Annual Financial Report
THE DIVERSE INCOME TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE PERIOD ENDED 31 MAY 2012
The Directors present the Annual Financial Report of the Company for the period
from incorporation on 30 March 2011 to 31 May 2012. The full Annual Report and
Accounts can be accessed via the following website: www.mamfundsplc.com/dit or
by contacting the Company Secretary on 01392 477500.
The Diverse Income Trust plc ("the Company") was incorporated on 30 March 2011.
Following a placing and offer for subscription, the ordinary shares were
admitted to trading on the London Stock Exchange on 28 April 2011.
CAPITAL STRUCTURE
The Company's share capital consists of redeemable ordinary shares of 0.1p each
with one vote per share ("ordinary shares") and non-voting management shares of £1 each.
As at 31 May 2012 and the date of this report, there are 100,000,000 ordinary
shares in issue, none of which are held in treasury, and 50,000 management
shares ("management shares").
The Company has a redemption facility through which shareholders are entitled
to request the redemption of all or part of their holding of ordinary shares on
an annual basis on 31 May in each year. The Board may, at its absolute
discretion, elect not to operate the annual redemption facility in whole or in
part, although it has indicated that it is minded to approve all requests.
Further details of the capital structure can be found in note 8 to the
financial statements.
INVESTMENT OBJECTIVE
The Company's investment objective is to provide shareholders with an
attractive level of dividends coupled with capital growth over the long term.
INVESTMENT POLICY
The Company will invest primarily in quoted or traded UK companies with a wide
range of market capitalisations, but a long-term bias toward small and mid-cap
equities. The Company may also invest in large cap companies, including FTSE
100 constituents, where it is believed that this may increase shareholder value.
The Manager will adopt a stock specific approach in managing the Company's
portfolio and therefore sector weightings will be of secondary consideration.
As a result of this approach, the Company's portfolio does not track any
benchmark index.
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.
Risk diversification
Portfolio risk is mitigated by investing in a diversified spread of
investments. Investments in any one company, shall not, at the time of
acquisition, exceed 15% of the value of the Company's investment portfolio.
Typically it is expected that the Company will hold a portfolio of between 80
and 120 securities, predominantly most of which will represent no more than
1.5% of the value of the Company's investment portfolio as at the time of
acquisition.
The Company will not invest more than 10% of its gross assets, at the time of
acquisition, in other listed closed-ended investment funds, whether managed by
the Manager or not, except that this restriction shall not apply to investments
in listed closed-ended investment funds which themselves have stated investment
policies to invest no more than 15% of their gross assets in other listed
closed-ended investment funds. In addition to this restriction, the Directors
have further determined that no more than 15% of the Company's gross assets
will, at the time of acquisition, be invested in other listed closed-ended
investment funds (including investment trusts) notwithstanding whether or not
such funds have stated policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
Unquoted investments
The Company may invest in unquoted companies from time to time subject to prior
Board approval. Investments in unquoted companies in aggregate will not exceed
5% of the value of the Company's investment portfolio as at the time of
investment.
Borrowing and gearing policy
The Board considers that long-term capital growth can be enhanced by the use of
gearing which may be through bank borrowings and the use of derivative
instruments such as contracts for differences. The Company may borrow (through
bank facilities and derivative instruments) up to 15% of net asset value
("NAV") (calculated at the time of borrowing).
The Board oversees the level of gearing in the Company, and reviews the
position with the Manager on a regular basis.
In the event of a breach of the investment policy set out above and the
investment and gearing restrictions set out therein, the Manager shall inform
the Board upon becoming aware of the same and if the Board considers the breach
to be material, notification will be made to the London Stock Exchange.
No material change will be made to the investment policy without the approval
of shareholders by ordinary resolution.
FINANCIAL HIGHLIGHTS
At 31 May 2012 At 28 April 2011 % change
(launch)
Total net assets £47.83m £48.75m (1.89)
Number of ordinary shares in 100m 100m -
issue
Net asset value per ordinary 47.83p 48.75p** (1.89)
share
Ordinary share price (mid) 48.75p 50.00p (2.50)
Premium to net asset value 1.92% 2.56% -
Market capitalisation £48.75m £50.00m (2.50)
Revenue return per ordinary 2.32p n/a -
share
Total dividends per ordinary 2.19p n/a -
share*
Total return per ordinary share 0.43p n/a -
TOTAL RETURN PERFORMANCE
3 months to 6 months to From launch to
31 May 2012 31 May 2012 31 May 2012
% % %
Net asset value** (2.83) 7.58 0.70
Ordinary share price (0.58) 11.63 -
* Total dividends per ordinary share include the fourth interim dividend
declared in respect of the period ended 31 May 2012 and will differ from the
amounts disclosed in the Statement of Changes in Equity.
** After launch expenses.
Total return assumes that dividends are reinvested at the ex-dividend date.
CHAIRMAN'S STATEMENT
It is a pleasure to deliver this first annual report to shareholders covering
the trading period from launch on 28 April 2011 to 31 May 2012. The investment
strategy of our Company is designed to address the investment challenges beyond
the credit boom. In particular, it is anticipated that attractive long-term
investment returns can be generated in spite of turbulent markets, by investing
in a portfolio of quoted companies with intrinsic value and that have the
prospect of paying out good and growing dividend income.
The UK stockmarket was indeed troubled in our first trading period, with most
indices down by 10% or more. UK Growth & Income Trusts did rather better given
that their portfolios hold stocks with above average yields, but even so the
average fund fell by 7.9%. In comparison, the Company's net asset value ("NAV")
fell by 1.9% in the period.
The Company's income was mainly derived from the cashflow paid out by companies
in the portfolio. During the year, shareholders were paid three interim
dividends, and in June 2012 the Board announced a fourth interim dividend, in
lieu of a final, to make up the annualised 4% yield, as anticipated in the
prospectus. The Company was also able to put £129,000 into distributable
reserves for the future.
All shareholders can request to redeem their entire shareholding each year by
submitting a form one month before the Company's year end. These are subject to
the approval of the Board, though the Board has stated that it is minded to
approve all requests. The Board believes that having this process in place has
worked to the advantage of shareholders and has contributed, along with the
relative performance and attraction of the Company's mandate, to the share
price trading at an average 2.3% premium to NAV since issue. This year no
redemption requests were received.
At the time of writing the market outlook is overshadowed by concerns that one
or more countries will feel compelled to suspend membership of the euro. Whilst
markets are anticipated to remain choppy, we believe the intrinsic strengths of
many of the portfolio holdings will attract a wider range of investors over
time, delivering premium returns to shareholders. To this end, the Board
announced on 27 June 2012 that the Company is planning an issue of C shares,
anticipated to take place in mid July 2012, in order to broaden the investor
base and improve market liquidity for shareholders.
