Half-yearly Report

THE DIVERSE INCOME TRUST PLC HALF-YEARLY FINANCIAL REPORT The Directors present the Half-Yearly Financial Report of the Company for the period to 30 November 2014. The Diverse Income Trust plc is an investment trust quoted on the London Stock Exchange ("LSE") with total net assets of £308m as at 30 November 2014. It is referred to as the Company or as Diverse in the text of this Report. The Company has a Board that is independent of the Manager. This Report covers the Company's progress in the six months to 30 November 2014. The net asset value ("NAV") has fallen by 3.2% as markets have been more unsettled. The Company has also declared two interim dividends in the period, amounting to 0.9p versus 0.8p in the equivalent period last year. The annual returns should be read in the context of the longer-term trends, with a good and growing dividend being a key measure of success. RESULTS FOR THE HALF YEAR TO 30 NOVEMBER 2014 -1.1% Total return to shareholders -3.2% NAV per share 0.9p Interim dividends in half year £50m of additional capital raised via a C share issue - This additional capital was raised in June 2014 to take specific advantage of the unsettled markets in smaller company stocks over the summer, and led to total net assets in the Company reaching £308m at 30 November 2014. Increased dividends for the period - The first interim dividend for the year was increased from 0.3p to 0.4p, in part to bring it more in line with the second and third dividends of 0.5p. The second interim dividend will be unchanged at 0.5p. As previously, because portfolio revenue is heavily skewed towards the March to May period, the fourth dividend is anticipated to be the largest and will include any increase in the total annual dividend. Summary of Results At 30 November At 31 May 2014 2014 Change NAV per ordinary share 79.54p 82.13p (3.2)% Ordinary share price (mid) 81.00p 83.25p (2.7)% Premium to NAV 1.84% 1.36% Revenue return per ordinary 1.64p* 2.70p share Ongoing charges 1.25%** 1.27% * For six months ended 30 November 2014. Note: comparative figure is for the full year ended 31 May 2014. ** Estimated as at 30 November 2014. Ongoing charges are the Company's annualised revenue and capitalised 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. CHAIRMAN'S STATEMENT Half Year to 30 November 2014 This Report covers the six month period ended 30 November 2014 for The Diverse Income Trust plc. World growth slowed in the period and therefore most businesses are now finding it distinctly harder to sustain decent growth in their revenues and dividends. The modest fall of the FTSE All-Share Index of just 1.7% in the six month period somewhat understates the wider adverse trend in market indices. This is more evident in the FTSE SmallCap (excluding Investment Trusts) Index, which fell 6.6% over the six months to November, whilst the AIM All-Share Index was down 11.0% in the same period. The NAV of the Company fell 3.2% by way of comparison. The Board declared the fourth interim dividend for the previous year of 0.95p in June, up from 0.84p in 2013. With the improving income within the portfolio, the first interim dividend for the current year was also increased from 0.30p to 0.40p, in part to bring it more into balance with the second and third interim dividends last year. A second interim dividend of 0.50p was declared in December. The total return per ordinary share, including the capital reduction reported above and the two dividends announced in the half year, amounted to a modest reduction of 1.1% per ordinary share over the period. £50m of Capital Raised in a C Share Issue Smaller quoted companies have greater growth potential than larger companies. During times of broad economic expansion this differential is less relevant. However, with the slowdown in world growth, this factor currently carries greater weight. Therefore, following the dip in some smaller company share prices over the summer, the Company raised an additional £50m of capital via a C share issue. This capital was over 90% invested by the end of September, and the C share portfolio was merged with the core portfolio on 8 October 2014. Now that the Company has reached around £300m in terms of scale, the Board considers that it is unlikely to carry out any further C share issues. However, should there be some further attractive investment opportunities, the Company has the scope to issue small parcels of stock via tap issues, if appropriate. Outlook The principal objective of the Company remains to deliver attractive and growing dividend income. Whilst all companies (including smaller quoted companies) may find the lack of world growth a challenge going forward, smaller stocks have greater potential to buck the wider trend. In addition, many of the companies in the portfolio have unusually strong balance sheets, so they are better positioned to sustain dividends, even during tough times. Finally, many of the smaller quoted companies have better dividend