particularly heavily on microcap share prices. In the end, most drifted lower, even at a time when international markets were staging a recovery.

 

·      Second, whilst stocks standing on undemanding valuations tend to outperform over the long term, there are periods when growth stocks have a period of catch-up. Over recent years there has been plenty of enthusiasm for growth stocks, and this was apparent again early in the year under review. Although markets fell back during the final quarter of 2018, growth stocks revived thereafter. Overall, this was a year when growth stocks strongly outperformed.

 

Overall, the Trust's return was held back by a mix of Brexit anxiety and its strategy of investing in holdings that have less demanding valuations at a time when growth stocks performed strongly.

 

Which were portfolio outliers over the year to April 2019?

In spite of the ongoing uncertainty, the overall stance of the portfolio continues to be managed to maximise its potential scope for appreciation in the future. For example, there are always a number of stocks in the portfolio where their market does not develop as anticipated. Whilst their share prices may have fallen, we nonetheless exited these holdings to invest in others where the prospects are better. During the year, the Trust's shareholdings in 7 Digital, Rainbow Rare Earths, Petro Metad, WYG and Cloudcall were all sold for this reason.

 

However, as highlighted in the Half-year Report, Yu Group was by far the greatest detractor over this year, after appreciating by a multiple of its initial purchase price in earlier years. It announced that it had under-recorded bad debts, and also over-estimated the volumes of its new customers. Whilst the company revised its figures, it did not allow its advisers to issue market forecasts ahead of its finally resolving the scale of its misstatement. This explains why its share price fell by 90% to a position where it was valued solely on the cash balances within the group. As this stock had appreciated so much prior to this year, it had become one of the largest holdings in the Trust's portfolio, and this setback detracted 4.5% from the Trust's return over the period under review.

 

A small position in Yu Group has been retained for now, since we believe its share price overlooks the fact that it remains as a substantial group generating revenues of approximately £80m. We expect its share price could recover substantially once the details of its future become clearer.

 

One of the key drivers of the Trust's long-term return is the substantial appreciation of a number of individual stocks, as the payback on their capex drives improved cashflow. Although market conditions were unsettled, some of the Trust's holdings still managed to appreciate well. For example, the share prices of Hydrogen, Aquis Exchange and Block Energy rose more than two-fold. The share price of Earthport rose three-fold as both Visa and Mastercard tussled over a bid for their international payment network. Whilst all these stocks helped to boost the return of the Trust, this year they were overwhelmed by the general tide of falling microcap share prices.

How has the Trust performed since listing four years ago?

Overall, Brexit anxiety has gradually come to dominate the UK stock market, especially microcaps. Meanwhile, the outperformance of high expectation stocks has also been a recent trend. In spite of these headwinds, over the four years since the Trust was first listed, its NAV has appreciated by 16.3%.

 

The enthusiasm for high growth stocks has enhanced the returns of the AIM-listed universe of stocks, and helped it offset the headwinds of Brexit. Thus, the return of the FTSE AIM All-Share Index is up 36.0% over the last four years. There are fewer high growth stocks within the FTSE SmallCap Index (excluding Investment Trusts) so it has only appreciated by 27.6% over the same period.

 

Over the four year period, the Trust has also paid dividends to shareholders, but it was always anticipated that the overall return of the Trust would be dominated by its scope for capital appreciation.

 

When will regular stocks on less demanding valuations resume their prior trend of outperformance?

Market enthusiasm for higher growth stocks has been a major feature of most stock markets for some years.  A number of these trade at lofty multiples of sales and make large losses. However, this is ultimately unsustainable, as most need access to additional capital to keep up the momentum, and there are periods when there is not sufficient market liquidity.

 

Interestingly, the positive momentum of growth stocks has become more intermittent over recent quarters. We believe this is related to a combination of their high valuations, and the growing supply of speculative new listings, that together are sapping market liquidity. This is most evident in the US recently, where a number of very large, loss-making growth stocks have listed, and then immediately fallen to sizeable discounts.

 

This pattern is reminiscent of the peaking out of the dot.com bubble. Following the dot.com boom, other regular, profitable companies that generated their own cashflow went on to outperform by a wide margin for several years. It is not possible to accurately predict when the period of over-enthusiasm for high growth stocks will end, but it appears that market liquidity may already be somewhat problematic.

 

What should investors expect when the details of Brexit are concluded?

When the result of the EU referendum was first announced, the exchange rate of Sterling fell. And subsequently, many investors have been wary of allocating capital to the UK, so there has been less support for UK-listed stocks.

 

Most commentators assume that if the UK's departure from the EU is not chaotic, then prior trends will be reversed.

 

·             Sterling has weakened considerably since the referendum, but once Brexit is resolved, it may be that the exchange rate of Sterling rises. If this were the case, then the fact that a number of the larger quoted stocks in the UK pay their dividends in overseas currencies would be at a disadvantage. For this reason, it is anticipated that some mid-sized, small and microcap stocks might perform better over this period.

 

·            Over recent years, enthusiasm for US stocks has driven up the S&P 500 Index in line with the growth of its surplus corporate cashflow, leaving the US stock market much unchanged on this valuation metric. In contrast, after the EU referendum, anxiety about the detail of the Brexit terms has held back investor enthusiasm, so the FTSE 100 Index is now rather more attractive on this valuation metric that it was previously.

 

In short, a major valuation gap has opened up between UK and US-listed companies, which we expect to narrow once the detail of Brexit is known. In part, this may be due to renewed capital allocations to UK quoted companies. We also anticipate that there will be more takeovers of UK quoted companies. Therefore, we expect that the UK stock market at some point should begin to outperform others.

 

What are the prospects for the Trust?

In general, we believe there are three trends that will drive the performance of the Trust going forward.

 

·     First, when the uncertainty over the detail of the UK's withdrawal from the EU is known, it is expected that investors will step up their allocation to UK-listed companies generally.

 

·     Second, anxiety ahead of Brexit has been especially acute for the share prices of UK microcap stocks, and hence their valuations have fallen well behind those of the mainstream UK-listed stocks. Therefore, we believe UK microcaps  look inexpensive and may have more upside potential than the UK stock market overall.

 

·     Third, we look forward to the time when regular companies, standing on undemanding valuations, resume their prior long-term trend of outperformance.

 

We believe these trends will add to the ongoing long-term advantages of a microcap strategy. In recent years, the absence of productivity improvement and wage growth has led to a seismic change in the political and economic agenda. With the substantial change in the market environment, we believe that the agile and well-capitalised will generate disproportionate returns. Hence, despite the currently unsettled nature of markets, we continue to take the view that the Trust's strategy is well-placed for the future.

 

How does the Trust add value when markets are very volatile?

Stock markets can suffer higher periods of volatility at times, that sometimes involve larger setbacks. The Trust has two strategies specifically ready to enhance shareholders' return through such a period when it occurs.

A FTSE 100 Put Option

MINI is currently holding a Put option. This option means the Company can sell the FTSE 100 Index at a certain level (6,100 in our case) after the stock market has sold off. This is similar to portfolio insurance, with the value of the FTSE 100 Put option rising as the FTSE 100 falls.

