Annual Financial Report

RNS Number : 6007G

Miton UK MicroCap Trust plc

09 August 2016

 

MITON UK MICROCAP TRUST PLC
REPORT AND ACCOUNTS FOR THE PERIOD 26 MARCH 2015 TO 30 APRIL 2016
The Directors present the Report and Accounts of Miton UK MicroCap Trust plc ("the Company") for the period ended 30 April 2016. The full Report and Accounts can be accessed shortly via the Company's website, www.mitongroup.com/micro, or by contacting the Company Secretary on 0207 954 9796. Miton UK MicroCap Trust plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI, with total assets of £91m as at 30 April 2016. It is referred to as the Company, the Trust or as MINI in the text of this Report. The Company has a Board that is independent of the Investment Manager. This Report covers the initial period of the Trust's life up to 30 April 2016, a time when mainstream markets were unsettled - for example, the FTSE All-Share Index was down 9.0% over the period. The net asset value ("NAV") of the Ordinary shares, however, has risen by 12.0% since issue, in spite of bearing the costs of investing the new capital. In response to investor demand, the Trust issued an additional £5.3m of new equity during August and September 2015. On 19 February 2016, the Trust raised gross proceeds of £28m via a C share issue. Both the capital appreciation of the portfolio and the additional stock issuance has grown the scale of the Trust, with the benefit of spreading the fixed costs over a larger capital base, as well as increasing the marketability of the Trust's shares. The NAV of the C shares, which were in existence for only part of the reporting period and were not fully invested, increased by 7.4%.
STRATEGIC REPORT
RESULTS FOR THE PERIOD TO 30 APRIL 2016
§ Over the first year the Ordinary share NAV rose from 49.0p on 30 April 2015 (50p per share less the costs of the issue) to 54.91p on 30 April 2016, an appreciation of 12.0%. § The Trust has grown during the period, in part down to the performance outlined above, and in part due to the issuance of an additional 9.99m Ordinary shares in August and September 2015 and 56m C shares in February 2016. At the end of the period, the overall assets in the core portfolio within the Trust were £60.4m. The assets within the C share portfolio were £29.5m. The net assets of the combined portfolios were £89.9m. § The Ordinary share price appreciated from 50.0p at issue to 56.75p at the end of April 2016. This represents a 13.5% return in the period. The C share price appreciated from 50.0p at issue on 19 February 2016 to 54.0p at the end of April 2016, representing a 8.0% return over the period.
SUMMARY OF RESULTS
Company Ordinary Shares C Shares 30 April 2016 30 April 2016 30 April 2016 Total Net Assets attributable to equity shareholders (£'000)  89,867* 60,392 29,475 NAV per share 54.91p 52.63p Share price (mid) 56.75p 54.00p Premium to NAV 3.35% 2.60% Revenue return per share 0.32p † 0.03p ‡ Total return per share 5.64p † 2.63p ‡ Ongoing charges # 1.76% † 1.47% ‡ Shares in issue 109,990,000 56,000,000
* Investments, cash and receivables less trade and other payables. † For the period from 26 March 2015 to 30 April 2016. ‡ For the period from 19 February 2016 to 30 April 2016. # The ongoing charges are calculated in accordance with AIC guidelines. The ratio for the C shares is indicative for the period from date of issue, 19 February 2016, to 30 April 2016 (on an annualised basis) in comparison to that for the Ordinary shares which is for the period to 30 April 2016.
CHAIRMAN'S STATEMENT
The Trust was listed on the London Stock Exchange on 30 April 2015. This is the first full year report of Miton UK MicroCap Trust plc and covers the period ended 30 April 2016. The scale of the Trust At launch in April 2015, the Trust raised £50m of new capital at 50p per share. As investment trusts grow, there are advantages for shareholders as the fixed costs are spread over a larger capital base. In addition, a larger investment trust tends to have greater stock market liquidity in its shares. So, as the initial capital became invested during the first half of the year, the Board authorised the issue of an additional 9.99m Ordinary shares at an average price of 53.5p and at a minimum premium of 2% to the relevant NAV. On 17 February 2016, during the second half of the year, the Board announced a larger £28m issue of C share capital. The C share monies were held in a separate portfolio until the new capital was at least 90% invested, and then, following an announcement by the Board on 13 July 2016, the Ordinary and C share portfolios were merged. Therefore, over the year, as a result of the performance and the issue of the new shares, the value of the Trust has grown from £49m (after the costs of the initial float had been deducted) to £90m at the end of April 2016, and this will be reflected in a lower ongoing expense ratio. The financial statements present information on both the Ordinary shares, which were in existence throughout the reporting period, and the C shares from 19 February 2016. You will see that the Balance Sheet in the Financial Statements, page 57 of the Annual Report, shows the C shares as a liability rather than as equity. This is an unfortunate consequence of one of the International Accounting Standards which we have no choice but to follow, IAS 32, paragraph 11. We have tried to explain this in more detail in notes 1 and 4 to the accounts. We have also shown in the "Shareholders' Questions and Answers" section on page 88 of the Annual Report, the combined portfolio at 31 July, after the conversion of the C shares into Ordinary shares which took place on 20 July 2016. Initial returns Generally mainstream equity markets have been unsettled over the period under review, with the FTSE All-Share Index falling by 9.0%. In contrast the FTSE SmallCap (excluding Investment Companies) Index actually rose 1.0% in the same period while the FTSE AIM All-Share Index fell just 3.4%. Smaller company share prices were more resilient in the period, in spite of the proximity of the Brexit vote in June 2016. Despite the transactional costs incurred during the investment of the initial capital, the Investment Manager has outperformed over the first period of operation with the Ordinary share NAV up 12.0% over the year. The C share NAV increased by 7.4% over the period from 19 February 2016 to 30 April 2016. The dividend income generated by the portfolio in the year has, as expected, been modest, and after deducting the Trust's running costs, the revenue per share amounts to 0.32p. The Board has recommended a final dividend of 0.14p per share to be paid to shareholders if approved at the AGM. Outlook The Company was set up because smaller quoted companies tend to have greater vibrancy than their larger competitors. During the past decades of wide-ranging economic expansion, this factor has not been especially distinctive or relevant to most investors. But, as world growth expectations have moderated over the last few years, institutional investors have shown a renewed interest in stepping up their capital allocation into the smallest quoted stocks. Progressive improvements in productivity are often equated with long term wealth creation. So the Trust's portfolios have favoured those companies that are investing risk capital for potential productivity improvements. It is anticipated that the cashflow payback on the capital expenditure will lead to a stream of growing cash profits in time, and this will ultimately fund the growth of their dividend distributions over the coming three to five years. No statement would be complete without a comment on the recent Brexit decision. There has obviously been much comment on this over the last few weeks, but some impacts are already being felt, and the uncertainty will continue for months if not years. Although the Investment Manager may make some changes to the portfolio as a result of Brexit, we believe the overall strategy should remain the same and that investing in small, vibrant companies (that are often ignored by larger funds) will continue to produce attractive returns. Andy Pomfret Chairman 8 August 2016
INVESTMENT MANAGER'S REPORT
Details of the Investment Manager The Company's Investment Manager is Miton Trust Managers Limited, a wholly owned subsidiary of Miton Group plc ("Miton"). Miton is itself a smaller quoted company, listed on AIM. Miton is a close knit team and its agility means that it can be more independent in its thinking. This is important at all times, but following Brexit when market trends may be changing more significantly, the willingness to recognise major changes in markets can be particularly relevant. Miton has a team of four fund managers researching UK quoted stocks. The day-to-day management of the Trust's portfolio is carried out by Gervais Williams and Martin Turner, who have a particular focus on researching many of the smaller quoted stocks. Gervais Williams Gervais joined Miton in March 2011 as Managing Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was awarded Fund Manager of the Year 2014 by What Investment? Martin Turner Martin joined Miton in May 2011. Martin and Gervais have had a close working relationship since 2004, and their complementary expertise and skills led to their backing a series of successful companies. Martin qualified as a Chartered Accountant with Arthur Andersen, and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities. The overall objective of the Trust During the credit boom many funds adopted mainstream indices as their benchmark of success. This risks introducing a mindset where the absolute share price risk of some of the largest index weightings can be perceived as less worrying, when compared to other stocks not included in the index. A very large number of equity funds therefore have sizeable holdings in a uniform group of the largest stocks. Miton is distinctive in that many of our funds do not use traditional