cover than some larger companies, offering greater opportunity for them to increase dividends. Around one-third of the portfolio is invested in a short list of selected mid and large cap stocks that are hopefully continuing to generate some dividend growth. Around two-thirds of the portfolio is invested in the smaller quoted stocks where we believe the dividend growth potential is rather greater. Each holding is relatively modest in scale so that stock specific risk is moderated for our shareholders too. The Board is confident that the Company remains well-placed to continue to deliver premium returns in the future. Michael Wrobel Chairman 28 January 2015 MANAGER'S REPORT Markets At the start of the period under review, markets were generally close to their best levels of the year. Despite a slight wobble in August, the FTSE 100 remained close to these levels until the second half of September, when expectations on world growth became more cautious. The oil price is a good illustration: the WTI Crude Oil price dropped below $90 per barrel at the beginning of October, and thereafter progressively fell to just $66 by the end of November. Japan is a major exporter of industrial equipment and manufactured goods, and the major fall in their exchange rate delivered a deflationary pulse to other economies around the world. The sizeable fall in the exchange rate of the Yen at this time worsened deflationary pressures further. A combination of these effects drove G7 Government bond yields down. For example, in the UK the yield on 10-year Gilts fell from around 2.4% at the end of September to just 1.9% by the end of November. This underlines just how much growth expectations have moderated, especially towards the end of the period. So although the FTSE All-Share Index only fell 1.7% in the six month period, the overall market trend was rather more adverse. The index had a sizeable pullback in mid-October, followed by a recovery towards the end of November. But shortly after the end of the period under review, equity indices once again dropped significantly, reflecting the lower expectations for corporate growth in the coming year. Smaller company indices tend to move more gradually, so the general market trend was rather more evident. The FTSE SmallCap (excluding Investment Companies) Index fell 6.6% over the six months to 30 November 2014, and the AIM All-Share Index fell 11.0%. The Criteria used for Selecting Portfolio Stocks There are five criteria that the managers use to determine the scope for the business to deliver good and growing dividends. The prospect of turnover growth - If a business is to sustain and grow its dividend, then the portfolio needs to invest in companies that will generate more cash in the coming years. Without decent turnover growth, this is near-impossible to achieve over time. Sustained or improving margins - A business needs to deliver significant value to its customer base if it is to sustain decent margins. Unexpected cost increases cannot be charged on to customers if they are anything less than delighted with their suppliers. Turnover growth will not lead to improved cash generation if declining margins offset it. A forward-looking management team - Businesses often need to make commercial decisions on incomplete information. A thoughtful and forward-looking team has a better chance of making better decisions. Robust balance sheet - There are disproportionate advantages to having the independence of a strong balance sheet in a period of elevated economic and political risks. Conversely, corporates with imprudent borrowings can risk the total loss of shareholders' capital. Low expectation valuation - Many of the most exciting stocks enjoy higher stock market valuations but almost none can consistently beat the high expectations baked in to their share prices. Those with low expectations tend to be less vulnerable to disappointment, but conversely can enjoy excellent share price rises if they surprise on the upside. Companies that best meet these criteria on a prospective basis are believed to be best positioned to deliver attractive returns to shareholders, as well as offering moderated risk. These criteria, used in reverse, can also be useful in determining the timing of portfolio stocks that should be considered for divestment. So a business in danger of suffering a period of turnover declines, for example, would naturally be expected to generate less cash flow in future years and thereby struggle to sustain their current dividend over time, let alone grow it. Performance Over the half year to 30 November 2014, the Company delivered a negative total return of 1.1%. Although it is always disappointing to deliver a negative return, we note that this return is rather less negative than the comparative smaller companies indices. All corporates find it harder to grow when world growth moderates, but the extra growth potential of smaller companies becomes more obvious at times when economies are