Half-year Report

RNS Number : 8915R

Miton UK MicroCap Trust plc

15 December 2016

 

MITON UK MICROCAP TRUST PLC
HALF-YEARLY REPORT FOR THE PERIOD TO 31 OCTOBER 2016

The Directors present the Half-Yearly Financial Report of the Company for the period to 31 October 2016.

Miton UK MicroCap Trust Plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI, with total net assets of £94m as at 31 October 2016. It is referred to as the Company, the Trust or as MINI in the text of this Report. The Company has a Board that is independent of the Investment Manager.

This Report covers the six months up to 31 October 2016, a period when market movements have been dominated by the UK's decision to withdraw from the EU. The net asset value ("NAV") of the Ordinary shares has risen by 3.9% in the half year.

The Trust raised £28m of new capital via a C share issue in February 2016. When over 90% of this capital was invested, by mid July 2016, the C share portfolio was merged with the Ordinary share portfolio.

RESULTS FOR THE HALF YEAR TO 31 OCTOBER 2016

-      Over the half year the Ordinary share NAV rose from 54.91p on 30 April 2016, to 57.03p on 31 October 2016, an appreciation of 3.9%.

-      The Trust has grown during the period, with the conversion of the C shares into Ordinary shares, and the merger of the two portfolios. At the end of the period, the net assets were £94.0m.

-    The Ordinary share price moved from 56.75p at the end of April 2016 to 56.63p at the end of October 2016.

-      Revenue after costs amounting to £0.491m was generated in the half year to the end of October 2016, and has been credited to the revenue reserves.

Summary of Results

	31 October 2016	30 April 2016	Change %
Total Net Assets attributable to equity shareholders (£'000)	93,960	60,392
NAV per Ordinary share	57.03p	54.91p	3.86
Share price (mid)	56.63p	56.75p	(0.21)
Discount/Premium to NAV	(0.70)%	3.35%
Revenue return per Ordinary share	0.35p*	0.32p
Total return per Ordinary share	4.16p*	5.64p
Ongoing charges	1.51%**	1.76%
Shares in issue	164,767,917	109,990,000

* For six months ended 31 October 2016. Note: comparative figure is for the period ended 30 April 2016.

** Estimated as at 31 October 2016 in accordance with AIC guidelines. Ongoing charges are the Company's annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year.

CHAIRMAN'S STATEMENT

The report covers the six month period ended 31 October 2016 of Miton UK MicroCap Trust plc.

Equity Markets

Over this period, stock market returns were dominated by the UK's decision to leave the EU. Many FTSE 100 companies have significant earnings from overseas which have increased simply as a result of the fall in Sterling. Indeed, five of the top ten UK quoted companies pay their dividends in US Dollars or Euros, so their share prices rose with the devaluation of Sterling. The FTSE All-Share Index rose 10.1% over the period, reflecting their large weightings.

Although the share prices of most mid-sized and smaller companies fell back after the UK Referendum result, they then staged a recovery. So between April and October, the FTSE SmallCap (excluding Investment Companies) Index rose 3.6%, whilst the FTSE AIM All-Share Index rose 13.0%. Generally the share prices of most of the smallest companies have been out of the limelight in the period, so the NAV of the Trust only appreciated 3.9% over the half year.

There was a good uplift in dividend income from the Trust's portfolio over the half year. After deducting the Trust's running costs, the revenue return was 0.35p per share. The Trust does not currently pay an interim dividend, since it is more cost effective to pay a more meaningful final dividend each year following its approval by shareholders at the AGM.

C share portfolio

On 19 February 2016 £27.5m of new capital was raised for the Trust in a new C share issue. This capital was progressively invested over the period, and when more than 90% of the capital had been invested, it was merged with the Ordinary share portfolio on 19 July 2016.

With the appreciation of the portfolio and the new capital, the total assets of the Trust have grown to £94.2m at the end of October. There are obvious advantages for shareholders as the Trust gets larger, since the fixed costs are spread over a larger capital base. In addition, a larger Trust tends to have greater stock market liquidity as well.

Outlook

Growth was plentiful during the period of globalisation. However, the UK Referendum and the election of Donald Trump as US President have underlined just how radically social and political attitudes have changed over recent years. These developments will lead to major changes in economic policy and market trends, and fund managers will need to reflect these changes in the criteria they use for portfolio construction in future.

Miton UK MicroCap Trust plc was set up with the changing market conditions in mind. During challenging periods in the past, it has been the greater vibrancy of smaller quoted companies that has driven premium performance. Recently the largest companies have become the centre of attention whilst investors digest the recent momentous events. In the future we believe it will be the productivity improvements coming from many of the microcaps that will drive performance. We remain upbeat about the prospects for the Trust.

