CGW.L Regulatory News (CGW)

CHELVERTON GROWTH TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2014

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 01326 378 288

Investment objective

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". 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. Its investment objective is to increase net asset value per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK Index.

It is the Company's policy not to invest in any listed investment companies (including listed investment trusts).

Company summary

Benchmark MSCI Small Cap UK Index

Investment Manager Chelverton Asset Management Limited

See page 15 for further details

Total net assets £4,854,000 as at 31 August 2014

Market capitalization £4,570,000 as at 31 August 2014

Capital structure 9,446,274 Ordinary 1p shares carrying one vote each.

Performance statistics

Strategic Report

The Strategic Report has been prepared in accordance with section 414A of the Companies Act 2006 (the"Act"). Its purpose is to inform the Members of the Company and help them understand how the Directors have performed their duty under section 172 of the Act to promote the success of the Company.

Chairman's Statement

In my first statement as Chairman I am pleased to announce another year of good progress in which the fund's net asset value per share has increased from 44.87p to 51.38p - an increase of 14.5%. The fund significantly outperformed its benchmark, the MSCI Small Cap UK Index, which rose by 7.5% over the same period.

This outperformance was driven by an increase in value of the fund's unquoted investment portfolio; Parmenion, Chelverton Asset Management Holdings and Transflex Vehicle Hire have all seen substantial upward moves in their valuation. This reflects the progress each has made and the strength of the underlying businesses. Unquoted investments now represent 46% of the fund's value.

Over the past year the world economy continued to grow, albeit modestly. However there were considerable variations in performance with China continuing to outperform all other major economies despite decelerating markedly. The USA and UK exhibited steady, if unspectacular growth, but worryingly the Eurozone continued to muddle along without any significant progress.

Modest global growth resulted in inflationary pressures reducing significantly during the year. Our major area of concern continues to be the Eurozone, where, in the absence of any decisive action from the European Central Bank, growth is likely to continue to disappoint. There are already signs that deflation is starting to appear and we expect inflation to continue to fall. If these deflationary trends really do take hold in Europe it is likely to have a knock-on impact on the UK economy. 

An additional uncertainty for the UK is the outcome of the general election in May 2015. Politics is already beginning to take-over the economic agenda. It appears almost certain that whatever form the next government takes there will need to be further large cuts in government spending in order to finally make some impact on the government deficit. It is probable that any such cuts will have an adverse impact on growth and potentially therefore our investee companies.

 Businesses need stability and consistency of approach in order to progress and develop. Unfortunately such conditions are unlikely to be established until the election is concluded and the Eurozone situation is resolved. These issues could easily make for increased volatility in financial markets in the forthcoming period

The companies in the portfolio have generally made good progress over the past year and it is hoped that the investment and development that has taken place during the last two years will bear fruit, notwithstanding the comments above.

The Board is committed to an annual tender process as a means of offering shareholders the ability to realise up to 10% of their shareholding at a sensible discount to net asset value. In normal circumstances the tender would take place in January, however we have been made aware of a possible transaction involving one of the larger shareholdings, which if completed, could have a material impact upon the net asset valuation. For this reason, we have decided that the only sensible and fair course of action is to delay the tender offer until such time that we have a clear indication of the impact upon the fund valuation.

As you may be aware, the Trust is not open ended and is required to seek approval from shareholders every 5 years for continuation. Without such approval the assets of the Trust must be liquidated and distributed to shareholders. In accordance with the Company's Articles, we have consulted with major shareholders, who represent an overall majority; all those consulted are favour of the Company continuing as an investment trust.

The Board remains of the view that the investment strategy employed by the Investment Manager remains valid and that the continuation of the Company's investment objective and policy should afford shareholders the opportunity to benefit from the very significant underlying potential value in the portfolio.

Accordingly, a Resolution will be put forward at the forthcoming AGM that the Company continues to operate as an investment trust.

In summary, the Board is very happy with the increase in value of the Company's investments over the past year. The unquoted portfolio has continued to perform particularly well, vindicating the excellent research and selection processes operated by our Investment Manager. The future economic environment is uncertain due to the Eurozone and the forthcoming domestic election, however the majority of our investee companies are in good shape and well positioned to take advantage of market opportunities as they arise.

Kevin Allen

Chairman

10 November 2014

Investment Manager's overview

In the past year the UK economy has been growing strongly and recent economic growth statistics have been revised upwards, eliminating retrospectively the "double-dip" recession of early last year. Employment continues to rise although, surprising to many, there has been little associated upward pressure on wages.