stagnating. The outperformance of the Company in the period is attributable to the fact that much of the portfolio is invested in those smaller quoted companies that have generally continued to pay good and growing dividends in spite of the deteriorating economic trend. These holdings have often been selected because they also have strong balance sheets, with either modest net debt or, frequently, net cash balances. In terms of attribution, the detractors to performance included Stobart Group, which has sold half of its trucking business to degear the company. Stobart intends to build up usage of Southend Airport and its biomass business, but as yet this growth momentum is still to come through. The share prices of both DX Group and UK Mail were affected by adverse sentiment in the parcels market and with Amazon announcing it was going to deliver its parcels directly in future, and CML Microsystems, a business that designs silicon chips that control memory boards, fell back when one of its major distributors pulled out of their sector. We continue to believe these volumes will be replaced in time through other routes to market. In spite of the adverse market trend, there were plenty of stocks in the portfolio that rose during the period. For example, Powerflute, the paper making company, completed an acquisition that substantially enhanced its earnings and hopefully its dividend growth going forward. Bioventix, another long-term holding in the portfolio, announced good figures and substantially increased its dividend for the year; although its share price has already performed strongly, it is still yielding around 3.6% on a prospective basis with the increase in its dividend payment. There have been several new issues over the period, and many of the smaller companies are coming to market with regular businesses generating good and growing cash flow capable of funding decent dividend growth over the coming years. Two such issues, Shoe Zone, a discount shoe retailer, and Quartix, a telematics business that helps optimise the operation of van fleets, were both issued at attractive valuations and then went on to outperform. Since the Company was first listed at the end of April 2011, the NAV has risen by 60.0%. This compares with a rise of 13.9% in the FTSE All-Share Index, 39.9% in the FTSE SmallCap (excluding Investment Companies) Index and a fall of 21.1% in the AIM All-Share Index. It is worth emphasising that many of the AIM stocks which are not paying dividends and are exploring for new commodities have fallen back severely; in contrast, the AIM stocks that pay good and growing dividends (such as most of those held in the Company's portfolio) have generated attractive returns. Portfolio The portfolio positioning remains consistent with prior years. Around 12% is invested in stocks that form part of the FTSE 100, with around 21% of the portfolio invested in mid cap stocks. Overall, around one-third of the portfolio comprises mid and large cap stocks. There are some that continue to have attractive dividend growth, but with world growth stalling, many are finding it harder to grow, and some may be vulnerable to cutting their dividends. In contrast, many smaller companies have not been under pressure to pay dividends during the credit boom, so their dividend cover tends to be somewhat higher. However, with interest rates remaining lower for longer, many investors are now asking for smaller quoted companies to consider increasing their dividend distributions. After all, they are in a better position to grow dividends than mainstream stocks. This is in part due to their higher dividend cover, but also often because they have unusually strong balance sheets. Indeed, some smaller companies do buck the wider economic trend and sustain growth too. The bottom line is that around two-thirds of the portfolio is invested in smaller companies that are growing their dividends rather faster than larger stocks. Therefore, we continue to believe that the Company is well-positioned to continue to generate faster dividend growth than many others. Gervais Williams and Martin Turner Miton Asset Management Limited 28 January 2015 The Rationale for Holding the FTSE 100 Put Option The Company has held a Put option to sell the FTSE 100 Index at 5,800 any time prior to the middle of June 2015 for the last 12 months, covering a little under one-third of the capital value of the portfolio. Our view is that an option like this should only be purchased when its cost appears modest by historical standards. This tends to occur after markets have appreciated for some years, and at times when confidence in further appreciation is at a cyclical high. These factors came together at the end of 2013, just prior to the events in the Crimea. The key advantage for shareholders of holding a Put option is that, should markets suffer a significant setback, then the market value of the Put option tends to rise. In part this is proportional to the scale of the market