Half-year Report

RNS Number : 4560K

Miton UK MicroCap Trust plc

14 December 2018

 

MITON UK MICROCAP TRUST PLC
HALF-YEAR REPORT FOR THE HALF YEAR TO 31 OCTOBER 2018

The Directors present the Half-year Report of the Company for the half year to 31 October 2018.

Miton UK MicroCap Trust plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI. It is referred to as the Company or as MINI in the text of this Report. The Company's Board (which consists of four independent Directors) appoints the Investment Manager and is responsible for monitoring its performance.

Summary of Results

	31 October     2018	30 April     2018
Total net assets attributable to equity shareholders (£'000)	92,218	118,665
NAV per Ordinary share	60.41p	69.33p
Share price (mid)	57.00p	65.80p
Discount to NAV	(5.64)%	(5.09)%
Revenue return per Ordinary share	0.12p	0.27p
Total return per Ordinary share	(8.53)p	5.42p
Ongoing charges	1.47%*	1.41%
Ordinary shares in issue	152,653.822**	171,151,514

* Estimated as at 31 October 2018 in accordance with Association of Investment Companies ("AIC") guidelines. Ongoing charges are the Company's annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year.

** On 15 May 2018, the Company redeemed 18,497,692 Ordinary shares pursuant to its voluntary redemption facility.

Update on 2019 Annual Redemption

The Board has decided that the redemption date in 2019 will be moved from 30 April to the end of June, with the Redemption Point now intended to be 28 June 2019. As the existing timetable is so close to Brexit, including an indicated latest date for the receipt of redemption requests of 29 March 2019, the Board does not believe that keeping to the existing timetable, when markets may well be in a period of turmoil, is in the interest of shareholders taken as a whole. The Board retains the discretion to further amend this timetable given the ongoing uncertainty as to the eventual Brexit timetable as at the date of publication of this Report.

CHAIRMAN'S STATEMENT

This Half-year Report covers the six months to 31 October 2018, which has been a challenging period for markets, influenced by concerns over slowing world growth and, in the UK, the outcome of Brexit negotiations.

Returns

The FTSE AIM All-Share Index fell back 6.7% over the half year, whilst the FTSE SmallCap Index (excluding Investment Trusts) fell 9.0%. The smaller fall in the AIM All-Share Index was because many of the larger AIM growth stocks had performed well prior to the October setback.

The NAV of the Company fell 12.4% over the same period, somewhat behind its comparators. As outlined in the Manager's Report, the bulk of the return on the portfolio reflected the general move in markets, although the half-year outcome suffered when one of the longer-term holdings, Yu Group plc, fell sharply in October.

Generally, the Company has an objective to deliver an attractive capital return for shareholders over the longer term through investing in a diversified portfolio of overlooked microcap stocks. The first three and half years since the Company was listed have been marked by unusually strong momentum in larger AIM growth stocks, with the FTSE AIM All-Share Index up 29.5% over the period. Even so, the Company's NAV has appreciated by 11.4p per share or 23.3% over the same period, which compares favourably with the 10.5% capital gain on the FTSE SmallCap Index (excluding Investment Trusts).

Share Redemptions

The share price of the Company reflects the balance of buyers and sellers on the exchange, and hence when there is an imbalance, the share price can diverge from the NAV. In order to help ensure imbalances are kept to a minimum, the Company offers shareholders the option each year to redeem their shares. This year, 18,497,692 shares were redeemed at the end of April, representing around 10.8% of share capital.

The Board has decided that the redemption date in 2019 will be moved from 30 April to the end of June, with the Redemption Point now intended to be 28 June 2019. As the existing timetable is so close to Brexit, including an indicated latest date for the receipt of redemption requests of 29 March 2019, the Board does not believe that keeping to the existing timetable, when markets may well be in a period of turmoil, is in the interest of shareholders taken as a whole. The Board retains the discretion to further amend this timetable given the ongoing uncertainty as to the eventual Brexit timetable as at the date of publication of this Report.

Strategy

The Company principally invests in UK quoted companies with market capitalisations of up to £150 million - businesses typically with corporate agility and access to external capital.  Such companies have the advantage of being able to identify and fund promising projects that can make a transformational difference to their growth.  Thus, as a group, they have a long history of outperforming the mainstream indices.

In general, MINI seeks to invest in companies where the Manager believes their prospects have been overlooked since, over the longer term, companies with these characteristics tend to outperform other smaller stocks.  It is also not unusual for the share prices of faster growing companies to enjoy periods of strong performance, as indeed they have over the last few years. But eventually as markets move on, the Manager believes that overlooked value stocks tend to resume their prior trend of outperformance, thus re-establishing the longer-term pattern.