Andy Pomfret

Chairman

14 December 2016

MANAGER'S REPORT

Details of the Manager

The Company's Investment Manager is Miton Trust Managers Limited, a wholly owned subsidiary of Miton Group plc ("Miton").

Miton is itself a smaller quoted company, listed on AIM. Miton has a close knit team and agility that means it can be more independent in its thinking. This is important at all times, but following Brexit and the US Presidential Election when market trends could be changing more significantly, this may be particularly relevant. Miton has a team of four fund managers researching UK quoted stocks. The day to- day management of the Trust's portfolio is carried out by Gervais Williams and Martin Turner, who have a particular focus on researching many of the smaller quoted stocks.

Gervais Williams

Gervais joined Miton in March 2011 as Managing Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was awarded Fund Manager of the Year 2014 by What Investment?

Martin Turner

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

The overall objective of the Trust

During the credit boom many funds adopted mainstream indices as their benchmark of success. A very large number of equity funds therefore have sizeable holdings in a uniform group of the largest stocks.

Miton is distinctive in that many of our funds do not use traditional benchmarks. In particular, we advocate that market participants should be very attentive to the post credit boom trends, and we often propose investment strategies anticipating forthcoming investment trends, rather than slavishly following the consensus. Overall, we would like to manage this Trust so that it delivers a superior capital gain ahead of most other comparative funds.

Although the dividend yield on the Trust is modest at present, we also seek to invest the portfolio so that it can generate superior dividend growth over the longer term.

Implementing the investment strategy

In general, we believe that companies with decent productivity improvements are likely to be amongst those that deliver attractive returns. The point is that productivity improvement typically generates a cash payback on the investment, and it is this growing cashflow that leads to these types of stocks outperforming. Businesses with strong cashflow can go on to fund yet more productivity improvements, as well as ultimately a stream of growing dividends that should lead to an increase in market value over time.

We find the following five factors particularly helpful when selecting productive investments with attractive risk/reward ratios for the Trust.

Turnover growth - Although some companies can succeed in growing their profits without turnover growth, in general the most sustainable long-term growth comes from those that expand their turnover.

Companies investing in productivity improvement can often increase sales via an innovative new service, or through introducing a superior or improved product. Even in times of economic stagnation, this type of improvement can sometimes generate decent turnover growth.

Sustained margins - A company that generates extra turnover growth may find it does not grow its cashflow much if its profit margins fall back. The best kinds of productivity improvement should reduce the cost of goods, and some can also justify a better market price. Ideally, we are looking for companies that have the potential to sustain or improve their profit margins, through outstanding customer service. This may be especially important in the current competitive environment when even sustaining margins could be a good result.

Management of risk - All investment carries risks, but often those going for the fastest growth are obliged to take the greatest risks. In general, we aim to moderate portfolio risk by investing in companies where the management team are happy to grow at a steady rate without taking sizeable risks. Such companies still carry plenty of potential to deliver an attractive return for their shareholders over time.

Better balance sheets - Many corporates have taken on extra debt over the past decade given exceptionally low interest rates. However, we prefer investments with net cash balances or those with modest debt relative to the headroom on the facility.

In a world that is uncertain, those with under-geared balance sheets can take more advantage of any economic setbacks to disproportionally improve their market position, whereas those fully drawn on their facilities tend to have fewer options.

Low entry valuations - The upside potential on an investment is often greater when the valuation on entry is modest. In general, we favour stocks where the overall market capitalisation reflects some of the problems of the past in preference to those which are already reflecting much of the excitement about the future.

With few institutional investors actively researching the smallest quoted companies, there are plenty of stocks with what we believe are low entry valuations.

Progress over the period

Equity markets remained volatile during the period under review. Generally, world growth expectations have continued to decline. Overall market returns were dominated by the UK's decision to leave the EU. Although this adds a degree of uncertainty going forward, the subsequent devaluation of Sterling has boosted the value of those companies with international operations. In particular, the share prices of those that pay dividends in overseas currencies have performed well. This included five of the top ten companies in the FTSE 100 Index, and therefore many of these companies have performed well in the period.

The share prices of many smaller quoted companies were marked lower after the Brexit announcement, but they have subsequently recovered. The AIM All-Share Index performed particularly well over the six month period, but in large part this was due to the strong performance of some of the very largest AIM stocks like ASOS and GW Pharma.

The C share capital raised prior to the half year, reached the 90% invested position and the two portfolios were merged on 19 July 2016.

At the end of the half year, the Trust's portfolio comprised 123 stocks invested in a wide range of industry sectors. Some holdings have performed strongly since purchase, with Fulcrum Utility Services and Atlantis Resources rising to amount to more than 4% and 3% of the combined portfolio respectively. With only five holdings that are greater than 2% of the portfolio, most of the capital is widely diversified. Further details of the largest holdings of the portfolio at the end of October are outlined on page 14 of this Report.

