Annual Financial Report

RNS Number : 2860R

Miton UK MicroCap Trust plc

29 June 2020

 

MITON UK MICROCAP TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 APRIL 2020
The Directors present the Annual Financial Report of Miton UK MicroCap Trust plc ("the Company") for the year ended 30 April 2020. The full Report and Accounts can be accessed shortly via the Company's website, https://www.mitongroup.com/private/fund/miton-uk-microcap-trust-plc/, or by contacting the Company Secretary on 01392 477500. Miton UK MicroCap Trust plc is an investment trust quoted on the London Stock Exchange ("LSE") under the ticker code MINI. It is referred to as the Company, MINI or the Trust in the text of this Report. The Board, which consists of four independent Directors, appoints the Investment Manager and is responsible for monitoring the Trust's performance. After the Trust's listing in April 2015, its net asset value (NAV) rose from 49.0p to 71.6p in June 2018. With worries about the imminent nature of Brexit, and more recently the global pandemic and highly volatile markets, the NAV fell back to 37.2p on 18 March 2020, although in the final weeks of the Company's accounting year, the NAV has recovered to finish at 51.33p. This report outlines why the Trust's portfolio ended the year to April 2020 in resilient form, at a time when a global recession is threatening economies.
STRATEGIC REPORT
RESULTS FOR THE YEAR TO 30 APRIL 2020
· Over the year, the Ordinary share NAV moved from 56.13p on 30 April 2019 to 51.33p on 30 April 2020, a total return including dividend reinvested of  8.2%. As at close of business on 25 June 2020, the closest date to this Report, the Ordinary share NAV was 57.55p and the share price was 48.00p. · The Ordinary share price moved from 54.40p at 30 April 2019 to 43.35p at 30 April 2020, a total return including dividend reinvested of minus 20.0%. · Revenue return at £81,000 was 0.06p per share for the year to 30 April 2020, which compares with £307,000 for last year, 0.20p per share. A number of holdings that paid high dividend yields were either sold or taken over prior to the year under review, and the proceeds reinvested into stocks that had been more overlooked with greater potential, in anticipation that they would deliver better returns over time.  In the final two months of the Company's financial year end, a number of investee companies also opted to cancel or defer dividend due to uncertainties relating to COVID-19. In the final two months of the Company's financial year end, a number of investee companies also adopted to cancel or defer dividends due to uncertainties relating to COVID-19. · The Company-held derivative contracts contributed £2,016,000 in the year to 30 April 2020 compared to a loss of £241,000 in the prior year. The overall loss was £6,737,000 in the current year compared to a loss of £19,962,000 in the prior year. This amounted to a loss of 4.73p per share and a loss of 13.03p in the prior year. · At the Company's general meeting held on 23 July 2019, a special resolution was passed that enabled that balance standing to the credit of the share premium account of the Company as at July 2019 to be cancelled and credited to a reserve. Following the approval of the Court and the subsequent registration of the Court order with Registrar of Companies on 13 August 2019, the cancellation become effective on 13 August 2019. Accordingly, the amount of £86,986,618 previously held in the share premium account was cancelled and transferred to a reserve. · The Company offers all investors the opportunity to redeem their shareholding each year, which clears any overhanging sellers and hence is designed to ensure that the market price of the Company does not deviate too far from the underlying NAV. Redemption requests in relation to 27,061,157 Ordinary shares, or 19.56% of the Company's share capital, were received for the 30 June 2020 Redemption Point and are not reflected in the summary below. The redemption mechanism is explained further within the full Report.
SUMMARY OF RESULTS
30 April 2020 30 April 2019 Total net assets attributable to equity shareholders (£'000)1 71,011 85,679 NAV per Ordinary share2 51.33p 56.13p Share price (mid) 43.35p 54.40p Discount to NAV2 (15.55)% (3.08)% Revenue return per Ordinary share 0.06 0.20p Total return per Ordinary share2 (4.67)p (12.83)p Ongoing charges2,3 1.68% 1.52% Ordinary shares in issue 138,335,915 152,653,822
1 After payment of redemption proceeds and cancellation of shares in June 2019: £12,761,000 (June 2017: £1,241,000). 2 Alternative Performance Measure ('APM'). Details provided in the Glossary below. 3 The ongoing charges are calculated in accordance with AIC guidelines.
CHAIRMAN'S STATEMENT
This is the fifth annual report since the Trust was issued, and covers the year to 30 April 2020, a period in which a new government was elected with a clear majority in the UK; however, global stock market suffered a major setback late in the period due to the COVID-19 pandemic and the resulting global recession. At the time of writing it is impossible to say how long the recession will last and what the long term implications of the pandemic will be. Returns As in the previous year, many investors held back from investing in UK quoted microcaps due to the imminent Brexit vote. Although this pattern changed with the clear UK election result, this was later overshadowed by a stock market setback when the UK, in common with many other countries implemented a policy of "lockdown" to reduce the loss of life from the global pandemic. Over the year to the April 2020, the FTSE SmallCap Index (excluding Investment Trusts) Index fell 20.7% in total return terms including dividend income, and the FTSE AIM All-Share Index fell by 15.2%, both much in line with the FTSE All Share Index that fell 16.6%. In comparison, the total return of the Trust, including the NAV performance and the dividends to shareholders, only fell by 8.2%. When the Trust was first listed, its NAV rose from 49.0p in April 2015 to 71.6p in June 2018. However, as Brexit approached the NAV of the Trust suffered a reversal. This trend persisted into the early part of the year under review, and when markets sold off during the global pandemic, the Trust's NAV reached a low of 37.2p on 18 March 2020. In the final couple of months of the period under review, the Trust's NAV staged a recovery as certain UK quoted microcaps not only survived but thrived in the prevailing economic climate. The Trust's NAV per share finished at 51.33p per share, and with the final dividend income taken into account (see below) the total return was minus 8.2% over the year to April 2020. This annual return includes a revenue return per share of 0.06p over the year, which compares with 0.20p per share last year. A final dividend of 0.10p per has share has been declared. It has always been anticipated that, over time, capital appreciation would be the principal driver of the Trust's return. During the five-year period since launch on 28 April 2015, the UK voted to leave the EU in 2016, after that many investors scaled back their allocations to UK quoted companies. Effectively, there has been something of a one-off Brexit headwind over recent years that has offset the long-term microcap tailwind.  The outcome is that the Trust's total return over the five years since issue has been modest at 6.0%. This return compares to that of the FTSE SmallCap Index (excluding Investment Trusts) that was down 1.0%, the FTSE AIM All Share Index that was up 15.2% and the FTSE All Share Index that was up 4.8%. Litigation The Company is one of more than 45 defendants to proceedings filed in June 2019 by Howard M. Ehrenberg, in his capacity as the liquidating trustee of Orion Healthcorp, Inc., (the "Trustee") in the United States Bankruptcy Court in the Eastern District of New York arising from the takeover of Constellation Healthcare Technologies, Inc. In January 2017 the Trust was a shareholder in the Company at that time and received takeover proceeds of US$1.73M. In November 2019, the Company moved to dismiss the proceedings on the grounds that the United States Bankruptcy Court does not have jurisdiction over the Company and further intends to dispute the claim on multiple additional grounds. The Trustee's opposition to that motion is due later in 2020. Share Redemptions The Trust's share price reflects the balance of buyers and sellers in the market, so when there is an imbalance, its share price can diverge from the Trust's NAV. For example, towards the end of the year under review, the Trust's share price did not keep up with the recovery of its NAV, leading to an unusually large discount of 15.5% at the end of April 2020. In order to ensure that these kinds of imbalances do not persist, the Trust offers all shareholders the option to redeem their shares each year.At the previous redemption point at the end of June 2019, 14,317,907 shares were offered for redemption, amounting to 9.4% of the then share capital. Shareholders who submitted redemption requests before 2 June 2020 were able to participate in the forthcoming redemption point at end of June 2020.  The board expects that redemptions will be funded by transferring a pro rata tranche of all the Trust's holdings into a redemption pool portfolio and selling these into the stock market. This may take some weeks or months to complete and will incur transaction costs that will be borne by the shareholders electing to redeem. AGM At this stage it is not known whether it will be possible for shareholders to attend the Trust's AGM in September 2020. The wellbeing of our shareholders is important to us and if the AGM proceeds as a physical meeting then, in light of current restrictions on public gatherings as a result of the COVID-19 pandemic, shareholders may not be able to attend the AGM in person. I therefore encourage you to vote on the resolutions by proxy, and not to attend in person. Further updates on the AGM will be made available via an announcement to the London Stock Exchange and through statements on our website. Prospects The decade up to 2019 was defined by extra borrowing. The surge of low-cost imports kept inflation and interest rates low. Alongside, when global growth wobbled, central banks reached for more and more Quantitative Easing ("QE") so that their banks kept lending. Whilst global growth may have been patchy over this period, there was a form of economic equilibrium because whenever corporate debts became due, there was always someone prepared to relend to them. Stock markets appreciated as well, because even these quoted companies that were not generating cashflow could afford to boost their dividends using extra debt that was cheap and plentiful. Heavily cash consumptive growth stocks also performed particularly well during this period, as there was easy access to plentiful risk capital. With the pandemic, an abrupt and deep global recession has now destabilised the previous equilibrium. Most businesses have either suffered an alarming drop in demand, or supply, or both.  Whilst the government has stepped in to bridge the huge shortage of corporate cashflow for now, this is only a temporary fix. With the major setback in profitability, numerous corporates now find themselves exceptionally short of cash. So, for at least the coming year, the ongoing pressure on corporate profitability and cashflow will continue to cause many companies to radically restructure or even fail. This is a big moment for investors, because the past decades of plentiful cash and risk capital have abruptly dried up. It isn't just that dividends are being passed. We should anticipate that quite a few companies will need emergency access to extra cash, either through dilutive rights issues, or the sale of a part or all of their businesses at distressed valuations. In contrast, many quoted microcaps enter this period of corporate challenge with three major advantages: (i) numerous quoted microcaps already have strong balance sheets as they have learnt that they could not rely on external investors to fund their growth ambitions; (ii) almost no quoted microcaps have defined benefit pension schemes, and hence they won't have to fund extra pension fund contributions; and (iii) many UK microcaps with attractive prospects are currently standing on unusually low valuations. The conditions are now right for UK quoted microcaps not only to enjoy a period of performance catch-up, but also for the prior trend of sixty years of outperformance to resume. The Miton UK MicroCap Trust's strategy is particularly well suited to these market conditions. Overall, an investment in this Trust is not about hoping that the UK economy outperforms others, but rather about accessing the potential from a much wider and more diverse investment universe than the quoted majors. It is about buying into overlooked companies that have been putting in years of spadework out of the limelight, but that will now be in a position to deliver a cash payback.  As they gain recognition, the appreciation of their share prices could be all the more distinctive at a time when the earnings of most mainstream stocks are under pressure. Andy Pomfret Chairman 26 June 2020