Towards the end of the half year, the share prices of some growth stocks fell more than those of other companies. If this becomes a trend, we believe the Company's strategy will come into its own. We will update shareholders on this in the monthly factsheets and in the annual report to 30 April 2019.

Prospects

The policy of Quantitative Easing ("QE") helped address the Global Financial Crisis in 2008, but possibly at the longer-term cost of a stagnation in global productivity (given that QE works by distorting market prices). However, QE and the plentiful market liquidity it brings is being phased out across the world.

Furthermore, after a decade of debt issuance in China, inflationary pressures have led to the authorities there bearing down on corporate lending to companies and individuals, even though this has led to a recession in industrial production. During October, the ongoing rise in US interest rates, combined with their position on global trade and tariffs, has brought all these counter-currents to a head, precipitating a broad pull back in share prices.

This is a moment when the three characteristics of our microcap approach, with a strong valuation discipline and a focus on financial robustness, could be of ever greater relevance. Specifically:

1.   Smaller, more agile stocks tend to have greater scope to buck a wider economic slowdown - hence their long history of outperformance. Generally, microcap stocks with a value bias have outperformed by an even greater margin.

2.   Microcaps operate across a wider range of industry sectors than those companies contained in the mainstream indices, which are increasingly dominated by giant global companies in a small number of sectors.  Consequently, their returns are not usually correlated with the daily or monthly moves of the larger quoted companies, which potentially offers diversification for investors.

3.   Lastly, a portfolio of holdings with resilient balance sheets can be a major advantage at a time when other over-borrowed companies may be forced to prioritise the needs of their lenders over their commercial interests.

For these reasons, we continue to believe that the Company is well positioned, despite the current unsettled nature of markets, with scope for renewed interest in the Company's microcap strategy moving forward.

Andy Pomfret

Chairman

13 December 2018

INVESTMENT MANAGER'S REPORT

Who are Miton?

Miton Group plc is an independent fund management company listed on the AIM exchange.

The day-to-day management of the Company's portfolio is carried out by Gervais Williams and Martin Turner, who have decades of experience researching many of the smallest UK quoted companies.

Gervais Williams

Gervais joined Miton in March 2011 and is Senior Executive Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies & Irish Equities at Gartmore. He was Fund Manager of the Year 2014, according to What Investment? He is chairman of the Quoted Companies Alliance, a director of the Investment Association, and also a member of the AIM Advisory Council.

Martin Turner

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

We are part of a close-knit team of four fund managers at Miton researching UK quoted stocks, with each manager having a record of delivering premium returns. This is always important, but especially so at the current time of changing political and economic dynamics.

How should progress be measured?

During globalisation, equity market returns have been so good for so long, that it has become customary for funds to determine their success by reference to the performance of the mainstream indices (rather than just in absolute terms, or relative to inflation). One side effect has been that most popular UK equity portfolios are now typically dominated by the largest 350 stocks listed on the London Stock Exchange.

However, with the changing political and economic agenda, we at Miton believe that it is in shareholders' interests to widen the range of opportunities going forward. Therefore, most Miton strategies in the UK are relatively wide ranging.

Although it is conventional for the success of MINI to be set in the context of the returns of comparative indices, we believe the ultimate source of sustained return will be the ability of the portfolio holdings to sustain productivity improvements, and growth in their aggregate cashflow.

How has the Company performed over the half year?

During the half year, equity markets fluctuated, although overall returns in the period were dominated by a market setback in October. Hence, over the six months, the FTSE AIM All-Share Index declined by 6.7%, whilst the FTSE SmallCap Index (excluding Investment Trusts) fell 9.0%. The first months of the half year were marked by further share price appreciation of stocks with growth prospects, particularly some of the larger stocks listed on the AIM exchange. Whilst the share prices of these fell back more abruptly when markets fell back in October, over the half year their overall performance generally enhanced the return of the FTSE AIM All-Share Index and it outperformed the FTSE SmallCap Index (excluding Investment Trusts).

The NAV of the Company fell 12.4% over the same period, which is disappointing. Specifically, MINI's portfolio tends to exclude larger AIM-listed stocks, so it missed out on some of the better performers during this half year. Furthermore, most holdings are selected on the basis that their prospects are overlooked by others, albeit that their share prices do not always move up in line with the movements of the wider market. Both features held back the Company's returns in the half year.

When markets peaked in October it was anticipated that the share prices of overlooked stocks would be less vulnerable. This was indeed the case for most of our holdings, with the Company's portfolio falling 7.7% during October, compared with an 11.1% fall of the FTSE AIM All-Share Index. However, this comparatively resilient performance would have been better had it not been for a setback in Yu Group, one of the Company's largest holdings.