 

Options come with a cost, specifically, the cost of the Put option will gradually decay over the insured period (to December 2020 in our case), irrespective of whether the markets suffer any fluctuations or not. It is therefore important to minimise the initial cash cost of Put options, since its resale value generally falls over time (assuming markets are relatively flat) and ultimately becomes worthless if the FTSE 100 Index does not fall significantly below 6,100.

 

With this in mind, we tend to wait for buoyant periods in the market before purchasing Put options. In addition, we have been cautious about the scale of the Put options purchased. Therefore, the Put options only cover severe market setbacks (in our case, when the FTSE 100 Index falls below 6,100) and only covers one-quarter of the total assets in the Trust. This means that the cost of the option is rather less than 0.5% of the NAV per year on average, were the option to expire worthless at the end of its term.

 

The key advantage of having Put options in the portfolio is that their resale value would be expected to rise proportionate to a market sell-off. The full level of that appreciation would be related to the duration of the remaining term of the option as well as the scale of the market setback. If the Put option were to be sold when markets were low, then the cash proceeds could be used to purchase additional equities for the portfolio at a time when their share prices were depressed. The added holdings in the portfolio would then enhance its recovery potential thereafter. Alongside this, the Trust would benefit from the extra income from the new holdings added during this period.

 

In summary, the Put option strategy puts MINI in a position where it has scope to take advantage of any major market setback, at a relatively modest running cost, if markets do not drop back significantly in the period prior to December 2020.

 

The Trust's Debt Facility

Generally, as outlined above, we believe the Trust has plenty of scope to generate an attractive long-term return without relying on debt. The Trust has an unused debt facility ready, so it can purchase additional lower-priced shares and hold them when markets appear well placed to recover after a setback. The Trust has not drawn on the facility to date, since it would detract from returns at times when markets fall back.

 

Summary

MINI's objective is to offer shareholders the prospect of premium long-term returns, through investing in overlooked microcap stocks. Furthermore, a FTSE 100 Put option holding and access to a pre-agreed debt facility, puts the Trust in a position to purchase additional holdings were equity markets to suffer a significant setback. Together, we believe these strategies put the Company in a position to participate in greater scale in any market recovery after a major setback.

 

Gervais Williams and Martin Turner

19 July 2019

 

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.

 

 

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. 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 2019 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 Policy

The Company's full investment policy is set out above and contains information on the policies which the Company follows relating to asset allocation, risk diversification and gearing, and includes maximum exposures, where relevant.

 

The Company invests in a portfolio of UK quoted companies with the objective of achieving capital growth by investing in a portfolio of stocks that are well placed to generate an attractive cash payback from productivity improvements.

 

 

PORTFOLIO INFORMATION

AS AT 30 APRIL 2019

Rank

Company

Sector & main activity

Valuation £'000

% of

net assets

Yield*%

1

Frontier IP Group

Industrials

3,256

3.8

-

2

Aquis Exchange

Financials

3,053

3.6

-

3

Cerillion

Technology

3,049

3.5

2.8

4

Kape Technologies

Technology

2,525

2.9

-

5

Zotefoams

Basic Materials

2,387

2.8

1.0

6

Nanoco Group

Technology

2,333

2.7

-

7

Kromek Group

Health Care

2,272

2.7

-

8

Corero Network Security

Technology

1,915

2.2

-

9

Rockrose Energy

Oil & Gas

1,630

1.9

-

10

Diversified Gas Oil

Oil & Gas

1,605

1.9

7.0

Top 10 investments

 

24,025

28.0

 

11

MTI Wireless Edge

Technology

1,471

1.7

4.6

12

Eland Oil & Gas

Oil & Gas

1,463

1.7

-

13

Hydrogen Group

Industrials

1,433

1.7

2.1

14

Mercantile Ports & Logistics

Industrials

1,372

1.6

-

15

Conygar Investment Company

Financials

1,281

1.5

-

16

Mind Gym

Industrials

1,273

1.5

-

17

Game Digital

Consumer Services

1,263

1.5

-

18

Science in Sport

Consumer Goods

1,249

1.5

-

19

SIMEC Atlantis Energy

Utilities

1,240

1.4

-

20

BATM Advanced Communications

Technology

1,235

1.4

-

Top 20 investments

 

37,305

43.5

 

21

Oxford Metrics

Technology

1,175

1.4

1.6

22

I3 Energy

Oil & Gas

1,161

1.4

-

23

Scientific Digital Imaging

Health Care

1,156

1.3

-

24

Jubilee Metals Group

Basic Materials

1,136

1.3

-

25

Block Energy

Oil & Gas

1,115

1.3

-

26

STM Group

Financials

1,037

1.2

4.1

27

Anglo & African Oil & Gas

Oil & Gas

1,037

1.2

-

28

Inspired Energy

Industrials

1,000

1.2

4.1

29

CentralNic

Technology

996

1.2

-

30

Van Elle Holdings

Industrials

940

1.1

3.6

Top 30 investments

 

48,058

56.1

 

31

Palace Capital

Financials

919

1.1

6.3

32

Caledonian Mining

Basic Materials

900

1.1

6.6

33

Falanx Group

Industrials

867

1.0

-

34

Hydrodec Group

Oil & Gas

867

1.0

-

35

Inspiration Healthcare Group

Health Care

843

1.0

-

36

Bilby

Industrials

827

1.0

-

37

Tungsten

Financials

789

0.9

-

38

Reabold Resources

Financials

780

0.9

-

39

Trackwise Designs

Industrials

765

0.9

-

40

Galantas Gold

Basic Materials

760

0.8

-

Top 40 investments

 

56,375

65.8

 

Balance held in 65 equity instruments

 

23,933

27.9

 

Total equity investments

 

80,308

93.7

 

Listed Put option

FTSE 100 - December 2020 6,100 put

 

690

0.8

 

Other net current assets

 

4,681

5.5

 

Net assets

 

85,679

100.0

 

 

 

* Source: Thomson Reuters. Based on historic dividends and therefore not representative of future yield.

 

A copy of the full portfolio of investments as at 30 April 2019 is available on the Company's website, www.mitongroup.com/micro

 

Portfolio exposure by sector at 30 April 2019

 

1

Technology

23.1%

2

Industrials

20.4%

3

Oil & Gas

14.2%

4

Financial Services

12.8%

5

Basic Materials

10.9%

6

Health Care

7.3%

7

Consumer Goods

4.4%

8

Consumer Services

4.0%

9

Utilities

2.9%

 

 

 

Actual annual income by sector to 30 April 2019

1

Technology

43.1%

2

Industrials

21.9%

3

Financial Services

12.8%

4

Oil & Gas

8.7%

5

Basic Materials

8.3%

6

Health Care

4.5%

7

Consumer Goods

0.5%

8

Consumer Services

0.2%

9

Utilities

0.0%

 

 

 

Portfolio by asset allocation at 30 April 2019

 

1

AIM

85.0%

2

FTSE SmallCap Index

8.6%

3

Other UK Equities

4.1%

4

FTSE Fledgling Index

2.3%

 

 

 

Portfolio by spread of investment income to 30 April 2019

 

1

AIM

88.3%

2

FTSE SmallCap Index

5.1%

3

Other UK Equities

4.4%

4

FTSE Fledging Index

2.2%

 

Source: Thomas Reuters

 

 

 

The LSE assigns all UK quoted companies to an industrial sector and frequently to a stock market index. The LSE also assigns industrial sectors to many international quoted equities as well, and those that have not been classified by the LSE have been assigned as though they had. The portfolio as at 30 April 2019 is set out in some detail above, in line with that included in the Balance Sheet. The investment income above comprises all of the income from the portfolio as included in the Income Statement for the year ended 30 April 2019. The AIM and NEX market are both UK exchanges specifically set up to meet the requirements of smaller listed companies.