benchmarks. In particular, we advocate that market participants should be very attentive to the post credit boom trends, and we often propose investment strategies anticipating forthcoming investment trends, rather than slavishly following the consensus. Overall we would like to manage this Trust so that it delivers a superior capital gain ahead of most other comparative funds. Although the dividend yield on the Trust is modest at present, we also seek to invest the portfolio so that it generates superior dividend growth. Implementing the investment strategy In general, we believe that companies with decent productivity improvements are likely to be amongst those that deliver attractive returns. The point is that productivity improvement typically generates a cash payback on the investment, and it is this growing cashflow that leads to these types of stocks outperforming. Businesses with strong cashflow can go on to fund yet more productivity improvements, as well as ultimately a stream of growing dividends that should lead to an increase in market value over time. We find the following five factors particularly helpful when selecting productive investments with attractive risk/reward ratios for the Trust. Turnover growth - Although some companies can succeed in growing their profits without turnover growth, in general the greatest long term growth comes from those that expand their turnover. Companies investing in productivity improvement can often increase sales via an innovative new service, or through introducing a superior or improved product. Even in times of economic stagnation, this type of improvement can sometimes generate decent turnover growth. Sustained margins - A company that generates extra turnover growth may find it does not grow its cashflow much if its profit margins fall back. The best kinds of productivity improvement should reduce the cost of goods, although some may also justify a better market price. Ideally, we are looking for companies that have the potential to improve their profit margins, though in the current competitive environment it may be that even sustaining margins could be a good result. Management of risk - All investment carries risks, but often those going for the fastest growth are obliged to take the greatest risks. In general we aim to moderate portfolio risk by investing in companies where the management team are happy to grow at a steady rate without taking sizeable risks. Such companies still carry plenty of potential to deliver an attractive return for their shareholders over time. Better balance sheets - Many corporates have taken on extra debt over the past decade given the exceptionally low interest rates. However, we prefer investments with net cash balances or those with modest debt relative to much higher facility headroom. In a world that is uncertain, those with under-geared balance sheets can take advantage of any economic setback to greatly improve their market position, whereas those fully drawn on their facilities tend to have fewer options. Low entry valuations - The upside potential on an investment is often greater when the valuation on entry is modest. In general, we favour stocks where the overall market capitalisation reflects some of the problems of the past in preference to those which are already reflecting some of the excitement about the future. With few institutional investors actively researching the smallest quoted companies, there are plenty of stocks with what we believe are low entry valuations. Progress over the period Equity markets were particularly unsettled during the period under review. Generally, world growth expectations declined and investor sentiment fluctuated significantly through the year. The new capital raised by the Trust at the time of the listing was progressively invested over the period. On 17 February 2016 it was announced that a further £27.4m of new capital was raised via a C share issue. In line with the prospectus, this capital was held in a separate portfolio during the period of investment, and was merged with the Ordinary shares in July 2016 when at least 90% of the capital was invested. The Ordinary share portfolio comprised 95 stocks at the end of April. The new C share portfolio was only partially invested at the April period end, and therefore at that time held only 38 stocks. Of these, 22 were companies that were already held in the Ordinary share portfolio, with the balance representing new stocks for the portfolio. Some of the new holdings in the C share portfolio have been scaled on the basis that the two portfolios were due to be merged. This has meant that a few of the holdings have become quite large in the context of the C share portfolio alone, especially in the case of those that have performed strongly since the time of investment. Subsequent to the end of the period, in July, it was announced that the C share portfolio exceeded the 90% invested threshold, and the process of merging the two portfolios was completed on 19 July. The combined portfolio held 120 stocks at the time of the merger. Both portfolios were invested in a wide range of industry sectors, so the combined portfolio is well-diversified. Further details of the largest holdings in each part of the portfolio at the end of April are outlined in pages 15 to 18 of the Annual Report. Naturally, we have sought to be sure-footed as we have purchased new holdings for the portfolios. Generally, most holdings have performed well, although there are a few where share prices have fallen back subsequent to purchase. Stanley Gibbons Group, which has been setting up a new online exchange for stamps and coins, suffered integration issues which impeded the profitability of some of its regular auctions. Aureus Mining, a gold miner just coming into production, reported that its new operations were suspended due to some environmental contamination. Both of these holdings were sold in the period. In contrast, Pure Wafer and Alkane Energy were sold at a good profit following agreed bids. At the end of the period Penna Consulting (the second largest holding in the portfolio) also agreed to be acquired at a price around twice the original purchase price. Fulcrum Utility Services (featured on the front of this Report) continued to perform well throughout the year, having grown its utilities installation operations. In addition, International Greetings continued to generate excellent cashflow from capex for productivity improvements over the last three years. This has driven additional sales at improving net margins. Over the period the Ordinary share NAV of the Trust increased by 12.0%. This return is stated after all costs, including the costs of purchasing the holdings, and administration charges including the fund management fee. The Trust's capital was not invested at the start of the period, so dividend receipts were not significant over the period. The Board, however, has recommended a final dividend of 0.14p per share. The C share portfolio was only partly invested given it was only active between new capital arriving on 19 February 2016 and the end of the Trust's year on 30 April 2016 (i.e. ten weeks). The largest holdings comprised Cerillion, a promising software company for mobile billing that listed in March 2016, Brighton Pier Group, a UK entertainments business via a company placing to fund the acquisition of Brighton Pier, and Bilby, a company already represented in the Ordinary share portfolio, which issued some additional stock to fund two further acquisitions in order to accelerate their growth. Over the ten week period, the NAV of the C share portfolio rose by 7.4%, despite the fact the portfolio was only 53% invested as at 30 April 2016. Current market trends and outlook During the period to April 2016, there was a growing number of dividend cuts by stocks in the FTSE 100. Whilst this included a number of companies operating in the oil and mining sector, where commodity prices have fallen sharply, it also included supermarkets, mainstream banks and engineering companies such as Rolls Royce. The overall effect of these dividend cuts reduced the aggregate dividend growth of the FTSE 100 Index, so that it was essentially flat. Although the lack of world growth is not helpful for smaller quoted companies either, there are a number of such companies where their immature market positions mean they are well placed to invest for productivity increases. Not all will be successful, but generally we are upbeat about their prospects for generating additional sales at attractive margins over the coming three years. If they achieve this then they should be in a position to pay a growing dividend stream to their shareholders. To some degree this pattern has already started coming through with the dividend growth on the AIM exchange estimated by Peel Hunt to be growing at around 10% per year. Whilst the current level of dividend yield on AIM stocks is standing at about half the level of the FTSE 100, we believe their superior dividend growth is a good reason for investors to increase their exposure to the universe of the smallest quoted companies. The Brexit decision had immediate impacts on the markets and the exchange rate of Sterling, as discussed further on page 91 of the Annual Report. While it may be that the uncertainty regarding Brexit remains for some time, we believe that the overall strategy of the Trust, along with the wide opportunity set available, is still very well suited to a post-Brexit world, and therefore it is anticipated there are good reasons for the Trust to continue to generate premium returns in future. Gervais Williams and Martin Turner 8 August 2016
The information below present the two separate portfolios as at 30 April 2016. As previously noted, the merger of the two portfolios took place on 19 July 2016. A combined portfolio as at 31 July 2016 is set out on page 88 of the Annual Report for information, available on the Company's website.
