18 Nov 2011 17:44
CHELVERTON GROWTH TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2011
The full Annual Report and Accounts can be accessed via the Company's website at www.chelvertonam.com or by contacting the Company Secretary on telephone 01392 412122.
Investment objective
The Company's objective is to provide capital growth through investment incompanies listed on the Official List and traded on the Alternative InvestmentMarket with a market capitalisation at the time of investment of up to £50million, which are believed to be at a "point of change". The Company will alsoinvest in unquoted investments where it is believed that there is a likelihoodof the shares becoming listed or traded on the Alternative Investment Market orthe investee company being sold. Its investment objective is to increase netasset value per share at a higher rate than other quoted smaller company trustsand the FTSE All-Share Index.
It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).
Company summaryBenchmark FTSE All-Share Index Investment Manager Chelverton Asset Management Limited. Total net assets £4,049,000 as at 31 August 2011 Market capitalisation £2,911,000 as at 31 August 2011 Capital structure 13,233,344 Ordinary 1p shares carrying one vote each. There are no shares held in Treasury. ISA status The Company's Ordinary shares are fully eligible for inclusion in ISAs. Performance statistics Year ended Year ended 31 August 31 August 2011 2010 % change Net assets £4,049,000 £3,630,000 11.54 Net asset value per share 30.60p 24.66p 24.09 FTSE All-Share Index 2,800.51 2,696.72 3.85 Share price 22.00p 17.25p 27.54 Discount to net asset 28.10% 30.05% value Revenue loss after £69,000 £75,000 taxation Revenue loss per share 0.50p 0.50p Capital gain per share 6.42p 5.62p Chairman's statement
I am pleased to announce another year of progress, albeit that much of the increase in value that we are reporting on here has already been recognised at the interim stage.
The Company's net asset value per share has increased this year from 24.66p to30.60p - an increase of 24.09%. In the same period the Company's benchmarkindex, the FTSE All-Share, rose by 3.85%; the FTSE 100 rose by 3.24%; and theAIM Index rose by 11.75 %. Since the year end the net asset value per share hasmarginally increased to 30.81p, a rise of 0.69%.The year was again defined by the continuing fall out from the credit crunchand banking crisis of 2008/09 and the attempts by the Government to slow thecontinuing increase in public debt. A new form of financial crisis is nowevident as a consequence of the creation of the euro which is threatening thefinancial stability of the Eurozone and as a result impacting on manycountries. The "Arab Spring" which swept through the Middle East and remainsongoing with the military campaign in Libya has, as yet, been of littleeconomic consequence.
In the UK the Government is coming under pressure to "ease back" on their programme of controlling and then reducing public expenditure with the opponents' rallying cry of "too deep and too fast" becoming louder. However
against a backcloth of debt expected to peak in 2015/16 this currently seems ahollow cry. Until there is a more appropriate balance between the public andprivate sectors there will be no progress in national wealth creation.In the portfolio almost all the companies have made progress over the past yearwhich in the current tough environment is to be commended. With record lowinterest rates, and inflation expected to fall sharply next year, real returnsand real growth will be hard won. This tough marketplace will lead to a furthercontraction in supply which should, for the survivors, provide greateropportunities in the future. Although the immediate economic outlook remainsuncertain, we expect the domestic economy to gradually improve over the nextfew years, thus creating an environment more conducive to UK small companyperformance.Given the increase in the asset value and with no bank debt the Board feel thatit is in the best interest of all shareholders to proceed with a tender offeragain this year. It remains our intention to repeat this process each year solong as circumstances warrant it. This year we also intend to offershareholders with holdings of less than 4,000 shares the opportunity to disposeof their entire holding.George StevensChairman18 November 2011
Investment Manager's overview
Increasing concerns over the macro environment and downgrades to global growthrates have dominated headlines and led to the recent stockmarket falls. Inparticular, fears over a Greek debt default and the implications for theEuropean banking system have served to increase risk premiums significantly.Although `top down' forecasts have been under pressure for some time it is onlyin the last few months that we have seen `bottom up' earnings estimates beingreduced, and this has added another layer of uncertainty and provided more fuelto the bear arguments.We have consistently highlighted the strong correlation between a healthydomestic economy and the relative performance of UK smaller companies. In lightof the current slowdown and the reduced risk attitude of domestic investors itis fair to assume, as we look forward, that we will face some strong headwindsas we try to grow the portfolio over the next year. However it is reassuring tonote that Corporate UK is still forecast to grow profitability in aggregateover the next couple of years and Company balance sheets are substantially morerobust than they were at the time of the crash in 2008.
Portfolio review
The year has seen small disposals in PSG Solutions and has otherwise been one of gently adding to existing undervalued holdings; AI Claims, CEPS and One Horizon Group (formerly Satcom).
In May PSG Solutions announced that one of their subsidiaries had won agovernment contract for £11m and by August this was increased to £48m,representing some four times its historical turnover as a group. Having turneddown a tender offer a year earlier from the management at 17.125p per share wesold a quarter of the holding at 120p per share and have recently participatedin a tender offer by the company to buy 5% of the outstanding shares at 200pper share. As the share price at the time was 76p we tendered our entireholding obviously along with everyone else and consequently only just over 5%of our holding was acquired. The implication however is that the Board considera price of 200p per share is a reasonable target price.Belgravium Technologies has seen its share price rise from 2.5p to 7.5p reflectingits return to profits growth and the fact that it has repaid all of the acquisitiondebt it took on four years ago. As a highly operationally geared company asmall increase in sales will lead to a disproportionate increase in profits.
In the unquoted investments we have made a provision against our holding in Closed Loop Recycling and consequent to its continuing growth increased the valuation of the investment in Parmenion Capital Partners.