The Eurozone appears to be facing severe "head-winds" with the prospect of a European-wide recession becoming more likely. The UK's position, whilst promising compared to recent years, will no doubt be affected by any recession in the Eurozone with the inherent political and social instability that this will bring.

As the UK general election approaches, the main parties are trying to set out their positions to attract the marginal voter. The populist UKIP position will attract a large number of votes and consequently makes the outcome much harder to predict. The two main parties appear to be moving down very different paths and for the first time in perhaps thirty years are offering the electorate very different policies. 

Whilst the rhetoric from the Coalition has all been about deficit reduction the reality has proven to be very different. It is clear that no real reduction in the deficit will take place until significant cuts in government spending occur. The reduction of jobs in the Public Sector, more than matched by job creation in the Private Sector, has been very encouraging over the past four years. This trend needs to continue, together with the tax burden on lower earners being reduced. 

Bank lending to smaller companies is not increasing to support essential capital funding, however the rise of "crowd-funding" and "peer to peer" lending is growing very strongly to fill this gap. Despite public statements to the contrary, it seems that the main clearing banks are content to see the Challenger Banks stepping into this vacuum and taking market share.

Overall it is probable we are entering a period of political and economic uncertainty for the UK, as a result financial markets could be volatile.

Portfolio review

This year we have continued the process of reducing our investment in companies whose share prices have performed strongly, and thus become fully valued.

We reduced further our holding in IDOX with a sale of 500,000 shares at an average price of 41p against a cost price of 9.4p. Other portfolio reductions were in AB Dynamics, after a very significant increase soon after flotation and Tristel, whose shares have recovered very strongly following a number of profit upgrades. In addition, we have made small reductions in LPA, Alliance Pharma and Northbridge after rapid share price rises.

The entire holdings of Sanderson and Richoux were sold after a strong recovery in their share prices. 

Funds were reinvested in both quoted and unquoted Companies.

A new investment was made in Plutus Powergen , a very small AIM traded company, which has changed its direction and is planning to build a number of stand-by power generation facilities to provide electricity to the National Grid. Further shares were acquired in CEPS following the announcement of its 2013 results, which showed significant improvement and spoke positively about the future of the business, in Belgravium and Petards both of which are showing signs of recovery and in our opinion remain undervalued. 

New unquoted investments were made in both Chelverton Asset Management Holdings the company set up to finance the Management Buyout (MBO) of Chelverton Asset Management, the Investment Manager of this fund, and in La Salle Education, a business established to provide educational services to schools.

Additional investments were made in Transflex Vehicle Hire, (a small equity issue at 200p, being a much higher price than the last issue at 125p), to finance the setting up of a new depot in the South East to complement the existing depot in the North East. 

A number of our unquoted investments saw an increase in valuation reflecting the significant progress that they made during the year. Chelverton Asset Management Holdings has enjoyed a strong performance since we invested in December 2013 and has plans to introduce new funds to build on its success with the Chelverton UK Equity Income Fund. As mentioned earlier, new investors subscribed for new shares in Transflex at a price substantially higher than our prior valuation of the company.

Parmenion, the fund's single largest holding, has continued its excellent progress, building up funds under management, making healthy profits and generating cash. Accordingly the value of our holding has increased to reflect these positive trends. 

One investment that was both volatile and disappointing was One Horizon; the company's shares were previously traded on AIM before delisting. It was reversed into a NASDAQ OTC (over the counter) shell company before obtaining a full NASDAQ listing. Since being fully listed the shares have declined significantly. The business does appear to have a special product and we remain optimistic of its future prospects. A presentation from the company's management is available on its web-site www.onehorizongroup.com, this sets out clearly the business strategy. 

Anaxsys Technology has made slower progress; it recently completed another fund raising at a lower price than our book value. We have accordingly reduced our holding valuation to this new level. We took the view the Trust has already committed enough funds to this investment and so declined to participate in the latest offer.

Airways Engineering has been written down to nil value, as the business was unable to establish a viable pipeline of work. 

Outlook

The success of Parmenion, and its subsequent significant upward revaluations, has given the portfolio a rather concentrated and narrow profile. This investment alone now accounts for some 22% of the total fund. The growth in Parmenion's value, coupled with the success of Transflex Vehicle Rental and Chelverton Asset Management Holdings has resulted in the unquoted portfolio now accounting for 46% of the total fund. 