 

The first two tables above determine the overall sector weightings of the Company's capital at the end of the year, and with regard to the income received by the Company over the year. The second pair of tables determines the LSE stock market index within which portfolio companies sit, and the income received by the Company over the year.

 

Investments for the Company's portfolio are principally selected on their individual merits. As the portfolio evolves, the Manager continuously reviews the portfolio's overall sector and index balance to ensure that it remains in line with the underlying conviction of the Investment Manager. The Investment Policy is set out above, and details regarding risk diversification and other policies are set out each year in the Annual Report.

 

 

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 2019 was 56.13p per share (30 April 2018: 69.33p), giving a total return of (18.6)% (30 April 2018: 8.4%) over the year. This compares with the UK Investment Trust Smaller Companies sector, where the average was a (1.0)% decrease in total return terms over the same period. By comparison, the total return on the FTSE AIM All-Share Index was (6.7)% 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.

 

·      Movements in the Company's share price

The Company's Ordinary share price decreased by 17.3% (30 April 2018: increased by 5.7%) over the year on a capital return basis.

 

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

At times, the number of shareholders looking to transact in the Company's shares exceeds the market's daily liquidity. Imbalances like this are normally cleared through stock market transactions over a few weeks, but on occasion these imbalances can become persistent and the Company's share price diverges from the daily NAV. The Company has an objective to keep this divergence to a minimum.

 

When buyers have become persistent over recent years and the share price has traded consistently above the daily NAV, the Company has issued additional stock through placing new shares with investors. In contrast, during the year to 30 April 2019, the share price discount has ranged between 0.8% and 8.5% to the daily NAV. In order to address this, the Company was set up with an annual redemption mechanism so shareholders can redeem their holdings. This usually takes place each year on 30 April, however, as explained in the Chairman's statement above, due to uncertainties surrounding Brexit, this year's redemption point was moved to 28 June.

 

This year, redemption requests were received for 9.4% of the Company's shares and these will be redeemed at the redemption price of 53.92p and will be cancelled on or around 15 August 2019, subject to a General Meeting and Court hearings as announced on 26 June 2019.

 

·      Ongoing charges

The ongoing charges on the Ordinary shares for the year to 30 April 2019 amounted to 1.5% (30 April 2018: 1.4%) 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 19 to the financial statements.

 

The Board, through delegation to the Audit and Management Engagement 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 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 small 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 on the performance of its key service providers. In relation to the risk of counterparty failure, the Board reviews the controls report of the Depositary.

 

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

 

Loss of key personnel/fund managers

The Company depends on the diligence, skill, judgement and business contacts of the Manager's investment professionals and its future success could depend on the continued service of these individuals, particularly Gervais Williams and Martin Turner.

The Company may decide to terminate the Management Agreement should both Gervais Williams and Martin Turner cease to be employees of the Manager's group and if they are not replaced by a person/s who the Company considers to be of equal or satisfactory standing within three months of one or both of their departures.

 

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. The ongoing charges for the year to 30 April 2019 amounted to 1.52% (30 April 2018: 1.41%).

 

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, Broker, 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.

 

Cyber risk/IT security

Errors, fraud or control failures by the Company's key service providers or loss of data through increasing cyber threats or business continuity failure could damage the Company's reputation or investors' interests or result in losses.

 

The Board receives regular control reports and cyber/IT policies from all service providers to ensure that controls are in place including business continuity and disaster recovery arrangements.

 

 

SHARE CAPITAL

 

Share Issues

At the Annual General Meeting held on 12 September 2018, the Directors were granted the authority to allot Ordinary shares up to an aggregate nominal amount of £15,265 (representing 15,265,000 Ordinary shares) on a non pre-emptive basis. No shares have been issued under this authority.

 

This authority is due to expire at the Company's Annual General Meeting to be held on 11 September 2019. Proposals for the renewal of the authority are set out in the Annual Report.  

 

Share Redemptions

Valid redemption requests were received under the Company's redemption facility for the 28 June 2019 Redemption Point in relation to 14,317,907 Ordinary shares, representing 9.4% of the issued share capital. The Company announced on 26 June 2019 that the Board is proposing to cancel the Company's share premium account to create distributable reserves in order to satisfy such redemption requests in full. The cancellation of the Ordinary shares is therefore subject to receipt of the requisite shareholder and Court approvals. Subject to these approvals, all shareholders who validly applied to have shares redeemed will receive a Redemption Price of 53.92 pence per Ordinary share.

 

Purchase of Own Shares

At the Annual General Meeting of the Company held on 12 September 2018, the Directors were granted the authority to buy back up to 22,882,807 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.

 

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 152,653,822 Ordinary shares and 50,000 Management shares (see note 4 to the financial statements) in issue. Further details of the Company's share capital are set out in notes 4 to the financial statements. This includes details of the 2019 redemption of Ordinary shares.

 

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 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 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 Link Company Matters Limited, under an agreement dated 8 April 2015 between the Company and Link Market Services Limited. 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 Link Alternative Fund Administrators Limited under an agreement dated 8 April 2015. 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 Audit and Management Engagement Committee, keeps the performance of the Investment Manager under continual review, and the Audit and 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 Board 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. The 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 and ethically. The Company has a zero-tolerance policy towards bribery and corruption and as such is committed to carrying out its business fairly, honestly and openly.

 

Gender Diversity

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

 

The Company's Diversity Policy 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. The Board will always appoint the best person for the job and will not discriminate on any grounds including gender, race, ethnicity, religion, sexual orientation, age or physical ability.

 

Approval

The Strategic Report has been approved by the Board of Directors.

 

On behalf of the Board

 

Andy Pomfret

Chairman

19 July 2019

 

 

Directors

Andrew (Andy) Pomfret - Chairman

Peter Dicks - Chairman of the Audit and Management Engagement Committee and Senior Independent Director

Jeannette (Jan) Etherden

Ashe Windham, CVO

 

 

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 June 2022. The Company is intended to be a long-term investment vehicle. It was launched four 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 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 uneconomic.

 

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, from the balance sheet date.

 

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 regulations. 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 the International Financial Reporting Standards ("IFRS") as adopted by the European Union. 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 loss of the Company; and

 

·      the strategic Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.