INVESTMENT MANAGER'S REPORT
Who are Premier Miton? In November 2019, Premier and Miton merged to form Premier Miton Group plc, which remains an independent listed company with an emphasis on delivering premium investment returns. Some of the technology developed by Premier will be very helpful for Miton clients, and the reduction of overlapping costs will allow the combined group to accelerate investment in the business to address the changing market trends ahead of others. Both Miton and Premier have a heritage of organically growing their fund management businesses from small beginnings, through client-centric fund strategies that have scope to deliver returns that are ahead of others. In the case of Premier it was principally within funds including shares, bonds and property together, whereas in the case of Miton it was principally via equity portfolios in specific investment universes, such as the Miton UK MicroCap Trust. Premier Miton are a signatory to the UN Principles for Responsible Investment. The day to day management of the Trust's portfolio continues to be carried out by Gervais Williams and Martin Turner, who have worked together on this Trust since it first listed in April 2015. Gervais Williams Gervais joined Miton in March 2011 and is Head of Equities in Premier Miton. He has been an equity portfolio manager since 1985, including 17 years at Gartmore. He was named Fund Manager of the Year by What Investment? in 2014 and is also a board member of the Quoted Companies Alliance and 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, with complementary expertise that led them to back a series of successful companies. Martin qualified as a Chartered Accountant with Arthur Anderson, and had senior roles and extensive experience at Merrill Lynch and Collins Stewart. What were the main drivers of the Trusts returns over the year? Prior to the Trust's year starting in May 2019, the US central bank had been attempting to normalise interest rates, after a long period at very low levels.  It had raised US interest rates by 0.25% several times and inverted its policy of Quantitative Easing into QT - Quantitative Tightening. However, as global growth became very weak, and stock markets around the world fell back this was abandoned. At the start of the 2019, the US central bank announced that US interest rates would be cut, which marked a period of stock market recovery around the world. Hence, at the start of the Trust's year, the share prices of many of the largest companies were already rising. In contrast to the mainstream stock markets, the share prices of UK microcaps were weak at the start of the Trust's year. Overall, the absence of a political consensus as to how the Brexit referendum should be implemented resulted in a political impasse. Given the uncertainty over the policy outlook, most investors in smaller UK quoted companies chose to hold back from making any additional investments. This period came to an end in December, when the Conservative party won a clear parliamentary majority in the General Election. With the political logjam cleared, the share prices of smaller UK companies rallied. Whilst this was most evident within the small and midcap companies initially, there was some indication that there would be renewed interest in UK quoted microcaps in time, as some overhanging sellers were cleared. In the early part of 2020, the spectre of the global pandemic started to dominate the news flow. As it spread around the world, most governments imposed lock downs, in an attempt to slow the spread of the virus and ensure that their health services were not overwhelmed. One of the implications of this policy has been the onset of a deep global recession, which led to a major decline of global stock markets, including UK quoted microcaps. Governments around the world have sought to scale back the adverse economic effects, by providing temporary payments to businesses, as a cashflow bridge, in the hope of keeping as many people from being made unemployed as possible. These policies were welcomed by the financial markets, and the Trust's year finished with the mainstream stock markets staging a partial recovery. By contrast, the share prices of some UK quoted microcaps recovered rather more substantially. Many of the microcaps held in the Trust have strong balance sheets, with prospects that are not necessarily defined by the trajectory of the wider economy. As the Trust's year concluded, some microcap share prices rose considerably, to levels well above the start of the year. Overall, the NAV of the Trust was down 8.2% over the year to April 2020, but this was considerably better than that of the FTSE AIM All Share Index, down 16.4%, and the FTSE SmallCap Index (excluding Investment Trusts) that was down 23.1%. This performance momentum has persisted into the start of the new financial year. Which Portfolio holdings had the greatest impact on the Trust's outcome over year? In the context of a year when most microcap share prices were drifting lower, there were several stocks that fell back more abruptly as they failed to reach their objectives. Nanoco, for example, was building a new plant funded by a large US mobile phone company, to manufacture quantum dots for their new models. However, despite funding the capex, the US mobile phone company subsequently changed its mind, which left Nanoco vulnerable to making persistent losses in future. The trust exited the holding, releasing 39 basis points of capital, albeit at a loss to the initial purchase price. Anglo-African Oil & Gas also failed to achieve its investment objective. The company had planned to drill a crucial oil well during the year.  Unfortunately, the well ran into technical problems, and therefore did not reach the targeted depth, which left investors uncertain over its prospects.  Given the weakness of the oil price at the time, and the company's requirement for more cash to drill the well again, the Trust's holding was sold, but the position detracted 1.2% from the overall return on the portfolio. Mercantile Ports and Coreo Network Security both announced slower progress than expected, detracting 1.6% and 1.3% from performance respectively. In our view however, their longer-term prospects remain in place, so whilst there was a setback in their share prices that detracted from the Trust's returns, they both remained in the portfolio at the year end. Kape Technologies has been amongst the largest holdings in the Trust's portfolio for some time, and it is reassuring to report that it was one of the largest contributors to returns this year, adding 3.9% after it announced a major transaction that improved its market position in the US. Whilst the COVID-19 stock market setback was uncomfortable for most portfolio holdings, it boosted the value of the Trust's FTSE100 Put option which was sold in early March for £2.7m, generating a profit of £1.8m on an original purchase price of just under £1m. This brought valuable new cash into the Trust, which was used to fund additional investments at a time when many valuations were standing at unusually low metrics. The Trust's weighting in Healthcare stocks has risen progressively over the year. In April 2019, it was just 3.8%, but as several new holdings were added, it had risen to 15.4% as at April 2020. Avacta, purchased in November, was the largest contributor to the Trust's return over the year, adding 5.4% to the Trust's return. In our view, its therapeutic products alone could be worth many times its market capitalisation of £20m at the time of the Trust's investment. As it happened, its affimer technology is also applicable to disposable virus tests and applying this to COVID-19 has driven up its share price considerably. Avacta was the largest contributor to the Trust's return over the year. Overall, the major appreciation of stocks such as Kape and Avacta underline a key feature of the Trust's strategy. Our objective is to identify quoted companies that have scope to appreciate by a multiple of their original purchase prices. Furthermore, they often operate in smaller niche markets that are immature, and hence have the potential to expand even at times when the wider stock market may be suffering a setback. Many of these kinds of stocks are able to continue to perform well, even at a time when the global economy is in recession. How has the Trust performed since it was first set up in April 2015? The Miton UK MicroCap investment trust was set up to participate in the long-term tailwinds of UK quoted microcap stocks. As outlined within the full Report, during the period of globalisation over the last thirty years, they have not stood out because the mainstream UK stock market has had a strong tailwind of its own. In April 2015 when the Trust was set up, it was anticipated that the attitude of the electorate was changing, and that as a result, prevailing economic policies would also be changed. Effectively it was anticipated that the globalisation tailwinds which have been driving up the mainstream stock markets for decades were coming to an end. With the UK electorate voting for Brexit in June 2016, and the US electorate selecting nationalist President Trump in November 2016, stock markets have become more unsettled over recent years. Indeed, as feared, most mainstream indices have delivered very little return at all over the last five years, exacerbated by the advent of the pandemic. The FTSE All Share Index for example, has only risen 4.8% over the five years to April 2020 in total return terms, even when all the dividend income is included.  The FTSE SmallCap Index (excluding Investment Trusts) has risen just 1.0% in total return terms. The FTSE AIM All Share Index has appreciated a little more, being up 15.2%, boosted by some speculative growth stocks that were fashionable in the early part of this period. Interestingly, the tailwinds for UK quoted microcap stocks themselves flagged temporarily during the period, and hence the anticipated microcap differential hasn't been as evident as expected over the last five years. During the final months of 2018, and most of 2019, the UK political logjam held back the usual premium returns on microcaps. However, the microcap tailwinds have showed renewed vigour in the final months of the year. The total return of the Trust was still up 6.0% over the five years since launch. Overall, we believe the reasoning for launching the Trust was valid and very much remains in place.  