setback, and in part it is related to the duration of the remaining term of the option. It is possible that the market value of the option might be a multiple of its initial cost at such a time. The advantage for shareholders is that the option could then be sold to bring in additional capital in the Company at a time when share prices were depressed. This could be used to buy additional income stocks, at a time when their prices were abnormally low, on hopefully more attractive dividend yields. The effect would be to boost the dividend income generated by the Company, as well as increasing the portfolio's ability to participate in any subsequent market recovery. Some may question why a FTSE 100 Put option should be purchased, given that the portfolio has a multi cap focus. Around a third of the portfolio is held in mid and larger companies, so there is a relatively good overlap, with a FTSE 100 option covering around one-third of the portfolio. In addition, a FTSE 100 Put option is regularly traded, so the daily NAV fully reflects the market value of the option each day. Finally, being a popular instrument, the cost of a Put option is much lower than a specialist instrument covering other indices such as the FTSE All-Share or the FTSE SmallCap Indices. Furthermore, at times of market distress when the option might want to be sold, market volume in the FTSE 100 Put option tends to be better than other more obscure instruments. However, despite the unsettled market conditions, it is probable that the FTSE 100 Index will not fall back prior to June 2015 sufficiently to make the sale of the option attractive. This is why Put options should only be purchased when the cost is relatively modest. In our case, the loss of value is only 0.07% or so each month over the period to June 2015. We believe that this is relatively modest in the context of the overall returns generated by the Company since issue. PORTFOLIO INFORMATION as at 30 November 2014 Valuation % of net Yield* Rank Company Sector & main activity £'000 assets % 1 Powerflute ** Basic Materials 5,663 1.8 1.9 2 Shoe Zone ** Consumer Services 5,635 1.8 -*** 3 Charles Taylor Consulting Industrials 5,469 1.8 3.8 4 SQS Software ** Technology 5,468 1.8 1.5 5 Fairpoint ** Financial Services 5,028 1.6 4.9 6 Bioventix ** Health Care 4,771 1.6 3.4 7 Safestyle ** Consumer Services 4,702 1.5 3.2 8 Go-Ahead Consumer Services 4,489 1.5 3.2 9 Provident Financial Financial Services 4,369 1.4 3.8 10 Direct Line Insurance Financial Services 4,219 1.4 7.7 Top 10 investments 49,813 16.2 11 Juridica Investments ** Financial Services 4,050 1.3 13.4 12 Huntsworth Consumer Services 3,965 1.3 6.7 13 A&J Mucklow Group Real Estate 3,919 1.3 4.1 Investment Trusts 14 Friends Life Insurance Services 3,878 1.3 5.7 15 Amlin Insurance Services 3,809 1.2 5.9 16 Amino Technologies ** Technology 3,765 1.2 3.0 17 Randall & Quilter Investment Holdings ** Insurance Services 3,733 1.2 7.0 18 St Ives Industrials 3,718 1.2 3.8 19 Conviviality Retail ** Consumer Services 3,683 1.2 5.6 20 Novae Group Insurance Services 3,681 1.2 5.0 Top 20 investments 88,014 28.6 21 Park Group ** Financial Services 3,664 1.2 4.1 22 Cable & Wireless Telecommunications 3,654 1.2 5.3 Communications 23 Burford Capital ** Financial Services 3,651 1.2 2.6 24 Vodafone Telecommunications 3,644 1.2 4.7 25 TalkTalk Telecom Telecommunications 3,626 1.2 4.0 26 AstraZeneca Health Care 3,606 1.2 2.3 27 Legal & General Insurance Services 3,570 1.2 4.0 28 Beazley Insurance Services 3,550 1.2 3.3 29 Catlin Group Insurance Services 3,497 1.1 5.7 30 Personal Group ** Insurance Services 3,403 1.1 4.1 Top 30 investments 123,879 40.4 31 4imprint Consumer Services 3,391 1.1 2.1 32 Quartix Holdings ** Technology 3,384 1.1 -*** 33 Interserve Industrials 3,381 1.1 3.8 34 Bloomsbury Publishing Consumer Services 3,377 1.1 3.6 35 Sky Consumer Services 3,348 1.1 3.4 36 Segro Financial Services 3,321 1.1 3.9 37 RPC Group Industrials 3,205 1.0 2.7 38 Aviva Insurance Services 3,205 1.0 3.0 39 Dairy Crest Consumer Goods 3,171 1.0 4.2 40 Macfarlane Industrials 3,128 1.0 4.3 Top 40 investments 156,790 51.0 Balance held in 86 equity investments 139,060 45.2 Total equity investments 295,850 96.2 Fixed interest and convertible 3,649 1.2 investments 299,499 97.4 Derivative instruments - listed Put option FTSE 100 - June 2015 5,800 Put 683 0.2 Total investment portfolio 300,182 97.6 Other net current assets 7,390 2.4 Net assets 307,572 100.0 * Source: Interactive Data. Based on historic dividends and therefore not representative of future yield. ** AIM/ISDX listed. *** New issues intentionally left blank in the absence of historic data. PORTFOLIO INFORMATION as at 30 November 2014 Portfolio exposure by sector Industrials 19.7% Consumer Services 17.5% Financial Services 16.6% Insurance Services 11.9% Technology 6.4% Cash/Fixed Interest and Other 6.3% Telecommunications 5.9% Health Care 4.7% Basic Materials 4.7% Consumer Goods 4.3% Oil & Gas 1.2% Utilities 0.8% 