The period was marked by plenty of movement in share prices. There have been quite a few holdings in the portfolio that have been marked down, where we believe that the prospects remain attractive. WYG, for example, has continued to announce further contracts from the EU subsequent to the Brexit decision, but even so investors appear to be cautious of its ongoing potential. And the share prices of

Personal Group and Jaywing also remain oversold in our view. The greatest detractor from performance in the half year was Bilby, where one of its largest customers took their service inhouse, and Sepura, a recovery stock where the recovery has been deferred after the fund purchased the holding at the time of a rights issue.

The greatest contributors to performance in the half year came from Harvest Minerals, which is bringing a new potash quarry into production at very low cost, and Fishing Republic, a company that is rolling out a network of fishing tackle stores. Both started the period with market capitalisations below £10m and demonstrate the potential scale of upside in very small quoted companies. Many other holdings have also performed well in the period, with particular mention of Caledonia Mining, Marlowe, IG Design Group, Swallowfield, IQE, Amino Technologies and XLMedia, that all rose more than 40% in the period. In addition, Superglass has agreed to a takeover.

Current market trends and outlook

The globalisation of trade along with the adoption of debt has led to a long period of world growth. Although there was some recovery after 2008, world growth has lost momentum in spite of interest rates remaining at remarkably low levels. In fact, for much of the last five years, the principal drivers of market return have been the ongoing reduction of bond yields, and rising equity valuations.

However, with long bond yields at such low levels, there is little scope for the previous trend to continue. To some degree there is growing anxiety that inflationary pressure may rise in future. Either way, electorates around the world have made it unambiguously clear that they are looking for a profound change in economic policies going forward. All this suggests that previous market trends may be changing.

This could represent an opportunity. Although economic conditions may be more challenging, it implies corporate agility and sure footed decision making could be more important. In general, Miton UK MicroCap Trust has a portfolio of these types of companies. Clearly we should not be complacent. Some may disappoint, but overall we continue to remain upbeat about the prospects for the Trust.

Gervais Williams and Martin Turner

14 December 2016

PORTFOLIO INFORMATION

as at 31 October 2016

Rank	Company	Sector & main activity	Valuation £'000	% of net assets	Yield1 %
1	Fulcrum Utility Services	Utilities	4,027	4.3	2.0
2	Atlantis Resources	Oil & Gas	3,030	3.2	-
3	Autins	Consumer Goods	2,678	2.9	-
4	Cerillion	Technology	2,489	2.7	-
5	Constellation Health	Health Care	2,178	2.3	-
6	Fishing Republic	Consumer Goods	1,858	2.0	-
7	Brighton Pier Group	Consumer Services	1,750	1.9	-
8	WYG	Industrials	1,704	1.8	1.4
9	Kromek Group	Health Care	1,539	1.6	-
10	Conygar Investment Company	Financial Services	1,535	1.6	1.1
Top 10 Investments			22,788	24.3
11	Science in Sport	Consumer Goods	1,508	1.6	-
12	Cello Group	Consumer Services	1,439	1.5	3.1
13	Ingenta	Technology	1,416	1.5	-
14	IG Design Group	Consumer Goods	1,401	1.5	1.0
15	Bilby	Industrials	1,399	1.5	3.5
16	IQE	Technology	1,344	1.4	-
17	Caledonia Mining	Basic Materials	1,335	1.4	3.6
18	IBEX Global Solutions	Industrials	1,317	1.4	8.7
19	Amino Technologies	Technology	1,310	1.4	3.7
20	YU Group	Utilities	1,296	1.4	0.2
Top 20 Investments			36,553	38.9
21	Frontier IP Group	Industrials	1,265	1.3	-
22	Zotefoams	Basic Materials	1,264	1.3	2.2
23	Walker Crips Group	Financial Services	1,259	1.3	3.9
24	Harvest Minerals	Basic Materials	1,220	1.3	-
25	Charles Taylor	Industrials	1,210	1.3	3.4
26	Dekeloil Public	Consumer Goods	1,187	1.3	-
27	CML Microsystems	Technology	1,154	1.2	1.8
28	Stride Gaming	Consumer Services	1,141	1.2	-
29	Cropper (James)	Basic Materials	1,139	1.2	1.0
30	Finsbury Food Group	Consumer Goods	1,121	1.2	2.3
Top 30 Investments			48,513	51.5
31	Swallowfield	Consumer Goods	1,103	1.2	1.4
32	Crossrider	Consumer Services	1,083	1.2	-
33	K3 Business Technology Group	Technology	1,020	1.1	0.5
34	Totally	Health Care	1,006	1.1	-
35	STM Group	Financial Services	994	1.1	3.0
36	Van Elle Holdings	Industrials	947	1.0	-
37	Character Group	Consumer Goods	910	1.0	2.9
38	Avingtrans	Industrials	884	0.9	1.7
39	Utilitywise	Industrials	876	0.9	3.9
40	Park Group	Financial Services	875	0.9	4.3
Top 40 Investments			58,211	61.9
Balance held in 43 equity instruments			33,425	35.6
Total investment portfolio			91,636	97.5
Other net current assets			2,324	2.5
Net assets			93,960	100.0

¹ Source: Interactive Data. Based on historic dividends and therefore not representative of future yield.

