16 Nov 2009 16:57
CHELVERTON GROWTH TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2009
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 GBP2,895,000 as at 31 August 2009 Market capitalisation GBP2,155,000 as at 31 August 2009 Capital structure 14,864,827 Ordinary 1p shares carrying one vote each PEP/ISA status The Company's Ordinary shares are fully eligible for inclusion in PEPs and ISAs. Performance statistics Year ended Year ended % change 31 August 31 August 2009 2008 Net assets GBP2,895,000GBP4,933,000 (41.31) Net asset value per share 19.47p 33.18p (41.31) FTSE All-Share Index 2,520.66 2,868.69 (12.13) Share price 14.50p 21.50p (32.56)
Discount to net asset value (25.53)% (35.20)% Revenue loss after taxation ( 59,000) ( 38,000)
Revenue loss per share (0.40)p (0.25)p Capital loss per share (13.33)p (17.18)p Chairman's statementUnfortunately it has been a testing year; volatile prices and uncertain marketshave had a negative impact on the asset value of our shares. Once again, intimes of uncertainty and economic turmoil we see a "flight to size" rather thana "flight to quality or value".Chelverton's net asset value per share has decreased this year from 33.18p to19.47p - a fall of 41.31%. In the same period the Company's benchmark index,the FTSE All-Share, fell by 12.13%; the FTSE 100, which makes up over 90% ofthe All-Share Index declined 12.91%; and the AIM Index decreased by 26.10%.However, since the year end the net asset value per share has increased to20.99p, a rise of 7.81%.The deteriorating macro environment and the on-going effects of the bankingcrisis have been the dominant influences in the performance of equity marketsover the past year. The lack of liquidity in the banking system and the beliefthat companies would go into receivership as they would be unable to roll overdebt drove prices to a low point at the beginning of March. Smaller companieswere particularly badly hit as `illiquid' assets were dumped as a safety firstapproach by investors prevailed. It was noticeable that directors' attitudesshifted from growth to cash generation as even those companies with relativelysmall overdrafts and long standing banking relationships were unsure as towhether credit would continue to be extended to fund short term working capitalrequirements.This situation was unsustainable, and as we moved into March there was adramatic `relief' bounce in equity markets as the concerted effort bygovernments globally to avert a long drawn out financial crisis began to instilsome confidence back into the system. Domestically the market was given a boostas investors gradually realised that corporate debt could be rolled over albeitat a significantly higher cost to shareholders than before. Smaller companieswere the major beneficiary of this upturn as they had been the most oversold onthe way down.The recovery continued through to our year end from a net asset value per shareof 16.87p at the half year, an increase of 15.41%. The sheer scale ofquantitative easing appeared to have turned macro indicators positive and theworst fears over the extent of the recession, or even depression, were avoided.One reassuring feature of the busy August reporting season was the better thanforecast cash generation of `Corporate UK' which gave further momentum to shareprices. On a more cautious note, anecdotal evidence suggests that whilsttrading for our investee companies is not getting any worse there is, as yet,no real sign of an upturn. In the short term we believe that earnings now haveto catch up with recent price moves and valuations are generally vulnerable toearnings shortfalls. The improvement in our Company since the lows of March iswelcome and whilst our underlying valuations appear less stretched than thoseof the market as a whole there still appears to be reluctance on the part ofinvestors to return fully to smaller companies.
Over the period under review the Company has repaid its overdraft following the Bank's request to cancel the facility, as a result of the global financial banking crisis.
Given the loss of our overdraft facility, and in light of the current economicvicissitudes and the position of the underlying investee companies in theircycle the Board feel that it is in the best interest of all shareholders not toproceed with the annual tender offer again this year. Fixed tender costs havealso played a significant part in this decision. The Board remains committed toreviving the tender facility as soon as it feels able to do so.
In the absence of a tender offer and depending on underlying market conditions the Company may be able to use resources to buy back shares. Shareholders interested in realising a part of their holdings should contact the Company Secretary in the first instance.
George StevensChairman16 November 2009
Investment Manager's overview
An integral part of the strong cash generation by the corporate sector has beenthe severity and speed of cost reductions that companies have made in thedownturn. The cost cutting has been deeper than expected and as companies haveswapped financial gearing for operational gearing investors have begun tofactor in the dramatic effect a small uplift in turnover will have on thebottom line. This has sustained the upward momentum in share prices over thepast couple of months as investors have started to look forward to recovery.Smaller companies were oversold in the downturn to the beginning of March asinvestors sought liquidity at any cost. After the recent upturn there appearsto be the first signs of a move back into equities but liquidity worries arestill prevalent and we expect smaller companies to lag behind the generalmarket whilst confidence is rebuilt. This is essentially a timing issue as webelieve the smaller end of the market is now attractively valued on a longerterm basis.Portfolio Review
The focus of the Company for the first part of our year was to raise money topay down the debt and reduce gearing. To this end we sold our holdings in MountEngineering, Capcon, AssetCo and Newmark Security in their entirety. We madeadditional investments in Parmenion at the time of a fund raising and AlliancePharma, after a fundraising to make an acquisition of brands from ReckittBenckiser. Closed Loop Recycling, the only UK based recycler of polyethyleneterephthalate ("PET"), used in soft drinks and water bottles, commencedproduction from its new facility in Dagenham. The operation has taken time toramp up production and to achieve the necessary approvals for food gradeplastic for the output however progress is being made.Chromogenex de-listed their shares citing the costs of being listed as thereason, and the shares in AT Communications were suspended due to a warrantyclaim regarding the sale of a subsidiary. Unfortunately EBTM and Smallbone wentinto administration.There was an offer from two parties for our holding in Hartest, one of whichhas now withdrawn. Northbridge, Minorplanet and Tristel all raised additionalfunds during the period, the latter to fund the acquisition of a complementaryveterinary business. Whilst trading has of course been difficult for themajority of our companies in the last period, the consensus view is that we arenow over the worst even if recovery is still someway off.
