Miton. Miton UK MicroCap Trust plc. ...accessing the inherent vibrancy of the smallest quoted stocks to generate attractive potential returns

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1 Miton Genuinely active investing Miton UK MicroCap Trust plc Half-year Report For the half year to 31 October...accessing the inherent vibrancy of the smallest quoted stocks to generate attractive potential returns

2 During globalisation, growth was plentiful... Normally, credit booms are inherently unstable as the extra inflationary pressures they engender drive up interest rates, preventing ongoing expansion of leverage. But globalisation has undermined these disciplines. The surge of low-cost imports has offset the inflationary price rises of local services, so decades of low interest rates and easy credit have persisted. For many, plentiful growth has come to be regarded as normal. Since 2008, the long period of ultra-low interest rates has led to a degree of misallocation of capital. With world productivity flatlining, the absence of wage growth has now led social and political attitudes to harden against globalisation. This marks a multi-decade turning point. Investors will need to favour companies that are continuing to improve productivity going forward, particularly those with a degree of corporate resilience. The investment strategy of Miton UK MicroCap Trust plc has been crafted to take advantage of these changing trends. This Half-year Report outlines the reasons why we believe a company investing in microcaps can deliver premium returns for shareholders, in spite of the stagnation of productivity growth.... but with productivity stagnating, we re at a multi-decade turning point

3 1 Miton UK MicroCap Trust plc Report for the half year to 31 October Miton UK MicroCap Trust plc is an investment trust quoted on the London Stock Exchange under the ticker code MINI. It is referred to as the Company or as MINI in the text of this Report. The Company has a Board that is independent of the Investment Manager. This Report covers the six months up to 31 October. The net asset value ( NAV ) of the Ordinary shares has risen by 1.8% over the half year. The NAV of the Company has increased by 33.6% since the fund was launched on 30 April Our objective The Company invests in a portfolio of UK quoted companies, generally with market capitalisations of less than 150m. Our primary objective is to achieve capital growth by investing in a portfolio of stocks that are well placed to generate an attractive cash payback from productivity improvements. While these types of stocks tend to pay modest dividends, it is anticipated that they will be able to fund a growing stream of dividend payments over the next three to five years. The image on the cover refers to Zotefoams plc, which is an example of the stocks in the Company s portfolio. Zotefoams manufactures polyethylene foams used in sports, Miton Genuinely active investing leisure and medical products, together with packaging, marine Miton UK MicroCap Trust plc Half-year Report For the half year to 31 October and industrial applications. For many years, the company has...accessing the inherent vibrancy of the smallest quoted stocks been developing new innovative products that are now ready to generate attractive potential returns for commercial sale. The company remains conservatively financed with net cash balances, in spite of investing over 30m over the last three years to step up its capacity to supply its products. Like many other holdings in the Company, as Zotefoams grows its sales and profits, we believe it will generate a rising stream of corporate cashflow and in time this will lead to additional dividends and share price appreciation. Pence Contents The Company 2 What makes MINI distinctive? 4 The advantages of being small 6 Results for the Half Year 7 Financial Performance Indicators 8 Chairman s Statement 10 Investment Manager s Report 14 Portfolio Information 16 Interim Management Report and Directors Responsibility Statement Company Accounts 17 Condensed Income Statement 18 Condensed Statement of Changes in Equity 19 Condensed Balance Sheet 20 Condensed Statement of Cash Flows 21 Notes to the Condensed Financial Statements Shareholder Information 28 Investment Objective and Policy 29 Shareholder Information 31 Directors and Advisers Go to for more information Use your phone s QR app to go to our website Oct Jan Apr Jul Oct Jan Source: Bloomberg 23 October 2015 to 31 October. 23 Apr 23 Jul 23 Oct 31 Oct