100.0% Portfolio by asset allocation FTSE 100 Index 12.4% FTSE 250 Index 21.0% FTSE SmallCap Index 17.0% FTSE Fledgling Index 4.5% AIM/ISDX Exchanges 37.9% Cash/Fixed Interest and Other 7.2% 100.0% Portfolio by spread of investment income to 30 November 2014 FTSE 100 Index 15.6% FTSE 250 Index 24.6% FTSE SmallCap Index 18.3% FTSE Fledgling Index 4.4% AIM/ISDX Exchanges 32.1% Fixed Interest and Other 5.0% 100.0% Estimated annual income by sector* Financial Services 21.1% Industrials 19.6% Insurance Services 16.3% Consumer Services 14.1% Telecommunications 7.2% Cash/Fixed Interest and Other 5.0% Health Care 3.8% Basic Materials 3.6% Consumer Goods 3.4% Technology 3.0% Oil & Gas 2.2% Utilities 0.7% 100.0% * Projected income based on portfolio as at 30 November 2014. Source: Interactive Data. INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT Interim Management Report The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Manager's Report above. The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 31 May 2014 and continue to be as set out in that report. Risks faced by the Group include, but are not limited to, investment and strategy, smaller companies, sectoral diversification, dividends, share price volatility and liquidity/marketability risk, gearing, key man risk, redemption facility and market risk. Responsibility Statement The Directors confirm that to the best of their knowledge: • the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities and financial position of the Group; and • this Half-Yearly Financial Report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions that could do so. This Half-Yearly Financial Report was approved by the Board of Directors on 28 January 2015 and the above responsibility statement was signed on its behalf by Michael Wrobel, Chairman. CONDENSED CONSOLIDATED INCOME STATEMENT for the period to 30 November 2014 Period to Period to Year ended 30 November 2014 30 November 2013 31 May 2014* Revenue Capital Revenue Capital Revenue Capital return return Total return return Total return return Total Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains on investments held at fair value through profit or loss - (8,298) (8,298) - 31,920 31,920 - 45,836 45,836 Income 2 6,955 - 6,955 3,264 - 3,264 8,953 - 8,953 Investment management fee (377) (1,131) (1,508) (242) (726) (968) (583) (1,750) (2,333) Other expenses (341) - (341) (275) - (275) (577) - (577) Return on ordinary activities before finance costs and taxation 6,237 (9,429) (3,192) 2,747 31,194 33,941 7,793 44,086 51,879 Finance costs - overdraft interest paid (1) (4) (5) (2) (5) (7) (6) (19) (25) Return on ordinary activities before taxation 6,236 (9,433) (3,197) 2,745 31,189 33,934 7,787 44,067 51,854 Taxation - irrevocable withholding tax (26) - (26) (10) - (10) (73) - (73) Return on ordinary activities after taxation 6,210 (9,433) (3,223) 2,735 31,189 33,924 7,714 44,067 51,781 pence pence pence pence pence pence pence pence pence Basic and diluted return: Per ordinary share 3 1.64 (2.49) (0.85) 1.10 12.58 13.68 2.70 15.41 18.11 Per C share 3 - - - - - - - - - * Audited. The Group does not have any income or expense that is not included in the 'return for the period'. Accordingly, the 'return for the period' is also the Total Comprehensive Income for the period as defined in International Accounting Standard 1 (revised), 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 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 period. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share premium Special Capital Revenue capital account reserve reserve reserve Total Note £'000 £'000 £'000 £'000 £'000 £'000 As at 1 June 2014* 325 143,557 48,558 69,596 4,367 266,403 Total comprehensive income: Net return for the period - - - (9,433) 6,210 (3,223) Transactions with shareholders recorded directly to equity: Issue of ordinary shares 5 62 50,000 - - - 50,062 Expenses of share issue - (1,291) - - - (1,291) Equity dividends paid 4 - - - - (4,379) (4,379) As at 30 November 2014 387 192,266 48,558 60,163 6,198 307,572 As at 1 June 2013* 209 59,337 48,558 25,529 2,276 135,909 Total comprehensive income: Net return for the period - - - 31,189 2,735 33,924 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 5 116 85,368 - - - 85,484 Expenses of share issue - (1,144) - - - (1,144) Equity dividends paid 4 - - - - (2,379) (2,379) As at 30 November 2013 325 143,561 48,558 56,718 2,632 251,794 As at 1 June 2013* 209 59,337 48,558 25,529 2,276 135,909 Total comprehensive income: Net return for the year - - - 44,067 7,714 51,781 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 5 116 85,000 - - - 85,116 Expenses of share issue - (780) - - - (780) Equity dividends paid 4 - - - - (5,623) (5,623) As at 31 May 2014* 325 143,557 48,558 69,596 4,367 266,403 * Audited. CONDENSED CONSOLIDATED BALANCE SHEET 30 November 30 November 31 May 2014 2013 2014* Note £'000 £'000 £'000 Non-current assets: Investments held at fair value through profit or loss 