Michael Wrobel
Chairman
27 June 2012
MANAGER'S REPORT
Markets
Although markets were initially stable after the launch of the Company at the
end of April 2011, they fell back sharply in August and September on fears that
euro imbalances could cause a Greek bond default. Given that many European
banks held large holdings of southern European sovereign bonds, they were
thought to be at risk of insolvency. This problem was addressed by the European
Central Bank lending €1 trillion of bonds to those that were most vulnerable,
and this paved the way for a strong market recovery towards the end of 2011 and
into 2012. However, towards the end of our financial year euro worries
resurfaced. Higher production costs of Greece and other southern European
countries may be unsolvable in the structure of a single currency area, and may
ultimately force a euro break up. The financial impact is unknowable, although
it would be moderated if the break up was managed over a wind-down period.
These uncertainties weighed heavily on markets towards the end of the financial year.
Performance
Equity markets worldwide were affected by the European worries. The capital
return on the FTSE All-Share was minus 12.3% between 28 April 2011 and 31 May
2012, the period under review. In the same period the smaller companies market
fared slightly worse, with the FTSE SmallCap Index (excluding Investment
Companies) dropping 12.1% and the AIM All-Share Index falling 25.0%.
It is a perennial feature that the share prices of companies that sustain
higher yields tend to be less volatile than the market overall. Therefore, UK
Growth & Income Investment Trusts fell rather less on average than the market
in the period, down 7.4%.
The net asset value of the Company has fallen 1.9% from issue, rather less than
the comparatives. The Company has also generated total dividends for
shareholders amounting to 4.5% after costs. Despite the choppy market
conditions, it is reassuring to note that the volatility of the Company's NAV
has been markedly better than most other funds in the sector.
Dividend Income
In the prospectus, the Company had a stated aim of generating a dividend yield
of 4% annualised in the first year. Beyond this the Company aims to build a
portfolio of investments on the basis that they would grow dividends faster
than most other UK Equity Income Funds.
Given our concerns about risks of a market setback, the initial capital was
invested slowly in the first few months of the period, which did constrain
income generation. But from September onwards we were able to take advantage of
the market falls, to invest the capital at more attractive entry prices, and
better dividend yields. With many companies paying their main dividends after
the December or March year ends, the lion's share of dividend income for the
Company was generated in the final months of the financial year.
The Company has also used additional activities to boost income for
shareholders. Sub-underwriting secondary issues earns fees and short-term
profits in the trading account after corporation tax can be paid out as
dividends by the Company. During the year these activities generated an
additional £57,000 of revenues.
The Company has declared four dividends since issue. Our maiden interim
dividend of 0.3p went ex-dividend on 28 September 2011, a second interim
dividend of 0.5p was declared after the end of the half year, and went
ex-dividend on 28 December 2011, with the third dividend of 0.46p going
ex-dividend on 28 March 2012. The fourth dividend for the year, declared as an
interim dividend so it could be paid to shareholders before the AGM, was 0.93p
and is due to go ex-dividend on 27 June 2012. The overall yield for
shareholders amounts to the 4% annualised as envisaged in the prospectus.
Portfolio
The Company was established without a formal benchmark index so the Manager
could select investments from the full range of quoted companies, avoiding the
consensus of mainly concentrating on the well-researched stocks with large
benchmark weightings held by most other funds. This strategy is anticipated to
offer shareholders greater returns through including more under-researched
stocks where the risk/reward ratio can be more attractive. Given the larger
investment universe, the Manager has been able to prioritise stocks with strong
balance sheets, often businesses with net cash balances. During challenging
trading conditions, those with the strongest balance sheets often have greater
opportunities relative to those with weak balance sheets that tend to lose out.
The portfolio is invested across a broad range of sectors, but there has been a
particular focus on the providers of regular everyday products and services
such as insurance, telecoms and food. These are anticipated to be more
resilient in the challenging economic conditions, and yet we believe still
offer attractive prospects for dividend growth. It also limits the financial
risk and market volatility in the portfolio.
The last major differential of the Company is that the portfolio is more widely
diversified than most others. The general aim has been to invest between 1.0%
and 1.5% of the portfolio in each holding, thereby greatly diminishing the
stock specific risk of each investment. So whilst we hold some larger quoted
companies such as Amlin and Vodafone, these stocks have no greater weightings
than other lesser researched stocks such as Augean and Greencore. Differential
share price movements following investment do cause some holdings to grow and
to exceed 2%, but overall most are around the 1% level.
These factors together will hopefully offer shareholders the prospect of a good
and growing dividend yield, whilst the overall value of the assets should have
less volatility than most other comparative funds. The breakdown of the
different size bands of the portfolio is shown in the table below. Just under
10% of the portfolio is invested in FTSE 100 stocks, around 25% in mid sized
FTSE 250 stocks, and the remaining 65% or so in smaller companies quoted on the
Main Market and AIM Market.
The largest holdings as at 31 May 2012 are set out below. Typically the best
performing holdings in the portfolio have been some of the smaller, nimbler
stocks and many of these have appreciated to become the bigger holdings.
However we believe the overall portfolio remains relatively defensive and well
diversified.
Outlook
At the time of writing the outlook is heavily overshadowed by fears that the
euro will break apart. If this occurred, investors will need to be prepared for
turbulent markets and a chance that the world moves back into recession. The
Company's investment strategy has been put together to maximise shareholders'
returns through such a challenging period, through adopting a relatively
straight-forward strategy of investing in companies with intrinsic value which
should be able to pay good and growing dividend income. The portfolio is
largely made up of simple businesses that have the prospect of sustaining an
increase in demand for their products even if the world economy was not
expanding. Indeed it is our belief that many other fund managers will grow to
appreciate the investment advantages of bottom up stock picking, and that this
trend may cause the smaller company universe to outperform for a number of
years.
Gervais Williams and Martin Turner
Midas Capital Partners Limited
27 June 2012
PORTFOLIO INFORMATION AS AT 31 MAY 2012
Portfolio of Investments
Rank Company Sector Valuation % of Net Yield*
£'000 Assets %
1 Zotefoams Basic Materials 1,088 2.27 2.99
2 Greencore Consumer Goods 1,028 2.15 4.37
3 CML Microsystems Technology 961 2.01 2.50
4 Paypoint Support Services 860 1.80 4.32
5 Quindell Technology 797 1.67 -
Portfolio
6 32Red Consumer Services 790 1.65 3.04
7 Abbey Protection Insurance & Insurance 775 1.62 5.68
Services
8 ECO Animal Health Health Care 744 1.56 1.35
9 Chamberlin Industrials 743 1.55 3.80
10 Office2Office Support Services 739 1.54 8.26
Top ten investments 8,525 17.82
11 Stadium Industrials 723 1.51 3.89
12 Secure Trust Bank Banks 719 1.50 5.40
13 Charles Taylor General Financial 715 1.50 6.90
Consulting
14 Randall & Quilter Insurance & Insurance 658 1.38 7.60
Investment Services
Holdings
15 KCOM Telecommunications 651 1.36 5.93
16 Stobart Industrials 649 1.36 5.24
17 Consort Medical Health Care 637 1.33 3.27
18 KBC Advanced Oil & Gas 631 1.32 3.17
Technologies
19 Vodafone Telecommunications 619 1.29 5.50
20 Fairpoint General Financial 595 1.25 7.03
Top twenty investments 15,122 31.62
21 Hansard Global Insurance & Insurance 582 1.22 10.69
Services
22 RPC Industrials 582 1.22 3.18
23 4imprint Consumer Services 580 1.21 5.31
24 BT Telecommunications 580 1.21 4.02
25 Beazley Insurance & Insurance 566 1.18 5.85
Services
26 Cape Oil & Gas 565 1.18 5.80
27 Smith DS Industrials 560 1.17 5.10
28 Hilton Foods Consumer Goods 558 1.17 4.15
29 Interserve Support Services 549 1.15 6.37
30 Drax Utilities 547 1.14 5.08
Top thirty investments 20,791 43.47
31 Cineworld Consumer Services 546 1.14 5.08
32 Catlin Insurance & Insurance 541 1.13 6.98
Services
33 Wilmington Consumer Services 536 1.12 7.57
34 St Ives Industrials 535 1.12 7.39
35 Berendsen Support Services 531 1.11 4.94
36 Amlin Insurance & Insurance 528 1.10 7.23
Services
37 Powerflute Basic Materials 528 1.10 4.28
38 Greggs Consumer Services 526 1.10 3.84
39 Churchill China Consumer Goods 525 1.10 4.38
40 Silverdell Industrials 513 1.08 -
Top forty investments 26,100 54.57
Balance held in 65 holdings 20,388 42.63
Total equity investments 46,488 97.20
Cash and other net assets 1,339 2.80
Net assets 47,827 100.00
* Yield is based on the Manager's estimated annual income.