4 2 What makes MINI distinctive? MINI s strategy is based upon overlooked microcap stocks 1. The smallest companies have outperformed larger companies During the period of globalisation, economic growth was plentiful, with both large and small companies expanding well. Prior to the credit boom, when world growth was less vigorous, it was harder for many of the larger companies to find enough major capex opportunities to deliver much growth. In contrast, smallcaps normally have a multitude of small projects under review, so they have greater opportunity to invest and greater scope to access potential growth even when economic growth is limited. Therefore, prior to the period of globalisation, smallcaps often ended up delivering premium returns over mainstream indices and progressively outperformed the largest companies over a number of decades. 2. Overlooked stocks have delivered the best returns in the past Ultra-low yields on long-dated Government debt imply that investment returns on mainstream assets may be sub-normal going forward. If investment returns do become more constrained in the future, we believe that the merits of overlooked stocks will become more relevant. In the past, growth stocks often underperformed because the excitement about their prospects led their market valuations to over-anticipate their chances of succeeding. Conversely, overlooked stocks, typically those standing on undemanding valuations, tended to outperform as the market had underestimated their ability to beat undemanding estimates. Therefore, a strategy focused on those with less-demanding initial valuations, combined with an inclination to invest in smaller quoted companies, has tended to generate better outperformance in the past. 3. Diversification can be found locally The progressive decline of yields on Government debt since 1992 has boosted the valuations of nearly all assets, including equities, corporate bonds and property. One impact has been that returns on all of these asset classes have tended to correlate. Going forward, if bond yields were to reverse, then the simultaneous retreat of several asset classes might be a worry. Therefore, strategies where the returns are not as closely correlated with the movements of mainstream markets may well become more highly valued in the future. The fluctuations in microcap share prices tend to be only partly correlated with mainstream stocks, so the diversification advantages of a microcap strategy may have greater investment appeal going forward.

5 3 Return (percent) Performance of Numis Smaller Companies Index* v Numis 1000 v FTSE All-Share Numis 1000 Numis SC Index FTSE All-Share This chart demonstrates how smaller quoted companies (in grey) have outperformed mainstream stocks (in red). The smaller company effect is proportional, so the very smallest stocks (in green) have outperformed both the mainstream stocks and smaller company stocks in general. Source: Numis Securities, Elroy Dimson and Paul Marsh (London Business School) *Formerly RBS Hoare Govett Smaller Companies Index. Return (pounds) Performance of quadrants of big and small companies in the Numis Smaller Companies Index and Value and Growth via Book-to-Market ,000 10,000 1, Small Growth TO BE UPDATED Big Growth Big Value Small Value This bar chart shows how building a portfolio of overlooked stocks (often known as Value in this data) overlaid with both bigger-small and smaller-small companies (denoted as Big and Small in this data) enhances the long-term returns. Source: Dimson, E and Marsh, P (2014) Numis Smaller Companies Index 2014 Annual Review. All the stocks in the Numis Smaller Companies Index (NSCI) were classified by market capitalisation as either bigger (Big) or smaller (Small). In addition, the stocks were also classified by Book-to-Market to identify those with Value or Growth characteristics. Return (percent) FTSE AIM All-Share v FTSE Small Cap v FTSE Jan Oct FTSE AIM All-Share FTSE Small Cap FTSE /01/09 02/01/10 02/01/11 02/01/12 02/01/13 02/01/14 02/01/15 02/01/16 02/01/17 31/10/17 Whilst all share prices reflect the general movement of markets, it is advantageous for investors to spread this market risk through holding different groups of stocks that tend to peak and trough at different times. This chart outlines how much the market trends in smaller company stocks diverge from that of the main market, thereby adding a degree of diversification for those investors holding both. Source: Morningstar 2 January 2009 to 31 October. Data is provided on a total return basis. Further detail on these trends can be accessed on the Miton website using the QR codes above, which can be read using your mobile device once you have installed the appropriate app.

6 4 The advantages of being small The long period of strong market returns... Globalisation has led to an extraordinarily favourable environment for corporate profit and cash flow growth. Over recent decades, globalisation has fed economic expansion. Meanwhile, the deflationary effect of cheaper imports has more than offset any inflationary pressures from that extra growth, so inflation has remained benign and corporate profit margins have expanded. Over time, this has helped interest rates to move progressively lower and brought about a remarkable reduction in bond yields. In the UK, the cost of government borrowing for the next 10 years has fallen from 10% in 1992 to 1.25% currently. As a trend of ever lower bond yields has tended to drive up the valuation of nearly all assets, UK housing prices have risen tremendously over recent decades, whilst equity markets have also delivered outstanding returns. However, the emergency reduction of interest rates after the global financial crisis in 2008 has had an unsettling effect. The point is that many investors are chasing equity yields simply because cash and bond yields are now so meagre. Many companies now find their market valuations are higher if they divert capital away from improving corporate productivity towards paying extra dividends instead. This effect constrains ongoing productivity improvement and undermines the long-term scope for dividend growth from equities in the future. has reduced institutional interest in smallness At the time of the next economic setback, there is a real risk that markets may not recover as quickly as they have previously. There is little room to cut interest rates and central banks have almost no scope to re-liquefy markets through lower bond yields. Governments can also be expected to be cautious about increasing their budget deficits further, since they are still unwinding those of the past. Meanwhile, over recent decades, investors have become increasingly obsessed with maximising their returns, whilst being less interested in managing downside risk. During this time, most equity portfolios have moved away from investing across the full ecosystem of corporate holdings towards a narrower investment universe, typically defined by the stock weightings in mainstream equity indices. This trend is exemplified by the recent rise of passive investing tools such as exchange traded funds. Over recent decades, asset allocators have therefore progressively reduced their weightings in the smallest quoted stocks. Arguably, narrowing the investment universes may have left many mainstream equity portfolios in a position of greater vulnerability than appreciated, which may become costly in the next market downturn.

