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Diverse Inc Trust (DIVI)

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Monday 01 February, 2016

Diverse Inc Trust

Half-yearly Report

THE DIVERSE INCOME TRUST PLC
HALF-YEARLY FINANCIAL REPORT

The Directors present the Half-Yearly Financial Report of the Company for the period to 30 November 2015.

The Diverse Income Trust plc is an investment trust quoted on the London Stock Exchange (“LSE”) with total net assets of £355m as at 30 November 2015. It is referred to as the Company or as Diverse in the text of this Report. The Company has a Board that is independent of the Manager.


RESULTS FOR THE HALF YEAR TO 30 NOVEMBER 2015

7.0% Total return to shareholders
6.4% NAV per share
1.3p Interim dividends for half year

Rebalancing of the four quarterly dividends The Board intends to rebalance the dividends in the year to 30 May 2016, so the four payments to shareholders are more equal.

Increased dividend per share The first interim dividend for the year, payable in February 2016, was increased from an equivalent of 0.50p to 0.65p. Subsequent to the half-year end, a second interim dividend of 0.65p, payable in May 2016, has been declared, also increasing it from an equivalent of 0.50p last year.

Revenue reserves sustained at £9.2m The revenue reserves of the Company amount to approximately 85% of the annual cash cost of the four dividends paid out to shareholders.

6.4% growth in capital The NAV per share rose from 87.03p to 92.63p in the period. This compares with a decline in the FTSE All-Share Index of 8.0% in the six months to 30 November 2015.


Summary of Results

At 30 November     
 2015     
At 31 May    
 2015    
  
Change    
NAV per ordinary share 92.63p    87.03p   6.4% 
Ordinary share price (mid) 96.00p    87.00p   10.3% 
Premium/(discount) to NAV 3.64%   (0.03)%
Revenue return per ordinary share 1.50p*   3.58p  
Ongoing charges 1.18%** 1.20% 

* For six months ended 30 November 2015. Note: comparative figure is for the full year ended 31 May 2015.

** Estimated as at 30 November 2015. Ongoing charges are the Company’s annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year.


CHAIRMAN’S STATEMENT

Half-Year to 30 November 2015
This Report covers the six month period ended 30 November 2015 for The Diverse Income Trust plc.

Portfolio return
Markets have been unsettled over the six month period as world growth expectations have continued to moderate. Generally, businesses are finding it harder to sustain decent revenue growth, with dividend cuts across the market becoming more frequent in those companies that suffer a trading setback.

The FTSE All-Share Index fell by 8.0% in the period, with the FTSE SmallCap (excluding Investment Trusts) Index down 3.6% and the AIM All-Share Index down 4.6%. In comparison, the NAV of the Company actually rose 6.4% in the period. Many of the stocks that have outperformed are those that have continued to generate growth in their regular dividends, given that this factor has become more prized by investors over the period.

Dividends
The revenue per share fell slightly in the half year from 1.64p to 1.50p. Although income from the portfolio holdings (excluding special dividends) has grown, there were fewer one-off special dividends received in the half year. In particular, a one-off dividend of £1.17m was received from Victoria plc in the prior period.

The Company paid the final dividend in respect of the year ended 31 May 2015, which was approved at the Annual General Meeting held on 14 October 2015. This amounted to 0.50p compared to an equivalent dividend of 0.40p paid in November 2014. The Company has also declared a first interim dividend for the current year, payable on 29 February 2016, which increased from an equivalent of 0.50p last year to 0.65p.

The Board has declared a second interim dividend in respect of the year ending 31 May 2016 of 0.65p per share, payable on 31 May 2016 to ordinary shareholders on the register on 29 March 2016. The ex-dividend date will be 24 March 2016. This compares to an equivalent dividend of 0.50p paid in May 2015.

The Board is rebalancing the quantum of the four quarterly dividends to make them more equal in magnitude across the year.

Outlook
Generally, markets have been experiencing increased volatility over recent quarters. This is leading to greater concern over how investment portfolios can best navigate the challenges of instability.

Clearly, no fund is immune from the wider market challenges. However, the Diverse strategy has the advantage that it can select holdings from a wider opportunity set of potential investee companies than most other UK equity income funds. The Board believes that our Manager has bought into a broad number of individual UK-quoted companies that are still sustaining growth, including quite a few smaller stocks that sometimes have specific reasons as to why they can buck the wider economic trend. In addition, the Company holds many companies with strong balance sheets so that they can not only better sustain dividends, but also use their financial strength to improve their market position at times of economic weakness. Finally, Diverse also holds a Put option covering approximately one-third of the Company’s assets, which would be expected to rise in value should the FTSE 100 fall back significantly further.

The Board therefore is confident that the Company remains well-placed to continue to deliver premium returns in the future.

Michael Wrobel
Chairman
29 January 2016


MANAGER’S REPORT

Details of the Manager
The Company’s Manager is Miton Trust Managers Limited, a wholly owned subsidiary of Miton Group plc (“Miton”).

Miton is itself a quoted company listed on the Alternative Investment Market in London. The business has a robust balance sheet and an extensive shareholder base of major institutions. Miton has sufficient scale to be well-resourced, but being a smaller company it also has greater flexibility than some larger competitors. An example of this agility is the fact that Miton set up The Diverse Income Trust using an all-size of market capitalisations strategy for an income fund prior to any other fund management firms, in the expectation that it would be well-placed to take advantage of the changing investment trends coming through beyond the credit boom.

