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 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 FTSE All-Share Index.
It is the Company's policy not to invest in any listed investment companies
(including listed investment trusts).
Company summary
Benchmark FTSE All-Share Index
Investment Manager Chelverton Asset Management Limited.
Total net assets £2,895,000 as at 31 August 2009
Market capitalisation £2,155,000 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 £2,895,000 £4,933,000 (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 statement
Unfortunately it has been a testing year; volatile prices and uncertain markets
have had a negative impact on the asset value of our shares. Once again, in
times of uncertainty and economic turmoil we see a "flight to size" rather than
a "flight to quality or value".
Chelverton's net asset value per share has decreased this year from 33.18p to
19.47p - 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% of
the 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 to
20.99p, a rise of 7.81%.
The deteriorating macro environment and the on-going effects of the banking
crisis have been the dominant influences in the performance of equity markets
over the past year. The lack of liquidity in the banking system and the belief
that companies would go into receivership as they would be unable to roll over
debt drove prices to a low point at the beginning of March. Smaller companies
were particularly badly hit as `illiquid' assets were dumped as a safety first
approach by investors prevailed. It was noticeable that directors' attitudes
shifted from growth to cash generation as even those companies with relatively
small overdrafts and long standing banking relationships were unsure as to
whether credit would continue to be extended to fund short term working capital
requirements.
This situation was unsustainable, and as we moved into March there was a
dramatic `relief' bounce in equity markets as the concerted effort by
governments globally to avert a long drawn out financial crisis began to instil
some confidence back into the system. Domestically the market was given a boost
as investors gradually realised that corporate debt could be rolled over albeit
at a significantly higher cost to shareholders than before. Smaller companies
were the major beneficiary of this upturn as they had been the most oversold on
the way down.
The recovery continued through to our year end from a net asset value per share
of 16.87p at the half year, an increase of 15.41%. The sheer scale of
quantitative easing appeared to have turned macro indicators positive and the
worst fears over the extent of the recession, or even depression, were avoided.
One reassuring feature of the busy August reporting season was the better than
forecast cash generation of `Corporate UK' which gave further momentum to share
prices. On a more cautious note, anecdotal evidence suggests that whilst
trading 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 have
to catch up with recent price moves and valuations are generally vulnerable to
earnings shortfalls. The improvement in our Company since the lows of March is
welcome and whilst our underlying valuations appear less stretched than those
of the market as a whole there still appears to be reluctance on the part of
investors 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 economic
vicissitudes and the position of the underlying investee companies in their
cycle the Board feel that it is in the best interest of all shareholders not to
proceed with the annual tender offer again this year. Fixed tender costs have
also played a significant part in this decision. The Board remains committed to
reviving 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 Stevens
Chairman
16 November 2009
Investment Manager's overview
An integral part of the strong cash generation by the corporate sector has been
the severity and speed of cost reductions that companies have made in the
downturn. The cost cutting has been deeper than expected and as companies have
swapped financial gearing for operational gearing investors have begun to
factor in the dramatic effect a small uplift in turnover will have on the
bottom line. This has sustained the upward momentum in share prices over the
past couple of months as investors have started to look forward to recovery.
Smaller companies were oversold in the downturn to the beginning of March as
investors sought liquidity at any cost. After the recent upturn there appears
to be the first signs of a move back into equities but liquidity worries are
still prevalent and we expect smaller companies to lag behind the general
market whilst confidence is rebuilt. This is essentially a timing issue as we
believe the smaller end of the market is now attractively valued on a longer
term basis.
Portfolio Review
The focus of the Company for the first part of our year was to raise money to
pay down the debt and reduce gearing. To this end we sold our holdings in Mount
Engineering, Capcon, AssetCo and Newmark Security in their entirety. We made
additional investments in Parmenion at the time of a fund raising and Alliance
Pharma, after a fundraising to make an acquisition of brands from Reckitt
Benckiser. Closed Loop Recycling, the only UK based recycler of polyethylene
terephthalate ("PET"), used in soft drinks and water bottles, commenced
production from its new facility in Dagenham. The operation has taken time to
ramp up production and to achieve the necessary approvals for food grade
plastic for the output however progress is being made.
Chromogenex de-listed their shares citing the costs of being listed as the
reason, and the shares in AT Communications were suspended due to a warranty
claim regarding the sale of a subsidiary. Unfortunately EBTM and Smallbone went
into administration.