Yu Group plc is an energy supply business that had performed well over many years, but this trend ended when its share price fell back precipitously in October. It announced that profits would be downgraded because it had not been making adequate provision for bad debts, and that some of its new customers had not used as much energy as expected in the early months of their new contracts. At the dtae of this Report, it had not issued any detail on its future profitability other than to confirm that it expects to continue to be profitable for the coming year. Given the heavily negative sentiment in markets in October, the Yu Group share price fell heavily on this news. This setback took 3.3% off the Company's overall returns over the six-month period, and hence offset the general resilience elsewhere in the portfolio. Importantly, Yu Group continues to have a strong balance sheet with net cash balances and therefore the company has scope to recover in time.

Is it appropriate for the Company's portfolio to run its winners?

One of the features of quoted smaller companies is their ability to expand sequentially for several years. When this occurs, their share prices can rise considerably over that time. This is especially evident when they are initially purchased at modest valuations at times when their prospects have not been appreciated. Whilst the main body of the portfolio has delivered the core return for shareholders, it is the presence of a number of winning stocks that has driven additional returns, given that a number of these holdings have been held whilst they appreciated strongly.

Hence, overall returns for shareholders have been maximised by running these winning stocks, since it ensures much of these extra gains are banked. However, the strategy of running winners needs to be considered in the context that such share prices are often more vulnerable, should the corporate news flow disappoint. For this reason we, as Managers, tend to be wary along the way.

Where the market capitalisation of a company runs considerably ahead of its underlying turnover, and immediate cash generation, then we believe the downside risks become tangible. In contrast, companies with substantial sales and cashflow tend to have greater intrinsic value. So as a rule, strong performers with relatively modest sales and cashflow tend to be trimmed at an earlier stage, as compared to those with greater underlying sales and cashflow, where the holdings are often left in place for a longer period.

Overall, this strategy has generated significant capital gains for our shareholders since launch. For example, the Company's holdings in Wey Education and Versarian were trimmed at an earlier stage than the holding in Zotefoams, which has been retained in full despite its major share price appreciation.

Overall, MINI's strategy aims to generate premium returns through identifying stocks with overlooked prospects, where their share price appreciation can be substantial if the business succeeds over the following years. When this leads to certain holdings becoming a more substantial part of the portfolio, we tend to take these profits earlier - particularly in the case of companies that have less immediate sales and cashflow.

How has the Company performed since its IPO three and half years ago?

Over the three and half years since issue, the FTSE All-Share Index has appreciated by 3.8% on a capital return basis. Generally, growth stocks have tended to be better performers in the period, with particularly strong performance from some of the largest AIM listed stocks, Hence the FTSE AIM All-Share Index has risen by 29.5% over the period. The average smaller quoted companies have outperformed more modestly, with the FTSE Small Cap Index (excluding Investment Trusts) rising 10.5% between April 2015 and October 2018. In comparison, the NAV of the Company has appreciated by 23.3% over the same period.

The Company's portfolio has a bias towards overlooked microcap stocks, because these tend to outperform others, including larger growth stocks, over the longer term. Since 1955, a UK microcap strategy, in combination with a bias towards overlooked stocks, has generated premium returns well above almost all others. Along the way, there are periods when growth stocks enjoy a period of catch-up as they are currently. But, as the valuations of growth stocks can ultimately over-anticipate their prospects, their returns as a group tend to fall back behind those of overlooked value stocks. We expect this pattern to repeat in due course and, when this occurs, we anticipate that the returns on the Company's portfolio have the potential to outperform most comparators.

What are the prospects for the Company?

During globalisation, a relatively narrow range of industrial sectors have come to the fore. In the UK, globalisation had left the FTSE 100 dominated by companies operating in the Pharmaceutical, Fast Moving Consumer Goods and Commodity sectors. In addition, certain financial sectors have also become substantial such as Insurance, Banking and Property.

Unfortunately, globalisation has had a similar influence on most of the other developed economies, and this explains why international market indices now tend to move together in sync with each other.

At a time when markets are rising, this issue is not of great import. However, during 2018, stock markets across the world have become more unsettled, as the easy liquidity of QE has been phased out across the world. As market valuations have declined, and markets have fallen back somewhat, investors have become intensely interested in assets that offer a degree of diversification.

One of the characteristics of the microcap investment universe is its representation over a much wider range of industry sectors than the mainstream indices. Hence, the fluctuations in microcap share prices tend to be somewhat less synchronised, which means there are real diversification benefits for those who hold both. We expect this feature to lead to a long period of increasing asset allocation to UK microcaps, which will help drive their outperformance.