Miton has a team of five fund managers researching UK quoted companies. These include George Godber and Georgina Hamilton, who principally seek stocks which are intrinsically cheap with regard to their tangible assets or where the scale of the underlying cash flow is underappreciated. Eric Moore principally concentrates on researching mid and larger companies, but also meets a number of smaller companies as this helps to keep him up-to-date with the progress of different industries.

The day-to-day management of the Company’s portfolio is carried out by Gervais Williams and Martin Turner, who research both larger and smaller companies, but who have a particular focus on including coverage on some of the very smallest quoted companies.

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? last year.

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 a series of successful companies being backed. Martin qualified as an Accountant with Arthur Anderson, and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/MidCap Equities his role covered their research, sales and trading activities.

The overall objective of the Company
During the credit boom, most funds adopted mainstream indices as their benchmark, with relative outperformance defined as success. This introduces a mindset where portfolio holdings in those stocks with the largest index weightings can be perceived as less risky when compared to investing in other stocks that are not included in the index. Therefore, a large number of equity income funds often have holdings in a uniform group of the largest quoted 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 the forthcoming investment trends, rather than slavishly following the consensus. Overall, we manage this Company so that the dividend income generated by the portfolio delivers better growth over time than many of the comparator funds. It is anticipated that, if the portfolio of the Company generates better dividend growth than most other funds, this will be reflected over time in premium capital returns on the Company as well.

Implementing the investment strategy
In general, we believe that companies with decent productivity improvements are likely to be amongst those that deliver attractive returns for investors. Productivity improvements typically generate a cash payback on the capital invested and it is this growing cash flow that ultimately can fund superior dividend growth, and over time is normally a driver of long-term share price appreciation.

We find the following factors particularly helpful when selecting productive investments for the Company:

  • The key criterion for stock selection is the ability for individual holdings to generate good and growing dividends.
  • Secondly, the make-up of the Company’s portfolio is not aligned with mainstream stock market indices – only 12% or so of the portfolio is invested in FTSE 100 companies. The portfolio invests in stocks with a lower market capitalisation where dividend growth prospects are anticipated to be more attractive.
  • There is greater scope for active managers to add value within the smaller companies holdings due to the fact they are often less well researched by others.

Progress over the period
Over the half year to November, markets have been unsettled. Generally, world growth expectations have fallen back and investor sentiment worsened further with the announcement of the devaluation of the Chinese Yuan. Although UK economic trends continue to be favourable, some multi-national businesses are finding trading conditions are becoming more challenging. The great advantage of the Diverse strategy is that the wider opportunity set of eligible income stocks covering all parts of the UK equity market mean the Company can stock pick for those that are still enjoying slightly better trading conditions. The underlying earnings growth from portfolio holdings is therefore continuing to feed through in organic dividend growth and the Company has also benefited from some one-off specials on top every now and then.

Overall, the portfolio has held up well over this unsettled period. However, there are inevitably some stocks where the share price falls back. The most adverse in the period was Juridica Investments, a business that finances companies involved in legal action. In general, most of the cases they fund have been at least modestly successful, but they were caught out by a couple of cases where the verdict went against them in the period. In addition, the TalkTalk share price fell back after its IT systems were hacked, resulting in some of their clients’ bank details being stolen. The best performer in the period was Conviviality Retail, where the profits were substantially upgraded following its acquisition of Matthew Clark, a major wholesaler of alcoholic beverages. BioVentix also performed well again in the period and has been a very successful holding in the portfolio for over three years.

The overall stance of the portfolio has remained largely unchanged in the period. However, both BRIT and Amlin have exited the portfolio following their agreed takeover offers. These have been replaced in part with a new holding in Phoenix Group. In addition, the holding in AstraZeneca has also been sold as the prospects for dividend growth appear less promising.

Three IPOs were brought into the portfolio as new issues often come at an attractive entry valuation during unsettled markets. The new holdings are: Gateley, an agile legal business; Ibstock, a major brick manufacturer; and Hostelworld, an internet engine for those booking hostels around the world. In addition, the Company also renewed the Put option to extend its term to March 2017 at a slightly higher FTSE 100 exercise price of 6,000, covering approximately one-third of the portfolio assets.

The NAV of the Company appreciated by 6.4% over the six months to November, in spite of the overall market trend of weakness in the mainstream indices. The FTSE All-Share Index fell 8.0% in the same period. The smaller stocks in the market were also generally weak, with the FTSE Small Companies (excluding Investment Trusts) Index down 3.6% and the FTSE AIM All-Share Index down 4.6%.

Current market trends and outlook
World growth has moderated further in the period and the ongoing fall in commodity prices implies that this trend may not be reversed as quickly as some might have originally hoped. There has also been something of a build-up in unsold industrial inventory in both the Asian economies and the US, although the position is less acute in Europe. Some multinational businesses may therefore be facing not only lower growth in their revenue lines, but also a degree of margin pressure too. With all this in mind, we remain alert to the risk of exposure to these issues from individual stocks in the portfolio. The Diverse strategy has a wider opportunity set from which to select our holdings; we are therefore able to pick and choose those stocks we believe are most protected from the current market slowdown and international problems. We also recognise, however, that the Company should not be considered immune to unsettled markets, in spite of the advantage of holding the current Put option.