There was an offer from two parties for our holding in Hartest, one of which
has now withdrawn. Northbridge, Minorplanet and Tristel all raised additional
funds during the period, the latter to fund the acquisition of a complementary
veterinary business. Whilst trading has of course been difficult for the
majority of our companies in the last period, the consensus view is that we are
now over the worst even if recovery is still someway off.
Outlook
After the recent rise in markets, valuations are, we believe, already factoring
in a significant improvement in corporate profitability as we move into next
year. Whilst in the short term the market has largely been discounting results
for 2009 we believe that the beginning of next year will start to see a
significant divergence between those companies that can deliver against
expectations and those that cannot. We will need to see tangible evidence of
earnings recovery and improving confidence in the banking sector before
investors return to smaller companies, but in the meantime, the continued
uncertainty over the strength of the recovery will produce a number of
attractive investment opportunities.
David Horner
Chelverton Asset Management Ltd
16 November 2009
Portfolio review
as at 31 August 2009
The Company's portfolio as at 31 August 2009 is set out below.
Investment Sector Valuation % of
£'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 2.1
Services
Consolidation vehicle for specialist industrial services in the UK
Pennant International Software & Computer Services 46 1.6
Group
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 related
services
PSG Solutions Support Services 38 1.3
Leading provider of Local Authority residential property searches; provision of
packaging 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 0.0
liquidation)
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 0.0
administration)
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 0.0
administration)
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 0.7
liquidation)
Cash Shell
Parmenion Capital Support Services 115 4.0
Partners LLP
Provides fund-based discretionary fund management services to Independent
Financial Advisors
Portfolio valuation 2,908 100.0
During the year the shareholdings in AssetCo, Axis Intermodal, Capcon, Clipper
Ventures, Mount Engineering, Newmark, SPI Lasers and Wineworld have been sold.
Top Twenty Investments
Investment 31 August 31 August
2009 2008
Valuation % of Valuation % of
£'000 total £'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 investment
trust. The Company has been granted approval from HM Revenue & Customs as an
authorised investment trust under Section 842 of the Income and Corporation
Taxes Act 1988 for the year ended 31 August 2008. The Directors are of the
opinion that the Company has conducted its affairs for the year ended 31 August
2009 so as to be able to continue to obtain approval as an authorised
investment trust. The Company is an investment company as defined in Section
833 of the Companies Act 2006.
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 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 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
Company's 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.
The Company's Investment Manager is Chelverton Asset Management Limited, an
independent investment manager focusing exclusively on achieving returns for
investors based on UK investment analysis of the highest quality. The founders
and employee owners of Chelverton include experienced investment professionals
with strong investment performance records who believe rigorous fundamental
research 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 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 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 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. Further
details regarding the Company's various Committees and their duties are given
in 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 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
A breach of Companies Act regulations and FSA/London Stock Exchange rules may
result in the Company being liable to fines or the suspension of the Company
from the London Stock Exchange. The Board with its advisers monitor the
Company's regulatory obligations both on an ongoing basis and at quarterly
Board 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 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 its 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.
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 2006
Mr Horner will offer himself for re-election in accordance with Listing Rules
15.2.11 - 13, which stipulates that a director who is also a director of the
investment manager should be subject to annual re-election.
In accordance with Combined Code, provision A.7.2, that non-executive directors
who have served on a board for more than nine years should be subject to annual
re-election, Mr Allen will retire at the Annual General Meeting and, being
eligible, 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 their
roles as Directors of the Company and that shareholders should vote in favour
of 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 accountant
and has held a number of financial management positions within varied sectors
where he has gained a thorough knowledge of smaller companies managerial
issues. His financial experience enables him to contribute significantly on
accounting and reporting matters. Mr Allen is deemed wholly independent by the
other Board members notwithstanding his length of service.
Mr Lenygon has considerable experience in the investment trust market and his
knowledge in the sector is considered by the other Directors to be extremely
beneficial to the Company, along with his professional expertise as a chartered
accountant and a barrister.
None of the Directors has a contract of service with the Company nor, save as
disclosed below, has there been any other contract or arrangement between the
Company and any Director at any time during the year. None of the Directors nor
any persons connected with them had a material interest in any of the Company's
transactions, arrangements or agreements during the year. Mr Allen is a
director and employee of Forest Support Services PLC, in which the Company has
an investment. Mr Horner is the managing director of Chelverton Asset
Management Limited, the Company's Investment Manager and is also a director of
CEPS PLC in which the Company has an investment, as well as being a Director of
the Company.
Directors' beneficial and family interests
The interests of the Directors and their families in the Ordinary shares of the
Company 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 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 26 June 2001, company secretarial services and the
general administration of the Company are undertaken by Capita Sinclair
Henderson Limited for an annual fee of £41,597. This fee is subject to annual
review based on the UK Retail Price Index. In the event that there is an
increase in the issued share capital of the Company, the fee will be adjusted
upwards by agreement between the Company and Capita Sinclair Henderson Limited.
The agreement may be terminated by either party giving to the other not less
than 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 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. The reason for this view is that the
investment performance of the Company is satisfactory having regard to the
exceptional circumstances of the past year. 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.
Payment of suppliers
The Company does not follow any code or standard on payment practice. However
it is the Company's payment policy to obtain the best possible terms for all
business and, therefore, there is no consistent policy as to the terms used.
The Company agrees with its suppliers the terms on which business will be
transacted, and it is the Company's policy to abide by those terms. At 31
August 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 powers
to issue or buy back the Company's shares require a special resolution to be
passed by shareholders. The Board's current powers to issue or buy back shares
and 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. In
addition to the ordinary business of the meeting, the Directors are putting
forward resolutions to allot shares and disapply pre-emption rights, which will
allow the Company to issue new shares or sell shares out of treasury equivalent
to 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 given
renewed authority to buy back its own shares, which may either be cancelled or
held in treasury. Any decision regarding placing into treasury, or issuing
shares 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 Board
George Stevens
Chairman
16 November 2009
Statement on corporate governance
Corporate Governance - Statement of Compliance
The Board considers that throughout the year the Company has been in compliance
with the principles of the Combined Code ("Combined Code") which can be found
at www.frc.org.uk, insofar as they are relevant to the Company's business,
except where stated. Additional procedures have been adopted to ensure the
Company's current practices are consistent with the recommendations of the
Combined Code in all material respects.
Board of Directors
Mr Stevens, Mr Allen and Mr Lenygon are deemed by the Board to be independent
of the Investment Manager. The continuing independence of Mr Allen has been
fully considered in light of his having served for more than nine years on the
Board since his first election. The Company experienced a significant change in
structure and Board composition in August 2001 to the effect that Mr Allen is
the only founding Board member, his knowledge of the Company and experience is
considered extremely valuable by the other Directors. The Board considers Mr
Stevens is independent notwithstanding that he is a significant shareholder in
the Company. Mr Stevens is experienced in business and accountancy and provides
a robust balanced view between the Investment Manager and the shareholders. Mr
Lenygon has many years of experience in investment trusts, providing specific
expertise of this sector which is of great benefit to the Board. Mr Lenygon is
considered by the Board to be independent notwithstanding that he is also a
director of another investment trust managed by CAM. Mr Horner as managing
director of CAM the Investment Manager, is not independent. Given the size and
nature of the Board, it is not considered appropriate to appoint a Senior
Independent Director. This is a breach of code provision A.3.3. The Company
does not have a chief executive officer, but by appointing a management company
the 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 of
their duties, may take independent professional advice. The Company has
Directors' and Officers' liability insurance in place to cover legal defence
costs. There are no qualifying third party indemnity provisions in place.
The Board also has direct access to the advice of the Company Secretary, which
is responsible for ensuring that Board and Committee procedures are followed
and 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 to
be independent and have no conflicting relationships. He considers himself to
have sufficient time to commit to the Company's affairs.
Directors' attendance
During the year the Directors' attendance at meetings has been recorded as
follows:
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 2
Board operation
The Directors review at each Board meeting the Company's investments and all
other important issues to ensure that control is maintained over the Company's
affairs. The Board is responsible for the investment policy and strategic and
operational decisions of the Company. A formal schedule of matters specifically
reserved for the Board's approval was adopted in November 2001. The management
of the Company's assets is delegated to CAM, which has discretion to manage the
assets of the Company in accordance with the Company's investment objectives
and 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 all
relevant management and financial information. The full Board meets regularly
and maintains contact with the Investment Manager between formal meetings.
Committees
The Company also uses a number of committees to control its operations. These
committees comprise the full Board, except the Management Engagement Committee
where Mr Horner is not a member by virtue of his association with the
Investment Manager. Each committee's delegated responsibilities are clearly
defined in written terms of reference, copies of which are available from the
Company'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 the
effectiveness of the internal control environment of the Company and monitor
adherence to best practice in corporate governance; to make recommendations to
the Board in relation to the re-appointment of the Auditors and to approve
their remuneration and terms of engagement; to review and monitor the Auditors'
independence and objectivity and the effectiveness of the audit process and
provide a forum through which the Company's Auditors report to the Board. The
Audit Committee also has responsibility for monitoring the integrity of the
financial statements and accounting policies of the Company and for reviewing
the Company's financial reporting and internal control policies and procedures.
Committee members consider that individually and collectively they are
appropriately 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 of
the Investment Manager's contract, and those of other service providers. This
Committee meets as required and Mr Stevens chairs this Committee.
The Nomination Committee considers the appointment and re-appointment of
Directors and meets as and when required. Mr Stevens chairs this committee. No
meetings were held during the year. The Committee meets for the purpose of
considering appointments to, and removals from, the Board and determining the
appointment 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 performance
evaluation of the Board, its committees and individual Directors was undertaken
following the year end by verbal consultation. It was concluded that the Board
represented an effective combination of skill and expertise and continued to
operate successfully as a small, proficient unit. The performance of each
Director 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 4.00
Relations with Shareholders
Communication with shareholders is given a high priority by both the Board and
the Investment Manager and all Directors are available to enter into dialogue
with shareholders. Major shareholders of the Company are offered the
opportunity to meet with the independent non-executive Directors of the Board
in an attempt to ensure that their views are understood. All shareholders are
encouraged to attend and vote at the Annual General Meeting, during which the
Board and the Investment Manager are available to discuss issues affecting the
Company and shareholders have the opportunity to address questions to the
Investment Manager, the Board and the Chairman of the Board's standing
committees.
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 and
its advisers to present a full and readily understandable review of the
Company's performance. Copies of the Annual Report are dispatched to
shareholders by mail and are also available for downloading from the Company's
website maintained by the Investment Manager at www.chelvertonam.com.
Going concern
After due consideration, the Directors consider that the Company has adequate
resources to continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in preparing the
accounts.
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's
Internal Control: Guidance for Directors on the Combined Code, has been
established for identifying, evaluating and managing the significant risks
faced by the Company. This process has been in place throughout the year and up
to the date the Annual Report and Accounts were approved and is regularly
reviewed by the Board. Key procedures established with a view to providing
effective financial control have been in place for the full financial year and
up 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 Board
in the context of the Company's overall investment objective. The review covers
the key business, operational, compliance and financial risks facing the
Company. In arriving at its judgement of what risks the Company faces, the
Board has considered the Company's operations in the light of the following
factors:
● The 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 associated
controls 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 functions
are subcontracted, the Directors have obtained information from key third party
suppliers regarding the controls operated. To enable the Board to make an
appropriate risk and control assessment the information and assurances sought
from 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. The
Board is responsible for setting the overall investment policy and monitors the
action 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 are
segregated. The procedures of the individual parties are designed to complement
one 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 Board
George Stevens
Chairman
16 November 2009
Directors' remuneration report
The Board has prepared this report, in accordance with Schedule 8 to The Large
and Medium - Sized Companies and Groups (Accounts and Reports) Regulations
2008. An ordinary resolution will be put to the members to approve the report
at 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 should
reflect the experience of the Board as a whole and be fair and comparable to
similar organisations and appointments.
The fees of the non-executive Directors are determined within the limits set
out in the Company's Articles of Association, and they are not eligible for
bonuses, pension benefits, share options, long-term incentive schemes or other
benefits 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 in
the 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 Stevens
Chairman
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 that
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.
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 relevant
audit information of which the Company's Auditor is unaware; and each Director
has taken all the steps that ought to have been taken as a Director to make
himself aware of any relevant audit information and to establish that the
Company'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 Board
George Stevens
Chairman
16 November 2009
Independent Auditors' report
To the members of the Chelverton Growth Trust PLC
The Company's financial statements for the year ended 31 August 2009 have been
audited by Hazlewoods LLP. The text of the Auditor's report can be found in the
Company'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
£'000 £'000 £'000 £'000 £'000 £'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
£'000 £'000 £'000 £'000 £'000 £'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 sheet
as at 31 August 2009
Note 2009 2008
Revenue Revenue
£'000 £'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
Chairman
George Stevens
Statement of cash flows
for the year ended 31 August 2009
Note 2009 2008
Revenue Revenue
£'000 £'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 accounts
as at 31 August 2009
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 8);
● Management fees and bank 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.
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 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.
2 INCOME
2009 2008
Revenue Revenue
£'000 £'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
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 8 26 34 18 54 72
Irrecoverable VAT thereon - - - 1 2 3
8 26 34 19 56 75
The investment management fee is calculated at the rate of 1/6% per month of
the gross value of funds under management and is payable monthly in arrears. At
31 August 2009 there was £2,000 outstanding (2008: £5,000). From 1 December
2006 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 investment
management fees from 1 November 2007. In addition on 25 August 2009 the Company
received a refund of VAT previously paid of £132,000. This has been allocated
75% to capital and 25% to revenue.
4 OTHER EXPENSES
2009 2008
Revenue Revenue
£'000 £'000
Administrative and secretarial services 42 47
Directors' remuneration 49 49
Auditors' remuneration: 10 12
audit services
Other expenses 43 31
144 139
5 INTEREST PAYABLE
Analysis of charge in period 2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
On bank overdraft 4 12 16 8 25 33
6 TAXATION
Analysis of charge in period 2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Current tax: 1 - 1 1 - 1
Irrecoverable
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
£'000 £'000 £'000 £'000 £'000 £'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. 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.
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
£'000 £'000
Delisted 3 105
AIM 2,412 5,294
Unquoted 493 501
2,908 5,900
AIM Delisted Unquoted Total
*
£'000 £'000 £'000 £'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
£'000 £'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
£'000 £'000 £'000 £'000 £'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 - 100 100
Partners 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
£'000 £'000 £'000 £'000
Locker Group 54 - 54 51
Wineworld London
Ordinary Shares 17 174 (157) 9
Preference Shares 4 80 (76) 5
75 254 (179) 65
Transaction costs
During 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' as
disclosed 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
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
Closed Loop 252 252 252 30/06/ 991 31 1,969
Recycling* 2008
- Loanstock
- Ordinary B shares 84 105 84 30/06/ 991 31 1,969
2008
Parmenion Capital 115 115 100 31/03/ 212 152 522
Partners 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 class
of share that is material in the context of the accounts in the following
investments:
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
£'000 £'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
£'000 £'000
Other creditors 63 59
Bank overdraft - 937
63 996
The bank overdraft was repaid in full on 28 August 2009. Further details are
disclosed in note 19 (iii).
12 CALLED UP SHARE CAPITAL
2009 2008
£'000 £'000
Authorised: 270 270
27,000,000 Ordinary shares of 1p each
Allotted, called up and fully paid: 149 149
14,864,827 (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 Company
At the Annual General Meeting of the Company in 2011 the Directors shall ensure
that a special resolution is proposed to the effect that the duration of the
Company shall continue for a further three years (a "Continuance Resolution").
In the event that a Continuance Resolution is passed, the Directors shall
ensure that a further Continuance Resolution is proposed at a general meeting
of the Company to be held no later than three years after the date on which the
previous Continuance Resolution was passed.
In the event that any Continuance Resolution fails to be passed at any general
meeting of the Company, the Directors shall conduct the Company's affairs so as
to arrange an orderly wind up of the Company's affairs and shall ensure that a
resolution to effect a voluntary wind up of the Company shall be proposed at a
general meeting of the Company by no later than the third anniversary of the
date on which the relevant Continuance Resolution failed to be passed.
At a general meeting called pursuant to the Articles those holders of ordinary
shares who (being individuals) are present in person or by proxy or (being
corporations) are present by proxy or by a representative duly authorised (not
being himself a member entitled to vote) and entitled to vote and who vote in
favour of the resolution proposed to wind up the Company voluntarily shall on a
poll collectively have such total number of votes as is one more than the
number of votes which are required to be cast on such poll for the said
resolution to be carried, and upon such resolution being passed then the
Company shall be wound up accordingly.
13 RESERVES
Year ended 31 August 2009 Share Capital Capital Revenue
premium reserve redemption reserve
reserve
£'000 £'000 £'000 £'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
£'000 £'000 £'000 £'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
£'000 £'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
£'000 £'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
£'000 £'000 £'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, 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 objectives, 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:
2009 2008
£'000 £'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 have
decreased net assets attributable to shareholders by £582,000 (2008: £
1,180,000). 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:
2009 2008
£'000 £'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 before
taxation on an annualised basis by £440. If there was a decrease in interest
rates of 0.5% net revenue before taxation would decrease by £220. These
calculations are based on balances as at 31 August 2009 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
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 per
share at a higher rate rather other quoted smaller company trusts and the FTSE
All-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
£'000 £'000 £'000 £'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 - - 63
31 August 2008
At Loans and Assets Total
amortised receivables at fair
cost value
through
profit
or loss
£'000 £'000 £'000 £'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 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 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 has an investment. Mr Allen, a Director of the
Company is a director and employee of Forest Support Services PLC, in which the
Company has an investment (see note 9).
END