Gervais Williams and Martin Turner

13 December 2018

PORTFOLIO INFORMATION

as at 31 October 2018

Rank	Company	Sector & main activity	Valuation £'000	% of net assets	Yield* %
1	Kape Technologies	Technology	3,609	3.9	-
2	Frontier IP Group	Industrials	2,699	3.0	-
3	Zotefoams	Basic Materials	2,653	2.9	1.1
4	Cerillion	Technology	2,619	2.8	3.1
5	Nanoco Group	Technology	2,573	2.8	-
6	Aquis Exchange	Financials	2,437	2.6	-
7	Corero Network Security	Technology	2,234	2.4	-
8	Kromek Group	Health Care	2,193	2.4	-
9	Bilby	Industrials	1,982	2.1	2.6
10	Conygar Investment Company	Financials	1,948	2.1	-
Top 10 investments			24,947	27.0
11	BATM Advanced Communications	Technology	1,741	1.9	-
12	Science in Sport	Consumer Goods	1,690	1.8	-
13	Mind Gym	Industrials	1,629	1.8	-
14	Diversified Gas & Oil	Oil & Gas	1,514	1.6	5.3
15	Scientific Digital Imaging	Health Care	1,480	1.6	-
16	CML Microsystems	Technology	1,385	1.5	1.7
17	Versarien	Basic Materials	1,291	1.4	-
18	Van Elle Holdings	Industrials	1,280	1.4	5.6
19	Brighton Pier Group	Consumer Services	1,267	1.4	-
20	Eland Oil & Gas	Oil & Gas	1,266	1.4	-
Top 20 investments			39,490	42.8
21	Inspired Energy	Industrials	1,251	1.4	2.9
22	STM Group	Financials	1,227	1.3	3.3
23	Game Digital	Consumer Services	1,209	1.3	-
24	Centralnic Group	Technology	1,147	1.3	-
25	Rockrose Energy	Oil & Gas	1,140	1.2	-
26	Avesoro Resources	Basic Materials	1,128	1.2	-
27	Amino Technologies	Technology	1,042	1.1	5.6
28	Yu Group	Utilities	1,026	1.1	1.2
29	Hydrodec Group	Utilities	1,016	1.1	-
30	Oxford Biodynamics	Health Care	991	1.1	-
Top 30 investments			50,667	54.9
31	Caledonia Mining Corporation	Basic Materials	947	1.0	6.3
32	Fulcrum Utility Services	Utilities	947	1.0	3.4
33	Cropper (James)	Basic Materials	933	1.0	1.1
34	Simec Atlantis Energy	Utilities	900	1.0	-
35	Ingenta	Technology	900	1.0	1.4
36	Hydrogen Group	Industrials	896	1.0	2.9
37	Inspiration Healthcare Group	Health Care	894	1.0	-
38	Oxford Metrics	Technology	888	1.0	1.7
39	Anglo African Oil & Gas	Oil & Gas	885	1.0	-
40	Wey Education	Industrials	865	0.9	-
Top 40 investments			59,722	64.8
Balance held in 73 equity instruments			29,043	31.5
Total investment portfolio			88,765	96.3
Other net current assets			3,453	3.7
Net assets			92,218	100.0

*Excludes special dividends

Portfolio exposure by sector
Technology		25.5%
Industrials		19.0%
Financial Services		13.1%
Basic Materials		11.0%
Oil & Gas		10.8%
Health Care		6.6%
Consumer Services		5.9%
Consumer Goods		4.9%
Utilities		3.2%
		£88.8m
Actual annual income by sector
Technology	41.7%
Industrials	31.2%
Financial Services	13.0%
Basic Materials	7.3%
Utilities	5.5%
Consumer Goods	1.0%
Consumer Services	0.3%
	£0.58m

Portfolio by asset allocation
AIM	83.8%
Other UK Equities	6.3%
FTSE SmallCap Index	5.9%
FTSE Fledgling Index	4.0%
	£88.8m

Portfolio by spread of investment income
AIM	90.8%
FTSE Fledgling Index	4.5%
Other UK Equities	3.0%
FTSE SmallCap Index	1.7%
	£0.58m

Source: Interactive Data.

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT

Interim Management Report

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Investment Manager's Report above.

The principal risks facing the Company are substantially unchanged since the date of the Annual Report and Accounts for the year ended 30 April 2018 and remain as set out in that report on pages 20 and 21.

Risks faced by the Company include, but are not limited to, investment and strategy, reliance on third parties, share price volatility and liquidity/marketability risk, costs of operation, regulatory risk/change in tax status, market risk, liquidity risk and credit and counterparty risk.

Responsibility Statement

The Directors confirm that to the best of their knowledge:

·      the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities, financial position and loss of the Company; and

·      this Half-year Report includes a fair review of the information required by:

a)     DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)     DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

This Half-year Report was approved by the Board of Directors on 13 December 2018 and the above responsibility statement was signed on its behalf by Andy Pomfret, Chairman.