Outlook
We continue to believe that we are invested in a portfolio of undervaluedassets but realise that we will need a more benign macro environment to prosperover the next twelve months. We expect markets to remain volatile and we willcontinue to look to realise funds from holdings when their valuations are morereflective of medium term prospects and to reinvest into other stocks thatremain substantially undervalued.David HornerChelverton Asset Management Ltd18 November 2011Portfolio reviewas at 31 August 2011
The Company's portfolio as at 31 August 2011 is set out below.
Investment Sector Valuation % of £'000 total AIM traded AI Claims Solutions Non Life Insurance 570 14.1
The provision of non-fault accident management services
Alliance Pharma Pharmaceuticals & 264 6.5 Biotechnology
Acquisition of the manufacturing, sales and distribution rights to
pharmaceutical products Belgravium Technologies Technology Hardware & 312 7.7 Equipment
Software systems for warehousing and distribution
CEPS Support Services 260 6.4
Production and supply of components for the footwear industry; personal protection equipment; production of printed lycra fabric; and services to the direct mail industry Datong Electronics Electronic & Electrical 62 1.5 Equipment
Develops, manages and supplies covert tracking and surveillance systems
IDOX Software & Computer 1,153 28.4 Services Software company specialising in the development of products for document and information management LPA Group Electronic & Electrical 78 1.9 Equipment
Design, manufacture and marketing of industrial electrical accessories
MTI Wireless Edge Technology Hardware & 60 1.5 Equipment
Developer and manufacturer of sophisticated antennas and antenna systems
Northbridge Industrial Industrial Engineering 132 3.3Services
Consolidation vehicle for specialist industrial services in the UK Pennant International Group Software & Computer 118
2.9 Services
Supplier of technology solutions to the defence and industrial sectors
Petards Group Support Services 11 0.3
Development, provision and maintenance of advanced security systems and
related services PSG Solutions Support Services 114 2.8
Leading provider of Local Authority residential property searches; provision of packaging solutions and technical and technical surveillance
countermeasures components
Richoux Group Travel & Leisure 49 1.2
Owner and operator of Richoux Restaurants
Sanderson Group Software & Computer 99 2.4 Services
Provides software and IT services
Titan Europe Industrial Engineering 124 3.1 Manufacture of big wheels for construction, mining and agricultural vehicles Tristel Health Care Equipment & 160 3.9 Services
Healthcare business specialising in infection control in hospitals
Universe Group Support Services 10 0.2 Provision of credit card fraud prevention system, loyalty systems and retail systems Delisted Bakabo (formerly Forest Industrial Transportation 11 0.3Support Services)
(in members voluntary liquidation) Supply of traffic management services One Horizon Group (formerly Mobile Telecommunications 32
0.8Satcom Group)
Provider of mobile satellite communications equipment and airtime
Unquoted Closed Loop Recycling Support Services Loanstock 0 0.0 Ordinary B shares 0 0.0
Operation of a plastic recycling plant
Parmenion Capital Partners Support Services 436 10.8 LLP
Provides fund-based discretionary fund management services to Independent
Financial Advisors Portfolio valuation 4,055 100.0
The following companies in which the Company is invested are in liquidation oradministration and no value is applied to those holdings as no realisations areanticipated from the insolvency process.AT Communication GroupChromogenexGeneral CapitalMinorplanet SystemsTop twenty investments 31 August 2011 31 August 2010 Investment Valuation % of Valuation % of £'000 total £'000 total IDOX 1,153 28.4 596 16.6 AI Claims Solutions 570 14.1 479 13.3
Parmenion Capital Partners LLP 436 10.8 291
8.1 Belgravium Technologies 312 7.7 113 3.2 Alliance Pharma 264 6.5 345 9.6 CEPS 260 6.4 175 4.9 Tristel 160 3.9 188 5.3
Northbridge Industrial Services 132 3.3 85
2.4 Titan Europe 124 3.1 68 1.9 Pennant International Group 118 2.9 59 1.7 PSG Solutions 114 2.8 44 1.2 Sanderson Group 99 2.4 66 1.8 LPA Group 78 1.9 73 2.0 Datong Electronics 62 1.5 76 2.1 MTI Wireless Edge 60 1.5 84 2.4 Richoux Group 49 1.2 33 0.9 One Horizon Group 32 0.8 31 0.9 Bakabo 11 0.3 182 5.1 Petards Group 11 0.3 27 0.8 Universe Group 10 0.2 17 0.5 Total 4,055 100.0 3,032 84.7
Portfolio breakdown by sector and by index
Portfolio by Sector Percentage Software and Computer 33.7Services Support Services 20.5 Non Life Insurance 14.1 Technology Hardware & 9.2Equipment Pharmaceutical & 6.5Biotechnology Industrial Engineering 6.4 Health Care Equipment & 3.9Services Electronic & Electrical 3.4Equipment Travel & Leisure 1.2 Mobile 0.8Telecommunications Industrial 0.3Transportation
Percentage of Portfolio by Index
Portfolio by Index Percentage AIM 88.1 Unquoted 10.8 Delisted 1.1DirectorsGeorge Stevens (Chairman)Kevin AllenDavid Horner
Extracts from the Report of the Directors
The Directors present their report, which incorporates the Business Review, and audited accounts for the year ended 31 August 2011. The registered company number for Chelverton Growth Trust PLC is 2989519.
Status, objective and review
The principal activity of the Company is to carry on business as an investmenttrust. The Company has been granted approval from HM Revenue & Customs as anauthorised investment trust under Section 1158 of the Corporation Tax Act 2010for the year ended 31 August 2010. The Directors are of the opinion that theCompany has conducted its affairs for the year ended 31 August 2011 so as to beable to continue to be approved as an authorised investment trust under Section1158 of the Corporation Tax Act 2010. The Company is an investment company asdefined in Section 833 of the Companies Act 2006.