ORDINARY SHARES PORTFOLIO INFORMATION AS AT 30 APRIL 2016
% of the Ordinary shares Rank Company Sector & main activity Valuation £'000 net assets Yield1 % 1 Fulcrum Utility Services* Utilities 3,561 5.9 1.0 2 Penna Consulting* Industrials 2,700 4.5 2.2 3 Atlantis Resources* Oil & Gas 1,744 2.9 - 4 Cropper (James) * Basic Materials 1,561 2.6 1.2 5 Bilby* Industrials 1,533 2.5 2.1 6 Fishing Republic* Consumer Goods 1,395 2.3 - 7 Kromek Group* Health Care 1,191 2.0 - 8 WYG Industrials 1,178 2.0 1.0 9 Cambria Automobiles Consumer Services 1,174 1.9 1.1 10 Cello Group Consumer Services 1,087 1.8 3.1 Top 10 investments 17,124 28.4 11 Ingenta (previously Publishing Technology) Technology 1,050 1.7 - 12 K3 Business Technology Group Technology 1,003 1.7 0.4 13 32Red Consumer Services 973 1.6 2.2 14 Safestay Consumer Services 968 1.6 - 15 Constellation Health* Health Care 938 1.5 - 16 Dekeloil Public Consumer Goods 932 1.5 - 17 Utilitywise Industrials 894 1.5 3.3 18 IBEX Global Solutions Industrials 890 1.5 7.5 19 International Greetings Consumer Goods 880 1.5 1.0 20 STM Group Financial Services 833 1.4 2.7 Top 20 investments 26,485 43.9 21 Charles Taylor Industrials 789 1.3 3.8 22 CML Microsystems Technology 787 1.3 1.8 23 Churchill China Consumer Goods 775 1.3 2.4 24 Zotefoams Basic Materials 768 1.3 2.0 25 Walker Crips Group Financial Services 765 1.3 3.9 26 Character Group Consumer Goods 752 1.2 2.6 27 Norcros Industrials 742 1.2 3.4 28 Park Group Financial Services 730 1.2 3.4 29 BATM Advanced Communications Technology 726 1.2 - 30 NWF Group Industrials 716 1.2 3.7 Top 30 investments 34,035 56.4 31 Inland Homes Financial Services 705 1.2 1.4 32 Finsbury Food Group Consumer Goods 701 1.2 2.2 33 Science in Sport Consumer Goods 692 1.1 - 34 Gateley (Holdings) Industrials 680 1.1 - 35 Creston Consumer Services 664 1.1 4.1 36 Proactis Holdings Technology 658 1.1 0.9 37 Share Financial Services 643 1.1 2.6 38 Stride Gaming Consumer Services 625 1.0 - 39 IQE Technology 622 1.0 - 40 Amino Technologies Technology 614 1.0 5.1 Top 40 investments 40,639 67.3 Balance held in 55 equity instruments 18,556 30.7 Total investment portfolio 59,195 98.0 Other net current assets 1,197 2.0 Net assets 60,3922 100.0
* These companies, together with those similarly marked below, form the top 10 investments of the combined portfolio as at 30 April 2016. 1 Source: Interactive Data. Based on historic dividends and therefore not representative of future yield. 2 As detailed in note 5 to the financial statements. A copy of the full portfolio of investments as at 30 April 2016 is available on the Company's website, www.mitongroup.com/micro
Portfolio exposure by sector % Industrials 24.9 Technology 14.4 Consumer Services 13.4 Financial Services 12.0 Consumer Goods 10.3 Basic Materials 8.1 Health Care 6.1 Utilities 5.9 Oil & Gas 2.9 Other net current assets 2.0 100.0 Portfolio by asset allocation % AIM 85.0 FTSE SmallCap Index 6.7 FTSE Fledgling Index 4.8 Other net current assets 2.0 Other UK Equities 1.5 100.0 Portfolio by spread of investment income to 30 April 2016 AIM 66.1 FTSE SmallCap Index 15.7 Other UK Equities 9.8 FTSE Fledgling Index 8.4 100.0 Estimated annual income by sector1 % Industrials 36.9 Financial Services 20.3 Consumer Services 16.0 Technology 9.8 Basic Materials 5.8 Consumer Goods 6.3 Utilities 3.7 Health Care 1.2 Oil & Gas 0.0 100.0
1 Projected income based on portfolio as at 30 April 2016.
Source: Interactive Data.
C SHARES PORTFOLIO INFORMATION AS AT 30 APRIL 2016
% of C shares Rank Company Sector & main activity Valuation £'000 net assets Yield1 % 1 Cerillion* Technology 2,295 7.8 - 2 Brighton Pier Group* Consumer Services 1,429 4.8 - 3 Bilby* Industrials 1,067 3.6 2.1 4 YU Group Utilities 992 3.4 - 5 Medaphor Group Health Care 990 3.4 - 6 Frontier IP Group Industrials 784 2.7 - 7 Constellation Health* Health Care 700 2.4 - 8 Seeing Machines Technology 679 2.3 - 9 Atlantis Resources* Oil & Gas 655 2.2 - 10 Totally Health Care 540 1.8 - Top 10 investments 10,131 34.4 11 Distil Consumer Goods 449 1.5 - 12 IBEX Global Solutions Industrials 415 1.4 7.5 13 Cropper (James)* Basic Materials 360 1.2 1.2 14 Finsbury Food Group Consumer Goods 348 1.2 2.2 15 Kromek Group* Health Care 341 1.2 - 16 Zotefoams Basic Materials 332 1.1 2.0 17 Avingtrans Industrials 326 1.1 1.9 18 Clarke (T) Industrials 315 1.1 3.7 19 Belvoir Lettings Financial Services 306 1.0 6.2 20 Netplay TV Consumer Services 280 0.9 5.7 Top 20 investments 13,603 46.1 21 Cello Group Consumer Services 279 0.9 3.1 22 Charles Taylor Industrials 276 0.9 3.8 23 Photonstar LED Group Consumer Goods 275 0.9 - 24 Park Group Financial Services 258 0.9 3.4 25 7Digital Group Consumer Services 256 0.9 - 26 Swallowfield Consumer Goods 251 0.9 1.8 27 Personal Group Holdings Financial Services 227 0.8 4.1 28 STM Group Financial Services 225 0.8 2.7 29 XLMedia Consumer Services 191 0.6 4.9 30 Dekeloil Public Consumer Goods 155 0.5 - Top 30 investments 15,996 54.2 31 Digital Globe Services Consumer Services 134 0.4 5.1 32 Ideagen Technology 105 0.4 0.3 33 Inspired Energy Industrials 64 0.2 2.8 34 Martinco Financial Services 58 0.2 4.1 35 Enteq Upstream Oil & Gas 55 0.2 - 36 PV Crystalox Solar Oil & Gas 49 0.2 - 37 Science in Sport Consumer Goods 27 0.1 - 38 Superglass Holdings Industrials 17 0.1 - Total investment portfolio 16,505 56.0 Other net current assets 12,970 44.0 Net assets 29,4752 100.0
* These companies, together with those similarly marked above, form the top 10 investments of the combined portfolio as at 30 April 2016. 1 Source: Interactive Data. Based on historic dividends and therefore not representative of future yields. 2 As detailed in note 5 to the financial statements. A copy of the full portfolio of investments as at 30 April 2016 is available on the Company's website, www.mitongroup.com/micro
Portfolio exposure by sector % Other net current assets 44.0 Industrials 11.1 Technology 10.4 Health Care 8.7 Consumer Services 8.7 Consumer Goods 5.1 Financial Services 3.6 Utilities 3.4 Oil & Gas 2.6 Basic Materials 2.4 100.0 Portfolio by asset allocation % AIM 52.7 Other net current assets 44.0 FTSE SmallCap Index 2.0 FTSE Fledgling Index 1.1 Other UK Equities 0.2 100.0 Portfolio by spread of investment income to 30 April 2016 AIM 60.5 FTSE SmallCap Index 21.7 FTSE Fledgling Index 17.8 Other UK Equities 0.0 100.0 Estimated annual income by sector1 % Industrials 43.4 Consumer Services 21.1 Financial Services 23.4 Consumer Goods 6.3 Basic Materials 5.6 Technology 0.2 Health Care 0.0 Oil & Gas 0.0 Utilities 0.0 100.0
1 Projected income based on portfolio as at 30 April 2016.
Source: Interactive Data.
INVESTMENT OBJECTIVE
The investment objective of the Company is to provide shareholders with capital growth over the long term.
INVESTMENT POLICY
The Company invests primarily in the smallest companies, measured by their market capitalisation, quoted or traded on an exchange in the United Kingdom at the time of investment. It is likely that the majority of the MicroCap companies held in the Company's portfolio will be quoted on AIM and will typically have a market capitalisation of less than £150 million at the time of investment. The Company may also invest in debt, warrants or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies. The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions. If companies in the portfolio achieve organic growth or grow through corporate activity such as acquisitions, and consequently have a market capitalisation that would place them outside the investable universe, the Investment Manager will not be obliged to sell those holdings, but the proportion of the portfolio in such companies will be carefully monitored by the Investment Manager and the Board so that the overall investment policy to invest in the smallest quoted or traded companies is not materially altered. The Company's portfolio is expected to be diversified by industry and market of activity. No single holding will represent more than 15% of Gross Assets at the time of investment and, when fully invested, the portfolio is expected to have over 120 holdings although there is no guarantee that will be the case and it may contain a lesser number of holdings at any time. The Company will have the flexibility to invest up to 10% of its Gross Assets at the time of investment in unquoted or untraded companies, or in any one unquoted or untraded company. The Company will invest no more than 10% of Gross Assets at the time of investment in other investment funds. Borrowing The Company may deploy borrowing to enhance long term capital growth. Gearing will be deployed flexibly up to 15% of the Net Asset Value, at the time of borrowing. In the event this limit is breached as a result of market movements, and the Board considers that borrowing should be reduced, the Investment Manager shall be permitted to realise investments in an orderly manner so as not to prejudice shareholders. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.