CONDENSED INCOME STATEMENT

for the half year to 31 October 2018

		Half year to 31 October 2018			Half year to 31 October 2017			Year ended 30 April 2018
	Note	Revenue  return  £'000	Capital  return  £'000	Total  £'000	Revenue  return  £'000	Capital return  £'000	Total  £'000	Revenue  return  £'000	Capital  return  £'000	Total  £'000
(Losses)/Gains on investments held at fair value through profit or loss		-	(12,915)	(12,915)	-	2,726	2,726	-	9,644	9,644
Foreign exchange losses		-	-	-	-	(2)	(2)	-	(14)	(14)
Income	2	581	-	581	688	-	688	1,270	-	1,270
Management fee	8	(128)	(383)	(511)	(133)	(400)	(533)	(270)	(811)	(1,081)
Other expenses		(268)	-	(268)	(263)	-	(263)	(511)	-	(511)
Return/(loss) on ordinary activities before finance costs and taxation		185	(13,298)	(13,113)	292	2,324	2,616	489	8,819	9,308
Finance costs	9	(6)	(18)	(24)	-	-	-	(3)	(7)	(10)
Return/(loss) on ordinary activities before taxation		179	(13,316)	(13,137)	292	2,324	2,616	486	8,812	9,298
Taxation		-	-	-	-	-	-	(22)	-	(22)
Return/(loss) on ordinary activities after taxation		179	(13,316)	(13,137)	292	2,324	2,616	464	8,812	9,276
		pence	pence	pence	pence	pence	pence	pence	pence	pence
Return/(loss) on ordinary activities for the year analysed as follows: Return/(loss) per Ordinary share (pence)	3	0.12	(8.65)	(8.53)	0.17	1.36	1.53	0.27	5.15	5.42

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

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

The accompanying notes are an integral part of these financial statements.

CONDENSED STATEMENT OF CHANGES IN EQUITY

for the half year to 31 October 2018

	Note	Share  capital  £'000		Share  premium  account  £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue  reserve  £'000		Total  £'000
As at 30 April 2018		221		86,986	2	30,670	786		118,665
Total comprehensive income:
Net return for the period		-		-	-	(13,316)	179		(13,137)
Transactions with shareholders recorded directly to equity:
Redemption of Ordinary shares	5	(18)		-	18	(12,760)	-		(12,760)
Equity dividends paid	4	-		-	-	-	(550)		(550)
As at 31 October 2018		203		86,986	20	4,594	415		92,218
As at 30 April 2017		223	86,986		-	23,099	938	111,246
Total comprehensive income:
Net return for the period		-	-		-	2,324	292	2,616
Transactions with shareholders recorded directly to equity:
Redemption of Ordinary shares	5	(2)	-		2	(1,241)	-	(1,241)
Equity dividends paid	4	-	-		-	-	(616)	(616)
As at 31 October 2017		221	86,986		2	24,182	614	112,005
As at 30 April 2017		223	86,986		-	23,099	938	111,246
Total comprehensive income:
Net return for the period		-	-		-	8,812	464	9,276
Transactions with shareholders recorded directly to equity:
Redemption of Ordinary shares	5	(2)	-		2	(1,241)	-	(1,241)
Equity dividends paid	4	-	-		-	-	(616)	(616)
As at 30 April 2018		221	86,986		2	30,670	786	118,665

The accompanying notes are an integral part of these financial statements.

CONDENSED BALANCE SHEET

as at 31 October 2018

	Note	31 October 2018 £'000	31 October 2017 £'000	30 April 2018 £'000
Non-current assets:
Investments held at fair value through profit or loss		88,765	107,376	103,003
Current assets:
Trade and other receivables		192	536	1,241
Cash at bank and cash equivalents		3,419	5,869	14,595
		3,611	6,405	15,836
Total assets		92,376	113,781	118,839
Liabilities and equity Liabilities:
Trade and other payables		158	1,776	174
Total liabilities		158	1,776	174
Equity:
Share capital	5	203	221	221
Share premium account		86,986	85,745	86,986
Capital reserve		4,594	25,423	30,670
Capital redemption reserve		20	2	2
Revenue reserve		415	614	786
Total equity		92,218	112,005	118,665
Total liabilities and equity		92,376	113,781	118,839
		pence	pence	pence
Net asset value per Ordinary share	6	60.41	65.44	69.33

The accompanying notes are an integral part of these financial statements.