Unless otherwise stated all investments are in the ordinary shares of the
investee company.
A copy of the full portfolio of investments as at 31 May 2012 is available on
the Company's website, www.mamfundsplc.com/dit
Portfolio exposure by sector
%
Consumer Services 14.8
Insurance & Insurance Services 13.6
Consumer Goods 12.0
Industrials 10.9
Support Services 10.9
General Financial 9.5
Technology 7.8
Telecommunications 5.9
Basic Materials 4.7
Health Care 3.5
Cash and other net assets 2.8
Oil & Gas 2.5
Utilities 1.1
100.0
Portfolio exposure by asset allocation
%
AIM/PLUS 32.0
FTSE SmallCap 26.4
FTSE 250 24.6
FTSE 100 7.0
FTSE Fledgling 6.6
Cash and other net assets 2.8
Other 0.6
100.0
Portfolio by spread of investment income
%
FTSE 250 39.1
FTSE SmallCap 21.6
FTSE 100 17.2
AIM/PLUS 16.9
International 3.0
FTSE Fledgling 2.2
100.0
Estimated annual income by sector*
%
Insurance & Insurance 18.3
Services
Consumer Services 16.6
General Financial 13.3
Support Services 11.2
Consumer Goods 10.2
Industrials 9.3
Telecommunications 7.3
Technology 4.6
Basic Materials 3.7
Oil & Gas 2.3
Health Care 2.0
Utilities 1.2
100.0
* Projected income based on portfolio as at 31 May 2012
Source: Midas Capital Partners Limited
BOARD OF DIRECTORS (all non-executive)
Michael Wrobel (Chairman)
Paul Craig
Lucinda Riches
Jane Tufnell (Senior Independent Director)
BUSINESS REVIEW
Principal Activity and Status
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.
The principal conditions that must be met for approval by HM Revenue & Customs
("HMRC") for any given accounting period as an investment trust are that the
Company's income is derived "wholly or mainly" from shares or securities; no
holding in another Company or group of companies should represent more than 15%
by value of the Company's investments; and the Company must not retain more
than 15% of its income derived from shares and securities. The Directors are of
the opinion that the Company has conducted its affairs for the period ended 31
May 2012 so as to be able to obtain the necessary approvals as an investment
trust for that period.
New regulations for obtaining and retaining investment trust status have been
published by HMRC and will be effective for the Company from 1 June 2012. An
application for approval as an investment trust must be made within 90 days
after the end of the first accounting period of the Company following
implementation of the new regime. If the application is accepted, the Company
will be treated as an investment trust company for that period and for each
subsequent accounting period, subject to there being no subsequent serious
breaches of the regulations. The other significant changes are to remove the
maximum holding in any one investment of 15% and replace this with a risk
diversification approach, and to require an investment trust to distribute a
minimum of 85% of all its income as dividend payments. The former is a
restriction in the Company's stated investment policy and there are no current
plans to amend this.
The Company is an investment company in accordance with the provisions of
Sections 832 and 833 of the Companies Act 2006. The Directors do not envisage
any change in this activity in the future.
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 low cost.
The Company has a wholly owned subsidiary, DIT Income Services Limited. The
purpose of the subsidiary is to invest in shorter term holdings, where the
gains after corporation tax can be passed up to the parent company by way of
dividends, thus improving the position of the Company's revenue account.
Investment Policy
The Company's 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 primarily in quoted or traded UK companies with a wide
range of market capitalisations but a long-term bias toward small and mid-cap
equities with a view to achieving the Company's investment objective.
The Manager will adopt a stock specific approach in managing the Company's
portfolio and therefore sector weightings will be of secondary consideration.
As a result of this approach, the Company's portfolio will not track any
benchmark index.
Details of the largest investments are shown above.
Performance
The Chairman's Statement and the Manager's Report above give details of the
Company's activities, performance and position during the first period of trading.
The Board reviews the Company's performance by reference to a number of Key
Performance Indicators ("KPI's") 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 Manager monitor the following KPIs:
* NAV performance, relative to comparable investment trusts and open-ended
funds and to various UK stockmarket indices
The Company's NAV increased by 0.7% on a total return basis over the period.
This compares favourably with its peer group, where the average was a 3.3%
fall. By comparison, the total return on the FTSE All-Share was -8.7%, on the
FTSE SmallCap Index (excluding Investment Companies) was -9.5%, and on the AIM
All-Share Index was -24.4%.
* NAV volatility
The Company has an objective to deliver attractive returns whilst having an eye
to constraining volatility relative to other similar investment trusts. For the
period from 28 April 2011 (the date the shares commenced trading) to 31 May 2012,
the Company's NAV had a volatility of 8.8%, the lowest in its peer group.
* Movements in the Company's share price
The Company's share price fell by 2.5% over the period. This compares
favourably with its peer group, where the average fall was 7.4%. By comparison,
the total return on the FTSE All-Share was -8.7%, on the FTSE SmallCap Index
(excluding Investment Companies) was -9.5%, and on the AIM All-Share Index was -24.4%.
* The discount of the share price in relation to the NAV
The Company has an objective to keep the discount to NAV at a minimum. Over the
period to 31 May 2012 the Company has maintained an average premium to NAV of
2.3%. This compares favourably with its peer group, where the average discount
was 0.3% over the period.
* The Company's dividend growth rate
The Company has achieved its target 4% annualised dividend yield for the period
ended 31 May 2012, as set out in the prospectus.
* Ongoing charges (total expense ratio)
The ongoing charges for the period to 31 May 2012 amounted to 1.9% of total assets.
Net Asset Value
The NAV at 31 May 2012 was 47.83p per share.