Investment objective
The Company's objective is to provide capital growth through investment incompanies listed on the Official List and traded on the Alternative InvestmentMarket with a market capitalisation at the time of investment of up to £50million, which are believed to be at a "point of change". The Company will alsoinvest in unquoted investments where it is believed that there is a likelihoodof the shares becoming listed or traded on the Alternative Investment Market orthe investee company being sold. Its investment objective is also to increasenet asset value per share at a higher rate than other quoted smaller companytrusts and the FTSE All-Share Index.
Investment policy
The Company invests principally in securities of publicly quoted UK companies, though it may invest in unquoted securities. The concentrated UK portfolio comprises between 20 to 35 securities. The performance of the Company's investments is compared to the FTSE All-Share Index.
The Company will also invest in unquoted investments where it is believed that there is a likelihood of the shares becoming listed or traded on the Alternative Investment Market or the investee company being sold.
It is the Company's policy not to invest in any listed investment companies or listed investment trusts.
To comply with Listing Rules the Company's investment policy is detailed above and should be read in conjunction with the subsequent sections entitled investment strategy and the performance analysis.
It is intended from time to time, when deemed appropriate, that the Company will borrow for investment purposes. The Company, however, does not currently have any borrowing facilities.
The investment objective and policy stated are intended to distinguish theCompany from other investment vehicles which have relatively narrow investmentobjectives and which are constrained in their decision making and assetallocation. The investment objective and policy allow the Company to beconstrained in its investment selection only by valuation and to be pragmaticin portfolio construction by only investing in securities which the InvestmentManager considers to be undervalued on an absolute basis. Portfolio risk ismanaged by investing in a diversified spread of investments.
Investment strategy
Investments are selected for the portfolio only after extensive research whichthe Investment Manager believes to be key. The whole process through whichequity must pass in order to be included in the portfolio is very rigorous.Only a security where the Investment Manager believes that the price will besignificantly higher in the future will pass the selection process. TheCompany's Investment Manager believes the key to successful stock selection isto identify the long-term value of a company's shares and to have the patienceto hold the shares until that value is appreciated by other investors.Identifying long term value involves detailed analysis of a company's earningprospects over a five year time horizon.The Company's Investment Manager is Chelverton Asset Management Limited, anindependent investment manager focusing exclusively on achieving returns forinvestors based on UK investment analysis of the highest quality. The foundersand employee owners of Chelverton include experienced investment professionalswith strong investment performance records who believe rigorous fundamentalresearch allied to patience is the basis of long term investment success.
The Chairman's statement and the Investment Manager's overview give details of the Company's activities during the year under review.
Performance analysis using key performance indicators
At each Board meeting, the Directors consider a number of performance measuresto assess the Company's success in achieving its objectives, for example: theNAV, the movement in the Company share price, the discount of the share pricein relation to the NAV and the total expenses ratio.
The Company's income statement is set out below.
The movement of the NAV is compared to the FTSE All-Share Index, the Company's benchmark. The NAV per Ordinary share at 31 August 2011 was 30.60p (2010: 24.66p).
The Company's share price at the year end was 22.00p (2010: 17.25p).
Principal risks
The Board considers the following as the principal risks facing the Company. Mitigation of these risks is sought and achieved in a number of ways:
Market risk
The Company is exposed to market risk due to fluctuations in the market prices of its investments.
The Investment Manager actively monitors economic and company performance andreports regularly to the Board on a formal and informal basis. The Boardformally meets with the Investment Manager quarterly when portfoliotransactions and performance are reviewed. The Management Engagement Committeemeets as required to review the performance of the Investment Manager. Furtherdetails regarding the Company's various Committees and their duties are givenin the statement on corporate governance.
The Company is substantially dependent on the services of the Investment Manager's investment team for the implementation of its investment policy.
The Company may hold a proportion of the portfolio in cash or cash equivalentinvestments from time to time. Whilst during positive stock market movementsthe portfolio may forego notional gains, during negative market movements thismay provide protection.Discount volatility
As with many investment trust companies, discounts can significantly fluctuate.
The Board recognises that it is in the long term interests of shareholders toreduce discount volatility and believes that the prime driver of discounts overthe longer term is performance. The Board does not intend to adopt a precisediscount target at which shares will be bought back. However Ordinary shareswill not be bought back for cancellation or into Treasury at a discount to
NAVof less than 7.5%.Regulatory risks
Relevant legislation and regulations which apply to the Company include theCompanies Act 2006, the Corporation Tax Act 2010 ("CTA") and the Listing Rulesof the Financial Services Authority ("FSA"). The Company has noted therecommendations of the Combined Code on Corporate Governance and its statementof compliance. A breach of the CTA could result in the Company losing itsstatus as an investment company and becoming subject to capital gains tax,whilst a breach of the Listing Rules might result in censure by the FSA. Ateach Board meeting the status of the Company is considered and discussed, so asto ensure that all regulations are being adhered to by the Company and itsservice providers.
The Board is not aware of any breaches of laws or regulations during the period under review and up to the date of this report.
Financial risk
The financial situation of the Company is reviewed in detail at each Board meeting. The content of the Company's annual report and accounts is monitored and approved both by the Board and the Audit Committee.
Inappropriate accounting policies or failure to comply with current or new accounting standards may lead to a breach of regulations.
Liquidity risk
The Board monitors the liquidity of the portfolio at each Board meeting and regularly reviews the investments with the Investment Manager.
A more detailed explanation of the investment management risks facing the Company are given in note 18 to the accounts.
Financial instruments
As part of its normal operations, the Company holds financial assets and financial liabilities. Full details of the role of financial instruments in the Company's operations are set out in note 18 to the accounts.
Current and future developments
A review of the main features of the year is contained in the Chairman's statement and the Investment Manager's overview above.