Diverse’s strategy for managing the portfolio through any potential market setbacks
Over the last few quarters, the equity market has become more volatile, with an outside risk that markets could surprise on the downside with a significant setback. As an investment trust, Diverse has two strategies that can help it to generate a better return for shareholders through any potential period of volatility.

The first is via the purchase of a Put option that means the Company can sell the FTSE 100 Index at a certain level (6,000 in our case) after the stock market has sold off. An option like this is not dissimilar to purchasing car or house insurance, in that it adds a degree of insurance to the Company’s portfolio in case equity markets generally were to fall back significantly. However, options like this come with a cost – an insurance premium. Specifically, if over time the equity markets have a few wobbles but do not drop back far enough for us to sell the Put again, then the value of the Put option will gradually decay over the insured period, irrespective of any fluctuations the markets suffer. The initial cash cost of any Put option is therefore very important, since the resale value of the Put option generally falls over time (assuming markets are relatively flat), ultimately to zero if the FTSE 100 Index is still above 6,000 at the end of the contract.

With this in mind, the Company has been careful to purchase Put options only at times when the FTSE 100 Index is close to a high and investors are generally optimistic about the future. The most recent period when this occurred was in July 2015, when worries over a Greek exit from the EU seemed resolved. Our policy has been to buy Put options that cover approximately one-third of the size of the Company in order to keep the decay costs to modest levels. The cost of this option therefore works out at around 0.06% of the NAV per month on average if the FTSE 100 remains stable.

The key advantage for shareholders is that, should the FTSE 100 suffer a significant setback, then the resale value of the Put option would be expected to rise proportionately. The full level of that appreciation would be related to the duration of the remaining term of the option as well as the scale of the market setback. If the Put option is sold, the cash proceeds could be used to purchase additional shares for the portfolio at a time when share prices were depressed and the Company would benefit from extra income from stocks added during this period. The Put option strategy means Diverse has the scope to take advantage of any major market setback, albeit the strategy does have a modest ongoing cost if markets remain stable through to March 2017.

A second strategy to enhance returns through a period of elevated market volatility utilises a debt facility. The Company usually has a debt facility so it can borrow approximately 15% of its NAV. However, normally the Company does not greatly utilise it. This is because the key risk with debt is that if there was a market sell-off, then the covenants on the debt facility could force the Company to repay some, or potentially all, of the outstanding debt after the market had dropped. This has the disadvantage of obliging the Company to liquidate some of the portfolio at depressed share prices. In short, a geared fund can end up at a disadvantage during a setback, whereas an ungeared portfolio can at least continue to hold its portfolio throughout the period of volatility. We believe the Company has plenty of scope to generate decent long-term returns without taking these extra volatility risks through the use of debt. This means that at the time of any potential market sell-off, the Company is unlikely to have significantly borrowed.

However, if the debt facility of the Company was unutilised after a setback following the market bottom, then a number of additional income stocks could be purchased for the portfolio ahead of the full market recovery funded by the debt facility. If the market were to continue to recover, then shareholders would benefit from the appreciation of the extra shares purchased during the market setback, as well as the associated extra dividend income (offset in part by the interest costs on the debt).

Both the Put and the debt facility aim to help the Company best manage the portfolio through periods of market volatility by enhancing shareholder returns as the market recovers.

Gervais Williams and Martin Turner
Miton Asset Management Limited
29 January 2016
 