 

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

 

On behalf of the Board

 

 

Andy Pomfret

Chairman

19 July 2019

 

 

NON-STATUTORY ACCOUNTS

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 April 2019 or the year ended 30 April 2018 but is derived from those accounts. Statutory accounts for the year ended 30 April 2018 have been delivered to the Registrar of Companies and those for the year ended 30 April 2019 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 2019

 

 

Year ended

30 April 2019

Year ended

30 April 2018

 

 

Revenue 

Capital 

 

Revenue

Capital

 

 

 

return 

return 

Total 

return

return

Total 

 

Note

£'000 

£'000 

£'000 

£'000

£'000

£'000 

(Losses)/gains on investments held at fair value through profit or loss

12

-  

(18,995)

(18,995)

9,644 

9,644 

Foreign exchange losses

 

-  

(1)

(1)

(14)

(14)

Losses on derivatives held at fair value through profit or loss

14

-  

(241)

(241)

Income

2

1,087 

-  

1,087 

1,270 

-

1,270 

Management fee

7

(233)

(698)

(931)

(270)

(811)

(1,081)

Other expenses

8

(533)

-  

(533)

(511)

(511)

Return on ordinary activities before finance costs and taxation

 

321 

(19,935)

(19,614)

489 

8,819 

9,308 

Finance costs

9

-  

(47)

(47)

(3)

(7)

(10)

Return on ordinary activities before taxation

 

321 

(19,982)

(19,661)

486 

8,812 

9,298 

Taxation

10

(14)

-  

(14)

(22)

(22)

Return on ordinary activities after taxation

 

307 

(19,982)

(19,675)

464 

8,812 

9,276 

 

 

 

 

 

 

 

 

Return on ordinary activities for the year analysed as follows:

 

 

 

 

 

 

 

Attributable to Ordinary shares

 

307 

(19,982)

(19,675)

464 

8,812 

9,276 

Return per Ordinary share (pence)

3

0.20 

(13.03)

(12.83)

0.27 

5.15 

5.42 

 

 

 

 

 

 

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 return on ordinary activities after taxation is both the profit and the total comprehensive income.

 

The notes below form part of these part financial statements.

 

 

STATEMENT OF CHANGES IN EQUITY

of the Company for the year ended 30 April 2019

 

 

 

Share 

Capital 

 

 

 

 

Share 

premium 

redemption 

Capital 

Retained 

 

 

capital 

account 

reserve 

reserve 

earnings 

Total 

For the year ended 30 April 2019

Notes

£'000 

£'000 

£'000 

£'000 

£'000 

£'000 

As at 30 April 2018

 

221 

86,986 

30,670 

786 

118,665 

Total comprehensive income:

 

 

 

 

 

 

 

Return on ordinary activities after taxation

 

(19,982)

307 

(19,675)

Transactions with shareholders recorded directly to equity:

 

 

 

 

 

 

 

Redemption of Ordinary shares

4

(18)

18 

(12,761)

(12,761)

Equity dividends paid

11

(550)

(550)

As at 30 April 2019

 

203 

86,986 

20 

(2,073)

543 

85,679 

 

 

 

 

 

 

 

 

 

 

Share 

Capital 

 

 

 

 

 

 

Share

premium 

redemption 

Capital 

Retained 

 

 

 

 

capital

account 

reserve 

reserve 

earnings 

Total 

For the year ended 30 April 2018

Notes

£'000

£'000 

£'000 

£'000 

£'000 

£'000 

As at 30 April 2017

 

223 

86,986 

23,099 

938 

111,246 

Total comprehensive income:

 

 

 

 

 

 

 

Return on ordinary activities after taxation

 

8,812 

464 

9,276 

Transactions with shareholders recorded directly to equity:

 

 

 

 

 

 

 

Redemption of Ordinary shares

4

(2)

(1,241)

(1,241)

Equity dividends paid

11

(616)

(616)

As at 30 April 2018

 

221 

86,986 

2

30,670 

786 

118,665 

 

The notes below form part of these financial statements.

 

BALANCE SHEET

of the Company as at 30 April 2019

 

 

Note

2019 

£000 

2018 

£'000 

Non-current assets:

 

 

 

Investments held at fair value through profit or loss

12

80,308 

103,003 

Current assets:

 

 

 

Derivative instruments

14

690 

-  

Trade and other receivables

15

108 

1,241 

Cash at bank and cash equivalent

 

4,784 

14,595 

 

 

5,582 

15,836 

Liabilities

 

 

 

Trade and other payables

16

211 

174 

Net current assets

 

5,371 

15,662 

Net assets

 

85,679 

118,665 

 

 

 

 

Capital and reserves

 

 

 

Share Capital

4

203 

221 

Share premium account

 

86,986 

86,986 

Capital reserve

 

(2,073)

30,670 

Capital redemption reserve

 

20 

Revenue reserve

 

543 

786 

Shareholders' funds

 

85,679 

118,665 

 

 

 

pence

pence 

Net asset value per Ordinary share - basic and diluted

5

56.13

69.33 

 

 

These financial statements were approved and authorised for issue by the Board of Miton UK MicroCap Trust plc on 19 July 2019 and were signed on its behalf by:

 

Andy Pomfret

Chairman

19 July 2019

 

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 2019

 

 

30 April 2019 

£000 

30 April 2018 

£000 

Operating activities:

 

 

Net (loss)/return before taxation

(19,661)

9,298 

Loss/(gain) on investments held at fair value through profit or loss

19,236 

(9,644)

Decrease in trade and other receivables

38 

46 

(Decrease)/increase in trade and other payables

(34)

Exchange losses on capital items

14 

Exclude finance costs

47 

10 

Withholding tax paid

(14)

(22)

Net cash outflow from operating activities

(387)

(289)

Investing activities:

 

 

Purchase of investments

(27,511)

(24,235)

Sale of investments

32,371 

37,764 

Purchase of derivative instruments

(931)

Exchange loss on settlements

(7)

Net cash inflow from investing activities

3,929 

13,522 

Financing activities:

 

 

Redemption/repurchase of Ordinary shares

(12,761)

(1,241)

Equity dividends paid

(550)

(616)

Finance costs paid

(41)

(19)

Net cash outflow from financing activities

(13,352)

(1,876)

(Decrease)/increase in cash and cash equivalents

(9,810)

11,357 

Reconciliation of net cash flow movement in funds:

 

 

Cash and cash equivalents at the start of the year

14,595 

3,245 

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

(9,810)

11,357 

Exchange rate movements

(1)

(7)

Cash at the end of the year

4,784 

14,595 

 

 

 

 

 

 

 

 

 

 

30 April 2019

£000

30 April 2018

£000

Cash (paid)/received during the year includes:

 

 

Dividends received

1,142

1,293

Interest received

-

3

 

 

The notes below form part of these financial statements.

 

 

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 2019 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 at least 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

In the current year, the Company has applied a number of amendments to IFRS, issued by the IASB mandatorily effective for an accounting period that begins on or after 1 January 2018. These are annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The Company has also applied, with associated amendments, for the first time the following standards:

 

·      IFRS 9 Financial Instruments;

·      IFRS 15 Revenue from Contracts with Customers.