Outlook
After the recent rise in markets, valuations are, we believe, already factoringin a significant improvement in corporate profitability as we move into nextyear. Whilst in the short term the market has largely been discounting resultsfor 2009 we believe that the beginning of next year will start to see asignificant divergence between those companies that can deliver againstexpectations and those that cannot. We will need to see tangible evidence ofearnings recovery and improving confidence in the banking sector beforeinvestors return to smaller companies, but in the meantime, the continueduncertainty over the strength of the recovery will produce a number ofattractive investment opportunities.David HornerChelverton Asset Management Ltd16 November 2009Portfolio reviewas at 31 August 2009The Company's portfolio as at 31 August 2009 is set out below.Investment Sector Valuation % of GBP'000 total AIM traded AI Claims Solutions Travel & Leisure 294 10.1
The provision of non-fault accident management services
Alliance Pharma Pharmaceuticals & Biotechnology 157 5.4
Acquisition of the manufacturing, sales and distribution rights to
pharmaceutical products AT Communications Group Software & Computer Services 23 0.8
Business to business systems intergrator
Belgravium Technologies Technology Hardware & Equipment 137 4.7
Software systems for warehousing and distribution
CEPS Support Services Ordinary shares 106 3.6 Warrants 0 0.0
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 64 2.2 Equipment
Develops, manages and supplies covert tracking and surveillance systems
Forest Support Services Industrial Transportation 139 4.8
Supply of traffic management services
Hartest Holdings Industrial Engineering 71 2.4 Manufacture and sale of specialist healthcare equipment and supplies to users of electron microscopes IDOX Software & Computer Services 530 18.2 Software company specialising in the development of products for document and information management LPA Group Electronic & Electrical 83 2.9 Equipment
Design, manufacture and marketing of industrial electrical accessories
Minorplanet Systems Electronic & Electrical 15 0.5 Equipment Vehicle informations system MTI Wireless Edge Technology Hardware & Equipment 115 4.0
Developer and manufacturer of sophisticated antennas and antenna systems
Northbridge Industrial Industrial Engineering 61 2.1Services
Consolidation vehicle for specialist industrial services in the UK
Pennant International Software & Computer Services 46 1.6Group
Supplier of technology solutions to the defence and industrial sectors
Petards Group Support Services 125 4.3 Development, provision and maintenance of advanced security systems and relatedservices PSG Solutions Support Services 38 1.3 Leading provider of Local Authority residential property searches; provision ofpackaging solutions Richoux Group Travel & Leisure 50 1.7
Owner and operator of Richoux Restaurants
Sanderson Group Software & Computer Services 45 1.5
Provides software and IT services
Satcom Group Mobile Telecommunications 47 1.6
Provider of mobile satellite communications equipment and airtime
Titan Europe Industrial Engineering 31 1.1 Manufacture of big wheels for construction, mining and agricultural vehicles Tristel Health Care Equipment & Services 216 7.4
Healthcare business specialising in infection control in hospitals
Universe Group Support Services 19 0.7 Provision of credit card fraud prevention system, loyalty systems and retail systems Delisted from AIM Chromogenex Health Care Equipment & Services 0 0.0
Design, manufacture and distribution of aesthetic and therapeutic laser and aesthetic light based technology devices
Conder Environmental (in Industrial Engineering 0 0.0liquidation)
Supply of industrial pollution control equipment and provision of glass reinforced plastic oil/water separators EBTM (in administration) General Retailers 0
0.0
Internet retail of music inspired fashion
Food & Drink Group (in Travel & Leisure 0 0.0administration)
Owner and operator of premium bars and restaurants in London
General Capital Group General Financial 3 0.1 Provision of finance Smallbone (in Household Goods 0 0.0administration)
The design and manufacture of bespoke kitchens, bathrooms, bathroom furniture and suppliers of high quality flooring
Unquoted Closed Loop Recycling Support Services Loanstock 252 8.7 Ordinary B shares 105 3.6
Operation of a plastic recycling plant
Locker Group (in Industrial Engineering 21 0.7liquidation) Cash Shell Parmenion Capital Support Services 115 4.0Partners LLP
Provides fund-based discretionary fund management services to Independent
Financial Advisors Portfolio valuation 2,908 100.0During the year the shareholdings in AssetCo, Axis Intermodal, Capcon, ClipperVentures, Mount Engineering, Newmark, SPI Lasers and Wineworld have been sold.Top Twenty InvestmentsInvestment 31 August 31 August 2009 2008 Valuation % of Valuation % of GBP'000 total GBP'000 total IDOX 530 18.2 972 16.5 Closed Loop Recycling 357 12.3 336 5.7 AI Claims Solutions 294 10.1 517 8.8 Tristel 216 7.4 231 3.9 Alliance Pharma 157 5.4 55 0.9 Forest Support Services 139 4.8 118 2.0 Belgravium Technologies 137 4.7 250 4.2 Petards Group 125 4.3 77 1.3 MTI Wireless Edge 115 4.0 119 2.0
Parmenion Capital Partners LLP 115 4.0 100
1.7 CEPS 106 3.6 188 3.2 LPA Group 83 2.9 70 1.2 Hartest Holdings 71 2.4 153 2.6 Datong Electronics 64 2.2 200 3.4
Northbridge Industrial Services 61 2.1 312
5.3 Richoux Group 50 1.7 83 1.4 Satcom Group 47 1.6 120 2.0 Pennant International Group 46 1.6 65 1.1 Sanderson Group 45 1.5 84 1.4 PSG Solutions 38 1.3 130 2.2 Total 2,796 96.1 4,180 70.8
Portfolio breakdown by sector and by index
Portfolio by Sector Percentage Support Services 26.2% Software and Computer 22.1%Services Travel & Leisure 11.8% Technology Hardware & 8.7%Equipment Health Care Equipment 7.4%& Services Industrial Engineering 6.3% Electronic & 5.6%Electrical Equipment Pharmaceutical & 5.4%Biotechnology Industrial 4.8%Transportation Mobile 1.6%Telecommunications General Financial 0.1%
Percentage of Portfolio by Index
Portfolio by Index Percentage AIM 82.9% Unquoted 17.0% Delisted 0.1%Report of the Directors
The Directors present their report, which incorporates the Business Review, and audited accounts for the year ended 31 August 2009.