7 5 A wider opportunity set may offer The largest quoted companies often compete against one another internationally. Therefore, many mainstream equity markets are often comprised of a relatively similar range of industry sectors. For example, the largest oil companies are a significant part of the mainstream equity indices, with the share price of Shell largely correlated with that of Total or Exxon in other markets. This pattern is often duplicated within individual stock exchanges as well, with both Shell and BP being large parts of the FTSE100 Index for example. The overall result is that the movements of many international equity markets are largely synchronised. In contrast, there are numerous quoted microcaps compared with the very limited number of the largest companies. Therefore, the investment universe of the very smallest quoted companies tends to comprise a much wider opportunity set, with a much broader range of industrial sectors and corporate characteristics. scope for superior dividend growth The absence of productivity improvement since 2006 has led to a moderating of corporate cashflow over the last decade. Consequently, dividend cover, a measure of the sustainability of equity dividends, has moved to the low end of its historic range. This implies that future dividend growth is likely to be relatively limited, with a growing risk of wide-ranging dividend cuts should the next economic setback be protracted. This is a real worry, as a key driver of prospective returns is the progressive growth of corporate cashflow and dividends. Given the scarcity of productivity improvement, equity strategies will need to narrow their holdings to the limited number of companies that still have good opportunities to invest in profitability. This is all the more relevant at times when economic prospects are muted. In the past, it has been the superior productivity and dividend growth of the average microcap stock that has fuelled their premium returns. Given the economic headwinds, we believe this point of microcap difference will become ever more relevant to investors going forward. A stock selective strategy, focusing on those particular microcap stocks with the best prospects of forthcoming cashflow after capital investment, should generate premium returns.

8 6 Results for the Half Year to 31 October Over the half year, the Ordinary share NAV rose from 64.27p on 30 April to 65.44p on 31 October, an appreciation of 1.8%. The Company has grown during the period, with the net assets of the Company reaching 112.0m at the end of the period. The Ordinary share price moved from 62.25p at the end of April to 63.75p at the end of October, an appreciation of 2.4% as the discount to NAV narrowed. Revenue after costs amounting to 292,000 in the half year to October has been credited to the revenue reserves. The Company normally pays a final dividend each year after shareholders approval at the Annual General Meeting. Summary of Results 31 October 30 April Change % Total net assets attributable to equity shareholders () 112, ,246 NAV per Ordinary share 65.44p 64.27p 1.82 Share price (mid) 63.75p 62.25p 2.41 Discount to NAV 2.58% 3.14% Revenue return per Ordinary share 0.17p 0.53p Total return per Ordinary share 1.53p 11.77p Ongoing charges 1.43%* 1.47% Ordinary shares in issue 171,151,514** 173,086,001 * Estimated as at 31 October in accordance with Association of Investment Companies ( AIC ) guidelines. Ongoing charges are the Company s annualised revenue and capitalised expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of the Company during the year. ** On 15 May, the Company redeemed 1,934,487 Ordinary shares pursuant to its voluntary redemption facility.

9 7 Financial Performance Indicators NAV v share price v FTSE AIM All-Share Index Percent Apr Jun 2015 MINI NAV MINI Price FTSE AIM All-Share Total Return 31 Aug Oct Dec Feb Apr Jun 2016 Source: Morningstar 30 April 2015 to 31 October. 31 Aug Oct Dec Feb 30 Apr 30 Jun 31 Aug 31 Oct The chart alongside details the NAV and the daily closing share price of the Company compared with that of the FTSE AIM All-Share Index. Over recent months, many of the better performing AIM-listed stocks have been larger than those held in this Company. However, it is anticipated that over the longer term, the share prices of many smaller AIM stocks will also perform well. Since over 80% of the holdings in the Company s portfolio are listed on the AIM exchange, it is believed that the return of the FTSE AIM All-Share Index is the most relevant for comparison purposes. A more detailed explanation of the Company s performance in the first half of the year is contained in the Investment Manager s Report on page 12. Correlation NAV correlation v FTSE 100 Index v MSCI Europe (ex UK) Index Miton UK MicroCap Trust v FTSE 100 Index Miton UK MicroCap Trust v MSCI Europe (ex UK) Index Source: Bloomberg 30 April 2015 to 31 October. FTSE 100 Index v MSCI Europe (ex UK) Index Many of the mainstream international indices comprise multi-national companies in a range of sectors that are fairly uniform in each geography. For example, a major oil company in the US or Europe is similar to a major oil company in the UK, so the daily movements of the FTSE 100 and the MSCI Europe (ex UK) Indices are relatively correlated. Although the holdings in MINI are listed in the UK, the fact that the stocks are not part of the mainstream indices and operate in a wider range of industry sectors means the daily movements of the Company s NAV are relatively lowly correlated with the daily movements of the FTSE 100 Index. Please note this data only extends over the period since launch of the Company in April 2015, which is less than the 36-month period that is the industry norm for such data.