 

The assessment of the impact of the adoption of these standards is set out below:

 

IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets, and replaces the multiple classification and measurement models in IAS 39. The investments are managed and have their performance evaluated on a fair value basis, in accordance with the risk management and investment strategies of the Company consistent with prior periods.

 

The other receivables and prepayment are accounted for at amortised cost meeting the criteria for classification in IFRS 9, hence there has been no change in the accounting for these assets. The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than incurred credit losses as in the case of IAS 39 applicable to financial assets carried at amortised cost.

 

IFRS 15 specifies how and when revenue is recognised and enhances disclosures. Given the nature of the Company's revenue streams from financial instruments, the provisions of this standard will not have a material impact. There are no changes in the methodology of accounting for investment income and other income is recognised when the amounts fall due, both consistent with prior periods.

 

The adoption of these has not had any material impact on these financial statements.

 

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 that had a significant impact on the financial statements in the current period.

 

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 investments 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.

 

Foreign currency

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 and assets carried at fair value 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.

 

Financial instruments

Derivatives, including Index Put options, which are listed investments, are classified as financial instruments at fair value through profit or loss held for trading. They are initially recorded at cost (being premium paid to purchase the option) and are subsequently valued at fair value at the close of business at the year end and included in current assets/liabilities.

 

Changes in the fair value of derivative instruments are recognised as they arise in the capital column of the Income Statement.

 

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, Prepayments and Other Debtors

Trade Receivables, prepayments and other debtors are recognised at amortised cost or approximate fair value.

 

Trade and Other Receivables

Trade and other receivables are measured, where applicable, at amortised cost and as reduced by appropriate allowance for expected irrecoverable amounts.

 

Income

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.

 

Dividends from overseas companies are shown gross of any non-recoverable withholding taxes, which are presented separately in the Income Statement.

 

Special dividends are taken to revenue or capital account depending on their nature.

 

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.

 

All other income is allocated on a time-apportioned basis.

 

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 directly incurred in relation to arranging debt and loan facilities have been capitalised and amortised over the term of the finance (2018: 75% to capital).

 

Expenses incurred directly in relation to issue or redemption of shares are deducted from equity and charged to the share premium account.

 

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.

 

Share Capital

The Company is a closed-ended investment company 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.

 

Share Premium

The share premium account represents the accumulated premium paid for shares issued in 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 shares; and

·      premium on the issue of shares.

 

Capital Reserve

The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income:

 

·      gains and losses on the disposal of investments and derivatives;

·      increase and decrease in the valuation of investments held at the year-end;

·      costs of share buybacks;

·      cancellation of shares;

·      costs relating to the capital structure of the Company;

·      exchange differences of a capital nature; and

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

 

Capital Redemption Reserve

The capital redemption reserve represents non-distributable reserves that arise from the purchase and cancellation of shares.

 

Revenue Reserve

The revenue reserve represents the surplus of accumulated profits and is distributable by the way of dividends.

 

2. Income

 

 

Year ended

30 April 2019

Total

£'000

Year ended

30 April 2018

Total

£'000

Income from investments

 

 

UK dividends

705

950

Unfranked dividend income

382

317

Bank interest

-

3

Total income

1,087

1,270

         

 

 

3. Return per Share

 

Returns per Ordinary share are based on the weighted average number of shares in issue during the year. Basic and diluted return per share are the same as there are no dilutive elements on share capital.

 

 

Year ended 30 April 2019

Ordinary shares

Year ended 30 April 2018

Ordinary shares

 

Revenue

Capital  

Total  

Revenue

Capital

Total

Net profit (£000)

307

(19,982)

(19,675)

464

8,812

9,276

Weighted average number of shares in issue

 

 

153,363,323 

 

 

171,225,713

Return per share (pence)

0.20

(13.03)

(12.83)

0.27

5.15

5.42

 

The Management shares have no right to income.

 

4. Share Capital

 

 

30 April 2019

30 April 2018

 

Number

£000

Number

£000

Ordinary shares of £0.001 each

 

 

 

 

Opening balance

171,151,514 

171 

173,086,001

173 

Redemption

(18,497,692)

(18)

(2)

At end of year

152,653,822 

153 

171 

 

 

 

 

 

30 April 2019

30 April 2018

 

Number of

Ordinary

shares

£000

Number of

Ordinary

Shares

£000

Management shares £1 each

50,000

50

50,000

50

 

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. 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.

 

Post year end, valid redemption requests representing 14,317,907 (2018: 18,497,692) Ordinary shares, representing 9.4% (2018: 10.8%) of the issued share capital, were made. The Company proposes that all of these shares will be redeemed at the redemption price of 53.92p (2018: 68.98p) per share and will be cancelled on or around 15 August 2019, subject to receipt of the requisite shareholder and Court approvals, as announced by the Company on 26 June 2019. At the date of this Report, there are 152,653,822 Ordinary shares and 50,000 Management shares in issue.

 

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 Values

 

The NAVs per Ordinary share and the net assets attributable at the year end were as follows:

 

 

 

30 April 2019

30 April 2018

 

 

Ordinary share

Ordinary share

 

 

Net asset

value

per share

pence

Net assets

attributable

£'000

Net asset

value

per share

pence

Net assets

attributable

£'000

Basic and diluted

56.13

85,679

69.33

118,665

 

 

NAV per Ordinary share is based on net assets at the year end and 152,653,822 Ordinary shares (2018: 171,151,514), being the number of Ordinary shares in issue at the year end.

 

NAV of £1.00 per Management share is based on net assets at the year end of £50,000 (2018: £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

30 April

 

 

2019

2018

 

 

£000

£000

Costs on acquisitions

21

23

Costs on disposals

50

64

 

 

71

87

 

 

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 2019

30 April 2018

 

 

 

 

 

 

 

 

 

 

Ordinary

share

£'000

% of

average monthly

net assets

in the year

 

 

Ordinary

share

£'000

% of

average monthly

net assets

in the year

Costs paid in dealing commissions

59

0.06

78

0.07

Costs of stamp duty

 

12

0.01

9

0.01

 

 

 

71

0.07

87

0.08

 

 

The average monthly net assets of the Ordinary shares for the year to 30 April 2019 was £96,533,871 (2018: £113,142,399).

 

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 1.52% (2018: 1.41%) 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 2019

30 April 2018

 

 

 

 

Revenue

£000

Capital

£000

Total

£000

Revenue

£000

Capital

£000

Total

£000

Management fee

233

698

931

270

811

1,081

 

 

At 30 April 2019, an amount of £67,000 was outstanding and due to Miton Trust Managers Limited in respect of management fees (30 April 2018: £91,000).

 

8. Other Expenses

 

 

30 April 2019

£000

30 April 2018

£000

Company Secretarial and Administrative services

168

162

Auditor's remuneration for:

 

 

Audit of the Company's financial statements

24

24

Directors' fees

115

115

Other expenses

226

210

 

533

511

 

 

During the years ended 30 April 2019 and 30 April 2018, the Auditor's remuneration related to audit services only.