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 842 of the Income and CorporationTaxes Act 1988 for the year ended 31 August 2008. The Directors are of theopinion that the Company has conducted its affairs for the year ended 31 August2009 so as to be able to continue to obtain approval as an authorisedinvestment trust. The Company is an investment company as defined in Section833 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 30 to 45 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 15.2.7 and 15.6.2 the Company's investment policy is detailed above and should be read in conjunction with the subsequent sections entitled investment strategy and the portfolio 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 2009 was 19.47p (2008: 33.18p).
The Company's share price at the year end was 14.50p (2008: 21.50p).
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 risksA breach of Companies Act regulations and FSA/London Stock Exchange rules mayresult in the Company being liable to fines or the suspension of the Companyfrom the London Stock Exchange. The Board with its advisers monitor theCompany's regulatory obligations both on an ongoing basis and at quarterlyBoard meetings.
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 19 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.
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.
Directors
The Directors in office during the year and at the date of this report, all of whom are non-executive, are shown below:
Date of appointment K J Allen 8 November 1994 B N Lenygon 2 August 2001 D A Horner 1 May 2006 G E Stevens (Chairman) 20 December 2006Mr Horner will offer himself for re-election in accordance with Listing Rules15.2.11 - 13, which stipulates that a director who is also a director of theinvestment manager should be subject to annual re-election.In accordance with Combined Code, provision A.7.2, that non-executive directorswho have served on a board for more than nine years should be subject to annualre-election, Mr Allen will retire at the Annual General Meeting and, beingeligible, will offer himself for re-election.
Mr Lenygon will also offer himself for re-election, this in accordance with Listing Rule 15.2.12A where he stands for annual re-election as he is also a director of another company with the same investment manager.
The Board as a whole believes that Messrs Horner, Allen and Lenygon,collectively and individually, make active and effective contributions in theirroles as Directors of the Company and that shareholders should vote in favourof their re-election, respectively, for the following reasons:
Mr Horner is managing director of Chelverton Asset Management Limited, the Company's Investment Manager. He is a chartered accountant and has considerable experience of analysing and working with smaller companies.
Mr Allen is a founding Director of the Company. He is a chartered accountantand has held a number of financial management positions within varied sectorswhere he has gained a thorough knowledge of smaller companies managerialissues. His financial experience enables him to contribute significantly onaccounting and reporting matters. Mr Allen is deemed wholly independent by theother Board members notwithstanding his length of service.Mr Lenygon has considerable experience in the investment trust market and hisknowledge in the sector is considered by the other Directors to be extremelybeneficial to the Company, along with his professional expertise as a charteredaccountant and a barrister.None of the Directors has a contract of service with the Company nor, save asdisclosed below, has there been any other contract or arrangement between theCompany and any Director at any time during the year. None of the Directors norany persons connected with them had a material interest in any of the Company'stransactions, arrangements or agreements during the year. Mr Allen is adirector and employee of Forest Support Services PLC, in which the Company hasan investment. Mr Horner is the managing director of Chelverton AssetManagement Limited, the Company's Investment Manager and is also a director ofCEPS PLC in which the Company has an investment, as well as being a Director ofthe Company.
Directors' beneficial and family interests
The interests of the Directors and their families in the Ordinary shares of theCompany are set out below: At At 31 August 2009 31 August 2008 K J Allen 221,762 221,762 B N Lenygon 62,411 62,411 D A Horner 698,163 698,163 G E Stevens 1,221,315 1,221,315
There have been no changes to any of the above holdings between 31 August 2009 and the date of this Report. None of the Directors has any non-beneficial interests to disclose.
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 1/6% 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 1/8% 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 1/12% per month.
From 1 December 2006 the Investment Manager agreed to waive half its fee during the currency of this agreement.
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 41,597. 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 year. Further, the Board is satisfiedthat CAM has the required skill and expertise to continue to manage theCompany's portfolio and charges fees that are reasonable when compared withthose of similar investment trusts.
Payment of suppliers
The Company does not follow any code or standard on payment practice. Howeverit is the Company's payment policy to obtain the best possible terms for allbusiness and, therefore, there is no consistent policy as to the terms used.The Company agrees with its suppliers the terms on which business will betransacted, and it is the Company's policy to abide by those terms. At 31August 2009 all suppliers' invoices received had been settled.
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 19 to the accounts.
Section 992 Companies Act 2006
The following information is disclosed in accordance with Section 992 of the Companies Act 2006.
-- The Company's capital structure and voting rights are summarised below.
-- Details of the substantial shareholders in the Company are listed below.
-- The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association.
-- Amendment of the Company's Articles of Association and the giving of powersto issue or buy back the Company's shares require a special resolution to bepassed by shareholders. The Board's current powers to issue or buy back sharesand proposals for their renewal are detailed below.
-- There are: no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no restrictions on voting rights, no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.
-- There are no agreements between the Company and its Directors concerning compensation for loss of office.
Annual General Meeting
The Notice of Annual General Meeting is set out in the Annual Report. Inaddition to the ordinary business of the meeting, the Directors are puttingforward resolutions to allot shares and disapply pre-emption rights, which willallow the Company to issue new shares or sell shares out of treasury equivalentto 10% of its existing issued share capital.
The Directors are also seeking to renew the authority to allot Ordinary shares held in treasury at a discount to NAV.
It is also proposed that at the Annual General Meeting the Company be givenrenewed authority to buy back its own shares, which may either be cancelled orheld in treasury. Any decision regarding placing into treasury, or issuingshares from treasury will only be taken if, in the opinion of the Directors,the decision would be in the interest of shareholders as a whole.
As at 16 November 2009, being the latest practicable date before the publication of this Annual Report, there are no outstanding warrants or options to subscribe for any Ordinary shares of the Company.
Disclosure of information to Auditors
As far as the Directors are aware:
-- there is no relevant audit information of which the Company's Auditors are unaware; and
-- they have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.
Re-appointment of Auditor
A resolution will be put to the shareholders at the Annual General Meeting proposing the re-appointment of Hazlewoods LLP as Auditors to the Company. Hazlewoods LLP have indicated their willingness to continue in office.