Dividends
Dividends totalling 2.19p per ordinary share have been paid or declared in
respect of the period ended 31 May 2012 as follows:
First interim dividend: 0.30p paid on 30 November 2011
Second interim dividend: 0.50p paid on 29 February 2012
Third interim dividend: 0.46p paid on 31 May 2012
Fourth interim dividend: 0.93p payable on 31 August 2012
As set out in the launch prospectus, in respect of the period to 31 May 2012
the Company targeted an annualised dividend yield of 4%, which has been
achieved.
Shareholders will have the option to vote on the dividend payment policy of the
Company at the forthcoming Annual General Meeting.
Share Issues
The Company was incorporated with 50,000 management shares of £1 each. These
shares are non-redeemable and non-voting and are held by MAM Funds plc, the
parent company of the Manager (see note 8 to the financial statements for
details).
100,000,000 redeemable ordinary shares of 0.1p, with a nominal value of
£100,000, were allotted on 21 April 2011 at a price of 50p per share under the
Placing and Offer for Subscription by the Company. The shares commenced trading
on the Main Market of the London Stock Exchange on 28 April 2011.
The Directors have the authority to allot ordinary shares up to an aggregate
nominal amount of £10,000. They are also authorised to allot up to 100,000,000
C shares. Both of these authorities are due to expire at the Company's next
Annual General Meeting to be held on 17 October 2012. At the date of this
report, no shares have been issued under these authorities.
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.
Purchase of Own Shares
At a General Meeting of the Company held on 6 April 2011, the Directors were
granted the authority to buy back up to 14,990,000 ordinary shares, being
14.99% of the Company's ordinary share capital. No ordinary shares have been
bought back under this authority. The authority will expire at the next Annual
General Meeting when a resolution for its renewal will be proposed.
Treasury Shares
Shares bought back by the Company may be held in treasury, from where they
could be re-issued 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 period.
Principal Risks
The Company is exposed to a variety of risks. The principal financial risks and
the Company's policies for managing these risks and the policy and practice
with regard to financial instruments are summarised in note 17 to the financial
statements. The Board has also identified the following additional risks and
uncertainties:
Investment and strategy
There can be no guarantee that the investment objective of the Company will be
achieved. The Company is an investment trust which invests mainly in UK
equities. However, the Company has a very wide investment policy and may also
invest in cash and bonds, unquoted investments, derivative instruments and
other investments and securities, as appropriate.
The Company does not follow any benchmark. Accordingly, the portfolio of
investments held by the Company will not mirror the stocks and weightings that
constitute any particular index or indices, which may lead to the Company's
shares failing to follow either the direction or extent of any moves in the
financial markets generally (which may or may not be to the advantage of
shareholders).
The Manager has in place a dedicated investment management process which is
designed to ensure the investment objectives are achieved. The Board reviews
regular investment and financial reports from the Manager.
Smaller companies
The Company will invest primarily in quoted UK companies with a wide range of
market capitalisations but a long-term bias toward small and mid-cap equities.
Smaller companies can be expected, in comparison to larger companies, to be
less mature businesses, have more restricted depth of management and a higher
risk profile. In addition, the relatively small market capitalisation of such
companies can make the market in their shares illiquid. Prices of smaller
capitalisation stocks are often more volatile than prices of larger
capitalisation stocks and the risk of insolvency of many smaller companies
(with the attendant losses to investors) is higher.
The Company looks to mitigate this risk by holding a spread of investments,
achieved through limiting the size of new holdings at the time of investment,
to a maximum of 1.5% of the portfolio. All potential investee companies are
researched by the Manager prior to investment.
Sectoral diversification
The Company is not constrained from weighting to any sector. This may lead to
the Company having significant exposure to portfolio companies from certain
business sectors from time to time. Greater concentration of investments in any
one sector may result in greater volatility in the value of the Company's
investments and consequently its NAV.
The Company seeks to achieve returns by investing across the full spectrum of
companies meeting its criteria, covering all sectors.
Unquoted companies
The Company may invest in unquoted companies from time to time. Such
investments, by their nature, involve a higher degree of valuation and
performance uncertainties and liquidity risks than investments in listed and
quoted securities and they may be more difficult to realise.
This risk is mitigated by the requirement for the Board to prior approve any
investment into unquoted companies and by limiting the size of all unquoted
investments to less than 5% of the portfolio.
Use of derivative instruments
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. The Company will not enter into derivative contracts for speculative
purposes.
Dividends
The Company's investment objective includes the aim of providing shareholders
with a dividend income. There is no guarantee that any dividends will be paid
in respect of any financial year or period. The ability to pay dividends is
dependent on a number of factors including the level of dividends earned from
the portfolio and the net revenue profits available for that purpose.
The redemption of shares pursuant to the redemption facility may also reduce
distributable reserves to the extent that the Company is unable to pay
dividends.
The Company maintains accounting records and produces forecasts that are
designed to reduce the likelihood that the Company will not have sufficient
distributable resources to meet its dividend objective.
Share price volatility and liquidity/marketability risk
The market price of the Company's shares, like shares in all investment
companies, may fluctuate independently of the NAV and thus may not reflect the
underlying NAV of the shares. The shares could trade at a discount or premium
to NAV at different times, depending on factors such as supply and demand for
the shares, market conditions and general investor sentiment.
Gearing
The Company's investment strategy may involve the use of gearing to enhance
investment returns, which exposes the Company to risks associated with
borrowings. Gearing may be generated through the use of options, futures,
options on futures, swaps and other synthetic or derivative financial
instruments. Such financial instruments inherently contain much greater
leverage than a non-margined purchase of the underlying security or instrument.
While the use of borrowings should enhance the total return on the shares where
the return on the Company's underlying assets is rising and exceeds the cost of
borrowing, it will have the opposite effect where the return on the Company's
underlying assets is rising at a lower rate than the cost of borrowing or
falling, further reducing the total return on the shares. As a result, the use
of borrowings by the Company may increase the volatility of the NAV per share.
The Company has an overdraft facility in place, but this was unused at 31 May 2012.
The Company is limited to a maximum gearing of 15% of the net assets.
Key man risk
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, in particular Gervais Williams.
C shares
The Directors have been authorised to issue up to 100,000,000 C shares without
the application of pre-emption rights. If the Directors decide to issue C
shares on a non-pre-emptive basis the proportions of the voting rights held by
ordinary shareholders will be diluted on the issue of such C shares as each C
share carries the right to one vote. The voting rights may be diluted further
on conversion of the C shares depending on the applicable conversion ratio.
Redemption facility
The operation of the annual redemption facility may lead to a more concentrated
and less liquid portfolio which may adversely affect the Company's performance
and value. Further, redemptions may also adversely affect the secondary market
liquidity of the ordinary shares.
The Board would seek to mitigate the risk of substantial redemptions being
requested by maintaining a regular flow of communication with shareholders and
the achievement of the investment objectives of the Company.
Taxation
The affairs of the Company are conducted so as to satisfy the conditions of
approval as an investment trust under Sections 1158/1159 of the Corporation Tax
Act 2010.
Any change in the Company's tax status or in taxation legislation or practice
generally could affect the value of the investments held by the Company, affect
the Company's ability to provide returns to shareholders, lead the Company to
lose its exemption from tax on chargeable gains or alter the post-tax returns
to shareholders.