CONDENSED STATEMENT OF CASH FLOWS

for the half year to 31 October 2018

	Half year to  31 October  2018  £'000	Half year to  31 October  2017  £'000	Year ended  30 April  2018  £'000
Operating activities:
Net (loss)/return before taxation	(13,137)	2,616	9,298
Loss/(gain) on investments held at fair value through profit or loss	12,915	(2,726)	(9,644)
Decrease in trade and other payables	80	39	46
(Decrease)/increase in trade and other payables	(25)	1	9
Exclude finance costs	24	-	10
Withholding tax paid	-	-	(22)
Net cash outflows from operating activities	(143)	(70)	(303)
Investing activities:
Purchase of investments	(16,989)	(12,823)	(24,235)
Sale of investments	19,295	17,376	37,764
Net cash inflow from investing activities	2,306	4,553	13,529
Financing activities:
Redemption of Ordinary shares	(12,760)	(1,241)	(1,241)
Equity dividends paid	(550)	(616)	(616)
Finance costs paid	(29)	-	(19)
Net cash outflows from financing activities	(13,339)	(1,857)	(1,876)
(Decrease)/increase in cash and cash equivalents	(11,176)	2,626	11,350
Reconciliation of net cash flow movement in funds:
Cash and cash equivalents at the start of the period	14,595	3,245	3,245
Net cash (outflow)/inflow from cash and cash equivalents	(11,176)	2,626	11,350
Exchange rate movements	-	(2)	-
Cash at the end of the period	3,419	5,869	14,595

The accompanying notes are an integral part of these financial statements.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1.    Significant Accounting Policies

Basis of preparation

The condensed financial statements of the Company have been prepared in accordance with IAS 34 - Interim Financial Reporting as adopted by the European Union. The accounting policies and methods of computation followed in these half-year financial statements are consistent with the most recent annual financial statements for the year ended 30 April 2018.

The functional currency of the Company is pounds sterling because this is the currency of the primary economic environment in which the Company operates. The financial statements are also presented in pounds sterling rounded to the nearest thousands, except where otherwise indicated.

The financial information contained in this Half-year Report does not constitute statutory accounts as defined in Section 435(1) of the Companies Act 2006. The financial information for the periods ended 31 October 2018 and 31 October 2017 have not been audited or reviewed by the Company's Auditor. The figures and financial information for the year ended 30 April 2018 are an extract from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

Going concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence 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 and on the basis that approval as an investment trust company will continue to be met.

2.       Income

	Half year to 31 October 2018 £'000	Half year to 31 October 2017 £'000	Year ended 30 April 2018 £'000
Income from investments:
UK dividends	326	535	950
Unfranked dividend income	255	150	317
Bank interest	-	3	3
Total income	581	688	1,270

3.       Return per Ordinary Share

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

	Half year to 31 October 2018			Half year to 31 October 2017			Year ended 30 April 2018
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
Net profit (£'000)	179	(13,316)	(13,137)	292	2,324	2,616	464	8,812	9,276
Weighted average number of shares in issue			154,061,255			171,298,703			171,225,713
Return per share (pence)	0.12	(8.25)	(8.53)	0.17	1.36	1.53	0.27	5.15	5.42

4.       Dividends per Ordinary Share

	Half year to 31 October 2018		Half year to 31 October 2017		Year ended 30 April 2018
	£'000	pence	£'000	pence	£'000	pence
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 30 April 2017	-	-	616	0.36	616	0.36
Final dividend for the year ended 30 April 2018	550	0.36	-	-	-	-
	550	0.36	616	0.36	616	0.36

5.       Called-up Share Capital

	Half year to 31 October 2018		Half year to 31 October 2017		Year ended 30 April 2018
	Number	£'000	Number	£'000	Number	£'000
Ordinary shares of £0.001 each
Opening balance	171,151,514	171	173,086,001	173	173,086,001	173
Redemptions	(18,497,692)	(18)	(1,934,487)	(2)	(1,934,487)	(2)
	152,653,822	153	171,151,514	171	171,151,514	171

	Half year to 31 October 2018		Half year to 31 October 2017		Year ended 30 April 2018
	Number	£'000	Number	£'000	Number	£'000
Management shares of £1 each	50,000	50	50,000	50	50,000	50

On 15 May 2018, the Company redeemed 18,497,692 Ordinary shares pursuant to its voluntary redemption facility. The Ordinary shares were redeemed at a price of 68.98 pence per Ordinary share, costing £12.8 million including expenses.

As at 31 October 2018, there were 152,653,822 Ordinary shares and 50,000 Management shares in issue.

6.       Net Asset Value per Share

Ordinary shares

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

	NAV per Ordinary share 31 October 2018	Net assets attributable 31 October 2018	NAV per Ordinary share 31 October 2017	Net assets attributable 31 October 2017	NAV per Ordinary share 30 April 2018	Net assets attributable 30 April 2018
	pence	£'000	pence	£'000	pence	£'000
Basic and diluted	60.41	92,218	65.44	112,005	69.33	118,665

NAV per Ordinary share is based on net assets at the period end and 152,653,822 Ordinary shares, being the number of Ordinary shares in issue at the period end (31 October 2017: 171,151,514 Ordinary shares; 30 April 2018: 171,151,514 Ordinary shares).