On behalf of the BoardGeorge StevensChairman16 November 2009
Statement on corporate governance
Corporate Governance - Statement of Compliance
The Board considers that throughout the year the Company has been in compliancewith the principles of the Combined Code ("Combined Code") which can be foundat www.frc.org.uk, insofar as they are relevant to the Company's business,except where stated. Additional procedures have been adopted to ensure theCompany's current practices are consistent with the recommendations of theCombined Code in all material respects.
Board of Directors
Mr Stevens, Mr Allen and Mr Lenygon are deemed by the Board to be independentof the Investment Manager. The continuing independence of Mr Allen has beenfully considered in light of his having served for more than nine years on theBoard since his first election. The Company experienced a significant change instructure and Board composition in August 2001 to the effect that Mr Allen isthe only founding Board member, his knowledge of the Company and experience isconsidered extremely valuable by the other Directors. The Board considers MrStevens is independent notwithstanding that he is a significant shareholder inthe Company. Mr Stevens is experienced in business and accountancy and providesa robust balanced view between the Investment Manager and the shareholders. MrLenygon has many years of experience in investment trusts, providing specificexpertise of this sector which is of great benefit to the Board. Mr Lenygon isconsidered by the Board to be independent notwithstanding that he is also adirector of another investment trust managed by CAM. Mr Horner as managingdirector of CAM the Investment Manager, is not independent. Given the size andnature of the Board, it is not considered appropriate to appoint a SeniorIndependent Director. This is a breach of code provision A.3.3. The Companydoes not have a chief executive officer, but by appointing a management companythe roles of chairman and chief executive officer are effectively separated.Brief biographical details of the Directors can be found in the Annual Report.The Board has formal arrangements under which Directors, in the furtherance oftheir duties, may take independent professional advice. The Company hasDirectors' and Officers' liability insurance in place to cover legal defencecosts. There are no qualifying third party indemnity provisions in place.The Board also has direct access to the advice of the Company Secretary, whichis responsible for ensuring that Board and Committee procedures are followedand that applicable regulations are complied with.
Directors are required to retire by rotation at least every three years, Mr Stevens retired in 2007 and will stand for re-election next year. Mr Allen stands for re-election annually having served on the Board for more than nine years, as does Mr Horner, as a director of the Investment Manager and Mr Lenygon as a director of another company with the same Investment Manager.
The Chairman, Mr Stevens, is deemed by his fellow independent Board members tobe independent and have no conflicting relationships. He considers himself tohave sufficient time to commit to the Company's affairs.
Directors' attendance
During the year the Directors' attendance at meetings has been recorded asfollows: Board Audit meetings Committee K J Allen 4 of 4 2 of 2 B N Lenygon 4 of 4 2 of 2 D A Horner 4 of 4 n/a G E Stevens 4 of 4 2 of 2Board operationThe Directors review at each Board meeting the Company's investments and allother important issues to ensure that control is maintained over the Company'saffairs. The Board is responsible for the investment policy and strategic andoperational decisions of the Company. A formal schedule of matters specificallyreserved for the Board's approval was adopted in November 2001. The managementof the Company's assets is delegated to CAM, which has discretion to manage theassets of the Company in accordance with the Company's investment objectivesand policies subject to the following:
-- All proposed unquoted investments are put to the Board for approval;
-- Quoted investments of over 100,000 in any single situation are referred to the Board;
-- Opportunistic top-up investments of up to 50,000 are permitted in any investment on the basis that the Board is informed.
To enable the Directors to fulfil their role, they have timely access to allrelevant management and financial information. The full Board meets regularlyand maintains contact with the Investment Manager between formal meetings.
Committees
The Company also uses a number of committees to control its operations. Thesecommittees comprise the full Board, except the Management Engagement Committeewhere Mr Horner is not a member by virtue of his association with theInvestment Manager. Each committee's delegated responsibilities are clearlydefined in written terms of reference, copies of which are available from theCompany's Registered Office.
The Audit Committee provides a forum through which the Company's external Auditors report to the Board of Directors. The Committee meets at least once a year. Mr Lenygon chairs the Audit Committee.
The primary responsibilities of the Audit Committee are: to review theeffectiveness of the internal control environment of the Company and monitoradherence to best practice in corporate governance; to make recommendations tothe Board in relation to the re-appointment of the Auditors and to approvetheir remuneration and terms of engagement; to review and monitor the Auditors'independence and objectivity and the effectiveness of the audit process andprovide a forum through which the Company's Auditors report to the Board. TheAudit Committee also has responsibility for monitoring the integrity of thefinancial statements and accounting policies of the Company and for reviewingthe Company's financial reporting and internal control policies and procedures.Committee members consider that individually and collectively they areappropriately experienced to fulfil the role required.
The Audit Committee has direct access to the Company's Auditors, Hazlewoods LLP, whose representatives attend the year end Audit Committee meeting. On the basis of these meetings the Audit Committee has been able to assess the effectiveness of the external audit. A formal statement of independence is received from the external Auditors each year.
The Company does not have an internal audit function. All of the Company's management functions are delegated to independent third parties and, as a result, this function is not felt to be appropriate. However the need for one is reviewed annually.
The Management Engagement Committee is responsible for reviewing the terms ofthe Investment Manager's contract, and those of other service providers. ThisCommittee meets as required and Mr Stevens chairs this Committee.The Nomination Committee considers the appointment and re-appointment ofDirectors and meets as and when required. Mr Stevens chairs this committee. Nomeetings were held during the year. The Committee meets for the purpose ofconsidering appointments to, and removals from, the Board and determining theappointment process.
The Board as a whole fulfils the function of a Remuneration Committee. Remuneration details are given in the Directors' remuneration report. At 31 August 2009 there were no Directors' service agreements and no Director had been granted any options to acquire shares in the Company.
On appointment to the Board, Directors are fully briefed as to their responsibilities by the Chairman and Investment Manager.
As an ongoing policy, Directors' skills and knowledge are updated regularly with information provided by the Company Secretary and various industry bodies.
Performance evaluation
In accordance with corporate governance best practice, formal performanceevaluation of the Board, its committees and individual Directors was undertakenfollowing the year end by verbal consultation. It was concluded that the Boardrepresented an effective combination of skill and expertise and continued tooperate successfully as a small, proficient unit. The performance of eachDirector continues to be effective and demonstrates commitment to the role.