The Board seeks to use the services of appropriately qualified professional
organisations to ensure adherence by the Company to the taxation requirements
of an investment trust to mitigate this risk.
Compliance with laws or regulations
The Company is subject to compliance with the Companies Act 2006 and the
continuing obligations imposed by the UK Listing Authority on investment
companies whose shares are listed on the Official List. A breach of any of
these could lead to suspension of the listing of the Company's shares on the
London Stock Exchange and/or financial penalties, with the resulting
reputational implications.
The Board utilises appropriately qualified service providers to carry out the
day-to-day activities of the Company. The Manager also has an independent
compliance department that carries out regular monitoring of the activities of
the Manager and provides regular reports to the Board.
The Alternative Investment Fund Managers' Directive is due to be implemented by
member states, including the UK, by 22 July 2013, and it seems likely that
there will be an increase, potentially a material increase, in the Company's
governance, administration and custodian expenses as a result of its
implementation.
Engagement of third party advisers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. Whilst the Company has taken all reasonable steps to
establish and maintain adequate procedures, systems and controls to enable it
to comply with its obligations, the Company is reliant upon the performance of
third party service providers for its executive function.
The Board makes appropriate enquiries before engaging third parties which are
all expected to operate in accordance with written contracts and service level
agreements, if appropriate.
Social, Environmental, Community and Employee Issues
The Company does not have any employees and the Board consists entirely of
non-executive Directors. As an investment trust, the Company has no direct
impact on the community or the environment, and as such has no policies in this
area. In carrying out its investment activities and in relationships with
suppliers, the Company aims to conduct itself responsibly, ethically and
fairly.
Current and Future Developments
On 27 June 2012 the Company published a prospectus for a placing and offer for
subscription of up to 100,000,000 C shares, anticipated to take place in July 2012.
Please refer to the Chairman's Statement and the Manager's Report above for
further information on the likely future development of the Company.
Going Concern
The Directors consider that it is appropriate to adopt the going concern basis
in preparing the financial statements. 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 twelve months from the
date that these financial statements were approved.
Cash flow projections have been reviewed and show that the Company has
sufficient funds to meet both its contracted expenditure and its discretionary
cash outflows in the form of the dividend policy.
The full Annual Report and Accounts contain the following statements regarding
responsibility for the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group
financial statements in accordance with applicable United Kingdom law and those
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 present fairly the financial position,
financial performance and cash flows of the Group for that period.
In preparing the Group 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 Group's financial position and
financial performance;
• state that the Group 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 Group and enable
them to ensure that the Group financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Group 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 Directors' Report (including Business Review), Directors'
Remuneration Report and Corporate Governance Statement that comply with that
law and those regulations, and for ensuring that the Annual Report includes
information required by the Listing Rules of the Financial Services Authority.
The financial statements are published on the Company's website,
www.mamfundsplc.com/dit, which is maintained on behalf of the Company by the
Manager, Midas Capital Partners Limited. Under the Management Agreement, the
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 Group financial statements, prepared in accordance with IFRSs as adopted
by the European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group; and
• this Annual Report includes a fair review of the development and performance
of the business and the position of the Group together with a description of
the principal risks and uncertainties that it faces.
On behalf of the Board
Michael Wrobel
Chairman
27 June 2012
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the period ended 31 May 2012 but is derived from those
accounts. Statutory accounts for the period ended 31 May 2012 will be delivered
to the Registrar of Companies 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 and Accounts at: http://www.mamfundsplc.com/dit
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD FROM 30 MARCH 2011 (INCORPORATION) TO 31 MAY 2012
Period from incorporation to
31 May 2012
Note Revenue Capital Total
£'000 £'000 £'000
Losses on investments held at 11 - (1,494) (1,494)
fair value through profit or loss
Income 2 2,954 - 2,954
Investment management fee 3 (132) (397) (529)
Other expenses 4 (494) - (494)
Return/(loss) on ordinary 5 2,328 (1,891) 437
activities before taxation
Taxation (9) - (9)
Return/(loss) on ordinary 6 2,319 (1,891) 428
activities after taxation
pence pence pence
Return/(loss) per ordinary share 6 2.32 (1.89) 0.43
The Group does not have any income or expense that is not included in the net
profit for the period. Accordingly the net return after taxation for the period
is also the Total Comprehensive Income for the period and consequently no
separate Statement of Comprehensive Income has been presented.
The total column of this statement is the Income Statement of the Group
prepared in accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union. The supplementary revenue and
capital 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 period.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
FOR THE PERIOD 30 MARCH 2011 (INCORPORATION) TO 31 MAY 2012
Group Share Share Special Capital Revenue Total
capital premium reserve reserve reserve
account
£'000 £'000 £'000 £'000 £'000 £'000
As at 30 March 2011 - - - - - -
Total comprehensive
income:
Net return for the - - - (1,891) 2,319 428
period
Transactions with
shareholders
recorded directly to
equity:
Issue of ordinary 100 49,900 - - - 50,000
shares
Expenses of share - (1,322) - - - (1,322)
issue
Equity dividends - - - - (1,260) (1,260)
paid
Transfer upon - (48,578) 48,578 - - -
cancellation of
share premium
account
Share premium - - (20) - - (20)
cancellation
expenses
As at 31 May 2012 100 - 48,558 (1,891) 1,059 47,826
Company Share Share Special Capital Revenue Total
capital premium reserve reserve reserve
account
£'000 £'000 £'000 £'000 £'000 £'000
As at 30 March 2011 - - - - - -
Total comprehensive
income:
Net return for the - - - (1,891) 2,262 371
period
Transactions with
shareholders
recorded directly
to equity:
Issue of ordinary 100 49,900 - - - 50,000
shares
Expenses of share - (1,322) - - - (1,322)
issue
Equity dividends - - - - (1,260) (1,260)
paid
Transfer upon - (48,578) 48,578 - - -
cancellation of
share premium
account
Share premium - - (20) - - (20)
cancellation
expenses
As at 31 May 2012 100 - 48,558 (1,891) 1,002 47,769
CONSOLIDATED AND PARENT COMPANY BALANCE SHEETS
AS AT 31 MAY 2012
Note Group Company
31 May 2012 31 May 2012
£'000 £'000
Non-current assets:
Investments held at fair value through 11 46,488 46,488
profit or loss
Current assets:
Investments held by subsidiary for trading 151 -
Other receivables 14 1,220 1,544
Cash and cash equivalents 767 537
2,138 2,081
Current liabilities:
Other payables 15 (800) (800)
Net current assets 1,338 1,281
Total net assets 47,826 47,769
Capital and reserves:
Share capital 8 100 100
Special reserve 9 48,558 48,558
Capital reserve 9 (1,891) (1,891)
Revenue reserve 9 1,059 1,002
Shareholders' funds 47,826 47,769
pence
Net asset value per ordinary share 10 47.83
These financial statements were approved by the Board of The Diverse Income
Trust plc on 27 June 2012 and were signed on its behalf by:
Michael Wrobel
Chairman
Company no.: 7584303
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS
FOR THE PERIOD FROM 30 MARCH 2011 (INCORPORATION) TO 31 MAY 2012
Group Company
31 May 2012 31 May 2012
£'000 £'000
Operating activities:
Net return before taxation 437 380
Losses on investments held at fair value 1,494 1,494
Purchases of investments (82,122) (82,122)
Sales of investments 34,022 34,022
Increase in other receivables (408) (408)
Increase in other payables 106 106
Acquisition of investments by subsidiary (151) -
Net cash outflow from operating activities 46,622 46,528
before taxation
Taxation:
Withholding tax paid (9) (9)
Financing:
Cash inflow from placing and offer for 50,000 50,000
subscription
Cash outflow from expenses of placing and offer (1,322) (1,322)
for subscription
Equity dividends paid (1,260) (1,260)
Expenses incurred on share premium account (20) (20)
cancellation
Movement in loan to subsidiary - (324)
Net cash inflow from financing 47,398 47,074
Increase in cash and cash equivalents 767 537
Reconciliation of net cash flow to movements in
net funds:
Cash and cash equivalents at the start of the - -
period
Net cash inflow from cash and cash equivalents 767 537
Cash and cash equivalents at the end of the 767 537
period
The notes form part of the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 MAY 2012
1 General Information and Significant Accounting Policies
The Diverse Income 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 Section 1158 of the Corporation
Tax Act 2010.