BUSINESS MODEL
MINI was incorporated on 26 March 2015 and its Ordinary shares were listed on the London Stock Exchange on 30 April 2015. It is registered in England as a public limited company and is an investment company in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006. The principal activity of the Company is to carry on business as an investment trust. The Company intends at all times to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Sections 1158/1159 of the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any change in this activity in the foreseeable future. The Company has been granted approval from HM Revenue & Customs ("HMRC") as an investment trust under S1158/1159 and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval. The principal conditions that must be met for continuing approval by HMRC as an investment trust are that the Company's business should consist of "investing in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results" and the Company must distribute a minimum of 85% of all its net income as dividend payments. The Company must also not be a close company. The Directors are of the opinion that the Company has conducted its affairs for the period ended 30 April 2016 so as to be able to continue to qualify as an investment trust. The Company's status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments and all other net capital gains. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at lower cost. Investment Policy The Company's full investment policy is set out above and contains information on the policies which the Company follows relating to asset allocation, risk diversification and gearing, and includes maximum exposures, where relevant. The Company invests in a portfolio of UK quoted companies with the objective of achieving capital growth by investing in a portfolio of stocks that are well-placed to generate an attractive cash payback from productivity improvements.
PERFORMANCE AND RISKS
Key Performance Indicators The Board reviews the Company's performance by reference to a number of Key Performance Indicators ("KPIs") and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole. The Board and the Investment Manager monitor the following KPIs: § NAV performance, relative to the FTSE Small Cap Index and other comparable investment trusts and open ended funds and to various UK stock market indices.
	The Ordinary share NAV at 30 April 2016 was 54.91p per share, giving a total return of 12% over the period since launch on 30 April 2015. This compares favourably with the UK Investment Trust Smaller Companies sector, where the average was a 1.5% increase in total return terms over the same period. By comparison, the total return on the FTSE Small Cap Index (excluding investment companies) was 3.8% over the period, on the FTSE Fledgling Index (excluding investment companies) was 10.3% and on the Numis 1000 Index (including AIM but excluding investment companies) was 2.6%.
§ NAV correlation to mainstream indices
	The Company has an objective to deliver a low NAV correlation with the FTSE 100 and FTSE All-Share Indices. Correlation data is presented on page 7 of the Report.
§ Movements in the Company's share price
	The Company's Ordinary share price increased by 13.5% over the period on a total return basis.
§ The discount/premium of the share price in relation to the NAV
	The Company has an objective to keep the discount to NAV at a minimum. Over the period to 30 April 2016, the Company has maintained an average premium to Ordinary share NAV of 4.8%. The share price has ranged from a premium of 9.8% to a discount of 0.9% to the Ordinary share NAV during the period.
§ Ongoing charges
	The ongoing charges on the Ordinary shares for the period to 30 April 2016 amounted to 1.76% of total assets.
Principal Risks and Uncertainties
The Company is exposed to a variety of risks and uncertainties that could cause its asset price or the income from the investment portfolio to reduce, possibly by a sizeable percentage in the most adverse circumstances. The principal financial risks and the Company's policies for managing these risks and the policy and practice with regard to the financial instruments are summarised in note 17 to the financial statements. The Board, through delegation to the Audit Committee, undertakes a robust annual assessment and review of the principal risks facing the Company, together with a review of any new risks which may have arisen during the year, including those that would threaten its business model, future performance, solvency or liquidity. These risks are formalised within the Company's risk matrix. Listed below is a summary of the principal risks identified by the Board and actions taken to mitigate those risks. Risk Mitigation Investment and strategy There can be no guarantee that the investment objective of the Company will be achieved. The Company will invest primarily in the smallest UK quoted or traded companies by market capitalisation. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile. These companies may be less liquid and the portfolio may, when aggregated with holdings in other client funds of the Investment Manager, have a significant percentage ownership of investee companies. The Company is reliant on its Investment Manager's investment process. The Board reviews and discusses the investment approach at each Board Meeting. The Investment Manager has long experience of managing portfolios of this nature, including dealing in smaller capitalisation companies, and deploying an approach that is designed to maximise the chances of the investment objective being achieved over longer-term time horizons. The Board looks to mitigate this risk by ensuring the Company holds a well-diversified portfolio, both by number of companies and areas of operation. This is monitored at each Board meeting. The Company is structured as a closed ended fund, which means that it is not subject to daily inflows and outflows. Reliance on third parties/Key person risk The Company has no employees and is reliant on the performance of third party service providers. Failure by the Investment Manager or any other third party service provider to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company. This could include failure of a counterparty on whom the Company is reliant. The departure of some or all of the Investment Manager's investment professionals, in particular, Gervais Williams or Martin Turner, could prevent the Company from achieving its investment objective. The past performance of the Investment Manager's investment professionals cannot be relied upon as an indication of the future performance of the Company. The Board monitors and receives reports, where appropriate, on the performance of its key service providers. In relation to the risk of counterparty failure, the Board undertakes regular reviews of the controls applied by the Depositary. The Trust may terminate the Management Agreement should both Gervais Williams and Martin Turner cease to be employees of the Investment Manager, and if within three months of their departure a replacement or replacements are not found who the Board considers to be of equal standing. The Board may in any event terminate all key contracts on normal market terms. Share price volatility and liquidity/marketability risk The market price of the Ordinary shares, as with shares in all investment trusts, may fluctuate independently of their underlying NAV and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary shares, market conditions and general investor sentiment. The Company becomes too small to be attractive to a wide audience and liquidity decreases and the discount widens. The Company has in place an annual redemption facility whereby shareholders can voluntarily tender their shares. The Board monitors the relationship between the share price and the NAV. The Company has powers to repurchase shares should there be an imbalance in the supply and demand leading to a discount. Since launch, however, the Company's shares have tended to trade at a premium to NAV. Costs of operation As stated, the Company relies on external service providers. Many of these are paid on a basis where their fees are related to the size of the Company (an ad valorem basis). Others are for fixed monetary amounts. Therefore, if the Trust were to shrink, through redemptions, buybacks or asset performance, the cost per share of running the Trust may increase. This could make it harder to achieve the investment objective. The Board monitors the costs of all service providers. The Board is also committed to the controlled growth of the Company which would spread the fixed costs over a larger asset base. In the event that the Trust were to decrease in size from its current level, the Board has capped the total costs at no more than 2% of the aggregate market capitalisation. Regulatory risk/change in tax status The Company is subject to laws and regulations enacted by national and local governments. Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy. The Board receives regular updates from its Secretary, industry representatives and its Investment Manager on significant regulatory changes that may impact the Company. The Company's ability to determine the shape of regulatory or tax changes is limited and therefore the Board aims to ensure that it is well-informed and prepared to respond to changes as required.