The marketing and promotion of the Company will continue to involve the Board,led by the Investment Manager, with a proactive communications programme eitherdirectly or through its website, with existing and potential new shareholdersand other external parties.The Directors are seeking to renew the appropriate powers at the next AnnualGeneral Meeting to enable the issue and purchase of its own shares, when it isin the interests of shareholders as a whole.
Social, environmental and employee issues
The Company does not have any employees and the Board consists entirely of non-executive directors. As the Company is an investment trust, which invests in other companies, it has no direct impact on the community or the environment, and as such has no policies in this area.
Results and dividend
The results for the year and the proposed transfer from revenue reserves are set out in the income statement.
The Directors do not recommend the payment of a dividend for the year.
Management and administration agreements
The Company's investments are managed by Chelverton Asset Management Limited ("CAM") under an agreement dated 28 June 2001.
The Company pays CAM, in respect of its services as Investment Manager, a monthly fee (exclusive of VAT) payable in arrears as follows:
(i) for the first £15 million of funds under management at the rate of 1 / 12 % per month of the gross value of funds under management ("the Value");
(ii) for the next £15 million of funds under management, at the rate of 1 / 16 % per month of the amount by which the Value exceeds £15 million; and
(iii) for funds under management above £30 million, at the rate of 1 / 24 % per month.
The appointment of CAM as Investment Manager may be terminated by either partygiving to the other not less than twelve months' notice of such termination.There are no specific provisions contained within the Investment ManagementAgreement relating to the compensation payable in the event of termination ofthe agreement other than entitlement to fees, which would be payable within anynotice period.Under an agreement dated 26 June 2001, company secretarial services and thegeneral administration of the Company are undertaken by Capita SinclairHenderson Limited for an annual fee of £47,115. This fee is subject to annualreview based on the UK Retail Price Index. In the event that there is anincrease in the issued share capital of the Company, the fee will be adjustedupwards by agreement between the Company and Capita Sinclair Henderson Limited.The agreement may be terminated by either party giving to the other not lessthan six months' notice at any time.
Appointment of Chelverton Asset Management ("CAM") as the Investment Manager
The Board continually reviews the performance of the Investment Manager. In theopinion of the independent Directors the continuing appointment of CAM, asInvestment Manager, on the terms outlined in the Investment ManagementAgreement dated 28 June 2001 and amended on 1 December 2006, is in the bestinterests of the shareholders as a whole. The reason for this view is that theinvestment performance of the Company is satisfactory having regard to theexceptional circumstances of the past couple of years. Further, the Board issatisfied that CAM has the required skill and expertise to continue to managethe Company's portfolio and charges fees that are reasonable when compared withthose of similar investment trusts.On behalf of the BoardGeorge StevensChairman18 November 2011
Statement of Directors' responsibilities in respect of the financial Statements
The Directors are responsible for preparing the Annual Report and the financialstatements and have elected to prepare them in accordance with applicableUnited Kingdom law and United Kingdom Accounting Standards (United KingdomGenerally Accepted Accounting Practice). Under company law the Directors mustnot approve the financial statements unless they are satisfied that they give atrue and fair view of the state of affairs of the Company and of its profit orloss for that period.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that aresufficient to show and explain the Company's transactions and disclose withreasonable accuracy, at any time, the financial position of the Company and toenable them to ensure that the financial statements comply with the CompaniesAct 2006. They are also responsible for safeguarding the assets of the Companyand hence for taking reasonable steps for the prevention and detection of fraudand other irregularities.
The Directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and
• the Chairman's statement, Investment Manager's overview and Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.
The Directors are responsible for the maintenance and integrity of the corporate and financial information related to the Company included on the website of the Investment Managers www.chelvertonam.com.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the BoardGeorge StevensChairman18 November 2011
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company'sstatutory accounts for the years ended 31 August 2011 and 2010 but is derivedfrom those accounts. Statutory accounts for 2010 have been delivered to theregistrar of companies, and those for 2011 will be delivered in due course. Theauditors have reported on those accounts; their report was (i) unqualified,(ii) did not include a reference to any matters to which the auditors drewattention by way of emphasis without qualifying their report and (ii) did notcontain a statement under Section 498 (2) or (3) of the Companies Act 2006. Thetext of the Auditor's report can be found in the Company's full Annual Reportand Accounts on the Investment Manager's website: www.chelvertonam.com.
Income statement
for the year ended 31 August 2011
2011 2010 Note Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments 7 - 913 913 - 862 862 at fair value Income 2 77 - 77 79 - 79 Investment management 3 (10) (31) (41) (9) (27) (36)fee Other expenses 4 (136) - (136) (145) - (145) Net return on (69) 882 813 (75) 835 760 ordinary activities before taxation Taxation on ordinary 5 - - - - - - activities Net return on (69) 882 813 (75) 835 760 ordinary activities after taxation Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Return per Ordinary 6 (0.50) 6.42 5.92 (0.50) 5.62 5.12 share
The total column of this statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
A separate statement of total recognised gains and losses has not been prepared as all such gains and losses are included in the income statement.
The notes below form part of these accounts.
Reconciliation of movements in shareholders' funds
for the year ended 31 August 2011
Called Share Capital up share premium Capital redemption Revenue capital account reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Year ended 31 August 2011 1 September 2010 149 2,674 (2,739) 40 3,506 3,630 Cost of shares purchased (15) - - 15 (394) (394)for cancellation under tender offer Shares cancelled from (2) - - 2 - - Treasury Net return after taxation - - 882 - (69) 813 for the year 31 August 2011 132 2,674 (1,857) 57 3,043 4,049 Year ended 31 August 2010 1 September 2009 149 2,674 (3,574) 40 3,606 2,895 Cost of shares purchased - - - - (25) (25)for Treasury Net return after taxation - - 835 - (75) 760 for the year 31 August 2010 149 2,674 (2,739) 40 3,506 3,630
The notes below form part of these accounts.