As this is the first reporting period since the Company was incorporated, no
comparative figures have been shown.
The Group's annual financial statements for the period to 31 May 2012 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 provisions of the
Companies Act 2006. The annual financial statements have also been prepared in
accordance with the AIC SORP issued in January 2009 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
The financial statements have been prepared on a going concern basis and on the
assumption that approval as an investment trust company will be granted.
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has the resources to continue in
business for the foreseeable future. Furthermore, the Directors are not aware
of any material uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Therefore, the consolidated financial
statements have been prepared on the going concern basis.
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.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its wholly-owned subsidiary, DIT Income Services Limited, drawn up
to 31 May 2012.
The subsidiary is consolidated from the date of its acquisition, being the date
on which the Company obtained control, and will continue to be consolidated
until the date that such control ceases. Control comprises the power to govern
the financial and operating policies of the investee so as to obtain benefit
from its activities and is achieved through direct or indirect ownership of
voting rights. The financial statements of the subsidiary are prepared for the
same reporting year as the parent Company, using consistent accounting
policies. All inter-company balances and transactions, including unrealised
profits arising from them, are eliminated.
As permitted by Section 408 of the Companies Act 2006, the Company has not
presented its own Income Statement. The amount of the Company's return for the
financial period dealt with in the financial statements of the Group is a
profit of £371,000.
Presentation of the Income Statement
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. In accordance with the Company's
status as a UK investment company under Section 833 of the Companies Act 2006,
net capital returns may not be distributed by way of dividends. Additionally,
the net revenue return is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in Section
1158 of the Corporation Tax Act 2010.
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
At the date of authorisation of the financial statements, the following
Standards which have not been applied in these financial statements were in
issue but were not yet effective (and in some cases had not yet been adopted by
the European Union):
International Accounting Standards Accounting periods beginning on or
(IAS/IFRS) after
IFRS 9 Financial Instruments: 1 January 2015
Classification & Measurement
Improvements to IFRS Various dates
The Directors do not expect that the adoption of the Standards listed above
will have a material impact on the financial statements of the Group in future
periods.
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 accounting estimates in the current period.
Valuation of investments
As an investment trust, the Company measures its non-current asset investments
at fair value through profit or loss and treats all transactions on the
realisation and revaluation of investments held as non-current assets, as
transactions on the capital account. Purchases are recognised on the relevant
trade date, inclusive of expenses which are incidental to the acquisition of
the investments. Sales are also recognised on the trade date, after deducting
expenses incidental to the sales.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted bid prices and SETS
at last trade price at the close of business on the Balance Sheet date, without
adjustment for transaction costs necessary to realise the asset. Investments
which are not quoted or which are not frequently traded are stated at
Directors' best estimate of fair value.
Transaction costs are expensed when incurred and are separately identified and
disclosed in note 11.
The investment in the subsidiary company, DIT Income Services Limited, is held
at cost (£1) less any provision for impairment. Investments held as current
assets by the subsidiary undertaking are classified as `held for trading' and
are at fair value.
Cash and cash equivalents
Cash comprises cash in hand, overdrafts 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.
Income
Dividends received from UK registered companies are accounted for net of
imputed tax credits. Dividends from overseas companies are shown gross of
overseas withholding tax.
Dividends receivable on quoted equity shares are taken to revenue on an
ex-dividend basis except where, in the opinion of the Directors, the dividend
is capital in nature, in which case it is taken to capital. 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. All
other income is accounted for on an accruals basis and is recognised in the
Income Statement.
Expenses
All expenses are accounted for on an accruals basis. On the basis of the
Board's expected long-term split of total returns in the form of capital and
revenue returns of 75% and 25% respectively, the Company charges 75% of its
investment management fee to capital. All other administrative expenses are
charged through the revenue column in the Income Statement.
Taxation
Deferred tax is provided on an undiscounted basis in accordance with FRS 19 on
all timing differences that have originated but not reversed by the Balance
Sheet 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 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.
No taxation liability arises on gains from sales of fixed asset investments by
the Company by virtue of its investment trust status. However, the net revenue
(excluding UK dividend income) accruing to the Company is liable to corporation
tax at the prevailing rates.
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.
Capital reserve
Gains or losses on disposal of investments and changes in the fair value of
investments held at the period end are transferred to the capital reserve.
Also, certain other expenses net of any related taxation effects are charged to
this reserve in accordance with the expenses policy above.
Special reserve
The special reserve was created by a cancellation of the share premium account
by order of the High Court in February 2012. It can be used for the repurchase
of the Company's ordinary shares and for other corporate purposes. Its main
purpose is to allow the Company to meet annual redemption requests for ordinary
shares.
Share issue costs
Costs incurred directly in relation to the placing and offer for subscription
of ordinary shares have been deducted from equity.
2 Income
Period from
incorporation to
31 May 2012
£'000
Income from investments:
UK dividends 2,475
Unfranked dividend income 414
2,889
Other income:
Net dealing gains of subsidiary 57
Bank deposit interest 4
Other income 4
Total income 2,954
3 Investment Management Fee
Period from incorporation to
31 May 2012
Revenue Capital Total
£'000 £'000 £'000
Investment management fee 132 397 529
Under the terms of an agreement dated 7 April 2011, the Company has appointed
Midas Capital Partners Limited as the Manager. The basic investment management
fee is calculated at the rate of one-twelfth of 1.0% of the average market
capitalisation of the Company on the last business day of each calendar month.
The basic management fee accrues daily and is payable in arrears in respect of
each calendar month. For the purpose of calculating the basic fee, the
'adjusted market capitalisation' of the Company is defined as the average daily
mid-market price for an ordinary share, multiplied by the number of ordinary
shares in issue, excluding those held by the Company in treasury, on the last
business day of the relevant month. In addition, the Manager is entitled to
receive a management fee on any Redemption Pool, as detailed in the Report of
the Directors in the full Annual Report.