Portfolio exposure by sector
Industrials		18.9%
Technology		16.9%
Consumer Goods		14.4%
Consumer Services		12.7%
Financial Services		10.1%
Health Care		7.8%
Basic Materials		6.4%
Utilities		5.8%
Oil & Gas		4.5%
Other net current assets		2.5%
Portfolio by asset allocation
AIM	86.7%
FTSE SmallCap Index	5.0%
FTSE Fledgling Index	3.4%
Other net current assets Other UK Equities	2.5% 2.4%

Portfolio by spread of investment income to 31 October 2016
AIM	80.4%
FTSE SmallCap Index	9.3%
FTSE Fledgling Index	7.2%
Other UK Equities	3.1%

Estimated annual income by sector1
Industrials	36.1%
Financial Services	22.1%
Consumer Services	13.6%
Technology	8.7%
Consumer Goods	6.9%
Basic Materials	6.1%
Utilities	5.8%
Health Care	0.7%

¹ Projected income based on portfolio as at 31 October 2016.

Source: Interactive Data.

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT

Interim Management Report

The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement and the Manager's Report above.

The principal risks facing the Company, as identified by the Board, for the remaining six months of the

Company's financial year, together with details of actions taken to mitigate those risks, are summarised below.

Risk	Mitigation
Investment and strategy There can be no guarantee that the investment objective of the Company will be achieved. The Company will invest primarily in the smallest UK quoted or traded companies by market capitalisation. Smaller companies can be expected, in comparison to larger companies, to have less mature businesses, a more restricted depth of management and a higher risk profile. These companies may be less liquid and the portfolio may, when aggregated with holdings in other client funds of the Investment Manager, have a significant percentage ownership of investee companies.	The Company is reliant on its Investment Manager's investment process. The Board reviews and discusses the investment approach at each Board Meeting. The Investment Manager has long experience of managing portfolios of this nature, including dealing in smaller capitalisation companies, and deploying an approach that is designed to maximise the chances of the investment objective being achieved over longer-term time horizons. The Board looks to mitigate this risk by ensuring the Company holds a well-diversified portfolio, both by number of companies and areas of operation. This is monitored at each Board meeting. The Company is structured as a closed ended fund, which means that it is not subject to daily inflows and outflows.
Reliance on third parties 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, where appropriate, on the performance of its key service providers. In relation to the risk of counterparty failure, the Board undertakes regular reviews of the controls applied by the Depositary. The Board may in any event terminate all key contracts on normal market terms.
Share price volatility and liquidity/marketability risk The market price of the Ordinary Shares, as with shares in all investment trusts, may fluctuate independently of their underlying NAV and may trade at a discount or premium at different times, depending on factors such as supply and demand for the Ordinary Shares, market conditions and general investor sentiment. The Company becomes too small to be attractive to a wide audience and liquidity decreases and the discount widens.	The Company has in place an Annual redemption facility whereby shareholders can voluntarily tender their shares. The Board monitors the relationship between the share price and the NAV. The Company has powers to repurchase shares should there be an imbalance in the supply and demand leading to a discount.
Costs of operation As stated the Company relies on external service providers. Many of these are paid on a basis where their fees are related to the size of the Company (an ad valorem basis). Others are for fixed monetary amounts. Therefore, if the Trust were to shrink, through redemptions, buybacks or asset performance, the cost per share of running the Trust may increase. This could make it harder to achieve the investment objective.	The Board monitors the costs of all service providers. The Board is also committed to the controlled growth of the Company which would spread the fixed costs over a larger asset base. In the event that the Trust were to decrease in size from its current level, the Board has capped the total costs at no more than 2% of the aggregate market capitalisation.
Regulatory risk/change in tax status The Company is subject to laws and regulations enacted by national and local governments. Any change in the law and regulation affecting the Company may have a material adverse effect on the ability of the Company to carry on its business and successfully pursue its investment policy.	The Board receives regular updates from its Secretary, industry representatives and its Investment Manager on significant regulatory changes that may impact the Company. The Company's ability to determine the shape of regulatory or tax changes is limited and therefore the Board aims to ensure that it is well-informed and prepared to respond to changes as required.