 

9. Finance Costs

 

 

30 April 2019

30 April 2018

 

Revenue

Capital

Total

Revenue

Capital 

Total 

 

£'000

£'000

£'000

£'000

£'000 

£'000 

RBS £7.5m revolving loan facility - arrangement fee

-

6

6

1

1

2

RBS £7.5m revolving loan facility - non-utilisation fee

-

41

41

2

6

8

 

-

47

47

3

7

10

 

 

On 12 February 2018 the Company entered into a £7.5m revolving loan facility (the "facility") with The Royal Bank of Scotland plc ("RBS"). The above charges relate to arrangement and commitment fees on this facility which remains undrawn as at the year end.

 

The loan bears interest at 1.10% above LIBOR on any drawn down balance. During the year the facility has not been drawn down.

 

The loan also bears a commitment fee of 0.55% on any undrawn balance where less than 25% of the facility is drawn down or 0.45% on any undrawn balance where more than 25% of the facility is drawn down.

 

An arrangement fee of £18,750 has been paid to RBS and is being amortised over the 3-year period of the facility.

 

The loan facility contains covenants which require that borrowings will not at any time exceed 15% of the adjusted portfolio value, being the total portfolio value less the gross market value of each investment which is not a quoted equity freely traded on a recognised investment exchange, and that the net asset value shall at all times be greater than £70m. If the Company breaches any covenant it is required to notify RBS of any default and the steps being taken to remedy it.

 

There were no prior loan facility agreements in place.

 

10. Taxation

 

 

 

 

30 April 2019

30 April 2018

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Overseas withholding tax suffered

 

14

-

14

22

-

22

 

 

The current tax charge is explained below:

 

 

30 April 2019

April 2018

 

Revenue 

£000 

Capital 

£000 

Total 

£000 

Revenue 

£000 

Capital 

£000 

Total 

£000 

Return on ordinary activities before taxation

309 

(19,970)

(19,661)

486 

8,812 

9,298 

Theoretic tax at UK corporation tax rate on 19.00% (2018: 19.00%)

59 

(3,794)

(3,735)

92 

1,674 

1,766 

 

 

 

 

 

 

 

Effects of:

 

 

 

 

 

 

UK dividends that are not taxable

(134)

(134)

(180)

(180)

Overseas dividends that are not taxable

(59)

(59)

(49)

(49)

Non-taxable investments and derivatives losses/(gains)

3,655 

3,655 

(1,830)

(1,830)

Overseas taxation and derivatives not recoverable

13 

13 

Double taxation relief expensed in current period

10 

10 

Unrelieved expenses

134 

139 

273 

137 

156 

293 

Total current tax charge

14 

14 

22 

22 

 

 

Factors that may affect future tax charges

The Company has excess management expenses of £5,460,000 (2018: £4,007,000), that are available to offset against future taxable revenue. A deferred tax asset of £928,000 (2018: £682,000) 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 because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust Company.

 

11. Dividends

 

30 April 2019

30 April 2018

 

 

£'000

pence

£'000

pence

Amounts recognised as distributions to equity holders in the year:

 

 

 

 

Final dividend for the year ended 30 April 2018

550

0.36

-

-

 

Final dividend for the year ended 30 April 2017

-

-

616

0.36

 

 

550

0.36

616

0.36

 

 

The Directors have recommended a final dividend in respect of the year ended 30 April 2019 of 0.20p per Ordinary share payable on 27 September 2019 to all shareholders on the register at close of business on 23 August 2019. The ex-dividend date will be 22 August 2019.

 

12. Investments

 

 

30 April 2019 

£000 

30 April 2018 

£000 

Investment portfolio summary:

 

 

Opening book cost

82,523 

87,862 

Opening unrealised gains

20,480 

20,117 

Total investments designated at fair value

103,003 

107,979 

 

 

 

Analysis of investment portfolio movements

 

 

 

 

 

Opening valuation

103,003 

107,979 

 

 

 

Movements in the year

 

 

Purchases at cost

27,582 

24,235 

Sales - proceeds

(31,282)

(38,855)

- gains on sales

5,497 

9,281 

(Decrease)/increase in unrealised gains

(24,492)

363 

Closing valuation

80,308 

103,003 

Closing book cost

84,320 

82,523 

Closing unrealised (losses)/gains

(4,012)

20,480 

 

80,308 

103,003 

 

 

 

Analysis of capital gains/(losses)

 

 

Gains on sales of investments

5,497 

9,281 

Movement in unrealised gains

(24,492)

363 

 

(18,995)

9,644 

 

 

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.

 

Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. Financial assets are transferred at the point in which a change of circumstances occur.

 

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

 

 

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Financial assets at fair value through profit or loss at 30 April 2019

 

 

 

 

Equity investments

78,501

-

1,807

80,308

Derivative contracts

690

-

-

690

 

79,191

-

1,807

80,998

 

 

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total 

£'000 

Financial assets at fair value through profit or loss at 30 April 2018

 

 

 

 

Equity investments

100,463

136

2,404

103,003

 

100,463

136

2,404

103,003

 

The fair value of the Level 2 investment is based on discounted cash flow analysis using valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.

 

The fair value of Level 3 investments are based on discounted anticipated future cash returns.

 

Reconciliation of Level 3 Movements - Financial Assets

30 April 2019 

Level 3 

£'000 

30 April 2018 

Level 3 

£'000 

Opening fair value investments

 

2,404 

29 

Transfer (to)/from Level 1

 

(200)

2,007 

Transfer from Level 2

 

-  

375 

Sale proceeds

 

(579)

-  

Movement in unrealised gains

 

182 

(7)

Closing fair value of investments

 

1,807 

2,404 

 

 

During the year, liquidation proceeds of £36,000 and £543,000 were received from the Company's investments in Pure Wafer and Specialist Investment Properties.

 

As at 30 April 2018, Atlantis Resources and CentralNic Group were both temporarily suspended from AIM. On 22 May 20118 Atlantis Resources was readmitted to AIM and was reclassified from Level 3 to Level 1. The company's name changed to SIMEC Atlantis Energy Ltd on 15 June 2018. On 16 July 2018, CentralNic Group was readmitted to AIM and was reclassified from Level 3 to Level 1.

 

As at 30 April 2019, Rockrose Energy and Wheelsure Group were both temporarily suspended from AIM and the Company's investments of £1,630,000 and £177,000 were reclassified from Level 1 to Level 3.

 

As 30 April 2019, the Company has holdings in Atlas African Industries, Constellation Healthcare, Fairpoint Group, Fishing Republic and Patisserie Holdings which are all held at nil value.

 

Other Financial Assets and Liabilities

For all other financial assets and liabilities, the carrying value is an approximation of fair value, including; trade and other receivables; cash and cash equivalents and trade of other payables.

 

14. Derivative Contracts

Typically, derivative contracts serve as components of the Company's investment strategy and are utilised primarily to structure and hedge investments, to enhance performance and reduce risk to the Company (the Company does not designate any derivative as a hedging instrument for hedge accounting purposes). The derivative contracts that the Company may hold from time to time or issue include: index-linked notes, contracts for differences, covered options and other equity-related derivative instruments.