We expect to see both our quoted and unquoted investments move forward over the next twelve months. We are aware of the bias in the current portfolio but are primarily focused upon the merits of each company's underlying business rather than whether or not it is quoted.

I believe we can expect to see further progress in the remainder of 2014 and into 2015.

David Horner

Chelverton Asset Management Limited

10 November 2014

Portfolio Review

as at 31 August 2014

Portfolio holdings

Portfolio breakdown by sector and by Index

Percentage of portfolio by sector

Percentage of portfolio by Index

Directors (all non-executive)

Kevin Allen (Chairman)*

David Horner

Ian Martin *

*Independent

Extracts from the Strategic Report

As explained within the Report of the Directors the Company carries on business as an investment trust. Investment trusts are collective closed-ended public limited companies.

The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend policies, corporate and gearing strategy, corporate governance procedures and risk management.

Investment objective

The Company's objective is to provide capital growth through investment in companies listed on the Official List and traded on the Alternative Investment Market with a market capitalisation at the time of investment of up to £50 million, which are believed to be at a "point of change". 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. Its investment objective is also to increase net asset value per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK 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 of between 20 to 35 securities. The performance of the Company's investments is compared to the MSCI Small Cap UK 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 investment objective and policy stated are intended to distinguish the Company from other investment vehicles which have relatively narrow investment objectives and which are constrained in their decision making and asset allocation. The investment objective and policy allow the Company to be constrained in its investment selection only by valuation and to be pragmatic in portfolio construction by only investing in securities which the Investment Manager considers to be undervalued on an absolute basis. Portfolio risk is managed by investing in a diversified spread of investments.

Investment strategy

Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which equity 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 be significantly higher in the future will pass the selection process. The Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of a company's earning prospects over a five year time horizon.

Investment of Assets

At each Board meeting, the Board considers compliance with the Company's investment policy and other investment restrictions during the reporting period.

Environment Emissions

All of the Company's activities are outsourced to third parties. As such it does not have any physical assets, property, or operations of its own and does not generate any greenhouse gas or other emissions.

Review of Performance and Outlook

Reviews of the Company's returns during the financial year, the position of the Company at the year end, and the outlook for the coming year are contained in the Investment Managers Report.

Principal risks and uncertainties and risk management

As stated within the Corporate Governance Statement, the Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council, and has established a continuing process designed to meet the particular needs of the Company in managing the risks and uncertainties to which it is exposed.

The principal risks and uncertainties faced by the Company are described below and in note 18 which provides detailed explanations of the risks associated with the Company's financial instruments.

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 and reports regularly to the Board on a formal and informal basis. The Board formally meets with the Investment Manager quarterly when portfolio transactions and performance are reviewed. The Management Engagement Committee meets as required to review the performance of the Investment Manager..

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 equivalent investments from time to time. Whilst during positive stock market movements the portfolio may forego notional gains, during negative market movements this may 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 to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. The Board does not intend to adopt a precise discount target at which shares will be bought back. However, Ordinary shares will not be bought back for cancellation or into Treasury at a discount to NAV of less than 7.5%.

Regulatory risks

Relevant legislation and regulations which apply to the Company include the Companies Act 2006, the Corporation Tax Act 2010 ("CTA") and the Listing Rules of the Financial Conduct Authority ("FCA"). The Company has noted the recommendations of the UK Corporate Governance Code and its statement of compliance appears on page 16 to 23. A breach of the CTA could result in the Company losing its status as an investment company and becoming subject to capital gains tax, whilst a breach of the Listing Rules might result in censure by the FCA. At each Board meeting the status of the Company is considered and discussed, so as to ensure that all regulations are being adhered to by the Company and its service 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 financial statements 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 is given in note 18 to the financial statements.

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 financial statements.

The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio. Investment risk is spread through holding a wide range of securities in different industrial sectors.

Statement regarding annual report and accounts

Following a detailed review of the Annual Report and Accounts by the Audit Committee, the Directors consider that taken as a whole it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Performance analysis using key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives, for example: the NAV, the movement in the Company share price, the discount of the share price in relation to the NAV and the on going charges.

The movement of the NAV is compared to the MSCI Small Cap UK Index, the Company's benchmark. The NAV per Ordinary share at 31 August 2014 was 51.38p (2013: 44.87p).

The Company's share price at the year end was 43.75 p (2013: 33.50p).

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.

The marketing and promotion of the Company will continue to involve the Board, led by the Investment Manager, with a proactive communications programme either directly or through its website, with existing and potential new shareholders and other external parties.