Substantial shareholdings
The Directors had been notified of the following substantial interests in the voting shares of the Company at the date of this Report:
Number % of total of shares voting rights M E Brockbank 2,186,677 14.71 Philip J Milton private clients 1,497,719 10.08 Midas Capital 1,387,000 9.33 G E Stevens 1,221,315 8.22 Charles Stanley private clients 908,281 6.11 Rensburg Sheppard 710,238 4.78 D A Horner 698,163 4.70 M M Brooks 595,265 4.00Relations with Shareholders
Communication with shareholders is given a high priority by both the Board andthe Investment Manager and all Directors are available to enter into dialoguewith shareholders. Major shareholders of the Company are offered theopportunity to meet with the independent non-executive Directors of the Boardin an attempt to ensure that their views are understood. All shareholders areencouraged to attend and vote at the Annual General Meeting, during which theBoard and the Investment Manager are available to discuss issues affecting theCompany and shareholders have the opportunity to address questions to theInvestment Manager, the Board and the Chairman of the Board's standingcommittees.
Any shareholder who would like to lodge questions in advance of the Annual General Meeting is invited to do so either on the reverse of the proxy card or in writing to the Company Secretary. The Company always responds to letters from individual shareholders.
The Annual and Half-Yearly Reports of the Company are prepared by the Board andits advisers to present a full and readily understandable review of theCompany's performance. Copies of the Annual Report are dispatched toshareholders by mail and are also available for downloading from the Company'swebsite maintained by the Investment Manager at www.chelvertonam.com.
Going concern
After due consideration, the Directors consider that the Company has adequateresources to continue in operational existence for the foreseeable future. Forthis reason, they continue to adopt the going concern basis in preparing theaccounts.Internal controls
The Directors acknowledge that they are responsible for the Company's systems of internal control and for reviewing their effectiveness.
An ongoing process in accordance with the guidance supplied by the FRC'sInternal Control: Guidance for Directors on the Combined Code, has beenestablished for identifying, evaluating and managing the significant risksfaced by the Company. This process has been in place throughout the year and upto the date the Annual Report and Accounts were approved and is regularlyreviewed by the Board. Key procedures established with a view to providingeffective financial control have been in place for the full financial year andup to the date of approval of the report.
The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company's objectives. It should be recognised that such systems can only provide reasonable, not absolute, assurance against material misstatement or loss.
Internal control assessment process
Risk assessment and the review of internal controls are undertaken by the Boardin the context of the Company's overall investment objective. The review coversthe key business, operational, compliance and financial risks facing theCompany. In arriving at its judgement of what risks the Company faces, theBoard has considered the Company's operations in the light of the followingfactors:
The nature and extent of risks which it regards as acceptable for the Company to bear within its overall business objective;
The threat of such risks becoming a reality;
The Company's ability to reduce the incidence and impact of risk on its performance; and
The cost and benefits to the Company of third parties operating the relevant controls.
Against this background, the Board has split the review of risk and associatedcontrols into four sections reflecting the nature of the risks being addressed.These sections are as follows:
Corporate strategy;
Published information, compliance with laws and regulations;
Relationship with service providers; and
Investment and business activities.
Given the nature of the Company's activities and the fact that most functionsare subcontracted, the Directors have obtained information from key third partysuppliers regarding the controls operated. To enable the Board to make anappropriate risk and control assessment the information and assurances soughtfrom third party suppliers include the following:
Details of the control environment operated by the third party suppliers;
Identification and evaluation of risks and control objectives by third party suppliers;
Assessment of the communication procedures with third party suppliers; and
Assessment of the control procedures operated by third party suppliers.
The key procedures which have been established to provide internal controls are as follows:
Investment management is provided by Chelverton Asset Management Limited. TheBoard is responsible for setting the overall investment policy and monitors theaction of the Investment Manager at regular Board meetings;
Administration and company secretarial duties for the Company are performed by Capita Sinclair Henderson Limited;
Custody of assets is undertaken by HSBC Investment Bank plc;
The duties of investment management, accounting and the custody of assets aresegregated. The procedures of the individual parties are designed to complementone another;
The Directors of the Company clearly define the duties and responsibilities of their agents and advisers. The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved; the Board monitors their ongoing performance and contractual arrangements;
Mandates for authorisation of investment transactions and expense payments are set by the Board; and
The Board reviews financial information produced by the Investment Manager and the Company Secretary in detail on a regular basis.
In accordance with guidance issued to directors of listed companies, the Directors have carried out a review of the effectiveness of the system of internal control as it has operated over the year.
On behalf of the BoardGeorge StevensChairman16 November 2009
Directors' remuneration report
The Board has prepared this report, in accordance with Schedule 8 to The Largeand Medium - Sized Companies and Groups (Accounts and Reports) Regulations2008. An ordinary resolution will be put to the members to approve the reportat the forthcoming Annual General Meeting.The law requires your Company's Auditors to audit certain disclosures provided.Where disclosures have been audited, they are indicated as such. The Auditors'opinion is included in their report in the Annual Report.
Remuneration Committee
The Company has four non-executive directors. The Board as a whole fulfils the function of a Remuneration Committee.
Policy on Directors' fees
The Board's policy is that the remuneration of non-executive Directors shouldreflect the experience of the Board as a whole and be fair and comparable tosimilar organisations and appointments.The fees of the non-executive Directors are determined within the limits setout in the Company's Articles of Association, and they are not eligible forbonuses, pension benefits, share options, long-term incentive schemes or otherbenefits as the Board do not consider it to be appropriate at this time.
Directors' service contracts
It is the Board's policy that none of the Directors has a service contract. The terms of their appointment provide that a Director may be removed without notice and that compensation will not be due on leaving office.
Directors' emoluments for the year (audited)
The Directors who served during the year received the following emoluments inthe form of fees: 2009 2008 G E Stevens 18,750 18,750 K J Allen 15,000 15,000 B N Lenygon 15,000 15,000 48,750 48,750
Mr Horner has waived his fees.
Approval
This Directors' remuneration report was approved by the Board of Directors on 16 November 2009.