SHARE CAPITAL
The Company was incorporated on 26 March 2015 with an issued share capital of £50,000, represented by 50,000 Management shares of £1.00 each. On 30 April 2015 as part of its Initial Public Offering, the Company issued 100 million Ordinary shares of £0.001 each at a price of 50 pence per share in a placing, offer for subscription and intermediaries offer, raising £50 million before expenses. Additional Share Issues At a General Meeting held on 31 March 2015, the Directors were granted the authority to allot up to an additional 200 million Ordinary shares and/or C shares, to an aggregate nominal amount of £200,000 in Ordinary shares or £2,000,000 C shares on a non pre-emptive basis. This authority is due to expire at the Company's Annual General Meeting to be held on 29 September 2016. Proposals for its renewal are set out on page 31 of the Annual Report. The allotments made by the Directors under this authority are detailed below. Ordinary share issues In August 2015, the Company announced its intention to issue a maximum of 9.99 million Ordinary shares in the Company by way of tap issuance. To facilitate the share issues, an application was granted for a block listing of 1,990,000 shares, which was used in full. The details of the share issuances, which were made to institutional investors and discretionary private wealth managers, are set out below: Date Number of Ordinary shares Aggregate nominal value Price per share Total amount raised before expenses of £0.001 each £ pence £ 4 August 2015 8,000,000 8,000 53.6 4,288,000.00 10 August 2015 503,687 503.69 53.7 270,479.92 19 August 2015 250,000 250 54.0 135,000.00 20 August 2015 350,000 350 54.0 189,000.00 2 September 2015 886,313 886.31 52.8 467,973.26 On 2 February 2016, the Board announced the proposed issue of up to 250 million new Ordinary and/or C shares in aggregate through a share issuance programme over the following 12 months, subject to renewing and extending its existing authority to issue Ordinary and/or C shares on a non pre-emptive basis at its first Annual General Meeting. On 28 July 2016, the Company announced that an application for a block listing of 15,000,000 Ordinary shares in the Company had been made to the UK Listing Authority and to the London Stock Exchange. On 2 August 2016 the Company issued 850,000 Ordinary shares of £0.001 each, with an aggregate nominal value of £850, to discretionary private wealth managers, at a price of 53.75 pence per Ordinary Share, raising £456,875 before expenses.  C share issue and conversion Pursuant to a prospectus dated 4 February 2016, 56,000,000 C shares of £0.01 each, with an aggregate nominal value of £560,000 were issued under a placing, offer for subscription and intermediaries offer at an issue price of £0.50 per C share to institutional investors, discretionary private wealth managers and UK retail investors, raising £28,000,000 of gross proceeds for the Company. Of these, 6,239,200 C shares were issued under the offer for subscription and 3,564,300 C shares were issued under the intermediaries offer. The C shares commenced trading on 19 February 2016. On 19 July 2016, the C shares were converted into Ordinary shares at the ratio of 0.9630 Ordinary shares for every C share, resulting in the issue of 53,927,917 new Ordinary shares. The Ordinary shares were allotted to the holders of C shares, which comprised institutional investors, discretionary private wealth managers and UK retail investors. Current Share Capital As at the period end, there were 109,990,000 Ordinary shares, 56,000,000 C shares and 50,000 Management shares (see note 4 to the financial statements) in issue. Following the conversion of the C shares and issue of Ordinary shares on 2 August 2016, and as at the date of this report, there are 164,767,917 Ordinary shares and 50,000 Management shares in issue. The rights attached to each share class are set out in note 4. 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. Share Redemptions Valid redemption requests were received under the Company's redemption facility for the 29 April 2016 Redemption Point in relation to 337,231 Ordinary shares, representing 0.20% of the issued share capital. As permitted under the Company's Articles of Association, all of these shares were matched with buyers and sold. All shareholders who validly applied to have shares redeemed received a calculated Redemption Price of 55.10p per share. Purchase of Own Shares At the General Meeting of the Company held on 31 March 2015, the Directors were granted the authority to buy back up to 14,990,000 Ordinary shares. No Ordinary shares have been bought back under this authority. The authority will expire at the forthcoming Annual General Meeting, when a resolution for its renewal will be proposed (see page 31 of the Annual Report for further information). Treasury Shares Shares bought back by the Company may, at the Board's discretion, be held in treasury, from where they could be re-issued at a premium to NAV quickly and cost effectively. This provides the Company with additional flexibility in the management of its capital base. No shares were purchased for, or held in, treasury during the year or since the year end.
MANAGEMENT, SOCIAL, ENVIRONMENTAL AND DIVERSITY MATTERS
Management Arrangements The Company's investment manager is Miton Trust Managers Limited (the ''Investment Manager''). The Investment Manager is responsible for the management of the Company's portfolio in accordance with the Company's investment policy and the terms of the Management Agreement dated 8 April 2015. The Investment Manager has delegated investment management to Miton Asset Management Limited. Both the Investment Manager and Miton Asset Management Limited are authorised and regulated by the FCA. The Board has appointed Miton Trust Managers Limited as the AIFM of the Company. Under the terms of the Management Agreement, the Investment Manager is entitled to a management fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The management fee is payable monthly in arrears and is at the rate of 1% per annum, calculated in respect of each calendar month, of the market capitalisation at the relevant calculation date. In addition to the basic management fee, and for so long as a Redemption Pool (see the full text of the Annual Report available on the Company's website for details) is in existence, the Investment Manager is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month. The Investment Manager has agreed that, for so long as it remains the Company's investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income. The Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including the insolvency or in the event of a material breach by the Investment Manager of the Management Agreement which is not remedied within thirty days of the receipt of notice. The Company has given certain market standard indemnities in favour of the Investment Manager in respect of the Investment Manager's potential losses in carrying on its responsibilities under the Management Agreement. The Board appointed Bank of New York Mellon as its Depositary and Custodian under an agreement dated 8 April 2015. The annual fee for depositary services due to Bank of New York Mellon is 0.025% per annum of gross assets, subject to a minimum fee of £15,000. The Company and the Depositary may terminate the Depositary Agreement with three months' written notice. Company secretarial services are provided by Capita Company Secretarial Services Limited, under an agreement dated 8 April 2015 between the Company and Capita Registrars Limited. The Company Secretarial Services Agreement is for an initial period of 12 months and thereafter shall automatically renew for successive periods of six months unless or until terminated by either party on at least six months' written notice. The fee payable pursuant to the Company Secretarial Services Agreement was £45,000 for the first year of the agreement. Administrative Services are provided by Capita Sinclair Henderson Limited under an Agreement dated 8 April 2015 for a fee of £77,000 for the first year of the agreement. The Administration Agreement may be terminated by either party on at least six months' prior written notice. Continuing Appointment of the Investment Manager The Board, through the Management Engagement Committee, keeps the performance of the Investment Manager under continual review, and the Management Engagement Committee conducts an annual appraisal of the Investment Manager's performance, and makes a recommendation to the Board about the continuing appointment of the Investment Manager. It is the opinion of the Directors that the continuing appointment of the Investment Manager is in the interests of shareholders as a whole. The reasons for this view are that the Investment Manager has executed the investment strategy according to the Board's expectations and has demonstrated superior risk-adjusted returns relative to the broader market and the peer group. The Directors also believe that by paying the management fee calculated on a market capitalisation basis, rather than a percentage of assets basis, the interests of the Investment Manager are more closely aligned with those of shareholders. Environmental, Human Rights, Employee, Social and Community Issues The Company does not have any employees and the Board consists entirely of non-executive Directors. Day-to-day management of the business is delegated to the Investment Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Modern Slavery Act The Company is not within the scope of the Modern Slavery Act 2015 because it has insufficient turnover and is therefore not obliged to make a human trafficking statement. Gender Diversity The Board of Directors of the Company comprises one female and three male Directors. On behalf of the Board Andy Pomfret Chairman 8 August 2016
GOING CONCERN
The Directors consider that it is appropriate to adopt the going concern basis. Cashflow projections have been reviewed and show that the Company has sufficient funds to meet its contracted expenditure. On the basis of the review and as the majority of net assets are securities which are traded on recognised stock exchanges, after making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved.
VIABILITY STATEMENT
In accordance with the AIC Code of Corporate Governance, the Board has considered the prospects for the Company. The period assessed is the three years to April 2019. The Company is a recently formed vehicle for investment in the very smallest UK listed companies and as such the Board believes a three year period is appropriate. It balances the long term aims of the Company, the Board's view that the success of the Company is best assessed over a longer time period and the inherent uncertainty of looking out for too long a period. As part of its assessment of the viability of the Company, the Board has considered the principal risks and uncertainties and the impact on the Company's portfolio of a significant fall in UK markets. To provide this assessment, the Board has considered the Company's financial position and its ability to liquidate its portfolio to meet its expenses or other liabilities as they fall due: § The Company invests largely in companies listed and traded on stock exchanges. These are actively traded and, whilst perhaps less liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and industry sector; § The expenses of the Company are predictable and modest in comparison with the assets in the portfolio. There are no commitments that would change that position; § The Company has an annual Redemption facility whereby shareholders may request that their shares are redeemed at NAV. The Board has considered the possibility that shareholders holding a significant percentage of the Company's shares request redemption. Firstly, the Board has flexibility over the method of redemption so can avoid disruption to the overall operation of the Company in this situation. Secondly, the Company has a total cost cap at no more than 2% of aggregate market capitalisation, such that were there to be significant redemption, or a significant fall in the value of the portfolio, the expenses of operation would be manageable. In addition to considering the principal risks on pages 21 and 22 of the Annual Report and the financial position of the Company as described above, the Board has also considered the following further factors: § the continuing relevance of the Company's investment objective in the current environment; § the level of demand for the Company's shares and that since launch the Company has been able to issue further shares; § the gearing policy of the Company; and § that regulation will not increase to such an extent that the costs of running the Company become uneconomical. Accordingly, the Directors have formed the reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Company's financial statements in accordance with applicable United Kingdom law and International Financial Reporting Standards ("IFRS") as adopted by the European Union. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with IFRS. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Company's financial statements, the Directors are required to: § select suitable accounting policies in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently; § present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; § provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; § state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and § make judgements and estimates that are reasonable and prudent. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Company's financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes the information required by the Listing Rules of the Financial Conduct Authority. The financial statements are published on the Company's website, www.mitongroup.com/micro, which is maintained on behalf of the Company by the Investment Manager. Under the Management Agreement, the Investment Manager has agreed to maintain, host, manage and operate the Company's website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. We confirm that to the best of our knowledge: § the Company's financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and § this Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. The Directors consider that the Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. On behalf of the Board Andy Pomfret Chairman 8 August 2016
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the period ended 30 April 2016 but is derived from those accounts. Statutory accounts for the period ended 30 April 2016 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report at: www.mitongroup.com/micro.