PORTFOLIO INFORMATION
as at 30 November 2015


Rank

Company

Sector & main activity
Valuation
£’000
% of net
assets
Yield1
1 Charles Taylor Consulting Industrials 7,991 2.3 3.9 
2 Fairpoint2 Financial Services 6,958 2.0 3.8 
3 Burford Capital2 Financial Services 6,285 1.8 2.6 
4 International Greetings2 Consumer Goods 6,156 1.7 0.6 
5 Park2 Financial Services 6,144 1.7 2.5 
6 Novae Insurance Services 5,717 1.6 2.9 
7 Powerflute2 Basic Materials 5,644 1.6 1.1 
8 Safestyle UK2 Consumer Services 5,480 1.5 4.0 
9 Direct Line Insurance Insurance Services 5,408 1.5 10.7 
10 Conviviality Retail2 Consumer Services 5,370 1.5 4.0 
Top 10 investments 61,153 17.2
11 Shoe Zone2 Consumer Services 5,323 1.5 3.3 
12 Beazley Insurance Services 5,144 1.5 2.4 
13 4Imprint Consumer Services 4,938 1.4 1.7 
14 Zotefoams Basic Materials 4,859 1.4 1.6 
15 Aviva Insurance Services 4,777 1.3 3.7 
16 Provident Financial Financial Services 4,768 1.3 2.9 
17 Lok’n Store2 Financial Services 4,693 1.3 2.2 
18 Go-Ahead Consumer Services 4,530 1.3 3.4 
19 Stobart Industrials 4,497 1.3 5.7 
20 St. Ives Industrials 4,331 1.2 3.6 
Top 20 investments 109,013 30.7
21 Esure Insurance Services 4,271 1.2 4.2 
22 Moneysupermarket.com Consumer Services 4,236 1.2 2.5 
23 Hostelworld Consumer Services 4,231 1.2
24 SQS Software Quality Systems2 Technology 4,164 1.2 1.5 
25 A&J Mucklow Financial Services 4,139 1.1 4.0 
26 Macfarlane Industrials 4,005 1.1 3.4 
27 Legal & General Insurance Services 3,929 1.1 4.4 
28 Personal2 Insurance Services 3,906 1.1 3.6 
29 Kier Industrials 3,895 1.1 4.1 
30 Phoenix Insurance Services 3,858 1.1 5.8 
Top 30 investments 149,647 42.1
31 Royal Mail Industrials 3,841 1.1 4.4 
32 Hiscox Insurance Services 3,837 1.1 2.5 
33 Dairy Crest Consumer Goods 3,831 1.1 3.6 
34 Quartix2 Technology 3,749 1.1 2.0 
35 Segro Financial Services 3,735 1.1 3.6 
36 BT Telecommunications 3,728 1.0 2.6 
37 Bioventix2 Health Care 3,703 1.0 2.7 
38 McBride Consumer Goods 3,655 1.0 2.3 
39 Royal Dutch Shell ‘B’ Oil & Gas 3,637 1.0 7.7 
40 Elegant Hotels2 Consumer Services 3,565 1.0 3.2 
Top 40 investments 186,928 52.6
Balance held in 89 equity investments 154,515 43.5
Total equity investments 341,443 96.1
600 Group 8% Convertible Loan Notes 14/02/2020 2,506 0.7 8.0 
William Sinclair 8% Convertible Loan Notes 17/12/2018 2,140 0.6
St. Mowden Properties 6.25% 07/11/2019 Bonds 848 0.3 5.9 
Private & Commercial Finance 6% 30/06/2016 Notes 749 0.2 2.9 
Fixed interest and convertible investments 6,243 1.8
Total investments 347,686 97.9
Listed Put option
FTSE 100 – March 2017 6,000 Put 7,026 2.0
Total investment portfolio 354,712 99.9
Other net assets 525 0.1
Net assets 355,237 100.0 

¹ Source: Interactive Data. Based on historic dividends and therefore not representative of future yield.
² AIM/ISDX listed.
 

PORTFOLIO INFORMATION
as at 30 November 2015

Invested portfolio capital by sector
Consumer Services 20.6%
Industrials 20.0%
Financial Services 14.5%
Insurance Services 13.7%
Consumer Goods 6.9%
Basic Materials 5.5%
Technology 5.3%
Telecommunications 4.7%
Cash/Fixed Interest and Other 4.4%
Oil & Gas 2.0%
Health Care 1.6%
Utilities 0.8%
100.0%

   

Invested portfolio capital by Index or Exchange
FTSE 100 Index 12.6%
FTSE 250 Index 19.2%
FTSE SmallCap Index 18.9%
FTSE Fledgling Index 4.6%
AIM/ISDX Exchanges 37.0%
Cash/Fixed Interest and Other 7.7%
100.0%

   

Portfolio investment income by Index or Exchange
to 30 November 2015
FTSE 100 Index 12.1%
FTSE 250 Index 23.0%
FTSE SmallCap Index 17.6%
FTSE Fledgling Index 4.7%
AIM/ISDX Exchanges 34.9%
Cash/Fixed Interest and Other 7.7%
100.0%

   

Estimated annual income by sector¹
Industrials 20.3%
Consumer Services 19.3%
Insurance Services 18.5%
Financial Services 14.3%
Telecommunications 5.6%
Basic Materials 5.1%
Consumer Goods 4.5%
Oil & Gas 3.9%
Technology 3.7%
Cash/Fixed Interest and Other 3.1%
Health Care 1.0%
Utilities 0.7%
100.0%

¹ Projected income based on portfolio as at 30 November 2015.
Source: Interactive Data.
 

INTERIM MANAGEMENT REPORT AND DIRECTORS’ RESPONSIBILITY STATEMENT

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

The principal risks facing the Group are substantially unchanged since the date of the Annual Report for the year ended 31 May 2015 and continue to be as set out in that report.

Risks faced by the Group include, but are not limited to, investment and strategy, smaller companies, sectoral diversification, dividends, share price volatility and liquidity/marketability risk, gearing, key man risk, redemption facility, market risk and credit and counterparty risk.

Responsibility Statement
The Directors confirm that to the best of their knowledge:

  • the condensed set of financial statements has been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities and financial position of the Group; and
  • this Half-Yearly Financial Report includes a fair review of the information required by:
  1. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
  2. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions that could do so.

This Half-Yearly Financial Report was approved by the Board of Directors on 29 January 2016 and the above responsibility statement was signed on its behalf by Michael Wrobel, Chairman.