Balance sheetas at 31 August 2011 Note 2011 2010 Revenue Revenue £'000 £'000 Fixed assets Investments at fair value 7 4,055 3,583 Current assets Debtors 9 9 6 Cash at bank 30 86 39 92
Creditors - amounts falling due 10 45 45 within one year
Net current (liabilities)/assets (6) 47 Net assets 4,049 3,630 Share capital and reserves Called up share capital 11 132 149 Share premium account 12 2,674 2,674 Capital reserve 12 (1,857) (2,739) Capital redemption reserve 12 57 40 Revenue reserve 12 3,043 3,506 Equity shareholders' funds 4,049 3,630
Net asset value per Ordinary share 16 30.60p 24.66p
The notes below form part of these accounts.
These accounts were approved by the Board of Directors of Chelverton Growth Trust PLC and authorised for issue on 18 November 2011. They were signed on its behalf by
George StevensChairmanStatement of cash flowsfor the year ended 31 August 2010 Note 2011 2010 £'000 £'000 Operating activities Investment income received 76 60 Deposit interest received - 19 Investment management fees paid (41) (35) Secretarial fees paid (46) (49) Other cash payments (92) (115) Net cash outflow from operating 13 (103) (120)activities Investing activities Purchases of investments (156) - Sales of investments 597 187 Net cash inflow from investing 441 187 activities Financing Cost of shares purchased for Treasury - (25) Cost of shares purchased for (394) - cancellation under tender offer Net cash outflow from financing (394) (25)activities (Decrease)/increase in cash 15 (56) 42
The notes below form part of these accounts.
Notes to the accountsas at 31 August 20111 ACCOUNTING POLICIESAccounting convention
The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and with the AIC Statement of Recommended Practice ("SORP") issued in January 2009, regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts. All the Company's activities are continuing.
Income recognition
Dividends receivable on quoted equity shares are included as revenue when theinvestments concerned are quoted `ex-dividend'. UK dividends are disclosedexcluding the associated tax credit. Dividends receivable on equity andnon-equity shares where no ex-dividend date is quoted are brought into accountwhen the Company's right to receive payment is established. All other income isincluded on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis and charged through the revenue account in the income statement except as follows:
â— expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed (see note 7);
â— management fees and bank interest have been allocated 75% to capital reserveand 25% to revenue reserve in the income statement, being in line with theBoard's expected long-term split of returns, in the form of capital gains andincome respectively, from the investment portfolio of the Company.
Investments
All investments held by the Company are classified as `fair value throughprofit or loss'. Investments are initially recognised at cost, being the fairvalue of the consideration given. After initial recognition investments aremeasured at fair value, with changes in the fair value of investments andimpairment of investments recognised in the income statement and allocated tocapital. Realised gains and losses on investments sold are calculated as thedifference between sales proceeds and cost.Investments are recognised and derecognised on the trade date where a purchaseor sale is under a contract whose terms require delivery within the timeframeestablished by the market concerned, and are initially measured at fair value.For investments actively traded in organised financial markets, fair value isgenerally determined by reference to Stock Exchange quoted market bid prices atthe close of business on the balance sheet date, without adjustment fortransaction costs necessary to realise the asset.For investments that are not actively traded in organised financial markets,the investments are valued at the Directors' estimate of its net realisablevalue being their estimate of fair value. Generally, fair value will be at costor, where applicable, at the most recent transaction price. In the case ofdirect investments in unquoted companies the following valuation technique isapplied. Initial valuation is based on the transaction price. Where betterindications of fair value become available, such as through subsequent issuesof capital or dealings between third parties, the valuation is adjusted toreflect the new evidence. This represents the Directors' view of the amount forwhich an asset could be exchanged between knowledgeable willing parties in
anarm's length transaction.Capital reserve
The following are accounted for in this reserve:
â— gains and losses on the realisation of investments;
â— net movement arising from changes in the fair value of investments that can be readily converted to cash without accepting adverse terms;
â— realised exchange differences of a capital nature;
â— expenses, together with related taxation effect, charged to this account in accordance with the above policies; and
â— net movement arising from the changes in the fair value of investments thatcannot be readily converted to cash without accepting adverse terms, held atthe year end.Taxation
The charge for taxation, where relevant, is based on the revenue before taxation for the year. Tax deferred or accelerated can arise due to timing differences between the treatment of certain items for accounting and taxation purposes.
Full provision is made for deferred taxation under the liability method, on alltiming differences not reversed by the balance sheet date, in accordance withFRS 19: Deferred tax.The tax effect of different items of income/gain and expenditure/loss isallocated between capital and revenue on the same basis as the particular itemto which it relates, using the Company's effective rate of tax for theaccounting period.2 INCOME 2011 2010 £'000 £'000 Income from investments Dividends from UK companies 77 60 77 60 Other income Interest on Investment Management - 19 fee VAT refund Total income 77 79 Total income comprises: Dividends 77 60 Interest - 19 77 79 3 INVESTMENT MANAGEMENT FEE 2011 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management 10 31 41 9 27 36 fee 10 31 41 9 27 36
The investment management fee is calculated at the rate of 1/ 12% per month ofthe gross value of funds under management and is payable monthly in arrears. At31 August 2011 there was £3,000 outstanding (2010: £3,000).4 OTHER EXPENSES 2011 2010 Revenue Revenue £'000 £'000 Administrative and 47 46 secretarial services Directors' remuneration 38 49 Auditors' remuneration: 13 12 audit services Other expenses 38 38 136 145 5 TAXATION 2011 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Analysis of charge in period
Current tax: - - - - - - - - - - - -
Factors affecting current tax charge for the period
The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 28% to 31 March 2011 and 26% from 1 April 2011. The differences are explained below:
2011 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 (Loss)/profit on (69) 882 813 (75) 835 760 ordinary activities before taxation Theoretical tax at (19) 240 221 (21) 234 213 UK corporation tax rate of 27.17% (2010: 28%) UK dividend income (21) - (21) (17) - (17) not taxable Non-taxable - (248) (248) - (241) (241) investment gains Excess expenses for 40 8 48 38 7 45 the period Current tax charge - - - - - - for the period At 31 August 2011 the Company had surplus management expenses of £ 3,312,000(2010: £3,135,000) which have not been recognised as a deferred tax asset. Thisis because the Company is not expected to generate taxable income in a futureperiod in excess of the deductible expenses of that future period and,accordingly, it is unlikely that the Company will be able to reduce future taxliabilities through the use of existing surplus expenses. Due to the Company'sstatus as an investment trust and the intention to continue meeting theconditions required to obtain approval as an investment trust in theforeseeable future, the Company has not provided for deferred tax on any gainsand losses arising on the revaluation or disposal of investments.