INCOME STATEMENT
of the Company for the period 26 March 2015 to 30 April 2016
Revenue Capital return return Total Note £'000 £'000 £'000 Gains on investments held at fair value through profit or loss 11 - 8,174 8,174 Income 2 955 - 955 Management fee 7 (161) (484) (645) Other expenses 8 (428) - (428) Return on ordinary activities before finance costs and taxation 366 7,690 8,056 Finance costs 9 (15) (1,988) (2,003) Return on ordinary activities before taxation 351 5,702 6,053 Taxation 10 (4) - (4) Return on ordinary activities after taxation 347 5,702 6,049 Return on ordinary activities for the period analysed as follows: Attributable to Ordinary shares 347 5,702 6,049 Return per Ordinary Share (pence) 3 0.32 5.32 5.64 For information Attributable to C shares* 15 1,460 1,475 Return per C share (pence)* 3 0.03 2.61 2.63
* Per note 1 the C shares are classified as a financial liability prior to conversion and as such the return on ordinary activities of the C shares is charged back within finance costs. The Company 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 Company prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. The supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP"). All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The notes form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
of the Company for the period 26 March 2015 to 30 April 2016
Share Share premium Capital Revenue capital account reserve reserve Total £'000 £'000 £'000 £'000 £'000 As at 26 March 2015 - - - - - Total comprehensive income: Net return for the period - - 5,702 347 6,049 Transactions with shareholders recorded directly to equity: Issue of ordinary shares 110 55,240 - - 55,350 Expenses of share issue - (1,057) - - (1,057) Issue of Management shares 50 - - - 50 As at 30 April 2016 160 54,183 5,702 347 60,392
The notes form part of these financial statements.
BALANCE SHEET
of the Company as at 30 April 2016
Note £'000 Non-current assets: Investments held at fair value through profit or loss 11 75,700 Current assets: Trade and other receivables 13 232 Cash at bank and cash equivalents 14,708 Total assets 90,640 Liabilities and equity Liabilities Trade and other payables 14 773 Financial liabilities (C shares) 12 29,475 Total Liabilities 30,248 Equity Share capital 160 Share premium account 54,183 Capital reserve 5,702 Revenue reserve 347 Total equity 60,392 Total liabilities and equity 90,640 Net asset value attributable per Ordinary shares (pence) 5 54.91 Net asset value attributable per C shares (pence) 5 52.63
These financial statements were approved by the Board of Miton UK MicroCap Trust plc on 8 August 2016 and were signed on its behalf by: Andy Pomfret Chairman Company No: 09511015 The notes part of these financial statements.
STATEMENT OF CASH FLOWS
for the Company for the period 26 March 2015 to 30 April 2016
£'000 Operating activities: Net return before taxation 6,053 Increase in investments (75,700) Increase in trade and other receivables (232) Increase in trade and other payables 773 Add back finance costs 2,003 Withholding tax paid (4) Net cash outflows from operating activities (67,107) Financing activities: Ordinary shares issued 55,350 Expenses of Ordinary share issue (1,057) C shares issued 28,000 Expenses of C share issue (528) Management shares issued 50 Net cash inflows from financing activities 81,815 Increase in cash and cash equivalents 14,708 Reconciliation of net cash flow movement in funds: Cash and cash equivalents at the start of the period - Net cash inflow from cash and cash equivalents 14,708 Cash at the end of the period 14,708 Combined £'000 Cash received/(paid) during the period includes: Dividends Received 817
The notes part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting Policies
Miton UK MicroCap Trust plc is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010. The Company's financial statements for the period 26 March 2015 to 30 April 2016 have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the provisions of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. Basis of Preparation In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met. The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of 12 months from the date these financial statements were approved. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance).Therefore, the financial statements have been prepared on the going concern basis. 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. 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. Critical Accounting Judgements and Key Sources of Estimation Uncertainty The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There were no significant accounting estimates or judgements in the current period. Share Capital The Company is a closed-ended investment company with an unlimited life. As defined in the Articles of Association, redemption of Ordinary shares is at the sole discretion of the Directors, therefore the Ordinary shares have been classified as equity. The issuance, acquisition and resale of Ordinary shares are accounted for as equity transactions and no gain or loss is recognised in the Income Statement. In accordance with paragraph 11 of IAS 32 (Financial Instruments: Presentation), the C shares are required to be classified as a financial liability prior to conversion due to the inherent variability of the number of Ordinary shares attributable to C shareholders on conversion. The income, expenses and capital gains or losses generated by the C share pool of assets during the period they are in existence, are included in the Income Statement in their respective categories and the total is charged or credited back within finance costs in the capital column of the Income Statement. The issue costs of the C shares are also recognised as a finance cost and charged to the capital column of the Income Statement. Investments The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). When a purchase or sale is made under a contract, the terms of which require delivery within the time-frame of the relevant market, the investments concerned are recognised or derecognised on the trade date. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments this is deemed to be bid market prices or closing prices for Stock Exchange Electronic Trading Service - quotes and crosses ('SETSqx'). A listed company may apply in order to provide additional liquidity with auctions taking place at certain points during the day. Changes in fair value of investments not designated as held for trading are recognised in the Income Statement as a capital item. On disposal, realised gains and losses are also recognised in the Income Statement as capital items. All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 12, described as follows, based on the lowest significant applicable input: Level 1 reflects financial instruments quoted in an active market. Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. For investments that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest significant applicable input) at the date of the event that caused the transfer. Financial liabilities In accordance with IAS 32 the financial assets attributable to the Company's C shares have been designated as a financial liability, due to the obligation to convert the C shares to Ordinary shares and the inherent variability of the number of Ordinary shares attributable to the C shareholders on conversion. The liability to the C shareholders is recognised at amortised costs, being the net value of assets and liabilities attributable to the C class shareholders at the Balance Sheet date of the C shares. Foreign currency The Financial Statements have been prepared in sterling, rounded to the nearest £'000, which is the functional and reporting currency of the Company. Transactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year-end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature. Cash and Cash Equivalents For the purposes of the Balance Sheet, cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable. Trade receivables, trade payables and short term borrowings Trade receivables and payables are measured at amortised cost. Income Dividends received from UK registered companies are accounted for net of imputed tax credits. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes which are described separately in the Income Statement. Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case by case basis. When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column. All other income is accounted for on a time-apportioned accruals basis using the effective interest rate method and is recognised in the Income Statement. Expenses and Finance Costs All expenses and finance costs are accounted for on an accruals basis. Expenses incurred directly in relation to placings and offers for subscription of shares are deducted from equity and charged to the share premium account. Finance costs of the C shares issued by the Company (which were classified as a liability) are recognised as an expense and shown in the capital column of the Income Statement. Taxation Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date based on tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the 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.
2 Income
Period to 30 April 2016 Ordinary share C share £'000 £'000 £'000 Income from investments UK Dividends 723 55 778 Unfranked dividend income 177 - 177 Total income 900 55 955
3 Return per Share
Returns per share are based on the weighted average number of shares in issue during the period. Basic and diluted return per share are the same as there are no dilutive elements on share capital.