CONDENSED CONSOLIDATED INCOME STATEMENT
for the period to 30 November 2015

Period to
30 November 2015
Period to
30 November 2014
Year ended
31 May 2015*


Note
Revenue 
return 
£’000 
Capital 
return 
£’000 

Total 
£’000 
Revenue 
return 
£’000 
Capital 
return 
£’000 

Total 
£’000 
Revenue 
return 
£’000 
Capital 
return 
£’000 

Total 
£’000 
Gains/(losses) on investments held at fair value through profit or loss







21,821 




21,821 








(3,768)




(3,768)








21,992 




21,992 
Derivatives 955  955  (4,530) (4,530) (3,106) (3,106)
Foreign exchange losses

(4)

(4)





(19)

(19)
Income 6,549  6,549  6,955  6,955  14,540  14,540 
Management  fee (424) (1,273) (1,697) (377) (1,131) (1,508) (771) (2,311) (3,082)
Other expenses (330) (330) (341) (341) (656) (656)
Return on ordinary activities before finance costs and taxation



5,795 




21,499 




27,294 




6,237 




(9,429)




(3,192)




13,113 




16,556 




29,669 
Finance costs (3) (8) (11) (1) (4) (5) (3) (11) (14)
Return on ordinary activities before taxation


5,792 



21,491 



27,283 



6,236 



(9,433)



(3,197)



13,110 



16,545 



29,655 
Taxation (37) (37) (26) (26) (33) (33)
Return on ordinary activities after taxation


5,755 



21,491 



27,246 



6,210 



(9,433)



(3,223)



13,077 



16,545 



29,622 
pence  pence  pence  pence  pence  pence  pence  pence  pence 
Basic and diluted return:
Per ordinary share
1.50 

5.60 

7.10 

1.64 

(2.49)

(0.85)

3.58 

4.53 

8.11 

* Audited.

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

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

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

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY




Note

Share 
capital 
£’000 
Share 
premium 
account 
£’000 

Special
reserve
£’000

Capital
reserve
£’000

Revenue 
reserve 
£’000 


Total 
£’000 
As at 1 June 2015* 387  192,244  48,558 86,141 9,199  336,529 
Total comprehensive income:
Net return for the period - 21,491 5,755  27,246 
Transactions with shareholders
recorded directly to equity:
Cancellation of ordinary shares (3) (2,783) - - (2,786)
Equity dividends paid - - (5,752) (5,752)
As at 30 November 2015 384  189,461  48,558 107,632 9,202  355,237 

 
As at 1 June 2014* 325 143,557  48,558 69,596  4,367  266,403 
Total comprehensive income:
Net return for the period - - (9,433) 6,210  (3,223)
Transactions with shareholders
recorded directly to equity:
Issue of ordinary shares 62 50,000  - 50,062 
Expenses of share issue - (1,291) - (1,291)
Equity dividends paid - - (4,379) (4,379)
As at 30 November 2014 387 192,266  48,558 60,163  6,198  307,572 

   

As at 1 June 2014* 325  143,557  48,558 69,596  4,367  266,403 
Total comprehensive income:
Net return for the year - 16,545  13,077  29,622 
Transactions with shareholders recorded directly to equity:
Issue of ordinary shares 62  49,938  - 50,000 
Expenses of share issue (1,251) - (1,251)
Equity dividends paid - (8,245) (8,245)
As at 31 May 2015* 387  192,244  48,558 86,141  9,199  336,529 

* Audited.
 

CONDENSED CONSOLIDATED BALANCE SHEET



Note
30 November 
2015 
£’000 
30 November 
2014 
£’000 
31 May 
2015*
£’000 
Non-current assets:
Investments held at fair value
through profit or loss

347,686 

299,499 

326,243 
Current assets:
Derivative instruments 7,026  683  2,107 
Investments held for trading
Trade and other receivables 5,564  1,631  2,065 
Cash at bank and cash equivalents 75  7,647  7,073 
12,665  9,961  11,245 
Current liabilities:
Bank overdraft** (1,120) (2)
Trade and other payables (3,994) (1,888) (957)
(5,114) (1,888) (959)
Net current assets 7,551  8,073  10,286 
Total net assets 355,237  307,572  336,529 
Capital and reserves:
Share capital 384  387  387 
Share premium account 189,461  192,266  192,244 
Special reserve 48,558  48,558  48,558 
Capital reserve 107,632  60,163  86,141 
Revenue reserve 9,202  6,198  9,199 
Shareholders’ funds 355,237  307,572  336,529 
pence  pence  pence 
Net asset value per ordinary share 92.63  79.54  87.03 

* Audited.
** Normally, the Company does not have an overdraft, but on occasions when the timing of the settlement of purchase and sales is mismatched, there is need to use the bank overdraft in modest scale for a short period.
 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Period to 
30 November 
2015 
£’000 
Period to 
30 November 
2014 
£’000 
Year ended 
31 May 
2015*
£’000 
Operating activities:
Net return before taxation 27,283  (3,197) 29,655 
(Increase)/decrease in investments and derivatives (22,776) 8,298  (18,886)
Purchase of investments (38,229) (61,821) (92,888)
Sale of investments 35,614  21,883  55,867 
Purchase of derivative instruments (5,747) (4,776)
Sale of derivative instruments 4,776  856 
Exchange losses on capital items 19 
(Increase)/decrease in trade and other receivables (3,499) 138  (296)
Increase in trade and other payables 3,037  1,574  643 
459  (33,125) (29,806)
Withholding tax paid (37) (26) (33)
Net cash inflows/(outflows) from operating activities 422  (33,151) (29,839)
Financing:
Shares issued 50,000  50,000 
Expenses of share issues (1,229) (1,251)
Cancellation of shares (2,786)
Equity dividends paid (5,752) (4,379) (8,245)
Net cash (outflows)/inflows from financing (8,538) 44,392  40,504 
(Decrease)/increase in cash and cash equivalents (8,116) 11,241  10,665 
Reconciliation of net cash flow to movements in funds:
Cash and cash equivalents at the start of the period 7,071  (3,594) (3,594)
Net cash (outflow)/inflow from cash and cash equivalents (8,116) 11,241  10,665 
(Net debt)/cash at the end of the period (1,045) 7,647  7,071 