At 31 May 2012 an amount of £41,000 was outstanding and due to Midas Capital
Partners Limited in respect of management fees.
4 Other Expenses
Period from
incorporation to
31 May 2012
£'000
Secretarial services 108
Auditor's remuneration for*:
Audit of the Group's financial statements 26
Other assurance related services 28
Directors' fees (see the Directors' Remuneration report in 121
the full Annual Report)
Other expenses 211
494
All expenses are stated gross of irrecoverable VAT, where applicable.
* Amounts paid to the Company's Auditor in connection with the launch of the
Company of £27,000 inclusive of VAT are included in share issue costs.
5 Taxation
Period from incorporation to
31 May 2012
Revenue Capital Total
£'000 £'000 £'000
Overseas taxation suffered 9 - 9
The current taxation charge for the year is lower than the standard rate of
corporation tax in the UK of 25.69%. The differences are explained below.
Period from incorporation to
31 May 2012
Revenue Capital Total
£'000 £'000 £'000
Return on ordinary activities before taxation 2,328 (1,891) 437
Theoretical tax at UK corporation tax rate of 598 (486) 112
25.69%
Effects of:
- UK dividends that are not taxable (636) - (636)
- Overseas dividends that are not taxable (106) - (106)
- Realised dealing gains (17) - (17)
- Unrealised dealing losses 2 - 2
- Non-taxable investment losses - 384 384
- Overseas taxation suffered 9 - 9
- Expenses not deductible for tax 5 5 10
- Unrelieved expenses 154 97 251
Actual current tax charge 9 - 9
Factors that may affect future tax charges
The Company has excess management expenses of £911,000 that are available to
offset future taxable revenue. No deferred tax asset has been recognised in
respect of these amounts as they will only be recoverable to the extent that
there is sufficient future taxable revenue. It is unlikely that the Company
will generate sufficient taxable income in the future to utilise these expenses
to reduce future tax charges and therefore no deferred tax charge has been
recognised.
In addition, 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 under HMRC rules.
6 Return per Share
Period from incorporation to
31 May 2012
Net Ordinary Per share
return shares* pence
£'000
Capital
Loss per share (1,891) 100,000,000 (1.89)p
Revenue
Return per share 2,319 100,000,000 2.32p
Total
Return per share 428 100,000,000 0.43p
* Weighted average number of ordinary shares in issue during the period.
7 Dividends per Ordinary Share
Dividends on ordinary Record date Payment date Period from
shares incorporation to
31 May 2012
£'000
First interim of 0.30p 30 September 2011 30 November 2011 300
Second interim of 0.50p 31 December 2011 29 February 2012 500
Third interim of 0.46p 30 March 2012 31 May 2012 460
1,260
The Directors have declared a fourth interim dividend in respect of the period
ended 31 May 2012 of 0.93p per ordinary share payable on 31 August 2012 to all
shareholders on the register at close of business on 29 June 2012. The total
dividends payable in respect of the financial period for the purposes of the
income retention test for Section 1158 of the Corporation Tax Act 2010 are set
out below.
Period from
incorporation to
31 May 2012
£'000
Revenue available for distribution by way of dividends 2,319
for the period
First interim dividend of 0.30p per ordinary share (300)
Second interim dividend of 0.50p per ordinary share (500)
Third interim dividend of 0.46p per ordinary share (460)
Declared fourth interim dividend of 0.93p per ordinary (930)
share
Estimated revenue reserve retained for the period 129
8 Called Up Share Capital
31 May 2012
£'000
Allotted, issued and fully paid:
100,000,000 ordinary shares of 0.1p each 100,000
The Company was incorporated on 30 March 2011 with an issued share capital of
£50,000 represented by 50,000 management shares of £1 each.
On 28 April 2011, 100,000,000 ordinary 0.1p shares were issued at 50p per share
in a placing and offer for subscription.
Redemption of ordinary shares
The Company, which is a closed-ended investment company with an unlimited life,
has a redemption facility through which shareholders are entitled to request
the redemption of all or part of their holding of ordinary shares on an annual
basis on 31 May in each year. As set out in the Articles of Association, the
Board may, at its absolute discretion, elect not to operate the annual
redemption facility in whole or in part. Accordingly, the ordinary shares have
been classified as equity. No redemption requests had been received at 31 May 2012.
Management shares
The 50,000 management shares with a nominal value of £1 each were allotted to
MAM Funds plc, the parent company of the Manager, on the basis of an
undertaking to pay one-quarter of their nominal value on or before 30 March
2016 and the balance on demand. The management shares are non-participating 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.
As at 31 May 2012, no amounts had been paid up.
9 Reserves
Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account realised unrealised
£'000 £'000 £'000 £'000 £'000
Premium on issue of 49,900 - - - -
ordinary shares
Cancellation of share (48,578) 48,578 - - -
premium account
Expenses of share issue (1,322) - - - -
Expenses of share premium - (20) - - -
account cancellation
Net losses on realisation - - (776) - -
of investments
Unrealised net decrease - - - (718) -
in value of investments
Management fee - - (397) - -
capitalisation
Equity dividends paid - - - - (1,260)
Revenue return on - - - - 2,319
ordinary activities after
tax
Closing balance - 48,558 (1,173) (718) 1,059
At a General Meeting of the Company held on 6 April 2011 a resolution was
passed approving the cancellation of the Company's share premium account.
The Court subsequently confirmed this cancellation on 22 February 2012 and an
amount of £48,578,000 was transferred from the Company's share premium account
to its special reserve. This amount can be treated as a distributable reserve
for all purposes permitted by the Companies Act 2006 (as amended), and will
enhance substantially the ability of the Company to meet annual redemption
requests and to buy-back its own shares either into treasury or for
cancellation.
10 Net Asset Value per Ordinary Share
The net asset value per ordinary share and the net asset values attributable at
the period end were as follows:
Net asset value Net assets
per share attributable
31 May 2012 31 May 2012
p £'000
Ordinary shares
- Basic and diluted 47.83 47,826
Net asset value per ordinary share is based on net assets at the period end and
100,000,000 ordinary shares, being the number of ordinary shares in issue at
the period end.
11 Investments
Period from
incorporation to
31 May 2012
£'000
Analysis of investment portfolio movements
Opening valuation -
Movements in the period:
Purchases at cost 82,816
Sales - proceeds (34,834)
- losses on sales (776)
Increase in investment holding losses (718)
Closing valuation 46,488
Closing book cost 47,206
Closing investment holding losses (718)
46,488
A list of the largest portfolio holdings by their fair value is given in the
portfolio valuation above.
Transaction costs incidental to the acquisition of investments totalled
£570,000 and on disposal of investments totalled £74,000 for the period.
Period from
incorporation to
31 May 2012
£'000
Analysis of capital losses
Losses on sales of investments (776)
Movement in investment holding losses (718)
(1,494)
Fair value hierarchy
IFRS 7 requires classification of financial instruments measured at fair value
at one of three levels according to the relative reliability of the inputs used
to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical
assets or liabilities (actively traded on recognised stock
exchanges)
Level 2 Valued by reference to valuation techniques using inputs
other than quoted prices included within Level 1
Level 3 Valued by reference to valuation techniques using inputs
that are not based on observable market data
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.