299,499 249,935 267,249 Current assets: Derivative instruments 683 3,616 1,293 Investments held for trading - 222 - Trade and other receivables 1,631 3,983 1,769 Cash and cash equivalents 7,647 - 130 9,961 7,821 3,192 Current liabilities: Bank overdraft - (5,391) (3,724) Trade and other payables (1,888) (571) (314) (1,888) (5,962) (4,038) Net current assets/(liabilities) 8,073 1,859 (846) Total net assets 307,572 251,794 266,403 Capital and reserves: Share capital 5 387 325 325 Share premium account 192,266 143,561 143,557 Special reserve 48,558 48,558 48,558 Capital reserve 60,163 56,718 69,596 Revenue reserve 6,198 2,632 4,367 Shareholders' funds 307,572 251,794 266,403 pence pence pence Net asset value per ordinary share 6 79.54 77.62 82.13 * Audited. CONDENSED CONSOLIDATED CASH FLOW STATEMENT Period to Period to Year ended 30 November 30 November 31 May 2014 2013 2014* £'000 £'000 £'000 Operating activities: Net return before taxation (3,192) 33,941 51,879 Increase in investments (31,740) (121,260) (49,777) Decrease/(increase) in trade and other receivables 296 2,626 (739) Increase in trade and other payables 1,574 81 17 Increase in derivative instruments - (3,616) (4,060) (33,062) (88,228) (2,680) Finance costs paid (1) (7) (25) Withholding tax paid (26) (10) (73) Net cash outflows from operating activities (33,089) (88,245) (2,778) Financing: Shares issued 50,000 - - Expenses of share issues (1,291) (1,144) (780) Equity dividends paid (4,379) (2,379) (5,623) Proceeds from issue of ordinary shares to acquire MIOT investment portfolio - 85,484 4,694 Net cash inflows/(outflows) from financing 44,330 81,961 (1,709) Increase/(decrease) in cash and cash equivalents 11,241 (6,284) (4,487) Reconciliation of net cash flow to movements in (net debt)/funds: Cash and cash equivalents at the start of the period (3,594) 893 893 Net cash inflow/(outflow) from cash and cash equivalents 11,241 (6,284) (4,487) Cash/(net debt) at the end of the period 7,647 (5,391) (3,594) * Audited. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1 General Information The consolidated financial statements, which comprise the unaudited results of the Company and its wholly-owned subsidiary, DIT Income Services Limited, together referred to as the "Group", for the period ended 30 November 2014, have been prepared in accordance with IFRS, as adopted by the European Union, and with the AIC SORP dated January 2009, where the SORP is consistent with the requirements of IFRS. The comparatives cover the period from 1 June 2013 to 30 November 2013 and for the year from 1 June 2013 to 31 May 2014. The financial statements have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 May 2014. The financial information contained in this report does not constitute full statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements for the periods to 30 November 2014 and 30 November 2013 have not been either audited or reviewed by the Company's Auditors. The information for the year ended 31 May 2014 has been extracted from the latest published Annual Report and Accounts, which have been filed with the Registrar of Companies. The Report of the Auditors on those financial statements contained no qualification or statement under Section 498(2) or (3) of the Companies Act 2006. The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. 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. 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. 2 Income Period to Period to Year ended 30 November 30 November 31 May 2014 2013 2014 £'000 £'000 £'000 Income from investments: UK dividends 5,357 2,446 5,784 UK REIT dividend income 90 24 133 Unfranked dividend income 1,200 589 2,457 UK fixed interest 184 35 166 6,831 3,094 8,540 Other income: Deposit interest 1 - - Underwriting income 46 - 26 Waiver fee income 66 - - Exchange losses (2) - - Net dealing profit of subsidiary 13 170 387 Total income 6,955 3,264 8,953 3 Return per Share Returns per share are based on the weighted average number of shares in issue during the period. Normal and diluted return per share are the same as there are no dilutive elements on share capital. Ordinary Shares: Period to Period to Year ended 30 November 30 November 31 May 2014 2014 2013 Net Per Net Per Net Per return share return share return share £'000 pence £'000 pence £'000 pence Revenue return 6,210 1.64 2,735 1.10 7,714 2.70 Capital return (9,433) (2.49) 31,189 12.58 44,067 15.41 Total return (3,223) (0.85) 33,924 13.68 51,781 18.11 Weighted average number of ordinary shares 377,834,482 247,886,842 286,027,365 C Shares: C shares were issued as described in the prospectus published on 30 May 2014 and were converted into ordinary shares on 8 October 2014 (see note 5). No dividends were paid to C shareholders. 