* Audited.
 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 General Information
The consolidated financial statements, which comprise the unaudited results of the Company and its wholly-owned subsidiary, DIT Income Services Limited, together referred to as the “Group”, for the period ended 30 November 2015, have been prepared in accordance with IFRS, as adopted by the European Union, and with the AIC SORP dated November 2014, where the SORP is consistent with the requirements of IFRS. The comparatives cover the period from 1 June 2014 to 30 November 2014 and for the year from 1 June 2014 to 31 May 2015.

The financial statements have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 May 2015.

The financial information contained in this report does not constitute full statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements for the periods to 30 November 2015 and 30 November 2014 have not been either audited or reviewed by the Company’s Auditors. The information for the year ended 31 May 2015 has been extracted from the latest published Annual Report and Accounts, which have been filed with the Registrar of Companies. The Report of the Auditors on those financial statements contained no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.

The Directors consider that it is appropriate to adopt the going concern basis in preparing the financial statements. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the dividend policy. After making enquiries, and bearing in mind the nature of the Company’s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion, the Directors have considered the liquidity of the portfolio and the Company’s ability to meet obligations as they fall due.

2 Income


Period to 
30 November 
2015 
£’000 

Period to 
30 November 
2014 
£’000 
Year
ended
31 May
2015
£’000
Income from investments:
UK dividends 4,938  5,357  10,235
UK REIT dividend income 74  90  176
Unfranked dividend income 1,330  1,200  3,597
UK fixed interest 112  184  365
6,454  6,831  14,373
Other income:
Bank deposit interest 1
Underwriting income 25 46  80
Waiver fee income 66  66
Exchange losses (3) (2) -
Net dealing profit of subsidiary 73  13  20
Total income 6,549  6,955  14,540


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

Ordinary Shares:

Period to
30 November 2015
Period to
30 November 2014
Year ended
31 May 2015
Net
 return
£’000
Per
share
pence
Net 
return 
£’000 
Per 
share 
pence 
Net
return
£’000
Per
share
pence
Revenue return 5,755 1.50 6,210  1.64  13,077 3.58
Capital return 21,491 5.60 (9,433) (2.49) 16,545 4.53
Total return 27,246 7.10 (3,223) (0.85) 29,622 8.11
Weighted average number of ordinary shares 383,679,588 377,834,482  364,836,135


4 Dividends per Ordinary Share
Amounts recognised as distributions to equity holders in the period.

Period to
30 November 2015
Period to
30 November 2014
Year ended
31 May 2015
£’000 pence £’000 pence £’000 pence
In respect of the previous period:
Fourth interim dividend 3,835 1.00 3,082 0.95 3,082  0.95 
Final dividend 1,917 0.50 - -
In respect of the period under review:
First interim dividend - - 1,297 0.40 1,297 0.40
Second interim dividend - - - - 1,933 0.50
Third interim dividend - - - - 1,933 0.50
5,752 1.50 4,379 1.35 8,245 2.35

The Board has declared a first interim dividend of 0.65p per ordinary share, payable on 29 February 2016 to shareholders registered at the close of business on 29 December 2015. The ex-dividend date was 24 December 2015. The Board has also declared a second interim dividend of 0.65p per ordinary share, payable on 31 May 2016 to shareholders registered at the close of business on 29 March 2016. The ex-dividend date will be 24 March 2016. In accordance with IFRS, these dividends have not been included as a liability in these financial statements.

5 Called-up Share Capital
The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of ordinary shares annually on 31 May. The Board may, at its absolute discretion, elect not to operate the annual redemption facility in whole or in part. In respect of the 31 May 2015 Redemption Point, the Company received requests for 5,713,632 ordinary shares. 2,513,632 of these shares were matched with buyers. The remaining 3,200,000 shares were redeemed and cancelled by the Company with effect from 12 June 2015. All shareholders who validly applied to have shares redeemed received a calculated Redemption Price of 87.08p per share.

The issued share capital and voting rights were 383,487,239 ordinary shares as at 30 November 2015.

6 Net Asset Value per Ordinary Share
The NAV per ordinary share and the NAVs attributable at the period end were as follows:

30 November 2015 30 November 2014 31 May 2015
NAV
per share
pence
 NAV
attributable
£’000
NAV
per share
pence
NAV
attributable
£’000
NAV
per share
pence
NAV
attributable
£’000
Ordinary shares:
Basic and diluted 92.63 355,237 79.54 307,572 87.03 336,529

NAV per ordinary share is based on net assets at the period end and 383,487,239 ordinary shares, being the number of ordinary shares in issue at the period end (30 November 2014: 386,687,239 and 31 May 2015: 386,687,239 ordinary shares).