10 8 Chairman s Statement Andy Pomfret Chairman This Report covers the six-month period ended 31 October for Miton UK Microcap Trust plc. Half-year Returns Over the half year, the best returns in the AIM market were generated by some of the larger AIM-listed stocks. The FTSE AIM All-Share Total Return Index rose 8.5% over the half year to October. Returns on many other areas were more modest, with the FTSE SmallCap (excluding Investment Trusts) Total Return Index up 5.0% and the FTSE All-Share Total Return Index up 5.9%. The Company s NAV appreciated by 1.8% over the half year. An explanation for the lesser return on the Company s NAV in the half year is outlined in the Investment Manager s Report on page 12. The Company was launched at the end of April 2015, and since that time, the NAV has risen by 33.6%, which compares with a return of 33.3% on the FTSE SmallCap (excluding Investment Trusts) Total Return Index and 43.0% on the FTSE AIM All-Share Total Return Index over the same period. Interestingly, in spite of the strong rise of the mainstream indices immediately after the UK Referendum, the FTSE All-Share Total Return Index has only appreciated by 20.0% over the two and a half year period. As a result of the strategy of investing in smaller AIM stocks with the potential for growth, the portfolio does not hold many companies trading on significant dividend yields, so the revenue per share is not expected to be a large part of the return in the early years of the Company s life. Revenue per share was 0.17p over the half year. Outlook Both larger and smaller companies find it easier to generate growth when the wider economy is expanding as well. However, one of the overlooked features of microcap stocks is their greater ability to buck the wider economic trend when growth is more subdued. The key point is that, during the period of globalisation when growth was plentiful, some microcap advantages were not appreciated. Now that the UK economy is slowing, however, these factors are becoming more important again. Certainly, it is interesting to note that since the Company was first launched, the best returns in the UK equity market have come from the smaller company indices in spite of a significant devaluation of sterling during this period.

11 9 We continue to believe that the long-term approach adopted by Miton UK MicroCap Trust plc remains well placed to generate premium returns. The MINI investment strategy was set with slower global growth in mind. During the more challenging periods in the past, it has often been the greater vibrancy of the smallest quoted companies that has driven premium returns. Specifically, many of the Company s holdings have been selected for their ability to invest for productivity improvement and ultimately provide attractive cash paybacks. Therefore, in spite of the UK slowdown, we continue to believe that the long-term approach adopted by Miton UK MicroCap Trust plc remains well placed to generate premium returns. Andy Pomfret Chairman 14 December

12 10 Investment Manager s Report Who are Miton? Miton Trust Managers Limited is the fund manager of the Company and is a wholly-owned subsidiary of Miton Group plc, a UK-based fund management company listed on the AIM exchange. The day-to-day management of the Company s portfolio is carried out by Gervais Williams and Martin Turner, who have decades of experience researching many of the smallest UK quoted stocks. Gervais Williams Gervais joined Miton in March 2011 and is Senior Executive Director of the group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies 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 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 Anderson, and has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities. Gervais and Martin are part of a team of four Miton fund managers principally researching UK-quoted stocks, with each manager having a record of delivering premium returns. They are a close-knit and agile team, open-minded in their thinking. This is important at all times, but at the current time of changing political and economic dynamics, this aspect is likely to be particularly relevant. How should progress be measured? During globalisation, equity market returns have been so good for so long that it has become customary for funds to measure their progress compared to the performance of the mainstream indices. Unfortunately, an unwanted side effect has been that most UK equity portfolios are now dominated by the largest 350 stocks listed on the London Stock Exchange. As outlined at the top of page 5, we at Miton believe that it is in clients interests to invest over a wider opportunity set. Therefore, most Miton strategies in the UK are much more wide ranging. Although the returns on MINI will be set in the context of the returns of comparative indices, the ultimate measure of success will be the ability of the Company s holdings to generate productivity improvements and cashflow.