6 RETURN PER ORDINARY SHARE
2011 2010 Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Basic (0.50) 6.42 5.92 (0.50) 5.62 5.12
Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of £69,362 (2010: £74,316) and on 13,742,414 (2010: 14,843,882) Ordinary shares, being the weighted average number of Ordinary shares in issue less treasury shares during the year.
Capital return per Ordinary share is based on the net capital gain of £882,488(2010: £834,570) and on 13,742,414 (2010: 14,843,882) Ordinary shares, beingthe weighted average number of Ordinary shares in issue less treasury sharesduring the year.Total return per Ordinary share is based on the total gain of £813,126 (2010: £760,254) and on 13,742,414 (2010: 14,843,882) Ordinary shares, being theweighted average number of Ordinary shares in issue less treasury shares duringthe year.7 INVESTMENTS 2011 2010 £'000 £'000 Delisted 43 213 AIM 3,576 2,827 Unquoted 436 543 4,055 3,583 AIM Delisted Unquoted* Total £'000 £'000 £'000 £'000 Opening book cost 4,634 2,166 451 7,251 Opening investment (1,807) (1,953) 92 (3,668)holdings (losses)/gains Movements in the year: 2,827 213 543 3,583 Purchases at cost 154 2 - 156 Sales: Proceeds (366) (226) (5) (597) (Losses)/gains on sales (359) (1,386) 5 (1,740) Movement in investment 1,320 1,440 (107) 2,653 holding (losses)/gains Closing valuation 3,576 43 436 4,055 Closing book cost 4,063 556 451 5,070 Closing investment (487) (513) (15) (1,015)losses Closing valuation 3,576 43 436 4,055 2011 2010 £'000 £'000 Realised losses on sales (1,740) (222) Changes in fair value of 2,653 1,084 investments Net gains on investments 913 862
All quoted investments are made up of equity shares
* Unquoted investments are valued at the Directors' estimate of their net realisable value, being their estimate of fair value.
Analysis of movements in unquoted investments
Cost at Valuation Cost at Valuation 31 August 31 August Movement at 31 at 2011 2011 Realised in fair August 31 August August 31 August in year value 2010 2010 Investment £'000 £'000 £'000 £'000 £'000 £'000 Closed Loop 252 - - (252) 252 252 Recycling* Loan Stock Ordinary B shares 84 - - - 84 - Locker Group - - 5 - - - Parmenion Capital 115 436 - 145 115 291 Partners LLP** 451 436 5 (107) 451 543
Analysis of disposals of unquoted investments
The Company did not dispose of any unquoted investments in the year, but realised £5,000 in respect of its investment in Locker Group being a distribution on liquidation.
Transaction costs
During the year, the Company incurred transaction costs of £1,534 (2010: £nil)and £301 (2010: £149) on purchases and sales of investments, respectively.These amounts are included in `Gains/(losses) on investments at fair value' asdisclosed in the income statement.
Details of material holdings in unquoted investments
Valuation Cost Valuation Cost at at at at Last 31 31 31 31 accounts Net Pre August August August August period (liabilities) tax 2011 2011 2010 2010 end /assets Turnover profit £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment Parmenion 115 436 115 291 31/03/2011 695 1,686 80 Capital Partners LLP **
* Closed Loop Recycling is the first food grade plastic recycler in the UK. The company produces food grade PET and HDPE from plastic bottle waste.
** Parmenion Capital Partners LLP offers fund based discretionary investment management services to the Independent Financial Adviser community.
8 SIGNIFICANT INTERESTS
At 31 August 2011 the Company had a holding of 3% or more of the issued classof share that is material in the context of the accounts in the followinginvestments:Security Number of Percentage of shares held issued share Issued share capital capital CEPS, Ord 5p 1,000,000 12.027 8,314,310 Belgravium 5,000,000 4.954 100,936,547Technologies, Ord 5p AI Claims Solutions, 2,375,000 3.897 60,944,522Ord 10p
In addition to the above, the Company has a 5.526% interest in the capital and profits of Parmenion Capital
Partners LLP.
9 DEBTORS - amounts falling due within one year
2011 2010 £'000 £'000 Prepayments and other 9 6debtors 9 6
10 CREDITORS - amounts falling due within one year
2011 2010 £'000 £'000 Other creditors 45 45 45 4511 CALLED UP SHARE CAPITAL 2011 2010 £'000 £'000 Allotted, called up and fully paid: 132 14913,233,344 (2010: 14,864,827) Ordinary shares of 1p each
There were nil (2010: 145,000) shares held in Treasury at the date of this report. The Treasury shares were cancelled on 5 April 2011.