The Directors are seeking to renew the appropriate powers at the next Annual General Meeting to enable the issue and purchase of the company's own shares, when it is in 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.

Alternative Investment Fund Manager's Directive ("AIFMD")

AIFMD was conceived to address a perceived regulatory gap to protect investors and is intended to provide a harmonised regulatory and supervisory framework throughout the European Union ("EU") for regulating Alternative Investment Funds. Although it was principally aimed at private equity and hedge funds, investment trusts and venture capital trusts are also required to comply.

AIFMD was implemented by the UK on 22 July 2013, with existing investment companies, such as your Company, having until 22 July 2014 to comply fully with the requirements. The Board have complied and has been appointed as the Alternative Investment Fund Manager of the Company.

By Order of the Board

K Allen

Chairman

10 November 2014

Extract from the Report of the Directors

Status, objective and review

The principal activity of the Company is to carry on business as an investment trust. The Company has been granted approval from HM Revenue & Customs ('HMRC') as an authorised investment trust under Section 1158 of the Corporation Tax Act 2010 for the year ended 31 August 2013. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2014 so as to be able to continue to obtain approval as an authorised investment trust, under Section 1158 of the Corporation Tax Act 2010. The Company is an investment company as defined in Section 833 of the Companies Act 2006.

On 23 December 2013 the Company announced the result of the tender offer and buyback offer issued to shareholders on 12 November 2013. Under the tender offer, 1,049,586 Ordinary shares were repurchased for cancellation on 27 January 2014.

At the year end and as at the date of this report there were 9,446,274 Ordinary 1p shares in issue each carrying one vote in the event of a poll.

Management and administration agreements

The Company's investments are managed by Chelverton Asset Management Limited ("CAM") under an agreement dated 28 June 2001. As previously stated above, Mr Horner is a director of CAM.

The Company pays CAM, in respect of its services as Investment Manager, a monthly fee (exclusive of VAT) payable in arrears as follows:

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");

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

for funds under management above £30 million, at the rate of 1/24% per month.

The amounts payable to CAM for the year ending 31 August 2014 was £50,714.

The appointment of CAM as Investment Manager may be terminated by either party giving to the other not less than twelve months' notice of such termination. There are no specific provisions contained within the Investment Management Agreement relating to the compensation payable in the event of termination of the agreement other than entitlement to fees, which would be payable within any notice period.

Under an agreement dated 1 January 2013, company secretarial services and the general administration of the Company were undertaken by John Girdlestone for an annual fee of £30,000 plus VAT at the prevailing rate.

Appointment of Chelverton Asset Management ("CAM") as the Investment Manager

The Board, excluding Mr Horner, continually reviews the performance of the Investment Manager. In the opinion of the independent Directors the continuing appointment of CAM, as Investment Manager, on the terms outlined in the Investment Management Agreement dated 28 June 2001 and amended on 1 December 2006, is in the best interests of the shareholders as a whole. Further, the Board is satisfied that CAM has the required skill and expertise to continue to manage the Company's portfolio and charges fees that are reasonable when compared with those of similar investment trusts.

Going concern

In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Company, and forecast revenues for the current financial year. The Directors have also taken into account the Company's investment policy, which is described on page 10 and which is subject to regular Board monitoring processes, and is designed to ensure that the Company is invested in mainly liquid, listed securities.

The Company retains title to all assets held by its custodian. Note 18 to the financial statements sets out the financial risk profile of the Company and indicates the effect on its assets and liabilities of falls and rises in the value of securities, market rates of interest and changes in exchange rates.

The Directors believe, in the light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets, that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

On behalf of the Board

Kevin Allen

Chairman

10 November 2014

Statement of Directors' responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements and have elected to prepare them in accordance with applicable United Kingdom law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 Company and of its profit or loss 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;

state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 to 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.

Under applicable law and regulations, the Directors are also responsible for preparing a Report of Directors, Directors remuneration report and statement on corporate governance.

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 including on the website of the Investment Manager www.chelvertonam.com.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Kevin Allen

Chairman

10 November 2014

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 August 2014 and 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the registrar of companies, and those for 2014 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (ii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Accounts on the Investment Manager's website: www.chelvertonam.com.

Income statement

for the year ended 31 August 2014

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.