 

Derivatives often reflect, at their inception, only a mutual exchange of promises with little or no transfer of tangible consideration. However, these instruments can involve a high degree of leverage and are very volatile. A relatively small movement in the underlying value of a derivative contract may have a significant impact on the profit and loss and net assets of the Company.

 

The Company's investment objective sets limits on investments in derivatives with a high risk profile. The Investment Manager is instructed to closely monitor the Company's exposure under derivative contracts and any use of the 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. The Company will not enter into uncovered short positions.

 

The Company has positions in the following type of derivative:

 

The Company purchases either Put or Call options through regulated exchanges and OTC markets. Options purchased by the Company provide the Company with the opportunity to purchase (Call options) or sell (Put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Company is exposed to credit risk on purchased options only to the extent of their carrying value, which is their fair value.

 

Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.

 

During the year the Company purchased a FTSE 100 - December 2020 6,100 Put option. At the Balance Sheet date, the Put option has a fair value of £690,000 with a notional portfolio exposure of £22,996,000 and unrealised holding losses of £241,000.

 

15. Trade and Other Receivables

 

 

30 April 2019

£'000

30 April 2018

£'000

Amount due from brokers

2

1,091

Dividends receivable

73

128

Prepayment and other debtors

32

21

Taxation recoverable

1

1

 

108

1,241

 

 

16. Trade and Other Payables

 

 

30 April 2019

£'000

30 April 2018

£'000

Amount due to brokers

71

-

Other creditors

140

174

 

211

174

 

 

17. 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 2019 or throughout the year (2018: nil). Also, as a public company, the minimum share capital is £50,000.

 

The Company's capital at 30 April 2019 comprised:

 

 

30 April 2019

£000

30 April 2018

£000

Current liabilities:

 

 

Trade and other payables

211

174

Equity:

 

 

Equity share capital

203

221

Retained earnings and other reserves

85,476

118,444

Total shareholders' fund

85,890

118,839

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.

 

18. Reserves

 

 

 

 

 

 

 

 

Ordinary shares to 30 April 2019

Share

premium

account

£'000

Capital

redemption

reserve

£'000

Capital 
reserve 
realised 

  £'000 

Capital 

 reserve 

 unrealised 

 £'000 

Revenue 

 reserve 

£'000 

Opening balance

86,986

2

10,197 

20,473 

786 

Redemption of Ordinary shares

-

18

(12,761)

-  

-  

Net gain on realisation of investments

-

-

5,497 

-  

-  

Unrealised net increase in value of investments and derivatives

-

-

-  

(24,733)

-  

Management fee charged to capital

-

-

(698)

-  

-  

Finance costs charged to capital

-

-

(47)

-  

-  

Equity dividends paid

-

-

-  

-  

(550)

Foreign currency gains/(losses)

-

-

(7)

-  

Revenue return on ordinary activities after tax

-

-

-  

-  

295 

Closing balance

86,986

20

2,181 

(4,254)

531 

 

 

 

 

 

 

Ordinary shares to 30 April 2018

Share 

premium 

account 

 £'000 

Capital

redemption

reserve

£'000

Capital 
reserve 
realised 

  £'000 

Capital 

 reserve 

unrealised 

 £'000 

Revenue 

 reserve 

£'000 

Opening balance

86,986 

-

2,962 

20,137 

938 

Redemption of Ordinary shares

2

(1,241)

Net gain on realisation of investments

-

9,281 

Unrealised net increase in value of investments

-

363 

Management fee charged to capital

-

(811)

Finance costs charged to capital

-

(7)

Equity dividends paid

-

(616)

Foreign currency gains/(losses)

-

13 

(27)

Revenue return on ordinary activities after tax

-

464 

Closing balance

86,986 

2

10,197 

20,473 

786 

 

At 30 April 2019, the distributable reserves of the Company comprised of the revenue reserve £786,000 (2018: £10,983,000 comprised of the revenue reserve and capital reserve and capital reserve realised). 

 

19. Analysis of Financial Assets and Liabilities

 

Investment Objective and Policy

The Company's investment objective and policy are detailed above and in the Annual Report.

 

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 2019 on its equity and listed Put index option investments held at fair value through profit or loss was £80,998,000 (2018: £103,003,000).

 

A 10% increase in the fair value of its investments at 30 April 2019 would have increased net assets attributable to shareholders by £8,099,800 (2018: £10,300,000). 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 2019 (2018: nil).

 

The Company has a £7.5m revolving loan facility with RBS at an interest rate of 1.10% above LIBOR on any drawn down balance and 0.55% on any undrawn balance where less than 25% of the facility is drawn down or 0.45% on any undrawn balance where more than 25 % of the facility is drawn down. During the year the facility has not been drawn down.

 

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 2019

Floating rate

£'000

30 April 2018

Floating rate

£'000

Assets and liabilities:

Cash and cash equivalents

4,784

14,595

 

4,784

14,595

 

 

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 £48,000 (2018: £146,000). If there was a fall by 1% in LIBOR it would potentially impact the Company by a revenue reduction of £48,000 (2018: £146,000).

 

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 2019 was £4,892,000 (2018: £15,836,000). The calculation is based on the Company's credit risk exposure as at 30 April 2019 and this may not be representative for the whole year.

 

The Company's quoted investments are held on its behalf by The 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.

 

20. 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

year

£'000

Outstanding as at

30 April 2019

£'000

 

Directors'

 fees per

annum

£'000

Directors'

fees paid

for the

year

£'000

 

Outstanding as at

30 April 2018

£'000

Andrew Pomfret (Chairman)

35

35

-

35

35

-

Peter Dicks

30

30

-

30

30

-

Jan Etherden

25

25

-

25

25

-

Ashe Windham

25

25

-

25

25

-

 

 

Details of the Management fee payable to Miton Trust Managers Limited pursuant to the Investment Management Agreement are set out in the Strategic Report above. Amounts paid and payable are set out in Note 7.

 

The Board is proposing to cancel the amount standing to the credit of the share premium account of £86,986,000 (2018: £86,986,000), subject to approval by shareholders. The distributable reserves will thereby increase by the balance of the share premium account.

 

21. Post Balance Sheet Events

 

At the signing of these financial statements, there was £86,900,000 standing to the credit of the Company's share premium account. As announced by the Company on 26 June 2019, the Board is proposing to cancel the Company's share premium account to create distributable reserves in order to satisfy redemption requests in full and satisfy reserve requirements. The intended timetable for dispatch of redemption monies, subject to receipt of the requisite shareholder and Court approvals, will be mid-August 2019.

 

The cancellation of the share premium account requires the passing of a special resolution of the Company at a general meeting and the subsequent approval of the Court. On 1 July 2019, the Company published a circular to convene this general meeting which contained details on the timing of the Court hearings.

 

 

Glossary

 

Alternative Investment Market ("AIM")

MINI's shares are traded on the London Stock Exchange, although most the stocks held in the Company's portfolio are quoted on the AIM exchange. AIM is owned by the London Stock Exchange and was principally set up to meet the funding needs of smaller, growing companies.

 

Alternative Performance Measure ("APM")

An APM is a numerical measure of the Company's current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework.