Management shares

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

7.       Transaction Costs

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

	Half year to 31 October 2018	Half year to 31 October 2017	Year ended 30 April 2018
	£'000	£'000	£'000
Costs on acquisitions	10	7	23
Costs on disposals	33	30	64
	43	37	87

	Half year to 31 October 2018 £'000	% of average monthly net assets in the period	Half year to 31 October 2017 £'000	% of average monthly net assets in the period	Year to 30 April 2018 £'000	% of average monthly net assets in the period
Costs paid in dealing commissions	38	0.04	37	0.03	78	0.07
Costs of stamp duty	5	-	-	-	9	0.01
	43	0.04	37	0.03	87	0.08

The average monthly net assets for the six months to 31 October 2018 was £105,044,873 (six months to 31 October 2017: £110,392,000; year to 30 April 2018: £113,142,399).

These costs do not include the costs of investing capital and the bid-offer spread on securities in the portfolio. 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.

8.       Management Fee

	Half year to 31 October 2018			Half year to 31 October 2017			Year ended 30 April 2018
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Management fee	128	383	511	133	400	533	270	811	1,081

The Investment Manager is entitled to receive from the Company in respect of its services provided under the Management Agreement a management fee payable monthly in arrears calculated at the rate of 1% per annum of the market capitalisation 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 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.

At 31 October 2018, an amount of £78,000 (31 October 2017: £92,000; 30 April 2018: £91,000) was outstanding and due to Miton Trust Managers Limited in respect of management fees.

9.       Finance Costs

	Half year to 31 October 2018			Half year to 31 October 2017			Year ended 30 April 2018
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
RBS £7.5m revolving loan facility arrangement fee	5	16	21	-	-	-	1	1	2
RBS £7.5m revolving loan facility non-utilisation fee	1	2	3	-	-	-	2	6	8
	6	18	24	-	-	-	3	7	10

10.     Fair Value Hierarchy

The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. 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.

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.
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 tables below set out fair value measurement of financial assets and financial liabilities in accordance with the fair value hierarchy into which the fair value measurement is categorised.

Financial assets

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Financial assets at fair value through profit or loss at 31 October 2018
Equity investments	88,035	355	375	88,765
	88,035	355	375	88,765

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Financial assets at fair value through profit or loss at 31 October 2017
Equity investments	106,775	575	29	107,376
	106,775	572	29	107,376

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Financial assets at fair value through profit or loss at 30 April 2018
Equity investments	100,463	136	2,404	103,003
	100,463	136	2,404	103,003

Reconciliation of level 3 movements - financial assets

	As at  31 October 2018  Level 3  £'000	As at 31 October  2017 Level 3 £'000	As at  30 April 2018  Level 3  £'000
Opening fair value investments	2,404	29	29
Transfer(to)/from level 1	(2,007)	-	2,007
Transfer from level 2	-	-	375
Sale proceeds	(36)	-	-
Movement in investment holdings gains/(losses)	14	-	(7)
Closing fair value of investments	375	29	2,404

During the period, Atlantis Resources and Centralnic Group were both readmitted to AIM and the Company's investments of £1,477,000 and £530,000 respectively were reclassified from Level 3 to Level 1.

Specialist Investment Properties is considered a level 3 investment at 31 October 2018 as the company has delisted. The fair value of this investment is based on anticipated future cash returns.

11. Transactions with the Investment Manager and Related Parties

The amounts paid and payable to the Investment Manager pursuant to the management agreement are disclosed in note 8. There were no other identifiable related parties at the half-year end.

INVESTMENT OBJECTIVE AND POLICY

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 £150m 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.

SHAREHOLDER INFORMATION

Capital Structure

The Company's share capital consists of Ordinary shares of £0.001 each ("Ordinary shares") with one vote per share and non-voting Management shares of £1 each ("Management shares"). The Ordinary shares shall be redeemable in accordance with the Articles of Association of the Company. From time to time, the Company may issue C ordinary shares of £0.01 each ("C shares") with one vote per share.

As at 31 October 2018 and the date of this report, there are 152,653,822 Ordinary shares in issue, none of which are held in treasury, and 50,000 Management shares.

Redemption of Ordinary Shares

The Company has a voluntary 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. The next Redemption Point for the Ordinary shares will be 30 June 2019. Redemption Request forms are available upon request from the Company's Registrar.