Reconciliation of movements in shareholders' funds

for the year ended 31 August 2014

Balance sheet

as at 31 August 2014

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 10 November 2014. They were signed on its behalf by

Kevin Allen

Chairman

Statement of cash flows

for the year ended 31 August 2014

1 ACCOUNTING POLICIES

Accounting 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 the investments concerned are quoted 'ex-dividend'. UK dividends are disclosed excluding the associated tax credit. Dividends receivable on equity and non-equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. All other income is included 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:

expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed (see note 7):

management fees, bank interest and loan interest have been allocated 75% to capital reserve and 25% to revenue reserve in the income statement, being in line with the Board's expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

Investments

All investments held by the Company are classified as 'fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition investments are measured at fair value, with changes in the fair value of investments and impairment of investments recognised in the income statement and allocated to capital. Realised gains and losses on investments sold are calculated as the difference between sales proceeds and cost.

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.

For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset. For investments traded on other financial markets such as the OTCQB, fair value is generally determined by reference to the share price at close of business on the balance sheet date, discounted to reflect the best estimate of the discount that may need to be applied for the shares to be sold as a single investment.

For investments that are not actively traded in organised financial markets, the investments are valued at the Directors' estimate of its net realisable value being their estimate of fair value. Generally, fair value will be at cost or, where applicable, at the most recent transaction price. In the case of direct investments in unquoted companies the following valuation technique is applied. Initial valuation is based on the transaction price. Where better indications of fair value become available, such as through subsequent issues of capital or dealings between third parties, the valuation is adjusted to reflect the new evidence. This represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction.

Capital reserve

The following are accounted for in this reserve:

- gains and losses on the realisation of investments;

- net movement arising from changes in the fair value of investments that can be readily converted to cash without accepting adverse terms;

- realised exchange differences of a capital nature;

- expenses, together with related taxation effect, charged to this account in accordance with the above policies; and

- net movement arising from the changes in the fair value of investments that cannot be readily converted to cash without accepting adverse terms, held at the 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 all timing differences not reversed by the balance sheet date, in accordance with FRS 19: Deferred tax.

The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the Company's effective rate of tax for the accounting period.

The investment management fee is calculated at the rate of 1/12% per month of the gross value of funds under management and is payable monthly in arrears. At 31 August 2014 there was £4,200 outstanding (2013: £3,600).

Notes to the financial statements (continued)

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 23% to 31 March 2014 and 21% from 1 April 2014. The differences are explained below:

At 31 August 2014 the Company had surplus management expenses of £3,634,000 (2013: £3,532,000) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as an investment trust and the intention to continue meeting the conditions required to obtain approval as an investment trust in the foreseeable future, the Company has not provided for deferred tax on any gains and losses arising on the revaluation or disposal of investments.

Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of £75,000 (2013: £90,000) and on 9,871,859 (2013: 11,062,872) 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 £706,000 (2013: £1,091,000) and on 9,871,859 (2013: 11,062,872) Ordinary shares, being the weighted average number of Ordinary shares in issue less treasury shares during the year.

Total return per Ordinary share is based on the total gain of £631,000 (2013: £1,001,000) and on 9,871,859 (2013: 11,062,872) Ordinary shares, being the weighted average number of Ordinary shares in issue less treasury shares during the year.

* 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

Transaction costs

During the year, the Company incurred transaction costs of £601 (2013: £59) and £3,329 (2013: £4,635) on purchases and sales of investments, respectively. These amounts are included in 'Gains on investments at fair value' as disclosed in the income statement.

INVESTMENTS (continued)

Details of material holdings in unquoted investments

8 SIGNIFICANT INTERESTS

At 31 August 2014 the Company had a holding of 3% or more of the issued class of share that is material in the context of the accounts in the following investments:

In addition to the above, the Company has a 5.5% interest in the capital and profits of Parmenion Capital Partners LLP.

During the year the Company utilised a loan facility with Jarvis Investment Management Limited. The amount borrowed was £400,000 in January 2014 to help facilitate the Tender Offer. At the year end £200,000 is still outstanding. The loan was secured on the assets of the Company and is repayable on demand.

Pursuant to the Tender Offer, 1,049,586 ordinary shares being 10 per cent of the issued ordinary shares were repurchased and cancelled with settlement on 17 January 2014. On the same date the Company cancelled 100,000 ordinary shares held in treasury. As a result, there are 9,446,274 ordinary shares of 1p each in issue and circulation.

Duration of Company

At the annual general meeting of the Company falling in the calendar year 2014 and, if the Company has not then been liquidated, unitised or reconstructed, at each fifth annual general meeting of the Company convened by the Board thereafter, the Board shall propose an ordinary resolution that the Company should continue as an investment trust for a further five year period.