1,486,483 Ordinary shares, being 10 per cent of the issued Ordinary shares,were repurchased for cancellation of 4 January 2011 further to a circular toshareholders, issued by the Company on 24 November 2010, concerning the tenderoffer by Merchant Securities Limited to purchase up to 10 per cent of theissued Ordinary shares in the Company.
Duration of Company
At the annual general meeting of the Company falling in the calendar year 2014and, if the Company has not then been liquidated, unitised or reconstructed, ateach fifth annual general meeting of the Company convened by the Boardthereafter, the Board shall propose an ordinary resolution that the Companyshould continue as an investment trust for a further five year period.If any such ordinary resolution is not passed, the Board shall draw upproposals for the voluntary liquidation, unitisation or other reorganisation ofthe Company for submission to the Members of the Company at a general meetingto be convened by the Board for a date not more than three months after thedate of the meeting at which such ordinary resolution was not passed.The Board shall ensure that such proposals for the liquidation, unitisation orreconstruction of the Company as are approved by special resolution areimplemented as soon as is reasonably practicable after the passing of suchresolution.12 RESERVESYear ended 31 August 2011 Share Capital Capital Revenue premium reserve redemption reserve reserve £'000 £'000 £'000 £'000 At 1 September 2010 2,674 (2,739) 40 3,506 Net losses on realisation of - (1,740) - - investments Movement in fair value of - 2,653 - - investments Cost of share purchased for - - - (394)cancellation under tender offer Shares cancelled - - 17 - Costs charged to capital - (31) - - Retained net loss for the - - - (69)year At 31 August 2011 2,674 (1,857) 57 3,043 Year ended 31 August 2010 Share Capital Capital Revenue premium reserve redemption reserve reserve £'000 £'000 £'000 £'000 At 1 September 2009 2,674 (3,574) 40 3,606 Net losses on realisation of - (222) - - investments Movement in fair value of - 1,084 - - investments Costs of shares purchased for - - - (25)Treasury Costs charged to capital - (27) - - Retained net loss for the - - - (75)year At 31 August 2010 2,674 (2,739) 40 3,506
13 RECONCILIATION OF NET return BEFORE FINANCECOSTS AND TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2011 2010 £'000 £'000
Net return before finance costs and taxation 813 760
Net capital return before finance costs (882) (835) Expenses charged to capital (31) (27) Decrease in creditors and accruals - (18) Increase in prepayments and accrued income (3) - (103) (120)
14 RECONCILIATION OF NET CASH FLOW TO NET CASH
2011 2010 £'000 £'000 Net cash at 1 September 2010 86 44 Net cash (outflow)/inflow (56) 42 Net cash at 31 August 2011 30 86
15 ANALYSIS OF CHANGES IN NET CASH
At At 31 August Cash 31 August 2010 flows 2011 £'000 £'000 £'000 Cash at bank 86 (56) 30 86 (56) 30
16 NET ASSET VALUE PER ORDINARY SHARE
The basic net asset value per Ordinary share is based on net assets of £ 4,049,000 (2010: £3,630,000) and on 13,233,344 (2010: 14,719,827) Ordinary shares, being the number of shares in issue at the year end, less treasury shares.
17 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31 August 2011 there were no capital commitments or contingent liabilities (2010: £nil).
18 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments comprise securities and other investments,cash balances and debtors and creditors that arise from its operations, forexample, in respect of sales and purchases awaiting settlement and debtors foraccrued income.
The Company primarily invests in companies traded on AIM with a market capitalisation at the time of investment of up to £50 million. The Company finances its operations through its issued capital and existing reserves.
In following its investment objective, the Company is exposed to a variety ofrisks that could result in a reduction in the Company's net assets. These risksare market risk (comprising exchange rate risk, interest rate risk and otherprice risk), credit risk and liquidity risk. The Board reviews and agreespolicies for managing each of these risks and they are summarised below:
(i)Market risk - market price risk
Market price risk arises mainly from uncertainty about future prices of financial investments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements other than movements in exchange rates and interest rates.
The Company's investment portfolio is exposed to market price fluctuations which are monitored by the Investment Manager who gives timely reports of relevant information to the Directors. Investment performance is also reviewed at each Board meeting.
The Directors are conscious of the fact that the nature of AIM investments issuch that prices can be volatile. Investors should be aware that the Company isexposed to a higher rate of risk than exists within a fund which holdstraditional blue chip securities.
Adherence to the investment objectives and the internal control limits on investments set by the Company mitigates the risk of excessive exposure to any one particular type of security or issuer.
The Company's exposure to other changes in market prices at 31 August on itsinvestments is as follows: 2011 2010 £'000 £'000 Fair value through profit or 4,055 3,583loss investments A 20% decrease in the market value of investments at 31 August 2011 would havedecreased net assets attributable to shareholders by £811,000 (2010: £717,000).An increase of the same percentage would have an equal but opposite effect onnet assets available to shareholders.
(ii)Market risk - exchange rate risk
All of the Company's assets are in sterling and accordingly the only currency exposure the Company has is through the trading activities of its investee companies.
(iii)Market risk - interest rate risk
Changes in interest rates may cause fluctuations in the income and expenses of the Company.
The majority of the Company's financial assets are non-interest bearing. As aresult, the Company's financial assets are not subject to significant amountsof risk due to fluctuations in the prevailing levels of market interest rates.
The possible effects on 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 exposure at 31 August of financial assets and financial liabilities to interest rate risk is as follows:
2011 2010 £'000 £'000 Cash at bank 30 86 30 86The effect of an interest rate increase of 1% would increase net revenue beforetaxation on an annualised basis by £300. If there was a decrease in interestrates of 0.5% net revenue before taxation would decrease by £150. Thesecalculations are based on balances as at 31 August 2011 and may not berepresentative of the year as a whole.