13 11 How is the investment strategy implemented? As noted earlier in this Half-year Report, we believe that corporate cashflow and dividend growth is often dependent on productivity improvement. We find the following five factors particularly helpful when selecting productive investments with attractive risk/reward ratios for the Company. Turnover growth Although some companies can succeed in growing their profits without turnover growth, in general, sustainable long-term growth comes from those that grow their turnover. This can be via an innovative new service or through introducing a superior product. Even in times of economic stagnation, this type of improvement can generate ongoing turnover growth. Sustained margins Extra turnover growth may not lead to additional corporate cashflow if profit margins decline. The best kinds of productivity improvement should reduce the cost of goods, as well as justifying a better market price. Alongside this, we are looking for companies that have the potential to sustain their profit margins through outstanding customer service. This may be especially important should profit margins come under sustained pressure in the future. Management of risk All investment carries risks, but often companies managing the fastest growth are obliged to take the greatest risks. In general, we find that many companies can generate attractive returns for investors through growing at a less hectic pace, and therefore can do so with less downside risk. Better balance sheets Given the exceptionally low interest rates over the last decade, many corporates have taken on extra debt. However, these liabilities can constrain the opportunities of the company, particularly should they become due at a time of economic setback. We prefer to invest in companies with net cash balances or those with modest debt relative to the headroom on the facility. Those with under-geared balance sheets can take greater advantage of any economic setback to improve their market position disproportionately, 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 that are already reflecting some of the excitement about the future. With few institutional investors, or indeed sell side analysts, actively researching the smallest quoted companies in the UK, there are plenty of quoted companies with, what we believe, are low entry valuations.

14 12 MiFID II and Key Information Document Because microcaps are small, it is important that broker research is published so that market participants are aware of the scale of their prospects. A very significant part of this is carried out by their brokers as their nominated advisers and funded by the quoted business itself. For that reason, the cost of independent external research has been modest over recent years, amounting to less than 0.02% of the NAV. Our budget for the current year remains well below this level. From 3 January 2018, as AIFM we will issue a Key Information Document ( KID ) on behalf of the Company, which covers the Company s returns over a range of different projected outcomes. For a new Company like ours, the data is projected from the relatively short period since issue. Over the coming years, the longer data set should lead to the KID data becoming more pertinent to the overall strategy of the Company. How has the Company done over the half year? The devaluation of sterling after the UK Referendum has led to a pick up in inflation in. During the half year under review, this led UK consumer expenditure to come under pressure, since UK wages have not kept up with inflation. Therefore, the growth of the UK economy has faltered and fallen behind many others. Generally, it might be assumed that multi-national companies would be better placed for this scenario. However, many of the smaller company indices have performed equally well over the period, as there has been a period of catch-up after smaller companies underperformed the largest stocks in Over the half year to October, the FTSE SmallCap (excluding Investment Trusts) Total Return Index rose 5.0%, and the FTSE AIM All-Share Total Return Index rose 8.5%. Meanwhile, the FTSE All-Share Total Return Index rose 5.9%. The Company s NAV rose just 1.8% in the half-year period. The reason for the differential between the Company s return and that of the FTSE AIM All-Share Index in particular is that some of the largest stocks on the AIM exchange were the principal contributors to the strong performance of the FTSE AIM All-Share Index in the period. For example, Hutchinson China appreciated 62% in the six-month period and, being around 3bn in scale, added 2.0% to the overall return of the Index alone. At a time when the momentum in some of these growth stocks has been so substantial, investors have overlooked many of the microcap stocks. For this reason, we still feel many of the Company s holdings remain well placed to enjoy a period of performance catch up in due course.