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

Period to
30 November 2015
£’000
Period to
30 November 2014
£’000
Year ended
31 May 2015
£’000
Costs on acquisitions 139 248 341
Costs on disposals 50 38 97
189 286 438

These transaction costs are dealing commissions paid to stockbrokers and stamp duty, a Government tax paid on transaction (which is zero when dealing on the AIM/ISDX exchanges). A breakdown of these costs is set out below:


Period to
30 November 2015
£’000


% of average
monthly net assets

Period to
30 November 2014
£’000


% of average monthly net assets
Year ended
31 May 2015
£’000


% of average monthly net assets
Costs paid in dealing commissions 91 0.03 137 0.05 231 0.07
Costs of stamp duty 98 0.03 149 0.05 207 0.07
189 0.06 286 0.10 438 0.14

The average monthly net assets for the six months to 30 November 2015 was £343,615,000 (30 November 2014: £279,861,000 and 31 May 2015: £312,693,000).

8 Management Fee
The management fee is calculated at the rate of one-twelfth of 1.0% per calendar month on the average market capitalisation of the Company’s shares up to £300m and one-twelfth of 0.8% per calendar month on the average market capitalisation above £300m, payable monthly in arrears. In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the Manager is entitled to receive from the Company a fee calculated at the rate of one-twelfth of 1.0% per calendar month of the NAV of the Redemption Pool on the last business day of the relevant calendar month.

At 30 November 2015, an amount of £293,000 was outstanding and due to Miton Trust Managers Limited in respect of management fees (30 November 2014: £258,000 and 31 May 2015: £266,000).

9 Fair Value Hierarchy
There have been no transfers between levels of the fair value hierarchy or changes in the classification of financial assets since the previous annual report.

Valuation Process for Level 3 Investments
Investments classified within Level 3 have significant unobservable inputs. Level 3 investments can typically include unlisted equity and corporate debt securities and over the counter ("OTC") derivative instruments. As observable prices are not available for these securities, the Group has used valuation techniques to derive the fair value. In respect of the unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines. New investments are initially carried at cost, for a limited period, being the price of the most recent investment in the investee. This is in accordance with IPEVC Guidelines as the cost of recent investments will generally provide a good indication of fair value. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).

Other than the investment in its trading subsidiary (DIT Income Services Limited), the Group has two other Level 3 investments, being the holdings in William Sinclair Convertible Loan Notes and 600 Group Loan Notes. There are no other significant unobservable inputs with the measurement of its fair value at this stage and there have been no changes in valuation techniques during the period.

The valuation for the 600 Group Loan Notes is based upon price of recent investment. The William Sinclair Convertible Loan Notes are valued on the anticipated return of capital to the Company. During the period, William Sinclair issued additional loan stock in lieu of interest, in order to retain the cash within their business.

The following table summarises the Company's level 3 investments that were accounted for at fair value in the period ended 30 November 2015.

As at 
30 November 
2015 
Level 3 
£’000 
As at 
30 November 
2014 
Level 3 
£’000 
As at 
31 May 
2015 
Level 3 
£’000 
Opening fair value investments 3,142  2,650  2,650 
Purchase at cost 1,513  66  1,112 
Sale proceeds
Movement in investment holding gains:
            Movement in unrealised (9) (331) (620)
Closing fair value of investments 4,646  2,385  3,142 


INVESTMENT OBJECTIVE AND POLICY

Investment Objective
The Company’s investment objective is to provide shareholders with an attractive and growing level of dividends coupled with capital growth over the long term.

Investment Policy
The Company invests primarily in quoted or traded UK companies with a wide range of market capitalisations but a long-term bias towards small and mid cap equities. The Company may also invest in large cap companies, including FTSE 100 constituents, where it is believed that this may increase shareholder value.

The Manager adopts a stock specific approach in managing the Company’s portfolio and therefore sector weightings are of secondary consideration. As a result of this approach, the Company’s portfolio does not track any benchmark index.

The Company may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management, gearing and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company’s direct investments, as described below. The Company will not enter into uncovered short positions.

Risk diversification
Portfolio risk is mitigated by investing in a diversified spread of investments. Investments in any one company shall not, at the time of acquisition, exceed 15% of the value of the Company’s investment portfolio. Typically it is expected that the Company will hold a portfolio of between 80 and 140 securities, predominantly most of which will represent no more than 1.5% of the value of the Company’s investment portfolio as at the time of acquisition.

The Company will not invest more than 10% of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds. In addition to this restriction, the Directors have further determined that no more than 15% of the Company’s gross assets will, at the time of acquisition, be invested in other listed closed-ended investment funds (including investment trusts) notwithstanding whether or not such funds have stated policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds.

Unquoted investments
The Company may invest in unquoted companies from time to time subject to prior Board approval. Investments in unquoted companies in aggregate will not exceed 5% of the value of the Company’s investment portfolio as at the time of investment.

Borrowing and gearing policy
The Board considers that long-term capital growth can be enhanced by the use of gearing which may be through bank borrowings and the use of derivative instruments such as contracts for differences. The Company may borrow (through bank facilities and derivative instruments) up to 15% of NAV (calculated at the time of borrowing).