(iv) Credit risk
Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.
The carrying amounts of financial assets best represent the maximum credit riskexposure at the balance sheet date. Bankruptcy or insolvency of the custodianmay cause the Company's rights with respect to securities held with thecustodian to be delayed.
(v)Liquidity risk
The majority of the Company's assets are AIM listed securities, which undernormal conditions can be sold to meet funding commitments if necessary. Thesemay however be difficult to realise in adverse market conditions. The Company'sinvestment in Parmenion Capital Partners LLP, representing 10.8% of theportfolio, could be more difficult to realise as it is not a tradableinstrument.
(vi)Maturity Analysis of Financial Liabilities
The Company's financial liabilities comprise of creditors as disclosed in note 10. All items are due within one year.
(vii)Managing Capital
The Company's capital management objectives are to increase net asset value pershare at a higher rate rather other quoted smaller company trusts and the FTSEAll-Share Index.
Primarily the Company finances its operations through its issued capital and existing reserves. At 31 August 2011 the Company had no borrowings.
(viii)Fair values of financial assets and financial liabilities
All of the financial assets and liabilities of the Company are held at fair value.
(ix)Financial instruments by category
The financial instruments of the Company fall into the following categories.31 August 2011 Assets at fair value At through amortised Loans and profit cost receivables or loss Total £'000 £'000 £'000 £'000 Assets as per the Balance sheet Investments - - 4,055 4,055 Debtors - 9 - 9 Total - 9 4,055 4,064 Liabilities as per the Balance sheet Creditors 45 - - 45 45 - - 4531 August 2010 Assets at fair value At through amortised Loans and profit cost receivables or loss Total £'000 £'000 £'000 £'000 Assets as per the Balance sheet Investments - 252 3,331 3,583 Debtors - 6 - 6 Total - 258 3,331 3,589 Liabilities as per the Balance sheet Creditors 45 - - 45 45 - - 45 Fair value hierarchyIn accordance with Financial Reporting Standard No.29: `Financial Instruments:Disclosures', the Company must disclose the fair value hierarchy of financialinstruments.
The fair value hierarchy consists of the following three levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
An active market is a market in which transactions for the asset or liabilityoccur with sufficient frequency and volume on an ongoing basis such that quotedprices reflect prices at which an orderly transaction would take place betweenmarket participants at the measurement date. Quoted prices provided by externalpricing services, brokers and vendors are included in level 1, if they reflectactual and regularly occurring market transactions on an arms length basis.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 2 inputs include the following:
• quoted prices for similar (i.e. not identical) assets in active markets.
• quoted prices for identical or similar assets or liabilities in markets thatare not active. Characteristics of an inactive market include a significantdecline in the volume and level of trading activity, the available prices varysignificantly over time or among market participants or the prices are notcurrent.
• inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals).
• inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market-corroborated inputs).
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The level in the fair value hierarchy within which the fair value measurementis categorised in its entirety is determined on the basis of the lowest levelinput that is significant to the fair value measurement in its entirety. Forthis purpose, the significance of an input is assessed against the fair valuemeasurement in its entirety. If a fair value measurement uses observable inputsthat require significant adjustment based on unobservable inputs, thatmeasurement is a level 3 measurement. Assessing the significance of aparticular input to the fair value measurement in its entirety requiresjudgement, considering factors specific to the asset or liability.The determination of what constitutes `observable' requires significantjudgement by the Company. The Company considers observable data to beinvestments actively traded in organised financial markets, fair value isgenerally determined by reference to Stock Exchange quoted market bid prices(or last traded in respect of SETS) at the close of business on the balancesheet date, without adjustment for transaction costs necessary to realise theasset.Investments whose values are based on quoted market prices in active markets,and therefore classified within level 1, include active listed equities. TheCompany does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within level 2.
Investments classified within level 3 have significant unobservable inputs. Level 3 instruments include unquoted holdings. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The Company has no level 2 investments, and level 3 investments consist only of unquoted holdings.
Financial assets at fair value through profit or loss
At 31 August 2011 Level 1 Level 2 Level 3 Total £'000 £'000 £'000 £'000 Equity investments 3,576 - 479 4,055 Total 3,576 - 479 4,055At 31 August 2010 Level 1 Level 2 Level 3 Total £'000 £'000 £'000 £'000 Equity investments 2,827 - 504 3,331 Total 2,827 - 504 3,331
The following table presents the movement in the level 3 investment for the period ended 31 August 2011:
Equity investments £'000 Opening balance 504 Purchases 2 Sales proceeds: (231) Total gains included in gains on investments in the 204 income statement Closing balance 479
19RELATED PARTY TRANSACTIONS
Under the terms of the agreement dated 28 June 2001, the Company has appointedChelverton Asset Management Limited to be the Investment Manager. The feearrangements for these services and fees payable are set out in the Report ofthe Directors and in note 3 to the accounts. Mr Horner, a Director of theCompany, is also a director of Chelverton Asset Management Limited and CEPSPLC, in which the Company has an investment.
ANNUAL REPORT AND AGM
The foregoing represents extracts from the full text of the Annual Report and Accounts for the year ended 31 August 2011. The full Report will shortly be available for download from the following website:
www.chelvertonam.com
Copies will be posted to shareholders shortly.
This years AGM will be held on Thursday 15 December 2011 at 11.00am at the offices of Chelverton Asset Management Limited, 9 Dartmouth Street, London SW1H 9BP.
NATIONAL STORAGE MECHANISMA copy of the Annual Report and Financial Statements will be submitted shortlyto the National Storage Mechanism ("NSM") and will be available for inspectionat the NSM, which is situated at: www.hemscott.com/nsm.do.
Capita Sinclair Henderson Limited
18 November 2011
END
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
ENDS
XLON