 

Annual General Meeting ("AGM")

All public companies have an AGM every year, and this is the opportunity for the shareholders to confirm their approval of the annual accounts, the annual dividend and the appointment of the Directors and Auditors. It is also a good time for shareholders to meet the non-executive directors. The Company's AGM is on 11 September 2019 at 11.00 am at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH. One of the fund managers will give shareholders a presentation on the current position of the Company's portfolio and some thoughts on the market outlook.

 

Discount/Premium

If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

 

 

30 April   

30 April   

 

Discount Calculation

2019   

2018   

 

Closing NAV per share (p)

56.13   

69.33   

(a)

Closing share price (p)

54.40   

65.80   

(b)

Discount (c = ((a - b)/a))

3.08%

5.09%

(c)

 

 

 

 

The discount and performance is calculated in accordance with guidelines issued by the AIC. The discount is calculated using the NAVs per share inclusive of accrued income with debt at market value.

 

Dividend Yield

The annual dividend expressed as a percentage of the mid-market share price.

 

Financial Conduct Authority ("FCA")

This regulator oversees the fund management industry, including the operation of the Company.

 

Financial Reporting Council ("FRC")

The FRC regulates UK auditors and provides guidance to accountants with the aim of promoting better transparency and integrity in the annual reports of quoted businesses.

 

Gearing

Gearing refers to the ratio of the Company's debt to its equity capital. The Company may borrow money to invest in additional investments for its portfolio. If the Company's assets grow, the shareholders' assets grow proportionately because the debt remains the same. If the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

 

Generally Accepted Accounting Principles ("GAAP")

GAAP are a common set of accounting principles, standards and procedures that companies follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. This enables the financial results of companies to be determined on a common basis so they are able to be compared. In the UK, company accounts must be prepared in accordance with applicable company law, this being the Companies Act 2006, which recognises GAAP.

 

International Financial Reporting Standards ("IFRS") are standards issued by the International Accounting Standards Board ("IASB"), approved for implementation by the European Union to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. These were previously International Accounting Standards ("IAS") maintained by the IASB.

 

The Company adopted IFRS with the accounting policies of the Company set out in the financial statements.

 

Growth Stock

A stock where the earnings are expected to grow at an above-average rate, leading to a faster than average growing share price. Growth stocks do not usually pay a significant dividend.

 

Key Performance Indicators ("KPIs")

KPIs are a short list of corporate attributes that are used to assess to general progress of the business and are outlined above.

 

Investment Association ("IA")

The IA is the trade body that represents UK investment managers. Miton Group plc is a member, and Gervais Williams is on the board.

 

Link Company Matters Limited ("Link")

Link is the Company Secretary for the Company.

 

Markets in Financial Instruments Directive II ("MiFID II")

This directive came into effect on 3 January 2018. In the case of Miton Group plc clients, the principal change has been the unbundling of transaction and external research charges paid by the Company, when stock market transactions are carried out.

 

Net Asset Value per Ordinary share ("NAV")

The NAV is shareholders' funds expressed as an amount per individual share. Shareholders' funds are the total value of all of the Company's assets, at their current market value, having deducted all liabilities and prior charges at their par value, or at their asset value as appropriate. The NAV per share is calculated by dividing the shareholders' funds by the number of Ordinary shares in issue excluding treasury shares.

 

Ongoing Charges

As recommended by the AIC in its guidance, ongoing charges are the Company's annualised revenue and capital expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year.

 

 

30 April   

30 April   

 

Ongoing Charges Calculation

2019   

2018   

 

Management fee

931   

1,081   

 

Other administrative expenses

533   

511   

 

Total management fee and

 

 

 

other administrative expenses

1,464   

1,592   

(a)

Average net assets in the year

96,534   

113,142   

(b)

Ongoing charges (c = a/b)

1.52%

1.41%

(c)

 

 

 

 

Peer Group

The Company is part of the AIC's UK Smaller Companies sector whose members invest at least 80% of their assets in UK Smaller Companies.

 

Put Option

Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified price likened to purchasing a form of financial insurance. An owner of a Put option can collect a financial benefit after an adverse event, with the scale of the benefit proportionate to the setback in the market and the remaining term of the cover. The Company Put option will become more valuable should the market decline.

 

Senior Independent Director ("SID")

The SID is a non-executive director who can be contacted by investors to discuss a matter of governance when it concerns the Chairman and the normal practice cannot be followed. MINI's SID is Peter Dicks.

 

Tap Issue

A tap issue is a procedure that allows the Company to issue new shares at the current market value when the share price is at a premium to NAV. The Company is authorised to issue up to 10% of its share capital without the need for an open offer. This enables the Company to invest in attractive investment opportunities and to issue new shares on a flexible and cost-effective basis.

 

Total Assets

Total assets include investments, cash, current assets and all other assets. An asset is an economic resource, being anything tangible or intangible that can be owned or controlled to produce value and to produce positive economic value. Assets represent the value of ownership that can be converted into cash. The total assets less all liabilities will be equivalent to total shareholders' funds.

 

Total Return - NAV and Share Price Returns

Total return statistics enable the investor to make performance comparisons between investment trusts with different dividend policies. The Total Return measures the combined effect of any dividends paid, together with the rise or fall in the share price or NAV. This is calculated by the movement in the share price or NAV plus the dividends paid by the Company assuming these are re-invested in the Company at the prevailing NAV.

 

 

30 April     

30 April   

 

NAV Total Return

2019     

2018   

 

Closing NAV per share (p)

56.13     

69.33   

 

Add back final dividend for the year ended 30 April 2018 (2017) (p)

0.36     

0.36   

 

Adjusted closing NAV (p)

56.49     

69.69   

(a)

Opening NAV per share (p)

69.33     

64.27   

(b)

NAV total return unadjusted

(c = ((a - b)/b)) (%)

(18.5)% 

8.4%

(c)

NAV total return adjusted (%)

(18.6)%*

8.4%

 

 

 

 

 

 

 

30 April     

30 April   

 

Share Price Total Return

2019     

2018   

 

Closing share price (p)

54.40     

65.80   

 

Add back final dividend for the year ended 30 April 2018 (2017) (p)

0.36     

0.36   

 

Adjusted closing share price (p)

54.76     

66.16   

(a)

Opening share price (p)

65.80     

62.25   

(b)

Share price total return unadjusted

(c = ((a - b)/b)) (%)

(16.8)% 

6.3%

(c)

Share price total return adjusted (%)

(16.9)%*

6.3%

 

 

 

 

 

* Based on NAV/share price movements and dividends being reinvested at the relevant cum dividend NAV/share price during the period. Where the dividend is invested and the NAV/share price falls, this will further reduce the return or, if it rises, any increase will be greater. The source is Morningstar who have calculated the return on an industry comparative basis.

 

Yield Stock

Yield stocks pay above-average dividends to shareholders. If the dividend grows, and the yield on the share remains constant, the share price will increase. Companies which grow their dividends faster than average are capable of delivering faster share price growth.

 

ANNUAL GENERAL MEETING

 

The Company's Annual General Meeting will be held on Thursday 11 September 2019 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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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