15 13 Several of the portfolio holdings have performed very strongly in the half year. For example, 10 stocks have appreciated by more than 50% in the six months, with Yu Group, Wey Education and IQE contributing the greatest to the overall return. Elsewhere, the share prices of several other holdings that had already performed well, fell back given the absence of any further significant newsflow. For example, Kromek Group and Atlantis Resources detracted from returns over the half year in spite of their longterm potential being largely unchanged. Since the half-year end, it is gratifying to see the price of Kromek Group recover sharply. The portfolio remains invested principally in microcap stocks with promising prospects although one or two stocks have grown to be somewhat larger. The portfolio is well diversified in terms of stock specific risk across a broad range of industry sectors. At the end of October, the Company had 130 holdings. What about the future? There are headwinds ahead as the UK concludes negotiations on our exit from the EU. Concurrently, UK consumer expenditure may be subdued for some time. Both of these factors may affect the prospects of both larger and microcap stocks. It is natural to assume at times like this that the largest multinational stocks may enjoy the best of the opportunities, but when growth is scarce, corporate agility and nimbleness becomes particularly important. That is why microcaps sometimes buck the wider economic trend and why microcap stocks have often generated the greatest outperformance at times of economic challenge. Although the UK economy may not grow as well as others for a period, this need not imply that a UK microcap strategy has lost its relevance. If anything, with world productivity stagnating over the last 10 years, we believe it has become even more important to back individual companies with attractive capex opportunities. That is why the Company was set up. Interestingly, there are not many ways that global investors can access plentiful smallness in quoted stocks other than in the UK. Gervais Williams and Martin Turner 14 December

16 14 Portfolio Information as at 31 October Rank Company Sector & main activity Valuation % of net assets 1 Yu Group Utilities 3, Crossrider Consumer Services 3, Wey Education Industrials 2, Cerillion Technology 2, Kromek Group Health Care 2, Frontier IP Group Industrials 1, IQE Technology 1, Autins Group Consumer Goods 1, Alpha FX Group Financial Services 1, Atlantis Resources Oil & Gas 1, Top 10 investments 23, Zotefoams Basic Materials 1, Ethernity Networks Technology 1, Fishing Republic Consumer Goods 1, Science in Sport Consumer Goods 1, Conygar Investment Company Financial Services 1, Amino Technologies Technology 1, Seeing Machines Limited Technology 1, CML Microsystems Technology 1, Brighton Pier Group Consumer Services 1, Scientific Digital Health Care 1, Top 20 investments 39, Fulcrum Utility Services Utilities 1, Totally Health Care 1, Walker Crips Group Financial Services 1, Bilby Industrials 1, Ingenta Technology 1, Eland Oil & Gas Oil & Gas 1, Marlowe Industrials 1, Avesoro Resources Basic Materials 1, Cloudcall Group Technology 1, BATM Advanced Communications Technology 1, Top 30 investments 51, Mercantile Ports & Logistics Industrials 1, Ideagen Technology 1, Cropper (James) Basic Materials 1, Charles Taylor Industrials 1, FairFX Group Financial Services 1, Inspired Energy Industrials 1, Stride Gaming Consumer Services 1, WYG Industrials 1, digital Group Consumer Services 1, Cello Group Consumer Services 1, Top 40 investments 62, Balance held in 90 equity instruments 44, Total investment portfolio 107, Other net current assets 4, Net assets 112,

17 Portfolio exposure by sector 1 Technology 23.8% 2 Industrials 19.0% 3 Financial Services 13.3% 4 Consumer Goods 10.5% 5 Health Care 8.1% 6 Consumer Services 7.3% 7 Basic Materials 7.3% 8 Oil & Gas 5.7% 9 Utilities 5.0% Portfolio by asset allocation 1 AIM 87.7% 2 Other UK Equities 4.3% 3 FTSE SmallCap Index 4.1% 4 FTSE Fledgling Index 3.1% 5 International Equities 0.8% Portfolio by spread of investment income to 31 October 1 AIM 80.3% 2 FTSE SmallCap Index 10.0% 3 FTSE Fledgling Index 6.1% 4 Other UK Equities 3.6% Estimated annual income by sector Industrials 31.5% 2 Financial Services 24.7% 3 Technology 18.8% 4 Basic Materials 7.4% 5 Consumer Services 6.7% 6 Consumer Goods 6.0% 7 Utilities 4.9% Projected income based on portfolio as at 31 October. Source: Interactive Data.

18 16 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 on pages 8 and 9 and the Investment Manager s Report on pages 10 to 13. The principal risks facing the Company are substantially unchanged since the date of the Annual Report and Accounts for the year ended 30 April and remain as set out in that report on pages 18 and 19. Risks faced by the Company include, but are not limited to, investment and strategy, reliance on third parties, share price volatility and liquidity/marketability risk, costs of operation, regulatory risk/change in tax status, market risk, liquidity risk and credit and counterparty risk. Responsibility Statement The Directors confirm that to the best of their knowledge: the condensed set of financial statements has been prepared in accordance with International Accounting Standard ( IAS ) 34, Interim Financial Reporting, as adopted by the European Union; and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and this Half-year Report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions that could do so. This Half-year Report was approved by the Board of Directors on 14 December and the above responsibility statement was signed on its behalf by Andy Pomfret, Chairman.