The valuation techniques used by the Company are explained in the accounting
policies in note 1 under the heading 'Valuation of investments'. At 31 May 2012
all the Company's financial assets at fair value through profit or loss are
included in Level 1, except for the investment in Merchant House Group, which
is temporarily suspended and is therefore classified as a Level 2 investment
due to its illiquid status. The fair value of its holding is £108,000 and
represents 0.2% of total net assets.
The investment in the subsidiary is classified as a Level 3 investment.
12 Substantial Share Interests
The Company has notified interests in 3% or more of the voting rights of seven
investee companies (none of which are closed-end investment funds). However,
the Board does not consider any of the Company's investments to be individually
material in the context of the financial statements.
13 Investment in Subsidiary
The Company owns the whole of the issued ordinary share capital (£1) of DIT
Income Services Limited, an investment dealing company registered in England
and Wales. The subsidiary is held at cost of £1 and has received loans from the
Company amounting to £324,000 at 31 May 2012 (see note 14).
14 Other Receivables
Group Company
31 May 2012 31 May 2012
£'000 £'000
Amounts due from brokers 812 812
Dividends receivable 393 393
Prepayments and other debtors 15 15
Amounts due from subsidiary - 324
1,220 1,544
15 Other Payables
Group Company
31 May 2012 31 May 2012
£'000 £'000
Amounts due to brokers 694 694
Other creditors 106 106
800 800
On 5 July 2011 the Company entered into an uncommitted multi-currency overdraft
facility agreement with HSBC Bank plc. The bank makes available an aggregate
amount equal to the lesser of:
(i) £20,000,000; and
(ii) 20% of custody assets from time to time.
The purpose of the facility is for short-term liquidity and it has no fixed
term but is subject to review from time to time, at least on an annual basis.
Interest is payable monthly in arrears on the amount of the facility
outstanding at the rate of 1.75% above the applicable base rate. In addition, a
fee of £15,000 per annum is payable on each anniversary date.
The facility is secured by a floating charge over the Company's assets. The
overdraft facility was undrawn as at 31 May 2012.
Subsequent to the year end the HSBC loan facility was renewed. Under the terms
of the renewal the total loan facility available to the Company was reduced to
a maximum of £7,500,000 or 15% of custody assets from time to time.
16 Capital Commitments and Contingent Liabilities
At 31 May 2012 there were no outstanding commitments or contingent liabilities.
17 Analysis of Financial Assets and Liabilities
Investment objective and policy
The Group's investment objective and policy are detailed above.
The Group's investing activities in pursuit of its investment objective involve
certain inherent risks.
The Group's financial instruments comprise:
• equity shares held in accordance with the Group's investment objective and
policies;
• cash, liquid resources and short-term debtors and creditors that arise from
its operations; and
• current asset investments held by its subsidiary.
The risks identified arising from the Group's financial instruments are market
risk (which comprises market price risk, interest rate risk and foreign
currency exposure), liquidity risk, counterparty risk and credit 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 Group's business. It represents the potential loss the
Group might suffer through holding market positions by way of price movements,
interest rate movements and exchange rate movements. The Manager assesses the
exposure to market risk when making each investment decision and these risks
are monitored by the Manager on a regular basis and the Board at quarterly
meetings with the 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 Manager. Investment
performance is reviewed at each Board meeting.
The Group's exposure to other changes in market prices as at 31 May 2012 on its
investments held at fair value through profit or loss was £46,488,000.
A 10% increase in the market value of its listed equity investments at 31 May
2012 would have increased net assets attributable to shareholders by
£4,649,000. An equal change in the opposite direction would have decreased the
net assets available to shareholders by an equal and opposite amount.
Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits and payable on its overdraft facility. The majority of the Group's
financial assets and liabilities are non-interest bearing. As a result, the
Group's financial assets and liabilities are not subject to significant amounts
of risk due to fluctuations in the prevailing levels of market interest rates.
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.
As disclosed in note 15, during the period the Group entered into an
uncommitted multi-currency overdraft facility with HSBC Bank plc. The facility
was not in use as at the Balance Sheet date.
The Group's exposure to interest rate risk at 31 May 2012 is limited to its
cash and cash equivalents totalling £767,000 and is not considered to be
significant.
The maturity profile of the Group's financial liabilities of £800,000 are all
due in one year or less.
Foreign currency risk
Although the Company's performance is measured in sterling, a proportion of the
Group's assets may be either denominated in other currencies or are in
investments with currency exposure. At the Balance Sheet date, all the Group's
assets were denominated in sterling and accordingly the only currency exposure
the Group has is through the trading activities of its investee companies.
Liquidity risk
The Group's assets primarily comprise readily realisable securities, which can
under normal conditions be sold to meet funding commitments if necessary. They
may however be difficult to realise in adverse market conditions. The Group can
achieve short-term flexibility by the use of its overdraft facility.
Credit risk
Credit risk is the risk of financial loss to the Group if the contractual party
to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at the Balance Sheet date.
The Group's listed investments are held on its behalf by HSBC Bank plc acting
as the Group's custodian. Bankruptcy or insolvency of the custodian may cause
the Group's rights with respect to securities held by the custodian to be
delayed. The Board monitors the Group's risk by reviewing the custodian's
internal controls report.
Investment transactions are carried out with a number of brokers whose
creditworthiness is reviewed by the Manager. Transactions are ordinarily
undertaken on a delivery versus payment basis whereby the Group's custodian
bank ensures that the counterparty to any transaction entered into by the Group
has delivered on its obligations before any transfer of cash or securities away
from the Group 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 Group's assets are past due or impaired.
Fair values of financial assets and financial liabilities
All of the financial assets and liabilities of the Group are held at fair value
through profit or loss.
All current liabilities are held in the Balance Sheet at a reasonable
approximation of fair value.
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 derivative
instruments. There were no borrowings as at 31 May 2012.
The Company's capital at 31 May comprises 2012
£'000
Shareholders' funds
Share capital 100
Special reserve 48,558
Capital reserves (1,891)
Retained earnings 1,002
Total shareholders' funds 47,769
The Board with the assistance of the 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 Manager's view of
the market;
• the need to buy back shares for cancellation or treasury, which takes account
of the difference between the net asset value per share and the share price
(i.e. the level of share price discount or premium);
• the need for 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 Related Party Transactions
Under the Listing Rules the Manager is regarded as a related party of the
Company. The amounts paid to the Manager are disclosed in note 3. However, the
existence of an independent Board of Directors demonstrates that the Company is
free to pursue its own financial and operating policies, and therefore, in
terms of FRS 8: "Related Party Transactions", the Manager is not considered a
related party. The relationship between the Company, its Directors and the
Manager is disclosed in the Report of the Directors in the full Annual Report.
19 Post Balance Sheet Events
On 27 June 2012, the Company published a prospectus for a placing and offer for
subscription of up to 100,000,000 C shares, anticipated to take place in mid
July 2012.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on Wednesday, 17 October 2012
at 11.00 am at Furniture Makers Hall, 12 Austin Friars, London EC2N 2HE.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: www.hemscott.com/nsm.do
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.
Monday, 20th May 2024
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