Continuation Vote

On behalf of the Board and in accordance with the Company's Articles, we have consulted with major shareholders, representing an overall majority, from which they were all in favour of Company continuing as an investment trust and the Continuation Vote.

The Board remains of the view that the investment strategy employed by the Investment Manager remains essentially valid and that the continuation of the company's investment objective and policy should afford shareholders the opportunity to benefit from the very significant underlying potential value in the portfolio.

Accordingly, a Resolution will be put forward at the forthcoming AGM that the Company continues as an investment trust.

16 NET ASSET VALUE PER ORDINARY SHARE

The basic net asset value per Ordinary share is based on net assets of £4,854,000 (2013: £4,709,000) and on 9,446,274 (2013: 10,495,860) 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 2014 there were no capital commitments or contingent liabilities (2013: £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, for example, in respect of sales and purchases awaiting settlement and debtors for accrued 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 of risks that could result in a reduction in the Company's net assets. These risks are market risk (comprising exchange rate risk, interest rate risk and other price risk), credit risk and liquidity risk. The Board reviews and agrees policies 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 is such that prices can be volatile. Investors should be aware that the Company is exposed to a higher rate of risk than exists within a fund which holds traditional 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 its investments is as follows:

A 1% decrease in the market value of investments at 31 August 2014 would have decreased net assets attributable to shareholders by 6 pence per share (2013: 8.9 pence per share). An increase of the same percentage would have an equal but opposite effect on net 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 a result, the Company's financial assets are not subject to significant amounts of 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:

The effect of an interest rate increase of 1% would increase net revenue before taxation on an annualised basis by £400 (2013: £170). If there was a decrease in interest rates of 0.5% net revenue before taxation would decrease by £200 (2013: £85). These calculations are based on balances as at 31 August 2014 and may not be representative 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 risk exposure at the balance sheet date. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held with the custodian to be delayed.

(v) Liquidity risk

Fifty percent of the Company's assets are AIM quoted securities and four percent on NASDAQ quoted securities, which under normal conditions can be sold to meet funding commitments if necessary. These may however be difficult to realise in adverse market conditions. The Company's unquoted investments, representing the remaining forty six percent of the portfolio, could be more difficult to realise as they are not tradable instruments.

(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 per share at a higher rate than other quoted smaller company trusts and the MSCI Small Cap UK Index.

Primarily the Company finances its operations through its issued capital and existing reserves. However to help fund the Tender Offer last year the Company borrowed on a short term loan £400,000 from their Custodians Jarvis Investment Management. At the year end an amount of £200,000 was outstanding.

(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

Fair value hierarchy

In accordance with Financial Reporting Standard No.29: 'Financial Instruments: Disclosures', the Company must disclose the fair value hierarchy of financial instruments.

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 liability occur with sufficient frequency and volume on an on going basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in level 1, if they reflect actual and regularly occurring market transactions on an arm's 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 that are not active. Characteristics of an inactive market include a significant decline in the volume and level of trading activity, the available prices vary significantly over time or among market participants or the prices are not current.

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 measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices or last traded in respect of SETS at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.

Investments, whose values are based on quoted market prices in active markets, and therefore classified within level 1, include active listed equities. The Company 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 delisted/ unquoted holdings.

The following table presents the movement in the level 3 investments for the period ended 31 August 2014:

19 RELATED PARTY TRANSACTIONS

Under the terms of the agreement dated 28 June 2001, the Company has appointed Chelverton Asset Management Limited to be the Investment Manager. The fee arrangements for these services and fees payable are set out in the Report of the Directors on page 24 and in note 3 to the accounts. Mr Horner, a Director of the Company, is also a director of Chelverton Asset Management Limited and CEPS PLC, in which the Company holds an investment as set out on pages 6 and 7.

The three Directors also have individual holdings in Chelverton Asset Management Holdings, a Company which has Mr Horner as a director and which the company also has a direct holding. The directors' holdings are detailed below

ANNUAL REPORT AND AGM

The foregoing represents extracts from the full text of the Annual Report and

Accounts for the year ended 31 August 2014. The full Report will shortly be

available for download from the following website:

www.chelvertonam.com

Copies will be posted to shareholders shortly.

The AGM will be held on 11 December 2014 at 09.00am at the offices of

Chelverton Asset Management 17-20 Ironmonger Lane London EC2V 8EP

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do.

END