Ordinary shares  Period ended 30 April 2016 C shares  Period ended 30 April 2016 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Net profit 347 5,702 6,049 15 1,460 1,475 Weighted average number of shares in issue 107,273,065 56,000,000 Return per share (pence) 0.32 5.32 5.64 0.03 2.61 2.63
The C shares are classified as a financial liability prior to conversion and as such the return on ordinary activities of the C shares is charged back within finance costs (see note 9).
4 Called-up Share Capital
Number of Ordinary Shares £'000 Ordinary Shares of £0.001 each At beginning of period                                    -                                      -   Subscriptions 109,990,000 110 Redemptions -   -   109,990,000 110
The Company was incorporated on 26 March 2015 with an issued share capital of £50,000 represented by 50,000 Management shares of £1.00 each. At a General Meeting held on 31 March 2015, the Directors were granted the authority to allot up to 200 million Ordinary shares and/or C shares, to an aggregate nominal amount of £200,000 in Ordinary shares or £2,000,000 C shares on a non pre-emptive basis. This authority is due to expire at the Company's Annual General Meeting to be held on 29 September 2016. Proposals for its renewal are set out on page 31 of the Annual Report. On 30 April 2015 as part of its Initial Public Offering, the Company issued 100 million Ordinary shares of £0.001 each at a price of 50 pence per share in a placing, offer for subscription and intermediaries offer, raising £50 million before expenses. In August and September 2015, the Company issued 9.99 million Ordinary shares by way of a tap issuance. Full details of the share issuances are set out on page 23 of the Annual Report. The rights attaching to each share class are set out on page 80 of the Annual Report. Redemption of Ordinary Shares The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of Ordinary shares on an annual basis on 30 April in each year. As set out in the Articles of Association, the Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. Accordingly, the Ordinary shares have been classified as equity. In the year to 30 April 2016 valid redemption requests for 337,231 Ordinary shares, representing 0.20% of the issued share capital, were made. All of these shares were matched with buyers and sold on the main market. All shareholders who validly applied to have shares redeemed received a calculated Redemption Price of 55.10p per share. C Shares On 2 February 2016, the Board announced the proposed issue of up to 250 million new Ordinary and/or C shares in aggregate through a share issuance programme over the following 12 months. Following a placing, offer for subscription and intermediaries offer of C shares, the Company issued 56,000,000 C shares of £0.01 each at an issue price of £0.50, raising £28,000,000 of gross proceeds for the Company. These were admitted to the Official List, and commenced trading on the main market of the London Stock Exchange on 19 February 2016. On 19 July 2016, the C shares were converted into Ordinary shares at the ratio of 0.9630 Ordinary shares for every C share, as calculated in line with the prospectus dated 4 February 2016. This resulted in the issue of 53,927,917 new Ordinary shares. The Ordinary shares were allotted to the holders of C shares, which comprised institutional investors, discretionary private wealth managers and UK retail investors. Following the conversion for the C shares the Company had 163,917,917 Ordinary shares in issue. As the rates at which the C shares were convertible to Ordinary shares was variable per the terms of the Prospectus the C shares are required to be classified as a financial liability in the Balance Sheet as at 30 April 2016. This is in line with the provisions of IAS 32. Management Shares 50,000 Management Shares with a nominal value of £1 each were allotted to Miton Trust Managers Limited on the date of incorporation. These shares have been fully paid up. The Management Shares are non-voting and non-redeemable and, upon a winding-up or on a return of capital of the Company, shall only receive the fixed amount of capital paid up on such shares and shall confer no right to any surplus capital or assets of the Company.
5 Net Asset Value per Ordinary Share and C Share
The NAV's per Ordinary share and C share and the NAV's attributable at the period end were as follows:
Ordinary share C share Net asset value Net assets Net asset value Net assets per share attributable per share attributable 30 April 2016 30 April 2016 30 April 2016 30 April 2016 pence £'000 pence £'000 Basic and diluted 54.91 60,392 52.63 29,475
NAV per Ordinary share is based on net assets at the period end and 109,990,000 Ordinary shares, being the number of Ordinary shares in issue at the period end. NAV per C share is based on net assets at the period end and on 56,000,000 C shares, being the number of C shares in issue at the period end. Net assets of £1.00 per Management share is based on net assets at the year end of £50,000 and attributable to 50,000 management shares at the year end. The shareholders have no right to any surplus capital or assets of the Company.
6 Transaction Costs
During the 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:
30 April 2016 Ordinary share C share £'000 £'000 Costs on acquisitions 107 18 Costs on disposals 5 - 112 18
These transaction costs are dealing commissions paid to stockbrokers and stamp duty, a Government tax paid on transactions (which is zero when dealing on the AIM/ISDX exchanges). A breakdown of these costs is set out below:
Ordinary share % of average monthly net assets in the C share % of average monthly net assets in the £'000 year £'000 year Costs paid in dealing commissions 75 0.13 13 0.05 Costs of stamp duty 37 0.07 5 0.02 112 0.20 18 0.07
The average monthly net assets of the Ordinary shares for the period to 30 April 2016 was £56,282,312. The average monthly net assets of the C shares from their launch in February 2016 to 30 April 2016 was £28,351,661. Investments are valued at fair value which is bid value for listed securities. Certain holdings may have been acquired at a price higher than the bid price.
7 Management Fee
The AIFM is entitled to receive from the Company in respect of its services provided under the Management Agreement, a management fee, for both the Ordinary share and C share classes, payable monthly in arrears calculated at the rate of 1% per annum of the market capitalisation of each share class as at the relevant calculation date. In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the AIFM is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month. The AIFM has agreed that, for so long as it remains the Company's investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower. The ongoing charges ratio for the period are 1.76% for the Ordinary shares and 1.47% for the C shares, and as such are below 2%. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.
Ordinary share C share 30 April 2016 30 April 2016 30 April 2016 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Management fee 147 441 588 14 43 57 161 484 645
At 30 April 2016, an amount of £104,000 for the Ordinary share pool and £49,000 for the C share pool were outstanding and due to Miton Trust Managers Limited in respect of management fees.
8 Other Expenses
30 April 2016 Ordinary share C share £'000 £'000 £'000 Secretarial services 122 - 122 Auditor's remuneration for: Audit of the Company's financial statements 25 - 25 Other services - - - Directors' fees 119 - 119 Other expenses 136 26 162 402 26 428
In addition to the Auditor's remuneration shown above £25,000 was charged on the Ordinary share issue and £34,000 was charged on the C share issue. These costs were capitalised in line with the prospectus. In respect of the C shares issue a £34,000 fee was incurred and was charged through finance costs. Therefore, audit remuneration for audit services was £25,000 and non audit services was £59,000 excluding VAT.
9 Finance Costs
Ordinary share C share 30 April 2016 30 April 2016 30 April 2016 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Finance Costs: Net Gain allocated to C shares                               -                                 -                                 -     -                   -                   -                 15          1,460          1,475 Expenses of C share issue                               -                                 -                                 -      -               528             528                -               528             528                               -                                 -                                 -     -               528             528               15          1,988          2,003
10 Taxation
Ordinary shares C shares 30 April 2016 30 April 2016 30 April 2016 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Overseas withholding tax suffered 4 - 4 - - - 4 - 4
Ordinary shares C shares 30 April 2016 30 April 2016 30 April 2016 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Return on ordinary activities before taxation 351 5,702 6,053 15 1,988 2,003 366 7,162 7,528 Theoretical tax at UK corporation tax rate of 20% 70 1,140 1,210 3 398 401 73 1,432 1,505 Effects of:  - UK dividends that are not taxable (145) - (145) (11) - (11) (156) - (156)  - Overseas dividends that are not taxable (35) - (35) - - - (35) - (35)  - Realised dealing gains - - - - - - - - -  - Non-taxable investment (gains)/losses - (1,229) (1,229) - (407) (407) - (1,530) (1,530)  - Overseas taxation suffered 4 - 4 - - - 4 - 4  - Disallowed expenses (2) - (2) 4 - 4 2 - 2  - Unrelieved expenses 112 89 201 4 9 13 116 98 214 Total tax charge 4 - 4 - - - 4 - 4
Factors that may affect future tax charges
At 30 April 2016, the Company had no unprovided deferred tax liabilities. At that date, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £1,061,766, that are available to offset future taxable revenue. A deferred tax asset of £211,504 has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments.