4 Dividends per Ordinary Share Amounts recognised as distributions to equity holders in the period. Period to Period to Year ended 30 November 30 November 31 May 2014 2014 2013 £'000 pence £'000 pence £'000 pence In respect of the previous period: Fourth interim dividend 3,081 0.95 1,753 0.84 1,753 0.84 In respect of the period under review: First interim dividend 1,298 0.40 626 0.30 626 0.30 Second interim dividend - - - - 1,622 0.50 Third interim dividend - - - - 1,622 0.50 4,379 1.35 2,379 1.14 5,623 2.14 The Board has declared a second interim dividend of 0.5p per ordinary share, payable on 27 February 2015 to shareholders registered at the close of business on 30 December 2014. In accordance with IFRS, this dividend has not been included as a liability in these financial statements. 5 Called-up Share Capital On 30 May 2014, the Company published a prospectus in relation to proposals to raise in excess of £30 million (before expenses) by way of an open offer, placing and offer for subscription of C shares. Applications were received under the open offer for 27,742,524 C shares, under the placing for 68,630,656 C shares and under the offer for subscription for 3,626,820 C shares, raising an aggregate of £50 million of gross proceeds for the Company and resulting in the issue of 100,000,000 C shares on 26 June 2014. On 8 October 2014, the C shares were converted into ordinary shares in the ratio of 0.6231 ordinary shares for every C share, resulting in the issue of 62,309,789 new ordinary shares. Following the conversion and at 30 November 2014, there were 386,687,239 ordinary shares in issue. 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 annually on 31 May. The Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. 6 Net Asset Value per Ordinary Share The NAV per ordinary share and the NAVs attributable at the period end were as follows: 30 November 2014 30 November 2013 31 May 2014 NAV NAV NAV NAV NAV NAV per attributable per attributable per attributable share share share pence £'000 pence £'000 pence £'000 Ordinary shares: Basic and diluted 79.54 307,572 77.62 251,794 82.13 266,403 NAV per ordinary share is based on net assets at the period end and 386,687,239 ordinary shares, being the number of ordinary shares in issue at the period end (30 November 2013: 324,377,450 and 31 May 2014: 324,377,450 ordinary shares). 7 Transaction Costs During the period, 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: Period to Period to Year ended 30 November 2014 30 November 2013 31 May 2014 £'000 £'000 £'000 Costs on acquisitions 248 489 70 Costs on disposals 38 40 119 286 529 189 8 Management Fee With effect from 26 June 2014, the management fee was amended such that the fee would be calculated at the rate of one-twelfth of 1.0% per calendar month on the average market capitalisation of the Company's shares up to £300m and one-twelfth of 0.8% per calendar month on the average market capitalisation above £300m, payable monthly in arrears. Prior to this, the management fee was calculated at the rate of one-twelfth of 1.0% per calendar month of the average market capitalisation of the Company's shares. In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the Manager is entitled to receive from the Company a fee calculated at the rate of one-twelfth of 1.0% per calendar month of the NAV of the Redemption Pool on the last business day of the relevant calendar month. At 30 November 2014, an amount of £258,000 was outstanding and due to Miton Trust Managers Limited in respect of management fees (30 November 2013: £213,000 and 31 May 2014: £227,000 due to Miton Asset Management Limited). INVESTMENT OBJECTIVE AND POLICY Investment Objective The Company's investment objective is to provide shareholders with an attractive and growing level of dividends coupled with capital growth over the long term. Investment Policy The Company invests primarily in quoted or traded UK companies with a wide range of market capitalisations but a long-term bias towards 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 adopts a stock specific approach in managing the Company's portfolio and therefore sector weightings are 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 140 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 NAV (calculated at the time of borrowing). The Board will oversee 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 LSE. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. SHAREHOLDER INFORMATION 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 ("management shares"). From time to time, the Company may issue C ordinary shares of 1p each ("C shares") with one vote per share. As at 30 November 2014 and the date of this report, there are 386,687,239 ordinary shares in issue, none of which are held in treasury, and 50,000 management shares. Redemption of Ordinary Shares The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of ordinary shares on an annual basis on 31 May in each year. Redemption Request forms are available upon request from the Company's Registrar. Shareholders submitting valid requests for the redemption of ordinary shares will have their shares redeemed at the Redemption Price. The Directors may elect, at their