19 17 Condensed Income Statement for the half year to 31 October 31 October 31 October 2016 Year ended 30 April Note Revenue return Capital return Total Revenue return Capital return Total Revenue return Capital return Gains on investments held at fair value through profit or loss 2,726 2,726 3,747 3,747 16,113 16,113 Foreign exchange (losses)/gains (2) (2) Income ,531 1,531 Management fee 8 (133) (400) (533) (112) (336) (448) (235) (705) (940) Other expenses (263) (263) (236) (236) (471) (471) Return on ordinary activities before finance costs and taxation 292 2,324 2, ,411 3, ,428 16,253 Finance costs 9 1,969 1,969 1,969 1,969 Return on ordinary activities before taxation 292 2,324 2, ,380 5, ,397 18,222 Taxation (3) (3) Return on ordinary activities after taxation 292 2,324 2, ,380 5, ,397 18,219 pence pence pence pence pence pence pence pence pence Basic and diluted return: Per Ordinary share 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. Total

20 18 Condensed Statement of Changes in Equity for the half year to 31 October Note Share capital Share premium account Capital redemption reserve Capital reserve Revenue reserve As at 30 April ,986 23, ,246 Total comprehensive income: Net return for the period 2, ,616 Transactions with shareholders recorded directly to equity: Cancellation of Ordinary shares 5 (2) (1,241) 2 (1,241) Equity dividends paid 4 (616) (616) As at 31 October , , ,005 Total As at 30 April ,183 5, ,392 Total comprehensive income: Net return for the period 5, ,871 Transactions with shareholders recorded directly to equity: Conversion of C shares ,430 27,484 Issue of Ordinary shares Expenses of share issue* (13) (13) Equity dividends paid 4 (231) (231) As at 31 October ,056 11, ,960 As at 30 April ,183 5, ,392 Total comprehensive income: Net return for the period 17, ,219 Transactions with shareholders recorded directly to equity: Conversion of C Shares ,430 27,484 Issue of Ordinary shares 9 5,448 5,457 Expenses of share issue* (75) (75) Equity dividends paid 4 (231) (231) As at 30 April ,986 23, ,246 * Costs directly attributable to issue of Ordinary shares. The accompanying notes are an integral part of these financial statements.

21 19 Condensed Balance Sheet as at 31 October Note 31 October 31 October April Non-current assets: Investments held at fair value through profit or loss 107,376 91, ,979 Current assets: Trade and other receivables Cash at bank and cash equivalents 5,869 1,857 3,245 6,405 2,593 3,423 Total assets 113,781 94, ,402 Liabilities and equity Liabilities: Trade and other payables 1, Total liabilities 1, Equity: Share capital Share premium account 85,745 82,056 86,986 Capital reserve 25,423 11,082 23,099 Capital redemption reserve 2 Revenue reserve Total equity 112,005 93, ,246 Total liabilities and equity 113,781 94, ,402 pence pence pence Net asset value per Ordinary share The accompanying notes are an integral part of these financial statements.

22 20 Condensed Statement of Cash Flows for the half year to 31 October Operating activities: 31 October 31 October 2016 Year ended 30 April Net return before taxation 2,616 5,871 18,222 Increase in investments (2,726) (3,747) (16,113) Purchase of investments (12,823) (22,159) (39,339) Sale of investments 17,376 9,970 22,694 Decrease/(increase) in trade and other receivables 39 (504) (12) Increase/(decrease) in trade and other payables 1 (504) (78) Add back finance costs (1,969) (1,969) Withholding tax paid (3) Net cash inflows/(outflows) from operating activities 4,483 (13,042) (16,598) Financing activities: Ordinary shares issued 457 5,457 Expenses of Ordinary share issue (14) (72) Cancellation of Ordinary shares (1,241) Equity dividends paid (616) (231) (231) Expenses of C share issue (21) (19) Net cash (outflows)/inflows from financing activities (1,857) 191 5,135 Increase/(decrease) in cash and cash equivalents 2,626 (12,851) (11,463) Reconciliation of net cash flow movement in funds: Cash and cash equivalents at the start of the period 3,245 14,708 14,708 Net cash inflow/(outflow) from cash and cash equivalents 2,626 (12,851) (11,463) Exchange rate movements (2) Cash at the end of the period 5,869 1,857 3,245 The accompanying notes are an integral part of these financial statements.