11 Investments
30 April 2016 Ordinary share C share £'000 £'000 £'000 Investment portfolio summary: Opening book cost - - - Opening unrealised gains - - - Total investments designated at fair value - - - Analysis of investment portfolio movements Opening valuation - - - Movements in the period: Purchases at cost 57,269 14,704 71,973 Sales - proceeds (4,217) (230) (4,447)           - (losses)/gains on sales (1,042) 62 (980) Increase in unrealised gains 7,185 1,969 9,154 Closing valuation 59,195 16,505 75,700 Closing book cost 52,010 14,536 66,546 Closing unrealised gains 7,185 1,969 9,154 59,195 16,505 75,700 30 April 2016 Ordinary share C share £'000 £'000 £'000 Analysis of capital (losses)/gains (Losses)/gains on sales of investments (1,042) 62 (980) Movement in unrealised gains 7,185 1,969 9,154 6,143 2,031 8,174
A list of the largest portfolio holdings by their fair value is shown above.
12 Fair Value Hierarchy
Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 - Valued using quoted prices, unadjusted in active markets for identical assets and liabilities. Level 2 - Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1. Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability. The table below sets out the fair value measurement of financial assets and liabilities in accordance with the fair value hierarchy.
Level 1 Level 2 Level 3 Total £'000 £'000 £'000 £'000 Financial assets at fair value through profit or loss at 30 April 2016 Equity investments Ordinary share portfolio 59,133 62 - 59,195 C share portfolio 16,505 - - 16,505 75,638 62 - 75,700 Level 1 Level 2 Level 3 Total £'000 £'000 £'000 £'000 Financial liabilities at 30 April 2016 C shares - - 29,475 29,475 - - 29,475 29,475
Reconciliation of Level 3 movements - Financial Liabilities Total As at 30 April 2016 Level 3 £'000 Opening fair value investments - C class share issue 28,000 Movement in fair value of the financial liability through profit or loss 1,475 Closing fair value of investments 29,475
13 Trade and Other Receivables
30 April 2016 Ordinary share C share £'000 £'000 £'000 Amount due from brokers 67 - 67 Dividends receivable 105 33 138 Prepayment and other debtors 27 - 27 C class fee rebate 22 - - 221 33 232
As at 30 April 2016 £22,000 was due from the C share class to the Ordinary share class. This has been excluded from the Company's Balance Sheet as at 30 April 2016.
14 Trade and Other Payables
30 April 2016 Ordinary share C share £'000 £'000 £'000 Amount due to brokers - 546 546 Other creditors 176 51 227 C class fee rebate 22 176 619 773
As at 30 April 2016 £22,000 was payable by the C share class to the Ordinary share class. This has been excluded from the Company's Balance Sheet as at 30 April 2016.
15 Capital Management Policies
The Company's capital management objectives are: § to ensure that it will be able to continue as a going concern; and § to maximise the income and capital return over the long term to its equity shareholders through an appropriate balance of equity capital and debt. As stated in the investment policy, the Company has authority to borrow up to 15% of net asset value through a mixture of bank facilities and certain derivative instruments. There were no borrowings as at 30 April 2016 or throughout the year. Also, as a public company the minimum share capital is £50,000.
30 April 2016 £'000 The Company's capital at 30 April comprised: Debt: Bank Overdraft Facility - Current liabilities: Trade and other payables 773 C shares 29,475 Equity: Equity share capital 160 Retained earnings and other reserves 60,232 Total shareholders' funds 90,640 Debt as a % of net assets 0.00%
The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: § the planned level of gearing, which takes into account the Investment Manager's view of the market; § the buy back shares for cancellation or treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium); § new issues of equity shares; and § the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital have remained unchanged since its launch.
16 Reserves
Share Capital Capital premium reserve reserve Revenue Ordinary shares account realised unrealised reserve To 30 April 2016 £'000 £'000 £'000 £'000 Opening balance - - - - Issue of Ordinary share at launch 49,900 - - - Expenses of Ordinary share issue at launch (1,000) - - - Issue of Ordinary share (Tap issue) 5,340 - - - Expenses of Ordinary share issue (Tap issue) (57) - - - Net loss on realisation of investments - (1,042) - - Unrealised net increase in value of investments - - 7,185 - Management fee charged to capital - (441) - - Revenue return on ordinary activities after tax - - - 347 54,183 (1,483) 7,185 347
17 Analysis of Financial Assets and Liabilities
Investment Objective and Policy The Company's investment objective and policy are detailed above. The Company's investing activities in pursuit of its investment objective involve certain inherent risks. The Company's financial instruments can comprise: § shares and debt securities held in accordance with the Company's investment objective and policies; § derivative instruments for efficient portfolio management, gearing and investment purposes; and § cash, liquid resources and short-term debtors and creditors that arise from its operations. The risks identified arising from the Company's financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period. Market Risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. Market price risk Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance and exposure are reviewed at each Board meeting. The Company's exposure to changes in market prices as at 30 April 2016 on its equity investments held at fair value through profit or loss was £75,700,000. A 10% increase in the market value of its listed equity investments at 30 April 2016 would have increased net assets attributable to shareholders by £7,570,000. An equal change in the opposite direction would have decreased the net assets and net profit available to shareholders by an equal and opposite amount. The analysis is based on closing balances only and is not representative of the year as a whole. Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits. The Company's financial assets and liabilities, excluding short-term debtors and creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair value may be affected by movements in interest rates. The majority of the Company's financial assets and liabilities, however, are non-interest bearing. As a result, the Company's financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. There was no exposure to interest bearing liabilities during the period ended 30 April 2016. The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions.
The interest rate profile of the Company (excluding short-term debtors and creditors) was as follows:
As at 30 April 2016 Weighted Average interest rate % Floating rate £'000s Fixed rate £'000 Assets and Liabilities: Fixed interest securities - - - Cash at bank - 14,708 - - 14,708 -
Foreign currency risk Although the Company's performance is measured in sterling, a proportion of the Company's assets may be either denominated in other currencies or in investments with currency exposure. Any income denominated in a foreign currency is converted into sterling upon receipt. At the Balance Sheet date, all the Company's assets were denominated in sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies. Liquidity Risk Liquidity risk is not significant as the majority of the Company's assets are investments in quoted equities and other quoted securities that are readily realisable. The Company's liquidity risk is managed on a daily basis by the Investment Manager in accordance with established policies and procedures in place. The Investment Manager reviews daily forward-looking cash reports which project cash obligations. These reports allow it to manage its obligations. A maturity analysis is not presented as the Investment Manager does not consider this to be a material risk. Credit and Counterparty Risk Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations The maximum exposure to credit risk as at 30 April 2016 was £14,940,000. The calculation is based on the Company's credit risk exposure as at 30 April 2016 and this may not be representative for the whole period. The Company's quoted investments are held on its behalf by Bank of New York Mellon acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls report. Where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default. Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. None of the Company's assets are past due or impaired.
18 Related Parties
The Directors who served in the year were entitled to the following emoluments in the form of fees:
Directors Fees Directors  Fees per Annum £'000 Directors Fees paid for the period £'000 Outstanding as at 30 April 2016 £'000 Andrew Pomfret (Chairman) 35 38 - Peter Dicks 25 27 - Jan Etherden 25 27 - Ashe Windham 25 27 -
19 Post Balance Sheet Events
The Company issued 56,000,000 C shares on 19 February 2016. Under the terms of the C share prospectus published on 4 February 2016, the C shares would be converted to Ordinary shares when at least 90% of the issue proceeds being invested by the Investment Manager. The Directors determined that the conversion ratio would be calculated on 14 July 2016 with the conversion date of 19 July 2016. The C shares were converted into Ordinary shares at a rate of 0.9630 Ordinary shares for each C share. As a result, 53,927,917 Ordinary shares were issued on 20 July 2016, resulting in a total of 163,917,917 Ordinary shares in issue. Accordingly a pro forma portfolio as at 31 July 2016 is presented in the Annual Report, available on the Company's website, to show the combined portfolio for the enlarged Company. The Company announced, on 2 August 2016, that an application for a block listing of 15,000,000 Ordinary shares in the Company had been made to the UK Listing Authority and to the London Stock Exchange. On 28 July 2016, the Company issued 850,000 Ordinary shares of £0.001 each at a price of 53.75 pence per Ordinary Share, a 2% premium to the closing net asset value (cum income) per Ordinary Share on 1 August 2016. Following the issue of the Ordinary Shares, the Company's issued share capital comprises 164,767,917 Ordinary Shares and this is the total number of Ordinary Shares with voting rights in the Company.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on 29 September 2016 at 2pm, at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm
ENDS
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

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