As the globalisation tailwind comes to an end, the advantage of tapping into the long-term microcap tailwinds should become hugely advantageous. Dos the Trust invest in unlisted Stocks? No, the Trust's investment strategy has always been to invest solely in quoted stocks. We have always considered that the longer term returns on the microcap strategy would be entirely satisfactory without the need to consider investing in unlisted stocks, with their attendant lack of liquidity. Furthermore, unlisted companies give rise to questions over whether their valuations are accurate, and whether the Trust might find itself obliged, as is often the case, to keep allocating new capital to them, without which they might become insolvent. What are the prospects for the Trust? Globalisation works on the principle that moderating border tariffs enhances cross-border trade and productivity improvement, which together boost global growth. Since the late 1980s, this favourable economic trend became so consistent, that past margins of safety started to appear overly cautious. This meant that when there was a global financial setback in 2008, UK banks were found to be hopelessly overstretched. Whilst the UK 'emergency' interest rate cut was essential in 2008, along with the introduction of Quantitative Easing, ultimately, it has become politically expedient over recent years to use and reuse QE, in a similar manner to the way that numerous interest rate cuts had been used prior to 2008. The key point about QE is that it makes debt and risk capital more plentiful. Its use and reuse has kept the globalisation tailwind in mainstream stock  markets going over recent years. Alongside, regular QE has bred a reliance on easy credit conditions among numerous mainstream quoted companies.  This has led many to take on ever larger amounts of debt, rendering them considerably less resilient at the time of an economic setback. Much of the last ten years has been defined by increased dividends part-funded by debt, or the rapid appreciation of high-growth stock that have a reliance on regular external funding, together driving an ongoing rise of stock markets.  Unfortunately, we would argue that both trends can only be successful if there is a near-continuous, and plentiful supply of low-cost debt, and ever supportive stock markets. The pandemic, and the deep global recession that it has spawned, have revealed the scale of this vulnerability. We are, therefore, not surprised by the welter of dividend cuts that have been announced by mainstream companies over recent months and fear numerous cashflow-negative businesses will be found to be insolvent in the coming quarters. The Trust's microcap strategy principally selects those with attractive future cashflow, but which also have strong balance sheets. Whilst the share prices of these companies do fluctuate with the stock market, overall, we believe these businesses have a greater chance of success because they are not reliant on the easy availability of additional capital. Furthermore, being listed, we also believe they can help sustain skilled employment at a time of recession, by acquiring insolvent companies and injecting additional working capital through the issuance of new shares. Few others have robust enough balance sheets to take on these transactions during recessions, or the ability to raise new capital to fund their recovery. In general, therefore, the acquisition cost of these transactions can be abnormally low, and hence they can deliver exceptionally large returns when they succeed. Overall, as the globalisation tailwind comes to an end, we believe the advantage of tapping into the long-term microcap tailwinds will become hugely advantageous. We remain very upbeat about the prospects for the Trust over the short and the longer term. Gervais Williams and Martin Turner 26 June 2020 Investment Objective The investment objective of the Company is to provide shareholders with capital growth over the long-term. Investment Policy The Company invests primarily in the smallest companies, measured by their market capitalisation, quoted or traded on an exchange in the United Kingdom at the time of investment. It is likely that the majority of the microcap companies held in the Company's portfolio will be quoted on AIM and will typically have a market capitalisation of less than £150 million at the time of investment. The Company may also invest in debt, warrants or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies. The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions. If companies in the portfolio achieve organic growth or grow through corporate activity such as acquisitions, and consequently have a market capitalisation that would place them outside the investable universe, the Investment Manager will not be obliged to sell those holdings, but the proportion of the portfolio in such companies will be carefully monitored by the Investment Manager and the Board so that the overall investment policy to invest in the smallest quoted or traded companies is not materially altered. The Company's portfolio is expected to be diversified by industry and market of activity. No single holding will represent more than 15% of Gross Assets at the time of investment and, when fully invested, the portfolio is expected to have over 120 holdings although there is no guarantee that will be the case and it may contain a lesser number of holdings at any time. The Company will have the flexibility to invest up to 10% of its Gross Assets at the time of investment in unquoted or untraded companies, or in any one unquoted or untraded company. The Company will invest no more than 10% of Gross Assets at the time of investment in other investment funds. Borrowing The Company may deploy borrowing to enhance long-term capital growth. Gearing will be deployed flexibly up to 15% of the Net Asset Value, at the time of borrowing. In the event this limit is breached as a result of market movements, and the Board considers that borrowing should be reduced, the Investment Manager shall be permitted to realise investments in an orderly manner so as not to prejudice shareholders. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. BUSINESS MODEL Business and Status of the Company MINI was incorporated on 26 March 2015 and its Ordinary shares were listed on the London Stock Exchange on 30 April 2015. It is registered in England as a public limited company and is an investment company in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006. The principal activity of the Company is to carry on business as an investment trust. The Company intends at all times to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Sections 1158/1159 of the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any change in this activity in the foreseeable future. The Company has been granted approval from HM Revenue & Customs ("HMRC") as an investment trust under S1158/1159 and will continue to be treated as an investment trust company, subject to there being no serious breaches of the conditions for approval. The principal conditions that must be met for continuing approval by HMRC as an investment trust are that the Company's business should consist of "investing in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results" and the Company may only retain 15% of its investment income. The Company must also not be a close company. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 April 2020 so as to be able to continue to qualify as an investment trust. The Company's status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments and all other net capital gains. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at lower cost, and the ability to hold illiquid positions in uncertain market conditions. Investment Policy The Company's full investment policy is set out above and contains information on the policies which the Company follows relating to asset allocation, risk diversification and gearing, and includes maximum exposures, where relevant. The Company invests in a portfolio of UK quoted companies with the objective of achieving capital growth by investing in a portfolio of stocks that are well placed to generate an attractive cash payback from productivity improvements.
PORTFOLIO INFORMATION AS AT 30 APRIL 2020
Rank Company Sector & main activity Valuation £'000 % of net assets Dividend Yield*% 1 Avacta Group Ord Shs Health Care 4,437 6.2 0.0 2 Kape Technologies Ord Shs Technology 4,257 6.0 0.0 3 Cerillion Technology 2,674 3.8 1.8 4 Frontier IP Group Industrials 2,481 3.5 0.0 5 MTI Wireless Edge Technology 2,225 3.1 4.5 6 Caledonian Mining Basic Materials 1,972 2.7 3.1 7 Centranic Technology 1,870 2.6 0.0 8 Synairgen Ord Shs Health Care 1,812 2.6 0.0 9 Kromek Group Health Care 1,773 2.5 0.0 10 Aquis Exchange Financials 1,691 2.4 0.0 Top 10 Investments 25,147 35.4 11 Amino Technologies Ord Shs Technology 1,673 2.4 1.3 12 Inspiration Healthcare Group Health Care 1,667 2.3 0.0 13 Wey Education Ord Shs Industrials 1,546 2.2 0.0 14 Totally Ord Shs Health Care 1,540 2.2 0.0 15 FRP Advisory Group Ord Shs Industrials 1,539 2.2 0.0 16 Jubilee Metals Group Basic Materials 1,333 1.9 0.0 17 BATM Advanced Communications Technology 1,323 1.9 0.0 18 Corero Network Security Technology 1,309 1.8 0.0 19 Oxford Metrics Technology 1,091 1.5 1.9 20 Conygar Investment Company Financials 926 1.3 0.0 Top 20 investments 39,094 55.1 Balance held in equity instruments 28,282 39.8 Total equity investments 67,376 94.9 Other net current assets 3,635 5.1 Net assets 71,011 100.0
* Source: Thomson Reuters. Dividend Yield based on historic dividends and therefore not representative of future yield.
Portfolio exposure by sector at 30 April 2020 1 Technology 29.5% 2 Healthcare 20.2% 3 Industrials 19.8% 4 Basic Materials 9.4% 5 Financial Services 9.1% 6 Oil & Gas 5.4% 7 Consumer Goods 2.9% 8 Consumer Services 2.4% 9 Utilities 1.3% Actual annual income by sector to 30 April 2020 1 Technology 26.0% 2 Oil & Gas 22.2% 3 Industrials 16.9% 4 Financial Services 16.4% 5 Basic Materials 8.6% 6 Consumer Goods 5.9% 7 Utilities 2.9% 8 Consumer Services 1.0% 9 Health Care 0.1% Portfolio by asset allocation at 30 April 2020 1 AIM 92.6% 2 FTSE SmallCap Index 3.9 % 3 Other UK Equities 2.6 % 4 FTSE Fledgling Index 0.9 % Portfolio by spread of investment income to 30 April 2020 1 AIM 74.0% 2 Other UK Equities 11.0% 3 FTSE SmallCap Index 9.5% 4 FTSE Fledging Index 5.5% Source: Thomas Reuters
The LSE assigns all UK quoted companies to an industrial sector and frequently to a stock market index. The LSE also assigns industrial sectors to many international quoted equities as well, and those that have not been classified by the LSE have been assigned as though they had. The portfolio as at 30 April 2020 is set out in some detail above, in line with that included in the Balance Sheet. The investment income above comprises all of the income from the portfolio as included in the Income Statement for the year ended 30 April 2020. The AIM and Aquis markets are both UK exchanges specifically set up to meet the requirements of smaller listed companies. The first two tables above determine the overall sector weightings of the Company's capital at the end of the year, and with regard to the income received by the Company over the year. The second pair of tables determines the LSE stock market index within which portfolio companies sit, and the income received by the Company over the year.  Investments for the Company's portfolio are principally selected on their individual merits. As the portfolio evolves, the Manager continuously reviews the portfolio's overall sector and index balance to ensure that it remains in line with the underlying conviction of the Investment Manager. The Investment Policy, and details regarding risk diversification and other policies are set out each year in the Annual Report.