absolute discretion, to calculate the Redemption Price applying on any redemption point by reference to the Dealing Value per ordinary share or by reference to a separate Redemption Pool. The Board may, at its absolute discretion, elect not to operate the annual redemption facility on any given Redemption Point, or to decline in whole or part any redemption request, although the Board does not generally expect to exercise this discretion, save in the interests of shareholders as a whole. A redemption of ordinary shares may have both income tax and capital gains tax implications for individual shareholders. Full details of the redemption facility are set out in the Company's prospectus dated 7 April 2011, or are available from the Secretary. May 2015 Redemption Point The following are the relevant dates for the May 2015 Redemption Point: 29 April 2015 Latest date for receipt of Redemption Requests for certificated shares 3.00 pm on Latest date for receipt of Redemption Requests and TTE 29 April 2015 instructions for uncertificated shares via CREST 5.00 pm on Redemption Point 29 May 2015 By 12 June 2015 Company to notify Redemption Price and dispatch redemption monies By 26 June 2015 Balance certificates to be sent to shareholders Share Dealing Shares can be traded through your usual stockbroker. Share Prices The Company's ordinary shares are listed on the LSE. The mid-market prices are quoted daily in the Financial Times under 'Investment Companies'. Share Register Enquiries The register for the ordinary shares is maintained by Capita Asset Services. In the event of queries regarding your holding, please contact the Registrar on 0871 664 0300 (calls cost 10p per minute plus network extras) or email ssd@capitaregistrars.com. Changes of name and/or address must be notified in writing to the Registrar: Capita Asset Services, Shareholder Services Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Manager: Miton Asset Management Limited The Company's Manager is Miton Asset Management Limited, a wholly-owned subsidiary of Miton Group plc. Miton Group is a leading multi-asset and equity fund management specialist listed on the AIM market for smaller and growing companies. As at 31 December 2014, the Miton Group had £2.05 billion of assets under management. Members of the fund management team invest in their own funds and are significant shareholders in the Miton Group. In order to comply with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Company's previous investment management agreement with Miton Asset Management Limited was terminated, and the Company appointed PSigma Unit Trust Managers Limited as its Alternative Investment Fund Manager ("AIFM") with effect from 22 July 2014. Miton Asset Management Limited has been appointed by the AIFM as investment manager to the Company pursuant to a delegation agreement. Subsequent to this appointment, PSigma Unit Trust Managers has changed its name to Miton Trust Managers Limited. There has been no change to the fee structure or the portfolio management arrangements as a result of these changes. Investor updates in the form of monthly factsheets are available from the Company's website, www.mitongroup.com/dit. DIRECTORS AND ADVISERS Directors (all non-executive) Solicitor Michael Wrobel Stephenson Harwood LLP Tom Bartlam 1 Finsbury Circus Paul Craig London EC2M 7SH Lucinda Riches Jane Tufnell Depositary Secretary and Registered Office BNY Mellon Trust & Depositary (UK) Limited BNY Mellon Centre Capita Sinclair Henderson Limited 160 Queen Victoria Street (trading as Capita Asset Services) London EC4V 4LA Beaufort House 51 New North Road Exeter EX4 4EP Custodian Telephone: 01392 412122 Bank of New York Mellon SA/NV London Branch One Canada Square Alternative Investment London E14 5AL Fund Manager Miton Trust Managers Limited Stockbroker 51 Moorgate London EC2R 6BH Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS Manager Miton Asset Management Limited Banker 51 Moorgate London EC2R 6BH Bank of New York Mellon One Piccadilly Gardens Telephone: 020 3714 1525 Manchester M1 1RN Website: www.mitongroup.com Registrar and Transfer Office Company website Capita Asset Services www.mitongroup.com/dit Shareholder Services Department The Registry 34 Beckenham Road Auditor Beckenham Kent BR3 4TU Ernst & Young LLP 1 More London Place Telephone: 0871 664 0300 London SE1 2AF (calls will cost 10p per minute plus network charges) Email: ssd@capitaregistrars.com Website: www.capitaassetservices.com An investment company as defined under Section 833 of the Companies Act 2006. Registered in England No. 7584303. A member of the Association of Investment Companies. The Half-Yearly Financial Report will be posted to shareholders shortly. The Report will also be available for download from the following website: www.mitongroup.com/dit or on request from the Company Secretary. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of this announcement.

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