Responsibility Statement

The Directors confirm that to the best of their knowledge:

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

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

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

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

This Half-Yearly Financial Report was approved by the Board of Directors on 14 December 2016 and the above responsibility statement was signed on its behalf by Andy Pomfret, Chairman.

INDEPENDENT REVIEW REPORT

Introduction

We have been engaged by Miton UK MicroCap Trust plc (the "Company") to review the Condensed financial statements in the Half-yearly report for the six months ended 31 October 2016 which comprise the Condensed income statement, the Condensed balance sheet, the Condensed statement of changes in equity, the Condensed statement of cash flows, Basis of preparation and the related notes 1 to 10 (together the 'Condensed financial statements'). We have read the other information contained in the Half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The Half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-yearly report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in the Basis of preparation and accounting policies, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Condensed consolidated financial statements included in this Half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the Condensed financial statements in the Half-yearly report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Condensed financial statements in the Half-yearly report for the six months ended 31 October 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London, United Kingdom

14 December 2016

CONDENSED INCOME STATEMENT

for the period to 31 October 2016

							Half year period to 31 October 2016			Period from 26 March 2015 to 31 October 2015			Period from 26 March 2015 to 30 April 2016
							Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
						Note
Gains on investments held at fair value through profit or loss							-	3,747	3,747	-	3,456	3,456	-	8,174	8,174
Income						2	839	-	839	413	-	413	955	-	955
Management fee						8	(112)	(336)	(448)	(70)	(212)	(282)	(161)	(484)	(645)
Other expenses							(236)	-	(236)	(226)	-	(226)	(428)	-	(428)
Return on ordinary activities before finance costs and taxation							491	3,411	3,902	117	3,244	3,361	366	7,690	8,056
Finance costs						9	-	1,969	1,969	-	-	-	(15)	(1,988)	(2,003)
Return on ordinary activities before taxation							491	5,380	5,871	117	3,244	3,361	351	5,702	6,053
Taxation							-	-	-	(2)	-	(2)	(4)	-	(4)
Return on ordinary activities after taxation							491	5,380	5,871	115	3,244	3,359	347	5,702	6,049
							pence	pence	pence	pence	pence	pence	pence	pence	pence
Basic and diluted return: Per Ordinary share						3	0.35	3.81	4.16	0.11	3.10	3.21	0.32	5.32	5.64

The Company does not have any income or expense that is not included in the 'return for the period'. Accordingly, the 'return for the period' is also the Total Comprehensive Income for the period as defined in International Accounting Standard 1 (revised), and consequently no separate Statement of Comprehensive Income has been presented.

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

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

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

CONDENSED STATEMENT OF CHANGES IN EQUITY

for the period to 31 October 2016

				Share
		Share		premium	Capital		Revenue
		capital		account	reserve		reserve		Total
	Note	£'000		£'000	£'000		£'000		£'000
As at 30 April 2016		160		54,183	5,702		347		60,392
Total comprehensive income:
Net return for the period		-		-	5,380		491		5,871
Transactions with shareholders recorded directly to equity:
Conversion of C shares	5	54		27,430	-		-		27,484
Issue of Ordinary shares		1		456	-		-		457
Expenses of share issues	5	-		(13)	-		-		(13)
Equity dividends paid	4	-		-	-		(231)		(231)
As at 31 October 2016		215		82,056	11,082		607		93,960
As at 26 March 2015		-	-		-	-		-
Total comprehensive income:
Net return for the period		-	-		3,244	115		3,359
Transactions with shareholders recorded directly to equity:
Issue of Ordinary shares	5	110	55,240		-	-		55,350
Expenses of share issue		-	(1,057)		-	-		(1,057)
As at 31 October 2015		110	54,183		3,244	115		57,652

As at 26 March 2015		-	-	-	-	-
Total comprehensive income:
Net return for the period		-	-	5,702	347	6,049
Transactions with shareholders recorded directly to equity:
Issue of Ordinary shares	5	110	55,240	-	-	55,350
Expenses of share issue		-	(1,057)	-	-	(1,057)
Issue of management shares	5	50	-	-	-	50
As at 30 April 2016		160	54,183	5,702	347	60,392

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

CONDENSED BALANCE SHEET

of the Company as at 31 October 2016

						31 October	31 October	30 April
						2016	2015	2016
					Note	£'000	£'000	£'000
Non-current assets:
Investments held at fair value through profit or loss						91,636	49,868	75,700
Current assets:
Trade and other receivables						736	172	232
Cash at bank and cash equivalents						1,857	8,013	14,708
						2,593	8,185	14,940
Total assets						94,229	58,053	90,640
Liabilities and equity Liabilities:
Trade and other payables						269	(401)	773
Financial liabilities at fair value through profit or loss						-	-	29,475
Total liabilities						269	401	30,248
Equity:
Share capital					5	215	110	160
Share premium account						82,056	54,183	54,183
Capital reserve						11,082	3,244	5,702
Revenue reserve						607	115	347
Total equity						93,960	57,652	60,392
Total liabilities and equity						94,229	58,053	90,640
						Pence	pence	pence
Net asset value per Ordinary share					6	57.03	52.42	54.91