PERFORMANCE AND RISKS
Key Performance Indicators
The Board reviews the Company's performance by reference to a number of key performance indicators ("KPIs") and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole. The Board and the Investment Manager monitor the following KPIs:
· NAV performance, relative to the AIM All-Share Index and other comparable investment trusts and open-ended funds The Ordinary share NAV at 30 April 2020 was 51.33p per share (30 April 2019: 56.13p), giving a total return of (8.2)% (30 April 2019: (18.6)%) over the year. This compares with the UK Investment Trust Smaller Companies sector, where the average was a 16.4% decrease in total return terms over the same period.  By comparison, the total return on the FTSE AIM All-Share Index was (15.3)% over the year.
· NAV correlation to mainstream indices The Company has an objective to deliver a low NAV correlation with the FTSE 100 and FTSE All-Share Indices. All- Share Indices. Correlation data is presented within the full Report.
· Movements in the Company's share price The Company's Ordinary share price decreased by 20.3% (30 April 2019: decreased by 17.3%) over the year on a capital return basis.
· The discount/premium of the share price in relation to the NAV At times, the number of shareholders looking to transact in the Company's shares exceeds the market's daily liquidity. Imbalances like this are normally cleared through stock market transactions over a few weeks, but on occasion these imbalances can become persistent and the Company's share price diverges from the daily NAV, which has not been an appropriate environment in which to issue shares.  In order to address this, the Company was also set up with an annual redemption mechanism so that shareholders could redeem their holdings. This year, redemption requests were received for 19.56% of the Company's shares and it is expected that the redemption will be settled via the redemption pool process.
· Ongoing charges The ongoing charges on the Ordinary shares for the year to 30 April 2020 amounted to 1.6%% (30 April 2019: 1.5%) of total assets.
Principal Risks and Uncertainties
The Company is exposed to a variety of risks and uncertainties that could cause its asset price or the income from the investment portfolio to reduce, possibly by a sizeable percentage in the most adverse circumstances. The principal financial risks and the Company's policies for managing these risks and the policy and practice with regard to the portfolio are summarised in note 19 to the financial statements. The Board, through delegation to the Audit and Management Engagement Committee, undertakes a robust annual assessment and review of the principal risks facing the Company, together with a review of any new and emerging risks which may have arisen during the year, including those that would threaten its business model, future performance, solvency or liquidity. These risks are formalised within the Company's risk matrix. Information regarding the Company's internal control and risk management procedures can be found in the Corporate Governance Statement in the Annual Report. Listed below is a summary of the principal risks identified by the Board and actions taken to mitigate those risks.
Risk Mitigation Investment and strategy There can be no guarantee that the investment objective of the Company will be achieved. The Company will invest primarily in small UK quoted or traded companies by market capitalisation. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile. These companies are normally traded less frequently on the stock exchange and, when aggregated with holdings in other client funds of the Investment Manager, the combined funds may have a significant percentage ownership of investee companies. Many businesses are facing additional financial challenges due to demand fluctuations, and/ or additional cost of supply currently, due to the COVID-19 pandemic. 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 Company is reliant on its Investment Manager's investment process.  The Board reviews and discusses the investment approach at each Board meeting, and if it is isn't satisfied it can appoint another Investment Manager. The Board looks to mitigate the higher risk profile of individual smaller companies by ensuring the Company holds a well-diversified portfolio, both by number of companies and areas of operation. As a result of the COVID-19 pandemic for example, the Company's diversified portfolio has held some stocks where prospects have improved that offset some others where they have deteriorated. The Company is structured as a closed-ended fund, which means that it is not subject to daily inflows and outflows. Reliance on third parties The Company has no employees and is reliant on the performance of third party service providers. Failure by the Investment Manager or any other third party service provider to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company. This could include failure of a counterparty on whom the Company is reliant. The Board monitors and receives reports on the performance of its key service providers. In relation to the risk of counterparty failure, the Board reviews the controls report of the Depositary. The Board may in any event terminate all key contracts on normal market terms. Loss of key personnel/fund managers The Company depends on the diligence, skill, judgement and business contacts of the Manager's investment professionals and its future success could depend on the continued service of these individuals, particularly Gervais Williams and Martin Turner. The Company may decide to terminate the Management Agreement should both Gervais Williams and Martin Turner cease to be employees of the Manager's group and if they are not replaced by a person/s who the Company considers to be of equal or satisfactory standing within three months of one or both of their departures. Share price volatility and liquidity/marketability risk The market price of the Ordinary shares, as with shares in all investment trusts, may fluctuate independently of their underlying NAV and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary shares, market conditions and general investor sentiment. The Company may become too small to be attractive to a wide audience, with lesser stock market liquidity and a wider share price discount.. The UK's vote to leave the EU has introduced new uncertainties and instability into the financial markets; likewise COVID-19 has also had an impact, which is ongoing. The Company has in place an annual redemption facility whereby shareholders can voluntarily tender their shares. The Board monitors the relationship between the share price and the NAV. The Company has powers to repurchase shares should there be an imbalance in the supply and demand leading to a persistent and excessive discount. The Investment Manager maintains regular dialogue with shareholders through monthly factsheets and regular face-to-face meetings. Costs of operation As stated, the Company relies on external service providers. Many of these are paid on a basis where their fees are related to the size of the Company (an "ad valorem" basis). Others are for fixed monetary amounts. Therefore, if the Company were to shrink, through redemptions, buybacks or asset performance, the cost per share of running the Company would increase. This could make it harder to achieve the investment objective. The Board monitors the costs of all service providers. The Board is also committed to the controlled growth of the Company which would spread the fixed costs over a larger asset base. In the event that the Company were to decrease in size from its current level, the Board has capped the total costs at no more than 2% of the aggregate market capitalisation. The ongoing charges for the year to 30 April 2020 amounted to 1.68% (30 April 2019: 1.52%). Regulatory risk/change in tax status The Company is subject to laws and regulations enacted by national and local governments. Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy. The Board receives regular updates from its Secretary, Broker, industry representatives and its Investment Manager on significant regulatory changes that may impact the Company. The Company's ability to determine the shape of regulatory or tax changes is limited and therefore the Board aims to ensure that it is well informed and prepared to respond to changes as required. Cyber risk/IT security Errors, fraud or control failures by the Company's key service providers or loss of data through increasing cyber threats or business continuity failure could damage the Company's reputation or investors' interests or result in losses. The Board receives regular control reports and cyber/IT policies from all service providers to ensure that controls are in place including business continuity and disaster recovery arrangements. The Trust may be Subject to legal action by others The investment portfolio comprises the principal assets of the Trust, and is valued on their market bid price along with its cash balances. One way to realise a return for investors is to accept a takeover offer, often at a premium to the market price. When these transactions occur, the Trust may be in receipt of cash proceeds, that are then reinvested in other equities. When these are US companies, the Trust is at risk that an acquirer subsequently discovers that the commercial value of the business acquired is not as anticipated, and may try to reclaim some or all of the proceeds paid for the acquisition from the vendors - which in our case is the Trust. The Trust moderates this risk via insurance cover but would normally expect acquirers to carry out their own due diligence on the assets being acquired, and if there is subsequent disappointment then to seek redress from their advisers. As noted in the interim statement, the liquidating Trustee of Orion Healthcare Inc, the acquirer of Constellation Healthcare Technologies Inc, has initiated legal proceedings to recover the Trust's proceeds from the takeover, which do not fall within the remit of the insurance cover. The action does not allege any wrongdoing by the Trust or its advisers. The Trust is one of more than 45 other former Constellation shareholders that are contesting the validity of this action, and is paying a share of the joint legal costs as incurred as a result. By the end of April these had amounted to just over £90,000.
SHARE CAPITAL
Share Issues At the Annual General Meeting held on 11 September 2019, the Directors were granted the authority to allot Ordinary shares up to an aggregate nominal amount of £15,265 (representing 15,265,000 Ordinary shares) on a non pre-emptive basis. No shares have been issued under this authority. This authority is due to expire at the Company's AGM to be held on 22 September 2020. Proposals for the renewal of the authority are set out in the Notice of AGM. Share Redemptions Valid redemption requests were received under the Company's redemption facility for the 28 June 2019 Redemption Point in relation to 14,317,907 Ordinary shares at a price of 53.92 pence per Ordinary share, representing 9.4% of the issued share capital. The number of valid redemption requests received under the redemption facility for the 30 June 2020 Redemption Point was announced via a regulatory announcement on 3 June 2020, namely in relation to 27,061,157 Ordinary shares, representing 19.56% of the issued share capital. Purchase of Own Shares At the Annual General Meeting of the Company held on 11 September 2019, the Directors were granted the authority to buy back up to 22,882,807 Ordinary shares. No Ordinary shares have been bought back under this authority. The authority will expire at the forthcoming Annual General Meeting, when a resolution for its renewal will be proposed (see the full 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. Current Share Capital As at the year end, there were 138,335,915 Ordinary shares and 50,000 Management shares (see note 4 to the financial statements) in issue. Further details of the Company's share capital are set out in note 4 to the financial statements. This includes details of the 2019 redemption of Ordinary shares. The rights attached to each share class are set out within the full Report. There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.