The Board oversees the level of gearing in the Company, and reviews the position with the Manager on a regular basis.

In the event of a breach of the investment policy set out above and the investment and gearing restrictions set out therein, the Manager shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to the LSE.

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.


SHAREHOLDER INFORMATION

Capital Structure
The Company’s share capital consists of redeemable ordinary shares of 0.1p each with one vote per share (“ordinary shares”) and non-voting management shares of £1 each (“management shares”). From time to time, the Company may issue C ordinary shares of 1p each (“C shares”) with one vote per share.

As at 30 November 2015 and the date of this report, there are 383,487,239 ordinary shares in issue, none of which are held in treasury, and 50,000 management shares.

Redemption of Ordinary Shares
The Company has a redemption facility through which shareholders are entitled to request the redemption of all or part of their holding of ordinary shares on 31 May in each year. Redemption Request forms are available upon request from the Company’s Registrar.

Shareholders submitting valid requests for the redemption of ordinary shares will have their shares redeemed at the Redemption Price or the Company may arrange for such shares to be sold in the market at the NAV (including current period revenue) (the “Dealing Value”) prevailing at the end of May (subject to the Directors’ discretion). The Directors may elect, at their absolute discretion, to calculate the Redemption Price applying on any redemption point by reference to a separate Redemption Pool, when the Redemption Price will be calculated by reference to the amount generated upon the realisation of the 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 income tax and/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.

The relevant dates for the May 2016 Redemption Point are:

29 April 2016 Latest date for receipt of Redemption Requests and certificates for certificated shares
3.00 pm on 29 April 2016 Latest date and time for receipt of Redemption Requests and TTE instructions for uncertificated shares via CREST
5.00 pm on 31 May 2016 The Redemption Point
On or before 14 June 2016 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
On or before 28 June 2016 Balance certificates to be sent to shareholders

Dividend Timetable
At the Annual General Meeting on 14 October 2015, shareholders approved a change to the Company’s dividend payment policy. This does not change the existing pattern of dividend payments to shareholders. The dividend timetable for the year ended 31 May 2015 and future years is shown below:

Year ended 31 May 2015 Declared Paid Year to 31 May 2016
(and future years)
First interim dividend September November
Second interim dividend October February First interim dividend
Third interim dividend January May Second interim dividend
Fourth interim dividend April August Third interim dividend
Final dividend August November Final dividend

Share Dealing
Shares can be traded through your usual stockbroker.

Share Prices
The Company’s ordinary shares are listed on the LSE. The mid-market prices are quoted daily in the Financial Times under ‘Investment Companies’.

Share Register Enquiries
The register for the ordinary shares is maintained by Capita Asset Services. In the event of queries regarding your holding, please contact the Registrar on 0871 664 0300 or on +44 (0)208 639 3399 from outside the UK (calls cost 12p per minute plus your phone company’s access charge; calls outside the UK will be charged at the applicable international rate). Lines are open 9.00am to 5.30pm, Monday to Friday, excluding public holidays in England and Wales. You can also email[email protected].

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

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 listed on the AIM market for smaller and growing companies.

As at 31 December 2015, the Miton Group had £2.8 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.mitongroup.com/dit.


DIRECTORS AND ADVISERS

Directors (all non-executive) Custodian
Michael Wrobel
Tom Bartlam
Paul Craig
Lucinda Riches
Jane Tufnell
Bank of New York Mellon SA/NV
London Branch
One Canada Square
London E14 5AL
Secretary and Registered Office Depositary
Capita Sinclair Henderson Limited
(trading as Capita Asset Services)
Beaufort House
51 New North Road
Exeter EX4 4EP

Telephone: 01392 477500
BNY Mellon Trust & Depositary (UK)  Limited
BNY Mellon Centre
160 Queen Victoria Street
London EC4V 4LA
Alternative Investment Fund Manager or Manager Registrar and Transfer Office
Miton Trust Managers Limited
Paternoster House
65 St Paul’s Churchyard
London EC4M 8AB
Capita Asset Services
Shareholder Services Department
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Telephone: 0871 664 0300
(+44 (0)208 639 3399 from outside the UK)
(calls will cost 12p per minute plus phone company’s access charge; calls from outside the UK will be charged at the applicable international rate).

Lines are open 9.00am to 5.30pm, Monday to Friday, excluding public holidays in England and Wales.

Email: [email protected]
Website: www.capitaassetservices.com
Investment Manager
Miton Asset Management Limited
Paternoster House
65 St Paul’s Churchyard
London EC4M 8AB

Telephone: 020 3714 1525
Website: www.mitongroup.com
Company website
www.mitongroup.com/dit
Auditor Solicitor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Banker Stockbroker
Bank of New York Mellon
One Piccadilly Gardens
Manchester M1 1RN
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London EC2R 7AS

An investment company as defined under Section 833 of the Companies Act 2006.
Registered in England No. 7584303.
A member of the Association of Investment Companies.
 

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

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


National Storage Mechanism
A copy of the Half-Yearly Report will be submitted to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at:www.morningstar.co.uk/uk/nsm.


a d v e r t i s e m e n t