Shareholders submitting valid requests for the redemption of Ordinary shares will have their shares redeemed at the Redemption Price. The Directors may elect, at their absolute discretion, to calculate the Redemption Price applying on any redemption point by reference to the Dealing Value per Ordinary share or by reference to a separate Redemption Pool.

The Board may, at its absolute discretion, elect not to operate the annual redemption facility on any given Redemption Point, or to decline in whole or part any redemption request, although the Board does not generally expect to exercise this discretion, save in the interests of shareholders as a whole.

A redemption of Ordinary shares may be subject to either income tax or capital gains tax. In particular, private shareholders who sell their shares via the redemption mechanism could find they are subject to income tax on the gains made on the redeemed shares rather than the more usual capital gains tax on the sale of their shares in the market. However, individual circumstances do vary, so shareholders who are in any doubt about the redemption or the action that should be taken, should consult their stockbroker, accountant, tax adviser or other independent financial adviser.

Full details of the redemption facility are set out in the Company's Articles of Association or are available from the Secretary.

June 2019 Redemption Point

As disclosed in the Chairman's Statement above, the Board has decided that the redemption date in 2019 will be moved from 30 April to the end of June. The Board retains the discretion to further amend this timetable given the ongoing uncertainty as to the eventual Brexit timetable as at the date of publication of this Report.

The following are the relevant dates for the June 2019 Redemption Point:

31 May 2019	Latest date for receipt of Redemption Requests for certificated shares
3.00 pm on 31 May 2019	Latest date for receipt of Redemption Requests and TTE (Transfer to Escrow) instructions for uncertificated shares via CREST
5.00 pm on 28 June 2019	Redemption Point
By 12 July 2019	Company to notify Redemption Price and dispatch redemption monies; or If the redemption is to be funded by way of a Redemption Pool, Company to notify the number of shares being redeemed. Notification of Redemption Price and dispatch of redemption monies to take place as soon as practicable thereafter.
By 26 July 2019	Balance certificates to be sent to shareholders

Share Dealing

Shares can be traded through your usual stockbroker.

Share Prices

The Company's Ordinary shares are listed on the London Stock Exchange.

Share Register Enquiries

The register for the Ordinary shares is maintained by Link Asset Services. In the event of queries regarding your holding, please contact the Registrar on 0871 664 0300 (calls cost 12p per minute plus network charges) or email [e-mail].

Changes of name and/or address must be notified in writing to the Registrar: Link Asset Services, Shareholder Services Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

Investment Manager: Miton Trust Managers Limited

The Company's Investment Manager is Miton Trust Managers Limited, a wholly-owned subsidiary of Miton Group plc. Miton Group is a leading multi-asset and equity fund management specialist listed on the AIM market for smaller and growing companies. The Investment Manager has also been appointed as the Company's Alternative Investment Fund Manager under the Alternative Investment Fund Managers' Directive.

As at 31 October 2018, the Miton Group had £4.9bn of assets under management.

Members of the fund management team invest in their own funds and are significant shareholders in the Miton Group.

Investor updates in the form of monthly factsheets are available from the Company's website, www.mitongroup.com/micro.

Financial Calendar

Year end	30 April 2019
Redemption Point	30 June 2019
2019 full year results announced	June 2019
Annual General Meeting	August 2019
Half year end	31 October 2019
2019 half year results announced	December 2019
Ticker code	MINI

ADVISERS

Investment Manager and Alternative Investment Fund Manager Miton Trust Managers Limited Paternoster House 65 St Paul's Churchyard London EC4M 8AB	Registrar and Transfer Office Link Asset Services Shareholder Services Department The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: [phone] (calls will cost 12p per minute plus network charges) Email: [e-mail] Website: www.linkassetservices.com
Company website www.mitongroup.com/micro
Auditor Ernst & Young LLP 25 Churchill Place Canary Wharf London E14 5EY
Company Administrator Link Alternative Fund Administrators Limited Beaufort House 51 New North Road Exeter EX4 4EP	Solicitor Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH
Depositary and Custodian The Bank of New York Mellon (International) Limited 1 Canada Square London E14 5AL	Stockbroker Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET

DIRECTORS AND SECRETARY

Directors (all non-executive) Andy Pomfret Chairman Peter Dicks Jan Etherden Ashe Windham, CVO

Company Secretary and Registered Office Link Company Matters Limited Beaufort House 51 New North Road Exeter EX4 4EP Telephone: [phone]

An investment company as defined under Section 833 of the Companies Act 2006.

Registered in England No. 09511015.

A member of the Association of Investment Companies.

The Half-year Report will be posted to shareholders shortly. The Report will also be available for download from the following website: www.mitongroup.com/micro or on request from the Company Secretary.

National Storage Mechanism

A copy of the Half-year Report will be submitted 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.

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

LEI: 21380048Q8UABVMAG916

 

END

 

 

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