MANAGEMENT, SOCIAL, ENVIRONMENTAL AND DIVERSITY MATTERS
Management Arrangements The Company's investment manager is Premier Portfolio Managers Limited (the ''Investment Manager''), following the novation of the Management Agreement on 24 April 2020. 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 Premier Portfolio Managers Limited as the alternative investment fund manager ("AIFM") of the Company, following the novation of the Management Agreement on 24 April 2020. 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 Report 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 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 (International) Limited ("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. Administrative Services are provided by Link Alternative Fund Administrators Limited under an agreement dated 8 April 2015. The Administration Agreement may be terminated by either party on at least six months' prior written notice. Continuing Appointment of the Investment Manager The Board, through the Audit and Management Engagement Committee, keeps the performance of the Investment Manager under continual review, and the Audit and Management Engagement Committee conducts an annual appraisal of the Investment Manager's performance, and makes a recommendation to the Board about the continuing appointment of the Investment Manager. It is the opinion of the Board that the continuing appointment of the Investment Manager is in the interests of shareholders as a whole. The Board believes that the Investment Manager has executed the investment strategy in line with the Prospectus.  The Directors also believe that by paying the management fee calculated on a market capitalisation basis, rather than a percentage of assets basis, the interests of the Investment Manager are more closely aligned with those of shareholders. Environmental, Human Rights, Employee, Social and Community Issues The Company does not have any employees and the Board consists entirely of non-executive Directors. The day-to-day management of the business is delegated to the Investment Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies.  In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly and ethically. The Company has a zero-tolerance policy towards bribery and corruption and as such is committed to carrying out its business fairly, honestly and openly. Further information about the Company's relationships with its stakeholders is set out in the s.172 Statement within the Annual Report. Gender Diversity The Board of Directors of the Company comprises one female and three male Directors.  The Company's Diversity Policy acknowledges the benefits of greater diversity, including gender diversity, and remains committed to ensuring that the Company's Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives. The Board will always appoint the best person for the job and will not discriminate on any grounds including gender, race, ethnicity, religion, sexual orientation, age or physical ability. Approval The Strategic Report has been approved by the Board of Directors. On behalf of the Board Andy Pomfret Chairman 26 June 2020 Directors Andrew (Andy) Pomfret - Chairman Peter Dicks - Chairman of the Audit and Management Engagement Committee and Senior Independent Director Jeannette (Jan) Etherden Ashe Windham, CVO
Going Concern
The Directors consider that it is appropriate to adopt the going concern basis. Cashflow projections have been reviewed and show that the Company has sufficient funds to meet its contracted expenditure.  On the basis of the review and as the majority of net assets are securities which are traded on recognised stock exchanges, after making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the principal and emerging risks set out in the full Report, including the risks arising from COVID-19 and their impact on the liquidity of the portfolio and resultant cashflow, along with the Company's ability to meet obligations as they fall due, its ability to raise finance in the short and longer term and future prospects and results. Accordingly, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date that these financial statements were approved.
Viability Statement In accordance with the AIC Code of Corporate Governance, the Board has considered the prospects for the Company. The period assessed is the three years to June 2023. The Company is intended to be a long-term investment vehicle. It was launched  in 2015, and due to the limitations and uncertainties inherent in predicting market and political conditions, the Directors have determined that three years is the appropriate period over which to make this assessment. As part of its assessment of the viability of the Company, the Board has considered the principal risks and uncertainties and the impact on the Company's portfolio of a significant fall in UK markets. To provide this assessment, the Board has considered the Company's financial position and its ability to liquidate its portfolio to meet its expenses or other liabilities as they fall due: · the Company invests largely in companies listed and traded on stock exchanges. These are actively traded and, whilst perhaps less liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and industry sector; · the expenses of the Company are predictable and modest in comparison with the assets in the portfolio. There are no commitments that would change that position; · the Company has no employees; and · the Company has an annual redemption facility whereby shareholders may request that their shares are redeemed at NAV. The Board has considered the possibility that shareholders holding a significant percentage of the Company's shares request redemption. Firstly, the Board has flexibility over the method and date of redemption so can avoid disruption to the overall operation of the Company in this situation. Secondly, the Company has an arrangement with the Manager to rebate fees should total costs exceed 2% of aggregate market capitalisation, such that were there to be significant redemption, or a significant fall in the value of the portfolio, the expenses of operation would be manageable. In addition, many of the expenses vary in line with the size of the Company. In addition to considering the principal risks and the financial position of the Company as described above, the Board has also considered the following further factors: · the continuing relevance of the Company's investment objective in the current environment and the continued satisfactory performance of the Company; · the level of demand for the Company's shares and that since launch the Company has been able to issue further shares; · the gearing policy of the Company; and · that regulation will not increase to such an extent that the costs of running the Company become uneconomic. Accordingly, the Directors have formed the reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years, from the balance sheet date.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Company's financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Company's financial statements, the Directors are required to: · select suitable accounting policies in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently; · present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; · provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; · state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and · make judgements and estimates that are reasonable and prudent. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Company's financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes the information required by the Listing Rules of the Financial Conduct Authority. The financial statements are published on the Company's website, www.mitongroup.com/priavet/fund/miton-uk-microcap-trust-plc/, which is maintained on behalf of the Company by the Investment Manager. Under the Management Agreement, the Investment Manager has agreed to maintain, host, manage and operate the Company's website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. We confirm that to the best of our knowledge: · the Company's financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and · the strategic Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. The Directors consider that the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy. On behalf of the Board Andy Pomfret Chairman 26 June 2020
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 April 2020 or the year ended 30 April 2019 but is derived from those accounts. Statutory accounts for the year ended 30 April 2019 have been delivered to the Registrar of Companies and those for the year ended 30 April 2020 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/private/fund/miton-uk-microcap-trust-plc/
INCOME STATEMENT
of the Company for the year ended 30 April 2020
Year ended 30 April 2020 Year ended 30 April 2019 Revenue  Capital  Revenue Capital return  return  Total  return return Total  Note £'000  £'000  £'000  £'000 £'000 £'000  (Losses)/gains on investments held at fair value through profit or loss 12 - (8,124) (8,124) -  (18,995) (18,995) Gains/(Losses) on derivatives held at fair value through profit or loss 14 - 2,016 2,016 -  (241) (241) Income 2 828 - 826 1,087  (1) 1,086 Management fee 7 (168) (506) (674) (233) (698) (931) Other expenses 8 (556) (79) (635) (533) -  (533) Return on ordinary activities before finance costs and taxation 104 (6,693) (6,589) 321  (19,935) (19,614) Finance costs 9 - (44) (44) -  (47) (47) Return on ordinary activities before taxation 104 (6,737) (6,633) 321  (19,982) (19,661) Taxation 10 (23) - (23) (14) -  (14) Return on ordinary activities after taxation 81 (6,737) (6,656) 307  (19,982) (19,675) Return on ordinary activities for the year analysed as follows: Attributable to Ordinary shares 81 (6,737) (6,566) 307  (19,982) (19,675) Return per Ordinary share (pence) 3 0.06 (4.73) (4.67) 0.20  (13.03) (12.83)
The total column of this statement is the Income Statement of the Company prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. The supplementary revenue return and capital return columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP"). All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. There is no other comprehensive income and, therefore, the return on ordinary activities after taxation is both the profit and the total comprehensive income. The notes within the full Report form part of these part financial statements.
STATEMENT OF CHANGES IN EQUITY
of the Company for the year ended 30 April 2020
Share Share Share  Redemption premium Special Capital Revenue capital  Reserve account reserve reserve Reserve Total  For the year ended 30 April 2020 Notes £'000  £'000  £'000  £'000  £'000  £'000  £'000  As at 30 April 2019 203 20 86,986 - (2,073) 543 85,679 Total comprehensive income: Return on ordinary activities after taxation - - - - (6,737) 81 (6,656) Transactions with shareholders recorded directly to equity: Redemption of Ordinary shares 4 (14) 14 - (7,720) - - (7,720) Redemption of Ordinary Shares costs - - - (1) - - (1) Cancellation of Share premium - - (86,986) 86,986 - - - Cancellation of share premium costs - - - (14) - - (14) Equity dividends paid 11 - - - - - (277) (277) As at 30 April 2020 189 34 - 79,251 (8,810) 347 71,011
Capital  Share  Share redemption  premium  Special Capital  Retained  capital reserve  account  Reserve reserve  earnings  Total  For the year ended 30 April 2019 Notes £'000 £'000  £'000  £'000 £'000  £'000  £'000  As at 30 April 2018 221  2 86,986 - 30,670  786  118,665  Total comprehensive income: Return on ordinary activities after taxation -  -  -  - (19,982) 307  (19,675) Transactions with shareholders recorded directly to equity: Redemption of Ordinary shares 4 (18) 18 - - (12,761) -  (12,761) Equity dividends paid 11 -  -  -  - -  (550) (550) As at 30 April 2019 203  20 86,986 - (2,073) 543  85,679  The notes within the full Report form part of these financial statements.
BALANCE SHEET
of the Company as at 30 April 2020
Note 30 April 2020  £000  30 April 2019  £'000  Non-current assets: Investments held at fair value through profit or loss 12 67,376 80,308  Current assets: Derivative instruments 14 - 690  Trade and other receivables 15 76 108  Cash at bank and cash equivalent 3,842 4,784  3,918 5,582  Liabilities Trade and other payables 16 283 211  Net current assets 3,635 5,371  Net assets 71,011 85,679  Capital and reserves Share Capital 4 189 203  Capital redemption reserve 34 20 Share premium account - 86,986 Special reserve 79,251 - Capital reserve (8,810) (2,073) Revenue reserve 347 543 Shareholders' funds 71,011 85,679  Pence pence Net asset value per Ordinary share - basic and diluted 5 51.33 56.13
These financial statements were approved and authorised for issue by the Board of Miton UK MicroCap Trust plc on 26 June 2020 and were signed on its behalf by: Andy Pomfret Chairman 26 June 2020 Company No: 09511015 The notes below form part of these financial statements.
STATEMENT OF CASH FLOWS
for the Company for the year ended 30 April 2020
30 April 2020  £000  30 April 2019  £000  Operating activities: Net loss before taxation (6,633) (19,661) Loss on investments and derivatives held at fair value through profit or loss 6,108 19,236  Decrease in trade and other receivables 44 38  Increase/(Decrease) in trade and other payables 1 (34) Exchange losses on capital items - 1  Exclude finance costs 44 47  Withholding tax paid (23) (14) Net cash outflow from operating activities (459) (387) Investing activities: Purchase of investments (15,691) (27,511) Sale of investments 20,564 32,371  Purchase of derivative instruments - (931) Sale of derivative investments 2,706 -  Net cash inflow from investing activities 7,579 3,929  Financing activities: Redemption/repurchase of Ordinary shares (7,721) (12,761) Equity dividends paid (277) (550) Finance costs paid (50) (41) Share premium account cancellation costs (14) - Net cash outflow from financing activities (8,602) (13,352) Decrease  in cash and cash equivalents (942) (9,810) Reconciliation of net cash flow movement in funds: Cash and cash equivalents at the start of the year 4,784 14,595  Net cash outflow from cash and cash equivalents (942) (9,810) Exchange rate movements - (1) Cash at the end of the period 3,842 4,784
30 April 2020 £000 30 April 2019 £000 Cash received/(paid) during the period includes: -  Dividends received 866 1,142 The notes in the full Report form part of these financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Accounting Policies
Miton UK MicroCap Trust plc is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010. The Company's financial statements for the year ended 30 April 2020 have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the provisions of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. Basis of Preparation In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The financial statements are presented in Sterling, which is the Company's functional currency as the UK is the primary environment in which it operates, rounded to the nearest £'000, except where otherwise indicated. Going Concern The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met. The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of at least 12 months from the date these financial statements were approved.  In making the assessment, the Directors have considered the likely impacts of the current COVID-19 pandemic on the Company, operations and the investment portfolio. The Directors noted the cash balance exceeds any short term liabilities, the Company has access to a revolving credit facility which has not been drawn down and the Company holds a portfolio of investments listed on the London Stock Exchange. The Company is a closed end fund, where assets are not required to be liquidated to meet day to day redemptions. Whilst the economic future is uncertain, and the Directors believe it is possible the Company could experience further reductions in income and/or market value that this should not be to a level which would threaten the Company's ability to continue as a going concern. The Directors, the Investment Manager and other service providers have put in place contingency plans to minimise disruption. The Directors have also assessed the impact of the current Redemption. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis. Segmental Reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company primarily invests in companies listed in the UK. Accounting Developments In the current year, the Company has applied a number of amendments to IFRS, issued by the IASB.  These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The Company has also applied, with associated amendments, for the first time the following standards: IFRS 16 Leases sets out the principles for the recognition, measurement, presentation and disclosure of leases by lessors and lessees. The adoption of the changes to accounting standards has had no material impact on the current or prior years' financial statements. The Company held no leases during the current or prior years. There are a number of amendments to IFRS, legislation and regulatory requirements will apply from 1 April 2020. These will not impact the financial statements other than requiring changes in disclosure and presentation amendments. 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 areas requiring the most significant judgement and estimation in the preparation of the financial statements are: recognising and classifying unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and proposed in satisfaction of both the Company's long-term objective and its obligations to adhere to investment trust status rules under Section 1158 of the Corporation Tax Act 2010. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There were no significant accounting estimates or judgements that had a significant impact on the financial statements in the current period. Investments The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Upon initial recognition the Company designates the investments 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Income Statement, and allocated to 'capital' at the time of acquisition). When a purchase or sale is made under a contract, the terms of which require delivery within the time-frame of the relevant market, the investments concerned are recognised or derecognised on the trade date. Subsequent to initial recognition, investments are valued at fair value through profit or loss. For listed investments this is deemed to be bid market prices or closing prices for Stock Exchange Electronic Trading Service - quotes and crosses ('SETSqx'). Changes in fair value of investments are recognised in the Income Statement as a capital item. On disposal, realised gains and losses are also recognised in the Income Statement as capital items. All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 13. Foreign currency Transactions denominated in foreign currencies are converted to Sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities and assets carried at fair value denominated in foreign currencies at the year end are reported at the rate of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is of a capital or revenue nature. Derivatives Derivatives, including Index Put options, which are listed investments, are classified as financial instruments at fair value through profit or loss. They are initially recorded at cost (being premium paid to purchase the option) and are subsequently valued at fair value at the close of business at the year end and included in current assets/liabilities. Changes in the fair value of derivative instruments are recognised as they arise in the capital column of the Income Statement. Cash and Cash Equivalents For the purposes of the Balance Sheet, cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly-liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. Trade and Other Receivables Trade and other receivables are measured, where applicable, at amortised cost and as reduced by appropriate allowance for expected irrecoverable amounts. Trade payables and short term borrowings Trade payables and short term borrowings are measured at amortised cost Income Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Dividends from overseas companies are shown gross of any non-recoverable withholding taxes, which are presented separately in the Income Statement. Special dividends are taken to revenue or capital account depending on their nature. When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column. All other income is allocated on a time-apportioned basis. Expenses and Finance Costs All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns the Company charges 75% of its management fee and 100% (2019: 75%) of finance costs to capital. Expenses incurred directly in relation to arranging debt finance are amortised over the term of the finance and charged to capital (2019: 75%). Expenses incurred directly in relation to issue of shares are charged to share premium. Expenses incurred in the maintenance of capital, redemption the cancellation of shares are charged to the special reserve through the Statement of Changes in Equity. Taxation Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date based on tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the AIC SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account. The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes. The actual charge for taxation in the Income Statement relates to irrecoverable withholding tax on overseas dividends received during the year. Dividends Payable to Shareholders Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date. Share Capital The Company is a closed-ended investment company an unlimited life. As defined in the Articles of Association, redemption of Ordinary shares is at the sole discretion of the Directors, therefore the Ordinary shares have been classified as equity. The issuance, acquisition and resale of Ordinary shares are accounted for as equity transactions and no gain or loss is recognised in the Income Statement. Share Premium The share premium account represents the accumulated premium paid for shares issued in previous periods above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve: · costs associated with the issue of shares; and · premium on the issue of shares. Special reserve The special reserve was created on 13 August 2019. This reserve may be used for: -  redemption of shares by way of the annual redemption facility -  costs relating to the capital structure of the company -  cancellation of shares -  share buy backs Capital Reserve The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income: · gains and losses on the disposal of investments and derivatives; · increase and decrease in the valuation of investments held at the year-end; · exchange differences of a capital nature; and · expenses, together with the related taxation effect, allocated to this reserve in accordance with the above accounting policies. Capital Redemption Reserve The capital redemption reserve represents non-distributable reserves that arise from the purchase and cancellation of shares. Revenue Reserve The revenue reserve represents the surplus of accumulated profits and is distributable by the way of dividends.
2. Income
Year ended 30 April 2020 Total £'000 Year ended 30 April 2019 Total £'000 Income from investments UK dividends 568 705 Unfranked dividend income 253 382 UK REIT dividends 4 - Bank interest 1 - Exchange gains on income 2 - Total income 828 1,087
3. Return per Share
Returns per Ordinary share are based on the weighted average number of shares in issue during the year. Basic and diluted return per share are the same as there are no dilutive elements on share capital.
Year ended 30 April 2020 Year ended 30 April 2019 Revenue Capital  Total  Revenue Capital Total Net profit (£000) 81 (6,737) (6,656) 307 (19,982) (19,675) Weighted average number of shares in issue 142,482,631 153,363,323  Return per share (pence) 0.06 (4.73) (4.67) 0.20 (13.03) (12.83) The 50,000 Management shares do not participate in the returns of the Company.
4. Share Capital
Year ended 30 April 2020 Year ended 30 April 2019 Number £000 Number £000 Ordinary shares of £0.001 each Opening balance 152,653,822 153 171,151,514  171  Redemptions (14,317,907) (14) (18,497,692) (18) 138,335,915 139 152,653,822  153
Year ended 30 April 2020 Year ended 30 April 2019 Number £000 Number £000 Management shares £1 each 50,000 50 50,000 50 The rights attaching to each share class are set out within the full Report. Cancellation of Share Premium Following Court approval and the subsequent registration of the Court order with the Registrar of Companies on 13 August 2019, the cancellation of the Company's share premium account became effective.  Accordingly, the amount of £86,986,000 previously held in the share premium account was cancelled and transferred to the special reserve. On 15 August 2019, the Company redeemed 14,317,907 Ordinary shares pursuant to its voluntary redemption facility. The Ordinary shares were redeemed at a price of 53.92 pence per Ordinary share, costing £7,721,000 including expenses. As at 31 October 2019, there were 138,335,915 Ordinary shares and 50,000 Management shares in issue. Redemption of Ordinary Shares The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of Ordinary shares on an annual basis. As set out in the Articles of Association, the Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. Accordingly, the Ordinary shares have been classified as equity. Given the size of the redemption requests for the June 2020 redemption point, the Directors expect to meet this via a redemption pool, the final redemption price for which will not be known for some months. The shares will be held in escrow following the determination of the redemption price. Management Shares 50,000 Management shares with a nominal value of £1 each were allotted to Miton Trust Managers Limited on the date of incorporation. These shares have been fully paid up. The Management shares are non-voting and non-redeemable and, upon a winding-up or on a return of capital of the Company, shall only receive the fixed amount of capital paid up on such shares and shall confer no right to any surplus capital or assets of the Company.
5. Net Asset Values
The NAVs per Ordinary share and the net assets attributable at the year end were as follows:
30 April 2020 30 April 2019 Ordinary share Ordinary share Net asset value per share pence Net assets attributable £'000 Net asset value per share pence Net assets attributable £'000 Basic and diluted 51.33 71,011 56.13 85,679
NAV per Ordinary share is based on net assets at the year end and 138,335,915 Ordinary shares (2019: 152,653,822), being the number of Ordinary shares in issue at the year end. NAV of £1.00 per Management share is based on net assets at the year end of £50,000 (2019: £50,000) and attributable to 50,000 Management shares at the year end. The shareholders have no right to any surplus capital or assets of the Company.
6. Transaction Costs
During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
Year ended 30 April Year ended 30 April 2020 2019 £000 £000 Costs on acquisitions 8 21 Costs on disposals 26 50 34 71
These transaction costs are dealing commissions paid to stockbrokers and stamp duty, a government tax paid on transactions (which is zero when dealing on the AIM/ISDX exchanges). A breakdown of these costs is set out below:
30 April 2020 30 April 2019 Ordinary share £'000 % of average monthly net assets in the year Ordinary share £'000 % of average monthly net assets in the year Costs paid in dealing commissions 32 0.04 59 0.06 Costs of stamp duty 2 - 12 0.01 34 0.04 71 0.07
The average monthly net assets of the Ordinary shares for the year to 30 April 2020 was £72,325,463 (2019: £96,533,871)
7. Management Fee
The AIFM is entitled to receive from the Company in respect of its services provided under the Management Agreement a management fee for both the Ordinary share and C share classes (when in issue), payable monthly in arrears and calculated at the rate of 1% per annum of the market capitalisation of each share class as at the relevant calculation date. In addition to the basic management fee, and when a Redemption Pool is in existence, the AIFM is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month. The AIFM has agreed that, for so long as it remains the Company's investment manager, it will not charge such part of any management fee payable to it so that the Company can maintain an ongoing charges ratio of 2% or lower. The ongoing charges ratio for the period is 1.68% (2019: 1.52%) for the Ordinary shares, and as such is below 2%. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.
Year ended 30 April 2020 Year ended 30 April 2019 Revenue £000 Capital £000 Total £000 Revenue £000 Capital £000 Total £000 Management fee 168 506 674 233 698 931
At 30 April 2020, an amount of £42,000 (30 April 2019: £67,000). was outstanding and due to Miton Trust Managers Limited in respect of management fees
8. Other Expenses
Year ended 30 April 2020 £000 Year ended 30 April 2019 £000 Directors' fees 117 115 Auditor's remuneration - BDO LLP 34 - Auditors' remuneration - Ernest Young LLP - 24 Secretarial Services 175 168 Registrars fees 22 14 Custodian fees 11 13 Depositary fees 18 25 Advisory and professional fees 79 92 Printing and postage 19 9 Research fee* 10 3 Directors insurances and other expenses 14 16 Irrecoverable VAT 45 43 Miscellaneous 12 11 556 533
*contribution to Investment Manager's research budget
During the years ended 30 April 2020 and 30 April 2019, the Auditor's remuneration related to audit services only.
9. Finance Costs
Year ended 30 April 2020 Year ended 30 April 2019 Revenue Capital Total Revenue Capital  Total  £'000 £'000 £'000 £'000 £'000  £'000  RBS £7.5m revolving loan facility - arrangement fee - 8 8 2 4 6 RBS £7.5m revolving loan facility - non-utilisation fee - 36 36 10 31 41 - 44 44 12 35 47
The Company entered into a revolving loan facility (the "facility") on 12 February 2018 for £7.5m which was subsequently amended to £5m on 19 December 2019 (the "amendment"). The facility has been arranged by NatWest Markets Plc (previously known as The Royal Bank of Scotland plc), and the lender The Royal Bank of Scotland International Limited, London branch. The original terms of the facility set out below remain unchanged under the amendment except where stated: • Interest at 1.10% above LIBOR on any drawn down balance. • Commitment fee of 0.55% on any undrawn balance where less than 25% of the facility is drawn down or 0.45% on any undrawn balance where more than 25% of the facility is drawn down. • The covenants require that borrowings will not at any time exceed 15% of the adjusted portfolio value, being the total portfolio value less the gross market value of each investment which is not a quoted equity freely traded on a recognised investment exchange, and that the net asset value shall at all times be greater than £50m (previously £70m). If the Company breaches any covenant it is required to notify RBS of any default and the steps being taken to remedy it. The arrangement fee of £18,750 was paid and amortised over the 3-year period of the facility. A further £5,000 was paid for the amendment to the facility. The Company has not drawn down this facility during the year (2019:nil) and no amounts have been drawn down at the date of signing this report.
10. Taxation
30 April 2020 30 April 2019 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Overseas withholding tax suffered 23 - 23 14 - 14
The current tax charge is explained below:
30 April 2020 30 April 2019 Revenue  £000  Capital  £000  Total  £000  Revenue  £000  Capital  £000  Total  £000  Return on ordinary activities before taxation 81 (6.737) (6,656) 309  (19,970) (19,661) Theoretic tax at UK corporation tax rate on 19% (2019: 19%) 15 (1,280) (1,265) 59  (3,794) (3,735) Effects of: UK dividends that are not taxable (108) - (108) (134) -  (134) Overseas dividends that are not taxable (48) - (48) (59) -  (59) Non-taxable investments and derivatives losses/(gains) - 1,161 1,161 -  3,655  3,655  Overseas taxation and derivatives not recoverable 23 - 23 4  -  4  Double taxation relief - - - 10  -  10  Unrelieved expenses 141 119 260 134  139  273  Total current tax charge 23 - 23 14  -  14
Factors that may affect future tax charges
The Company has excess management expenses of £6,732,000 (2019: £5,460,000), that are available to offset against future taxable revenue. A deferred tax asset of £1,279,000 (2019: £928,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust Company.
11. Dividends
	30 April 2020		30 April 2019
	£'000	pence	£'000	pence
Amounts recognised as distributions to equity holders in the year: In respect of the previous period
Final dividend	277	0.20	550	0.36
	277	0.20	550	0.36
The Directors have recommended a final dividend in respect of the year ended 30 April 2020 of 0.10p (2019: 0.36p) per Ordinary share payable on 29 September 2020 to all shareholders on the register at close of business on 4 September 2020. The ex-dividend date will be 3 September 2020.
12. Investments
30 April 2020  £000  30 April 2019  £000  Investment portfolio summary: Opening book cost 84,320 82,523  Opening unrealised (losses)/gains (4,012) 20,480  Total investments designated at fair value 80,308 103,003  Analysis of transactions made in the year Opening fair value 80,308 103,003  Movements in the year Purchases at cost 15,771 27,582  Sales - proceeds (20,579) (31,282) -    - gains on sales 391 5,497  increase in unrealised losses (8,515) (24,492) Closing fair value 67,376 80,308  Closing book cost 78,099 84,320  Closing unrealised (losses)/gains (10,723) (4,012) 67,376 80,308  Analysis of capital losses Gains on sales 391 5,497  Movement in unrealised losses (8,515) (24,492) Losses on investments held at fair value through profit or loss (8,124) (18,995)
A list of the largest portfolio holdings by their fair value is shown within the full Report.
13. Fair Value Hierarchy
Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 - Valued using quoted prices, unadjusted in active markets for identical assets and liabilities. Level 2- Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1. Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. Financial assets are transferred at the point in which a change of circumstances occur. The table below sets out the fair value measurement of financial assets and liabilities in accordance with the fair value hierarchy.
Level 1 £'000 Level 2 £'000 Level 3 £'000 Total £'000 Financial assets at fair value through profit or loss at 30 April 2020 Equity investments 67,376 - - 67,376 Derivative contracts - - - 63,376 67,376 - - 67,376 Level 1 £'000 Level 2 £'000 Level 3 £'000 Total  £'000  Financial assets at fair value through profit or loss at 30 April 2019 Equity investments 78,501 - 1,807 80,308 Derivative contracts 690 - - 690 79,191 - 1,807 80,998 The level 2 investments are at values calculated using observable inputs, Warrants are valued at exercise price of £nil. Reconciliation of Level 3 Movements - Financial Assets As at 30 April 2020  Level 3  £'000  As at 30 April 2019  Level 3  £'000   Opening fair value investments 1,807 2,404  Purchase at cost - (200) Realised gains on sales - (579) Transfer (to)/ from Level 1 (870) 182 Movement in unrealised gains (937) - Closing fair value of investments - 1,807
The fair value of Level 3 investments are based on discounted anticipated future cash returns. Rockrose Energy was readmitted to AIM and was reclassified from Level 3 to Level 1 at fair value. Other Financial Assets and Liabilities For all other financial assets and liabilities, the carrying value is an approximation of fair value, including; trade and other receivables; cash and cash equivalents and trade and other payables. 14. Derivative Contracts Year to 30 April 2020  £000  Year to 30 April 2019  £000  Derivative Instruments at fair value through profit or loss at 30 April 2020 Opening book cost 931 - Opening holding loss (241) - Total derivative instruments designated at fair value 690 - Analysis of movements Opening fair value 690 - Movements in the year: Purchases at cost - 931 Sales   - proceeds   - gains on sales (2,706) 2,016 - - Movement in unrealised loss - (241) Closing fair value - 690 Closing book cost - 931 Closing unrealised (losses)/ gains - (241) Closing fair value - 690 30 April 2020 £000 30 April 2019 £000 Analysis of Capital gains/ (losses) Gain on sale of derivative 2,016 - Movement in unrealised losses - (241) Gain/(losses) on derivatives held at fair value through profit or loss 2,016 (241) Typically, derivative contracts serve as components of the Company's investment strategy and are utilised primarily to structure and hedge investments, to enhance performance and reduce risk to the Company (the Company does not designate any derivative as a hedging instrument for hedge accounting purposes). The derivative contracts that the Company may hold from time to time or issue include: index-linked notes, contracts for differences, covered options and other equity-related derivative instruments. Derivatives often reflect, at their inception, only a mutual exchange of promises with little or no transfer of tangible consideration. However, these instruments can involve a high degree of leverage and are very volatile. A relatively small movement in the underlying value of a derivative contract may have a significant impact on the profit and loss and net assets of the Company. The Company's investment objective sets limits on investments in derivatives with a high risk profile. The Investment Manager is instructed to closely monitor the Company's exposure under derivative contracts and any use of the derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments. The Company will not enter into uncovered short positions. The Company has positions in the following type of derivative: The Company purchases either Put or Call options through regulated exchanges and OTC markets. Options purchased by the Company provide the Company with the opportunity to purchase (Call options) or sell (Put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Company is exposed to credit risk on purchased options only to the extent of their carrying value, which is their fair value. Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. The company held no derivative position as at year end.
15. Trade and Other Receivables
30 April 2020 £'000 30 April 2019 £'000 Amount due from brokers 17 2 Dividends receivable 28 73 Prepayment and other debtors 29 32 Taxation recoverable 2 1 76 108
16. Trade and Other Payables
30 April 2020 £'000 30 April 2019 £'000 Amount due to brokers 151 71 Other creditors 132 140 283 211
17. Capital Management Policies
The Company's capital management objectives are: · to ensure that it will be able to continue as a going concern; and · to maximise the income and capital return over the long term to its equity shareholders through an appropriate balance of equity capital and debt. As stated in the investment policy, the Company has authority to borrow up to 15% of net asset value through a mixture of bank facilities and certain derivative instruments. There were no borrowings as at 30 April 2020 or throughout the year (2019: nil). Also, as a public company, the minimum share capital is £50,000. The Company's capital at 30 April 2020 comprised:
30 April 2020 £000 30 April 2019 £000 Current liabilities: Trade and other payables 283 211 Equity: Equity share capital 189 203 Retained earnings and other reserves 70,822 85,476 Total shareholders' fund 71,294 85,890 Debt as a % of net assets 0.00% 0.00%
The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: · the planned level of gearing, which takes into account the Investment Manager's view of the market; · the buy back of shares for cancellation or treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium); · new issues of equity shares; and · the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital have remained unchanged since its launch.
18. Reserves
Ordinary shares to 30 April 2020 Share premium account £'000 Special Reserve £000 Capital redemption reserve £'000 Capital  reserve  realised    £'000  Capital   reserve unrealised   '000  Revenue   reserve  £'000  Opening balance 86,986 - 20 2,181 (4,254) 543 Redemption of Ordinary shares - (7,720) 14 Redemption of Ordinary Share Cost - (1) - - - - Net gain on realisation of investments and derivatives - - - 2,407 . . Unrealised gains realised in the year - - - 4 (4) - Unrealised net decrease in value of investment and derivates - - - . (6,465) . Realisation of previously unrealised losses* - - - (2,051) 2,051 Management fee charged to capital . - . (506) . . Finance costs charged to capital - - - (44) . . Capital Expenses - - - (79) - - Cancellation of Share Premium (86,986) 86,986 - - - - Cancellation of Share Premium Costs - (14) - - - - Equity Dividends paid - . . (277) Revenue return on Ordinary activities after tax - . . 81 Closing balance - 79,251 34 1,912 (10,722) 347 *Realisation of previously unrealised losses consists of Atlas African Industries Ltd £285,000, Fairpoint Group plc £491,000, Fishing Republic plc £771,000 and Patisserie Holdings plc £504,000. Ordinary shares to 30 April 2019 Share  premium  account   '000  Special reserve £'000 Capital redemption reserve £'000 Capital  reserve  realised    £'000  Capital   reserve  unrealised   '000  Revenue   reserve  £'000  Opening balance 86,986 - 2 10,197  20,473  786  Redemption of Ordinary shares - - 18 (12,761) -  -  Net gain on realisation of investments - - - 5,497  -  -  Unrealised net increase in value of investments and derivatives - - - -  (24,733) -  Management fee charged to capital - - - (698) -  -  Finance costs charged to capital - - - (47) -  -  Equity dividends paid - - - -  -  (550) Foreign currency gains/(losses) - - - (7) 6  -  Revenue return on ordinary activities after tax - - - -  -  307 Closing balance 86,986 - 20 2,181  (4,254) 543 At 30 April 2020, the distributable reserves of the Company comprised of £70,788,000 (2019:£nil). The special reserve was created and distributable on 13 August 2019.
19. Analysis of Financial Assets and Liabilities
Investment Objective and Policy The Company's investment objective and policy are detailed within the Annual Report. The Company's investing activities in pursuit of its investment objective involve certain inherent risks. The Company's financial instruments can comprise: · shares and debt securities held in accordance with the Company's investment objective and policies; · derivative instruments for efficient portfolio management, gearing and investment purposes; and · cash, liquid resources and short-term debtors and creditors that arise from its operations. The risks identified arising from the Company's financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period. Market Risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. Market price risk Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance and exposure are reviewed at each Board meeting. The Company's exposure to changes in market prices as at 30 April 2020 on its equity and listed Put index option investments held at fair value through profit or loss was £67,376,000 (2019: £80,998,000). A fall of 30% in fair value would reduce net assets by £20,211,000 at 30 April 2020. An equal change in the opposite direction would have decreased the net assets and net profit available to shareholders by an equal and opposite amount. The analysis is based on closing balances only and is not representative of the year as a whole. Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits. The Company's financial assets and liabilities, excluding short-term debtors and creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair value may be affected by movements in interest rates. The majority of the Company's financial assets and liabilities, however, are non-interest bearing. As a result, the Company's financial assets and liabilities are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. There was no exposure to interest bearing liabilities during the year ended 30 April 2020 (2019: nil). The Company has a £5m revolving loan facility with RBS at an interest rate of 1.10% above LIBOR on any drawn down balance and 0.55% on any undrawn balance where less than 25% of the facility is drawn down or 0.45% on any undrawn balance where more than 25% of the facility is drawn down. During the year the facility has not been drawn down. The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions.
The interest rate profile of the Company (excluding short-term debtors and creditors) was as follows:
30 April 2020 Floating rate £'000 30 April 2019 Floating rate £'000 Assets and liabilities: Cash and cash equivalents 3,842 4,784 3,842 4,784
If the above level of cash was maintained for a year, a 1% increase in LIBOR would increase the revenue return and net assets by £38,000 (2019: £48,000). If there was a fall by 1% in LIBOR it would potentially impact the Company by a revenue reduction of £38,000 (2019: £48,000). Foreign currency risk Although the Company's performance is measured in Sterling, a proportion of the Company's assets may be either denominated in other currencies or in investments with currency exposure. Any income denominated in a foreign currency is converted into Sterling upon receipt. At the Balance Sheet date, all the Company's assets were denominated in Sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies. Liquidity Risk Liquidity risk is not significant as the Company is a closed-ended investment trust and the majority of the Company's assets are investments in quoted equities and other quoted securities that are readily realisable. The Company's liquidity risk is managed on a daily basis by the Investment Manager in accordance with established policies and procedures in place. The Investment Manager reviews daily forward-looking cash reports which project cash obligations. These reports allow it to manage its obligations. A maturity analysis is not presented as the Investment Manager does not consider this to be a material risk. Credit and Counterparty Risk Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations. The maximum exposure to credit risk as at 30 April 2020 was £3,918,000 (2019: £4,892,000). The calculation is based on the Company's credit risk exposure as at 30 April 2020 and this may not be representative for the whole year. The Company's quoted investments are held on its behalf by The Bank of New York Mellon, acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls report. Where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default. The Company's cash balances are held on its behalf by BNYM. The Board monitor the credit worthiness of BNYM, currently rated at Aa1 (Moody's). The exposure of cash held at BNYM as at 30 April 2020 £3,842,000 (2019: £4,784,000). The cash balances will fluctuate throughout the year and the Board will monitor the exposure. Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. None of the Company's assets are past due or impaired.
20. Related Parties
The Directors who served in the year were entitled to the following emoluments in the form of fees:
Directors Fees Directors'  fees per annum £'000 Directors' fees paid for the year £'000 Outstanding as at 30 April 2020 £'000 Directors'  fees per annum £'000 Directors' fees paid for the year £'000 Outstanding as at 30 April 2019 £'000 Andrew Pomfret (Chairman) 36 36 - 35 35 - Peter Dicks 31 31 - 30 30 - Jan Etherden 25 25 - 25 25 - Ashe Windham 25 25 - 25 25 -
Details of the Management fee payable to Miton Trust Managers Limited pursuant to the Investment Management Agreement are set out in the Strategic Report . Amounts paid and payable are set out in Note 7.
21. Post Balance Sheet Events
The Company has received redemption requests for 27,061,157 shares. Amounting to 20% of the shares in issue. Since 30 April markets and operations have continued to be disrupted by the effects of the COVID-19 pandemic. However, since the half year end the NAV per share has increased by 12.1% to 25 June 2020
22. Contingent Liability The Company is one of more than 45 defendants to proceedings filed in June 2019 by Howard M. Ehrenberg, in his capacity as the liquidating trustee of Orion Healthcorp, Inc., (the "Trustee") in the United States Bankruptcy Court in the Eastern District of New York arising from the takeover of Constellation Healthcare Technologies, Inc. The total claim is for US%1.88m. In November 2019, the Company moved to dismiss the proceedings on the grounds that the United States Bankruptcy Court does not have jurisdiction over the Company and further intends to dispute the claim on multiple additional grounds.  The Trustee's opposition to that motion is due later in 2020.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on 22 September 2020.
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: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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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