George StevensChairman
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).
Company law requires the Directors to prepare financial statements for each financial year which present fairly the financial position of the Company and the financial performance and cash flows of the Company for that period. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and 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 proper accounting records thatdisclose with reasonable accuracy, at any time, the financial position of theCompany and to enable them to ensure that the financial statements comply withthe Companies Act 2006. They are also responsible for safeguarding the assetsof the Company and hence for taking reasonable steps for the prevention anddetection of fraud and 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 confirm that, so far as they are each aware, there is no relevantaudit information of which the Company's Auditor is unaware; and each Directorhas taken all the steps that ought to have been taken as a Director to makehimself aware of any relevant audit information and to establish that theCompany's Auditor is aware of that information.
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 StevensChairman16 November 2009Independent Auditors' report
To the members of the Chelverton Growth Trust PLC
The Company's financial statements for the year ended 31 August 2009 have beenaudited by Hazlewoods LLP. The text of the Auditor's report can be found in theCompany's Annual Report and Accounts at www.chelvertonam.com.
Income statement
for the year ended 31 August 2009
2009 2008 Note Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Losses on investments 8 - (2,043) (2,043) - (2,641) (2,641)at fair value Income 2 65 - 65 129 - 129 Investment management 3 (8) (26) (34) (19) (56) (75)fee Refund of VAT on 3 33 99 132 - - - investment management fee Other expenses 4 (144) - (144) (139) - (139) Net return before (54) (1,970) (2,024) (29) (2,697) (2,726)finance costs and taxation Interest payable 5 (4) (12) (16) (8) (25) (33) Net return on ordinary (58) (1,982) (2,040) (37) (2,722) (2,759)activities before taxation Taxation on ordinary 6 (1) - (1) (1) - (1)activities Net return on ordinary (59) (1,982) (2,041) (38) (2,722) (2,760)activities after taxation Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Return per Ordinary 7 (0.40) (13.33) (13.73) (0.25) (17.18) (17.43)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 2009
Called Share Capital Capital Revenue Total up premium reserve redemption reserve share account reserve capital GBP'000GBP'000 GBP'000 GBP'000GBP'000 GBP'000 Year ended 31 August 2009 1 September 2008 149 2,674 (1,595) 40 3,665 4,933 Adjustment to provision for - - 3 - - 3 tender offer expenses Net return after taxation - - (1,982) - (59) (2,041)for the year 31 August 2009 149 2,674 (3,574) 40 3,606 2,895 Year ended 31 August 2008 1 September 2007 175 2,674 2,285 14 3,703 8,851 Cost of shares cancelled (26) - (1,158) 26 - (1,158) Net return after taxation - - (2,722) - (38) (2,760)for the year 31 August 2008 149 2,674 (1,595) 40 3,665 4,933
The notes below form part of these accounts.
Balance sheetas at 31 August 2009 Note 2009 2008 Revenue Revenue GBP'000 GBP'000 Fixed assets Investments at fair value 8 2,908 5,900 Current assets Debtors 10 6 29 Cash at bank 44 - 50 29 Creditors - amounts falling due within 11 63 996 one year Net current liabilities (13) (967) Net assets 2,895 4,933 Share capital and reserves Called up share capital 12 149 149 Share premium account 13 2,674 2,674 Capital reserve 13 (3,574) (1,595) Capital redemption reserve 13 40 40 Revenue reserve 13 3,606 3,665 Equity shareholders' funds 2,895 4,933
Net asset value per Ordinary share 17 19.47p 33.18p
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 16 November 2009. They were signed on its behalf by
ChairmanGeorge StevensStatement of cash flows
for the year ended 31 August 2009
Note 2009 2008 Revenue Revenue GBP'000 GBP'000 Operating activities Investment income received 79 118 Deposit interest received - 6 Investment management fees paid (37) (78) VAT refund on investment management fees 132 - Secretarial fees paid (39) (46) Other cash payments (83) (100)
Net cash inflow/(outflow) from operating 14 52 (100) activities
Returns on investments and servicing of finance Interest paid (28) (28) Investing activities Purchases of investments (71) (528) Sales of investments 1,028 493 Net cash inflow/(outflow) from investing 957 (35)activities Financing - (1,118) Share repurchase Cost of Tender Offer - (38) - (1,156) Increase/(decrease) in cash 16 981 (1,319)
The notes below form part of these accounts.
Notes to the accountsas at 31 August 20091 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:
expenses which are incidental to the acquisition or disposal of an investment are treated as capital and separately identified and disclosed (see note 8);
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.
Where investments are unlisted or trading in the securities of an investee company is suspended, the investment is valued at the Directors' estimate of its net realisable value being their estimate of fair value.
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 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 2009 2008 Revenue Revenue GBP'000 GBP'000 Income from investments Dividends from UK companies 59 120 Dividends from overseas companies 6 6 65 126 Other income Bank interest receivable - 3 Total income - 129 Total income comprises: Dividends 65 126 Interest - 3 65 129
3 INVESTMENT MANAGEMENT FEE
Analysis of charge in period 2009 2008
Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 '000 GBP'000 GBP'000 '000 Investment management fee 8 26 34 18 54 72 Irrecoverable VAT thereon - - - 1 2 3 8 26 34 19 56 75The investment management fee is calculated at the rate of 1/6% per month ofthe gross value of funds under management and is payable monthly in arrears. At31 August 2009 there was 2,000 outstanding (2008: 5,000). From 1 December2006 the Investment Manager agreed to waive half its fee.
In 2004 the Association of Investment Companies (`AIC') and JPMorgan Claverhouse (`Claverhouse') brought a case against HM Revenue & Customs to challenge the VAT charged on management fees paid by investment trusts. The case was referred to the European Court of Justice and in a ruling in June 2007 it upheld the AIC/Claverhouse claim.
Following this ruling the Company has not been charged VAT on its investmentmanagement fees from 1 November 2007. In addition on 25 August 2009 the Companyreceived a refund of VAT previously paid of 132,000. This has been allocated75% to capital and 25% to revenue.4 OTHER EXPENSES 2009 2008 Revenue Revenue GBP'000 GBP'000 Administrative and secretarial services 42 47 Directors' remuneration 49 49 Auditors' remuneration: 10 12audit services Other expenses 43 31 144 1395 INTEREST PAYABLEAnalysis of charge in period 2009 2008 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 '000 GBP'000 GBP'000 '000 On bank overdraft 4 12 16 8 25 336 TAXATIONAnalysis of charge in period 2009 2008 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000GBP'000 GBP'000 GBP'000GBP'000 Current tax: 1 - 1 1 - 1Irrecoverable withholding tax 1 - 1 1 - 1
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 (28%). The differences are explained below:
2009 2008 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000GBP'000GBP'000 GBP'000 Loss on ordinary activities (58) (1,982) (2,040) (37) (2,722) (2,759)before taxation Theoretical tax at UK (16) (555) (571) (11) (793) (804)corporation tax rate of 28% (2008: 29.17%)
UK dividend income not taxable (16) - (16) (35) - (35)
Expenses not allowable for tax 1 - 1 - - -
Non-taxable investment losses - 572 572 - 770 770
Excess expenses for the period 31 - 31 46 23 69
Utilisation of brought forward - (17) (17) - - - expenses Withholding tax suffered on 1 - 1 1 - 1 foreign income dividend Current tax charge for the 1 - 1 1 - 1 period At 31 August 2009 the Company had surplus management expenses of 2,972,000(2008: 2,919,000) 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.
7 RETURN PER ORDINARY SHARE
2009 2008 Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Basic (0.40) (13.33) (13.73) (0.25) (17.18) (17.43)
Revenue return per Ordinary share is based on the net revenue loss on ordinary activities after taxation attributable of 59,000 (2008: 38,000) and on 14,864,827 (2008: 15,836,872) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on the net capital loss of 1,982,000 (2008: net capital loss of 2,722,000) and on 14,864,827 (2008: 15,836,872) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
Total return per Ordinary share is based on the total loss of 2,041,000 (2008:total loss 2,760,000) and on 14,864,827 (2008: 15,836,872) Ordinary shares,being the weighted average number of Ordinary shares in issue during the year.8 INVESTMENTS 2009 2008 GBP'000 GBP'000 Delisted 3 105 AIM 2,412 5,294 Unquoted 493 501 2,908 5,900 AIM Delisted Unquoted Total * GBP'000 GBP'000 GBP'000 GBP'000 Investment Opening book cost 7,893 942 690 9,525
Opening fair value adjustment (2,599) (837) (189) (3,625)
5,294 105 501 5,900 Movements in the year: Purchases at cost 56 - 15 71 Sales: Proceeds (945) - (75) (1,020) Realised losses on sales (737) - (179) (916)
Transfer between categories - cost (570) 570 - -
Transfer between categories - 215 (215) - - unrealised depreciation (Increase)/decrease in unrealised (901) (457) 231 (1,127)depreciation Closing valuation 2,412 3 493 2,908 Closing book cost 5,697 1,512 451 7,660 Closing fair value adjustment (3,285) (1,509) 42 (4,752) Closing valuation 2,412 3 493 2,908 2009 2008 GBP'000 GBP'000 Realised (losses)/gains on sales (916) 211 Increase in unrealised depreciation (1,127) (2,852) Net losses on investments at fair value (2,043) (2,641)
* Unquoted investments are valued at the Directors' estimate of their net realisable value, being their estimate of fair value.
Analysis of changes in fair value of unquoted investments
Cost at Valuation at (Increase)/ Cost at Valuation at 31 August 31 August decrease in 31 August 31 August 2009 2009 unrealised 2008 2008 depreciation GBP'000 GBP'000 GBP'000
'000 GBP'000 Investment Closed Loop Recycling 252 252 - 252 252- Loanstock - Ordinary B shares 84 105 21 84 84 Locker Group - 21 (30) - 51 Parmenion Capital 115 115 - 100 100Partners LLP Wineworld London - - 165 174 9- Ordinary Shares - Preference Shares - - 75 80 5 451 493 231 690 501
Analysis of disposals of unquoted investments
Investment Disposal Cost Gain/ Valuation (loss)on at proceeds disposal 31 August 2008 GBP'000 GBP'000 GBP'000 GBP'000 Locker Group 54 - 54 51 Wineworld London Ordinary Shares 17 174 (157) 9 Preference Shares 4 80 (76) 5 75 254 (179) 65Transaction costsDuring the year, the Company incurred transaction costs of nil (2008: 2,374)and 4,388 (2008: 2,484) on purchases and sales of investments, respectively.These amounts are included in `Losses on investments at fair value' asdisclosed in the income statement.
Details of material holdings in unquoted investments
Cost Valuation Valuation Last Net Turnover Pre at at at accounts assets tax 31 August 31 August 31 August period loss 2008 2008 2008 end GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Investment Closed Loop 252 252 252 30/06/ 991 31 1,969Recycling* 2008 - Loanstock - Ordinary B shares 84 105 84 30/06/ 991 31 1,969 2008 Parmenion Capital 115 115 100 31/03/ 212 152 522Partners LLP ** 2009
* 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.
9 SIGNIFICANT INTERESTS
At 31 August 2009 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 Issued share of capital shares held issued share capital Forest Support Services, Ord 5p 2,140,000 11.440 18,706,961 CEPS, Ord 5p 625,856 7.527 8,314,310
Belgravium Technologies, Ord 5p 5,000,000 4.954 100,936,547
CEPS, Wts To Sub For Ord 20/04/10 65,706 4.570 1,437,769 Hartest Holdings, Ord 10p 340,000 3.951 8,605,288 Petards Group Ord 1p 25,000,000 3.926 636,706,423 AI Claims Solutions, Ord 10p 2,175,000 3.541 61,416,189 Minorplanet Systems, Ord 1p 1,000,000 3.080 32,471,528
10 DEBTORS - amounts falling due within one year
2009 2008 GBP'000 GBP'000 Amounts due from brokers - 8 Prepayments and other debtors 6 6 Dividends receivable - 15 6 29
11 CREDITORS - amounts falling due within one year
2009 2008 GBP'000 GBP'000 Other creditors 63 59 Bank overdraft - 937 63 996The bank overdraft was repaid in full on 28 August 2009. Further details aredisclosed in note 19 (iii).12 CALLED UP SHARE CAPITAL 2009 2008 GBP'000 GBP'000 Authorised: 270 27027,000,000 Ordinary shares of 1p each Allotted, called up and fully paid: 149 14914,864,827 (2008: 14,864,827) Ordinary shares of 1p each
No shares were held in Treasury during the year nor up to the date of this report.
Duration of CompanyAt the Annual General Meeting of the Company in 2011 the Directors shall ensurethat a special resolution is proposed to the effect that the duration of theCompany shall continue for a further three years (a "Continuance Resolution").In the event that a Continuance Resolution is passed, the Directors shallensure that a further Continuance Resolution is proposed at a general meetingof the Company to be held no later than three years after the date on which theprevious Continuance Resolution was passed.In the event that any Continuance Resolution fails to be passed at any generalmeeting of the Company, the Directors shall conduct the Company's affairs so asto arrange an orderly wind up of the Company's affairs and shall ensure that aresolution to effect a voluntary wind up of the Company shall be proposed at ageneral meeting of the Company by no later than the third anniversary of thedate on which the relevant Continuance Resolution failed to be passed.At a general meeting called pursuant to the Articles those holders of ordinaryshares who (being individuals) are present in person or by proxy or (beingcorporations) are present by proxy or by a representative duly authorised (notbeing himself a member entitled to vote) and entitled to vote and who vote infavour of the resolution proposed to wind up the Company voluntarily shall on apoll collectively have such total number of votes as is one more than thenumber of votes which are required to be cast on such poll for the saidresolution to be carried, and upon such resolution being passed then theCompany shall be wound up accordingly.13 RESERVESYear ended 31 August 2009 Share Capital Capital Revenue premium reserve redemption reserve reserve GBP'000GBP'000 GBP'000GBP'000 At 1 September 2008 2,674 (1,595) 40 3,665 Net losses on realisation - (916) - - of investments VAT refund on investment - 99 - - management fees Changes in unrealised - (1,127) - - depreciation Adjustment to provision for - 3 - - tender offer expenses Costs charged to capital - (38) - - Retained net loss for the - - - (59)year At 31 August 2009 2,674 (3,574) 40 3,606 Yearended 31 August 2008 Share Capital Capital Revenue premium reserve redemption reserve reserve GBP'000GBP'000 GBP'000GBP'000 At 1 September 2007 2,674 2,285 14 3,703 Net gains on realisation of - 365 - - investments Changes in unrealised - (3,006) - - depreciation Cost of shares cancelled* - (1,158) 26 - Costs charged to capital - (81) - - Retained net loss for the - - - (38)year At 31 August 2008 2,674 (1,595) 40 3,665
* Cost of shares cancelled include costs of 42,000 relating to the tender offer.
14 RECONCILIATION OF NET RETURN BEFORE FINANCECOSTS AND TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2009 2008 GBP'000 GBP'000
Net return before finance costs and taxation (2,024) (2,726)
Net capital return before finance costs 1,970 2,697 Expenses charged to capital (26) (56) VAT refund on investment management fees 99 - allocated to capital Increase/(decrease) in creditors and 19 (11)accruals Decrease/(increase) in prepayments and 14 (4)accrued income 52 (100)
15 RECONCILIATION OF NET CASH FLOW TO NET CASH
2009 2008 GBP'000 GBP'000 Net (debt)/cash at 1 September 2008 (937) 382 Net cash inflow/(outflow) 981 (1,319) Net cash/(debt) at 31 August 2009 44 (937)
16 ANALYSIS OF CHANGES IN NET DEBT
At Cash At 31 Flows 31 August August 2008 2009 GBP'000 GBP'000 GBP'000 Cash at bank - 44 44 Bank overdraft (937) 937 - (937) 981 44
17 NET ASSET VALUE PER ORDINARY SHARE
The basic net asset value per Ordinary share is based on net assets of 2,895,000 (2008: 4,933,000) and on 14,864,827 (2008: 14,864,827) Ordinary shares, being the number of shares in issue at the year end.
18 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31 August 2009 there were no capital commitments or contingent liabilities (2008: nil).
19 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 objectives, 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: 2009 2008 GBP'000 GBP'000 Fair value through profit or loss investments 2,908
5,900
A 20% decrease in the market value of investments at 31 August 2009 would havedecreased net assets attributable to shareholders by 582,000 (2008: 1,180,000). An increase of the same percentage would have an equal but oppositeeffect 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 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:
2009 2008 GBP'000 GBP'000 Cash at bank 44 - Bank overdraft - (937) 44 (937)
The Company's overdraft with Lloyds TSB Bank PLC was repaid in full on 28 August 2009 and the overdraft relinquished.
The effect of an interest rate increase of 1% would increase net revenue beforetaxation on an annualised basis by 440. If there was a decrease in interestrates of 0.5% net revenue before taxation would decrease by 220. Thesecalculations are based on balances as at 31 August 2009 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 under normal conditions can be sold to meet funding commitments if necessary. These may however be difficult to realise in adverse market conditions.
(vi)Maturity Analysis of Financial Liabilities
The Company's financial liabilities comprise of creditors as disclosed in note 11. 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.
(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 2009 At Loans and Assets Total amortised receivables at fair cost value through profit or loss GBP'000 GBP'000 GBP'000 GBP'000 Assets as per the Balance sheet Investments - - 2,908 2,908 Debtors - 6 - 6 Total - 6 2,908 2,914 Liabilities as per the Balance sheet Creditors 63 - - 63 63 - - 6331 August 2008 At Loans and Assets Total amortised receivables at fair cost value through profit or loss GBP'000 GBP'000 GBP'000 GBP'000 Assets as per the Balance sheet Investments - - 5,900 5,900 Debtors - 29 - 29 Total - 29 5,900 5,929 Liabilities as per the Balance sheet Creditors 59 - - 59 Bank overdraft - 937 - 937 59 937 - 996
20 RELATED 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. Mr Allen, a Director of theCompany is a director and employee of Forest Support Services PLC, in which theCompany has an investment (see note 9).
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