23 21 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 The accounting policies and methods of computation followed in these half-year financial statements are consistent with the most recent annual financial statements for the year ended 30 April. 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-year Report does not constitute statutory accounts as defined in Section 435(1) of the Companies Act The financial information for the period ended 31 October has not been audited or reviewed by the Company s Auditor. The information for the period ended 31 October 2016 was reviewed by the Company s Auditor but was not audited. The figures and financial information for the year ended 30 April are an extract from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 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.

24 22 2 Income Income from investments: 31 October 31 October 2016 Year ended 30 April UK dividends ,244 Unfranked dividend income Bank interest 3 Underwriting commission 4 4 Total income ,531 3 Return per Ordinary Share Returns per share are based on the weighted average number of shares in issue during the period. Normal and diluted return per share are the same as there are no dilutive elements on share capital. 31 October 31 October 2016 Year ended 30 April Revenue Capital Total Revenue Capital Total Revenue Capital Total Net profit () 292 2,324 2, ,380 5, ,397 18,219 Weighted average number of shares in issue 171,298, ,184, ,839,150 Return per share (pence) Dividends per Ordinary Share 31 October 31 October 2016 Year ended 30 April pence pence pence Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 30 April Final dividend for the year ended 30 April

25 23 5 Called-up Share Capital Ordinary shares of each 31 October 31 October 2016 Year ended 30 April Number Number Number Opening balance 173,086, ,990, ,990, C share conversion 53,927, Subscriptions 53,927, ,168,084 9 Redemptions (1,934,487) (2) 850, ,151, ,767, ,086, October 31 October 2016 Year ended 30 April Number Number Number Management shares of 1 each 50, , , On 15 May, the Company redeemed 1,934,487 Ordinary shares pursuant to its voluntary redemption facility. The Ordinary shares were redeemed at a price of pence per Ordinary share, costing million including expenses. As at 31 October, there were 171,151,514 Ordinary shares and 50,000 Management shares in issue. 6 Net Asset Value per Share Ordinary shares The NAV per Ordinary share and the NAV attributable at the period end were as follows: Net asset value per Ordinary share 31 October pence Net assets attributable 31 October Net asset value per Ordinary share 31 October 2016 pence Net assets attributable 31 October 2016 Net asset value per Ordinary share 30 April pence Net assets attributable 30 April Basic and diluted , , ,246 NAV per Ordinary share is based on net assets at the period end and 171,151,514 Ordinary shares, being the number of Ordinary shares in issue at the period end (31 October 2016: 164,767,917 Ordinary shares; 30 April : 173,086,001 Ordinary shares).

26 24 Management shares Net assets of 1.00 per Management share is based on net assets at the period end of 50,000 and attributable to 50,000 Management shares at the period end. The shareholders have no right to any surplus capital or assets of the Company. 7 Transaction Costs During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows: 31 October 31 October 2016 Year ended 30 April Costs on acquisitions Costs on disposals 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: 31 October % of average monthly net assets in the period 31 October 2016 % of average monthly net assets in the period Year to 30 April % of average monthly net assets in the period Costs paid in dealing commissions Costs of stamp duty The average monthly net assets for the six months to 31 October was 110,392,000 (six months to 31 October 2016: 90,052,000; year to 30 April : 95,965,000). 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.

27 25 8 Management Fee Revenue 31 October Capital Total Revenue 31 October 2016 Capital Total Revenue Year ended 30 April Capital Total Management fee The Investment Manager is entitled to receive from the Company in respect of its services provided under the Management Agreement, a management fee payable monthly in arrears calculated at the rate of 1% per annum of the market capitalisation as at the relevant calculation date. In addition to the basic management fee, and for so long as a Redemption Pool is in existence, the Investment Manager is entitled to receive from the Company a fee calculated at the rate of 1% per annum of the net asset value of the Redemption Pool on the last business day of the relevant calendar month. The Investment Manager has agreed that, for so long as it remains the Company s investment manager, it will rebate such part of any management fee payable to it so as to help the Company maintain an ongoing charges ratio of 2% or lower. In accordance with the Directors policy on the allocation of expenses between income and capital, in each financial year, 75% of the management fee payable is expected to be charged to capital and the remaining 25% to income. At 31 October, an amount of 92,000 (31 October 2016: 155,000; 30 April : 87,000) was outstanding and due to Miton Trust Managers Limited in respect of management fees. 9 Finance Costs Revenue 31 October Capital Total Revenue 31 October 2016 Capital Total Revenue Year ended 30 April Capital Net loss allocated to C shares (1,991) (1,991) (1,969) (1,969) Income attributable to C shares (1,969) (1,969) (1,969) (1,969) Total 10 Fair Value Hierarchy The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale.