The Diverse Income Trust plc
Annual Report and Accounts
For the year to 31 May 2022
Seeking to deliver attractive returns by
compounding good and growing dividends even
in the absence of stock market appreciation
UPDATE INFORMATION
This is for internal use only
Client Name:
Diverse Income Trust plc
Document Type:
Annual Report 2022
Fund No. :
YF036
Reference No. :
DTP1160
Draft No. :
1
Tracked : 17
Time and Date Produced:
14:41 ~ 08 August 2022
The Diverse Income Trust (the “Company”, the “Trust” or “Diverse”) actively manages a portfolio of
investments, to maximise the potential return for shareholders, and has taken advantage of premium
dividend growth from its portfolio, whilst also delivering premium capital appreciation. The strategy
selects stocks across a broader universe of quoted companies than many other income trusts.
Mainstream UK-quoted companies – Many mainstream quoted companies are relatively mature, and as
a result, do not necessarily need to reinvest all their surplus cash. Hence, a part of the Trust’s portfolio is
invested in companies which it is anticipated will fund sustained, ongoing dividend growth over many years.
AIM-listed companies – Some AIM-listed companies become so dominant in a specific market area that
they generate not only plentiful surplus cash, but also superior dividend growth. Some of these younger
quoted companies can sustain dividend growth even during a recession. The diversified nature of the Trust’s
revenue helps it to deliver more consistent dividend growth than its peer group.
Stocks where abnormal cash surpluses are anticipated – Sometimes an individual quoted company reaches
the point where a long period of investment concludes, and it is poised to deliver substantial surplus
cashflow in future. Whilst the dividend yield on such holdings may be negligible at the time of purchase,
the abnormally large cash surplus subsequently generated may fund major dividend payments in future.
Many investors overlook these potential opportunities due to excitement about companies with rapid sales
growth rather than surplus cash generation.
Rotation out of holdings on elevated valuations, into others standing on more overlooked valuations – The
valuations of portfolio holdings that succeed in delivering premium dividend growth over a number of
years, often appreciate considerably, so their dividend yields fall well below those of more overlooked stocks.
A process of taking profits on these holdings with modest yields to reinvest in others
that are standing on overlooked valuations and greater prospective dividend
yields, also enhances the potential for the portfolio to maximise the Trust’s
dividend growth to shareholders.
In summary, one of the principal features about the Trust's strategy is
that often its returns won’t be closely correlated with the fluctuations
of the mainstream stock market indices. Over the longer term,
it is anticipated that its advantage lies in its greater upside
potential compared with the peer group*.
A Summary of the Diverse
Income Trust Strategy
The Diverse Income Trust plc
|
Annual Report 2022
* The peer group is defined in the glossary on page 99.
Contents
The Company
- A summary of the Strategy
i The 4 Key Performance
Indicators
1 The Diverse Income Trust plc
Strategic Report
4 Summary of Results and
Financial Performance
Indicators
6 Chairman’s Statement
9 Manager’s Report
15 Summary of Total Costs
Involved in Managing Diverse
16 Portfolio Information
18 Business Model
19 Principal Risks and
Uncertainties
23 Share Capital
24 Stakeholder Engagement
26 Management and OtherMatters
Governance
28 Directors
29 Report of the Directors
34 Corporate Governance
Statement
41 Audit Committee Report
44 Directors’ Remuneration
Report
48 Statement of Directors’
Responsibilities
50 Independent Auditor’s Report
Company and Group Accounts
59 Consolidated Income Statement
60 Statements of Changes inEquity
62 Balance Sheets
63 Cash Flow Statements
64 Notes to the Consolidated
Financial Statements
Shareholder Information
86 Redemption of OrdinaryShares
87 Shareholder Information
91 Notice of Annual
GeneralMeeting
97 AIFMD Disclosures
98 Glossary
102 Contact Details of theAdvisers
The Board has the following Key Performance Indicators (KPIs) that are
used to gauge the success of the Company’s strategy and its outcome
forshareholders.
The 4 Key
Performance
Indicators
* Alternative performance measure. Details provided in the Glossary on pages 98 to 101.
** The peer group is as defined in the Glossary on page 99. One outlier (British & American Investment Trust)
has been excluded from the calculation of the peer group's ongoing charges ratio, in order to provide a
figure which is comparable and not skewed by one exceptionally high ratio.
2
Growth of ordinary dividends to shareholders – Over the year, the four
dividends to shareholders have increased from 3.75p to 3.90p. The
Trust’s revenue per share for the year to 31 May 2022 has now exceeded
that of the year to 31 May 2019, prior to numerous dividend cuts by UK
quoted companies during the pandemic.
3
Discount* – Over the year to 31 May 2022, the share price discount averaged
1.44%, moving from trading at par at the start of the year, to trading at a
6.8% discount at the end, in line with other companies within the Trust's
peer group**. Over the period since the Trust was first listed, its share price
has traded both above and below its daily NAV, with the long-term average
being in line with its NAV.
4
Ongoing charges* – The ongoing charges for the year to 31 May 2022
are 1.05% of NAV (2021: 1.06%), which compares with 0.58% for the peer
group**. The Board pays careful attention to expenses and believes
that the Trust’s overall costs are justifiable in the context of its specialist
investment universe, and premium returns it has delivered since issue.
More detail of the ongoing charges are provided on page 15.
1
NAV total return* – Over the year, the NAV total return of the Trust
was -3.4% (2021: 38.4%), which compares to 2.1% (2021: 38.3%) for
the peer group** and 4.7% (2021: 25.2%) for the Numis All-Share
Index. Since the Company’s listing in April2011, its NAV total return
including compounded dividend income was 228.1% which compares to
140.7% for the peer group** and 90.2% for the Numis All-Share Index.
Annual Report 2022
|
The Diverse Income Trust plc
|
i
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Investment returns were
abundant during globalisation…
…but inflation changes everything, yet the
Trust’s strategy remains appropriate even
were the current trends to persist
During globalisation stock markets delivered decades of strong returns as
low-cost imports counterbalanced local inflation, and asset valuations steadily
appreciated. When stock markets rise, often the stocks with the fastest
growthoutperform.
Even prior to the pandemic, enthusiasm for globalisation had moderated,
but with the subsequent mismatch of economic demand and supply, global
inflation has returned. To temper demand, and bring it back into balance with
supply, central banks are raising interest rates, potentially bringing prior market
trends to an end.
When economies are unsettled, the UK investment universe can outperform
international comparatives principally as it comprises listed businesses
generating cash surpluses, and quoted small-caps.
When over-debted, but otherwise viable businesses become insolvent, quoted
companies can acquire them debt-free in transactions that enhance their
prospects to generate cash surpluses.
The returns of the Trust are not particularly reliant on stock market
appreciation, because a major portion comes from the compounding of its
stream of good and growing dividend payments.
Hence, whilst the Trust has delivered attractive returns since issue as stock
markets have risen, it is anticipated that its strategy may continue to deliver
premium returns over the coming years, even were the unsettled market
conditions to persist.
ii
|
The Diverse Income Trust plc
|
Annual Report 2022
The Diverse Income Trust plc is an investment trust quoted on the London Stock Exchange ("LSE") under
the ticker code DIVI. It is referred to as the "Company", the "Trust" or as "Diverse" (or, together with its
subsidiary, DIT Income Services Limited, the "Group") in the text of this Report. The Company has a Board
that is independent of Premier Portfolio Managers Limited ("PPM" or the "Manager") and is responsible for
monitoring the Company’s performance.
The NAV total return of the Trust fell 3.41% in the year to 31 May 2022, which compares with a rise of 4.74%
in the Numis All-Share index (including investment companies) and a 11.67% decline in Numis Small Cap
Plus AIM Index (excluding Investment Companies). Over the eleven years since the Trust was first listed
in April 2011, its NAV total return has been 228.11%, which compares with a 90.22% total return from the
Numis All-Share Index and 110.87% total return from the Numis Small Cap Plus AIM Index (excluding
InvestmentCompanies).
The Diverse Income Trust plc
Our objective
The Company’s primary objective is to pay shareholders a good and growing dividend – principally
derived from those paid by a portfolio of listed UK companies. Our strategy is focused upon maximising
the potential for dividend growth, as companies that generate the greatest long-term dividend growth
are often those that deliver the best capital return.
iEnergizer – An example of a stock in the
Trust’sportfolio
iEnergizer is an integrated software and service
pioneer that helps international business
provide customer care and technical support.
It has a culture of delivering very high levels of
customer satisfaction, that has led it progressively to take
market share from other Business Process Outsourcers.
It also offers a very competitively-priced service because
of its Indian and Mexican cost base. The combination has
led the company to generate abundant cash surpluses
that have been reflected in a generous dividend policy.
Itsmarket capitalisation of £707m is an attractive valuation
and the shares could deliver both a growing dividend and
capital appreciation over the longer term.
The Company invests in a wide range of individual stocks and a number have been highlighted in this Report to help outline the nature of the Company’s
strategy. Please note that the inclusion of these examples does not imply any recommendation as to their individual merits going forward.
* Alternative performance measure. Details provided in the Glossary on pages 98 to 101.
** The Company's peer group. Refer to the Glossary on page 99.
The Diverse Income Trust plc
Annual Report and Accounts
For the year to 31 May 2022
Seeking to deliver attractive returns by
compounding good and growing dividends even
in the absence of stock market appreciation
-50
0
100
50
150
250
Diverse Income Trust NAV Total Return*
Diverse Income Trust Share Price Total Return*
UK Equity Income Sector**
May 2020
May 2011
Nov 2011
May 2012
Nov 2012
May 2013
Nov 2013
May 2014
Nov 2014
May 2015
Nov 2015
May 2016
Nov 2016
May 2017
Nov 2017
May 2018
Nov 2018
May 2022
May 2019
Nov 2019
200
Nov 2020
May 2021
Nov 2021
Percentage change
Pence per share
Source: Bloomberg
Year ending
Mar 2021
Year ending
March 2020
Year ending
March 2022
0
20
10
30
50
40
60
70
Interim
(declared Nov)
Final
(declared Jun)
Final
(declared Jun)
Interim
(declared Nov)
Interim
(declared Nov)
Final
(declared Jun)
Special
(declared Jan)
iEnergizer – last 3 years’ dividends
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Our Sense of Purpose
Companies that are ineffective in meeting their social licence to operate are poor investments, because their
valuations collapse as soon as any weaknesses become apparent. In order to succeed therefore, a Trust like
the Diverse Income Trust needs to operate with a strong sense of purpose, as well as successfully employing
a commercial strategy. In that context, how effective is the Diverse Income Trust’s sense of purpose?
Like the Diverse Income Trust itself, when our Manager reviews potential portfolio holdings, they also
need to be convincing about their social licence to operate. Hence, our Manager has always probed for
organisational weakness with a degree of intensity. Is the business genuinely operating a culture where
truth can speak openly to power, or just saying it does – for example? This isn’t easy to determine, but some
judgement can be made in face to face meetings with the leadership teams of corporates. Persistent,
uncomfortable questions can provide some evidence.
Despite the novelty of the ESG acronym, these issues aren’t new. The UK has over 25 years of leading the
world in setting this agenda. UK-listed companies already have numerous formal reports that outlinethe
robustness of their operations. We find comparison of public reports versus the senior management’s
knowledge of internal detail can sometimes identify variance, and hence potential inauthenticity. Many
mining management teams our Manager meets for example, say they start every meeting with safety. And
yet in far too many cases, their safety data isn’t covered by the first slide of their corporate presentation or
isn’t the first matter of substance in their annual report.
The Trust’s holdings in the largest UK-quoted companies are relatively tiny proportions of their equity. Our
Manager normally engages with these management teams in group meetings where the opportunity for
testing the robustness of their sense of purpose is somewhat limited. To offset this, Premier Miton are part of
several groups of like-minded institutions that work towards improvement. By acting collectively these can
be more successful, although they are most effective addressing the recommendations that have the tacit
approval of every member.
Fortunately, the Trust also invests in numerous holdings in AIM-listed equity income stocks, where
its proportion of their equity alone is more meaningful. The Manager can engage directly with the
management teams of these corporates in bilateral meetings. Whilst many AIM-listed companies may have
fewer formal reports, if anything there is evidence that the Trust’s sense of purpose is more effective within
this part of the Trust’s portfolio.
In conclusion, assessing the sense of purpose within an organisation isn’t easy. In the case of the Trust’s
investment activities, there are formal reports from the Manager, although in themselves they aren’t
regarded as conclusive. There is also quite a lot of other less specific, but if anything, more weighty,
evidence around the formal reports however, that implies the Manager does manage this Trust with a sense
of purpose.
|
The Diverse Income Trust plc
|
Annual Report 2022
After COP26, the funding of businesses is
changing
Following COP26, most commercial banks are prioritising their lending
to businesses that are actively working towards restricting climate
warming to 1.5 degrees by 2050. This commitment may make it
harder for businesses in the cement, steel and carbon-based energy
sectors to access debt as easily. Furthermore, those in the transport
sector will also come under pressure to massively scale back their
greenhouse emissions in the next few years. As current term loans
expire, and possibly many private companies may run short of
cash, we have become more upbeat about the prospects for
quoted companies given their potential to retain strong balance
sheets and raise additional equity capital ifappropriate.
As oil and gas supplies from the North Sea decline for example, the UK started to import additional
Liquefied Natural Gas. To transport it, as much as 150 kgs of greenhouse gases are emitted for every barrel
of oil equivalent delivered to the ultimate users. Over the last three years Independent Oil and Gas plc
recognised this as an opportunity and raised capital to refurbish seabed infrastructure and bring new gas
wells into production. Their UK gas production has just come on stream with greenhouse gas emissions of
only 5kgs per barrel equivalent, and they have even purchased carbon offsets to cover these emissions. In
short, UK quoted companies can move ahead of other nations in terms of addressing climate change. So,
whilst the COP26 changes may affect the ability for some companies to access debt, it may offer additional
opportunity for some of the Trust’s holdings.
Socially useful
Another advantage of UK quoted small-caps is that many of these businesses are relatively young. When
they invest, often this creates additional skilled roles, and productivity improvements, which can then fund
wage growth that keeps up with inflation. Furthermore, they usually have simple tax arrangements and pay
the local Exchequer. In conclusion, a portfolio of quoted stocks across the full range of market capitalisations
such as that of the Trust tends to be socially useful. They don’t just have the potential to deliver premium
returns for shareholders, but alongside they also provide favourable outcomes for the wider electorate.
Being socially useful tends to attract political support, which may be increasingly important at a time of an
agenda of greater populism.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Further analysis
Summary of Results and Financial Performance Indicators
1
to 31 May 2022
Key Figures
31 May
2022
31 May
2021 Change
NAV per ordinary share* 110.55p 118.31p (6.6)%
Ordinary share price (mid) 103.00p 119.00p (13.4)%
(Discount)/premium to NAV* (6.83%) 0.58%
Revenue return per ordinary share* 4.01p 3.73p
Dividends per ordinary share paid/declared 3.90p 3.75p 4.0%
Ongoing charges (further details on page 15)* 1.05% 1.06%
Ordinary shares in issue 361,920,105 361,445,105
1
For an in-depth assessment of performance please refer to the Chairman's Statement on pages 6 to 8 and the Manager's Report on pages 9 to 14.
* Alternative performance measure. Details provided in the Glossary on pages 98 to 101.
NAV v share price v UK Equity Income sector
Source: Datastream as at 31 May 2022. Data rebased to 100.
The chart details the NAV and the daily closing
share price of the Company compared with
that of the UK Equity Income sector, which
includes many of the other trusts with a policy
of mainly investing in UK-quoted stocks with
above average dividend yields. These capital
gains figures have been supplemented with the
dividends paid over time and hence are quoted
in total returnterms.
NAV volatility v Numis All-Share Index
Source: Premier Miton / Bloomberg / Numis as at 31 May 2022.
The Company’s capital is invested in a broad-
range of industry sectors, and a wide range of
market capitalisation stocks, where the benefits
of diversification lead to the annualised volatility
of the Company’s NAV often being less than that
of the Numis All-Share Index as shown in the
chartabove.
-50
0
100
50
150
250
Diverse Income Trust NAV Total Return
Diverse Income Trust Share Price Total Return
UK Equity Income Sector
May 2020
May 2011
May 2012
May 2013
May 2014
May 2015
May 2016
May 2017
May 2018
May 2022
May 2019
200
May 2021
Percentage change
0
5
15
10
20
30
25
Volatility %
Numis All-Share Annualised Volatility (Rolling 250)
Diverse NAV Annualised Volatility (Rolling 250)
May 2020
May 2011
May 2012
May 2013
May 2014
May 2015
May 2016
May 2017
May 2018
May 2022
May 2019
May 2021
• NAV total return* to shareholders of -3.41% This includes the change in NAV, plus the
dividends paid during the year and compares with an increase in the Numis All-Share Index
of 4.74% on a total return basis over the year to 31 May 2022.
|
The Diverse Income Trust plc
|
Annual Report 2022
• Share price total return* to shareholders
of -10.53% The share price total return was
-10.53%, reflecting the decline in the NAV
and the widening of the discount towards
the year-end.
• Revenue reserves were £15.9m
(2021:£15.2m) The Company’s revenue
return after taxation was £14.5m,
which compares with dividends
distributed to shareholders during the
year of £13.8m. At the year end £15.9m
of revenue reserves remain available to
enable us to make consistent dividend
distributions toshareholders.
• 3.90p of ordinary dividends for the year
The three interim dividends and the
proposed final dividend for the year
amount to 3.90p, compared with 3.75p in
the previous year, an increase of 4%.
Total annual dividends declared by
theCompany
The chart outlines the total annual dividend
declared by the Company and how this has
grown over time.
1 The figure of 2.02p for 2012 represents 2.19p, which was the total of the
four interim dividends actually paid for the initial 13-month period
to 31 May 2012, recalculated proportionally as if the initial period had
been 12 months.
2 In order to allow shareholders to vote on the dividend, a final dividend
was introduced in the year ended 31 May 2015, resulting in the
payment of five dividends for that year. Since then, the Company has
paid three interim dividends and a final dividend in respect of each
year.
3 Includes proposed final dividend for the currentyear.
Total annual dividend
(pence per share)
Special dividends
Ordinary dividends
2.40
0.50
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.5
4.0
2012
1
2013 2014 2015 2016 2017 2018 2019 2020
2.02
2.10
2.25
2.80
3.00
0.40
3.65
0.16
3.70
3.40
0.23
2021
3
3.90
* Alternative performance measure. Details provided in the Glossary on pages 98 to 101.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
“The Company’s exposure
to smaller companies was a
headwind this year, having
boosted returns in 2021”
Andrew Bell
Chairman
This report covers the year to May 2022, a period
of gradual economic recovery from the pandemic
lockdowns but accompanied by increasing
inflationary pressures, which have been exacerbated
by the effects of the Russian invasion of Ukraine
on energy and food prices. The combination of
these factors coupled with rising interest rates has
reversed the earlier buoyancy in equity markets,
particularly in those areas where over-abundant
liquidity had led to speculative excesses and a
bubble in valuations. The UK, as a relatively lowly
valued market, has been more resilient than most,
while the US has fallen further owing to its higher
valuation, concentrated in the technology sector.
Annual returns
With inflation proving more prevalent than
anticipated, global asset valuations have come
under pressure during 2022. The NAV total return
of the Trust fell 3.4% in the year to 31 May 2022,
which compares with a rise of 4.7% in the Numis
All-Share index (including investment companies)
and a 11.7% decline in Numis Small Cap Plus AIM
Index (excluding Investment Companies).
The weakness of sterling boosted the returns of
larger UK quoted companies, which earn most of
their earnings overseas, hence the unusually wide
disparity between the returns on the UK market
as a whole and those of smaller companies. The
Company’s exposure to smaller companies was a
relative headwind this year, having boosted returns
the previous year.
Returns since April 2011
Over the eleven years since the Trust was first listed
in April 2011, its NAV total return has been 228.11%,
well ahead of the 90.22% total return from the
Numis All-Share Index over the same period. The
Trust’s return was also ahead of the 110.87% return
from the Numis Small Cap Plus AIM Index
(excluding Investment Companies).
-50
0
100
50
150
250
Diverse Income Trust NAV Total Return
Numis All-Share Inc Investment Cos Total Return
200
Company performance since launch on 28 Mayil 2011
Percentage change
May 2020
May 2011
Nov 2011
May 2012
Nov 2012
May 2013
Nov 2013
May 2014
Nov 2014
May 2015
Nov 2015
May 2016
Nov 2016
May 2017
Nov 2017
May 2018
Nov 2018
May 2022
May 2019
Nov 2019
Nov 2020
May 2021
Nov 2021
Chairman’s Statement
|
The Diverse Income Trust plc
|
Annual Report 2022
Income
The Diverse Income Trust was set up to deliver
attractive total returns and pay an attractive stream
of growing dividends, derived from investment in a
multi-cap portfolio of companies principally listed on
the London Stock Exchange and AIM exchanges. Over
the year to May 2022, the Trust’s revenue per share
rose from 3.73p to 4.01p, a figure in line with that for
the year to May 2019, prior to the spate of dividend
cuts over the pandemic. The Board has declared
three interim dividends amounting to 2.70p and if
the proposed final dividend of 1.20p is approved by
shareholders, together they amount to 3.90p, up 4%
from the 3.75p paid in respect of last year. A small
addition has also been made to revenue reserves,
available to support future dividend growth, in case
the portfolio’s dividend income is held back by rising
inflation and slower growth over the year ahead.
Share Issuance and Redemptions
Over the year to May 2022, the Company’s share
price discount to NAV averaged 1.4% which was
an improvement on the 4.8% average discount
in the prior year. However, amid this year’s
uncertainties resulting from the surge in inflation
and consequently rising interest rates, deteriorating
market sentiment resulted in the discount ending
the year at a relatively wide 6.8%, compared with
a small premium at the end of May 2021. The
Board views the recent widening as temporary but
remains willing to use its share buyback authority
should a wide and anomalous discount persist.
The Company also offers all shareholders the
option to redeem their shares each year. At the end
of April 2022, 6,049,458 shares (1.7% of the issued
share capital) were offered for redemption in respect
of the 31 May 2022 Redemption Point. These were
redeemed on 16 June 2022, the redemption value
being the NAV calculated as at 30 May 2022.
Board Refreshment
During the year, a search was conducted for a new
non-Executive Director, using Nurole, an external
search agency. As reported at the interim stage,
following this process, Charles Crole was appointed
and joined the Board from 1 February 2022. Charles
has extensive experience as a UK equity fund
manager and in the marketing of investment trusts,
both of which skills the Board views as central to its
role. Paul Craig, who had served as a non-Executive
Director since 2011, stood down following the
appointment. I should like to take this opportunity
to welcome Charles to the Board and to thank Paul
for his wise counsel and service to shareholders
from 2011 until 2022.
Prospects
For the first time in several decades, investors are
having to contend with high and persistent levels of
inflation. The Bank of England’s largesse in sustaining
its boost to the money supply at near zero interest
rates, at a time when trade frictions and pandemic
disruptions were undermining the economy’s ability
to meet consumer demand, has contributed to UK
inflation hitting the highest level for 40 years.
Although some of the causes of inflation are not
responsive to higher interest rates (for example
the shortage of oil and gas production, disruption
to trade with China and the impact of the Russian
invasion of Ukraine on food prices), high global
levels of inflation have left central banks with
no alternative to raising rates in order to reduce
demand, even at the risk of a recession. Given
these risks, the Company’s Manager has recently
purchased a FTSE 100 Put Option covering
the period to December 2023, replacing the
Put Option purchased in 2021 which was due to
expire in December 2022. This provides a degree
of downside protection for the Company’s assets
in the event that economic pressures intensify and
lead to a significant fall in global equity markets.
Further details are set out in the Manager’s Report
on page 12.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
The stock market implications are particularly
negative for the most highly rated sectors and
those valued on hopes of becoming profitable
at a distant future date. Cheap money in recent
years led to growth being chased irrespective
of valuation, whereas higher interest rates have
ushered in a more sceptical view. The exceptionally
high ratings on many technology stocks have fallen,
while job cuts and corporate collapses in more
speculative areas are a reminder of the vulnerability
of companies with negative cash flows.
The UK market in 2022 has, in contrast with recent
years, held up better than most. This is partly
due to its sector mix (given the index’s exposure
to higher commodity prices and banks’ margins
benefiting from higher interest rates) but also due
to its low valuation. Growth is important but paying
a realistic price for it is essential. If inflationary
pressures were to become endemic, the benefits of
the UK market’s lowly-rated cash flows could attract
greater investor attention.
Diverse Income Trust’s widely spread portfolio
of companies with good and growing dividends
has delivered premium returns. This is despite
the headwind from purchasing companies with
tangible cash flows at attractive valuations, during
an era when investors’ focus was on growth alone.
The Board believes that the Company’s distinctive
features continue to offer shareholders the potential
for further income growth as well as actively
managed exposure across the UK equity universe,
including the strength and diversity on offer in the
mid- and small-cap areas of the UK market.
Andrew Bell
Chairman
8 August 2022
Chairman’s Statement continued
|
The Diverse Income Trust plc
|
Annual Report 2022
This Manager’s Report has been set out in two parts. The first two pages highlight a risk that appears
to have become more acute as inflationary pressures have persisted. If our fears are justified, corporate
profitability could come under sustained pressure. We have set out the reasoning for our anxiety, and
some of the features that we use to select portfolio holdings across this and the following page, to give it
prominence. Thereafter, we have set out in greater detail some of the answers to the key questions that we
believe investors might have with regard to the Trust’s returns in the year under review, some features of the
portfolio construction such as the inclusion of the FTSE 100 Put Option, and the prospects for the future.
We worry that the changing market trends may be
accompanied by lower profit margins…
During globalisation, economic slowdowns were addressed by boosting demand,
enhancing corporate growth and profits
During globalisation, inflationary pressures were subdued principally due to abundant imports of low-cost
goods. During these decades, supply exceeded demand, so when economic growth slowed, central banks
were able to address the problem by increasing demand – typically through reducing interest rates or more
latterly via financial stimulus in the form of Quantitative Easing.
When demand is boosted, businesses tend to benefit, as it drives additional sales and profits. Overall, the
decades of globalisation were marked by a long period of ongoing sales and profit growth, that led many
businesses to enjoy increased profit margins.
Over the last couple of years 'demand' has increased, but with the trade tariffs, COVID-19
and the Ukrainian conflict, the ability to 'supply' has reduced. Overall, central banks are
currently obliged to bear down on demand, to bring it back into balance with supply
Even prior to COVID-19, trade tariffs were starting to scale back the ability of the global economy to supply.
Subsequently, it has reduced further due to the global pandemic and the Ukrainian conflict. Excessive
demand relative to supply has now led to renewed inflation, with central banks obliged to constrain
demand, to bring it back into balance with supply.
Suppressing demand represents a major business challenge, as there are fewer sales to go around. As sales
fall away, it often sparks price wars, that drive down profit margins as well. The risk is that there is a major
reduction in profitability, with some potential for insolvency for the over-levered.
Manager’s Report
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
The best chance of holding on to margins lies with businesses that deliver outstanding
customer service
With inflation, it appears that many businesses could come under margin pressure, as demand
moderates, and companies seek to hang on to customers, even if this involves cutting prices. Generally,
businesses delivering poor customer service are often the most vulnerable in these circumstances.
Conversely, companies delivering not just good, but outstanding levels of customer service can sometimes
retain their customers even when others are offering similar services at lower prices.
Given that most quoted companies notionally say they prioritise customer service, how can
we identify those that are genuine?
Management teams genuinely interested in customer service are normally diligent in collating the data and
including it in their regular board packs. In our Manager’s meetings with management teams, they have
long asked a series of detailed questions on this data, to differentiate between those who are genuinely
interested in customer service versus those that say they are. Furthermore, management teams that are
truly aligned ensure they make it as easy as possible for front-line staff to deliver service. Hence the Manager
often follows up by asking whether management actively ask about their problems, via regular staff surveys
for example. These questions help the Manager to prioritise portfolio holdings that have management
teams that have a definite ambition to deliver outstanding customer service.
…and hence we have a stock selection process
that actively seeks to address this risk
Manager’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Key questions that shareholders may ask of
theManager
Who are the specific fund managers of the Trust?
Premier Miton Group plc is an independent, listed
fund management company, formed from the
merger of Premier Asset Management and Miton
Group in November 2019, with a well-established
reputation for successfully managing UK-quoted
smaller company portfolios over the longer term. The
Trust’s Board appointed Premier Miton as Manager
when it was listed in April 2011.
The day-to-day management of the Trust’s portfolio
continues to be carried out by Gervais Williams
and Martin Turner, who came together as a team
in April2011.
Gervais Williams
Gervais joined Miton in March 2011 and is now Head
of Equities in Premier Miton. He has been an equity
fund manager since 1985, including 17 years at
Gartmore. He was named Fund Manager of the Year
by What Investment? in 2014. Gervais is also a board
member of the Quoted Companies Alliance and a
member of the AIM Advisory Council.
Martin Turner
Martin joined Miton in May 2011. Martin and Gervais
have had a close working relationship since 2004,
with complementary expertise that led them to back
a series of successful companies. Martin qualified as a
Chartered Accountant with Arthur Anderson and had
senior roles and extensive experience at Merrill Lynch
and Collins Stewart.
Why are the index comparatives used in this report
different from those used previously?
When the Trust was first listed in April 2011, the
Prospectus set out that given the multi-cap bias of
the portfolio, there wasn’t a suitable equity index
similar enough to be a formal benchmark. Even so,
the Trust has routinely set its results in the context of
the returns of various FTSE Index equity indices since
issue, to provide some perspective.
The London Stock Exchange that owns the FTSE
Index data has recently concluded that although the
Manager pays for a licence to use this data, in future
this will not extend to its use by the Manager’s clients.
Premier Miton already has a licence to use the Numis
Index data, and Numis have confirmed that its terms
will continue to include its use by Premier Miton
clients. Therefore, as outlined in the Trust’s Interim
Report, it need not pay the cost of a new FTSE Index
licence if it uses the Numis Equity Indices data as a
performance comparator in future.
What were the main contributors to the Trust’s
return over the year?
In prior periods, the Trust has outperformed the
equity income peer group. In contrast, this year, the
multi-cap bias of the Trust’s portfolio was something
of an impediment. The share prices of the largest
UK quoted companies that have a majority of their
businesses overseas, greatly outperformed most
other UK-listed stocks over the year to May 2022, in
part as their earnings are enhanced when sterling is
weak. Hence, over the year to May 2022, the NAV total
return of the Trust declined by 3.41% which compares
with a rise of 4.74% for the Numis All-Share Index
over the same period. The equity income bias of the
Trust’s portfolio did continue to add value relative
to other strategies however, and the Trust greatly
outperformed the return of the Numis Small Cap
Plus AIM Index (excluding Investment Companies)
which declined by 11.67% over the year.
Although global equity markets have been quite
unsettled over the second half of the year under
review, in fact the largest detractor to portfolio return
in the period was the FTSE 100 Index Put Option,
as it bucked the global asset market trend. After a
very strong period of outperformance last year, the
Trust’s holding in CMC Markets was trimmed, and in
the year to May 2022 its share price has fallen back.
Hence, whilst CMC Markets was the second worst
detractor to portfolio return in the period under
review, it still remains the second best contributor
over the two years to May 2022. Meanwhile, it still
remains part of the portfolio given the potential for it
to deliver even greater returns in future.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
In terms of positive contributions, the Trust’s holdings
in Energy were easily the strongest, in aggregate
adding 4.0% to the Trusts returns over the year, with
i3Energy adding over half of this total. The second
best contributor was Utilities as the portfolio holdings
in both Drax and National Grid contributed over 1.0%
to portfolio return between them.
As the FTSE 100 Put Option didn’t assist this year
in providing an offset to the general weakness of
markets, what are the advantages of including it in
the portfolio?
In general, the valuation of a FTSE 100 Put Option is
often negatively correlated with fluctuations of the
Trust’s portfolio, and most especially at times of major
market distress. The Trust has held a FTSE 100 Put
Option in the past, although as major stock market
setbacks happen infrequently, often they decline in
value as their term expires. When stock markets do
suffer a major setback however, such as during the
global pandemic, the valuation of a FTSE100 Put
Option can rise to a multiple of its initial cost. This was
helpful during the pandemic as it offset, in part, the
decline in the rest of the Trust’s portfolio valuation
during the year to May 2020.
When Put Options rise to elevated valuations they
can be sold, and in March 2020 the Trust’s FTSE 100
Put Option was sold, and the cash receipts from
the sale were invested in additional equity income
holdings at relatively low entry prices. These new
holdings boosted the recovery of the Trust’s portfolio
as the stock market rose thereafter. Importantly,
although the revenue from the Trust’s portfolio fell
in the year to May 2020 as many companies cut
their dividends, with the new holdings and the extra
dividend income they generated, the Trust was in
a stronger position to fund a sustained and slightly
growing stream of dividends to shareholders over
this period.
Whilst investing in FTSE 100 Put Options does have
advantages during stock market setbacks, it is worth
keeping in mind that setbacks happen infrequently,
and more often the valuation of a FTSE 100 Put
Option investment declines over time. To minimise
such losses, the Strike price* of the FTSE 100 Put
Options is typically set at a level somewhat below the
FTSE 100 trading level at the time of purchase.
Over the year to May 2022, a FTSE 100 Put Option was
purchased early in the period. Although the Trust’s
portfolio has declined in value over the year, this
trend hasn’t been reflected in the fluctuations of the
FTSE 100 Index. Overall, the valuation of the FTSE100
Put Option has reduced during the year as its term
has reduced and the FTSE 100 Index was a lot more
resilient than the portfolio, and indeed than most
other mainstream stock market indices.
Recently, during July 2022, the FTSE 100 Put Option
with a term to December 2022 was sold, and a new
FTSE 100 Option with a term to December 2023 was
purchased. To moderate its potential cost were the
FTSE 100 Index to continue to be resilient, this new
FTSE 100 Put Option has a lower Strike price of 5,700
rather than 6,200 previously. Of course, if interest rate
increases were to precipitate a global recession, and
global stock markets such as the FTSE 100 Index were
to become much more unsettled, then the valuation
of the new FTSE 100 Put Option might appreciate in
a similar manner to that of March 2020. With the new
FTSE 100 Index Put Option, the Trust’s portfolio would
benefit were the FTSE 100 Index to suffer a major
setback prior to December 2023, rather than prior
to December 2022 as previously, albeit that the new
option comes at a higher cost given its longer term.
What are the main factors that have driven the
Trust’s returns since it first listed in April 2011?
As noted elsewhere, the Trust’s strategy seeks
to deliver a premium return, through investing
in a portfolio where returns are delivered
by compounding dividends from the portfolio, that
hopefully grow over the longer term. Following the
launch of the Trust in April 2011, the revenue from the
Trust has steadily grown up to the year to May 2019.
The economic disruption of the global pandemic
was so substantial that numerous UK-listed equity
income stocks either suspended or cut their dividend
payments to shareholders. Although the global
economy has subsequently recovered, unfortunately
this recovery has come at the expense of renewed
inflationary pressures, where the extra costs may also
lead to corporate margin pressure, and less buoyant
dividends from UK-quoted companies.
Manager’s Report continued
* As defined in the Glossary on page 100.
|
The Diverse Income Trust plc
|
Annual Report 2022
Although the revenue per share from the Trust’s
portfolio did initially decline during 2020 when
numerous UK-listed companies did scale back their
dividend payments, it is reassuring to note that it has
recovered in the year to May 2022. The Trust’s revenue
per share appears to have grown better than many
others during the period of globalisation, and also to
have been more resilient than others subsequently.
Given that academic evidence suggests that
longer term return is principally derived from
the compounding of the initial yield, plus the benefit
of any subsequent yield improvement, it would
appear that the Trust’s superior revenue per share
is one explanation why it has delivered such strong
returns since issue.
Total returns of the Trust, the Numis All-Share Index,
the Numis Small Cap plus AIM Index (excluding
Investment Companies) and the NAV total return of
the Trust between April 2011 to May 2022
Why does the Diverse Income Trust include
UKquoted small and micro-caps in its
investmentuniverse?
Prior to a sustained period of globalisation, the
returns on mainstream stock markets were often
related to the rate of underlying inflation. UK-quoted
small and micro-caps delivered premium returns, so
institutions often made capital allocations to them
because of the commercial pressures to access the
premium returns they offered.
During the period of globalisation, asset returns of all
kinds have been incredibly plentiful, so institutional
allocations into quoted small and micro-cap stocks
have been crowded out by larger weightings in
long-duration assets such as the US technology
unicorns. Indeed, over recent decades most quoted
micro-cap stock markets around the world have
been closed for lack of institutional interest.
In contrast to others, the UK government has
sustained the support for a quoted small and
micro-cap exchange via dedicated tax exemptions,
asquoted micro-caps often generate additional
skilled employment and increased productivity. This
ultimately contributes to additional tax take for the
Exchequer.
Generally, we believe that the prospects for the UK
economy may not differ much from other developed
economies. The UK stock exchange differs from
others in having retained a vibrant universe of UK
quoted micro-caps with all the advantages this has
brought in the past, particularly in the decades prior
to globalisation. Note that even now, the number of
listed stocks with a market capitalisation of less than
£150m is not dissimilar to the number of stocks with
market capitalisations above this metric. If declining
valuations of bonds and interest rate rises are likely
to depress prospective returns on stock markets
generally, then the premium returns on UK-quoted
small and micro-caps can be expected to generate
renewed interest from institutional investors.
Number of UK-quoted companies below and above
£150m market capitalisation
Source: These companies are listed on the LSE or the AIM Exchange.
%
0
50
100
150
200
250
Numis
LargeCap
Index
(excluding
ICs)
Numis
SmallCap
Index
(excluding
ICs)
Numis
MidCap
Index
(excluding
ICs)
Numis
Alternative
Markets Index
(excluding
ICs)
Numis
All-Share
Index
The Diverse
Income
Trust Plc
82.17
115.52
90.22
140.00
17.55
228.11
0
100
200
300
400
Number of companies
600
500
Under £150m Over £150m
£17.2bn
Combined
Market
Capitalisation
£2,331.2bn
Combined
Market
Capitalisation
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
What are the prospects for the Trust?
In the early part of 2022, stock market weakness was
principally related to a decline in asset valuations
given ongoing inflationary pressures, the new
uncertainties from the Ukrainian conflict, and the
persistent pandemic outbreaks. More recently, it
has been the synchronised, accelerating rise in
short term interest rates that is anticipated to slow
global demand, and potentially initiate demand
destruction, via a global recession that has driven
weak shareprices.
As outlined at the start of this Manager’s Report,
with a forthcoming demand moderation, we fear
corporates may now find it harder to achieve prices
that sustain current profitability. Furthermore, if
demand were to decline, there is a risk it might
spark a competitive price war as companies seek to
retain customers, or sales disappointments if they
don’tparticipate.
Despite giant challenges to the stock market
participants of past decades, generally access to cash
has not deteriorated seriously for more than a year
or so. During the global financial crisis for example,
UK interest rates were quickly cut from 5.75% to
0.5% and Quantitative Easing was used for the first
time. Similar parallels can be made with regard to
the pandemic, where giant government assistance
helped businesses remain solvent, even in the face of
a major decline inprofitability.
In contrast, with this slowdown, companies may now
be faced with a severe corporate cashflow challenge
that may persist for some time, given the ongoing
rise in interest rates. Furthermore, profitability might
be adversely affected as well by potential price wars
and sales disappointments.
Since the dividend yield on equity income stocks rises
during bear markets, they can become attractive to
a wider range of potential investors. Being quoted,
equity income stocks also have the potential to keep
the viable but formerly over-levered businesses
going by acquiring them debt-free at distressed
valuations from the receiver. Investors support these
kinds of transactions when they enhance their future
cash surpluses, and hence potentially accelerate
dividend growth. Were capital to remain scarce for
an extended period, then investor demand and the
prospects for UK-quoted equity income strategies
might be relatively resilient.
Over the past year, US dollar strength has favoured
many of the very largest UK quoted companies as
they have the vast majority of their earnings derived
overseas. Meanwhile, AIM-listed stocks have often
remained overlooked, and interest has recently
been further tempered by uncertainty over the UK’s
political leadership. The net effect has been that the
return of the Diverse Income Trust with its multi-cap
portfolio has lagged behind that of the peer group
over the past year.
This effect has come through in a major valuation
gap between many of the largest LSE-listed stocks
and many AIM-listed competitors. The cashflow
per share differential between some of the largest
listed oil stocks and Independent Oil and Gas plc
that is held in the Diverse Income Trust portfolio for
example, appears notably wide.
This position isn’t quite unique. As set out earlier
in this report, one of the features of the multi-cap
nature of the Trust’s portfolio, is that its returns are
often less correlated with the fluctuations of the
mainstream indices. There may be any number of
reasons that might catalyse a narrowing of valuations.
Either way, we believe there is real scope for the Trust
to have a period of performance catch-up. When this
potential is overlaid with all the other advantages of
the strategy, we consider that its prospects continue
to bevery attractive over both the short and longer
term timeframes.
Gervais Williams and Martin Turner
8 August 2022
Manager’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
A Summary of the Total Costs Involved in Managing Diverse
Investment trusts differ from some other forms of
collective funds in that they are set up as independent
corporations with their operations overseen by a board
that is separate from and independent of the fund
management group that manages the capital. In
addition, they are listed, with their shares traded on an
approved exchange – which in our case is the LSE.
Running costs are deducted from the total assets of
the Group on a pro-forma basis so the NAV published
each day is expressed after costs. The figures below are
the costs paid by the Group over the year under review
and are expressed as a percentage of the average
asset value of the Group over the year to 31 May 2022 of
£413,468,000 (year to 31 May 2021: £359,991,000).
2022
%
2021
%
Fund management fees
1
0.86 0.85
Administration costs, including
Company Secretarial fees 0.03 0.04
Directors/Auditor/Depositary/
Registrar/Custodian and
Stockbroker fees 0.10 0.10
All other direct costs, including
VAT on the fees above, plus
marketing, legal, printing,
insurance and bank charges 0.06 0.07
Ongoing charges 1.05 1.06
In addition, the Company pays transaction charges
that are levied when shares are bought or sold in
the portfolio. These are dealing commissions paid
to stockbrokers and stamp duty, a Government tax
paid on transactions (which is zero when dealing on
the AIM/AQUIS exchanges).
2022
%
2021
%
Costs paid in
dealing commissions 0.02 0.03
Stamp duty, a Government tax
on transactions 0.04 0.10
Overall costs including
charges on transactions
2
1.11 1.19
The overall costs of the Company for the period were
1.11%. This compares with the Company’s average NAV
total return since issue of 11.31% per annum (after the
deduction ofcosts).
1
Fund management fees are tiered and calculated based on the share price, so may vary in each year. With effect from 1 August 2019, the Manager received
a management fee of 0.9% per annum on the adjusted market capitalisation of the Company up to £300m, 0.8% per annum on the average market
capitalisation between £300m and £500m and 0.7% per annum on the average market capitalisation above £500m.
2
Transactions conducted by the Company also involve some cost due to the dealing spread in stock exchange prices. Spreads range from less than 1% in the
most actively traded large-cap stocks to more than 3% in the smallest, most infrequently traded stocks. The exact loss of value is difficult to determine precisely,
but is normally less than half of the dealing spread at the time of the transaction. In a large percentage of the transactions, especially in the smallest stocks,
the stock is passed through from sizeable seller to sizeable buyer on a ‘put through’ basis with potentially no loss of value through the spread. During the year
under review, this cost is believed to be very modest in comparison to the NAV.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Portfolio Information
as at 31 May 2022
Rank Company
Sector &
main activity
Valuation
£000
% of
net assets
Yield
1
%
1 i3 Energy
2
Energy 12,879 3.2 5.3
2 Kenmare Resources Basic Materials 10,199 2.6 5.2
3 CMC Markets Financials 9,801 2.5 3.9
4 K3 Capital
2
Financials 8,191 2.0 3.6
5 Drax Utilities 8,056 2.0 2.8
6 Savannah Energy
2
Energy 7,278 1.8 –
7 National Grid Utilities 6,912 1.7 4.4
8 MAN Financials 6,513 1.6 4.3
9 888 Consumer Discretionary 5,888 1.5 1.7
10 FRP Advisory
2
Industrials 5,673 1.4 2.6
Top 10 investments 81,390 20.3
11 iEnergizer
2
Industrials 5,636 1.4 4.4
12 Legal & General Financials 5,504 1.4 7.1
13 XPS Pensions Financials 5,422 1.4 5.3
14 Phoenix Financials 5,422 1.4 7.7
15 BT Telecommunications 5,145 1.3 4.1
16 Aferian
2
Telecommunications 5,041 1.2 2.3
17 Tesco Consumer Staples 4,972 1.2 4.2
18 Just Financials 4,816 1.2 1.2
19 Mears Industrials 4,771 1.2 4.1
20 Galliford Try Industrials 4,730 1.2 3.3
Top 20 investments 132,849 33.2
21 DWF Industrials 4,652 1.2 5.8
22 Strix
2
Industrials 4,519 1.1 4.2
23 Sainsbury (J) Consumer Staples 4,501 1.1 5.7
24 CT Automotive Consumer Discretionary 4,462 1.1 –
25 SSE Utilities 4,458 1.1 4.8
26 BP Energy 4,418 1.1 4.0
27 Jadestone Energy
2
Energy 4,403 1.1 1.4
28 Direct Line Insurance Financials 4,385 1.1 8.8
29 Vodafone Telecommunications 4,300 1.1 5.9
30 Bloomsbury Publishing Consumer Discretionary 4,289 1.1 4.
5
Top 30 investments 177,236 44.3
31 Sabre Insurance Financials 4,171 1.0 6.2
32 Pan African Resources
2
Basic Materials 4,137 1.0 4.2
33 Plus500 Financials 3,930 1.0 6.1
34 Centamin Basic Materials 3,925 1.0 8.9
35 Conygar Investment Company
2
Real Estate 3,886 1.0 –
36 Rio Tinto Basic Materials 3,827 1.0 13.2
37 Admiral Financials 3,821 1.0 12.6
38 AVIVA Financials 3,745 0.9 5.1
39 Lords Group Trading
2
Industrials 3,738 0.9 2.2
40 Hostelworld Consumer Discretionary 3,667 0.9 –
Top 40 investments 216,083 54.0
Balance held in 89 equity investments 161,508 40.4
Total equity investments 377,591 94.4
Fixed interest investments – –
Total equity and fixed interest investments 377,591 94.4
Listed Put Option
UKX – December 2022 6,200 Put 2,481 0.6
Total investment portfolio 380,072 95.0
Other net current assets 20,041 5.0
Net assets 400,113 100.0
A copy of the full portfolio of investments as at 31 May 2022 is available on the Company’s website,
www.diverseincometrust.com.
1 Source: Refinitiv. Based on historical yields and therefore not representative of future yields. Includes special dividends where known.
2 AIM/AQUIS listed
|
The Diverse Income Trust plc
|
Annual Report 2022
Financials
Basic Materials
Industrials
Consumer
Discretionary
Energy
Consumer Staples
Utilities
Telecomms
Real Estate
Technology
Fixed Interest
Health Care
Oil & Gas
Financials
Industrials
Energy
Consumer
Discretionary
Basic Materials
Utilities
Consumer
Staples
Telecomms
Real Estate
Health Care
Technology
Portfolio exposure by sector (%)
Actual income by sector (%)
£380.1 million
£16.5 million
28.3 18.2 10.4 9.7 5.1 4.511.5
3.8
3
.
7
2.5
2.3
38.2 17.2 5.1 4.0 3.5
3.5
0.7
2
.
1
2.1
1.0
1.0
14.5 7.1
The tables above set out how the portfolio’s capital
was deployed as at 31 May 2022. The data is shown
in terms of the classifications on which the holdings
are listed. The portfolio as at 31 May 2022 is set out
in detail on page 16, in line with that included in the
Balance Sheet on page 62.
The investment income above comprises the
income from the portfolio as included in the
Income Statement for the year ended 31 May 2022
attributable to the various sectors. The returns of the
Company are from Capital and Revenue. Investments
for the Company’s portfolio are principally selected
on their individual merits. As the portfolio evolves, the
Manager continuously reviews the portfolio’s overall
sector and index balance to ensure that it remains in
line with the underlying conviction of the Manager.
The Investment Policy is set out on pages 87 and 88,
and details regarding risk factors and diversification
and other policies are set out each year in the
AnnualReport.
The investments are held on regulated exchanges,
primarily the LSE Main Market and AIM. This provides
the ability of smaller listed companies to raise
funds. This also provides liquidity in acquisition and
disposal of shares by the Company. The Manager
actively reviews the liquidity of the investments in
the portfolio. The cash position and the available
revolving credit facility (which may be drawn upon
demand) together provide the Company with £20m
of cash resources. This enables the Company to take
advantage of investments at opportune times.
Source: Thomson Reuters.
Portfolio as at 31 May 2022
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Business Model
Diverse was launched on 28 April 2011. It is registered
in England as a public limited company and is
an investment company in accordance with the
provisions of Sections 832 and 833 of the Companies
Act 2006.
The principal activity of the Company is to carry
on business as an investment trust. The Company
intends at all times to conduct its affairs so as to
enable it to qualify as an investment trust for the
purposes of Sections 1158/1159 of the Corporation Tax
Act 2010 (“S1158/1159”). The Directors do not envisage
any change in this activity in the foreseeable future.
The Company has been granted approval from
HM Revenue & Customs (“HMRC”) as an investment
trust under S1158/1159 and will continue to be
treated as an investment trust company, subject to
there being no serious breaches of the conditions
forapproval.
The principal conditions that must be met for
continuing approval by HMRC as an investment
trust are that the Company’s business should
consist of “investing in shares, land or other assets
with the aim of spreading investment risk and
giving members of the company the benefit of
the results” and the Company may only retain 15%
of its investment income without distributing it as
dividend payments. The Company must also not be
a close company. The Directors are of the opinion
that the Company has conducted its affairs for the
year ended 31 May 2022 so as to be able to continue
to qualify as an investment trust.
The Company’s status as an investment trust allows
it to obtain an exemption from paying taxes on the
profits made from the sale of its investments and all
other net capital gains.
The Company has a wholly-owned subsidiary,
DIT Income Services Limited. The purpose of the
subsidiary is to invest in shorter-term holdings,
where the gains after corporation tax can be passed
up to the parent company by way of dividends,
thus improving the position of the Company’s
revenueaccount.
Investment Policy
The Company’s full investment policy is set out on
pages 87 and 88 and contains information on the
policies which the Company follows relating to
asset allocation, risk diversification and gearing, and
includes maximum exposures, where relevant.
The Company invests primarily in UK-quoted or
traded companies with a wide range of market
capitalisations but a long-term bias toward small
and mid-cap equities with a view to achieving
the Company’s investment objective. Currently,
the Company’s entire portfolio is predominantly
invested in publicly listed stocks, cash and
anOption.
The Manager adopts a stock-specific approach in
managing the Company’s portfolio and therefore
sector weightings will be of secondary consideration.
As a result of this approach, the Company’s portfolio
will not track any benchmark index.
|
The Diverse Income Trust plc
|
Annual Report 2022
Principal Risks and Uncertainties
The Company is exposed to a variety of risks and
uncertainties that could cause its asset price or the
income from the investment portfolio to reduce,
possibly by a sizeable percentage in the most adverse
circumstances. The Board, through delegation to
the Audit Committee, has undertaken a robust
assessment and review of the emerging and principal
risks facing the Company, together with a review
of any new risks which may have arisen during the
year, including those that would threaten its business
model, future performance, solvency or liquidity. These
risks are formalised within the Company’s risk matrix,
which is regularly reviewed by the Audit Committee.
Information regarding the Company’s internal control
and risk management procedures can be found in the
Corporate Governance Statement on pages 39 and 40.
Whilst reviewing the principal risks and uncertainties,
the Board was cognisant of the continued risks
posed by the pandemic, political instability in the UK,
supply shortages, inflationary pressures and the war
inUkraine.
The principal financial risks and the Company’s
policies for managing these risks, and the policy and
practice with regard to financial instruments are
summarised in note 19 to the financial statements.
The Board has also identified the following principal
risks and uncertainties:
Risk Mitigation Movement
Investment and strategy
↔
There can be no guarantee that the investment
objective of the Company will be achieved.
The Company does not follow any benchmark.
Accordingly, the portfolio of investments held by the
Company will not mirror the stocks and weightings
that constitute any particular index or indices, which
may lead to the Company’s shares failing to follow
either the direction or extent of any moves in the
financial markets generally (which may or may not
be to the advantage of shareholders).
The Manager has in place a dedicated
investment management process
which is designed to maximise the
chances of the investment objective
being achieved. The Board reviews
regular investment and financial reports
from the Manager to monitor this.
Smaller companies
↔
The Company invests primarily in quoted
UK companies with a wide range of market
capitalisations but a long-term bias toward small
and mid-cap equities. Smaller companies can be
expected, in comparison to larger companies, to
operate over a narrower range of products, have
more restricted depth of management and a higher
risk profile. In addition, the relatively small market
capitalisation of such companies can make the
market in their shares less liquid. Prices of individual
smaller capitalisation stocks could be more volatile
than prices of larger capitalisation stocks and the
risk of insolvency of many smaller companies (with
the attendant losses to investors) is higher.
The Board looks to mitigate this risk by
ensuring the Company holds a spread
of investments, achieved through
limiting the size of new holdings at the
time of investment to typically between
1% and 1.5% of the portfolio. All potential
investee companies are researched by
the Manager prior to investment.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Risk Mitigation Movement
Sectoral diversification
↔
The Company is not constrained from weighting to
any sector. This may lead to the Company having
significant exposure to portfolio companies from
certain business sectors from time to time. Greater
concentration of investments in any one sector
may result in greater volatility in the value of the
Company’s investments and consequently its NAV.
The Company seeks to achieve attractive
returns by investing in weightings that
are different from the overall market,
yet also seeks to ensure that individual
variances are not so extreme as to leave
shareholders at risk of portfolio volatility
that is unreasonably poor. Even though
there may be significant exposures to
a single sector, this will be achieved by
holding a number of different stocks in
the portfolio.
Dividends
↓
The Company’s investment objective includes the
aim of providing shareholders with an attractive and
growing dividend. There is no guarantee that any
dividends will be paid in respect of any financial year
or period. The ability to pay dividends is dependent
on a number of factors, including the level of
dividends earned from the portfolio and the net
revenue profits available for that purpose.
The redemption of shares pursuant to the
redemption facility may also reduce distributable
reserves to the extent that the Company is unable
to pay dividends.
The Company maintains accounting
records and produces forecasts that are
designed to reduce the likelihood that
the Company will not have sufficient
distributable resources to meet its
dividend objective.
Dividend income has recovered since the
pandemic and there remains sufficient
reserves to provide resilience for the Trust
in maintaining its dividend policy.
Share price volatility and liquidity/marketability risk
↓
The market price of the Company’s shares, like
shares in all investment companies, may fluctuate
independently of the NAV and thus may not reflect
the underlying NAV of the shares. The shares could
trade at a discount or premium to NAV at different
times, depending on factors such as supply and
demand for the shares, market conditions and
general investor sentiment.
The portfolio of investments is subject to market
movements influenced by external economic
factors such as inflation, supply chain pressures
andpolitical instability.
The Company has in place an
annual redemption facility whereby
shareholders can voluntarily tender
their shares. The Board monitors the
relationship between the share price
and the NAV. The Company has taken
powers to re-purchase shares should
there be a sustained imbalance in
the supply and demand leading to a
discount. The Company has powers
to issue shares (only at a premium to
NAV) should there be good investment
opportunities and the size of the
Company has not become too large to
continue to meet its objectives.
Principal Risks and Uncertainties continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Risk Mitigation Movement
Gearing
↔
The Company’s investment strategy may involve
the use of gearing to enhance investment returns,
which exposes the Company to risks associated with
borrowings. Gearing may be generated through the
use of options, futures, options on futures, swaps and
other synthetic or derivative financial instruments.
Such financial instruments inherently contain much
greater leverage than a non-margined purchase of
the underlying security or instrument.
While the use of borrowings should enhance the
total return on the shares where the return on the
Company’s underlying assets is rising and exceeds
the cost of borrowing, it will have the opposite effect
where the return on the Company’s underlying
assets is rising at a lower rate than the cost of
borrowing or falling, further reducing the total
return on the shares.
As a result, the use of borrowings by the Company
may increase the volatility of the NAV per share.
The Company has a revolving loan
facility in place, as detailed in note 5 to
the financial statements. The facility
has been put in place to offer the
Company the opportunity to enhance
its performance through the use of
borrowings, when appropriate. However,
the facility remained undrawn as at
31 May 2022 and, subsequently, to the
date of this report.
The Company is limited to a maximum
gearing of 15% of the net assets. There
was no gearing as at 31 May 2022 (2021:
nil).
Key man risk
↔
The Company depends on the diligence, skill,
judgement and business contacts of the Manager’s
investment professionals and its future success
could depend on the continued service of these
individuals, in particular Gervais Williams.
The Company is managed by a team of
two at Premier Miton, Gervais Williams
and Martin Turner, and this moderates
the key man risk were one or the other
to leave Premier Miton’s employment.
Furthermore, the Company may
terminate the Management Agreement
should Gervais Williams cease to be
an employee of the Manager’s group
and is not replaced by a person whom
the Company considers to be of equal
or satisfactory standing within three
months of his departure.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Risk Mitigation Movement
Engagement of third party service providers
↔
The Company has no employees and the Directors
have all been appointed on a non-executive basis.
Whilst the Company has taken all reasonable steps
to establish and maintain adequate procedures,
systems and controls to enable it to comply with
its obligations, the Company is reliant upon the
performance of third party service providers for its
executive function.
The Company operates through a
series of contractual relationships with
its service providers. These contracts,
supported by service level agreements
where appropriate, set out the terms
on which a service is to be provided
to the Company. The Board reviews
performance of all the service providers
both in the Board meetings and in the
Management Engagement Committee
meetings, where the terms on which
the service providers are engaged are
also reviewed. The Board also receives
assurance or internal controls reports
from key service providers. In addition,
the contracts provide the Company
with protection in the event of failure to
perform by a service provider.
The Board was reassured that each
of the service providers, including
the Manager, had continued to
operate effectively during the
COVID-19pandemic.
Principal Risks and Uncertainties continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Share Capital
Share Issues
At the AGM held on 20 October 2021, the Directors
were granted authority to allot ordinary shares
up to an aggregate nominal amount of £36,144
(being approximately 10% of the issued ordinary
share capital). This authority is due to expire at the
Company’s AGM on 18 October 2022.
The Company has a block listing of ordinary shares
to be listed to the premium segment of the Official
List of the FCA and admitted to trading on the
premium segment of the LSE’s main market.
Duringthe year ended 31 May 2022, 475,000
ordinary shares were issued utilising the block
listing on 7 December 2021 for a price of £1.1575 per
share (mid-market price: £1.1400, aggregate nominal
value: £475).
As at the year end, and as at the date of this Report,
31,929,000shares remain under the block listing.
Proposals for renewal of the Directors’ authority to
issue shares are set out on page 32.
There are no restrictions concerning the transfer
of securities in the Company or on voting rights;
no special rights with regard to control attached
to securities; no agreements between holders of
securities regarding their transfer known to the
Company; and no agreements which the Company
is party to that might affect its control following a
successful takeover bid.
Purchase of Own Shares
At the AGM held on 20 October 2021, the Directors
were granted the authority to buy back up to
54,180,621 ordinary shares. No ordinary shares have
been bought back under this authority during the
year, nor in prior years. The authority will expire at
the next AGM when a resolution for its renewal will
be proposed (see page 32 for further information).
Any shares bought back under this authority will
not be sold from treasury at a price lower than the
prevailing NAV at that time.
Treasury Shares
Shares bought back by the Company may be held
in treasury, from where they could be re-issued at
a premium to NAV quickly and cost effectively. This
provides the Company with additional flexibility in
the management of its capital base. No shares were
purchased for, or held in, treasury during the year or
since the year end.
Share Redemptions
Valid redemption requests were received under the
Company’s redemption facility for the 31 May2022
Redemption Point in relation to 6,049,458 ordinary
shares, representing 1.671% of the issued share
capital. Following the year end, all of these shares
were redeemed at a price of 110.36 pence per share
and cancelled by theCompany.
Current Share Capital
As at the year end, there were 361,920,105 ordinary
shares and 50,000 management shares (see
note 9 to the financial statements) in issue,
representing 99.99% and 0.01% of the total share
capitalrespectively.
Subsequent to the year end, 6,049,458 ordinary
shares were redeemed and cancelled in respect of
the 31 May 2022 Redemption Point. As at the date
of this Report, there were therefore 355,870,647
ordinary shares in issue.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Stakeholder Engagement
Background
Directors have a duty to make decisions that
promote the success of a company for the benefit
of shareholders as a whole. This responsibility is
formally enshrined in section 172 of the Companies
Act 2006, which stipulates that board decisions
must be made with the long-term consequences of
those decisions in mind, including consideration of
the interests of a company’s employees, suppliers,
customers and other stakeholders, the impact on
the community and the environment, and the
desirability of maintaining a reputation for high
standards of business conduct.
During the year, the Board has made a number of
decisions based on these considerations, such as
consideration of potential merger opportunities,
the purchase of a Put Option, as well as continued
refreshing of the Board. The Board also considers
stakeholders' interests when discussing
performance and investment decisions with
theManager.
Stakeholders
As an investment trust, the Company does not
have any employees or customers. Although the
Company does have a number of contracts with
service providers including with the Manager,
the Company Secretary, the Stockbroker, and
the Depositary, it has very few suppliers with the
principal exception of a number of banks in relation
to the Company’s bank accounts. In meeting its
responsibilities under the Companies Act 2006, the
Board makes decisions to promote the success of
the Company for the benefit of its shareholders as a
whole, in the knowledge that the efficient allocation
of capital delivers results for all stakeholders.
Successful companies not only generate a
return for their investors, but also often create
employment, contribute to improved domestic
growth and generate additional tax revenues
for the government. The Board recognises that
effective capital allocation should take account of
the Company’s responsibilities to the environment
in the context of the emerging climate change
agenda as well as to the wider community. As such,
the Company always strives to meet regulators’
requirements. The following section discusses
how the actions taken by and on behalf of the
Company work towards ensuring that the interests
of all stakeholders are appropriately considered
and how those with concerns can most effectively
bring them to the attention of the Board. In line
with the FRC Guidance in relation to section 172(1)
statements, this statement focuses on stakeholders
that are considered key to the Company’s business
and therefore does not cover every stakeholder in
the Company.
Shareholders
The Board is committed to maintaining open
channels of communication and to engaging with
shareholders in a manner which they find most
meaningful, in order to ensure that decisions are taken
with the views of shareholders in mind. These include:
Annual General Meeting – The Company welcomes
and encourages attendance and participation
from shareholders at the AGM and looks forward
to hosting shareholders again at the 2022 AGM.
Shareholders have the opportunity to meet the
Directors and the Manager (Premier Portfolio
Managers Limited) and to address questions to
them directly. There is typically a presentation on
the Company’s performance and on the future
outlook;
Shareholder meetings – Unlike trading companies,
shareholders in investment companies often meet
with the investment manager rather than with
members of the board. Shareholders are able to
meet the Manager throughout the period and the
Manager provides information on the Company
and its performance on the Company’s website
and via various social medial channels. Feedback
from numerous meetings between the Manager
and shareholders is shared with the Board. The
Chairman, the Chairman of the Audit Committee
or other members of the Board are available to
meet with shareholders to understand their views
on governance and the Company’s performance
where they wish to do so. With assistance from
the Manager, the Chairman seeks meetings with
shareholders who might wish to meet with him;
|
The Diverse Income Trust plc
|
Annual Report 2022
Publications – The Annual Report and Half-Year
results are made available on the Company’s
website and are circulated to those shareholders
requesting hard copies. These reports are designed
to provide shareholders with a clear understanding
of the Company’s portfolio and financial position.
This information is supplemented by a monthly
factsheet which is available on the website.
Feedback and/or questions the Company receives
from shareholders help its reporting to evolve,
the aim being to render the reports and updates
transparent and understandable;
Shareholder concerns – In the event that
shareholders wish to raise issues or concerns with
the Directors, they are welcome to do so at any
time by writing to the Chairman at the registered
office. The Senior Independent Director and
other members of the Board are also available to
shareholders if they have concerns that have not
been addressed through the normal channels; and
Investor relations updates – At every Board meeting,
the Directors receive updates from the Company’s
Stockbrokers, Panmure Gordon, and from the
Company Secretary on share trading activity, share
price performance, the Company’s share register
and investor relations.
Manager
Maintaining a close and constructive working
relationship with the Manager is crucial to the Board.
The Manager’s performance is critical for the Company
to achieve positive and consistent long-term returns
in line with its investment objectives. The Board
meets the Manager on a regular basis, both during
and outside formal Board meetings, and receives
and discusses reports and updates with the Manager
when appropriate. Further details on the relationship
with the Manager can be found on page 37.
Suppliers
The Company relies on a diverse range of reputable
advisors for support in meeting its obligations.
The Board maintains regular contact with its key
external providers, namely the Administrator, the
Company Secretary, the Registrar, the Custodian
and the Stockbroker, and receives regular reporting
from them. Their advice, as well as their needs
and views, are regularly taken into account. The
Management Engagement Committee formally
assesses the performance of third party suppliers,
their fees and continuing appointment on an
annual basis, to ensure both that these key service
providers continue to function at an acceptable
level and that they are appropriately remunerated
to deliver the expected level of service. The Audit
Committee reviews and evaluates the financial
reporting control environments in place at key
service providers.
Regulators
The Company can only operate with the approval
of its regulators, who have a legitimate interest
in how the Company operates in the market and
treats its investors and shareholders. The Company
regularly considers the control environment in place
to ensure that it meets its various regulatory and
statutory obligations.
Environment and Community
Given the outsourced nature of the Company’s
operations, the Company has very little direct
impact on the community or the environment.
However, the Manager recognises that it can
influence an investee company’s approach to
Environmental, Social and Governance (“ESG”)
matters and discusses ESG matters with
investee companies on a regular basis. Further
information about the Company’s approach to
environmental, human rights, social and community
issues is set out on page 27.
These mechanisms for engaging with stakeholders
are kept under review by the Directors and are
discussed on a regular basis at Board meetings
to ensure that they remain effective. Should
shareholders and other stakeholders of the
Company wish to contact the Chairman, they can
do so by contacting the registered office of the
Company or by sending an email for the attention of
the Chairman at diverse_cosec@linkgroup.co.uk.
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Management, Social, Environmental
and Diversity Matters
Management Arrangements
The Company appointed Premier Portfolio
Managers Limited as its Alternative Investment
Fund Manager (“AIFM”) and its Manager, following
the novation of the Appointment of Manager
agreement on 24 April 2020. PPM has been
approved as an AIFM by the UK’s FCA.
The Manager receives a management feeof
0.9%per annum on the average market
capitalisation of the Company up to £300m
and 0.8% per annum on the average market
capitalisation between £300m and £500m and 0.7%
per annum on the average market capitalisation
above £500m.
In addition to the basic management fee, and for so
long as a Redemption Pool (see page 86 for details)
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.
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 charged to capital and the remaining
25%to revenue.
The Management Agreement is terminable by
either the Manager or the Company giving to the
other not less than 12 months’ written notice. The
Management Agreement may be terminated
earlier by the Company with immediate effect on
the occurrence of certain events, including the
liquidation of the Manager or appointment of a
receiver or administrative receiver over the whole or
any substantial part of the assets or undertaking of
the Manager or a material breach by the Manager
of the Management Agreement which is not
remedied. The Company may also terminate the
Management Agreement should Gervais Williams
cease to be an employee of the Manager’s group
and is not replaced by a person whom the Company
considers to be of equal or satisfactory standing
within three months of his departure.
The Company has given certain market standard
indemnities in favour of the Manager in respect
of the Manager’s potential losses in carrying on its
responsibilities under the Management Agreement.
The Board appointed Bank of New York Mellon as
its Depositary and Custodian under an agreement
dated 22 July 2014. The annual fee for Depositary
services due to Bank of New York Mellon is 0.02% of
gross assets, subject to a minimum fee of £15,000
per annum. The Company and the Depositary may
terminate the Depositary Agreement with three
months’ written notice.
Company secretarial and administrative services are
provided by Link Alternative Fund Administrators
Limited, under an agreement dated 7 April 2011.
This agreement may be terminated by 12 months’
written notice subject to provisions for earlier
termination as provided therein.
|
The Diverse Income Trust plc
|
Annual Report 2022
Continuing Appointment of the Manager
The Board keeps the performance of the Manager
under continual review, and the Management
Engagement Committee conducts an annual
appraisal of the Manager’s performance, and
makes a recommendation to the Board about
the continuing appointment of the Manager. It is
the opinion of the Directors that the continuing
appointment of the Manager is in the interests of
shareholders as a whole. The reasons for this view
are that the Manager has executed the investment
strategy according to the Board’s expectations and
has demonstrated superior risk-adjusted returns
relative to the broader market and the peer group.
The Directors also believe that by paying the
management fee calculated on a market
capitalisation basis, rather than a percentage of
assets basis, the interests of the Manager are more
closely aligned with those of shareholders.
Environmental, Human Rights, Employee, Social
and Community Issues
Since the Company does not have any employees,
the day-to-day management of these areas is
delegated to the Manager. As an investment
trust, the Company has no direct impact on
the community or the environment, and as
such has no environmental, human rights, social
or community policies.
ESG factors are central to the investment process
as misjudgements on these matters can incur
major additional costs to the portfolio holdings, as
well as undermining their equity return through
reputational damage. In company meetings,
the Manager routinely questions the corporate
management on a variety of topics, such as safety
records and the make-up of their board papers, to
ensure companies are adhering to best practice.
These questions can be quite wide ranging. For
example, the Manager has raised issues ranging
from the use of antibiotics in livestock, to how
individual companies monitor the working
conditions in the overseas plants of their suppliers.
Diversity
The Board of Directors of the Company comprises
two female and three male Directors.
The Company’s Diversity Policy acknowledges
the benefits of greater diversity, including gender
diversity, and the Board remains committed to
ensuring that the Company’s Directors bring a wide
range of skills, knowledge, experience, backgrounds
and perspectives. Details of the Company’s Diversity
Policy are set out on pages 34 and 35.
The Board is mindful of the FCA's decision to
incorporate the diversity recommendations from
the Parker and Hampton-Alexander reviews into the
Listing Rules on a ‘comply or explain’ basis which will
apply to financial years commencing 1 January 2022.
Once finalised, these proposals will be taken into
consideration in respect of the recruitment of all
new Directors of the Company. The Company will
report its compliance against this new requirement
in the Annual Report for the year ending 31 May
2023, to be published in 2023.
The Strategic Report has been approved by the
Board of Directors.
On behalf of the Board
Andrew Bell
Chairman
8 August 2022
Annual Report 2022
|
The Diverse Income Trust plc
|
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Andrew Bell (Chairman of the Board)
Andrew Bell has a depth of experience both as a non-executive director of investment trusts and
in the role of chairman. He is currently a director and the CEO of Witan Investment Trust plc. Prior
to this, his experience included positions at Barclays de Zoete Wedd, Credit Suisse First Boston,
and Carr Sheppards Crosthwaite where he spent 10 years as head of research and strategy. Andrew
was previously a non-executive director of Henderson High Income Trust plc and Framlington
Innovative Growth Trust plc, where he also chaired the audit committee for a period, and Gabelli
Value Plus+ Trust plc, where he was chairman from its launch in 2015 to 2018. Andrew was also
a director of The Association of Investment Companies from 2005 to 2015 and held the position
of chairman for the last two years of his appointment. Appointed as a Director on 1 January
2019 and as Board Chairman on 14 October 2020.
Charles Crole
Charles Crole has over 35 years of executive experience in the asset management sector across
a range of fund management responsibilities. He is currently head of Institutional at Guinness
Global Investors Ltd and the Chairman of the Investment Committee of MacRobertTrust.
He previously served as a non-executive director of Jupiter Green Investment Trust Plc.
Charles' experience in the asset management sector includes 19years at Schroder Investment
Management Ltd and 12 years at Jupiter Fund Management. In addition, he has held a
number of non-executive and trustee roles and is an associate at the Society for Investment
Professionals. Appointed as a Director on 1 February 2022.
Caroline Kemsley-Pein (Chair of the Management Engagement and Nomination
Committees)
Caroline Kemsley-Pein is a qualified solicitor and has been advising corporate clients for
over 30 years. She is principal of Kemsley & Company, a specialist corporate and commercial
solicitors’ practice. Caroline has extensive experience of mergers, acquisitions and disposals
of companies and businesses within the UK market, shareholder and joint venture
arrangements, corporate restructuring and complex contractual arrangements. Appointed as
a Director on 1 January 2019.
Michelle McGrade
Michelle McGrade has a depth of experience as a non-executive director and in advisory and
consultancy roles. She has broad experience across the investment management industry,
including asset management and private wealth. Michelle is currently a non-executive
director of M&G Securities Ltd (a subsidiary of M&G established to ensure independent
oversight of their UK regulated funds) and advisor to the Investment Committee at Wealthify,
an online investment platform. She also carries out independent consultancy work focusing
primarily on making investing understandable to the general public. In addition, Michelle was
previously Chief Investment Officer of Virgin Money and Chief Investment Officer of TD Direct
Investing, where she was also an executive committee member and Chair of the Investment
Committee. Appointed as a Director on 10 October 2019.
Calum Thomson (Chairman of the Audit Committee and Senior Independent Director)
Calum Thomson is a qualified chartered accountant with over 30 years’ experience in the
financial services industry. For 21 years, he was an audit partner at Deloitte LLP, specialising in
the asset management sector, with clients including a wide range of managers, investment
trusts, banks, sovereign wealth funds, large charities and private equity funds. During his career,
Calum has led Deloitte LLP’s global and UK asset management groups. He is a non executive
director and chairman of the audit committee of AVI Global Trust plc, Baring Emerging
Europe plc and abrdn Private Equity Opportunities Trust plc. Appointed as a Director on
20 December 2016.
Directors (all non-executive)
|
The Diverse Income Trust plc
|
Annual Report 2022
Report of the Directors
The Directors present their report and the financial statements for the year ended 31 May 2022.
Directors
The Directors in office at the date of this report are
shown on page 28.
In accordance with the policy adopted by the
Board, all Directors will stand for re-election at the
forthcoming AGM.
None of the Directors or any persons connected
with them had a material interest in the transactions
and arrangements of, or the agreement with, the
Manager during the year.
Substantial Shareholdings
The Directors have been informed of the following
notifiable interests in the Company’s voting rights as
at 31 May 2022:
Number of
ordinary shares
% of
voting rights
M&G 32,852,181 9.08
Investec Wealth &
Investment Limited
28,871,227 7.98
Smith & Williamson
Holdings Limited
24,073,657 6.65
Quilter Investors 22,678,573 6.26
Brewin Dolphin Plc 19,225,322 5.31
Merseyside Pension Fund 10,702,500 2.96
On 22 June 2022 the Company was notified by
Evelyn Partners Limited of a holding of 36,100,278
shares held through Smith & Williamson Holdings
Limited as controlled undertaking, representing
10.14% of the voting rights on that date. No further
notifications have been received during the period
between 31 May 2022 and 2 August 2022.
Results and Dividends
A summary of the Company’s performance during
the year and the outlook for the forthcoming year is
set out in the Strategic Report on pages 4 to 27.
A final dividend of 1.20p is recommended. The
dividends paid or payable in respect of the year
ended 31 May 2022 are set out in note 8 on page 73.
Financial Risk Management
The principal financial risks and the Company’s
policies for managing these risks are set out in
note19 to the financialstatements.
Corporate Governance
The Corporate Governance Statement on pages 34
to 40 forms part of the Report of the Directors.
Going Concern
The Directors consider that it is appropriate to adopt
the going concern basis in preparing the financial
statements. After making enquiries, and bearing in
mind the nature of the business and assets of the
Company and its subsidiary, DIT Income Services
Limited, the Directors consider that the Group 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 Group’s ability to
meet obligations as they fall due for a period of at
least 12 months from the date that these financial
statements were approved.
In making the assessment, the Directors have
considered the likely impacts of the ongoing
COVID-19 pandemic, political instability in the UK,
supply shortages, inflationary pressures and the
war in Ukraine on the Company, operations and
portfolio.
Cash flow projections have been reviewed and show
that the Group has sufficient funds to meet both its
contracted expenditure and its discretionary cash
outflows in the form of the dividend policy.
Viability Statement
The Directors have assessed the viability of the
Company over a three-year period, taking account
of the Company’s position and the risks as set out in
the Strategic Report. The period assessed balances
the long-term aims of the Company, the Board’s view
that the success of the Company is best assessed over
a longer time period and the inherent uncertainty of
looking out for too long a period.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
The Board consider it appropriate to continue to
review the viability of the Company over a three year
time period which balances the long term nature
of investing against the short term liquidity of the
investments.
As part of its assessment of the viability of the
Company, the Board has considered the emerging
and principal risks and uncertainties and the impact
on the Company’s portfolio of a significant fall in UK
markets. The Directors do not expect there to be any
significant change in the current principal risks and
adequacy of the mitigating controls in place over
the period of this assessment.
To provide this assessment, the Board has
considered the Company’s financial position and its
ability to liquidate its portfolio to meet its expenses
or other liabilities as they fall due:
• The Company invests largely in companies
listed and traded on stock exchanges. These
are actively traded, and whilst perhaps less
liquid than larger quoted companies, the
portfolio is well diversified by both number of
holdings and industry sector.
• The expenses of the Company are predictable
and modest in comparison with the assets in
the portfolio. There are no commitments that
would change that position.
• The Company has an annual redemption
facility whereby shareholders may request
that their shares are redeemed at NAV. The
Board has considered the possibility that
shareholders holding a significant percentage
of the Company’s shares request redemption.
Firstly, the Board has flexibility over the method
of redemption so as to avoid disruption
to the overall operation of the Company
in this situation. Secondly, the Company’s
investments comprise readily realisable
securities which can be sold to meet funding
requirements if necessary. The most significant
of the Company’s expenses vary in proportion
to the size of the Company.
In addition to considering the emerging and principal
risks on pages 19 to 22 and the financial position of
the Company as described above, the Board has
also considered the following factors:
• the continuing relevance of the Company’s
investment objective in the current environment;
• the level of demand for the Company’s shares
and that since launch, the Company has been
able to issue further shares;
• the gearing policy of the Company; and
• that regulation will not increase to such an
extent that the costs of running the Company
become uneconomical.
During the year, the Board periodically reviews key
stress tests, which are provided by the Manager and
are based on correlations from defined historical
periods to review key sensitivities to pre-determined
shocks. The Manager’s Funds Risk Committee and
Investment Oversight Committee review similar
sensitivities or stress tests on a quarterly and monthly
basis respectively. Both committees have been
satisfied when they last convened that there were no
undue risks or sensitivities of concern for the Trust.
Accordingly, the Directors have formed the
reasonable expectation that the Company will be
able to continue in operation and meet its liabilities
as they fall due over the next three years.
Company Culture
The Company’s defined purpose is to deliver our
investment objective: to pay shareholders a good
and growing dividend income. The Directors believe
that this will be facilitated by establishing and
maintaining a healthy corporate culture among
the Board and in its interaction with the Manager,
shareholders and other stakeholders.
Report of the Directors continued
|
The Diverse Income Trust plc
|
Annual Report 2022
The Board strives for its culture to be in line with
the Company’s purpose, values and strategy.
Whilst ensuring that it does not conflict with the
investment objective, the Board aims to structure
the Company’s operations in such a manner that
it takes all its stakeholders and the impact of
the Company’s operations on the environment
and community into account.
In addition, the Board promotes and monitors the
effective management or mitigation of the risks
faced by the Company.
As the Company has no employees and acts
through its Board and service providers, its culture
is represented by the values and behaviour of
those parties. Accordingly, the Board assesses and
takes account of the organisational effectiveness
of its service providers (including “soft” factors
such as openness and teamwork) as well as their
regulatory compliance. The Board is responsible for
ensuring that the Company’s culture is embedded
in its day to day operations and it has adopted a
number of policies and practices to facilitate this. In
recognition of the Company’s corporate and social
responsibilities and to safeguard the Company’s
interests, the Board engages with the Company’s
service providers and other stakeholders. As part
of this ongoing monitoring, the Board receives
reports from its service providers with respect to
their anti-bribery and corruption policies; Modern
Slavery Act 2015 statements; equal opportunities and
diversity policies; and greenhouse gas and energy
usereporting.
Greenhouse Gas Emissions and TCFD reporting
The Company has no greenhouse gas emissions
to report from its operations (2021: none), nor
does it have responsibility for any other emissions
producing sources under the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations
2013, including those within its underlying
investment portfolio. Where a large company does
not consume more than 40,000 kWh of energy
in a reporting period, it qualifies as a low energy
user and is exempt from reporting under these
regulations. This exemption applies to the Company.
As an investment trust without employees, the
Company is also not required to report against the
TCFD framework. However, understanding and
managing climate-related risks and opportunities
based on the TCFD´s recommendations is a
fundamental part of Premier Miton's investment
approach, as discussed on pages 2 and 3.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include
specified information in a single identifiable section
of the Annual Report or a cross reference table
indicating where the information is set out. The
information required under Listing Rule 9.8.4(7) in
relation to Shares issued by the Company is set out
on page 23.
Audit Information
The Directors who held office at the date of approval
of the Report of the Directors confirm that, so
far as they are aware, there is no relevant audit
information of which the Company’s Auditor is
unaware; and each Director has taken all the steps
that he/she ought to have taken as a Director to
make himself/herself aware of any relevant audit
information and to establish that the Company’s
Auditor is aware of that information.
Auditor
BDO LLP has expressed its willingness to continue
in office as Auditor of the Company and resolutions
for its reappointment and to authorise the Audit
Committee to agree its remuneration will be
proposed at the forthcoming AGM.
Annual General Meeting
The Notice of the AGM to be held on 18October
2022 (the “Notice”) is set out on pages 91 to 96.
Shareholders are being asked to vote on various
items of business, being:
• the receipt and adoption of the Strategic
Report, the Reports of the Directors and
Auditor and the audited financial statements
for the year ended 31 May 2022;
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
• the receipt and approval of the Directors’
Remuneration Report;
• the re-election of Directors;
• the re-appointment of BDO LLP as Auditor and
the authorisation of the Audit Committee to
determine the remuneration of the Auditor;
• the approval of a final dividend;
• the granting of authorities in relation to the
allotment of shares;
• the disapplication of pre-emption rights for
certain issues of shares;
• the purchase by the Company of its own
shares; and
• the holding of general meetings on not less
than 14 clear days’ notice.
Resolutions 1 to 11 will be proposed as ordinary
resolutions and Resolutions 12 to 14 will be proposed
as specialresolutions.
Authority to Issue Shares and Disapplication of
Pre-Emption Rights
An ordinary resolution to authorise the Directors to
allot ordinary shares up to an aggregate nominal
amount of £35,587, equal to approximately 10% of
the Company’s issued ordinary share capital, will be
proposed as Resolution 11.
Resolution 12, a special resolution, is being proposed
to authorise the Directors to issue ordinary shares
for cash and to disapply the pre-emption rights of
existing shareholders in relation to issues of ordinary
shares under Resolution 11 (being in respect of up to
10% of the Company’s issued share capital as at the
date of the Notice). Shares would only be issued at a
price at or above the prevailing NAV per share.
As at the date of the Notice, the Company holds no
shares in treasury.
These authorities, if approved by shareholders,
will expire at the AGM to be held in 2023, when
resolutions for their renewal will be proposed.
The Directors will only issue new shares if they
believe it would be in the best interests of the
Company’sshareholders.
Purchase of Own Shares
Resolution 13, a special resolution, will renew the
Company’s authority to make market purchases
of up to 14.99% of the Company’s ordinary shares,
either for cancellation or placing into treasury at
the determination of the Directors. Purchases of
ordinary shares will be made within guidelines
established from time to time by the Board. Any
purchase of ordinary shares would be made only out
of the available cash resources of the Company. The
maximum price which may be paid for an ordinary
share must not be more than the higher of (i) 5%
above the average of the mid-market values of the
ordinary shares for the five business days before
the purchase is made, or (ii) the higher of the price
of the last independent trade and the highest
current independent bid for the ordinary shares.
The minimum price which may be paid is 0.1p per
ordinary share.
The Directors would use this authority to address
any significant imbalance between the supply and
demand for the Company’s ordinary shares and to
manage the discount to NAV at which the ordinary
shares trade. Ordinary shares will be repurchased
only at prices below the NAV per ordinary share,
which should have the effect of increasing the NAV
per ordinary share for remaining shareholders.
This authority will expire at the AGM to be held in
2023 when a resolution to renew the authority will
beproposed.
Report of the Directors continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Notice Period for General Meetings
Resolution 14 is a special resolution that will give the
Directors the ability to convene general meetings,
other than annual general meetings, on a minimum
of 14 clear days’ notice. The minimum notice period for
annual general meetings will remain at 21 clear days.
The approval will be effective until the Company’s
AGM to be held in 2023, at which it is intended that
renewal will be sought. The Company will have to
offer facilities for all shareholders to vote by electronic
means for any general meeting convened on 14 days’
notice. The Directors will only call a general meeting
on 14 days’ notice where they consider it to be in the
interests of shareholders to do so and the relevant
matter is required to be dealt with expediently.
Recommendation
Full details of the above resolutions are contained in
the Notice.
The Directors consider that all the resolutions to be
proposed at the AGM are in the best interests of the
Company and its members as a whole. The Directors
unanimously recommend that shareholders vote in
favour of all the resolutions, as they intend to do in
respect of their own beneficial holdings.
Other Information
Information on future developments, the share
capital and financial risks is detailed in the
StrategicReport and the Shareholder Information
on pages 87 and 88.
By order of the Board
Link Alternative Fund Administrators Limited
Secretary
8 August 2022
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Corporate Governance Statement
This Corporate Governance Statement forms part of the Report of the Directors.
The Company is committed to maintaining high
standards of corporate governance and the Board is
accountable to shareholders for the governance of
the Group’s affairs.
Statement of Compliance
The Board of Diverse has considered the principles
and recommendations of the AIC Code of Corporate
Governance for Investment Companies (“AIC Code”)
published in February 2019. The AIC Code addresses
all the principles set out in of the UK Corporate
Governance Code (“UK Code”), as well as setting
out additional principles and recommendations on
issues that are of specific relevance to investment
trusts. The Board considers that reporting against
the principles and recommendations of the AIC
Code provides better information to shareholders.
The FRC, the UK’s independent regulator for
corporate reporting and governance responsible
for the UK Code, has endorsed the AIC Code. The
terms of the FRC’s endorsement mean that AIC
members who report against the AIC Code meet
fully their obligations under the UK Code and the
related disclosure requirements contained in the
ListingRules.
A copy of the AIC Code can be obtained via the AIC
website, www.theaic.co.uk. A copy of the UK Code
can be obtained at www.frc.org.uk.
The Company has complied with the
recommendations of the AIC Code and the relevant
provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
• the role of the chief executive;
• executive directors’ remuneration; and
• the need for an internal audit function.
The Board considers that these provisions are not
relevant to the position of the Company, being
an externally-managed investment company.
In particular, all of the Company’s day-to-day
management and administrative functions are
outsourced to third parties. As a result, the Company
has no executive Directors, employees or internal
operations. The Company has therefore not reported
further in respect of these provisions.
The Board of Directors
The Board consists entirely of non-executive
Directors and has no employees.
Under the leadership of the Chairman, the Board is
responsible for all matters of direction and control
of the Company and its subsidiary, including
its investment policy and strategy, and no one
individual has unfettered powers of decision. The
Articles of Association may only be amended by
way of a special resolution of shareholders. The
Directors possess a wide range of business and
financial expertise relevant to the direction of the
Company and consider that they commit sufficient
time to the Company’s affairs. Brief biographical
details of the Directors, including details of their
significant commitments, can be found on page 28.
None of the Directors has a service contract, but
letters of appointment setting out the terms of their
appointment are in place. Directors are not entitled
to any compensation for loss of office. Copies of the
letters of appointment are available on request from
the Secretary and will be available at the AGM.
The Board has adopted a Diversity Policy, which
acknowledges the benefits of greater diversity,
including gender and ethnic diversity, and
remains committed to ensuring that the Company’s
Directors bring a wide range of skills, knowledge,
experience, backgrounds and perspectives to the
Board. Whilst the Board does not feel that it would
be appropriate to set targets as all appointments
are made on merit, the following objectives for the
appointment of Directors have been established:
• all Board appointments will be made on merit,
in the context of the skills, knowledge and
experience that are needed for the Board to be
effective; and
• long lists of potential non-executive Directors
should include diverse candidates of
appropriate merit.
|
The Diverse Income Trust plc
|
Annual Report 2022
During the year, the Board engaged Nurole Ltd
to assist with the recruitment of an additional
Director to replace Paul Craig who resigned on
28 February2022. Charles Crole was selected
for his experience with investment trusts and
asset management and was appointed as a
non-executive Director on 1 February 2022. There
is no connection between the Directors or the
Company and Nurole Ltd.
A procedure for the induction of new Directors
has been established, including the provision of
an induction pack containing relevant information
about the Company, its processes and procedures.
New appointees also have the opportunity of
meeting with the Chairman and relevant persons at
the Manager.
Chairman
The Chairman leads the Board and is responsible for
its overall effectiveness in directing the Company.
He promotes a culture of openness and debate
and facilitates constructive Board relations and the
effective contribution of all Directors. In liaison with
the Company Secretary, he ensures that the Directors
receive accurate, timely and clear information.
The Board continually monitors the independence
of the Chairman. The current Chairman, Andrew
Bell, is deemed by his fellow independent Board
members to be independent and to have no
conflicting relationships. Mr Bell considers himself
to have sufficient time to commit to the Company’s
affairs.
Senior Independent Director
Mr Thomson holds the role of Senior Independent
Director and as such, he provides a channel for
any shareholder concerns regarding the Chairman
and takes the lead in the annual evaluation of
the Chairman by the independent Directors. In
the event the Company experiences a period of
stress, the Senior Independent Director would
work with the Chairman, the other Directors and/or
shareholders to resolve any issues.
The role and responsibilities of the Chairman and
the Senior Independent Director are clearly defined
and set out in writing, copies of which are available
on the Company’s website.
Board Operation
The Directors meet at regular Board meetings,
held at least four times a year, with additional
meetings arranged as necessary. During the year to
31 May 2022, the number of Board and Committee
meetings attended by each Director were as follows:
Scheduled
Board
meetings
Audit
Committee
meetings
Management
Engagement
Committee
meetings
Nomination
Committee
meeting
Number
entitled to
attend
Number
attended
Number
entitled to
attend
Number
attended
Number
entitled to
attend
Number
attended
Number
entitled to
attend
Number
attended
Andrew
Bell 4 4 2 2 2 2 1 1
Charles
Crole
1
2 2 1 1 1 1 – –
Caroline
Kemsley-
Pein 4 4 2 2 2 2 1 1
Michelle
McGrade 4 4 2 2 2 2 1 1
Calum
Thomson 4 4 2 2 2 2 1 1
Paul
Craig
2
3 2 – – – – – –
No meeting of the Disclosure Committee was held during the year.
1
Appointed as a Director on 1 February 2022.
2
Resigned as a Director on 28 February 2022. Mr Craig was unable to attend
the last Board meeting during his tenure due to a prior commitment.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
In addition to the scheduled Board meetings
detailed above, the Board held a number of further
ad hoc meetings to discuss matters such as
potential merger opportunities, the Put Option and
Charles Crole’s appointment. The Board also held a
meeting to discuss general strategy.
The Board has formalised arrangements under
which the Directors, in the furtherance of their
duties, may take independent professional advice at
the Company’s expense.
The Company has arranged a Directors’ and Officers’
liability insurance policy which includes cover for
legal expenses. The Company has provided each
of the Directors of the Company, subject to the
provisions of UK legislation, with an indemnity in
respect of liabilities which they may sustain or incur
in connection with the discharge of their duties as a
Director. The indemnity also covers reasonable legal
and other defence expenses, although these would
have to be repaid in the event of a conviction. Deeds
of Indemnity in favour of each of the Directors
were executed on behalf of the Company on their
appointment. There are no other qualifying third
party indemnity provisions in place.
Board Evaluation
The Directors are aware that they need to
continually monitor and improve performance and
recognise this can be achieved through regular
Board evaluation, which provides a valuable
feedback mechanism for improving Board
effectiveness. The Board has therefore opted to
undertake an internal performance evaluation by
way of questionnaires specifically designed to assess
the strengths and independence of the Board
and the Chairman, individual Directors and the
performance of its Committees. The questionnaires
are also intended to analyse the focus of Board
meetings and assess whether they are appropriate,
or if any additional information may be required
to facilitate Board discussions. Any training needs
identified as part of the Board evaluation process
are added to the next Board meeting agenda.
The evaluation process was carried out following
the year end and was conducted by the Chairman.
Calum Thomson, as the Senior Independent
Director, led the appraisal of the Chairman.
As a result of the evaluation, the Board considers
that it, as a whole, functions effectively and that all of
the current Directors provide valuable contributions
and have the skills and experience relevant to the
future leadership and direction of the Company.
During the performance evaluation, each Director’s
continued commitment to their responsibilities and
their ability to devote the necessary time and effort
to understand the Company’s activities, objectives
and risks was assessed. All Directors were deemed
to demonstrate sufficient commitment and to
devote sufficient time to their responsibilities. The
Board acknowledges that some of its Directors
have a number of external appointments and this
is kept under close review. The majority of these
appointments are non-executive positions at
investment trusts and as the Directors are seen to be
responsive and demonstrate that they have sufficient
time to fulfill their obligations to the Company, the
Board welcomes the experience that these external
appointments bring. The Board therefore believes
that it is in the best interests of shareholders that
each of the Directors is re-elected.
Independence of Directors
In accordance with the AIC Code, the Board
has reviewed the independent status of each
individual Director and the Board as a whole. In
the Board’s opinion, all Directors are considered to
be independent of the Manager in both character
andjudgement.
Corporate Governance Statement continued
|
The Diverse Income Trust plc
|
Annual Report 2022
The Directors have considered Michelle McGrade’s
independence in the light of her being a
non-executive director of M&G Securities Ltd,
(“MGSL”), which is a subsidiary of M&G (a significant
shareholder in the Trust). MGSL is an entity set up
to provide regulatory oversight of a specific range of
M&G’s UK regulated funds. The M&G fund that holds
a significant holding in the Trust is not overseen
by MGSL. For clarity, MGSL has a governance
and oversight function and is not involved in the
investment decisions pertaining to the funds it
oversees. In accordance with the agreed procedures
discussed above, Ms McGrade would not be
permitted to vote on any issues relating to a potential
conflict. Having considered these measures, the
Board confirmed that it considered Ms McGrade to
be independent.
Election/re-election of Directors
Under the Company’s Articles of Association and in
accordance with the AIC Code, Directors are required
to retire at the first AGM following their appointment.
Thereafter, the Board has agreed a policy whereby
all Directors will seek annual re-election at
the Company’s AGMs. This is in line with the
recommendations of the AIC Code. The maximum
length of service for any Director, including the
Chairman, will be nine years following first election.
Board Responsibilities and Relationship with
the Manager
The Board is responsible for the determination and
implementation of the Company’s investment
policy and strategy and has overall responsibility
for the Company’s activities, including the review of
investment activity and performance, control and
supervision of the Manager. The Board’s main roles are
to create value for shareholders, to provide leadership
to the Company and to approve the Company’s
strategic objectives. The Board has adopted a
schedule of matters reserved for decision by the
Board, and specific responsibilities include: reviewing
the Company’s investments, asset allocation, gearing
policy, cash management, peer group performance,
investment outlook and revenue forecasts and
outlook. This schedule is reviewed regularly and is
made available on the Company's website.
The Company’s day-to-day functions have been
subcontracted to a number of service providers,
each engaged under separate legal agreements.
The management of the Group’s assets has been
delegated to the Manager which has discretion
to manage the assets in accordance with the
Company’s investment objective and policy.
At each Board meeting the Directors follow a
formal agenda, which is circulated in advance by
the Secretary. The Secretary and Manager regularly
provide financial information, together with briefing
notes and papers in relation to changes in the
Company’s economic and financial environment,
statutory and regulatory changes and corporate
governance best practice.
At each Board meeting, a representative from the
Manager is in attendance to present verbal and
written reports covering the Company’s activity,
portfolio and investment performance over the
preceding period. Ongoing communication with
the Board is maintained between formal meetings.
The Board and the Manager operate in a fully
supportive, co-operative and open environment.
Conflicts of Interest
The Articles of Association permit the Board to
consider and, if it sees fit, to authorise situations
where a Director has an interest that conflicts, or
may possibly conflict, with the interests of the Group.
A formal system is in place for the Board to consider
authorising such conflicts, whereby the Directors
who have no interest in the matter decide whether
to authorise the conflict and any conditions to be
attached to such authorisations.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Board Committees
During the year, the Company had four
Committees in operation, the Audit Committee,
the Management Engagement Committee,
the Nomination Committee and the Disclosure
Committee. Given the size of the Board, it is not felt
appropriate for the Company to have a separate
remuneration committee. The functions that would
normally be carried out by this committee are dealt
with by the full Board.
The terms of reference of the Committees
are available on the Company’s website at
www.diverseincometrust.com.
Audit Committee
The Audit Committee comprises all Directors and
is chaired by Calum Thomson. Andrew Bell, the
Company’s Chairman, is a member of the Audit
Committee but does not chair it. His membership
of the Audit Committee is considered appropriate
given the small size of the Board and the Chairman’s
knowledge of the financial services industry. The
Board considers that the members of the Audit
Committee have the requisite skills and experience
to fulfil the responsibilities of the Audit Committee
and competence relevant to the investment trust
sector. Mr Thomson is a qualified accountant with
over 25 years’ experience in the financial services
industry.
A Report from the Chairman of the Audit
Committee is set out on pages 41 to 43.
Management Engagement Committee
The Management Engagement Committee
comprises all the Directors and is chaired by
Caroline Kemsley-Pein. The Committee meets at
least once a year to review the performance of the
Manager’s obligations under the Management
Agreement and to consider any variation to the
terms of the agreement, and reports its findings to
the Board. The Committee met twice during the
year to consider the performance of the Manager
and other service providers over the preceding
financial period.
In reaching its recommendation to the Board about
the continuing appointment of the Manager, the
Committee’s deliberations include consideration
of the fee basis for other companies in the peer
group, the performance of the Company against
its peer group, the share volatility against that of
other companies in the peer group and shareholder
feedback (see Continuing Appointment of the
Manager on page 27).
The Management Engagement Committee also
reviews annually the performance of the Secretary,
the Depositary, the Custodian and the Registrar and
any matters concerning their respective agreements
with the Company.
Disclosure Committee
The Disclosure Committee comprises all the
Directors and ensures inside information is
identified and disclosed, if necessary, in accordance
with the Market Abuse Regulation. No meetings of
the Committee were held during the year.
Nomination Committee
The Nomination Committee comprises all
Directors, as all are non-executive and considered
independent. The Nomination Committee is
chaired by Caroline Kemsley-Pein. The Committee
was established in May 2021 and held its first
meeting in July 2021. The Committee considers
succession planning and leads the process for new
appointments, considering the skills, knowledge,
experience and diversity required for the Board. The
Committee meets at least once a year.
Stewardship Responsibilities and the Use of
Voting Rights
The Board delegates the day-to-day
responsibilities regarding the engagement with
investee companies to the Company’s Manager.
However, the Board retains oversight of this process
through regular updates from the Manager on
its engagement activities, and by reviewing the
Manager’s stewardship and voting policies.
Corporate Governance Statement continued
|
The Diverse Income Trust plc
|
Annual Report 2022
PPM engages with the Company's underlying
investee companies on all areas of ESG, with
particular focus on governance. It is becoming ever
more prominent that companies that do not display
good governance may struggle to access capital
in the future, especially at the smaller end of the
market cap spectrum. Two areas of focus have been
board composition and remuneration, to ensure
that boards include members who are suitably
qualified and management are being appropriately
rewarded for their successes.
Concerning voting, the managers use the
independent proxy voting service Institutional
Shareholder Service (“ISS”) to provide them with
research on the proposed resolutions for each
investee company. However, they use them in a
research capacity only; the final decisions are always
taken on an active basis having considered the
merits of each on a case-by-case basis.
Company Secretary
The Board has direct access to the advice and
services of the Secretary, Link Alternative Fund
Administrators Limited, which is responsible for
ensuring that the Board and Committee procedures
are followed and that applicable regulations
are complied with. The Secretary is also responsible
to the Board for ensuring timely delivery of the
information and reports and that the relevant
statutory obligations of the Company are met.
Internal Control Review
The Directors are responsible for the risk
management and systems of internal control
relating to the Company and its subsidiary, and the
reliability of the financial reporting process and for
reviewing their effectiveness.
The Directors have reviewed and considered the
guidance supplied by the FRC on Risk Management,
Internal Control, and Related Finance and
Business Reporting and an ongoing process has
been established for identifying, evaluating and
managing the principal risks faced by the Group.
This process, which is regularly reviewed, together
with key procedures established with a view to
providing effective financial control, was in place
during the year under review and at the date of the
signing of this Report. The internal control systems
are designed to ensure that proper accounting
records are maintained, that the financial
information on which business decisions are made
and which are issued for publication is reliable and
that the assets of the Company are safeguarded.
The risk management process and Group systems of
internal control are designed to manage rather than
eliminate the risk of failure to achieve the Company’s
objectives. It should be recognised that such
systems can only provide reasonable, not absolute,
assurance against material misstatement or loss.
The Directors have carried out a review of the
effectiveness of the Group’s risk management and
internal control systems as they have operated
over the period and up to the date of approval of
the report and financial statements. There were
no matters arising from this review that required
further investigation and no significant failings or
weakness were identified.
Internal Control Assessment Process
Regular risk assessments and reviews of internal
controls are undertaken in the context of the
Company’s overall investment objective. The Board,
through the Audit Committee, has identified risk
management controls in four key areas: corporate
strategy; published information and compliance
with laws and regulations; relationships with service
providers; and investment and business activities. In
arriving at its judgement of what risks the Company
faces, the Board has considered the Company’s
operations in the light of the following factors:
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
• the nature and extent of risks which it regards
as acceptable for the Company to bear within
its overall business objective;
• the threat of such risks becoming reality;
• the Company’s ability to reduce the incidence
and impact of risk on its performance; and
• the cost to the Company and benefits related
to the Company and third parties operating
the relevant controls.
A risk matrix has been produced against which the
risks identified and the controls in place to mitigate
those risks can be monitored. The risks are assessed
on the basis of the likelihood of them happening,
the impact on the business if they were to occur and
the effectiveness of the controls in place to mitigate
them. This risk matrix is reviewed twice a year by the
Audit Committee and at other times as necessary.
The emerging and principal risks that have been
identified by the Board are set out on pages 19 to 22.
The Board reviews financial information produced by
the Manager and the Administrator on a regular basis.
Most functions for the day-to-day management
of the Company are sub-contracted, and the
Directors therefore obtain regular assurances and
information from key third party suppliers regarding
the internal systems and controls operated in their
organisations. In addition, each of the third parties
is requested to provide a copy of its report on
internal controls each year, which is reviewed by the
Audit Committee, together with letters of comfort
confirming that those controls were still in operation
at the Company’s year end.
Shareholder Relations
Communication with shareholders is given a high
priority by both the Board and the Manager and
the Directors are available to enter into dialogue
with shareholders. The Manager and the Company’s
Stockbroker, Panmure Gordon, are in regular
contact with the major institutional investors and
report the results of all meetings and the views of
those shareholders to the Board on a regular basis.
The Chairman and the other Directors are available
to attend these meetings with shareholders if
required.
All shareholders are encouraged to attend and
vote at the AGM, during which the Board and the
Manager will be available to discuss issues affecting
the Company and answer any questions. Shareholders
wishing to communicate directly with the Board or
to lodge a question in advance of the AGM should
contact the Secretary at the address on page 102
or by emailing diverse_cosec@linkgroup.co.uk.
The Company always responds to letters
fromshareholders.
The Annual and Half-Yearly Reports of the Company
are prepared by the Board and its advisers to
present a full and readily understandable review of
the Company’s performance. Copies are released
to the London Stock Exchange, dispatched to
shareholders and are also available from the
Secretary or by downloading from the Company’s
website, www.diverseincometrust.com.
Corporate Governance Statement continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Audit Committee Report
I am pleased to present the Audit Committee
Report for the year ended 31 May 2022.
Role of the Audit Committee
The primary responsibilities of the Audit Committee are:
• to monitor the integrity of the financial
statements of the Company and the Group,
and review the financial reporting process and
the accounting policies of the Company;
• to provide advice to the Board on whether
the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable,
and provides the information necessary for
shareholders to assess the Company's position
and performance, business model and
strategy;
• to keep under review the effectiveness of the
Company’s and the Group’s internal control
environment and risk management systems;
• to make recommendations to the Board in
relation to the re-appointment or removal of the
external auditor and to approve its remuneration
and terms of engagement, including the
provision of any non-audit services;
• to review the effectiveness of the audit process;
• to review and monitor the auditor’s
independence and objectivity; and
• to report to the Board on how it has discharged
its responsibilities.
The Audit Committee has direct access to the
Company’s Auditor, BDO LLP, and provides a forum
through which the Auditor reports to the Board.
Representatives of the Auditor attend meetings of
the Audit Committee on a regular basis.
Matters Considered in the Year
The Audit Committee met twice during the year
under review and once post the year end. It has:
• reviewed the internal controls and risk
management systems of the Company and its
third party service providers;
• agreed the audit plan with the Auditor,
including the principal areas of focus, and
agreed the audit fee;
• challenged the audit approach, particularly
relating to the treatment of the Put Option and
the valuation of listed bonds;
• received and discussed with the Auditor their
report on the results of the audit;
• made recommendations to the Board in
relation to the re-appointment of the Auditor;
• reviewed the Group’s financial statements
and discussed the appropriateness of the
accounting policies adopted; and
• met with the Manager to discuss and
challenge the valuation of investments.
The Audit Committee has reviewed and where
appropriate, updated the risk matrix. This is done
on a six-monthly basis. During the year the Audit
Committee reviewed the impact of the pandemic,
supply shortages, inflationary pressures, political
instability in the UK and the war in Ukraine on the
risks identified.
The Audit Committee receives a report on internal
control and compliance from the Manager’s
Compliance Officer on a six-monthly basis and
discusses this with the Manager. The Manager has
in place a compliance monitoring plan for testing
of controls as an alternative to establishing a separate
internal audit function. The Audit Committee also
receives reports from the Depositary and Custodian
at least once a year. No significant issues or
concerns arose from these reports. Reports from
the Company’s other service providers were also
reviewed and no significant matters of concern
wereidentified.
In the light of these reports and controls that are in
place, the Audit Committee does not consider that
an internal audit function would provide sufficient
additional comfort to warrant the extra costs to
theCompany.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
The Audit Committee monitors and reviews the
effectiveness of the external audit process for
the Annual Report, including a detailed review
of the audit plan and the audit results report,
and makes recommendations to the Board on
the re-appointment, remuneration and terms of
engagement of the Auditor.
In addition to questioning the Auditor on the
approach outlined in the audit plan, the Audit
Committee challenged the Auditor about the
approach taken to audit the liquidity of the portfolio
and the fair value of the Put Option. The Audit
Committee was satisfied with the overall approach
to the audit. The review took into account the
experience and tenure of the audit partner and
team, the nature and level of services provided, and
confirmation that the Auditor has complied with
independence standards. The Audit Committee
also reviews a copy of the latest FRC Audit Quality
Inspection Report on the Auditor. The Auditor was
challenged regarding the FRC report on BDO and
in particular if any of the findings had changed
the approach adopted in the external audit of the
Company. It was confirmed that no changes had
been implemented as a result of the review and no
findings were identified that caused concern.
Significant Issue Mitigation
The valuation and ownership of the investment
portfolio including the Put Option.
The Board relies on the Administrator and
the Manager to use correct listed prices and
seeks comfort in the testing of this process through
the internal control statements. This was discussed
with the Administrator, Manager and Auditor at the
conclusion of the audit of the financial statements.
The Audit Committee has also discussed, challenged
and agreed with the Manager the approach to the
valuation of listed bonds and the Put Option. Regular
updates are provided to the Directors about the
activities and valuations of any unquoted holdings.
The Company uses the services of an independent
Depositary (The Bank of New York Mellon
(International) Limited) to hold the assets of the
Company. The Depositary checks the consistency of
its records with those of the Manager on a monthly
basis and reports to the Audit Committee twice a year.
The allocation of special dividends between
revenueand capital.
The Audit Committee has also reviewed and
confirmed with the Manager, Administrator and
Auditor the treatment of special dividends.
Audit Committee Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Significant Issue Mitigation
Review of Going Concern and Viability At each of its meetings, the Audit Committee reviews
and discusses a Going Concern assessment paper
provided by the Manager. The paper sets out the
key reasons why the Going Concern assumption
is applicable to the Company and is accompanied
by revenue forecasts and liquidity analysis. In
addition, the Board considers this paper twice a
year, in quarters where no Audit Committee is being
held. The viability assessment is reviewed by the
Audit Committee and in particular the underlying
assumptions are subjected to sensitivityanalysis.
Following the consideration of the above matters
and its detailed review, the Audit Committee was
of the opinion that the Annual Report, taken as a
whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Company’s position and performance,
business model and strategy.
Audit Fees and Non-Audit Services
An audit fee of £49,000 (inclusive of VAT) has been
agreed in respect of the audit for the year ended
31 May 2022 (2021: £46,000).
In relation to non-audit services, the Audit
Committee reviews the scope and nature of all
proposed non-audit services before engagement, to
ensure that Auditor independence and objectivity
are safeguarded. No non-audit fees were paid to
BDO LLP in the year (2021: none to BDO LLP, the
Auditor for that financial year).
Independence and Objectivity of the Auditor
The Audit Committee has considered the
independence and objectivity of the Auditor. No
non-audit services have been provided by the
Auditor. Given that the Board has indicated that it is
unlikely to carry out any further C share issues, the
level of non-audit fees is likely to remain low in the
future. Following its review of the independence
of the Auditor, the Audit Committee has been
reassured that no conflicts have arisen during
theyear.
BDO LLP were appointed as Auditor to the Company
at the 2020 AGM. Vanessa-Jayne Bradley has acted
as the Audit Partner since BDO LLP’s appointment.
Audit Tender
The Company last carried out an audit tender
during 2020, following which BDO LLP was
appointed as Auditor.
Following consideration of the performance of
the Auditor, the quality of the external audit and
the service provided during the year and a review
of their independence and objectivity, the Audit
Committee has recommended to the Board
the re-appointment of BDO LLP as Auditor to
theCompany.
Calum Thomson
Audit Committee Chairman
8 August 2022
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Directors’ Remuneration Report
The Board has prepared this report in accordance
with the requirements of the Large and
Medium-Sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013. An
ordinary resolution for the approval of the Directors’
Remuneration Report will be put to shareholders at
the forthcoming AGM.
The law requires the Company’s Auditor to
audit certain of the disclosures provided. Where
disclosures have been audited, they are indicated
as such. The Auditor’s opinion is included in the
Independent Auditor’s Report on pages 50 to 58.
Statement from the Chairman
I am pleased to present the Directors’ Remuneration
Report for the year ended 31 May 2022.
Given the size of the Board, it is not considered
appropriate for the Company to have a separate
remuneration committee and the functions of
this committee are therefore carried out by the
Board as a whole. The Board consists entirely of
independent non-executive Directors and the
Company has no employees. We have not, therefore,
reported on those aspects of remuneration that
relate to executive Directors.
Directors’ fees were last increased on 1 June
2021. Following an annual review of Directors’ fees
against those of the Company's peer group and the
average for similar-sized investment trusts, the Board
has agreed that the Chairman's fee will increase to
£42,500 per annum, the Audit Committee Chairman's
fee to £34,700 per annum and the fee for the other
Directors to £30,500 per annum, to align them with
current market levels and taking inflation into account.
These changes are effective from 1 June 2022.
There will be no significant change in the way the
Remuneration Policy will be implemented in the
course of the next financial year.
Directors’ Remuneration Policy
A resolution to approve this Remuneration Policy
was proposed at the AGM of the Company held
on 14 October 2020. The resolution was passed,
and the policy provisions set out below will apply
until they are next put to shareholders for renewal
of that approval, which must be at intervals of not
more than three years, or if the Remuneration
Policy is varied, in which event shareholder
approval for the new Remuneration Policy will be
sought. Remuneration payments to the Directors
can only be made if they are consistent with the
Remuneration Policy or with any amendment to the
Policy as approved by shareholders.
The Board’s policy is that remuneration of
non-executive Directors should reflect the
experience of the Board as a whole and is
determined by reference to comparable
organisations and appointments.
The level of remuneration has been set in order to
attract individuals of a calibre appropriate to the
future development of the Company and to reflect
the specific circumstances of the Company, the
duties and responsibilities of the Directors and
the value and amount of time committed to the
Company’s affairs.
The fees for the non-executive Directors are
determined within the limits (not to exceed
£500,000 per year in aggregate) set out in the
Company’s Articles of Association, or any greater
sum that may be determined by ordinary
resolutions of the Company. The Chairman does
not participate in any discussions relating to
his own fee, which is determined by the other
independent Directors. Directors are not eligible
for bonuses, share options or long-term incentive
schemes or other performance-related benefits, as
the Board does not believe that this is appropriate
for non-executive Directors. There are no pension
arrangements in place for the Directors of
theCompany.
|
The Diverse Income Trust plc
|
Annual Report 2022
Under the Company’s Articles of Association, if any
Director is called upon to perform extra or special
services of any kind, they shall be entitled to receive
such sum as the Board may think fit for expenses,
and also such remuneration as the Board may think
fit, either as a fixed sum or as a percentage of profits
or otherwise, and such remuneration may, as the
Board shall determine, be either in addition to or in
substitution for any other remuneration they may
be entitled to receive.
Directors are entitled to be paid all expenses
properly incurred in attending Board or shareholder
meetings or otherwise in or with a view to the
performance of their duties.
Directors’ and Officers’ liability insurance cover
is maintained by the Company on behalf of the
Directors.
Component Director
Rate at
1 June 2022
Purpose of
Remuneration
Annual fee Chairman £42,500 Commitment as Chairman
1
Annual fee Non-executive Directors £30,500 Commitment as a non-executive Director
2
Additional fee Chairman of the Audit Committee £4,200 For additional responsibilities and time commitments
3
Additional fee All Directors Discretionary For extra or special services performed in their role as a Director
4
Expenses All Directors N/A Reimbursement of expenses incurred in the performance of
duties as a Director
1 The Company’s policy is for the Chairman of the Board to be paid a higher fee than the other Directors to reflect the more onerous role.
2 The Company’s Articles of Association limit the aggregate fees payable to the Board of Directors to a total of £500,000 per annum.
3 The Company’s policy is for the Chairman of the Audit Committee to be paid a higher fee than the other Directors to reflect the more onerous role.
4 Additional fees would only be paid in exceptional circumstances in relation to the performance of extra or special services.
No other additional fees are payable for
membership of the Board’s committees.
Fees for any new Director appointed will be on the
above basis. Fees payable in respect of subsequent
periods will be determined following an annual
review. Any views expressed by shareholders on the
fees being paid to Directors would be taken into
consideration by the Board.
It is the Board’s policy that Directors do not have
service contracts, but Directors are provided with a
letter of appointment as a non-executive Director.
The terms of their appointment provide that
Directors shall retire and be subject to election at
the first AGM after their appointment. Thereafter,
they will be subject to annual re-election.
Compensation will not be made upon early
termination of appointment.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Remuneration Report
Directors’ Fees for the Period (audited)
The Directors who served in the year received the following emoluments:
Year ended 31 May 2022 Year ended 31 May 2021 Percentage change
Fees
£
Expenses
£
Total
£
Fees
£
Expenses
£
Total
£
2021-
2022
2020-
2021
Andrew Bell
1
(Chairman) 40,500 237 40,737 34,474 – 34,474 17.5 25.2
1
Charles Crole
2
9,667 – 9,667 – – – N/A N/A
Caroline Kemsley-Pein 29,000 – 29,000 27,540 – 27,540 5.3 –
Michelle McGrade 29,000 – 29,000 27,540 – 27,540 5.3 –
Calum Thomson 33,000 – 33,000 31,392 – 31,392 5.1 –
Paul Craig
3
21,750 – 21,750 27,540 – 27,540 5.3 –
Michael Wrobel
4
– – – 14,335 – 14,335 N/A N/A
162,917 237 163,154 162,821 – 162,821
1
Appointed as a Chairman on 14 October 2020.
2
Appointed as a Director on 1 February 2022.
3
Resigned as a Director on 28 February 2022.
4
Resigned as a Director on 14 October 2020.
Company Performance
The Company does not have a specific benchmark
against which performance is measured. The graph
below compares the total return (assuming all
dividends are reinvested) to holders of ordinary
shares since they were first admitted to the Official
List of the FCA, compared to the total shareholder
return of the Numis All-Share Total Return Index,
which is the closest broad index against which to
measure the Company’s performance.
Source: Premier Portfolio Managers Limited
Relative Importance of Spend on Pay
The table below shows the amount spent on pay.
2022
£000
2021
£000 Change
Total remuneration paid
toDirectors 163 163 0.0%
Investment Management fee 3,559 3,057 16.4%
Distribution to shareholders:
– dividends 13,743 13,247 3.7%
– share buyback/redemption – 18,152 N/A
Note: the items listed in the table above are as required by the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 ss.20 with the exception of the investment management
fee, which has been included because the Directors believe it will help
shareholders’ understanding of the relative importance of the spend on
pay. The figures for this measure are the same as those shown in note 3 to
the financial statements. The amounts spent on the redemption of shares
are included in line with the GC100 and Investor Group guidance, as this is
considered a significantpayment. The figures for this measure are the same
as those shown in the Consolidated Statement of Changes in Equity and Cash
FlowStatement.
28/4
2011
31/5
2012
31/5
2013
31/5
2014
31/5
2015
31/5
2016
31/5
2017
31/5
2018
31/5
2022
-50
0
50
250
Diverse Income Trust NAV Total Return
Numis All-Share Inc Investment Cos Total Return
31/5
2019
100
150
200
31/5
2020
31/5
2021
% Change
Directors’ Remuneration Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Directors’ Beneficial and Family Interests (audited)
There is no requirement under the Company’s Articles
of Association or the terms of their appointment for
Directors to hold shares in the Company.
The interests of the Directors and their families
in the ordinary shares of the Company as at
31 May2022 are set out below:
At 31 May 2022
(or date of
resignation, if earlier)
Number of
ordinary shares
At 31 May 2021
Number of
ordinary shares
Andrew Bell (Chairman) 200,000 200,000
Paul Craig
1
42,625 42,625
Charles Crole 9,091 –
Caroline Kemsley-Pein 38,289 38,289
Michelle McGrade 63,616 63,735
Calum Thomson 53,591 53,591
1
Resigned as a Director on 28 February 2022.
There have been no changes to Directors' interests
between 31 May 2022 and the date of this Report.
Voting at Annual General Meeting
The Directors’ Remuneration Report for the
year ended 31 May 2021 was approved by
shareholders at the AGM held on 20 October 2021.
The Remuneration Policy was last approved by
shareholders at the AGM held on 14 October 2020.
The votes cast by proxy were as follows:
Directors’
Remuneration Report
(AGM 2021)
Directors’
Remuneration Policy
(AGM 2020)
Number
of votes
% of
votes cast
Number
of votes
% of
votes cast
For 175,832,225 99.89 136,168,240 99.86
Against 194,353 0.11 181,012 0.13
At Chairman’s
discretion – – 12,199 0.01
Total votes cast 176,026,578 100 136,361,451 100
Number of votes
withheld 74,500 54,384
Approval
The Directors’ Remuneration Report was approved
by the Board on 8 August 2022.
On behalf of the Board
Andrew Bell
Chairman
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the
Annual Report and the financial statements
in accordance with UK adopted international
accounting standards and applicable law and
regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors are required to prepare the
Group financial statements in accordance with
UK adopted international accounting standards.
Under company law the Directors must not approve
the financial statements unless they are satisfied
that they give a true and fair view of the state of
affairs of the Group and Company and of the profit
or loss for the Group for that period.
In preparing these financial statements, the
Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and accounting estimates
that are reasonable and prudent;
• state whether they have been prepared in
accordance with UK adopted international
accounting standards, subject to any material
departures disclosed and explained in the
financial statements;
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Company will continue in
business;
• prepare a directors’ report, a strategic
report and directors’ remuneration report
which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Company and enable them to ensure
that the financial statements comply with the
Companies Act 2006.
They are also responsible for safeguarding the
assets of the Company and hence for taking
reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are
responsible for ensuring that the Annual Report
and accounts, taken as a whole, are fair, balanced,
and understandable and provides the information
necessary for shareholders to assess the Group’s
performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the
Annual Report and the financial statements are
made available on a website. Financial statements
are published on the Company’s website in
accordance with legislation in the United Kingdom
governing the preparation and dissemination
of financial statements, which may vary from
legislation in other jurisdictions. The maintenance
and integrity of the Company's website has been
delegated to the Manager, but the Directors
responsibility extends to the ongoing integrity of the
financial statements contained therein.
|
The Diverse Income Trust plc
|
Annual Report 2022
Directors’ responsibilities pursuant to DTR4
Each of the Directors, whose names and functions
are listed in the Board of Directors section
on page 28 confirm that, to the best of their
knowledge:
• The financial statements have been prepared
in accordance with the applicable set of
accounting standards, give a true and fair view
of the assets, liabilities, financial position and
profit and loss of the Group and Company.
• The Annual Report includes a fair review of the
development and performance of the business
and the financial position of the Group and
Company, together with a description of the
principal risks and uncertainties that they face.
In the opinion of the Board, the Annual Report
and Financial Statements taken as a whole, is fair,
balanced and understandable and it provides the
information necessary to assess the Company’s
position and performance, business model
andstrategy.
On behalf of the Board
Andrew Bell
Chairman
8 August 2022
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Independent Auditor’s Report
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair
view of the state of the Group’s and of the
Parent Company’s affairs as at 31 May 2022 and
of the Group’s profit for the year then ended;
• the Group financial statements have been
properly prepared in accordance with UK
adopted international accounting standards;
• the Parent Company financial statements
have been properly prepared in accordance
with UK adopted international accounting
standards and as applied in accordance with
the provisions of the Companies Act 2006; and
• the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of The
and its subsidiaries (the ‘Group’) for the year ended
31 May 2022 which comprise the Consolidated
Income Statement, the Consolidated and Parent
Company Statements of Changes in Equity, the
Consolidated and Parent Company Balance Sheets,
the Consolidated and Parent Company Cash Flow
Statements and notes to the financial statements,
including a summary of significant accounting
policies. The financial reporting framework that has
been applied in their preparation is applicable law
and UK adopted international accounting standards
and as regards the Parent Company financial
statements, as applied in accordance with the
provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those
standards are further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our report. We believe that
the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Our audit opinion is consistent with the additional
report to the audit committee.
Independence
Following the recommendation of the
audit committee, we were appointed by the
members of the Parent Company on 14 October
2020 to audit the financial statements for the
year ended 31 May 2021 and subsequent financial
periods. The period of total uninterrupted
engagement is 2 years, covering the years ended
31 May 2021 to 31 May 2022. We remain independent
of the Group and the Parent Company in
accordance with the ethical requirements that are
relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in
accordance with these requirements. The non-audit
services prohibited by that standard were not
provided to the Group or the Parent Company.
|
The Diverse Income Trust plc
|
Annual Report 2022
Conclusions relating to going concern
In auditing the financial statements, we have
concluded that the Directors’ use of the going
concern basis of accounting in the preparation
of the financial statements is appropriate. Our
evaluation of the Directors’ assessment of the
Group and the Parent Company’s ability to
continue to adopt the going concern basis of
accountingincluded:
• Evaluating the appropriateness of the
Directors’ method of assessing the going
concern of the Group and Parent Company
by reviewing the information used by the
Directors in completing their assessment;
• Challenging Directors’ assumptions and
judgements made in their base case and
stress tested forecasts including consideration
of the liquidity of the portfolio and
covenantheadroom;
• Calculating financial ratios to consider the
financial health of the Group and the Parent
Company and
• Reviewing the loan agreements to identify
the covenants and assess the likelihood of
them being breached based on the Directors’
forecasts and our sensitivity analysis.
Based on the work we have performed, we have
not identified any material uncertainties relating to
events or conditions that, individually or collectively,
may cast significant doubt on the Group and the
Parent Company’s ability to continue as a going
concern for a period of at least twelve months
from when the financial statements are authorised
forissue.
In relation to the Parent Company’s reporting on
how it has applied the UK Corporate Governance
Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement
in the financial statements about whether the
Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of
the Directors with respect to going concern are
described in the relevant sections of this report.
Overview
Coverage
1
100% (2021: 100%) of Group revenue
100% (2021: 100%) of Group total assets
Key audit matters
Valuation and ownership of investments
2022
2021
Materiality Group financial statements as a whole
£4,000,000 (2021: £4,280,000) based on 1% (2021: 1%) of
total assets.
1
These are areas which have been subject to a full scope audit by the group engagement team
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
An overview of the scope of our audit
Our Group audit was scoped by obtaining an
understanding of the Group and its environment,
including the Group’s system of internal control, and
assessing the risks of material misstatement in the
financial statements. We also addressed the risk of
management override of internal controls, including
assessing whether there was evidence of bias by
the Directors that may have represented a risk of
material misstatement.
We tailored our audit to ensure we have performed
sufficient work to be able to give an opinion on the
financial statements as a whole taking into account
the structure of the Group and its accounting
processes and controls. The Group is based in the
United Kingdom and has one main trading entity,
The Diverse Income Trust plc whose principal
activity is that of an Investment Trust. The Group has
one subsidiary, DIT Income Services Limited, whose
principal activity is to deal in investments primarily
in UK quoted or traded companies.
The Group audit engagement team carried
out full scope audits for the Parent Company
and DIT Income Services Limited. Although
the latter company was not considered to be a
significant component of the Group, a full scope
audit was carried out for statutory purposes.
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most significance
in our audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement (whether or
not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit,
and directing the efforts of the engagement team.
This matter was addressed in the context of our
audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide
a separate opinion on this matter.
Independent Auditor’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Key audit matter
How the scope of our audit
addressed the key audit matter
Valuation and ownership
ofinvestments
Note 1 and 12
The investment
portfolio comprises quoted
investments.
The Investment Manager’s
fee is based on the market
capitalisation of the Company
which is influenced by the
performance of the Trust.
The Investment Manager is
responsible for preparing the
valuation of investments which
are reviewed and approved by
the Board. Notwithstanding this
review, there is a potential risk of
misstatement in the investment
valuations. There is a risk that
the investment balance includes
investments which are no longer
owned by the Company or that
the bid price or last price used to
value the investment is incorrect
This is the most significant
balance in the financial
statements and is the key driver of
performance and for the reasons
above therefore determined this
to be a key audit matter.
We responded to this matter
by testing the valuation and
ownership of the whole portfolio
of quoted investments. We
performed the following
procedures:
• Confirmed the year end bid
price was used by agreeing to
externally quoted prices and
assessed if there were contra
indicators such as liquidity
considerations which may
suggest the bid price is not the
most appropriate indication of
the fair value
• Obtained direct confirmation
of the number of shares held
per equity investment from
the custodian regarding all
investments held at the balance
sheet date.
Key observations:
Based on our procedures
performed we did not identity
any matters to suggest that
the valuation and ownership
of quoted investments was
notappropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we
also take account of the nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Group financial statements
Parent company financial
statements
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Materiality
4,000 4,280 3,960 4,270
Basis for determining materiality
1% of total assets 99% of group materiality
Rationale for the benchmark applied
As an investment trust, the value of net assets is the key
measure of performance.
Performance materiality
3,000 3,000 2,970 2,990
Basis for determining performance materiality
Performance materiality was deemed to be 75%
(2021:70%) of total materiality as this is the second
year of BDO auditing this entity and considering the
relative simplicity of the balances being audited and the
expected value of likely misstatements.
Specific materiality
We also determined that for items impacting revenue return, a misstatement of less than materiality for the
financial statements as a whole, specific materiality, could influence the economic decisions of users. As a
result, we determined materiality for these items to be £1,475,000 (2021: £1,400,000) based on 10% of income
before tax. We further applied a performance materiality level of 75% of specific materiality to ensure that the
risk of errors exceeding specific materiality was appropriately mitigated.
Component materiality
Materiality for the parent company, which was the only significant component, is set out in the table above.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
£73,000 (2021: £70,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
Independent Auditor’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Other information
The Directors are responsible for the other information. The other information comprises the information
included in the annual report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit,
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term
viability and that part of the Corporate Governance Statement relating to the Parent Company’s compliance
with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of
the Corporate Governance Statement is materially consistent with the financial statements or our knowledge
obtained during the audit.
Going concern and
longer-term viability
• The Directors’ statement with regards to the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out on
pages 29 to 30; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the
period this assessment covers and why the period is appropriate set out on
pages29 to 30.
Other Code provisions • Directors' statement on fair, balanced and understandable set out on page 48;
• Board’s confirmation that it has carried out a robust assessment of the emerging
and principal risks set out on page 19;
• The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 39; and
• The section describing the work of the audit committee set out on page 38.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit,
we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as
described below.
Strategic report and
Directors’ report
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with the
financial statements; and
• the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified
material misstatements in the Strategic report or the Directors’ report.
Directors’ remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Matters on which we
arerequired to report
byexception
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the
preparation of the financial statements and for
being satisfied that they give a true and fair view,
and for such internal control as the Directors
determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors
are responsible for assessing the Group’s and the
Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to
going concern and using the going concern basis
of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to
cease operations, or have no realistic alternative but
to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the
aggregate, they could reasonably be expected to
influence the economic decisions of users taken on
the basis of these financial statements.
Independent Auditor’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We
design procedures in line with our responsibilities,
outlined above, to detect material misstatements in
respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We gained an understanding of the legal and
regulatory framework applicable to the Group and
the industry in which it operates, and considered
the risk of acts by the Group which were contrary to
applicable laws and regulations, including fraud. We
considered the significant laws and regulations to
be the Companies Act 2006, the FCA listing and DTR
rules, the principles of the AIC Code of Corporate
Governance, industry practice represented by the
AIC SORP, UK adopted international accounting
standards, and qualification as an Investment Trust
under UK tax legislation as any non-compliance
of this would lead to the Group losing various
deductions and exemptions from corporation tax.
We focused on laws and regulations that could
give rise to a material misstatement in the Group
financial statements. Our tests included, but were
not limited to:
• agreement of the financial statement disclosures
to underlying supporting documentation;
• enquiries of management relating to the
existence of any non-compliance with laws
andregulations;
• review of minutes of board meetings throughout
the period;
• obtaining an understanding of the control
environment in monitoring compliance with laws
and regulations; and
• reviewing the calculation in relation to investment
trust compliance to check that the Group
was meeting its requirements to retain their
Investment Trust Status.
We assessed the susceptibility of the financial
statements to material misstatement, including
fraud and the risk of management override of
internal controls. Our audit work focussed on the
valuation of investments, where the risk of material
misstatement due to fraud is the greatest (refer to
the Key Audit Matter section). We also:
• Recalculated investment management fees in
total; and
• Obtained independent confirmation of bank and
loan balances.
In addressing the risk of management override of
internal controls we tested journals and evaluated
whether there was evidence of bias by the Directors
that represented a risk of material misstatement
due to fraud.
We also communicated relevant identified laws
and regulations and potential fraud risks to all
engagement team members and remained alert
to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Our audit procedures were designed to
respond to risks of material misstatement in the
financial statements, recognising that the risk
of not detecting a material misstatement due
to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery,
misrepresentations or through collusion.
There are inherent limitations in the audit
procedures performed and the further removed
non-compliance with laws and regulations is from
the events and transactions reflected in the financial
statements, the less likely we are to become aware
of it.
A further description of our responsibilities is
available on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Use of our report
This report is made solely to the Parent Company’s
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state
to the Parent Company’s members those matters
we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the Parent
Company and the Parent Company’s members as
a body, for our audit work, for this report, or for the
opinions we have formed.
Vanessa-Jayne Bradley
Senior Statutory Auditor
For and on behalf of BDO LLP
Statutory Auditor
London, UK
8 August 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Independent Auditor’s Report continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Consolidated Income Statement
Year ended
31 May 2022
Year ended
31 May 2021
Notes
Revenue
return
£000
Capital
return
£000
Total
£000
Revenue
return
£000
Capital
return
£000
Total
£000
(Losses)/gains on investments held at fair value through profit or loss 12 – (20,655 ) (20,655 ) – 106,793 106,793
Foreign exchange losses – (23 ) (23 ) – (12 ) (12 )
Losses on derivatives held at fair value through profit or loss 13 – (5,536 ) (5,536 ) – – –
Income 2 16,512 158 16,670 15,472 1 , 245 16,717
Management fee 3 (890 ) (2,669 ) (3,559 ) (764 ) (2,293 ) (3, 057 )
Other expenses 4 (850 ) – (850 ) (7 61 ) – (761 )
Return on ordinary activities before finance costs and taxation 14,772 (28,725 ) (13,9 53 ) 13,947 105,733 119, 680
Finance costs 5 (13 ) (41 ) (54 ) (28 ) (85 ) (113 )
Return on ordinary activities before taxation 14,759 (28,766 ) (14 ,007 ) 13,919 105,648 119,567
Taxation – irrecoverable withholding tax 6 (257 ) – (2 57 ) (539 ) – (539 )
Return on ordinary activities after taxation 7 14,502 (28,766 ) (14, 264 ) 13,380 105,648 119,028
Return per Ordinary share – basic and diluted (pence) 7 4 .01 7 .95 3.94 3.73 29.43 33.16
The total column of this statement is the Income Statement of the Company prepared in accordance with
UK adopted international accounting standards in conformity with the requirements of the Companies Act
2006. 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”).
The Directors have applied the exemption under Companies Act 2006 s408 allowing the parent company’s
individual income statement to be omitted from the accounts where group accounts have been prepared. The
amount of the Company’s return for the financial year is a loss after tax of £14,264,000 (2021: gain of £119,117,000).
All revenue and capital items in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year.
There is no other comprehensive income, and therefore the return on ordinary activities after tax is also the
total comprehensive income.
The notes on pages 64 to 85 form part of these financial statements.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Consolidated Statement of Changes in Equity
Group Notes
Share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
As at 1 June 2021 411 196,562 26 22,378 193,091 15,1 74 427 ,642
Total comprehensive income:
Net return for the year – – – – (28,766 ) 14,502 (14, 264 )
Transactions with shareholders recorded
directly toequity:
Issue of ordinary shares 1 546 – – – – 5 47
Expense of share issue – (69 ) – – – – (69 )
Equity dividends paid 8 – – – – – (13,743 ) (13,74 3 )
As at 31 May 2022 412 197 ,039 26 22,378 164, 325 15,933 400,113
Group Notes
Share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
As at 1 June 2020 428 192 ,562 6 40,530 87 ,443 15,041 336,010
Total comprehensive income:
Net return for the year – – – – 105,648 13,380 119 ,028
Transactions with shareholders recorded
directly toequity:
Issue of ordinary shares 3 4,000 – – – – 4,003
Shares bought back and cancelled (20 ) – 20 (18,152 ) – – (18,152 )
Equity dividends paid 8 – – – – – (13,2 47 ) (13,2 47 )
As at 31 May 2021 411 196 ,562 26 22,378 193 ,091 15,1 74 427 ,642
The notes on pages 64 to 85 form part of these financial statements.
|
The Diverse Income Trust plc
|
Annual Report 2022
Parent Company Statement of Changes in Equity
Company Notes
Share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
As at 1 June 2021 411 196,562 26 22,378 193,091 14,278 426,746
Total comprehensive income:
Net return for the year – – – – (28,766) 14,502 (14,264)
Transactions with shareholders recorded
directly toequity:
Issue of ordinary shares 1 546 – – – – 547
Expense of share issue – (69) – – – – (69)
Shares bought back and cancelled – – – – – – –
Equity dividends paid 8 – – – – – (13,743) (13,743)
As at 31 May 2022 412 197,039 26 22,378 164,325 15,037 399,217
Company Notes
Share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Capital
reserve
£000
Revenue
reserve
£000
Total
£000
As at 1 June 2020 428 192,562 6 40,530 87,443 14,056 335,025
Total comprehensive income:
Net return for the year – – – – 105,648 13,469 117
Transactions with shareholders recorded
directly toequity:
Issue of ordinary shares 3 4,000 – – – – 4,003
Shares bought back and cancelled (20) – 20 (18,152) – – (18,152)
Equity dividends paid 8 – – – – – (13,247) (13,247)
As at 31 May 2021 411 196,562 26 22,378 193,091 14,278 426,746
The notes on pages 64 to 85 form part of these financial statements.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Consolidated and Parent Company Balance Sheets
Notes
Group
31 May 2022
£000
Group
31 May 2021
£000
Company
31 May 2022
£000
Company
31 May 2021
£000
Non-current assets:
Investments held at fair value through profit or loss 12 377,591 414,823 377,591 414,823
Current assets:
Derivative instruments 13 2 ,481 – 2,481 –
Trade and other receivables 16 3,899 1,877 3,899 1,877
Cash and cash equivalents 16,543 11, 379 16,543 11,332
Current liabilities:
Trade and other payables 17 (401 ) (437 ) (1,297) (1,286)
(401 ) (437 ) (1,297) (1,286)
Net current assets 22,522 12,819 21,626 11,923
Total net assets 400,113 427 ,642 399,217 426,746
Capital and reserves:
Share capital – ordinary shares 9 362 361 362 361
Share capital – management shares 9 50 50 50 50
Share premium account 10 197,039 196,562 197,039 196,562
Capital redemption reserve 10 26 26 26 26
Special reserve 10 22,3 78 22,37 8 22,378 22,378
Capital reserve 10 164,325 193,091 164,325 193,091
Revenue reserve 10 15,933 15,17 4 15,037 14,278
Shareholders’ funds 400,113 427 ,642 399,217 426,746
pence pence
Net asset value per ordinary share 11 110.55 118. 31
These financial statements were approved and authorised for issue by the Board of The Diverse Income
Trust plc on 8 August 2022 and were signed on its behalf by:
Andrew Bell
Chairman
Company No: 7584303
The notes on pages 64 to 85 form part of these financial statements.
|
The Diverse Income Trust plc
|
Annual Report 2022
Consolidated and Parent Company Cash Flow Statements
Group
31 May 2022
£000
Group
31 May 2021
£000
Company
31 May 2022
£000
Company
31 May 2021
£000
Operating activities:
Net return before taxation (14,007 ) 119,567 (14,007) 119,656
Losses on investments and derivatives held at fair value through profit
or loss 26,191 (106,793 ) 26,191 (106,793)
Finance costs 63 113 63 113
(Increase)/decrease in trade and other receivables (730 ) 441 (730) 441
(Decrease)/increase in trade and other payables (36 ) 67 11 (69)
Withholding tax paid (257 ) (539 ) (257) (539)
Net cash inflow from operating activities 11,224 12,856 11,271 12,809
Investing activities:
Purchase of investments (75 ,74 8 ) (114,655 ) (75,748) (114,655)
Sale of investments 91,033 114, 872 91,033 114,872
Purchase of derivative instruments (8,017 ) – (8,017) –
Net cash inflow from investing activities 7 ,268 217 7,268 217
Financing activities:
Ordinary shares issued 550 4 ,003 550 4,003
Expenses of share issue (72 ) – (72) –
Cancellation of shares – (18,152 ) – (18,152)
Revolving credit facility arrangement fee paid (10 ) (20 ) (10) (20)
Revolving credit facility non-utilisation fee paid (53 ) (93 ) (53) (93)
Equity dividends paid (13,743 ) (13,248 ) (13,743) (13,248)
Net cash outflow from financing (13,328 ) (27,510 ) (13,328) (27,510)
Increase/(decrease) in cash and cash equivalents 5,164 (14,437 ) 5,211 (14,484)
Reconciliation of net cash flow movements in funds:
Cash and cash equivalents at the start of the year 11,379 25,816 11,332 25,816
Net cash inflow/(outflow) from cash and cash equivalents 5,164 (14 ,437 ) 5,211 (14,484)
Cash and cash equivalents at the end of the year 16,5 43 11,379 16,543 11,332
Cash and cash equivalents comprise the following:
Cash at bank 16,543 11, 379 16,543 11,332
The notes on pages 64 to 85 form part of these financial statements.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Notes to the Consolidated Financial Statements
1. General Information and Significant
Accounting Policies
incorporated and registered in England and Wales .
The financial reporting framework that has been
applied in their preparation is applicable law and UK
adopted International accounting standards and as
regards the Parent Company financial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
Basis of Preparation
The principal accounting policies adopted are set
out below. The annual financial statements have
also been prepared in accordance with guidance
issued by the AIC.
The financial statements are presented in sterling,
which is the Group’s functional currency as the UK
is the primary environment in which it operates,
rounded to the nearest £’000, except where
otherwise indicated.
Going Concern
The financial statements have been prepared on a
going concern basis and on the basis that approval as
an investment trust company will continue to be met.
The Directors have made an assessment of the
Company’s ability to continue as a going concern
and are satisfied that the Company has adequate
resources to continue in operational existence for
a period of at least 12 months from the date when
these financial statements were approved.
In making the assessment, the Directors of the
Company have considered the likely impacts of
international and economic uncertainties on the
Company, operations and the investment portfolio.
These include, but are not limited to, the impact of
COVID-19, the war in Ukraine, political instability in
the UK, supply shortages and inflationary pressures.
The Directors noted that the Company, with the
current cash balance and holding a portfolio of
listed investments, is able to meet the obligations
of the Company as they fall due. The current cash
balance plus available additional borrowing, through
the revolving credit facility which remains undrawn
(2021: undrawn), enables the Company to meet any
funding requirements and finance future additional
investments. The Company is a closed-end fund,
where assets are not required to be liquidated to
meet day to day redemptions.
The Directors have completed stress tests assessing
the impact of changes in market value and
income with associated cash flows. In making
this assessment, they have considered plausible
downside scenarios. These tests were driven by the
possible effects of continuation of the COVID-19
pandemic but, as an arithmetic exercise, apply
equally to any other set of circumstances in which
asset value and income are significantly impaired.
The conclusion was that in a plausible downside
scenario the Company could continue to meet its
liabilities. Whilst the economic future is uncertain,
and the Directors believe that it is possible the
Company could experience further reductions in
income and/or market value, the opinion of the
Directors is that this should not be to a level which
would threaten the Company’s ability to continue as
a going concern.
The Directors, the Manager and other service
providers have put in place contingency plans to
minimise disruption. Furthermore, the Directors are
not aware of any material uncertainties that may
cast significant doubt on 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.
|
The Diverse Income Trust plc
|
Annual Report 2022
Basis of Consolidation
IFRS 10 sets out the principles for the presentation
and preparation of consolidated financial
statements and establishes a single control model
that applies to all entities.
The Company has made the significant accounting
judgement that the Company meets the definition
of an investment entity. However, the Company’s
wholly-owned subsidiary, DIT Income Services Limited,
is an extension of the Company through which it
provides services that relate to the investment entity’s
investment activities and the subsidiary is not itself
an investment entity. The Group financial statements
therefore consolidate the financial statements of
the Company and its subsidiary, drawn up to 31 May
2022. The subsidiary is consolidated from the date
of acquisition, being the date on which control was
obtained, and will continue to be consolidated until
the date that such control ceases. Control comprises
being exposed, or having rights, to variable returns
through its power over the investee. The financial
statements of the subsidiary are prepared for the
same reporting year as the parent Company, using
consistent accounting policies. All inter-company
balances and transactions, including unrealised profits
arising from them, are eliminated.
As permitted by Section 408 of the Companies
Act 2006, the Company has not presented its own
Income Statement. The amount of the Company’s
return for the financial year, dealt with in the
financial statements of the Group, is a loss after tax
of £14,264,000 (2021: gain of £119,117,000).
Segmental Reporting
The Directors are of the opinion that the Group is
engaged in a single segment of business, being
investment business. The Group primarily invests
in companies listed in the UK.
Accounting Developments
In the year under review, the Group has applied
amendments to IFRS issued by the IASB adopted in
conformity with UK adopted international accounting
standards. These include annual improvements
to IFRS, changes in standards, legislative and
regulatory amendments, changes in disclosure and
presentationrequirements.
This incorporated:
• Interest Rate Benchmark Reform – IBOR
‘phase 2’ (Amendments to IFRS 9, IAS 39 and
IFRS 7);
• Onerous contracts – Cost of Fulfilling a
Contract (Amendments to IAS 37);
• IAS 1 Presentation of Financial Statements
and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors (Amendment
– Disclosure initiative – Definition of Material);
and
• Revisions to the Conceptual Framework for
Financial Reporting.
The adoption of the changes to accounting standards
has had no material impact on these or prior years’
financial statements.
There are amendments to IAS/IFRS that will apply
from 31 May 2022 as follows:
• Classification of liabilities as current or
non-current (Amendments to IAS 1);
• Disclosure of Accounting Policies
(Amendments to IAS 1 and IFRS Practice
Statement 2);
• Definition of Accounting Estimates
(Amendments to IAS 8);
• Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction – Amendments
to IAS 12 Income Taxes; and
• Annual improvements to IFRS Standards.
The Directors do not anticipate the adoption
of these will have a material impact on the
financialstatements.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Standards issued but not yet effective
There are no standards or amendments not yet
effective which are relevant or have a material impact
on the Company.
Critical Accounting Judgements and Key Sources of
Estimation Uncertainty
The preparation of financial statements in conformity
with accounting standards requires management
to make judgements, estimates and assumptions
that affect the application of policies and reported
amounts in the financial statements. The estimates
and associated assumptions are based on historical
experience and various other factors that are believed
to be reasonable under the circumstances, the results
of which form the basis of making judgements about
carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results
may differ from these estimates.
The areas requiring the most significant judgement
and estimation in the preparation of the financial
statements are: recognising and classifying unusual
or special dividends received as either revenue or
capital in nature; the valuation of warrants; and
recognition of expenses between capital and income.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period
in which the estimate is revised if the revision affects
only that period, or in the period of the revision and
future period if the revision affects both current and
future periods. There were no accounting estimates
or judgements that had a significant impact on the
financial statements in the current period.
Investments
The Group’s business is investing in financial assets
with a view to profiting from their total return in the
form of income and capital growth. This portfolio
of financial assets is managed and its performance
evaluated on a fair value basis, in accordance with a
documented investment strategy, and information
about the portfolio is provided internally on that
basis to the Group’s Board of Directors.
Upon initial recognition, the investments held by
the Company, except for the investment in the
subsidiary, are classified ‘at fair value through profit
or loss’. They are included initially at fair value,
which is taken to be their cost (excluding expenses
incidental to the acquisition, which are written off
in the Income Statement and allocated to ‘capital’
at the time of acquisition). When a purchase or
sale is made under a contract, the terms of which
require delivery within the timeframe of the relevant
market, the investments concerned are recognised
or derecognised on the trade date. Subsequent to
initial recognition, investments are valued at fair
value through profit or loss. For listed investments
this is deemed to be bid market prices or closing
prices for Stock Exchange Electronic Trading Service
– quotes and crosses (“SETSqx”).
Changes in fair value of investments are recognised
in the Income Statement as a capital item. On
disposal, realised gains and losses are also recognised
in the Income Statement as capital items.
The investment in the subsidiary company, DIT
Income Services Limited, is held at cost £1 (2021: £1).
Investments held as current assets by the subsidiary
undertaking are classified as ‘held for trading’ and
are at fair value. Dealing profits or losses on these
investments are taken to revenue in the Income
Statement. There were no investments held by the
subsidiary at the year end (2021: none).
Warrants give the Company the right, but not the
obligation, to buy common ordinary shares in an
investee company at a fixed price for a pre-defined
time period. The fair value is determined by the
Manager through use of models using available
observable inputs of the warrant: the exercise share
price of the investee company, the expiration period
plus other factors including the prevailing interest
rate and associated risks.
All investments for which fair value is measured or
disclosed in the financial statements are categorised
within the fair value hierarchy in note 12.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Foreign Currency
Transactions denominated in foreign currencies are
converted to sterling at the actual exchange rate
as at the date of the transaction. Monetary assets
and liabilities and non-monetary assets held at fair
value denominated in foreign currencies at the
year end are reported at the rate of exchange at the
Balance Sheet date. Any gain or loss arising from a
change in exchange rate subsequent to the date of
the transaction is included as an exchange gain or
loss in the capital reserve or the revenue account
depending on whether the gain or loss is of a capital
or revenue nature.
Derivatives
Derivatives, including Index Put Options, which
are listed investments, are classified as financial
instruments at fair value through profit or loss.
Derivatives are initially recorded at cost (being
premium paid to purchase the option) and
subsequently valued at fair value and included
in current assets/liabilities. Derivatives are
derecognised when the contract expires or on the
trade date when the contract is sold.
Changes in the fair value of derivative instruments
are recognised as they arise in the capital column of
the Income Statement. The fair value is calculated
by either the quoted price (if listed) or a broker using
models with inputs from market prices. On disposal
or expiration, realised gains and losses are also
recognised in the Income Statement as capital items.
Cash and Cash Equivalents
For the purposes of the Balance Sheet,
cash comprises cash in hand and demand
deposits. Cash equivalents are short-term, highly-
liquid investments that are readily convertible to
known amounts of cash and which are subject to
insignificant risk of changes in value.
For the purposes of the Cash Flow Statement, cash
and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding
bank overdrafts when applicable.
Trade Receivables, Prepayments and Other Debtors
Trade receivables, prepayments and other debtors are
recognised at amortised cost or estimated fair value.
Trade Payables and Short-term Borrowings
Trade payables and short-term borrowings are
measured at amortised cost.
Income
Dividends receivable on quoted equity shares are
taken to revenue on an ex-dividend basis. Dividends
receivable on equity shares where no ex-dividend
date is quoted are brought into account when the
Company’s right to receive payment is established.
Fixed returns on non-equity shares are recognised
on a time-apportioned basis. Dividends from
overseas companies are shown gross of any non
recoverable withholding taxes.
Special dividends are taken to the revenue or capital
account depending on their nature. In deciding
whether a dividend should be regarded as a capital
or revenue receipt, the Board reviews all relevant
information as to the reasons for the sources of the
dividend on a case-by-case basis.
When the Company has elected to receive scrip
dividends in the form of additional shares rather
than in cash, the amount of the cash dividend
forgone is recognised as income. Any excess in
the value of the cash dividend is recognised in the
capital column.
All other income is accounted for on a time
apportioned accruals basis and is recognised in the
Income Statement.
Expenses and Finance Costs
All expenses are accounted for on an accruals basis.
On the basis of the Board’s expected long-term split
of total returns in the form of capital and revenue
returns of 75% and 25% respectively, the Company
charges 75% of its management fee and finance
costs to capital. All other administrative expenses
are charged through the revenue column in the
Income Statement.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Expenses incurred directly in relation to arranging
debt and loan facilities have been capitalised and
amortised over the term of the finance.
Expenses incurred directly in relation to placings and
offers for subscription of shares are deducted from
equity and charged to the share premium account.
Expenses incurred in the maintenance of capital,
redemption and cancellation of shares are charged
to the special reserve through the Statement of
Change of Equity.
Taxation
Deferred tax is provided using the liability method
on temporary differences between the tax bases
of assets and liabilities and their carrying amount
for financial reporting purposes at the reporting
date. Deferred tax assets are only recognised if it is
considered more likely than not that there will be
suitable profits from which the future reversal of
timing differences can be deducted. In line with the
recommendations of the AIC SORP, the allocation
method used to calculate the tax relief on expenses
charged to capital is the “marginal” basis. Under this
basis, if taxable income is capable of being offset
entirely by expenses charged through the revenue
account, then no tax relief is transferred to the
capital account.
The charge for taxation is based on the net revenue
for the year and takes into account taxation deferred
or accelerated because of temporary differences
between the treatment of certain items for
accounting and taxation purposes.
The actual charge for taxation in the income
statement relates to irrecoverable withholding tax
on overseas dividends received during the year.
Dividends Payable to Shareholders
Dividends to shareholders are recognised as a
liability in the period in which they are paid or
approved in general meetings and are taken to the
Statement of Changes in Equity. Dividends declared
and approved by the Company after the Balance
Sheet date have not been recognised as a liability of
the Company at the Balance Sheet date.
Share Capital
The Company classifies financial instruments
issued as financial liabilities or equity instruments in
accordance with the substance of the contractual
terms of the instruments. The share capital of the
Company comprises redeemable ordinary shares
(“ordinary shares”), C shares, when in issue, and
management shares.
The Company is a closed-ended investment company
with an unlimited life. The ordinary shares are
not puttable instruments because redemption is
conditional upon certain market conditions and/or
Board approval. As such, they are not required to be
classified as debt under IAS 32 ‘Financial Instruments:
Disclosure and Presentation’.
As defined in the Articles of Association, redemption
of ordinary shares is at the sole discretion of the
Directors, therefore the ordinary shares have been
classified as equity.
The issuance, acquisition and resale of ordinary shares
are accounted for as equity transactions and no gain
or loss is recognised in the Income Statement.
Share Premium
The share premium account represents the
accumulated premium paid for shares issued in
previous periods above their normal value less
issue expenses. This is a reserve forming part of the
non-distributable reserves. The following items are
taken to this reserve:
• costs associated with the issue of equity; and
• premium on the issue of shares.
Capital Redemption Reserve
The capital redemption reserve represents non
distributable reserves that arise from the purchase
and cancellation of shares.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Special Reserve
The special reserve was created by a cancellation of the share premium account. Its main purpose is to allow
the Company to meet annual redemption requests for ordinary shares. The costs of share buy-backs and
meeting annual redemption requests, including related stamp duty and transaction costs, are also charged
to the special reserve. The special reserve is distributable.
Capital Reserve
The following are taken to this reserve:
• gains and losses on the disposal of investments;
• exchange difference of a capital nature;
• expenses, together with the related taxation effect, allocated to this reserve in accordance with the
above policies; and
• increase and decrease in the valuation of investments held at the year end.
The capital reserve is distributable.
Revenue Reserve
The revenue reserve represents the surplus accumulated revenue profits and is distributable.
2. Income
Year ended 31 May 2022 Year ended 31 May 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Income from investments:
UK dividends 12,036 158 12,194 10,628 1,245 11,873
UK REIT dividend income 211 – 211 169 – 169
Non UK dividend income 4,080 – 4,080 4,288 – 4,288
UK fixed interest 167 – 167 386 – 386
16,494 158 16,652 15,471 1,245 16,716
Other income:
Bank deposit interest 1 – 1 – – –
Exchange gains 16 – 16 19 – 19
Net dealing profit of subsidiary* – – – (88) – (88)
Underwriting income – – – 19 – 19
Other income 1 – 1 51 – 51
Total income 16,512 158 16,670 15,472 1,245 16,717
* Represents realised trading gains and losses from trading transactions. There are no other expenses/income in respect of the subsidiary.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
3. Management Fee
Year ended 31 May 2022 Year ended 31 May 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Management fee 890 2,669 3,559 764 2,293 3,057
The basic management fee payable to the Manager is calculated at the rate of one-twelfth of 0.9% of
the average market capitalisation of the Company up to £300m, 0.8% per annum on the average market
capitalisation between £300m and £500m and 0.7% per annum on the average market capitalisation above
£500m on the last business day of each calendar month. The basic management fee accrues daily and
is payable in arrears in respect of each calendar month. For the purpose of calculating the basic fee, the
‘adjusted market capitalisation’ of the Company is defined as the average daily mid-market price for an
ordinary share and C share (when in issue), multiplied by the number of relevant shares in issue, excluding
those held by the Company in treasury, on the last business day of the relevant month. In addition, the AIFM
is entitled to receive a management fee on any Redemption Pool, as detailed in the Strategic Report on
page 26.
At 31 May 2022 an amount of £280,000 was outstanding and due to Premier Portfolio Managers Limited
(2021: £316,000) in respect of management fees, which is included in “Other creditors” in note 17.
4. Other Expenses
Year ended
31 May 2022
£000
Year ended
31 May 2021
£000
Fund Administration and Secretarial services 132 127
Auditor's remuneration for:
Audit of the Group's financial statements (payable by the Company only) 41 38
Directors’ fees (see the Directors' Remuneration Report on pages 44 to 47) 163 163
Other expenses 514 433
850 761
The audit of the Group’s financial statements includes the cost of the audit of DIT Income Services Limited
of £3,000 (2021: £3,000), which is paid by the parent Company.
5. Finance Costs
Year ended 31 May 2022 Year ended 31 May 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
£5m (2021: £20m) revolving loan facility loan arrangement fee 3 10 13 5 15 20
£5m (2021: £20m) revolving loan facility non-utilisation fee 10 31 41 23 70 93
13 41 54 28 85 113
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
The Group entered into a revolving loan facility (the “facility”) on 4 October 2019 with The Royal Bank of
Scotland International Limited, London branch (“RBS”) for £20m. During the year, the Company entered
into a new facility agreement with RBS for a revolving loan facility of up to £5m (including an uncommitted
accordion option of up to an additional £35m). The facility bears interest at the rate of 1.20% over SONIA on
any drawn down balance and a commitment fee of 0.45%. The covenants require that borrowings will not
at any time exceed 25% of the adjusted portfolio value, being the total portfolio value less the gross market
value of each investment which is not a quoted equity freely traded on a recognised investment exchange,
and that the net asset value shall at all times be greater than £210m. If the Group breaches any covenant it is
required to notify RBS of any default and the steps being taken to remedy it.
The Group has not drawn down this facility during the year (2021: nil) and no amounts have been drawn
down at the date of signing this report.
6. Taxation
a) Analysis of charge in year
Year ended 31 May 2022 Year ended 31 May 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Current tax:
UK corporation tax – – – – – –
Overseas tax suffered 257 – 257 539 – 539
Double taxation relief – – – – – –
257 – 257 539 – 539
b) The current taxation charge for the year is lower than the standard rate of Corporation Tax in the UK of
19% (2021: 19%)
The differences are explained below:
Year ended 31 May 2022 Year ended 31 May 2021
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Net return before taxation 14,759 (28,766) (14,007) 13,919 105,648 119,567
Theoretical tax at UK corporation tax rate of 19% (2021: 19%) 2,804 (5,466) (2,662) 2,645 20,073 22,718
Effects of:
– UK dividends that are not taxable (2,286) (30) (2,316) (2,019) – (2,019)
– Foreign dividends that are not taxable (778) – (778) (749) – (749)
– Unrelieved losses of subsidiary – – – 17 – 17
– Non-taxable investment losses/(gains) – 4,981 4,981 – (20,525) (20,525)
– Irrecoverable overseas tax 257 – 257 539 – 539
– Double tax relief – – – 11 – 11
– Unrelieved excess expenses 260 515 775 95 452 547
257 – 257 539 – 539
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
c) Factors that may affect future tax charges
At 31 May 2022, the Company had no unprovided deferred tax liabilities (2021: £nil). At that date, based on
current estimates and including the accumulation of net allowable losses, the Company had unrelieved
losses of £30,523,000 (2021: £26,224,000) that are available to offset future taxable revenue. A deferred
tax asset at a rate of 25% (2021: 19%) of £7,631,000 (2021: £4,983,000) has not been recognised because the
Company is not expected to generate sufficient taxable income in future periods in excess of the available
deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities
through the use of existing surplus losses.
The loss from the subsidiary was £nil (2021: £88,459). Accumulated losses are being carried forward to be
relieved against future profits.
In addition, deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of
investments because the Company meets (and intends to continue for the foreseeable future meet) the
conditions for approval as an Investment Trust Company under HMRC rules.
7. Return per Share
Ordinary Shares
The return per ordinary share is based on the net loss after taxation of £14,264,000 (2021: gain £119,028,000) and
on 361,674,146 (2021: 358,929,991) ordinary shares, being the weighted average number of ordinary shares in issue
during the year.
The return per ordinary share detailed above can be further analysed between revenue and capital as follows:
Year ended 31 May 2022 Year ended 31 May 2021
Revenue Capital Total Revenue Capital Total
Basic & diluted
Net profit/(loss) (£'000) 14,502 (28,766) (14,264) 13,380 105,648 119,028
Weighted average number of ordinary shares in issue 361,674,146 358,929,991
Return per ordinary share (pence) 4.01 (7.95) (3.94) 3.73 29.43 33.16
The 50,000 Management shares do not participate in the returns of the Company.
There are no dilutive instruments issued by the Company (2021: none).
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
8. Dividends per Ordinary Share
Amounts recognised as distributions to equity holders in the year:
Year ended 31 May 2022 Year ended 31 May 2021
£000
pence
per share £000
pence
per share
In respect of the previous year:
Third interim dividend 3,253 0.90 3,222 0.90
Final dividend 3,976 1.10 3,760 1.05
In respect of the year under review:
First interim dividend 3,257 0.90 3,043 0.85
Second interim dividend 3,257 0.90 3,222 0.90
Dividends distributed during the year 13,743 3.80 13,247 3.70
The Directors have declared a third interim dividend in respect of the year ended 31 May 2022 of 0.90p
per ordinary share payable on 31 August 2022 to all shareholders on the register at close of business on
24 June 2022. The ex-dividend date was 23 June 2022. A final dividend of 1.20p per ordinary share has also
been recommended by the Board. Subject to shareholder approval at the forthcoming AGM, this dividend
will be payable on 30 November 2022 to shareholders on the register at close of business on 30 September
2022. The ex-dividend date will be 29 September 2022. The Company operates a Dividend Reinvestment
Plan ("DRIP"), which is managed by its registrar, Link Group. For shareholders who wish to receive their
dividend in the form of shares, the deadline to elect for the DRIP is 14 October 2022.
The total dividends payable in respect of the financial year for the purposes of the income retention test for
Section 1158 of the Corporation Tax Act 2010 are set out below.
Year ended
31 May 2022
£000
Year ended
31 May 2021
£000
Revenue available for distribution by way of dividends for the year 14,502 13,469
Declared first interim dividend 0.90p (2021: 0.85p) per ordinary share (3,257) (3,043)
Declared second interim dividend 0.90p (2021: 0.90p) per ordinary share (3,257) (3,222)
Declared third interim dividend 0.90p (2021: 0.90p) per ordinary share (3,203) (3,253)
Proposed final dividend of 1.20p (2021: 1.10p) per ordinary share (4,270) (3,976)
Estimated revenue reserve retained/(utilised) for the year 515 (25)
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
9. Called-Up Share Capital
31 May 2022 31 May 2021
number £000 number £000
Ordinary shares of 0.1p each
Opening balance 361,445,105 361 378,289,047 378
Issue of ordinary shares 475,000 1 3,400,000 3
Cancellation of ordinary shares – – (20,243,942) (20)
361,920,105 362 361,445,105 361
The rights and restrictions attached to shares, together with the capital structure of the Company, are set
out on page 23.
Shares Issued
During the year, 475,000 Ordinary shares were issued at an average price per share of 115.75p raising gross
consideration of £550,000, less £3,000 commission.
The Company incurred expenses of £69,000 for the block listing of 26,104,001 shares on the LSE which will be
utilised for future share issues.
Redemption of Ordinary Shares
The Company, which is a closed-ended investment company with an unlimited life, has a redemption facility
through which shareholders are entitled to request the redemption of all or part of their holding of ordinary
shares on an annual basis on 31 May. As set out in the Articles of Association, the Board may, at its absolute
discretion, elect not to operate the annual redemption facility in whole or in part. Accordingly, the ordinary
shares have been classified as equity.
2022 Redemption
The Company received redemption requests for 6,049,458 ordinary shares in respect of 31 May 2022
Redemption Point, all of these shares were redeemed at the Redemption Price 110.36 pence per share and
cancelled by the Company. Following the cancellation of the shares on 16 June 2022, and at the date of this
Report, the issued capital and voting rights were 355,870,647 ordinary shares.
2021 Redemption
The Company received redemption requests for 347,580 ordinary shares in respect of 28 May 2021
Redemption Point. All of these shares were matched with buyers and sold at a calculated Redemption Price
of 118.08 pence per share.
Details of the redemption facility are set out on page 86.
Management Shares
The 50,000 management shares with a nominal value of £1 each were allotted to Miton Group plcon
30 March 2011, the parent company of the Manager. The management shares are non-voting and
non-redeemable and, upon a winding-up or on a return of capital of the Company, shall only receive the
fixed amount of capital paid up on such shares and shall confer no right to any surplus capital or assets of the
Company. As at 31 May 2022, £12,500 had been paid up (2021: £12,500). The balance is payable on demand.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
10. Reserves
2022
Share
premium
account
£000
Capital
redemption
reserve
£000
Special*
reserve
£000
Capital*
reserve
realised
£000
Capital
reserve
unrealised
£000
Revenue*
reserve
£000
Opening balance 196,562 26 22,378 103,563 89,528 15,174
Issue of ordinary shares 546 – – – – –
Expense of share issue (69) – – – – –
Profit on realisation of investments – – – 18,433 – –
Exchange losses on settlements and currency accounts – – – (23) – –
Capital dividends – – – 158 – –
Unrealised net decrease in value of investments – – – – (39,088) –
Movement in value of derivative instruments – – – – (5,536) –
Management fees/finance costs charged to capital – – – (2,710) – –
Equity dividends paid – – – – – (13,743)
Revenue return on ordinary activities after tax – – – – – 14,502
Closing balance 197,039 26 22,378 119,421 44,904 15,933
* At 31 May 2022, the distributable reserves of the Company are £157,732,000 (2021: £141,115,000).
2021
Share
premium
account
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Capital
reserve
realised
£000
Capital
reserve
unrealised
£000
Revenue
reserve
£000
Opening balance 192,562 6 40,530 84,663 2,780 15,041
Issue of ordinary shares 4,000 – – – – –
Cancellation of ordinary shares – 20 (18,152) – – –
Profit on realisation of investments – – – 20,045 – –
Exchange losses on settlements and currency accounts – – – (12) – –
Capital dividends – – – 1,245 – –
Unrealised net increase in value of investments – – – – 86,748 –
Management fees/finance costs charged to capital – – – (2,378) – –
Equity dividends paid – – – – – (13,247)
Revenue return on ordinary activities after tax – – – – – 13,380
Closing balance 196,562 26 22,378 103,563 89,528 15,174
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
11. Net Asset Value per Ordinary Share
The net asset value per ordinary share and the net asset values attributable at the year end were as follows:
Net asset value
per share
31 May 2022
pence
Net assets
attributable
31 May 2022
£000
Net asset value
per share
31 May 2021
pence
Net assets
attributable
31 May 2021
£000
Opening balance
– Basic and diluted 110.55 400,113 118.31 427,642
Net asset value per ordinary share is based on net assets at the year end and 361,920,105 ordinary shares
(2021: 361,445,105), being the number of ordinary shares in issue at the year end.
The net asset value of £1 (2021: £1) per management share is based on net assets at the year end of £50,000
(2021: £50,000) and 50,000 (2021: 50,000) management shares in issue at 31 May 2022. The shareholders have
no right to any surplus capital or assets of the Company.
12. Investments
Group and Company
31 May 2022
£000
31 May 2021
£000
Investment portfolio summary:
Opening book cost 325,295 307,618
Opening investment holding gains 89,528 2,780
Total opening investments classified at fair value 414,823 310,398
Analysis of investment portfolio movements
Opening fair value 414,823 310,398
Movements in the period:
Purchases at cost 75,748 112,104
Sales – proceeds (92,325) (114,472)
– gains on sales 18,433 20,045
Movement in investment holding gains (39,088) 86,748
Closing fair value 377,591 414,823
Closing book cost 327,151 325,295
Closing investment holding gains 50,440 89,528
Total closing investments classified at fair value 377,591 414,823
The Company received £92,325,000 (2021: £114,472,000) from investments sold in the year. The book cost of
these investments was £73,892,000 (2021: £94,427,000). These investments have been revalued over time
and until they were sold any unrealised gain or losses were included in the fair value of investments.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Year ended
31 May 2022
£000
Year ended
31 May 2021
£000
Transaction costs:
Costs on acquisitions 195 393
Costs on disposals 38 68
233 461
Year ended
31 May 2022
£000
Year ended
31 May 2021
£000
Analysis of capital gains/(losses)
Realised gains on sales 18,433 20,045
Movement in unrealised gains (39,088) 86,748
(20,655) 106,793
Fair Value Hierarchy
Financial assets of the Group are carried in the Balance Sheet at their fair value or approximation of fair value.
The fair value is the amount at which the asset could be sold in an ordinary transaction between market
participants, at the measurement date, other than a forced or liquidation sale. The Group measures fair values
using the following hierarchy that reflects the significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is
significant to the fair value measurement of the relevant asset as follows:
Level 1 – Valued using quoted prices, unadjusted in active markets for identical assets and liabilities.
Level 2 – Valued by reference to valuation techniques using observable inputs for the asset or liability other
than quoted prices included in level 1.
Level 3 – Valued by reference to valuation techniques using inputs that are not based on observable market
data for the asset or liability.
Assessing the significance of a particular input requires judgement, considering factors specific to the asset
or liability.
The table below sets out the fair value measurement of financial assets and liabilities in accordance with the
fair value hierarchy.
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
Financial assets at fair value through profit or loss at 31 May 2022
Equity Investments 377,591 – – 377,591
Derivative contracts – 2,481 – 2,481
Fixed interest bearing securities – – – –
377,591 2,481 – 380,072
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
Financial assets at fair value through profit or loss at 31 May 2021
Equity Investments 412,568 – – 412,568
Fixed interest bearing securities – 2,255 – 2,255
412,568 2,255 – 414,823
The Level 2 investments are at fair value calculated using observable inputs. The fair value is calculated using:
• the observable fair value on an inactive market;
• an intrinsic value above cost, allowing for the conversion value of the underlying, actively traded bid
price where applicable; and
• where the unlisted convertible debt conversion value was not greater than par value (being ‘out of the
money’) then held at par value being an approximation of fair value.
The fair value of Level 3 investments is based on discounted anticipated future cash returns.
Year ended
31 May 2022
Level 3
£000
Year ended
31 May 2021
Level 3
£000
Opening fair value investments – –
Realised losses on sales (3,720) –
Transfer from Level 1 to Level 3 – 40
Movement in unrealised investment holding gains 3,720 (40)
Closing fair value of investments – –
Trading Income
The Company’s subsidiary completes trading transactions. The value of assets held by the subsidiary as at
31 May 2022 was £nil (2021: £nil). The difference between the sale and purchase of assets is trading income
recognised in the Income Statement.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
13. Derivative Contracts
During the year the Company held derivative contracts purchased at a cost of £8,017,000 (2021: £nil),
including transaction costs of £5,000 (2021: £nil), with an unrealised loss of £5,536,000 (2021: £nil), and closing
fair value at the year ended 31 May 2022, of £2,481,000 (2021: £nil).
Derivative contracts serve as components of the Company's investment strategy and are utilised primarily to
structure and hedge investments to enhance performance and reduce risk of the Company (the Company
does not designate any derivative as hedging instrument for hedge accounting purposes). The derivative
contracts that the Company may hold from time to time or issue include: index-linked notes, contracts for
differences, covered options and other equity-related instruments.
The Company's investment objective set limits on investments in derivatives. The Manager closely monitors
the Company’s exposure under derivative contracts and 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. The Company will not enter into uncovered short positions.
14. Substantial Share Interests
The Company has notified interests in 3% or more of the voting rights of 19 (2021: 16) investee companies
(none of which are closed-end investment funds). The Board does not consider any of the Company’s other
equity investments to be individually material in the context of the financial statements.
15. Investment in Subsidiary
The Company owns the whole of the issued ordinary share capital (£1) of DIT Income Services Limited, an
investment dealing company registered in England and Wales. The registered office of the subsidiary is
Beaufort House, 51 New North Road, Exeter, Devon EX4 4EP. The subsidiary is held at cost of £1 and has
provided loans to the Company amounting to £896,000 at 31 May 2022 (2021: £849,000), which are payable
on demand.
16. Trade and Other Receivables
Group Company
31 May 2022
£000
31 May 2021
£000
31 May 2022
£000
31 May 2021
£000
Amounts due from brokers 1,292 – 1,292 –
Dividends receivable 2,190 1,334 2,190 1,334
Accrued income – 39 – 39
Taxation recoverable 318 418 318 418
Prepayments and other debtors 99 86 99 86
3,899 1,877 3,899 1,877
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
17. Trade and Other Payables
Group Company
31 May 2022
£000
31 May 2021
£000
31 May 2022
£000
31 May 2021
£000
Amounts due to subsidiary – – 896 849
Other creditors 401 437 401 437
401 437 1,297 1,286
18. Capital Commitments and Contingent Liabilities
At 31 May 2022, there were no outstanding commitments (2021: £nil) and no contingent liabilities (2021: £nil).
19. Analysis of Financial Assets and Liabilities
Investment Objective And Policy
The Group’s investment objective and policy are detailed on pages 87 and 88.
The Group’s investing activities in pursuit of its investment objective involve certain inherent risks.
The Group’s financial instruments comprise:
• shares and debt securities held in accordance with the Group’s investment objective and policies;
• derivative instruments for efficient portfolio management, gearing and investment purposes;
• cash, liquid resources and short-term debtors and creditors that arise from its operations; and
• current asset investments held by its subsidiary.
The risks identified arising from the Group’s financial instruments are market risk (which comprises
market price risk, interest rate risk and foreign currency risk), liquidity risk and credit and counterparty risk.
The Group may enter into derivative contracts to manage risk. The Board reviews and agrees policies for
managing each of these risks, which are summarised below. These policies have remained unchanged since
the beginning of the accounting year.
Market Risk
Market risk arises mainly from uncertainty about future prices of financial instruments used in the Group’s
business. It represents the potential loss the Group might suffer through holding market positions by way
of price movements, interest rate movements and exchange rate movements. The Manager assesses the
exposure to market risk when making each investment decision and these risks are monitored by the
Manager on a regular basis and the Board at quarterly meetings with the Manager.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Market price risk
Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate
risk) may affect the value of investments.
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting
of relevant information from the Manager. Investment performance and exposure are reviewed at each
Boardmeeting.
The Group’s exposure to changes in market prices as at 31 May 2022 on its investments held at fair value
through profit or loss was £380,072,000 (2021: £414,823,000). The Group has experienced volatility in the fair
value of investments during recent years due to domestic and global, economic and political uncertainties.
These include, but are not limited to, the impact of COVID-19, the war in Ukraine, political instability in the
UK, supply shortages and inflationary pressures.
The Group has used 20% to demonstrate the impact of a significant reduction/increase in the fair value of the
investments and the impact upon the Company that might arise from future significant events. A fall of 20%
in fair value would reduce net assets by £76,014,000 at 31 May 2022. An equal change in the opposite direction
would have increased the net assets and net profit available to shareholders by an equal and opposite
amount. The analysis is based on closing balances only and is not representative of the year as awhole.
Interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits and payable on its
revolving credit facility. The Group’s financial assets and liabilities, excluding short-term debtors and
creditors, may include investment in fixed interest securities, such as UK corporate debt stock, whose fair
value may be affected by movements in interest rates. The majority of the Group’s financial assets and
liabilities, however, are non-interest bearing. As a result, the Group’s financial assets and liabilities are not
subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.
The Company has a £5m revolving loan facility with RBS (including an uncommitted accordion option
of up to an additional £35m) at an interest rate of 1.20% above SONIA on any drawn down balance and a
0.45% commitment fee. During the year the facility has not been drawn down. The revolving loan facility is
only subject to changes in interest rates, and therefore interest rate risk, when it is drawn down.
The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates
are taken into account when making investment decisions. The Board imposes borrowing limits to ensure
gearing levels are appropriate to market conditions.
As detailed on page 16, at 31 May 2022 the Company held one (2021: two) fixed interest security, held at fair
value of £nil, representing nil% of the total investment portfolio (2021: 0.5%).
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
The interest rate profile of the Group (excluding short-term debtors and creditors) was as follows:
As at 31 May 2022
Weighted
average
interest rate
%
Floating
rate
£000
Fixed
rate
£000
Assets and liabilities
Fixed interest securities – – –
Cash at bank – 16,543 –
16,543 –
As at 31 May 2021
Weighted
average
interest rate
%
Floating
rate
£000
Fixed
rate
£000
Assets and liabilities
Fixed interest securities 8.00 – 2,255
Cash at bank – 11,379 –
11,379 2,255
The weighted average interest rate is based on the current yield of each asset, weighted by its market value.
The weighted average fixed interest rate is based on the current yield of each asset, weighted by its current
market value. The maturity dates and nominal interest rates on these investments held at fair value through
profit or loss are shown in the portfolio information on page 16.
The floating rate assets consist of cash deposits on call earning interest at the prevailing market rates.
The interest rate risk sensitivity of the Group on its floating rate assets and liabilities is given below:
If interest rates had been 50 basis points higher or lower and all other variables were held constant, the
Group’s net assets and profit for the year ended 31 May 2022 would increase/decrease by £83,000 (2021:
increase/decrease by £57,000). This is attributable to the Group’s exposure to interest rates on its floating
rate cash balances and bank overdraft as at the year ended 31 May 2022. If there was a fall in interest rates it
would potentially impact the Company as above, by turning positive interest to negative interest.
Foreign currency risk
Although the Company’s performance is measured in sterling, a proportion of the Group’s assets may
be either denominated in other currencies or are in investments with currency exposure. Any income
denominated in a foreign currency is converted into sterling upon receipt. At the Balance Sheet date, all the
Group’s assets were denominated in sterling and accordingly the only currency exposure the Group has is
through the trading activities of its investee companies.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Liquidity Risk
Liquidity risk is not considered to be significant as the Group is a closed-ended investment trust and the
Group’s assets primarily comprise cash and readily realisable securities. They may, however, be difficult
to realise in adverse market conditions. The Group can achieve short-term flexibility by the use of its
overdraftfacility.
The maturity profile of the Group’s financial liabilities of £401,000 (2021: £437,000) are all due in one year orless.
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that
transaction could result in the Group suffering a loss.
The maximum exposure to credit risk as at 31 May 2022 was £22,923,000 (2021: £13,256,000). The calculation is
based on the Group’s credit risk exposure as at 31 May 2022.
The Group’s listed investments are held on its behalf by Bank of New York Mellon acting as the Group’s
custodian. The Depositary will ensure that all accounts are segregated. Bankruptcy or insolvency of the
custodian may cause the Group’s rights with respect to securities held by the custodian to be delayed. The
Board monitors the Group’s risk by reviewing the custodian’s internal controls report.
Where the Manager makes an investment in a bond or other security with credit risk, that credit risk is
assessed to minimise the risk to the Group of default.
The Company’s cash balances are held on its behalf by BNYM. The Board monitor the credit worthiness
of BNYM, currently rated at Aa1 (Moody’s). The exposure of cash held at BNYM as at 31 May 2022 was
£16,543,000 (2021: £11,379,000). The cash balances will fluctuate throughout the year and the Board will
monitor theexposure.
Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the
Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Group’s
custodian bank ensures that the counterparty to any transaction entered into by the Group has delivered on
its obligations before any transfer of cash or securities away from the Group is completed.
Cash is only held at banks that have been identified by the Board as reputable and of high credit quality.
None of the Group’s assets are past due and the adoption of the expected credit loss model for impairment
under IFRS 9 has not had a material impact on the Company.
Derivatives
The Manager may use derivative instruments in order to ‘hedge’ the market risk of part of the portfolio. The
Manager reviews the risks associated with individual investments and, where they believe it appropriate,
may use derivatives to mitigate the risk of adverse market (or currency) movements. The Manager discusses
regularly the hedging strategy with the Board.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Capital Management Policies
The Company’s capital management objectives are:
• to ensure that it will be able to continue as a going concern; and
• to maximise the income and capital return over the long-term to its equity shareholders through an
appropriate balance of equity capital and ‘debt’.
As stated in the investment policy, the Company has authority to borrow up to 15% of net asset value
through a mixture of bank facilities and certain derivative instruments. There were no borrowings as at
31 May 2022 (2021: £nil). Also, as a public company the minimum share capital is £50,000.
2022
£000
2021
£000
The Company’s capital at 31 May comprised:
Debt:
Bank loan facility – –
Equity:
Equity share capital 438 437
Retained earnings and other reserves 399,675 427,205
Total shareholders’ funds 400,113 427,642
Debt as a % of net assets 0.00% 0.00%
The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company’s
capital on an ongoing basis. This review includes:
• the planned level of gearing, which takes into account the Manager’s view of the market;
• the need to buy back shares for cancellation or treasury, which takes account of the difference between
the net asset value per share and the share price (i.e. the level of share price discount or premium);
• the need for new issues of equity shares; and
• the extent to which revenue in excess of that which is required to be distributed should be retained.
The Company’s objectives, policies and processes for managing capital have remained unchanged since
itslaunch.
Notes to the Consolidated Financial Statements continued
|
The Diverse Income Trust plc
|
Annual Report 2022
20. Transactions with the Manager and Related Parties
The amounts paid to the Manager pursuant to the Management Agreement are disclosed in note 3.
Management fees for the year amounted to £3,559,000 (2021: £3,057,000).
As at the year end, the following amounts were outstanding in respect of management fees: £280,000 (2021:
£316,000).
Fees paid to the Company’s Directors are disclosed in the Directors’ Remuneration Report. At the year end,
there were no outstanding fees payable to Directors (2021: £nil).
There were no other identifiable related parties at the year end.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
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 either 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 2023 Redemption
Point are:
2 May 2023 Latest date for receipt of
Redemption Requests and
certificates for certificated shares
3.00 pm on
2 May 2023
Latest date and time for receipt
of Redemption Requests and TTE
(transfer to escrow) instructions for
uncertificated shares via CREST
5.00 pm on
31 May 2023
The Redemption Point
On or before
14 June 2023
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 2023
Balance certificates to be sent to
shareholders
Further details of the redemption facility are set
out in the Company’s Articles of Association, or are
available from the Company Secretary.
|
The Diverse Income Trust plc
|
Annual Report 2022
The Company was incorporated on 30 March 2011.
Following a placing and offer for subscription, the
ordinary shares were admitted to trading on the
London Stock Exchange on 28 April 2011.
Capital Structure
The Company’s share capital consists of redeemable
ordinary shares of 0.1p each with one vote per
share and non-voting management shares of £1
each. From time to time, the Company may issue
Cordinary shares of 1p each with one vote per share.
The Company’s shares have the following rights:
Voting: the ordinary and C shares have equal voting
rights. At shareholder meetings, members present
in person or by proxy have one vote on a show of
hands and on a poll have one vote for each share
held. Management shares are non-voting.
Dividends: the assets of the ordinary and C shares
are separate and each class is entitled to dividends
declared on their respective asset pool. The
management shares are entitled to receive, in priority
to the holders of any other class of shares, a fixed
cumulative dividend equal to 0.00001p per annum.
Capital: if there are any C shares in issue, the
surplus capital and assets of the Company shall, on
a winding-up or on a return of capital, be applied
amongst the existing ordinary shareholders and the
management shareholders pro rata according to
the nominal capital paid up on their holdings after
having deducted therefrom an amount equivalent
to the assets and liabilities relating to the C shares,
which amount shall be applied amongst the
C shareholders pro rata according to the nominal
capital paid up on their holdings of C shares.
When there are no C shares in issue, any surplus
shall be divided amongst the ordinary shareholders
and management shareholders pro rata according
to the nominal capital paid up on their holdings of
ordinary shares and management shares.
In each instance, the holders of the management
shares shall only receive an amount up to the
capital paid up on such management shares and
the management shares shall not confer the right
to participate in any surplus remaining following
payment of such amount.
As at the date of this Report, there were 355,870,647
ordinary shares in issue, none of which were held in
treasury, and 50,000 management shares.
The Company has a redemption facility through
which shareholders are entitled to request the
redemption of all or part of their holding of ordinary
shares on an annual basis on 31 May in each year.
The Board may, at its absolute discretion, elect not
to operate the annual redemption facility in whole
or in part, although it has indicated that it is minded
to approve all requests.
Further details of the capital structure can be found
in note 9 to the financial statements. Details of the
redemption facility are set out on page 86.
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
longterm.
Investment Policy
The Company invests primarily in UK-quoted or
traded companies with a wide range of market
capitalisations, but a long-term bias toward 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.
Shareholder Information
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
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 100 and 180 securities,
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) whether or not such
funds have stated policies to invest no more than
15% of their gross assets in other listed closed-ended
investmentfunds.
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 continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Shares can be traded through your usual stockbroker.
Share Register Enquiries
The register for the ordinary shares is maintained
by Link Group. In the event of queries regarding
your holding, please contact the Registrar on
0371 664 0300 (calls are charged at the standard
geographic rate and will vary by provider; 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
shareholderenquiries@linkgroup.co.uk.
Changes of name and/or address must be notified
in writing to the Registrar: Link Group, Shareholder
Services, 10
th
Floor, Central Square, 29 Wellington
Street, Leeds, LS1 4DL.
Electronic Communications from the Company
Shareholders now have the opportunity to
be notified by email when the Company’s
Annual Report, half-yearly report and other
formal communications are available on the
Company’s website, instead of receiving printed
copies by post. This has environmental benefits in
the reduction of paper, printing, energy and water
usage, as well as reducing costs to the Company.
If you have not already elected to receive
electronic communications from the Company and
wish to do so, please contact the Registrar using the
details on this page. Please have your investor code
to hand.
Share Capital and Net Asset Value Information
Ordinary 0.1p shares 355,870,647*
SEDOL Number B65TLW2
ISIN Number GB00B65TLW28
The Company releases its NAV per share daily to
theLSE.
Historic Dividend Record
Period/year ended 31 May:
2013
pence
2014
pence
2015
pence
2016
pence
2017
pence
2018
pence
2019
pence
2020
pence
2021
pence
2022
pence
First interim dividend 0.30 0.30 0.40 0.65 0.70 0.75 0.80 0.85 0.85 0.90
Second interim dividend 0.50 0.50 0.50 0.65 0.70 0.80 0.85 0.90 0.90 0.90
Third interim dividend 0.46 0.50 0.50 0.75 0.80 0.85 0.90 0.90 0.90 0.90
Fourth interim dividend 0.84 0.95 1.00 – – – – – – –
Final dividend – – 0.50 0.75 0.80 1.00 1.10 1.05 1.10 1.20
2
Special dividend – – – – 0.40
3
0.23
3
0.16
3
– – –
2.10 2.25 2.90
1
2.80 3.40 3.63 3.81 3.70 3.75 3.90
1 In order to allow shareholders to vote on the dividend, a final dividend was introduced in the year ended 31 May 2015, resulting in the payment of five
dividends for that year. Since then, the Company has paid three interim dividends and a final dividend in respect of each year. There was no interruption in
the dividend payment timetable as a result of this change.
2 Proposed.
3 A special dividend was paid for the years ended 31 May 2017, 31 May 2018 and 31 May 2019, reflecting years when many special dividends were also paid by
the companies in the portfolio.
Share Dealing
* As at 2 August 2022
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Share Prices
The Company’s shares are listed on the LSE under
‘InvestmentTrusts’. The share price is available on
the website, www.diverseincometrust.com.
Annual and Half-Yearly Reports
Copies of the Annual and Half-Yearly Reports
are available on the Company’s website,
www.diverseincometrust.com, or from the Secretary
on telephone number 01392 477500 or
diverse_cosec@linkgroup.co.uk.
Manager: Premier Portfolio Managers Limited
The Company’s Manager is Premier Portfolio
Managers Limited, a wholly-owned subsidiary of
Premier Miton Group plc. Premier Miton Group is
listed on AIM.
As at 30 June 2022, Premier Miton Group managed
£11.3bn of assets under management.
Members of the fund management team invest in
their own funds and are significant shareholders in
Miton Group.
Investor updates in the form of monthly factsheets
and other material that may be of interest to
shareholders are available from the Company’s
website, www.diverseincometrust.com.
Association of Investment Companies
The Company is a member of the AIC.
Financial Calendar
August 2022 Announcement of annual results
Payment of third interim
dividend
October 2022 Annual General Meeting
November 2022 Half-year end
Payment of final dividend
January 2023 Announcement of half-yearly
results
February 2023 Payment of first interim dividend
May 2023 Year end
Payment of second interim
dividend
Redemption Point
Retail Investors advised by IFAs
The Company currently conducts its affairs so
that the shares issued by the Company can be
recommended by IFAs to ordinary retail investors
in accordance with the FCA rules in relation to
non-mainstream investment products and intends
to continue to do so for the foreseeable future. The
shares are excluded from the FCA’s restrictions which
apply to non-mainstream investment products
because they are shares in an investment trust.
Shareholder Information continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the eleventh ANNUAL GENERAL MEETING of The Diverse Income Trust plc
will be held on Tuesday, 18 October 2022 at 11.30 am at the offices of Stephenson Harwood LLP, 1 Finsbury
Circus, London EC2M 7SH to consider and vote on the Resolutions below.
Resolutions 1 to 11 (inclusive) will be proposed as Ordinary Resolutions and Resolutions 12 to 14 (inclusive) will
be proposed as Special Resolutions.
Resolution on
form of proxy
1 To receive and adopt the Strategic Report, Reports of the Directors and Auditor and the audited financial
statements for the year ended 31 May 2022.
Resolution 1
2 To receive and approve the Directors’ Remuneration Report for the year ended 31 May 2022. Resolution 2
3 To re-elect Mr Bell as a Director of the Company. Resolution 3
4 To elect Mr Crole as a Director of the Company. Resolution 4
5 To re-elect Ms Kemsley-Pein as a Director of the Company. Resolution 5
6 To re-elect Ms McGrade as a Director of the Company. Resolution 6
7 To re-elect Mr Thomson as a Director of the Company. Resolution 7
8 To re-appoint BDO LLP as the Auditor of the Company to hold office from the conclusion of the meeting until
the conclusion of the next meeting at which financial statements are laid before the Company.
Resolution 8
9 To authorise the Audit Committee to determine the remuneration of the Auditor of the Company. Resolution 9
10 To declare a final dividend of 1.20p per ordinary share for the year ended 31 May 2022. Resolution 10
11 THAT:
The Directors be and are hereby generally and unconditionally authorised in accordance with Section 551
of the Companies Act 2006 (“the Act”) to exercise all the powers of the Company to allot ordinary shares
of 0.1pence each in the capital of the Company (“ordinary shares”) up to an aggregate nominal amount of
£35,587 (being approximately 10% of the issued ordinary share capital of the Company at the date of this
Notice) during the period commencing on the date of the passing of this Resolution and expiring at the
conclusion of the Annual General Meeting of the Company to be held in 2023 (unless previously renewed,
varied or revoked by the Company in general meeting) (the “Section 551 period”), but so that the Company
may, at any time prior to the expiry of the Section 551 period, make offers or agreements which would or might
require ordinary shares to be allotted after the expiry of the Section 551 period and the Directors may allot
ordinary shares in pursuance of such offers or agreements as if the authority had not expired.
Resolution 11
12 THAT:
Subject to the passing of Resolution 11, the Directors be and they are hereby empowered, in accordance with
Sections 570 and 573 of the Companies Act 2006 (“the Act”), to allot ordinary shares of 0.1 pence each in the
capital of the Company (“ordinary shares”) for cash pursuant to the authority conferred on the Directors by
Resolution 12 above, and to sell ordinary shares from treasury for cash as if Section 561(1) of the Act did not
apply to any such allotment or sale, up to an aggregate nominal amount of £35,587 (being approximately
10% of the issued ordinary share capital of the Company at the date of this Notice), such power to expire at
the conclusion of the Annual General Meeting of the Company to be held in 2023 (unless previously renewed,
varied or revoked by the Company in general meeting) save that the Company may, at any time prior to
the expiry of such power, make an offer or enter into an agreement which would or might require ordinary
shares to be allotted or sold after the expiry of such power and the Directors may allot or sell ordinary shares in
pursuance of such an offer or agreement as if such power had not expired.
Resolution 12
This document is important and requires your immediate attention. If you are in any doubt as to the
action you should take, you are recommended to seek your own financial advice from your stockbroker
or other independent adviser authorised under the Financial Service and Markets Act 2000 immediately.
If you have sold or otherwise transferred all of your shares in The Diverse Income Trust plc (the “Company”),
please forward this document as soon as possible to the purchaser or transferee or to the stockbroker,
bank or other agent through whom the sale or transfer was effected for transmission to the purchaser
ortransferee.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Resolution on
form of proxy
13 THAT:
The Company is hereby generally and unconditionally authorised in accordance with Section 701 of the Act
to make market purchases (within the meaning of Section 693(4) of the Companies Act 2006 (“the Act”)) of
ordinary shares of 0.1p each in the capital of the Company (“ordinary shares”) provided that:
a) the maximum number of ordinary shares hereby authorised to be purchased is 53,345,009 (representing
14.99% of the ordinary shares in issue at the date of this Notice);
b) the minimum price which may be paid for each ordinary share is 0.1p;
c) the maximum price which may be paid for each ordinary share shall not be more than the higher of: (i) an
amount equal to 105% of the average of the middle market quotations of ordinary shares taken from the
Daily Official List of the London Stock Exchange for the five business days immediately preceding the day
on which the contract of purchase is made; and (ii) the higher of the price of the last independent trade in
the ordinary shares and the highest then current independent bid for the ordinary shares on the London
Stock Exchange;
d) this authority will (unless previously renewed, varied or revoked by the Company in general meeting)
expire at the conclusion of the Annual General Meeting of the Company to be held in 2023;
e) the Company may make a contract of purchase for ordinary shares under this authority before this
authority expires which will or may be executed wholly or partly after its expiration; and
f) any ordinary shares bought back under the authority hereby granted may, at the discretion of the
Directors, be cancelled or held in treasury and if held in treasury, may be resold from treasury or cancelled
at the discretion of the Directors.
Resolution 13
14 THAT:
A general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice.
Resolution 14
By order of the Board
Link Alternative Fund Administrators Limited, Secretary
Registered Office: Beaufort House, 51 New North Road, Exeter EX4 4EP
8 August 2022
Notice of Annual General Meeting continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Explanatory Notes to the Notice of Meeting
As a shareholder, you have the right to attend, speak and vote at the forthcoming AGM or at any
adjournment(s) thereof. In order to exercise all or any of these rights, you should read the following
explanatory notes to the business of the AGM.
Note 1: To be entitled to attend and vote at the meeting (and for the purpose of the determination by the Company
of the number of votes they may cast) members must be entered on the Company’s register of members at
close of business on 16 October 2022 (or in the event that the meeting is adjourned, only those shareholders
registered on the register of members of the Company as at close of business on the day which is 48 hours prior
to the adjourned meeting). Changes to entries on the register of members after that time shall be disregarded
in determining the rights of any person to attend or vote at the meeting. A member present in person or by
proxy shall have one vote on a show of hands and on a poll every member present in person or by proxy shall
have one vote for every share of which he/she is the holder.
Any question relevant to the business of the AGM may be asked at the meeting by anyone permitted to speak
at the meeting. You may alternatively submit your question in advance by letter addressed to the Secretary at
the registered office.
Note 2: A member entitled to attend and vote at this meeting may appoint one or more persons as his/her proxy to
attend, speak and vote on his/her behalf at the meeting. A proxy need not be a member of the Company. To be
validly appointed, a proxy must be appointed using the procedures set out in these notes and in the notes to
any hard copy form of proxy (if applicable).
A member may appoint more than one proxy in relation to the AGM provided that each proxy is appointed to
exercise the rights attached to different shares held by that member. A member may not appoint more than
one proxy to exercise rights attached to any one share.
A member may instruct their proxy to abstain from voting on any resolution to be considered at the AGM by
marking the ‘Vote Withheld’ option when appointing their proxy. A vote withheld is not a vote in law, which
means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting
indication is given, your proxy will vote or abstain from voting at his or her discretion.
The appointment of a proxy will not prevent a member from attending the AGM and voting in person if he/she
so wishes. If you have appointed a proxy and vote at the AGM in person in respect of shares for which you have
appointed a proxy, your proxy appointment in respect of those shares will automatically be terminated.
In order for a proxy appointment to be valid, your appointment must be received no later than 11.30 am on
14 October 2022 (being 48 hours prior to the meeting excluding non-working days).
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Note 3: Members may appoint a proxy online at www.signalshares.com (the “Website”) by following the on-screen
instructions, in particular at the ‘Proxy Voting’ link, by no later than the deadline set out in note 2 above. In order
to appoint a proxy using the Website, members will need to log into their Signal Shares account or register
if they have not previously done so. To register, members will need to identify themselves with their Investor
Code, which is detailed on their share certificate or available from the Company’s Registrar, Link Group, on
03716640300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at the applicable international rate. Lines are open between 9.00am and
5.30pm, Monday to Friday, excluding public holidays in England and Wales.
Note 4: You may request a hard copy form of proxy directly from the Registrar, Link Group, on Tel: 0371 664 0300 or by
emailing shareholderenquiries@linkgroup.co.uk.
To be effective, the completed and signed form of proxy must be lodged at the offices of Link Group, PXS1,
Central Square, 29 Wellington Street, Leeds, LS1 4DL (together with any power of attorney or other authority
under which it is signed or a notarially certified copy of such power or authority) by no later than the deadline
set out in note 2 above. Alternatively, you may send any document or information relating to proxies to the
electronic address indicated on the form of proxy.
To appoint more than one proxy using a hard copy form of proxy, you may photocopy the form of proxy. Please
indicate the proxy holder’s name and the number of shares in relation to which they are authorised to act as
your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the
proxy instruction is one of multiple instructions being given. If possible, all forms should be returned together in
the same envelope.
Note 5: CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment
service may do so for this meeting by following the procedures described in the CREST Manual. CREST personal
members or other CREST sponsored members, and those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST
message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear’s
specifications and must contain the information required for such instructions, as described in the CREST
Manual. The message, in order to be valid, must be transmitted so as to be received by the Company’s agent ID
RA10 by the latest time for receipt of proxy appointments specified in note 2 above. For this purpose, the time
of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST
Applications Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
Euroclear does not make available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member
or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST members and, where applicable, their
CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.
Notice of Annual General Meeting continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Note 6: In the case of joint holders of a share, where more than one of the joint holders purports to appoint a proxy
(in hard copy, by electronic means or through CREST), the vote of the senior holder who tenders a vote shall
be accepted to the exclusion of the vote or votes of the other joint holder or holders, and seniority shall be
determined by the order in which the names of the holders stand in the register. For a proxy appointment
submitted by hard copy, the signature of only one of the joint holders is required on the form of proxy.
Note 7: To change your proxy instructions, simply submit a new proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy appointments (see note 2) also applies in relation to amended
instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded.
If you submit more than one valid proxy appointment in respect of the same shares, the appointment received
last before the latest time for the receipt of proxies will take precedence.
Note 8: In order to revoke a proxy instruction, you will need to inform the Company by sending a signed notice clearly
stating your intention to revoke your proxy appointment to Link Group, 10
th
Floor, Central Square, 29 Wellington
Street, Leeds, LS1 4DL. In the case of a member that is a company, the revocation notice must be executed
under its common seal or signed on its behalf by an officer of the company or a duly appointed attorney for
the company. Any power of attorney or any other authority under which the revocation notice is signed (or a
duly certified copy of such power or authority) must be included with the revocation notice. The revocation
notice must be received by Link Group no later than 11.30am on 14 October 2022. If you attempt to revoke your
proxy appointment but the revocation is received after the time specified, then your proxy appointment will
remain valid.
Note 9: A person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006
(“the Act”) to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her
and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else
appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right or does not wish
to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to
the exercise of voting rights.
The statements of the rights of members in relation to the appointment of proxies in note 2 above do not apply
to a Nominated Person. The rights described in this note can only be exercised by registered members of the
Company.
Note 10: As at 2 August 2022 (being the latest practicable day prior to the publication of this notice), the Company’s
issued share capital consisted of 50,000 non-voting management shares and 355,870,647 ordinary shares,
carrying one vote each, none of which were held in treasury. Therefore, the total number of voting rights
amounted to 355,870,647 votes.
Note 11: Any corporation which is a member may appoint one or more corporate representatives who may exercise on
its behalf all of its powers as a member provided that they do not do so in relation to the same shares. To be able
to attend and vote at the meeting, corporate representatives will be required to produce prior to their entry to
the meeting evidence satisfactory to the Company of their appointment.
Note 12: Shareholders should note that it is possible that, pursuant to requests made by shareholders of the Company
under Section 527 of the Act, the Company may be required to publish on a website a statement setting out
any matter relating to: (i) the audit of the Company’s accounts (including the Auditor’s report and the conduct
of the audit) that are to be laid before the AGM; or (ii) any circumstances connected with an auditor of the
Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in
accordance with Section 437 of the Act. The Company may not require the shareholders requesting any such
website publication to pay its expenses in complying with Sections 527 or 528 of the Act. Where the Company
is required to place a statement on a website under Section 527 of the Act, it must forward the statement to the
Company’s Auditor not later than the time when it makes the statement available on the website. The business
which may be dealt with at the AGM includes any statement that the Company has been required under
Section 527 of the Act to publish on a website.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Note 13: In accordance with Section 319A of the Act, the Company must cause any question relating to the business
being dealt with at the meeting put by a member attending the meeting to be answered. No such answer
need be given if:
a) to do so would:
(i) interfere unduly with the preparation for the meeting; or
(ii) involve the disclosure of confidential information;
b) the answer has already been given on a website in the form of an answer to a question; or
c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
As there is a possibility that shareholders will not be permitted to attend the meeting in person due to Government
guidance, and to ensure that the meeting is conducted as efficiently as possible, shareholders are encouraged to
submit any questions in advance of the meeting via email, as detailed in note 1.
Note 14: Members satisfying the thresholds in Section 338 of the Act may require the Company to give, to members of
the Company entitled to receive notice of the AGM, notice of a resolution which those members intend to move
(and which may properly be moved) at the AGM. A resolution may properly be moved at the Annual General
Meeting unless (i) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment
or the Company’s constitution or otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or vexatious.
A request made pursuant to this right may be in hard copy or electronic form, must identify the resolution of
which notice is to be given, must be authenticated by the person(s) making it and must be received by the
Company not later than six weeks before the date of the AGM.
Note 15: Members satisfying the thresholds in Section 338A of the Act may request the Company to include in the
business to be dealt with at the AGM any matter (other than a proposed resolution) which may properly be
included in the business at the AGM. A matter may properly be included in the business at the AGM unless (i)
it is defamatory of any person or (ii) it is frivolous or vexatious. A request made pursuant to this right may be in
hard copy or electronic form, must identify grounds for the request, must be authenticated by the person(s)
making it and must be received by the Company not later than six weeks before the date of the AGM.
Note 16: The Annual Report incorporating this Notice of AGM and, if applicable, any members’ statements, members’
resolutions or members’ matters of business received by the Company after the dates of this Notice will be
available on the Company’s website, www.diverseincometrust.com.
Note 17: None of the Directors has a contract of service with the Company. A copy of the letters of appointment of the
Directors will be available for inspection at the registered office of the Company and can be requested from
the Company Secretary during usual business hours on any weekday (except weekends and public holidays)
until the date of the meeting and at the place of the meeting for a period of fifteen minutes prior to and during
themeeting.
Note 18: You may not use any electronic address provided in this Notice to communicate with the Company for any
purposes other than those expressly stated.
Notice of Annual General Meeting continued
|
The Diverse Income Trust plc
|
Annual Report 2022
Alternative Investment Fund Managers’ Directive Disclosures
Alternative Investment Fund Managers’
DirectiveDisclosures
The provisions of the Alternative Investment
Fund Managers Directive (‘AIFMD’) took effect on
22 July2014. That legislation requires the AIFM to
establish and maintain remuneration policies for its
staff which are consistent with and promote sound
and effective risk management.
Pre-Investment Disclosures
The AIFM is required to make certain disclosures
available to investors in accordance with the
AIFMD. Those disclosures that are required
to be made pre-investment can be found at
www.diverseincometrust.com/documents.
AIFMD Leverage Limits
The maximum level of leverage which the Manager
may employ on behalf of the Company and the
levels as at 31 May 2022 are set out below. A figure
of 100% means that the exposure is equal to the net
asset value and the AIF has noleverage.
Leverage
exposure
Maximum gross
leverage
Maximum
commitment
Maximum Level 200% 200%
Actual Level 100% 100%
Remuneration Disclosure
Premier Portfolio Managers Limited (the ‘AIFM’) is
part of a larger group of companies within which
remuneration policies are the responsibility of a
Remuneration Committee comprised entirely
of non-executive directors. That committee has
established a remuneration policy which sets out
a framework for determining the level of fixed and
variable remuneration of staff, including maintaining
an appropriate balance between thetwo.
Arrangements for variable remuneration within the
group are calculated primarily by reference to the
performance of each individual and the profitability
of the relevant business unit. The policies are
designed to reward long-term performance and
long term profitability.
Within the group, all staff are employed by the
parent company with none employed directly by
the AIFM. The costs of a number of individuals are
allocated between the entities within the group
based on the expected amount of time devoted
toeach.
The total remuneration of those individuals who
are fully or partly involved in the activities of the
AIFs, including those whose time is allocated
between group entities, for the financial year ending
30 September 2021, is analysed below:
Fixed Remuneration £3,831,752
Variable Remuneration £2,270,527
Total £6,102,279
Weighted FTE Headcount: 50.
12 of the staff members included in the total
remuneration figures above are considered to
be senior management or others whose actions
may have a material impact on the risk profile of
the fund. The table below provides an alternative
analysis of the remuneration data.
Aggregate remuneration of:
Senior management £83,439
Staff whose actions may have a
material impact on the funds £1,766,180
Other £4,252,660
Total £6,102,279
The staff members included in the above analysis
support all the funds managed by the AIFM. It is
not considered feasible or useful to attempt to
apportion these figures to individual funds. The
management has reviewed the general principles of
the Remuneration Policy and its application in the
last year which has resulted in no material changes
to the Policy.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
AIC
The Association of Investment Companies.
AIM
The Alternative Investment Market is a sub-market
of the London Stock Exchange. It allows
smaller companies to float shares with a more flexible
regulatory system than applicable to the main market.
Alternative Performance Measure (“APM”)
An APM is a numerical measure of the Company’s
current, historical or future financial performance,
financial position or cash flows, other than a
financial measure defined or specified in the
applicable financial framework.
The Company uses a number of APMs to provide
information in order to assist the Board and
Manager in monitoring the Company in order
for them to meet the objectives of the Company
including the management of risk. These consist
of, but are not limited to, key performance and
financial performance indicators set out in the
various relevant parts of the Report.
Annual General Meeting (“AGM”)
All public companies have an AGM every year,
and this is the opportunity for the shareholders to
confirm their approval of the Annual Report and
financial statements, the annual dividend and
the appointment of the Directors and Auditor. It
is also a good time for shareholders to meet the
non-executive Directors. The Company’s AGM will
be held on Tuesday, 18 October 2022 at 11.30am
at the offices of Stephenson Harwood LLP, 1
Finsbury Circus, London EC2M 7SH. One of the fund
managers will give shareholders a presentation on
the current position of the Company’s portfolio and
some thoughts on the market outlook.
AQUIS Stock Exchange (“AQUIS”)
The AQUIS Stock Exchange (previously known as
NEX, ICAP Securities and Derivatives Exchange
or ISDX) operates two primary traded market
segments, the AQUIS Stock Exchange Main Market
and the AQUIS Stock Exchange Growth Market.
Both AQUIS Stock Exchanges are focused on smaller
enterprises, with the latter focused on both smaller
and medium-sized enterprises.
Discount/Premium
If the share price of an investment trust is lower than
the NAV per share, the shares are said to be trading
at a discount. The size of the discount is calculated by
subtracting the share price from the NAV per share
and is usually expressed as a percentage of the NAV
per share. If the share price is higher than the NAV
per share, this situation is called a premium.
Premium/(Discount)
Calculation Page
31 May
2022
31 May
2021
Closing NAV per share (p) 4 110.55 118.31 (a)
Closing share price (p) 4 103.00 119.00 (b)
Premium/(discount)
(c = ((b – a)/a) × 100) (%) 4 (6.83) 0.58 (c)
The discount/premium and performance is
calculated in accordance with guidelines issued by
the AIC. The discount/premium is calculated using
the NAV per share inclusive of accrued income with
debt at market value.
Dividend Yield
The annual dividend expressed as a percentage of
the mid market share price. This financial ratio shows
how much an investment pays out in dividends
relative to its stock price. The dividends are based
upon historic dividend rates and announcements
by the investment company. The dividend yield
indicates the anticipated future cashflows from the
investment contributing to the income of the Group.
Financial Conduct Authority (“FCA”)
This regulator oversees the fund management
industry, including the operation of the Company.
Financial Reporting Council (“FRC”)
The FRC regulates UK auditors and provides
guidance to accountants with the aim of promoting
better transparency and integrity in the annual
reports of quoted businesses.
Glossary
|
The Diverse Income Trust plc
|
Annual Report 2022
FTSE 100 Put Option
A FTSE 100 Put Option is a type of derivative
contract in which the underlying value is based on
the level of the FTSE 100 index. When the Trust’s
portfolio appreciates, along with the mainstream
Stock Market, the value of the Put Option tends
to become worthless over its term (which in the
case of the Trust currently extends to December
2022). The key advantage of investing in a FTSE
100 Put Option is that at times of major market
setbacks, the valuation of the Put Option rises,
which can then offset a part of the decline of other
portfolio holdings. During the March 2020 setback
for example, the Trust was able to take profits on
its FTSE Puts after they had risen. It then bought
more UK micro-caps with the additional cash, at a
time when their share prices were low. This process
boosted the returns of the Trust through the market
setback and the subsequent recovery.
Gearing
Gearing refers to the ratio of the Company’s debt to
its equity capital. The Company may borrow money
to invest in additional investments for its portfolio. If
the Company’s assets grow, the shareholders’ assets
grow proportionately because the debt remains the
same. If the value of the Company’s assets falls, the
situation is reversed. Gearing can therefore enhance
performance in rising markets but can adversely
impact performance in falling markets.
Group
The Company and its subsidiary; DIT Income
Services Limited.
Growth Stock
A stock where the earnings are expected to grow
at an above-average rate, leading to a faster than
average growing share price. Growth stocks do not
usually pay a significant dividend.
Key Performance Indicators (“KPIs”)
KPIs are a short list of corporate attributes that are
used to assess the general progress of the business
and are outlined in this Report on the inside
frontcover.
Net Asset Value per Ordinary Share (“NAV”)
The NAV is shareholders’ funds expressed as an
amount per individual share. Shareholders’ funds are
the total value of all of the Company’s assets, at their
current market value, having deducted all liabilities
and prior charges at their par value, or at their asset
value as appropriate. The total NAV per share is
calculated by dividing the NAV by the number of
ordinary shares in issue excluding treasury shares.
The calculation is set out in Note 11 on page 76.
Numis Indices
The Numis Indices mentioned in this
report comprise the following:
Numis All-Share Index comprises all fully
listed companies on the main UK equity market.
Numis Large Cap Index contains all the stocks that
make up the largest 80% by market value of the UK
fully listed equity market.
Numis Smaller Companies + AIM ex Investment
Companies Index covers the smallest 10% by
market value of the UK fully listed equity market,
plus AIM stocks that meet this size limit. It excludes
investment companies.
Numis 1000 Index contains all the stocks that make
up the smallest 2% by value of the UK fully listed
equity market. It excludes investment companies.
Ongoing Charges
As recommended by the AIC in its guidance,
ongoing charges are the Company’s annualised
revenue and capital 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. Please refer to page 15
for details on the ongoing chargescalculation.
Peer Group
Diverse is part of the AIC’s UK Equity Income
Investment Trust sector. The trusts in this universe
are defined as trusts whose investment objective is
to achieve a total return for shareholders through
both capital and dividend growth. Typically, the
funds will have a yield on the underlying portfolio
ranging between 110% and 175% of that of the Numis
All-Share Index. They will also have at least 80% of
their assets in UK listed securities.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Put Option
Put Options are most commonly used in the
stock market to protect against the decline of the
price of a stock below a specified price likened to
purchasing a form of financial insurance. An owner
of a Put Option can collect a financial benefit after
an adverse event, with the scale of the benefit
proportionate to the setback in the market and the
remaining term of the cover.
Revenue, Capital and Total return per
Ordinaryshare
The Revenue, Capital and Total returns are set out
in the in the Consolidated Income Statement on
page 59. These consist of income, less expenses and
taxation allocated between Revenue and Capital
in accordance with the AIC SORP and accounting
policies of the Group. The Revenue and Capital
returns per share together comprise the Total
return per share. The returns per ordinary share are
calculated by dividing the Revenue, Capital and
Total returns by the weighted average shares in
issue during the year excluding treasury shares. The
calculation is set out in Note 7 on page 72.
Senior Independent Director (“SID”)
The SID is a non-executive Director who can be
contacted by investors to discuss a matter of
governance when it concerns the Chairman and the
normal practice cannot be followed. The Company’s
SID is currently Calum Thomson.
SONIA (Interest Rate)
Sterling Overnight Index Average
Strike Price
When investing in a FTSE 100 Put Option, the
Strike price is the level at which the option starts
to provide portfolio protection. If a Put Option has
a Strike price of 5,700 for example, and the level of
the FTSE 100 Index is lower, the portfolio collects
the difference between the two. A Put Option also
carries value in respect of its unexpired time value,
reflecting the length of its term.
Total Assets
Total assets include investments, cash, current
assets and all other assets. An asset is an economic
resource, being anything tangible or intangible that
can be owned or controlled to produce value and to
produce positive economic value. Assets represent
the value of ownership that can be converted
into cash. The total assets less all liabilities will be
equivalent to total shareholders’ funds.
Total Return – NAV and Share Price Returns
Total return statistics enable the investor to make
performance comparisons between investment
trusts with different dividend policies. The total return
measures the combined effect of any dividends paid,
together with the rise or fall in the share price or NAV.
This is calculated by the movement in the share
price or NAV plus dividend income reinvested by the
Company at the prevailing NAV.
Glossary continued
|
The Diverse Income Trust plc
|
Annual Report 2022
NAV Total Return Page
31 May
2022
31 May
2021
Closing NAV per share (p) 4 110.55 118.31
Add back total dividends
paid in the year ended
31 May 2022 (2021) (p) 73 3.80 3.70
Adjusted closing NAV (p) 114.35 122.01 (a)
Opening NAV per share (p) 4 118.31 88.82 (b)
NAV total return unadjusted
(c = ((a – b)/b) × 100) (%) (3.35) 37.40 (c)
NAV total return adjusted %* (3.41) 38.40
Share Price Total Return Page
31 May
2022
31 May
2021
Closing share price (p) 4 103.00 119.00
Add back total dividends
paid in the year ended
31 May 2022 (2021) (p) 73 3.80 3.70
Adjusted closing share
price (p) 106.80 122.70 (a)
Opening share price (p) 4 119.00 84.00 (b)
Share price total
return unadjusted
(c = ((a – b)/b) × 100) (%) (10.25) 46.10 (c)
Share price total return
adjusted %* (10.53) 47.60
* Based on NAV/share price movements and dividends being reinvested at the
relevant cum dividend NAV/share price during the year. Where the dividend
is invested and the NAV/share price falls, this will further reduce the return
or, if it rises, any increase will be greater. The source is Morningstar who have
calculated the return on an industry comparative basis.
Volatility
The term volatility describes how much and how
quickly the share price or net asset value of an
investment has tended to change in the past. Those
investments with the greatest movement in their
share prices are known as having high volatility,
whereas those with a narrow range of change are
known as having low volatility.
Yield Stock
Yield stocks pay above-average dividends to
shareholders. If the dividend grows, and the yield
on the share remains constant, the share price will
increase. Companies which grow their dividends
faster than average are capable of delivering faster
share price growth.
The
Company
Strategic
Report Governance
Company
and Group
Accounts
Shareholder
Information
Annual Report 2022
|
The Diverse Income Trust plc
|
Secretary and Registered Office
Link Alternative Fund Administrators Limited
(trading as Link Group)
Telephone: 01392 477500
Alternative Investment Fund Manager or Manager
Premier Portfolio Managers Limited
Eastgate Court
High Street
Guildford
Surrey GU1 3DE
Telephone: 020 3714 1525
Website: www.premiermiton.com
Company Website
www.diverseincometrust.com
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Banker
Bank of New York Mellon
One Piccadilly Gardens
Manchester M1 1RN
Depositary and Custodian
The Bank of New York Mellon (International) Limited
One Canada Square
London E14 5AL
Registrar and Transfer Office
Link Group
Shareholder Services Department
10
th
Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Telephone: 0371 664 0300
(calls are charged at the standard geographic rate
and will vary by provider; calls from outside theUK
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: shareholderenquiries@linkgroup.co.uk
Website: www.linkgroup.eu
Solicitor
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Stockbroker
Panmure Gordon
One New Change
London EC4M 9AF
Shareholder Warning
Many companies are aware that their shareholders have received unsolicited phone calls or correspondence
concerning investment matters. These calls typically come from fraudsters operating in ‘boiler rooms’ offering
investors shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. While
high profits are promised, those who buy or sell shares in this way usually lose their money. These fraudsters can
be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited
advice, offers to buy shares at a discount or offers of free company reports.
It is very unlikely that either the Company or the Company’s Registrar would make unsolicited telephone calls to
shareholders and that any such calls would relate only to official documentation already circulated to shareholders
and never in respect of investment ‘advice’.
If you have been contacted by an unauthorised firm regarding your shares, you can report this using the FCA
helpline on 0800 111 6768 or by using the share fraud reporting form at www.fca.org.uk/consumers/scams.
Contact Details of the Advisers
|
The Diverse Income Trust plc
|
Annual Report 2022
Eastgate Court
High Street
Guildford
Surrey GU1 3DE
-50
250
0
100
Diverse Income
Trust NAV
Total Return
UK Equity
Income Sector
Diverse Income
Trust Share Price
Total Return
Company performance since launch on 28 April 2011
Apr 2011
May 2012
May 2013
May 2014
May 2015
May 2016
May 2017
May 2018
May 2019
May 2022
May 2021
May 2020
150
200
50
Percentage change
Total return for the year to 31 May 2022
The Diverse Income Trust NAV Total Return -3.41%
Numis All-Share Total Return +4.74%
Source: Morningstar including dividend income reinvested.
Total return since launch on 28 April 2011
The Diverse Income Trust NAV Total Return 228.11%
Numis All-Share Total Return 90.22%
Source: Morningstar including dividend income reinvested.
Source: Morningstar including dividend income reinvested.