These financial statements were approved by the Board of Miton UK MicroCap Trust plc on 14 December 2016 and were signed on its behalf by:

Andy Pomfret

Chairman

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

CONDENSED STATEMENT OF CASH FLOWS

for the Company for the period to 31 October 2016

					Half year period to 31 October 2016	Period from 26 March 2015 to 31 October 2015	Period from 26 March to 30 April 2016
					£'000	£'000	£'000
Operating activities:
Net return before taxation					5,871	3,361	6,053
Increase in investments					(3,747)	(3,456)	(8,174)
Purchase of investments					(22,159)	(49,128)	(71,973)
Sale of investments					9,970	2,806	4,447
Increase in trade and other receivables					(504)	(172)	(232)
(Decrease)/increase in trade and other payables					(504)	401	773
(Deduct)/add back finance cost					(1,969)	-	2,003
Withholding tax paid					-	(2)	(4)
Net cash outflows from operating activities					(13,042)	(46,280)	(67,107)
Financing activities:
Ordinary shares issued					457	55,350	55,350
Expenses of Ordinary share issue					(14)	(1,057)	(1,057)
C shares issued					-	-	28,000
Expenses of C share issue					(21)	-	(528)
Management shares issued					-	-	50
Equity dividends paid					(231)	-	-
Net cash inflows from financing activities					191	54,293	81,815
(Decrease)/Increase in cash and cash equivalents					(12,851)	8,013	41,708
Reconciliation of net cash flow movements in funds:
Cash and cash equivalents at the start of the period					14,708	-	-
Net cash (outflow)/inflow from cash and cash equivalents					(12,851)	8,013	14,708
Cash at the end of the period					1,857	8,013	14,708

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1.       Significant Accounting policies

Basis of preparation

The condensed financial statements of the Company have been prepared in accordance with 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 accounting policies and methods of computation followed in these half-year financial statements are consistent with the most recent annual financial statements for the period ended 30 April 2016.

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

The half-year statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".

The financial information contained in this Half-Yearly Report does not constitute statutory accounts as defined in Section 435(1) of the Companies Act 2006. The financial information for the periods ended 31 October 2015 and 31 October 2016 have not been audited, but the report for the period ended 31 October 2016 has been reviewed by the Company's Auditor and their report can be found on pages 19 and 20 of the Half-Yearly report. The figures and financial information for the period ended 30 April 2016 are an extract from the latest published audited financial statements and do not constitute statutory accounts for that period. Those accounts have been delivered to the Registrar of Companies and include a report of the Auditor, which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

Going concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of 12 months from the date these financial statements were approved). Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis and on the basis that approval as an investment trust company will continue to be met.

2.       Income

			Half year period to 31 October 2016	Period from 26 March 2015 to 31 October 2015	Period from 26 March 2015 to 30 April 2016
			£'000	£'000	£'000
Income from investments:
UK dividends			675	329	778
Unfranked dividend income			160	84	177
Underwriting commission			4	-	-
Total income			839	413	955

3.       Return per Share

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

Ordinary Shares:

	Half year period to 31 October 2016			Period from 26 March 2015 to 31 October 2015			Period from 26 March 2015 to 30 April 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Net profit	491	5,380	5,871	115	3,244	3,359	347	5,702	6,049
Weighted average number of shares in issue			141,184,463			104,600,189			107,273,065
Return per share (pence)	0.35	3.81	4.16	0.11	3.10	3.21	0.32	5.32	5.64

C Shares:		Period from 26 March 2015 to 30 April 2016
		Revenue	Capital	Total
		£'000	£'000	£'000
Net profit		15	1,460	1,475
Weighted average number of shares in issue				56,000,000
Return per share (pence)		0.03	2.61	2.63

The C shares are classified as a financial liability prior to conversion and as such the return on ordinary activities of the C shares is charged back within finance costs (see note 9).

4.       Dividends per Ordinary share

Amounts recognised as distributions to equity holders in the period.

	Half year period to 31 October 2016		Period from 26 March 2015 to 31 October 2015		Period from 26 March 2015 to 30 April 2016
	£'000	pence	£'000	pence	£'000	pence
In respect of the previous period:
Final dividend	231	0.14	-	-	-	-
	231	0.14	-	-	-	-

5.       Called-up Share Capital

	Half year period to 31 October 2016		Period from 26 March 2015 to 31 October 2015		Period from 26 March 2015 to 30 April 2016
	number	£'000	number	£'000	number	£'000
Ordinary shares of £0.001 each
Opening balance	109,990,000	110	-	-	-	-
Issue of Ordinary shares at launch	-	-	100,000,000	100	100,000,000	100
Conversion of C shares	53,927,917	54	-	-	-	-
Subsequent issue of Ordinary shares	850,000	1	9,990,000	10	9,990,000	10
	164,767,917	165	109,990,000	110	109,990,000	110

	Half year period to 31 October 2016		Period from 26 March 2015 to 31 October 2015		Period from 26 March 2015 to 30 April 2016
	number	£'000	number	£'000	number	£'000
Management shares of £1 each
Opening balance	50,000	50	-	-	-	-
Issue of management shares at launch	-	-	50,000	50	50,000	50
	50,000	50	50,000	50	50,000	50
		215		160		160

On 19 July 2016, the 56,000,000 C shares issued on 19 February 2016 converted into Ordinary shares at the ratio of 0.9630 Ordinary shares for every C share, calculated in line with the Prospectus dated 4 February 2016. This resulted in the issue of 53,927,917 new Ordinary shares on 20 July 2016. The Ordinary shares were allotted to the holders of C shares, which comprised institutional investors, discretionary private wealth managers and UK retail investors. Following the conversion of the C shares, the Company had 163,917,917 Ordinary shares in issue.

On 28 July 2016, the Company announced it had made an application for a block listing of 15,000,000 Ordinary shares, Any Ordinary shares issued pursuant to the block listing facility would be issued subject to the terms and conditions of the Company's Share Issuance Programme set out in the Prospectus dated 4 February 2016.

On 2 August 2016, the Company issued 850,000 Ordinary shares pursuant to its block listing. The Ordinary shares were issued at a price of 53.75 pence per Ordinary share, raising £0.457 million before expenses.

As at 31 October 2016, there were 164,767,917 Ordinary shares and 50,000 Management shares in issue.

6.       Net Asset Value per Ordinary Share

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

		Net asset value per share 31 October 2016	Net assets attributable 31 October 2016	Net asset value per share 31 October 2015	Net assets attributable 31 October 2015	Net asset value per share 30 April 2016	Net assets attributable 30 April 2016
		pence	£'000	pence	£'000	pence	£'000
Basic and diluted		57.03	93,960	52.42	57,652	54.91	60,392

NAV per Ordinary share is based on net assets at the period end and 164,767,917 Ordinary shares, being the number of Ordinary shares in issue at the period end. 109,990,000 Ordinary shares were in issue as at 30 April 2016 and 31 October 2015.

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

7.       Transaction Costs

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

	Half year period to 31 October 2016	Period from 26 March 2015 to 31 October 2015	Period from 26 March 2015 to 30 April 2016
	£'000	£'000	£'000
Costs on acquisitions	25	104	107
Costs on disposals	13	3	5
	38	107	112

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:

	Half year period to 31 October 2016 £'000	% of average monthly net assets in the period	Period from 26 March 2015 to 31 October 2015 £'000	% of average monthly net assets in the period	Period from 26 March 2015 to 30 April 2016 £'000	% of average monthly net assets in the period
Costs paid in dealing commissions	30	0.03	68	0.13	75	0.13
Costs of stamp duty	8	0.01	39	0.07	37	0.07
	38	0.04	107	0.20	112	0.20

The average monthly net assets for the six months to 31 October 2016 was £90,052,000 (period to 31 October 2015: £54,073,000, period to 30 April 2016: £56,282,000).

These costs do not include the costs of investing capital and the bid-offer spread on securities in the portfolio. Investments are valued at fair value which is bid value for listed securities. Certain holdings may have been acquired at a price higher than the bid price.

8.       Management Fee

	Half year period to 31 October 2016			Period from 26 March 2015 to 31 October 2015			Period from 26 March 2015 to 30 April 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Management Fees	112	336	448	70	212	282	161	484	645

The Alternative Investment Fund Manager ("AIFM") is entitled to receive from the Company in respect of its services provided under the Management Agreement, a management fee payable monthly in arrears calculated at the rate of 1% per annum of the market capitalisation as at the relevant calculation date.

In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the AIFM is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last Business Day of the relevant calendar month.

The AIFM has agreed that, for so long as it remains the Company's investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower. In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income.

At 31 October 2016, an amount of £155,000 (31 October 2015: £50,000, 30 April 2016: £153,000) was outstanding and due to Miton Trust Managers Limited in respect of management fees.

9.       Finance costs

	Half year period to 31 October 2016			Period from 26 March 2015 to 31 October 2015			Period from 26 March 2015 to 30 April 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Net (loss)/gain allocated to C shares	-	(1,991)	(1,991)	-	-	-	15	1,460	1,475
Income attributable to C shares		22	22	-	-	-	-	-	-
Expenses of C shares	-	-	-	-	-	-	-	528	528
	-	(1,969)	(1,969)	-	-	-	15	1,988	2,003

10.     Fair Value Hierarchy

Financial assets and liabilities 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.

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 or the asset or liability.

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

Financial assets

				Level 1	Level 2	Level 3	Total
				£'000	£'000	£'000	£'000
Financial assets at fair value through profit or
loss at 31 October 2016
Equity investments				91,443	146	47	91,636
				91,443	146	47	91,636

				Level 1	Level 2	Level 3	Total
				£'000	£'000	£'000	£'000
Financial assets at fair value through profit or
loss at 31 October 2015
Equity investments				49,868	-	-	49,868
				49,868	-	-	49,868
				Level 1	Level 2	Level 3	Total
				£'000	£'000	£'000	£'000
Financial assets at fair value through profit or
loss at 30 April 2016
Equity investments				75,638	62	-	75,700
				75,638	62	-	75,700

Financial liabilities

There were no financial liabilities as at 31 October 2016 or 30 April 2015 so no fair value hierarchy table is presented.

				Level 1	Level 2	Level 3	Total
				£'000	£'000	£'000	£'000
Financial liabilities as at 30 April 2016
C shares1				30,240	-	-	30,240
				30,240	-	-	30,240

¹ the value of the financial liability is based upon the fair value of the C shares as at 30 April 2016 which was £30,240,000 representing a 2.6% premium to Net Asset Value, £29,475,000. The C shares were converted to Ordinary shares (see note 5).

Reconciliation of Level 3 movements - Financial Assets

	As at 31 October 2016 Level 3	As at 31 October 2015 Level 3	As at 30 April 2016 Level 3
	£'000	£'000	£'000
Opening fair value investments	-	-	-
Purchase at cost	-	-	-
Transfer from level 2	62	-	-
Sale proceeds	(15)	-	-
Movement in investment holdings gain	-	-	-
Closing fair value of investments	47	-	-

INVESTMENT OBJECTIVE AND POLICY

Investment Objective

The investment objective of the Company is to provide shareholders with capital growth over the long term.

Investment Policy

The Company intends to invest 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.

SHAREHOLDER INFORMATION

Capital Structure

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

As at 31 October 2016 and the date of this report, there are 164,767,917 Ordinary shares in issue, none of which are held in treasury, and 50,000 Management shares.

Redemption of Ordinary Shares

The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of Ordinary shares on an annual basis. The next Redemption Point for the Ordinary shares will be 28 April 2017. Redemption Request forms are available upon request from the Company's Registrar.

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

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

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

Full details of the redemption facility are set out in the Company's prospectus dated 4 February 2016, or are available from the Secretary.

April 2017 Redemption Point

The following are the relevant dates for the April 2017 Redemption Point:

29 March 2017	Latest date for receipt of Redemption Requests for certificated shares
3.00 pm on 29 March 2017	Latest date for receipt of Redemption Requests and TTE (Transfer to Escrow) instructions for uncertificated shares via CREST
5.00 pm on 28 April 2017	Redemption Point
By 15 May 2017	Company to notify Redemption Price and dispatch redemption monies; or if the redemption is to be funded by way of a Redemption Pool, Company to notify the number of shares being redeemed. Notification of Redemption Price and dispatch of redemption monies to take place as soon as practicable thereafter.
By 30 May 2017	Balance certificates to be sent to shareholders

Share Dealing

Shares can be traded through your usual stockbroker.

Share Prices

The Company's Ordinary shares are listed on the London Stock Exchange. The mid-market prices are quoted daily in the Financial Times under 'Investment Companies'.

Share Register Enquiries

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

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

Investment Manager: Miton Trust Managers Limited

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

As at 14 October 2016, the Miton Group had £2.829 billion of assets under management.

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

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

DIRECTORS AND ADVISERS

Directors (all non-executive) Andy Pomfret Peter Dicks Jan Etherden Ashe Windham, CVO	Depositary BNY Mellon Trust & Depositary (UK) Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA
Secretary and Registered Office Capita Company Secretarial Services Limited Beaufort House 51 New North Road Exeter EX4 4EP Telephone: [phone]	Registrar and Transfer Office Capita Asset Services Shareholder Services Department The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: [phone] (calls will cost 12p per minute plus network charges) Email: [e-mail] Website: www.capitaassetservices.com
Investment Manager and Alternative Investment Fund Manager Miton Trust Managers Limited Paternoster House 65 St Paul's Churchyard London EC4M 8AB Company website www.mitongroup.com/micro	Solicitor Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH
Auditor Ernst & Young LLP 25 Churchill Place Canary Wharf London E14 5EY	Stockbroker Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET

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

Registered in England No. 09511015.

A member of the Association of Investment Companies.

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

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

 

END

 

 

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